UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549

 

FORM 10-K10-K/A
(Amendment No. 1)

(Mark

   (Mark One)

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

 

For the fiscal year ended December 31, 2015

 

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 No. 1-31507

 

WASTE CONNECTIONS, INC.

 

(Exact name of registrant as specified in its charter)

 

Delaware94-3283464
(State or other jurisdiction(I.R.S. Employer Identification No.)
of incorporation or organization) 
  
3 Waterway Square Place, Suite 110 
The Woodlands, Texas77380
(Address of principal executive offices)(Zip Code)

 

(832) 442-2200


(Registrant'sRegistrant’s telephone number, including area code)

 

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

 

Common Stock, par value $0.01 per share
(Title of each class)
New York Stock Exchange
(Name of each exchange on which registered)

 

Securities registered pursuant to Section 12(g) of the Act:  None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

Yesþ           No¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

 

Yes¨           Noþ

 

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.

 

Yesþ           No¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yesþ           No¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant'sregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨þ

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

þ Large accelerated filer¨ Accelerated filer¨ Non-accelerated filer¨ Smaller reporting company

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes¨           Noþ

 

As of June 30, 2015, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant, based on the closing sales price for the registrant’s common stock, as reported on the New York Stock Exchange, was $5,778,923,129.

 

Number of shares of common stock outstanding as of January 29,April 14, 2016:  122,395,994122,717,727

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant's definitive Proxy Statement for the 2016 Annual Meeting of Stockholders (which will be filed with the SEC pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, or the Exchange Act, within 120 days after the end of our 2015 fiscal year) are incorporated by reference into Part III hereof.None.

 

 

 

 

WASTE CONNECTIONS, INC.


ANNUAL REPORT ON FORM 10-K10-K/A
For the Fiscal Year Ended December 31, 2015
Table of Contents

 

TABLE OF CONTENTS

Item No.   Page
PART I    
1. BUSINESS 1
1A. RISK FACTORS 20
1B. UNRESOLVED STAFF COMMENTS 31
2. PROPERTIES 31
3. LEGAL PROCEEDINGS 31
4. MINE SAFETY DISCLOSURE 31
     
PART II    
5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 32
6. SELECTED FINANCIAL DATA 34
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 36
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 64
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 66
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 112
9A. CONTROLS AND PROCEDURES 112
9B. OTHER INFORMATION 112
     
PART III    
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 113
11. EXECUTIVE COMPENSATION 113
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 113
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 113
14. PRINCIPAL ACCOUNTING FEES AND SERVICES 113
     
PART IV    
15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 114
     
SIGNATURES 115
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS 116
EXHIBIT INDEX 117

 iPAGE
 
EXPLANATORY NOTE1
PART III1
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.1
ITEM 11.EXECUTIVE COMPENSATION.7
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.42
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.45
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.49
PART IV50
ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES.50
SIGNATURES51

 

 

PART IEXPLANATORY NOTE

 

ITEM 1. BUSINESS

Our Company

Waste Connections, Inc. is an integrated municipal solid waste, or MSW, services company that provides solid waste collection, transfer, disposal and recycling services primarily in exclusive and secondary markets in the U.S. and a leading provider of non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in several of the most active natural resource producing areas of the U.S. We also provide intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities.

As of December 31, 2015, we served residential, commercial, industrial and E&P customers in 32 states:  Alabama, Alaska, Arizona, Arkansas, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming.  As of December 31, 2015, we owned or operated a network of 155solid waste collection operations; 69transfer stations; seven intermodal facilities, 37recycling operations, 62active MSW, E&P and/or non-MSW landfills, 24 E&P liquid waste injection wells and 20 E&P waste treatment and oil recovery facilities. Non-MSW landfills accept construction and demolition, industrial and other non-putrescible waste.

Our senior management team has extensive experience in operating, acquiring and integrating non-hazardous waste services businesses, and we intend to continue to focusThis Amendment No. 1 on Form 10-K/A (this “Amendment”) amends our efforts on balancing internal and acquisition-based growth.  As described below, we recently entered into an agreement providing for a business combination with Progressive Waste Solutions Ltd. We anticipate that a part of our future growth will come from acquiring additional MSW and E&P waste businesses and, therefore, we expect that additional acquisitions beyond the transaction currently pending could continue to affect period-to-period comparisons of our operating results.

Waste Connections, Inc. is a Delaware corporation organized in 1997.

On January 18, 2016, Waste Connections entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Progressive Waste Solutions Ltd., a corporation organized under the laws of Ontario (“Progressive Waste”) and Water Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Progressive Waste (“Merger Sub”). Subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into Waste Connections (the “Merger”), with Waste Connections surviving the Merger as a wholly-owned subsidiary of Progressive Waste.

The transaction is expected to close in the second quarter of 2016. Upon closing, the combined company will use the Waste Connections name and it is anticipated that its shares will trade on the New York Stock Exchange and the Toronto Stock Exchange. Upon completion of the transaction, the combined company will be led by Waste Connections’ current management team. The Board of Directors for the combined company will include the five current members of Waste Connections’ Board and two members from Progressive Waste’s current Board.

Under the terms of the Merger Agreement, Waste Connections’ stockholders will receive 2.076843 Progressive Waste shares for each Waste Connections share they own. Subject to the approval of Progressive Waste’s shareholders, Progressive Waste expects to implement, immediately following the Merger, a share consolidation whereby every 2.076843 shares will be consolidated into one Progressive Waste share on the basis of 0.4815 (1 divided by the 2.076843 ratio above) of a share on a post-consolidation basis for each one share outstanding on a pre-consolidation basis. If the share consolidation is approved by Progressive Waste’s shareholders and effected, Waste Connections’ stockholders will receive one share of the combined company for each existing Waste Connections share. Upon the completion of the transaction and regardless of whether or not the share consolidation occurs, Waste Connections’ stockholders will own approximately 70% of the combined company, and Progressive Waste shareholders will own approximately 30%.

The transaction is subject to customary closing conditions, including the approval of both companies’ shareholders, U.S. antitrust approval and the approval of the Toronto Stock Exchange.

The remainder of this Annual Report on Form 10-K for the fiscal year ended December 31, 2015, originally filed with the Securities and Exchange Commission (“SEC”) on February 9, 2016 (the “Original 10-K”). We are filing this Amendment to amend Part III of the Original 10-K to include the information required by and not included in Part III of the Original 10-K because we no longer intend to file a definitive proxy statement for our annual meeting of stockholders within 120 days of the end of our fiscal year ended December 31, 2015. Part IV is being amended solely to add as exhibits certain new certifications in accordance with Rule 13a-14(a) promulgated by the SEC under the Securities Exchange Act of 1934. Because no financial statements have been included in this Amendment and this Amendment does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4 and 5 of the certifications have been omitted.

Except as described above, no other changes have been made to the Original 10-K. The Original 10-K continues to speak as of the date of the Original 10-K, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Original 10-K other than as expressly indicated in this Amendment. Accordingly, this Amendment should be read in conjunction with the discussionOriginal 10-K and our other filings made with the SEC on or subsequent to February 9, 2016.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Executive Officers

For information relating to our executive officers, please see “Executive Officers of certain risks related to the MergerRegistrant” in Part I of the section entitled “Risk Factors” on page 20Original 10-K.

Directors

The information provided below is biographical information about each of this Annual Report, excludes any impact that results or may result from the Merger.our directors, including other public company board memberships. Age and other information in each director’s biography are as of April 28, 2016.

Name, Background and Qualifications   Age Director
Since
       

Ronald J. Mittelstaedt has served as Chief Executive Officer and a Director of Waste Connections since the company was formed in September 1997, and was elected Chairman in January 1998. Mr. Mittelstaedt was also President of the company from Waste Connections’ formation through August 2004. Mr. Mittelstaedt has been a Director of SkyWest, Inc., the holding company for two scheduled passenger airline operations and an aircraft leasing company, since October 2013, where he also is a member of its Compensation Committee. From October 2014 to December 2015, Mr. Mittelstaedt was a Director of Mattress Firm Holding Corp., the holding company for subsidiaries engaged in specialty retailing of mattresses and related products and accessories in the United States. He has more than 27 years of experience in the solid waste industry. He holds a B.A. degree in Business Economics with a finance emphasis from the University of California at Santa Barbara.

 

We believe that Mr. Mittelstaedt’s qualifications to serve on our Board of Directors include his extensive experience in the solid waste industry, including as our founder, our Chief Executive Officer and a director since the company was formed in 1997 and our Chairman since 1998.

 . . . 52 1997

 

 1 

 

 

Our Operating Strategy

Our operating strategy seeks to improve financial returns and deliver superior stockholder value creation within the solid waste industry.  We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. We also target niche markets, like E&P waste treatment and disposal services, with similar characteristics and, we believe, higher comparative growth potential. We are a leading provider of waste services in most of our markets, and the key components of our operating strategy, which are tailored to the competitive and regulatory factors that affect our markets, are as follows:

Target Secondary and Rural Markets.By targeting secondary and rural markets, we believe that we are able to garner a higher local market share than would be attainable in more competitive urban markets, which we believe reduces our exposure to customer churn and improves financial returns. In certain niche markets, like E&P waste treatment and disposal, early mover advantage in certain rural basins may improve market positioning and financial returns given the limited availability of existing third-party-owned waste disposal alternatives.

Control the Waste Stream.  In markets where waste collection services are provided under exclusive arrangements, or where waste disposal is municipally owned or funded or available at multiple sources, we believe that controlling the waste stream by providing collection services under exclusive arrangements is often more important to our growth and profitability than owning or operating landfills.  In addition, in certain E&P markets with “no pit” rules or other regulations that limit on-site storage or treatment of waste, control of the waste stream allows us to generate additional service revenue from the transportation of waste, as well as the waste treatment and disposal, thus increasing the overall scope and value of the services provided.

Optimize Asset Positioning.  We believe that the location of disposal sites within competitive markets is a critical factor to success in both MSW and E&P waste services.  Given the importance of and costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity proximate to the waste stream may provide a competitive advantage and serve as a barrier to entry.

Provide Vertically Integrated Services.  In markets where we believe that owning landfills is a strategic advantage to a collection operation because of competitive and regulatory factors, we generally focus on providing integrated services, from collection through disposal of solid waste in landfills that we own or operate. Similarly, we see this strategic advantage in E&P waste services where we offer closed loop systems for liquid and solid waste storage, transportation, treatment, and disposal.

Manage on a Decentralized Basis.  We manage our operations on a decentralized basis.  This places decision-making authority close to the customer, enabling us to identify and address customers’ needs quickly in a cost-effective manner.  We believe that decentralization provides a low-overhead, highly efficient operational structure that allows us to expand into geographically contiguous markets and operate in relatively small communities that larger competitors may not find attractive.  We believe that this structure gives us a strategic competitive advantage, given the relatively rural nature of many of the markets in which we operate, and makes us an attractive buyer to many potential acquisition candidates.

As of December 31, 2015, we delivered our services from over 225operating locations grouped into four operating segments: our Western segment is comprised of operating locations in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; our Central segment is comprised of operating locations in Arizona, Colorado, Kansas, Louisiana, Minnesota, Nebraska, New Mexico, Oklahoma, South Dakota, Texas, Utah and eastern Wyoming; our Eastern segment is comprised of operating locations in Alabama, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, New York, North Carolina, South Carolina and Tennessee; and, our E&P segment includes the majority of our E&P waste service operations in Arkansas, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.  Some E&P revenues are also included in other operating segments, where we accept E&P waste at some of our MSW landfills. In addition, a small amount of solid waste revenue is included in our E&P segment.

We manage and evaluate our business on the basis of the operating segments’ geographic characteristics, interstate waste flow, revenue base, employee base, regulatory structure, and acquisition opportunities.  Each operating segment has a regional vice president and a regional controller reporting directly to our corporate management.  These regional officers are responsible for operations and accounting in their operating segments and supervise their regional staff.  See Note 14 to the consolidated financial statements included in Item 8 of this Annual Report for further information on our segment reporting of our operations.

Each operating location has a district or site manager who has a high degree of decision-making authority for his or her operations and is responsible for maintaining service quality, promoting safety, implementing marketing programs and overseeing day-to-day operations, including contract administration.  Local managers also help identify acquisition candidates and are responsible for integrating acquired businesses into our operations and obtaining the permits and other governmental approvals required for us to operate.

Name, Background and Qualifications   Age Director
Since
       

Robert H. Davis has served as the Managing Partner/President of Rubber Recovery Inc., a private, California-based scrap tire processing and recycling company, since July 2006. Mr. Davis is the conceptual founder and a member of the external advisory board of the Global Waste Research Institute at California Polytechnic State University (“Cal Poly”). He served as President of Waste Systems International, Inc., a turnkey solid waste management systems provider of environmentally acceptable solutions to developing countries outside the U.S., from November 2007 to 2009. From 2007 to 2010, he was a member of the board of effENERGY LLC, an alternative energy company. Prior to acquiring his ownership interest in Rubber Recovery Inc., Mr. Davis was President, Chief Executive Officer and a Director of GreenMan Technologies, Inc., a publicly traded tire shredding and recycling company, from 1997 to 2006. Prior to joining GreenMan, Mr. Davis served as Vice President of Recycling for Browning-Ferris Industries, Inc., from 1990 to 1997. With more than 40 years of experience in the solid waste and recycling industry, Mr. Davis has also held executive positions with Fibres International, Garden State Paper Company and SCS Engineers, Inc. Mr. Davis holds a B.S. degree in Mathematics from Cal Poly, has done graduate work at George Washington University in Solid Waste Management, and has engaged in continuing education at Stanford University Law School in Corporate Governance. In 2009, Mr. Davis was honored as Alumni of the Year for the College of Science/Mathematics at Cal Poly. Since 2008, Mr. Davis has served on the Dean’s Executive Advisory Committee for the College of Engineering, and since 2010, he has served on the Dean’s Executive Advisory Committee for the College of Science and Mathematics.

 

We believe that Mr. Davis’ qualifications to serve on our Board of Directors include his past experience on our Board of Directors, his substantial experience in the solid waste and recycling industries, his considerable involvement in sustainability initiatives, his general experience with environmental matters, his government relations experience and his prior experience as a director of another publicly traded company.

 . . . 73 2001
       

Edward E. “Ned” Guillet has been an independent human resources consultant since January 2007. From October 2005 until December 2006, he was Senior Vice President, Human Resources for the Gillette Global Business Unit of The Procter & Gamble Company, a position he held subsequent to the merger of Gillette with Procter & Gamble. From July 2001 until September 2005, Mr. Guillet was Senior Vice President and Chief Human Resources Officer and an executive officer of The Gillette Company, a global consumer products company. He joined Gillette in 1974 and held a broad range of leadership positions in its human resources department. Mr. Guillet has been a Director of CCL Industries Inc., a manufacturer of specialty packaging and labeling solutions for the consumer products and healthcare industries, since 2008, where he also serves as the Chairman of the Board of Directors’ Human Resources Committee and a member of its Nominating and Governance Committee. Mr. Guillet is a former member of Boston University’s Human Resources Policy Institute. He holds a B.A. degree in English Literature and Secondary Education from Boston College.

 

We believe that Mr. Guillet’s qualifications to serve on our Board of Directors include his past experience on our Board of Directors, his substantial experience with human resources and personnel development matters, the positions he has held with other publicly traded companies and his experience as a director of another publicly traded company.

 . . . 64 2007

 

 2 

 

 

Implement Operating Standards.  We develop company-wide operating standards, which are tailored for each of our markets based on industry norms and local conditions.  We implement cost controls and employee training and safety procedures and establish a sales and marketing plan for each market.  By internalizing the waste stream of acquired operations, we can further increase operating efficiencies and improve capital utilization.  We use a wide-area information system network, implement financial controls and consolidate certain accounting, personnel and customer service functions.  While regional and district management operate with a high degree of autonomy, our executive officers monitor regional and district operations and require adherence to our accounting, purchasing, safety, marketing and internal control policies, particularly with respect to financial matters.  Our executive officers regularly review the performance of regional officers, district managers and operations.  We believe we can improve the profitability of existing and newly acquired operations by establishing operating standards, closely monitoring performance and streamlining certain administrative functions.

Our Growth Strategy

We tailor the components of our growth strategy to the markets in which we operate and into which we hope to expand.

Obtain Additional Exclusive Arrangements.  Our operations include market areas where we have exclusive arrangements, including franchise agreements, municipal contracts and governmental certificates, under which we are the exclusive service provider for a specified market.  These exclusive rights and contractual arrangements create a barrier to entry that is usually obtained through the acquisition of a company with such exclusive rights or contractual arrangements or by winning a competitive bid.

We devote significant resources to securing additional franchise agreements and municipal contracts through competitive bidding and by acquiring other companies.  In bidding for franchises and municipal contracts and evaluating acquisition candidates holding governmental certificates, our management team draws on its experience in the waste industry and knowledge of local service areas in existing and target markets.  Our district management and sales and marketing personnel maintain relationships with local governmental officials within their service areas, maintain, renew and renegotiate existing franchise agreements and municipal contracts, and secure additional agreements and contracts while targeting acceptable financial returns.  Our sales and marketing personnel also expand our presence into areas adjacent to or contiguous with our existing markets, and market additional services to existing customers.  We believe our ability to offer comprehensive rail haul disposal services in the Pacific Northwest improves our competitive position in bidding for such contracts in that region.

Generate Internal Growth.To generate internal revenue growth, our district management and sales and marketing personnel focus on increasing market penetration in our current and adjacent markets, soliciting new customers in markets where such customers have the option to choose a particular waste collection service and marketing upgraded or additional services (such as compaction or automated collection) to existing customers.  We also seek price increases necessary to offset increased costs, to improve operating margins and to obtain adequate returns on our deployed capital.  Where possible, we intend to leverage our franchise-based platforms to expand our customer base beyond our exclusive market territories.  As customers are added in existing markets, our revenue per routed truck increases, which generally increases our collection efficiencies and profitability.  In markets in which we have exclusive contracts, franchises and governmental certificates, we expect internal volume growth generally to track population and business growth.

In niche disposal markets, like E&P, our focus is on increasing market penetration, and providing additional service offerings in existing markets where appropriate. In addition, we focus on developing and permitting new treatment and disposal sites in new and existing E&P markets to position ourselves to capitalize on current and future drilling activity in those areas.

Expand Through Acquisitions.  We intend to expand the scope of our operations by continuing to acquire MSW and E&P waste facilities and companies in new markets and in existing or adjacent markets that are combined with or “tucked in” to our existing operations.  We focus our acquisition efforts on markets that we believe provide significant growth opportunities for a well-capitalized market entrant and where we can create economic and operational barriers to entry by new competitors.  This focus typically highlights markets in which we can:  (1) provide waste collection services under exclusive arrangements such as franchise agreements, municipal contracts and governmental certificates; (2) gain a leading market position and provide vertically integrated collection and disposal services; or (3) gain a leading market position in a niche market through the provision of treatment and disposal services.  We believe that our experienced management, decentralized operating strategy, financial strength, size and public company status make us an attractive buyer to certain waste collection and disposal acquisition candidates.  We have developed an acquisition discipline based on a set of financial, market and management criteria to evaluate opportunities.  Once an acquisition is closed, we seek to integrate it while minimizing disruption to our ongoing operations and those of the acquired business.

Name, Background and Qualifications   Age Director
Since
       

Michael W. Harlanis currently Chairman of the Board of Directors and Chief Executive Officer of Principle Energy Services, a private-equity backed oilfield service company operating throughout several major oil and gas shale basins across the United States. Principle Energy Service provides engineered noise mitigation solutions for oil and gas drilling, completions and production and currently operates in five states while serving a wide range of customers from small, independent exploration companies to the major oil and gas companies. Mr. Harlan also serves as President of Harlan Capital Advisors, LLC, a private consulting firm focused on advising companies on operational matters, strategic planning, mergers and acquisitions, debt and equity investments, and capital raising initiatives. Prior to forming Harlan Capital Advisors, Mr. Harlan served as President and Chief Executive Officer of U.S. Concrete, Inc. (NASDAQ: USCR), a publicly traded producer of concrete, aggregates and related concrete products to all segments of the construction industry, from May 2007 until August 2011. From April 2003 until May 2007, Mr. Harlan served as Executive Vice President and Chief Operating Officer of U.S. Concrete, Inc. He also served as Chief Financial Officer of U.S. Concrete from May 1999 until November 2004 after founding U.S. Concrete in August 1998. Mr. Harlan also served as a Director of U.S. Concrete from June 2006 until August 2011. U.S. Concrete, Inc. operated under the provisions of Chapter 11 of the United States Bankruptcy Code from April 29, 2010 until confirmation of its plan of reorganization on August 31, 2010. In August 2013, Mr. Harlan joined the Board of Directors of Travis Acquisition, LLC, the parent of Travis Body & Trailer, Inc., a manufacturer of specialized trailers used in the construction, environmental services, agriculture and energy industries in the United States. In June 2015, Mr. Harlan joined the Board of Directors of Yulong Eco-Materials Limited (NASDAQ: YECO), a publicly-held manufacturer of eco-friendly building products in China, where he serves as the Chairman of the Compensation Committee and a member of the Audit Committee. Prior to founding U.S. Concrete, Mr. Harlan held several senior financial positions with public companies, including chief financial officer, treasurer and controller. Mr. Harlan began his career with an international public accounting firm. Mr. Harlan previously served on the Board of Trustees for the RMC Research and Education Foundation, where he is a past Chairman of the Board, the Board of Directors of the National Steering Committee for the Concrete Industry Management Education Program, and the Board of Directors and Executive Committee of the National Ready Mixed Concrete Association. Mr. Harlan also serves on the University of Houston Honors College Advisory Board. Mr. Harlan is a Certified Public Accountant and graduated magna cum laude from the University of Mississippi with a Bachelor of Accounting degree.

 

We believe that Mr. Harlan’s qualifications to serve on our Board of Directors include his past experience on our Board of Directors, his substantial experience in the solid waste industry, his significant experience in accounting and financial matters, including his extensive experience as a certified public accountant, his substantial experience with growth-oriented companies, and his prior experience as a director other publicly traded companies.

 . . . 55 1998

 

 3 

 

 

Name, Background and Qualifications   Age Director
Since
       

William J. Razzouk has served as Chairman and a Director of Newgistics, Inc., a provider of intelligent order delivery and returns management solutions for direct retailers and technology companies, since March 2005. From March 2005 to December 2015, Mr. Razzouk also served as the President and Chief Executive Officer of Newgistics, Inc. From August 2000 to December 2002, he was a Managing Director of Paradigm Capital Partners, LLC, a venture capital firm in Memphis, Tennessee focused on meeting the capital and advisory needs of emerging growth companies. From September 1998 to August 2000, he was Chairman of PlanetRx.com, an e-commerce company focused on healthcare and sales of prescription and over-the-counter medicines, health and beauty products and medical supplies. He was also Chief Executive Officer of PlanetRx.com from September 1998 until April 2000. From April 1998 until September 1998, Mr. Razzouk owned a management consulting business and an investment company that focused on identifying strategic acquisitions. From September 1997 until April 1998, he was the President, Chief Operating Officer and a Director of Storage USA, Inc., a then publicly traded (now private) real estate investment trust that owned and operated more than 350 mini storage warehouses. He served as the President and Chief Operating Officer of America Online from February 1996 to June 1996. From 1983 to 1996, Mr. Razzouk held various management positions at Federal Express Corporation, most recently as Executive Vice President, Worldwide Customer Operations, with full worldwide P&L responsibility. Mr. Razzouk previously held management positions at ROLM Corporation, Philips Electronics and Xerox Corporation. He previously was a Director of Fritz Companies, Inc., Sanifill, Inc., Cordis Corp., Storage USA, PlanetRx.com, America Online and La Quinta Motor Inns. Mr. Razzouk holds a Bachelor of Journalism degree from the University of Georgia.

 

We believe that Mr. Razzouk’s qualifications to serve on our Board of Directors include his past experience on our Board of Directors, his significant experience in corporate financial matters, his experience in the solid waste industry, his substantial experience with growth-oriented companies, and his prior experience as a director of other publicly traded companies.

 . . . 68 1998

In new markets, we often use an initial acquisition as an operating base and seek to strengthen the acquired operation's presence in that market by providing additional services, adding new customers and making “tuck-in” acquisitions of other waste companies in that market or adjacent markets.  We believe that many suitable “tuck-in” acquisition opportunities exist within our current and targeted market areas that may provide us with opportunities to increase our market share and route density.

The U.S. solid waste services industry has experienced significant consolidation over the past decade, most notably with the merger between Republic Services, Inc. and Allied Waste Industries, Inc. in 2008, the merger between IESI-BFC Ltd. and Waste Services, Inc. in 2010, the sale of the U.S. solid waste business of Veolia Environnement S.A. to Advanced Disposal Services, Inc. in 2012, and our announcement of our entry into the Merger Agreement with Progressive Waste on January 18, 2016. In spite of this consolidation, the solid waste services industry remains regional in nature, with acquisition opportunities available in select markets.  The E&P waste services industry is similarly regional in nature and is also highly fragmented, with acquisition opportunities available in several active natural resource basins. In some markets in both MSW and E&P waste, independent landfill, collection or service providers lack the capital resources, management skills and/or technical expertise necessary to comply with stringent environmental and other governmental regulations and to compete with larger, more efficient, integrated operators.  In addition, many of the remaining independent operators may wish to sell their businesses to achieve liquidity in their personal finances or as part of their estate planning.

During the year ended December 31, 2015, we completed 14 acquisitions, none of which individually accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the 14 acquisitions completed during the year ended December 31, 2015 was approximately $348.7 million. During the year ended December 31, 2014, we completed nine acquisitions, none of which individually accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the nine acquisitions completed during the year ended December 31, 2014 was approximately $168.7 million. During the year ended December 31, 2013, we completed eight acquisitions, none of which individually accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the eight acquisitions completed during the year ended December 31, 2013 was approximately $64.2 million.

WASTE SERVICES

Collection Services

We provide collection services to residential, commercial, industrial and E&P customers.  Our services are generally provided under one of the following arrangements:  (1) governmental certificates; (2) exclusive franchise agreements; (3) exclusive municipal contracts; (4) residential subscriptions; (5) residential contracts; or (6) commercial, industrial and E&P service agreements.

Governmental certificates, exclusive franchise agreements and exclusive municipal contracts grant us rights to provide MSW services within specified areas at established rates and are long-term in nature.  Governmental certificates, or G Certificates, are unique to the State of Washington and are awarded by the Washington Utilities and Transportation Commission, or WUTC, to solid waste collection service providers in unincorporated areas and electing municipalities.  These certificates typically grant the holder the exclusive and perpetual right to provide specific residential, commercial and/or industrial waste services in a defined territory at specified rates subject to divestiture and/or overlap or cancellation by the WUTC on specified, limited grounds.  Franchise agreements typically provide an exclusive period of seven years or longer for a specified territory; they specify a broad range of services to be provided, establish rates for the services and often give the service provider a right of first refusal to extend the term of the agreement.  Municipal contracts typically provide a shorter service period and a more limited scope of services than franchise agreements and generally require competitive bidding at the end of the contract term.  In markets where exclusive arrangements are not available, we may enter into residential contracts with homeowners’ associations, apartment owners and mobile home park operators, or work on a subscription basis with individual households.  In such markets, we may also provide commercial and industrial services under customer service agreements generally ranging from one to five years in duration.  Finally, in certain E&P markets with “no pit” rules or other regulations that limit on-site storage or treatment of waste, we offer containers and collection services to provide a closed loop system for the collection of drilling wastes at customers’ well sites and subsequent transportation of the waste to our facilities for treatment and disposal.

Landfill Disposal Services

As of December 31, 2015, we owned or operated 44 MSW landfills, nine E&P waste landfills, which only accept E&P waste and nine non-MSW landfills, which only accept construction and demolition, industrial and other non-putrescible waste. Eleven of our MSW landfills also received E&P waste during 2015. We generally own landfills to achieve vertical integration in markets where the economic and regulatory environments make landfill ownership attractive.  We also own landfills in certain markets where it is not necessary to provide collection services because we believe that we are able to attract volume to our landfills, given our location or other market dynamics. Over time, MSW landfills generate a greenhouse gas, methane, which can be converted into a valuable source of clean energy. We deploy gas recovery systems at 33 of our landfills to collect methane, which can then be used to generate electricity for local households, fuel local industrial power plants, power alternative fueled vehicles, or qualify for carbon emission credits.

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Our developedDirector Nomination Process

Our Board of Directors believes that directors must have the highest personal and operational landfill facilities consistedprofessional ethics, integrity and values. They must be committed to representing the long-term interests of our stockholders. They must have an objective perspective, practical wisdom, mature judgment and expertise, skills and knowledge useful to the oversight of our business. Our goal is a Board that represents diverse experiences at policy-making levels in business and other areas relevant to our activities, while encouraging a diversity of backgrounds, including with respect to gender, among our Board members. Directors should be committed to serving on the Board for an extended period of time.

In addition to the foregoing qualities, the Nominating and Corporate Governance Committee will take a number of other factors into account in considering candidates as nominees for the Board of Directors, including the following: (i) whether the candidate is independent within the meaning of our Corporate Governance Guidelines; (ii) relevant business, academic or other experience; (iii) willingness and ability to attend and participate actively in Board and Committee meetings and otherwise to devote the time necessary to serve, taking into consideration the number of other boards on which the candidate serves and the candidate’s other business and professional commitments; (iv) potential conflicts of interest; (v) whether the candidate is a party to any adverse legal proceeding; (vi) the candidate’s reputation; (vii) specific expertise and qualifications relevant to any Committee that the candidate is being considered for, such as whether a candidate for the Audit Committee meets the applicable financial literacy or audit committee financial expert criteria; (viii) willingness and ability to meet our director’s equity ownership guidelines; (ix) willingness to adhere to our Code of Conduct and Ethics; (x) ability to interact positively and constructively with other directors and management; (xi) willingness to participate in a one-day new director orientation session; (xii) willingness to attend educational forums or workshops to enhance understanding of new and evolving governance requirements; and (xiii) the size and composition of the following at December 31, 2015: current Board.

 

Owned and operated landfills52
Operated landfills under life-of-site agreements5
Operated landfills under limited-term operating agreements5
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Under landfill operating agreements,When seeking director candidates, the ownerNominating and Corporate Governance Committee may solicit suggestions from incumbent directors, management, third party advisors, business and personal contacts, and stockholders. The Nominating and Corporate Governance Committee may also engage the services of a search firm. After conducting an initial evaluation, the Nominating and Corporate Governance Committee will make arrangements for candidates it considers suitable to be interviewed by one or more members of the property, generallycommittee. Each candidate will be required to complete a municipality, usually owns the permitstandard directors’ and we operate the landfill for a contracted term, which may be the lifeofficers’ questionnaire, completed by all of the landfill.  Wheredirectors annually. The Nominating and Corporate Governance Committee may also ask the contracted term is notcandidate to meet with members of our management. If the lifeNominating and Corporate Governance Committee believes that the candidate would be a valuable addition to the Board of Directors, it will recommend the landfill,candidate for nomination to the property owner is generally responsible for final capping, closure and post-closure obligations.  We are responsible for all final capping, closure and post-closure obligations at our operated landfills for which we have life-of-site agreements.Board.

 

The expiration datesNominating and Corporate Governance Committee will apply the criteria described above when considering candidates recommended by stockholders as nominees for the Board of twoDirectors. In addition, any of our operating agreementsstockholders may nominate one or more persons for whichelection as a director of the contracted term iscompany at an Annual Meeting of Stockholders if the stockholder complies with the notice, information and consent provisions contained in our Fourth Amended and Restated Bylaws. Pursuant to our Bylaws, to be considered for inclusion in our proxy materials, notice of a stockholder’s nomination of a person for election to the Board of Directors must be received by the Secretary of Waste Connections in writing at the address listed on the first page of the proxy statement for our Annual Meeting of Stockholders not less than 90 days nor more than 120 days prior to the lifeone-year anniversary of the landfill occur in 2017. These two landfills contributed $1.4 million of revenue duringpreceding year’s annual meeting; provided, however, that if the year ended December 31, 2015. The expiration datesdate of the remaining three operating agreements for whichannual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the contracted term is lessstockholder to be timely must be received not later than the life90th day prior to such annual meeting or, if later, the 10th day following the day on which public disclosure of the landfill range from 2018date of such annual meeting was first made. The notice must contain and be accompanied by certain information as specified in our Bylaws, including information about the stockholder providing the notice, the proposed nominees and other information as we may reasonably require. Stockholders making nominations must provide, among other things, information regarding each such stockholder’s and their affiliates’ holdings of “synthetic equity”, derivatives or short positions and other material interests and relationships that could influence nominations and other information that would be required in a proxy statement. Additionally, stockholders nominating director candidates are required to 2024. These three landfills contributed $5.2 milliondisclose the same information about the director candidate that would be required if the director candidate were submitting a proposal, and the director candidates are required to complete a questionnaire and representation and agreement with respect to their background, any voting commitments or compensation arrangements and their commitment to abide by the company’s governance guidelines. Such information must be updated and supplemented so as to be accurate as of revenue during the year ended December 31, 2015. We intend to seek renewalrecord date of these contractsthe annual meeting and as of ten business days prior to or upon, their expiration.the annual meeting. We recommend that any stockholder wishing to nominate a director at an annual meeting review a copy of our Bylaws.

 

Based on remaining permitted capacity asBefore nominating a sitting director for reelection at an Annual Meeting of December 31, 2015,Stockholders, the Nominating and projected annual disposal volumes,Corporate Governance Committee will consider the average remaining landfill life for our owneddirector’s past performance and operated landfills and landfills operated, but not owned, under life-of-site agreements, is estimatedcontribution to be approximately 32 years.  Manythe Board of our existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted.  We regularly consider whether it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams or to seek other permit modifications.  We also monitor the available permitted in-place disposal capacity of our landfills on an ongoing basis and evaluate whether to seek capacity expansion using a variety of factors.

We are currently seeking to expand permitted capacity at nine of our landfills, for which we consider expansions to be probable.  Although we cannot be certain that all future expansions will be permitted as designed, the average remaining landfill life for our owned and operated landfills and landfills operated, but not owned, under life-of-site agreements is estimated to be approximately 38years when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume.

The following table reflects estimated landfill capacity and airspace changes, as measured in tons, for owned and operated landfills and landfills operated, but not owned, under life-of-site agreements (in thousands): 

  2015  2014 
  Permitted  Probable
Expansion
  Total  Permitted  Probable
Expansion
  Total 
Balance, beginning of year  714,155   105,498   819,653   668,052   146,933   814,985 
Acquired landfills  40,343   41,432   81,775   19,994   -   19,994 
Permits granted  9,846   (9,846)  -   31,265   (31,265)  - 
Airspace consumed  (21,331)  -   (21,331)  (20,486)  -   (20,486)
Expansions initiated  -   21,731   21,731   -   -   - 
Changes in engineering estimates  12,583   4,643   17,226   15,330   (10,170)  5,160 
Balance, end of year  755,596   163,458   919,054   714,155   105,498   819,653 

The estimated remaining operating lives for the landfills we own and landfills we operate under life-of-site agreements, based on remaining permitted and probable expansion capacity and projected annual disposal volume, in years, as of December 31, 2015, and December 31, 2014, are shown in the tables below.  The estimated remaining operating lives include assumptions that the operating permits are renewed.Directors.

 

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  2015 
  0 to 5  6 to 10  11 to 20  21 to 40  41 to 50  51+  Total 
Owned and operated landfills  1   1   8   24   8   10   52 
Operated landfills under life-of-site agreements  -   -   2   1   1   1   5 
   1   1   10   25   9   11   57 
                             
  2014 
  0 to 5  6 to 10  11 to 20  21 to 40  41 to 50  51+  Total 
Owned and operated landfills  1   3   4   17   6   16   47 
Operated landfills under life-of-site agreements  1   -   3   1   -   1   6 
   2   3   7   18   6   17   53 

The disposal tonnage that we received in 2015Corporate Governance Guidelines, Committee Charters and 2014 at allCode of our landfills is shown in the tables below (tons in thousands): 

  Three months ended    
  

March 31,

2015

  

June 30,

2015

  

September 30,

2015

  

December 31,

2015

  Twelve months
ended
 
  Number
of Sites
  Total
Tons
  Number
of Sites
  Total
Tons
  Number
of Sites
  Total
Tons
  Number
of Sites
  Total
Tons
  December 31,
2015
 
Owned operational landfills and landfills operated under life-of-site agreements  54   4,566   54   5,429   55   5,821   57   5,515   21,331 
Operated landfills  5   116   5   121   5   153   5   125   515 
   59   4,682   59   5,550   60   5,974   62   5,640   21,846 
                                     
  Three months ended    
  

March 31,

2014

  

June 30,

2014

  

September 30,

2014

  

December 31,

2014

  Twelve months
ended
 
  Number
of Sites
  Total
Tons
  Number
of Sites
  Total
Tons
  Number
of Sites
  Total
Tons
  Number
of Sites
  Total
Tons
  December 31,
2014
 
Owned operational landfills and landfills operated under life-of-site agreements  50   4,545   50   5,139   51   5,562   53   5,240   20,486 
Operated landfills  5   116   5   124   5   130   5   121   491 
   55   4,661   55   5,263   56   5,692   58   5,361   20,977 

Transfer StationConduct and Intermodal Services

As of December 31, 2015, we owned or operated 64 MSW transfer stations and five E&P waste transfer stations with marine access.  Transfer stations receive, compact and/or load waste to be transported to landfills or treatment facilities via truck, rail or barge.  They extend our direct-haul reach and link collection operations or waste generators with distant disposal or treatment facilities by concentrating the waste stream from a wider area and thus providing better utilization rates and operating efficiencies.

Intermodal logistics is the movement of containers using two or more modes of transportation, usually including a rail or truck segment.  We entered the intermodal services business in the Pacific Northwest through the acquisition of Northwest Container Services, Inc., which provides repositioning, storage, maintenance and repair of cargo containers for international shipping companies.  We provide these services for containerized cargo primarily to international shipping companies importing and exporting goods through the Pacific Northwest.  We also operate two intermodal facilities primarily for the shipment of waste by rail to distant disposal facilities that we do not own.  As of December 31, 2015, we owned or operated seven intermodal operations in Washington and Oregon.  Our fleet of double-stack railcars provides dedicated direct-line haul services among terminals in Portland, Tacoma and Seattle.  We have a contract with Union Pacific railroad for the movement of containers among our seven intermodal operations.  We also provide our customers container and chassis sales and leasing services.

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We intend to further expand our intermodal business through cross-selling efforts with our solid waste services operations.  We believe that a significant amount of solid waste is transported currently by truck, rail and barge from primarily the Seattle-Tacoma and Metro Portland areas to remote landfills in Eastern Washington and Eastern Oregon.  We believe our ability to market both intermodal and disposal services will enable us to more effectively compete for these volumes.

Recycling Services

We offer residential, commercial, industrial and municipal customers recycling services for a variety of recyclable materials, including compost, cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. We own or operate 37 recycling operations and sell other collected recyclable materials to third parties for processing before resale.  The majority of the recyclables we process for sale are paper products and are shipped primarily to customers in Asia.  Changes in end market demand as well as other factors can cause fluctuations in the prices for such commodities, which can affect revenue, operating income and cash flows.  To reduce our exposure to commodity price volatility and risk with respect to recycled materials, we have adopted a pricing strategy of charging collection and processing fees for recycling volumes collected from third parties.  We believe that recycling will continue to be an important component of local and state solid waste management plans due to the public’s increasing environmental awareness and expanding regulations that mandate or encourage recycling.

E&P Waste Treatment, Recovery and Disposal Services

E&P waste is a broad term referring to the by-products resulting from oil and natural gas exploration and production activity. These generally include: waste created throughout the initial drilling and completion of an oil or natural gas well, such as drilling fluids, drill cuttings, completion fluids and flowback water; production wastes and produced water during a well’s operating life; contaminated soils that require treatment during site reclamation; and substances that require clean-up after a spill, reserve pit clean-up or pipeline rupture. E&P customers are oil and natural gas exploration and production companies operating in the areas that we serve. E&P revenue is therefore driven by vertical and horizontal drilling, hydraulic fracturing, production and clean-up activity; it is complemented by other services including closed loop collection systems and the sale of recovered products. E&P activity varies across market areas which are tied to the natural resource basins in which the drilling activity occurs and reflects the regulatory environment, pricing and disposal alternatives available in any given market.

Our customers are generally responsible for the delivery of their waste streams to us. We receive flowback water, produced water and other drilling and production wastes at our facilities in vacuum trucks, dump trucks or containers deposited by roll-off trucks. In certain markets, we offer bins and rails systems that capture and separate liquid and solid oilfield waste streams at our customers’ well sites and deliver the drilling and production wastes to our facilities. Waste generated by offshore drilling is delivered by supply vessel from the drilling rig to one of our transfer stations, where the waste is then transferred to our network of barges for transport to our treatment facilities.

As of December 31, 2015, we provided E&P waste treatment, recovery and/or disposal services from a network of nine E&P waste landfills, eleven MSW landfills that also received E&P waste during 2015, 24 E&P liquid waste injection wells and 20 E&P waste treatment and oil recovery facilities. Treatment processes vary by site and regulatory jurisdiction. At certain treatment facilities, loads of flowback and produced water and other drilling and production wastes delivered by our customers are sampled, assessed and tested by third parties according to state regulations. Solids contained in a waste load are deposited into a land treatment cell where liquids are removed from the solids and are sent through an oil recovery system before being injected into saltwater disposal injection wells or placed in evaporation cells that utilize specialized equipment to accelerate evaporation of liquids. In certain locations, fresh water is then added to the remaining solids in the cell to “wash” the solids several times to remove contaminants, including oil and grease, chlorides and other contaminants, to ensure the solids meet specific regulatory criteria that, in certain areas, are administered by third-party labs and submitted to the regulatory authorities.

After the washing or treatment process, the treated solids are designated “reuse materials,” and are no longer considered a waste product by state regulation. These materials are dried, removed from the treatment cells, stockpiled and compacted in designated stockpile areas on site and at certain locations are available for use as feedstock for roadbase. At certain of our facilities, during the treatment process we reclaim oil for resale and we treat and recycle liquids for re-use in our operations or for sale to third parties as fresh or brine water.

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COMPETITION

The U.S. municipal solid waste services industry is highly competitive and requires substantial labor and capital resources.  Besides Waste Connections, the industry includes:  two national, publicly held solid waste companies – Waste Management, Inc. and Republic Services, Inc.;several regional, publicly held and privately owned companies; and several thousand small, local, privately owned companies.  Certain of the markets in which we compete or will likely compete are served by one or more large, national solid waste companies, as well as by numerous regional and local solid waste companies of varying sizes and resources, some of which we believe have accumulated substantial goodwill in their markets.  We compete for collection, transfer and disposal volume based primarily on the price and, to a lesser extent, quality of our services. We also compete with operators of alternative disposal facilities, including incinerators, and with counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations.  Public sector operators may have financial and other advantages over us because of their access to user fees and similar charges, tax revenues, tax-exempt financing and the ability to flow-control waste streams to publicly owned disposal facilities.

From time to time, competitors may reduce the price of their services in an effort to expand their market shares or service areas or to win competitively bid municipal contracts.  These practices may cause us to reduce the price of our services or, if we elect not to do so, to lose business.  We provide a significant amount of our residential, commercial and industrial collection services under exclusive franchise and municipal contracts and G Certificates. Exclusive franchises and municipal contracts may be subject to periodic competitive bidding.

The U.S. municipal solid waste services industry has undergone significant consolidation, and we encounter competition in our efforts to acquire collection operations, transfer stations and landfills.  We generally compete for acquisition candidates with publicly owned regional and national waste management companies.  Accordingly, it may become uneconomical for us to make further acquisitions or we may be unable to locate or acquire suitable acquisition candidates at price levels and on terms and conditions that we consider appropriate, particularly in markets we do not already serve.  Competition in the disposal industry is also affected by the increasing national emphasis on recycling and other waste reduction programs, which may reduce the volume of waste deposited in landfills.

Competition for E&P waste comes primarily from smaller regional companies that utilize a variety of disposal methods and generally serve specific geographic markets. We also compete in certain markets with publicly held and privately owned companies such as Waste Management, Inc., Republic Services, Inc., Clean Harbors, Inc., Secure Energy Services Inc., Nuverra Environmental Solutions, Trinity Environmental Services, LLC and Ecoserv. In addition, customers in many markets have the option of using internal disposal methods or outsourcing to another third-party disposal company. The principal competitive factors in this business include: gaining customer approval of treatment and disposal facilities; location of facilities in relation to customer activity; reputation; reliability of services; track record of environmental compliance; ability to accept multiple waste types at a single facility; and price.

The intermodal services industry is also highly competitive.  We compete against other intermodal rail services companies, trucking companies and railroads, many of which have greater financial and other resources than we do.  Competition is based primarily on price, reliability and quality of service.

REGULATION

Introduction

Our operations, including landfills, solid waste transportation, transfer stations, intermodal operations, vehicle maintenance shops, fueling facilities, and oilfield waste treatment, recovery and disposal operations, are all subject to extensive and evolving federal, state and local environmental, health, and safety laws and regulations, the enforcement of which has become increasingly stringent. These laws and regulations may, among other things, require the acquisition of permits or other authorizations for regulated activities; govern the amounts and types of substances that may be released into the environment in connection with our operations; impose clean-up or corrective action responsibility for releases of regulated substances into the environment; restrict the way we handle or dispose of wastes; limit or prohibit our or our customers’ activities in sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered or threatened species; require investigatory and remedial actions to mitigate pollution conditions caused by our operations or attributable to former operations; and impose specific standards addressing worker protection and health. Compliance is often costly or difficult, and the violation of these laws and regulations may result in the denial or revocation of permits, issuance of corrective action orders, assessment of administrative and civil penalties and even criminal prosecution. In many instances, liability is often “strict,” meaning it is imposed without a requirement of intent or fault on the part of the regulated entity. The environmental regulations that affect us are administered by the Environmental Protection Agency, or the EPA, and numerous other federal, state and local agencies having jurisdiction over our operations including environmental, health and safety, zoning and other areas. For example, the WUTC regulates the portion of our collection business in Washington performed under G Certificates.

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With regard to any permit or authorization issued by a regulatory agency necessary for our operations, there are no assurances that we will be able to obtain or maintain all necessary permits or authorizations. With regard to any permit or authorization that has been issued, it remains subject to removal, modification, suspension or revocation by the agency with jurisdiction.

We currently comply in all material respects with applicable federal, state and local environmental and occupational health and safety laws, permits, orders and regulations. In addition, we attempt to anticipate future regulatory requirements and plan in advance as necessary to comply with them. We do not presently anticipate incurring any material costs to bring our operations into environmental compliance with existing or expected future regulatory requirements, although we can give no assurance that this will not change in the future. It is possible that substantial costs for compliance or penalties for non-compliance may be incurred in the future. It is also possible that other developments, such as the adoption of additional or stricter environmental laws, regulations and enforcement policies, could result in additional costs or liabilities that we cannot currently quantify. Moreover, changes in environmental laws or regulations could reduce the demand for our services and adversely impact our business. For example, changes in environmental laws or regulations could limit our customers’ oil and natural gas E&P businesses or encourage our customers to handle and dispose of oil and natural gas E&P wastes in other ways.

Various federal and state laws impose clean-up or remediation liability on responsible parties, which are discussed in more detail below. Substances subject to clean-up liability have been or may have been disposed of or released on or under certain of our sites, including our E&P sites. At some of our facilities, we have conducted and continue to conduct monitoring or remediation of known soil and groundwater contamination, and we will continue to perform such monitoring and remediation of known contamination, including any post-remediation groundwater monitoring that may be required, until the appropriate regulatory standards have been achieved. These monitoring and remediation efforts are usually overseen by state environmental regulatory agencies. Further, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment.

In addition, from time to time our intermodal services business transports hazardous materials in substantial compliance with federal transportation requirements.

A number of the major federal, state and local statutes and regulations that apply to our operations are described generally below. Certain of the statutes described below contain provisions that authorize, under certain circumstances, lawsuits by private citizens to enforce the provisions of the statutes. In addition to penalties, some of those statutes authorize an award of attorneys' fees to parties that successfully bring such an action. Enforcement actions under these statutes may include both civil and criminal penalties, as well as injunctive relief in some instances.

The Resource Conservation and Recovery Act of 1976, or RCRA

RCRA regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. RCRA generally divides solid waste into two groups, hazardous and nonhazardous. Wastes are generally classified as hazardous if they either: (1) are specifically included on a list of hazardous wastes or (2) exhibit certain characteristics defined as hazardous. Household wastes are specifically designated as nonhazardous. Wastes classified as hazardous under RCRA are subject to much stricter regulation than wastes classified as nonhazardous, and businesses that deal with hazardous waste are subject to regulatory obligations in addition to those imposed on handlers of nonhazardous waste. Some of our ancillary operations, such as vehicle maintenance operations, may generate hazardous wastes. We manage these wastes in substantial compliance with applicable laws.

In October 1991, the EPA adopted the Subtitle D Regulations governing solid waste landfills. The Subtitle D Regulations, which generally became effective in October 1993, include location restrictions, minimum facility design and performance standards, operating criteria, closure and post-closure requirements, financial assurance requirements, groundwater monitoring requirements, groundwater remediation standards and corrective action requirements. In addition, the Subtitle D Regulations require that new landfill sites meet more stringent liner design criteria (typically, composite soil and synthetic liners or two or more synthetic liners) intended to keep leachate out of groundwater and have extensive collection systems to carry away leachate for treatment prior to disposal. Groundwater monitoring wells must also be installed at virtually all landfills to monitor groundwater quality and, indirectly, the effectiveness of the leachate collection system. The Subtitle D Regulations also require, where certain regulatory thresholds are exceeded, that facility owners or operators control emissions of methane gas generated at landfills in a manner intended to protect human health and the environment. Each state is required to revise its landfill regulations to meet these requirements or such requirements will be imposed by the EPA on landfill owners and operators in that state. Each state is also required to adopt and implement a permit program or other appropriate system to ensure that landfills in the state comply with the Subtitle D Regulations. Accordingly, we are required to obtain permits for landfills that we operate. Moreover, various states in which we operate or may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations.

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Most E&P waste is exempt from stringent regulation as a hazardous waste under RCRA. None of our oilfield waste recycling, treatment, and disposal facilities are currently permitted to accept hazardous wastes for disposal, and we take precautions to mitigate the potential that hazardous wastes could enter or be disposed of at these facilities. Some wastes handled by us that currently are exempt from treatment as hazardous wastes may in the future be designated as “hazardous wastes” under RCRA or other applicable statutes. For example, in September 2010, a nonprofit environmental group filed a petition with the EPA requesting reconsideration of the RCRA E&P waste exemption. Although the EPA has not yet formally responded to the petition, if the RCRA E&P waste exemption is repealed or modified, we could become subject to more rigorous and costly operating and disposal requirements.

We are required to obtain permits for the land treatment and disposal of E&P waste as part of our operations. The construction, operation and closure of E&P waste land treatment and disposal operations are generally regulated at the state level. These regulations vary widely from state to state.

In the course of our E&P waste operations, some of our equipment may be exposed to naturally occurring radiation associated with oil and gas deposits, and this exposure may result in the generation of wastes containing naturally occurring radioactive materials, or NORM. NORM wastes exhibiting trace levels of naturally occurring radiation in excess of established state standards are subject to special handling and disposal requirements, and any storage vessels, piping and work area affected by NORM may be subject to remediation or restoration requirements. It is possible that we may incur costs or liabilities associated with elevated levels of NORM.

With respect to any of our permitted facilities, permits can impose various requirements and may restrict the size and location of disposal operations, impose limits on the types and amount of waste a facility may receive and the overall capacity of a waste disposal facility. States may add additional restrictions on the operations of a disposal facility when a permit is renewed or amended. As these regulations change, our permit requirements could become more stringent and may require material expenditures at our facilities or impose significant restraints, or new or additional financial assurances on our operations.

RCRA also regulates underground storage of petroleum and other materials it defines as “regulated substances.” RCRA requires registration, compliance with technical standards for tanks, release detection and reporting, and corrective action, among other things. Certain of our facilities and operations are subject to these requirements and these requirements are typically implemented at the state level.

The Federal Water Pollution Control Act of 1972, or the Clean Water Act

The Clean Water Act regulates the discharge of pollutants from a variety of sources, including, without limitation, solid waste disposal sites, transfer stations, and oilfield waste facilities, into waters of the United States, including surface and ground waters. If run-off or other contaminants from our owned or operated transfer stations or oilfield waste facilities or run-off, collected leachate or other contaminants from our owned or operated landfills is discharged into streams, rivers or other surface waters, the Clean Water Act would require us to respond, apply for and obtain a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in such discharge. Also, virtually all landfills are required to comply with the EPA's storm water regulations issued in November 1990, which are designed to prevent contaminated landfill storm water run-off from flowing into surface waters. Spill prevention, control and countermeasure requirements of federal laws require appropriate containment berms and similar structures to help prevent the contamination of regulated waters in the event of a hydrocarbon storage tank spill, rupture or leak. We believe that our facilities comply in all material respects with the Clean Water Act requirements. Various states in which we operate or may operate in the future have been delegated authority to implement the Clean Water Act and its permitting requirements, and some of these states have adopted regulations that are more stringent than the federal Clean Water Act requirements. For example, states often require permits for discharges that may impact ground water as well as surface water. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. We believe that compliance with existing permits and regulatory requirements under the Clean Water Act and state counterparts will not have a material adverse effect on our business. Future changes to permits or regulatory requirements under the Clean Water Act, however, could adversely affect our business.

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Safe Drinking Water Act, or SDWA

Our E&P underground injection operations are subject to the SDWA, as well as analogous state laws and regulations. Under the SDWA, the EPA established the underground injection control or UIC program, which includes requirements for permitting, testing, monitoring, record keeping, and reporting of injection well activities, as well as a prohibition against the migration of fluid containing any contaminant into underground sources of drinking water. State regulations require us to obtain a permit from the applicable regulatory agencies to operate our underground injection wells. We believe that we have obtained the necessary permits from these agencies for our underground injection wells and that we are in substantial compliance with permit conditions and state rules. Although we monitor the injection process of our wells, any leakage from the subsurface portions of the injection wells could cause degradation of fresh groundwater resources, potentially resulting in suspension of our UIC permit, issuance of fines and penalties from governmental agencies, incurrence of expenditures for remediation of the affected resource and imposition of liability by third parties for property damages and personal injuries. In addition, our sales of residual crude oil collected as part of the saltwater injection process could impose liability on us in the event that the entity to which the oil was transferred fails to manage and, as necessary, dispose of residual crude oil in accordance with applicable environmental and occupational health and safety laws.

Oil Pollution Act of 1990, or OPA

The OPA, as amended, establishes strict liability for owners and operators of facilities that are the site of a release of oil into the waters of the U.S. The OPA also imposes ongoing requirements on owners or operators of facilities that handle certain quantities of oil, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental clean-up and restoration costs that could be incurred in conjunction with an oil spill. We handle oil at many of our facilities, and if a release of oil into the waters of the U.S. occurred at one of our facilities, we could be liable for clean-up costs and damages under the OPA.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA

CERCLA, which is also known as the “Superfund” law, established a regulatory and remedial program intended to provide for the investigation and clean-up of facilities where, or from which, a release of any hazardous substance into the environment has occurred or is threatened. CERCLA’s primary mechanism to address such a release or threatened release is to impose strict joint and several liability for clean-up of facilities on responsible parties. Responsible parties are current owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, any person who arranged for the transportation, disposal or treatment of the hazardous substances, and the transporters who selected the disposal and/or treatment facilities, regardless of the intent or care exercised by such persons. CERCLA also imposes liability for the cost of evaluating and remedying any damage to natural resources. The costs of CERCLA investigation and clean-up can be very substantial. Liability under CERCLA does not depend on the existence or disposal of “hazardous waste” as defined by RCRA; it can also be based on the release of even very small amounts of the more than 700 “hazardous substances” listed by the EPA, many of which can be found in household waste. In addition, the definition of “hazardous substances” in CERCLA incorporates substances designated as hazardous or toxic under the federal Clean Water Act, Clear Air Act and Toxic Substances Control Act.

We may handle hazardous substances within the meaning of CERCLA, or similar state statutes, in the course of our ordinary operations and, as a result, may be jointly and severally liable under CERCLA for all or part of the costs required to clean up sites if and where these hazardous substances have been released into the environment. If we were found to be a responsible party for a CERCLA clean-up, the enforcing agency could hold us, or any other responsible party liable for all investigative and all response costs, even if others were also liable. Under such laws, we could be required to remove previously disposed substances and wastes (including substances disposed of or released by prior owners or operators) or remediate contaminated property (including groundwater contamination, whether from prior owners or operators or other historic activities or spills). These laws may also require us to conduct natural resource damage assessments and pay penalties for such damages. These laws and regulations may also expose us to liability for our acts that were in compliance with applicable laws at the time the acts were performed.

CERCLA also authorizes the imposition of a lien in favor of the United States on all real property subject to, or affected by, a remedial action for all costs for which a party is liable. Subject to certain procedural restrictions, CERCLA gives a responsible party the right to bring a contribution or cost recovery action against other responsible parties for their allocable shares of investigative and remedial costs. Our ability to obtain reimbursement from others for their allocable shares of such costs would be limited by our ability to find other responsible parties and prove the extent of their responsibility, their financial resources, and other procedural requirements. Various state laws also impose liability, which is typically strict and joint and several, for investigation, clean-up and other damages associated with the release of hazardous or other regulated substances.

The Clean Air Act, or CAA

The CAA generally regulates emissions of air pollutants from emissions sources, including certain landfills and oilfield waste facilities, based on factors such as the date of the construction and tons per year of emissions of regulated pollutants. Typically, federal requirements are implemented at the state level. The CAA and analogous state laws require permits for and impose other restrictions on facilities that have the potential to emit pollutants into the atmosphere above certain specified quantities or in a manner that could adversely affect environmental quality. Failure to obtain a permit or to comply with permit requirements could result in the imposition of substantial administrative, civil and even criminal penalties.

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Larger landfills and landfills located in areas where the ambient air does not meet certain air quality standards called for by the CAA may be subject to even more extensive air pollution controls and emission limitations. In addition to the potential CAA permitting of landfill facilities, CAA permitting may be required for the construction of gas collection and flaring systems, composting and other operations. In some instances, operating permits may be required depending on the nature and volume of air emissions. Further, in those situations where major source permitting is not required, typically state laws and rules will require permitting or authorization as a type of minor source.

Additional or more stringent regulations of our facilities may occur in the future, which could increase operating costs or impose additional compliance burdens. In July 2014, the EPA proposed “Subpart XXX,” a New Source Performance Standard, or NSPS, that would apply to newly constructed or modified municipal solid waste, or MSW, landfills. Subpart XXX would reduce the non-methane organic compounds, or NMOC, emission threshold at which MSW landfills must install controls, require compliance even during periods of start-up, shutdown, and malfunction, and impose other requirements. In August 2015, the EPA proposed a supplemental proposal for the Standard of Performance for MSW landfills. This “supplemental” proposal would address the NMOC emission rate threshold at which gas collection and controls must be installed at an MSW landfill. Further, in July 2014, the EPA used an Advanced Notice of Proposed Rule Making (“ANPRM”) seeking input on methods to reduce emissions from existing MSW landfills. This ANPRM was used to determine if additional changes to existing landfill NSPS were required beyond the proposed Subpart XXX. Based upon this ANPRM, the EPA proposed in August 2015 a new Subpart Cf that updates existing Emission Guidelines and Compliance Times for MSW landfills. The proposal would generally apply to landfills that accepted waste after November 8, 1987 and commenced construction or modification on or before July 17, 2014. The proposal would be expected to result in the reduction of landfill gas emissions, including methane, by lowering the thresholds where an MSW landfill must install a gas collection and control system. It is expected that, if implemented, the proposed Subpart Cf would ultimately affect existing sources that may not have been affected by proposed Subpart XXX. State air regulatory programs may impose additional restrictions beyond federal requirements. For example, some state air programs uniquely regulate odor and the emission of toxic air pollutants.

In addition, the EPA recently modified, or is in the process of modifying, other standards promulgated under the CAA in a manner which could increase our compliance costs. For example, the EPA has recently modified or discussed modifying national ambient air quality standards applicable to particulate matter, carbon monoxide, and oxides of sulfur and nitrogen, and other standards to make them more stringent.

In addition, our customers’ operations may be subject to existing and future CAA permitting and regulatory requirements that could have a material effect on their operations, which could have an adverse effect on our business. For example, on April 17, 2012, the EPA approved new CAA rules requiring additional emissions controls and practices for oil and natural gas production wells, including wells that are the subject of hydraulic fracturing operations. These rules may increase the costs to our customers of developing and producing hydrocarbons, and as a result, may have an indirect and adverse effect on the amount of oilfield waste delivered to our facilities by our customers.

Climate Change Laws and Regulations

Generally, the promulgation of climate change laws or rules restricting greenhouse gas emissions could increase our costs to operate. For example, the EPA’s current and proposed regulation of greenhouse gas, or GHG, emissions may impact our operations. In 2009, the EPA made an endangerment finding allowing GHGs to be regulated under the CAA. The CAA requires stationary sources of air pollution to obtain New Source Review, or NSR, permits prior to construction and, in some cases, Title V operating permits. Pursuant to the EPA’s rulemakings and interpretations, certain Title V and NSR Prevention of Significant Deterioration, or PSD, permits issued on or after January 2, 2011, must address GHG emissions. As a result, new or modified emissions sources may be required to install Best Available Control Technology to limit GHG emissions. The EPA’s proposed Subpart XXX would also require the reduction of GHG emissions from new or modified landfills, and the EPA published in July 2014 an Advanced Notice of Proposed Rulemaking, or ANPRM, that sought public comment on rules that would reduce GHG emissions from existing landfills. In addition, the EPA’s Mandatory Greenhouse Gas Reporting Rule sets monitoring, recordkeeping, and reporting requirements applicable to certain landfills and other entities.

At the state level, on September 27, 2006, California enacted AB 32, the Global Warming Solutions Act of 2006, which established the first statewide program in the United States to limit GHG emissions and impose penalties for non-compliance. Because landfill and collection operations emit GHGs, our operations in California are subject to regulations issued under AB 32. The California Air Resources Board, or CARB, has taken, and plans to take, various actions to implement AB 32. CARB approved a landfill methane control measure, which became effective in June 2010, and this measure requires that certain uncontrolled landfills install gas collection and control systems and also sets operating standards for gas collection and control systems. In addition, CARB implemented a GHG cap-and-trade program, which began imposing compliance obligations in January 2013.

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State climate change laws could also affect our non-California operations. For example, the Western Climate Initiative, which once included seven states and four Canadian provinces, has developed GHG reduction strategies, among them a GHG cap-and-trade program.

Heightened regulation of our customers’ operations, could also adversely affect our business. The regulation of GHG emissions from oil and gas E&P operations may increase the costs to our customers of developing and producing hydrocarbons and, as a result, may have an indirect and adverse effect on the amount of oilfield waste delivered to our facilities by our customers. On August 18, 2015, the EPA proposed measures to cut methane and volatile organic compounds, or VOC, emissions from the oil and natural gas industry. The measures include proposed NSPS Subpart OOOO, which sets methane and VOC requirements for certain new and modified sources, including hydraulically fractured oil wells, pneumatic pumps, compressors and pneumatic controllers. The State of Colorado adopted rules in February 2014 that would directly regulate methane emissions from the oil and gas sector, and other states have subsequently adopted or considered similar regulations, including Wyoming, California and Ohio.

These statutes and regulations increase the costs of our and our customers’ operations, and future climate change statutes and regulations may have an impact as well. If we are unable to pass such higher costs through to our customers, or if our customers’ costs of developing and producing hydrocarbons increase, our business, financial condition and operating results could be adversely affected.

The Occupational Safety and Health Act of 1970, or the OSH Act

The OSH Act is administered by the Occupational Safety and Health Administration, or OSHA, and many state agencies whose programs have been approved by OSHA. The OSH Act establishes employer responsibilities for worker health and safety, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious injury, comply with adopted worker protection standards, maintain certain records, provide workers with required disclosures and implement certain health and safety training programs. Various OSHA standards may apply to our operations, including standards concerning notices of hazards, safety in excavation and demolition work, the handling of asbestos and asbestos-containing materials and worker training and emergency response programs. Moreover, the Department of Transportation, OSHA and other agencies regulate and have jurisdiction concerning the transport, movement, and related safety of hazardous and other regulated materials. In some instances, state and local agencies also regulate the safe transport of such materials to the extent not preempted by federal law.

Hydraulic Fracturing Regulation

We do not conduct hydraulic fracturing operations, but we do provide treatment, recovery and disposal services with respect to the fluids used and wastes generated by our customers in such operations, which are often necessary to drill and complete new wells and maintain existing wells. Recently, there has been increased public concern regarding the alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate federal legislation or legislation at the state and local government levels that would increase the regulatory burden imposed on hydraulic fracturing. Bills and regulations have been proposed and/or adopted at the federal, state and local levels that would regulate, restrict or prohibit hydraulic fracturing operations or require the reporting and public disclosure of chemicals used in the hydraulic fracturing process. Additionally, the EPA is currently studying the environmental impacts of hydraulic fracturing on drinking water. The EPA released its Draft Assessment outlining its findings in June 2015. In 2014, the EPA proposed or discussed new rules that would regulate hydraulic fracturing and the treatment and disposal of E&P wastes associated with fracturing.

Hydraulic fracturing is regulated extensively at the state level, typically by state oil and natural gas commissions and similar agencies. Certain states and localities have placed moratoria or bans on hydraulic fracturing or the disposal of waste therefrom, or have considered the same. For example, in December 2014, New York announced its intention to ban hydraulic fracturing, and bans or moratoria are in effect in localities in California, Colorado, Ohio, Pennsylvania and Texas, as well as in other states. Several states, including Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming, where we conduct business, have adopted or proposed laws and/or regulations to require oil and natural gas operators to disclose information concerning their operations, which could result in increased public scrutiny.

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Ethics

 

As part of its efforts to regulate hydraulic fracturing, the EPA developed a proposed rule to amend the Effluent Limitations Guidelines and Standards, or ELGs, to address discharges of wastewater pollutants from onshore unconventional oil and gas extraction facilities to publicly-owned treatment works, or POTWs. The EPA sent the proposed rule to the White House Office of Management & Budget in November 2014 for pre-publication review and published the proposed rule in April 2015. The EPA is currently conducting a detailed study of centralized waste treatment, or CWT, facilities accepting oil and gas extraction wastewater to ensure that current controls are adequate and to analyze the environmental impacts of discharges from CWTs, available treatment technologies and their costs. In May 2014, the EPA issued an ANPR under the Toxic Substances Control Act, or TSCA, seeking comment on whether and how the EPA should regulate the reporting or disclosure of the use of hydraulic fracturing chemical substances and mixtures. The EPA also released in 2014 guidance concerning the applicability of the SDWA to hydraulic fracturing operations. The impacts of these rules that the EPA is proposing or considering will be uncertain until the rules are finalized.

If the EPA’s newly proposed or discussed rules, or other new federal, state or local laws or regulations that significantly restrict hydraulic fracturing, are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities and make it more difficult or costly for our customers to perform hydraulic fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas exploration and production activities by our customers and, therefore, adversely affect our business. Such laws or regulations could also materially increase our costs of compliance.

Flow Control/Interstate Waste Restrictions

Certain permits and approvals and state and local regulations may limit a landfill’s or transfer station’s ability to accept waste that originates from specified geographic areas, import out-of-state waste or wastes originating outside the local jurisdictions or otherwise discriminate against non-local waste. These restrictions, generally known as flow control restrictions, are controversial, and some courts have held that some state and local flow control schemes violate constitutional limits on state or local regulation of interstate commerce, while other state and local flow control schemes do not. Certain state and local jurisdictions may seek to enforce flow control restrictions through local legislation or contractually. These actions could limit or prohibit the importation of wastes originating outside of local jurisdictions or direct that wastes be handled at specified facilities. Such actions could adversely affect our transfer stations and landfills. These restrictions could also result in higher disposal costs for our collection operations. If we were unable to pass such higher costs through to our customers, our business, financial condition and operating results could be adversely affected. Additionally, certain local jurisdictions have sought or may seek to impose extraterritorial obligations on our operations in an effort to affect flow control and enforce tax and fee arrangements on behalf of such jurisdictions.

Disposal of Drilling Fluids

Certain of our facilities accept drilling fluids and other E&P wastes for disposal via underground injection. While generally regulated at the state level, claims, including some regulatory actions, have been brought against some owners or operators of these types of facilities for nuisance, seismic disturbances, and other claims in relation to the operation of underground injection facilities. To date, our facilities have not been subject to any such litigation.

State and Local Regulations

Each state in which we now operate or may operate in the future has laws and regulations governing the management, generation, storage, treatment, handling, transportation and disposal of solid waste, oilfield waste, occupational safety and health, water and air pollution and, in most cases, the siting, design, operation, maintenance, corrective action, closure and post-closure maintenance of landfills and transfer stations. State and local permits and approval for these operations may be required and may be subject to periodic renewal, modification or revocation by the issuing agencies. In addition, many states have adopted statutes comparable to, and in some cases more stringent than, their federal counterparts, including CERCLA. State law analogous to CERCLA typically impose requirements for investigation and clean-up of contaminated sites and liability for costs and damages associated with such sites, and some provide for the imposition of liens on property owned by responsible parties.

Many municipalities also have enacted or could enact ordinances, local laws and regulations affecting our operations. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct or restrict the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and bidding for such franchises, and bans or other restrictions on the movement of solid wastes into a municipality.

Various jurisdictions have enacted “fitness” regulations which allow agencies with authority over waste service contracts or permits to deny or revoke such contracts or permits based on the compliance history of the provider. Some jurisdictions also consider the compliance history of the parent, subsidiaries, or affiliated companies of the provider in making these decisions.

Permits or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period and/or the types of waste that may be accepted at the landfill. Once an operating permit for a landfill is obtained, it generally must be renewed periodically.

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There has been an increasing trend at the state and local level to mandate and encourage waste reduction at the source and waste recycling, and to prohibit or restrict the disposal in landfills of certain types of solid wastes, such as food waste, yard waste, leaves, tires, computers and other electronic equipment waste, and painted wood and other construction and demolition debris. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could prevent us from operating our facilities at their full capacity.

Some state and local authorities enforce certain federal requirements in addition to state and local laws and regulations. For example, in some states, local or state authorities enforce requirements of RCRA, the OSH Act and parts of the CAA and the Clean Water Act instead of the EPA or OSHA, as applicable, and in some states such laws are enforced jointly by state or local and federal authorities.

E&P waste treatment, recovery and disposal operations are also regulated at the state level. For example, in Louisiana, the Louisiana Department of Natural Resources, or LDNR is responsible for regulating and permitting all oil and natural gas activities in the state, including E&P waste treatment and disposal operations, such as injection wells, land treatment and disposal facilities and transfer stations. As an example of the impact state regulations can have, in November 2009, the LDNR amended its regulations allowing operators to reuse certain E&P waste in hydraulic fracturing operations one time before the operators must dispose of the waste, and on June 20, 2010, the LDNR amended its regulations to allow operators to reuse E&P waste from hydraulic fracturing as many times as reasonably feasible. This regulatory action allows operators to, in some cases, forego sending their E&P waste to commercial disposal facilities such as ours, directly impacting our operations in Louisiana. State environmental laws and regulations require that we obtain permits and authorizations prior to the development and operation of E&P waste treatment and storage facilities and in connection with the disposal and transportation of certain types of waste. The applicable regulatory agencies strictly monitor production and disposal practices at all of our facilities. As part of our permitting process, we participate in annual monitoring, internal testing and third-party testing. A breach of such laws or regulations may result in suspension or revocation of necessary permits and authorizations, civil liability and imposition of fines and penalties. Moreover, if we experience a delay in obtaining, are unable to obtain, or suffer the revocation of required permits, we may be unable to serve our customers, our operations may be interrupted, and our growth and revenue may be limited.

Public Utility Regulation

In some states, public authorities regulate the rates that landfill operators may charge. The adoption of rate regulation or the reduction of current rates in states in which we own or operate landfills could adversely affect our business, financial condition and operating results.

Solid waste collection services in all unincorporated areas of Washington and in electing municipalities in Washington are provided under G Certificates awarded by the WUTC. In association with the regulation of solid waste collection service levels in these areas, the WUTC also reviews and approves rates for regulated solid waste collection and transportation service.

RISK MANAGEMENT, INSURANCE AND FINANCIAL SURETY BONDS

Risk Management

We maintain environmental and other risk management programs that we believe are appropriate for our business.  Our environmental risk management program includes evaluating existing facilities and potential acquisitions for environmental law compliance.  We do not presently expect environmental compliance costs to increase materially above current levels, but we cannot predict whether future acquisitions will cause such costs to increase.  We also maintain a worker safety program that encourages safe practices in the workplace.  Operating practices at our operations emphasize minimizing the possibility of environmental contamination and litigation.  Our facilities comply in all material respects with applicable federal and state regulations.

Insurance

We have a high deductible or self-insured retention insurance program for automobile liability, general liability, employer’s liability claims, environmental liability, cyber liability, employment practices liability and directors’ and officers’ liability as well as for employee group health insurance, property and workers’ compensation.  Our loss exposure for insurance claims is generally limited to per incident deductibles or self-insured retentions.  Losses in excess of deductible or self-insured retention levels are insured subject to policy limits.  Under our current insurance program, we carry per incident deductibles or self-insured retentions of $2 million for automobile liability claims, $1.5 million for workers’ compensation and employer’s liability claims, $1 million for general liability claims, $1 million for directors’ and officers’ liability claims, $250,000 for employee group health insurance and employment practices liability, and primarily $100,000 for property claims, subject to certain additional terms and conditions.  We also have a policy covering risks associated with cyber liability that has a $50,000 self-insured retention. Additionally, we have umbrella policies with insurance companies for automobile liability, general liability and employer’s liability. Since workers’ compensation is a statutory coverage limited by the various state jurisdictions, the umbrella coverage is not applicable.  Also, our umbrella policy does not cover property claims, as the insurance limits for these claims are in accordance with the replacement values of the insured property.  From time to time, actions filed against us include claims for punitive damages, which are generally excluded from coverage under our liability insurance policies.

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We carry environmental protection insurance which has a $250,000 per incident deductible.  This insurance policy covers all owned or operated landfills, certain transfer stations and other facilities, subject to the policy terms and conditions.  Our policy provides insurance for new pollution conditions that originate after the commencement of our coverage.  Pollution conditions existing prior to the commencement of our coverage, if found, could be excluded from coverage.

Financial Surety Bonds

We use financial surety bonds for a variety of corporate guarantees.  The financial surety bonds are primarily used for guaranteeing municipal contract performance and providing financial assurances to meet asset closure and retirement requirements under certain environmental regulations.  In addition to surety bonds, such guarantees and obligations may also be met through alternative financial assurance instruments, including insurance, letters of credit and restricted asset deposits. At December 31, 2015 and 2014, we had provided customers and various regulatory authorities with surety bonds in the aggregate amount of approximately $353.8 million and $342.6 million, respectively, to secure our asset closure and retirement requirements and $121.7 million and $94.4 million, respectively, to secure performance under collection contracts and landfill operating agreements.

We own a 9.9% interest in a company that, among other activities, issues financial surety bonds to secure landfill final capping, closure and post-closure obligations for companies operating in the solid waste sector, including a portion of our own.

EMPLOYEES

At December 31, 2015, we had 7,227 employees, of which 797, or approximately 11.0% of our workforce, were employed under collective bargaining agreements, primarily with the Teamsters Union.  These collective bargaining agreements are renegotiated periodically.  We have 11 collective bargaining agreements covering 358 employees that have expired or are set to expire during 2016.  We do not expect any significant disruption in our overall business in 2016 as a result of labor negotiations, employee strikes or organizational efforts.

SEASONALITY

We expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters and lower in the fourth quarter than in the second and third quarters.  This seasonality reflects (a) the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during winter months in the U.S., and (b) reduced E&P activity during harsh weather conditions, with expected fluctuation due to such seasonality between our highest and lowest quarters of approximately 12% to 15%.  In addition, some of our operating costs may be higher in the winter months.  Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs.  Greater precipitation in the winter increases the weight of collected municipal solid waste, resulting in higher disposal costs, which are calculated on a per ton basis.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning our executive officers as of February 9, 2016: 

NAMEAGEPOSITIONS
Ronald J. Mittelstaedt (1)52Chief Executive Officer and Chairman
Steven F. Bouck58President
Darrell W. Chambliss51Executive Vice President and Chief Operating Officer
Worthing F. Jackman51Executive Vice President and Chief Financial Officer
David G. Eddie46Senior Vice President and Chief Accounting Officer
David M. Hall58Senior Vice President – Sales and Marketing
James M. Little54Senior Vice President – Engineering and Disposal
Patrick J. Shea45Senior Vice President, General Counsel and Secretary
Matthew S. Black43Vice President and Chief Tax Officer
Robert M. Cloninger43Vice President, Deputy General Counsel and Assistant Secretary
Eric O. Hansen50Vice President – Chief Information Officer
Susan R. Netherton46Vice President – People, Training and Development
Scott I. Schreiber59Vice President – Disposal Operations
Gregory Thibodeaux49Vice President – Maintenance and Fleet Management
Mary Anne Whitney52Vice President – Finance
Richard K. Wojahn58Vice President – Business Development

(1)Member of the Executive Committee of the Board of Directors.

Ronald J. Mittelstaedt has served as Chief Executive Officer and a director of Waste Connections since the company was formed, and was elected Chairman in January 1998. Mr. Mittelstaedt also served as President from Waste Connections’ formation through August 2004. Mr. Mittelstaedt has more than 26 years of experience in the solid waste industry. Mr. Mittelstaedt serves as a director of SkyWest, Inc. Mr. Mittelstaedt holds a B.A. degree in Business Economics with a finance emphasis from the University of California at Santa Barbara.

Steven F. Bouck has served as President of Waste Connections since September 1, 2004. From February 1998 to that date, Mr. Bouck served as Executive Vice President and Chief Financial Officer. Mr. Bouck held various positions with First Analysis Corporation from 1986 to 1998, focusing on financial services to the environmental industry. Mr. Bouck holds B.S. and M.S. degrees in Mechanical Engineering from Rensselaer Polytechnic Institute, and an M.B.A. in Finance from the Wharton School of Business.

Darrell W. Chambliss has served as Executive Vice President and Chief Operating Officer of Waste Connections since October 2003. From October 1, 1997, to that date, Mr. Chambliss served as Executive Vice President – Operations. Mr. Chambliss has more than 25 years of experience in the solid waste industry. Mr. Chambliss holds a B.S. degree in Business Administration from the University of Arkansas.

Worthing F. Jackman has served as Executive Vice President and Chief Financial Officer of Waste Connections since September 1, 2004. From April 2003 to that date, Mr. Jackman served as Vice President – Finance and Investor Relations. Mr. Jackman held various investment banking positions with Alex. Brown & Sons, now Deutsche Bank Securities, Inc., from 1991 through 2003, including most recently as a Managing Director within the Global Industrial & Environmental Services Group. In that capacity, he provided capital markets and strategic advisory services to companies in a variety of sectors, including solid waste services. Mr. Jackman serves as a director of Quanta Services, Inc. He holds a B.S. degree in Finance from Syracuse University and an M.B.A. from the Harvard Business School.

David G. Eddie has served as Senior Vice President and Chief Accounting Officer of Waste Connections since January 2011. From February 2010 to that date, Mr. Eddie served as Vice President – Chief Accounting Officer. From March 2004 to February 2010, Mr. Eddie served as Vice President – Corporate Controller. From April 2003 to February 2004, Mr. Eddie served as Vice President – Public Reporting and Compliance. From May 2001 to March 2003, Mr. Eddie served as Director of Finance. Mr. Eddie served as Corporate Controller for International Fibercom, Inc. from April 2000 to May 2001. From September 1999 to April 2000, Mr. Eddie served as Waste Connections’ Manager of Financial Reporting. From September 1994 to September 1999, Mr. Eddie held various positions, including Audit Manager, for PricewaterhouseCoopers LLP. Mr. Eddie is a Certified Public Accountant and holds a B.S. degree in Accounting from California State University, Sacramento.

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David M. Hall has served as Senior Vice President – Sales and Marketing of Waste Connections since October 2005. From August 1998 to that date, Mr. Hall served as Vice President – Business Development. Mr. Hall has more than 30 years of experience in the solid waste industry with extensive operating and marketing experience in the Western U.S. Mr. Hall received a B.S. degree in Management and Marketing from Missouri State University.

James M. Little has served as Senior Vice President – Engineering and Disposal of Waste Connections since February 2009. From September 1999 to that date, Mr. Little served as Vice President – Engineering. Mr. Little held various management positions with Waste Management, Inc. (formerly USA Waste Services, Inc., which acquired Waste Management, Inc. and Chambers Development Co. Inc.) from April 1990 to September 1999, including Regional Environmental Manager and Regional Landfill Manager, and most recently Division Manager in Ohio, where he was responsible for the operations of ten operating companies in the Northern Ohio area. Mr. Little is a certified professional geologist and holds a B.S. degree in Geology from Slippery Rock University.

Patrick J. Shea has served as Senior Vice President, General Counsel and Secretary of Waste Connections since August 2014. From February 2009 to that date, Mr. Shea served as Vice President, General Counsel and Secretary. From February 2008 to February 2009, Mr. Shea served as General Counsel and Secretary. He served as Corporate Counsel from February 2004 to February 2008. Mr. Shea practiced corporate and securities law with Brobeck, Phleger & Harrison LLP in San Francisco from 1999 to 2003 and Winthrop, Stimson, Putnam & Roberts (now Pillsbury Winthrop Shaw Pittman LLP) in New York and London from 1995 to 1999. Mr. Shea holds a B.S. degree in Managerial Economics from the University of California at Davis and a J.D. degree from Cornell University.

Matthew S. Black has served as Vice President and Chief Tax Officer of Waste Connections since March 2012. From December 2006 to that date, Mr. Black served as Executive Director of Taxes.  Mr. Black served as Tax Director for The McClatchy Company from April 2001 to November 2006, and served as Tax Manager from December 2000 to March 2001.  From January 1994 to November 2000, Mr. Black held various positions, including Tax Manager, for PricewaterhouseCoopers LLP.  Mr. Black is a Certified Public Accountant and holds a B.S. degree in Accounting and M.S. degree in Taxation from California State University, Sacramento.

Robert M. Cloninger has served as Vice President, Deputy General Counsel and Assistant Secretary of Waste Connections since August 2014. From February 2013 to that date, Mr. Cloninger served as Deputy General Counsel. He served as Corporate Counsel from February 2008 to February 2013. Mr. Cloninger practiced corporate, securities and mergers and acquisitions law with Schiff Hardin LLP in Chicago from 1999 to 2004 and Downey Brand LLP in Sacramento from 2004 to 2008. Mr. Cloninger holds a B.A. degree in History from Northwestern University and a J.D. degree from the University of California at Davis.

Eric O. Hansen has served as Vice President – Chief Information Officer of Waste Connections since July 2004. From January 2001 to that date, Mr. Hansen served as Vice President – Information Technology. From April 1998 to December 2000, Mr. Hansen served as Director of Management Information Systems. Mr. Hansen holds a B.S. degree from Portland State University.

Susan R. Netherton has served as Vice President – People, Training and Development since July 2013. From February 2007 to that date, Ms. Netherton served as Director of Human Resources and Employment Manager. From 1994 to 2007, Ms. Netherton held various human resources positions at Carpenter Technology Corporation, a publicly traded specialty metals and materials company. Ms. Netherton holds a B. S. in Elementary Education from Kutztown University and an M.B.A. from St. Mary’s College of California.

Scott I. Schreiber has served as Vice President – Disposal Operations of Waste Connections since February 2009.  From October 1998 to that date, Mr. Schreiber served as Director of Landfill Operations.  Mr. Schreiber has more than 35 years of experience in the solid waste industry.  From September 1993 to September 1998, Mr. Schreiber served as corporate Director of Landfill Development and corporate Director of Environmental Compliance for Allied Waste Industries, Inc.  From August 1988 to September 1993, Mr. Schreiber served as Regional Engineer (Continental Region) and corporate Director of Landfill Development for Laidlaw Waste Systems Inc.  From June 1979 to August 1988, Mr. Schreiber held several managerial and technical positions in the solid waste and environmental industry.  Mr. Schreiber holds a B.S. degree in Chemistry from the University of Wisconsin at Parkside.

Gregory Thibodeaux has served as Vice President – Maintenance and Fleet Management of Waste Connections since January 2011. From January 2000 to that date, Mr. Thibodeaux served as Director of Maintenance.  Mr. Thibodeaux has more than 29 years of experience in the solid waste industry having held various management positions with Browning Ferris Industries, Sanifill, and USA Waste Services, Inc.  Before coming to Waste Connections, Mr. Thibodeaux served as corporate Director of Maintenance for Texas Disposal Systems.

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Mary Anne Whitney has served as Vice President - Finance of Waste Connections since March 2012.  From November 2006 to that date, Ms. Whitney served as Director of Finance.  Ms. Whitney held various finance positions for Wheelabrator Technologies from 1990 to 2001.  Ms. Whitney holds a B.A. degree in Economics from Georgetown University and an M.B.A. in Finance from New York University Stern School of Business.

Richard K. Wojahn has served as Vice President – Business Development of Waste Connections since February 2009.  From September 2005 to that date, Mr. Wojahn served as Director of Business Development.  Mr. Wojahn served as Vice President of Operations for Mountain Jack Environmental Services, Inc. (which was acquired by Waste Connections in September 2005) from January 2004 to September 2005.  Mr. Wojahn has more than 34 years of experience in the solid waste industry having held various management positions with Waste Management, Inc. and Allied Waste Industries, Inc.  Mr. Wojahn attended Western Illinois University.

AVAILABLE INFORMATION

Our corporate website address ishttp://www.wasteconnections.com.  The information on our website is not incorporated by reference in this annual report on Form 10-K.  We make our reports on Forms 10-K, 10-Q and 8-K and any amendments to such reports available on our website free of charge as soon as reasonably practicable after we file them with or furnish them to the Securities and Exchange Commission, or SEC.  The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC, 20549.  The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC maintains an internet website athttp://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

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ITEM 1A. RISK FACTORS

Certain statements contained in this Annual Report on Form 10-K are forward-looking in nature, including statements related to the impact of global economic conditions, including the price of crude oil, on our volume, business and results of operations; our ability to generate internal growth or expand permitted capacity at landfills we own or operate; our ability to grow through acquisitions and our expectations with respect to the impact of acquisitions on our expected revenues and expenses following the integration of such businesses; the competitiveness of our industry and how such competition may affect our operating results; our ability to provide adequate cash to fund our operating activities; our ability to draw on our credit agreement or raise additional capital; our ability to generate free cash flow and reduce our leverage; the effects of landfill special waste projects on volume results; the impact that price increases may have on our business and operating results; demand for recyclable commodities and recyclable commodity pricing; the effects of seasonality on our business and results of operations; our ability to obtain additional exclusive arrangements; increasing alternatives to landfill disposal; increases in labor and pension plan costs or the impact that labor union activity may have on our operating results; our expectations with respect to the purchase of fuel and fuel prices; our expectations with respect to capital expenditures; our expectations with respect to the outcomes of our legal proceedings; the impairment of our goodwill; insurance costs; disruptions to or breaches of our information systems; environmental, health and safety laws and regulations, including changes to the regulation of landfills, solid waste disposal, E&P waste disposal, or hydraulic fracturing; and the Merger Agreement, including the ability of the parties to consummate the proposed Merger. These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” or “anticipates,” or the negative thereof or comparable terminology, or by discussions of strategy. Our business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements.  Factors that could cause actual results to differ from those projected include, but are not limited to, those listed below and elsewhere in this report.  There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business.  We make noongoing commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.

Negative trends or volatility in crude oil prices may adversely affect the level of exploration, development and production activity of E&P companies and the demand for our E&P waste services.

The price of crude oil stayed lower in 2015 and has dropped again at the beginning of 2016. This sustained weakness is expected to affect the profitability and creditworthiness of many E&P companies and therefore may affect their level of investment and the amount of linear feet drilled in the basins where we operate. Lower crude oil prices and the volatility of such prices may impact the ability of E&P companies to access capital on economically advantageous terms or at all; in addition, E&P companies may elect to decrease investment in basins where the returns on investment are inadequate or uncertain due to lower crude oil prices or volatility in crude oil prices. Such reductions in capital spending would negatively impact E&P waste generation and therefore the demand for our services. Further, we cannot provide assurances that higher crude oil prices will result in increased capital spending and linear feet drilled by our customers in the basins where we operate.

Our results are vulnerable to economic conditions.

Our business and financial results would be harmed by downturns in the general economy, or in the economy of the regions in which we operate as well as other factors affecting those regions, including the price of crude oil.  In an economic slowdown, we experience the negative effects of decreased waste generation, increased competitive pricing pressure, customer turnover, and reductions in customer service requirements.  Two lines of business that could see a more immediate impact would be construction and demolition and E&P waste disposal. In addition, a weaker economy may result in declines in recycled commodity prices. Worsening economic conditions or a prolonged or recurring economic recession could adversely affect our operating results and expected seasonal fluctuations.  Further, we cannot assure you that any improvement in economic conditions after such a downturn will result in an immediate, if at all positive, improvement in our operating results or cash flows.

Our financial and operating performance may be affected by the inability to renew landfill operating permits, obtain new landfills and expand existing ones.

We currently own and/or operate 62 landfills.  Our ability to meet our financial and operating objectives may depend in part on our ability to acquire, lease, or renew landfill operating permits, expand existing landfills and develop new landfill sites, especially in our E&P waste business.  It has become increasingly difficult and expensive to obtain required permits and approvals to build, operate and expand solid waste management facilities, including landfills and transfer stations.  Although the process generally takes less time, the process of obtaining permits and approvals for E&P landfills has similar uncertainties. Operating permits for landfills in states where we operate must generally be renewed every five to ten years, although some permits are required to be renewed more frequently.  These operating permits often must be renewed several times during the permitted life of a landfill.  The permit and approval process is often time consuming, requires numerous hearings and compliance with zoning, environmental and other requirements, is frequently challenged by special interest and other groups, and may result in the denial of a permit or renewal, the award of a permit or renewal for a shorter duration than we believed was otherwise required by law, or burdensome terms and conditions being imposed on our operations.  We may not be able to obtain new landfill sites or expand the permitted capacity of our landfills when necessary and may be required to expense up to the carrying value of the landfill or expansion project, less the recoverable value of the property and other amounts recovered.  Obtaining new landfill sites is important to our expansion into new, non-exclusive solid waste markets and in our E&P waste business.  If we do not believe that we can obtain a landfill site in a non-exclusive market, we may choose not to enter that market.  Expanding existing landfill sites is important in those markets where the remaining lives of our landfills are relatively short.  We may choose to forego acquisitions and internal growth in these markets because increased volumes would further shorten the lives of these landfills.  Any of these circumstances could adversely affect our operating results.

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A portion of our growth and future financial performance depends on our ability to integrate acquired businesses, and the success of our acquisitions.

A component of our growth strategy involves achieving economies of scale and operating efficiencies by growing through acquisitions.  We may not achieve these goals unless we effectively combine the operations of acquired businesses with our existing operations.  Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills. In addition, we are not always able to control the timing of our acquisitions.  Our inability to complete acquisitions within the time frames that we expect may cause our operating results to be less favorable than expected, which could cause our stock price to decline.

Even if we are able to make acquisitions on advantageous terms and are able to integrate them successfully into our operations and organization, some acquisitions may not fulfill our anticipated financial or strategic objectives in a given market due to factors that we cannot control, such as market conditions, including the price of crude oil, market position, competition, customer base, loss of key employees, third-party legal challenges or governmental actions.  In addition, we may change our strategy with respect to a market or acquired businesses and decide to sell such operations at a loss, or keep those operations and recognize an impairment of goodwill and/or intangible assets.  Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills.

Each business that we acquire or have acquired may have liabilities or risks that we fail or are unable to discover, or that become more adverse to our business than we anticipated at the time of acquisition.

It is possible that thegood corporate entities or sites we have acquired, or which we may acquire in the future, have liabilities or risks in respect of former or existing operations or properties, or otherwise, which we have not been able to identify and assess through our due diligence investigations.  As a successor owner, we may be legally responsible for those liabilities that arise from businesses that we acquire.  Even if we obtain legally enforceable representations, warranties and indemnities from the sellers of such businesses, they may not cover the liabilities fully or the sellers may not have sufficient funds to perform their obligations.  Some environmental liabilities, even if we do not expressly assume them, may be imposed on us under various regulatory schemes and other applicable laws.  In addition, our insurance program may not cover such sites and will not cover liabilities associated with some environmental issues that may have existed prior to attachment of coverage.  A successful uninsured claim against us could harm our financial condition or operating results. Additionally, there may be other risks of which we are unaware that could have an adverse effect on businesses that we acquire or have acquired.  For example, interested parties may bring actions against us in connection with operations that we acquire or have acquired.  Furthermore, risks or liabilities we judge to be not material or remote at the time of acquisition may develop into more serious risks to our business. Any adverse outcome resulting from such risks or liabilities could harm our operations and financial results and create negative publicity, which could damage our reputation, competitive position and stock price.  For example, see the discussion regarding the Lower Duwamish Waterway Superfund Site Allocation Process under the “Legal Proceedings” section of Note 10 of our consolidated financial statements included in Item 8 of this report.

Competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions.

We seek to grow through strategic acquisitions in addition to internal growth. Although we have and expect to continue to identify numerous acquisition candidates that we believe may be suitable, we may not be able to acquire them at prices or on terms and conditions favorable to us.

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Other companies have adopted or may in the future adopt our strategy of acquiring and consolidating regional and local businesses.  We expect that increased consolidation in the solid waste services industry will continue to reduce the number of attractive acquisition candidates.  Moreover, general economic conditions and the environment for attractive investments may affect the desire of the owners of acquisition candidates to sell their companies.  As a result, we may have fewer acquisition opportunities, and those opportunities may be on less attractive terms than in the past, which could cause a reduction in our rate of growth from acquisitions.

Our ability to access the capital markets may be severely restricted at a time when we would like, or need, to do so. While we expect we will be able to fund some of our acquisitions with our existing resources, additional financing to pursue additional acquisitions may be required.  However, particularly if market conditions deteriorate, we may be unable to secure additional financing or any such additional financing may be available to us on unfavorable terms, which could have an impact on our flexibility to pursue additional acquisition opportunities.  In addition, disruptions in the capital and credit markets could adversely affect our ability to draw on our credit agreement or raise other capital.  Our access to funds under the credit agreement is dependent on the ability of the banks that are parties to the facility to meet their funding commitments.  Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time.

Our industry is highly competitive and includes larger and better capitalized companies, companies with lower prices, return expectations or other advantages, and governmental service providers, which could adversely affect our ability to compete and our operating results.

Our industry is highly competitive and requires substantial labor and capital resources.  Some of the markets in which we compete or will seek to compete are served by one or more large, national companies, as well as by regional and local companies of varying sizes and resources, some of which we believe have accumulated substantial goodwill in their markets.  Some of our competitors may also be better capitalized than we are, have greater name recognition than we do, or be able to provide or be willing to bid their services at a lower price than we may be willing to offer.  In addition, existing and future competitors may develop or offer services or new technologies, new facilities or other advantages. Our inability to compete effectively could hinder our growth or negatively impact our operating results.

In our solid waste business, we also compete with counties, municipalities and solid waste districts that maintain or could in the future choose to maintain their own waste collection and disposal operations, including through the implementation of flow control ordinances or similar legislation.  These operators may have financial advantages over us because of their access to user fees and similar charges, tax revenues and tax-exempt financing.

In our E&P waste business, we compete for disposal volumes with existing facilities owned by third parties, and we face potential competition from new facilities that are currently under development. Increased competition in certain markets may result in lower pricing and decreased volumes at our facilities. In addition, customers in certain markets may decide to use internal disposal methods for the treatment and disposal of their waste.

Our indebtedness could adversely affect our financial condition and limit our financial flexibility.

As of December 31, 2015, we had approximately $2.2 billion of total indebtedness outstanding, and we may incur additional debt in the future.  This amount of indebtedness could:

·increase our vulnerability to general adverse economic and industry conditions;
·expose us to interest rate risk since a majority of our indebtedness is at variable rates;
·limit our ability to obtain additional financing or refinancings at attractive rates;
·require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures, dividends, share repurchases and other general corporate purposes;
·limit our flexibility in planning for, or reacting to, changes in our business and the industry; and
·place us at a competitive disadvantage relative to our competitors with less debt.

Further, our outstanding indebtedness is subject to financial and other covenants, which may be affected by changes in economic or business conditions or other events that are beyond our control. If we fail to comply with the covenants under any of our indebtedness, we may be in default under the loan, which may entitle the lenders to accelerate the debt obligations. A default under one of our loans could result in cross-defaults under our other indebtedness. In order to avoid defaulting on our indebtedness, we may be required to take actions such as reducing or delaying capital expenditures, reducing or eliminating dividends or stock repurchases, selling assets, restructuring or refinancing all or part of our existing debt, or seeking additional equity capital, any of which may not be available on terms that are favorable to us, if at all.

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Price increases may not be adequate to offset the impact of increased costs, or may cause us to lose volume.

We seek price increases necessary to offset increased costs, to improve operating margins and to obtain adequate returns on our deployed capital.  Contractual, general economic, competitive or market-specific conditions may limit our ability to raise prices.  As a result of these factors, we may be unable to offset increases in costs, improve operating margins and obtain adequate investment returns through price increases.  We may also lose volume to lower-price competitors.

Fluctuations in prices for recycled commodities that we sell and rebates we offer to customers may cause our revenues and operating results to decline.

We provide recycling services to some of our customers.  The majority of the recyclables we process for sale are paper products that are shipped to customers in Asia.  The sale prices of and demands for recyclable commodities, particularly paper products, are frequently volatile and when they decline, our revenues, operating results and cash flows will be affected.  Many of our recycling operations offer rebates to customers based on the market prices of commodities we buy to process for resale.  Therefore, if we recognize increased revenues resulting from higher prices for recyclable commodities, the rebates we pay to suppliers will also increase, which also may impact our operating results.

The seasonal nature of our business and “event-driven” waste projects cause our results to fluctuate.

Based on historic trends, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters.  We expect the fluctuation in our revenues between our highest and lowest quarters to be approximately 12% to 15%.  This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during the winter months in the U.S., and reduced E&P activity during harsh weather conditions.  Conversely, mild winter weather conditions may reduce demand for oil and natural gas, which may cause our customers to curtail their drilling programs, which could result in production of lower volumes of E&P waste.

Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs.  Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis.  Certain weather conditions, including severe storms, may result in temporary suspension of our operations, which can significantly impact the operating results of the affected areas. Conversely, weather-related occurrences and other “event-driven” waste projects can boost revenues through heavier weight loads or additional work for a limited time period. These factors impact period-to-period comparisons of financial results, and our stock price may be negatively affected by these variations.

We may lose contracts through competitive bidding, early termination or governmental action.

We derive a significant portion of our revenues from market areas where we have exclusive arrangements, including franchise agreements, municipal contracts and G Certificates.  Many franchise agreements and municipal contracts are for a specified term and are, or will be, subject to competitive bidding in the future.  For example, we have approximately 265 contracts, representing approximately 2.5% of our annual revenues, which are set for expiration or automatic renewal on or before December 31, 2016.  Although we intend to bid on additional municipal contracts and franchise agreements, we may not be the successful bidder.  In addition, some of our customers, including municipalities, may terminate their contracts with us before the end of the terms of those contracts.  Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills. For example, see the discussion regarding the Madera County, California Materials Recovery Facility Contract Litigation under the “Legal Proceedings” section of Note 10 of our consolidated financial statements included in Item 8 of this report.

Governmental action may also affect our exclusive arrangements.  Municipalities may annex unincorporated areas within counties where we provide collection services.  As a result, our customers in annexed areas may be required to obtain services from competitors that have been franchised by the annexing municipalities to provide those services.  In addition, municipalities in which we provide services on a competitive basis may elect to franchise those services.  Unless we are awarded franchises by these municipalities, we will lose customers.  Municipalities may also decide to provide services to their residents themselves, on an optional or mandatory basis, causing us to lose customers.  Municipalities in Washington may, by law, annex any unincorporated territory, which could remove such territory from an area covered by a G Certificate issued to us by the WUTC.  Such occurrences could subject more of our Washington operations to competitive bidding.  Moreover, legislative action could amend or repeal the laws governing WUTC regulation, which could harm our competitive position by subjecting more areas to competitive bidding and/or overlapping service.  If we are not able to replace revenues from contracts lost through competitive bidding or early termination or from the renegotiation of existing contracts with other revenues within a reasonable time period, our revenues could decline.

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Alternatives to landfill disposal may cause our revenues and operating results to decline.

Counties and municipalities in which we operate landfills may be required to formulate and implement comprehensive plans to reduce the volume of municipal solid waste deposited in landfills through waste planning, composting, recycling or other programs.  Some state and local governments prohibit the disposal of certain types of wastes, such as yard waste, at landfills.  Although such actions are useful to protect our environment, these actions, as well as the actions of our customers to reduce waste or seek disposal alternatives, have reduced and may in the future further reduce the volume of waste going to landfills in certain areas, which may affect our ability to operate our landfills at full capacity and could adversely affect our operating results.

Increases in labor costs could impact our financial results.

Labor is one of our highest costs and relatively small increases in labor costs per employee could materially affect our cost structure.  We compete with other businesses in our markets for qualified employees and the labor supply is sometimes tight in our markets.  In our E&P waste business, for example, we are exposed to the cyclical variations in demand that are particular to the development and production of oil and natural gas in the U.S. A shortage of qualified employees would require us to incur additional costs related to wages and benefits, to hire more expensive temporary employees or to contract for services with more expensive third-party vendors.

Increases in the price of diesel or compressed natural gas fuel may adversely affect our collection business and reduce our operating margins.

The market price of diesel fuel is volatile.  We generally purchase diesel fuel at market prices, and such prices have fluctuated significantly in recent years.  A significant increase in market prices for fuel could adversely affect our waste collection business through a combination of higher fuel and disposal-related transportation costs and reduce our operating margins and reported earnings.  To manage a portion of this risk, we have entered into fuel hedge agreements related to forecasted diesel fuel purchases and fixed-price fuel purchase contracts.  During periods of falling diesel fuel prices, our hedge payable positions may increase and it may become more expensive to purchase fuel under fixed-price fuel purchase contracts than at market prices.

We utilize compressed natural gas, or CNG, in a small percentage of our fleet and may convert more of our fleet from diesel fuel to CNG over time. The market price of CNG is also volatile; a significant increase in such cost could adversely affect our operating margins and reported earnings.

Labor union activity could divert management attention and adversely affect our operating results.

From time to time, labor unions attempt to organize our employees.  Some groups of our employees are represented by unions, and we have negotiated collective bargaining agreements with most of these unions.  Additional groups of employees may seek union representation in the future.  As a result of these activities, we may be subjected to unfair labor practice charges, complaints and other legal and administrative proceedings initiated against us by unions or the National Labor Relations Board, which could negatively impact our operating results. Negotiating collective bargaining agreements with these unions could divert management attention, which could also adversely affect operating results.  If we are unable to negotiate acceptable collective bargaining agreements, we might have to wait through “cooling off” periods, which are often followed by union-initiated work stoppages, including strikes.  Depending on the type and duration of any labor disruptions, our operating expenses could increase significantly, which could adversely affect our financial condition, results of operations and cash flows.

We could face significant withdrawal liability if we withdraw from participation in one or more multiemployer pension plans in which we participate and the accrued pension benefits are not fully funded.

We participate in two “multiemployer” pension plans administered by employee and union trustees. We make periodic contributions to these plans to fund pension benefits for our union employees pursuant to our various contractual obligations to do so. In the event that we withdraw from participation in or otherwise cease our contributions to one of these plans, then applicable law regarding withdrawal liability could require us to make additional contributions to the plan if the accrued benefits are not fully funded, and we would have to reflect that “withdrawal liability” as an expense in our consolidated statement of operations and as a liability on our consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent to which accrued benefits are funded. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that participate in these plans, we may decide to discontinue participation in a multiemployer plan, and in that event, we could face withdrawal liability. Some multiemployer plans in which we participate may from time to time have significant accrued benefits that are not funded. The size of our potential withdrawal liability may be affected by the level of unfunded accrued benefits, the actuarial assumptions used by the plan and the investment gains and losses experienced by the plan.

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Pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.

We are, and from time to time become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business. Many of these matters raise complicated factual and legal issues and are subject to uncertainties and complexities, all of which makes the matters costly to address. For example, in recent years, wage and hour and employment laws have changed regularly and become increasingly complex, which has fostered litigation, including purported class actions. Similarly, citizen suits brought pursuant to environmental laws, such as those regulating the treatment of storm water runoff, have proliferated. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is uncertain. Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our consolidated financial condition, results of operations and cash flows. See discussion under the “Legal Proceedings” section of Note 10 of our consolidated financial statements included in Item 8 of this report.

We may be subject in the normal course of business to judicial, administrative or other third-party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity.

Governmental agencies may, among other things, impose fines or penalties on us relating to the conduct of our business, attempt to revoke or deny renewal of our operating permits, franchises or licenses for violations or alleged violations of environmental laws or regulations or as a result of third-party challenges, require us to install additional pollution control equipment or require us to remediate potential environmental problems relating to any real property that we or our predecessors ever owned, leased or operated or any waste that we or our predecessors ever collected, transported, disposed of or stored.  Individuals, citizens groups, trade associations or environmental activists may also bring actions against us in connection with our operations that could interrupt or limit the scope of our business.  Any adverse outcome in such proceedings could harm our operations and financial results and create negative publicity, which could damage our reputation, competitive position and stock price.

Our financial results could be adversely affected by impairments of goodwill, indefinite-lived intangibles or property and equipment.

As a result of our acquisition strategy, we have a material amount of goodwill, indefinite-lived intangibles and property and equipment recorded in our financial statements. We do not amortize our existing goodwill or indefinite-lived intangibles and are required to test goodwill and indefinite-lived intangibles for impairment annually in the fourth quarter of the year and whenever events or changes in circumstances indicate that the carrying value of goodwill and/or indefinite-lived intangible assets may not be recoverable using the two-step process prescribed in the accounting guidance. The first step is a screen for potential impairment, using either a qualitative or quantitative assessment, while the second step measures the amount of the impairment, if any. We perform the first step of the required impairment tests of goodwill and indefinite-lived intangible assets using a quantitative assessment. The recoverability of property and equipment is tested for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

The decline in oil prices that began in late 2014, and continued during 2015, together with market expectations of a likely slow recovery in oil prices, reduced the expected future period cash flows of our E&P segment, causing the fair value of the E&P segment to decrease below its carrying value. During the year ended December 31, 2015, we recorded impairment charges of $411.8 million associated with goodwill, $38.4 million associated with indefinite-lived intangible assets and $67.6 million associated with property and equipment in our E&P segment. Following the impairment charge, at December 31, 2015, our E&P segment has remaining balances of $77.3 million in goodwill, $21.5 million in indefinite-lived intangible assets and $929.8 million in property and equipment. Continued declines in oil prices, and/or a slower recovery in oil prices relative to market expectations could result in additional impairment charges associated with goodwill, indefinite-lived intangible assets and/or property and equipment in our E&P segment, which could adversely affect our financial condition and results of operations.

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Increases in insurance costs and the amount that we self-insure for various risks could reduce our operating margins and reported earnings.

We maintain high deductible insurance policies for automobile, general, employer’s, environmental, cyber, employment practices and directors’ and officers’ liability as well as for employee group health insurance, property insurance and workers’ compensation.  We carry umbrella policies for certain types of claims to provide excess coverage over the underlying policies and per incident deductibles.  The amounts that we effectively self-insure could cause significant volatility in our operating margins and reported earnings based on the event and claim costs of incidents, accidents, injuries and adverse judgments.  Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from our third-party actuary and our third-party claims administrator.  To the extent these estimates are inaccurate, we may recognize substantial additional expenses in future periods that would reduce operating margins and reported earnings.  Furthermore, while we maintain liability insurance, our insurance is subject to coverage limitations.If we were to incur substantial liability, our insurance coverage may be inadequate to cover the entirety of such liability. Thiscould have a material adverse effect on our financial position, results of operations and cash flows. One form of coverage limitation concernsclaims for punitive damages, which are generally excluded from coverage under all of our liability insurance policies.  A punitive damage award could have an adverse effect on our reported earnings in the period in which it occurs.  Significant increases in premiums on insurance that we retain also could reduce our margins.

We rely on computer systems to run our business and disruptions or privacy breaches in these systems could impact our ability to service our customers and adversely affect our financial results, damage our reputation, and expose us to litigation risk.

Our businesses rely on computer systems to provide customer information, process customer transactions and provide other general information necessary to manage our businesses. We also rely on a payment card industry compliant third party to protect our customers’ credit card information. We have an active disaster recovery plan in place that we review and test. However, our computer systems are subject to damage or interruption due to system conversions, power outages, computer or telecommunication failures, catastrophic events such as fires, tornadoes and hurricanes and usage errors by our employees. Given the unpredictability of the timing, nature and scope of such disruptions, we could potentially be subject to operational delays and interruptions in our ability to provide services to our customers. Any disruption caused by the unavailability of our computer systems could adversely affect our revenues or could require significant investment to fix or replace them, and, therefore, could affect our operating results.

In addition, cyber-security attacks are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems, unauthorized release of confidential or otherwise protected information and corruption of data. If the network of security controls, policy enforcement mechanisms or monitoring systems we use to address these threats to technology fail, the compromising of confidential or otherwise protected company, customer or employee information, destruction or corruption of data, security breaches or other manipulation or improper use of our systems and networks could result in financial losses from remedial actions, loss of business or potential liability and damage to our reputation.

Extensive and evolving environmental, health and safety laws and regulations may restrict our operations and growth and increase our costs.

Existing environmental laws and regulations have become more stringently enforced in recent years.  In addition, our industry is subject to regular enactment of new or amended federal, state and local environmental and health and safety statutes, regulations and ballot initiatives, as well as judicial decisions interpreting these requirements, which have become more stringent over time.  Citizen suits brought pursuant to environmental laws have proliferated. We expect these trends to continue, which could lead to material increases in our costs for future environmental, health and safety compliance. These requirements also impose substantial capital and operating costs and operational limitations on us and may adversely affect our business.  In addition, federal, state and local governments may change the rights they grant to, the restrictions they impose on, or the laws and regulations they enforce against, solid waste and E&P waste services companies. These changes could adversely affect our operations in various ways, including without limitation, by restricting the way in which we manage storm water runoff, comply with health and safety laws, treat and dispose of E&P or other waste or our ability to operate and expand our business.

Governmental authorities and various interest groups have promoted laws and regulations that could or will limit GHG emissions due to concerns that GHGs are contributing to climate change.  The State of California has already adopted a climate change law, and other states in which we operate are considering similar actions. In addition, the EPA made an endangerment finding in 2009 allowing certain GHGs to be regulated under the CAA.  This finding allows the EPA to create regulations that will impact our operations – including imposing emission reporting, permitting, control technology installation, and monitoring requirements, although the materiality of the impacts will not be known until all applicable regulations are promulgated and finalized.  Regulation of GHG emissions from oil and natural gas E&P operations may also increase the costs to our customers of developing and producing hydrocarbons, and as a result, may have an indirect and adverse effect on the amount of oilfield waste delivered to our facilities by our customers. These statutes and regulations increase the costs of our operations, and future climate change statutes and regulations may have an impact as well.

Our E&P waste business could be adversely affected by changes in laws regulating E&P waste.

We believe that the demand for our E&P waste services is directly related to the regulation of E&P waste. In particular, RCRA, which governs the disposal of solid and hazardous waste, currently exempts certain E&P wastes from classification as hazardous wastes. In recent years, proposals have been made to rescind this exemption from RCRA. If the exemption covering E&P wastes is repealed or modified, or if the regulations interpreting the rules regarding the treatment or disposal of this type of waste were changed, our operations could face significantly more stringent regulations, permitting requirements, and other restrictions, which could have a material adverse effect on our business.

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Our E&P waste business depends on the willingness of E&P companies to outsource their waste services activities.

The demand for E&P waste services in the basins in which we operate may be adversely affected by the willingness of E&P companies to outsource their waste services activities. In certain basins, we are largely dependent on the willingness of E&P companies to outsource their waste services activities generally, and to us specifically, rather than to our competitors. To the extent that E&P companies, including our current customers, elect not to outsource their E&P waste services activities or market prices decline, our results may be affected. E&P companies have varying market shares within basins, and, depending on that share, the loss of any customer in a given basin could have an adverse effect on results of operations and cash flows in that market. Furthermore, while our E&P customers frequently require us to enter into master service agreements, such agreements typically do not include volume commitments from the customers and typically are terminable at the discretion of either party. These factors introduce greater volatility to our revenues and operating margins for this business, which could have a material adverse effect on our financial position, results of operations and cash flows.

Changes in laws or government regulations regarding hydraulic fracturing could increase our customers’ costs of doing business and reduce oil and gas production by our customers, which could adversely impact our business.

We do not conduct hydraulic fracturing operations, but we do provide treatment, recovery and disposal services with respect to the fluids used and wastes generated by our customers in such operations, which are often necessary to drill and complete new wells and maintain existing wells. Recently, there has been increased public concern regarding the alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate federal, state and local legislation that would increase the regulatory burden imposed on hydraulic fracturing. Bills and regulations have been proposed and/or adopted at the federal, state, and local levels that would regulate, restrict, or prohibit hydraulic fracturing operations or require the reporting and public disclosure of chemicals used in the hydraulic fracturing process. Additionally, the EPA is currently studying the environmental impacts of hydraulic fracturing, including the impacts resulting from the treatment and disposal of E&P wastes associated with the hydraulic fracturing process, which could result in increased regulation of hydraulic fracturing and new rules regarding the treatment and disposal of E&P wastes associated with fracturing.

If new federal, state, or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities, and make it more difficult or costly for our customers to perform fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas E&P activities by our customers and, therefore, adversely affect our business. Such laws or regulations could also materially increase our costs of compliance and doing business by more strictly regulating how hydraulic fracturing wastes are handled or disposed. Conversely, any loosening of existing federal, state, or local laws or regulations regarding how such wastes are handled or disposed could adversely impact demand for our services.

Future changes in laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results.

Various state and local governments have enacted, or are considering enacting, laws and regulations that restrict the disposal within the jurisdiction of solid waste generated outside the jurisdiction. In addition, some state and local governments have promulgated, or are considering promulgating, laws and regulations which govern the flow of waste generated within their respective jurisdictions.  These “flow control” laws and regulations typically require that waste generated within the jurisdiction be directed to specified facilities for disposal or processing, which could limit or prohibit the disposal or processing of waste in our transfer stations and landfills. Such flow control laws and regulations could also require us to deliver waste collected by us within a particular jurisdiction to facilities not owned or controlled by us, which could increase our costs and reduce our revenues. In addition, such laws and regulations could require us to obtain additional costly licenses or authorizations to be deemed an authorized hauler or disposal facility. All such waste disposal laws and regulations are subject to judicial interpretation and review.  Court decisions, legislation, and state and local regulation in the waste disposal area could adversely affect our operations.

Extensive regulations that govern the design, operation, expansion and closure of landfills may restrict our landfill operations or increase our costs of operating landfills.

If we fail to comply with state and federal regulations governing the design, operation, expansion, closure and financial assurance of MSW, non-MSW and E&P landfills, we could be required to undertake investigatory or remedial activities, curtail operations or close such landfills temporarily or permanently.  Future changes to these regulations may require us to modify, supplement or replace equipment or facilities at substantial costs.  If regulatory agencies fail to enforce these regulations vigorously or consistently, our competitors whose facilities are not forced to comply with the regulations may obtain an advantage over us.  Our financial obligations arising from any failure to comply with these regulations could harm our business and operating results.

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Our financial results are based upon estimates and assumptions that may differ from actual results.

In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles, estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses.  These estimates and assumptions must be made because certain information that is used in the preparation of our financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is not capable of being readily calculated based on generally accepted methodologies.  In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment.  The most difficult, subjective and complex estimates and the assumptions that deal with the greatest amount of uncertainty are related to our accounting for landfills, self-insurance accruals, income taxes, allocation of acquisition purchase price, asset impairments and litigation, claims and assessments.  Actual results for all estimates could differ materially from the estimates and assumptions that we use, which could have an adverse effect on our financial condition and results of operations.

Our accruals for our landfill site closure and post-closure costs may be inadequate.

We are required to pay capping, closure and post-closure maintenance costs for landfill sites that we own and operate.  We are also required to pay capping, closure and post-closure maintenance costs for operated landfills for which we have life-of-site agreements.  Our obligations to pay closure or post-closure costs may exceed the amount we have accrued and reserved and other amounts available from funds or reserves established to pay such costs.  In addition, the completion or closure of a landfill site does not end our environmental obligations.  After completion or closure of a landfill site, there exists the potential for unforeseen environmental problems to occur that could result in substantial remediation costs or potential litigation.  Paying additional amounts for closure or post-closure costs and/or for environmental remediation and/or for litigation could harm our financial condition or operating results.

We depend significantly on the services of the members of our senior and regional management team, and the departure of any of those persons could cause our operating results to suffer.

Our success depends significantly on the continued individual and collective contributions of our senior and regional management team.  Of particular importance to our success are the services of our founder, Chief Executive Officer and Chairman, Ronald J. Mittelstaedt.  Key members of our management, including Mr. Mittelstaedt, have entered into employment agreements, but we may not be able to enforce these agreements.  The loss of the services of any member of our senior and regional management or the inability to hire and retain experienced management personnel could harm our operating results.

Our decentralized decision-making structure could allow local managers to make decisions that may adversely affect our operating results.

We manage our operations on a decentralized basis.  Local managers have the authority to make many decisions concerning their operations without obtaining prior approval from executive officers, subject to compliance with general company-wide policies.  Poor decisions by local managers could result in the loss of customers or increases in costs, in either case adversely affecting operating results.

Liabilities for environmental damage may adversely affect our financial condition, business and earnings.

We may be liable for any environmental damage that our current or former operations cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, and especially drinking water, or to natural resources.  We may be liable for damage resulting from conditions existing before we acquired these operations. Even if we obtain legally enforceable representations, warranties and indemnities from the sellers of these operations, they may not cover the liabilities fully or the sellers may not have sufficient funds to perform their obligations.

We may also be liable for any on-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal we or our predecessors arranged or conducted.  Some environmental laws and regulations may impose strict, joint and several liability in connection with releases of regulated substances into the environment. Therefore, in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, third parties, including our predecessors. If we were to incur liability for environmental damage, environmental clean-ups, corrective action or damage not covered by insurance or in excess of the amount of our coverage, our financial condition or operating results could be materially adversely affected.  For example, see the discussion regarding the Lower Duwamish Waterway Superfund Site Allocation Process under the “Legal Proceedings” section of Note 10 of our consolidated financial statements included in Item 8 of this report.

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If we are not able to develop and protect intellectual property, or if a competitor develops or obtains exclusive rights to a breakthrough technology, our financial results may suffer.

Our existing and proposed service offerings to customers may require that we develop or license, and protect, new technologies. We may experience difficulties or delays in the research, development, production and/or marketing of new products and services which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to bring new products and services to market. Further, protecting our intellectual property rights and combating unlicensed copying and use of intellectual property is difficult, and any inability to obtain or protect new technologies could impact our services to customers and development of new revenue sources. Additionally, a competitor may develop or obtain exclusive rights to a “breakthrough technology” that provides a revolutionary change in traditional waste management. If we have inferior intellectual property to our competitors, our financial results may suffer.

Risks Related to our Proposed Merger with Progressive Waste

The proposed Merger is subject to various closing conditions, including regulatory and stockholder approvals, as well as other uncertainties and there can be no assurances as to whether and when the Merger may be completed.

As previously announced, on January 18, 2016, we entered into the Merger Agreement with Progressive Waste and Merger Sub, a wholly-owned subsidiary of Progressive Waste, under which, subject to the terms and conditions of the Merger Agreement, Merger Sub will be merged with and into Waste Connections, with Waste Connections surviving the Merger as a wholly-owned subsidiary of Progressive Waste, which we refer to as the Merger. The consummation of the Merger is subject to various customary conditions, including the affirmative vote of holders of a majority of the outstanding shares of our common stock, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other regulatory clearances. If these conditions to the closing of the Merger are not fulfilled, some of which are not within our control, then the Merger cannot be consummated. If the Merger does not receive, or timely receive, the required regulatory approvals and clearances, or if another event occurs that delays or prevents the Merger, such delay or failure to complete the Merger may cause uncertainty and other negative consequences that may materially and adversely affect our business, financial position, and results of operations.

In addition, under certain circumstances in connection with a termination of the Merger Agreement, we may be required to pay a termination fee of up to $150 million to Progressive Waste. We can give you no assurance that the Merger will be consummated, in which case we would not realize the anticipated benefits of having completed the Merger, which may adversely affect us.

In the event that the proposed Merger is not completed, the trading price of our common stock and our future business and financial results may be negatively impacted.

As noted above, the conditions to the completion of the Merger with Progressive Waste may not be satisfied. If the Merger is not completed for any reason, including those not involving the payment by us of the termination fee to Progressive Waste, we would still be liable for significant transaction costs and the focus of our management would have been diverted from seeking other potential opportunities without realizing any benefits of the completed Merger. If we do not complete the Merger, the price of our common stock may decline from the current market price, which may reflect a market assumption that the Merger will be completed.

The proposed Merger may divert management attention and not achieve the intended benefits or may disrupt our operations.

The pendency of the Merger could cause the attention of our management to be diverted from the day-to-day operations and customers or suppliers may seek to modify or terminate their business relationships with us. These disruptions could be exacerbated by a delay in the completion of the Merger and could have an adverse effect on our business, operating results or prospects.

If and when the Merger closes, we may not achieve anticipated synergies, integration may result in unforeseen expenses, and we may not realize the anticipated benefits of the integration plan. Our business may be negatively impacted following the Merger if we are unable to effectively manage our expanded operations. The integration will require significant time and focus from our management and may disrupt achievement of other strategic objectives.

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The exchange ratio is fixed and will not be adjusted in the event of any change in the price of either our common stock or Progressive Waste common shares.

At the effective time of the Merger, each share of our common stock issued and outstanding immediately prior to the Merger will be converted into the right to receive 2.076843 validly issued, fully paid and nonassessable common shares of Progressive Waste (or, if the anticipated consolidation of shares of Progressive Waste is approved by the shareholders of Progressive Waste and implemented, one common share of Progressive Waste on a post-consolidation basis). This exchange ratio will not be adjusted for changes in the market price of either our common stock or Progressive Waste common shares between the date of signing the Merger Agreement and completion of the Merger. Changes in the price of Progressive Waste common shares prior to the closing of the Merger will affect the value of Progressive Waste common shares that our stockholders will receive on the effective date. The exchange ratio will, however, be adjusted appropriately to fully reflect the effect of any reclassification, stock split, stock dividend or distribution, recapitalization or other similar transaction with respect to either our common stock or Progressive Waste common shares prior to the effective date of the Merger.

The prices of our common stock and Progressive Waste common shares on the effective date of the Merger may vary from their prices between the date the Merger Agreement was executed and the effective date of the Merger. As a result, the value represented by the exchange ratio will also vary. These variations could result from changes in the business, operations or prospects of either Waste Connections or Progressive Waste prior to or following the effective date of the Merger, regulatory considerations, general market and economic conditions and other factors both within and beyond the control of Waste Connections or Progressive Waste.

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ITEM 1B.UNRESOLVED STAFF COMMENTS

None.

ITEM 2.PROPERTIES

As of December 31, 2015, we owned 155 solid waste collection operations, 52 transfer stations, 35 MSW landfills, nine E&P waste landfills, eight non-MSW landfills, 37 recycling operations, fiveintermodal operations, 24 E&P liquid waste injection wells and 20 E&P waste treatment and oil recovery facilities, and operated, but did not own, an additional 17transfer stations, nineMSW landfills, one non-MSW landfill and two intermodal operations, in 32 states.  Non-MSW landfills accept construction and demolition, industrial and other non-putrescible waste. We lease certain of the sites on which these facilities are located.  We lease various office facilities, including our corporate offices in The Woodlands, Texas, where we occupy approximately 53,000 square feet of space. We also maintain regional administrative offices in each of our segments.  We own a variety of equipment, including waste collection and transportation vehicles, related support vehicles, double-stack rail cars, carts, containers, chassis and heavy equipment used in landfill, collection, transfer station, waste treatment and intermodal operations.  We believe that our existing facilities and equipment are adequate for our current operations.  However, we expect to make additional investments in property and equipment for expansion and replacement of assets in connection with future acquisitions.

ITEM 3.LEGAL PROCEEDINGS

Information regarding our legal proceedings can be found under the “Legal Proceedings” section of Note 10 of our consolidated financial statements included in Item 8 of this report and is incorporated herein by reference.

ITEM 4.MINE SAFETY DISCLOSURE

None.

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PART II

ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is listed on the New York Stock Exchange under the symbol “WCN”.  The following table sets forth the high and low prices per share of our common stock, as reported on the New York Stock Exchange, and the cash dividends declared per share of common stock, for the periods indicated.  

  HIGH  LOW  DIVIDENDS
DECLARED(1)
 
          
2016            
First Quarter (through January 29, 2016) $60.24  $50.64  $0.145 
             
2015            
Fourth Quarter $57.65  $48.16  $0.145 
Third Quarter  51.10   45.70   0.13 
Second Quarter  49.39   44.81   0.13 
First Quarter  48.96   42.05   0.13 
             
2014            
Fourth Quarter $50.73  $42.86  $0.13 
Third Quarter  50.93   46.60   0.115 
Second Quarter  48.80   41.76   0.115 
First Quarter  44.62   39.69   0.115 

(1)  On February 8, 2016, we announced that our Board of Directors approved a regular quarterly cash dividend of $0.145 per share on our common stock. Our Board of Directors will review the cash dividend periodically, with a long-term objective of increasing the amount of the dividend. We cannot assure you as to the amounts or timing of future dividends. We have the ability under our credit agreement and master note purchase agreement to repurchase our common stock and pay dividends provided we maintain specified financial ratios.

As of January 29, 2016, there were 95 record holders of our common stock.

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Performance Graph

The following performance graph compares the total cumulative stockholder returns on our common stock over the past five fiscal years with the total cumulative returns for the S&P 500 Index and the Dow Jones U.S. Waste and Disposal Services Index, or DJ Waste Services Index.

The graph assumes an investment of $100 in our common stock on December 31, 2010, and the reinvestment of all dividends.  This chart has been calculated in compliance with SEC requirements and prepared by Capital IQ®.

This graph and the accompanying text is not “soliciting material,” is not deemed filed with the SEC, and is not to be incorporated by reference in any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing. 

  Base
Period
  Indexed Returns
Years Ending
Company Name / Index Dec10  Dec11 Dec12  Dec13  Dec14  Dec15 
Waste Connections, Inc. $100  $121.56 $125.42  $163.63  $166.68  $215.73 
S&P 500 Index $100  $102.11 $118.45  $156.82  $178.29  $180.75 
Dow Jones U.S. Waste & Disposal Services Index $100  $100.18 $108.70  $135.80  $154.48  $160.95 

THE STOCK PRICE PERFORMANCE INCLUDED IN THIS GRAPH IS NOT NECESSARILY INDICATIVE OF FUTURE STOCK PRICE PERFORMANCE.

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ITEM 6.SELECTED FINANCIAL DATA

This table sets forth our selected financial data for the periods indicated.  This data should be read in conjunction with, and is qualified by reference to, “Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of this Annual Report on Form 10-K and our audited consolidated financial statements, including the related notes and our independent registered public accounting firm’s report and the other financial information included in Item 8 of this Annual Report on Form 10-K.  The selected data in this section is not intended to replace the consolidated financial statements included in this report.

  YEARS ENDED DECEMBER 31, 
  2015 (a)  2014 (a)  2013 (a)  2012  2011 
  (in thousands, except share and per share data) 
STATEMENT OF OPERATIONS DATA:                    
Revenues $2,117,287  $2,079,166  $1,928,795  $1,661,618  $1,505,366 
Operating expenses:                    
Cost of operations  1,177,409   1,138,388   1,064,819   956,357   857,580 
Selling, general and administrative  237,484   229,474   212,637   197,454   161,967 
Depreciation  240,357   230,944   218,454   169,027   147,036 
Amortization of intangibles  29,077   27,000   25,410   24,557   20,064 
Loss on prior office leases  -   -   9,902   -   - 
Impairments and other operating items  494,492   4,091   4,129   (1,924)  1,657 
Operating income (loss)  (61,532)  449,269   393,444   316,147   317,062 
                     
Interest expense  (64,236)  (64,674)  (73,579)  (53,037)  (44,520)
Other income (expense), net  (518)  1,067   1,056   1,993   587 
Income (loss) before income tax provision  (126,286)  385,662   320,921   265,103   273,129 
                     
Income tax (provision) benefit  31,592   (152,335)  (124,916)  (105,443)  (106,958)
Net income (loss)  (94,694)  233,327   196,005   159,660   166,171 
                     
Less:  Net income attributable to noncontrolling interests  (1,070)  (802)  (350)  (567)  (932)
Net income (loss) attributable to Waste Connections $(95,764) $232,525  $195,655  $159,093  $165,239 
                     
Earnings (loss) per common share attributable to Waste Connections’ common stockholders:                    
Basic $(0.78) $1.87  $1.58  $1.31  $1.47 
Diluted $(0.78) $1.86  $1.58  $1.31  $1.45 
                     
Shares used in the per share calculations:                    
Basic  123,491,931   124,215,346   123,597,540   121,172,381   112,720,444 
Diluted  123,491,931   124,787,421   124,165,052   121,824,349   113,583,486 
                     
Cash dividends per common share $0.535  $0.475  $0.415  $0.37  $0.315 
Cash dividends paid $65,990  $58,906  $51,213  $44,465  $35,566 

(a)For more information regarding this financial data, see the Management’s Discussion and Analysis of Financial Condition and Results of Operations section included in this report.

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  DECEMBER 31, 
  2015  2014  2013  2012  2011 
  (in thousands, except share and per share data) 
BALANCE SHEET DATA:                    
Cash and equivalents $10,974  $14,353  $13,591  $23,212  $12,643 
Working capital surplus (deficit)  (15,847)  5,833   (16,513)  (55,086)  (34,544)
Property and equipment, net  2,738,288   2,594,205   2,450,649   2,457,606   1,450,469 
Total assets  5,121,798   5,245,267   5,057,617   5,067,199   3,325,633 
Long-term debt and notes payable  2,147,127   1,971,152   2,060,955   2,196,140   1,170,386 
Total equity  1,991,784   2,233,741   2,048,207   1,883,130   1,399,687 

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ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As previously noted, the following discussion excludes any impact that may result from the Merger. The following discussion should be read in conjunction with the “Selected Financial Data” included in Item 6 of this Annual Report on Form 10-K, our consolidated financial statements and the related notes included elsewhere in this report.

Industry Overview

The municipal solid waste industry is a local and highly competitive business, requiring substantial labor and capital resources.  The participants compete for collection accounts primarily on the basis of price and, to a lesser extent, the quality of service, and compete for landfill business on the basis of tipping fees, geographic location and quality of operations.  The municipal solid waste industry has been consolidating and continues to consolidate as a result of a number of factors, including the increasing costs and complexity associated with waste management operations and regulatory compliance.  Many small independent operators and municipalities lack the capital resources, management, operating skills and technical expertise necessary to operate effectively in such an environment.  The consolidation trend has caused municipal solid waste companies to operate larger landfills that have complementary collection routes that can use company-owned disposal capacity.  Controlling the point of transfer from haulers to landfills has become increasingly important as landfills continue to close and disposal capacity moves farther from the collection markets it serves.

Generally, the most profitable operators within the municipal solid waste industry are those companies that are vertically integrated or enter into long-term collection contracts.  A vertically integrated operator will benefit from:  (1) the internalization of waste, which is bringing waste to a company-owned landfill; (2) the ability to charge third-party haulers tipping fees either at landfills or at transfer stations; and (3) the efficiencies gained by being able to aggregate and process waste at a transfer station prior to landfilling.

The E&P waste services industry is regional in nature and is also highly fragmented, with acquisition opportunities available in several active natural resource basins. Competition for E&P waste comes primarily from smaller regional companies that utilize a variety of disposal methods and generally serve specific geographic markets, and other solid waste companies. In addition, customers in many markets have the option of using internal disposal methods or outsourcing to another third-party disposal company. The principal competitive factors in this business include: gaining customer approval of treatment and disposal facilities; location of facilities in relation to customer activity; reputation; reliability of services; track record of environmental compliance; ability to accept multiple waste types at a single facility; and price.  The demand for our E&P waste services depends on the continued demand for, and production of, oil and natural gas. Crude oil and natural gas prices historically have been volatile and the substantial reductions in crude oil prices that began in October 2014, and continued through 2015 and into early 2016, have resulted in a decline in the level of drilling and production activity, reducing the demand for E&P waste services in the basins in which we operate. During the year ended December 31, 2015, we recorded charges totaling $517.8 million associated with the impairment of a portion of our goodwill, intangible assets and property and equipment within our E&P segment as a result of the sustained decline in oil prices in recent months, together with market expectations of a likely slow recovery in such prices, making it more likely than not that the fair value of these assets had decreased below their respective carrying values. A further reduction in crude oil and natural gas prices could lead to continued declines in the level of production activity and demand for our E&P waste services, which could result in the recognition of additional impairment charges on our goodwill, intangible assets and property and equipment associated with our E&P operations.

Executive Overview

We are an integrated municipal solid waste services company that provides solid waste collection, transfer, disposal and recycling services primarily in exclusive and secondary markets in the U.S. and a leading provider of non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in several of the most active natural resource producing areas of the U.S. We also provide intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities.

We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. In markets where waste collection services are provided under exclusive arrangements, or where waste disposal is municipally owned or funded or available at multiple municipal sources, we believe that controlling the waste stream by providing collection services under exclusive arrangements is often more important to our growth and profitability than owning or operating landfills.  We also target niche markets, like E&P waste treatment and disposal services.

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As of December 31, 2015, we served residential, commercial, industrial and E&P customers in 32 states:  Alabama, Alaska, Arizona, Arkansas, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming.  As of December 31, 2015, we owned or operated a network of 155 solid waste collection operations; 69 transfer stations; seven intermodal facilities, 37 recycling operations, 62 active MSW, E&P and/or non-MSW landfills, 24 E&P liquid waste injection wells and 20 E&P waste treatment and oil recovery facilities.

2015 Financial Performance

Operating Results

Revenues in 2015 increased 1.8% to $2.12 billion from $2.08 billion in 2014, as a result of growth in solid waste, partially offset by decreased E&P waste activity. Solid waste revenues increased 7.5%, due to internal growth and acquisitions. Solid waste internal growth decreased to 4.2% in 2015, from 4.3% in 2014.  Pricing growth was 0.2 percentage points lower than in 2014, due to lower fuel, materials and environmental surcharges. Increases in landfill and hauling volumes contributed to total volume growth increasing to 2.2% in 2015 from 2.1% in 2014. A similar decrease in recycled commodity prices as in the prior year resulted in recycling contributing negative 0.6% to internal growth in 2015 and 2014. E&P waste revenues decreased to $215.4 million from $310.1 million in 2014, due to decreased activity at existing facilities partially offset by contributions from new facilities.

In 2015, adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, a non-GAAP financial measure (refer to page 62 of this report for a definition and reconciliation to Net income (loss)), decreased 0.9% to $710.6 million, from $717.1 million in 2014.  As a percentage of revenue, adjusted EBITDA decreased from 34.5% in 2014, to 33.6% in 2015.  This 0.9 percentage point decrease was primarily attributable to the decrease in higher margin E&P waste revenues. Adjusted net income attributable to Waste Connections, a non-GAAP financial measure (refer to page 63 of this report for a definition and reconciliation to Net income (loss) attributable to Waste Connections), in 2015 decreased 3.7% to $244.9 million from $254.2 million in 2014.

Adjusted Free Cash Flow

Net cash provided by operating activities increased 5.9% to $577.0 million in 2015, from $545.1 million in 2014, and capital expenditures decreased from $241.3 million in 2014 to $238.8 million in 2015, a decrease of $2.5 million, or 1.0%. This decrease in capital expenditures was primarily due to pulling forward into 2014 capital expenditures from 2015 to take advantage of bonus depreciation tax benefits available in 2014, and the construction of two new E&P waste disposal facilities and a new construction and demolition landfill in 2014.  Adjusted free cash flow, a non-GAAP financial measure (refer to page 61 of this report for a definition and reconciliation to Net cash provided by operating activities), increased 6.7% to $343.0 million in 2015, from $321.4 million in 2014.  Adjusted free cash flow as a percentage of revenues was 16.2% in 2015, compared to 15.5% in 2014.  This increase as a percentage of revenues was primarily due to higher net cash provided by operating activities as noted above.

Return of Capital to Stockholders

In 2015, we returned $66.0 million to stockholders through cash dividends declared by our Board of Directors, which also increased the quarterly cash dividend by 11.5% from $0.13 to $0.145 per share of common stock in October 2015. Our Board of Directors intends to review the quarterly dividend during the fourth quarter of each year, with a long-term objective of increasing the amount of the dividend. In 2015, we also repurchased approximately 1.96 million shares of common stock at a cost of $91.2 million. We expect the amount of capital we return to stockholders through stock repurchases to vary depending on our financial condition and results of operations, capital structure, the amount of cash we deploy on acquisitions, the market price of our common stock, and overall market conditions. We cannot assure you as to the amounts or timing of future stock repurchases or dividends. We have the ability under our credit agreement and master note purchase agreement to repurchase our common stock and pay dividends provided that we maintain specified financial ratios.

Capital Position

We target a leverage ratio, as defined in our credit agreement, of approximately 2.75x – 3.0x total debt to EBITDA.  We deployed $347.9 million during 2015 for acquisitions, and we increased our debt by $177.7 million. As a result, our leverage ratio increased to 2.88x at December 31, 2015, from 2.67x at December 31, 2014.

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Critical Accounting Estimates and Assumptions

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements.  As described by the SEC, critical accounting estimates and assumptions are those that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on the financial condition or operating performance of a company.  Such critical accounting estimates and assumptions are applicable to our reportable segments.  Based on this definition, we believe the following are our critical accounting estimates.

Insurance liabilities.  We maintain high deductible or self-insured retention insurance policies for automobile, general, employer’s, environmental, cyber, employment practices and directors’ and officers’ liability as well as for employee group health insurance, property insurance and workers’ compensation.  We carry umbrella policies for certain types of claims to provide excess coverage over the underlying policies and per incident deductibles or self-insured retentions.  Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from our third-party actuary and third-party claims administrator.  The insurance accruals are influenced by our past claims experience factors, which have a limited history, and by published industry development factors.  If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected.  The frequency and amount of claims or incidents could vary significantly over time, which could materially affect our self-insurance liabilities.  Additionally, the actual costs to settle the self-insurance liabilities could materially differ from the original estimates and cause us to incur additional costs in future periods associated with prior year claims.

Income taxes.  Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.  If our judgment and estimates concerning assumptions made in calculating our expected future income tax rates are incorrect, our deferred tax assets and liabilities would change.  Based on our net deferred tax liability balance at December 31, 2015, each 0.1 percentage point change to our expected future income tax rate would change our net deferred tax liability balance and income tax expense by approximately $1.1 million.

Accounting for landfills.  We recognize landfill depletion expense as airspace of a landfill is consumed.  Our landfill depletion rates are based on the remaining disposal capacity at our landfills, considering both permitted and probable expansion airspace.  We calculate the net present value of our final capping, closure and post-closure commitments 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 our final capping, closure and post-closure liabilities being recorded in “layers.”  The resulting final capping, closure and post-closure obligation is recorded on the 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.  The accounting methods discussed below require us to make certain estimates and assumptions.  Changes to these estimates and assumptions could have a material effect on our financial condition and results of operations.  Any changes to our estimates are applied prospectively.

Landfill development costs.  Landfill development costs include the costs of acquisition, construction associated with excavation, liners, site berms, groundwater monitoring wells, gas recovery systems and leachate collection systems.  We estimate the total costs associated with developing each landfill site to its final capacity.  Total landfill costs include the development costs associated with expansion airspace.  Expansion airspace is described below.  Landfill development costs depend on future events and thus actual costs could vary significantly from our estimates.  Material differences between estimated and actual development costs may affect our cash flows by increasing our capital expenditures and thus affect our results of operations by increasing our landfill depletion expense.

Final capping, closure and post-closure obligations.  We accrue for estimated final capping, closure and post-closure maintenance obligations at the landfills we own, and the landfills that we operate, but do not own, under life-of-site agreements.  We could have additional material financial obligations relating to final capping, closure and post-closure costs at other disposal facilities that we currently own or operate or that we may own or operate in the future.  Our discount rate assumption for purposes of computing 2015 and 2014 “layers” for final capping, closure and post-closure obligations was 4.75% and 5.75%, respectively, which reflects our long-term credit adjusted risk free rate as of the end of 2014 and 2013.  Our inflation rate assumption was 2.5% for the years ended December 31, 2015 and 2014.  Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the landfill final capping, closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of operations.  Additionally, changes in regulatory or legislative requirements could increase our costs related to our landfills, resulting in a material adverse effect on our financial condition and results of operations.

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We own two landfills for which the prior owners are obligated to reimburse us for certain costs we incur for final capping, closure and post-closure activities on the portion of the landfill utilized by the prior owners.  We accrue the prior owner’s portion of the final capping, closure and post-closure obligation within the balance sheet classification of Other long-term liabilities, and a corresponding receivable from the prior owner in long-term Other assets.

Disposal capacity.  Our internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at our landfills.  Our landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills that we own and at landfills that we operate, but do not own, under life-of-site agreements.  Our landfill depletion rate is based on the term of the operating agreement at our operated landfill that has capitalized expenditures.  Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted.  Expansion airspace that meets the following criteria is included in our estimate of total landfill airspace:

1)whether the land where the expansion is being sought is contiguous to the current disposal site, and we either own the expansion property or have rights to it under an option, purchase, operating or other similar agreement;
2)whether total development costs, final capping costs, and closure/post-closure costs have been determined;
3)whether internal personnel have performed a financial analysis of the proposed expansion site and have determined that it has a positive financial and operational impact;
4)whether internal personnel or external consultants are actively working to obtain the necessary approvals to obtain the landfill expansion permit; and
5)whether we consider it probable that we will achieve the expansion (for a pursued expansion to be considered probable, there must be no significant known technical, legal, community, business or political restrictions or similar issues existing that we believe are more likely than not to impair the success of the expansion).

We may be unsuccessful in obtaining permits for expansion disposal capacity at our landfills.  In such cases, we will charge the previously capitalized development costs to expense.  This will adversely affect our operating results and cash flows and could result in greater landfill depletion expense being recognized on a prospective basis.

We periodically evaluate our landfill sites for potential impairment indicators.  Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of our landfills.  Future events could cause us to conclude that impairment indicators exist and that our landfill carrying costs are impaired.  Any resulting impairment loss could have a material adverse effect on our financial condition and results of operations.

Goodwill and indefinite-lived intangible assets testing.  Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year.  In addition, we evaluate our reporting units for impairment if events or circumstances change between annual tests indicating a possible impairment.  Examples of such events or circumstances include, but are not limited to, the following:

·a significant adverse change in legal factors or in the business climate;
·an adverse action or assessment by a regulator;
·a more likely than not expectation that a segment or a significant portion thereof will be sold;
·the testing for recoverability of a significant asset group within the segment; or
·current period or expected future operating cash flow losses.

In the first step (“Step 1”) of testing for goodwill impairment, we estimate the fair value of each reporting unit, which we have determined to be our three geographic operating segments and our E&P segment, and compare the fair value with the carrying value of the net assets assigned to each reporting unit.  If the fair value of a reporting unit is greater than the carrying value of the net assets, including goodwill, assigned to the reporting unit, then no impairment results.  If the fair value is less than its carrying value, then we would perform a second step (“Step 2”) and determine the fair value of the goodwill.  In Step 2, the fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated.  If the fair value of the goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to earnings in our Consolidated Statements of Net Income (Loss).  In testing indefinite-lived intangible assets for impairment, we compare the estimated fair value of each indefinite-lived intangible asset to its carrying value.  If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment charge would be recorded to earnings in our Consolidated Statements of Net Income (Loss).

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During the third quarter of 2015, we determined that sufficient indicators of potential impairment existed to require an interim goodwill and indefinite-lived intangible assets impairment analysis for our E&P segment as a result of the sustained decline in oil prices in the recent months, together with market expectations of a likely slow recovery in such prices. We, therefore, performed a Step 1 assessment of our E&P segment during the third quarter of 2015. The Step 1 assessment involved measuring the recoverability of goodwill by comparing the E&P segment’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value was estimated using an income approach employing a discounted cash flow (“DCF”) model. The DCF model incorporated projected cash flows over a forecast period based on the remaining estimated lives of the operating locations comprising the E&P segment. This was based on a number of key assumptions, including, but not limited to, a discount rate of 11.6%, annual revenue projections based on E&P waste resulting from projected levels of oil and natural gas exploration and production activity during the forecast period, gross margins based on estimated operating expense requirements during the forecast period and estimated capital expenditures over the forecast period, all of which were classified as Level 3 in the fair value hierarchy. As a result of the Step 1 assessment, we determined that the E&P segment did not pass the Step 1 test because the carrying value exceeded the estimated fair value of the reporting unit. We then performed the Step 2 test to determine the fair value of goodwill for our E&P segment. Based on the Step 1 and Step 2 analyses, we recorded a goodwill impairment charge to Impairments and other operating items in the Consolidated Statements of Net Income (Loss) within our E&P segment of $411.8 million in the third quarter of 2015. Additionally, we evaluated the recoverability of the E&P segment’s indefinite-lived intangible assets (other than goodwill) by comparing the estimated fair value of each indefinite-lived intangible asset to its carrying value. We estimated the fair value of the indefinite-lived intangible assets using an excess earnings approach. Based on the result of the recoverability test, we determined that the carrying value of certain indefinite-lived intangible assets within the E&P segment exceeded their fair value and were therefore not recoverable. We recorded an impairment charge to Impairments and other operating items in the Consolidated Statements of Net Income (Loss) on certain indefinite-lived intangible assets within our E&P segment of $38.4 million in the third quarter and fourth quarter of 2015. We did not record an impairment charge to our E&P segment as a result of our goodwill and indefinite-lived intangible assets impairment tests in 2014.

During our annual impairment analysis, we determined the fair value of each of our three geographic operating segments as a whole and each indefinite-lived intangible asset within those segments using discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit and the future discrete cash flows related to each indefinite-lived intangible asset.  Significant judgments inherent in these analyses include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates.  The cash flows employed in our 2015 discounted cash flow analyses of our three geographic operating segments were based on ten-year financial forecasts, which in turn were based on the 2016 annual budget developed internally by management.  These forecasts reflect operating profit margins that were consistent with 2015 results and annual revenue growth rates of 3.3% in perpetuity.  Our discount rate assumptions are based on an assessment of our weighted average cost of capital which approximated 5.0%.  In assessing the reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization. We did not record an impairment charge to our three geographic operating segments as a result of our goodwill and indefinite-lived intangible assets impairment tests in 2015 and 2014.

Business Combination Accounting.  We recognize, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. We measure and recognize goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of our previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed. At the acquisition date, we measure the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies.  We measure the fair values of all noncontractual contingencies if, as of the acquisition date, it is more likely than not that the contingency will give rise to an asset or liability.

General

Our revenues consist mainly of fees we charge customers for collection, transfer, recycling and disposal of non-hazardous solid waste and treatment, recovery and disposal of non-hazardous E&P waste.  Our collection business also generates revenues from the sale of recyclable commodities, which have significant variability.  A large part of our collection revenues comes from providing residential, commercial and industrial services.  We frequently perform these services under service agreements, municipal contracts or franchise agreements with governmental entities.  Our existing franchise agreements and most of our existing municipal contracts give us the exclusive right to provide specified waste services in the specified territory during the contract term.  These exclusive arrangements are awarded, at least initially, on a competitive bid basis and subsequently on a bid or negotiated basis.  We also provide residential collection services on a subscription basis with individual households.

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We typically determine the prices of our solid waste collection services by the collection frequency and level of service, route density, volume, weight and type of waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing, and prices charged by competitors for similar services.  The terms of our contracts sometimes limit our ability to pass on price increases.  Long-term solid waste collection contracts often contain a formula, generally based on a published price index, that automatically adjusts fees to cover increases in some, but not all, operating costs, or that limit increases to less than 100% of the increase in the applicable price index.

We charge transfer station and landfill customers a tipping fee on a per ton and/or per yard basis for disposing of their solid waste at our transfer stations and landfill facilities.  Many of our transfer station and landfill customers have entered into one to ten year disposal contracts with us, most of which provide for annual indexed price increases.

Our revenues from E&P waste services consist mainly of fees that we charge for the treatment and disposal of liquid and solid waste derived from the drilling of wells for the production of oil and natural gas. We also generate income from the transportation of waste to the disposal facility in certain markets and the sale of reclaimed oil, roadbase and processed and treated waters.

Our revenues from recycling services consist of proceeds generated from selling recyclable materials (including compost, cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals) collected from our residential customers and at our recycling operations to third parties for processing before resale.

Our revenues from intermodal services consist mainly of fees we charge customers for the movement of cargo and solid waste containers between our intermodal facilities.  We also generate revenue from the storage, maintenance and repair of cargo and solid waste containers and the sale or lease of containers and chassis.

No single contract or customer accounted for more than 10% of our total revenues at the consolidated or reportable segment level during the periods presented.  The following tables reflect a breakdown of our revenue and inter-company eliminations for the periods indicated (dollars in thousands):

  Year Ended December 31, 2015 
  Revenue  Intercompany
Revenue
  Reported
Revenue
  % of Reported
Revenue
 
Solid waste collection $1,378,679  $(4,623) $1,374,056   64.9%
Solid waste disposal and transfer  670,369   (255,200)  415,169   19.6 
Solid waste recycling  47,292   (924)  46,368   2.2 
E&P waste treatment, recovery and disposal  228,529   (13,156)  215,373   10.2 
Intermodal and other  66,321   -   66,321   3.1 
Total $2,391,190  $(273,903) $2,117,287   100.0%
                 
  Year Ended December 31, 2014 
  Revenue  Intercompany
Revenue
  Reported
Revenue
  % of Reported
Revenue
 
Solid waste collection $1,289,906  $(3,593) $1,286,313   61.9%
Solid waste disposal and transfer  617,161   (235,851)  381,310   18.3 
Solid waste recycling  58,226   (2,118)  56,108   2.7 
E&P waste treatment, recovery and disposal  326,934   (16,862)  310,072   14.9 
Intermodal and other  46,291   (928)  45,363   2.2 
Total $2,338,518  $(259,352) $2,079,166   100.0%

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  Year Ended December 31, 2013 
  Revenue  Intercompany
Revenue
  Reported
Revenue
  % of Reported
Revenue
 
Solid waste collection $1,219,091  $(4,304) $1,214,787   63.0%
Solid waste disposal and transfer  579,379   (226,897)  352,482   18.3 
Solid waste recycling  71,831   (6,101)  65,730   3.4 
E&P waste treatment, recovery and disposal  262,286   (11,462)  250,824   13.0 
Intermodal and other  46,038   (1,066)  44,972   2.3 
Total $2,178,625  $(249,830) $1,928,795   100.0%

Cost of operations includes labor and benefits, tipping fees paid to third-party disposal facilities, vehicle and equipment maintenance, workers’ compensation, vehicle and equipment insurance, insurance and employee group health claims expense, third-party transportation expense, fuel, the cost of materials we purchase for recycling, district and state taxes and host community fees and royalties.  Our significant costs of operations in 2015 were labor, third-party disposal and transportation, vehicle and equipment maintenance, taxes and fees, insurance and fuel.  We use a number of programs to reduce overall cost of operations, including increasing the use of automated routes to reduce labor and workers’ compensation exposure, utilizing comprehensive maintenance and health and safety programs, and increasing the use of transfer stations to further enhance internalization rates.  We carry high-deductible or self-insured retention insurance for automobile liability, general liability, employer’s liability, environmental liability, cyber liability, employment practices liability and directors’ and officers’ liability as well as for employee group health claims, property and workers’ compensation.  If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected.

Selling, general and administrative, or SG&A, expense includes management, sales force, clerical and administrative employee compensation and benefits, legal, accounting and other professional services, acquisition expenses, bad debt expense and rent expense for our corporate headquarters.

Depreciation expense includes depreciation of equipment and fixed assets over their estimated useful lives using the straight-line method.  Depletion expense includes depletion of landfill site costs and total future development costs as remaining airspace of the landfill is consumed.  Remaining airspace at our landfills includes both permitted and probable expansion airspace.  Amortization expense includes the amortization of finite-lived intangible assets, consisting primarily of long-term franchise agreements and contracts, customer lists and non-competition agreements, over their estimated useful lives using the straight-line method.  Goodwill and indefinite-lived intangible assets, consisting primarily of certain perpetual rights to provide solid waste collection and transportation services in specified territories, are not amortized.

We capitalize some third-party expenditures related to development projects, such as legal, engineering and interest expenses.  We expense all third-party and indirect acquisition costs, including third-party legal and engineering expenses, executive and corporate overhead, public relations and other corporate services, as we incur them.  We charge against net income any unamortized capitalized expenditures and advances (net of any portion that we believe we may recover, through sale or otherwise) that may become impaired, such as those that relate to any operation that is permanently shut down and any landfill development project that we believe will not be completed.  We routinely evaluate all capitalized costs, and expense those related to projects that we believe are not likely to succeed.  For example, if we are unsuccessful in our attempts to obtain or defend permits that we are seeking or have been awarded to operate or expand a landfill, we will no longer generate anticipated income from the landfill and we will be required to expense in a future period up to the carrying value of the landfill or expansion project, less the recoverable value of the property and other amounts recovered.

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Results of Operations

The following table sets forth items in our Consolidated Statements of Net Income (Loss) in thousands and as a percentage of revenues for the periods indicated: 

  Years Ended December 31, 
  2015  % of Revenues  2014  % of Revenues  2013  % of Revenues 
Revenues $2,117,287   100.0% $2,079,166   100.0% $1,928,795   100.0%
Cost of operations  1,177,409   55.6   1,138,388   54.8   1,064,819   55.2 
Selling, general and administrative  237,484   11.2   229,474   11.0   212,637   11.0 
Depreciation  240,357   11.3   230,944   11.1   218,454   11.4 
Amortization of intangibles  29,077   1.4   27,000   1.3   25,410   1.3 
Loss on prior office leases  -   -   -   -   9,902   0.5 
Impairments and other operating items  494,492   23.4   4,091   0.2   4,129   0.2 
Operating income (loss)  (61,532)  (2.9)  449,269   21.6   393,444   20.4 
                         
Interest expense  (64,236)  (3.1)  (64,674)  (3.1)  (73,579)  (3.8)
Other income (expense), net  (518)  (0.0)  1,067   0.0   1,056   0.0 
Income tax (provision) benefit  31,592   1.5   (152,335)  (7.3)  (124,916)  (6.5)
Net income (loss)  (94,694)  (4.5)  233,327   11.2   196,005   10.1 
Net income attributable to noncontrolling interests  (1,070)  (0.0)  (802)  (0.0)  (350)  (0.0)
Net income (loss) attributable to Waste Connections $(95,764)  (4.5)% $232,525   11.2% $195,655   10.1%

Years Ended December 31, 2015 and 2014

Revenues.  Total revenues increased $38.1 million, or 1.8%, to $2.117 billion for the year ended December 31, 2015, from $2.079 billion for the year ended December 31, 2014.

During the year ended December 31, 2015, incremental revenue from acquisitions closed during, or subsequent to, the year ended December 31, 2014, increased revenues by approximately $58.6 million. Operations divested during, or subsequent to, the year ended December 31, 2014, decreased revenues by approximately $1.0 million.

During the year ended December 31, 2015, the net increase in prices charged to our customers was $46.4 million, consisting of $50.0 million of core price increases, partially offset by a decrease of $3.6 million from fuel, materials and environmental surcharges.

During the year ended December 31, 2015, volume increases in our existing business increased solid waste revenues by $39.5 million from increases in roll off collection, transfer station volumes and landfill volumes resulting from increased construction and general economic activity in our markets. E&P disposal facilities which opened subsequent to December 31, 2014, increased E&P revenues by $3.9 million. E&P revenues at facilities owned and fully-operated in each of the comparable periods decreased by $120.0 million due to the substantial reductions in crude oil prices that began in October 2014, and continued through 2015 and into early 2016, which resulted in a decline in the level of drilling and production activity thereby reducing the demand for E&P waste services in the basins in which we operate.

During the year ended December 31, 2015, the closure of a recycling operation in our Western segment in April 2014 decreased revenues by $2.0 million. Revenues from sales of recyclable commodities at all other facilities owned during the year ended December 31, 2015 and 2014 decreased $7.9 million due primarily to decreased recyclable commodity prices.

During the year ended December 31, 2015, intermodal revenues increased $21.8 million due to cargo volume from a new large intermodal customer and higher cargo volume with existing customers.

Other revenues decreased by $1.2 million during the year ended December 31, 2015 due primarily to contracted landfill construction services we performed in the prior year period at a landfill we operate that did not recur in the current year, partially offset by an increase in equipment rental revenue.

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Cost of Operations.  Total cost of operations increased $39.0 million, or 3.4%, to $1.178 billion for the year ended December 31, 2015, from $1.138 billion for the year ended December 31, 2014. The increase was primarily the result of $34.7 million of additional operating costs from solid waste and E&P acquisitions closed during, or subsequent to, the year ended December 31, 2014 and an increase in operating costs at our existing solid waste operations of $26.9 million, less a decrease in operating costs at our existing and internally developed E&P operations of $22.6 million.

The increase in operating costs at our existing solid waste and intermodal operations of $26.9 million for the year ended December 31, 2015 was comprised of an increase in labor and employee benefits expenses of $15.6 million due primarily to employee pay rate and headcount increases to support volume increases, an increase in rail transportation expenses at our intermodal operations of $9.6 million due to increased rail cargo volume, an increase in truck, container, equipment and facility maintenance and repair expenses of $6.8 million due to variability in the timing and severity of major repairs, an increase in third-party disposal expense of $6.5 million due to disposal rate increases and higher disposal costs associated with increased collection and transfer station volumes, an increase in taxes on revenues of $6.0 million due to increased revenues in our solid waste markets, an increase in third-party trucking and transportation expenses of $3.1 million due to increased transfer station and landfill volumes that require us to transport the waste to our disposal sites and $3.4 million of other net expense increases, partially offset by a decrease in fuel expense of $20.2 million due to lower market prices for diesel fuel not purchased under diesel fuel hedge agreements, a decrease of $2.0 million associated with the cost of contracted landfill construction services we performed during the prior year period and a decrease in auto, workers’ compensation and property claims expense under our high deductible insurance program of $1.9 million due primarily to adjustments to projected losses on prior period claims.

The decrease in operating costs at our existing and internally developed E&P operations of $22.6 million for the year ended December 31, 2015 was comprised of decreased fuel expenses of $4.0 million due primarily to decreases in the price of diesel fuel and the following changes attributable to a reduction in our operations resulting from the decline in the level of drilling and production activity: decreased third-party trucking and transportation expenses of $6.7 million, decreased site remediation work of $6.2 million, decreased employee wage and benefits expenses of $3.3 million, decreased equipment repair expenses of $2.9 million, decreased equipment rental expenses of $1.9 million, decreased royalties on revenues of $1.1 million, decreased landfill operating supplies of $0.5 million and $2.5 million of other expense decreases, partially offset by an increase of $5.0 million in expenses due to site clean-up and remediation work during the first quarter of 2015 associated with flooding and other surface damage at two of our E&P disposal sites in New Mexico resulting from heavy precipitation affecting the sites and an increase of $1.5 million due to start-up related expenses at two new E&P disposal facilities during the first quarter of 2015.

Cost of operations as a percentage of revenues increased 0.8 percentage points to 55.6% for the year ended December 31, 2015, from 54.8% for the year ended December 31, 2014. The increase as a percentage of revenues was primarily the result of a 2.4 percentage point increase at our existing and internally developed E&P operations, partially offset by a 1.6 percentage point decrease at our existing solid waste operations. The increase at our existing and internally developed E&P operations was due primarily to fixed operating expenses increasing as an overall percentage of revenues due to the aforementioned decline in E&P revenues. The decrease at our existing solid waste operations was comprised of a 1.4 percentage point decrease in fuel expense and a 0.2 percentage point net decrease in all other expenses.

SG&A.  SG&A expenses increased $8.0 million, or 3.5%, to $237.5 million for the year ended December 31, 2015, from $229.5 million for the year ended December 31, 2014.  The increase was primarily the result of $3.5 million of additional SG&A expenses from acquisitions closed during, or subsequent to, the year ended December 31, 2014, an increase in payroll and benefits expenses of $3.9 million primarily related to headcount increases and annual compensation increases, an increase in professional fees of $2.0 million due primarily to increased expenses for external accounting services, legal expenses and sales consulting services, an increase in employee meeting, training and travel expenses of $1.0 million, an increase in direct acquisition costs of $2.1 million attributable to acquisitions closed during the current year period, an increase of $0.8 million in equity-based compensation expenses associated with our annual recurring grant of restricted stock units to our personnel and a $0.6 million increase in credit card fees resulting from an increase in the total number of customer remitting payments for our services using credit cards, partially offset by a decrease in expenses for uncollectible accounts receivable of $3.0 million primarily related to improved collection results in the current year at our E&P segment and higher prior year expenses at our Western segment resulting from a receivables balance from a large customer that was deemed uncollectible, a decrease in accrued cash incentive compensation expense of $2.7 million as we are not projected to achieve the same level of certain financial targets that were met in the prior year period and $0.2 million of other net expense decreases.

SG&A expenses as a percentage of revenues increased 0.2% percentage points to 11.2% for the year ended December 31, 2015, from 11.0% for the year ended December 31, 2014, as a result of increases associated with higher payroll and benefit expenses, professional fees and direct acquisition costs being partially offset by decreased cash incentive compensation expense and decreased expenses for uncollectible accounts.

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Depreciation.  Depreciation expense increased $9.5 million, or 4.1%, to $240.4 million for the year ended December 31, 2015, from $230.9 million for the year ended December 31, 2014.  The increase was primarily the result of an increase in depletion expense of $6.5 million at our existing solid waste landfills due primarily to an increase in volumes, additional depreciation and depletion expense of $8.6 million from acquisitions closed during, or subsequent to, the year ended December 31, 2014 and an increase in depreciation expense of $5.0 million associated with additions to our fleet and equipment purchased to support our existing operations, partially offset by a decrease in depletion expense of $10.6 million at our existing E&P landfills due to volume decreases resulting from a decline in the level of oil drilling and production activity due to reductions in crude oil prices.

Depreciation expense as a percentage of revenues increased 0.2 percentage points to 11.3% for the year ended December 31, 2015, from 11.1% for the year ended December 31, 2014. The increase as a percentage of revenues was due primarily to the impact of a decline in E&P revenues from operations owned in the comparable periods and depreciation expense associated with additions to our fleet and equipment purchased to support our existing operations, partially offset by the decrease in depletion expense at our existing E&P landfills.

Amortization of Intangibles.  Amortization of intangibles expense increased $2.1 million, or 7.7%, to $29.1 million for the year ended December 31, 2015, from $27.0 million for the year ended December 31, 2014. Amortization expense as a percentage of revenues increased 0.1 percentage points to 1.4% for the year ended December 31, 2015, from 1.3% for the year ended December 31, 2014.

The dollar amount and percentage of revenues increases were attributable to additional amortization expense during the year ended December 31, 2015 from acquisitions closed during, or subsequent to, the year ended December 31, 2014.

Impairments and Other Operating Items. Impairments and other operating items increased $490.4 million, to $494.5 million for the year ended December 31, 2015, from $4.1 million for the year ended December 31, 2014.

The decline in oil prices that began in late 2014, and continued through 2015 and into early 2016, has resulted in decreased levels of oil and natural gas exploration and production activity and a corresponding decrease in demand for our E&P waste services. This decrease, together with market expectations of a likely slow recovery in oil prices, has reduced the expected future period cash flows of our E&P segment, causing the fair value of the E&P segment to decrease below its carrying value. During the third quarter of 2015, we recorded impairment charges of $411.8 million associated with goodwill and $38.4 million associated with indefinite-lived intangible assets in our E&P segment. Following the impairment charge, at December 31, 2015, our E&P segment has remaining balances of $77.3 million in goodwill and $21.5 million in indefinite-lived intangible assets. The fair value of the E&P segment was estimated using an income approach employing a discounted cash flow, or DCF, model. The DCF model incorporated projected cash flows over a forecast period based on the estimated remaining lives of the operating locations comprising the E&P segment. One of the key assumptions in the DCF model was the estimated EBITDA contribution from each operating location. If the estimated EBITDA in the DCF model for each operating location was reduced an additional 10%, the goodwill and indefinite-lived intangible asset impairment charge would have increased by $5.4 million and $0.8 million, respectively. We also recorded impairment charges of $67.6 million related to property and equipment at certain E&P operating locations during the third quarter and fourth quarter of 2015 based on an assessment that the carrying value of certain asset groups exceeded the undiscounted cash flows and were therefore not recoverable. The fair value of the unrecoverable asset groups was calculated using the aforementioned DCF model and the impairment charge was based on the amount the asset groups’ carrying values exceeded their fair value. Each asset group that was assessed as being impaired had an insignificant fair value due primarily to the estimated discounted cash outflows exceeding the estimated discounted cash inflows over the remaining estimated lives of the asset groups. Following the impairment charge, our E&P segment has a remaining balance in property and equipment of $929.8 million at December 31, 2015. If the estimated EBITDA in the DCF model for each asset group was reduced an additional 10%, the property and equipment impairment charge would have been unchanged.

The aforementioned impairment charges were partially offset by $20.6 million of adjustments recorded during the year ended December 31, 2015 to reduce the fair value of amounts payable under liability-classified contingent consideration arrangements associated with the acquisition of an E&P business in 2014 as it was determined that the decline in E&P waste services at acquired facilities subject to contingent consideration payments based on the earnings of the acquired facilities would reduce the amount ultimately payable by us upon the completion of the contingent consideration assessment period.

Other expense charges associated with changes to the fair value of certain long-term liabilities associated with prior year acquisitions and losses on the disposal of operating assets increased $1.6 million during the year ended December 31, 2015.

During the year ended December 31, 2014, we recorded an $8.4 million impairment charge at an E&P disposal facility as a result of projected operating losses resulting from the migration of the majority of the facility’s customers to a new E&P facility that we own and operate.

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Operating Income (Loss).  Operating income (loss) decreased $510.8 million to a loss of $61.5 million for the year ended December 31, 2015, from income of $449.3 million for the year ended December 31, 2014.  The decrease was attributable to the $490.4 million increase in impairments and other operating items, $39.0 million increase in costs of operations, $9.5 million increase in depreciation expense, $8.0 million increase in SG&A expense and $2.1 million increase in amortization of intangibles expense, partially offset by the $38.1 million increase in revenues.

Operating income (loss) as a percentage of revenues decreased 24.5 percentage points to negative 2.9% for the year ended December 31, 2015, from positive 21.6% for the year ended December 31, 2014.  The decrease as a percentage of revenues was comprised of a 23.2 percentage point increase in impairments and other operating items, a 0.8 percentage point increase in cost of operations, a 0.2 percentage point increase in SG&A expense, a 0.2 percentage point increase in depreciation expense and a 0.1 percentage point increase in amortization expense.

Interest Expense.  Interest expense decreased $0.5 million, or 0.7%, to $64.2 million for the year ended December 31, 2015, from $64.7 million for the year ended December 31, 2014. The decrease was primarily attributable to a decrease of $2.7 million for the redemption of our 2015 Notes in October 2015, a decrease of $3.8 million from the net change in the combined average outstanding borrowings under our revolving credit and term loan agreement and a decrease of $1.4 million due to refinancing and replacing our prior term loan agreement and prior credit agreement with our new revolving credit and term loan agreement resulting in a reduction in the applicable margin above the base rate or LIBOR rate for outstanding borrowings, partially offset by an increase of $6.0 million from the August 2015 issuance of our 2022 Notes and 2025 Notes and an increase of $1.4 million resulting from interest accretion expense recorded on long-term liabilities recorded at fair value associated with acquisitions closed in the fourth quarter of 2014.

Other Income (Expense), Net.  Other income (expense), net, decreased $1.6 million, to an expense total of $0.5 million for the year ended December 31, 2015, from an income total of $1.1 million for the year ended December 31, 2014. The decrease was primarily attributable to an expense charge of $0.6 million for the write off of a portion of unamortized debt issuance costs resulting from refinancing our prior term loan agreement and prior credit agreement, a $0.8 million decrease in investment income and $0.2 million of other net changes.

Income Tax Provision (Benefit).  Income taxes decreased $183.9 million, to a benefit total of $31.6 million for the year ended December 31, 2015, from an expense total of $152.3 million for the year ended December 31, 2014.

Our effective tax benefit rate for the year ended December 31, 2015 was 25.0%. The impairment of a portion of the goodwill, indefinite-lived intangible assets and property and equipment within our E&P segment impacted the geographical apportionment of our state income taxes primarily resulting in an adjustment to our deferred tax liabilities that increased our income tax benefit and increased our effective tax benefit rate during the year ended December 31, 2015 by $3.9 million and 3.1 percentage points, respectively. Additionally, a portion of the aforementioned goodwill impairment within our E&P segment that was not deductible for tax purposes, resulted in a decrease to our income tax benefit and our effective tax benefit rate of $15.5 million and 12.3 percentage points, respectively.

Our effective tax expense rate for the year ended December 31, 2014 was 39.5%. During the year ended December 31, 2014, an adjustment in deferred tax liabilities resulting from the enactment of New York State’s 2014-2015 Budget Act increased our income tax expense and our effective tax expense rate by $1.2 million and 0.3 percentage points, respectively.

Years Ended December 31, 2014 and 2013

Revenues.  Total revenues increased $150.4 million, or 7.8%, to $2.079 billion for the year ended December 31, 2014, from $1.929 billion for the year ended December 31, 2013.

During the year ended December 31, 2014, incremental revenue from acquisitions closed during, or subsequent to, the year ended December 31, 2013, increased solid waste revenues and E&P revenues by approximately $28.0 million and $3.8 million, respectively. Operations divested during, or subsequent to, the year ended December 31, 2013, decreased solid waste revenues by approximately $10.0 million.

During the year ended December 31, 2014, the net increase in prices charged to our solid waste customers was $47.3 million, consisting of $46.6 million of core price increases and $0.7 million of fuel, materials and environmental surcharges.

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During the year ended December 31, 2014, volume increases in our existing business increased solid waste revenues and E&P revenues by $35.1 million and $55.8 million, respectively. The increase in solid waste volumes was primarily attributable to increases in roll off collection, landfill special waste projects, landfill MSW volumes and transfer station volumes resulting from increased construction and general economic activity in our markets. The increase in E&P volumes was primarily attributable to $23.9 million of revenue from new facilities opened subsequent to December 31, 2013 and $31.9 million of volume increases at facilities owned and operated in each of the comparable periods.

During the year ended December 31, 2014, the closure of two recycling operations in our Western segment decreased revenues by $10.2 million. Revenues from sales of recyclable commodities at all other facilities owned during the year ended December 31, 2014 and 2013 increased $0.4 million due primarily to an increase in volumes processed and sold.

Other revenues increased by $0.2 million during the year ended December 31, 2014, consisting of $2.0 million of contracted landfill construction services we performed at a landfill we operate and $0.5 million of other revenue increases, partially offset by a $2.3 million decrease from lower cargo volumes at our intermodal operations due primarily to the loss of a large intermodal customer.

Cost of Operations.  Total cost of operations increased $73.6 million, or 6.9%, to $1.138 billion for the year ended December 31, 2014, from $1.065 billion for the year ended December 31, 2013.  The increase was primarily the result of $17.0 million of additional operating costs from acquisitions closed during, or subsequent to, the year ended December 31, 2013, partially offset by a decrease in operating costs of $7.8 million resulting from operations divested during, or subsequent to, the year ended December 31, 2013, and the following changes at operations owned in comparable periods in 2013 and 2014: an increase in third-party trucking and transportation expenses of $14.6 million due to increased transfer station, landfill and E&P volumes that require us to transport the waste to our disposal sites, an increase in labor expenses of $14.3 million due primarily to employee pay rate and headcount increases, an increase in taxes and royalties on revenues of $9.4 million due primarily to increased revenues, an increase in truck, container, equipment and facility maintenance and repair expenses of $8.6 million due to an increase in the cost of parts and services and variability in the timing and severity of major repairs, an increase in third-party disposal expense of $8.1 million due to disposal rate increases and higher disposal associated with increased collection volumes, an increase in third-party subcontractor expenses of $4.2 million at our E&P facilities to perform processing and remediation services resulting from higher E&P disposal volumes, an increase in auto and workers’ compensation claims expense under our high deductible insurance program of $3.3 million due primarily to adjustments to projected losses on prior period claims, an increase of $2.7 million related to an increase in the volume of waste solidification materials needed to treat higher E&P waste volumes at our facilities and regulatory changes requiring use of higher cost waste solidification materials at one of our landfills, an increase of $2.0 million associated with the cost of contracted landfill construction services we performed at a landfill we operate, an increase in employee benefits expenses of $1.4 million due to increased employee participation in our benefits program and increased medical claim costs, and $0.9 million of other net increases, partially offset by a decrease in equipment rental expense of $2.3 million resulting from capital purchases replacing certain equipment that was previously rented at our E&P facilities, a decrease in the cost of recyclable commodities of $1.8 million due to declines in commodity prices and decreased commodity volumes resulting from the closure of two of our recyclable processing centers subsequent to December 31, 2013 and a decrease in fuel expense of $1.0 million resulting from the net of lower market prices for diesel fuel not purchased under diesel fuel hedge agreements offsetting an increase in total diesel fuel gallons consumed.

Cost of operations as a percentage of revenues decreased 0.4 percentage points to 54.8% for the year ended December 31, 2014, from 55.2% for the year ended December 31, 2013.  The decrease as a percentage of revenues was comprised of a 0.4 percentage point decrease in labor expenses and a 0.4 percentage point decrease in fuel expense due to lower prices for diesel fuel, a 0.2 percentage point decrease from lower equipment rental expenses and a 0.1 percentage point decrease in disposal expense resulting from the increased internalization of certain collection and transfer station volumes as well as increased landfill and E&P revenues not resulting in increased disposal expenses, partially offset by a 0.5 percentage point increase from higher third-party trucking expenses and a 0.2 percentage point increase in third party subcontractor expenses at our E&P facilities.

SG&A.  SG&A expenses increased $16.9 million, or 7.9%, to $229.5 million for the year ended December 31, 2014, from $212.6 million for the year ended December 31, 2013.  The increase was primarily the result of $2.8 million of additional SG&A expenses from acquisitions closed during, or subsequent to, the year ended December 31, 2013, partially offset by a decrease in SG&A expenses of $0.9 million resulting from operations divested during, or subsequent to, the year ended December 31, 2013, and the following changes at operations owned in comparable periods in 2013 and 2014: an increase in accrued cash incentive compensation expense of $6.2 million resulting from the achievement of certain financial targets in the current period, an increase in payroll and payroll-related expenses of $3.1 million primarily related to annual compensation increases, an increase in equity-based compensation expense of $3.0 million associated with a decrease in our estimated pre-vesting forfeiture rate and an increase in the total fair value of our annual recurring grant of restricted stock units to our personnel, an increase in professional fees of $2.0 million due primarily to increased expenses for external legal and information technology services, a $1.2 million increase in expenses for uncollectible accounts receivable primarily in our E&P business due to the impact of the decline in crude oil prices at the end of 2014 impacting the solvency of certain E&P customers and $0.4 million of other net increases, partially offset by a decrease in deferred compensation expense of $0.9 million as a result of decreases in the market value of investments to which employee deferred compensation liability balances are tracked.

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SG&A expenses as a percentage of revenues was unchanged at 11.0% for the years ended December 31, 2014 and 2013, resulting from a 0.2 percentage point increase from increased cash incentive compensation expense being offset by a 0.2 percentage point decrease from leveraging existing administrative functions to support increases in revenues.

Depreciation.  Depreciation expense increased $12.4 million, or 5.7%, to $230.9 million for the year ended December 31, 2014, from $218.5 million for the year ended December 31, 2013.  The increase was primarily the result of $2.0 million of additional depreciation expense and $0.1 million of additional depletion expense from acquisitions closed during, or subsequent to, the year ended December 31, 2013, partially offset by a decrease in depreciation expense of $0.9 million resulting from operations divested during, or subsequent to, the year ended December 31, 2013, and the following changes at operations owned in comparable periods in 2013 and 2014: an increase in depreciation expense of $7.2 million associated with additions to our fleet and equipment purchased to support our existing operations and an increase in depletion expense of $5.4 million due primarily to an increase in volumes at our existing landfill operations, partially offset by an adjustment to depletion expense of $1.4 million recorded during the year ended December 31, 2013 resulting from an adjustment to final capping obligations at one of our landfill operations.

Depreciation expense as a percentage of revenues decreased 0.3 percentage points to 11.1% for the year ended December 31, 2014, from 11.4% for the year ended December 31, 2013. The decrease as a percentage of revenues was due primarily to the aforementioned prior year adjustment to depletion expense resulting from an adjustment to final capping obligations at one of our landfill operations and leveraging existing equipment to support increases in revenues.

Amortization of Intangibles.  Amortization of intangibles expense increased $1.6 million, or 6.3%, to $27.0 million for the year ended December 31, 2014, from $25.4 million for the year ended December 31, 2013. The increase was attributable to $2.0 million of additional amortization expense during the year ended December 31, 2014 from acquisitions closed during, or subsequent to, the year ended December 31, 2013, partially offset by a decrease in amortization expense of $0.4 million resulting from certain intangible assets becoming fully amortized subsequent to the year ended December 31, 2013.

Amortization expense as a percentage of revenues was unchanged at 1.3% for the years ended December 31, 2014 and 2013.

Loss on Prior Office Leases.  During the year ended December 31, 2013, we recorded a $9.2 million expense charge associated with the cessation of use of our former corporate headquarters in Folsom, California, and subsequently remitted a payment to terminate our remaining lease obligation. Additionally, during the year ended December 31, 2013, we recorded a $0.7 million expense charge associated with the cessation of use of our E&P segment’s former regional offices in Houston, Texas.

Impairments and Other Operating Items. Impairments and other operating items was a loss of $4.1 million for the years ended December 31, 2014 and 2013.

During the year ended December 31, 2013, we recorded net losses totaling $2.5 million on the disposal of three operating locations, $1.3 million of expenses resulting from increases to the fair value of amounts payable under liability-classified contingent consideration arrangements associated with acquisitions closed prior to 2013 and a $0.8 million write-down in the carrying value of assets at an operating location that was closed in 2013, partially offset by $0.5 million of net gains on the disposal of certain operating assets.

During the year ended December 31, 2014, we recorded an $8.4 million impairment charge at an E&P disposal facility as a result of projected operating losses resulting from the migration of the majority of the facility’s customers to a new E&P facility that we own and operate, which was partially offset by $4.1 million of decreases to the fair value of amounts payable under liability-classified contingent consideration arrangements associated with acquisitions closed prior to 2014 and $0.2 million of net gains on the disposal of certain operating assets.

Operating Income.  Operating income increased $55.9 million, or 14.2%, to $449.3 million for the year ended December 31, 2014, from $393.4 million for the year ended December 31, 2013.  The increase was attributable to the $150.4 million increase in revenues and a $9.9 million decrease in loss on prior office leases, partially offset by the $73.6 million increase in cost of operations, $16.9 million increase in SG&A expense, $12.4 million increase in depreciation expense and $1.6 million increase in amortization of intangibles expense.

Operating income as a percentage of revenues increased 1.2 percentage points to 21.6% for the year ended December 31, 2014, from 20.4% for the year ended December 31, 2013.  The increase as a percentage of revenues was comprised of a 0.4 percentage point decrease in cost of operations, a 0.5 percentage point decrease in loss on prior office leases and a 0.3 percentage point decrease in depreciation expense.

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Interest Expense.  Interest expense decreased $8.9 million, or 12.1%, to $64.7 million for the year ended December 31, 2014, from $73.6 million for the year ended December 31, 2013, due to the following changes: a decrease of $3.7 million due to a reduction in the applicable margin above the base rate or LIBOR rate for outstanding borrowings under our prior credit agreement and term loan agreement as a result of a reduction in our leverage ratio of total debt to EBITDA and amendments to the prior credit agreement and term loan agreement, a decrease of $2.8 million due to a reduction in the average outstanding balances on our prior credit agreement and term loan agreement, a decrease of $2.0 million due to the expiration in February 2014 of a $175 million interest rate swap with a fixed rate of 2.85% and the commencement of a new $175 million interest rate swap with a fixed rate of 1.60%, a decrease of $0.6 million resulting from a decrease in interest accretion expense recorded on liability-classified contingent consideration arrangements that were settled, or became fully accrued, subsequent to December 31, 2013 and a $0.6 million decrease from other net changes, partially offset by a $0.8 million increase resulting from the commencement in July 2014 of a new $100 million interest rate swap with a fixed rate of 1.80%.

Income Tax Provision.  Income taxes increased $27.4 million, or 21.9%, to $152.3 million for the year ended December 31, 2014, from $124.9 million for the year ended December 31, 2013, as a result of increased pre-tax income and an adjustment in deferred tax liabilities resulting from the enactment of New York State’s 2014-2015 Budget Act that increased our income tax expense and our effective tax expense rate during the year ended December 31, 2014 by $1.2 million and 0.3 percentage points, respectively.

The reconciliation of the income tax provision to the 2012 federal and state tax returns, which were filed during 2013, decreased our tax expense by $0.8 million and reduced our effective tax expense rates by 0.3 percentage points for the year ended December 31, 2013.

Our effective tax expense rates for the years ended December 31, 2014 and 2013, were 39.5% and 38.9%, respectively.

Segment Reporting

Our Chief Operating Decision Maker evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is segment EBITDA. We define segment EBITDA as earnings before interest, taxes, depreciation, amortization, loss on prior office leases, impairments and other operating items and other income (expense).  Segment EBITDA is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies.  Our management uses segment EBITDA in the evaluation of segment operating performance as it is a profit measure that is generally within the control of the operating segments.

We manage our operations through three geographic operating segments (Western, Central and Eastern), and our E&P segment, which includes the majority of our E&P waste treatment and disposal operations. Our three geographic operating segments and our E&P segment comprise our reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts.  Our Western segment is comprised of operating locations in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; our Central segment is comprised of operating locations in Arizona, Colorado, Kansas, Louisiana, Minnesota, Nebraska, New Mexico, Oklahoma, South Dakota, Texas, Utah and eastern Wyoming; and our Eastern segment is comprised of operating locations in Alabama, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, New York, North Carolina, South Carolina and Tennessee. The E&P segment is comprised of our E&P operations in Arkansas, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.

Revenues, net of intercompany eliminations, for our reportable segments are shown in the following table in thousands and as a percentage of total revenues for the periods indicated:  

  Years Ended December 31, 
  2015  % of Revenues  2014  % of Revenues  2013  % of Revenues 
Western $880,393   41.6% $823,922   39.6% $805,790   41.8%
Central  589,667   27.8   561,480   27.0   510,928   26.5 
Eastern  433,457   20.5   393,821   19.0   371,772   19.3 
E&P  213,770   10.1   299,943   14.4   240,305   12.4 
  $2,117,287   100.0% $2,079,166   100.0% $1,928,795   100.0%

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Segment EBITDA for our reportable segments is shown in the following table in thousands and as a percentage of segment revenues for the periods indicated:  

  Years Ended December 31, 
  2015  % of Revenues  2014  % of Revenues  2013  % of Revenues 
Western $290,937   33.0% $258,126   31.3% $249,548   31.0%
Central  207,205   35.1   197,121   35.1   182,790   35.8 
Eastern  132,774   30.6   116,230   29.5   108,173   29.1 
E&P  69,545   32.5   147,261   49.1   111,056   46.2 
Corporate(a)  1,933   -   (7,434)  -   (228)  - 
  $702,394   33.2  $711,304   34.2  $651,339   33.8 

(a) Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions.  Amounts reflected are net of allocations to the four operating segments.

A reconciliation of segment EBITDA to Income before income tax provision is included in Note 14 of our consolidated financial statements included in Item 8 of this report.

Significant changes in revenue and segment EBITDA for our reportable segments for the year ended December 31, 2015, compared to the year ended December 31, 2014, and for the year ended December 31, 2014, compared to the year ended December 31, 2013, are discussed below.

Segment Revenue

Revenue in our Western segment increased $56.5 million, or 6.9%, to $880.4 million for the year ended December 31, 2015, from $823.9 million for the year ended December 31, 2014.  The components of the increase consisted of solid waste volume increases of $30.2 million associated with our residential, commercial and roll off collection operations, transfer stations and landfill special waste revenues being partially offset by lower landfill municipal solid waste revenues, intermodal revenue increases of $21.8 million due to a new large intermodal customer and higher cargo volume with existing customers, net price increases of $12.9 million, revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2014, of $1.9 million and other revenue increases of $0.3 million, partially offset by recyclable commodity sales decreases of $2.0 million and $5.3 million resulting from the closure of a recycling operation in April 2014 and declines in the price of recyclable commodities, respectively, and decreases of $3.3 million from reduced E&P disposal volumes at our solid waste landfills.

Revenue in our Western segment increased $18.1 million, or 2.3%, to $823.9 million for the year ended December 31, 2014, from $805.8 million for the year ended December 31, 2013.  The components of the increase consisted of volume increases of $21.4 million primarily in our collection operations, transfer stations and solid waste landfills, net price increases of $12.0 million, revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2013, of $0.3 million and other revenue increases of $0.4 million, partially offset by decreases of $5.3 million from divested operations, recyclable commodity sales decreases of $8.4 million due primarily to the closure of two of our recycling operations subsequent to December 31, 2013 and intermodal revenue decreases of $2.3 million due to decreases in cargo volume resulting primarily from the loss of a large intermodal customer.

Revenue in our Central segment increased $28.2 million, or 5.0%, to $589.7 million for the year ended December 31, 2015, from $561.5 million for the year ended December 31, 2014.  The components of the increase consisted of net price increases of $23.1 million, solid waste volume increases of $1.2 million associated with increases in roll off collection volumes, transfer station volumes, landfill MSW volumes and landfill special waste volumes exceeding declines in residential collection volumes, net revenue growth from acquisitions and divestitures closed during, or subsequent to, the year ended December 31, 2014, of $3.7 million and other revenue increases of $0.2 million.

Revenue in our Central segment increased $50.6 million, or 9.9%, to $561.5 million for the year ended December 31, 2014, from $510.9 million for the year ended December 31, 2013.  The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2013, of $24.2 million, net price increases of $22.0 million, volume increases of $5.6 million primarily in our roll off collection business, transfer station and solid waste landfills and $0.1 million of other revenue increases, partially offset by recyclable commodity sales decreases of $0.7 million and decreases of $0.6 million from divested operations.

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Revenue in our Eastern segment increased $39.7 million, or 10.1%, to $433.5 million for the year ended December 31, 2015, from $393.8 million for the year ended December 31, 2014.  The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2014, of $25.3 million, net price increases of $10.3 million and solid waste volume increases of $8.4 million primarily from volume increases in our roll off collection business, transfer station volumes and landfill special waste volumes exceeding decreases in residential collection volumes, partially offset by recyclable commodity sales decreases of $2.4 million due primarily to declines in the price of recyclable commodities and other revenue decreases of $1.9 million due primarily to landfill construction services, contracted in the prior year, that we performed at a landfill we operate.

Revenue in our Eastern segment increased $22.0 million, or 5.9%, to $393.8 million for the year ended December 31, 2014, from $371.8 million for the year ended December 31, 2013.  The components of the increase consisted of net price increases of $13.3 million, volume increases of $8.1 million primarily in our roll off collection business, transfer station and solid waste landfills, other revenue increases of $2.0 million primarily associated with contracted landfill construction services we performed at a landfill we operate and revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2013, of $3.5 million, partially offset by decreases of $4.1 million from divested operations and recyclable commodity sales decreases of $0.8 million due to lower prices for recyclable commodities.

Revenue in our E&P segment decreased $86.1 million, or 28.7%, to $213.8 million for the year ended December 31, 2015, from $299.9 million for the year ended December 31, 2014.  The components of the decrease consisted of $116.5 million of E&P revenue decreases at facilities owned and fully-operated in each of the comparable periods due to declines in both E&P waste volumes and prices charged for our services and $0.2 million of other revenue decreases, partially offset by revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2014, of $26.7 million and $3.9 million of revenue from two new E&P disposal facilities opened subsequent to December 31, 2014. During the year ended December 31, 2015, our E&P segment was adversely affected by the substantial reductions in crude oil prices that began in October 2014, and continued through 2015 and into early 2016, resulting in a decline in the level of drilling and production activity, reducing the demand for E&P waste services in the basins in which we operate. The carryover impact from the aforementioned reduction in the price of crude oil, which has dropped again at the beginning of 2016, is expected to contribute to revenue at our E&P segment in 2016 declining between 20% and 30% from 2015.

Revenue in our E&P segment increased $59.6 million, or 24.8%, to $299.9 million for the year ended December 31, 2014, from $240.3 million for the year ended December 31, 2013.  The components of the increase consisted of $23.9 million of revenue from new facilities opened subsequent to December 31, 2013, $31.9 million of volume increases at facilities owned and operated in each of the comparable periods and $3.8 million of revenue from acquisitions closed during the year ended December 31, 2014.

Segment EBITDA

Segment EBITDA in our Western segment increased $32.8 million, or 12.7%, to $290.9 million for the year ended December 31, 2015, from $258.1 million for the year ended December 31, 2014.  The increase was due primarily to an increase in revenues of $56.5 million, a decrease in fuel expense of $9.5 million due to lower market prices for diesel fuel not purchased under diesel fuel hedge agreements, a decrease in current year expenses for uncollectible accounts receivable of $1.1 million due primarily to a prior year expense charge associated with receivables from a large customer that were deemed uncollectible and a decrease in auto, workers’ compensation and property claims expenses under our high deductible insurance program of $1.0 million due primarily to adjustments to projected losses on prior period claims, partially offset by an increase in rail transportation expenses at our intermodal operations of $9.6 million due to increased rail cargo volume, an increase in direct and administrative labor expenses of $9.3 million due primarily to employee pay rate increases and increased headcount to support revenue volume increases, an increase in third-party disposal expense of $4.3 million due to increased collection volumes and disposal rate increases, an increase in taxes on revenues of $3.6 million due to increased revenues, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.5 million due to variability in the timing and severity of major repairs, an increase in third-party trucking and transportation expenses of $1.6 million due to increased disposal volumes that require transportation to our landfills, an increase in corporate overhead expense allocations of $1.4 million due primarily to revenue growth, a net $0.8 million increase in cost of operations and SG&A expenses attributable to acquired operations, a $0.5 million increase in legal fees associated with our dispute with the County of Madera, California, a $0.4 million increase in credit card fees resulting from an increase in the total number of customers remitting payments for our services using credit cards and $1.3 million of other net expense increases.

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Segment EBITDA in our Western segment increased $8.6 million, or 3.4%, to $258.1 million for the year ended December 31, 2014, from $249.5 million for the year ended December 31, 2013.  The increase was primarily due to an increase in revenues of $18.1 million, a net $4.9 million decrease in cost of operations and SG&A expenses attributable to divested operations, a decrease in the cost of recyclable commodities of $1.7 million due to a net decline in commodity volumes resulting from the closure of two of our recyclable processing centers subsequent to December 31, 2013, a decrease in fuel expense of $1.4 million resulting from the net of lower market prices for diesel fuel not purchased under diesel fuel hedge agreements offsetting an increase in total diesel fuel gallons consumed and $0.3 million of other net decreases, partially offset by an increase in taxes on revenues of $4.7 million due to increased revenues, an increase in third-party disposal expense of $4.4 million due to disposal rate increases and higher disposal associated with increased collection volumes, an increase in direct and administrative labor expenses of $2.4 million due primarily to employee pay rate increases, an increase in auto, workers’ compensation and property claims expense under our high deductible insurance program of $1.7 million due primarily to adjustments to projected losses on prior period claims, an increase in employee benefits expenses of $1.1 million due to increased employee participation in our benefits program and increased medical claim costs, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.9 million due to variability in the timing and severity of major repairs, increases in expenses for uncollectible accounts receivable of $0.8 million associated with receivables from an individual customer that were deemed uncollectible, an increase in third party trucking and transportation expenses of $0.7 million due to increased volumes disposed of at our transfer stations that require further transportation to our landfills, an increase in corporate overhead expense allocations of $0.7 million due primarily to revenue growth and an increase in professional fee expenses primarily associated with business development opportunities of $0.4 million.

Segment EBITDA in our Central segment increased $10.1 million, or 5.1%, to $207.2 million for the year ended December 31, 2015, from $197.1 million for the year ended December 31, 2014.  The increase was due primarily to an increase in revenues of $28.2 million and a decrease in fuel expense of $4.8 million due to lower market prices for diesel fuel not purchased under diesel fuel hedge agreements, partially offset by an increase in direct and administrative labor expenses of $6.7 million due primarily to employee pay rate increases, an increase in corporate overhead expense allocations of $4.8 million due primarily to revenue growth and an increase to the overhead allocation rate, an increase in third-party disposal expense of $3.7 million due to disposal rate increases, changes in internalization of collected waste volumes in certain markets and increased transfer station volumes, an increase in professional fees of $1.6 million due primarily to increased expenses for legal and sales consulting services, a net $1.6 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in truck, container, equipment and facility maintenance and repair expenses of $1.6 million due to variability in the timing and severity of major repairs, an increase in taxes on revenues of $1.3 million due primarily to increased landfill revenues and $1.6 million of other net expense increases.

Segment EBITDA in our Central segment increased $14.3 million, or 7.8%, to $197.1 million for the year ended December 31, 2014, from $182.8 million for the year ended December 31, 2013.  The increase was primarily due to an increase in revenues of $50.6 million, partially offset by a net $15.4 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in labor expenses of $4.8 million due primarily to employee pay rate increases, an increase in third-party trucking and transportation expenses of $4.3 million due to increased volumes disposed of at our transfer stations that require further transportation to our landfills, an increase in third-party disposal expense of $3.5 million due to disposal rate increases and higher disposal associated with increased collection volumes, an increase in truck, container, equipment and facility maintenance and repair expenses of $1.8 million due to variability in the timing and severity of major repairs, an increase in corporate overhead expense allocations of $1.8 million due primarily to revenue growth, an increase in landfill solidification materials of $1.2 million due to regulatory changes requiring use of higher cost materials at one of our landfills, an increase in auto, workers’ compensation and property claims expense under our high deductible insurance program of $1.0 million due primarily to adjustments to projected losses on prior period claims, an increase in taxes on revenues of $0.9 million due to increased revenues, an increase in employee benefits expenses of $0.8 million due to increased employee participation in our benefits program and increased medical claim costs and $0.8 million of other net expense increases.

Segment EBITDA in our Eastern segment increased $16.6 million, or 14.2%, to $132.8 million for the year ended December 31, 2015, from $116.2 million for the year ended December 31, 2014.  The increase was due primarily to an increase in revenues of $39.7 million, a decrease in fuel expense of $5.9 million due to lower market prices for diesel fuel not purchased under diesel fuel hedge agreements, a decrease of $2.0 million associated with the cost of contracted landfill construction services we performed during the prior year period at a landfill we operate and a decrease in disposal expenses of $1.5 million due primarily to increased internalization of collected waste volumes in our Albany, New York market, partially offset by a net $18.0 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in corporate overhead expense allocations of $4.4 million due primarily to revenue growth, an increase in direct and administrative labor expenses of $4.2 million due primarily to employee pay rate increases and increased headcount to support internal growth, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.5 million due to variability in the timing and severity of major repairs, an increase in third-party trucking and transportation expenses of $1.4 million due to increased volumes disposed of at our transfer stations that require further transportation to our landfills, an increase in taxes on revenues of $1.1 million at a new landfill site that commenced operations in 2015 and $0.9 million of other net expense increases.

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Segment EBITDA in our Eastern segment increased $8.0 million, or 7.4%, to $116.2 million for the year ended December 31, 2014, from $108.2 million for the year ended December 31, 2013.  The increase was primarily due to an increase in revenues of $22.0 million, a net $3.4 million decrease in cost of operations and SG&A expenses attributable to divested operations and a decrease in expenses for uncollectible accounts receivable of $1.2 million due to a charge recorded during the year ended December 31, 2013 associated with receivables from one large customer that were deemed uncollectible, partially offset by an increase in labor expenses of $3.8 million due primarily to employee pay rate increases, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.9 million due to variability in the timing and severity of major repairs, an increase in taxes on revenues of $2.1 million due to both an increase in revenues and a prior year adjustment that decreased taxes on revenues expense, a net increase in cost of operations and SG&A expenses of $2.0 million attributable to acquisitions closed during the year ended December 31, 2014, an increase of $2.0 million associated with the cost of contracted landfill construction services we performed at a landfill we operate, an increase in leachate disposal expenses of $1.9 million at certain landfills we own and operate, an increase in auto and workers’ compensation expense under our high deductible insurance program of $0.8 million due to adjustments to projected losses on prior period claims, an increase in employee benefits expenses of $0.8 million due to increased employee participation in our benefits program and increased medical claim costs, an increase in corporate overhead expense allocations of $0.5 million due primarily to revenue growth, an increase in third-party trucking and transportation expenses of $0.4 million due to increased volumes disposed of at our transfer stations that require further transportation to our landfills, an increase in third-party disposal expense of $0.3 million due to disposal rate increases and higher disposal associated with increased roll off collection volumes and $1.1 million of other net expense increases.

Segment EBITDA in our E&P segment decreased $77.8 million, or 52.8%, to $69.5 million for the year ended December 31, 2015, from $147.3 million for the year ended December 31, 2014.  The decrease was due primarily to an $86.1 million decrease in revenues, a net $17.8 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase of $5.0 million in expenses due to site clean-up and remediation work during the first quarter of 2015 associated with flooding and other surface damage at two of our E&P disposal sites in New Mexico resulting from heavy precipitation affecting the sites and an increase of $1.5 million due to start-up related expenses at two new E&P disposal facilities during the first quarter of 2015, partially offset by decreased fuel expenses of $4.0 million due primarily to decreases in the price of diesel fuel, a decrease in corporate overhead expense allocations of $1.9 million due to lower revenues, a decrease in expenses for uncollectible accounts receivable of $1.5 million due to improved collection results in the current year and the following changes attributable to a reduction in our operations resulting from the decline in the level of drilling and production activity: decreased third-party trucking and transportation expenses of $6.7 million, decreased site remediation work of $6.2 million, decreased employee wage and benefits expenses of $3.5 million, decreased equipment repair expenses of $2.9 million, decreased equipment rental expenses of $1.9 million, decreased royalties on revenues of $1.1 million, decreased landfill operating supplies of $0.5 million and $2.4 million of other expense decreases. We estimate that the expected decrease in revenue at our E&P segment in 2016 will result in EBITDA at our E&P segment in 2016 declining between 10% and 15% from 2015.

Segment EBITDA in our E&P segment increased $36.2 million, or 32.6%, to $147.3 million for the year ended December 31, 2014, from $111.1 million for the year ended December 31, 2013.  The increase was primarily due to an increase in revenues of $59.6 million, a decrease in equipment rental expense of $1.7 million resulting from capital purchases replacing certain equipment that was previously rented and $0.7 million of other net expense decreases, partially offset by an increase in third-party trucking and transportation expenses of $9.2 million due to increased volumes that require us to transport the waste to our disposal sites, an increase in labor expenses of $4.8 million due primarily to employee pay rate increases and increased headcount to support new operating facilities, an increase of $4.1 million for third-party subcontractor processing and remediation services resulting from higher E&P volumes, an increase in truck, container, equipment and facility maintenance and repair expenses of $3.2 million due to variability in the timing and severity of major repairs, a net increase in cost of operations and SG&A expenses of $1.9 million attributable to acquisitions closed during the year ended December 31, 2014, an increase in landfill solidification materials of $1.4 million due to increased E&P volumes and an increase in expenses for uncollectible accounts receivable of $1.2 million due to the impact of the decline in crude oil prices at the end of 2014 impacting the solvency of certain E&P customers.

Segment EBITDA at Corporate increased $9.3 million, to income of $1.9 million for the year ended December 31, 2015, from a loss of $7.4 million for the year ended December 31, 2014.  The increase was due to an increase in revenue-based corporate overhead expense allocations to our segments of $8.9 million due primarily to our revenue growth in our solid waste segments and an increase in the allocation rate to our Central and Eastern segments, a decrease in accrued cash incentive compensation expense of $2.9 million as we did not achieve the same level of certain financial targets that were met in the prior year period, a decrease in deferred compensation expense of $0.5 million resulting from deferred compensation liabilities to employees decreasing as a result of decreases in the market value of investments to which employee deferred compensation balances are tracked and $0.5 million of other net expense decreases, partially offset by an increase in direct acquisition expenses of $2.1 million attributable to acquisitions closed during the current year period, an increase of $0.8 million in equity-based compensation expenses associated with our annual recurring grant of restricted stock units to our personnel and an increase in payroll expenses of $0.6 million due primarily to pay rate increases.

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Segment EBITDA at Corporate decreased $7.2 million, to a loss of $7.4 million for the year ended December 31, 2014, from a loss of $0.2 million for the year ended December 31, 2013.  The increased loss was due to an increase in accrued cash incentive compensation expense of $5.7 million resulting from the achievement of certain financial targets in the current period, an increase in equity-based compensation expense of $3.1 million associated with a decrease in our estimated pre-vesting forfeiture rate and an increase in the total fair value of our annual recurring grant of restricted stock units to our personnel, an increase in professional fees of $2.2 million due primarily to increased expenses for external legal and information technology services and an increase in payroll expenses of $1.5 million due to headcount and pay rate increases, partially offset by an increase in revenue-based corporate overhead expense allocations to our segments of $3.2 million due primarily to our volume growth, a decrease in employee relocation expenses of $1.5 million primarily associated with our relocation of our corporate headquarters from Folsom, California to The Woodlands, Texas, which was completed in 2013 and a decrease in real estate lease expense of $0.6 million due primarily to the elimination of duplicate lease obligations for our former headquarters in Folsom, California and our E&P segment’s former regional offices in Houston, Texas.

Liquidity and Capital Resources

The following table sets forth certain cash flow information for the years ended December 31, 2015, 2014 and 2013 (in thousands): 

  2015  2014  2013 
Net cash provided by operating activities $576,999  $545,077  $484,061 
Net cash used in investing activities  (470,534)  (363,408)  (251,015)
Net cash used in financing activities  (109,844)  (180,907)  (242,667)
Net increase (decrease) in cash and equivalents  (3,379)  762   (9,621)
Cash and equivalents at beginning of year  14,353   13,591   23,212 
Cash and equivalents at end of year $10,974  $14,353  $13,591 

Operating Activities Cash Flows

For the year ended December 31, 2015, net cash provided by operating activities was $577.0 million.  For the year ended December 31, 2014, net cash provided by operating activities was $545.1 million.  The $31.9 million increase was due primarily to the following:

1)A decrease in net income of $328.0 million, adjusted for an increase in cash flows from operating assets and liabilities, net of effects from acquisitions, of $10.2 million. Cash provided by operating assets and liabilities, net of effects from acquisitions, was $10.6 million and $0.4 million for the year ended December 31, 2015 and 2014, respectively.  The significant components of the $10.6 million in net cash inflows from changes in operating assets and liabilities, net of effects from acquisitions, for the year ended December 31, 2015, include the following:
a)an increase in cash resulting from a $17.3 million decrease in accounts receivable due, in part, to improved collection results;
b)an increase in cash resulting from an increase in accrued liabilities of $8.2 million due primarily to an increase in accrued interest due to the timing of semi-annual interest payments under our various long-term notes and an increase in accrued payroll-related expenses due to our pay cycle timing resulting in an additional day of accrual at December 31, 2015, partially offset by a decrease in accrued cash incentive compensation expense as we did not achieve the same level of certain financial targets that were met in the prior year period;
c)an increase in cash resulting from a $4.4 million increase in deferred revenue due primarily to increased collection revenues and the timing of billing for services; less
d)a decrease in cash resulting from a $16.7 million increase in accounts payable due primarily to an increase in the volume of vendor payments remitted using electronic payment processes that decrease the period of time from receipt until payment for vendor invoices; less
e)a decrease in cash resulting from a $2.8 million increase in prepaid expenses and other current assets due primarily to an increase in prepaid income taxes;
2)An increase in the loss on disposal of assets and impairments of $510.4 million due primarily to the current year impairment of a portion of our goodwill, indefinite-lived intangible assets and property and equipment within our E&P segment;
3)An increase in depreciation expense of $9.4 million due primarily to increased depreciation expense resulting from increased capital expenditures;
4)An increase of $5.4 million attributable to a decrease in the excess tax benefits associated with equity-based compensation, due to a decrease in stock option exercises resulting in decreased taxable income recognized by employees that is tax deductible to us; and
5)An increase in interest accretion of $1.7 million from long-term liabilities recorded at fair value associated with acquisitions closed subsequent to December 31, 2014; less
6)A decrease in our provision for deferred taxes of $163.5 million due primarily to the aforementioned impairment charge in our E&P segment resulting in the reduction of corresponding deferred tax liabilities; less

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7)A decrease of $18.7 million attributable to post-closing adjustments resulting in a net decrease in the fair value of amounts payable under liability-classified contingent consideration arrangements primarily associated with the 2014 acquisition of an E&P disposal company.

For the year ended December 31, 2014, net cash provided by operating activities was $545.1 million.  For the year ended December 31, 2013, net cash provided by operating activities was $484.1 million.  The $61.0 million increase was due primarily to the following:

1)An increase in net income of $37.3 million, adjusted for an increase in cash flows from operating assets and liabilities, net of effects from acquisitions, of $13.7 million. Cash provided by operating assets and liabilities, net of effects from acquisitions, was $0.4 million for the year ended December 31, 2014.  Cash used for operating assets and liabilities, net of effects from acquisitions, was $13.3 million for the year ended December 31, 2013. The significant components of the $0.4 million in net cash inflows from changes in operating assets and liabilities, net of effects from acquisitions, for the year ended December 31, 2014, include the following:
a)an increase in cash resulting from a $10.2 million increase in accounts payable due primarily to growth in our operations and the timing of vendor payments;
b)an increase in cash resulting from a $8.6 million increase in deferred revenue due primarily to increased revenues and the timing of billing for services;
c)an increase in cash resulting from an increase in accrued liabilities of $5.0 million due primarily to an increase in accrued cash incentive compensation and increased liabilities for auto and workers’ compensation claims;
d)an increase in cash resulting from an increase in other long-term liabilities of $2.7 million due primarily to increased deferred compensation plan liabilities resulting from employee contributions and plan earnings; less
e)a decrease in cash resulting from a $22.2 million increase in accounts receivable due to an increase in revenues remaining uncollected at the end of the comparable periods; less
f)a decrease in cash resulting from a $3.9 million increase in prepaid expenses and other current assets due primarily to an increase in prepaid income taxes;
2)An increase in depreciation expense of $12.5 million due primarily to increased depletion expense resulting from higher landfill volumes and increased depreciation expense resulting from increased capital expenditures;
3)A decrease in payment of contingent consideration recorded in earnings of $4.0 million due primarily to the final contingent consideration payout in 2013 resulting from the completion of an earnings target for the 2012 acquisition of SKB exceeding the fair value of the contingent consideration liability recorded at the acquisition close date;
4)An increase in equity-based compensation expense of $3.0 million attributable to a decrease in our estimated pre-vesting forfeiture rate and an increase in the total fair value of our annual recurring grant of restricted stock units to our personnel;
5)An increase in the loss on disposal of assets and impairments of $5.4 million due primarily to an impairment charge recorded in 2014 at one of our E&P facilities being partially offset by a loss on the disposal of a solid waste collection operation in 2013; less
6)A decrease in our provision for deferred taxes of $7.6 million due primarily to tax deductible timing differences associated with prepaid expenses and equity-based compensation; less
7)A decrease of $4.7 million attributable to post-closing adjustments resulting in a net decrease in the fair value of amounts payable under liability-classified contingent consideration arrangements associated with acquisitions closed prior to 2014; less
8)A decrease of $3.8 million attributable to an increase in the excess tax benefit associated with equity-based compensation, due to an increase in the vesting of equity-based compensation resulting in increased taxable income recognized by employees that is tax deductible to us.

As of December 31, 2015, we had a working capital deficit of $15.8 million, including cash and equivalents of $11.0 million.  Our working capital deficit increased $21.6 million from a working capital surplus of $5.8 million at December 31, 2014, including cash and equivalents of $14.4 million.  To date, we have experienced no loss or lack of access to our cash or cash equivalents; however, we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets.  Our strategy in managing our working capital is generally to apply the cash generated from our operations that remains after satisfying our working capital and capital expenditure requirements, along with stock repurchase and dividend programs, to reduce the unhedged portion of our indebtedness under our credit agreement and to minimize our cash balances.

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Investing Activities Cash Flows

Net cash used in investing activities increased $107.1 million to $470.5 million for the year ended December 31, 2015, from $363.4 million for the year ended December 31, 2014.  The significant components of the increase include the following:

1)An increase in payments for acquisitions of $104.3 million due primarily to the acquisition of ten solid waste collection businesses, two integrated solid waste collection and disposal businesses, an E&P waste stream treatment and recycling business and a permitted, development stage E&P landfill site during the year ended December 31, 2015; less
2)A decrease in capital expenditures for property and equipment of $2.4 million due primarily to decreases in expenditures for trucks purchased for purposes of converting fleets at certain hauling operations to compressed natural gas and decreases in expenditures for equipment in our E&P segment, partially offset by increased expenditures resulting from acquisitions closed subsequent to December 31, 2014 and expenditures in 2015 for two new E&P liquid waste injection wells.

Net cash used in investing activities increased $112.4 million to $363.4 million for the year ended December 31, 2014, from $251.0 million for the year ended December 31, 2013.  The significant components of the increase include the following:

1)An increase in payments for acquisitions of $62.0 million primarily due to the acquisition of six solid waste businesses, an E&P disposal business, two permitted development stage E&P landfill sites and a permitted development stage construction and demolition landfill site during the year ended December 31, 2014;
2)A cash receipt of $18.0 million during the year ended December 31, 2013 resulting from the settlement of the final closing date net working capital with the former owners of R360; and
3)An increase in capital expenditures for property and equipment of $31.4 million due primarily to expenditures for acquisitions closed subsequent to December 31, 2013, new facilities in our E&P segment, expenditures for trucks in our Houston location that operate on compressed natural gas, and increases in landfill site cost construction, vehicles and containers, partially offset by decreases in expenditures for equipment for our E&P segment and leasehold improvements associated with our new corporate headquarters in The Woodlands, Texas.

Financing Activities Cash Flows

Net cash used in financing activities decreased $71.1 million to $109.8 million for the year ended December 31, 2015, from $180.9 million for the year ended December 31, 2014.  The significant components of the decrease include the following:

1)A decrease in net repayments of long-term borrowings of $153.7 million due primarily to increased proceeds from borrowings to fund increases in payments for acquisitions and payments to repurchase our common stock during the year ended December 31, 2015;
2)A decrease in payment of contingent consideration recorded at acquisition date of $22.7 million due primarily to the payout in 2013 of the fair value of a contingent liability recorded at the close date of the 2012 acquisition of R360 associated with the achievement of a permitted expansion at one of the acquired landfills; less
3)An increase in payments to repurchase our common stock of $83.8 million due to an increase in share repurchase activity during the year ended December 31, 2015; less
4)An increase in cash dividends paid of $7.1 million due primarily to an increase in our quarterly dividend rate to an annual total of $0.535 per share for the year ended December 31, 2015, from an annual total of $0.475 per share for the year ended December 31, 2014; less
5)An increase in payments for debt issuance costs of $6.7 million incurred in connection with our new revolving credit and term loan agreement that we entered into in January 2015 and our new 2022 Notes and 2025 Notes that we issued in August 2015; less
6)A decrease of $5.4 million attributable to a decrease in the excess tax benefits associated with equity-based compensation, due to a decrease in stock option exercises resulting in decreased taxable income recognized by employees that is tax deductible to us.

Net cash used in financing activities decreased $61.8 million to $180.9 million for the year ended December 31, 2014, from $242.7 million for the year ended December 31, 2013.  The significant components of the decrease include the following:

1)A decrease in net repayments of long-term borrowings of $72.6 million due primarily to decreased repayments of our prior credit agreement as a result of the aforementioned increase in payments for acquisitions during the year ended December 31, 2014 and the cash receipt during the year ended December 31, 2013 resulting from the settlement of the final closing date net working capital with the former owners of R360; less

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2)An increase of $3.8 million attributable to an increase in the excess tax benefit associated with equity-based compensation, due to an increase in the vesting of equity-based compensation resulting in increased taxable income recognized by employees that is tax deductible to us; less
3)An increase in cash dividends paid of $7.7 million due to an increase in our quarterly dividend rate to an annual total of $0.475 per share for the year ended December 31, 2014, from an annual total of $0.415 per share for the year ended December 31, 2013, and an increase in our total common shares outstanding; and
4)An increase in payments to repurchase our common stock of $7.3 million due to no shares being repurchased during the year ended December 31, 2013.

Our business is capital intensive.  Our capital requirements include acquisitions and capital expenditures for landfill cell construction, landfill development, landfill closure activities and intermodal facility construction in the future.

Our Board of Directors has authorized a common stock repurchase program for the repurchase of up to $1.2 billion of our common stock through December 31, 2017. Under the program, stock repurchases may be made in the open market or in privately negotiated transactions from time to time at management’s discretion. The timing and amounts of any repurchases will depend on many factors, including our capital structure, the market price of the common stock and overall market conditions. As of December 31, 2015 and 2014, we had repurchased in aggregate 42.0 million and 40.0 million shares, respectively, of our common stock at an aggregate cost of $882.5 million and $791.4 million, respectively.  As of December 31, 2015, the remaining maximum dollar value of shares available for purchase under the program was approximately $317.5 million.

Our Board of Directors authorized the initiation of a quarterly cash dividend in October 2010 and has increased it on an annual basis. Cash dividends of $66.0 million and $58.9 million were paid during the years ended December 31, 2015 and 2014, respectively. In October 2015, our Board of Directors authorized an increase to our regular quarterly cash dividend of $0.015, from $0.13 to $0.145 per share. We cannot assure you as to the amounts or timing of future dividends.

We made $238.8 million in capital expenditures during the year ended December 31, 2015. We expect to make capital expenditures of approximately $230 million in 2016 in connection with our existing business.  We intend to fund our planned 2016 capital expenditures principally through cash on hand, internally generated funds and borrowings under our credit agreement.  In addition, we may make substantial additional capital expenditures in acquiring MSW and E&P waste businesses. If we acquire additional landfill disposal facilities, we may also have to make significant expenditures to bring them into compliance with applicable regulatory requirements, obtain permits or expand our available disposal capacity.  We cannot currently determine the amount of these expenditures because they will depend on the number, nature, condition and permitted status of any acquired landfill disposal facilities.  We believe that our cash and equivalents, credit agreement and the funds we expect to generate from operations will provide adequate cash to fund our working capital and other cash needs for the foreseeable future.  However, disruptions in the capital and credit markets could adversely affect our ability to draw on our credit agreement or raise other capital.  Our access to funds under the credit agreement is dependent on the ability of the banks that are parties to the agreement to meet their funding commitments.  Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time.

We are a well-known seasoned issuer with an effective shelf registration statement on Form S-3 filed in February 2015, which registers an unspecified amount of debt and equity securities, including preferred securities, warrants, stockholder rights and units. In the future, we may issue debt or equity securities under our shelf registration statement or in private placements from time to time on an opportunistic basis, based on market conditions and available pricing. We expect to use the proceeds from any such offerings for general corporate purposes, including repaying, redeeming or repurchasing debt, acquiring additional assets or businesses, capital expenditures and increasing our working capital.

We have a revolving credit and term loan agreement, or the credit agreement, with Bank of America, N.A., as Administrative Agent, and the other lenders from time to time party thereto, which consists of a $1.2 billion revolving credit facility and an $800 million term loan. Under the credit agreement, we may request increases in the aggregate commitments under the revolving credit facility and one or more additional term loans, provided that the aggregate principal amount of commitments and term loans never exceeds $2.3 billion. Under the credit agreement, swing line loans may be issued at our request in an aggregate amount not to exceed a $35 million sublimit and letters of credit may be issued at our request in an aggregate amount not to exceed a $250 million sublimit; however, the issuance of swing line loans and letters of credit both reduce the amount of total borrowings available.  As of December 31, 2015, $800.0 million under the term loan and $390.0 million under the revolving credit facility were outstanding under our credit agreement, exclusive of outstanding standby letters of credit of $78.4 million. As of December 31, 2014, $660.0 million under the term loan and $680.0 million under the revolving credit facility were outstanding under our credit agreement, exclusive of outstanding standby letters of credit of $73.0 million

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The credit agreement requires us to pay a commitment fee ranging from 0.090% per annum to 0.200% per annum of the unused portion of the facility.  The borrowings under the credit agreement bear interest, at our option, at either the base rate plus the applicable base rate margin on base rate loans and swing line loans, or the LIBOR rate plus the applicable LIBOR margin on LIBOR loans.  The base rate for any day is a fluctuating rate per annum equal to the highest of: (1) the federal funds rate plus one half of one percent (0.500%); (2) the LIBOR rate plus one percent (1.000%), and (3) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.” The LIBOR rate is determined by the administrative agent pursuant to a formula in the credit agreement. The applicable margins under the credit agreement vary depending on our leverage ratio, as defined in the credit agreement, and range from 1.000% per annum to 1.500% per annum for LIBOR loans and 0.000% per annum to 0.500% per annum for base rate and swing line loans.  The borrowings under the credit agreement are not collateralized.

The credit agreement contains representations, warranties, covenants and events of default, including a change of control event of default and limitations on incurrence of indebtedness and liens, new lines of business, mergers, transactions with affiliates and restrictive payments. During the continuance of an event of default, the lenders may take a number of actions, including declaring the entire amount then outstanding under the credit agreement due and payable. The credit agreement contains cross-defaults if we default on the master note purchase agreement or certain other debt. The credit agreement requires that we maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.50x total debt to EBITDA (or 3.75x during material acquisition periods, subject to certain limitations). The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2015 and 2014, our leverage ratio was 2.88x and 2.67x, respectively. As of December 31, 2015 and 2014, our interest coverage ratio was 7.88x and 7.94x, respectively. We expect to be in compliance with all applicable covenants under the credit agreement for the next 12 months. We use the credit agreement for acquisitions, capital expenditures, working capital, standby letters of credit and general corporate purposes

On January 18, 2016, in connection with the Merger Agreement executed on that same day with Progressive Waste, we entered into a Consent with Bank of America, N.A. and certain other financial institutions party to the credit agreement, whereby the lenders provided their consent to (a) the Merger and the change of control, as defined in the credit agreement, of Waste Connections resulting from the consummation of the Merger and (b) the joinder, upon consummation of the Merger, of Progressive Waste and certain of its subsidiaries as borrowers under the credit agreement.

On July 15, 2008, we entered into a master note purchase agreement with certain accredited institutional investors pursuant to which we issued and sold to the investors at a closing on October 1, 2008, $175 million of senior uncollateralized notes due October 1, 2015, or the 2015 Notes, in a private placement.  We redeemed the 2015 Notes on October 1, 2015 using borrowings under our credit agreement.

On October 26, 2009, we entered into a first supplement to the master note purchase agreement with certain accredited institutional investors pursuant to which we issued and sold to the investors on that date $175 million of senior uncollateralized notes due November 1, 2019, or the 2019 Notes, in a private placement.  The 2019 Notes bear interest at the fixed rate of 5.25% per annum with interest payable in arrears semi-annually on May 1 and November 1 beginning on May 1, 2010, and with principal payable at the maturity of the 2019 Notes on November 1, 2019.

On April 1, 2011, we entered into a second supplement to the master note purchase agreement with certain accredited institutional investors, pursuant to which we issued and sold to the investors on that date $250 million of senior uncollateralized notes at fixed interest rates with interest payable in arrears semi-annually on October 1 and April 1 beginning on October 1, 2011 in a private placement. Of these notes, $100 million will mature on April 1, 2016 with an annual interest rate of 3.30%, or the 2016 Notes, $50 million will mature on April 1, 2018 with an annual interest rate of 4.00%, or the 2018 Notes, and $100 million will mature on April 1, 2021 with an annual interest rate of 4.64%, or the 2021 Notes. The principal of each of the 2016 Notes, 2018 Notes and 2021 Notes is payable at the maturity of each respective note. We have the intent and ability to redeem the 2016 Notes on April 1, 2016 using borrowings under our credit agreement.

On June 11, 2015, we entered into a third supplement to the master note purchase agreement with certain accredited institutional investors, pursuant to which, on August 20, 2015, we issued and sold to the investors in a private placement $500 million of senior unsecured notes at fixed interest rates with interest payable in arrears semi-annually on February 20 and August 20 beginning on February 20, 2016. Of these notes, $125 million will mature on August 20, 2022 with an annual interest rate of 3.09%, or the 2022 Notes; and $375 million of the senior unsecured notes will mature on August 20, 2025 with an annual interest rate of 3.41%, or the 2025 Notes. The principal of each of the 2022 Notes and 2025 Notes is payable at the maturity of each respective note.

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The 2016 Notes, 2018 Notes, 2019 Notes, 2021 Notes, 2022 Notes and 2025 Notes, or collectively, the Senior Notes, are uncollateralized obligations and rank equally in right of payment with each of the Senior Notes and the obligations under our credit agreement. The Senior Notes are subject to representations, warranties, covenants and events of default.  The master note purchase agreement contains cross-defaults if we default on the credit agreement or certain other debt. The master note purchase agreement requires that we maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.75x total debt to EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2015 and 2014, our leverage ratio was 2.88x and 2.67x, respectively. As of December 31, 2015 and 2014, our interest coverage ratio was 7.88x and 7.94x, respectively. We expect to be in compliance with all applicable covenants under the Senior Notes for the next 12 months.

Upon the occurrence of an event of default, payment of the Senior Notes may be accelerated by the holders of the respective notes.  The Senior Notes may also be prepaid at any time in whole or from time to time in any part (not less than 5% of the then-outstanding principal amount) by us at par plus a make-whole amount determined in respect of the remaining scheduled interest payments on the Senior Notes, using a discount rate of the then current market standard for United States treasury bills plus 0.50%.  In addition, we will be required to offer to prepay the Senior Notes upon certain changes in control as defined in the master note purchase agreement, including of Waste Connections as a result of the consummation of the Merger.

We may issue additional series of senior uncollateralized notes, including floating rate notes, pursuant to the terms and conditions of the master note purchase agreement, as amended, provided that the purchasers of the Senior Notes shall not have any obligation to purchase any additional notes issued pursuant to the master note purchase agreement and the aggregate principal amount of the outstanding notes and any additional notes issued pursuant to the master note purchase agreement shall not exceed $1.25 billion. We currently have $900 million of notes outstanding under the master note purchase agreement.

Contractual Obligations

As of December 31, 2015, we had the following contractual obligations: 

  Payments Due by Period 
  (amounts in thousands) 
Recorded Obligations Total  Less Than
1 Year
  1 to 3
Years
  3 to 5 Years  Over 5
Years
 
Long-term debt $2,157,285  $2,127  $67,511  $1,466,415  $621,232 
Cash interest payments  346,687   64,769   121,659   81,979   78,280 
Contingent consideration  70,275   22,260   4,631   7,369   36,015 
Final capping, closure and post-closure  820,085   5,517   2,838   7,798   803,932 

Long-term debt payments include:

1)$390.0 million in principal payments due January 2020 related to our revolving credit facility under our credit agreement.  We may elect to draw amounts on our credit agreement in either base rate loans or LIBOR loans. At December 31, 2015, $385.0 million of the outstanding borrowings drawn under the revolving credit facility were in LIBOR loans, which bear interest at the LIBOR rate plus the applicable LIBOR margin (for a total rate of 1.44% at December 31, 2015) and $5.0 million of the outstanding borrowings drawn under the revolving credit facility were in swing line loans, which bear interest at the base rate plus the applicable base rate margin (for a total rate of 3.70% at December 31, 2015).

2)$800.0 million in principal payments due January 2020 related to our term loan under our credit agreement.  Outstanding amounts on the term loan can be either base rate loans or LIBOR loans. At December 31, 2015, all amounts outstanding under the term loan were in LIBOR loans which bear interest at the LIBOR rate plus the applicable LIBOR margin (for a total rate of 1.44% at December 31, 2015).

3)$100.0 million in principal payments due 2016 related to our 2016 Notes.  Holders of the 2016 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2016 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the master note purchase agreement.  We have recorded this obligation in the payments due in 3 to 5 years category in the table above as we have the intent and ability to redeem the 2016 Notes on April 1, 2016 using borrowings under our credit agreement. The 2016 Notes bear interest at a rate of 3.30%.

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4)$50.0 million in principal payments due 2018 related to our 2018 Notes.  Holders of the 2018 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2018 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the master note purchase agreement.  The 2018 Notes bear interest at a rate of 4.00%.

5)$175.0 million in principal payments due 2019 related to our 2019 Notes.  Holders of the 2019 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2019 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the master note purchase agreement.  The 2019 Notes bear interest at a rate of 5.25%.

6)$100.0 million in principal payments due 2021 related to our 2021 Notes.  Holders of the 2021 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2021 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the master note purchase agreement.  The 2021 Notes bear interest at a rate of 4.64%.

7)$125.0 million in principal payments due 2022 related to our 2022 Notes.  Holders of the 2022 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2022 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the master note purchase agreement.  The 2022 Notes bear interest at a rate of 3.09%.

8)$375.0 million in principal payments due 2025 related to our 2025 Notes.  Holders of the 2025 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2025 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the master note purchase agreement.  The 2025 Notes bear interest at a rate of 3.41%.

9)$31.4 million in principal payments related to our tax-exempt bonds, which bear interest at variable rates (0.05% at December 31, 2015).  The tax-exempt bonds have maturity dates ranging from 2018 to 2033.

10)$10.9 million in principal payments related to our notes payable to sellers and other third parties.  Our notes payable to sellers and other third parties bear interest at rates between 3.0% and 10.9% at December 31, 2015, and have maturity dates ranging from 2016 to 2036.

The following assumptions were made in calculating cash interest payments:

1)We calculated cash interest payments on the credit agreement using the LIBOR rate plus the applicable LIBOR margin at December 31, 2015.  We assumed the credit agreement is paid off when it matures in January 2020.

2)We calculated cash interest payments on our interest rate swaps using the stated interest rate in the swap agreement less the LIBOR rate through the earlier expiration of the term of the swaps or the term of the credit facility.

Contingent consideration payments include $49.4 million recorded as liabilities in our consolidated financial statements at December 31, 2015, and $20.9 million of future interest accretion on the recorded obligations.

The estimated final capping, closure and post-closure expenditures presented above are in current dollars.

  Amount of Commitment Expiration Per Period 
  (amounts in thousands) 
Unrecorded Obligations(1) Total  Less Than
1 Year
  1 to 3
Years
  3 to 5
Years
  Over 5
Years
 
Operating leases $108,944  $16,416  $25,067  $16,983  $50,478 
Unconditional purchase obligations  50,198   33,242   16,956   -   - 

(1)We are party to operating lease agreements and unconditional purchase obligations as discussed in Note 10 to the consolidated financial statements.  These lease agreements and purchase obligations are established in the ordinary course of our business and are designed to provide us with access to facilities and products at competitive, market-driven prices.  At December 31, 2015, our unconditional purchase obligations consisted of multiple fixed-price fuel purchase contracts under which we have 19.1 million gallons remaining to be purchased for a total of $50.2 million.  The current fuel purchase contracts expire on or before December 31, 2017.  These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2015, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

We have obtained standby letters of credit as discussed in Note 7 to the consolidated financial statements and financial surety bonds as discussed in Note 10 to the consolidated financial statements.  These standby letters of credit and financial surety bonds are generally obtained to support our financial assurance needs and landfill and E&P operations.  These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2015, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

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From time to time, we evaluate our existing operations and their strategic importance to us.  If we determine that a given operating unit does not have future strategic importance, we may sell or otherwise dispose of those operations.  Although we believe our reporting units would not be impaired by such dispositions, we could incur losses on them.

New Accounting Pronouncements

See Note 1 to the consolidated financial statements for a description of the new accounting standards that are applicable to us.

Non-GAAP Financial Measures

Adjusted Free Cash Flow

We present adjusted free cash flow, a non-GAAP financial measure, supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry.  Management uses adjusted free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations.  We define adjusted free cash flow as net cash provided by operating activities, plus proceeds from disposal of assets, plus or minus change in book overdraft, plus excess tax benefit associated with equity-based compensation, less capital expenditures for property and equipment and distributions to noncontrolling interests.  We further adjust this calculation to exclude the effects of items management believes impact the ability to assess the operating performance of our business. This measure is not a substitute for, and should be used in conjunction with, GAAP liquidity or financial measures.  Other companies may calculate adjusted free cash flow differently.  Our adjusted free cash flow for the years ended December 31, 2015, 2014 and 2013, are calculated as follows (amounts in thousands): 

  Years Ended December 31, 
  2015  2014  2013 
Net cash provided by operating activities $576,999  $545,077  $484,061 
Less: Change in book overdraft  (89)  (11)  (110)
Plus: Proceeds from disposal of assets  2,883   9,421   11,019 
Plus: Excess tax benefit associated with equity-based compensation  2,069   7,518   3,765 
Less: Capital expenditures for property and equipment  (238,833)  (241,277)  (209,874)
Less: Distributions to noncontrolling interests  (42)  (371)  (198)
Adjustments:            
Payment of contingent consideration recorded in earnings(a)  -   1,074   5,059 
Payment for termination of corporate lease(b)  -   -   9,690 
Corporate office relocation(c)  -   -   2,159 
Tax effect(d)  -   -   (3,992)
Adjusted free cash flow $342,987  $321,431  $301,579 

(a)Reflects the addback of acquisition-related payments for contingent consideration that were recorded as expenses in earnings and a component of cash flow from operating activities as the amounts paid exceeded the fair value of the contingent consideration recorded at the acquisition date.
(b)Reflects the addback for the payment to terminate the remaining lease obligations of our former headquarters in Folsom, California.
(c)Reflects the addback of third-party expenses and reimbursable advances to employees associated with the relocation of our corporate headquarters from California to Texas.
(d)The aggregate tax effect of the adjustments in footnotes (b) and (c) is calculated based on the applied tax rates for the respective periods.

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Adjusted EBITDA

We present adjusted EBITDA, a non-GAAP financial measure, supplementally because it is widely used by investors as a performance and valuation measure in the solid waste industry.  Management uses adjusted EBITDA as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations.  We define adjusted EBITDA as net income (loss), plus or minus income tax provision (benefit), plus interest expense, plus depreciation and amortization expense, plus closure and post-closure accretion expense, plus or minus any loss or gain on impairments and other operating items, plus other expense, less other income.  We further adjust this calculation to exclude the effects of other items management believes impact the ability to assess the operating performance of our business.  This measure is not a substitute for, and should be used in conjunction with, GAAP financial measures.  Other companies may calculate adjusted EBITDA differently.  Our adjusted EBITDA for the years ended December 31, 2015, 2014 and 2013, are calculated as follows (amounts in thousands): 

  Years Ended December 31, 
  2015  2014  2013 
Net income (loss) $(94,694) $233,327  $196,005 
Plus (Less): Income tax provision (benefit)  (31,592)  152,335   124,916 
Plus: Interest expense  64,236   64,674   73,579 
Plus: Depreciation and amortization  269,434   257,944   243,864 
Plus: Closure and post-closure accretion  3,978   3,627   2,967 
Plus: Impairments and other operating items(a)  494,492   4,091   4,129 
Less: Other expense (income), net  518   (1,067)  (1,056)
Adjustments:            
Plus: Loss on prior office leases(b)  -   -   9,902 
Plus: Acquisition-related costs(c)  4,235   2,147   1,946 
Plus: Corporate relocation expenses(d)  -   -   750 
Adjusted EBITDA $710,607  $717,078  $657,002 

(a)Reflects the addback of impairments and other operating items.
(b)Reflects the addback of the loss on prior office leases resulting primarily from the relocation of our corporate headquarters from California to Texas.
(c)Reflects the addback of acquisition-related transaction costs.
(d)Reflects the addback of costs associated with the relocation of our corporate headquarters from California to Texas.

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Adjusted Net Income and Adjusted Net Income per Diluted Share

We present adjusted net income and adjusted net income per diluted share, both non-GAAP financial measures, supplementally because they are widely used by investors as a valuation measure in the solid waste industry. Management uses adjusted net income and adjusted net income per diluted share as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We provide adjusted net income to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income has limitations due to the fact that it excludes items that have an impact on our financial condition and results of operations. Adjusted net income and adjusted net income per diluted share are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate adjusted net income and adjusted net income per diluted share differently.  Our adjusted net income and adjusted net income per diluted share for the years ended December 31, 2015, 2014 and 2013, are calculated as follows (amounts in thousands, except per share amounts):

  Years Ended December 31, 
  2015  2014  2013 
Reported net income (loss) attributable to Waste Connections $(95,764) $232,525  $195,655 
Adjustments:            
Amortization of intangibles(a)  29,077   27,000   25,410 
Acquisition-related costs(b)  4,235   2,147   1,946 
Impairments and other operating items(c)  494,492   4,091   4,129 
Loss on prior office leases(d)  -   -   9,902 
Corporate relocation expenses(e)  -   -   750 
Tax effect(f)  (182,945)  (12,747)  (16,117)
Impact of deferred tax adjustments(g)  (4,198)  1,220   - 
Adjusted net income attributable to Waste Connections $244,897  $254,236  $221,675 
             
Diluted earnings (loss) per common share attributable to Waste Connections common stockholders:            
Reported net income (loss) $(0.78) $1.86  $1.58 
Adjusted net income $1.98  $2.04  $1.79 
             
Shares used in the per share calculations:            
Reported diluted shares  123,491,931   124,787,421   124,165,052 
Adjusted diluted shares(h)  123,871,636   124,787,421   124,165,052 

(a)Reflects the elimination of the non-cash amortization of acquisition-related intangible assets.
(b)Reflects the elimination of acquisition-related transaction costs.
(c)Reflects the addback of impairments and other operating items.
(d)Reflects the addback of the loss on prior office leases resulting primarily from the relocation of our corporate headquarters from California to Texas.
(e)Reflects the addback of costs associated with the relocation of our corporate headquarters from California to Texas.
(f)The aggregate tax effect of the adjustments in footnotes (a) through (e) is calculated based on the applied tax rates for the respective periods.
(g)Reflects (1) the elimination in 2015 of an increase to the income tax benefit primarily associated with a decrease in our deferred tax liabilities resulting from the impairment of assets in our E&P segment that impacted the geographical apportionment of our state income taxes, and (2) the elimination in 2014 of an increase to the income tax provision associated with an increase in our deferred tax liabilities resulting from the enactment of New York State’s 2014-2015 Budget Act on March 31, 2014.
(h)Reflects reported diluted shares adjusted for shares that were excluded from the reported diluted shares calculation due to reporting a net loss during the year ended December 31, 2015.

Inflation

Other than volatility in fuel prices and labor costs in certain markets, inflation has not materially affected our operations in recent years.  Consistent with industry practice, many of our contracts allow us to pass through certain costs to our customers, including increases in landfill tipping fees and, in some cases, fuel costs.  Therefore, we believe that we should be able to increase prices to offset many cost increases that result from inflation in the ordinary course of business.  However, competitive pressures or delays in the timing of rate increases under our contracts may require us to absorb at least part of these cost increases, especially if cost increases exceed the average rate of inflation.  Management's estimates associated with inflation have an impact on our accounting for landfill liabilities.

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ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, we are exposed to market risk, including changes in interest rates and prices of certain commodities.  We use hedge agreements to manage a portion of our risks related to interest rates and fuel prices.  While we are exposed to credit risk in the event of non-performance by counterparties to our hedge agreements, in all cases such counterparties are highly rated financial institutions and we do not anticipate non-performance.  We do not hold or issue derivative financial instruments for trading purposes.  We monitor our hedge positions by regularly evaluating the positions at market and by performing sensitivity analyses over the unhedged fuel and variable rate debt positions.

At December 31, 2015, our derivative instruments included six interest rate swap agreements that effectively fix the interest rate on the applicable notional amounts of our variable rate debt as follows (dollars in thousands): 

Date Entered Notional
Amount
  Fixed
Interest
Rate Paid*
  Variable
Interest Rate
Received
 Effective Date Expiration Date
December 2011 $175,000   1.600% 1-month LIBOR February 2014 February 2017
April 2014 $100,000   1.800% 1-month LIBOR July 2014 July 2019
May 2014 $50,000   2.344% 1-month LIBOR October 2015 October 2020
May 2014 $25,000   2.326% 1-month LIBOR October 2015 October 2020
May 2014 $50,000   2.350% 1-month LIBOR October 2015 October 2020
May 2014 $50,000   2.350% 1-month LIBOR October 2015 October 2020

* Plus applicable margin.

Under derivatives and hedging guidance, the interest rate swap agreements are considered cash flow hedges for a portion of our variable rate debt, and we apply hedge accounting to account for these instruments.  The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.

We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged floating rate debt.  Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions.  Actual market movements may vary significantly from our assumptions.  Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements.  We are exposed to cash flow risk due to changes in interest rates with respect to the unhedged floating rate balances owed at December 31, 2015 and 2014, of $771.4 million and $946.4 million, respectively, including floating rate debt under our credit agreement and floating rate municipal bond obligations.  A one percentage point increase in interest rates on our variable-rate debt as of December 31, 2015 and 2014, would decrease our annual pre-tax income by approximately $7.7 million and $9.5 million, respectively.  All of our remaining debt instruments are at fixed rates, or effectively fixed under the interest rate swap agreements described above; therefore, changes in market interest rates under these instruments would not significantly impact our cash flows or results of operations, subject to counterparty default risk.

The market price of diesel fuel is unpredictable and can fluctuate significantly.  We purchase approximately 34.2 million gallons of fuel per year; therefore, a significant increase in the price of fuel could adversely affect our business and reduce our operating margins.  To manage a portion of this risk, we periodically enter into fuel hedge agreements related to forecasted diesel fuel purchases.

64

At December 31, 2015, our derivative instruments included two fuel hedge agreements as follows: 

Date Entered Notional
Amount
(in gallons per
month)
  Diesel
Rate
Paid
Fixed
(per
gallon)
  Diesel Rate Received
Variable
 Effective
Date
 Expiration
Date
May 2015  300,000  $3.280  DOE Diesel Fuel Index* January 2016 December 2017
May 2015  200,000  $3.275  DOE Diesel Fuel Index* January 2016 December 2017

*If the national U.S. on-highway average price for a gallon of diesel fuel, or average price, as published by the Department of Energy, exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty.  If the average price is less than the contract price per gallon, we pay the difference to the counterparty.

Under derivatives and hedging guidance, the fuel hedges are considered cash flow hedges for a portion of our forecasted diesel fuel purchases, and we apply hedge accounting to account for these instruments.

We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged diesel fuel purchases.  Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions.  Actual market movements may vary significantly from our assumptions.  Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements.  For the year ending December 31, 2016, we expect to purchase approximately 34.2 million gallons of fuel, of which 15.2 million gallons will be purchased at market prices, 13.0 million gallons will be purchased under our fixed price fuel purchase contracts and 6.0 million gallons are hedged at a fixed price under our fuel hedge agreements.  With respect to the approximately 15.2 million gallons of unhedged fuel we expect to purchase in 2016 at market prices, a $0.10 per gallon increase in the price of fuel over the year would decrease our pre-tax income during this period by approximately $1.5 million.

We market a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals.  We own and operate 37 recycling operations and sell other collected recyclable materials to third parties for processing before resale.  To reduce our exposure to commodity price risk with respect to recycled materials,governance, we have adopted a pricing strategy of charging collectionCorporate Governance Guidelines and processing fees for recycling volume collected from third parties.  In the event of a decline in recycled commodity prices, a 10% decrease in average recycled commodity prices from the average prices that were in effect during the year ended December 31, 2015 and 2014, would have had a $4.6 million and $5.6 million impact on revenuescharters for the year ended December 31, 2015 and 2014, respectively.

65

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

WASTE CONNECTIONS, INC.

Page
ReportCommittees of Independent Registered Public Accounting Firm67
Consolidated Balance Sheets as of December 31, 2015 and 201468
Consolidated Statements of Net Income (Loss) for the years ended December 31, 2015, 2014 and 201369
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2015, 2014 and 201370
Consolidated Statements of Equity for the years ended December 31, 2015, 2014 and 201371
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 201372
Notes to Consolidated Financial Statements74
Financial Statement Schedule116

66

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Waste Connections, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Waste Connections, Inc. and its subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP
Houston, Texas
February 9, 2016

67

WASTE CONNECTIONS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

  December 31, 
  2015  2014 
ASSETS        
Current assets:        
Cash and equivalents $10,974  $14,353 
Accounts receivable, net of allowance for doubtful accounts of $7,738 and $9,175 at December 31, 2015 and 2014, respectively  255,192   259,969 
Deferred income taxes  49,727   49,508 
Prepaid expenses and other current assets  46,534   42,314 
Total current assets  362,427   366,144 
         
Property and equipment, net  2,738,288   2,594,205 
Goodwill  1,422,825   1,693,789 
Intangible assets, net  511,294   509,995 
Restricted assets  46,232   40,841 
Other assets, net  40,732   40,293 
  $5,121,798  $5,245,267 
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable $115,206  $120,717 
Book overdraft  12,357   12,446 
Accrued liabilities  136,018   120,947 
Deferred revenue  90,349   80,915 
Current portion of contingent consideration  22,217   21,637 
Current portion of long-term debt and notes payable  2,127   3,649 
Total current liabilities  378,274   360,311 
         
Long-term debt and notes payable  2,147,127   1,971,152 
Long-term portion of contingent consideration  27,177   48,528 
Other long-term liabilities  124,943   92,900 
Deferred income taxes  452,493   538,635 
Total liabilities  3,130,014   3,011,526 
         
Commitments and contingencies (Note 10)        
         
Equity:        
Preferred stock: $0.01 par value per share; 7,500,000 shares authorized; none issued and outstanding  -   - 
Common stock: $0.01 par value per share; 250,000,000 shares authorized; 122,375,955 and 123,984,527 shares issued and outstanding at December 31, 2015 and 2014, respectively  1,224   1,240 
Additional paid-in capital  736,652   811,289 
Accumulated other comprehensive loss  (12,171)  (5,593)
Retained earnings  1,259,495   1,421,249 
Total Waste Connections’ equity  1,985,200   2,228,185 
Noncontrolling interest in subsidiaries  6,584   5,556 
Total equity  1,991,784   2,233,741 
  $5,121,798  $5,245,267 

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

68

WASTE CONNECTIONS, INC.

CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

  Years Ended December 31, 
  2015  2014  2013 
Revenues $2,117,287  $2,079,166  $1,928,795 
Operating expenses:            
Cost of operations  1,177,409   1,138,388   1,064,819 
Selling, general and administrative  237,484   229,474   212,637 
Depreciation  240,357   230,944   218,454 
Amortization of intangibles  29,077   27,000   25,410 
Loss on prior office leases  -   -   9,902 
Impairments and other operating items  494,492   4,091   4,129 
Operating income (loss)  (61,532)  449,269   393,444 
             
Interest expense  (64,236)  (64,674)  (73,579)
Other income (expense), net  (518)  1,067   1,056 
Income (loss) before income tax provision  (126,286)  385,662   320,921 
             
Income tax (provision) benefit  31,592   (152,335)  (124,916)
Net income (loss)  (94,694)  233,327   196,005 
Less: Net income attributable to noncontrolling interests  (1,070)  (802)  (350)
Net income (loss) attributable to Waste Connections $(95,764) $232,525  $195,655 
             
Earnings (loss) per common share attributable to Waste Connections’ common stockholders:            
Basic $(0.78) $1.87  $1.58 
Diluted $(0.78) $1.86  $1.58 
             
Shares used in the per share calculations:            
Basic  123,491,931   124,215,346   123,597,540 
Diluted  123,491,931   124,787,421   124,165,052 
             
Cash dividends per common share $0.535  $0.475  $0.415 

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

69

WASTE CONNECTIONS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

  Years Ended December 31, 
  2015  2014  2013 
Net income (loss) $(94,694) $233,327  $196,005 
             
Other comprehensive income (loss), before tax:            
Interest rate swap amounts reclassified into interest expense  5,093   4,581   5,641 
Fuel hedge amounts reclassified into cost of operations  3,217   (823)  - 
Changes in fair value of interest rate swaps  (7,746)  (6,448)  296 
Changes in fair value of fuel hedges  (11,138)  (3,355)  1,012 
Other comprehensive income (loss), before tax  (10,574)  (6,045)  6,949 
Income tax (expense) benefit related to items of other comprehensive income (loss)  3,996   2,321   (2,653)
Other comprehensive income (loss), net of tax  (6,578)  (3,724)  4,296 
Comprehensive income (loss)  (101,272)  229,603   200,301 
Less: Comprehensive income attributable to noncontrolling interests  (1,070)  (802)  (350)
Comprehensive income (loss) attributable to Waste Connections $(102,342) $228,801  $199,951 

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

70

WASTE CONNECTIONS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

YEARS ENDED DECEMBER 31, 2013, 2014 AND 2015

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

  WASTE CONNECTIONS’ EQUITY       
  COMMON STOCK  ADDITIONAL
PAID-IN
  ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
  RETAINED  NONCONTROLLING    
  SHARES  AMOUNT  CAPITAL  (LOSS)  EARNINGS  INTERESTS  TOTAL 
Balances at December 31, 2012  123,019,494  $1,230  $779,904  $(6,165) $1,103,188  $4,973  $1,883,130 
Vesting of restricted stock units  482,403   5   (5)  -   -   -   - 
Tax withholdings related to net share settlements of restricted stock units  (152,191)  (1)  (5,438)  -   -   -   (5,439)
Equity-based compensation  -   -   15,397   -   -   -   15,397 
Exercise of stock options and warrants  216,781   2   2,462   -   -   -   2,464 
Excess tax benefit associated with equity-based compensation  -   -   3,765   -   -   -   3,765 
Cash dividends on common stock  -   -   -   -   (51,213)  -   (51,213)
Amounts reclassified into earnings, net of taxes  -   -   -   3,483   -   -   3,483 
Changes in fair value of cash flow hedges, net of taxes  -   -   -   813   -   -   813 
Distributions to noncontrolling interests  -   -   -   -   -   (198)  (198)
Net income  -   -   -   -   195,655   350   196,005 
Balances at December 31, 2013  123,566,487   1,236   796,085   (1,869)  1,247,630   5,125   2,048,207 
Vesting of restricted stock units  492,695   5   (5)  -   -   -   - 
Restricted stock units released from deferred compensation plan  10,665   -   -   -   -   -   - 
Tax withholdings related to net share settlements of restricted stock units  (159,936)  (1)  (6,813)  -   -   -   (6,814)
Equity-based compensation  -   -   18,446   -   -   -   18,446 
Exercise of stock options and warrants  241,716   2   3,373   -   -   -   3,375 
Excess tax benefit associated with equity-based compensation  -   -   7,518   -   -   -   7,518 
Repurchase of common stock  (167,100)  (2)  (7,315)  -   -   -   (7,317)
Cash dividends on common stock  -   -   -   -   (58,906)  -   (58,906)
Amounts reclassified into earnings, net of taxes  -   -   -   2,317   -   -   2,317 
Changes in fair value of cash flow hedges, net of taxes  -   -   -   (6,041)  -   -   (6,041)
Distributions to noncontrolling interests  -   -   -   -   -   (371)  (371)
Net income  -   -   -   -   232,525   802   233,327 
Balances at December 31, 2014  123,984,527   1,240   811,289   (5,593)  1,421,249   5,556   2,233,741 
Vesting of restricted stock units  432,165   4   (4)  -   -   -   - 
Restricted stock units released from deferred compensation plan  14,082   -   -   -   -   -   - 
Tax withholdings related to net share settlements of restricted stock units  (138,611)  (1)  (6,446)  -   -   -   (6,447)
Equity-based compensation  -   -   20,318   -   -   -   20,318 
Exercise of stock options and warrants  46,781   1   571   -   -   -   572 
Excess tax benefit associated with equity-based compensation  -   -   2,069   -   -   -   2,069 
Repurchase of common stock  (1,962,989)  (20)  (91,145)  -   -   -   (91,165)
Cash dividends on common stock  -   -   -   -   (65,990)  -   (65,990)
Amounts reclassified into earnings, net of taxes  -   -   -   5,148   -   -   5,148 
Changes in fair value of cash flow hedges, net of taxes  -   -   -   (11,726)  -   -   (11,726)
Distributions to noncontrolling interests  -   -   -   -   -   (42)  (42)
Net income (loss)  -   -   -   -   (95,764)  1,070   (94,694)
Balances at December 31, 2015  122,375,955  $1,224  $736,652  $(12,171) $1,259,495  $6,584  $1,991,784 

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

71

WASTE CONNECTIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

  Years Ended December 31, 
  2015  2014  2013 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income (loss) $(94,694) $233,327  $196,005 
Adjustments to reconcile net income (loss) to net cash provided by operating activities:            
Loss on disposal of assets and impairments  518,657   8,239   2,853 
Depreciation  240,357   230,944   218,454 
Amortization of intangibles  29,077   27,000   25,410 
Deferred income taxes, net of acquisitions  (132,454)  31,031   38,680 
Amortization of debt issuance costs  3,097   3,085   3,655 
Equity-based compensation  20,318   18,446   15,397 
Interest income on restricted assets  (428)  (446)  (386)
Interest accretion  6,761   5,076   4,812 
Excess tax benefit associated with equity-based compensation  (2,069)  (7,518)  (3,765)
Payment of contingent consideration recorded in earnings  -   (1,074)  (5,059)
Adjustments to contingent consideration  (22,180)  (3,450)  1,276 
Changes in operating assets and liabilities, net of effects from acquisitions:            
Accounts receivable, net  17,348   (22,168)  1,612 
Prepaid expenses and other current assets  (2,780)  (3,868)  1,696 
Accounts payable  (16,674)  10,173   (26,993)
Deferred revenue  4,377   8,571   1,403 
Accrued liabilities  8,217   4,985   6,117 
Other long-term liabilities  69   2,724   2,894 
Net cash provided by operating activities  576,999   545,077   484,061 
             
CASH FLOWS FROM INVESTING ACTIVITIES:            
Payments for acquisitions, net of cash acquired  (230,517)  (126,181)  (64,156)
Proceeds from adjustments to acquisition consideration  -   -   18,000 
Capital expenditures for property and equipment  (238,833)  (241,277)  (209,874)
Proceeds from disposal of assets  2,883   9,421   11,019 
Change in restricted assets, net of interest income  (2,225)  (4,475)  (646)
Other  (1,842)  (896)  (5,358)
Net cash used in investing activities  (470,534)  (363,408)  (251,015)
             
CASH FLOWS FROM FINANCING ACTIVITIES:            
Proceeds from long-term debt  1,489,500   432,500   327,600 
Principal payments on notes payable and long-term debt  (1,429,195)  (525,909)  (493,560)
Payment of contingent consideration recorded at acquisition date  (2,190)  (24,847)  (23,941)
Change in book overdraft  (89)  (11)  (110)
Proceeds from option and warrant exercises  572   3,375   2,464 
Excess tax benefit associated with equity-based compensation  2,069   7,518   3,765 
Payments for repurchase of common stock  (91,165)  (7,317)  - 
Payments for cash dividends  (65,990)  (58,906)  (51,213)
Tax withholdings related to net share settlements of restricted stock units  (6,447)  (6,814)  (5,439)
Distributions to noncontrolling interests  (42)  (371)  (198)
Debt issuance costs  (6,867)  (125)  (2,035)
Net cash used in financing activities  (109,844)  (180,907)  (242,667)
             
Net increase (decrease) in cash and equivalents  (3,379)  762   (9,621)
Cash and equivalents at beginning of year  14,353   13,591   23,212 
Cash and equivalents at end of year $10,974  $14,353  $13,591 

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

72

SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH TRANSACTIONS:

  Years Ended December 31, 
  2015  2014  2013 
Cash paid for income taxes $102,279  $116,239  $81,710 
Cash paid for interest $55,674  $60,224  $66,985 
             
In connection with its acquisitions, the Company assumed liabilities as follows:            
Fair value of assets acquired $433,227  $172,875  $67,271 
Cash paid for current year acquisitions  (230,517)  (126,181)  (64,156)
Liabilities assumed and notes payable issued to sellers of businesses acquired $202,710  $46,694  $3,115 

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

73

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

1.ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Waste Connections, Inc. (“WCI” or the “Company”) was incorporated in Delaware on September 9, 1997, and commenced its operations on October 1, 1997, through the purchase of certain solid waste operations in the state of Washington.  The Company is an integrated municipal solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and a leading provider of non-hazardous exploration and production (“E&P”) waste treatment, recovery and disposal services in several of the most active natural resource producing areas of the U.S. The Company also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest.

Basis of Presentation

These consolidated financial statements include the accounts of WCI and its wholly-owned and majority-owned subsidiaries.  The consolidated entity is referred to herein as the Company.  All significant intercompany accounts and transactions have been eliminated in consolidation.

As further discussed in Note 18 – “Subsequent Events,” the Company entered into the Merger Agreement on January 18, 2016, that, if consummated, would result in the Company becoming a wholly-owned subsidiary of Progressive Waste. The accompanying consolidated financial statements, of which these notes are an integral part, do not reflect any effects that would result if the transaction contemplated by the Merger Agreement is consummated.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less at purchase to be cash equivalents.  As of December 31, 2015 and 2014, cash equivalents consisted of demand money market accounts.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and equivalents, restricted assets and accounts receivable.  The Company maintains cash and equivalents with banks that at times exceed applicable insurance limits.  The Company reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions. The Company’s restricted assets are invested primarily in U.S. government and agency securities. The Company has not experienced any losses related to its cash and equivalents or restricted asset accounts.  The Company generally does not require collateral on its trade receivables.  Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Company’s customer base.  The Company maintains allowances for losses based on the expected collectability of accounts receivable.

Revenue Recognition and Accounts Receivable

Revenues are recognized when persuasive evidence of an arrangement exists, the service has been provided, the price is fixed or determinable and collection is reasonably assured.  Certain customers are billed in advance and, accordingly, recognition of the related revenues is deferred until the services are provided.  In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer is presented in the Statements of Net Income (Loss) on a net basis (excluded from revenues).

The Company’s receivables 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 doubtful accounts, represents their estimated net realizable value.  The Company estimates its allowance for doubtful accounts based on historical collection trends, type of customer such as municipal or non-municipal, the age of outstanding receivables and existing economic conditions.  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.

74

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Property and Equipment

Property and equipment are stated at cost.  Improvements or betterments, not considered to be maintenance and repair, which add new functionality or significantly extend the life of an asset are capitalized.  Third-party expenditures related to pending development projects, such as legal and engineering expenses, are capitalized.  Expenditures for maintenance and repair costs, including planned major maintenance activities, are charged to expense as incurred.  The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal.  Gains and losses resulting from disposals of property and equipment are recognized in the period in which the property and equipment is disposed.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter.

The estimated useful lives are as follows: 

Buildings10 – 20 years
Leasehold and land improvements3 – 10 years
Machinery and equipment3 – 12 years
Rolling stock2 – 10 years
Containers5 – 12 years

Landfill Accounting

The Company utilizes the life cycle method of accounting for landfill costs.  This method applies the costs to be capitalized associated with acquiring, developing, closing and monitoring the landfills over the associated consumption of landfill capacity.  The Company utilizes the units of consumption method to amortize landfill development costs over the estimated remaining capacity of a landfill.  Under this method, the Company includes future estimated construction costs using current dollars, as well as costs incurred to date, in the amortization base.  When certain criteria are met, the Company includes expansion airspace, which has not been permitted, in the calculation of the total remaining capacity of the landfill.

-Landfill development costs.  Landfill development costs include the costs of acquisition, construction associated with excavation, liners, site berms, groundwater monitoring wells, gas recovery systems and leachate collection systems.  The Company estimates the total costs associated with developing each landfill site to its final capacity.  This includes certain projected landfill site costs that are uncertain because they are dependent on future events and thus actual costs could vary significantly from estimates.  The total cost to develop a site to its final capacity includes amounts previously expended and capitalized, net of accumulated depletion, and projections of future purchase and development costs, liner construction costs, and operating construction costs.  Total landfill costs include the development costs associated with expansion airspace.  Expansion airspace is addressed below.

-Final capping, closure and post-closure obligations.  The Company accrues for estimated final capping, closure and post-closure maintenance obligations at the landfills it owns and the landfills that it operates, but does not own, under life-of-site agreements.  Accrued final capping, closure and post-closure costs represent an estimate of the current value of the future obligation associated with final capping, closure and post-closure monitoring of non-hazardous solid waste landfills currently owned or operated under life-of-site agreements by the Company.  Final capping costs represent the costs related to installation of clay liners, drainage and compacted soil layers and topsoil constructed over areas of the landfill where total airspace capacity has been consumed.  Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes.  Accruals for final capping, closure and post-closure monitoring and maintenance requirements in the U.S. consider site inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operating and maintenance costs to be incurred during the period after the facility closes.  Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the air emissions standards.  Daily maintenance activities, which include many of these costs, are expensed as incurred during the operating life of the landfill.  Daily maintenance activities include leachate disposal; surface water, groundwater, and methane gas monitoring and maintenance; other pollution control activities; mowing and fertilizing the landfill final cap; fence and road maintenance; and third-party inspection and reporting costs.  Site specific final capping, closure and post-closure engineering cost estimates are prepared annually for landfills owned or landfills operated under life-of-site agreements by the Company.

75

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The net present value of landfill final capping, closure and post-closure liabilities are calculated 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 2015 and 2014 “layers” for final capping, closure and post-closure obligations was 4.75% and 5.75%, respectively, which reflects the Company’s long-term credit adjusted risk free rate as of the end of 2014 and 2013.  The Company’s inflation rate assumption was 2.5% for the years ended December 31, 2015 and 2014.

In accordance with the accounting guidance on asset retirement obligations, the final capping, closure and post-closure liability is recorded on the balance sheet along with an offsetting addition to site costs which is amortized to depletion expense on a units-of-consumption basis as remaining landfill airspace is consumed.  The impact of changes determined to be changes in estimates, based on an annual update, is accounted for on a prospective basis.  Depletion expense resulting from final capping, closure and post-closure obligations recorded as a component of landfill site costs will generally be less during the early portion of a landfill’s operating life and increase thereafter.  Owned landfills and landfills operated under life-of-site agreements have estimated remaining lives, based on remaining permitted capacity, probable expansion capacity and projected annual disposal volumes, that range from approximately 1to 183 years, with an average remaining life of approximately 38years.  The costs for final capping, closure and post-closure obligations at landfills the Company owns or operates under life-of-site agreements are generally estimated based on interpretations of current requirements and proposed or anticipated regulatory changes.

The estimates for landfill final capping, closure and post-closure costs consider when the costs would actually be paid and factor in inflation and discount rates.  Interest is accreted on the recorded liability using the corresponding discount rate.  When using discounted cash flow techniques, reliable estimates of market premiums may not be obtainable.  In the waste industry, there is no market for selling the responsibility for final capping, closure and post-closure obligations independent of selling the landfill in its entirety.  Accordingly, the Company does not believe that it is possible to develop a methodology to reliably estimate a market risk premium and has therefore excluded any such market risk premium from its determination of expected cash flows for landfill asset retirement obligations.  The possibility of changing legal and regulatory requirements and the forward-looking nature of these types of costs make any estimation or assumption less certain.

The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 2013 to December 31, 2015: 

Final capping, closure and post-closure liability at December 31, 2013 $50,128 
Adjustments to final capping, closure and post-closure liabilities  4,176 
Liabilities incurred  3,846 
Accretion expense associated with landfill obligations  3,408 
Closure payments  (178)
Assumption of closure liabilities from acquisitions  120 
Final capping, closure and post-closure liability at December 31, 2014  61,500 
Adjustments to final capping, closure and post-closure liabilities  89 
Liabilities incurred  4,690 
Accretion expense associated with landfill obligations  3,759 
Closure payments  (72)
Assumption of closure liabilities from acquisitions  8,647 
Final capping, closure and post-closure liability at December 31, 2015 $78,613 

The Adjustments to final capping, closure and post-closure liabilities for the year ended December 31, 2014, primarily consisted of the following changes at some of the Company’s landfills: increases in estimated future closure expenditures, changes in engineering estimates of total site capacities and increases in estimated annual tonnage consumption. The final capping, closure and post-closure liability is included in Other long-term liabilities in the Consolidated Balance Sheets. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.

76

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

At December 31, 2015, $43,636 of the Company’s restricted assets balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.

-Disposal capacity.  The Company’s internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at its landfills.  This is done by using surveys and other methods to calculate, based on the terms of the permit, height restrictions and other factors, how much airspace is left to fill and how much waste can be disposed of at a landfill before it has reached its final capacity.  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 pursued through means of an expansion that has not yet been permitted.  Expansion airspace that meets the following criteria is included in the estimate of total landfill airspace:

1)whether the land where the expansion is being sought is contiguous to the current disposal site, and the Company either owns the expansion property or has rights to it under an option, purchase, operating or other similar agreement;
2)whether total development costs, final capping costs, and closure/post-closure costs have been determined;
3)whether internal personnel have performed a financial analysis of the proposed expansion site and have determined that it has a positive financial and operational impact;
4)whether internal personnel or external consultants are actively working to obtain the necessary approvals to obtain the landfill expansion permit; and
5)whether the Company considers it probable that the Company will achieve the expansion (for a pursued expansion to be considered probable, there must be no significant known technical, legal, community, business, or political restrictions or similar issues existing that the Company believes are more likely than not to impair the success of the expansion).

It is possible that the Company’s estimates or assumptions could ultimately be significantly different from actual results.  In some cases, the Company may be unsuccessful in obtaining an expansion permit or the Company may determine that an expansion permit that the Company previously thought was probable has become unlikely.  To the extent that such estimates, or the assumptions used to make those estimates, prove to be significantly different than actual results, or the belief that the Company will receive an expansion permit changes adversely in a significant manner, the costs of the landfill, including the costs incurred in the pursuit of the expansion, may be subject to impairment testing, as described below, and lower profitability may be experienced due to higher amortization rates, higher capping, closure and post-closure rates, and higher expenses or asset impairments related to the removal of previously included expansion airspace.

The Company periodically evaluates its landfill sites for potential impairment indicators.  The Company’s judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of its landfills.  Future events could cause the Company to conclude that impairment indicators exist and that its landfill carrying costs are impaired.

Cell Processing Reserves

The Company records a cell processing reserve related to its E&P segment for certain locations in Louisiana and Texas for the estimated amount of expenses to be incurred upon the treatment and excavation of oilfield waste received. The cell processing reserve is the future cost to properly treat and dispose of existing waste within the cells at the various facilities. The reserve generally covers estimated costs to be incurred over a period of time up to 24 months, with the current portion representing costs estimated to be incurred in the next 12 months. The estimate is calculated based on current estimated volume in the cells, estimated percentage of waste treated, and historical average costs to treat and excavate the waste. The processing reserve represents the estimated costs to process the volumes of oilfield waste on-hand for which revenue has been recognized. At December 31, 2015 and 2014, the current portion of cell processing reserves was $5,566 and $6,136, respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets. At December 31, 2015 and 2014, the long-term portion of cell processing reserves was $2,157 and $2,409, respectively, which is included in Other long-term liabilities in the Consolidated Balance Sheets.

77

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Business Combination Accounting

The Company accounts for business combinations as follows:

·The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The Company measures and recognizes goodwill as of the acquisition date as the excess of:  (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company’s previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed.

·At the acquisition date, the Company measures the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies.  The Company measures the fair values of all noncontractual contingencies if, as of the acquisition date, it is more likely than not that the contingency will give rise to an asset or liability.

Finite-Lived Intangible Assets

The amounts assigned to franchise agreements, contracts, customer lists, permits and non-competition agreements are being amortized on a straight-line basis over the expected term of the related agreements (ranging from 1 to 56 years).

Goodwill and Indefinite-Lived Intangible Assets

The Company acquired indefinite-lived intangible assets in connection with certain of its acquisitions.  The amounts assigned to indefinite-lived intangible assets consist of the value of certain perpetual rights to provide solid waste collection and transportation services in specified territories and to operate exploration and production waste treatment and disposal facilities.  The Company measures and recognizes acquired indefinite-lived intangible assets at their estimated acquisition date fair values.  Indefinite-lived intangible assets are not amortized.  Goodwill represents the excess of:  (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company’s previously held equity interest in the acquiree (if any), over (b)  the fair value of assets acquired and liabilities assumed.  Goodwill and intangible assets, deemed to have indefinite lives, are subject to annual impairment tests as described below.

Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year.  In addition, the Company evaluates its reporting units for impairment if events or circumstances change between annual tests indicating a possible impairment.  Examples of such events or circumstances include, but are not limited to, the following:

·a significant adverse change in legal factors or in the business climate;
·an adverse action or assessment by a regulator;
·a more likely than not expectation that a segment or a significant portion thereof will be sold;
·the testing for recoverability of a significant asset group within the segment; or
·current period or expected future operating cash flow losses.

In the first step (“Step 1”) of testing for goodwill impairment, the Company estimates the fair value of each reporting unit, which the Company has determined to be its three geographic operating segments and its E&P segment, and compares the fair value with the carrying value of the net assets assigned to each reporting unit.  If the fair value of a reporting unit is greater than the carrying value of the net assets, including goodwill, assigned to the reporting unit, then no impairment results.  If the fair value is less than the carrying value, then the Company would perform a second step and determine the fair value of the goodwill. In this second step (“Step 2”), the fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated.  If the fair value of the goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to Impairments and other operating items in the Company’s Consolidated Statements of Net Income (Loss).

78

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

During the third quarter of 2015, the Company determined that sufficient indicators of potential impairment existed to require an interim goodwill and indefinite-lived intangible assets impairment analysis for its E&P segment as a result of the sustained decline in oil prices in the recent months, together with market expectations of a likely slow recovery in such prices. The Company, therefore, performed a Step 1 assessment of its E&P segment during the third quarter of 2015. The Step 1 assessment involved measuring the recoverability of goodwill by comparing the E&P segment’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value was estimated using an income approach employing a discounted cash flow (“DCF”) model. The DCF model incorporated projected cash flows over a forecast period based on the remaining estimated lives of the operating locations comprising the E&P segment. This was based on a number of key assumptions, including, but not limited to, a discount rate of 11.6%, annual revenue projections based on E&P waste resulting from projected levels of oil and natural gas exploration and production activity during the forecast period, gross margins based on estimated operating expense requirements during the forecast period and estimated capital expenditures over the forecast period, all of which were classified as Level 3 in the fair value hierarchy. As a result of the Step 1 assessment, the Company determined that the E&P segment did not pass the Step 1 test because the carrying value exceeded the estimated fair value of the reporting unit. The Company then performed the Step 2 test to determine the fair value of goodwill for its E&P segment. Based on the Step 1 and Step 2 analyses, the Company recorded a goodwill impairment charge within its E&P segment of $411,786 during the third quarter of 2015. Following the impairment charge, the Company’s E&P segment has a remaining balance in goodwill of $77,343 at December 31, 2015. Additionally, the Company evaluated the recoverability of the E&P segment’s indefinite-lived intangible assets (other than goodwill) by comparing the estimated fair value of each indefinite-lived intangible asset to its carrying value. The Company estimated the fair value of the indefinite-lived intangible assets using an excess earnings approach. Based on the result of the recoverability test, the Company determined that the carrying value of certain indefinite-lived intangible assets within the E&P segment exceeded their fair value and were therefore not recoverable. The Company recorded an impairment charge to Impairments and other operating items in the Consolidated Statements of Net Income (Loss) on certain indefinite-lived intangible assets within its E&P segment of $38,351 during the third quarter and fourth quarter of 2015. Following the impairment charge, the Company’s E&P segment has a remaining balance in indefinite-lived intangible assets of $21,504 at December 31, 2015. The Company did not record an impairment charge to its E&P segment as a result of its goodwill and indefinite-lived intangible assets impairment tests in 2014.

During the Company’s annual impairment analysis, the Company determined the fair value of each of its three geographic operating segments as a whole and each indefinite-lived intangible asset within those segments using discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit and the future discrete cash flows related to each indefinite-lived intangible asset. Significant judgments inherent in these analyses include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates.  The cash flows employed in the Company’s 2015 discounted cash flow analyses were based on ten-year financial forecasts, which in turn were based on the 2016 annual budget developed internally by management.  These forecasts reflect operating profit margins that were consistent with 2015 results and perpetual revenue growth rates of 3.3%. The Company’s discount rate assumptions are based on an assessment of the Company’s weighted average cost of capital which approximated 5.0%.  In assessing the reasonableness of the Company’s determined fair values of its reporting units, the Company evaluates its results against its current market capitalization. The Company did not record an impairment charge to its three geographic operating segments as a result of its goodwill and indefinite-lived intangible assets impairment tests in 2015 and 2014.

Impairments of Property and Equipment and Finite-Lived Intangible Assets

Property, equipment and finite-lived intangible assets are carried on the Company’s consolidated financial statements based on their cost less accumulated depreciation or amortization.  Finite-lived intangible assets consist of long-term franchise agreements, contracts, customer lists, permits and non-competition agreements.  The recoverability of these assets is tested whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

Typical indicators that an asset may be impaired include, but are not limited to, the following:

·a significant adverse change in legal factors or in the business climate;
·an adverse action or assessment by a regulator;
·a more likely than not expectation that a segment or a significant portion thereof will be sold;
·the testing for recoverability of a significant asset group within a segment; or
·current period or expected future operating cash flow losses.

If any of these or other indicators occur, a test of recoverability is performed by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows.  If the carrying value is in excess of the undiscounted expected future cash flows, impairment is measured by comparing the fair value of the asset to its carrying value.  Fair value is determined by an internally developed discounted projected cash flow analysis of the asset.  Cash flow projections are sometimes based on a group of assets, rather than a single asset.  If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether an impairment has occurred for the group of assets for which the projected cash flows can be identified.  If the fair value of an asset is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs.  Several impairment indicators are beyond the Company’s control, and whether or not they will occur cannot be predicted with any certainty.  Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized.  There are other considerations for impairments of landfills, as described below.

79

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Prior to conducting Step 1 of the goodwill impairment test for the E&P segment, as described above, the Company first evaluated the recoverability of its long-lived assets, including finite-lived intangible assets. When indicators of impairment are present, as described above, the Company tests long-lived assets for recoverability by comparing the carrying value of an asset group to its undiscounted cash flows. The Company considered the sustained decline in oil prices in the recent months, together with market expectations of a likely slow recovery in such prices, to be indicators of impairment for the E&P segment’s long-lived assets. Based on the result of the recoverability test, the Company determined that the carrying value of certain asset groups within the E&P segment exceeded their undiscounted cash flows and were therefore not recoverable. The Company then compared the fair value of these asset groups to their carrying values. The Company estimated the fair value of the asset groups under an income approach, as described above. Based on the analysis, the Company recorded an impairment charge to Impairments and other operating items in the Consolidated Statements of Net Income (Loss) on certain long-lived assets within its E&P segment of $67,647 during the year ended December 31, 2015. Following the impairment charge, the Company’s E&P segment has a remaining balance in property and equipment of $929,839 at December 31, 2015.

In 2014, the Company recorded an $8,445 impairment charge, which is included in Impairments and other operating items in the Consolidated Statements of Net Income (Loss), for property and equipment at an E&P disposal facility as a result of projected operating losses resulting from the migration of the majority of the facility’s customers to a new E&P facility that the Company owns and operates. The fair value of the property and equipment was determined using a discounted cash flow model.

Landfills – There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to landfill development or expansion projects.  A regulator or court may deny or overturn a landfill development or landfill expansion permit application before the development or expansion permit is ultimately granted.  Management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace.  Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators of impairment due to the unique nature of the waste industry.

Restricted Assets

Restricted assets held by trustees consist principally of funds deposited in connection with landfill final capping, closure and post-closure obligations and other financial assurance requirements.  Proceeds from these financing arrangements are directly deposited into trust funds, and the Company does not have the ability to utilize the funds in regular operating activities.  See Note 8 for further information on restricted assets.

80

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and equivalents, trade receivables, restricted assets, trade payables, debt instruments, contingent consideration obligations, interest rate swaps and fuel hedges.  As of December 31, 2015 and 2014, the carrying values of cash and equivalents, trade receivables, restricted assets, trade payables and contingent consideration are considered to be representative of their respective fair values.  The carrying values of the Company’s debt instruments, excluding certain notes as listed in the table below, approximate their fair values as of December 31, 2015 and 2014, based on current borrowing rates, current remaining average life to maturity and borrower credit quality for similar types of borrowing arrangements, and are classified as Level 2 within the fair value hierarchy.  The carrying values and fair values of the Company’s debt instruments where the carrying values do not approximate their fair values as of December 31, 2015 and 2014, are as follows: 

  Carrying Value at
December 31,
  Fair Value* at
December 31,
 
  2015  2014  2015  2014 
6.22% Senior Notes due 2015 $-  $175,000  $-  $181,476 
3.30% Senior Notes due 2016 $100,000  $100,000  $100,536  $102,253 
4.00% Senior Notes due 2018 $50,000  $50,000  $51,860  $52,500 
5.25% Senior Notes due 2019 $175,000  $175,000  $190,985  $192,974 
4.64% Senior Notes due 2021 $100,000  $100,000  $107,613  $108,088 
3.09% Senior Notes due 2022 $125,000  $-  $123,516  $- 
3.41% Senior Notes due 2025 $375,000  $-  $370,245  $- 

*Senior Notes are classified as Level 2 within the fair value hierarchy. Fair value is based on quotes of bonds with similar ratings in similar industries.

For details on the fair value of the Company’s interest rate swaps, fuel hedges, restricted assets and contingent consideration, refer to Note 8.

Derivative Financial Instruments

The Company recognizes all derivatives on the balance sheet at fair value.  All of the Company’s derivatives have been designated as cash flow hedges; therefore, the effective portion of the changes in the fair value of derivatives will be recognized in accumulated other comprehensive loss (“AOCL”) until the hedged item is recognized in earnings.  The ineffective portion of the changes in the fair value of derivatives will be immediately recognized in earnings.  The Company classifies cash inflows and outflows from derivatives within operating activities on the statement of cash flows.

One of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates of certain borrowings issued under its credit agreement.  The Company’s strategy to achieve that objective involves entering into interest rate swaps. The interest rate swaps outstanding at December 31, 2015 were specifically designated to the Company’s credit agreement and accounted for as cash flow hedges.

At December 31, 2015, the Company’s derivative instruments included six interest rate swap agreements as follows: 

Date Entered Notional
Amount
  Fixed
Interest
Rate Paid*
  Variable
Interest Rate
Received
 Effective Date Expiration Date
December 2011 $175,000   1.600% 1-month LIBOR February 2014 February 2017
April 2014 $100,000   1.800% 1-month LIBOR July 2014 July 2019
May 2014 $50,000   2.344% 1-month LIBOR October 2015 October 2020
May 2014 $25,000   2.326% 1-month LIBOR October 2015 October 2020
May 2014 $50,000   2.350% 1-month LIBOR October 2015 October 2020
May 2014 $50,000   2.350% 1-month LIBOR October 2015 October 2020

* Plus applicable margin.

81

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Another of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the price of diesel fuel.  The Company’s strategy to achieve that objective involves periodically entering into fuel hedges that are specifically designated to certain forecasted diesel fuel purchases and accounted for as cash flow hedges.

At December 31, 2015, the Company’s derivative instruments included two fuel hedge agreements as follows: 

Date Entered Notional
Amount
(in gallons per
month)
  Diesel
Rate Paid
Fixed (per
gallon)
  Diesel Rate Received
Variable
 Effective
Date
 Expiration
Date
May 2015  300,000  $3.280  DOE Diesel Fuel Index* January 2016 December 2017
May 2015  200,000  $3.275  DOE Diesel Fuel Index* January 2016 December 2017

* If the national U.S. on-highway average price for a gallon of diesel fuel (“average price”), as published by the Department of Energy (“DOE”), exceeds the contract price per gallon, the Company receives the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty.  If the average price is less than the contract price per gallon, the Company pays the difference to the counterparty.

The fair values of derivative instruments designated as cash flow hedges as of December 31, 2015, were as follows: 

Derivatives Designated as Cash Asset Derivatives  Liability Derivatives
Flow Hedges Balance Sheet Location  Fair Value  Balance Sheet Location Fair Value 
Interest rate swaps    $-  Accrued liabilities(a) $(5,425)
          Other long-term liabilities  (4,320)
Fuel hedges      -  Accrued liabilities(b)  (5,699)
          Other long-term liabilities  (4,201)
Total derivatives designated as cash flow hedges     $-    $(19,645)

(a)     Represents the estimated amount of the existing unrealized losses on interest rate swaps as of December 31, 2015 (based on the interest rate yield curve at that date), included in AOCL expected to be reclassified into pre-tax earnings within the next 12 months.  The actual amounts reclassified into earnings are dependent on future movements in interest rates.

(b)     Represents the estimated amount of the existing unrealized losses on fuel hedges as of December 31, 2015 (based on the forward DOE diesel fuel index curve at that date), included in AOCL expected to be reclassified into pre-tax earnings within the next 12 months.  The actual amounts reclassified into earnings are dependent on future movements in diesel fuel prices.

The fair values of derivative instruments designated as cash flow hedges as of December 31, 2014, were as follows: 

Derivatives Designated as Cash Asset Derivatives Liability Derivatives
Flow Hedges Balance Sheet Location Fair Value  Balance Sheet Location Fair Value 
Interest rate swaps Other assets, net $250  Accrued liabilities $(4,044)
        Other long-term liabilities  (3,300)
Fuel hedges       Accrued liabilities  (1,979)
Total derivatives designated as cash flow hedges   $250    $(9,323)

82

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following table summarizes the impact of the Company’s cash flow hedges on the results of operations, comprehensive income (loss) and AOCL for the years ended December 31, 2015, 2014 and 2013: 

Derivatives
Designated as Cash
Flow Hedges
 Amount of Gain or (Loss) Recognized 
as AOCL on Derivatives, Net of Tax

(Effective Portion)(a)
  Statement of Net
Income (Loss)
Classification
 Amount of (Gain) or Loss Reclassified
from AOCL into Earnings,
Net of Tax (Effective Portion)(b), (c)
 
  Years Ended December 31,    Years Ended December 31, 
  2015  2014  2013    2015  2014  2013 
Interest rate swaps $(4,820) $(3,970) $188  Interest expense $3,155  $2,824  $3,483 
Fuel hedges  (6,906)  (2,071)  625  Cost of operations  1,993   (507)  - 
Total $(11,726) $(6,041) $813    $5,148  $2,317  $3,483 

(a)          In accordance with the derivatives and hedging guidance, the effective portions of the changes in fair values of interest rate swaps and fuel hedges have been recorded in equity as a component of AOCL.  As the critical terms of the interest rate swaps match the underlying debt being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in AOCL.  Because changes in the actual price of diesel fuel and changes in the DOE index price do not offset exactly each reporting period, the Company assesses whether the fuel hedges are highly effective using the cumulative dollar offset approach. 

(b)          Amounts reclassified from AOCL into earnings related to realized gains and losses on interest rate swaps are recognized when interest payments or receipts occur related to the swap contracts, which correspond to when interest payments are made on the Company’s hedged debt.

(c)          Amounts reclassified from AOCL into earnings related to realized gains and losses on the fuel hedges are recognized when settlement payments or receipts occur related to the hedge contracts, which correspond to when the underlying fuel is consumed. 

The Company measures and records ineffectiveness on the fuel hedges in Cost of operations in the Consolidated Statements of Net Income (Loss) on a monthly basis based on the difference between the DOE index price and the actual price of diesel fuel purchased, multiplied by the notional number of gallons on the contracts.  There was no significant ineffectiveness recognized on the fuel hedges during the years ended December 31, 2015, 2014 and 2013. 

See Note 12 for further discussion on the impact of the Company’s hedge accounting to its consolidated Comprehensive income (loss) and AOCL. 

Income Taxes  

Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse.  The Company records valuation allowances to reduce net deferred tax assets to the amount considered more likely than not to be realized.

The Company is required to evaluate whether the tax positions taken on its federal and state income tax returns will more likely than not be sustained upon examination by the appropriate taxing authority.  If the Company determines that such tax positions will not be sustained, it records a liability for the related unrecognized tax benefits. The Company classifies its liability for unrecognized tax benefits as a current liability to the extent it anticipates making a payment within one year. 

Equity-Based Compensation 

The fair value of restricted stock units is determined based on the number of shares granted, the closing price of the Company’s common stock and an assumed forfeiture rate of 8%. 

Compensation expense associated with outstanding performance-based restricted stock unit (“PSU”) awards is measured using the fair value of the Company’s common stock and is based on the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends, recognized ratably over the performance period. Compensation expense is only recognized for those awards that the Company expects to vest, which it estimates based upon an assessment of the probability that the performance criteria will be achieved. The Company assumed a forfeiture rate of 0% for PSU awards with three-year performance-based metrics granted to the Company’s executive officers during the years ended December 31, 2015 and 2014. The Company assumed a forfeiture rate of 8% for PSU awards, with a one-year performance-based metric and time-based vesting for the remaining three years of the four-year vesting period, granted to the Company’s executive officers and non-executive officers during the year ended December 31, 2015.

83

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employee’s requisite service period.  Under the stock-based compensation guidance, the Company elected to use the short-cut method to calculate the historical pool of windfall tax benefits.  The Company elected to use the tax law ordering approach for purposes of determining whether an excess of tax benefit has been realized. 

Warrants are valued using the Black-Scholes pricing model with a contractual life of five years, a risk free interest rate based on the 5-year U.S. treasury yield curve and expected volatility. The Company uses the historical volatility of its common stock over a period equivalent to the contractual life of the warrants to estimate the expected volatility.  Warrants issued to consultants are recorded as an element of the related cost of landfill development projects or to expense for warrants issued in connection with acquisitions. 

Equity-based compensation expense recognized during the years ended December 31, 2015, 2014 and 2013, was $20,318 ($12,587 net of taxes), $18,446 ($11,372 net of taxes) and $15,397 ($9,508 net of taxes), respectively, and consisted of restricted stock unit, PSU and warrant expense.  The Company records equity-based compensation expense in Selling, general and administrative expenses in the Consolidated Statements of Net Income (Loss).  The total unrecognized compensation cost at December 31, 2015, related to unvested restricted stock unit awards was $25,984 and this future expense will be recognized over the remaining vesting period of the restricted stock unit awards, which extends to 2019. The weighted average remaining vesting period of the restricted stock unit awards is 1.1 years.  The total unrecognized compensation cost at December 31, 2015, related to unvested PSU awards was $6,965 and this future expense will be recognized over the remaining vesting period of the PSU awards, which extends to 2019. The weighted average remaining vesting period of PSU awards is 1.6 years.

Per Share Information 

Basic net income (loss) per share attributable to Waste Connections’ common stockholders is computed using the weighted average number of common shares outstanding and vested and unissued restricted stock units deferred for issuance into the deferred compensation plan.  Diluted net income (loss) per share attributable to Waste Connections’ common stockholders is computed using the weighted average number of common and potential common shares outstanding.  Potential common shares are excluded from the computation if their effect is anti-dilutive. 

Advertising Costs 

Advertising costs are expensed as incurred.  Advertising expense for the years ended December 31, 2015, 2014 and 2013, was $3,197, $3,479 and $3,704, respectively, which is included in Selling, general and administrative expense in the Consolidated Statements of Net Income (Loss). 

Insurance Liabilities 

As a result of its high deductible or self-insured retention insurance policies, the Company is effectively self-insured for automobile liability, general liability, employer’s liability, environmental liability, cyber liability, employment practices liability, and directors’ and officers’ liability as well as for employee group health insurance, property and workers’ compensation.  The Company’s insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by the Company’s management with assistance from its third-party actuary and its third-party claims administrator.  The insurance accruals are influenced by the Company’s past claims experience factors, which have a limited history, and by published industry development factors.  At December 31, 2015 and 2014, the Company’s total accrual for self-insured liabilities was $44,934 and $44,849, respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets.  For the years ended December 31, 2015, 2014 and 2013, the Company recognized $49,391, $51,702 and $48,032, respectively, of self-insurance expense which is included in Cost of operations and Selling, general and administrative expense in the Consolidated Statements of Net Income (Loss).

New Accounting Pronouncements

Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. In April 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that changes the threshold for reporting discontinued operations and adds new disclosures. The new guidance defines a discontinued operation as a disposal of a component or group of components that is disposed of or is classified as held for sale and "represents a strategic shift that has (or will have) a major effect on an entity's operations and financial results." For disposals of individually significant components that do not qualify as discontinued operations, an entity must disclose pre-tax earnings of the disposed component. For public business entities, this guidance is effective prospectively for all disposals (or classifications as held for sale) of components of an entity that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in financial statements previously issued or available for issuance. The Company adopted this guidance as of January 1, 2015. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

84

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Revenue From Contracts With Customers. In May 2014, the FASB issued guidance to provide a single, comprehensive revenue recognition model for all contracts with customers. The revenue guidance contains principles that an entity will apply to determine the measurement of revenue and timing of when it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of goods or services to customers at an amount that the entity expects to be entitled to in exchange for those goods or services. The standard will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 for public entities, with early adoption permitted (but not earlier than the original effective date of the pronouncement). The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial position or results of operations.

Accounting for Share-Based Payment When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period. In June 2014, the FASB issued guidance that applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. It requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition and follows existing accounting guidance for the treatment of performance conditions. The standard will be effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial position or results of operations.

Presentation of Debt Issuance Costs. In April 2015, the FASB issued guidance which requires debt issuance costs (other than those paid to a lender) to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. The standard does not affect the recognition and measurement of debt issuance costs. Therefore, the amortization of such costs should continue to be calculated using the interest method and be reported as interest expense. The FASB updated this guidance in August 2015 to clarify that fees paid to lenders to secure revolving lines of credit are not in the scope of the new guidance and will continue to be recorded as an asset on the balance sheet.  The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The new guidance has been applied on a retrospective basis. The Company early adopted this guidance effective January 1, 2015. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

Accounting for Measurement-Period Adjustments. In September 2015, the FASB issued guidance that eliminates the requirement to restate prior period financial statements for measurement period adjustments. The new guidance requires that the cumulative impact of a measurement period adjustment (including the impact on prior periods) be recognized in the reporting period in which the adjustment is identified. This cumulative adjustment would be reflected within the respective financial statement line items affected. The new guidance does not change what constitutes a measurement period adjustment. The new standard should be applied prospectively to measurement period adjustments that occur after the effective date. The new standard is effective for interim and annual periods beginning after December 15, 2015, with early adoption permitted. The Company early adopted this guidance effective October 1, 2015. The adoption of this guidance did not have a material impact on the Company’s financial position or results of operations.

Balance Sheet Classification of Deferred Taxes. In November 2015, the FASB issued guidance that requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The guidance does not change the existing requirement that only permits offsetting within a jurisdiction. The new standard is effective in fiscal years beginning after December 15, 2016, including interim periods within those years, with early adoption permitted. The adoption of this guidance will result in the Company’s current deferred tax assets being recorded as noncurrent.

85

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Reclassification

Certain amounts reported in the Company’s prior year’s financial statements have been reclassified to conform with the 2015 presentation.

2.USE OF ESTIMATES AND ASSUMPTIONS

In preparing the Company’s consolidated financial statements, several estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses.  These estimates and assumptions must be made because certain of the information that is used in the preparation of the Company’s consolidated financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is simply not capable of being readily calculated based on generally accepted methodologies.  In some cases, these estimates are particularly difficult to determine and the Company must exercise significant judgment.  The most difficult, subjective and complex estimates and the assumptions that deal with the greatest amount of uncertainty are related to the Company’s accounting for landfills, self-insurance accruals, income taxes, allocation of acquisition purchase price, contingent consideration accruals and asset impairments, which are discussed in Note 1.  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 consolidated financial statements. 

3.ACQUISITIONS

The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values.  The Company measures and recognizes goodwill as of the acquisition date as the excess of:  (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company's previously held equity interest in the acquiree (if any), over (b) the fair value of assets acquired and liabilities assumed.  If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, the Company will report provisional amounts for the items for which the accounting is incomplete.  The measurement period ends once the Company receives the information it was seeking; however, this period will not exceed one year from the acquisition date.  Any material adjustments recognized during the measurement period will be reflected prospectively in the period the adjustment is identified in the consolidated financial statements.  The Company recognizes acquisition-related costs as expense. 

In January 2015, the Company acquired Shale Gas Services, LLC (“Shale Gas”), which owns two E&P waste stream treatment and recycling operations in Arkansas and Texas, for cash consideration of $41,000 and potential future contingent consideration. The contingent consideration would be paid to the former owners of Shale Gas based on the achievement of certain operating targets for the acquired operations, as specified in the membership purchase agreement, over a two-year period following the close of the acquisition. The Company used probability assessments of the expected future cash flows and determined that no liability for payment of future contingent consideration existed as of the acquisition close date. As of December 31, 2015, the assessment that no liability existed for payment of future contingent consideration has not changed.

In March 2015, the Company acquired DNCS Properties, LLC (“DNCS”), which owns land and permits to construct and operate an E&P waste facility in the Permian Basin, for cash consideration of $30,000 and a long-term note issued to the former owners of DNCS with a fair value of $5,088. The long-term note requires ten annual principal payments of $500, followed by an additional ten annual principal payments of $250, for total future cash payments of $7,500. The fair value of the long-term note was determined by applying a discount rate of 4.75% to the payments over the 20-year payment period.

In November 2015, the Company acquired Rock River Environmental Services, Inc. (“Rock River”), an integrated provider of solid waste collection, recycling, transfer and disposal services. The acquired operations service 19 counties in central and northern Illinois and include five collection operations, two landfills, one compost facility, one transfer station and one recycling facility. The Company paid cash consideration of $225,000 for this acquisition, using proceeds from borrowings under its credit agreement. The Company also paid an additional amount for the purchase of estimated working capital, which is subject to post-closing adjustments.

In addition to the acquisitions of Shale Gas, DNCS and Rock River, the Company also acquired 11 individually immaterial non-hazardous solid waste collection and disposal businesses during the year ended December 31, 2015.

86

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

In March 2014, the Company acquired Screwbean Landfill, LLC (“Screwbean”), which owns land and permits to construct and operate an E&P waste facility, and S.A. Dunn & Company, LLC (“Dunn”), which owns land and permits to construct and operate a construction and demolition landfill, for aggregate total cash consideration of $27,020 and contingent consideration of $2,923. Contingent consideration represents the fair value of up to $3,000 of amounts payable to the former Dunn owners based on the successful modification of site construction permits that would enable increased capacity at the landfill. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the two-year period in which the obligations are expected to be settled, and applying discount rates ranging from 2.4% to 2.7%. As of December 31, 2015, the obligation recognized at the purchase date has not materially changed. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.

In September 2014, the Company acquired Rumsey Environmental, LLC (“Rumsey”), which provides solid waste collection services in western Alabama, for aggregate total cash consideration of $16,000 and contingent consideration of $1,891. Contingent consideration represents the fair value of up to $2,000 of amounts payable to the former owners based on the achievement of certain operating targets specified in the asset purchase agreement. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the two-year period in which the obligation is expected to be settled, and applying a discount rate of 2.8%. As of December 31, 2015, the obligation recognized at the purchase date has not materially changed. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.

In October 2014, the Company acquired Section 18, LLC (“Section 18”), which provides E&P disposal services in North Dakota, for aggregate total cash consideration of $64,425 and contingent consideration of $37,724. The contingent consideration recorded represented the estimated fair value at the acquisition close date of amounts payable to the former owners based on approval of up to four site construction permits for future facilities in North Dakota, Wyoming and Montana and the achievement of certain operating targets at one current facility and up to four future facilities as specified in the asset purchase agreement. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the one to four-year period in which the obligations are expected to be settled, and applying a discount rate of 5.2%. During the third quarter of 2015, the Company remeasured the fair value of the contingent consideration and determined that the fair value of amounts payable associated with the achievement of certain operating targets decreased by $20,642, which was credited to Impairments and other operating items in the Consolidated Statements of Net Income (Loss). The change in the fair value of the contingent consideration was due to an expected decrease in earnings of the future facilities as a result of the sustained decline in oil prices subsequent to the closing date of the acquisition, together with market expectations of a likely slow recovery in such prices. During the year ended December 31, 2015, $2,000 of the contingent consideration associated with the approval of one of the site permits was earned and paid to the former owners.

In addition to the acquisitions of Screwbean, Dunn, Rumsey and Section 18, the Company acquired five individually immaterial non-hazardous solid waste collection, transfer and disposal businesses during the year ended December 31, 2014.

The Company acquired eight individually immaterial non-hazardous solid waste collection businesses during the year ended December 31, 2013.

The total acquisition-related costs incurred for the acquisitions closed during the years ended December 31, 2015, 2014 and 2013 were $4,235, $2,147 and $1,946.  These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income (Loss). 

The results of operations of the acquired businesses have been included in the Company’s 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. 

87

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following table summarizes the consideration transferred to acquire these businesses and the amounts of identifiable assets acquired and liabilities assumed at the acquisition date for acquisitions consummated in the years ended December 31, 2015, 2014 and 2013: 

  

2015

Acquisitions

  

2014

Acquisitions

  2013
Acquisitions
 
Fair value of consideration transferred:            
Cash $230,517  $126,181  $64,156 
Debt assumed  111,324   -   - 
Notes issued to sellers  6,091   -   - 
Contingent consideration  815   42,538   40 
   348,747   168,719   64,196 
Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired:            
Accounts receivable  12,571   3,785   211 
Other current assets  1,440   111   317 
Property and equipment  208,363   140,412   12,775 
Long-term franchise agreements and contracts  16,462   369   1,043 
Indefinite-lived intangibles  1,256   -   - 
Customer lists  12,504   9,420   13,024 
Permits  37,071   -   - 
Other long-term assets  2,738   -   - 
Deferred revenue  (5,056)  (427)  (539)
Accounts payable  (7,515)  -   (735)
Accrued liabilities  (1,822)  (1,749)  (1,034)
Other long-term liabilities  (19,998)  (1,980)  (767)
Deferred income taxes  (50,089)  -   - 
Total identifiable net assets  207,925   149,941   24,295 
Goodwill $140,822  $18,778  $39,901 

Goodwill acquired in 2015 totaling $40,863 is expected to be deductible for tax purposes.   Goodwill acquired in 2014 totaling $18,778 is expected to be deductible for tax purposes.  Goodwill acquired in 2013 totaling $39,731 is expected to be deductible for tax purposes.  

The fair value of acquired working capital related to four individually immaterial acquisitions completed during the year ended December 31, 2015, is provisional pending receipt of information to support the fair value of the assets acquired and liabilities assumed. Any adjustments recorded relating to finalizing the working capital for these four acquisitions are not expected to be material to the Company’s financial position. 

The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2015, was $13,037, of which $466 was expected to be uncollectible.  The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2014, was $3,981, of which $196 was expected to be uncollectible.  The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2013, was $414, of which $203 was expected to be uncollectible.  The Company did not acquire any other class of receivable as a result of the acquisition of these businesses. 

88

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

4.INTANGIBLE ASSETS, NET

Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2015:

  Gross
Carrying
Amount
  Accumulated
Amortization
  Accumulated
Impairment
Loss
  Net Carrying
Amount
 
Finite-lived intangible assets:                
Long-term franchise agreements and contracts $210,384  $(60,205) $-  $150,179 
Customer lists  173,855   (96,941)  -   76,914 
Permits and non-competition agreements  81,240   (13,587)  -   67,653 
   465,479   (170,733)  -   294,746 
Indefinite-lived intangible assets:                
Solid waste collection and transportation permits  152,761   -   -   152,761 
Material recycling facility permits  42,283   -   -   42,283 
E&P facility permits  59,855   -   (38,351)  21,504 
   254,899   -   (38,351)  216,548 
Intangible assets, exclusive of goodwill $720,378  $(170,733) $(38,351) $511,294 

The weighted-average amortization period of long-term franchise agreements and contracts acquired during the year ended December 31, 2015 was 10.0 years. The weighted-average amortization period of customer lists acquired during the year ended December 31, 2015 was 8.2 years.  The weighted-average amortization period of finite-lived permits acquired during the year ended December 31, 2015 was 38.1 years.

Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2014: 

  Gross Carrying
Amount
  Accumulated
Amortization
  Net Carrying
Amount
 
Finite-lived intangible assets:            
Long-term franchise agreements and contracts $195,676  $(52,448) $143,228 
Customer lists  161,463   (77,931)  83,532 
Permits and non-competition agreements  41,369   (11,777)  29,592 
   398,508   (142,156)  256,352 
Indefinite-lived intangible assets:            
Solid waste collection and transportation permits  151,505   -   151,505 
Material recycling facility permits  42,283   -   42,283 
E&P facility permits  59,855   -   59,855 
   253,643   -   253,643 
Intangible assets, exclusive of goodwill $652,151  $(142,156) $509,995 

Estimated future amortization expense for the next five years relating to finite-lived intangible assets is as follows: 

For the year ending December 31, 2016 $27,434 
For the year ending December 31, 2017 $25,347 
For the year ending December 31, 2018 $24,440 
For the year ending December 31, 2019 $19,853 
For the year ending December 31, 2020 $17,947 

89

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

5.PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following: 

  December 31, 
  2015  2014 
Landfill site costs $2,379,535  $2,209,749 
Rolling stock  754,662   669,133 
Land, buildings and improvements  433,230   403,472 
Containers  323,953   289,626 
Machinery and equipment  377,488   335,376 
Construction in progress  9,861   19,815 
   4,278,729   3,927,171 
Less accumulated depreciation and depletion  (1,540,441)  (1,332,966)
  $2,738,288  $2,594,205 

The Company’s landfill depletion expense, recorded in Depreciation in the Consolidated Statements of Net Income (Loss), for the years ended December 31, 2015, 2014 and 2013, was $82,369, $84,308 and $80,227, respectively. 

6.ACCRUED LIABILITIES

Accrued liabilities consist of the following: 

  December 31, 
  2015  2014 
Insurance claims $44,934  $44,849 
Payroll and payroll-related  41,332   40,376 
Interest payable  12,974   9,319 
Unrealized cash flow hedge losses  11,124   6,023 
Cell processing reserve - current portion  5,566   6,136 
Environmental remediation reserve - current portion  2,328   3,023 
Other  17,760   11,221 
  $136,018  $120,947 

90

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

7.LONG-TERM DEBT

Long-term debt consists of the following:  

  December 31, 
  2015  2014 
Revolver under credit agreement $390,000  $680,000 
Term loan under credit agreement  800,000   660,000 
2015 Notes  -   175,000 
2016 Notes  100,000   100,000 
2018 Notes  50,000   50,000 
2019 Notes  175,000   175,000 
2021 Notes  100,000   100,000 
2022 Notes  125,000   - 
2025 Notes  375,000   - 
Tax-exempt bonds  31,430   31,430 
Notes payable to sellers and other third parties, bearing interest at 3.0% to 10.9%, principal and interest payments due periodically with due dates ranging from 2016 to 2036  10,855   8,135 
   2,157,285   1,979,565 
Less – current portion  (2,127)  (3,649)
Less – debt issuance costs  (8,031)  (4,764)
  $2,147,127  $1,971,152 

Revolving Credit and Term Loan Agreement

The Company has a revolving credit and term loan agreement (the “credit agreement”) with Bank of America, N.A., as Administrative Agent, and the other lenders from time to time party thereto (the “Lenders”). Pursuant to the credit agreement, the Lenders have committed to provide revolving advances up to an aggregate principal amount of $1,200,000 at any one time outstanding (the “revolver”). The Lenders have also provided a term loan in an aggregate principal amount of $800,000 (the “term loan”). The Company has the option to request increases in the aggregate commitments for revolving advances and one or more additional term loans, provided that the aggregate principal amount of commitments and term loans never exceeds $2,300,000. For any such increase, the Company may ask one or more Lenders to increase their existing commitments or provide additional term loans and/or invite additional eligible lenders to become Lenders under the credit agreement. As part of the aggregate commitments under the facility, the credit agreement provides for letters of credit to be issued at the request of the Company in an aggregate amount not to exceed $250,000 and for swing line loans to be issued at the request of the Company in an aggregate amount not to exceed the lesser of $35,000 and the aggregate commitments. As of December 31, 2015, $800,000 under the term loan and $390,000 under the revolver were outstanding under the credit agreement, exclusive of outstanding standby letters of credit of $78,373. As of December 31, 2014, $660,000 under the term loan and $680,000 under the revolver were outstanding under the credit agreement, exclusive of outstanding standby letters of credit of $73,031. The Company has $4,136 of debt issuance costs related to the credit agreement recorded in Other assets, net in the Consolidated Balance Sheets at December 31, 2015, which are being amortized through the maturity date, or January 2020.

Interest accrues on advances on the revolver, at the Company’s option, at a LIBOR rate plus the applicable LIBOR margin (for a total rate of 1.44% and 1.54% at December 31, 2015 and 2014, respectively) on LIBOR loans or a base rate plus an applicable margin (for a total rate of 3.70% and 3.63% at December 31, 2015 and 2014, respectively) on base rate and swing line loans for each interest period. The issuing fees for all letters of credit are also based on an applicable margin. The applicable margin used in connection with interest rates and fees is based on the Company’s consolidated leverage ratio. The applicable margin for LIBOR rate loans and letter of credit fees was 1.20% and 1.375% at December 31, 2015 and 2014, respectively, and the applicable margin for base rate loans and swing line loans was 0.50% and 0.50% at December 31, 2015 and 2014, respectively. As of December 31, 2015, $385,000 of the borrowings outstanding under the revolver were in LIBOR loans and $5,000 of the borrowings outstanding under the revolver were in swing line loans. As of December 31, 2014, $677,000 of the borrowings outstanding under the revolver were in LIBOR loans and $3,000 of the borrowings outstanding under the revolver were in swing line loans.

91

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Outstanding amounts on the term loan could be either base rate loans or LIBOR loans. At December 31, 2015 and 2014, all amounts outstanding under the term loan were in LIBOR loans which bear interest at the LIBOR rate plus the applicable LIBOR margin (for a total rate of 1.44% and 1.66% at December 31, 2015 and 2014, respectively). The applicable margin is based on the Company’s consolidated leverage ratio. The applicable margin for LIBOR rate loans was 1.20% and 1.375% at December 31, 2015 and 2014, respectively.

The Company will also pay a fee based on its consolidated leverage ratio on the actual daily unused amount of the aggregate revolving commitments (0.15% and 0.20% as of December 31, 2015 and 2014, respectively).

The borrowings under the credit agreement are not collateralized. The credit agreement contains representations, warranties, covenants and events of default, including a change of control event of default and limitations on incurrence of indebtedness and liens, limitations on new lines of business, mergers, transactions with affiliates and restrictive agreements. During the continuance of an event of default, the Lenders may take a number of actions, including declaring the entire amount then outstanding under the credit agreement due and payable. The credit agreement contains cross-defaults if the Company defaults on the master note purchase agreement or certain other debt. The credit agreement also includes covenants limiting, as of the last day of each fiscal quarter, (a) the ratio of the consolidated funded debt as of such date to the Consolidated EBITDA (as defined in the credit agreement), measured for the preceding 12 months, to not more than 3.50x (or 3.75x during material acquisition periods, subject to certain limitations) (“leverage ratio”) and (b) the ratio of Consolidated EBIT (as defined in the credit agreement) to consolidated interest expense, in each case, measured for the preceding 12 months, to not less than 2.75x (“interest coverage ratio”). As of December 31, 2015 and 2014, the Company’s leverage ratio was 2.88x and 2.67x, respectively. As of December 31, 2015 and 2014, the Company’s interest coverage ratio was 7.88x and 7.94x, respectively.

Master Note Purchase Agreement

Senior Notes due 2015

On July 15, 2008, the Company entered into a master note purchase agreement with certain accredited institutional investors pursuant to which the Company issued and sold to the investors at a closing on October 1, 2008, $175,000 of senior uncollateralized notes due October 1, 2015 in a private placement.  The Company redeemed the 2015 Notes on October 1, 2015 using borrowings under its credit agreement.

Senior Notes due 2019 

On October 26, 2009, the Company entered into a first supplement to the master note purchase agreement with certain accredited institutional investors pursuant to which the Company issued and sold to the investors on that date $175,000 of senior uncollateralized notes due November 1, 2019 in a private placement.  The 2019 Notes bear interest at the fixed rate of 5.25% per annum with interest payable in arrears semi-annually on May 1 and November 1 beginning on May 1, 2010, and with principal payable at the maturity of the 2019 Notes on November 1, 2019.  The Company is amortizing the $152 debt issuance costs over a 10-year term through the maturity date, or November 1, 2019. 

Senior Notes due 2016, 2018 and 2021 

On April 1, 2011, the Company entered into a second supplement to the master note purchase agreement with certain accredited institutional investors, pursuant to which the Company issued and sold to the investors on that date $250,000 of senior uncollateralized notes at fixed interest rates with interest payable in arrears semi-annually on October 1 and April 1 beginning on October 1, 2011 in a private placement. Of these notes, $100,000 will mature on April 1, 2016 with an annual interest rate of 3.30% (the “2016 Notes”), $50,000 will mature on April 1, 2018 with an annual interest rate of 4.00% (the “2018 Notes”), and $100,000 will mature on April 1, 2021 with an annual interest rate of 4.64% (the “2021 Notes”). The Company has the intent and ability to redeem the 2016 Notes on April 1, 2016 using borrowings under its credit agreement. The principal of each of the 2016 Notes, 2018 Notes and 2021 Notes is payable at the maturity of each respective note. The Company is amortizing the $1,489 debt issuance costs through the maturity dates of the respective notes.

92

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Senior Notes due 2022 and 2025 

On June 11, 2015, the Company entered into a third supplement to the master note purchase agreement with certain accredited institutional investors, pursuant to which, on August 20, 2015, the Company issued and sold to the investors in a private placement $500,000 of senior uncollateralized notes at fixed interest rates with interest payable in arrears semi-annually on February 20 and August 20 beginning on February 20, 2016. Of these notes, $125,000 will mature on August 20, 2022 with an annual interest rate of 3.09% (the “2022 Notes”) and $375,000 will mature on August 20, 2025 with an annual interest rate of 3.41% (the “2025 Notes”). The principal of each of the 2022 Notes and 2025 Notes is payable at the maturity of each respective note. The Company is amortizing the $3,746 debt issuance costs through the maturity dates of the respective notes.

The 2016 Notes, 2018 Notes, 2019 Notes, 2021 Notes, 2022 Notes and 2025 Notes (collectively, the “Senior Notes”) are uncollateralized obligations and rank equally in right of payment with each of the Senior Notes and the obligations under the Company’s credit agreement. The Senior Notes are subject to representations, warranties, covenants and events of default.  The master note purchase agreement contains cross-defaults if the Company defaults on the credit agreement or certain other debt. The master note purchase agreement requires that the Company maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.75x total debt to EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2015 and 2014, the Company’s leverage ratio was 2.88x and 2.67x, respectively. As of December 31, 2015 and 2014, the Company’s interest coverage ratio was 7.88x and 7.94x, respectively.

Upon the occurrence of an event of default, payment of the Senior Notes may be accelerated by the holders of the respective notes.  The Senior Notes may also be prepaid at any time in whole or from time to time in any part (not less than 5% of the then-outstanding principal amount) by the Company at par plus a make-whole amount determined in respect of the remaining scheduled interest payments on the Senior Notes, using a discount rate of the then current market standard for United States treasury bills plus 0.50%.  In addition, the Company will be required to offer to prepay the Senior Notes upon certain changes in control. 

The Company may issue additional series of senior uncollateralized notes, including floating rate notes, pursuant to the terms and conditions of the master note purchase agreement, as amended, provided that the purchasers of the Senior Notes shall not have any obligation to purchase any additional notes issued pursuant to the master note purchase agreement and the aggregate principal amount of the outstanding notes and any additional notes issued pursuant to the master note purchase agreement shall not exceed $1,250,000.

Tax-Exempt Bonds 

The Company’s tax-exempt bond financings are as follows: 

  Type of Interest Rate
on Bond at
December 31,
  Maturity Date of Outstanding Balance at
December 31,
  Backed by
Letter of
Credit
 
Name of Bond Interest Rate 2015  Bond 2015  2014  (Amount) 
West Valley Bond Variable  0.05% August 1, 2018 $15,500  $15,500  $15,678 
LeMay Washington Bond Variable  0.05  April 1, 2033  15,930   15,930   16,126 
          $31,430  $31,430  $31,804 

The variable-rate bonds are all remarketed weekly by a remarketing agent to effectively maintain a variable yield.  If the remarketing agent is unable to remarket the bonds, then the remarketing agent can put the bonds to the Company.  The Company obtained standby letters of credit, issued under its credit agreement, to guarantee repayment of the bonds in this event.  The Company classified these borrowings as long-term at December 31, 2015, because the borrowings were supported by standby letters of credit issued under the Company’s credit agreement. 

93

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

As of December 31, 2015, aggregate contractual future principal payments by calendar year on long-term debt are due as follows: 

2016 * $2,127 
2017  1,069 
2018  66,442 
2019  175,955 
2020  1,290,460 
Thereafter  621,232 
  $2,157,285 

*The Company has recorded the 2016 Notes in the 2020 category in the table above as the Company has the intent and ability to redeem the 2016 Notes on April 1, 2016 using borrowings under its credit agreement.

8.FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.  These tiers include:  Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data. 

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments and restricted assets.  The Company’s derivative instruments are pay-fixed, receive-variable interest rate swaps and pay-fixed, receive-variable diesel fuel hedges.  The Company’s interest rate swaps are recorded at their estimated fair values based on quotes received from financial institutions that trade these contracts.  The Company verifies the reasonableness of these quotes using similar quotes from another financial institution as of each date for which financial statements are prepared.  The Company uses a discounted cash flow (“DCF”) model to determine the estimated fair value of the diesel fuel hedges.  The assumptions used in preparing the DCF model include: (i) estimates for the forward DOE index curve; and (ii) the discount rate based on risk-free interest rates over the term of the hedge contracts.  The DOE index curve used in the DCF model was obtained from financial institutions that trade these contracts and ranged from $2.21 to $2.64 at December 31, 2015 and from $2.96 to $3.41 at December 31, 2014.  The weighted average DOE index curve used in the DCF model was $2.43 and $3.04 at December 31, 2015 and 2014, respectively. Significant increases (decreases) in the forward DOE index curve would result in a significantly higher (lower) fair value measurement. For the Company’s interest rate swaps and fuel hedges, the Company also considers the Company’s creditworthiness in its determination of the fair value measurement of these instruments in a net liability position and the banks’ creditworthiness in its determination of the fair value measurement of these instruments in a net asset position.  The Company’s restricted assets are valued at quoted market prices in active markets for similar assets, which the Company receives from the financial institutions that hold such investments on its behalf.  The Company’s restricted assets measured at fair value are invested primarily in U.S. government and agency securities. 

94

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2015 and 2014, were as follows: 

  Fair Value Measurement at December 31, 2015 Using 
  Total  Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Interest rate swap derivative instruments – net liability position $(9,745) $-  $(9,745) $- 
Fuel hedge derivative instruments –net liability position $(9,900) $-  $-  $(9,900)
Restricted assets $46,148  $-  $46,148  $- 
Contingent consideration $(49,394) $-  $-  $(49,394)

  Fair Value Measurement at December 31, 2014 Using 
  Total  Quoted Prices in
Active Markets 
for Identical 
Assets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Interest rate swap derivative instruments – net liability position $(7,094) $-  $(7,094) $- 
Fuel hedge derivative instruments – net asset position $(1,979) $-  $-  $(1,979)
Restricted assets $40,870  $-  $40,870  $- 
Contingent consideration $(70,165) $-  $-  $(70,165)

The following table summarizes the changes in the fair value for Level 3 derivatives for the years ended December 31, 2015 and 2014:

  Years Ended December 31, 
  2015  2014 
Beginning balance $(1,979) $2,199 
Realized losses (gains) included in earnings  3,217   (823)
Unrealized losses included in AOCL  (11,138)  (3,355)
Ending balance $(9,900) $(1,979)

95

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following table summarizes the changes in the fair value for Level 3 liabilities related to contingent consideration for the years ended December 31, 2015 and 2014: 

  Years Ended December 31, 
  2015  2014 
Beginning balance $70,165  $55,550 
Contingent consideration recorded at acquisition date  815   42,538 
Payment of contingent consideration recorded at acquisition date  (2,190)  (24,847)
Payment of contingent consideration recorded in earnings  -   (1,074)
Adjustments to contingent consideration  (22,180)  (3,450)
Interest accretion expense  2,784   1,448 
Ending balance $49,394  $70,165 

See Note 1 – “Goodwill and Indefinite-Lived Intangible Assets” regarding non-recurring fair value measurements.

9.OFFICE RELOCATIONS

In December 2011, the Company commenced a relocation of its corporate headquarters from Folsom, California to The Woodlands, Texas, which was substantially completed in 2012. Costs related to personnel and office relocation expenses are recorded in Selling, general and administrative expenses in the Consolidated Statements of Net Income (Loss).  During the year ended December 31, 2013, the Company incurred losses on the cessation of use of prior office leases of $9,160 for its former corporate headquarters in Folsom, California, and $742 for its E&P segment’s former regional offices in Houston, Texas. In October 2013, the Company remitted a payment to terminate the remaining lease obligation of its former headquarters in Folsom, California.  These costs are recorded in Loss on prior office leases in the Consolidated Statements of Net Income (Loss).

10.COMMITMENTS AND CONTINGENCIES

COMMITMENTS 

Leases 

The Company leases certain facilities and certain equipment under non-cancelable operating leases for periods ranging from one to 45 years, with renewal options for certain leases.  The Company’s total rent expense under operating leases during the years ended December 31, 2015, 2014 and 2013, was $26,858, $27,466 and $30,893, respectively. 

As of December 31, 2015, future minimum lease payments, by calendar year, are as follows: 

2016 $16,416 
2017  14,100 
2018  10,967 
2019  9,080 
2020  7,903 
Thereafter  50,478 
  $108,944 

Financial Surety Bonds 

The Company uses financial surety bonds for a variety of corporate guarantees.  The two largest uses of financial surety bonds are for municipal contract performance guarantees and asset closure and retirement requirements under certain environmental regulations. Environmental regulations require demonstrated financial assurance to meet final capping, closure and post-closure requirements for landfills.  In addition to surety bonds, these requirements may also be met through alternative financial assurance instruments, including insurance, letters of credit and restricted asset deposits. 

96

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

At December 31, 2015 and 2014, the Company had provided customers and various regulatory authorities with surety bonds in the aggregate amount of approximately $353,828 and $342,591, respectively, to secure its asset closure and retirement requirements and $121,687 and $94,385, respectively, to secure performance under collection contracts and landfill operating agreements. 

The Company owns a 9.9% interest in a company that, among other activities, issues financial surety bonds to secure landfill final capping, closure and post-closure obligations for companies operating in the solid waste industry.  The Company accounts for this investment under the cost method of accounting.  There have been no identified events or changes in circumstances that may have a significant adverse effect on the carrying value of the investment.  This investee company and the parent company of the investee have written financial surety bonds for the Company, of which $185,753 and $179,204 were outstanding as of December 31, 2015 and 2014, respectively.  The Company’s reimbursement obligations under these bonds are secured by a pledge of its stock in the investee company. 

Unconditional Purchase Obligations

At December 31, 2015, the Company’s unconditional purchase obligations consist of multiple fixed-price fuel purchase contracts under which it has 19.1 million gallons remaining to be purchased for a total of $50,198.  These fuel purchase contracts expire on or before December 31, 2017.

As of December 31, 2015, future minimum purchase commitments, by calendar year, are as follows: 

2016 $33,242 
2017  16,956 
  $50,198 

CONTINGENCIES 

Environmental Risks

The Company expenses costs incurred to investigate and remediate environmental issues unless they extend the economic useful lives of the related assets. The Company records liabilities when it is probable that an obligation has been incurred and the amounts can be reasonably estimated. The remediation reserves cover anticipated costs, including remediation of environmental damage that waste facilities may have caused to neighboring landowners or residents as a result of contamination of soil, groundwater or surface water, including damage resulting from conditions existing prior to the Company’s acquisition of such facilities. The Company’s estimates are based primarily on investigations and remediation plans established by independent consultants, regulatory agencies and potentially responsible third parties. The Company does not discount remediation obligations. At December 31, 2015 and 2014, the current portion of remediation reserves was $2,328 and $3,023, respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets. At December 31, 2015 and 2014, the long-term portion of remediation reserves was $12,049 and $725, respectively, which is included in Other long-term liabilities in the Consolidated Balance Sheets. The 2015 long-term remediation reserve amount includes $11,301 of remediation reserves which the Company established after assuming certain remedial liabilities in the Rock River acquisition during the year ending December 31, 2015. Any substantial increase in the liabilities for remediation of environmental damage incurred by the Company could have a material adverse effect on the Company’s financial condition, results of operations or cash flows. 

Legal Proceedings

In the normal course of its business and as a result of the extensive governmental regulation of the solid waste and E&P waste industries, the Company is subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on the Company or to revoke or deny renewal of an authorization held by the Company, including an operating permit. From time to time, the Company may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills, transfer stations, and E&P waste treatment, recovery and disposal operations, or alleging environmental damage or violations of the permits and licenses pursuant to which the Company operates.

97

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

In addition, the Company is a party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business. Except as noted in the matters described below, as of December 31, 2015, there is no current proceeding or litigation involving the Company or its property that the Company believes could have a material adverse impact on its business, financial condition, results of operations or cash flows.

Madera County, California Materials Recovery Facility Contract Litigation

The Company’s subsidiary, Madera Disposal Systems, Inc. (“MDSI”) was named in a complaint captioned County of Madera vs. Madera Disposal Systems, Inc., et al, filed in Madera County Superior Court (Case No. MCV 059402) on March 5, 2012, and subsequently transferred to Fresno County Superior Court. Madera County (the “County”) alleged in the complaint that from 2007 through 2010, MDSI breached a contract with the County for the operation of a materials recovery facility by withholding profits from facility operations in excess of those authorized by the contract. The County further alleged that the breach gave the County the unilateral right to terminate all of its contracts with MDSI, including contracts for (1) the collection of residential and commercial waste in the unincorporated parts of the County, (2) operation of the materials recovery facility, (3) operation of the North Fork Transfer Station and (4) operation of the Fairmead Landfill. MDSI answered the complaint and asserted a claim against the County for wrongful termination of the contracts. On October 31, 2012, MDSI ceased providing services and vacated the County premises. In 2015 the County amended its complaint to add a claim for breach of the covenant of good faith and fair dealing and to amend its damage claim to cover the period from January 1, 2008 through November 1, 2012. The County sought monetary damages of $2,962 from MDSI, plus pre-judgment interest at 10% per annum.

The case was settled through mediation in January 2016. The settlement resolves all claims between the parties amicably without any admission of liability, includes full mutual releases of claims between the parties and deems the contracts between the MDSI and the County to have terminated by mutual agreement effective November 1, 2012. The Company also agreed to make an immaterial payment to the County that the Company estimates to be less than the cost of trial.

Lower Duwamish Waterway Superfund Site Allocation Process

The Company’s subsidiary, Northwest Container Services, Inc. (“NWCS”), has been named by the U.S. Environmental Protection Agency, Region 10 (the “EPA”), along with more than 100 others, as a potentially responsible party (“PRP”) under the Comprehensive Environmental Response, Compensation and Liability Act (also known as CERCLA or the “Superfund” law) with respect to the Lower Duwamish Waterway Superfund Site (the “LDW Site”).  Listed on the National Priorities List in 2001, the LDW Site is a five-mile stretch of the Duwamish River flowing into Elliott Bay in Seattle, Washington.  A group of PRPs known as the Lower Duwamish Working Group or the “LDWG” and consisting of the City of Seattle, King County, the Port of Seattle, and Boeing Company conducted a Remedial Investigation/Feasibility Study for the LDW Site.  On December 2, 2014, the EPA issued its Record of Decision (“ROD”) describing the selected clean-up remedy, and therein estimated that clean-up costs (in present value dollars as of November 2014) would total about $342,000. However, it is possible that additional costs could be incurred based upon various factors. The EPA estimates that it will take seven years to implement the clean-up. The ROD also requires ten years of monitoring following the clean-up, and provides that if clean-up goals have not been met by the end of this period, then additional clean-up activities, at additional cost, may be required at that time.  Implementation of the clean-up will not begin until after the ongoing Early Action Area (“EAA”) clean-ups have been completed.  While three of the EAA clean-ups have been completed to date, some work remains to be done on three other EAAs. The EPA estimates that one of these three will be completed in mid-2016; for the other two, work remains to be done and the EPA has not estimated the dates of completion.  Implementation of the clean-up also must await additional baseline sampling throughout the LDW Site and the preparation of a remedial design for performing the clean-up.

On September 30, 2015, the EPA formally initiated negotiations with the LDWG to amend the LDWG’s existing Administrative Order on Consent with the EPA (the “LDWG AOC”) a third time to require the LDWG to perform the additional baseline sediment sampling and certain technical studies needed to prepare the actual remedial design.  The EPA calls this work “Phase 1 of the Remedial Design,” and the EPA’s proposed statement of work for it indicates that it will take at least two years to complete, or into early 2018.  The EPA and the LDWG are reportedly negotiating this third amendment to the LDWG AOC. The EPA also has indicated that once the work under the third amendment to the LDWG AOC is complete, it plans to negotiate with all of the PRPs a “global settlement” to cover performance of the remainder of the remedial design not covered by the proposed amendment to the LDWG AOC and the clean-up itself. There is no assurance, however, that a global settlement will be reached.

98

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

In August 2014, NWCS entered into an Alternative Dispute Resolution Memorandum of Agreement with several dozen other PRPs and a neutral allocator to conduct a confidential and non-binding allocation of certain past response costs allegedly incurred at the LDW Site as well as the anticipated future response costs associated with the clean-up.  The allocation process is designed to develop evidence relating to each PRP’s nexus, if any, to the LDW Site (whether or not that PRP is participating in the allocation process), for the allocator to hear arguments as to how each PRP’s nexus affects the allocation of response costs, and to determine each PRP’s share of the past and future response costs.  The goal of the allocation process is to reach agreement on a division of responsibility between and amongst the PRPs so that the PRPs then will be in a position to negotiate a global settlement with the EPA.  NWCS is defending itself vigorously in this confidential allocation process.  At this point the Company is not able to determine the likelihood of the allocation process being completed as intended by the participating PRPs nor the likelihood of the parties then negotiating a global settlement with the EPA, and thus cannot determine the likelihood of any outcome in this matter.

Chiquita Canyon Landfill Expansion Complaint

The Company’s subsidiary, Chiquita Canyon, LLC (“CCL”), is in the process of seeking approval to expand the lateral footprint and vertical height of its Chiquita Canyon Landfill in California.  In response to its published draft environmental impact report (“EIR”) regarding the proposed expansion, on June 8, 2015 two individuals and two organizations filed an administrative complaint with the California Environmental Protection Agency, the California Department of Resources Recycling and Recovery and the California Air Resources Board against the County of Los Angeles, alleging that the county has committed racial discrimination under California law through its permitting policies and practices. Among other things, the complaint alleges that the County of Los Angeles failed to provide equal opportunities for residents of all races to participate in the draft EIR process.  The complaint seeks, among other things, a suspension of the draft EIR process, the institution of hearings regarding the draft EIR that follow specified procedures and the implementation of certain surveys, notices and other hearings.  CCL is not a party to this complaint, although CCL may participate in any hearing on the complaint if the agencies elect to schedule such a hearing.  At this point the Company is not able to determine the likelihood of any outcome in this matter, including whether it may result in a delay of the permitting process for the proposed expansion of CCL’s facility.

Collective Bargaining Agreements 

Eleven of the Company’s collective bargaining agreements have expired or are set to expire in 2016.  The Company does not expect any significant disruption in its overall business in 2016 as a result of labor negotiations, employee strikes or organizational efforts.

11.STOCKHOLDERS' EQUITY

Cash Dividend

The Company’s Board of Directors authorized the initiation of a quarterly cash dividend in October 2010 and has increased it on an annual basis. In October 2015, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.015, from $0.13 to $0.145 per share. Cash dividends of $65,990, $58,906 and $51,213 were paid during the years ended December 31, 2015, 2014 and 2013, respectively.

Share Repurchase Program 

The Company’s Board of Directors has authorized a common stock repurchase program for the repurchase of up to $1,200,000 of common stock through December 31, 2017.  Under the program, stock repurchases may be made in the open market or in privately negotiated transactions from time to time at management's discretion.  The timing and amounts of any repurchases will depend on many factors, including the Company's capital structure, the market price of the common stock and overall market conditions.  As of December 31, 2015 and 2014, the Company had repurchased in aggregate 41,995,355 and 40,032,366 shares, respectively, of its common stock at an aggregate cost of $882,521 and $791,357, respectively.  As of December 31, 2015, the remaining maximum dollar value of shares available for repurchase under the program was approximately $317,479.  The Company’s policy related to repurchases of its common stock is to charge any excess of cost over par value entirely to additional paid-in capital. 

99

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Common Stock 

Of the 127,624,045 shares of common stock authorized but unissued as of December 31, 2015, the following shares were reserved for issuance:

For outstanding restricted stock units and warrants1,761,177
For future grants under the 2014 Incentive Award Plan2,488,023
4,249,200

Restricted Stock Units, Performance-Based Restricted Stock Units, Stock Options and Stock Purchase Warrants

 In 2004, the Company’s Board of Directors adopted the 2004 Equity Incentive Plan, currently referred to as the Third Amended and Restated 2004 Equity Incentive Plan (the “2004 Plan”), which was last approved by the Company’s stockholders on May 7, 2010. A total of 7,162,500 shares of the Company’s common stock were reserved for future issuance under the 2004 Plan, all of which may have been used for grants of stock options, restricted stock, and/or restricted stock units (“RSUs”).  Participation in the 2004 Plan was limited to employees, officers, directors and consultants.  Options granted under the 2004 Plan were nonqualified stock options and had a term of no longer than five years from the date they were granted.  Restricted stock, RSUs, and options granted under the 2004 Plan generally vest in installments pursuant to a vesting schedule set forth in each agreement.  The Board of Directors authorized the granting of awards under the 2004 Plan, and determined the employees and consultants to whom such awards were to be granted, the number of shares subject to each award, and the exercise price, term, vesting schedule and other terms and conditions of each award.  The exercise prices of the options granted under the 2004 Plan were not less than the fair market value of the Company’s common stock on the date of grant.  Restricted stock awards granted under the 2004 Plan may or may not have required a cash payment from a participant to whom an award was made; RSU awards granted under the plan did not require any cash payment from the participant to whom an award was made.  No further grants may be made under the 2004 Plan as of May 16, 2014 pursuant to the Company’s stockholder approval of the 2014 Incentive Award Plan on such date. 

In 2014, the Company’s Board of Directors adopted the 2014 Incentive Award Plan (the “2014 Plan”), which was approved by the Company’s stockholders on May 16, 2014. A total of 3,250,000 shares of the Company’s common stock were reserved for future issuance under the 2014 Plan, all of which may be used for grants of nonqualified stock options (“options”), warrants, restricted stock, RSUs, dividend equivalents and stock payment awards. The 2014 Plan also authorizes the granting of performance awards payable in the form of the Company’s common stock or cash, including equity awards and incentive cash bonuses that may be intended to qualify as “performance-based compensation” under Section 162(m) of the Internal Revenue Code of 1986, as amended (“Section 162(m)”).  Participation in the 2014 Plan is limited to employees and consultants of the Company and its subsidiaries and non-employee directors. The 2014 Plan is administered by the Company’s Board of Directors with respect to awards to non-employee directors and by its Compensation Committee with respect to other participants, each of which may delegate its duties and responsibilities to committees of the Company’s directors and/or officers, subject to certain limitations (collectively, the “administrator”). The administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares subject to awards and to determine the terms and conditions of awards, including the number of shares subject to each award, the exercise price, term, vesting schedule and other terms and conditions of the award. 

Options and warrants granted under the 2014 Plan have a term of no longer than ten years from the date they are granted.  Options, warrants, restricted stock and RSUs granted under the 2014 Plan generally vest in installments pursuant to a vesting schedule set forth in each award agreement.  The exercise prices of the options and warrants shall not be less than the fair market value of the Company’s common stock on the date of grant.  Restricted stock awards under the 2014 Plan may or may not require a cash payment from a participant to whom an award is made; RSU awards under the plan do not require any cash payment from the participant to whom an award is made.  The vesting of performance awards, including performance-based restricted stock units (“PSUs”), is dependent on one or more performance criteria determined by the administrator on a specific date or dates or over any period or periods determined by the administrator.

100

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Restricted Stock Units

A summary of the Company’s RSU activity is presented below: 

  Years Ended December 31, 
  2015  2014  2013 
Restricted stock units granted  332,782   504,255   574,017 
Weighted average grant-date fair value of restricted stock units granted $45.13  $42.54  $34.06 
Total fair value of restricted stock units granted $15,019  $21,449  $19,550 
Restricted stock units becoming free of restrictions  478,686   563,117   543,921 
Weighted average restriction period (in years)  3.9   3.9   3.9 

A summary of activity related to RSUs during the year ended December 31, 2015, is presented below: 

  Unvested
Shares
  Weighted-Average
Grant Date Fair
Value Per Share
 
Outstanding at December 31, 2014  1,200,884  $36.06 
Granted  332,782   45.13 
Forfeited  (47,679)  40.24 
Vested and Issued  (432,165)  34.44 
Vested and Unissued  (46,521)  30.93 
Outstanding at December 31, 2015  1,007,301   39.74 

Recipients of the Company’s RSUs who participate in the Company’s Nonqualified Deferred Compensation Plan may have elected in years prior to 2015 to defer some or all of their RSUs as they vest until a specified date or dates they choose.  At the end of the deferral periods, the Company issues to recipients who deferred their RSUs shares of the Company’s common stock underlying the deferred RSUs. At December 31, 2015, 2014 and 2013, the Company had 256,191, 223,752 and 163,995 vested deferred RSUs outstanding, respectively.

Performance-Based Restricted Stock Units

A summary of activity related to PSUs during the year ended December 31, 2015, is presented below: 

  Unvested
Shares
  Weighted-Average
Grant Date Fair
Value Per Share
 
Outstanding at December 31, 2014  54,723  $42.33 
Granted  238,690   44.96 
Outstanding at December 31, 2015  293,413   44.47 

During the year ended December 31, 2015, the Compensation Committee granted PSUs to the Company’s executive officers with three-year performance-based metrics that the Company must meet before those awards may be earned, and the performance period for those grants ends on December 31, 2017.  During the same period, the Compensation Committee also granted PSUs to the Company’s executive officers and non-executive officers with a new one-year performance-based metric that the Company must meet before those awards may be earned, with the awards then subject to time-based vesting for the remaining three years of their four-year vesting period.  During the year ended December 31, 2014, the Compensation Committee granted PSUs to the Company’s executive officers with three-year performance-based metrics that the Company must meet before those awards may be earned, and the performance period for those grants ends December 31, 2016. The Compensation Committee will determine the achievement of performance results and corresponding vesting of PSUs for each performance period. At the end of the performance period, the number of shares awarded can range from 0% to 150% of the original granted amount, depending on the performance against the pre-established targets. The Company has assumed that 50% of the original granted amount will be awarded at the end of the performance periods, based on the current performance against the pre-established targets.

101

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Stock Options

The Company’s remaining stock options outstanding under equity-based compensation plans that expired in 2012 were exercised during 2015. A summary of the Company’s stock option activity and related information under these plans during the year ended December 31, 2015, is presented below:

  Number of
Shares (Options)
  Weighted
Average
Exercise Price
 
Outstanding as of December 31, 2014  37,000  $15.45 
Exercised  (37,000)  15.45 
Outstanding as of December 31, 2015  -   - 

The total intrinsic value of stock options exercised during the years ended December 31, 2015, 2014 and 2013, was $1,241, $7,458 and $5,729, respectively.  As of December 31, 2014 and 2013, a total of 37,000 and 274,902 options to purchase common stock, respectively, were exercisable under all stock option plans. 

Stock Purchase Warrants

The Company has outstanding stock purchase warrants issued under an incentive plan which expired in 2012 as well as outstanding stock purchase warrants issued under the 2014 Plan. Warrants to purchase the Company’s common stock were issued to certain consultants to the Company.  Warrants issued were fully vested and exercisable at the date of grant.  Warrants outstanding at December 31, 2015, expire between 2016and 2020.

A summary of warrant activity during the year ended December 31, 2015, is presented below: 

  Warrants  Weighted-Average
Exercise Price
 
Outstanding at December 31, 2014  133,591  $37.92 
Granted  91,179   53.07 
Forfeited  (17,206)  31.20 
Exercised  (9,781)  30.62 
Outstanding at December 31, 2015  197,783   45.85 

The following table summarizes information about warrants outstanding as of December 31, 2015 and 2014: 

  Warrants     Fair Value of
Warrants
  Outstanding at December 31, 
Grant Date Issued  Exercise Price  Issued  2015  2014 
Throughout 2010  51,627   $20.64 to $27.41  $351   -   1,886 
Throughout 2011  9,324   $27.53 to $33.14   79   6,226   9,324 
Throughout 2012  71,978   $30.52 to $33.03   628   49,975   71,978 
Throughout 2014  50,403   $45.62 to $49.06   276   50,403   50,403 
Throughout 2015  91,179   $42.45 to $54.48   1,333   91,179   - 
               197,783   133,591 

102

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

12.OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) includes changes in the fair value of interest rate swaps and fuel hedges that qualify for hedge accounting.  The components of other comprehensive income (loss) and related tax effects for the years ended December 31, 2015, 2014 and 2013, are as follows: 

  Year Ended December 31, 2015 
  Gross  Tax effect  Net of tax 
Interest rate swap amounts reclassified into interest expense $5,093  $(1,938) $3,155 
Fuel hedge amounts reclassified into cost of operations  3,217   (1,224)  1,993 
Changes in fair value of interest rate swaps  (7,746)  2,926   (4,820)
Changes in fair value of fuel hedges  (11,138)  4,232   (6,906)
  $(10,574) $3,996  $(6,578)

  Year Ended December 31, 2014 
  Gross  Tax effect  Net of tax 
Interest rate swap amounts reclassified into interest expense $4,581  $(1,757) $2,824 
Fuel hedge amounts reclassified into cost of operations  (823)  316   (507)
Changes in fair value of interest rate swaps  (6,448)  2,478   (3,970)
Changes in fair value of fuel hedges  (3,355)  1,284   (2,071)
  $(6,045) $2,321  $(3,724)

  Year Ended December 31, 2013 
  Gross  Tax effect  Net of tax 
Interest rate swap amounts reclassified into interest expense $5,641  $(2,158) $3,483 
Changes in fair value of interest rate swaps  296   (108)  188 
Changes in fair value of fuel hedges  1,012   (387)  625 
  $6,949  $(2,653) $4,296 

A rollforward of the amounts included in AOCL, net of taxes, is as follows:

  Fuel Hedges  Interest
Rate Swaps
  Accumulated
Other
Comprehensive
Loss
 
Balance at December 31, 2013 $1,357  $(3,226) $(1,869)
Amounts reclassified into earnings  (507)  2,824   2,317 
Changes in fair value  (2,071)  (3,970)  (6,041)
Balance at December 31, 2014  (1,221)  (4,372)  (5,593)
Amounts reclassified into earnings  1,993   3,155   5,148 
Changes in fair value  (6,906)  (4,820)  (11,726)
Balance at December 31, 2015 $(6,134) $(6,037) $(12,171)

103

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

13.INCOME TAXES

The provision (benefit) for income taxes for the years ended December 31, 2015, 2014 and 2013, consists of the following: 

  Years Ended December 31, 
  2015  2014  2013 
Current:            
Federal $86,053  $103,332  $73,243 
State  14,809   17,972   12,993 
   100,862   121,304   86,236 
Deferred:            
Federal  (117,549)  27,646   35,797 
State  (14,905)  3,385   2,883 
   (132,454)  31,031   38,680 
Provision (benefit) for income taxes $(31,592) $152,335  $124,916 

The significant components of deferred income tax assets and liabilities as of December 31, 2015 and 2014 are as follows: 

  2015  2014 
Deferred income tax assets:        
Accounts receivable reserves $2,968  $3,519 
Accrued expenses  37,465   34,377 
Compensation  16,924   15,549 
Interest rate and fuel hedges  7,475   3,479 
Leases  990   1,178 
State taxes  4,218   5,480 
Contingent liabilities  17,636   25,071 
Other  1,472   527 
Gross deferred income tax assets  89,148   89,180 
Less:  Valuation allowance  -   - 
Net deferred income tax assets  89,148   89,180 
         
Deferred income tax liabilities:        
Goodwill and other intangibles  (158,093)  (280,828)
Property and equipment  (288,953)  (255,512)
Landfill closure/post-closure  (37,185)  (34,277)
Prepaid expenses  (7,683)  (7,690)
Total deferred income tax liabilities  (491,914)  (578,307)
Net deferred income tax liability $(402,766) $(489,127)

During the years ended December 31, 2015, 2014 and 2013, the Company reduced its taxes payable by $8,369, $11,090 and $8,781 respectively, as a result of the exercise of non-qualified stock options, the vesting of restricted stock units, and the disqualifying disposition of incentive stock options.  The excess tax benefit associated with equity-based compensation of $2,069, $7,518 and $3,765 for the years ended December 31, 2015, 2014 and 2013, respectively, was recorded in additional paid-in capital. 

104

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The differences between the Company’s income tax provision (benefit) as presented in the accompanying Consolidated Statements of Net Income (Loss) and income tax provision (benefit) computed at the federal statutory rate consist of the items shown in the following table as a percentage of pre-tax income: 

  Years Ended December 31, 
  2015  2014  2013 
Income tax provision (benefit) at the statutory rate  (35.0)%  35.0%  35.0%
State taxes, net of federal benefit  (0.3)  3.8   3.7 
Deferred income tax liability adjustments  (3.1)  0.3   - 
Noncontrolling interests  (0.3)  (0.1)  - 
Goodwill impairment  12.3   -   - 
Other  1.4   0.5   0.2 
   (25.0)%  39.5%  38.9%

The comparability of the Company’s income tax provision (benefit) for the reported periods has been affected by variations in its income (loss) before income taxes.

During the year ended December 31, 2015, the Deferred income tax liability adjustments, due primarily to changes in the geographical apportionment of the Company’s state income taxes associated with the impairment of a portion of the goodwill, indefinite-lived intangible assets and property and equipment within its E&P segment, resulted in an increase to tax benefit of $3,869. Additionally, a portion of the aforementioned goodwill impairment within the Company’s E&P segment that was not deductible for tax purposes, resulted in a decrease to federal tax benefit of $15,546. During the year ended December 31, 2014, the Deferred income tax liability adjustments, due primarily to the enactment of New York State’s 2014-2015 Budget Act, resulted in an increase to tax expense of $1,220.  

At December 31, 2015 and 2014, the Company did not have any significant federal or state net operating loss carryforwards.  

The Company and its subsidiaries are subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions.  The Company has concluded all U.S. federal income tax matters for years through 2011.  All material state and local income tax matters have been concluded for years through 2010. The Company is currently under U.S. federal examination for tax year 2013. The Company does not anticipate a significant assessment; however, such an assessment could have a material adverse effect on the Company’s financial position, results of operation or cash flows. 

The Company did not have any unrecognized tax benefits recorded at December 31, 2015, 2014 or 2013. The Company does not anticipate the total amount of unrecognized tax benefits will significantly change by December 31, 2016. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.  

14.SEGMENT REPORTING

The Company’s revenues are generated from the collection, transfer, recycling and disposal of non-hazardous solid waste and the treatment, recovery and disposal of non-hazardous E&P waste.  No single contract or customer accounted for more than 10% of the Company’s total revenues at the consolidated or reportable segment level during the periods presented. 

The Company manages its operations through three geographic operating segments (Western, Central and Eastern), and its E&P segment, which includes the majority of the Company’s E&P waste treatment and disposal operations. The Company’s three geographic operating segments and its E&P segment comprise the Company’s reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts.  The Company’s Western segment is comprised of operating locations in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; the Company’s Central segment is comprised of operating locations in Arizona, Colorado, Kansas, Louisiana, Minnesota, Nebraska, New Mexico, Oklahoma, South Dakota, Texas, Utah and eastern Wyoming; and the Company’s Eastern segment is comprised of operating locations in Alabama, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, New York, North Carolina, South Carolina and Tennessee. The E&P segment is comprised of the Company’s E&P operations in Arkansas, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.

105

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The Company’s Chief Operating Decision Maker evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is segment EBITDA. The Company defines segment EBITDA as earnings before interest, taxes, depreciation, amortization, loss on prior office leases, impairments and other operating items and other income (expense).  Segment EBITDA is not a measure of operating income, operating performance or liquidity under generally accepted accounting principles and may not be comparable to similarly titled measures reported by other companies.  The Company’s management uses segment EBITDA in the evaluation of segment operating performance as it is a profit measure that is generally within the control of the operating segments.  A reconciliation of segment EBITDA to Income before income tax provision is included at the end of this Note 14.

Summarized financial information concerning the Company’s reportable segments for the years ended December 31, 2015, 2014 and 2013, is shown in the following tables: 

Year Ended
December 31,
2015
 Revenue  Intercompany
Revenue(b)
  Reported
Revenue
  Segment EBITDA(c)  Depreciation and
Amortization
  Capital
Expenditures
  Total Assets(e) 
Western $984,283  $(103,890) $880,393  $290,937  $83,073  $82,118  $1,498,296 
Central  660,902   (71,235)  589,667   207,205   76,719   70,872   1,216,985 
Eastern  520,691   (87,234)  433,457   132,774   59,654   52,187   1,176,671 
E&P  225,314   (11,544)  213,770   69,545   47,129   30,814   1,113,890 
Corporate(a), (d)  -   -   -   1,933   2,859   2,842   115,956 
  $2,391,190  $(273,903) $2,117,287  $702,394  $269,434  $238,833  $5,121,798 

Year Ended
December 31,
2014
 Revenue  Intercompany
Revenue(b)
  Reported
Revenue
  Segment EBITDA(c)  Depreciation and
Amortization
  Capital
Expenditures
  Total Assets(e) 
Western $920,116  $(96,194) $823,922  $258,126  $79,907  $65,227  $1,482,474 
Central  629,574   (68,094)  561,480   197,121   69,037   77,500   1,187,505 
Eastern  473,983   (80,162)  393,821   116,230   53,717   60,384   852,963 
E&P  314,845   (14,902)  299,943   147,261   52,709   36,608   1,609,553 
Corporate(a), (d)  -   -   -   (7,434)  2,574   1,558   112,772 
  $2,338,518  $(259,352) $2,079,166  $711,304  $257,944  $241,277  $5,245,267 

Year Ended
December 31,
2013
 Revenue  Intercompany
Revenue(b)
  Reported
Revenue
  Segment EBITDA(c)  Depreciation and
Amortization
  Capital
Expenditures
  Total Assets(e) 
Western $905,764  $(99,974) $805,790  $249,548  $81,164  $70,960  $1,487,409 
Central  573,366   (62,438)  510,928   182,790   64,165   57,952   1,173,089 
Eastern  447,844   (76,072)  371,772   108,173   51,546   39,703   807,124 
E&P  251,651   (11,346)  240,305   111,056   44,099   34,916   1,484,501 
Corporate(a), (d)  -   -   -   (228)  2,890   6,343   105,494 
  $2,178,625  $(249,830) $1,928,795  $651,339  $243,864  $209,874  $5,057,617 

(a)    Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions.  Amounts reflected are net of allocations to the four operating segments.

(b)     Intercompany revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments.  Transactions within and between segments are generally made on a basis intended to reflect the market value of the service. 

(c)     For those items included in the determination of segment EBITDA, the accounting policies of the segments are the same as those described in Note 1. 

(d)     Corporate assets include cash, net deferred tax assets, debt issuance costs, equity investments, and corporate facility leasehold improvements and equipment. 

(e)     Goodwill is included within total assets for each of the Company’s four operating segments. 

106

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following table shows changes in goodwill during the years ended December 31, 2014 and 2015, by reportable segment: 

  Western  Central  Eastern  E&P  Total 
Balance as of December 31, 2013 $372,915  $459,054  $380,570  $462,615  $1,675,154 
Goodwill acquired  -   1,470   11,853   5,455   18,778 
Goodwill divested  -   (143)  -   -   (143)
Balance as of December 31, 2014  372,915   460,381   392,423   468,070   1,693,789 
Goodwill acquired  905   12,044   106,814   21,059   140,822 
Impairment loss  -   -   -   (411,786)  (411,786)
Balance as of December 31, 2015 $373,820  $472,425  $499,237  $77,343  $1,422,825 

A reconciliation of the Company’s primary measure of segment profitability (segment EBITDA) to Income (loss) before income tax provision in the Consolidated Statements of Net Income (Loss) is as follows:

  Years ended December 31, 
  2015  2014  2013 
Western segment EBITDA $290,937  $258,126  $249,548 
Central segment EBITDA  207,205   197,121   182,790 
Eastern segment EBITDA  132,774   116,230   108,173 
E&P segment EBITDA  69,545   147,261   111,056 
Subtotal reportable segments  700,461   718,738   651,567 
Unallocated corporate overhead  1,933   (7,434)  (228)
Depreciation  (240,357)  (230,944)  (218,454)
Amortization of intangibles  (29,077)  (27,000)  (25,410)
Loss on prior office leases  -   -   (9,902)
Impairments and other operating items  (494,492)  (4,091)  (4,129)
Interest expense  (64,236)  (64,674)  (73,579)
Other income (expense), net  (518)  1,067   1,056 
Income (loss) before income tax provision $(126,286) $385,662  $320,921 

The following tables reflect a breakdown of the Company’s revenue and inter-company eliminations for the periods indicated: 

  Year Ended December 31, 2015 
  Revenue  Intercompany
Revenue
  Reported
Revenue
  % of Reported
Revenue
 
Solid waste collection $1,378,679  $(4,623) $1,374,056   64.9%
Solid waste disposal and transfer  670,369   (255,200)  415,169   19.6 
Solid waste recycling  47,292   (924)  46,368   2.2 
E&P waste treatment, recovery and disposal  228,529   (13,156)  215,373   10.2 
Intermodal and other  66,321   -   66,321   3.1 
Total $2,391,190  $(273,903) $2,117,287   100.0%

107

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

  Year Ended December 31, 2014 
  Revenue  Intercompany
Revenue
  Reported
Revenue
  % of Reported
Revenue
 
Solid waste collection $1,289,906  $(3,593) $1,286,313   61.9%
Solid waste disposal and transfer  617,161   (235,851)  381,310   18.3 
Solid waste recycling  58,226   (2,118)  56,108   2.7 
E&P waste treatment, recovery and disposal  326,934   (16,862)  310,072   14.9 
Intermodal and other  46,291   (928)  45,363   2.2 
Total $2,338,518  $(259,352) $2,079,166   100.0%

  Year Ended December 31, 2013 
  Revenue  Intercompany
Revenue
  Reported
Revenue
  % of Reported
Revenue
 
Solid waste collection $1,219,091  $(4,304) $1,214,787   63.0%
Solid waste disposal and transfer  579,379   (226,897)  352,482   18.3 
Solid waste recycling  71,831   (6,101)  65,730   3.4 
E&P waste treatment, recovery and disposal  262,286   (11,462)  250,824   13.0 
Intermodal and other  46,038   (1,066)  44,972   2.3 
Total $2,178,625  $(249,830) $1,928,795   100.0%

15.NET INCOME (LOSS) PER SHARE INFORMATION

The following table sets forth the calculation of the numerator and denominator used in the computation of basic and diluted net income (loss) per common share attributable to the Company’s common stockholders for the years ended December 31, 2015, 2014 and 2013: 

  Years Ended December 31, 
  2015  2014  2013 
Numerator:            
Net income (loss) attributable to Waste Connections for basic and diluted earnings per share $(95,764) $232,525  $195,655 
Denominator:            
Basic shares outstanding  123,491,931   124,215,346   123,597,540 
Dilutive effect of stock options and warrants  -   90,334   186,006 
Dilutive effect of restricted stock units  -   481,741   381,506 
Diluted shares outstanding  123,491,931   124,787,421   124,165,052 

16.EMPLOYEE BENEFIT PLANS

401K Plans: WCI has a voluntary savings and investment plan (the “WCI 401(k) Plan”), as do certain of its subsidiaries (together with the WCI 401(k) Plan, the “401(k) Plans”). The 401(k) Plans are available to all eligible employees of WCI and its subsidiaries. WCI and its subsidiaries make matching contributions under the 401(k) Plans of 50% to 100% of every dollar of a participating employee’s pre-tax contributions until the employee’s contributions equal from 3% to 6% of the employee’s eligible compensation, subject to certain limitations imposed by the U.S. Internal Revenue Code. 

108

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Total employer expenses, including employer matching contributions, for the 401(k) Plans were $4,702, $4,765 and $4,024, respectively, during the years ended December 31, 2015, 2014 and 2013.  These amounts include matching contributions WCI made under the Deferred Compensation Plan, described below. 

Multiemployer Pension Plans: The Company also participates in two “multiemployer” pension plans. The Company does not administer these multiemployer plans. In general, these plans are managed by the trustees, with the unions appointing certain trustees, and other contributing employers of the plan appointing certain others. The Company is generally not represented on the board of trustees.  The Company makes periodic contributions to these plans pursuant to its collective bargaining agreements.  The Company’s participation in multiemployer pension plans is summarized as follows:

    Pension Protection
Act Zone Status(a)
  Company Contributions  Expiration
Date of
 
Plan Name EIN/Pension Plan
Number
 2015  2014  2015  2014  2013  Collective
Bargaining
Agreement
 
Western Conference of Teamsters Pension Trust 91-6145047 - 001  Green   Green  $4,314  $3,852  $3,662  4/30/16 to 12/31/19
Locals 302 & 612 of the IOUE - Employers Construction Industry Retirement Plan 91-6028571 - 001  Green   Green   242   226   223  9/30/16 
            $4,556  $4,078  $3,885    

(a) The most recent Pension Protection Act zone status available in 2015 and 2014 is for the plans’ years ended December 31, 2014 and 2013, respectively.

The status is based on information that the Company received from the pension plans and is certified by the pension plans’ actuary. Plans with “green” status are at least 80% funded. The Company’s contributions to each individual multiemployer pension plan represent less than 5% of total contributions to such plan. Under current law regarding multiemployer benefit plans, a plan’s termination, the Company’s voluntary withdrawal, or the withdrawal of all contributing employers from any under-funded multiemployer pension plan would require the Company to make payments to the plan for its proportionate share of the multiemployer plan’s unfunded vested liabilities. The Company could have adjustments to its estimates for these matters in the near term that could have a material effect on its consolidated financial condition, results of operations or cash flows.

Deferred Compensation Plan: Effective for compensation paid on and after July 1, 2004, the Company established a Deferred Compensation Plan for eligible employees, which was amended and restated effective January 1, 2008, January 1, 2010, September 22, 2011 and December 1, 2014 (the “Deferred Compensation Plan”).  The Deferred Compensation Plan is a non-qualified deferred compensation program under which the eligible participants, including officers and certain employees who meet a minimum salary threshold, may voluntarily elect to defer up to 80% of their base salaries and up to 100% of their bonuses, commissions and restricted stock unit grants.  Effective as of December 1, 2014, the Board of Directors determined to discontinue the option to allow eligible participants to defer restricted stock unit grants pursuant to the Deferred Compensation Plan. Members of the Company’s Board of Directors are eligible to participate in the Deferred Compensation Plan with respect to their Director fees.  Although the Company periodically contributes the amount of its obligation under the plan to a trust for the benefit of the participants, the amounts of any compensation deferred under the Deferred Compensation Plan constitute an unsecured obligation of the Company to pay the participants in the future and, as such, are subject to the claims of other creditors in the event of insolvency proceedings.  Participants may elect certain future distribution dates on which all or a portion of their accounts will be paid to them, including in the case of a change in control of the Company.  Their accounts will be distributed to them in cash, except for amounts credited with respect to deferred restricted stock unit grants, which will be distributed in shares of the Company’s common stock pursuant to the 2014 Incentive Award Plan, the Third Amended and Restated 2004 Equity Incentive Plan or any successor plan or plans.  In addition to the amount of participants’ contributions, the Company will pay participants an amount reflecting a deemed return based on the returns of various mutual funds or measurement funds selected by the participants, except in the case of restricted stock units that are deferred, which are credited to their accounts as shares of Company common stock.  The measurement funds are used only to determine the amount of return the Company pays to participants and participant funds are not actually invested in the measurement fund, nor are any shares of Company common stock acquired under the Deferred Compensation Plan.  During each of the two years ended December 31, 2015 and 2014, the Company also made matching contributions to the Deferred Compensation Plan of 50% of every dollar of a participating employee’s pre-tax eligible contributions until the employee’s contributions equaled 6% of the employee’s eligible compensation, less the amount of any match the Company made on behalf of the employee under the WCI 401(k) Plan, and subject to certain deferral limitations imposed by the U.S. Internal Revenue Code on 401(k) plans, except that the Company’s matching contributions under the Deferred Compensation Plan were 100% vested when made.  During the year ended December 31, 2013, the Company also made matching contributions to the Deferred Compensation Plan of 50% of every dollar of a participating employee’s pre-tax eligible contributions until the employee’s contributions equaled 5% of the employee’s eligible compensation, less the amount of any match the Company made on behalf of the employee under the WCI 401(k) Plan, and subject to certain deferral limitations imposed by the U.S. Internal Revenue Code on 401(k) plans, except that the Company’s matching contributions under the Deferred Compensation Plan were 100% vested when made.  The Company’s total liability for deferred compensation at December 31, 2015 and 2014 was $19,387 and $18,614, respectively, which was recorded in Other long-term liabilities in the Consolidated Balance Sheets. 

109

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

17.SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table summarizes the unaudited consolidated quarterly results of operations for 2015: 

  First Quarter  Second Quarter  Third Quarter  Fourth Quarter 
Revenues $506,100  $531,312  $547,938  $531,937 
Operating income (loss)  101,865   110,024   (375,152)  101,730 
Net income (loss)  52,081   57,641   (256,805)  52,388 
Net income (loss) attributable to Waste Connections  51,824   57,360   (257,009)  52,061 
Basic income (loss) per common share attributable to Waste Connections’ common stockholders  0.42   0.46   (2.08)  0.42 
Diluted income (loss) per common share attributable to Waste Connections’ common stockholders  0.42   0.46   (2.08)  0.42 

During the third quarter of 2015, the Company recorded impairment charges of $411,786 associated with goodwill and $38,300 associated with indefinite-lived intangible assets in its E&P segment. The Company also recorded impairment charges of $63,928 related to property and equipment at certain E&P operating locations during the third quarter of 2015. The aforementioned impairment charges were partially offset by $20,642 of adjustments recorded during the third quarter of 2015 to reduce the fair value of amounts payable under liability-classified contingent consideration arrangements associated with the acquisition of an E&P business in 2014.

The following table summarizes the unaudited consolidated quarterly results of operations for 2014: 

  First Quarter  Second Quarter  Third Quarter  Fourth Quarter 
Revenues $481,710  $524,693  $546,551  $526,213 
Operating income  100,589   118,716   116,011   113,952 
Net income  49,223   62,900   60,284   60,921 
Net income attributable to Waste Connections  49,015   62,664   60,084   60,762 
Basic income per common share attributable to Waste Connections’ common stockholders  0.40   0.50   0.48   0.49 
Diluted income per common share attributable to Waste Connections’ common stockholders  0.39   0.50   0.48   0.49 

110

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

During the third quarter of 2014, the Company recorded an $8,445 impairment charge for property and equipment at an E&P disposal facility as a result of projected operating losses resulting from the migration of the majority of the facility’s customers to a new E&P facility that the Company owns and operates.

18.SUBSEQUENT EVENTS

Progressive Waste Merger

On January 18, 2016, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Progressive Waste Solutions Ltd., a corporation organized under the laws of Ontario (“Progressive Waste”) and Water Merger Sub LLC, a Delaware limited liability company and wholly-owned subsidiary of Progressive Waste (“Merger Sub”). Subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into Waste Connections (the “Merger”), with Waste Connections surviving the Merger as a wholly-owned subsidiary of Progressive Waste.

The transaction is expected to close in the second quarter of 2016. Upon closing, the combined company will use the Waste Connections name and it is anticipated that its shares will trade on the New York Stock Exchange and the Toronto Stock Exchange. Upon completion of the transaction, the combined company will be led by the Company’s current management team. The Board of Directors for the combined company will include the five current members of the Company’s Board and two members from Progressive Waste’s current Board.

Under the terms of the Merger Agreement, the Company’s stockholders will receive 2.076843 Progressive Waste shares for each Company share they own. Subject to the approval of Progressive Waste’s shareholders, Progressive Waste expects to implement immediately following the Merger, a share consolidation whereby every 2.076843 shares will be consolidated into one Progressive Waste share on the basis of 0.4815 (1 divided by the 2.076843 ratio above) of a share on a post-consolidation basis for each one share outstanding on a pre-consolidation basis. If the share consolidation is approved by Progressive Waste’s shareholders and effected, the Company’s stockholders will receive one share of the combined company for each existing Company share. Upon the completion of the transaction and regardless of whether or not the share consolidation occurs, the Company’s stockholders will own approximately 70% of the combined company, and Progressive Waste shareholders will own approximately 30%.

The transaction is subject to customary closing conditions, including the approval of both companies’ shareholders, U.S. antitrust approval and the approval of the Toronto Stock Exchange.

Quarterly Dividend

On February 8, 2016, the Company announced that its Board of Directors approved a regular quarterly cash dividend of $0.145 per share on the Company’s common stock.  The dividend will be paid on March 15, 2016, to stockholders of record on the close of business on March 1, 2016.

111

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None. 

ITEM 9A.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2015, at the reasonable assurance level such that information required to be disclosed in our Exchange Act reports:  (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms; and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. 

Management’s Report on Internal Control over Financial Reporting 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  This process includes policies and procedures that:  (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles; (3) provide reasonable assurance that receipts and expenditures of ours are being made only in accordance with authorizations of our management; and (4) provide reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material affect on our financial statements would be prevented or timely detected. 

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our internal control over financial reporting as of December 31, 2015.  In conducting our evaluation, we used the framework set forth in the report titled “Internal Control – Integrated Framework (2013)” published by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on the results of our evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2015. 

The effectiveness of our internal control over financial reporting as of December 31, 2015, has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in its report which appears in Item 8 of this Annual Report on Form 10-K. 

Changes in Internal Control Over Financial Reporting 

Based on an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, there has been no change to our internal control over financial reporting that occurred during the three month period ended December 31, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 

ITEM 9B.OTHER INFORMATION

None. 

112

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as set forth above in Part I under “Executive Officers of the Registrant” and in the paragraph below, the information required by Item 10 has been omitted from this report, and is incorporated by reference to the sections “Election of Directors,” “Corporate Governance and Board Matters” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive Proxy Statement for the 2016 Annual Meeting of Stockholders, which we will file with the SEC pursuant to Regulation 14A within 120 days after the end of our 2015 fiscal year. 

We have adopted a Code of Conduct and Ethics that applies to our officers, including our principal executive officer, principal financial officer, principal accounting officer and all other officers, directors and employees.  We have also adopted Corporate Governance Guidelines to promote the effective functioning of our Board of Directors and its committees,Committees, to promote the interests of stockholders and to ensure a common set of expectations concerning how the Board of Directors, its committeesCommittees and management should perform their respective functions. OurWe have also adopted a Code of Conduct and Ethics that applies to all of our directors, officers and employees. Copies of our Corporate Governance Guidelines and our Code of Conduct and Ethics are available on our website athttp://www.wasteconnections.com www.wasteconnections.com. A copy of either may also be obtained, free of charge, by writing to the Secretary of Waste Connections, Inc., 3 Waterway Square Place, Suite 110, The Woodlands, Texas 77380.

Information About our Audit Committee.

The Board of Directors has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The Audit Committee chairman is Mr. Harlan and the other current members are Messrs. Razzouk and Davis. The Audit Committee advises our Board of Directors and management with respect to internal controls, financial systems and procedures, accounting policies and other significant aspects of the company’s financial management. Pursuant to its charter, the Audit Committee selects the company’s independent registered public accounting firm and oversees the arrangements for, and approves the scope of, the audits to be performed by the independent registered public accounting firm. The Board of Directors has determined that all of the members of the Audit Committee are “financially literate” within the meaning of New York Stock Exchange listing standards. The Board of Directors has also determined that Mr. Harlan is an “audit committee financial expert” as defined under the Securities and Exchange Commission rules.

A current copy of the Audit Committee Charter, which our Board of Directors has adopted, is available on our website at www.wasteconnections.com. A copy of the Audit Committee Charter may also be obtained, free of charge, by writing to the Secretary of Waste Connections, Inc., 3 Waterway Square Place, Suite 110, The Woodlands, Texas 77380.

Compliance with Section 16(a) of the Exchange Act

Based solely upon a review of reports on Forms 3, 4 and 5, and amendments to those reports, furnished to us during and with respect to fiscal year 2015 pursuant to Section 16 of the Exchange Act, and written representations from the executive officers and directors that no other reports were required, we believe that no executive officers, directors or beneficial owners of more than ten percent of a registered class of our equity securities were late in filing such reports during 2015.

6

ITEM 11.EXECUTIVE COMPENSATION.

Compensation Discussion and Analysis

This Compensation Discussion and Analysis provides a detailed description of our executive compensation philosophy and objectives, the elements of our executive compensation programs, the compensation decisions the Compensation Committee has made under those programs and the factors considered in making those decisions. This section of this Amendment to our Original 10-K focuses on the compensation earned by our named executive officers, or NEOs. For 2015, our NEOs included the following individuals:

·Ronald J. Mittelstaedt, Chief Executive Officer and Chairman of the Board;

·Worthing F. Jackman, Executive Vice President and Chief Financial Officer;

·Steven F. Bouck, President;

·Darrell W. Chambliss, Executive Vice President and Chief Operating Officer; and

·Patrick J. Shea, Senior Vice President, General Counsel and Secretary.

Executive Summary

Waste Connections’ executive compensation program is designed to align the interests of senior management with stockholders by tying a significant portion of their compensation to the company’s annual operating and financial performance, as well as longer term stockholder returns. We believe that our pay-for-performance philosophy and the design of our executive compensation program strongly support an environment of continuous improvement and stockholder value creation. As illustrated below, our one-year and five-year total stockholder returns (“TSR”) significantly outperformed the S&P 500 Index (“S&P 500”) and the Dow Jones U.S. Waste & Disposal Services Index (“DJ Waste Index”) for the one- and five-year periods ended December 31, 2015.

 

Fiscal 2015 Performance

FY 2015 was an exceptional year for our solid waste operations. Strong organic growth and an approximate 180 basis points year-over-year margin expansion in solid waste offset a significant portion of the revenue and EBITDA headwinds resulting from the decline in higher margin exploration and production, or E&P, waste activity due to the precipitous drop in crude oil prices. This operating performance, combined with acquisitions completed during the year and our pending combination with Progressive Waste Solutions Ltd. (“Progressive Waste”) announced in early 2016, provides continuing momentum for future growth and stockholder value creation. In addition, we further improved the company’s safety-related incident rate from the previous year, and 2015 was our ninth consecutive year of improvement in incident rates.

We spent approximately $238.8 million for capital expenditures to reinvest in and expand our business and deployed approximately $347.9 million for acquisitions, including an integrated solid waste new market entry in central and northern Illinois. The company’s 29.4% TSR in 2015 significantly exceeded the S&P 500 and the DJ Waste Index, and 2015 was our 12th consecutive year of positive TSR. Compared to the prior year, in 2015 we more than doubled our return of capital to stockholders to $157.2 million through cash dividends and common stock repurchases, and we increased our regular quarterly cash dividend by 11.5% to $0.145 per share.

7

A more detailed description of the company’s fiscal year 2015 performance, including a reconciliation of non-GAAP financial measures and a graphical representation of the TSRs for the S&P 500 and the DJ Waste Index, can be found on pages 37 and 61-63 and page 33, respectively, of our Original 10-K.

Executive Compensation Program Best Practices

Our current executive compensation program includes features which we believe drive performance and excludes features we do not believe serve our stockholders’ long-term interests. The table below highlights some of the “Best Practices” featured in our compensation program as well as the “Problematic Pay Practices” which are excluded.

Included Features (What We Do)Excluded Features (What We Don’t Do)
üPay for Performance –Our NEOs receive the majority (about 79% for the CEO and about 72% for other NEOs) of their compensation in performance-based compensation—annual cash incentives, performance-based restricted stock units and restricted stock units awarded based on company and individual performance.xNo guaranteed base salary increases, minimum bonuses or equity awards – Our NEO employment agreements do not provide for guaranteed base salary increases, minimum bonuses or equity awards.
üRecoupment Policy– In November 2015, we adopted a Compensation Recoupment Policy (the “Clawback Policy”) to provide that if an accounting restatement occurs, our Board shall seek to require the forfeiture or repayment of certain incentive compensation paid to an executive officer if (i) the executive officer engaged in fraud or intentional misconduct that materially contributed to the need for the restatement or (ii) a clawback is otherwise required by the applicable rules and regulations of the Securities and Exchange Commission or the Company’s stock exchange.xNo “single trigger” severance payments in employment agreements– In February 2012, we eliminated provisions in the employment agreements of our CEO and other executive officers who were NEOs at that time that provided severance payments to be made solely upon the occurrence of a change in control event.  In December 2015, we amended our CEO’s employment agreement so that unvested equity awards held by him are treated with double-trigger change in control provisions similar to the rest of his compensation in the event of a change in control followed by the termination of his employment.
üUse of Peer Group Data and Tally Sheets – We utilize tally sheets annually when making executive compensation decisions, and periodically review comparative compensation data relative to our comparator group of companies.xNo dividends or dividend equivalents on unvested equity awards – We do not pay ordinary dividends on unvested time-based equity awards. For our performance-based restricted stock units (“PSUs”), dividend equivalents are paid in cash, without interest, only when and to the extent the PSUs are earned.
üStock Ownership Guidelines – Our executive officers are expected to hold a multiple of their base salaries in the company’s common stock (as described below under “Stock Ownership Guidelines”) and non-employee directors are expected to hold a number of shares of the company’s common stock having a value of at least $200,000 (which amount increased to $300,000 on January 1, 2016).xNo discounting of stock options or re-pricing or buyout of underwater options – We expressly prohibit the discounting of stock options and the re-pricing or cash buyouts of underwater options.
üConservatively Manage Use of Equity Grants –Our annual equity grants have averaged less than 0.50% of outstanding shares over the last five fiscal years.xNo Hedging or Pledging of Securities – Executive officers and directors are prohibited from engaging in transactions designed to hedge against the economic risks associated with an investment in our common stock or pledging our common stock in a margin account.

8

Included Features (What We Do)Excluded Features (What We Don’t Do)
üRisk Management – Our executive officers’ compensation program has been designed, and is periodically reviewed, to ensure that it does not encourage inappropriate risk-taking.  See “Compensation Risk Assessment” section below for further discussion.xNo Excise Tax Gross-Ups –In February 2012, we eliminated provisions in the employment agreements of our CEO and other executive officers who were NEOs at that time that provided for excise tax gross-up rights imposed under IRC Section 4999 as a result of a change in control of the company.

Pay for Performance Compensation Mix

The company’s compensation programs are designed to reward executives for achieving strong operational performance and delivering on the company’s strategic initiatives, each of which are important to the long-term success of the company. The Compensation Committee believes that a significant portion of the compensation of our NEOs should be aligned with our stockholders’ interests and directly linked to measurable performance. To evaluate the proportion of performance-based compensation for our NEOs, the Compensation Committee looks at recurring compensation by examining Total Direct Compensation, or TDC, earned by our NEOs. TDC is calculated by adding base salary, actual cash performance bonuses paid and the grant date fair value of stock awards, each as reported in our Summary Compensation Table. It excludes indirect compensation reported under the “All Other Compensation” column of our Summary Compensation Table.

As illustrated below, At-Risk Compensation, comprised of cash performance bonuses and equity-based compensation, made up approximately 79% of the TDC of our CEO, and 72% of the combined TDC of our other NEOs in 2015.

CEO Pay-at-a-Glance

The following graph shows the relationship of our CEO’s TDC compared to our cumulative stockholder return indexed over the last five fiscal years. As illustrated, Waste Connections delivered total stockholder return of 115.7% over this period while the Compensation Committee’s decisions and changes to our executive compensation program increased TDC of our CEO by approximately 53%.

On a year-over-year basis, the TDC of our CEO declined 12.3% in 2015 due to a 42.3% decrease in his cash performance bonus. In 2014, the company exceeded all of its financial performance targets, resulting in an overall payment of 170% of target opportunity for that fiscal year. Approximately 50% of the year-over-year increase in our CEO’s TDC in 2014 was related to the increase in cash incentives linked to the company’s strong financial performance in that year; another 25% of the increase was related to the introductory grant of PSUs. In 2015, below target performance resulting from the decline in higher margin E&P waste activity related to the precipitous drop in crude oil prices drove the year-over-year decline in our CEO’s TDC.

9

Last Year’s “Say on Pay”

The company provides its stockholders with an opportunity to cast an annual advisory vote with respect to its NEO compensation as disclosed in the company’s annual proxy statement, or “Say on Pay” proposal (“Say on Pay”). At last year’s Annual Meeting of Stockholders, more than 74% of the shares that voted approved our NEO compensation program as described in last year’s proxy statement. In light of concerns expressed by a proxy advisory firm and based upon our management’s engagement with stockholders holding over 65% of our outstanding shares regarding compensation matters, the Compensation Committee, as discussed below, implemented additional changes to the company’s compensation program in 2015 and intends to review further changes upon completion of our announced combination with Progressive Waste.

Recent and Anticipated Changes to Further Align Pay with Performance

Consistent with our stockholders’ support and the significant stockholder value creation over the years, the Compensation Committee decided to retain the core design of our executive compensation program for fiscal 2015. However, based on observations of our stockholders and proxy advisory firms, the company’s management and Compensation Committee, with the input of the full Board of Directors and the Compensation Committee’s independent compensation consultant, reviewed our executive compensation programs and made certain revisions to further align pay with performance.

In 2014, the Compensation Committee introduced performance-based restricted stock units (“PSUs”) with two new and distinct performance metrics measured over a three-year period as a new component of compensation for the Company’s executive officers, including its NEOs. The Compensation Committee also revised our stock ownership guidelines to (i) increase the amount of company stock our CEO and other executive officers must own (as described below under “Stock Ownership Guidelines”), and (ii) broaden the guidelines to include executive officers at all levels.

In early 2015, the Compensation Committee introduced a one-year performance-based condition to the company’s annual restricted stock unit (“RSU”) grants to its executive officers based on free cash flow generation—a different metric from those used for performance bonuses and PSU grants. Only if the company satisfies the performance targets during the year in which the grant is made will the grants then continue to time-vest over a multi-year schedule. Accordingly, beginning in 2015, all equity grants awarded to our NEOs contain a performance-based threshold the company must meet before grants may vest.

In late 2015, our Board of Directors adopted a Compensation Recoupment Policy. In addition, our CEO’s employment agreement was amended to override the single trigger provision in the company’s equity incentive award agreements, so unvested equity held by him is subject to the same double-trigger change in control provisions as the rest of his compensation.

The Compensation Committee, following completion of our combination with Progressive Waste, intends to review additional changes to our compensation program, including:

·Increasing the percentage of each executive and non-executive officer’s long-term performance-based equity compensation (relative to annual performance-based RSU awards) so that PSUs constitute a higher percentage of total equity compensation, as part of a multi-year plan to increase the prevalence of PSUs;

·Introducing relative TSR as a performance metric to the company’s PSU program; and

·Eliminating EBITA CAGR as a performance metric in our PSU program to address any potential concerns of proxy advisory firms that, although different, such a metric might be considered similar to the annual EBITDA target incorporated into our annual cash incentive bonus plan.

Our Compensation Philosophy and Objectives

The Compensation Committee’s philosophy with respect to the compensation of the NEOs does not differ materially from its philosophy regarding other executive officers. The Compensation Committee believes that compensation paid to NEOs should closely align with our performance on both a short-term and long-term basis, be linked to specific, measurable results intended to create value for stockholders and assist us in attracting and retaining key executives critical to our long-term success.

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In establishing compensation for NEOs, the Compensation Committee’s objectives are to:

·Attract and retain individuals with superior leadership ability and managerial talent by providing competitive compensation and rewarding outstanding performance;

·Ensure that NEO compensation is aligned with our corporate strategies, business objectives and the long-term interests of our stockholders;

·Provide an incentive to achieve key strategic and financial performance measures by linking incentive award opportunities to the achievement of performance measures in these areas;

·Create an incentive for sustained growth; and

·Provide a balanced approach to compensation policies and practices, which does not promote excessive risk-taking.

Our overall compensation program is structured to attract and retain highly qualified executive officers by paying them competitively and consistent with our success. We believe that the compensation structure should ensure that a significant portion of pay directly relates to our stock’s performance and other factors that directly and indirectly influence stockholder value. Accordingly, our approach to compensation is to provide base salary, an annual performance-based incentive opportunity tied to goals that link NEO compensation to our annual operating and financial performance, and long-term equity grants intended to align NEO compensation with stockholder returns and financial performance over a longer period and to aid in retention. Each year, the Compensation Committee allocates total compensation for NEOs between cash and equity based on comparisons with other companies and the judgment of the Compensation Committee members.

Approach to Compensation; Role of the Compensation Committee

The Compensation Committee has the primary authority for the consideration and determination of the cash and equity compensation we pay to our executive officers. The Compensation Committee also makes recommendations to the Board of Directors concerning cash and equity-based compensation and benefits for non-management directors. To aid the Compensation Committee, the CEO meets with the Compensation Committee and provides recommendations annually to the Compensation Committee regarding the compensation of all executive officers, other than himself. However, the Compensation Committee is not bound to follow the CEO’s recommendations. Pursuant to its charter, the Compensation Committee has the authority to engage its own independent advisors to assist it in carrying out its duties. The Compensation Committee holds executive sessions not attended by any members of management or non-independent directors.

The Compensation Committee meets in the first quarter of each fiscal year to review and approve:

·The achievement of financial performance goals for the prior fiscal year and, if applicable, a multi-year period;

·Performance-based compensation, if earned, based on such achievement for the prior fiscal year or multi-year period;

·Annual equity-based compensation grants;

·Financial goals for performance-based awards; and

·The level and mix of NEO compensation for the current fiscal year.

In determining the base salary, performance-based compensation and long-term equity-based compensation levels for the NEOs, the Compensation Committee considers: (i) the compensation structure and practices of a comparator group of companies that it believes are the charterscompany’s leading competitors in the solid waste industry; (ii) a comparator group of companies, most of which are non-solid waste companies, with comparable financial profiles; and (iii) its own judgment as to an appropriate level of compensation for a company of our Board’ssize and financial performance. From time to time, the Compensation Committee uses compensation consultants and comparator group analyses from third parties to assess our compensation components. The Compensation Committee believes that achieving the 60th percentile, over time, of market levels of target TDC for our existing NEOs is appropriate given their extensive experience, knowledge and their impact on the long-term success of the company.

For 2015, the Compensation Committee considered a tally sheet that included, for each officer (including the NEOs), current base salary, salary paid in 2014, bonus percentage, cash bonus paid in 2014, RSUs and PSUs granted in 2014, the dollar amount of 401(k) and Nonqualified Deferred Compensation Plan matches in 2014, payments and reimbursements for various expenses that could be considered perquisites, the value of unvested RSUs and PSUs as of the end of the year, and the amount payable to each officer under various severance scenarios, including upon a change in control. In determining the amount of compensation for the NEOs, the Compensation Committee does not take into account amounts realized from prior equity-based compensation grants because the Compensation Committee seeks to provide compensation that takes into account the cost of replacing the NEOs on a market competitive basis and what is equitable based on our performance. We believe that, to some extent, appreciation reflected in the amounts realized from prior equity-based compensation grants confirms the Compensation Committee’s success in aligning compensation with our stockholders’ interests, thus validating our compensation philosophy.

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We provide Mr. Mittelstaedt with greater compensation and benefits than the other NEOs to reflect his importance and value to us as well as the increased level of responsibility and risk faced by him as our CEO and Chairman. Mr. Mittelstaedt’s compensation also differs as a direct result of the Compensation Committee’s review of the comparator compensation data, and reflects the competitive nature of compensation paid to chief executive officers of companies within the comparator group. The Compensation Committee believes that Mr. Mittelstaedt’s competitive compensation package is important to reward, motivate and retain him as a highly valued chief executive whose leadership and strategic vision have helped create significant value for stockholders since our inception.

Role of Independent Compensation Consultant; Comparison Group Compensation Data

The Compensation Committee periodically retains Pearl Meyer, a nationally known compensation consulting firm, to provide it with market data and information regarding market practices and trends, assess the competitiveness of our executive compensation program, compare the performance of the company relative to a comparator group, assist with the development of the Compensation Discussion and Analysis in the proxy statement, and provide analysis on our non-employee director compensation. The Compensation Committee retains Pearl Meyer directly, supervises all work assignments performed by them, and reviews and approves all work invoices received for payment. Pearl Meyer has not performed any other service for the company. As required under Item 407(e)(3) of Regulation S-K, the Compensation Committee annually assesses whether the work of Pearl Meyer raised any conflict of interest. No conflict of interest was determined to exist with respect to Pearl Meyer’s services as a compensation consultant during the last fiscal year.

In light of a proxy advisory firm’s recommendation against our most recent “say on pay” vote, the Compensation Committee independently retained Pearl Meyer in 2015 to review the composition of the company’s comparator group which had last been updated in 2014, and to evaluate the pay versus performance alignment of our CEO’s compensation against such group of companies (the “Pearl Meyer 2015 Comparator Group Review”). The Pearl Meyer 2015 Comparator Group Review compared the base salary, target and actual total cash compensation, long term incentive opportunity, and actual and target TDC of our CEO to market levels. The Compensation Committee periodically analyzes the compensation practices of a comparator group to assess the company’s competitiveness with the market. In doing so, it takes into account factors such as the relative size and financial performance of those companies and factors that differentiate us from them.

Pearl Meyer reviewed the comparator group that had been selected in 2014 against the most recent comparator peer groups developed by two proxy advisory firms. Pearl Meyer also reviewed the TSR correlation of companies in the three different comparator groups and the alignment of pay versus performance for the three different comparator groups. With input from the Compensation Committee, Pearl Meyer in 2015 maintained the same 14 companies in the comparator group as had been selected in 2014, consisting of the following companies (collectively, the “Company Comparator Group”):

·Cintas Corp.·MSC Industrial Direct Co., Inc.
·Clean Harbors, Inc.·Progressive Waste Solutions Ltd.
·Covanta Holding Corp.·Quanta Services, Inc.
·Fastenal Company·Rollins Inc.
·Iron Mountain, Inc.·Stericycle, Inc.
·JB Hunt Transport Services·United Rentals
·Martin Marietta Materials, Inc.·Vulcan Materials Company

The list of companies in the Company Comparator Group is determined based on (i) organization size, with financial characteristics such as revenue, free cash flow, capital expenditures, EBITDA or enterprise value similar to those of Waste Connections, and (ii) industry, including companies in the environmental, facilities and diversified support services, distribution and construction industries. Relative to the Company Comparator Group, Waste Connections’ revenue, EBITDA and free cash flow for 2014 and enterprise value as of June 30, 2015, is positioned at the 21st percentile, 64th percentile, 71st percentile and 43rd percentile, respectively.

Based on its 2015 review of the company’s compensation practices, Pearl Meyer concluded that the company’s CEO pay rank is consistent with the Compensation Committee’s pay philosophy to target the 60th percentile of the comparator group, and that CEO targeted pay is aligned with performance when compared to any of the three comparator groups.

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Elements of Compensation

The Compensation Committee believes that a significant portion of the compensation of our NEOs should align with our stockholders’ interests and be directly linked to performance. While the exact pay mix of our NEOs’ total compensation (base salary, performance bonuses, and equity-based compensation) is not specifically determined, the Compensation Committee generally targets performance bonuses and equity-based compensation for our NEOs to constitute between 70% and 80% of Total Direct Compensation assuming target level payouts are achieved; this is consistent with market consensus data provided by Pearl Meyer. The Compensation Committee has complete discretion to determine compensation levels.

Base Salary.  Our compensation program includes base salaries to compensate executive officers for services rendered each year. Base salaries provide a secure base of compensation that is not dependent on our performance and is an amount that recognizes the role and responsibility of each executive officer, as well as such executive’s experience, performance and contributions. We also believe this element is beneficial in attracting and retaining high-performing and experienced executives.

The Compensation Committee considers base salary increases for certain of our executives annually. Base salary decisions generally reflect the Committee’s consideration of our comparator group data and subjective factors including an executive’s experience and past performance. For 2015, the Compensation Committee approved the following salary increases:

Name 2014
Base Salary
 2015
Base Salary
 %
Increase
Ronald J. Mittelstaedt $969,000 $969,000 -
Worthing F. Jackman $500,000 $512,500 2.5%
Steven F. Bouck $622,000 $622,000 -
Darrell W. Chambliss $456,000 $467,400 2.5%
Patrick J. Shea $352,500 $370,000 5.0%

In determining 2016 base salaries for our NEOs, the Compensation Committee, for the second year in a row, did not increase Mr. Mittelstaedt’s base salary and provided a 2.5% increase to the base salaries of the other NEOs, effective February 1, 2016.

Performance Bonuses.Our compensation program includes a performance bonus to reward executive officers based on our performance and the individual executive’s contribution to that performance. Under our Management Incentive Compensation Program (the “MICP”), which is administered pursuant to our 2014 Incentive Award Plan, each participant has an opportunity to earn an annual performance bonus based on a targeted percentage of the participant’s annual base salary for the year. The objective of the annual performance bonus is to provide participants an incentive to manage the company to achieve financial performance targets based on budgeted revenue. See “Management Incentive Compensation Program” section below for further discussion of the NEOs’ performance bonuses.

Equity-Based Compensation.  We believe that equity ownership in our company ties executive compensation to the performance of our stock and creates an incentive for sustained growth and employee retention. Equity-based awards and creating superior stockholder returns are valued by our equity award recipients. That sense of the value provided to executives coupled with multi-year vesting periods serves to enhance retention and corporate culture, both of which are instrumental to the future success of the company and the long-term interests of our stockholders.

Since 2007, the Compensation Committee has only granted RSU awards to our NEOs; no stock options have been granted to our NEOs since 2006. The Compensation Committee believes that the use of RSU awards reduces the overall compensation cost to us compared to the cost of granting options at levels intended to convey similar value, yet offers our NEOs a competitive and more stable equity-based compensation. RSU awards provide our executives with the opportunity to share in the success of the company. RSU awards vest in equal increments annually over four years. Upon vesting of the RSU awards, the participant receives shares of our common stock equal to the number of RSUs that vested, less any shares used to pay withholding taxes. There are no ordinary dividends paid on outstanding RSUs during the vesting period, and RSUs do not carry voting rights.

Beginning with grants of RSUs made in 2015, the Compensation Committee implemented a one-year performance hurdle based upon achievement of a target amount of free cash flow as a percentage of revenue, or FCF margin, for the fiscal year in which the grant is made. The Compensation Committee selected this metric because it believes it is a key driver of value creation. Only if the company satisfies this performance target for the year in which the grant is made will the grants then continue to vest over a multi-year time-based schedule.

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In 2014, the Compensation Committee introduced performance-based restricted stock units, or PSUs, which are awards with three-year performance hurdles to further enhance the link between executive compensation and company performance. At target, the PSUs represent 20% of the total annual long-term incentives awarded to each participant. For the 2014-2016 and 2015-2017 performance periods, each participant may earn between 25% and 150% of the target number of PSUs based on achievement of a return on invested capital, or ROIC, goal and an EBITA growth goal, each weighted 50%. The Compensation Committee selected these metrics because it believes they are critical drivers of sustained value creation over the longer term. At the end of a three-year performance period, the Compensation Committee will certify the performance results and percentage payout, as well as the resulting final number of PSUs earned by each participant, if any. There are no dividends paid on outstanding PSUs during the vesting period, but dividend equivalents on the number of PSUs that ultimately vest will accumulate and a dividend equivalent payment will be payable to each participant on the settlement date without interest. Upon vesting of the PSUs, in addition to receiving the number of shares of common stock determined in accordance with the payout calculation, the participant will receive a cash dividend equal in value to the total dividends that would have been paid on the number of shares of common stock that vest. PSUs do not carry voting rights.

Our NEOs’ 2015 annual RSU and PSU awards were granted on February 12, 2015. See “Equity-Based Compensation” section below for further discussion of the NEOs’ equity-based compensation.

Management Incentive Compensation Program

Under the MICP, executive officers of the company, including NEOs, are eligible to receive performance bonus payments and equity-based compensation. In 2015, each participant had the opportunity to earn up to 200% (Messrs. Mittelstaedt, Jackman, Bouck and Chambliss) or 150% (Mr. Shea) of such person’s targeted performance bonus based on our achievement of certain targeted levels of financial performance established by the Compensation Committee and (other than with respect to Mr. Mittelstaedt) based on the recommendations of the CEO.

The Compensation Committee adopted the performance targets for the fiscal year in February 2015. The company’s performance was compared to target levels of: (1) EBITDA, weighted at 20%; (2) operating income, or EBIT, weighted at 20%; (3) operating income as a percentage of revenue, or EBIT Margin, weighted at 30%; and (4) net cash provided by operating activities as a percentage of revenue, or CFFO Margin, weighted at 30%. Payouts are determined based on the weighted average achievement of the company relative to each metric (the “multiplier”). Because the operating budget adopted by the Board of Directors is a compilation of stretch goals set for each operating location, the targeted performance goals reflect a percentage or factor of the final budget, consistent with the prior year, as set forth below:

  Original 2015
Budget
 2015
Factor
 2015 Targeted
Performance 
Goal
 Weight
EBITDA $754.8M 96.0% $724.6M 20%
EBIT $488.0M 96.0% $468.5M 20%
EBIT Margin 22.1% N/A 21.2% 30%
CFFO Margin 26.0% 97.0% 25.2% 30%

The Compensation Committee establishes targeted performance goals at levels intended to be difficult but attainable. For example in 2013 and 2014, we achieved a weighted-average of 99.2% and 103.5%, respectively, of targeted performance goals.

Under the terms of the MICP, the Compensation Committee, in its complete and sole discretion, may adjust the targeted performance goals if an acquisition, significant new contract or extraordinary event results in a significant impact to the goals. For these purposes, the Compensation Committee determines operating income, or EBIT, by adjusting for any gains or losses on disposal of assets, and determines EBITDA by adding depreciation and amortization to operating income. The Compensation Committee chose these measures of performance because they are widely used by investors as valuation measures in the solid waste industry and because the targeted goals encourage improving free cash flow and returns on invested capital.

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For 2015, the target bonuses were set at as follows:

NameTarget Bonus 
(as a % of Base
Salary)
Ronald J. Mittelstaedt115%
Worthing F. Jackman75%
Steven F. Bouck75%
Darrell W. Chambliss75%
Patrick J. Shea50%

The company’s cumulative performance relative to target is calculated as a weighted average and treated as a multiplier. The multiplier is applied to the target payout so that if the company achieved 100% of its targets, the participants would receive 100% of their performance bonuses. Participants may earn from 0% up to a maximum of 200% or 150% of their targeted performance bonuses, based on their position, in accordance with the following sliding scale, which illustrates the interpolation of payouts within the ranges:

    Bonus as
% of Base Salary
   Bonus as
% of Base Salary
% Target
Achievement
 Target %
Multiplier
 CEO President,
CFO and
COO
 Target %
Multiplier
 SVP
105% or Higher 200% 230% 150% 150% 66%
104% 180% 207% 135% 140% 63%
103% 160% 184% 120% 130% 60%
102% 140% 161% 105% 120% 57%
101% 120% 138% 90% 110% 53%
100% 100% 115% 75% 100% 50%
99% 80% 92% 60% 90% 47%
98% 60% 69% 45% 80% 44%
97% 40% 46% 30% 70% 40%
96% 20% 23% 15% 60% 37%
95% 0% 0% 0% 50% 34%

Payments under this program are contingent on continued employment at the time of payout, subject to the terms of any applicable employment agreements.

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2015 Adjusted Target Goals and Results

In February 2016, the Compensation Committee adjusted the targets and results for 2015 to reflect the impact of certain acquisition-related items and loss on disposal of assets. Based on the calculations, the company achieved a weighted-average of 99.9% of our NEOs’ targeted performance goals in 2015 compared to 103.5% in 2014. Adjusted targeted performance goals and results and the corresponding target achievement percentages for 2015 were as follows:

  Adjusted
Target(1)
 Actual
Results(1)
 Actual
Results as %
of Target
 Weighting Target
Achievement
EBITDA $737.9M $710.6M 96.3% 20% 19.3%
EBIT $474.0M $441.2M 93.1% 20% 18.6%
EBIT Margin 21.1% 20.8% 98.6% 30% 29.6%
CFFO Margin 25.2% 27.3% 108.1% 30% 32.4%
Overall Achievement         99.9%

(1)The Compensation Committee adjusted the targets and results for 2015 to reflect the impact of certain acquisition-related items and loss on disposal of assets.

For 2015, actual annual performance bonuses earned as a percentage of each participant’s eligible base salary were as follows:

NameActual Bonus %
of Eligible Base Salary
Ronald J. Mittelstaedt112.7%
Worthing F. Jackman113.5%
Steven F. Bouck73.5%
Darrell W. Chambliss73.5%
Patrick J. Shea58.1%

Bonuses for each participant were calculated pursuant to the interpolated sliding scale shown above. Mr. Jackman received an additional $200,000 discretionary bonus in recognition of his role as a leading CFO among mid-cap companies. Mr. Shea received an additional $32,263 discretionary bonus for his achievements during the year. Both awards represented less than 10% of each executive’s total compensation for the year.

Further disclosure regarding the actual annual incentive bonus amounts earned by the NEOs for 2015 under the MICP are located in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

In lieu of paying an annual performance bonus in cash, the Compensation Committee, in its complete and sole discretion, may choose to pay the annual performance bonus in RSUs issued under our 2014 Incentive Award Plan or any succeeding plan we adopt. All 2015 bonuses paid pursuant to the MICP were paid in cash.

On March 25, 2016, the Compensation Committee approved our 2016 MICP under our 2014 Incentive Award Plan, which is substantially similar to the 2015 MICP.

Exercise of Discretion in Executive Compensation Decisions

As a risk mitigation provision, the Compensation Committee has complete discretion to withhold payment pursuant to any of our incentive compensation plans irrespective of whether our NEOs or we have successfully met the goals set under these plans. The Compensation Committee did not apply this negative discretion under our incentive compensation plans with respect to the NEOs during 2015.

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Equity-Based Compensation

Restricted Stock Units. We believe equity awards create an incentive for each executive to contribute to the sustained growth of the company as well as serving as a method of employee retention. Each year, the Compensation Committee, after consultation with the CEO, assesses the performance of both the company and each of the NEOs during the most recently completed fiscal year. Based on the Compensation Committee’s subjective review of the prior year’s performance and with a focus on maintaining a competitive market level of compensation each participant receives a grant of restricted stock units, or RSUs, pursuant to the MICP and under the 2014 Incentive Award Plan. Such RSUs are subject to a four-year vesting schedule approved by the Compensation Committee. In 2015 for annual RSU awards granted to our executives, the Compensation Committee implemented a performance hurdle for annual RSU awards granted to our executives. The company must achieve a target free cash flow as a percentage of revenue, or FCF margin, for that fiscal year in order for the executive to earn the RSU award. Once earned, the award is then subject to a multi-year time-based vesting period.

While staying competitive with the market is an overall guideline, individual target opportunities may vary based on the Compensation Committee’s consideration of other factors, as discussed above. Target RSU awards are approximately 200% of current base salary for Mr. Mittelstaedt, 150% of current base salary for Messrs. Jackman, Bouck and Chambliss, and 125% of current base salary for Mr. Shea. For 2015, the RSU grant for Mr. Mittelstaedt was approximately 213% of his base salary, for Messrs. Jackman, Bouck and Chambliss the award was approximately 160% of their respective base salaries, and for Mr. Shea the award was approximately 131% of his base salary. See the “Grant of Plan Based Awards in Fiscal Year 2015” table for the amount of equity awards granted to each of the NEOs in 2015.

Performance-Based Restricted Stock Units. On February 12, 2015, the Compensation Committee approved grants of PSU awards to each NEO. Payouts are determined based on the achievement of two equally weighted performance goals: the compound annual growth rate of return on invested capital, or ROIC, and the compound annual growth rate of operating income before amortization expense, or EBITA. Each participant has the opportunity to earn between 25% and 150% of the target number of PSUs based on the company’s achievement of the goals during the three-year performance period. For the portion of the award based on growth in ROIC, achievement of 83.3% of the ROIC goal will result in delivery of 50% of the targeted number of shares, and 133.3% of ROIC goal achievement will result in delivery of 150% of the targeted number of shares. For the portion of the award based on EBITA performance, achievement of 75% of the EBITA growth goal will result in delivery of 50% of the targeted number of shares and achievement of 125% of the EBITA growth goal will result in delivery of 150% of the targeted number of shares, as illustrated below:

ROIC

  Threshold Target Maximum
Performance 83.3% 100% 133.3%
Payout 50% 100% 150%

EBITA

  Threshold Target Maximum
Performance 75% 100% 125%
Payout 50% 100% 150%

Award payouts are interpolated between threshold, target, and maximum performance goals. Performance below the threshold level will result in no awards delivered for that portion of the award. The target number of shares for the PSUs is equal to 20% of each participant’s 2015 annual long-term incentive award. Once the Compensation Committee has determined the level of performance goal achievement, earned PSUs will vest within 15 business days; but in no event shall the vesting date be later than March 15, 2018.

Performance goals for the three-year performance period are recommended by management based on the company’s historical performance, current projections and trends, and are established during the first quarter of the performance period. The Compensation Committee reviews management’s recommendations (including a discussion of associated risks), determines appropriate revisions, and once satisfied with the degree of difficulty associated with goal achievement, approves the goals for each performance period. The Compensation Committee seeks to establish goals such that the likelihood of missing the target goal is at least as high as the likelihood of achieving the target goal based on reasonable assumptions and projections at the time of grant.

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Stock Ownership Guidelines

To further align management and stockholder interests and discourage inappropriate or excessive risk-taking, our Compensation Committee has established stock ownership guidelines for our executive officers. The current minimum ownership thresholds are as follows:

·For the Chief Executive Officer,five times such participant’s base salary;

·For the President,four times such participant’s base salary;

·For Executive Vice Presidents,three times each such participant’s base salary;

·For Senior Vice Presidents,two times each such participant’s base salary; and

·For Vice Presidents,one times each such participant’s base salary.

Once an executive officer satisfies the ownership requirement as a multiple of base salary, the number of shares the executive owns to meet the requirement as of the assessment date becomes his or her minimum ownership requirement (regardless of salary increases or stock price fluctuations) until he or she is promoted to a higher level. Notwithstanding the foregoing, once an individual is determined to be in compliance with the ownership guidelines as of the assessment date, he or she shall be deemed to remain in compliance, regardless of any subsequent stock price fluctuations, as long as such individual maintains ownership of at least the same number of shares as that required as of the assessment date for which he or she was previously compliant.

Each executive officer is expected to attain the applicable stock ownership threshold under the guidelines within five years following the later of (i) the first annual assessment with respect to such individual or (ii) the first annual compliance assessment at which a higher stock ownership multiple becomes applicable to such individual (due to a promotion or otherwise). The intent of the five-year phase-in period is to permit gradual accumulation of the incremental ownership associated with a new or higher multiple. Shares included in the calculation are those deemed “beneficially owned” by the executive officer within the meaning of the rules of the SEC, restricted stock or RSUs subject to time-based vesting held by the executive officer, and vested or time-based unvested RSUs or resulting shares deposited into a deferred compensation plan or arrangement.

As of the date of this proxy statement, all of our executive officers exceeded the requirements of our stock ownership guidelines.

Timing of Equity Awards

The Compensation Committee generally makes company-wide annual grants of equity-based compensation to our executive officers and other employees in late January or in February following the public release of year-end financial results and outlook for the upcoming year. This timing is optimal from the Compensation Committee’s standpoint for two reasons: first, the Compensation Committee has the financial results from the previous year; and second, management may notify employees of the annual grant award at or around the same time they typically notify employees of their cash performance bonus with respect to the previous year, which we typically pay in February.

Other Benefits

We provide certain limited benefits to our employees, including the NEOs, to fulfill particular business purposes. In general, these benefits make up a very small percentage of total compensation for the NEOs.

401(k) Plan. The NEOs are entitled to participate in a company-sponsored 401(k) profit sharing plan on the same terms as all employees. We make matching contributions of 50% of every dollar of a participating employee’s pre-tax and Roth contributions until the employee’s contributions equal six percent of the employee’s eligible compensation, subject to certain limitations imposed by the IRC. Employees are eligible to participate in the 401(k) plan beginning on the first day of the month following completion of sixty days of employment. Our matching contributions vest over four years.

Deferred Compensation Plan.We provide NEOs and certain other highly compensated employees the opportunity to defer receiving income until after they terminate their employment. This benefit offers tax advantages to eligible executives, permitting them to defer payment of their compensation and defer taxation on that compensation until after termination. We put the plan in place to mitigate the impact of our officers and other highly compensated employees being unable to make the maximum contribution permitted under the 401(k) plan due to certain limitations imposed by the IRC. We make a matching contribution of 50% of every dollar of a participating employee’s pre-tax eligible contributions until the employee’s contributions equal six percent of the employee’s eligible compensation, less the amount of any match we make on behalf of the employee under the company-sponsored 401(k) plan. Matches are subject to certain deferral limitations imposed by the IRC on 401(k) plans and, when made, are 100% vested. The deferred compensation plan is described under the heading “Nonqualified Deferred Compensation in Fiscal Year 2015.”

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Other.We also offer a number of benefits to the NEOs pursuant to benefit programs that provide for broad-based employee participation. In addition to the 401(k) plan described above, the benefits include medical, prescription drugs, dental and vision insurance, long-term disability insurance, life and accidental death and dismemberment insurance, health and dependent flexible spending accounts, a cafeteria plan and employee assistance benefits. These generally available benefits do not specifically factor into decisions regarding an individual executive’s total compensation or equity-based compensation package. These benefits are designed to help us attract and retain employees as we compete for talented individuals in the marketplace, where such benefits are commonly offered. We also offer limited additional benefits to select employees, such as reimbursement of certain club dues and personal use of a private aircraft.

Relocation of Corporate Headquarters. In 2012, we relocated our corporate headquarters from Folsom, California to The Woodlands, Texas. In connection with the relocation, we established a company-wide relocation program, as discussed in our proxy statement for our 2013 annual meeting of stockholders. These relocation benefits were available to all employees, including our NEOs, who relocated from our previous headquarters to our new headquarters. We engaged the services of an independent relocation company (the “Provider”) to provide relocation and related services. Pursuant to the guaranteed purchase offer provision of the relocation program, the Provider would purchase an employee’s former residence at a purchase price equal to the average of two independent appraisals of the property (or if there was more than a 5% variance between the two appraised values, the average of the two out of three closest appraisal values) or equal to an independent third-party offer. We agreed to reimburse the Provider for all expenses, including the purchase price for any residence. We would recognize gains from the resale of any residence, if the resale price was greater than the price the Provider paid for the property, and recognize losses from the resale of any residence, if the resale price was lower than the price the Provider paid for the property. In accordance with our relocation program, the Provider purchased Mr. Mittelstaedt’s former residence in California in December 2012 for a purchase price equal to the average of two independent appraisals obtained with respect to the property. Although the property had been listed with two different brokerage firms throughout the period in which the Provider held the property, the property did not receive any offers and remained unsold. In May 2015, Mr. Mittelstaedt offered to repurchase the property for an amount equal to the original purchase price paid to Mr. Mittelstaedt by the Provider, which was $262,500 above the appraised value of the property, as determined by the average of two independent appraisals performed in May 2015. The Provider accepted Mr. Mittelstaedt’s offer to purchase the property and the transaction closed on May 29, 2015. Transaction costs with respect to the closing equaled $9,665; these costs were paid by the Provider and reimbursed by the Company. The additional incremental cost to us of carrying the property during the period from the date of purchase of the property from Mr. Mittelstaedt through May 29, 2015, was $192,164. However, because Mr. Mittelstaedt purchased the property for $262,500 above the appraised value, as determined by the average of two independent appraisals performed in May 2015, Mr. Mittelstaedt’s repurchase of the property saved the company from a loss of $70,336, assuming the property had been sold for the May 2015 appraised value to a third party.

For more information about this transaction, see the Summary Compensation Table and the accompanying footnotes.

Anti-Hedging/Pledging Policy

We have adopted a policy prohibiting executive officers and directors from engaging in transactions designed to hedge against the economic risks associated with an investment in our common stock or pledging our common stock in a margin account. These individuals may not engage in the purchase or sale of put and call options, short sales and other hedging transactions designed to minimize the risk of owning our common stock. In addition, these individuals may not pledge shares of our common stock as collateral for a margin account.

Clawback Provisions

On November 30, 2015, based on the Compensation Committee’s recommendation, our Board of Directors approved and adopted a Compensation Recoupment Policy (the “Clawback Policy”) to maintain and enhance a culture that emphasizes integrity and accountability and that reinforces the Company’s pay-for-performance compensation philosophy. As more fully described in the Clawback Policy, which was filed as an exhibit to the Form 8-K we filed with the SEC on December 18, 2015, the policy provides that if an accounting restatement occurs, the Board shall seek to require the forfeiture or repayment of incentive compensation paid to an executive officer during the three completed fiscal years preceding the date of the restatement that is in excess of the amount that would have been awarded to, vested and/or paid to the executive under the restatement if (i) the executive officer engaged in fraud or intentional misconduct that materially contributed to the need for the restatement or (ii) a clawback is otherwise required by the applicable rules and regulations of the Securities and Exchange Commission or the Company’s stock exchange. Although we may need to revise our Clawback Policy depending on the final recoupment rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act, we believe this policy is a good governance practice that would be beneficial for our company even ahead of the final rules.

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We also maintain numerous risk mitigating provisions in our compensation arrangements for the NEOs, which are described under the heading “Compensation Risk Assessment.” Examples include the Compensation Committee’s ability to exercise negative discretion to reduce annual incentive awards to zero, RSU grants which are determined based on the company’s and the recipient’s performance, PSU grants which require achievement of multiple pre-determined goals over a three-year period before vesting, anti-hedging/anti-pledging policies, and stock ownership requirements.

Tax Deductibility Considerations

Section 162(m) of the IRC generally disallows an income tax deduction to publicly held corporations for compensation in excess of $1,000,000 paid for any fiscal year to the corporation’s “covered employees,” defined in Section 162(m) as the Chief Executive Officer and the three other most highly compensated executive officers, other than the Chief Financial Officer. However, the statute exempts qualifying performance-based compensation from the deduction limit if certain requirements are met. The Compensation Committee believes that the potential deductibility of the compensation payable under those plans and arrangements should be only one of a number of relevant factors taken into consideration in establishing compensation plans and arrangements for our executive officers and not the sole governing factor. For that reason, the Compensation Committee may approve compensation that will not meet qualifying performance-based compensation requirements in order to assure appropriate levels of total compensation for the executive officers based on the company’s performance.

Severance and Change in Control Arrangements

The Compensation Committee believes that the company’s current and historic successes are due in large part to the leadership, skills and performance of the NEOs, and that it is critical to maintain the stability of the company by providing severance and change in control benefits in order to encourage NEO retention through a change in control. On February 13, 2012, we entered into a new Separation Benefits Plan and Employment Agreement with Mr. Mittelstaedt (the “CEO Separation Benefits Plan”), and a Separation Benefits Plan under which eligible executives, including our NEOs (other than Messrs. Mittelstaedt and Shea) may receive certain severance and change in control benefits (the “NEO Separation Benefits Plan,” together with the CEO Separation Benefits Plan, the “Separation Benefits Plans”). The CEO Separation Benefits Plan superseded and replaced the employment agreement of Mr. Mittelstaedt, dated March 1, 2004, as amended, and the NEO Separation Benefits Plan and related participation letters superseded the employment agreements of Messrs. Jackman, Bouck, and Chambliss, dated as of April 11, 2003, October 1, 2004 and June 1, 2000, respectively. Mr. Shea’s employment agreement, executed February 1, 2008, provides that Mr. Shea may receive certain severance and change in control benefits. A summary of the terms of the Severance Benefits Plans and Mr. Shea’s agreement regarding severance and change in control are described below under “Potential Payments Upon Termination or Change in Control.”

Compensation Committee Report

The Compensation Committee of the Board of Directors has reviewed and discussed with management the “Compensation Discussion and Analysis” required by Item 402(b) of Regulation S-K. Based on the review and discussions referred to above, the Committee recommended to the Board of Directors that the “Compensation Discussion and Analysis” be incorporated into our Original 10-K, as amended by this Amendment.

This report is submitted on behalf of the Compensation Committee.

William J. Razzouk, Chairman
Edward E.“Ned” Guillet
Michael W. Harlan

20

COMPENSATION RISK ASSESSMENT

We believe our compensation policies and practices do not present any risk that is reasonably likely to have a material adverse effect on the company. We believe our approach to setting performance targets, evaluating performance, and establishing payouts does not promote excessive risk-taking. We believe that the components of our pay mix—base salary, annual cash incentive bonuses, and long-term equity grants—appropriately balance near-term performance improvement with sustainable long-term value creation.

We considered the following elements of our compensation policies and practices when evaluating whether such policies and practices encourage our employees to take unreasonable risks:

·Annual performance targets are established by each operating location and region and on a company-wide basis to encourage decision-making that is in the best long-term interests of both the company and our stockholders;

·We adjust performance targets to exclude the benefit or detriment of extraordinary events to ensure our employees are compensated on results within their control or influence;

·We adjust performance targets to include certain acquisitions and new contracts not reflected in the originally approved operating budget in order to achieve targeted returns on deployed capital;

·The use of four performance metrics in our annual cash performance bonus plan mitigates the incentive to overperform with respect to any particular financial metric at the expense of other financial metrics;

·We set annual performance goals to avoid targets that, if not achieved, result in a large percentage loss of compensation;

·Payouts under our performance-based plans remain at the discretion of our Board of Directors and may be reduced even if targeted performance levels are achieved;

·Payouts under our performance-based plans can result in some compensation at levels below full target achievement, rather than an “all-or-nothing” approach;

·Our NEOs receive annual cash incentive bonus awards only if cash incentive bonus awards payable to other employees have been made;

·We have adopted a clawback policy which allows us to recover certain incentive cash and equity compensation if it is earned based on inaccurate financial statements;

·We use RSUs rather than stock options for equity awards because RSUs retain value even in a depressed market so that recipient employees are less likely to take unreasonable risks to get, or keep, options “in-the-money”;

·Equity-based compensation with time-based vesting over a multi-year schedule accounts for a time horizon of risk and ensures that participating employee interests are aligned with the long-term interests of our stockholders;

·Stock ownership guidelines require members of our Board of Directors and our executive officers to maintain certain ownership levels in our common stock, which aligns a portion of their personal wealth to the long-term performance of the company;

·We have adopted a policy which prohibits members of our Board of Directors and our executive officers from engaging in transactions designed to hedge against the economic risks associated with an investment in our common stock or pledging our common stock in a margin account; and

·Our Compensation Committee periodically utilizes an independent compensation consultant that performs no other services for the company.

21

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table summarizes the total compensation earned by each of our NEOs in 2015, 2014 and 2013.

Name and Principal
Position
 Year Salary
($)(1)
 Bonus
($)
 Stock
Awards
($)(2)
 Non-Equity
Incentive
Plan
Compensation
($)(3)
 Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
 All Other
Compensation
($)(4)
 Total
($)
Ronald J. Mittelstaedt 2015 1,006,269  2,582,570 1,092,063  55,204 4,736,106
Chief Executive 2014 950,692  2,490,468 1,894,395  49,878 5,385,433
Officer and Chairman 2013 828,050  1,681,572 804,678  68,643 3,382,943
Worthing F. Jackman 2015 530,529 200,000 1,024,431 367,500  56,464 2,178,924
Executive Vice 2014 491,654  963,811 637,500  22,298 2,115,263
President and Chief
Financial Officer
 2013 436,392  771,596 275,940  38,446 1,522,374
Steven F. Bouck 2015 645,923  1,243,305 457,170  14,870 2,361,268
President 2014 612,039  1,198,651 793,050  14,471 2,618,211
  2013 545,250  830,688 345,240  24,668 1,745,846
Darrell W. Chambliss 2015 483,842  934,279 335,160  12,040 1,765,321
Executive Vice 2014 451,423  878,955 581,400  11,747 1,923,525
President and Chief
Operating Officer
 2013 420,688  639,676 265,860  12,650 1,338,874
Patrick J. Shea 2015 382,885 32,263 608,199 182,737  40,547 1,246,631
Senior Vice 2014 347,789  443,436 163,000  25,336 979,561
President, General
Counsel and Secretary
 2013 320,423  333,642 143,000  25,414 822,479

(1)Amounts shown reflect salary earned by the NEOs for each year indicated and reflect increases that the Messrs. Jackman, Chambliss and Shea received on February 1, 2015. Messrs. Mittelstaedt and Bouck did not receive salary increases for 2015. Due to the calendaring of bi-weekly paychecks in 2015, amounts shown for 2015 include one extra pay period as compared to 2014.

(2)Stock awards consist of (i) RSUs granted under our 2014 Incentive Award Plan and our Third Amended and Restated 2004 Equity Incentive Plan, and (ii) PSUs granted under our 2014 Incentive Award Plan. Amounts shown do not reflect compensation actually received by the NEO. Instead, the amounts shown are the grant date fair value of the awards computed in accordance with generally accepted accounting principles, excluding estimates of forfeitures related to service-based vesting conditions. A discussion of the value of stock awards is set forth under Note 1 of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on February 9, 2016. The table below sets forth the details of the components that make up the fiscal year 2015 stock awards for our NEOs. Annual RSU awards vest in four substantially equal annual installments beginning on the first anniversary of the grant date. The values of the PSU awards in the table below, at target and maximum levels, are based on the full number of shares for which performance goals were established in fiscal year 2015 under the awards made on February 12, 2015, which are scheduled to vest in February 2018.

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  Components of Annual Stock Awards Additional
Information
Name Value of
Restricted Stock Units
($)
 Value of
Performance-Based
Restricted Stock Units –
Targeted
($)
 Value of
Performance-Based
Restricted Stock Units –
Maximum
($)
Ronald J. Mittelstaedt 2,066,056 516,514 774,794
Worthing F. Jackman 819,545 204,886 307,353
Steven F. Bouck 994,644 248,661 373,015
Darrell W. Chambliss 747,423 186,856 280,307
Patrick J. Shea 486,541 121,658 182,488

(3)Amounts shown reflect annual incentive bonus awards earned by the NEOs under our MICP, which is discussed elsewhere in this filing, under “Compensation Discussion and Analysis.” The amounts shown for 2015 were paid on February 19, 2016.

(4)We make available for business use to our NEOs and other employees a private aircraft. Our general policy is not to permit employees, including the NEOs, to use the aircraft for purely personal use. Occasionally, employees or their relatives or spouses, including relatives or spouses of the NEOs, may derive personal benefit from travel on our aircraft incidental to a business function, such as when an NEO’s spouse accompanies the officer to the location of an event the officer is attending for business purposes. For purposes of our Summary Compensation Table, we value the compensatory benefit to the officer at the incremental cost to us of conferring the benefit, which consists of additional catering and fuel expenses. In the example given, the incremental cost would be nominal because the aircraft would have been used to travel to the event, and the basic costs of the trip would have been incurred, whether or not the NEO’s spouse accompanied the officer on the trip. However, on the rare occasions when we permit an employee to use the aircraft for purely personal use, we value the compensation benefit to such employee (including NEOs) at the incremental cost to us of conferring the benefit, which consists of the average weighted fuel expenses, catering expenses, trip-related crew expenses, landing fees and trip-related hangar/parking costs. Since our aircraft is used primarily for business travel, the valuation excludes the fixed costs that do not change based on usage, such as pilots’ compensation, the lease expense of the aircraft and the cost of maintenance. Our valuation of personal use of aircraft as set forth in this filing is calculated in accordance with SEC guidance, which may not be the same as valuation under applicable tax regulations.

In 2015, All Other Compensation paid to our NEOs consisted of the following amounts:

Name Matching
Contributions
to 401(k)
($)
 Company
Contributions
Under
Nonqualified
Deferred
Compensation
Plan
($)
 Life
Insurance
Premiums
Paid by
Company(1)
($)
 Professional
Association
Dues
($)
 Club Dues
($)
 Personal Use
of Corporate
Aircraft
Incidental to
Business
Function
($)
 Purely
Personal Use
of Corporate
Aircraft
($)
 Relocation
Expenses(2)
($)
 Total All
“Other”
Compensation
($)
Ronald J. Mittelstaedt   1,813  27,230 1,307 24,854 9,665 49,878
Worthing F. Jackman  9,000 1,697  27,851 197 17,719  56,464
Steven F. Bouck 4,350 4,650 2,694 434 2,325 417   14,870
Darrell W. Chambliss 8,376 624 3,040      12,040
Patrick J. Shea 6,692 2,308 1,281 1,795 28,471    40,547

(1)Amounts shown are paid by the company in connection with life insurance policies made available to all participants in our Nonqualified Deferred Compensation Plan, including the NEOs.
(2)The amount represents the transaction costs paid by the Provider with respect to the repurchase by Mr. Mittelstaedt in May 2015 of the property that the Provider had purchased from Mr. Mittelstaedt in 2012 pursuant to the guaranteed purchase offer benefit of the company-wide relocation program. Our incremental cost related to carrying this property during the period from the date of purchase by the Provider until the date of repurchase by Mr. Mittelstaedt was $192,164.  For more information about this transaction, see “Executive Compensation – Compensation Discussion and Analysis – Other Benefits – Relocation of Corporate Headquarters” above.

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GRANTS OF PLAN BASED AWARDS IN FISCAL YEAR 2015

The following table summarizes the amount of awards under the MICP and equity awards granted in 2015 for each of the NEOs.

      Estimated Potential Payouts
Under Non-Equity Incentive
Plan Awards(2)
 Estimated Future Payouts
Under Equity Incentive
Plan Awards(3)
    
Name Award
Type(1)
 Grant
Date
 Threshold
($)
 Target
($)
 Maximum
($)
 Threshold
(#)
 Target
(#)
 Maximum
(#)
 All Other
Stock
Awards:
Number
of

Shares of
Stock or
Units
(#)(4)
 Grant
Date
Fair
Value
of Stock
Awards
($)(5)
Ronald J. Mittelstaedt RSU 2/12/15       44,460 2,066,056
  PSU 2/12/15    2,778 11,115 16,673  516,514(6)
  MICP  222,870 1,114,350 2,228,700     
Worthing F. Jackman RSU 2/12/15       17,636 819,545
  PSU 2/12/15    1,102 4,409 6,614  204,886(6)
  MICP  76,875 384,375 768,750     
Steven F. Bouck RSU 2/12/15       21,404 994,644
  PSU 2/12/15       1,337 5,351 8,027  248,661(6)
  MICP  93,300 466,500 933,000     
Darrell W. Chambliss RSU 2/12/15       16,084 747,423
  PSU 2/12/15    1,005 4,021 6,032  186,856(6)
  MICP  70,110 350,550 701,100     
Patrick J. Shea RSU 2/12/15       10,470 486,541
  PSU 2/12/15    654 2,618 3,927  121,658(6)
  MICP  125,800 185,000 244,200     

(1)“RSU” refers to restricted stock units granted under our 2014 Incentive Award Plan. “PSU” refers to performance-based restricted stock units granted under our 2014 Incentive Award Plan. “MICP” refers to cash awards made pursuant to our Management Incentive Compensation Program, which is administered pursuant to our 2014 Incentive Award Plan.

(2)The target incentive amounts shown in this column reflect our annual incentive bonus plan awards under the MICP and represent the target awards pre-established as a percentage of salary. The maximum is the greatest payout which can be made if the pre-established maximum performance level is met or exceeded. Actual annual incentive bonus amounts earned by the NEOs for 2015 under the MICP are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table.

(3)Represents the range of possible awards of performance shares upon the vesting of PSUs granted in fiscal year 2015 under our 2014 Incentive Award Plan. Awards are capped at the maximum, and no awards will vest unless the pre-established threshold performance level is met or exceeded. See “Compensation Discussion and Analysis – Equity-Based Compensation” for more information regarding PSU awards.

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(4)Stock awards consist of RSUs granted under our 2014 Incentive Award Plan on February 12, 2015. Assuming that the first-year performance hurdle is satisfied, the RSUs vest in equal, annual installments over the four-year period following the date of grant, beginning on the first anniversary of the date of grant. See “Compensation Discussion and Analysis – Equity-Based Compensation” for more information regarding RSU awards.

(5)The value of a stock award is based on the fair value as of the grant date of such award computed in accordance with generally accepted accounting principles, excluding estimates of forfeitures related to service-based vesting conditions. A discussion of the value of stock awards is set forth under Note 1 of the “Notes to Consolidated Financial Statements” included in our Original 10-K.

(6)Represents the value of PSUs based on the expected outcome as of the date of grant. This result is based on (i) achieving the target level of a return on invested capital, or ROIC; and (ii) achieving the target level of an EBITA growth goal, each of which is weighted 50%.

25

OUTSTANDING EQUITY AWARDS AT 2015 FISCAL YEAR-END

The following table summarizes RSUs and PSUs that have not vested and related information for each of our NEOs as of December 31, 2015.

      Stock Awards
Name Award
Type(1)
 Grant
Date
 Number of
Shares or
Units of Stock
That Have
Not Vested
(#)
 Market Value
of Shares or
Units of Stock
That Have
Not Vested
($)(6)
 Equity
Incentive Plan
Awards:
Number of
Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
(#)(7)
 Equity
Incentive Plan
Awards:
Market or
Payout Value
of Unearned
Shares, Units
or Other
Rights That
Have Not
Vested
($)(6)
Ronald J. Mittelstaedt RSU 02/10/12 9,769(2) 550,190  
  RSU 02/25/13 24,730(3) 1,392,794  
  RSU 02/13/14 34,163(4) 1,924,060  
  RSU 02/12/15 44,460(5) 2,503,987  
  PSU 03/18/14   11,388 500,958
  PSU 02/12/15   11,115 625,997
Worthing F. Jackman RSU 02/10/12 4,348(2) 244,879  
  RSU 02/25/13 11,347(3) 639,063  
  RSU 02/13/14 13,221(4) 744,607  
  RSU 02/12/15 17,636(5) 993,260  
  PSU 03/18/14   4,407 193,864
  PSU 02/12/15   4,409 248,315
Steven F. Bouck RSU 02/10/12 5,063(2) 285,148  
  RSU 02/25/13 12,216(3) 688,005  
  RSU 02/13/14 16,443(4) 926,070  
  RSU 02/12/15 21,404(5) 1,205,473  
  PSU 03/18/14   5,481 241,109
  PSU 02/12/15   5,351 301,368
Darrell W. Chambliss RSU 02/10/12 4,313(2) 242,908  
  RSU 02/25/13 9,407(3) 529,802  
  RSU 02/13/14 12,057(4) 679,050  
  RSU 02/12/15 16,084(5) 905,851  
  PSU 03/18/14   4,019 176,796
  PSU 02/12/15   4,021 226,463
Patrick J. Shea RSU 02/10/12 2,097(2) 118,103  
  RSU 02/25/13 4,907(3) 276,362  
  RSU 02/13/14 6,083(4) 342,595  
  RSU 02/12/15 10,470(5) 589,670  
  PSU 03/18/14   2,618 115,166
  PSU 02/12/15   2,618 147,446

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(1)“RSU” refers to restricted stock units granted under either our Third Amended and Restated 2004 Equity Incentive Plan or our 2014 Incentive Award Plan. “PSU” refers to performance-based restricted stock units granted under our 2014 Incentive Award Plan.

(2)The RSUs vest in equal installments on each of the first four anniversaries of the grant date of February 10, 2012.

(3)The RSUs vest in equal installments on each of the first four anniversaries of the grant date of February 25, 2013.

(4)The RSUs vest in equal installments on each of the first four anniversaries of the grant date of February 13, 2014.

(5)Assuming that the first-year performance hurdle is satisfied, the RSUs vest in equal installments on each of the first four anniversaries of the grant date of February 12, 2015.

(6)Based on the closing price of our common stock of $56.32 on the New York Stock Exchange on December 31, 2015, the last trading day of the 2015 fiscal year.

(7)Represents unearned shares under the PSU awards made in March 2014 and February 2015. Based on guidance provided by the SEC, the targeted potential number of shares for such grants has been assumed. The amounts shown include the full target award for the performance periods ending on December 31, 2016, and December 31, 2017, respectively. The PSUs will vest, if at all, within 15 business days following the date on which the determination by the Compensation Committee is made with respect to the achievement of the performance goals, but in no event shall the vesting dates be later than March 15, 2017, and March 15, 2018, respectively.

27

STOCK VESTED IN FISCAL YEAR 2015

The following table summarizes each vesting of RSUs and related information for each of our NEOs on an aggregated basis during 2015.

  Stock Awards
Name Number of
Shares
Acquired
on Vesting
(#)
 Value
Realized
on Vesting
($)
Ronald J. Mittelstaedt 30,089 2,081,037
Worthing F. Jackman 14,277 905,237
Steven F. Bouck 16,412 1,047,347
Darrell W. Chambliss 13,243 838,747
Patrick J. Shea 6,362 403,300

PENSION BENEFITS IN FISCAL YEAR 2015

We do not sponsor any qualified or non-qualified defined benefit plans for any of our executive officers, including the NEOs.

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NONQUALIFIED DEFERRED COMPENSATION IN FISCAL YEAR 2015

The following table summarizes the participation of our NEOs during 2015 in our Nonqualified Deferred Compensation Plan, which is our only plan that provides for the deferral of compensation on a basis that is not tax-qualified.

Name Executive
Contributions
in Last
Fiscal Year
($)(1)
 Registrant
Contributions
in Last
Fiscal Year
($)(1)
 Aggregate
Earnings
in Last
Fiscal Year
($)(2)
 Aggregate
Withdrawals/
Distributions
($)
 Aggregate
Balance
at Last
Fiscal Year
End
($)(3)
Ronald J. Mittelstaedt 802,911 8,750 1,358,105  11,805,370
Worthing F. Jackman 491,810 8,750 429,928 (40,013) 2,238,525
Steven F. Bouck 49,700 4,700 6,187 (228,988) 1,755,156
Darrell W. Chambliss 73,280 3,400 322,405  2,430,383
Patrick J. Shea 32,273 3,400 (7,576)  252,062

(1)Amounts in these columns represent base salary and cash performance bonus each NEO elected to defer and our annual matching contributions in lieu of matching contributions under our 401(k) plan. Contributions by an NEO are reported in the Summary Compensation Table under “Salary”, “Bonus” and/or “Non-Equity Incentive Plan Compensation” and matching contributions we make to an NEO’s account are reported in the Summary Compensation Table under “All Other Compensation.”

(2)Amounts in this column are not included in any other amounts disclosed in this filing, as the amounts are not preferential earnings. Instead, earnings disclosed are determined by reference to the returns on one or more select mutual funds, as determined by the participant, that are also available for investment by the general public, or with regard to RSUs deferred into our Nonqualified Deferred Compensation Plan in years prior to 2015, our common stock.

(3)Amounts shown in this column include the following amounts reported as compensation to the NEO in the Summary Compensation Table in our previous proxy statements:

·For Mr. Mittelstaedt, a total of $7,115,349 was reported (2005 to 2015);

·For Mr. Jackman, a total of $1,237,234 was reported (2005 to 2015);

·For Mr. Bouck, a total of $1,580,248 was reported (2005 to 2015);

·For Mr. Chambliss, a total of $1,425,837 was reported (2005 to 2015); and

·For Mr. Shea, no amounts have previously been reported, as 2015 was the first year for which Mr. Shea was an NEO.

The NEOs and certain other highly compensated employees are entitled to participate in the Nonqualified Deferred Compensation Plan, which we put in place to mitigate the impact of our officers and other highly compensated employees being unable to make the maximum contribution permitted under the 401(k) plan due to certain limitations imposed by the IRC. The Nonqualified Deferred Compensation Plan allows an eligible employee to voluntarily defer receipt of up to 80% of the employee’s base salary, and up to 100% of bonuses and commissions and, if permitted, RSU grants. We make a matching contribution of 50% of every dollar of a participating employee’s pre-tax eligible contributions until the employee’s contributions equal six percent of the employee’s eligible compensation, less the amount of any match we make on behalf of the employee under the company-sponsored 401(k) plan, and subject to certain deferral limitations imposed by the IRC on 401(k) plans, except that our matching contributions are 100% vested when made. Except for RSUs that are deferred, the company also credits an amount reflecting a deemed return to each participant’s deferred compensation account periodically, based on the returns of various mutual funds or measurement funds selected by the participant. RSUs that are deferred are credited as shares of company common stock, which had a 2015 annual rate of return of approximately 28%. The earnings on an employee’s deferred compensation may exceed or fall short of market rate returns, depending on the performance of the funds selected compared to the markets in general.

29

The investment options offered by our plan administrator and their annual rates of return for the calendar year ended December 31, 2015, are set forth in the following table.

Name of Investment OptionRate of Return
in 2015
Invesco Mid Cap Core Equity-4.03%
AllianceBern VPS Real Estate A0.80%
American Funds IS International 2-4.53%
American Century VP Mid Cap Value I-1.43%
Franklin Rising Dividends Securities-3.65%
Franklin Small Cap Value Securities CI2-7.39%
Goldman Sachs VIT Growth Opp-5.20%
Ivy Funds VIP High Income-6.50%
Janus Aspen Balanced Svc0.41%
M Capital Appreciation Fund-6.58%
Oppenheimer International Growth3.43%
Pioneer Bond VCT Portfolio0.30%
MFS Var Ins Tr II Intl Value SC6.32%
MFS VIT Value – SC-0.93%
PIMCO VIT Real Return Admin-2.70%
Van Eck VIP Trust Emerging Markets-13.99%
Vanguard VIF Capital Growth2.62%
Royce Capital Small-Cap Inv-11.80%
T. Rowe Price Limited Term Bond0.30%
Van Eck VIP Tr Global Hard Assets I-33.45%
Vanguard Var Ins Money Market0.15%

Distributions from the Nonqualified Deferred Compensation Plan are automatically triggered by the occurrence of certain events. Upon termination of employment, a participant will receive a distribution from the plan in the form he previously selected—either in a lump sum or in annual installments over any period selected, up to fifteen years. Payments will commence within 60 days after the last day of the six-month period immediately following the termination date. If a participant becomes disabled, he will receive his entire account balance in a lump sum within 60 days of the date on which he became disabled. Upon the death of a participant during employment or while receiving his benefits under the plan following termination of employment, his unpaid account balance will be paid to his beneficiary in a lump sum within 60 days of the date the plan committee is notified of his death.

Participants also elect whether to receive a distribution of their entire account balance in a lump sum upon a change in control of our company, as defined in the plan, or whether to have their account balance remain in the plan after a change in control. In the absence of such an election, a participant will receive a distribution after a change in control occurs. Participants may also choose to receive lump sum distributions of all or a portion of their account balances upon optional, scheduled distribution dates or upon an unforeseeable financial emergency. Optional distribution dates must be a January 1 (March 1 for deferred RSUs) that is at least three years after the end of the plan year in which the deferral election is made. Optional distributions may be postponed, subject to certain conditions specified in the plan. Distributions upon an unforeseeable financial emergency are also subject to certain restrictions specified in the plan.

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POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL

Severance Arrangements in Effect in 2015

Our NEOs are entitled to certain payments and benefits upon qualifying terminations of employment and, in certain cases, a change in control under the Separation Benefits Plans, the grant agreements under our 2014 Incentive Award Plan and the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan. The following discussion describes the terms of these payments and benefits and the circumstances in which they will be paid or provided.

CEO Separation Benefits Plan

Mr. Mittelstaedt is eligible to receive severance benefits and change in control payments pursuant to the CEO Separation Benefits Plan. Under the terms of the CEO Separation Benefits Plan, Mr. Mittelstaedt is entitled to receive, upon a termination by us without “cause” (as defined below), or resignation by Mr. Mittelstaedt for “good reason” (as defined below) prior to a change in control (as defined below) or upon a termination due to death or permanent disability: (i) a lump-sum cash payment equal to $7,500,000, payable on or within 60 days following the date of his termination; (ii) coverage under our group medical insurance of Mr. Mittelstaedt and his eligible dependents for three years following termination, provided that Mr. Mittelstaedt will be obligated to pay the company for the premiums for such coverage on an after-tax basis (the “Health Insurance Benefit”); (iii) accelerated vesting of all of Mr. Mittelstaedt’s outstanding but unvested time-based equity awards; (iv) a pro-rated portion of Mr. Mittelstaedt’s performance-based equity awards, following our determination of actual performance achievement following the end of the performance period; and (v) with respect to any outstanding stock options held by Mr. Mittelstaedt, an extended post-termination exercise period through the earlier of the fifth anniversary of Mr. Mittelstaedt’s date of termination or the expiration date of such stock options pursuant to their original terms.

Upon a termination by us without cause or resignation by Mr. Mittelstaedt for good reason within two years after a change in control, Mr. Mittelstaedt is entitled to receive a lump-sum cash payment equal to $7,500,000, payable on or within 60 days following the date of his termination and the Health Insurance Benefit. Further, the CEO Separation Benefits Plan includes a so-called “best pay” provision where payments and benefits provided on account of a change in control shall be made to Mr. Mittelstaedt in full or in such lesser amount as would result in no portion of the payments being subject to an excise tax under Section 280G and Section 4999 of the IRC, whichever of the foregoing amounts is greater on an after-tax basis.

In consideration of the severance benefits under the CEO Separation Benefits Plan, Mr. Mittelstaedt must abide by certain restrictive covenants in the CEO Separation Benefits Plan, including a commitment by Mr. Mittelstaedt not to compete in restricted territory with our competitors and not to solicit our customers or employees (with a few limited exceptions with respect to certain of our executive officers) for 12 months following the date of Mr. Mittelstaedt’s termination of employment. Additionally, in the event of certain terminations of employment, Mr. Mittelstaedt is eligible to receive an amount equal to $7,000,000 in a lump sum on the first anniversary of the date of his termination if the company determines, in its discretion, to extend the post-termination restrictive covenant period from 12 months to 24 months after his termination of employment.

On December 17, 2015, the CEO Separation Benefits Plan with Mr. Mittelstaedt was amended to override the single trigger change in control provisions in our equity incentive award agreements with Mr. Mittelstaedt so that unvested equity awards held by him are treated with the same double-trigger change in control provisions as the rest of his compensation in the event of a change in control followed by a termination of Mr. Mittelstaedt’s employment without cause or upon his disability or death, or a termination of his employment by Mr. Mittelstaedt for good reason.

Separation Benefits Plan for Other NEOs (other than Mr. Shea)

Our NEOs, other than Messrs. Mittelstaedt and Shea, are eligible to receive certain separation benefits and change in control payments pursuant to the NEO Separation Benefits Plan. Under the terms of the NEO Separation Benefits Plan and their respective participation letter agreements under the NEO Separation Benefits Plan, each of Messrs. Bouck, Jackman and Chambliss are entitled to receive, upon a termination by us without “cause” or resignation by such NEO for “good reason” prior to a change in control: (i) a cash payment equal to $3,900,000 (for Mr. Bouck) or $3,300,000 (for each of Messrs. Jackman and Chambliss), payable one-third on the termination date and, provided that the applicable NEO has complied with the non-competition and non-solicitation provisions of the NEO Separation Benefits Plan, one-third on each of the first and second anniversaries of the termination date; (ii) full accelerated vesting of the applicable NEO’s outstanding but unvested time-based equity awards; (iii) a pro-rated portion of the applicable NEO’s performance-based equity awards, following our determination of actual performance achievement following the end of the performance period; and (iv) with respect to any outstanding stock options held by the applicable NEO, an extended post-termination exercise period through the earlier of the third anniversary of the termination date or the expiration of the original term of such stock options.

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Messrs. Bouck, Jackman and Chambliss are also entitled to the foregoing benefits if such NEO’s employment is terminated as a result of their death, except that any cash payments will be paid in a lump sum on or within 60 days following the date of death. In the event of a termination of employment due to permanent disability, each of Messrs. Bouck, Jackman and Chambliss are entitled to receive the benefits described above, except that in lieu of the cash payment, each such NEO will be entitled to: (A) a pro-rated portion of the applicable NEO’s target annual bonus for the year of termination, and (B) cash payments equal to the applicable NEO’s base salary through the remaining term of the NEO Separation Benefits Plan, to be paid one-third on the date of termination and, provided that the applicable NEO has complied with the non-competition and non-solicitation provisions of the NEO Separation Benefits Plan, one-third on each of the first and second anniversaries of the date of termination.

Upon a termination by us without cause or resignation by them for good reason within two years after a change in control, Messrs. Bouck, Jackman and Chambliss are entitled to receive a cash payment equal to $3,900,000 (for Mr. Bouck) and $3,300,000 (for each of Messrs. Jackman and Chambliss), payable in a lump sum on or within 60 days following the date of termination. Further, the NEO Separation Benefits Plan includes a so-called “best pay” provision where payments and benefits provided on account of a change in control shall be made to such participating NEOs in full or in such lesser amount as would result in no portion of the payments being subject to an excise tax under Section 280G and Section 4999 of the IRC, whichever of the foregoing amounts is greater on an after-tax basis.

In consideration of the above severance benefits, Messrs. Bouck, Jackman and Chambliss must abide by certain restrictive covenants in the NEO Separation Benefits Plan, including a commitment by the NEO not to compete with the company in a restricted territory and not to solicit our customers or employees for 12 months following the date of such NEO’s termination of employment.

For purposes of the Separation Benefits Plans, “good reason” is generally defined as: (i) assignment to the NEO of duties inconsistent with and resulting in a diminution of his position (including status, offices, titles, responsibilities and reporting requirements), authority, duties or responsibilities as they existed on the effective date of the Separation Benefits Plans; or any other action by the company which results in a diminution in such position, authority, duties or responsibilities; a substantial alteration in the title(s) of the NEO (so long as the existing corporate structure of the company is maintained); provided, however, that his failure to be in the same position (including status, offices, titles, responsibilities and reporting requirements) with the ultimate parent of the company will constitute “good reason”; (ii) the relocation of his principal place of employment to a location more than fifty (50) miles from its present location without his prior approval; (iii) a material reduction by the company in his total annual cash compensation without his prior approval; (iv) on or after a change in control, a material reduction by the company in his total annual compensation without his prior approval; (v) a failure by the company to continue in effect, without substantial change, any benefit plan or arrangement in which he was participating or the taking of any action by the company which would adversely affect his participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of company); (vi) any material breach by the company of any provision of the Separation Benefits Plans without his having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the company of such breach; or (vii) the failure of the company to obtain the assumption of the plan by any successor entity.

Employment Agreement with Mr. Shea

We entered into an employment agreement with Mr. Shea on February 1, 2008, and an amendment to the employment agreement on November 12, 2008 (as amended, the “Shea Employment Agreement”). This agreement provides for certain payments to Mr. Shea in the event of his termination without cause (as defined below) or upon a change in control (as defined below) of the company.

Under the Shea Employment Agreement, upon a termination by us without cause and upon a termination due to Mr. Shea’s disability or death, Mr. Shea is entitled to receive: (i) a lump sum payment in an amount equal to the lesser of (x) his base salary through the end of the then-current term under the Shea Employment Agreement and (y) one year of his base salary, generally to be paid on the date of termination; (ii) an amount equal to the prorated target bonus available to Mr. Shea under the Shea Employment Agreement and the MICP for the year in which the termination occurs, which is 50% of his base salary at the time of termination, to be paid in accordance with our normal payroll practices and not as a lump sum; (iii) full accelerated vesting of all of Mr. Shea’s outstanding but unvested options, if any, and other rights relating to the capital stock of the company, including unvested RSUs; and (iv) with respect to any such options and rights, an extended post-termination exercise period through the earlier of (A) the expiration of the term of such options and rights or (B) the first anniversary of the date of termination. We will also pay to Mr. Shea an amount equal to the company’s portion (but not Mr. Shea’s portion) of the cost of medical, dental and other health plan insurance for Mr. Shea, his wife and children at the rate in effect on the date of termination for a period of one year from the date of termination. In addition, upon a termination by us without cause, we will pay as incurred Mr. Shea’s expenses, up to $15,000, associated with career counseling and resume development.

For the purposes of the Shea Employment Agreement, a change in control of the company is generally treated as a termination without cause of Mr. Shea, unless he elects in writing to waive the applicable provision of his employment agreement. Thus, upon a change in control of the company, Mr. Shea will be entitled to receive the same payments and benefits as he would have upon a termination by us without cause as described above.

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In addition, in the event of a change in control after which any previously outstanding option or other right relating to our capital stock fails to remain outstanding, Mr. Shea would be entitled to receive either: (i) an option, warrant or other right to purchase that number of shares of stock of the acquiring company (the “Successor Option”) that he would have received had he exercised his terminated Waste Connections options, warrants or rights immediately prior to the acquisition resulting in a change in control and received for the shares acquired on exercise of such options shares of the acquiring company in the change in control transaction such that the aggregate exercise price for the shares covered by such options would be the aggregate exercise price for the terminated Waste Connections options, warrants or rights; or (ii) a lump sum payment in an amount agreed to by Mr. Shea and the company of at least, on an after-tax basis, the net after-tax gain he would have realized on exercise of the Successor Option of the acquiring company had he been issued a Successor Option and sale of the underlying shares, payable within ten days after the consummation of the change in control.

In consideration of the payments and benefits provided for in the Shea Employment Agreement, Mr. Shea must abide by certain restrictive covenants in the Shea Employment Agreement, including a commitment by the NEO not to compete with the company in a restricted territory for the earlier of: (i) the maximum period allowed under applicable law; and (ii) (aa) in the case of a change in control, until the first anniversary of the effective date of the change in control, (bb) in the case of a termination by the company without cause, until the first anniversary of the date of termination, or (cc) in the case of termination for cause by the company or by Mr. Shea, until the first anniversary of the date of termination. If the company terminates Mr. Shea without cause, Mr. Shea may shorten the term of the covenant not to compete by the length of any period that Mr. Shea elects to waive his right to receive severance payments. Mr. Shea must abide by a commitment not to solicit our customers or employees for one year following the date of the termination of Mr. Shea’s employment or the effective date of a change in control (whichever is later).

For the purposes of the Separation Benefits Plans and the Shea Employment Agreement, “cause” is defined as: (i) a material breach of any of the terms of the agreement that is not immediately corrected following written notice of default specifying such breach; (ii) a breach of any of the provisions of the non-competition and non-solicitation provisions of the applicable agreement; (iii) repeated intoxication with alcohol or drugs while on company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the company, the employee is abusive or incapable of performing his duties and responsibilities under the agreement; (iv) conviction of a felony; or (v) misappropriation of property belonging to the company and/or any of its affiliates. Further, for the purposes of the Separation Benefits Plans and the Shea Employment Agreement, a “change in control” is deemed to have occurred if:

·there shall be consummated (a) any reorganization, liquidation or consolidation of the company, or any merger or other business combination of the company with any other corporation, other than any such merger or other business combination that would result in the voting securities of the company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the total voting power represented by the voting securities of the company or such surviving entity outstanding immediately after such transaction; or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the company;

·any person (as defined in the applicable agreement), shall become the beneficial owner (as defined in the applicable agreement), directly or indirectly, of 50% or more of the company’s outstanding voting securities; or

·during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board of Directors shall cease for any reason to constitute at least one-half of the membership thereof unless the election, or the nomination for election by the company’s stockholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period.

Third Amended and Restated 2004 Equity Incentive Plan

Pursuant to the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan, immediately upon a change in control, outstanding and unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.

2014 Incentive Award Plan

Restricted Stock Units

Pursuant to the grant agreements under our 2014 Incentive Award Plan, immediately upon a change in control, outstanding and unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.

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Performance Stock Units

Pursuant to the grant agreements under our 2014 Incentive Award Plan, upon a change in control, if (i) the PSUs are assumed or substituted by the acquiror in a change of control and the employee’s employment is involuntarily terminated within the 24-month period following the change of control, or (ii) the PSUs are not assumed or substituted in a change of control, then the vesting of the PSUs will be accelerated, based on the greater of the target level award opportunity or the actual performance through the most recent completed year prior to the change of control or the date of termination of employment, payable within 60 days of the change of control or the date of termination of employment.

Potential Payments Tables

The following tables estimate the payments we would be obligated to make to each of our NEOs as a result of his termination (including, in certain cases, in connection with a change in control of our company) or resignation, assuming such termination or resignation occurred on December 31, 2015. We have calculated these estimated payments to meet SEC disclosure requirements. The estimated payments are not necessarily indicative of the actual amounts any of our NEOs would receive in such circumstances.

For illustrative purposes only, the tables assume that: (a) a termination or resignation of employment occurred on December 31, 2015, as applicable; and (b) the price per share of our common stock is $56.32, the closing price on December 31, 2015, the last trading day of the 2015 fiscal year.

In addition to the amounts reflected in the tables, on termination of employment, all vested deferred compensation and other retirement benefits payable to the employee under benefit plans in which he then participated would be paid to him in accordance with the provisions of the respective plans. These plans include our voluntary 401(k) plan and our Nonqualified Deferred Compensation Plan.

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Ronald J. Mittelstaedt, Chief Executive Officer and Chairman

  Termination
for Cause or by
Employee
Without Good
Reason Not
Subject to
Optional
Restricted
Period
 Termination
for Cause or by
Employee
Without Good
Reason Subject
to Optional
Restricted
Period
 Termination
Without Cause,
on Disability or
by Employee
For Good
Reason Not
Subject to
Optional
Restricted
Period
 Termination
Without Cause,
on Disability or
by Employee
For Good
Reason Subject
to Optional
Restricted
Period
 Termination on
Death
 Termination in
Connection
with Change
in Control
Base Salary $—(1) $—(1) $—(5) $—(5) $—(5) $—(5)
Bonus (2) (2) (6) (6) (6) (6)
Severance Payment  7,000,000(4) 7,562,659(7) 14,562,659(9) 7,562,659(7) 7,562,659(7)
Unvested Stock Options, Restricted Stock Units and Other Equity in Company (3) (3) 7,638,400(8) 7,638,400(8) 7,638,400(8) 7,638,400(10)
TOTAL $— $7,000,000 $15,201,059 $22,201,059 $15,201,059 $15,201,059

(1)Reflects the employee’s base salary to the date of termination, paid in a lump sum, which is assumed to have been paid in full.
(2)Employee will forfeit his bonus for the year in which such a termination occurs.
(3)All of employee’s unvested options, RSUs and other equity relating to the capital stock of the company will be forfeited upon such a termination.
(4)Reflects the payment owed pursuant to the CEO Separation Benefits Plan if the company determines, in its discretion, to extend the post-termination restrictive covenant period from 12 months to 24 months after his termination of employment.
(5)Reflects that, in lieu of the employee’s base salary, the employee will receive a lump sum payment pursuant to the terms of the CEO Separation Benefits Plan, payable within 60 days of the date of termination.
(6)Reflects that, in lieu of the employee’s bonus, the employee will receive a lump sum payment pursuant to the terms of the CEO Separation Benefits Plan payable within 60 days of the date of termination.
(7)Reflects the sum of:  (i) $7,500,000 and (ii) the employee’s Health Insurance Benefit.
(8)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  The exercisability of any such equity-based award, together with all vested equity-based awards held by the employee, will be extended to the earlier of the expiration of the term of such equity-based award or the fifth anniversary of the date of termination.  No value for the extension was included since Mr. Mittelstaedt does not currently hold any options.  For PSUs, the employee will receive pro-rata vesting based on the total months worked during the three-year performance period, payable at the end of the three-year period based on our achievement of the performance goals.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.
(9)Reflects the sum of:  (i) $7,500,000, (ii) the employee’s Health Insurance Benefit, and (iii) the payment owed pursuant to the CEO Separation Benefits Plan if the company determines, in its discretion, to extend the post-termination restrictive covenant period from 12 months to 24 months after his termination of employment.
(10)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  Pursuant to the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan and our 2014 Incentive Award Plan and Mr. Mittelstaedt’s amended CEO Separation Benefits Plan, immediately upon a termination following a change in control, outstanding but unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.  Pursuant to the grant agreements under our 2014 Incentive Award Plan and Mr. Mittelstaedt’s amended CEO Separation Benefits Plan, upon a termination following a change in control, (i) if the PSUs are assumed or substituted by the acquiror in a change of control and the employee’s employment is involuntarily terminated within the 24-month period following the change of control, or (ii) the PSUs are not assumed or substituted in a change of control, then the vesting of the PSUs will be accelerated, based on the greater of the target level award opportunity or the actual performance through the most recent completed year prior to the change of control or the date of termination of employment, payable within 60 days of the change of control or the date of termination of employment.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.

35

Worthing F. Jackman, Executive Vice President and Chief Financial Officer

  Termination
for Cause
 Termination
Without
Cause
 Termination
on Disability
 Termination
on Death
 Termination
by Employee
For Good
Reason
 Termination
by Employee
Without
Good
Reason
 Termination
in
Connection
with Change
in Control
Base Salary $—(1) $—(4) $1,537,500(8) $—(10) $—(4) $—(1) $—(10)
Bonus (2) (5) 384,375(9) (11) (5) (2) (11)
Severance Payment  3,300,000(6)  3,300,000(12) 3,300,000(6)  3,300,000(12)
Unvested Stock Options, Restricted Stock Units and Other Equity in Company (3) 3,118,326(7) 3,118,326(7) 3,118,326(7) 3,118,326(7) (3) 3,118,326(13)
TOTAL $— $6,418,326 $5,040,201 $6,418,326 $6,418,326 $— $6,418,326

(1)Reflects the employee’s base salary to the date of termination, paid in a lump sum, which is assumed to have been paid in full.
(2)Employee will forfeit his bonus for the year in which such a termination occurs.
(3)All of employee’s unvested options, RSUs and other equity relating to the capital stock of the company will be forfeited upon such a termination.
(4)Reflects that, in lieu of the employee’s base salary, the employee will receive payments pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  See footnote (6) for payment terms.
(5)Reflects that, in lieu of the employee’s bonus, the employee will receive payments pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  See footnote (6) for payment terms.
(6)Reflects the amount the employee is entitled to receive pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  This amount will be paid as follows:  one-third on date of termination and, provided employee has complied with the non-competition and non-solicitation provisions of the NEO Separation Benefits Plan, one-third on each of the first and second anniversaries of the date of termination.
(7)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  The exercisability of any such equity-based award, together with all vested equity-based awards held by the employee, will be extended to the earlier of the expiration of the term of such equity-based award or the third anniversary of the date of termination.  No value for the extension was included since Mr. Jackman does not currently hold any options.  For PSUs, the employee will receive pro-rata vesting based on the total months worked during the three-year performance period, payable at the end of the three-year period based on our achievement of the performance goals.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.
(8)Reflects base salary payable to the employee through the end of the term of the NEO Separation Benefits Plan, which is extended by one year on each anniversary of the NEO Separation Benefits Plan, thus extending the term to three years.  The term of the NEO Separation Benefits Plan currently expires on February 12, 2019.  See footnote (6) for payment terms.
(9)Reflects the pro-rated portion of the target bonus available to the employee pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement for the year in which the termination occurs, which is 75% of his base salary at the time of termination.  See footnote (6) for payment terms.
(10)Reflects that, in lieu of the employee’s base salary, the employee or his estate, as applicable, will receive a lump sum payment pursuant to the terms of the NEO Separation Benefits Plan.  See footnote (12) for payment terms.
(11)Reflects that, in lieu of the employee’s bonus, the employee or his estate, as applicable, will receive a lump sum payment pursuant to the terms of the NEO Separation Benefits Plan.  See footnote (12) for payment terms.
(12)Reflects the lump sum amount the employee or his estate, as applicable, is entitled to receive pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  This amount will be paid within 60 days of the date of death or termination, as applicable.
(13)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  Pursuant to the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan and our 2014 Incentive Award Plan, immediately upon a change in control, outstanding but unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.  Pursuant to the grant agreements under our 2014 Incentive Award Plan, upon a change in control, (i) if the PSUs are assumed or substituted by the acquiror in a change of control and the employee’s employment is involuntarily terminated within the 24-month period following the change of control, or (ii) the PSUs are not assumed or substituted in a change of control, then the vesting of the PSUs will be accelerated, based on the greater of the target level award opportunity or the actual performance through the most recent completed year prior to the change of control or the date of termination of employment, payable within 60 days of the change of control or the date of termination of employment.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.

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Steven F. Bouck, President

  Termination
for Cause
 Termination
Without
Cause
 Termination
on Disability
 Termination
on Death
 Termination
by Employee
For Good
Reason
 Termination
by Employee
Without
Good
Reason
 Termination
in
Connection
with Change
in Control
Base Salary $—(1) $—(4) $1,866,000(8) $—(10) $—(4) $—(1) $—(10)
Bonus (2) (5) 466,500(9) (11) (5) (2) (11)
Severance Payment  3,900,000(6)  3,900,000(12) 3,900,000(6)  3,900,000(12)
Unvested Stock Options, Restricted Stock Units and Other Equity in Company (3) 3,714,755(7) 3,714,755(7) 3,714,755(7) 3,714,755(7) (3) 3,714,755(13)
TOTAL $— $7,614,755 $6,047,255 $7,614,755 $7,614,755 $— $7,614,755

(1)Reflects the employee’s base salary to the date of termination, paid in a lump sum, which is assumed to have been paid in full.
(2)Employee will forfeit his bonus for the year in which such a termination occurs.
(3)All of employee’s unvested options, RSUs and other equity relating to the capital stock of the company will be forfeited upon such a termination.
(4)Reflects that, in lieu of the employee’s base salary, the employee will receive payments pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  See footnote (6) for payment terms.
(5)Reflects that, in lieu of the employee’s bonus, the employee will receive payments pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  See footnote (6) for payment terms.
(6)Reflects the amount the employee is entitled to receive pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  This amount will be paid as follows:  one-third on date of termination and, provided employee has complied with the non-competition and non-solicitation provisions of the NEO Separation Benefits Plan, one-third on each of the first and second anniversaries of the date of termination.
(7)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  The exercisability of any such equity-based award, together with all vested equity-based awards held by the employee, will be extended to the earlier of the expiration of the term of such equity-based award or the third anniversary of the date of termination.  No value for the extension was included since Mr. Bouck does not currently hold any options.  For PSUs, the employee will receive pro-rata vesting based on the total months worked during the three-year performance period, payable at the end of the three-year period based on our achievement of the performance goals.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.
(8)Reflects base salary payable to the employee through the end of the term of the NEO Separation Benefits Plan, which is extended by one year on each anniversary of the NEO Separation Benefits Plan, thus extending the term to three years.  The term of the NEO Separation Benefits Plan currently expires on February 12, 2019.  See footnote (6) for payment terms.
(9)Reflects the pro-rated portion of the target bonus available to the employee pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement for the year in which the termination occurs, which is 75% of his base salary at the time of termination.  See footnote (6) for payment terms.
(10)Reflects that, in lieu of the employee’s base salary, the employee or his estate, as applicable, will receive a lump sum payment pursuant to the terms of the NEO Separation Benefits Plan.  See footnote (12) for payment terms.
(11)Reflects that, in lieu of the employee’s bonus, the employee or his estate, as applicable, will receive a lump sum payment pursuant to the terms of the NEO Separation Benefits Plan.  See footnote (12) for payment terms.
(12)Reflects the lump sum amount the employee or his estate, as applicable, is entitled to receive pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  This amount will be paid within 60 days of the date of death or termination, as applicable.
(13)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  Pursuant to the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan and our 2014 Incentive Award Plan, immediately upon a change in control, outstanding but unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.  Pursuant to the grant agreements under our 2014 Incentive Award Plan, upon a change in control, (i) if the PSUs are assumed or substituted by the acquiror in a change of control and the employee’s employment is involuntarily terminated within the 24-month period following the change of control, or (ii) the PSUs are not assumed or substituted in a change of control, then the vesting of the PSUs will be accelerated, based on the greater of the target level award opportunity or the actual performance through the most recent completed year prior to the change of control or the date of termination of employment, payable within 60 days of the change of control or the date of termination of employment.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.

37

Darrell W. Chambliss, Executive Vice President and Chief Operating Officer

  Termination
for Cause
 Termination
Without
Cause
 Termination
on Disability
 Termination
on Death
 Termination
by Employee
For Good
Reason
 Termination
by Employee
Without
Good
Reason
 Termination
in 
Connection
with Change
in Control
Base Salary $—(1) $—(4) $1,402,200(8) $—(10) $—(4) $—(1) $—(10)
Bonus (2) (5) 350,550(9) (11) (5) (2) (11)
Severance Payment  3,300,000(6)  3,300,000(12) 3,300,000(6)  3,300,000(12)
Unvested Stock Options, Restricted Stock Units and Other Equity in Company (3) 2,810,424(7) 2,810,424(7) 2,810,424(7) 2,810,424(7) (3) 2,810,424(13)
TOTAL $— $6,110,424 $4,563,174 $6,110,424 $6,110,424 $— $6,110,424

(1)Reflects the employee’s base salary to the date of termination, paid in a lump sum, which is assumed to have been paid in full.
(2)Employee will forfeit his bonus for the year in which such a termination occurs.
(3)All of employee’s unvested options, RSUs and other equity relating to the capital stock of the company will be forfeited upon such a termination.
(4)Reflects that, in lieu of the employee’s base salary, the employee will receive payments pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  See footnote (6) for payment terms.
(5)Reflects that, in lieu of the employee’s bonus, the employee will receive payments pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  See footnote (6) for payment terms.
(6)Reflects the amount the employee is entitled to receive pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  This amount will be paid as follows:  one-third on date of termination and, provided employee has complied with the non-competition and non-solicitation provisions of the NEO Separation Benefits Plan, one-third on each of the first and second anniversaries of the date of termination.
(7)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  The exercisability of any such equity-based award, together with all vested equity-based awards held by the employee, will be extended to the earlier of the expiration of the term of such equity-based award or the third anniversary of the date of termination.  No value for the extension was included since Mr. Chambliss does not currently hold any options.  For PSUs, the employee will receive pro-rata vesting based on the total months worked during the three-year performance period, payable at the end of the three-year period based on our achievement of the performance goals.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.
(8)Reflects base salary payable to the employee through the end of the term of the NEO Separation Benefits Plan, which is extended by one year on each anniversary of the NEO Separation Benefits Plan, thus extending the term to three years.  The term of the NEO Separation Benefits Plan currently expires on February 12, 2019.  See footnote (6) for payment terms.
(9)Reflects the pro-rated portion of the target bonus available to the employee pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement for the year in which the termination occurs, which is 75% of his base salary at the time of termination.  See footnote (6) for payment terms.
(10)Reflects that, in lieu of the employee’s base salary, the employee or his estate, as applicable, will receive a lump sum payment pursuant to the terms of the NEO Separation Benefits Plan.  See footnote (12) for payment terms.
(11)Reflects that, in lieu of the employee’s bonus, the employee or his estate, as applicable, will receive a lump sum payment pursuant to the terms of the NEO Separation Benefits Plan.  See footnote (12) for payment terms.
(12)Reflects the lump sum amount the employee or his estate, as applicable, is entitled to receive pursuant to the terms of the NEO Separation Benefits Plan and his related participation letter agreement.  This amount will be paid within 60 days of the date of death or termination, as applicable.
(13)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  Pursuant to the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan and our 2014 Incentive Award Plan, immediately upon a change in control, outstanding but unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.  Pursuant to the grant agreements under our 2014 Incentive Award Plan, upon a change in control, (i) if the PSUs are assumed or substituted by the acquiror in a change of control and the employee’s employment is involuntarily terminated within the 24-month period following the change of control, or (ii) the PSUs are not assumed or substituted in a change of control, then the vesting of the PSUs will be accelerated, based on the greater of the target level award opportunity or the actual performance through the most recent completed year prior to the change of control or the date of termination of employment, payable within 60 days of the change of control or the date of termination of employment.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.

38

Patrick J. Shea, Senior Vice President, General Counsel and Secretary

  Termination
for
Cause
 Termination
Without
Cause
 Termination
on
Disability
 Termination
on
Death
 Termination
by Employee
 Termination in
Connection with
Change in Control
Base Salary $—(1) $370,000 $370,000 $370,000 $—(1) $370,000
Bonus (2) 185,000 185,000 185,000 (2) 185,000
Severance Payment  32,694(4) 17,694(5) 17,694(5)  32,694(4)
Unvested Stock Options, Restricted Stock Units and Other Equity in Company (3) 1,588,393(6) 1,588,393(6) 1,588,393(6) (3) 1,588,393(7)
TOTAL $— $2,176,087 $2,161,087 $2,161,087 $— $2,176,087

(1)Reflects the employee’s base salary to the date of termination, paid in a lump sum, which is assumed to have been paid in full.
(2)Employee will forfeit his bonus for the year in which such a termination occurs.
(3)All of employee’s unvested options, RSUs and other equity relating to the capital stock of the company will be forfeited upon such a termination.
(4)Reflects an amount equal to (i) the company’s portion (but not Mr. Shea’s portion) of the cost of medical, dental and other health plan insurance for Mr. Shea, his wife and children at the rate in effect on the date of termination for a period of one year from the date of termination; and (ii) Mr. Shea’s expenses, up to $15,000, associated with career counseling and resume development.  
(5)Reflects an amount equal to the company’s portion (but not Mr. Shea’s portion) of the cost of medical, dental and other health plan insurance for Mr. Shea, his wife and children at the rate in effect on the date of termination for a period of one year from the date of termination.
(6)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  The exercisability of any such equity-based award, together with all vested equity-based awards held by the employee, will be extended to the earlier of (A) the expiration of the term of such options and rights or (B) the first anniversary of the date of termination.  No value for the extension was included since Mr. Shea does not currently hold any options.  For PSUs, the employee will receive pro-rata vesting based on the total months worked during the three-year performance period, payable at the end of the three-year period based on our achievement of the performance goals.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.
(7)Reflects the immediate vesting of all of employee’s outstanding but unvested stock options, RSUs and other rights related to the company’s capital stock (other than PSUs) as of the date of termination.  Pursuant to the grant agreements under our Third Amended and Restated 2004 Equity Incentive Plan and our 2014 Incentive Award Plan, immediately upon a change in control, outstanding but unvested RSUs shall automatically vest in full, and the shares subject to those vested RSUs shall be issued.  Pursuant to the grant agreements under our 2014 Incentive Award Plan, upon a change in control, (i) if the PSUs are assumed or substituted by the acquiror in a change of control and the employee’s employment is involuntarily terminated within the 24-month period following the change of control, or (ii) the PSUs are not assumed or substituted in a change of control, then the vesting of the PSUs will be accelerated, based on the greater of the target level award opportunity or the actual performance through the most recent completed year prior to the change of control or the date of termination of employment, payable within 60 days of the change of control or the date of termination of employment.  In valuing the PSUs, the targeted potential number of shares for such grants has been assumed.

39

DIRECTOR COMPENSATION

Compensation of Non-Employee Directors for Fiscal Year 2015

The following table provides compensation information for the year ended December 31, 2015, for each non-employee member of our Board of Directors. Directors who are officers or employees of Waste Connections do not currently receive any compensation as directors or for attending meetings of the Board of Directors or its committees.

Name Fees
Earned or
Paid in
Cash
($)
 Stock
Awards
($)(1)
 Total
($)
Robert H. Davis 60,000 159,950 219,950
Edward E. “Ned” Guillet 65,000 159,950 224,950
Michael W. Harlan 75,000 159,950 234,950
William J. Razzouk 70,000 159,950 229,950

(1)In February 2015, each of our non-employee directors received an annual grant of 3,442 RSUs with a grant date fair value of $159,950, as shown in the “Stock Awards” column. The RSUs granted in February 2015 were granted under our 2014 Incentive Award Plan. Amounts shown do not reflect compensation actually received by the director. Instead, the amount shown for each non-employee director is the grant date fair value of the 2015 awards computed in accordance with generally accepted accounting principles, excluding estimates of forfeitures related to service-based vesting conditions. A discussion of the valuation of stock awards is set forth under Note 1 of the Notes to Consolidated Financial Statements included in our Original 10-K.

The table below shows the aggregate numbers of unvested stock awards (in the form of RSUs) outstanding for each non-employee director as of December 31, 2015.

NameAggregate
Stock
Awards
Outstanding
as of
December
31, 2015
(#)
Robert H. Davis1,721
Edward E. “Ned” Guillet1,721
Michael W. Harlan1,721
William J. Razzouk1,721

In 2015, each non-employee director received a basic monthly cash retainer of $5,000. Committee chairs received the following additional cash compensation, in addition to their monthly retainers: Audit Committee Chair – $1,250, Compensation Committee Chair – $833.33, and Nominating and Corporate Governance Committee Chair – $416.67. Effective January 1, 2016, the retainer paid to outside directors was increased by a monthly amount of $625 for each committee an outside director sits on.

The monthly cash retainer is intended to compensate non-employee directors for participation in Board and Compensation Committees.  Informationcommittee meetings and for incidental participation in company affairs between meetings. Each Board member is also eligible for reimbursement of reasonable expenses incurred in attending meetings.

We grant each non-employee director annual RSU awards with a targeted value of approximately $150,000. On February 12, 2015, we granted each non-employee director 3,442 RSUs under our 2014 Incentive Award Plan and no options. The RSUs vested in two equal installments on the February 12, 2015 grant date and on the first anniversary of the grant date, subject to the director continuing to provide services to the company through the vesting date.

40

Non-Employee Directors’ Equity Ownership

Non-employee directors of the company are required to hold shares of the company’s common stock having a market value of at least $300,000. Non-employee directors have five years from the fiscal year-end following initial election to the Board to accumulate the stock ownership prescribed by the guidelines.  For purposes of the calculation, shares deemed “beneficially owned” by the non-employee directors within the meaning of the rules of the SEC, as well as shares of restricted stock or that can be accessed through our website is not incorporatedRSUs subject to time-based vesting held by reference tothe non-employee director, and vested or time-based unvested RSUs or resulting shares deposited into a deferred compensation plan or arrangement, are included in the calculation of the amount of such individual’s ownership.  As of the date of this report.  We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments to, or waiver from, a provisionfiling, all of our Codenon-employee directors exceeded the requirements of Conduct by posting such information on our website. stock ownership guidelines.

 

Stockholders may also obtain copiesCompensation Committee Interlocks and Insider Participation

In 2015, the Compensation Committee of our Board of Directors consisted of Messrs. Razzouk, Harlan and Guillet. None of our executive officers served as a director or member of the Corporate Governance documents discussed above by contactingcompensation committee of another entity which had an executive officer that served as a director of our Secretary at the addresscompany or phone number listed on the cover pagea member of this Annual Report on Form 10-K. our Compensation Committee. In addition, there are no other such potential Compensation Committee interlocks.

41

 

ITEM 11.EXECUTIVE COMPENSATION

Information required by Item 11 has been omitted from this report and is incorporated by reference to the sections “Executive Compensation” and “Corporate Governance and Board Matters” in our definitive Proxy Statement for the 2016 Annual Meeting of Stockholders. 

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSMATTERS.

 

Information required by Item 12 has been omitted from this reportSecurities Authorized for Issuance under Equity Compensation Plans

The following is a summary of all of our equity compensation plans and is incorporated by reference to the sections “Principal Stockholders” and “Equity Compensation Plan Information” in our definitive Proxy Statementindividual arrangements that provide for the 2016 Annual Meetingissuance of Stockholders. equity securities as compensation, as of December 31, 2015.

  (a) (b) (c)
Equity Compensation Plan Category Number of securities
to be issued upon
exercise of
outstanding
warrants and rights
 Weighted-average
exercise price of
outstanding
warrants and rights
 Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))
Approved by stockholders(1) 1,442,296(2) $51.38(3) 2,488,023(4)
Not approved by stockholders(6) 56,201(5) $31.90 (5)
Total 1,498,497 $45.85(3) 2,488,023

(1)Consists of: (a) 2014 Incentive Award Plan; and (b) the Third Amended and Restated 2004 Equity Incentive Plan.

 

(2)Includes an aggregate of 1,300,714 RSUs.

(3)Excludes RSUs.

(4)The remaining 2,488,023 shares reserved for issuance under the 2014 Incentive Award Plan will be issuable upon the exercise of future stock option grants or pursuant to future restricted stock or RSU awards that vest upon the attainment of prescribed performance milestones or the completion of designated service periods. The Board of Directors unanimously adopted resolutions in 2014 approving the reduction of the shares available for future issuance under the Third Amended and Restated 2004 Equity Incentive Plan to zero, and as a result no further awards will be granted under the Third Amended and Restated 2004 Equity Incentive Plan.

(5)While warrants granted under the 2002 Consultant Incentive Plan remain outstanding, the term of the plan expired in 2012, and as a result, no further awards may be granted under the plan.

(6)Consists of the 2002 Consultant Incentive Plan summarized below.

The material features of our 2002 Consultant Incentive Plan, which was not approved by stockholders, are described below.

2002 Consultant Incentive Plan

In 2002, our Board of Directors authorized the 2002 Consultant Incentive Plan, under which warrants to purchase our common stock were issuable to certain of our consultants. Warrants awarded under the Consultant Incentive Plan are subject to a vesting schedule set forth in each warrant agreement. Historically, warrants issued have been fully vested and exercisable at the date of grant. The Compensation Committee currently administers the 2002 Consultant Incentive Plan. All warrants granted under the plan have purchase prices per share at least equal to the fair market value of the underlying common stock on the date of grant. While warrants granted under plan remain outstanding, the term of the plan expired in 2012, and as a result no further awards may be granted under the plan.

42

Security Ownership of Certain Beneficial Owners

The following table sets forth information known to Waste Connections concerning the shares of Waste Connections common stock beneficially owned by entities that have reported beneficial ownership of greater than five percent, based on filings made on or prior to April 28, 2016.

Name of Beneficial Owner Number of
Outstanding
Shares of
Common Stock
Beneficially
Owned(1)
 Percent
of Class
T. Rowe Price Associates, Inc.(2) 13,695,210 11.1%
The Vanguard Group(3) 8,372,355 6.8%
BlackRock, Inc.(4) 8,257,050 6.7%
JPMorgan Chase & Co.(5) 6,337,282 5.1%

(1)Beneficial ownership is determined in accordance with the rules of the SEC. In general, a person who has voting power and/or investment power with respect to securities is treated as the beneficial owner of those securities. Except as otherwise indicated by footnote, Waste Connections believes that the persons named in this table have sole voting and investment power with respect to the shares of common stock shown.

(2)The share ownership of T. Rowe Price Associates, Inc. is based on a Schedule 13G/A filed with the SEC on February 12, 2016. T. Rowe Price Associates has sole voting power with respect to 3,312,273 shares of common stock and sole dispositive power with respect to 13,695,210 shares of common stock. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, Maryland 21202.

(3)The share ownership of The Vanguard Group is based on a Schedule 13G/A filed with the SEC on February 11, 2016. The Vanguard Group has sole voting power with respect to 88,414 shares of common stock and sole dispositive power with respect to 8,285,191 shares of common stock. The address of The Vanguard Group is 100 Vanguard Blvd., Malvern, Pennsylvania 19355.

(4)The share ownership of BlackRock, Inc. is based on a Schedule 13G/A filed with the SEC on January 27, 2016. BlackRock, Inc. has sole voting power with respect to 7,809,510 shares of common stock and sole dispositive power with respect to 8,257,050 shares of common stock. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York 10022.

(5)The share ownership of JPMorgan Chase & Co. is based on a Schedule 13G filed with the SEC on February 1, 2016. JPMorgan Chase & Co. has sole voting power with respect to 5,459,250 shares of common stock and sole dispositive power with respect to 6,255,721 shares of common stock. The address of JPMorgan Chase & Co. is 270 Park Ave, New York, New York 10017.

43

Security Ownership of Management.

The following table sets forth information known to Waste Connections concerning shares of Waste Connections common stock beneficially owned, as of April 28, 2016, by (i) each current Waste Connections director; (ii) each current Waste Connections named executive officer; and (iii) all Waste Connections executive officers and directors as a group. Except as otherwise indicated in the footnotes to the table below, and subject to applicable community property laws, Waste Connections believes that the beneficial owners of the common stock, based on information furnished by such owners, have sole investment power and voting power with respect to such shares.


Beneficial Owner(1)
 Amount and
Nature of
Beneficial
Ownership(2)
 Vested Restricted
Stock
Units Held Under
Nonqualified
Deferred
Compensation
Plan(3)
 Total
Ronald J. Mittelstaedt 58,889(4) 114,340 173,229
Steven F. Bouck 193,604  193,604
Darrell W. Chambliss 82,416 25,060 107,476
Worthing F. Jackman 62,447 16,618 79,065
Edward E. “Ned” Guillet 53,033  53,033
Michael W. Harlan 29,745  29,745
Patrick J. Shea 23,455  23,455
William J. Razzouk 15,449  15,449
Robert H. Davis 8,295  8,295
All executive officers and directors as a group (20 persons) 663,062 156,018 819,080

(1)Beneficial ownership is determined in accordance with the rules of the SEC. In general, a person who has voting power and/or investment power with respect to securities is treated as the beneficial owner of those securities. Except as otherwise indicated by footnote, Waste Connections believes that the persons named in this table have sole voting and investment power with respect to the shares of common stock shown.

(2)Shares of common stock subject to options and/or warrants currently exercisable or exercisable within 60 days after March 1, 2016, shares of common stock into which convertible securities are convertible within 60 days after March 1, 2016, and shares which will become issuable within 60 days after March 1, 2016, pursuant to outstanding RSUs count as outstanding for computing the percentage beneficially owned by the person holding such options, warrants, convertible securities and RSUs, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.

(3)Executive officers, in years prior to 2015, were able to voluntarily defer receipt of RSU grants under Waste Connections’ Nonqualified Deferred Compensation Plan. The RSUs held under Waste Connections’ Nonqualified Deferred Compensation Plan are not considered common stock that is beneficially owned for SEC disclosure purposes. Waste Connections has included them in this table because they are similar to or track its common stock, they ultimately are settled in common stock, and they represent an investment risk in the performance of its common stock.

(4)Includes 58,889 shares of common stock held by Mittelstaedt Enterprises, L.P., of which Mr. Mittelstaedt is a limited partner. Excludes 3,524 shares of common stock held by the Mittelstaedt Irrevocable Trust dated 6/18/97 and 39,688 shares of common stock held by RDM Positive Impact Foundation as to which Mr. Mittelstaedt disclaims beneficial ownership.

44

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

InformationTransactions with Related Persons, Promoters and Certain Control Persons

2015 Related Party Transactions

Since January 20, 2005, Namen Chambliss has held the position of Network Manager for the company. Mr. N. Chambliss is the brother of Darrell Chambliss, our Executive Vice President and Chief Operating Officer. Previously, Mr. N. Chambliss held the position of Systems Operations Supervisor for the Eastern Region, and was based in our regional office in Tennessee. The total salary and incentive compensation we paid to Mr. N. Chambliss in 2015 was $139,863. In addition, Mr. N. Chambliss had $33,010 of RSUs vest in 2015. In 2015, we granted Mr. N. Chambliss 600 RSUs. The units were granted on the same general terms and conditions as units granted to other employees at the same management level. As Network Manager, Mr. N. Chambliss’ annual salary is $116,000 as of January 22, 2016.

Since January 2, 2008, Michelle Little has held the position of Director of Accounting for the company. Mrs. Little is the spouse of James Little, our Senior Vice President – Engineering and Disposal. The total salary and incentive compensation we paid to Mrs. Little in 2015 was $199,231. In addition, Mrs. Little had $70,109 of RSUs vest in 2015. In 2015, we granted Mrs. Little 1,000 RSUs. The units were granted on the same general terms and conditions as units granted to other employees at the same management level. As Director of Accounting, Mrs. Little’s annual salary is $205,000.12 as of February 1, 2016.

Review, Approval or Ratification of Transactions with Related Persons

The charter of our Board of Directors’ Nominating and Corporate Governance Committee provides that among the Committee’s responsibilities is the review and approval of any material transaction between us and any of our directors or executive officers or any entity affiliated with such a person, including assessing whether the transaction is fair and in our interests, why we should enter into it with a related rather than an unrelated party, and whether public disclosure is required.

In addition, the Nominating and Corporate Governance Committee developed and the Board of Directors approved our Corporate Governance Guidelines and our Code of Conduct and Ethics, including a Code of Ethics for the Chief Executive Officer and Senior Financial Officers, as required by Item 13 has been omitted from this reportSection 406 of the Sarbanes-Oxley Act. The Committee reviews the Guidelines and is incorporated by referenceCode on an annual basis, or more frequently if appropriate, and recommends to the sections “Certain RelationshipsBoard of Directors changes as necessary.

In addressing conflicts of interest, the Code provides that no officer, director or employee may be subject to influences, interests or relationships that conflict with the best interests of the company. It states that a conflict of interest exists when a person is in a position to influence a decision that may personally benefit that person or a person he or she is related to by blood or marriage as a result of the company’s business dealings. The Code provides that each officer, director and Related Transactions”employee of the company must avoid any investment, interest or association that interferes or might interfere with that person’s independent exercise of judgment in the company’s best interests, and “Corporatethat service to the company should never be subordinated to personal gain or advantage.

In an effort to help avoid these and other conflicts of interest, the Code sets forth certain rules the company has adopted, including rules that prohibit: (a) officers, directors or any employees who buy or sell goods or services or have responsibility connected to buying and selling for or on behalf of the company and members of their respective families from having certain economic interests in business concerns that transact business with the company or are in competition with it; (b) officers, directors or employees or members of their respective families from giving or accepting certain gifts to or from any person soliciting or doing business with the company; (c) officers of the company from serving as a director of any other company that is organized for profit without the written approval of the Nominating and Corporate Governance Committee; and Board Matters”(d) officers, directors or employees from having any material interest in a business that deprives the company of any business opportunity or is in any way detrimental to the company.

Each officer and director must report all actual or potential conflicts of interest to the Nominating and Corporate Governance Committee. Directors must also comply with the conflict provisions relating to directors set forth in our definitive Proxy Statement forCorporate Governance Guidelines. The Nominating and Corporate Governance Committee will resolve all conflicts of interest involving officers or directors. If a conflict involves a member of the 2016 Annual MeetingNominating and Corporate Governance Committee, that committee will resolve the conflict only if there are two disinterested directors remaining on that committee. Otherwise, the matter will be resolved by the entire Board of Stockholders. Directors. If a significant conflict exists involving a director that cannot be resolved and cannot be waived, the director must resign.

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

InformationThe Nominating and Corporate Governance Committee has the sole authority to waive provisions of our Code of Conduct and Ethics with respect to executive officers and directors in specific circumstances where it determines that such waiver is appropriate, subject to compliance with applicable laws and regulations. Any such waivers will be promptly disclosed to our stockholders to the extent required by Item 14 has been omitted from this reportapplicable laws and is incorporated by reference to the section “Appointment of Independent Registered Public Accounting Firm” in our definitive Proxy Statement for the 2016 Annual Meeting of Stockholders. regulations.

 

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PART IV On August 30, 2013, Mr. Harlan was appointed to the board of directors of Travis Acquisition, LLC, the parent of Travis Body & Trailer, Inc., a private company from which Waste Connections has purchased, and expects to continue to purchase in the future, an immaterial amount of equipment. In connection with his appointment, Mr. Harlan made an equity investment in Travis Acquisition, LLC. On August 29, 2013, after due consideration of the immaterial nature of the potential conflicts of interest that may be presented by Mr. Harlan’s relationships with Travis Body & Trailer, Inc., the Nominating and Corporate Governance Committee of the Board of Directors of Waste Connections waived the application of Section 1 of Waste Connections’ Code of Conduct and Ethics with respect to Mr. Harlan’s service on the board of directors of Travis Acquisition, LLC and his ownership of an equity interest in Travis Acquisition, LLC, not to exceed five percent. In 2015, Waste Connections purchased approximately $202,600 of equipment from Travis Body & Trailer, Inc. Mr. Harlan had an indirect interest in this transaction commensurate with his ownership interest in Travis Acquisition, LLC.

Mr. Harlan also serves as the Chairman of the Board of Directors and Chief Executive Officer of, and owns an equity interest in, Principal Environmental, LLC, doing business as Principle Energy Services (“PES”), a private equity-backed oilfield services company. PES provides engineered noise mitigation solutions for oil and natural gas drilling, completions and production and operates in five states and serves a wide range of customers from small, independent exploration companies to the major oil and gas companies. Waste Connections’ subsidiary, R360 Permian Basin, LLC (“R360”), operates a facility in Halfway, New Mexico, where a permit condition for a salt water disposal well R360 drilled in 2015 required R360 to use noise abatement technology, such as an acoustical curtain, while drilling the well. R360 hired PES to provide the noise abatement services at R360’s site, which services Waste Connections cost approximately $120,000. Mr. Harlan had an indirect interest in this transaction commensurate with his ownership interest in Travis Acquisition, LLC. On April 16, 2015, after due consideration of the immaterial nature of the potential conflicts of interest that may be presented by Mr. Harlan’s relationships with PES, the Nominating and Corporate Governance Committee of the Board of Directors of Waste Connections waived the application of Section 1 of Waste Connections’ Code of Conduct and Ethics with respect to the potential transaction between PES and R360.

Director Independence; Lead Independent Director

The Board of Directors has determined that each of Messrs. Davis, Guillet, Harlan and Razzouk is “independent” within the meaning of the standards set forth in our Corporate Governance Guidelines. Messrs. Davis, Harlan and Razzouk together make up the Board’s Audit Committee. Messrs. Guillet, Harlan and Razzouk together make up the Board’s Compensation Committee. Messrs. Davis, Guillet and Razzouk together make up the Board’s Nominating and Corporate Governance Committee.

The Board selects its Chairman and the company’s Chief Executive Officer in any way it considers to be in the best interest of the company. The Board has determined that its stockholders are best served by having Ronald J. Mittelstaedt, the company’s founder and current Chief Executive Officer, also serve as Chairman of the Board. Mr. Mittelstaedt has held the positions of Chairman of the Board and Chief Executive Officer since January 1998.

In the event that Mr. Mittelstaedt no longer serves as both Chairman and Chief Executive Officer, it is the Board’s policy that the positions of Chairman and Chief Executive Officer be held by separate persons.

To ensure the strength and independence of the Board, the independent, non-employee directors typically meet in an executive session, without management, at each of our five regularly scheduled Board of Directors meetings. Furthermore, when the Chairman is an affiliated director or a member of the company’s management, or when the independent directors determine that it is in the best interests of the company, the independent directors will appoint from among themselves a lead independent director. The Board has designated the chairman of the Audit Committee, currently Mr. Harlan, as the Board’s lead independent director. In addition to his other duties as a director and member of committees, the lead independent director:

 

·Presides at all meetings of the Board at which the Chairman is not present;

·Has the authority to call meetings of non-employee directors;

·Presides over each meeting of non-employee directors;

·Helps facilitate communication between the Chairman/CEO and the non-employee directors;

·Advises with respect to the Board’s agenda; and

·If requested by major stockholders, ensures his availability for direct communication.

46

If the Chairman of the Board is an independent director, then the duties for the lead independent director described above shall be part of the duties of the Chairman. As set forth in our Corporate Governance Guidelines, a majority of the members of our Board of Directors must be independent. For a director to be considered independent, the Board of Directors must determine that the director is “independent” within the meaning of the New York Stock Exchange listing standards. In addition, for a director to be considered independent, the Board of Directors must determine that the director has no material relationship with the company, either directly or indirectly as a partner, stockholder or officer of an organization that has a relationship with the company. No director who is a former employee of the company, is a former employee or affiliate of any current auditor of the company or its subsidiaries, is a part of an interlocking directorate in which any executive officer of the company serves on the compensation committee of another company that concurrently employs such director or has an immediate family member in any of the foregoing categories, can be independent until three years after such employment, affiliation or relationship has ceased.

The Board of Directors reviews all commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships of each director to assess whether any of them is a material relationship so as to impair that director’s independence. A “material relationship” means a direct or indirect commercial, industrial, banking, consulting, legal, accounting, charitable or familial relationship that is reasonably likely to affect the independent and objective judgment of the director in question, provided that the direct or indirect ownership of any amount of our stock is not deemed to constitute a material relationship. The following commercial or charitable relationships are not considered to be material relationships that would impair a director’s independence: if a director of Waste Connections (a) is also an executive officer of another company that does business with Waste Connections and the annual sales to, or purchases from, Waste Connections are less than the greater of $1 million or two percent of the annual revenue of that other company; (b) is an executive officer of another company that is indebted to Waste Connections, or to which Waste Connections is indebted, and the total amount of either company’s indebtedness to the other is less than one percent of the total consolidated assets of that other company; or (c) serves as an officer, director or trustee of a charitable organization, and Waste Connections’ discretionary charitable contributions to that organization are less than one percent of that organization’s total annual receipts. The Board of Directors reviews annually whether its members satisfy these categorical independence tests before any non-employee member stands for reelection to the Board of Directors.

All relationships not covered by the preceding paragraph are reviewed by the directors who satisfy the independence tests set forth above to determine whether they are material so as to impair a director’s independence. If the Board of Directors determines that any relationship is immaterial even though it does not meet the categorical tests for immateriality set forth above, we will explain in our next proxy statement the basis for the Board of Director’s determination.

In October 2008, Mr. Davis, after informing the Board of Directors, joined the external advisory board of the Global Waste Research Institute, or the GWRI. The GWRI, of which Mr. Davis is a conceptual founder, was developed in conjunction with California Polytechnic State University, San Luis Obispo. The GWRI’s mission is to advance state-of-the-art research and development of sustainable technologies and practices to more effectively manage existing and emerging wastes and byproducts. Also in October 2008, Waste Connections agreed to make gifts to the GWRI totaling up to $1,000,000 over nine years ($100,000 of which was paid in 2015), subject to certain conditions. Based on information provided to the Board of Directors by Mr. Davis, these gifts will initially constitute more than one percent of the total annual receipts of GWRI, which caused the relationship to fall outside the criteria of the independence tests set forth above and required the Board of Directors to review and decide whether to approve Mr. Davis’ involvement with the GWRI. After a review of the relevant facts and the mission of the GWRI, the Board of Directors determined that Mr. Davis’ participation in the GWRI as a member of it external advisory board coupled with Waste Connections’ contributions to the GWRI would not be a material relationship that would impair Mr. Davis’ independence as a director of Waste Connections.

On August 30, 2013, Mr. Harlan was appointed to the board of directors of Travis Acquisition, LLC, the parent of Travis Body & Trailer, Inc., a private company from which Waste Connections has purchased, and expects to continue to purchase in the future, an immaterial amount of equipment. In connection with his appointment, Mr. Harlan made an equity investment in Travis Acquisition, LLC. On August 29, 2013, after due consideration of the immaterial nature of the potential conflicts of interest that may be presented by Mr. Harlan’s relationships with Travis Body & Trailer, Inc., the Nominating and Corporate Governance Committee of the Board of Directors of Waste Connections determined Mr. Harlan’s relationship with Travis Body & Trailer, Inc. did not impair Mr. Harlan’s independence as a director of Waste Connections. In 2015, Waste Connections purchased approximately $202,600 of equipment from Travis Body & Trailer, Inc. Mr. Harlan had an indirect interest in this transaction commensurate with his ownership interest in Travis Acquisition, LLC.

Mr. Harlan also serves as the Chairman of the Board of Directors and Chief Executive Officer of, and owns an equity interest in, Principal Environmental, LLC, doing business as Principle Energy Services (“PES”), a private equity-backed oilfield services company. PES provides engineered noise mitigation solutions for oil and natural gas drilling, completions and production and operates in five states and serves a wide range of customers from small, independent exploration companies to the major oil and gas companies. Waste Connections’ subsidiary, R360 Permian Basin, LLC (“R360”), operates a facility in Halfway, New Mexico, where a permit condition for a salt water disposal well R360 drilled in 2015 required R360 to use noise abatement technology, such as an acoustical curtain, while drilling the well. R360 hired PES to provide the noise abatement services at R360’s site, which services Waste Connections cost approximately $120,000. Mr. Harlan had an indirect interest in this transaction commensurate with his ownership interest in Travis Acquisition, LLC. On April 16, 2015, after due consideration of the immaterial nature of the potential conflicts of interest that may be presented by Mr. Harlan’s relationships with PES, the Nominating and Corporate Governance Committee of the Board of Directors of Waste Connections determined Mr. Harlan’s relationship with PES did not impair Mr. Harlan’s independence as a director of Waste Connections.

47

Independence of Committee Members

In addition to the general requirements for independent Board members described above, members of the Audit Committee and the Compensation Committee must also satisfy the additional independence requirements of the New York Stock Exchange and federal securities laws. These rules, among other things, prohibit a member of the Audit Committee or the Compensation Committee, other than in his capacity as a member of such committee, the Board of Directors or any other committee of the Board of Directors, from receiving any compensatory fees from or being an affiliated person of Waste Connections or any of its subsidiaries. As a matter of policy, the Board of Directors also applies this additional requirement to members of the Nominating and Corporate Governance Committee.

48

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.

PricewaterhouseCoopers LLP audited our consolidated financial statements for the fiscal year 2015. The following table sets forth fees billed to the company for professional services rendered in 2015 and 2014 by PricewaterhouseCoopers LLP.

  2015 2014
Audit Fees $1,970,200 $1,422,500
Audit-Related Fees  
Tax Fees 109,000 21,500
All Other Fees 3,600 3,600
Total $2,082,800 $1,447,600

Audit Fees consist of fees associated with both the audit of our consolidated financial statements and the audit of our internal control over financial reporting for fiscal years 2015 and 2014, review of the consolidated financial statements included in our quarterly reports on Form 10-Q, consents, assistance with review of documents filed with, or furnished to, the SEC, and audit work related to acquisitions, as well as out-of-pocket expenses incurred in the performance of audit services.

Tax Fees consist of fees associated with tax compliance, advice and planning in 2015 and 2014, which principally included discussions regarding proposed acquisitions and an accounting methods change.

All Other Fees consist of a license fee for an online accounting and reporting research database.

The Audit Committee considers the services provided by PricewaterhouseCoopers LLP described under “Tax Fees” and “All Other Fees” to be compatible with PricewaterhouseCoopers LLP’s independence during the periods covered.

Audit Committee Pre-Approval Policies and Procedures

The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax and other services performed by the independent registered public accounting firm. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been previously pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent registered public accounting firm is engaged to perform it. The Audit Committee has delegated to the chairman of the Audit Committee authority to approve permitted services, provided that the chairman reports all approvals to the Audit Committee at its next meeting. All of the fees described above under “Audit Fees”, “Tax Fees” and “All Other Fees” were approved by the Audit Committee.

49

PART IV

ITEM 15.EXHIBITS, AND FINANCIAL STATEMENT SCHEDULES

 

(a)          The following documents, which we have filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, are by this reference incorporated in and made a part of this report:

(a)1.See Index to Consolidated Financial Statements on page 66.  The following Financial Statement Schedule isStatements—Our consolidated financial statements were previously filed herewith on page 116 and made a part of this Report:with the Original Filing.

 

Schedule II - Valuation and Qualifying Accounts 

All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted. 

2.Financial Statement Schedules—Financial Statement Schedules were previously filed with the Original Filing.

 

(b)See Exhibit Index immediately following signature pages.page.

 

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SIGNATURES

 

Pursuant to the requirements of SectionsSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this reportAmendment No. 1 on Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 Waste Connections, Inc.
   
 By:/s/ Ronald J. Mittelstaedt
  Ronald J. Mittelstaedt
Date:    February 9,April 28, 2016 Chief Executive Officer and Chairman

 

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Mittelstaedt and Worthing F. Jackman, jointly and severally, his true and lawful attorneys-in-fact, each with the power of substitution, for him in any and all capacities to sign any amendments to this Annual Report on Form 10-K, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof. 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. 

SignatureTitleDate
/s/   Ronald J. MittelstaedtChief Executive Officer and Chairman
Ronald J. Mittelstaedt(principal executive officer)February 9, 2016
/s/   Worthing F. JackmanExecutive Vice President and Chief Financial Officer
Worthing F. Jackman(principal financial officer)February 9, 2016
/s/   David G. EddieSenior Vice President and Chief Accounting Officer
David G. Eddie(principal accounting officer)February 9, 2016
/s/   Michael W. Harlan
Michael W. HarlanDirectorFebruary 9, 2016
/s/   William J. Razzouk
William J. RazzoukDirectorFebruary 9, 2016
/s/    Robert H. Davis
Robert H. DavisDirectorFebruary 9, 2016
/s/    Edward E. Guillet
Edward E. GuilletDirectorFebruary 9, 2016

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WASTE CONNECTIONS, INC.

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Years Ended December 31, 2015, 2014 and 2013

(in thousands)

     Additions  Deductions    
Description Balance at
Beginning of
Year
  Charged to
Costs and
Expenses
  Charged to
Other
Accounts
  (Write-offs,
Net of
Collections)
  Balance at End
of Year
 
Allowance for Doubtful Accounts:                    
Year Ended December 31, 2015 $9,175  $5,423  $-  $(6,860) $7,738 
Year Ended December 31, 2014  7,348   8,043   -   (6,216)  9,175 
Year Ended December 31, 2013  6,548   6,617   -   (5,817)  7,348 

116

EXHIBIT INDEX

 

Exhibit
Number
 Description of Exhibits
   
2.1 Agreement and Plan of Merger, dated as of January 18, 2016, by and among Progressive Waste Solutions Ltd., Water Merger Sub LLC, and the Registrant (incorporated by reference to Exhibit 2.1 of the Registrant’s Form 8-K filed on January 20, 2016)
3.1 Amended and Restated Certificate of Incorporation of the Registrant, dated as of June 14, 2013 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q filed on July 24, 2013)
3.2 Fourth Amended and Restated Bylaws of the Registrant, effective July 17, 2014 (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 10-Q filed on July 21, 2014)
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant’s Form S-1/A filed on May 6, 1998)
4.2 Master Note Purchase Agreement, dated July 15, 2008 (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on July 18, 2008)
4.3 Amendment No. 1 to Master Note Purchase Agreement, dated as of July 20, 2009 (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q filed on August 5, 2009)
4.4 First Supplement to Master Note Purchase Agreement, dated as of October 26, 2009 (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q filed on October 27, 2009)
4.5 Amendment No. 2 to Master Note Purchase Agreement, dated as of November 24, 2010 (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on November 26, 2010)
4.6 Second Supplement to Master Note Purchase Agreement, dated as of April 1, 2011 (incorporated by reference to Exhibit 4.5 of the Registrant’s Form 8-K filed on April 5, 2011)
4.7 Amendment No. 3 to Master Note Purchase Agreement, dated as of October 12, 2011 (incorporated by reference to Exhibit 4.7 of the Registrant’s Form 10-K filed on February 8, 2012)
4.8 Amendment No. 4 to Master Note Purchase Agreement, dated August 9, 2013 (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on August 14, 2013)
4.9 Amendment No. 5 to Master Note Purchase Agreement, dated February 20, 2015 (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 8-K filed on February 26, 2015)
4.10 Third Supplement to Master Note Purchase Agreement, dated as of June 11, 2015 (incorporated by reference to Exhibit 4.9 of the Registrant’s Form 8-K filed on June 12, 2015)
10.1 + Employment Agreement between the Registrant and James M. Little, dated as of September 13, 1999 (incorporated by reference to Exhibit 10.42 of the Registrant’s Form 10-K filed on March 13, 2000)

117

Exhibit
Number
Description of Exhibits
10.2 + Employment Agreement between the Registrant and Eric O. Hansen, dated as of January 1, 2001 (incorporated by reference to Exhibit 10.12 of the Registrant’s Form 10-Q filed on May 3, 2005)
10.3 + First Amended and Restated Employment Agreement between the Registrant and David M. Hall, dated as of October 1, 2005 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on October 4, 2005)
10.4 + First Amended and Restated Employment Agreement between the Registrant and David G. Eddie, dated as of October 1, 2005 (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on October 4, 2005)
10.5 + Form of Indemnification Agreement between the Registrant and each of its directors and officers (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q filed on July 31, 2006)

52

Exhibit
Number
Description of Exhibits
   
10.6 + Employment Agreement between the Registrant and Patrick J. Shea, dated as of February 1, 2008 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q filed on April 23, 2008)
10.7 + Consultant Incentive Plan (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q filed on April 23, 2008)
10.8 + Form of Amendment to Employment Agreement between the Registrant and each of David G. Eddie, David M. Hall and Patrick J. Shea (incorporated by reference to Exhibit 10.24 of the Registrant’s Form 10-K filed on February 10, 2009)
10.9 + Form of Amendment to Employment Agreement between the Registrant and James M. Little (incorporated by reference to Exhibit 10.25 of the Registrant’s Form 10-K filed on February 10, 2009)
10.10 + Form of Amendment to Employment Agreement between the Registrant and Eric O. Hansen (incorporated by reference to Exhibit 10.26 of the Registrant’s Form 10-K filed on February 10, 2009)
10.11 + Employment Agreement between the Registrant and Rick Wojahn, dated as of February 9, 2009 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q filed on May 8, 2009)
10.12 + Employment Agreement between the Registrant and Scott Schreiber, dated as of February 9, 2009 (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q filed on May 8, 2009)
10.13 + Employment Agreement between the Registrant and Greg Thibodeaux, dated as of July 1, 2000 (incorporated by reference to Exhibit 10.29 of the Registrant’s Form 10-K filed on February 9, 2011)
10.14 + Form of Amendment to Employment Agreement between the Registrant and Greg Thibodeaux (incorporated by reference to Exhibit 10.30 of the Registrant’s Form 10-K filed on February 9, 2011)
10.15 + Waste Connections, Inc. Nonqualified Deferred Compensation Plan, amended and restated as of December 1, 2014 (incorporated by reference to Exhibit 10.17 of the Registrant’s Form 10-K filed on February 10, 2015)

118

Exhibit
Number
Description of Exhibits
10.16 + Waste Connections, Inc. Third Amended and Restated 2004 Equity Incentive Plan (incorporated by reference to Exhibit 10.30 of the Registrant’s Form 10-K filed on February 8, 2012)
10.17 + Separation Benefits Plan and Employment Agreement by and between the Registrant and Ronald J. Mittelstaedt, effective February 13, 2012 (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K/A filed on February 27, 2012)
10.18 + Separation Benefits Plan, effective February 13, 2012 (incorporated by reference to Exhibit 10.2 of the Registrant's Form 8-K/A filed on February 27, 2012)
10.19 + Separation Benefits Plan Participation Letter Agreement by and between the Registrant and Steven F. Bouck, effective February 13, 2012 (incorporated by reference to Exhibit 10.3 of the Registrant's Form 8-K/A filed on February 27, 2012)
10.20 + Separation Benefits Plan Participation Letter Agreement by and between the Registrant and Worthing F. Jackman, effective February 13, 2012 (incorporated by reference to Exhibit 10.4 of the Registrant's Form 8-K/A filed on February 27, 2012)
10.21 + Separation Benefits Plan Participation Letter Agreement by and between the Registrant and Darrell W. Chambliss, effective February 13, 2012 (incorporated by reference to Exhibit 10.5 of the Registrant's Form 8-K/A filed on February 27, 2012)
10.22 + Employment Agreement between the Registrant and Matthew Black, dated as of March 1, 2012 (incorporated by reference to Exhibit 10.7 of the Registrant's Form 10-Q filed on April 26, 2012)

53

Exhibit
Number
Description of Exhibits
   
10.23 + Employment Agreement between the Registrant and Mary Anne Whitney, dated as of March 1, 2012 (incorporated by reference to Exhibit 10.8 of the Registrant's Form 10-Q filed on April 26, 2012)
10.24 + Employment Agreement between the Registrant and Susan Netherton, dated as of July 23, 2013 (incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q filed on October 23, 2013)
10.25 + Waste Connections, Inc. 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Form 8-K filed on May 19, 2014)
10.26 + Form Grant Agreement for Performance-Based Restricted Stock Units (incorporated by reference to Exhibit 10.2 of the Registrant's Form 8-K filed on May 19, 2014)
10.27 + Form Warrant to Purchase Common Stock pursuant to 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.3 of the Registrant's Form 10-Q filed on July 21, 2014)
10.28 + Form Grant Agreement for Restricted Stock Units pursuant to 2014 Incentive Award Plan (incorporated by reference to Exhibit 10.1 of the Registrant's Form 10-Q filed on October 22, 2014)
10.29 + Employment Agreement between the Registrant and Robert Cloninger, dated as of August 1, 2014 (incorporated by reference to Exhibit 10.2 of the Registrant's Form 10-Q filed on October 22, 2014)

119

Exhibit
Number
Description of Exhibits
10.30 Term Loan Agreement, dated as of October 25, 2012 (incorporated by reference to Exhibit 4.9 of the Registrant’s Form 10-K filed on March 1, 2013)
10.31 First Amendment to Term Loan Agreement, dated as of May 6, 2013 (incorporated by reference to Exhibit 4.1 of the Registrant’s Form 10-Q filed on July 24, 2013)
10.32 Second Amended and Restated Credit Agreement, dated as of May 6, 2013 (incorporated by reference to Exhibit 4.2 of the Registrant’s Form 10-Q filed on July 24, 2013)
10.33 Second Amendment to Term Loan Agreement, dated as of May 15, 2014 (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 8-K filed on May 19, 2014)
10.34 Revolving Credit and Term Loan Agreement, dated as of January 26, 2015 (incorporated by reference to Exhibit 10.1 of  the Registrant's Form 8-K filed on January 30, 2015)
10.35 + Amendment to Separation Benefits Plan and Employment Agreement between Registrant and Ronald J. Mittelstaedt (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on December 18, 2015)
10.36 + * Amended and Restated Compensation Plan for Independent Directors, dated January 1, 2016
(incorporated by reference to Exhibit 10.36 of the Registrant’s Form 10-K filed on February 9, 2016)
10.37 + * Form Grant Agreement for Restricted Stock Units for Non-employee Directors pursuant to 2014 Incentive Award Plan
(incorporated by reference to Exhibit 10.37 of the Registrant’s Form 10-K filed on February 9, 2016)
10.38 + * Form Grant Agreement for Restricted Stock Units (with One-Year Performance Period) pursuant to 2014 Incentive Award Plan
(incorporated by reference to Exhibit 10.38 of the Registrant’s Form 10-K filed on February 9, 2016)
10.39 Consent to Revolving Credit and Term Loan Agreement, dated as of January 18, 2016 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K filed on January 22, 2016)
12.1 * Statement regarding Computation of Ratios (incorporated by reference to Exhibit 12.1 of the Registrant’s Form 10-K filed on February 9, 2016)

54

Exhibit
Number
Description of Exhibits
   
21.1 * Subsidiaries of the Registrant
(incorporated by reference to Exhibit 21.1 of the Registrant’s Form 10-K filed on February 9, 2016)
23.1 * Consent of Independent Registered Public Accounting Firm
(incorporated by reference to Exhibit 23.1 of the Registrant’s Form 10-K filed on February 9, 2016)
24.1 * Power of Attorney (see signature page of this Annual Report(incorporated by reference to Exhibit 24.1of the Registrant’s Form 10-K filed on Form 10-K)February 9, 2016)
31.1 Certification of Chief Executive Officer (incorporated by reference to Exhibit 31.1 of the Registrant’s Form 10-K filed on February 9, 2016)

31.1 *

31.2
Certification of Chief Financial Officer (incorporated by reference to Exhibit 31.2 of the Registrant’s Form 10-K filed on February 9, 2016)
31.3* Certification of Chief Executive Officer
31.2 *31.4* Certification of Chief Financial Officer
32.1 * Certificate of Chief Executive Officer
(incorporated by reference to Exhibit 32.1 of the Registrant’s Form 10-K filed on February 9, 2016)
32.2 * Certificate of Chief Financial Officer
(incorporated by reference to Exhibit 32.2 of the Registrant’s Form 10-K filed on February 9, 2016)
101.INS * XBRL Instance Document
(incorporated by reference to Exhibit 101.INS of the Registrant’s Form 10-K filed on February 9, 2016)
101.SCH * XBRL Taxonomy Extension Schema Document
(incorporated by reference to Exhibit 101.SCH of the Registrant’s Form 10-K filed on February 9, 2016)
101.CAL * XBRL Taxonomy Extension Calculation Linkbase Document
(incorporated by reference to Exhibit 101.CAL of the Registrant’s Form 10-K filed on February 9, 2016)
101.LAB * XBRL Taxonomy Extension Labels Linkbase Document
(incorporated by reference to Exhibit 101.LAB of the Registrant’s Form 10-K filed on February 9, 2016)
101.PRE * XBRL Taxonomy Extension Presentation Linkbase Document
(incorporated by reference to Exhibit 101.PRE of the Registrant’s Form 10-K filed on February 9, 2016)
101.DEF * XBRL Taxonomy Extension Definition Linkbase Document (incorporated by reference to Exhibit 101.DEF of the Registrant’s Form 10-K filed on February 9, 2016)

 

* Filed herewith.

+ Management contract or compensatory plan, contract or arrangement.

 

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