UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ | ||
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
| ||
For the quarterly period ended | ||
| Or | |
☐ | ||
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE | ||
| ||
For the transition period from to |
Commission file number 1-34370
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Ontario, Canada
(State or other jurisdiction of incorporation or organization)
98-1202763
(I.R.S. Employer Identification No.)
6220 Hwy 7, Suite 600
610 Applewood Crescent, 2nd FloorVaughanWoodbridge
Ontario L4K 0E3L4H 4G3
Canada
(Address of principal executive offices)
(905) (905) 532-7510
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, no par value | WCN | New York Stock Exchange (“NYSE”) |
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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | ||||
þLarge
| ◻ Accelerated |
| ☐ Smaller Reporting |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨
◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes¨☐ Noþ
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common shares:
As of October 18, 2017: 263,641,021July 23, 2021: 260,517,909 common shares
WASTE CONNECTIONS, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands of U.S. dollars, except share and per share amounts)
September 30, 2017 | December 31, 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 495,254 | $ | 154,382 | ||||
Accounts receivable, net of allowance for doubtful accounts of $16,245 and $13,160 at September 30, 2017 and December 31, 2016, respectively | 588,534 | 485,138 | ||||||
Current assets held for sale | 2,021 | 6,339 | ||||||
Prepaid expenses and other current assets | 107,134 | 97,533 | ||||||
Total current assets | 1,192,943 | 743,392 | ||||||
Property and equipment, net | 4,783,928 | 4,738,055 | ||||||
Goodwill | 4,688,348 | 4,390,261 | ||||||
Intangible assets, net | 1,108,961 | 1,067,158 | ||||||
Restricted assets | 59,192 | 63,406 | ||||||
Long-term assets held for sale | 12,619 | 33,989 | ||||||
Other assets, net | 64,284 | 67,664 | ||||||
$ | 11,910,275 | $ | 11,103,925 | |||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 276,970 | $ | 251,253 | ||||
Book overdraft | 24,923 | 10,955 | ||||||
Accrued liabilities | 347,439 | 269,402 | ||||||
Deferred revenue | 142,787 | 134,081 | ||||||
Current portion of contingent consideration | 13,819 | 21,453 | ||||||
Current liabilities held for sale | 2,255 | 3,383 | ||||||
Current portion of long-term debt and notes payable | 11,596 | 1,650 | ||||||
Total current liabilities | 819,789 | 692,177 | ||||||
Long-term debt and notes payable | 3,925,761 | 3,616,760 | ||||||
Long-term portion of contingent consideration | 31,136 | 30,373 | ||||||
Other long-term liabilities | 310,646 | 331,074 | ||||||
Deferred income taxes | 829,087 | 778,664 | ||||||
Total liabilities | 5,916,419 | 5,449,048 | ||||||
Commitments and contingencies (Note 17) | ||||||||
Equity: | ||||||||
Common shares: 263,640,287 shares issued and 263,443,234 shares outstanding at September 30, 2017; 263,140,777 shares issued and 262,803,271 shares outstanding at December 31, 2016 | 4,185,458 | 4,174,808 | ||||||
Additional paid-in capital | 109,627 | 102,220 | ||||||
Accumulated other comprehensive income (loss) | 114,779 | (43,001 | ) | |||||
Treasury shares: 197,053 and 337,397 shares at September 30, 2017 and December 31, 2016, respectively | - | - | ||||||
Retained earnings | 1,578,635 | 1,413,488 | ||||||
Total Waste Connections’ equity | 5,988,499 | 5,647,515 | ||||||
Noncontrolling interest in subsidiaries | 5,357 | 7,362 | ||||||
Total equity | 5,993,856 | 5,654,877 | ||||||
$ | 11,910,275 | $ | 11,103,925 |
| | | | | | | |
| | June 30, | | December 31, | | ||
|
| 2021 |
| 2020 | | ||
ASSETS |
| |
|
| |
|
|
Current assets: |
| |
|
| |
|
|
Cash and equivalents | | $ | 727,395 | | $ | 617,294 | |
Accounts receivable, net of allowance for credit losses of $19,527 and $19,380 at June 30, 2021 and December 31, 2020, respectively | |
| 649,561 | |
| 630,264 | |
Prepaid expenses and other current assets | |
| 129,487 | |
| 160,714 | |
Total current assets | |
| 1,506,443 | |
| 1,408,272 | |
| | | | | | | |
Restricted cash | | | 110,367 | | | 97,095 | |
Restricted investments | |
| 59,825 | |
| 57,516 | |
Property and equipment, net | |
| 5,249,904 | |
| 5,284,506 | |
Operating lease right-of-use assets | | | 169,523 | | | 170,923 | |
Goodwill | |
| 5,818,749 | |
| 5,726,650 | |
Intangible assets, net | |
| 1,102,516 | |
| 1,155,079 | |
Other assets, net | |
| 88,880 | |
| 92,323 | |
Total assets | | $ | 14,106,207 | | $ | 13,992,364 | |
LIABILITIES AND EQUITY | |
|
| |
|
| |
Current liabilities: | |
|
| |
|
| |
Accounts payable | | $ | 326,085 | | $ | 290,820 | |
Book overdraft | |
| 16,902 | |
| 17,079 | |
Deferred revenue | |
| 250,254 | |
| 233,596 | |
Accrued liabilities | | | 411,333 | |
| 404,923 | |
Current portion of operating lease liabilities | |
| 37,352 | | | 30,671 | |
Current portion of contingent consideration | |
| 43,359 | |
| 43,297 | |
Current portion of long-term debt and notes payable | |
| 6,997 | |
| 8,268 | |
Total current liabilities | |
| 1,092,282 | |
| 1,028,654 | |
| | | | | | | |
Long-term portion of debt and notes payable | |
| 4,762,857 | |
| 4,708,678 | |
Long-term portion of operating lease liabilities | | | 139,329 | | | 147,223 | |
Long-term portion of contingent consideration | |
| 24,670 | |
| 28,439 | |
Deferred income taxes | |
| 772,867 | |
| 760,044 | |
Other long-term liabilities | |
| 445,602 | |
| 455,888 | |
Total liabilities | |
| 7,237,607 | |
| 7,128,926 | |
| | | | | | | |
Commitments and contingencies (Note 18) | |
|
| |
|
| |
| | | | | | | |
Equity: | |
|
| |
|
| |
Common shares: 260,506,316 shares issued and 260,433,450 shares outstanding at June 30, 2021; 262,899,174 shares issued and 262,824,990 shares outstanding at December 31, 2020 | |
| 3,724,859 | |
| 4,030,368 | |
Additional paid-in capital | |
| 172,232 | |
| 170,555 | |
Accumulated other comprehensive income (loss) | |
| 78,265 | |
| (651) | |
Treasury shares: 72,866 and 74,184 shares at June 30, 2021 and December 31, 2020, respectively | |
| — | |
| — | |
Retained earnings | |
| 2,889,027 | |
| 2,659,001 | |
Total Waste Connections’ equity | |
| 6,864,383 | |
| 6,859,273 | |
Noncontrolling interest in subsidiaries | |
| 4,217 | |
| 4,165 | |
Total equity | |
| 6,868,600 | |
| 6,863,438 | |
| | $ | 14,106,207 | | $ | 13,992,364 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.statements.
1
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)
(Unaudited)
(In thousands of U.S. dollars, except share and per share amounts)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenues | $ | 1,206,478 | $ | 1,084,922 | $ | 3,473,313 | $ | 2,327,241 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of operations | 695,122 | 636,310 | 2,024,402 | 1,339,764 | ||||||||||||
Selling, general and administrative | 128,200 | 129,576 | 383,600 | 349,995 | ||||||||||||
Depreciation | 136,941 | 125,744 | 395,008 | 270,988 | ||||||||||||
Amortization of intangibles | 26,613 | 26,944 | 76,886 | 48,719 | ||||||||||||
Impairments and other operating items | 832 | 7,682 | 141,333 | 4,634 | ||||||||||||
Operating income | 218,770 | 158,666 | 452,084 | 313,141 | ||||||||||||
Interest expense | (32,471 | ) | (27,621 | ) | (92,763 | ) | (65,291 | ) | ||||||||
Interest income | 1,656 | 171 | 3,131 | 447 | ||||||||||||
Other income (expense), net | 1,709 | 500 | 3,561 | (268 | ) | |||||||||||
Foreign currency transaction gain (loss) | (1,864 | ) | (350 | ) | (3,502 | ) | 339 | |||||||||
Income before income tax provision | 187,800 | 131,366 | 362,511 | 248,368 | ||||||||||||
Income tax provision | (64,390 | ) | (42,485 | ) | (100,220 | ) | (86,750 | ) | ||||||||
Net income | 123,410 | 88,881 | 262,291 | 161,618 | ||||||||||||
Less: Net income attributable to noncontrolling interests | (183 | ) | (264 | ) | (559 | ) | (670 | ) | ||||||||
Net income attributable to Waste Connections | $ | 123,227 | $ | 88,617 | $ | 261,732 | $ | 160,948 | ||||||||
Earnings per common share attributable to Waste Connections’ common shareholders: | ||||||||||||||||
Basic | $ | 0.47 | $ | 0.34 | $ | 0.99 | $ | 0.73 | ||||||||
Diluted | $ | 0.47 | $ | 0.34 | $ | 0.99 | $ | 0.73 | ||||||||
Shares used in the per share calculations: | ||||||||||||||||
Basic | 263,443,064 | 263,005,450 | 263,298,839 | 219,321,828 | ||||||||||||
Diluted | 264,299,472 | 263,650,138 | 264,109,383 | 220,064,670 | ||||||||||||
Cash dividends per common share | $ | 0.120 | $ | 0.097 | $ | 0.360 | $ | 0.290 |
| | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Revenues | | $ | 1,533,931 | | $ | 1,305,782 | | $ | 2,929,874 | | $ | 2,658,187 | |
Operating expenses: | |
| | |
| | |
| | |
| | |
Cost of operations | |
| 901,191 | |
| 785,710 | |
| 1,727,111 | |
| 1,601,134 | |
Selling, general and administrative | |
| 157,943 | |
| 132,158 | |
| 299,365 | |
| 268,210 | |
Depreciation | |
| 169,221 | |
| 151,230 | |
| 326,624 | |
| 302,051 | |
Amortization of intangibles | |
| 32,707 | |
| 31,771 | |
| 64,899 | |
| 63,409 | |
Impairments and other operating items | |
| 6,081 | |
| 437,270 | |
| 6,715 | |
| 438,777 | |
Operating income (loss) | |
| 266,788 | |
| (232,357) | |
| 505,160 | |
| (15,394) | |
| | | | | | | | | | | | | |
Interest expense | |
| (41,328) | | | (40,936) | |
| (83,753) | |
| (78,926) | |
Interest income | |
| 744 | | | 1,317 | |
| 1,848 | |
| 3,493 | |
Other income (expense), net | |
| (1,235) | | | 5,772 | |
| 2,312 | |
| (3,749) | |
Income (loss) before income tax provision | |
| 224,969 | |
| (266,204) | |
| 425,567 | |
| (94,576) | |
| | | | | | | | | | | | | |
Income tax (provision) benefit | |
| (47,868) | | | 38,737 | |
| (88,159) | | | 10,003 | |
Net income (loss) | |
| 177,101 | |
| (227,467) | |
| 337,408 | |
| (84,573) | |
Plus (less): Net loss (income) attributable to noncontrolling interests | |
| (54) | | | 395 | |
| (52) | | | 536 | |
Net income (loss) attributable to Waste Connections | | $ | 177,047 | | $ | (227,072) | | $ | 337,356 | | $ | (84,037) | |
| | | | | | | | | | | | | |
Earnings (loss) per common share attributable to Waste Connections’ common shareholders: | |
|
| |
|
| |
|
| |
|
| |
Basic | | $ | 0.68 | | $ | (0.86) | | $ | 1.29 | | $ | (0.32) | |
Diluted | | $ | 0.68 | | $ | (0.86) | | $ | 1.29 | | $ | (0.32) | |
| | | | | | | | | | | | | |
Shares used in the per share calculations: | |
| | |
| | |
| | |
| | |
Basic | |
| 260,951,405 | |
| 262,994,275 | |
| 261,791,088 | | | 263,390,685 | |
Diluted | |
| 261,418,573 | |
| 262,994,275 | |
| 262,269,600 | | | 263,390,685 | |
| | | | | | | | | | | | | |
Cash dividends per common share | | $ | 0.205 | | $ | 0.185 | | $ | 0.410 | | $ | 0.370 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands of U.S. dollars)
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 123,410 | $ | 88,881 | $ | 262,291 | $ | 161,618 | ||||||||
Other comprehensive income (loss), before tax: | ||||||||||||||||
Interest rate swap amounts reclassified into interest expense | 511 | 1,678 | 2,352 | 5,081 | ||||||||||||
Fuel hedge amounts reclassified into cost of operations | 789 | 1,342 | 2,765 | 4,616 | ||||||||||||
Changes in fair value of interest rate swaps | 2,181 | 3,535 | 305 | (6,980 | ) | |||||||||||
Changes in fair value of fuel hedges | 2,717 | 1,019 | (1,672 | ) | 1,343 | |||||||||||
Foreign currency translation adjustment | 84,500 | (16,642 | ) | 155,153 | (3,991 | ) | ||||||||||
Other comprehensive income (loss), before tax | 90,698 | (9,068 | ) | 158,903 | 69 | |||||||||||
Income tax expense related to items of other comprehensive income (loss) | (4,016 | ) | (2,282 | ) | (1,123 | ) | (922 | ) | ||||||||
Other comprehensive income (loss), net of tax | 86,682 | (11,350 | ) | 157,780 | (853 | ) | ||||||||||
Comprehensive income | 210,092 | 77,531 | 420,071 | 160,765 | ||||||||||||
Less: Comprehensive income attributable to noncontrolling interests | (183 | ) | (264 | ) | (559 | ) | (670 | ) | ||||||||
Comprehensive income attributable to Waste Connections | $ | 209,909 | $ | 77,267 | $ | 419,512 | $ | 160,095 |
| | | | | | | | | | | | | |
|
| Three Months Ended June 30, | | Six Months Ended June 30, |
| ||||||||
| | 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income (loss) | | $ | 177,101 | | $ | (227,467) | | $ | 337,408 | | $ | (84,573) | |
| | | | | | | | | | | | | |
Other comprehensive income (loss), before tax: | |
| | |
| | |
| | |
| | |
Interest rate swap amounts reclassified into interest expense | |
| 5,061 | |
| 2,142 | | | 9,857 | | | 1,702 | |
Changes in fair value of interest rate swaps | |
| (6,257) | |
| (11,867) | | | 14,482 | | | (69,893) | |
Foreign currency translation adjustment | |
| 32,973 | |
| 83,093 | | | 61,027 | | | (101,624) | |
Other comprehensive income (loss), before tax | |
| 31,777 | |
| 73,368 | |
| 85,366 | |
| (169,815) | |
Income tax (expense) benefit related to items of other comprehensive income (loss) | |
| 317 | |
| 2,577 | |
| (6,450) | | | 18,071 | |
Other comprehensive income (loss), net of tax | |
| 32,094 | |
| 75,945 | |
| 78,916 | |
| (151,744) | |
Comprehensive income (loss) | |
| 209,195 | |
| (151,522) | |
| 416,324 | |
| (236,317) | |
Plus (less): Comprehensive loss (income) attributable to noncontrolling interests | |
| (54) | |
| 395 | | | (52) | | | 536 | |
Comprehensive income (loss) attributable to Waste Connections | | $ | 209,141 | | $ | (151,127) | | $ | 416,272 | | $ | (235,781) | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
(In thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | WASTE CONNECTIONS' EQUITY | | | | | | | |||||||||||||||||
| | | | | | | | | | ACCUMULATED | | | | | | | | | | | | | | | |
| | | | | | | ADDITIONAL | | OTHER | | | | | | | | | | | | | | | ||
| | COMMON SHARES | | PAID-IN | | COMPREHENSIVE | | TREASURY SHARES | | RETAINED | | NONCONTROLLING | | | | ||||||||||
|
| SHARES |
| AMOUNT |
| CAPITAL |
| LOSS |
| SHARES |
| AMOUNT |
| EARNINGS |
| INTERESTS |
| TOTAL | |||||||
Balances at December 31, 2020 | | 262,824,990 | | $ | 4,030,368 | | $ | 170,555 | | $ | (651) | | 74,184 | | $ | — | | $ | 2,659,001 | | $ | 4,165 | | $ | 6,863,438 |
Sale of common shares held in trust |
| 1,318 | |
| 131 | |
| — | |
| — |
| (1,318) | |
| — | |
| — | |
| — | |
| 131 |
Vesting of restricted share units |
| 340,529 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Vesting of performance-based restricted share units |
| 154,251 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Restricted share units released from deferred compensation plan |
| 19,150 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Tax withholdings related to net share settlements of equity-based compensation |
| (186,039) | |
| — | |
| (18,490) | |
| — |
| — | |
| — | |
| — | |
| — | |
| (18,490) |
Equity-based compensation |
| — | |
| — | |
| 9,573 | |
| — |
| — | |
| — | |
| — | |
| — | |
| 9,573 |
Exercise of warrants |
| 3,490 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Repurchase of common shares | | (666,184) | | | (65,999) | | | — | | | — | | — | | | — | | | — | | | — | | | (65,999) |
Cash dividends on common shares |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (53,909) | |
| — | |
| (53,909) |
Amounts reclassified into earnings, net of taxes |
| — | |
| — | |
| — | |
| 3,525 |
| — | |
| — | |
| — | |
| — | |
| 3,525 |
Changes in fair value of cash flow hedges, net of taxes |
| — | |
| — | |
| — | |
| 15,243 |
| — | |
| — | |
| — | |
| — | |
| 15,243 |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| 28,054 |
| — | |
| — | |
| — | |
| — | |
| 28,054 |
Net income (loss) |
| — | |
| — | |
| — | | | — |
| — | |
| — | |
| 160,309 | |
| (2) | |
| 160,307 |
Balances at March 31, 2021 |
| 262,491,505 | | | 3,964,500 | | | 161,638 | | | 46,171 |
| 72,866 | | | — | | | 2,765,401 | | | 4,163 | | | 6,941,873 |
Vesting of restricted share units |
| 647 | | | — | | | — | | | — |
| — | | | — | | | — | | | — | | | — |
Fair value adjustment for common shares in deferred compensation plan exchanged for other investment options | | — | | | — | | | (1,177) | | | — | | — | | | — | | | — | | | — | | | (1,177) |
Tax withholdings related to net share settlements of equity-based compensation |
| (176) | | | — | | | (20) | | | — |
| — | | | — | | | — | | | — | | | (20) |
Equity-based compensation |
| — | | | — | | | 11,791 | | | — |
| — | | | — | | | — | | | — | | | 11,791 |
Exercise of warrants |
| 21,280 | | | — | | | — | | | — |
| — | | | — | | | — | | | — | | | — |
Repurchase of common shares | | (2,079,806) | | | (239,641) | | | — | | | — | | — | | | — | | | — | | | — | | | (239,641) |
Cash dividends on common shares |
| — | | | — | | | — | | | — |
| — | | | — | | | (53,421) | | | — | | | (53,421) |
Amounts reclassified into earnings, net of taxes |
| — | | | — | | | — | | | 3,720 |
| — | | | — | | | — | | | — | | | 3,720 |
Changes in fair value of cash flow hedges, net of taxes |
| — | | | — | | | — | | | (4,599) |
| — | | | — | | | — | | | — | | | (4,599) |
Foreign currency translation adjustment |
| — | | | — | | | — | | | 32,973 |
| — | | | — | | | — | | | — | | | 32,973 |
Net income |
| — | | | — | | | — | | | — |
| — | | | — | | | 177,047 | | | 54 | | | 177,101 |
Balances at June 30, 2021 |
| 260,433,450 | | $ | 3,724,859 | | $ | 172,232 | | $ | 78,265 |
| 72,866 | | $ | — | | $ | 2,889,027 | | $ | 4,217 | | $ | 6,868,600 |
Waste Connections’ Equity | ||||||||||||||||||||||||||||||||||||
Common Shares | Additional Paid-In | Accumulated Other Comprehensive | Treasury Shares | Retained | Noncontrolling | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Shares | Amount | Earnings | Interests | Total | ||||||||||||||||||||||||||||
Balances at December 31, 2016 | 262,803,271 | $ | 4,174,808 | $ | 102,220 | $ | (43,001 | ) | 337,397 | $ | - | $ | 1,413,488 | $ | 7,362 | $ | 5,654,877 | |||||||||||||||||||
Sale of common shares held in trust | 140,344 | 8,704 | - | - | (140,344 | ) | - | - | - | 8,704 | ||||||||||||||||||||||||||
Vesting of restricted share units | 540,432 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Vesting of performance-based restricted share units | 122,786 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Restricted share units released from deferred compensation plan | 36,619 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Tax withholdings related to net share settlements of equity-based compensation | (250,172 | ) | - | (13,754 | ) | - | - | - | - | - | (13,754 | ) | ||||||||||||||||||||||||
Equity-based compensation | - | - | 20,463 | - | - | - | - | - | 20,463 | |||||||||||||||||||||||||||
Exercise of options and warrants | 49,954 | 1,946 | - | - | - | - | - | - | 1,946 | |||||||||||||||||||||||||||
Cash dividends on common shares | - | - | - | - | - | - | (95,201 | ) | - | (95,201 | ) | |||||||||||||||||||||||||
Amounts reclassified into earnings, net of taxes | - | - | - | 3,433 | - | - | - | - | 3,433 | |||||||||||||||||||||||||||
Changes in fair value of cash flow hedges, net of taxes | - | - | - | (806 | ) | - | - | - | - | (806 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | 155,153 | - | - | - | - | 155,153 | |||||||||||||||||||||||||||
Cumulative effect adjustment from adoption of new accounting pronouncement | - | - | - | - | - | - | (1,384 | ) | - | (1,384 | ) | |||||||||||||||||||||||||
Acquisition of noncontrolling interest | - | - | 698 | - | - | - | - | (2,564 | ) | (1,866 | ) | |||||||||||||||||||||||||
Net income | - | - | - | - | - | - | 261,732 | 559 | 262,291 | |||||||||||||||||||||||||||
Balances at September 30, 2017 | 263,443,234 | $ | 4,185,458 | $ | 109,627 | $ | 114,779 | 197,053 | $ | - | $ | 1,578,635 | $ | 5,357 | $ | 5,993,856 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2016
(Unaudited)
(In thousands of U.S. dollars, except share amounts)
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | WASTE CONNECTIONS' EQUITY | | | | | | | |||||||||||||||||
| | | | | | | | | | ACCUMULATED | | | | | | | | | | | | | | | |
| | | | | | | ADDITIONAL | | OTHER | | | | | | | | | | | | | | | ||
| | COMMON SHARES | | PAID-IN | | COMPREHENSIVE | | TREASURY SHARES | | RETAINED | | NONCONTROLLING | | | | ||||||||||
|
| SHARES |
| AMOUNT |
| CAPITAL |
| INCOME (LOSS) |
| SHARES |
| AMOUNT |
| EARNINGS |
| INTERESTS |
| TOTAL | |||||||
Balances at December 31, 2019 | | 263,618,161 | | $ | 4,135,343 | | $ | 154,917 | | $ | (10,963) | | 81,514 | | $ | — | | $ | 2,654,207 | | $ | 4,850 | | $ | 6,938,354 |
Sale of common shares held in trust | | 7,330 | | | 679 | | | — | | | — | | (7,330) | | | — | | | — | | | — | | | 679 |
Vesting of restricted share units |
| 366,603 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Vesting of performance-based restricted share units | | 281,186 | | | — | | | — | | | — | | — | | | — | | | — | | | — | | | — |
Restricted share units released from deferred compensation plan |
| 20,229 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Fair value adjustment for common shares in deferred compensation plan exchanged for other investment options | | — | | | — | | | (533) | | | — | | — | | | — | | | — | | | — | | | (533) |
Tax withholdings related to net share settlements of equity-based compensation |
| (226,766) | |
| — | |
| (23,090) | |
| — |
| — | |
| — | |
| — | |
| — | |
| (23,090) |
Equity-based compensation |
| — | |
| — | |
| 10,144 | |
| — |
| — | |
| — | |
| — | |
| — | |
| 10,144 |
Exercise of warrants |
| 9,751 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Repurchase of common shares |
| (1,271,977) | |
| (105,654) | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| (105,654) |
Cash dividends on common shares |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (48,018) | |
| — | |
| (48,018) |
Amounts reclassified into earnings, net of taxes |
| — | |
| — | |
| — | |
| (323) |
| — | |
| — | |
| — | |
| — | |
| (323) |
Changes in fair value of cash flow hedges, net of taxes |
| — | |
| — | |
| — | |
| (42,649) |
| — | |
| — | |
| — | |
| — | |
| (42,649) |
Foreign currency translation adjustment | | — | | | — | | | — | | | (184,717) | | — | | | — | | | — | | | — | | | (184,717) |
Net income (loss) |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| 143,035 | |
| (142) | |
| 142,893 |
Balances at March 31, 2020 |
| 262,804,517 | | | 4,030,368 | | | 141,438 | | | (238,652) |
| 74,184 | | | — | | | 2,749,224 | | | 4,708 | | | 6,687,086 |
Vesting of restricted share units |
| 5,537 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Restricted share units released from deferred compensation plan |
| 3,269 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Tax withholdings related to net share settlements of equity-based compensation |
| (2,398) | |
| — | |
| (201) | |
| — |
| — | |
| — | |
| — | |
| — | |
| (201) |
Equity-based compensation |
| — | |
| — | |
| 9,912 | |
| — |
| — | |
| — | |
| — | |
| — | |
| 9,912 |
Exercise of warrants |
| 240 | |
| — | |
| — | |
| — |
| — | |
| — | |
| — | |
| — | |
| — |
Cash dividends on common shares |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (48,894) | |
| — | |
| (48,894) |
Amounts reclassified into earnings, net of taxes |
| — | |
| — | |
| — | |
| 1,574 |
| — | |
| — | |
| — | |
| — | |
| 1,574 |
Changes in fair value of cash flow hedges, net of taxes |
| — | |
| — | |
| — | |
| (8,722) |
| — | |
| — | |
| — | |
| — | |
| (8,722) |
Foreign currency translation adjustment |
| — | |
| — | |
| — | |
| 83,093 |
| — | |
| — | |
| — | |
| — | |
| 83,093 |
Net loss |
| — | |
| — | |
| — | |
| — |
| — | |
| — | |
| (227,072) | |
| (395) | |
| (227,467) |
Balances at June 30, 2020 |
| 262,811,165 | | $ | 4,030,368 | | $ | 151,149 | | $ | (162,707) |
| 74,184 | | $ | — | | $ | 2,473,258 | | $ | 4,313 | | $ | 6,496,381 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Waste Connections’ Equity | ||||||||||||||||||||||||||||||||||||
Common Shares | Additional Paid-In | Accumulated Other Comprehensive | Treasury Shares | Retained | Noncontrolling | |||||||||||||||||||||||||||||||
Shares | Amount | Capital | Income (Loss) | Shares | Amount | Earnings | Interests | Total | ||||||||||||||||||||||||||||
Balances at December 31, 2015 | 183,563,933 | $ | 1,224 | $ | 736,652 | $ | (12,171 | ) | - | $ | - | $ | 1,259,495 | $ | 6,584 | $ | 1,991,784 | |||||||||||||||||||
Conversion of Old Waste Connections’ common shares into common shares of New Waste Connections | - | 650,552 | (650,552 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||
Issuance of common shares to acquire Progressive Waste | 78,218,878 | 3,503,162 | - | - | - | - | - | - | 3,503,162 | |||||||||||||||||||||||||||
Acquired common shares held in trust | - | - | - | - | 735,168 | - | - | - | - | |||||||||||||||||||||||||||
Sale of common shares held in trust | 308,059 | 15,341 | - | - | (308,059 | ) | - | - | - | 15,341 | ||||||||||||||||||||||||||
Vesting of restricted share units | 603,939 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Vesting of performance-based restricted share units | 184,440 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Restricted share units released from deferred compensation plan | 58,992 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Tax withholdings related to net share settlements of equity-based compensation | (279,055 | ) | - | (11,461 | ) | - | - | - | - | - | (11,461 | ) | ||||||||||||||||||||||||
Equity-based compensation | - | - | 17,628 | - | - | - | - | - | 17,628 | |||||||||||||||||||||||||||
Exercise of warrants | 52,236 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
Excess tax benefit associated with equity-based compensation | - | - | 5,151 | - | - | - | - | - | 5,151 | |||||||||||||||||||||||||||
Cash dividends on common shares | - | - | - | - | - | - | (61,001 | ) | - | (61,001 | ) | |||||||||||||||||||||||||
Amounts reclassified into earnings, net of taxes | - | - | - | 6,193 | - | - | - | - | 6,193 | |||||||||||||||||||||||||||
Changes in fair value of cash flow hedges, net of taxes | - | - | - | (3,055 | ) | - | - | - | - | (3,055 | ) | |||||||||||||||||||||||||
Foreign currency translation adjustment | - | - | - | (3,991 | ) | - | - | - | - | (3,991 | ) | |||||||||||||||||||||||||
Distributions to noncontrolling interests | - | - | - | - | - | - | - | (3 | ) | (3 | ) | |||||||||||||||||||||||||
Net income | - | - | - | - | - | - | 160,948 | 670 | 161,618 | |||||||||||||||||||||||||||
Balances at September 30, 2016 | 262,711,422 | $ | 4,170,279 | $ | 97,418 | $ | (13,024 | ) | 427,109 | $ | - | $ | 1,359,442 | $ | 7,251 | $ | 5,621,366 |
5
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of U.S. dollars)
| | | | | | | |
| | Six Months Ended June 30, | | ||||
|
| 2021 |
| 2020 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: | | |
| | |
| |
Net income (loss) | | $ | 337,408 | | $ | (84,573) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | |
| | |
Loss on disposal of assets and impairments | |
| 6,229 | |
| 420,169 | |
Depreciation | |
| 326,624 | |
| 302,051 | |
Amortization of intangibles | |
| 64,899 | |
| 63,409 | |
Deferred income taxes, net of acquisitions | |
| 3,520 | |
| (66,821) | |
Amortization of debt issuance costs | |
| 2,689 | |
| 4,783 | |
Share-based compensation | |
| 28,724 | |
| 24,643 | |
Interest accretion | |
| 8,199 | |
| 8,512 | |
Payment of contingent consideration recorded in earnings | |
| (520) | |
| — | |
Adjustments to contingent consideration | |
| 89 | |
| 16,794 | |
Other | | | (1,118) | | | 1,596 | |
Net change in operating assets and liabilities, net of acquisitions | | | 71,735 | | | 62,622 | |
Net cash provided by operating activities | |
| 848,478 | |
| 753,185 | |
| | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | |
|
| |
| | |
Payments for acquisitions, net of cash acquired | |
| (67,493) | | | (86,325) | |
Capital expenditures for property and equipment | |
| (271,392) | | | (268,711) | |
Capital expenditures for undeveloped landfill property | | | — | | | (16,450) | |
Proceeds from disposal of assets | |
| 7,906 | | | 10,642 | |
Other | |
| (1,815) | | | 888 | |
Net cash used in investing activities | |
| (332,794) | |
| (359,956) | |
| | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | |
| | |
|
| |
Proceeds from long-term debt | |
| 311,000 | | | 1,790,625 | |
Principal payments on notes payable and long-term debt | |
| (267,050) | | | (1,484,118) | |
Payment of contingent consideration recorded at acquisition date | |
| (5,595) | | | (2,251) | |
Change in book overdraft | |
| (190) | | | (606) | |
Payments for repurchase of common shares | |
| (305,640) | | | (105,654) | |
Payments for cash dividends | |
| (107,330) | | | (96,912) | |
Tax withholdings related to net share settlements of equity-based compensation | |
| (18,510) | | | (23,291) | |
Debt issuance costs | |
| — | | | (10,957) | |
Proceeds from sale of common shares held in trust | |
| 131 | | | 679 | |
Net cash provided by (used in) financing activities | |
| (393,184) | |
| 67,515 | |
| | | | | | | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| 873 | | | (541) | |
| | | | | | | |
Net increase in cash, cash equivalents and restricted cash | |
| 123,373 | |
| 460,203 | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 714,389 | | | 423,221 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 837,762 | | $ | 883,424 | |
| | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of U.S. dollars)
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 262,291 | $ | 161,618 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss on disposal of assets and impairments | 122,098 | 3,572 | ||||||
Depreciation | 395,008 | 270,988 | ||||||
Amortization of intangibles | 76,886 | 48,719 | ||||||
Foreign currency transaction (gain) loss | 3,502 | (339 | ) | |||||
Deferred income taxes, net of acquisitions | (10,971 | ) | 35,968 | |||||
Amortization of debt issuance costs | 3,221 | 3,877 | ||||||
Share-based compensation | 32,407 | 35,476 | ||||||
Interest income on restricted assets | (387 | ) | (366 | ) | ||||
Interest accretion | 10,406 | 7,038 | ||||||
Excess tax benefit associated with equity-based compensation | - | (5,151 | ) | |||||
Adjustments to contingent consideration | 17,754 | (2,563 | ) | |||||
Payment of contingent consideration recorded in earnings | - | (413 | ) | |||||
Net change in operating assets and liabilities, net of acquisitions | (23,840 | ) | (19,593 | ) | ||||
Net cash provided by operating activities | 888,375 | 538,831 | ||||||
Cash flows from investing activities: | ||||||||
Payments for acquisitions, net of cash acquired | (394,002 | ) | (13,703 | ) | ||||
Cash acquired in the Progressive Waste acquisition | - | 65,768 | ||||||
Capital expenditures for property and equipment | (317,385 | ) | (204,934 | ) | ||||
Proceeds from disposal of assets | 25,826 | 3,026 | ||||||
Change in restricted assets, net of interest income | 5,464 | (188 | ) | |||||
Other | (3,465 | ) | (3,016 | ) | ||||
Net cash used in investing activities | (683,562 | ) | (153,047 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt | 896,947 | 3,407,359 | ||||||
Principal payments on notes payable and long-term debt | (666,724 | ) | (3,612,763 | ) | ||||
Payment of contingent consideration recorded at acquisition date | (5,840 | ) | (12,105 | ) | ||||
Change in book overdraft | 13,814 | 6,050 | ||||||
Proceeds from option and warrant exercises | 1,946 | - | ||||||
Excess tax benefit associated with equity-based compensation | - | 5,151 | ||||||
Payments for cash dividends | (95,201 | ) | (61,001 | ) | ||||
Tax withholdings related to net share settlements of restricted share units | (13,754 | ) | (11,461 | ) | ||||
Debt issuance costs | (3,638 | ) | (13,508 | ) | ||||
Proceeds from sale of common shares held in trust | 8,704 | 15,341 | ||||||
Other | (1,095 | ) | (3 | ) | ||||
Net cash provided by (used in) financing activities | 135,159 | (276,940 | ) | |||||
Effect of exchange rate changes on cash and equivalents | 927 | (483 | ) | |||||
Net increase in cash and equivalents | 340,899 | 108,361 | ||||||
Cash and equivalents at beginning of period | 154,382 | 10,974 | ||||||
Less: change in cash held for sale | (27 | ) | - | |||||
Cash and equivalents at end of period | $ | 495,254 | $ | 119,335 | ||||
Non-cash financing activities: | ||||||||
Liabilities assumed and notes payable issued to sellers of businesses acquired | $ | 143,495 | $ | 2,572,034 | ||||
Non-cash consideration received for asset sales | $ | 92,972 | $ | - | ||||
Issuance of common shares to acquire Progressive Waste | $ | - | $ | 3,503,162 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
1.BASIS OF PRESENTATION AND SUMMARY |
On June 1, 2016, pursuant to the terms of the Agreement and Plan of Merger dated as of January 18, 2016 (the “Merger Agreement”), Water Merger Sub LLC (“Merger Sub”), a Delaware limited liability company and a wholly-owned subsidiary of Progressive Waste Solutions Ltd., merged with and into Waste Connections US, Inc. (f/k/a Waste Connections, Inc.), a Delaware corporation (“Old Waste Connections”) with Old Waste Connections continuing as the surviving corporation and an indirect wholly-owned subsidiary of Waste Connections, Inc. (f/k/a Progressive Waste Solutions Ltd.), a corporation organized under the laws of Ontario, Canada (the “Progressive Waste acquisition”). Following the closing of the transaction, Old Waste Connections’ common stock was delisted from the New York Stock Exchange (“NYSE”) and deregistered under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Pursuant to the Merger Agreement, Old Waste Connections’ stockholders received common shares of Waste Connections, Inc. (f/k/a Progressive Waste Solutions Ltd.) in exchange for their shares of common stock of Old Waste Connections.
As further discussed in Note 6 – “Acquisitions,” the Progressive Waste acquisition was accounted for as a reverse merger using the acquisition method of accounting. Old Waste Connections has been identified as the acquirer for accounting purposes and the acquisition method of accounting has been applied. The term “Progressive Waste” is used herein in the context of references to Progressive Waste Solutions Ltd. and its shareholders prior to the completion of the Progressive Waste acquisition on June 1, 2016.
The accompanying condensed consolidated financial statements relatingrelate to Waste Connections, Inc. (f/k/a Progressive Waste Solutions Ltd., and together with its subsidiaries “New Waste Connections,” “WCI” or the(the “Company”) are the historical financial statements of Old Waste Connections for the three and ninesix month periods ended SeptemberJune 30, 20172021 and 2016, with the inclusion on June 1, 2016 of the fair value of the assets and liabilities acquired from Progressive Waste and the inclusion of the results of operations from the acquired Progressive Waste operations commencing on June 1, 2016.2020. In the opinion of management, the accompanying balance sheets and related interim statements of net income (loss), comprehensive income (loss), cash flows and equity include all adjustments, consisting only of normal recurring items, necessary for their fair statement in conformity with U.S. generally accepted accounting principles (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Examples include accounting for landfills, self-insurance accruals, income taxes, allocation of acquisition purchase price, contingent consideration accruals and asset impairments. An additional area that involves estimation is when the Company estimates the amount of potential exposure it may have with respect to litigation, claims and assessments in accordance with the accounting guidance on contingencies. Actual results for all estimates could differ materially from the estimates and assumptions that the Company uses in the preparation of its condensed consolidated financial statements.
Interim results are not necessarily indicative of results for a full year. These interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020.
2.REPORTING CURRENCY |
The functional currency of the Company, as the parent corporate entity, and its operating subsidiaries in the United States, is the U.S. dollar. The functional currency of the Company’s Canadian operations is the Canadian dollar. The reporting currency of the Company is the U.S. dollar. The Company’s consolidated Canadian dollar financial position is translated to U.S. dollars by applying the foreign currency exchange rate in effect at the consolidated balance sheet date. The Company’s consolidated Canadian dollar results of operations and cash flows are translated to U.S. dollars by applying the average foreign currency exchange rate in effect during the reporting period. The resulting translation adjustments are included in other comprehensive income or loss. Gains and losses from foreign currency transactions are included in earnings for the period.
3.NEW ACCOUNTING STANDARDS
Accounting Standards Adopted
Income Taxes – Simplifying the Accounting for Income Taxes. In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance that simplifies the accounting for income taxes as part of its overall initiative to reduce complexity in applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. The amendments include removal of certain exceptions to the general principles of income taxes, and simplification in several other areas such as accounting for a franchise tax that is partially based on income. The standard is effective for public business entities that are U.S. Securities and Exchange Commission (“SEC”) filers for annual periods beginning after December 15, 2020, and interim periods within those reporting periods. The Company adopted the new standard as of January 1, 2021. The adoption of this new standard did not have a material impact on the Company’s consolidated financial statements.
Accounting Standards Pending Adoption
Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In March 2020, the FASB issued guidance to provide temporary optional expedients and exceptions to the guidance in GAAP on
7
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Revenue From Contracts With Customerscontract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”). In May 2014,One-week and two-month U.S. dollar LIBOR settings as well as all non-U.S. dollar LIBOR settings will stop being published on December 31, 2021, while the Financial Accounting Standards Board (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 standardremaining U.S. dollar LIBOR settings will be discontinued on June 30, 2023. Under the new guidance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Under the guidance, entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.
The guidance is effective for fiscal years,upon issuance. The guidance on contract modifications is applied prospectively from March 12, 2020. It may also be applied to modifications of existing contracts made earlier in the interim period that includes the effective date. The guidance on hedging is applied to eligible hedging relationships existing as of the beginning of the interim period that includes the effective date and to new eligible hedging relationships entered into after the beginning of that interim periods within those fiscal years, beginningperiod. The relief is temporary and generally cannot be applied to contract modifications that occur after December 15, 2017 for public entities, with early adoption permitted (but not earlier than the original effective date of the pronouncement).31, 2022 or hedging relationships entered into or evaluated after that date. However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022. The Company is currently planning to adopt the amended guidance using the modified retrospective method as of January 1, 2018. Based on the Company’s work to date, it believes it has identified all material contract types and costs that may be impacted by this amended guidance.
As disclosed in the Quarterly Report on Form 10-Q for the second quarter of 2017, the Company expenses approximately $16,000 in sales incentives annually. The Company is continuing to evaluate the amount of sales incentives that will be capitalized as contract acquisition costs upon adoption of the amended guidance. Capitalized sales incentives will be amortized over the expected life of the customer relationship. Additional areas of the amended guidance the Company has evaluated for potential impact include volume discounts, free service periods, rebates and principal versus agent arrangements. The Company does not believe changes in these areas will result in a material impact on its consolidated financial statements.
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. The Company adopted this guidance as of January 1, 2017, which resulted in the Company’s current deferred tax assets being recorded as noncurrent on a retrospective basis. The Company’s current deferred tax assets were $82,876 and $89,177 at September 30, 2017 and December 31, 2016, respectively.
Lease Accounting. In February 2016, the FASB issued guidance that requires lessees to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. The new standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The new standard must be adopted using a modified retrospective transition, and provides for certain practical expedients. Transition will require application of the new guidance at the beginning of the earliest comparative period presented. The Company has not yet assessedassessing the potential impact of implementing this new accounting standardguidance on its consolidated financial statements.statements. The Company had a combined $1,151,000 of U.S. based LIBOR loans as of June 30, 2021. The Company estimates that if the reference rate for these loans had transitioned from LIBOR to SOFR as of June 30, 2021, the impact to annual interest expense would have been an increase of less than $1,000. To the extent that the transition away from the use of LIBOR might affect the Company’s ability to maintain cash flow hedge accounting as described in Note 12, the relief is expected to permit the Company to maintain that cash flow hedge accounting.
Improvements to Employee Share-Based Payment AccountingSEC amends MD&A and other Regulation S-K disclosure requirements. In March 2016,November 2020, the FASB issuedSEC adopted amendments to Regulation S-K to eliminate certain disclosure requirements and to revise several others to make the disclosures provided in management’s discussion and analysis more useful for investors. Key changes included: (1) enhancements and clarification of the disclosure requirements for liquidity and capital resources; (2) elimination of five years of Selected Financial Data; (3) replacement of the current requirement for two years of quarterly tabular disclosure with a principles-based requirement to provide information only when there are material retrospective changes; (4) codification of prior SEC guidance that identifies areason critical accounting estimates; (5) elimination of the tabular disclosure of contractual obligations; and (6) conforming amendments for simplification involving several aspects of accounting for share-based payment transactions, including classification of awardsforeign private issuers. The amended rules were posted to the Federal Register on January 11, 2021 and became effective February 10, 2021. Registrants are required to comply with the new rules beginning with the first fiscal year ending on or after August 9, 2021. Registrants may early adopt the amended rules at any time after the effective date (on an item-by-item basis), as either equity or liabilities, an option to recognize gross share compensation expense with actual forfeitures recognizedlong as they occur, certain classifications onprovide the statement of cash flows and income tax consequences, including that all income tax effects of awards aredisclosure responsive to be recognizedan amended item in its entirety.
4.RECLASSIFICATION
As disclosed within Note 11 to the financial statements, segment information reported in the income statement whenCompany’s prior year has been reclassified to conform to the awards2021 presentation.
5.IMPAIRMENTS OF PROPERTY, EQUIPMENT, GOODWILL AND INTANGIBLE ASSETS
Property, equipment and finite-lived intangible assets are settled whereas previously the tax benefits in excess of compensation cost were recorded in equity. The new standard is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within that reporting period.As such, the Company adopted this standard on January 1, 2017 and classified the excess tax benefits associated with equity-based compensation arrangements, which were $6,776 during the nine months ended September 30, 2017, as a discrete item within Income tax provision on the Condensed Consolidated Statements of Net Income, rather than recognizing such excess income tax benefits in Additional paid-in capital on the Condensed Consolidated Statements of Equity. This reclassification was made on a prospective basis and also impacted the related classificationcarried on the Company’s Condensed Consolidated Statements of Cash Flows as excess tax benefits associated with equity-based compensation arrangements were previously reported in cash flows from operating activities and cash flows from financing activities. Under the new standard, excess tax benefits associated with equity-based compensation are only reported in cash flows from operating activities. Additionally, the Company now recognizes gross share compensation expense with actual forfeitures as they occur, which differs from the Company’s previous accounting policy to estimate forfeitures each period. Using the modified retrospective approach, the Company recorded a cumulative effect adjustment to Retained earnings of $1,384 for the differential between the amount of compensation cost previously recorded and the amount that would have been recorded without assuming forfeitures.
Classification of Certain Cash Receipts and Cash Payments.In August 2016, the FASB issued guidance that addresses eight targeted changes with respect to how cash receipts and cash payments are classified in the statements of cash flows, with the objective of reducing diversity in practice. The new standard is effective for public companies forconsolidated financial statements issued for fiscal years beginning after December 15, 2017,based on their cost less accumulated depreciation or amortization. Finite-lived intangible assets consist of long-term franchise agreements, contracts, customer lists, permits and interim periods within those fiscal years. Early adoptionother agreements. The recoverability of these assets is permitted, providedtested whenever events or changes in circumstances indicate that alltheir carrying amount may not be recoverable.
8
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
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. |
Accounting for Income Taxes: Intra-Entity Asset TransfersIf any of Assets Other than Inventory. In October 2016,these or other indicators occur, a test of recoverability is performed by comparing the FASB issued guidance that eliminates the exception for all intra-entity sales of assets other than inventory. As a result, a reporting entity would recognize the tax expense from the salecarrying 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 seller’s tax jurisdiction whenamount of the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arisesdifference is recorded in the buyer’s jurisdiction would alsoperiod that the impairment indicator occurs. Several impairment indicators are beyond the Company’s control, and whether or not they will occur cannot be recognized at the timepredicted 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.
There are certain indicators listed above that require significant judgment and understanding of the transfer. The modified retrospective approach willwaste 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 required for transitionconsidered indicators of impairment due to the new guidance, with a cumulative-effect adjustment recorded in retained earnings as of the beginning of the period of adoption. The new guidance will be effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years. Early adoption is permitted; however, the guidance can only be adopted in the first interim period of a fiscal year. The Company does not expect the adoption of this guidance tohave a material impact on the consolidated financial statements.
Statement of Cash Flows: Restricted Cash. In November 2016, the FASB issued guidance that requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose theunique nature of the restrictions. The new standard is effectivewaste industry.
Goodwill and indefinite-lived intangible assets are tested for public companies for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoptionimpairment on at least an annual basis in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected asfourth quarter of the beginningyear. In addition, the Company evaluates its reporting units for impairment if events or circumstances similar to the indicators listed above change between annual tests indicating a possible impairment.
Through June 30, 2020, the Company’s reporting units consisted of its 5 geographic solid waste operating segments and its non-hazardous oil and natural gas exploration and production (“E&P”) waste treatment, recovery and disposal services segment. As of July 2020, the Company combined all operations of the fiscal year that includes that interim period. The Company does not expectE&P segment into the adoption of this guidance to have a material impactSouthern segment, based on the Company’s statementdetermination that the two operating segments met the aggregation criteria, and eliminated the E&P segment.
The Company estimates the fair value of each of its reporting units using discounted cash flows.
Simplifyingflow analyses. Discounted cash flow analyses require significant assumptions and estimates about the Test for Goodwill Impairment. In January 2017,future operations of each reporting unit and the FASB issued guidance that simplifiesfuture discrete cash flows related to each indefinite-lived intangible asset. Significant judgments inherent in these analyses include the accounting for goodwill impairment.determination of appropriate discount rates, the amount and timing of expected future cash flows, growth rates and income tax rates. The guidance removes Step 2Company compares the fair value of each reporting unit 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 test, which requires a hypothetical purchase price allocation. A goodwillresults. If the fair value is less than its carrying value, an impairment will now becharge is recorded for the amount by which a reporting unit’sthe carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwillIn testing indefinite-lived intangible assets for impairment, guidance will remain largely unchanged. The new standard will be applied prospectively, and is effective for public companies for their annual or any interim goodwill impairment tests for fiscal years beginning after December 15, 2019. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company early adopted this new guidance on January 1, 2017. During the year ended December 31, 2016, the Company did not record any impairment charges related to goodwill; however,compares the results of the Company’s annual impairment testing indicated that the carryingestimated fair value of its exploration and production (“E&P”) segment exceeded its fair value by more than $77,343, which was the carrying value of goodwill at its E&P segment at December 31, 2016. Upon adopting this accounting guidance in the first quarter of 2017, the Company performed an updated impairment test for its E&P segment which showedeach indefinite-lived intangible asset to its carrying value continued to exceed its fair value by an amount in excess of the carrying amount of goodwill, or $77,343. Therefore, the Company recorded an impairment charge of $77,343, consisting of the carrying amount of goodwill at its E&P segment at January 1, 2017, to Impairments and other operating charges in the Condensed Consolidated Statements of Net Income during the nine months ended September 30, 2017.
Stock Compensation: Scope of Modification Accounting. In May 2017, the FASB issued guidance to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only ifvalue. If the fair value the vesting conditions, or the classification of the award (as equity or liability) changes as a resultindefinite-lived
9
Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. In August 2017, the FASB issued guidancewhich improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. The amendments in this update are intended to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and presentation of hedge results. The effective date for the standard is for fiscal years beginning after December 15, 2018. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
As disclosed within other footnotes of the financial statements, segment information and deferred tax amounts reportedintangible asset is less than its carrying value, an impairment charge would be recorded to earnings in the Company’s Condensed Consolidated Statements of Net Income (Loss).
The demand for the Company’s 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. Macroeconomic and geopolitical conditions, including a significant decline in oil prices occurring in 2020 driven by both surplus production and supply, as well as the decrease in demand caused by factors including the coronavirus disease 2019 (“COVID-19”) pandemic, resulted in decreased levels of oil and natural gas exploration and production activity and a corresponding decrease in demand for the Company’s E&P waste services in 2020 and 2021. During the three months ended June 30, 2020, total revenue for the Company’s E&P segment declined 43.3%, compared to the prior year period, on oil rig count declines of over 60% in certain basins. The most impacted basins included the Williston Basin in North Dakota, the Eagle Ford Basin in Texas and the Powder River Basin in Wyoming, all of which have relatively high costs associated with drilling, making them less attractive than other basins, including the Permian Basin in Texas and New Mexico. Additionally, across the industry there was uncertainty regarding future demand for oil and related services, as noted by several energy companies during 2020, many of whom are customers of the Company’s E&P operations. These companies wrote down the values of their oil and gas assets in anticipation of the potential for the decarbonization of their energy product mix given an increased global focus on reducing greenhouse gases and addressing climate change. Such uncertainty regarding global demand had a significant impact on the investment and operating plans of the Company’s E&P waste customers in the basins where the Company operates.
The decrease in E&P activity, together with market expectations of a likely slow recovery in oil prices, reduced the expected future period cash flows of the Company’s E&P operations. Based on these events, the Company concluded that a triggering event occurred which required the Company to perform an impairment test of the property and equipment and intangible assets of its E&P operations as of June 30, 2020 using July 2020 industry projections for drilling activity by basin as the basis for expectations about future activity. Based upon the results of the impairment test, the Company concluded that the carrying value exceeded the projected undiscounted cash flows of 4 E&P landfills. The next step was to calculate the fair value of these 4 landfills using an income approach employing a discounted cash flow (DCF) model over the lesser of 40 years or the remaining life of each landfill. Additional key assumptions used in the DCF model included a discount rate of 12% applied to the cash flows, annual revenue projections based on E&P waste resulting from projected levels of oil and natural gas E&P activity during the forecast period at each location, gross margins based on estimated operating expense requirements during the forecast period, estimated capital expenditures over the forecast period and income taxes based on the estimated federal and state income tax rates applicable during the cash flow periods, all of which were classified as Level 3 in the fair value hierarchy. For each of the 4 landfills, the carrying value exceeded the calculated discounted fair value, resulting in the recording of an impairment charge of $417,384 to Impairments and other operating items in the Condensed Consolidated Statements of Net Income (Loss) during the three months ended June 30, 2020. The 4 landfills had $0 of intangible assets at June 30, 2020; therefore, 0 impairment charge was attributable to intangible assets. The impairment charge reduced the carrying value of property and equipment by $417,384. If the estimated annual cash flows in the DCF model for each asset or asset group tested was changed by 10%, the resulting impairment charge would change by approximately $3,000.
The aforementioned impairment charges were partially offset by a $4,145 adjustment to reduce the fair value of an amount payable in 2021 under a liability-classified contingent consideration arrangement calculated on future earnings and cash flows associated with the acquisition of an E&P business in 2014. Based upon the outlook for E&P waste services in the market where the acquired business operates, the payment of the contingent consideration was deemed unlikely and the carrying value was reduced to $0 as of June 30, 2020, resulting in a credit to Impairments and other operating items in the Condensed Consolidated Statements of Net Income (Loss).
10
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
6.REVENUE
The Company’s operations primarily consist of providing non-hazardous waste collection, transfer, disposal and recycling services, E&P services, and intermodal services. The following table disaggregates the Company’s revenues by service line for the periods indicated:
| | | | | | | | | | | | | |
| | | Three Months Ended June 30, | | | Six Months Ended June 30, | | ||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Commercial |
| $ | 444,044 | | $ | 375,427 | | $ | 870,439 | | $ | 791,935 |
|
Residential | | | 416,975 | | | 378,188 | | | 817,794 | | | 743,919 | |
Industrial and construction roll off | | | 237,300 | | | 194,457 | | | 446,558 | | | 401,228 | |
Total collection | | | 1,098,319 | | | 948,072 | | | 2,134,791 | | | 1,937,082 | |
Landfill | | | 327,124 | | | 280,619 | | | 599,060 | | | 546,836 | |
Transfer | | | 217,133 | | | 189,085 | | | 406,456 | | | 369,851 | |
Recycling | | | 41,539 | | | 20,217 | | | 73,987 | | | 38,324 | |
E&P | | | 34,607 | | | 40,152 | | | 62,618 | | | 105,530 | |
Intermodal and other | | | 38,590 | | | 27,811 | | | 74,225 | | | 57,829 | |
Intercompany | | | (223,381) | | | (200,174) | | | (421,263) | | | (397,265) | |
Total |
| $ | 1,533,931 | | $ | 1,305,782 | | $ | 2,929,874 | | $ | 2,658,187 |
|
The factors that impact the timing and amount of revenue recognized for each service line may vary based on the nature of the service performed. Generally, the Company recognizes revenue at the time it performs a service. In the event that the Company bills for services in advance of performance, it recognizes deferred revenue for the amount billed and subsequently recognizes revenue at the time the service is provided. Substantially all of the deferred revenue recorded as of March 31, 2021 was recognized as revenue during the three months ended June 30, 2021 when the service was performed.
See Note 11 for additional information regarding revenue by reportable segment.
Contract Acquisition Costs
The incremental direct costs of obtaining a contract, which consist of sales incentives, are recognized as Other assets in the Company’s Condensed Consolidated Balance Sheet, and are amortized to Selling, general and administrative expense over the estimated life of the relevant customer relationship, which ranges from one to five years. The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity would have recognized is one year or less. The Company had $18,954 and $19,669 of deferred sales incentives at June 30, 2021 and December 31, 2020, respectively.
7.ACCOUNTS RECEIVABLE
Accounts receivable are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Company’s receivables, net of the allowance for credit losses, represents their estimated net realizable value.
The allowance for credit losses is based on management’s assessment of the collectability of assets pooled together with similar risk characteristics. The Company monitors the collectability of its trade receivables as one overall pool due
11
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
to all trade receivables having similar risk characteristics. The Company estimates its allowance for credit losses based on historical collection trends, the age of outstanding receivables, geographical location of the customer, existing economic conditions and reasonable forecasts. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when the Company’s internal collection efforts have been reclassified to conform withunsuccessful in collecting the 2017 presentation.amount due.
8.LANDFILL ACCOUNTING |
At SeptemberJune 30, 2017,2021, the Company’s landfills consisted of 7882 owned landfills, eight5 landfills operated under life-of-site operating agreements, and six4 landfills operated under limited-term operating agreements.agreements and 1 development stage landfill. The Company’s landfills had site costs with a net book value of $2,687,159$2,602,084 at SeptemberJune 30, 2017.2021. For the Company’s landfills operated under limited-term operating agreements and life-of-site operating agreements, the owner of the property (generally a municipality) usually owns the permit and the Company operates the landfill for a contracted term. Where the contracted term is not the life of the landfill, the property owner is generally responsible for final capping, closure and post-closure obligations. The Company is responsible for all final capping, closure and post-closure liabilities at the landfills it operates under life-of-site operating agreements.
The Company’s internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at its landfills. Many of the Company’s existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted. The Company’s landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills it owns and landfills it operates, but does not own, under life-of-site agreements. The Company’s landfill depletion rate is based on the term of the operating agreement at its operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets certain criteria is included in the estimate of total landfill airspace.
Based on remaining permitted capacity as of SeptemberJune 30, 2017,2021, and projected annual disposal volumes, the average remaining landfill life for the Company’s owned landfills and landfills operated under life-of-site operating agreements is estimated to be approximately 2728 years. As of SeptemberJune 30, 2017,2021, the Company is seeking to expand permitted capacity at 11 of its owned landfills and two3 landfills that it operates under life-of-site operating agreements, and considers the achievement of these expansions to be probable. Although the Company cannot be certain that all future expansions will be permitted as designed, the average remaining life, when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume, of the Company’s owned landfills and landfills operated under life-of-site operating agreements is approximately 2932 years. The estimated remaining lives of the Company’s owned landfills and
12
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
landfills operated under life-of-site operating agreements range from 1 to 283 years, with approximately 90% of the projected annual disposal volume from landfills with remaining lives ranging from approximately 1 to 196of less than 70 years.
During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the Company expensed $147,071$102,702 and $98,075,$96,925, respectively, or an average of $4.55$4.54 and $4.27$4.50 per ton consumed, respectively, related to landfill depletion at owned landfills and landfills operated under life-of-site agreements.
The Company reserves for estimated final capping, closure and post-closure maintenance obligations at the landfills it owns and landfills it operates under life-of-site operating agreements. The Company calculates the net present value of its final capping, closure and post-closure liabilities by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in the Company’s final capping, closure and post-closure liabilities being recorded in “layers.” The Company’s discount rate assumption for purposes of computing 20172021 and 20162020 “layers” for final capping, closure and post-closure obligations was 3.25% and 4.75% for both years,, respectively, which reflects the Company’s long-term credit adjusted risk free rate as of the end of both 20162020 and 2015.2019. The Company’s inflation rate assumption is 2.5%2.25% and 2.50% for the years ending December 31, 20172021 and 2016.2020, respectively. The resulting final capping, closure and post-closure obligations are recorded on the condensed consolidated balance sheetCondensed Consolidated Balance Sheet along with an offsetting addition to site costs which is amortized to depletion expense as the remaining landfill airspace is consumed. Interest is accreted on the recorded liability using the corresponding discount rate. During the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, the Company expensed $8,757$7,285 and $5,740$7,505, respectively, or an average of $0.27$0.32 and $0.25$0.35 per ton consumed, respectively, related to final capping, closure and post-closure accretion expense.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 20162020 to SeptemberJune 30, 2017: 2021:
Final capping, closure and post-closure liability at December 31, 2016 | $ | 244,909 | ||
Adjustments to final capping, closure and post-closure liabilities | (27,876 | ) | ||
Liabilities incurred | 11,011 | |||
Accretion expense associated with landfill obligations | 8,757 | |||
Closure payments | (4,913 | ) | ||
Foreign currency translation adjustment | 2,025 | |||
Final capping, closure and post-closure liability at September 30, 2017 | $ | 233,913 |
| | | |
Final capping, closure and post-closure liability at December 31, 2020 |
| $ | 301,896 |
Liability adjustments | |
| (10,328) |
Accretion expense associated with landfill obligations | |
| 7,285 |
Closure payments | |
| (5,802) |
Foreign currency translation adjustment | |
| 1,268 |
Final capping, closure and post-closure liability at June 30, 2021 | | $ | 294,319 |
The AdjustmentsLiability adjustments of $10,328 for the six months ended June 30, 2021, represent non-cash changes to final capping, closure and post-closure liabilities primarily consisted of decreases in estimatedand are recorded on the Condensed Consolidated Balance Sheets along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed. The final capping, closure and post closure costs at several of our landfills, most notably our landfill at Seneca Meadows, and changespost-closure liability is included in engineering estimates related to a proposed expansion at our Chiquita Canyon landfill as well as timing of closure events and total site capacity.Other long-term liabilities in the Condensed Consolidated Balance Sheets. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.
At SeptemberJune 30, 20172021 and December 31, 2016, $55,8272020, $12,015 and $55,388$12,533, respectively, of the Company’s restricted assetscash balance and $56,548 and $54,833, respectively, of the Company’s restricted investments balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.
Progressive Waste Acquisition
As described in Note 1, on June 1, 2016, pursuant to the Merger Agreement, Merger Sub merged with and into Old Waste Connections in an all-stock business combination with Old Waste Connections continuing as the surviving corporation and an indirect wholly-owned subsidiary of New Waste Connections. The term “Progressive Waste” is used herein in the context of references to Progressive Waste Solutions Ltd. and its shareholders prior to the completion of the Progressive Waste acquisition on June 1, 2016. The financial statements presented herein are the historical financial statements of Old Waste Connections with the inclusion on June 1, 2016 of the fair value of the identifiable assets and liabilities acquired from Progressive Waste and the inclusion of the results of operations from the acquired Progressive Waste operations commencing on June 1, 2016.
Under the terms of the Merger Agreement, Old Waste Connections’ stockholders received 3.1152645 New Waste Connections shares for each Old Waste Connections share they owned. Immediately following the completion of the Progressive Waste acquisition, New Waste Connections also completed (i) a consolidation whereby every 3.1152645 common shares outstanding were converted into one common share (the “Consolidation”) and (ii) an amalgamation with a wholly-owned subsidiary whereby its legal name was changed from Progressive Waste Solutions Ltd. to Waste Connections, Inc. (the “Amalgamation”). Upon completion of the Progressive Waste acquisition, Old Waste Connections’ former stockholders owned approximately 70% of the Company, and Progressive Waste’s former shareholders owned approximately 30%. All share amounts stated herein reflect shares on a post-Consolidation basis.
Following the completion of the Progressive Waste acquisition, the Consolidation and the Amalgamation, on June 1, 2016, the post-Consolidation common shares of New Waste Connections (the “Common Shares”) commenced trading on the Toronto Stock Exchange (the “TSX”) and on the NYSE under the ticker symbol “WCN.” The common stock of Old Waste Connections, which traded previously under the symbol “WCN,” ceased trading on, and has been delisted from, the NYSE.
The transaction was accounted for as a reverse merger using the acquisition method of accounting. Old Waste Connections has been identified as the acquirer for accounting purposes and the acquisition method of accounting has been applied. Identifying the acquirer requires various considerations including the relative voting rights post-closing, the size of minority voting interests and the composition of the board of directors and senior management. Based on these considerations, Old Waste Connections’ former stockholders hold a majority of the post-closing voting rights of the combined company and both the post-closing composition of the board of directors and senior management are most closely aligned with Old Waste Connections. The Progressive Waste acquisition provided the Company with significant strategic and financial benefits including enhanced size and revenue diversification, increased earnings and cash flows and better access to capital markets.
13
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The results of operations from the acquired Progressive Waste operations have been included in the Company’s Condensed Consolidated Financial Statements from June 1, 2016, the acquisition date. Total revenues during the period from June 1, 2016 to September 30, 2016, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated revenues, were $687,108. Total pre-tax earnings during the period from June 1, 2016 to September 30, 2016, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated income before income taxes, were $68,289. Total revenues during the period from January 1, 2017 to May 31, 2017, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated revenues, were $826,886. Total pre-tax earnings during the period from January 1, 2017 to May 31, 2017, generated from the operations acquired in the Progressive Waste acquisition and included within consolidated income before income taxes, was $79,470, and includes $57,362 of expenses recorded in Impairments and other operating items.
The following table summarizes the consideration transferred to acquire Progressive Waste and the amounts of identifiable assets acquired and liabilities assumed:
Fair value of consideration transferred: | ||||
Shares issued | $ | 3,503,162 | ||
Debt assumed | 1,729,274 | |||
5,232,436 | ||||
Less: cash acquired | (65,768 | ) | ||
Net fair value of consideration transferred | 5,166,668 | |||
Recognized amounts of identifiable assets acquired and liabilities assumed associated with the business acquired: | ||||
Accounts receivable | 231,709 | |||
Prepaid expenses and other current assets | 28,623 | |||
Restricted assets | 16,551 | |||
Property and equipment | 2,063,011 | |||
Contracts | 223,885 | |||
Customer lists | 191,679 | |||
Other intangibles | 218,499 | |||
Other assets | 4,491 | |||
Accounts payable and accrued liabilities | (264,992 | ) | ||
Deferred revenue | (35,635 | ) | ||
Contingent consideration | (19,412 | ) | ||
Other long-term liabilities | (185,774 | ) | ||
Deferred income taxes | (329,552 | ) | ||
Total identifiable net assets | 2,143,083 | |||
Goodwill | $ | 3,023,585 |
Following the merger of Merger Sub into Old Waste Connections, and the issuance of 3.1152645 New Waste Connections shares for each Old Waste Connections share after giving effect to the Consolidation, the Company issued an additional 78,218,878 common shares at $44.79, the closing price on the NYSE of New Waste Connections common shares on June 1, 2016 as share consideration for the Progressive Waste acquisition. The Company assumed $1,729,274 of debt in the acquisition, consisting of $1,659,465 of amounts outstanding under the Progressive Waste credit facilities that were repaid in full following the close of the acquisition, $64,000 of tax-exempt bonds and $5,809 of other long-term debt.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Contingent consideration acquired consists primarily of two amounts payable to the former owners of an acquisition completed by Progressive Waste in 2015. The first contingent amount payable is based on the acquired operations exceeding earnings targets specified in the purchase agreement over a one-year period ending September 30, 2017. There is no limit to this contingent amount payable under the terms of the purchase agreement, the fair value of which was recorded as $10,452 of additional purchase consideration in 2016, based upon applying a discount rate of 2.0% to the probability assessment of the expected future cash flows over the period in which the obligation is expected to be settled. During the nine months ended September 30, 2017, the Company recorded $9,631 to Impairments and other operating items in the Condensed Consolidated Statements of Net Income to increase the fair value of the amount payable under this liability-classified contingent consideration arrangement. The Company paid this liability in the fourth quarter of 2017. The second contingent amount payable had a maximum possible payment of $5,000, representing a purchase price holdback payable to the former owners subject to the satisfaction of various business performance conditions through December 31, 2016, which was paid during the nine months ended September 30, 2017.
The goodwill acquired is primarily attributable to growth opportunities at operations acquired in the Progressive Waste acquisition and synergies that are expected to arise as a result of the acquisition. The expected tax deductible amount of the goodwill acquired is $303,594.
The gross amount of trade receivables due under contracts was $239,212, of which $7,503 was expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the Progressive Waste acquisition.
The Company incurred $758 and $31,588 of acquisition-related costs for the Progressive Waste acquisition during the nine months ended September 30, 2017 and 2016, respectively. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
Other Acquisitions
In January 2017, the Company acquired Groot Industries, Inc. (“Groot”). At the time of the acquisition, Groot was the largest privately-owned solid waste services company in Illinois with total annual revenue of approximately $200,000. Groot serves approximately 300,000 customers primarily in northern Illinois from a network of seven collection operations, six transfer stations and one recycling facility.
In addition to the acquisition of Groot, the Company acquired 11 individually immaterial non-hazardous solid waste collection businesses during the nine months ended September 30, 2017. The total acquisition-related costs incurred during the nine months ended September 30, 2017 for these acquisitions was $3,660. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
The Company acquired 10 individually immaterial non-hazardous solid waste collection businesses during the nine months ended September 30, 2016. The total acquisition-related costs incurred during the nine months ended September 30, 2016 for these acquisitions was $773. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.
The results of operations of these acquired businesses have been included in the Company’s Condensed Consolidated Financial Statements from their respective acquisition dates. The Company expects these acquired businesses to contribute towards the achievement of the Company’s strategy to expand through acquisitions. Goodwill acquired is attributable to the synergies and ancillary growth opportunities expected to arise after the Company’s acquisition of these businesses.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The following table summarizes the consideration transferred and the preliminary amounts of identifiable assets acquired and liabilities assumed at the acquisition dates for the acquisitions consummated in the nine months ended September 30, 2017 and 2016:
2017 Acquisitions | 2016 Acquisitions | |||||||
Fair value of consideration transferred: | ||||||||
Cash | $ | 394,002 | $ | 13,703 | ||||
Debt assumed | 56,958 | - | ||||||
Notes issued to sellers | 13,460 | - | ||||||
Fair value of operations exchanged | 81,097 | - | ||||||
545,517 | 13,703 | |||||||
Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired: | ||||||||
Accounts receivable | 19,312 | 521 | ||||||
Prepaid expenses and other current assets | 4,336 | 477 | ||||||
Property and equipment | 167,065 | 4,397 | ||||||
Long-term franchise agreements and contracts | 54,674 | - | ||||||
Customer lists | 28,033 | 5,079 | ||||||
Indefinite-lived intangibles | 5,830 | - | ||||||
Other intangibles | 27,261 | - | ||||||
Other assets | 3,052 | 261 | ||||||
Accounts payable and accrued liabilities | (12,022 | ) | (744 | ) | ||||
Deferred revenue | (9,657 | ) | (659 | ) | ||||
Contingent consideration | (35 | ) | (345 | ) | ||||
Other long-term liabilities | (1,080 | ) | - | |||||
Deferred income taxes | (50,283 | ) | - | |||||
Total identifiable net assets | 236,486 | 8,987 | ||||||
Goodwill | $ | 309,031 | $ | 4,716 |
Goodwill acquired during the nine months ended September 30, 2017, totaling $51,518, is expected to be deductible for tax purposes. The acquisitions of 10 non-hazardous solid waste collection businesses resulted in goodwill acquired during the nine months ended September 30, 2016, totaling $4,716, which is expected to be deductible for tax purposes.
The fair value of acquired working capital related to 10 individually immaterial acquisitions completed during the nine months ended September 30, 2017, is provisional pending receipt of information from the acquirees to support the fair value of the assets acquired and liabilities assumed. Any adjustments recorded relating to finalizing the working capital for these 10 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 nine months ended September 30, 2017, is $20,025, of which $713 is expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the nine months ended September 30, 2016, is $947, of which $426 is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisitions of these businesses.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Pro Forma Results of Operations
The following pro forma results of operations assume that the Company’s acquisition of Progressive Waste and its other acquisitions that were collectively insignificant, occurring during the nine months ended September 30, 2016, were acquired as of January 1, 2016 (unaudited):
Nine Months Ended September 30, | ||||
2016 | ||||
Total revenue | $ | 3,136,249 | ||
Net income | 279,907 | |||
Basic income per share | 1.07 | |||
Diluted income per share | 1.07 |
The unaudited pro forma results of operations do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on January 1, 2016, nor are they necessarily indicative of future operating results. The above unaudited pro forma financial information includes adjustments to acquisition expenses incurred by the Company and the acquired businesses, severance payments to employees terminated as a result of the acquisitions, equity-based compensation expenses incurred as a result of accelerated vesting resulting from the Progressive Waste acquisition, interest expense on new and refinanced debt attributable to the acquisitions, expenses associated with Progressive Waste interest rate swaps resulting from its credit facility being terminated, depreciation expense on acquired property and equipment, amortization of identifiable intangible assets acquired, depletion expense on acquired landfills and provision for income taxes.
During the nine months ended September 30, 2017, the Company’s Eastern segment completed the sale of all assets and liabilities in its Washington, D.C. and Massachusetts markets and the sale of operating locations in the Illinois and Wisconsin markets. Additionally, during the nine months ended September 30, 2017, the Company’s Southern segment completed the sale of an operation in the Florida market, four operations in the Louisiana market and two operations in western Texas. The total consideration received for these sales was $104,065 and included cash and non-monetary assets.
As of September 30, 2017, assets classified as held for sale consist of certain operating markets in the Company’s Southern segment. The assets held for sale as of September 30, 2017 have been recognized at the lower of cost or fair value less costs to sell, which resulted in recording an estimated loss on disposal of $19,189 during the nine months ended September 30, 2017. The expected consideration may include cash and non-monetary assets.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Our assets and liabilities held for sale as of September 30, 2017 and December 31, 2016, were comprised of the following:
September 30, 2017 | December 31, 2016 | |||||||
Current assets held for sale: | ||||||||
Cash and equivalents | $ | 69 | $ | 42 | ||||
Accounts receivable | 1,709 | 5,726 | ||||||
Other current assets | 243 | 571 | ||||||
$ | 2,021 | $ | 6,339 | |||||
Long-term assets held for sale: | ||||||||
Property and equipment | $ | 12,617 | $ | 33,624 | ||||
Goodwill | - | 244 | ||||||
Other assets | 2 | 121 | ||||||
$ | 12,619 | $ | 33,989 | |||||
Current liabilities held for sale: | ||||||||
Accounts payable | $ | 834 | $ | 1,320 | ||||
Accrued liabilities | 314 | 1,811 | ||||||
Deferred revenue | 1,107 | 252 | ||||||
$ | 2,255 | $ | 3,383 |
The Company elected to early adopt the guidance issued by the FASB “Simplifying the Test for Goodwill Impairment” on January 1, 2017. As discussed in Note 3, the new guidance removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. As such, the impairment analysis is only one step. In this step, the Company estimates the fair value of each of its reporting units, which consisted of five geographic operating segments and its E&P segment at September 30, 2017, 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 its carrying value, an impairment charge is recorded for the amount by which the carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
During the year ended December 31, 2016, the Company did not record any impairment charges related to goodwill; however, the results of the Company’s annual impairment testing indicated that the carrying value of its E&P segment exceeded its fair value by more than $77,343, which was the carrying value of goodwill at its E&P segment at December 31, 2016. Upon adopting this accounting guidance in the first quarter of 2017, the Company performed an updated impairment test for its E&P segment. The impairment test 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 11.7%, 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. The impairment test showed the carrying value of the E&P segment continued to exceed its fair value by an amount in excess of the carrying amount of goodwill, or $77,343. Therefore, the Company recorded an impairment charge of $77,343, consisting of the carrying amount of goodwill at its E&P segment at January 1, 2017, to Impairments and other operating charges in the Condensed Consolidated Statements of Net Income during the nine months ended September 30, 2017.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Intangible assets, exclusive of goodwill, consisted of the following at SeptemberJune 30, 2017: 2021:
Gross Carrying Amount | Accumulated Amortization | Accumulated Impairment Loss | Net Carrying Amount | |||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
|
| Gross |
| | |
| Accumulated |
| Net | |||||||||||||||||||
| | Carrying | | Accumulated | | Impairment | | Carrying | ||||||||||||||||||||
| | Amount | | Amortization | | Loss | | Amount | ||||||||||||||||||||
Finite-lived intangible assets: |
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
Long-term franchise agreements and contracts | $ | 482,298 | $ | (114,040 | ) | $ | - | $ | 368,258 | | $ | 600,865 | | $ | (257,176) | | $ | — | | $ | 343,689 | |||||||
Customer lists | 400,737 | (168,290 | ) | - | 232,447 | |
| 647,070 | |
| (417,563) | |
| — | |
| 229,507 | |||||||||||
Permits and other | 318,335 | (32,301 | ) | - | 286,034 | |
| 380,653 | |
| (87,020) | |
| — | |
| 293,633 | |||||||||||
1,201,370 | (314,631 | ) | - | 886,739 | ||||||||||||||||||||||||
| |
| 1,628,588 | |
| (761,759) | |
| — | |
| 866,829 | ||||||||||||||||
Indefinite-lived intangible assets: | |
|
| |
|
| |
|
| |
|
| ||||||||||||||||
Solid waste collection and transportation permits | 158,591 | - | - | 158,591 | |
| 172,056 | |
| — | |
| — | |
| 172,056 | ||||||||||||
Material recycling facility permits | 42,283 | - | - | 42,283 | |
| 42,283 | |
| — | |
| — | |
| 42,283 | ||||||||||||
E&P facility permits | 59,855 | - | (38,507 | ) | 21,348 | |
| 59,855 | |
| — | |
| (38,507) | |
| 21,348 | |||||||||||
260,729 | - | (38,507 | ) | 222,222 | ||||||||||||||||||||||||
| |
| 274,194 | |
| — | |
| (38,507) | |
| 235,687 | ||||||||||||||||
Intangible assets, exclusive of goodwill | $ | 1,462,099 | $ | (314,631 | ) | $ | (38,507 | ) | $ | 1,108,961 | | $ | 1,902,782 | | $ | (761,759) | | $ | (38,507) | | $ | 1,102,516 |
The weighted-average amortization period of long-term franchise agreements and contracts acquired during the nine months ended September 30, 2017 was 16.9 years. The weighted-average amortization period of customer lists acquired during the nine months ended September 30, 2017 was 10.0 years. The weighted-average amortization period of finite-lived permits and other acquired during the nine months ended September 30, 2017 was 40.0 years.
Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2016: 2020:
Gross Carrying Amount | Accumulated Amortization | Accumulated Impairment Loss | Net Carrying Amount | |||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
|
| Gross |
| | |
| Accumulated |
| Net | |||||||||||||||||||
| | Carrying | | Accumulated | | Impairment | | Carrying | ||||||||||||||||||||
| | Amount | | Amortization | | Loss | | Amount | ||||||||||||||||||||
Finite-lived intangible assets: |
| |
|
| |
|
| |
|
| |
| ||||||||||||||||
Long-term franchise agreements and contracts | $ | 428,783 | $ | (86,552 | ) | $ | - | $ | 342,231 | | $ | 600,674 | | $ | (234,972) | | $ | — | | $ | 365,702 | |||||||
Customer lists | 371,203 | (131,525 | ) | - | 239,678 | |
| 636,035 | |
| (382,020) | |
| — | |
| 254,015 | |||||||||||
Permits and other | 290,823 | (21,966 | ) | - | 268,857 | |
| 378,952 | |
| (79,277) | |
| — | |
| 299,675 | |||||||||||
1,090,809 | (240,043 | ) | - | 850,766 | ||||||||||||||||||||||||
| |
| 1,615,661 | |
| (696,269) | |
| — | |
| 919,392 | ||||||||||||||||
Indefinite-lived intangible assets: | |
|
| |
|
| |
|
| |
|
| ||||||||||||||||
Solid waste collection and transportation permits | 152,761 | - | - | 152,761 | |
| 172,056 | |
| — | |
| — | |
| 172,056 | ||||||||||||
Material recycling facility permits | 42,283 | - | - | 42,283 | |
| 42,283 | |
| — | |
| — | |
| 42,283 | ||||||||||||
E&P facility permits | 59,855 | - | (38,507 | ) | 21,348 | |
| 59,855 | |
| — | |
| (38,507) | |
| 21,348 | |||||||||||
254,899 | - | (38,507 | ) | 216,392 | ||||||||||||||||||||||||
| |
| 274,194 | |
| — | |
| (38,507) | |
| 235,687 | ||||||||||||||||
Intangible assets, exclusive of goodwill | $ | 1,345,708 | $ | (240,043 | ) | $ | (38,507 | ) | $ | 1,067,158 | | $ | 1,889,855 | | $ | (696,269) | | $ | (38,507) | | $ | 1,155,079 |
Estimated future amortization expense for the next five years relating to finite-lived intangible assets is as follows:
For the year ending December 31, 2017 | $ | 105,822 | ||
For the year ending December 31, 2018 | $ | 98,193 | ||
For the year ending December 31, 2019 | $ | 87,622 | ||
For the year ending December 31, 2020 | $ | 79,423 | ||
For the year ending December 31, 2021 | $ | 70,416 |
| | | |
For the year ending December 31, 2021 |
| $ | 131,979 |
For the year ending December 31, 2022 | | $ | 109,937 |
For the year ending December 31, 2023 | | $ | 93,175 |
For the year ending December 31, 2024 | | $ | 80,028 |
For the year ending December 31, 2025 | | $ | 67,493 |
14
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
10.LONG-TERM DEBT |
The following charttable presents the Company’s long-term debt as of SeptemberJune 30, 20172021 and December 31, 2016:2020:
September 30, 2017 | December 31, 2016 | |||||||
Revolver under Credit Agreement, bearing interest ranging from 2.51% to 3.45%(a) | $ | 218,755 | $ | 310,582 | ||||
Term loan under Credit Agreement, bearing interest at 2.44%(a) | 1,637,500 | 1,637,500 | ||||||
2018 Senior Notes | 50,000 | 50,000 | ||||||
2019 Senior Notes | 175,000 | 175,000 | ||||||
2021 Senior Notes | 100,000 | 100,000 | ||||||
New 2021 Senior Notes | 150,000 | 150,000 | ||||||
2022 Senior Notes | 125,000 | 125,000 | ||||||
2023 Senior Notes | 200,000 | 200,000 | ||||||
2024 Senior Notes | 150,000 | - | ||||||
2025 Senior Notes | 375,000 | 375,000 | ||||||
2026 Senior Notes | 400,000 | 400,000 | ||||||
2027 Senior Notes | 250,000 | - | ||||||
Tax-exempt bonds, bearing interest ranging from 1.03% to 1.05%(a) | 95,430 | 95,430 | ||||||
Notes payable to sellers and other third parties, bearing interest at 2.00% to 24.81%(a) | 26,482 | 14,180 | ||||||
3,953,167 | 3,632,692 | |||||||
Less – current portion | (11,596 | ) | (1,650 | ) | ||||
Less – debt issuance costs | (15,810 | ) | (14,282 | ) | ||||
$ | 3,925,761 | $ | 3,616,760 |
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Revolver under Credit Agreement, bearing interest ranging from 1.30% to 1.61% (a) | | $ | 505,034 | | $ | 203,927 |
Term loan under Credit Agreement, bearing interest at 1.30% (a) | |
| 650,000 | |
| 650,000 |
4.64% Senior Notes due 2021 (b) | |
| — | |
| 100,000 |
2.39% Senior Notes due 2021 (c) | |
| — | |
| 150,000 |
3.09% Senior Notes due 2022 | |
| 125,000 | |
| 125,000 |
2.75% Senior Notes due 2023 | |
| 200,000 | |
| 200,000 |
3.24% Senior Notes due 2024 | |
| 150,000 | |
| 150,000 |
3.41% Senior Notes due 2025 | |
| 375,000 | |
| 375,000 |
3.03% Senior Notes due 2026 | |
| 400,000 | |
| 400,000 |
3.49% Senior Notes due 2027 | |
| 250,000 | |
| 250,000 |
4.25% Senior Notes due 2028 | | | 500,000 | | | 500,000 |
3.50% Senior Notes due 2029 | | | 500,000 | | | 500,000 |
2.60% Senior Notes due 2030 | | | 600,000 | | | 600,000 |
3.05% Senior Notes due 2050 | | | 500,000 | | | 500,000 |
Notes payable to sellers and other third parties, bearing interest ranging from 2.42% to 10.35%, principal and interest payments due periodically with due dates ranging from 2028 to 2036 (a) | |
| 37,201 | |
| 43,131 |
Finance leases, bearing interest at 1.89% with a lease expiration date of 2026 (a) | | | 9,417 | | | 3,754 |
| |
| 4,801,652 | |
| 4,750,812 |
Less – current portion | |
| (6,997) | |
| (8,268) |
Less – unamortized debt discount and issuance costs | |
| (31,798) | |
| (33,866) |
| | $ | 4,762,857 | | $ | 4,708,678 |
____________________
(a)Interest rates represent the interest rates incurred at September 30, 2017.
(a) | Interest rates represent the interest rates in effect at June 30, 2021. |
(b) | All of the outstanding 4.64% Senior Notes due 2021 were redeemed by the Company on April 1, 2021. |
(c) | All of the outstanding 2.39% Senior Notes due 2021 were redeemed by the Company on June 1, 2021. |
15
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
2016 Master Note Purchase Agreement
On June 1, 2016 the Company entered into that certain Master Note Purchase Agreement (as supplemented by that certain First Supplement to the 2016 NPA dated as of February 13, 2017 (the “2016 First Supplement”) and as amended, restated, amended and restated, assumed, supplemented or modified from time to time, the “2016 NPA”) with certain accredited institutional investors.
On April 20, 2017, pursuant to the 2016 NPA, and the 2016 First Supplement, the Company issued and sold to the investors $400,000 aggregate principal amount of senior unsecured notes consisting of $150,000 aggregate principal amount which will mature on April 20, 2024 with an annual interest rate of 3.24% (the “2024 Senior Notes”) and $250,000 aggregate principal amount of the 2017A Notes which will mature on April 20, 2027 with an annual interest rate of 3.49% (the “2027 Senior Notes” and collectively with the 2024 Senior Notes, the “2017A Senior Notes”) in a private placement. The 2017A Senior Notes bear interest at fixed rates with interest payable in arrears semi-annually on the first day of October and April beginning on October 1, 2017, and on the respective maturity dates, until the principal thereunder becomes due and payable.
The proceeds from the sale of the 2017A Senior Notes were used to refinance existing indebtedness and for general corporate purposes.
Pursuant to the terms and conditions of the 2016 NPA, the Company has outstanding senior unsecured notes (the “2016 Senior Notes”) as of September 30, 2017 consisting of 2.39% senior notes due 2021 (the “New 2021 Senior Notes”), 2.75% senior notes due 2023 (the “2023 Senior Notes”), 3.03% senior notes due 2026 (the “2026 Senior Notes”) and the 2017A Senior Notes.
Under the terms and conditions of the 2016 NPA, the Company is authorized to issue and sell notes in the aggregate principal amount of $1,500,000, inclusive of the outstanding $1,150,000 aggregate principal amount of 2016 Senior Notes that have been issued and sold by the Company, provided that the purchasers of the 2016 Senior Notes shall not have any obligation to purchase any additional notes issued pursuant to the 2016 NPA.
The 2016 Senior Notes are unsecured obligations and rankpari passu with obligations under the Credit Agreement and the 2008 Senior Notes. Certain subsidiaries of the Company have executed a subsidiary guaranty in relation to the Company’s obligations under the 2016 NPA. The subsidiaries who have executed a guaranty in relation to the 2016 NPA are the same set of subsidiaries who have executed a guaranty in relation to the Assumed 2008 NPA and the same set of subsidiaries that are guarantors under the Credit Agreement.
The 2016 Senior Notes are subject to representations, warranties, covenants and events of default customary for a private placement of senior unsecured notes. Upon the occurrence of an event of default, payment of the 2016 Senior Notes may be accelerated by the holders of the 2016 Senior Notes. The 2016 Senior Notes may also be prepaid by the Company par plus a make-whole amount determined by the amount of excess, if any, of the discounted value of the remaining scheduled payments with respect to the called principal of such 2016 Senior Notes minus the amount of such called principal, provided that the make whole shall in no event be less than zero. The discounted value is determined using market-based discount rates. In addition, the Company will be required to offer to prepay the 2016 Senior Notes upon certain changes in control. The 2016 NPA also contemplates certain offers of prepayments for specified tax reasons or certain noteholder sanctions events.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
2008 Master Note Purchase Agreement
On June 1, 2016, prior to the closing of the Progressive Waste acquisition, Old Waste Connections, certain subsidiaries of Old Waste Connections (together with Old Waste Connections, the “Obligors”) and certain holders of the 2008 Senior Notes (defined below) entered into that certain Amendment No. 6 (the “Sixth Amendment”) to that certain Master Note Purchase Agreement, dated July 15, 2008 (the “2008 NPA”), as amended by Amendment No. 1 to the 2008 NPA dated as of July 20, 2009 (the “First Amendment”), as supplemented by First Supplement to the 2008 NPA dated as of October 26, 2009 (the “First Supplement”), as amended by Amendment No. 2 to the 2008 NPA dated as of November 24, 2010 (the “Second Amendment”), as supplemented by Second Supplement to the 2008 NPA dated as of April 1, 2011 (the “Second Supplement”), as amended by Amendment No. 3 to the 2008 NPA dated as of October 12, 2011 (the “Third Amendment”), as amended by Amendment No. 4 to the 2008 NPA dated as of August 9, 2013 (the “Fourth Amendment”), as amended by Amendment No. 5 to the 2008 NPA dated as of February 20, 2015 (the “Fifth Amendment”), and as supplemented by Third Supplement to the 2008 NPA dated as of June 11, 2015 (the “Third Supplement”) (the 2008 NPA, as so amended, restated, amended and restated, supplemented or otherwise modified from time to time prior to June 1, 2016, the “Amended 2008 NPA”). The Sixth Amendment, among other things, provides certain amendments to the Amended 2008 NPA to facilitate (i) the Progressive Waste acquisition and related transactions contemplated thereunder, (ii) the Company’s assumption of the Obligors’ obligations under the Assumed 2008 NPA (defined below) pursuant to the Assumption Agreement (defined below) upon the consummation of the Progressive Waste acquisition, (iii) the release of and/or reconstitution of obligations as a guaranty for certain Obligors, and (iv) additional amendments to the Amended 2008 NPA (beyond those in the Sixth Amendment) which were effective upon the Company’s assumption of the Obligor’s obligations under the Assumed 2008 NPA pursuant to the Assumption Agreement.
On June 1, 2016, following the closing of the Progressive Waste acquisition, the Company entered into that certain Assumption and Exchange Agreement (as amended, restated, amended and restated, supplemented or modified from time to time, the “Assumption Agreement”) with Old Waste Connections, to and in favor of the holders of the notes issued from time to time under the Amended 2008 NPA as further amended by the Sixth Amendment (the Amended 2008 NPA as amended by the Sixth Amendment and as further modified by the Assumption Agreement, the “Assumed 2008 NPA”).
Pursuant to the terms and conditions of the Assumed 2008 NPA, the Company’s has outstanding senior unsecured notes (the “2008 Senior Notes”) as of September 30, 2017 consisting of 4.00% senior notes due 2018 (the “2018 Senior Notes”), 5.25% senior notes due 2019 (the “2019 Senior Notes”), 4.64% senior notes due 2021 (the “2021 Senior Notes), 3.09% senior notes due 2022 (the “2022 Senior Notes”) and 3.41% senior notes due 2025 (the “2025 Senior Notes”).
Under the terms and conditions of the Assumed 2008 NPA, the Company is authorized to issue and sell notes in the aggregate principal amount of $1,250,000, inclusive of the outstanding $825,000 aggregate principal amount of 2008 Senior Notes assumed by the Company on June 1, 2016, provided that the purchasers of the 2008 Senior Notes shall not have any obligation to purchase any additional notes issued pursuant to the Assumed 2008 NPA.
The 2008 Senior Notes are unsecured obligations and rankpari passu with obligations under the Credit Agreement and the 2016 Senior Notes. Certain subsidiaries of the Company have executed a subsidiary guaranty in relation to the Company’s obligations under the Assumed 2008 NPA. The subsidiaries who have executed a guaranty in relation to the Assumed 2008 NPA are the same set of subsidiaries who have executed a guaranty in relation to the 2016 NPA and the same set of subsidiaries that are guarantors under the Credit Agreement.
The 2008 Senior Notes are subject to representations, warranties, covenants and events of default customary for a private placement of senior unsecured notes. Upon the occurrence of an event of default, payment of the 2008 Senior Notes may be accelerated by the holders of the 2008 Senior Notes. The 2008 Senior Notes may also be prepaid by the Company par plus a make-whole amount determined by the amount of excess, if any, of the discounted value of the remaining scheduled payments with respect to the called principal of such 2008 Senior Notes minus the amount of such called principal, provided that the make whole shall in no event be less than zero. The discounted value is determined using market-based discount rates. In addition, the Company will be required to offer to prepay the 2008 Senior Notes upon certain changes in control; however, no such prepayment offer was accepted in connection with the Progressive Waste acquisition. The Assumed 2008 NPA also contemplates certain offers of prepayments for specified tax reasons or certain noteholder sanctions events.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Credit Agreement
Details of the Credit Agreement are as follows:
September 30, 2017 | December 31, 2016 | ||||||||||||||
| | | | | | | | ||||||||
| | June 30, | | December 31, |
| ||||||||||
|
| 2021 |
| 2020 |
| ||||||||||
Revolver under Credit Agreement |
| |
|
| |
| | ||||||||
Available | $ | 1,122,149 | $ | 1,004,451 | | $ | 943,021 | | $ | 1,238,937 | | ||||
Letters of credit outstanding | $ | 221,596 | $ | 247,467 | | $ | 114,445 | | $ | 119,636 | | ||||
Total amount drawn, as follows: | $ | 218,755 | $ | 310,582 | | $ | 505,034 | | $ | 203,927 | | ||||
Amount drawn – Canadian prime rate loan | $ | 12,020 | $ | 7,448 | |||||||||||
Interest rate applicable - Canadian prime rate loan | 3.45 | % | 2.95 | % | |||||||||||
Amount drawn – Canadian BA loan | $ | 206,735 | $ | 303,134 | |||||||||||
Interest rate applicable – Canadian BA loan | 2.51 | % | 2.13 | % | |||||||||||
Amount drawn - U.S. LIBOR rate loan | | $ | 501,000 | | $ | 200,000 | | ||||||||
Interest rate applicable - U.S. LIBOR rate loan | | | 1.30 | % | | 1.35 | % | ||||||||
Amount drawn – Canadian bankers’ acceptance | | $ | 4,034 | | $ | 3,927 | | ||||||||
Interest rate applicable – Canadian bankers’ acceptance | |
| 1.61 | % |
| 1.66 | % | ||||||||
Commitment – rate applicable | 0.15 | % | 0.15 | % | |
| 0.15 | % |
| 0.15 | % | ||||
Term loan under Credit Agreement | |
| | |
| | | ||||||||
Amount drawn – U.S. based LIBOR loan | $ | 1,637,500 | $ | 1,637,500 | | $ | 650,000 | | $ | 650,000 | | ||||
Interest rate applicable – U.S. based LIBOR loan | 2.44 | % | 1.97 | % | |
| 1.30 | % |
| 1.35 | % |
In addition to the $114,445 of letters of credit at June 30, 2021 issued under the Credit Agreement, the Company has issued letters of credit totaling $7,157 under facilities other than the Credit Agreement.
On June 1, 2016,March 21, 2018, the Company and the lenders named therein entered into the certainan Amended and Restated Revolving Credit and Term Loan Agreement (as amended, restated, supplemented or otherwise modified and as in effect immediately prior to the Closing Date (as defined below), the “Credit Agreement”), pursuant to which the lenders made loans and other extensions of credit to the Company thereunder.
On July 30, 2021 (the “Closing Date”), the Company amended and restated the Credit Agreement in its entirety pursuant to a Second Amended and Restated Revolving Credit and Term Loan Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Credit“2021 Credit Agreement”) withentered into by the Company, as borrower, Bank of America, N.A., acting through its CanadaCanada Branch, as the global agent, the swing line lender, and a letter of credit issuer, Bank of America,America, N.A., as the U.S. Agentagent and a letter of credit issuer, the other lenders (thenamed therein (the “Lenders”) andand any other financial institutions from time to time party thereto. The 2021 Credit Agreement has a scheduled maturity date of July 30, 2026, which may be extended further upon agreement by the Lenders with respect to their respective commitments and credit extensions outstanding.
Pursuant to the terms and conditions of the 2021 Credit Agreement, the Lenders have committed to provideproviding a $3,200,000$2,500,000 credit facility to the Company, consisting of (i) revolving advances up to an aggregate principal amount of $1,562,500$1,850,000 at any one time outstanding,outstanding (representing an increase of $287,500 from the Credit Agreement), and (ii) a term loan in an aggregate principal amount of $1,637,500,$650,000, which term loan was fully drawn at closing.as of the Closing Date (with existing term loans outstanding under the Credit Agreement immediately prior to the Closing Date continued and now outstanding under and governed by the terms of the 2021 Credit Agreement). As part of the aggregate commitments under the revolving advances, the 2021 Credit Agreement provides for letters of credit to be issued at the request of the Company in an aggregate amount not to exceed $500,000$320,000 and for swing line loans to be issued at the request of the Company in an aggregate amount not to exceed the lesser of $75,000$100,000 and the aggregate commitments under the revolving advances. This swing line sublimit is part of, and not in addition to, the aggregate commitments under the revolving advances. Existing letters of credit in place under the Credit Agreement immediately prior to the Closing Date are continued and now deemed issued under and governed by the terms of the 2021 Credit Agreement. Subject to certain specified conditions and additional deliveries, the
16
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Company has the option to request increases in the aggregate commitments for revolving advances and one or more additional term loans, provided that (i) the aggregate principal amount of such requests does not exceed $500,000 and (ii) the aggregate principal amount of commitments and term loans under the credit facility does not exceed $3,700,000.
$3,000,000. As of the Closing Date, there are no commitments by Lenders for any such increases in aggregate commitments for revolving advances or additional term loans described in the preceding sentence.
Advances are available under the 2021 Credit Agreement in U.S. dollars and Canadian dollars. Interest accrues on the term loan at a LIBOR rate or a base rate, at the Company’s option, plus an applicable margin. Interest accrues on revolving advances, at the Company’s option, (i) at a LIBOR rate or a base rate for U.S. dollar borrowings, plus an applicable margin, and (ii) at the Canadian prime rate for Canadian dollar borrowings, plus an applicable margin. Canadian dollar borrowings are also available by way of bankers' acceptances or BA equivalent loans (“BA loans”),notes, subject to the payment of a drawing fee. The fees for letters of credit in USU.S. dollars and Canadian dollars are also based on the applicable margin. The applicable margin used in connection with interest rates and fees is based on the debt rating of the Company’s leverage ratio.public non-credit-enhanced, senior unsecured long-term debt (the “Debt Rating”). The applicable margin for LIBOR rate loans, drawing fees for bankers' acceptance andbankers’ acceptances, BA loansequivalent notes and letter of credit fees ranges from 1.00%0.750% to 1.50%1.250%, and the applicable margin for U.S. base rate loans, Canadian prime rate loans and swing line loans ranges from 0.00% to 0.50%0.250%. The Company will also pay a fee based on its leverage ratiothe Debt Rating on the actual daily unused amount of the aggregate revolving commitments.
commitments ranging from 0.065% to 0.150%. The 2021 Credit Agreement contains hardwired mechanics for the replacement of LIBOR, including (1) mechanics to transition to a rate based upon the secured overnight financing rate (“SOFR”) published by the Federal Reserve Bank of New York or a successor administrator on its website (or a successor source) upon the earlier of (x) LIBOR’s cessation or loss of representativeness, (y) June 30, 2023 and (z) the effectiveness of an early opt-in election by the Company and the agents subject to certain terms and (2) mechanics to transition to an alternate benchmark rate giving due consideration to any evolving or then-prevailing market conventions for U.S. dollar-denominated syndicated credit facilities at such time upon the occurrence of certain subsequent transition events, the unavailability of SOFR-based alternatives or the effectiveness of an early opt-in election by the Company and the agents subject to certain terms.
The borrowings under the 2021 Credit Agreement are unsecured. Proceeds from the borrowingsunsecured and there are no subsidiary guarantors under the 2021 Credit Agreement may be used on a go forward basis (i) to finance acquisitions permitted under the Credit Agreement and (ii) for capital expenditures, working capital, letters of credit, and general corporate purposes.
Agreement. The 2021 Credit Agreement contains customary representations, warranties, covenants and events of default, including, among others, a change of control event of default and limitations on the incurrence of indebtedness and liens, new lines of business, mergers, transactions with affiliates and burdensome agreements. The Credit Agreement includes a financial covenant limiting, as of the last day of each fiscal quarter, the ratio of (a) (i) Consolidated Total Funded Debt (as defined in the Credit Agreement) as of such date less (ii) the sum of cash and cash equivalents of the Company and its subsidiaries on a dollar-for-dollar basis as of such date in excess of $50,000 up to a maximum of $200,000 (such that the maximum amount of reduction pursuant to this calculation does not exceed $150,000) to (b) Consolidated EBITDA (as defined in the Credit Agreement), measured for the preceding 12 months, to not more than 3.50 to 1.00 (or 3.75 to 1.00 during material acquisition periods, subject to certain limitations). The Credit Agreement also includes a financial covenant requiring the ratio of Consolidated EBIT (as defined in the Credit Agreement) to Consolidated Total Interest Expense (as defined in the Credit Agreement), in each case, measured for the preceding 12 months, to be not less than 2.75 to 1.00. During the continuance of an event of default, the Lenders may take a number of actions, including, among others, declaring the entire amount then outstanding under the 2021 Credit Agreement to be due and payable.
The 2021 Credit Agreement includes a financial covenant limiting, as of the last day of each fiscal quarter, the ratio of (a) Consolidated Total Funded Debt (as defined in the 2021 Credit Agreement) as of such date to (b) Consolidated EBITDA (as defined in the 2021 Credit Agreement), measured for the preceding 12 months, to not more than 3.75 to 1.00 (or 4.25 to 1.00 during material acquisition periods, subject to certain limitations). As of June 30, 2021, the Company was in compliance with its financial covenants under the Credit Agreement and, if it had been in place as of that date, the 2021 Credit Agreement.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
11.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
17
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
for more than 10% of the Company’s total revenues at the consolidated or reportable segment level during the periods presented.
ThePrior to July 2020, the Company managesmanaged its operations through five5 geographic solid waste operating segments and its E&P segment, which includeswere also its reportable segments. As of July 2020, the majority ofCompany’s Chief Operating Decision Maker determined that the Company’s E&P waste treatment and disposal operations. TheSouthern operating segments met all the aggregation criteria and eliminated the E&P segment by combining all operations of the E&P segment into the Southern segment. After giving effect to this combination, the Company’s fivereportable segments consist of its 5 geographic operating segments and itsno longer include a separate E&P segment comprise the Company’s reportable segments.segment. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts. In the third quarter of 2017, the Company moved a district from the Eastern segment to the Canada segment as a significant amount of its revenues are received from Canadian-based customers. The segment information presented herein reflects the realignment of these districts. Segment results for the 2020 periods reflected in this district.
report have been reclassified to reflect the realignment of the Company’s reportable segments for comparison with the same period in 2021.
Under the current orientation, the Company’s Southern segment services customers located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New Mexico, North Dakota, southern Oklahoma, western Tennessee, Texas, Wyoming and Texas;along the Gulf of Mexico; the Company’s Eastern segment services customers located in Delaware, northern Illinois, Kentucky, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, eastern Tennessee, Vermont, Virginia and Wisconsin; the Company’s Western segment services customers located in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; the Company’s EasternCentral segment services customers located in Arizona, Colorado, southern Illinois, Iowa, Kentucky, Maryland,Kansas, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Pennsylvania,Mexico, Oklahoma, South Carolina,Dakota, western Texas, Utah and eastern Tennessee, VermontWyoming; and Wisconsin; the Company’s Canada segment services customers located in the state of Michigan and in the provinces of Alberta, British Columbia, Manitoba, Ontario, Québec and Québec; and the Company’s Central segment services customers located in Arizona, Colorado, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, South Dakota, western Texas, Utah and eastern Wyoming. The E&P segment services E&P customers located in Arkansas, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.
Saskatchewan.
The Company’s Chief Operating Decision Maker (“CODM”) 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, impairments and other operating items, and other income (expense) and foreign currency transaction gain (loss). 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. 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 10.
11.
Summarized financial information concerning the Company’s reportable segments for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, is shown in the following tables:
Three Months Ended September 30, 2017 | Revenue | Intercompany Revenue(b) | Reported Revenue | Segment EBITDA(c) | ||||||||||||||||||||||||
| | | | | | | | | | | | | ||||||||||||||||
Three Months Ended |
| | |
| Intercompany |
| Reported |
| Segment | |||||||||||||||||||
June 30, 2021 | | Revenue | | Revenue(b) | | Revenue | | EBITDA(c) | ||||||||||||||||||||
Eastern | | $ | 440,799 | | $ | (71,182) | | $ | 369,617 | | $ | 99,382 | ||||||||||||||||
Southern | $ | 317,059 | $ | (36,531 | ) | $ | 280,528 | $ | 63,171 | | | 413,194 | | | (49,858) | | | 363,336 | | | 98,928 | |||||||
Western | 292,222 | (30,345 | ) | 261,877 | 84,861 | |
| 351,816 | |
| (38,027) | |
| 313,789 | |
| 99,402 | |||||||||||
Eastern | 292,124 | (45,857 | ) | 246,267 | 74,018 | |||||||||||||||||||||||
Central | |
| 303,905 | |
| (37,060) | |
| 266,845 | |
| 94,886 | ||||||||||||||||
Canada | 224,166 | (27,111 | ) | 197,055 | 74,369 | |
| 247,598 | |
| (27,254) | |
| 220,344 | |
| 88,641 | |||||||||||
Central | 190,210 | (23,850 | ) | 166,360 | 64,607 | |||||||||||||||||||||||
E&P | 56,209 | (1,818 | ) | 54,391 | 27,881 | |||||||||||||||||||||||
Corporate(a) | - | - | - | (5,751 | ) | |
| — | |
| — | |
| — | |
| (6,442) | |||||||||||
$ | 1,371,990 | $ | (165,512 | ) | $ | 1,206,478 | $ | 383,156 | ||||||||||||||||||||
| | $ | 1,757,312 | | $ | (223,381) | | $ | 1,533,931 | | $ | 474,797 |
Three Months Ended September 30, 2016 | Revenue | Intercompany Revenue(b) | Reported Revenue | Segment EBITDA(c) | ||||||||||||
Southern | $ | 317,727 | $ | (37,818 | ) | $ | 279,909 | $ | 62,189 | |||||||
Western | 276,941 | (30,050 | ) | 246,891 | 84,214 | |||||||||||
Eastern | 226,680 | (34,701 | ) | 191,979 | 57,699 | |||||||||||
Canada | 207,003 | (26,431 | ) | 180,572 | 66,235 | |||||||||||
Central | 176,109 | (20,842 | ) | 155,267 | 58,079 | |||||||||||
E&P | 33,785 | (3,481 | ) | 30,304 | 8,919 | |||||||||||
Corporate(a) | - | - | - | (18,299 | ) | |||||||||||
$ | 1,238,245 | $ | (153,323 | ) | $ | 1,084,922 | $ | 319,036 |
18
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
| | | | | | | | | | | | |
Three Months Ended |
| | |
| Intercompany |
| Reported |
| Segment | |||
June 30, 2020 | | Revenue | | Revenue(b) | | Revenue | | EBITDA(c) | ||||
Eastern | | $ | 383,715 | | $ | (64,824) | | $ | 318,891 | | $ | 82,680 |
Southern | | | 379,690 | | | (46,224) | | | 333,466 | | | 89,130 |
Western | |
| 310,656 | |
| (35,120) | |
| 275,536 | |
| 85,423 |
Central | |
| 249,064 | |
| (32,444) | |
| 216,620 | |
| 79,705 |
Canada | |
| 182,831 | |
| (21,562) | |
| 161,269 | |
| 53,675 |
Corporate(a) | |
| — | |
| — | |
| — | |
| (2,699) |
| | $ | 1,505,956 | | $ | (200,174) | | $ | 1,305,782 | | $ | 387,914 |
| | | | | | | | | | | | |
Six Months Ended | | | | | Intercompany | | Reported | | Segment | |||
June 30, 2021 | | Revenue | | Revenue(b) | | Revenue | | EBITDA(c) | ||||
Eastern | | $ | 839,629 | | $ | (133,550) | | $ | 706,079 | | $ | 188,503 |
Southern | | | 795,881 | | | (94,384) | | | 701,497 | | | 192,352 |
Western | |
| 684,636 | |
| (73,843) | |
| 610,793 | |
| 193,228 |
Central | |
| 571,607 | |
| (69,376) | |
| 502,231 | |
| 173,926 |
Canada | |
| 459,384 | |
| (50,110) | |
| 409,274 | |
| 162,581 |
Corporate(a) | |
| — | |
| — | |
| — | |
| (7,192) |
| | $ | 3,351,137 | | $ | (421,263) | | $ | 2,929,874 | | $ | 903,398 |
| | | | | | | | | | | | |
Six Months Ended | | | | | Intercompany | | Reported | | Segment | |||
June 30, 2020 | | Revenue | | Revenue(b) | | Revenue | | EBITDA(c) | ||||
Eastern | | $ | 780,715 | | $ | (129,622) | | $ | 651,093 | | $ | 167,342 |
Southern | | | 796,073 | | | (93,351) | | | 702,722 | | | 195,450 |
Western | |
| 616,093 | |
| (68,575) | |
| 547,518 | |
| 166,451 |
Central | |
| 486,634 | |
| (61,472) | |
| 425,162 | |
| 152,856 |
Canada | |
| 375,937 | |
| (44,245) | |
| 331,692 | |
| 113,073 |
Corporate(a) | |
| — | |
| — | |
| — | |
| (6,329) |
| | $ | 3,055,452 | | $ | (397,265) | | $ | 2,658,187 | | $ | 788,843 |
Nine Months Ended September 30, 2017 | Revenue | Intercompany Revenue(b) | Reported Revenue | Segment EBITDA(c) | ||||||||||||
Southern | $ | 957,506 | $ | (111,472 | ) | $ | 846,034 | $ | 199,280 | |||||||
Western | 845,176 | (90,217 | ) | 754,959 | 247,475 | |||||||||||
Eastern | 851,880 | (133,578 | ) | 718,302 | 209,315 | |||||||||||
Canada | 621,995 | (75,846 | ) | 546,149 | 200,283 | |||||||||||
Central | 536,803 | (66,716 | ) | 470,087 | 177,975 | |||||||||||
E&P | 143,951 | (6,169 | ) | 137,782 | 63,518 | |||||||||||
Corporate(a) | - | - | - | (32,535 | ) | |||||||||||
$ | 3,957,311 | $ | (483,998 | ) | $ | 3,473,313 | $ | 1,065,311 |
Nine Months Ended September 30, 2016 | Revenue | Intercompany Revenue(b) | Reported Revenue | Segment EBITDA(c) | ||||||||||||
Southern | $ | 497,863 | $ | (60,485 | ) | $ | 437,378 | $ | 98,906 | |||||||
Western | 789,716 | (87,160 | ) | 702,556 | 237,839 | |||||||||||
Eastern | 519,165 | (81,361 | ) | 437,804 | 135,456 | |||||||||||
Canada | 281,660 | (35,949 | ) | 245,711 | 91,471 | |||||||||||
Central | 468,004 | (53,130 | ) | 414,874 | 154,510 | |||||||||||
E&P | 97,883 | (8,965 | ) | 88,918 | 21,953 | |||||||||||
Corporate(a) | - | - | - | (102,653 | ) | |||||||||||
$ | 2,654,291 | $ | (327,050 | ) | $ | 2,327,241 | $ | 637,482 |
____________________
(a) | The majority of Corporate |
(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 the Company’s most recent Annual Report on Form 10-K. |
Total assets for each of the Company’s reportable segments at September 30, 2017 and December 31, 2016, were as follows:
September 30, 2017 | December 31, 2016 | |||||||
Southern | $ | 2,726,600 | $ | 2,869,841 | ||||
Western | 1,560,023 | 1,516,870 | ||||||
Eastern | 1,999,928 | 1,519,576 | ||||||
Canada | 2,697,750 | 2,554,324 | ||||||
Central | 1,312,209 | 1,302,900 | ||||||
E&P | 989,081 | 1,068,086 | ||||||
Corporate | 624,684 | 272,328 | ||||||
Total Assets | $ | 11,910,275 | $ | 11,103,925 |
19
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Total assets for each of the Company’s reportable segments at June 30, 2021 and December 31, 2020, were as follows:
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2021 |
| 2020 | ||
Eastern | | $ | 3,101,990 | | $ | 3,134,462 |
Southern |
| | 3,357,839 |
| | 3,402,081 |
Western | | | 1,871,364 | | | 1,861,079 |
Central | | | 2,202,658 | | | 2,160,246 |
Canada | | | 2,620,708 | | | 2,544,379 |
Corporate | | | 951,648 | | | 890,117 |
Total Assets |
| $ | 14,106,207 |
| $ | 13,992,364 |
The following tables show changes in goodwill during the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, by reportable segment:
Southern | Western | Eastern | Canada | Central | E&P | Total | ||||||||||||||||||||||
Balance as of December 31, 2016 | $ | 1,470,023 | $ | 376,537 | $ | 533,160 | $ | 1,465,274 | $ | 467,924 | $ | 77,343 | $ | 4,390,261 | ||||||||||||||
Goodwill acquired | 7,484 | 20,906 | 272,501 | 7,127 | 1,013 | - | 309,031 | |||||||||||||||||||||
Goodwill divested | (31,543 | ) | - | (4,276 | ) | - | (667 | ) | - | (36,486 | ) | |||||||||||||||||
Impairment loss | - | - | - | - | - | (77,343 | ) | (77,343 | ) | |||||||||||||||||||
Goodwill adjustment for assets sold | 2,205 | - | 321 | - | - | - | 2,526 | |||||||||||||||||||||
Goodwill adjustment for assets held for sale | (11,080 | ) | - | - | - | - | - | (11,080 | ) | |||||||||||||||||||
Impact of changes in foreign currency | - | - | - | 111,439 | - | - | 111,439 | |||||||||||||||||||||
Balance as of September 30, 2017 | $ | 1,437,089 | $ | 397,443 | $ | 801,706 | $ | 1,583,840 | $ | 468,270 | $ | - | $ | 4,688,348 |
| | | | | | | | | | | | | | | | | | |
|
| Eastern |
| Southern |
| Western |
| Central |
| Canada |
| Total | ||||||
Balance as of December 31, 2020 | | $ | 1,374,577 | | $ | 1,532,215 | | $ | 442,862 | | $ | 824,204 | | $ | 1,552,792 | | $ | 5,726,650 |
Goodwill acquired | |
| 1,647 | |
| — | | | 2,305 | |
| 45,843 | | | — | |
| 49,795 |
Goodwill acquisition adjustments | | | — | | | (3) | | | — | | | — | | | (2) | | | (5) |
Impact of changes in foreign currency | |
| — | |
| — | |
| — | |
| — | |
| 42,309 | |
| 42,309 |
Balance as of June 30, 2021 | | $ | 1,376,224 | | $ | 1,532,212 | | $ | 445,167 | | $ | 870,047 | | $ | 1,595,099 | | $ | 5,818,749 |
Southern | Western | Eastern | Canada | Central | E&P | Total | ||||||||||||||||||||||||||||||||||||||||
Balance as of December 31, 2015 | $ | 95,710 | $ | 373,820 | $ | 459,532 | $ | - | $ | 416,420 | $ | 77,343 | $ | 1,422,825 | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||
|
| Eastern |
| Southern |
| Western |
| Central |
| Canada |
| Total | ||||||||||||||||||||||||||||||||||
Balance as of December 31, 2019 | | $ | 1,331,180 | | $ | 1,528,225 | | $ | 400,037 | | $ | 729,470 | | $ | 1,521,939 | | $ | 5,510,851 | ||||||||||||||||||||||||||||
Goodwill acquired | 1,338,806 | 2,696 | 75,769 | 1,465,720 | 48,232 | - | 2,931,223 | |
| — | | | 3,648 | | | 42,206 | | | 3,134 | | | 177 | |
| 49,165 | |||||||||||||||||||||
Goodwill acquisition adjustments | | | (340) | | | — | | | — | | | — | | | — | | | (340) | ||||||||||||||||||||||||||||
Impact of changes in foreign currency | - | - | - | (2,878 | ) | - | - | (2,878 | ) | |
| — | |
| — | |
| — | |
| — | | | (71,371) | |
| (71,371) | |||||||||||||||||||
Balance as of September 30, 2016 | $ | 1,434,516 | $ | 376,516 | $ | 535,301 | $ | 1,462,842 | $ | 464,652 | $ | 77,343 | $ | 4,351,170 | ||||||||||||||||||||||||||||||||
Balance as of June 30, 2020 | | $ | 1,330,840 | | $ | 1,531,873 | | $ | 442,243 | �� | $ | 732,604 | | $ | 1,450,745 | | $ | 5,488,305 |
A reconciliation of the Company’s primary measure of segment profitability (segment EBITDA) to Income (loss) before income tax provision in the Condensed Consolidated Statements of Net Income (Loss) is as follows:
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Eastern segment EBITDA | | $ | 99,382 | | $ | 82,680 | | $ | 188,503 | | $ | 167,342 | |
Southern segment EBITDA | | | 98,928 | | | 89,130 | | | 192,352 | | | 195,450 | |
Western segment EBITDA | |
| 99,402 | |
| 85,423 | |
| 193,228 | |
| 166,451 | |
Central segment EBITDA | |
| 94,886 | |
| 79,705 | |
| 173,926 | |
| 152,856 | |
Canada segment EBITDA | |
| 88,641 | |
| 53,675 | |
| 162,581 | |
| 113,073 | |
Subtotal reportable segments | |
| 481,239 | |
| 390,613 | |
| 910,590 | |
| 795,172 | |
Unallocated corporate overhead | |
| (6,442) | | | (2,699) | | | (7,192) | | | (6,329) | |
Depreciation | |
| (169,221) | | | (151,230) | | | (326,624) | | | (302,051) | |
Amortization of intangibles | |
| (32,707) | | | (31,771) | | | (64,899) | | | (63,409) | |
Impairments and other operating items | |
| (6,081) | | | (437,270) | | | (6,715) | | | (438,777) | |
Interest expense | |
| (41,328) | | | (40,936) | | | (83,753) | | | (78,926) | |
Interest income | |
| 744 | | | 1,317 | | | 1,848 | | | 3,493 | |
Other income (expense), net | |
| (1,235) | | | 5,772 | | | 2,312 | | | (3,749) | |
Income (loss) before income tax provision | | $ | 224,969 | | $ | (266,204) | | $ | 425,567 | | $ | (94,576) | |
20
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
A reconciliation of the Company’s primary measure of segment profitability (segment EBITDA) to Income before income tax provision in the Condensed Consolidated Statements of Net Income is as follows:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Southern segment EBITDA | $ | 63,171 | $ | 62,189 | $ | 199,280 | $ | 98,906 | ||||||||
Western segment EBITDA | 84,861 | 84,214 | 247,475 | 237,839 | ||||||||||||
Eastern segment EBITDA | 74,018 | 57,699 | 209,315 | 135,456 | ||||||||||||
Canada segment EBITDA | 74,369 | 66,235 | 200,283 | 91,471 | ||||||||||||
Central segment EBITDA | 64,607 | 58,079 | 177,975 | 154,510 | ||||||||||||
E&P segment EBITDA | 27,881 | 8,919 | 63,518 | 21,953 | ||||||||||||
Subtotal reportable segments | 388,907 | 337,335 | 1,097,846 | 740,135 | ||||||||||||
Unallocated corporate overhead | (5,751 | ) | (18,299 | ) | (32,535 | ) | (102,653 | ) | ||||||||
Depreciation | (136,941 | ) | (125,744 | ) | (395,008 | ) | (270,988 | ) | ||||||||
Amortization of intangibles | (26,613 | ) | (26,944 | ) | (76,886 | ) | (48,719 | ) | ||||||||
Impairments and other operating items | (832 | ) | (7,682 | ) | (141,333 | ) | (4,634 | ) | ||||||||
Interest expense | (32,471 | ) | (27,621 | ) | (92,763 | ) | (65,291 | ) | ||||||||
Interest income | 1,656 | 171 | 3,131 | 447 | ||||||||||||
Other income (expense), net | 1,709 | 500 | 3,561 | (268 | ) | |||||||||||
Foreign currency transaction gain (loss) | (1,864 | ) | (350 | ) | (3,502 | ) | 339 | |||||||||
Income before income tax provision | $ | 187,800 | $ | 131,366 | $ | 362,511 | $ | 248,368 |
The following tables reflect a breakdown of the Company’s revenue and inter-company eliminations for the periods indicated:
Three months ended September 30, 2017 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 815,344 | $ | (2,484 | ) | $ | 812,860 | 67.4 | % | |||||||
Solid waste disposal and transfer | 416,764 | (157,280 | ) | 259,484 | 21.5 | |||||||||||
Solid waste recycling | 43,864 | (2,295 | ) | 41,569 | 3.5 | |||||||||||
E&P waste treatment, recovery and disposal | 57,797 | (3,082 | ) | 54,715 | 4.5 | |||||||||||
Intermodal and other | 38,221 | (371 | ) | 37,850 | 3.1 | |||||||||||
Total | $ | 1,371,990 | $ | (165,512 | ) | $ | 1,206,478 | 100.0 | % |
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Three months ended September 30, 2016 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 760,281 | $ | (2,472 | ) | $ | 757,809 | 69.9 | % | |||||||
Solid waste disposal and transfer | 377,998 | (144,459 | ) | 233,539 | 21.5 | |||||||||||
Solid waste recycling | 32,138 | (2,523 | ) | 29,615 | 2.7 | |||||||||||
E&P waste treatment, recovery and disposal | 33,673 | (3,608 | ) | 30,065 | 2.8 | |||||||||||
Intermodal and other | 34,155 | (261 | ) | 33,894 | 3.1 | |||||||||||
Total | $ | 1,238,245 | $ | (153,323 | ) | $ | 1,084,922 | 100.0 | % |
Nine months ended September 30, 2017 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 2,380,821 | $ | (7,075 | ) | $ | 2,373,746 | 68.3 | % | |||||||
Solid waste disposal and transfer | 1,189,965 | (459,659 | ) | 730,306 | 21.0 | |||||||||||
Solid waste recycling | 131,445 | (7,229 | ) | 124,216 | 3.6 | |||||||||||
E&P waste treatment, recovery and disposal | 147,662 | (8,921 | ) | 138,741 | 4.0 | |||||||||||
Intermodal and other | 107,418 | (1,114 | ) | 106,304 | 3.1 | |||||||||||
Total | $ | 3,957,311 | $ | (483,998 | ) | $ | 3,473,313 | 100.0 | % |
Nine months ended September 30, 2016 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 1,619,827 | $ | (5,571 | ) | $ | 1,614,256 | 69.4 | % | |||||||
Solid waste disposal and transfer | 804,928 | (307,308 | ) | 497,620 | 21.4 | |||||||||||
Solid waste recycling | 60,876 | (4,554 | ) | 56,322 | 2.4 | |||||||||||
E&P waste treatment, recovery and disposal | 97,259 | (9,228 | ) | 88,031 | 3.8 | |||||||||||
Intermodal and other | 71,401 | (389 | ) | 71,012 | 3.0 | |||||||||||
Total | $ | 2,654,291 | $ | (327,050 | ) | $ | 2,327,241 | 100.0 | % |
12.DERIVATIVE FINANCIAL INSTRUMENTS |
The Company recognizes all derivatives on the Condensed Consolidated Balance SheetSheets at fair value. All of the Company’s derivatives have been designated as cash flow hedges; therefore, the effective portion ofgain or loss on the changes in the fair value of derivatives will be recognized in accumulated other comprehensive income (loss) (“AOCIL”) untiland reclassified into earnings in the same period during which the hedged transaction affects earnings and is presented in the same income statement line item is recognized in earnings. The ineffective portionas the earnings effect of the changes in the fair value of derivatives will be immediately recognized in earnings.hedged item. The Company classifies cash inflows and outflows from derivatives within operating activities on the Condensed Consolidated Statements of Cash Flows.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
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 itsthe Credit Agreement. The Company’s strategy to achieve that objective involves entering into interest rate swaps. The interest rate swaps outstanding at SeptemberJune 30, 20172021 were specifically designated to the Credit Agreement and accounted for as cash flow hedges.
At SeptemberJune 30, 2017,2021, the Company’s derivative instruments included 146 interest rate swap agreements as follows:
| | | | | | | | | | | |
|
| | |
| Fixed |
| Variable |
| |
| |
| | Notional | | Interest | | Interest Rate | | | | | |
Date Entered | | Amount | | Rate Paid* | | Received | | Effective Date | | Expiration Date | |
August 2017 | | $ | 100,000 |
| 1.900 | % | 1-month LIBOR |
| July 2019 |
| July 2022 |
August 2017 | | $ | 200,000 |
| 2.200 | % | 1-month LIBOR |
| October 2020 |
| October 2025 |
August 2017 | | $ | 150,000 |
| 1.950 | % | 1-month LIBOR |
| February 2020 |
| February 2023 |
June 2018 | | $ | 200,000 |
| 2.925 | % | 1-month LIBOR |
| October 2020 |
| October 2025 |
June 2018 | | $ | 200,000 |
| 2.925 | % | 1-month LIBOR |
| October 2020 |
| October 2025 |
December 2018 | | $ | 200,000 |
| 2.850 | % | 1-month LIBOR |
| July 2022 |
| July 2027 |
____________________
Date Entered | Notional Amount | Fixed Interest Rate Paid* | Variable Interest Rate Received | Effective Date | Expiration Date | |||||||||
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 | |||||||
April 2016 | $ | 100,000 | 1.000 | % | 1-month LIBOR | February 2017 | February 2020 | |||||||
June 2016 | $ | 75,000 | 0.850 | % | 1-month LIBOR | February 2017 | February 2020 | |||||||
June 2016 | $ | 150,000 | 0.950 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
June 2016 | $ | 150,000 | 0.950 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
July 2016 | $ | 50,000 | 0.900 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
July 2016 | $ | 50,000 | 0.890 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
August 2017 | $ | 100,000 | 1.900 | % | 1-month LIBOR | July 2019 | July 2022 | |||||||
August 2017 | $ | 200,000 | 2.200 | % | 1-month LIBOR | October 2020 | October 2025 | |||||||
August 2017 | $ | 150,000 | 1.950 | % | 1-month LIBOR | February 2020 | February 2023 |
* Plus applicable margin.
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 September 30, 2017, the Company’s derivative instruments included four 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 | $ | 3.2800 | DOE Diesel Fuel Index* | January 2016 | December 2017 | ||||||||
May 2015 | 200,000 | $ | 3.2750 | DOE Diesel Fuel Index* | January 2016 | December 2017 | ||||||||
July 2016 | 500,000 | $ | 2.4988 | DOE Diesel Fuel Index* | January 2017 | December 2017 | ||||||||
July 2016 | 1,000,000 | $ | 2.6345 | DOE Diesel Fuel Index* | January 2018 | December 2018 |
* If the national U.S. on-highway average price for a gallon of diesel fuel (“average price”), as published by the U.S. 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.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The fair values of derivative instruments designated as cash flow hedges as of SeptemberJune 30, 2017,2021, 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 | Prepaid expenses and other current assets(a) | $ | 2,748 | Accrued liabilities(a) | $ | (1,857 | ) | |||||
Other assets, net | 11,721 | Other long-term liabilities | (1,616 | ) | ||||||||
Fuel hedges | Prepaid expenses and other current assets(b) | 1,317 | Accrued liabilities(b) | (729 | ) | |||||||
Other assets, net | 241 | |||||||||||
Total derivatives designated as cash flow hedges | $ | 16,027 | $ | (4,202 | ) |
| | | | | | | | | | |
Derivatives Designated as Cash | | Asset Derivatives | | Liability Derivatives | ||||||
Flow Hedges | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||
Interest rate swaps |
| Prepaid expenses and other current assets | | $ | — | Accrued liabilities(a) | | $ | (19,943) | |
| | | | Other long-term liabilities | | | (50,406) | |||
Total derivatives designated as cash flow hedges | | | | $ | — | | | | $ | (70,349) |
____________________
(a)Represents the estimated amount of the existing unrealized gains and losses respectively, on interest rate swaps as of SeptemberJune 30, 20172021 (based on the interest rate yield curve at that date), included in AOCIL 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 gains and losses, respectively, on fuel hedges as of September 30, 2017 (based on the forward DOE diesel fuel index curve at that date), included in AOCIL 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, 2016,2020, 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 | Prepaid expenses and other current assets | $ | 127 | Accrued liabilities | $ | (3,260 | ) | |||||
Other assets, net | 13,822 | Other long-term liabilities | (2,350 | ) | ||||||||
Fuel hedges | Prepaid expenses and other current assets | 1,343 | Accrued liabilities | (3,258 | ) | |||||||
Other assets, net | 1,651 | |||||||||||
Total derivatives designated as cash flow hedges | $ | 16,943 | $ | (8,868 | ) |
| | | | | | | | | | |
Derivatives Designated as Cash | | Asset Derivatives | | Liability Derivatives | ||||||
Flow Hedges | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||
Interest rate swaps |
| Prepaid expenses and other current assets | | $ | — | Accrued liabilities | | $ | (20,023) | |
| | | | Other long-term liabilities | | (74,666) | ||||
Total derivatives designated as cash flow hedges | | | | $ | — | | | | $ | (94,689) |
21
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
The following table summarizes the impact of the Company’s cash flow hedges on the results of operations, comprehensive income (loss) and AOCIL for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016: 2020:
Derivatives Designated as Cash Flow Hedges | Amount of Gain or (Loss) Recognized as AOCIL on Derivatives, Net of Tax (Effective Portion)(a) | Statement of Net Income Classification | Amount of (Gain) or Loss Reclassified from AOCIL into Earnings, Net of Tax (Effective Portion) (b),(c) | |||||||||||||||
Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||
Interest rate swaps | $ | (361 | ) | $ | 2,598 | Interest expense | $ | 376 | $ | 1,234 | ||||||||
Fuel hedges | 1,680 | 630 | Cost of operations | 487 | 830 | |||||||||||||
Total | $ | 1,319 | $ | 3,228 | $ | 863 | $ | 2,064 |
| | | | | | | | | | | | | | |
Derivatives | | | | | | | | Statement of | | Amount of (Gain) or Loss Reclassified | ||||
Designated as Cash | | Amount of Gain or (Loss) Recognized | | Net Income (Loss) | | from AOCIL into Earnings, | ||||||||
Flow Hedges | | as AOCIL on Derivatives, Net of Tax (a) | | Classification | | Net of Tax (b) | ||||||||
| | Three Months Ended | | | | Three Months Ended | ||||||||
| | June 30, | | | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| |
| 2021 |
| 2020 | ||||
Interest rate swaps | | $ | (4,599) | | $ | (8,722) | | Interest expense | | $ | 3,720 | | $ | 1,574 |
| | | | | | | | | | | | | | |
Derivatives | | | | | | | | Statement of | | Amount of (Gain) or Loss Reclassified | ||||
Designated as Cash | | Amount of Gain or (Loss) Recognized | | Net Income (Loss) | | from AOCIL into Earnings, | ||||||||
Flow Hedges |
| as AOCIL on Derivatives, Net of Tax (a) | | Classification | | Net of Tax (b) | ||||||||
| | Six Months Ended | | | | Six Months Ended | ||||||||
| | June 30, | | | | June 30, | ||||||||
|
| 2021 |
| 2020 |
| |
| 2021 |
| 2020 | ||||
Interest rate swaps | | $ | 10,644 | | $ | (51,371) | | Interest expense | | $ | 7,245 | | $ | 1,251 |
____________________
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Derivatives Designated as Cash Flow Hedges | Amount of Gain or (Loss) Recognized as AOCIL on Derivatives, Net of Tax (Effective Portion)(a) | Statement of Net Income Classification | Amount of (Gain) or Loss Reclassified from AOCIL into Earnings, Net of Tax (Effective Portion) (b),(c) | |||||||||||||||
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||
Interest rate swaps | $ | 224 | $ | (3,896 | ) | Interest expense | $ | 1,729 | $ | 3,338 | ||||||||
Fuel hedges | (1,030 | ) | 841 | Cost of operations | 1,704 | 2,855 | ||||||||||||
Total | $ | (806 | ) | $ | (3,055 | ) | $ | 3,433 | $ | 6,193 |
(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 AOCIL. 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 AOCIL. 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.
(c) Amounts reclassified from AOCIL 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 Condensed Consolidated Statements of Net Income 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 nine months ended September 30, 2017 and 2016.
See Note 1516 for further discussion on the impact of the Company’s hedge accounting to its consolidated comprehensive income (loss) and AOCIL.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
13.FAIR VALUE OF FINANCIAL INSTRUMENTS |
The Company’s financial instruments consist primarily of cash and equivalents, trade receivables, restricted assets,cash and investments, trade payables, debt instruments, contingent consideration obligations and interest rate swaps and fuel hedges.swaps. As of SeptemberJune 30, 20172021 and December 31, 2016,2020, the carrying values of cash and equivalents, trade receivables, restricted assets,cash and investments, 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 SeptemberJune 30, 20172021 and December 31, 2016,2020, 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
22
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
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 SeptemberJune 30, 20172021 and December 31, 2016,2020, are as follows:
Carrying Value at | Fair Value* at | |||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | |||||||||||||
4.00% Senior Notes due 2018 | $ | 50,000 | $ | 50,000 | $ | 50,488 | $ | 51,226 | ||||||||
5.25% Senior Notes due 2019 | $ | 175,000 | $ | 175,000 | $ | 185,104 | $ | 187,671 | ||||||||
4.64% Senior Notes due 2021 | $ | 100,000 | $ | 100,000 | $ | 106,588 | $ | 106,618 | ||||||||
2.39% Senior Notes due 2021 | $ | 150,000 | $ | 150,000 | $ | 148,477 | $ | 146,168 | ||||||||
3.09% Senior Notes due 2022 | $ | 125,000 | $ | 125,000 | $ | 126,260 | $ | 123,974 | ||||||||
2.75% Senior Notes due 2023 | $ | 200,000 | $ | 200,000 | $ | 197,272 | $ | 192,238 | ||||||||
3.24% Senior Notes due 2024 | $ | 150,000 | $ | - | $ | 151,070 | $ | - | ||||||||
3.41% Senior Notes due 2025 | $ | 375,000 | $ | 375,000 | $ | 379,859 | $ | 368,968 | ||||||||
3.03% Senior Notes due 2026 | $ | 400,000 | $ | 400,000 | $ | 392,815 | $ | 379,438 | ||||||||
3.49% Senior Notes due 2027 | $ | 250,000 | $ | - | $ | 252,396 | $ | - |
| | | | | | | | | | | | |
| | Carrying Value at | | Fair Value* at | ||||||||
| | June 30, | | December 31, | | June 30, | | December 31, | ||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
4.64% Senior Notes due 2021 | | $ | — | | $ | 100,000 | | $ | — | | $ | 100,850 |
2.39% Senior Notes due 2021 | | $ | — | | $ | 150,000 | | $ | — | | $ | 150,695 |
3.09% Senior Notes due 2022 | | $ | 125,000 | | $ | 125,000 | | $ | 128,096 | | $ | 128,482 |
2.75% Senior Notes due 2023 | | $ | 200,000 | | $ | 200,000 | | $ | 206,306 | | $ | 206,204 |
3.24% Senior Notes due 2024 | | $ | 150,000 | | $ | 150,000 | | $ | 157,875 | | $ | 158,140 |
3.41% Senior Notes due 2025 | | $ | 375,000 | | $ | 375,000 | | $ | 401,150 | | $ | 403,025 |
3.03% Senior Notes due 2026 | | $ | 400,000 | | $ | 400,000 | | $ | 421,638 | | $ | 424,874 |
3.49% Senior Notes due 2027 | | $ | 250,000 | | $ | 250,000 | | $ | 266,929 | | $ | 271,198 |
4.25% Senior Notes due 2028 | | $ | 500,000 | | $ | 500,000 | | $ | 577,800 | | $ | 597,050 |
3.50% Senior Notes due 2029 | | $ | 500,000 | | $ | 500,000 | | $ | 549,350 | | $ | 570,450 |
2.60% Senior Notes due 2030 | | $ | 600,000 | | $ | 600,000 | | $ | 621,120 | | $ | 644,520 |
3.05% Senior Notes due 2050 | | $ | 500,000 | | $ | 500,000 | | $ | 506,450 | | $ | 540,050 |
____________________
*Senior Notes are classified as Level 2 within the fair value hierarchy. Fair value is based on quotesinputs include third-party calculations of bondsthe market interest rate of notes with similar ratings in similar industries.
industries over the remaining note terms.
For details on the fair value of the Company’s interest rate swaps, fuel hedges, restricted assetscash and investments and contingent consideration, refer to Note 15.
14.
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 shareholders for the three and ninesix months ended SeptemberJune 30, 20172021 and 2016: 2020:
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | ||||||||||||||||
| | Three Months Ended | | Six Months Ended | | ||||||||||||||||||||||||
| | June 30, | | June 30, | | ||||||||||||||||||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||||||||||||||||||
Numerator: | | | | | | | | | | | | | | ||||||||||||||||
Net income attributable to Waste Connections for basic and diluted earnings per share | $ | 123,227 | $ | 88,617 | $ | 261,732 | $ | 160,948 | |||||||||||||||||||||
Net income (loss) attributable to Waste Connections for basic and diluted earnings per share | | $ | 177,047 | | $ | (227,072) | | $ | 337,356 | | $ | (84,037) | | ||||||||||||||||
Denominator: | |
| | |
| | |
| | |
| | | ||||||||||||||||
Basic shares outstanding | 263,443,064 | 263,005,450 | 263,298,839 | 219,321,828 | |
| 260,951,405 | |
| 262,994,275 | |
| 261,791,088 | |
| 263,390,685 | | ||||||||||||
Dilutive effect of equity-based awards | 856,408 | 644,688 | 810,544 | 742,842 | |
| 467,168 | |
| — | |
| 478,512 | |
| — | | ||||||||||||
Diluted shares outstanding | 264,299,472 | 263,650,138 | 264,109,383 | 220,064,670 | |
| 261,418,573 | |
| 262,994,275 | |
| 262,269,600 | |
| 263,390,685 | | ||||||||||||
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
15.FAIR VALUE MEASUREMENTS |
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 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
23
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
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. Thecash and investments. At June 30, 2021 and December 31, 2020, the Company’s derivative instruments areincluded pay-fixed, receive-variable interest rate swaps and pay-fixed, receive-variable diesel fuel hedges.swaps. 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 $2.71 to $2.80 at September 30, 2017 and from $2.61 to $2.78 at December 31, 2016. The weighted average DOE index curve used in the DCF model was $2.74 and $2.75 at September 30, 2017 and December 31, 2016, 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 counterparties’ creditworthiness in its determination of the fair value measurement of these instruments in a net asset position. The Company’s restricted assetscash and investments 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 assetscash and investments measured at fair value are invested primarily in money market accounts, bank time deposits, U.S. government and agency securities and Canadian bankers’ acceptance notes.
The Company’s assets and liabilities measured at fair value on a recurring basis at SeptemberJune 30, 20172021 and December 31, 2016,2020, were as follows:
Fair Value Measurement at September 30, 2017 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 asset position | $ | 10,996 | $ | - | $ | 10,996 | $ | - | ||||||||
Fuel hedge derivative instruments – net asset position | $ | 829 | $ | - | $ | - | $ | 829 | ||||||||
Restricted assets | $ | 57,760 | $ | - | $ | 57,760 | $ | - | ||||||||
Contingent consideration | $ | (44,955 | ) | $ | - | $ | - | $ | (44,955 | ) |
| | | | | | | | | | | | |
| | Fair Value Measurement at June 30, 2021 Using | ||||||||||
|
| | |
| Quoted Prices in |
| Significant |
| | | ||
| | | | | Active Markets | | Other | | Significant | |||
| | | | | for Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
| | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Interest rate swap derivative instruments – net liability position | | $ | (70,349) | | $ | — | | $ | (70,349) | | $ | — |
Restricted cash and investments | | $ | 170,107 | | $ | — | | $ | 170,107 | | $ | — |
Contingent consideration | | $ | (68,029) | | $ | — | | $ | — | | $ | (68,029) |
| | | | | | | | | | | | |
| | Fair Value Measurement at December 31, 2020 Using | ||||||||||
|
| | |
| Quoted Prices in |
| Significant |
| | | ||
| | | | | Active Markets | | Other | | Significant | |||
| | | | | for Identical | | Observable | | Unobservable | |||
| | | | | Assets | | Inputs | | Inputs | |||
| | Total | | (Level 1) | | (Level 2) | | (Level 3) | ||||
Interest rate swap derivative instruments – net liability position | | $ | (94,689) | | $ | — | | $ | (94,689) | | $ | — |
Restricted cash and investments | | $ | 155,176 | | $ | — | | $ | 155,176 | | $ | — |
Contingent consideration | | $ | (71,736) | | $ | — | | $ | — | | $ | (71,736) |
24
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Fair Value Measurement at December 31, 2016 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 asset position | $ | 8,339 | $ | - | $ | 8,339 | $ | - | ||||||||
Fuel hedge derivative instrument – net liability position | $ | (264 | ) | $ | - | $ | - | $ | (264 | ) | ||||||
Restricted assets | $ | 57,166 | $ | - | $ | 57,166 | $ | - | ||||||||
Contingent consideration | $ | (51,826 | ) | $ | - | $ | - | $ | (51,826 | ) |
The following table summarizes the changes in the fair value for Level 3 derivatives for the nine months ended September 30, 2017 and 2016:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Beginning balance | $ | (264 | ) | $ | (9,900 | ) | ||
Realized losses included in earnings | 2,765 | 4,616 | ||||||
Unrealized gains (losses) included in AOCIL | (1,672 | ) | 1,343 | |||||
Ending balance | $ | 829 | $ | (3,941 | ) |
The following table summarizes the changes in the fair value for Level 3 liabilities related to contingent consideration for the ninesix months ended SeptemberJune 30, 20172021 and 2016: 2020:
Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | |||||||||||||
| | | | | | | ||||||||
| | Six Months Ended June 30, | ||||||||||||
|
| 2021 |
| 2020 | ||||||||||
Beginning balance | $ | 51,826 | $ | 49,394 | | $ | 71,736 | | $ | 69,484 | ||||
Contingent consideration recorded at acquisition date | 35 | 16,247 | |
| 1,512 | |
| 3,327 | ||||||
Payment of contingent consideration recorded at acquisition date | (5,840 | ) | (12,105 | ) | |
| (5,595) | |
| (2,251) | ||||
Payment of contingent consideration recorded in earnings | - | (413 | ) | |
| (520) | |
| — | |||||
Adjustments to contingent consideration | 17,754 | (2,563 | ) | | | 89 | |
| 16,794 | |||||
Reclass earned contingent consideration to accrued liabilities | (20,464 | ) | - | |||||||||||
Interest accretion expense | 1,381 | 1,129 | |
| 821 | |
| 841 | ||||||
Foreign currency translation adjustment | 263 | - | |
| (14) | |
| (181) | ||||||
Ending balance | $ | 44,955 | $ | 51,689 | | $ | 68,029 | | $ | 88,014 |
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
16.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 three and nine month periodssix months ended SeptemberJune 30, 20172021 and 20162020 are as follows:
Three months ended September 30, 2017 | |||||||||||||||||||||
Gross | Tax effect | Net of tax | |||||||||||||||||||
| | | | | | | | | | ||||||||||||
|
| Three Months Ended June 30, 2021 | |||||||||||||||||||
|
| Gross |
| Tax Effect |
| Net of Tax | |||||||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 511 | $ | (135 | ) | $ | 376 | | $ | 5,061 | | $ | (1,341) | | $ | 3,720 | |||||
Fuel hedge amounts reclassified into cost of operations | 789 | (302 | ) | 487 | |||||||||||||||||
Changes in fair value of interest rate swaps | 2,181 | (2,542 | ) | (361 | ) | |
| (6,257) | |
| 1,658 | |
| (4,599) | |||||||
Changes in fair value of fuel hedges | 2,717 | (1,037 | ) | 1,680 | |||||||||||||||||
Foreign currency translation adjustment | 84,500 | - | 84,500 | |
| 32,973 | |
| — | |
| 32,973 | |||||||||
$ | 90,698 | $ | (4,016 | ) | $ | 86,682 | |||||||||||||||
Three months ended September 30, 2016 | |||||||||||||||||||||
Gross | Tax effect | Net of tax | |||||||||||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 1,678 | $ | (444 | ) | $ | 1,234 | ||||||||||||||
Fuel hedge amounts reclassified into cost of operations | 1,342 | (512 | ) | 830 | |||||||||||||||||
Changes in fair value of interest rate swaps | 3,535 | (937 | ) | 2,598 | |||||||||||||||||
Changes in fair value of fuel hedges | 1,019 | (389 | ) | 630 | |||||||||||||||||
Foreign currency translation adjustment | (16,642 | ) | - | (16,642 | ) | ||||||||||||||||
$ | (9,068 | ) | $ | (2,282 | ) | $ | (11,350 | ) | |||||||||||||
Nine months ended September 30, 2017 | |||||||||||||||||||||
Gross | Tax effect | Net of tax | |||||||||||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 2,352 | $ | (623 | ) | $ | 1,729 | ||||||||||||||
Fuel hedge amounts reclassified into cost of operations | 2,765 | (1,061 | ) | 1,704 | |||||||||||||||||
Changes in fair value of interest rate swaps | 305 | (81 | ) | 224 | |||||||||||||||||
Changes in fair value of fuel hedges | (1,672 | ) | 642 | (1,030 | ) | ||||||||||||||||
Foreign currency translation adjustment | 155,153 | - | 155,153 | ||||||||||||||||||
$ | 158,903 | $ | (1,123 | ) | $ | 157,780 | |||||||||||||||
| | $ | 31,777 | | $ | 317 | | $ | 32,094 |
| | | | | | | | | |
|
| Three Months Ended June 30, 2020 | |||||||
|
| Gross |
| Tax Effect |
| Net of Tax | |||
Interest rate swap amounts reclassified into interest expense | | $ | 2,142 | | $ | (568) | | $ | 1,574 |
Changes in fair value of interest rate swaps | |
| (11,867) | |
| 3,145 | |
| (8,722) |
Foreign currency translation adjustment | |
| 83,093 | |
| — | |
| 83,093 |
| | $ | 73,368 | | $ | 2,577 | | $ | 75,945 |
| | | | | | | | | |
|
| Six Months Ended June 30, 2021 | |||||||
|
| Gross |
| Tax Effect |
| Net of Tax | |||
Interest rate swap amounts reclassified into interest expense | | $ | 9,857 | | $ | (2,612) | | $ | 7,245 |
Changes in fair value of interest rate swaps | |
| 14,482 | |
| (3,838) | |
| 10,644 |
Foreign currency translation adjustment | |
| 61,027 | |
| — | |
| 61,027 |
| | $ | 85,366 | | $ | (6,450) | | $ | 78,916 |
| | | | | | | | | |
| | Six Months Ended June 30, 2020 | |||||||
|
| Gross |
| Tax Effect |
| Net of Tax | |||
Interest rate swap amounts reclassified into interest expense | | $ | 1,702 | | $ | (451) | | $ | 1,251 |
Changes in fair value of interest rate swaps | |
| (69,893) | |
| 18,522 | |
| (51,371) |
Foreign currency translation adjustment | |
| (101,624) | |
| — | |
| (101,624) |
| | $ | (169,815) | | $ | 18,071 | | $ | (151,744) |
25
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Nine months ended September 30, 2016 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 5,081 | $ | (1,743 | ) | $ | 3,338 | |||||
Fuel hedge amounts reclassified into cost of operations | 4,616 | (1,761 | ) | 2,855 | ||||||||
Changes in fair value of interest rate swaps | (6,980 | ) | 3,084 | (3,896 | ) | |||||||
Changes in fair value of fuel hedges | 1,343 | (502 | ) | 841 | ||||||||
Foreign currency translation adjustment | (3,991 | ) | - | (3,991 | ) | |||||||
$ | 69 | $ | (922 | ) | $ | (853 | ) |
A rollforward of the amounts included in AOCIL, net of taxes, for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, is as follows:
Fuel Hedges | Interest Rate Swaps | Foreign Currency Translation Adjustment | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
Balance at December 31, 2016 | $ | (164 | ) | $ | 8,094 | $ | (50,931 | ) | $ | (43,001 | ) | ||||||||||||||
| | | | | | | | | | ||||||||||||||||
|
| | |
| Foreign |
| Accumulated | ||||||||||||||||||
| | | | | Currency | | Other | ||||||||||||||||||
| | Interest | | Translation | | Comprehensive | |||||||||||||||||||
| | Rate Swaps | | Adjustment | | Income (Loss) | |||||||||||||||||||
Balance at December 31, 2020 | | $ | (69,596) | | $ | 68,945 | | $ | (651) | ||||||||||||||||
Amounts reclassified into earnings | 1,704 | 1,729 | - | 3,433 | | | 7,245 | | | — | | | 7,245 | ||||||||||||
Changes in fair value | (1,030 | ) | 224 | - | (806 | ) | | | 10,644 | | | — | | | 10,644 | ||||||||||
Foreign currency translation adjustment | - | - | 155,153 | 155,153 | | | — | | | 61,027 | | | 61,027 | ||||||||||||
Balance at September 30, 2017 | $ | 510 | $ | 10,047 | $ | 104,222 | $ | 114,779 | |||||||||||||||||
Fuel Hedges | Interest Rate Swaps | Foreign Currency Translation Adjustment | Accumulated Other Comprehensive Income (Loss) | ||||||||||||||||||||||
Balance at December 31, 2015 | $ | (6,134 | ) | $ | (6,037 | ) | $ | - | $ | (12,171 | ) | ||||||||||||||
Amounts reclassified into earnings | 2,855 | 3,338 | - | 6,193 | |||||||||||||||||||||
Changes in fair value | 841 | (3,896 | ) | - | (3,055 | ) | |||||||||||||||||||
Foreign currency translation adjustment | - | - | (3,991 | ) | (3,991 | ) | |||||||||||||||||||
Balance at September 30, 2016 | $ | (2,438 | ) | $ | (6,595 | ) | $ | (3,991 | ) | $ | (13,024 | ) | |||||||||||||
Balance at June 30, 2021 | | $ | (51,707) | | $ | 129,972 | | $ | 78,265 |
| | | | | | | | | |
|
| | |
| Foreign |
| Accumulated | ||
| | | | | Currency | | Other | ||
| | Interest | | Translation | | Comprehensive | |||
| | Rate Swaps | | Adjustment | | Income (Loss) | |||
Balance at December 31, 2019 | | $ | (29,255) | | $ | 18,292 | | $ | (10,963) |
Amounts reclassified into earnings | |
| 1,251 | |
| — | |
| 1,251 |
Changes in fair value | |
| (51,371) | |
| — | |
| (51,371) |
Foreign currency translation adjustment | |
| — | |
| (101,624) | |
| (101,624) |
Balance at June 30, 2020 | | $ | (79,375) | | $ | (83,332) | | $ | (162,707) |
See Note 1112 for further discussion on the Company’s derivative instruments.
17.SHAREHOLDERS’ EQUITY
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Share split
On April 26, 2017, the Company announced that its Board of Directors approved a split of its common shares on a three-for-two basis, which was approved by its shareholders at the Company’s Annual and Special Meeting of Shareholders of Waste Connections on May 23, 2017. Shareholders of record on June 7, 2017 received from the Company’s transfer agent on June 16, 2017, one additional common share for every two common shares held. All share and per share amounts for all periods presented have been retroactively adjusted to reflect the share split.
Share-Based Compensation
Restricted Share Units – New Waste Connections
A summary of activity related to restricted share units (“RSUs”) during the nine-monthsix-month period ended SeptemberJune 30, 2017,2021, is presented below:
| | | ||
| Unvested Shares | |||
Outstanding at December 31, | 772,625 | |||
Granted | 454,151 | |||
Forfeited | (38,222) | |||
Vested and issued | (341,176) | |||
Outstanding at | 847,378 |
The weighted average grant-date fair value per share for the common shares underlying the RSUs granted during the nine-monthsix-month period ended SeptemberJune 30, 20172021 was $57.02.
$97.81.
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, unless a qualified participant makes certain other elections, the Company issues
26
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
to recipients who deferred their RSUs common shares of the Company underlying the deferred RSUs. At SeptemberJune 30, 20172021 and 2016,2020, the Company had 352,214101,221 and 366,337186,932 vested deferred RSUs outstanding, respectively.
Performance-Based Restricted Share Units – New Waste Connections
A summary of activity related to performance-based restricted share units (“PSUs”) during the nine-monthsix-month period ended SeptemberJune 30, 2017,2021, is presented below:
| | | ||
| Unvested Shares | |||
Outstanding at December 31, | 434,558 | |||
Granted | 116,784 | |||
Forfeited | (5,048) | |||
Vested and issued | (154,251) | |||
Outstanding at | 392,043 |
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
During the ninesix months ended SeptemberJune 30, 2017,2021, the Company’s Compensation Committee granted PSUs 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, 2019. During the same period, the Compensation Committee also granted PSUs with a 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.2023. The Compensation Committee will determine the achievement of performance results and corresponding vesting of PSUs for each performance period. The weighted average grant-date fair value per share for the common shares underlying all PSUs granted during the nine-monthsix-month period ended SeptemberJune 30, 20172021 was $57.47. $96.99.
Deferred Share Units – New Waste Connections and Progressive Waste Plans
A summary of activity related to deferred share units (“DSUs”) during the nine-monthsix-month period ended SeptemberJune 30, 2017,2021, is presented below:
| | | ||
| Vested Shares | |||
Outstanding at December 31, | 21,586 | |||
Granted | 2,856 | |||
Outstanding at | 24,442 |
The DSUs consist of a combination of DSU grants outstanding under the Progressive Waste share-based compensation plans that were continued by the Company following the Progressive Waste acquisition and DSUs granted by the Company since the Progressive Waste acquisition. The weighted average grant-date fair value per share for the common shares underlying the DSUs granted during the six-month period ended June 30, 2021 was $99.80.
Other Restricted Share Units - Progressive Waste Plans
TheRSU grants outstanding under the Progressive Waste share-based compensation plans were continued by the Company following the Progressive Waste acquisition and allow for the issuance of shares or cash settlement to employees upon vesting
27
A summary of vesting activity related to Progressive Waste RSUs during the nine-month period ended September 30, 2017, is presented below:
No RSUs under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Performance-Based Restricted Share Units - Progressive Waste Plans
The Progressive Waste share-based compensation plans were continued by the Company following the Progressive Waste acquisition and allow for cash settlement only to employees upon vesting of performance-based restricted share units (“PSUs”) based on achieving target results.vesting. A summary of activity related to Progressive Waste PSUsRSUs during the nine-monthsix-month period ended SeptemberJune 30, 2017,2021, is presented below:
| | | ||
Outstanding at December 31, | 66,554 | |||
Cash settled | (1,318) | |||
Outstanding at | 65,236 |
A summary of vesting activity related to Progressive Waste PSUs during the nine-month period ended September 30, 2017, is presented below:
No PSUsNaN RSUs under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016. All remaining RSUs were vested as of March 31, 2019.
Share Based Options – Progressive Waste Plans
TheShare based options outstanding under the Progressive Waste share-based compensation plans were continued by the Company following the Progressive Waste acquisition and allow for the issuance of shares or cash settlement to employees upon vesting of share based options.vesting. A summary of activity related to Progressive Waste share based options during the nine-monthsix-month period ended SeptemberJune 30, 2017,2021, is presented below:
| | | ||
Outstanding at December 31, | 51,200 | |||
Cash settled | (3,631) | |||
Outstanding at | 47,569 |
A summary of vesting activity related to Progressive Waste share based options during the nine-month period ended September 30, 2017, is presented below:
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
NoNaN share based options under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016. All outstanding share based options were vested as of December 31, 2017.
Employee Share Purchase Plan
On May 15, 2020, the Company’s shareholders approved the 2020 Employee Share Purchase Plan (the “ESPP”). Under the ESPP, qualified employees may elect to have payroll deductions withheld from their eligible compensation on each payroll date in amounts equal to or greater than 1 percent (1%) but not in excess of 10 percent (10%) of eligible compensation in order to purchase the Company’s common shares under certain terms and subject to certain restrictions set forth in the ESPP. The exercise price is equal to 95% of the closing price of the Company’s common shares on the last day of the relevant offering period, subject to certain restrictions. The maximum number of shares that may be issued under the ESPP is 1,000,000. As of June 30, 2021, NaN of the Company’s common shares have been purchased under the ESPP.
Normal Course Issuer Bid
On July 24, 2017,23, 2020, the Board of Directors of the Company approved, subject to receipt of regulatory approvals, the annual renewal of the Company’s normal course issuer bid (the “NCIB”) to purchase up to 13,181,80613,144,773 of the Company’s common shares during the period of August 8, 201710, 2020 to August 7, 20189, 2021 or until such earlier time as the NCIB is completed or terminated at the option of the Company. The renewal followed on the conclusion of the Company’s original NCIB that expired August 7, 2017 under which no shares were repurchased.2020. The Company received TSXToronto Stock Exchange (the “TSX”) approval for its annual renewal of the NCIB on August 2, 2017.5, 2020. Under the NCIB, the Company may make share repurchases only in the open market, including on the NYSE,New York Stock Exchange (the “NYSE”), the TSX, and/or alternative Canadian trading systems, at the prevailing market price at the time of the transaction.
28
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
In accordance with TSX rules, any daily repurchases made through the TSX and alternative Canadian trading systems would beis limited to a maximum of 80,287112,638 common shares, which represents 25% of the average daily trading volume on the TSX of 321,151450,555 common shares for the period from February 1, 20172020 to July 31, 2017.2020. The TSX rules also allow the Company to purchase, once a week, a block of common shares not owned by any insiders, which may exceed such daily limit. The maximum number of shares that can be purchased per day on the NYSE will be 25% of the average daily trading volume for the four calendar weeks preceding the date of purchase, subject to certain exceptions for block purchases.
The timing and amounts of any repurchases pursuant to the NCIB will depend on many factors, including the Company’s capital structure, the market price of the common shares and overall market conditions. All common shares purchased under the NCIB shall be immediately cancelled following their repurchase.
For the ninesix months ended SeptemberJune 30, 2017,2021, the Company did not repurchase any common shares pursuant to the NCIB. For the nine months ended September 30, 2016, the Company did not repurchase anyrepurchased 2,745,990 common shares pursuant to the NCIB nor did Old Waste Connections repurchaseat an aggregate cost of $305,640. During the six months ended June 30, 2020, the Company repurchased 1,271,977 common shares of its common stock pursuant to its sharethe NCIB at an aggregate cost of $105,654. As of June 30, 2021, the remaining maximum number of shares available for repurchase program.under the current NCIB was 10,398,783.
Cash Dividend
In October 2016,2020, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.023,$0.02, from $0.097$0.185 to $0.12$0.205 per Company common share. Dividend amounts reflect the post-split basis of the three-for-two share split completed in June 2017. Cash dividends of $95,201$107,330 and $61,001$96,912 were paid during the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
18.COMMITMENTS AND CONTINGENCIES |
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 Canadian regulatory authorities as well as U.S. federal, state and local agencies. In these proceedings, an agency may subpoena the Company for records, or 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.
The Company uses $1,000 as a threshold (up from the previously required threshold of $300) for disclosing environmental matters involving potential monetary sanctions.
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 managementCompany’s business. Except as noted in the matters described below, as of SeptemberJune 30, 2017,2021, there is no current proceeding or litigation involving the Company or its property that the Company believes could have a material adverse impacteffect on its business, financial condition, results of operations or cash flows.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Lower Duwamish Waterway Superfund Site Allocation Process
TheIn November 2012, the Company’s subsidiary, Northwest Container Services, Inc. (“NWCS”), has beenwas named by the U.S. Environmental Protection Agency, Region 10 (the “EPA”) as a potentially responsible party (“PRP”), along with more than 100 others, under the Comprehensive Environmental Response, Compensation and Liability Act (“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
29
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Seattle, Washington. A group of PRPs known as the Lower Duwamish Working Group (“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 (the “ROD”) describing the selected clean-up remedy, and therein estimated that clean-up costs (in present value dollars as of November 2014) shouldwould total aboutapproximately $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. Typically, costs for monitoring may be in addition to those expended for the clean-up. While three of the EAA clean-ups have been completed to date, some work remains to be done on three other EAAs. 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 April 27, 2016, the LDWG entered into a third amendment of its Administrative Order on Consent with the EPA (the “AOC 3”) in which it agreed to perform the additional baseline sediment sampling and certain technical studies needed to prepare the actual remedial design. The LDWG and the EPA entered into a fourth amendment to the AOC in July 2018 primarily addressing development of a proposed remedy for the upper reach of the LDW Site, river mile 3 to river mile 5. At the April 24, 2019 stakeholders meeting the LDWG projected completion of the remedial design for the upper reach could be completed by August 2024. In late September 2020, the EPA informed attorneys for several PRPs that the work may be completed by late 2023 or early 2024.
On November 9,August 16, 2016, the EPA andsent individual letters to each of the Washington State Department of Ecology (“Ecology”) conducted a public stakeholder meeting regardingPRPs for the LDW Site. DuringSite, including NWCS, stating that it expected to initiate negotiations with all PRPs in early 2018 relating to a Remedial Design/Remedial Action (“RD/RA”) Consent Decree. An RD/RA Consent Decree provides for the public stakeholder meeting, the EPA provided an overviewcleanup of the AOC 3 pre-remedial design workentire site and the progress of the on-going work on the EAA cleanups. At the meeting, both the EPA and Ecology estimated that the pre-design studies being performed pursuantis often referred to the AOC 3 would not be completed until the end of 2019. The EPA and Ecology did not revise that estimate at the EPA stakeholder meeting on June 14, 2017.
as a “global settlement.” 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 (regardless of whether that PRP is participating in the allocation process), 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.
On August 16, 2016, the EPA sent individual letters to each of the PRPs for the LDW Site, including NWCS, stating that it expects to initiate negotiations with all PRPs in early 2018 relating to a Remedial Design/Remedial Action (“RD/RA”) Consent Decree. An RD/RA Consent Decree provides for the cleanup of the entire site and is often referred to as a “global settlement.” In the letter the EPA explained this schedule, noting that it expected the pre-remedial design work under the AOC 3 to be completed by the beginning of 2018, and also that it understood that several PRPs are participating in a neutral allocation, which the EPA was hopeful would be completed by early 2018. The EPA encouraged the PRPs to complete the allocation on a schedule consistent with the EPA’s intended negotiation schedule, adding that it expects to initiate the RD/RA negotiations on schedule regardless of the status of the allocation. The pre-remedial design work under the AOC 3 is now not expected to conclude until the end of 2019, and in March 2017, the PRPs provided the EPA with notice that the allocation iswas not scheduled to conclude until mid-2019. InLater extensions pushed the allocation conclusion date first to early 2020 and then to July 2020. The EPA was informed of those changes. The allocator issued his preliminary allocation report on June 2017, attorneys for28, 2021. The final allocation report will be issued only after the allocator considers comments of the parties on the preliminary report. Due to the delay in the issuance of the preliminary allocation report, the EPA informed attorneys for several PRPsindicated that it now expectssettlement negotiations are expected to begin RD/RA negotiations in the late summer or early fall of 2018. The Company cannot provide assurance that the EPA’s schedule can be met or will be adjusted.2022. 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, its specific allocation, or the likelihood of the parties then negotiating a global settlement with the EPA. Thus, NWCS cannot reasonably determine the likelihood of any outcome in this matter, including its potential liability.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Under CERCLA, certain Federal, State and Indian Tribe officials are designated as natural resource trustees and have responsibility for ensuring the restoration of injured natural resources. On February 11, 2016, NWCS received a letter (the “Letter”) from the United States Department of Commerce, National Oceanic and Atmospheric Administration (“NOAA”), describing certain investigatory activities conducted by the Elliott Bay Trustee Council (the “Council”). The Council consists of all of the natural resources trustees for the LDW Site as well as two nearby Superfund sites, the Harbor Island site and the Lockheed West site. The members of the Council include the United States, on behalf of the U.S. National Oceanic and Atmospheric Administration and the U.S. Department of the Interior, the Washington State Department of Ecology, and the Suquamish and Muckleshoot Indian Tribes (together, the “Trustees”). The Letter appears to allege that NWCS may be a potentially liable party that allegedly contributed to the release of hazardous substances that have injured natural resources at the LDW Site. Damages to natural resources are in addition to clean-up costs. The Letter, versions of which NWCS believes were sent to all or a group of the PRPs for the LDW Site, also notified its recipients of their opportunity to participate in the Trustees’ development of an Assessment Plan and the performance of a Natural Resources Damages Assessment (“NRDA”) in accordance with the Assessment Plan for both the LDW Site and the east and west waterways of the Harbor Island site. NWCS timely
30
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
responded with correspondence to the NOAA Office of General Counsel, dated March 9, 2016, in which it declined the invitation at that time. NWCS does not know how other PRPs responded to the Letter, and has not received any further communication from NOAA or the Trustees. The Trustees have not responded to NWCS’ letter and NWCS is not aware of any further action by theletter. The Trustees with respect to thereleased their Assessment Plan and NRDA.in March 2019. The Assessment Plan does not set forth a timeline for implementation. At this point, the Company is not able to determine the likelihood or amount of an assessment of natural resource damages against NWCS in connection with this matter.
Some work is being done with respect to natural resource damages (“NRD”) at the LDW Site. On September 22, 2016, a proposed consent decree settlement was announced between the City of Seattle (the “City”) and NOAA and the other natural resource trustees for the LDW Site. The proposed NRD settlement that the City has entered into at the LDW Site, if approved, will generally provide that the City will fund the development of restoration projects by purchasing restoration credits from Bluefield Holdings, a company that develops such projects. At this time, NWCS has not been approached by either the Council or the trustees for the LDW Site regarding participation in any similar NRD settlements. In December 2016, the Lower Duwamish Fishers Study Data Report was released, which was the first step towards developing institutional controls specific to resident fish and shellfish consumption in the area.
Los Angeles County, California Landfill Expansion Litigation
A. | Chiquita Canyon, LLC Lawsuit Against Los Angeles County |
In October 2004, the Company’s subsidiary, Chiquita Canyon, LLC (“CCL”), then under prior ownership, filed an application (the “Application”) with the County of Los Angeles (the “County”) Department of Regional Planning (the “Department”(“DRP”) for a conditional use permit (“CUP”(the “CUP”) to authorize the continued operation and expansion of the Chiquita Canyon Landfill (the “Landfill”). The Landfill has operated since 1972, and as a regional landfill, accepted approximately threeover 2 million tons of materials for disposal and beneficial use in 2016.2020. The Application requested expansion of the existing waste footprint on CCL’s contiguous property, an increase in maximum elevation, creation of a new entrance and new support facilities, construction of a facility for the County or another third-party operator to host household hazardous waste collection events, designation of an area for mixed organics/composting, and other modifications.
Over the ensuing 12 and-a-halfAfter many years the County conducted a lengthy Permittingof reviews and Environmental Impact Review (the “Review”) of the Application, which Review was funded by the Company at substantial expense as required by the County. The County released a draft Environmental Impact Report in 2014, and subsequently revised and recirculated several chapters of that report in 2016.
Upondelays, upon the recommendation of County staff, and over CCL’s objections, the County’s Regional Planning Commission (the “Commission”) approved CCL’sthe Application on April 19, 2017, but withimposed operating conditions, fees and exactions that substantially reduce the historical landfill operations and represent a dramaticlarge increase in per-tonaggregate taxes and other fees, and include currently unquantifiable futurefees. CCL objected to many of the requirements imposed by the Commission. Current estimates for new costs thatimposed on CCL would be forced to expend atunder the County’s direction and discretion.
CUP are in excess of $300,000.
CCL appealed the Commission’s decision to the County Board of Supervisors. Four separate appeals were also filed by opponents ofSupervisors, but the Landfill expansion project. The Board of Supervisors conducted a public hearing on all of the appeals on June 27, 2017.appeal was not successful. At a subsequent hearing, on July 25, 2017, the Board of Supervisors approved the CUP. The revised conditions approved by the Board of Supervisors do provide some modest relief on the original taxes and fees and the limits on materials that may be received at the Landfill on a daily, monthly, and annual basis. However, the CUP, as revised, also includes many of the Commission’s objectionable conditions and imposes additional requirements beyond those that were required by the Commission, and still includes numerous operational restrictions and taxes and fees that will likely make the continued operation of the Landfill less profitable for the Company.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
On October 20, 2017, CCL filed in the Superior Court of California, County of Los Angeles County a verified petition for writ of mandate and complaint against the County and the County Board of Supervisors captionedChiquita Canyon, LLC vs.v. County of Los Angeles; Los Angeles, County Board of Supervisors challenging many unlawfulNo. BS171262 (Los Angeles Co. Super Ct.) (the “Complaint”). The Complaint challenges the terms of the CUP. CCL’s petitionCUP in 13 counts generally alleging that the County violated multiple California and complaintfederal statutes and California and federal constitutional protections. CCL seeks the following relief: (a) an injunction and writ of mandate against certain of the CUP’s operational restrictions, taxes and fees, (b) a declaration that the challenged conditions are unconstitutional and in violation of state and federal statutes, (c) reimbursement for any such illegal fees paid under protest, (d) damages, (e) an award of just compensation for a taking, (f) attorney fees, and (e) attorney fees. The petition(g) all other appropriate legal and complaint detailsequitable relief.
Extensive motions practice and an interlocutory appeal occurred in 2018 and 2019 over the exemplary 40-plus year operating historypermissible scope of the Landfill, and the many unreasonable and unlawful conditions being forced upon CCL pursuantCCL’s challenge to the CUP, which harm both CCL and its many customers and others who depend on economical waste management options for Southern California. The petition and complaint estimates that the CUP’s new fees and other new taxes on CCL will total more than $250,000 over the 30-year lifetime of the CUP.
CCL’s petition and complaint explains that the CUP’s conditions violate several state statutes, and state and federal constitutional provisions. The statutory challenges include (a) violations of California’s Mitigation Fee Act, which requires a reasonable relationship between fees imposed by the County and the Landfill’s impacts, and (b) California’s Integrated Waste Management Act, which establishes a comprehensive program for solid waste management and requires certain waste diversion and recycling goals.
The constitutional challenges include:
One condition of the CUP requires CCL to support the County in its legislative efforts related to amendment of certain waste laws and regulations. This condition is challenged as a clear affront to the free speech protections of the state and federal constitutions. Another onerous condition requires CCL to establish a public park on its land upon closure of the Landfill, and dedicate this land to the County upon request. This condition, among others, is challenged as a taking of private property for public use without just compensation. The petition and complaint also alleges that the County’s actions in enacting these illegal conditions were ultra vires and an abuse of its exercise of police power. The federal constitutional claims provide a basis for violations of 42 U.S.C. Section 1983, which, if successful, will entitle CCL to damages and attorneys’ fees.
The County is required to answer the petition and complaint or move to dismiss. CCL will vigorously prosecute the lawsuit and plans to seek discovery from the County regarding what evidence, if any, supports the objectionablespecifically 13 operational conditions in the CUP.
A separate lawsuit involving CCL and the Landfill was recently filed by activists alleging The Superior Court ruled in CCL’s favor on November 13, 2019, finding that the Review underlyingCounty was estopped from contending that CCL has waived its rights to challenge the CUP was inadequate under state law. CCL was named as real partylegality of the 13 operational conditions. The County sought interlocutory review of the Superior Court’s decision in interest in athe Court of Appeal, which denied the County’s petition on February 7, 2020.
Following full briefing and oral argument on June 22, 2020 on six of CCL’s causes of action, the Superior Court issued its decision on July 2, 2020, granting CCL’s petition for writ of mandate filedin part and denying it in part. CCL prevailed with respect to 12 of the challenged conditions, many of which imposed new fees and exactions on August 24, 2017 inthe Landfill. Before entry of final judgment, the Superior Court will hear CCL’s remaining causes of California, Countyaction. A trial on CCL’s remaining causes of Los Angeles, againstaction is scheduled for August 1, 2022. A cause of action for a taking under the Fifth Amendment of the U.S.
31
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
Constitution is the subject of a pending motion for leave to amend the Complaint and will be heard by the Superior Court on September 15, 2021. Once the Superior Court has entered final judgment, CCL and the County will be permitted to appeal any adverse ruling to the California Court of Los Angeles by Val Verde Civic Association, Citizens for Chiquita Canyon Landfill Compliance,Appeal. After entry of final judgment and resolution of any appeals, the Santa Clarita Organization for PlanningSuperior Court will issue a writ directing the Environment. The lawsuit seeksCounty Board of Supervisors to overturnset aside its decision on the County’s approvalpermit with respect to 12 of the CUP for the expansionchallenged conditions. The Board will be allowed to make additional findings to support four of those conditions and reconsider its permit decision in light of the Landfill and the certification of the final Environmental Impact Report, arguing that the report violates the California Environmental Quality Act. Pursuant to Condition No. 6 of the CUP, which requiresSuperior Court’s writ. CCL to defend, indemnify, and hold harmless the County, its agents, officers, and employees from any claim or proceeding against the County brought by any third party to attack, set aside, void, or annul the CUP approval, the County by letter dated September 12, 2017 tendered the defense of the lawsuit to CCL. CCL intendswill continue to vigorously defendprosecute the lawsuit. AtHowever, at this point, the Company is not able to determine the likelihood of any outcome in this matter.
The County, through its DRP, issued a Notice of Violation, dated December 11, 2017 (the “NOV”), alleging that CCL violated certain conditions of the CUP, including Condition 79(B)(6) of the CUP by failing to pay an $11,600 Bridge & Thoroughfare Fee (“B&T Fee”) that was purportedly due on July 25, 2017. The alleged B&T fee was ostensibly to fund the construction of transportation infrastructure in the area of the Landfill. At the time the NOV was issued, CCL had already contested the legality of the B&T fee in the October 20, 2017 Complaint filed against the County in Los Angeles County Superior Court, described above under paragraph A (the “CUP lawsuit”).
On October 25, 2017,January 12, 2018, CCL filed an appeal of the alleged violations in the NOV. Subsequently, CCL filed additional legal arguments and exhibits contesting the NOV. On March 6, 2018, a DRP employee designated as hearing officer sustained the NOV, including the $11,600 B&T fee, and imposed an administrative penalty in the amount of $83 and a noncompliance fee of $0.75. A written decision memorializing the hearing officer’s findings and order was issued on July 10, 2018. On April 13, 2018, CCL filed in the Superior Court of California, County of Los Angeles a Petition for Writ of Administrative Mandamus against the County seeking to overturn the decision sustaining the NOV, contending that the NOV and decision are not supported by the facts or law. On July 17, 2018, the Court granted CCL leave to pay the $11,600 B&T fee and to amend its Complaint in the CUP lawsuit to reflect the payment under protest, allowing the challenge to the B&T fee under the Mitigation Fee Act to proceed in the CUP lawsuit. CCL paid the B&T fee under protest on August 10, 2018, and also paid on that date the administrative penalty of $83 and a noncompliance fee of $0.75. The Court indicated that the NOV case would be coordinated with the CUP lawsuit. The NOV case has been continued multiple times as the CUP lawsuit was adjudicated; it is now set for trial on January 18, 2022. The Superior Court’s July 2, 2020 decision in the CUP lawsuit upheld the B&T fee against a Mitigation Fee Act challenge, and addressed two other conditions that were also the subject of the NOV, which may impact the scope of the B&T fee/NOV case. CCL will continue to vigorously prosecute the lawsuit. However, at this point, the Company is not able to determine the likelihood of any outcome in this matter.
19.SUBSEQUENT EVENTS
On July 27, 2021, the Company’s Board of Directors approved, subject to receipt of regulatory approvals, the annual renewal of its NCIB. The renewal is expected to commence following the conclusion of the Company’s current NCIB expiring August 9, 2021. Upon approval, the Company anticipates that it will be authorized to make purchases during the period of August 10, 2021 to August 9, 2022 or until such earlier time as the NCIB is completed or terminated at the Company’s option.
See Note 10 for a discussion of the Company’s Second Amended and Restated Revolving Credit and Term Loan Agreement, which became effective on July 30, 2021.
32
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(DOLLAR AMOUNTS IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)
On August 4, 2021, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.02, from $0.12 to $0.14 per Company common share, and then declaredapproved a regular quarterly cash dividend of $0.14$0.205 per Company common share. The dividend will be paid on November 22, 2017,September 1, 2021, to shareholders of record on the close of business on November 8, 2017.August 18, 2021.
33
On June 1, 2016, pursuant to the termsTable of the AgreementContents
Item 2.Management’s Discussion and PlanAnalysis of Merger dated asFinancial Condition and Results of January 18, 2016 (the “Merger Agreement”), Water Merger Sub LLC, a Delaware limited liability company and a wholly-owned subsidiary of Progressive Waste Solutions Ltd. (“Merger Sub”), merged with and into Waste Connections US, Inc. (f/k/a Waste Connections, Inc.), a Delaware corporation (“Old Waste Connections”) in an all-stock business combination with Old Waste Connections continuing as the surviving corporation and an indirect wholly-owned subsidiary of Waste Connections, Inc. (f/k/a Progressive Waste Solutions Ltd.), a corporation organized under the laws of Ontario, Canada (“New Waste Connections,” “WCI” or the “Company”). We use the term “Progressive Waste” herein in the context of references to Progressive Waste Solutions Ltd. and its shareholders prior to the completion of the Progressive Waste acquisition on June 1, 2016.Operations
Under the terms of the Merger Agreement, Old Waste Connections’ stockholders received 3.1152645 New Waste Connections shares for each Old Waste Connections share they owned. Immediately following the completion of the Progressive Waste acquisition, New Waste Connections also completed (i) a consolidation whereby every 3.1152645 common shares outstanding were converted into one common share (the “Consolidation”) and (ii) an amalgamation with a wholly-owned subsidiary whereby its legal name was changed from Progressive Waste Solutions Ltd. to Waste Connections, Inc. (the “Amalgamation”). Upon completion of the Progressive Waste acquisition, Old Waste Connections’ former stockholders owned approximately 70% of the combined company, and Progressive Waste’s former shareholders owned approximately 30%. Following the completion of the Progressive Waste acquisition, the Consolidation and the Amalgamation, on June 1, 2016, the post-Consolidation common shares of New Waste Connections commenced trading on the Toronto Stock Exchange (the “TSX”) and on the New York Stock Exchange (the “NYSE”) under the ticker symbol “WCN.” The common stock of Old Waste Connections, which traded previously under the symbol “WCN,” has ceased trading on, and has been delisted from, the NYSE.
The Company is led by Old Waste Connections’ management team and the Board of Directors of the combined company includes the five members of Old Waste Connections’ board and two members from Progressive Waste’s board.
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our Condensed Consolidated Financial Statements and the related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
CertainWe make statements contained in this Quarterly Report on Form 10-Q that are forward-looking in nature, including statements related to our ability to draw on our Credit Agreement or raise other capital, the responsibilities of our subsidiaries with regard to possible cleanup obligations imposed by the EPA or other regulatory authorities, the impact of global, regional and local economic conditions, including the price of crude oil, on our volume, business and results of operations, the effects of seasonality on our business and results of operations, our ability to address any impacts of inflation on our business, demand for recyclable commodities (including landfill gas reclamation) and recyclable commodity pricing, our expectations with respect to capital expenditures, our expectations with respect to our ability to obtain expansions of permitted landfill capacity and to provide collection services under exclusive arrangements, our expectations with respect to our normal course issuer bid (our share repurchase program) and future dividend payments, our expectations with respect to the outcomes of our legal proceedings, our expectations with respect to the potential financial impairment of our reporting units caused by dispositions of certain operating units, our expectations about new accounting standards, our expectations about potential non-performance by counterparties to our hedge agreements and our expectations with respect to the anticipated benefits of the Progressive Waste acquisition and other acquisitions. nature. These include:
● | Statements regarding our landfills, including capacity, duration, special projects, demand for and pricing of recyclables, landfill alternatives and related capital expenditures; |
● | Discussion of competition, loss of contracts, price increases and additional exclusive and/or long-term collection service arrangements; |
● | Forecasts of cash flows necessary for operations and free cash flow to reduce leverage as well as our ability to draw on our credit facility and access the capital markets to refinance or expand; |
● | Statements regarding our ability to access capital resources or credit markets at all or on favorable terms; |
● | Plans for, and the amounts of, certain capital expenditures for our existing and newly acquired properties and equipment; |
● | Statements regarding fuel, oil and natural gas demand, prices, and price volatility; |
● | Assessments of regulatory developments and potential changes in environmental, health, safety and tax laws and regulations; and |
● | Other statements on a variety of topics such as the COVID-19 pandemic, credit risk of customers, seasonality, labor/pension costs and labor union activity, operational and safety risks, acquisitions, litigation results, goodwill impairments, insurance costs and cybersecurity threats. |
These statements can be identifiedidentified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “might,” “will,” “could,” “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 fromfrom those projected include, but are not limited to, those listed belowrisk factors detailed from time to time in our filings with the SEC and elsewherethe securities commissions or similar regulatory authorities in this report. Canada.
There may be additional risks of which we are not presently aware or that we currently believe are immaterial which couldthat could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in orderstatements to reflect events or circumstances that may change.
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, the following:
These risks and uncertainties, as well as others, are discussed in greater detail in this Quarterly Report on Form 10-Q and in other filings with the U.S. Securities and Exchange Commission, or SEC, made by the Company, including its most recent Annual Report on Form 10-K, as well as in the Company’s filings during the year with the Canadian Securities Administrators. 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 no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.
change, unless required under applicable securities laws.
OVERVIEW OF OUR BUSINESS
We are an integrated solid waste services company that provides non-hazardous waste collection, transfer and disposal services, along with recycling and recycling servicesresource recovery, in mostly exclusive and secondary markets across 43 states in the U.S. and six provinces in Canada. Through our R360 Environmental Solutions subsidiary, we areWaste Connections also a leading provider ofprovides non-hazardous exploration and production, or E&P,oilfield waste treatment, recovery and disposal services in several ofbasins across the most active natural resource producing areas in the U.S. We also provide, as well as intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a networkNorthwest.
34
We generally 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.
As of SeptemberJune 30, 2017,2021, we served residential, commercial, industrial and E&P customers in 3843 states in the U.S. and fivesix provinces in Canada: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Wisconsin and Wyoming, and the provinces of Alberta, British Columbia, Manitoba, Ontario, Québec and Québec.
Saskatchewan.
The solid waste industry is a local and highly competitive business,in nature, requiring substantial labor and capital resources. The participantsWe 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 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 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 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 volatilevolatile. Macroeconomic and the substantial reductionsgeopolitical conditions, including a significant decline in crude oil prices that begandriven by both surplus production and supply, as well as the decrease in October 2014, and continued through 2015 and into early 2016,demand caused by factors including the COVID-19 pandemic, have resulted in a decline in the leveldecreased levels of drilling and production activity, reducing the demand for E&P waste services in the basins in which we operate. The prices of crude oil and natural gas have recovered from their low pointexploration and production activity and a corresponding decrease in February 2016 and the demand for our E&P waste services has improved as a result of increased production ofservices. Additionally, across the industry there is uncertainty regarding future demand for oil and natural gas.related services, as noted by several energy companies, many of whom are customers of our E&P operations. These companies have written down the values of their oil and gas assets in anticipation of the potential for the decarbonization of their energy product mix given an increased global focus on reducing greenhouse gases and addressing climate change. Such uncertainty regarding global demand has had a significant impact on the investment and operating plans of our E&P waste customers in the basins where we operate. If this recovery of the prices of crude oil and natural gas is not sustained, or if a further reduction in crude oil and natural gas prices occurs,substantially decline, it 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 intangible assets and property and equipment associated with our E&P operations. See Note 5 to our Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the impairment charge recorded during the six months ended June 30, 2020.
THE COVID-19 PANDEMIC’S IMPACT ON OUR RESULTS OF OPERATIONS
March 11, 2021 marked the one year anniversary of COVID-19 being declared a global pandemic by the World Health Organization. The related economic disruptions largely associated with closures or restrictions put into effect following the onset of the COVID-19 pandemic resulted in declines in solid waste commercial collection, transfer station and landfill volumes, and roll off activity. Throughout the remaining fiscal year 2020, solid waste revenue and reported volumes largely reflected the pace and shape of the closures and subsequent reopening activity, with the timing and magnitude of
35
recovery varying by market. Reported solid waste volumes in 2020 turned slightly negative in the first quarter, were most negative in the second quarter, and showed sequential improvement during the second half of the year, finishing the year at negative 3.1% in the fourth quarter. In the first quarter of 2021, the final period to include comparisons to pre-COVID-19 activity levels on a year over year basis, solid waste volumes were down 3.2%. In the second quarter of 2021, solid waste volumes increased sequentially by 9.6% to up 6.5% on a year over year basis, with positive volumes in all regions.
The COVID-19 pandemic also contributed to the decline in demand for and the value of crude oil, which impacted E&P drilling activity and resulted in lower E&P waste revenue, with the quarterly run rate decreasing from approximately $60 million in the first quarter of 2020 to approximately $25 million through the first quarter of 2021. E&P waste revenue increased sequentially by $6.5 million to $31.2 million in the second quarter of 2021 on increased drilling activity in several active shale basins.
Since the onset of the COVID-19 pandemic, protecting the health, welfare and safety of our employees has been our top priority. Recognizing the potential for financial hardship and other challenges, we looked to provide a safety net for our employees on issues of income and family health. To that end, in 2020, we incurred over $35 million in incremental COVID-19-related costs, primarily supplemental pay for frontline employees. We continue to support our employees and their families, with certain costs continuing in 2021, albeit to a lesser extent than in the prior year, as employee COVID-19 cases and related impacts are similarly abating. The impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows in future periods will depend largely on future developments, including the duration and spread of the outbreak in the U.S. and Canada, the rate of vaccinations, the severity of COVID-19 variants, the actions to contain such coronavirus variants, and how quickly and to what extent normal economic and operating conditions can resume.
CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, 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 condensed 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. Refer to our most recent Annual Report on Form 10-K for a complete description of our critical accounting estimates and assumptions.
NEW ACCOUNTING PRONOUNCEMENTS
For a description of the new accounting standards that affect us, see Note 3 to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
36
RESULTS OF OPERATIONS FOR THE THREE AND NINESIX MONTHS ENDED SEPTEMBERJUNE 30, 20172021 AND 2016
2020
The following table sets forth items in our Condensed Consolidated Statements of Net Income (Loss) in thousands of U.S. dollars and as a percentage of revenues for the periods indicated.
Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | | ||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
|
| ||||||||||||||||||||||||||||||||||||||||||||
Revenues | $ | 1,206,478 | 100.0 | % | $ | 1,084,922 | 100.0 | % | $ | 3,473,313 | 100.0 | % | $ | 2,327,241 | 100.0 | % | | $ | 1,533,931 |
| 100.0 | % | $ | 1,305,782 |
| 100.0 | % | | $ | 2,929,874 |
| 100.0 | % | $ | 2,658,187 |
| 100.0 | % | | ||||||||||||||||
Cost of operations | 695,122 | 57.6 | 636,310 | 58.7 | 2,024,402 | 58.3 | 1,339,764 | 57.6 | |
| 901,191 |
| 58.8 | |
| 785,710 |
| 60.2 | | | | 1,727,111 | | 59.0 | | | 1,601,134 | | 60.2 | | | ||||||||||||||||||||||||
Selling, general and administrative | 128,200 | 10.6 | 129,576 | 11.9 | 383,600 | 11.0 | 349,995 | 15.0 | |
| 157,943 |
| 10.3 | |
| 132,158 |
| 10.1 | | | | 299,365 | | 10.2 | | | 268,210 | | 10.1 | | | ||||||||||||||||||||||||
Depreciation | 136,941 | 11.4 | 125,744 | 11.6 | 395,008 | 11.4 | 270,988 | 11.6 | |
| 169,221 |
| 11.0 | |
| 151,230 |
| 11.6 | | | | 326,624 | | 11.2 | | | 302,051 | | 11.4 | | | ||||||||||||||||||||||||
Amortization of intangibles | 26,613 | 2.2 | 26,944 | 2.5 | 76,886 | 2.2 | 48,719 | 2.1 | |
| 32,707 |
| 2.1 | |
| 31,771 |
| 2.4 | | | | 64,899 | | 2.2 | | | 63,409 | | 2.4 | | | ||||||||||||||||||||||||
Impairments and other operating items | 832 | 0.1 | 7,682 | 0.7 | 141,333 | 4.1 | 4,634 | 0.2 | |
| 6,081 |
| 0.4 | |
| 437,270 |
| 33.5 | | | | 6,715 | | 0.2 | | | 438,777 | | 16.5 | | | ||||||||||||||||||||||||
Operating income | 218,770 | 18.1 | 158,666 | 14.6 | 452,084 | 13.0 | 313,141 | 13.5 | |||||||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | |
| 266,788 |
| 17.4 | |
| (232,357) |
| (17.8) | | |
| 505,160 |
| 17.2 | |
| (15,394) |
| (0.6) | | | ||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
Interest expense | (32,471 | ) | (2.7 | ) | (27,621 | ) | (2.5 | ) | (92,763 | ) | (2.7 | ) | (65,291 | ) | (2.8 | ) | |
| (41,328) | | (2.7) | | | (40,936) | | (3.1) | | | | (83,753) | | (2.9) | | | (78,926) | | (3.0) | | | ||||||||||||||||
Interest income | 1,656 | 0.1 | 171 | 0.0 | 3,131 | 0.1 | 447 | 0.0 | |
| 744 | | 0.1 | | | 1,317 | | 0.1 | | | | 1,848 | | 0.1 | | | 3,493 | | 0.1 | | | ||||||||||||||||||||||||
Other income (expense), net | 1,709 | 0.2 | 500 | 0.0 | 3,561 | 0.1 | (268 | ) | (0.0 | ) | |
| (1,235) | | (0.1) | | | 5,772 | | 0.4 | | | | 2,312 | | 0.1 | | | (3,749) | | (0.1) | | | ||||||||||||||||||||||
Foreign currency transaction gain (loss) | (1,864 | ) | (0.1 | ) | (350 | ) | (0.0 | ) | (3,502 | ) | (0.1 | ) | 339 | 0.0 | |||||||||||||||||||||||||||||||||||||||||
Income tax provision | (64,390 | ) | (5.4 | ) | (42,485 | ) | (3.9 | ) | (100,220 | ) | (2.9 | ) | (86,750 | ) | (3.8 | ) | |||||||||||||||||||||||||||||||||||||||
Net income | 123,410 | 10.2 | 88,881 | 8.2 | 262,291 | 7.5 | 161,618 | 6.9 | |||||||||||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interests | (183 | ) | (0.0 | ) | (264 | ) | (0.0 | ) | (559 | ) | (0.0 | ) | (670 | ) | (0.0 | ) | |||||||||||||||||||||||||||||||||||||||
Net income attributable to Waste Connections | $ | 123,227 | 10.2 | % | $ | 88,617 | 8.2 | % | $ | 261,732 | 7.5 | % | $ | 160,948 | 6.9 | % | |||||||||||||||||||||||||||||||||||||||
Income tax (provision) benefit | |
| (47,868) | | (3.2) | | | 38,737 | | 3.0 | | | | (88,159) | | (3.0) | | | 10,003 | | 0.4 | | | ||||||||||||||||||||||||||||||||
Net income (loss) | |
| 177,101 |
| 11.5 | |
| (227,467) |
| (17.4) | | |
| 337,408 |
| 11.5 | |
| (84,573) |
| (3.2) | | | ||||||||||||||||||||||||||||||||
Net loss (income) attributable to noncontrolling interests | |
| (54) |
| (0.0) | |
| 395 |
| 0.0 | | |
| (52) | | 0.0 | | | 536 | | 0.0 | | | ||||||||||||||||||||||||||||||||
Net income (loss) attributable to Waste Connections | | $ | 177,047 |
| 11.5 | % | $ | (227,072) |
| (17.4) | % | | $ | 337,356 |
| 11.5 | % | $ | (84,037) |
| (3.2) | % | |
Revenues. Total revenues increased $121.6$228.1 million, or 11.2%17.5%, to $1.206$1.534 billion for the three months ended SeptemberJune 30, 2017,2021, from $1.085$1.306 billion for the three months ended SeptemberJune 30, 2016.2020. Total revenues increased $1.146 billion,$271.7 million, or 49.2%10.2%, to $3.473$2.930 billion for the ninesix months ended SeptemberJune 30, 2017,2021, from $2.327$2.658 billion for the ninesix months ended SeptemberJune 30, 2016.2020.
During the three months ended September 30, 2017, incremental revenue from acquisitionsAcquisitions closed during or subsequent to the three months ended SeptemberJune 30, 2016,2020 increased revenues by approximately $61.3 million. During$47.6 million for the ninethree months ended SeptemberJune 30, 2017, incremental revenue from acquisitions2021. Acquisitions closed during or subsequent to the ninesix months ended SeptemberJune 30, 2016,2020 increased revenues by approximately $991.1$91.4 million of whichfor the Progressive Waste acquisition contributed $826.9 million.
six months ended June 30, 2021.
Operations that were divested in 2017subsequent to June 30, 2020 decreased revenues by approximately $21.1$3.5 million and $25.8$6.7 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2017, respectively.
2021.
During the three months ended SeptemberJune 30, 2017,2021, the net increase in prices charged to our customers at our existing operations was $32.8$60.9 million, consisting of $32.6$58.3 million of core price increases and $0.2 million from fuel, materials and environmental surcharges due primarily to an increase in the market price of diesel fuel.$2.6 million. During the ninesix months ended SeptemberJune 30, 2017,2021, the net increase in prices charged to our customers at our existing operations was $66.3$113.1 million, consisting of $65.4$114.2 million of core price increases, and $0.9 million from fuel, materials and environmentalpartially offset by a decrease in surcharges due primarily to an increase in the market price of diesel fuel.
$1.1 million.
During the three and ninesix months ended SeptemberJune 30, 2017,2021, volume increases in our existing business increased solid waste revenues by $5.0$80.2 million and $28.6$39.7 million, respectively, as many of our markets benefitted from increases in roll off collection, transfer station volumes and landfill volumesincreased business activity resulting from increased construction and general economic activityreductions in our markets, partially offset by declines in residential volumes resulting from certain contracts acquired with the acquisition of Progressive Waste that were terminated subsequent to June 30, 2016 and declines in commercial volumes due to intentional losses of certain low margin commercial collection customers. COVID-19-related restrictions.
E&P revenues at facilities owned and fully-operated during the three and ninesix months ended SeptemberJune 30, 2017 increased by $24.72021 and 2020 decreased $4.4 million and $50.7$39.1 million, respectively, due to a partial recoveryrespectively. Decreases in the demand for crude oil prices increasingcommenced in March 2020 as a result of
37
economic disruptions from the COVID-19 pandemic, resulting in decreases in drilling and production activity levels and decreases in overall demand for our E&P disposal volumes at the majority of our sites, with the most significant increases in the Permian Basin and Louisiana.
waste services.
An increase in the average Canadian dollar to U.S. dollar currency exchange rate resulted in an increase in revenues of $7.6$20.5 million and $5.8$30.9 million, respectively, for the three and ninesix months ended SeptemberJune 30, 2017, respectively. Our Canada segment was formed in conjunction with the Progressive Waste acquisition on June 1, 2016; therefore, Canadian dollar to U.S. dollar exchange rate changes did not impact our revenues or results of operations prior to June 1, 2016.2021. The average Canadian dollar to U.S. dollar exchange rates on our Canadian revenues were 0.79860.8147 and 0.7226 in the three months ended SeptemberJune 30, 2017, 0.76632021 and 2020, respectively. The average Canadian dollar to U.S. dollar exchange rates on our Canadian revenues were 0.8030 and 0.7338 in threethe six months ended SeptemberJune 30, 2016, 0.7870 in the four-month period of June to September 20172021 and 0.7686 in the four-month period from June to September 2016.
2020, respectively.
Revenues from sales of recyclable commodities at facilities owned during the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 increased $7.9$18.0 million and $22.6$29.3 million, respectively, due primarily to increasedhigher prices for recyclable commodities, which began to recover in the second half of 2016, continuing through August 2017. In September 2017, prices for recyclable commodities, primarily old corrugated cardboard, began to declinealuminum and other paper products, higher volumes collected from residential recycling customers and the partial recovery during the three months ended June 30, 2021 of collected commercial recycling volumes which declined in the prior year period due to a reduction in overseas demand. Recyclable commodity revenue was $41.6 million and $124.2 million for the three and nine months ended September 30, 2017, respectively. If the reductions in prices for recyclable commodities, which began in September 2017, continue into the fourth quarter of 2017 and the full year of 2018, we believe our fourth quarter 2017 and full year 2018 revenue from sales of recyclable commodities will decrease approximately 6% and 27%, respectively,economic disruptions resulting from the comparable periods.
COVID-19 pandemic.
Other revenues increased by $3.4 million and $6.8$8.8 million during the three and nine months ended SeptemberJune 30, 2017, respectively,2021, due primarily to an $8.0 million increase resulting from higher prices for renewable energy credits associated with the generation of landfill gas in our Canada segment and a $2.1 million increase in other non-core revenue sources, partially offset by a $1.3 million decrease in intermodal revenues due primarily to customer losses that reduced intermodal cargo volumes. Other revenues increased $13.1 million during the six months ended June 30, 2021 due primarily to a $14.1 million increase resulting from higher prices for renewable energy credits associated with the generation of landfill gas sales at our Canada segment of $4.0and a $2.4 million and $5.9increase in other non-core revenue sources, partially offset by a $3.4 million during the three and nine months ended September 30, 2017, respectively.decrease in intermodal revenues due primarily to customer losses resulting in a reduction in intermodal cargo volumes.
Cost of Operations. Total cost of operations increased $58.8$115.5 million, or 9.2%14.7%, to $695.1$901.2 million for the three months ended SeptemberJune 30, 2017,2021, from $636.3$785.7 million for the three months ended SeptemberJune 30, 2016.2020. The increase was primarily the result of $39.1 million of operating costs from acquisitions closed during, or subsequent to, the three months ended September 30, 2016 and an increase in operating costs at our existing operations of $35.6$81.3 million, assuming foreign currency parity, $24.6 million of additional operating costs from acquisitions closed subsequent to the three months ended June 30, 2020 and $11.6 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in operating costs of $15.9$2.0 million at operations divested in 2017.
subsequent to the three months ended June 30, 2020.
The increase in operating costs of $81.3 million, assuming foreign currency parity, at our existing operations of $35.6 million for the three months ended SeptemberJune 30, 2017 was comprised2021, consisted of an increase in labor expenses at our solid waste operations of $8.2$27.8 million due primarily to employee pay rateincreases and headcount additions to support solid waste volume increases, an increase in third-party trucking and transportationdisposal expenses of $6.8$15.1 million due primarily to increased transfer station and landfill volumes that require us to transport the waste to our disposal sites, an increase in taxes on revenues of $5.9 million due to increased revenues in our solid waste markets,collection volumes, an increase in truck, container, equipment and facility maintenance and repair expenses of $4.6$14.7 million due to variabilityparts and service rate increases and additional maintenance and repair requirements resulting from increased truck and equipment operating hours to support increases in the timing and severity of major repairs,our solid waste volumes, an increase in third-party trucking and transportation expenses of $11.9 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in diesel fuel expense of $3.6$10.1 million due to higher fuel prices and increased consumption resulting from additional truck and equipment operating hours to support solid waste volume increases, in the market price of diesel fuel, an increase in employee medical benefits expenses associated withof $7.9 million due to an increase in medical visits, an increase in taxes on revenues of $6.5 million due primarily to increased revenues in our solid waste markets, an increase in subcontracted hauling services at our solid waste operations of $3.8 million due to outsourcing the purchaseservicing of recyclable commoditiescertain non-strategic contracts and commercial collection customers to third party haulers, an increase in landfill maintenance, environmental compliance and daily cover expenses of $2.3$2.8 million due to increased recyclable commodity values,compliance requirements under our landfill operating permits, an increase in 401(k) matching expenses of $2.3$1.7 million from incremental labordue to the prior year period reflecting less expenses due to a one month impact of the June 1, 2020 to December 31, 2020 suspension of our 401(k) match, an increase in insurance premium expenses of $1.3 million due primarily to increased insurance premium costs for auto and repair expenses resulting from hurricanes impacting our Texas, Louisianaenvironmental compliance and Florida operations and $1.9$0.5 million of other net expense increases.increases, partially offset by a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of $17.3 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, a decrease in labor at our E&P operations of $1.7 million due to headcount reductions resulting from disposal
38
volume decreases, a decrease in taxes on revenues of $1.6 million at Chiquita Canyon landfill due to a reduction in certain fees and exactions resulting from our successful challenge of these expenses subsequent to June 30, 2020, a decrease in subcontracted operating and remediation services at our E&P operations of $1.2 million due to disposal volume decreases and a decrease in intermodal rail expenses of $1.0 million due to customer losses resulting in a reduction in cargo volume.
Total cost of operations increased $684.6$126.0 million, or 51.1%7.9%, to $2.024$1.727 billion for the ninesix months ended SeptemberJune 30, 2017,2021, from $1.340$1.601 billion for the ninesix months ended SeptemberJune 30, 2016.2020. The increase was primarily the result of $503.7 million of operating costs from the Progressive Waste acquisition, $109.3 million of additional operating costs from all other acquisitions closed during, or subsequent to, the nine months ended September 30, 2016 and an increase in operating costs at our existing operations of $91.4$63.9 million, assuming foreign currency parity, $48.7 million of additional operating costs from acquisitions closed subsequent to the six months ended June 30, 2020 and $17.4 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in operating costs of $19.8$4.0 million at operations divested in 2017.
subsequent to the six months ended June 30, 2020.
The increase in operating costs of $63.9 million, assuming foreign currency parity, at our existing operations of $91.4 million for the ninesix months ended SeptemberJune 30, 2017 was comprised2021, consisted of an increase in labor expenses at our solid waste operations of $18.4$26.7 million due primarily to employee pay rate increases and headcount additions to support solid waste volume increases, an increase in third-party disposal expenses of $12.2 million due primarily to increased solid waste collection volumes, an increase in third-party trucking and transportation expenses of $12.2 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in employee medical benefits expenses of $11.5 million due to an increase in medical visits, an increase in truck, container, equipment and facility maintenance and repair expenses of $16.9$10.7 million due primarily to variability in the timingparts and severity of major repairs,service rate increases, an increase in taxes on revenues of $14.6$8.9 million due primarily to increased revenues in our solid waste markets, an increase in third-party truckingdiesel fuel expense of $7.4 million due to higher fuel prices, an increase in subcontracted hauling services at our solid waste operations of $6.3 million due to outsourcing the servicing of certain non-strategic contracts and transportationcommercial collection customers to third party haulers, an increase in landfill maintenance, environmental compliance and daily cover expenses of $13.9$3.3 million due to increased transfer station andcompliance requirements under our landfill volumes that require us to transport the waste to our disposal sites,operating permits, an increase in fuel expenseinsurance premium expenses of $6.7$2.0 million due primarily to increased insurance premium costs for auto and environmental compliance, an increase in 401(k) matching expenses of $1.8 million due to the prior year period reflecting less expenses due to a one month impact of the June 1, 2020 to December 31, 2020 suspension of our 401(k) match and $0.4 million of other net expense increases, partially offset by a decrease in the market pricesupplemental bonuses and other cash incentive compensation to non-management personnel of diesel fuel, an increase in employee benefits expenses of $5.4$15.1 million due to increased severity of medical claims, an increase inthe prior year period including non-recurring expenses associated withto recognize services provided by our front-line employees during the purchase of recyclable commodities of $4.3 million due to increased recyclable commodity values, an increaseCOVID-19 pandemic, a decrease in expenses for auto and workers’ compensation claims of $4.1$8.1 million due primarily to higher claims severity in the prior year period and adjustments recorded in the current year period to decrease projected losses on outstanding claims originally recorded prior to 2021, a decrease in labor at our E&P operations of $4.7 million due to actuarial driven average claim rate increasesheadcount reductions resulting from the inclusiondisposal volume decreases, a decrease in taxes on revenues of historical Progressive Waste claim experience into rates for current year claims, an increase of $2.3$3.7 million from incremental laborat Chiquita Canyon landfill due to a reduction in certain fees and repair expensesexactions resulting from hurricanes impacting our Texas, Louisianasuccessful challenge of these expenses subsequent to June 30, 2020, a decrease in subcontracted operating and Florida operations, an increase in equipment rental expenses of $1.3 million primarilyremediation services at our E&P segmentoperations of $3.4 million due to comply with regulatory requirements, an increasedisposal volume decreases, a decrease in intermodal rail expenses of $2.8 million due to customer losses resulting in a reduction in cargo volume and a decrease in expenses for processing cell remediation expenses atrecyclable commodities in our E&PWestern segment of $1.1$1.7 million due to increased disposal volumes, an increaserecyclable commodity values resulting in leachate disposal expenses of $0.9 million due to higher precipitation at certain landfills in our Eastern segment and $1.5 million of other net expense increases.
price reductions charged by third-party recycling processors.
Cost of operations as a percentage of revenues decreased 1.11.4 percentage points to 57.6%58.8% for the three months ended SeptemberJune 30, 2017,2021, from 58.7%60.2% for the three months ended SeptemberJune 30, 2016.2020. The componentsdecrease as a percentage of the decreaserevenues consisted of a 0.71.4 percentage point decrease from increased internalization of collected waste volumes, primarilya decrease in our New York markets,supplemental bonuses and other cash incentive compensation to non-management personnel, a 0.70.5 percentage point decrease from leveraging existing personnel to support increases inour solid waste and E&P volumes and the benefit of improved commodity pricesrevenue volume growth and a 0.10.2 percentage point decrease from all other net changes, partially offset by a 0.20.4 percentage point increase from acquisitions closed during, or subsequent to, the nine months ended September 30, 2016 having operating margins lower than our company averagehigher employee medical expenses and a 0.20.3 percentage point increase from expenses resulting from the impact of hurricanes.
higher diesel fuel expenses.
Cost of operations as a percentage of revenues increased 0.7decreased 1.2 percentage points to 58.3%59.0% for the ninesix months ended SeptemberJune 30, 2017,2021, from 57.6%60.2% for the ninesix months ended SeptemberJune 30, 2016.2020. The componentsdecrease as a percentage of the increaserevenues consisted of a 1.40.6 percentage point increasedecrease from acquisitions closed during, or subsequenta decrease in supplemental bonuses and other cash incentive compensation to the nine months ended September 30, 2016 having operating margins lower thannon-management personnel, a 0.4 percentage point decrease from a reduction in expenses for auto and workers’ compensation
39
claims, a 0.3 percentage point decrease from leveraging existing personnel to support our company average,solid waste revenue volume growth and a 0.2 percentage point increase from higher third party trucking and transportation expenses and a 0.3 percentage point increasedecrease from all other net changes, partially offset by a 0.60.3 percentage point decreaseincrease from increased internalization of collected waste volumes, primarily in our New York markets and a 0.6 percentage point decrease from leveraging existing personnel to support increases in solid waste and E&P volumes and the benefit of improved commodity prices.higher employee medical expenses.
SG&A. SG&A expenses decreased $1.4increased $25.7 million, or 1.1%19.5%, to $128.2$157.9 million for the three months ended SeptemberJune 30, 2017,2021, from $129.6$132.2 million for the three months ended SeptemberJune 30, 2016.2020. The decreaseincrease was comprised of a decreasean increase of $7.3$20.7 million in integration-related professional fees and severance-related expenses incurred in the prior year period for Progressive Waste personnel who were not permanently retained as employees of New Waste Connections following the close of the Progressive Waste acquisition, a decrease of $5.3 million resulting from the nonrecurring prior year accrual of incentive compensation expenses to certain of our executive officers and key employees related to the achievement of defined synergy goals realized by New Waste Connections from the acquisition of Progressive Waste, a decrease in share-based compensation expenses of $2.1 million due to less outstanding shares in the current period for equity awards accounted for as liabilities that were granted to employees of Progressive Waste prior to June 1, 2016 which are subject to valuation adjustments each period based on changes in fair value and a decrease of $1.9 million consisting of SG&A expenses fromat our existing operations, divested in 2017, partially offset by $3.8assuming foreign currency parity, $3.0 million of additional SG&A expenses from operating locations at acquisitions closed during, or subsequent to the three months ended SeptemberJune 30, 2016,2020 and $2.2 million resulting from an increase in payrollthe average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in SG&A expenses of $2.7$0.2 million dueat operations divested subsequent to increased corporate headcount to support the three months ended June 30, 2020.
The increase in SG&A expenses at our existing operations of Progressive Waste and annual compensation increases,$20.7 million, assuming foreign currency parity, for the three months ended June 30, 2021, was comprised of an increase in accrued recurring cash incentive compensation expense to our management of $2.2$9.5 million, a collective increase in travel, meeting, training and community activity expenses of $6.7 million due to event cancelation credits recognized in the achievement of interim financial targets duringprior year period and increased travel and social gatherings in the three months ended September 30, 2017, an increasecurrent year period due to a reduction in direct acquisition costs of $1.8 million resulting from an increase in acquisition activity and legal costs incurred related to divested operations,restrictions associated with the COVID-19 pandemic, an increase in equity-based compensation expenses of $1.6$5.3 million associated with an adjustment during the current year period of our annual recurring grantcommon shares held in our deferred compensation plan by certain key executives to fair value as a result of restricted share units to our personnel,the shares being exchanged for other investment options, an increase in corporate travel, meetings and trainingequity-based compensation expenses of $1.0$2.3 million resulting primarily from adjustments to the integrationamount of employeesperformance-based restricted share units granted in 2019 and 2020 that are estimated to ultimately vest based on the achievement of Progressive Waste into New Waste Connections,required financial performance results, an increase in employee medical benefits expenses of $2.2 million due to an increase in medical visits, an increase in administrative payroll expenses of $1.7 million due primarily to annual pay increases, an increase in employee relocation expenses of $1.1 million and $0.8 million of other net expense increases, partially offset by a decrease in expenses for uncollectible accounts receivable of $5.4 million primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic, a decrease in deferred compensation expenses of $1.4 million as a result of higher increases during the prior year period in the market value of investments to which employee deferred compensation liability balances are tracked, a decrease of $1.1 million resulting from the prior year period including payments of supplemental bonuses to non-management employees to provide financial assistance associated with the impact of the COVID-19 pandemic and a decrease in direct acquisition expenses of $1.0 million due primarily to a decrease in acquisition activity in the collection during the three months ended September 30, 2016 of a large receivable balance that was written off as a doubtful account in a prior year, an increase in donations of $0.7 million primarily associated with financial support we have provided to our employees that were impacted by hurricanes in 2017 and $0.4 million of other net expense increases.
comparable periods.
SG&A expenses increased $33.6$31.2 million, or 9.6%11.6%, to $383.6$299.4 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $350.0$268.2 million for the ninesix months ended SeptemberJune 30, 2016.2020. The increase was comprised of $61.3an increase of $22.4 million ofin SG&A expenses from operating locations acquired in the Progressive Waste acquisition, $12.0at our existing operations, assuming foreign currency parity, $6.0 million of additional SG&A expenses from operating locations at all other acquisitions closed during, or subsequent to the ninesix months ended SeptemberJune 30, 2016,2020 and $3.2 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in SG&A expenses of $0.4 million at operations divested subsequent to the six months ended June 30, 2020.
The increase in SG&A expenses at our existing operations of $22.4 million, assuming foreign currency parity, for the six months ended June 30, 2021, was comprised of an increase in accrued recurring cash incentive compensation expense to our management of $9.8$14.4 million, due to the achievement of interim financial targets during the nine months ended September 30, 2017 and the addition of accrued cash incentive compensation expense for the retained Progressive Waste employees, an increase in payroll expenses of $6.8 million due to increased corporate headcount to support the operations of Progressive Waste and annual compensation increases, an increase in corporate travel, meetings and training expenses of $4.8 million resulting from the integration of employees of Progressive Waste into New Waste Connections, an increase in legal, accounting and information technology professional fee expenses of $4.1 million due to increased support required as a result of growth from the acquisition of Progressive Waste, an increase in equity-based compensation expenses of $3.6 million associated with our annual recurring grant of restricted share units to our personnel, an increase in software license fees of $2.2 million to support our new payroll processing application and computer applications acquired in the Progressive Waste acquisition, an increase in employee benefits expenses of $1.9 million due to increased severity of medical claims, an increase in employee relocation expenses of $1.4 million associated with corporate personnel added to support the additional administrative oversight resulting from the Progressive Waste acquisition, an increase in expenses for uncollectible accounts receivable of $1.3 million due primarily to the collection during the three months ended September 30, 2016 of a large receivable balance that was written off as a doubtful account in a prior year and increases resulting from higher industrial and special waste revenue, an increase in donations of $0.7 million primarily associated with financial support we have provided to our employees that were impacted by hurricanes in 2017, an increase in deferred compensation expenseexpenses of $1.4$4.2 million resulting from deferred compensation liabilities to employees increasing as a result of increases in the market value of investments to which employee deferred compensation liability balances are tracked, an increase in employee medical benefits expenses of $3.5 million due to an increase in medical visits, an increase in professional fees of $2.2 million due primarily to adjustments recorded during the prior year period to reduce estimated accrued liabilities associated with unbilled legal services and increased expenses associated with professional tax services, an increase in equity-based compensation expenses of $2.0 million associated with the net impact of current and prior period adjustments of our common shares held in our deferred compensation plan by certain key executives to fair value as a result of the shares being exchanged for other investment options, an increase in equity-based compensation expenses of $1.8 million resulting primarily from adjustments to the amount of performance-based restricted share units granted in 2019 and 2020 that are estimated to ultimately vest based on the achievement of required financial performance results, an increase in administrative payroll expenses of $1.1 million due primarily to annual pay increases and $2.5 million of other net expense
40
increases, partially offset by a decrease in direct acquisition costsexpenses for uncollectible accounts receivable of $27.9$6.4 million resulting from amounts incurred inprimarily due to the prior year period relatedincurring increased expenses due to customers experiencing financial difficulties resulting from the Progressive Wasteeconomic impact of the COVID-19 pandemic, a decrease in direct acquisition expenses of $1.6 million due to a decrease in acquisition activity in the comparable periods and a decrease of $22.4$1.3 million in integration-related professional fees and severance-related expenses incurred inresulting from the prior year period for Progressive Waste personnel who were not permanently retained asincluding payments of supplemental bonuses to non-management employees of New Waste Connections followingto provide financial assistance associated with the closeimpact of the Progressive Waste acquisition, a decrease of $14.5 million from New Waste Connections paying excise taxes in the prior year period on the unvested or vested and undistributed equity-compensation holdings of our corporate officers and members of our Board of Directors resulting from the Progressive Waste acquisition, a decrease of $5.3 million resulting from the nonrecurring prior year accrual of incentive compensation expenses to certain of our executive officers and key employees related to the achievement of defined synergy goals realized by New Waste Connections from the acquisition of Progressive Waste, a decrease in share-based compensation expenses of $4.9 million related to awards granted to employees of Progressive Waste prior to June 1, 2016 for which vesting was accelerated in the prior year period due to plan provisions regarding a change in control followed by termination of employment and resulting from less outstanding shares in the current period which are subject to valuation adjustments each period based on changes in fair value, a decrease in equity-based compensation expenses of $2.3 million resulting from the acceleration of vesting in the prior year period of performance share units granted to Old Waste Connections’ management in 2014 and 2015 and a decrease of $2.2 million consisting of SG&A expenses from operations divested in 2017.
COVID-19 pandemic.
SG&A expenses as a percentage of revenues decreased 1.3increased 0.2 percentage points to 10.6%10.3% for the three months ended SeptemberJune 30, 2017,2021, from 11.9%10.1% for the three months ended SeptemberJune 30, 2016.2020. The decreaseincrease as a percentage of revenues consistsconsisted of a 0.70.5 percentage point increase from travel, meeting, training and community activity expenses, a 0.4 percentage point increase from higher accrued recurring cash incentive compensation expense to our management and a 0.3 percentage point increase from increased equity-based compensation expenses associated with the designation of our common shares held in our deferred compensation plan, partially offset by a 0.4 percentage point decrease from integration-related professional fees and severance-relatedlower expenses related to Progressive Waste andfor uncollectible accounts receivable, a 0.50.4 percentage point decrease from the nonrecurring prior year accrual of incentive compensation expensesleveraging existing administrative headcount to certain of our executive officerssupport solid waste revenue increases and key employees related to the achievement of defined synergy goals realized by New Waste Connections from the acquisition of Progressive Waste and a 0.1 percentage point decrease from the net impact of SG&A expenses from operating locations acquired during, or subsequent to, the three months ended September 30, 2016.
SG&A expenses as a percentage of revenues decreased 4.0 percentage points to 11.0% for the nine months ended September 30, 2017, from 15.0% for the nine months ended September 30, 2016. The decrease as a percentage of revenues consists of a 1.2 percentage point decrease from the decrease in direct acquisition costs, a 1.0 percentage point decrease from integration-related professional fees and severance-related expenses related to Progressive Waste, a 0.9 percentage point decrease from the net impact of SG&A expenses from operating locations acquired in the Progressive Waste acquisition and all other acquisitions closed during, or subsequent to, the nine months ended September 30, 2016, a 0.6 percentage point decrease from excise taxes paid in the prior year period, a 0.2 percentage point decrease from all other net changes.
SG&A as a percentage of revenues increased 0.1 percentage points to 10.2% for the nonrecurring prior year accrualsix months ended June 30, 2021, from 10.1% for the six months ended June 30, 2020. The increase as a percentage of revenues consisted of a 0.4 percentage point increase from higher accrued recurring cash incentive compensation expense to our management, a 0.1 percentage point increase from higher benefits expenses to certainand a 0.1 percentage point increase from increased equity-based compensation expenses associated with the designation of our executive officers and key employees related to the achievement of defined synergy goals realizedcommon shares held in our deferred compensation plan, partially offset by New Waste Connections from the acquisition of Progressive Waste and a net 0.10.3 percentage point decrease from other changes.leveraging existing administrative headcount to support solid waste revenue increases and a 0.2 percentage point decrease from lower expenses for uncollectible accounts receivable.
Depreciation. Depreciation expense increased $11.2$18.0 million, or 8.9%11.9%, to $136.9$169.2 million for the three months ended SeptemberJune 30, 2017,2021, from $125.7$151.2 million for the three months ended SeptemberJune 30, 2016.2020. The increase was primarily the resultcomprised of additional depreciation andan increase in depletion expense of $4.7$7.9 million resulting from other acquisitions closed during, or subsequent to, the three months ended September 30, 2016,increased landfill municipal solid waste and special waste volumes, an increase in depreciation expense of $3.9$4.8 million associated withfrom the impact of additions to our fleet and equipment purchased to support our existing operations, depreciation and depletion expense of $3.8 million from acquisitions closed subsequent to the three months ended June 30, 2020 and $2.4 million resulting from an increase in depletion expense of $4.8 million at our existing landfills due primarily to an increasethe average foreign currency exchange rate in volumes,effect during the comparable reporting periods, partially offset by a decrease of $2.2 million resulting from the disposal of property and equipment with operations divested in 2017.
Depreciation expense increased $124.0 million, or 45.8%, to $395.0 million for the nine months ended September 30, 2017, from $271.0 million for the nine months ended September 30, 2016. The increase was primarily the result of additional depreciation and depletion expense of $93.7$0.9 million from assets acquired in the Progressive Waste acquisition, additional depreciation and depletion expense of $12.9 million from all other acquisitions closed during, oroperations divested subsequent to the ninethree months ended SeptemberJune 30, 2016,2020.
Depreciation expense increased $24.5 million, or 8.1%, to $326.6 million for the six months ended June 30, 2021, from $302.1 million for the six months ended June 30, 2020. The increase was comprised of an increase in depreciation expense of $9.0$9.8 million associated withfrom the impact of additions to our fleet and equipment purchased to support our existing operations, depreciation and depletion expense of $7.7 million from acquisitions closed subsequent to the six months ended June 30, 2020, an increase in depletion expense of $11.4$5.1 million at our existing landfills due primarily toresulting from increased landfill municipal solid waste and special waste volumes and $3.6 million resulting from an increase in volumes,the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in depreciation and depletion expense of $3.0$1.7 million resulting from the disposal of property and equipment with operations divested in 2017.subsequent to the six months ended June 30, 2020.
Depreciation expense as a percentage of revenues decreased 0.6 percentage points to 11.0% for the three months ended June 30, 2021, from 11.6% for the three months ended June 30, 2020. Depreciation expense as a percentage of revenues decreased 0.2 percentage points to 11.2% for the six months ended June 30, 2021, from 11.4% for the three and ninesix months ended SeptemberJune 30, 2017, from 11.6% for the three and nine months ended September 30, 2016.2020. The decreases as a percentage of revenues were due primarily attributable to the impact of leveraging existing property and equipment to supportvolume increases in our E&P revenue and revenue from the sale of recyclable commodities.solid waste revenues.
Amortization of Intangibles. Amortization of intangibles expense decreased $0.3increased $0.9 million, or 1.2%2.9%, to $26.6$32.7 million for the three months ended SeptemberJune 30, 2017,2021, from $26.9$31.8 million for the three months ended SeptemberJune 30, 2016.2020. The decrease in amortization expenseincrease was the result of $2.5 million from intangible assets acquired in acquisitions closed subsequent to the three months ended June 30, 2020 and $0.7 million from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease of $2.9$2.2 million from certain intangible assets becoming fully amortized
41
subsequent to June 30, 2020 and a decrease of $0.1 million from operations divested subsequent to the three months ended June 30, 2020.
Amortization of intangibles expense increased $1.5 million, or 2.4%, to $64.9 million for the six months ended June 30, 2021, from $63.4 million for the six months ended June 30, 2020. The increase was the result of $5.3 million from intangible assets acquired in acquisitions closed subsequent to the six months ended June 30, 2020 and $1.0 million from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease of $4.6 million from certain intangible assets becoming fully amortized subsequent to SeptemberJune 30, 2016, adjustments to the fair market values of intangible assets acquired in the Progressive Waste acquisition, which were recorded in the fourth quarter of 2016, resulting in a reduction to amortization expense subsequent to September 30, 20162020 and a decrease of $0.5$0.2 million resulting from the disposal of intangible assets with operations divested in 2017, partially offset by $3.1 million from intangible assets acquired in other acquisitions closed subsequent to September 30, 2016.
Amortization of intangibles expense increased $28.2 million, or 57.8% to $76.9 million for the ninesix months ended SeptemberJune 30, 2017, from $48.7 million for the nine months ended September 30, 2016. The increase in amortization expense was the result of $27.7 million recorded on contracts, customer lists and transfer station permits acquired in the Progressive Waste acquisition and a net increase of $6.6 million from other acquisitions closed in 2016 and 2017, partially offset by a decrease of $5.3 million from certain intangible assets becoming fully amortized subsequent to September 30, 2016 and adjustments to the fair market values of intangible assets acquired in the Progressive Waste acquisition, which were recorded in the fourth quarter of 2016, resulting in a reduction to amortization expense subsequent to September 30, 2016 and a decrease of $0.8 million resulting from the disposal of intangible assets with operations divested in 2017.
2020.
Amortization expense as a percentage of revenues decreased 0.3 percentage points to 2.2%2.1% for the three months ended SeptemberJune 30, 2017,2021, from 2.5%2.4% for the three months ended SeptemberJune 30, 2016 due primarily to the aforementioned adjustments recorded in the fourth quarter of 2016 to intangible assets acquired in the Progressive Waste acquisition.2020. Amortization expense as a percentage of revenues increased 0.1decreased 0.2 percentage points to 2.2% for the ninesix months ended SeptemberJune 30, 2017,2021, from 2.1%2.4% for the ninesix months ended SeptemberJune 30, 2016.2020. The increasedecreases as a percentage of revenues was the result of the net impact of the aforementioned intangible assets acquiredwere primarily attributable to leveraging volume increases in the Progressive Waste acquisition and other acquisitions closed subsequent to September 30, 2016.our solid waste revenues.
Impairments and Other Operating Items. Impairments and other operating items decreased $6.9$431.2 million, to net losses totaling $0.8$6.1 million for the three months ended SeptemberJune 30, 2017,2021, from net losses totaling $7.7$437.3 million for the three months ended SeptemberJune 30, 2016.
2020, including an impairment charge at our E&P operations of $417.4 million.
The net losses of $0.8$6.1 million recorded during the three months ended SeptemberJune 30, 20172021 consisted of $6.7a $4.6 million of charges recorded to increase the carrying value of certain amounts payable under liability-classified contingent consideration arrangements associated with acquisitions closed prior to 2017, $1.4 million of losses on trucksloss resulting from property and equipment that were disposed of through sales or as a result of being damaged in operations,a facility fire, $0.6 million of charges to terminate or write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to their original estimated termination date and $0.7$0.9 million of other net charges, partially offset bycharges.
During the reversalthree months ended June 30, 2020, we concluded that a triggering event occurred which required us to perform an impairment test of $6.4 millionthe property and equipment and intangible assets of expenses recognized in prior periods to adjustour E&P operations as of June 30, 2020. As a result of the impairment test, we concluded that the carrying cost of assets held for disposal to fair market value due to modifications to our divestiture plan and changes in the fair market value of the divested operationsfour E&P landfills exceeded their estimated fair value, resulting in an impairment charge of $417.4 million to property and net gains of $2.2 million from the divestiture of operations not classified as held for disposal in prior periods.
equipment. The remaining net losses of $7.7$19.9 million recorded during the three months ended SeptemberJune 30, 20162020 consisted of impairment charges totaling $2.7 million related to four operating locations in our E&P segment which were permanently closed in 2016, a $4.6 million charge to terminate an operating lease for our corporate aircraft and $0.4$16.8 million of net losses on the disposal of other operating assets.
Impairments and other operating items increased $136.7 million, to net losses totaling $141.3 million for the nine months ended September 30, 2017, from net losses totaling $4.6 million for the nine months ended September 30, 2016.
The net losses of $141.3 million recorded during the nine months ended September 30, 2017 consisted of a goodwill impairment charge of $77.3 million at our E&P segment resulting from our early adoption of a new accounting standard on January 1, 2017 which required the recognition of goodwill impairment by the amount which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill, a $35.7 million expense charge to adjust the carrying cost of assets held for disposal to fair market value and an $9.6 million expense charge to increase the fair value of an amount payable under a liability-classified contingent consideration arrangement from an acquisition closed in 2015 by Progressive Waste, $8.4 million of charges recorded to increaseexpenses associated with adjusting the carrying value of certain amounts payable under liability-classifiedliabilities for contingent consideration arrangements associated with other acquisitions closed in prior to 2016, $8.1 million of charges to write off the carrying cost of certain contracts, primarily acquired from the Progressive Waste acquisition, that were not renewed prior to their original estimated termination date, $3.7periods, $1.7 million of losses on property and equipment that were disposed of through sales or as a result of being damaged in operations and $0.7$1.6 million of charges to terminate or write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to their original estimated termination date, partially offset by $0.2 million of other net charges, partially offset bycredits to expense.
Impairments and other operating items decreased $432.1 million, to net gains of $2.2losses totaling $6.7 million for the six months ended June 30, 2021, from net losses totaling $438.8 million for the divestiture of operations not classified as held for disposal in prior periods.
six months ended June 30, 2020.
The net losses of $4.6$6.7 million recorded during the ninesix months ended SeptemberJune 30, 20162021 consisted of $0.9a $4.6 million loss resulting from property and equipment damaged in a facility fire, $1.1 million of charges to terminate or write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to their original estimated termination date and $1.0 million of other net charges.
The net losses onof $438.8 million recorded during the disposalsix months ended June 30, 2020 consisted of other operating assets, the aforementioned charges of $2.7$417.4 million related to impairments at our E&P segmentoperations and $4.6$16.8 million for our aircraft lease termination, which were partially offset by a gain of $2.4 million resulting fromto adjust the decrease to the faircarrying value of an amount payable under a liability-classifiedliabilities for contingent consideration, arrangement fromas well as $2.5 million of charges to terminate or write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to their original estimated termination date, $1.5 million of losses on property and equipment that were disposed of through sales or as a prior year acquisitionresult of being damaged in operations and a gain$0.6 million of $1.2 million from the favorable settlement of a legal matter.other net charges.
Operating Income (Loss). Operating income (loss) increased $60.1$499.2 million, or 37.9%, to $218.8operating income of $266.8 million for the three months ended SeptemberJune 30, 2017,2021, from $158.7an operating loss of $232.4 million for the three months ended SeptemberJune 30, 2016. The increase was primarily attributable
42
2020. Operating income (loss) increased $520.6 million, to operating income contributed from acquisitions closed in 2017, gross margins recognized on solid waste and E&P volume growth and a decrease in impairments and other operating charges.
Operating income increased $139.0 million, or 44.4%, to $452.1of $505.2 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $313.1an operating loss of $15.4 million for the ninesix months ended SeptemberJune 30, 2016. The increase was primarily attributable to2020.
Our operating income contributed fromresults for the three and six months ended June 2016 acquisition of Progressive Waste and other acquisitions closed in 2017, and a decrease in certain SG&A expenses for direct acquisition costs, employee severance, excise taxes and share-based compensation resulting from30, 2020 were adversely impacted by the acquisition of Progressive Waste, partially offset by an increase in impairments and other operating items resulting primarily from a goodwillaforementioned impairment charge at our E&P segment, chargesoperations of $417.4 million. The remaining increase in our operating income for the three and six months ended June 30, 2021 was due primarily to adjustprice increases for our solid waste services, increases in solid waste collection and disposal volumes, operating income contributions from increased sales of recyclable commodities and renewable energy credits associated with the carrying costgeneration of assets held for disposallandfill gas, operating income generated from acquisitions closed subsequent to fair market valuethe three and chargessix months ended June 30, 2020 and an increase in the average Canadian dollar to increase the fair value of amounts payable under liability-classified contingent consideration arrangements.
U.S. dollar currency exchange rate.
Operating income as a percentage of revenues increased 3.535.2 percentage points to 18.1%17.4% for the three months ended SeptemberJune 30, 2017,2021, from 14.6%a loss of 17.8% for the three months ended SeptemberJune 30, 2016.2020. The increase as a percentage of revenues was comprised of a 1.333.1 percentage point decrease in SG&A expense,impairments and other operating items, a 1.11.4 percentage point increasedecrease in cost of operations, a 0.6 percentage point decrease in impairmentsdepreciation expense and other operating items, a 0.3 percentage point increasedecrease in amortization expense, and apartially offset by at 0.2 percentage point decreaseincrease in depreciationSG&A expense.
Operating income as a percentage of revenues decreased 0.5increased 17.8 percentage points to 13.0%17.2% for the ninesix months ended SeptemberJune 30, 2017,2021, from 13.5%a loss of 0.6% for the ninesix months ended SeptemberJune 30, 2016.2020. The decreaseincrease as a percentage of revenues was comprised of a 3.916.3 percentage point increasedecrease in impairments and other operating items, a 0.71.2 percentage point increasedecrease in cost of operations, and a 0.1 percentage point increase in amortization expense, partially offset by a 4.00.2 percentage point decrease in SG&Adepreciation expense and a 0.2 percentage point decrease in depreciationamortization expense, partially offset by at 0.1 percentage point increase in SG&A expense.
Interest Expense. Interest expense increased $0.4 million, or 1.0%, to $41.3 million for the three months ended June 30, 2021, from $40.9 million for the three months ended June 30, 2020. The increase was primarily attributable to an increase of $1.4 million from higher net interest rates on borrowings outstanding under our Credit Agreement due primarily to $600 million in interest rate swap agreements commencing in October 2020 at higher interest rates than $575 million in interest rate swap agreements which expired between September 2020 and October 2020 and $0.5 million of other net increases, partially offset by a decrease of $1.5 million from the repayment of $250 million of senior unsecured notes in 2021.
Interest expense increased $4.9 million, or 17.6%6.1%, to $32.5$83.8 million for the threesix months ended SeptemberJune 30, 2017,2021, from $27.6$78.9 million for the threesix months ended SeptemberJune 30, 2016.2020. The increase was primarily attributable to an increase of $3.4 million from the April 2017 issuance of our 2017A Senior Notes, an increase of $2.8 million due to higher net interest rates on borrowings outstanding borrowings under our Credit Agreement due primarily to $600 million in interest rate swap agreements commencing in October 2020 at higher interest rates than $575 million in interest rate swap agreements which expired between September 2020 and $0.3October 2020, an increase of $3.1 million from the March 2020 issuance of our 2050 Senior Notes (as defined below), an increase of $0.9 million from the January 2020 issuance of our 2030 Senior Notes (as defined below) and $1.1 million of other net increases, partially offset by a decrease of $1.0$2.1 million due to a decreasereduction in the average borrowings outstanding under our Credit Agreement and a decrease of $0.6 million resulting from a $175 million principal interest rate swap agreement expiring in February 2017 and being replaced with two new interest rate swap agreements, totaling $175 million, at a lower fixed interest rate.
Interest expense increased $27.5 million, or 42.1%, to $92.8 million for the nine months ended September 30, 2017, from $65.3 million for the nine months ended September 30, 2016. The increase was primarily attributable to an increase of $8.8$1.5 million from the June 2016 issuancerepayment of our New 2021 Senior Notes, 2023 Senior Notes and 2026 Senior Notes, an increase of $6.5 million due to higher interest rates on outstanding borrowings under our Credit Agreement, an increase of $6.0 million from the April 2017 issuance of our 2017A Senior Notes, an increase of $5.8 million due to an increase in the average borrowings outstanding under our Credit Agreement, a combined increase in fees associated with our Credit Agreement of $1.7 million due to increases in outstanding letters of credit and commitment fees on unused borrowings and $1.0$250 million of other net increases, partially offset by a decrease of $1.5 million resulting from a $175 million principal interest rate swap agreement expiringsenior unsecured notes in February 2017 and being replaced with two new interest rate swap agreements, totaling $175 million, at a lower fixed interest rate and a decrease of $0.8 million for the redemption of our 2016 Notes using proceeds from the 2015 Old Waste Connections Credit Agreement which had a lower interest rate relative to the fixed interest rate in effect when the 2016 Notes were outstanding.2021.
Interest Income. Interest income increased $1.5decreased $0.6 million to $1.7$0.7 million for the three months ended SeptemberJune 30, 2017,2021, from $0.2$1.3 million for the three months ended SeptemberJune 30, 2016.2020. Interest income increased $2.7decreased $1.7 million to $3.1$1.8 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $0.4$3.5 million for the ninesix months ended SeptemberJune 30, 2016.2020. The increasesdecreases were primarily attributable to higher average outstanding cash balances during the three and nine months ended September 30, 2017, as compared to the cash balances on hand during the comparable prior year periods, and higherlower reinvestment rates in the current periods.period, partially offset by higher average cash balances.
Other Income (Expense), Net. Other income (expense), net decreased $7.0 million, to an expense total of $1.2 million for the three months ended June 30, 2021, from an income total of $5.8 million for the three months ended June 30, 2020.
Other expense of $1.2 million recorded during the three months ended June 30, 2021 consisted of $1.8 million of adjustments to increase certain accrued liabilities acquired in prior period acquisitions and a $0.9 million increase in other net expenses, partially offset by $1.5 million of income earned on investments purchased to fund our employee deferred compensation obligations.
43
Other income of $5.8 million recorded during the three months ended June 30, 2020 consisted of $3.3 million of earnings on investments purchased to fund our employee deferred compensation obligations, a $1.0 million adjustment to decrease certain non-acquisition accrued liabilities recorded in prior periods and a $1.5 million increase in other income sources.
Other income (expense), net increased $1.2$6.0 million, to an income total of $1.7$2.3 million for the threesix months ended SeptemberJune 30, 2017, from an income total of $0.5 million for the three months ended September 30, 2016, due primarily to the receipt of insurance proceeds in excess of the carrying value of certain property and equipment damaged in accidents.
Other income (expense), net, increased $3.9 million to an income total of $3.6 million for the nine months ended September 30, 2017,2021, from an expense total of $0.3$3.7 million for the ninesix months ended SeptemberJune 30, 2016. The increase was primarily attributable to2020.
Other income of $2.3 million recorded during the non recurrencesix months ended June 30, 2021 consisted of a prior year charge of $1.4 million resulting from the write off of unamortized debt issuance costs, $1.2 million from the receipt of insurance proceeds in excess of the carrying value of certain property and equipment damaged in accidents, an increase of $1.0$2.7 million of income fromearned on investments purchased to fund our employee deferred compensation obligations and $0.3a $1.1 million increase in other net income sources, partially offset by $1.5 million of adjustments to increase certain accrued liabilities acquired in prior period acquisitions.
Other expense of $3.7 million recorded during the six months ended June 30, 2020 consisted of a $3.0 million adjustment to increase certain accrued liabilities acquired in the 2016 Progressive Waste acquisition, $1.5 million of losses on investments purchased to fund our employee deferred compensation obligations and a $0.2 million increase in other net income.expenses, partially offset by a $1.0 million adjustment to decrease certain non-acquisition accrued liabilities recorded in prior periods.
Income Tax Provision(Provision) Benefit. Income tax provisiontaxes increased $21.9$86.6 million, to $64.4an expense total of $47.9 million for the three months ended SeptemberJune 30, 2017,2021, from $42.5a benefit total of $38.7 million for the three months ended SeptemberJune 30, 2016.2020. Our effective tax expense rate for the three months ended SeptemberJune 30, 20172021 was 34.3%21.3%. Our effective tax benefit rate for the three months ended SeptemberJune 30, 20162020 was 32.3%14.6%. Income tax provisiontaxes increased $13.5$98.2 million, to $100.2an expense total of $88.2 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $86.7a benefit total of $10.0 million for the ninesix months ended SeptemberJune 30, 2016.2020. Our effective tax expense rate for the ninesix months ended SeptemberJune 30, 20172021 was 27.6%20.7%. Our effective tax benefit rate for the ninesix months ended SeptemberJune 30, 20162020 was 34.9%10.6%.
The income tax provision for the three and ninesix months ended SeptemberJune 30, 2017 includes2021 included benefits of $2.0 million from share-based payment awards being recognized in the income statement when settled, as well as a portion of our income from internal financing being untaxed or taxed at effective rates substantially lower than the U.S. federal statutory rate. During
The income tax benefit for the three and ninesix months ended SeptemberJune 30, 2017, income tax2020 included a $27.4 million expense was increased by $3.8 million primarily as a result of an increase in the state income tax rate in Illinois. The impairment of goodwill within our E&P segment and disposal of goodwill resulting from the divestitures ofassociated with certain operations resulted in the write off of goodwill that was not2019 inter-entity payments no longer being deductible for tax purposes totaling $21.3due to the finalization of tax regulations on April 7, 2020 under Internal Revenue Code section 267A and a $4.1 million and $30.0 million duringexpense related to an increase in our deferred income tax liabilities resulting from the impairment of certain assets within our E&P operations, which impacted the geographical apportionment of our state income taxes. Additionally, the income tax benefit for the three and ninesix months ended SeptemberJune 30, 2017, respectively, increasing our tax expense by $8.22020 included a benefit of $0.2 million and $11.5$5.3 million, during the three and nine months ended September 30, 2017, respectively. The income tax provision for the nine months ended September 30, 2017 included $6.8 millionrespectively, from adopting a new accounting standard in January 2017 which requires all income tax effects of share-based payment awards to bebeing recognized in the income statement when settled, as well as a portion of our internal financing being taxed at effective rates substantially lower than the awards are settled, whereas previously the tax benefits in excessU.S. federal statutory rate.
44
SEGMENT RESULTS
General
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 oftable disaggregates our revenue and inter-company eliminationsby service line for the periods indicated (dollars in thousands of U.S. dollars).
Three months ended September 30, 2017 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 815,344 | $ | (2,484 | ) | $ | 812,860 | 67.4 | % | |||||||
Solid waste disposal and transfer | 416,764 | (157,280 | ) | 259,484 | 21.5 | |||||||||||
Solid waste recycling | 43,864 | (2,295 | ) | 41,569 | 3.5 | |||||||||||
E&P waste treatment, recovery and disposal | 57,797 | (3,082 | ) | 54,715 | 4.5 | |||||||||||
Intermodal and other | 38,221 | (371 | ) | 37,850 | 3.1 | |||||||||||
Total | $ | 1,371,990 | $ | (165,512 | ) | $ | 1,206,478 | 100.0 | % |
| | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | |||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||
Commercial |
| $ | 444,044 |
| $ | 375,427 | | $ | 870,439 | | $ | 791,935 |
Residential | | | 416,975 | | | 378,188 | | | 817,794 | | | 743,919 |
Industrial and construction roll off | | | 237,300 | | | 194,457 | | | 446,558 | | | 401,228 |
Total collection | | | 1,098,319 | | | 948,072 | | | 2,134,791 | | | 1,937,082 |
Landfill | | | 327,124 | | | 280,619 | | | 599,060 | | | 546,836 |
Transfer | | | 217,133 | | | 189,085 | | | 406,456 | | | 369,851 |
Recycling | | | 41,539 | | | 20,217 | | | 73,987 | | | 38,324 |
E&P | | | 34,607 | | | 40,152 | | | 62,618 | | | 105,530 |
Intermodal and other | | | 38,590 | | | 27,811 | | | 74,225 | | | 57,829 |
Intercompany | | | (223,381) | | | (200,174) | | | (421,263) | | | (397,265) |
Total |
| $ | 1,533,931 |
| $ | 1,305,782 | | $ | 2,929,874 | | $ | 2,658,187 |
Three months ended September 30, 2016 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 760,281 | $ | (2,472 | ) | $ | 757,809 | 69.9 | % | |||||||
Solid waste disposal and transfer | 377,998 | (144,459 | ) | 233,539 | 21.5 | |||||||||||
Solid waste recycling | 32,138 | (2,523 | ) | 29,615 | 2.7 | |||||||||||
E&P waste treatment, recovery and disposal | 33,673 | (3,608 | ) | 30,065 | 2.8 | |||||||||||
Intermodal and other | 34,155 | (261 | ) | 33,894 | 3.1 | |||||||||||
Total | $ | 1,238,245 | $ | (153,323 | ) | $ | 1,084,922 | 100.0 | % | |||||||
Nine months ended September 30, 2017 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 2,380,821 | $ | (7,075 | ) | $ | 2,373,746 | 68.3 | % | |||||||
Solid waste disposal and transfer | 1,189,965 | (459,659 | ) | 730,306 | 21.0 | |||||||||||
Solid waste recycling | 131,445 | (7,229 | ) | 124,216 | 3.6 | |||||||||||
E&P waste treatment, recovery and disposal | 147,662 | (8,921 | ) | 138,741 | 4.0 | |||||||||||
Intermodal and other | 107,418 | (1,114 | ) | 106,304 | 3.1 | |||||||||||
Total | $ | 3,957,311 | $ | (483,998 | ) | $ | 3,473,313 | 100.0 | % | |||||||
Nine months ended September 30, 2016 | ||||||||||||||||
Revenue | Intercompany Revenue | Reported Revenue | % of Reported Revenue | |||||||||||||
Solid waste collection | $ | 1,619,827 | $ | (5,571 | ) | $ | 1,614,256 | 69.4 | % | |||||||
Solid waste disposal and transfer | 804,928 | (307,308 | ) | 497,620 | 21.4 | |||||||||||
Solid waste recycling | 60,876 | (4,554 | ) | 56,322 | 2.4 | |||||||||||
E&P waste treatment, recovery and disposal | 97,259 | (9,228 | ) | 88,031 | 3.8 | |||||||||||
Intermodal and other | 71,401 | (389 | ) | 71,012 | 3.0 | |||||||||||
Total | $ | 2,654,291 | $ | (327,050 | ) | $ | 2,327,241 | 100.0 | % |
Our CODMChief 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, impairments and other operating items and other income (expense) and foreign currency transaction gain (loss). 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 managePrior to July 2020, we managed our operations through five geographic solid waste operating segments and our E&P segment, which includeswere also our reportable segments. As of July 2020, our Chief Operating Decision Maker determined that the majorityE&P and Southern operating segments met all of the aggregation criteria and eliminated our E&P waste treatment and disposal operations. Oursegment by combining all operations of the E&P segment into the Southern segment. After giving effect to this combination, our reportable segments consist of our five geographic operating segments and ourno longer include a separate E&P segment comprise our reportable segments.segment. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts. In the third quarter of 2017, we moved a district from our Eastern segment to our Canada segment as a significant amount of its revenues are received from Canadian-based customers. The segment information presented herein reflects the realignment of these districts. Segment results for the 2020 periods reflected in this district.report have been reclassified to reflect the realignment of our reportable segments for comparison with the same period in 2021.
UnderAt June 30, 2021, under the current orientation, our Southern segment services customers located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, New Mexico, North Dakota, southern Oklahoma, western Tennessee, Texas, Wyoming and Texas;along the Gulf of Mexico; our Eastern segment services customers located in Delaware, northern Illinois, Kentucky, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, eastern Tennessee, Vermont, Virginia and Wisconsin; our Western segment services customers located in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; our EasternCentral segment services customers located in Arizona, Colorado, southern Illinois, Iowa, Kentucky, Maryland,Kansas, Minnesota, Missouri, Nebraska, New Jersey, New York, North Carolina, Pennsylvania,Mexico, Oklahoma, South Carolina,Dakota, western Texas, Utah and eastern Tennessee, VermontWyoming; and Wisconsin; our Canada segment services customers located in the state of Michigan and in the provinces of Alberta, British Columbia, Manitoba, Ontario, Québec and Québec; and our Central segment services customers located in Arizona, Colorado, Kansas, Minnesota, Missouri, Nebraska, New Mexico, Oklahoma, South Dakota, western Texas, Utah and eastern Wyoming. The E&P segment services E&P customers located in Arkansas, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the GulfSaskatchewan.
45
Revenues, net of intercompany eliminations, for our reportable segments are shown in the following table in thousands of U.S. dollars and as a percentage of total revenues for the periods indicated: indicated.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||||||||||||
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | ||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||
Eastern | | $ | 369,617 |
| 24.1 | % | $ | 318,891 |
| 24.4 | % | | $ | 706,079 |
| 24.1 | % | $ | 651,093 | | 24.5 | % | ||||||||||||||||||||||||||||||||
Southern | $ | 280,528 | 23.3 | % | $ | 279,909 | 25.8 | % | $ | 846,034 | 24.4 | % | $ | 437,378 | 18.8 | % | | | 363,336 |
| 23.7 | | | 333,466 |
| 25.5 | | | | 701,497 |
| 23.9 | | | 702,722 |
| 26.4 | | ||||||||||||||||
Western | 261,877 | 21.7 | 246,891 | 22.8 | 754,959 | 21.7 | 702,556 | 30.2 | |
| 313,789 |
| 20.4 | |
| 275,536 |
| 21.1 | | |
| 610,793 |
| 20.9 | |
| 547,518 |
| 20.6 | | ||||||||||||||||||||||||
Eastern | 246,267 | 20.4 | 191,979 | 17.7 | 718,302 | 20.7 | 437,804 | 18.8 | ||||||||||||||||||||||||||||||||||||||||||||||
Central | |
| 266,845 |
| 17.4 | |
| 216,620 |
| 16.6 | | |
| 502,231 |
| 17.1 | |
| 425,162 |
| 16.0 | | ||||||||||||||||||||||||||||||||
Canada | 197,055 | 16.3 | 180,572 | 16.6 | 546,149 | 15.7 | 245,711 | 10.6 | |
| 220,344 |
| 14.4 | |
| 161,269 |
| 12.4 | | |
| 409,274 |
| 14.0 | |
| 331,692 |
| 12.5 | | ||||||||||||||||||||||||
Central | 166,360 | 13.8 | 155,267 | 14.3 | 470,087 | 13.5 | 414,874 | 17.8 | ||||||||||||||||||||||||||||||||||||||||||||||
E&P | 54,391 | 4.5 | 30,304 | 2.8 | 137,782 | 4.0 | 88,918 | 3.8 | ||||||||||||||||||||||||||||||||||||||||||||||
$ | 1,206,478 | 100.0 | % | $ | 1,084,922 | 100.0 | % | $ | 3,473,313 | 100.0 | % | $ | 2,327,241 | 100.0 | % | |||||||||||||||||||||||||||||||||||||||
| | $ | 1,533,931 |
| 100.0 | % | $ | 1,305,782 |
| 100.0 | % | | $ | 2,929,874 |
| 100.0 | % | $ | 2,658,187 |
| 100.0 | % |
Segment EBITDA for our reportable segments is shown in the following table in thousands of U.S. dollars and as a percentage of segment revenues for the periods indicated: indicated.
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
Southern | $ | 63,171 | 22.5 | % | $ | 62,189 | 22.2 | % | $ | 199,280 | 23.6 | % | $ | 98,906 | 22.6 | % | ||||||||||||||||
Western | 84,861 | 32.4 | 84,214 | 34.1 | 247,475 | 32.8 | 237,839 | 33.9 | ||||||||||||||||||||||||
Eastern | 74,018 | 30.1 | 57,699 | 30.1 | 209,315 | 29.1 | 135,456 | 30.9 | ||||||||||||||||||||||||
Canada | 74,369 | 37.7 | 66,235 | 36.7 | 200,283 | 36.7 | 91,471 | 37.2 | ||||||||||||||||||||||||
Central | 64,607 | 38.8 | 58,079 | 37.4 | 177,975 | 37.9 | 154,510 | 37.2 | ||||||||||||||||||||||||
E&P | 27,881 | 51.3 | 8,919 | 29.4 | 63,518 | 46.1 | 21,953 | 24.7 | ||||||||||||||||||||||||
Corporate(a) | (5,751 | ) | - | (18,299 | ) | - | (32,535 | ) | - | (102,653 | ) | - | ||||||||||||||||||||
$ | 383,156 | 31.8 | % | $ | 319,036 | 29.4 | % | $ | 1,065,311 | 30.7 | % | $ | 637,482 | 27.4 | % |
| | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | | Six Months Ended June 30, | | ||||||||||||||||
|
| 2021 |
| 2020 |
|
| 2021 |
| 2020 |
| ||||||||||||
Western | | | 99,402 |
| 31.7 | % | | 85,423 |
| 31.0 | % | | $ | 193,228 |
| 31.6 | % | $ | 166,451 |
| 30.4 | % |
Eastern | |
| 99,382 |
| 26.9 | % |
| 82,680 |
| 25.9 | % | |
| 188,503 |
| 26.7 | % | | 167,342 |
| 25.7 | % |
Southern | |
| 98,928 |
| 27.2 | % |
| 89,130 |
| 26.7 | % | |
| 192,352 |
| 27.4 | % |
| 195,450 |
| 27.8 | % |
Central | |
| 94,886 |
| 35.6 | % |
| 79,705 | | 36.8 | % | |
| 173,926 |
| 34.6 | % |
| 152,856 |
| 36.0 | % |
Canada | |
| 88,641 |
| 40.2 | % |
| 53,675 |
| 33.3 | % | |
| 162,581 |
| 39.7 | % |
| 113,073 |
| 34.1 | % |
Corporate(a) | |
| (6,442) |
| — | |
| (2,699) |
| — | | |
| (7,192) |
| — | |
| (6,329) |
| — | |
| | $ | 474,797 |
| 31.0 | % | $ | 387,914 |
| 29.7 | % | | $ | 903,398 | | 30.8 | % | $ | 788,843 |
| 29.7 | % |
(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 six operating segments.
(a) | The majority of Corporate expenses are allocated to the five operating segments. Direct acquisition expenses, expenses associated with common shares held in the deferred compensation plan exchanged for other investment options and share-based compensation expenses associated with Progressive Waste share-based grants outstanding at June 1, 2016 that were continued by the Company are not allocated to the five operating segments and comprise the net EBITDA for our Corporate segment for the periods presented. |
A reconciliation of segment EBITDA to Income before income tax provision is included in Note 1011 to our Condensed Consolidated Financial Statements included in Part 1, Item 1 of this report.
Significant changes in revenue and segment EBITDA for our reportable segments for the three and ninesix month periods ended SeptemberJune 30, 2017,2021, compared to the three and ninesix month periods ended SeptemberJune 30, 2016,2020, are discussed below: below.
Segment Revenue
Revenue in our SouthernEastern segment increased $0.6$50.7 million, or 0.2%15.9%, to $280.5$369.6 million for the three months ended SeptemberJune 30, 2017,2021, from $279.9$318.9 million for the three months ended SeptemberJune 30, 2016. The components of the increase consisted of net price increases of $10.0 million, net revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2016, of $2.9 million, increased recyclable commodity sales of $0.6 million resulting from the impact of higher prices for recyclable commodities in July and August 2017 and increases of $0.5 million from higher E&P disposal volumes at our solid waste landfills, partially offset by net revenue reductions from divestitures closed in 2017 of $7.7 million, solid waste volume decreases of $4.9 million primarily from the declines in residential volumes resulting from certain contracts acquired with the acquisition of Progressive Waste that were terminated subsequent to September 30, 2016 and declines in commercial volumes due to intentional losses of certain low margin customers and other revenue decreases of $0.8 million.
Revenue in our Southern segment increased $408.6 million, or 93.4%, to $846.0 million for the nine months ended September 30, 2017, from $437.4 million for the nine months ended September 30, 2016. The components of the increase consisted of net price increases of $17.2 million, net revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2016, of $406.0 million, increased recyclable commodity sales of $1.2 million resulting from the impact of higher prices for recyclable commodities through August 2017 and increases of $1.2 million from higher E&P disposal volumes at our solid waste landfills, partially offset by net revenue reductions from divestitures closed in 2017 of $8.4 million, solid waste volume decreases of $7.8 million primarily from the declines in residential volumes resulting from certain contracts acquired with the acquisition of Progressive Waste that were terminated subsequent to September 30, 2016 and declines in commercial volumes due to intentional losses of certain low margin customers and other revenue decreases of $0.8 million.
Revenue in our Western segment increased $15.0 million, or 6.1%, to $261.9 million for the three months ended September 30, 2017, from $246.9 million for the three months ended September 30, 2016.2020. The components of the increase consisted of solid waste volume increases of $7.1$16.6 million associated with residentialdue primarily to higher collection commercial collection, roll off collection, landfill municipal solid waste and landfill special waste,disposal volumes, net price increases of $5.1$14.0 million, increased recyclable commodity sales of $1.1 million resulting from the impact of higher prices for recyclable commodities in July and August 2017, net revenue growth from acquisitions closed during, or subsequent to the three months ended SeptemberJune 30, 2016,2020 of $1.5$10.4 million, the impact of a partial recovery of collected commercial recycling volumes, which declined in the prior year period due to economic disruptions resulting from the COVID-19 pandemic, and higher prices for old corrugated cardboard, other paper products, plastics and aluminum contributing to a $9.2 million increase in sales from recyclable commodities and other revenue increases of $0.2$0.5 million.
Revenue in our Eastern segment increased $55.0 million, or 8.4%, to $706.1 million for the six months ended June 30, 2021, from $651.1 million for the six months ended June 30, 2020. The components of the increase consisted of net price increases of $27.2 million, net revenue growth from acquisitions closed subsequent to the six months ended June 30, 2020 of $20.0 million, the impact of a partial recovery of collected commercial recycling volumes, which declined in the prior year period due to economic disruptions resulting from the COVID-19 pandemic, and higher prices for old corrugated cardboard, other paper products, plastics and aluminum contributing to a $14.8 million increase in sales from recyclable commodities and other revenue increases of $0.6 million, partially offset by solid waste volume decreases of $7.6 million
46
attributable primarily to COVID-19-related economic disruptions in our Northeastern markets, which commenced in March 2020 and continued into 2021, driving declines in commercial collection and roll off collection volumes.
Revenue in our Southern segment increased $29.8 million, or 9.0%, to $363.3 million for the three months ended June 30, 2021, from $333.5 million for the three months ended June 30, 2020. The components of the increase consisted of net price increases of $18.0 million, solid waste volume increases of $14.8 million due primarily to higher commercial collection, roll off collection, transfer station and landfill volumes, higher prices for old corrugated cardboard, plastics and aluminum products contributing to a $2.8 million increase in sales from recyclable commodities and other revenue increases of $1.6 million, partially offset by a decline in revenue at our E&P operations of $5.2 million as decreases in the demand for crude oil commenced in March 2020 as a result of economic disruptions from the COVID-19 pandemic, resulting in decreases in drilling and production activity levels and decreases in overall demand for our E&P waste services and net revenue reductions from divestitures closed subsequent to June 30, 2020 of $2.2 million.
Revenue in our Southern segment decreased $1.2 million, or 0.2%, to $701.5 million for the six months ended June 30, 2021, from $702.7 million for the six months ended June 30, 2020. The components of the decrease consisted of a decline in revenue at our E&P operations of $39.5 million, partially offset by an increase in revenue at our solid waste operations of $38.3 million. The $39.5 million decrease in revenue at our E&P operations was attributable to decreases in the demand for crude oil as a result of economic disruptions from the COVID-19 pandemic resulting in a drop in the value of crude oil, decreases in drilling and production activity levels and decreases in overall demand for our E&P waste services. The components of the $38.3 million increase in revenue at our solid waste operations consisted of net price increases of $31.5 million, solid waste volume increases of $4.4 million due primarily to higher landfill special waste volumes, higher prices for old corrugated cardboard, plastics and aluminum contributing to a $4.4 million increase in sales from recyclable commodities and other revenue increases of $1.9 million, partially offset by net revenue reductions from divestitures closed subsequent to June 30, 2020 of $3.9 million.
Revenue in our Western segment increased $52.4$38.3 million, or 7.5%13.9%, to $755.0$313.8 million for the ninethree months ended SeptemberJune 30, 2017,2021, from $702.6$275.5 million for the ninethree months ended SeptemberJune 30, 2016.2020. The components of the increase consisted of solid waste volume increases of $28.9$22.6 million associated with residentialattributable to increased collection commercial collection, roll off collection, landfill municipal solid waste and landfill special waste, net price increases of $11.7 million, increased recyclable commodity sales of $7.7 million resulting from the impact of higher prices for recyclable commodities through August 2017, increased intermodal revenues of $1.5 million resulting from higher intermodal cargo volume,disposal volumes, net revenue growth from acquisitions and divestitures closed during, or subsequent to the ninethree months ended SeptemberJune 30, 2016,2020 of $2.3$6.9 million, net price increases of $6.9 million and recyclable commodity revenue increases of $3.0 million due primarily to higher prices for old corrugated cardboard, metals and aluminum and higher volumes collected from residential recycling customers and other revenue increases of $0.3 million.
$0.2 million, partially offset by intermodal revenue decreases of $1.3 million due primarily to customer losses resulting in a reduction in intermodal cargo volumes.
Revenue in our EasternWestern segment increased $54.3$63.3 million, or 28.3%11.6%, to $246.3$610.8 million for the threesix months ended SeptemberJune 30, 2017,2021, from $192.0$547.5 million for the threesix months ended SeptemberJune 30, 2016.2020. The components of the increase consisted of solid waste volume increases of $32.5 million attributable to increased collection and disposal volumes, net revenue growth from acquisitions closed during,subsequent to the six months ended June 30, 2020 of $15.4 million, net price increases of $13.9 million and recyclable commodity revenue increases of $4.7 million due primarily to higher prices for old corrugated cardboard, metals and aluminum and higher volumes collected from residential recycling customers and other revenue increases of $0.2 million, partially offset by intermodal revenue decreases of $3.4 million due primarily to customer losses resulting in a reduction in intermodal cargo volumes.
Revenue in our Central segment increased $50.2 million, or 23.2%, to $266.8 million for the three months ended June 30, 2021, from $216.6 million for the three months ended June 30, 2020. The components of the increase consisted of revenue growth from acquisitions closed subsequent to the three months ended SeptemberJune 30, 2016,2020 of $55.5$30.1 million, net price increases of $10.0 million, solid waste volume increases of $3.0$8.7 million as increaseddue primarily to higher commercial collection, roll off collection, transfer station landfill municipal solid waste and landfill special waste offset decreased residential collection, net price increases of $5.7 million, increased recyclable commodity sales of $1.7 million resulting from the impact ofvolumes, higher prices for old corrugated cardboard and aluminum products contributing to a $1.2 million increase in sales from recyclable commodities in July and August 2017 and other net revenue increases of $0.3$1.6 million, partially offset by net revenue reductions from divestitures closed in 2017subsequent to June 30, 2020 of $11.9$1.4 million.
Revenue in our EasternCentral segment increased $280.5$77.0 million, or 64.1%18.1%, to $718.3$502.2 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $437.8$425.2 million for the ninesix months ended SeptemberJune 30, 2016.2020. The components of the increase consisted of net revenue growth from acquisitions closed during, or subsequent to the ninesix months ended SeptemberJune 30, 2016,2020 of $267.8$55.3 million, net price
47
increases of $19.4 million, solid waste volume increases of $9.9$2.2 million as increased roll off collection, transfer station, landfill municipal solid waste anddue primarily to higher landfill special waste offset decreased residential collection, net price increases of $13.1 million and increased recyclable commodity sales of $5.4 million resulting from the impact ofvolumes, higher prices for old corrugated cardboard and aluminum products contributing to a $1.5 million increase in sales from recyclable commodities through August 2017,and other revenue increases of $1.4 million, partially offset by net revenue reductions from divestitures closed in 2017subsequent to June 30, 2020 of $15.7$2.8 million.
Revenue in our Canada segment increased $16.5$59.0 million, or 9.1%36.6%, to $197.1$220.3 million for the three months ended SeptemberJune 30, 2017,2021, from $180.6$161.3 million for the three months ended SeptemberJune 30, 2016. Our Canada segment was formed in conjunction with the Progressive Waste acquisition on June 1, 2016.2020. The components of the increase consisted of an increase of $7.6$20.5 million resulting from ana higher average foreign currency exchange rate in effect during the comparable reporting periods, solid waste volume increases of $17.5 million due primarily to higher collection and disposal volumes, net price increases of $11.9 million, $8.0 million resulting from higher prices for renewable energy credits associated with the generation of landfill gas and recyclable commodity revenue increases of $1.9 million due primarily to higher prices for old corrugated cardboard and higher volumes collected from residential recycling customers, partially offset by other revenue decreases of $0.8 million.
Revenue in our Canada segment increased $77.6 million, or 23.4%, to $409.3 million for the six months ended June 30, 2021, from $331.7 million for the six months ended June 30, 2020. The components of the increase in theconsisted of $30.9 million resulting from a higher average foreign currency exchange rate in effect during the comparable reporting periods, net price increases of $6.4$21.1 million, increased landfill gas sales of $4.0$14.1 million resulting from higher pricing and increased recyclable commodity sales of $3.5 million resulting from the impact of higher prices for recyclable commodities in July and August 2017, partially offset byrenewable energy credits associated with the generation of landfill gas, solid waste volume decreasesincreases of $4.5$8.2 million associated with decreaseddue primarily to higher roll off collection and landfill special waste volumes and intentional losses of certain low margin commercial collection customers and $0.5 million of otherrecyclable commodity revenue decreases.
Revenue in our Canada segment increased $300.4 million, or 122.3%, to $546.1 million for the nine months ended September 30, 2017, from $245.7 million for the nine months ended September 30, 2016. The components of the increase consisted of revenue growth from the Progressive Waste acquisition of $279.8 million for the nine months ended September 30, 2017, net price increases of $8.9$3.9 million increased landfill gas sales of $5.9 million resulting from higher pricing, an increase of $5.8 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods and increased recyclable commodity sales of $5.1 million resulting from the impact ofdue primarily to higher prices for recyclable commodities through August 2017,old corrugated cardboard and higher volumes collected from residential recycling customers, partially offset by solid waste volumeother revenue decreases of $4.4 million associated with decreased landfill special waste volumes and intentional losses of certain low margin commercial collection customers and $0.7 million of other revenue decreases.$0.6 million.
Segment EBITDA
RevenueSegment EBITDA in our CentralWestern segment increased $11.1$14.0 million, or 7.1%16.4%, to $166.4$99.4 million for the three months ended SeptemberJune 30, 2017,2021, from $155.3$85.4 million for the three months ended SeptemberJune 30, 2016. The components of the increase consisted of net price increases of $5.5 million, solid waste volume increases of $4.4 million as increased roll off collection, transfer station and landfill special waste offset decreased residential and commercial collection, revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2016, of $1.4 million, increased recyclable commodity sales of $1.0 million resulting from the impact of higher prices for recyclable commodities in July and August 2017 and other revenue increases of $0.3 million, partially offset by net revenue reductions from divestitures closed in 2017 of $1.5 million.
Revenue in our Central segment increased $55.2 million, or 13.3%, to $470.1 million for the nine months ended September 30, 2017, from $414.9 million for the nine months ended September 30, 2016. The components of the increase consisted of net revenue growth from acquisitions and divestitures closed during, or subsequent to, the nine months ended September 30, 2016, of $35.0 million, net price increases of $15.3 million, increased recyclable commodity sales of $3.2 million resulting from the impact of higher prices for recyclable commodities through August 2017, solid waste volume increases of $2.3 million as increased roll off collection, transfer station and landfill special waste offset decreased residential and commercial collection and other revenue increases of $1.0 million, partially offset by net revenue reductions from divestitures closed in 2016 and 2017 of $1.6 million.
Revenue in our E&P segment increased $24.1 million, or 79.5%, to $54.4 million for the three months ended September 30, 2017, from $30.3 million for the three months ended September 30, 2016. Revenue in our E&P segment increased $48.9 million, or 55.0% to $137.8 million for the nine months ended September 30, 2017, from $88.9 million for the nine months ended September 30, 2016. The components of the increases consisted of higher E&P volumes, primarily in our E&P disposal operations in the Permian Basin and Louisiana.
Segment EBITDA
Segment EBITDA in our Southern segment increased $1.0 million, or 1.6%, to $63.2 million for the three months ended September 30, 2017, from $62.2 million for the three months ended September 30, 2016.2020. The increase was due primarily to an increase in revenues of $8.3$38.3 million, from organic growtha decrease in supplemental bonuses and acquisitions, decreases in equipment rental expenseother cash incentive compensation to non-management personnel of $0.9$2.1 million due to the terminationprior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic and a decrease in taxes on revenues of $1.6 million at Chiquita Canyon landfill due to a reduction in certain short-term equipment leases assumed in the acquisitionfees and exactions resulting from our successful challenge of Progressive Waste and an increase of $0.1 million from the impact of operations disposed of in 2017,these expenses subsequent to June 30, 2020, partially offset by an increase in labor expenses of $2.2$7.0 million due primarily to employee pay increases and headcount additions to support solid waste volume increases, $4.7 million of additional operating costs from incremental labor and repair expenses resulting from hurricanes impacting our Texas, Louisiana and Florida operations,acquisitions closed subsequent to the three months ended June 30, 2020, an increase in directtaxes on revenues of $2.8 million due primarily to increased revenues, an increase in diesel fuel expense of $2.4 million due to higher fuel prices and administrative laborincreased consumption resulting from additional truck and equipment operating hours to support solid waste volume increases, an increase in third-party disposal expenses of $2.2 million due primarily to employee pay rate increases, a net $1.6 million increase in cost of operations and SG&A expenses attributable to acquired operations,increased solid waste collection volumes, an increase in fuel expense of $1.3 million due to increases in the market price of diesel fuel, an increase in corporate overhead expense allocations of $0.9 million due to a higher overhead allocation ratethird-party trucking and $0.1 million of other net expense increases.
Segment EBITDA in our Southern segment increased $100.4 million, or 101.5%, to $199.3 million for the nine months ended September 30, 2017, from $98.9 million for the nine months ended September 30, 2016. The increase was due primarily to an increase in revenues of $417.0 million from organic growth and acquisitions, decreases in insurance expense of $2.1 million due to improved incident rates at operations acquired from Progressive Waste, decreases in equipment rental expense of $1.1 million due to the termination of certain short-term equipment leases assumed in the acquisition of Progressive Waste and an increase of $0.4 million from the impact of operations disposed of in 2017, partially offset by a net $308.9 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labortransportation expenses of $3.4$2.2 million due primarily to employee pay rate increases, an increase of $2.2 million from incremental laborincreased transfer station and repair expenses resulting from hurricanes impactinglandfill special waste volumes requiring trucking and transportation services to our Texas, Louisiana and Florida operations,landfills, an increase in truck, container, equipment and facility maintenance and repair expenses of $1.8$2.1 million due to variabilityparts and service rate increases and additional maintenance and repair requirements resulting from increased truck and equipment operating hours to support increases in the timing and severity of major repairs,our solid waste volumes, an increase in fuel expenseemployee medical benefits expenses of $1.7$2.0 million due to increasesan increase in the market price of diesel fuel,medical visits, an increase in corporate overhead expense allocations of $0.8$1.4 million due to a higheran increase in the overhead allocation rate resulting from an increase in employee benefitscorporate expenses of $0.7 million due to increased severity of medical claimsqualifying for allocation and $0.7$1.2 million of other net expense increases.
Segment EBITDA in our Western segment increased $0.7$26.7 million, or 0.8%16.1%, to $84.9$193.2 million for the threesix months ended SeptemberJune 30, 2017,2021, from $84.2$166.5 million for the threesix months ended SeptemberJune 30, 2016.2020. The increase was due primarily to an increase in revenues of $15.0$63.3 million, a decrease in taxes on revenues of $3.7 million at Chiquita Canyon landfill due to a reduction in certain fees and exactions resulting from organic growthour successful challenge of these expenses subsequent to June 30, 2020, a decrease in intermodal rail expenses of $2.8 million due to customer losses resulting in a reduction in cargo volume, a decrease in supplemental bonuses and acquisitions,other cash incentive compensation to non-management personnel of $2.4 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic and a decrease in expenses for processing recyclable commodities in our Western segment
48
of $1.7 million due to increased recyclable commodity values resulting in price reductions charged by third-party recycling processors, partially offset by $11.0 million of additional operating costs from acquisitions closed subsequent to the six months ended June 30, 2020, an increase in direct and administrative labor expenses of $3.0$9.0 million due primarily to employee pay rate increases an increase in taxes on revenues of $3.0 million dueand headcount additions to the aforementioned increase in revenues, an increase in third-party disposal expense of $1.5 million due to increased collection volumes and disposal ratesupport solid waste volume increases, an increase in corporate overhead expense allocations of $1.3$5.2 million due to a higheran increase in the overhead allocation rate resulting from an increase in corporate expenses qualifying for allocation, an increase in taxes on revenues of $5.0 million due primarily to increased revenues, an increase in third-party disposal expenses of $3.9 million due primarily to increased solid waste collection volumes, an increase in third-party trucking and transportation expenses of $1.2$3.4 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in employee medical benefits expenses of $3.0 million due to increased disposal volumes that require transportation to our landfills, a net $0.9 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in expenses associated with the purchasemedical visits, an increase in diesel fuel expense of recyclable commodities of $0.7$2.3 million due to increased recyclable commodity values, an increase inhigher fuel expense of $0.7 million due to increases in the market price of diesel fuel, an increase in equipment and facility rental expenses of $0.5 million resulting from new property leases and equipment rented to support growth in our intermodal operations,prices, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.4$2.2 million due primarily to parts and service rate increases, an increase in landfill maintenance, environmental compliance and daily cover expenses of $1.2 million due to variability in the timingincreased compliance requirements under our landfill operating permits and severity of major repairs and $1.1$1.0 million of other net expense increases.
Segment EBITDA in our WesternEastern segment increased $9.7$16.7 million, or 4.1%20.2%, to $247.5$99.4 million for the ninethree months ended SeptemberJune 30, 2017,2021, from $237.8$82.7 million for the ninethree months ended SeptemberJune 30, 2016.2020. The increase was due primarily to an increase in revenues of $52.4$50.7 million, a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of $2.8 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic and a decrease in expenses for uncollectible accounts receivable of $2.2 million primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic, partially offset by an increase in labor expenses of $6.5 million due primarily to employee pay increases and headcount additions to support solid waste volume increases, $6.4 million of additional operating costs from acquisitions closed subsequent to the three months ended June 30, 2020, an increase in third-party trucking and transportation expenses of $4.7 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in third-party disposal expenses of $4.3 million due primarily to increased solid waste collection volumes, an increase in truck, container, equipment and facility maintenance and repair expenses of $3.9 million due to parts and service rate increases and additional maintenance and repair requirements resulting from increased truck and equipment operating hours to support increases in our solid waste volumes, an increase in employee medical benefits expenses of $2.6 million due to an increase in medical visits, an increase in diesel fuel expense of $2.2 million due to higher fuel prices and increased consumption resulting from additional truck and equipment operating hours to support solid waste volume increases, an increase in landfill maintenance expenses of $1.3 million due to increased disposal volumes and increased compliance requirements under our landfill operating permits, an increase in taxes on revenues of $1.2 million due primarily to increased revenues, an increase in corporate overhead expense allocations of $1.0 million due to an increase in the overhead allocation rate resulting from an increase in corporate expenses qualifying for allocation and other net expense increases of $4.9 million.
Segment EBITDA in our Eastern segment increased $21.2 million, or 12.6%, to $188.5 million for the six months ended June 30, 2021, from $167.3 million for the six months ended June 30, 2020. The increase was due primarily to an increase in revenues of $55.0 million, a decrease in expenses for uncollectible accounts receivable of $3.6 million primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic and a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of $3.2 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, partially offset by $11.4 million of additional operating costs from acquisitions closed subsequent to the six months ended June 30, 2020, an increase in labor expenses at our solid waste operations of $5.0 million due primarily to employee pay increases, an increase in corporate overhead expense allocations of $4.9 million due to an increase in the overhead allocation rate resulting from an increase in corporate expenses qualifying for allocation, an increase in third-party disposal expenses of $4.2 million due primarily to increased rates paid for third party disposal and increased volumes in our Northeastern markets as they began to recover in 2021 from economic disruptions attributable to the COVID-19 pandemic, an increase in employee medical benefits expenses of $3.7 million due to an increase in medical visits, an increase in third-party trucking and transportation expenses of $3.0 million due primarily to opening a new transfer station facility in the latter half of 2020 and increased transfer station volumes in our Northeastern markets as they began to recover in 2021 from
49
economic disruptions attributable to the COVID-19 pandemic, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.5 million due primarily to parts and service rate increases, an increase in landfill maintenance expenses of $1.8 million due to increased disposal volumes and increased compliance requirements under our landfill operating permits, an increase in diesel fuel expense of $1.6 million due to higher fuel prices, an increase in taxes on revenues of $1.5 million due primarily to increased revenues and other net expense increases of $1.0 million.
Segment EBITDA in our Southern segment increased $9.8 million, or 11.0%, to $98.9 million for the three months ended June 30, 2021, from $89.1 million for the three months ended June 30, 2020. The increase was due to an increase in revenues of $32.0 million from organic growth and acquisitions, a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of $3.2 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, a decrease in labor at our E&P operations of $1.7 million due to headcount reductions resulting from disposal volume decreases, a decrease in subcontracted operating and remediation services at our E&P operations of $1.2 million due to disposal volume decreases and a decrease in expenses for uncollectible accounts receivable of $1.0 million at our E&P operations primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic, partially offset by an increase in labor expenses of $5.5 million due primarily to employee pay increases and headcount additions to support solid waste volume increases, an increase in third-party disposal expenses of $4.5 million due primarily to increased solid waste collection volumes, an increase in truck, container, equipment and facility maintenance and repair expenses of $3.6 million due to parts and service rate increases and additional maintenance and repair requirements resulting from increased truck and equipment operating hours to support increases in our solid waste volumes, an increase in subcontracted hauling services at our solid waste operations of $2.9 million due to outsourcing the servicing of certain non-strategic contracts and commercial collection customers to third party haulers, an increase in employee medical benefits expenses of $2.8 million due to an increase in medical visits, an increase in third-party trucking and transportation expenses of $2.5 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in diesel fuel expense of $2.0 million due to higher fuel prices and increased consumption resulting from additional truck and equipment operating hours to support solid waste volume increases, a decrease to EBITDA of $1.2 million from the impact of operations disposed of during, or subsequent to, the three months ended June 30, 2020, an increase in taxes on revenues of $0.9 million due primarily to increased revenues in our solid waste markets, an increase in corporate overhead expense allocations of $0.9 million due to an increase in the overhead allocation rate resulting from an increase in corporate expenses qualifying for allocation and other net expense increases of $2.5 million.
Segment EBITDA in our Southern segment decreased $3.0 million, or 1.6%, to $192.4 million for the six months ended June 30, 2021, from $195.4 million for the six months ended June 30, 2020. The decrease was due to a decline in E&P revenues of $39.5 million, an increase in subcontracted hauling services at our solid waste operations of $5.6 million due to outsourcing the servicing of certain non-strategic contracts and commercial collection customers to third party haulers, an increase in employee medical benefits expenses of $4.0 million due to an increase in medical visits, an increase in labor expenses at our solid waste operations of $3.2 million due primarily to employee pay increases and headcount additions to support solid waste volume increases, an increase in truck, container, equipment and facility maintenance and repair expenses at our solid waste operations of $3.0 million due primarily to parts and service rate increases, an increase in corporate overhead expense allocations of $2.9 million due to an increase in the overhead allocation rate resulting from an increase in corporate expenses qualifying for allocation, an increase in third-party disposal expenses at our solid waste operations of $2.8 million due primarily to increased solid waste collection volumes, an increase in third-party trucking and transportation expenses at our solid waste operations of $2.8 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, a decrease to EBITDA of $2.0 million from the impact of operations disposed of subsequent to the six months ended June 30, 2020 and an increase in diesel fuel expense at our solid waste operations of $1.1 million due to higher fuel prices, partially offset by an increase in solid waste revenues of $42.2 million from organic growth and acquisitions, a decrease in expenses for auto and workers’ compensation claims of $6.5 million due primarily to higher claims severity in the prior year period and adjustments recorded in the current year period to decrease projected losses on outstanding claims originally recorded prior to 2021, a decrease in labor at our E&P operations of $4.7 million due to headcount reductions resulting from disposal volume decreases, a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of $3.7 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, a decrease in subcontracted operating and remediation services at our E&P
50
operations of $3.4 million due to disposal volume decreases, a decrease in equipment and facility maintenance and repair expenses at our E&P operations of $1.7 million due to decreased equipment operating hours resulting from disposal volume decreases, a decrease in expenses for uncollectible accounts receivable of $1.3 million at our E&P operations primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic and other net expense decreases of $0.4 million.
Segment EBITDA in our Central segment increased $15.2 million, or 19.0%, to $94.9 million for the three months ended June 30, 2021, from $79.7 million for the three months ended June 30, 2020. The increase was due primarily to an increase in revenues of $51.6 million from organic growth and acquisitions and a decrease in corporate overhead expense allocationssupplemental bonuses and other cash incentive compensation to non-management personnel of $0.9$2.2 million due to a lower overhead allocation rate,the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, partially offset by $16.5 million of additional operating costs from certain acquisitions closed subsequent to the three months ended June 30, 2020, an increase in direct and administrative labor expenses of $9.6$6.2 million due primarily to employee pay rate increases an increase in taxes on revenues of $7.4 million dueand headcount additions to the aforementioned increase in revenues, an increase in third-party disposal expense of $3.8 million due to increased collection volumes and disposal ratesupport solid waste volume increases, an increase in third-party trucking and transportation expenses of $3.6 million due to increased disposal volumes that require transportation to our landfills, an increase in truck, container, equipment and facility maintenance and repair expenses of $3.5 million due to variabilityparts and service rate increases and additional maintenance and repair requirements resulting from increased truck and equipment operating hours to support increases in the timing and severityour solid waste volumes, an increase in third-party disposal expenses of major repairs,$2.2 million due primarily to increased solid waste collection volumes, an increase in employee medical benefits expenses of $3.1$2.0 million due to increased severity of medical claims, an increase in fuelmedical visits, an increase in corporate overhead expense allocations of $2.3$1.6 million due to increases in the market price of diesel fuel, an increase in expenses associated with the purchase of recyclable commodities of $2.1 million due to increased recyclable commodity values, an increase in expenses for auto and workers’ compensation claims of $1.8 million due to increased claims and higher average rates per claim, an increase in equipment and facility rental expenses of $1.0 million resulting from new property leases and equipment rented to support growth in our intermodal operations, a net $0.9 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in intermodal expenses of $0.9 millionoverhead allocation rate resulting from an increase in intermodal cargo volume,corporate expenses qualifying for allocation, an increase in professional feesthird-party trucking and transportation expenses of $0.6$1.5 million due primarily to higher legal expenses atincreased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in leachate disposal expenses at our landfillstaxes on revenues of $0.5$1.2 million due primarily to increased revenues, an increase in diesel fuel expense of $1.0 million due to heavy precipitation experienced inhigher fuel prices and increased consumption resulting from additional truck and equipment operating hours to support solid waste volume increases, a decrease to EBITDA of $0.2 million from the first quarterimpact of 2017operations disposed of subsequent to the three months ended June 30, 2020 and $2.5 million of other net expense increases.
increases of $2.7 million.
Segment EBITDA in our EasternCentral segment increased $16.3$21.0 million, or 28.3%13.8%, to $74.0$173.9 million for the threesix months ended SeptemberJune 30, 2017,2021, from $57.7$152.9 million for the threesix months ended SeptemberJune 30, 2016.2020. The increase was due primarily to an increase in revenues of $66.2$79.8 million from organic growth and acquisitions and a decrease in third party disposalsupplemental bonuses and other cash incentive compensation to non-management personnel of $2.4 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, partially offset by $32.2 million of $1.9additional operating costs from certain acquisitions closed subsequent to the six months ended June 30, 2020, an increase in labor expenses at our solid waste operations of $7.6 million due primarily to increased internal disposal of waste at our transfer stations and landfills in our New York markets and $0.5 million of other net expense decreases, partially offset by a net $40.8 million increase in cost of operations and SG&A expenses attributable to acquired operations,employee pay increases, an increase in corporate overhead expense allocations of $2.6$4.8 million due to an increasedincrease in the overhead allocation rate andresulting from an increase in budgeted revenues, which is the basis upon which overhead allocations are calculated, an increase in third-party trucking and transportationcorporate expenses of $2.4 million due to increased disposal volumes that require transportation to our landfills, a decrease of $1.9 million from the impact of operations disposed of in 2017, an increase in expensesqualifying for uncollectible accounts receivable of $1.2 million due primarily to the collection during the three months ended September 30, 2016 of a large receivable balance that was written off as a doubtful account in a prior year, an increase in direct labor expenses of $1.1 million due primarily to employee pay rate increases, an increase in taxes on revenues of $1.1 million resulting from the aforementioned increase in revenues,allocation, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.7$4.0 million due primarily to variability in the timingparts and severity of major repairs andservice rate increases, an increase in fuel expenseemployee medical benefits expenses of $0.5$3.0 million due to increases in the market price of diesel fuel.
Segment EBITDA in our Eastern segment increased $73.8 million, or 54.5%, to $209.3 million for the nine months ended September 30, 2017, from $135.5 million for the nine months ended September 30, 2016. The increase was due primarily to an increase in revenues of $296.2 million from organic growth and acquisitions and a decrease in third party disposal expenses of $4.2 million due primarily to increased internal disposal of waste at our transfer stations and landfills in our New York markets, partially offset by a net $199.9 million increase in cost of operations and SG&A expenses attributable to acquired operations, a decrease of $2.2 million from the impact of at operations disposed of in 2017,medical visits, an increase in third-party trucking and transportation expenses of $5.4 million due to increased disposal volumes that require transportation to our landfills, an increase in corporate overhead expense allocations of $3.6$2.5 million due primarily to an increase in budgeted revenues, which is the basis upon which overhead allocations are calculated, an increase in directincreased transfer station and administrative labor expenses of $3.5 million due primarilylandfill special waste volumes requiring trucking and transportation services to employee pay rate increases, an increase in truck, container, equipment and facility maintenance and repair expenses of $3.0 million due to variability in the timing and severity of major repairs,our landfills, an increase in taxes on revenues of $2.6 million resulting from the aforementioned increase in revenues, an increase in employee benefits expenses of $1.5$1.7 million due primarily to increased severity of medical claims,revenues, an increase in expenses for uncollectible accounts receivable of $1.3$1.4 million due to the prior year period including the collection of amounts deemed uncollectible in 2019, an increase in third-party disposal expenses of $1.1 million due primarily to increased solid waste collection volumes, a decrease to EBITDA of $0.2 million from the collection duringimpact of operations disposed of subsequent to the threesix months ended SeptemberJune 30, 2016 of a large receivable balance that was written off as a doubtful account in a prior year, an increase in fuel expense of $1.0 million due to increases in the market price of diesel fuel, an increase in leachate disposal expenses at our landfills of $0.7 million2020 and $1.9 million of other net expense increases.
increases of $2.7 million.
Segment EBITDA in our Canada segment increased $8.2$34.9 million, or 12.3%65.1%, to $74.4$88.6 million for the three months ended SeptemberJune 30, 2017,2021, from $66.2$53.7 million for the three months ended SeptemberJune 30, 2016.2020. The $8.2 million increase was comprised of an increase of $2.8$28.2 million resulting fromassuming foreign currency parity during the comparable reporting periods and an increase in theof $6.7 million from a higher average foreign currency exchange rate in effect during the comparable reporting periods and a $5.4 million increase assuming foreign currency parity during the comparable reporting periods. The $5.4$28.2 million increase, which assumes foreign currency parity, was due primarily to an increase in revenues of $8.9$38.5 million, a decrease in supplemental bonuses and $0.9other cash incentive compensation to non-management personnel of $1.3 million due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic and a decrease in expenses for uncollectible accounts receivable of other net expense decreases,$1.1
51
million primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic, partially offset by an increase in labor expenses of $4.3 million due primarily to employee pay increases and headcount additions to support solid waste volume increases, an increase in diesel fuel expense of $2.3 million due to higher fuel prices and increased consumption resulting from additional truck and equipment operating hours to support solid waste volume increases, an increase in third-party disposal expenses of $1.9 million due primarily to increased solid waste collection volumes, an increase in third-party trucking and transportation expenses of $1.2 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in truck, container, equipment and facility maintenance and repair expenses of $1.5$1.2 million due to variability in the timingparts and severity of major repairs, an increase in expenses associated with the purchase of recyclable commodities of $1.3 million due to increased recyclable commodity values, an increase in corporate overhead charges of $0.7 million due to a higher allocation rate, an increase in third-party disposal expense of $0.4 million due to disposalservice rate increases and an increase in fuel expense of $0.5 million dueadditional maintenance and repair requirements resulting from increased truck and equipment operating hours to support increases in the market priceour solid waste volumes and other net expense increases of diesel fuel.
$1.8 million.
Segment EBITDA in our Canada segment increased $108.8$49.5 million, or 119.0%43.8%, to $200.3$162.6 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $91.5$113.1 million for the ninesix months ended SeptemberJune 30, 2016.2020. The $108.8 million increase was comprised of an increase of $2.2$39.1 million resulting fromassuming foreign currency parity during the comparable reporting periods and an increase in theof $10.4 million from a higher average foreign currency exchange rate in effect during the comparable reporting periods and a $106.6 million increase assuming foreign currency parity during the comparable reporting periods. The $106.6$39.1 million increase, which assumes foreign currency parity, was due primarily to EBITDA contribution of $99.2 million from the five month period of January to May 2017, an increase in revenues of $46.7 million, a decrease in expenses for uncollectible accounts receivable of $1.9 million primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from organic growththe economic impact of $14.8the COVID-19 pandemic and a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of $1.4 million and $1.1 million other net expense decreases,due to the prior year period including non-recurring expenses to recognize services provided by our front-line employees during the COVID-19 pandemic, partially offset by an increase in corporate overhead chargeslabor expenses of $2.6$4.3 million due primarily to employee pay increases, an increase in diesel fuel expense of $2.3 million due to the Canada segment not receivinghigher fuel prices, an allocationincrease in third-party trucking and transportation expenses of corporate overhead for the month of June 2016,$1.0 million due primarily to increased landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.1$1.0 million due to variability inparts and service rate increases and other net expense increases of $2.3 million.
Segment EBITDA at Corporate decreased $3.7 million, to a loss of $6.4 million for the timing and severitythree months ended June 30, 2021, from a loss of major repairs,$2.7 million for the three months ended June 30, 2020. The decrease was due to an increase in third-party disposal expenseequity-based compensation expenses of $1.4$5.3 million associated with an adjustment during the current year period of our common shares held in our deferred compensation plan by certain key executives to fair value as a result of the shares being exchanged for other investment options, a collective increase in travel, meeting, training and community activity expenses of $2.8 million due to disposal rate increases,event cancelation credits recognized in the prior year period and increased travel and social gatherings in the current year period due to a reduction in restrictions associated with the COVID-19 pandemic, an increase in equity-based compensation expenses associated withof $2.3 million resulting primarily from adjustments to the purchaseamount of recyclable commoditiesperformance-based restricted share units granted in 2019 and 2020 that are estimated to ultimately vest based on the achievement of $1.2required financial performance results and $0.5 million due to increased recyclable commodity values,of other net expense increases, partially offset by an increase in taxes on revenuescorporate overhead allocated through charges to our segments of $0.7$4.8 million due to an increase in revenues and an increaseexpenses qualifying for allocation, a decrease in fuel expensedeferred compensation expenses of $0.5$1.4 million due toas a result of higher increases during the prior year period in the market pricevalue of diesel fuel.
Segment EBITDA in our Central segment increased $6.5 million, or 11.2%,investments to $64.6 million for the three months ended September 30, 2017, from $58.1 million for the three months ended September 30, 2016. The increase was due primarily to an increase in revenues of $11.1 millionwhich employee deferred compensation liability balances are tracked and a decrease in third party disposaldirect acquisition expenses of $1.1 million due primarily to increased internal disposal of waste at our transfer stations and landfills in our Nebraska markets, partially offset by 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 taxes on revenues of $1.5 million resulting from the aforementioned increase in revenues, an increase in direct and administrative labor expenses of $1.3 million due primarily to employee pay rate increases and a decrease in unfilled positions, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.7 million due to variability in the timing and severity of major repairs, and an increase in corporate overhead expense allocations of $0.6$1.0 million due to a higher overhead allocation rate.
Segment EBITDA in our Central segment increased $23.4 million, or 15.2%, to $177.9 million for the nine months ended September 30, 2017, from $154.5 million for the nine months ended September 30, 2016. The increase was due primarily to an increase in revenues of $55.2 million and a decrease in third party disposal expenses of $1.5 million due primarily to increased internal disposal of waste at our transfer stations and landfills in our Nebraska markets and a decrease in corporate overhead expense allocations of $0.9 million due to a lower overhead allocation rate, partially offset by a net $19.6 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labor expenses of $4.1 million due primarily to employee pay rate increases and a decrease in unfilled positions, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.8 million due to variabilityacquisition activity in the timing and severity of major repairs, an increase in employee benefits expenses of $1.4 million due to increased severity of medical claims, an increase in taxes on revenues of $3.0 million resulting from the aforementioned increase in revenues, an increase in third-party trucking and transportation expenses of $2.6 million due to increased disposal volumes that require transportation to our landfills, an increase in fuel expense of $0.5 million due to increases in the market price of diesel fuel and $0.2 million of other net expense increases.
Segment EBITDA in our E&P segment increased $19.0 million, or 212.6%, to $27.9 million for the three months ended September 30, 2017, from $8.9 million for the three months ended September 30, 2016. The increase was due primarily to an increase in revenues of $24.1 million and a decrease in corporate overhead expense allocations of $0.4 million due primarily to a decrease in budgeted revenues, which is the basis upon which overhead allocations are calculated, partially offset by the following increases attributable to higher disposal volumes in the current period: an increase in equipment and facility maintenance and repair expenses of $1.7 million; an increase in third party trucking expenses of $1.0 million; an increase in taxes on revenues of $0.6 million; an increase in direct labor expenses of $0.5 million, an increase in equipment rental expenses of $0.5 million and $1.2 million of other expense increases.
Segment EBITDA in our E&P segment increased $41.5 million, or 189.3%, to $63.5 million for the nine months ended September 30, 2017, from $22.0 million for the nine months ended September 30, 2016. The increase was due primarily to an increase in revenues of $48.9 million and a decrease in corporate overhead expense allocations of $1.6 million due primarily to a decrease in budgeted revenues, which is the basis upon which overhead allocations are calculated, partially offset by the following increases attributable to higher disposal volumes in the current period: an increase in equipment and facility maintenance and repair expenses of $3.1 million; an increase in equipment rental expenses of $1.4 million; an increase in taxes on revenues of $1.3 million; an increase in third party trucking expenses of $1.2 million; an increase in processing cell remediation expenses of $1.1 million and $0.9 million of other expense increases.
comparable periods.
Segment EBITDA at Corporate increased $12.5decreased $0.9 million, to a loss of $5.8$7.2 million for the threesix months ended SeptemberJune 30, 2017,2021, from a loss of $18.3$6.3 million for the threesix months ended SeptemberJune 30, 2016.2020. The decrease in the loss was due to a decrease of $7.4 million in integration-related professional fees and severance-related expenses incurred in the prior year period for Progressive Waste personnel who were not permanently retained as employees of New Waste Connections following the close of the Progressive Waste acquisition, an increase in corporate overhead allocated to our segments of $5.6 million due to an increase in total corporate expenses to support the operations acquired in the Progressive Waste acquisition, a decrease of $5.3 million resulting from the nonrecurring prior year accrual of incentive compensation expenses to certain of our executive officers and key employees related to the achievement of defined synergy goals realized by New Waste Connections from the Progressive Waste acquisition and a decrease in share-based compensation expenses of $2.1 million due to less outstanding shares in the current period for equity awards accounted for as liabilities that were granted to employees of Progressive Waste prior to June 1, 2016 which are subject to valuation adjustments each period based on changes in fair value, partially offset by an increase in accrued recurring cash incentive compensation expense to our management of $2.0$8.8 million, due to the achievement of interim financial targets during the three months ended September 30, 2017, an increase in direct acquisition costs of $1.8 million resulting from an increase in acquisition activity and legal costs incurred related to divested operations, an increase in equity-based compensation expenses of $1.6 million associated with our annual recurring grant of restricted share units to our personnel, an increase in payroll and employee benefits expenses of $1.2 million due to increased corporate headcount to support the operations of Progressive Waste and annual compensation increases, an increase in software license fees of $0.6 million to support our new payroll processing application, an increase in corporate travel, meetings and training expenses of $0.5 million resulting primarily from the integration of employees of Progressive Waste into New Waste Connections and $0.2 million of other net expense increases.
Segment EBITDA at Corporate increased $70.2 million, to a loss of $32.5 million for the nine months ended September 30, 2017, from a loss of $102.7 million for the nine months ended September 30, 2016. The decrease in the loss was due to an increase in corporate overhead allocated to our segments of $29.5 million due to an increase in total corporate expenses to support the operations acquired in the Progressive Waste acquisition, a decrease in direct acquisition costs of $27.9 million resulting from amounts incurred in the prior year period related to the Progressive Waste acquisition, a decrease of $21.7 million in integration-related professional fees and severance-related expenses incurred in the prior year period for Progressive Waste personnel who were not permanently retained as employees of New Waste Connections following the close of the Progressive Waste acquisition, a decrease of $14.5 million from New Waste Connections paying excise taxes in the prior year period on the unvested or vested and undistributed equity-compensation holdings of our corporate officers and members of our Board of Directors resulting from the Progressive Waste acquisition, a decrease of $5.3 million resulting from the nonrecurring prior year accrual of incentive compensation expenses to certain of our executive officers and key employees related to the achievement of defined synergy goals realized by New Waste Connections from the Progressive Waste acquisition, a decrease in share-based compensation expenses of $4.9 million related to awards granted to employees of Progressive Waste prior to June 1, 2016 for which vesting was accelerated in the prior year period due to plan provisions regarding a change in control followed by termination of employment and resulting from less outstanding shares in the current period which are subject to valuation adjustments each period based on changes in fair value and a decrease in equity-based compensation expenses of $2.3 million resulting from the acceleration of vesting in the prior year period of performance share units granted to Old Waste Connections’ management in 2014 and 2015, partially offset by an increase in accrued recurring cash incentive compensation expense to our management of $9.5 million due to the achievement of interim financial targets during the nine months ended September 30, 2017 and the addition of accrued cash incentive compensation expense for the retained Progressive Waste employees, an increase in legal, accounting and information technology professional fee expenses of $5.4 million due to increased support required as a result of growth from the Progressive Waste acquisition, an increase in payroll and employee benefits expenses of $4.9 million due to increased corporate headcount to support the operations of Progressive Waste and annual compensation increases, an increase in equity-based compensation expenses of $3.6 million associated with our annual recurring grant of restricted share units to our personnel, an increase in corporate travel, meetings and training expenses of $3.3 million resulting from the integration of employees of Progressive Waste into New Waste Connections, an increase in software license fees of $3.0 million to support our new payroll processing application and computer applications acquired in the Progressive Waste acquisition, an increase in employee relocation expenses of $2.1 million associated with corporate personnel added to support the additional administrative oversight resulting from the Progressive Waste acquisition, an increase in deferred compensation expenseexpenses of $1.4$4.2 million resulting from deferred compensation liabilities to employees increasing as a result of increases in the market value of investments to which employee deferred compensation liability balances are tracked, an increase in equity-based compensation expenses of $2.0 million associated with the net impact of current and $2.7prior period adjustments of our common shares held in our deferred compensation plan by certain key executives to fair value as a result of the shares being exchanged for other investment options, an increase in equity-based compensation expenses of $1.8 million resulting primarily from adjustments to the amount of performance-based restricted share units granted in 2019 and 2020 that are estimated to ultimately vest based on the achievement of required financial performance results, an increase in professional fees of $1.1 million due primarily to increased expenses
52
associated with professional tax services, an increase in administrative payroll expenses of $1.0 million due primarily to annual pay increases and $0.6 million of other net expense increases.
increases, partially offset by an increase in corporate overhead allocated through charges to our segments of $18.6 million due to an increase in expenses qualifying for allocation.
LIQUIDITY AND CAPITAL RESOURCES
The following table sets forth certain cash flow information for thenine month periods six months ended SeptemberJune 30, 20172021 and 20162020 (in thousands of U.S. dollars):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net cash provided by operating activities | $ | 888,375 | $ | 538,831 | ||||
Net cash used in investing activities | (683,562 | ) | (153,047 | ) | ||||
Net cash provided by (used in) financing activities | 135,159 | (276,940 | ) | |||||
Effect of exchange rate changes on cash and equivalents | 927 | (483 | ) | |||||
Net increase in cash and equivalents | 340,899 | 108,361 | ||||||
Cash and equivalents at beginning of period | 154,382 | 10,974 | ||||||
Less: change in cash held for sale | (27 | ) | - | |||||
Cash and equivalents at end of period | $ | 495,254 | $ | 119,335 |
| | | | | | | |
|
| Six Months Ended |
| ||||
| | June 30, | | ||||
| | 2021 |
| 2020 | | ||
Net cash provided by operating activities | | $ | 848,478 | | $ | 753,185 | |
Net cash used in investing activities | |
| (332,794) | |
| (359,956) | |
Net cash provided by (used in) financing activities | |
| (393,184) | |
| 67,515 | |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | |
| 873 | |
| (541) | |
Net increase in cash, cash equivalents and restricted cash | |
| 123,373 | |
| 460,203 | |
Cash, cash equivalents and restricted cash at beginning of period | |
| 714,389 | | | 423,221 | |
Cash, cash equivalents and restricted cash at end of period | | $ | 837,762 | | $ | 883,424 | |
Operating Activities Cash Flows
For the ninesix months ended SeptemberJune 30, 2017,2021, net cash provided by operating activities was $888.4$848.5 million. For the ninesix months ended SeptemberJune 30, 2016,2020, net cash provided by operating activities was $538.8$753.2 million. The $349.6$95.3 million increase was due primarily to the following:
1) |
2) | Deferred income taxes — Our increase in net cash provided by operating activities was favorably impacted by $70.3 million from deferred income taxes as changes in deferred income taxes resulted in an increase to operating cash flows of $3.5 million for the six months ended June 30, 2021, compared to a decrease to operating cash flows of $66.8 million for the six months ended June 30, 2020. The decrease in deferred taxes in the prior year period was attributable to the impairment of |
3) |
4) |
53
5) | Deferred revenue — Our increase in net cash provided by operating activities was favorably impacted by $12.6 million from deferred revenue as changes in deferred revenue resulted in an increase to operating cash flows of $14.5 million for the six months ended June 30, 2021, compared to an increase to operating cash flows of $1.9 million for the six months ended June 30, 2020. During the six months ended June 30, 2021, deferred revenue increased due to price increases on our advanced billed residential and |
As of SeptemberJune 30, 2017,2021, we had a working capital surplus of $373.2$414.2 million, including cash and equivalents of $495.3$727.4 million. Our working capital surplus increased $322.0$34.6 million from a working capital surplus of $51.2$379.6 million at December 31, 2016,2020 including cash and equivalents of $154.4$617.3 million, due primarily to the impact of increases in cash balances and accounts receivable being partially offset by deceased prepaid income taxes, increased cash balances.accounts payable and increased deferred revenue. To date, we have experienced no loss or lack of access to our cash or cashand 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 share repurchase and dividend programs, to reduce the unhedged portion of our indebtedness under our Credit Agreement and to minimize our cash balances.
Investing Activities Cash Flows
Net cash used in investing activities increased $530.6decreased $27.2 million to $683.6$332.8 million for the ninesix months ended SeptemberJune 30, 2017,2021, from $153.0$360.0 million for the ninesix months ended SeptemberJune 30, 2016.2020. The significant components of the decrease included the following:
1) |
2) |
3) |
Total consideration for the June 2016 Progressive Waste acquisition consisted of the issuance of common shares and assumption of Progressive Waste’s debt and other liabilities. We did not transfer cash consideration to the former shareholders of Progressive Waste. Progressive Waste had cash balances totaling $65.7 million, which we acquired upon the close of the Progressive Waste acquisition.
The increase in capital expenditures for property and equipment was due primarily to increases in expenditures resulting from the January 2017 acquisition of Groot, the June 2016 Progressive Waste acquisition, additional heavy equipment to support volume increases in our landfill operations and increased spending on information technology to support our Progressive Waste acquisition.
Financing Activities Cash Flows
Net cash fromused in financing activities increased $412.1$460.7 million to net cash used in financing activities of $393.2 million for the six months ended June 30, 2021, from net cash provided by financing activities of $135.2$67.5 million for the ninesix months ended SeptemberJune 30, 2017, from net cash used in financing activities of $276.9 million for the nine months ended September 30, 2016.2020. The significant components of the increase included the following:
1) | An increase |
2) | An increase in payments to repurchase our common shares of |
3) |
An increase in cash dividends paid of |
54
4) | A decrease in debt issuance costs of $11.0 million due to the prior year period including costs incurred for the |
5) | A decrease in tax withholdings related to net share settlements of |
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.
On July 24, 2017,23, 2020, our Board of Directors approved, subject to receipt of regulatory approvals, the annual renewal of our normal course issuer bid, (the “NCIB”)or the NCIB, to purchase up to 13,181,80613,144,773 of our common shares during the period of August 8, 201710, 2020 to August 7, 20189, 2021 or until such earlier time as the NCIB is completed or terminated at our option. The renewal followed on the conclusion of our original NCIB that expired August 7, 2017 under which no shares were repurchased. We received TSX approval for our annual renewal of the NCIB on August 2, 2017. Under the NCIB, we may make share repurchases only in the open market, including on the NYSE, the TSX, and/or alternative Canadian trading systems, at the prevailing market price at the time of the transaction.
In accordance with TSX rules, any daily repurchases made through the TSX and alternative Canadian trading systems would be limited to a maximum of 80,287 common shares, which represents 25% of the average daily trading volume on the TSX of 321,151 common shares for the period from February 1, 2017 to July 31, 2017. The TSX rules also allow us to purchase, once a week, a block of common shares not owned by any insiders, which may exceed such daily limit. The maximum number of shares that can be purchased per day on the NYSE will be 25% of the average daily trading volume for the four calendar weeks preceding the date of purchase, subject to certain exceptions for block purchases. Shareholders may obtain a copy of our TSX Form 12 – Notice of Intention to Make a Normal Course Issuer Bid, without charge, by request directed to our Executive Vice President – Financeand Chief Financial Officer at (832) 442-2200.
The timing and amounts of any repurchases pursuant to the NCIB will depend on many factors, including our capital structure, the market price of theour common shares and overall market conditions. All common shares purchased under the NCIB shallwill be immediately cancelled following their repurchase.
For Information regarding our NCIB can be found under the nine months ended September 30, 2017, we did not repurchase any common shares pursuant“Shareholders’ Equity” section in Note 17 to the NCIB. For the nine months ended September 30, 2016, we did not repurchase any common shares pursuant to the NCIB, nor did Old Waste Connections repurchase sharesCondensed Consolidated Financial Statements included in Part I, Item 1 of its common stock pursuant to its share repurchase program.this Quarterly Report on Form 10-Q and is incorporated herein by reference.
TheOn July 27, 2021, our Board of Directors approved, subject to receipt of Old Waste Connectionsregulatory approvals, the annual renewal of our NCIB. The renewal is expected to commence following the conclusion of our current NCIB expiring August 9, 2021. Upon approval, we anticipate that we will be authorized to make purchases during the period of August 10, 2021 to August 9, 2022 or until such earlier time as the NCIB is completed or terminated at our option.
Our Board of Directors authorized the initiation of a quarterly cash dividend in October 2010 and has increased it on an annual basis. In October 2016,2020, our Board of Directors authorized an increase to our regular quarterly cash dividend of $0.023,$0.02, from $0.097$0.185 to $0.12$0.205 per share. Cash dividends of $95.2$107.3 million and $61.0$96.9 million were paid during the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively. We cannot assure you as to the amounts or timing of future dividends.
We made $317.4$271.4 million in capital expenditures for property and equipment during the ninesix months ended SeptemberJune 30, 2017. We2021, and we expect to make total capital expenditures for property and equipment of approximately $460$675 million in 2017 in connection with our existing business.2021. We have funded and intend to fund the balance of our planned 20172021 capital expenditures principally through cash on hand, internally generated funds and borrowings under our Credit Agreement and 2021 Credit Agreement. In addition, we may make substantial additional capital expenditures in acquiring municipalland and solid waste 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, 2021 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 2021 Credit Agreement or raise other capital. Our access to funds under the 2021 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.
As of SeptemberJune 30, 2017, $1.638 billion2021, $650.0 million under the term loan and $218.8$505.0 million under the revolving credit facility were outstanding under our Credit Agreement, exclusive of outstanding standby letters of credit of $221.6$114.4 million. We also have issued $7.2 million of letters of credit at June 30, 2021 under facilities other than the Credit Agreement. Our 2021 Credit Agreement matures in June 2021.July 2026.
We are a well-known seasoned issuer. In the future, we may issue debt securities under a shelf registration statement on Form S-3 filed with the SEC or in private placements from time to time on an opportunistic basis, based on market conditions and available pricing. Unless otherwise indicated in the relevant offering documents, we expect to use the
55
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.
As of SeptemberJune 30, 2017,2021, we had the following contractual obligations:
Payments Due by Period | |||||||||||||||||||||||||||||||||||
(amounts in thousands of U.S. dollars) | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | Payments Due by Period | |||||||||||||||||||||||||||||||||
| | (amounts in thousands of U.S. dollars) | |||||||||||||||||||||||||||||||||
|
| |
| Less Than |
| 1 to 3 |
| | |
| Over 5 | ||||||||||||||||||||||||
Recorded Obligations | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | Over 5 Years | | Total | | 1 Year | | Years | | 3 to 5 Years | | Years | ||||||||||||||||||||
Long-term debt | $ | 3,953,167 | $ | 11,596 | $ | 178,215 | $ | 2,327,182 | $ | 1,436,174 | | $ | 4,794,597 | | $ | 6,997 | | $ | 485,555 | | $ | 785,862 | | $ | 3,516,183 | ||||||||||
Cash interest payments | $ | 555,782 | $ | 110,947 | $ | 213,674 | $ | 121,143 | $ | 110,018 | | $ | 1,161,549 | | $ | 157,787 | | $ | 256,005 | | $ | 201,506 | | $ | 546,251 | ||||||||||
Contingent consideration | $ | 64,813 | $ | 15,227 | $ | 7,369 | $ | 7,431 | $ | 34,786 | | $ | 87,497 | | $ | 43,359 | | $ | 5,724 | | $ | 3,224 | | $ | 35,190 | ||||||||||
Operating leases | | $ | 209,257 | | $ | 19,643 | | $ | 69,618 | | $ | 43,342 | | $ | 76,654 | ||||||||||||||||||||
Final capping, closure and post-closure | $ | 1,356,474 | $ | 16,164 | $ | 21,315 | $ | 18,480 | $ | 1,300,515 | | $ | 1,481,936 | | $ | 16,306 | | $ | 41,295 | | $ | 9,525 | | $ | 1,414,810 |
____________________
Long-term debt payments include:
1) | $ |
2) | $ |
3) |
$125.0 million in principal payments due 2022 related to our 2022 Senior Notes. |
$200.0 million in principal payments due 2023 related to our 2023 Senior Notes. |
$150.0 million in principal payments due 2024 related to our 2024 Senior Notes. |
$375.0 million in principal payments due 2025 related to our 2025 Senior Notes. |
$400.0 million in principal payments due 2026 related to our 2026 Senior Notes. |
$250.0 million in principal payments due 2027 related to our 2027 Senior Notes. |
9) | $500.0 million in principal payments due 2028 related to our 2028 Senior Notes. The 2028 Senior Notes bear interest at a rate of 4.25%. |
56
10) | $500.0 million in principal payments due 2029 related to our 2029 Senior Notes. The 2029 Senior Notes bear interest at a rate of 3.50%. |
11) | $600.0 million in principal payments due 2030 related to our 2030 Senior Notes. The 2030 Senior Notes bear interest at a rate of 2.60%. |
12) | $500.0 million in principal payments due 2050 related to our 2050 Senior Notes. The 2050 Senior Notes bear interest at a rate of 3.05%. |
13) | $ |
14) | $9.4 million in principal payments related to our financing leases. Our financing leases bear interest at a rate of 1.89% at June 30, 2021, and have a lease expiration date of 2026. |
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, the base rate plus the applicable base rate margin, the Canadian Dollar Offered Rate plus the applicable acceptance fee and the Canadian prime rate plus the applicable |
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 $45.0$68.0 million recorded as liabilities in our Condensed Consolidated Financial Statements at SeptemberJune 30, 2017,2021, and $19.8$19.5 million of future interest accretion on the recorded obligations.
We are party to operating lease agreements and finance leases. These lease agreements are established in the ordinary course of our business and are designed to provide us with access to facilities and equipment at competitive, market-driven prices.
The estimated final capping, closure and post-closure expenditures presented above are in current dollars.
Amount of Commitment Expiration Per Period | |||||||||||||||||||||||||||||||||||
(amounts in thousands of U.S. dollars) | |||||||||||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | ||||||||||||||||||||
| | Amount of Commitment Expiration Per Period | |||||||||||||||||||||||||||||||||
| | (amounts in thousands of U.S. dollars) | |||||||||||||||||||||||||||||||||
| | | | | Less Than | | 1 to 3 | | 3 to 5 | | Over 5 | ||||||||||||||||||||||||
Unrecorded Obligations(1) | Total | Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | Over 5 Years |
| Total |
| 1 Year |
| Years |
| Years |
| Years | ||||||||||||||||||||
Operating leases | $ | 174,549 | $ | 28,433 | $ | 42,381 | $ | 29,690 | $ | 74,045 | |||||||||||||||||||||||||
Unconditional purchase obligations | $ | 41,799 | $ | 38,044 | $ | 3,755 | $ | - | $ | - | | $ | 93,547 | | $ | 69,644 | | $ | 23,903 | | $ | — | | $ | — |
____________________
(1) | We are party to |
We have obtained financial surety bonds, primarily to support our financial assurance needs and landfill and E&P operations. We provided customers and various regulatory authorities with surety bonds in the aggregate amounts of approximately $886.0 million$1.255 billion and $862.7 million$1.210 billion at SeptemberJune 30, 20172021 and December 31, 2016,2020, respectively. These arrangements have not materially affected our financial position, results of operations or liquidity during the ninesix months
57
ended SeptemberJune 30, 2017,2021, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.
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.
The disposal tonnage that we received in the ninesix month periods ended SeptemberJune 30, 20172021 and 2016,2020, at all of our landfills during the respective period, is shown below (tons in thousands):
Nine months ended September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Number of Sites | Total Tons | Number of Sites | Total Tons | |||||||||||||
Owned operational landfills and landfills operated under life-of-site agreements | 86 | 30,832 | 88 | 22,955 | ||||||||||||
Operated landfills | 6 | 1,876 | 6 | 427 | ||||||||||||
92 | 32,708 | 94 | 23,382 |
| | | | | | | | |
| | Six Months Ended June 30, | ||||||
| | 2021 | | 2020 | ||||
|
| Number |
| Total |
| Number |
| Total |
| | of Sites | | Tons | | of Sites | | Tons |
Owned operational landfills and landfills operated under life-of-site agreements |
| 87 |
| 22,622 |
| 88 |
| 21,522 |
Operated landfills |
| 4 |
| 274 |
| 4 |
| 274 |
|
| 91 |
| 22,896 |
| 92 |
| 21,796 |
58
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 or minus change in book overdraft, plus proceeds from disposal of assets, 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 ninesix month periods ended SeptemberJune 30, 20172021 and 2016,2020, are calculated as follows (amounts in thousands of U.S. dollars):
Nine months ended September 30, | ||||||||
2017 | 2016 | |||||||
Net cash provided by operating activities | $ | 888,375 | $ | 538,831 | ||||
Plus: Change in book overdraft | 13,814 | 6,050 | ||||||
Plus: Proceeds from disposal of assets | 25,826 | 3,026 | ||||||
Plus: Excess tax benefit associated with equity-based compensation | - | 5,151 | ||||||
Less: Capital expenditures for property and equipment | (317,385 | ) | (204,934 | ) | ||||
Less: Distributions to noncontrolling interests | - | (3 | ) | |||||
Adjustments: | ||||||||
Payment of contingent consideration recorded in earnings (a) | - | 413 | ||||||
Cash received for divestitures (b) | (21,100 | ) | - | |||||
Transaction-related expenses (c) | 4,418 | 41,748 | ||||||
Integration-related and other expenses (d) | 7,968 | 78,521 | ||||||
Pre-existing Progressive Waste share-based grants (e) | 11,740 | - | ||||||
Synergy bonus (f) | 11,798 | - | ||||||
Tax effect (g) | (11,426 | ) | (28,537 | ) | ||||
Adjusted free cash flow | $ | 614,028 | $ | 440,266 |
| | | | | | | |
| | Six Months Ended | | ||||
| | June 30, | | ||||
|
| 2021 |
| 2020 |
| ||
Net cash provided by operating activities | | $ | 848,478 | | $ | 753,185 | |
Less: Change in book overdraft | |
| (190) | |
| (606) | |
Plus: Proceeds from disposal of assets | |
| 7,906 | |
| 10,642 | |
Less: Capital expenditures for property and equipment | |
| (271,392) | |
| (268,711) | |
Adjustments: | |
| | |
| | |
Payment of contingent consideration recorded in earnings (a) | |
| 520 | |
| — | |
Cash received for divestitures (b) | |
| — | |
| (4,974) | |
Transaction-related expenses (c) | |
| 583 | |
| 2,162 | |
Pre-existing Progressive Waste share-based grants (d) | |
| 144 | |
| 6,440 | |
Tax effect (e) | |
| (214) | |
| (3,569) | |
Adjusted free cash flow | | $ | 585,835 | | $ | 494,569 | |
____________________
(a) | Reflects the addback of acquisition-related payments for contingent consideration that were recorded as expenses in earnings and as a component of cash flows from operating activities as the amounts paid exceeded the fair value of the contingent consideration recorded at the acquisition date. |
(b) | Reflects the elimination of cash received in conjunction with the divestiture of |
(c) | Reflects the addback of acquisition-related transaction |
(d) |
Reflects the cash settlement of pre-existing Progressive Waste share-based awards during the period. |
(e) |
The aggregate tax effect of footnotes (a) through |
59
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) attributable to Waste Connections, plus or minus net income (loss) attributable to noncontrolling interests, plus or minus income tax provision (benefit), plus interest expense, less interest income, 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, plus foreign currency transaction loss, less foreign currency transaction gain.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 three and ninesix month periods ended SeptemberJune 30, 20172021 and 2016,2020, are calculated as follows (amounts in thousands of U.S. dollars):
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income attributable to Waste Connections | $ | 123,227 | $ | 88,617 | $ | 261,732 | $ | 160,948 | ||||||||
Plus: Net income attributable to noncontrolling interests | 183 | 264 | 559 | 670 | ||||||||||||
Plus: Income tax provision | 64,390 | 42,485 | 100,220 | 86,750 | ||||||||||||
Plus: Interest expense | 32,471 | 27,621 | 92,763 | 65,291 | ||||||||||||
Less: Interest income | (1,656 | ) | (171 | ) | (3,131 | ) | (447 | ) | ||||||||
Plus: Depreciation and amortization | 163,554 | 152,688 | 471,894 | 319,707 | ||||||||||||
Plus: Closure and post-closure accretion | 2,971 | 3,034 | 8,805 | 5,908 | ||||||||||||
Plus: Impairments and other operating items | 832 | 7,682 | 141,333 | 4,634 | ||||||||||||
Plus/less: Other expense (income), net | (1,709 | ) | (500 | ) | (3,561 | ) | 268 | |||||||||
Plus/less: Foreign currency transaction loss (gain) | 1,864 | 350 | 3,502 | (339 | ) | |||||||||||
Adjustments: | ||||||||||||||||
Plus: Transaction-related expenses (a) | 1,958 | 310 | 4,418 | 46,827 | ||||||||||||
Plus: Pre-existing Progressive Waste share-based grants (b) | 2,369 | 4,466 | 12,947 | 9,823 | ||||||||||||
Plus: Integration-related and other expenses (c) | 2,922 | 10,178 | 8,344 | 40,300 | ||||||||||||
Plus: Synergy bonus (d) | - | 5,300 | - | 5,300 | ||||||||||||
Adjusted EBITDA | $ | 393,376 | $ | 342,324 | $ | 1,099,825 | $ | 745,640 |
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Net income (loss) attributable to Waste Connections | | $ | 177,047 | | $ | (227,072) | | $ | 337,356 | | $ | (84,037) | |
Plus (less): Net income (loss) attributable to noncontrolling interests | |
| 54 | |
| (395) | |
| 52 | |
| (536) | |
Plus (less): Income tax provision (benefit) | |
| 47,868 | |
| (38,737) | |
| 88,159 | |
| (10,003) | |
Plus: Interest expense | |
| 41,328 | |
| 40,936 | |
| 83,753 | |
| 78,926 | |
Less: Interest income | |
| (744) | |
| (1,317) | |
| (1,848) | |
| (3,493) | |
Plus: Depreciation and amortization | |
| 201,928 | |
| 183,001 | |
| 391,523 | |
| 365,460 | |
Plus: Closure and post-closure accretion | |
| 3,666 | |
| 3,709 | |
| 7,375 | |
| 7,617 | |
Plus: Impairments and other operating items | |
| 6,081 | |
| 437,270 | |
| 6,715 | |
| 438,777 | |
Plus (less): Other expense (income), net | |
| 1,235 | |
| (5,772) | |
| (2,312) | |
| 3,749 | |
Adjustments: | |
| | |
| | |
| | |
| | |
Plus: Transaction-related expenses (a) | |
| 57 | |
| 1,016 | |
| 583 | |
| 2,162 | |
Plus: Fair value changes to equity awards (b) | |
| 6,385 | |
| 1,683 | | | 6,723 | |
| 4,223 | |
Adjusted EBITDA | | $ | 484,905 | | $ | 394,322 | | $ | 918,079 | | $ | 802,845 | |
____________________
(a) | Reflects the addback of acquisition-related transaction |
(b) | Reflects |
60
Adjusted Net Income Attributable to Waste Connections and Adjusted Net Income per Diluted Share
Attributable to Waste Connections
We present adjusted net income attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections, 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 attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We provide adjusted net income attributable to Waste Connections to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income attributable to Waste Connections 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 attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate these non-GAAP financial measures differently. Our adjusted net income attributable to Waste Connections and adjusted net income per diluted share attributable to Waste Connections for the three and ninesix month periods ended SeptemberJune 30, 20172021 and 2016,2020, are calculated as follows (amounts in thousands of U.S. dollars, except per share amounts):
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Reported net income attributable to Waste Connections | $ | 123,227 | $ | 88,617 | $ | 261,732 | $ | 160,948 | ||||||||
Adjustments: | ||||||||||||||||
Amortization of intangibles (a) | 26,613 | 26,944 | 76,886 | 48,719 | ||||||||||||
Impairments and other operating items (b) | 832 | 7,682 | 141,333 | 4,634 | ||||||||||||
Transaction-related expenses (c) | 1,958 | 310 | 4,418 | 46,827 | ||||||||||||
Pre-existing Progressive Waste share-based grants (d) | 2,369 | 4,466 | 12,947 | 9,823 | ||||||||||||
Integration-related and other expenses (e) | 2,922 | 10,178 | 8,344 | 40,300 | ||||||||||||
Synergy bonus (f) | - | 5,300 | - | 5,300 | ||||||||||||
Tax effect (g) | (3,575 | ) | (19,001 | ) | (75,828 | ) | (43,630 | ) | ||||||||
Impact of deferred tax adjustment (h) | 3,787 | 1,964 | 3,787 | 1,964 | ||||||||||||
Adjusted net income attributable to Waste Connections | $ | 158,133 | $ | 126,460 | $ | 433,619 | $ | 274,885 | ||||||||
Diluted earnings per common share attributable to Waste Connections’ common shareholders: | ||||||||||||||||
Reported net income | $ | 0.47 | $ | 0.34 | $ | 0.99 | $ | 0.73 | ||||||||
Adjusted net income | $ | 0.60 | $ | 0.48 | $ | 1.64 | $ | 1.25 |
| | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| ||||
Reported net income (loss) attributable to Waste Connections | | $ | 177,047 | | $ | (227,072) | | $ | 337,356 | | $ | (84,037) | |
Adjustments: | |
| | |
| | |
| | |
| | |
Amortization of intangibles (a) | |
| 32,707 | |
| 31,771 | |
| 64,899 | |
| 63,409 | |
Impairments and other operating items (b) | |
| 6,081 | |
| 437,270 | |
| 6,715 | |
| 438,777 | |
Transaction-related expenses (c) | |
| 57 | |
| 1,016 | |
| 583 | |
| 2,162 | |
Fair value changes to equity awards (d) | |
| 6,385 | |
| 1,683 | |
| 6,723 | |
| 4,223 | |
Tax effect (e) | |
| (11,393) | |
| (118,220) | |
| (19,935) | |
| (127,523) | |
Tax items (f) | |
| — | |
| 31,508 | |
| — | |
| 31,508 | |
Adjusted net income attributable to Waste Connections | | $ | 210,884 | | $ | 157,956 | | $ | 396,341 | | $ | 328,519 | |
| | | | | | | | | | | | | |
Diluted earnings (loss) per common share attributable to Waste Connections’ common shareholders: | |
|
| |
|
| |
| | |
|
| |
Reported net income (loss) | | $ | 0.68 | | $ | (0.86) | | $ | 1.29 | | $ | (0.32) | |
Adjusted net income | | $ | 0.81 | | $ | 0.60 | | $ | 1.51 | | $ | 1.25 | |
| | | | | | | | | | | | | |
Shares used in the per share calculations: | |
|
| |
| | |
|
| |
| | |
Reported diluted shares | |
| 261,418,573 | |
| 262,994,275 | |
| 262,269,600 | |
| 263,390,685 | |
Adjusted diluted shares (g) | |
| 261,418,573 | |
| 263,317,054 | |
| 262,269,600 | |
| 263,833,471 | |
____________________
(a) | Reflects the elimination of the non-cash amortization of acquisition-related intangible |
(b) | Reflects the addback of impairments and other operating items. |
(c) | Reflects the addback of acquisition-related transaction |
(d) | Reflects |
(e) |
The aggregate tax effect of the adjustments in footnotes (a) through |
(f) | Reflects |
(g) | Reflects reported diluted shares adjusted for shares that were excluded from the |
61
INFLATION
Other than volatility inIn the current environment, we have seen inflationary pressures resulting from higher fuel prices and labor costs in certain markets inflation has not materially affected our operationsand higher resulting third party costs in recent years.areas such as brokerage, repairs and construction. 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. To the extent that there are decreases in fuel costs, in some cases, a portion of these reductions are passed through to customers in the form of lower fuel and material surcharges. 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 certain of our contracts, particularly amid the economic impact of the COVID-19 pandemic, may require us to absorb at least part of these cost increases, especially if cost increases exceed the average rate of inflation. Management'sManagement’s estimates associated with inflation have an impact on our accounting for landfill liabilities.
SEASONALITY
WeBased on historic trends, excluding any impact from the COVID-19 pandemic or an economic recession, we would 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 Canada and 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 10%. 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.
Item 3.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.commodities, and to a lesser extent, foreign currency exchange rate risks. 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.non-performance under current market conditions. 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 SeptemberJune 30, 2017,2021, our derivative instruments included 14six 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 of U.S. dollars):
Date Entered | Notional Amount | Fixed Interest Rate Paid* | Variable Interest Rate Received | Effective Date | Expiration Date | |||||||||
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 | |||||||
April 2016 | $ | 100,000 | 1.000 | % | 1-month LIBOR | February 2017 | February 2020 | |||||||
June 2016 | $ | 75,000 | 0.850 | % | 1-month LIBOR | February 2017 | February 2020 | |||||||
June 2016 | $ | 150,000 | 0.950 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
June 2016 | $ | 150,000 | 0.950 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
July 2016 | $ | 50,000 | 0.900 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
July 2016 | $ | 50,000 | 0.890 | % | 1-month LIBOR | January 2018 | January 2021 | |||||||
August 2017 | $ | 100,000 | 1.900 | % | 1-month LIBOR | July 2019 | July 2022 | |||||||
August 2017 | $ | 200,000 | 2.200 | % | 1-month LIBOR | October 2020 | October 2025 | |||||||
August 2017 | $ | 150,000 | 1.950 | % | 1-month LIBOR | February 2020 | February 2023 |
| | | | | | | | | | | |
|
| | |
| Fixed |
| Variable |
| |
| |
| | Notional | | Interest | | Interest Rate | | | | Expiration | |
Date Entered | | Amount | | Rate Paid* | | Received | | Effective Date | | Date | |
August 2017 | | $ | 100,000 |
| 1.900 | % | 1-month LIBOR |
| July 2019 |
| July 2022 |
August 2017 | | $ | 200,000 |
| 2.200 | % | 1-month LIBOR |
| October 2020 |
| October 2025 |
August 2017 | | $ | 150,000 |
| 1.950 | % | 1-month LIBOR |
| February 2020 |
| February 2023 |
June 2018 | | $ | 200,000 | | 2.925 | % | 1-month LIBOR | | October 2020 | | October 2025 |
June 2018 | | $ | 200,000 | | 2.925 | % | 1-month LIBOR | | October 2020 | | October 2025 |
December 2018 | | $ | 200,000 | | 2.850 | % | 1-month LIBOR | | July 2022 | | July 2027 |
____________________
* 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.
62
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 SeptemberJune 30, 20172021 and December 31, 2016,2020, of $1.502 billion$305.0 million and $1.594 billion,$3.7 million, respectively, including floating rate debt under our Credit Agreement and floating rate tax-exempt bond obligations.Agreement. A one percentage point increase in interest rates on our variable-rate debt as of SeptemberJune 30, 20172021 and December 31, 2016,2020, would decrease our annual pre-tax income by approximately $15.0$3.0 million and $15.9$0.1 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 64.0 million gallonsBecause of the volume of fuel per year; therefore,we purchase each year, 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.
purchases, and we also enter into fixed price fuel purchase contracts. At SeptemberJune 30, 2017, our derivative instruments included four2021, we had no fuel hedge agreements in place; however, we have entered into fixed price fuel purchase contracts for 2021 as follows: described below.
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 | $ | 3.2800 | DOE Diesel Fuel Index* | January 2016 | December 2017 | ||||||||
May 2015 | 200,000 | $ | 3.2750 | DOE Diesel Fuel Index* | January 2016 | December 2017 | ||||||||
July 2016 | 500,000 | $ | 2.4988 | DOE Diesel Fuel Index* | January 2017 | December 2017 | ||||||||
July 2016 | 1,000,000 | $ | 2.6345 | DOE Diesel Fuel Index* | January 2018 | December 2018 |
Under derivativesFor the year ending December 31, 2021, we expect to purchase approximately 79.7 million gallons of fuel, of which 40.8 million gallons will be purchased at market prices and hedging guidance, the38.9 million gallons will be purchased under our fixed price 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.
purchase contracts. We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged, market rate 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. ForDuring the year endingsix month period of July 1, 2021 to December 31, 2017,2021, we expect to purchase approximately 64.0 million gallons of fuel, of which 33.2 million gallons will be purchased at market prices, 18.8 million gallons will be purchased under our fixed price fuel purchase contracts and 12.0 million gallons are hedged at a fixed price under our fuel hedge agreements. During the three month period of October 1, 2017 to December 31, 2017, we expect to purchase approximately 8.320.4 million gallons of fuel at market prices; therefore, a $0.10 per gallon increase in the price of fuel over the remaining threesix months in 20172021 would decrease our pre-tax income during this period by approximately $0.8$2.0 million.
We market a variety of recyclable materials, including compost, cardboard, officemixed paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate recycling operations and sell othermarket collected recyclable materials to third parties for processing before resale. ToWhere possible, to reduce our exposure to commodity price risk with respect to recycled materials, we have adopted a pricing strategy of charging collection 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 ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, would have had a $12.4$7.2 million and $5.6$3.7 million impact on revenues for the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, respectively.
We have operations in Canada and, where significant, we have quantified and described the impact of foreign currency translation on components of income, including operating revenue and operating costs. However, the impact of foreign currency has not materially affected our results of operations in 2020 or 2021. A $0.01 change in the Canadian dollar to U.S. dollar exchange rate would impact our annual revenue and EBITDA by approximately $10.5 million and $4.2 million, respectively.
63
Item 4.Controls and Procedures
As required by Rule 13a-15(b) under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the fiscal quarter covered by this Quarterly Report on Form 10-Q. In designing and evaluating the disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on this evaluation, our President and Chief Executive Officer and our Executive Vice President and Chief Financial Officer concluded as of SeptemberJune 30, 2017,2021, that our disclosure controls and procedures were effective 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 President and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
During the quarter ended SeptemberJune 30, 2017,2021, there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
64
PART II – OTHER INFORMATION
Item 1.Legal Proceedings
Information regarding our legal proceedings can be found in Note 1718 of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and is incorporated herein by reference.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
On July 27, 2021, our Board of Directors approved, subject to receipt of regulatory approvals, the annual renewal of our NCIB. The renewal is expected to commence following the conclusion of our current NCIB expiring August 9, 2021. Upon approval, we anticipate that we will be authorized to make purchases during the period of August 10, 2021 to August 9, 2022 or until such earlier time as the NCIB is completed or terminated at our option. Under the NCIB, we may make share repurchases only in the open market, including on the NYSE, the TSX, and/or alternative Canadian trading systems, at the prevailing market price at the time of the transaction. The timing and amounts of any repurchases pursuant to the NCIB will depend on many factors, including our capital structure, the market price of the common shares and overall market conditions. All common shares purchased under the NCIB shall be immediately cancelled following their repurchase. As of June 30, 2021, we have repurchased 2.7 million of our common shares pursuant to the NCIB at an aggregate cost of $305.6 million, or an average price of $111.30 per share. The table below reflects repurchases we made during the three months ended June 30, 2021 (in thousands of U.S. dollars, except share and per share amounts):
| | | | | | | | | |
|
| |
| | |
| Total Number of |
| Maximum Number |
| | | | | | | Shares Purchased | | of Shares that |
| | Total Number | | Average | | as Part of Publicly | | May Yet Be | |
| | of Shares | | Price Paid | | Announced | | Purchased Under | |
Period | | Purchased | | Per Share (1) | | Program | | the Program | |
4/1/21 - 4/30/21 |
| 1,879,806 | | $ | 114.86 |
| 1,879,806 |
| 10,598,783 |
5/1/21 - 5/31/21 |
| 200,000 | | $ | 118.62 |
| 200,000 |
| 10,398,783 |
6/1/21 - 6/30/21 |
| — | | $ | - |
| — |
| 10,398,783 |
|
| 2,079,806 | | $ | 115.22 |
| 2,079,806 | | |
(1) | This amount represents the weighted average price paid per common share. This price includes a per share commission paid for all repurchases. |
65
Item 6.Exhibits
+ Management contract or compensatory plan, contract or arrangement.
66
SIGNATURES
Pursuant to the requirements of the U.S. Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | |
| WASTE CONNECTIONS, INC. | ||
| | ||
Date: | BY: | ||
/s/ Worthing F. Jackman | |||
| | Worthing F. Jackman | |
| | President and Chief Executive Officer | |
| | ||
Date: August 5, 2021 | BY: | /s/ Mary Anne Whitney | |
| | Mary Anne Whitney | |
| | Executive Vice President and |
67