Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ

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

For the quarterly period ended September 30, 2018

Or

¨

For the quarterly period ended September 30, 2019

Or

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

For the transition period from                  to                 

For the transition period from             to

Commission file number 1-34370

Graphic

WASTE CONNECTIONS, INC.

(Exact name of registrant as specified in its charter)

Ontario, Canada

(State or other jurisdiction of incorporation or organization)

98-1202763

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

610 Applewood Crescent, 2nd Floor

Vaughan

OntarioL4K 0E3

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”)
Toronto Stock Exchange (“TSX”)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yesþ No¨

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

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):

þ Large accelerated

filerAccelerated
Filer

¨ Accelerated

filer
Filer

¨ Non-accelerated

filer
Filer

¨ Smaller reporting

companyReporting
Company

¨ Emerging growth

companyGrowth
Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

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

Yes¨ Noþ

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

As of October 22, 2018:    263,506,88018, 2019: 263,676,837 common shares

Table of Contents

WASTE CONNECTIONS, INC.

FORM 10-Q

TABLE OF CONTENTS

Page

Page

PART I – FINANCIAL INFORMATION (unaudited)

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Net Income

2

Condensed Consolidated Statements of Comprehensive Income

3

Condensed Consolidated Statements of Equity

4

Condensed Consolidated Statements of Cash Flows

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

42

38

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

67

65

Item 4.

Controls and Procedures

69

67

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

70

68

Item 6.

Exhibits

70Exhibits

68

Signatures

Signatures72

69

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

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

  

September 30,

2018

  December 31,
2017
 
ASSETS        
Current assets:        
Cash and equivalents $244,389  $433,815 
Accounts receivable, net of allowance for doubtful accounts of $15,305 and $17,154 at September 30, 2018 and December 31, 2017, respectively  625,048   554,458 
Current assets held for sale  794   1,596 
Prepaid expenses and other current assets  152,827   186,999 
Total current assets  1,023,058   1,176,868 
         
Restricted cash  83,399   122,652 
Restricted investments  44,217   44,360 
Property and equipment, net  5,069,767   4,820,934 
Goodwill  4,813,296   4,681,774 
Intangible assets, net  1,069,064   1,087,436 
Long-term assets held for sale  745   12,625 
Other assets, net  88,520   68,032 
  $12,192,066  $12,014,681 
LIABILITIES AND EQUITY        
Current liabilities:        
Accounts payable $331,535  $330,523 
Book overdraft  19,087   19,223 
Accrued liabilities  287,369   278,039 
Deferred revenue  162,965   145,197 
Current portion of contingent consideration  11,612   15,803 
Current liabilities held for sale  928   2,155 
Current portion of long-term debt and notes payable  1,753   11,659 
Total current liabilities  815,249   802,599 
         
Long-term debt and notes payable  3,747,209   3,899,572 
Long-term portion of contingent consideration  43,412   31,482 
Other long-term liabilities  339,817   316,191 
Deferred income taxes  741,300   690,767 
Total liabilities  5,686,987   5,740,611 
         
Commitments and contingencies (Note 18)        
         
Equity:        
Common shares: 263,506,592 shares issued and 263,372,910 shares outstanding at September 30, 2018; 263,660,803 shares issued and 263,494,670 shares outstanding at December 31, 2017  4,147,909   4,187,568 
Additional paid-in capital  124,317   115,743 
Accumulated other comprehensive income  53,203   108,413 
Treasury shares: 133,682 and 166,133 shares at September 30, 2018 and December 31, 2017, respectively  -   - 
Retained earnings  2,174,135   1,856,946 
Total Waste Connections’ equity  6,499,564   6,268,670 
Noncontrolling interest in subsidiaries  5,515   5,400 
Total equity  6,505,079   6,274,070 
  $12,192,066  $12,014,681 

September 30, 

December 31, 

    

2019

    

2018

ASSETS

 

  

 

  

 

Current assets:

 

  

 

  

 

Cash and equivalents

$

303,778

$

319,305

Accounts receivable, net of allowance for doubtful accounts of $15,369 and $16,760 at September 30, 2019 and December 31, 2018, respectively

 

676,676

 

609,545

Prepaid expenses and other current assets

 

124,836

 

164,053

Total current assets

 

1,105,290

 

1,092,903

Restricted cash

92,050

84,661

Restricted investments

 

50,602

 

47,486

Property and equipment, net

 

5,375,166

 

5,168,996

Operating lease right-of-use assets

189,697

Goodwill

 

5,297,556

 

5,031,685

Intangible assets, net

 

1,097,036

 

1,128,628

Other assets, net

 

62,838

 

72,970

Total assets

$

13,270,235

$

12,627,329

LIABILITIES AND EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

428,492

$

359,967

Book overdraft

 

20,429

 

18,518

Accrued liabilities

 

299,139

 

289,544

Current portion of operating lease liabilities

30,162

Current portion of contingent consideration

 

12,393

 

11,612

Deferred revenue

 

200,677

 

179,282

Current portion of long-term debt and notes payable

 

502

 

1,786

Total current liabilities

 

991,794

 

860,709

Long-term portion of debt and notes payable

 

4,039,405

 

4,153,465

Long-term portion of operating lease liabilities

166,347

Long-term portion of contingent consideration

 

44,561

 

43,003

Deferred income taxes

 

800,223

 

760,033

Other long-term liabilities

 

431,565

 

349,931

Total liabilities

 

6,473,895

 

6,167,141

Commitments and contingencies (Note 18)

 

  

 

  

Equity:

 

  

 

  

Common shares: 263,697,618 shares issued and 263,616,104 shares outstanding at September 30, 2019; 263,271,302 shares issued and 263,141,413 shares outstanding at December 31, 2018

 

4,135,343

 

4,131,307

Additional paid-in capital

 

147,188

 

133,577

Accumulated other comprehensive loss

 

(61,228)

 

(74,786)

Treasury shares: 81,514 and 129,889 shares at September 30, 2019 and December 31, 2018, respectively

 

 

Retained earnings

 

2,569,663

 

2,264,510

Total Waste Connections’ equity

 

6,790,966

 

6,454,608

Noncontrolling interest in subsidiaries

 

5,374

 

5,580

Total equity

 

6,796,340

 

6,460,188

$

13,270,235

$

12,627,329

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

1

1

Table of Contents

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

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

  Three months ended September 30,  Nine months ended September 30, 
  2018  2017  2018  2017 
Revenues $1,281,110  $1,206,478  $3,661,209  $3,473,313 
Operating expenses:                
Cost of operations  736,122   695,122   2,120,947   2,024,402 
Selling, general and administrative  139,014   128,200   398,582   383,600 
Depreciation  148,232   136,941   423,866   395,008 
Amortization of intangibles  26,871   26,613   79,444   76,886 
Impairments and other operating items  (1,998)  832   6,106   141,333 
Operating income  232,869   218,770   632,264   452,084 
                 
Interest expense  (32,078)  (32,471)  (96,874)  (92,763)
Interest income  1,467   1,656   3,677   3,131 
Other income, net  732   1,709   2,376   3,561 
Foreign currency transaction loss  (132)  (1,864)  (323)  (3,502)
Income before income tax provision  202,858   187,800   541,120   362,511 
Income tax provision  (52,092)  (64,390)  (126,509)  (100,220)
Net income  150,766   123,410   414,611   262,291 
Plus (Less):  Net loss (income) attributable to noncontrolling interests  77   (183)  (218)  (559)
Net income attributable to Waste Connections $150,843  $123,227  $414,393  $261,732 
Earnings per common share attributable to Waste Connections’ common shareholders:                
Basic $0.57  $0.47  $1.57  $0.99 
Diluted $0.57  $0.47  $1.57  $0.99 
Shares used in the per share calculations:                
Basic  263,628,838   263,443,064   263,657,274   263,298,839 
Diluted  264,394,757   264,299,472   264,376,320   264,109,383 
                 
Cash dividends per common share $0.14  $0.12  $0.42  $0.36 

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2019

    

2018

    

2019

    

2018

    

Revenues

$

1,412,444

$

1,281,110

$

4,026,719

$

3,661,209

Operating expenses:

 

 

 

 

Cost of operations

 

835,098

 

736,122

 

2,384,607

 

2,120,947

Selling, general and administrative

 

137,883

 

139,014

 

410,132

 

398,582

Depreciation

 

157,994

 

148,232

 

461,616

 

423,866

Amortization of intangibles

 

31,934

 

26,871

 

93,821

 

79,444

Impairments and other operating items

 

12,935

 

(1,998)

 

32,949

 

6,106

Operating income

 

236,600

 

232,869

 

643,594

 

632,264

Interest expense

 

(36,780)

 

(32,078)

 

(111,313)

 

(96,874)

Interest income

 

2,056

 

1,467

 

7,186

 

3,677

Other income (expense), net

 

(19)

 

600

 

4,562

 

2,053

Income before income tax provision

 

201,857

 

202,858

 

544,029

 

541,120

Income tax provision

 

(42,783)

 

(52,092)

 

(110,539)

 

(126,509)

Net income

 

159,074

 

150,766

 

433,490

 

414,611

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

 

35

 

77

 

89

 

(218)

Net income attributable to Waste Connections

$

159,109

$

150,843

$

433,579

$

414,393

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

 

  

 

  

 

  

 

  

Basic

$

0.60

$

0.57

$

1.64

$

1.57

Diluted

$

0.60

$

0.57

$

1.64

$

1.57

Shares used in the per share calculations:

 

  

 

 

 

Basic

 

263,853,681

 

263,628,838

 

263,768,258

 

263,657,274

Diluted

 

264,587,456

 

264,394,757

 

264,473,345

 

264,376,320

Cash dividends per common share

$

0.16

$

0.14

$

0.48

$

0.42

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

2

2

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands of U.S. dollars)

  Three months ended September 30,  Nine months ended September 30, 
  2018  2017  2018  2017 
Net income $150,766  $123,410  $414,611  $262,291 
                 
Other comprehensive income (loss), before tax:                
Interest rate swap amounts reclassified into interest expense  4,279   511   2,407   2,352 
Fuel hedge amounts reclassified into cost of operations  (1,810)  789   (4,647)  2,765 
Changes in fair value of interest rate swaps  863   2,181   15,828   305 
Changes in fair value of fuel hedges  295   2,717   2,956   (1,672)
Foreign currency translation adjustment  35,455   84,500   (67,349)  155,153 
Other comprehensive income (loss), before tax  39,082   90,698   (50,805)  158,903 
Income tax expense related to items of other comprehensive income (loss)  (985)  (4,016)  (4,405)  (1,123)
Other comprehensive income (loss), net of tax  38,097   86,682   (55,210)  157,780 
Comprehensive income  188,863   210,092   359,401   420,071 
Plus (Less):  Comprehensive loss (income) attributable to noncontrolling interests  77   (183)  (218)  (559)
Comprehensive income attributable to Waste Connections $188,940  $209,909  $359,183  $419,512 

    

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2019

    

2018

    

2019

    

2018

Net income

$

159,074

$

150,766

$

433,490

$

414,611

Other comprehensive income (loss), before tax:

 

 

 

 

Interest rate swap amounts reclassified into interest expense

 

(1,974)

 

4,279

 

(6,918)

 

2,407

Fuel hedge amounts reclassified into cost of operations

 

 

(1,810)

 

 

(4,647)

Changes in fair value of interest rate swaps

 

(15,482)

 

863

 

(56,818)

 

15,828

Changes in fair value of fuel hedges

 

 

295

 

 

2,956

Foreign currency translation adjustment

 

(24,911)

 

35,455

 

60,404

 

(67,349)

Other comprehensive income (loss), before tax

 

(42,367)

 

39,082

 

(3,332)

 

(50,805)

Income tax (expense) benefit related to items of other comprehensive income (loss)

 

4,626

 

(985)

 

16,890

 

(4,405)

Other comprehensive income (loss), net of tax

 

(37,741)

 

38,097

 

13,558

 

(55,210)

Comprehensive income

 

121,333

 

188,863

 

447,048

 

359,401

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

 

35

 

77

 

89

 

(218)

Comprehensive income attributable to Waste Connections

$

121,368

$

188,940

$

447,137

$

359,183

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

3

3

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2018

(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, 2018

263,141,413

$

4,131,307

$

133,577

$

(74,786)

129,889

$

$

2,264,510

$

5,580

$

6,460,188

Sale of common shares held in trust

 

43,637

 

3,610

 

 

 

(43,637)

 

 

 

 

3,610

Vesting of restricted share units

 

400,555

 

 

 

 

 

 

 

 

Vesting of performance-based restricted share units

 

180,258

 

 

 

 

 

 

 

 

Restricted share units released from deferred compensation plan

 

15,371

 

 

 

 

 

 

 

 

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

 

(202,679)

 

 

(16,974)

 

 

 

 

 

 

(16,974)

Equity-based compensation

 

 

 

11,627

 

 

 

 

 

 

11,627

Exercise of warrants

 

8,690

 

 

 

 

 

 

 

 

Cash dividends on common shares

 

 

 

 

 

 

 

(42,084)

 

 

(42,084)

Amounts reclassified into earnings, net of taxes

 

 

 

 

(1,817)

 

 

 

 

 

(1,817)

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

 

 

 

 

(11,555)

 

 

 

 

 

(11,555)

Foreign currency translation adjustment

 

 

 

 

42,180

 

 

 

 

 

42,180

Cumulative effect adjustment from adoption of new accounting pronouncement

 

 

 

 

 

 

 

(2,078)

 

 

(2,078)

Net income (loss)

 

 

 

 

 

 

 

125,622

 

(45)

 

125,577

Balances at March 31, 2019

 

263,587,245

4,134,917

128,230

(45,978)

 

86,252

2,345,970

5,535

6,568,674

Sale of common shares held in trust

 

973

 

85

 

 

 

(973)

 

 

 

 

85

Vesting of restricted share units

 

6,495

 

 

 

 

 

 

 

 

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

 

(3,081)

 

 

(290)

 

 

 

 

 

 

(290)

Equity-based compensation

 

 

 

10,254

 

 

 

 

 

 

10,254

Exercise of warrants

 

9,607

 

 

 

 

 

 

 

 

Cash dividends on common shares

 

 

 

 

 

 

 

(42,131)

 

 

(42,131)

Amounts reclassified into earnings, net of taxes

 

 

 

 

(1,817)

 

 

 

 

 

(1,817)

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

 

 

 

 

(18,827)

 

 

 

 

 

(18,827)

Foreign currency translation adjustment

 

 

 

 

43,135

 

 

 

 

 

43,135

Distributions to noncontrolling interests

(117)

(117)

Net income (loss)

 

 

 

 

 

 

 

148,848

 

(9)

 

148,839

Balances at June 30, 2019

 

263,601,239

4,135,002

138,194

(23,487)

 

85,279

2,452,687

5,409

6,707,805

Sale of common shares held in trust

 

3,765

 

341

 

 

 

(3,765)

 

 

 

 

341

Vesting of restricted share units

 

6,827

 

 

 

 

 

 

 

 

Restricted share units released from deferred compensation plan

 

1,004

 

 

 

 

 

 

 

 

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

 

(3,501)

 

 

(328)

 

 

 

 

 

 

(328)

Equity-based compensation

 

 

 

9,322

 

 

 

 

 

 

9,322

Exercise of warrants

 

6,770

 

 

 

 

 

 

 

 

Cash dividends on common shares

 

 

 

 

 

 

 

(42,133)

 

 

(42,133)

Amounts reclassified into earnings, net of taxes

 

 

 

 

(1,451)

 

 

 

 

 

(1,451)

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

 

 

 

 

(11,379)

 

 

 

 

 

(11,379)

Foreign currency translation adjustment

 

 

 

 

(24,911)

 

 

 

 

 

(24,911)

Net income (loss)

 

 

 

 

 

 

 

159,109

 

(35)

 

159,074

Balances at September 30, 2019

 

263,616,104

$

4,135,343

$

147,188

$

(61,228)

 

81,514

$

$

2,569,663

$

5,374

$

6,796,340

  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, 2017  263,494,670  $4,187,568  $115,743  $108,413   166,133  $-  $1,856,946  $5,400  $6,274,070 
Sale of common shares held in trust  32,451   2,381   -   -   (32,451)  -   -   -   2,381 
Vesting of restricted share units  480,577   -   -   -   -   -   -   -   - 
Vesting of performance-based restricted share units  154,181   -   -   -   -   -   -   -   - 
Restricted share units released from deferred compensation plan  5,069   -   -   -   -   -   -   -   - 
Tax withholdings related to net share settlements of equity-based compensation  (217,135)  -   (14,976)  -   -   -   -   -   (14,976)
Equity-based compensation  -   -   23,550   -   -   -   -   -   23,550 
Exercise of warrants  17,571   -   -   -   -   -   -   -   - 
Repurchase of common shares  (594,474)  (42,040)  -   -   -   -   -   -   (42,040)
Cash dividends on common shares  -   -   -   -   -   -   (110,447)  -   (110,447)
Amounts reclassified into earnings, net of taxes  -   -   -   (1,721)  -   -   -   -   (1,721)
Changes in fair value of cash flow hedges, net of taxes  -   -   -   13,860   -   -   -   -   13,860 
Foreign currency translation adjustment  -   -   -   (67,349)  -   -   -   -   (67,349)
Cumulative effect adjustment from adoption of new accounting pronouncement  -   -   -   -   -   -   13,243   -   13,243 
Distributions to noncontrolling interests  -   -   -   -   -   -   -   (103)  (103)
Net income  -   -   -   -   -   -   414,393   218   414,611 
Balances at September 30, 2018  263,372,910  $4,147,909  $124,317  $53,203   133,682  $-  $2,174,135  $5,515  $6,505,079 

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

4

4

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       
  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  $111,011  $114,779   197,053  $-  $1,578,635  $5,357  $5,995,240 

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, 2017

 

263,494,670

$

4,187,568

$

115,743

$

108,413

 

166,133

$

$

1,856,946

$

5,400

$

6,274,070

Sale of common shares held in trust

 

26,849

 

1,947

 

 

 

(26,849)

 

 

 

 

1,947

Vesting of restricted share units

 

452,700

 

 

 

 

 

 

 

 

Vesting of performance-based restricted share units

 

154,181

 

 

 

 

 

 

 

 

Restricted share units released from deferred compensation plan

 

114

 

 

 

 

 

 

 

 

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

 

(206,084)

 

 

(14,121)

 

 

 

 

 

 

(14,121)

Equity-based compensation

 

 

 

7,991

 

 

 

 

 

 

7,991

Repurchase of common shares

(594,474)

(42,040)

(42,040)

Cash dividends on common shares

 

 

 

 

 

 

 

(36,814)

 

 

(36,814)

Amounts reclassified into earnings, net of taxes

 

 

 

 

(1,303)

 

 

 

 

 

(1,303)

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

 

 

 

 

9,114

 

 

 

 

 

9,114

Foreign currency translation adjustment

 

 

 

 

(59,330)

 

 

 

 

 

(59,330)

Cumulative effect adjustment from adoption of new accounting pronouncement

16,296

16,296

Distributions to noncontrolling interests

(103)

(103)

Net income

 

 

 

 

 

 

 

124,869

 

163

 

125,032

Balances at March 31, 2018

 

263,327,956

4,147,475

109,613

56,894

 

139,284

1,961,297

5,460

6,280,739

Sale of common shares held in trust

 

2,638

 

199

 

 

 

(2,638)

 

 

 

 

199

Vesting of restricted share units

 

15,723

 

 

 

 

 

 

 

 

Restricted share units released from deferred compensation plan

 

4,311

 

 

 

 

 

 

 

 

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

 

(6,173)

 

 

(468)

 

 

 

 

 

 

(468)

Equity-based compensation

 

 

 

8,968

 

 

 

 

 

 

8,968

Exercise of options and warrants

 

17,571

 

 

 

 

 

 

 

 

Cash dividends on common shares

 

 

 

 

 

 

 

(36,770)

 

 

(36,770)

Amounts reclassified into earnings, net of taxes

 

 

 

 

(2,204)

 

 

 

 

 

(2,204)

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

 

 

 

 

3,890

 

 

 

 

 

3,890

Foreign currency translation adjustment

 

 

 

 

(43,474)

 

 

 

 

 

(43,474)

Cumulative effect adjustment from adoption of new accounting pronouncement

(3,053)

(3,053)

Net income

 

 

 

 

 

 

 

138,682

 

132

 

138,814

Balances at June 30, 2018

 

263,362,026

4,147,674

118,113

15,106

 

136,646

2,060,156

5,592

6,346,641

Sale of common shares held in trust

 

2,964

 

235

 

 

 

(2,964)

 

 

 

 

235

Vesting of restricted share units

 

12,154

 

 

 

 

 

 

 

 

Restricted share units released from deferred compensation plan

 

644

 

 

 

 

 

 

 

 

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

 

(4,878)

 

 

(387)

 

 

 

 

 

 

(387)

Equity-based compensation

 

 

 

6,591

 

 

 

 

 

 

6,591

Cash dividends on common shares

 

 

 

 

 

 

 

(36,863)

 

 

(36,863)

Amounts reclassified into earnings, net of taxes

 

 

 

 

1,786

 

 

 

 

 

1,786

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

 

 

 

 

856

 

 

 

 

 

856

Foreign currency translation adjustment

 

 

 

 

35,455

 

 

 

 

 

35,455

Net income (loss)

 

 

 

 

 

 

 

150,843

 

(77)

 

150,766

Balances at September 30, 2018

 

263,372,910

$

4,147,909

$

124,317

$

53,203

 

133,682

$

$

2,174,136

$

5,515

$

6,505,080

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

5

5

WASTE CONNECTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of U.S. dollars)

  Nine months ended September 30, 
  2018  2017 
Cash flows from operating activities:        
Net income $414,611  $262,291 
Adjustments to reconcile net income to net cash provided by operating activities:        
Loss on disposal of assets and impairments  6,852   122,098 
Depreciation  423,866   395,008 
Amortization of intangibles  79,444   76,886 
Foreign currency transaction loss  323   3,502 
Deferred income taxes, net of acquisitions  45,765   (10,971)
Amortization of debt issuance costs  3,087   3,221 
Share-based compensation  35,434   32,407 
Interest income on restricted investments  (143)  (387)
Interest accretion  11,135   10,406 
Adjustments to contingent consideration  349   17,754 
Payment of contingent consideration recorded in earnings  (11)  - 
Net change in operating assets and liabilities, net of acquisitions  17,080   (23,840)
Net cash provided by operating activities  1,037,792   888,375 
         
Cash flows from investing activities:        
Payments for acquisitions, net of cash acquired  (500,064)  (394,002)
Capital expenditures for property and equipment  (373,512)  (317,385)
Proceeds from disposal of assets  3,698   25,826 
Change in restricted investments, net of interest income  -   1,920 
Other  (568)  (3,465)
Net cash used in investing activities  (870,446)  (687,106)
         
Cash flows from financing activities:        
Proceeds from long-term debt  165,737   896,947 
Principal payments on notes payable and long-term debt  (387,700)  (666,724)
Payment of contingent consideration recorded at acquisition date  (5,459)  (5,840)
Change in book overdraft  (243)  13,814 
Proceeds from option and warrant exercises  -   1,946 
Payments for repurchase of common shares  (42,040)  - 
Payments for cash dividends  (110,447)  (95,201)
Tax withholdings related to net share settlements of equity-based compensation  (14,976)  (13,754)
Debt issuance costs  (2,839)  (3,638)
Proceeds from sale of common shares held in trust  2,381   8,704 
Other  (103)  (1,095)
Net cash provided by (used in) financing activities  (395,689)  135,159 
         
Effect of exchange rate changes on cash, cash equivalents and restricted cash  (528)  976 
         
Net increase (decrease) in cash, cash equivalents and restricted cash  (228,871)  337,404 
Cash, cash equivalents and restricted cash at beginning of period  556,467   169,112 
Plus (less): change in cash held for sale  192   (27)
Cash, cash equivalents and restricted cash at end of period $327,788  $506,489 
         
Non-cash financing activities:        
Liabilities assumed and notes payable issued to sellers of businesses acquired $100,753  $143,495 
Non-cash consideration received for asset sales $-  $92,972 

Nine Months Ended September 30, 

    

2019

    

2018

    

CASH FLOWS FROM OPERATING ACTIVITIES:

  

  

Net income

$

433,490

$

414,611

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

 

 

Loss on disposal of assets and impairments

 

31,852

 

6,852

Depreciation

 

461,616

 

423,866

Amortization of intangibles

 

93,821

 

79,444

Amortization of leases

17,661

Deferred income taxes, net of acquisitions

 

41,481

 

45,765

Amortization of debt issuance costs

 

3,708

 

3,087

Share-based compensation

 

35,510

 

35,434

Interest accretion

 

12,283

 

11,135

Payment of contingent consideration recorded in earnings

 

 

(11)

Adjustments to contingent consideration

 

1,466

 

349

Other

(1,316)

180

Net change in operating assets and liabilities, net of acquisitions

53,858

17,080

Net cash provided by operating activities

 

1,185,430

 

1,037,792

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Payments for acquisitions, net of cash acquired

 

(420,392)

 

(500,064)

Capital expenditures for property and equipment

 

(433,526)

 

(373,512)

Capital expenditure for purchase of greenfield landfill site

(31,683)

Proceeds from disposal of assets

 

2,626

 

3,698

Change in restricted investments, net of interest income

 

(2,171)

 

Other

 

(526)

 

(568)

Net cash used in investing activities

 

(885,672)

 

(870,446)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Proceeds from long-term debt

 

1,021,795

 

165,737

Principal payments on notes payable and long-term debt

 

(1,184,165)

 

(387,700)

Payment of contingent consideration recorded at acquisition date

 

(1,621)

 

(5,459)

Change in book overdraft

 

1,911

 

(243)

Payments for repurchase of common shares

 

 

(42,040)

Payments for cash dividends

 

(126,348)

 

(110,447)

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

 

(17,592)

 

(14,976)

Debt issuance costs

 

(5,938)

 

(2,839)

Proceeds from sale of common shares held in trust

 

4,036

 

2,381

Other

 

(117)

 

(103)

Net cash used in financing activities

 

(308,039)

 

(395,689)

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

 

143

 

(528)

Net decrease in cash, cash equivalents and restricted cash

 

(8,138)

 

(228,871)

Cash, cash equivalents and restricted cash at beginning of period

 

403,966

 

556,467

Plus: change in cash held for sale

 

 

192

Cash, cash equivalents and restricted cash at end of period

$

395,828

$

327,788

Non-cash financing activities:

Liabilities assumed and notes payable issued to sellers of businesses acquired

$

94,009

$

100,753

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

6

6

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

1.1.BASIS OF PRESENTATION AND SUMMARY

The accompanying condensed consolidated financial statements relate to Waste Connections, Inc. and its subsidiaries (“WCI” or the(the “Company”) for the three and nine month periods ended September 30, 20182019 and 2017.2018. In the opinion of management, the accompanying balance sheets and related interim statements of net income, comprehensive income, 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, 2017.2018.

2.2.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.

3.3.NEW ACCOUNTING STANDARDS

Accounting Standards Adopted

Revenue From Contracts With CustomersLease Accounting.  In May 2014,February 2016, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued guidance to provide a single, comprehensive revenue recognition model for all contracts with customers.  The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 for public entities.  The Company adopted the amended guidance using the modified retrospective method as of January 1, 2018 for all ongoing customer contracts. The Company’s results of operations for the reported periods after January 1, 2018 are presented under this amended guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historical accounting guidance.

The impact of adopting the amended guidance primarily relates to the deferral of certain sales incentives, which previously were expensed as incurred, but under the new guidance are capitalized as Other assets and amortized to Selling, general and administrative expenses over the expected life of the customer relationship. The Company recognized a net increase to retained earnings of $13,243 as of January 1, 2018 for the cumulative impact of adopting the amended guidance. The cumulative impact was associated with both the capitalization of certain sales incentives as contract acquisition costs consisting of an asset in the amount of $16,296 and a related deferred tax liability of $4,058 and a change in accounting for revenue priced based on published indices at the Company’s Canada operations of $1,005. Prior to adoption, the Company expensed approximately $16,000 in sales incentives annually. There were no other material impacts on the condensed consolidated financial statements as a result of the Company’s adoption of this amended guidance.

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)

For contracts with an effective term greater than one year, the Company applied the standard’s practical expedient that permits the exclusion of unsatisfied performance obligations as the Company’s right to consideration corresponds directly to the value provided to the customer for services completed to date and all future variable consideration is allocated to wholly unsatisfied performance obligations. The Company also applied the standard’s optional exemption for performance obligations related to contracts that have an original expected duration of one year or less. The Company applied the standard’s practical expedient that permits an entity to recognize 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. See Note 5 for additional information and disclosures related to this amended guidance.

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 for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The guidance requires application using a retrospective transition method.  The Company adopted this guidance as of January 1, 2018. The adoption of this guidance did not have a material impact on the Company’s statement of cash flows.

Accounting for Income Taxes: Intra-Entity Asset Transfers of Assets Other than Inventory. In October 2016, 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 sale of the asset in the seller’s tax jurisdiction when the transfer occurs, even though the pre-tax effects of that transaction are eliminated in consolidation. Any deferred tax asset that arises in the buyer’s jurisdiction would also be recognized at the time of the transfer. The modified retrospective approach will be required for transition 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 is effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods within those years. The Company adopted this guidance as of January 1, 2018. The adoption of this guidance did not have a material impact on the Company’s 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 are also required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. The new standard is effective for public companies for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.  The Company adopted this guidance as of January 1, 2018. All prior periods have been adjusted to conform to the current period presentation, which resulted in an increase in cash used in investing activities of $39,494 and $3,544 for the nine months ended September 30, 2018 and 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 if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The new standard is effective prospectively for all companies for annual periods beginning on or after December 15, 2017.  The Company adopted this guidance as of January 1, 2018. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Accounting for the Tax Effects of the Tax Cuts and Jobs Act. On December 22, 2017, the U.S. Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the “Tax Act”). SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification 740 (“ASC 740”). In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Tax Act’s one-time deemed repatriation transition tax (the “Transition Tax”) on certain unrepatriated earnings of non-U.S. subsidiaries is a tax on previously untaxed accumulated and current earnings and profits of certain of the Company’s non-U.S. subsidiaries. To determine the amount of the Transition Tax, the Company must determine, in addition to other factors, the amount of post-1986 earnings and profits of the relevant subsidiaries, as well as the amount of non-U.S. income taxes paid on such earnings. In 2017, the Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $1,000. During the three months ended September 30, 2018, the Company concluded its evaluation of the Transition Tax.  However, the Company has not concluded on its policy regarding the accounting for the tax impacts of global intangible low-taxed income, and the permanently reinvested amounts attributable to the Company’s non-U.S. subsidiaries are considered provisional under SAB 118.

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)

Accounting Standards Pending Adoption

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 iswas effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted.

The FASB issued new guidance in July 2018, which amendsamended the guidance to allow the issuer to elect from two adoption alternatives: 1) apply the new guidance at the beginning of the earliest comparative period presented; or 2) apply the new guidance at the effective date and recognize a cumulative-effect adjustment, without adjusting the comparative periods presented.  

7

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The Company plansadopted the new standard on January 1, 2019 and elected to apply the new guidance at the effective date and recognize a cumulative effect adjustment.

cumulative-effect adjustment, without adjusting the comparative periods presented.  The Company is assessing the provisions of the lease accounting guidance and has acquired a software solution to manage and account for leases under the new standard. The Company continues to evaluate the impact of the guidance on its consolidated financial statements; however, the Company currently plans to applyapplied the package of practical expedients to leases that commenced before the effective date whereby the Company will electelected not to reassess the following: (1) whether any expired or existing contracts are or contain leases; (2) the lease classification for any expired or existing leases; and (3) whether initial direct costs exist for any existing leases.  The Company is currently assessingalso applied the disclosure requirements(1) practical expedient for land easements where the Company elected to not apply the leases standard to certain existing land easements at transition and (2) practical expedient to include both the lease and nonlease components as a single component and account for it as a lease.  The Company has completed its assessment of the provisions of the lease accounting guidance and implementation of its leasing software solution to manage and account for leases under the new standard. 

As Reported
December 31, 2018

Adoption of Lease Guidance
Increase (Decrease)

Balance
January 1, 2019

Operating lease right-of-use assets

$

-

$

206,501

$

206,501

Total assets

$

12,627,329

$

206,501

$

12,833,830

Current portion of operating lease liabilities

$

-

$

29,640

$

29,640

Total current liabilities

$

860,709

$

29,640

$

890,349

Long-term portion of operating lease liabilities

$

-

$

180,005

$

180,005

Deferred income taxes

$

760,033

$

(1,066)

$

758,967

Total liabilities

$

6,167,141

$

208,579

$

6,375,720

Retained earnings

$

2,264,510

$

(2,078)

$

2,262,432

Total liabilities and equity

$

12,627,329

$

206,501

$

12,833,830

The adoption of the new standard and it anticipates disclosingdid not have a material impact on the Company’s consolidated statements of net income or consolidated statements of cash flows.  See Note 9 for additional information as necessary,and disclosures related to comply with the new standard.adoption of this amended guidance.

Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities.  In August 2017, the FASB issued guidance which 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 does not expect the adoption of this guidance, toeffective January 1, 2019, did not have a material impact on itsthe Company’s consolidated financial statements.

Derivatives and Hedging: Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting.  As LIBOR is expected to no longer be published by 2021, the FASB issued guidance in October 2018 which added the OIS rate based on SOFR as an eligible benchmark interest rate in order to facilitate the LIBOR to SOFR transition and provide sufficient lead time for entities to prepare for changes to interest rate risk hedging strategies for both risk management and hedge accounting purposes.  The Company adopted the new guidance effective January 1, 2019 on a prospective basis.  The Company is developing a plan to transition its interest rate swaps from LIBOR to SOFR.  The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

SEC Simplified and Updated Disclosure Requirements.  In August 2018, the U.S. Securities and Exchange Commission (the “SEC”) amended its rules to require an analysis of changes in stockholders’ equity in the financial

8

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

statements included in Quarterly Reports on Form 10-Q.  The analysis, which can be presented as a note or separate statement, is required for the current and comparative quarter and year-to-date interim periods.  The amended rules will becomebecame effective 30 days after they are published in the Federal Register; however,on November 15, 2018.  In addition, the SEC’s Division of Corporation Finance issued a Compliance and Disclosure Interpretation (the “CDI”) that provides transition guidance related to this new disclosure.  TheFor calendar year-end companies, the CDI states thatallows a filer the amendments are effective for all filings made on or after the effective date; however, it also states that SEC staff would not object if a filer’soption to first presentation ofpresent the changes in stockholders’ equity was included in its Form 10-Q for the quarter that begins after the effective date of the amendments, which is the quarter ending March 31, 2019.  The Company elected this option and has included the statement of shareholders’ equity within this Form 10-Q.

SEC modernizes and simplifies certain Regulation S-K disclosure requirements.  In March 2019, the SEC amended its rules to modernize and simplify certain disclosure requirements in Regulation S-K and the related rules and forms. These changes include, among other things, (1) allowing registrants to redact confidential information from most exhibits to their filings without filing a confidential treatment request; (2) revising the requirements for management’s discussion and analysis to allow flexibility, including allowing registrants providing three years of financial statements to omit discussion of the earliest year and cross-reference its discussion in a previous filing; (3) removing the example risk factors in Regulation S-K to encourage more meaningful company-specific disclosure; (4) clarifying the description of property requirements to emphasize that those disclosures should only include properties that are material to the registrant; and (5) requiring XBRL data tagging for items on the cover pages of certain filings, as well as the use of hyperlinks for information that is incorporated by reference and available on EDGAR.  The provisions regarding the redaction of confidential information in exhibits were effective upon publication in the Federal Register. The provisions requiring XBRL data tagging are subject to a three-year phase-in, depending on the filing status of the registrant, which, for the Company. Company, were effective for the period ending June 30, 2019.  All other provisions were effective on May 2, 2019.

Accounting Standards Pending Adoption

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments.  In June 2016, the FASB issued guidance which introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables, which will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts.  The standard will be effective for public business entities that are SEC filers for annual periods beginning after December 15, 2019 and interim periods within those years.  Early adoption is permitted.  The Company will be including these additional disclosures beginning withdoes not expect the adoption of this guidance to have a material impact on its first quarter Form 10-Q in 2019.consolidated financial statements.

4.4.RECLASSIFICATION

As disclosed within other footnotes of the financial statements, restricted cash and restricted investmentssegment information reported in the Company’s prior year havehas been reclassified to conform with the 20182019 presentation.

9

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

5.5.REVENUE

The Company’s operations primarily consist of providing non-hazardous waste collection, transfer, disposal and recycling services, non-hazardous exploration and production (“E&P”) waste treatment, recovery and disposal services

9

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

and intermodal services. The following table disaggregates the Company’s revenues by service line for the periods indicated:

 Three months ended September 30,  Nine months ended September 30, 
 2018  2017  2018  2017 

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2019

    

2018

    

2019

    

2018

Commercial $369,543  $342,961  $1,080,261  $1,005,110 

 

$

408,415

$

369,543

$

1,186,565

$

1,080,261

Residential  300,026   286,068   881,927   845,493 

355,574

300,026

1,024,105

881,927

Industrial and construction roll off  202,130   186,315   573,877   530,219 

226,801

202,130

629,597

573,877

Total collection  871,699   815,344   2,536,065   2,380,822 

990,790

871,699

2,840,267

2,536,065

Landfill  285,945   261,706   790,056   744,352 

310,633

285,945

852,073

790,056

Transfer  187,961   155,058   495,317   445,612 

209,585

187,961

575,337

495,317

Recycling  23,371   43,864   69,559   131,445 

14,142

23,371

50,676

69,559

E&P  68,049   57,797   189,071   147,662 

70,874

68,049

205,743

189,071

Intermodal and other  34,261   38,221   105,588   107,418 

26,520

34,261

90,491

105,588

Intercompany  (190,176)  (165,512)  (524,447)  (483,998)

(210,100)

(190,176)

(587,868)

(524,447)

Total $1,281,110  $1,206,478  $3,661,209  $3,473,313 

 

$

1,412,444

$

1,281,110

$

4,026,719

$

3,661,209

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 June 30, 2019 was recognized as revenue during the three months ended September 30, 2019 when the service was performed.

See Note 11 for additional information regarding revenue by reportable segment.

Revenue by Service Line

Solid Waste Collection

The Company’s solid waste collection business involves the collection of waste for transport to transfer stations, or directly to landfills or recycling centers. Solid waste collection services include both recurring and temporary customer relationships. The standard customer service agreements generally range from one to three years in duration, although some exclusive franchises are for significantly longer periods. The fees received for collection services are based primarily on the market, collection frequency, type of service, type and volume or weight of the waste collected, the distance to the disposal facility and the cost of disposal.

In general, residential collection fees are billed monthly or quarterly in advance. Substantially all of the deferred revenue recognized as of June 30, 2018 was recognized as revenue during the three months ended September 30, 2018 when the service was performed. Commercial customers are typically billed on a monthly basis based on the nature of the services provided during the period.

Revenue recognized under these agreements is variable in nature based on the number of residential homes or businesses serviced during the period, the frequency of collection and the volume of waste collected. In addition, certain contracts have annual price escalation clauses that are tied to changes in an underlying base index such as a consumer price index which are unknown at contract inception.

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)

Solid waste collection revenue from sources other than customer contracts primarily relates to lease revenue associated with compactors. Revenue from these leasing arrangements was not material and represented an insignificant amount of total revenue for each of the reported periods.

Landfill and Transfer Station

Revenue at landfills is primarily generated by charging tipping fees to third parties based on the volume disposed and the nature of the waste. In general, fees are variable in nature and revenue is recognized at the time the waste is disposed at the facility.

Revenue at transfer stations is primarily generated by charging tipping or disposal fees. The fees charged to third parties are based primarily on the market, type and volume or weight of the waste accepted, the distance to the disposal facility and the cost of disposal. In general, fees are billed and revenue is recognized at the time the service is performed. Revenue recognized under these agreements is variable in nature based on the volume of waste accepted at the transfer facility.

Solid Waste Recycling

Solid waste recycling revenues are generated by offering residential, commercial, industrial and municipal customers recycling services for a variety of recyclable materials, including compost, cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. The Company owns recycling operations and sells collected recyclable materials to third parties for processing before resale. In certain instances, the Company issues recycling rebates to municipal or commercial customers, which can be based on the price it receives upon the sale of recycled commodities, a fixed contractual rate or other measures. The Company also receives rebates when it disposes of recycled commodities at third-party facilities. The fees received are based primarily on the market, type and volume or weight of the materials sold. In general, fees are billed and revenue is recognized at the time title is transferred. Revenue recognized under these agreements is variable in nature based on the volume of materials sold. In addition, the amount of revenue recognized is based on commodity prices at the time of sale, which are unknown at contract inception.

E&P Waste Treatment, Recovery and Disposal

E&P revenue is primarily generated through the treatment, recovery and disposal of non-hazardous exploration and production waste from vertical and horizontal drilling, hydraulic fracturing, production and clean-up activity, as well as other services including closed loop collection systems and the sale of recovered products. E&P activity varies across market areas that are tied to the natural resource basins in which the drilling activity occurs and reflects the regulatory environment, pricing and disposal alternatives available in any given market. Revenue recognized under these agreements is variable in nature based on the volume of waste accepted or processed during the period.

Intermodal and Other

Intermodal revenue is primarily generated through providing intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities. The fees received for intermodal services are based on negotiated rates and vary depending on volume commitments by the shipper and destination. In general, fees are billed and revenue is recognized upon delivery.

Revenue Recognition

Service obligations of a long-term nature, e.g., solid waste collection service contracts, are satisfied over time, and revenue is recognized based on the value provided to the customer during the period. The amount billed to the customer is based on variable elements such as the number of residential homes or businesses for which collection services are provided, the volume of waste collected, transported and disposed, and the nature of the waste accepted. The Company does not disclose the value of unsatisfied performance obligations for these contracts as its right to consideration corresponds directly to the value provided to the customer for services completed to date and all future variable consideration is allocated to wholly unsatisfied performance obligations.

Additionally, certain elements of long-term customer contracts are unknown upon entering into the contract, including the amount that will be billed in accordance with annual price escalation clauses, fuel recovery fee programs and commodity prices. The amount to be billed is often tied to changes in an underlying base index such as a consumer price index or a fuel or commodity index, and revenue is recognized once the index is established for the period.

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)

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 doubtful accounts, represents their estimated net realizable value.  The Company estimates its allowance for doubtful accounts based on historical collection trends, type of customer such as municipal or non-municipal, the age of outstanding receivables and existing economic conditions.  If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly.  Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due.

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,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 applied the standard’s practical expedient that permits an entity to recognizerecognizes 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.  As of September 30, 2018, theThe Company had $16,300approximately $16,900 of deferred sales incentives. During the three and nine months endedincentives at both September 30, 2018, the Company recorded amortization expense of $4,6662019 and $13,260, respectively, for sales incentives costs.December 31, 2018.

6.6.LANDFILL ACCOUNTING

At September 30, 2018,2019, the Company’s landfills consisted of 8185 owned landfills, eight7 landfills operated under life-of-site operating agreements, and four4 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 $2,868,628$2,961,560 at September 30, 2018.2019. 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

10

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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 September 30, 2018,2019, 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 2627 years. As of September 30, 2018,2019, the Company is seeking to expand permitted capacity at 116 of its owned landfills and three3 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 30 years, with lives ranging from approximately 1 to 158177 years.

During the nine months ended September 30, 20182019 and 2017,2018, the Company expensed $153,010$169,064 and $147,071,$153,010, respectively, or an average of $4.58$4.77 and $4.55$4.58 per ton consumed, respectively, related to landfill depletion at owned landfills and landfills operated under life-of-site agreements.

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)

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 20182019 and 20172018 “layers” for final capping, closure and post-closure obligations was 4.75% for both years, which reflects the Company’s long-term credit adjusted risk free rate as of the end of both 20172018 and 2016.2017. The Company’s inflation rate assumption is 2.5% for the years ending December 31, 20182019 and 2017.2018. The resulting final capping, closure and post-closure obligations are recorded on the condensed consolidated balance sheet along with an offsetting addition to site costs which is amortized to depletion expense as the remaining landfill airspace is consumed. Interest is accreted on the recorded liability using the corresponding discount rate. During the nine months ended September 30, 20182019 and 2017,2018, the Company expensed $9,583$10,656 and $8,757$9,583 respectively, or an average of $0.29$0.30 and $0.27$0.29 per ton consumed, respectively, related to final capping, closure and post-closure accretion expense.

11

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 20172018 to September 30, 2018: 2019:

Final capping, closure and post-closure liability at December 31, 2017 $237,817 
Adjustments to final capping, closure and post-closure liabilities  (13,139)

Final capping, closure and post-closure liability at December 31, 2018

    

$

251,782

Liabilities incurred  11,750 

 

15,573

Accretion expense associated with landfill obligations  9,583 

 

10,656

Closure payments  (2,411)

 

(1,203)

Assumption of closure liabilities from acquisitions  4,408 

8,707

Foreign currency translation adjustment  (1,098)

 

1,146

Final capping, closure and post-closure liability at September 30, 2018 $246,910 

Final capping, closure and post-closure liability at September 30, 2019

$

286,661

Liabilities incurred of $11,750$15,573 for the nine months ended September 30, 2018,2019, represent non-cash increases to final capping, closure and post-closure liabilities.liabilities and are recorded on the Condensed Consolidated Balance Sheets along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed. The adjustment to final capping, closure and post-closure liability is included in Other long-term liabilities primarily consisted of decreases in estimated closure and post closure costs at several of the Company’s landfills, most notably its Chiquita Canyon landfill, and changes to engineering estimates related to proposed expansions as well as timing of closure events and total site capacity.  These decreases were partially offset by increases in estimated post closure costs and adjustments to reduce the remaining lives at certain sites.Condensed Consolidated Balance Sheets.  The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.

At September 30, 20182019 and December 31, 2017, $44,7602018, $11,538 and $43,684,$12,325, respectively, of the Company’s restricted cash balance and $12,639$47,993 and $12,406,$44,939, respectively, of the Company’s restricted investments balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.

7.ACQUISITIONS

7.ACQUISITIONS

The Company acquired 13 individually immaterial non-hazardous solid waste collection, transfer and disposal businesses during the nine months ended September 30, 2019.  The total acquisition-related costs incurred during the nine months ended September 30, 2019 for these acquisitions was $8,057. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.

The Company acquired 15 individually immaterial non-hazardous solid waste collection, recycling, transfer and disposal businesses during the nine months ended September 30, 2018. The purchase price for one of these acquisitions included contingent consideration of $11,593, representing the fair value of up to $12,582 of amounts payable to the former owners based on the achievement of certain operating targets specified in the asset purchase agreement. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the three-year period in which the obligation is expected to be settled, and applying a discount rate of 2.7%.  As of September 30, 2018,2019, the obligation recognized at the purchase date has not materially changed.  Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.

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 total acquisition-related costs incurred during the nine months ended September 30, 2018 for these acquisitions was $4,907. These expenses are included in Selling, general and administrative expenses in the Company’s Condensed Consolidated Statements of Net Income.

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 $4,418. 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 thesethe 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.

14

12

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

The following table summarizes the consideration transferred to acquire these businesses 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, 20182019 and 2017:2018:

 

2018

Acquisitions

 

2017

Acquisitions

 

    

2019

    

2018

Acquisitions

Acquisitions

Fair value of consideration transferred:        

 

  

 

  

Cash $500,064  $394,002 

$

420,392

$

500,064

Debt assumed  65,010   56,958 

 

50,574

 

65,010

Notes issued to sellers  -   13,460 
Fair value of operations exchanged  -   81,097 
  565,074   545,517 
        

 

470,966

 

565,074

Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired:        

 

  

 

  

Accounts receivable  12,817   19,312 

 

15,042

 

12,817

Prepaid expenses and other current assets  2,355   4,336 

 

5,079

 

2,355

Property and equipment  346,275   167,065 

 

210,105

 

346,275

Long-term franchise agreements and contracts  10,888   54,674 

 

14,838

 

10,888

Customer lists  27,330   28,033 

 

28,467

 

27,330

Indefinite-lived intangibles  -   5,830 
Other intangibles  31,183   27,261 

Permits and other intangibles

17,835

31,183

Other assets  19   3,052 

 

7

 

19

Accounts payable and accrued liabilities  (3,982)  (12,022)

 

(11,310)

 

(3,982)

Deferred revenue  (4,169)  (9,657)

 

(9,128)

 

(4,169)

Contingent consideration  (11,669)  (35)

 

(1,003)

 

(11,669)

Other long-term liabilities  (15,532)  (1,080)

 

(8,707)

 

(15,532)

Deferred income taxes  (391)  (50,283)

 

(13,287)

 

(391)

Total identifiable net assets  395,124   236,486 

 

247,938

 

395,124

Goodwill $169,950  $309,031 

$

223,028

$

169,950

Goodwill acquired during the nine months ended September 30, 2019 and 2018, totaling $81,903 and 2017, totaling $169,559, and $51,518, respectively, is expected to be deductible for tax purposes.

The fair value of acquired working capital related to five10 individually immaterial acquisitions completed during the twelve months ended September 30, 2018,2019, 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 five10 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, 2019, is $16,469, of which $1,427 is expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the nine months ended September 30, 2018, is $14,015, of which $1,198 is expected to be uncollectible. 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 Company did not acquire any other class of receivable as a result of the acquisitions of these businesses.

15

13

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

8.ASSETS HELD FOR SALE

As of September 30, 2018, assets classified as held for sale consisted of an operating market in the Company’s Southern segment. The assets held for sale 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 $4,466 to Impairments and other operating items in the Condensed Consolidated Statements of Net Income during the year ended December 31, 2017. The expected consideration may include cash and non-monetary assets. During the three months ended September 30, 2018, the Company’s Southern segment completed the sale of an operation in the Louisiana market for total cash consideration of $1,250. 

The Company’s assets and liabilities held for sale as of September 30, 2018 and December 31, 2017, were comprised of the following:

  

September 30,

2018

  

December 31,

2017

 
Current assets held for sale:        
Cash and equivalents $-  $192 
Accounts receivable  735   1,185 
Other current assets  59   219 
  $794  $1,596 
Long-term assets held for sale:        
Property and equipment $413  $12,623 
Goodwill  332   2 
  $745  $12,625 
Current liabilities held for sale:        
Accounts payable $157  $804 
Accrued liabilities  22   215 
Deferred revenue  749   1,136 
  $928  $2,155 

9.8.INTANGIBLE ASSETS, NET

Intangible assets, exclusive of goodwill, consisted of the following at September 30, 2018: 2019:

    

Gross

    

    

Accumulated

    

Net

Carrying

Accumulated

Impairment

Carrying

Amount

Amortization

Loss

Amount

Finite-lived intangible assets:

 

  

 

  

 

  

 

  

Long-term franchise agreements and contracts

$

487,001

$

(183,121)

$

$

303,880

Customer lists

 

561,642

 

(288,732)

 

 

272,910

Permits and other

 

358,314

 

(60,290)

 

 

298,024

 

1,406,957

 

(532,143)

 

 

874,814

Indefinite-lived intangible assets:

 

  

 

  

 

  

 

  

Solid waste collection and transportation permits

 

158,591

 

 

 

158,591

Material recycling facility permits

 

42,283

 

 

 

42,283

E&P facility permits

 

59,855

 

 

(38,507)

 

21,348

 

260,729

 

 

(38,507)

 

222,222

Intangible assets, exclusive of goodwill

$

1,667,686

$

(532,143)

$

(38,507)

$

1,097,036

  Gross Carrying
Amount
  Accumulated
Amortization
  Accumulated
Impairment
Loss
  Net Carrying
Amount
 
Finite-lived intangible assets:            
Long-term franchise agreements and contracts $483,749  $(150,691) $-  $333,058 
Customer lists  429,801   (219,104)  -   210,697 
Permits and other  349,207   (46,120)  -   303,087 
   1,262,757   (415,915)  -   846,842 
Indefinite-lived intangible assets:                
Solid waste collection and transportation permits  158,591   -   -   158,591 
Material recycling facility permits  42,283   -   -   42,283 
E&P facility permits  59,855   -   (38,507)  21,348 
   260,729   -   (38,507)  222,222 
Intangible assets, exclusive of goodwill $1,523,486  $(415,915) $(38,507) $1,069,064 

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)

The weighted-average amortization period of long-term franchise agreements and contracts acquired during the nine months ended September 30, 20182019 was 16.319.2 years. The weighted-average amortization period of customer lists acquired during the nine months ended September 30, 20182019 was 10.0 years. The weighted-average amortization period of finite-lived permits and other intangibles acquired during the nine months ended September 30, 20182019 was 40.036.8 years.

Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2017: 2018:

    

Gross

    

    

Accumulated

    

Net

Carrying

Accumulated

Impairment

Carrying

Amount

Amortization

Loss

Amount

Finite-lived intangible assets:

 

  

 

  

 

  

 

  

Long-term franchise agreements and contracts

$

476,833

$

(157,986)

$

$

318,847

Customer lists

 

530,614

 

(232,461)

 

 

298,153

Permits and other

 

338,601

 

(49,195)

 

 

289,406

 

1,346,048

 

(439,642)

 

 

906,406

Indefinite-lived intangible assets:

 

  

 

  

 

  

 

  

Solid waste collection and transportation permits

 

158,591

 

 

 

158,591

Material recycling facility permits

 

42,283

 

 

 

42,283

E&P facility permits

 

59,855

 

 

(38,507)

 

21,348

 

260,729

 

 

(38,507)

 

222,222

Intangible assets, exclusive of goodwill

$

1,606,777

$

(439,642)

$

(38,507)

$

1,128,628

  Gross Carrying
Amount
  Accumulated
Amortization
   Accumulated
Impairment
Loss
  Net Carrying
Amount
 
Finite-lived intangible assets:                
Long-term franchise agreements and contracts $481,293  $(123,591) $-  $357,702 
Customer lists  405,683   (180,440)  -   225,243 
Permits and other  317,984   (35,715)  -   282,269 
   1,204,960   (339,746)  -   865,214 
Indefinite-lived intangible assets:                
Solid waste collection and transportation permits  158,591   -   -   158,591 
Material recycling facility permits  42,283   -   -   42,283 
E&P facility permits  59,855   -   (38,507)  21,348 
   260,729   -   (38,507)  222,222 
Intangible assets, exclusive of goodwill $1,465,689  $(339,746) $(38,507) $1,087,436 

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

For the year ending December 31, 2018 $105,991 

For the year ending December 31, 2019 $95,653 

    

$

125,699

For the year ending December 31, 2020 $85,751 

$

113,177

For the year ending December 31, 2021 $75,561 

$

98,310

For the year ending December 31, 2022 $65,904 

$

84,543

For the year ending December 31, 2023

$

71,283

17

14

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

10.LONG-TERM DEBT

9.LEASES

The following table presentsCompany rents certain equipment and facilities under both short-term agreements and non-cancelable operating lease agreements.  The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date.  The lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date.

Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) lease term and (3) lease payments.

The lease guidance requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs.  Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

The lease term for the Company’s long-term debtleases includes the noncancelable period of the lease, plus any additional periods covered by either a Company option to extend (or not to terminate) the lease that the Company is reasonably certain to exercise, or an option to extend (or not to terminate) the lease controlled by the lessor.

Lease payments included in the measurement of the lease liability comprise fixed payments or variable lease payments.  The variable lease payments take into account annual changes in the consumer price index and common area maintenance charges, if known.

ROU assets for operating leases are periodically reviewed for impairment losses. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.

The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less. The Company has elected to apply the short-term lease recognition and measurement exemption allowed for in the lease accounting standard.  The Company recognizes the lease payments associated with its short-term leases as ofan expense on a straight-line basis over the lease term.

Lease cost for operating leases for the three and nine months ended September 30, 2018 and December 31, 2017:2019 was as follows:

  

September 30,

2018

  

December 31,

2017

 
Revolver under Credit Agreement, bearing interest at 2.93%(a) $169,950  $192,101 
Term loan under Credit Agreement, bearing interest at 3.34%(a)  1,637,500   1,637,500 
2018 Senior Notes  -   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   150,000 
2025 Senior Notes  375,000   375,000 
2026 Senior Notes  400,000   400,000 
2027 Senior Notes  250,000   250,000 
Tax-exempt bond, bearing interest at 1.61%(a)  15,930   95,430 
Notes payable to sellers and other third parties, bearing interest ranging from 2.75% to 24.81%(a)  14,950   26,290 
   3,763,330   3,926,321 
Less – current portion  (1,753)  (11,659)
Less – debt issuance costs  (14,368)  (15,090)
  $3,747,209  $3,899,572 

Three Months Ended

Nine Months Ended

    

September 30, 2019

    

September 30, 2019

Operating lease cost

$

9,696

$

28,886

(a)Interest rates represent the interest rates incurred at September 30, 2018.

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 certain accredited institutional 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, 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.

18

15

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

On March 21, 2018, the Company entered into that certain Amendment No. 1 to Master Note Purchase Agreement (the “2016 NPA First Amendment”), with each of the holders party thereto, which amended the 2016 NPA.

The 2016 NPA First Amendment, among other things, provided for certain amendmentsSupplemental cash flow information and non-cash activity related to the 2016 NPA to facilitate (i) certain conforming changes to align certain provisionsCompany’s operating leases are as follows:

    

Nine Months Ended

September 30, 2019

Operating cash flow information:

Cash paid for amounts included in the measurement of lease liabilities

$

28,374

Non-cash activity:

Right-of-use assets obtained in exchange for lease liabilities

$

7,363

Weighted-average remaining lease term and discount rate for the Company’s operating leases are as follows:

Nine Months Ended

September 30, 2019

Weighted average remaining lease term

8.9

years

Weighted average discount rate

3.99

%  

As of the 2016 NPA, the Assumed 2008 NPA (as defined below) and the Credit Agreement (as defined below) and (ii) the release of all subsidiary guarantors in relation to obligationsSeptember 30, 2019, future minimum lease payments, as calculated under the 2016 NPAnew lease guidance and the 2016 Senior Notes (as defined below) (the “2016 Release”).

Pursuantreconciled to the termsoperating lease liability, are as follows:

Last 3 months of 2019

    

$

9,662

2020

 

36,429

2021

 

33,160

2022

 

31,906

2023

 

28,701

Thereafter

 

96,292

Minimum lease payments

 

236,150

Less: imputed interest

 

(39,641)

Present value of minimum lease payments

196,509

Less: current portion of operating lease liabilities

(30,162)

Long-term portion of operating lease liabilities

$

166,347

As of December 31, 2018, minimum lease payments under non-cancelable operating leases by period were expected to be as follows:

2019

    

$

37,902

2020

 

35,204

2021

 

32,259

2022

 

30,974

2023

 

27,882

Thereafter

 

94,205

$

258,426

A summary of rent expense for both short-term agreements and conditionsnon-cancelable operating lease agreements for the years ended December 31, 2018 and 2017 was as follows:

2018

2017

Rent expense

    

$

42,646

    

$

43,383

16

Table of the 2016 NPA, the Company has outstanding senior unsecured notes (the “2016 Senior Notes”) consisting of (i) $150,000 of 2.39% senior notes due June 1, 2021 (the “New 2021 Senior Notes”), (ii) $200,000 of 2.75% senior notes due June 1, 2023 (the “2023 Senior Notes”), (iii) $400,000 of 3.03% senior notes due June 1, 2026 (the “2026 Senior Notes”) and (iv) $400,000 of the 2017A Senior Notes. No new notes were issued by the Company in connection with the 2016 NPA First Amendment.Contents

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 (defined below). Following the 2016 Release, there are currently no subsidiary guarantors in relation to the obligations under the 2016 NPA or the 2016 Senior Notes.

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 at 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.

2008 Master Note Purchase Agreement

On June 1, 2016, pursuant to the terms of the Agreement and Plan of Merger dated as of January 18, 2016, Water Merger Sub LLC, 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”). 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”). 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 2008 NPA as amended by Amendment No. 1 to the 2008 NPA dated as of July 20, 2009, as supplemented by First Supplement to the 2008 NPA dated as of October 26, 2009, as amended by Amendment No. 2 to the 2008 NPA dated as of November 24, 2010, as supplemented by Second Supplement to the 2008 NPA dated as of April 1, 2011, as amended by Amendment No. 3 to the 2008 NPA dated as of October 12, 2011, as amended by Amendment No. 4 to the 2008 NPA dated as of August 9, 2013, as amended by Amendment No. 5 to the 2008 NPA dated as of February 20, 2015, as supplemented by Third Supplement to the 2008 NPA dated as of June 11, 2015 and as modified by the Assumption Agreement (the 2008 NPA, as so amended, restated, amended and restated, supplemented or otherwise modified from time to time “Assumed 2008 NPA”). 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.

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)

10.LONG-TERM DEBT

The following table presents the Company’s long-term debt as of September 30, 2019 and December 31, 2018:

September 30, 

December 31, 

    

2019

    

2018

    

Revolver under Credit Agreement, bearing interest ranging from 3.05% to 3.14% (a)

$

427,806

$

481,610

Term loan under Credit Agreement, bearing interest at 3.14% (a)

 

700,000

 

1,237,500

5.25% Senior Notes due 2019 (b)

 

175,000

 

175,000

4.64% Senior Notes due 2021

 

100,000

 

100,000

2.39% Senior Notes due 2021

 

150,000

 

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

Tax-exempt bonds

 

 

15,930

Notes payable to sellers and other third parties, bearing interest ranging from 2.75% to 10.90%, principal and interest payments due periodically with due dates ranging from 2019 to 2036 (a)

 

9,705

 

14,653

 

4,062,511

 

4,174,693

Less – current portion

 

(502)

 

(1,786)

Less – debt issuance costs

 

(22,604)

 

(19,442)

$

4,039,405

$

4,153,465

____________________

(a)Interest rates represent the interest rates incurred at September 30, 2019.
(b)The Company has recorded the 2019 Senior Notes in long-term in the table above as the Company has the intent and ability to redeem the 2019 Senior Notes on November 1, 2019 using borrowings under the Credit Agreement.

2029 Senior Notes

On March 21, 2018,April 16, 2019, the Company entered into that certain Amendment No. 7 to the Assumed 2008 NPA (the “2008 NPA Seventh Amendment”), with eachcompleted an underwritten public offering of the holders party thereto, which amended the Assumed 2008 NPA. The 2008 NPA Seventh Amendment, among other things, provides certain amendments to the Assumed 2008 NPA to facilitate (i) certain conforming changes to align the provisions$500,000 aggregate principal amount of the Assumed 2008 NPA, the 2016 NPA and the Credit Agreement and (ii) the release of all subsidiary guarantors in relation to obligations under the Assumed 2008 NPA and the 20083.50% Senior Notes due 2029 (the “2008 Release”).

Pursuant to the terms and conditions of the Assumed 2008 NPA, the Company has outstanding senior unsecured notes (the “2008 Senior Notes”) consisting of $175,000 of 5.25% senior notes due 2019 (the “2019 Senior Notes”), $100,000 of 4.64% senior notes due 2021 (the “2021 Senior Notes), $125,000 of 3.09% senior notes due 2022 (the “2022 Senior Notes”) and $375,000 of 3.41% senior notes due 2025 (the “2025“2029 Senior Notes”).  The Company redeemed at maturity its $50,0002029 Senior Notes were issued under the Indenture, dated as of 4.00% senior notes due AprilNovember 16, 2018 (the “2018“Base Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”), as supplemented by the Second Supplemental Indenture, dated as of April 16, 2019 (the Base Indenture as so supplemented, the “Indenture”).  

The Company will pay interest on the 2029 Senior Notes”)Notes semi-annually, commencing on April 2, 2018 using borrowings under its Credit Agreement.

UnderNovember 1, 2019, and the terms2029 Senior Notes will mature on May 1, 2029. The 2029 Senior Notes are senior unsecured obligations, ranking equally in right of payment with the Company’s other existing and conditionsfuture unsubordinated debt and senior to any of the Assumed 2008 NPA,Company’s future subordinated debt. The 2029 Senior Notes are not guaranteed by any of the Company’s subsidiaries.

The Company is authorizedmay redeem some or all of the 2029 Senior Notes at its option prior to issueFebruary 1, 2029 (three months before the maturity date) at any time and sell notes infrom time to time at a redemption price equal to the aggregategreater of 100% of the principal amount of $1,250,000, inclusivethe 2029 Senior Notes redeemed, or the sum of the outstanding $775,000 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. Following the 2008 Release, there are no subsidiary guarantors in relation to the Company’s obligations under the Assumed 2008 NPA or the 2008 Senior Notes.

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 at par plus a make-whole amount determined by the amount of excess, if any, of the discounted valuepresent values of the remaining scheduled payments with respect toof principal and interest on the called principal of such 20082029 Senior Notes minusredeemed, plus accrued and unpaid interest to, but excluding, 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.

20

17

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Credit Agreement

Detailsredemption date. Commencing on February 1, 2029 (three months before the maturity date), the Company may redeem some or all of the Credit Agreement are as follows:

  

September 30,

2018

  December 31,
2017
 
Revolver under Credit Agreement        
Available $1,252,021  $1,149,813 
Letters of credit outstanding $140,529  $220,586 
Total amount drawn, as follows: $169,950  $192,101 
Amount drawn – Canadian prime rate loan $-  $16,739 
Interest rate applicable – Canadian prime rate loan  -   3.45%
Amount drawn – Canadian bankers’ acceptance $169,950  $175,362 
Interest rate applicable – Canadian bankers’ acceptance  2.93%  2.64%
Commitment – rate applicable  0.12%  0.15%
Term loan under Credit Agreement        
Amount drawn – U.S. based LIBOR loan $1,637,500  $1,637,500 
Interest rate applicable – U.S. based LIBOR loan  3.34%  2.77%

On June 1, 2016, the Company entered into that certain Revolving Credit2029 Senior Notes, at any time and Term Loan Agreement with Bank of America, N.A., acting through its Canada Branch, as global agent, the swing line lender and letter of credit issuer, Bank of America, N.A., as the U.S. Agent and a letter of credit issuer, the lenders (the “Lenders”) and any other financial institutions from time to time, party thereto.

On March 21, 2018 the Revolving Credit and Term Loan Agreement was amended and restated in its entirety pursuant to an Amended and Restated Revolving Credit and Term Loan Agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) entered into by the Company and the Lenders and any other financial institutions from time to time party thereto. Entry into the Credit Agreement, among other things, facilitated the release of each of the Company’s subsidiaries guaranteeing the obligations under the Revolving Credit and Term Loan Agreement. There are no subsidiary guarantors under the Credit Agreement. The Credit Agreement hasat a scheduled maturity date of March 21, 2023.

Pursuantredemption price equal to the terms and conditions of the Credit Agreement, the Lenders remain committed to providing a $3,200,000 credit facility to the Company, consisting of (i) revolving advances up to an aggregate principal amount of $1,562,500the 2029 Senior Notes being redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

Under certain circumstances, the Company may become obligated to pay additional amounts (the “Additional Amounts”) with respect to the 2029 Senior Notes to ensure that the net amounts received by each holder of the 2029 Senior Notes will not be less than the amount such holder would have received if withholding taxes or deductions were not incurred on a payment under or with respect to the 2029 Senior Notes. If such payment of Additional Amounts is a result of a change in the laws or regulations, including a change in any official position, the introduction of an official position or a holding by a court of competent jurisdiction, of any jurisdiction from or through which payment is made by or on behalf of the 2029 Senior Notes having power to tax, and the Company cannot avoid such payments of Additional Amounts through reasonable measures, then the Company may redeem the 2029 Senior Notes then outstanding at any one time outstanding, and (ii) a term loan in an aggregateredemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date (subject to the right of $1,637,500, which term loan was fully drawn at closingholders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the redemption date).

If the Company experiences certain kinds of changes of control, each holder of the Revolving Credit and Term Loan Agreement and remained and continued2029 Senior Notes may require the Company to be fully drawn at closingrepurchase all or a portion of the Credit Agreement. As part2029 Senior Notes for cash at a price equal to 101% of the aggregate commitments under the revolving advances, the 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 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 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 Revolving Credit and Term Loan Agreement are continued and now deemed issued under and governed by the terms of the Credit Agreement. Subject to certain specified conditions and additional deliveries, the 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 does2029 Senior Notes, plus any accrued but unpaid interest to, but excluding, the date of repurchase.

The covenants in the Indenture include limitations on liens, sale-leaseback transactions and mergers and sales of all or substantially all of the Company’s assets. The Indenture also includes customary events of default with respect to the 2029 Senior Notes. As of September 30, 2019, the Company was in compliance with all applicable covenants in the Indenture.

Upon an event of default, the principal of and accrued and unpaid interest on all the 2029 Senior Notes may be declared to be due and payable by the Trustee or the holders of not exceed $500,000 and (ii) the aggregateless than 25% in principal amount of commitmentsthe outstanding 2029 Senior Notes. Upon such a declaration, such principal and term loans underaccrued interest on all of the credit facility does not exceed $3,700,000.2029 Senior Notes will be due and payable immediately. In the case of an event of default resulting from certain events of bankruptcy, insolvency or reorganization, the principal (or such specified amount) of and accrued and unpaid interest, if any, on all outstanding 2029 Senior Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder of the 2029 Senior Notes.

21

18

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Advances are available under the 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

Details of bankers' acceptances or BA equivalent loans (“BA loans”), subject to the payment of a drawing fee. The fees for letters of credit in US 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 Company’s Leverage Ratio (as defined below). The applicable margin for LIBOR rate loans, drawing fees for bankers' acceptance and BA loans and letter of credit fees ranges from 1.00% to 1.50%, and the applicable margin for base rate loans, Canadian prime rate loans and swing line loans ranges from 0.00% to 0.50%. The Company will also pay a fee based on its Leverage Ratio (as defined below) on the actual daily unused amount of the aggregate revolving commitments.

The borrowings under the Credit Agreement are unsecured. The 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. 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 Credit Agreement to be due and payable. 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 (the “Leverage Ratio”), 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.follows:

September 30, 

December 31, 

 

    

2019

    

2018

 

    

Revolver under Credit Agreement

 

  

 

  

 

Available

$

1,012,786

$

955,779

Letters of credit outstanding

$

121,908

$

125,111

Total amount drawn, as follows:

$

427,806

$

481,610

Amount drawn - U.S. LIBOR rate loan

$

382,500

$

357,000

Interest rate applicable - U.S. LIBOR rate loan

3.14

%

3.62

%

Amount drawn – Canadian bankers’ acceptance

$

45,306

$

124,610

Interest rate applicable – Canadian bankers’ acceptance

 

3.05

%  

 

3.40

%

Commitment – rate applicable

 

0.12

%  

 

0.12

%

Term loan under Credit Agreement

 

 

  

Amount drawn – U.S. based LIBOR loan

$

700,000

$

1,237,500

Interest rate applicable – U.S. based LIBOR loan

 

3.14

%  

 

3.62

%

Tax Exempt Bonds

In February 2018,January 2019, the Company gave notice to redeem its Pennsylvania Economic Development Corporation IRBLeMay Washington Bond with a remaining principal balance of $35,000.$15,930. The Company paid in full the principal and accrued interest on this bond on April 2, 2018. In February 2018, the Company gave notice to redeem its Mission Economic Development Corporation IRB Bond with a remaining principal balance of $24,000.  The Company paid in full the principal and accrued interest on this bond on April 2, 2018. In July 2018, the Company gave notice to redeem its 2009 Seneca County Industrial Development Agency IRB Bond with a remaining principal balance of $5,000.  The Company paid in full the principal and accrued interest on this bond on September 4, 2018. The Company’s West Valley tax-exempt bond, with a principal amount of $15,500, matured August 1, 2018. The Company paid in full the principal and accrued interest on this bond on August 1, 2018.March 6, 2019.

11.11.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. NoNaN single contract or customer accounted for more than 10% of the Company’s total revenues at the consolidated or reportable segment level during the periods presented.

The Company manages its operations through five5 geographic operating segments and its E&P segment, which includes the majority of the Company’s E&P waste treatment and disposal operations. The Company’s five5 geographic operating segments and its E&P segment comprise the Company’s reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts.  In the first quarter of 2019, the Company moved two districts from the Eastern segment to the Central segment because their locations in Iowa were closer in proximity to operations in the Company’s Central segment.  The segment information presented herein reflects the realignment of these districts.

TheUnder the current orientation, the Company’s Eastern segment services customers located in 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 Southern segment services customers located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, southern Oklahoma, western Tennessee and Texas; 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, Rhode Island,Mexico, Oklahoma, South Carolina,Dakota, western Texas, Utah and eastern Tennessee, Vermont, VirginiaWyoming; 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 Saskatchewan; 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.Saskatchewan. The E&P segment services

19

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

E&P customers located in Arkansas, Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.

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)

The Company’s Chief Operating Decision Maker evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is segment EBITDA. The Company defines segment EBITDA as earnings before interest, taxes, depreciation, amortization, 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 11.

Summarized financial information concerning the Company’s reportable segments for the three and nine months ended September 30, 20182019 and 2017,2018, is shown in the following tables:

Three Months
Ended
September 30,
2018
 Revenue  Intercompany
Revenue(b)
  Reported
Revenue
  Segment EBITDA(c) 

Three Months Ended

    

    

Intercompany

    

Reported

    

Segment

September 30, 2019

Revenue

Revenue(b)

Revenue

EBITDA(c)

Eastern

$

399,936

$

(69,049)

$

330,887

$

88,101

Southern $321,306  $(38,266) $283,040  $70,159 

347,630

(42,442)

305,188

77,406

Western  303,614   (32,596)  271,018   86,174 

 

324,859

 

(35,651)

 

289,208

 

90,059

Eastern  353,844   (64,347)  289,497   83,721 

Central

 

262,737

 

(32,663)

 

230,074

 

81,746

Canada  211,682   (24,628)  187,054   68,819 

 

217,879

 

(27,059)

 

190,820

 

66,794

Central  213,492   (28,221)  185,271   70,288 
E&P  67,348   (2,118)  65,230   35,099 

 

69,503

 

(3,236)

 

66,267

 

35,803

Corporate(a)  -   -   -   (8,286)

 

 

 

 

(446)

 $1,471,286  $(190,176) $1,281,110  $405,974 

$

1,622,544

$

(210,100)

$

1,412,444

$

439,463

Three Months
Ended
September 30,
2017
 Revenue  Intercompany
Revenue(b)
  Reported
Revenue
  Segment EBITDA(c) 

Three Months Ended

    

    

Intercompany

    

Reported

    

Segment

September 30, 2018

Revenue

Revenue(b)

Revenue

EBITDA(c)

Eastern

$

349,212

$

(64,347)

$

284,865

$

82,733

Southern $317,059  $(36,531) $280,528  $63,171 

321,306

(38,266)

283,040

70,159

Western  292,222   (30,345)  261,877   84,861 

 

303,614

 

(32,596)

 

271,018

 

86,174

Eastern  292,124   (45,857)  246,267   74,018 

Central

 

218,124

 

(28,221)

 

189,903

 

71,276

Canada  224,166   (27,111)  197,055   74,369 

 

211,682

 

(24,628)

 

187,054

 

68,819

Central  190,210   (23,850)  166,360   64,607 
E&P  56,209   (1,818)  54,391   27,881 

 

67,348

 

(2,118)

 

65,230

 

35,099

Corporate(a)  -   -   -   (5,751)

 

 

 

 

(8,286)

 $1,371,990  $(165,512) $1,206,478  $383,156 

$

1,471,286

$

(190,176)

$

1,281,110

$

405,974

Nine Months
Ended
September 30,
2018
 Revenue  Intercompany
Revenue(b)
  Reported
Revenue
  Segment EBITDA(c) 

Nine Months Ended

Intercompany

Reported

Segment

September 30, 2019

Revenue

Revenue(b)

Revenue

EBITDA(c)

Eastern

$

1,137,258

$

(189,924)

$

947,334

$

250,106

Southern $951,313  $(111,824) $839,489  $207,853 

1,011,572

(121,040)

890,532

226,294

Western  874,464   (94,584)  779,880   240,006 

 

922,737

 

(101,552)

 

821,185

 

253,504

Eastern  966,571   (164,253)  802,318   225,950 

Central

 

715,997

 

(89,685)

 

626,312

 

219,280

Canada  615,157   (71,290)  543,867   195,390 

 

624,470

 

(76,776)

 

547,694

 

193,702

Central  591,417   (77,337)  514,080   191,840 
E&P  186,734   (5,159)  181,575   95,009 

 

202,553

 

(8,891)

 

193,662

 

100,845

Corporate(a)  -   -   -   (14,368)

 

 

 

 

(11,751)

 $4,185,656  $(524,447) $3,661,209  $1,141,680 

$

4,614,587

$

(587,868)

$

4,026,719

$

1,231,980

23

20

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Nine Months Ended

Intercompany

Reported

Segment

September 30, 2018

Revenue

Revenue(b)

Revenue

EBITDA(c)

Eastern

$

953,165

$

(164,253)

$

788,912

$

222,772

Southern

951,313

(111,824)

839,489

207,853

Western

 

874,464

 

(94,584)

 

779,880

 

240,006

Central

 

604,823

 

(77,337)

 

527,486

 

195,018

Canada

 

615,157

 

(71,290)

 

543,867

 

195,390

E&P

 

186,734

 

(5,159)

 

181,575

 

95,009

Corporate(a)

 

 

 

 

(14,368)

$

4,185,656

$

(524,447)

$

3,661,209

$

1,141,680

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 

____________________

(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 six6 operating segments.
(b)Intercompany revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service.
(c)For those items included in the determination of segment EBITDA, the accounting policies of the segments are the same as those described in the Company’s most recent Annual Report on Form 10-K.

Total assets for each of the Company’s reportable segments at September 30, 20182019 and December 31, 2017,2018, were as follows:

September 30, 

December 31, 

    

2019

    

2018

Eastern

$

2,737,208

$

2,673,316

Southern

 

2,994,260

 

2,892,994

Western

1,697,050

1,596,129

Central

1,884,207

1,506,326

Canada

2,454,152

2,412,971

E&P

962,761

969,808

Corporate

540,597

575,785

Total Assets

 

$

13,270,235

 

$

12,627,329

  September 30,
2018
  December 31,
2017
 
Southern $2,778,123  $2,718,296 
Western  1,583,561   1,573,955 
Eastern  2,348,438   2,024,527 
Canada  2,562,659   2,677,557 
Central  1,452,607   1,297,118 
E&P  974,049   981,980 
Corporate  492,629   741,248 
Total Assets $12,192,066  $12,014,681 

The following tables show changes in goodwill during the nine months ended September 30, 20182019 and 2017,2018, by reportable segment:

  Southern  Western  Eastern  Canada  Central  E&P  Total 
Balance as of December 31, 2017 $1,436,320  $397,508  $804,133  $1,575,538  $468,275  $-  $4,681,774 
Goodwill acquired  4,800   666   122,136   151   42,197   -   169,950 
Goodwill adjustment for assets held for sale  10,194   -   -   -   -   -   10,194 
Impact of changes in foreign currency  -   -   -   (48,622)  -   -   (48,622)
Balance as of September 30, 2018 $1,451,314  $398,174  $926,269  $1,527,067  $510,472  $-  $4,813,296 

    

Eastern

    

Southern

    

Western

    

Central

    

Canada

    

E&P

    

Total

Balance as of December 31, 2018

$

1,143,355

$

1,517,610

$

398,174

$

523,566

$

1,448,980

$

$

5,031,685

Goodwill transferred

(16,869)

16,869

Goodwill acquired

 

22,146

 

10,329

1,334

 

189,194

25

 

223,028

Goodwill divested

 

 

(845)

 

 

 

 

 

(845)

Impact of changes in foreign currency

 

 

 

 

 

43,688

 

 

43,688

Balance as of September 30, 2019

$

1,148,632

$

1,527,094

$

399,508

$

729,629

$

1,492,693

$

$

5,297,556

24

    

    Eastern    

    

Southern

    

Western

    

Central

    

Canada

    

E&P

    

Total

Balance as of December 31, 2017

$

804,133

$

1,436,320

$

397,508

$

468,275

$

1,575,538

$

$

4,681,774

Goodwill transferred

(16,869)

16,869

Goodwill acquired

 

122,136

 

4,800

 

666

 

42,197

 

151

 

 

169,950

Goodwill adjustment for assets held for sale

 

10,194

 

10,194

Impact of changes in foreign currency

 

 

 

 

 

(48,622)

 

 

(48,622)

Balance as of September 30, 2018

$

909,400

$

1,451,314

$

398,174

$

527,341

$

1,527,067

$

$

4,813,296

21

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

  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 

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,
 
 2018  2017  2018  2017 

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

    

Eastern segment EBITDA

$

88,101

$

82,733

$

250,106

$

222,772

Southern segment EBITDA $70,159  $63,171  $207,853  $199,280 

77,406

70,159

226,294

207,853

Western segment EBITDA  86,174   84,861   240,006   247,475 

 

90,059

 

86,174

 

253,504

 

240,006

Eastern segment EBITDA  83,721   74,018   225,950   209,315 

Central segment EBITDA

 

81,746

 

71,276

 

219,280

 

195,018

Canada segment EBITDA  68,819   74,369   195,390   200,283 

 

66,794

 

68,819

 

193,702

 

195,390

Central segment EBITDA  70,288   64,607   191,840   177,975 
E&P segment EBITDA  35,099   27,881   95,009   63,518 

 

35,803

 

35,099

 

100,845

 

95,009

Subtotal reportable segments  414,260   388,907   1,156,048   1,097,846 

 

439,909

 

414,260

 

1,243,731

 

1,156,048

Unallocated corporate overhead  (8,286)  (5,751)  (14,368)  (32,535)

 

(446)

 

(8,286)

 

(11,751)

 

(14,368)

Depreciation  (148,232)  (136,941)  (423,866)  (395,008)

 

(157,994)

 

(148,232)

 

(461,616)

 

(423,866)

Amortization of intangibles  (26,871)  (26,613)  (79,444)  (76,886)

 

(31,934)

 

(26,871)

 

(93,821)

 

(79,444)

Impairments and other operating items  1,998   (832)  (6,106)  (141,333)

 

(12,935)

 

1,998

 

(32,949)

 

(6,106)

Interest expense  (32,078)  (32,471)  (96,874)  (92,763)

 

(36,780)

 

(32,078)

 

(111,313)

 

(96,874)

Interest income  1,467   1,656   3,677   3,131 

 

2,056

 

1,467

 

7,186

 

3,677

Other income, net  732   1,709   2,376   3,561 
Foreign currency transaction loss  (132)  (1,864)  (323)  (3,502)

Other income (expense), net

 

(19)

 

600

 

4,562

 

2,053

Income before income tax provision $202,858  $187,800  $541,120  $362,511 

$

201,857

$

202,858

$

544,029

$

541,120

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)

12.12.DERIVATIVE FINANCIAL INSTRUMENTS

The Company recognizes all derivatives on the Condensed Consolidated Balance Sheets 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.

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 under the Credit Agreement. The Company’s strategy to achieve that objective involves entering into interest rate swaps. The interest rate swaps outstanding at September 30, 20182019 were specifically designated to the Credit Agreement and accounted for as cash flow hedges.

22

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

At September 30, 2018,2019, the Company’s derivative instruments included 16 interest rate swap agreements as follows:

    

    

Fixed

    

Variable

    

    

Notional

Interest

Interest Rate

Date Entered

Amount

Rate Paid*

Received

Effective Date

Expiration Date

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

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
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

* 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. 

The Company had 1 fuel hedge agreement in place at September 30, 2018, which expired at December 31, 2018.  At September 30, 2018,2019, the Company’s derivative instruments included oneCompany had 0 fuel hedge agreement as follows:   

Date Entered Notional
Amount
(in gallons
per month)
  Diesel
Rate
Paid
Fixed
(per
gallon)
  Diesel Rate Received
Variable
 Effective Date Expiration
Date
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. 

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)

agreements in place.

The fair values of derivative instruments designated as cash flow hedges as of September 30, 2018,2019, were as follows:

Derivatives Designated as Cash Asset Derivatives Liability Derivatives

Asset Derivatives

Liability Derivatives

Flow Hedges Balance Sheet Location Fair Value  Balance Sheet Location Fair Value 

    

Balance Sheet Location

    

Fair Value

    

Balance Sheet Location

    

Fair Value

Interest rate swaps Prepaid expenses and other current assets(a) $11,380  Other long-term liabilities $- 

 

Prepaid expenses and other current assets(a)

$

2,954

 

Accrued liabilities(a)

$

(2,148)

 Other assets, net  25,834     
        
Fuel hedges Prepaid expenses and other current assets(b)  2,189     

 

Other assets, net

 

842

 

Other long-term liabilities

(53,288)

Total derivatives designated as cash flow hedges $39,403    $- 

$

3,796

$

(55,436)

____________________

(a)Represents the estimated amount of the existing unrealized gains and losses, respectively, on interest rate swaps as of September 30, 20182019 (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 on the fuel hedge as of September 30, 2018 (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, 2017,2018, were as follows:

Derivatives Designated as Cash Asset Derivatives Liability Derivatives

Derivative Assets

Derivative Liabilities

Flow Hedges Balance Sheet Location Fair Value  Balance Sheet Location Fair Value 

    

Balance Sheet Location

    

Fair Value

    

Balance Sheet Location

    

Fair Value

Interest rate swaps Prepaid expenses and other current assets $5,193  Accrued liabilities $(903)

 

Prepaid expenses and other current assets(a)

$

10,737

 

Other long-term liabilities

$

(9,314)

 Other assets, net  15,182  Other long-term liabilities  (493)
        
Fuel hedges Prepaid expenses and other current assets  3,880     

 

Other assets, net

 

10,675

 

 

Total derivatives designated as cash flow hedges $24,255    $(1,396)

$

21,412

$

(9,314)

          

23

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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 nine months ended September 30, 20182019 and 2017: 2018:

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,
 
 2018 2017   2018 2017 

Derivatives

Statement of

Amount of (Gain) or Loss Reclassified

Designated as Cash

Amount of Gain or (Loss) Recognized

Net Income

from AOCIL into Earnings,

Flow Hedges

as AOCIL on Derivatives, Net of Tax (a)

Classification

Net of Tax (b), (c)

Three Months Ended

Three Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

    

2019

    

2018

Interest rate swaps $634  $(361) Interest expense $3,145  $376 

$

(11,379)

$

634

Interest expense

$

(1,451)

$

3,145

Fuel hedges  222   1,680  Cost of operations  (1,359)  487 

 

 

222

 

Cost of operations

 

 

(1,359)

Total $856  $1,319    $1,786  $863 

$

(11,379)

$

856

$

(1,451)

$

1,786

Derivatives

Statement of

Amount of (Gain) or Loss Reclassified

Designated as Cash

Amount of Gain or (Loss) Recognized

Net Income

from AOCIL into Earnings,

Flow Hedges

    

as AOCIL on Derivatives, Net of Tax (a)

Classification

Net of Tax (b), (c)

Nine Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

    

2019

    

2018

Interest rate swaps

$

(41,761)

$

11,634

Interest expense

$

(5,085)

$

1,769

Fuel hedges

 

 

2,226

 

Cost of operations

 

 

(3,490)

Total

$

(41,761)

$

13,860

$

(5,085)

$

(1,721)

____________________

27

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,
 
  2018  2017    2018  2017 
Interest rate swaps $11,634  $224  Interest expense $1,769  $1,729 
Fuel hedges  2,226   (1,030) Cost of operations  (3,490)  1,704 
Total $13,860  $(806)   $(1,721) $3,433 

(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 dodid not offset exactly each reporting period, the Company assessesassessed whether the fuel hedges arewere highly effective using the cumulative dollar offset approach.

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

(c)Amounts reclassified from 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, 2018 and 2017. 

See Note 16 for further discussion on the impact of the Company’s hedge accounting to its consolidated comprehensive income (loss) and AOCIL.

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)

13.13.FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company’s financial instruments consist primarily of cash and equivalents, trade receivables, restricted cash and investments, trade payables, debt instruments, contingent consideration obligations, interest rate swaps and fuel hedges. As of September 30, 20182019 and December 31, 2017,2018, the carrying values of cash and equivalents, trade receivables, restricted 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 September 30, 20182019 and December 31, 2017,2018, based on current borrowing rates, current remaining average life to maturity and borrower credit quality for similar types of borrowing arrangements, and are classified as Level 2 within the fair value hierarchy. The carrying values and fair values of the Company’s debt instruments

24

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

where the carrying values do not approximate their fair values as of September 30, 20182019 and December 31, 2017,2018, are as follows:

  Carrying Value at  Fair Value* at 
  September 30,
2018
  December 31,
2017
  September 30,
2018
  December 31,
2017
 
2018 Senior Notes $-  $50,000  $-  $50,223 
2019 Senior Notes $175,000  $175,000  $178,150  $182,547 
2021 Senior Notes $100,000  $100,000  $101,780  $104,985 
New 2021 Senior Notes $150,000  $150,000  $144,299  $146,855 
2022 Senior Notes $125,000  $125,000  $121,062  $124,532 
2023 Senior Notes $200,000  $200,000  $188,988  $194,660 
2024 Senior Notes $150,000  $150,000  $143,651  $149,133 
2025 Senior Notes $375,000  $375,000  $358,141  $375,311 
2026 Senior Notes $400,000  $400,000  $369,921  $388,760 
2027 Senior Notes $250,000  $250,000  $236,409  $250,029 

Carrying Value at

Fair Value* at

September 30, 

December 31, 

September 30, 

December 31, 

    

2019

    

2018

    

2019

    

2018

    

5.25% Senior Notes due 2019

$

175,000

$

175,000

$

175,361

$

177,870

4.64% Senior Notes due 2021

$

100,000

$

100,000

$

102,783

$

101,292

2.39% Senior Notes due 2021

$

150,000

$

150,000

$

149,210

$

144,305

3.09% Senior Notes due 2022

$

125,000

$

125,000

$

126,640

$

120,682

2.75% Senior Notes due 2023

$

200,000

$

200,000

$

200,664

$

188,363

3.24% Senior Notes due 2024

$

150,000

$

150,000

$

153,789

$

142,877

3.41% Senior Notes due 2025

$

375,000

$

375,000

$

389,912

$

355,541

3.03% Senior Notes due 2026

$

400,000

$

400,000

$

407,943

$

367,143

3.49% Senior Notes due 2027

$

250,000

$

250,000

$

261,260

$

234,243

4.25% Senior Notes due 2028

$

500,000

$

500,000

$

567,850

$

506,100

3.50% Senior Notes due 2029

$

500,000

$

$

537,550

$

____________________

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

For details on the fair value of the Company’s interest rate swaps, fuel hedges, restricted cash and investments and contingent consideration, refer to Note 15.

14.14.NET INCOME 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 per common share attributable to the Company’s shareholders for the three and nine months ended September 30, 20182019 and 2017: 2018:

 Three months ended
September 30,
  Nine months ended
September 30,
 
 2018  2017  2018  2017 

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

    

Numerator:                

Net income attributable to Waste Connections for basic and diluted earnings per share $150,843  $123,227  $414,393  $261,732 

$

159,109

$

150,843

$

433,579

$

414,393

                
Denominator:                

 

  

 

  

 

  

 

  

Basic shares outstanding  263,628,838   263,443,064   263,657,274   263,298,839 

 

263,853,681

 

263,628,838

 

263,768,258

 

263,657,274

Dilutive effect of equity-based awards  765,919   856,408   719,046   810,544 

 

733,775

 

765,919

 

705,087

 

719,046

Diluted shares outstanding  264,394,757   264,299,472   264,376,320   264,109,383 

 

264,587,456

 

264,394,757

 

264,473,345

 

264,376,320

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)

15.15.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 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,

25

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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 cash and investments. TheAt September 30, 2018, the Company’s derivative instruments areincluded pay-fixed, receive-variable interest rate swaps and pay-fixed, receive-variable diesel fuel hedges. At September 30, 2019 and December 31, 2018, the Company’s derivative instruments included pay-fixed, receive-variable interest rate 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 $3.36 to $3.39 at September 30, 2018 and from $2.95 to $3.00 at December 31, 2017. The weighted average DOE index curve used in the DCF model was $3.38 and $2.96 at September 30, 2018 and December 31, 2017, respectively.contracts. 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 cash 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 cash and investments measured at fair value are invested primarily in money market accounts, bank time deposits, U.S. government and agency securities money market accounts and Canadian bankers’ acceptance notes.

The Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 20182019 and December 31, 2017,2018, were as follows:

 Fair Value Measurement at September 30, 2018 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 $37,214  $-  $37,214  $- 
Fuel hedge derivative instrument – net asset position $2,189  $-  $-  $2,189 

Fair Value Measurement at September 30, 2019 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

$

(51,640)

$

$

(51,640)

$

Restricted cash and investments $126,221  $-  $126,221  $- 

$

142,291

$

$

142,291

$

Contingent consideration $(55,024) $-  $-  $(55,024)

$

(56,954)

$

$

$

(56,954)

30

Fair Value Measurement at December 31, 2018 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 asset position

$

12,098

$

$

12,098

$

Restricted cash and investments

$

131,422

$

$

131,422

$

Contingent consideration

$

(54,615)

$

$

$

(54,615)

26

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

  Fair Value Measurement at December 31, 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 $18,979  $-  $18,979  $- 
Fuel hedge derivative instrument – net asset position $3,880  $-  $-  $3,880 
Restricted cash and investments $165,592  $-  $165,592  $- 
Contingent consideration $(47,285) $-  $-  $(47,285)

The following table summarizes the changes in the fair value for Level 3 derivatives for the nine months ended September 30, 20182019 and 2017:2018:

 Nine Months Ended September 30, 
 2018  2017 

Nine Months Ended September 30, 

    

2019

    

2018

    

Beginning balance $3,880  $(264)

$

$

3,880

Realized (gains) losses included in earnings  (4,647)  2,765 
Unrealized gains (losses) included in AOCIL  2,956   (1,672)

Realized gains included in earnings

 

 

(2,837)

Unrealized gains included in AOCIL

 

 

2,661

Ending balance $2,189  $829 

$

$

3,704

The following table summarizes the changes in the fair value for Level 3 liabilities related to contingent consideration for the nine months ended September 30, 20182019 and 2017: 2018:

 Nine Months Ended September 30, 
 2018  2017 

Nine Months Ended September 30, 

    

2019

    

2018

    

Beginning balance $47,285  $51,826 

$

54,615

$

47,285

Contingent consideration recorded at acquisition date  11,669   35 

 

1,003

 

11,669

Payment of contingent consideration recorded at acquisition date  (5,459)  (5,840)

 

(1,621)

 

(5,459)

Payment of contingent consideration recorded in earnings  (11)  - 

 

 

(11)

Adjustments to contingent consideration  349   17,754 

 

1,466

 

349

Reclass earned contingent consideration to accrued liabilities  -   (20,464)
Interest accretion expense  1,308   1,381 

 

1,383

 

1,308

Foreign currency translation adjustment  (117)  263 

 

108

 

(117)

Ending balance $55,024  $44,955 

$

56,954

$

55,024

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)

16.16.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 months ended September 30, 20182019 and 20172018 are as follows:

 Three months ended September 30, 2018 
 Gross  Tax effect  Net of tax 

    

Three Months Ended September 30, 2019

Gross

    

Tax Effect

    

Net of Tax

Interest rate swap amounts reclassified into interest expense $4,279  $(1,134) $3,145 

$

(1,974)

$

523

$

(1,451)

Fuel hedge amounts reclassified into cost of operations  (1,810)  451   (1,359)
Changes in fair value of interest rate swaps  863   (229)  634 

 

(15,482)

 

4,103

 

(11,379)

Changes in fair value of fuel hedge  295   (73)  222 
Foreign currency translation adjustment  35,455   -   35,455 

 

(24,911)

 

 

(24,911)

 $39,082  $(985) $38,097 

$

(42,367)

$

4,626

$

(37,741)

  Three months ended September 30, 2017 
  Gross  Tax effect  Net of tax 
Interest rate swap amounts reclassified into interest expense $511  $(135) $376 
Fuel hedge amounts reclassified into cost of operations  789   (302)  487 
Changes in fair value of interest rate swaps  2,181   (2,542)  (361)
Changes in fair value of fuel hedges  2,717   (1,037)  1,680 
Foreign currency translation adjustment  84,500   -   84,500 
  $90,698  $(4,016) $86,682 

 Nine months ended September 30, 2018 
 Gross  Tax effect  Net of tax 

    

Three Months Ended September 30, 2018

Gross

    

Tax Effect

    

Net of Tax

Interest rate swap amounts reclassified into interest expense $2,407  $(638) $1,769 

$

4,279

$

(1,134)

$

3,145

Fuel hedge amounts reclassified into cost of operations  (4,647)  1,157   (3,490)

 

(1,810)

 

451

 

(1,359)

Changes in fair value of interest rate swaps  15,828   (4,194)  11,634 

 

863

 

(229)

 

634

Changes in fair value of fuel hedge  2,956   (730)  2,226 

Changes in fair value of fuel hedges

 

295

 

(73)

 

222

Foreign currency translation adjustment  (67,349)  -   (67,349)

 

35,455

 

 

35,455

 $(50,805) $(4,405) $(55,210)

$

39,082

$

(985)

$

38,097

32

27

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

    

Nine Months Ended September 30, 2019

    

Gross

    

Tax Effect

    

Net of Tax

Interest rate swap amounts reclassified into interest expense

$

(6,918)

$

1,833

$

(5,085)

Changes in fair value of interest rate swaps

 

(56,818)

 

15,057

 

(41,761)

Foreign currency translation adjustment

 

60,404

 

 

60,404

$

(3,332)

$

16,890

$

13,558

 Nine months ended September 30, 2017 
 Gross  Tax effect  Net of tax 

Nine Months Ended September 30, 2018

    

Gross

    

Tax Effect

    

Net of Tax

Interest rate swap amounts reclassified into interest expense $2,352  $(623) $1,729 

$

2,407

$

(638)

$

1,769

Fuel hedge amounts reclassified into cost of operations  2,765   (1,061)  1,704 

 

(4,647)

 

1,157

 

(3,490)

Changes in fair value of interest rate swaps  305   (81)  224 

 

15,828

 

(4,194)

 

11,634

Changes in fair value of fuel hedges  (1,672)  642   (1,030)

 

2,956

 

(730)

 

2,226

Foreign currency translation adjustment  155,153   -   155,153 

 

(67,349)

 

 

(67,349)

 $158,903  $(1,123) $157,780 

$

(50,805)

$

(4,405)

$

(55,210)

A rollforward of the amounts included in AOCIL, net of taxes, for the nine months ended September 30, 20182019 and 2017,2018, is as follows:

 Fuel Hedges  Interest Rate
Swaps
  Foreign
Currency
Translation
Adjustment
  Accumulated
Other
Comprehensive
Income (Loss)
 
Balance at December 31, 2017 $2,907  $13,951  $91,555  $108,413 

    

    

    

Foreign

    

Accumulated

Currency

Other

Interest

Translation

Comprehensive

Rate Swaps

Adjustment

Income (Loss)

Balance at December 31, 2018

$

8,892

$

(83,678)

$

(74,786)

Amounts reclassified into earnings  (3,490)  1,769   -   (1,721)

(5,085)

(5,085)

Changes in fair value  2,226   11,634   -   13,860 

(41,761)

(41,761)

Foreign currency translation adjustment  -   -   (67,349)  (67,349)

60,404

60,404

Balance at September 30, 2018 $1,643  $27,354  $24,206  $53,203 

Balance at September 30, 2019

$

(37,954)

$

(23,274)

$

(61,228)

 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

Fuel Hedges

Rate Swaps

Adjustment

Income (Loss)

Balance at December 31, 2017

$

2,907

$

13,951

$

91,555

$

108,413

Amounts reclassified into earnings  1,704   1,729   -   3,433 

 

(3,490)

 

1,769

 

 

(1,721)

Changes in fair value  (1,030)  224   -   (806)

 

2,226

 

11,634

 

 

13,860

Foreign currency translation adjustment  -   -   155,153   155,153 

 

 

 

(67,349)

 

(67,349)

Balance at September 30, 2017 $510  $10,047  $104,222  $114,779 

Balance at September 30, 2018

$

1,643

$

27,354

$

24,206

$

53,203

See Note 12 for further discussion on the Company’s derivative instruments.

33

28

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

17.SHAREHOLDERS’ EQUITY

17.SHAREHOLDERS' EQUITY

Share-Based Compensation

Restricted Share Units

A summary of activity related to restricted share units (“RSUs”) during the nine-month period ended September 30, 2018,2019, is presented below:

Unvested
Shares

Unvested Shares

Outstanding at December 31, 20172018

1,042,014

987,563

Granted

496,217

341,459

Forfeited

(53,063)

(46,503)

Vested and issued

(480,577)

(413,877)

Vested and deferred(3,653)

Outstanding at September 30, 20182019

1,000,938

868,642

The weighted average grant-date fair value per share for the common shares underlying the RSUs granted during the nine-month period ended September 30, 20182019 was $69.22. 

$81.15.

Recipients of 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 to recipients who deferred their RSUs common shares of the Company underlying the deferred RSUs. At September 30, 20182019 and 2017,2018, the Company had 264,374247,999 and 352,214264,374 vested deferred RSUs outstanding, respectively.

Performance-Based Restricted Share Units

A summary of activity related to performance-based restricted share units (“PSUs”) during the nine-month period ended September 30, 2018,2019, is presented below:

Unvested
Shares

Unvested Shares

Outstanding at December 31, 20172018

514,461

532,086

Granted

178,377

152,656

Forfeited(2,071)

Vested and issued

(154,181)

(180,258)

Outstanding at September 30, 20182019

536,586

504,484

During the nine months ended September 30, 2018,2019, 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, 2020.2021. During the same period, the Company’s 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. 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-month period ended September 30, 20182019 was $69.04. $80.85.

34

29

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Deferred Share Units

A summary of activity related to deferred share units (“DSUs”) during the nine-month period ended September 30, 2018,2019, is presented below:

Vested Shares

Vested Shares

Outstanding at December 31, 20172018

13,138

17,176

Granted

4,038

3,804

Cash settled

(2,010)

Outstanding at September 30, 20182019

17,176

18,970

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 nine-month period ended September 30, 20182019 was $70.47. $83.80.

Other Restricted Share Units

RSU 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. A summary of activity related to Progressive Waste RSUs during the nine-month period ended September 30, 2018,2019, is presented below:

Outstanding at December 31, 20172018

158,510

122,259

Cash settled

(27,059)

(46,023)

Forfeited

(2,435)

(2,352)

Outstanding at September 30, 20182019

129,016

73,884

A summary of vesting activity related to Progressive Waste RSUs during the nine-month period ended September 30, 2018,2019, is presented below:

Vested at December 31, 20172018

138,054

120,153

Vested over remaining service period

14,695

2,106

Cash settled

(27,059)

(46,023)

Forfeited

(2,435)

(2,352)

Vested at September 30, 20182019

123,255

73,884

NoNaN RSUs under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016.  During the nine months ended September 30, 2019, 964 Progressive Waste RSUs were forfeited and have been redistributed to the other remaining active participants.  All remaining RSUs were vested as of March 31, 2019.

35

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)

Other Performance-Based Restricted Share Units

PSU grants outstanding under 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 based on

30

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

achieving target results. A summary of activity related to Progressive Waste PSUs during the nine-month period ended September 30, 2018,2019, is presented below:

Outstanding at December 31, 20172018

55,602

22,791

Cash settled, net of notional dividend

(27,033)

(22,791)

Forfeited(1,909)

Outstanding at September 30, 20182019

26,660

A summary of vesting activity related to Progressive Waste PSUs during the nine-month period ended September 30, 2018, is presented below:

Vested at December 31, 201728,407
Vested over remaining service period25,417
Cash settled, net of notional dividend(27,033)
Forfeited(1,909)
Vested at September 30, 201824,882

NoNaN PSUs under the Progressive Waste share-based compensation plans were granted subsequent to June 1, 2016.  All outstanding PSUs were vested as of December 31, 2018.

Share Based Options

Share 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. A summary of activity related to Progressive Waste share based options during the nine-month period ended September 30, 2018,2019, is presented below:

Outstanding at December 31, 20172018

236,616

165,156

Cash settled

(71,460)

(31,097)

Outstanding at September 30, 20182019

165,156

134,059

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.

Normal Course Issuer Bid

On July 24, 2018,25, 2019, 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 13,174,97613,184,474 of the Company’s common shares during the period of August 8, 20182019 to August 7, 20192020 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 NCIB that expired August 7, 2018.2019. The Company received Toronto Stock Exchange (the “TSX”) approval for its annual renewal of the NCIB on August 2, 2018.2019.  Under the NCIB, the Company may make share repurchases only in the open market, including on the 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.

36

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 is limited to a maximum of 71,11479,933 common shares, which represents 25% of the average daily trading volume on the TSX of 284,459319,734 common shares for the period from February 1, 20182019 to July 31, 2018.2019. 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.

31

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

During the nine months ended September 30, 2019, the Company did not repurchase any common shares pursuant to its NCIB in effect during such period.  For the nine months ended September 30, 2018, the Company repurchased 594,474 common shares pursuant to its NCIB in effect during such period at an aggregate cost of $42,040. For the nine months ended September 30, 2017, the Company did not repurchase any common shares pursuant to the NCIB in effect during that period. As of September 30, 2018,2019, the remaining maximum number of shares available for repurchase under the current NCIB was 12,587,332.13,184,474.

Cash Dividend

In October 2017,2018, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.02, from $0.12$0.14 to $0.14$0.16 per Company common share. Cash dividends of $110,447$126,348 and $95,201$110,447 were paid during the nine months ended September 30, 20182019 and 2017,2018, respectively.

18.18.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 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.

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 Company’s business. Except as noted in the matters described below, as of September 30, 2018,2019, there is no current proceeding or litigation involving the Company or its property that the Company believes could have a material adverse effect on its business, financial condition, results of operations or cash flows.

Lower Duwamish Waterway Superfund Site Allocation Process

In November 2012, the Company’s subsidiary, Northwest Container Services, Inc. (“NWCS”), was 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 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) would total approximately $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

32

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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.

37

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)

 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.

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 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 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.  With recentLater extensions pushed the allocation is now scheduledconclusion date to concludeearly 2020 and the EPA was informed of that schedule.  The allocation participants voted in earlyJune 2019 to extend the final allocation report deadline to July 2020.  The EPA has been informed of that change.  In June 2017, attorneys for the EPA informed attorneys for several PRPs that the EPA expected to begin RD/RA negotiations in the late summer or early fall of 2018.  Those negotiations have not been scheduled and there is no recent indication from the EPA regarding when they will begin. The Company cannot provide assurance that the EPA’s schedule can be met or will be adjusted. 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.

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 responded with correspondence to the NOAA Office of General Counsel, 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.

33

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

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 (“DRP”) for a conditional use permit (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 three3 million tons of materials for disposal and beneficial use in 2016.  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.

38

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)

After many years of reviews and delays, upon the recommendation of County staff, the County’s Regional Planning Commission (the “Commission”) approved the Application on April 19, 2017, but imposed operating conditions, fees and exactions that substantially reduce the historical landfill operations and represent a large increase in aggregate taxes and fees. CCL objected to many of the requirements imposed by the Commission.  Current estimates for new costs imposed on CCL under the CUP are in excess of $300,000.

CCL appealed the Commission’s decision to the County Board of Supervisors, but the appeal was not successful.  At a subsequent hearing, on July 25, 2017, the Board of Supervisors approved the CUP.  On October 20, 2017, CCL filed in the Superior Court of California, County of Los Angeles a verified petition for writ of mandate and complaint against the County and the County Board of Supervisors captionedChiquita Canyon, LLC v. County of Los Angeles,No. BS171262 (Los Angeles Co. Super Ct.) (the “Complaint”).  The Complaint challenges the terms of the CUP in 13 counts generally alleging that the County violated multiple California and federal 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 (g) all other appropriate legal and equitable relief.

On December 6, 2017, the County filed a demurrer to the Complaint arguing that the Complaint is legally insufficient to proceed.  At an initial trial-setting hearing on February 8, 2018, the Superior Court suggested that the Complaint should be amended to separate the claims seeking a writ of mandamus against the County.  CCL filed its First Amended Complaint on March 23, 2018.  The County filed its demurrer and motion to strike challenging portions of the First Amended Complaint on April 25, 2018. CCL filed its combined opposition to the demurrer and motion to strike on July 3, 2018. The County filed a combined reply brief on July 10, 2018.  The hearing on the demurrer took place on July 17, 2018.  The Superior Court sustained the demurrer and granted the motion to strike.  The effect of the Court’s rulings iswas to bar CCL from proceeding with its challenges to 14 of the 29 CUP conditions at issue in the litigation, including 13 operational conditions and CCL’s challenge to the $11,600 B&T Fee discussed below.  The Superior Court set a trial date of June 18, 2019 for the remaining mandamus claims.  The Superior Court granted CCL leave to amend its Complaint if CCL chose to pay the $11,600 B&T fee to allow a challenge to the B&T fee to proceed under the Mitigation Fee Act.  CCL paid the $11,600 B&T fee on August 10, 2018 and filed its Second Amended Complaint on August 16, 2018, reflecting that the B&T fee had been paid under protest and allowing the challenges to the B&T fee to go forward.

On September 14, 2018, CCL appealed tosought discretionary review by the California Court of Appeal of the Superior Court’s July 17, 2018 decision barring the challenge to 13 operational conditions.  On October 5, 2018, the Court of Appeal decided to hear CCL’s appeal and, issued an order to show cause, setting aafter full briefing schedule and calendaringby the parties, heard oral argument foron January 9, 2019.

34

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

On February 25, 2019, the Court of Appeal issued its decision, reversing the trial court orders that granted the County’s motion to strike and demurrer.  The Court of Appeal ruled that CCL had adequately pled a claim that the County was equitably estopped from contending that CCL had forfeited its rights to challenge the legality of the 13 operational conditions.  CCL’s Complaint sets forth that CCL relied on representations made by the County in 2017 that CCL could reserve its legal rights to challenge the CUP in a separate reservation of rights letter rather than the affidavit of acceptance of the CUP that the County compelled Chiquita to file.

At a trial setting conference on May 28, 2019, the equitable estoppel issues in this case were discussed and the Superior Court continued the June 18, 2019 trial date to April 23, 2020.  The Superior Court also set an evidentiary hearing on the equitable estoppel issues for November 12, 2019.  Discovery occurred on these issues in July through September 2019.  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.

B.CEQA Lawsuit Against Los Angeles County Challenging Environmental Review for Landfill Expansion

A separate lawsuit involving CCL and the Landfill was filed on August 24, 2017 by community activists alleging that the environmental review underlying the CUP was inadequate under state law.  The Val Verde Civic Association, Citizens for Chiquita Canyon Landfill Compliance, and the Santa Clarita Organization for Planning the Environment filed a petition for writ of mandate in the Superior Court of California, County of Los Angeles against the County, naming CCL as the real party in interest.  The lawsuit seeks to overturn the County’s approval of the CUP for the expansion 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 requires 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, CCL has agreed to reimburse the County for its legal costs associated with defense of the lawsuit.  As the real party in interest, CCL has a right to notice and an opportunity to be heard in opposition to the petition for writ of mandate.  The petitioners filed their Opening Brief with the court on September 27, 2018.  CCL is scheduled to filefiled its Opposition Brief with the court on November 28, 2018 and the petitioners are scheduled to filefiled their Reply Brief on December 20, 2018.  A trial date ishad been scheduled for February 8, 2019, but on February 6, 2019, the court reassigned the case to a different judge and vacated the trial date.  A new trial date was scheduled for August 23, 2019. CCL intendsJust prior to vigorously defend the lawsuitAugust 23, 2019 trial, the court issued a tentative ruling that upheld most of the environmental analysis, with one exception relating to mitigation for odor impacts, and also asking the parties for further information relating to air quality monitoring. At the conclusion of oral argument on August 23, 2019, the court asked the parties to return on September 13, 2019 for further oral argument on the odor mitigation issue.  The court did not issue a tentative ruling at the September 13, 2019 hearing, additional oral argument was had, and the court took the matter under submission. The court issued a final ruling on October 10, 2019 denying the writ petition in full and directing the County to prepare a proposed judgment, serve it on the opposing parties for approval as to form, and lodge it with the real party in interest. However, at this point,court. Once the Company is not able to determinecourt issues a notice of entry of judgment, the likelihood of any outcome in this matter.

39

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)

petitioners may file an appeal from the judgment within 60 days or the judgment will be final.

C.Solid Waste Management Fee Enforcement Order

On September 15, 2016, CCL received a letter from the County’s Department of Public Works (“DPW”), which alleged that from October 2011 to September 2014, CCL underpaid the County Solid Waste Management Fee in violation of the Los Angeles County Code. An invoice totaling more than $5,100, which included certain fees and penalties, was attached to the letter, with 30-day payment terms. DPW argues that the penalty continues to accrue, and as of July 31, 2018 the penalties were calculated by DPW at $3,079, for a total fee and penalty assessment of $5,515.

On September 29, 2016, CCL submitted an initial response to the DPW letter. CCL filed a protective administrative appeal on October 13, 2016. DPW responded on July 27, 2017, after the CUP was approved, rejecting CCL’s arguments and stating its intention to proceed with an Enforcement Order if the outstanding invoice was not paid. CCL responded on August 25, 2017, addressing each point raised by DPW and reiterated its position that no additional fees were due.

On August 30, 2017, DPW issued an Enforcement Order seeking payment of the Solid Waste Management Fee and the administrative penalties that had allegedly accrued through March 2015, together totaling more than $5,100. CCL filed a timely administrative appeal of the order on September 28, 2017. CCL negotiated with County Counsel to set a briefing schedule, hearing date for the appeal, and selection of a neutral hearing officer. A prehearing order was entered on July 9, 2018 by the hearing officer and CCL and DPW proceeded to exchange briefs, exhibits, and written testimony of witnesses.

A two-day evidentiary hearing on DPW’s Enforcement Order occurred on September 11-12, 2018. Post-hearing briefing is underway. It is uncertain when a decision will be issued. CCL has a right to challenge in State court any decision of the hearing officer that is not supported by the law or substantial evidence. At this point, the Company is not able to determine the likelihood of any outcome in this matter.

D.December 11, 2017 Notice of Violation Regarding Certain CUP Conditions.

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.

35

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

On 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, dated July 10, 2018, was received by CCL on July 12, 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 June 22, 2018, Chiquita filed a Motion for Stay seeking to halt enforcement of the B&T fee and penalty and the accrual of any further penalties pending the resolution of the Petition for Writ of Mandamus. The motion was heard and denied by the Court on July 17, 2018.  As explained above, the Court granted CCL leave to pay the $11,600 B&T fee and to amend its Complaint to reflect the payment under protest, allowing the challenge to the B&T fee to proceed.  CCL paid the B&T fee on August 10, 2018, and also paid on that date the administrative penalty of $83 and a noncompliance fee of $0.75. As directed by the Court, CCL amended its Complaint in a Second Amended Complaint filed in the CUP action on August 16, 2018. The Court indicated that the NOV case would likely be tried in conjunction with the CUP case, set for June 18, 2019, and that the cases would be coordinated.  At the May 29, 2019 trial setting conference referenced above where the trial of the CUP case was set for April 23, 2020, the Superior Court set the trial for the B&T fee/NOV case for June 25, 2020.  At this point, the Company is not able to determine the likelihood of any outcome in this matter.

40

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)

Florida Default Judgment

On January 5, 2017, a state court in Miami, Florida entered a $10,000 final judgment (“Judgment”) against the Company’s subsidiary, Progressive Waste Solutions of FL, Inc. (“Progressive”), which is now known as Waste Connections of Florida, Inc. The Judgment was the result of a default against Progressive for failure to respond to or otherwise defend itself against a complaint filed on July 21, 2015, prior to the closing of the Progressive Waste acquisition. The Company and Progressive learned of the Judgment on March 6, 2018. On March 20, 2018, Progressive filed a motion to set aside judgment and requested that the trial court (1) allow the case to proceed on the merits, (2) stay any efforts to execute or collect on the Judgment, and (3) dissolve any and all writs of garnishment. The trial judge denied the motion on April 10, 2018. Progressive continues to vigorously defend itself from the Judgment. On May 2, 2018, Progressive filed an appeal of the April 10, 2018 order and posted a civil supersedeas bond to stop all efforts to collect on the Judgment pending the outcome of its appeal. The appeal has been fully briefed and is scheduled for oral argument on December 4, 2018. At this time, the Company is unable to express an opinion on the likelihood of an unfavorable outcome to Progressive or express an opinion on the amount or range of potential loss in the event of an unfavorable outcome. As a result, the Company has not accrued any liability for the Judgment.

Town of Colonie, New York Landfill Expansion Litigation

On April 16, 2014, the Town of Colonie (the “Town”) filed an application (the “Application”) with the New York State Department of Environmental Conservation (“DEC”) to modify the Town’s then-current Solid Waste Management Facility Permit and for other related permits to authorize the development and operation of Area 7 of the Town of Colonie Landfill (the “Landfill”), which is located in Albany County, New York.  DEC issued the requested permits on April 5, 2018 (the “Permits”).  The Company’s subsidiary, Capital Region Landfills, Inc. (“CRL”), has been the sole operator of the Landfill since September 2011 pursuant to an operating agreement between CRL and the Town.

On May 7, 2018, the Town of Halfmoon, New York, and five of its residents, commenced an Article 78 special proceeding in the Supreme Court of the State of New York, Saratoga County, against DEC, the Town, CRL, and the Company (the “Halfmoon Proceeding”).  On that same date, the Town of Waterford, New York, and eleven of its residents, also commenced an Article 78 special proceeding in the Supreme Court of the State of New York, Saratoga County, against the same respondents (the “Waterford Proceeding”).  On June 15,4, 2018, the Town and CRL filed Verified Answers, including motions to dismiss the petitions, and the Company separately moved to dismiss the petitions.  The Waterford Petitioners served an Amended Verified Petition,stipulated to removing the Company as a respondent.respondent when they filed an Amended Verified Petition on June 15, 2018.  The Halfmoon Petitioners served an Amended Verified Petition on July 5, 2018, retaining all originally-named parties. The Company has moved to dismissoriginally named parties, including the Halfmoon Amended Verified Petition and that motion is fully submitted to the court.

Company.

The Petitioners allegealleged that, in granting the Permits, DEC failed to comply with the procedural and substantive requirements of New York’s Environmental Conservation Law and State Environmental Quality Review Act, and their implementing regulations.  The Petitioners have asked the court to: annul the Permits and invalidate DEC’s Findings Statement, enjoin the Town and CRL from taking any action authorized by the Permits, require an issues conference and possibly an adjudicatory hearing before DEC can re-consider the Town’s permit application; remand all regulatory issues to a DEC Administrative Law Judge; and award costs and disbursements.  The Waterford Petitioners have also requested reasonable attorneys’ fees.

On July 13, 2018, the courtHonorable Ann C. Crowell granted a venue change motion filed by DEC, and ordered that the Halfmoon Proceeding and the Waterford ProceedingsProceeding be transferred to the Supreme Court, Albany County.  No return date has been established by the court, but Article 78 proceedings are intended to be resolved expeditiously, and generally without discovery.

CRL’s opposition submissions, including its responsive pleadings, Memorandum of Law, and supporting Affidavits, were filed

36

Table of Contents

WASTE CONNECTIONS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

and served on or before July 25, 2018.  On August 28, 2018, the Towns of Waterford and Halfmoon filed a motion seeking an order preliminarily enjoining during the pendency of the proceedings all activities relating to the expansion of the Landfill which are authorized by the Permits.  On September 18, 2018, CRL and the Company filed and served Memoranda of Law in opposition to the preliminary injunction motion, with supporting Affidavits, and, on September 24, 2018, the Towns of Waterford and Halfmoon filed a Reply Memorandum of Law in further support of their injunctive motion.  The Honorable Debra J. Young denied the Petitioners’ motion for preliminary injunction on November 30, 2018.

On January 23, 2019, the court held that motion is fully submittedthe Petitioners lacked standing to maintain the proceedings and dismissed both the Waterford and Halfmoon Amended Verified Petitions in their entirety.  In late February and early March 2019, the Waterford and Halfmoon Petitioners filed notices of appeal to the court.Appellate Division, Third Department, of both Judge Crowell’s decision to transfer the proceedings to Albany County and of Judge Young’s dismissal of the Amended Verified Petitions.  

CRL (and, if it remains a respondent,On March 7, 2019, the Company), will vigorously opposeWaterford Petitioners moved, with consent of the Halfmoon Petitioners, to consolidate the appeals.  Respondents opposed the consolidation motion to the extent that it may result in inequitable briefing under the Appellate Division rules.  On April 4, 2019, the Appellate Division, Third Department granted the consolidation motion “to the extent that the appeals shall be heard together and may be perfected upon a joint record on appeal.”

On April 26, 2019, the Waterford Proceedings.Petitioners filed a motion with the Appellate Division, Third Department, seeking an order preliminarily enjoining construction activities or the acceptance of waste at the Landfill.  The Company, CRL, believes that, in issuingand the Permits, DEC followedTown of Colonie opposed the appropriate statutory and regulatory procedures and made a reasoned determination that is well-supportedmotion, which was summarily denied by the factual record. However, at this point,Third Department, Appellate Division on June 20, 2019.

On June 25, 2019, the Company is not able to determineWaterford Petitioners filed their appellate brief and the likelihoodjoint record on appeal.  The Halfmoon Petitioners filed their appellate brief on August 21, 2019.  All respondents’ opposition briefs are currently due by November 20, 2019, and the Waterford and Halfmoon Petitioners’ reply briefs will be due ten days from service of any outcome in these proceedings.same.

19.19.SUBSEQUENT EVENTS

On October 29, 2018,28, 2019, the Company announced that its Board of Directors increased its regular quarterquarterly cash dividend by $0.02,$0.025, from $0.14$0.16 to $0.16$0.185 per Company common share, and then declared a regular quarterly cash dividend of $0.16$0.185 per Company common share. The dividend will be paid on November 27, 2018,26, 2019, to shareholders of record on the close of business on November 13, 2018.12, 2019.

41

37

Table of Contents

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q are forward-looking in nature, including statements related to our ability and intent to draw on our Credit Agreement or raise otheradditional 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 any acquisitions. These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should” or “anticipates,” or the negative thereof or comparable terminology, or by discussions of strategy.

Factors that could cause actual results to differ from those projected include, but are not limited to, those listed below and elsewhere in this report. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change, except where we are expressly required to do so by law.

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:

·Our results are vulnerable to economic conditions;
Our industry is highly competitive and includes companies with lower prices, return expectations or other advantages, and governmental service providers, which could adversely affect our ability to compete and our operating results;

·WeCompetition for acquisition candidates, consolidation within the waste industry and economic and market conditions may lose contractslimit our ability to grow through competitive bidding, early termination or governmental action;acquisitions;

·Price increases may not be adequate to offset the impact of increased costs, or may cause us to lose customers;

·Our results are vulnerable to economic conditions;We may lose contracts through competitive bidding, early termination or governmental action;

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

·Increases in labor costs could impact our financial results;

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

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

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

·Our results will be affected by changes in recycled commodity prices;

·Our results will be affected by changes in the value of renewable fuels;

·Lower crude oil prices may adversely affect the level of exploration, development and production activity of E&P companies and the demand for our E&P waste services;

42Increases in labor costs and limitations on labor availability could impact our financial results;
Increases in capital expenditures could impact our financial results;
A portion of our growth and future financial performance depends on our ability to integrate acquired businesses, and the success of our acquisitions;
The seasonal nature of our business and “event-driven” waste projects cause our results to fluctuate;
Our results will be affected by changes in recycled commodity prices and quantities;

38

·Our results will be affected by changes in the value of renewable fuels;
Increases in the price of diesel or compressed natural gas fuel may adversely affect our collection business and reduce our operating margins;

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

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

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

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

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

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

·Income and other taxes may be uncertain;

·Future changes to U.S., Canadian and foreign income and other tax laws could materially adversely affect us;

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

·Our indebtedness could adversely affect our financial condition and limit our financial flexibility;

·We may be unable to obtain performance or surety bonds, letters of credit or other financial assurances or to maintain adequate insurance coverage;

·Our operations in Canada expose us to exchange rate fluctuations that could adversely affect our financial performance and our reported results of operations;

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

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

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

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

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

39

·Our business is subject to operational and safety risks, including the risk of personal injury to employees and others;

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

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

43

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

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

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

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

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

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, except where we are expressly required to do so by law.

OVERVIEW OF OUR BUSINESS

We are an integrated solid waste services company that provides non-hazardous waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and Canada. Through our R360 Environmental Solutions subsidiary, we are also a leading provider of non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in several of the most active natural resource producing areas in the U.S. We also provide intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities.

We 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 September 30, 2018,2019, we served residential, commercial, industrial and E&P customers in 4042 states in the U.S. and six provinces in Canada:  Alabama, Alaska, Arizona, Arkansas, California, Colorado, 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 Saskatchewan.

40

The solid waste industry is a local and highly competitive business,in nature, requiring substantial labor and capital resources. The participants compete for collection accounts primarily on the basis of price and, to a lesser extent, the quality of service, and compete for landfill business on the basis of tipping fees, geographic location and quality of operations. The 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.

44

The E&P waste services industry is regional in nature and is also highly fragmented, with acquisition opportunities available in several active natural resource basins. Competition for E&P waste comes primarily from smaller regional companies that utilize a variety of disposal methods and generally serve specific geographic markets, and other solid waste companies. In addition, customers in many markets have the option of using internal disposal methods or outsourcing to another third-party disposal company. The principal competitive factors in this business include: gaining customer approval of treatment and disposal facilities; location of facilities in relation to customer activity; reputation; reliability of services; track record of environmental compliance; ability to accept multiple waste types at a single facility; and price. The demand for our E&P waste services depends on the continued demand for, and production of, oil and natural gas. Crude oil and natural gas prices historically have been volatile and the substantial reductions in crude oil prices that began in October 2014, and continued through early 2016, resulted in a decline in the level of drilling and production activity, reducing the demand for E&P waste services in the basins in which we operate. Upon the adoption in January 2017 of new accounting guidance regarding goodwill impairment, we performed an impairment test for our E&P segment which showed its carrying value exceeded its fair value by an amount in excess of the carrying amount of goodwill, or $77.3 million. Therefore, during the nine months ended September 30, 2017, we recorded an impairment charge of $77.3 million, consisting of the remaining carrying amount of goodwill at our E&P segment. The prices of crude oil and natural gas have recovered from their low point in February 2016 and the demand for our E&P waste services has improved as a result of increased production of oil and natural gas in the basins in which we operate.volatile. 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.

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.

45

41

RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20182019 AND 2017

2018

The following table sets forth items in our Condensed Consolidated Statements of Net Income 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, 

   

2019

    

2018

    

   

2019

    

2018

    

  

Revenues

$

1,412,444

    

100.0

%  

$

1,281,110

    

100.0

%  

$

4,026,719

    

100.0

%  

$

3,661,209

    

100.0

%  

Cost of operations

 

835,098

 

59.1

 

736,122

 

57.5

2,384,607

59.2

2,120,947

57.9

Selling, general and administrative

 

137,883

 

9.8

 

139,014

 

10.8

410,132

10.2

398,582

10.9

Depreciation

 

157,994

 

11.2

 

148,232

 

11.6

461,616

11.5

423,866

11.6

Amortization of intangibles

 

31,934

 

2.2

 

26,871

 

2.1

93,821

2.3

79,444

2.2

Impairments and other operating items

 

12,935

 

0.9

 

(1,998)

 

(0.2)

32,949

0.8

6,106

0.1

Operating income

 

236,600

 

16.8

 

232,869

 

18.2

 

643,594

 

16.0

 

632,264

 

17.3

Interest expense

 

(36,780)

 

(2.6)

 

(32,078)

(2.5)

 

(111,313)

(2.8)

(96,874)

(2.7)

Interest income

 

2,056

 

0.1

 

1,467

0.1

 

7,186

0.2

3,677

0.1

Other income (expense), net

 

(19)

 

(0.0)

 

600

0.0

 

4,562

0.1

2,053

0.1

Income tax provision

 

(42,783)

 

(3.0)

 

(52,092)

(4.0)

 

(110,539)

(2.7)

(126,509)

(3.5)

Net income

 

159,074

 

11.3

 

150,766

 

11.8

 

433,490

 

10.8

 

414,611

 

11.3

Net loss (income) attributable to noncontrolling interests

 

35

 

0.0

 

77

 

0.0

 

89

0.0

(218)

(0.0)

Net income attributable to Waste Connections

$

159,109

 

11.3

%  

$

150,843

 

11.8

%  

$

433,579

 

10.8

%  

$

414,393

 

11.3

%  

  Three months ended September 30,  Nine months ended September 30, 
  2018  2017  2018  2017 
Revenues $1,281,110   100.0% $1,206,478   100.0% $3,661,209   100.0% $3,473,313   100.0%
Cost of operations  736,122   57.5   695,122   57.6   2,120,947   57.9   2,024,402   58.3 
Selling, general and administrative  139,014   10.8   128,200   10.6   398,582   10.9   383,600   11.0 
Depreciation  148,232   11.6   136,941   11.4   423,866   11.6   395,008   11.4 
Amortization of intangibles  26,871   2.1   26,613   2.2   79,444   2.2   76,886   2.2 
Impairments and other operating items  (1,998)  (0.2)  832   0.1   6,106   0.1   141,333   4.1 
Operating income  232,869   18.2   218,770   18.1   632,264   17.3   452,084   13.0 
                                 
Interest expense  (32,078)  (2.5)  (32,471)  (2.7)  (96,874)  (2.7)  (92,763)  (2.7)
Interest income  1,467   0.1   1,656   0.1   3,677   0.1   3,131   0.1 
Other income, net  732   0.0   1,709   0.2   2,376   0.1   3,561   0.1 
Foreign currency transaction loss  (132)  (0.0)  (1,864)  (0.1)  (323)  (0.0)  (3,502)  (0.1)
Income tax provision  (52,092)  (4.0)  (64,390)  (5.4)  (126,509)  (3.5)  (100,220)  (2.9)
Net income  150,766   11.8   123,410   10.2   414,611   11.3   262,291   7.5 
Net loss (income) attributable to noncontrolling interests  77   0.0   (183)  (0.0)  (218)  (0.0)  (559)  (0.0)
Net income attributable to Waste Connections $150,843   11.8% $123,227   10.2% $414,393   11.3% $261,732   7.5%

Revenues.  Total revenues increased $74.6$131.3 million, or 6.2%10.3%, to $1.412 billion for the three months ended September 30, 2019, from $1.281 billion for the three months ended September 30, 2018, from $1.2062018.  Total revenues increased $365.5 million, or 10.0%, to $4.027 billion for the threenine months ended September 30, 2017. Total revenues increased $187.9 million, or 5.4%, to2019, from $3.661 billion for the nine months ended September 30, 2018, from $3.473 billion for the nine months ended September 30, 2017.

2018.

During the three months ended September 30, 2018,2019, incremental revenue from acquisitions closed during, or subsequent to, the three months ended September 30, 2017,2018, increased revenues by approximately $61.1$82.8 million.  During the nine months ended September 30, 2018,2019, incremental revenue from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017,2018, increased revenues by approximately $155.1$242.2 million.

 

Operations that were divested in 2017subsequent to September 30, 2018 decreased revenues by approximately $13.0$5.8 million and $63.4$18.8 million, respectively, for the three and nine months ended September 30, 2018.

2019.

During the three months ended September 30, 2018,2019, the net increase in prices charged to our customers at our existing operations was $49.5$61.1 million, consisting of $43.4$60.1 million of core price increases and $6.1$1.0 million from surcharges due primarily to an increase in the market price of diesel fuel.surcharges. During the nine months ended September 30, 2018,2019, the net increase in prices charged to our customers at our existing operations was $137.4$174.5 million, consisting of $125.7$168.4 million of core price increases and $11.7$6.1 million from surcharges due primarily to an increase in the market price of diesel fuel.

surcharges.

During the three months ended September 30, 2018,2019, volume decreasesincreases in our existing business decreasedincreased solid waste revenues by $1.4$10.3 million as the net impact of lower landfill special waste volumesdue primarily due to permit limitations at Chiquita Canyon Landfill and not renewing certain lower margin municipal contracts and commercial service agreements acquired with the Progressive Waste acquisition exceeded increased collection volumes and increased landfill municipal solid waste volumes in our Western segment.

During the nine months ended September 30, 2018, volume decreases in our existing business decreased solid waste revenues by $28.2 million as the net impact of lowersegment and increased roll off and landfill special waste volumes at Chiquita Canyon Landfill, not renewing certain lower margin municipal contracts and commercial service agreements acquired with the Progressive Waste acquisition andin our Central segment exceeding declines in transfer station volumes in our Eastern segment’s New York City market due to reduced inbound waste from the New York Department of Sanitation exceeded increased collection volumes and increasedreduced landfill municipal solid waste in our Eastern and Southern segments. During the nine months ended September 30, 2019,

42

volume increases in our existing business increased solid waste revenues by $7.0 million due primarily to increased collection and landfill volumes in our Western segment, increased landfill volumes in our Eastern segment and increased roll off collection and landfill special waste in our Central segment exceeding declines in transfer station volumes in our Eastern segment’s New York City market, reduced landfill municipal solid waste in our Eastern, Central segment.

46

and Southern segments and reduced residential collection in our Southern and Canada segments.

E&P revenues at facilities owned and fully-operated during the three and nine months ended September 30, 2019 and 2018 increased by $10.1$1.4 million and $41.9$12.5 million, respectively, due to higher crude oil and natural gas prices increasingincreased drilling activity and E&P disposal volumes most notably inat the Permian Basin and at a majority of our sites.

basins we operate.

A decrease in the average Canadian dollar to U.S. dollar currency exchange rate resulted in a decrease in revenues of $8.2$1.9 million and $16.6 million, respectively, for the three and nine months ended September 30, 2018.2019.  The average Canadian dollar to U.S. dollar exchange rates on our Canadian revenues were 0.76520.7573 and 0.79860.7651 in the three months ended September 30, 2019 and 2018, and 2017, respectively. An increase in the average Canadian dollar to U.S. dollar currency exchange rate resulted in an increase in revenues of $7.1 million for the nine months ended September 30, 2018.  The average Canadian dollar to U.S. dollar exchange rates on our Canadian revenues were 0.77690.7524 and 0.76610.7761 in the nine months ended September 30, 2019 and 2018, and 2017, respectively.

Revenues from sales of recyclable commodities at facilities owned during the three and nine months ended September 30, 2019 and 2018 and 2017 decreased $19.5$9.5 million and $58.0$21.9 million, respectively, due primarily to decreased prices for old corrugated cardboard and other fiber products resulting from a reduction in overseas demand.

 

Other revenues decreased by $4.0$7.1 million during the three months ended September 30, 20182019, due primarily to reduced demand causing a reduction in the prices for renewal energy credits associated with the generation of landfill gas primarily at our Canada segment.  Other revenues decreased by $13.4 million during the nine months ended September 30, 2019, due primarily to a decrease in intermodal revenues resulting from customer losses causing a reduction in cargo volume. Other revenues decreased by $4.0 million duringvolume and reduced demand causing a reduction in the nine months ended September 30, 2018 due primarily toprices for renewal energy credits associated with the aforementioned decrease in intermodal revenues, partially offset by an increase ingeneration of landfill gas salesprimarily at our Canada and Southern segments.segment.  

Cost of Operations.  Total cost of operations increased $41.0$99.0 million, or 5.9%13.4%, to $835.1 million for the three months ended September 30, 2019, from $736.1 million for the three months ended September 30, 2018, from $695.1 million for the three months ended September 30, 2017.2018. The increase was primarily the result of $39.7$57.6 million of operating costs from acquisitions closed during, or subsequent to, the three months ended September 30, 20172018 and an increase in operating costs at our existing operations of $15.4$47.5 million, assuming foreign currency parity, partially offset by a decrease in operating costs of $9.7$5.1 million at operations divested during, or subsequent to, the three months ended September 30, 20172018 and a decrease of $4.4$1.0 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods.

The increase in operating costs at our existing operations of $15.4$47.5 million for the three months ended September 30, 2018,2019, assuming foreign currency parity, was comprised of an increase in taxes on revenues of $6.5 million due primarily to higher tax rates under our new operating permit at Chiquita Canyon Landfill and increased revenues in our E&P and solid waste markets, an increase in labor expenses of $4.0$16.2 million due primarily to employee pay rate increases, an increase in diesel fuel expensetruck, container, equipment and facility maintenance and repair expenses of $3.4$8.6 million due to parts and service rate increases inand variability impacting the market pricetiming of diesel fuel,major repairs, an increase in third-party trucking and transportation expenses of $3.1$4.5 million due primarily to higher internalized disposal of collected waste volumesoutsourcing transportation services to third party operators at our Eastern segmentcertain locations and increased rates charged by third parties to provide trucking and transportation services, an increase of $4.5 million resulting from higher costs per ton charged by third party processors of recyclable commodities, a $2.9 million increase in expenses for allauto and workers’ compensation claims due primarily to higher adjustments recorded in the prior year period to decrease projected losses on outstanding claims, an increase in 401(k) matching expenses of $2.6 million due to our increasing the maximum matching contribution rate to our employees and higher credits recorded in the prior year period resulting from employee forfeitures, an increase in third party disposal expenses of $2.3 million due primarily to disposal rate increases exceeding the benefits of improved internalization of waste collected in our Southern and Eastern segments, an increase in taxes on revenues of $2.1 million due primarily to increased revenues in our solid waste markets, an increase in leachate disposal expenses of $1.9$1.5 million due to increased precipitation from harsh weather generating higher leachate volumes primarily in our Eastern segment,and Southern segments as well as higher costs per gallon for leachate treatment, an increase in subcontracted operating expenses of $1.4$1.5 million due primarily to subcontracting certain operating activities at our E&P segment and $1.8an increase in equipment and facility rental expenses of $1.1 million due primarily to increased truck rental expenses in our Southern segment and the adoption on

43

January 1, 2019 of new accounting standards associated with leases, partially offset by $0.3 million of other net expense increases, partially offset by a $2.6 million decrease in third party disposal expenses due primarily to improved internalization of waste collected in certain markets acquired in the Progressive Waste acquisition and the 2017 acquisition of Groot Industries, Inc., or Groot, a decrease of $2.3 million from nonrecurring prior year incremental labor and repair expenses resulting from hurricanes impacting our Texas, Louisiana and Florida operations in 2017 and a decrease in expenses associated with the purchase of recyclable commodities of $1.8 million due to decreased recyclable commodity values.decreases.

Total cost of operations increased $96.5$263.7 million, or 4.8%12.4%, to $2.385 billion for the nine months ended September 30, 2019, from $2.121 billion for the nine months ended September 30, 2018, from $2.024 billion for the nine months ended September 30, 2017.2018. The increase was primarily the result of $96.2$159.9 million of operating costs from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017,2018 and an increase in operating costs at our existing operations of $40.4$129.0 million, assuming foreign currency parity, partially offset by a decrease in operating costs of $16.1 million at operations divested during, or subsequent to, the nine months ended September 30, 2018 and a decrease of $9.1 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods.

The increase in operating costs at our existing operations of $129.0 million for the nine months ended September 30, 2019, assuming foreign currency parity, was comprised of an increase in labor expenses of $37.3 million due primarily to employee pay rate increases, an increase in truck, container, equipment and facility maintenance and repair expenses of $23.7 million due to parts and service rate increases and variability impacting the timing of major repairs, an increase in third-party trucking and transportation expenses of $18.1 million due primarily to outsourcing transportation services to third party operators at certain locations and increased rates charged by third parties to provide trucking and transportation services, an increase of $4.0$9.8 million resulting from higher costs per ton charged by third party processors of recyclable commodities, an increase in 401(k) matching expenses of $6.3 million due to our increasing the maximum matching contribution rate to our employees and higher credits recorded in the prior year period resulting from employee forfeitures, an increase in leachate disposal expenses of $6.0 million due to increased precipitation from harsh weather generating higher leachate volumes primarily in our Eastern and Southern segments as well as higher costs per gallon for leachate treatment, an increase in taxes on revenues of $5.3 million due primarily to increased revenues in our solid waste markets, an increase in subcontracted operating expenses of $3.7 million due primarily to subcontracting certain operating activities at our E&P segment, an increase in diesel fuel expense of $3.5 million due primarily to the prior year period benefiting from purchasing a portion of our diesel fuel needs under a favorable fuel hedge agreement that expired in December 2018, an increase in compressed natural gas expense of $3.3 million due primarily to a non-recurring reduction in expense during the prior year period resulting from recording retroactive tax credits associated with purchases of compressed natural gas fuel, an increase in equipment and facility rental expenses of $2.8 million due primarily to increased truck rental expenses in our Southern segment and the adoption on January 1, 2019 of new accounting standards associated with leases, an increase in insurance premiums for our auto and workers’ compensation policies of $2.2 million due primarily to our growth from acquisitions and a non-recurring reduction in expense during the prior year period in our Canada segment resulting from an annual workers’ compensation premium audit, an increase in third party disposal expenses of $2.0 million due primarily to disposal rate increases exceeding the benefits of improved internalization of waste collected in our Southern and Eastern segments and $8.4 million of other net expense increases, partially offset by a $3.4 million decrease in intermodal expenses resulting from a decrease in intermodal cargo volume due to customer losses.

Cost of operations as a percentage of revenues increased 1.6 percentage points to 59.1% for the three months ended September 30, 2019, from 57.5% for the three months ended September 30, 2018. The increase as a percentage of revenues consisted of a 0.6 percentage point increase from the net impact of cost of operations expenses from acquisitions closed during, or subsequent to, the three months ended September 30, 2018, a 0.4 percentage point increase from higher labor expenses, a 0.3 percentage point increase from higher maintenance and repair expenses and a 0.3 percentage point increase from an increase in recyclable commodities processing expenses at third party locations.

Cost of operations as a percentage of revenues increased 1.3 percentage points to 59.2% for the nine months ended September 30, 2019, from 57.9% for the nine months ended September 30, 2018. The increase as a percentage of revenues consisted of a 0.5 percentage point increase from the net impact of cost of operations expenses from acquisitions closed during, or subsequent to, the nine months ended September 30, 2018, a 0.3 percentage point increase from higher maintenance and repair expenses, a 0.2 percentage point increase from higher third-party trucking and transportation expenses, a 0.2 percentage point increase from higher labor expenses, a 0.2 percentage point increase from higher 401(k) matching expenses and a 0.2 percentage point increase from an increase in recyclable commodities processing expenses, partially offset by a 0.3 percentage point decrease from improved internalization of collected waste volumes disposed at third party locations.

44

SG&A.  SG&A expenses decreased $1.1 million, or 0.8%, to $137.9 million for the three months ended September 30, 2019, from $139.0 million for the three months ended September 30, 2018.  The decrease was comprised of a decrease of $7.3 million in SG&A expenses at our existing operations, assuming foreign currency parity, a decrease of $0.4 million consisting of SG&A expenses from operations divested during, or subsequent to, the three months ended September 30, 2018 and a decrease of $0.2 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in operating costs of $44.1 million at operations divested during, or subsequent to, the nine months ended September 30, 2017.

47

The increase in operating costs at our existing operations of $40.4 million for the nine months ended September 30, 2018, assuming foreign currency parity, was comprised of an increase in taxes on revenues of $20.0 million due primarily to higher tax rates under our new operating permit at Chiquita Canyon Landfill and increased revenues in our E&P and solid waste markets, an increase in labor expenses of $15.0 million due primarily to employee pay rate increases, an increase in diesel fuel expense of $10.1 million due to increases in the market price of diesel fuel, an increase in third-party trucking and transportation expenses of $7.6 million due primarily to higher internalized disposal of collected waste volumes at our Eastern segment and increased rates charged by third parties to provide trucking and transportation services for all of our segments, an increase in subcontracted operating expenses of $5.1 million due primarily to subcontracting certain operating activities at our E&P segment and a landfill operating contract, increased leachate disposal expenses of $4.7 million due to increased precipitation generating higher leachate volumes in our Eastern segment, an increase in employee benefits expenses of $3.9 million due primarily to transferring retained Progressive Waste employees onto the Waste Connections benefits program, which provides increased benefits to the employees and $1.4 million of other net expense increases, partially offset by a $7.5 million decrease in third party disposal expenses due to improved internalization of waste collected in certain markets acquired in the Progressive Waste and Groot acquisitions, a decrease in expenses associated with the purchase of recyclable commodities of $5.7 million due to decreased recyclable commodity values, a decrease in insurance premium expense of $3.9 million due primarily to transferring the operating locations acquired in the acquisition of Groot onto our high deductible insurance program and changes to the insurance program at our Canada segment, the recognition during the nine months ended September 30, 2018 of $3.3 million in retroactive tax credits associated with 2017 purchases of compressed natural gas fuel, a decrease in auto, workers’ compensation and property claims expense under our high deductible insurance program of $2.5 million due primarily to adjustments to projected losses on prior period claims, a decrease of $2.3 million from nonrecurring prior year incremental labor and repair expenses resulting from hurricanes impacting our Texas, Louisiana and Florida operations in 2017 and a decrease in truck, container, equipment and facility maintenance and repair expenses of $2.2 million due to higher prior year expenses incurred to bring acquired equipment to our operating and safety standards.

Cost of operations as a percentage of revenues decreased 0.1 percentage points to 57.5% for the three months ended September 30, 2018, from 57.6% for the three months ended September 30, 2017. The components of the decrease consisted of a 0.4 percentage point decrease from increased internalization of collected waste volumes, a 0.2 percentage point decrease from prior year labor and repair expenses associated with hurricanes, a 0.2 percentage point decrease from lower expenses associated with the purchase of recyclable commodities and a 0.1 percentage point decrease from all other net changes, partially offset by a 0.5 percentage point increase from higher taxes on revenues and a 0.3 percentage point increase from acquisitions closed during, or subsequent to, the three months ended September 30, 2017 having operating margins lower than our company average.

Cost of operations as a percentage of revenues decreased 0.4 percentage points to 57.9% for the nine months ended September 30, 2018, from 58.3% for the nine months ended September 30, 2017. The components of the decrease consisted of a 0.5 percentage point decrease from increased internalization of collected waste volumes, a 0.2 percentage point decrease from truck and equipment repair expenses and a 0.2 percentage point decrease from lower expenses associated with the purchase of recyclable commodities, partially offset by a 0.5 percentage point increase from higher taxes on revenues.

SG&A.  SG&A expenses increased $10.8 million, or 8.4%, to $139.0 million for the three months ended September 30, 2018, from $128.2 million for the three months ended September 30, 2017.  The increase was comprised of an $8.0 million increase in SG&A expenses at our existing operations, assuming foreign currency parity, and $4.4$6.8 million of additional SG&A expenses from operating locations at acquisitions closed during, or subsequent to, the three months ended September 30, 2017, partially offset by a decrease of $0.8 million consisting of SG&A expenses from operations divested during, or subsequent to, the three months ended September 30, 2017 and a decrease of $0.8 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods.

2018.

The increasedecrease in SG&A expenses at our existing operations, assuming foreign currency parity, of $8.0$7.3 million for the three months ended September 30, 2018, assuming foreign currency parity,2019 was comprised of an increase of $5.4 million in professional fees expense resulting primarily from higher legal expenses, an increasea decrease of $5.0 million in equity-based compensation expenses associated with adjusting common shares of Waste Connections, Inc. 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 further decrease in equity-based compensation expenses of $2.5 million 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, a decrease of $3.0 million in professional fees expense resulting primarily from reduced legal expenses resulting from the settlement of certain legal matters subsequent to September 30, 2018 and a decrease of $1.8 million in expenses for uncollectible accounts receivable resulting primarily from adjustments to prior period reserve estimates at our E&P segment, partially offset by an increase in payroll expenses $1.8 million as a result of increased headcount and annual pay increases, an increase in 401(k) matching expenses of $1.0 million due to our increasing the maximum matching contribution rate to our employees, an increase in direct acquisition expenses of $0.7 million due to higher acquisition activity, an increase in management training expenses of $0.8 million due to an expansion of our management training curriculum and an increase in equity-based compensation expenses of $1.9$0.7 million associated with our annual recurring grant of restricted share units to our personnel, partially offset by a decrease of $2.5 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 the Company following the close of the Progressive Waste acquisition, a decrease in direct acquisition costs of $1.6 million and $0.2 million of other net expense decreases.

personnel.

SG&A expenses increased $15.0$11.5 million, or 3.9%2.9%, to $410.1 million for the nine months ended September 30, 2019, from $398.6 million for the nine months ended September 30, 2018, from $383.6 million for the nine months ended September 30, 2017.2018.  The increase was comprised of $11.0$19.6 million of additional SG&A expenses from operating locations at acquisitions closed during, or subsequent to, the nine months ended September 30, 2017,2018, partially offset by a $7.8decrease of $5.2 million increase in SG&A expenses at our existing operations, assuming foreign currency parity, and an increasea decrease of $0.8$1.7 million resulting from an increasea decrease in the average foreign currency exchange rate in effect during the comparable reporting periods partially offset byand a decrease of $4.6$1.2 million consisting of SG&A expenses from operations divested during, or subsequent to, the nine months ended September 30, 2017.

48

2018.

The increasedecrease in SG&A expenses at our existing operations of $7.8$5.2 million, assuming foreign currency parity, for the nine months ended September 30, 2018, assuming foreign currency parity,2019 was comprised of an increase of $13.0 milliona decrease in professional fees expense of $11.4 million resulting primarily from higherreduced legal expenses an increaseresulting from the settlement of certain legal matters subsequent to September 30, 2018, a decrease of $5.0 million in equity-based compensation expenses associated with adjusting common shares of Waste Connections, Inc. 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, and an increasea further decrease in equity-based compensation expenses of $4.8$1.4 million associated with our annual recurring grant of restricted share units to our personnel, partially offset by a decrease in share-based compensation expenses of $7.8 million due primarily to less share price volatility and fewer 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, a decrease of $5.5$3.1 million in expenses for uncollectible accounts receivable resulting primarily from improved collection results in our solid waste segments and adjustments to prior period reserve estimates at our E&P segment and a decrease in integration-related professional fees and severance-related expenses of $2.8 million incurred in the prior year period forresulting from the acquisition of Progressive Waste, partially offset by an increase in equity-based compensation expenses of $6.7 million associated with our annual recurring grant of restricted share units to our personnel, who were not permanently retainedan increase in direct acquisition expenses of $3.2 million due to higher acquisition activity, an increase in 401(k) matching expenses of $2.1 million due to our increasing the maximum matching contribution rate to our employees, an increase in deferred compensation expenses of $2.0 million as employeesa result of increases in the Company following the closemarket value of the Progressive Waste acquisition and a decreaseinvestments to which employee deferred compensation liability balances are tracked, an increase in accrued recurring cash incentive compensation expense to our management of $1.7$1.9 million, an increase in management training expenses of $1.4 million due to decreased solid waste volumesan expansion of our management training curriculum and reduced revenue for recyclable commodities resulting in a lower achievement$1.2 million of interim financial targets during the nine months ended September 30, 2018.

other net expense increases.

SG&A expenses as a percentage of revenues increased 0.2decreased 1.0 percentage points to 9.8% for the three months ended September 30, 2019, from 10.8% for the three months ended September 30, 2018, from 10.6% for the three months ended September 30, 2017.2018. The increasedecrease as a percentage of revenues consists

45

consisted of a 0.4 percentage point increasedecrease from higher professional fees expenses and a 0.4 percentage point increase fromlower equity-based compensation expenses associated with the exchange of shares held in our deferred compensation plan, partially offset bya 0.3 percentage point decrease from lower legal expenses, a 0.2 percentage point decrease from integration-related professional feeslower equity-based compensation expenses for equity awards accounted for as liabilities and severance-related expenses resulting from the acquisition of Progressive Waste, a 0.20.1 percentage point decrease from the net impact of leveraging SG&Aa reduction in expenses from operating locations at acquisitions closed during, or subsequent to, the three months ended September 30, 2017 and a 0.2 percentage point decrease from all other net changes.

for uncollectible accounts receivable.

SG&A expenses as a percentage of revenues decreased 0.10.7 percentage points to 10.2% for the nine months ended September 30, 2019, from 10.9% for the nine months ended September 30, 2018, from 11.0% for the nine months ended September 30, 2017.2018. The decrease as a percentage of revenues consistsconsisted of a 0.30.4 percentage point decrease due to reduced share-based compensation expense from the continuation of awards granted to Progressive Waste employees prior to the completion of the Progressive Waste acquisition,lower legal expenses, a combined 0.2 percentage point decrease from integration-related professional feeslower equity-based compensation expenses associated with the exchange of shares held in our deferred compensation plan and severance-relatedequity awards accounted for as liabilities, a 0.1 percentage point decrease from lower expenses for uncollectible accounts receivable, a 0.1 percentage point decrease from integration-related expenses resulting from the acquisition of Progressive Waste and a 0.1 percentage point decrease due to reduced accrued recurring cash incentive compensation expense to our management,from all other changes, partially offset by a 0.3 percentage point increase from higher professional fees expenses and a 0.2 percentage point increase from increased equity-based compensation expenses associated with the exchangeour annual recurring grant of shares held inrestricted share units to our deferred compensation plan.personnel.

Depreciation.  Depreciation expense increased $11.3$9.8 million, or 8.2%6.6%, to $158.0 million for the three months ended September 30, 2019, from $148.2 million for the three months ended September 30, 2018, from $136.9 million for the three months ended September 30, 2017.2018.  The increase was primarily the resultcomprised of additional depreciation and depletion expense of $7.6$6.8 million from acquisitions closed during, or subsequent to, the three months ended September 30, 2017,2018 and additional depletion expense of $4.7 million at our existing landfills due primarily to higher E&P and municipal solid waste volumes, partially offset by a decrease in depreciation expense at our existing operations of $1.4 million due primarily to the impact of certain equipment acquired from the acquisition of Progressive Waste becoming fully depreciated subsequent to September 30, 2018 exceeding the impact of additions to our fleet and equipment purchased to support our existing operations and a decrease of $0.3 million resulting from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods.

Depreciation expense increased $37.7 million, or 8.9%, to $461.6 million for the nine months ended September 30, 2019, from $423.9 million for the nine months ended September 30, 2018.  The increase was comprised of depreciation and depletion expense of $18.0 million from acquisitions closed during, or subsequent to, the nine months ended September 30, 2018, an increase in depletion expense of $13.8 million at our existing landfills due primarily to higher E&P and municipal solid waste volumes and additional depreciation expense of $4.8$8.1 million assuming foreign currency parity, associated with additions to our fleet and equipment purchased to support our existing operations and an increase in depletion expenseexceeding the impact of $0.3 million, assuming foreign currency parity, due primarilycertain equipment acquired from the acquisition of Progressive Waste becoming fully depreciated subsequent to increased volumes at our E&P landfills,September 30, 2018, partially offset by a decrease of $1.0$2.2 million resulting from a lowerdecrease in the average foreign currency exchange rate in effect during the comparable reporting periods and a decrease of $0.4 million resulting from the disposal of property and equipment associated with operations divested during, or subsequent to, the three months ended September 30, 2017.

Depreciation expense increased $28.9 million, or 7.3%, to $423.9 million for the nine months ended September 30, 2018, from $395.0 million for the nine months ended September 30, 2017.  The increase was primarily the result of additional depreciation and depletion expense of $20.2 million from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017, an increase in depreciation expense of $11.8 million, assuming foreign currency parity, associated with additions to our fleet and equipment purchased to support our existing operations and an increase of $0.8 million resulting from a higher average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease of $2.3 million resulting from the disposal of property and equipment associated with operations divested during, or subsequent to, the nine months ended September 30, 2017 and a decrease in depletion expense of $1.6 million, assuming foreign currency parity, at our existing landfills due primarily to declines in special waste volumes.

periods.

Depreciation expense as a percentage of revenues increased 0.2decreased 0.4 percentage points to 11.2% for the three months ended September 30, 2019, from 11.6% for the three andmonths ended September 30, 2018. Depreciation expense as a percentage of revenues decreased 0.1 percentage points to 11.5% for the nine months ended September 30, 2018,2019, from 11.4%11.6% for the three and nine months ended September 30, 2017.2018. The increasesdecrease as a percentage of revenues were due primarilyfor both periods was attributable to certain equipment acquired from the impactacquisition of depreciation expense associated with acquisitions and additionsProgressive Waste becoming fully depreciated subsequent to our fleet and equipment purchased to support our existing operations.September 30, 2018.

Amortization of Intangibles.  Amortization of intangibles expense increased $0.3$5.0 million, or 1.0%18.8% to $31.9 million for the three months ended September 30, 2019, from $26.9 million for the three months ended September 30, 2018, from $26.6 million for the three months ended September 30, 2017.2018. The increase was the result of $1.9$7.9 million from intangible assets acquired in acquisitions closed during, or subsequent to, the three months ended September 30, 2017,2018, partially offset by a decrease of $1.3$2.9 million from certain intangible assets becoming fully amortized subsequent to September 30, 2017 and a decrease of $0.3 million resulting from a lower average foreign currency exchange rate in effect during the comparable reporting periods.

49

2018.

Amortization of intangibles expense increased $2.5$14.4 million, or 3.3%18.1% to $93.8 million for the nine months ended September 30, 2019, from $79.4 million for the nine months ended September 30, 2018, from $76.9 million for the nine months ended September 30, 2017.2018. The increase was the result of $6.3$23.0 million from intangible assets acquired in acquisitions closed during, or subsequent to, the nine months ended September 30, 2017 and an increase of $0.3 million resulting from a higher average foreign currency exchange rate in effect during the comparable reporting periods,2018, partially offset by a decrease of $3.7$7.9 million from certain intangible assets becoming fully amortized subsequent to September 30, 20172018 and a decrease of $0.4$0.7 million resulting from a decrease in the disposalaverage foreign currency exchange rate in effect during the comparable reporting periods.

46

Amortization expense as a percentage of revenues was 2.1% andincreased 0.1 percentage points to 2.2% for the three months ended September 30, 2018 and 2017, respectively, and2019, from 2.1% for the three months ended September 30, 2018.  Amortization expense as a percentage of revenues increased 0.1 percentage points to 2.3% for the nine months ended September 30, 2019, from 2.2% for the nine months ended September 30, 20182018.  The increases as a percentage of revenues were due primarily to the impact of amortization expense associated with acquisitions closed during, or subsequent to, the three and 2017.nine months ended September 30, 2018.

Impairments and Other Operating Items.  Impairments and other operating items decreased $2.8increased $14.9 million, to net losses totaling $12.9 million for the three months ended September 30, 2019, from net gains totaling $2.0 million for the three months ended September 30, 2018, from2018.

The net losses totaling $0.8of $12.9 million forrecorded during the three months ended September 30, 2017.

2019 consisted of $8.0 million resulting from the abandonment of a landfill development project at our E&P segment, $3.5 million of losses on property and equipment that were disposed of through sales or as a result of being damaged in operations, $1.2 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 $0.2 million of other net charges.

The net gains of $2.0 million recorded during the three months ended September 30, 2018 consisted of the reversal of $6.3 million of expenses recognized in prior periods to adjust 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 operations, partially offset by $2.0 million of losses on trucks and equipment that were scrapped, disposed of through sales or disposed of as a result of being damaged in operations, $0.7 million of charges to write off the carrying cost of certain contracts that were not renewed prior to their original estimated termination date and $1.6 million of other net charges.

Impairments and other operating items increased $26.8 million, to net losses totaling $32.9 million for the nine months ended September 30, 2019, from net losses totaling $6.1 million for the nine months ended September 30, 2018.

The net losses of $0.8$32.9 million recorded during the threenine months ended September 30, 20172019 consisted of $6.7$14.3 million of charges recorded to increaseterminate or write off the carrying valuecost of certain amounts payable under liability-classified contingent consideration arrangements associated with acquisitions closedcontracts that were not, or are not expected to be, renewed prior to 2017, $1.4their original estimated termination date, $8.0 million resulting from the abandonment of a landfill development project at our E&P segment, $7.7 million of losses on trucksproperty and equipment that were disposed of through sales or as a result of being damaged in operations, $0.6$1.7 million of chargesexpenses associated with the settlement of various litigation claims and a $1.5 million expense charge to write offincrease the carrying costfair value of certain contracts that were not renewedamounts payable under liability-classified contingent consideration arrangements from acquisitions closed in periods prior to their original estimated termination date and $0.72018, partially offset by $0.3 million of other net charges, partially offset by the reversal of $6.4 million of expenses recognized in prior periods to adjust 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 operations and net gains of $2.2 million from the divestiture of operations not classified as held for disposal in prior periods.

Impairments and other operating items decreased $135.2 million, to net losses totaling $6.1 million for the nine months ended September 30, 2018, from net losses totaling $141.3 million for the nine months ended September 30, 2017.

gains.

The net losses of $6.1 million recorded during the nine months ended September 30, 2018 consisted of $7.7 million of losses on trucks and equipment that were scrapped, disposed of through sales or disposed of as a result of being damaged in operations, $2.1 million of charges to write off the carrying cost of certain contracts that were not expected to be renewed prior to their original estimated termination date $7.7 million of losses on trucks and equipment that were scrapped, disposed of through sales or disposed of as a result of being damaged in operations and $2.6 million of other net charges, partially offset by the reversal of $6.3 million of expenses recognized in prior periods to adjust 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 operations.

The net losses of $141.3Operating Income.  Operating income increased $3.7 million, recorded duringor 1.6%, to $236.6 million for the ninethree months ended September 30, 2017 consisted of a goodwill impairment charge of $77.3 million at our E&P segment resulting2019, 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, a $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 increase the carrying value of certain amounts payable under liability-classified contingent consideration arrangements associated with other acquisitions closed 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, $3.7 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 million of other net charges, partially offset by net gains of $2.2 million from the divestiture of operations not classified as held for disposal in prior periods.

50

Operating Income.  Operating income increased $14.1 million, or 6.4%, to $232.9 million for the three months ended September 30, 2018, from $218.8 million for the three months ended September 30, 2017.2018.  The increase was primarily attributable to operating income generated from acquisitions and gross margins recognized on E&P volume growth.

price-led growth in our existing solid waste business, partially offset by an increase in impairments and other operating charges.

Operating income increased $180.2$11.3 million, or 39.9%1.8%, to $643.6 million for the nine months ended September 30, 2019, from $632.3 million for the nine months ended September 30, 2018, from $452.1 million for the nine months ended September 30, 2017.2018.  The increase was primarily attributable to operating income generated from acquisitions, price-led growth in our existing solid waste business and gross margins recognized on E&P volume growth, and a decreasepartially offset by an increase in impairments and other operating charges.

47

Operating income as a percentage of revenues increased 0.1decreased 1.4 percentage points to 16.8% for the three months ended September 30, 2019, from 18.2% for the three months ended September 30, 2018, from 18.1% for the three months ended September 30, 2017.2018.  The increasedecrease as a percentage of revenues was comprised of a 0.31.6 percentage point decreaseincrease in cost of operations, a 1.1 percentage point increase in impairments and other operating items a 0.1 percentage point decrease in cost of operations and a 0.1 percentage point decreaseincrease in amortization expense, partially offset by a 0.21.0 percentage point increasedecrease in depreciationSG&A expense and a 0.20.4 percentage point increasedecrease in SG&Adepreciation expense.

Operating income as a percentage of revenues increased 4.3decreased 1.3 percentage points to 16.0% for the nine months ended September 30, 2019, from 17.3% for the nine months ended September 30, 2018, from 13.0% for the nine months ended September 30, 2017.2018.  The increasedecrease as a percentage of revenues was comprised of a 4.01.3 percentage point decreaseincrease in cost of operations, a 0.7 percentage point increase in impairments and other operating items and a 0.40.1 percentage point increase in amortization expense, partially offset by a 0.7 percentage point decrease in cost of operationsSG&A expense and a 0.1 percentage point decrease in SG&A expense, partially offset by a 0.2 percentage point increase in depreciation expense.

Interest Expense.  Interest expense decreased $0.4increased $4.7 million, or 1.2%14.7%, to $36.8 million for the three months ended September 30, 2019, from $32.1 million for the three months ended September 30, 2018. The increase was primarily attributable to an increase of $5.3 million from the November 2018 issuance of our 2028 Senior Notes, an increase of $4.4 million from $32.5the April 2019 issuance of our 2029 Senior Notes, an increase of $0.5 million due to higher interest rates on outstanding borrowings under our Credit Agreement and $0.1 million of other net increases, partially offset by a decrease of $5.6 million due to a decrease in the average borrowings outstanding under our Credit Agreement.

Interest expense increased $14.4 million, or 14.9%, to $111.3 million for the threenine months ended September 30, 2017.2019, from $96.9 million for the nine months ended September 30, 2018. The decreaseincrease was primarily attributable to an increase of $15.9 million from the November 2018 issuance of our 2028 Senior Notes, an increase of $8.0 million from the April 2019 issuance of our 2029 Senior Notes and an increase of $2.3 million due to higher interest rates on outstanding borrowings under our Credit Agreement, partially offset by a decrease of $10.7 million due to a decrease in the average borrowings outstanding under our Credit Agreement, a decrease of $0.5 million from the redemption of our 2018 Senior Notes using proceeds from our Credit Agreement a decrease of $0.3 million due to a decrease in the average borrowings outstanding under our Credit Agreement and $0.7 million of other net decreases, partially offset by an increase of $1.1 million due to higher interest rates on outstanding borrowings under our Credit Agreement.

Interest expense increased $4.1 million, or 4.4%, to $96.9 million for the nine months ended September 30, 2018, from $92.8 million for the nine months ended September 30, 2017. The increase was primarily attributable to an increase of $5.1 million due to higher interest rates on outstanding borrowings under our Credit Agreement and an increase of $4.2 million from the April 2017 issuance of our 2017A Senior Notes, partially offset by a decrease of $3.3 million due to a decrease in the average borrowings outstanding under our Credit Agreement, a decrease of $1.0 million from the redemption of our 2018 Senior Notes using proceeds from our Credit Agreement and $0.9$0.6 million of other net decreases.

Interest Income.  Interest income decreased $0.2increased $0.6 million, to $2.1 million for the three months ended September 30, 2019, from $1.5 million for the three months ended September 30, 2018, from $1.72018. Interest income increased $3.5 million, to $7.2 million for the threenine months ended September 30, 2017. The decrease was primarily attributable to lower average cash balances, partially offset by higher reinvestment rates in the current period.

Interest income increased $0.6 million, to2019, from $3.7 million for the nine months ended September 30, 2018, from $3.1 million for the nine months ended September 30, 2017.2018.  The increase wasincreases were primarily attributable to higher reinvestment rates in the current period partially offset by lowerand higher average cash balances.

Other Income.  Other income decreased $1.0$0.6 million, to $0.7$0 for the three months ended September 30, 2019, from $0.6 million for the three months ended September 30, 2018,2018. The decrease was due primarily to a decrease in income earned on investments purchased to fund our employee deferred compensation obligations.

Other income increased $2.5 million, to $4.6 million for the nine months ended September 30, 2019, from $1.7$2.1 million for the nine months ended September 30, 2018. The increase was due primarily to a $2.2 million increase in income earned on investments purchased to fund our employee deferred compensation obligations and a $1.1 million increase in foreign currency transaction gains, partially offset by a $0.8 million decrease in other net income sources.

Income Tax Provision.  Income taxes decreased $9.3 million, or 17.9%, to $42.8 million for the three months ended September 30, 2017. Other income decreased $1.2 million, to $2.4 million for the nine months ended September 30, 2018,2019, from $3.6 million for the nine months ended September 30, 2017. The decreases were due primarily to the prior year income including a $1.2 million receipt of insurance proceeds in excess of the carrying value of certain property and equipment damaged in a fire-related accident.

Foreign currency transaction gain (loss).  Foreign currency transaction gain (loss) decreased $1.8 million to a loss of $0.1 million for the three months ended September 30, 2018, from a loss of $1.9 million for the three months ended September 30, 2017. Foreign currency transaction gain (loss) decreased $3.2 million to a loss of $0.3 million for the nine months ended September 30, 2018, from a loss of $3.5 million for the nine months ended September 30, 2017. The decreases were attributable to changes in the average foreign currency exchange rate in effect during the comparable reporting periods impacting the reported value of certain debt denominated in Canadian dollars.

Income Tax Provision.  Income tax provision decreased $12.3 million, to $52.1 million for the three months ended September 30, 2018, from $64.4 million2018.  Our effective tax rate for the three months ended September 30, 2017.2019 was 21.2%. Our effective tax rate for the three months ended September 30, 2018 was 25.7%.  Our effective tax rateIncome taxes decreased $16.0 million, or 12.6%, to $110.5 million for the threenine months ended September 30, 2017 was 34.3%. Income tax provision increased $26.3 million, to2019, from $126.5 million for the nine months ended September 30, 2018, from $100.2 million2018.  Our effective tax rate for the nine months ended September 30, 2017.2019 was 20.3%. Our effective tax rate for the nine months ended September 30, 2018 was 23.4%.  Our effective

The income tax rateprovision for the three and nine months ended September 30, 2017 was 27.6%.2019 included a $3.8 million expense primarily associated with a reduction in deferred income tax assets related to compensation of executive officers no longer deemed deductible for tax purposes.  Additionally, the income tax provision for the three and nine months ended September 30, 2019 included a benefit of $0.1 million and $5.4 million, respectively, from share-based payment awards being

51

48

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 U.S. federal statutory rate.

The income tax provision for the three and nine months ended September 30, 2018 included a $6.6 million expense primarily associated with refinements to the estimates, as provided by Staff Accounting Bulletin No. 118, of the impact of a portion of the Company’sour U.S. earnings no longer deemed to be permanently reinvested in conjunction with the Tax Cuts and Jobs Act, or the Tax Act.  The income tax provision for the nine months ended September 30, 2018 included a $5.6 million expense associated with the restructuring of our internal refinancing in conjunction with the Tax Act, as well as a $3.1 million benefit related to a reduction in our deferred income tax liabilities resulting from state legislation enacted in the current year and changes in our geographical apportionment due to acquisition activity.  Additionally, the income tax provision for the three and nine months ended September 30, 2018 included a benefit of $0.1 million and $4.9 million, respectively, from share-based payment awards being recognized in the income statement when settled and a portion of our internal financing is taxed at effective rates substantially lower than the U.S. federal statutory rate.

The income tax provision for the three and nine months ended September 30, 2017 included $0.1 million and $6.8 million, respectively, from adopting a new accounting standard in January 2017 which requires all income tax effects of share-based payment awards to be recognized in the income statement when the awards are settled, whereas previously the tax benefits in excess of compensation cost were recorded in equity, and a portion of our income from internal financing being untaxed or taxed at rates substantially lower than the U.S. federal statutory rate. The impairment of goodwill within our E&P segment during the nine months ended September 30, 2017 resulted in the write off of $6.3 million of goodwill that was not deductible for tax purposes, increasing our tax expense by $2.4 million.

The income tax provision for the three and nine months ended September 30, 2017 includes a portion of our income from internal financing being untaxed or taxed at rates substantially lower than the U.S. federal statutory rate. During the three and nine months ended September 30, 2017, income tax 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 of certain operations resulted in the write off of goodwill that was not deductible for tax purposes totaling $21.3 million and $30.0 million during the three and nine months ended September 30, 2017, respectively, increasing our tax expense by $8.2 million and $11.5 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 million from adopting a new accounting standard in January 2017 which requires all income tax effects of share-based payment awards to be recognized in the income statement when the awards are settled, whereas previously the tax benefits in excess of compensation cost were recorded in equity.

52

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 table disaggregates our revenue by service line for the periods indicated (dollars in thousands of U.S. dollars).

 Three months ended September 30,  Nine months ended September 30, 
 2018  2017  2018  2017 

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2019

    

2018

    

2019

    

2018

Commercial $369,543  $342,961  $1,080,261  $1,005,110 

 

$

408,415

 

$

369,543

$

1,186,565

$

1,080,261

Residential  300,026   286,068   881,927   845,493 

355,574

300,026

1,024,105

881,927

Industrial and construction roll off  202,130   186,315   573,877   530,219 

226,801

202,130

629,597

573,877

Total collection  871,699   815,344   2,536,065   2,380,822 

990,790

871,699

2,840,267

2,536,065

Landfill  285,945   261,706   790,056   744,352 

310,633

285,945

852,073

790,056

Transfer  187,961   155,058   495,317   445,612 

209,585

187,961

575,337

495,317

Recycling  23,371   43,864   69,559   131,445 

14,142

23,371

50,676

69,559

E&P  68,049   57,797   189,071   147,662 

70,874

68,049

205,743

189,071

Intermodal and other  34,261   38,221   105,588   107,418 

26,520

34,261

90,491

105,588

Intercompany  (190,176)  (165,512)  (524,447)  (483,998)

(210,100)

(190,176)

(587,868)

(524,447)

Total $1,281,110  $1,206,478  $3,661,209  $3,473,313 

 

$

1,412,444

 

$

1,281,110

$

4,026,719

$

3,661,209

Our Chief Operating Decision Maker evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is segment EBITDA. We define segment EBITDA as earnings before interest, taxes, depreciation, amortization, 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 manage our operations through five geographic operating segments and our E&P segment, which includes the majority of our E&P waste treatment and disposal operations. Our five geographic operating segments and our E&P segment comprise our reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts.  

In the first quarter of 2019, we moved two districts from our Eastern segment to our Central segment because their location was closer in proximity to operations in our Central segment.  The segment information presented herein reflects the realignment of these districts.

At September 30, 2018,2019, under the current orientation, our Eastern segment services customers located in northern Illinois, Kentucky, Maryland, Massachusetts, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, eastern Tennessee, Vermont, Virginia and Wisconsin; our Southern segment services customers located in

49

Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, southern Oklahoma, western Tennessee and Texas; 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, Rhode Island,Mexico, Oklahoma, South Carolina,Dakota, western Texas, Utah and eastern Tennessee, Vermont, VirginiaWyoming; 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 Saskatchewan; 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.Saskatchewan. 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.

53

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:

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2019

    

2018

    

    

2019

    

2018

    

    

Eastern

$

330,887

 

23.4

%

$

284,865

 

22.2

%

$

947,334

 

23.5

%

$

788,912

21.5

%

Southern

305,188

     

21.6

283,040

    

22.1

890,532

    

22.1

839,489

    

22.9

Western

 

289,208

 

20.5

 

271,018

 

21.2

 

821,185

 

20.4

 

779,880

 

21.3

Central

 

230,074

 

16.3

 

189,903

 

14.8

 

626,312

 

15.6

 

527,486

 

14.4

Canada

 

190,820

 

13.5

 

187,054

 

14.6

 

547,694

 

13.6

 

543,867

 

14.9

E&P

 

66,267

 

4.7

 

65,230

 

5.1

 

193,662

 

4.8

 

181,575

 

5.0

$

1,412,444

 

100.0

%  

$

1,281,110

 

100.0

%  

$

4,026,719

 

100.0

%  

$

3,661,209

 

100.0

%  

  Three months ended September 30,  Nine months ended September 30, 
  2018  2017  2018  2017 
Southern $283,040   22.1% $280,528   23.3% $839,489   22.9% $846,034   24.4%
Western  271,018   21.1   261,877   21.7   779,880   21.3   754,959   21.7 
Eastern  289,497   22.6   246,267   20.4   802,318   21.9   718,302   20.7 
Canada  187,054   14.6   197,055   16.3   543,867   14.9   546,149   15.7 
Central  185,271   14.5   166,360   13.8   514,080   14.0   470,087   13.5 
E&P  65,230   5.1   54,391   4.5   181,575   5.0   137,782   4.0 
  $1,281,110   100.0% $1,206,478   100.0% $3,661,209   100.0% $3,473,313   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:

  Three months ended September 30,  Nine months ended September 30, 
  2018  2017  2018  2017 
Southern $70,159   24.8% $63,171   22.5% $207,853   24.8% $199,280   23.6%
Western  86,174   31.8%  84,861   32.4%  240,006   30.8%  247,475   32.8%
Eastern  83,721   28.9%  74,018   30.1%  225,950   28.2%  209,315   29.1%
Canada  68,819   36.8%  74,369   37.7%  195,390   35.9%  200,283   36.7%
Central  70,288   37.9%  64,607   38.8%  191,840   37.3%  177,975   37.9%
E&P  35,099   53.8%  27,881   51.3%  95,009   52.3%  63,518   46.1%
Corporate(a)  (8,286)  -   (5,751)  -   (14,368)  -   (32,535)  - 
  $405,974   31.7% $383,156   31.8% $1,141,680   31.2% $1,065,311   30.7%

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2019

    

2018

    

    

2019

    

2018

    

    

Western

$

90,059

    

31.1

%  

$

86,174

    

31.8

%  

$

253,504

    

30.9

%  

$

240,006

    

30.8

%  

Eastern

 

88,101

 

26.6

%  

 

82,733

 

29.0

%  

 

250,106

 

26.4

%  

 

222,772

 

28.2

%  

Southern

 

77,406

 

25.4

%  

 

70,159

 

24.8

%  

 

226,294

 

25.4

%  

 

207,853

 

24.8

%  

Central

 

81,746

 

35.5

%  

 

71,276

 

37.5

%  

 

219,280

 

35.0

%  

 

195,018

 

37.0

%  

Canada

 

66,794

 

35.0

%  

 

68,819

 

36.8

%  

 

193,702

 

35.4

%  

 

195,390

 

35.9

%  

E&P

 

35,803

 

54.0

%  

 

35,099

 

53.8

%  

 

100,845

 

52.1

%  

 

95,009

 

52.3

%  

Corporate(a)

 

(446)

 

 

(8,286)

 

 

(11,751)

 

 

(14,368)

 

$

439,463

 

31.1

%  

$

405,974

 

31.7

%  

$

1,231,980

 

30.6

%  

$

1,141,680

 

31.2

%  

(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)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 reconciliation of segment EBITDA to Income before income tax provision is included in Note 11 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 nine month periods ended September 30, 2018,2019, compared to the three and nine month periods ended September 30, 2017,2018, are discussed below:

Segment Revenue

Revenue in our SouthernEastern segment increased $2.5$46.0 million, or 0.9%16.2%, to $283.0$330.9 million for the three months ended September 30, 2018,2019, from $280.5$284.9 million for the three months ended September 30, 2017.2018.  The components of the increase consisted of net price increases of $13.6 million, net revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2017,2018, of $3.7$38.8 million and net price increases of $14.9 million, partially offset by solid waste volume decreases of $3.2 million attributable primarily to declines in transfer station volumes in our New York City market and reduced landfill municipal solid waste, decreased recyclable commodity sales of $4.3 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other revenue decreases of $0.2 million.

50

Revenue in our Eastern segment increased $158.4 million, or 20.1%, to $947.3 million for the nine months ended September 30, 2019, from $788.9 million for the nine months ended September 30, 2018.  The components of the increase consisted of net revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2018, of $124.6 million and net price increases of $0.8$44.0 million, partially offset by solid waste volume decreases of $1.6 million primarily due to declines in residential collection and transfer station volumes in our New York City market exceeding higher landfill municipal solid waste and special waste volumes, decreased recyclable commodity sales of $8.2 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other revenue decreases of $0.4 million.

Revenue in our Southern segment increased $22.2 million, or 7.8%, to $305.2 million for the three months ended September 30, 2019, from $283.0 million for the three months ended September 30, 2018.  The components of the increase consisted of net revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2018, of $16.8 million and net price increases of $14.3 million, partially offset by net revenue reductions from divestitures closed in 2017 andsubsequent to September 30, 2018 of $8.9$5.8 million, solid waste volume decreases of $1.1 million primarily from declines in landfill municipal solid waste, decreased recyclable commodity sales of $3.4$1.1 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and $0.9 million of other revenue decreases.

Revenue in our Southern segment increased $51.0 million, or 6.1%, to $890.5 million for the nine months ended September 30, 2019, from $839.5 million for the nine months ended September 30, 2018.  The components of the increase consisted of net price increases of $42.3 million and net revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2018, of $43.7 million, partially offset by net revenue reductions from divestitures closed subsequent to September 30, 2018 of $18.8 million, solid waste volume decreases of $12.2 million primarily from declines in residential customers at certain locations acquired in the Progressive Waste acquisition and reductions in landfill municipal solid waste volumes, decreased recyclable commodity sales of $3.3 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other revenue decreases of $0.7 million.

Revenue in our Western segment increased $18.2 million, or 6.7%, to $289.2 million for the three months ended September 30, 2019, from $271.0 million for the three months ended September 30, 2018.  The components of the increase consisted of solid waste volume increases of $9.7 million due to the net impact of increases associated with landfill municipal solid waste, landfill special waste, residential collection and commercial collection, net price increases of $9.3 million and other revenue increases of $0.5 million, partially offset by decreased recyclable commodity sales of $1.3 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products.

Revenue in our Western segment increased $41.3 million, or 5.3%, to $821.2 million for the nine months ended September 30, 2019, from $779.9 million for the nine months ended September 30, 2018.  The components of the increase consisted of net price increases of $26.0 million and solid waste volume increases of $21.9 million due to the net impact of increases associated with landfill municipal solid waste, landfill special waste, residential collection and commercial collection and other revenue increases of $1.1 million, partially offset by decreased intermodal revenue of $3.6 million resulting from customer losses causing a reduction in cargo volume and decreased recyclable commodity sales of $4.1 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products.

Revenue in our Central segment increased $40.2 million, or 21.2%, to $230.1 million for the three months ended September 30, 2019, from $189.9 million for the three months ended September 30, 2018.  The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2018, of $25.5 million, net price increases of $10.6 million and volume increases of $4.8 million primarily due to increased roll off collection and landfill special waste, partially offset by other revenue decreases of $0.7 million.

Revenue in our Central segment increased $98.8 million, or 18.7%, to $626.3 million for the nine months ended September 30, 2019, from $527.5 million for the nine months ended September 30, 2018.  The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2018, of $68.3 million, net price increases of $29.8 million and volume increases of $1.7 million primarily due to increased roll off collection and landfill special waste exceeding lower landfill municipal solid waste, partially offset by other revenue decreases of $1.0 million.

51

Revenue in our Canada segment increased $3.7 million, or 2.0%, to $190.8 million for the three months ended September 30, 2019, from $187.1 million for the three months ended September 30, 2018. The components of the increase consisted of net price increases of $12.0 million and revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2018, of $1.2 million, partially offset by a decrease of $1.9 million resulting from a lower average foreign currency exchange rate in effect during the comparable reporting periods, a decrease of $5.6 million resulting from reduced demand causing a reduction in the prices for renewal energy credits associated with the generation of landfill gas and decreased recyclable commodity sales of $2.0 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products.

Revenue in our Canada segment increased $3.8 million, or 0.7%, to $547.7 million for the nine months ended September 30, 2019, from $543.9 million for the nine months ended September 30, 2018. The components of the increase consisted of net price increases of $32.4 million, revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2018, of $4.5 million and $0.2 million of other revenue increases, partially offset by a decrease of $16.6 million resulting from a lower average foreign currency exchange rate in effect during the comparable reporting periods, a decrease of $9.1 million resulting from reduced demand causing a reduction in the prices for renewal energy credits associated with the generation of landfill gas, decreased recyclable commodity sales of $4.5 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and solid waste volume decreases of $3.3$3.1 million primarily from the net impact of declines in residential customers resulting from certain contracts acquired with the Progressive Waste acquisition that were terminated subsequent to September 30, 2017 exceeding increases in transfer station volumes.

Revenue in our Southern segment decreased $6.5 million, or 0.8%, to $839.5 million for the nine months ended September 30, 2018, from $846.0 million for the nine months ended September 30, 2017.  The components of the decrease consisted of net revenue reductions from divestitures closed in 2017 and 2018 of $38.3 million, decreased recyclable commodity sales of $10.1 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and solid waste volume decreases of $7.4 million primarily from the net impact of declines in residential customers resulting from certain contracts acquired with the Progressive Waste acquisition that were terminated subsequent to September 30, 2017 and declines in commercial volumes due to intentional losses of certain low margin customers exceeding increases in transfer station volumes, partially offset by net price increases of $37.4 million, net revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017, of $9.5 million and other revenue increases of $2.4 million.

54

Revenue in our Western segment increased $9.1 million, or 3.5%, to $271.0 million for the three months ended September 30, 2018, from $261.9 million for the three months ended September 30, 2017.  The components of the increase consisted of net price increases of $7.8 million, solid waste volume increases of $6.0 million due to the net impact of increases associated with landfill municipal solid waste, residential collection, commercial collection and roll off collection exceeding declineslosses in landfill special waste volumes and net revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2017, of $3.2 million, partially offset by decreased intermodal revenue of $4.2 million resulting from customer losses causing a reduction in cargo volume, decreased recyclable commodity sales of $3.6 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other revenue decreases of $0.1 million.

Revenue in our Western segment increased $24.9 million, or 3.3%, to $779.9 million for the nine months ended September 30, 2018, from $755.0 million for the nine months ended September 30, 2017.  The components of the increase consisted of net price increases of $23.4 million, solid waste volume increases of $9.3 million due to the net impact of increases associated with landfill municipal solid waste, residential collection, commercial collection and roll off collection exceeding declines in landfill special waste volumes and net revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017, of $11.1 million, partially offset by decreased recyclable commodity sales of $10.7 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products, decreased intermodal revenue of $7.9 million resulting from customer losses causing a reduction in cargo volume and other revenue decreases of $0.3 million.

Revenue in our Eastern segment increased $43.2 million, or 17.6%, to $289.5 million for the three months ended September 30, 2018, from $246.3 million for the three months ended September 30, 2017.  The components of the increase consisted of net revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2017, of $39.9 million and net price increases of $11.6 million, partially offset by net revenue reductions from divestitures closed in 2017 of $4.1 million, decreased recyclable commodity sales of $4.0 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other net revenue decreases of $0.2 million.

Revenue in our Eastern segment increased $84.0 million, or 11.7%, to $802.3 million for the nine months ended September 30, 2018, from $718.3 million for the nine months ended September 30, 2017.  The components of the increase consisted of net revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017, of $103.3 million and net price increases of $31.1 million, partially offset by net revenue reductions from divestitures closed in 2017 of $22.0 million, solid waste volume decreases of $15.1 million due primarily to decreased residential collection, declines in transfer station volumes in our New York City market due to reduced inbound waste from the New York Department of Sanitation and lower landfill special waste volumes, decreased recyclable commodity sales of $13.0 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other net revenue decreases of $0.3 million.

Revenue in our Canada segment decreased $10.0 million, or 5.1%, to $187.1 million for the three months ended September 30, 2018, from $197.1 million for the three months ended September 30, 2017. The components of the decrease consisted of a decrease of $8.2 million resulting from a lower average foreign currency exchange rate in effect during the comparable reporting periods, solid waste volume decreases of $5.1 million associated with decreased roll off collection volumes, residential revenue resulting from the non-renewal of certain contracts acquired in the Progressive Waste acquisition, intentional losses of certain low margin commercial collection customers and reduced transfer station and landfill municipal solid waste revenue, decreased recyclable commodity sales of $6.9 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and $0.5 million of other revenue decreases, partially offset by net price increases of $10.0 million and revenue growth from acquisitions closed in 2018 of $0.7 million.

acquisition.

Revenue in our CanadaE&P segment decreased $2.2increased $1.1 million, or 0.4%1.6%, to $543.9 million for the nine months ended September 30, 2018, from $546.1 million for the nine months ended September 30, 2017. The components of the decrease consisted of decreased recyclable commodity sales of $20.1 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products, solid waste volume decreases of $18.8 million associated with decreased roll off collection volumes, residential revenue resulting from the non-renewal of certain contracts acquired in the Progressive Waste acquisition, intentional losses of certain low margin commercial collection customers and reduced landfill municipal solid waste revenue and $0.6 million of other revenue decreases, partially offset by net price increases of $26.9 million, an increase of $7.1 million resulting from a higher average foreign currency exchange rate in effect during the comparable reporting periods, increased landfill gas sales of $2.4 million resulting from higher pricing and revenue growth from acquisitions closed in 2018 of $0.9 million.

Revenue in our Central segment increased $18.9 million, or 11.4%, to $185.3$66.3 million for the three months ended September 30, 2018,2019, from $166.4 million for the three months ended September 30, 2017.  The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the three months ended September 30, 2017, of $13.6 million, net price increases of $6.5 million and solid waste volume increases of $1.1 million from increased roll off collection, partially offset by decreased recyclable commodity sales of $1.7 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other revenue decreases of $0.6 million.

55

Revenue in our Central segment increased $44.0 million, or 9.4%, to $514.1 million for the nine months ended September 30, 2018, from $470.1 million for the nine months ended September 30, 2017.  The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the nine months ended September 30, 2017, of $30.4 million, net price increases of $18.5 million and solid waste volume increases of $3.9 million from increased roll off collection and landfill special waste, partially offset by net revenue reductions from divestitures closed during, or subsequent to, the nine months ended September 30, 2017, of $3.1 million, decreased recyclable commodity sales of $4.1 million resulting from the impact of declines in prices for old corrugated cardboard and other fiber products and other revenue decreases of $1.6 million.

Revenue in our E&P segment increased $10.8 million, or 19.9%, to $65.2 million for the three months ended September 30, 2018, from $54.42018. Revenue in our E&P segment increased $12.1 million, or 6.7%, to $193.7 million for the threenine months ended September 30, 20172019, from $181.6 million for the nine months ended September 30, 2018. The increases were due to higher crude oil and natural gas prices increasingincreased drilling activity and E&P disposal volumes at the majority of our sites.basins we operate.  

Revenue in our E&P segment increased $43.8 million, or 31.8%, to $181.6 million for the nine months ended September 30, 2018, from $137.8 million for the nine months ended September 30, 2017 due to higher crude oil and natural gas prices increasing drilling activity and E&P disposal volumes at the majority of our sites.

Segment EBITDA

Segment EBITDA in our SouthernWestern segment increased $7.0$3.9 million, or 11.1%4.5%, to $70.2$90.1 million for the three months ended September 30, 2018,2019, from $63.2$86.2 million for the three months ended September 30, 2017.2018.  The increase was due primarily to an increase in revenues of $11.4$18.2 million from organic growth and acquisitions and a $2.6 million decrease in third party disposal expensescorporate overhead expense allocations of $1.1 million due to decreasesa decrease in collection volumes requiring disposal at a third party location,the overhead allocation rate, partially offset by an increase in direct and administrative labor expenses of $4.4 million due primarily to employee pay rate increases, an increase of $2.1 million resulting from higher costs per ton charged by third party processors of recyclable commodities, an increase in disposal expenses of $2.0 million due primarily to higher residential and commercial collection volumes disposed at third party facilities, an increase in taxes on revenues of $2.0 million due primarily to higher landfill and collection revenues, an increase in third-party trucking and transportation expenses of $2.3$1.6 million due primarily to increased disposal volumes at our transfer station and landfill operations and increased rates charged by third parties to provide trucking and transportation services, an increase in truck, container, equipment and facility maintenance and repair expenses of $1.5 million due to parts and service rate increases and variability impacting the timing of major repairs, a $1.3 million increase in expenses for auto and workers’ compensation claims due primarily to higher adjustments recorded in the prior year period to decrease projected losses on outstanding claims and an increase in 401(k) matching expenses of $0.5 million due to our increasing the maximum matching contribution rate to our employees.

Segment EBITDA in our Western segment increased $13.5 million, or 5.6%, to $253.5 million for the nine months ended September 30, 2019, from $240.0 million for the nine months ended September 30, 2018.  The increase was due primarily to an increase in revenues of $41.3 million, a decrease in intermodal expenses of $3.3 million resulting from a decrease in intermodal cargo volume due to customer losses and a decrease in corporate overhead expense allocations of $2.1 million due to a decrease in the overhead allocation rate, partially offset by an increase in direct and administrative labor expenses of $8.2 million due primarily to employee pay rate increases, an increase in taxes on revenues of $5.2 million due primarily to higher landfill and collection revenues, an increase in disposal expenses of $4.2 million due primarily to higher residential and commercial collection volumes disposed at third party facilities, an increase of $3.3 million resulting from higher costs per ton charged by third party processors of recyclable commodities, an increase in third-party trucking and transportation expenses of $3.2 million due primarily to increased rates charged by third parties to provide trucking and transportation services, an increase in truck, container, equipment and facility maintenance and

52

repair expenses of $2.9 million due to parts and service rate increases and variability impacting the timing of major repairs, a $2.2 million increase in expenses for auto and workers’ compensation claims due primarily to higher adjustments recorded in the prior year period to decrease projected losses on outstanding claims, an increase in 401(k) matching expenses of $1.7 million due to our increasing the maximum matching contribution rate to our employees and $2.3 million of other net expense increases.

Segment EBITDA in our Eastern segment increased $5.4 million, or 6.5%, to $88.1 million for the three months ended September 30, 2019, from $82.7 million for the three months ended September 30, 2018.  The increase was due primarily to an increase in revenues of $46.0 million, partially offset by a net $2.0$31.2 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labor expenses of $1.5$2.8 million due primarily to employee pay rate increases, and a decrease to EBITDA of $1.2 million from the impact of operations disposed of during, or subsequent to, the three months ended September 30, 2017.

Segment EBITDA in our Southern segment increased $8.6 million, or 4.3%, to $207.9 million for the nine months ended September 30, 2018, from $199.3 million for the nine months ended September 30, 2017.  The increase was due to an increase in revenues of $31.8$1.9 million resulting from organic growth and acquisitions, a decrease inhigher costs per ton charged by third party disposal expenses of $4.3 million due to decreases in collection volumes requiring disposal at a third party location and improved internalization of waste collected at operating locations acquired in the Progressive Waste acquisition, a decrease in compressed natural gas fuel expense of $1.5 million due to the recognition during the nine months ended September 30, 2018 of retroactive tax credits associated with fuel purchases in 2017, a decrease in expenses associated with the purchaseprocessors of recyclable commodities, of $1.0a $1.8 million increase in expenses for auto and workers’ compensation claims due primarily to decreased recyclable commodity values, a decrease in insurance claims and premiums expense of $0.9 million due to improved safety results at operating locations acquiredhigher adjustments recorded in the Progressive Waste acquisition, aprior year period to decrease projected losses on outstanding claims, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.7$1.6 million due to parts and service rate increases and variability impacting the timing of major repairs, an increase in leachate disposal expenses of $0.8 million due to higher prior yearcosts per gallon for leachate treatment and an increase in 401(k) matching expenses incurred to bring acquired equipmentof $0.5 million due to our operating and safety standards and $0.9increasing the maximum matching contribution rate to our employees.

Segment EBITDA in our Eastern segment increased $27.3 million, of other net decreases, partially offset by a decreaseor 12.3%, to EBITDA of $10.1$250.1 million from the impact of operations disposed of during, or subsequent to,for the nine months ended September 30, 2017,2019, from $222.8 million for the nine months ended September 30, 2018.  The increase was due primarily to an increase in revenues of $158.4 million and a decrease in disposal expenses of $2.7 million due to improved internalization of collected volumes into our disposal locations, partially offset by a net $6.2$96.9 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in truck, container, equipment and facility maintenance and repair expenses of $6.1 million due to parts and service rate increases and variability impacting the timing of major repairs, an increase in direct and administrative labor expenses of $6.0 million due primarily to employee pay rate increases, an increase in third-party trucking and transportation expenses of $5.3$5.4 million due primarily to increased disposal volumes at our transfer station and landfill operations and increased rates charged by third parties to provide trucking and transportation services, an increase of $4.8 million resulting from higher costs per ton charged by third party processors of recyclable commodities, an increase in laborleachate disposal expenses of $3.3$3.5 million due to increased precipitation generating higher leachate volumes as well as higher costs per gallon for leachate treatment, an increase in expenses for auto and workers’ compensation claims of $3.2 million due primarily to employee pay rate increases, an increase in taxes on revenues of $2.2 million due primarily to an adjustmenthigher adjustments recorded in the current period for taxes incurred in the prior year an increase in employee benefits expenses of $2.1 million dueperiod to transferring retained Progressive Waste employees onto the Waste Connections benefits program, which provides increased benefits to the employees, an increase in subcontracted expenses of $1.5 million due to contracting certain low margin services to third parties,reduce projected losses on outstanding claims, an increase in corporate overhead expense allocations of $1.0 million due to a higher overhead allocation rate and an increase in diesel fuel expense of $0.8 million due to increases in the market price of diesel fuel.

Segment EBITDA in our Western segment increased $1.3 million, or 1.5%, to $86.2 million for the three months ended September 30, 2018, from $84.9 million for the three months ended September 30, 2017.  The increase was due primarily to an increase in revenues of $9.1 million and a decrease in third party trucking and transportation expenses of $2.7 million due to the mix of landfill special waste volumes requiring transportation to our disposal sites, partially offset by an increase in taxes on revenues of $5.5 million due primarily to higher tax rates under our new operating permit at Chiquita Canyon Landfill, a net $2.3 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in corporate overhead expense allocations of $1.3$2.1 million due to higher revenues for which overhead allocations are based, and a higher overhead allocation rate, an increase in diesel fuel expense of $1.0$1.7 million due primarily to the prior year period benefiting from a favorable diesel fuel hedge agreement that expired in December 2018, an increase in 401(k) matching expenses of $1.5 million due to increasesour increasing the maximum matching contribution rate to our employees, an increase in compressed natural gas expense of $0.9 million due primarily to a non-recurring reduction in expense during the market priceprior year period resulting from recording retroactive tax credits associated with purchases of dieselcompressed natural gas fuel and $0.4$1.7 million of other net expense increases.

56

Segment EBITDA in our WesternSouthern segment decreased $7.5increased $7.2 million, or 3.0%10.3%, to $240.0 million for the nine months ended September 30, 2018, from $247.5 million for the nine months ended September 30, 2017.  The decrease was due primarily to an increase in taxes on revenues of $15.8 million due primarily to higher tax rates under our new operating permit at Chiquita Canyon Landfill, a net $8.3 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in corporate overhead expense allocations of $5.3 million due to higher revenues for which overhead allocations are based and a higher overhead allocation rate, an increase in diesel fuel expense of $3.1 million due to increases in the market price of diesel fuel, an increase in direct and administrative labor expenses of $2.5 million due primarily to employee pay rate increases, an increase of $1.9 million in professional fees expense resulting primarily from higher legal expenses, an increase in disposal expenses of $1.7 million due primarily to increased collection volumes and $0.6 million of other net expense increases, partially offset by an increase in revenues of $24.9 million, a decrease in third party trucking and transportation expenses of $6.4 million due to the mix of landfill special waste volumes requiring transportation to our disposal sites and a decrease in compressed natural gas fuel expense of $0.4 million due to the recognition during the nine months ended September 30, 2018 of retroactive tax credits associated with fuel purchases in 2017.

Segment EBITDA in our Eastern segment increased $9.7 million, or 13.1%, to $83.7$77.4 million for the three months ended September 30, 2018,2019, from $74.0$70.2 million for the three months ended September 30, 2017.2018.  The increase was due primarily to an increase in revenues of $47.3$28.0 million from organic growth and acquisitions and a $1.1 million decrease in third party disposal expenses of $1.4 million due to improved internalization of waste collected at certain operating locations acquired in 2017, partially offset by a net $28.2 million increase in cost of operationsFlorida and SG&A expenses attributable to acquired operations, an increase in third party trucking and transportation expenses of $3.1 million due primarily to higher internalized disposal of collected waste volumes and increased rates charged by third parties to provide trucking and transportation services, an increase in corporate overhead expense allocations of $1.8 million due to higher revenues for which overhead allocations are based and a higher overhead allocation rate, increased leachate disposal expenses of $1.6 million due to increased precipitation generating higher leachate volumes, a decrease to EBITDA of $1.4 million from the impact of operations disposed of during, or subsequent to, the three months ended September 30, 2017, an increase in property tax expenses of $1.4 million due primarily to a credit recognized in the prior year period, an increase in diesel fuel expense of $1.0 million due to increases in the market price of diesel fuel and $0.2 million of other net expense increases.

Segment EBITDA in our Eastern segment increased $16.6 million, or 7.9%, to $225.9 million for the nine months ended September 30, 2018, from $209.3 million for the nine months ended September 30, 2017.  The increase was due primarily to an increase in revenues of $106.0 million from organic growth and acquisitions, a $4.3 million decrease in third party disposal expenses due to improved internalization of waste collected at operating locations acquired in 2017, a decrease in insurance premium expense of $2.5 million due primarily to transferring the operating locations acquired in the Groot acquisition onto our high deductible insurance program, a decrease in truck, container, equipment and facility maintenance and repair expenses of $3.0 million due to higher prior year expenses incurred to bring acquired equipment to our operating and safety standards and a decrease in compressed natural gas fuel expense of $0.8 million due to the recognition during the nine months ended September 30, 2018 of retroactive tax credits associated with fuel purchases in 2017, partially offset by a net $68.1 million increase in cost of operations and SG&A expenses attributable to acquired operations, a decrease to EBITDA of $6.6 million from the impact of operations disposed of during, or subsequent to, the nine months ended September 30, 2017, an increase in corporate overhead expense allocations of $5.9 million due to higher revenues for which overhead allocations are based and a higher overhead allocation rate, an increase in third-party trucking and transportation expenses of $4.5 million due primarily to higher internalized disposal of collected waste volumes and increased rates charged by third parties to provide trucking and transportation services, increased leachate disposal expenses of $4.2 million due to increased precipitation generating higher leachate volumes, an increase in diesel fuel expense of $2.9 million due to increases in the market price of diesel fuel, an increase in direct labor expenses of $2.8 million due primarily to employee pay rate increases, an increase in taxes on revenues of $1.4 million due primarily to internalizing additional disposal volumes at our landfills that are assessed taxes based on total inbound tonnage, an increase in property tax expenses of $1.2 million due primarily to a credit recognized in the prior year period and $2.4 million of other net expense increases.

Segment EBITDA in our Canada segment decreased $5.6 million, or 7.5%, to $68.8 million for the three months ended September 30, 2018, from $74.4 million for the three months ended September 30, 2017.  The decrease was comprised of a $3.1 million decrease from a lower average foreign currency exchange rate in effect during the comparable reporting periods and a $2.5 million decrease assuming foreign currency parity during the comparable reporting periods. The $2.5 million decrease, which assumes foreign currency parity, was due primarily to a decrease in revenues of $1.8 million, an increase in diesel fuel expense of $1.2 million due to increases in the market price of diesel fuel and $1.6 million of other net expense increases, partially offset by a decrease in expenses associated with the purchase of recyclable commodities of $2.1 million due to decreased recyclable commodity values.

57

Segment EBITDA in our Canada segment decreased $4.9 million, or 2.4%, to $195.4 million for the nine months ended September 30, 2018, from $200.3 million for the nine months ended September 30, 2017.  The decrease was comprised of a decrease of $7.2 million assuming foreign currency parity during the comparable reporting periods, partially offset by a $2.3 million increase from a higher average foreign currency exchange rate in effect during the comparable reporting periods. The $7.2 million decrease, which assumes foreign currency parity, was due primarily to a decrease in revenues of $9.4 million, an increase in diesel fuel expense of $3.2 million due to increases in the market price of diesel fuel, an increase in corporate overhead expense allocations of $1.4 million due to a higher overhead allocation rate and an increase in employee benefits expenses of $1.2 million due primarily to higher medical expenses, partially offset by a decrease in expenses associated with the purchase of recyclable commodities of $6.5 million due to decreased recyclable commodity values, a decrease in insurance premium expense of $1.2 million due primarily to increasing the deductible limits under our insurance program and $0.3 million of other net expense decreases.

Segment EBITDA in our Central segment increased $5.7 million, or 8.8%, to $70.3 million for the three months ended September 30, 2018, from $64.6 million for the three months ended September 30, 2017. The increase was due primarily to an increase in revenues of $18.9 million and other net expense decreases of $0.2 million,Louisiana, partially offset by a net $11.6 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labor expenses of $1.1$3.9 million due primarily to employee pay rate increases, and an increase in corporate overhead expense allocationstruck, container, equipment and facility maintenance and repair expenses of $0.7$2.0 million due to higher revenues for which overhead allocations are basedparts and service rate increases and variability impacting the timing of major repairs, an increase in third-party trucking and transportation expenses of $1.5 million due primarily to increased rates charged by third parties to provide trucking and transportation services, an increase in 401(k) matching expenses of $0.8 million due to our increasing the maximum matching contribution rate to our employees, an increase in diesel fuel expense of $0.6 million due primarily to the prior year period benefiting from purchasing a higher overhead allocation rate.portion of our diesel fuel needs under a favorable fuel hedge agreement that expired in December 2018, a decrease to EBITDA of $0.3 million from the impact of operations disposed of during, or subsequent to, the three months ended September 30, 2018 and $1.5 million of other net expense increases.

53

Segment EBITDA in our CentralSouthern segment increased $13.8$18.4 million, or 7.8%8.9%, to $191.8$226.3 million for the nine months ended September 30, 2018,2019, from $178.0$207.9 million for the nine months ended September 30, 2017.2018.  The increase was due primarily to an increase in revenues of $44.0$69.8 million from organic growth and acquisitions, a decrease in fuel expensethird party disposal expenses of $1.6$5.7 million due primarily to purchasing fuelimproved internalization of waste collected at certain operating locations in 2018 under favorable fixed price fuel purchase contracts entered intoFlorida and Louisiana, a decrease in 2017corporate overhead expense allocations of $2.1 million due to a decrease in the overhead allocation rate and the recognition during the nine months ended September 30, 2018 of retroactive tax credits associated with fuel purchases in 2017 and $1.8$0.3 million of other net expense decreases, partially offset by a net $25.2$27.6 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labor expenses of $3.2$8.9 million due primarily to employee pay rate increases, an increase in truck, container, equipment and facility maintenance and repair expenses of $7.3 million due to parts and service rate increases and variability impacting the timing of major repairs, an increase in third-party trucking and transportation expenses of $4.7 million due primarily to increased rates charged by third parties to provide trucking and transportation services, an increase in 401(k) matching expenses of $2.5 million due to our increasing the maximum matching contribution rate to our employees, an increase in leachate disposal expenses of $1.8 million due to increased precipitation generating higher leachate volumes as well as higher costs per gallon for leachate treatment, a decrease to EBITDA of $1.5 million from the impact of operations disposed of during, or subsequent to, the nine months ended September 30, 2018, an increase in diesel fuel expense of $1.5 million due primarily to the prior year period benefiting from purchasing a portion of our diesel fuel needs under a favorable fuel hedge agreement that expired in December 2018, an increase in compressed natural gas expense of $1.4 million due primarily to a non-recurring reduction in expense during the prior year period resulting from recording retroactive tax credits associated with purchases of compressed natural gas fuel, an increase in equipment and facility rental expenses of $1.3 million due primarily to increased truck rental expenses and the adoption on January 1, 2019 of new accounting standards associated with leases and an increase of $1.0 million resulting from higher costs per ton charged by third party processors of recyclable commodities.

Segment EBITDA in our Central segment increased $10.4 million, or 14.7%, to $81.7 million for the three months ended September 30, 2019, from $71.3 million for the three months ended September 30, 2018. The increase was due primarily to an increase in revenues of $40.2 million, partially offset by a net $21.6 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labor expenses of $2.9 million due primarily to employee pay rate increases, an increase in third-party trucking and transportation expenses of $1.9 million due primarily to transportation associated with increased landfill special waste volumes and increased rates charged by third parties to provide trucking and transportation services, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.4 million due to the variability and timing of major repairs, an increase in 401(k) matching expenses of $0.4 million due to our increasing the maximum matching contribution rate to our employees and $2.6 million of other net expense increases.

Segment EBITDA in our Central segment increased $24.3 million, or 12.4%, to $219.3 million for the nine months ended September 30, 2019, from $195.0 million for the nine months ended September 30, 2018. The increase was due primarily to an increase in revenues of $98.8 million, partially offset by a net $55.0 million increase in cost of operations and SG&A expenses attributable to acquired operations, an increase in direct and administrative labor expenses of $6.1 million due primarily to employee pay rate increases, an increase in third-party trucking and transportation expenses of $5.9 million due primarily to outsourcing transportation services to third party operators at certain locations, transportation associated with increased landfill special waste volumes and increased rates charged by third parties to provide trucking and transportation services, an increase in disposal expenses of $1.8 million due to increased disposal rates and strategic adjustments to redirect certain collected waste to third party disposal facilities, an increase in truck, container, equipment and facility maintenance and repair expenses of $1.4 million due to the variability and timing of major repairs, an increase in 401(k) matching expenses of $1.4 million due to our increasing the maximum matching contribution rate to our employees, an increase in diesel fuel expense of $1.2 million due primarily to the prior year period benefiting from purchasing a portion of our diesel fuel needs under a favorable fuel hedge agreement that expired in December 2018, an increase in corporate overhead expense allocations of $2.2$1.0 million due to higher revenues for which overhead allocations are based and a higher overhead allocation rate, an increase in third party truckingcompressed natural gas expense of $0.7 million due primarily to a non-recurring reduction in expense during the prior year period resulting from recording retroactive tax credits associated with purchases of compressed natural gas fuel.

Segment EBITDA in our Canada segment decreased $2.0 million, or 2.9%, to $66.8 million for the three months ended September 30, 2019, from $68.8 million for the three months ended September 30, 2018.  The decrease was

54

comprised of a decrease of $1.3 million assuming foreign currency parity during the comparable reporting periods and transportationa decrease of $0.7 million from a decrease in the average foreign currency exchange rate in effect during the comparable reporting periods. The $1.3 million decrease, which assumes foreign currency parity, was due primarily to an increase in direct labor expenses of $2.7 million due primarily to a reduction in open employment positions and employee pay rate increases, an increase in truck, container, equipment and facility maintenance and repair expenses of $2.2 million due to the variability and timing of major repairs and an increase in third-party disposal expenses of $2.0 million due to higher disposal rates charged by operators, partially offset by an increase in landfill special waste volumes requiring transportationrevenues of $5.6 million.

Segment EBITDA in our Canada segment decreased $1.7 million, or 0.9%, to our disposal sites and$193.7 million for the nine months ended September 30, 2019, from $195.4 million for the nine months ended September 30, 2018.  The decrease was comprised of $5.8 million from a reduction in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by an increase of $4.1 million assuming foreign currency parity during the comparable reporting periods. The $4.1 million increase, which assumes foreign currency parity, was due primarily to an increase in legalrevenues of $20.4 million, partially offset by an increase in direct labor expenses of $1.0$6.6 million due primarily to a reduction in open employment positions and employee pay rate increases, an increase in truck, container, equipment and facility maintenance and repair expenses of $4.6 million due to the variability and timing of major repairs, an increase in third-party disposal expenses of $4.5 million due to higher disposal rates charged by operators and other expense increases of $0.6 million.

Segment EBITDA in our E&P segment increased $7.2$0.7 million, or 25.9%2.0%, to $35.8 million for the three months ended September 30, 2019, from $35.1 million for the three months ended September 30, 2018, from $27.9 million for the three months ended September 30, 2017.2018.  The increase was due primarily to an increase in revenues of $10.8$1.1 million, a decrease of $1.2 million in expenses for uncollectible accounts receivable resulting primarily from adjustments to prior period reserve estimates and other expense decreases of $1.0 million, partially offset by an increase in direct labor expenses of $0.9 million due to employee pay rate increases and increased headcount to support higher disposal volumes, an increase in truck, container, equipment and facility maintenance and repair expenses of $0.9 million due to the variability and timing of major repairs and an increase in subcontracted operating expenses of $0.8 million due primarily to subcontracting certain operating activities to third parties.

Segment EBITDA in our E&P segment increased $5.8 million, or 6.1%, to $100.8 million for the nine months ended September 30, 2019, from $95.0 million for the nine months ended September 30, 2018.  The increase was due primarily to an increase in revenues of $12.1 million, partially offset by an increase in subcontracted operating expenses of $1.2$3.3 million due primarily to subcontracting certain operating activities to third parties, an increase in corporate overhead expense allocationsdirect labor expenses of $0.7$1.9 million due to higher revenues for which overhead allocations are basedemployee pay rate increases and a higher overhead allocation rate and $1.7 million of other expense increases.

Segment EBITDA in our E&P segment increased $31.5 million, or 49.6%, to $95.0 million for the nine months ended September 30, 2018, from $63.5 million for the nine months ended September 30, 2017.  The increase was due primarily to an increase in revenues of $43.8 million, partially offset by an increase in subcontracted operating expenses of $3.4 million due primarily to subcontracting certain operating activities to third parties, an increase in corporate overhead expense allocations of $2.1 million due to higher revenues for which overhead allocations are based and a higher overhead allocation rate, an increase in third-party trucking and transportation expenses of $1.6 million due to increased E&P volumes that require us to transport the waste to our disposal sites, an increase in equipment and facility repair and maintenance expenses of $1.6 million due to increased equipment hour usage resulting from higher disposal volumes processed at our sites, an increase in royalties of $1.0 million due to increased disposal volumes, an increase in labor expenses of $0.9 million due to increased headcount to support higher disposal volumes and $1.7an increase in truck, container, equipment and facility maintenance and repair expenses of $1.1 million due to the variability and timing of other expense increases.

major repairs.

Segment EBITDA at Corporate decreased $2.5increased $7.9 million, to a loss of $0.4 million for the three months ended September 30, 2019, from a loss of $8.3 million for the three months ended September 30, 2018, from a loss of $5.8 million for the three months ended September 30, 2017.2018.  The increase in the loss was due to an increasea decrease of $5.0 million in equity-based compensation expenses associated with adjusting common shares of Waste Connections, Inc. 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 of $4.0 million in professional fees expense resulting primarily from higher legal expenses and an increasea further decrease in equity-based compensation expenses of $1.9 million associated with our annual recurring grant of restricted share units to our personnel, partially offset by an increase in corporate overhead allocated to our segments of $3.6 million due to an increase in total corporate expenses to support acquired operations, a decrease of $2.5 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 the Company following the close of the Progressive Waste acquisition, a decrease in direct acquisition costs of $1.6 million and $0.7 million of other net expense decreases.

58

Segment EBITDA at Corporate increased $18.1 million, to a loss of $14.4 million for the nine months ended September 30, 2018, from a loss of $32.5 million for the nine months ended September 30, 2017.  The decrease in the loss was due to an increase in corporate overhead allocated to our segments of $16.4 million due to an increase in total corporate expenses to support acquired operations, a decrease in share-based compensation expenses of $7.8 million due primarily to less share price volatility and 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, a decrease of $3.6 million in accrued recurring cash incentive compensationprofessional fees expense to our managementresulting primarily from reduced legal expenses resulting from the settlement of $2.7 million duecertain legal matters subsequent to decreased solid waste volumes and reduced revenue for recyclable commodities resulting in a lower achievement of interim financial targets during the nine months ended September 30, 2018 a decrease of $5.5 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 the Company following the close of the Progressive Waste acquisition, a decrease in deferred compensation expense of $1.2 million resulting from less increases to deferred compensation liabilities to employees as a result of lower current period increases in the market value of investments to which employee deferred compensation balances are tracked and $2.0$0.9 million of other net expense decreases, partially offset by an increase in 401(k) matching expenses of $7.7$1.3 million due to credits recorded in the prior year period from employee forfeitures, a decrease in corporate overhead allocated to our segments of $0.8 million due to a reduction in allocable expenses, an increase in direct acquisition expenses of $0.7 million due to higher acquisition activity, an increase in equity-based compensation expenses of $0.7 million associated with our annual recurring grant of restricted share units to our personnel and an increase in management training expenses of $0.6 million due to an expansion of our management training curriculum.

Segment EBITDA at Corporate increased $2.6 million, to a loss of $11.8 million for the nine months ended September 30, 2019, from a loss of $14.4 million for the nine months ended September 30, 2018.  The increase was due to a decrease of $10.0 million in professional fees expense resulting primarily from higherreduced legal expenses an increaseresulting from the settlement

55

of certain legal matters subsequent to September 30, 2018, a decrease of $5.0 million in equity-based compensation expenses associated with adjusting common shares of Waste Connections, Inc. 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 further decrease in equity-based compensation expenses of $1.4 million 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 in integration-related expenses of $2.8 million incurred in the prior year period resulting from the acquisition of Progressive Waste, partially offset by an increase in equity-based compensation expenses of $4.8$6.7 million associated with our annual recurring grant of restricted share units to our personnel.personnel, an increase in direct acquisition expenses of $3.2 million due to higher acquisition activity, an increase in deferred compensation expenses of $2.0 million as a result of increases in the market value of investments to which employee deferred compensation liability balances are tracked, an increase in 401(k) matching expenses of $1.1 million due to credits recorded in the prior year period from employee forfeitures, an increase in management training expenses of $1.1 million due to an expansion of our management training curriculum, an increase in accrued recurring cash incentive compensation expense to our management of $1.0 million and $1.5 million of other net expense increases.

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth certain cash flow information for thenine months ended September 30, 20182019 and 20172018 (in thousands of U.S. dollars):

 

Nine Months Ended

September 30,

 
 2018  2017 

    

Nine Months Ended

    

September 30, 

2019

    

2018

Net cash provided by operating activities $1,037,792  $888,375 

$

1,185,430

$

1,037,792

Net cash used in investing activities  (870,446)  (687,106)

 

(885,672)

 

(870,446)

Net cash provided by (used in) financing activities  (395,689)  135,159 

Net cash used in financing activities

 

(308,039)

 

(395,689)

Effect of exchange rate changes on cash, cash equivalents and restricted cash  (528)  976 

 

143

 

(528)

Net increase (decrease) in cash, cash equivalents and restricted cash  (228,871)  337,404 

Net decrease in cash, cash equivalents and restricted cash

 

(8,138)

 

(228,871)

Cash, cash equivalents and restricted cash at beginning of period  556,467   169,112 

 

403,966

 

556,467

Plus (less): change in cash held for sale  192   (27)

Plus: change in cash held for sale

 

 

192

Cash, cash equivalents and restricted cash at end of period $327,788  $506,489 

$

395,828

$

327,788

Operating Activities Cash Flows

For the nine months ended September 30, 2019, net cash provided by operating activities was $1.185 billion. For the nine months ended September 30, 2018, net cash provided by operating activities was $1.038 billion. For the nine months ended September 30, 2017, net cash provided by operating activities was $888.4 million.  The $149.4$147.6 million increase was due primarily to the following:

1)Increase in earnings — Our increase in net cash provided by operating activities was favorably impacted by $107.8$110.6 million from an increase in net income, excluding depreciation, intangible amortization, lease amortization, deferred taxes, equity based compensation, adjustments to and payments of contingent consideration recorded in earnings and impairments and other operating items, due primarily to the impact of acquisitions closed in 2017 and the nine months endedsubsequent to September 30, 2018 volume driven earnings growth at our E&P segment,and price-led earnings growth at certain solid waste segments and benefits resulting from the enactment of the Tax Act in 2017.segments.
2)Prepaid expensesAccounts payable and accrued liabilities — Our increase in net cash provided by operating activities was favorably impacted by $25.8$61.2 million from prepaid expensesaccounts payable and other current assetsaccrued liabilities due primarily to decreased prepaid income taxes.period end timing of payments to vendors for goods and services.
3)Deferred revenueAccounts receivable — Our increase in net cash provided by operating activities was favorably impacted by $14.7$10.5 million from deferred revenueaccounts receivable due primarily to a price-driven increase in solid wasteimproved collection revenues and the timing of the billing for those services.results.
4)Account receivablePrepaid expenses – Our increase in net cash provided by operating activities was favorably impacted by $13.3 million from accounts receivable due primarily to the prior year period having a larger seasonal increase in revenues that remained uncollected at period end.

59

5)Other long-term liabilities – Our increase in net cash provided by operating activities was favorably impacted by $12.0 million from other long-term liabilities due primarily to decreased cash settlements of share-based compensation awards granted to Progressive Waste employees prior to the date of the Progressive Waste acquisition that continued to remain outstanding following the closing of the acquisition.
6)Accounts payable and accrued liabilities– Our increase in net cash provided by operating activities was unfavorably impacted by $27.5$18.7 million from accounts payable and accruedprepaid expenses due primarily to a higher utilization of prepaid income taxes during the prior year period.

56

5)Other long-term liabilities – Our increase in net cash provided by operating activities was unfavorably impacted by $15.6 million from other long-term liabilities due primarily to the timinglease payments resulting from our adoption of payments of trade payables.new accounting standards associated with leases.

As of September 30, 2018,2019, we had a working capital surplus of $207.8$113.5 million, including cash and equivalents of $244.4$303.8 million.  Our working capital surplus decreased $166.5$118.7 million from a working capital surplus of $374.3$232.2 million at December 31, 2017,2018, including cash and equivalents of $433.8$319.3 million, due primarily to decreased cash balances.balances and the adoption of new accounting standards associated with leases requiring a current liability to be recorded for the portion of lease payments payable with the next twelve months. 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 $183.3$15.3 million to $885.7 million for the nine months ended September 30, 2019, from $870.4 million for the nine months ended September 30, 2018, from $687.1 million for the nine months ended September 30, 2017.2018. The significant components of the increase included the following:

1)An increase in capital expenditures of $60.0 million due to an increase in trucks and heavy equipment for operations owned in the comparable periods, increased additions to existing facilities and additional trucks and heavy equipment purchased for operations acquired subsequent to December 31, 2018; and
2)An increase in capital expenditures of $31.7 million due to the purchase of a greenfield landfill site in our Southern segment that will be developed into an operating location in the future; less
3)A decrease in cash paid for acquisitions of $106.1$79.7 million due primarily to an increase in acquisition activity in 2018;
2)An increase in capital expenditures of $56.1 million due to higher landfill site development costs and trucks and containers purchased for operations acquired subsequent to September 30, 2017; less
3)Aa decrease in cash proceeds from the disposal of assets of $22.1 million due primarily to the divestiture of certain operationsacquisitions closed during the nine months ended September 30, 2017.2019.

Financing Activities Cash Flows

Net cash from financing activities decreased $530.9 million to net cash used in financing activities ofdecreased $87.7 million to $308.0 million for the nine months ended September 30, 2019, from $395.7 million for the nine months ended September 30, 2018, from net cash provided by financing activities of $135.2 million for the nine months ended September 30, 2017.2018. The significant components of the decrease included the following:

1)A decrease from the net change in long-term borrowings of $452.2$59.6 million (long-term borrowings increased $230.2decreased $162.4 million during the nine months ended September 30, 20172019 and decreased $222.0 million during the nine months ended September 30, 2018) due primarily to the availability of cash to repay outstanding obligations and higher repayments in the prior year borrowings to fund payments forof long term debt assumed and paid in full from acquisitions; and
2)An increaseA decrease in payments to repurchase our common shares of $42.0 million due to no shares being repurchased during the nine months ended September 30, 2017;2019; less
3)A decrease of $14.1 million from changes in book overdraft due to the variability of outstanding cash balances to which outstanding checks are applied; and
4)An increase in cash dividends paid of $15.2$15.9 million due primarily to an increase in our quarterly dividend rate for the nine months ended September 30, 2019 to $0.16 per share, from $0.14 per share for the nine months ended September 30, 2018, from $0.12 per share for the nine months ended September 30, 2017.2018.

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, 2018,25, 2019, our Board of Directors approved, subject to receipt of regulatory approvals, the annual renewal of our normal course issuer bid, or the NCIB, to purchase up to 13,174,97613,184,474 of our common shares during the period of August 8, 20182019 to August 7, 20192020 or until such earlier time as the NCIB is completed or terminated at our option. The renewal followed on the conclusion of our NCIB that expired August 7, 2018. We received Toronto Stock Exchange, or the TSX, approval for our annual renewal of the NCIB on August 2, 2018. Under the NCIB, we may make share repurchases only in the open market, including on the New York Stock Exchange, or the NYSE, the TSX, and/or alternative Canadian trading systems, at the prevailing market price at the time of the transaction.

60

In accordance with TSX rules, any daily repurchases made through the TSX and alternative Canadian trading systems is limited to a maximum of 71,114 common shares, which represents 25% of the average daily trading volume on the TSX of 284,459 common shares for the period from February 1, 2018 to July 31, 2018. 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 Senior Vice President and 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

57

price of our common shares and overall market conditions. All common shares purchased under the NCIB shall be immediately cancelled following their repurchase.

During the nine months ended September 30, 2018, we repurchased 594,474 common shares pursuant to  Information regarding our NCIB plan can be found under the “Shareholders’ Equity” section in effect during such period at an aggregate cost of $42.0 million. For the nine months ended September 30, 2017, we did not repurchase any common shares pursuantNote 17 to the NCIBCondensed Consolidated Financial Statements included in effect at such time. AsPart I, Item 1 of September 30, 2018, the remaining maximum number of shares available for repurchase under the NCIB was 12,587,332. 

this Quarterly Report on Form 10-Q and is incorporated herein by reference.

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 2017,2018, our Board of Directors authorized an increase to our regular quarterly cash dividend of $0.02, from $0.12$0.14 to $0.14$0.16 per share. Cash dividends of $110.4$126.3 million and $95.2$110.4 million were paid during the nine months ended September 30, 20182019 and 2017,2018, respectively. We cannot assure you as to the amounts or timing of future dividends.

We made $373.5$433.5 million in capital expenditures for property and equipment during the nine months ended September 30, 2018.  We2019, and we expect to make total capital expenditures for property and equipment of between $530$600 million and $550$625 million in 2018 in connection with our existing business.2019. In addition, we made a capital expenditure of $31.7 million for the purchase of a greenfield landfill site during the nine months ended September 30, 2019. We have funded and intend to fund the balance of our planned 20182019 capital expenditures principally through cash on hand, internally generated funds and borrowings under our Credit Agreement. In addition, we may make substantial additional capital expenditures in acquiring municipal 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, Credit Agreement and the funds we expect to generate from operations will provide adequate cash to fund our working capital and other cash needs for the foreseeable future. However, disruptions in the capital and credit markets could adversely affect our ability to draw on our Credit Agreement or raise other capital. Our access to funds under the Credit Agreement is dependent on the ability of the banks that are parties to the agreement to meet their funding commitments. Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time.

As of September 30, 2019, $700.0 million under the term loan and $427.8 million under the revolving credit facility were outstanding under our Credit Agreement, exclusive of outstanding standby letters of credit of $121.9 million. Our Credit Agreement matures in March 2023.

On April 16, 2019, we completed an underwritten public offering of $500.0 million aggregate principal amount of our 3.50% Senior Notes due 2029, or the 2029 Senior Notes. The 2029 Senior Notes were issued under the Indenture, dated as of November 16, 2018, by and between the Company and U.S. Bank National Association, as trustee, as supplemented by the Second Supplemental Indenture, dated as of April 16, 2019.

 We will pay interest on the 2029 Senior Notes semi-annually, commencing on November 1, 2019, and the 2029 Senior Notes will mature on May 1, 2029.  The 2029 Senior Notes are our senior unsecured obligations, ranking equally in right of payment with our other existing and future unsubordinated debt and senior to any of our future subordinated debt.  The 2029 Senior Notes are not guaranteed by any of our subsidiaries.

See Note 10 to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details on the debt agreement.

We are a well-known seasoned issuer with an effective shelf registration statement on Form S-3 filed in May 2018, which registers an unspecified amount of debt securities, including debentures, notes or other types of debt.   In the future, we may issue debt securities under our shelf registration statement or in private placements from time to time on an opportunistic basis, based on market conditions and available pricing. We expect to use the proceeds from any such offerings for general corporate purposes, including repaying, redeeming or repurchasing debt, acquiring additional assets or businesses, capital expenditures and increasing our working capital.

On March 21, 2018, we did the following:

·entered into the 2016 NPA First Amendment, which amended the 2016 NPA and, among other things, provided for certain amendments to the 2016 NPA to facilitate (i) certain conforming changes to align certain provisions of the 2016 NPA, the Assumed 2008 NPA and the Credit Agreement and (ii) the 2016 Release;

·entered into the 2008 NPA Seventh Amendment, which amended the Assumed 2008 NPA, and, among other things, provides certain amendments to the Assumed 2008 NPA to facilitate (i) certain conforming changes to align the provisions of the Assumed 2008 NPA, the 2016 NPA and the Credit Agreement and (ii) the 2008 Release; and

·entered into the Credit Agreement, which, among other things, facilitated the release of each of our subsidiaries guaranteeing the obligations under the Credit Agreement.

There are no subsidiary guarantors under the 2016 NPA, the Assumed 2008 NPA, or the Credit Agreement.

61

58

See Note 10 to the condensed consolidated financial statements included in Part I, Item 1Table of this Quarterly Report on Form 10-Q for further details on the debt agreements.Contents

As of September 30, 2018, $1.638 billion under the term loan and $170.0 million under the revolving credit facility were outstanding under our Credit Agreement, exclusive of outstanding standby letters of credit of $140.5 million.  Our Credit Agreement matures in March 2023.

As of September 30, 2018,2019, 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 $3,763,330  $1,753  $431,483  $2,134,752  $1,195,342 

$

4,062,511

$

502

$

379,689

$

1,653,729

$

2,028,591

Cash interest payments $573,413  $111,483  $218,317  $169,123  $74,490 

$

771,632

$

128,317

$

254,235

$

161,382

$

227,698

Contingent consideration $74,761  $13,019  $19,950  $7,280  $34,512 

$

78,912

$

14,038

$

23,915

$

3,224

$

37,735

Final capping, closure and post-closure $1,405,838  $21,428  $26,357  $16,525  $1,341,528 

$

1,508,736

$

17,676

$

33,745

$

17,666

$

1,439,649

____________________

Long-term debt payments include:

1)$170.0427.8 million in principal payments due March 2023 related to our revolving credit facility under our Credit Agreement.  Advances are available under theWe may elect to draw amounts on our Credit Agreement in U.S. dollarsdollar LIBOR rate loans, U.S. dollar base rate loans, Canadian-based bankers’ acceptances, and Canadian dollars anddollar prime rate loans.  At September 30, 2019, $382.5 million of the outstanding borrowings drawn under the revolving credit facility were in U.S. LIBOR rate loans, which bear interest at fluctuating rates (See Note 10). At September 30, 2018, $170.0the LIBOR rate plus the applicable margin (for a total rate of 3.14% on such date) and $45.3 million of the outstanding borrowings drawn under the revolving credit facility were in Canadian-based bankers’ acceptances, bearingwhich bear interest at the Canadian Dollar Offered Rate plus the applicable acceptance fee (for a total rate of 2.93%3.05% on such date.date).
2)$1.638 billion700.0 million in principal payments due March 2023 related to our term loan under our Credit Agreement. Outstanding amounts on the term loan can be either base rate loans or LIBOR loans. At September 30, 2018,2019, all amounts outstanding under the term loan were in LIBOR loans which bear interest at the LIBOR rate plus the applicable margin (for a total rate of 3.34%3.14% on such date).
3)$175.0 million in principal payments due 2019 related to our 2019 Senior Notes. The 2019 Senior Notes bear interest at a rate of 5.25%.  We have recorded this obligation in the payments due in 3 to 5 years category in the table above as we have the intent and ability to redeem the 2019 Senior Notes on November 1, 2019 using borrowings under our Credit Agreement.
4)$100.0 million in principal payments due 2021 related to our 2021 Senior Notes. The 2021 Senior Notes bear interest at a rate of 4.64%.
5)$150.0 million in principal payments due 2021 related to our New 2021 Senior Notes. The New 2021 Senior Notes bear interest at a rate of 2.39%.
6)$125.0 million in principal payments due 2022 related to our 2022 Senior Notes. The 2022 Senior Notes bear interest at a rate of 3.09%.
7)$200.0 million in principal payments due 2023 related to our 2023 Senior Notes. The 2023 Senior Notes bear interest at a rate of 2.75%.
8)$150.0 million in principal payments due 2024 related to our 2024 Senior Notes. The 2024 Senior Notes bear interest at a rate of 3.24%.
9)$375.0 million in principal payments due 2025 related to our 2025 Senior Notes. The 2025 Senior Notes bear interest at a rate of 3.41%.
10)$400.0 million in principal payments due 2026 related to our 2026 Senior Notes. The 2026 Senior Notes bear interest at a rate of 3.03%.

59

11)$250.0 million in principal payments due 2027 related to our 2027 Senior Notes. The 2027 Senior Notes bear interest at a rate of 3.49%.
12)$15.9500.0 million in principal payments due 2028 related to our tax-exempt bond, which2028 Senior Notes. The 2028 Senior Notes bear interest at a variable rate (1.61% at September 30, 2018)of 4.250%.  The tax-exempt bond matures in 2033. 
13)$15.0500.0 million in principal payments due 2029 related to our 2029 Senior Notes. The 2029 Senior Notes bear interest at a rate of 3.500%.
14)$9.7 million in principal payments related to our notes payable to sellers and other third parties. Our notes payable to sellers and other third parties bear interest at rates between 2.75% and 24.81%10.90% at September 30, 2018,2019, and have maturity dates ranging from 20182019 to 2036.

62

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 and the Canadian Dollar Offered Rate plus the applicable acceptance fee at September 30, 2018.2019. We assumed the Credit Agreement is paid off when it matures in March 2023.

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 $55.0$57.0 million recorded as liabilities in our Condensed Consolidated Financial Statements at September 30, 2018,2019, and $19.7$21.9 million of future interest accretion on the recorded obligations.

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

 Amount of Commitment Expiration Per Period 
 (amounts in thousands 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 $201,517  $34,077  $56,504  $37,797  $73,139 

$

236,150

$

9,662

$

69,589

$

60,607

$

96,292

Unconditional purchase obligations $44,323  $34,739  $9,584  $-  $- 

$

132,444

$

72,573

$

59,871

$

$

____________________

(1)We are party to operating lease agreements and unconditional purchase obligations. These lease agreements and purchase obligations are established in the ordinary course of our business and are designed to provide us with access to facilities and products at competitive, market-driven prices. At September 30, 2018,2019, our unconditional purchase obligations consisted of multiple fixed-price fuel purchase contracts under which we have 19.250.4 million gallons remaining to be purchased for a total of $44.3$132.4 million. The current fuel purchase contracts expire on or before February 28,December 31, 2021. These arrangements have not materially affected our financial position, results of operations or liquidity during the nine months ended September 30, 2018,2019, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.

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 $946.0 million$1.068 billion and $891.0$977.6 million at September 30, 20182019 and December 31, 2017,2018, respectively. These arrangements have not materially affected our financial position, results of operations or liquidity during the nine months ended September 30, 2018,2019, 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.

60

The disposal tonnage that we received in the nine month periods ended September 30, 20182019 and 2017,2018, at all of our landfills during the respective period, is shown below (tons in thousands):

 Nine months ended September 30, 
 2018  2017 
 Number of
Sites
  Total
Tons
  Number of
Sites
  Total
Tons
 

Nine Months Ended September 30, 

2019

2018

    

Number

    

Total

    

Number

    

Total

of Sites

Tons

of Sites

Tons

Owned operational landfills and landfills operated under life-of-site agreements  89   33,387   86   32,305 

 

92

 

35,412

 

89

 

33,387

Operated landfills  4   335   6   403 

 

4

 

433

 

4

 

335

  93   33,722   92   32,708 

 

96

 

35,845

 

93

 

33,722

63

61

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, 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 nine month periods ended September 30, 20182019 and 2017,2018, are calculated as follows (amounts in thousands of U.S. dollars):

 Nine months ended
September 30,
 
 2018  2017 

Nine Months Ended

September 30, 

    

2019

    

2018

    

Net cash provided by operating activities $1,037,792  $888,375 

$

1,185,430

$

1,037,792

Plus (less): Change in book overdraft  (243)  13,814 

 

1,911

 

(243)

Plus: Proceeds from disposal of assets  3,698   25,826 

 

2,626

 

3,698

Less: Capital expenditures for property and equipment  (373,512)  (317,385)

 

(433,526)

 

(373,512)

Less: Distributions to noncontrolling interests  (103)  - 

 

(117)

 

(103)

Adjustments:        

 

 

Payment of contingent consideration recorded in earnings (a)  11   - 

 

 

11

Cash received for divestitures (b)  (1,250)  (21,100)

 

(2,376)

 

(1,250)

Transaction-related expenses (c)  4,907   4,418 

 

8,057

 

4,907

Integration-related and other expenses (d)  2,794   7,968 

 

 

2,794

Pre-existing Progressive Waste share-based grants (e)  5,219   11,740 

 

4,306

 

5,219

Synergy bonus (f)  -   11,798 
Tax effect (g)  (3,609)  (11,426)

Tax effect (f)

 

(3,375)

 

(3,609)

Adjusted free cash flow $675,704  $614,028 

$

762,936

$

675,704

____________________

(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 certain Progressive Waste operations.
(c)Reflects the addback of acquisition-related transaction costs.
(d)Reflects the addback of integration-related items, including rebranding costs, associated with the Progressive Waste acquisition.
(e)Reflects the cash settlement of pre-existing Progressive Waste share-based awards during the period.
(f)Reflects the addback of cash bonuses paid pursuant to our Synergy Bonus Program in conjunction with the Progressive Waste acquisition.
(g)The aggregate tax effect of footnotes (a) through (f)(e) is calculated based on the applied tax rates for the respective periods.

64

62

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 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 nine month periods ended September 30, 20182019 and 2017,2018, are calculated as follows (amounts in thousands of U.S. dollars):

 Three months ended
September 30,
  Nine months ended
September 30,
 
 2018  2017  2018  2017 

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

    

Net income attributable to Waste Connections $150,843  $123,227  $414,393  $261,732 

$

159,109

$

150,843

$

433,579

$

414,393

Plus (less): Net income (loss) attributable to noncontrolling interests  (77)  183   218   559 

 

(35)

 

(77)

 

(89)

 

218

Plus: Income tax provision  52,092   64,390   126,509   100,220 

 

42,783

 

52,092

 

110,539

 

126,509

Plus: Interest expense  32,078   32,471   96,874   92,763 

 

36,780

 

32,078

 

111,313

 

96,874

Less: Interest income  (1,467)  (1,656)  (3,677)  (3,131)

 

(2,056)

 

(1,467)

 

(7,186)

 

(3,677)

Plus: Depreciation and amortization  175,103   163,554   503,310   471,894 

 

189,928

 

175,103

 

555,437

 

503,310

Plus: Closure and post-closure accretion  3,253   2,971   9,749   8,805 

 

3,649

 

3,253

 

10,821

 

9,749

Plus (less): Impairments and other operating items  (1,998)  832   6,106   141,333 

 

12,935

 

(1,998)

 

32,949

 

6,106

Less: Other income, net  (732)  (1,709)  (2,376)  (3,561)
Plus: Foreign currency transaction loss  132   1,864   323   3,502 

Plus (less): Other expense (income), net

 

19

 

(600)

 

(4,562)

 

(2,053)

Adjustments:                

 

 

 

 

Plus: Transaction-related expenses (a)  323   1,958   4,907   4,418 

 

1,036

 

323

 

8,057

 

4,907

Plus: Fair value changes to equity awards (b)  6,880   2,369   10,101   12,947 

 

(589)

 

6,880

 

3,693

 

10,101

Plus: Integration-related and other expenses (c)  379   2,922   2,795   8,344 

 

 

379

 

 

2,795

Adjusted EBITDA $416,809  $393,376  $1,169,232  $1,099,825 

$

443,559

$

416,809

$

1,254,551

$

1,169,232

____________________

(a)Reflects the addback of acquisition-related transaction costs.
(b)Reflects fair value accounting changes associated with certain equity awards.awards.
(c)Reflects the addback of integration-related items, including rebranding costs, associated with the Progressive Waste acquisition.

65

63

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 nine month periods ended September 30, 20182019 and 2017,2018, are calculated as follows (amounts in thousands of U.S. dollars, except per share amounts):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2019

    

2018

    

2019

    

2018

    

Reported net income attributable to Waste Connections

$

159,109

$

150,843

$

433,579

$

414,393

Adjustments:

 

 

 

 

Amortization of intangibles (a)

 

31,934

 

26,871

 

93,821

 

79,444

Impairments and other operating items (b)

 

12,935

 

(1,998)

 

32,949

 

6,106

Transaction-related expenses (c)

 

1,036

 

323

 

8,057

 

4,907

Fair value changes to equity awards (d)

 

(589)

 

6,880

 

3,693

 

10,101

Integration-related and other expenses (e)

 

 

379

 

 

2,795

Tax effect (f)

 

(11,486)

 

(8,006)

 

(33,955)

 

(25,783)

Tax items (g)

 

 

6,578

 

 

9,093

Adjusted net income attributable to Waste Connections

$

192,939

$

181,870

$

538,144

$

501,056

Diluted earnings per common share attributable to Waste Connections’ common shareholders:

 

  

 

  

 

  

 

  

Reported net income

$

0.60

$

0.57

$

1.64

$

1.57

Adjusted net income

$

0.73

$

0.69

$

2.03

$

1.90

  Three months ended
September 30,
  Nine months ended
September 30,
 
  2018  2017  2018  2017 
Reported net income attributable to Waste Connections $150,843  $123,227  $414,393  $261,732 
Adjustments:                
Amortization of intangibles (a)  26,871   26,613   79,444   76,886 
Impairments and other operating items (b)  (1,998)  832   6,106   141,333 
Transaction-related expenses (c)  323   1,958   4,907   4,418 
Fair value changes to equity awards (d)  6,880   2,369   10,101   12,947 
Integration-related and other expenses (e)  379   2,922   2,795   8,344 
Tax effect (f)  (8,006)  (3,575)  (25,783)  (75,828)
Tax items (g)  6,578   3,787   9,093   3,787 
Adjusted net income attributable to Waste Connections $181,870  $158,133  $501,056  $433,619 
                 
Diluted earnings per common share attributable to Waste Connections’ common shareholders:                
Reported net income $0.57  $0.47  $1.57  $0.99 
Adjusted net income $0.69  $0.60  $1.90  $1.64 

____________________

(a)Reflects the elimination of the non-cash amortization of acquisition-related intangible assets.assets.
(b)Reflects the addback of impairments and other operating items.
(c)Reflects the addback of acquisition-related transaction costs.
(d)Reflects fair value accounting changes associated with certain equity awards.awards.
(e)Reflects the addback of integration-related items, including rebranding costs, associated with the Progressive Waste acquisition.
(f)The aggregate tax effect of the adjustments in footnotes (a) through (e) is calculated based on the applied tax rates for the respective periods.

(g)In 2018, primarilyPrimarily reflects refinements to the estimates, as provided by Staff Accounting Bulletin No. 118, of the impact of a portion of the Company’sour U.S. earnings no longer deemed to be permanently reinvested in conjunction with the Tax Act; in 2017, reflects the elimination of an increase to the income tax provision associated with an increase in the Company’s deferred tax liabilities resulting from the enactment of the Illinois State Budget Public Act 100-0022 on July 6, 2017..

INFLATION

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

66

64

SEASONALITY

We expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters and lower in the fourth quarter than in the second and third quarters. This seasonality reflects (a) the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during winter months in 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% to 12%. 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

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

At September 30, 2018,2019, our derivative instruments included 16 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):

    

    

Fixed

    

Variable

    

    

Notional

Interest

Interest Rate

Expiration

Date Entered

Amount

Rate Paid*

Received

Effective Date

Date

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

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
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

** 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.

67

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

65

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 September 30, 20182019 and December 31, 2017,2018, of $973.4$277.8 million and $1.475 billion,$885.0 million, respectively, including floating rate debt under our Credit Agreement and floating rate tax-exempt bond obligations. A one percentage point increase in interest rates on our variable-rate debt as of September 30, 20182019 and December 31, 2017,2018, would decrease our annual pre-tax income by approximately $9.7$2.8 million and $14.8$8.9 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 65.0 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 September 30, 2018, our derivative instruments included one2019, we had no fuel hedge agreementagreements in place; however, we have entered into fixed price fuel purchase contracts for 2019 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
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, or average price, as published by the U.S. Department of Energy, exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty.  If the average price is less than the contract price per gallon, we pay the difference to the counterparty.

Under derivativesFor the year ending December 31, 2019, we expect to purchase approximately 73.9 million gallons of fuel, of which 45.3 million gallons will be purchased at market prices and hedging guidance, the28.6 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.  For the year ending December 31, 2018, we expect to purchase approximately 65.0 million gallons of fuel, of which 35.0 million gallons will be purchased at market prices, 18.0 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 agreement. During the three month period of October 1, 20182019 to December 31, 2018,2019, we expect to purchase approximately 8.711.3 million gallons of fuel at market prices; therefore, a $0.10 per gallon increase in the price of fuel over the remaining three months in 20182019 would decrease our pre-tax income during this period by approximately $0.9$1.1 million.

We market a variety of recyclable materials, including cardboard, officemixed paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate recycling operations and sell other collected recyclable materials to third parties for processing before resale. To reduce our exposure to commodity price risk with respect to recycled materials, 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 nine months ended September 30, 20182019 and 2017,2018, would have had a $6.7$4.9 million and $12.4$6.7 million impact on revenues for the nine months ended September 30, 2019 and 2018, and 2017, 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 20172018 or 2018.2019. A $0.01 change in the Canadian dollar to U.S. dollar exchange rate would impact our annual revenue and EBITDA by approximately $9.5$9.8 million and $3.5$3.6 million, respectively.

68

66

Table of Contents

Item 4.
Controls and Procedures

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 Senior 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 Senior Vice President and Chief Financial Officer concluded as of September 30, 2018,2019, 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

During the quarter ended September 30, 2018,2019, 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.

69

67

PART II – OTHER INFORMATION

Item 1.Legal Proceedings 

Item 1.Legal Proceedings

Information regarding our legal proceedings can be found in Note 18 of our Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and is incorporated herein by reference.

Item 6.Exhibits

Exhibit Number

Item 6.Exhibits

    

Exhibit
Number

Description of Exhibits

3.1

Articles of Amendment (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on May 26, 2017)

3.2

Articles of Amalgamation (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K filed on June 7, 2016)

3.3

Articles of Amendment (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K filed on June 7, 2016)

3.4

By-law No. 1 of the Registrant (incorporated by reference to Exhibit 3.3 of the Registrant’s Form 8-K filed on June 7, 2016)

10.1 +

4.1

Separation Benefits PlanIndenture, dated as of November 16, 2018, by and between Waste Connections, US, Inc., effective July 24, 2018 and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 10.14.1 of the Registrant’s Form 8-K/A8-K filed on August 31,November 16, 2018)

10.2 +

4.2

Separation Benefits Plan Participation Letter AgreementSecond Supplemental Indenture, dated as of April 16, 2019, by and between Waste Connections, US, Inc. and Worthing F. Jackman, effective August 30, 2018U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 10.24.2 of the Registrant’s Form 8-K/A8-K filed on August 31, 2018)April 16, 2019)

10.3

10.1 +

Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and Darrell W. Chambliss, effective October 19, 2018July 25, 2019 (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K10-Q filed on October 19, 2018)July 30, 2019)

10.4

10.2 +

Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and Matthew S. Black, effective October 19, 2018 (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K filed on October 19, 2018)

10.5 +Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and David G. Eddie, effective October 19, 2018 (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 8-K filed on October 19, 2018)
10.6 +Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and David M. Hall, effective October 19, 2018 (incorporated by reference to Exhibit 10.4 of the Registrant’s Form 8-K filed on October 19, 2018)
10.7 +Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and James M. Little, effective October 19, 2018July 25, 2019 (incorporated by reference to Exhibit 10.510.2 of the Registrant’s Form 8-K10-Q filed on October 19, 2018)July 30, 2019)

10.8

10.3 +

Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and Patrick J. Shea, effective October 19, 2018July 25, 2019 (incorporated by reference to Exhibit 10.610.3 of the Registrant’s Form 8-K10-Q filed on October 19, 2018)July 30, 2019)

70

Exhibit
Number
Description of Exhibits
10.9 +

31.1

Separation Benefits Plan Participation Letter Agreement by and between Waste Connections US, Inc. and Mary Anne Whitney, effective October 19, 2018 (incorporated by reference to Exhibit 10.7 of the Registrant’s Form 8-K filed on October 19, 2018)

10.10 +Third Amendment to Separation Benefits Plan and Employment Agreement, dated October 17, 2018, by and between Waste Connections US, Inc. and Ronald J. Mittelstaedt (incorporated by reference to Exhibit 10.8 of the Registrant’s Form 8-K filed on October 19, 2018)
10.11 +Waste Connections, Inc. 2014 Incentive Award Plan
10.12 +Waste Connections, Inc. 2016 Incentive Award Plan
10.13 +Form of Performance-Based Restricted Share Unit Award Agreement (with Three-Year Performance Period) under the Waste Connections, Inc. 2016 Incentive Award Plan
10.14 +Form of Restricted Share Unit Award Agreement (with One-Year Performance Period) under the Waste Connections, Inc. 2016 Incentive Award Plan
31.1Certification of ChiefPrincipal Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a)

31.2

Certification of ChiefPrincipal Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a)

32.1

Certification of ChiefPrincipal Executive Officer pursuant to 18 U.S.C. §1350

32.2

Certification of ChiefPrincipal Financial Officer pursuant to 18 U.S.C. §1350

101.INS

The instance document does not appear in the Interactive Data File because its XBRL Instance Documenttags are embedded within the Inline XBRL document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

104

Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

+ Management contract or compensatory plan, contract or arrangement.arrangement

71

68

SIGNATURES

Pursuant to the requirements of the 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: October 30, 201829, 2019

BY:

/s/ Ronald J. Mittelstaedt

Worthing F. Jackman

Ronald J. Mittelstaedt,

Worthing F. Jackman

President and Chief Executive Officer

Date: October 30, 201829, 2019

BY:

/s/ Mary Anne Whitney

Mary Anne Whitney

Senior Vice President and

Chief Financial Officer

72

69