WASTE CONNECTIONS, INC. The following discussion should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K.
We make statements in this Annual Report on Form 10-K that are forward-looking in nature. These include:
Statements regarding our landfills, including capacity, duration, special
? projects, demand for and pricing of recyclables, landfill alternatives and
related capital expenditures;
? Discussion of competition, loss of contracts, price increases and additional
exclusive and/or long-term collection service arrangements;
Forecasts of cash flows necessary for operations and free cash flow to reduce
? leverage as well as our ability to draw on our credit facility and access the
capital markets to refinance or expand;
? Statements regarding our ability to access capital resources or credit markets
at all or on favorable terms;
? Plans for, and the amount of, certain capital expenditures for our existing and
newly acquired properties and equipment;
? Statements regarding fuel, oil and natural gas demand prices and price
volatility;
? Assessments of regulatory developments and potential changes in environmental,
health, safety and tax laws and regulations; and
Other statements on a variety of topics such as the COVID-19 pandemic, credit
? risk of customers, seasonality, labor/pension costs and labor union activity,
operational and safety risks, acquisitions, litigation results, goodwill
impairments, insurance costs and cybersecurity threats.
These statements can be ?identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "might," "will," ??"could," "should" or "anticipates," or the negative thereof or comparable terminology, or by discussions of strategy. Our ?business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ ?materially from those projected by any forward-looking statements. Factors that could cause actual results to differ ?from those projected include, but are not limited to, those listed under the heading "ITEM 1A. Risk Factors" and elsewhere in this Annual Report on Form 10-?K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial that ?could have an adverse impact on our business. We make no commitment to revise or update any forward-looking ?statements to reflect events or circumstances that may change, unless required under applicable securities laws.
Industry Overview
The solid waste industry is local and highly competitive in nature, requiring
substantial labor and capital resources. We 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
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landfills that have complementary collection routes that can use company-owned disposal capacity. Controlling the point of transfer from haulers to landfills has become increasingly important as landfills continue to close and disposal capacity moves farther from the collection markets it serves. Generally, the most profitable operators within the solid waste industry are those companies that are vertically integrated or enter into long-term collection contracts. A vertically integrated operator will benefit from: (1) the internalization of waste, which is bringing waste to a company-owned landfill; (2) the ability to charge third-party haulers tipping fees either at landfills or at transfer stations; and (3) the efficiencies gained by being able to aggregate and process waste at a transfer station prior to landfilling. The 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. Macroeconomic and geopolitical conditions, including a significant decline in oil prices driven by both surplus production and supply, as well as the decrease in demand caused by factors including the COVID-19 pandemic, have resulted in decreased levels of oil and natural gas exploration and production activity and a corresponding decrease in demand for our E&P waste services. Additionally, across the industry there is uncertainty regarding future demand for oil and related services, as noted by several energy companies, many of whom are customers of our E&P waste operations. These companies have written down the values of their oil and gas assets in anticipation of the potential for the decarbonization of their energy product mix given an increased global focus on reducing greenhouse gases and addressing climate change. Such uncertainty regarding global demand has had a significant impact on the investment and operating plans of our E&P waste customers in the basins where we operate. If the prices of crude oil and natural gas substantially decline, it could lead to 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 waste operations. See the section Impairments of Property and Equipment and Finite-Lived Intangible Assets in Note 3, "Summary of Significant Accounting Policies," of our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a discussion of the impairment charges recorded during the years endedDecember 31, 2021 and 2020.
Executive Overview
We are an integrated solid waste services company that provides non-hazardous waste collection, transfer and disposal services, along with resource recovery primarily through recycling and renewable fuels generation, in mostly exclusive and secondary markets across 43 states in theU.S. and six provinces inCanada .Waste Connections also provides E&P waste services in several basins across theU.S. , as well as intermodal services for the movement of cargo and solid waste containers in thePacific Northwest . 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.
The COVID-19 Pandemic's impact on our Results of Operations
March 11, 2021 marked the one year anniversary of COVID-19 being declared a global pandemic by theWorld Health Organization . The related economic disruptions largely associated with closures or restrictions put into effect following the onset of the COVID-19 pandemic in the first quarter of 2020 resulted in declines in solid waste commercial collection, transfer station and landfill volumes, and roll off activity. Throughout the remaining fiscal year 2020, solid waste revenue and reported volumes largely reflected the pace and shape of the closures and subsequent reopening activity, with the timing and magnitude of recovery varying by market. Reported solid waste volumes in 2020 turned slightly negative in the first quarter, were most negative in the second quarter, and showed sequential improvement during the second half of the year, finishing the year at negative 3.1% in the fourth quarter. In the first quarter of 2021, the final period to include comparisons to pre-COVID-19 activity levels on a year over year basis, solid waste volumes were down 3.2%. In the second quarter of 2021, solid waste volumes increased sequentially by 9.6% to up 6.5% on a year over year basis, with 50
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positive volumes in all regions. In the second half of 2021, volumes remained positive in spite of increasingly difficult year over year comparisons as a result of reopening activity in 2020.
The COVID-19 pandemic also contributed to the decline in demand for and the value of crude oil, which impacted E&P drilling activity and resulted in lower E&P waste revenue, with the quarterly run rate decreasing from approximately$60 million in the first quarter of 2020 to approximately$25 million through the first quarter of 2021. On increased drilling activity in several active shale basins, E&P waste revenue increased to a quarterly run rate of approximately$35 million in the second half of 2021. Since the onset of the COVID-19 pandemic, protecting the health, welfare and safety of our employees has been our top priority. Recognizing the potential for financial hardship and other challenges, we have looked to provide a safety net for our employees on issues of income and family health. To that end, since the onset of the pandemic through year-end 2021, we have incurred over$40 million in incremental COVID-19-related costs, primarily supplemental pay for frontline employees. We continue to support our employees and their families, including with certain costs continuing in early 2022 due to surges in cases related to certain variants. The impact of the COVID-19 pandemic on our business, results of operations, financial condition and cash flows in future periods will depend largely on future developments, including the duration and spread of the outbreak in theU.S. andCanada , the rate of vaccinations, the severity of COVID-19 variants, the actions to contain such coronavirus variants, and how quickly and to what extent normal economic and operating conditions can resume. As a result of the COVID-19 pandemic and subsequent reopening activity in 2021, we have also experienced an impact to our operating costs as a result of factors including supply chain disruptions and labor constraints, as demand has recovered and competition has increased. As a result, we have incurred incremental costs associated with higher wages, increased overtime as a result of higher turnover, and increased reliance on third party services.
2021 Financial Performance
The functional currency of the Company, as the parent corporate entity, and its operating subsidiaries inthe United States is theU.S. dollar. The functional currency of the Company's Canadian operations is the Canadian dollar. The reporting currency of the Company is theU.S. dollar. The Company's consolidated Canadian dollar financial position is translated toU.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 toU.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.
Operating Results
Revenues in 2021 increased 13.0% to$6.151 billion from$5.446 billion in 2020. Acquisitions closed during, or subsequent to, the prior year, net of divestitures, accounted for$215.4 million in incremental revenues in 2021. Excluding the impact of such acquisitions, revenues increased 9.0% due predominantly to higher internal growth in solid waste. Solid waste internal growth was positive 8.4%, due to higher price increases, higher surcharges and higher volumes, which turned positive following the anniversary of the onset of the COVID-19 pandemic in the first quarter. Pricing growth was 5.0%, with core pricing up 4.7%, plus materials and environmental surcharges of positive 0.3%. Volumes increased by 1.6% on increases in landfill and hauling volumes beginning in the second quarter, which reflected the prior year comparisons due primarily to the impact of the COVID-19 pandemic and subsequent reopening activity. Increases in the value of recycled commodities resulted in a 1.8% increase to internal solid waste growth. Increases in the value of renewable fuels resulted in an increase of 0.6% to overall growth; and lower E&P waste activity resulted in a 0.3% decrease to overall growth. Net income attributable toWaste Connections increased 202.0% to$618.0 million in 2021, from$204.7 million in 2020. In 2021, adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, a non-GAAP financial measure (refer to page 73 of this Annual Report on Form 10-K for a definition and reconciliation to Net income attributable toWaste Connections ), increased 15.5% to$1.919 billion , from$1.662 billion in 2020. As a percentage of 51 Table of Contents revenue, adjusted EBITDA increased from 30.5% in 2020, to 31.2% in 2021. This 0.7 percentage point increase was due to price-led organic growth in solid waste and the benefit of higher commodity-driven revenue, partially offset by lower E&P waste activity. Adjusted net income attributable toWaste Connections , a non-GAAP financial measure (refer to page 74 of this Annual Report on Form 10-K for a definition and reconciliation to Net income attributable toWaste Connections ), in 2021 increased 21.7% to$846.6 million from$695.8 million
in 2020. Adjusted Free Cash Flow
Net cash provided by operating activities increased 20.6% to$1.698 billion in 2021, from$1.409 billion in 2020. Capital expenditures for property and equipment increased from$597.1 million in 2020 to$744.3 million in 2021, an increase of$147.2 million , or 24.7%. Adjusted free cash flow, a non-GAAP financial measure (refer to page 72 of this Annual Report on Form 10-K for a definition and reconciliation to Net cash provided by operating activities), increased by$167.7 million to$1.010 billion in 2021, from$841.9 million in 2020. Adjusted free cash flow as a percentage of revenues was 16.4% in 2021, as compared to 15.5% in 2020.
Return of Capital and Distributions to Shareholders
In 2021, we distributed$559.2 million to shareholders through a combination of cash dividends and share repurchases. We paid$220.2 million to shareholders through cash dividends declared by our Board of Directors, which also increased the quarterly cash dividend by 12.2%, from$0.205 to$0.23 per common share inOctober 2021 . Cash dividends increased$20.3 million , or 10.2%, from$199.9 million in 2020 due to a 10.8% increase in the quarterly cash dividend declared by our Board of Directors inOctober 2020 , followed by the additional increase inOctober 2021 . Our Board of Directors intends to review the quarterly dividend during the fourth quarter of each year, with a long-term objective of increasing the amount of the dividend. In 2021, we also repurchased 3.004 million common shares at an aggregate cost of$339.0 million . We expect the amount of capital we return to shareholders through share repurchases to vary depending on our financial condition and results of operations, capital structure, the amount of cash we deploy on acquisitions, expectations regarding the timing and size of acquisitions, the market price of our common shares, and overall market conditions. We cannot assure you as to the amounts or timing of future share repurchases or dividends. We have the ability under our Credit Agreement to repurchase our common shares and pay dividends provided that we maintain specified financial ratios.
Capital Position
We target a Leverage Ratio, as defined in our Credit Agreement, of approximately 2.5x - 3.0x total debt to EBITDA. The Leverage Ratio is a non-GAAP ratio (refer to page 74 of this Annual Report on Form 10-K for more information on this ratio). Higher EBITDA in 2021 more than offset the impact of higher debt, resulting in a decrease in our Leverage Ratio from 2.68x atDecember 31, 2020 to 2.50x atDecember 31, 2021 . Cash balances decreased from$617.3 million atDecember 31, 2020 to$147.4 million atDecember 31, 2021 , and we had$933.8 million of remaining borrowing capacity under our Credit Agreement, which matures inJuly 2026 .
Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with 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 consolidated financial statements. As described by theSEC , critical accounting estimates and assumptions are those that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on the financial condition or operating performance of a company. Such critical accounting estimates and assumptions are applicable to our reportable segments. Based on this definition, we believe the following are our critical accounting estimates. Insurance liabilities. We maintain insurance policies for automobile, general, employer's, environmental, cyber, employment practices and directors' and officers' liability as well as for employee group health insurance, property insurance and workers' compensation. We carry umbrella policies for certain types of claims to provide excess coverage over the underlying policies and per incident deductibles or self-insured retentions. Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from 52
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our third-party actuary and third-party claims administrator. The insurance accruals are influenced by our past claims experience factors and by published industry development factors. If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected. The frequency and amount of claims or incidents could vary significantly over time, which could materially affect our self-insurance liabilities. Additionally, the actual costs to settle the self-insurance liabilities could materially differ from the original estimates and cause us to incur additional costs in future periods associated with prior year claims. Income taxes. Deferred income tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. If our judgment and estimates concerning assumptions made in calculating our expected future income tax rates are incorrect, our deferred income tax assets and liabilities would change. Based on our deferred income tax liability balance atDecember 31, 2021 , each 0.1 percentage point change to our expected future income tax rates would change our deferred income tax liability balance and income tax expense by approximately$3.3 million . Accounting for landfills. We recognize landfill depletion expense as airspace of a landfill is consumed. Our landfill depletion rates are based on the remaining disposal capacity at our landfills, considering both permitted and probable expansion airspace. We calculate the net present value of our final capping, closure and post-closure commitments by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in our final capping, closure and post-closure liabilities being recorded in "layers." The resulting final capping, closure and post-closure obligations are recorded on the 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. The accounting methods discussed below require us to make certain estimates and assumptions. Changes to these estimates and assumptions, including as a result of inflation, could have a material effect on our financial condition and results of operations. Any changes to our estimates are applied prospectively. Landfill development costs. Landfill development costs include the costs of acquisition, construction associated with excavation, liners, site berms, groundwater monitoring wells, gas recovery systems and leachate collection systems. We estimate the total costs associated with developing each landfill site to its final capacity. Total landfill costs include the development costs associated with expansion airspace. Expansion airspace is described below. Landfill development costs depend on future events and thus actual costs could vary significantly from our estimates. Material differences between estimated and actual development costs may affect our cash flows by increasing our capital expenditures and thus affect our results of operations by increasing our landfill depletion expense. Final capping, closure and post-closure obligations. We accrue for estimated final capping, closure and post-closure maintenance obligations at the landfills we own, and the landfills that we operate, but do not own, under life-of-site agreements. We could have additional material financial obligations relating to final capping, closure and post-closure costs at other disposal facilities that we currently own or operate or that we may own or operate in the future. Our discount rate assumption for purposes of computing 2021 and 2020 "layers" for final capping, closure and post-closure obligations was 3.25% and 4.75%, which reflects our long-term credit adjusted risk free rate as of the end of 2020 and 2019. Our inflation rate assumption was 2.25% and 2.50% for the years endedDecember 31, 2021 and 2020, respectively. Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the landfill final capping, closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of operations. Additionally, changes in regulatory or legislative requirements could increase our costs related to our landfills, resulting in a material adverse effect on our financial condition and results of operations. Disposal capacity. Our internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at our landfills. Our landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills that we own and at landfills that we operate, but do not 53
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own, under life-of-site agreements. Our landfill depletion rate is based on the term of the operating agreement at our operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets the following criteria is included in our estimate of total landfill airspace:
whether the land where the expansion is being sought is contiguous to the
1) current disposal site, and we either own the expansion property or have rights
to it under an option, purchase, operating or other similar agreement;
2) whether total development costs, final capping costs, and closure/post-closure
costs have been determined;
whether internal personnel have performed a financial analysis of the proposed
3) 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
whether we consider it probable that we will achieve the expansion (for a
pursued expansion to be considered probable, there must be no significant
5) known technical, legal, community, business or political restrictions or
similar issues existing that we believe are more likely than not to impair the
success of the expansion).
We may be unsuccessful in obtaining permits for expansion disposal capacity at our landfills. In such cases, we will charge the previously capitalized development costs to expense. This will adversely affect our operating results and cash flows and could result in greater landfill depletion expense being recognized on a prospective basis. We periodically evaluate our landfill sites for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of our landfills. Future events could cause us to conclude that impairment indicators exist and that our landfill carrying costs are impaired. Any resulting impairment loss could have a material adverse effect on our financial condition and results of operations.Goodwill and indefinite-lived intangible assets testing.Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year. In addition, we evaluate our reporting units for impairment if events or circumstances change between annual tests indicating a possible impairment. Examples of such events or circumstances include, but are not limited to, the following: ? a significant adverse change in legal factors or in the business climate;
? an adverse action or assessment by a regulator;
? a more likely than not expectation that a segment or a significant portion thereof will be sold;
? the testing for recoverability of a significant asset group within a segment; or
? current period or expected future operating cash flow losses.
As part of our goodwill impairment test, we estimate the fair value of each of our reporting units using discounted cash flow analyses. AtDecember 31, 2019 , our reporting units consisted of our five geographic solid waste operating segments and our E&P segment. As ofJuly 1, 2020 , we combined all operations of our E&P segment into the Southern segment, based on our determination that the two operating segments met the aggregation criteria, and eliminated the E&P segment. We compare the fair value of each reporting unit with the carrying value of the net assets assigned to the 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. In testing indefinite-lived intangible assets for impairment, we compare the estimated fair value of each indefinite-lived intangible asset to its carrying value. If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment charge would be recorded to earnings in our Consolidated Statements of Net Income. Discounted cash flow analyses 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, growth rates and income tax rates. In assessing the reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization. For our impairment testing of our operating segments for the year endedDecember 31, 2021 , we determined that the indicated fair value of our reporting units 54 Table of Contents exceeded their carrying value by approximately 200% on average and, therefore, we did not record an impairment charge. The detailed results of our 2021, 2020 and 2019 impairment tests are described in Note 3 of our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. Business Combination Accounting. We recognize, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. We measure and recognize goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of the noncontrolling interest in the acquiree (if any) and the acquisition date fair value of our previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed. At the acquisition date, we measure the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies. We measure the fair values of all noncontractual contingencies if, as of the acquisition date, it is more likely than not that the contingency will give rise to an asset or liability.
General
Our revenues consist mainly of fees we charge customers for collection, transfer, recycling and disposal of non-hazardous solid waste and treatment, recovery and disposal of non-hazardous E&P waste.
Our 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. Our existing franchise agreements and most of our existing municipal contracts give us the exclusive right to provide specified waste services in the specified territory during the contract term. These exclusive arrangements are awarded, at least initially, on a competitive bid basis and subsequently on a bid or negotiated basis. 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. The terms of our contracts sometimes limit our ability to pass on price increases. Long-term solid waste collection contracts often contain a formula, generally based on a published price index, that automatically adjusts fees to cover increases in some, but not all, operating costs, or that limit increases to less than 100% of the increase in the applicable price index. 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.
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.
Many of our landfill and transfer station customers have entered into one to ten year disposal contracts with us, most of which provide for annual indexed price increases. Our revenues from E&P waste services are 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.
Our revenues from recycling services result from the sale of recycled commodities, which are generated by offering residential, commercial, industrial and municipal customers recycling services for a variety of recyclable materials,
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including compost, cardboard, mixed paper, plastic containers, glass bottles and
ferrous and aluminum metals. We own and operate recycling operations and market
collected recyclable materials to third parties for processing before resale. In
some instances, we utilize a third party to market recycled materials. In
certain instances, we issue recycling rebates to municipal or commercial
customers, which can be based on the price we receive upon the sale of recycled
commodities, a fixed contractual rate or other measures. We also receive rebates
when we dispose of recycled commodities at third-party facilities.
Other revenues consist primarily of the sale of methane gas and renewable energy
credits generated from our MSW landfills and revenues from intermodal services.
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.
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).
Years Ended December 31,
2021 2020 2019
Commercial $ 1,813,426 $ 1,610,313 $ 1,593,217
Residential 1,673,819 1,528,217 1,380,763
Industrial and construction roll off 954,181 833,148 841,173
Total collection 4,441,426 3,971,678 3,815,153
Landfill 1,233,499 1,146,732 1,132,935
Transfer 859,113 777,754 771,316
Recycling 205,076 86,389 64,245
E&P 138,707 159,438 271,887
Intermodal and other 152,194 118,396 121,137
Intercompany (878,654) (814,397) (787,994)
Total $ 6,151,361 $ 5,445,990 $ 5,388,679
Cost of operations includes labor and benefits, tipping fees paid to third-party
disposal facilities, vehicle and equipment maintenance, workers' compensation,
vehicle and equipment insurance, insurance and employee group health claims
expense, third-party transportation expense, fuel, the cost of materials we
purchase for recycling, district and state taxes and host community fees and
royalties. Our significant costs of operations in 2021 were labor, employee
benefits, third-party disposal and transportation, vehicle, equipment and
property maintenance, taxes and fees, insurance and fuel. We use a number of
programs to reduce overall cost of operations, including increasing the use of
automated routes to reduce labor and workers' compensation exposure, utilizing
comprehensive maintenance and health and safety programs, and increasing the use
of transfer stations to further enhance internalization rates. We carry
insurance for automobile liability, general liability, employer's liability,
environmental liability, cyber liability, employment practices liability and
directors' and officers' liability as well as for employee group health claims,
property and workers' compensation. If we experience insurance claims or costs
above or below our historically evaluated levels, our estimates could be
materially affected.
Selling, general and administrative, or SG&A, expense includes management, sales
force, clerical and administrative employee compensation and benefits, legal,
accounting and other professional services, acquisition expenses, bad debt
expense and lease cost for our administrative offices.
Depreciation expense includes depreciation of equipment and fixed assets over
their estimated useful lives using the straight-line method. Depletion expense
includes depletion of landfill site costs and total future development costs as
remaining airspace of the landfill is consumed. Remaining airspace at our
landfills includes both permitted and probable expansion airspace. Amortization
expense includes the amortization of finite-lived intangible assets, consisting
primarily of long-term franchise agreements and contracts, customer lists and
non-competition agreements. We use an accelerated or straight line basis for
amortization, depending on the attributes of the related intangibles. Goodwill
and indefinite-lived
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intangible assets, consisting primarily of certain perpetual rights to provide
solid waste collection and transportation services in specified territories, are
not amortized.
We capitalize some third-party expenditures related to development projects,
such as legal and engineering. We expense all third-party and indirect
acquisition costs, including third-party legal and engineering expenses,
executive and corporate overhead, public relations and other corporate services,
as we incur them. We charge against net income any unamortized capitalized
expenditures and advances (net of any portion that we believe we may recover,
through sale or otherwise) that may become impaired, such as those that relate
to any operation that is permanently shut down and any landfill development
project that we believe will not be completed. We routinely evaluate all
capitalized costs, and expense those related to projects that we believe are not
likely to succeed. For example, if we are unsuccessful in our attempts to obtain
or defend permits that we are seeking or have been awarded to operate or expand
a landfill, we will no longer generate anticipated income from the landfill and
we will be required to expense in a future period up to the carrying value of
the landfill or expansion project, less the recoverable value of the property
and other amounts recovered.
Presentation of Results of Operations, Segment Reporting, and Liquidity and Capital Resources
The following discussion and analysis of our Results of Operations, Segment Reporting, and Liquidity and Capital Resources includes a comparison for the year endedDecember 31, 2021 to the year endedDecember 31, 2020 . A similar discussion and analysis that compares the year endedDecember 31, 2020 to the year endedDecember 31, 2019 can be found in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2020 .
Results of Operations
The following table sets forth items in our Consolidated Statements of Net Income in thousands ofU.S. dollars and as a percentage of revenues for the periods indicated: Years Ended December 31, 2021 % of Revenues 2020 % of Revenues Revenues$ 6,151,361 100.0 %$ 5,445,990 100.0 %
Cost of operations 3,654,074 59.4 3,276,808 60.2 Selling, general and administrative 612,337 10.0
537,632 9.9 Depreciation 673,730 10.9 621,102 11.4 Amortization of intangibles 139,279 2.3 131,302 2.4
Impairments and other operating items 32,316 0.5
466,718 8.5 Operating income 1,039,625 16.9 412,428 7.6 Interest expense (162,796) (2.6) (162,375) (3.0) Interest income 2,916 0.0 5,253 0.1 Other income (expense), net 6,285 0.1 (1,392) 0.0
Loss on early extinguishment of debt (115,288) (1.9)
- -
Income tax provision (152,253) (2.5) (49,922) (0.9)
Net income 618,489 10.0 203,992 3.8
Net loss (income) attributable to
noncontrolling interests (442) 0.0 685 0.0
Net income attributable to Waste
Connections $ 618,047 10.0 % $ 204,677 3.8 %
Years Ended
Revenues. Total revenues increased$705.4 million , or 13.0%, to$6.151 billion for the year endedDecember 31, 2021 , from$5.446 billion for the year endedDecember 31, 2020 . During the year endedDecember 31, 2021 , incremental revenue from acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 , increased revenues by approximately$228.0 million . 57
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Operations that were divested in 2021, and the full year impact of operations that were divested in 2020, decreased revenues by approximately$12.6 million for the year endedDecember 31, 2021 .
During the year ended
During the year ended
E&P waste revenues at facilities owned during the years endedDecember 31, 2021 and 2020 decreased$18.9 million attributable to the first and second quarter results in 2021 (which had a combined decrease of$39.0 million ) being adversely impacted by decreases in the demand for crude oil as a result of economic disruptions from the COVID-19 pandemic resulting in a drop in the value of crude oil, decreases in drilling and production activity levels and decreases in overall demand for our E&P waste services, with our third and fourth quarter results in 2021 (which had a combined increase of$20.1 million ) benefitting from recoveries in the demand for crude oil and our E&P waste services. An increase in the average Canadian dollar toU.S. dollar currency exchange rate resulted in an increase in revenues of$48.1 million for the year endedDecember 31, 2021 . The average Canadian dollar toU.S. dollar exchange rates on our Canadian revenues were 0.7982 and 0.7472 for the years endedDecember 31, 2021 and 2020, respectively. Revenues from sales of recyclable commodities at facilities owned during the years endedDecember 31, 2021 and 2020 increased$92.7 million due primarily to higher prices for old corrugated cardboard, aluminum, plastics and other paper products, higher volumes collected from residential recycling customers and the partial recovery of collected commercial recycling volumes which declined in the prior year period due to economic disruptions resulting from the COVID-19 pandemic. Other revenues increased$25.9 million during the year endedDecember 31, 2021 , due primarily to a$24.4 million increase resulting from higher prices for renewable energy credits associated with the generation of landfill gas at ourCanada segment, a$5.4 million increase in landfill gas sales at ourU.S. segments and a$1.9 million increase in other non-core revenue sources, partially offset by a$5.8 million decrease in intermodal revenues due primarily to customer losses and shipping port logistical constraints resulting in a reduction in intermodal cargo volumes. Cost of Operations. Total cost of operations increased$377.3 million , or 11.5%, to$3.654 billion for the year endedDecember 31, 2021 , from$3.277 billion for the year endedDecember 31, 2020 . The increase was primarily the result of an increase in operating costs at our existing operations of$235.3 million , assuming foreign currency parity,$123.6 million of additional operating costs from acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 and$26.5 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in operating costs of$8.1 million at operations divested during or subsequent to the year endedDecember 31, 2020 . The increase in operating costs of$235.3 million , assuming foreign currency parity, at our existing operations for the year endedDecember 31, 2021 , consisted of an increase in labor expenses at our solid waste operations of$80.6 million due primarily to employee pay increases and headcount additions to support solid waste volume increases, an increase in truck, container, equipment and facility maintenance and repair expenses of$35.8 million due primarily to increased collection routes and equipment operating hours and parts and service rate increases, an increase in diesel fuel expense of$29.7 million due to higher fuel prices, an increase in third-party disposal expenses of$28.7 million due primarily to increased solid waste collection volumes, an increase in third-party trucking and transportation expenses of$27.7 million due primarily to increased transfer station and landfill special waste volumes requiring trucking and transportation services to our landfills, an increase in taxes on revenues of$16.8 million due primarily to increased revenues in our solid waste markets, an increase in employee medical benefits expenses of$13.2 million due to an increase in medical visits, an increase in subcontracted hauling services at our solid waste operations of$10.8 million due to outsourcing the servicing of certain non-strategic contracts and commercial collection customers to third party haulers, an increase in 401(k) matching expenses of$10.8 million due to the prior year period reflecting less expenses as we suspended our 401(k) match 58
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fromJune 1, 2020 toDecember 31, 2020 , an increase in landfill maintenance, environmental compliance and daily cover expenses of$4.6 million due to increased compliance requirements under our landfill operating permits, an increase in leachate expense of$4.5 million due primarily to the impact of hurricanes and tropical storms causing higher precipitation in certain markets where our landfills are located, an increase in expenses for processing recyclable commodities of$3.4 million due to the net impact of increases attributable to changes in our accounting policy associated with recognizing certain recyclable commodity sales gross of selling and processing expenses exceeding decreases attributable to price reductions charged by third-party recycling processors resulting from recyclable commodity values, an increase in insurance premium expenses of$2.9 million due primarily to increased insurance premium costs for auto and environmental compliance, an increase in heavy equipment rental expenses of$2.0 million to provide support for solid waste volume increases at our disposal operations and$4.5 million of other net expense increases, partially offset by a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel of$20.4 million due to the prior year period including non-recurring expenses to recognize services provided by our frontline employees during the COVID-19 pandemic, a decrease in expenses for auto and workers' compensation claims of$8.6 million due primarily to higher claims severity in the prior year period and adjustments recorded in the current year period to decrease projected losses on outstanding claims originally recorded prior to 2021, a combined decrease in labor and subcontracted operating and remediation services at our E&P waste operations of$7.6 million due to E&P disposal volume decreases and a decrease in intermodal rail expenses of$4.1 million due to a reduction in cargo volume. Cost of operations as a percentage of revenues decreased 0.8 percentage points to 59.4% for the year endedDecember 31, 2021 , from 60.2% for the year endedDecember 31, 2020 . The decrease as a percentage of revenues consisted of a 0.4 percentage point decrease from a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel, a combined 0.4 percentage point decrease associated with solid waste labor and disposal due to price-driven revenue increases in our solid waste services, recyclable commodity sales and renewable energy credits, a 0.3 percentage point decrease from a reduction in expenses for auto and workers' compensation claims and a 0.1 percentage point decrease from all other net changes, partially offset by a 0.2 percentage point increase from higher fuel expenses and a 0.2 percentage point increase from higher 401(k) expenses. SG&A. SG&A expenses increased$74.7 million , or 13.9%, to$612.3 million for the year endedDecember 31, 2021 , from$537.6 million for the year endedDecember 31, 2020 . The increase was comprised of an increase of$56.1 million in SG&A expenses at our existing operations, assuming foreign currency parity,$14.7 million of additional SG&A expenses from operating locations at acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 and$4.7 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in SG&A expenses of$0.8 million at operations divested during, or subsequent to, the year endedDecember 31, 2020 . The increase in SG&A expenses at our existing operations of$56.1 million , assuming foreign currency parity, for the year endedDecember 31, 2021 , was comprised of an increase in accrued recurring cash incentive compensation expense to our management of$16.5 million , a collective increase in travel, meeting, training and community activity expenses of$10.4 million due to increased travel and social gatherings in the current year period due to a reduction in restrictions associated with the COVID-19 pandemic, an increase in equity-based compensation expenses of$7.2 million associated with our annual recurring grant of restricted share units to our personnel, an increase in administrative payroll expenses of$6.5 million due primarily to annual pay and headcount increases, an increase in professional fees of$5.7 million due primarily to increased legal services and increased expenses associated with professional tax services, an increase in 401(k) matching expenses of$3.8 million due to the prior year period suspension of our 401(k) match, an increase in employee medical benefits expenses of$3.4 million due to an increase in medical visits, an increase in employee relocation expenses of$2.3 million , an increase in advertising expenses of$2.0 million due primarily to cost reduction efforts associated with the COVID-19 pandemic reducing the prior year period expenses, an increase in credit card and bank fees of$2.0 million due to increased revenues and customer counts, an increase in share-based compensation expenses of$1.6 million associated with equity awards accounted for as liabilities that were granted to employees of Progressive Waste prior toJune 1, 2016 , which are subject to valuation adjustments each period based on changes in fair value, due primarily to share price increases in the current period, an increase in direct acquisition expenses of$1.5 million due to an increase in acquisition activity in the current period, an increase in equity-based compensation expenses of$1.2 million associated with the net impact of current and prior period adjustments of our common shares held in our deferred compensation plan by certain key executives to fair value as a result of the shares being exchanged for other investment options and an increase 59
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in deferred compensation expenses of$1.1 million as a result of increases in the market value of investments to which employee deferred compensation liability balances are tracked, partially offset by a decrease in expenses for uncollectible accounts receivable of$7.1 million primarily due to the prior year period incurring increased expenses due to customers experiencing financial difficulties resulting from the economic impact of the COVID-19 pandemic and$2.0 million of other net expense decreases. SG&A expenses as a percentage of revenues increased 0.1 percentage points to 10.0% for the year endedDecember 31, 2021 , from 9.9% for the year endedDecember 31, 2020 . The increase as a percentage of revenues consisted of a 0.2 percentage point increase from higher cash incentive compensation expense, a 0.1 percentage point increase from higher legal expenses, a 0.1 percentage point increase from higher 401(k) expenses and a 0.1 percentage point increase from higher travel and meeting expenses, partially offset by a 0.3 percentage point decrease from leveraging existing personnel to support our solid waste volume and price-driven revenue increases and a 0.1 percentage point decrease from lower expenses for uncollectible accounts receivable. Depreciation. Depreciation expense increased$52.6 million , or 8.5%, to$673.7 million for the year endedDecember 31, 2021 , from$621.1 million for the year endedDecember 31, 2020 . The increase was comprised of an increase in depreciation expense of$21.0 million from the impact of additions to our fleet and equipment purchased to support our existing operations, an increase in depreciation and depletion expense of$17.4 million from acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 , an increase in depletion expense of$11.9 million resulting from increased landfill MSW and special waste volumes and$5.6 million resulting from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease in depreciation and depletion expense of$3.3 million from operations divested during, or subsequent to, the year endedDecember 31, 2020 . Depreciation expense as a percentage of revenues decreased 0.5 percentage points to 10.9% for the year endedDecember 31, 2021 , from 11.4% for the year endedDecember 31, 2020 . The decrease as a percentage of revenues was primarily attributable to the impact of price-driven revenue increases in our solid waste services, recyclable commodity sales and renewable energy credits. Amortization of Intangibles. Amortization of intangibles expense increased$8.0 million , or 6.1%, to$139.3 million for the year endedDecember 31, 2021 , from$131.3 million for the year endedDecember 31, 2020 . The increase was the result of$14.5 million from intangible assets acquired in acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 and$1.5 million from an increase in the average foreign currency exchange rate in effect during the comparable reporting periods, partially offset by a decrease of$7.7 million from certain intangible assets becoming fully amortized subsequent toDecember 31, 2020 and a decrease of$0.3 million from operations divested during, or subsequent to, the year endedDecember 31, 2020 . Amortization expense as a percentage of revenues decreased 0.1 percentage points to 2.3% for the year endedDecember 31, 2021 , from 2.4% for the year endedDecember 31, 2020 . The decrease as a percentage of revenues was primarily attributable to the impact of price-driven revenue increases in our solid waste services, recyclable commodity sales and renewable energy credits offsetting increases associated with intangible assets acquired in 2021. Impairments and Other Operating Items. Impairments and other operating items decreased$434.4 million , to net losses totaling$32.3 million for the year endedDecember 31, 2021 , from net losses totaling$466.7 million for the year endedDecember 31, 2020 . The net losses of$32.3 million recorded during the year endedDecember 31, 2021 consisted of$18.7 million of impairment charges to property and equipment and intangible assets at three of our E&P waste operations,$4.9 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 the original estimated termination date, a$4.6 million loss resulting from property and equipment damaged in a facility fire,$2.8 million of adjustments to increase the carrying value of certain contingent consideration liabilities,$1.5 million of losses on property and equipment disposals and$1.8 million of other net charges, partially offset by$2.0 million of gains from the disposal of assets at two non-strategic operating locations. 60 Table of Contents During the year endedDecember 31, 2020 , we concluded that a triggering event occurred which required us to perform an impairment test of the property and equipment and intangible assets of our E&P waste operations as ofJune 30, 2020 . As a result of the impairment test, we concluded that the carrying value of four E&P landfills exceeded their estimated fair value, resulting in an impairment charge of$417.4 million to property and equipment. The remaining net losses of$49.3 million recorded during the year endedDecember 31, 2020 consisted of$18.4 million to adjust the carrying value of contingent consideration liabilities,$13.3 million of charges to adjust the carrying values of certain long-lived assets acquired in the Progressive Waste acquisition,$6.9 million of losses on property and equipment that were disposed of through sales or as a result of being damaged in operations,$6.1 million of charges to terminate or write off the carrying cost of certain contracts that were not, or are not expected to be, renewed prior to their original estimated termination date,$3.6 million of losses on the disposal of certain non-strategic operating locations and$1.0 million of other net charges.
Operating Income. Operating income increased
Our operating results for the year endedDecember 31, 2020 were adversely impacted by the aforementioned impairment charge at our E&P waste operations of$417.4 million . The remaining increase in our operating income for the year endedDecember 31, 2021 was due primarily to price increases for our solid waste services, increases in solid waste collection and disposal volumes, operating income contributions from increased sales of recyclable commodities and renewable energy credits associated with the generation of landfill gas, operating income generated from acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 and an increase in the average Canadian dollar toU.S. dollar currency exchange rate. Operating income as a percentage of revenues increased 9.3 percentage points to 16.9% for the year endedDecember 31, 2021 , from 7.6% for the year endedDecember 31, 2020 . The increase as a percentage of revenues was comprised of an 8.0 percentage point decrease in impairments and other operating items, a 0.8 percentage point decrease in cost of operations, a 0.5 percentage point decrease in depreciation expense and a 0.1 percentage point decrease in amortization expense, partially offset by at 0.1 percentage point increase in SG&A expense. Interest Expense. Interest expense increased$0.4 million , or 0.3%, to$162.8 million for the year endedDecember 31, 2021 , from$162.4 million for the year endedDecember 31, 2020 . The increase was primarily attributable to an increase of$11.2 million from theSeptember 2021 issuance of our 2032 Senior Notes (as defined below) and our 2052 Senior Notes (as defined below), an increase of$4.3 million from higher net interest rates on borrowings outstanding under our Credit Agreement due primarily to$600 million in interest rate swap agreements commencing inOctober 2020 at higher interest rates than$575 million in interest rate swap agreements which expired betweenSeptember 2020 andOctober 2020 , an increase of$4.0 million from the full year impact of theJanuary 2020 issuance of our 2030 Senior Notes (as defined below) and theMarch 2020 issuance of our 2050 Senior Notes (as defined below) and an increase of$0.5 million due to an increase in the average borrowings outstanding under our Credit Agreement, partially offset by a decrease of$18.9 million from the repayment of$1.75 billion of senior unsecured notes in 2021 and$0.7 million of other net decreases. Interest Income. Interest income decreased$2.4 million to$2.9 million for the year endedDecember 31, 2021 , from$5.3 million for the year endedDecember 31, 2020 . The decrease was primarily attributable to lower reinvestment rates and lower average cash balances in the current period.
Other Income (Expense), Net. Other income (expense), net increased
Other income of$6.3 million recorded during the year endedDecember 31, 2021 consisted of$3.8 million of income earned on investments purchased to fund our employee deferred compensation obligations, a$1.4 million adjustment to decrease certain non-acquisition accrued liabilities recorded in prior periods, an increase in foreign currency transaction gains of$0.7 million attributable to the impact of an increase in the Canadian dollar toU.S. dollar exchange rate during the period and a$0.4 million increase in other net income sources. Other expense of$1.4 million recorded during the year endedDecember 31, 2020 consisted of an increase in foreign currency transaction losses of$3.1 million attributable to the impact of a decrease in the Canadian dollar toU.S. dollar 61 Table of Contents
exchange rate during the period and a
partially offset by$3.0 million of income earned on investments purchased to fund our employee deferred compensation obligations, a$1.0 million adjustment to decrease certain non-acquisition accrued liabilities recorded in prior periods and a$0.7 million increase in other net income sources. Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt was$115.3 million for the year endedDecember 31, 2021 and consists of the payment of a make-whole premium and the write-off of remaining unamortized loan fees associated with the early repayment of the outstanding senior notes under our master note purchase agreements. Income Tax Provision. Income taxes increased$102.4 million , to$152.3 million for the year endedDecember 31, 2021 , from$49.9 million for the year endedDecember 31, 2020 . Our effective tax rate for the year endedDecember 31, 2021 was 19.8%. Our effective tax rate for the year endedDecember 31, 2020 was 19.7%. The income tax provision for the year endedDecember 31, 2021 included a benefit of$2.1 million from share-based payment awards being recognized in the income statement when settled, as well as a portion of our internal financing being taxed at effective rates substantially lower than theU.S. federal statutory rate. The income tax provision for the year endedDecember 31, 2020 included a$27.4 million expense associated with certain 2019 inter-entity payments no longer being deductible for tax purposes due to the finalization of tax regulations onApril 7, 2020 under Internal Revenue Code Section 267A and a$4.1 million expense related to an increase in our deferred income tax liabilities resulting from the impairment of certain assets within our E&P waste operations, which impacted the geographical apportionment of our state income taxes. Additionally, the income tax benefit for the year endedDecember 31, 2020 included a benefit of$5.4 million from share-based payment awards being recognized in the income statement when settled. Our effective tax rate is dependent upon the proportion of pre-tax income among the jurisdictions where we do business. As such, our effective tax rate will be subject to some variability depending upon the proportional contribution of pre-tax income across jurisdictions in any period.
Segment Reporting
We manage our operations through the following five geographic solid waste
operating segments: Eastern, Southern, Western, Central and
Our
Chief Operating Decision Maker evaluates operating segment profitability and
determines resource allocations based on several factors, of which the primary
financial measure is segment EBITDA. We define segment EBITDA as earnings before
interest, taxes, depreciation, amortization, impairments and other operating
items, other income (expense) and loss on early extinguishment of debt. Segment
EBITDA is not a measure of operating income, operating performance or liquidity
under GAAP and may not be comparable to similarly titled measures reported by
other companies. Our management uses segment EBITDA in the evaluation of segment
operating performance as it is a profit measure that is
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generally within the control of the operating segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts.
Summarized financial information for our reportable segments are shown in the
following table in thousands of
Year Ended EBITDA Depreciation and December 31, 2021 Revenue EBITDA(c) Margin Amortization Eastern$ 1,521,288 $ 404,493 26.6 % $ 239,130 Southern 1,446,746 394,982 27.3 % 188,977 Western 1,280,188 405,778 31.7 % 129,988 Central 1,046,416 359,434 34.3 % 134,078 Canada 856,723 339,859 39.7 % 111,458 Corporate(a) - (19,596) - 9,378$ 6,151,361 $ 1,884,950 30.6 % $ 813,009 Year Ended EBITDA Depreciation and December 31, 2020 Revenue EBITDA(c) Margin Amortization Eastern$ 1,335,865 $ 343,446 25.7 % $ 222,934 Southern 1,369,580 369,445 27.0 % 189,726 Western 1,149,762 364,790 31.7 % 115,151 Central 880,323 313,033 35.6 % 113,004 Canada 710,460 256,119 36.0 % 103,334 Corporate(a) - (15,283) - 8,255$ 5,445,990 $ 1,631,550 30.0 % $ 752,404 The majority of Corporate expenses are allocated to the five operating
segments. Direct acquisition expenses, expenses associated with common shares
held in the deferred compensation plan exchanged for other investment options
(a) and share-based compensation expenses associated with Progressive Waste
share-based grants outstanding at
Company are not allocated to the five operating segments and comprise the net
EBITDA for our Corporate segment for the periods presented.
A reconciliation of segment EBITDA to Income before income tax provision is included in Note 17 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Significant changes in revenue, EBITDA and depreciation, depletion and
amortization for our reportable segments for the year ended
Eastern
Revenue increased$185.4 million to$1.521 billion for 2021, from$1.336 billion for 2020, due to price increases, solid waste collection and disposal volume increases in the third and fourth quarters of 2021, contributions from acquisitions, higher prices for recyclable commodities and higher volumes collected from commercial recycling customers, partially offset by solid waste volume decreases occurring in the first two quarters of 2021 attributable primarily to COVID-19-related economic disruptions in our Northeastern markets. EBITDA increased$61.1 million to$404.5 million , or a 26.6% EBITDA margin for 2021, from$343.4 million , or a 25.7% EBITDA margin for 2020. The increase in our EBITDA margin was due to price-led increases in revenue at locations owned in the comparable periods, a decrease in expenses for uncollectible accounts receivable and a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel, partially offset by increased diesel fuel expenses, increased medical benefits expenses and increased 401(k) matching expenses. 63 Table of Contents
Depreciation, depletion and amortization for 2021 increased$16.2 million , to$239.1 million for 2021, from$222.9 million for 2020, due to assets acquired in acquisitions, higher depreciation from additions to our fleet and equipment and higher depletion from increased landfill volumes.
Southern
Revenue increased$77.1 million to$1.447 billion for 2021, from$1.370 billion for 2020, due to increased solid waste collection and disposal volumes, solid waste price increases, contributions from acquisitions and higher prices for recyclable commodities, partially offset by reduced E&P waste revenues attributable to decreases in drilling and production activity levels resulting in decreases in the demand for our E&P waste services and a decrease resulting from the divestiture of certain non-strategic operating locations. EBITDA increased$25.6 million to$395.0 million , or a 27.3% EBITDA margin for 2021, from$369.4 million , or a 27.0% EBITDA margin for 2020. The increase in our EBITDA margin was due to price-led increases in solid waste revenue at locations owned in the comparable periods, a decrease in expenses for auto and workers' compensation claims, a decrease in expenses for uncollectible accounts receivable and a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel, partially offset by an increase in subcontracted hauling services at our solid waste operations, increased diesel fuel expenses, increased medical benefits expenses, increased legal expenses and increased 401(k) matching expenses. Depreciation, depletion and amortization for 2021 decreased$0.7 million , to$189.0 million for 2021, from$189.7 million for 2020, due to a decrease from the divestiture of certain non-strategic operating locations and our E&P locations recognizing lower depreciation as a result of reductions in operating equipment and lower depletion due to reductions in customer disposal volumes, partially offset by higher depreciation from additions to fleet and equipment at our solid waste operations and higher depletion from increased solid waste landfill volumes.
Western
Revenue increased$130.4 million to$1.280 billion for 2021, from$1.150 billion for 2020, due to increased collection and disposal volumes, price increases, contributions from acquisitions, higher prices for recyclable commodities and higher volumes collected from residential recycling customers, partially offset by reduced intermodal revenue. EBITDA increased$41.0 million to$405.8 million , or a 31.7% EBITDA margin for 2021, from$364.8 million , or a 31.7% EBITDA margin for 2020. Our EBITDA margin was unchanged due the favorable impacts of the increase in revenue at locations owned in the comparable periods resulting from the economic recovery, a decrease in expenses for processing recyclable commodities and a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel being offset by the impact of acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 having lower EBITDA margins than our segment average, increased diesel fuel expenses, increased medical benefits expenses and increased 401(k) matching expenses. Depreciation, depletion and amortization for 2021 increased$14.8 million , to$130.0 million for 2021, from$115.2 million for 2020, due to assets acquired in acquisitions, higher depreciation from additions to our fleet and equipment and higher depletion from increased landfill volumes.
Central
Revenue increased$166.1 million to$1.046 billion for 2021, from$880.3 million for 2020, due to increased collection and disposal volumes, price increases, contributions from acquisitions and higher prices for recyclable commodities. EBITDA increased$46.4 million to$359.4 million , or a 34.3% EBITDA margin for 2021, from$313.0 million , or a 35.6% EBITDA margin for 2020. The decrease in our EBITDA margin was due to the impact of acquisitions closed during, or subsequent to, the year endedDecember 31, 2020 having lower EBITDA margins than our segment average, increased labor expenses attributable to pay rate increases, increased vehicle and equipment maintenance and repair 64
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expenses, increased medical benefits expenses, increased 401(k) matching expenses and increased expenses for uncollectible accounts receivable.
Depreciation, depletion and amortization for 2021 increased$21.1 million , to$134.1 million for 2021, from$113.0 million for 2020, due to assets acquired in acquisitions, higher depreciation from additions to our fleet and equipment and higher depletion from increased landfill volumes.
Revenue increased$146.2 million to$856.7 million for 2021, from$710.5 million for 2020, due to price increases, increased collection and disposal volumes, a higher average foreign currency exchange rate in effect during the comparable reporting periods, higher prices for renewable energy credits associated with the generation of landfill gas, higher prices for recyclable commodities and higher volumes collected from commercial recycling customers. EBITDA increased$83.8 million to$339.9 million , or a 39.7% EBITDA margin for 2021, from$256.1 million , or a 36.0% EBITDA margin for 2020. The increase in our EBITDA margin was due to price-led increases in revenue at locations owned in the comparable periods, a decrease in expenses for uncollectible accounts receivable and a decrease in supplemental bonuses and other cash incentive compensation to non-management personnel, partially offset by increased diesel fuel expenses and increased cost of recyclable commodities expenses. Depreciation, depletion and amortization for 2021 increased$8.2 million , to$111.5 million for 2021, from$103.3 million for 2020, due to a higher average foreign currency exchange rate, higher depreciation from additions to our fleet and equipment and higher depletion from increased landfill volumes, partially offset by lower amortization expense attributable to intangible assets becoming fully amortized during the current reporting period.
Corporate
EBITDA decreased$4.3 million , to a loss of$19.6 million for 2021, from a loss of$15.3 million for 2020. The decrease was due to increased equity-based compensation expenses, increased travel, meeting, training and community activity expenses, increased direct acquisition expenses, increased legal expenses, increased employee payroll and relocation expenses and increased deferred compensation expenses, partially offset by increased allocations of corporate overhead expenses to our segments.
Liquidity and Capital Resources
The following table sets forth certain cash flow information for the years ended
Years Ended
December 31,
2021 2020Net cash provided by operating activities$ 1,698,229 $ 1,408,521 Net cash used in investing activities (1,693,482)
(1,046,043)
Net cash used in financing activities (499,496)
(78,224)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(25) 6,914
Net increase (decrease) in cash, cash equivalents and
restricted cash (494,774)291,168
Cash, cash equivalents and restricted cash at beginning of year 714,389
423,221
Cash, cash equivalents and restricted cash at end of year
$ 714,389 65 Table of Contents
Operating Activities Cash Flows
For the year endedDecember 31, 2021 , net cash provided by operating activities was$1.698 billion . For the year endedDecember 31, 2020 , net cash provided by operating activities was$1.409 billion . The$289.7 million increase was due primarily to the following:
Increase in earnings - Our increase in net cash provided by operating
activities was favorably impacted by
income, excluding depreciation, amortization of intangibles, loss on early
extinguishment of debt, share-based compensation, adjustments to and payments
of contingent consideration recorded in earnings and loss on disposal of
1) assets and impairments, due primarily to price increases, earnings from
acquisitions closed during, or subsequent to, the year ended
2020, earnings generated from the increased sales of recyclable commodities
and renewal energy credits associated with the generation of landfill gas and
an increase in the average Canadian dollar to
rate offsetting a decline in earnings at our E&P waste operations.Accounts payable and accrued liabilities - Our increase in net cash provided
by operating activities was favorably impacted by
payable and accrued liabilities as changes in accounts payable and accrued
liabilities resulted in an increase to operating cash flows of
for the year ended
2) flows of
the year ended
expenses during the period which remained as outstanding obligations at
primarily to the timing of processing vendor payments and the timing of
payroll cycles resulting in a reduction in unpaid amounts at year end.
Deferred income taxes - Our increase in net cash provided by operating
activities was favorably impacted by
as changes in deferred income taxes resulted in a decrease to operating cash
flows of
3) decrease to operating cash flows of
31, 2020. The increase in deferred taxes for the year ended
was primarily due to accelerated tax depreciation from vehicles, equipment and
containers. The decrease in deferred taxes for the year ended
2020 was attributable to the impairment of certain assets within our E&P waste
operations.
Deferred revenue - Our increase in net cash provided by operating activities
was favorably impacted by
deferred revenue resulted in an increase to operating cash flows of
4) million for the year ended
operating cash flows of
During the year ended
price increases on our advanced billed residential and commercial collection
services and the timing of bi-monthly advance service billings.
Prepaid expenses - Our increase in net cash provided by operating activities
5) was favorably impacted by
a decrease in prepaid vendor payments.
Accounts receivable - Our increase in net cash provided by operating
activities was unfavorably impacted by
as changes in accounts receivable resulted in a decrease to operating cash
flows of
increase to operating cash flows of
6) 31, 2020. The decrease for the year ended
increases in revenues, which remained as outstanding receivables at December
31, 2021. The increase for the year ended
to the collection of outstanding accounts receivable existing prior to the
COVID-19-driven economic downturn, with accounts receivable at
2020 reflecting the impact of lower uncollected revenues.
Capping, closure and post-closure expenditures - Our increase in net cash
7) provided by operating activities was unfavorably impacted by a
increase in capping, closure and post-closure expenditures due to the timing
of interim capping requirements.
As ofDecember 31, 2021 , we had a working capital deficit of$200.0 million , including cash and equivalents of$147.4 million . Our working capital decreased$579.6 million from a working capital surplus of$379.6 million atDecember 31, 2020 including cash and equivalents of$617.3 million , due primarily to the impact of decreased cash balances, increased deferred revenue and increased current portion of contingent consideration being partially offset by increased accounts receivable. To date, we have experienced no loss or lack of access to our cash and equivalents; however, 66
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we can provide no assurances that access to our cash and 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$647.4 million to$1.693 billion for the year endedDecember 31, 2021 , from$1.046 billion for the year endedDecember 31, 2020 . The significant components of the increase included the following:
1) An increase in cash paid for acquisitions of
An increase in capital expenditures at operations owned in the comparable
2) periods of
heavy equipment and containers;
3) An increase in cash paid for investments in noncontrolling interests of
million; and
An increase in capital expenditures at operations acquired during the
4) comparative periods of
less
A decrease in capital expenditures for undeveloped landfill property of
5) million attributable to expenditures during the year ended
for expansion land at certain existing landfill facilities; and
An increase in proceeds from disposal of assets of
6) additional disposals of non-strategic assets to provide funding towards new
capital expenditures.
Financing Activities Cash Flows
Net cash used in financing activities increased
1) An increase in payments to repurchase our common shares of
to a higher volume of shares repurchased;
An increase from premiums paid on early extinguishment of debt of
2) million resulting from the repayment in
outstanding senior notes under our master note purchase agreements;
An increase from the net change in long-term borrowings of
3) (long-term borrowings increased
31, 2021 and increased
2020);
An increase in cash dividends paid of
4) increase in our average quarterly dividend rate the year ended
2021 to
31, 2020; and
5) An increase in debt issuance costs of
offerings completed in the comparative periods.
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. OnJuly 27, 2021 , 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 13,025,895 of our common shares during the period ofAugust 10, 2021 toAugust 9, 2022 or until such earlier time as the NCIB is completed or terminated at our option. Shareholders may obtain a copy of our TSX Form 12 - Notice of Intention to Make a Normal Course Issuer Bid, without charge, by request directed to our Executive Vice President 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 price of our common shares and overall market conditions. All common shares purchased under the NCIB will be immediately cancelled following their repurchase. Information regarding our NCIB plan can be found under the section 67 Table of Contents
Normal Course Issuer Bid in Note 14, "Shareholders' Equity," of our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
The Board of Directors of the Company authorized the initiation of a quarterly cash dividend inOctober 2010 and has increased it on an annual basis. InOctober 2021 , our Board of Directors authorized an increase to our regular quarterly cash dividend of$0.025 , from$0.205 to$0.230 per share. Cash dividends of$220.2 million and$199.9 million were paid during the years endedDecember 31, 2021 and 2020, respectively. We cannot assure you as to the amounts or timing of future dividends.
We made
We intend to fund our planned 2022 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 land and solid waste businesses. If we acquire additional landfill disposal facilities, we may also have to make significant expenditures to bring them into compliance with applicable regulatory requirements, obtain permits or expand our available disposal capacity. We cannot currently determine the amount of these expenditures because they will depend on the number, nature, condition and permitted status of any acquired landfill disposal facilities. We believe that our cash and equivalents, Credit Agreement and the funds we expect to generate from operations will provide adequate cash to fund our working capital and other cash needs for the foreseeable future. However, disruptions in the capital and credit markets could adversely affect our ability to draw on our Credit Agreement or raise other capital. Our access to funds under the Credit Agreement is dependent on the ability of the banks that are parties to the agreement to meet their funding commitments. Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. We have a revolving credit and term loan agreement (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the "Credit Agreement") withBank of America, N.A ., acting through itsCanada Branch, as the global agent, the swing line lender and a letter of credit issuer,Bank of America, N.A ., as theU.S. Agent and a letter of credit issuer, the other lenders named therein (the "Lenders") and any other financial institutions from time to time party thereto. There are no subsidiary guarantors under the Credit Agreement. The Credit Agreement has a scheduled maturity date ofJuly 30, 2026 , which may be extended further upon agreement by Lenders holding at least 50% of the commitments and credit extensions outstanding, with respect to their respective commitments and credit extensions outstanding. Any Lender that does not agree to an extension of the maturity date shall not be so extended with respect to their commitments and credit extensions. As ofDecember 31, 2021 ,$650.0 million under the term loan and$803.9 million under the revolving credit facility were outstanding under the Credit Agreement, exclusive of outstanding standby letters of credit of$112.3 million . We also had$13.5 million of letters of credit issued and outstanding atDecember 31, 2021 under facilities other than the Credit Agreement. We did not have any amounts outstanding under our master note purchase agreements. Pursuant to the terms and conditions of a Master Note Purchase Agreement dated as ofJune 1, 2016 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the "2016 NPA") between us and certain accredited institutional investors, we issued senior unsecured notes (the "2016 Private Placement Notes") consisting of (i)$150.0 million of senior notes dueJune 1, 2021 (the "June 2021 Private Placement Notes"), (ii)$200.0 million of senior notes dueJune 1, 2023 , (iii)$150.0 million of senior notes dueApril 20, 2024 , (iv)$400.0 million of senior notes dueJune 1, 2026 and (v)$250.0 million of senior notes dueApril 20, 2027 . Pursuant to the terms and conditions of a Master Note Purchase Agreement dated as ofJuly 15, 2008 (as amended, restated, amended and restated, assumed, supplemented or otherwise modified from time to time, the "2008 NPA") between us and certain accredited institutional investors, we issued senior unsecured notes (the "2008 Private Placement Notes" and together with the 2016 Private Placement Notes, the "Private Placement Notes") consisting of (i)$100.0 million of senior notes dueApril 1, 2021 (the "April 2021 Private Placement Notes" and together with theJune 2021 Private Placement Notes, the "2021 Private Placement Notes"), (ii)$125.0 million of senior notes dueAugust 20, 2022 and (iii)$375.0 million of senior notes dueAugust 20, 2025 . 68
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We repaid at maturity the 2021 Private Placement Notes and repaid the other
Private Placement Notes in connection with the Offering (defined below) in
OnNovember 16, 2018 , we completed an underwritten public offering of$500.0 million aggregate principal amount of our 4.25% Senior Notes dueDecember 1, 2028 (the "2028 Senior Notes"). The 2028 Senior Notes were issued under the Indenture, dated as ofNovember 16, 2018 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the "Indenture"), by and between the Company andU.S. Bank National Association , as trustee (the "Trustee"), as supplemented through the First Supplemental Indenture, dated as ofNovember 16, 2018 . OnApril 16, 2019 , we completed an underwritten public offering of$500.0 million aggregate principal amount of our 3.50% Senior Notes dueMay 1, 2029 (the "2029 Senior Notes"). The 2029 Senior Notes were issued under the Indenture, as supplemented through the Second Supplemental Indenture, dated as ofApril 16, 2019 . OnJanuary 23, 2020 , we completed an underwritten public offering of$600.0 million aggregate principal amount of 2.60% Senior Notes dueFebruary 1, 2030 (the "2030 Senior Notes"). The 2030 Senior Notes were issued under the Indenture, as supplemented through the Third Supplemental Indenture, dated as ofJanuary 23, 2020 . OnMarch 13, 2020 , we completed an underwritten public offering of$500.0 million aggregate principal amount of 3.05% Senior Notes dueApril 1, 2050 (the "2050 Senior Notes"). The 2050 Senior Notes were issued under the Indenture, as supplemented through the Fourth Supplemental Indenture, dated as ofMarch 13, 2020 . OnSeptember 20, 2021 , we completed an underwritten public offering (the "Offering") of$650.0 million aggregate principal amount of 2.20% Senior Notes dueJanuary 15, 2032 (the "2032 Senior Notes") and$850.0 million aggregate principal amount of 2.95% Senior Notes dueJanuary 15, 2052 (the "2052 Senior Notes" and, together with the 2028 Senior Notes, the 2029 Senior Notes, the 2030 Senior Notes, the 2032 Senior Notes and the 2050 Senior Notes, the "Senior Notes"). The 2032 Senior Notes and the 2052 Senior Notes were issued under the Indenture, as supplemented through the Fifth Supplemental Indenture, dated as ofSeptember 20, 2021 . In connection with the Offering, we exercised our right to repay the$1.500 billion of Private Placement Notes then outstanding governed by the 2008 NPA and the 2016 NPA. We repaid the Private Placement Notes then outstanding, including the$110.6 million make-whole premium, with the net proceeds from the Offering and borrowings under the revolving credit facility provided under our Credit Agreement. We recorded$115.3 million to Loss on early extinguishment of debt during the year endedDecember 31, 2021 due to the repayment of the Private Placement Notes and associated make-whole premium and related fees. We pay interest on the Senior Notes semi-annually in arrears. The Senior Notes are our senior unsecured obligations, ranking equally in right of payment with our existing and future unsubordinated debt and senior to any of our future subordinated debt. The Senior Notes are not guaranteed by any of our subsidiaries.
See Note 11 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for further details on the debt agreements.
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Contractual Obligations
As of
Payments Due by Period
(amounts in
thousands of
Less Than 1 to 3 Over 5
Recorded Obligations Total 1 Year Years 3 to 5 Years Years
Long-term debt $ 5,101,971 $ 6,020 $ 12,329 $ 1,466,634 $ 3,616,988
Cash interest payments $ 1,935,714 $ 143,758 $ 300,524 $ 270,904 $ 1,220,528
Contingent consideration $ 112,806 $ 62,804 $ 12,925 $ 3,224 $ 33,853
Operating leases $ 195,594 $ 38,956 $
60,126
Long-term debt payments include:
credit facility under our Credit Agreement. Advances are available under the
Credit Agreement in
fluctuating rates (See Note 11). At
outstanding borrowings drawn under the revolving credit facility were in
LIBOR rate loans, bearing interest at a total rate of 1.10% on such date. At
1)
the revolving credit facility were in
at a total rate of 3.25% on such date. At
the outstanding borrowings drawn under the revolving credit facility were in
At
the revolving credit facility were in Canadian-based bankers' acceptances,
bearing interest at a total rate of 1.45% on such date.
under our Credit Agreement. Outstanding amounts on the term loan can be either
2) base rate loans or LIBOR loans. At
under the term loan were in LIBOR loans which bear interest at the LIBOR rate
plus the applicable margin (for a total rate of 1.10% on such date).
3)
Notes. The 2028 Senior Notes bear interest at a rate of 4.25%.
4)
Notes. The 2029 Senior Notes bear interest at a rate of 3.50%.
5)
Notes. The 2030 Senior Notes bear interest at a rate of 2.60%.
6)
Notes. The 2032 Senior Notes bear interest at a rate of 2.20%.
7)
Notes. The 2050 Senior Notes bear interest at a rate of 3.05%.
8)
Notes. The 2052 Senior Notes bear interest at a rate of 2.95%.
9) and other third parties. Our notes payable to sellers and other third parties
bear interest at rates between 2.42% and 10.35% at
maturity dates ranging from 2028 to 2036.
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10) financing leases bear interest at a rate of 1.89% at
have a lease expiration date of 2027.
The following assumptions were made in calculating cash interest payments:
We calculated cash interest payments on the Credit Agreement using the LIBOR
rate plus the applicable LIBOR margin, the base rate plus the applicable base
1) rate margin, the Canadian Dollar Offered Rate plus the applicable acceptance
fee and the Canadian prime rate plus the applicable prime rate margin at
in
We calculated cash interest payments on our interest rate swaps using the
2) 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$94.3 million recorded as liabilities in our consolidated financial statements atDecember 31, 2021 , and$18.5 million of future interest accretion on the recorded obligations. We are party to operating lease agreements and finance leases as discussed in Note 7 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. These lease agreements are established in the ordinary course of our business and are designed to provide us with access to facilities and equipment at competitive, market-driven prices.
The estimated final capping, closure and post-closure expenditures presented above are in current dollars.
Amount of Commitment Expiration Per Period
(amounts in thousands of U.S. dollars)
Less Than 1 to 3 3 to 5 Over 5
Unrecorded Obligations(1) Total 1 Year Years Years YearsUnconditional purchase obligations$ 151,733 $ 98,655
We are party to unconditional purchase obligations as discussed in Note 13 to
the consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K. These purchase obligations are established in the
ordinary course of our business and are designed to provide us with access to
products at competitive, market-driven prices. At
(1) unconditional purchase obligations consisted of multiple fixed-price fuel
purchase contracts under which we have 60.0 million gallons remaining to be
purchased for a total of
expire on or before
affected our financial position, results of operations or liquidity during
the year ended
impact on our future financial position, results of operations or liquidity.
We have obtained standby letters of credit as discussed in Note 11 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K and financial surety bonds as discussed in Note 13 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K. These standby letters of credit and financial surety bonds are generally obtained to support our financial assurance needs and landfill and E&P waste operations. These arrangements have not materially affected our financial position, results of operations or liquidity during the year endedDecember 31, 2021 , nor are they expected to have a material impact on our future financial position, results of operations or liquidity.
From time to time, we evaluate our existing operations and their strategic importance to us. If we determine that a given operating unit does not have future strategic importance, we may sell or otherwise dispose of those operations. Although we believe our reporting units would not be impaired by such dispositions, we could incur losses on them.
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New Accounting Pronouncements
See Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K for a description of the new accounting standards that are applicable to us. Non-GAAP Financial Measures Adjusted Free Cash Flow We present adjusted free cash flow, a non-GAAP financial measure, supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. Management uses adjusted free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We define adjusted free cash flow as net cash provided by operating activities, plus 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 years endedDecember 31, 2021 , 2020 and 2019, are calculated as follows (amounts in thousands ofU.S. dollars): Years Ended
2021 2020 2019
Net cash provided by operating activities $ 1,698,229 $ 1,408,521 $ 1,540,547
Plus (less): Change in book overdraft (367) 1,096 (2,564)
Plus: Proceeds from disposal of assets 42,768 19,084 3,566
Less: Capital expenditures for property and
equipment (744,315) (597,053) (634,406)
Less: Distributions to noncontrolling interests - - (570)
Adjustments:
Payment of contingent consideration recorded in
earnings (a) 520 10,371 -
Cash received for divestitures (b) (17,118) (10,673) (2,376)
Transaction-related expenses (c) 30,771 9,803 12,335
Pre-existing Progressive Waste share-based grants
(d) 397 5,770 4,810
Tax effect (e) (1,287) (5,021) (4,565)
Adjusted free cash flow $ 1,009,598 $ 841,898 $ 916,777 Reflects the addback of acquisition-related payments for contingent
(a) 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 operations.
(c)Reflects the addback of acquisition-related transaction costs and settlement of an acquired compensation liability.
(d) Reflects the cash settlement of pre-existing Progressive Waste share-based
awards during the period.
(e)The aggregate tax effect of footnotes (a) through (d) is calculated based on the applied tax rates for the respective periods.
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Adjusted EBITDA
We present adjusted EBITDA, a non-GAAP financial measure, supplementally because
it is widely used by investors as a performance and valuation measure in the
solid waste industry. Management uses adjusted EBITDA as one of the principal
measures to evaluate and monitor the ongoing financial performance of our
operations. We define adjusted EBITDA as net income attributable to Waste
Connections , plus or minus net income (loss) attributable to noncontrolling
interests, plus income tax provision, 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 loss on
early extinguishment of debt. We further adjust this calculation to exclude the
effects of other items management believes impact the ability to assess the
operating performance of our business. This measure is not a substitute for, and
should be used in conjunction with, GAAP financial measures. Other companies may
calculate adjusted EBITDA differently. Our adjusted EBITDA for the years ended
December 31, 2021 , 2020 and 2019, are calculated as follows (amounts in
thousands of U.S. dollars):
Years Ended December 31,
2021 2020 2019
Net income attributable to Waste Connections $ 618,047 $ 204,677 $ 566,841
Plus (less): Net income (loss) attributable to
noncontrolling interests 442 (685) (160)
Plus: Income tax provision 152,253 49,922 139,210
Plus: Interest expense 162,796 162,375 147,368
Less: Interest income (2,916) (5,253) (9,777)
Plus: Depreciation and amortization 813,009 752,404 743,918
Plus: Closure and post-closure accretion 14,497 15,095 14,471
Plus: Impairments and other operating items 32,316 466,718 61,948
Plus (less): Other expense (income), net (6,285) 1,392 (5,704)
Plus: Loss on early extinguishment of debt 115,288 - -
Adjustments:
Plus: Transaction-related expenses (a) 11,318 9,803 12,335 Plus: Fair value changes to equity awards (b) 8,393
5,536 3,104 Adjusted EBITDA$ 1,919,158 $ 1,661,984 $ 1,673,554
(a)Reflects the addback of acquisition-related transaction costs.
(b)Reflects fair value accounting changes associated with certain equity awards.
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Adjusted Net Income Attributable to
We present adjusted net income attributable toWaste Connections and adjusted net income per diluted share attributable toWaste 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 toWaste Connections and adjusted net income per diluted share attributable toWaste Connections as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We provide adjusted net income attributable toWaste Connections to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income attributable toWaste 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 toWaste Connections and adjusted net income per diluted share attributable toWaste 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 toWaste Connections and adjusted net income per diluted share attributable toWaste Connections for the years endedDecember 31, 2021 , 2020 and 2019, are calculated as follows (amounts in thousands ofU.S. dollars,
except per share amounts):
Years Ended December 31,
2021 2020 2019
Reported net income attributable to Waste
Connections $ 618,047 $ 204,677 $ 566,841
Adjustments:
Amortization of intangibles (a) 139,279 131,302 125,522
Impairments and other operating items (b) 32,316 466,718 61,948
Transaction-related expenses (c) 11,318 9,803 12,335
Fair value changes to equity awards (d) 8,393 5,536 3,104
Loss on early extinguishment of debt (e) 115,288
- -
Tax effect (f) (78,041) (153,758) (50,189)
Tax items (g) - 31,508 -
Adjusted net income attributable to Waste
Connections $ 846,600 $
695,786
Diluted earnings per common share attributable toWaste Connections' common shareholders: Reported net income$ 2.36 $ 0.78 $ 2.14 Adjusted net income$ 3.23 $ 2.64 $ 2.72
(a) Reflects the elimination of the non-cash amortization of acquisition-related
intangible 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.
(e) Reflects the make-whole premium and related fees associated with the early
termination of
(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.
In 2020, reflects the impact of a portion of our 2019 inter-entity payments
(g) no longer being deductible for tax purposes due to the finalization of tax
regulations on
increase in deferred tax liabilities resulting from the E&P impairment.
Leverage Ratio
The Leverage Ratio is calculated by dividing our Consolidated Total Funded Debt
by Consolidated EBITDA (each as defined in our Credit Agreement). The Leverage
Ratio is based on EBITDA, a non-GAAP financial measure. We present this ratio
because it is used by our lending syndicate for the purposes of calculating
financial covenants under our Credit Agreement. Management also uses this ratio
as one of the principal measures to evaluate and monitor the indebtedness of the
Company relative to its ability to generate income to service such debt. The
Leverage Ratio is not a substitute for, and should be used in conjunction with,
GAAP financial ratios. Other companies may calculate leverage ratios
differently.
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Inflation
In the current environment, we have seen inflationary pressures resulting from
higher fuel and labor costs in certain markets and higher resulting third party
costs in areas such as brokerage, repairs and construction. Consistent with
industry practice, many of our contracts allow us to pass through certain costs
to our customers, including increases in landfill tipping fees and, in some
cases, fuel costs. To the extent that there are decreases in fuel costs, in
some cases, a portion of these reductions are passed through to customers in the
form of lower fuel and material surcharges. Therefore, we believe that we should
be able to increase prices to offset many cost increases that result from
inflation in the ordinary course of business. However, competitive pressures or
delays in the timing of rate increases under certain of our contracts,
particularly amid the economic impact of the COVID-19 pandemic, may require us
to absorb at least part of these cost increases, especially if cost increases
exceed the average rate of inflation. Management's estimates associated with
inflation have an impact on our accounting for landfill liabilities.
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