What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-17 compared with 2021-02-18 · 494 added, 663 removed, 1436 unchanged (45% of the section changed)

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WASTE CONNECTIONS, INC.

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )

Consolidated Balance Sheets as of December 31, 2021 and 2020

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Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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Valuation of intangible assets in business combinations

As described in Note 5 to the consolidated financial statements, the Company acquired 21 businesses during 2020.

As described further in Note 8 to the financial statements, the Company acquired 30 businesses during 2021.

These transactions were accounted for as business combinations in accordance with ASC 805, Business Combinations.

The principal consideration for our determination that the accounting for these acquisitions represents a critical audit matter, is the judgments and assumptions associated with management’s determination of the fair value of assets acquired and liabilities assumed, including fair value determinations related to transfer station permits, residential customer lists,

acquisition site costs and commercial customer lists, all of which are recorded as intangible assets.

Auditing the fair value involved a high degree of subjectivity, auditor judgment and effort in evaluating management’s significant assumptions, primarily due to the complexity of the valuation models used to measure the fair value of the aforementioned intangible assets, as well as the sensitivity of the underlying significant assumptions.

The principal consideration for our determination that the accounting for these acquisitions represents a critical audit matter, is the judgments and assumptions associated with management’s determination of the fair value of assets acquired and liabilities assumed, including fair value determinations related to recycling and transfer station permits, residential and

commercial customer lists, long-term contracts, and acquired landfill site costs, all of which are recorded as intangible assets.

Auditing the fair value of these assets involved a high degree of subjectivity, auditor judgment and effort in evaluating management’s significant assumptions, primarily due to the complexity of the valuation models used to measure the fair value of the aforementioned intangible assets, as well as the sensitivity of the underlying significant assumptions.

The Company used a discounted cash flow model to estimate the fair values of the intangible assets, which included assumptions such as discount rate, revenue growth rates, operating expenses, earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins, capital expenditures, customer turnover rates, and contributory asset charges that form the basis of the forecasted results.

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● We tested the design and operating effectiveness of key controls related to the accounting for the 2021 acquisitions, including controls relating to management’s development of forecasts for discount rates, revenue growth rates, operating expenses, EBITDA margins, capital expenditures, customer turnover rates and contributory asset charges ;

● We obtained certain of the purchase price allocation analyses from management and third-party specialists engaged by management.

We assessed the qualifications and competence of management and the third-party specialists and evaluated the methodologies used to determine the fair value of the fixed assets and intangible assets;

● We obtained certain purchase price allocation analyses from management and third-party specialists engaged by management.

We assessed the qualifications and competence of management and the third-party specialists and evaluated the methodologies used to determine the fair value of the intangible assets;

● We tested the assumptions used within the discounted cash-flow models to estimate the fair value of the intangible assets which included assumptions such as discount rate, revenue growth rate, operating expenses, EBITDA margin, capital expenditures, customer turnover rate and contributory asset charges;

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Landfill Accounting

At December 31, 2020, the Company’s final capping, closure and post-closure liability was $301.9 million.

As explained in Note 3 to the consolidated financial statements, the net present value of landfill final capping, closure and post-closure liabilities are calculated by estimating the total obligation in current dollars, inflating the obligation based upon the expected future date of the expenditures and discounting the inflated total to its present value using a credit-adjusted risk-free rate.

As described further in Note 3 to the financial statements, the net present value of landfill final capping, closure and post-closure liabilities are calculated by estimating the total obligation in current dollars, inflating the obligation based upon the expected future date of the expenditures and discounting the inflated total to its present value using a credit-adjusted risk-free rate.

The principal consideration for our determination that landfill accounting represents a critical audit matter is the judgments and estimates associated with management’s determination of the liability due to the nature of the inputs and significant assumptions used in the process including the discount rate, inflation rate, accretion rate, survey data, acreage information, permitted, deemed and remaining airspace and probability of landfill expansions, all of which can have a significant impact on the calculation of the final capping, closure and post-closure liability.

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● We obtained and reviewed supporting documentation to support management’s criteria for deemed expansions .

Exploration and Production Assets Impairment

As described in Note 3 to the consolidated financial statements, the decrease in energy exploration and production activity caused by the COVID-19 pandemic, together with market expectations of a slow recovery in oil prices, reduced the expected future cash flows of the Company’s Exploration and Production (“E&P”) segment’s operations.

Based upon the results of the impairment test, the Company concluded that the carrying value exceeded the estimated undiscounted cash flows of four E&P landfills, resulting in an impairment charge to property and equipment of $417.4 million to mark these assets down to fair value.

The principal consideration for our determination that the impairment assessment of the E&P assets represents a critical audit matter is the judgments and estimates associated with management’s determination of the fair value of the E&P assets, including determinations about drilling activity by basin as the basis for expectations of future activity and discounted cash flows.

In order to determine the impairment amount, the Company used a discounted cash flow model to estimate the fair values of these landfills, which included assumptions such as discount rate, annual revenue projections based on E&P waste activity which is determined by projected levels of oil and natural gas E&P during the forecast period at each location, gross margin, capital expenditures, and income taxes that form the basis of the forecasted results.

Auditing the fair value calculation of these assets involved a high degree of subjectivity, auditor judgment and effort in evaluating management’s significant assumptions primarily due to the complexity of the valuation models used to measure the fair value of the aforementioned assets, as well as the sensitivity of the underlying significant assumptions.

Our audit procedures related to the accounting for the E&P asset impairment included the following:

● We tested the design and operating effectiveness of key controls related to the accounting for the E&P asset impairment, including development of the discounted cash flow model, discount rate, revenue projections, projected levels of future activity, gross margin, capital expenditures, and income taxes;

● We obtained the impairment analysis from management and assessed the qualifications and competence of management, and evaluated the methodologies used to determine the fair value of four E&P landfills;

● We tested the assumptions used within the discounted cash-flow models to estimate the fair value of the four E&P landfills which included assumptions such as discount rate, forecasted revenue, projected levels of future activity, gross margin, capital expenditures and income taxes;

● We utilized an internal valuation specialist to assist the engagement team in evaluating:

the methodologies used and whether they were acceptable for the underlying assets and whether such methodologies were being applied correctly and the appropriateness of the discount rate and remaining useful life estimates used by performing a sensitivity analysis.

/s/ GRANT THORNTON LLP

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Book overdraft

Deferred revenue

Accrued liabilities

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Current portion of contingent consideration

Deferred revenue

Current portion of long-term debt and notes payable

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Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss)

Treasury shares:

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Other income (expense), net

Loss on early extinguishment of debt

Income before income tax provision

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Interest rate swap amounts reclassified into interest expense

Fuel hedge amounts reclassified into cost of operations

Changes in fair value of interest rate swaps

Changes in fair value of fuel hedges

Foreign currency translation adjustment

Other comprehensive income (loss), before tax

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

Other comprehensive income (loss), net of tax

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

Other comprehensive income, net of tax

Comprehensive income

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Restricted share units released from deferred compensation plan

Fair value adjustment for common shares in deferred compensation plan exchanged for other investment options

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

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Exercise of warrants

Repurchase of common shares

Cash dividends on common shares

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Distributions to noncontrolling interests

Net income (loss)

Balances at December 31, 2019

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Restricted share units released from deferred compensation plan

Fair value adjustment for common shares in deferred compensation plan exchanged for other investment options

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

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Exercise of warrants

Repurchase of common shares

( 1,271,977 )

Cash dividends on common shares

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Foreign currency translation adjustment

Cumulative effect adjustment from adoption of new accounting pronouncement

Distributions to noncontrolling interests

Net income (loss)

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NONCONTROLLING

INCOME (LOSS)

Balances at December 31, 2020

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Exercise of warrants

Issuance of shares under employee share purchase plan

Repurchase of common shares

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Foreign currency translation adjustment

Net income (loss)

Balances at December 31, 2021

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Amortization of intangibles

Loss on early extinguishment of debt

Deferred income taxes, net of acquisitions

Current period provision for expected credit losses

Amortization of debt issuance costs

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Capital expenditures for undeveloped landfill property

Investment in noncontrolling interest

Investments in noncontrolling interests

Proceeds from disposal of assets

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( 1,542,958 )

( 1,470,711 )

Premiums paid on early extinguishment of debt

Payment of contingent consideration recorded at acquisition date

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Debt issuance costs

Proceeds from issuance of shares under employee share purchase plan

Proceeds from sale of common shares held in trust

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Cash, cash equivalents and restricted cash at beginning of year

change in cash held for sale

Cash, cash equivalents and restricted cash at end of year

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All significant intercompany accounts and transactions have been eliminated in consolidation.

The Company is an integrated solid waste services company that provides non-hazardous waste collection, transfer and disposal services, along with recycling and resource recovery, in mostly exclusive and secondary markets in the U.S.

Waste Connections also provides non-hazardous oilfield waste treatment, recovery and disposal services (“E&P”) in several basins across the U.S., as well as intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest

The challenges posed by the pandemic of coronavirus disease 2019 (“COVID-19”) on the global economy persisted through the fourth quarter of 2020 and continue to impact the demand for the Company’s services to varying degrees and in varying ways across the U.S.

and Canada and across a variety of lines of business, including commercial collection and solid waste and E&P waste disposal.

In response to the COVID-19 pandemic, national and local governments around the world have instituted certain measures, including travel bans, prohibitions on group events and gatherings, shutdowns of certain businesses, curfews, shelter-in-place orders and recommendations to practice social distancing.

In some markets where a portion of these measures have been curtailed, the impact to demand for the Company’s services has decreased as activity levels have increased.

The impact of the COVID-19 pandemic on the Company’s business, results of operations, financial condition and cash flows in future periods will depend largely on future developments, including the duration and spread of the outbreak in the U.S.

and Canada, its severity, the actions to contain the novel coronavirus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted at this time.

The Company is 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 in the U.S.

Waste Connections also provides non-hazardous oil and natural gas exploration and production (“E&P”) waste treatment, recovery and disposal services in several basins across the U.S., as well as intermodal services for the movement of cargo and solid waste containers in the Pacific Northwest.

NEW ACCOUNTING STANDARDS AND RECLASSIFICATIONS

Accounting Standards Adopted

Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments .

In June 2016, the Financial Accounting Standards Board, (“FASB”) issued guidance introducing a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables , that requires entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts.

The standard became effective for public business entities that are U.S.

Securities and Exchange Commission (“SEC”) filers for annual periods beginning after December 15, 2019 and interim periods within those years.

The Company adopted the new standard on January 1, 2020.

The adoption of the new standard did not have a material impact on the Company’s consolidated financial statements as pre-existing processes for estimating expected credit losses for trade receivables aligned with the expected credit loss model.

See Note 3 for additional information and disclosures related to the adoption of this new standard.

SEC streamlines some Regulation S-K disclosure requirements and adds new requirement .

In August 2020, the SEC amended its disclosure requirements relating to the description of business, legal proceedings, and risk factors.

Key changes include:

(1) permitting a company to provide an update of the general development of its business if it incorporates by reference a full discussion from a single previously-filed registration statement or report;

(2) requiring, if material, a description of the company’s human capital resources, including any human capital measures/objectives that the company focuses on in managing its business;

(3) increasing the quantitative threshold for disclosing certain governmental environmental proceedings and allowing legal proceedings disclosures to be hyperlinked or cross-referenced to other sections in the document;

and (4) requiring a risk factor summary if the risk factor section is longer than 15 pages.

The provisions were effective 30 days after being published in the Federal Register, or November 9, 2020.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Accounting Standards Pending Adoption

Income Taxes – Simplifying the Accounting for Income Taxes .

In December 2019, the FASB issued guidance that simplifies the accounting for income taxes as part of its overall initiative to reduce complexity in applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

In December 2019, the Financial Accounting Standards Board (“FASB”) issued guidance that simplifies the accounting for income taxes as part of its overall initiative to reduce complexity in applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements.

The amendments include removal of certain exceptions to the general principles of income taxes, and simplification in several other areas such as accounting for a franchise tax that is partially based on income.

The standard is effective for public business entities that are SEC filers for annual periods beginning after December 15, 2020, and interim periods within those reporting periods.

The standard is effective for public business entities that are U.S.

Securities and Exchange Commission (“SEC”) filers for annual periods beginning after December 15, 2020, and interim periods within those reporting periods.

The Company adopted the new standard as of January 1, 2021.

The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

In March 2020, the FASB issued guidance to provide temporary optional expedients and exceptions to the guidance in U.S.

generally accepted accounting principles (“GAAP”) on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”), anticipated to be phased out by the end of 2021, and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”).

Under the new guidance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

Under the guidance, entities can also elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.

The guidance is effective upon issuance.

The guidance on contract modifications is applied prospectively from any date beginning March 12, 2020.

It may also be applied to modifications of existing contracts made earlier in the interim period that includes the effective date.

The guidance on hedging is applied to eligible hedging relationships existing as of the beginning of the interim period that includes the effective date and to new eligible hedging relationships entered into after the beginning of that interim period.

The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date.

However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022.

The Company is currently assessing the potential impact of implementing this new guidance on its consolidated financial statements .

To the extent that the transition away from the use of LIBOR might affect the Company’s ability to maintain cash ‎flow hedge accounting as described in Note 3, the relief is expected to permit the Company to maintain that cash flow ‎hedge accounting.

The adoption of this new standard did not have a material impact on the Company’s consolidated financial statements.

SEC amends MD&A and other Regulation S-K disclosure requirements .

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(1) enhancements and clarification of the disclosure requirements for liquidity and capital resources;

(2) elimination of five years of Selected Financial Data;

(2) removal of the requirement to include five years of Selected Financial Data;

(3) replacement of the current requirement for two years of quarterly tabular disclosure with a principles-based requirement to provide information only when there are material retrospective changes;

(4) codification of prior SEC guidance on critical accounting estimates;

(5) elminiation of the tabular disclosure of contractual obligations;

(5) removal of the requirement to include the tabular disclosure of contractual obligations;

and (6) conforming amendments for foreign private issuers.

The amended rules were posted to the Federal Register on January 11, 2021 and became effective February 10, 2021.

The amended rules became effective February 10, 2021.

Registrants are required to comply with the new rules beginning with the first fiscal year ending on or after August 9, 2021.

Registrants may early adopt the amended rules at any time after the effective date (on an itrem-by-item basis), as long as they provide the disclosure responsive to an amended item in its entirety.

The Company complied with the new rules as of December 31, 2021.

Accounting Standards Pending Adoption

Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting .

In March 2020, the FASB issued guidance to provide temporary optional expedients and exceptions to the guidance in GAAP on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”).

One-week and two-month U.S.

dollar LIBOR settings as well as all non-U.S.

dollar LIBOR settings stopped being published on December 31, 2021, while the remaining U.S.

dollar LIBOR settings will be discontinued on June 30, 2023.

Under the new guidance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

Under the guidance, entities can also elect various optional expedients that would allow them

WASTE CONNECTIONS, INC.

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met.

The guidance is effective upon issuance.

The guidance on contract modifications is applied prospectively from March 12, 2020.

It may also be applied to modifications of existing contracts made earlier in the interim period that includes the effective date.

The relief is temporary and generally cannot be applied to contract modifications that occur after December 31, 2022 or hedging relationships entered into or evaluated after that date.

However, certain optional expedients can be applied to hedging relationships evaluated in periods after December 31, 2022.

The Company is currently assessing the potential impact of implementing this new guidance on its consolidated financial statements .

The Company had a combined $ 1,281,000 of U.S.

based LIBOR loans as of December 31, 2021.

The Company estimates that if the reference rate for these loans had transitioned from LIBOR to SOFR as of December 31, 2021, the impact to annual interest expense would have been an increase of less than $ 1,000 .

This relief is expected to permit the Company to maintain cash flow ‎hedge accounting as described in Note 3.

Reclassification

As disclosed within other notes to the financial statements, segment information reported in the Company’s prior year periods has been reclassified to conform with the 2020 presentation.

Cash flow statement information reported in the Company’s prior year periods has been reclassified to conform with the 2021 presentation.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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The Company generally does not require collateral on its trade receivables.

Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Company’s customer base.

The Company maintains allowances for credit losses based on the expected collectability of accounts receivable.

Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Company’s

WASTE CONNECTIONS, INC.

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

customer base.

The Company maintains allowances for credit losses based on the expected collectability of accounts receivable.

Revenue Recognition and Accounts Receivable

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In general, residential collection fees are billed monthly or quarterly in advance.

Substantially all of the deferred revenue recognized as of September 30, 2020 was recognized as revenue during the three months ended December 31, 2020 when the service was performed.

Substantially all of the deferred revenue recorded as of September 30, 2021 was recognized as revenue during the three months ended December 31, 2021 when the service was performed.

Commercial customers are typically billed on a monthly basis based on the nature of the services provided during the period.

Revenue recognized under these agreements is variable in nature based on the number of residential homes or businesses serviced during the period, the frequency of collection and the volume of waste collected.

In addition, certain contracts have annual price escalation clauses that are tied to changes in an underlying base index such as a consumer price index which are unknown at contract inception.

Revenue recognized under these agreements is variable in nature based on the number

WASTE CONNECTIONS, INC.

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

of residential homes or businesses serviced during the period, the frequency of collection and the volume of waste collected.

In addition, certain contracts have annual price escalation clauses that are tied to changes in an underlying base index such as a consumer price index which are unknown at contract inception.

Solid waste collection revenue from sources other than customer contracts primarily relates to lease revenue associated with compactors.

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E&P Waste Treatment, Recovery and Disposal

E&P revenue is primarily generated through the treatment, recovery and disposal of non-hazardous exploration and production waste from vertical and horizontal drilling, hydraulic fracturing, production and clean-up activity, as well as other services.

E&P waste revenue is primarily generated through the treatment, recovery and disposal of non-hazardous exploration and production waste from vertical and horizontal drilling, hydraulic fracturing, production and clean-up activity, as well as other services.

Revenue recognized under these agreements is variable in nature based on the volume of waste accepted or processed during the period.

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In general, fees are billed and revenue is recognized upon delivery.

Other revenues consist primarily of the sale of methane gas generated from the Company’s MSW landfills.

WASTE CONNECTIONS, INC.

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Other revenues consist primarily of the sale of methane gas and renewable energy credits generated from the Company’s MSW landfills.

Revenue Recognition

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Past-due receivable balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amount due.

The following is a rollforward of the Company’s allowance for credit losses from January 1, 2020 to December 31, 2020:

The following is a rollforward of the Company’s allowance for credit losses for the periods indicated:

Years Ended December 31,

Beginning balance

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The incremental direct costs of obtaining a contract, which consist of sales incentives, are recognized as Other assets in the Company’s Consolidated Balance Sheet, and are amortized to Selling, general and administrative expense over the estimated life of the relevant customer relationship, which ranges from one to five years .

The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity would have recognized is one year or less.

The Company had $ 19,669 and $ 16,846 of deferred sales incentives at December 31, 2020 and 2019, respectively.

During the years ended December 31, 2020, 2019 and 2018, the Company recorded a total of $ 17,138 , $ 19,673 and $ 17,313 , respectively, of sales incentive amortization expense for deferred sales incentives and sales incentive expense for contracts with original terms of less than one year.

The Company recognizes the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity

WASTE CONNECTIONS, INC.

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would have recognized is one year or less.

The Company had $ 18,954 and $ 19,669 of deferred sales incentives at December 31, 2021 and 2020, respectively.

During the years ended December 31, 2021, 2020 and 2019, the Company recorded a total of $ 23,671 , $ 17,138 and $ 19,673 , respectively, of sales incentive amortization expense for deferred sales incentives and sales incentive expense for contracts with original terms of less than one year.

Property and Equipment

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Final capping costs represent the costs related to installation of clay liners, drainage and compacted soil layers and topsoil constructed over areas of the landfill where total airspace capacity has been consumed.

Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes.

Accruals for final capping, closure and post-closure monitoring and maintenance requirements in the U.S.

consider site inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operating and maintenance costs to be incurred during the period after the facility closes.

Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during the operating life of the site in accordance with the landfill operation requirements

Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when

WASTE CONNECTIONS, INC.

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of Subtitle D and the air emissions standards.

a landfill facility ceases to accept waste and closes.

Accruals for final capping, closure and post-closure monitoring and maintenance requirements in the U.S.

Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the air emissions standards.

Daily maintenance activities, which include many of these costs, are expensed as incurred during the operating life of the landfill.

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Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated.

This policy results in the Company’s final capping, closure and post-closure liabilities being recorded in “layers.” The Company’s discount rate assumption for purposes of computing 2020 and 2019 “layers” for final capping, closure and post-closure obligations was 4.75 % for both years, which reflects the Company’s long-term credit adjusted risk free rate.

The Company’s inflation rate assumption was 2.5 % for the years ended December 31, 2020 and 2019.

This policy results in the Company’s final capping, closure and post-closure liabilities being recorded in “layers.” The Company’s discount rate assumption for purposes of computing 2021 and 2020 “layers” for final capping, closure and post-closure obligations was 3.25 % and 4.75 %, respectively, which reflects the Company’s long-term credit adjusted risk free rate.

The Company’s inflation rate assumption was 2.25 % and 2.50 % for the years ended December 31, 2021 and 2020, respectively.

In accordance with the accounting guidance on asset retirement obligations, the final capping, closure and post-closure liability is recorded on the balance sheet along with an offsetting addition to site costs which is amortized to depletion expense on a units-of-consumption basis as remaining landfill airspace is consumed.

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Depletion expense resulting from final capping, closure and post-closure obligations recorded as a component of landfill site costs will generally be less during the early portion of a landfill’s operating life and increase thereafter.

Owned landfills and landfills operated under life-of-site agreements have estimated remaining lives, based on remaining permitted capacity, probable expansion capacity and projected annual disposal volumes, that range from approximately 1 to 203 years , with an average remaining life of approximately 32 years .

Owned landfills and landfills operated under life-of-site agreements have estimated remaining lives, based on remaining permitted capacity, probable expansion capacity and projected annual disposal volumes, that range from approximately 1 to 282 years , with approximately 90 % of the projected annual disposal volume from landfills with remaining lives of less than 70 years .

The costs for final capping, closure and post-closure obligations at landfills the Company owns or operates under life-of-site agreements are generally estimated based on interpretations of current requirements and proposed or anticipated regulatory changes.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following is a reconciliation of the Company’s final capping, closure and post-closure liability balance from December 31, 2019 to December 31, 2021:

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Assumption of closure liabilities from acquisitions

Disposition of closure liabilities from divested operations

Foreign currency translation adjustment

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Final capping, closure and post-closure liability at December 31, 2021

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Liability adjustments of $ 1,081 and $ 2,490 for the years ended December 31, 2021 and 2020, respectively, represent non-cash changes to final capping, closure and post-closure liabilities and are recorded on the Consolidated Balance Sheets along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed.

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whether the Company considers it probable that the Company will achieve the expansion (for a pursued expansion to be considered probable, there must be no significant known technical, legal, community, business, or political restrictions or similar issues existing that the Company believes are more likely than not to impair the success of the expansion).

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

It is possible that the Company’s estimates or assumptions could ultimately be significantly different from actual results.

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Future events could cause the Company to conclude that impairment indicators exist and that its landfill carrying costs are impaired.

Cell Processing Reserves

The Company records a cell processing reserve related to its E&P segment for certain locations in Louisiana and Texas for the estimated amount of expenses to be incurred upon the treatment and excavation of oilfield waste received.

The cell processing reserve is the future cost to properly treat and dispose of existing waste within the cells at the various facilities.

The reserve generally covers estimated costs to be incurred over a period of time up to 24 months, with the

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

current portion representing costs estimated to be incurred in the next 12 months.

The estimate is calculated based on current estimated volume in the cells, estimated percentage of waste treated, and historical average costs to treat and excavate the waste.

The processing reserve represents the estimated costs to process the volumes of oilfield waste on-hand for which revenue has been recognized.

At December 31, 2020 and 2019, the current portion of cell processing reserves was $ 3,344 and $ 3,518 , respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets.

At December 31, 2020 and 2019, the long-term portion of cell processing reserves was $ 1,364 and $ 1,270 , respectively, which is included in Other long-term liabilities in the Consolidated Balance Sheets.

Business Combination Accounting

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The Company measures and recognizes goodwill as of the acquisition date as the excess of:

(a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Company’s previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed.

(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 the Company’s previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed.

● At the acquisition date, the Company measures the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies.

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Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year.

In addition, the Company evaluates its reporting units for impairment if events or circumstances change between annual tests indicating a possible impairment.

In addition, the Company evaluates its reporting units for impairment if events or circumstances change

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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between annual tests indicating a possible impairment.

Examples of such events or circumstances include, but are not limited to, the following:

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● current period or expected future operating cash flow losses.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

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As part of the Company’s goodwill impairment test, the Company estimates the fair value of each of its reporting units using discounted cash flow analyses.

At December 31, 2019 and 2018, the Company’s reporting units consisted of its five geographic solid waste operating segments and its E&P segment.

At December 31, 2019, the Company’s reporting units consisted of its five geographic solid waste operating segments and its E&P segment.

As of July 1, 2020, the Company combined all operations of its E&P segment into the Southern segment, based on the Company’s determination that the two operating segments met the aggregation criteria, and eliminated the E&P segment.

The Company’s former E&P segment had $ 0 of goodwill at each of June 30, 2020 and December 31, 2019 and 2018.

The Company’s former E&P segment had $ 0 of goodwill at each of December 31, 2020 and December 31, 2019.

The Company compares the fair value of each reporting unit with the carrying value of the net assets assigned to each reporting unit.

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In assessing the reasonableness of the Company’s determined fair values of its reporting units, the Company evaluates its results against its current market capitalization.

The Company did no t record an impairment charge to any of its five geographic operating segments as a result of its annual goodwill and indefinite-lived intangible assets impairment tests for the years ended December 31, 2020, 2019 or 2018.

The Company did no t record an impairment charge to any of its five geographic operating segments as a result of its annual goodwill impairment tests for the years ended December 31, 2021, 2020 or 2019.

During the fourth quarter of 2021, the Company recorded an impairment charge of $ 2,277 , which is included in Impairments and other operating items in the Consolidated Statements of Net Income, on certain indefinite-lived intangible assets at two of its E&P sites in its Southern segment.

The Company did no t record an impairment charge to any of its five geographic operating segments as a result of its indefinite-lived intangible assets impairment tests for the years ended December 31, 2020 or 2019.

Impairments of Property and Equipment and Finite-Lived Intangible Assets

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The recoverability of these assets is tested whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Cash flow projections are sometimes based on a group of assets, rather than a single asset.

If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether an impairment has occurred for the group of assets for

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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which the projected cash flows can be identified.

If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether an impairment has occurred for the group of assets for which the projected cash flows can be identified.

If the fair value of an asset is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs.

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There are other considerations for impairments of landfills, as described below.

During the year ended December 31, 2021, the Company recorded a $ 16,379 impairment charge, which is included in Impairments and other operating items in the Consolidated Statements of Net Income, for property and equipment and definite-lived intangible assets at three of its E&P waste sites in its Southern segment.

The demand for the Company’s E&P waste services depends on the continued demand for, and production of, oil and natural gas.

Crude oil and natural gas prices historically have been volatile.

Macroeconomic and geopolitical conditions, including a significant decline in oil prices 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 the Company’s E&P waste services.

During the year ended December 31, 2020, total E&P revenue declined $ 112,114 , compared to the prior year period, on rig count declines of 56 % in certain basins.

Macroeconomic and geopolitical conditions, including a significant decline in oil prices occurring in 2020 driven by both surplus production and supply, as well as the decrease in demand caused by factors including the COVID-19 pandemic, resulted in decreased levels of oil and natural gas exploration and production activity and a corresponding decrease in demand for the Company’s E&P waste services in 2020.

During the year ended December 31, 2020, total E&P waste revenue declined $ 112,114 , compared to the prior year period, on rig count declines of 56 % in certain basins.

The most impacted basins include the Williston Basin in North Dakota, the Eagle Ford Basin in Texas and the Powder River Basin in Wyoming, all of which have relatively high costs associated with drilling, making them less attractive than other basins, including the Permian Basin in Texas and New Mexico.

Additionally, across the industry there is uncertainty regarding future demand for oil and related services, as noted by several energy companies, many of whom are customers of the Company’s E&P segment.

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 the Company’s E&P waste customers in the basins where the Company operates.

The decrease in exploration and production activity, together with market expectations of a likely slow recovery in oil prices, reduced the expected future period cash flows of the Company’s E&P operations.

Based on these events, the Company concluded that a triggering event occurred which required the Company to perform an impairment test of the property and equipment and intangible assets of its E&P operations as of June 30, 2020 using July 2020 industry projections for drilling activity by basin as the basis for expectations about future activity.

Based upon the results of the impairment test, the Company concluded that the carrying value exceeded the projected undiscounted cash flows of four E&P landfills.

Additionally, across the industry there was uncertainty regarding future demand for oil and related services, as noted by several energy companies during 2020, many of whom are customers of the Company’s E&P waste operations.

These companies wrote down the values of their oil and gas assets in anticipation of the potential for the decarbonization of their energy product mix given an increased global focus on reducing greenhouse gases and addressing climate change.

Such uncertainty regarding global demand had a significant impact on the investment and operating plans of the Company’s E&P waste customers in the basins where the Company operates.

The decrease in E&P activity, together with market expectations of a likely slow recovery in oil prices, reduced the expected future period cash flows of the Company’s E&P waste operations.

Based on these events, the Company concluded that a triggering event occurred which required the Company to perform an impairment test of the property and equipment and intangible assets of its E&P waste operations as of June 30, 2020 using July 2020 industry projections for drilling activity by basin as the basis for expectations about future activity.

Based upon the results of the impairment test, the Company concluded that the carrying value exceeded the projected undiscounted cash flows of four E&P waste landfills.

The next step was to calculate the fair value of these four landfills using an income approach employing a discounted cash flow (“DCF”) model over the lesser of 40 years or the remaining life of each landfill.

Additional key assumptions used in the DCF model included a discount rate of 12 % applied to the cash flows, annual revenue projections based on E&P waste resulting from projected levels of oil and natural gas exploration and production activity during the forecast period at each location, gross margins based on estimated operating expense requirements during the forecast period, estimated capital expenditures over the forecast period and income taxes based on the estimated federal and state income tax rates applicable during the cash flow periods, all of which were classified as Level 3 in the fair value hierarchy.

Additional key assumptions used in the DCF model included a discount rate of 12 % applied to the cash flows, annual revenue projections

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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based on E&P waste resulting from projected levels of oil and natural gas E&P activity during the forecast period at each location, gross margins based on estimated operating expense requirements during the forecast period, estimated capital expenditures over the forecast period and income taxes based on the estimated federal and state income tax rates applicable during the cash flow periods, all of which were classified as Level 3 in the fair value hierarchy.

For each of the four landfills, the carrying value exceeded the calculated discounted fair value, resulting in the recording of an impairment charge of $ 417,384 to Impairments and other operating items in the Consolidated Statements of Net Income during the year ended December 31, 2020.

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If the estimated annual cash flows in the DCF model for each asset or asset group tested was changed by 10%, the resulting impairment charge would change by approximately $ 3,000 .

The aforementioned impairment charges were partially offset by a $ 4,145 adjustment to reduce the fair value of an amount payable in 2021 under a liability-classified contingent consideration arrangement calculated on future earnings and cash flows associated with the acquisition of an E&P business in 2014.

Based upon the outlook for E&P waste services in the market where the acquired business operates, the payment of the contingent consideration was deemed unlikely and the carrying value was reduced to $ 0 as of June 30, 2020, resulting in a credit to Impairments and other operating items in the Consolidated Statements of Net Income.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The aforementioned impairment charges were partially offset by a $ 4,145 adjustment, also recorded during the year ended December 31, 2020, to reduce the fair value of an amount payable in 2022 under a liability-classified contingent consideration arrangement calculated on future earnings and cash flows associated with the acquisition of an E&P business in 2014.

During the year ended December 31, 2019, the Company recorded an $ 8,000 impairment charge, which is included in Impairments and other operating items in the Consolidated Statements of Net Income, for property and equipment associated with a landfill development project in its E&P segment that the Company is no longer pursuing.

During the year ended December 31, 2018, the Company did no t record an impairment charge for property and equipment.

There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to landfill development or expansion projects.

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Fair Value of Financial Instruments

The Company’s financial instruments consist primarily of cash and equivalents, trade receivables, restricted cash and investments, trade payables, debt instruments, contingent consideration obligations, interest rate swaps and fuel hedges.

As of December 31, 2021 and 2020, the carrying values of cash and equivalents, trade receivables, restricted cash and investments, trade payables and contingent consideration are considered to be representative of their respective fair values.

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Carrying Value at

Fair Value* at

4.64 % Senior Notes due 2021

2.39 % Senior Notes due 2021

3.09 % Senior Notes due 2022

2.75 % Senior Notes due 2023

Fair Value (a) at

4.64 % Senior Notes due 2021

2.39 % Senior Notes due 2021

3.09 % Senior Notes due 2022 (b)

2.75 % Senior Notes due 2023 (b)

3.24 % Senior Notes due 2024 (b)

3.41 % Senior Notes due 2025 (b)

3.03 % Senior Notes due 2026 (b)

3.49 % Senior Notes due 2027 (b)

4.25 % Senior Notes due 2028

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2.95 % Senior Notes due 2052

* Senior Notes are classified as Level 2 within the fair value hierarchy.

(a) Senior Notes are classified as Level 2 within the fair value hierarchy.

Fair value inputs include third-party calculations of the market interest rate of notes with similar ratings in similar industries over the remaining note terms.

For details on the fair value of the Company’s interest rate swaps, fuel hedges, restricted cash and investments and contingent consideration, see Note 11.

(b) All of the outstanding Senior Notes issued pursuant to the 2008 and 2016 master note purchase agreements were redeemed by the Company on September 20, 2021.

For details on the fair value of the Company’s interest rate swaps, restricted cash and investments and contingent consideration, see Note 12.

Derivative Financial Instruments

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As a result of terminating these interest rate swaps, the Company made total cash payments of $ 853 to the counterparties of the swap agreements.

Another of the Company’s objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the price of diesel fuel.

The Company’s strategy to achieve that objective involves periodically entering into fuel hedges that are specifically designated to certain forecasted diesel fuel purchases and accounted for as cash flow hedges.

At December 31, 2020 and 2019, the Company had no fuel hedge agreements in place.

The fair values of derivative instruments designated as cash flow hedges as of December 31, 2021, were as follows:

22 unchanged sentences

Total derivatives designated as cash flow hedges

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

The following table summarizes the impact of the Company’s cash flow hedges on the results of operations, comprehensive income (loss) and AOCIL for the years ended December 31, 2021, 2020 and 2019:

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Classification

Net of Tax (b), (c)

Net of Tax (b)

Years Ended December 31,

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Interest expense

Cost of operations

In accordance with the derivatives and hedging guidance, the changes in fair values of interest rate swaps and fuel hedges have been recorded in equity as a component of AOCIL.

In accordance with the derivatives and hedging guidance, the changes in fair values of interest rate swaps have been recorded in equity as a component of AOCIL.

As the critical terms of the interest rate swaps match the underlying debt being hedged, all unrealized changes in fair value are recorded in AOCIL.

Because changes in the actual price of diesel fuel and changes in the DOE index price did not offset exactly each reporting period, the Company assessed whether the fuel hedges were highly effective using the cumulative dollar offset approach.

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

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

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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See Note 15 for further discussion on the impact of the Company’s hedge accounting to its consolidated comprehensive income (loss) and AOCIL.

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The fair value of deferred share unit (“DSU”) awards is determined based on the number of DSUs granted and the closing price of the common shares in the capital of the Company.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

Compensation expense associated with outstanding performance-based restricted share unit (“PSU”) awards is measured using the fair value of the Company’s common shares adjusted for future dividends and is based on the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends, recognized ratably over the performance period.

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All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award adjusted for future dividends, and is recognized on a straight-line basis as expense over the employee’s requisite service period.

T he Company recognizes gross share compensation expense with actual forfeitures as they occur.

The Company recognizes gross share compensation expense with actual forfeitures as they occur.

Warrants are valued using the Black-Scholes pricing model with a contractual life of five years , a risk free interest rate based on the 5-year U.S.

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Share-based compensation expense recognized during the years ended December 31, 2021, 2020 and 2019, was $ 58,221 ($ 43,495 net of taxes), $ 45,751 ($ 34,197 net of taxes) and $ 42,671 ($ 31,926 net of taxes), respectively.

This share-based compensation expense includes RSUs, PSUs, DSUs, share option and warrant expense.

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

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share-based compensation expense includes RSUs, PSUs, DSUs, share option and warrant expense.

The share-based compensation expense totals include amounts associated with the Progressive Waste share-based compensation plans, continued by the Company following the Progressive Waste acquisition, which allow for the issuance of shares or cash settlement to employees upon vesting.

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Expected remaining life

0.50 to 1.00 years

0.50 to 1.00 year

Share volatility

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Annual dividend rate

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

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All remaining unvested Progressive Waste share based options vested during the year ended December 31, 2017.

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Advertising expense for the years ended December 31, 2021, 2020 and 2019, was $ 7,155 , $ 4,870 and $ 5,410 , respectively, which is included in Selling, general and administrative expense in the Consolidated Statements of Net Income.

WASTE CONNECTIONS, INC.

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Insurance Liabilities

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Actual results for all estimates could differ materially from the estimates and assumptions that the Company uses in the preparation of its consolidated financial statements.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following:

Income taxes receivable

Prepaid insurance

Prepaid licenses and permits

WASTE CONNECTIONS, INC.

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

Landfill site costs

Rolling stock

Land, buildings and improvements

Machinery and equipment

Construction in progress

Less accumulated depreciation and depletion

( 4,554,929 )

( 4,004,358 )

Machinery and equipment included $ 10,342 and $ 3,754 , at December 31, 2021 and 2020, respectively, of equipment assets accounted for as finance leases.

The Company’s landfill depletion expense, recorded in Depreciation in the Consolidated Statements of Net Income, for the years ended December 31, 2021, 2020 and 2019, was $ 212,898 , $ 200,374 and $ 225,687 , respectively.

The Company rents certain equipment and facilities under short-term agreements, non-cancelable operating lease agreements and finance leases.

The Company determines if an arrangement is or contains a lease at contract inception.

The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date.

The lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date.

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

The lease guidance requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate.

Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor’s estimated residual value or the amount of the lessor’s deferred initial direct costs.

Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease.

The Company’s incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

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

Lease payments included in the measurement of the lease liability comprise fixed payments or variable lease payments.

The variable lease payments take into account annual changes in the consumer price index and common area maintenance charges, if known.

ROU assets for operating and finance leases are periodically reviewed for impairment losses.

The Company uses the long-lived asset impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.

The Company did no t recognize an impairment charge for any of its ROU assets during the years ended December 31, 2021, 2020 and 2019.

The Company monitors for events or changes in circumstances that require a reassessment of one of its leases.

When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset.

The Company did no t recognize any significant remeasurements during the years ended December 31, 2021, 2020 and 2019.

The Company has elected not to recognize ROU assets and lease liabilities for short-term leases that have a lease term of 12 months or less.

The Company has elected to apply the short-term lease recognition and measurement exemption allowed for in the lease accounting standard.

The Company recognizes the lease payments associated with its short-term leases as an expense on a straight-line basis over the lease term.

The Company initially entered into finance leases in December 2020 and the assets under these leases went into service on December 31, 2020.

Lease cost for operating and finance leases for the years ended December 31, 2021, 2020 and 2019 were as follows:

Years Ended December 31,

Operating lease cost

Finance lease cost:

Amortization of leased assets

Interest on leased liabilities

Total lease cost

Supplemental cash flow information and non-cash activity related to the Company’s leases are as follows:

Years Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Non-cash activity:

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

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

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS OF U.S.

DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

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

Years Ended December 31,

Weighted average remaining lease term - operating leases

Weighted average remaining lease term - finance leases

Not applicable

Weighted average discount rate - operating leases

Weighted average discount rate - finance leases

Not applicable

As of December 31, 2021, future minimum lease payments, reconciled to the respective lease liabilities, are as follows:

Operating Leases

Finance Leases

Minimum lease payments

imputed interest

Present value of minimum lease payments

current portion of lease liabilities

Long-term portion of lease liabilities

The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values.

The Company measures and recognizes goodwill as of the acquisition date as the excess of:

If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, the Company will report provisional amounts for the items for which the accounting is incomplete.

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Any material adjustments recognized during the measurement period will be reflected prospectively in the period the adjustment is identified in the consolidated financial statements.

The Company recognizes acquisition-related costs as expense.

The Company recognizes acquisition-related transaction costs as expense.

The Company acquired 30 individually immaterial non-hazardous solid waste collection, transfer, recycling and disposal businesses during the year ended December 31, 2021.

The total acquisition-related costs incurred during the year ended December 31, 2020 for these acquisitions was $ 9,803 .

The purchase consideration recorded during this period for nine of the acquired businesses included contingent consideration based upon the receipt of contract assignments and the achievement of certain targets, including future asset and revenue growth.

The fair value of the total contingent consideration recorded during the year ended December 31, 2021 of $ 31,616 was determined using probability assessments of the expected future cash flows over a one to two year period in which the obligations are expected to be settled, and applying an average discount rate of 1.5 %.

As of December 31, 2021, the obligations recognized at the purchase date have not materially changed.

Any changes in the fair value of the contingent consideration subsequent to the acquisition date

WASTE CONNECTIONS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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will be charged or credited to expense until the contingency is settled.

The total transaction-related expenses incurred during the year ended December 31, 2021 for these acquisitions was $ 11,318 .

These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income.

The Company acquired 21 individually immaterial non-hazardous solid waste collection, transfer, recycling and disposal businesses during the year ended December 31, 2020.

The total transaction-related expenses incurred during the year ended December 31, 2020 for these acquisitions were $ 9,803 .

These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income.

The Company acquired 21 individually immaterial non-hazardous solid waste collection, transfer, recycling and disposal businesses during the year ended December 31, 2019.

The purchase consideration recorded during this period for five of the acquired businesses included contingent consideration based upon the achievement of certain targets, including future asset and revenue growth.

2 unchanged sentences

Any subsequent changes in the fair value of the contingent consideration recorded for these acquisitions will be charged or credited to expense until the contingency is settled.

The total acquisition-related costs incurred during the year ended December 31, 2019 for these acquisitions was $ 12,335 .

These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income.

The Company acquired 20 individually immaterial non-hazardous solid waste collection, transfer, recycling and disposal businesses during the year ended December 31, 2018.

The purchase price for one of these acquisitions included recording an initial estimate for contingent consideration of $ 11,593 , representing the fair value of up to $ 12,582 of amounts payable to the former owners based on the achievement of certain operating targets specified in the asset purchase agreement.

The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the three-year period in which the obligation is expected to be settled, and applying a discount rate of 2.7 %.

As of December 31, 2020, the fair value of the obligation increased to $ 33,674 , based on updated estimates of the operating targets that are expected to be achieved.

The increase in the fair value of the contingent consideration was charged to expense and any subsequent changes will be charged to or credited to expense until the contingency is settled.

The total acquisition-related costs incurred during the year ended December 31, 2018 for these acquisitions was $ 8,607 .

The total transaction-related expenses incurred during the year ended December 31, 2019 for these acquisitions was $ 12,335 .

These expenses are included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Net Income.

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Solid waste collection and transportation permits

Material recycling facility permits

E&P facility permits

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DOLLARS, EXCEPT PER SHARE, PER TON AND PER GALLON AMOUNTS)

PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following:

Landfill site costs

Rolling stock

Land, buildings and improvements

Machinery and equipment

Construction in progress

Less accumulated depreciation and depletion

( 4,004,358 )

( 3,446,821 )

Machinery and equipment included $ 3,754 and $ 0 , at December 31, 2020 and 2019, respectively, of equipment assets accounted for as finance leases.

The Company’s landfill depletion expense, recorded in Depreciation in the Consolidated Statements of Net Income, for the years ended December 31, 2020, 2019 and 2018, was $ 200,374 , $ 225,687 and $ 206,404 , respectively.