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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NO. 0-28652
WASTE CONNECTIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3858494
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION)
620 COOLIDGE DRIVE
SUITE 350
FOLSOM, CALIFORNIA 95630
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(916) 608-8200
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates of registrant
as of February 28, 2001: $851,533,151
Number of shares of Common Stock outstanding as of February 28, 2001:
26,590,870
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
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WASTE CONNECTIONS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. BUSINESS.................................................... 1
Item 2. PROPERTIES.................................................. 13
Item 3. LEGAL PROCEEDINGS........................................... 13
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 13
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 16
Item 6. SELECTED FINANCIAL DATA..................................... 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 20
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK... 27
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 27
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 27
PART III 55
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K..... 55
SIGNATURES............................................................ 56
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS...................... 57
EXHIBIT INDEX......................................................... 58
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PART I
FORWARD-LOOKING STATEMENTS
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
and Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," includes forward-looking statements that involve risks
and uncertainties These statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should" or "anticipates" or the negative thereof or comparable terminology, or
by discussions of strategy. Our business and operations are subject to a variety
of risks and uncertainties and, consequently, actual results may materially
differ from those projected by any forward-looking statements in this Annual
Report on Form 10-K. Factors that could cause actual results to differ from
those projected include, but are not limited to the following: (1) competition
or unfavorable industry economic conditions could lead to a decrease in demand
for our services and to a decline in prices realized by us for our services, (2)
we may be required to pay increased prices for acquisitions, and we may
experience difficulty in integrating and deriving synergies from acquisitions,
(3) we cannot be certain that we will always have access to the additional
capital that we require for our growth strategy or that our cost of capital will
not increase, (4) governmental regulations may require increased capital
expenditures or otherwise affect our business, (5) companies that we acquire
could have undiscovered liabilities, and (6) we are highly dependent on the
services of senior management. These risks and uncertainties, as well as others,
are discussed in greater detail in our other filings with the Securities and
Exchange Commission. We make no commitment to revise or update any
forward-looking statements in order to reflect events or circumstances after the
date any such statement is made.
ITEM 1. BUSINESS
GENERAL
Waste Connections is a regional, integrated solid waste services company
that provides solid waste collection, transfer, disposal and recycling services
in secondary markets of the Western U.S. We currently own and operate 64
collection operations, 21 transfer stations, 14 Subtitle D landfills and 16
recycling facilities and operate, but do not own, an additional nine transfer
stations and six Subtitle D landfills. As of December 31, 2001, we served more
than 700,000 commercial, industrial and residential customers in 15 states:
California, Colorado, Iowa, Kansas, Minnesota, Montana, Nebraska, New Mexico,
Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming. Over 50%
of our revenues are derived from exclusive markets, the majority of which are
from exclusive arrangements, including franchise agreements, long-term municipal
contracts and governmental certificates.
We have targeted secondary markets of the Western U.S. because we believe
that: (1) there is greater opportunity to obtain a strong market share in those
markets through exclusive arrangements or competitive asset position; (2) these
markets have strong projected economic and population growth rates; (3) a large
number of independent solid waste services companies suitable for acquisition by
us are located in these markets; and (4) there is less competition in these
markets from larger, better-capitalized solid waste services companies. In
addition, our senior management team has extensive experience in acquiring,
integrating and operating solid waste services businesses in the Western U.S.
We have developed a two-pronged strategy tailored to the competitive and
regulatory factors that affect our markets. In the markets where waste
collection services are performed under exclusive arrangements, we generally
focus on controlling the solid waste stream by providing collection services
under such arrangements. In markets where we believe that competitive and
regulatory factors make owning landfills advantageous, we generally focus on
providing integrated services, from collection through disposal of solid waste
in landfills that we own or operate.
Acquisitions have been and are expected to continue to be an important
component of our growth strategy. From our initial public offering in May 1998
to December 31, 2001, we acquired 106 solid waste services businesses, including
103 collection operations (of which 55 were "tuck-in" acquisitions),
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20 Subtitle D landfills which we own or operate, 30 transfer stations which we
own or operate and 16 recycling facilities. These acquisitions took us into 17
new markets in 11 additional states: Colorado, Iowa, Kansas, Minnesota, Montana,
Nebraska, New Mexico, Oklahoma, Oregon, Texas and Utah. Generating internal
growth and securing additional exclusive arrangements are also important
components of our growth strategy.
Unless otherwise noted, all descriptions of our business in this Annual
Report on Form 10-K are as of December 31, 2001.
INDUSTRY BACKGROUND
We estimate that the U.S. solid waste services industry generated revenues
of $40.0 billion in 2000. The solid waste services industry has undergone
significant consolidation and integration since 1990. We believe that,
particularly in the Western U.S., the following factors have primarily caused
the consolidation and integration of the waste services industry:
- Increased Impact of Regulations. Stringent industry regulations, such as
the Subtitle D regulations, have caused operating and capital costs to
rise and have accelerated consolidation and acquisition activities in the
solid waste collection and disposal industry. Many smaller industry
participants have found these costs difficult to bear and have decided to
either close their operations or sell them to larger operators. In
addition, Subtitle D requires more stringent engineering of solid waste
landfills, and mandates liner systems, leachate collection, treatment and
monitoring systems and gas collection and monitoring systems. These
ongoing costs are combined with increased financial reserve requirements
for solid waste landfill operators relating to closure and post-closure
monitoring. As a result, the number of solid waste landfills is declining
while the average size is increasing.
- Increased Integration of Collection and Disposal Operations. In certain
markets, competitive pressures are forcing operators to become more
efficient by establishing an integrated network of solid waste collection
operations and transfer stations, through which they secure solid waste
streams for disposal. Operators have adopted a variety of disposal
strategies, including owning landfills, establishing strategic
relationships to secure access to landfills and to capture significant
waste stream volumes to gain leverage in negotiating lower landfill fees,
and securing long-term, most-favored-pricing contracts with high capacity
landfills.
- Pursuit of Economies of Scale. Larger operators achieve economies of
scale by vertically integrating their operations or by spreading their
facility, asset and management infrastructure over larger volumes. Larger
solid waste collection and disposal companies have become more
cost-effective and competitive by controlling a larger waste stream and
by gaining access to significant financial resources to make
acquisitions.
- Regulatory Framework in the Western U.S. In the Western U.S., waste
collection services are provided largely under three types of contractual
arrangements: certificates or permits, franchise agreements and municipal
contracts. Certificates or permits, such as governmental certificates
awarded to waste collection service providers in unincorporated areas and
electing municipalities of Washington by the Washington Utilities and
Transportation Commission (the "WUTC"), typically grant the certificate
holder the exclusive and perpetual right to provide specific residential,
commercial and industrial waste services in a territory at specified
rates. See "G certificates" below. Franchise agreements typically provide
an exclusive service period of five to ten years or longer and specify
the service territory, a broad range of services to be provided, and
rates for the services. They also often give the service provider a right
of first refusal to extend the term of the agreement. Municipal contracts
typically provide a shorter service period and a more limited scope of
services than franchise agreements and generally require competitive
bidding at the end of the contract term. Unless customers within the
areas covered by certain governmental certificates, franchise agreements
and municipal contracts elect not to receive any waste collection
services, they are required to pay collection fees to the company
providing these services in their area. These exclusive rights and
contractual arrangements create barriers to entry that can be overcome
primarily through acquisitions of companies with such exclusive rights or
contractual arrangements.
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Despite the ongoing consolidation, the solid waste services industry
remains primarily regional in nature and highly fragmented. Based on published
industry sources, approximately 20% of the total revenues of the U.S. solid
waste industry is accounted for by more than 5,000 private, predominantly small,
collection and disposal businesses. We expect the current consolidation trends
in the solid waste industry to continue, because many independent landfill and
collection operators lack the capital resources, management skills and technical
expertise necessary to comply with stringent environmental and other
governmental regulations and to compete with larger, more efficient, integrated
operators. In addition, many independent operators may wish to sell their
businesses to achieve liquidity in their personal finances or as part of their
estate planning. We believe that the fragmented nature of the industry offers
significant consolidation and growth opportunities, especially in secondary
markets of the Western U.S., for companies with disciplined acquisition
programs, decentralized operating strategies and access to financial resources.
STRATEGY
Our objective is to build a leading integrated solid waste services company
in secondary markets of the Western U.S. We have developed a two-pronged
strategy tailored to the competitive and regulatory factors that affect our
markets.
First, in markets where waste collection services are provided under
exclusive arrangements, or where waste disposal is municipally funded or
available from multiple municipal sources, we believe that controlling the waste
stream by providing collection services under exclusive arrangements is often
more important to our growth and profitability than owning or operating
landfills. In addition, regulations in some Western U.S. markets dictate the
disposal facility to be used. The large size of many western states increases
the cost of interstate and long haul disposal, heightening the effects of
regulations that direct waste disposal, which may make it more difficult for a
landfill to obtain the disposal volume necessary to operate profitably. In
markets with these characteristics, we believe that landfill ownership or
vertical integration is not critical to our success.
Second, in markets where we believe that owning landfills is a strategic
element to a collection operation because of competitive and regulatory factors,
we generally focus on providing integrated services, from collection through
disposal of solid waste in landfills that we own or operate.
GROWTH STRATEGY
- Internal Growth. To generate continued internal growth, we will focus on
increasing market penetration in our current and adjacent markets,
soliciting new commercial, industrial, and residential customers in
markets where such customers may elect whether or not to receive waste
collection services, marketing upgraded or additional services (such as
compaction or automated collection) to existing customers and, where
appropriate, raising prices. Where possible, we intend to leverage our
franchise-based platforms to expand our customer base beyond our
exclusive market territories. As customers are added in existing markets,
our revenue per routed truck increases, which generally increases our
collection efficiencies and profitability. In markets in which we have
exclusive contracts, franchises and certificates, we expect internal
volume growth generally to track population and business growth.
- Transfer stations are also an important part of our internal growth
strategy. They extend our direct-haul reach and link disparate collection
operations with disposal capacity that we own, operate or contract. We
currently own and/or operate 30 transfer stations. By operating transfer
stations, we also engage in direct communications with municipalities and
private operators that deliver waste to our transfer stations. This
positions us to gain additional business in our markets if a municipality
privatizes any solid waste operations it owns or rebids existing
contracts, and it increases our opportunities to acquire other private
collection operations that use the transfer stations.
- Exclusive Arrangements. We derive a significant portion of our revenues
from arrangements, including franchise agreements, municipal contracts
and governmental certificates, under which we are the exclusive service
provider in a specified market. We intend to devote significant resources
to securing additional franchise agreements and municipal contracts
through competitive bidding and additional governmental certificates by
acquiring other companies. In bidding for franchises and municipal
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contracts and evaluating acquisition candidates holding governmental
certificates, our management team draws on its experience in the waste
industry and its knowledge of local service areas in existing and target
markets. Our district managers maintain relationships with local
governmental officials within their service areas, and sales
representatives may be assigned to cover specific municipalities. These
personnel focus on maintaining, renewing and renegotiating existing
franchise agreements and municipal contracts and on securing additional
agreements and contracts.
- Expansion Through Acquisitions. We intend to expand the scope of our
operations by continuing to acquire solid waste operations in new markets
and in existing or adjacent markets that are combined with or "tucked in"
to existing operations. We focus our acquisition efforts on markets which
we believe provide significant growth opportunities for a
well-capitalized market entrant and where we can create economic and
operational barriers to entry by new competitors. We believe that our
experienced management, decentralized operating strategy, financial
strength, size and public company status make us an attractive buyer to
certain solid waste collection and disposal acquisition candidates. We
have developed an acquisition discipline based on a set of financial,
geographic and management criteria to evaluate opportunities. Once
closed, we seek to integrate each acquired business promptly and to
minimize disruption to the ongoing operations of both Waste Connections
and the acquired business.
We intend to expand into new geographic regions through acquisitions. We
use an initial acquisition in a new market as an operating base. Then we
seek to strengthen the acquired operation's presence in that market by
providing additional services, adding new customers and making "tuck-in"
acquisitions. We next seek to broaden our regional presence by adding
additional operations in markets adjacent to the new location.
We believe that many new market "tuck-in" acquisition opportunities exist
within our current and targeted market areas. For example, we have
identified more than 480 independent entities that provide collection and
disposal services in the states where we currently operate. We believe
that throughout the Western U.S., many independent entities are suitable
for acquisition by Waste Connections and provide opportunities to increase
our market share and route density.
OPERATING STRATEGY
- Decentralized Operations. We manage our operations on a decentralized
basis. This places decision-making authority close to the customer,
enabling us to identify customers' needs quickly and to address those
needs in a cost-effective manner. We believe that decentralization
provides a low-overhead, highly efficient operational structure that
allows us to expand into geographically contiguous markets and operate in
relatively small communities that larger competitors may not find
attractive. We believe that this structure gives us a strategic
competitive advantage, given the relatively rural nature of much of the
Western U.S., and makes us an attractive buyer to many potential
acquisition candidates.
- We currently deliver our services from approximately 64 operating
locations which are grouped into three regions: Pacific Northwest,
Western and Central. We reorganized our business into these three regions
in May 2000, balancing them on the basis of their respective geographic
characteristics, interstate waste flow, revenue base, employee base,
regulatory structure and acquisition opportunities. Each region has a
Regional Vice President, reporting directly to the corporate management,
who is responsible for operations in that region and who supervises a
regional controller and regional business development staff.
- Our regions serve a total of 20 market areas, divided into 64 districts.
Our district managers have autonomous service and decision-making
authority for their districts and are responsible for maintaining service
quality, promoting safety in the operations, implementing marketing
programs, and overseeing day-to-day operations, including contract
administration. District managers also help identify acquisition
candidates and are responsible for integrating them into our operations
and obtaining the permits and other governmental approvals required for
us to operate the acquired business.
- Operating Enhancements. We develop company-wide operating standards,
which are tailored for each of our markets based on industry standards
and local conditions. Using these standards, we track
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collection and disposal routing efficiency and equipment utilization. We
also implement cost controls and employee training and safety procedures,
and establish a sales and marketing plan for each market. We have
installed a wide area network, implemented advanced management
information systems and financial controls, and consolidated accounting,
insurance and employee benefit functions, customer service, productivity
reporting and dispatching systems. While regional management operates
with a high degree of autonomy, our senior officers monitor regional and
district operations and require adherence to our accounting, purchasing,
marketing and internal control policies, particularly with respect to
financial matters. Our executive officers regularly review the
performance of district managers and operations. We believe that by
establishing operating standards, closely monitoring performance and
streamlining certain administrative functions, we can improve the
profitability of existing operations.
To improve an acquired business' operational productivity, administrative
efficiency and profitability, we apply the same operating standards,
information systems and financial controls to acquired businesses as our
existing operations employ. Moreover, if we can internalize the waste
stream of acquired operations, we can further increase operating
efficiencies and improve capital utilization. Where not restricted by
exclusive agreements, contracts, permits or certificates, we also solicit
new commercial, industrial and residential customers in areas within and
surrounding the markets served by acquired collection operations, to
further improve operating efficiencies and increase the volume of solid
waste collected by the acquired operations.
SERVICES
Commercial, Industrial and Residential Waste Services
We serve more than 700,000 commercial, industrial and residential
customers. Our services are generally provided under one of the following: a)
governmental certificates, b) exclusive franchise agreements, c) exclusive
municipal contracts, d) commercial and industrial service agreements, e)
residential subscriptions and f) residential contracts.
Governmental certificates, exclusive franchise agreements and exclusive
municipal contracts grant us rights to provide services within specified areas
at established rates. Governmental certificates are generally perpetual in
duration. Our exclusive franchise agreements have remaining terms from 10 to 41
years, and our exclusive municipal contracts generally have shorter contract
terms.
We provide commercial and industrial services, other than those we perform
under governmental certificates, franchise agreements or municipal contracts,
under agreements ranging from one to seven years. We determine fees under these
agreements by such factors as collection frequency, level of service, route
density, the type, volume and weight of the waste collected, type of equipment
and containers furnished, the distance to the disposal or processing facility,
the cost of disposal or processing and prices charged in our markets for similar
service. Collection of larger volumes associated with commercial and industrial
waste streams generally helps improve our operating efficiencies, and
consolidation of these volumes allows us to negotiate more favorable disposal
prices. Our commercial and industrial customers use portable containers for
storage, enabling us to service many customers with fewer collection vehicles.
Commercial and industrial collection vehicles normally require one operator. We
provide one to eight cubic yard containers to commercial customers, 10 to 50
cubic yard containers to industrial customers, and 30 to 96 gallon carts to
residential customers. For an additional fee, we install stationary compactors
that compact waste prior to collection on the premises of a substantial number
of large volume customers.
We provide residential waste services under contracts with homeowners'
associations, apartment owners or mobile home park operators, or on subscription
basis with individual households. We base residential fees on a contract basis
primarily on route density, the frequency and level of service, the distance to
the disposal or processing facility, weight and type of waste collected, type of
equipment and containers furnished, the cost of disposal or processing and
prices charged in that market for similar services. Collection fees are paid
either by the municipalities from tax revenues or directly by the residents
receiving the services.
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Transfer Station Services
We have an active program to acquire, develop, own and operate transfer
stations in markets proximate to our operations. Currently, we own and operate
transfer stations in California, Colorado, Nebraska, Oklahoma, Oregon and
Washington and we are constructing a transfer station in Kansas. In addition, we
operate, but do not own, transfer stations in California, Nebraska, Oregon and
Washington. These transfer stations receive, compact, and transfer solid waste
to be transported by larger vehicles to landfills. We believe that the transfer
stations benefit us by:
- concentrating the waste stream from a wider area, which increases the
volume of disposal at landfills that we operate and gives us greater
leverage in negotiating for more favorable disposal rates at other
landfills;
- improving utilization of collection personnel and equipment; and
- building relationships with municipalities and private operators that
deliver waste, which can lead to additional growth opportunities.
Landfills
We seek to identify solid waste landfill acquisition candidates to achieve
vertical integration in markets where the economic and regulatory environment
makes such acquisitions attractive. We believe that in some markets, acquiring
landfills provides opportunities to vertically integrate our collection,
transfer and disposal operations while improving operating margins. We evaluate
landfill candidates by determining, among other things, the amount of waste that
could be diverted to the landfill in question, whether access to the landfill is
economically feasible from our existing market areas either directly or through
transfer stations, the expected life of the landfill, the potential for
expanding the landfill, and current disposal costs compared to the cost of
acquiring the landfill. Where the acquisition of a landfill is not attractive,
we pursue long term disposal contracts with facilities, which are typically
municipally controlled.
Currently, we own and operate landfills in Colorado, Kansas, Minnesota,
Nebraska, New Mexico, Oklahoma and Oregon. In addition, we operate, but do not
own, landfills in California, Nebraska and New Mexico. All landfills that we own
or operate are Subtitle D landfills.
We monitor the available permitted in-place disposal capacity of our
landfills on an ongoing basis and evaluate whether to seek to expand this
capacity. In making this evaluation, we consider various factors, including the
volume of waste projected to be disposed of at the landfill, the size of the
unpermitted acreage included in the landfill, the likelihood that we will be
able to obtain the necessary approvals and permits required for the expansion
and the costs that would be involved in developing the additional capacity. We
also regularly consider whether it is advisable, in light of changing market
conditions and/or regulatory requirements, to seek to expand or change the
permitted waste streams or to seek other permit modifications.
Recycling Services
We offer municipal, commercial, industrial and residential customers
recycling services for a variety of recyclable materials, including cardboard,
office paper, plastic containers, glass bottles and ferrous and aluminum metals.
We own and operate 16 recycling processing facilities and sell other collected
recyclable materials to third parties for processing before resale. We often
share the profits from our resale of recycled materials with other parties to
our recycling contracts. For example, certain of our municipal recycling
contracts in Washington, negotiated before we acquired those businesses, specify
certain benchmark resale prices for recycled commodities. To the extent the
prices we actually receive for the processed recycled commodities collected
under the contract exceed the prices specified in the contract, we share the
excess with the municipality, after recovering any previous shortfalls resulting
from actual market prices falling below the prices specified in the contract. To
reduce our exposure to commodity price risk with respect to recycled materials,
we have adopted a pricing strategy of charging collection and processing fees
for recycling volume collected from third parties. We believe that recycling
will continue to be an important component of local and
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state solid waste management plans due to the public's increasing environmental
awareness and expanding regulations that mandate or encourage recycling.
G Certificates
A substantial portion of our Washington collection business is performed
under governmental certificates (referred to as "G certificates") awarded by the
WUTC. G certificates apply only to unincorporated areas of Washington and
municipalities that have elected to have their solid waste collection overseen
by the WUTC. G certificates generally grant the holder the exclusive and
perpetual right to provide certain solid waste collection and transportation
services in a specified territory. The WUTC has repeatedly determined that, in
enacting the statute authorizing G certificates, the Washington Legislature
intended to favor grants of exclusive, rather than overlapping, service rights
for conventional solid waste services. Accordingly, most G certificates
currently grant exclusive solid waste collection and transportation rights for
conventional solid waste services in their specified territories.
The WUTC and the Washington Legislature have generally construed G
certificates as conferring vested property rights that may be defeated,
diminished or cancelled only upon the occurrence of specified events of default,
the demonstrated lack of fitness of the certificate holder, or municipalities'
annexation of territory covered by a certificate. Thus, a certificate holder is
entitled to due process in challenging any action that affects its rights. In
addition, legislation passed in 1997 requires a municipality that annexes
territory covered by a G certificate either to grant the certificate holder an
exclusive franchise, generally with a minimum term of seven years, to continue
to provide services in the affected area, or to negotiate with the certificate
holder some other compensation for the collection rights in the affected area.
The statute expressly permits the certificate holder to sue the annexing
municipality for measurable damages that exceed the value of a seven-year
franchise agreement to provide services in the affected area. Under one of the
contracts with a municipality in Washington acquired by a predecessor of Waste
Connections, the predecessor purported to waive its rights to compensation or
damages under the statute in return for the right to service any current or
prospectively annexed areas formerly covered by its G certificate.
In addition to awarding G certificates, the WUTC is required by statute to
establish just, reasonable and compensatory rates to customers of regulated
solid waste collection companies. The WUTC is charged with balancing the needs
of service providers to earn fair and sufficient returns on their investments in
plant and equipment against the needs of commercial and residential customers to
receive adequate and reasonably priced services. Over the past decade, the WUTC
has used a rate-making methodology known as the "Lurito-Gallagher" method. This
method calculates rates based on the income statements and balance sheets of
each service provider, with the goal of establishing rates that reflect the
costs of providing service and that motivate service providers to invest in
equipment that improves operating efficiency in a cost-effective manner. The
Lurito-Gallagher rate-setting methodology was adjusted in the early 1990's to
better reflect the costs of providing recycling services, by accounting for
providers' increasing use of automated equipment and adjusting for the
cyclicality of the secondary recyclables markets. This has often resulted in
more frequent rate adjustments in response to material cost shifts.
Sales and Marketing
In many of our existing markets, we provide waste collection, transfer and
disposal services to municipalities and governmental authorities under exclusive
franchise agreements, municipal contracts and G certificates; service providers
do not contract directly with individual customers. In addition, because we have
grown to date primarily through acquisitions, we have generally assumed existing
franchise agreements, municipal contracts and G certificates from the acquired
companies, rather than obtaining new contracts. For these reasons, our sales and
marketing efforts to date have been narrowly focused. We have added sales and
marketing personnel as necessary to solicit new customers in markets where we
are not the exclusive provider of solid waste services, expand our presence into
areas adjacent to or contiguous with our existing markets, and market additional
services to existing customers.
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Competition
The solid waste services industry is highly competitive and fragmented and
requires substantial labor and capital resources. The industry presently
includes three large national waste companies: Allied Waste Industries, Inc.,
Republic Services, Inc., and Waste Management, Inc. Casella Waste Systems, Inc.,
and Waste Industries, Inc. are other public companies with a regional focus and
annual revenues in excess of $100 million. Certain of the markets in which we
compete or will likely compete are served by one or more large, national solid
waste companies, as well as by numerous privately held regional and local solid
waste companies of varying sizes and resources, some of which have accumulated
substantial goodwill in their markets. We also compete with operators of
alternative disposal facilities, including incinerators, and with counties,
municipalities, and solid waste districts that maintain their own waste
collection and disposal operations. Public sector operations may have financial
advantages over Waste Connections, because of their access to user fees and
similar charges, tax revenues and tax-exempt financing.
We compete for collection, transfer and disposal volume based primarily on
the price and quality of our services. From time to time, competitors may reduce
the price of their services in an effort to expand their market shares or
service areas or to win competitively bid municipal contracts. These practices
may cause us to reduce the price of our services or, if we elect not to do so,
to lose business. We provide a substantial portion of our residential,
commercial and industrial collection services under exclusive franchise and
municipal contracts and certificates, some of which are subject to periodic
competitive bidding. We provide the balance of our services under subscription
agreements with individual households and one to five year service contracts
with commercial and industrial customers.
The solid waste collection and disposal industry is currently undergoing
significant consolidation, and we encounter competition in our efforts to
acquire landfills, transfer and collection operations. Intense competition
exists not only for collection, transfer and disposal volume, but also for
acquisition candidates. We generally compete for acquisition candidates with
publicly owned regional and large national waste management companies.
Competition in the disposal industry may also be affected by the increasing
national emphasis on recycling and other waste reduction programs, which may
reduce the volume of waste deposited in landfills. Accordingly, it may become
uneconomical for us to make further acquisitions or we may be unable to locate
or acquire suitable acquisition candidates at price levels and on terms and
conditions that we consider appropriate, particularly in markets we do not
already serve.
REGULATION
Introduction
Our landfill operations and non-landfill operations, including waste
transportation, transfer stations, vehicle maintenance shops and fueling
facilities, are all subject to extensive and evolving federal, state and local
environmental laws and regulations, the enforcement of which has become
increasingly stringent in recent years. The environmental regulations that
affect us are administered by the EPA and other federal, state and local
environmental, zoning, health and safety agencies. The WUTC regulates the
portion of our collection business in Washington performed under G certificates,
which generally grant us perpetual and exclusive collection rights in certain
areas. We are currently in substantial compliance with applicable federal, state
and local environmental laws, permits, orders and regulations. We do not
currently anticipate any material environmental costs necessary to bring our
operations into compliance (although there can be no assurance in this regard).
We anticipate that regulation, legislation and regulatory enforcement actions
related to the solid waste services industry will continue to increase. We
attempt to anticipate future regulatory requirements and to plan in advance as
necessary to comply with them.
The principal federal, state and local statutes and regulations that apply
to our operations are described below. All of the federal statutes described
below contain provisions that authorize, under certain circumstances, lawsuits
by private citizens to enforce the provisions of the statutes. In addition to a
penalty award by the United States, some of those statutes authorize an award of
attorneys' fees to parties that successfully bring such an action. Enforcement
actions under these statutes may include both civil and criminal penalties, as
well as injunctive relief in some instances.
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The Resource Conservation and Recovery Act of 1976 ("RCRA")
RCRA regulates the generation, treatment, storage, handling, transportation
and disposal of solid waste and requires states to develop programs to ensure
the safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
either (i) are specifically included on a list of hazardous wastes, or (ii)
exhibit certain characteristics defined as hazardous. Household wastes are
specifically designated as nonhazardous. Wastes classified as hazardous under
RCRA are subject to much stricter regulation than wastes classified as
nonhazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of nonhazardous
waste.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation, treatment,
storage and disposal of hazardous wastes. The Subtitle C Regulations impose
obligations on generators, transporters and disposers of hazardous wastes, and
require permits that are costly to obtain and maintain for sites where such
material is treated, stored or disposed. Subtitle C requirements include
detailed operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, corrective action, facility closure, post-closure and financial
responsibility. Most states have promulgated regulations modeled on some or all
of the Subtitle C provisions issued by the EPA. Some state regulations impose
different, additional and more stringent obligations, and may regulate certain
materials as hazardous wastes that are not so regulated under the federal
Subtitle C Regulations. From the date of inception through December 31, 2001, we
did not, to our knowledge, transport hazardous wastes under circumstances that
would subject us to hazardous waste regulations under RCRA. Some of our
ancillary operations (e.g., vehicle maintenance operations) may generate
hazardous wastes. We manage these wastes in substantial compliance with
applicable laws.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA on landfill owners and operators in that state.
Each state is also required to adopt and implement a permit program or other
appropriate system to ensure that landfills in the state comply with the
Subtitle D Regulations. Various states in which we operate or in which we may
operate in the future have adopted regulations or programs as stringent as, or
more stringent than, the Subtitle D Regulations.
RCRA also regulates underground storage of petroleum and other regulated
materials. RCRA requires registration, compliance with technical standards for
tanks, release detection and reporting, and corrective action, among other
things. Certain of Waste Connections' facilities and operations are subject to
these requirements.
The Federal Water Pollution Control Act of 1972, as Amended (the "Clean Water
Act")
The Clean Water Act regulates the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the United States. If run-off from our transfer stations or run-off or
collected leachate from our owned or operated landfills is discharged into
streams, rivers or other surface waters, the Clean Water Act would require us to
apply for and obtain a discharge permit, conduct
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sampling and monitoring and, under certain circumstances, reduce the quantity of
pollutants in such discharge. Also, virtually all landfills are required to
comply with the EPA's storm water regulations issued in November 1990, which are
designed to prevent contaminated landfill storm water runoff from flowing into
surface waters. We believe that our facilities comply in all material respects
with the Clean Water Act requirements. Various states in which we operate or in
which we may operate in the future have been delegated authority to implement
the Clean Water Act permitting requirements, and some of these states have
adopted regulations that are more stringent than the federal requirements. For
example, states often require permits for discharges to ground water as well as
surface water.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide
for the investigation and cleanup of facilities where or from which a release of
any hazardous substance into the environment has occurred or is threatened.
CERCLA's primary mechanism for remedying such problems is to impose strict joint
and several liability for cleanup of facilities on current owners and operators
of the site, former owners and operators of the site at the time of the disposal
of the hazardous substances, any person who arranges for the transportation,
disposal or treatment of the hazardous substances, and the transporters who
select the disposal and treatment facilities. CERCLA also imposes liability for
the cost of evaluating and remedying any damage to natural resources. The costs
of CERCLA investigation and cleanup can be very substantial. Liability under
CERCLA does not depend on the existence or disposal of "hazardous waste" as
defined by RCRA; it can also be based on the existence of even very small
amounts of the more than 700 "hazardous substances" listed by the EPA, many of
which can be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If we were found to be a responsible party for a CERCLA cleanup, the
enforcing agency could hold us, or any other generator, transporter or the owner
or operator of the contaminated facility, responsible for all investigative and
remedial costs, even if others were also liable. CERCLA also authorizes the
imposition of a lien in favor of the United States on all real property subject
to, or affected by, a remedial action for all costs for which a party is liable.
CERCLA gives a responsible party the right to bring a contribution action
against other responsible parties for their allocable shares of investigative
and remedial costs. Our ability to obtain reimbursement from others for their
allocable shares of such costs would be limited by our ability to find other
responsible parties and prove the extent of their responsibility and by the
financial resources of such other parties. Various state laws also impose
liability for investigation, cleanup and other damages associated with hazardous
substance releases.
The Clean Air Act
The Clean Air Act generally, through state implementation of federal
requirements, regulates emissions of air pollutants from certain landfills based
on factors such as the date of the landfill construction and tons per year of
emissions of regulated pollutants. Larger landfills and landfills located in
areas where the ambient air does not meet certain requirements of the Clean Air
Act may be subject to even more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards regulating the disposal
of asbestos-containing materials. Air permits to construct may be required for
gas collection and flaring systems, and operating permits may be required,
depending on the potential air emissions. State air regulatory programs may
implement the federal requirements but may impose additional restrictions. For
example, some state air programs uniquely regulate odor and the emission of
toxic air pollutants.
The Occupational Safety and Health act of 1970 (the "OSH ACT")
The OSH Act is administered by the Occupational Safety and Health
Administration ("OSHA"), and in many states by state agencies whose programs
have been approved by OSHA. The OSH Act establishes employer responsibilities
for worker health and safety, including the obligation to maintain a workplace
free of recognized hazards likely to cause death or serious injury, to comply
with adopted worker protection standards, to maintain certain records, to
provide workers with required disclosures and to implement certain health and
safety training programs. Various OSHA standards may apply to Waste Connections'
operations, including
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standards concerning notices of hazards, safety in excavation and demolition
work, the handling of asbestos and asbestos-containing materials, and worker
training and emergency response programs.
Flow Control/Interstate Waste Restrictions
Certain permits and approvals, as well as certain state and local
regulations, may limit a landfill or transfer station to accepting waste that
originates from specified geographic areas, restrict the importation of
out-of-state waste or wastes originating outside the local jurisdiction or
otherwise discriminate against non-local waste. These restrictions, generally
known as flow control restrictions, are controversial, and some courts have held
that some flow control schemes violate constitutional limits on state or local
regulation of interstate commerce. From time to time, federal legislation is
proposed that would allow some local flow control restrictions. Although no such
federal legislation has been enacted to date, if such federal legislation should
be enacted in the future, states in which we own or operate landfills could
limit or prohibit the importation of out-of-state waste or direct that wastes be
handled at specified facilities. Such state actions could adversely affect our
landfills. These restrictions could also result in higher disposal costs for our
collection operations. If we were unable to pass such higher costs through to
our customers, our business, financial condition and operating results could be
adversely affected.
Certain state and local jurisdictions may also seek to enforce flow control
restrictions through local legislation or contractually. In certain cases, we
may elect not to challenge such restrictions. These restrictions could reduce
the volume of waste going to landfills in certain areas, which may adversely
affect our ability to operate our landfills at their full capacity and/or reduce
the prices that we can charge for landfill disposal services. These restrictions
may also result in higher disposal costs for our collection operations. If we
were unable to pass such higher costs through to our customers, our business,
financial condition and operating results could be adversely affected.
State and Local Regulation
Each state in which we now operate or may operate in the future has laws
and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, occupational safety and health,
water and air pollution and, in most cases, the siting, design, operation,
maintenance, closure and post-closure maintenance of landfills and transfer
stations. State and local permits and approval for these operations may be
required and may be subject to periodic renewal, modification or revocation by
the issuing agencies. In addition, many states have adopted statutes comparable
to, and in some cases more stringent than, CERCLA. These statutes impose
requirements for investigation and cleanup of contaminated sites and liability
for costs and damages associated with such sites, and some provide for the
imposition of liens on property owned by responsible parties. Furthermore, many
municipalities also have ordinances, local laws and regulations affecting our
operations. These include zoning and health measures that limit solid waste
management activities to specified sites or activities, flow control provisions
that direct or restrict the delivery of solid wastes to specific facilities,
laws that grant the right to establish franchises for collection services and
then put such franchises out for bid, and bans or other restrictions on the
movement of solid wastes into a municipality.
Permits or other land use approvals with respect to a landfill, as well as
state or local laws and regulations, may specify the quantity of waste that may
be accepted at the landfill during a given time period, and/or specify the types
of waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it must generally be renewed periodically.
There has been an increasing trend at the state and local level to mandate
and encourage waste reduction at the source and waste recycling, and to prohibit
or restrict the disposal of certain types of solid wastes, such as yard wastes,
leaves and tires, in landfills. The enactment of regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
prevent us from operating our facilities at their full capacity.
Some state and local authorities enforce certain federal laws in addition
to state and local laws and regulations. For example, in some states, RCRA, the
OSH Act, parts of the Clean Air Act and parts of the
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Clean Water Act are enforced by local or state authorities instead of by the
EPA, and in some states those laws are enforced jointly by state or local and
federal authorities.
Public Utility Regulation
In many states, public authorities regulate the rates that landfill
operators may charge. The adoption of rate regulation or the reduction of
current rates in states in which we own or operate landfills could adversely
affect our business, financial condition and operating results.
Solid waste collection services in all unincorporated areas of Washington
and in electing municipalities in Washington are provided under G certificates
awarded by the WUTC. The WUTC also sets rates for regulated solid waste
collection services in Washington.
Risk Management, Insurance and Performance Bonds
We maintain environmental and other risk management programs appropriate
for our business. Our environmental risk management program includes evaluating
existing facilities and potential acquisitions for environmental law compliance.
We do not presently expect environmental compliance costs to increase above
current levels, but we cannot predict whether future acquisitions will cause
such costs to increase. We also maintain a worker safety program that encourages
safe practices in the workplace. Operating practices at all Waste Connections
operations emphasize minimizing the possibility of environmental contamination
and litigation. Our facilities comply in all material respects with applicable
federal and state regulations.
We carry a broad range of insurance, which our management considers
adequate to protect our assets and operations. The coverage includes general
liability, comprehensive property damage, workers' compensation and other
coverage customary in the industry. These policies generally exclude coverage
for damages associated with environmental conditions. Because of the limited
availability and high cost of environmental impairment liability insurance, we
have not obtained such coverage. If we were to incur liability for environmental
cleanups, corrective action or damage, our financial condition could be
materially and adversely affected. We will continue to investigate the
possibility of obtaining environmental impairment liability insurance,
particularly if we acquire or operate additional landfills. We believe that most
other landfill operators do not carry such insurance.
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. Certain
environmental regulations also require demonstrated financial assurance to meet
closure and post-closure requirements for landfills. We have not experienced
difficulty in obtaining performance bonds or letters of credit for our current
operations. At December 31, 2000, we had provided customers and various
regulatory authorities with surety bonds in the aggregate amount of
approximately $9.9 million to secure our obligations (exclusive of letters of
credit backing certain municipal bond obligations). If we are unable to obtain
surety bonds or letters of credit in sufficient amounts or at acceptable rates,
we could be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits.
Employees
At December 31, 2001, we employed approximately 2,010 full-time employees,
including approximately 211 persons classified as professionals or managers,
approximately 1,526 employees involved in collection, transfer, disposal and
recycling operations, and approximately 273 sales, clerical, data processing or
other administrative employees.
The Teamsters Union represents approximately 113 drivers and mechanics at
our Vancouver, Washington operation. The labor agreement between the Union and
Waste Connections was renewed in January 2000 for a period of three years.
The Teamsters Union represents approximately 26 drivers and mechanics at
Arrow Sanitary Services, Inc. ("Arrow"), one of our wholly owned subsidiaries.
The current labor agreement expired on March 1, 2001
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and the we are negotiating a new contract. We expect these negotiations to be
resolved without any material adverse effects on Waste Connections.
The Teamsters Union represents approximately 59 of the drivers for the
Murrey Companies, which are wholly owned subsidiaries of Waste Connections. A
new collective bargaining agreement, with a term of three and a half years, was
negotiated during the fourth quarter of 1999.
The Teamsters Union represents approximately seven drivers and mechanics at
our Miles City, Montana operation. The current labor agreement expires in
October 2001.
There have been organizing efforts at two of our other operations covering
a total of 52 non-management employees. We do not anticipate that these efforts
will lead to organization of these operations.
We are not aware of any other organizational efforts among our employees
and believe that our relations with our employees are good.
ITEM 2. PROPERTIES
As of December 31, 2001, we owned and operated 64 collection operations, 21
transfer stations, 14 Subtitle D landfills and 16 recycling facilities and
operated an additional nine transfer stations and six Subtitle D landfills. We
lease various offices and facilities, including our corporate offices in Folsom,
California. The real estate that we own is not subject to material encumbrances.
We own various equipment, including waste collection and transportation
vehicles, related support vehicles, carts, containers, and heavy equipment used
in landfill operations. We believe that our existing facilities and equipment
are generally adequate for our current operations. However, we expect to make
additional investments in property and equipment for expansion and replacement
of assets and in connection with future acquisitions.
Our corporate headquarters are located in Folsom, California, where we
lease approximately 14,800 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
We are a party to various legal proceedings in the ordinary course of
business and as a result of the extensive governmental regulation of the solid
waste industry. Our management does not believe that these proceedings, either
individually or in the aggregate, are likely to have a material adverse effect
on our business, financial condition, operating results or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 2000.
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MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our executive
officers as of March 31, 2001:
NAME AGE POSITIONS
---- --- ---------
Ronald J. Mittelstaedt(1)(2)........... 37 President, Chief Executive Officer and Chairman
Steven F. Bouck........................ 44 Executive Vice President and Chief Financial Officer
Darrell W. Chambliss................... 36 Executive Vice President -- Operations, Secretary
David M. Hall.......................... 43 Vice President -- Business Development
Michael R. Foos........................ 35 Vice President -- Finance and Chief Accounting
Officer
Eric J. Moser.......................... 34 Vice President -- Corporate Controller, Treasurer
Jerri L. Hunt.......................... 49 Vice President -- Human Resources and Risk Management
James M. Little........................ 39 Vice President -- Engineering
Eric Hansen............................ 36 Vice President -- Information Technology
- ---------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
Ronald J. Mittelstaedt has been President, Chief Executive Officer and a
director since Waste Connections was formed, and was elected Chairman in January
1998. He also served as a consultant to Waste Connections in August and
September 1997. Mr. Mittelstaedt has more than ten years of experience in the
solid waste industry. He served as a consultant to United Waste Systems, Inc.,
with the title of Executive Vice President, from January 1997 to August 1997,
where he was responsible for corporate development for all states west of
Colorado. As Regional Vice President of USA Waste Services, Inc. (including
Sanifill, Inc., which was acquired by USA Waste Services, Inc.) from November
1993 to January 1997, he was responsible for all operations in 16 states and
Canada. Mr. Mittelstaedt held various positions at Browning-Ferris Industries,
Inc. from August 1987 to November 1993, most recently as Division Vice President
in northern California, overseeing the San Jose market. Previously he was the
District Manager responsible for BFI's operations in Sacramento and the
surrounding areas. He holds a B.S. in Finance from the University of California
at Santa Barbara.
Steven F. Bouck has been Executive Vice President and Chief Financial
Officer since February 1998. Mr. Bouck held various positions with First
Analysis Corporation from 1986 to 1998, including most recently as Managing
Director coordinating corporate finance. In that capacity, he provided merger
and acquisition advisory services to companies in the environmental industry.
Mr. Bouck was also responsible for assisting in investing venture capital funds
focused on the environmental industry that were managed by First Analysis. In
connection with those investments, he served on the boards of directors of
several companies. While at First Analysis, Mr. Bouck also provided analytical
research coverage of a number of publicly traded environmental services
companies. Mr. Bouck holds B.S. and M.S. degrees in mechanical engineering from
Rensselaer Polytechnic Institute and an M.B.A. in Finance from the Wharton
School. He has been a Chartered Financial Analyst since 1990.
Darrell W. Chambliss has been Executive Vice President -- Operations and
Secretary since October 1, 1997. Mr. Chambliss held various management positions
at USA Waste Services, Inc. (including Sanifill, Inc. and United Waste, Inc.,
both of which were acquired by USA Waste Services, Inc.) from April 1995 to
September 1997, including most recently Division Manager in Corning, California,
where he was responsible for the operations of 19 operating companies as well as
supervising and integrating acquisitions. From July 1989 to April 1995, he held
various management positions with Browning-Ferris Industries, Inc., including
serving as Assistant District Manager in San Jose, California, where he was
responsible for a significant hauling operation, and serving as District Manager
in Tucson, Arizona for more than three years. Mr. Chambliss holds a B.S. in
Business Administration from the University of Arkansas.
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David M. Hall has been Vice President -- Business Development since August
1, 1998. Mr. Hall has over fifteen years of experience in the solid waste
industry with extensive operating and marketing experience in the Western U.S.
From October, 1995 to July 1998, Mr. Hall was the Divisional Vice President of
USA Waste Services, Inc., Rocky Mountain Division (including for Sanifill, Inc.
which was acquired by USA Waste Services, Inc.). In that position, he oversaw
all operations and business development in six Rocky Mountain states. Prior to
his employment with Sanifill, Mr. Hall held various management positions with
BFI from October 1986 to October 1995, including Vice President of Sales for the
Western United States. Mr. Hall was employed from 1979 to 1986 in a variety of
sales and marketing management positions in the high technology sector. Mr. Hall
received a BS degree in Management and Marketing in 1979 from Southwest Missouri
State University.
Michael R. Foos has been Vice President -- Finance and Chief Accounting
Officer since October 1999. From October 1997 to September 1999, Mr. Foos served
as Vice President and Corporate Controller of Waste Connections. Mr. Foos served
as Division Controller of USA Waste Services, Inc. (including Sanifill, Inc.,
which was acquired by USA Waste Services, Inc.) from October 1996 to September
1997, where he was responsible for financial compilation and reporting and
acquisition due diligence for a seven-state region. Mr. Foos served as Assistant
Regional Controller at USA Waste Services, Inc. from August 1995 to September
1996, where he was responsible for internal financial reporting for operations
in six states and Canada. Mr. Foos also served as District Controller for Waste
Management, Inc. from February 1990 to July 1995, and was a member of the audit
staff of Deloitte & Touche from 1987 to 1990. Mr. Foos holds a B.S. in
Accounting from Ferris State University.
Eric J. Moser has been Waste Connections' Vice President -- Corporate
Controller, Treasurer since October 1999. From October 1997 to September 1999,
Mr. Moser served as Waste Connections' Treasurer and Assistant Corporate
Controller. From August 1995 to September 1997, Mr. Moser held various finance
positions at USA Waste Services, Inc. (including Sanifill, Inc., which was
acquired by USA Waste Services, Inc.), most recently as Controller of the Ohio
Division, where he was responsible for internal financial compilation and
reporting and acquisition due diligence. Previously Mr. Moser was Controller of
the Michigan Division of USA Waste Services, Inc., where he was responsible for
internal financial reporting. Mr. Moser served as Controller for Waste
Management, Inc. from June 1993 to August 1995, where he was responsible for
internal financial reporting for a hauling company, landfill and transfer
station. Mr. Moser holds a B.S. in Accounting from Illinois State University.
Jerri L. Hunt has been Vice President -- Human Resources and Risk
Management since December 1999. From 1994 to 1999, Ms. Hunt held various
positions with First Union National Bank (including the Money Store, which was
acquired by First Union National Bank), most recently Vice President of Human
Resources in which she managed all aspects of human resources for over 5,000
employees located throughout the United States. From 1989 to 1994, Ms. Hunt
served as Manager of Human Resources and Risk Management for BFI, where she was
responsible for all aspects of human resources and safety and environmental
compliance matters. Ms. Hunt also served as a Human Resources Supervisor for
United Parcel Service from 1976 to 1989. She holds a B.A. in Human Resources
from California State University, Sacramento and a M.S. in Human Resources from
Golden Gate University.
Jim M. Little has been Vice President -- Engineering since September 1999.
Mr. Little held various management positions with Waste Management, Inc.
(including USA Waste Services, Inc., which was acquired by Waste Management,
Inc. and Chambers Development Co. Inc., which was acquired by USA Waste
Services, Inc.) from January 1990 to September 1999, including most recently
Division Manager in Ohio, where he was responsible for the operations of ten
operating companies in the Northern Ohio area. Mr. Little holds both a B.S. and
M.S. in Geology from Slippery Rock University of Pennsylvania.
Eric Hansen, has been Vice President -- Information Technology since
January 2001. From April 1998 to December 2000, Mr. Hansen served as Waste
Connections' Director of Management Information Systems. Mr. Hansen served as
Information Systems Manager with Fibres International from October 1997 to April
1998. Mr. Hansen held various positions including NT Administrator for the
Multnomah Athletic Club in Portland, Oregon from August 1989 to October 1997.
Mr. Hansen earned a Bachelor of Science degree from Portland State University in
1989.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades on The Nasdaq Stock Market(R) -- National Market
under the symbol "WCNX". The following table shows the high and low sale prices
for the common stock as reported by the Nasdaq National Market for the periods
indicated.
HIGH LOW
------ ------
1999
First Quarter............................................ $24.00 $16.50
Second Quarter........................................... 32.13 22.00
Third Quarter............................................ 31.00 19.13
Fourth Quarter........................................... 20.94 10.88
2000
First Quarter............................................ $14.94 $ 9.25
Second Quarter........................................... 19.75 9.75
Third Quarter............................................ 25.94 17.13
Fourth Quarter........................................... 35.25 21.69
On February 28, 2001, there were 92 record holders of Waste Connections
common stock.
We have never paid cash dividends on our common stock. We do not currently
anticipate paying any cash dividends on our common stock. We intend to retain
all earnings to fund the operation and expansion of our business. In addition,
our existing credit facility restricts the payment of cash dividends.
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ITEM 6. SELECTED FINANCIAL DATA
This table sets forth selected financial data of Waste Connections and our
predecessors for the periods indicated. This data should be read in conjunction
with and is qualified by reference to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in Item 7 in this Annual
Report on Form 10-K and our audited consolidated financial statements, including
the notes thereto and the independent auditors' report thereon and the other
financial information included in Item 8 in this Form 10-K. The selected data in
this section are not intended to replace the consolidated financial statements
included in this Report.
The entities Waste Connections acquired in September 1997 from
Browning-Ferris Industries, Inc. ("BFI") are collectively referred to as Waste
Connections' predecessors. BFI acquired the predecessors at various times during
1995 and 1996, and prior to being acquired by BFI, the predecessors operated as
separate stand-alone businesses. The predecessors' results of operations are
prepared on a combined basis during those periods in which they were under
common ownership and control. For periods prior to WCI's incorporation on
September 7, 1997, the accompanying Statement of Operations and Balance Sheet
Data for Waste Connections consists of entities acquired by Waste Connections in
the poolings-of-interest transactions described below.
The selected financial information has been restated to reflect the
business combinations of Waste Connections with Murrey's Disposal Company, Inc.,
American Disposal Company, Inc., D.M. Disposal Co., Inc., and Tacoma Recycling
Company, Inc., Roche & Sons, Inc., Ritters Sanitary Service, Inc., Central Waste
Disposal, Inc., Cen San, Inc., Omega Systems, Inc., The Garbage Company,
Nebraska Ecology Systems and G&P Development, Inc., Cook's Wastepaper and
Recycling, Inc. and Waste Wranglers, Inc. (each accounted for as a
pooling-of-interests).
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WASTE CONNECTIONS, INC. AND PREDECESSORS
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THE
DISPOSAL
GROUP
COMBINED
FROM PREDECESSORS
JANUARY 1, PREDECESSORS WASTE COMBINED
1996 COMBINED CONNECTIONS NINE MONTHS WASTE CONNECTIONS, INC.
THROUGH PERIOD ENDED YEAR ENDED ENDED YEARS ENDED DECEMBER 31,
JULY 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, ------------------------
1996 1996 1996 1997 1997 1998
---------- ------------ ------------ ------------- ---------- -----------
STATEMENT OF OPERATIONS DATA(1):
Revenues............................ $8,738 $13,422 $ 35,744 $18,114 $ 47,510 $ 99,624
Operating expenses:
Cost of operations................ 6,174 11,420 27,426 14,753 36,213 71,635
Selling, general and
administrative.................. 2,126 1,649 3,731 3,009 5,088 9,967
Depreciation and amortization..... 324 962 2,580 1,083 3,180 8,008
Start-up and integration.......... -- -- -- -- 493 --
Stock compensation................ -- -- -- -- 4,395 632
Acquisition related expenses...... -- -- -- -- -- --
------ ------- ---------- ------- ---------- -----------
Income (loss) from operations....... 114 (609) 2,007 (731) (1,859) 9,382
Interest expense.................... (12) (225) (834) (456) (1,957) (3,458)
Other income (expense), net......... 2,661 (147) 420 14 449 410
------ ------- ---------- ------- ---------- -----------
Income (loss) before income tax
provision......................... 2,763 (981) 1,593 (1,173) (3,367) 6,334
Income tax provision................ (505) -- (580) -- (332) (3,040)
------ ------- ---------- ------- ---------- -----------
Income (loss) before extraordinary
item.............................. 2,258 (981) 1,013 (1,173) (3,699) 3,294
Extraordinary item -- early
extinguishment of debt, net of tax
benefit of $264................... -- -- -- -- -- (1,027)
------ ------- ---------- ------- ---------- -----------
Net income (loss)................... $2,258 $ (981) $ 1,013 $(1,173) $ (3,699) $ 2,267
====== ======= ========== ======= ========== ===========
Redeemable convertible preferred
stock accretion................... -- -- -- -- (531) (917)
------ ------- ---------- ------- ---------- -----------
Net income (loss) applicable to
common stockholders............... $2,258 $ (981) $ 1,013 $(1,173) $ (4,230) $ 1,350
====== ======= ========== ======= ========== ===========
Basic income (loss) per common
share:
Income (loss) before extraordinary
item............................ $ 0.26 $ (0.73) $ 0.23
Extraordinary item................ -- -- (0.10)
---------- ---------- -----------
Net income (loss) per common
share............................. $ 0.26 $ (0.73) $ 0.13
========== ========== ===========
Diluted income (loss) per common
share:
Income (loss) before extraordinary
item............................ $ 0.26 $ (0.73) $ 0.19
Extraordinary item................ -- -- (0.08)
---------- ---------- -----------
Net income (loss) per common
share............................. $ 0.26 $ (0.73) $ 0.11
========== ========== ===========
Shares used in calculating basic
income (loss) per share........... 3,849,260 5,825,142 10,412,868
========== ========== ===========
Share used in calculating diluted
income (loss) per share........... 3,849,260 5,825,142 12,323,990
========== ========== ===========
WASTE CONNECTIONS, INC.
YEARS ENDED DECEMBER 31,
-------------------------
1999 2000
----------- -----------
STATEMENT OF OPERATIONS DATA(1):
Revenues............................ $ 184,225 $ 304,355
Operating expenses:
Cost of operations................ 112,686 174,510
Selling, general and
administrative.................. 15,754 25,416
Depreciation and amortization..... 14,769 27,195
Start-up and integration.......... -- --
Stock compensation................ 265 163
Acquisition related expenses...... 9,003 150
----------- -----------
Income (loss) from operations....... 31,748 76,921
Interest expense.................... (11,531) (28,705)
Other income (expense), net......... (66) (717)
----------- -----------
Income (loss) before income tax
provision......................... 20,151 47,499
Income tax provision................ (10,924) (19,310)
----------- -----------
Income (loss) before extraordinary
item.............................. 9,227 28,189
Extraordinary item -- early
extinguishment of debt, net of tax
benefit of $264................... -- --
----------- -----------
Net income (loss)................... $ 9,227 $ 28,189
=========== ===========
Redeemable convertible preferred
stock accretion................... -- --
----------- -----------
Net income (loss) applicable to
common stockholders............... $ 9,227 $ 28,189
=========== ===========
Basic income (loss) per common
share:
Income (loss) before extraordinary
item............................ $ 0.49 $ 1.21
Extraordinary item................ -- --
----------- -----------
Net income (loss) per common
share............................. $ 0.49 $ 1.21
=========== ===========
Diluted income (loss) per common
share:
Income (loss) before extraordinary
item............................ $ 0.46 $ 1.17
Extraordinary item................ -- --
----------- -----------
Net income (loss) per common
share............................. $ 0.46 $ 1.17
=========== ===========
Shares used in calculating basic
income (loss) per share........... 18,655,801 23,301,358
=========== ===========
Share used in calculating diluted
income (loss) per share........... 19,929,539 23,994,994
=========== ===========
See footnotes on page 19.
18
21
WASTE CONNECTIONS, INC.
PREDECESSORS ----------------------------------------------------------
COMBINED DECEMBER 31,
DECEMBER 31, ----------------------------------------------------------
1996 1996 1997 1998 1999 2000
------------- ------- ------- ------------ -------- --------
BALANCE SHEET DATA:
Cash and equivalents........................ $ 102 $ 483 $ 1,327 $ 3,351 $ 2,393 $ 2,461
Working capital (deficit)................... 695 (4,447) (5,380) (14,167) (10,149) (10,398)
Property and equipment, net................. 5,069 15,553 23,275 51,422 335,260 384,237
Total assets................................ 15,291 21,302 45,905 176,659 617,958 810,104
Long-term debt (2).......................... 89 5,928 14,500 68,274 275,145 334,194
Redeemable convertible preferred stock...... -- -- 7,523 -- -- --
Total stockholders' equity.................. -- 4,858 5,374 66,837 218,521 334,208
- ---------------
(1) The entities Waste Connections acquired in September 1997 from BFI are
collectively referred to as Waste Connections' predecessors. BFI acquired
the predecessors at various times during 1995 and 1996, and prior to being
acquired by BFI, the predecessors operated as separate stand-alone
businesses. Various factors affect the year-to-year comparability of the
amounts presented. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations" for additional
information concerning Waste Connections and our predecessors.
(2) Excludes redeemable convertible preferred stock, which converted into common
stock upon our May 1998 initial public offering.
19
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data," our Consolidated Financial Statements and the notes thereto
included elsewhere herein.
OVERVIEW
Waste Connections, Inc. is a regional, integrated solid waste services
company that provides solid waste collection, transfer, disposal and recycling
services in secondary markets of the Western U.S. As of December 31, 2000, we
served more than 700,000 commercial, industrial and residential customers in
California, Colorado, Iowa, Kansas, New Mexico, Minnesota, Montana, Nebraska,
Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming. As of that
date, we owned 64 collection operations and operated or owned 30 transfer
stations, 20 Subtitle D landfills and 16 recycling facilities.
We have acquired 116 businesses from our inception in September 1997
through December 31, 2000, with 26 of these acquisitions occurring in 2000. The
aggregate consideration for acquisitions occurring in 2000, using the purchase
method of accounting, was approximately $172 million. From inception through
December 31, 2000, the results of operations of these acquired businesses have
been included in our financial statements only from the respective dates of
acquisition, except for 14 acquisitions accounted for under the
poolings-of-interests method of accounting, which are included for all periods
presented. We anticipate that a substantial part of our future growth will come
from acquiring additional solid waste collection, transfer and disposal
businesses and, as a consequence, additional acquisitions could continue to
affect period-to-period comparisons of our operating results.
In 2000, we acquired one business in a combination accounted for as a
pooling-of-interests. The aggregate consideration paid consisted of 103,315
shares of our common stock. In connection with this merger, we incurred
transaction-related costs of $150,000, which were charged to operations.
GENERAL
Our revenues consist mainly of fees we charge customers for solid waste
collection, transfer, disposal and recycling services. A large part of our
collection revenues come from providing commercial, industrial and residential
services. We frequently perform these services under service agreements or
franchise agreements with counties or municipal contracts. County franchise
agreements and municipal contracts generally last from one to ten years. Our
existing franchise agreements and many of our existing municipal contracts give
us the exclusive right to provide specified waste services in the specified
territory during the contract term. These exclusive arrangements are awarded, at
least initially, on a competitive bid basis and subsequently on a bid or
negotiated basis. We also provide residential collection services on a
subscription basis with individual households. Over 50% of our revenues for the
year ended December 31, 2000 were derived from services provided in exclusive
markets. Governmental certificates grant us perpetual and exclusive collection
rights in the covered areas. Contracts with counties and municipalities and
governmental certificates provide relatively consistent cash flow during the
terms of the contracts. Because we bill most residential customers on a periodic
basis, subscription agreements provide a stable source of revenues. Our
collection business also generates revenues from the sale of recyclable
commodities. The table below shows for the periods indicated the percentage of
our total reported revenues attributable to services provided, prior to
intercompany
20
23
eliminations. The data below have been restated to give effect to acquisitions
that were accounted for using the pooling-of-interests method for business
combinations.
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ----- -----
Collection.................................................. 85.6% 71.1% 70.8%
Transfer and processing..................................... 7.4 14.8 9.3
Landfill.................................................... 4.9 10.1 13.4
Recycling................................................... 1.8 3.0 6.0
Other....................................................... 0.3 1.0 0.5
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
We charge transfer station and landfill customers a tipping fee on a per
ton basis for disposing of their solid waste at the transfer stations and the
landfill facilities we own and operate. Most of our transfer and landfill
customers have entered into one to ten year disposal contracts with us, most of
which provide for annual indexed price increases.
We typically determine the prices for our solid waste services by the
collection frequency and level of service, route density, volume, weight and
type of waste collected, type of equipment and containers furnished, the
distance to the disposal or processing facility, the cost of disposal or
processing, and prices charged by competitors for similar services. The terms of
our contracts sometimes limit our ability to pass on price increases. Long-term
solid waste collection contracts typically contain a formula, generally based on
a published price index that automatically adjusts fees to cover increases in
some, but not all, operating costs.
We derive a substantial portion of our revenues from services provided
under exclusive municipal contracts and franchise agreements. No single contract
or customer accounted for more than 5% of our revenues for the years ended
December 31, 1998, 1999 or 2000.
Costs of operations include labor, fuel, equipment maintenance and tipping
fees paid to third party disposal facilities, worker's compensation and vehicle
insurance, the cost of materials we purchase for recycling, third party
transportation expense, district and state taxes and host community fees and
royalties. As of December 31, 2000, we owned and/or operated 30 transfer
stations, which reduce our costs by allowing us to use collection personnel and
equipment more efficiently and by consolidating waste to gain more favorable
disposal rates that may be available for larger quantities of waste.
Selling, general and administrative ("SG&A") expenses include management,
clerical and administrative compensation overhead costs associated with our
marketing and sales force, professional services and community relations
expense.
Depreciation and amortization expense includes depreciation and depletion
of property and equipment over their estimated useful lives and amortization of
goodwill and other intangible assets using the straight-line method.
We capitalize some third-party expenditures related to pending acquisitions
or development projects, such as legal and engineering expenses. We expense
indirect acquisition costs, such as executive and corporate overhead, public
relations and other corporate services, as we incur them. We charge against net
income any unamortized capitalized expenditures and advances (net of any portion
that we believe we may recover, through sale or otherwise) that relate to any
operation that is permanently shut down and any pending acquisition or landfill
development project that is not completed. We routinely evaluate all capitalized
costs, and expense those related to projects that we believe are not likely to
succeed. As of December 31, 2000, we had $69,000 in capitalized expenditures
relating to pending acquisitions and $8,000 in capitalized interest related to
construction in process.
Goodwill represents the excess of the purchase price over the fair value of
the net assets of the acquired entities, and is amortized on a straight-line
basis over the period of expected benefit of 40 years. Accumulated amortization
of goodwill amounted to $5.4 million and $13.1 million as of December 31, 1999
and 2000,
21
24
respectively. In allocating the purchase price of an acquired company among its
assets, we first assign value to the tangible assets, followed by intangible
assets, including covenants not to compete and certain contracts and customer
lists that are determinable both in terms of size and life. We determine the
value of the other intangible assets by considering, among other things, the
present value of the cash flows associated with those assets.
We continually evaluate the value and future benefits of our intangible
assets, including goodwill. We assess the recoverability from future operations
using cash flows and income from operations of the related acquired businesses
as measures. Under this approach, the carrying value is reduced if it becomes
probable that our best estimate for expected future cash flows of the related
business would be less than the carrying amount of the intangible assets. As of
December 31, 2000, there have been no adjustments to the carrying amounts of
intangibles resulting from these evaluations. As of December 31, 2000, goodwill
and other intangible assets represented approximately 44.9% of total assets and
108.8% of stockholders' equity.
We reserve for estimated landfill closure and post-closure maintenance
costs at the landfills we own. We will have additional material financial
obligations relating to closure and post-closure costs of the other disposal
facilities that we currently own or operate and that we may own or operate in
the future. The net present value of the closure and post closure commitment is
calculated assuming an inflation rate of 3% and a discount rate of 7.5%.
Discounted amounts previously recorded are accreted to reflect the effect of the
passage of time.
RESULTS OF OPERATIONS
The following table sets forth items in our consolidated statement of
operations in thousands and as a percentage of revenues for the periods
indicated:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 AS A 1999 AS A 2000 AS A
% OF % OF % OF
1998 REVENUE 1999 REVENUE 2000 REVENUE
------- --------- -------- --------- -------- ---------
Revenues.......................... $99,624 100.0% $184,225 100.0% $304,355 100.0%
Cost of operations................ 71,635 71.9 112,686 61.2 174,510 57.3
Selling, general and
administrative.................. 9,967 10.0 15,754 8.6 25,416 8.4
Depreciation and amortization..... 8,008 8.0 14,769 8.0 27,195 8.9
Stock compensation................ 632 0.6 265 0.1 163 0.1
Acquisition related expenses...... -- -- 9,003 4.9 150 0.0
------- ----- -------- ----- -------- -----
Operating income.................. 9,382 9.4 31,748 17.2 76,921 25.3
Interest expense, net............. (3,458) (3.5) (11,531) (6.3) (28,705) (9.4)
Other income (expense), net....... 410 0.4 (66) 0.0 (717) (0.2)
Income tax provision.............. (3,040) (3.1) (10,924) (5.9) (19,310) (6.3)
Extraordinary charges............. (1,027) (1.0) -- -- -- --
------- ----- -------- ----- -------- -----
Net income........................ $ 2,267 2.3% $ 9,227 5.0% $ 28,189 9.3%
======= ===== ======== ===== ======== =====
EBITDA(1)......................... 18.1% 30.3% 34.3%
======= ======== ========
- ---------------
(1) EBITDA represents earnings presented above before extraordinary loss,
interest, (other) expense, income taxes, depreciation and amortization
expense and stock compensation expense. EBITDA is not a measure of cash
flow, operating results or liquidity, as determined in accordance with
accounting principles generally accepted in the United States.
22
25
Years Ended December 31, 2000 and 1999
Revenues. Revenues for 2000 increased $120.2 million, or 65.2%, to $304.4
million from $184.2 million for 1999. Approximately $37 million of the increase
resulted from acquisitions accounted for using the purchase method of accounting
that closed since the beginning of 2000. The remaining increase was primarily
attributable to the inclusion in 2000 of 12 months of revenues from businesses
acquired in 1999 and selective price increases and growth in the base business.
Cost of Operations. Cost of operations for 2000 increased $61.8 million, or
54.9%, to $174.5 million from $112.7 million for 1999. The increase was
primarily attributable to the inclusion of the cost of operations of
acquisitions closed since the beginning of the year and the inclusion in 2000 of
12 months of operating costs from businesses acquired in 1999. Cost of
operations as a percentage of revenues declined by 3.9 percentage points to
57.3% in 2000 from 61.2% in 1999. The decline in cost of operations as a percent
of revenues was primarily attributable to the effect of tuck-in acquisitions
closed since the beginning of 2000, economies of scale from the greater revenue
base, elimination of overhead in privately held companies acquired in
acquisitions accounted for as poolings-of-interests, greater integration of
collection volumes into landfills we own or operate and selective price
increases.
SG&A. SG&A expenses increased $9.6 million, or 61.3%, to $25.4 million for
2000 from $15.8 million for 1999. The increase resulted primarily from
additional personnel from companies acquired in 2000, the inclusion in 2000 of
12 months of SG&A costs from businesses acquired in 1999 and additional
corporate overhead to accommodate our growth. SG&A as a percentage of revenues
declined by 0.2 percentage points to 8.4% for 2000 from 8.6% for 1999. The
decline in SG&A as a percentage of revenues was a result of spreading of
overhead expenses over a larger base of revenue from the acquisitions completed
in 2000, offset by increases in corporate overhead.
Depreciation and Amortization. Depreciation and amortization expense
increased $12.4 million, or 84.1%, to $27.2 million for 2000 from $14.8 million
for 1999. The increase resulted primarily from the inclusion of depreciation and
amortization of businesses acquired in 2000, the inclusion in 2000 of 12 months
of depreciation and amortization from businesses acquired in 1999, the
amortization of goodwill and other intangible assets associated with
acquisitions accounted for using the purchase method of accounting and a greater
percentage of revenues derived from landfill activity. Depreciation and
amortization as a percentage of revenues increased 0.9 percentage points to 8.9%
for 2000 from 8.0% for 1999. The increase in depreciation and amortization as a
percentage of revenues in 2000 was due to the increased amortization of landfill
airspace associated with landfill purchased in 2000 and the roll over effect of
landfills acquired in 1999. The landfill amortization rates as a percentage of
revenues are generally higher than the historical depreciation and amortization
rates of our collection companies.
Stock Compensation Expense. Stock compensation expense decreased $102,000,
or 38.5%, to $163,000 for 2000 from $265,000 for 1999. Our stock compensation
expense is attributable to the valuation of common stock options and warrants
with exercise prices less than the estimated fair value or our common stock on
the date of grant and relates solely to stock options and warrants granted prior
to the initial public offering in May 1998. The expense attributable to these
options and warrants was fully amortized between 1998 and 2000. Stock
compensation as a percentage of revenues was 0.1% for 2000 and 1999.
Acquisition-Related Expenses. Acquisition-related expenses decreased $8.85
million to $150,000 for 2000 from $9.0 million for 1999. The decrease is related
primarily to the decline in the number and size of acquisitions accounted for
using the pooling-of-interests method of accounting in 2000 relative to 1999.
These expenses arise from commissions, professional fees, and other direct costs
resulting from the one acquisition in 2000 and the 13 acquisitions in 1999 that
were accounted for using the pooling-of-interests method.
Operating Income. Operating income increased $45.2 million, or 142.3%, to
$76.9 million in 2000 from $31.7 million in 1999. The increase was attributable
to operating income recognized from acquisitions closed in 2000, the inclusion
in 2000 of 12 months of operating income from acquisitions closed in 1999, the
reduction of acquisition-related expenses associated with 13 acquisitions that
were accounted for using the pooling-of-interest method in 1999, economies of
scale from a greater revenue base and greater integration of
23
26
collection volumes into transfer stations and landfills we own or operate.
Operating income as a percentage of revenues increased by 8.1 percentage points
to 25.3% for 2000 from 17.2% for 1999. The increase was attributable to
improvements in gross margins coupled with declines in SG&A, acquisition related
expenses and stock compensation expenses as a percentage of revenue.
Interest Expense. Interest expense increased $17.2 million, or 148.9%, to
$28.7 million for 2000 from $11.5 million for 1999. The increase was primarily
attributable to higher debt levels incurred to fund certain of our acquisitions.
Other Expense. Other expense increased $651,000, or 986.4%, to $717,000 in
2000 from $66,000 in 1999. The increase was primarily attributable to a loss on
sale of assets in 2000.
Provision for Income Taxes. Income taxes increased $8.4 million, or 76.8%,
to $19.3 million for 2000 from $10.9 million for 1999. The effective income tax
rate in 2000 was 40.6%, which is above the federal statutory rate of 35.0% as
the result of the non-deductibility of certain expenses associated with
acquisitions accounted for as poolings-of-interests, state and local taxes,
non-deductible goodwill associated with certain acquisitions and the
non-deductibility of the stock compensation expense.
Net Income. Net income increased by $19.0 million, or 205.5%, to $28.2
million in 2000 from $9.2 million in 1999. The increase was attributable to the
increase in operating income, offset by the increases in interest expense,
income tax expense and other expense. Net income as a percentage of revenues
increased by 4.3 percentage points to 9.3% for 2000 from 5.0% for 1999. The
increase was attributable to improvements in gross margins coupled with declines
in SG&A, acquisition related expenses and stock compensation expenses as a
percentage of revenue offset by increases in interest expense and income taxes.
Years Ended December 31, 1999 and 1998
Revenues. Revenues for 1999 increased $84.6 million, or 84.9%, to $184.2
million from $99.6 million for 1998. Approximately $50 million of the increase
resulted from acquisitions accounted for using the purchase method of accounting
that closed since the beginning of 1999. The remaining increase was primarily
attributable to the inclusion in 1999 of 12 months of revenues from businesses
acquired in 1998, selective price increases and a nominal contribution from
growth in the businesses acquired prior to 1999.
Cost of Operations. Cost of operations for 1999 increased $41.1 million, or
57.3%, to $112.7 million from $71.6 million for 1998. The increase was primarily
attributable to the inclusion of the cost of operations of acquisitions closed
since the beginning of the year and the inclusion in 1999 of 12 months of
operating costs from businesses acquired in 1998. Cost of operations as a
percentage of revenues declined by 10.7 percentage points to 61.2% in 1999 from
71.9% in 1998. The decline in cost of operations as a percent of revenues was
primarily attributable to the effect of tuck-in acquisitions closed since the
beginning of 1999, economies of scale from the greater revenue base, elimination
of overhead in privately held companies acquired in acquisitions accounted for
as poolings-of-interests, greater integration of collection volumes into
landfills we own or operate and selective price increases.
SG&A. SG&A expenses increased $5.8 million, or 58.1%, to $15.8 million for
1999 from $10.0 million for 1998. The increase resulted primarily from
additional personnel from companies acquired in 1999, the inclusion in 1999 of
12 months of SG&A costs from businesses acquired in 1998 and additional
corporate overhead to accommodate our growth. SG&A as a percentage of revenues
declined by 1.4 percentage points to 8.6% for 1999 from 10.0% for 1998. The
decline in SG&A as a percentage of revenues was a result of spreading of
overhead expenses over a larger base of revenue from the acquisitions completed
in 1999, offset by increases in corporate overhead and the costs associated with
being a public company for the full year.
Depreciation and Amortization. Depreciation and amortization expense
increased $6.8 million, or 84.4%, to $14.8 million for 1999 from $8.0 million
for 1998. The increase resulted primarily from the inclusion of depreciation and
amortization of businesses acquired in 1999, the inclusion in 1999 of 12 months
of depreciation and amortization from businesses acquired in 1998, the
amortization of goodwill and other intangible assets associated with
acquisitions accounted for using the purchase method of accounting and a
24
27
greater percentage of revenues derived from landfill activity. Depreciation and
amortization as a percentage of revenues was 8.0% in both 1999 and 1998.
Stock Compensation Expense. Stock compensation expense decreased $367,000,
or 58.1%, to $265,000 for 1999 from $632,000 for 1998. Our stock compensation
expense is attributable to the valuation of common stock options and warrants
with exercise prices less than the estimated fair value or our common stock on
the date of grant and relates solely to stock options and warrants granted prior
to the initial public offering in May 1998. Stock compensation as a percentage
of revenues decreased by 0.5 percentage points to 0.1% for 1999 from 0.6% for
1998. The decrease in the amortization of deferred stock compensation for 1999
was due to the amortization of the deferred stock compensation over the vesting
periods of the related options.
Acquisition-Related Expenses. Acquisition-related expenses in 1999 were
$9.0 million, and related primarily to commissions, professional fees, and other
direct costs resulting from the 13 acquisitions that were accounted for using
the pooling-of-interests method.
Operating Income. Operating income increased $22.3 million, or 238.4%, to
$31.7 million in 1999 from $9.4 million in 1998. The increase was attributable
to operating income recognized from acquisitions closed in 1999, the inclusion
in 1999 of 12 months of operating income from acquisitions closed in 1998,
economies of scale from a greater revenue base and greater integration of
collection volumes into transfer stations and landfills we own or operate.
Operating income as a percentage of revenues increased by 7.8 percentage points
to 17.2% for 1999 from 9.4% for 1998. The increase was attributable to
improvements in gross margins coupled with declines in SG&A and stock
compensation expenses as a percentage of revenue, offset by acquisition related
expenses.
Interest Expense. Interest expense increased $8.0 million, or 233.5%, to
$11.5 million for 1999 from $3.5 million for 1998. The increase was primarily
attributable to higher debt levels incurred to fund certain of our acquisitions.
Other Income (Expense). Other income (expense) decreased $476,000, or
116.1%, to ($66,000) in 1999 from $410,000 in 1998. The decrease was primarily
attributable to our recognizing less gain on sales of equipment in 1999,
compared to 1998, and the write-off of the unamortized balance of leasehold
improvements on our former corporate offices.
Provision for Income Taxes. Income taxes increased $7.9 million, or 259.3%,
to $10.9 million for 1999 from $3.0 million for 1998. The effective income tax
rate in 1999 was 54.2%, which is above the federal statutory rate of 35.0% as
the result of the non-deductibility of certain expenses associated with
acquisitions accounted for as poolings-of-interests, state and local taxes,
non-deductible goodwill associated with certain acquisitions and the
non-deductibility of the stock compensation expense.
Extraordinary Charges. Extraordinary charges in 1998 relate to the early
termination of our bank credit facility when it was replaced by a new and larger
facility. We entered into two new credit facilities during 1998.
Net Income. Net income increased by $6.9 million, or 307.0%, to $9.2
million in 1999 from $2.3 million in 1998. The increase was attributable to the
increase in operating income, offset by the increases in interest expense and
income tax expense and the decrease in other income. Net income as a percentage
of revenues increased by 2.7 percentage points to 5.0% for 1999 from 2.3% for
1998. The increase was attributable to improvements in gross margins coupled
with declines in SG&A and stock compensation expenses as a percentage of
revenue, offset by acquisition related expenses and increases in interest
expense and income taxes.
25
28
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive. Our capital requirements include
acquisitions and fixed asset purchases. We expect that we will also make capital
expenditures for landfill cell construction, landfill development and landfill
closure activities in the future. We plan to meet our capital needs through
various financing sources, including internally generated funds, debt and equity
financings.
As of December 31, 2000, we had a working capital deficit of $10.4 million,
including cash and cash equivalents of $2.5 million. Our strategy in managing
our working capital is generally to apply the cash generated from our operations
that remains after satisfying our working capital and capital expenditure
requirements to reduce our indebtedness under our bank revolving credit facility
and to minimize our cash balances.
At inception, we sold 2,300,000 shares of common stock at $0.01 per share
to our founders and 2,499,998 shares of Series A Preferred Stock at $2.80 per
share. In May and June 1998, we received approximately $24.0 million in net
proceeds from the sale of 2,300,000 shares in our initial public offering
(including exercise by the underwriters of their over-allotment option). In
February 1999, we received approximately $65.1 million in net proceeds from the
sale of 3,999,307 shares in a secondary public offering (including exercise by
the underwriters of their over-allotment option) and used the proceeds to pay
down approximately $50.2 million of our outstanding debt. In August 2000, we
received approximately $82.1 million in net proceeds from the sale of 4,427,500
shares in a secondary public offering (including exercise by the underwriters of
their over-allotment option) and used the proceeds to pay down approximately
$69.7 million of our outstanding debt. As of December 31, 2000, we had options
and warrants outstanding to purchase 1,646,876 shares of common stock at a
weighted average exercise price of $13.40 per share.
We have a $435 million revolving credit facility with a syndicate of banks
for which Fleet Boston Financial Corp. acts as agent. As of December 31, 2000,
we had an aggregate of $308.0 million outstanding under our credit facility, and
the interest rate on outstanding borrowings under the credit facility was at 2%
over LIBOR. The credit facility allows us to issue up to $40 million in stand-by
letters of credit. Outstanding letters of credit reduce the amount of total
borrowings available under the credit facility. As of December 31, 2000, we had
$24.4 million of outstanding letters of credit issued under the credit facility.
Virtually all of our assets, including our interest in the equity securities of
our subsidiaries, secure our obligations under the credit facility. The credit
facility matures in 2005 and bears interest at a rate per annum equal to, at our
discretion, either the Fleet Boston Financial Corp. Base Rate plus applicable
margin, or the Eurodollar Rate plus applicable margin. The credit facility
places certain business, financial and operating restrictions on Waste
Connections relating to, among other things, the incurrance of additional
indebtedness, investments, acquisitions, asset sales, mergers, dividends,
distributions and repurchases and redemption of capital stock. The credit
facility also contains covenants requiring that specified financial ratios and
balances be maintained. As of December 31, 2000, we are in compliance with these
covenants. The Credit Facility also requires the lenders' approval of
acquisitions in certain circumstances. The credit facility is used for (i)
acquisitions; (ii) capital expenditures; (iii) working capital; (iv) standby
letters of credit; and (v) general corporate purposes.
For the year ended December 31, 2000, operations provided approximately
$53.8 million of net cash, most of which was provided by operating results for
the period, adjusted for temporary differences in income taxes, non-cash charges
for depreciation, amortization and stock compensation and further offset by an
approximately $4.5 million increase in working capital (net of acquisitions) in
2000.
For the year ended December 31, 2000, we used $193.0 million for investing
activities. Of this amount, we used approximately $168.3 million to fund the
cash portion of acquisitions and approximately $25.4 million for capital
expenditures related to the purchase of trucks, containers, information systems
and landfill construction activities.
For the year ended December 31, 2000, financing activities provided net
cash of $139.3 million, which was provided by net borrowings under our credit
facility and revenue bonds and $82.1 million in proceeds from the sale of common
stock in our secondary offering.
26
29
We made approximately $25.4 million in capital expenditures during the year
ended December 31, 2000. We expect to make capital expenditures of approximately
$33 million in 2001 in connection with our existing business. We intend to fund
our planned 2001 capital expenditures principally through existing cash,
internally generated funds, and borrowings under our existing credit facility.
In addition, we may make substantial additional capital expenditures in
acquiring solid waste collection and disposal businesses. If we acquire
additional landfill disposal facilities, we may also have to make significant
expenditures to bring them into compliance with applicable regulatory
requirements, obtain permits or expand our available disposal capacity. We
cannot currently determine the amount of these expenditures because they will
depend on the number, nature, condition and permitted status of any acquired
landfill disposal facilities. We believe that our credit facility and the funds
we expect to generate from operations will provide adequate cash to fund our
working capital and other cash needs for the foreseeable future.
Inflation
To date, inflation has not significantly affected our operations.
Consistent with industry practice, many of our contracts allow us to pass
through certain costs to our customers, including increases in landfill tipping
fees and, in some cases, fuel costs. Therefore, we believe that we should be
able to increase prices to offset many cost increases that result from
inflation. However, competitive pressures may require us to absorb at least part
of these cost increases, particularly during periods of high inflation.
Seasonality
Based on historic trends experienced by the businesses we have acquired, we
expect our operating results to vary seasonally, with revenues typically lowest
in the first quarter, higher in the second and third quarters and lower in the
fourth quarter than in the second and third quarters.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In December 1999, we entered into an interest rate hedge agreement with
BankBoston, N.A. Under this hedge agreement, which was effective through
December 2001, the interest rate on $125 million of our floating rate long-term
debt was effectively fixed with an interest rate of 6.1% plus an applicable
margin. This rate remained at 6.1% if LIBOR was less than 7.0%. If LIBOR
exceeded 7.0%, the interest rate under this hedge agreement would increase one
basis point for every LIBOR basis point above 7.0%.
In May 2000, we entered into an interest rate hedge with Union Bank of
California, N.A. Under this hedge agreement, which was effective through May
2003, the interest rate on $125 million of our floating rate long-term debt was
effectively fixed with an interest rate of 7.19% plus an applicable margin. The
rate remained at 7.19% if LIBOR was less than 8.0%. If LIBOR exceeded 8.0%, the
interest rate under this hedge agreement would increase one basis point for
every LIBOR basis point above 8.0%.
In December 2000, we restructured both of the previously outstanding
interest rate hedge agreements, extending their maturity through December 2003
and removing the embedded option features of the agreements. The Fleet Bank
hedge (formerly the Bank Boston, N.A. hedge) is now on a notional amount of $125
million at a fixed rate of 6.17% plus applicable margin. The Union Bank of
California hedge is now on a notional amount of $125 million at a fixed rate of
7.01% plus applicable margin.
We are exposed to cash flow risk due to changes in interest rates with
respect to the remainder of the balance of our credit facility and the municipal
bond obligations in the combined amount of approximately $24 million associated
with Madera, Columbia Resource Company and Wasco.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
30
INDEX TO FINANCIAL STATEMENTS
WASTE CONNECTIONS, INC.
PAGE
----
Report of Ernst & Young LLP, Independent Auditors........... 29
Consolidated Balance Sheets as of December 31, 1999 and
2000...................................................... 30
Consolidated Statements of Income for the years ended
December 31, 1998, 1999 and 2000.......................... 31
Consolidated Statements of Redeemable Stock and
Stockholders' Equity for the years ended December 31,
1998, 1999, and 2000...................................... 32
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000.......................... 33
Notes to Consolidated Financial Statements.................. 35
28
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Waste Connections, Inc.
We have audited the accompanying consolidated balance sheets of Waste
Connections, Inc. and subsidiaries, as of December 31, 1999 and 2000, the
related consolidated statements of income, redeemable stock and stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 2000. Our audits also included the financial statement schedule listed in
Item 14.(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Waste
Connections, Inc. and subsidiaries at December 31, 1999 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Sacramento, California
February 14, 2001
29
32
WASTE CONNECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
DECEMBER 31,
--------------------
1999 2000
-------- --------
Current assets:
Cash and equivalents...................................... $ 2,393 $ 2,461
Accounts receivable, less allowance for doubtful accounts
of $1,460 and $1,899 at December 31, 1999 and 2000,
respectively........................................... 28,600 42,155
Prepaid expenses and other current assets................. 3,529 4,419
-------- --------
Total current assets.............................. 34,522 49,035
Property and equipment, net................................. 335,260 384,237
Intangible assets, net...................................... 237,402 363,505
Other assets, net........................................... 10,774 13,327
-------- --------
$617,958 $810,104
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 20,282 $ 25,636
Accrued liabilities....................................... 16,003 20,558
Deferred revenue.......................................... 5,342 9,595
Current portion of long-term debt and notes payable....... 3,044 3,644
-------- --------
Total current liabilities......................... 44,671 59,433
Long-term debt and notes payable............................ 275,145 334,194
Other long-term liabilities................................. 5,201 6,095
Deferred income taxes....................................... 74,420 76,174
-------- --------
Total liabilities................................. 399,437 475,896
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Preferred stock: $0.01 par value; 10,000,000 shares
authorized; none issued and outstanding................... -- --
Common stock: $0.01 par value; 50,000,000 shares authorized;
21,209,665 and 26,480,046 shares issued and outstanding at
December 31, 1999 and 2000, respectively.................. 212 265
Additional paid-in capital.................................. 209,157 296,439
Deferred stock compensation................................. (163) --
Retained earnings........................................... 9,315 37,504
-------- --------
Total stockholders' equity........................ 218,521 334,208
-------- --------
$617,958 $810,104
======== ========
See accompanying notes.
30
33
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1998 1999 2000
----------- ----------- -----------
Revenues............................................ $ 99,624 $ 184,225 $ 304,355
Operating expenses:
Cost of operations................................ 71,635 112,686 174,510
Selling, general and administrative............... 9,967 15,754 25,416
Depreciation and amortization..................... 8,008 14,769 27,195
Stock compensation................................ 632 265 163
Acquisition related expenses...................... -- 9,003 150
----------- ----------- -----------
Income from operations.............................. 9,382 31,748 76,921
Interest expense.................................... (3,458) (11,531) (28,705)
Other income (expense), net......................... 410 (66) (717)
----------- ----------- -----------
Income before income tax provision.................. 6,334 20,151 47,499
Income tax provision................................ (3,040) (10,924) (19,310)
----------- ----------- -----------
Income before extraordinary item.................... 3,294 9,227 28,189
Extraordinary item -- early extinguishment of debt,
net of tax benefit of $264........................ (1,027) -- --
----------- ----------- -----------
Net income.......................................... $ 2,267 $ 9,227 $ 28,189
=========== =========== ===========
Redeemable convertible preferred stock accretion.... (917) -- --
----------- ----------- -----------
Net income applicable to common stockholders........ $ 1,350 $ 9,227 $ 28,189
=========== =========== ===========
Basic income per common share:
Income before extraordinary item.................. $ 0.23 $ 0.49 $ 1.21
Extraordinary item................................ (0.10) -- --
----------- ----------- -----------
Net income per common share....................... $ 0.13 $ 0.49 $ 1.21
=========== =========== ===========
Diluted income per common share:
Income before extraordinary item.................. $ 0.19 $ 0.46 $ 1.17
Extraordinary item................................ (0.08) -- --
----------- ----------- -----------
Net income per common share....................... $ 0.11 $ 0.46 $ 1.17
=========== =========== ===========
Shares used in calculating basic income per share... 10,412,868 18,655,801 23,301,358
=========== =========== ===========
Shares used in calculating diluted income per
share............................................. 12,323,990 19,929,539 23,994,994
=========== =========== ===========
See accompanying notes.
31
34
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
STOCKHOLDERS' EQUITY
REDEEMABLE ----------------------------------------------
CONVERTIBLE REDEEMABLE
PREFERRED STOCK COMMON STOCK COMMON STOCK ADDITIONAL STOCKHOLDER
-------------------- -------------------- ------------------- PAID-IN NOTES
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
---------- ------- ---------- ------- ---------- ------ ---------- -----------
Balance at December 31, 1997...... 2,499,998 $ 7,523 -- $ -- 6,252,575 $ 62 $ 5,604 $(83)
Issuance of redeemable common
stock........................... -- -- 1,000,000 7,500 -- -- -- --
Issuance of common stock
warrants........................ -- -- -- -- -- -- 2,388 --
Common stock sold in connection
with initial public offering.... -- -- -- -- 2,300,000 23 23,963 --
Issuance of common stock.......... -- -- -- -- 1,054,634 11 17,782 --
Accretion of redeemable
convertible preferred stock..... -- 917 -- -- -- -- -- --
Preferred stock dividend.......... -- (161) -- -- -- -- -- --
Conversion of redeemable preferred
stock........................... (2,499,998) (8,279) -- -- 2,499,998 25 8,254 --
Conversion of redeemable common
stock........................... -- -- (1,000,000) (7,500) 1,000,000 10 7,490 --
Deferred stock compensation
associated with stock options... -- -- -- -- -- -- 821 --
Amortization of deferred stock
compensation.................... -- -- -- -- -- -- -- --
Exercise of stock options and
warrants........................ -- -- -- -- 280,601 3 359 --
Payment of stockholder notes...... -- -- -- -- -- -- -- 83
Capital distributions and
dividends paid.................. -- -- -- -- -- -- (76) --
Net income........................ -- -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------- ----
Balances at December 31, 1998..... -- -- -- -- 13,387,808 134 66,585 --
Issuance of common stock
warrants........................ -- -- -- -- -- -- 572 --
Issuance of common stock.......... -- -- -- -- 7,011,269 70 140,514 --
Amortization of deferred stock
compensation.................... -- -- -- -- -- -- -- --
Exercise of stock options and
warrants........................ -- -- -- -- 810,588 8 1,486 --
Dividends paid.................... -- -- -- -- -- -- -- --
Net income........................ -- -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------- ----
Balances at December 31, 1999..... -- -- -- -- 21,209,665 212 209,157 --
Issuance of common stock
warrants........................ -- -- -- -- -- -- 183 --
Issuance of common stock.......... -- -- -- -- 4,472,413 45 82,886 --
Amortization of deferred stock
compensation.................... -- -- -- -- -- -- -- --
Exercise of stock options and
warrants........................ -- -- -- -- 797,968 8 4,213 --
Net income........................ -- -- -- -- -- -- -- --
---------- ------- ---------- ------- ---------- ---- -------- ----
Balances at December 31, 2000..... -- $ -- -- $ -- 26,480,046 $265 $296,439 $ --
========== ======= ========== ======= ========== ==== ======== ====
STOCKHOLDERS' EQUITY
--------------------------------------
RETAINED
DEFERRED EARNINGS/
STOCK (ACCUMULATED
COMPENSATION DEFICIT) TOTAL
------------ ------------ --------
Balance at December 31, 1997...... $ -- $ (247) $ 5,336
Issuance of redeemable common
stock........................... -- -- --
Issuance of common stock
warrants........................ -- -- 2,388
Common stock sold in connection
with initial public offering.... -- -- 23,986
Issuance of common stock.......... -- -- 17,793
Accretion of redeemable
convertible preferred stock..... -- (917) (917)
Preferred stock dividend.......... -- -- --
Conversion of redeemable preferred
stock........................... -- -- 8,279
Conversion of redeemable common
stock........................... -- -- 7,500
Deferred stock compensation
associated with stock options... (821) -- --
Amortization of deferred stock
compensation.................... 393 -- 393
Exercise of stock options and
warrants........................ -- -- 362
Payment of stockholder notes...... -- -- 83
Capital distributions and
dividends paid.................. -- (557) (633)
Net income........................ -- 2,267 2,267
----- ------- --------
Balances at December 31, 1998..... (428) 546 66,837
Issuance of common stock
warrants........................ -- -- 572
Issuance of common stock.......... -- -- 140,584
Amortization of deferred stock
compensation.................... 265 -- 265
Exercise of stock options and
warrants........................ -- -- 1,494
Dividends paid.................... -- (458) (458)
Net income........................ -- 9,227 9,227
----- ------- --------
Balances at December 31, 1999..... (163) 9,315 218,521
Issuance of common stock
warrants........................ -- -- 183
Issuance of common stock.......... -- -- 82,931
Amortization of deferred stock
compensation.................... 163 -- 163
Exercise of stock options and
warrants........................ -- -- 4,221
Net income........................ -- 28,189 28,189
----- ------- --------
Balances at December 31, 2000..... $ -- $37,504 $334,208
===== ======= ========
See accompanying notes.
32
35
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
-------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................... $ 2,267 $ 9,227 $ 28,189
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss (gain) on disposition of assets................... (302) 155 804
Depreciation........................................... 6,338 10,545 18,627
Amortization........................................... 1,670 4,223 8,568
Deferred income taxes.................................. 1,362 2,222 1,303
Amortization of debt issuance costs, debt guarantee
fees and accretion of discount on long-term debt.... 192 256 668
Stock and non-cash acquisition related compensation.... 632 1,448 163
Extraordinary item -- early extinguishment of debt..... 1,291 -- --
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net.......................... (2,555) (5,203) (8,014)
Prepaid expenses and other current assets......... (1,431) (1,256) (674)
Accounts payable.................................. (771) (955) 716
Deferred revenue.................................. 1,067 1,895 508
Accrued liabilities............................... 507 2,301 3,631
Other liabilities................................. 623 (2,885) (713)
-------- --------- ---------
Net cash provided by operating activities................ 10,890 21,973 53,776
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment........... 1,331 990 311
Payments for acquisitions, net of cash acquired........ (56,569) (233,745) (168,307)
Capital expenditures for property and equipment........ (10,065) (18,739) (25,408)
Increase in restricted cash............................ (1,381) (3,731) (99)
Decrease (increase) in other assets.................... 1,118 (1,052) 529
Repayment of stockholder notes receivable.............. 83 -- --
-------- --------- ---------
Net cash used in investing activities.................... (65,483) (256,277) (192,974)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt........................... 80,405 275,101 162,413
Principal payments on notes payable and long-term
debt................................................ (46,344) (103,646) (107,508)
Proceeds from sale of common stock..................... 23,986 65,118 82,110
Proceeds from option and warrant exercises............. 362 1,494 4,221
Payments on short-term borrowings...................... (128) (1,500) --
Payments on advances from a related party.............. (41) (571) --
Payment of capital distributions and dividends......... (794) (458) --
Debt issuance costs.................................... (854) (2,192) (1,970)
-------- --------- ---------
Net cash provided by financing activities................ 56,592 233,346 139,266
-------- --------- ---------
Net increase (decrease) in cash and equivalents.......... 1,999 (958) 68
Cash and equivalents at beginning of year................ 1,352 3,351 2,393
-------- --------- ---------
Cash and equivalents at end of year...................... $ 3,351 $ 2,393 $ 2,461
======== ========= =========
33
36
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
1998 1999 2000
-------- --------- ---------
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for income taxes............................. $ 1,178 $ 2,636 $ 13,123
======== ========= =========
Cash paid for interest................................. $ 2,705 $ 10,117 $ 27,815
======== ========= =========
Redeemable convertible preferred stock accretion....... $ 917 $ -- $ --
======== ========= =========
In connection with its acquisitions, the Company
assumed liabilities as follows:
Fair value of assets acquired....................... $120,507 $ 426,702 $ 186,459
Cash paid for acquisitions (including acquisition
costs)............................................ (56,341) (233,745) (168,307)
-------- --------- ---------
Liabilities assumed, stock and notes payable issued
to sellers........................................ $ 64,166 $ 192,957 $ 18,152
======== ========= =========
See accompanying notes.
34
37
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Waste Connections, Inc. ("WCI" or "the Company") was incorporated in
Delaware on September 9, 1997 and commenced its operations on October 1, 1997
through the purchase of certain solid waste operations in Washington. The
Company is a regional, integrated, non-hazardous solid waste services company
that provides collection, transfer, disposal and recycling services to
commercial, industrial and residential customers in California, Colorado, Iowa,
Kansas, Minnesota, Nebraska, New Mexico, Oklahoma, Oregon, South Dakota, Texas,
Utah, Washington and Wyoming.
Basis of Presentation
These consolidated financial statements include the accounts of WCI and its
wholly-owned subsidiaries. The consolidated entity is referred to herein as the
Company. All intercompany accounts and transactions have been eliminated in
consolidation.
The Company's 1998 and 1999 consolidated financial statements have been
restated to reflect the merger with Waste Wranglers, Inc. ("WWI") in 2000, which
was accounted for as a pooling-of-interests (Note 2).
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at purchase to be cash equivalents. As of December 31, 1999
and 2000, cash equivalents consist of demand money market accounts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risks consist primarily of accounts receivable. The
Company does not require collateral on its trade receivables. Credit risk on
accounts receivable is minimized as a result of the large and diverse nature of
the Company's customer base. The Company maintains allowances for losses based
on the expected collectibility of accounts receivable. Credit losses have been
within management's expectations.
Property and Equipment
Property and equipment are stated at cost. Improvements or betterments
which significantly extend the life of an asset are capitalized. Expenditures
for maintenance and repair costs are charged to expense as incurred. The cost of
assets retired or otherwise disposed of and the related accumulated depreciation
are eliminated from the accounts in the year of disposal. Gains and losses
resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets or the lease term, whichever is shorter.
35
38
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
The estimated useful lives are as follows:
Buildings....................................... 20 years
Machinery and equipment......................... 3 - 15 years
Rolling stock................................... 10 years
Containers...................................... 5 - 15 years
Capitalized landfill costs include expenditures for land and related
airspace, permitting costs and preparation costs. Landfill permitting and
preparation costs represent only direct costs related to those activities,
including legal, engineering and construction. Interest is capitalized on
landfill permitting and construction projects and other projects under
development while the assets are undergoing activities to ready them for their
intended use. The interest capitalization rate is based on the Company's
weighted average cost of indebtedness. No interest was capitalized in 1999 and
$8 was capitalized in 2000. Landfill permitting, acquisition and preparation
costs are amortized as permitted airspace of the landfill is consumed. Landfill
preparation costs include the costs of construction associated with excavation,
liners, site berms and the installation of leak detection and leachate
collection systems. In determining the amortization rate for a landfill,
preparation costs include the total estimated costs to complete construction of
the landfills' permitted capacity. Units-of-production amortization rates are
determined annually for the Company's operating landfills. The rates are
determined by management based on estimates provided by the Company's internal
and third party engineers and consider the information provided by surveys which
are performed at least annually.
Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of the net tangible and intangible assets of the acquired entities,
and is amortized on a straight-line basis over the period of expected benefit of
40 years. Accumulated amortization amounted to $5,353 and $13,074 as of December
31, 1999 and 2000, respectively.
The Company continually evaluates the value and future benefits of its
intangible assets, including goodwill. The Company assesses recoverability from
future operations using cash flows and income from operations of the related
acquired business as measures. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, the carrying value would be reduced to
estimated net realizable value if it becomes probable that the Company's best
estimate for expected future cash flows of the related business would be less
than the carrying amount of the related intangible assets. There have been no
adjustments to the carrying amount of intangible assets resulting from these
evaluations as of December 31, 1999 and 2000.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, restricted funds held in trust, trade payables and debt
instruments. The carrying values of cash, trade receivables, restricted funds
held in trust, and trade payables are considered to be representative of their
respective fair values. The carrying values of the Company's debt instruments
approximate their fair values as of December 31, 1999 and 2000, based on current
incremental borrowing rates for similar types of borrowing arrangements.
Interest Rate Protection Agreements
Interest rate protection agreements are used to reduce interest rate risks
and interest costs of the Company's debt portfolio. The Company enters into
these agreements to change the fixed/variable interest rate mix of the portfolio
to reduce the Company's aggregate exposure to increases in interest rates. The
36
39
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
Company does not hold or issue derivative financial instruments for trading
purposes. Hedge accounting treatment is applied to interest rate derivative
contracts that are designated as hedges of specified debt positions. Amounts
payable or receivable under interest rate swap agreements are recognized as
adjustments to interest expense in the periods in which they accrue. Net
premiums paid for derivative financial instruments are deferred and recognized
ratably over the life of the instruments. Under hedge accounting treatment,
current period income is not affected by the increase or decrease in the fair
market value of derivative instruments as interest rates change and these
instruments are not reflected in the financial statements at fair market value.
Early termination of a hedging instrument does not result in recognition of
immediate gain or loss except in those cases when the debt instruments to which
a contract is specifically linked is terminated.
Income Taxes
The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that are
expected to be in effect when the differences are expected to reverse.
Revenue Recognition
Revenues are recognized as services are provided. Certain customers are
billed in advance and, accordingly, recognition of the related revenues is
deferred until the services are provided.
The Company reviews its revenue producing contracts in the ordinary course
of business to determine if the direct costs to service the contractual
arrangements exceed the revenues to be produced by the contract. Any resulting
excess costs over the life of the contract are expensed at the time of such
determination.
Stock-Based Compensation
As permitted under the provisions of SFAS No. 123 "Accounting for Stock
Based Compensation", the Company has elected to account for stock-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
25"). Under the intrinsic value method, compensation cost is the excess, if any,
of the quoted market price or fair value of the stock at the grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Per Share Information
Basic net income per share is computed using the weighted average number of
common shares outstanding. Diluted net income per share is computed using the
weighted average number of common and potential common shares outstanding.
Potential common shares are excluded from the computation if their effect is
anti-dilutive.
Closure and Post-Closure Costs
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated by the Company. Closure and post-closure monitoring and maintenance
costs represent the costs related to cash expenditures yet to be incurred when a
landfill facility ceases to accept waste and closes. Accruals for closure and
post-closure monitoring and maintenance requirements in the U.S. consider final
capping of the site, site inspection, groundwater monitoring, leachate
management, methane gas control and recovery, and operating and maintenance
costs to be incurred during the period after the facility closes.
37
40
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
Certain of these environmental costs, principally capping and methane gas
control costs, are also incurred during the operating life of the site in
accordance with the landfill operation requirements of Subtitle D and the air
emissions standards. Site specific closure and post-closure engineering cost
estimates are prepared annually for landfills owned and/or operated by the
Company for which it is responsible for closure and post-closure. The impact of
changes determined to be changes in estimates, based on the annual update, are
accounted for on a prospective basis. The present value of estimated future
costs are accreted at an interest rate of 7.5% to reflect the passage of time.
Discounting of future costs is applied where the Company believes that both the
amounts and timing of related payments are reliably determinable.
Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company considers each
operating location that reports stand-alone financial information to be an
operating segment; however, all operating segments have been aggregated together
and are reported as a single segment consisting of the collection, transfer,
recycling and disposal of non-hazardous solid waste in the Western United
States.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of December 31, 2000, the Company has
not had any transactions, other than its reported net income and losses, that
are required to be reported in comprehensive income.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities", which was amended by SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities (an Amendment of FASB Statement 133)," (collectively "SFAS 133").
SFAS 133 establishes accounting and reporting standards of derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings. The Company will adopt SFAS 133 in its quarter ending
March 31, 2001. The Company has evaluated its derivative instruments, consisting
solely of two interest rate protection agreements (Note 8), and believes these
instruments will qualify for hedge accounting pursuant to SFAS 133.
Reclassifications
Certain amounts reported in the Company's prior years' financial statements
have been reclassified to conform with the 2000 presentation.
38
41
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
2. ACQUISITIONS
Poolings-of-Interests
On January 19, 1999, the Company consummated a business combination with
Murrey's Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal
Co., Inc. and Tacoma Recycling Company, Inc. (collectively, the "Murrey
Companies") which included the exchange of 2,888,880 shares of Waste
Connections, Inc. common stock for all outstanding shares of the Murrey
Companies. In connection with the business combination with the Murrey
Companies, Waste Connections, Inc. incurred transaction related costs of
approximately $6,200 which were charged to operations.
The Company consummated business combinations with Roche & Sons, Inc.
("Roche") and Ritters Sanitary Service, Inc. ("Ritters") on January 8, 1999, and
March 30, 1999, respectively, which included the exchange of 554,248 shares of
Waste Connections, Inc. common stock for all of the outstanding shares of Roche
and Ritter's. In connection with the business combinations with Roche and
Ritters, Waste Connections, Inc. incurred transaction related costs of
approximately $1,600 which were charged to operations.
The Company consummated business combinations with Central Waste Disposal
and Cen San, Inc. (collectively "Central"), G&P Development, The Garbage Company
and Nebraska Ecology Systems, Inc. (collectively "G&P") and Omega Systems, Inc.
("Omega") on June 25, 1999, June 30, 1999, and June 30, 1999, respectively,
which included the exchange of 340,207 shares of Waste Connections, Inc. common
stock for all of the outstanding shares of Central, G&P, and Omega. In
connection with the business combinations with Central, G&P, and Omega, Waste
Connections, Inc. incurred transaction related costs of approximately $1,005
which were charged to operations.
On December 30, 1999, the Company consummated a business combination with
Cook's Wastepaper and Recycling, Inc. ("Cook's") which included the exchange of
65,925 shares of Waste Connections, Inc. common stock for all the outstanding
shares of Cook's. In connection with the business combination with Cook's, Waste
Connections, Inc. incurred transaction related costs of approximately $198 which
were charged to operations.
On January 12, 2000, the Company consummated a business combination with
WWI which included the exchange of 103,315 shares of Waste Connections, Inc.
common stock for all the outstanding shares of WWI. In connection with the
business combination with WWI, Waste Connections, Inc. incurred transactions
related costs of approximately $150 which were charged to operations.
The table below sets forth the combined revenues and net income of WCI, the
Murrey Companies, Roche, Ritters, Central, G&P, Omega, Cook's and WWI for the
years ended December 31, 1998, 1999 and 2000 (in thousands):
WASTE CONNECTIONS, INC. OTHER RESTATED
BEFORE POOLING THE MURREY COMPANIES POOLING FOR POOLING
ACQUISITIONS POOLING ACQUISITIONS ACQUISITIONS ACQUISITIONS
----------------------- -------------------- ------------ ------------
YEAR ENDED DECEMBER 31, 1998:
Revenues.......................... $ 54,042 $32,528 $13,054 $ 99,624
Net income........................ 1,748 142 377 2,267
YEAR ENDED DECEMBER 31, 1999:
Revenues.......................... 175,773 1,788 6,664 184,225
Net income........................ 8,763 245 219 9,227
YEAR ENDED DECEMBER 31, 2000:
Revenues.......................... 304,311 -- 44 304,355
Net income........................ 28,186 -- 3 28,189
39
42
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
1999 and 2000 Acquisitions
During 1999, the Company acquired 51 businesses which were accounted for as
purchases. Aggregate consideration for these acquisitions consisted of $233,745
in cash (net of cash acquired), $763 in notes payable to sellers and 2,934,649
shares of common stock valued at $74,359.
During 2000, the Company acquired 25 businesses which were accounted for as
purchases. Aggregate consideration for the acquisitions consisted of $168,307 in
cash, (net of cash acquired), $3,212 in notes payable to sellers and 44,913
shares of common stock valued at $821.
The results of operations of the acquired businesses have been included in
the Company's consolidated financial statements from their respective
acquisition dates.
Certain items affecting the purchase price allocations of 2000 acquisitions
are preliminary. A summary of the purchase price allocations for acquisitions
consummated in 1999 and preliminary purchase price allocations for the
acquisitions consummated in 2000 is as follows:
1999 2000
ACQUISITIONS ACQUISITIONS
------------ ------------
Acquired assets:
Accounts receivable....................................... $ 8,433 $ 5,533
Prepaid expenses and other current assets................. 239 222
Property and equipment.................................... 276,789 44,489
Goodwill.................................................. 137,151 133,629
Long-term franchise agreements and other.................. 558 1,016
Non-competition agreements................................ 900 572
Other assets.............................................. 2,512 998
Assumed liabilities:
Deferred revenue.......................................... (273) (3,746)
Accounts payable and accrued liabilities.................. (19,952) (5,231)
Other accrued liabilities................................. (1,257) (393)
Long-term liabilities assumed............................. (26,340) (4,298)
Deferred income taxes..................................... (69,893) (451)
-------- --------
$308,867 $172,340
======== ========
In connection with certain of the acquisitions in 1999 and 2000, the
Company is required to pay contingent consideration to certain former
shareholders of the respective companies, subject to the occurrence of specified
events. As of December 31, 2000, contingent payments relating to these
acquisitions total approximately $2,134 in cash and 59,060 shares placed into
escrow, and are to be earned based upon the achievement of certain milestones.
The Company has included the contingent cash payments in these financial
statements as the events which would give rise to such payments are considered
probable. No amounts related to the contingent shares have been included in
these financial statements as the events which would give rise to such payments
have not yet occurred and are not considered probable.
40
43
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
The following unaudited pro forma results of operations assume that the
Company's significant acquisitions occurring in 1999 and 2000, accounted for
using the purchase method of accounting, were acquired as of January 1, 1999:
YEAR ENDED DECEMBER 31,
------------------------
1999 2000
---------- ----------
Total revenue............................................... $253,523 $327,082
Net income.................................................. 10,590 29,002
Basic income per share...................................... 0.52 1.24
Diluted income per share.................................... 0.49 1.21
The unaudited pro forma results do not purport to be indicative of the
results of operations which actually would have resulted had the acquisitions
occurred on January 1, 1999, nor are they necessarily indicative of future
operating results.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
--------------------
1999 2000
-------- --------
Goodwill.................................................... $236,250 $369,163
Long-term franchise agreements and contracts................ 3,577 4,528
Non-competition agreements.................................. 2,015 2,559
Other, net.................................................. 2,009 2,126
-------- --------
243,851 378,376
Less -- accumulated amortization............................ (6,449) (14,871)
-------- --------
$237,402 $363,505
======== ========
The Company acquired certain long-term franchise agreements, contracts and
non-competition agreements in connection with certain of its acquisitions. The
estimated fair value of the acquired long-term franchise agreements and
contracts was determined by management based on the discounted net cash flows
associated with the agreements and contracts. The estimated fair value of the
non-competition agreements reflects management's estimates based on the amount
of revenue protected under such agreements. The amounts assigned to the
franchise agreements, contracts, and non-competition agreements is being
amortized on a straight-line basis over the remaining term of the related
agreements (ranging from 5 to 18 years). Total goodwill amortization expense for
the years ended December 31, 1998, 1999 and 2000 was $1,640, $3,766 and $7,857,
respectively.
41
44
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
--------------------
1999 2000
-------- --------
Landfill site costs......................................... $250,187 $283,892
Land, buildings and improvements............................ 29,735 35,936
Rolling stock............................................... 42,340 56,611
Containers.................................................. 26,648 35,796
Machinery and equipment..................................... 17,885 20,838
-------- --------
366,795 433,073
Less accumulated depreciation and depletion................. (31,535) (48,836)
-------- --------
$335,260 $384,237
======== ========
The Company's landfill depletion expense for the years ended December 31,
1998, 1999 and 2000 was $279, $2,163 and $5,853, respectively.
5. OTHER ASSETS
Other assets consist of the following:
DECEMBER 31,
------------------
1999 2000
------- -------
Restricted cash............................................. $ 7,624 $ 8,842
Loan fees................................................... 2,186 3,488
Other....................................................... 964 997
------- -------
$10,774 $13,327
======= =======
Restricted funds held in trust are included as part of other assets and
consist of amounts on deposit with various banks that support the Company's
financial assurance obligations for its landfill facilities' closure and
post-closure costs and amounts outstanding under the Madera and Wasco bonds
(Note 9).
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
DECEMBER 31,
------------------
1999 2000
------- -------
Income taxes................................................ $ 6,030 $ 9,912
Payroll and payroll related................................. 2,650 4,989
Interest payable............................................ 1,964 3,258
Insurance claims and premiums............................... 1,374 223
Other....................................................... 3,985 2,176
------- -------
$16,003 $20,558
======= =======
42
45
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
7. SHORT-TERM BORROWINGS
Short-term borrowings consisted of various revolving and non-revolving
lines-of-credit with a bank. These amounts were paid in full in February 1999.
8. CLOSURE AND POST-CLOSURE COSTS
The net present value of the closure and post-closure commitment is
calculated assuming inflation of 3% and a discount interest rate of 7.5%.
Discounted amounts previously recorded are accreted to reflect the effects of
the passage of time. The Company's current estimate of total future payments for
closure and post-closure, in accordance with Subtitle D, is $68,550,000,
adjusted for inflation, while the present value of such estimate is $5,194. At
December 31, 1999 and 2000, respectively, accruals for landfill closure and
post-closure costs (including costs assumed through acquisitions) were $4,313
and $5,194, respectively, and are recorded as other long-term liabilities on the
balance sheet. The accruals reflect landfills with estimated remaining lives,
based on current waste flows, that range from 11 to 297 years, with an estimated
average remaining life of approximately 77 years. The Company estimates that its
closure and post-closure payment commitments for certain of its landfills will
begin in 2012.
9. LONG-TERM DEBT
Credit Facility
In November 1998, the Company entered into a new revolving credit facility
with a syndicate of banks for which BankBoston N.A. acted as agent (the
"November 1998 Credit Facility"). As of December 31, 1998, the maximum amount
available under the November Credit Facility was $115,000 (including $15,000 in
stand-by letters of credit, of which $1,829 were issued as of December 31, 1998)
and the borrowings bore interest at various fixed and/or variable rates at the
Company's option (approximately 7.0% as of December 31, 1998).
In March 1999, the Company entered into a new revolving credit facility
with a syndicate of banks for which BankBoston N.A. acted as agent (the "March
1999 Credit Facility"). As of December 31, 1999, the maximum amount available
under the March 1999 Credit Facility was $315,000 (including $35,000 in stand-
by letters of credit, of which $26,000 were issued as of December 31, 1999) and
the borrowings bore interest at various fixed and/or variable rates at the
Company's option (approximately 8.2% as of December 31, 1999). The March 1999
Credit Facility amended the November 1998 Credit Facility. The March 1999 Credit
Facility required quarterly payments of interest and it matured in March 2004.
Borrowings were secured by substantially all of the Company's assets and the
Company was required to pay an annual commitment fee equal to 0.5% of the unused
portion of the facility. The March 1999 Credit Facility placed certain business,
financial and operating restrictions on the Company relating to, among other
things, the incurrance of additional indebtedness, investments, acquisitions,
asset sales, mergers, dividends, distributions and repurchases and redemption of
capital stock. The Credit Facility also required that specified financial ratios
and balances be maintained. As of December 31, 1999, the Company was in
compliance with these covenants.
In May 2000, the Company entered into a new revolving credit facility with
a syndicate of banks for which Fleet Boston Financial Corporation acts as agent
(the "Credit Facility"). The maximum amount available under the Credit Facility
was $425,000 (including $40,000 in stand-by letters of credit, of which $24,410
were issued as of December 31, 2000) and the borrowings bear interest at various
variable rates based on a spread over LIBOR or the applicable Base Rate at the
Company's option (approximately 8.5% as of December 31, 2000). The Credit
Facility replaced the March 1999 Credit Facility. The Credit Facility was
amended on December 29, 2000 increasing the maximum amount available to
$435,000. The Credit Facility requires quarterly payments of interest and
matures in May 2005. Borrowings under the Credit Facility are
43
46
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
secured by virtually all of the Company's assets. The Credit Facility requires
the Company to pay a commitment fee ranging from .25% to .50% of the unused
portion of the Credit Facility. The Credit Facility places certain business,
financial and operating restrictions on the Company relating to, among other
things, the incurrance of additional indebtedness, investments, acquisitions,
asset sales, mergers, dividends, distributions and repurchases and redemption of
capital stock. The Credit Facility also requires that specified financial ratios
and balances be maintained. As of December 31, 2000, the Company was in
compliance with these covenants.
Wasco Bond
In December 1999, the Company completed a $13,600 tax-exempt bond financing
for its Wasco subsidiary (the "Wasco Bond"). These funds were used for the
acquisition, construction, furnishing, equipping and improving of a landfill
located in Wasco County, Oregon (the "Landfill Project"). The bonds mature in
December 2009 and bear interest at variable rates based on market conditions for
Oregon tax exempt bonds (approximately 5.5% at December 31, 2000). The bonds are
backed by a letter of credit issued by Fleet Boston Financial Corporation under
the Credit Facility for $14,500. At December 31, 2000, approximately $4.2
million of the funds from the bond offering are held by a trustee and can be
used by the Company to finance capital expenditures on the Landfill Project.
These unused funds held by the trustee are classified as restricted cash and
included in other assets in the accompanying consolidated balance sheet.
CRC Bond
In December 1991, Columbia Resource Company, a wholly-owned subsidiary of
the Company acquired in 1999, received $13,000 in financing through an
Industrial Revenue Bond (the "CRC Bond") issued by Clark County, Washington.
These funds were used for the acquisition of real property and construction
thereon of a solid waste transfer station. The CRC Bond requires escalating
annual principal payments ranging from $1,000 in December 2000 to $1,505 in
December 2006 (the maturity date), bears interest at rates ranging from 7.1% to
7.5%, is secured by the real property and solid waste transfer station and
backed by a letter of credit issued by Fleet Boston Financial Corporation under
the Credit Facility for $8,021.
Madera Bond
In June 1998, the Company completed a $1,800 tax-exempt bond financing for
its Madera subsidiary (the "Madera Bond"). These funds was used for specified
capital expenditures and improvements, including installation of a landfill gas
recovery system. The bonds mature on May 1, 2016 and bear interest at variable
rates based on market conditions for California tax exempt bonds (approximately
4.6% at December 31, 2000). The bonds are backed by a letter of credit issued by
Fleet Boston Financial Corporation under the Credit Facility for $1,828.
Interest Rate Protection Agreements
The Company entered into an interest rate protection agreement (the
"Interest Agreement"), with its primary banking institution to reduce its
exposure to fluctuations in variable interest rates. The Interest Agreement, was
effective November 2, 1998 through November 2, 2000, effectively changed the
Company's interest rate paid on a notional amount of $27,700 of its floating
rate long-term debt to a fixed rate of 4.68% plus applicable margin
(approximately 6.68% at December 31, 1999). The fair value of the Interest
Agreement as of December 31, 1999 was $327, which reflects the estimated amount
that the Company would receive to terminate the Interest Agreement based on
quoted market prices of comparable contracts as of December 31, 1999.
44
47
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
In December 1999, the Company entered into an interest rate hedge with
Fleet Boston Financial Corporation. Under the hedge agreement, which was
effective through December 2001, the interest rate on $125 million of the
floating rate long-term debt was effectively fixed with an interest rate of 6.1%
plus an applicable margin. This rate remained at 6.1% if LIBOR was less than
7.0%. If LIBOR exceeded 7.0%, the interest rate under the hedge agreement would
increase one basis point for every LIBOR basis point above 7.0%.
In May 2000, the Company entered into an interest rate hedge with Union
Bank of California. Under the hedge agreement, which was effective through
December 2003, the interest rate on $125 million of the floating rate long-term
debt was effectively fixed with an interest rate of 7.0% plus an applicable
Margin.
In December 2000, the Company restructured the two $125 million interest
rate hedges (the "Hedge Agreements") with Fleet Boston Financial Corporation and
Union Bank of California extending their maturity through December 2003 and
removing the embedded option features of the agreements. Under the Hedge
Agreements, the interest rate on $250 million of the floating rate long-term
debt is effectively fixed with an average interest rate of 6.59% plus an
applicable margin. In the event of nonperformance by either counterparty, the
Company would be exposed to interest rate risk if the variable interest rate
received were to exceed the fixed rate paid by the Company under the terms of
the Hedge Agreements. The fair value of the Hedge Agreements as of December 31,
2000 was a liability of approximately $7,651, which reflects the estimated
amount the Company would pay to terminate the Hedge Agreements based on quoted
market prices of comparable contracts as of December 31, 2000.
Long-term debt consists of the following:
DECEMBER 31,
--------------------
1999 2000
-------- --------
Credit Facility............................................. $247,500 $308,000
Wasco Bond.................................................. 13,600 13,600
CRC Bond.................................................... 8,625 7,625
Madera Bond................................................. 1,800 1,800
Notes payable to sellers in connection with acquisitions,
unsecured, bearing interest at 6.5% to 8.4%, principal and
interest payments due periodically with due dates ranging
from 2001 to 2005......................................... 1,570 2,891
Notes payable to third parties, secured by substantially all
assets of certain subsidiaries the Company, interest at
7.0% to 11.0%, principal and interest payments due
periodically with due dates ranging from 2001 to 2009..... 4,604 3,922
Other....................................................... 490 --
-------- --------
278,189 337,838
Less -- current portion..................................... (3,044) (3,644)
-------- --------
$275,145 $334,194
======== ========
45
48
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
As of December 31, 2000, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
2001.............................................. $ 3,644
2002.............................................. 2,494
2003.............................................. 2,556
2004.............................................. 2,314
2005.............................................. 309,579
Thereafter........................................ 17,251
--------
$337,838
========
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases its facilities and certain equipment under
non-cancelable operating leases for periods ranging from one to five years. The
Company's consolidated rent expense under operating leases during the years
ended December 31, 1998, 1999 and 2000 was $849, $1,233 and $2,188,
respectively.
As of December 31, 2000, future minimum lease payments under these leases,
by calendar year, are as follows:
2001................................................ $1,645
2002................................................ 1,409
2003................................................ 1,281
2004................................................ 1,137
2005................................................ 1,094
Thereafter.......................................... 2,199
------
$8,765
======
Performance Bonds
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. As of
December 31, 1999 and 2000, WCI had provided customers and various regulatory
authorities with bonds of approximately $2,414 and $9,901, respectively, to
secure its obligations (exclusive of letters of credit backing certain municipal
bond obligations). If the Company were unable to obtain surety bonds or letters
of credit in sufficient amounts or at acceptable rates, it could be precluded
from entering into additional municipal solid waste collection contracts or
obtaining or retaining landfill operating permits.
CONTINGENCIES
Environmental Risks
The Company is subject to liability for any environmental damage that its
solid waste facilities may cause to neighboring landowners or residents,
particularly as a result of the contamination of soil, groundwater or surface
water, and especially drinking water, including damage resulting from conditions
existing prior to the acquisition of such facilities by the Company. The Company
may also be subject to liability for any off-site environmental contamination
caused by pollutants or hazardous substances whose transportation, treatment or
disposal was arranged by the Company or its predecessors. Any substantial
liability for environmental damage
46
49
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
incurred by the Company could have a material adverse effect on the Company's
financial condition, results of operations or cash flows. As of December 31,
2000, the Company is not aware of any significant environmental liabilities.
Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, the Company is subject to
various judicial and administrative proceedings involving federal, state or
local agencies. In these proceedings, an agency may seek to impose fines on the
Company or to revoke or deny renewal of an operating permit held by the Company.
From time to time the Company may also be subject to actions brought by
citizens' groups or adjacent landowners or residents in connection with the
permitting and licensing of landfills and transfer stations, or alleging
environmental damage or violations of the permits and licenses pursuant to which
the Company operates.
In addition, the Company is a party to various claims and suits pending for
alleged damages to persons and property, alleged violations of certain laws and
alleged liabilities arising out of matters occurring during the normal operation
of the waste management business. However, as of December 31, 2000 there is no
current proceeding or litigation involving the Company that the Company believes
will have a material adverse impact on its business, financial condition,
results of operations or cash flows.
Employees
The Teamsters Union represents approximately 26 drivers and mechanics at
Arrow Sanitary Services, Inc. ("Arrow") in Portland Oregon, a wholly owned
subsidiary of the Company. The current labor agreement term is until March of
2001. The Company is currently in negotiations with union representatives.
The Teamsters Union represents approximately 7 drivers and mechanics at the
Company's Miles City, Montana operation. The current labor agreement term is
until October of 2001.
There have been organizing efforts at two of the Company's other districts
covering a total of 52 non-management employees.
The Company is not aware of any other organizational efforts among its
employees and believes that its relations with its employees are good.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In September 1997, the Company received net proceeds of $6,992 from the
sale of 2,499,998 shares of redeemable convertible preferred stock (the
"Preferred Stock"). The Preferred Stock accrued cumulative dividends at the rate
of $.098 per share annually. Accumulated and unpaid dividends on Preferred Stock
amounted to $61 as of December 31, 1997. Each share of Preferred Stock was
redeemable, at the holder's option, during the period from April 1, 1999 through
October 1, 1999 for $4.20 per share plus any accumulated and unpaid dividends.
The Preferred Stock and any accumulated and unpaid dividends were convertible at
the holder's option into shares of the Company's common stock at the calculated
rate of $2.80 per share divided by the "Conversion Price" subject to certain
anti-dilution adjustments. Each share was automatically converted into common
stock immediately upon the closing of the Company's initial public offering of
common stock at a Conversion Price of $2.80 per share.
47
50
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
12. STOCKHOLDERS' EQUITY
Common Stock
Of the 23,519,954 shares of common stock authorized but unissued as of
December 31, 2000, the following shares were reserved for issuance:
Stock option plan................................. 2,823,757
Stock purchase warrants........................... 182,625
Shares held in escrow............................. 59,060
---------
3,065,442
=========
Stock Options
In November 1997, WCI's Board of Directors adopted a stock option plan in
which all officers, employees, directors and consultants may participate (the
"Option Plan"). Options granted under the Option Plan may either be incentive
stock options or nonqualified stock options (the "Options"), generally have a
term of 10 years from the date of grant, and will vest over periods determined
at the date of grant. The exercise prices of the options are determined by the
Company's Board of Directors and will be at least 100% or 110% of the fair
market value of the Company's common stock on the date of grant as provided for
in the Option Plan.
As of December 31, 1998 and 1999, the Option Plan provides for the
reservation of common stock for issuance thereunder equal to 12% of the
outstanding shares of the Company's common stock. The Option Plan was amended in
2000 to provide for the reservation of the Company's common stock for issuance
thereunder equal to 3,500,000 shares. The amount of common stock reserved for
issuance under the Option Plan is decreased for options exercised and increased
for previously granted options that have been forfeited or cancelled. As of
December 31, 2000, options for 1,359,506 shares of common stock were available
for future grants under the Option Plan.
As of December 31, 1998, 1999 and 2000, 333,121, 495,713 and 681,560
options to purchase common stock were exercisable under the Option Plan,
respectively.
A summary of WCI's stock option activity and related information for the
years ended December 31, 1998, 1999 and 2000 is presented below:
WEIGHTED
NUMBER OF AVERAGE
SHARES (OPTIONS) EXERCISE PRICE
---------------- --------------
Outstanding as of December 31, 1997..................... 528,500 $ 4.92
Granted............................................... 511,050 9.58
Forfeited............................................. 2,874 5.00
Exercised............................................. 57,912 4.69
---------
Outstanding as of December 31, 1998..................... 978,764 7.38
Granted............................................... 1,045,350 16.03
Forfeited............................................. 28,000 20.20
Exercised............................................. 251,969 5.92
---------
Outstanding as of December 31, 1999..................... 1,744,145 12.57
Granted............................................... 221,500 14.01
Forfeited............................................. 135,032 18.65
Exercised............................................. 366,362 6.82
---------
Outstanding as of December 31, 2000..................... 1,464,251 13.65
---------
48
51
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
The following table summarizes information about stock options outstanding
as of December 31, 2000:
OPTIONS OUTSTANDING
----------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE --------------------
WEIGHTED REMAINING WEIGHTED
AVERAGE CONTRACTUAL AVERAGE
EXERCISE LIFE EXERCISE
EXERCISE RANGE SHARES PRICE (IN YEARS) SHARES PRICE
-------------- --------- -------- ----------- -------- ---------
$ 2.80 to 5.00 145,241 $ 2.85 7.0 145,241 $ 2.85
$ 6.00 to 9.50 22,170 9.03 7.1 22,170 9.03
$10.25 to 13.00 676,093 11.22 8.5 283,288 11.22
$15.19 to 23.00 560,747 18.34 8.2 218,026 18.34
$24.94 to 26.00 60,000 25.31 8.9 12,835 25.31
--------- -------
1,464,251 13.65 8.2 681,560 11.91
========= =======
The weighted average grant date fair values for options granted during
1998, 1999 and 2000 are as follows:
1998 1999 2000
----- ----- -----
Exercise prices equal to market price of stock.............. $5.28 $7.80 $5.51
Exercise prices less than market price of stock............. 6.52 -- --
Exercise prices greater than market price of stock.......... 3.09 -- --
Pro Forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended December 31, 1998, 1999 and 2000: risk-free
interest rate of 5%, 5.8% and 5.8%, respectively; dividend yield of zero;
volatility factor of the expected market price of the Company's common stock of
.55, .55, and .65, respectively; and a weighted-average expected life of the
option of 4 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
49
52
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The following
table summarizes the Company's pro forma net income and pro forma basic net
income per share for the years ended December 31, 1998, 1999 and 2000:
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999 2000
------ ------ -------
Net income applicable to common stockholders:
As reported........................................... $1,350 $9,227 $28,189
Pro forma............................................. 27 7,631 25,933
Basic income per share:
As reported........................................... 0.13 0.49 1.21
Pro forma............................................. 0.00 0.41 1.11
Diluted income per share:
As reported........................................... 0.11 0.46 1.17
Pro forma............................................. 0.00 0.38 1.08
During the year ended December 31, 1998, the Company recorded deferred
stock compensation of $821 relating to stock options granted during the period
with exercise prices less than the estimated fair value of the Company's common
stock on the date of grant. The deferred stock compensation was amortized into
expense over the vesting periods of the stock options which generally ranged
from 1 to 3 years. During the years ended December 31, 1998, 1999 and 2000,
compensation expense of $393, $265 and $163, respectively, was recorded relating
to these options.
Stock Purchase Warrants
The following table summarizes information about warrants outstanding as of
December 31, 1999 and 2000:
OUTSTANDING AT
DECEMBER 31,
WARRANTS EXERCISE FAIR VALUE -----------------
ISSUE DATE ISSUED RANGE OF WARRANTS 1999 2000
--------------- -------- --------------- ----------- ------- -------
Warrants issued to guarantors of Company's
debt obligations......................... December 1997 841,000 $ 2.80 $328 374,000 --
Warrants issued to consultants............. December 1997 15,000 2.80 to 5.00 15,000 --
Warrants issued in connection with an
acquisition.............................. February 1998 200,000 4.00 954 200,000 113,333
Warrants issued to acquisition
consultants.............................. Throughout 1998 67,935 12.00 to 22.13 339 67,935 --
Warrants issued to acquisition
consultants.............................. Throughout 1999 102,634 10.88 to 30.50 572 102,634 43,060
Warrants issued to acquisition
consultants.............................. Throughout 2000 40,438 10.88 to 27.88 183 -- 26,232
------- -------
759,569 182,625
======= =======
The warrants are exercisable when granted and expire between 2000 and 2009.
Warrants issued to third party acquisition consultants are valued using the
Black-Scholes pricing model with assumed stock price volatility and risk-free
interest rates similar to those used for stock options, and the warrant's
contractual term of 2 years. These warrants are recorded as an element of the
related cost of acquisitions.
50
53
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
13. INCOME TAXES
The provision for income taxes for the years ended December 31, 1998, 1999
and 2000 consists of the following:
YEAR ENDED DECEMBER 31,
----------------------------
1998 1999 2000
------ ------- -------
Current:
Federal.............................................. $1,463 $ 7,800 $15,971
State................................................ 146 865 2,055
Deferred:
Federal.............................................. 1,286 2,053 607
State................................................ 145 206 677
------ ------- -------
$3,040 $10,924 $19,310
====== ======= =======
Significant components of deferred income tax assets and liabilities are as
follows as of December 31, 1999 and 2000:
1999 2000
-------- --------
Deferred income tax assets:
Basis step-up in acquired assets.......................... $ 396 $ 362
Accounts receivable reserves.............................. 66 746
Accrued expenses.......................................... 142 377
State taxes............................................... 42 54
Other..................................................... 179 173
-------- --------
Total deferred income tax assets:................. 825 1,712
======== ========
Deferred income tax liabilities:
Net asset basis difference in non-taxable acquisitions.... (68,505) (65,696)
Amortization.............................................. (1,257) (3,251)
Depreciation.............................................. (3,976) (7,193)
Other liabilities......................................... (410) (550)
Prepaid expenses.......................................... (1,097) (1,196)
-------- --------
Total deferred income tax liabilities............. (75,245) (77,886)
-------- --------
Net deferred income tax liability................. $(74,420) $(76,174)
======== ========
51
54
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
The differences between the Company's provision for income taxes as
presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate is comprised of the items shown in
the following table as a percentage of pre-tax income:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ----- -----
Income tax provision at the statutory rate.................. 34.0% 35.0% 35.0%
State taxes, net of federal benefit......................... 4.0 3.5 3.7
Acquisition charges......................................... -- 10.3 --
Goodwill amortization....................................... 3.0 2.1 1.5
Subchapter S................................................ 3.2 1.1 --
Stock compensation expense.................................. 3.0 0.5 0.1
Other....................................................... 0.8 1.7 0.3
---- ---- ----
48.0% 54.2% 40.6%
==== ==== ====
14. NET INCOME PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and
denominator used in the computation of basic and diluted net income per share
for the years ended December 31, 1998, 1999 and 2000:
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1999 2000
----------- ----------- -----------
Numerator:
Income before extraordinary item.................. $ 3,294 $ 9,227 $ 28,189
Redeemable convertible preferred stock
accretion...................................... (917) -- --
----------- ----------- -----------
Income applicable to common stockholders before
extraordinary item............................. $ 2,377 $ 9,227 $ 28,189
=========== =========== ===========
Extraordinary item................................ (1,027) -- --
----------- ----------- -----------
Net income applicable to common stockholders...... $ 1,350 $ 9,227 $ 28,189
=========== =========== ===========
Denominator:
Weighted average common shares outstanding........ 10,412,868 18,655,801 23,301,358
Dilutive effect of stock options and warrants
outstanding.................................... 1,628,930 1,273,738 693,586
Incremental common shares issuable upon redemption
of redeemable common stock..................... 282,192 -- --
----------- ----------- -----------
12,323,990 19,929,539 23,994,944
=========== =========== ===========
52
55
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS.)
As of December 31, 1999 and 2000, the Company had the following common
stock equivalents that have not been included in the computation of diluted net
income per share because to do so would have been antidilutive:
DECEMBER 31, 1999 DECEMBER 31, 2000
----------------------------- -----------------------------
NUMBER OF EXERCISE NUMBER OF EXERCISE
SHARES PRICE RANGE SHARES PRICE RANGE
--------- ---------------- --------- ----------------
Outstanding options................ 103,000 $21.50 to $26.50 140,283 $18.75 to $26.00
Outstanding warrants............... 81,081 $21.50 to $30.50 55,001 $19.50 to $30.50
------- -------
184,081 195,284
======= =======
15. RELATED PARTY TRANSACTIONS
Disposal Fees
During the years ended December 31, 1998 and 1999, the Murrey Companies
paid $8,816 and $10,328, respectively, in disposal fees to a landfill that is
owned and operated by a company in which one of the Murrey Companies'
shareholders had an approximate 33% ownership interest. The related party
ownership of Waste Connections, Inc. stock was sold in 2000.
16. EMPLOYEE BENEFIT PLANS
WCI has a voluntary savings and investment plan (the "WCI 401(k) Plan").
The WCI 401(k) Plan is available to all eligible, non-union employees of WCI.
Under the WCI 401(k) Plan, WCI's contributions are 40% of the first 5% of the
employee's contributions. The Murrey Companies have a voluntary savings and
investment plan (the "Murrey 401(k) Plan"). The Murrey 401(k) Plan is available
to all eligible, non-union employees of the Murrey Companies. Under the Murrey
401(k) Plan, the Murrey Companies' contributions are at the discretion of
management. During the years ended December 31, 1998, 1999 and 2000, the total
401(k) plan expense for the WCI and Murrey 401(k) plans was approximately $394,
$848 and $890, respectively.
53
56
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results
of operations as reported and as restated for poolings-of-interests for 1999 and
2000(1) (in thousands, except per share amounts):
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
Revenues:
1999 as reported........................................ $30,883 $40,219 $48,610 $60,391
1999 as restated........................................ 33,178 40,901 49,345 60,801
Gross profit:
1999 as reported........................................ 10,763 15,414 19,302 24,726
1999 as restated........................................ 11,542 15,626 19,526 24,845
Net income (loss):
1999 as reported........................................ (4,362) 3,152 4,919 5,390
1999 as restated........................................ (4,279) 3,184 4,952 5,377
Basic income (loss) per common share:
1999 as reported........................................ (0.28) 0.18 0.26 0.26
1999 as restated........................................ (0.27) 0.18 0.26 0.25
Diluted income (loss) per common share:
1999 as reported........................................ (0.28) 0.16 0.24 0.25
1999 as restated........................................ (0.27) 0.16 0.24 0.24
Revenues:
2000 as reported........................................ 64,011 76,022 81,510 82,812
Gross profit:
2000 as reported........................................ 27,207 31,973 34,780 35,885
Net income:
2000 as reported........................................ 5,690 5,982 7,947 8,570
Basic income per common share:
2000 as reported........................................ 0.27 0.28 0.34 0.33
Diluted income per common share:
2000 as reported........................................ 0.26 0.27 0.32 0.32
- ---------------
(1) The 2000 Quarterly reported data was not restated as the only
pooling-of-interest transaction was completed in the first quarter.
54
57
PART III
Except as set forth above in Part I under "Executive Officers," the
information required by Part III (Items 10 through 13) has been omitted from
this report, and is incorporated by reference to the captions "Principal
Stockholders," "Election of Directors" and "Executive Compensation" in our
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders, which we
will file with the Commission pursuant to Regulation 14A within 120 days after
the end of our 2000 fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K
(a) See Index to Financial Statements on page 28. The following Financial
Statement Schedule is filed herewith and made a part hereof:
Schedule II -- Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
(b) The following reports on Form 8-K were filed during the last quarter of our
fiscal year ended December 31, 2000:
None.
(c) See Exhibit Index immediately following signature pages.
55
58
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WASTE CONNECTIONS, INC.
By: /s/ RONALD J. MITTELSTAEDT
------------------------------------
Ronald J. Mittelstaedt
President
Date: March 21, 2001
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ RONALD J. MITTELSTAEDT Chairman, President and March 21, 2001
- ----------------------------------------------------- Director
Ronald J. Mittelstaedt (principal executive officer)
/s/ STEVEN F. BOUCK Chief Financial Officer March 21, 2001
- ----------------------------------------------------- (principal financial officer)
Steven F. Bouck
/s/ MICHAEL R. FOOS Chief Accounting Officer and March 21, 2001
- ----------------------------------------------------- Vice President -- Finance
Michael R. Foos (principal accounting
officer)
/s/ EUGENE V. DUPREAU Vice President -- California March 21, 2001
- ----------------------------------------------------- Division and Director
Eugene V. Dupreau
/s/ MICHAEL W. HARLAN Director March 21, 2001
- -----------------------------------------------------
Michael W. Harlan
/s/ WILLIAM J. RAZZOUK Director March 21, 2001
- -----------------------------------------------------
William J. Razzouk
56
59
WASTE CONNECTIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1999 AND 2000
(IN THOUSANDS)
ADDITIONS
---------------------- DEDUCTIONS
BALANCE AT CHARGED TO CHARGED (WRITE-OFFS, BALANCE
BEGINNING COSTS AND TO OTHER NET OF AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS COLLECTIONS) OF PERIOD
----------- ---------- ---------- --------- ------------ ---------
Deducted from asset accounts:
Allowance for doubtful accounts:
Year ended December 31, 1998............. $ 332 $ 696 $ -- $(209) $ 819
Year ended December 31, 1999............. 819 1,549 5 (913) 1,460
Year ended December 31, 2000............. 1,460 1,264 -- (825) 1,899
57
60
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- -----------------------
3.1* Amended and Restated Certificate of Incorporation of Waste
Connections, in effect as of the date hereof
3.2* Amended and Restated By-Laws of Waste Connections, in effect
as of the date hereof
4.1* Form of Common Stock Certificate
10.1*# Third Amended and Restating Revolving Credit Agreement,
dated as of May 16, 2000, between Waste Connections and
various banks represented by Fleet National Bank
10.2### @ Second Amended and Restated 1997 Stock Option Plan
10.3* @ Form of Option Agreement
10.4* @ Form of Warrant Agreement
10.5* Warrant Agreement and related Anti-Dilution Agreement issued
to Imperial Bank
10.6* Warrant Agreement and related Anti-Dilution Agreement issued
to BankBoston, N.A.
10.7* Form of Stock Purchase Agreement dated as of September 30,
1997
10.8*** Form of Third Amended and Restated Investors' Rights
Agreement dated as of December 31, 1998
10.9*# @ First Amended and Restated Employment Agreement between
Waste Connections and Ronald J. Mittelstaedt, dated as of
June 1, 2000
10.10*## @ Second Amended Employment Agreement between Waste
Connections and Darrell Chambliss, dated as of June 1, 2000
10.11*## @ Second Amended Employment Agreement between Waste
Connections and Michael Foos, dated as of June 1, 2000
10.12*## @ Second Amended Employment Agreement between Waste
Connections and Eric Moser, dated as of June 1, 2000
10.13* @ Employment Agreement between Waste Connections and Steven
Bouck, dated as of February 1, 1998
10.14* @ Employment Agreement between Waste Connections and Eugene V.
Dupreau, dated as of February 23, 1998
10.15* @ Employment Agreement between Waste Connections and Charles
B. Youngclaus, dated as of February 23, 1998
10.16+* Purchase and Sale Agreement, dated as of September 29, 1997,
between Browning-Ferris Industries, Inc., Browning-Ferris
Industries, Inc., and Browning-Ferris Industries of Idaho,
Inc. as Sellers, and Waste Connections, Waste Connections of
Idaho, Inc. and Continental Paper Recycling, LLC as Buyers
10.17+* Stock Purchase Agreement, dated as of January 26, 1998,
among Waste Connections, Waste Connections of Idaho, Inc.
and the shareholders of Waste Connections of Idaho, Inc.
10.18+* Stock Purchase Agreement, dated as of February 4, 1998,
among Waste Connections and the shareholders of Madera
Disposal Company, Inc.
10.19+* Asset Purchase Agreement, dated as of March 1, 1998, among
Waste Connections, Waste Connections of Idaho, Inc., Hunter
Enterprises, Inc. and the shareholder of Hunter Enterprises,
Inc.
10.20* Form of Indemnification Agreement entered into by Waste
Connections and each of its directors and officers
58
61
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- -----------------------
10.21+# Asset Purchase Agreement, dated as of June 1, 1998, by and
among Waste Connections, Waste Connections of Utah, Inc.,
Contractor's Waste, L.C., and Brad Kitchen, Heath Johnston,
and R. Scott McQuarrie
10.22+## Stock Purchase Agreement, dated as of June 5, 1998, by and
among Waste Connections, B & B Sanitation, Inc., Red Carpet
Landfill, Inc., Darlin Equipment, Inc., Lyle J. Buller,
Larue A. Buller, the Lyle J. Buller Revocable Trust dated
10/11/96 and Larue A. Buller, Trustee of the Larue A. Buller
Revocable Trust dated 10/11/96
10.23++ Stock Purchase Agreement dated as of June 17, 1998, by and
among Waste Connections, Arrow Sanitary Service, Inc.,
Steven Giusto, Dennis Giusto, John Giusto, Michael Giusto
and Kenneth Giusto
10.24++ Stock Purchase Agreement dated as of June 25, 1998, by and
among Waste Connections, Curry Transfer and Recycling,
Oregon Waste Technology, Petty H. Smart, and A. Lewis Rucker
10.25**+ Purchase and Sale Agreement dated as of June 25, 1998, by
and between Petty H. Smart and Waste Connections
10.26** Loan Agreement dated as of June 1, 1998 between Madera
Disposal Systems, Inc. and the California Pollution Control
Financing Authority
10.27** @ Employment Agreement between Waste Connections and David M.
Hall, dated as of July 8, 1998
10.28+++ Agreement and Plan of Merger, dated as of July 30, 1998, by
and among Waste Connections, WCI Acquisition Corporation,
Shrader Refuse and Recycling Service Company, Duane E.
Shrader, Myrlen A. Shrader, Daniel L. Shrader, Mark S.
Shrader, Michael D. Shrader, and Daren L. Shrader
10.29+++ Purchase and Sale Agreement dated as of July 31, 1998, by
and between Ambler Vincent Development Company and Shrader
Refuse and Recycling Service Company
10.30**+ Purchase Agreement, dated as of July 31, 1998, by and among
Waste Connections, Waste Connections of Nebraska, Inc., J &
J Sanitation Inc., Big Red Roll Off Inc., Garry L. Jeffords,
Darin L. Mueller, Leslie J. Jeffords, Leland J. Jeffords,
Bradley Rowan, Great Plains Recycling, Inc., Roma L.
Jeffords, Kristie K. Mueller, Sheri L. Jeffords, and Betty
L. Hargis
10.31***+ Agreement and Plan of Merger dated as of October 22, 1998,
by and among Waste Connections, WCI Acquisition Corporation
I, WCI Acquisition Corporation II, WCI Acquisition
Corporation III, WCI Acquisition Corporation IV, Murrey's
Disposal Company, Inc., American Disposal Company, Inc.,
D.M. Disposal Co., Inc., Tacoma Recycling Company, Inc., the
Murrey Trust UTA August 5, 1993, as amended, the Bonnie L.
Murrey Revocable Trust UTA August 5, 1993, as amended,
Donald J. Hawkins, and Irmgard R. Wilcox
10.32****+ Purchase Agreement, dated as of December 11, 1998, by and
among Waste Connections, Butler County Landfill, Inc., Kobus
Construction, Inc., Tom Kobus and Debbie Kobus
10.33####+ Amendment No. 1 to Purchase Agreement, dated as of January
7, 1999, by and among WCI, Butler County Landfill, Inc.,
Kobus Construction, Inc., Tom Kobus and Debbie Kobus
10.34####+ Amendment No. 2 to Purchase Agreement, dated as of January
8, 1999, by and among WCI, Butler County Landfill, Inc.,
Kobus Construction, Inc., Tom Kobus and Debbie Kobus
59
62
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ---------- -----------------------
10.35+ Stock Purchase Agreement dated as of November 30, 1998, by
and among Waste Connections, Amador Disposal Service, Inc.,
Mother Lode Sani-Hut, Inc., and Robert N. Grunigen, Carla
Grunigen, Carol Sesser and Gaye Sue Marchini, as Trustees of
the Marchini 1981 Trust, Bennie L. Ratto, Carol Sesser, John
D. Marchini, Gloria Lehman, Sandra Thomas, John H. Tillman
and Jeffrey R. Tillman
10.36+++++ Amended and Restated Stock Purchase Agreement dated as of
March 31, 1999, by and among Waste Connections, Inc.,
Management Environmental National, Inc., RH Financial
Corporation and The Shareholder listed on Schedule A thereto
10.37+++++++ Acquisition Agreement dated as of August 11, 1999, by and
among WCI Acquisition Corporation I, Waste Connections,
Inc., International Environmental Industries, Inc., J.O.
Stewart, Jr., Ralner Corporation, JOS Enterprises, Ltd. and
International Environmental Industries Equipment Company,
L.P.
10.38+++++++++ Asset Purchase Agreement dated as of October 15, 1999, by
and among Waste Connections of Colorado, Inc., Allied Waste
Transportation, Inc., BFI Services Group, Inc. and Allied
Waste Industries, Inc.
10.39+++++++++ Stock Purchase Agreement dated as of October 15, 1999, by
and among Waste Connections, Inc., Allied Waste Systems
Holdings, Inc. and Allied Waste Industries, Inc.
10.40+++++++++ Closing Agreement dated as of November 17, 1999, by and
among Waste Connections, Inc., Allied Waste Systems
Holdings, Inc., Allied Waste Industries, Inc. and Denver
Regional Landfill, Inc.
10.41+++++++++ Agreement dated as of November 17, 1999, among Waste
Connections of Colorado, Inc., Allied Waste Transportation,
Inc., BFI Services Group, Inc. and Allied Waste Industries,
Inc.
10.42*### @ Employment Agreement between Waste Connections and James M.
Little, dated as of September 13, 1999
10.43*### @ Employment Agreement between Waste Connections and Jerri L.
Hunt, dated as of October 25, 1999
10.44**## Stock Purchase Agreement dated April 17, 2000, among Waste
Connections, BFI Waste Systems of North America, Inc., and
Allied Waste Industries, Inc.
10.45**## Asset Purchase Agreement dated April 17, 2000, among BFI
Waste Systems of North America, Inc., Allied Waste
Industries, Inc. and Finney County Landfill, Inc.
12.1 Statement regarding computation of ratio of earnings to
fixed charges
21.1 Subsidiaries of Waste Connections
23.1 Consent of Ernst & Young LLP, Independent Auditors
99.1 Proxy Statement for Waste Connections' 2001 Annual
Stockholders Meeting scheduled to be held May 16, 2001. (To
be filed with the Commission prior to 120 days after
December 31, 2000, and incorporated by reference herein to
the extent indicated in Part III to this Form 10-K.)
60
63
- ---------------
* Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-1,
Registration No. 333-48029.
** Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-4,
Registration No. 333-59199.
*** Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-4,
Registration No. 333-65615.
**** Incorporated by reference to the exhibits filed with Waste
Connections' Registration Statement on Form S-1,
Registration No. 333-70253.
# Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on June 15, 1998.
## Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on June 22, 1998.
++ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K Filed on August 11, 1998.
#### Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on January 13, 1999.
++++ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on April 14, 1999.
++++++ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on August 25, 1999.
++++++++ Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on November 24, 1999.
### Incorporated by reference to the exhibit filed with Waste
Connections' Form S-8, Registration No. 333-42096.
*## Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-Q filed on November 14, 2000.
*# Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-Q filed on August 7, 2000.
*### Incorporated by reference to the exhibit filed with Waste
Connections' Form 10-K filed on March 13, 2000.
**## Incorporated by reference to the exhibit filed with Waste
Connections' Form 8-K filed on May 30, 2000.
+ Filed without exhibits and schedules (to be provided
supplementally on request of the Commission).
@ Management contracts and compensatory plans or arrangements
required to be filed as Exhibits to comply with Item
14(a)(3).
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