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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO
RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of April, 2015
Commission File Number: 001-34370
Progressive Waste Solutions Ltd.
(Translation of registrant's name into English)
400 Applewood Crescent
2nd Floor
Vaughan, Ontario L4K 0C3
Canada
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F

Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): 
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): 
This Form 6-K is incorporated by reference into all outstanding Registration Statements of Progressive Waste Solutions Ltd. filed with the
U.S. Securities and Exchange Commission.
EXHIBIT LIST
Exhibit
99.1
99.2
99.3
99.4
Description
Annual Report 2014
Management Information Circular dated April 10, 2015 (including the Notice of Annual Meeting of
Shareholders)
Form of Proxy and Voting Instruction Form for the Annual Meeting of Shareholders
Notice of Annual Meeting and Voting Instruction Form for the Annual Meeting of Shareholders
2
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Date: April 10, 2015
Progressive Waste Solutions Ltd.
By:
/s/ LORETO GRIMALDI
Name: Loreto Grimaldi
Title: Senior Vice President, General Counsel
and Secretary
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EXHIBIT LIST
SIGNATURE
Exhibit 99.1
[LOGO]
[LOGO]
/s/ Joseph D. Quarin
Joseph D. Quarin
President and Chief Executive Officer
DEAR SHAREHOLDERS
2014 was a transformational year for Progressive Waste Solutions. We have the team in place to execute on a strategic plan to become a
best-in-class operator in the waste services industry. Last year, we achieved record results, on a constant currency basis. These included total
revenue of more than $2 billion, adjusted EBITDA (A) growth of 1.7%, adjusted operating EBIT (A) up 11.1% and free cash flow (B) of $235.4
million before infrastructure spending, up 4.8%. More importantly, we have put in place a foundation for continued revenue growth, on a
constant currency basis, and margin expansion in 2015 and beyond.
We enter 2015 with momentum and a clear path to growing revenues, earnings margins, operating EBIT (A) and free cash flow
(B) through our own operating initiatives. We will manage the opportunities we have this year and work to mitigate external pressures, such
as foreign currency exchange and recycled commodities prices.
In our brief history, Progressive Waste Solutions has successfully rolled up many great assets in the industry. We built a network of integrated
assets that cannot be replicated today. In the past two years we have focused on maximizing the efficiencies of these great assets by
implementing best practices across the Company and transitioning from a holding company to an operating company.
To achieve our potential and to meaningfully improve our Company’s performance over the next five years, we are focused on three priorities:
operational excellence; pursuing strategic growth opportunities; and disciplined capital allocation.
OPERATIONAL EXCELLENCE
The driving force behind operational excellence is ensuring we are allocating capital in our field operations to areas we can expect to obtain the
highest returns. This includes conversion of our fleet to compressed natural gas (“CNG”) in key markets, and fleet automation, where
standardized carts are lifted robotically.
The conversion to CNG and automated collection vehicles will deliver significant cost savings, among other benefits. Even with the drop
in the price of oil, CNG continues to provide cost savings and is also an attractive benefit for many of our municipal customers who desire a
greener fleet for residential collection. Through our normal course replacement budget in 2014, we continued to transition our fleet to
automated trucks and CNG engines in 11 key markets where we can earn the quickest return. We added 130 new CNG trucks in 2014, with
CNG now representing 10% of our fleet at year end. Many of these trucks are automated side-load or front-load vehicles, which will improve
our productivity, safety and cost performance, as automation reduces the number of helpers required on collection trucks. In total, we added
117 automated trucks in 2014.
During the year, the standardization of best practices was implemented across the Company to reduce costs in the areas of insurable claims,
purchasing, labor utilization and repairs and maintenance. We expect injuries and insurable claims to decrease through enhanced training and
automation. Through our new repairs and maintenance program, we established a maintenance council for the Company, onboarded many new
maintenance managers and implemented a maintenance tracking system. We improved our preemptive maintenance program which will reduce
our repair spend in the future, increase asset utilization on our routes and allow us to leverage the full useful life of our assets.
These operational initiatives aimed at improving fleet productivity and field efficiencies are demonstrating results. While repair and
maintenance and labor costs were higher in early 2014 as we began to roll out these initiatives, they started to decline in the last quarter,
positioning us for further improvement in 2015. Adjusted EBITDA (A) margins increased as operating costs as a percentage of revenue
declined.
PROGRESSIVE WASTE SOLUTIONS 2014 ANNUAL REPORT
1
Our free cash flow (B) growth in 2014, excluding infrastructure investments, reflects the increased rigor we are applying to the allocation of
capital in our field operations.
As part of our commitment to operational excellence, we have projected average organic growth of approximately 4 per cent annually over the
next five years. This organic growth rate is based on a combination of pricing and volume improvements, driven by nominal GDP and
population growth in the markets we serve, as well as new sales tools we have implemented in the field.
STRATEGIC GROWTH OPPORTUNITIES
The waste collection industry in North America has been and remains fragmented today. There are many companies involved in collection,
sorting, diversion and disposal and opportunity remains for further consolidation.
We continue to monitor an active pipeline of acquisition opportunities. As we have continuously stated, we will apply a disciplined approach to
valuing acquisitions and we will not overpay simply to meet growth aspirations. We do have a strong appetite for acquisitions, particularly in
attractive new markets where our team has experience, and where we are not located today.
In the fourth quarter of 2014, we began a process to unlock the value of our Long Island assets in our U.S. northeast segment. This sale was
completed in early 2015, for total proceeds of approximately $76.3 million. We are pleased with this outcome, as it allowed us to redeploy the
proceeds by adding assets in high growth markets. Late in 2014, we acquired two mid-sized independent companies in Texas. Both acquisitions
represent a strategic fit with existing operations in the area.
CAPITAL ALLOCATION
Along with our efforts to reduce operating costs and increase asset efficiency, we also apply a disciplined approach to capital allocation. In
2014, we experienced a cultural change by linking performance compensation to operating EBIT (A) . This impacted how and where
capital is allocated in the field by having a more centralized decision-making process. In a capital intensive business like ours, this has
meaningful consequences. In 2014, capital expenditures, net of proceeds on asset sales and excluding infrastructure investments, represented
9.7% of revenues, nearly 10% less than we had budgeted at the start of the year.
This discipline also applies to acquisitions and where we focus on valuation metrics designed to ensure any transaction is accretive to the
profitability of our Company. Based on the known pipeline of available deals, if we are successful in securing acquisitions at the right price, the
acquired revenues combined with steady organic growth have the potential to increase our Company’s size by 50 per cent within five years.
(A)(B) For definitions of Adjusted EBITDA, Adjusted Operating EBIT and Free Cash Flow, please refer to pages 76-78
In addition to acquisitions, we are committed to being prudent stewards of the Company’s capital, returning it to shareholders when we can’t
find a better return alternative pursuing growth opportunities. In 2014, we returned nearly $81 million to shareholders through the repurchase of
approximately 2.7 million shares, and paid out more than $63 million through our dividend program. These capital decisions along with our
operational performance led to a total shareholder return of almost 36% on the Toronto Stock Exchange, and 24% on the New York
Stock Exchange in 2014.
OUTLOOK
Our outlook for 2015 reflects several challenging variables in the operating environment, including softness in recycled commodity prices and
the potential impact of lower oil prices to energy-sensitive markets and fuel surcharge revenue. While we do not have operational exposure to
the volatility of the Canadian dollar, we are also providing foreign exchange sensitivity as there is an impact to our reportable results which are
denominated in U.S. currency. We are mindful of these external factors and are well-prepared to meet our strategic plan objectives this year.
CONCLUSION
2014 was a watershed year for Progressive Waste Solutions. We have strong leadership that is aligned to work toward the goals we have set.
We are operating as one team, working together daily to make sure that standards and best practices are shared throughout the Company.
Hand in hand with our talented corporate management team is strong local management. We continue to manage our local markets from the
bottom-up and not the top-down. We will support our local management with training and by sharing best practices and high standards from
the best experts and functional leaders at the corporate office.
We have great assets, an experienced and talented team and a clear path forward. I want to thank all our management and employees for their
support and enthusiasm for our strategic plan guiding our path forward. I also want to thank our Board of Directors for their guidance, support
and vision as we continue to work to achieve our potential.
/s/ Joseph D. Quarin
Joseph D. Quarin
President and Chief Executive Officer
2
Progressive Waste Solutions Ltd.
MD&A for the year ended December 31, 2014
Disclaimer
This Management Discussion and Analysis (“MD&A”) contains forward-looking statements and forward-looking information.
Forward-looking statements are not based on historical facts but instead reflect our expectations, estimates or projections concerning future
results or events. These statements can generally be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,”
“budget,” “continue,” “could,” “estimate,” “expect,” “forecast,” “goals,” “intend,” “intent,” “belief,” “may,” “plan,” “foresee,” “likely,”
“potential,” “project,” “seek,” “strategy,” “synergies,” “targets,” “will,” “should,” “would,” or variations of such words and other similar
words. Forward-looking statements include, but are not limited to, statements relating to future financial and operating results and our plans,
objectives, prospects, expectations and intentions. These statements represent our intentions, plans, expectations, assumptions and beliefs about
future events and are subject to risks, uncertainties and other factors. Numerous factors could cause our actual results to differ materially from
those expressed or implied in these forward-looking statements. We cannot assure you that any of our expectations, estimates or projections
will be achieved.
Numerous important factors could cause our actual results, performance or achievements to differ materially from those expressed in or implied
by these forward-looking statements, including, without limitation, those factors outlined in the Risks and Uncertainties section of this MD&A.
We caution readers that the list of factors is illustrative and by no means exhaustive.
All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All forward-looking statements in this
MD&A are qualified by these cautionary statements. The forward-looking statements in this MD&A are made as of the date of this MD&A and
we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required
by law.
Industry Overview
The North American non-hazardous solid waste management industry is a fragmented and competitive industry, requiring expertise, labour,
capital resources and assets. Industry participants compete for collection accounts primarily on the basis of quality of service and price and
compete for transfer station and landfill business on the basis of tipping fees, geographic location and environmental practices. The North
American non-hazardous solid waste management industry has undergone significant consolidation and integration in both Canada and the
United States (“U.S.”), which we believe will continue.
This industry comprises the collection, transportation, transfer, disposal and recycling of non-hazardous solid waste (“waste”) at landfills or
other disposal facilities such as incineration or composting facilities. Non-hazardous solid waste includes commercial, industrial and residential
waste, including household and yard waste. Non-hazardous solid waste is solid waste that is not comprised of substances considered hazardous
materials under any federal, provincial, state and/or local legislation or regulation applicable to the collection, transfer, disposal and/or
recycling of solid waste. The principal services offered in our industry are summarized below.
Collection. Waste is collected from commercial, industrial and residential customers. Commercial collection typically involves the use of
front-end and rear-end load trucks to collect waste stored in steel bins that are usually supplied by the waste collection service provider.
Industrial waste collection typically involves the use of roll-off trucks to collect waste stored in large roll-off containers placed at
manufacturing businesses or construction and demolition (“C&D”) sites. Residential waste collection involves the curbside collection of
residential solid waste using rear, side and automated front-load trucks. Residential waste collection services are provided by municipalities, or
companies that contract either with municipalities or directly with individual homeowners, homeowners’ associations, apartment building
owners or similar groups. Once collected, waste or recyclable material is transported to a transfer station or directly to a disposal or recycling
facility.
Transfer Stations. Transfer stations are facilities typically located near commercial, industrial and residential collection routes that are a
distance from the ultimate disposal site. Waste is received at the transfer station from collection trucks, sometimes sorted, and then transferred
in large volumes to landfills or other waste disposal or recycling facilities. This consolidation reduces the costs associated with transporting the
waste and may allow operators to obtain volume discounts on disposal rates at landfills and other disposal facilities. Transfer stations also
facilitate the efficient utilization of collection personnel and equipment by allowing them to focus on collection operations and spend less time
traveling to disposal sites. Transfer
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stations can handle waste received from commercial and residential collection operations and most industrial waste. Some transfer stations are
constructed to only receive specialized waste, such as C&D debris.
Landfills. Landfills are the primary waste disposal facility for all types of waste. Landfills must be designed, permitted, operated and closed in
accordance with comprehensive federal, provincial, state and/or local regulations. These regulations also dictate the type of waste that may be
received by the landfill. Landfill operations include excavation of earth, spreading and compacting of waste and covering waste with earth or
other inert material.
Other Disposal Facilities. Other alternative disposal facilities include composting facilities, digestion, incineration or thermal processing.
Digestion involves the processing of organic waste in an oxygen starved environment into residues and recoverable methane gas which is
typically used as a fuel to produce power. Composting involves processing certain types of organic materials (leaf and yard wastes, food wastes
and other organic matter, including paper, wood and organic sludges) into reusable and non-putrescible soil conditioners and other products.
Incineration facilities generally accept non-hazardous solid waste and are typically designed to incinerate the waste, often to generate electricity
or steam. Thermal processing involves the conversion of wastes into gasses, sometimes referred to as syngases, which are often used to produce
power or synthetic fuels.
Recycling. Recovery and recycling involve operations in which certain types of waste material, including wood, paper, cardboard, plastic,
glass, aluminum and other metals, are sorted, processed and resold as recycled material. After processing and sorting, purchasers of this
material generally pay a fluctuating spot market price for recycled materials. Waste for which there is no market is shipped to a disposal
facility, which is typically a landfill.
Corporate Overview
As one of North America’s largest full-service waste management companies, we provide waste collection, recycling and disposal services to
commercial, industrial, municipal and residential customers in 13 U.S. states, and the District of Columbia, and in six Canadian provinces. We
serve our customers using a vertically integrated suite of collection and disposal assets.
Our U.S. south and northeast segments, collectively our U.S. business, principally operate under the Progressive Waste Solutions, IESI and
WSI brands and provide vertically integrated waste collection, recycling and disposal services in two geographic regions: the south, consisting
of various service areas in Florida, Texas, Louisiana, Oklahoma, Arkansas, Mississippi, Missouri and Illinois, and the northeast, consisting of
various service areas in New York, New Jersey, Pennsylvania, Maryland, Virginia and the District of Columbia.
Our Canadian business principally operates under the Progressive Waste Solutions, BFI Canada and WSI brands. We believe we are one of
Canada’s two largest waste management companies and we provide vertically integrated waste collection, recycling and disposal services in
the provinces of British Columbia, Alberta, Manitoba, Ontario, and Quebec. Our Canadian business also provides disposal services in the
province of Saskatchewan.
Our operating philosophy focuses on the development of strong integrated collection and disposal operations and market share in the markets
we operate in. We believe that collection density provides us with the flexibility to pursue various strategies that drive revenue growth, margin
expansion and free cash flow (B) . Our collection operations are supported by our transfer stations, landfills and material recovery facilities
(“MRFs”), collectively our post collection service lines. The integration of our collection with our transfer and disposal operations enhances the
operating leverage in our business model. Our ability to internalize a significant portion of the waste we collect strengthens our margin profile
and our local operations position in the markets we serve. We focus on markets where we can implement our operating philosophy to optimize
our return on assets and invested capital and drive additional growth and profitability.
We benefit from our longstanding relationships with many of our commercial, industrial and residential customers, which provide a high
degree of stability for our business. The majority of revenue derived from our commercial and many of our industrial customers is contractual
with typical terms of three-to-five years in duration. These contracts provide us with predictable, recurring revenue and typically provide us
with the ability to make annual indexed fee adjustments. Our contracts also often provide us with the ability to pass through fuel, disposal,
transportation and other surcharges to cover increasing costs. Many of our commercial and industrial contracts automatically renew on expiry
of their then current term.
We are focused on optimizing our return on the assets we employ. We believe that improving asset utilization drives growth and profitability.
4
Introduction
The following is a discussion of our consolidated financial condition and results of operations for the year ended December 31, 2014 prepared
with all available information up to and including March 20, 2015. All amounts are reported in U.S. dollars, unless otherwise stated, and
prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”). This discussion should be read in
conjunction with our consolidated financial statements (“financial statements”), including notes thereto, and MD&A for the year ended
December 31, 2013, both of which are filed on www.sedar.com and www.sec.gov. Readers can also find Progressive Waste Solutions Ltd.’s
(the “Company”) annual information form for the year ended December 31, 2013 posted on these sites as well.
Foreign Currency Exchange (“FX”) Rates
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
We have elected to report our financial results in accordance with U.S. GAAP and in U.S. dollars to improve the comparability of our financial
results with our peers. Reporting our financial results in U.S. dollars also reduces the impact of foreign currency fluctuation in our reported
amounts because our complement of assets and operations are larger in the U.S. than they are in Canada. However, we remain a legally
domiciled Canadian entity and our functional currency is the Canadian dollar. As a result, our financial position, results of operations, cash
flows and equity are initially translated to, and consolidated in, Canadian dollars (“C$”) using the current rate method of accounting. The
resulting translation adjustments are included in other comprehensive income or loss. Our consolidated Canadian dollar balance sheet is further
translated from Canadian to U.S. dollars applying the foreign currency exchange rate in effect at the balance sheet date, while our consolidated
Canadian dollar results of operations and cash flows are translated to U.S. dollars applying the average foreign currency exchange rate in effect
during the reporting period. Translating the financial position, results of operations and cash flows of our U.S. business into Canadian dollars,
our functional currency, and re-translating these amounts to U.S. dollars, our reporting currency, has no translation impact on our financial
statements. Accordingly, our U.S. results retain their original values when expressed in our reporting currency. Translation adjustments are
only included in the determination of net income or loss when we realize a reduction in the investment we hold in operations outside of
Canada.
Our consolidated financial position and operating results have been translated to U.S. dollars applying FX rates outlined in the table below. FX
rates are expressed as the amount of U.S. dollars required to purchase one Canadian dollar and reflect noon rates according to the Bank of
Canada.
2014
Consolidated
Balance
Sheet
Current
March 31
June 30
September 30
December 31
$
$
$
$
0.9047
0.9367
0.8922
0.8620
2013
Consolidated
Statement of Operations and
Comprehensive Income or Loss
Cumulative
Average
Average
$
$
$
$
0.9062
0.9170
0.9180
0.8805
$
$
$
$
Consolidated
Balance
Sheet
Consolidated
Statement of Operations and
Comprehensive Income or Loss
Cumulative
Average
Average
Current
0.9062
0.9116
0.9137
0.9052
$
$
$
$
0.9846
0.9513
0.9723
0.9402
$
$
$
$
0.9912
0.9772
0.9630
0.9525
$
$
$
$
0.9912
0.9841
0.9770
0.9707
5
FX Impact on Consolidated Results
The following table has been prepared to assist readers in assessing the FX impact on selected results for the year ended December 31, 2014.
December 31,
2013
December 31,
2014
(organic,
acquisition and
other nonoperating
changes)
(as reported)
Consolidated Statement of Operations
Revenues
Operating expenses
$
2,026,039
1,249,252
$
36,974
27,199
Year ended
December 31,
2014
(holding FX
constant with
the
comparative
year)
$
2,063,013
1,276,451
$
December 31,
2014
December 31,
2014
(FX impact)
(as reported)
(54,016 )
(30,276 )
$
2,008,997
1,246,175
Selling, general and administration
Amortization
Net gain on sale of capital and landfill assets
Operating income
Interest on long-term debt
Net foreign exchange gain
Net (gain) loss on financial instruments
Loss on extinguishment of debt
Re-measurement gain on previously held
equity investment
Income before net income tax expense and net
(income) loss from equity accounted
investee
Net income tax expense
Net (income) loss from equity accounted
investee
Net income
Adjusted EBITDA (A)
Adjusted EBITA (A)
Adjusted operating income or adjusted
operating EBIT (A)
Adjusted net income (A)
Free cash flow (B)
255,173
296,491
(7,793 )
232,916
60,754
(1,061 )
(4,282 )
1,240
7,038
(3,297 )
(11,106 )
17,140
5,633
892
29,981
(1,240 )
262,211
293,194
(18,899 )
250,056
66,387
(169 )
25,699
—
—
(5,639 )
(5,639 )
176,265
58,443
(12,487 )
(23,408 )
(8,188 )
(7,589 )
994
(8,957 )
(4,470 )
19
(1,485 )
—
254,023
285,605
(17,905 )
241,099
61,917
(150 )
24,214
—
483
163,778
35,035
(5,156 )
(3,504 )
(1,359 )
160,274
33,676
$
(148 )
117,970
$
236
10,685
$
88
128,655
$
(6 )
(2,139 )
$
82
126,516
$
$
530,775
297,613
$
$
9,155
7,031
$
$
539,930
304,244
$
$
(16,559 )
(10,057 )
$
$
523,371
294,187
$
$
$
246,151
127,152
191,031
$
$
$
27,306
29,813
34,556
$
$
$
273,457
156,965
225,587
$
$
$
(10,257 )
(3,889 )
(4,501 )
$
$
$
263,200
153,076
221,086
6
Review of Operations - For the year ended December 31, 2014
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Revenues
Year ended
December 31
2013
2014
Change
Total
$
2,008,997
$
2,026,039
$
(17,042 )
Canada
U.S. south
U.S. northeast
$
$
$
745,800
914,172
349,025
$
$
$
769,077
876,888
380,074
$
$
$
(23,277 )
37,284
(31,049 )
Gross revenue by service type
Canada stated in
thousands of
C$
Commercial
Industrial
Residential
Transfer and
disposal
Recycling
Other
Gross revenues
Intercompany
Revenues
$
$
Year ended December 31, 2014
Canada percentage
of
revenues
U.S.
338,465
159,652
144,778
41.1
19.4
17.6
265,882
32,187
23,425
964,389
(140,468 )
823,921
$
U.S. percentage
of
revenues
Year ended December 31, 2013
Canada percentage
of
revenues
U.S.
Canada stated in
thousands of
C$
$
397,643
217,790
324,956
31.5
17.2
25.7
32.3
3.9
2.8
117.1
450,333
34,510
20,846
1,446,078
35.7
2.7
1.7
114.5
(17.1 )
100.0 $
(182,881 )
1,263,197
(14.5 )
100.0 $
321,071
151,211
148,656
40.5
19.1
18.8
250,636
30,864
22,798
925,236
(132,982 )
792,254
$
U.S. percentage
of
revenues
391,829
218,959
322,863
31.2
17.4
25.7
31.6
3.9
2.9
116.8
463,015
29,903
20,330
1,446,899
36.8
2.4
1.6
115.1
(16.8 )
100.0 $
(189,937 )
1,256,962
(15.1 )
100.0
Revenue growth or decline components — expressed in percentages and excluding FX
Canada
Price
Price
Fuel surcharges
Recycling and other
Total price growth
Year ended December 31, 2014
U.S.
Consolidated
Canada
Year ended December 31, 2013
U.S.
Consolidated
2.7
—
0.2
2.9
1.7
(0.1 )
(0.2 )
1.4
2.1
(0.1 )
—
2.0
1.2
—
—
1.2
1.1
—
0.1
1.2
1.1
—
0.1
1.2
Volume
Total organic revenue growth
(decline)
0.9
(0.6 )
(0.1 )
(2.2 )
2.7
0.7
3.8
0.8
1.9
(1.0 )
3.9
1.9
Net acquisitions
Total revenue growth
0.2
4.0
(0.3 )
0.5
(0.1 )
1.8
3.1
2.1
8.3
12.2
6.2
8.1
Year ended
On a consolidated basis, revenues declined approximately $17,000, which includes the negative impact of FX of approximately $54,000. At FX
parity, consolidated revenues increased approximately $37,900. Approximately C$31,700 of this improvement was generated by our Canadian
operations and about $6,200 came from our U.S. based business. Stronger pricing across every service line improved revenues by
approximately $42,700. Canada’s contribution to higher revenues from the improvement in price was about C$21,100, while the U.S. northeast
delivered approximately $13,500 and the U.S. south contributed $8,100. Consolidated revenues were little changed as a result of the
comparative change in volumes. Strong volume improvements in our Canadian and U.S. south segments, approximately C$7,000 and $27,200,
respectively, were
7
negated by a decline in revenues on lower volumes in our U.S. northeast segment, approximately $35,200. The comparative decline in U.S.
northeast revenues from volumes was primarily attributable to first quarter revenue contributions in 2013 from Super Storm Sandy (“Sandy”),
approximately $8,000, our strategic elimination of less profitable business in 2014, the sale of select assets in this region both this year and last,
and harsh first quarter weather conditions. Volumes in our Canadian segment were up versus last year on stronger transfer station volumes,
partially offset by lower volumes in our landfill and residential service lines. Harsh weather conditions in the first quarter this year was a
negative to revenues in Canada from landfill volumes. Lower residential volumes in Canada reflect the loss of two small residential contracts.
Our U.S. south segment delivered strong volume gains on stronger landfill, transfer station, MRF and residential volumes. The change in
revenues from net acquisitions was negative to revenues by about $1,900 year-over-year. Fuel surcharges were lower than the prior year mark
by approximately $1,400 due to lower overall fuel costs and commodity pricing was marginally lower as well by about $500.
On a segment basis, revenues in Canada, excluding FX, grew approximately C$31,700. As mentioned, pricing improvements contributed
approximately C$21,100 to the increase in revenues year-over-year. Pricing in Canada grew across all service lines and this growth was largely
the result of healthier pricing in our commercial service line which delivered an annual improvement to revenues of approximately C$12,500.
Canadian volumes improved revenues by approximately C$7,000. Volumes in our commercial and industrial service lines increased
comparatively, and offset the loss of two small residential contracts in the year. In total, our collection service lines delivered a slight
improvement to revenues year-to-year. Our disposal service lines delivered strong volume gains which translated to improved revenues this
year compared to last. The improvement in transfer station volumes generated approximately C$10,800 of additional revenues year-over-year.
The opening of a transfer station facility in 2013 to accept waste volumes that were once directly destined for our Calgary landfill is the
primary reason for the improvement. The revenue improvement from higher comparative transfer station volumes was partially offset by lower
landfill volumes. Lower landfill volumes were due, in part, to the closure of our Calgary landfill to municipal solid waste (“MSW”) in
June 2013 (the “Calgary closure”), coupled with the impact first quarter weather had on our Lachenaie landfill. Lachenaie volumes were also
off the prior year pace due to the prior year acquisition of one of this site’s largest customers by a competitor in the waste management
industry. Commodity pricing in our Canadian segment increased on a comparative basis, and was higher by approximately C$1,800 compared
to last year. Fuel surcharges were down slightly, but largely unchanged from the prior year and acquisitions contributed additional revenues of
approximately C$1,800 year-over-year.
Revenues in our U.S. south segment grew by approximately $37,300, and this growth was largely attributable to volume improvements
year-to-year. We converted the improvement in volumes into additional revenues of approximately $27,200 and this improvement was due in
part to our collection service lines, most of which was attributable to an improvement in residential collection revenues. New residential
contract wins in Louisiana and Texas were the primary contributors to this growth. Our post-collection services generated the bulk of our
revenue improvement. Our Texas based landfills performed well and their stronger performance reflects an increase in special waste volumes
and a stronger economic and operating environment between years. Commencing operations, in the second quarter of 2013, at our Jefferson
Parish landfill in Louisiana also contributed to the landfill volume improvements on a comparative basis. The improvement in our MRF and
transfer station performance compared to last year, is largely attributable to our operations in Florida, which delivered the most significant
improvement on the back of contract wins and strategic operational improvements. An improvement in commodity pricing generated about
$700 of additional revenues while the late year acquisition of a Texas based waste company was the primary contributor to revenue growth
from acquisitions of approximately $2,400. Falling fuel prices, most notably in the fourth quarter of 2014, was the reason for the approximately
$1,200 decline in revenues from lower fuel surcharges.
Revenues in our U.S. northeast segment were down approximately $31,000 between years. Of this decline, approximately $15,300 is
attributable to this segment’s first quarter performance, reflecting the impact of Sandy and harsh winter weather. Sandy was a drag of about
$8,000 on comparative revenues and first quarter weather impacted revenues by about $3,300 as well. Landfill and transfer station revenues
were hardest hit by weather and represented approximately $2,400 of the first quarter decline in revenues. The balance of the year reflects our
strategic effort to eliminate less profitable business, coupled with the sale of certain assets in both the current and prior years. Partially
offsetting these impacts was improved pricing across all of this segment’s service lines. Year-over-year, total price improvements in this
segment were approximately $13,500, with approximately $12,200 coming from higher commercial pricing. This segment’s negative
contribution to revenues from acquisitions reflects the divestiture of select assets in Long Island, New York, which we completed in the prior
year, and the disposal of a transfer station in the current year, and together were responsible for an approximately $6,200 decline in
comparative revenues. Commodity pricing lagged last year’s level by about $3,000, while fuel surcharges were down slightly, but little
changed year-over-year.
8
Please refer to the Outlook section of this MD&A for additional discussion of the economic trends affecting revenues, our strategy and our
operations.
Operating expenses
Year ended
December 31
2013
2014
Change
Operating expenses
$
1,246,175
$
1,249,252
$
(3,077 )
Canada
U.S. south
U.S. northeast
$
$
$
418,028
584,325
243,822
$
$
$
427,106
554,205
267,941
$
$
$
(9,078 )
30,120
(24,119 )
Year ended
On a consolidated basis, operating expenses, as reported, declined approximately $3,100, but net of FX increased by approximately $27,200.
Operating costs in our U.S. south segment increased approximately $30,100 year-over-year, and our Canadian segment realized an increase in
operating costs, net of FX, of about $21,200. Our U.S. northeast segment recorded operating expenses in the current year that were
approximately $24,100 lower than the amount posted last year. On a consolidated basis, and excluding the impact of FX, operating costs
increased with the rise in revenues. However, the mix of revenues changed our operating cost profile relative to revenues year-over-year.
Disposal and transportation costs were approximately $6,200 higher. Canada’s contribution to this increase was approximately $9,300 and
largely attributable to the Calgary closure. Transportation costs to move waste to our Coronation landfill once destined for our Calgary site was
the primary reason for this increase. Our U.S. south segment delivered an increase of approximately $12,800 on the same operating measures,
and this increase reflects organic business growth, higher pricing for disposal and transportation services, coupled with a late year acquisition
of a commercial collection company in Texas. We also incurred higher transportation costs in the current year to internalize volumes into our
JED landfill. Our U.S. northeast region incurred lower disposal and transportation expense of approximately $15,900, which partially offset the
increases in Canada and the U.S. south. This decline reflects our strategic direction in this market, which focused on the elimination of
unprofitable business and the monetization of unprofitable assets to increase returns. Royalty and franchise fees also increased on a
consolidated basis, up approximately $1,200 between years. Higher net volumes on royalty paying landfills in our Canadian and U.S. south
segment increased royalty costs by about $2,300 on an FX adjusted basis. Lower volumes received at our Seneca Meadows landfill led royalty
and franchise expense lower in our U.S. northeast segment. Labour, repair and maintenance and insurance claims costs increased
approximately $8,100, $5,400 and $6,600 between years, respectively. The increase in labour expense is largely attributable to our U.S. south
segment, which increased about $7,300. This increase reflects organic and acquisition growth year-over-year. In addition, the mix of revenue
between years also played a part in this segment’s increasing labour costs. Higher transfer station revenues, which represent a lower margin
labour intensive service line, increased disproportionally and also contributed to the increase in labour costs. Our Canadian segment posted an
FX adjusted increase of approximately $5,600 in this expense line, reflecting organic growth and the between year change in revenue mix.
Labour costs in our U.S. northeast segment declined for the same reasons that disposal and transportation costs did, which is outlined above.
Higher repair and maintenance costs are due to the change in revenue mix between years, lower replacement vehicles received in the year and
also the late receipt of vehicles this year. The lower number of replacement vehicles received in the year is in line with our strategy to
maximize our return on our existing assets, however their late arrival was not in our plans for the year. Finally, the increase in insurance and
claims related costs reflects an increase in the severity of accidents we had in the current year and the development of claims from accidents
that occurred in prior years. These increases were most pronounced in our U.S. south and Canadian segments.
From a segment perspective, operating costs in Canada declined on a reported basis, but were up on an FX adjusted basis by approximately
$21,200. As noted above, the increase in Canada’s operating costs reflects the closure of the Calgary landfill, which translated to higher
transportation costs totaling approximately $9,300, higher royalty fees of approximately $1,100 on higher volumes into our Ridge landfill,
higher labour and repair and maintenance costs totaling $5,600 reflecting organic growth, revenue mix and lower replacement vehicles and
their late arrival, and higher insurance costs resulting from more severe accidents and higher premiums, approximately $1,000. Vehicle
operating costs were also higher year-over-year by approximately $1,000, on an FX adjusted basis, which is largely a reflection of costs
incurred for the rental of certain equipment used to develop landfill capacity at our Coronation site. From the perspective of operating margins,
our Canadian margins declined between years. The principal reasons for the decline were the Calgary closure and revenue mix, which together
were the primary contributors to the approximately 50 basis points decline year-to-year. In addition, the increase in
9
insurance and claims costs increased disproportionately to the rise in revenues, lowering Canadian margins by 10 basis points on a comparative
basis.
Operating costs in our U.S. south segment increased approximately $30,100 year-over-year. This increase is due principally to organic revenue
growth, and to a lesser extent acquisition growth, leading to a like rise in disposal and transportation costs, labour, vehicle repair and
maintenance and insurance and claims costs. These increases totaled approximately $12,800, $7,300, $3,800 and $4,100, respectively, and the
principal reasons for these increases are outlined above in the consolidated discussion. Discussed above, franchise and royalty fees increased
approximately $1,200 between years. An improvement in volumes received at our Texas based landfills, reflecting an increase in special waste
volumes and a stronger economic and operating environment between years, was the primary contributor to the year-over-year increase in
landfill operating costs of approximately $1,100. Commencing operations at our Jefferson Parish landfill in Louisiana in the second quarter of
2013 also contributed to higher operating costs at our landfills comparatively. The balance of the increase is a reflection of this segment’s
organic and acquisition growth, which led to increases in container maintenance costs, subcontract costs and other operating costs. These
increases were partially offset by lower vehicle operating costs, reflecting lower fuel prices year-over-year, most notably in the final quarter of
the year, coupled with our continued conversion of vehicles from diesel to CNG. Operating margins declined year-over-year by about 70 basis
points. The increase in transportation costs relative to revenues increased approximately 60 basis points. This increase reflects new contract
wins, higher transfer station volumes (revenue mix), partially offset by lower transportation costs to move volumes into our JED and SLD
landfills due to the receipt of lower special waste volumes. Repairs and maintenance and higher insurance claims costs also put pressure on
margins this year compared to last, partially offset by lower fuel costs. Lower fuel costs reflect the lower cost of fuel year-over-year, but also
the benefit of the U.S. Department of Energy’s alternative fuel tax credit for CNG fuels consumed in the operation of these vehicles.
Our U.S. northeast segment posted a decline in operating costs of approximately $24,100 between years. As outlined above, this decline is due
to lower transportation and disposal costs, approximately $15,900 and lower labour and vehicle repair and maintenance costs, approximately
$5,500 combined. The decline in transportation costs reflects the transport of lower waste volumes to our Seneca Meadows landfill and the sale
of a transfer station in this segment as well. Lower disposal, labour and vehicle repair and maintenance costs are due to certain asset sales and
strategically eliminating certain unprofitable business. Operating costs were also lower this year, due to the decline in costs incurred to process
Sandy volumes in the first quarter of 2013. Royalty fees were also off the prior year mark by about $1,000, which reflects lower volumes into
Seneca and is partly attributable to Sandy, weather and the competitive landscape for volumes in this region. Operating costs were simply
lower than prior year amounts as a result of our strategic focus in this segment. Operating margins in this segment expanded approximately 60
basis points year-to-year. The primary benefit came from lower transportation and disposal costs, approximately 160 basis points, and the
reasons for this change are addressed above. Relative to revenues, labour, vehicle repair and maintenance, vehicle operating costs and
insurance claims costs all increased between years, partially offsetting the benefit from lower transportation and disposal costs. The principal
reasons for these increases reflect the change in revenue mix, and more importantly, the increase in MRF and transfer station volume this year,
which is lower margin business.
Selling, general and administration (“SG&A”)
Year ended
December 31
2013
2014
Change
Total
$
254,023
$
255,173
$
(1,150 )
Canada
U.S. south
U.S. northeast
Corporate
$
$
$
$
66,525
89,313
34,172
64,013
$
$
$
$
71,457
86,687
35,870
61,159
$
$
$
$
(4,932 )
2,626
(1,698 )
2,854
Year ended
On a consolidated basis, SG&A expense declined approximately $1,200 year-over-year, but increased about $7,000 when expressed net of FX.
The primary reasons for the increase include lower transaction and related recoveries, higher fair value movements in stock options, higher
restricted share (“RSU”) expense and higher non-operating or non-recurring expenses. On an FX adjusted basis, we recorded lower transaction
and related recoveries this year compared to last. Two acquisitions completed late this year is the primary reason for the approximately $1,900
increase in transaction costs and resulting decline in recoveries between years. On an FX adjusted basis, fair value movements in stock options
accounted for about $4,500 of the year-over-year increase and RSU expense for awards issued outside of our bonus compensation plans
increased approximately $300 between years. The increase in our Company’s share price, which increased sharply in the fourth quarter
10
of the current year, was the primary contributor to the year-to-year increase in the fair value of stock options. Higher RSU expense reflects
awards issued to certain new hires in connection with changes to our management team. On an FX adjusted basis, professional fees were higher
than the prior mark, reflecting higher strategy related fees and legal fees incurred on the New York City long-term plan, coupled with an
increase in legal and consulting costs incurred in respect of our enterprise resource planning (“ERP”) conversion. Partially offsetting these
increases were lower salary expenses. The decline in salaries, while not significant in total, reflects a variety of changes between years,
including an approximately $11,200 recovery of compensation costs in the current year compared to $2,800 last year. The increase in
compensation cost recoveries reflects not only the performance we had in the current year, but also the performance we had over the 2012 to
2014 period with respect to our long-term incentive plan (“LTIP”). These cost recoveries were partially offset by higher salaries in our U.S.
south segment due in large part to organic and acquisition growth. In addition, these recoveries were partially offset by the change we made in
2012 to certain compensation plans that introduced the concept of three year vesting. This change allowed us to recognize one-third of the
expense related to the 2012 plan year in each of 2012, 2013 and 2014. Accordingly, we are recognizing compensation expense in 2014 for each
plan year between 2012 and 2014, compared to 2013 when we only recognized compensation expense for the 2012 and 2013 plan years.
From a segment perspective, higher SG&A expense in our U.S. south segment reflects organic and acquisition growth and structural changes to
our internal management structure, partially offset by lower bonus compensation charges between years. Lower SG&A expense in our U.S.
northeast segment reflects our strategy to eliminate less profitable customers, coupled with the monetization of underperforming assets.
Organic growth in Canada is the primary reason for this segment’s change in SG&A expense, net of FX. The balance of the change reflects
changes at the corporate level, each of which is outlined above.
Adjusted SG&A expense was 11.9% for 2014 and 12.1% for 2013 as a percentage of revenue. Lower bonus compensation expense, net of
organic and acquisition growth salary increases, was the primary contributor to the year-over-year decline.
Amortization
Year ended
December 31
2013
2014
Change
Total
$
285,605
$
296,491
$
(10,886 )
Canada
U.S. south
U.S. northeast
Corporate
$
$
$
$
103,735
125,814
54,134
1,922
$
$
$
$
109,020
123,598
60,470
3,403
$
$
$
$
(5,285 )
2,216
(6,336 )
(1,481 )
Year ended
On a consolidated basis, amortization expense declined approximately $10,900. Net of FX, the decline was about $3,300. This decline is
largely the result of lower amortization expense for intangible assets, which were down about $6,500 between years. Lower landfill
amortization expense also contributed to the decline by approximately $4,500. The remainder of the change is due to a slight increase in capital
asset amortization. Each of these amounts include the impact of FX. When FX is excluded, the year-over-year change in intangible asset
amortization is lower by approximately $5,400 on a comparative basis. The decline in intangible amortization is due in large part to the
approximately $4,100 charge recorded in the prior year for the revocation of a transfer station operating permit in Canada that we acquired in
2010. The permit was revoked last year due to our construction of a new facility which rendered the permit redundant at that time. Partially
offsetting this decline was higher amortization expense attributable to the acquisition of the remaining fifty percent interest in our equity
accounted investee. In our U.S. northeast segment, intangible asset amortization increased between years due in part to the impairment loss
recognized in the current year on certain customer lists we acquired at the end of 2012. This increase was partially offset by lower intangible
asset amortization attributable to the sale of certain assets in the current year, coupled with the classification of our Long Island, New York
assets as held for sale. Assets are not amortized while classified as held for sale. The decline in intangible assets in our U.S. south segment
reflects certain intangible assets being amortized in full. Amortization expense for landfill assets declined year-over-year. Net of FX, the
between year decline was approximately $2,400 and due in large part to revisions to estimated cash flows attributable to our landfill closure
and post-closure obligations. In the current year, this revision reflected a decline to landfill amortization expense of approximately $1,500
compared to an expense of approximately $500 last year. From a segment perspective, and excluding the impact of the cash flow revision in
estimate, stronger overall landfill volumes in our U.S. south segment, coupled with the full year operation of our Jefferson Parish landfill,
11
drove landfill amortization higher by approximately $3,000. The overall decline in volumes in our U.S. northeast segment, most notably into
Seneca as a result of the comp created from our receipt of Sandy volumes last year, coupled with harsh first quarter weather this year and
heightened competition in this market for volumes, led to a comparative decline in landfill amortization expense of approximately $4,400. On
an FX adjusted basis, amortization expense for our Canadian landfills increased approximately $700 between years, including the revision to
estimated cash flows attributable to our landfill closure and post-closure obligations.. The increase was attributable to higher comparative
volumes received at our Ridge and Coronation landfills, partially offset by a decline in landfill volumes due to the Calgary closure. On a
reported basis, amortization expense attributable to capital assets was little changed year-over-year. On an FX adjusted basis however, capital
asset amortization increased approximately $4,600 between years. The single largest contribution to the increase occurred in the Canadian
segment as a result of an approximately $4,100 charge recorded in the fourth quarter this year for an impaired sorting and recycling asset. The
Canadian segment further contributed to the year-to-year increase due to higher amortization expense resulting from a larger fleet of CNG
vehicles. Our U.S. segments contributed to the change as expected. Amortization expense in our U.S. northeast segment was lower
comparatively, reflecting the sale of certain assets in the current and prior years, holding certain assets for sale and executing on our strategy to
eliminate less profitable business. Capital asset amortization in the U.S. south was higher on account of strong organic and acquisition growth,
but also due to the increasing size of our CNG vehicle fleet in this region.
As a percentage of reported revenues, amortization expense declined to 14.2% in the current year, which compares to 14.6% last year. On an
FX adjusted basis, lower intangible asset amortization represents 30 basis points of the decline year-to-year. The between year change in
landfill asset amortization expense is largely due to the change in our cash flow revision in estimate, and represents 10 basis points of the
decline between years.
Net gain on sale of capital and landfill assets
Year ended
December 31
2013
2014
Change
Total
$
(17,905 )
$
(7,793 )
$
(10,112 )
Canada
U.S.
Corporate
$
$
$
(13,718 )
(4,187 )
—
$
$
$
(3,843 )
(3,950 )
—
$
$
$
(9,875 )
(237 )
—
Year ended
We recognized higher gains on the disposal of capital and landfill assets due to the current year sale of select buffer lands surrounding our
Calgary landfill, coupled with the sale of a transfer station in our U.S. northeast segment. These gains were partially offset by the first quarter,
current year loss we recorded on the termination of an operating contract we had for the Tensas Parish landfill in Louisiana. When we ceased
operating this site we recorded a net loss on exit of approximately $3,700. The prior year gain is the result of select asset sales in Long Island,
New York and the sale of a redundant operating facility in central Canada. The balance of the year-to-date change reflects the disposal of a
redundant operating assets in Canada and the U.S., including containers and vehicles, and the disposal of these assets are neither significant
individually nor in aggregate.
Interest on long-term debt
Year ended
December 31
2013
2014
Total
$
61,917
$
60,754
Change
$
1,163
Year ended
Higher interest expense is largely attributable to a series of interest rate swaps we entered into between August 2013 and July 2014 on notional
borrowings of approximately $825,000. These interest rate swaps increased interest expense by approximately $11,600 year-over-year.
Re-pricing our consolidated facility in November last year saved us about $5,400 in interest charged between years. The re-pricing lowered our
credit charge on term B borrowings by 50 basis points and lowered the interest charge on revolver drawings by 25 basis points. The balance of
the change, approximately $4,500, is due to FX.
12
Please refer to the Liquidity and Capital Resources section of this MD&A for additional details regarding our debt facilities.
Net foreign exchange gain
Year ended
December 31
2013
2014
Total
$
(150 )
$
(1,061 )
Change
$
911
Year ended
Foreign exchange gains or losses are typically incurred on the settlement of transactions conducted in a currency that is other than our Canadian
and U.S. businesses functional currency. The year-to-year decline in net foreign currency exchange gains reflects events occurring in the prior
year. In the prior year, we cash settled all intercompany balances existing between the U.S. and Canada. This settlement resulted in us
recognizing a FX loss of approximately $1,500. We settled these amounts to comply with the upstream loan rules outlined in Bill C-48 issued
by the Minister of Finance Canada. We also entered into a foreign currency exchange agreement in the second quarter of 2013 to hedge against
further tax gains or losses resulting from the implementation of our long-term financing structure between Progressive Waste Solutions Ltd.
and its primary operating subsidiaries. We recorded a gain last year of approximately $2,900 as a result of this transaction.
All other gains and losses are not attributable to one significant transaction or series of transactions in either year.
Net loss (gain) on financial instruments
Year ended
December 31
2013
2014
Total
$
24,214
$
(4,282 )
Change
$
28,496
Year ended
Higher current year losses reflect the change in the fair value of interest rate swaps this year compared to last. In the prior year, we recorded a
gain on these swaps totaling approximately $3,300, compared to a loss this year of approximately $18,200. This change represents about
$21,500 of the approximately $28,500 increase in financial instrument losses and reflects changes in interest rates and the notional amounts of
debt we have hedged year-to-year. Fair value changes in fuel hedges represent the next largest contributor to the rise in losses between years. In
the prior year, we recognized a gain on fuel hedges amounting to approximately $1,700. In the current year, we recorded an expense of
approximately $6,900. The recent decline in WTI crude pricing, and the diesel fuel index, has resulted in our fuel hedges having a transaction
price that is higher than the price we could hedge fuel today based on current market pricing. In the prior year, we recognized an expense
specific to a wood waste supply agreement. The contractual agreement that gave rise to this financial instrument was amended in the current
year and allowed us to de-recognize the wood waste supply agreement as an embedded derivative financial instrument. Accordingly, the
approximately $800 expense we recorded in the prior year compares to an approximately $800 gain recorded in the current year. Gains or
losses recognized on funded landfill post-closure costs and foreign currency exchange agreements had little impact on net gains or losses on
financial instruments between years.
Loss on extinguishment of debt
Year ended
December 31
2013
2014
Total
$
—
$
1,240
Change
$
(1,240 )
Year ended
On October 1, 2013, we repaid the Seneca variable rate demand solid waste disposal revenue bond (“IRB”) in full with amounts borrowed on
our consolidated facility. In connection with the repayment, we wrote-off approximately $1,200 of deferred financing costs. No debt
extinguishment charges were incurred in the current year.
13
Re-measurement gain on previously held equity investment
Year ended
December 31
2013
2014
Total
$
(5,156 )
Change
—
$
$
(5,156 )
Year ended
On January 31, 2014, we purchased the remaining fifty percent interest in our equity accounted investee. As a result, we re-measured our
original investment in our equity accounted investee at the acquisition date fair value and recorded a non-cash gain of approximately $5,200.
Net income tax expense
Year ended
December 31
2013
2014
Total
$
33,676
$
58,443
Change
$
(24,767 )
Year ended
Income tax expense was approximately $24,800 lower in the current year compared to last. On a consolidated basis, income before income tax
expense and net loss (income) from equity accounted investee, collectively income before tax, was lower in the current year by approximately
$16,000. Applying the combined income tax rate to the decline in income before tax, accounts for approximately $7,000 of the decline in
income tax expense year-over-year. In addition, the long-term financing structure we implemented in 2013 lowered our consolidated income
tax expense by about $11,700 year-over-year. Income tax expense as a percentage of income before tax was about 21.0% in 2014. Had our
long-term financing structure not been in place in 2014, this percentage would have been about 35.6%. Non-taxable income attributable to the
sale of certain buffer lands adjacent to our Calgary landfill and the re-measurement gain recorded on the purchase of the remaining fifty percent
interest in our equity accounted investee, also contributed to the decline in income tax expense by about $2,700 year-over-year. Higher
withholding taxes incurred on dividends paid by our U.S. operations to its Canadian parent in support of share repurchases in the current year
partially offset the declines noted above. Finally, state taxes borne by our U.S. operations were also higher in the current year compared to last,
by about $1,000, representing the mix of growth in our business between years.
Please refer to the Outlook section of this MD&A for additional discussion about our income taxes.
Net loss (income) from equity accounted investee
Year ended
December 31
2013
2014
Total
$
82
$
(148 )
Change
$
230
Year ended
Net loss or income from our equity accounted investee represents our pro rata share of the investee’s post-acquisition earnings, computed
applying the consolidation method. The current year loss reflects our share of loss to January 31, 2014, which is the date we acquired the
remaining fifty percent interest in our equity accounted investee. Income of the prior year was attributable to the buyout of several equipment
rental agreements.
Please refer to the Related Party Transactions section of this MD&A for additional details regarding our previously held investment in our
equity accounted investee.
14
Review of Operations - For the three months ended December 31, 2014
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Three months ended December 31, 2014
U.S. south
U.S. northeast
Corporate
Canada
Revenues
Operating expenses
SG&A
Amortization
Net gain on sale of capital assets
Operating income (loss)
Interest on long-term debt
Net foreign exchange loss
Net loss on financial instruments
Income before net income tax expense
Net income tax expense
Net income
$
186,867
101,596
15,919
28,812
$
231,247
147,945
22,144
30,638
40,540
30,520
86,455
58,609
7,673
14,189
$
5,984
—
—
20,711
434
$
(21,145 )
$
Three months ended December 31, 2013
U.S. south
U.S. northeast
Corporate
Canada
Revenues
Operating expenses
SG&A
Amortization
Net gain on sale of capital assets
Operating income (loss)
Interest on long-term debt
Net foreign exchange loss
Net gain on financial instruments
Loss on extinguishment of debt
Income before net income tax expense and net
income from equity accounted investee
Net income tax expense
Net income from equity accounted investee
Net income
$
Total
$
192,075
107,347
17,651
25,858
$
41,219
220,896
140,885
21,128
31,056
27,827
$
89,036
61,961
9,545
14,882
2,648
$
—
—
12,347
1,583
Total
$
(13,930 )
$
15
504,569
308,150
66,447
74,073
(306 )
56,205
15,483
19
16,419
24,284
5,353
18,931
502,007
310,193
60,671
73,379
(566 )
58,330
15,482
419
(5,819 )
1,240
47,008
10,983
(217 )
36,242
FX Impact on Consolidated Quarterly Results
The following table has been prepared to assist readers in assessing the impact of FX on selected results for the three months ended
December 31, 2014.
December 31,
2013
December 31,
2014
(organic,
acquisition and
other nonoperating
changes)
(as reported)
Consolidated Statement of Operations
Revenues
Operating expenses
Selling, general and administration
Amortization
Net gain on sale of capital and landfill assets
Operating income
Interest on long-term debt
Net foreign exchange loss
Net (gain) loss on financial instruments
Loss on extinguishment of debt
Income before net income tax expense and
net income from equity accounted investee
Net income tax expense
Net income from equity accounted investee
Net income
Adjusted EBITDA (A)
Adjusted EBITA (A)
Adjusted operating income or adjusted
operating EBIT (A)
Adjusted net income (A)
Free cash flow (B)
$
$
502,007
310,193
60,671
73,379
(566 )
58,330
15,482
419
(5,819 )
1,240
47,008
10,983
(217 )
36,242
$
Three months ended
December 31,
2014
(holding FX
constant with
the
comparative
period)
17,889
6,329
8,309
3,041
214
(4 )
1,301
(399 )
23,227
(1,240 )
$
(22,893 )
(5,156 )
217
(17,954 )
$
519,896
316,522
68,980
76,420
(352 )
58,326
16,783
20
17,408
—
$
24,115
5,827
—
18,288
December 31,
2014
December 31,
2014
(FX impact)
(as reported)
$
(15,327 )
(8,372 )
(2,533 )
(2,347 )
46
(2,121 )
(1,300 )
(1 )
(989 )
—
$
504,569
308,150
66,447
74,073
(306 )
56,205
15,483
19
16,419
—
$
169
(474 )
—
643
$
24,284
5,353
—
18,931
$
$
131,927
72,594
$
$
11,888
10,053
$
$
143,815
82,647
$
$
(5,031 )
(2,967 )
$
$
138,784
79,680
$
$
$
59,114
33,417
57,699
$
$
$
16,453
7,311
(2,261 )
$
$
$
75,567
40,728
55,438
$
$
$
(3,021 )
(871 )
(1,717 )
$
$
$
72,546
39,857
53,721
Revenues
Gross revenue by service type
Three months ended December 31, 2014
Canada Canada stated in
percentage
thousands of
of
C$
revenues
U.S.
Commercial
Industrial
Residential
Transfer and
disposal
Recycling
Other
Gross revenues
Intercompany
Revenues
$
$
Three months ended December 31, 2013
Canada Canada stated in
percentage
thousands of
of
C$
revenues
U.S.
U.S. percentage
of
revenues
80,422
37,987
37,945
39.9
18.8
18.8
35.3
2.5
1.7
113.9
64,919
8,175
5,379
234,827
32.2
4.1
2.7
116.5
(13.9 )
100.0 $
(33,176 )
201,651
(16.5 )
(45,312 )
100.0 $ 309,932
85,634
40,612
36,934
40.4
19.1
17.4
$ 100,833
53,731
82,045
31.7
16.9
25.8
66,626
7,474
8,482
245,762
31.4
3.5
4.0
115.8
112,000
8,094
5,463
362,166
(33,550 )
212,212
(15.8 )
(44,464 )
100.0 $ 317,702
16
$
$
U.S. percentage
of
revenues
97,546
52,987
80,607
31.5
17.1
26.0
111,061
8,458
4,585
355,244
35.8
2.7
1.5
114.6
(14.6 )
100.0
Revenue growth or decline components — expressed in percentages and excluding FX
Three months ended December 31, 2014
Canada
U.S.
Consolidated
Price
Price
Fuel surcharges
Recycling and other
Total price growth
Three months ended December 31, 2013
Canada
U.S.
Consolidated
3.0
0.1
(0.3 )
2.8
1.8
(0.2 )
(0.5 )
1.1
2.3
(0.1 )
(0.4 )
1.8
1.7
(0.1 )
1.1
2.7
1.6
(0.3 )
0.4
1.7
1.6
(0.2 )
0.7
2.1
Volume
Total organic revenue growth
2.2
5.0
1.2
2.3
1.6
3.4
(0.7 )
2.0
(1.4 )
0.3
(1.1 )
1.0
Net acquisitions
Total revenue growth
0.2
5.2
0.2
2.5
0.2
3.6
0.2
2.2
4.1
4.4
2.5
3.5
On a consolidated basis, revenues increased approximately $2,600, which includes the approximately $15,300 negative impact of FX. At FX
parity, revenues grew approximately $18,300. Canada’s contribution to this growth was approximately C$10,600, while our U.S. south
segment improved revenues by approximately $10,400. Revenues in our U.S. northeast segment declined between periods by about $2,600. On
a consolidated basis, stronger pricing across all service lines grew revenues by about $11,800 period-to-period. This pricing strength was most
pronounced in our commercial collection service line, which increased revenues by about $7,300. Our collection service lines, in aggregate,
delivered better pricing and in total generated additional revenues of approximately $10,100 comparatively. Landfill pricing contributed about
$1,300 to the increase in revenues, which was largely attributable to higher a gate rate at a landfill in western Canada and better pricing at
certain sites in our Texas based operations. Consolidated volumes were also stronger period-over-period, by approximately $8,000. Our post
collection service lines were the primary contributors to this growth, contributing additional revenues of approximately $7,300, between
periods, on stronger volumes. Natural gas revenue, from the start-up of a new gas plant at our Lachenaie landfill, was the single largest
contributor to this increase. Transfer station volumes also improved, due in part to a transfer station we opened in western Canada to collect
and direct waste to our Coronation landfill once destined for our Calgary site. Our transfer station operations in Florida also realized volume
improvements. On the acquisition front, we completed a late fourth quarter purchase of a collection operation in Texas. This purchase was the
primary contributor to the approximately $1,100 improvement from net acquisitions we realized on a consolidated basis. In total, fuel
surcharges were off the mark set in the same period last year on lower fuel costs and commodity prices were down by about $2,100 compared
to the same period last year.
Excluding the impact of FX, revenues in Canada grew approximately C$10,600 period-over-period. Higher pricing across all service lines
contributed about C$6,100 to this improvement. Stronger commercial and industrial pricing accounted for approximately C$4,800 of the price
improvement and stronger landfill pricing at one of our landfills in western Canada also contributed to higher revenues from price. Canadian
revenues also improved on stronger volumes. As noted above, natural gas revenues from the start-up of a new gas plant at our Lachenaie
landfill and higher transfer station volumes were the primary contributors to this improvement. Revenues from landfill volumes were lower
than prior period levels due in large part to lower soil volumes received at our Lachenaie site. Acquisitions contributed to the revenue
improvement in Canada, reflecting the purchase of the remaining fifty percent interest in our equity accounted investee in the first quarter of
2014. Fuel surcharges were relatively flat period-over-period and lower commodity pricing was a negative to revenues by approximately
C$500.
Our U.S. south segment delivered another solid revenue performance increasing approximately $10,400 over the prior year period. Stronger
volumes in this segment contributed approximately $7,000 to the overall improvement and about $4,000 was attributable to our collection
service lines. Residential contract wins in Texas and Louisiana outpaced residential contract losses in our Florida operations, and in total
contributed to the net increase in revenues of approximately $1,800. Industrial volumes were also robust quarter-over-quarter, up about $1,400
comparatively. Stronger economic conditions in our Texas operations are the primary reason for the industrial volume improvement and higher
volumes in our commercial collection service line contributed to the revenue improvement as well. Volume improvements in our disposal
service lines combined to improve revenues by approximately $2,900. Similar to the third quarter this year, MRF and transfer station volumes
in our Florida operations delivered the most significant improvement on the back of contract wins and strategic operational improvements.
Landfill volumes were also improved and reflect higher volumes in many of our Texas based landfills. Lower volumes into our JED landfill in
Florida due to heightened competitive market conditions in this area partially offset this increase. Price improvements grew revenues by about
$2,700 over the same period last year. Pricing was strongest in our
17
commercial service line and was either up or flat across the remainder of our service offerings. We acquired a collection operation late in the
fourth quarter this year, and this acquisition contributed approximately $2,300 to the improvement in revenues between periods. Commodity
pricing and fuel surcharges were lower than the prior year period, reflecting the lower cost of fuel and changes in supply/demand conditions for
commodities.
Revenue performance in our U.S. northeast region was down about $2,600 period-to-period. Lower commercial and industrial volumes, due to
a measured and strategic effort to eliminate less profitable business, accounted for approximately $3,700 of the decline between periods. The
sale of a transfer station in the second quarter this year also contributed to the decline in revenues. The sale of this asset is consistent with our
strategy to monetize unproductive or unprofitable assets and increase our return on invested capital. Pricing was once again strong in our U.S.
northeast segment and increased about $3,000 over the prior period mark. Stronger commercial pricing increased comparative revenues by
approximately $2,300 and was the primary contributor to the price improvement period-to-period. Fuel surcharges were flat while commodity
pricing fell in this region by about $700 comparatively.
Operating expenses
On a consolidated basis, reported operating expenses declined period-over-period, but net of FX, operating expenses increased. The
approximately $6,300 increase, is largely attributable to higher transportation and disposal costs, higher franchise and royalty fees, higher
labour costs, higher vehicle repair and maintenance costs, higher insurance and claims costs, partially offset by lower vehicle operating costs.
Transportation and disposal costs increased approximately $2,100 on a comparative basis. Our U.S. south and Canadian segments recorded cost
increases of approximately $1,700 and $1,600, respectively, while our U.S. northeast segment recorded a decline of approximately $1,200. In
the U.S. south, the increase reflects organic and acquisition growth, and higher per ton disposal costs for waste materials disposed of. Revenue
growth in this segment, including improved transfer station volumes, was also a contributing factor to the increase in transportation and
disposal costs. The increase in transportation and disposal costs in our Canadian segment reflects higher volumes received at our transfer
station in Calgary, which services our Coronation landfill in western Canada. Organic growth and the mix of growth in Canada also contributed
to the rise in disposal and transportation costs beyond those related to the increase in volumes received in our western Canadian operations. The
U.S. northeast decline is the result of certain asset divestitures, lower volumes destined for our Seneca Meadows landfill, coupled with our
strategic elimination of less profitable business. The approximately $1,000 increase in franchise and royalty fees is attributable to our U.S.
south segment operations. A net increase in overall landfill tons received at royalty obligated landfills and a franchise audit fee for an operation
in Florida were the primary reasons for the increase. In total, labour costs increased period-over-period by approximately $2,400. The increase
in U.S. south segment labour costs was approximately $3,000, which was partially offset by declines in our U.S. northeast and Canadian
segments. Organic growth in our Texas and Louisiana operations, in particular, coupled with a late quarter acquisition of a collection company
in Texas, were the primary reasons for the increase. Labour in the U.S. northeast declined about $1,100 between periods, while Canadian
segment labour costs were basically unchanged quarter-to-quarter. The reasons for the U.S. northeast segment decline in labour costs are
consistent with those outlined above for the change in transportation and disposal costs between periods. Total repairs and maintenance costs
exceeded the prior period amount by about $1,900. Our U.S. south segment accounted for about $1,800 of the increase, while the change in our
Canadian and U.S. northeast segments almost cancelled each other out. A late current period acquisition and organic growth, coupled with
some unexpected major repairs in our U.S. south segment, were the primary reasons for the between period increase. Canadian segment repair
and maintenance costs were largely attributable to organic growth, while our U.S. northeast segment realized a period-over-period decline on
account of organic losses. The increase in insurance and claims costs was most prevalent in our U.S. south segment. Major claims reserves for
prior period accidents occurring in our Florida operations were the primary reason for the increase in our U.S. south segment. In the U.S.
northeast, claims costs in our New York City operations expanded beyond the prior period mark and our Canadian operations also experienced
an increase period-over-period. As noted above, vehicle operating costs declined quarter-to-quarter, largely due to the decline in the cost of fuel
and the continued roll out of CNG vehicles in our U.S. south and Canadian operations.
Consolidated operating costs as a percentage of revenue declined to 61.1% of revenues in the fourth quarter this year versus the 61.8% posted
in the same period last year. The most significant period-to-period improvement came from lower vehicle operating costs, which improved 90
basis points between periods. As noted above, lower fuel costs and the continued roll out of CNG vehicles are the primary reasons for this
improvement. We also realized lower labour costs, relative to revenues, and transportation and disposal costs as well. In aggregate, labour and
transportation and disposal improved 60 basis points quarter-over-quarter. Our Canadian and U.S. northeast segments delivered the largest
improvements, which is partly attributable to strong pricing improvements, coupled with disciplined and/or strategic cost control. These
improvements were partially offset by higher insurance and claims costs, which were up 50 basis points relative to revenues, and higher repair
and maintenance costs as well, which increased by 10 basis points.
18
SG&A
On a consolidated basis, SG&A expense increased quarter-to-quarter by about $5,800 or approximately $8,300 when FX is held constant. The
most significant period-to-period change is due to higher stock compensation expense, which increased about $7,000 on a comparative basis.
The fair value of stock option obligations increased reflecting the sharp rise in our share price in the fourth quarter this year. In addition, we
recorded less current quarter recoveries attributable to transaction and related costs. In the fourth quarter last year, we recorded transaction and
related recoveries attributable to certain acquisitions not meeting certain purchase and sale agreement conditions. In the current period, we
incurred transaction and related costs attributable to two acquisitions completed late in the quarter. Partially offsetting these increases were
lower current quarter non-operating or non-recurring costs. In the same quarter last year, we incurred higher severance and dismissal costs of
approximately $4,100 due to the retirement of certain senior level employees, including the Company’s Senior Vice President and Chief
Operating Officer, U.S., the Company’s President and Chief Operating Officer and the Company’s Vice President, Environmental Management
and Technology Group. These amounts were partially offset by approximately $1,700 of higher compensation costs attributable to the rise in
our share price this year that we recognized as a non-operating cost. The balance of the change is largely attributable to changes in our
operations period-to-period, reflecting our strategic direction in our U.S. northeast operations, partially offset by organic and acquisition
growth, most notably in our U.S. south segment.
From a segment perspective, the corporate component of our business was impacted by the above noted changes in transaction and related
costs, fair value movements in stock options, and non-operating and non-recurring expenses. The increase in our U.S. south segment SG&A
expense reflects the growth in the business from acquisitions and growth organically, while lower SG&A expense in our U.S. northeast
segment reflects our business strategy. The change in Canada is largely attributable to the change in FX.
As a percentage of revenues, adjusted SG&A expense is 11.4% versus 11.9% in the same quarter last year. The strategic direction taken for our
U.S. northeast operations was the primary contributor to the quarter-over-quarter reduction in SG&A expense relative to revenues.
Amortization
On a reported, and FX adjusted basis, consolidated amortization expense was higher than the same quarter a year ago. Excluding the impact of
FX, intangible asset amortization increased approximately $1,200. This increase was almost entirely attributable to our U.S. northeast segment
which increased approximately $1,300 period-to-period. An impairment loss of approximately $3,500 was recorded in the current period
reflecting a decline in value attributable to certain customer lists we acquired at the end of 2012. This increase was partially offset by lower
intangible asset amortization due to the sale of certain assets in the current year, coupled with the classification of certain assets in our Long
Island operations as held for sale. Held for sale assets are not amortized while classified as held for sale. Capital asset amortization was also
higher contributing approximately $3,900 to the between period change. This increase was due in large part to the approximately $4,100 charge
we recorded for an impaired sorting and recycling asset in our Canadian segment. The Canadian segment further contributed to the increase on
account of higher amortization expense resulting from a larger fleet of CNG vehicles. Amortization expense in our U.S. northeast segment was
lower comparatively, reflecting the sale of certain assets in the current and prior year, holding certain assets for sale and executing on our
strategy to eliminate less profitable business. Capital asset amortization in the U.S. south was higher, largely on account of strong organic and
acquisition growth, but also due to the increased size of our CNG vehicle fleet in this region. The between period increases outlined above were
partially offset by an approximately $2,100 decline in landfill amortization expense. The most significant reason for the change was due to
revisions to estimated cash flows attributable to our landfill closure and post-closure obligations we recorded this quarter compared to last. In
the current quarter, the cash flow revision in estimate represented a decline to landfill amortization expense of approximately $1,500 compared
to an expense of approximately $500 in the same period last year. In addition, we recorded a decline in landfill amortization expense in our
U.S. northeast segment due to lower volumes received at our Seneca landfill this quarter compared to last. Lower volumes into this site reflect
heightened competition in this market for volumes.
As a percentage of reported revenues, amortization expense increased slightly to 14.7% this quarter, compared to 14.6% in the same period last
year. On an FX adjusted basis, higher intangible asset amortization represents 20 basis points of the between period increase and is principally
due to the impairment charge we recorded on certain customer lists in our U.S. northeast segment. An additional 50 basis points of the increase
is due to higher amortization expense for capital assets, which as noted is largely the result of the impairment charge we recorded in our
Canadian segment this year. The balance of the period-over-period change is the result of lower landfill asset amortization expense attributable
to the change in revisions to estimated cash flows for our landfill closure and post-closure obligations.
19
Interest on long-term debt
On a reported basis, interest expense was unchanged period-to-period, largely because the between period increase was fully offset by FX. Net
of FX, interest expense in the current quarter was higher by approximately $1,300. As outlined in the full year discussion, higher interest
expense is largely attributable to a series of interest rate swaps entered into between August 2013 and July 2014 on notional borrowings of
approximately $825,000. These interest rate swaps led to an increase in interest expense of approximately $1,800 period-to-period. This
increase was partially offset by lower interest charges incurred as a result of the re-pricing we completed in November last year.
Explanations for the quarterly change in net gain on sale of capital assets, net foreign exchange loss, net (gain) loss on financial instruments,
loss on extinguishment of debt, net income tax expense and net income or loss from equity accounted investee is either consistent with the
changes outlined in the Review of Operations — For the year ended December 31, 2014 section of this MD&A or does not warrant additional
discussion.
Other Performance Measures - For the year ended December 31, 2014
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Free cash flow (B)
Purpose and objective
The purpose of presenting this non-GAAP measure is to provide readers with an additional measure of our value and liquidity. We use this
non-GAAP measure to assess our relative performance to our peers and to assess the availability of funds for growth investment, share
repurchases, debt repayment and dividend increases.
Free cash flow (B) - cash flow approach
Year ended
December 31
2013
2014
Cash generated from operating activities
$
Operating and investing
Stock option expense (*)
LTIP portion of restricted share expense
Acquisition and related cost recoveries
Non-operating or non- recurring expenses
Changes in non-cash working capital items
Capital and landfill asset purchases (*)(*)
Proceeds from the sale of capital and landfill assets
Financing
Purchase of restricted shares (*)
Net realized foreign exchange gain
Free cash flow (B)
$
399,726
$
450,735
Change
$
(51,009 )
9,695
(1,358 )
(591 )
4,067
20,677
(237,413 )
28,528
5,879
(862 )
(2,460 )
4,600
(11,530 )
(273,862 )
21,183
3,816
(496 )
1,869
(533 )
32,207
36,449
7,345
(2,095 )
(150 )
221,086
(1,591 )
(1,061 )
191,031
(504 )
911
30,055
$
$
Note:
(*) Amounts exclude LTIP compensation.
(*)(*) Capital and landfill asset purchases include infrastructure expenditures of approximately $14,300 and $38,600, for the years ended
December 31, 2014 and 2013, respectively.
20
Free cash flow (B) — adjusted EBITDA (A) approach
We typically calculate free cash flow (B) using an operations approach which reflects how we manage the business and our free cash flow (B) .
Year ended
December 31
2013
2014
Adjusted EBITDA (A)
Purchase of restricted shares (*)
Capital and landfill asset purchases (*)(*)
Proceeds from the sale of capital and landfill assets
Landfill closure and post-closure expenditures
Landfill closure and post-closure cost accretion expense
Interest on long-term debt
Non-cash interest expense
Current income tax expense
Free cash flow (B)
$
523,371
$
(2,095 )
(237,413 )
28,528
(4,696 )
6,132
(61,917 )
3,202
(34,026 )
221,086
$
530,775
$
(1,591 )
(273,862 )
21,183
(4,276 )
5,655
(60,754 )
3,436
(29,535 )
191,031
Change
$
(7,404 )
$
(504 )
36,449
7,345
(420 )
477
(1,163 )
(234 )
(4,491 )
30,055
Note:
(*) Amounts exclude LTIP compensation.
(*)(*) Capital and landfill asset purchases include infrastructure expenditures of approximately $14,300 and $38,600 for the years ended
December 31, 2014 and 2013, respectively.
Year ended
On a reported basis, free cash flow (B) eclipsed the mark set last year by approximately $30,100. Excluding FX, free cash flow (B) increased
approximately $34,600 year-over-year. Net of FX, lower capital and landfill asset purchases accounted for approximately $30,100 of the
improvement. Details of this change are outlined below in the Capital and landfill purchases section of this MD&A. Higher proceeds from the
sale of capital and landfill assets also contributed to the improvement year-to-year, which was up about $8,400 net of FX. Higher proceeds
recognized in the current year were directly attributable to monetizing redundant or underperforming assets. Current year proceeds include the
disposal of select buffer lands surrounding our Calgary landfill, coupled with the sale of a transfer station in our U.S. northeast segment.
Proceeds from these sales outpaced amounts we recognized last year from the sale of select assets in our Long Island, New York operations.
Adjusted EBITDA (A) , improved approximately $9,200 net of FX. These improvements to free cash flow (B) , were partially offset by higher
interest on long-term debt and higher current income tax expense, each of which increased approximately $5,600 and $6,600, net of FX,
respectively. A discussion of the comparative changes for each component of adjusted EBITDA (A) , the change in interest expense and current
income tax expense, are outlined in the Review of Operations section of this MD&A.
21
Capital and landfill purchases
Capital and landfill purchases characterized as replacement and growth expenditures are as follows:
Year ended
December 31
2013
2014
Replacement
Growth
Total
$
$
144,324
93,089
237,413
$
$
168,014
105,848
273,862
Change
$
$
(23,690 )
(12,759 )
(36,449 )
Capital and landfill purchases - replacement
Capital and landfill purchases characterized as “replacement” represent cash outlays to sustain current cash flows and are funded from free cash
flow (B) . Replacement expenditures include the replacement of existing capital assets and all construction spending at our landfills.
Year ended
On a reported basis, replacement spending was approximately $23,700 lower this year compared to last. Excluding the impact of FX,
replacement spending was lower by approximately $19,800. Of this decline, approximately $29,200 is attributable to lower spending in our
U.S. segments, partially offset by an increase in replacement expenditures in our Canadian segment of about $9,400. The principal reason for
the decline in U.S. segment spending reflects an elevated level of spend in 2013. In 2013, we renewed a residential collection contract in
Florida that required the purchase of new CNG vehicles as a condition of the awarded contract. Accordingly, we incurred approximately
$19,500 in replacement capital costs related to this contract alone. Cell development at our Jefferson Parish landfill was also higher in the prior
year due to construction costs incurred on the initial build out of the site. Construction costs incurred at our Seneca landfill in the current year
were also lower than the prior year due in part to the timing of spend. The balance of the change is largely attributable to the change in
non-cash working capital. At the end of this year, we had a significant amount of vehicles and equipment received that we had not yet paid for.
Payment for these assets is expected in the first quarter of 2015. From a Canadian perspective, higher replacement spending reflects the roll out
of CNG vehicles in central and eastern Canada to service certain residential collection contracts in these areas. These investments were
partially offset by lower spending on CNG vehicles rolled out in western Canada last year in support of a residential contract win that we
commenced servicing in 2013. Lower landfill construction costs were also a partial offset to the increase in replacement spending in Canada,
which is largely attributable to the timing of spend, coupled with a slightly higher working capital adjustment in the current year compared to
last.
Capital and landfill purchases - growth
Capital and landfill purchases characterized as “growth” represent cash outlays to generate new or future cash flows and are generally funded
from free cash flow (B) . Growth expenditures include capital assets, including facilities (new or expansion), to support new contract wins and
organic business growth.
Year ended
Growth expenditures on a reported basis, declined approximately $12,800. Net of FX, growth expenditures fell about $10,300 year-over-year.
This decline comprises lower growth spending in our Canadian segment of about $32,600, partially offset by an increase in U.S. segment
growth spending of approximately $22,300. The decline in Canadian segment spending this year was largely due to an elevated spend level last
year. In 2013, we rolled out a CNG vehicle fleet in central Canada to service a new residential contract award that we commenced servicing in
April 2013, approximately C$20,000. We also incurred higher expenditures in the prior year on account of infrastructure spending at our
Lachenaie landfill for the construction of a natural gas power plant, approximately C$10,800. The increase in growth expenditures in our U.S.
operations reflects an investment in CNG vehicles and containers for contract wins in our Texas and Florida operations totaling approximately
$12,600. In addition, growth spending for vehicles and containers to service a new contract win in our Louisiana operation totaled
approximately $9,200. Combined, higher growth spending in our U.S. business was to meet the demands of organic growth in our south
segment.
Readers are reminded that revenue, adjusted EBITDA (A) , and cash flow contributions realized from growth and internal infrastructure
expenditures will materialize over future periods.
22
Dividends
(all amounts are in Canadian dollars)
2015
Our expected dividend record and payment dates, and payment amounts per share, are as follows:
Expected quarterly dividend
Expected record date
March 31, 2015
June 30, 2015
September 30, 2015
December 31, 2015
Total
Dividend
amounts per
share - stated in
C$
Expected payment date
April 15, 2015
July 15, 2015
October 15, 2015
January 15, 2016
$
0.16
0.16
0.16
0.16
0.64
$
2014
Our dividend record and payment dates, and payment amounts per share, were as follows:
Actual quarterly dividend
Actual record date
March 31, 2014
June 30, 2014
September 30, 2014
December 31, 2014
Total
Dividend
amounts per
share - stated in
C$
Actual payment date
April 15, 2014
July 15, 2014
October 15, 2014
January 15, 2015
$
0.15
0.15
0.16
0.16
0.62
$
We expect to fund all of our 2015 dividend payments from excess free cash flow (B) generated by our Canadian business. Funding all
dividends from Canadian cash flows eliminates our foreign currency exchange exposure since our dividends are denominated in Canadian
dollars. Dividends are designated as eligible dividends for the purposes of the Income Tax Act (Canada).
Selected Annual Information
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Year ended
December 31
2013
2014
Revenues
Net income
Net income per share, basic
Net income per share, diluted
Total assets
Total long-term liabilities
Dividends declared, per weighted average share
$
$
$
$
$
$
$
23
2,008,997
126,516
1.10
1.10
3,376,436
1,817,209
0.62
$
$
$
$
$
$
$
2,026,039
117,970
1.02
1.02
3,392,570
1,801,041
0.58
2012
$
$
$
$
$
$
$
1,896,741
94,357
0.81
0.81
3,475,561
1,895,612
0.56
Revenues
2014-2013
The increase in revenues is detailed in the Review of Operations — Revenues section of this MD&A.
2013-2012
Revenues in Canada grew approximately C$15,900. Acquisitions and stronger core pricing, across all service lines, fuelled the improvement in
revenues. In total, Canadian residential collection and landfill volumes were significantly lower year-to-year. Lost contracts and the Calgary
closure were the principal reasons for this decline. When we compare our volume performance between years and exclude the impact of the
contract losses and the Calgary closure in this comparison, Canadian segment revenues improved approximately 0.8%. We achieved this result
despite the receipt of lower volumes at our Ridge landfill due to lower special waste volumes, inclement weather and the stepped up demand
for volumes in the state of Michigan. Industrial volume improvements were strong year-to-year, especially in western Canada where economic
strength was higher than the national average. We also realized industrial volume improvement in central Canada in connection with the
opening of our new C&D waste reduction facility. Both fuel surcharges and commodity pricing had little impact on revenues comparatively.
Our U.S. south segment performed well and delivered revenue growth from acquisitions, core price and volume improvements in almost every
service line. The most significant contribution to this segment’s revenue growth was acquisitions, approximately $61,700. Notwithstanding,
volume growth was also significant, advancing revenues by approximately $26,200 year-to-year. Higher industrial and commercial volumes,
most notably in our Texas operations, were a significant component of this segment’s growth. The nature of the economic environment in the
Texas region was strong. Revenues also improved on stronger landfill volumes, which were due in part to the Jefferson Parish landfill we
commenced operating in 2013, and stronger municipal solid and special waste volumes received across many of our landfills, including our
JED landfill in Florida. The combination of slightly lower fuel surcharges and higher commodity pricing led to improved revenues as well.
Revenues in our U.S. northeast segment increased approximately $40,500. Acquisitions, core price and volume growth all contributed to higher
revenues between years. While revenue growth came principally from acquisitions, we also realized core pricing growth in all service lines,
with the exception of landfills where pricing was essentially flat. Higher commercial and industrial collection pricing and higher transfer station
pricing were the primary contributors to the improvement in core price growth year-over-year. Volume gains were the result of higher transfer
station volumes as well as higher industrial and residential collection volume improvements. Lower comparative MRF volumes related to the
closure of a facility in the fourth quarter of 2012 due to Sandy which rendered the facility unusable. Total landfill volumes were lower than the
comparative year due in large part to our management of tons received at our Bethlehem landfill, where we were strategically managing
volumes in conjunction with a permitting process. In addition, the sale of select assets in Long Island, New York in the second quarter of 2013
also had a negative impact on comparable volume improvements between years. Finally, our termination of less profitable business in 2013
also resulted in lower volumes, however, our execution of effective pricing strategies more than offset the impact to revenues from terminating
less profitable business in the year. The net impact of fuel surcharges and commodity prices was essentially nil.
Net income
Included in net income are some or all of the following: restructuring expenses, amortization, net gain or loss on sale of capital assets, interest
on long-term debt, net foreign exchange gain or loss, net gain or loss on financial instruments, loss on extinguishment of debt, re-measurement
gain on previously held equity investment, other expense, net income tax expense or recovery and net income or loss from equity accounted for
investee.
2014-2013
The increase in net income is detailed in the Review of Operations section of this MD&A.
2013-2012
Net income was higher in 2013 due to a stronger operating performance. The improvement in net income came from acquisitions, Sandy
clean-up volumes, net organic growth and the loss we recorded in the fourth quarter of 2012 on the extinguishment of debt, partially offset by
the closure of our Calgary landfill at the end of the second quarter in 2013. In the fourth quarter of 2012, we entered into a consolidated credit
facility agreement and concluded that the modification of previously existing debt facilities constituted an extinguishment of debt. Accordingly,
we recorded a charge of approximately $16,900 in the fourth quarter of 2012 on the extinguishment. We also recorded a debt extinguishment
charge in the fourth quarter of 2013 as a result of repaying a previously issued IRB, but the 2013 charge was a much lower amount. Operating
income was impacted by higher insurance and claims costs, higher labour and repairs and maintenance expenditures and
24
higher bonus and LTIP plan compensation expense. Net income was also impacted by higher interest expense. Higher interest expense is, in
part, the result of interest rate swaps entered into the last half of 2013, which gave rise to an approximately $1,700 increase in comparative
interest charges. In addition, we entered into an amending agreement in respect of our consolidated facility and incurred additional fees in this
regard. Accordingly, higher deferred financing cost amortization was charged to interest expense. Partially offsetting these increases to interest
expense, and by extension lower net income year-over-year, was borrowing costs incurred due to the repayment of our Seneca IRB. We did
benefit however, from a lower overall tax rate as a result of implementing our long-term financing structure between Progressive Waste
Solutions Ltd. and its primary operating subsidiaries.
Total assets
2014-2013
Total assets declined by approximately $16,100. The decline comprises an approximately $111,400 decrease in total Canadian assets, partially
offset by an approximately $95,300 increase in total U.S. assets.
Total assets attributable to our Canadian operations declined year-to-year. The change in FX between measurement periods represents
approximately $101,000 of the decline. Excluding the impact of FX, total assets in Canada declined approximately $10,400 year-over-year.
The decrease is partly attributable to a decline in intangibles, landfill assets and other assets, approximately $11,000, $10,000, and $13,500,
respectively, partly offset by increases in goodwill and capital assets, approximately $12,000 and $13,600, respectively. The balance of the
change reflects lower investments, lower deferred financing costs and lower current assets, offset by higher other receivables, higher funded
landfill post-closure costs and higher landfill development assets. Intangible assets declined on account of amortization, approximately $15,000
outpacing the approximately $4,400 of additions we recognized on our acquisition of the remaining fifty percent interest in our equity
accounted investee. FX represented the balance of the year-to-year change for intangibles. The decline in landfill assets is largely attributable to
amortization of about $29,800 and the impact of FX, approximately $14,600, being higher than current year additions and working capital
changes, approximately $19,900 in the aggregate. Current year additions were most prevalent at our Coronation landfill, followed by our
Lachenaie, Ridge, Winnipeg and Ottawa sites. The decline in other assets reflects lower fair values for both fuel hedges and interest rate swaps
year-over-year. The decline in the price for WTI crude, coupled with a lower comparative interest rate environment, were the primary reasons
for the change in other assets between years. Capital asset purchases, including those acquired by way of acquisition, contributed to the
combined increase in capital assets year-over-year of about $80,200. Amortization and non-cash changes partially offset this increase and
totaled approximately $65,900. Our acquisition of the remaining fifty percent interest in our equity accounted investee, contributed
approximately $5,000 to the increase in capital assets between years. Capital asset additions represent a combination of replacement and
growth spending, which includes CNG vehicles and related infrastructure, diesel vehicle purchases, containers and landfill construction
activities. Replacement and growth expenditures are addressed in greater detail in the Other Performance Measures section of this MD&A. The
increase in goodwill, net of FX, reflects goodwill we recognized on the purchase of the remaining interest in our equity accounted investee and
also accounts for the decline in the carrying amount of investments in Canada. Lower deferred financing costs are simply a function of normal
course amortization and no meaningful financing costs being incurred in the current year. Lower current assets reflect a combination of
insignificant changes in cash and cash equivalents, accounts receivable and prepaid expenses. The increase in other receivables is largely due to
our take back of a note receivable on the sale of buffer lands adjacent to our Calgary landfill, net of the unamortized discount. Higher funded
landfill post-closure costs reflect current year contributions, coupled with the return on the underlying investments, with no associated
drawings. Higher landfill development assets reflect our continued interest in developing an alternative landfill site for our closed Calgary site.
Current year costs include engineering work, capitalized interest, payments in respect of a land option and the capitalization of dedicated
employees and their expenses to the project.
The increase in total U.S. assets is largely attributable to two acquisitions completed late in the current year. Assets acquired account for about
$108,300 of the year-to-year increase, comprised of accounts receivable, intangibles, goodwill and capital assets, approximately $6,500,
$13,800, $68,200 and $19,800, respectively. Beyond the impact acquisitions, landfill assets increased approximately $7,500. The increase in
landfill assets isn’t a function of current year additions outpacing amortization by a significant margin, rather it reflects the change in working
capital and the reclassification of about $5,800 from landfill development assets to landfill assets upon successfully obtaining a permit for our
Jacksboro landfill. Capital assets in our U.S. segment increased approximately $10,400. As noted, acquisitions contributed approximately
$13,800 to the increase, which in combination with current year additions of approximately $107,600 and working capital and non-cash
changes of about $17,100, outpaced normal course amortization, amounts transferred to held for sale and net disposals. Replacement and
growth capital expenditures are addressed in more detail in the Other Performance Measures section of this MD&A. Additional details
pertaining to the sale of assets in the current year are outlined in the Review of Operations section of this MD&A in the gain on sale of capital
and landfill assets subsection. Excluding the capitalization of intangibles attributable to acquisitions completed in the current year, normal
course amortization, including an impairment loss, totaled
25
approximately $41,400 and the transfer of certain intangibles to assets held for sale, approximately $10,300, combined to reduce U.S. based
intangibles by approximately $37,900. The increase in total current assets is largely a function of a higher cash and cash equivalents position
this year compared to last, partially offset by a slightly better accounts receivable and other asset positions comparatively. The decline in
accounts receivable reflects lower receivables in our U.S. northeast segment, due in part to the strategy we executed this year, coupled with
lower fourth quarter landfill volumes and the classification of receivables attributable to our Long Island, New York operations to held for sale.
This decline was partially offset by higher receivables in our U.S. south segment, reflecting both organic and acquisition growth.
2013-2012
Total assets declined by approximately $83,000. The decline comprises an approximately $15,800 decrease in total U.S. assets and a decrease
of approximately $67,200 in total Canadian assets.
The decline in total U.S. assets was attributable to a decrease of approximately $42,200 in intangible assets, partially offset by an increase in
capital and landfill assets, approximately $13,600 and $15,800, respectively. The decline in intangible assets was the result of amortization
outpacing additions. Intangible assets recognized on acquisition totaled approximately $900, compared to the approximately $43,100 of
recorded amortization. The increase in capital assets year-over-year was due to 2013 additions and acquired capital exceeding amortization.
2013 additions totaled approximately $103,800, while capital assets acquired in 2013 weren’t significant at approximately $1,200. Capital asset
amortization, at approximately $93,600, partially offset the combination of purchased and acquired capital assets in 2013. Landfill assets were
also higher year-over-year. Landfill asset additions, excluding capitalized asset retirement obligations, totaled approximately $52,500 in 2013.
Investments made at our Seneca Meadows landfill in our U.S. northeast segment accounted for better than 44% of the total 2013 spend at
approximately $23,200. Cell construction at several landfills in 2013, including JED, Champ and our Jefferson Parish landfill, also contributed
to the $52,500 of 2013 spending. Landfill asset amortization, excluding the amortization of capitalized asset retirement obligations, amounted
to approximately $42,600 in 2013 and reflects normal course amortization of construction and permit related investments.
Total Canadian segment assets declined year-to-year and the change in FX represented approximately $84,500 of the decrease. Excluding the
impact of FX, total Canadian segment assets increased by approximately $17,300 year-over-year and was partly attributable to an increase in
capital and other assets, approximately $22,300 and $20,500, respectively, partially offset by a decline in intangible and landfill assets,
approximately $20,400 and $14,300, respectively. The balance of the increase was due to higher funded landfill post closure costs, higher
investments, higher landfill development assets and higher deferred financing costs. The increase in Canadian segment capital assets was due to
additions outpacing amortization. Total 2013 additions, approximately $104,400, exceeded 2013 amortization which totaled approximately
$59,100. Asset disposals in 2013 amounted to approximately $11,000 and similar to amortization was a partial offset to 2013 additions.
Disposals of properties as a result of organic growth and contract wins or due to contract losses was the primary reason for our 2013 disposal of
properties in both central and western Canada. In 2013, we also recognized a significant change to working capital related to the timing of
purchases relative to spend which totaled approximately $15,800 and partially offset the increase to capital assets in Canada from 2013
additions. The increase in other assets was almost entirely attributable to interest rate swaps we entered into in 2013. The increase in funded
landfill post-closure costs reflects our continued funding of our post-closure care obligation in respect of our Lachenaie landfill to a social
utility trust. The increase in our investments is principally attributable to our 2013 19.9% stake in TerraCycle Canada ULC (“TerraCycle”),
approximately $1,000 and the receipt of a C$750 promissory note from our equity accounted investee. Landfill development assets continued
their rise year-over-year and reflected our continued effort to develop a replacement landfill for our recently closed Calgary landfill. Finally,
deferred financing costs increased year-over-year due to the amending agreement we entered into the final quarter of 2013 which outpaced
amortization of this asset. The aforementioned increases to total Canadian segment assets were partially offset by declines in intangible and
landfill asset balances. With no meaningful acquisitions completed in 2013, intangible asset additions were less than approximately $100, while
amortization in 2013 totaled approximately $19,800. The decline in landfill assets year-to-year is due to amortization, excluding the
amortization of capitalized asset retirement obligations, approximately $27,000, outpacing additions, approximately $13,200, which also
excludes capitalized asset retirement obligations. Landfill asset additions represented cell development in 2013 which were most pronounced at
our Coronation, Winnipeg, Lachenaie and Ridge landfills.
Total long-term liabilities
2014-2013
Total long-term liabilities increased approximately $16,100, comprised of an approximately $13,400 increase in the U.S. and an increase of
about $2,700 in Canada.
26
The increase in our U.S. segment’s long-term liabilities is largely attributable an approximately $8,500 increase in deferred income tax
liabilities. In 2014, our U.S. segment utilized losses available to shelter income otherwise subject to tax, thereby eroding a deferred tax asset
and increasing deferred tax liabilities recorded on our balance sheet. Landfill closure and post-closure costs also increased year-to-year by
approximately $4,100. This increase reflects higher current year provisions relative to current year spending and this is typical when landfills
are in active operation. The balance of the increase is due to an increase in other liabilities, partially offset by lower long-term debt amounts.
Similar to total assets in Canada, FX had a significant influence on the change in long-term liabilities year-to-year. The change in FX,
approximately $141,300, partially offset the net increase in long-term liabilities totaling approximately $144,000. Net of FX, the most
significant increase is attributable to the increase in long-term debt year-over-year. The increase in long-term debt of approximately $145,300
is due in large part to current year acquisitions and share repurchases. Landfill closure and post-closure costs also increased year-to-year by
approximately $5,500 which reflects higher current year provisions relative to this year’s spending requirements. Deferred income tax
liabilities declined approximately $9,200 net of FX. The purchase of the remaining fifty percent interest in our equity accounted investee
contributed approximately $900 to this increase. Deferred tax assets recognized as a result of accounting provisions not currently deductible for
tax, including landfill closure and post-closure obligations, accruals in respect of LTIP obligations and interest rate swaps, account for about
$5,200 of decline in deferred tax liabilities year-to-year. In addition, a decline of approximately $5,100 in deferred tax liabilities attributable to
differences between the tax and carrying values for capital, landfill and intangible assets also contributed to the comparative decline. The
balance of the change is due to other liabilities, which net of FX increased approximately $2,400. This increase largely reflects the change in
the estimated fair value of interest rate swaps.
2013-2012
Total long-term liabilities decreased approximately $94,600, comprised of $86,100 in Canada and $8,500 in the U.S.
The decline in our U.S. segments total liability balance was due to the $45,000 repayment of the Seneca IRB. The IRB was repaid from
drawings under the consolidated credit facility which is characterized as debt of our Canadian segment. Partially offsetting the reduction
resulting from this repayment was an increase in deferred income tax liabilities of approximately $27,700. In 2013, our U.S. segment utilized
losses available to shelter income otherwise subject to tax thereby eroding its deferred tax asset, which is recorded against deferred tax
liabilities on our balance sheet. Landfill closure and post-closure costs also increased year-to-year, approximately $8,800, reflecting higher
2013 provisions relative to spending requirements.
Similar to the decline in total Canadian segment assets, the change in FX was the primary reason for the drop in total Canadian segment
liabilities. When the change in FX is excluded, total liabilities in Canada rose year-to-year. Other liabilities represent the largest single increase
at approximately $11,300, which was almost entirely attributable to the interest rate swaps we entered into in the last half of 2013. Long-term
debt balances were also up in Canada year-over-year, which as noted in the U.S. segment discussion is largely a function of the IRB repayment
made from drawings on the consolidated facility. Long-term debt repayments made in 2013 from excess cash generated in the business
partially offset the rise in long-term debt stemming from the IRB repayment. Finally, landfill closure and post-closure costs also increased
year-to-year, approximately $3,300, reflecting higher 2013 provisions relative to spending requirements.
27
Summary of Quarterly Results
(all amounts are in thousands of U.S. dollars, except per share amounts)
2014
Revenues
Canada
U.S. south
U.S. northeast
Total revenues
Net income
Net income per weighted average share, basic
Net income per weighted average share, diluted
Adjusted net income (A)
Adjusted net income (A) per weighted average
share, basic
Adjusted net income (A) per weighted average
share, diluted
Q4
$
$
$
$
$
$
$
186,867
231,247
86,455
504,569
18,931
0.17
0.17
39,857
$
$
2013
Revenues
Canada
U.S. south
U.S. northeast
Total revenues
Net income
Net income per weighted average share, basic
Net income per weighted average share, diluted
Adjusted net income (A)
Adjusted net income (A) per weighted average
share, basic
Adjusted net income (A) per weighted average
share, diluted
$
$
$
$
$
$
$
0.35
$
0.35
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.36
$
0.36
$
$
$
$
$
$
$
0.29
$
0.29
$
$
$
$
$
$
$
199,021
201,725
95,076
495,822
11,753
0.10
0.10
28,152
$
$
$
$
$
$
$
$
$
$
$
$
745,800
914,172
349,025
2,008,997
126,516
1.10
1.10
153,076
0.41
$
0.21
$
1.33
0.41
$
0.21
$
1.33
Q1
$
$
$
$
$
$
0.27
$
0.27
$
$
$
$
$
$
$
0.24
$
0.24
$
Total
$
$
$
$
$
$
179,094
211,567
95,899
486,560
29,341
0.25
0.25
27,097
$
$
$
$
$
769,077
876,888
380,074
2,026,039
117,970
1.02
1.02
127,152
0.31
$
0.24
$
1.10
0.31
$
0.24
$
1.10
Q2
205,696
195,678
85,835
487,209
32,158
0.28
0.28
32,122
28
$
198,855
220,988
96,964
516,807
32,293
0.28
0.28
35,290
Q3
Total
167,361
221,854
80,555
469,770
25,919
0.23
0.23
24,752
Q2
199,053
223,437
98,175
520,665
20,094
0.17
0.17
31,348
Q4
Q1
192,444
229,254
91,803
513,501
40,852
0.36
0.36
47,237
Q3
192,075
220,896
89,036
502,007
36,242
0.31
0.31
33,417
$
Q2
199,128
231,817
90,212
521,157
40,814
0.36
0.36
41,230
Q4
2012
Revenues
Canada
U.S. south
U.S. northeast
Total revenues
Net income
Net income per weighted average share, basic
Net income per weighted average share, diluted
Adjusted net income (A)
Adjusted net income (A) per weighted average
share, basic
Adjusted net income (A) per weighted average
share, diluted
Q3
Q1
$
$
$
$
$
$
198,179
195,521
81,735
475,435
28,377
0.24
0.24
28,847
0.28
$
0.28
$
Total
$
$
$
$
$
$
173,918
187,407
76,950
438,275
22,069
0.19
0.19
24,066
$
$
$
$
$
776,814
780,331
339,596
1,896,741
94,357
0.81
0.81
113,187
0.25
$
0.20
$
0.97
0.25
$
0.20
$
0.97
Revenues
Canadian segment revenues expressed in thousands of C$
Q4
Q3
Q2
Q1
Total
2014
2013
2012
$
$
$
212,212
201,651
197,336
$
$
$
217,004
206,561
204,767
$
$
$
210,027
203,353
200,087
$
$
$
184,678
180,689
174,130
$
$
$
823,921
792,254
776,320
2014 less 2013 revenues
2013 less 2012 revenues
$
$
10,561
4,315
$
$
10,443
1,794
$
$
6,674
3,266
$
$
3,989
6,559
$
$
31,667
15,934
2014-2013
Excluding the impact of FX, first quarter revenues in Canada grew period-over-period. Higher pricing across all service lines and stronger
commodity pricing on a comparative basis were the primary contributors to revenue growth. Volumes in our Canadian segment were higher in
our collection operations, but lower in our landfill and disposal operations. The Calgary closure contributed to lower landfill revenues
period-over-period, however, the volume of waste materials once directly destined for our Calgary landfill were largely received at the transfer
station facility we opened in mid-2013. Our Lachenaie landfill was hit hardest by weather in the current period and its volumes were down
comparatively as a result. Replacing volumes lost at our Lachenaie landfill due to the prior year acquisition of one of its largest customers by a
competitor in the waste management industry, has also impacted revenues attributable to changes in volumes. Acquisition contributions
weren’t significant between periods and the change in fuel surcharges was basically flat compared to the year ago period.
In the second quarter, revenues in Canada grew, net of FX, period-over-period. Higher pricing across all service lines and stronger commodity
pricing on a comparative basis were the primary contributors to revenue growth. Volumes in our Canadian segment were flat in total. The
Calgary closure contributed to lower landfill revenues period-over-period. However, the volume of waste materials once destined to our
Calgary landfill were largely received at the transfer station facility we opened in mid-2013, and these volumes were a large contributor to the
increase in transfer station revenues period-to-period. Commercial and industrial volumes were both positive in the quarter, but were offset by a
decline in residential collection volumes. Two small lost contracts in eastern Canada is the reason for this decline. Acquisition contributions,
although not significant, did contribute to the advancement of revenues and fuel surcharges were slightly behind the mark set in the year ago
period.
Third quarter revenues in Canada grew period-over-period, net of FX. Higher pricing across all service lines contributed to revenue growth
period-to-period. Stronger commercial and industrial pricing were the key contributors, coupled with stronger landfill pricing at one of our
landfills in western Canada. Volumes in our Canadian segment were also strong this quarter. Our Lachenaie landfill had a strong volume
quarter, with higher MSW and soil volumes received at the site. This improvement is partly due to lower third quarter volumes received last
year which were caused by the redirection of certain volumes once destined for Lacheanie to another site due a significant regional
competitors’ acquisition by the largest waste service provider in North America. Transfer station volumes in western Canada were at full stride
this quarter compared to the same period last year, partly because the transfer station had just opened late in the second quarter of 2013 and
partly due to the Alberta flood which permitted our Calgary landfill to remain open to the receipt of flood debris during the third quarter last
year. Offsetting the strength of post-collection volume improvements was lower residential volumes in both central and eastern Canada,
partially offset by a new contract win in western Canada. Canada also saw its industrial volumes rise comparatively, and the increase was
realized across all areas in this segment. Revenues from commodity pricing dropped between periods, while contributions from an acquisition
completed earlier this year more than offset the slight decline in fuel surcharges resulting from lower comparative fuel prices.
In the fourth quarter, revenues in Canada increased, net of FX. Higher pricing across all service lines contributed to the increase with stronger
commercial and industrial pricing accounting for most of the price improvement. Stronger landfill pricing at one of our landfills in western
Canada also contributed to higher revenues from price. Canadian revenues also improved on stronger volumes. Natural gas revenues from the
start-up of a new gas plant at our Lachenaie landfill and higher transfer station volumes were the primary contributors to this improvement.
Revenues from landfill volumes were lower than prior period levels due in large part to lower soil volumes received at our Lachenaie site.
Acquisitions contributed to the revenue improvement in Canada, reflecting the purchase of the remaining fifty percent interest in our equity
accounted investee in the first quarter of 2014. Fuel surcharges were relatively flat period-over-period and lower commodity pricing was a
negative to revenues.
29
2013-2012
Revenues in Canada grew in the first quarter of 2013 compared to the first quarter of 2012. Acquisitions and higher pricing across all service
lines were the primary contributors to revenue growth. As expected, volumes declined as a result of lost municipal commercial and residential
contracts in both western and central Canada in 2012. Residential contract wins, which commenced in 2013, did not offset the loss of volumes
on a comparative basis. From a landfill perspective, special waste and soil volumes were strong across all sites in Canada, excluding the Ridge
landfill. Ridge landfill volumes were impacted by a combination of weather and the sluggish economy in central Canada. Fuel surcharges were
up marginally in Canada, while commodity pricing lagged the 2012 mark.
In the second quarter of 2013, revenues in Canada increased period-over-period. Acquisitions and higher pricing across almost every service
line were the primary contributors to revenue growth on a comparative basis. As noted, we lost certain contracts in the latter half of 2012 and
these contract losses were only partially offset by municipal contract wins. As a result, volumes declined on account of net contract losses
resulting in lower comparative revenues. Excluding the impact of these net contract losses, Canadian revenues would have increased versus the
same quarter in 2012. On a comparative basis, higher industrial collection volume in Canada was a bright spot of improvement in the period.
Volume improvements in our industrial service line were most pronounced in central Canada as volumes were ramped up in anticipation of
opening our new C&D waste reduction facility. Special waste and soil volumes were stronger than the comparative period in western Canada
and would have been even stronger had the weather been less inclement in June. However, volumes were noticeably weaker at our central
Canadian sites. Our Ridge and Ottawa landfill volumes were impacted by a combination of weather, the sluggish economy and competing
demand for volumes. In the first quarter we noted that economic, and consequently competitive and pricing pressures persisted in central
Canada across many of our service lines, and the second quarter was no different with competitive and pricing pressures continuing to hold
back revenue growth. Fuel surcharges were marginally ahead of the 2012 mark and lower commodity pricing resulted in lower
period-over-period revenues.
Third quarter revenues in Canada grew period-over-period. Acquisitions and higher pricing across all service lines were the primary
contributors to revenue growth on a comparative basis. The loss of certain contracts in the latter half of 2012 was only partially offset by
municipal contract wins in 2013. As a result, volumes declined on account of net contract losses which led to lower period-to-period revenues.
In addition, the Calgary closure contributed to the decline in revenues from landfill volumes. Excluding the impact on revenues of the net
contract losses and the Calgary closure, Canadian revenues would have increased further over the same period a year ago. On a comparative
basis, industrial and commercial volumes improved period-to-period. Volume improvements in our industrial service line were strongest in
western Canada which was a reflection of the economic strength in this area of Canada. At our landfills, special waste and soil volumes were
stronger than the comparative period in western Canada, excluding Calgary, and were mixed in central Canada. Lower landfill volumes in
eastern Canada were the result of a significant third party waste provider redirecting their waste volumes to another landfill in the region since
being acquired, coupled with elevated competition for waste volumes in other markets. In the first and second quarters we noted that economic,
and consequently competitive and pricing pressures persisted in central Canada across many of our service lines and the third quarter trend was
largely unchanged. Fuel surcharges were slightly off the 2012 mark, due to marginally lower diesel fuel costs. Higher commodity pricing gave
us a slight lift to revenue performance period-over-period.
In the fourth quarter of 2013, Canadian revenues grew over the same comparative period. However, when Canadian segment revenues are
expressed in U.S. dollars, Canadian segment revenues declined period-to-period on account of the FX impact. Excluding FX, the primary
contributor to stronger revenue performance came from pricing and to a lesser extent acquisitions. Pricing in our collection lines increased
comparatively and landfill pricing was also up period-to-period. Volumes on the other hand were down, due to lost contracts and the Calgary
closure. Commodity pricing impacted 2013 revenues favourably while fuel surcharges were down slightly on the quarter.
While we have made comparative improvements in every quarter, we caution readers that the economic climate continues to be unstable, and
this instability can impact certain services we offer and the revenues we generate from them. Economic disruptions can have a significant
impact on our ability to realize revenue growth in future periods and these disruptions are applicable to all of our segments.
30
U.S. south segment
Q4
Q3
Q2
Q1
Total
2014
2013
2012
$
$
$
231,247
220,896
201,725
$
$
$
231,817
223,437
195,678
$
$
$
229,254
220,988
195,521
$
$
$
221,854
211,567
187,407
$
$
$
914,172
876,888
780,331
2014 less 2013 revenues
2013 less 2012 revenues
$
$
10,351
19,171
$
$
8,380
27,759
$
$
8,266
25,467
$
$
10,287
24,160
$
$
37,284
96,557
2014-2013
The performance of our U.S. south segment was solid in the first quarter of the 2014. Volume improvements were the primary contributor to
this segment’s revenue growth comparatively. While collection volumes were up, higher landfill and transfer station volumes were the most
significant contributors to revenue growth over the same period last year. In our Florida operations, construction and demolition volumes
gained momentum in the quarter resulting in higher comparative landfill revenues. We also recognized higher gas revenues from our JED
landfill over the same period last year due to higher pricing for gas. Strong volume improvements at our MRFs and transfer stations in our
Florida operations were due to contract wins we secured in 2013. The opening of the Jefferson Parish landfill last year contributed to higher
landfill revenues on a comparative basis and landfills in our Texas operations received higher construction and demolition volumes as well. On
the pricing front, all services lines, with the exception of our residential and transfer, improved price. Both our residential and transfer service
lines were only slightly behind the prior year pricing mark established last year. Commodity pricing was also higher period-over-period, but
this improvement was fully offset by lower fuel surcharges.
In the second quarter of the year, our U.S. south segment turned in another solid revenue performance period-over-period. Volume
improvements were the primary contributor to this segment’s total revenue growth. Revenues from collection volumes were up slightly, but our
landfill, MRF and transfer station volumes combined, were the primary revenue growth areas compared to the same period last year. Higher
volumes received by three of our U.S. south segment landfills were the root source of revenue improvement from higher landfill volumes. In
Florida, contract wins delivered most of the growth in our transfer station operations and the installation of a single stream MRF was also a
contributor to the improvement in revenues period-over-period. Transfer station volume improvements were largely the result of new contracts
that we entered into in the third quarter of the prior year in Florida. Price, while not as strong as volume growth for this segment, was up over
the same period last year. Pricing was strongest in our commercial and industrial service lines and was either up or flat across our remaining
lines of service. Commodity pricing was also higher on a comparative basis and improvements to revenues from fuel surcharges and
acquisitions were little changed from the year ago period.
Our U.S. south segment delivered another solid period-over-period performance in the third quarter. Volume improvements contributed to this
segment’s total revenue growth and revenues from collection volumes were up, as were volumes received at our landfills, MRFs and transfer
stations over the same period last year. Taking a closer look at our MRF and transfer station performance, our operations in Florida delivered
the most significant improvement on the back of contract wins and strategic operational improvements which allowed for organic growth in
this area. Landfill volumes, while up, reflect lower volumes into our JED landfill in Florida, due to competitive market conditions, offset by
higher volumes in many of our Texas based landfills. This segment’s collection volume improvement is largely attributable to net residential
contract wins. Price improvements, while not as strong as volume growth, were improved over the same period last year. Pricing was strongest
in our commercial and industrial service lines and was either up or flat across our remaining service offerings. Commodity pricing was also
higher on a comparative basis, while contributions to revenues from fuel surcharges and acquisitions were little changed from the year ago
period.
Our U.S. south segment delivered strong revenue growth in the fourth quarter. Stronger volumes in this segment contributed to the overall
improvement, most of which was attributable to our collection service lines. Residential contract wins in Texas and Louisiana outpaced
residential contract losses in our Florida operations, and in total contributed to a net increase in revenues. Industrial volumes were also robust
quarter-over-quarter. Stronger economic conditions in our Texas operations are the primary reason for the industrial volume improvement and
higher volumes in our commercial collection service line contributed to the revenue improvement as well. Volume improvements in our
disposal service lines combined to improve revenues as well. Similar to the third quarter this year, MRF and transfer station volumes in our
Florida operations delivered the most significant improvement on the back of contract wins and strategic operational improvements. Landfill
volumes were also improved and reflect higher volumes in many of our Texas based landfills. Lower volumes into our JED landfill in Florida
due to heightened competitive market conditions in this area partially offset this increase. Price improvements grew revenues over the same
period last year. Pricing was strongest in our commercial service line and was either up or flat across
31
the remainder of our service offerings. We acquired a collection operation late in the fourth quarter this year, and this acquisition also
contributed to the improvement in revenues between periods. Commodity pricing and fuel surcharges were lower than the prior year period,
reflecting the lower cost of fuel and changes in supply/demand conditions for commodities.
2013-2012
Our U.S. south segment performed well in the first quarter of 2013 delivering revenue growth from acquisitions, price, volume improvements
and higher fuel surcharges compared to the first quarter of 2012. While the most significant contribution to this segment’s revenue growth was
acquisitions, price improvements in all service lines delivered higher revenues as well. Volumes also contributed to total revenue growth, albeit
not across all service lines. Industrial volumes were a significant component of this segment’s growth in revenues, derived most notably from
our operations in Texas. Lower commercial volumes in our Florida operations and lighter overall volumes across all landfills in this segment
partially offset the volume gains from our industrial service line. We passed higher fuel costs through as fuel surcharges and the decline in
comparative commodity pricing wasn’t meaningful on a comparative basis.
In the second quarter of 2013, our U.S. south segment delivered revenue growth from acquisitions, price and volume improvements in almost
every business line compared to the same period in 2012. The most significant contribution to this segment’s revenue growth was acquisitions.
However volume growth was also significant contributor as well. Higher industrial volumes realized in our Texas operations were a significant
component of this segment’s growth in revenues attributable to volume. Revenues were also higher on account of stronger landfill volumes,
which were due in large part to second quarter contributions from the Jefferson Parish landfill which commenced operations in 2013. The
combination of lower fuel surcharges and comparative commodity pricing resulted in lower comparative revenues period-over-period.
In the third quarter of 2013, our U.S. south segment continued to perform well and delivered revenue growth from acquisitions, price and
volume improvements in almost every line of business. The most significant contribution to this segment’s revenue growth was acquisitions.
Notwithstanding, volume improvements were also significant contributor to revenue growth period-to-period. Industrial and commercial
volumes, most notably in our Texas operations, were a significant component of this segment’s growth in revenues attributable to volume
reflecting the nature of the economic environment in this region. Revenues improved on stronger landfill volumes, which were due in part to
the Jefferson Parish landfill and stronger municipal solid and special waste volumes received across many of our landfills, including our JED
landfill in Florida. The combination of higher fuel surcharges and higher commodity pricing led to improved revenues as well.
The performance of our U.S. south segment was once again strong in the fourth quarter of 2013. Revenues grew quarter-to-quarter from
acquisition, price and volume improvements in every service line. Acquisitions continued to drive comparative revenue growth and volumes
were also strong in the quarter. Stronger landfill volumes was the primary contributor to the revenue improvement from volumes, which was
due in part to the opening of the Jefferson Parish landfill in 2013 and stronger municipal solid and special waste volumes received across many
of our landfills, including our JED landfill in Florida. Commodity pricing was also favourable on a comparative basis, while fuel surcharges
were down comparatively, on lower diesel fuel costs.
U.S. northeast segment
Q4
Q3
Q2
Q1
Total
2014
2013
2012
$
$
$
86,455
89,036
95,076
$
$
$
90,212
98,175
85,835
$
$
$
91,803
96,964
81,735
$
$
$
80,555
95,899
76,950
$
$
$
349,025
380,074
339,596
2014 less 2013 revenues
2013 less 2012 revenues
$
$
(2,581 )
(6,040 )
$
$
(7,963 )
12,340
$
$
(5,161 )
15,229
$
$
(15,344 )
18,949
$
$
(31,049 )
40,478
2014-2013
Revenue performance in our U.S. northeast region was down in the first quarter this year. This segment’s comparative revenue performance
was largely influenced by Sandy, but was also hampered by harsh weather in the current year period. Landfill and transfer station revenues
were hardest hit by weather. Partially offsetting the impact of weather were higher gas revenues from higher comparative gas pricing. The sale
of certain assets in Long Island, New York last year was also a contributing factor to the decline in revenues period-over-period as was our
strategic elimination of less profitable business. However, absent these headwinds, the U.S. northeast did achieve higher price across all service
lines period-over-period. Unlike the higher pricing our Canadian and U.S. south segments enjoyed on the sale of commodities compared to the
same period last
32
year, this segment recognized a drop in revenues from lower commodity pricing. Fuel surcharges were largely unchanged period-to-period.
Revenues in our U.S. northeast region were down in the second quarter of the year. This segment’s comparative revenue performance was
influenced by lower transportation revenues resulting from lower volumes received at our Seneca Meadows landfill. Lower commercial and
industrial volumes also contributed to the decline in revenues period-over-period and these volume declines are the result of a measured and
strategic effort to eliminate less profitable business. Finally, the sale of certain assets in Long Island, New York last year was also a
contributing factor to the decline in revenues period-over-period. On a positive note, every service line in this region grew revenues from price
which was most pronounced in our commercial line of business. Fuel surcharges were flat while commodity pricing fell in this region
comparatively.
Revenue performance in our U.S. northeast region was down in the third quarter. This segment’s comparative revenue performance was
impacted by lower commercial and industrial volumes due to a measured and strategic effort to eliminate less profitable business. The sale of
certain assets in Long Island, New York last year was a contributing factor to the decline in revenues period-over-period and the sale of a
transfer station in the second quarter of this year also contributed to the revenue decline. These asset sales reflect our strategy to monetize
unproductive or unprofitable assets and increase our return on invested capital. Landfill volumes into our Seneca Meadows landfill were also
lower period-over-period. Competitors in this segment have been aggressive on price which has led to a drop in volumes entering Seneca. We
remain firm on pricing at our Seneca Meadows landfill at the expense of volume, which is in support of our long-term strategy to maximize
returns on invested capital. Pricing was once again strong in our U.S. northeast segment which increased over the prior period mark. Stronger
commercial pricing was the primary contributor to the price improvement period-to-period. Fuel surcharges were flat while commodity pricing
fell in this region on a comparative basis.
Fourth quarter revenues in our U.S. northeast segment were down period-to-period. Lower commercial and industrial volumes, due to a
measured and strategic effort to eliminate less profitable business, accounted for most of the decline between periods. The sale of a transfer
station in the second quarter this year also contributed to the decline in revenues. The sale of this asset is consistent with our strategy to
monetize unproductive or unprofitable assets and increase our return on invested capital. Pricing was once again strong in our U.S. northeast
segment and increased over the prior period mark. Stronger commercial pricing increased comparative revenues and was the primary
contributor to the price improvement period-to-period. Fuel surcharges were flat while commodity pricing fell in this region comparatively.
2013-2012
Revenues in our U.S. northeast region increased between the first quarter of 2013 and the first quarter of 2012. Acquisitions delivered the most
significant contribution to revenue growth, but volume improvements weren’t far behind. Waste volumes from the Sandy clean-up were the
most significant contributor to this segment’s volume performance in the quarter. We also realized pricing improvements or achieved stable
pricing across all service offerings, and these improvements were most notable in our collection and transfer station disposal lines. Higher fuel
pricing was passed through as fuel surcharges and marginally weaker commodity pricing didn’t have a significant impact on revenues between
quarters.
In the second quarter of 2013, revenues in our U.S. northeast segment increased over the same period in 2012. Acquisitions delivered the most
significant contribution to revenue growth followed closely by volume improvements from our transfer station service line. Higher transfer
station volumes more than offset the lower volume performance from our MRF and landfill service lines comparatively. The decline in MRF
volumes was largely attributable to the closure of a facility in the fourth quarter of 2012, while lower landfill volumes reflected delayed special
waste projects in the region, coupled with inclement weather. In the second quarter of 2013, we sold select assets in Long Island, New York
which also impacted volumes comparatively. Strategic pricing initiatives, coupled with a modestly improving economic environment, resulted
in an improvement to revenues from pricing improvements across all service lines. Fuel surcharges, while up marginally, were not a significant
contributor to revenue growth period-over-period and weaker commodity pricing was a drag on comparative revenue performance between
quarters.
Our U.S. northeast segment’s third quarter revenue growth was primarily from acquisitions. Looking beyond acquisitions, volume
improvements were most significant in this segment’s transfer station line of business, which once again more than offset lower comparative
MRF volumes. The decline in MRF volumes related to the closure of a facility in the fourth quarter of 2012 due to Sandy which rendered the
facility unusable. In the third quarter of 2013, landfill volumes recovered from the second quarter delay of special waste projects, but our
second quarter 2013 sale of select assets in Long Island, New York negatively affected comparable volume improvements in the third quarter
of 2013. Revenues from volumes were also lower than 2012 due to our termination of less profitable business, which was more than offset by
our implementation of effective pricing strategies quarter-over-quarter. Strategic pricing initiatives, coupled with a modestly improving
economic
33
environment, resulted in improved revenues period-to-period across all service lines. Fuel surcharges, while up marginally, did not contribute
significantly to revenue growth period-over-period and slightly higher commodity pricing was also a contributor to the improvement in
revenues quarter-to-quarter.
Revenues in our U.S. northeast segment declined comparatively in the fourth quarter of 2013. The impact of Sandy was a significant
contributor to the comparative decline in revenues. Excluding Sandy, acquisitions contributed to 2013 fourth quarter revenue improvement and
pricing was up across almost every service line. The mix of materials received at our landfills and competitive pressures in this segment for
landfill volumes, coupled with competitive pricing for these volumes, led to a very slight decline in comparative landfill pricing. Price
improvements were most prevalent in our commercial collection service line, which represented the bulk of the improvement to revenues from
price growth. Looking beyond the impact on volumes from Sandy, volumes were also down quarter-over-quarter due to the closure of a
recycling facility late in the fourth quarter of 2012. Volumes were also down from 2012 levels due to our termination of less profitable business
in the quarter. However, our execution of effective pricing strategies more than offset the impact to revenues from reduced volumes in the
period. The net impact of fuel surcharges and commodity prices was insignificant, but down marginally period-to-period.
Net income
Q4
Q3
Q2
Q1
Total
2014
2013
2012
$
$
$
18,931
36,242
11,753
$
$
$
40,814
20,094
32,158
$
$
$
40,852
32,293
28,377
$
$
$
25,919
29,341
22,069
$
$
$
126,516
117,970
94,357
2014 less 2013 net income
2013 less 2012 net income
$
$
(17,311 )
24,489
$
$
20,720
(12,064 )
$
$
8,559
3,916
$
$
(3,422 )
7,272
$
$
8,546
23,613
Net income generally follows the rise and fall in revenues resulting from the seasonal nature of our business. Net income is also impacted by
changes in transaction and related costs, fair value movements in stock options, restricted share expense, non-operating or non-recurring
expense, restructuring expenses, amortization, net gain or loss on sale of capital and landfill assets, interest on long-term debt, foreign exchange
gains or losses, gains or losses on financial instruments, re-measurement gain on previously held equity investment, loss on extinguishment of
debt and other non-operating expenses which are not tied to the seasonal nature of our business and which fluctuate with other non-operating
variables. Net income is also impacted by net income tax expense or recovery and net income or loss from our equity accounted investee.
2014-2013
Net income in the first quarter of 2014 was lower than the mark we achieved in the first quarter of 2013. A weaker operating performance is the
primary reason for the decline, due in large part to net income contributions in the prior year quarter from Sandy, our Calgary landfill and select
assets that were sold in the second quarter of last year. Current quarter net income was also lower on account of harsh weather we experienced
in the first quarter this year. Losses on financial instruments were also higher this quarter compared to last, due to fair value movements in our
hedges for diesel fuel, interest rates and foreign currency exchange exposures. Partially offsetting the weaker operating performance and higher
losses from financial instruments, is the current quarter recognition of a re-measurement gain on our previously held equity investment. Finally,
lower net income tax expense in the first quarter of this year compared to last was also a partial offset.
Net income in the second quarter of 2014 was higher than the prior year amount posted in the same quarter last year. As noted in the first
quarter discussion, a weaker comparative operating performance persisted into the second quarter, due in large part to the Calgary closure and
the sale of select assets in the prior year. We also operated a transfer station at a loss in the current year period, until the asset was finally sold
late in the second quarter this year. Looking beyond our operating performance, we recorded gains on the sale of capital and landfill assets
which were significant in the current year quarter. These gains are the result of selling a transfer station in our U.S. northeast segment and
selling buffer lands adjacent to our Calgary landfill site. There were two other significant impacts to net income between periods. First, we
recorded significantly higher losses on financial instruments, which is largely attributable to fair value movements in interest rate swaps we
entered into between August 2013 and March 2014. In addition, foreign exchange gains were lower in the current year quarter compared to
last. Gains on foreign exchange transactions in the second quarter last year were the result of an FX agreement we entered into to protect
ourselves from further tax gains or losses resulting from the implementation of our long-term financing structure between Progressive Waste
Solutions Ltd. and its primary operating subsidiaries. Additional details for each of these changes can be found in the Review of Operations
section of this MD&A.
34
Net income in the third quarter of 2014 was higher than the prior year amount posted in the same quarter last year. Lower SG&A expense
attributable to lower stock option expense and the reversal of certain compensation award accruals in the current year helped improve net
income in the current year period. Lower amortization expense also translated to improved net income period-over-period. Lower amortization
expense was recorded as a result of certain asset sales completed in our U.S. northeast segment both this year and last, coupled with no
amortization being recorded for certain Long Island, New York assets that are held for sale in the current year period. Amortization expense
was also lower in the third quarter this year due to the revocation of a redundant operating permit in the prior year period that exceeded the
impairment charge recorded in the current year quarter for an impaired operating permit connected to surplus land. We also recorded lower
comparative foreign exchange losses. In the comparative quarter, we cash settled all intercompany balances existing between the U.S. and
Canada which resulted in us recognizing a FX loss. These amounts were settled to comply with the upstream loan rules outlined in Bill C-48
issued by the Minister of Finance Canada. Net income was also improved due to lower losses/higher gains recognized on certain financial
instruments. The favourable impact of fair value changes in interest rate swaps was partially offset by the unfavourable change in the fair value
of fuel swaps. The change in interest rates and fuel prices, together with the change in the number and duration of financial instruments we
have outstanding is the root cause of the between period change and resulting improvement to net income. Finally, all of these improvements
were partially offset by higher interest expense. Higher interest expense is the result of entering into fixed rate interest rate swaps, partially
offset by lower borrowing levels and lower interest rates.
Net income in the fourth quarter this year was lower than last year. Amortization expense increased in this quarter compared to last. On an FX
adjusted basis, both intangible and capital asset amortization contributed to the increase and these increases were largely the result of
impairment charges recorded in the fourth quarter this year. Landfill amortization was lower between periods, due in large part to the between
period revision to estimated cash flows attributable to our landfill closure and post-closure obligations. On a reported basis, there was no
change to interest on long-term debt between periods since the period-over-period increase was fully offset by FX. Net gains of sales of capital
and landfill assets, were inconsequential, and reflected normal course sales of fully utilized assets. The change in net gains and losses on
financial instrument had a significant impact on net income period-to-period. Higher current period losses were due in large part to fair value
changes for interest rate swaps and fuel hedges. Changes in interest rates and the notional amount of debt we have hedged are the primary
reasons for the comparative increase. The recent decline in WTI crude pricing and diesel fuel index has resulted in our fuel hedges being more
expensive than the price we would incur to hedge fuel today. In the current year quarter, net income only benefited slightly from lower foreign
exchange losses and lower losses on debt extinguishment. Lower losses on debt extinguishment reflect the prior period write-off of deferred
financing costs on the repayment of the Seneca IRB. Net income tax expense was lower period-over-period and was a positive to net income.
Lower income tax expense reflects lower income subject to tax, partially offset by higher cash taxes. The increase in cash taxes represents
withholding taxes on dividends received from our U.S. operating subsidiary that were used to repurchase shares.
2013-2012
Net income in the first quarter of 2013 was higher than the mark posted in the first quarter of 2012. The primary reason for the increase
reflected a stronger operating performance, largely due to acquisitions, Sandy clean-up volumes and net organic growth. Unlike the 2012
quarters where commodity price declines were a significant headwind on our operating results and, by extension, net income, commodity
pricing, while down from the first quarter in 2012, did not have a significant impact on first quarter net income on a comparative basis. Interest
on long-term debt was higher, due largely to acquisitions and share repurchase activity in 2012. Interest rates, on balance, were also up, mostly
on account of interest borne on the term B tranche of our consolidated facility. Gains on financial instruments were also up comparatively, due
to our hedges for diesel fuel, foreign currency exchange agreements and interest rate swaps. Income tax expense was also higher in the first
quarter of 2013 compared to the same period in 2012, largely on account of acquisitions and our stronger operating performance.
Net income in the second quarter of 2013 was higher than net income in the second quarter of 2012. From an operating perspective, operating
income was slightly lower in the second quarter of 2013 compared to the same period in 2012. Improvements to EBITDA (A) from acquisition
and net organic growth, were partially offset by higher stock option expense. The comparative increase in amortization expense was due in
large part to acquisitions, but this increase was entirely offset by gains posted on the sale of redundant operating facilities in western and central
Canada and select asset sales in Long Island, New York. Interest expense was higher due in large part to higher outstanding borrowings which
was the result of 2012 acquisitions and share repurchases. A foreign currency exchange gain recorded in the second quarter of 2013 fully offset
the comparative increase in interest expense. This gain was from a foreign currency exchange agreement we entered into in connection with the
implementation of our long-term financing structure between Progressive Waste Solutions Ltd. and its primary operating subsidiaries. Gains on
interest rate swaps, partially offset by higher losses on fuel hedges and foreign currency exchange agreements, sent losses on financial
instruments lower in the second quarter of 2013 compared to the second quarter of 2012. Overall, income taxes were lower in the second
quarter of 2013 versus the same period in 2012. The
35
single largest contributor to the decline was the recognition of a current income tax recovery as a result of the Minister of Finance of Canada
giving Bill C-48 royal assent on June 26, 2013. This bill allowed us to recognize property losses that would have otherwise been lost to us in
connection with the wind-up of our business when we operated as an income trust.
Third quarter net income was lower than the amount posted in the third quarter of 2012. Revenue improvements were strong on a comparative
basis, but higher operating expenses, partly attributable to higher insurance and claims costs, higher labour and repairs and maintenance
expenditures, acquisitions and overall mix of revenue growth softened the benefit of revenue improvements we realized. We also closed our
Calgary landfill at the end of the second quarter, which also had a negative impact on both revenues and operating costs. SG&A expenses were
also higher due to higher stock option expense, the reversal of incentive compensation costs in 2012, lease exit costs incurred in 2013 and
higher than expected compensation tied to the Company’s share price. Amortization expense was also higher on a comparative basis, and
included a third quarter charge for the revocation of a redundant transfer station operating permit that we acquired in 2010. Amortization
expense was also higher due to acquisitions completed in 2012 and to a lesser extent 2013. The sum of these period-to-period changes resulted
in lower operating income in the third quarter of 2013 compared to the same period in 2012. Interest expense was largely unchanged
period-to-period, but we recorded higher foreign exchange losses in 2013 due to the cash settlement of all intercompany balances existing
between our U.S. and Canadian operations. We also recognized higher losses on financial instruments which were primarily attributable to the
interest rate swaps we entered into in the third quarter of 2013. Finally we recorded lower income tax expense as a result of generating lower
income before tax for the reasons outlined above. We did benefit however, from a lower overall tax rate as a result of implementing our
long-term financing structure between Progressive Waste Solutions Ltd. and its primary operating subsidiaries.
Net income in the fourth quarter of 2013 was higher than net income for the same period in 2012. The largest single reason for the increase was
due to the loss we recorded in the fourth quarter of 2012 on the extinguishment of debt. In the fourth quarter of 2012, we entered into a
consolidated credit facility agreement and concluded that the modification of previously existing debt facilities constituted an extinguishment.
Accordingly, we recorded a charge of approximately $16,900 in the fourth quarter of 2012 on the extinguishment. We also recorded a debt
extinguishment charge in the fourth quarter of 2013 as a result of repaying a previously issued IRB, but the 2013 charge was much lower. Net
income in the fourth quarter of 2013 also benefited from gains recognized on financial instruments compared to the same quarter in 2012. The
primary reason for the 2013 gain was due to interest rate swaps we entered into in 2013 on notional borrowings of approximately $535,000.
Net income in the fourth quarter of 2013 also benefited from the third quarter implementation of our long-term financing structure. The
implementation of this structure was the primary reason for the decline in net income tax expense quarter-to-quarter. Net income was also
impacted by higher interest expense. Higher interest expense was, in part, the result of interest rate swaps entered into the last half of 2013,
which gave rise to an approximately $1,700 increase in comparative interest charges. In addition, we entered into an amending agreement in
respect of our consolidated facility and incurred additional fees in respect of the amendment. Higher deferred financing cost amortization
charged to interest expense, in the fourth quarter of 2013 compared to the same period last year, represents an approximately $300 increase in
interest expense comparatively. Partially offsetting the increases to interest expense were lower overall borrowings, better borrowing spreads
on amounts borrowed and lower borrowing costs incurred due to the repayment of our Seneca IRB. Operating income was lower
quarter-over-quarter on higher revenues. The primary reason for this result was the Calgary closure. We also incurred higher bad debt expense
in 2013 and did not recognize the same benefit recorded in 2012 from a reduction to bonus and LTIP plan compensation expense.
The variability of net income quarter-to-quarter is due in large part to the fluctuation of non-operating variables which are largely outside of our
control, and in certain circumstances are the result of the accounting treatment we have elected to take. Additionally, non-recurring or
non-operational items have also impacted net income performance quarter-to-quarter.
Net income per weighted average share, basic and diluted
2014-2013
Net income per weighted average share was lower in the first quarter and fourth quarters of 2014 versus the same periods last year, due
principally to a decline in net income, details of which are outlined above. The comparative change in our weighted average share count wasn’t
significant and as such did not have a meaningful impact on the calculation of net income per weighted average share.
Net income per weighted average share was higher in the second and third quarters of 2014 versus the same periods last year on better net
income, details of which are outlined above. The comparative change in our weighted average share count wasn’t significant and as such did
not have a meaningful impact on the calculation of net income per weighted average share.
36
2013-2012
Net income per weighted average share was higher in the first, second and fourth quarters of 2013 versus the same periods in 2012 and slightly
lower in third quarter comparatively. The improvement or decline in net income is outlined above. The comparative decline in weighted
average shares outstanding contributed positively to net income per weighted average share in all 2013 quarters and was due to the repurchase
of shares in 2012.
Financial Condition
(all amounts are in thousands of shares and U.S. dollars, excluding per share amounts, unless otherwise stated)
Selected Consolidated Balance Sheet Information
Canada December 31,
2014 (*)
Accounts receivable
Intangibles
Goodwill
Landfill development assets
Capital assets
Landfill assets
Working capital (deficit) position
- (current assets less current
liabilities)
$
$
$
$
$
$
$
104,504
58,177
362,599
14,463
360,141
156,536
U.S. December 31,
2014 (*)
$
$
$
$
$
$
(1,275 ) $
111,697
107,752
574,695
—
568,409
779,559
Consolidated December 31,
2014
$
$
$
$
$
$
(33,519 ) $
Canada December 31,
2013 (*)
U.S. December 31,
2013 (*)
$
$
$
$
$
$
114,772
74,464
383,473
14,413
379,206
180,706
$
$
$
$
$
$
(34,794 ) $
4,658
$
216,201
165,929
937,294
14,463
928,550
936,095
114,776
145,614
521,874
5,834
558,046
772,025
Consolidated December 31,
2013
$
$
$
$
$
$
229,548
220,078
905,347
20,247
937,252
952,731
(4,956 ) $
(298 )
Note:
(*) Includes certain corporate assets and liabilities, when applicable.
Accounts receivable - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
(13,347 )
(10,268 )
(3,079 )
The approximately $13,300 decline in consolidated accounts receivable is due in large part to the approximately $10,300 decline in Canadian
segment receivables. FX represents approximately $9,500 of the year-over-year change. When FX is excluded, the between period decline is
largely a reflection of lower volumes received at our Lachenaie and Ridge landfills. Lower volume received at the Ridge reflects the
management of waste volumes to the site’s annual cap restriction. Lost contracts for residential collection in eastern Canada and the timing of
payment from a city in western Canada for residential collection services, also contributed to the decline in accounts receivable year-over-year.
Volumes at our Ottawa landfill were higher than those received in the final months of the prior year and partially offset the trend to lower
receivables. In addition, the operation and delivery of gas from our natural gas plant at our Lachenaie landfill and higher receivables from
higher transfer station volumes in western Canada partially offset the declines in receivables noted above.
We classified our Long Island, New York operations as held for sale and transferred approximately $7,300 of accounts receivable balances to
held for sale on our balance sheet. The balance of the U.S. change is largely attributable to acquisitions completed late in the fourth quarter this
year. These acquisitions contributed approximately $6,500 to the change. In addition, the organic growth realized in our U.S. south segment,
was offset by lower receivables in the U.S. northeast. Lower U.S. northeast receivables were largely attributable to the second quarter sale of a
transfer station in the current year, coupled with lower comparative receivables at our Seneca Meadows landfill on lower comparative volumes.
Intangibles - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
(54,149 )
(16,287 )
(37,862 )
The consolidated decline in intangibles is largely attributable to amortization totaling approximately $56,400. Amortization in Canada and the
U.S. was approximately $15,000 and $41,400, respectively. In addition, we transferred approximately $10,300
37
of intangible assets attributable to our Long Island, New York operations to assets held for sale and realized an impairment loss on certain
customer lists in our U.S. northeast operations this year. U.S. south segment acquisitions that we completed this year partially offset the impact
of amortization, including the impairment loss, and the transfer of certain intangibles to assets held for sale.
In Canada, intangible amortization was partially offset by intangibles recognized on the purchase of the remaining fifty percent interest in our
equity accounted investee, approximately $4,400.
Goodwill - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
31,947
(20,874 )
52,821
We recognized goodwill of approximately $11,600 on the acquisition of the remaining fifty percent interest in our equity accounted investee in
Canada. This addition to Canadian segment goodwill was fully offset by the approximately $32,500 decline in goodwill attributable to the
change in FX. The change in our U.S. segment reflects goodwill from acquisitions completed in the current year, coupled with contingent
consideration paid in respect of a landfill acquisition completed in a previous year totaling approximately $68,800 in the aggregate. These
additions were partially offset by approximately $15,900 of goodwill classified to held for sale.
Landfill development assets - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
(5,784 )
50
(5,834 )
Landfill development assets declined approximately $5,800 year-to-year. In the current year, we secured our Jacksboro landfill permit and
reclassified approximately $5,800 of amounts from landfill development assets to landfill assets. We continue to develop a replacement landfill
in western Canada, which is the primary reason for the change in our Canadian segment, partially offset by FX.
Capital assets - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
(8,702 )
(19,065 )
10,363
Capital assets in our Canadian segment declined between years. Amortization of approximately $60,000, FX of approximately $32,800 and
working capital changes of approximately $200, outpaced additions of approximately $75,200, including capitalized interest, and capital
additions from acquisition, approximately $5,000. As noted in the Other Performance Measures section of this MD&A, replacement and
growth capital spending includes replacement spending for CNG vehicles to service certain residential collection contracts in central and
eastern Canada. Current year additions also include investment in our Lachenaie natural gas plant. In the current year, we disposed of select
assets which furthered the decline. The most notable disposal was the sale of buffer lands adjacent to our Calgary landfill, coupled with the
disposal of properties acquired in connection with the development of a replacement landfill in western Canada. The impairment of a sorting
and recycling asset in central Canada also contributed to the decline between years.
The increase in U.S. segment capital assets is due to additions of approximately $107,600 outpacing amortization of approximately $92,900.
Acquisitions completed in Texas this year contributed approximately $13,800 to the increase. Working capital and non-cash changes were also
higher year-to-year by about $17,100. These increases to capital were partially offset by normal course amortization, amounts transferred to
held for sale and net disposals. Current year additions reflect replacement and growth spending on vehicles and equipment, including CNG
vehicles and related infrastructure in our U.S. south segment. In addition, the disposal of certain capital assets, including the sale of a transfer
station in our U.S. northeast segment and the sale of certain redundant assets, including land in our Florida operations, were the primary
reasons for the approximately $7,400 decline in capital assets between years. Finally, we reclassified approximately $33,800 of capital assets
attributable to our Long Island, New York operations to assets held for sale.
38
Please refer to the Other Performance Measures — Capital and landfill purchases section of this MD&A for additional details of the
comparative change in current period additions.
Landfill assets - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
(16,636 )
(24,170 )
7,534
In total, landfill assets declined year-over-year. Total consolidated additions, approximately $54,600, were outpaced by FX and amortization,
approximately $14,600 and $68,000, respectively. Amortization is expressed net of amortization attributable to the capitalization of landfill
retirement obligations. The balance of the change is due to the reclassification of amounts from landfill development assets to landfill assets
upon successfully permitting our Jacksboro landfill and changes in non-cash working capital, partially offset by the disposal of certain assets on
the termination of our operating arrangement for a Louisiana based landfill.
In our Canadian business, amortization, including the amortization of capitalized landfill retirement obligations, totaled approximately $29,800,
and together with FX more than offset landfill asset additions and capitalized landfill retirement obligations. Landfill additions were
approximately $12,800, while capitalized landfill retirement obligations were approximately $4,000. Additions represent cell or site
development expenditures incurred principally at our Coronation, Lachenaie, Ridge, Ottawa and Winnipeg landfills. Working capital
adjustments increased landfill assets between periods.
In the U.S., additions were principally attributable to cell or site development at our Seneca Meadows and JED landfills and, in total, landfill
additions were approximately $41,800. Amortization, net of working capital changes, partially offset landfill asset additions and capitalized
landfill retirement obligations. As noted above, we reclassified amounts from landfill development assets to landfill assets upon successfully
obtaining a permit for our Jacksboro landfill and we disposed of certain assets on the termination of our operating arrangement for a Louisiana
based landfill which had a combined carrying amount of approximately $3,700.
Working capital position - December 31, 2014 versus December 31, 2013
Change - Consolidated
Change - Canada
Change - U.S.
$
$
$
(34,496 )
(5,933 )
(28,563 )
Our working capital position declined in Canada and the U.S.
In Canada, total current assets and liabilities declined approximately $13,900 and $8,000, respectively, including the impact of FX. FX
contributed to the decline in total current assets and liabilities by approximately $11,400 and $11,500, respectively. Expressed before the
impact of FX, total current assets in Canada declined approximately $2,500 and total current liabilities increased approximately $3,500. The
discussion that follows excludes the impact of FX.
Cash and cash equivalents were approximately $2,300 lower between years and accounts receivable declined about $800. The change in cash
and cash equivalents is a function of timing. The between period decline in accounts receivable is largely a reflection of lower volumes
received at our Lachenaie and Ridge landfills. Lower volume received at the Ridge reflects the management of waste volumes to the site’s
annual cap restriction. Lost contracts for residential collection in eastern Canada and the timing of payment from a city in western Canada for
residential collection services, also contributed to the decline in accounts receivable year-over-year. Volumes at our Ottawa landfill were higher
than those received in the final months of the prior year and partially offset the trend to lower receivables. In addition, the operation and
delivery of gas from our natural gas plant at our Lachenaie landfill and higher receivables from higher transfer station volumes in western
Canada partially offset the declines in receivables noted above. Prepaid expenses in Canada increased approximately $2,000 due to higher
prepaid insurance, vehicle licenses and software licenses. The increase in total current liabilities is due to an approximately $5,000 increase in
other current liabilities. Included in other current liabilities are fair value amounts for interest rate swaps and fuel hedges. Changes in interest
rates and an increase in the notional amount of debt we have hedged are the primary reasons for this increase. The recent decline in WTI crude
pricing and diesel fuel index has resulted in our fuel hedges being more expensive than the price we would incur to hedge fuel today. Other
changes in current liabilities include an approximately $2,900 decline in accrued charges, an approximately $1,400 decline in landfill closure
and post-closure costs, partially offset by higher deferred revenues, higher dividends payable and higher accounts payable, approximately
$1,100,
39
$700 and $500, respectively. The decline in accrued charges reflects lower accrued payroll amounts due to the timing of payroll payments
between years, partially offset by higher accrued interest charges. Lower landfill closure and post-closure costs reflect a variety of changes
between years, however the primary change is due to the estimated timing of spend at our Calgary site. At the end of 2013, we expected
spending in 2014 of approximately C$1,900, compared to approximately C$100 for the 2015 year. This difference reflects a change in our
capping plan for this site. The increase in deferred revenues is due to year-over-year organic growth in our business and certain pricing
initiatives implemented in December 2014. The increase in dividends payable is due to an increase in the Company’s annual dividend rate per
share, which increased Canadian four cents annually to Canadian sixty-four cents from Canadian sixty cents. The higher dividend rate per share
was partially offset by a lower outstanding share count resulting from share repurchases made in 2014. Finally, the increase in accounts payable
is not attributable to one significant event or series of events, and generally mirrors the organic growth in our business.
Our U.S. business saw its working capital position decline year-over-year by approximately $28,600. This decline reflects an increase in
current liabilities of approximately $36,500, partially offset by a rise in current assets of about $7,900. An approximately $43,600 increase in
accrued charges is the primary reason for the increase in current liabilities and reflects amounts owing for an acquisition we closed and
obtained control of on December 31, 2014, but didn’t pay for until January 2, 2015. Unlike our Canadian operations, the timing of payroll
payments did not result in a decline to accrued charges, rather accrued payroll increased approximately $4,100 between years. Accrued
insurance also increased on account of higher premiums and claims costs year-over-year. In addition to the increase in accrued charges, income
taxes payable also increased comparatively and this increase is due to withholding taxes payable. These amounts were partially offset by an
approximately $10,500 decline in accounts payable. A portion of the decline reflects lower compensation amounts payable, but the change
principally reflects timing of payment and amounts classified as held for sale. The increase in total current assets is largely attributable to the
approximately $12,500 increase in cash and cash equivalents. The principal reason for the elevated cash position is due to the timing of funding
for an acquisition we closed on December 31, 2014, but paid for in January. We classified our Long Island, New York operations as held for
sale and transferred approximately $7,300 of accounts receivable balances to held for sale on our balance sheet. The balance of the U.S. change
is largely attributable to acquisitions completed late in the fourth quarter this year. These acquisitions contributed approximately $6,500 to the
change. In addition, the organic growth realized in our U.S. south segment, was offset by lower receivables in the U.S. northeast. Lower U.S.
northeast receivables were largely attributable to the second quarter sale of a transfer station in the current year, coupled with lower
comparative receivables at our Seneca Meadows landfill on lower comparative volumes.
Disclosure of outstanding share capital
December 31, 2014
Shares
Common shares
Restricted shares
Total contributed equity
112,506
(399 )
112,107
$
1,734,372
(9,184 )
1,725,188
March 20, 2015
Shares
Common shares
Restricted shares
Total contributed equity
112,367
(399 )
111,968
$
1,732,637
(9,184 )
1,723,453
Normal course issuer bid (“NCIB”)
Effective August 28, 2014, we received approval for our NCIB to purchase up to 7,500 of our common shares over the next twelve months.
Daily purchases are limited to a maximum of 39.034 shares on the Toronto Stock Exchange (“TSX”). The TSX rules also allow us to purchase
a block of common shares, once a week, that are not owned by any insiders, and this block purchase can exceed our daily limit. We expect to
cancel any shares that are repurchased pursuant to the NCIB.
For the year ended December 31, 2014, 2,631 common shares were purchased and cancelled.
As of March 20, 2015, an additional 142 common shares have been purchased or settled.
40
Shareholders’ equity
We are authorized to issue an unlimited number of common, special and preferred shares, issuable in series.
Common Shares
Common shareholders are entitled to one vote for each common share held and to receive dividends, as and when determined by the Board of
Directors. Common shareholders are entitled to receive, on a pro rata basis, the remaining property and assets of the Company upon dissolution
or wind-up, subject to the priority rights of other classes of shares.
Special Shares
No special shares are outstanding. Special shareholders are entitled to one vote for each special share held. The special shares carry no right to
receive dividends or to receive the remaining property and assets of the Company upon dissolution or wind-up.
Preferred Shares
No preferred shares are outstanding. Each series of preferred share, when issued, will have rights, privileges, restrictions and conditions
determined by the Board of Directors prior to their issuance. Preferred shareholders are not entitled to vote, but take preference over the
common shareholders in the remaining property and assets of the Company in the event of dissolution or wind-up.
Liquidity and Capital Resources
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Contractual obligations
December 31, 2014
Payments due
Total
Long-term debt (current and long-term)
Interest on long-term debt (*)
Landfill closure and post-closure costs,
undiscounted
Interest rate swaps
Commodity swaps
Operating leases
Capital leases
Total contractual obligations
$
$
1,551,433
165,984
696,491
23,392
3,384
57,443
10,433
2,508,560
Less than 1 year
$
4,694
39,457
9,519
13,173
3,384
14,743
1,152
86,122
$
1-3 years
$
$
9,388
113,829
26,905
8,078
—
21,244
2,434
181,878
Greater than 5
years
4-5 years
$
$
1,473,351
12,339
15,706
1,496
—
11,134
2,618
1,516,644
$
$
64,000
359
644,361
645
—
10,322
4,229
723,916
Note:
(*) Long-term debt attracts interest at both fixed and variable interest rates. Interest on variable rate debt is calculated based on borrowings and
interest rates prevailing at December 31, 2014. Interest is calculated through the period to maturity for all long-term fixed rate debt instruments.
41
Long-term debt
Summarized details of our long-term debt facilities at December 31, 2014, are as follows:
Available
lending
Facility drawn
Available
capacity
Letters of credit
Credit Agreement
Revolving facility
Term B facility (*)
$
$
1,850,000
490,000
$
$
998,913
490,000
$
$
200,212
—
$
$
650,875
—
U.S. long-term debt facilities
Variable rate demand solid waste disposal revenue
bonds (“IRBs”) (**)
$
64,000
$
64,000
$
—
$
—
Note:
(*) Available lending and facility drawn amounts are expressed before debt discount of approximately $1,500.
(**) IRB drawings at floating rates of interest, will, under the terms of the underlying agreement, typically be used to repay revolving credit
advances on our consolidated facility. However, IRB drawings bearing interest at floating rates requires us to issue letters of credit equal to the
principal amount of the IRB drawn.
Funded debt to EBITDA (as defined and calculated in accordance with our consolidated facility)
At December 31, 2014, funded debt to EBITDA is as follows:
December 31, 2014
Funded debt to EBITDA
Funded debt to EBITDA covenant maximum
2.95
4.00
December 31, 2013
2.88
4.00
The ratio of funded debt to EBITDA includes first year pro forma EBITDA for completed acquisitions. Cash flows from acquisitions will
contribute to the improvement in funded debt relative to EBITDA in periods beyond the first year of operation. Cash flow contributions from
growth and infrastructure spending will also materialize over future periods and will improve this relationship as well.
Consolidated facility
On December 31, 2014, advances under the consolidated facility were approximately $998,900, excluding amounts drawn on the senior
secured term B facility, and total letters of credit amounted to approximately $200,200. Available capacity at December 31, 2014, excluding
the accordion, was approximately $650,900 and our funded debt to EBITDA ratio (as defined and calculated in accordance with our
consolidated facility) was 2.95 times. On a consolidated basis, net long-term debt repayments increased since December 31, 2013. Proceeds
from the sale of certain assets contributed to the increase in repayments between periods, and cash from operations outpaced capital and landfill
spending, share repurchases, acquisitions and dividend payments.
IRB — 2005 Seneca IRB Facility
In October 2005, we entered into a 30-year agreement with the Seneca County Industrial Development Agency. This agreement made $45,000
available to us to fund a portion of our Seneca Meadows landfill construction and equipment expenditures. The IRB originally bore interest at
LIBOR less an applicable discount, but was remarketed in August 2008 at a fixed rate of 6.625% for a 5 year term maturing on October 1,
2013. On October 1, 2013, we drew on our consolidated facility and repaid this IRB in full.
Interest rate swaps
Since August 2013, we have entered into interest rates swaps to fix the interest rate on $825,000 of notional borrowings under our consolidated
facility. At current LIBOR rates, the annualized increase in interest expense attributable to these swaps is approximately $14,800.
Consolidated lending facility — initial drawing October 24, 2012
Effective October 24, 2012, we entered into a $2,350,000 Credit Agreement and concurrently repaid all outstanding indebtedness under our
Canadian and U.S. facilities and our series B, senior secured debenture. The borrower under the consolidated facility is Progressive Waste
Solutions Ltd. (“Progressive”) and the facility is guaranteed by all subsidiaries of Progressive, excluding certain subsidiaries as permitted by
the consolidated facility. The consolidated facility is comprised of a $500,000 seven-year senior secured term B facility, which was fully drawn
on October 24, and a $1,850,000 five-year senior
42
secured revolving facility (“consolidated revolver”). The consolidated facility has a $750,000 accordion feature, which is available subject to
certain conditions. Proceeds from the consolidated facility were used to refinance previously existing indebtedness and may be used for
permitted acquisitions, as defined by the agreement, capital expenditures, working capital, letters of credit and for general corporate purposes.
Amounts drawn on the consolidated revolver, plus accrued interest, are repayable in full at maturity. The term B facility is subject to principal
amortization of one percent per annum, payable quarterly. All final payment amounts outstanding under the term B facility, plus accrued
interest, are repayable in full at maturity. The term B facility is also subject to mandatory prepayment if certain conditions exist, which include
net cash proceeds from the sale of assets, the issuance of additional indebtedness that does not constitute permitted indebtedness and a
percentage of excess cash flow, all of which are subject to various conditions. The Company is required to provide its consolidated facility
lenders with a first priority perfected security interest in all the present and future assets of it and its subsidiaries, including all present and
future intercompany indebtedness and a pledge of all of the equity interests in each of the Company’s direct and indirect subsidiaries, subject to
certain conditions. Certain subsidiaries, real estate and equipment are excluded from the first priority perfected security requirement unless
requested by the lenders. The consolidated facility permits a maximum consolidated total funded debt to four-quarter consolidated EBITDA
ratio (“leverage ratio”) of four times, as defined therein. In the event the Company delivers to its lenders a corporate credit rating from
Standard & Poor’s (“S&P”) or Moody’s of at least BBB-/Baa3 (with a stable outlook or better), the Company may elect to have the security
interests of the lenders terminated, provided the term B facility is repaid in full, at which time the maximum leverage ratio declines to three and
one half times. The leverage ratio increases to four and one half times if the Company obtains unsecured indebtedness in an aggregate amount
of not less than $250,000 and remains at this ratio for as long as the unsecured indebtedness remains outstanding. The consolidated facility also
requires a minimum four quarter consolidated EBITDA to consolidated interest expense ratio (“interest coverage ratio”) of two and one half
times, subject to certain conditions, and two and three quarter times if the Company elects to have the security interests of the lenders
terminated. Borrowings on the consolidated revolver are available in either U.S. or Canadian dollars. Pricing on the consolidated facility for
U.S. base and Canadian prime rate loans is the U.S. base or Canadian prime rate plus an applicable margin which ranges from 0.50% to 1.25%
depending on the Company’s leverage ratio. Borrowings on LIBOR based or BA loans are LIBOR or BA plus 1.50% to 2.25% depending on
the Company’s leverage ratio. BA equivalents are priced at the BA equivalent plus 10 basis points plus 1.50% to 2.25%. Letter of credit fees
are 1.50% to 2.25% and the commitment fee is 0.25% to 0.50%. For the first six months following the closing of the facility, the applicable
margin for LIBOR, BA and BA equivalent loans was no less than 2.0% per annum, the applicable margin for U.S. base or Canadian prime rate
loans was no less than 1.0% per annum and the commitment fee was no less than 0.375%. If an event of default occurs, the applicable margin
on all obligations owing under the consolidated facility would increase by 2.0% per annum. Letter of credit and commitment fees are payable
quarterly in arrears. Interest on borrowings is payable quarterly in arrears for U.S. base and Canadian prime rate loans and monthly in advance
on BA loans. Interest on LIBOR based loans is payable in arrears in accordance with the tenor of the drawing. Pricing on the term B facility is
LIBOR plus 275 basis points, subject to a LIBOR floor of 75 basis points, or U.S. base plus 175 basis points.
Effective November 26, 2013, we entered into an amending agreement to our consolidated facility which provides lower applicable margins on
both the term B facility and consolidated revolver drawings. The amendment also extended the maturity of the consolidated revolver to
October 24, 2018 and increased the thresholds for mandatory prepayments. All other significant terms were unchanged.
Working capital
Our consolidated working capital deficit at December 31, 2014, is approximately $34,800. It is common for us to operate with a slight working
capital position or deficit. The decline in our working capital position reflects an increase in current liabilities attributable to an acquisition we
closed on December 31, 2014, but funded January 2, 2015. Details of the change in our working capital position can be found in the Financial
Condition section of this MD&A. Our treasury function actively manages the Company’s available working capital with the mandate of
reducing accounts receivable days outstanding, actively managing payments to our suppliers, and limiting the amount of cash and cash
equivalents on hand in favour of reducing long-term debt advances, amongst others. Our ability to generate cash from operations is healthy and
we view our access to funds available under our consolidated facility to be sufficient to meet our working capital needs. Please refer to the
Outlook section of this MD&A for additional discussion regarding our longer term liquidity requirements.
Risks and restrictions
Drawings on our term B facility, consolidated revolver and our IRBs are subject to interest rate fluctuations with bank prime, BAs or LIBOR.
Term B facility drawings, $490,000, expressed before debt discount, consolidated revolver drawings $173,913, expressed net of interest rate
swaps on notional borrowing of $825,000, and amounts drawn on our IRBs at December 31, 2014, $64,000, are subject to interest rate risk. A
1.0% rise or fall in the variable interest rate results in a $4,900, $1,739 and $640, change in annualized interest expense, respectively. A rise or
fall in interest expense incurred by our Canadian business
43
has a direct impact on current income tax expense. Accordingly, an increase in interest expense reduces current income tax expense. Our U.S.
business currently has losses available to shelter income otherwise subject to tax. Accordingly, an increase in interest expense results in lower
deferred income tax expense. The inverse relationship between interest expense and both current and deferred income tax expense holds true
for our Canadian and U.S. businesses should interest rates decline.
We are obligated under the terms of our consolidated facility and IRBs (collectively the “facilities”) to repay the full principal amount of each
at their respective maturities. A failure to comply with the terms of any facility could result in an event of default which, if not cured or waived,
could accelerate repayment of the underlying indebtedness. If repayment of the facilities were to be accelerated, there can be no assurance that
our assets would be sufficient to repay these facilities in full. Based on current and expected future performance, we expect to refinance these
facilities in full on or before their respective maturities.
The terms of the facilities contain restrictive covenants that limit our discretion with respect to certain business matters. These covenants place
restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other encumbrances, to make certain
payments, investments, loans and guarantees, and to sell or otherwise dispose of assets and merge or consolidate with another entity. In
addition, the consolidated facility contains financial covenants that require us to meet certain financial ratios and financial condition tests. A
failure to comply with any of the terms of these facilities could result in an event of default which, if not cured or waived, could result in
accelerated repayment. If the repayment of these facilities were to be accelerated, there can be no assurance that our assets would be sufficient
to repay the facilities in full.
Fuel hedge and interest rate swaps at December 31, 2014
U.S. fuel hedges
Date entered
June 2012
June 2012
Notional
amount (gallons
per month
expressed in
gallons)
150,000
150,000
Diesel rate paid
(expressed in
dollars)
$
$
Diesel rate received variable
3.62
3.72
Diesel Fuel Index
Diesel Fuel Index
Effective date
January 2015
January 2015
Expiration date
December 2015
December 2015
Canadian fuel hedges
Date entered
June 2012
Notional
amount (litres
per month
expressed in
litres)
520,000
Diesel rate paid
(expressed in
C$)
$
Diesel rate received variable
0.57
NYMEX WTI Index
44
Effective date
January 2015
Expiration date
December 2015
Interest rate swaps
Notional
amount
Date entered
August 2013
August 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
October 2013
October 2013
October 2013
October 2013
November 2013
November 2013
December 2013
December 2013
December 2013
December 2013
December 2013
December 2013
December 2013
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
July 2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
35,000
40,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
15,000
20,000
25,000
25,000
20,000
20,000
10,000
15,000
15,000
15,000
30,000
25,000
25,000
25,000
25,000
20,000
20,000
20,000
20,000
30,000
35,000
25,000
20,000
Fixed interest
rate (plus
applicable
margin)
2.97 %
2.96 %
1.10 %
1.10 %
1.95 %
1.95 %
2.30 %
2.30 %
1.60 %
1.60 %
1.51 %
1.53 %
2.65 %
2.64 %
1.50 %
1.50 %
2.18 %
2.17 %
2.96 %
0.75 %
0.79 %
1.62 %
1.66 %
2.25 %
2.26 %
2.25 %
2.78 %
1.67 %
1.67 %
2.27 %
2.26 %
2.79 %
1.64 %
1.03 %
2.65 %
Variable
interest rate
received
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
Effective date
Expiration date
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
September 2013
October 2013
October 2013
October 2013
October 2013
November 2013
November 2013
December 2013
December 2013
January 2014
January 2014
January 2014
January 2014
January 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
March 2014
July 2014
September 2023
September 2023
September 2016
September 2016
September 2018
September 2018
September 2020
September 2020
September 2018
September 2018
September 2018
September 2018
September 2023
September 2023
September 2018
September 2018
September 2020
September 2020
September 2023
September 2016
September 2016
September 2018
September 2018
March 2021
March 2024
March 2021
March 2024
March 2019
March 2019
March 2021
March 2021
March 2024
September 2018
March 2017
June 2024
Credit ratings of securities and liquidity
Our access to financing depends on, among other things, market conditions and maintaining our credit ratings. Our credit ratings may be
adversely affected by various factors, including increased debt levels, declines in customer demands for our services, increased competition, a
deterioration in general economic and business conditions and adverse publicity. Any downgrades in our credit ratings may impede our access
to debt markets, raise our borrowing rates or affect our ability to enter into interest rate swaps, preclude us from entering into commodity swaps
to hedge diesel fuel or other commodities or enter into foreign exchange currency agreements.
Ratings
Moody’s Investor Service (“Moody’s”) has rated our consolidated facility as Ba1, with a stable outlook. Standard & Poor’s (“S&P”) has
assigned a rating of BBB stable.
45
Cash flows
Year ended
December 31
2013
2014
Change
Cash flows generated from (utilized in):
Operating activities
Investing activities
Financing activities
$
$
$
399,726
(289,455 )
(94,747 )
$
$
$
450,735
(261,766 )
(183,512 )
$
$
$
(51,009 )
(27,689 )
88,765
Operating activities
Year ended
Overall, we expect working capital changes to reflect the growth in our business, be it organic or acquisition. We also expect non-cash working
capital changes in the first half of the year to reflect a use of cash due to the timing of cash compensation payments. Cash compensation
payments accrued at the end of a year are typically made in the first quarter of the following year. We further expect non-cash working capital
uses to increase in tandem with the seasonal nature of our business.
Cash generated from operating activities declined approximately $51,000 compared to last year. The most significant reason for the decline is
due to the year-over-year change in non-cash working capital of approximately $32,200. The change in non-cash working capital is addressed
in the Financial Condition section of this MD&A. The increase in cash used for non-cash working capital was accompanied by lower, as
reported, EBITDA (A) , which declined approximately $12,800 compared to last year. Each component comprising EBITDA (A) is addressed in
the Review of Operations section of this MD&A. The balance of the decline is due to higher cash taxes, reflecting higher withholding taxes on
dividends paid from our U.S. operation to its Canadian parent. This change is discussed in greater detail in the Review of Operations section of
this MD&A.
Investing activities
Year ended
Cash utilized in investing increased approximately $27,700 versus last year. Acquisitions completed in the current year, were about $74,400
higher than last year. The most notable acquisition was the purchase of a Texas based collection company late in the fourth quarter this year.
The increase in cash utilized for investment in acquired companies, was partially offset by lower capital and landfill asset expenditures totaling
approximately $36,400. The year-over-year changes in capital and landfill asset additions are outlined in the Other Performance Measures
section of this MD&A. We also received higher proceeds from asset sales of approximately $7,300 and details of this change are outlined in the
Review of Operations section of this MD&A.
Financing activities
Year ended
Cash utilized in financing activities was lower in the current year compared to last year. We used more cash in the current year toward the
repurchase of shares, approximately $80,800, compared to prior year share repurchases of $nil. However, higher comparative long-term
drawings of approximately $164,000, for acquisitions and a portion of the shares we repurchased in the current year, reduced cash utilized in
financing activities between years.
We have a strong ability to generate cash from operations and we expect the cash derived from operations will be sufficient to continue
supporting our base operations for the foreseeable future. We don’t anticipate a change to this expectation in the near to midterm and remain
confident that we can continue to borrow on our consolidated facility or raise capital in the equity markets as required.
Critical Accounting Estimates
General
We use information from our financial statements, which are prepared in accordance with U.S. GAAP, in the preparation of our MD&A. Our
financial statements include estimates and judgments that affect the reported amounts of our assets, liabilities, revenues, expenses and, where
and as applicable, disclosures of contingent assets and liabilities. On a periodic basis we evaluate our estimates, including those that require a
significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Significant areas of estimate and judgment include,
amongst others, landfill closure and post-closure costs, landfill assets, goodwill, including assumptions used in our determination of
impairment, deferred income taxes, accrued insurance reserves and other areas of our business that require judgment. Our estimates and
judgments are based on
46
historical experience, our observance of trends, and information, valuations and other assumptions that we believe are reasonable to consider
when making an estimate of the fair value of assets and liabilities. Due to the inherent complexity, judgment and uncertainty in estimating these
amounts, actual amounts could differ significantly from our estimates.
Areas requiring the most significant estimate and judgment are outlined below.
Landfill closure and post-closure costs
In the determination of landfill closure and post-closure costs we use a variety of assumptions, including but not limited to, engineering
estimates for materials, labour and post-closure monitoring, assumptions market place participants would use to determine these estimates,
including inflation, markups, and inherent uncertainties due to the timing of work performed, the credit standing of the Company, the risk free
rate of interest, current economic and financial conditions, landfill capacity estimates, the timing of expenditures and government oversight and
regulation.
Significant increases or decreases in engineering cost estimates for materials, labour and monitoring or assumptions market place participants
would use to determine these estimates could have a material adverse or positive impact on our financial condition and operating performance,
all else equal. The cost of material inputs which fluctuate with changes in commodity prices, including fuel or other commodities, could result
in a rise or fall in engineering cost estimates. An increase or decrease in any cost estimate is recognized over the period in which the landfill
accepts waste. However, upward revisions in cost estimates are discounted applying the current credit adjusted risk free rate, while downward
revisions are discounted applying the risk free rate when the estimated closure and post-closure costs were originally recorded or a weighted
average credit adjusted risk free rate if the period of original recognition cannot be identified.
Landfill closure and post-closure costs are estimated applying present value techniques. Accordingly, a decline in either the risk free rate or our
credit spread over the risk free rate, or both, results in higher recorded landfill closure and post-closure costs. Inversely, an increase will result
in lower recorded landfill closure and post-closure cost accruals. Fluctuations in either of these estimates could have a material adverse or
positive effect on our financial condition and operating performance.
A decrease or increase in the expected inflation rate will result in lower or higher recorded landfill closure and post-closure costs. A change to
our inflation estimate could have a material adverse or positive effect on our financial condition and operating performance.
Landfill capacity estimates are developed at least annually using survey information typically provided by independent engineers or land
surveyors and are reviewed by management having the appropriate level of knowledge and expertise. An increase in landfill capacity estimates,
due to changes in the respective operating permit or design, deemed permitted capacity assumptions, or compaction, does not impact recorded
landfill closure and post-closure costs, but does impact the recognition of expense in subsequent periods. All else equal, accretion expense,
which is recorded to operating expenses, will increase over the life of the site and thereby reduce adjusted EBITDA (A) . Landfill amortization
expense will decline by a similar amount. The inverse holds true for a decrease in capacity estimates. Changes in landfill capacity estimates
could have a material adverse or positive impact on our operating performance if the change in estimate was significant.
Changes to the timing of expenditures or changes to the types of expenditures or monitoring periods established by governmental oversight and
regulation could have a material adverse or positive impact on our financial condition and operating performance. If the timing of expenditures
becomes more near-term, recorded landfill closure and post-closure costs will increase. Changes in governmental oversight and regulation
could increase or decrease estimated costs or the timing thereof, or result in additional or diminished capacity estimates as a result of permit life
expansion or contraction. A governmental change which renders the landfill’s operating permit inactive will result in the acceleration of both
closure and post-closure cost spending, which will increase the recorded amount of landfill closure and post-closure costs, and these amounts
could be material.
Competitive market pressures or significant cost escalation may not be recoverable through gate rate increases and could impact the
profitability of our landfills or their ability to operate as going concerns.
As landfills near the end of their active life, any change in estimate can have a significant impact on landfill closure and post-closure cost
accruals as the term to spending is more near compared to longer-lived landfill sites.
47
Landfill assets
Similar to landfill closure and post-closure costs, the determination of landfill asset amortization rates requires us to use a variety of
assumptions, including but not limited to, engineering estimates for materials and labour to construct landfill capacity, estimates of landfill
capacity, and assumptions pertaining to governmental oversight and regulation.
Changes to any of our estimates, including changes to material inputs tied to commodity prices, economic and socio-economic conditions that
impact the rate of inflation, changes to landfill operating permits or design, deemed permitted capacity assumptions, compaction estimates that
impact landfill capacity expectations or a change in government or a governmental regulation that impacts estimated costs to construct or
impacts our capacity assumptions, may have a material adverse or positive impact on our financial condition and results of operations. Changes
which increase cost estimates or reduce or constrain capacity estimates will result in higher landfill asset amortization expense in subsequent
periods, but have no immediate effect on capitalized landfill assets unless the asset is determined to be impaired. Higher landfill asset
amortization will be recorded over a shorter period of time to reflect the shortened life of the site. Changes which decrease cost estimates or
increase capacity estimates will have the inverse effect.
Included in the capitalized cost of landfill assets, are amounts incurred to develop, expand and obtain landfill operating permits in addition to
capitalized interest costs which are capitalized over the period when portions of the landfill are being constructed but are not available for use.
We don’t typically attract capitalized interest to landfill assets under construction until such time as the investment in the project exceeds
$1,000. All amounts capitalized to landfill assets are amortized over the period in which the landfill actively accepts waste. Accordingly, any
change to capacity estimates will impact the period over which these costs are amortized. A governmental change which renders the landfill’s
operating permit inactive will result in the recognition of an impairment charge to landfill assets, and this charge could be material.
Competitive market pressures or significant cost escalation may not be recoverable through gate rate increases and could impact the
profitability of the landfills operation and its ability to operate as a going concern.
Goodwill
Goodwill is not amortized and is tested annually for impairment or more frequently if an event or circumstance occurs that more likely than not
reduces the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include: a significant adverse
change in legal factors or in the business climate; an adverse action or assessment by a regulator; unanticipated competition; the loss of key
personnel; a more likely than not expectation that a significant portion or all of a reporting unit will be sold or otherwise disposed of; the testing
for write-down or impairment of a significant asset group within a reporting unit; or the recognition of a goodwill impairment loss by a
subsidiary that is a component of the reporting unit. Goodwill is not tested for impairment when the assets and liabilities that make up the
reporting unit have not changed significantly since the most recent fair value determination, when the most recent fair value determination
exceeds the carrying amount by a substantial margin, and when an analysis of events that have occurred and circumstances that have changed
since the most recent fair value determination suggest that the likelihood of the reporting units fair value is less than its carrying amount is
considered remote.
The impairment test is a two-step test. The first test requires us to compare the estimated fair value of our reporting units to their carrying
amounts. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired. However, if
the carrying amount of the reporting unit exceeds its estimated fair value, the estimated fair value of the reporting unit’s goodwill is compared
to its carrying amount to measure the resulting amount of impairment loss, if any. The second step of the test requires us to determine the
estimated fair value of goodwill in the same manner goodwill is determined in a business combination, representing the reporting units’ excess
estimated fair value over amounts assigned to its identifiable assets and liabilities. The estimated fair value of a reporting unit is the amount it
can be bought or sold in a current transaction between willing parties, that is, other than in a forced sale or liquidation. We utilize a discounted
future cash flow approach to determine our estimate of fair value, but also consider additional measures of value as well. Accordingly, we
compare the estimated fair value derived from the use of the discounted future cash flow approach to other fair value measures, which may
include adjusted EBITDA (A) multiplied by a market trading multiple, offers from potential suitors, where available, or appraisals. In certain
circumstances, alternative methods to determine an estimate of fair value may prove more accurate. If our enterprise value declines as a result
of share price erosion or our adjusted EBITDA (A) declines due to recession or loss of business, goodwill may be impaired and could have a
material adverse impact on our financial condition and operating performance.
Our annual impairment test was completed on April 30, 2014 and we concluded that the fair value of all our reporting units exceeded their
carrying amounts. However, in determining the fair value of our U.S. northeast reporting unit we included the expected cash flows attributable
to successfully securing a long-term contact with New York City. We also noted that should
48
the prospects of securing a long-term contract with the city become less certain or we are not awarded the contract, the fair value of our U.S.
northeast reporting unit would be less than its carrying amount and we would be required to perform the second step of the impairment test to
determine the resulting impairment loss.
Update — December 31, 2014
Long Island, New York operations held for sale
Due to the classification of our Long Island, New York operations as held for sale, we analyzed if the carrying amount of goodwill in our U.S.
northeast reporting unit exceeded its fair value. Our analysis supported that it was not likely that the fair value of our U.S. northeast segment
was less than its carrying amount, and further concluded that the second step of the goodwill impairment test was unnecessary.
New York City long-term contract
Financial Accounting Standards Board’s (“FASB”) guidance on intangibles — goodwill and other, addresses, amongst other things, the
considerations and steps an entity is required to undertake to test goodwill for impairment. The guidance also requires that goodwill of a
reporting unit should be tested between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair
value of the reporting unit below its carrying amount.
Goodwill is tested for impairment at the reporting unit level. A reporting unit is an operating segment or one level below, referred to as a
component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial
information is available and the information is regularly reviewed by segment management. We have defined our operating segments as
follows: Canada, U.S. northeast and U.S. south which are also our reporting units. The amount of goodwill assigned to each reporting unit and
the methodology we employed to make such assignments has been applied on a consistent basis.
Our annual impairment test was completed on April 30, 2014 and at that time we concluded that the estimated fair value of the U.S. northeast
reporting unit exceeded its carrying amount by a substantial margin. However, in determining the fair value of the U.S. northeast reporting unit
in the April test we included the expected cash flows attributable to successfully securing a long-term contract with New York City. In
October 2014, certain developments, including current local support for the development of the operating location necessary to execute the
New York City long-term contract, made the likelihood of being awarded the contract indeterminate at that time. In light of those
developments, we were required to re-perform step one of the goodwill impairment test to determine if the carrying amount of our U.S.
northeast reporting unit was in excess of its fair value. The results of our step one test indicated that this reporting unit may be impaired.
Accordingly, we performed step two of the goodwill impairment test with the assistance of an independent valuation firm.
Step two of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The
fair value of goodwill for our U.S. northeast reporting unit was determined in the same manner as the value of goodwill is determined in a
business combination, whereby the excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the fair
value of goodwill. Fair value is the amount at which an item can be bought or sold in a current transaction between willing parties, other than in
a forced sale or liquidation.
We applied certain valuation and appraisal techniques appropriate for the asset or liability being fair valued. For example, the Company’s
vehicles and other equipment were valued applying both the indirect and direct valuation approaches. Fair values attributable to customer list
intangibles, landfill assets and trade names were determined applying a discounted cash flow approach and the cost method was applied to
determine the fair value of the Company’s transfer station permits.
The results of our step two test of impairment support the carrying amount of goodwill in our U.S. northeast reporting unit. The estimated fair
value of goodwill derived from our step two test was $125,700, which was approximately $42,900 higher than its carrying amount.
All things equal, the step one test of impairment is expected to continue to fail at each subsequent annual test of impairment. Accordingly, and
in accordance with the accounting guidance, we’ll have to prepare a step two test of impairment at each annual testing date, or earlier if a
triggering event occurs in an interim period that indicates the carrying amount of goodwill is higher than its fair value.
To estimate the fair value of this reporting unit, we utilize a discounted future cash flow approach. We have determined that the discounted
future cash flow approach is the most appropriate for the following reasons: comparable prices for the sale of a business of the same size and
composition of operations were not readily available and we employ the discounted future
49
cash flow approach when we value and acquire companies and therefore believe that a market participant would apply a similar approach. We
also estimate fair value applying the market multiple approach. Our estimate of fair value applying the market multiple approach, is compared
to the results from our discounted cash flow approach as a measure of reasonability. The primary assumptions used in our discounted cash flow
calculation include revenue growth, capital and landfill spending, margins, acquisitions, corporate cost allocations and tax and discount rates.
The primary assumptions used in our most recent estimate of fair value included the following: revenue growth of 2.0%; capital and landfill
expenditures equal to 16.4% of revenue in year one, declining by 2.7% in year 2, a further 1.6% in year 3 and 4 and 1.5% in year 5, until capital
and landfill expenditures reached 9.0% of revenues; revenue less operating and SG&A expense margin averaging 23.3% in the first four years
and 25.2% beyond year 5 with no change to margins thereafter; administrative costs specific to our regional office are assumed to be $nil; no
acquisitions or corporate cost allocations were assumed; a tax and discount rate of 40% and 7.9%, respectively, were applied.
There is inherent subjectivity in estimating fair value. Accordingly, changes in any one of these assumptions could have a significant impact on
the estimates of fair value of goodwill we derived for our U.S. northeast reporting unit. While we believe our revenue growth assumption of
2.0% is achievable, an increase in competition, a change in our strategic direction, or changes in the economic environment could cause our
actual results to differ and cause the fair value of our U.S. northeast reporting unit to decline to a point where the carrying amount of goodwill
is impaired. In addition, our revenue growth assumption assumes our Bethlehem landfill is re-permitted and continues to receive waste through
2035. Our revenue growth assumption also assumes that each of our landfills will continue to receive waste volumes at current levels over the
remaining life of each site. A decline in the receipt of volumes may extend the life of any or all of these sites, but the realization of cash would
be pushed further into the future. Should this occur, our estimate of fair value for this region could decline, which could cause the estimated fair
value of goodwill to be less than its carrying amount. Our estimate of the U.S. northeast reporting unit’s fair value assumes we are not awarded
the New York City long-term plan. This assumption reflects our inability to predict the outcome and not our belief about the likelihood of the
contract’s ultimate award. If we were awarded the New York City long-term plan, our estimate of fair value for our U.S. northeast reporting
unit would change, and we believe the resulting change would be positive to our estimate of fair value for this region. We also view our capital
expenditure assumption as reasonable, however, an increase in the cost of capital, an increase in the purchase of CNG collection vehicles,
changes in regulations that cause an increase in the costs to construct a landfill, could all cause our estimate of capital expenditures to increase.
Should this occur, our estimate of cash flows attributable to our U.S. northeast reporting unit could decline and result in a lower estimate of fair
value for this region. For the purpose of estimating the fair value of our U.S. northeast reporting unit, we have assumed margins remain
unchanged in year 5 and beyond. We believe that this expectation is reasonable, but recognize that its achievement is conditional on this
region’s competitive and economic environment and the strategic direction taken. Should any of these variables change, margins could expand
or contract compared to the margins we have assumed. A significant change in this assumption would result in a different estimate of fair value
and this difference in estimate would further support the carrying amount of goodwill in this region or potentially render it impaired.
Acquisitions represent a component of our growth strategy, but since there is no way to accurately predict when an acquisition is completed or
in what amount, we have assumed no acquisitions in our estimate of fair value. Future acquisitions could impact, amongst other things, the
margins we derive from our operations, the capital spending we expect and our expectations for revenue growth. Our estimate of fair value
assumes a discount rate of 7.9%. Our discount rate is a reflection of a market participant’s cost of debt and equity, and reflects, amongst other
things, strength or weakness in the economy. A 10 basis point change in the weighted average cost of capital results in a nearly $8,000 change
in our estimate of fair value for our U.S. northeast reporting unit. Accordingly, should economic events cause our weighted average cost of
capital to increase, our estimate of fair value would decline and could cause the carrying amount of goodwill to exceed its fair value.
The net carrying amount of goodwill allocated to the U.S. northeast segment, net of impairment charges, at December 31, 2014 is
approximately $82,800.
Deferred income taxes
Deferred income taxes are calculated using the liability method of accounting. Deferred income tax assets and liabilities are determined based
on differences between the financial reporting and tax base of assets and liabilities, and are measured using enacted tax rates and laws. The
effect of a change in tax rates on deferred income tax assets and liabilities is recorded to the statement of operations and comprehensive income
or loss in the period in which the change in tax rate occurs. Unutilized tax loss carryforwards that do not meet the more likely than not
threshold are reduced by a valuation allowance to determine the resulting deferred income tax assets.
50
Significant changes to enacted tax rates or laws, or estimates of timing differences and their reversal, could result in a material adverse or
positive impact on our financial condition and operating performance. In addition, changes in regulation or the inability to generate sufficient
taxable income could impact our ability to utilize our tax loss carryforwards, which could have a significant impact on deferred income tax
assets and liabilities we record.
The recognition of deferred tax assets attributable to unutilized loss carryforwards considers both our historical and future ability to generate
income subject to tax. Should we be unable to generate sufficient income subject to tax, deferred tax assets recorded in respect of unutilized
loss carryforwards may not be available to us prior to their expiry. Our intent is to maximize the use of all loss carryforwards available to us,
wherever possible, in advance of their expiry through the use of various strategies, including the deferral of discretionary tax deductions in
periods of loss carryforward expiry. Should we not be able to utilize certain deferred tax assets attributable to loss carryforwards, we would
record a deferred income tax expense in the period when we determine that the likelihood of not realizing these losses was more likely than not.
Our maximum exposure is equal to the carrying amount of the deferred tax asset attributable to loss carryforwards, approximately $62,600. In
light of our historical ability to generate income subject to tax and based on our expectations of generating income subject to tax in the
foreseeable future, we view the risk of not realizing these deferred tax assets as low.
Landfill closure and post-closure costs are not deductible for tax at the same time they are recognized as an expense for accounting.
Accordingly, we have a recorded a deferred tax asset due to the difference in timing of deductibility. When we assess the deductibility of the
resulting deferred tax asset applying the more likely than not threshold, we consider our historical financial performance, our expected future
financial performance and our relationships with all levels of government and community as key indicators that we will continue to operate as a
going concern. Based on our assessment, we have concluded that the risk of not recognizing these deferred tax assets as low.
Accrued insurance reserve
In the U.S. we are self-insured for certain general liability, auto liability and workers’ compensation claims. For certain claims that are
self-insured, stop-loss insurance coverage is maintained for incidents in excess of $250 and $500, depending on the policy period in which the
claim occurred. For claims where stop-loss insurance coverage is not maintained, additional insurance coverage has been added to cover claims
in excess of these self-insured levels. We use independent actuarial reports prepared quarterly, and annually, as the basis for developing our
estimates for reported claims and estimating claims incurred but not reported.
Significant changes to assumptions used to assess and accrue for accident claims reserves, including filed and unreported claims, claims
histories, the frequency of claims and claim settlement amounts, could result in a material adverse or positive impact on our financial condition
and operating performance.
Other
Other estimates are applied to, but are not limited to, our allowance for doubtful accounts receivable, recoverability assumptions for landfill
development assets, the useful life of capital and intangible assets, the fair value of contingent acquisition payments and assets and liabilities
acquired in a business combination, various economic estimates used in the development of fair value estimates, including but not limited to
interest and inflation rates, share based compensation, including a variety of assumptions and variables used in option pricing models and the
fair value of financial instruments.
New Accounting Policies Adopted or Requiring Adoption
Presentation of Financial Statements and Property, Plant and Equipment — Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity
In April 2014, FASB issued amendments to the requirements for reporting discontinued operations. The amended requirements define
discontinued operations as a component or group of components of an entity, or a business or nonprofit activity, that is disposed of, or is
classified as held for sale, and that represents a strategic shift that has or will have a major effect on an entity’s operations and financial results.
The amendments also include new disclosure requirements. For disposals of individually significant components that do not qualify as
discontinued operations, an entity must disclose pre-tax profit or loss attributable to the disposed component. This guidance is effective
prospectively for all reporting periods beginning after December 15, 2014. Early adoption is permitted, but only for disposals (or classifications
as held for sale) that had not been reported in financial statements previously issued or available for issue. We elected to early adopt the new
amendments and the adoption did not have a significant impact on our financial statements.
51
Revenue — Revenue from Contracts with Customers
In May 2014, FASB issued their final standard on revenue from contracts with customers. The standard provides a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer (step 1),
identifies the performance obligations in the contract (step 2), determines the transaction price (step 3), allocates the transaction price to the
performance obligations in the contract (step 4), and recognizes revenue when (or as) the entity satisfies a performance obligation (step 5). This
standard applies to all contracts with customers except those that are within the scope of other topics. Certain provisions of this standard also
apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (e.g.,
sales of property, plant, and equipment; land and buildings; or intangible assets) and existing accounting guidance applicable to these transfers
has been amended or superseded. Compared with current U.S. GAAP, this standard also requires significantly expanded disclosures about
revenue recognition. Broadly, an entity is required to disclose sufficient information to enable users of financial statements to understand the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Disclosure includes separately
disclosing revenues derived from contracts with customers from other sources of revenues and separately disclosing any impairment losses
recognized on any receivables or contract assets from other contracts. An entity is also required to disaggregate its revenues recognized from
contracts into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic
factors. Disaggregated revenues must be further reconciled to revenues presented on a reportable segment basis to allow financial statement
users to understand the relationship between disaggregated and reportable segment revenues. Disclosures are also required with respect to the
opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers, if not otherwise separately
presented and disclosed. In addition, revenue recognized in the reporting period that was included in the contract liability balance at the
beginning of the period is required disclosure, and revenue recognized in the reporting period from performance obligations satisfied, in full or
in part, in previous periods, must also be disclosed. Qualitative and quantitative disclosures for contract assets and liabilities must also disclose
changes resulting from business combinations, cumulative catch-up adjustments to revenues, including a change in the measure of a contracts
progress, a change in an estimate of the transaction price, a contract modification, a contract impairment, a change in the condition of rights or
a change in the time for a performance obligation to be satisfied. An entity must further disclose its significant performance obligations
included in its contracts with its customers, including when performance obligations are satisfied, the significant terms of payment, the nature
of the goods or services that an entity has promised to transfer, obligations for returns, refunds and any type of warranty or related obligation.
Any portion of the transaction price that is allocated to a performance obligation that is unsatisfied is required disclosure, including an
explanation of when the entity expects to recognize revenues pertaining to an unsatisfied performance obligation and disclosing numerically the
amounts to recognize over appropriate and relevant time bands. Significant judgments made assessing the timing of performance obligations
and determining the allocation of the transaction price to the performance obligations that could significantly impact the determination of
revenue recognized from contracts with customers must be disclosed. Performance obligations satisfied over time requires disclosure of the
method used to recognize revenue and a supporting explanation of why this method was chosen. Performance obligations satisfied at a point in
time must also be disclosed when significant judgments are made in evaluating when a customer obtains control of a good or service. For us,
this guidance is effective for annual reporting periods beginning after December 15, 2016, including each interim period thereafter. An entity
can chose to adopt this guidance applying one of two approaches:
a.
retrospective application for each prior reporting period presented, subject to certain practical expedients in respect of completed
contracts and transaction prices allocated to the remaining performance obligations that an entity expected to recognize as revenue, or
b.
retrospective application with the cumulative effect of initially applying this guidance recognized at the date of initial application.
If an entity elects this transition method it should also provide the additional disclosures in reporting periods that include the date of
initial application of, including the amount by which each financial statement line item is affected in the current reporting period by
the application of this guidance compared to the guidance that was in effect before the change and an explanation of the reasons for
significant changes.
Early application is not permitted.
We are still assessing the impact this guidance will have on our financial statements.
52
Compensation — Share Based Compensation
In June 2014, FASB issued guidance on how entities record compensation cost when an award participant’s requisite service period ends in
advance of the performance condition being satisfied. That is, when an award participant is eligible to vest in the award regardless of whether
the participant is rendering service on the date the performance target is achieved. The guidance requires entities to recognize compensation
cost in the period in which it becomes probable that the performance condition will be achieved and should record the compensation cost over
the period for which the award participant renders service. If the performance target becomes probable of achievement before the end of the
requisite service period, the remaining unrecognized compensation cost must be recognized over the remaining requisite service period. If the
achievement of the performance condition becomes probable after the award participants requisite service period, compensation cost will be
recognized immediately in the period when the performance condition becomes probable. The total amount of compensation cost recognized
during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those
awards that ultimately vest. The guidance also outlines that the grant date fair value of the award should not consider the performance condition
in its determination. This guidance is effective for all reporting periods beginning after December 15, 2015 with early adoption permitted. The
amendments are to be applied either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with
performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or
modified awards thereafter. We don’t anticipate this guidance having a significant impact on our financial statements.
Presentation of Financial Statements — Going Concern
In August 2014, FASB released additional guidance with respect to management’s responsibility to evaluate whether there is substantial doubt
about an entity’s ability to continue as a going concern. In connection with preparing financial statements for each annual and interim reporting
period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt
about the entity’s ability to continue as a going concern. Substantial doubt about an entity’s ability to continue as a going concern exists when
relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as
they become due within one year after the date that the financial statements are issued, or are available to be issued.
When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern,
management should consider whether its plans, that are intended to mitigate those relevant conditions or events, will alleviate this doubt. The
entity must disclose information that enables users of the financial statements to understand 1) principal conditions or events that raise
substantial doubt about the entity’s ability to continue as a going concern and 2) management’s evaluation of the significance of those
conditions or events in relation to the entity’s ability to meet its obligations. If the substantial doubt is alleviated as a result of consideration of
management’s plans, the entity is also required to disclose the relevant plan that alleviated the substantial doubt. However, if the substantial
doubt is not alleviated as a result of consideration of management’s plans the entity is required to disclose plans that are intended to mitigate
the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern. For us, these amendments are
effective for all reporting periods beginning after December 15, 2016 with early adoption permitted. We do not anticipate these new
amendments will have a significant impact on our financial statements.
Income Statement — Extraordinary and Unusual Items
In January 2015, FASB simplified an entities’ income statement presentation by eliminating the concept of extraordinary. Eliminating the
concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or
transaction event is extraordinary. This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators will no
longer need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. The amendments are effective for all
reporting periods beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may
apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the
guidance is applied from the beginning of the fiscal year in the year of adoption. We do not anticipate that this guidance will have a significant
impact on our financial statements.
53
Related Party Transactions
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Investment in equity accounted investee (“investee”)
In January 2010, we entered into a Share Purchase Agreement with two companies to acquire a fifty percent ownership interest in each. The
remaining ownership interests were held by two trusts. The business conducted by each of these two companies was comprised principally of
compactor and related equipment rentals. Our original investment in these companies totaled approximately $3,300 or C$3,500, which included
common shares in the invested companies and net adjustments, as defined in the Share Purchase Agreement.
In December 2010, we received a promissory note from our equity accounted investee for C$750. The promissory note was repayable on
demand with no fixed term to maturity. Interest on the note accrued at a rate equal to the greater of 5.5%, or bank prime plus 2.0% per annum
calculated annually, not in advance, and payable on maturity. The promissory was repayable, in whole or in part, at any time, subject to certain
restrictions. In October 2013, we received an additional C$750 promissory note from our equity accounted investee, having the same terms as
the promissory note we received in 2010. Effective with our purchase of the remaining fifty percent interest, these notes are no longer
outstanding.
Effective April 1, 2013, we entered into an amending agreement to purchase the remaining 50% interest in our equity accounted investee no
later than February 28, 2015. The purchase was subject to us or the seller providing notice of purchase or sale, at an amount equal to the greater
of 50% of the investee’s EBITDA for the preceding 12 month period multiplied by six or C$9,000. Certain conditions could accelerate the
purchase or extend the commitment beyond February 28, 2015.
On January 31, 2014, we purchased the remaining fifty percent interest in our equity accounted investee for C$9,000.
Investments where we have joint control over the strategic operating, investing and financing policies of an investee, are accounted for using
the equity method of accounting. The equity method of accounting requires that we record our initial investment at cost. The carrying value of
our initial investment is subsequently adjusted for our pro rata share of post-acquisition earnings or losses generated by the investee and also
includes adjustment for business combination amounts recognized on our original investment, including amortization of intangible assets net of
the related tax effect. Changes to the carrying amount of our original investment are included in our determination of net income. In addition,
our investment also reflects loans and advances, including amounts accruing thereon, our share of capital transactions, and changes in
accounting policies and corrections of errors relating to prior period financial statements applicable to post-acquisition periods. Dividends
received or receivable from our investee reduce the carrying value of our investment.
Transactions between us and our investee occurring before January 31, 2014 were all transacted in the normal course of business. These
transactions were the result of the investee billing us for services it provided to us that we in turn billed to our customers. These transactions
were measured at the exchange amount and we only recognized our share of the transaction. We incurred approximately $100 (2013 - $600) of
charges in the year ended December 31, 2014 from our investee which we recorded to operating expenses.
Other
A company providing transportation services to us is owned by an officer of a BFI Canada Inc. subsidiary. Total charges of approximately
$4,300 (2013 - $3,800) were incurred for the year ended December 31, 2014. Pricing for these transportation services is billed at market rates
which approximates fair market value.
On June 4, 2013, we made an approximately $1,000 investment in TerraCycle Canada ULC (“TerraCycle”) for a 19.9% stake in the company.
Since the date of our original investment, we have not had any significant transactions between us and TerraCycle.
All related party transactions are in the normal course of operations.
54
Outlook
(all amounts are in thousands of U.S. dollars, except per weighted average share amounts, unless otherwise stated)
Overview
Management is committed to employing its improvement and market-focused strategies with the goal of delivering additional value to the
Company’s shareholders, continuing to grow the business, improving free cash flow (B) and improving our return on invested capital.
Management expects to execute on a multi-pronged approach in its delivery of shareholder value, which may include some or all of the
following: business growth through strategic acquisition, reinvestment in the business to drive organic growth or operating efficiencies, share
repurchases and/or dividend increases. Management’s objective is to continuously improve the business through revenue growth and effective
cost management. New market entry, existing market densification and landfill development are the focus of our business as we look for ways
to expand our operations, increase customer density in strategic markets, and increase the internalization of the waste we collect. In addition,
we continue to investigate and review alternative technologies for waste diversion, and when appropriate, invest in them. Our strengths are
founded in the following: historical organic growth, growth through strategic acquisition, strong competitive position, a solid customer base
with long-term contracts, a disciplined operating process, predictable replacement capital requirements and stable cash flows. We are
committed to actively managing these strengths in the future.
Strategy
Increase collection density. Operating in high density urban markets provides us with the opportunity to develop significant collection density.
Our ability to strategically increase collection density in a given market enhances our flexibility to pursue organic growth strategies, generate
cash flow and achieve margin expansion through vertical integration. In addition, increasing our revenue per hour against a fixed cost base
creates operating leverage in our business model. We intend to focus on growth within our existing markets that support our local market
strategies and continue our pursuit of new market entries that provide similar opportunities.
Optimize asset mix to improve return on capital. Balancing the composition of assets within our segments and amongst our operations allows
us to execute our asset productivity strategies. By optimizing our collection, recycling and disposal assets around a mix of commercial,
industrial and residential customers, we believe we can increase our return on invested capital. Our asset mix in Canada has consistently
generated strong adjusted EBITDA (A) . We have and will continue to execute a variety of strategies to adjust our asset mix and to improve
margins in our U.S. operations.
Generate internal growth. We seek to leverage our market positions and asset profiles to drive internal revenue growth. Through focused
business development efforts, we seek to increase contracted waste volumes in the markets we serve. In particular, we are focused on obtaining
new commercial, industrial and residential contracts in markets that we can integrate into our existing operations. By increasing route density in
markets where we also offer disposal, we can strengthen the internalization and margin profile of our existing operations. In addition, we apply
pricing strategies, when appropriate, to capture the value of our service offerings.
Increase internalization. We seek to increase internalization in the markets we serve by controlling the waste stream from our collection
operations to our disposal assets. Internalization allows us to avoid third-party disposal fees and allows us to leverage the assets we have within
our business. We believe vertical integration is critical to our objective of achieving access to a landfill or other waste disposal facility on
favourable terms and to maintaining a steady volume of waste, which is needed to operate these facilities economically. In support of our
internalization goals, we aim to increase route density and acquire assets that enhance vertical integration opportunities in the markets that we
operate.
Pursue strategy enhancing acquisitions. We employ a disciplined approach to evaluating strategic acquisitions. We intend to pursue
acquisitions that support our market strategies and are accretive over the long-term on a return on invested capital and free cash flow (B) basis.
Our acquisition efforts are focused in markets that we believe enhance our existing operations or provide significant growth opportunities.
Five year plan
On May 15, 2014, we presented our five-year strategic plan which outlined improvements to our profitability and higher returns to
shareholders. Our plan included margin improvement through cost efficiencies and better operational execution, increased asset utilization, the
generation of more free cash flow (B) and the allocation of capital to maximize returns for shareholders. We believe that we have an
opportunity to increase adjusted EBITDA (A) margins from current levels through operating cost reductions including transitioning a portion of
our fleet from manual to automated collection systems and from
55
diesel fuel to CNG. These initiatives will increase free cash flow (B) and we intend to reduce our annual capital spend, relative to 2013 levels,
as a percentage of revenue to further increase the free cash flow (B) we generate. Our plan includes a continued focus on our allocation of
capital to earn the highest return, while never comprising the quality of our assets. With operating cost reductions and higher asset utilization,
combined with a disciplined approach to capital allocation, we expect to generate higher returns on invested capital over the next five years.
We also anticipate an annual organic revenue growth rate of about 4%, over the next five years, reflecting a combination of pricing and volume
improvements, driven by gross domestic product (“GDP”) and population growth in the markets that we serve. Finally, we also committed over
the next five years to a disciplined, returns-focused acquisition program, and reaffirmed that we intend to allocate capital to share repurchases
in the absence of acquisition opportunities that meet our return criteria.
Guidance outlook
Included in our press release for the fourth quarter and year ended December 31, 2014, issued February 26, 2015, was our guidance for the
fiscal year ending December 31, 2015, including our 2015 outlook assumptions and factors. This press release is available at www.sec.gov and
www.sedar.com.
Operations
One of our key commercial strategies is to pass through fuel, commodity, container maintenance and environmental surcharges, including
government imposed disposal charges, to our end customers, to mitigate variability in our operating results and cash flows. However, certain of
our customer service arrangements prevent or limit our ability to recover certain cost variability. Therefore, to mitigate this risk, we may enter
into fuel and commodity hedges. Readers are reminded that increasing surcharges result in higher revenues when passed through to end
customers which, all else equal, reduces our gross operating margin (defined as revenues less operating expenses divided by revenues).
Revenues
For 2015, we expect to realize Canadian dollar organic revenue growth equal to or greater than the anticipated growth in Canada’s GDP,
excluding known contract losses. We expect that volume and organic growth will improve density and productivity, and we continue to look
for pricing growth in the markets we serve. Further, we look to maximize landfill tonnages and recover operating cost variances resulting from
fluctuations in the price of fuel and other costs, and it is our intention to continue executing our growth strategy through strategic “tuck-in”
acquisitions.
In the U.S., we expect our U.S. south operations to grow on pace or better than U.S. GDP growth and we expect our U.S. northeast segment
organic revenue growth to keep pace with U.S. GDP, net of targeted asset sales and the strategic elimination of unprofitable business in this
region. Similar to our Canadian operations, we continue to execute our market focused strategies in the U.S. to drive price and volume growth
and increase densification, productivity and internalization. In addition, we continue to pass along operating cost increases where we can and
we continue to pursue growth through strategic acquisition in these regions.
Specific events
We continue to manage our Bethlehem landfill to complement our permitting process. The effect of managing volumes into this site is included
in our 2015 guidance outlook.
The sale of our Long Island, New York operations effective February 28, 2105 will be a headwind to adjusted EBITDA
$6,000.
(A)
in 2015 of roughly
Other
Commodity pricing
Our revenues and earnings are impacted by changes in recycled commodity prices, which includes old corrugated cardboard (“OCC”) and other
paper fibers, including newsprint, sorted office paper and mixed paper. Other commodities we receive include plastics, aluminum, metals and
wood. Our results of operations may be affected by changing prices or market demand for recyclable materials. The resale and purchase price
of, and market demand for, recyclable materials can be volatile due to changes in economic conditions and numerous other factors beyond our
control. These fluctuations may affect our consolidated financial condition, results of operations and cash flows. Our outlook provided for 2015
reflects prices for recycled commodities consistent with February 2015 levels.
Foreign currency
We have elected to report our financial results in U.S. dollars. However, we earn a significant portion of our revenues and income in Canada.
Based on our 2015 guidance outlook, if the U.S. dollar strengthens by one cent our reported revenues will
56
decline by approximately $8,600. Adjusted EBITDA (A) is similarly impacted by approximately $2,800, assuming a strengthening U.S. dollar.
The impact on adjusted net income (A) and free cash flow (B) for a similar change in FX rate, results in an approximately $1,000 decline for
each. Should the U.S. dollar weaken by one cent, our reported revenues, adjusted EBITDA (A) , adjusted net income (A) and free cash flow
(B) will improve by amounts similar to those outlined.
Interest on long-term debt
Intercompany loans issued between Progressive Waste Solutions Ltd. and its two primary operating subsidiaries bore interest at short-term
rates of interest until June 28, 2013. These rates of interest were insufficient to cover the interest obligations payable by the Company to its
third-party lenders. Effective June 28, 2013, we implemented long-term financing arrangements whereby our primary operating subsidiaries
bear a market rate of interest on amounts made available to them. As a result, the long-term financing arrangement will generate sufficient
interest income at Progressive Waste Solutions Ltd. to permit it to cover its interest obligations owing to its third-party lenders. This change has
no impact to interest on long-term debt presented in the consolidated financial statements of the Company.
Since August 2013, we have entered into interest rate swaps on notional borrowings of $825,000. Going forward, we will continue to monitor,
and when appropriate adjust, the fixed and floating interest rate positions on our long-term debt drawings. By fixing the variable rate of interest
we reduce the risk of interest rate escalation in the future, however, short-term interest expense increases compared to the interest we would
have incurred on variable rate borrowings at current market rates. The increase in interest expense resulting from us entering into additional
interest rate swaps is dependent on the amount swapped, the market rate of interest and the applicable bank margin when we enter into the
swap. Our 2015 guidance reflects the higher rate of interest we will bear as a result of the interest rate swaps we entered into in 2014.
Taxation
Our U.S. business continues to utilize carryforward losses which are available to offset income otherwise subject to tax. Based on the current
rate of utilization and expected performance of our U.S. business, we expect that these carryforward losses will be fully utilized by the fourth
quarter of 2016. The rate of use however, is subject to the actual performance of our U.S. business. Once these carryforward losses are fully
utilized, current income tax expense will increase significantly. The increase in current income tax expense in 2016 and beyond will have a
significant impact on the amount of free cash flow (B) we generate and the free cash flow (B) yield we return. Based on our current business
performance, we estimate current income tax expense will increase by approximately $30,000 to $35,000 annually once all carryforward losses
are utilized.
Based on current regulations and enacted tax rates, we estimate our effective tax rate will be approximately 25% for 2015 and beyond.
The Company’s wholly-owned Canadian holding company holds all of the issued and outstanding share capital of our U.S. business. We have
reviewed our investment in our U.S. business and have concluded that our investment has been permanently reinvested. We have drawn this
conclusion after careful consideration of many factors, including management’s stated strategy to grow through strategic acquisition which is
expected to be concentrated in the U.S. Additionally, repatriating monies from our U.S. operations comes at a cost in the form of withholding
taxes. We have no intention of incurring withholding taxes unnecessarily, and as such we ensure that all alternatives are considered before we
repatriate any monies from our U.S. business to Canada. Applying this approach also reduces our exposure to foreign currency risk. Our
Canadian operations have the ability to generate earnings and or draw on availability under the consolidated facility to achieve this result.
Accordingly, we have not established a deferred tax asset or liability reflecting the difference between the tax and accounting values of our
Canadian held investment in our U.S. operations. In the current year, the Canadian parent of our U.S. operating subsidiary received dividends
and a return of capital from it to fund a portion of the shares we repurchased and, more importantly, to reduce excess cash balances in our U.S.
business. We reviewed the receipt of these monies and concluded that our stated intent to permanently reinvest monies in our U.S. operations
remained unchanged. Accordingly, we have not recognized a deferred tax obligation or benefit since the conclusion we reached satisfies the
requirement that earnings remain essentially reinvested. If, or when, we are required to repatriate earnings or some portion thereof from our
U.S. operations to Canada, these monies would likely attract withholding taxes at a rate of 5%, subject to our U.S. operations cumulative
earnings and profits position at the time of repatriation, and these taxes would be accrued and paid for at the time of repatriation.
The Company’s indirectly held, but wholly-owned, U.S. holding company, WSI LLC, holds a 22.5% interest in the issued and outstanding
share capital of BFI Canada Inc. We have reviewed our investment in our Canadian business and have concluded that our investment has been
permanently reinvested. We have drawn this conclusion after considering many of the same factors outlined above that support permanent
reinvestment of our Canadian held interest in our U.S. business. Accordingly, we have not established a deferred tax asset or liability reflecting
the difference between the tax and accounting values of our
57
U.S. held investment in our Canadian operations. If, however, we are required to repatriate some portion of our Canadian operations to the
U.S., these monies would likely attract withholding taxes at a rate of 5%, subject to our Canadian business’s ability to declare dividends at the
time of repatriation, and these taxes would be accrued and paid for at the time of repatriation.
Financing strategic growth
One of our objectives is to grow organically and through strategic acquisition. Growth achieved through strategic acquisition is dependent on
our ability to generate free cash flow (B) and our ability to access debt and equity in the capital markets. We remain confident we will continue
to generate free cash flow (B) in excess of dividends paid and share repurchase targets, and these excess amounts will be available to finance a
portion of our continued growth, including growth through strategic acquisition. Significant growth requires access to debt and equity in the
capital markets and any capital market restrictions could affect our growth. We remain confident that our current access to the capital markets
is sufficient to meet our near and longer-term needs.
Share repurchases
For 2014, we recommenced the purchase of our common shares and intend to opportunistically repurchase shares in 2015. Our intention
assumes no significant acquisitions are completed in 2015.
Liquidity
Our ability to generate cash from operations is strong. Our operations generate stable cash flows, which we expect will be in excess of our
needs to continue operating our business steady state. Over the long-term, we intend to apply a balanced approach to the use of these cash flows
to fund strategic acquisitions, share repurchases, dividends and debt repayment. In addition, it is our long-term goal to maintain a consolidated
total debt to adjusted EBITDA (A) ratio of between 2.5 to 3.0 times. In light of the continuing low interest rate environment and the Company’s
strong balance sheet, management is comfortable with this target range and will occasionally review this range to assess its reasonableness.
Based on the availability under the consolidated facility we have, we believe we have an adequate source of liquidity in the near to mid-term.
Borrowing rates are at historical lows in the U.S. and Canada. Accordingly, if the economy strengthens, we would expect interest rates to rise.
An increase in interest rates results in higher interest expense on borrowing tied to variable rates of interest, partially offset by lower current or
deferred income tax expense. Please refer to the Liquidity and Capital Resources section of this MD&A for the impact a 1% rise or fall in
interest rates has on our reported results of operations.
Withholding taxes on foreign source income
When and as applicable, withholding tax on foreign source income is recorded as current income tax expense on the consolidated statement of
operations and comprehensive income or loss. An increase in dividends paid or common shares repurchased, when funded by IESI Corporation
(“IESI”), an indirect wholly-owned subsidiary, or the inability of IESI to return capital, attracts withholding taxes from foreign source income
received by Canadian entities of the Company. In addition, and in connection with the closing of the WSI acquisition, changes were made to
our organizational structure which resulted in our Canadian operations being partially owned by a U.S. holding company. Accordingly, a per
share dividend paid by the Canadian operating parent for the benefit of, and distribution by the Company to its shareholders, also requires the
Canadian operating parent to pay a like dividend to the U.S. holding company. Amounts paid by the Canadian operating parent to the U.S.
holding company are subject to withholding tax. However, with the introduction of our long-term financing structure, Progressive Waste
Solutions Ltd. receives interest income that exceeds its interest obligations under the terms of the consolidated facility. Accordingly, excess
cash at Progressive Waste Solutions Ltd. can be applied against its dividend obligations and therefore reduce the dividend requirements of its
Canadian or U.S. operating entities, which in turn reduces withholding tax.
Amortization
We have historically accounted for acquisitions applying the purchase method of accounting. The purchase method of accounting required us to
recognize acquired assets and liabilities at fair value, including all identified intangible assets separately from goodwill. Fair value adjustments
typically increased the carrying amounts of acquired capital and landfill assets and required us to recognize the fair value of intangible assets as
well. Accordingly, capital, landfill and intangible asset amortization not only includes amortization of the assets original cost, but also includes
the amortization of fair value adjustments recognized on acquisition. Even though we have grown organically, a significant portion of our
growth has been through acquisition. Therefore, fair value adjustments included in amortization expense are significant. Our most notable fair
value adjustments arose on the formation of our predecessor company, our initial public offering, and our acquisitions of IESI, WSI, the Ridge
landfill, Winters Bros., Fred Weber and Choice Environmental. Due to the inherent difficulty in isolating fair value adjustments for every
acquisition completed by us, it is unreasonable for us to derive the exact impact these acquisitions
58
have had on amortization expense. Fair value adjustments are recognized in amortization expense over the useful life of the underlying asset
and for landfill assets over the landfills permitted or deemed permitted useful life. If we continue to grow through acquisition, amortization
expense will continue to increase. Increases will be partially offset by declines in fully amortized fair value adjustments.
Financial Instruments
(all amounts are in thousands of U.S. dollars, unless otherwise stated)
Hedge accounting
We enter into commodity swaps to reduce our exposure to fluctuations in cash flows due to changes in the price of fuel consumed by us to
service certain fixed price contracts or in certain segments of our business where the recovery of escalating fuel prices is either difficult or not
available to us. Accordingly, we have entered into cash flow hedges to reduce our exposure to fluctuating fuel prices that we expect to purchase
and consume in the future.
In 2013, we applied hedge accounting to certain commodity swaps designated as cash flow hedges. The following table outlines changes in the
fair value of commodity swaps designated as cash flow hedges in 2013 and their impact on other comprehensive income or loss, net of the
related income tax effect.
Year ended
December 31
2014
Derivatives designated as cash flow hedges, net of income tax
Other comprehensive income or loss, commodity swaps
Total other comprehensive income or loss, net of income tax
$
$
2013
—
—
$
$
(1,051 )
(1,051 )
We measured and recorded any ineffectiveness on commodity swaps to net income or loss in the consolidated statement of operations. In
addition, gains or losses were reclassified to net income or loss from other comprehensive income or loss as fuel was consumed.
Credit risk
Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge its
obligation. Our exposure to credit risk is limited principally to cash and cash equivalents, accounts receivable, other receivables, funded landfill
post-closure costs, interest rate and commodity swaps, and when and as applicable, FX agreements and hedge agreements for OCC. In all
instances, our risk management objective, whether of credit, liquidity, market or otherwise, is to mitigate our risk exposures to a level
consistent with our risk tolerance.
Cash and cash equivalents
Certain senior management is responsible for determining which financial institutions we bank and hold deposits with. Management’s selected
financial institutions are approved by the Board of Directors. Senior management typically selects financial institutions which are lenders in its
long-term debt facilities and those which are deemed by management to be of sufficient size, liquidity, and stability. Management reviews the
Company’s exposure to credit risk from time to time or as a condition indicates that the Company’s exposure to credit risk has or is subject to
change. Our maximum exposure to credit risk, related to cash and cash equivalents, is the fair value of these amounts recorded on our balance
sheet, approximately $41,600 (December 31, 2013 — approximately $32,000). We hold no collateral or other credit enhancements as security
over our cash and cash equivalent balances and deem the credit quality of these balances to be high and not impaired.
Accounts receivable
We are subject to credit risk on accounts receivable and our maximum exposure to credit risk is equal to the fair value of accounts receivable
recorded on our balance sheet, approximately $216,200 (December 31, 2013 - $229,500). We perform credit checks or accept payment or
security in advance of service to limit our exposure to credit risk. The diversity of our customer base, including diversity in customer size,
balance and geographic location inherently reduces our exposure to credit risk. We have also assigned various employees to carry out
collection efforts in a manner consistent with our accounts receivable and credit and collections policies. These policies establish procedures to
manage, monitor, control, investigate, record and improve accounts receivable credit and collection. We also have policies and procedures
which establish estimates for doubtful account allowances. These calculations are generally based on historical collection or alternatively
historical bad debt provisions. Specific account balance review is permitted, where practical, and consideration is given to the credit quality of
the customer, historical payment history, and other factors specific to the customer, including bankruptcy or insolvency.
59
Accounts receivable that are deemed by management to be at risk of collection are provided for. When accounts receivable are considered
uncollectable, they are written-off against the provision. The recovery of amounts previously written-off is recorded to the provision.
Management typically assesses aggregate accounts receivable impairment applying historical rates of collection giving consideration to broader
economic conditions.
Our accounts receivable are generally due upon invoice receipt. Accordingly, all amounts which are outstanding for a period that exceeds the
current period are past due. Based on historical collections, we have been successful in collecting amounts due to us. We assess the credit
quality of accounts receivable that are neither past due nor impaired as high. Our maximum exposure to accounts receivable credit risk is
equivalent to our net carrying amount. We may request payment in advance of service generally in the form of credit card deposit or full or
partial prepayment as security. Amounts deposited or prepaid in advance of service are recorded to deferred revenue on our balance sheet.
Accounts receivable considered impaired at December 31, 2014, are not considered significant.
Other receivables
We are subject to credit risk on other receivables, which principally reflects a vender tack back mortgage (“VTB”) we entered into in
conjunction with the sale of certain buffer lands adjacent to our Calgary landfill site.
Our maximum exposure to credit risk is equal to the carrying amount of other receivables, approximately $5,500 (December 31, 2013 —
$100), however the VTB is secured by the land sold. Accordingly, we deem the credit quality of our other receivables balance to be high and
no amounts are impaired.
Funded landfill post-closure costs
We are subject to credit risk on deposits we make to a social utility trust. Our deposits are invested in bankers’ acceptances (“BAs”) offered
through Canadian financial institutions or Government of Canada treasury bills. Due to the nature of the underlying investments, management
deems its exposure to credit risk related to funded landfill post-closure cost amounts as low. Our maximum exposure to credit risk is equal to
the fair value of funded landfill post-closure costs recorded on our balance sheet, approximately $11,400 (December 31, 2013 — $10,700).
Management reviews the Company’s exposure to risk from time to time or as a condition indicates that its exposure to risk has changed or is
subject to change. We hold no collateral or other credit enhancements as security over the invested amounts, however we deem the credit
quality of the financial asset as high in light of the underlying investments.
Liquidity risk
Liquidity risk is the risk that we will encounter difficulty in meeting obligations associated with the settlement of our financial liabilities. Our
exposure to liquidity risk is due primarily to our reliance on long-term debt financing. Our treasury function is responsible for ensuring that we
have sufficient short, medium and long-term liquidity and liquidity is managed daily through our monitoring of actual and forecasted cash
flows and liquidity available to us from our consolidated facility. The treasury function is also responsible for ensuring that liquidity is
available on the most favourable financial terms and conditions. Our treasury function reports quarterly on our available capacities and
covenant compliance to the Audit Committee and maintains regular contact with the primary parties to our long-term debt facilities.
Market risk
Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.
Market risk is comprised of currency, interest rate and other price risk.
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in FX rates. Our
exposure to currency risk is tied to the movement of monies between Canada and the U.S. Accordingly, we are exposed to currency risk on
U.S. dollars received by our Canadian business from U.S. sources to fund Canadian dollar denominated dividends or share repurchases and
similarly on Canadian dollars received by our U.S. business due to dividend payments payable to a U.S. holding company. To mitigate this
risk, management decides where dividend and share repurchases are funded from and looks to fund these amounts from cash flows generated
from Canadian sources wherever possible. Our treasury function actively reviews our exposure and assesses the need to enter into further FX
agreements. Our Board of Directors also considers currency risk when establishing the Company’s dividend. For the year ended December 31,
2014, we were exposed to currency risk on the portion of dividends received by our U.S. holding company that were not hedged by FX
agreements. To mitigate a portion of the risk attributable to paying Canadian dollar denominated dividends to our U.S. holding company, we
may enter into foreign currency exchange agreements in the future.
Interest rate risk is the risk that the fair value of a financial instrument’s future cash flows will fluctuate because of changes in market rates of
interest. Interest rate risk arises from our interest bearing financial assets and liabilities. We have various financial assets and liabilities which
are exposed to interest rate risk, the most notable of which is our long-term debt.
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Our consolidated facility and our IRBs are subject to interest rate risk. An increase or decrease in the variable interest rate results in a
corresponding increase or decrease to interest expense on long-term debt. A portion of this risk has been mitigated by the interest rate swaps we
have entered into. However, we are subject to interest rate risk as these interest rate swaps reach the end of their contractual maturities. We are
also subject to interest rate risk on funded landfill post-closure costs. Funded landfill post-closure costs are invested in interest rate sensitive
short-term investments. An increase or decrease in the return on invested amounts could result in us having to decrease or increase our funding
for this obligation. We are also subject to interest rate risk on our cash equivalents balance and other receivables.
The policies and process for managing these risks are included above in the Credit risk section.
Risk management objectives
Our financial risk management objective is to mitigate risk exposures to a level consistent with our risk tolerance. Derivative financial
instruments are evaluated against the exposures they are intended to mitigate and the selection of a derivative financial instrument may not
increase the Company’s net exposure to risk. Derivative financial instruments may expose us to other types of risk, which may include, but is
not limited to, credit risk. Our exposure to other types of risk is evaluated against the benefit derived from the derivative financial instrument.
Our use of derivative financial instruments for speculative or trading purposes is prohibited and the value of the derivative financial instrument
cannot exceed the risk exposure of the underlying asset, liability or cash flow it is intended to mitigate.
Fair value methods and assumptions
The estimated fair values of financial instruments are calculated using available market information, commonly accepted valuation methods
and third-party valuation specialists. Considerable judgment is required to interpret market information that we use to develop these estimates.
Accordingly, fair value estimates are not necessarily indicative of the amounts we, or counter-parties to the instruments, could realize in a
current market exchange. The use of different assumptions and or estimation methods could have a material effect on these fair values.
Cash equivalents are invested in a money market account offered through a Canadian financial institution. The estimated fair value of cash
equivalents is equal to its carrying amount.
Funded landfill post-closure amounts are invested in BAs offered through Canadian financial institutions or Government of Canada treasury
bills. The estimated fair value of these investments is supported by quoted prices in active markets for identical assets.
The fair values of commodity swaps are determined by applying a discounted cash flow methodology. This methodology uses the forward
index curve and the risk-free rate of interest, on a basis consistent with the underlying terms of the agreements, to discount the commodity
swaps. Financial institutions are the sources of the Department of Energy forward index curve and risk-free rate of interest, respectively. The
use of different assumptions and or estimation methods could have a material impact on these fair values.
Our interest rate swaps are recorded at their estimated fair value based on quotes received from financial institutions that trade these contracts.
At least quarterly, we verify the reasonableness of these quotes using quotes for similar swaps from other financial institutions. In addition, we
independently value the interest rate swaps and we use all of this information to derive our fair value estimates. The use of different
assumptions and or estimation methods could have a material effect on these fair values.
Foreign currency exchange agreements are recorded at their estimated fair value based on quotes received from a financial institution that
trades these contracts. We verify the reasonableness of these quotes by comparing them to the period end foreign currency exchange rate, plus a
reasonable premium to market. There are no foreign currency exchange agreements outstanding at December 31, 2014. Accordingly, the risk of
having a material impact on the determination of fair values through the use of different assumptions and or estimation methods is non-existent.
The fair value of our wood waste supply agreement, an embedded derivative, was determined by applying a discounted cash flow
methodology. This methodology used electricity generator and Ultra Low Sulfur Diesel forward index curves and the risk-free rate of interest,
on a basis consistent with the underlying terms of the agreement. We used a third-party, who was not a counter-party, to independently value
the embedded derivative and we used this and other information to derive our fair value estimate. The use of different assumptions and or
estimation methods could have had a material effect on this fair value. Effective April 2014, we amended our wood waste supply agreement.
The amendment removed the embedded derivative
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and as such we have no fair value measurement risk associated with an embedded derivative contained in the wood waste supply agreement.
Financial assets and liabilities recorded at fair value, as and where applicable, are included on our balance sheets as funded landfill post-closure
costs, other assets and other liabilities.
Risks and Uncertainties
Our business, and an investment in our securities, is subject to certain risk and uncertainties, including those described below and included in
the Outlook section of this MD&A. We have divided the risks and uncertainties into three categories: principal risks relating to our business,
risks related to our industry and other general risk factors that should be considered when investing in our Company’s common shares.
If any events or developments discussed in these risks actually occur, our business, financial condition or results of operations or the value of
our securities could be adversely affected.
Principal risks related to our business
Downturns in the economy could adversely affect our revenues and operating margins
Our business is affected by changes in economic factors that are outside of our control, including consumer confidence, interest rates and
access to capital markets. Although our services are of an essential nature, a weak economy generally results in a decline in waste volumes
generated. Additionally, consumer uncertainty and the loss of consumer confidence may limit the number or amount of services requested by
customers. During times of weak economic conditions, we may also be adversely impacted by our customers’ ability to pay in a timely manner,
if at all, due to their financial difficulties, which could include bankruptcies. If our customers do not have access to capital, our volumes may
decline and our growth prospects and profitability may be adversely affected. Due to the diversity of our customer base and the nature of our
business and services we provide, we haven’t been severely affected by downturns in the economy. Our U.S. northeast operations have been
impacted the most by economic downturns, but we don’t believe that this region is unable to continue operating as a going concern. As outlined
in the Outlook — strategy section of this MD&A, the composition of assets in this segment is not optimal. Accordingly, we remain committed
to participating with New York City in the NYC Plan, maximizing the internalization of collected waste volumes, optimizing this segment’s
asset mix and to reducing our exposure to further or future economic downturns.
We may be unable to obtain, renew or continue to maintain certain permits, licenses and approvals that we need to operate our business
We are subject to significant environmental and land use laws and regulations. Our internalization strategy depends on our ability to maintain
our existing operations, expand our landfills and transfer stations, establish new landfills and transfer stations and increase applicable daily or
periodic tonnage allowances. To own and operate solid waste facilities, we must obtain and maintain licenses or permits, as well as zoning,
environmental and other land use approvals. Permits, licenses and approvals to operate or expand non-hazardous solid waste landfills and
transfer stations are difficult, time consuming and expensive to obtain. Obtaining permits often takes several years and requires numerous
hearings, in addition to complying with land use, environmental and other regulatory requirements. We may also face resistance from citizen
groups and other environmental advocacy groups. Failure to obtain the required permits, licenses or approvals to establish new landfills and
transfer stations or expand the permitted capacity of our existing landfills and transfer stations could reduce internalization and negatively
impact our business strategies. A failure to obtain, renew or extend various permits and licenses could result in the impairment of certain assets
recorded on our balance sheet and result in significant impairment charges recorded to our statement of operations and comprehensive income
or loss. We are not aware of any significant permit or licensing barriers or issues that would significantly impact our ability to continue
operating in a manner consistent with our historical or near-term expected future performance.
Our long-term debt facilities contain restrictive covenants and require us to meet certain financial ratios and financial condition tests
The terms of our consolidated facility and IRBs contain restrictive covenants that limit the discretion of our management with respect to certain
business matters. These covenants place restrictions on, among other things, our ability to incur additional indebtedness, to create liens or other
encumbrances, to pay dividends on shares above certain levels or make certain other payments, including share repurchases, investments, loans
and guarantees, and to sell or otherwise dispose of assets and merge or consolidate with another entity. In addition, the consolidated facility
contains a number of financial covenants that require us to meet certain financial ratios and financial condition tests. A failure to comply with
these terms could result in an
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event of default which, if not cured or waived, could result in accelerated repayment. If the repayment of any of these facilities was to be
accelerated, we cannot provide assurance that our assets would be sufficient to repay these facilities in full.
Our access to financing depends on, among other things, suitable market conditions and the maintenance of suitable long-term credit ratings.
Our credit ratings may be adversely affected by various factors, including increased debt levels, decreased earnings, declines in customer
demands, increased competition, deterioration in general economic and business conditions and adverse publicity. Any downgrade in our credit
ratings may impede our access to the debt markets, raise our borrowing rates or affect our ability to enter into interest rate swaps, commodity
swaps for a portion of fuel that is consumed in our operations or foreign currency exchange agreements.
Moody’s has rated our consolidated credit facility at Ba1 with a stable outlook. S&P has assigned a rating of BBB stable for our consolidated
credit facility.
Based on the restrictive covenant and financial condition tests included in our facilities, we remain confident that we will continue to meet
these tests in the near-term and the foreseeable future.
We have significant indebtedness, which could adversely affect our financial condition
We have, and expect to continue to have, a significant amount of indebtedness and, as a result, significant debt service obligations. As of
December 31, 2014, we had total indebtedness of approximately $1,558,000. The degree of leverage could have important consequences. For
example, it may:
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increase our vulnerability to adverse economic and industry conditions;
require us to dedicate a substantial portion of cash from operations to service our indebtedness, thereby reducing the availability of
cash to fund working capital, capital expenditures, other general corporate purposes, acquisitions, dividends and share repurchases;
limit our ability to obtain additional financing in the future for working capital, capital expenditures, general corporate purposes,
acquisitions, dividends and share repurchases;
place us at a disadvantage compared to our competitors that have less debt; and
limit our flexibility in planning for, or reacting to, changes in the business and in the industry generally.
Currently our consolidated leverage is within our long-term target range.
We expect to engage in further acquisitions or mergers, which may adversely affect the profit, revenues, profit margins or other aspects of our
business, and we may not realize the anticipated benefits of future acquisitions or mergers to the degree anticipated
Our growth strategy is based, in part, on our ability to acquire other businesses. The success of our acquisition strategy will depend, in part, on
our ability to:
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identify suitable businesses to buy;
conduct suitable due diligence and negotiate the purchase of those businesses on acceptable terms;
complete the acquisitions within our expected time frame;
improve the results of operations of the businesses that we buy and successfully integrate their operations into our own; and
respond to any concerns expressed by regulators, including anti-trust or competition law concerns.
We may fail to properly complete any or all of these steps. Many of our competitors are also seeking to acquire collection operations, transfer
stations and landfills, including competitors that have greater financial resources than we do. This may reduce the number of acquisition targets
available to us and may lead to unfavorable terms as part of any acquisition, including higher purchase prices. If acquisition candidates are
unavailable or too costly, we may need to change our business strategy. Our integration plan for acquisitions often contemplates certain cost
savings, including the elimination of duplicative personnel and facilities. Unforeseen factors may offset the estimated cost savings or other
components of our integration plan in whole or in part and, as a result, we may not realize any cost savings or other benefits from future
acquisitions. Our due diligence investigations may also fail to discover certain undisclosed liabilities. Further, any difficulties we encounter in
the integration process could interfere with our operations and reduce our operating margins. Even if we are able to make acquisitions on
advantageous terms and are able to integrate them successfully into our operations and organization, some acquisitions may not fulfill our
strategy in a given market due to factors that we cannot control. As a result, operating margins could be less than we originally anticipated
when we made those acquisitions. In such cases, it may change our strategy with respect to that market or those businesses and we may decide
to sell the operations at a loss, or keep those operations and recognize an impairment of goodwill, capital, intangible or landfill assets. We have
been successful in
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identifying, negotiating and integrating a number of acquisitions in markets we currently serve and new markets we have entered. We
acknowledge that a strategy of growth through acquisition does not come without risk and challenge. We believe that our goodwill impairment
loss is due in large part to the goodwill we recognized on an acquisitions completed in our U.S. northeast segment at the peaks of the economy,
which was subsequently determined to be impaired as a result of the economic decline and increased competition that followed. While we
remain confident that we can continue to execute our acquisition strategy in the near-term and foreseeable future, we are aware of the risks that
it presents.
Future acquisitions may increase our capital requirements
We cannot be certain that we will have enough capital or that we will be able to raise capital by issuing equity or debt securities or through
other financing methods on reasonable terms, if at all, to complete the purchases of any businesses that we want to acquire. Acquisitions will
generally increase our capital requirements unless they are funded from excess free cash flow (B) , defined as free cash flow (B) in excess of
dividends declared and shares repurchased. Acquisitions financed with debt or equity capital will result in higher long-term debt or equity
amounts recorded on our balance sheet. Higher debt levels can increase our borrowing rates and will increase interest expense. Higher interest
expense will reduce current income tax expense or preserve loss carryforwards. Based on current economic conditions, we remain optimistic
that capital will be available, on reasonable terms, to allow us to execute our acquisition growth strategy and that a portion of our acquisitions
will be funded from excess free cash flow (B) , which reduces the need for additional capital.
Our financial obligations to pay closure and post-closure costs in respect of our landfills could exceed current reserves
We have material financial obligations to pay closure and post-closure costs in respect of our landfills. We have estimated these costs and made
provisions for them, but these costs could exceed current reserves as a result of, among other things, any federal, provincial, state or local
government regulatory action, including unanticipated closure and post-closure obligations. The requirement to pay increased closure and
post-closure costs could substantially increase our expenses and cause our net income to decline. Additional discussion about this risk is
included in the Critical Accounting Estimates — Landfill closure and post-closure costs and Environmental Matters sections of this MD&A.
We may be unable to obtain performance or surety bonds, letters of credit or other financial assurances or to maintain adequate insurance
coverage
If we are unable to obtain performance or surety bonds, letters of credit or insurance, we may not be able to enter into additional solid waste or
other collection contracts or retain necessary landfill operating permits. Collection contracts, municipal contracts, transfer station operations
and landfill closure and post-closure obligations may require performance or surety bonds, letters of credit or other financial assurance to
secure contractual performance or comply with federal, provincial, state or local environmental laws or regulations. We typically satisfy these
requirements by posting bonds or letters of credit. As of December 31, 2014, we had approximately $399,900 of such bonds in place and
approximately $200,200 of letters of credit issued. Closure bonds are difficult and costly to obtain. If we are unable to obtain performance or
surety bonds or additional letters of credit in sufficient amounts or at acceptable rates, we could be precluded from entering into additional
collection contracts or obtaining or retaining landfill operating permits. Any future difficulty in obtaining insurance could also impair our
ability to secure future contracts that are conditional upon the contractor having adequate insurance coverage. Accordingly, our failure to obtain
performance or surety bonds, letters of credit or other financial assurances or to maintain adequate insurance coverage could limit our
operations or violate federal, provincial, state or local requirements, which could have a materially adverse effect on our business, financial
condition and results of operations. We have been successful in obtaining sufficient surety bonds, letters of credit or other financial assurances
and have maintained adequate insurance coverage. Accordingly, we have not experienced significant costs or recoveries stemming from an
inability to secure financial assurances or insurance. While we are subject to market conditions related to the cost of surety bonds, letters of
credit or other financial assurances, we don’t anticipate or have any indication that the costs to obtain these assurances will have a material
effect on our operations and cash flows in the near-term. We are also subject to market conditions related to the cost of insurance, which is
further affected by our claims history. We don’t anticipate or have any indication that the costs for, or our ability to obtain or retain, insurance
are at risk or at a cost that would preclude us from being competitive or impede our current or future operations.
We may be unable to successfully manage our growth
Our growth strategy may place significant demands on our financial, operational and management resources. In order to continue our growth,
we may need to add administrative, management and other personnel, and make additional investments in operations and systems. We cannot
provide assurance that we will be able to find and train qualified personnel, or do so on a timely basis, or expand our operations and systems in
the time required. We have, however, been successful in managing our growth and its demands on our financial, operational and management
resources to date. We remain confident that we can continue to manage our growth as we expand our operations, management and financial
resource requirements. We presently deem the risk of managing our growth to be low.
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We may lose contracts through competitive bidding or early termination
We derive revenues from municipal contracts that require competitive bidding by a variety of potential service providers. Although we intend
to continue to bid on municipal contracts and to re-bid our existing municipal contracts, these contracts may not be maintained or won in the
future or may be won at lower pricing. We may also be unable to meet bonding requirements for municipal contracts at a reasonable cost to us
or at all. These requirements may limit our ability to bid for some municipal contracts and may favor some of our competitors.
We also derive revenues from non-municipal contracts, which generally have a term of three to five years. Some of these contracts permit our
customers to terminate them before the end of the contractual term. Any failure by us to replace revenue from contracts lost through
competitive bidding, termination or non-renewal within a reasonable time period could result in a decrease in our operating revenue and
earnings. Contract losses may also make certain capital assets obsolete before they have exhausted their useful lives. We may have no choice
but to sell the assets in the open market at prices that differ from their recorded amounts, which could result in gains or losses on the assets
disposition. However, because we operate in various geographical locations throughout Canada and the U.S., we have generally been
successful in obtaining new contracts at a pace that is not significantly less than the pace of loss. However, there may be periods or years when
losses are more prevalent than gains and vice versa. Our track record of organic growth has generally been positive and we expect this trend to
continue over the near to mid-term.
We depend on third-party disposal customers at our landfills and we cannot provide assurance that we will maintain these relationships or
continue to provide services at current levels
Operating and maintaining a landfill is capital intensive. As a result, a steady volume of waste is required over the operating life of the landfill
in order to maintain profitable operations. The loss of third-party disposal customers could reduce our revenues and profitability. For the year
ended December 31, 2014, approximately 56% of the total tonnage received by our landfills was derived from the disposal of waste received
from third-party disposal customers. Accordingly, we depend on maintaining a certain level of third-party disposal customers at our landfills to
be able to operate them at profitable levels.
We cannot provide assurance that we will maintain our relationships or continue to provide services to any particular disposal customer at
current levels. We also cannot provide assurance that third-party customers will continue to utilize our sites and pay gate rates that generate
acceptable margins for us. Negative impacts could also occur if new landfills open, if our existing disposal customers fail to renew their
contracts, if the volume of waste disposal decreases or if we are unable to increase our gate rates to correspond with an increasing cost of
operations. In addition, new contracts for disposal services entered into by us may not have terms similar to those contained in contracts with
existing customers, in which case revenues and profitability could decline. We have been successful at maintaining relationships with our
disposal customers and are aware of the geographical proximity of our landfills to alternative disposal sites, the competitive pressures faced in
each market, and the economic environment in each market. While there are always changes to the composition of our external customer mix,
we have not experienced declines in volumes that are so pervasive that they have caused us to question the operating or financial viability of
our landfills. In our U.S. northeast operations, we have faced the most significant challenge, representing a combination of soft economic
conditions coupled with resilient competition. Accordingly, we have had to endure increasing pricing pressures for a basket of constrained
volumes. We will continue to evaluate and re-evaluate our price and volume strategies in this segment with the objective of leveraging both.
Our Canadian and U.S. operations are geographically concentrated and susceptible to local economies, regulations and seasonal fluctuations
Our Canadian operations are in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Quebec and are susceptible
to those markets’ local economies, regulations and seasonal fluctuations. Our U.S. operations are in the northeastern and southern U.S. and are
susceptible to those regions’ local economies, regulations and seasonal fluctuations. We operate in the following states: Texas, Florida,
Arkansas, Missouri, Oklahoma, Louisiana, Mississippi, New York, New Jersey, Pennsylvania, Maryland, Virginia and Illinois, as well as the
District of Columbia.
Economic downturns in Texas, New York, Florida, Ontario, Quebec and western Canada, and other factors affecting such states or provinces,
such as state or provincial regulations affecting the non-hazardous solid waste management industry or severe weather conditions, could have a
material adverse effect on our business, financial condition and results of operations.
In addition, seasonality may temporarily affect our revenues and expenses. We generally experience lower C&D debris volumes during the
winter months when the construction industry is less active. Frequent and/or heavy snow and ice storms can also affect revenues, primarily
from transfer station and landfill operations, which are volume based, and the productivity of our collection operations. Higher than normal
rainfall and more frequent rain storms can put additional stress on the construction industry and lower the volumes of waste received at our
landfills. We employ various strategies to combat the
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seasonal nature of our business where we can. Inclement weather conditions are out of our control, but its impact is partially mitigated by the
geographical diversity of our operations. From an economic and regulatory perspective, we actively participate in the local economies we
operate in and are an active voice at various levels of government. We will continue to be active to ensure our interests are heard and are
considered. The geographic diversification of our business helps insulate us from these issues on a consolidated basis.
Revenues generated under municipal contracts with New York City represented 2.3% of our consolidated revenue in 2014. Termination,
modification or non-renewal of such contracts could have an adverse effect on our business, results of operations and financial condition
We attribute 2.3% of our consolidated revenue in 2014 and 2.1% of our consolidated revenue in 2013 to our municipal contracts with New
York City. In February 2011, we responded to bids issued by New York City and in September 2011 we received a Notice of Award from the
New York City Department of Sanitation to extend our interim Brooklyn contracts for a three-year term. Each of these contracts has now been
further extended to October 2017. We also hold a contract to export waste from the Borough of Queens, the details of which are currently being
finalized. As with prior contracts, New York City can terminate them upon 10 days’ notice. If these contracts are terminated, or if they are not
renewed, we may not be able to replace the affected revenue. Such a loss could have an adverse effect on our business, financial condition and
results of operations.
In addition, during 2002, New York City announced changes to its solid waste management plan that would include reducing or eliminating the
City’s reliance on private transfer stations, such as the ones we operate in New York City. While the plan has undergone substantial revision,
New York City continues to pursue major changes in its system for transferring and disposing of municipal waste. Since the announcement in
2002, New York City has requested proposals for alternative methods of handling municipal waste. We have and will continue to make
proposals as requested by the City and until the City decides on the final plan and contractors. On October 28, 2014, we announced that we
would submit a bid in response to the New York City Department of Sanitation’s most recent proposal which requires bidders to deliver up to
three thousand tons of waste per day to two Brooklyn marine transfer stations. If New York City implements changes to this system, it is likely
that our existing contracts with the City would be modified, terminated or not renewed.
We believe that we have the right compliment of employees to execute on this deliverable and we are not aware of any impediments at this
time.
Our insurance coverage may not be sufficient to cover all losses or claims that we may incur
We seek to obtain and maintain, at all times, insurance coverage in respect of our potential liabilities and the accidental loss of value of our
assets from risks, in those amounts, with those insurers, and on those terms we consider appropriate, taking into account all relevant factors,
including the practices of owners of similar assets and operations. However, not all risks are covered by insurance, and we cannot provide
assurance that insurance will be available consistently or on an economically feasible basis or that the amounts of insurance will be sufficient to
cover losses or claims that may occur involving our assets or operations. We have been successful in obtaining insurance at commercially
reasonable rates and on a basis that has been sufficient to cover our primary operating losses and claims. We do not have any indication that our
insurance coverage is, would be, or is about to be, insufficient.
If our assumptions relating to expansion of our landfills should prove inaccurate, our results of operations and cash flow could be adversely
affected
Our estimates or assumptions concerning future development and landfill closure and post-closure costs may turn out to be significantly
different from actual results. In addition, in some cases we may be unsuccessful in obtaining an expansion permit or we may determine that an
expansion permit that we previously thought was probable has become unlikely. To the extent that such events occur at a landfill, cash
expenditures for closure and post-closure could be accelerated, our results of operations and cash flow estimates may be adversely affected and
the carrying amount of the landfill may be subject to impairment testing. Our management team has a successful track record of successfully
obtaining expansion permits. Any changes to expansion assumptions will be recognized over the remaining life of the landfill site from the date
of change in assumption. Changes to expansion assumptions when a landfill site has many years of permitted operation remaining will have
less of an impact on our results of operations than a site with a significantly shorter permitted life. We don’t perceive this risk to be significant
at this time.
Our operations may be negatively impacted by a cybersecurity incident
We use some form of information technology in our operations and such use creates various cybersecurity threats including the possibility of
security breaches, operational disruptions and the release of non-public information (such as financial data, customer information and employee
information). Although we have taken various steps to protect ourselves against such
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risk, our efforts may not always be successful especially because of the rapidly changing nature of such cybersecurity threats. In the event of a
cybersecurity incident, our operations could be disrupted resulting in potential loss of customers, violation of laws and additional liabilities to
the business. Based on our internal standards and practices and strategy with regards to a cybersecurity incident, we don’t perceive this risk to
be significant at this time.
We depend on members of our management team and if we are unable to retain them, our operating results could suffer
Our future success will depend on, among other things, our ability to retain the services of our management and to hire other highly qualified
employees at all levels. We compete with other potential employers for employees, and we may not be successful in hiring and keeping the
services of executives and other employees that we need. The loss of the services of, or the inability to hire, executives or key employees could
hinder our business operations and growth. We believe that we have good relationships with our management and their teams and offer each
the opportunity to share in our success. We structure our compensation plans to ensure we offer competitive remuneration and we regularly
provide feedback and support to our managers to ensure they have the appropriate tools to successfully complete their required functions. We
remain confident that we can continue to retain and attract top talent without interruption or significant impact to our operating results.
Risks related to our industry
Some of our employees are covered by collective bargaining agreements and efforts by labour unions to renegotiate those agreements or to
organize our employees could divert management’s attention from its business or increase its operating cost
As of December 31, 2014, approximately 1,700, or 21.5%, of our employees were covered by collective bargaining agreements. These
collective bargaining agreements expire through 2016 and have terms generally ranging from three to five years.
The negotiation or renegotiation of these agreements could divert management’s attention away from other business matters. If we are unable
to negotiate acceptable collective bargaining agreements, union initiated work stoppages, including strikes, may result. Unfavorable collective
bargaining agreements, work stoppages or other labour disputes may result in increased operating expenses and reduced operating revenue. We
believe that we have good relationships with our unions and have a history of negotiating contracts that don’t impede our ability to manage our
business and/or impose undue costs on us. Our collective bargaining agreements are negotiated on a location by location basis. Accordingly,
we believe that any work stoppage, strike or labour dispute would not have a significant adverse impact on our financial condition or results of
operations.
Fluctuating fuel costs impact our operating expenses and we may be unable to fully offset increased fuel costs through fuel surcharges
The price of fuel is unpredictable and fluctuates based on events outside of our control, including geopolitical developments, supply and
demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries and other oil and gas producers, war and unrest in oil
producing countries, regional production patterns and environmental concerns. We need a significant amount of fuel to operate our collection
and transfer trucks, and any price escalations will increase our operating expenses and could have a negative impact on our consolidated
financial condition, results of operations and cash flows. We will from time to time, in accordance with the terms of most of our customer
contracts, attempt to offset increased fuel costs through the implementation of fuel surcharges. However, we may be unable to pass through all
of the increased fuel costs due to the terms of certain customers’ contracts and market conditions. As a result, we have entered into a series of
hedges with a view to limiting our exposure to fluctuating fuel prices and to reduce operating cost variability, however, there can be no
assurance that we will be successful in this regard. While we have typically been successful in recovering rising fuel costs from our customer
base, not all of our contracts allow us to pass along increasing fuel costs. In addition, the pass through of rising fuel costs has been most
difficult in the U.S. northeast in light of market conditions and competition. Accordingly, entering into hedges that effectively offset increasing
fuel costs where recoverability is limited allows us to reduce operating cost variability. We remain confident that we can continue to pass along
rising fuel costs or enter into hedges to mitigate a portion of our exposure to fluctuations in our operating costs resulting from changes in fuel
prices.
Our revenues will fluctuate based on changes in commodity prices
Our recycling operations process certain recyclable materials, such as OCC, paper (including newspaper, sorted office paper and mixed paper),
plastics and aluminum, which are marketed as commodities and are subject to significant price fluctuations. Our results of operations may be
affected by changing prices or market requirements for recyclable materials. The resale and purchase prices of, and market demand for,
recyclable materials can be volatile due to change in economic conditions and numerous other factors beyond our control. These fluctuations
may affect our consolidated financial condition, results of operations and cash flows. From time to time we have entered into commodity swaps
for OCC to limit our exposure to fluctuating OCC prices. Our exposure to commodity price fluctuations is further mitigated by the diversity of
our service
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offerings and revenues generated from them. However, commodity price fluctuations can be significant and can affect our reportable revenues
and earnings. Please refer to the Outlook section of this MD&A for further discussion regarding the impact of commodity pricing on our
business.
Governmental authorities may enact climate change regulations that could increase our costs to operate
Environmental advocacy groups and regulatory agencies in Canada and in the U.S. have been focusing considerable attention on the emissions
of greenhouse gases and their potential role in climate change. As a consequence, governments have begun (and are expected to continue)
devising and implementing laws and regulations that require reduced, or are intended to reduce, greenhouse gas emissions. The adoption of
such laws and regulations and the imposition of fees, taxes or other costs, could adversely affect our collection and disposal operations,
particularly in circumstances where we are unable to pass through such additional costs to our customers. Changing environmental regulations
could require us to take any number of actions, including the purchase of emission allowances or the installation of additional pollution control
technology, and could make our operations less profitable, which could adversely affect our results of operations. While governmental
authorities may enact regulations that increase our cost of operations, it is unlikely that an increase in the cost of operations would be isolated
to us. Accordingly, the management of waste, and the companies that participate in its management are all subject to the same governmental
regulation resulting in no one company being any more or less advantaged or disadvantaged than the other. We may also have opportunities to
earn environmental credits at our facilities that convert methane gas to energy. We remain confident that we could recover increasing operating
costs should regulations change that increase those costs.
Our business is highly competitive, which could reduce our profitability or limit our growth potential
The North American waste management industry is very competitive. We face competition from several larger competitors and a large number
of local and regional competitors. Because companies can enter the collection segment of the waste management industry with very little
capital or technical expertise, there are a large number of regional and local collection companies in the industry.
In addition to national and regional firms and numerous local companies, we compete in certain markets with those municipalities that maintain
waste collection or disposal operations. These municipalities may have financial advantages due to their access to user fees and similar charges,
tax revenue and tax exempt financing, and some control of the disposal of waste collected within their jurisdictions.
In each market in which we operate a landfill, we compete for solid waste business on the basis of disposal or ‘‘tipping’’ fees, geographical
location and quality of operations. Our ability to obtain solid waste business for our landfills may be limited by the fact that some major
collection companies also operate landfills to which they send their waste. In markets in which we do not operate a landfill, our collection
operations may operate at a disadvantage to fully integrated competitors. Generally, we are either the number one, two or three operator in
every market we conduct business in. We deem profitability and growth risk as low in our Canadian and U.S. south segments, but moderate in
our U.S. northeast segment.
Increasing efforts by provinces, states and municipalities to reduce landfill disposal could lead to our landfills operating at a reduced capacity
or force us to charge lower rates
Provinces, states and municipalities increasingly have supported the following alternatives to or restrictions on current landfill disposal:
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reducing waste at the source, including recycling and composting;
prohibiting disposal of certain types of waste at landfills; and
limiting landfill capacity.
Many provinces and states have enacted, or are currently considering or have considered enacting, laws regarding waste disposal, including:
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requiring counties, regions, cities and municipalities under their jurisdiction to use waste planning, composting, recycling or other
programs to reduce the amount of waste deposited in landfills; and
prohibiting the disposal of yard waste, tires and other items in landfills.
These trends may reduce the volume of waste disposed of in landfills in certain areas, which could lead to our landfills operating at less than
capacity or force us to charge lower prices for landfill disposal services. While reduced landfill volumes may occur as a result of various waste
reduction initiatives, we look to be a partner with the provinces, states and municipalities we operate in to be part of their waste reduction
solution. And while landfill volumes may decline due to waste
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reduction initiatives effectively causing over-capacity in the market place, in markets where alternative means of disposal do not exist or the
costs are prohibitive, landfill pricing could increase.
Operating a vertically integrated suite of assets allows us to run strategies in each market place. We don’t perceive this risk to be significant in
the near term as this risk may take years to develop any significance.
Emerging extended producer responsibility (“EPR”) programs may impact our customer relationships and revenues
Numerous jurisdictions in Canada and the U.S. have passed, or are considering new legislation or regulations to implement, EPR programs that
could affect our existing customer contracts. EPRs shift the financial responsibility and the physical logistics for the end of life management of
waste packaging, printed paper and designated products, such as tires and electronics, from the generator to the producer or brand owner and
usually include mandated minimum recycling rates which must be achieved. Declines in waste volumes could occur due to increased waste
diversion associated with these EPR programs and existing contracts to collect and process recyclables could be lost as post life management
responsibility and contractual obligations shift from our existing municipal and commercial generating customers to the brand owners who will
likely manage their EPR obligations through co-operative stewardship agencies. We would seek to participate in and partner with stewardship
organizations as a solution provider to the producer members. However, there remains a risk that we may not be successful in securing these
relationships.
General risks
We may be subject to litigation that could materially affect our financial results
We are subject to various legal proceedings in the ordinary course of business. As the factual and legal issues concerning these proceedings are
sometimes not easily resolved, we are unable to determine beforehand the timing and cost to settle such litigation. Furthermore, the final
outcome of such matters could result in us making substantial payments which may materially affect our financial condition and operations. At
this time, we are not aware of any events that could materially impact our financial statements and results of operations.
We may record material charges against our earnings due to any number of events that could cause impairments to our assets
In accordance with U.S. GAAP, we capitalize certain expenditures and advances relating to disposal site development and expansion projects.
Events that could, in some circumstances, lead to an impairment include, but are not limited to, shutting down a facility or operation or
abandoning a development project or the denial of an expansion permit. If we determine that a development or expansion project is impaired,
we will record a charge against earnings for any unamortized capitalized expenditures and advances relating to such facility or project reduced
by any portion of the capitalized costs that we estimate will be recoverable, through sale or otherwise. We also carry a significant amount of
goodwill on our balance sheet, which is required to be assessed for impairment annually, and more frequently in the case of certain triggering
events. We may be required to incur charges against earnings if we determine that certain events (such as a downturn in the recycling
commodities market) have caused the carrying value of our assets to be greater than their fair value, resulting in impairment. Any such charges
could have a material adverse effect on our results of operations.
We routinely make accounting estimates and judgments. If these are proven to be incorrect, subsequent adjustments could require us to restate
our historical financial statements
We make accounting estimates and judgments in the ordinary course of business. Such accounting estimates and judgments will affect the
reported amounts of our assets and liabilities at the date of our financial statements and the reported amounts of our operating results during the
periods presented. Additionally, we interpret the accounting rules in existence as of the date of our financial statements when the accounting
rules are not specific to a particular event or transaction. If the underlying estimates are ultimately proven to be incorrect, or if our auditors or
regulators subsequently interpret our application of accounting rules differently, subsequent adjustments could have an adverse effect on our
operating results for the period or periods in which the change is identified. Additionally, subsequent adjustments could require us to restate our
historical financial statements. We continually review accounting rules and regulation and we work with our auditors and third party experts on
all significant accounting and valuation matters.
The adoption of new accounting standards or interpretations could adversely affect our financial results
Our implementation of and compliance with changes in accounting rules and interpretations could adversely affect our operating results or
cause unanticipated fluctuations in our results in future periods. The accounting rules and regulations that we must comply with are complex
and continually changing. We cannot predict the impact of future changes to accounting principles on our financial statements going forward.
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If we identify deficiencies in our internal control over financial reporting, we could be required to restate our historical financial statements
We may face risks if there are deficiencies in our internal control over financial reporting and disclosure controls and procedures. Any
deficiencies, if uncorrected, could result in our financial statements being inaccurate and result in future adjustments or restatements of our
historical financial statements, which could adversely affect our business, financial condition and results of operations. We cannot predict the
impact a deficiency in our internal controls over financial reporting could have on our financial statements. However, we remain confident that
we have established and maintain adequate internal controls over financial reporting and believe that our internal controls are effective.
Income tax
Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to measurement uncertainty and the
interpretations can impact net income from income tax expense or recovery, and deferred income tax assets or liabilities. In addition, tax
rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by us that may be
challenged by the taxation authorities upon audit.
Payment of dividends is subject to various factors
Dividends paid by us may fluctuate. The funds available for the payment of dividends from time to time will be dependent upon, among other
things, our free cash flow (B) , general business conditions, financial requirements for our operations and the execution of our growth strategy
and the terms of our existing indebtedness.
We are a “foreign private issuer” in the U.S. and we are permitted to file less information with the U.S. Securities and Exchange Commission
and thus there may be less information concerning us than publicly available for U.S. public companies
As a “foreign private issuer” we are exempt from rules under the United States Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as well as procedural requirements, for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and
principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act.
Moreover, we are not required to file periodic reports and financial statements with the U.S. Securities and Exchange Commission (the “SEC”)
as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor are we generally required to
comply with Regulation FD, which restricts the selective disclosure of material non-public information. In addition, we are permitted, under a
multi-jurisdictional disclosure system (“MJDS”) adopted by the U.S. and Canada, to prepare our disclosure documents in accordance with
Canadian disclosure requirements. Accordingly, there may be less information concerning us publicly available than there is for U.S. public
companies.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses
More than 50% of our total assets are located in the U.S. In order to maintain our current status as a foreign private issuer under U.S. securities
laws, a majority of our shares must be either directly or indirectly owned by non-residents of the U.S. We may in the future lose our foreign
private issuer status if a majority of our shares are held by residents of the U.S. The regulatory and compliance costs to us under U.S. federal
securities laws as a U.S. domestic issuer may be significantly more than the costs we incur as a Canadian foreign private issuer eligible to use
the MJDS. If we were not a foreign private issuer, we would not be eligible to use the MJDS or other foreign issuer forms and would be
required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed
and extensive than the forms available to a foreign private issuer. In addition, we may lose the ability to rely upon exemptions from New York
Stock Exchange (“NYSE”) corporate governance requirements that are available to foreign private issuers. Finally, if we lose our foreign
private issuer status, to the extent that we were to offer or sell our securities outside of the U.S., we would have to comply with the generally
more restrictive Regulation S requirements that apply to U.S. companies, which could limit our ability to access the capital markets in the
future and create a higher likelihood that investors would require us to file resale registration statements with the SEC as a condition of any
such financings. While we acknowledge that losing our MJDS filing status will result in additional costs and expense, we don’t believe the
costs will be significant.
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Environmental Matters
Environmental charter and mandate
We have an environmental, health and safety committee (the “committee”) and its primary purpose is to assist the Company’s Board of
Directors in fulfilling its oversight responsibilities in relation to the following:
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establish and review safety, health and environmental policies, standards, accountability and programs;
manage and oversee the implementation of compliance systems;
monitor the effectiveness of safety, health and environmental policies, systems and monitoring processes;
receive audit results and updates from management with respect to health, safety and environmental performance;
review the annual budget for safety, health and environmental operations;
commission and review reports, including external audits, on the nature and extent of any compliance and non-compliance with
environmental and occupational health and safety policies, standards and applicable legislation and establishing plans to correct
deficiencies, if any;
matters customarily performed by the committee; and
addressing any additional matters delegated to the committee by the Company’s Board of Directors.
The committee consists of no less than three directors. Its members and its Chair are appointed annually by the Board of Directors, on the
recommendation of the governance and nominating committee.
The Board of Directors may fill vacancies in the committee by election from its members, and if and when a vacancy exists in the committee,
the remaining members may exercise all of its powers so long as a quorum remains in office.
The Company’s secretary shall, upon the request of committee chairman, any member of the committee or the President and Chief Executive
Officer of the Company, call a meeting of the committee. Any member of the committee may participate in the meeting and the committee may
invite such officers, directors and employees of the Company and its subsidiaries as it may see fit, from time to time, to attend meetings of the
committee. The committee shall keep minutes of its meetings which shall be submitted to the Board of Directors.
To carry out its oversight responsibilities, with respect to the environment, the responsibilities of the committee will be:
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to review and recommend to the Board of Directors, for approval, environmental policies, standards, accountabilities and programs for
the Company, and changes or additions thereto, in the context of competitive, legal and operational considerations;
to commission and review reports, including external audits, on the nature and extent of compliance or any non-compliance by the
Company with environmental policies, standards and applicable legislation and plans to correct deficiencies, if any, and to report to the
Board of Directors on the status of such matters;
to review such other environmental matters as the committee may consider suitable or the Board of Directors may specifically direct.
The committee will regularly report to the Board of Directors on:
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compliance with safety, health and environmental policies;
the effectiveness of safety, health and environmental policies; and
all other significant matters it has addressed and with respect to such other matters that are within its responsibilities.
The committee will annually review and evaluate the adequacy of its charter and recommend any proposed changes to the governance and
nominating committee.
The committee may, without seeking approval of the Board of Directors or management, select, retain, terminate, set and approve the fees and
other retention terms of any outside advisor, as it deems appropriate. The Company will provide for appropriate funding, for payment of
compensation to any such advisors, and for ordinary administrative expenses of the committee.
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Environmental policies (excluding critical accounting policies)
Our environmental health and safety policy requires that we complete a thorough review of the environmental health and safety risks associated
with acquisition candidates, or assumption, essential to ensure that the status of compliance with laws, regulations, permits or other legal
instruments is understood to the best of our knowledge prior to completing the acquisition, or assumption. This policy establishes the
requirement and responsibility for conducting environmental health and safety due diligence reviews of acquisition candidate companies,
joint-ventures, building or land leases, buildings or land acquisition, third party storage facilities and assumption including environmental
health and safety provisions of facility operating contracts or other obligations being assumed. The policy further requires a review and
assessment of the structural integrity of buildings and tipping floors of buildings where waste will be placed.
Our third party transfer and disposal sites policy addresses waste disposal by us at third party transfer stations, landfills, recycling facilities and
other processing and disposal facilities. These facilities receive wastes and recyclable material collected by us from our customers and in some
instances generated by us in the operation of our business. Internally generated wastes include general waste and recyclable material, used oils
and lubricants, leachate, condensate, batteries, solvents, used tires, scrap metals and other wastes. To ensure that the third party facilities used
by us do not impact our business, or our environmental or health and safety record, the third party facilities must meet an acceptable
operational and regulatory compliance requirement as set forth by us. Third party facilities that do not meet the acceptable minimum standards
will not be used, unless approved by certain senior management.
Our nuisance wildlife management policy addresses guidelines for managing nuisance wildlife.
Policy development
In the development of any policy, including but not limited to environmental policies, management input drives the core content for all policies.
Our internal audit function supports the documentation of management’s intent and the ongoing maintenance of policies. Policy owners are
identified and referenced in the policy itself and drive the content of their policies. Ownership and input is primarily determined by the core
functional nature (e.g. finance, human resources, environmental) of the policy and by the constituency impacted.
A policy may be developed or refined as the result of a significant event that permanently changes the way we operate or report financial
results. When a significant event occurs, relevant management, together with the policy owner, will determine whether a new policy should be
developed or an existing policy updated.
The Company level policies must meet or exceed the TSX and NYSE guidelines for corporate governance. Policy content must be specific
enough to provide adequate and effective internal controls, and general enough to ensure that adherence by all locations is realistic, regardless
of size. Special care is given to ensure policies are concise and focused on the essential requirements of management and regulatory authorities.
Both the policy owner and executive management must approve all new policies and changes to existing policies. The audit committee and/or
Board of Directors is also charged with reviewing Company level policies (i.e. disclosure, code of conduct) and changes to existing policies or
new policy requests.
Once a policy is finalized and approvals are obtained, the most up-to-date version of each policy is retained via an on-line collaboration
knowledge base.
Policy owners review their respective policies, at least annually, and update the content as necessary. Requests for new policies or permanent
changes to existing policies are communicated to the policy owner and reviewed in proposal form by the Executive Standards Committee. If
approved, the new policy or permanent policy change is made by the policy owner and a cross functional reviewer is identified. Once reviewed,
the new policy or permanent policy change is resubmitted to the Executive Standards Committee for final review and approval.
Legislation and governmental regulation
We are subject to various laws and regulations, which if violated, could subject us to sanctions or third-party litigation or, if unchanged, could
lead to increased costs or the interruption of normal business operations that would negatively impact our business results and financial
condition.
Our equipment, facilities and operations are subject to extensive and changing federal, provincial, state and local laws and regulations relating
to environmental protection, health, safety, training, land use, transportation and related matters. These include, among others, laws and
regulations governing the use, treatment, transportation, storage and disposal of wastes and materials, air quality (including carbon or green
house gas emissions), water quality, permissible or mandatory methods of processing waste and the remediation of contamination associated
with the release of hazardous substances. In addition,
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federal, provincial, state and local governments may change the rights they grant to, and the restrictions they impose on, waste management
companies, and those changes could restrict our operations and growth.
Our compliance with regulatory requirements is costly. We may be required to enhance, supplement or replace our equipment and facilities and
to modify landfill operations and, if we are unable to comply with applicable regulatory requirements, we could be required to close certain
landfills or we may not be able to offset the cost of complying with these requirements. In addition, environmental regulatory changes or an
inability to obtain extensions to the life of a landfill could accelerate or increase accruals or expenditures for closure and post-closure
monitoring and obligate us to spend monies in addition to those currently accrued for such purposes.
Extensive regulations govern the design, operation, and closure of landfills. If we fail to comply with these regulations, we could be required to
undertake investigatory or remedial activities, curtail operations or close a landfill temporarily or permanently, or be subject to monetary
penalties.
Certain of our waste disposal operations traverse state, provincial, county and the Canada/U.S. national boundaries. In the future, our
collection, transfer, and landfill operations may be affected by legislation governing interstate shipments of waste. If this or similar legislation
is enacted in states in which we operate, it could have an adverse effect on our operating results, including our landfills that receive a
significant portion of waste originating from out-of-state.
Certain collection, transfer, and landfill operations may also be affected by “flow control” legislation. Some states and local governments may
enact laws or ordinances directing waste generated within their jurisdiction to a specific facility for disposal or processing. If this or similar
legislation is enacted, state or local governments could limit or prohibit disposal or processing of waste in our transfer stations or landfills or in
third party landfills used by us.
In 1996, the New York City Council enacted Local Law 42, which prohibits the collection, disposal or transfer of commercial and industrial
waste without a license issued by the New York City Business Integrity Commission, formerly known as the Trade Waste Commission (the
“Business Integrity Commission”), and requires Business Integrity Commission approval of all acquisitions or other business combinations in
New York City proposed by all licensees. The need for review by the Business Integrity Commission could delay our consummation of
acquisitions in New York City, which could limit our ability to expand our business there.
From time to time, provincial, state or local authorities consider and sometimes enact laws or regulations imposing fees or other charges on
waste disposed of at landfills. If any additional fees are imposed in jurisdictions in which we operate and we are not able to pass the fees
through to our customers, our operating results and profitability would be negatively affected.
We must comply with the requirements of federal, provincial, and state laws and regulation related to worker health and safety. These
requirements can be onerous and include, in Canada, a requirement that any person that directs (or has the authority to direct) how another
person does work or performs a task must take reasonable steps to prevent bodily harm to any person arising from that work or task. Failure to
comply with these requirements may result in criminal or quasi-criminal proceedings and related penalties.
The operational and financial effects of the various laws and regulations concerning our business could require us to make significant
expenditures or otherwise adversely affect the way we operate our business, which may have an adverse effect on our business, financial
condition and results of operations.
Environmental regulation and litigation
We may be subject to legal action relating to compliance with environmental laws or regulations, and to civil claims from parties alleging some
harm as a consequence of contamination, odours, and other releases to the environment or other environmental matters (including the acts or
omissions of its predecessors) for which we may be responsible.
Solid waste management companies are often subject to close scrutiny by federal, provincial, state, and local regulators, as well as private
citizens and environmental advocacy groups, and may be subject to judicial and administrative proceedings, including proceedings relating to
their compliance with environmental and local land use laws.
In general, environmental, health and safety laws authorize federal, provincial, state or local environmental regulatory agencies and attorneys
general (and in some cases, private citizens) to bring administrative or judicial actions for violations of environmental laws or to revoke or deny
the renewal of a permit. Potential penalties for such violations may include, among
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other things, civil and criminal monetary penalties, imprisonment, permit suspension or revocation, and injunctive relief. Under certain
circumstances, citizens are also authorized to file lawsuits to compel compliance with environmental laws, regulations or permits under which
we operate. Surrounding landowners or community groups may also assert claims alleging environmental damage, personal injury or property
damage in connection with our operations.
From time to time, we have received, and may in the ordinary course of business in the future receive, citations or notices from governmental
authorities requiring that we take certain actions and/or alleging, amongst other things, that our operations are not in compliance with our
permits or certain applicable environmental or land use laws or regulations. We will generally seek to work with the relevant authorities and
citizens and citizen groups to resolve the issues raised by these citations or notices. However, we may not always be successful in resolving
these types of issues without resorting to litigation or other formal proceedings. Any adverse outcome in these proceedings, whether formal or
informal, could result in negative publicity, reduce the demand for our services, and negatively impact our results from operations. A
significant judgment against us, the loss of a significant permit or license or the imposition of a significant fine or penalty could also have an
adverse effect our financial condition and results of operations.
Environmental contamination
We could be liable to federal, provincial or state governments or other parties if hazardous (or other regulated or potentially harmful)
substances contaminate or have contaminated our properties, including soil or water under our properties, or if such substances from our
properties contaminate or have contaminated the properties of others. We could be liable for this type of contamination even if the
contamination did not result from our activities or occurred before we owned or operated the properties. We could also be liable for such
contamination at properties to which we transported such substances or arranged to have hazardous substances transported, treated or disposed.
Certain environmental laws impose joint and several and strict liability in connection with environmental contamination, which means that the
we could have to pay all recoverable damages, even if we did not cause or permit the event, circumstance or condition giving rise to the
damages. Moreover, many substances are defined as “hazardous” under various environmental laws and their presence, even in minute
amounts, can result in substantial liability. While we may seek contribution for these expenses from others, we may not be able to identify who
the other responsible parties are and we may not be able to compel them to contribute to these expenses or they may be insolvent or unable to
afford to contribute. If we incur liability and if we cannot identify other parties whom we can compel to contribute to our expenses and who are
financially able to do so, our financial condition and results of operations may be impacted.
In addition, we have previously acquired, and may in the future acquire, businesses that may have handled and stored, or will handle and store,
hazardous substances, including petroleum products, at their facilities. These businesses may have released substances into the soil, air or
groundwater. They also may have transported or disposed of substances or arranged to have transported, disposed of or treated substances to or
at other properties where substances were released into the soil, air or groundwater. Depending on the nature of our acquisition of these
businesses and other factors, we could be liable for the cost of cleaning up any contamination, and other damages, for which the acquired
businesses are liable. Any indemnities or warranties we obtained or obtains in connection with the purchases of these businesses may not
suffice to cover these liabilities, due to limited scope, amount or duration, the financial limitations of the party who gave or gives the indemnity
or warranty or other reasons. If the cost of compliance or any remediation substantially exceeds our applicable reserves and insurance coverage,
it could have an adverse effect on our business, financial condition and results of operations.
Climate Change Risk
Environmental advocacy groups and regulatory agencies in Canada and in the U.S. have been focusing considerable attention on the emissions
of greenhouse gases and their potential role in climate change. As a consequence, governments have begun (and are expected to continue)
devising and implementing laws and regulations that require reduced, or are intended to reduce, Green House Gas (“GHG”) emissions. The
adoption of such laws and regulations and the imposition of fees, taxes or other costs, could adversely affect our collection and disposal
operations. Changing environmental regulations could require us to take any number of actions, including the purchase of emission allowances
or the installation of additional pollution control technology, and could make our operations less profitable, which could adversely affect our
results of operations.
We believe we are exposed to regulatory risks related to climate change because we operate in one of the most heavily regulated industries in
North America. The addition of increased regulations for the management of GHG, particularly methane as a component of landfill gas, has
been anticipated in the U.S. and in Canada. We believe we are well positioned to manage these changes without severe impact to our
operations. The management of landfill gas generated at our landfills has been an integral part of our operations for many years and the
associated costs required to manage this gas is contemplated in the development of our landfill asset amortization rates and asset retirement
obligations.
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We expect and encourage further strengthening of regulations related to our industry and we are committed to ensuring our operations meet
and, where possible, exceed those requirements. While meeting an ever-increasing regulatory regime can be costly, we proactively undertake
initiatives to manage our GHG obligations to minimize those costs in an environmentally conscious manner.
We have taken action to manage regulatory risks and as one of North America’s largest environmental services companies we have extensive
experience and resources needed to operate in a highly regulated industry with strict legislation. In addition to meeting and exceeding
regulatory expectations for many years, we work constantly to identify best management practices that promote environmental sustainability.
We regularly review regulatory risks by qualified internal and external personnel at the local, regional and national levels. This means that in
all of our communities learning about new and improved methods of managing our services occurs by engaging with regulators and with
industry experts to ensure we are always at the forefront of environmental excellence.
We are also exposed to physical risks. Our operations provide service to various Canadian and U.S. markets and we operate landfills, transfer
stations, MRFs, three landfill gas to energy facilities and one landfill gas to natural gas facility. In addition, several of our landfills include
facilities for the collection and thermal destruction of methane and it is management’s future intention to implement landfill gas recovery
systems for other landfills it operates. Some of these markets are located in geographic areas with altitudes close to sea level, but the majority
are located either remote from or at sufficient altitudes as to not be affected by sea level change.
We are prepared for and have historically taken steps to minimize the potential impact of extreme events, such as weather, to our operations.
We are also dependent on suppliers of various resources such as waste collection vehicles, fuel and other consumables. Any extreme disruption
in the supply of such resources could impede our ability to operate efficiently.
We continually review our physical risks as part of regular management operating reviews and, as issues are raised, we adapt our operating
processes to minimize potential impacts from these risks.
We are also aware of consumer attitudes and demands, and changes thereto, as the public becomes ever increasingly aware of, and educated
about, environmental issues. We believe that consumers prefer to work with companies that are environmentally astute, provide
environmentally sound services and encourage environmental well-being. We encourage these attitudes and beliefs and, as an industry leader,
we are well-positioned to assist our customers in realizing and adjusting to changes in regulation or service that may result from climate change
initiatives. We are committed to identifying and offering services that can mutually benefit our customers while also addressing their climate
change issues. We regularly review our operations and policies to incorporate innovation and strategic management plans to reduce greenhouse
gas emissions while remaining committed to provide competitive customer service and having continued respect for regulations and
environmental stewardship.
75
Financial Information Controls and Procedures
The President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company, together with various
levels of management, have evaluated the design and operating effectiveness of the Company’s disclosure controls and procedures and internal
control over financial reporting at December 31, 2014. Internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the Company’s consolidated financial statements in accordance with
accounting principles generally accepted in the United States of America. The President and Chief Executive Officer and the Executive Vice
President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were adequate and effective to ensure
significant information relating to the Company is disclosed in accordance with various regulatory requirements. In addition, the President and
Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that the Company’s internal control over financial
reporting was adequate and effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the
consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.
For the year ended December 31, 2014, there have been no changes to the Company’s internal control over financial reporting that had, or are
reasonably likely to have, a material effect on its internal controls over financial reporting.
Definitions
All references to “Adjusted EBITDA” in this document are to revenues less operating expense and SG&A, excluding certain SG&A
expenses, on the statement of operations and comprehensive income or loss. Adjusted EBITDA excludes some or all of the following: certain
SG&A expenses, restructuring expenses, goodwill impairment, amortization, net gain or loss on sale of capital and landfill assets, interest on
long-term debt, net foreign exchange gain or loss, net gain or loss on financial instruments, loss on extinguishment of debt, re-measurement
gain on previously held equity investment, other expenses, income taxes and income or loss from equity accounted investee. Adjusted EBITDA
is a term used by us that does not have a standardized meaning prescribed by U.S. GAAP and is therefore unlikely to be comparable to similar
measures used by other companies. Adjusted EBITDA is a measure of our operating profitability, and by definition, excludes certain items as
detailed above. These items are viewed by us as either non-cash (in the case of goodwill impairment, amortization, net gain or loss on sale of
capital and landfill assets, net foreign exchange gain or loss, net gain or loss on financial instruments, loss on extinguishment of debt,
re-measurement gain on previously held equity investment, deferred income taxes and net income or loss from equity accounted investee) or
non-operating (in the case of certain SG&A expenses, restructuring expenses, interest on long-term debt, other expenses, and current income
taxes). Adjusted EBITDA is a useful financial and operating metric for us, our Board of Directors, and our lenders, as it represents a starting
point in the determination of free cash flow (B) . The underlying reasons for the exclusion of each item are as follows:
(A)
Certain SG&A expenses — SG&A expense includes certain non-operating or non-recurring expenses. Non-operating expenses include
transaction costs or recoveries related to acquisitions, fair value adjustments attributable to stock options and restricted share expense.
Non-recurring expenses include certain equity based compensation amounts, payments made to certain senior management on their departure
and other non-recurring expenses from time-to-time. These expenses are not considered an expense indicative of continuing operations. Certain
SG&A costs represent a different class of expense than those included in adjusted EBITDA.
Restructuring expenses — restructuring expenses includes costs to integrate certain operating locations with our own, exiting certain property
and building and office leases, employee severance and employee relocation. These expenses are not considered an expense indicative of
continuing operations. Accordingly, restructuring expenses represent a different class of expense than those included in adjusted EBITDA.
Goodwill impairment — as a non-cash item goodwill impairment has no impact on the determination of free cash flow (B) and is not indicative
of our operating profitability.
Amortization — as a non-cash item amortization has no impact on the determination of free cash flow (B) and is not indicative of our operating
profitability.
Net gain or loss on sale of capital and landfill assets — as a non-cash item the net gain or loss on sale of capital and landfill assets has no
impact on the determination of free cash flow (B) . In addition, the sale of capital and landfill assets does not reflect a primary operating activity
and therefore represents a different class of income or expense than those included in adjusted EBITDA.
Interest on long-term debt — interest on long-term debt reflects our debt/equity mix, interest rates and borrowing position from time to time.
Accordingly, interest on long-term debt reflects our treasury/financing activities and represents a different class of expense than those included
in adjusted EBITDA.
Net foreign exchange gain or loss — as non-cash items, foreign exchange gains or losses have no impact on the determination of free cash flow
(B) and is not indicative of our operating profitability.
Net gain or loss on financial instruments — as non-cash items, gains or losses on financial instruments have no impact on the determination of
free cash flow (B) and is not indicative of our operating profitability.
76
Loss on extinguishment of debt — as a non-cash item, loss on extinguishment is not indicative of our operating profitability and reflects a
resulting charge from a change in our debt financing. Accordingly, it reflects our treasury/financing activities and represents a different class of
expense than those included in adjusted EBITDA.
Re-measurement gain on previously held equity investment — as a non-cash item, the re-measurement gain on previously held equity
investment has no impact on the determination of free cash flow (B) and is not indicative of our operating profitability.
Other expenses — other expenses typically represent amounts paid to certain management of acquired companies who are retained by us post
acquisition and amounts paid to certain executives in respect of acquisitions successfully completed. These expenses are not considered an
expense indicative of continuing operations. Accordingly, other expenses represent a different class of expense than those included in adjusted
EBITDA.
Income taxes — income taxes are a function of tax laws and rates and are affected by matters which are separate from our daily operations.
Net income or loss from equity accounted investee — as a non-cash item, net income or loss from our equity accounted investee has no impact
on the determination of free cash flow (B) and is not indicative of our operating profitability.
All references to “Adjusted EBITA” in this document represent Adjusted EBITDA after deducting amortization attributable to capital and
landfill assets. All references to “Adjusted operating income or adjusted operating EBIT” in this document represent Adjusted EBITDA after
adjusting for goodwill impairment, net gain or loss on the sale of capital and landfill assets, and all amortization expense, including
amortization expense recognized on the impairment of intangible assets. All references to “Adjusted net income” are to adjusted operating
income after adjusting, as applicable, net gain or loss on financial instruments, re-measurement gain on previously held equity investment, loss
on extinguishment of debt, other expenses and net income tax expense or recovery.
Adjusted EBITA, Adjusted operating income or adjusted operating EBIT and Adjusted net income should not be construed as measures of
income or of cash flows. Collectively, these terms do not have standardized meanings prescribed by U.S. GAAP and are therefore unlikely to
be comparable to similar measures used by other companies. Each of these measures is important for investors and is used by management to
manage its business. Adjusted operating income or adjusted operating EBIT removes the impact of a company’s capital structure and its tax
rates when comparing the results of companies within or across industry sectors. Management uses Adjusted operating EBIT as a measure of
how its operations are performing and to focus attention on amortization and depreciation expense to drive higher returns on invested capital. In
addition, Adjusted operating EBIT is used by management as a means to measure the performance of its operating locations and is a significant
metric in the determination of compensation for certain employees. Adjusted EBITA accomplishes a similar comparative result as Adjusted
operating EBIT, but further removes amortization attributable to intangible assets. Intangible assets are measured at fair value when we
complete an acquisition and are amortized over their estimated useful lives. We view capital and landfill asset amortization as a proxy for the
amount of capital reinvestment required to continue operating our business steady state. We believe that the replacement of intangible assets is
not required to continue our operations as the costs associated with continuing operations are already captured in operating or selling, general
and administration expenses. Accordingly, we view Adjusted EBITA as a measure that eliminates the impact of a company’s acquisitive nature
and permits a higher degree of comparability across companies within our industry or across different sectors from an operating performance
perspective. Finally, Adjusted net income is a measure of our overall earnings and profits and is further used to calculate our adjusted net
income per share. Adjusted net income reflects what we believe is our “operating” net income which excludes certain non-operating income or
expenses. Adjusted net income is an important measure of a company’s ability to generate profit and earnings for its shareholders which is used
to compare company performance both amongst and between industry sectors.
77
Adjusted EBITDA should not be construed as a measure of income or of cash flows. The reconciling items between adjusted EBITDA and net
income or loss are detailed in the statement of operations and comprehensive income or loss beginning with operating income or loss before
restructuring expenses, goodwill impairment, amortization and net gain or loss on sale of capital and landfill assets and ending with net income
or loss and includes certain adjustments for expenses recorded to SG&A, which management views as not being indicative of continuing
operations or not recurring. A reconciliation between operating income or loss and adjusted EBITDA is provided below. Adjusted operating
income, Adjusted EBITA and adjusted net income are also presented below.
Year ended
December 31
2014
Operating income
Transaction and related recoveries - SG&A
Fair value movements in stock options - SG&A (*)
Restricted share expense - SG&A (*)
Non-operating or non-recurring expenses - SG&A
Impairment of capital and intangible assets - Amortization
Adjusted operating income or adjusted operating EBIT
Net gain on sale of capital and landfill assets
Amortization (*)(*)
Adjusted EBITDA
Amortization of capital and landfill assets
Adjusted EBITA
$
Net income
Transaction and related recoveries - SG&A
Fair value movements in stock options - SG&A (*)
Restricted share expense - SG&A (*)
Non-operating or non-recurring expenses - SG&A
Impairment of capital and intangible assets - Amortization
Net loss (gain) on financial instruments
Loss on extinguishment of debt
Re-measurement gain on previously held equity investment
Net income tax (recovery) expense
Adjusted net income
$
$
$
2013
241,099
(591 )
9,695
1,401
4,067
7,529
263,200
(17,905 )
278,076
523,371
(229,184 )
294,187
$
126,516
(591 )
9,695
1,401
4,067
7,529
24,214
—
(5,156 )
(14,599 )
153,076
$
$
$
232,916
(2,460 )
5,879
1,142
4,600
4,074
246,151
(7,793 )
292,417
530,775
(233,562 )
297,213
117,970
(2,460 )
5,879
1,142
4,600
4,074
(4,282 )
1,240
—
(1,011 )
127,152
Note:
(*) Amounts exclude LTIP compensation.
(*)(*) Amortization is presented net of amortization expense recorded on the impairment of capital and intangible assets.
We have adopted a measure called “free cash flow” to supplement net income or loss as a measure of our operating performance. Free cash
flow is a term which does not have a standardized meaning prescribed by U.S. GAAP, is prepared before dividends declared and shares
repurchased, and may not be comparable to similar measures prepared by other companies. The purpose of presenting this non-GAAP measure
is to provide disclosure similar to the disclosure provided by other U.S. publicly listed companies in our industry and to provide investors and
analysts with an additional measure of our value and liquidity. We use this non-GAAP measure to assess our performance relative to other U.S.
publicly listed companies and to assess the availability of funds for growth investment, debt repayment, share repurchases or dividend
increases. All references to “free cash flow” in this document have the meaning set out in this note.
(B)
78
Management’s Report on Internal Control Over Financial Reporting
Management of Progressive Waste Solutions Ltd. (the “Company”) is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control over financial reporting (“ICFR”) is reviewed and approved by the President and
Chief Executive Officer and the Executive Vice President and Chief Financial Officer and provides reasonable assurance regarding the
reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America.
Due to its inherent limitations, ICFR may not prevent or detect misstatements on a timely basis. Also, the effectiveness of these controls
applicable to future periods are also subject to risk and may not be sufficient to meet the degree of compliance required to comply with the
policy or procedure in the future.
Management conducted an assessment of the Company’s ICFR based on the “Internal Control-Integrated Framework (1992)” established by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on its assessment, management concluded that, as
of December 31, 2014, the Company’s ICFR is considered effective. There were no material weaknesses identified by management as of
December 31, 2014.
Based on management’s evaluation, the President and Chief Executive Officer and Executive Vice President and Chief Financial Officer also
concluded that the Company’s ICFR was effective as of December 31, 2014.
The Company’s ICFR as of December 31, 2014 has been audited by Deloitte LLP, Independent Registered Public Accounting Firm, who also
audited the Company’s consolidated financial statements for the year ended December 31, 2014. Deloitte LLP issued an unqualified opinion on
the effectiveness of our ICFR.
Joseph D. Quarin (signed)
President and Chief Executive Officer
March 20, 2015
Ian Kidson (signed)
Executive Vice President and Chief Financial Officer
March 20, 2015
79
Management’s Responsibility for Financial Statements
The consolidated financial statements of Progressive Waste Solutions Ltd. (the “Company”) are the responsibility of management and have
been approved by the Company’s Board of Directors.
The consolidated financial statements have been prepared by management in accordance with accounting principles generally accepted in the
United States of America. The consolidated financial statements include amounts that are based on estimates and judgments which
management has determined to be reasonable and presented fairly in all material respects.
The Company maintains systems of internal accounting and administrative controls. These systems are designed to provide reasonable
assurance that the financial information is relevant, reliable and accurate and that the Company’s assets are properly accounted for and
adequately safeguarded.
The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately
responsible for reviewing and approving the consolidated financial statements. The Board of Directors carries out this responsibility principally
through its Audit Committee.
The Audit Committee is appointed by the Board of Directors and is comprised entirely of non-management directors. The Audit Committee
meets periodically with management and the Company’s external auditors to discuss auditing, internal control, accounting policy and financial
reporting matters. The Audit Committee reviews the consolidated financial statements with management and the Company’s external auditors
and reports its findings to the Board of Directors before the consolidated financial statements are approved by the Board of Directors.
The consolidated financial statements have been audited by Deloitte LLP, the Company’s external auditors, in accordance with Canadian
generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).
Joseph D. Quarin (signed)
President and Chief Executive Officer
March 20, 2015
Ian Kidson (signed)
Executive Vice President and Chief Financial Officer
March 20, 2015
80
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Progressive Waste Solutions Ltd.
We have audited the internal control over financial reporting of Progressive Waste Solutions Ltd. and subsidiaries (the “Company”) as of
December 31, 2014, based on the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control
over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Report on Internal Control over financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive
and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and
other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management
override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014,
based on the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2014 of the Company and our
report dated March 20, 2015 expressed an unmodified opinion on those financial statements.
“/s/ Deloitte LLP”
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 20, 2015
Toronto, Canada
81
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Progressive Waste Solutions Ltd.
We have audited the accompanying consolidated financial statements of Progressive Waste Solutions Ltd. and subsidiaries (the “Company”),
which comprise the consolidated balance sheets as at December 31, 2014 and December 31, 2013, and the consolidated statements of
operations and comprehensive income or loss, consolidated statements of cash flows and consolidated statements of equity for the years then
ended, and a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, and for such internal control as management determines is necessary to enable
the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the
circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Progressive Waste
Solutions Ltd. and subsidiaries as at December 31, 2014 and December 31, 2013, and their financial performance and their cash flows for the
years then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matter
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s
internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal Control — Integrated
Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 20, 2015
expressed an unqualified opinion on the Company’s internal control over financial reporting.
“/s/ Deloitte LLP”
Chartered Professional Accountants, Chartered Accountants
Licensed Public Accountants
March 20, 2015
Toronto, Canada
82
Progressive Waste Solutions Ltd.
Consolidated Balance Sheets (“Balance Sheet”)
December 31, 2014 and December 31, 2013 (stated in accordance with accounting principles generally accepted in the United States of
America (“U.S.”) and in thousands of U.S. dollars except for issued and outstanding share amounts)
December 31,
2014
ASSETS
CURRENT
Cash and cash equivalents
Accounts receivable (Note 7)
Other receivables (Note 8)
Prepaid expenses
Income taxes recoverable
Restricted cash (Note 9)
Other assets (Note 16)
$
NET ASSETS HELD FOR SALE (Note 6)
OTHER RECEIVABLES (Note 8)
FUNDED LANDFILL POST-CLOSURE COSTS (Note 19)
INTANGIBLES (Note 10)
GOODWILL (Note 11)
LANDFILL DEVELOPMENT ASSETS
DEFERRED FINANCING COSTS (Note 12)
CAPITAL ASSETS (Note 13)
LANDFILL ASSETS (Note 14)
INVESTMENTS (Note 15)
OTHER ASSETS (Note 16)
$
LIABILITIES
CURRENT
Accounts payable
Accrued charges (Note 17)
Dividends payable
Income taxes payable
Deferred revenues
Current portion of long-term debt (Note 18)
Landfill closure and post-closure costs (Note 19)
Other liabilities (Note 16)
$
LONG-TERM DEBT (Note 18)
LANDFILL CLOSURE AND POST-CLOSURE COSTS (Note 19)
OTHER LIABILITIES (Note 16)
DEFERRED INCOME TAXES (Note 26)
COMMITMENTS AND CONTINGENCIES (Note 23)
SHAREHOLDERS’ EQUITY (Note 20)
Common shares (authorized - unlimited, issued and outstanding - 112,106,839 (December 31,
2013 - 114,852,852))
Restricted shares (issued and outstanding - 399,228 (December 31, 2013 - 322,352))
Additional paid in capital
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity
$
James J. Forese (signed) - Non-Executive Chairman
41,636
216,201
47
35,589
1,646
521
—
295,640
61,016
5,460
11,365
165,929
937,294
14,463
14,417
928,550
936,095
892
5,315
3,376,436
$
86,825
174,331
15,517
5,933
16,323
5,428
9,519
16,558
330,434
1,552,617
120,626
17,118
126,848
2,147,643
$
1,734,372
(9,184 )
4,023
(377,172 )
(123,246 )
1,228,793
3,376,436
Douglas Knight (signed) - Audit Committee Chair
The accompanying notes are an integral part of these consolidated financial statements.
83
December 31,
2013
$
$
31,980
229,548
68
34,886
2,531
498
2,149
301,660
—
—
10,690
220,078
905,347
20,247
19,037
937,252
952,731
5,659
19,869
3,392,570
100,270
136,991
16,243
2,048
17,180
5,969
10,332
12,925
301,958
1,542,289
114,122
14,743
129,887
2,102,999
1,773,734
(6,654 )
2,796
(398,414 )
(81,891 )
1,289,571
3,392,570
Progressive Waste Solutions Ltd.
Consolidated Statements of Operations and Comprehensive Income or Loss (“Statement of Operations and Comprehensive Income or
Loss”)
For the years ended December 31, 2014 and 2013 (stated in accordance with accounting principles generally accepted in the U.S. and in
thousands of U.S. dollars, except share and net income or loss per share amounts)
2014
REVENUES
EXPENSES
OPERATING
SELLING, GENERAL AND ADMINISTRATION
AMORTIZATION (Note 10 and 13)
NET GAIN ON SALE OF CAPITAL AND LANDFILL ASSETS
OPERATING INCOME
INTEREST ON LONG-TERM DEBT
NET FOREIGN EXCHANGE GAIN
NET LOSS (GAIN) ON FINANCIAL INSTRUMENTS (Note 25)
LOSS ON EXTINGUISHMENT OF DEBT (Note 12 and 18)
RE-MEASUREMENT GAIN ON PREVIOUSLY HELD EQUITY INVESTMENT (Note 5)
INCOME BEFORE INCOME TAX EXPENSE AND NET LOSS (INCOME) FROM EQUITY
ACCOUNTED INVESTEE
INCOME TAX EXPENSE (RECOVERY) (Note 26)
Current
Deferred
$
2013
2,008,997
$
2,026,039
1,246,175
254,023
285,605
(17,905 )
241,099
61,917
(150 )
24,214
—
(5,156 )
1,249,252
255,173
296,491
(7,793 )
232,916
60,754
(1,061 )
(4,282 )
1,240
—
160,274
176,265
NET LOSS (INCOME) FROM EQUITY ACCOUNTED INVESTEE
NET INCOME
34,026
(350 )
33,676
82
126,516
29,535
28,908
58,443
(148 )
117,970
OTHER COMPREHENSIVE LOSS:
Foreign currency translation adjustment
(41,773 )
(33,181 )
—
Derivatives designated as cash flow hedges, net of income tax $nil (2013 - $566)
Settlement of derivatives designated as cash flow hedges, net of income tax ($225) (2013 ($247))
TOTAL OTHER COMPREHENSIVE LOSS
COMPREHENSIVE INCOME
$
Net income per weighted average share, basic and diluted (Note 20)
Weighted average number of shares outstanding (thousands), basic and diluted (Note 20)
$
418
418
(41,355 )
85,161
1.10
114,822
The accompanying notes are an integral part of these consolidated financial statements.
84
(1,051 )
$
$
457
(594 )
(33,775 )
84,195
1.02
115,170
Progressive Waste Solutions Ltd.
Consolidated Statements of Cash Flows (“Statement of Cash Flows”)
For the years ended December 31, 2014 and 2013 (stated in accordance with accounting principles generally accepted in the U.S. and in
thousands of U.S. dollars)
2014
NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES
OPERATING
Net income
Items not affecting cash
Restricted share expense (Note 22)
Write-off of deferred financing costs (Note 12 and 18)
Accretion of landfill closure and post-closure costs (Note 19)
Amortization of intangibles
Amortization of capital assets
Amortization of landfill assets
Interest on long-term debt (amortization of deferred financing costs) (Note 12)
Non-cash interest income
Net gain on sale of capital and landfill assets
Net loss (gain) on financial instruments
Re-measurement gain on previously held equity investment
Deferred income tax (recovery) expense
Net loss (income) from equity accounted investee
Landfill closure and post-closure expenditures (Note 19)
Changes in non-cash working capital items (Note 21)
Cash generated from operating activities
INVESTING
Acquisitions (Note 5)
Investments in cost and equity accounted investees (Note 15)
Restricted cash deposits
Investment in other receivables
Proceeds from other receivables
Funded landfill post-closure costs
Purchase of capital assets
Purchase of landfill assets
Proceeds from the sale of capital and landfill assets
Investment in landfill development assets
Cash utilized in investing activities
FINANCING
Payment of deferred financing costs
Proceeds from long-term debt
Repayment of long-term debt
Proceeds from the exercise of stock options (Note 20)
Repurchase of common shares and related costs (Note 20)
Purchase of, net of proceeds from, restricted shares
Dividends paid to shareholders
Cash utilized in financing activities
Effect of foreign currency translation on cash and cash equivalents
NET CASH INFLOW
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash and cash equivalents are comprised of:
Cash
Cash equivalents
$
$
$
$
Cash paid during the year for:
126,516
2013
$
117,970
2,759
—
6,132
56,421
152,895
76,289
3,418
(216 )
(17,905 )
24,214
(5,156 )
(350 )
82
(4,696 )
(20,677 )
399,726
2,004
1,240
5,655
62,929
152,728
80,834
3,436
—
(7,793 )
(4,282 )
—
28,908
(148 )
(4,276 )
11,530
450,735
(77,698 )
—
(23 )
(253 )
76
(1,569 )
(182,834 )
(54,579 )
28,528
(1,103 )
(289,455 )
(3,273 )
(1,746 )
(22 )
(134 )
556
(1,134 )
(208,202 )
(65,660 )
21,183
(3,334 )
(261,766 )
(48 )
358,682
(305,339 )
123
(80,770 )
(3,920 )
(63,475 )
(94,747 )
(5,868 )
9,656
31,980
41,636
(4,762 )
770,139
(880,800 )
112
(14 )
(4,462 )
(63,725 )
(183,512 )
(3,417 )
2,040
29,940
31,980
37,324
4,312
41,636
$
$
$
28,200
3,780
31,980
Income taxes
Interest
$
$
35,333
60,358
$
$
35,429
62,336
The accompanying notes are an integral part of these consolidated financial statements.
85
Progressive Waste Solutions Ltd.
Consolidated Statements of Equity (“Statement of Equity”)
For the years ended December 31, 2014 and 2013 (stated in accordance with accounting principles generally accepted in the U.S. and in
thousands of U.S. dollars)
Common
shares
Balance at December 31, 2013
$
Net income
Dividends declared
Restricted shares purchased, net
of restricted shares sold
Restricted share expense
Vesting of restricted shares
Common shares issued on
exercise of share based options
Common shares acquired by U.S.
long-term incentive plan
(“LTIP”)
Deferred compensation
obligation
Repurchase of common shares
and related costs
Foreign currency translation
adjustment
Settlement of derivatives
designated as cash flow
hedges, net of income tax
Balance at December 31, 2014
$
1,773,734
Restricted
shares
$
Additional
paid in
capital
— $
(3,978 )
Accumulated
deficit
2,796 $
(398,414 ) $
126,516
(64,131 )
(81,891 ) $
58
2,759
(1,448 )
1,448
265
123
(931 )
(931 )
931
931
(41,143 )
(80,770 )
(41,773 )
1,773,530
1,289,571
126,516
(64,131 )
(3,920 )
2,759
—
(39,627 )
1,734,372
Total
equity
(142 )
$
Common
shares
Balance at December 31, 2012
$
Net income
Dividends declared
Restricted shares purchased, net
of restricted shares sold
Restricted share expense
Vesting of restricted shares
Common shares issued on
exercise of share based options
Common shares acquired by U.S.
LTIP
Deferred compensation
obligation
Repurchase of common shares
and related costs
Foreign currency translation
(6,654 ) $
Treasury
shares
Accumulated
other
comprehensive
loss
(Note 20)
(9,184 ) $
Restricted
shares
$
(3,460 ) $
— $
Treasury
shares
Additional
paid in
capital
— $
(4,483 )
4,023 $
(377,172 ) $
Accumulated
deficit
2,166 $
418
(123,246 ) $
Accumulated
other
comprehensive
loss
(Note 20)
(451,539 ) $
117,970
(64,845 )
(48,116 ) $
21
2,004
(1,289 )
1,289
218
(41,773 )
418
1,228,793
Total
equity
1,272,581
117,970
(64,845 )
(4,462 )
2,004
—
(106 )
112
(1,912 )
(1,912 )
1,912
1,912
(14 )
(33,181 )
(14 )
(33,181 )
adjustment
Derivatives designated as cash
flow hedges, net of income tax
Settlement of derivatives
designated as cash flow
hedges, net of income tax
Balance at December 31, 2013
(1,051 )
$
1,773,734
$
— $
(6,654 ) $
2,796 $
(398,414 ) $
457
(81,891 ) $
(1,051 )
457
1,289,571
The accompanying notes are an integral part of these consolidated financial statements.
86
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
1.
Organization
Effective May 2, 2011, Progressive Waste Solutions Ltd. (the “Company”) amalgamated with its parent IESI-BFC Ltd. and continued
operating as Progressive Waste Solutions Ltd. The Company was incorporated on May 20, 2009 under the provisions of the Business
Corporations Act (Ontario).
The Company, through its operating subsidiaries, provides vertically integrated non-hazardous solid waste (“waste”) services to commercial,
industrial, municipal and residential customers in Canada and the U.S.
2.
Reporting Currency
The Company has elected to report its financial results in U.S. dollars to improve the comparability of its financial information with its peers.
Reporting the Company’s financial results in U.S. dollars also reduces the impact of foreign currency fluctuation in its reported amounts
because the Company’s collection of assets and operations are larger in the U.S. than they are in Canada. The Company remains a legally
domiciled Canadian entity and its functional currency is the Canadian dollar. As a result, the Company’s financial position, results of
operations, cash flows and equity are initially translated to, and consolidated in, Canadian dollars using the current rate method of accounting.
The Company’s consolidated Canadian dollar financial position is further translated from Canadian to U.S. dollars applying the foreign
currency exchange rate in effect at the consolidated balance sheet date, while the Company’s consolidated Canadian dollar results of operations
and cash flows are translated to U.S. dollars 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. Translating the Company’s U.S. financial position,
results of operations and cash flows into Canadian dollars, the Company’s functional currency, and retranslating these amounts to U.S. dollars,
the Company’s reporting currency, has no translation impact on the Company’s consolidated financial statements. Accordingly, U.S. results
retain their original values when expressed in the Company’s reporting currency.
3.
Summary of Significant Accounting Policies
These consolidated financial statements (“financial statements”) have been prepared in conformity with accounting principles generally
accepted in the U.S. (“U.S. GAAP”), are stated in U.S. dollars, and reflect the following significant accounting policies.
Basis of presentation
These financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated on consolidation.
Use of estimates
Management makes estimates and assumptions that affect the reported amounts of assets and liabilities, contingent or otherwise, as at the date
of the financial statements and the Company’s reported amounts of revenues and expenses during the reporting period. Estimates and
assumptions are applied to the following: the Company’s allowance for doubtful accounts receivable; estimates of future cash flows and
earnings, income tax and other estimates used in the annual step one and interim step two tests for impairment of goodwill; recoverability
assumptions for landfill development assets; the useful life of capital and intangible assets; fair value of assets and liabilities acquired in
business combinations; fair value of contingent acquisition payments; accrued insurance reserves; projected landfill construction and
development costs and estimated permitted airspace capacity consumed in the determination of landfill asset amortization; estimated landfill
and other site remediation costs; estimated closure and post-closure costs; various economic estimates used in the development of fair value
estimates, including but not limited to interest and inflation rates; share price volatility and the estimated length of time employees will hold
options before exercise in the determination share based compensation, in addition to estimates of future performance, which are compared to
established targets, to determine share based compensation for performance share units; the fair value of financial instruments; the likelihood of
realizing deferred income tax assets; and deferred income tax assets and liabilities. Accordingly, future results may differ significantly from
these estimates.
87
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Cash and cash equivalents
Cash and cash equivalents include cash and highly liquid short-term money market investments that have an original term to maturity of three
months or less.
Other receivables
Other receivables include direct finance lease receivables and notes exchanged from the sale of property.
Assets leased under terms that transfer substantially all of the benefits and risks and rewards of ownership to customers are accounted for as
direct finance lease receivables. Direct finance lease receivables are carried at cost and discounted at the underlying rate implicit in the lease.
Notes exchanged from the sale of property are recorded at the present value of the consideration exchanged. The difference between the present
value and the face amount of the note is recognized as a discount or premium, as applicable, and amortized as interest income or expense over
the life of the note. The rate of interest is held constant over the period outstanding.
The fair value of other receivables is estimated using a discounted cash flow analysis applying interest rates that management considers
consistent with the credit quality of the borrower. Other receivables are periodically reviewed for impairment and any resulting write-down to
the net recoverable amount is recorded in the period in which impairment occurs.
Restricted cash
Cash received on the issuance of variable rate demand solid waste disposal revenues bonds (“IRBs”) is made available for certain purposes,
which may include some or all of the of following: landfill construction or equipment, vehicles and or containers. Cash received in advance of
permitted expenditures is not available for general Company purpose or use. Accordingly, restricted cash amounts are classified as restricted
cash on the Company’s balance sheet and deposits and withdrawals of restricted cash amounts are recorded as an investing activity in the
statement of cash flows.
Intangibles
Intangibles include customer collection contracts, customer lists, non-competition agreements, transfer station permits and trade-names. All
intangibles are deemed to have finite lives and are amortized on a straight-line basis as follows:
Customer collection contracts
Customer lists
Non-competition agreements
Transfer station permits
Trade-names
Estimated contract term net of attrition
2-12 years
2-5 years
10-25 years
1-13 years
Goodwill
Goodwill is not amortized and is tested annually for impairment or more frequently if an event or circumstance occurs that more likely than not
reduces the fair value of a reporting unit below its carrying amount. Examples of such events or circumstances include: a significant adverse
change in legal factors or in the business climate; an adverse action or assessment by a regulator; unanticipated or increased competition; the
loss of key personnel; a more-likely-than-not expectation that a significant portion or all of a reporting unit will be sold or otherwise disposed
of; the testing for write-down or impairment of a significant asset group within a reporting unit; or the recognition of a goodwill impairment
loss by a subsidiary that is a component of the reporting unit. Goodwill is not tested for impairment when the assets and liabilities that make up
the reporting unit have not changed significantly since the most recent fair value determination, the most recent fair value determination results
in an amount that exceeded the carrying amount by a substantial margin, and based on an analysis of events that have occurred and
circumstances that have changed since the most recent fair value determination, the likelihood that the current fair value determination would
be less than the current carrying amount of the reporting unit is remote. The Company has identified its reporting units as its operating
segments, or one level below its operating segments, and the amount of goodwill assigned to each and methodology employed to make such
assignments has been applied on a consistent basis.
88
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The impairment test is a two step test. The first test requires the Company to compare the estimated fair value of its reporting units to their
carrying amounts. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered
impaired. However, if the carrying amount of the reporting unit exceeds its estimated fair value, the estimated fair value of the reporting unit’s
goodwill is compared with its carrying amount to measure the resulting amount of impairment loss, if any. The second step of the test requires
the Company to determine the estimated fair value of goodwill in the same manner goodwill is determined in a business combination,
representing the reporting unit’s excess estimated fair value over amounts assigned to its identifiable assets and liabilities. The estimated fair
value of a reporting unit is the amount it can be bought or sold in a current transaction between willing parties, that is, other than in a forced
sale or liquidation. The Company uses a discounted future cash flow approach to determine the estimate of fair value, but also consider
additional measures as well. Accordingly, the Company compares the estimated fair value derived from the use of the discounted future cash
flow approach to other fair value measures, which may include adjusted EBITDA multiplied by a market trading multiple, offers from potential
suitors, where available, or appraisals. In certain circumstances, alternative methods to determine an estimate of fair value may prove more
accurate.
Prolonged economic weakness, higher levels of competition, loss of business or loss of an operating permit or contract could render goodwill
impaired and could have a material adverse effect on the Company’s financial condition and operating performance.
The Company’s annual impairment test was completed on April 30, 2014, at which time the Company determined that the fair value of all its
reporting units exceeded their carrying amounts. The Company re-performed step one of the goodwill impairment test for its northeast
reporting unit as a result of impairment indicators occurring in October 2014 and concluded that the carrying amount of the U.S. northeast
reporting unit was in excess of its estimated fair value. The Company conducted the second step of the impairment test and no impairment loss
was recorded as the estimated fair value of the U.S. northeast goodwill exceeded its carrying amount (Note 11).
Landfill development assets
Landfill development assets represent costs incurred to develop landfills, including costs to obtain new or expansion landfill permits. Landfill
development assets are reclassified to landfill assets once the asset is available for use, which is typically when the landfill is permitted to
accept waste. Reclassified amounts are amortized in accordance with the Company’s landfill asset accounting policy. Management periodically
reviews the carrying values of landfill development assets for impairment. Any resulting write-down to estimated fair value is recorded in the
period in which the impairment occurs and is recorded to operating expense on the Company’s statement of operations and comprehensive
income or loss.
Deferred financing costs
Deferred financing costs represent fees and costs incurred to secure or amend long-term debt facilities. Deferred financing costs are amortized
on a straight-line basis over the term of the underlying debt instrument, which approximates the effective interest method. Amortization of
deferred financing costs is recorded to interest on long-term debt in the Company’s statement of operations and comprehensive income or loss.
Capital assets
Capital assets are recorded at cost and, with the exception of land and improvements, are amortized over their estimated useful lives on a
straight-line basis as follows:
Buildings and improvements
Vehicles and equipment
Containers and compactors
Furniture, fixtures and computer equipment
10-40 years
3-21 years
5-10 years
1-10 years
89
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The historical cost of an asset includes the cost incurred to bring it to the condition and location necessary for its intended use, which may
include capitalized interest attributable to the construction and development of certain assets. The Company ceases to capitalize interest once
the construction and development effort is complete and the asset is available for use. The interest rate applied reflects the Company’s weighted
average interest cost incurred on its long-term debt facilities in the year of capitalization. Construction and development activities undertaken in
Canada and the U.S. incur interest at the rate of interest applicable to each region. Capitalized costs, including interest amounts, are amortized
over the asset’s intended useful life.
Landfill assets
Landfill assets represent the cost of landfill airspace, including original acquisition cost, landfill construction and development costs, and gas
collection systems installed during the operating life of the site. Landfill assets also include capitalized landfill closure and post-closure costs,
net of accumulated amortization, and the cost of new or expansion landfill permits.
Interest is capitalized on certain landfill construction and development activities prior to the landfill asset being available for use. The interest
rate applied reflects the Company’s weighted average interest cost incurred on its long-term debt facilities in the year of capitalization.
Construction and development activities undertaken in Canada and the U.S. incur interest at the rate of interest applicable to each region.
The original cost of landfill assets, together with incurred and projected landfill construction and development costs and capitalized interest, is
amortized on a per unit basis as landfill airspace is consumed. Capitalized landfill closure and post-closure costs are amortized immediately
since the capitalized amounts are deemed to have no future benefit.
At least annually, management updates landfill capacity estimates and projected landfill construction and development costs. The impact of
changes in capacity and construction cost estimates is accounted for prospectively.
Landfill assets are amortized over their total available disposal capacity representing the sum of estimated permitted airspace capacity (having
received the final permit from the governing authorities) plus future permitted airspace capacity, representing an estimate of airspace capacity
that management believes is probable of being permitted based on the following criteria:






Personnel are actively working to obtain the permit or permit modifications necessary for expansion of an existing landfill, and
progress is being made on the project;
It is probable that the required approvals will be received within the normal application and processing periods for approvals in the
jurisdiction in which the landfill is located;
The Company has a legal right to use or obtain land associated with the expansion plan;
There are no significant known political, technical, legal or business restrictions or issues that could impair the success of the
expansion effort;
Management is committed to pursuing the expansion; and
Additional airspace capacity and related costs have been estimated based on the conceptual design of the proposed expansion.
The Company and its predecessors have been successful in receiving approvals for expansions pursued; however, there can be no assurance
that the Company will be successful in obtaining approvals for landfill expansions in the future.
Investment in cost accounted investee
Investments in which the Company does not have the ability to exercise significant influence over the strategic operating, investing and
financing policies of an investee are accounted for using the cost method of accounting. The cost method of accounting requires the Company
to record its initial investment at cost. Post-acquisition earnings of the investee are recognized by the Company only to the extent they are
distributed by the investee in the form of dividends. Dividends received by the Company in excess of post-acquisition earnings are considered a
return of investment and are recorded as a reduction of the investments’ cost. A decrease in value of the investment, which is considered other
than temporary, is included in the Company’s statement of operations and comprehensive income or loss in the period of impairment.
90
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Investment in equity accounted investee
Investments in which the Company has joint control or the ability to exercise significant influence over the strategic operating, investing and
financing policies of an investee, are accounted for using the equity method of accounting. The equity method of accounting requires the
Company to record its initial investment at cost. The carrying value of the Company’s initial investment is subsequently adjusted to include its
pro rata share of post-acquisition earnings from the investee, reflecting adjustments similar to those made in preparing consolidated financial
statements, and is included in the Company’s determination of net income or loss. In addition, the Company’s investment also reflects loans
and advances, including amounts accruing thereon, its share of capital transactions, changes in accounting policies and corrections of errors
relating to prior period financial statements applicable to post-acquisition periods. Dividends received or receivable from the Company’s
investee reduces the carrying value of the Company’s investment.
Capital leases
Assets qualifying as capital leases are initially recorded at the present value of the future minimum lease payments, excluding executory costs,
including any profit thereon. In the event that the present value of the future minimum lease payments exceeds the fair value of the leased asset
at lease inception, the capital asset and lease obligation are recorded at fair value. Capital leases are amortized over the shorter of their
estimated useful life or the lease term and are amortized on a straight-line basis. Capital lease obligations are recorded as long-term debt on the
Company’s balance sheet.
Accrued insurance
The Company is self-insured for certain general, auto liability and workers’ compensation claims. Stop-loss insurance coverage is maintained
for claims in excess of $250 or $500, depending on the policy period in which the claim occurred. Self-insurance accruals are based on reported
claims and claims incurred but not reported. The Company engages an independent actuary in its assessment of accrued insurance amounts and
also considers its historical claims experience in the determination of these amounts. Changes in the Company’s claims history, including
amounts or frequency, that increase or decrease the insurance accrual are recorded to selling, general and administrative expenses in the
Company’s statement of operations and comprehensive income or loss in the period in which the change occurs. The Company makes various
estimates in its determination of its self-insurance accruals. Changes in these estimates could result in significant changes to accrued insurance
amounts.
Landfill closure and post-closure costs
Costs associated with capping, closing and monitoring the landfill, or portions thereof, after it ceases to accept waste are recognized at their
estimated fair value amounts over the landfill’s operating life, which represents the period over which waste is accepted at the site. The
Company develops estimates for landfill closure and post-closure costs with input from its engineers and landfill and accounting personnel.
Estimates are reviewed at least once annually and consider, amongst other things, various regulations that govern each site. Revenues derived
from the Company’s landfill gas to energy facilities do not reduce the Company’s closure and post-closure cost estimates.
Quoted market prices are not available to estimate the fair value of landfill closure and post-closure costs. Accordingly, the Company estimates
the fair value of landfill closure and post-closure costs using present value techniques that consider and incorporate assumptions and
considerations marketplace participants would use in the determination of those estimates, including inflation, markups, inherent uncertainties
due to the timing of work performed, information obtained from third parties, quoted and actual prices paid for similar work and engineering
estimates. Inflation assumptions are based on management’s understanding of current and future economic conditions and expected timing of
expenditures. An inflation factor of 2.0% (December 31, 2013 – 2.0%) and 2.5% (December 31, 2013 – 2.5%) has been used in the
development of fair value estimates for the Company’s Canadian and U.S. landfill closure and post-closure cost obligations, respectively. Fair
value estimates are discounted applying the credit adjusted risk free rate, which is the rate of interest that is essentially free of default risk, plus
an adjustment for the Company’s credit standing.
The credit adjusted risk free rate considers current and future economic conditions and the expected timing of expenditures. Accordingly, the
Company has discounted landfill closure and post-closure costs using credit adjusted risk free rates between 4.6% and 9.5% in Canada
(December 31, 2013 – 4.6% and 9.5%) and 4.5% and 7.2% (December 31, 2013 – 4.5% and 7.2%) in the U.S. In isolation, a change in the
Company’s credit standing does not change previously recorded closure and post-closure obligations, but it would change subsequent fair value
calculations.
91
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Reliable estimates of market risk premiums are not available as no market exists to sell the responsibility of landfill closure and post-closure
activities. Accordingly, the Company has excluded any estimate of market risk premiums in its estimate of fair value for its landfill closure and
post-closure costs.
Upward revisions to estimated closure and post-closure costs are discounted using the current credit adjusted risk free rate. Downward
revisions to estimated closure and post-closure costs are discounted using the credit adjusted risk free rate when the estimated closure and
post-closure costs were originally recorded or a weighted average credit adjusted risk free rate if the period of original recognition cannot be
identified.
The Company records the estimated fair value of landfill closure and post-closure cost obligations as airspace is consumed. The total obligation
will be fully accrued, net of accretion, at the time a site ceases to accept waste and is closed.
Accretion represents an increase in the carrying amount of landfill closure and post-closure cost obligations due to the passage of time and is
recorded to operating expense in the statement of operations and comprehensive income or loss. Accretion expense continues to be recognized
post waste acceptance.
Maintenance activities including: environmental monitoring, mowing and fertilizing, leachate management, well monitoring, buffer
maintenance, landfill gas collection and flaring systems, and other activities, are charged to operating expenses during the sites operating life.
These same costs which are incurred subsequent to the landfill’s operating life are estimated and included in the Company’s landfill
post-closure accruals. Post-closure maintenance activities are generally required for a period of 30 years post waste acceptance.
Income taxes
Deferred income taxes are calculated using the liability method of accounting. Deferred income tax assets and liabilities represent differences
between the financial reporting and tax base of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse. The effect of a change in tax rates on deferred income tax assets and liabilities is recorded to the
statement of operations and comprehensive income or loss in the period in which the change in tax rate occurs. Unutilized tax loss
carryforwards that are not likely to be realized are reduced by a valuation allowance in the determination of deferred income tax assets.
Uncertain tax positions are recognized when it is more likely than not that the tax position will be sustained upon examination based on its
technical merits. The Company recognizes interest and penalties to current income tax expense.
Revenues
Revenues consist primarily of waste collection fees earned from commercial, industrial, municipal and residential (“collection”) customers and
transfer and landfill disposal fees charged to third parties. The Company recognizes revenues when the service is provided, persuasive evidence
of an arrangement exists, ultimate collection is reasonably assured and the price is determinable. The Company’s revenues are not derived from
multiple deliverables. Revenue is recognized upon the collection of waste for collection customers under contractual service agreements.
Revenue earned from transfer and landfill disposal fees charged to third parties is recognized upon the receipt of waste at a Company facility.
The Company also earns revenue from the collection and sale of recycled materials and generation of electric power or methane gas. Revenue
earned from the collection of recycled materials is recognized when materials are collected, while revenue recognized on the sale of recycled
materials is recognized when the material is delivered to the purchaser. Revenue earned from the sale of electric power or methane gas is under
contract and is recognized when the supply of electricity or methane gas is delivered to the purchaser.
Tax assessed by governmental authorities on revenue-producing transactions between the Company and its customers is excluded from
revenues presented in the statement of operations and comprehensive income or loss.
Deferred revenue relates to advance billings under long-term collection contracts or when cash is received prior to the service being performed.
92
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Acquisitions
The Company accounts for acquisitions using the acquisition method of accounting and allocates the estimated fair value of consideration,
together with the estimated fair value of any non-controlling interest to the estimated fair value of identifiable assets acquired and liabilities
assumed. Goodwill represents the excess of consideration, including the amount of non-controlling interest, if any, in the acquired company,
over the acquisition date estimated fair values of the net assets acquired, subject to certain exceptions. If consideration is less than the net assets
acquired, a gain is recognized on the acquisition.
The measurement and recognition of acquired net assets may require adjustment when information is absent and fair value allocations are
presented on an estimated or preliminary basis. Adjustments to estimated or preliminary amounts occurring not later than one year from the
date of acquisition are recorded retrospectively to the purchase price allocation to reflect new information obtained about facts and
circumstances that existed at the date of acquisition.
Certain of the Company’s purchase and sale agreements contain contingent consideration provisions which are initially recorded at their
estimated fair value on the date of acquisition if an estimate can be made. For acquisitions completed subsequent to January 1, 2009, purchase
price allocation adjustments, resulting from contingent consideration provisions, are required when additional information is obtained
subsequent to the date of acquisition that existed at the date of acquisition. Purchase price allocation adjustments are permitted, but are limited
to the measurement period, which is the earlier of the date on which all facts and circumstances that existed at the date of acquisition are known
or are determined to not be obtainable, and one year from the acquisition date. Changes in events that occur subsequent to the date of
acquisition are not permissible measurement period adjustments. Changes in the estimated fair value of contingent consideration classified as
equity is not re-measured, but subsequent settlements are recorded to shareholders’ equity. A change in the estimated fair value of contingent
consideration classified as an asset or liability is measured at fair value and recorded to net income or loss.
Contingent consideration applicable to acquisitions completed prior to January 1, 2009 that could be reasonably estimated at the date of
acquisition because the outcome could be determined beyond a reasonable doubt, was recognized at its estimated fair value and included in the
purchase price allocation. Consideration which is contingent on maintaining or achieving specified revenue or earnings levels, satisfying
representations and warranties, achieving specified tonnage thresholds, in the case of acquired landfills, or receiving approval from regulatory
authorities for landfill expansion, is recognized as an adjustment to the purchase price allocation when the contingency is resolved and the
additional consideration is issued or becomes issuable.
The acquisition date is the date the Company obtains control and is generally the date the Company obtains legal title to the net assets acquired.
For an asset or liability to be recognized at the date of acquisition, they must meet their fundamental definitions. Contingencies existing before
or on the date of acquisition are recognized at their estimated fair values, when they can be reliably measured. The Company recognizes
acquisition and related costs in the period incurred and records these costs to selling general and administration expense in the statement of
operations and comprehensive income or loss. Costs associated with the issuance of long-term debt are capitalized to deferred financing costs
and amortized over the period of the underlying debt instrument, while equity issue costs are recorded against common shares on the
Company’s balance sheet.
For acquisitions achieved in stages, where the Company holds an equity interest prior to obtaining control, the Company re-measures its
previously held equity interest in the acquiree at its acquisition date fair value. Any resulting gain or loss is recognized in the Company’s
determination of net income or loss. The acquisition method of accounting is applied on the date control is obtained.
Advertising costs
Advertising costs of $2,684 (2013 - $3,535) were expensed as incurred and recorded to selling, general and administration expenses in the
statement of operations and comprehensive income or loss.
Royalties
Certain of the Company’s purchase and sale agreements contain provisions that require the Company to make royalty payments. Royalty
payments, including accrued amounts, are recorded to operating expense on the statement of operations and comprehensive income or loss as
incurred.
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Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Costs associated with exit activities
The Company records employee termination costs that represent a one-time benefit accruing to an employee as an expense when management
approves and commits to a plan of termination and communicates the termination arrangement to the employee. Expenses may be recorded in
future periods if employees are required to provide future services in order to receive the termination benefits. A liability for costs to terminate
a contract before the end of its term is recognized when the Company terminates the contract. Other costs associated with an exit activity may
include costs to consolidate or close facilities and relocate employees, which are expensed as incurred.
Impairment and disposal of long-lived assets and assets held for sale
An impairment loss is recognized when events or circumstances indicate that the carrying amount of a long-lived asset is not recoverable and
exceeds its estimated fair value. Management assesses its long-lived assets periodically or more frequently if impairment indicators exist. Any
resulting impairment loss is recorded in the period in which the impairment occurs.
Long-lived assets, to be disposed of other than by sale, such as abandonment or exchange for similar productive long-lived assets, are classified
as held and used until the disposal transaction occurs.
Net assets are classified as held for sale when their carrying amount is to be recovered through sale rather than continued use. Held for sale
assets requires management at the relevant level committing to the sale, determining that the asset or disposal group is available for immediate
sale in its present condition subject only to terms that are usual and customary for sales of such assets or disposal groups and the sale must be
highly probable.
Assets held for sale are no longer amortized and are instead recognized at the lower of their carrying amount and estimated fair value less costs
to sell.
Share based compensation
Share based options
With the exception of stock options assumed on the acquisition of Waste Services, Inc. (“WSI”), the Company has issued all share based
options with stock appreciation rights. Stock appreciation rights give the holder the right to surrender to the Company all or a portion of an
option in exchange for cash equal to the excess of the fair market value, defined as the closing trading price of a share on the business day
immediately preceding the date of surrender, over the option’s exercise price.
Stock appreciation rights are measured at fair value on the date of grant and are re-measured at their estimated fair value at each balance sheet
date until the date of settlement. The Company considers estimated forfeitures in the determination of its fair value estimate. Changes to
estimated forfeitures are recorded as a selling, general and administration expense in the period in which the change occurs. Changes in the
estimated fair value of share based options are also recorded to selling, general and administration expense. The Company has elected to
recognize compensation expense on a straight-line basis over the requisite service period for the entire award.
Stock options assumed on the acquisition of WSI were fully vested and measured at fair value on the date of closing.
The Company uses the Black-Scholes-Merton option pricing model to estimate the fair value of these awards, which requires several input
variables. These variables include the estimated length of time employees will retain their options before exercising them and the expected
volatility of the Company’s share price. Changes in these variables can materially affect the estimated fair value of share based compensation
and, consequently, the amount recognized in selling, general and administration expense on the statement of operations and comprehensive
income or loss.
Restricted shares
Compensation expense for restricted share awards is recognized over the period in which employee services are rendered. Restricted shares
with graded vesting schedules are viewed as separate awards and each is accounted for separately over the employee service period to the date
of vesting. The Company purchases its own shares on the open market and deposits them into a trust account where the share is held for the
benefit of the restricted share award recipient. Restricted shares are initially recorded to shareholders’ equity at the grant date fair value of the
shares. The related expense is recorded to selling, general and administration expense as the employee service period is satisfied.
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Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Performance Share Units (“PSUs”)
PSUs have been issued to certain employees of the Company. PSU awards are subject to meeting a three year service period, subject to certain
conditions, and certain one and three year performance measures for operating cash flow and return on invested capital, respectively. The fair
value of each PSU is based on the expected level of achievement relative to each performance measure and the price of the Company’s shares
traded on the Toronto Stock Exchange (“TSX”). The Company’s compensation committee may, in its sole discretion, consider other business
circumstances that warrant adjustment to the financial results or targets when assessing the final award amount. Compensation expense is
recognized over the service period based on the estimated fair value of the award at each balance sheet date until the date of vesting.
The Company uses the Black-Scholes-Merton pricing model to estimate the fair value of its PSUs which requires several input variables.
Changes in these variables can have a significant impact on the estimated fair value of PSUs and, consequently, the related amounts accrued on
the balance sheet and recognized as compensation expense or recovery in the statement of operations and comprehensive income or loss.
Compensation expense or recovery is based on the change or a portion of the change in the estimated fair value of the PSU at each reporting
period multiplied by the percentage of the service period satisfied at the reporting date. The Company considers the likelihood of achieving
each performance measure and recognizes compensation expense only to the extent that it believes the performance measures will be achieved.
If the Company concludes that it is unlikely that its performance measures will be met, the Company will recover any amounts accrued to date
and cease recognizing compensation expense until this conclusion is no longer supportable. In estimating the fair value of the liability, the
Company also considers current and historical forfeitures. PSUs are settled in cash and are recorded as liabilities on the Company’s balance
sheet. Changes in the fair value of PSUs are recorded to selling, general and administration expense in the statement of operations and
comprehensive income or loss.
Shares held by a rabbi trust
Common shares held in a rabbi trust are classified as treasury shares. Shares of the Company acquired for the benefit of its U.S. LTIP
participants are held in a rabbi trust. A rabbi trust, as a grantor trust, requires that the assets held in trust be available to satisfy the claims of
general creditors in the event of bankruptcy. The deferred compensation obligation is recorded to restricted shares as a component of
shareholders’ equity and subsequent changes in the fair value of the shares are not recognized in either treasury stock or deferred compensation
obligations. As U.S. LTIP participants draw shares from the rabbi trust, both the deferred compensation obligation and shares acquired by the
U.S. LTIP reduce by a similar amount. The rabbi trust holds no other investments.
Financial instruments
Derivatives, including derivatives that are embedded in financial or non-financial contracts that are not closely related to the host contract,
subject to certain exceptions, are measured at their estimated fair value, even when they are part of a hedging relationship.
Gains or losses on financial instruments measured at their estimated fair values are recognized in the statement of operations and
comprehensive income or loss in the periods in which they arise, with the exception of gains and losses on certain financial instruments that are
part of a designated hedging relationship. Financial instruments are presented as other assets or other liabilities on the Company’s balance
sheet. Gains or losses on financial instruments designated as hedges are recognized in other comprehensive income or loss.
Derivatives are financial instruments or other contracts that embody all of the following characteristics:



their value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign
exchange rate, index of prices or rates, a credit rating or credit index, or other variable (sometimes called the “underlying”), provided
that, in the case of a non-financial variable, the variable is not specific to a party to the contract;
they require no initial net investment or an initial net investment that is smaller than would be required for other types of contracts
that would be expected to have a similar response to changes in market factors; and
they are settled at a future date.
The Company enters into various types of derivative financial instruments, which may include some or all of the following: interest rate swaps,
commodity swaps, foreign currency exchange agreements or old corrugated cardboard hedges.
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Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Embedded derivatives are components of a hybrid (combined) instrument that also include a non-derivative host contract. The result is that
some of the cash flows of the combined instrument vary in similarity to a stand-alone derivative. An embedded derivative causes some or all of
the cash flows that would otherwise be required by the contract to be modified according to a specified interest rate, financial instrument price,
commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or other variable, provided that, in the case of a
non-financial variable, the variable is not specific to a party to the contract. An embedded derivative is separated from its host contract when all
of the following conditions are met:



the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks
of the host contract;
the separated instrument would meet the definition of a derivative; and
the hybrid (combined) instrument is not measured at fair value with changes in fair value recognized in net income or loss.
The Company identified an embedded derivative in a wood waste supply agreement. This agreement was subsequently amended and the
embedded derivative identified in the original agreement no longer exists. Gains or losses on embedded derivatives are recorded in the
statement of operations and comprehensive income or loss as a gain or loss on financial instruments and are presented as other assets or other
liabilities on the Company’s balance sheet.
Hedges
Hedges modify the Company’s exposure to one or more risks by creating an offset between changes in the fair value of, or the cash flows
attributable to, the hedged item and the hedging item. Hedge accounting ensures that counterbalancing gains, losses, revenues and expenses are
recognized in net income or loss in the same period or periods. In addition, hedge accounting is only applied when gains, losses, revenues and
expenses on a hedging item would otherwise be recognized in net income or loss in a different period than the hedged item.
The application of hedge accounting is at the option of the Company; however, hedge accounting can only be applied when, at the inception of
the hedging relationship the Company has satisfied the following conditions:



the nature of the specific risk exposure or exposures being hedged has or have been identified in accordance with the Company’s
objective and strategy;
the Company has designated that hedge accounting will be applied to the hedging relationship; and
the Company has formally documented its risk management objective, its strategy, the hedging relationship, the hedged item, the
related hedging item, the specific risk exposure or exposures being hedged, the term of the hedging relationship, and the method for
assessing the effectiveness of the hedging relationship.
In addition, both at the inception of the hedging relationship, and throughout its term, the Company has to be reasonably certain that the
relationship will be effective and consistent with its originally documented risk management objective and strategy. Hedge effectiveness
represents the extent to which changes in the fair value or cash flows of a hedged item relating to a risk being hedged, and arising during the
term of a hedging relationship, are offset by changes in the estimated fair value or cash flows of the corresponding hedging item related to the
risk being hedged and arising during the same period. Accordingly, the effectiveness of the hedging relationship must be reliably measurable,
the hedging relationship must be assessed on a regular periodic basis over its term to determine that it has been maintained, and is expected to
be effective, and in the case of a forecasted transaction, it is probable that the transaction will occur.
Fair value hedges, hedge the exposure to changes in the fair value of: a recognized asset or liability; an unrecognized firm commitment; or, an
identified portion of such an asset, liability or firm commitment. The Company has no fair value hedges.
Cash flow hedges, hedge the exposure to variability of cash flows associated with: a recognized asset or liability; a forecasted transaction; or, a
foreign currency risk in an unrecognized firm commitment. The gain or loss resulting from the effective portion of the hedge is recognized in
other comprehensive income or loss and the ineffective portion of the gain or loss is recognized as a net gain or loss on financial instruments in
the Company’s statement of operations and comprehensive income or loss.
96
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The Company discontinues hedge accounting when a hedging relationship ceases to satisfy the conditions of hedge accounting, including:
maturity, expiry, sale, termination, cancellation or exercise, of the hedging item or hedged item; the anticipated transaction will not occur
within the documented time period or within an additional two month period thereafter; the Company terminates its designation of the hedging
relationship; or, the hedging relationship ceases to be effective. When a hedging item ceases to exist or it is determined that the anticipated
transaction will not occur, amounts recognized in other comprehensive income or loss are recognized in net income or loss. If the Company
terminates its designation of the hedging relationship or the hedging relationship ceases to be effective, amounts recorded to other
comprehensive income or loss in previous periods are not reversed, while amounts arising subsequently are recorded to the Company’s
statement of operations and comprehensive income or loss as a net gain or loss on financial instruments. Amounts that were recorded to other
comprehensive income or loss in previous periods that were not reversed are recorded as a net gain or loss on financial instruments in the same
period or periods as the hedged transaction affects net income.
Foreign currency translation
The Company’s functional currency is the Canadian dollar. Accordingly, its financial position, results of operations, cash flows and equity are
initially consolidated in Canadian dollars. The Company has concluded that its U.S. segments are self-sustaining foreign operations and
therefore translates these segments applying the current rate method. Application of this method translates assets and liabilities to Canadian
dollars from their functional currency using the exchange rate in effect at the balance sheet date. Revenues and expenses are translated to
Canadian dollars at the average monthly exchange rates in effect during the year or period. The resulting translation adjustments are included in
other comprehensive income or loss and are only included in net income or loss when the Company realizes a reduction in its investment in its
foreign operations. Gains or losses on foreign currency balances or transactions that are designated as hedges of a net investment in
self-sustaining foreign operations are offset against exchange gains or losses included in other comprehensive income or loss.
The Company has elected to report its financial results in U.S. dollars. Accordingly, the Company’s balance sheet is translated from Canadian
to U.S. dollars at the foreign currency exchange rate in effect at the balance sheet date. The statement of operations and comprehensive income
or loss and statement of cash flows are translated to U.S. dollars 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.
4.
Changes in Accounting Policies
Presentation of Financial Statements and Property, Plant and Equipment — Reporting Discontinued Operations and Disclosures of
Disposals of Components of an Entity
In April 2014, the Financial Accounting Standards Board (“FASB”) issued amendments to the requirements for reporting discontinued
operations. The amended requirements define discontinued operations as a component or group of components of an entity, or a business or
nonprofit activity, that is disposed of, or is classified as held for sale, and that represents a strategic shift that has or will have a major effect on
an entity’s operations and financial results. The amendments also include new disclosure requirements. For disposals of individually significant
components that do not qualify as discontinued operations, an entity must disclose pre-tax profit or loss attributable to the disposed component.
This guidance is effective prospectively for all reporting periods beginning after December 15, 2014. Early adoption is permitted, but only for
disposals (or classifications as held for sale) that had not been reported in financial statements previously issued or available for issue. The
Company elected to early adopt the new amendments and the adoption did not have a significant impact on the Company’s financial
statements.
97
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Revenue — Revenue from Contracts with Customers
In May 2014, FASB issued their final standard on revenue from contracts with customers. The standard provides a single comprehensive model
for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance,
including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. In applying the revenue model to contracts within its scope, an entity identifies the contract(s) with a customer (step 1),
identifies the performance obligations in the contract (step 2), determines the transaction price (step 3), allocates the transaction price to the
performance obligations in the contract (step 4), and recognizes revenue when (or as) the entity satisfies a performance obligation (step 5). This
standard applies to all contracts with customers except those that are within the scope of other topics. Certain provisions of this standard also
apply to transfers of nonfinancial assets, including in-substance nonfinancial assets that are not an output of an entity’s ordinary activities (e.g.,
sales of property, plant, and equipment; land and buildings; or intangible assets) and existing accounting guidance applicable to these transfers
has been amended or superseded. Compared with current U.S. GAAP, this standard also requires significantly expanded disclosures about
revenue recognition. Broadly, an entity is required to disclose sufficient information to enable users of financial statements to understand the
nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Disclosure includes separately
disclosing revenues derived from contracts with customers from other sources of revenues and separately disclosing any impairment losses
recognized on any receivables or contract assets from other contracts. An entity is also required to disaggregate its revenues recognized from
contracts into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic
factors. Disaggregated revenues must be further reconciled to revenues presented on a reportable segment basis to allow financial statement
users to understand the relationship between disaggregated and reportable segment revenues. Disclosures are also required with respect to the
opening and closing balances of receivables, contract assets, and contract liabilities from contracts with customers, if not otherwise separately
presented and disclosed. In addition, revenue recognized in the reporting period that was included in the contract liability balance at the
beginning of the period is required disclosure, and revenue recognized in the reporting period from performance obligations satisfied, in full or
in part, in previous periods, must also be disclosed. Qualitative and quantitative disclosures for contract assets and liabilities must also disclose
changes resulting from business combinations, cumulative catch-up adjustments to revenues, including a change in the measure of a contracts
progress, a change in an estimate of the transaction price, a contract modification, a contract impairment, a change in the condition of rights or
a change in the time for a performance obligation to be satisfied. An entity must further disclose its significant performance obligations
included in its contracts with its customers, including when performance obligations are satisfied, the significant terms of payment, the nature
of the goods or services that an entity has promised to transfer, obligations for returns, refunds and any type of warranty or related obligation.
Any portion of the transaction price that is allocated to a performance obligation that is unsatisfied is required disclosure, including an
explanation of when the entity expects to recognize revenues pertaining to an unsatisfied performance obligation and disclosing numerically the
amounts to recognize over appropriate and relevant time bands. Significant judgments made assessing the timing of performance obligations
and determining the allocation of the transaction price to the performance obligations that could significantly impact the determination of
revenue recognized from contracts with customers must be disclosed. Performance obligations satisfied over time requires disclosure of the
method used to recognize revenue and a supporting explanation of why this method was chosen. Performance obligations satisfied at a point in
time must also be disclosed when significant judgments are made in evaluating when a customer obtains control of a good or service. This
guidance is effective for annual reporting periods beginning after December 15, 2016, including each interim period thereafter. An entity can
chose to adopt this guidance applying one of two approaches:
a.
b.
retrospective application for each prior reporting period presented, subject to certain practical expedients in respect of completed
contracts and transaction prices allocated to the remaining performance obligations that an entity expected to recognize as revenue, or
retrospective application with the cumulative effect of initially applying this guidance recognized at the date of initial application. If
an entity elects this transition method it should also provide the additional disclosures in reporting periods that include the date of
initial application of, including the amount by which each financial statement line item is affected in the current reporting period by the
application of this guidance compared to the guidance that was in effect before the change and an explanation of the reasons for
significant changes.
98
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Early application is not permitted.
The Company is still assessing the impact this guidance will have on its financial statements.
Compensation — Share Based Compensation
In June 2014, FASB issued guidance on how entities record compensation cost when an award participant’s requisite service period ends in
advance of the performance condition being satisfied. That is, when an award participant is eligible to vest in the award regardless of whether
the participant is rendering service on the date the performance target is achieved. The guidance requires entities to recognize compensation
cost in the period in which it becomes probable that the performance condition will be achieved and should record the compensation cost over
the period for which the award participant renders service. If the performance target becomes probable of achievement before the end of the
requisite service period, the remaining unrecognized compensation cost must be recognized over the remaining requisite service period. If the
achievement of the performance condition becomes probable after the award participants requisite service period, compensation cost will be
recognized immediately in the period when the performance condition becomes probable. The total amount of compensation cost recognized
during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those
awards that ultimately vest. The guidance also outlines that the grant date fair value of the award should not consider the performance condition
in its determination. This guidance is effective for all reporting periods beginning after December 15, 2015 with early adoption permitted. The
amendments are to be applied either prospectively to all awards granted or modified after the effective date or retrospectively to all awards with
performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or
modified awards thereafter. The Company does not anticipate this guidance will have a significant impact on its financial statements.
Presentation of Financial Statements — Going Concern
In August 2014, FASB released additional guidance with respect to management’s responsibility to evaluate whether there is substantial doubt
about an entity’s ability to continue as a going concern. In connection with preparing financial statements for each annual and interim reporting
period, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt
about the entity’s ability to continue as a going concern. Substantial doubt about an entity’s ability to continue as a going concern exists when
relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as
they become due within one year after the date that the financial statements are issued, or are available to be issued.
When management identifies conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern,
management should consider whether its plans that are intended to mitigate those relevant conditions or events will alleviate this doubt. The
entity must disclose information that enables users of the financial statements to understand 1) principal conditions or events that raise
substantial doubt about the entity’s ability to continue as a going concern and 2) management’s evaluation of the significance of those
conditions or events in relation to the entity’s ability to meet its obligations. If the substantial doubt is alleviated as a result of consideration of
management’s plans, the entity is also required to disclose the relevant plan that alleviated the substantial doubt. However, if the substantial
doubt is not alleviated as a result of consideration of management’s plans the entity is required to disclose plans that are intended to mitigate
the conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern.
These amendments are effective for all reporting periods beginning after December 15, 2016 with early adoption permitted. The Company does
not anticipate these new amendments will have a significant impact on its financial statements.
99
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Income Statement — Extraordinary and Unusual Items
In January 2015, FASB simplified an entities’ income statement presentation by eliminating the concept of extraordinary items as part of its
initiative to reduce complexity in accounting standards. Eliminating the concept of extraordinary items will save time and reduce costs for
preparers because they will not have to assess whether a particular event or transaction event is extraordinary. This also alleviates uncertainty
for preparers, auditors, and regulators because auditors and regulators will no longer need to evaluate whether a preparer treated an unusual
and/or infrequent item appropriately. The amendments are effective for all reporting periods beginning after December 15, 2015. A reporting
entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods
presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of
adoption. The Company does not anticipate that this guidance will have a significant impact on its financial statements.
5.
Acquisitions
The following table outlines the number of acquisitions completed in each of the Company’s segments for the years ended December 31, 2014
and 2013. Acquisitions may include all of the issued and outstanding share capital of the purchased company or a company’s assets, including
various current assets and liabilities. Each of the acquisitions completed constitutes a business.
December 31
2014
Shares
Assets
Canada
U.S. south
Total acquisitions
—
3
3
Total
1
1
2
2013
Shares
Assets
—
—
—
1
2
3
1
4
5
Total
1
2
3
The Company considers each of these acquisitions a “tuck-in”. Tuck-ins represent the acquisition of solid waste collection and or disposal
operations in markets where the Company has existing operations. Goodwill arising from these tuck-in acquisitions is largely attributable to
assembled workforces and to expected synergies resulting from personnel and operating overhead reductions, disposal or collection advantages
or the deployment of market focused strategies. Pro forma revenues and net income for these acquisitions have not been disclosed as the
companies acquired are immaterial both individually and in the aggregate. The financial results of these acquisitions have been included in the
Company’s financial statements from their dates of closing.
The payment of contingent consideration, for acquisitions completed prior to 2009, which results from meeting various business performance
targets, is also subject to final adjustment. Final fair value adjustments occurring during the measurement period that change the fair value of
certain assets or liabilities are recorded to the original purchase price allocation.
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Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Cash consideration paid, including the preliminary allocation to the fair value of net assets acquired and excluding the acquisition of the
remaining interest in our equity accounted investee, is as follows:
December 31
2014
Consideration
Cash, including holdbacks and unpaid consideration (as applicable)
Allocation of net assets acquired
$
98,638
2013
$
3,262
Accounts receivable
Intangibles (Note 10)
Goodwill (Note 11)
Capital assets
Accounts payable
Consideration by segment
Canada
U.S. south
Total consideration
$
$
$
$
$
6,493
13,803
68,244
19,786
(9,688 )
$
$
$
$
$
294
1,400
845
1,288
(565 )
$
—
98,638
98,638
$
505
2,757
3,262
$
$
—
68,244
68,244
$
371
474
845
$
68,244
$
845
$
Goodwill recorded by segment
Canada
U.S. south
Total goodwill
$
Goodwill expected to be deductible for tax purposes
$
December 31
2014
2013
Aggregate cash consideration (excluding holdbacks, cash payments due to sellers for
achieving various business performance targets and unpaid consideration due to seller
where control has transferred but amounts remain unpaid)
$
69,016
$
2,848
Contingent consideration (paid in respect of acquisitions completed prior to January 1, 2009)
$
526
$
425
Transaction costs (included in selling, general and administration expense)
$
564
$
781
The Company is awaiting certain information which may impact intangibles and capital assets. Any change to the amounts allocated to
intangibles and capital assets will lead to a corresponding change to goodwill.
On December 31, 2014, the Company obtained control over certain assets acquired which the Company funded on January 2, 2015 in the
amount of $29,457. At December 31, 2014, this amount is recorded in accrued charges on the Company’s balance sheet.
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Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The Company typically holds back a portion of amounts due to sellers subject to the acquired operations meeting various business performance
conditions being met. These conditions are generally short-term in nature and the Company has assessed the fair value of its obligation for
payment as the full amount of the hold back. In certain circumstances, the Company has also agreed to pay sellers additional amounts for
meeting certain business performance targets which are longer in term. The Company has assessed the fair value of its obligation for payment
as the full amount of the additional consideration it expects to pay discounted to the date of acquisition. Holdback and additional amounts
payable for current period acquisitions totaled $165 as at December 31, 2014 (December 31, 2013 - $414).
Acquisition of equity accounted investee
On January 31, 2014, the Company purchased the remaining fifty percent interest in its equity accounted investee (Note 15). Upon obtaining
control, the Company re-measured its previously held fifty percent ownership interest at fair value and recorded a non-cash gain in the
statement of operations and comprehensive income or loss. Goodwill arising from this acquisition is largely attributable to expected synergies
as a result of personnel and operating overhead reductions and the deployment of market focused strategies.
The full financial results of this acquisition have been included in the Company’s financial statements from the date of closing. Financial
results before January 31, 2014 are included in net loss (income) from equity accounted investee in the statement of operations and
comprehensive income or loss.
Cash consideration paid, the carrying amount of the Company’s previously held equity method investment, the re-measurement gain recorded,
and the allocation to the fair value of net assets acquired, are as follows:
Cash consideration
Carrying amount of previously held equity method investment
Re-measurement gain on previously held equity method investment
Fair value of net assets acquired
$
8,156
4,359
5,156
17,671
Allocation of net assets
Accounts receivable
Intangibles (Note 10)
Goodwill (Note 11)
Capital assets
Accrued charges
Shareholder loans
Deferred income taxes
$
$
$
$
$
$
$
533
4,424
11,594
4,402
(439 )
(1,921 )
(922 )
Goodwill recorded by segment
Canada
Total goodwill
$
$
11,594
11,594
Goodwill expected to be deductible for tax purposes
$
—
6.
$
Net Assets Held for Sale
In September 2014, the Company undertook an evaluation of its strategic options for its Long Island, New York operations included in its U.S.
northeast segment. As a result of the evaluation, the Company issued a confidential information memorandum (“CIM”) to a targeted audience
of prospective buyers for its commercial, industrial and residential collection business and its transfer station and material recovery facilities
that operate in this area. In reaching this decision, the Company concluded that it could generate a higher return from monetizing the net assets
of this operation versus continuing to operate them. The Company accepted an offer and completed the sale of assets on February 28, 2015
(Note 29).
102
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated) Net assets held for sale are recorded at their carrying amounts as follows:
December 31, 2014
Accounts receivable
Prepaid expenses
Intangibles
Goodwill
Capital assets
Accounts payable
Accrued charges
Deferred income taxes
Total net assets held for sale
7.
$
7,287
1,425
10,263
15,949
33,797
(4,114 )
(2,373 )
(1,218 )
61,016
$
Accounts Receivable - Allowance for Doubtful Accounts
The following table illustrates the change in the Company’s allowance for doubtful accounts for the years ended December 31, 2014 and 2013.
December 31
2014
Balance, beginning of the year
Additions, during the year
Written-off, uncollectible, during the year
Recoveries, during the year
Foreign currency translation adjustment, for the year
Balance, end of year
8.
$
2013
6,857
4,283
(5,965 )
1,355
(168 )
6,362
$
$
5,980
6,083
(5,940 )
865
(131 )
6,857
$
Other Receivables
December 31
2014
Note receivable from sale of property
Non-interest bearing note due April 2, 2024
Less: unamortized discount applying imputed interest rate of 5.3%
Note receivable from sale of property net of unamortized discount
Other
Direct finance lease receivables
$
Less current portion of other receivables
$
9.
2013
8,620
3,342
5,278
229
5,507
47
5,460
$
$
—
—
—
68
68
68
—
Restricted Cash
Restricted cash represents cash received from IRB drawings that have been received in advance of incurring expenditures for which the IRBs
are made available. At December 31, 2014, $521 (2013 - $498) of cash is restricted to fund a portion of landfill construction activities and
equipment and container expenditures in the Company’s U.S. northeast operations.
103
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
10.
Intangibles
December 31, 2014
Accumulated
amortization
Cost
Customer collection contracts
Customer lists
Non-competition agreements
Transfer station permits
Trade-names
$
$
223,510
182,233
11,249
25,119
12,060
454,171
$
$
168,041
97,564
6,958
7,527
8,152
288,242
Additions
(including
adjustments as
applicable)
Net book value
$
$
55,469
84,669
4,291
17,592
3,908
165,929
Weighted
average
amortization
period of
additions
(expressed in
years)
$
$
4,300
13,225
578
—
124
18,227
5.00
6.57
5.00
—
1.00
December 31, 2013
Accumulated
amortization
Cost
Customer collection contracts
Customer lists
Non-competition agreements
Transfer station permits
Trade-names
$
$
235,369
243,961
11,171
27,708
12,598
530,807
$
$
160,847
131,112
4,919
6,973
6,878
310,729
Additions
(including
adjustments as
applicable)
Net book value
$
$
74,522
112,849
6,252
20,735
5,720
220,078
Weighted
average
amortization
period of
additions
(expressed in
years)
$
$
74
1,241
(315 )
—
—
1,000
5.00
7.50
3.50
—
—
Adjustments to the fair value of certain assets, occurring in the measurement period, and acquired in the prior year, resulted in no adjustment
for the year ended December 31, 2014 (2013 - $400 decrease to non-competition agreements).
During the year, certain customer lists recorded in the Company’s northeast segment were determined to be impaired as a result of current and
projected operating losses. Accordingly, a $3,463 impairment loss was recorded to amortization expense in the statement of operations and
comprehensive income or loss for the year ended December 31, 2014.
During the prior year, a Canadian transfer station permit revocation requested by the Company was granted by the Ontario Ministry of the
Environment. In conjunction with the revocation, the transfer station permit recorded to intangible assets was immediately impaired.
Accordingly, a $4,074 impairment loss was recorded to amortization expense in the statement of operations and comprehensive income or loss
for the year ended December 31, 2013.
Intangible assets are expected to amortize in the next five years and thereafter as follows:
2015
2016
2017
2018
2019
Thereafter
$
$
40,848
35,940
31,546
18,412
12,770
26,413
165,929
104
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
11.
Goodwill
The following tables outline the change in goodwill for the years ended December 31, 2014 and 2013.
December 31, 2014
U.S. south
U.S. northeast
Canada
Goodwill, stated at cost
Accumulated impairment loss
Balance, beginning of year
Goodwill recognized on acquisitions, during the year
Goodwill adjustments in respect of prior year
acquisitions, during the year
Goodwill transferred to net assets held for sale, during
the year
Foreign currency exchange adjustment, for the year
Goodwill, stated at cost
Accumulated impairment loss
Balance, end of year
$
383,473
—
383,473
11,594
$
—
$
$
Goodwill, stated at cost
Accumulated impairment loss
Balance, end of year
$
409,296
—
409,296
371
$
272
(26,466 )
$
383,473
—
383,473
459,267
(360,557 )
98,710
—
$
526
—
—
(15,949 )
—
(15,949 )
(32,468 )
491,934
—
491,934
443,318
(360,557 )
82,761
1,297,851
(360,557 )
937,294
$
421,108
—
421,108
474
$
$
423,164
—
423,164
Total
459,267
(360,557 )
98,710
—
$
—
—
1,582
—
$
1,265,904
(360,557 )
905,347
79,838
—
December 31, 2013
U.S. south
U.S. northeast
Canada
Goodwill, stated at cost
Accumulated impairment loss
Balance, beginning of year
Goodwill recognized on acquisitions, during the year
Goodwill adjustments in respect of prior year
acquisitions, during the year
Foreign currency exchange adjustment, for the year
$
526
—
(32,468 )
362,599
—
362,599
423,164
—
423,164
68,244
Total
$
459,267
(360,557 )
98,710
1,289,671
(360,557 )
929,114
845
1,854
(26,466 )
$
1,265,904
(360,557 )
905,347
In 2014, adjustments to preliminary purchase price allocations resulted in a $nil (2013 - $1,429) increase to goodwill.
The Company has not disposed of any goodwill or recognized an impairment charge for the years ended December 31, 2014 and 2013.
In October 2014, certain developments, including current local support for the development of the operating location necessary to execute the
New York City long-term contract, made the likelihood of being awarded the contract indeterminate at that time. In light of those
developments, the Company was required to re-perform step one of the goodwill impairment test to determine if the carrying amount of the
U.S. northeast reporting unit was in excess of its fair value. The results of the step one test for impairment indicated that this reporting unit may
be impaired. Accordingly, the Company performed step two of the goodwill impairment test with the assistance of an independent valuation
firm.
Step two of the impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. The
fair value of goodwill for the U.S. northeast reporting unit was determined in the same manner as the value of goodwill determined in a
business combination, whereby the excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the fair
value of goodwill. Fair value is the amount at which an item can be bought or sold in a current transaction between willing parties, other than in
a forced sale or liquidation.
105
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The Company applied certain valuation and appraisal techniques appropriate for the asset or liability being fair valued. For example, the
Company’s vehicles and other equipment were valued applying both the indirect and direct valuation approaches. Fair values attributable to
customer list intangibles, landfill assets and trade names were determined applying a discounted cash flow approach and the cost method was
applied to determine the fair value of the Company’s transfer station permits.
The results of the step two test of impairment support the carrying amount of the U.S. northeast reporting unit’s goodwill.
12.
Deferred Financing Costs
December 31, 2014
Accumulated
amortization
Cost
Deferred financing costs
$
21,745
$
$
23,410
$
December 31, 2013
Accumulated
amortization
Cost
Deferred financing costs
7,328
Net book value
$
4,373
14,417
Net book value
$
19,037
Amortization of deferred financing costs amounted to $3,418 (2013 - $3,436) for the year ended December 31, 2014 and is recorded to interest
on long-term debt. For the year ended December 31, 2013, $1,240 of deferred financing costs were written-off in connection with the
Company’s repayment of its 2005 Seneca County Industrial Development Agency Variable Rate Demand Solid Waste Disposal Revenue Bond
(“2005 Seneca IRB Facility”) (Note 18).
Deferred financing costs are expected to amortize in each of the next five years and thereafter as follows:
2015
2016
2017
2018
2019
Thereafter
$
$
106
3,263
3,263
3,263
2,801
429
1,398
14,417
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
13.
Capital Assets
Cost
Land and improvements
Buildings and improvements
Vehicles and equipment
Containers and compactors
Furniture, fixtures and computer equipment
$
$
133,716
275,452
842,994
364,978
32,486
1,649,626
Cost
Land and improvements
Buildings and improvements
Vehicles and equipment
Containers and compactors
Furniture, fixtures and computer equipment
$
$
141,470
286,494
859,474
323,180
32,834
1,643,452
December 31, 2014
Accumulated
amortization
$
$
—
72,795
412,138
209,764
26,379
721,076
Net book value
$
$
December 31, 2013
Accumulated
amortization
$
$
—
64,400
430,154
186,144
25,502
706,200
133,716
202,657
430,856
155,214
6,107
928,550
Net book value
$
$
141,470
222,094
429,320
137,036
7,332
937,252
Capitalized interest for the year ended December 31, 2014 amounted to $682 (2013 - $1,240).
At December 31, 2014, assets recorded under capital lease total $646 and $4,528 (2013 - $705 and $5,117) and are recorded to land and
improvements and buildings and improvements, respectively.
Impairment
Certain processing equipment previously employed at a construction and demolition processing facility in Canada has been identified as having
no future use for the Company. A combination of factors led to this conclusion, including the available market for the end product generated by
the processing equipment, coupled with the Company’s inability to successfully operate the equipment at an acceptable rate of return, which
was partially attributable to the supply of wood waste materials in the market of operation. The Company estimated the fair value of the
processing equipment at its estimated proceeds from sale less cost to sell. The resulting impairment loss is $4,066 which was recorded to
amortization expense on the statement of operations and comprehensive income or loss for the year ended December 31, 2014. To estimate the
equipment’s fair value, the Company solicited quotes and information from third parties who are in the business of removing and disposing of
machinery of this kind.
107
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
14.
Landfill Assets
December 31, 2014
Accumulated
amortization
Cost
Landfill assets
$
1,649,850
$
$
$
December 31, 2013
Accumulated
amortization
Cost
Landfill assets
713,755
Net book value
1,614,583
$
661,852
936,095
Net book value
$
952,731
Capitalized interest for the year ended December 31, 2014 amounted to $2,078 (2013 - $1,989).
15.
Investments
Investment at cost
In June 2013, the Company acquired a 19.9% non-controlling interest in TerraCycle Canada ULC (“TerraCycle”) for total consideration of
1,035 Canadian dollars (“C$”). TerraCycle is a Canadian unlimited liability company that offers programs to collect waste and convert the
collected waste into a wide range of products and materials. This investment is accounted for applying the cost method of accounting.
Investment in equity accounted investee
The Company had a fifty percent ownership interest in two companies whose business was comprised principally of compactor and related
equipment rentals. The remaining ownership was owned by two trusts. The Company exercised joint control over its investment through its
fifty percent ownership interest and its ability to nominate fifty percent of the directors to the board of the investee. The Chairperson of the
investee’s Board of Directors could not be nominated by the Company and the Chairperson could not be a member of the Company’s Board of
Directors. The Chairperson of the investee was entitled to cast a second vote in the event of a tie amongst its board. Certain matters were
beyond the control of the investee’s board and resided with its shareholders. These matters included certain financing, board composition, the
sharing of profits and material business changes.
Effective April 1, 2013, the Company entered into an amending agreement to purchase the remaining fifty percent interest in the investee no
later than February 28, 2015, subject to the Company or the seller providing notice of purchase or sale, at an amount equal to the greater of fifty
percent of revenues less operating and selling, general and administration expense of the investee for the preceding 12 month period multiplied
by six or C$9,000. Certain conditions could accelerate the purchase or extend the commitment beyond February 28, 2015. On January 31,
2014, the Company purchased the remaining fifty percent interest in its equity accounted investee. See Note 5.
The following table summarizes the Company’s investments:
December 31,
2014
Cost method investment
Equity method investment
Total investments
$
$
108
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
December 31,
2013
892
—
892
$
$
973
4,686
5,659
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
16.
Other Assets and Other Liabilities
December 31
2014
Other assets
Fair value of commodity swaps
Fair value of interest rate swaps
$
Less current portion of other assets
$
Other liabilities
Fair value of interest rate swaps
Fair value of commodity swaps
Fair value of wood waste supply agreement
Deferred lease liabilities
Unfavourable lease arrangements
Contingent acquisition payables
Share based compensation (Note 22)
Other
$
Less current portion of other liabilities
$
17.
2013
—
5,315
5,315
—
5,315
$
23,215
3,384
—
941
310
—
5,350
476
33,676
16,558
17,118
$
$
$
2,819
19,199
22,018
2,149
19,869
19,733
—
806
1,220
515
459
4,300
635
27,668
12,925
14,743
Accrued Charges
Accrued charges comprise the following:
December 31,
2014
Insurance
Payroll and related costs
Franchise and royalty fees
Interest
Provincial, federal and state sales taxes
Acquisition holdbacks, acquisition related costs and amounts owing to seller
Environmental surcharges
Property taxes
Share based options (Note 22)
Other
$
$
109
38,295
36,173
9,475
1,676
6,773
38,639
6,062
399
6,830
30,009
174,331
December 31,
2013
$
$
33,879
41,824
9,127
876
6,895
2,668
6,972
189
7,854
26,707
136,991
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
18.
Long-Term Debt
December 31
2014
Senior secured term B facility, net of debt discount $1,480 (2013 - $1,948)
Senior secured revolving credit
IRBs
Other
$
Less current portion of long-term debt
$
488,520
998,913
64,000
6,612
1,558,045
5,428
1,552,617
2013
$
$
493,052
983,481
64,000
7,725
1,548,258
5,969
1,542,289
Consolidated credit agreement
Effective October 24, 2012, the Company entered into a Credit Agreement (the “consolidated facility”). The borrower under the consolidated
facility is Progressive Waste Solutions Ltd. and the facility is guaranteed by all subsidiaries of the Company, excluding certain subsidiaries as
permitted by the consolidated facility.
The consolidated facility is comprised of a $500,000 senior secured term B facility (“term B facility”) and a $1,850,000 senior secured
revolving facility (“consolidated revolver”) having original maturity dates of October 24, 2019 and October 24, 2017, respectively. The
consolidated facility has a $750,000 accordion feature, which is available subject to certain conditions. Proceeds from the consolidated facility
were used to refinance previously existing indebtedness and may be used for permitted acquisitions, as defined by the agreement, capital
expenditures, working capital, letters of credit and for general corporate purposes. Amounts drawn under the consolidated revolver, plus
accrued interest, are repayable in full at maturity. The term B facility is subject to principal amortization of one percent per annum and payable
quarterly commencing in March 2013. All amounts outstanding under the term B facility, plus accrued interest, are repayable in full at
maturity. The term B facility is also subject to mandatory prepayment if certain conditions exist, which include net cash proceeds from the sale
of assets, the issuance of additional indebtedness that does not constitute permitted indebtedness and a percentage of excess cash flow, all of
which are subject to various conditions.
The Company is required to provide its consolidated facility lenders with a first priority perfected security interest in all present and future
assets of it and its subsidiaries, including all present and future intercompany indebtedness and a pledge of all of the equity interests in each of
the Company’s direct and indirect subsidiaries, subject to certain conditions. Excluded subsidiaries, real estate and certain other equipment are
excluded from the first priority perfected security requirement unless requested by the lenders.
The consolidated facility permits a maximum consolidated total funded debt to four-quarter consolidated EBITDA ratio (“leverage ratio”) of
four times, as defined therein. In the event the Company delivers to its lenders a corporate credit rating from Standard & Poor’s or Moody’s of
at least BBB-/Baa3 (with a stable outlook or better), the Company may elect to have the security interests of the lenders terminated, provided
the term B facility is repaid in full, at which time the maximum leverage ratio declines to three and one half times. The leverage ratio increases
to four and one half times if the Company obtains unsecured indebtedness in an aggregate amount of not less than $250,000 and remains at this
ratio for as long as the unsecured indebtedness remains outstanding. The consolidated facility also requires a minimum four quarter
consolidated EBITDA to consolidated interest expense ratio (“interest coverage ratio”) of two and one half times, subject to certain conditions,
and two and three quarter times if the Company elects to have the security interests of the lenders terminated.
Effective November 26, 2013, the Company entered into an Amendment to the Credit Agreement which resulted in lower applicable margins
on both the term B facility and consolidated revolver drawings and extended the maturity of the consolidated revolver to October 24, 2018.
110
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Borrowings on the consolidated revolver are available in either U.S. or Canadian dollars. Applicable margins are dependent on the Company’s
leverage ratio. If an event of default occurs, the applicable margin on all obligations owing under the consolidated facility will increase by
2.0% per annum. Pricing on the consolidated facility is as follows:
Term B facility
- Euro based
loans
Interest rate basis
Applicable margin
Floor
Applicable margin minimum
Applicable margin maximum
Fee rate - minimum
Fee rate - maximum
Frequency of
payments
Term B facility
- U.S. based
loans
LIBOR
U.S. base prime
2.25%
0.75%
1.25%
Monthly, in arrears
Quarterly, in arrears
Consolidated
revolver Bankers’
Acceptances
(“BA”)/BA
equivalents
Consolidated
revolver - U.S.
based/
Canadian
prime rate
loans
LIBOR
BA or BA
equivalents plus
10 basis points
U.S. base or
Canadian prime rate
1.25%
1.25%
0.25%
2.00%
2.00%
1.00%
Consolidated
revolver - Euro
based loans
In arrears, for
applicable term
In advance, for
applicable term
Letters of
credit
Quarterly, in arrears
1.50%
2.25%
Quarterly, in
arrears
Commitment
fee
0.25%
0.50%
Quarterly, in
arrears
Details of outstanding debt - credit facilities
December 31
2014
Term B facility
Amount drawn
Interest rate applicable
Consolidated revolver
Amount drawn
Letters of credit
Available
Amount drawn - Euro based loan
Interest rate applicable - Euro based loan
Amount drawn - BAs
Interest rate applicable - BAs
Amount drawn - U.S. based loan
Interest rate applicable - U.S. based loan
Amount drawn - Canadian prime rate loan
Interest rate applicable - Canadian prime rate loan
Commitment - rate applicable
$
$
490,000
3.00 %
495,000
3.00 %
$
$
$
$
998,913
200,212
650,875
575,000
1.99 %
415,913
3.11 %
8,000
4.00 %
—
3.75 %
0.375 %
$
$
$
$
983,481
196,909
669,610
463,250
1.99 %
512,410
3.03 %
5,000
4.00 %
2,821
3.75 %
0.375 %
$
$
$
111
2013
$
$
$
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
IRBs
The Company entered into the following IRB facilities which are available to fund a portion of landfill construction activities and equipment,
vehicle and container expenditures at its Seneca Meadows landfill and in its Pennsylvania and Texas operations: 2005 Seneca IRB Facility,
Pennsylvania Economic Development Corporation IRB (“PA IRB Facility”), Mission Economic Development Corporation IRB (“TX IRB
Facility”) and 2009 Seneca County Industrial Development Agency IRB (“2009 Seneca IRB Facility”).
Date entered
Oct. 20, 2005
Term,
expressed
in years
30
Maturity
Oct. 1, 2035
$
Availability
45,000
PA IRB Facility
Nov. 16, 2006
22
Nov. 1, 2028
$
TX IRB Facility
Mar. 1, 2007
15
Apr. 1, 2022
2009 Seneca IRB Facility
Dec. 1, 2009
30
Dec. 31, 2039
IRB Facility
2005 Seneca IRB Facility
(*)
Interest rate
basis
LIBOR less an
applicable discount
Frequency of
interest
payments
Monthly, in
arrears
Date interest
payments
commenced
Nov. 1, 2005
35,000
LIBOR less an
applicable discount
Monthly, in
arrears
Dec. 1, 2006
Letter of credit
equal to amount
drawn
$
24,000
LIBOR less an
applicable discount
Monthly, in
arrears
May. 1, 2007
Letter of credit
equal to amount
drawn
$
5,000
Securities Industry
and Financial
Markets
Association
Municipal Swap
Index
Monthly, in
arrears
Feb. 1, 2010
Letter of credit
equal to amount
drawn
Amendment
date
IRB Facility Amendment
2005 Seneca IRB Facility (*)
Aug. 1, 2008
Amended
interest rate
basis
Fixed rate
Security
Guaranteed by
IESI Corporation
(“IESI”)
Term for
amended
interest rate
basis,
expressed in
years
5
Note:
(*) Effective October 1, 2013, the Company provided notice to cancel its outstanding $45,000 2005 Seneca IRB facility and repaid the balance
in full. The Company drew on its consolidated revolver to repay the 2005 Seneca IRB Facility.
112
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
December 31
2014
2013
PA IRB Facility
Amount drawn
Current daily interest rate
$
$
35,000
0.10 %
35,000
0.07 %
TX IRB Facility
Amount drawn
Current daily interest rate
$
$
24,000
0.08 %
24,000
0.07 %
2009 Seneca IRB Facility
Amount drawn
Amount restricted
Current daily interest rate
$
$
$
5,000
$
521
0.10 %
5,000
498
0.08 %
Loss on extinguishment of debt — 2005 Seneca IRB Facility
December 31
2014
Write-off of deferred financing costs
Loss on extinguishment of debt
$
$
2013
—
—
$
$
1,240
1,240
Other
In connection with the WSI acquisition, the Company assumed a note that was originally payable to WCA of Florida LLC (“WCA”) and
subsequently assigned to Credit Suisse. The note had an original issue date of June 29, 2007 and was originally issued for $10,500. The note
was non-interest bearing and required payments of $125 per month until its maturity in June 2014. The note was entered into as part of a
transaction between WSI and WCA to acquire certain WCA assets in Florida and to sell certain WSI operations in Texas. The note was secured
by the WCA assets acquired. At December 31, 2014, the note has been repaid in full.
At December 31, 2014 and 2013, the Company has capital lease obligations of $6,612 (2013 - $7,118) with maturities and interest rates ranging
from 2020 to 2025 and 5.00% to 24.80%, respectively. Future minimum lease payments required under capital lease obligations in each of the
next five years ending December 31 and thereafter are as follows:
2015
2016
2017
2018
2019
Thereafter
Less amount representing interest
Present value of minimum capital lease obligations
$
$
1,152
1,195
1,239
1,285
1,333
4,229
10,433
3,821
6,612
Consolidated long-term debt
The Company is subject to various covenants and restrictions contained in its long-term debt financing agreements. At December 31, 2014 and
2013 the Company is in compliance with all covenants and restrictions included in these agreements.
Interest on long-term debt amounted to $61,917 (2013 - $60,754) and includes the amortization of deferred financing and debt discount costs
but excludes capitalized interest.
113
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Principal repayments, excluding capital lease obligations, required in each of the next five years ending December 31, and thereafter, are as
follows:
2015
2016
2017
2018
2019
Thereafter
$
$
19.
4,694
4,694
4,694
1,003,605
469,746
64,000
1,551,433
Landfill Closure and Post-Closure Costs
The tables below outline key assumptions used to determine the value of landfill closure and post-closure costs. The tables also outline the
expected timing of undiscounted landfill closure and post-closure expenditures and changes to landfill closure and post-closure costs between
periods.
December 31, 2014
Fair value of legally restricted assets (funded landfill post-closure costs)
Undiscounted closure and post-closure costs
Credit adjusted risk-free rates - Canadian segment landfills
Credit adjusted risk-free rates - U.S. segment landfills
Expected timing of undiscounted landfill closure and post-closure expenditures
2015
2016
2017
2018
2019
Thereafter
$
$
11,365
696,491
4.6 - 9.5%
4.5 - 7.2%
$
9,519
9,916
16,989
8,962
6,744
644,361
696,491
$
December 31
2014
Landfill closure and post-closure costs, beginning of the year
Provision for landfill closure and post-closure costs, during the year
Accretion of landfill closure and post-closure costs, during the year
Landfill closure and post-closure expenditures, during the year
Disposal of landfill closure and post-closure costs, during the year
Revisions to estimated cash flows, during the year
Foreign currency translation adjustment, for the year
Less current portion of landfill closure and post-closure costs
Landfill closure and post-closure costs, end of year
$
$
124,454
9,974
6,132
(4,696 )
(960 )
(1,472 )
(3,287 )
130,145
9,519
120,626
2013
$
$
113,152
11,796
5,655
(4,276 )
—
517
(2,390 )
124,454
10,332
114,122
In the prior year, a $1,017 remediation liability was recorded for the clean-up of contaminated land located in Canada. This same amount was
capitalized to land but was determined to be immediately impaired. Accordingly, a $1,017 impairment charge was recorded to net gain on sale
of capital assets on the statement of operations and comprehensive income or loss for the year ended December 31, 2013.
The Company is required to deposit monies into a social utility trust for the purpose of settling post-closure costs at its Lachenaie landfill. The
funding amount is established by the Quebec Government based on each cubic metre of waste accepted and payment is due quarterly. At
December 31, 2014, funded landfill post-closure costs, representing the fair value of legally restricted assets, totals $11,365 (2013 - $10,690).
At December 31, 2014, $11,058 (2013 - $10,333) was deposited into the social utility trust with the balance, $307 (2013 - $357) remaining
unfunded and included in accounts payable.
114
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
20. Shareholders’ Equity
Shareholders’ equity
The Company is authorized to issue an unlimited number of common, special and preferred shares, issuable in series.
Common Shares
Effective August 28, 2014, the Company received approval for a normal course issuer bid (“NCIB”) to purchase up to 7,500 of the Company’s
common shares for a one year period expiring on August 27, 2015. Daily purchases are limited to a maximum of 39.034 shares on the Toronto
Stock Exchange. Once a week, the Company is permitted to purchase a block of common shares which can exceed the daily purchase limit, as
long as the block is not owned by an insider. All shares purchased are expected to be cancelled.
For the year ended December 31, 2014, 2,681 common shares (2013 - nil) were purchased and cancelled at a total cost of $80,770 (2013 - $nil).
As of March 20, 2015, an additional 142 common shares were purchased and settled.
For the year ended December 31, 2014, 12 stock options (2013 — 9) were exercised for total consideration of $123 (2013 - $112).
At December 31, 2014, 457 (2013 — 480) common shares were held in a rabbi trust for U.S. LTIP participants.
Special Shares
The Company is authorized to issue an unlimited number of special shares. Special shareholders are entitled to one vote in matters of the
Company for each special share held. The special shares carry no right to receive dividends or to receive the remaining property or assets of the
Company upon dissolution or wind-up. At December 31, 2014 and 2013, no special shares are issued.
Preferred Shares
The Company is authorized to issue an unlimited number of preferred shares, issuable in series. At December 31, 2014 and 2013, no preferred
shares are issued. Each series of preferred shares issued shall have rights, privileges, restrictions and conditions as determined by the Board of
Directors prior to their issuance. Preferred shareholders are not entitled to vote, but take preference over the common shareholders rights in the
remaining property and assets of the Company in the event of dissolution or wind-up.
Details of common and restricted shares for the year ended December 31, 2014 are as follows:
December 31
2014
Common shares
Common shares issued and outstanding, beginning of the year
Common shares issued on exercise of share based options, during the year
Repurchase of common shares, during the year
Restricted common shares purchased, during the year
Restricted common shares forfeited, during the year
Restricted common shares vested, during the year
Common shares issued and outstanding, end of year
Restricted common shares
Restricted common shares issued and outstanding, beginning of year
Restricted common shares purchased, during the year
Restricted common shares forfeited, during the year
Restricted common shares vested, during the year
Restricted common shares issued and outstanding, end of year
115
2013
114,853
12
(2,681 )
(168 )
13
78
112,107
114,994
9
—
(218 )
8
60
114,853
322
168
(13 )
(78 )
399
172
218
(8 )
(60 )
322
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Accumulated other comprehensive loss
Accumulated other comprehensive loss, is comprised of accumulated foreign currency translation adjustments, including accumulated
exchange gains or losses on intangibles, goodwill and capital and landfill assets, partially offset by accumulated exchange losses or gains on
long-term debt, landfill closure and post-closure costs, and deferred income tax liabilities. Accumulated other comprehensive loss also includes
gains or losses recognized on the effective portion of derivatives designated as cash flow hedges, net of income tax and settlements.
Derivatives
designated as
cash flow
hedges, net of
income tax
Foreign
currency
translation
adjustment
December 31, 2014
Balance, beginning of year
Other comprehensive loss before reclassifications, during the year
Amounts reclassified from accumulated other comprehensive loss, during
the year
Balance, end of year
December 31, 2013
Balance, beginning of year
Other comprehensive loss before reclassifications, during the year
Amounts reclassified from accumulated other comprehensive loss, during
the year
Balance, end of year
$
$
$
$
(81,473 )
(41,773 )
—
(123,246 )
(48,292 )
(33,181 )
—
(81,473 )
$
Accumulated
other
comprehensive
loss
(418 )
—
418
—
$
$
176
(1,051 )
457
(418 )
$
$
$
(81,891 )
(41,773 )
418
(123,246 )
$
(48,116 )
(34,232 )
457
(81,891 )
$
Net income per share
The following table presents net income and reconciles the weighted average number of shares outstanding at December 31, 2014 and 2013 for
the purpose of computing basic and diluted net income per share.
December 31
2014
Net income
$
Weighted average number of shares, basic
Dilutive effect of share based options
Weighted average number of shares, diluted
2013
126,516
$
115,170
—
115,170
114,822
—
114,822
Net income per weighted average share, basic and diluted
$
Issued and outstanding share based options
1.10
117,970
$
1,111
Share based options are anti-dilutive to the calculation of net income per share and have therefore been excluded from the calculation.
116
1.02
2,639
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
21.
Changes in Non-Cash Working Capital Items
The following table outlines changes in non-cash working capital items:
December 31
2014
Accounts receivable
Prepaid expenses
Accounts payable
Accrued charges
Income taxes recoverable and payable
Deferred revenues
Effect of foreign currency translation adjustments and other non-cash changes
$
$
22.
13,086
(2,128 )
(41,846 )
7,718
4,770
(857 )
(1,420 )
(20,677 )
2013
$
$
9,704
3,876
(8,886 )
5,049
459
(1,822 )
3,150
11,530
Share Based Compensation
Share based options (“options”) are granted to certain directors, officers or management employees at the discretion of the Company’s Board of
Directors, or its designate. Options, in the absence of any other determination, vest and become exercisable equally on their first, second, third
and fourth anniversary dates and expire on the 10th anniversary date of the grant. The Company reserved 4,000 shares for issuance under the
option plan. The exercise date of options may be accelerated at the discretion of the Board of Directors, or its designate. On termination of
employment without cause, death or disability, the options vest and become immediately exercisable and are not transferable or assignable.
The Company periodically grants restricted shares. Restricted shares represent incentives for certain management (“employees” or
“management”) in respect of their employment with the Company and to align the interests of management with the interests of the Company’s
shareholders. Restricted shares vest when the employee has satisfied the requisite service period. Management forfeits their right to restricted
shares upon termination for cause or resignation without good reason. Accelerated vesting occurs in certain circumstances, including
termination without cause or resignation for good reason, change of control, and death and disability. Dividends received by the trustee, on
restricted shares held for the benefit of management, are paid to the employee. The employee’s interest in restricted shares cannot be assigned
or transferred.
The Company grants share based awards to management as part of its LTIP. The 2012 annual LTIP award granted PSUs. Starting in 2013, the
Company introduced a combination of options, restricted shares and PSUs to its LTIP award participants.
117
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Options
On March 19, 2014, as part of the current year LTIP, the Board of Directors issued 429 share based options, all of which have stock
appreciation rights, to various Company management. The options vest and are exercisable on March 19, 2017. The grant date market value of
the Company’s common shares and exercise price of the options was C$27.84. Unexercised options expire on March 19, 2024.
On March 26, 2013, as part of the prior year LTIP, the Board of Directors issued 176 share based options, all of which have stock appreciation
rights, to various Company management. The options vest and are exercisable on March 25, 2016. The grant date market value of the
Company’s common shares and exercise price of the options was C$21.35. Unexercised options expire on March 25, 2023.
December 31
2014
Number of
options
Outstanding, beginning of year
Granted, during the year
Exercised, during the year (*)
Forfeited, during the year
Expired, during the year
Outstanding, end of year
2,639
429
(1,957 )
—
—
1,111
Options outstanding, exercisable
Weighted average grant date market value
Weighted average remaining contractual life
(expressed in years)
2013
Weighted
average
exercise price
$
$
$
$
$
$
2,687
176
(224 )
—
—
2,639
22.36
24.91
(22.49 )
—
—
19.90
21.88
$
$
$
$
$
$
23.59
21.00
(19.70 )
—
—
22.36
2,253
303
$
Weighted
average exercise
price
Number of
options
$
20.67
4.0
7.1
Note:
(*)
Includes the exercise of share appreciation rights.
December 31
2014
Share based compensation expense
Unrecognized compensation costs for options
Share based compensation accrued
$
$
$
118
11,528
4,470
6,830
2013
$
$
$
6,142
1,556
7,854
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
To estimate the fair value of its options, the Company uses the Black-Scholes-Merton option pricing model which requires several input
variables. These variables include the estimated length of time employees will retain their options before exercising them and the expected
volatility of the Company’s share price. Changes in these variables can materially affect the estimated fair value of share based compensation
and, consequently, the related amount recognized in selling, general and administration expense on the statement of operations and
comprehensive income or loss. In calculating the fair value of the options at December 31, 2014 and 2013, the following weighted average
assumptions were used:
2014
Grant date - February 14, 2006
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value, per option (in Canadian dollars)
Grant date - August 25, 2008
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value, per option (in Canadian dollars)
Grant date - November 11, 2010
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value, per option (in Canadian dollars)
Grant date - August 20, 2012
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value, per option (in Canadian dollars)
Grant date - March 26, 2013
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value, per option (in Canadian dollars)
Grant date - March 19, 2014
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value, per option (in Canadian dollars)
$
$
2013
—
—
—
—
—
$
2.3 %
15.8 %
1.0 %
1.1
0.62
1.8 %
22.0 %
1.0 %
1.1
$
14.47
2.3 %
19.8 %
1.2 %
2.1
6.20
—
—
—
—
—
$
2.3 %
19.7 %
1.2 %
2.0
3.57
$
1.8 %
18.3 %
1.2 %
2.3
$
13.81
2.3 %
19.8 %
1.5 %
3.3
6.26
$
1.8 %
19.8 %
1.3 %
3.0
$
12.88
2.3 %
21.1 %
1.7 %
4.0
6.01
$
1.8 %
20.3 %
1.5 %
4.3
$
8.53
—
—
—
—
—
$
Compensation expense or recovery including fair value changes in share based options is recorded to selling, general and administration
expense on the statement of operations and comprehensive income or loss. To determine the expected life of the options, management
considered the age of the recipients, the duration between the vesting date and the date of expiration. Expected volatility was calculated using
changes in monthly share prices for a period commensurate with the expected remaining life.
119
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Restricted shares
During 2014, the Company issued 168 restricted shares at a weighted average cost of $25.12 per share to certain management. In conjunction
with the restricted share issuance, the Company purchased 168 common shares for total consideration of $4,232 and transferred these shares to
a trust to be held for the benefit of the recipients. The restricted shares have vesting dates as follows: 44 restricted shares on December 15,
2016, 25 restricted shares on December 31, 2016, 74 restricted shares on March 19, 2017, 20 restricted shares on April 30, 2017, 1 restricted
share on June 15, 2017, 2 restricted shares on July 31, 2017 and 2 restricted shares on August 1, 2017.
In August 2014, 13 restricted shares previously awarded to an employee were forfeited. In conjunction with the forfeiture, the Company sold
13 restricted shares for total cash proceeds of $312. The forfeiture resulted in a $255 recovery of previously recognized restricted share
expense.
During 2013, the Company issued 218 restricted shares at a weighted average cost of $21.32 per share to certain management. In conjunction
with the restricted share issuance, the Company purchased 218 common shares for total cash consideration of $4,643 and transferred these
shares to a trust to be held for the benefit of the recipients. The restricted shares have vesting dates as follows: 2 restricted shares on
December 15, 2013, 2.5 restricted shares on December 15, 2014, 13 restricted shares on December 15, 2015, 133.5 restricted shares on
March 25, 2016, 1 restricted share on June 17, 2016, 1.5 restricted shares on July 2, 2016, 4.5 restricted shares on August 12, 2016 and 60
restricted shares on December 15, 2016.
In September 2013, 8 restricted shares previously awarded to an employee were forfeited. In conjunction with the forfeiture, the Company sold
8 restricted shares for total cash proceeds of $181. The forfeiture resulted in a $94 recovery of previously recognized restricted share expense.
The following table outlines various details pertaining to restricted shares.
December 31
2014
2013
Outstanding, beginning of year
Granted, during the year
Vested, during the year
Forfeited, during the year
Outstanding, end of year
322
168
(78 )
(13 )
399
172
218
(60 )
(8 )
322
Weighted average remaining life
1.69
1.97
Restricted share expense
$
2,759
$
2,004
Restricted share expense is recorded to selling, general and administration expense on the statement of operations and comprehensive income
or loss.
120
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
If employees satisfy the requisite service period requirements, the Company will record compensation expense as follows:
2015
2016
2017
$
$
2,569
1,845
209
4,623
PSUs
In March 2012, the Company’s Compensation Committee approved a revised LTIP plan for all executive officers and certain employees
effective January 1, 2012. Under the revised plan, PSU payments were awarded at the end of a three year performance period and payment
amounts ranged from 0% to 175% of the target award subject to the Company’s performance against pre-established performance measures.
These performance measures were recommended by executive management and submitted to the Compensation Committee for their approval.
In addition to these performance measures, the Compensation Committee may evaluate performance results and retains the authority and
discretion to amend PSU payments.
PSU award payments are paid in lump sum cash amounts based on the volume weighted average trading price of the Company’s shares for the
five trading days immediately preceding the vesting date. A participant who voluntarily terminates employment or is terminated with cause
prior to the date of payment forfeits all rights to, or interest in, any unvested award. If a participant’s employment is terminated without cause,
or by death, disability or retirement, after the mid-point of the performance period, the participant is entitled to the full amount of the
participant’s unvested PSUs and related dividend PSUs. If a participant’s employment is terminated without cause, or by death, disability or
retirement, prior to the mid-point of the performance period, the participant is entitled to a pro-rated amount of the award that the
Compensation Committee determines would have been paid to the participant had their employment continued to the end of the performance
period. Starting in 2013, if a participant’s employment is terminated without cause, the participant is entitled to a pro-rata amount of the award
that the Compensation Committee determines would have been paid to the participant had their employment continued to the end of the
performance period. If a participant is disabled, dies or meets certain qualifying conditions upon retirement, the participant is entitled to be paid
the full amount of the PSU award had the participant continued employment to the end of the three year performance period.
121
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The following table outlines details of the Company’s PSU’s:
December 31
2014
Number of
PSUs
Outstanding, beginning of year
Granted, during the year
Vested, during the year
Expired, during the year
Forfeited, during the year
Outstanding, end of year
2013
Weighted
average grant
date fair value
507
164
(12 )
(334 )
(1 )
324
$
$
$
Weighted
average grant
date fair value
Number of
PSUs
333
187
—
—
(13 )
507
19.87
23.35
—
—
—
21.27
$
$
20.04
19.55
—
—
—
19.87
$
December 31
2014
PSU expense
Unrecognized compensation cost for PSU’s
PSU compensation cost accrued
$
$
$
2013
1,490
4,834
5,350
$
$
$
3,222
4,061
4,300
In calculating the estimated fair value of the PSU’s, the following weighted average assumptions were used:
December 31
2014
Grant date - March 16, 2012
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value per PSU (in Canadian dollars)
Grant date - March 19, 2014
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value per PSU (in Canadian dollars)
—
—
—
—
—
$
2.3 %
16.2 %
1.0 %
1.0
25.68
$
1.8 %
20.8 %
1.0 %
1.2
$
34.15
2.3 %
19.1 %
1.2 %
2.2
24.96
$
1.8 %
18.6 %
1.2 %
2.2
$
33.53
—
—
—
—
—
$
Grant date - March 26, 2013
Dividend yield
Expected volatility
Risk free interest rate
Expected remaining life, stated in years
Fair value per PSU (in Canadian dollars)
2013
Compensation expense includes the fair value change in PSU’s which are recorded to selling, general and administration expense on the
statement of operations and comprehensive income or loss.
122
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Long-term incentive plan — pre 2012
Effective January 1, 2003, the Company entered into a trust (the “Trust”) agreement to establish a LTIP plan on behalf of certain Canadian
employees, officers and directors. The purpose of the Trust was to receive monies from the Company and its subsidiaries on behalf of certain
Canadian employees, officers and directors to purchase shares of the Company in the open market and to hold the shares acquired for the
benefit of its participants. Shares remain registered in the name of the Company, the Trustee, or its nominee(s), until the shares are redeemed,
sold or distributed to the participant for whom they are held. Dividends received by the Trust are distributed to the participants in proportion to
their pro rata entitlement. The Company’s maximum exposure to loss is limited to its obligation to fund the administration of the Trust and its
indemnity to the Company and its officers, directors, employees, agents or shareholders for various items including, but not limited to, all costs
to settle suits or actions due to association with the Trust, subject to certain restrictions. The risk of fluctuations in the price of the Company’s
shares is borne by the participants. In February 2006, the Company amended and restated its LTIP and established a long-term incentive plan
on behalf of certain U.S. employees, officers and directors of IESI and its subsidiaries. With the exception of changes to the vesting period, the
terms of the LTIP remained principally unchanged. Shares acquired by the Trust in respect of fiscal year ended December 31, 2004 for the
benefit of its participants have vested. Shares acquired by the Trust in respect of fiscal year ended December 31, 2005, and thereafter, vest as
follows: one third on the day such shares are allocated to the participant, one third on December 31 of the year such shares are allocated to the
participant, and the balance on December 31 of the subsequent year. Shares that are forfeited by participants to the long-term incentive plan are
allocated to the remaining participants in accordance with their proportional entitlement to all of the shares held by the Trust and the Trust will
abstain from voting on all matters related to the Company. The purpose and terms of the U.S. long-term incentive plan are consistent with those
outlined for the Company’s amended and restated Canadian plan. In 2014 and 2013, contributions to the long-term incentive plan were
determined at the discretion of the Compensation Committee. Included in selling, general and administration expenses are $nil (2013 - $1,347)
of accrued amounts payable to the Trust on behalf of certain Canadian and U.S. employees at December 31, 2014.
23.
Commitments and Contingencies
The Company leases buildings and equipment under various operating leases. Payments for the next five years ending December 31 and
thereafter are as follows:
2015
2016
2017
2018
2019
Thereafter
$
$
14,743
12,896
8,348
6,562
4,572
10,322
57,443
The Company enters into various commitments in the normal course of business. At December 31, 2014, the Company has issued letters of
credit amounting to $200,212 (2013 - $196,909) and performance bonds totaling $399,897 (2013 - $372,412). Letters of credit are made
available to the Company through the consolidated facility and are included in the security offered by the Company to its lenders.
On the acquisition of IESI, the Company assumed various obligations which requires the Company to pay additional amounts for achieving
certain negotiated events or business performance targets, including landfill expansion approval or target disposal volumes. The Company is
obligated to pay certain sellers various amounts for achieving certain negotiated disposal volumes to a maximum of approximately $5,500.
Amounts are accrued monthly, and paid from time to time in accordance with the underlying agreements, until certain threshold negotiated
disposal volume targets are achieved, and the maximum obligation is satisfied. Accrued amounts, which are paid up to the date the disposal
volume threshold targets are met, reduce the threshold payment by a similar amount. The Company will record an adjustment to the purchase
price allocation when the contingency is resolved and consideration is issued or becomes issuable. Landfill permits acquired on the acquisition
of IESI were recorded at their fair values. Accordingly, future contingent payments made, in respect of landfill expansion approval or fulfilling
disposal volume targets, are recorded to goodwill.
123
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The Company has a disposal contract that requires it to meet specific disposal volume targets expiring on March 31, 2019. The volume
requirements are measured based on an annual average. Should the Company not meet the required volume targets, the Company is required to
make additional payments on the disposal volume shortfall. At December 31, 2014, the Company expects to meet its disposal volume target
and accordingly no accrual has been made.
The Company has an accrued environmental liability consisting of remediation and 30 years of post-closure monitoring totaling $12,885 (2013
- $13,446) recorded in landfill closure and post-closure costs, related to an inactive landfill (hereinafter referred to as “Tantalo”), which the
Company assumed as part of the IESI acquisition. The initial remediation work commenced in 2004, and the post-closure monitoring
commenced in 2007. Tantalo is a landfill that stopped accepting waste in 1976 and was identified by the State of New York as an “Inactive
Hazardous Waste Disposal Site”. During its period of operation, Tantalo received both municipal and industrial waste, some of which was
found to exhibit “hazardous” characteristics as defined by the U.S. Resource Conservation and Recovery Act. Past activities at Tantalo have
resulted in the release of hazardous wastes into the groundwater. A remediation program was developed for Tantalo in conjunction with the
New York State Department of Environmental Conservation. The remediation program includes: installation of groundwater barriers,
protective liner caps, leachate and gas collection systems, and storm-water drainage controls, as well as methods to accelerate the
decontamination process. The cost of remediation requires a number of assumptions and estimates which are inherently difficult to estimate,
and the outcome may differ materially from current estimates. However, management believes that its experience provides a reasonable basis
for estimating its liability. As additional information becomes available, estimates are adjusted as applicable. It is possible that technological,
regulatory or enforcement developments, the results of environmental studies, or other factors could necessitate the recording of additional
liabilities which could be material. The estimated environmental remediation liabilities have not been reduced for possible recoveries from
other potentially responsible third parties.
The Company is subject to certain lawsuits and other claims arising in the ordinary course of business. The outcome of these matters is subject
to resolution. Based on management’s evaluation and analysis of these matters, the amounts of potential losses are accrued and management
believes that any amount above the amounts accrued will not be material to the financial statements.
Purchase agreements
The Company owns a permit to construct a construction and demolition waste transfer station on land owned by it in Bradenton, Florida. An
additional payment of $2,500 is due to the sellers upon the transfer of the company or the property to any non-affiliate of WSI or upon
obtaining all necessary permits to operate the transfer station.
24. Related Party Transactions
Equity accounted investee
Transactions between the Company and its investee occurring before the acquisition of control on January 31, 2014 were all transacted in the
normal course of business. These transactions were the result of the investee billing the Company for services it provided to the Company. In
turn, the Company billed its customers for these services which were measured at the exchange amount. Transactions between the Company
and its investee only reflect the Company’s share of the transaction.
Transportation services
A company owned by an officer of a BFI Canada Inc. subsidiary provides transportation services to the Company.
All related party transactions are recorded at the exchange amounts.
December 31
2014
2013
Investment in equity accounted investee
Charges (recorded to operating expenses)
$
110
$
553
Transportation services
Charges (recorded to operating expenses)
Amounts owing (included in accounts payable)
$
$
4,336
36
$
$
3,788
70
124
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
25.
Financial Instruments
The following table categorizes the Company’s derivative financial assets and liabilities and their estimated fair values which are recorded as
other assets or other liabilities on the Company’s balance sheet.
December 31,
2014
December 31,
2013
Financial assets
Derivatives not designated in a hedging relationship
Current - commodity swaps
Long-term - commodity swaps
Long-term - interest rate swaps
$
$
$
—
—
5,315
$
$
$
2,149
670
19,199
Financial liabilities
Derivatives not designated in a hedging relationship
Current - interest rate swaps
Long-term - interest rate swaps
Current - commodity swaps
Current - wood waste supply agreement
Long-term - wood waste supply agreement
$
$
$
$
$
13,174
10,041
3,384
—
—
$
$
$
$
$
9,863
9,870
—
208
598
The following tables outline the hierarchical measurement categories for various financial assets and liabilities. As at December 31, 2014 and
December 31, 2013, financial assets and liabilities measured on a recurring basis had the following estimated fair values expressed on a gross
basis:
December 31, 2014
Significant
other
Significant
observable
unobservable
inputs
inputs
(Level 2)
(Level 3)
Quoted prices
in active
markets for
identical assets
(Level 1)
Cash and cash equivalents
Funded landfill post-closure costs
Other assets - interest rate swaps
Other liabilities - commodity swaps
Other liabilities - interest rate swaps
$
$
41,636
11,365
—
—
—
53,001
125
$
$
—
—
5,315
—
(23,215 )
(17,900 )
$
$
—
—
—
(3,384 )
—
(3,384 )
Total
$
$
41,636
11,365
5,315
(3,384 )
(23,215 )
31,717
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
December 31, 2013
Quoted prices
in active
markets for
identical assets
(Level 1)
Cash and cash equivalents
Funded landfill post-closure costs
Other assets - commodity swaps
Other assets - interest rate swaps
Other liabilities - interest rate swaps
Other liabilities - wood waste supply agreement
$
$
31,980
10,690
—
—
—
—
42,670
Significant other
observable
inputs
(Level 2)
$
$
—
—
—
19,199
(19,733 )
—
(534 )
Significant
unobservable
inputs
(Level 3)
Total
—
—
2,819
—
—
(806 )
2,013
$
$
$
$
31,980
10,690
2,819
19,199
(19,733 )
(806 )
44,149
The following table outlines the change in estimated fair value for recurring Level 3 financial instrument measurements for the years ended
December 31, 2014 and 2013, respectively:
December 31
Significant unobservable inputs (Level 3)
2014
Balance, beginning of year
Realized gains included in the statement of operations, during the year
Unrealized (losses) gains included in the statement of operations, during the year
Unrealized gains (losses) included in accumulated other comprehensive loss, during the year
Settlements
Foreign currency translation adjustment
Balance, end of year
$
$
2013
2,013
883
(6,081 )
643
(883 )
41
(3,384 )
$
$
2,064
1,308
867
(913 )
(1,308 )
(5 )
2,013
Fair value
Cash equivalents are invested in a money market account offered through a Canadian financial institution. The estimated fair value of cash
equivalents is equal to its carrying amount.
Funded landfill post-closure costs are invested in Bankers’ Acceptances, offered through Canadian financial institutions, or Government of
Canada treasury bills. The estimated fair value of these investments is supported by quoted prices in active markets for identical assets.
The estimated fair values of financial instruments are calculated using available market information, commonly accepted valuation methods
and third-party valuation specialists. Considerable judgment is required to interpret market information to develop these estimates.
Accordingly, these fair value estimates are not necessarily indicative of the amounts the Company, or counter-parties to the instruments, could
realize in a current market exchange. The use of different assumptions and or estimation methods could have a material effect on these fair
values.
The Company’s interest rate swaps are recorded at their estimated fair values based on quotes received from financial institutions that trade
these contracts. The Company verifies the reasonableness of these quotes by comparing them to its own calculation of fair value. The Company
uses all of this information to derive its fair value estimates. The use of different assumptions and or estimation methods could have a material
effect on these fair values.
The estimated fair values of commodity swaps are determined by applying a discounted cash flow methodology. This methodology uses the
forward index curve and the risk-free rate of interest, on a basis consistent with the underlying terms of the agreements, to discount the
commodity swaps. Financial institutions are the sources of the forward index curve and risk-free rate of interest. The use of different
assumptions and or estimation methods could have a material effect on these fair values.
126
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The Company’s foreign currency exchange agreements, when applicable, are recorded at their estimated fair value based on quotes received
from the financial institution that the Company has entered into the agreement with. The Company verifies the reasonableness of the quotes by
comparing them to the period end foreign currency exchange rate plus a forward premium. The use of different assumptions and or estimation
methods could result in differing fair values which the Company believes would not be material.
The fair value of the Company’s embedded derivative from its wood waste supply agreement was determined by applying a discounted cash
flow methodology. This methodology used electricity generator and Ultra Low Sulfur Diesel forward index curves and the risk-free rate of
interest, on a basis consistent with the underlying terms of the agreement. The Company employed a third-party, who is not a counter-party, to
independently value the embedded derivative and the Company used this information to derive its fair value estimate. The use of different
assumptions and or estimation methods could have resulted in differing fair values which the Company believes would not be material. In
April 2014, the wood waste supply agreement was amended and the embedded derivative contained in the original agreement was eliminated.
Hedge accounting
The Company had designated certain commodity swaps as cash flow hedges. The following tables outline changes in the fair value of
commodity swaps designated as cash flow hedges and their impact on other comprehensive income or loss, net of the corresponding income tax
effect, for the years ended December 31, 2014 and 2013.
December 31
2014
Derivatives designated as cash flow hedges, net of income tax
Other comprehensive loss, commodity swaps
Total other comprehensive loss, net of income tax
2013
—
—
$
$
$
$
(1,051 )
(1,051 )
December 31
2014
Reclassifications from accumulated other comprehensive income or loss to net income or loss
Gains on cash flow hedges:
Commodity swaps - recorded in operating expenses
Income tax - recorded in income tax expense or recovery
Total amount reclassified from accumulated other comprehensive income or loss
$
$
2013
643
(225 )
418
$
$
704
(247 )
457
The Company measured and recorded any ineffectiveness on commodity swaps representing the difference between the underlying index price
and the actual price of diesel fuel purchased. Gains or losses were reclassified to operating expenses as diesel fuel was consumed.
Interest rate, commodity swaps and foreign currency exchange agreements
The Company is subject to credit risk on certain interest rate, commodity swaps and foreign currency exchange agreements (collectively the
“agreements”), as applicable. The Company has entered into interest rate swaps to reduce its exposure to interest rate volatility on consolidated
credit facility advances. In addition, the Company has entered into commodity swaps for a portion of the diesel fuel consumed in its Canadian
and U.S. operations. The Company has also entered into foreign currency exchange agreements, from time to time, to mitigate the risk of
foreign currency fluctuations on amounts repayable under its consolidated credit facility and amounts payable for goods or services received
that are payable in a currency that is other than the operating entities’ primary operating currency.
127
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
The Company’s corporate treasury function is responsible for arranging all agreements and the Audit Committee is responsible for approving
certain agreements. Suitable counterparties identified by the Company’s treasury function are approved by the Audit Committee. The Company
will only enter into agreements with highly rated and experienced counterparties who have successfully demonstrated that they are capable of
executing these arrangements. If the counterparties’ credit rating, prepared by reputable third-party rating agencies, is downgraded, the
Company’s treasury function will review the agreement and assess if its exposure to the counterparty can be collateralized or if the agreement
should be terminated. The Company’s treasury function also prepares a report, at least once annually, to the Company’s Audit Committee
which outlines the key terms of its agreements, fair values, counterparties and each counterparty’s most recent credit rating, and, when
applicable, changes to the risks related to each agreement.
The Company’s maximum exposure to credit risk is equal to the fair value of interest rate, commodity swaps and foreign currency exchange
agreements, as applicable, recorded in other assets on the Company’s balance sheet. The Company holds no collateral or other credit
enhancements as security over these agreements. The Company deems the agreements’ credit quality to be high in light of its counterparties
and no amounts are either past due or impaired. In all instances, the Company’s risk management objective is to mitigate its risk exposures to a
level consistent with its risk tolerance.
The Company has entered into the following commodity and interest rate swap agreements which are outlined in the tables below:
U.S. fuel hedges
Date entered
Notional
amount (gallons
per month
expressed in
gallons)
June 21, 2012
June 1, 2012
150,000
150,000
Diesel rate paid
(expressed in
dollars)
$
$
Diesel rate received variable
3.62
3.72
Effective date
Diesel Fuel Index
Diesel Fuel Index
January 1, 2015
January 1, 2015
Expiration date
December 31, 2015
December 31, 2015
Canadian fuel hedges
Date entered
June 4, 2012
Notional
amount (litres
per month
expressed in
litres)
520,000
Diesel rate paid
(expressed in
C$)
$
Diesel rate received variable
0.57
Effective date
NYMEX WTI Index
January 1, 2015
Expiration date
December 31, 2015
128
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Interest rate swaps
Notional
amount
Date entered
August 30, 2013
August 30, 2013
September 6, 2013
September 6, 2013
$
$
$
$
35,000
40,000
25,000
25,000
Fixed interest
rate (plus
applicable
margin)
2.97 %
2.96 %
1.10 %
1.10 %
Variable
interest rate
received
0.23 %
0.23 %
0.23 %
0.23 %
Effective date
September 30, 2013
September 30, 2013
September 30, 2013
September 30, 2013
Expiration date
September 29, 2023
September 29, 2023
September 30, 2016
September 30, 2016
September 6, 2013
September 6, 2013
September 19, 2013
September 19, 2013
September 24, 2013
September 24, 2013
October 21, 2013
October 21, 2013
October 25, 2013
October 25, 2013
November 5, 2013
November 5, 2013
December 11, 2013
December 11, 2013
December 30, 2013
December 30, 2013
December 30, 2013
December 30, 2013
December 30, 2013
March 4, 2014
March 4, 2014
March 4, 2014
March 4, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 17, 2014
March 28, 2014
March 28, 2014
July 24, 2014
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
25,000
25,000
25,000
25,000
25,000
25,000
25,000
25,000
15,000
20,000
25,000
25,000
20,000
20,000
10,000
15,000
15,000
15,000
30,000
25,000
25,000
25,000
25,000
20,000
20,000
20,000
20,000
30,000
35,000
25,000
20,000
1.95 %
1.95 %
2.30 %
2.30 %
1.60 %
1.60 %
1.51 %
1.53 %
2.65 %
2.64 %
1.50 %
1.50 %
2.18 %
2.17 %
2.96 %
0.75 %
0.79 %
1.62 %
1.66 %
2.25 %
2.26 %
2.25 %
2.78 %
1.67 %
1.67 %
2.27 %
2.26 %
2.79 %
1.64 %
1.03 %
2.65 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
0.23 %
September 30, 2013
September 30, 2013
September 30, 2013
September 30, 2013
September 30, 2013
September 30, 2013
October 31, 2013
October 31, 2013
October 31, 2013
October 31, 2013
November 7, 2013
November 7, 2013
December 13, 2013
December 13, 2013
January 2, 2014
January 2, 2014
January 2, 2014
January 2, 2014
January 2, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
March 31, 2014
July 31, 2014
September 28, 2018
September 28, 2018
September 30, 2020
September 30, 2020
September 28, 2018
September 28, 2018
September 28, 2018
September 28, 2018
September 29, 2023
September 29, 2023
September 28, 2018
September 28, 2018
September 30, 2020
September 30, 2020
September 29, 2023
September 30, 2016
September 30, 2016
September 28, 2018
September 28, 2018
March 31, 2021
March 28, 2024
March 31, 2021
March 28, 2024
March 29, 2019
March 29, 2019
March 31, 2021
March 31, 2021
March 28, 2024
September 30, 2018
March 31, 2017
June 28, 2024
The contractual maturities of the Company’s derivatives are as follows:
December 31, 2014
Payments due
Total
Derivative
Interest rate swaps
Commodity swaps
$
$
23,392
3,384
Less than 1 year
$
$
13,173
3,384
129
1-3 years
$
$
8,078
—
4-5 years
$
$
1,496
—
After 5 years
$
$
645
—
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Unrealized amounts recorded to net gain or loss on financial instruments for the years ended December 31, 2014 and 2013 are as follows:
December 31
2014
Net loss (gain) on financial instruments
Funded landfill post-closure costs
Interest rate swaps
Fuel hedges
Wood waste supply agreement
Foreign currency exchange agreements
$
$
2013
(94 )
18,227
6,862
(781 )
—
24,214
$
(87 )
(3,251 )
(1,699 )
832
(77 )
(4,282 )
$
Estimated fair value
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued charges approximates its fair value due to
the relatively short-term maturities of these instruments. Funded landfill post-closure costs and derivative financial instruments are recorded on
the balance sheet at fair value.
At December 31, 2014, the estimated fair value of other receivables applying an interest rate consistent with the credit quality of the instrument
is $5,976 (December 31, 2013 - $68), compared to the carrying amount of $5,507 (December 31, 2013 - $68).
At December 31, 2014, the estimated fair value of net assets held for sale is approximately $76,300, compared to a carrying amount of $61,016.
At December 31, 2014, the fair value of long-term debt, excluding the term B facility, approximates its carrying amount as the Company
believes that renegotiation of this variable rate long-term debt would result in similar pricing to that which it currently enjoys. Accordingly,
because the Company’s variable rate facilities are non-amortizing and the Company’s credit spreads have remained principally unchanged, the
current carrying amount of the Company’s variable rate long-term debt approximates its fair value.
At December 31, 2014, the estimated fair value of the term B facility is approximately $570,600 (December 31, 2013 - $576,400) compared to
its carrying amount of $488,520 (December 31, 2013 - $493,052).
26.
Income Taxes
The following table reconciles the difference between income taxes that would result solely by applying statutory rates to the Company’s
pre-tax income or loss and income tax expense or recovery recorded in the statement of operations and comprehensive income or loss.
December 31
2014
Income before income taxes and net (income) loss from equity accounted investee
Income tax expense at the combined basic rate
Large corporation and state tax
International financing
Withholding tax on foreign dividends
Tax on other non-deductible expenses
Non-taxable income
Net revisions to certain tax bases and tax rates
Other
Income tax expense
130
$
$
160,274
52,648
5,008
(23,296 )
4,649
1,431
(2,696 )
(2,137 )
(1,931 )
33,676
2013
$
$
176,265
59,613
4,027
(11,661 )
731
1,441
—
(456 )
4,748
58,443
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
December 31
2014
Deferred income tax assets
Unutilized tax loss carryforwards
Deferred financing costs and offering expenses
Foreign tax credits available for carryforward
Accounting provisions not currently deductible for tax
Tax value of intangibles and landfill assets in excess of carrying value
Other
Valuation allowance
$
Deferred income tax liabilities
Carrying value of capital assets in excess of tax value
Carrying value of intangibles and landfill assets in excess of tax value
Other
Net deferred income tax liabilities
$
Canada
U.S.
Net deferred income tax liabilities
$
$
2013
62,614
896
14,567
65,047
6,407
2,433
(16,684 )
135,280
100,108
153,757
8,263
262,128
126,848
25,098
101,750
126,848
$
$
$
$
64,633
—
14,567
56,325
12,263
819
(18,267 )
130,340
93,382
159,034
7,811
260,227
129,887
36,601
93,286
129,887
The components of domestic and foreign income before income tax expense (recovery) and domestic and foreign income taxes are as follows:
December 31
2014
Income before income tax expense (recovery) and net income or loss from equity accounted
investeeo
Canada
U.S.
Other
$
$
Current income tax expense
Canada
U.S.
Other
$
Deferred income tax (recovery) expense
Canada
U.S.
Other
Total income tax expense
$
2013
50,952
42,619
66,703
160,274
$
28,570
5,290
166
34,026
$
(9,806 )
9,456
—
(350 )
33,676
$
$
69,717
73,053
33,495
176,265
26,045
3,428
62
29,535
867
28,041
—
28,908
58,443
The Company recognizes interest related to uncertain tax positions and penalties to current income tax expense. The Company has no material
uncertain tax positions. Accordingly, interest and penalties recognized in respect of uncertain tax positions and amounts accrued in respect
thereof amount to $nil for the years ended December 31, 2014 and 2013.
The Company is subject to federal, provincial and state income taxes and files tax returns in multiple jurisdictions. Tax years open to audit
range from 2000 to 2014 in Canada and from 1997 to 2014 in the U.S.
The Company does not tax effect its foreign currency translation adjustment.
131
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
Subsidiaries of the Company have unutilized tax losses amounting to $148,042 (2013 - $136,884) which expire 2015 to 2031. The realization
of the deferred income tax assets, net of a $1,667(2013 - $3,250) valuation allowance on certain U.S. unutilized tax loss carryforwards, totaling
$62,261 (2013 - $64,226), is dependent on the Company generating taxable income in future years in which those temporary differences
become deductible. Based on management’s estimate of the Company’s projected future taxable income and its tax planning strategies,
management expects to realize these deferred income tax assets in advance of expiry. Changes to the Company’s ownership structure could
limit the Company’s use of unutilized tax losses as imposed by Section 382 of the U.S. Internal Revenue Code.
As of December 31, 2014, a subsidiary of the Company has foreign tax credit carryforwards which expire in 2018 and 2019 that result in a
deferred income tax asset totaling $14,567 (2013 - $14,567). As the Company does not expect to generate foreign source income in the future,
it has provided a full valuation allowance against the foreign tax credits available for carryforward.
Since the Company’s acquisition of IESI, IESI had, and currently has, issued various intercompany notes payable (“U.S. notes”). For the
purposes of determining taxable income, IESI has taken the position that the U.S. notes and their related interest was commercially reasonable
and has deducted the interest paid thereon on this basis. Management has taken steps to ensure that the U.S. notes are commercially reasonable,
however, there can be no assurance that U.S. taxation authorities will not seek to challenge the treatment of the U.S. notes as debt or the
amount of interest expense deducted, which could increase IESI’s taxable income and accordingly its U.S. federal income tax liability.
Management has determined that it has met the more-likely-than-not threshold based on its technical merits and that management’s position
would be sustained upon examination by the relevant tax authority.
27. Segmented Reporting
The Company carries on business through three geographic segments: Canada, the U.S. south and the U.S. northeast. The business segments
are vertically integrated and their operations include the collection and disposal of waste and recyclable materials, transfer station operations,
material recovery facilities, landfills and landfill gas to energy facilities. The geographic location of each segment limits the volume and
number of transactions between them.
The Company has elected to exclude corporate costs in the determination of each segment’s performance. Corporate costs include certain
executive, legal, accounting, internal audit, treasury, investor relations, corporate development, environmental management, information
technology, human resources, sales, purchasing, safety and other administrative support costs. Corporate costs also include transaction and
related costs, restricted share expense and fair value changes of share based options.
The accounting policies applied by the business segments are the same as those described in the summary of significant accounting policies
(Note 3). The Company evaluates its segment performance based on revenues, less operating and selling, general and administration expenses.
132
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
December 31
2014
Revenues
Canada
U.S. south
U.S. northeast
Corporate
$
$
Revenues less operating and selling, general and administration expenses
Canada
U.S. south
U.S. northeast
Corporate
2013
745,800
914,172
349,025
—
2,008,997
$
$
261,247
240,534
71,031
(64,013 )
508,799
$
$
$
103,735
125,814
54,134
1,922
285,605
Net gain on sale of capital and landfill assets
$
(17,905 )
$
Operating income
$
241,099
$
December 31, 2014
U.S. northeast
Corporate
$
$
Amortization
Canada
U.S. south
U.S. northeast
Corporate
$
Canada
Goodwill
Capital assets
Landfill assets
Total assets
$
$
$
$
362,599
356,329
156,536
1,106,337
U.S. south
$
$
$
$
Canada
Goodwill
Capital assets
Landfill assets
Total assets
$
$
$
$
383,473
375,562
180,706
1,218,124
491,934
498,762
418,555
1,602,128
U.S. south
$
$
$
$
133
423,164
444,140
417,119
1,476,464
$
$
$
$
82,761
68,332
361,004
630,357
$
$
$
$
December 31, 2013
U.S. northeast
$
$
$
$
98,710
109,780
354,906
657,139
—
5,127
—
37,614
769,077
876,888
380,074
—
2,026,039
270,514
235,996
76,263
(61,159 )
521,614
$
109,020
123,598
60,470
3,403
296,491
$
(7,793 )
232,916
Total
$
$
$
$
Corporate
$
$
$
$
—
7,770
—
40,843
937,294
928,550
936,095
3,376,436
Total
$
$
$
$
905,347
937,252
952,731
3,392,570
Progressive Waste Solutions Ltd.
Notes to the Consolidated Financial Statements
For the years ended December 31, 2014 and 2013 (in thousands of U.S. dollars and shares, except per share amounts and where otherwise
stated)
28. Guarantees
In the normal course of business, the Company enters into agreements that meet the definition of a guarantee. The Company’s primary
guarantees are as follows:
The Company has provided indemnities under lease agreements for the use of various operating facilities. Under the terms of these agreements
the Company agrees to indemnify the counterparties for various items including, but not limited to, all liabilities, loss, suits, damage and the
existence of hazardous substances arising during, on or after the term of the agreement. Changes in environmental laws or in the interpretation
thereof may require the Company to compensate the counterparties. The maximum amount of any potential future payment cannot be
reasonably estimated. These indemnities are in place for various periods beyond the original term of the lease and these leases expire between
2014 and 2025.
Indemnity has been provided to all directors and officers of the Company and its subsidiaries for various items including, but not limited to, all
costs to settle suits or actions due to association with the Company and its subsidiaries, subject to certain restrictions. The Company has
purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future suits or actions. The term of the indemnification
is not explicitly defined, but is limited to the period over which the indemnified party serves as a director or officer of the Company, including
any one of its subsidiaries. The maximum amount of any potential future payment cannot be reasonably estimated.
The Company has received indemnities for the receipt of hazardous, toxic or radioactive wastes or substances and the Company has issued
indemnities for their disposal at third-party landfills. Applicable federal, provincial, state or local laws and regulations define hazardous, toxic
or radioactive wastes or substances. Changes in environmental laws or in their interpretation may require the Company to compensate, or be
compensated, by the counterparties. The term of the indemnity is not explicitly defined and the maximum amount of any potential future
reimbursement or payment cannot be reasonably estimated.
Certain of the Company’s landfills have Host Community Agreements (“HCA”) between the Company and the towns, municipalities or cities
in which the landfills operate. The Company has agreed to guarantee the market value of certain homeowners’ properties within a
pre-determined distance from certain landfills based on a Property Value Protection Program (“PVPP”) incorporated into the HCA. Under the
PVPP, the Company would be responsible for the difference between the sale amount and the hypothetical market value of the homeowners’
properties assuming a previously approved expansion of the landfill had not been approved, if any. The Company does not believe it is possible
to determine the contingent obligation associated with the PVPP guarantees and does not believe it would have a material effect on the
Company’s financial position or results of operations. As of December 31, 2014, the Company has compensated one homeowner under the
PVPP.
In the normal course of business, the Company has entered into agreements that include indemnities in favour of third parties, such as purchase
and sale agreements, confidentiality agreements, engagement letters with advisors and consultants, outsourcing agreements, leasing contracts,
underwriting and agency agreements, information technology agreements and service agreements. These indemnification agreements may
require the Company to compensate counterparties for losses incurred by the counterparties as a result of breaches in representation and
regulations or as a result of litigation claims or statutory sanctions that may be suffered by the counterparty as a consequence of the transaction.
The terms of these indemnities are not explicitly defined and the maximum amount of any potential reimbursement cannot be reasonably
estimated.
The nature of these indemnification agreements prevents the Company from making a reasonable estimate of the maximum exposure due to the
difficulty in assessing the amount of liability which results from the unpredictability of future events and the unlimited coverage offered to
counterparties. Historically, the Company and its predecessor have not made any significant payments under these or similar indemnification
agreements and therefore no amount has been accrued with respect to these agreements.
29. Subsequent Events
Effective February 28, 2015, the Company sold the assets of its Long Island, New York operations for cash consideration of approximately
$76,300.
134
DIRECTORS
CORPORATE MANAGEMENT
James J. Forese
Non-Executive Chairman
Izzie Abrams
Dean DiValerio
Vice President, Corporate Development Vice President, Southeast Region, U.S.
and Government Relations, Canada
John T. Dillon 3
Director
Sohan Baraich
Vice President, Business Planning and
Analysis
Marc Fox
Vice President, Canada
Larry S. Hughes
Director
Kenneth Baylor
Vice President, Human Resources and
Organizational Development
John Gustafson Jr.
Vice President, Southwest Region, U.S.
Jeffrey L. Keefer 4
Director
Robert Chee
Vice President, Tax, U.S.
John Lamanna
Vice President, Northeast Region, U.S.
Douglas W. Knight 1
Director
Chaya Cooperberg
Vice President, Investor Relations and
Corporate Communications
CORPORATE INFORMATION
Michael May
Vice President and Chief Information
Officer
Investor Relations
For further information about Progressive Waste
Solutions or to be placed on the mailing list for news
releases, please contact:
Phone: 905.532.7510
Shawn McCash
Email: [email protected]
Sue Lee
Director
Daniel R. Milliard 2
Director
Joseph D. Quarin
President and Chief Executive Officer
1 Chair of the Audit Committee
2 Chair of the Governance and Nominating
Committee
3 Chair of the Compensation Committee
4 Chair of the Environmental Health and
Safety Committee
Head Office
Progressive Waste Solutions
400 Applewood Crescent, 2nd Floor
Thomas Fowler
Senior Vice President, General Counsel, Vaughan, Ontario L4K 0C3
U.S. Operations
Phone: 905.532.7510
Fax: 905.532.7580
William Herman
Vice President and Chief Accounting
Website: www.progressivewaste.com
Officer
Vice President, Environmental
Management and Technology Group
Tom Miller
Senior Vice President, Operations
EXECUTIVE MANAGEMENT
Joseph D. Quarin
President and Chief Executive Officer
Ian M. Kidson
Executive Vice President and Chief
Financial Officer
Dan D. Pio
Executive Vice President, Strategy and
Business Development
REGIONAL MANAGEMENT
Auditors
Deloitte LLP
Toronto, Ontario
Stock Exchange Listing
New York Stock Exchange
Stephen Moody
Vice President and Corporate Controller Toronto Stock Exchange
Trading Symbol: BIN
Geoff Rathbone
Vice President, Resource Recovery
Transfer Agent and Registrar
Computershare Trust Company of Canada
100 University Avenue
Scott Richards
Toronto, Ontario M5J 2Y1
Vice President, Internal Audit
Nicole Thunich
Vice President, Safety and Risk
Management
Annual General and Special Meeting of
Shareholders
Wednesday, May 13, 2015 at 10:00 AM ET
Toronto Region Board of Trade
Kevin C. Walbridge
Executive Vice President and Chief
Operating Officer
Loreto Grimaldi
Senior Vice President, General Counsel and
Secretary
David West
Vice President, Purchasing, Fleet and
Maintenance
1 First Canadian Place
Toronto, Ontario M5X 1C1
Colin Wittke
Vice President, Sales and Marketing
Caution regarding forward-looking statements
Certain statements in this annual report contain forward-looking statements within the meaning of the safe harbor provisions of the United
States Private Securities Litigation Reform Act of 1995 and applicable Canadian Securities legislation. Forward-looking statements are not
based on historical facts but instead reflect our expectations, estimates or projections concerning future results or events. These statements can
generally be identified by the use of forward-looking words or phrases such as “anticipate,” “believe,” “budget,” “continue,” “could,”
“estimate,” “expect,” “forecast,” “goals,” “intend,” “intent,” “belief,” “may,” “plan,” “foresee,” “likely,” “potential,” “project,” “seek,”
“strategy,” “synergies,” “targets,” “will,” “should,” “would,” or variations of such words and other similar words.
Forward-looking statements include, but are not limited to, statements relating to future financial and operating results and our plans,
objectives, prospects, expectations and intentions. These statements represent our intentions, plans, expectations, assumptions and beliefs about
future events and are subject to risks, uncertainties and other factors. Numerous important factors could cause our actual results, performance
or achievements to differ materially from those expressed in or implied by these forward-looking statements, including, without limitation,
downturns in the economy, our ability to realize all of the anticipated benefits of future acquisitions, changes in laws, our ability to obtain,
renew and maintain certain permits, the degree of competition in markets that we operate, cybersecurity incidents, our ability to execute on our
strategy, fuel price and commodity fluctuations and other factors outlined in (i) the “Risks and Uncertainties” section of the Company’s
Management Discussion and Analysis for the year ended December 31, 2014; and (ii) the “Risk Factors” section of the 2014 Annual
Information Form, which are both available at www.sedar.com.
We caution that the list of factors is illustrative and by no means exhaustive. In addition, we cannot assure you that any of our expectations,
estimates or projections will be achieved.
All forward-looking statements should be evaluated with the understanding of their inherent uncertainty and are qualified by these cautionary
statements. The forward-looking statements in this annual report are made as of the date of this press release and we disclaim any obligation to
update any forward-looking statement to reflect subsequent events or circumstances, except as required by law.
135
PROGRESSIVE
WASTE
SOLUTIONS 2014
ANNUAL REPORT
1 Printed on Rolland
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Exhibit 99.2
400 Applewood Crescent, 2 nd Floor
Vaughan, Ontario L4K 0C3
PROGRESSIVE WASTE SOLUTIONS LTD.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 13, 2015
NOTICE IS HEREBY GIVEN that the annual and special meeting (the " Meeting ") of the holders (the " Shareholders ") of common
shares (the " Shares ") of Progressive Waste Solutions Ltd. (" Progressive Waste Solutions " or the " Corporation ") will be held at the
Toronto Region Board of Trade, 1 First Canadian Place, Toronto, Ontario on May 13, 2015 at 10:00 a.m., (Toronto time), for the
following purposes:
(a)
to receive the financial statements of the Corporation for the year ended December 31, 2014 and the report of the auditors thereon;
(b)
to appoint auditors and to authorize the directors to fix the remuneration of the auditors;
(c)
to elect the directors;
(d)
to approve, on an advisory basis, the Corporation's approach to executive compensation;
(e)
to approve, with or without variations, amendments to the Corporation's By-law No. 1;
(f)
to approve an increase in the number of Shares reserved for issuance under the Corporation's Amended and Restated Share
Option Plan; and
(g)
to transact such other business as may properly come before the Meeting and any and all postponements or adjournments thereof.
A management information circular and form of proxy accompany this Notice.
If you are a registered Shareholder and you are unable to attend the Meeting in person, you are requested to date, sign and return the
enclosed form of proxy in the envelope provided for that purpose to the Corporation's transfer agent, Computershare Investor Services Inc., so
as to arrive not later than 10:00 a.m. (Toronto time) on May 11, 2015 or, if the Meeting is postponed or adjourned, 48 hours (excluding
weekends and holidays) before any reconvened meeting. The enclosed form of proxy may be returned by facsimile to 1-866-249-7775
(+1-416-263-9524 from outside Canada) or by mail (a) in the enclosed envelope, or (b) in an envelope addressed to Computershare Investor
Services Inc., 100 University Avenue, 8 th Floor, Toronto, Ontario, M5J 2Y1. Only Shareholders of record at the close of business on
March 31, 2015 will be entitled to vote at the Meeting or any postponement or adjournment thereof.
DATED at Toronto, Ontario, this 10 th day of April, 2015.
BY ORDER OF THE BOARD OF DIRECTORS
"Loreto Grimaldi"
LORETO GRIMALDI
Senior Vice President, General Counsel and Secretary
PROGRESSIVE WASTE SOLUTIONS LTD.
400 Applewood Crescent, 2 nd Floor
Vaughan, Ontario L4K 0C3
MANAGEMENT INFORMATION CIRCULAR
DATED APRIL 10, 2015
THE CORPORATION
Progressive Waste Solutions Ltd. was originally incorporated as BFI Canada Ltd. on May 20, 2009. Pursuant to Articles of Amalgamation
effective May 27, 2009, the name of the Corporation was changed from BFI Canada Ltd. to IESI- BFC Ltd. Pursuant to Articles of
Amalgamation effective May 2, 2011, the name of the Corporation was changed to Progressive Waste Solutions Ltd. (together with its
predecessors BFI Canada Ltd and IESI-BFC Ltd., " Progressive Waste Solutions " or the " Corporation ").
Progressive Waste Solutions is the successor to BFI Canada Income Fund (the " Fund "), following the completion of the conversion of
the Fund to a corporate structure by way of a court approved plan of arrangement under the Business Corporations Act (Ontario) (the " Act ")
on October 1, 2008 (the " Conversion "). The Fund was a limited purpose trust established under the laws of the Province of Ontario by a
declaration of trust dated February 8, 2002. In connection with the Conversion, securityholders of the Fund received common shares (the "
Shares ") of Progressive Waste Solutions in exchange for ordinary trust units (the " Units ") of the Fund. As a result of the Conversion,
Progressive Waste Solutions Ltd. owned directly or indirectly, all of the existing assets and liabilities of the Fund. The Fund was wound up on
June 30, 2009.
The head and principal office of Progressive Waste Solutions is located at 400 Applewood Crescent, 2
L4K 0C3.
nd
Floor, Vaughan, Ontario
PROXY SOLICITATION AND VOTING AT THE MEETING
Solicitation of Proxies
This management information circular (the "Circular") is furnished in connection with the solicitation of proxies by or on behalf
of our board of directors (the "Board") and management from registered owners ("Registered Shareholders") of the Shares for use at
the annual and special meeting (the "Meeting") of holders of Shares (the "Shareholders") to be held on May 13, 2015 at the Toronto
Region Board of Trade, 1 First Canadian Place, Toronto, Ontario at 10:00 a.m. (Toronto time), and at any postponement or
adjournment thereof, for the purposes set forth in the notice of Meeting. Proxies will be solicited primarily by mail and may also be
solicited personally by the Corporation or its subsidiaries at nominal cost. The cost of such solicitation will be borne by the Corporation.
Notice-and-Access
The Corporation is delivering proxy material to Non-Registered Holders (as defined below) using the "notice-and-access" system adopted
by the Canadian Securities Administrators under National Instrument 54-101 — Communications with Beneficial Owners of Securities of a
Reporting Issuer (" NI 54-101 "). Non-Registered Holders will be provided with electronic access to the notice of meeting (the " Notice of
Meeting "), this Circular, and the Corporation's 2014 annual report (the " 2014 Annual Report ") on the Corporation's profile on SEDAR at
www.sedar.com and also on the Corporation's website, at http://investor.progressivewaste.com/annualmeeting2015. As a result, the
Corporation mailed a Notice Package (as defined below) about the availability of the proxy materials on the Corporation's website to
Non-Registered Holders who had previously been receiving a paper copy of the proxy materials. Non-Registered Holders have the ability to
access the proxy materials on the Corporation's website and to request a paper copy of the proxy
materials by mail, by e-mail or by telephone. Instructions on how to access the proxy materials through the Corporation's website or to request
a paper copy may be found in the Notice Package.
Registered Shareholders will continue to receive paper copies of proxy materials. Other Shareholders who have requested to receive the
Annual Report will also receive a paper copy of the 2014 Annual Report.
Appointment of Proxies
The persons named as proxies in the enclosed form of proxy are directors of the Corporation. A Shareholder has the right to appoint
another person or company to represent such Shareholder at the Meeting, and may do so by inserting such person or company's name
in the blank space provided in the form of proxy or by completing another proper form of proxy. Such other person or company need
not be a Shareholder of the Corporation.
To be valid, proxies must be received by the Corporation's transfer agent, Computershare Investor Services Inc., not later than 10:00 a.m.
(Toronto time) on May 11, 2015 or, if the Meeting is postponed or adjourned, 48 hours (excluding weekends and holidays) before any
reconvened meeting. Proxies may be returned by facsimile to 1-866-249-7775 (+1-416-263-9524 from outside Canada) or by mail (a) in the
enclosed envelope, or (b) in an envelope addressed to Computershare Investor Services Inc., 100 University Avenue, 8 th Floor, Toronto,
Ontario, M5J 2Y1.
Voting of Shares — Advice to Non-Registered Holders
Only Shareholders or the persons they appoint as their proxies are permitted to vote at the Meeting. However, in many cases, Shares
beneficially owned by a person (a " Non-Registered Holder ") are registered either: (i) in the name of an intermediary (an " Intermediary ")
with whom the Non-Registered Holder deals in respect of the Shares (Intermediaries include, among others, banks, trust companies, securities
dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans); or (ii) in the name of a clearing
agency (such as CDS Clearing and Depository Services Inc. ("CDS")) of which the Intermediary is a participant. In accordance with the
requirements of NI 54-101, the Corporation will distribute copies of a notice about the website availability of the proxy materials and a request
for voting instructions (the " Voting Instruction Form ") (collectively, the " Notice Package ") to the clearing agencies and Intermediaries for
onward distribution to Non-Registered Holders. The Corporation will not directly send the Notice Package to Non-Registered Holders. It will
pay Intermediaries to forward the Notice Package to all Non-Registered Holders.
Intermediaries are required to forward the Notice Package to Non-Registered Holders. Non-Registered Holders will be given, in
substitution for the proxy sent to Shareholders, a Voting Instructions Form which, when properly completed and signed by the Non-Registered
Holder and returned to the Intermediary, will constitute voting instructions which the Intermediary must follow.
The purpose of this procedure is to permit Non-Registered Holders to direct the voting of the Shares they beneficially own. Should a
Non-Registered Holder who receives the Voting Instructions Form wish to vote at the Meeting in person or have another person attend and vote
on behalf of the Non-Registered Holder, the Non-Registered Holder should so indicate in the place provided for that purpose in the Voting
Instructions Form and a form of proxy will be sent to the Non-Registered Holder. In any event, Non-Registered Holders should carefully
follow the instructions of their Intermediary set out in the Voting Instructions Form.
Revocation of Proxies
A Shareholder may revoke its proxy: (a) by completing and signing a proxy bearing a later date and returning it to Computershare Investor
Services Inc. in the manner and so as to arrive as described above, (b) by depositing an instrument in writing executed by the Shareholder or by
the Shareholder's attorney authorized in writing (i) at the head office of the Corporation at any time up to and including the last business day
preceding the date of the Meeting, or any reconvened meeting, at which the proxy is to be used, or (ii) with the Chairperson of the Meeting
prior to the commencement of the Meeting on the day of the Meeting or any reconvened meeting, or (c) in any other manner permitted by law,
including under subsection 110(4) of the Act.
2
Voting of Proxies
The persons named as proxies in the accompanying form of proxy will vote or withhold from voting the Shares in respect of which they
are appointed in accordance with the direction of the Shareholder appointing them, and if the Shareholder specifies a choice with respect to any
matter to be acted upon, the Shares will be voted accordingly. Where no choice is specified, the proxy will confer discretionary authority
on the person named in the form of proxy to vote the applicable Shares FOR the appointment of the auditors and the authorization of
the directors to fix the remuneration of the auditors, FOR the election of the nominees named herein as directors, FOR the advisory
resolution on the Corporation's approach to executive compensation, FOR the resolution authorizing the amendment to the Share
Option Plan, FOR the resolution confirming amendments to the Corporation's By-law No. 1 (the "By-law"), and FOR management
proposals generally, all as set out in this Circular. The enclosed form of proxy also confers discretionary authority upon the persons
named as proxies therein to vote with respect to amendments or variations to the matters identified in the Notice of Meeting and with
respect to other matters which may properly come before the Meeting. At the time of the printing of this Circular, the directors know
of no such amendments, variations or other matters to come before the Meeting. However, if any such amendment, variation or other
matter properly comes before the Meeting, it is the intention of the persons named as proxies in the accompanying form of proxy to vote
thereon in accordance with their judgment.
Information in this Circular
The Corporation reports its financial results in accordance with U.S. GAAP and in U.S. dollars. Unless otherwise indicated, all dollar
amounts in this Circular are expressed in U.S. dollars. References to "C$" are to Canadian dollars. In addition, information herein is presented
as of March 26, 2015 unless otherwise indicated.
SHARES AND GOVERNANCE ARRANGEMENTS
On March 26, 2015, the Corporation had outstanding 112,117,758 Shares. Each holder of Shares of record at the close of business on
March 31, 2015, the record date established for notice of the Meeting (the " Record Date "), will be entitled to vote on all matters proposed to
come before the Meeting. No person who acquires Shares after the Record Date shall be entitled to vote at the Meeting or, if postponed or
adjourned, any reconvened meeting.
Holders of Shares will be entitled to cast one vote for each Share held of record as at the Record Date on any matter presented to the
Shareholders at the Meeting.
Governance Practices
The Board aspires to the highest standards of governance and is committed to ensuring that its practices are consistent with those
considered to be the most beneficial to Shareholders. Accordingly, the Board routinely surveys North American governance best practices and
implements enhancements to its governance practices as it considers appropriate. For instance, in February 2013 (a year ahead of the decision
of the Toronto Stock Exchange (" TSX ") to mandate majority voting for TSX-listed issuers), we adopted a majority voting policy for the
election of directors. Under the majority voting policy, a director nominee who does not receive votes in favour of his or her election
representing a majority of the Shares represented in person or by proxy at the applicable meeting of Shareholders must tender his or her
resignation for consideration by the Board. Barring any exceptional circumstances, the resignation will be accepted by the Board within a
period of 90 days and the decision of the Board whether to accept such resignation will be publicly disclosed. Further discussion of our
governance practices may be found below under the heading "Statement of Corporate Governance Practices".
A copy of the mandate of the Board which includes a description of certain governance principles and guidelines (including the newly
introduced Policy on Board Renewal and Board Diversity as required by NI 58-101 (as defined below)) is attached to this Circular as
Schedule A.
3
PRINCIPAL SHAREHOLDERS
To the knowledge of the directors and officers of Progressive Waste Solutions, no person or company, as at March 26, 2015, beneficially
owned, controlled or directed, directly or indirectly Shares carrying more than 10% of the voting rights attached to any class of voting
securities of the Corporation.
MATTERS TO BE CONSIDERED AT THE MEETING
Financial Statements
The consolidated financial statements of the Corporation for the year ended December 31, 2014, together with the auditors' report thereon,
are available on the Corporation's website, www.progressivewaste.com, or on the Canadian Securities Administrators' SEDAR website at
www.sedar.com. The financial statements and auditors' report will be submitted to Shareholders at the Meeting, and receipt thereof at the
Meeting will not constitute approval or disapproval of any matter referred to therein.
Appointment of Auditors
It is proposed that the firm of Deloitte LLP, Independent Registered Chartered Accountants, be re-appointed as auditors of the
Corporation, to hold office until the next annual meeting of Shareholders or until their successor is appointed, and that the directors be
authorized to fix the remuneration of the auditors. Deloitte LLP has been the Corporation's auditors since 2002.
Proxies will be voted FOR the appointment of Deloitte LLP, Independent Registered Chartered Accountants, as auditors of the
Corporation and the authorization of the directors to fix the remuneration of the auditors, unless the Shareholder has specified in the proxy that
such Shareholder's Shares are to be withheld from voting in respect thereof.
Deloitte LLP billed the Corporation and its subsidiaries the following amounts: C$2,447,594 and C$2,190,142 for 2014 and 2013,
respectively, for audit services; C$145,453 and C$145,773 for 2014 and 2013, respectively, for audit-related services (including translation
services); C$332,838 and C$239,741 and for 2014 and 2013, respectively, for tax compliance, tax advice and tax planning services; and
C$1,285,290 and C$53,380 for 2014 and 2013, respectively, for other services.
Election of Directors of the Corporation
Eight directors are to be elected at the Meeting. The members of our Board will be elected by the Shareholders.
Proxies solicited by management will be voted FOR the election of each of the nominees named below under the heading "Nominees for
the Board" (or for substitute nominees in the event of contingencies not known at present) as directors of the Corporation, unless the
Shareholder has specified in the proxy that such Shareholder's Shares are to be withheld from voting in respect thereof. The directors have no
reason to believe that any of the nominees will be unable to serve as a director of the Corporation but, if a nominee is for any reason
unavailable to serve as such, proxies received in favour of the nominee may be voted for a substitute nominee selected by the Board.
The Corporation intends to disclose a tabulation of the votes cast for or withheld with respect to each nominee for the Board. The Board
adopted a majority voting policy in February 2013. A director receiving more votes "withheld" than "for" in an uncontested election is required
to tender his or her resignation. A discussion of the Corporation's majority voting policy may be found above under the heading "Governance
Practices".
Each director elected will hold office until the next annual meeting of Shareholders or until he or she ceases to be a director.
Advisory Resolution on Executive Compensation (Say on Pay)
The Corporation believes that its compensation objectives and approach to executive compensation align the interests of management with
the long-term interests of Shareholders while attracting and retaining highly
4
qualified executives having regard to the Corporation's objectives. Details of the Corporation's approach to executive compensation are
disclosed below under the heading "Compensation Discussion and Analysis".
In 2013, the Board adopted a policy of giving Shareholders the opportunity to consider and, if deemed appropriate, vote in favour of, on
an advisory basis, the Corporation's approach to executive compensation. This feedback is an important tool in the Board' ongoing efforts to
both meet its compensation objectives and ensure a high level of Shareholder engagement.
The Board recommends that Shareholders vote FOR the following advisory resolution (the " Say on Pay Resolution "):
Resolved, on an advisory basis and not to diminish the role and responsibilities of the Board, that the Shareholders accept the
approach to executive compensation disclosed in the Circular delivered or otherwise made available in advance of the Meeting.
The Say on Pay Resolution must be approved by a majority of the votes cast by Shareholders who vote in respect of the resolution.
Because this is an advisory vote, the results will not be binding upon the Board. However, the Board and the compensation committee of the
Board (the " Compensation Committee ") will take into account the results of the vote when considering future compensation policies,
procedures and decisions. The results of the vote of the Say on Pay resolution will be disclosed as part of the report of voting results for
the Meeting.
Proxies will be voted FOR the Say on Pay Resolution, unless the Shareholder has specified in the proxy that such Shareholder's Shares are
to be voted against the Say on Pay Resolution.
Amendment to Share Option Plan
At the Meeting, Shareholders will be asked to consider and, if thought advisable, adopt a resolution in the form set out below, subject to
such amendments, variations or additions as may be approved at the Meeting, approving an amendment to the Corporation's Amended and
Restated Share Option Plan (the " Share Option Plan "). The terms and conditions of the Share Option Plan are described below under the
heading "Share Option Plan".
The maximum number of Shares currently reserved for issuance under the Share Option Plan is 4,000,000 Shares and the total Shares
currently available for future option awards is 739,435 Shares (representing approximately 3.6% and 0.7%, respectively, of the issued and
outstanding Shares as of March 26, 2015). The difference between these two figures, being 3,260,565 represents (i) 2,169,198 of Options that
have been exercised or cancelled and therefore no longer available for issuance; and (ii) 1,091,367 Shares which are subject to outstanding
Options under the Share Option Plan (or approximately 1.0% of the issued and outstanding Shares as of March 26, 2015).
The proposed amendment to the Share Option Plan seeks to increase the maximum number of Shares issuable under the Share Option Plan
from 4,000,000 Shares to 6,260,565 Shares (an increase of 2,260,565 Shares). After giving effect to the proposed amendment, the total number
of Shares available for future options awards will increase from 739,435 Shares to 3,000,000 Shares.
The Board approved the amendment to the Share Option Plan described in this Circular on February 24, 2015, subject to Shareholder and
regulatory approvals.
5
The following table sets forth the maximum potential dilution, both before and after the proposed increase of 2,260,565 Shares, based on
112,117,758 outstanding Shares as of March 26, 2015:
Total Shares Available for
Future Option Awards
under the Existing
Share Option Plan
(a)
Number of
Shares
Percentage of
Shares
outstanding as
of March 26,
2015
Proposed Increase to
Maximum Number of
Shares Available for
Future Option Awards
(b)
Total Shares Available for
Future Awards under
the Share Option Plan
after amendment to
Share Option Plan
(a+b)
739,435
2,260,565
3,000,000
0.7%
2.0%
2.7%
The purpose of the proposal to increase the maximum number of Shares reserved for issuance under the Share Option Plan is to ensure
that the Corporation can continue to provide comprehensive long-term equity incentive awards to its management team. Management and the
Board believe it is important for the Corporation to have a sufficient number of Shares available for issuance under the Share Option Plan to
continue to attract, retain and motivate our employees and management team. Additionally, Management is conscious of the dilutive effect of
the Share Option Plan on Shareholders. The Corporation believes that, after giving effect to the proposed increase of 2,260,565 Shares, the
maximum potential dilution of 3.6% that would result (assuming all Options subject to and available for future grants under the Share Option
Plan are exercised for Shares and taking into account all Shares subject to the Corporation's other stand-alone security-based compensation
arrangements) is within levels recommended by proxy advisory firms.
The Board recommends that Shareholders vote FOR the following resolution confirming the amendment to the Share Option Plan:
Resolved that:
1.
the number of Shares issuable under the Share Option Plan be and hereby is increased by 2,260,565 and the Share Option Plan is
not otherwise amended; and
2.
any director or officer of the Company is hereby authorized and directed, acting for, in the name of and on behalf of the Company,
to execute or cause to be executed, under the seal of the Company or otherwise, and to deliver or cause to be delivered, such other
documents and instruments, and to do or cause to be done all such other acts and things, as may in the opinion of such director or
officer of the Company be necessary or desirable to carry out the intent of the foregoing resolution.
Unless a Shareholder otherwise instructs, the persons named as proxies in the enclosed form of proxy will vote FOR the resolution
approving the amendment to the Corporation's Share Option Plan.
Amendments to By-law No. 1
On March 24, 2015, the Board of the Corporation adopted certain amendments to the By-law. The amendments to the By-law provide for
the adoption of advance notice requirements for nominations of directors by Shareholders, which are described in greater detail below (the "
advance notice requirements "), and certain housekeeping amendments.
At the Meeting, Shareholders will be asked to consider and, if thought appropriate, pass an ordinary resolution ratifying and approving the
amendments to the By-law.
The following is a summary of the amendments to the By-law. The full text of the By-law, as amended, can be found below under
Schedule B, and is also available under the Corporation's profile on SEDAR at www.sedar.com. The Board encourages Shareholders to read
the full text of the By-law, as amended, before voting on this resolution.
6
Under the advance notice requirements, a Shareholder wishing to nominate a director for election to the Board would be required to
provide notice to the Corporation, in proper form, within the following time periods:
•
in the case of an annual meeting (including an annual and special meeting) of Shareholders, not later than the close of business on
the thirtieth (30th) day before the date of the annual meeting of Shareholders; provided, however, that if the first public
announcement made by the Corporation of the date of the annual meeting (each such date being the " Notice Date ") is less than
fifty (50) days prior to the meeting date, notice by the Nominating Shareholder may be given not later than the close of business on
the tenth (10th) day following the Notice Date; and
•
in the case of a special meeting (which is not also an annual meeting) of Shareholders called for any purpose which includes the
election of directors to the Board, not later than the close of business on the fifteenth (15th) day following the Notice Date;
provided that, in either instance, if notice-and-access is used for delivery of proxy related materials in respect of a meeting described in
Section 4.2(a) or (b) of the By-law, and the Notice Date in respect of the meeting is not less than fifty (50) days prior to the date of the
applicable meeting, the notice must be received not later than the close of business on the fortieth (40th) day before the date of the applicable
meeting.
The advance notice requirement was adopted in order to keep abreast of the evolving corporate governance practices in Canada. The
adoption of advance notice requirements for the nomination of directors by Shareholders provides a clear and transparent mechanism through
which Shareholders are able to receive appropriate disclosure with respect to proposed director nominees prior to a meeting of Shareholders.
Advance notice requirements have become a common and important tool for public companies in Canada and the U.S. to ensure that
Shareholders are provided with important and timely information in connection with the election of directors.
The advance notice requirement also provides the Corporation with the opportunity, prior to the meeting, to confirm the eligibility of a
proposed director to serve as a director and to confirm certain other information about the proposed nominees and the nominating shareholder
that could be material to a reasonable shareholder's understanding of such proposed nominees' fulfillment of criteria required for Board service,
including skills, experience, diversity and independence. The procedure will allow the Board to evaluate proposed nominees' suitability as
directors and respond as appropriate in the best interests of the Corporation.
The advance notice requirement is effective as of the date it was adopted by the Board but, by its terms, shall not apply in respect of the
meeting at which or until the Shareholders approve and ratify the amendment to the By-law at the Meeting.
The Board recommends that Shareholders vote FOR the following resolution to approve the amendments to The By-law:
Resolved that:
1.
the amendments to the Corporation's By-law No. 1, in the form adopted by the Board of the Corporation on March 24 , 2015,
be and are hereby ratified and approved as amendments to the Corporation's By-law No. 1; and
2.
any officer of the Corporation be and is hereby authorized and directed for and on behalf of the Corporation to do such things
and to take such actions as may be necessary or desirable to carry out the intent of the foregoing resolution and the matters
authorized hereby.
Unless a shareholder otherwise instructs, the persons named as proxies in the enclosed form of proxy will vote FOR the resolution
approving the amendments to the Corporation's the By-law.
7
NOMINEES FOR THE BOARD OF DIRECTORS
The following table sets forth certain information for the persons proposed to be nominated for election as directors. Specifically, the table
sets forth the names, ages, business experience, areas of expertise and certain other information considered in determining that the person
should serve as a director of the Corporation. Additionally, the following table discloses each nominee's respective security holdings in the
Corporation as of March 26, 2015, the percentage of votes represented in person or by proxy voted in favour of their election at the 2014
annual meeting of Shareholders (the " 2014 Annual Meeting ") and each nominee's Board and committee attendance in 2014.
For purposes of this presentation, Canadian dollar amounts have been converted to U.S. dollars based on the Bank of Canada average rate
of exchange for the year ended December 31, 2014 of C$1.00 = $0.9052, for the year ended December 31, 2013 of C$1.00 = $0.9707 and for
the year ended December 31, 2012 of C$1.00 = $1.0006.
John T.
Dillon
Consultant
Greenwich,
Connecticut
U.S.A.
Age: 76
Board member
since
May 2011
Independent
Mr. Dillon is a senior advisor of Evercore Partners and former Vice Chairman of
Evercore Capital Partners (an advisory and investment firm). He retired as Chairman
and Chief Executive Officer of International Paper on October 31, 2003, having
served in those roles from April 1, 1996 to his retirement. From September 1995 to
April 1996 he served as the President and Chief Operating Officer of International
Paper. Mr. Dillon received his bachelor's degree from the University of Hartford in
1966 and master's degree from Columbia University's Graduate School of Business in
1971.
AREAS OF EXPERTISE
• Paper and Forest Industry
• Finance
• Corporate Governance
BOARD/COMMITT
EE MEMBERSHIP
Board
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
• Public Board Experience
• Corporate Management
• Private Equity Investments
ATTENDANCE
6 of 6
4 of 4
6 of 6
4 of 4
100%
100%
100%
100%
4 of 4
100%
PUBLIC BOARD MEMBERSHIP DURING THE LAST
FIVE YEARS
ATTENDANCE
(TOTAL)
24 of 24 100%
CURRENT
BOARD
Kellogg Co.
2000 – Present
E.I. DuPont de
Nemours and
Company
Caterpillar Inc.
2004 – 2011
COMMITTEE
MEMBERSHIP
S
Compensation
(Chair), Audit,
Nominating and
Governance, and
Manufacturing
1997 – 2010
OWNERSHIP OR CONTROL OVER SHARES
2014 ANNUAL
MEETING
VOTES IN
FAVOUR
99.91%
22,640 (1)
VALUE OF TOTAL COMPENSATION RECEIVED
2014
$184,414
2013
$165,019
(1)
The total value of Mr. Dillon's holdings on March 26, 2015 was $667,653.60 (based on the closing price of Shares on the New York Stock Exchange on
March 26, 2015 of $29.49), which exceeds the share ownership requirement for directors of the Corporation.
8
James J. Forese
Operating Partner
and Chief
Operating
Officer, HCI
Equity Partners
Naples, Florida,
U.S.A.
Age: 79
Board member
since 2005 and
Non-Executive
Chairman of the
Board
Independent
Mr. Forese joined HCI Equity Partners (a private equity investment firm) in
July 2003 and currently serves as an Operating Partner and Chief Operating Officer.
From 1996 to 2003, Mr. Forese worked for IKON Office Solutions, most recently as
the Chairman and Chief Executive Officer. Prior to joining IKON, Mr. Forese spent
36 years with IBM Corporation, most recently as Chairman of IBM Credit
Corporation. In addition, Mr. Forese held numerous other positions during his tenure
at IBM Corporation including as a senior executive with IBM World Trade
Europe/Middle East/Africa and IBM World Trade Americas, President of the Office
Products Division, Corporate Vice President and Controller and Corporate Vice
President of Finance. Mr. Forese earned a B.E.E. in Electrical Engineering from
Rensselaer Polytechnic Institute and an M.B.A. from Massachusetts Institute of
Technology.
AREAS OF EXPERTISE
• Finance
• Governance
• International Markets
BOARD/COMMIT
TEE
MEMBERSHIP
Board
• Corporate Management
• Entrepreneurship
ATTENDANCE
6 of 6
ATTENDANC
E (TOTAL)
100%
24
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
4 of 4
6 of 6
4 of 4
100%
100%
100%
4 of 4
100%
PUBLIC BOARD MEMBERSHIP DURING THE LAST
FIVE YEARS
SFN Corporation
MISTRAS
Group, Inc.
2003 – 2011
2009 – Present
24 of
100%
CURRENT
BOARD
COMMITTEE
MEMBERSHI
PS
–
Audit
Committee
RRTS Corporation
Chair
–
2010 – 2011
OWNERSHIP OR CONTROL OVER SHARES
69,413 (1)
2014 ANNUAL
MEETING
VOTES IN
FAVOUR
99.77%
VALUE OF TOTAL COMPENSATION RECEIVED
2014
$270,920
2013
$247,529
(1)
The total value of Mr. Forese's holdings on March 26, 2015 was $2,046,989.37 (based on the closing price of Shares on the New York Stock Exchange on
March 26, 2015 of $29.49), which exceeds the share ownership requirement for directors of the Corporation.
9
Larry S. Hughes
Vice President, Finance
and Chief Financial
Officer
West Fraser
Timber Co. Ltd.
Vancouver, British
Columbia, Canada
Age: 63
Board member since
May 2014
Independent
Mr. Hughes has been Vice-President, Finance and Chief Financial
Officer of West Fraser Timber Co. Ltd. (an integrated wood products
company) since August 2011, responsible for financial matters,
strategic planning, investor relations and legal and disclosure
compliance. He joined West Fraser in September 2007 as Senior Vice
President with responsibility for strategic planning and legal, safety
and environmental oversight. Prior to joining West Fraser, he practiced
as a business lawyer for more than 27 years, specializing in mergers
and acquisitions, corporate governance and forestry law.
AREAS OF EXPERTISE
• Corporate Management
• Corporate Governance
• Finance
BOARD/COMMIT
TEE
MEMBERSHIP
Board
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
• Paper and Forest Industry
• Mergers and Acquisition
• Law
ATTENDANCE (2)
3 of 3
2 of 2
2 of 2
2 of 2
100%
100%
100%
100%
2 of 2
100%
PUBLIC BOARD MEMBERSHIP
DURING THE LAST FIVE YEARS
None
OWNERSHIP OR CONTROL OVER
SHARES
10,615 (1)
ATTENDANCE
(TOTAL)
11 of 11
100%
CURRENT BOARD
COMMITTEE
MEMBERSHIPS
–
2014 ANNUAL
MEETING
VOTES IN FAVOUR
99.96%
VALUE OF TOTAL COMPENSATION RECEIVED
2014
$132,705
2013
NIL
(1)
The total value of Mr. Hughes' holdings on March 26, 2015 was $313,036.35 (based on the closing price of Shares on the New York Stock Exchange on
March 26, 2015 of $29.49), which equals approximately 69.86% of the share ownership requirement for directors of the Corporation that he must meet by
May 14, 2019.
(2)
Mr. Hughes joined the Board in May 2014 and his Board and committee attendance is based on the Board Calendar meeting dates following the 2014
Annual Meeting.
10
Jeffrey L. Keefer
Consultant
West Chester,
Pennsylvania
U.S.A.
Age: 62
Board member since
May 2012
Independent
Mr. Keefer retired from the DuPont Company in December 2010 where
he last served as an Executive Vice President responsible for corporate
strategy development, the Performance Coatings Business, information
technology and overall cost and working capital productivity programs
for the Company. He also served from June 2006 through 2009 as
Executive Vice President & Chief Financial Officer of DuPont. He was a
member of the Office of the Chief Executive.
AREAS OF EXPERTISE
• Corporate Management
• Corporate Governance
• Finance
BOARD/COMMIT
TEE
MEMBERSHIP
Board
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
ATTENDANCE
6 of 6
4 of 4
6 of 6
4 of 4
100%
100%
100%
100%
4 of 4
100%
PUBLIC BOARD MEMBERSHIP
DURING THE LAST FIVE YEARS
None
OWNERSHIP OR CONTROL OVER
SHARES
9,619 (1)
ATTENDANCE
(TOTAL)
24 of 24
100%
CURRENT BOARD
COMMITTEE
MEMBERSHIPS
None
2014 ANNUAL
MEETING
VOTES IN FAVOUR
99.91%
VALUE OF TOTAL COMPENSATION RECEIVED
2014
$184,414
2013
$165,019
(1)
The total value of Mr. Keefer's holdings on March 26, 2015 was $283,664.31 (based on the closing price of Shares of the New York Stock Exchange on
March 26, 2015 of $29.49), which equals approximately 58.03% of the share ownership requirement for directors of the Corporation that he must meet by
May 8, 2017.
11
Douglas W.
Knight
President,
St. Joseph
Media, Inc.
Toronto, Ontario,
Canada
Age: 63
Board member
2002-2005 and
since 2007
Independent
Mr. Knight is President of St. Joseph Media, Inc. and has held that position
since 2006. From 2003 to 2005, Mr. Knight served as Chairman and Chief
Executive Officer of ImpreMedia, LLC in New York. He has also served
as Publisher and Chief Executive Officer of The Financial Post and of The
Toronto Sun in Toronto. He has served on the Boards of public and private
companies in Canada and the U.S., including Xstrata Canada Corporation
and Alliance Atlantis Motion Picture Distribution in Toronto, Core
Communications in Washington D.C. and IBT Technologies in Austin,
Texas. He has also served as chair, vice-chair or director with numerous
arts, industry and community organizations. He is currently Chair of the
Governor General's Performing Arts Awards Foundation in Ottawa and a
director of Writer's Trust of Canada. Mr. Knight is a graduate of the
University of Toronto and has a M.Sc. from the London School of
Economics.
AREAS OF EXPERTISE
• Media Industry
• Mergers & Acquisitions
• Governance
BOARD/COMMIT
TEE
MEMBERSHIP
Board
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
• International Markets
• Corporate Management
• Entrepreneurship
ATTENDANCE
6 of 6
4 of 4
6 of 6
4 of 4
100%
100%
100%
100%
4 of 4
100%
PUBLIC BOARD MEMBERSHIP
DURING THE LAST FIVE YEARS
None
OWNERSHIP OR CONTROL OVER
SHARES
41,658 (1)
ATTENDANCE
(TOTAL)
24 of 24
100%
CURRENT BOARD
COMMITTEE
MEMBERSHIPS
None
2014 ANNUAL
MEETING
VOTES IN FAVOUR
99.90%
VALUE OF TOTAL COMPENSATION RECEIVED
2014
$184,414
2013
$165,019
(1)
The total value of Mr. Knight's holdings on March 26, 2015 was $1,228,494.42 (based on the closing price of Shares on the New York Stock Exchange on
March 26, 2015 of $29.49), which exceeds the share ownership requirements for directors of the Corporation.
12
Sue Lee
Corporate Director
Calgary, Alberta,
Canada
Age: 63
Board member since
May 2014
Independent
Ms. Lee retired from Suncor Energy Inc. in March 2012 where she last
served as Senior Vice-President, Human Resources and Communications.
During her 16 years with Suncor, her responsibilities included executive
compensation and succession planning, governance, merger strategy and
integration, and stakeholder and government relations. Prior to joining
Suncor, Ms. Lee had a 14 year career in the area of human resources at
TransAlta Corporation.
AREAS OF EXPERTISE
• Corporate Management
• Corporate Governance
• Human Resources
BOARD/COMMIT
TEE
MEMBERSHIP
Board
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
ATTENDANCE (2)
3 of 3
2 of 2
2 of 2
2 of 2
100%
100%
100%
100%
2 of 2
100%
PUBLIC BOARD MEMBERSHIP
DURING THE LAST FIVE YEARS
Empire Company
Limited
Bonavista Energy
Corporation
OWNERSHIP OR CONTROL OVER
SHARES
7,991 (1)
ATTENDANCE
(TOTAL)
11 of 11
100%
CURRENT BOARD
COMMITTEE
MEMBERSHIPS
Human Resources
Compensation and
Governance
2014 ANNUAL
MEETING
VOTES IN FAVOUR
99.96%
VALUE OF TOTAL COMPENSATION RECEIVED (1)
2014
$112,924
2013
NIL
(1)
The total value of Ms. Lee's holdings on March 26, 2015 was $235,654.59 (based on the closing price of Shares on the New York Stock Exchange on March 26,
2015 of $29.49), which equals approximately 52.59% of the share ownership requirement for directors of the Corporation that she must meet by May 14, 2019.
(2)
Ms. Lee joined the Board in May 2014 and her Board and committee attendance is based on the 2014 Board Calendar meeting dates following the 2014
Annual Meeting.
13
Daniel R.
Milliard
Consultant
Port Carling,
Ontario, Canada
Age: 67
Board member
since 2002
Independent
Mr. Milliard was a senior business executive with over 30 years of CEO,
General Counsel and Board of Director experience in both Canada and the
United States. His business experience extends over a variety of industries
including manufacturing, technology, telecommunications and healthcare.
Mr. Milliard has been awarded the Chartered Director designation and the
Human Resources and Compensation Committee Certified designation
from McMaster University's Directors College programs. Mr. Milliard has
a B.Sc. in Business Administration from the American University, a M.A.
in business from Central Missouri University, and a J.D. from the
University of Tulsa.
AREAS OF EXPERTISE
• Corporate Management
• Law
• Governance
BOARD/COMMIT
TEE
MEMBERSHIP
Board
Audit
Compensation
Governance and
Nominating
Environmental
Health & Safety
• Public Board Experience
• Capital Markets
• Entrepreneurship
ATTENDANCE
6 of 6
4 of 4
6 of 6
4 of 4
100%
100%
100%
100%
4 of 4
100%
PUBLIC BOARD MEMBERSHIP
DURING THE LAST FIVE YEARS
None
OWNERSHIP OR CONTROL OVER
SHARES
24,752 (1)
ATTENDANCE
(TOTAL)
24 of 24
100%
CURRENT BOARD
COMMITTEE
MEMBERSHIPS
None
2014 ANNUAL
MEETING
VOTES IN FAVOUR
99.90%
VALUE OF TOTAL COMPENSATION RECEIVED (1)
2014
$184,414
2013
$165,019
(1)
The total value of Mr. Milliard's holdings on March 26, 2015 was $729,936.48 (based on the closing price of Shares on the New York Stock Exchange on
March 26, 2015 of $29.49), which exceeds the share ownership requirements for directors of the Corporation.
14
Joseph D. Quarin
President & Chief
Executive Officer of
Progressive Waste
Solutions Ltd.
Toronto, Ontario, Canada
Age: 49
Board member since
July 2011
Non-independent
Mr. Quarin became the Vice Chairman and Chief Executive Officer
of Progressive Waste Solutions on January 1, 2012 and President and
Chief Executive Officer on January 1, 2014. Mr. Quarin was
previously President and Chief Operating Officer from
November 16, 2010 to January 1, 2012, Executive Vice President
from March 2010 to November 16, 2010, Executive Vice President
and Canadian Chief Operating Officer from September 2005 to
March 2010, Chief Financial Officer of BFI Canada Holdings from
February 2002 to September 2005 and Vice President Finance of
BFI Canada Holdings from July 2000 to February 2002. Prior to
July 2000, Mr. Quarin was an associate with NB Capital Partners
(now Edgestone Capital Partners) from February 2000 to July 2000,
and from June 1995 to January 2000, Mr. Quarin held various
positions, including manager, senior manager and vice president,
with KPMG Corporate Finance Inc. Mr. Quarin has an M.B.A. from
the Richard Ivey School of Business, a B.Comm from Queen's
University, and is a Chartered Professional Accountant and
Chartered Accountant.
AREAS OF EXPERTISE
• Solid Waste Management
Industry
• Mergers & Acquisitions
• Corporate Management
BOARD/COMMIT
TEE
MEMBERSHIP
Board
Environmental
Health & Safety
• Finance
• Governance
ATTENDANCE
6 of 6
4 of 4
100%
100%
PUBLIC BOARD MEMBERSHIP
DURING THE LAST FIVE YEARS
None
OWNERSHIP OR CONTROL OVER
SHARES
91,669 (2)(3)
ATTENDANCE
(TOTAL) (1)
10 of 10
100%
CURRENT BOARD
COMMITTEE
MEMBERSHIPS
None
2014 ANNUAL
MEETING
VOTES IN
FAVOUR
99.95%
VALUE OF TOTAL COMPENSATION RECEIVED
As an officer of the Corporation, Mr. Quarin is not entitled to
additional compensation for Board service.
(1)
Mr. Quarin was also invited to attend, and did attend, each of the six Compensation Committee meetings held during 2014.
(2)
The total value of Mr. Quarin's share holdings on March 26, 2015 (inclusive of in-the-money vested options and the RSUs described below) was $5,926,688.81
(based on the closing price of Shares on the New York Stock Exchange on March 26, 2015 of $29.49), which exceeds the share ownership requirement for
directors of the Corporation.
(3)
This figure includes 76,175 RSUs which have vested but which Mr. Quarin does not have access to until death, termination of employment or approval by the
Compensation Committee. The figure does not include any other restricted share units, performance share units or Options that are beneficially held by
Mr. Quarin.
15
COMPENSATION DISCUSSION AND ANALYSIS
Progressive Waste Solution's executive compensation program is designed to align the interests of senior management with the
Corporation's Shareholders by linking a significant portion of their compensation to the Corporation's annual operating and financial results, as
well as long-term shareholder returns. In 2013, the Compensation Committee evaluated the key components of our executive officer
compensation to ensure its alignment with short-term and long-term business objectives and which evaluation was revised in 2014. For
Progressive Waste Solutions, 2014 was a year of transition as it integrated operations and established a five-year strategic plan to become a
best-in-class operator in its industry. The strategic plan is focused on operational excellence, organic growth and external growth opportunities,
within a disciplined and strategic capital allocation framework. In addition, in 2014 it completed several tuck-in acquisitions in growth markets,
and repurchased (as of March 26, 2015) 3,012,323 shares under its normal course issuer bid. The early stages of implementing the strategic
plan resulted in higher operating expenses in 2014, but contributed positively to the Corporation's free cash flow performance. While the
Corporation demonstrated its commitment to operational execution and the disciplined deployment of capital, which it expects to improve
future performance, some financial measures in 2014 were below applicable budgeted targets. This resulted in annual cash bonus payouts
below the full targeted amounts, consistent with our pay-for-performance philosophy. We remain confident that our performance goals are
attainable, and in line with the level of achievement that we seek to reward.
This Compensation Discussion and Analysis and the executive compensation tables and narrative which follows discuss the compensation
of the (i) President and Chief Executive Officer, (ii) Executive Vice President and Chief Financial Officer, and (iii) the three other most
highly-compensated executive officers of the Corporation or its subsidiaries (the " Named Executive Officers " or " NEOs ") during 2014.
The Named Executive Officers for 2014 are:
•
Joseph D. Quarin, President and Chief Executive Officer
•
Kevin C. Walbridge, Executive Vice President and Chief Operating Officer
•
Ian M. Kidson, Executive Vice President and Chief Financial Officer
•
Dan D. Pio, Executive Vice President, Strategy and Business Development
•
Thomas E. Miller, Senior Vice President, Operations
Executive Summary
2014 Business Performance and Strategic Highlights
In 2014, the Corporation reported consolidated revenue of more than $2.01 billion dollars, reflecting a slight decline from the $2.03 billion
achieved in 2013, a decrease of 84 basis points year over year. Excluding the negative impact of foreign currency translation (" FX ") of
approximately $54 million, the Corporation grew organically by 182 basis points year-over-year. Strength in our Canadian and U.S. south
operations contributed to the improvement, net of FX. Our U.S. northeast operations saw revenues decline as a result of our strategic
elimination of unprofitable businesses and the monetization of certain assets in the Corporation's U.S. northeast operations. We achieved
Adjusted EBITDA of more than $523 million and Adjusted EBIT of approximately $263 million. (See the explanatory note under the heading
"Definitions" of the Corporation's management's discussion and analysis for the year ended December 31, 2014.) Our GAAP EBITDA and
GAAP EBIT for fiscal 2014 was $508.8 million and 241.0 million, respectively. Our business generated free cash flow of more than
$235 million, before spending on infrastructure investments. Including these infrastructure investments, our free cash flow was just over
$221 million. We increased our annual dividend by 6.67% to C$0.64 per Share and returned over $144 million to
Shareholders — approximately $63 million through the payment of common share dividends and nearly $81 million via our share buyback
program pursuant to a normal course issuer bid. Please see the section entitled "Recent Developments" of our annual information form for the
year ended December 31, 2014 for a discussion of the normal course issuer bid. The Corporation's annual information form and management's
discussion and analysis, each for the year ended December 31, 2014, are available on the Corporation's website, www.progressivewaste.com,
or on the Canadian Securities Administrators' SEDAR website at www.sedar.com.
16
Key Performance Elements of the Executive Compensation Program
•
Link pay to performance. We compensate our executive officers based on the achievement of clearly articulated and measurable
corporate performance goals that are designed to drive short- and long-term financial, operational and strategic business objectives
and the value of their personal contributions.
•
Majority of executive pay is variable, "at risk" compensation. About 73% of our CEO's 2014 target total direct compensation was
variable, at-risk compensation and about 66% of our other Named Executive Officers' target total direct pay was similarly variable
and at-risk. Thus, a significant portion of our Named Executive Officers' compensation is inherently and directly correlated with
the degree of achievement of performance goals and movement in our share price. "Target total direct compensation" is the sum of
annual base salary, target short-term incentive and target long-term incentive awards.
•
Pay is set at a competitive level. In order to retain and motivate a high performing executive team, we review our executives' pay
against a comparator group consisting of companies of similar size and complexity to Progressive Waste Solutions, and who we
regard as competitors for executive talent. Target total direct compensation for our Named Executive Officers is based on the
median of the comparator group, with the possibility for above median payout for superior performance. For further information
about our pay benchmarking can be found below under the heading "Pay Benchmarking".
2014 Compensation Decisions for Named Executive Officers
The Compensation Committee took the following specific actions with respect to the compensation of the Named Executive Officers
for 2014:
•
Title and Responsibility. Effective January 1, 2014: (i) Mr. Quarin assumed the role of President of the Corporation;
(ii) Mr. Kidson became Executive Vice President and Chief Financial Officer; and (iii) Mr. Walbridge became Executive Vice
President and Chief Operating Officer. In February of 2014, Mr. Miller was appointed Senior Vice President Operations.
•
Base Salary: During 2014, the following adjustments were made to the base salaries of the Named Executive Officers (each
effective April 1, 2014): (i) Joseph D. Quarin, from C$675,000 to C$725,000; (ii) Ian M. Kidson, from C$375,000 to C$425,000;
(iii) Dan D. Pio from C$420,000 to C$435,000; (iv) Kevin C. Walbridge, from $311,865 to $475,000 and (v) Thomas E. Miller
from $285,000 to $290,700. There were no other adjustments to base salary for the Named Executive Officers during the calendar
year 2014.
•
Short-Term Incentive Plan: For 2014, annual bonuses under the Short-Term Incentive Plan were available to our CEO at 120%
of target, and to our other Named Executive Officers at a range of 75% to 100% of target. For 2014 (i) Mr. Kidson's target award
changed from 90% to 100% of base salary, and (ii) Mr. Walbridge's target award changed from 75% to 100% of base salary.
•
Long-Term Incentive Awards: For 2014, long-term incentive awards were made through three equity vehicles: fair market value
share options (" Options "), time-based restricted share units (" RSUs ") and performance share units (" PSUs "), weighted 25%,
25% and 50% respectively. The mix of awards is intended to reflect a careful calibration of performance drivers and retention
objectives. Options are valuable only if the Corporation's share price increases. Options and RSUs cliff-vest on the third
anniversary of grant and therefore have significant retentive power. The value of PSUs is dependent on achievement of the
performance goals and the Corporation's share price.
•
2014-2016 Performance Metric: PSUs will be earned based on achievement of a one year (2014) cumulative operating cash flow
goal and a three year average return on invested capital goal subject to adjustments based on relative performance against industry
peer companies. Both financial measures are calculated as if the exchange rate between Canada and the United States is at parity.
Compensation Governance Practices
•
Voluntary "Say on Pay" Vote. In the Board's view, our Shareholders should have the opportunity to fully understand the
objectives, philosophy and principles the Board has used to make executive compensation
17
decisions and to have an advisory vote on the Board' approach to executive compensation. As a result, although the Corporation is
not required to do so under governing law, the Board has determined to provide Shareholders the opportunity to cast a non-binding,
advisory vote on the Corporation's executive compensation policy at the Meeting. This is the third year in which the Corporation is
holding this advisory vote. Further information about our voluntary "Say on Pay" vote can be found below under the heading "Say
on Pay".
•
Robust Share Ownership Guidelines. The Corporation maintains stock ownership guidelines requiring the CEO to own Shares
equal in value to five times his base salary and the other Named Executive Officers to hold Shares equal in value to two times their
base salaries.
•
Ability to "Claw Back" Compensation. The Corporation's claw back policy permits recovery of incentive awards made to Named
Executive Officers if the financial results on which such awards were based are subsequently restated and the Named Executive
Officer's intentional misconduct contributed to the restatement.
•
No Hedging of Shares. The Corporation has adopted a written policy that prohibits directors, Named Executive Officers and
other officers from purchasing financial instruments to hedge a decrease in the market value of all shares held for purposes of the
stock ownership guidelines.
•
No "Single Trigger" Change of Control Severance Payments. Subject to certain provisions of Mr. Quarin's employment
agreement (discussed below under "Termination and Change of Control Benefits"), severance is payable only if a Named
Executive Officer's employment is terminated (actually or constructively) following a change of control.
•
No Tax Gross-Ups. There are no tax-gross ups on compensation payable under our executive compensation program.
•
Incentives Do Not Encourage Excessive Risk-Taking. We believe that the Corporation's incentive programs do not contain
features that encourage excessive risk-taking.
Each of these corporate governance practices is discussed in further detail below under the heading "Elements of Total Compensation".
Say on Pay
The Compensation Committee continued to assess the impact of advisory Shareholder votes on executive compensation at certain
Canadian companies — also referred to as "Say on Pay" initiatives. The Corporation's executive compensation program received substantial
shareholder support and was approved, on an advisory basis, by 98.4% of Shareholders voting on the proposal at the 2014 Annual Meeting.
The Compensation Committee believes that these results reflect Shareholders' strong support for the compensation design and decisions made
by the Committee during 2013 and concluded to therefore continue to build upon the same underlying principles and that significant revisions
were not necessary to our executive compensation program.
The Corporation and its Board appreciate the importance that Shareholders place on effective executive compensation programs. The
directors have a legal duty to supervise the management of the business and affairs of the Corporation. One of our Board's key responsibilities
is to assess the performance of senior executives and approve their compensation arrangements. The Board has delegated primary oversight and
responsibility for discharging this function to the Compensation Committee, which the Compensation Committee brings forward
recommendations to the full Board for approval.
Compensation Philosophy
The Compensation Committee believes that compensation paid to NEOs should be aligned with short-term and long-term business
objectives and tied to specific performance measures tailored in light of such objectives. The Corporation's compensation programs are
designed to attract and retain highly qualified executives by paying them competitively in order to motivate them to increase shareholder value
in the near term, and over time.
18
The objectives of our compensation program are:
•
To attract and retain skilled individuals with superior leadership ability and managerial talent;
•
To ensure that competitive compensation practices are aligned with our corporate strategies, business objectives, and the long-term
interests of our Shareholders;
•
To provide incentives to achieve key strategic objectives and drive financial performance measures by linking incentive award
opportunities with the achievement of measurable performance objectives; and
•
To provide a balanced approach to compensation practices that does not promote excessive risk-taking.
Compensation Process
Compensation Committee Role in the Compensation Process
The executive compensation program for directors and senior management of the Corporation and its subsidiaries is overseen by the
Compensation Committee. The Compensation Committee is responsible for reviewing, determining and recommending to our Board for final
approval the annual salary, bonus and other compensation of the directors and the executive officers of the Corporation and its subsidiaries.
The Compensation Committee is comprised entirely of independent directors.
The primary responsibilities of the Compensation Committee are evaluate, review and make recommendations to the Board regarding the
following matters: (1) the performance and determination of compensation of our Chief Executive Officer; (2) the compensation payable to our
Named Executive Officers and others in Senior Management; (3) succession planning and management development; (4) the compensation
payable to members of the Board; (5) the design of our incentive compensation and other share-based plans; (6) the administration of our
share-based plans and our other incentive compensation plans; (7) the design of, and oversight of the implementation of senior executive
employment agreements and severance plans; (8) compensation programs and policies for features that may encourage excessive risk taking,
and the extent to which there may be a connection between compensation and risk; and (9) the compensation discussion and analysis to be
included in the proxy statement for our annual meetings.
Composition and Skills of the Compensation Committee
During the year ended December 31, 2014, the Compensation Committee assisted the Board in determining and administering the
compensation for the directors and senior officers of the Corporation and its subsidiaries. The following individuals served as the members of
the Compensation Committee during the fiscal year ended December 31, 2014: Mr. John T. Dillon (Chair), Mr. James J. Forese, Mr. Jeffrey L.
Keefer, Mr. Douglas W. Knight, Mr. Daniel R. Milliard and from May 14, 2014, Ms. Sue Lee and Mr. Larry S. Hughes.
In the view of Management, each of the Compensation Committee members has significant and appropriate experience relevant to their
roles as Compensation Committee members obtained in managing and implementing other companies' compensation policies and practices in
their past roles as directors, chief executive officers, or members of senior management of other companies. For example, Mr. Dillon has acted
as chair of the compensation committee of the board of directors of Kellogg Co. and Mr. Milliard has been awarded the Human Resources and
Compensation Committee Certified designation from McMaster University's Directors College Program. Further, Ms. Lee has extensive skills
and experience in the Human Resources space, most recently in her role as former head of Human Resources for Suncor Energy Inc. The
Compensation Committee members bring a broad base of skills and experience that contribute to their suitability to make decisions on the
Corporation's compensation policies and practices. Further information about each member's skills and experience can be found above under
the heading "Nominees for the Board of Directors".
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee during 2014 was an officer, employee or former officer or employee of the
Corporation or any of its subsidiary entities or affiliates. As of March 26, 2015, there are no board interlocks among the members of the
Compensation Committee or Board members generally. A
19
board interlock is where two or more directors of the Corporation also served together on the board of another for-profit company.
Management's Role in the Compensation Process
Mr. Quarin contributes to the compensation determinations by assessing the performance of the NEOs reporting to him and providing
these assessments with recommendations to the Compensation Committee. Mr. Quarin also makes recommendations to the Compensation
Committee regarding the design of the STIP and LTIP. Mr. Quarin does not recommend his own compensation nor does he participate in any
Compensation Committee deliberations regarding his own compensation.
Compensation Committee Advisor's Role in the Compensation Process
Since 2012, the Compensation Committee has retained Frederic W. Cook & Co., Inc. (" F.W. Cook ") to provide independent consulting
services to the Compensation Committee on matters related to executive compensation. All services provided by F.W. Cook were at the
direction of the Compensation Committee. The Compensation Committee has assessed F.W. Cook's independence and confirmed that F.W.
Cook's work did not raise any conflict of interest.
Executive Compensation-Related Fees
The total compensation paid to F.W. Cook in 2014 was $86,948 and in 2013 was $196,507. F.W. Cook provided no other services to the
Corporation in 2014 or 2013.
Summary of Compensation Elements
A key objective of Progressive Waste Solutions' compensation programs is to ensure that compensation is aligned with its corporate
strategies, business objectives and the long-term interests of Shareholders. To do this, programs reinforce pay-for-performance principles by
aligning the payouts from executive compensation programs with the Corporation's financial performance.
Variable, "At Risk" Incentive Compensation
In accordance with the compensation philosophy described above, incentives consist of an annual bonus plan, which is short-term in
nature (" Short-Term Incentive Plan " or " STIP "), and long-term incentives, including equity grants, which have a longer-term focus ("
Long-Term Incentive Plan " or " LTIP "). The Compensation Committee reviews information provided by its independent advisors and
management to determine the appropriate level and mix of incentive compensation. For 2014, and historically, the Compensation Committee
has determined that a majority of the compensation incentives to executive officers should be in the form of performance based short-term and
long-term incentive compensation.
20
The elements of 2014 total compensation for the Named Executive Officers are as follows:
Element
Objective
Key Features
Base Salary
Base salaries are intended to be
market competitive and
recognize executives' potential
and actual contribution to the
success of the Corporation.
Targeted to be market
competitive with adjustments for
individual performance,
knowledge and experience.
Short-Term Incentive Plan
Reward short-term financial and
operational performance.
Cash payment based on annual
corporate/business unit
performance relative to budgeted
targets for Free Cash Flow,
EBIT, Revenue and Safety. (1)
Long-Term Incentive Plan
Align management's interests
with those of Shareholders,
encourage retention and reward
long-term company performance.
A portion of the LTIP operates
as a performance based incentive
plan under which Options and
PSUs are granted at the
beginning of a 3 year
performance period. The LTIP
also provides for time-based
RSUs, which vest on the third
anniversary of each RSU's grant
date.
Savings and Benefit Plans
Provide market-based retirement
benefits.
Named Executive Officers
participate in pension (deferred
profit sharing plan (" DPSP ") in
Canada or 401(k) in the U.S.)
and benefit programs on the
same terms as all employees.
Perquisites
Provide market-based
perquisites.
Perquisites are limited primarily
to a car allowance and certain
club memberships and, in the
case of one Named Executive
Officer, a housing allowance.
Severance and Change of
Control Agreements
Attract and retain high-quality
executives by providing fair
severance for qualifying
terminations. Enable executives
to objectively evaluate change of
control transactions, remain
focused on the business and
drive shareholder value creation.
Named Executive Officers are
entitled to severance based on a
multiple of base salary and
bonus, and for certain NEOs,
payments made under the LTIP,
upon termination of employment
under certain circumstances and
are subject to non-compete and
non-solicitation covenants.
(1)
An individual performance metric was reintroduced into the STIP program for 2015 for Area Managers and above — it had been removed for 2014 in order
for Management and the Compensation Committee to benchmark best practices, and to roll out and properly communicate the "pay for performance" message
to all employees.
21
The following chart shows the weighting of the various elements of executive compensation paid or awarded in or in respect of the
Corporation's 2014 fiscal year based on the amounts shown in the Summary Compensation Table.
Pay Benchmarking
In 2013, the Compensation Committee with the assistance of F.W. Cook undertook a comprehensive competitive market benchmarking
analysis for the Named Executive Officers.
Following this review, the Compensation Committee approved 17 companies to comprise the comparator group for the 2013 and 2014 pay
benchmarking analyses. The comparator group is composed of North American waste management companies in related industries with similar
business models with median 2013 fiscal year-end revenues of $2,188 million, which was slightly higher than Progressive Waste Solutions'
revenue of $1,897 million, and median market capitalization as of August 31, 2013 of $1,917 million which was lower than Progressive Waste
Solutions' market capitalization of $2,788 million. Overall, Progressive Waste Solutions is positioned between the 25 th percentile and median
in terms of revenue and number of employees, between the median and the 75 th percentile in terms of market capitalization, operating income
and total assets, and at the 25 th percentile in terms of net income. The Compensation Committee believes that for senior management
attraction and retention purposes, the North American waste management industry is the most appropriate comparator group for the
Corporation, recognizing that just under two-thirds of the Corporation's revenue is generated from U.S. markets and that the Corporation's
senior management team is based in both Canada and the United States.
The 2013 North American waste management comparator group companies included in F.W. Cook's review and approved by the
Compensation Committee consist of the following 17 companies of similar size and in related industries:
Atlas Air Worldwide
Casella Waste
Systems Inc.
Cintas Corporation
Clean Harbors Inc.
Con-way Inc.
Covanta Holding Corp.
Harsco Corporation
Newalta Corporation
NewPark Resources
Republic Services, Inc.
Russel Metals Inc.
Stericycle Inc.
Tetra Tech, Inc.
TransForce Inc.
Waste Connections, Inc.
Waste Management, Inc.
Werner Enterprises, Inc.
The pay benchmarking analysis performed at the end of 2013 was included in the criteria used by the Compensation Committee for 2014
compensation decisions.
In assessing the competitiveness of the Named Executive Officers' total compensation, the Compensation Committee reviewed the market
data presented by F.W. Cook. Based on that market data the Named Executive Officers' total direct compensation program was generally
positioned at or slightly below the median of the comparator group.
The Compensation Committee uses benchmarking as a point of reference for measurement. Benchmarking, however, is not the
determinative factor for our Named Executive Officers' compensation, and does not supplant the analyses of the individual performance of the
Named Executive Officers that is considered when making compensation decisions.
22
Elements of Total Compensation
Base Salary
The principal purpose of base salary is to compensate our Named Executive Officers for their primary roles and responsibilities. Market
data from the 2014 comparator group was considered in determining base salary targets for Named Executive Officers based on each executive
officer's position and responsibility. An executive officer's actual salary relative to this competitive data varies based on the level of his or her
responsibility, experience, individual performance and future potential. Specific salary increases take into account these factors and the current
market for executive talent. The Compensation Committee reviews each executive officer's salary and performance annually. The
Compensation Committee believes that the base salaries paid to these Named Executive Officers in 2014 are market competitive and reflect the
scope of responsibility and experience of each Named Executive Officer.
Short-Term Incentive Plan
In fiscal 2014, the Named Executive Officers participated in an annual bonus plan which entitles senior officers to annual cash bonuses.
The annual bonus is based on the Corporation's success in achieving financial and safety objectives. The Compensation Committee approved
the Named Executive Officers' annual objectives for 2014 and reviewed their performance during 2014, subject to the approval of the Board.
The Compensation Committee also recommended for approval by the Board the fiscal 2014 awards for the Short-Term Incentive Plan.
The following table provides each Named Executive Officer's annual target bonus opportunity for fiscal 2014. The individual target bonus
percentages reflect individual roles and responsibilities, market data, performance and tenure.
Target Bonus (1)
Name
Joseph D. Quarin
President and Chief Executive Officer
120%
Kevin C. Walbridge
Executive Vice President and Chief Operating Officer
100%
Ian M. Kidson
Executive Vice President and Chief Financial Officer
100%
Dan D. Pio
Executive Vice President, Strategy and Business Development
100%
75%
Thomas E. Miller
Senior Vice President, Operations
(1)
Presented as a percentage of base salary.
For 2014, the Short-Term Incentive Plan components for senior management employees were designed to achieve further alignment with
Shareholders' interests. Performance is measured relative to annual targets that were approved by the Board prior to the outset of the fiscal year.
The awards under the Short-Term Incentive Plan (" STIP ") are generally paid in the first quarter of the fiscal year following the relevant
performance period, and are based upon achieving pre-determined levels of Adjusted EBIT, Free Cash Flow (" FCF "), Revenue and Safety
(the " Metrics "), all of which are approved by the Compensation Committee at the beginning of the performance period. The amount paid
under the STIP varies with relative achievement against each of the Metrics. For instance, performance that matches each Metric would result
in payment of 100% of the target award. If, however, the Corporation's Adjusted EBIT, FCF, and Revenue each exceed the respective Metric
by 13% or more (on a dollar basis), and Safety exceeds target by 10% or more (on a percentage basis), then the award would be paid at the
maximum of 200% of the target award. Conversely, achievement of Adjusted EBIT, FCF, and Revenue at the threshold of 90% of target (on a
dollar basis) and Safety at the threshold of 25% below target (on a percentage basis) would result in the award
23
being 25% of the target award. Performance that is lower than 90% for any Metric would result in a payment of zero (with respect to
that Metric).
The measures and their relative weights in guiding the determination of annual bonus awards for 2014 are described more fully below.
Metric
Weighting
Rationale
Adjusted EBIT
45%
Adjusted EBIT is a key measure of the
Corporation's operating profitability.
Free Cash Flow
30%
Free Cash Flow provides a clear measure of our
ability to generate cash, and is also viewed as a
key indicator of the Corporation's short and
long-term performance.
Revenue
15%
Revenue is an important measure because it
provides a basis for evaluating the Corporation's
performance versus its peers and comparing past
results.
Safety
10%
Safety of people is a priority of the Corporation,
and the safety component of the STIP award is
determined according to the total reportable
incident rate and the collision frequency rate.
The Corporation's calculation of Adjusted EBIT (" earnings before interest and taxes ") is based on the consolidated statement of
operations and comprehensive income or loss and is income before interest on long-term debt, net foreign exchange gain or loss, net gain or
loss on financial instruments, loss on extinguishment of debt, re-measurement gain on previously held equity investment, other expenses,
income taxes, and net income or loss from equity-accounted investee. Adjusted EBIT also excludes transaction and related recoveries or costs,
fair value movements in Options, restricted share expense, non-operating or non-recurring expenses and impairment of intangible assets
charged to amortization expense.
In determining actual performance achieved against the Metrics, the Compensation Committee, under the pre-established terms of the
STIP, may exclude the effect of unusual or otherwise non-operational matters that it believes do not accurately reflect results of operations
expected from management for incentive plans purposes. Furthermore, exclusions may be made to ensure that rewards are aligned with sound
business decisions and are not influenced by potential short-term gains. The Compensation Committee may in its discretion determine to vary
the amounts awarded under the STIP.
For 2014, the levels of achievement with respect to each of the financial measures and payouts based on such achievements were as
follows, all of which are expressed at FX parity:
Performance
Measure
Target
Performance
($)
Actual Performance
($)
Adjusted EBIT
259,656
243,752
Free Cash Flow
264,312
264,312 (2)
Revenue (1)
Percentage
Achieved
(%)
Percentage
Payout
(%)
94
55
100
100
2,014,388
2,021,453
100
100
100%
25%
25
25
Safety
(1)
Revenue excludes fuel surcharges.
(2)
For FY2014, actual performance on Free Cash Flow was $321,426 or 122% of Target Performance. However, the ultimate payout was revised downward to
100% of Target Performance.
24
Target Bonus
($)
Name
Actual Award
($)
Award
Percentage
Joseph D. Quarin (1)
President and Chief Executive Officer
787,524
568,986
72
Kevin C. Walbridge
Executive Vice President and Chief
Operating Officer
475,000
343,188
72
Ian M. Kidson (1)
Executive Vice President and Chief
Financial Officer
384,710
277,953
72
Dan D. Pio (1)
Executive Vice President, Strategy
and Business Development
393,762
284,493
72
Thomas E. Miller
Senior Vice President, Operations
218,025
157,523
72
(1)
Messrs. Quarin, Kidson and Pio receive their compensation in Canadian funds. For purposes of this presentation, Canadian dollar amounts have been
converted to U.S. dollars based on the Bank of Canada average rate of exchange for 2014 of C$1.00 = $0.9052.
Long-Term Incentive Programs
For 2014, the Corporation provided its senior executives with annual LTIP awards through three vehicles: Options, time-based RSUs and
PSUs. The individual LTIP award values reflect individual roles and responsibilities, market data, performance and tenure. The weighting of
these three vehicles reflect the objective to provide 50% of the LTIP in the form of performance awards and balance the remaining vehicles in
terms of stock price appreciation (Options) and retention (RSUs).
RSUs. 25% of the LTIP awards granted to our Named Executive Officers in fiscal 2014 were in the form of RSUs. As with the
Options, these RSUs vest on the third anniversary of the grant date. RSUs are intended to provide a strong incentive for employee retention and
promote the building of shareholder value.
PSUs. Approximately 50% of the LTIP awards granted to our Named Executive Officers in fiscal 2014 were in the form of cash-settled
PSUs. The PSUs are based on performance versus targeted one-year (2014) Operating Cash Flow (" OCF ") and three-year average
(2014-2016) Return on Invested Capital (" ROIC "). We believe that our Shareholders are primarily concerned with our ability to generate free
cash flow and provide them with a reasonable return on their investment. In addition, we believe that using these variables serves to closely
align Management's interests with those of our Shareholders. Further, these variables tie long-term incentive compensation more directly to our
NEOs and senior management's actual performance rather than to measures subject to stock market volatility. Both such financial measures are
also calculated as if the exchange rate between Canada and the United States is at parity.
The payouts of the PSUs, which are payable at the end of the applicable three-year period, are based on achieving pre-determined levels of
OCF and ROIC, both of which are approved by the Compensation Committee at the beginning of the performance period. If our OCF exceeds
target by 10% or more on a dollar basis and ROIC exceeds target by 10% or more on a percentage basis, then the awards will be a maximum of
175% of the target award. Achievement of OCF at the threshold of 90% of target on a dollar basis and ROIC at the threshold of 10% below
target on a percentage basis would result in the awards being 25% of the target award. Results between the threshold and target, and results
between target and maximum, are interpolated. Each of the two measures, OCF and ROIC, is weighted equally. If neither threshold is reached,
no award will be paid for the applicable period.
In 2014, the Compensation Committee established the PSU payout and performance targets for the performance period. The 2014 OCF
target is $352 million and the 2014-2016 ROIC target is 6.8%. The Corporation's OCF performance of $352 million represents an achievement
of 100% of the target amount. ROIC performance is ultimately only determinable at the end of 2016. ROIC performance in 2014 was 7.4%. By
way of comparison, LTIP payout and performance threshold targets were not met for 2012 and so no PSUs (which would have vested in 2015)
were paid for this plan year. In 2013, the Corporation exceeded its OCF
25
target of $385 million by about $1.5 million; the Corporation will not know if the ROIC target of 6.4% will be met until the end of 2015.
Options. 25% of the LTIP awards granted to our Named Executive Officers in fiscal 2014 were in the form of Options. These Options
cliff vest on the third anniversary of the grant date. The objective of the Options is to link rewards to the creation of shareholder value over a
longer term and aid in employee retention through vesting conditions. We believe that Options motivate our Named Executive Officers to build
shareholder value because they can realize value only if our stock appreciates over the option term.
Share Option Plan
The Amended and Restated Share Option Plan (the " Share Option Plan ") was adopted by the Corporation on October 1, 2008. The
Share Option Plan is designed to reward certain eligible management employees with compensation opportunities that will encourage
ownership of Shares, enhance the Corporation's ability to attract, retain and motivate senior employees, and reward them for significant
performance. Options may be granted under the Share Option Plan to directors, officers or management employees of the Corporation and its
subsidiaries the Board may from time to time determine. Under the Share Option Plan, 4,000,000 Shares were reserved for issuance, which
represent, on a fully-diluted basis, approximately 3.6% of the issued and outstanding Shares of the Corporation as of March 26, 2015. The
Share Option Plan does not prescribe a maximum number of Shares that can be issued thereunder to any one person, except for the restriction
on the number of Shares issuable to insiders of the Corporation discussed below.
As of March 26, 2015, there were a total of 1,091,367 Options outstanding, 739,435 Options remaining for future grants and
2,169,198 Options had been exercised since inception, representing approximately 1.0%, 0.7%, and 1.9%, respectively, of the issued and
outstanding Shares of the Corporation.
The following summary describes the principal terms of the Share Option Plan.
The number of Options that may be granted to any one participant or to insiders under the Share Option Plan is restricted as follows: the
number of securities issuable to insiders, at any time, under all security-based arrangements, including the Share Option Plan, cannot exceed
10% of the Corporation's issued and outstanding securities; and the number of securities issued to insiders, within any one-year period, under
all of the Corporation's security-based compensation arrangements, including the Share Option Plan, cannot exceed 10% of the Corporation's
issued and outstanding securities. The Share Option Plan includes Share appreciation rights which the Compensation Committee may grant in
connection with the grant of a Share option. Share appreciation rights entitle the participant to elect to receive a payment equal to the difference
between the volume-weighted average trading price of the Shares on the TSX for the five trading days immediately preceding the date of
surrender of a Share option and the exercise price of the Share option in connection with which it was granted.
Under the Share Option Plan, Options granted have a term of 10 years and vest at the rate of 25% per year, commencing on the
anniversary of the date of the grant, or as otherwise determined by the Compensation Committee. Prior to the expiry of an option, an option
holder generally may exercise an option at any time after the option vests. If the expiry date for an option occurs during a blackout period or
other period during which an insider is prohibited from trading in securities of the Corporation pursuant to its insider trading policy, the expiry
date will automatically be extended until ten business days after such period ends.
The exercise price of an option under the Share Option Plan is fixed by the Board at the time of grant, but may not be lower than the
volume weighted average trading price of the Shares on the TSX for the five trading days immediately preceding the date of grant (calculated
by dividing the total value by the total volume of Shares traded for such period). The Options are non-assignable.
If a participant ceases to be eligible under the Share Option Plan due to resignation of employment, all Options held by the participant
cease to vest and those Options which are then exercisable may be exercised for the following 30 days. If a participant ceases to be eligible
under the Share Option Plan due to termination of employment or services without cause, all Options held by the participant cease to vest and
those Options which are then exercisable may be exercised for the following 90 days. If a participant ceases to be eligible under the Share
Option Plan due to termination of employment for cause, all Options held by the participant cease to vest
26
and all Options which are then exercisable cease to be exercisable. If a participant's employment ceases by reason of disability or death, all
Options held by the participant cease to vest and those Options which are then exercisable may be exercised for the following 12 months. The
Compensation Committee may provide, at the time of the grant or at any time thereafter, that granted Options remain exercisable following
such resignation or termination, provided that no option may be exercised after its stated expiration (which in no case may be later than
10 years after the date of the grant).
The Share Option Plan provides that Shareholder approval is not required for any amendments to the Share Option Plan or an option
granted under the Share Option Plan, except for any amendment or modification that:
(a)
increases the number of Shares issuable under the Share Option Plan, including an increase to a fixed maximum number of Shares
or a change from a fixed maximum number of Shares to a fixed maximum percentage;
(b)
increases the length of the period after a blackout period during which Options, awards, or any rights pursuant thereto may
be exercised;
(c)
reduces the exercise price of an option or that would result in the exercise price for any option being lower than the fair market
value of a share at the time the option is granted, except a reduction in connection with any stock dividend, stock split,
combination or exchange of Shares, merger, consolidation, spin-off or other distribution, or other change in the capital of the
Corporation affecting the Shares;
(d)
expands the categories of eligible person which would have the potential of broadening or increasing insider participation;
(e)
results in an amendment to termination provisions providing an extension beyond the original expiry date, except a permitted
automatic extension of an option expiring during a blackout period;
(f)
results in participants receiving Shares while no cash consideration is received by the Corporation;
(g)
requires security holder approval under applicable law (including, without limitation, the rules, regulations and policies of the TSX
and the NYSE);
(h)
would allow for the transfer or assignment of Options by participants;
(i)
grants additional powers to the Board to amend the Share Option Plan or entitlement;
(j)
extends the term of Options held by insiders; or
(k)
changes the insider participation limits which result in security holder approval being required on a disinterested basis.
Timing of Equity Grants
The timing of equity grants is commensurate with the date on which the Compensation Committee approves the grants. In particular, the
Compensation Committee meets in the January/early February timeframe each year, to finalize recommendations for the Board on LTIP
participation for the year, LTIP payouts and related matters for the immediately preceding year, and other key HR matters.
Other Programs
We provide certain limited benefits to our Named Executive Officers. In general, these benefits make up a very small percentage of each
Named Executive Officer's total compensation and as discussed in the " Summary Compensation " table below.
27
Retirement Plans
The Corporation has no defined benefit pension plans.
Mr. Quarin, Mr. Kidson, and Mr. Pio participate in the deferred profit sharing plan (" DPSP "), which is available to all salaried
employees of BFI Canada Inc., the Corporation's Canadian operating subsidiary. Under the DPSP, the Corporation or a subsidiary contributes
up to 3% of the employees' base salary and any annual cash bonus into the DPSP, up to the maximum allowable under the Income Tax Act
(Canada). In 2014, the maximum allowable contribution to the DPSP was $11,283. The employee controls the investment of all funds
deposited in the DPSP.
Mr. Walbridge and Mr. Miller participated in the IESI Corporation 401(k) Savings Plan on the same level as all other eligible employees.
IESI's contribution on behalf of an employee is equal to 50% of the first 6% of eligible pay contributed to the 401(k) plan by the employee.
In respect of the Named Executive Officers, below is a table summarizing the opening and closing asset value of the defined contribution
pension plan (DPSP or 401(k)) for that employee. Column (c), referred to as "compensatory", includes the matching contributio n made by the
employer for 2014. Column (d) shows the value of the NEO DPSP account at the end of the year inclusive of investment gains and employer
contributions.
Accumulated value
at start of year
($)
(b)
Name
(a)
Compensatory
($)
(c)
Accumulated value
at year end
($)
(d)
Joseph D. Quarin (1)
President and Chief
Executive Officer
173,508
11,283
250,779
Kevin C. Walbridge
Executive Vice
President and Chief
Operating Officer
NIL
7,650
31,224
Ian M. Kidson (1)
Executive Vice
President and Chief
Financial Officer
17,561
11,283
37,755
Dan D. Pio (1)
Executive Vice
President, Strategy and
Business Development
45,222
11,283
61,623
Thomas E. Miller
Senior Vice President,
Operations
115,481
6,161
157,990
(1)
Messrs. Quarin, Kidson and Pio receive their contributions in Canadian funds. For purposes of this presentation, Canadian dollar amounts have been
converted to U.S. dollars based on the Bank of Canada average rate of exchange for 2014 of C$1.00 = $0.9052.
Perquisites
Perquisites are limited primarily to car allowances and certain club memberships; however, one Named Executive Officer also receives a
housing allowance for a period of two years ending December 31, 2016. Excluding the housing allowance, the total perquisites received by
each NEO in 2014 did not exceed $27,000.
Severance and Change of Control Agreements
We have written employment agreements with each of our Named Executive Officers, the terms of which include (or incorporate by
reference) severance and change of control provisions. We have these severance agreements to attract qualified and talented executive officers,
and we want them to continue in our service. We believe the assurance that their income will not immediately suffer if their employment were
to terminate helps retain them in our service.
We also have a written change of control agreement with each of our Named Executive Officers. The purpose of the change of control
agreement is to ensure executives' ongoing retention when considering potential transactions that may create uncertainty as to their future
employment with the Corporation. Each agreement provides for a lump sum payment and other benefits if the NEO is terminated either without
"Cause" or for "Good Reason" within two years following a change of control of Progressive. "Cause" and "Good Reason" are terms defined in
each agreement. The lump sum payment is equal to a multiple of the
28
Named Executive Officer's respective base salary, bonus and LTIP over a pre-determined period ranging from 18 to 24 months.
The Compensation Committee believes that the benefits provided under the severance and change of control agreements are appropriate
and are consistent with our objective of attracting and retaining highly-qualified executives.
Details of the employment and change of control agreements of Named Executive Officers and a discussion of the severance and change
of control provisions contained therein are disclosed below under the headings "Employment Agreements" and "Termination and Change of
Control", respectively.
Managing Compensation-Related Risk
The Compensation Committee has discussed the impact its compensation policies and practices for all of the Corporation's employees
may have on the Corporation's management of risk and has concluded that the Corporation's programs do not encourage excessive risk-taking.
We believe our approach to setting performance targets, evaluating performance, and establishing payouts does not promote excessive
risk-taking. Further, our compensation mix of base salary, annual cash bonuses and long-term equity grants provide the appropriate balance of
near term performance improvement with sustainable long-term value creation. The Compensation Committee considered that these policies
have been well-designed, consistently applied, and effectively implemented over a period of time. Strong internal controls are in place.
Employees are also required to annually re-commit to their adherence to the Code of Conduct. Based on our assessment of the risks, we are
satisfied that these risk-mitigating practices eliminate the risk of a material adverse effect.
The Compensation Committee considers, among other factors, the following aspects of our compensation policies and practices when
evaluating whether such policies and practices encourage our employees to take unreasonable risks:
•
Measurable performance targets are established annually for each operating unit on a company-wide basis to encourage behavior
that is in the best long-term interests of the Corporation and Shareholders;
•
Performance-based awards include threshold, target, and maximum payouts correlating to a range of performance and are based on
a variety of indicators of performance, which limits risk-taking behavior;
•
Performance targets may be adjusted to exclude the benefit or detriment of extraordinary events to ensure that employees are
compensated on results within their control or influence;
•
Our equity-based compensation with time-based vesting accounts for a significant period of risk and ensures that participating
employee interests are aligned with the long-term interests of our Shareholders;
•
Payouts under our performance plans remain at the discretion of our Compensation Committee even if targeted performance levels
are reached;
•
Share ownership guidelines require members of our Board, NEOs, and other senior level management employees to maintain
significant ownership levels in Shares, which aligns their personal wealth with the long-term performance of the Corporation;
•
Our Compensation Committee is advised by an independent compensation consultant that does not perform any work for
Management; and
•
The Corporation has claw-back provisions in its equity award agreements as well as a claw-back policy, designed to recoup
compensation in certain cases when cause or misconduct are found.
Claw-Back Provision
The Compensation Committee has adopted a claw-back policy to facilitate the recovery of incentive plan awards in certain circumstances.
The claw-back policy requires reimbursement, in all appropriate cases, of any STIP or LTIP compensation awarded to an executive officer or
effecting the cancellation of non-vested restricted share awards and share Options previously granted to the Named Executive Officers and
other officers if: (a) the amount of the bonus or incentive compensation was calculated based upon the achievement of certain financial results
that were subsequently the subject of a restatement, (b) the executive engaged in intentional misconduct that caused or partially caused the need
for the restatement, and (c) the amount of the
29
bonus or incentive compensation that would have been awarded to the executive had the financial results been properly reported would have
been lower than the amount actually awarded. The Compensation Committee will retain discretion to review and determine the required
reimbursement under the claw-back policy. This initiative supports the Compensation Committee's commitment to review and implement good
governance practices in a tailored manner for Progressive Waste Solutions and to fulfill its mandate.
NEO Share Ownership Guidelines
To encourage the Named Executive Officers and other officers to build and maintain equity in the Corporation, the Corporation in 2010
implemented shareholding requirements for Named Executive Officers and other officers. Target minimum shareholding must be achieved
within a five (5) year period. Minimum shareholdings will be calculated including vested RSUs, vested PSUs and in the money amount of
vested Option gains. The minimum shareholdings by the Named Executive Officers and other officers will be as follows:
• Chief Executive Officer
• Other Named Executive Officers
• Other Officers
5.0x base salary
2.0x base salary
1.0x base salary
Performance Graph
The following graph compares the percentage change in the cumulative shareholder return for C$100.00 invested in the Corporation with
the total cumulative return of the S&P/TSX Total Return Index for the period from December 31, 2009 until December 31, 2014. Assuming
reinvestment of dividends, C$100.00 invested on December 31, 2009 was worth C$232.80 on December 31, 2014.
Total Return from December 31, 2009 to December 31, 2014
Indexed to 100 (%)
Source: Bloomberg
Time Periods
Dec. 31/09
Dec. 31/10
Dec. 31/11
Dec. 31/12
Dec. 31/13
Dec. 31/14
Shares
100
146.7
123.6
136.9
171.4
232.8
S&P 500
100
117.6
107.3
115.0
129.9
143.6
S&P/TSX
100
116.9
121.7
140.3
192.8
234.9
As there are no publicly-traded non-hazardous solid waste management companies in Canada, the performance of Progressive Waste
Solutions' Shares cannot be charted against an industry sub-index of
30
Canadian industry peers. As such, the trend in compensation to the Named Executive Officers during the past five years does not directly
compare with the broader market trends in the above chart.
The Compensation Committee aims to ensure that the majority of NEO compensation is directly linked to corporate performance and
aligned with shareholder objectives. It is worthwhile to note that during the 5 year period noted in the above graph, the rate of growth of the
Corporation's share price has outpaced the rate of growth in NEO compensation. In particular, while NEO compensation (on an aggregate
basis) has in recent years remained steady or decreased year over year (excluding severance payments made to certain previous NEOs) the
Corporation's stock has risen considerably.
Summary Compensation Table
The following table provides summary information respecting compensation received in or in respect of the financial years ended
December 31, 2012, 2013 and 2014 by each of the Named Executive Officers:
Name and
principal
position
Year
Salary
($)
Share-based
awards (3)(6)(7)
($)
—
—
—
11,283
11,779
11,918
118,748
—
—
343,188
196,070
98,259
—
—
—
288,534
259,365
375,238
96,179
91,003
—
277,953
290,345
33,224
393,762
407,694
420,267
295,333
(11)
1,596,283
419,002
98,440
101,926
—
290,700
285,000
205,000
163,528
152,308
102,191
54,506
53,420
—
2014
2013
2012
656,270
655,223
675,429
738,235
711,193
(4)(5)
2,021,313
Kevin C.
Walbridge
Executive Vice
President and
COO
2014
2013
2012
475,000
311,865
200,127
356,213
214,422
224,465
Ian M. Kidson
2014
2013
2012
384,710
364,013
140,714
Dan D. Pio (2)
Executive Vice
President,
Strategy and
Business
Development
2014
2013
2012
Thomas E.
Miller (3)
Senior Vice
President,
Operations
2014
2013
2012
Executive Vice
President and
Chief Financial
Officer
Pension
value
($)
568,986
688,967
202,629
Joseph D.
Quarin (1)(2)
President and
Chief
Executive
Officer
(2)(10)
Option-based
awards (3)
($)
Non-equity incentive
plan compensation
($)
LongAnnual
term
incentive
incentive
plans (9)
plans
246,103
256,616
(8)
1,045,329
All other
compensation
($)
Total
compensation
($)
103,826
114,207
101,186
(12)
2,324,703
2,437,985
4,057,804
7,650
8,348
—
83,268
98,998
16,122
(13)
1,384,067
829,702
538,973
—
—
—
11,283
11,779
4,143
22,373
21,890
7,380
(14)
1,081,033
1,038,395
560,699
284,493
293,092
224,343
—
—
—
11,283
11,779
11,918
62,145
57,891
34,788
(15)
1,145,458
2,468,665
1,110,318
157,523
161,512
35,876
—
—
—
6,161
4,368
4,322
13,193
12,448
11,926
(16)
685,612
669,056
359,315
(1)
Mr. Quarin does not receive compensation for acting as a director of the Corporation.
(2)
Messrs. Quarin, Kidson and Pio receive their compensation in Canadian funds. For purposes of this presentation, Canadian dollar amounts have been
converted to U.S. dollars based on the Bank of Canada average rate of exchange for 2014 of C$1.00 = 0.9052; for 2013 of C$1.00 = $0.9707; and for 2012 of
C$1.00 = $1.0006.
(3)
In 2014, the NEOs received share-based awards consisting of PSUs, RSUs and Options pursuant to the 2014 LTIP. The grant date fair values of the PSUs,
RSUs and Options for the NEOs are as follows, respectively:
a.For Mr. Quarin, $492,203, $246,032 and $246,103;
b.For Mr. Walbridge, $237,500, $118,713 and $118,748;
c.For Mr. Kidson, $192,355, $96,179 and $96,179;
d.For Mr. Pio, $196,881, $98,452 and $98,440; and
e.For Mr. Miller, $109,013, $54,516 and $54,506.
The grant date fair value for the PSUs is the closing price on the TSX on December 31, 2013 or C$26.27. The number of PSUs that vest depends on the
achievement of OCF and ROIC performance measures for the 2014-2016 performance cycle discussed above under the heading "2014 Compensation
Decisions for Named Executive Officers".
The grant date fair value for the RSUs is based on the purchase price of common shares at C$27.30 for Mr. Quarin, Mr. Kidson, Mr. Pio and Mr. Cairns and at
US$24.63 for Messrs. Walbridge and Miller.
Options were granted to the NEOs to purchase common shares at C$27.84 per share as follows: Mr. Quarin — 57,358; Mr. Walbridge — 28,006;
Mr. Kidson — 22,416; Mr. Pio — 22,943; and Mr. Miller — 12,855. The grant date fair value of the Options has been calculated in accordance with the
Black-Scholes-Merton methodology. The key valuation assumptions used were the fair value of a share on the grant date of C$27.84, stock price volatility of
22.34%, dividend yield of 2.16% and a term of 4.9 years.
31
(4)
Mr. Quarin received share based awards in 2012 consisting of PSUs and RSUs. The grant date fair values of the PSUs and RSUs were $1,010,093 and
$1,011,220, respectively.
(5)
The grant date fair value of Mr. Quarin's RSUs is based on the purchase price of 50,000 common shares at C$19.95 per share.
(6)
Amounts reported for 2013 represent the grant date fair value of PSUs awarded during that year. The grant date fair value for the PSUs has been calculated in
accordance with the Black-Scholes-Merton methodology. The key valuation assumptions used were the fair value of a share of C$19.87 on the grant date,
stock price volatility of 21.38%, dividend yield of 2.62% and a term of 3.00 years. The number of PSUs that vest depends on the achievement of operating
cash flow and return on invested capital performance measures for the 2013-2015 performance cycle.
The grant date fair value for the RSUs for 2013 are based on the purchase price of common shares at C$21.40 for Mr. Quarin, Mr. Walbridge, Mr. Kidson,
Mr. Pio and Mr. Miller.
Options were granted to the NEOs in 2013 to purchase common shares at C$21.35 per share as follows: Mr. Quarin — 46,788; Mr. Kidson — 17,329;
Mr. Pio — 19,409; and Mr. Miller — 9,908. The grant date fair value of the options has been calculated in accordance with the Black-Scholes-Merton
methodology. The key valuation assumptions used were the fair value of a share on the grant date of C$19.87, stock price volatility of 35.45%, dividend yield
of 2.62% and a term of 4.9 years.
Amounts reported for 2012 represent the grant date fair value of PSUs awarded during that year. The grant date fair value has been calculated in accordance
with the Black-Scholes-Merton methodology. The key valuation assumptions used were the fair value of a share of C$19.87 on the grant date, stock price
volatility of 23.89%, dividend yield of 2.62% and a term of 2.79 years. The number of PSUs that vest depends on the achievement of operating cash flow and
return on invested capital performance measures for the 2012-2014 performance cycle. Amounts reported for 2012 and 2013 include the actual amount of the
LTIP awards for the respective years, including the portions that have not yet vested, based on the financial performance of the Corporation during the
respective years.
(7)
The grant date fair value for the share based awards is the same as the accounting fair value.
(8)
Mr. Quarin received a grant of Options in 2012 to purchase 210,000 common shares of the Corporation at C$20.29 per share. The grant date fair value has
been calculated in accordance with the Black-Scholes-Merton methodology. The key valuation assumptions used were the fair value of a share on the grant
date of C$20.01, stock price volatility of 36.64%, dividend yield of 2.80% and a term of 4.70 years.
(9)
This reflects the value awarded to each Named Executive Officer under the STIP.
(10)
Mr. Kidson began employment with the Corporation on August 15, 2012. Mr. Kidson's employment agreement provided that he participated in the 2012 LTIP
based on a target of 85 % of his annual base salary.
(11)
Mr. Pio received a grant of RSUs in 2013. The grant date fair value of the RSUs is $1,305,786 based on the purchase price of 60,000 shares at C$22.42.
(12)
For Mr. Quarin, includes dividends on RSUs and LTIP shares of $79,125 and certain perquisites of $24,700.
(13)
For Mr. Walbridge, includes dividends on RSUs and LTIP shares of $31,060 and certain perquisites of $52,208.
(14)
For Mr. Kidson, includes dividends on RSUs and LTIP shares of $4,762 and perquisites of $17,611.
(15)
For Mr. Pio, includes dividends on RSUs and LTIP shares of $41,085 and perquisites of $21,060.
(16)
For Mr. Miller, includes dividends on RSUs and LTIP shares of $3,527 and perquisites of $9,667.
32
Incentive Plan Awards
The following table presents the Share and option based awards to the Named Executive Officers outstanding at the end of 2014.
Option-Based Awards (1)
Name
Number of
securities
underlying
unexercised
Options
(#)
Option
exercise
price
($) (2)
Option expiration
date (4)
Value of
unexercised
in-the-money
Options (5)
($)
Number of
shares that
have not
vested (6)
(#)
Share-Based Awards
Market or
payout
value of
share-based
awards that
have not
vested (5)(6)
($)
Market or
payout of
vested share
based awards
not paid out
or
distributed (5)(6)
($)
283,000 (3)
(4)
210,000 (4)
46,788 (4)
57,358
18.10
18.37
19.33
25.20
August 24, 2018
December 31,
2021
March 25, 2023
March 19, 2024
7,550,852
23,606
746,390
Kevin C.
Walbridge
Executive Vice
President and
Chief
Operating
Officer
28,006
25.20
March 19, 2024
179,739
50,592
1,599,650
—
Ian M. Kidson
Executive Vice
President and
Chief Financial
Officer
17,329 (4)
22,416
19.33
25.20
March 25, 2023
March 19, 2024
356,882
8,948
282,924
—
Dan D. Pio
Executive Vice
President,
Strategy and
Business
Development
19,409 (4)
22,943
19.33
25.20
March 25, 2023
March 19, 2024
385,833
69,647
2,202,143
—
Thomas E.
Miller
Senior Vice
President,
Operations
9,908 (4)
12,855
19.33
25.20
March 25, 2023
March 19, 2024
204,297
4,926
155,753
—
Joseph D.
Quarin
President and
Chief
Executive
Officer
2,408,550
(1)
As of March 26, 2015, the total number of Shares issuable on the exercise of Options outstanding was 1,091,367 or 1.0% of the Corporation's outstanding
Shares.
(2)
Exercise prices are in Canadian dollars and for this presentation have been converted to U.S dollars based on the Bank of Canada average rate of exchange for
2014 of C$1.00 = $0.9052.
(3)
The Options expiring August 24, 2018 were granted on August 26, 2008; the Options expiring December 31, 2021 were granted on December 31, 2012; and
the Options expiring on March 25, 2023 were granted on March 26, 2013. The Options expiring on March 19, 2024 were granted on March 19, 2014.
(4)
Options expiring December 31, 2021 vest on December 31, 2016. Options expiring March 25, 2023 vest on March 25, 2016. Options expiring March 19, 2024
vest on March 19, 2017.
(5)
Values presented are based on the December 31, 2014 closing price of the Shares on the TSX of $34.93 and converted to US dollars based on the Bank of
Canada average exchange rate for 2014 of C$1.00 = $0.952.
(6)
LTIP shares and Bonus Equity Awards which have not vested as of December 31, 2014.
33
Incentive Plan Awards — Value Vested or Earned During Year
The following table sets out details concerning share and option based awards to the Named Executive Officers, based on amounts vested
or earned during 2014.
Option-based awards —
Value vested during
the year
($)
Name
Share-based awards —
Value vested during
the year (1)(2)
($)
Non-equity incentive plan
compensation — Value earned
during the year
($)
Joseph D.
Quarin
President and
Chief
Executive
Officer
Nil
1,779,013
N/A
Kevin C.
Walbridge
Executive Vice
President and
Chief
Operating
Officer
Nil
Nil
N/A
Ian M. Kidson
Executive Vice
President and
Chief Financial
Officer
Nil
Nil
N/A
Dan D. Pio
Executive Vice
President,
Strategy and
Business
Development
Nil
169,671
N/A
Thomas E.
Miller
Senior Vice
President,
Operations
Nil
Nil
N/A
(1)
Values presented that vested in Canadian dollars have been converted to U.S dollars based on the Bank of Canada average rate of exchange for 2014 of
C$1.00 = $0.9052.
(2)
All share-based awards that vested in 2014 have been distributed.
Employment Agreements
The Corporation's success depends on the leadership, dedication and experience of its senior management group. The Corporation has
entered into employment agreements with certain senior officers. The agreements contain, among other things, confidentiality, non-solicitation
and non-competition covenants that will apply during the term of each officer's employment and for a specific period of time after termination
of their employment. Any modification or renewal of the employment agreements between the Corporation's subsidiary entities and its
executive officers will be subject to the prior review of the Compensation Committee, which shall make a recommendation thereon to
our Board.
The employment agreements also provide for certain benefits in the event of a change of control of the Corporation. A "change of control"
is defined generally in the employment agreements as (i) a tender or take-over offer (or series of related offers) completed for 50% or more of
the Corporation's outstanding voting securities; (ii) the amalgamation, merger or consolidation of the Corporation or the entry into an
arrangement, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are owned by the former
security holders of the Corporation or its subsidiaries and affiliates; (iii) the sale or disposition by the Corporation of all or substantially all of
its assets to another entity that is not wholly-owned by the Corporation; or (iv) the acquisition by a person of 50% or more of the outstanding
voting securities of the Corporation (whether directly, indirectly, beneficially or of record). Subject to one exception and as noted below, the
employment agreements are "double trigger" agreements with respect to a change of control, which require both a change of control and the
termination of employment by the Corporation without cause or resignation by the Named Executive Officer for good reason to trigger
payment of change of control benefits. "Good Reason" generally means (i) a material and adverse change in the Named Executive Officer's
status or position or a material reduction in his duties and responsibilities; (ii) a reduction in the Named Executive Officer's base compensation;
(iii) for Mr. Quarin and Mr. Pio, a relocation of the Named Executive Officer's place of employment; (iv) the failure to pay material
compensation when due; or (v) for Mr. Quarin, a change of
34
control of the Corporation, or a sale of all or substantially all of the assets of Corporation, in either case to a private equity investor, unless the
Named Executive Officer is acting in concert with such investor.
Joseph D. Quarin, President and Chief Executive Officer
Effective January 21, 2005, Mr. Quarin entered into an employment agreement, which was further amended on January 21, 2008. There
have been no material amendments (other than salary increases) since 2008. Effective November 16, 2010, Mr. Quarin became President and
Chief Operating Officer of the Corporation. Effective January 1, 2011, Mr. Quarin was entitled to a base salary of C$525,000 and was eligible
to receive an annual bonus of up to 100% of his base salary if certain performance targets were met (or greater than 100% in the case of
exceptional performance). Effective January 1, 2012, Mr. Quarin's base salary as Vice Chairman and Chief Executive Officer was C$675,000
and his bonus entitlement was 120% of his base salary. In addition, Mr. Quarin was granted a bonus award of 50,000 Restricted Shares and
Options to purchase 210,000 common shares. Mr. Quarin's base salary was not adjusted for 2013. Effective January 1, 2014, Mr. Quarin
became President and Chief Executive Officer and, effective April 1, 2014, his base salary was set at C$725,000. Mr. Quarin is eligible to
participate in the LTIP and other compensation plans and is also entitled to certain perquisites including a car allowance and country or health
club benefits.
Kevin C. Walbridge, Executive Vice President and Chief Operating Officer
Effective October 28, 2013, Mr. Walbridge entered into a new employment agreement for a term of three years. The term of
Mr. Walbridge's agreement is automatically renewed for successive one-year terms unless either party gives notice of non-renewal to the other.
In 2014 Mr. Walbridge was entitled to an annual base salary of $475,000 and was eligible to receive an annual bonus of up to 100% of his base
salary if certain performance targets were met (or greater than 100% in the case of exceptional performance). In addition, Mr. Walbridge was
granted a bonus equity award, representing 60,000 Shares vesting on December 15, 2016. Mr. Walbridge is eligible to participate in the LTIP
and other compensation plans. Mr. Walbridge is also entitled certain perquisites including a car allowance and a housing allowance.
Ian M. Kidson, Executive Vice President and Chief Financial Officer
Effective August 15, 2012, Mr. Kidson entered into an employment agreement for a term of two years and became Vice President and
Chief Financial Officer. The term of Mr. Kidson's agreement is automatically renewed for successive one year terms unless either party gives
notice of non-renewal to the other. Mr. Kidson was entitled to an annual base salary of C$375,000 and was eligible to receive an annual bonus
of up to 85% of his base salary if certain performance targets were met (or greater than 85% in the case of exceptional performance).
Mr. Kidson's base salary was not adjusted for 2013 but he became eligible to receive an annual bonus of up to 90% of his base salary. Effective
January 1, 2014, Mr. Kidson became Executive Vice President and Chief Financial Officer and he became eligible to receive an annual bonus
of up to 100% of his base salary. Effective April 1, 2014, his base salary was increased to C$425,000. Mr. Kidson is eligible to participate in
the LTIP and other compensation plans and is also entitled to certain perquisites including a car allowance and country or health club benefits.
Dan D. Pio, Executive Vice President, Strategy and Business Development
Effective March 23, 2010, Mr. Pio became Vice President and Chief Operating Officer of BFI Canada Inc. and entered into an
employment agreement with an indefinite term. Effective January 1, 2011, Mr. Pio was entitled to an annual base salary of C$400,000 and was
eligible to receive an annual bonus of up to 85% of his base salary if certain performance targets were met (or greater than 85% in the case of
exceptional performance). Effective January 1, 2012, Mr. Pio entered into a new employment agreement for a term of three years. The term is
automatically renewed for successive one-year terms unless either party gives notice of non-renewal to the other. Effective January 1, 2012, his
base salary was increased to C$420,000 and his bonus entitlement was increased to 100% of his base salary. Mr. Pio's base salary was not
adjusted for 2013. Effective October 10, 2013, Mr. Pio became Executive Vice President, Strategy and Business Development. Effective
April 1, 2014, his base salary was increased to C$435,000. Mr. Pio is eligible to participate in the LTIP and other compensation plans and is
also entitled to certain perquisites including a car allowance and country or health club benefits.
35
Thomas E. Miller, Senior Vice President, Operations
Effective August 1, 2010, Mr. Miller entered into an employment agreement with an indefinite term, in the role of Vice President Projects
with an annual base salary of $175,000. Effective April 11, 2013, Mr. Miller became Vice President, Corporate Development and Operations
Support, and his annual base salary was increased to $285,000. In February 2014, Mr. Miller was promoted to Senior Vice President,
Operations. Mr. Miller's current annual base salary is $290,700. Mr. Miller is entitled to participate in the LTIP and other compensation plans
and is also entitled to a car allowance and certain life insurance benefits.
Termination and Change of Control Benefits
Each Named Executive Officer's employment agreement provides for certain compensation arrangements upon the termination of his
service with the Corporation, on the occurrence of specified circumstances as described below. Generally, on a termination without cause or
resignation for good reason, the Named Executive Officers will be entitled to a severance payment based on past salary and bonus levels, and
outstanding and unvested incentives and other equity entitlements will accelerate to immediately vest and become exercisable.
The employment agreements also provide for certain benefits in the event of a change of control of the Corporation. A "change of control"
is defined in the employment agreements as (i) a tender or take-over offer (or series of related offers) completed for 50% or more of the
Corporation's outstanding voting securities; (ii) the amalgamation, merger or consolidation of the Corporation or the entry into an arrangement,
as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are owned by the former security
holders of the Corporation or its subsidiaries and affiliates; (iii) the sale or disposition by the Corporation of all or substantially all of its assets
to another entity that is not wholly owned by the Corporation; or (iv) the acquisition by a person of 50% or more of the outstanding voting
securities of the Corporation (whether directly, indirectly, beneficially or of record). Except with respect to Mr. Quarin and as noted below, all
of the employment agreements are "double trigger" agreements, which require both a change of control and the termination of employment by
the Corporation without cause or resignation by the Named Executive Officer for good reason to trigger payment of change of control benefits.
"Good reason" generally means (i) a material and adverse change in the Named Executive Officer's status or position or a material reduction in
his duties and responsibilities; (ii) a reduction in the Named Executive Officer's base compensation; (iii) for Mr. Quarin and Mr. Pio, a
relocation of the Named Executive Officer's place of employment; or (iv) the failure to pay material compensation when due.
In the case of Mr. Quarin, he may resign from his employment from the Corporation (and be entitled to severance compensation) if there
is a change of control of the Corporation or the sale of substantially all of the assets of the Corporation in either case to a private equity investor
unless Mr. Quarin was acting in concert with such investor in connection with the transaction giving rise to such change of control or asset sale.
This provision was included in a revised employment agreement from 2008 which agreement has not been varied or materially updated since
that time.
Joseph D. Quarin, President and Chief Executive Officer
On termination without cause, resignation for Good Reason (which includes a change in control or the sale of substantially all of the assets
of the Corporation to a private equity investor not acting in concert with Mr. Quarin) or non-renewal of his employment agreement by the
Corporation, Mr. Quarin is entitled to: (i) an amount equal to base salary for 24 months; (ii) an amount equal to two times annual bonus at
target; (iii) an amount equal to two times the average annual LTIP entitlement based on the prior three years; (iv) a payment equal to the cost of
Mr. Quarin converting his group insurance policies to private coverage for 24 months; (v) continuance of car allowance and country or health
club benefits for 24 months; (vi) immediate vesting of all outstanding LTIP entitlements and Bonus Equity Awards; (vii) immediate vesting
and continued right to exercise Options for their original term; and (viii) an amount equal to pro rata annual bonus and LTIP entitlements
(based on the prior three years) for the year of termination.
36
On termination without Cause or resignation for Good Reason, in either case, within 24 months following a Change of Control,
Mr. Quarin is entitled to the payments and other benefits described above, paid as a lump sum, and all incentive and equity based compensation
vests immediately and is exercisable for 24 months.
On termination by reason of disability, Mr. Quarin is entitled to the payments and other benefits described above, except that if he is
entitled to benefits under the Corporation's short and long-term disability programs, then he is not entitled to the two-year base salary and
bonus and average annual LTIP amounts described in (i), (ii) and (iii) above.
On termination for cause or resignation without Good Reason on written notice or if he decides not to renew his contract, Mr. Quarin is
entitled to payment of outstanding salary to his termination date.
On termination by reason of death, Mr. Quarin's estate is entitled to: (i) payment of annual bonus and LTIP entitlements based on the
averages for the prior three years, prorated to his date of death; (ii) continued vesting of and right to exercise Options for the balance of the
term of Options; and (iii) immediate vesting of all outstanding LTIP entitlements and Bonus Equity Awards.
Mr. Quarin has agreed not to compete with Progressive Waste Solutions for 12 months following termination of his employment with
cause or by resignation without Good Reason or for 24 months following termination of employment for any other reason and will not solicit
customers or employees for 24 months.
Kevin C. Walbridge, Executive Vice President and Chief Operating Officer
On termination without Cause, resignation for Good Reason or non-renewal of his employment agreement by the Corporation,
Mr. Walbridge is entitled to: (i) an amount equal to base salary for 18 months; (ii) an amount equal to his annual bonus at target for any
completed fiscal year for which the bonus had not been paid and the pro-rated portion of the part year to the termination date; (iii) immediate
vesting of and continued right to exercise any Options for their original term; (iv) immediate vesting of LTIP shares previously awarded; and
(v) payment for any unused vacation days for the calendar year.
On termination without Cause or resignation for Good Reason, in either case, within 24 months following a Change of Control,
Mr. Walbridge is entitled to (i) continuation of base salary (at the rate then in effect) up to the termination date; (ii) payment of the annual
bonus for any completed fiscal year for which the bonus has not been paid and a pro-rated portion for the past year to the termination date in
accordance with the normal course of the bonus plan for such year; (iii) payment of the LTIP for the year of termination pro-rated for the part
of the year to the termination date and payable with the normal course of the LTIP for such year; (iv) continued vesting of and right to exercise
any Options and vesting of RSUs and restricted stock or bonus shares for 24 months; (v) payment of an amount equal to one twelfth of:
(A) annual bonus of target plan (B) the average LTIP amount allocated to Mr. Walbridge under the LTIP for the prior two fiscal years, such
(A) and (B) total paid for 24 months, and (vi) continued participation in the Corporation's benefit plan for 24 months at the Corporation's
expense.
On termination for Cause or resignation without Good Reason on written notice or if he decides not to renew his contract, Mr. Walbridge
is entitled to payment of outstanding salary to his termination date.
Mr. Walbridge has agreed not to compete with Progressive Waste Solutions (i) for 12 months following termination of his employment
following a termination without cause or by resignation for Good Reason following a Change of Control, and (ii) for 24 months following any
such termination or resignation where there is no such Change of Control. He will not solicit customers or employees for 24 months.
Ian M. Kidson, Executive Vice President and Chief Financial Officer
On termination without Cause or resignation with Good Reason, Mr. Kidson is entitled to: (i) an amount equal to base salary for
24 months; (ii) payment of an amount equal to one-twelfth of the annual bonus at the target amount, payable monthly for 24 months;
(iii) continued participation in the Corporation's benefit plans for 24 months; (iv) continued vesting of and right to exercise any Options for
24 months; (v) payment of the
37
annual bonus for the year of termination, pro-rated to the termination date; and (vi) payment of the LTIP for the year of termination in
accordance with the provisions of the LTIP.
On termination without cause, or resignation for Good Reason, in either case, within 24 months following a change of control, Mr. Kidson
is entitled to the payments and other benefits described above, paid as a lump sum, and all incentive compensation and share based
compensation shall vest in full and shall otherwise be exercisable in accordance with the applicable plan.
Mr. Kidson has agreed not to compete with Progressive Waste Solutions for 24 months following termination of his employment for any
reason and will not solicit customers or employees for 24 months.
Dan D. Pio, Executive Vice President, Strategy and Business Development
On termination without cause or resignation for Good Reason, Mr. Pio is entitled to: (i) an amount equal to base salary for 18 months
(or 24 months if after March 15, 2015); (ii) payment of an amount equal to one-twelfth of the annual bonus at the target amount and the
average annual amount allocated under the LTIP for the previous two fiscal years, payable monthly for 18 months (or 24 months if after
March 15, 2015); (iii) continued participation in the Corporation's benefit plans for 18 months (or 24 months if after March 15, 2015);
(iv) continued vesting of and right to exercise any Options for 18 months (or 24 months if after March 15, 2015); (v) payment of the annual
bonus for the year of termination, pro-rated to the termination date; and (vi) payment of the LTIP for the year of termination in accordance with
the provisions of the LTIP.
On termination without cause, or resignation for Good Reason, in either case, within 24 months following a change of control, Mr. Pio is
entitled to the payments and other benefits described above, paid as a lump sum, and all incentive compensation and share based compensation
shall vest in full and shall otherwise be exercisable in accordance with the applicable plan.
Mr. Pio has agreed not to compete with Progressive Waste Solutions for 18 months following termination of his employment (24 months
from and after March 15, 2015) for any reason and will not solicit customers or employees for 18 months (24 months from and after
March 15, 2015).
Thomas E. Miller, Senior Vice President, Operations
On termination without cause or resignation for Good Reason, Mr. Miller is entitled to: (i) an amount equal to 18 months of his then
current base salary; (ii) payment of the annual bonus for the year of termination, pro-rated to the termination date and pro-rated for 18 months
post termination; (iii) immediate vesting of and right to exercise any Options for their original term; and (iv) immediate vesting of LTIP shares
previously awarded.
Estimated Payments to Named Executive Officers Upon Termination
The following table presents, for each of the Named Executive Officers, incremental payments and other benefits to which they would be
entitled under their respective employment agreements (where those amounts
38
can be quantified), assuming that the termination circumstances described in those agreements occurred on December 31, 2014:
Termination Without Cause
or Resignation for Good
Reason (1)(2)(3)
($)
Name
Disability (4)
($)
Retirement
($)
Death
($)
10,705,791
—
10,705,791
1,779,389
—
1,779,389
2,184,200
639,805
—
639,805
Dan D. Pio (1)
Executive Vice
President,
Strategy and
Business
Development
3,769,262
2,587,976
—
2,587,976
Thomas E.
Miller (1)
Senior Vice
President,
Operations
1,123,138
360,050
—
360,050
Joseph D.
Quarin (1)
President and
Chief
Operating
Officer
13,621,860
Kevin C.
Walbridge
Executive Vice
President
and Chief
Operating
Officer
3,238,548
Ian M. Kidson (1)
Executive Vice
President
and Chief
Financial
Officer
(5)
(1)
Messrs. Quarin, Kidson and Pio receive their compensation in Canadian funds. For purposes of this presentation, Canadian dollar amounts have been
converted into U.S. dollars based on the Bank of Canada average rate of exchange for 2014 of C$1.00 = $0.9052.
(2)
Includes for Messrs. Quarin and Walbridge the Corporation's election not to renew the employment agreement.
(3)
Includes payments on termination without Cause or resignation for Good Reason within 24 months following a change of control.
(4)
If the Named Executive Officer is not entitled to benefits under the Corporation's short- and long-term disability programs, the maximum payment on
termination for disability will be the amount set forth under "Termination Without Cause or Resignation for Good Reason". The amounts in this column
represent the maximum entitlement on termination for disability for the Named Executive if he is entitled to benefits under the Corporation's short- and
long-term disability programs, and is calculated based on immediate vesting of unvested LTIP awards and Bonus Equity Awards as at December 31, 2014.
(5)
In the event Mr. Walbridge is Terminated Without Cause or Resigns with Good Reason following a Change of Control, he would be entitled to $3,713,548,
based on the severance period increasing to 24 months.
39
The following table provides additional details regarding the components included in the foregoing presentation of the estimated
incremental payments from the Corporation to each of the Named Executive Officers, assuming termination without Cause or resignation for
Good Reason on December 31, 2014:
Base Salary (2)
($)
Name
Bonus (3)
($)
Perquisites (6)
($)
LTI
P (4)
($)
Vesting of LTIP
Entitlements and
Bonus Equity
Awards and Value
of Unexercised
Options (5)
($)
Total
($)
1,312,540
1,572,534
30,995
—
10,705,791
13,621,860
Kevin C.
Walbridge
Executive Vice
President and
Chief Operating
Officer (until
December 31,
2013)
712,500
712,500
34,159
—
1,779,389
3,238,548
Ian M. Kidson (1)
Executive Vice
President and
Chief Financial
Officer
769,420
769,420
5,555
—
639,805
2,184,200
Dan D. Pio (1)
Executive Vice
President,
Strategy and
Business
Development
590,643
590,643
—
—
2,587,976
3,769,262
Thomas E. Miller
Senior Vice
President,
Operations
436,050
327,038
—
—
360,050
1,123,138
Joseph D. Quarin
(1)
President and
Chief Operating
Officer
(1)
Messrs. Quarin, Kidson and Pio receive their compensation in Canadian funds. For purposes of this presentation, Canadian dollar amounts have been
converted to U.S. dollars based on the Bank of Canada average rate of exchange for 2014 of C$1.00 = $0.9052.
(2)
Represents, for Messrs. Quarin and Kidson an amount equal to base salary for 24 months, and for Messrs. Pio, Miller and Walbridge an amount equal to base
salary for 18 months.
(3)
Represents, for Messrs. Quarin, and Kidson, an amount equal to two times annual bonus at target, for Messrs. Pio, Walbridge, and Miller, an amount equal to
1.5 times annual bonus at target.
(4)
The LTIP component cannot be calculated until the achievement of performance criteria has been determined.
(5)
Bonus Equity Awards vest on termination without Cause or resignation for Good Reason and, together with unexercised Options, are based on the
December 31, 2014 closing price of the Shares on the TSX of $34.93 and converted to U.S. dollars based on the Bank of Canada average exchange rate for
2014 of C$1.00 = $0.9052.
(6)
Mr. Quarin, Mr. Walbridge and Mr. Kidson are entitled to the continuation of certain perquisites during their termination period.
40
Equity Compensation Plan Information
Number of securities
to
be issued upon
exercise
of outstanding
options,
warrants and rights (1)
($)
Plan Category
Equity
compensation
plans approved
by security
holders (4)
Equity
compensation
plans not
approved by
security holders
1,091,367
Total
1,091,367 (2)
Weighted-average
exercise price of
outstanding options,
warrants and rights (1)
($)
$
—
19.90
—
$
Number of securities
remaining available
for
future issuance under
equity compensation
plans (1)
($)
739,435
—
19.90
739,435 (3)
(1)
As of December 31, 2014.
(2)
Represents approximately 1.0% of the Corporation's outstanding Shares as at December 31, 2014.
(3)
Represents approximately 0.7% of the Corporation's outstanding Shares as at December 31, 2014.
(4)
Excludes 19,835 Options assumed by the Corporation in connection with the Merger with Waste Services, Inc.
COMPENSATION OF DIRECTORS OF THE CORPORATION
The Compensation Committee is responsible for reviewing directors' compensation and recommending changes to our Board. In
determining director compensation, the Committee is guided by the following compensation principles/philosophy:
•
compensation is appropriate and competitive with the median of the U.S. market;
•
the compensation is competitive and fair considering the time, effort and commitment of the directors; and
•
the mix and level of compensation should be reviewed against the North American waste management comparator group as well as
a broader comparator group of Canadian/U.S. public companies of comparable complexity and size.
Directors' Compensation Arrangements
Directors receive their compensation in Canadian funds but their compensation is reported in U.S. dollars in this Circular. For purposes of
this presentation, Canadian dollar amounts have been converted to U.S. dollars based on the Bank of Canada average rate of exchange for 2014
of C$1.00 = $0.9052.
Compensation levels for the directors in 2014 are set forth below.
•
C$165,000 annual retainer for being a member of our Board;
•
C$265,000 annual retainer for the Chair of our Board;
•
C$15,000 additional annual retainer for being the Chair of a committee of the Board;
•
Total compensation to directors is paid 50% in cash and 50% in RSUs — in certain cases where members of the Board have so
elected, a greater percentage is paid in RSUs.
•
No additional meeting or committee membership fees are paid.
Directors' Compensation Table
During the year ended December 31, 2014, a total of $87,272 was paid in respect of reimbursement of expenses incurred by the directors
relating to travel and other expenses attributable to attending Board and Board committee meetings. Joseph D. Quarin, the President and Chief
Executive Officer of the Corporation,
41
was not entitled to compensation for acting in the capacity of a director of the Corporation; however, all his work-related expenses incurred as a
director were reimbursed by the Corporation or a subsidiary.
Fees Earned (1)
($)
Name
James J. Forese
John T. Dillon
Larry S. Hughes (effective May 14, 2014) (2)
Jeffrey L. Keefer
Douglas W. Knight
Sue Lee (effective May 14, 2014)
Daniel R. Milliard
William White (resigned February 6, 2014) (3)
119,840
81,477
9,228
81,477
81,477
46,569
81,477
14,421
Share Based
Awards (1)
($)
151,080
102,937
123,477
102,937
102,937
66,355
102,937
—
Total (1)
($)
270,920
184,414
132,705
184,414
184,414
112,924
184,414
14,421
(1)
Directors receive their compensation in Canadian funds. For purposes of this presentation, Canadian dollar amounts have
been converted to U.S. dollars based on the Bank of Canada average rate of exchange for 2014 of C$1.00 = $0.9052.
(2)
Effective July 1, 2014, Mr. Hughes elected to receive 100% of his compensation for Board services in RSUs.
(3)
Mr. White was elected to the Board at the 2013 annual meeting of Shareholders and resigned effective February 6, 2014.
Director Share Ownership Guideline
On August 3, 2006, the board of trustees of the Fund approved a "Unit Ownership Program" for trustees of the Fund, which has been
continued for the directors of the Corporation. The program, as amended in 2013, provides that by the later of June 30, 2015 or five years from
the date of joining the Board, each director will be required to own Shares of the Corporation having a purchase value or fair market value,
whichever is higher, equivalent to six times his or her annual retainer payable in cash.
As of March 26, 2015, there were 5 directors' who had already exceeded the share ownership for directors as established above. In total
our directors beneficially owned, in aggregate, 278,357 (1) Shares of the Corporation.
Other Information
Succession Planning
The Board, with the assistance of the Compensation Committee, oversees the succession planning process, annually reviewing the
Corporation's leadership development strategies and succession plans for key leadership roles. Effective October 10, 2013, Dan D. Pio became
Executive Vice President, Strategy and Business Development and Kevin C. Walbridge assumed responsibility for the Canadian Operations.
Effective January 1, 2014, Joseph D. Quarin became President and Chief Executive Officer, Kevin C. Walbridge became Executive Vice
President and Chief Operating Officer and Ian M. Kidson became Executive Vice President and Chief Financial Officer of the Corporation.
Meetings of Independent Directors
At each regularly scheduled meeting of the Board and committees, and at most other meetings, the independent directors meet without
non-independent directors and members of management in attendance.
Director Education
The Governance and Nominating Committee oversees continuing education for directors and ensures procedures are in place to give
directors timely access to the information they need to carry out their duties. As part of the Board's education activities, the directors
periodically visit operating facilities. Directors may also attend education programs at the Corporation's expense.
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
As of March 26, 2015, none of the current or former directors, or executive officers of the Corporation or its subsidiary entities was
indebted to the Corporation or any of its subsidiaries.
(1)
This figure includes 76,175 RSUs which have vested but which Mr. Quarin does not have access to until death, termination of employment or approval by the Compensation
Committee. The figure does not include any other restricted share units, performance share units or Options that are beneficially held by Mr. Quarin.
42
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
The following table describes the Corporation's governance practices. For convenience, these are organized by reference to the
requirements set out in National Instrument 58-101 of the Canadian Securities Administrators ("NI 58-101").
NI 58-101 Required
Disclosure
1. Board of Directors
Comments regarding the Corporation's Corporate
Governance Practices
Status*
Yes
A majority of the members of our Board are independent. The
independent directors are as follows:
•
John T. Dillon
•
James J. Forese
•
Jeffrey L. Keefer
•
Douglas W. Knight
•
Daniel R. Milliard
•
Sue Lee
•
Larry S. Hughes
The following director is not independent:
•
Joseph D. Quarin
The directors have determined that Mr. Quarin is considered to be
non-independent as a result of his position as an executive officer
of the Corporation.
The following directors are presently a director of another
reporting issuer or public company in a foreign jurisdiction:
•
John T. Dillon serves on the Board of Kellogg Company;
•
James J. Forese serves on the Board of MISTRAS Group, Inc.;
and
•
Sue Lee serves on the Board of Empire Company Limited and
Bonavista Energy Corp.
The attendance record of each director nominee for Board
meetings during 2014 is as follows:
•
James J. Forese (Chair): 6 of 6 meetings
•
John T. Dillon; 6 of 6 meetings
•
Jeffrey L. Keefer: 6 of 6 meetings
•
Douglas W. Knight: 6 of 6 meetings
•
Daniel R. Milliard: 6 of 6 meetings
•
Joseph D. Quarin: 6 of 6 meetings
•
Sue Lee: 3 of 3 meetings (1)
•
Larry S. Hughes: 3 of 3 meetings (1)
(1) There were 3 Board meetings in 2014 following the appointment of Mr. Hughes
and Ms. Lee.
Prior to, or following each meeting of our Board, the independent
directors hold a separate meeting at which the non-independent
director and members of management do not attend.
The Chairman's role is to facilitate open and candid discussion
among the independent directors. The Corporation's
non-executive Chairman, James J. Forese, is an independent
director.
43
NI 58-101 Required
Disclosure
Comments regarding the Corporation's Corporate
Governance Practices
Status*
The attendance record for members of the Audit Committee
during 2014 is as follows:
•
Douglas W. Knight (Chair): 4 of 4 meetings
•
John T. Dillon: 4 of 4 meetings
•
James J. Forese: 4 of 4 meetings
•
Jeffrey L. Keefer: 4 of 4 meetings
•
Daniel R. Milliard: 4 of 4 meetings
•
Sue Lee: 2 of 2 meetings (1)
•
Larry S. Hughes: 2 of 2 meetings (1)
(1) There were 2 Audit Committee meetings in 2014 following the appointment of
Mr. Hughes and Ms. Lee.
The attendance record for members of the Compensation
Committee during 2014 is as follows:
•
John T. Dillon (Chair): 6 of 6 meetings
•
James J. Forese: 6 of 6 meetings
•
Jeffrey L. Keefer: 6 of 6 meetings
•
Douglas W. Knight: 6 of 6 meetings
•
Daniel R. Milliard: 6 of 6 meetings
•
Sue Lee: 2 of 2 meetings (1)
•
Larry S. Hughes: 2 of 2 meetings (1)
(1) There were 2 Compensation Committee meetings in 2014 following the
appointment of Mr. Hughes and Ms. Lee.
The attendance record for members of the Governance and
Nominating Committee during 2014 is as follows:
•
Daniel R. Milliard (Chair): 4 of 4 meetings
•
John T. Dillon: 4 of 4 meetings
•
James J. Forese: 4 of 4 meetings
•
Jeffrey L. Keefer: 4 of 4 meetings
•
Douglas W. Knight: 4 of 4 meetings
•
Sue Lee: 2 of 2 meetings (1)
•
Larry S. Hughes: 2 of 2 meetings (1)
(1) There were 2 Governance and Nominating Committee meetings in 2014 following
the appointment of Mr. Hughes and Ms. Lee.
The attendance record for members of the Environmental, Health
and Safety Committee during 2014 is as follows:
•
Jeffrey L. Keefer (Chair): 4 of 4 meetings
•
James J. Forese: 4 of 4 meetings
•
John T. Dillon: 4 of 4 meetings
•
Douglas W. Knight: 4 of 4 meetings
•
Daniel R. Milliard: 4 of 4 meetings
•
Joseph D. Quarin: 4 of 4 meetings
•
Sue Lee: 2 of 2 meetings (1)
•
Larry S. Hughes: 2 of 2 meetings (1)
(1) There were 2 Environmental, Health and Safety Committee meetings in 2014
following the appointment of Mr. Hughes and Ms. Lee.
44
NI 58-101 Required
Disclosure
Comments regarding the Corporation's Corporate
Governance Practices
Status*
2. Board Mandate
Yes
3. Position Descriptions
Yes
Our Board has a written mandate, which is attached hereto as
Schedule A.
Our Board has recently adopted a written Diversity and Renewal
Policy, in accordance with the requirements of NI 58-101, a
summary of which is attached hereto as Schedule A.
Written position descriptions for the chair of the Board and the
chair of each committee and for the Chief Executive Officer
position have been approved and are reviewed periodically by the
Board.
The Board and the Compensation Committee have implemented
the following in respect of succession planning:
•
The Board and the Compensation Committee supervise
succession planning processes which include reviewing the
depth and diversity of succession pools for the Chief Executive
Officer and other key leadership roles and monitoring the
progress made by succession candidates in achieving the
objectives of their development plans.
•
The Board annually reviews and assesses the succession plans
for the Chief Executive Officer.
•
The Compensation Committee assists the Board in its oversight
responsibilities regarding succession planning, and annually
reviews the Corporation's leadership development strategies,
succession plans for key senior leadership roles and reviews
plans and programs for the assessment and development of
senior talent.
•
The Compensation Committee reports to the Board at least
annually on succession planning.
•
4. Orientation and Continuing
Education
Yes
The performance objectives of the Chief Executive Officer
include ensuring succession plans are in place for senior
executive roles.
The Governance and Nominating Committee oversees the
director orientation process to assist new directors in fully
understanding the nature and operation of the Corporation's
business, the role of the Board and its committees and the
contribution that individual directors are expected to make. New
directors also meet with senior officers to discuss business
functions and activities.
For new and existing Board members, the Corporation also
prepares and keeps orientation materials, which contain
information concerning: (i) the role of the Board, its committees
and its directors, and (ii) the nature and operation of the business
carried on by the Corporation and its subsidiaries. A general
orientation package — including materials with respect to the
Board of director's mandate and the mandate of each committee
of the Board, the Corporation's disclosure policy, the
Corporation's code of conduct, an overview of the Corporation's
approvals policy and an overview on landfills and landfill
development — is provided to new directors.
45
NI 58-101 Required
Disclosure
Comments regarding the Corporation's Corporate
Governance Practices
Status*
The Governance and Nominating Committee oversees continuing
education for directors and ensures procedures are in place to give
the Board of director's timely access to the information it needs to
carry out its duties. In particular, directors:
•
receive a comprehensive package of information prior to each
Board and committee meeting;
•
are involved in setting the agenda for Board and committee
meetings; and
•
5. Ethical Business Conduct
Yes
6. Nomination of Directors
Yes
have full access to senior management and employees.
As part of the Board's education activities, the directors may
periodically visit operating facilities and can also attend external
education programs at the Corporation's expense.
A Code of Conduct applicable to all employees, officers and
directors was implemented by the Board. A Code of Ethics for
Senior Executives was implemented as well by the Board. A copy
of the Code of Conduct is available at www.sedar.com and at
www.progressivewaste.com and a copy of the Code of Ethics is
available from the Vice-President, Investor Relations and
Corporate Communications via phone: 905-532-7517 or email:
[email protected]. To facilitate compliance
with the Code of Conduct, the document includes mandatory
procedures with respect to the reporting of conflicts of interest.
No reports have been filed pertaining to any conduct of a director
or executive officer that constitutes a departure from the Code.
The Code includes requirements with respect to the avoidance of
self-dealing conflicts of interests. The Code provides for a
complaint procedure which allows employees to report
(anonymously, if they wish) any conduct that does not comply
with the Code.
Through the Code, our Board encourages and promotes a culture
of ethical business conduct.
The Governance and Nominating Committee is composed of
seven (7) members and all of them are independent.
The Governance and Nominating Committee has an established
policy that directors must attend more than 75% of all regularly
scheduled Board and committee meetings (subject to valid
excuses).
The Governance and Nominating Committee is responsible for the
nomination of directors, and examines the size, composition and
structure of the Board and makes recommendations with respect
to individuals qualified for appointment. The Governance and
Nominating Committee is also responsible for, among other
things, the following:
•
establishing and implementing procedures to review the
contributions of individual directors;
•
evaluating the effectiveness of the Board and committees;
46
NI 58-101 Required
Disclosure
Comments regarding the Corporation's Corporate
Governance Practices
Status*
•
assessing that adequate structures and procedures are in place
to permit the Board to effectively discharge its duties and
responsibilities; and
•
7. Compensation
Yes
8. Other Board Committees
Yes
9. Director/Board Assessments
Yes
evaluating organizational structures and plans for the
succession of senior executives.
In February of 2015, the Governance and Nominating Committee
adopted a Board Diversity and Renewal Policy, keeping in line
with evolving governance practices and to reflect the Governance
and Nominating Committee's goals with respect to the renewal of
our Board. This newly adopted policy is described in further
detail under Schedule A.
The process by which the Board determines the compensation of
directors and officers involves a determination on an annual basis
by the Compensation Committee, composed entirely of
independent directors, which reviews and recommends to the
directors, for approval, the remuneration of directors and senior
management. See also "Compensation Discussion and Analysis".
In 2013, F. W. Cook completed a competitive market
benchmarking analysis for the Corporation's executives and the
independent directors as discussed in further detail above under
"Pay Benchmarking".
Environmental, Health and Safety Committee. The function of
the committee is to establish and monitor the effectiveness of
safety, health and environmental policies and systems.
The Board and its members conduct an evaluation of their
effectiveness and contribution each year. These evaluations
assess the effectiveness and contribution of the Board, the Board
committees, the Board committee chairs and the chairman of the
Board. These evaluations also permit directors to evaluate desired
skills, experience and other attributes of directors and to identify
any gaps to be addressed through Board succession planning.
*
"Yes" indicates that the corporate governance practices of the Corporation and its subsidiaries, as applicable, generally
comply with the NI 58-101 requirement.
Cybersecurity and Risk Management
In addition to the above matters, the Board is increasingly focused on emerging issues of Cybersecurity and Risk Management. To that
end, the Board works closely with Management to properly understand these risks as they relate to the Corporation, and has directed the
implementation of several initiatives designed to assess and monitor these important issues.
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
The Corporation has policies of insurance for the directors and officers of the Corporation and the directors and officers of its subsidiary
entities.
The aggregate limit of liability applicable to those insured directors and officers under the policies is $50 million, inclusive of costs to
defend claims. Under the policies, the Corporation will have a $30 million limit of liability in reimbursement coverage to the extent that it has
indemnified the directors and officers in excess of the deductible of $250,000 for each loss. The insured directors and officers also have a
$20 million limit of
47
liability designated to claims in which no indemnification is provided by the Corporation. The policies include coverage for claims under
securities laws and insurance against any legal obligations to pay on account of any such claims.
For the period from January 1, 2014 to December 31, 2014, the total premium paid on the policies was $399,480. Because the policies are
subject to aggregate limits of liability, the amount of coverage may be diminished or exhausted by any claims made thereon. Also, continuity of
coverage is contingent upon the availability of renewal insurance, or of replacement insurance without a retroactive date so as not to limit
coverage for prior wrongful acts.
ADDITIONAL INFORMATION
Financial information for the financial year ended December 31, 2014 is provided in the Corporation's annual financial statements and
management's discussion and analysis (" MD&A ") which are included in the Corporation's 2014 Annual Report.
The Corporation's annual information form for the year ended December 2014 includes additional information on the Audit Committee in
the sections entitled "Audit Committee Information" and "Schedule A — Audit Committee Charter", including the relevant education and
experience of the Audit Committee members.
To obtain a copy of the Corporation's latest annual information form, the 2014 Annual Report, this Circular or other information relating
to the Corporation, please visit the Corporation's profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, or on our website at
www.progressivewaste.com. Shareholders who wish to be added to the mailing list for the annual and interim financial statements and MD&A
should contact the Corporation at 400 Applewood Crescent 2 nd Floor, Vaughan, Ontario L4K 0C3.
OTHER MATTERS
The directors know of no other amendment, variation or other matter to come before the Meeting other than the matters referred to in the
Notice. However, if any other matter properly comes before the Meeting, the accompanying proxy will be voted on such matter in accordance
with the best judgment of the person or persons voting the proxy.
APPROVAL OF DIRECTORS
The contents of this Circular and its sending to Shareholders have been approved by the Board of the Corporation.
BY ORDER OF THE BOARD OF DIRECTORS
"Loreto Grimaldi"
LORETO GRIMALDI
Senior Vice President, General Counsel and Secretary
Toronto, Ontario
April 10 th , 2015
48
SCHEDULE A
PROGRESSIVE WASTE SOLUTIONS LTD.
MANDATE OF THE BOARD OF DIRECTORS and
CORPORATE GOVERNANCE GUIDELINES
The purpose of this document is to summarize the roles and responsibilities of the Board (the " Board ") and governance guidelines which
align the interests of the Board and management with long term shareowner value of Progressive Waste Solutions Ltd. (the " Corporation "),
and to set out the Corporation's compliance with National Instrument 58-101 — Disclosure of Corporate Governance Practices .
1.
Role
In addition to fulfilling the duties of directors of a corporation as prescribed by applicable law, the role of the directors is to focus on
governance and stewardship of the Corporation. Their role is to review and approve corporate direction (strategy), assign primary responsibility
to senior officers (" Management ") for achievement of that direction, oversee the Corporation's operations through the supervision of
Management, establish executive authorities and monitor performance against those objectives.
2.
Responsibilities
To fulfill their role, directors will:
(a)
Establish and Monitor Strategic Plans, Performance Objectives and Compensation Plans
•
Review and approve broad strategic objectives for the Corporation and establish values against which the Corporation's
performance will be measured.
•
Review and approve management's strategic and operational plans and ensure consistency with long term corporate goals.
•
Determine appropriate criteria against which to evaluate performance.
•
Review and approve major organizational changes and significant human resource policies and programs. Annually review
succession plan for senior management.
•
Approve the CEO and senior executive compensation plans and ensure this compensation is linked to corporate
performance.
•
Approve the Corporation's dividend policy and quarterly dividend payments.
•
Approve significant business expansions, alliances, joint ventures, mergers and acquisitions.
(b)
Monitor Corporate and Executive Performance
•
Monitor the Corporation's performance against strategic plans and annual performance targets.
•
Set targets against which to measure executive performance and annually evaluate CEO and Management performance.
•
Assess and monitor the principal risks of the business in which the Corporation is engaged and oversee matters relating to
the ethical, legal, regulatory and financial integrity of the Corporation.
•
Ensure that the CEO and other executive officers create a culture of integrity, ethics and continuous improvement
throughout the organization.
•
Recommend to Shareholders the appointment of the Corporation's external auditor, pursuant to the recommendation of the
Audit Committee, and set the external auditor's compensation.
A-1
(c)
Establish Shareholder Expectations for Corporate Performance through Effective Communication with Shareholders
•
Ensure there is effective communication between the Corporation and the Shareholders, other stakeholders, and the public.
•
Approve the Disclosure Policy and oversee effective disclosure and implementation.
•
Approve the Corporation's quarterly and annual financial results, MD&A, and management proxy circulars.
(d)
Develop Board Processes, Leadership Structure and Standards and Monitor Compliance
•
Develop procedures relating to the conduct of the directors and the fulfillment of the Board's responsibilities.
•
Set standards for the Corporation in terms of moral and ethical norms, as well as corporate social responsibility.
•
Monitor compliance with the Corporation's Code of Conduct.
•
Ensure that the Audit Committee promptly investigates complaints or concerns received by the Corporation about ethical,
accounting or audit matters.
•
Annually appoint the Chairperson of the Board, who must be an independent director. The Chairperson serves a variety of
roles including reviewing and approving Board agendas, meeting material and schedules to confirm the appropriate topics
are reviewed and adequate time is allocated to each; presiding at Board meetings, sessions of independent directors, and
annual general meetings of Shareholders; serving as a liaison between the Board and CEO particularly regarding feedback
of independent Board member discussions when the CEO is not present; calling an executive (in camera) session of
independent directors; and, in conjunction with the Board, is responsible for managing the performance evaluation of
the CEO.
•
Annually recommend qualified and independent individuals to be nominated for election to the Board, based on the advice
of the Governance and Nominating Committee.
•
Monitor and annually evaluate the effectiveness and contribution of the Board, its committees, committee chairs and
individual directors, including the existing Board structure, processes and composition.
•
Annually review the Board Mandate, Governance Guidelines and any other documents or practices used by the Board in
fulfilling its responsibilities.
3.
Committees
The Corporation's current committee structure includes the following committees: Audit; Governance and Nominating; Compensation;
and Environmental Health and Safety. The mandates of each standing committee are reviewed periodically by the Governance and
Nominating Committee with a view to authorizing committees of the Board to focus their attention and oversight on specified matters
appropriate to each committee. The members of each committee, and the chair of each committee, are appointed by the Board annually.
4.
Governance Principles and Guidelines
•
A majority of the directors and all of the members of the Audit, Compensation and Governance and Nominating Committees are
required to meet the independence requirements of the New York Stock Exchange and the Toronto Stock Exchange. Only one
Management director (the CEO) may be nominated to the Board.
A-2
•
No director may serve as a director, officer or employee of a competitor and no director shall serve on more than four other public
company Boards. Any director who wishes to serve on the Board of a private or public company shall, prior to accepting such
position, discuss his or her plans with the Chairman.
•
The independent directors, as applicable, will meet at regularly scheduled sessions at least quarterly without management present,
and will meet in camera either during after every Board meeting.
•
Directors must attend at least 75% of all regularly scheduled Board meetings and relevant Committee meetings.
•
The Board will have unrestricted access to the Corporation's officers and employees and will be provided with the internal and
external resources necessary to carry out its duties.
•
Annually the Board (through the Governance and Nominating Committee) will conduct a review of director performance.
•
The Board is made up of directors from diverse professional and personal backgrounds with both a broad spectrum of experience
and expertise, and a reputation for business acumen and integrity. Potential new directors are assessed on their individual
qualifications in the context of the needs of the Board.
•
All directors are expected to comply with stock ownership guidelines for directors, under which they are each expected to hold six
(6) times their respective annual retainer, payable in cash, prior to June 30, 2014 or within five (5) years of their election to the
Board, whichever is later. Directors may not purchase financial instruments to hedge a decrease in the market value of shares held
for purposes of the stock ownership guidelines.
•
In an uncontested election of directors, any nominee who receives more votes "withheld" than "for" will tender his or her
resignation immediately. The Governance and Nominating Committee will consider the offer of resignation and, except in special
circumstances, will recommend that the Board accept the resignation. The Board will make its decision and announce its decision
and the reasons for its decision in a press release no later than 90 days after the date of the resignation.
•
A retiring or departing CEO will resign from the Board upon retirement or other departure and/or will not be re-nominated to the
Board at the annual general meeting of Shareholders following the CEO's retirement or other departure.
•
Shareholders will have an annual "say on pay" opportunity to cast an advisory vote on the Corporation's approach to executive
compensation.
5.
Board Diversity
Recent Corporate Governance Activities
As noted in our Chairman's letter to Shareholders on April 14, 2014, and consistent with its ongoing governance activities, the Board
initiated in 2012 a renewal effort led by the Governance and Nominating Committee and supported unanimously by the full Board.
Moreover, the Governance Committee has established a cadence and process to facilitate the ongoing review and assessment of the
Governance profile of the Corporation — key activities include maintaining an "evergreen" list of candidates for its Board of Directors
and reflecting the diversity of skills, experiences and backgrounds in furtherance of the Corporation's diversity objectives.
The Board comprises highly-skilled and knowledgeable business leaders who are committed to the highest standards of corporate
governance. We believe that the Board is solidly structured to continue to drive meaningful value creation for our Shareholders.
Effective December 31, 2014, the Canadian Securities Administrators adopted amendments (the " Rule Amendments ") to National
Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101) and Form 58-101F1 Corporate Governance Disclosure
(Form 58-101F1). In accordance with the Rule Amendments, the Corporation has adopted a written Board Diversity and Renewal Policy,
summarized below.
A-3
Board Diversity and Renewal Policy
The Corporation is committed to promoting diversity among its directors, executive officers and employees generally and has adopted a
written policy relating to, among other things, the identification and nomination of women to its Board (the " Diversity Policy "). The
Diversity Policy provides that the Governance and Nominating Committee shall seek to address Board vacancies by actively considering
candidates that bring a diversity of background and opinion from amongst those candidates with the appropriate background and industry
or related expertise and experience, and aims to maintain a Board that is composed of appropriately qualified people with a broad range of
experience relevant to the Company's business.
The Governance and Nominating Committee is responsible for reviewing the credentials of proposed nominees for election or
appointment to the Board and for recommending candidates for Board membership, including the candidates proposed to be nominated for
election to the Board at the annual meeting of Shareholders. To do this, the Governance and Nominating Committee maintains an
"evergreen" list of candidates to ensure outstanding candidates with needed attributes can be quickly identified to fill planned or
unplanned vacancies. Candidates are assessed in relation to the criteria established by the Board from time to time to ensure that the Board
has the appropriate mix of talent, quality, skills, perspectives and other requirements necessary to promote sound governance and Board
effectiveness while enhancing the Board's diversity of perspectives. The Governance and Nominating Committee reviews the composition
of the Board on a regular basis in relation to approved director criteria and skill requirements and recommends changes as appropriate to
renew the Board. This includes an ongoing assessment of the effectiveness of the Diversity Policy to determine progress against the goals
and to determine the appropriate course of action having regarding the current and anticipated needs of the Corporation.
With respect to mandatory retirement or term limits, it is our view that the Board should reflect a balance between, on the one hand, the
experience and learning that come with longevity of service on the Board, and, on the other hand, the need for renewal and fresh
perspectives. Thus, while we have not adopted a mandatory retirement age or term limits for Board members, our Diversity Policy among
other governance practices and procedures are collectively designed to achieve this balance.
The Corporation has not adopted mandatory targets for representation of women on the Board or in executive officer positions as the focus
of the Governance and Nominating Committee in filling Board vacancies is identifying the best qualified candidates having regard to the
needs of the Corporation as discussed above. However, due is also given to promoting diversity in identifying and evaluating candidates
for nomination to the Board. Similarly, in identifying candidates for executive officer appointments, the Corporation's emphasis is on
identifying the skills, industry expertise and background that would best complement the existing management team and the goals and
objectives of the Corporation, having regard to the need to promote diversity among executive officers.
In respect of gender diversity, the Board currently has one female Board member, appointed at the 2014 Annual Meeting, representing
12% of the Board. Ms. Lee is the first female Board member in the Corporation's history. The Corporation currently has two women
serving in executive officer positions, including its Vice President of Health & Safety hired in early 2013, and its Vice President of
Investor Relations and Corporate Communications hired in early 2007, representing approximately 8.7% of Senior Management.
A-4
SCHEDULE B
BY-LAW NO. 1
of
PROGRESSIVE WASTE SOLUTIONS LTD.
(the "Corporation")
1.
INTERPRETATION
1.1
Expressions used in this By-law shall have the same meanings as corresponding expressions in the Business Corporations Act (Ontario)
(the "Act").
2.
FINANCIAL YEAR
2.1
Until changed by the directors, the financial year of the Corporation shall end on the last day of December in each year.
3.
DIRECTORS
3.1
Number . The number of directors shall be not fewer than the minimum and not more than the maximum provided in the articles. At
each election of directors the number elected shall be such number as shall be determined from time to time by special resolution or, if
the directors are empowered by special resolution to determine the number, by the directors.
3.2
Quorum . A quorum of directors shall be fifty percent (50%) of the number of directors or such greater number as the directors or
shareholders may from time to time determine.
3.3
Calling of Meetings . Meetings of the directors shall be held at such time and place within or outside Ontario as the Chairman of the
Board, the President or any two directors may determine. A majority of meetings of directors need not be held within Canada in any
financial year.
3.4
Notice of Meetings . Notice of the time and place of each meeting of directors shall be given to each director by telephone not less
than 48 hours before the time of the meeting or by written notice not less than four days before the date of the meeting, provided that
the first meeting immediately following a meeting of shareholders at which directors are elected may be held without notice if a quorum
is present. Meetings may be held without notice if the directors waive or are deemed to waive notice.
3.5
Chairman . The Chairman of the Board, or in his absence the President if a director, or in his absence a director chosen by the
directors at the meeting, shall be chairman of any meeting of directors.
3.6
Voting at Meetings .
4.
At meetings of directors each director shall have one vote and questions shall be decided by a majority of votes.
NOMINATION OF DIRECTORS
4.1
Director Nomination Procedure. Subject only to the Act, applicable securities laws and the articles of the Corporation, only persons
who are nominated in accordance with the procedures set out in this Section 4 shall be eligible for election as directors to the Board.
Nominations of persons for election to the Board may only be made at an annual meeting of shareholders, or at a special meeting of
shareholders called for any purpose which includes the election of directors to the Board, as follows:
(a)
by or at the direction of the Board, including pursuant to a notice of meeting;
(b)
by or at the direction or request of one or more shareholders pursuant to a valid proposal made in accordance with the provisions
of the Act or a valid requisition of a shareholders' meeting by one or more shareholders made in accordance with the provisions
of the Act;
(c)
by any person (a "Nominating Shareholder"), who: (A) is, at the close of business on the date of giving notice provided for in
Section 4.2 below and on the record date for notice of such meeting, either
B-1
entered in the securities register of the Corporation as a holder of one or more shares carrying the right to vote at such meeting or
who beneficially owns shares that are entitled to be voted at such meeting and provides evidence of such beneficial ownership to the
Corporation; and (B) has given Timely Notice in proper written form as set forth in this Section 4.
4.2
Timely Notice. For a nomination made by a Nominating Shareholder to be timely (a "Timely Notice"), the Nominating Shareholder's
notice must be received by the Secretary of the Corporation at the principal executive offices of the Corporation:
(a)
in the case of an annual meeting (including an annual and special meeting) of shareholders, not later than the close of business
on the thirtieth (30 th ) day before the date of the annual meeting of shareholders; provided, however, that if the first public
announcement made by the Corporation of the date of the meeting (each such date being the "Notice Date") is less than fifty
(50) days prior to the meeting date, notice by the Nominating Shareholder may be given not later than the close of business on
the tenth (10 th ) day following the Notice Date; and
(b)
in the case of a special meeting (which is not also an annual meeting) of shareholders called for any purpose which includes the
election of directors to the Board, not later than the close of business on the fifteenth (15 th ) day following the Notice Date;
provided that, in either instance, if notice-and-access (as defined in National Instrument 54-101 — Communication with Beneficial
Owners of Securities of a Reporting Issuer ) is used for delivery of proxy related materials in respect of a meeting described in
Section 4.2(a) or (b), and the Notice Date in respect of the meeting is not less than fifty (50) days prior to the date of the applicable
meeting, the notice must be received not later than the close of business on the fortieth (40 th ) day before the date of the applicable
meeting.
4.3
Proper Form of Notice. To be in proper written form, a Nominating Shareholder's notice to the Secretary must set forth or be
accompanied by, as applicable:
(c)
as to each person whom the Nominating Shareholder proposes to nominate for election as a director (a "Proposed Nominee"):
(i)
the name, age, business and residential address of the Proposed Nominee;
(ii)
the principal occupation, business or employment of the Proposed Nominee, both presently and within the past
five years;
(iii)
whether the Proposed Nominee is a "resident Canadian" (as such term is defined in the Act);
(iv)
the number of securities of each class of securities of the Corporation or any of its subsidiaries beneficially owned, or
controlled or directed, directly or indirectly, by the Proposed Nominee, as of the record date for the meeting of
shareholders (provided such date shall then have been made publicly available and shall have occurred) and as of the
date of such notice;
(v)
full particulars of any relationship, agreement, arrangement or understanding, including financial, compensation and
indemnity related relationships, agreements, arrangements or understandings, between the Proposed Nominee and the
Nominating Shareholder, or any affiliates or associates of, or any person or entity acting jointly or in concert with, the
Proposed Nominee or the Nominating Shareholder, in connection with the Proposed Nominee's nomination and election
as a director; and
(vi)
any other information that would be required to be disclosed in a dissident proxy circular or other filings required to be
made in connection with the solicitation of proxies for election of directors pursuant to the Act or applicable securities
law; |and
(b)
as to each Nominating Shareholder giving the notice:
(i)
their name, business and residential address;
B-2
(ii)
the number of securities of the Corporation or any of its subsidiaries beneficially owned, or controlled or directed, directly or
indirectly, by the Nominating Shareholder or any other person with whom the Nominating Shareholder is acting jointly or in
concert with respect to the Corporation or any of its securities, as of the record date for the meeting of shareholders (if such
date shall then have been made publicly available and shall have occurred) and as of the date of such notice;
(iii)
their interests in, or rights or obligations associated with, any agreements, arrangements or understandings, the purpose or
effect of which is to alter, directly or indirectly, the person's economic interest in a security of the Corporation or the person's
economic exposure to the Corporation;
(iv)
full particulars of any proxy, contract, relationship, arrangement, agreement or understanding pursuant to which such person,
or any of its affiliates or associates, or any person acting jointly or in concert with such person, has any interests, rights or
obligations relating to the voting of any securities of the Corporation or the nomination of directors to the Board; and
(v)
any other information that would be required to be included in a dissident proxy circular or other filings required to be made
in connection with solicitations of proxies for election of directors pursuant to the Act or as required by Applicable
Securities Law.
Reference to "Nominating Shareholder" in this Section 4.3(b) shall be deemed to refer to each shareholder that nominates or seeks to
nominate a person for election as director in the case of a nomination proposal where more than one shareholder is involved in making
such nomination proposal.
4.5
Notice to be Current to the Record Date . To be considered Timely Notice and in proper written form, a Nominating Shareholder's
notice shall be promptly updated and supplemented, if necessary, so that the information provided or required to be provided in such
notice shall be true and correct as of the record date for the meeting.
4.6
Delivery of Notice . Any notice or other document or information required to be given to the Secretary pursuant to this Section 4 may
only be given by personal delivery, facsimile transmission or by email (provided that the Secretary has stipulated a facsimile number or
an email address for purposes of giving notice under this Section 4) and shall be deemed to have been given and made only at the time it
is given or transmitted by personal delivery to the Secretary at the address of the principal executive offices of the Corporation, or by
facsimile or email transmission (provided that, in either case, receipt of confirmation of such transmission has been received); provided
that if such delivery or electronic transmission is made on a day which is a not a business day or later than 5:00 p.m. (Toronto time) on
a day which is a business day, then such delivery or electronic communication shall be deemed to have been made on the next following
day that is a business day.
4.7
Additional Matters.
(d)
The chair of any meeting of shareholders of the Corporation shall have the power to determine whether any proposed
nomination is made in accordance with the provisions of this Section 4, and if any proposed nomination is not in compliance
with such provisions, to declare that such defective nomination shall not be considered at any meeting of shareholders.
(e)
The board may, in its sole discretion, waive any requirement of this Section 4.
(f)
Despite any other provision of this Section 4, this Section 4 shall only apply following the ratification and approval of the
amendment to this By-law adopting this Section 4 by the shareholders of the Corporation.
(g)
For the purposes of this Section 4, "public announcement" means disclosure in a press release disseminated by the Corporation
through a national news service in Canada, or in a document filed by the Corporation for public access under its profile on the
System of Electronic Document Analysis and Retrieval at www.sedar.com .
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4.
OFFICERS
4.1
General . The directors may from time to time appoint a Chairman of the Board, a President, one or more Vice-Presidents, a
Secretary, a Treasurer and such other officers as the directors may determine.
4.2
Chairman of the Board . The Chairman of the Board, if any, shall be appointed from among the directors and when present shall be
chairman of meetings of directors and shareholders and shall have such other powers and duties as the directors may determine.
4.3
President . Unless the directors otherwise determine the President shall be appointed from among the directors and shall be the chief
executive officer of the Corporation and shall have general supervision of its business and affairs and in the absence of the Chairman of
the Board shall be chairman of meetings of directors and shareholders when present.
4.4
Vice-President .
A Vice-President shall have such powers and duties as the directors or the chief executive officer may determine.
4.5
Secretary . The Secretary shall give required notices to shareholders, directors, auditors and members of committees, act as secretary
of meetings of directors and shareholders when present, keep and enter minutes of such meetings, maintain the corporate records of the
Corporation, have custody of the corporate seal, if any, and shall have such other powers and duties as the directors or the chief
executive officer may determine.
4.6
Treasurer . The Treasurer shall keep proper accounting records in accordance with the Act, have supervision over the safekeeping of
securities and the deposit and disbursement of funds of the Corporation, report as required on the financial position of the Corporation,
and have such other powers and duties as the directors or the chief executive officer may determine.
4.7
Assistants . Any of the powers and duties of an officer to whom an assistant has been appointed may be exercised and performed by
such assistant unless the directors or the chief executive officer otherwise direct.
4.8
Variation of Duties .
The directors may, from time to time, vary, add to or limit the powers and duties of any officer.
4.9
Term of Office . Each officer shall hold office until his successor is elected or appointed, provided that the directors may at any time
remove any officer from office but such removal shall not affect the rights of such officer under any contract of employment with the
Corporation.
5.
INDEMNIFICATION AND INSURANCE
5.1
Indemnification of Directors and Officers . The Corporation shall indemnify a director or officer, a former director or officer or a
person who acts or acted at the Corporation's request as a director or officer of a body corporate of which the Corporation is or was a
shareholder or creditor, and the heirs and legal representative of such a person to the extent permitted by the Act.
5.2
Insurance . The Corporation may purchase and maintain insurance for the benefit of any person referred to in the preceding section to
the extent permitted by the Act.
6.
SHAREHOLDERS
6.1
Quorum . A quorum for the transaction of business at a meeting of shareholders shall be two persons present and each entitled to vote
at the meeting and holding personally or representing as proxies, in the aggregate, twenty-five percent (25%) of the eligible vote.
6.2
Electronic Meetings. A meeting of shareholders may be held by telephonic or electronic means and a shareholder who, through those
means, votes at a meeting or establishes a communications link to a meeting shall be deemed to be present at that meeting.
6.3
Scrutineers . The Chairman at any meeting of shareholders may appoint one or more persons (who need not be shareholders) to act as
scrutineer or scrutineers at the meeting.
B-4
7.
DIVIDENDS AND RIGHTS
7.1
Payments of Dividends and Other Distributions. Any dividend or other distribution payable in cash to shareholders will be paid by
cheque or by electronic means or by such other method as the directors may determine. The payment will be made to or to the order of
each registered holder of shares in respect of which the payment is to be made. Cheques will be sent to the registered holder's recorded
address, unless the holder otherwise directs. In the case of joint holders, the payment will be made to the order of all such joint holders
and, if applicable, sent to them at their recorded address, unless such joint holders otherwise direct. The sending of the cheque or the
sending of the payment by electronic means or the sending of the payment by a method determined by the directors in an amount equal
to the dividend or other distribution to be paid less any tax that the Corporation is required to withhold will satisfy and discharge the
liability for the payment, unless payment is not made upon presentation, if applicable.
7.2
Non-Receipt of Payment. A dividend payable in money shall be paid by cheque to the order of each registered holder of shares of the
class or series in respect of which it has been declared and mailed by prepaid ordinary mail to such registered holder at the address of
such holder in the Corporation's securities register unless such holder otherwise directs, or in such other manner prescribed by the Board
to the order of each registered holder of shares of the class or series in respect of which the dividend has been declared. In the case of
joint holders the cheque or other manner of payment shall, unless such joint holders otherwise direct, be made payable to the order of all
of such joint holders. The sending of such payment as aforesaid, unless the same is not paid on due presentation, shall satisfy and
discharge the liability for the dividend to the extent of the sum represented thereby plus the amount of any tax which the Corporation is
required to and does withhold.
7.3
Unclaimed Dividends . To the extent permitted by applicable law, any dividend unclaimed after a period of six (6) years from the date
on which the same has been declared to be payable shall be forfeited and shall revert to the Corporation.
8.
EXECUTION OF INSTRUMENTS
8.1
Deeds, transfers, assignments, agreements, proxies and other instruments may be signed on behalf of the Corporation by any two
directors or by a director and an officer or by one of the Chairman of the Board, the Vice Chairman and Chief Executive Officer, the
President and a Vice-President together with one of the Secretary and the Treasurer or in such other manner as the directors
may determine.
9.
NOTICE
9.1
A notice mailed to a shareholder, director, auditor or member of a committee shall be deemed to have been received on the fifth day
after mailing.
9.2
Accidental omission to give any notice to any shareholder, director, auditor or member of a committee or non-receipt of any notice or
any error in a notice not affecting the substance thereof shall not invalidate any action taken at any meeting held pursuant to such notice.
B-5
QuickLinks
Exhibit 99.2
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MANAGEMENT INFORMATION CIRCULAR DATED APRIL 10, 2015
THE CORPORATION
PROXY SOLICITATION AND VOTING AT THE MEETING
SHARES AND GOVERNANCE ARRANGEMENTS
PRINCIPAL SHAREHOLDERS
MATTERS TO BE CONSIDERED AT THE MEETING
NOMINEES FOR THE BOARD OF DIRECTORS
COMPENSATION DISCUSSION AND ANALYSIS
COMPENSATION OF DIRECTORS OF THE CORPORATION
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
STATEMENT OF CORPORATE GOVERNANCE PRACTICES
DIRECTORS' AND OFFICERS' LIABILITY INSURANCE
ADDITIONAL INFORMATION
OTHER MATTERS
APPROVAL OF DIRECTORS
SCHEDULE A PROGRESSIVE WASTE SOLUTIONS LTD. MANDATE OF THE BOARD OF DIRECTORS and CORPORATE
GOVERNANCE GUIDELINES
SCHEDULE B BY-LAW NO. 1 of PROGRESSIVE WASTE SOLUTIONS LTD. (the "Corporation")
Exhibit 99.3
Holder Account Number Security Class 8th
Floor, 100 University Avenue Toronto,
Ontario M5J 2Y1 www.computershare.com
Form of Proxy - Annual and Special Meeting
of Shareholders of Progressive Waste
Solutions Ltd. to be held on May 13, 2015
014YDA This Form of Proxy is solicited by
and on behalf of the Directors of Progressive
Waste Solutions Ltd. (the “Corporation”) Fold
Fold Mr A Sample Designation (if any) Add1
Add2 add3 add4 add5 add6 C1234567890
XXX 000001 123
CPUQC01.E.INT/000001/i1234
1-866-732-VOTE (8683) Toll Free
CONTROL NUMBER 123456789012345
VOTE USING THE TELEPHONE OR
INTERNET 24 HOURS A DAY 7 DAYS A
WEEK! To vote by telephone or the Internet,
you will need to provide your CONTROL
NUMBER listed below. If you vote by
telephone or the Internet, DO NOT mail back
this proxy. Voting by mail may be the only
method for securities held in the name of a
corporation or securities being voted on behalf
of another individual. Voting by mail or by
Internet are the only methods by which a
holder may appoint a person as proxyholder
other than the Management nominees named
on the reverse of this proxy. Instead of
mailing this proxy, you may choose one of the
two voting methods outlined above to vote
this proxy. To Vote Using the Telephone To
Vote Using the Internet To Receive
Documents Electronically • Call the number
listed BELOW from a touch tone telephone. •
Go to the following web site:
www.investorvote.com • Smartphone? Scan
the QR code to vote now. • You can enroll to
receive future securityholder communications
electronically by visiting
www.computershare.com/eDelivery and
clicking on “eDelivery Signup”. Notes to
proxy 1. Every holder has the right to appoint
some other person or company of their choice,
who need not be a holder, to attend and act on
their behalf at the meeting or any adjournment
or postponement thereof. If you wish to
appoint a person or company other than the
persons whose names are printed herein,
please insert the name of your chosen
proxyholder in the space provided (see
reverse). 2. If the securities are registered in
the name of more than one owner (for
example, joint ownership, trustees, executors,
etc.), then all those registered should sign this
proxy. If you are voting on behalf of a
corporation or another individual you must
sign this proxy with signing capacity stated,
and you may be required to provide
documentation evidencing your power to sign
this proxy. 3. This proxy should be signed in
the exact manner as the name(s) appear(s) on
the proxy. 4. If this proxy is not dated, it will
be deemed to bear the date on which it is
mailed by Management to the holder. 5. The
securities represented by this proxy will be
voted as directed by the holder, however, if
such a direction is not made in respect of any
matter, this proxy will be voted as
recommended by Management. 6. The
securities represented by this proxy will be
voted in favour or withheld from voting or
voted against each of the matters described
herein, as applicable, in accordance with the
instructions of the holder, on any ballot that
may be called for and, if the holder has specifi
ed a choice with respect to any matter to be
acted on, the securities will be voted
accordingly. 7. This proxy confers
discretionary authority in respect of
amendments or variations to matters identifi
ed in the Notice of Meeting or other matters
that may properly come before the meeting or
any adjournment or postponement thereof. 8.
This proxy should be read in conjunction with
the Notice of Meeting and Management Proxy
Circular. Proxies submitted must be received
by 10:00 a.m, Eastern Time, on May 11, 2015
or, if the Meeting is adjourned, 48 hours
(excluding weekends and holidays) before any
reconvened meeting.
0 5 2 8 3 2 014YEC Fold Fold B S D Q
999999999999 C1234567890 XXX 123 MR SAM
SAMPLE X X X X A R 1 Interim Financial
Statements – Mark this box if you would like to
receive Interim Financial Statements and
accompanying Management’s Discussion and
Analysis by mail. Annual Financial Statements –
Mark this box if you would like to receive the
Annual Financial Statements and accompanying
Management’s Discussion and Analysis by mail.
If you are not mailing back your proxy, you may
register online to receive the above fi nancial
report(s) by mail at
www.computershare.com/mailinglist. Authorized
Signature(s) – This section must be completed for
your instructions to be executed. I/We authorize
you to act in accordance with my/our instructions
set out above. I/We hereby revoke any proxy
previously given with respect to the Meeting. If no
voting instructions are indicated above, this Proxy
will be voted as recommended by Management.
MM / DD / YY Date Signature(s) 2. Election of
Directors of Progressive Waste Solutions Ltd. 01.
John T. Dillon For Withhold 04. Jeffrey L. Keefer
02. James J. Forese For Withhold 05. Douglas W.
Knight 03. Larry S. Hughes For Withhold 06. Sue
Lee 3. Executive Compensation Approval of the
advisory resolution on the Corporation’s approach
to executive compensation as set out in the Notice
of Meeting and Management Proxy Circular. For
Against 4. Amendments to By-Law No. 1
Approval of the shareholders’ resolution to confi
rm the amendments to By-Law No. 1 of the
Corporation, all as further described in the
Management Proxy Circular. For Against 5. Share
Option Plan Approval of the shareholders’
resolution to approve an increase of the number of
shares reserved and authorized for issuance under
the Corporation’s Amended and Restated Share
Option Plan, all as further described in the
Management Proxy Circular. For Against 1.
Appointment of Auditors Appointment of Deloitte
LLP, Independent Registered Chartered
Accountants, as auditors of the Corporation and
authorizing the directors to fi x the remuneration
of the auditors. For Withhold 07. Daniel R.
Milliard 08. Joseph D. Quarin I/We, being
Shareholder(s) of Progressive Waste Solutions
Ltd. hereby appoint: Joseph Quarin or failing this
person, James Forese Appointment of Proxyholder
Print the name of the person you are appointing if
this person is someone other than the Management
Nominees listed herein. OR as my/our
proxyholder with full power of substitution and to
attend, act and to vote for and on behalf of the
shareholder in accordance with the following
direction (or if no directions have been given, as
the proxyholder sees fi t) and all other matters that
may properly come before the Annual and Special
Meeting of Progressive Waste Solutions Ltd. to be
held at the Toronto Region Board of Trade, 1 First
Canadian Place, Toronto, Ontario M5X 1C1 on
Wednesday, May 13, 2015 at 10:00 a.m. and at
any adjournment or postponement thereof.
VOTING RECOMMENDATIONS ARE
INDICATED BY HIGHLIGHTED TEXT OVER
THE BOXES.
Holder Account Number Security Class 8th
Floor, 100 University Avenue Toronto,
Ontario M5J 2Y1 www.computershare.com
Voting Instruction Form - Annual and Special
Meeting of Shareholders of Progressive Waste
Solutions Ltd. to be held on May 13, 2015
014YFA This VIF is solicited by and on
behalf of the Directors of Progressive Waste
Solutions Ltd. (the “Corporation”) Notes Fold
Fold Mr A Sample Designation (if any) Add1
Add2 add3 add4 add5 add6 C1234567890
XXX 000001 Intermediary XXX
CPUQC01.E.INT/000001/i1234 123
1-866-732-VOTE (8683) Toll Free
CONTROL NUMBER 123456789012345
VOTE USING THE TELEPHONE OR
INTERNET 24 HOURS A DAY 7 DAYS A
WEEK! To vote by telephone or the Internet,
you will need to provide your CONTROL
NUMBER listed below. If you vote by
telephone or the Internet, DO NOT mail back
this VIF. Voting by mail may be the only
method for securities held in the name of a
corporation or securities being voted on behalf
of another individual. Voting by mail or by
Internet are the only methods by which a
holder may appoint a person as proxyholder
other than the Management nominees named
on the reverse of this VIF. Instead of mailing
this VIF, you may choose one of the two
voting methods outlined above to vote this
VIF. To Vote Using the Telephone To Vote
Using the Internet To Receive Documents
Electronically • Call the number listed
BELOW from a touch tone telephone. • Go to
the following web site:
www.investorvote.com • Smartphone? Scan
the QR code to vote now. • You can enroll to
receive future securityholder communications
electronically by visiting
www.computershare.com/eDelivery and
clicking on “eDelivery Signup”. 1. Every
holder has the right to appoint some other
person or company of their choice, who need
not be a holder, to attend and act on their
behalf at the meeting or any adjournment or
postponement thereof. If you wish to appoint a
person or company other than the persons
whose names are printed herein, please insert
the name of your chosen proxyholder in the
space provided (see reverse). 2. If the
securities are registered in the name of more
than one owner (for example, joint ownership,
trustees, executors, etc.), then all those
registered should sign this VIF. If you are
voting on behalf of a corporation or another
individual you must sign this VIF with signing
capacity stated, and you may be required to
provide documentation evidencing your power
to sign this VIF. 3. This VIF should be signed
in the exact manner as the name(s) appear(s)
on the VIF. 4. If this VIF is not dated, it will
be deemed to bear the date on which it is
mailed by Management to the holder. 5. The
securities represented by this VIF will be
voted as directed by the holder, however, if
such a direction is not made in respect of any
matter, this VIF will be voted as
recommended by Management. 6. The
securities represented by this VIF will be
voted in favour or withheld from voting or
voted against each of the matters described
herein, as applicable, in accordance with the
instructions of the holder, on any ballot that
may be called for and, if the holder has specifi
ed a choice with respect to any matter to be
acted on, the securities will be voted
accordingly. 7. This VIF confers discretionary
authority in respect of amendments or
variations to matters identifi ed in the Notice
of Meeting or other matters that may properly
come before the meeting or any adjournment
or postponement thereof. VIFs submitted must
be received by 10:00 a.m, Eastern Time, on
May 11, 2015 or, if the Meeting is adjourned,
48 hours (excluding weekends and holidays)
before any reconvened meeting.
0 5 2 8 3 2 014YGC Fold Fold C1234567890
XXX 123 MR SAM SAMPLE B S D Q
999999999999 X X X X A R 1 Interim Financial
Statements – Mark this box if you would like to
receive Interim Financial Statements and
accompanying Management’s Discussion and
Analysis by mail. Annual Financial Statements –
Mark this box if you would like to receive the
Annual Financial Statements and accompanying
Management’s Discussion and Analysis by mail.
If you are not mailing back your VIF, you may
register online to receive the above fi nancial
report(s) by mail at
www.computershare.com/mailinglist. Authorized
Signature(s) - This section must be completed for
your instructions to be executed. I/We authorize
you to act in accordance with my/our instructions
set out above. I/We hereby revoke any VIF
previously given with respect to the Meeting. If no
voting instructions are indicated above, this VIF
will be voted as recommended by Management.
MM / DD / YY Date Signature(s) 2. Election of
Directors of Progressive Waste Solutions Ltd. 01.
John T. Dillon For Withhold 04. Jeffrey L. Keefer
02. James J. Forese For Withhold 05. Douglas W.
Knight 03. Larry S. Hughes For Withhold 06. Sue
Lee 3. Executive Compensation Approval of the
advisory resolution on the Corporation’s approach
to executive compensation as set out in the Notice
of Meeting and Management Proxy Circular. For
Against 4. Amendments to By-Law No. 1
Approval of the shareholders’ resolution to confi
rm the amendments to By-Law No. 1 of the
Corporation, all as further described in the
Management Proxy Circular. For Against 5. Share
Option Plan Approval of the shareholders’
resolution to approve an increase of the number of
shares reserved and authorized for issuance under
the Corporation’s Amended and Restated Share
Option Plan, all as further described in the
Management Proxy Circular. For Against 1.
Appointment of Auditors Appointment of Deloitte
LLP, Independent Registered Chartered
Accountants, as auditors of the Corporation and
authorizing the directors to fi x the remuneration
of the auditors. For Withhold 07. Daniel R.
Milliard 08. Joseph D. Quarin I/We, being
Shareholder(s) of Progressive Waste Solutions
Ltd. hereby appoint: Joseph Quarin or failing this
person, James Forese Appointment of Proxyholder
Print the name of the person you are appointing if
this person is someone other than the Management
Nominees listed herein. OR as my/our
proxyholder with full power of substitution and to
attend, act and to vote for and on behalf of the
shareholder in accordance with the following
direction (or if no directions have been given, as
the proxyholder sees fi t) and all other matters that
may properly come before the Annual and Special
Meeting of Progressive Waste Solutions Ltd. to be
held at the Toronto Region Board of Trade, 1 First
Canadian Place, Toronto, Ontario M5X 1C1 on
Wednesday, May 13, 2015 at 10:00 a.m. and at
any adjournment or postponement thereof.
VOTING RECOMMENDATIONS ARE
INDICATED BY HIGHLIGHTED TEXT OVER
THE BOXES.
QuickLinks -- Click here to rapidly navigate through this document
Exhibit 99.4
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF
PROGRESSIVE WASTE SOLUTIONS LTD.
To our shareholders,
You are receiving this notification as Progressive Waste Solutions Ltd. (the "Company") has decided to use the notice and access
model for delivery of meeting materials to its shareholders. Under notice and access, shareholders still receive a proxy or voting
instruction form enabling them to vote at the Company's meeting. However, instead of a paper copy of the information circular and
the annual report, shareholders receive this notice with information on how they may access such materials electronically. The
use of this alternative means of delivery is more environmentally friendly as it will help reduce paper use and also will reduce the
cost of printing and mailing materials to shareholders.
MEETING DATE AND LOCATION
WHEN:
Wednesday, May 13, 2015
10:00 a.m. ET
WHERE:
Toronto Region Board of Trade
1 First Canadian Place
Toronto, Ontario
M5X 1C1
BUSINESS OF THE MEETING
This year's meeting will cover the following items of business:
1
Item of Business
Highlights
Financial
statements
Receipt of our 2014 audited financial statements.
Board Vote
Recommendatio
n
N/A
Our 2014 annual consolidated financial statements and Management
Discussion and Analysis are included in our 2014 annual report, which
is available on our website at
http://investor.progressivewaste.com/annualmeeting2015
• Shareholders who requested a copy of the 2014 annual report will
receive it by mail.
2
Auditor
We are proposing to re-appoint Deloitte LLP as our independent
auditor for another year until the 2016 annual meeting of shareholders.
FOR
Additional information may be found in the "Appointment of Auditors"
section of our management proxy circular.
3
Directors
At the meeting, eight individuals are proposed to be elected to our
board of directors.
FOR EACH
DIRECTOR
NOMINEE
Additional information about the directors may be found in the "Election
of the Directors of the Corporation" section of our management proxy
circular.
4
Advisory
resolution on
executive
compensation
We are proposing a non-binding advisory "say on pay" resolution
related to executive compensation.
Additional information may be found in the "Advisory Resolution on
FOR
Executive Compensation (Say on Pay)" section of our management
proxy circular.
5
By Law No. 1
We are proposing that shareholders ratify and approve certain
amendments to the Company's By-Law No. 1. Additional information
may be found in the "Amendment to By-Law No. 1" portion of our
management proxy circular.
FOR
6
Stock Option
Plan
We are proposing to increase the maximum number of common shares
reserved for issuance under our Amended and Restated Share Option
Plan. Additional information may be found in the "Amendment to Share
Option Plan" portion of our management proxy circular.
FOR
7
Other
business
If any other items of business are properly brought before the meeting
(or any adjourned or postponed meeting), shareholders will be asked
to vote. We are not aware of any other items of business at this time.
N/A
1
SHAREHOLDERS ARE REMINDED TO VIEW OUR PROXY MEETING MATERIALS PRIOR TO VOTING
WEBSITES WHERE PROXY MEETING MATERIALS ARE POSTED
Proxy meeting materials can be viewed online at www.sedar.com, in addition to our website:
Notice of Annual and Special Meeting of Shareholders: http://investor.progressivewaste.com/annualmeeting2015
Management Proxy Circular: http://investor.progressivewaste.com/annualmeeting2015
Annual
Report
including
Financial
Statements
http://investor.progressivewaste.com/annualmeeting2015
and
Management's
Discussion
and
Analysis:
Registered holders will continue to receive paper copies of proxy materials. All shareholders who have requested to receive our
annual report will receive a paper copy of our annual report.
HOW TO OBTAIN PAPER COPIES OF THE MEETING MATERIALS
You may request that paper copies of the meeting materials be sent to you by mail at no cost. Requests may be made up to one
year from the date that our management proxy circular was filed on SEDAR, online at www.proxyvote.com or by telephone at
1-877-907-7643 and entering the 12-digit control number located on the voting instruction form or notification letter and following
the instructions provided. Requests should be received at least five business days in advance of the date and time set out in your
voting instruction form as a voting deadline if you'd like to receive the meeting materials in advance of the proxy voting deadline
and the meeting date.
VOTING
You should return your proxy using one of the following methods at least one business day in advance of the proxy deadline noted
on your voting instruction form:
INTERNET:
TELEPHONE:
FACSIMILE:
MAIL:
www.proxyvote.com
1-800-474-7493 (ENGLISH) OR 1-800-474-7501 (FRENCH)
905-507-7793
DATA PROCESSING CENTRE
PO BOX 2800 STN LCD MALTON
MISSISSAUGA, ON L5T 2T7
Shareholders with questions about notice and access can call toll-free at 1-866-964-0492.
2
VOTING INSTRUCTION
FORM PROGRESSIVE
WASTE SOLUTIONS TO.22
P63090- E 1 OF 1 MEETING
TYPE: MEETING DATE:
RECORD DATE: PROXY
DEPOSIT DATE: ACCOUNT
NO: ANNUAL AND
SPECIAL MEETING
WEDNESDAY, MAY
13,2015 AT 10:00 A.M. EDT
FOR HOLDERS AS OF
MARCH 31, 2015 MAY 11,
2015 CUID: CUSIP:
74339G101 CONTROL NO.:
-+ liUif• APPOINTEE(S):
JOSEPH QUARIN, JAMES
FORESE APPOINT A
PROXY (OPTIONAL) •IF
YOU WISH TO ATTEND
THE MEETING OR
DESIGNATE ANOTHER
PERSON TO ATTEND,
VOTE AND ACT ON YOUR
BEHALF AT THE
MEETING, OR ANY
ADJOURNMENT OR
POSTPONEMENTTHEREOF
, OTHER THAN THE
PERSON(S) SPECIFIED
ABOVE, PRINTYOUR
NAME OR THE NAME OF
THE OTHER PERSON
ATTENDING THE
MEETING IN THE SPACE
PROVIDED HEREIN.
UNLESS YOU INSTRUCT
OTHERWISE, THE PERSON
WHOSE NAME IS
WRITTEN IN THIS SPACE
WILL HAVE FULL
AUTHORITY TO ATTEND,
VOTE AND OTHERWISE
ACT IN RESPECT OF All
MATTERS THAT MAY
COME BEFORE THE
MEETING OR ANY
ADJOURNMENT OR
POSTPONEMENT
THEREOF, EVEN IF THESE
MATTERS ARE NOT SET
OUT IN THE FORM OR THE
CIRCULAR. PLEASE
PRINT APPOINTEE NAME
ABOVE 2 ELECTION OF
DIRECTORS:VOTING
RECOMMENDATION: FOR
ALL THE NOMINEES
PROPOSED AS DIRECTORS
(FILL IN ONLY ONE BOX"
-- PER NOMINEE IN
BLACK OR BLUE INK) FOR
NITHHOLD FOR
NITHHOLD 01•JOHN T.
DILLON D D 07•DANIEL R.
MILLIARD D D 02•JAMES J.
FORESE D D OS-JOSEPH D.
QUARIN D D 03-LARRY S.
HUGHES D D 04-JEFFREY l.
KEEFER D D OS-DOUGLAS
W. KNIGHT D D 06-SUE
LEE D D ITEM(S): (FILL IN
ONLY ONE BOX" -- PER
ITEM IN BLACK OR BLUE
INK) VOTING
RECOMMENDATIONS 1
*•APPOINTMENT OF
DELOIITE LLP,
INDEPENDENT
REGISTERED
CHARTERED•••••»>
ACCOUNTANTS, AS
AUDITORS OF THE
CORPORATION AND
AUTHORIZING THE
DIRECTORS TO FIX THE
REMUNERATION OF THE
AUDITORS. 3 *•APPROVAL
OF THE ADVISORY
RESOLUTION ON THE
CORPORATION'S
••••••••••»> APPROACH TO
EXECUTIVE
COMPENSATION AS SET
OUT IN THE NOTICE OF
MEETING AND
MANAGEMENT PROXY
CIRCULAR. 4 *•APPROVAL
OF THE SHAREHOLDERS'
RESOLUTION TO
CONFIRM THE•••••••••••»>
AMENDMENTS TO
BY-LAW NO. 1 OF THE
CORPORATION, All AS
FURTHER DESCRIBED IN
THE MANAGEMENT
PROXY CIRCULAR. 5
*•APPROVAL OF THE
SHAREHOLDERS'
RESOLUTION TO
• Broadridge'" 5970
CHEDWORTH WAY
M/SS/SSAUGA, ON L5R
4G5 I Ill w ANNUAL
AND SPECIAL
MEETING
PROGRESSIVE WASTE
SOLUTIONS LTO.
WHEN: WEDNESDAY,
MAY 13, 2015 AT 10:00
A.M.
EDT PROGRESSIVE
WASTE SOLUTIONS
LTD. 400 APPLEWOOD
CRESCENT 2ND FLOOR
VAUGHAN, ON L4K
OC3
CANADA WHERE:
TORONTO REGION
BOARD OF TRADE 1
FIRST CANADIAN
PLACE TORONTO,
ONTARIO M5X 1C1
REVIEW YOUR
VOTING OPTIONS
ONLINE:VOTE AT
PROXYVOTE.COM
USING YOUR
COMPUTER OR
MOBILE DATA
DEVICE. YOUR
CONTROL NUMBER IS
LOCATED BELOW.
SCAN TO VIEW
MATERIAL AND VOTE
NOW BY
TELEPHONE:YOU MAY
ENTER YOUR VOTING
INSTRUCTIONS BY
TELEPHONE AT:
ENGLISH:
1-800-474-7493 OR
FRENCH:
1-800-474-7501 BY
MAIL: THIS VOTING
INSTRUCTION FORM
MAY BE RETURNED
BY MAIL IN THE
ENVELOPE PROVIDED.
REMINDER: PLEASE
REVIEW THE
INFORMATION I
PROXY CIRCULAR
BEFORE VOTING. WE
NEED TO RECEIVE
YOUR VOTING
INSTRUCTIONS AT
LEAST ONE BUSINESS
DAY BEFORE THE
PROXY DEPOSIT
DATE. CONTROL
NO.:-+ PROXY
DEPOSIT DATE: MAY
11, 2015 Dear Client: A
meeting is being held for
securityholders of the
above noted issuer. 1. You
are receiving this Voting
Instruction Form and the
enclosed meeting
materials at the direction
of the issuer as a beneficial
owner of securities. You
are a beneficial owner
because we, as your
intermediary, hold the
securities in an account for
you but not registered in
your name. 2. Votes are
being solicited by or on
behalf of the management
of the corporation. 3. Even
if you have declined to
receive materials, a
reporting issuer is entitled
to deliver these materials
to you and it is our
responsibility to forward
them. These materials are
being sent at no cost to
you, in the language you
requested, provided that
the materials are made
available in your requested
language. 4. Unless you
attend the meeting and
vote in person, your
securities can only be
voted by us as registered
holder or proxy holder of
the registered holder in
accordance with your
instructions. We cannot
vote for you if we do not
receive your voting
instructions. Please
complete and return (or
provide by one of the
alternative available
methods) the information
VOTING INSTRUCTION FORM PROGRESSIVE WASTE SOLUTIONS
LTD. MEETING TYPE: ANNUAL AND SPECIAL MEETING MEETING
DATE: WEDNESDAY, MAY 13, 2015 AT 10:00 A.M. EDT RECORD
DATE: FOR HOLDERS AS OF MARCH 31, 2015 PROXY DEPOSIT
DATE: MAY 11, 2015 NC -? I. 74339G101
*_*_I_S_S_U_E_R_C_O_P_Y *_*_ , ONLINE: VOTE AT
PROXVVOTE.COM USING YOUR COMPUTER OR MOBILE DATA
DEVICE. SCAN TO VIEW MATERIAL AND VOTE NOW REVIEW
YOUR VOTING BY TELEPHONE:YOU MAY ENTER YOUR VOTING
INSTRUCTIONS BY TELEPHONE AT: 1-800-454-8683 BY MAIL: THIS
VOTING INSTRUCTION FORM MAY BE RETURNED BY MAIL IN
THE ENVELOPE PROVIDED. REMINDER: PLEASE REVIEW THE
INFORMATION I PROXY CIRCULAR BEFORE VOTING. SEE VOTING
INSTRUCTION NO. 2 ON REVERSE ***WE NEED TO RECEIVE
YOUR VOTING INSTRUCTIONS AT LEAST ONE BUSINESS DAY
BEFORE THE PROXY DEPOSIT DATE.*** lidI• COMPLETE YOUR
VOTING DIRECTIONS 2 •ELECTION OF DIRECTORS: VOTING
RECOMMENDATION:EQ/1 ALL THE NOMINEES PROPOSED AS
DIRECTORS (FILL IN ONLY ONE BOX" I)" PER NOMINEE IN BLACK
OR BLUE INK) FOR HITHHOLD FOR HITHHOLD 01-JOHN T. DILLON
0 0 07-DANIEL R. MILLIARD 0 0
02-JAMES J.
FORESE
0
0
OS-JOSEPH D.
QUARIN
0
0
03-LARRY S.
HUGHES
0
0
04-JEFFREY L.
KEEFER
0
0
OS-DOUGLAS W.
KNIGHT
0
0
06-SUE
LEE
0
0
ITEM(S): (FILL IN ONLY ONE BOX"@" PER ITEM IN BLACK OR
BLUE INK) VOTING RECOMMENDATIONS 1 •APPOINTMENT OF
DELOITTE LLP, INDEPENDENT REGISTERED CHARTERED•••••»>
ACCOUNTANTS, AS AUDITORS OF THE CORPORATION AND
AUTHORIZING THE DIRECTORS TO FIX THE REMUNERATION OF
THE AUDITORS. 3 •APPROVAL OF THE ADVISORY RESOLUTION
ON THE CORPORATION'S ----------»> APPROACH TO EXECUTIVE
COMPENSATION AS SET OUT IN THE NOTICE OF MEETING AND
MANAGEMENT PROXY CIRCULAR. 4 •APPROVAL OF THE
SHAREHOLDERS' RESOLUTION TO CONFIRM THE----------->»
AMENDMENTS TO BY-LAW NO. 1 OF THE CORPORATION, ALL AS
FURTHER DESCRIBED IN THE MANAGEMENT PROXY CIRCULAR.
5 -APPROVAL OF THE SHAREHOLDERS' RESOLUTION TO
APPROVE AN INCREASE--->» OF THE NUMBER OF SHARES
RESERVED AND AUTHORIZED FOR ISSUANCE UNDER THE
CORPORATION'S AMENDED AND RESTATED SHARE OPTION
PLAN, ALL AS FURTHER DESCRIBED IN THE MANAGEMENT
PROXY CIRCULAR. *NOTE* THIS FORM CONFERS
DISCRETIONARY AUTHORITY TO VOTE ON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT THEREOF. *NOTE* THIS VOTING
INSTRUCTION FORM SHOULD BE READ IN CONJUNCTION WITH
THE ACCOMPANYING INFORMATION CIRCULAR. FOR WITHHOlD
1 <<<--- FOR 0 0 0010200 FOR AGAINST 3 <<<--- FOR 0 0 0029440 FOR
AGAINST 4 <<<--- FOR 0 0 0031601 FOR AGAINST 5 <«--• FOR 0 0
0039900 TO RECEIVE FUTURE PROXY MATERIALS BY MAIL
CHECK THE BOX TO THE RIGHT. TO REQUEST MATERIALS FOR
THIS MEETING REFER TO THE NOTICE INCLUDED IN THE 0
PACKAGE WITH THIS FORM. FILL IN THE BOX" @" TO THE RIGHT
IF YOU PLAN TO ATIEND THE MEETING ... 0 AND VOTE THESE
SHARES IN PERSON. lil!l• THIS DOCUMENT MUST BE SIGNED
AND DATED *ISSUER CONFIRMATION COPY •1LF_o_o.LN'
_L_Y.L'-* --L--L- J--' lm!!DID;IIIm• M M D D y y
Broadridge• 51
MERCEDES WAY
EDGEWOOD NY
11717 PROGRESSIVE
WASTE SOLUTIONS
LTD. 400
APPLEWOOD
CRESCENT 2ND
FLOOR VAUGHAN,
ON L4K OC3
CANADA '($ Ill
ANNUAL AND
SPECIAL MEETING
PROGRESSIVE
WASTE SOLUTIONS
LTO. WHEN:
WEDNESDAY, MAY
13, 2015 AT 10:00
A.M. EDT WHERE:
TORONTO REGION
BOARD OF TRADE 1
FIRST CANADIAN
PLACE TORONTO,
ONTARIO M5X
1C1 About Voting A
meeting is being held
for the holders of the
securities listed on the
other side of this fonn.
As a beneficial holder
of the securities you
have the right to vote
on the item(s) being
covered at the meeting,
which are described in
the Proxy Statement.
Please read the Proxy
Statement carefully and
take note of any
relevant proxy deposit
date. We need to
receive your voting
instructions at least one
business day before the
proxy deposit date
noted on the reverse. If
you have any questions,
please contact the
person who services
your account. We have
been requested to
forward to you the
enclosed proxy material
relative to securities
held by us in your
account but not
registered in your name.
Only we as the holder
of record can vote such
securities. We shall be
pleased to vote your
securities in accordance
with your wishes, if you
will execute the fonn
and return it to us
promptly in the
enclosed business reply
envelope. It is
understood that if you
sign without otherwise
marking the form your
securities will be voted
as recommended in the
Proxy Statement. For
this meeting, the extent
of our authority to vote
your securities in the
absence of your
instructions can be
determined by referring
to the applicable voting
instruction number
indicated on the face of
your fonn. For margin
accounts, in the event
your securities have
been loaned over record
date, the number of
securities we vote on
your behalf has been or
can be adjusted
downward. Please note
that under a rule
amendment adopted by
the New York Stock
Exchange for
shareholder meetings
held on or after January
1, 2010, brokers are no
longer allowed to vote
securities held in their
clients' accounts on
uncontested elections of
directors unless the
client has provided
voting instructions (it
will continue to be the
case that brokers cannot
vote their clients'
securities in contested
QuickLinks
Exhibit 99.4
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS OF PROGRESSIVE WASTE SOLUTIONS LTD.