| Organization, Business and Summary of Significant Accounting Policies (Policies) | 12 Months Ended |
| Dec. 31, 2018 |
| Organization, Business and Summary of Significant Accounting Policies [Abstract] | |
| Organization and Business | Organization and Business
On June 1, 2016, pursuant to the terms of the Agreement and Plan of Merger dated as of January 18, 2016 (the “Merger Agreement”), Water Merger Sub LLC (“Merger Sub”), a Delaware limited liability company and a wholly-owned subsidiary of Progressive Waste Solutions Ltd., merged with and into Waste Connections US, Inc. (f/k/a Waste Connections, Inc.), a Delaware corporation (“Old Waste Connections”) with Old Waste Connections continuing as the surviving corporation and an indirect wholly-owned subsidiary of Waste Connections, Inc. (f/k/a Progressive Waste Solutions Ltd.), a corporation organized under the laws of Ontario, Canada (the “Progressive Waste acquisition”). Following the closing of the transaction, Old Waste Connections’ common stock was delisted from the New York Stock Exchange (“NYSE”) and deregistered under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Pursuant to the Merger Agreement, Old Waste Connections’ stockholders received common shares of Waste Connections, Inc. (f/k/a Progressive Waste Solutions Ltd.) in exchange for their shares of common stock of Old Waste Connections.
Old Waste Connections was incorporated in Delaware on September 9, 1997, and commenced its operations on October 1, 1997, through the purchase of certain solid waste operations in the state of Washington. The Company (as defined below) is 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 its R360 Environmental Solutions subsidiary, the Company is also a leading provider of non-hazardous exploration and production (“E&P”) waste treatment, recovery and disposal services in several of the most active natural resource producing areas in the U.S. The Company also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities. |
| Basis of Presentation | Basis of Presentation
As further discussed in Note 3 – “Acquisitions,” the Progressive Waste acquisition was accounted for as a reverse merger using the acquisition method of accounting. Old Waste Connections has been identified as the acquirer for accounting purposes and the acquisition method of accounting has been applied. The term “Progressive Waste” is used herein in the context of references to Progressive Waste Solutions Ltd. and its shareholders prior to the completion of the Progressive Waste acquisition on June 1, 2016.
The accompanying consolidated financial statements relating to Waste Connections, Inc. (together with its subsidiaries, “New Waste Connections,” “Waste Connections” or the “Company”) include the accounts of the Company and its wholly-owned and majority-owned subsidiaries for the years ended December 31, 2018 and 2017. The accompanying consolidated financial statements of the Company are the historical financial statements of Old Waste Connections, together with its subsidiaries, for the year ended December 31, 2016, with the inclusion on June 1, 2016 of the fair value of the assets and liabilities acquired from Progressive Waste and the inclusion of the results of operations from the acquired Progressive Waste operations commencing on June 1, 2016. All significant intercompany accounts and transactions have been eliminated in consolidation. |
| Reporting Currency | 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. |
| Cash Equivalents | Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at purchase to be cash equivalents. As of December 31, 2018 and 2017, cash equivalents consisted of demand money market accounts. |
| Concentrations of Credit Risk | Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and equivalents, restricted cash, restricted investments and accounts receivable. The Company maintains cash and equivalents with banks that at times exceed applicable insurance limits. The Company reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions. The Company’s restricted cash and restricted investments are invested primarily in money market accounts, bank time deposits, U.S. government and agency securities and Canadian bankers’ acceptance notes. The Company has not experienced any losses related to its cash and equivalents, restricted cash or restricted investment accounts. The Company generally does not require collateral on its trade receivables. Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Company’s customer base. The Company maintains allowances for losses based on the expected collectability of accounts receivable. |
| Revenue Recognition | 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 and intermodal services. The following table disaggregates the Company’s revenues by service line for the periods indicated:
Years Ended December 31,
2018
2017
2016
Commercial
$ 1,452,831
$ 1,343,590
$ 969,619
Residential
1,189,148
1,130,842
874,228
Industrial and construction roll off
768,687
707,015
515,966
Total collection
3,410,666
3,181,447
2,359,813
Landfill
1,063,243
988,092
759,586
Transfer
670,129
589,883
395,824
Recycling
92,634
161,730
92,456
E&P
256,262
203,473
132,286
Intermodal and other
139,896
146,749
106,363
Intercompany
(709,889)
(640,886)
(470,465)
Total
$ 4,922,941
$ 4,630,488
$ 3,375,863
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.
See Note 14 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 from residential, commercial and industrial customers for transport to transfer stations, or directly to landfills or recycling centers. Solid waste collection services include both recurring and temporary customer relationships. The services are performed under service agreements, municipal contracts or franchise agreements with governmental entities. Existing franchise agreements and most of the existing municipal contracts give the Company the exclusive right to provide specified waste services in the specified territory during the contract term. These exclusive arrangements are awarded, at least initially, on a competitive bid basis and subsequently on a bid or negotiated basis. The standard customer service agreements generally range from one to three years in duration, although some exclusive franchises are for significantly longer periods. Residential collection services are also provided on a subscription basis with individual households. The fees received for collection services are based primarily on the market, collection frequency and level of service , route density , type and volume or weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility , the cost of disposal or processing, and prices charged by competitors for similar services .
In general, residential collection fees are billed monthly or quarterly in advance. Substantially all of the deferred revenue recognized as of September 30, 2018 was recognized as revenue during the three months ended December 31, 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 .
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 on a per ton and/or per yard basis 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 on a per ton and/or per yard basis . 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.
Many of the Company’s landfill and transfer station customers have entered into one to ten year disposal contracts, most of which provide for annual indexed price increases.
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, mixed paper, plastic containers, glass bottles and ferrous and aluminum metals. The Company owns recycling operations and markets 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 , the transportation of waste to the disposal facility in certain markets 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.
Other revenues consist primarily of the sale of methane gas generated from the Company’s MSW landfills .
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 . |
| Accounts Receivable | 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 | 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 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 new revenue 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. As of December 31, 2018, the Company had $16,846 of deferred sales incentives. During the year ended December 31, 2018, the Company recorded amortization expense of $17,313 for sales incentive costs. |
| Property and Equipment | Property and Equipment
Property and equipment are stated at cost. Improvements or betterments, not considered to be maintenance and repair, which add new functionality or significantly extend the life of an asset are capitalized. Third-party expenditures related to pending development projects, such as legal and engineering expenses, are capitalized. Expenditures for maintenance and repair costs, including planned major maintenance activities, are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains and losses resulting from disposals of property and equipment are recognized in the period in which the property and equipment is disposed. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter.
The estimated useful lives are as follows:
Buildings
10 – 20 years
Leasehold and land improvements
3 – 10 years
Machinery and equipment
3 – 12 years
Rolling stock
3 – 10 years
Containers
5 – 12 years
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| Landfill Accounting | Landfill Accounting
The Company utilizes the life cycle method of accounting for landfill costs. This method applies the costs to be capitalized associated with acquiring, developing, closing and monitoring the landfills over the associated consumption of landfill capacity. The Company utilizes the units of consumption method to amortize landfill development costs over the estimated remaining capacity of a landfill. Under this method, the Company includes future estimated construction costs using current dollars, as well as costs incurred to date, in the amortization base. When certain criteria are met, the Company includes expansion airspace, which has not been permitted, in the calculation of the total remaining capacity of the landfill.
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Landfill development costs . Landfill development costs include the costs of acquisition, construction associated with excavation, liners, site berms, groundwater monitoring wells, gas recovery systems and leachate collection systems. The Company estimates the total costs associated with developing each landfill site to its final capacity. This includes certain projected landfill site costs that are uncertain because they are dependent on future events and thus actual costs could vary significantly from estimates. The total cost to develop a site to its final capacity includes amounts previously expended and capitalized, net of accumulated depletion, and projections of future purchase and development costs, liner construction costs, and operating construction costs. Total landfill costs include the development costs associated with expansion airspace. Expansion airspace is addressed below.
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Final capping, closure and post-closure obligations . The Company accrues for estimated final capping, closure and post-closure maintenance obligations at the landfills it owns and the landfills that it operates, but does not own, under life-of-site agreements. Accrued final capping, closure and post-closure costs represent an estimate of the current value of the future obligation associated with final capping, closure and post-closure monitoring of non-hazardous solid waste landfills currently owned or operated under life-of-site agreements by the Company. Final capping costs represent the costs related to installation of clay liners, drainage and compacted soil layers and topsoil constructed over areas of the landfill where total airspace capacity has been consumed. Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes. Accruals for final capping, closure and post-closure monitoring and maintenance requirements in the U.S. consider site inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operating and maintenance costs to be incurred during the period after the facility closes. Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the air emissions standards. Daily maintenance activities, which include many of these costs, are expensed as incurred during the operating life of the landfill. Daily maintenance activities include leachate disposal; surface water, groundwater, and methane gas monitoring and maintenance; other pollution control activities; mowing and fertilizing the landfill final cap; fence and road maintenance; and third-party inspection and reporting costs. Site specific final capping, closure and post-closure engineering cost estimates are prepared annually for landfills owned or landfills operated under life-of-site agreements by the Company.
The net present value of landfill final capping, closure and post-closure liabilities are calculated by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in the Company’s final capping, closure and post-closure liabilities being recorded in “layers.” The Company’s discount rate assumption for purposes of computing 2018 and 2017 “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 2017 and 2016. The Company’s inflation rate assumption was 2.5% for the years ended December 31, 2018 and 2017.
In accordance with the accounting guidance on asset retirement obligations, the final capping, closure and post-closure liability is recorded on the balance sheet along with an offsetting addition to site costs which is amortized to depletion expense on a units-of-consumption basis as remaining landfill airspace is consumed. The impact of changes determined to be changes in estimates, based on an annual update, is accounted for on a prospective basis. Depletion expense resulting from final capping, closure and post-closure obligations recorded as a component of landfill site costs will generally be less during the early portion of a landfill’s operating life and increase thereafter. O wned landfills and landfills operated under life-of-site agreements have estimated remaining lives, based on remaining permitted capacity, probable expansion capacity and projected annual disposal volumes, that range from approximately 1 to 157 years, with an average remaining life of approximately 29 years. The costs for final capping, closure and post-closure obligations at landfills the Company owns or operates under life-of-site agreements are generally estimated based on interpretations of current requirements and proposed or anticipated regulatory changes.
The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 2016 to December 31, 2018:
Final capping, closure and post-closure liability at December 31, 2016
$ 244,909
Adjustments to final capping, closure and post-closure liabilities
(26,393)
Liabilities incurred
14,598
Accretion expense associated with landfill obligations
11,673
Closure payments
(8,845)
Foreign currency translation adjustment
1,875
Final capping, closure and post-closure liability at December 31, 2017
237,817
Adjustments to final capping, closure and post-closure liabilities
(13,045)
Liabilities incurred
15,685
Accretion expense associated with landfill obligations
12,777
Closure payments
(2,731)
Assumption of closure liabilities from acquisitions
4,408
Foreign currency translation adjustment
(3,129)
Final capping, closure and post-closure liability at December 31, 2018
$ 251,782
Liabilities incurred of $15,685 and $14,598 for the years ended December 31, 2018 and 2017, respectively, represent non-cash increases to final capping, closure and post-closure liabilities. The Adjustment to final capping, closure and post-closure 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. The final capping, closure and post-closure liability is included in Other long-term liabilities in the Consolidated Balance Sheets. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.
At December 31, 2018 and 2017, $12,325 and $10,121 , respectively, of the Company’s restricted cash balance and $44,939 and $45,969 , respectively, of the Company’s restricted investments balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.
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Disposal capacity . The Company’s internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at its landfills. This is done by using surveys and other methods to calculate, based on the terms of the permit, height restrictions and other factors, how much airspace is left to fill and how much waste can be disposed of at a landfill before it has reached its final capacity. The Company’s landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills it owns, and landfills it operates, but does not own, under life-of-site agreements. The Company’s landfill depletion rate is based on the term of the operating agreement at its operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets the following criteria is included in the estimate of total landfill airspace:
1)
whether the land where the expansion is being sought is contiguous to the current disposal site, and the Company either owns the expansion property or has rights to it under an option, purchase, operating or other similar agreement;
2)
whether total development costs, final capping costs, and closure/post-closure costs have been determined;
3)
whether internal personnel have performed a financial analysis of the proposed expansion site and have determined that it has a positive financial and operational impact;
4)
whether internal personnel or external consultants are actively working to obtain the necessary approvals to obtain the landfill expansion permit; and
5)
whether the Company considers it probable that the Company will achieve the expansion (for a pursued expansion to be considered probable, there must be no significant known technical, legal, community, business, or political restrictions or similar issues existing that the Company believes are more likely than not to impair the success of the expansion).
It is possible that the Company’s estimates or assumptions could ultimately be significantly different from actual results. In some cases, the Company may be unsuccessful in obtaining an expansion permit or the Company may determine that an expansion permit that the Company previously thought was probable has become unlikely. To the extent that such estimates, or the assumptions used to make those estimates, prove to be significantly different than actual results, or the belief that the Company will receive an expansion permit changes adversely in a significant manner, the costs of the landfill, including the costs incurred in the pursuit of the expansion, may be subject to impairment testing, as described below, and lower profitability may be experienced due to higher amortization rates, higher capping, closure and post-closure rates, and higher expenses or asset impairments related to the removal of previously included expansion airspace.
The Company periodically evaluates its landfill sites for potential impairment indicators. The Company’s judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of its landfills. Future events could cause the Company to conclude that impairment indicators exist and that its landfill carrying costs are impaired. |
| Cell Processing Reserves | Cell Processing Reserves
The Company records a cell processing reserve related to its E&P segment for certain locations in Louisiana and Texas for the estimated amount of expenses to be incurred upon the treatment and excavation of oilfield waste received. The cell processing reserve is the future cost to properly treat and dispose of existing waste within the cells at the various facilities. The reserve generally covers estimated costs to be incurred over a period of time up to 24 months, with the current portion representing costs estimated to be incurred in the next 12 months. The estimate is calculated based on current estimated volume in the cells, estimated percentage of waste treated, and historical average costs to treat and excavate the waste. The processing reserve represents the estimated costs to process the volumes of oilfield waste on-hand for which revenue has been recognized. At December 31, 2018 and 2017, the current portion of cell processing reserves was $2,835 and $2,984 , respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets. At December 31, 2018 and 2017, the long-term portion of cell processing reserves was $1,211 and $943 , respectively, which is included in Other long-term liabilities in the Consolidated Balance Sheets. |
| Business Combination Accounting | Business Combination Accounting
The Company accounts for business combinations as follows:
·
The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The Company measures and recognizes goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company’s previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed.
·
At the acquisition date, the Company measures the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies. The Company measures the fair values of all noncontractual contingencies if, as of the acquisition date, it is more likely than not that the contingency will give rise to an asset or liability.
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| Finite-Lived Intangible Assets | Finite-Lived Intangible Assets
The amounts assigned to franchise agreements, contracts, customer lists, permits and other agreements are being amortized on a straight-line basis over the expected term of the related agreements (ranging from 1 to 56 years). |
| Goodwill and Indefinite-Lived Intangible Assets | Goodwill and Indefinite-Lived Intangible Assets
The Company acquired indefinite-lived intangible assets in connection with certain of its acquisitions. The amounts assigned to indefinite-lived intangible assets consist of the value of certain perpetual rights to provide solid waste collection and transportation services in specified territories and to operate E&P waste treatment and disposal facilities. The Company measures and recognizes acquired indefinite-lived intangible assets at their estimated acquisition date fair values. Indefinite-lived intangible assets are not amortized. Goodwill represents the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company’s previously held equity interest in the acquiree (if any), over (b) the fair value of assets acquired and liabilities assumed. Goodwill and intangible assets, deemed to have indefinite lives, are subject to annual impairment tests as described below.
Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year. In addition, the Company evaluates its reporting units for impairment if events or circumstances change between annual tests indicating a possible impairment. Examples of such events or circumstances include, but are not limited to, the following:
·
a significant adverse change in legal factors or in the business climate;
·
an adverse action or assessment by a regulator;
·
a more likely than not expectation that a segment or a significant portion thereof will be sold;
·
the testing for recoverability of a significant asset group within the segment; or
·
current period or expected future operating cash flow losses.
The Company elected to early adopt the guidance issued by the FASB “Simplifying the Test for Goodwill Impairment” on January 1, 2017. The new guidance removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. As such, the impairment analysis is only one step. In this step, the Company estimates the fair value of each of its reporting units , which consisted of testing its five geographic solid waste operating segments and its E&P segment at December 31, 2016 and its five geographic solid waste operating segments at December 31, 2017 and 2018 , using discounted cash flow analyses. The Company did not test its E&P segment for goodwill impairment at December 31, 2017 and 2018 because the carrying value of its goodwill was $0 . The Company compares the fair value of each reporting unit with the carrying value of the net assets assigned to each reporting unit. If the fair value of a reporting unit is greater than the carrying value of the net assets, including goodwill, assigned to the reporting unit, then no impairment results. If the fair value is less than its carrying value, an impairment charge is recorded for the amount by which the carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
During the Company’s annual impairment analysis of its solid waste operations, the Company determined the fair value of each of its five geographic operating segments at December 31, 2016, 2017 and 2018 and each indefinite-lived intangible asset within those segments using discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit and the future discrete cash flows related to each indefinite-lived intangible asset. Significant judgments inherent in these analyses include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows employed in the Company’s 2018 discounted cash flow analyses were based on ten -year financial forecasts, which in turn were based on the 2019 annual budget developed internally by management. These forecasts reflect operating profit margins that were consistent with 2018 results and perpetual revenue growth rates of 4.5% . The Company’s discount rate assumptions are based on an assessment of the market participant rate which approximated 6.7% . In assessing the reasonableness of the Company’s determined fair values of its reporting units, the Company evaluates its results against its current market capitalization. The Company did not record an impairment charge to its geographic operating segments as a result of its annual goodwill and indefinite - lived intangible assets impairment tests for the years ended December 31, 2016, 2017 or 2018.
During the year ended December 31, 2016, the Company did not record any impairment charges related to goodwill as discussed below; however, the results of the Company’s 2016 annual impairment testing indicated that the carrying value of its E&P segment exceeded its fair value by more than $77,343 , which was the carrying value of goodwill at its E&P segment at December 31, 2016. Upon adopting this accounting guidance in the first quarter of 2017, the Company performed an updated impairment test for its E&P segment. The impairment test involved measuring the recoverability of goodwill by comparing the E&P segment’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value was estimated using an income approach employing a discounted cash flow (“DCF”) model. The DCF model incorporated projected cash flows over a forecast period based on the remaining estimated lives of the operating locations comprising the E&P segment. This was based on a number of key assumptions, including, but not limited to, a discount rate of 11.7% , annual revenue projections based on E&P waste resulting from projected levels of oil and natural gas exploration and production activity during the forecast period, gross margins based on estimated operating expense requirements during the forecast period and estimated capital expenditures over the forecast period, all of which were classified as Level 3 in the fair value hierarchy. The impairment test showed the carrying value of the E&P segment continued to exceed its fair value by an amount in excess of the carrying amount of goodwill, or $77,343 . Therefore, the Company recorded an impairment charge of $77,343 , consisting of the carrying amount of goodwill at its E&P segment at January 1, 2017, to Impairments and other operating charges in the Consolidated Statements of Net Income during the year ended December 31, 2017.
For the Company’s annual impairment analysis of its E&P segment for the year ended December 31, 2016, the Company performed its Step 1 assessment of its E&P segment. The Step 1 assessment involved measuring the recoverability of goodwill by comparing the E&P segment’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair value was estimated using an income approach employing a DCF model. The DCF model incorporated projected cash flows over a forecast period based on the remaining estimated lives of the operating locations comprising the E&P segment. This was based on a number of key assumptions, including, but not limited to, a discount rate of 12% , annual revenue projections based on E&P waste resulting from projected levels of oil and natural gas E&P activity during the forecast period, gross margins based on estimated operating expense requirements during the forecast period and estimated capital expenditures over the forecast period, all of which were classified as Level 3 in the fair value hierarchy. As a result of the Step 1 assessment, the Company determined that the E&P segment did not pass the Step 1 test because the carrying value exceeded the estimated fair value of the reporting unit. The Company then performed the Step 2 test to determine the fair value of goodwill for its E&P segment. Based on the Step 1 and Step 2 analyses, the Company did not record an impairment charge to its E&P segment as a result of its goodwill impairment test during the year ended December 31, 2016. Additionally, the Company evaluated the recoverability of the E&P segment’s indefinite-lived intangible assets (other than goodwill) by comparing the estimated fair value of each indefinite-lived intangible asset to its carrying value. The Company estimated the fair value of the indefinite-lived intangible assets using an excess earnings approach. Based on the result of the recoverability test, the Company determined that the carrying value of certain indefinite-lived intangible assets within the E&P segment exceeded their fair value and were therefore not recoverable. The Company recorded an impairment charge to Impairments and other operating items in the Consolidated Statements of Net Income on certain indefinite-lived intangible assets within its E&P segment of $156 during the year ended December 31, 2016. |
| Impairments of Property and Equipment and Finite-Lived Intangible Assets | Impairments of Property and Equipment and Finite-Lived Intangible Assets
Property, equipment and finite-lived intangible assets are carried on the Company’s consolidated financial statements based on their cost less accumulated depreciation or amortization. Finite-lived intangible assets consist of long-term franchise agreements, contracts, customer lists, permits and other agreements. The recoverability of these assets is tested whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Typical indicators that an asset may be impaired include, but are not limited to, the following:
·
a significant adverse change in legal factors or in the business climate;
·
an adverse action or assessment by a regulator;
·
a more likely than not expectation that a segment or a significant portion thereof will be sold;
·
the testing for recoverability of a significant asset group within a segment; or
·
current period or expected future operating cash flow losses.
If any of these or other indicators occur, a test of recoverability is performed by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If the carrying value is in excess of the undiscounted expected future cash flows, impairment is measured by comparing the fair value of the asset to its carrying value. Fair value is determined by an internally developed discounted projected cash flow analysis of the asset. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether an impairment has occurred for the group of assets for which the projected cash flows can be identified. If the fair value of an asset is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs. Several impairment indicators are beyond the Company’s control, and whether or not they will occur cannot be predicted with any certainty. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. There are other considerations for impairments of landfills, as described below.
During the year ended December 31, 2018, the Company did not record an impairment charge for property and equipment. During the year ended December 31, 2017, the Company recorded an $11,038 impairment charge, which is included in Impairments and other operating items in the Consolidated Statements of Net Income, for property and equipment associated with a project to develop a new landfill in its Central segment that the Company is no longer pursuing. During the year ended December 31, 2016, the Company recorded a $2,653 impairment charge, which is included in Impairments and other operating items in the Consolidated Statements of Net Income, for property and equipment at four E&P disposal facilities that were permanently closed in 2016 as a result of operating losses incurred.
There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to landfill development or expansion projects. A regulator or court may deny or overturn a landfill development or landfill expansion permit application before the development or expansion permit is ultimately granted. Management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators of impairment due to the unique nature of the waste industry. |
| Restricted Cash and Restricted Investments | Restricted Cash and Restricted Investments
As of December 31, 2018, restricted cash consists of $66,573 of restricted cash for the settlement of workers’ compensation and auto liability insurance claims associated with the Company’s insurance programs, funds deposited of $12,325 in connection with landfill final capping, closure and post-closure obligations and $5,763 of restricted cash for other financial assurance requirements. As of December 31, 2018, restricted investments consist of funds deposited of $44,939 in connection with landfill final capping, closure and post-closure obligations and $2,547 of restricted investments for other financial assurance requirements. Proceeds from these financing arrangements are directly deposited into segregated accounts, and the Company does not have the ability to utilize the funds in regular operating activities. See Note 9 for further information on restricted cash and restricted investments. |
| Fair Value of Financial Instruments | 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 December 31, 2018 and 2017, 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 December 31, 2018 and 2017, based on current borrowing rates, current remaining average life to maturity and borrower credit quality for similar types of borrowing arrangements, and are classified as Level 2 within the fair value hierarchy. The carrying values and fair values of the Company’s debt instruments where the carrying values do not approximate their fair values as of December 31, 2018 and 2017, are as follows:
Carrying Value at December 31,
Fair Value* at December 31,
2018
2017
2018
2017
4.00% Senior Notes due 2018
$
-
$ 50,000
$
-
$ 50,223
5.25% Senior Notes due 2019
$ 175,000
$ 175,000
$ 177,870
$ 182,547
4.64% Senior Notes due 2021
$ 100,000
$ 100,000
$ 101,292
$ 104,985
2.39% Senior Notes due 2021
$ 150,000
$ 150,000
$ 144,305
$ 146,855
3.09% Senior Notes due 2022
$ 125,000
$ 125,000
$ 120,682
$ 124,532
2.75% Senior Notes due 2023
$ 200,000
$ 200,000
$ 188,363
$ 194,660
3.24% Senior Notes due 2024
$ 150,000
$ 150,000
$ 142,877
$ 149,133
3.41% Senior Notes due 2025
$ 375,000
$ 375,000
$ 355,541
$ 375,311
3.03% Senior Notes due 2026
$ 400,000
$ 400,000
$ 367,143
$ 388,760
3.49% Senior Notes due 2027
$ 250,000
$ 250,000
$ 234,243
$ 250,029
4.25% Senior Notes due 2028
$ 500,000
$
-
$ 506,100
$
-
______________________
* 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, see Note 9. |
| Derivative Financial Instruments | Derivative Financial Instruments
The Company recognizes all derivatives on the balance sheet at fair value. All of the Company’s derivatives have been designated as cash flow hedges; therefore, the effective portion of the changes in the fair value of derivatives will be recognized in accumulated other comprehensive income (loss) (“AOCIL”) until the hedged item is recognized in earnings. The ineffective portion of the changes in the fair value of derivatives will be immediately recognized in earnings. The Company classifies cash inflows and outflows from derivatives within operating activities on the statement of cash flows.
One of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates of certain borrowings under the Credit Agreement (defined below). The Company’s strategy to achieve that objective involves entering into interest rate swaps. The interest rate swaps outstanding at December 31, 2018 were specifically designated to the Credit Agreement and accounted for as cash flow hedges.
At December 31, 2018, the Company’s derivative instruments included 17 interest rate swap agreements as follows:
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
December 2018
$ 200,000
2.850%
1-month LIBOR
July 2022
July 2027
____________________
* Plus applicable margin.
Another of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the price of diesel fuel. The Company’s strategy to achieve that objective involves periodically entering into fuel hedges that are specifically designated to certain forecasted diesel fuel purchases and accounted for as cash flow hedges. At December 31, 2018, the Company had no fuel hedge agreements in place.
The fair values of derivative instruments designated as cash flow hedges as of December 31, 2018, were as follows:
Derivatives Designated as Cash
Asset Derivatives
Liability Derivatives
Flow Hedges
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Interest rate swaps
Prepaid expenses and other current assets (a)
$ 10,737
Other long-term liabilities
$ (9,314)
Other assets, net
10,675
Total derivatives designated as cash flow hedges
$ 21,412
$ (9,314)
____________________
(a) Represents the estimated amount of the existing unrealized gains on interest rate swaps as of December 31, 2018 (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.
The fair values of derivative instruments designated as cash flow hedges as of December 31, 2017, were as follows:
Derivatives Designated as Cash
Asset Derivatives
Liability Derivatives
Flow Hedges
Balance Sheet Location
Fair Value
Balance Sheet Location
Fair Value
Interest rate swaps
Prepaid expenses and other current assets
$ 5,193
Accrued liabilities
$ (903)
Other assets, net
15,182
Other long-term liabilities
(493)
Fuel hedges
Prepaid expenses and other current assets
3,880
Total derivatives designated as cash flow hedges
$ 24,255
$ (1,396)
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 years ended December 31, 2018, 2017 and 2016:
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)
Years Ended December 31,
Years Ended December 31,
2018
2017
2016
2018
2017
2016
Interest rate swaps
$ (892)
$ 3,795
$ 9,192
Interest expense
$ (4,167)
$ 2,062
$ 4,939
Fuel hedges
1,997
959
2,363
Cost of operations
(4,904)
2,112
3,607
Total
$ 1,105
$ 4,754
$ 11,555
$ (9,071)
$ 4,174
$ 8,546
____________________
(a) In accordance with the derivatives and hedging guidance, the effective portions of the changes in fair values of interest rate swaps and fuel hedges have been recorded in equity as a component of AOCIL. As the critical terms of the interest rate swaps match the underlying debt being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in AOCIL. Because changes in the actual price of diesel fuel and changes in the DOE index price do not offset exactly each reporting period, the Company assesses whether the fuel hedges are highly effective using the cumulative dollar offset approach.
(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 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 years ended December 31, 2018, 2017 and 2016.
See Note 12 for further discussion on the impact of the Company’s hedge accounting to its consolidated Comprehensive income (loss) and AOCIL. |
| Income Taxes | Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company records valuation allowances to reduce net deferred tax assets to the amount considered more likely than not to be realized.
The Company is required to evaluate whether the tax positions taken on its income tax returns will more likely than not be sustained upon examination by the appropriate taxing authority. If the Company determines that such tax positions will not be sustained, it records a liability for the related unrecognized tax benefits. The Company classifies its liability for unrecognized tax benefits as a current liability to the extent it anticipates making a payment within one year.
On December 22, 2017, the U.S. Securities and Exchange Commission (the “SEC”) 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 (“Tax Act”). The Tax Act, enacted on December 22, 2017, is comprehensive tax legislation which makes broad and complex changes to the U.S. tax code that affected 2017 and subsequent years. 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.
In connection with the Company’s analysis of the Tax Act, a discrete net income tax benefit of $269,804 was recorded in the year ended December 31, 2017. This net income tax benefit was primarily the result of the reduction to the corporate income tax rate from 35 percent to 21 percent. Additionally, 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 had to 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. The Company was able to make a reasonable estimate of the Transition Tax and recorded a provisional Transition Tax obligation of $1,000 for the year ended December 31, 2017. The Transition Tax, which has now been determined to be complete, resulted in a total Transition Tax obligation of $746 with a corresponding adjustment of $254 to income tax expense for the year ended December 31, 2018. Further, as it relates to the Company’s policy regarding the accounting for the tax impacts of global intangible low-taxed income, it has elected to record the tax impacts as period costs.
Additionally, in conjunction with the Tax Act, the Company recorded a provisional deferred income tax expense of $62,350 for the year ended December 31, 2017 associated with a portion of its U.S. earnings no longer permanently reinvested. During the year ended December 31, 2018, the Company recorded a deferred income tax expense of $6,429 associated with refinements to the prior year estimate as a measurement period adjustment pursuant to SAB 118. This resulted in total deferred income tax expense of $68,779 which has now been determined to be complete. |
| Share-Based Compensation | Share-Based Compensation
The fair value of restricted share unit (“RSU”) awards is determined based on the number of RSUs granted and the closing price of the common shares in the capital of the Company adjusted for future dividends. The fair value of deferred share unit (“DSU”) awards is determined based on the number of DSUs granted and the closing price of the common shares in the capital of the Company.
Compensation expense associated with outstanding performance-based restricted share unit (“PSU”) awards is measured using the fair value of the Company’s common shares adjusted for future dividends and is based on the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends, recognized ratably over the performance period. Compensation expense is only recognized for those awards that the Company expects to vest, which it estimates based upon an assessment of the probability that the performance criteria will be achieved.
All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award adjusted for future dividends, and is recognized on a straight-line basis as expense over the employee’s requisite service period. T he Company recognizes gross share compensation expense with actual forfeitures as they occur.
Warrants are valued using the Black-Scholes pricing model with a contractual life of five years, a risk free interest rate based on the 5-year U.S. treasury yield curve and expected volatility. The Company uses the historical volatility of its common shares over a period equivalent to the contractual life of the warrants to estimate the expected volatility. The fair market value of warrants issued to consultants for acquisitions are recorded immediately as share-based compensation expense.
Share-based compensation expense recognized during the years ended December 31, 2018, 2017 and 2016, was $43,803 ( $32,774 net of taxes), $39,361 ( $25,608 net of taxes) and $44,772 ( $28,680 net of taxes), respectively. This share-based compensation expense includes RSUs, PSUs, DSUs, share option and warrant expense. The share-based compensation expense totals include amounts associated with the Progressive Waste share-based compensation plans, continued by the Company following the Progressive Waste acquisition, which allow for the issuance of shares or cash settlement to employees upon vesting. The Company records share-based compensation expense in Selling, general and administrative expenses in the Consolidated Statements of Net Income. The total unrecognized compensation cost at December 31, 2018, related to unvested RSU awards was $37,736 and this future expense will be recognized over the remaining vesting period of the RSU awards, which extends to 2022 . The weighted average remaining vesting period of the RSU awards is 1.1 years. The total unrecognized compensation cost at December 31, 2018, related to unvested PSU awards was $17,331 and this future expense will be recognized over the remaining vesting period of the PSU awards, which extends to 2022 . The weighted average remaining vesting period of PSU awards is 1.1 years.
Restricted Share Units - Progressive Waste Plans
The Company recorded a liability of $25,925 at June 1, 2016 associated with the fair value of the Progressive Waste restricted share units outstanding. Outstanding Progressive Waste restricted share units vest over three years. As of December 31, 2016, the Company had $2,409 of unrecognized compensation cost for restricted share units under the Progressive Waste share-based compensation plans and a liability of $15,091 representing the December 31, 2016 fair value of outstanding Progressive Waste restricted share units, less unrecognized compensation cost. The fair value as of December 31, 2016 was calculated using a Black-Scholes pricing model with the following assumptions:
Expected remaining life
1 month to 2.15 years
Annual dividend rate
0.92%
As of December 31, 2018, the Company had $156 of unrecognized compensation cost for restricted share units under the Progressive Waste share-based compensation plans. As of December 31, 2018 and 2017, the Company had a liability of $9,799 and $10,785 , respectively, representing the December 31, 2018 and 2017 fair values, respectively, of outstanding Progressive Waste restricted share units. For the years ended December 31, 2018 and 2017, the fair value was calculated using the number of shares granted and the closing price of the common shares in the capital of the Company.
Performance-Based Restricted Share Units - Progressive Waste Plans
The Company recorded a liability of $7,218 at June 1, 2016 associated with the fair value of the Progressive Waste performance-based restricted share units outstanding. As of December 31, 2018, 2017 and 2016, the Company had a liability of $1,923 , $3,500 and $3,435 , respectively, representing the December 31, 2018, 2017 and 2016 fair values, respectively, of outstanding Progressive Waste performance-based restricted share units, less unrecognized compensation cost. The fair value was calculated using the volume weighted average price of the Company’s shares for the five preceding business days as of December 31, 2018, 2017 and 2016 which were $73.06 , $71.50 , and $52.79 , respectively. All remaining unvested Progressive Waste performance-based restricted share units vested during the year ended December 31, 2018.
Share Based Options – Progressive Waste Plans
The Company recorded a liability of $13,022 at June 1, 2016 associated with the fair value of the Progressive Waste share based options outstanding. The fair value was calculated using a Black-Scholes pricing model with the following weighted average assumptions for the years ended December 31, 2018 and 2017 and for the period from the June 1, 2016 Progressive Waste acquisition to December 31, 2016:
Year ended
December 31, 2018
Year ended
December 31, 2017
June 1, 2016 to December 31, 2016
Expected remaining life
2.50 years
0.92 to 2.30 years
1.05 to 3.30 years
Share volatility
14.86%
12.09% to 26.07%
10.35% to 32.92%
Discount rate
2.51%
1.75% to 1.92%
0.92% to 1.66%
Annual dividend rate
0.86%
0.79%
0.92%
All remaining unvested Progressive Waste share based options vested during the year ended December 31, 2017. As of December 31, 2018, 2017 and 2016, the Company had a liability of $8,812 , $10,751 and $18,529 , respectively, representing the December 31, 2018, 2017 and 2016 fair value, respectively, of outstanding Progressive Waste share based options. |
| Per Share Information | Per Share Information
Basic net income per share attributable to holders of the Company’s common shares is computed using the weighted average number of common shares outstanding and vested and unissued restricted share units deferred for issuance into the deferred compensation plan. Diluted net income per share attributable to holders of the Company’s common shares is computed using the weighted average number of common and potential common shares outstanding. Potential common shares are excluded from the computation if their effect is anti-dilutive. |
| Advertising Costs | Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2018, 2017 and 2016, was $5,029 , $5,047 and $3,960 , respectively, which is included in Selling, general and administrative expense in the Consolidated Statements of Net Income. |
| Insurance Liabilities | Insurance Liabilities
As a result of its insurance policies, the Company is effectively self-insured for automobile liability, general liability, employer’s liability, environmental liability, cyber liability, employment practices liability, and directors’ and officers’ liability as well as for employee group health insurance, property and workers’ compensation. The Company’s insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by the Company’s management with assistance from its third-party actuary and its third-party claims administrator. The insurance accruals are influenced by the Company’s past claims experience factors, which have a limited history, and by published industry development factors. At December 31, 2018 and 2017, the Company’s total accrual for self-insured liabilities was $119,506 and $122,162 , respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets. For the years ended December 31, 2018, 2017 and 2016, the Company recognized $146,940 , $141,405 and $106,675 , respectively, of self-insurance expense which is included in Cost of operations and Selling, general and administrative expense in the Consolidated Statements of Net Income. |
| New Accounting Pronouncements | New Accounting Pronouncements
Accounting Standards Adopted
Revenue From Contracts With Customers . In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance to provide a single, comprehensive revenue recognition model for all contracts with customers. The standard was 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.
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 “Revenue Recognition and Accounts Receivable” within this Note 1 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 was 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 consolidated statements 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 was 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 was 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 $34,359 for the year ended December 31, 2018 and a decrease in cash used in investing activities of $105,317 and $3,814 , respectively, for the years ended December 31, 2017 and 2016.
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 was 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 SEC 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 had to 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 . The Transition Tax, which has now been determined to be complete, resulted in recording a total Transition Tax obligation of $746 with a corresponding adjustment of $254 to income tax expense for the year ended December 31, 2018. Further, as it relates to the Company’s policy regarding the accounting for the tax impacts of global intangible low-taxed income, it has elected to record the tax impacts as period costs.
Additionally, in conjunction with the Tax Act, the Company recorded a provisional deferred income tax expense of $62,350 for the year ended December 31, 2017 associated with a portion of its U.S. earnings no longer permanently reinvested. During the year ended December 31, 2018, the Company recorded a deferred income tax expense of $6,429 associated with refinements to the prior year estimate as a measurement period adjustment pursuant to SAB 118. This resulted in total deferred income tax expense of $68,779 which has now been determined to be complete.
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 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The FASB issued new guidance in July 2018, which amended 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.
The Company adopted the new standard on January 1, 2019 and elected to apply the new guidance at the effective date and recognize a cumulative-effect adjustment, without adjusting the comparative periods presented. The Company also applied the package of practical expedients to leases that commenced before the effective date whereby the Company elected 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 has substantially 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. The Company is currently assessing the disclosure requirements under the new standard and it anticipates disclosing additional information, as necessary, to comply with the new standard. As of January 1, 2019, the Company expects to recognize a right-of-use liability for its operating leases of approximately $207,300 classified as accrued liabilities and other long-term liabilities, a corresponding right-of-use asset of approximately $206,700 classified as other assets in its consolidated balance sheet, a reduction to deferred income tax liabilities of approximately $1,100 and a cumulative-effect adjustment to increase retained earnings of approximately $500 . The Company does not expect the adoption of the new standard to have a material impact on its consolidated statements of net income or consolidated statements of cash flows.
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 does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.
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 to have a material impact on its consolidated financial statements.
SEC Simplified and Updated Disclosure Requirements . In August 2018, the SEC amended its rules to require an analysis of changes in stockholders’ equity in the financial 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 become effective 30 days after they are published in the Federal Register; however, the SEC’s Division of Corporation Finance issued a Compliance and Disclosure Interpretation (the “CDI”) that provides transition guidance related to this new disclosure. The CDI states that 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’s first presentation of 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 for the Company. The Company will be including these additional disclosures beginning with its first quarter Form 10-Q in 2019. |
| Reclassification | Reclassification
As disclosed within other footnotes of the financial statements, restricted cash and restricted investments reported in the Company’s prior year have been reclassified to conform with the 2018 presentation |
