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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2003 COMMISSION FILE NO. 0-23981
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
94-3283464
(I.R.S. Employer Identification No.)
35 IRON POINT CIRCLE, SUITE 200, FOLSOM, CA 95630
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (916) 608-8200
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
As of April 30, 2003: 28,233,805 Shares of Common Stock
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - December 31, 2002 and
March 31, 2003
Condensed Consolidated Statements of Income for the three months ended
March 31, 2002 and 2003
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and 2003
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
Signatures
Certifications
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Waste Connections, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)
December 31, March 31,
2002 2003
----------- -----------
Current assets:
Cash and equivalents $ 4,067 $ 4,805
Accounts receivable, less allowance for doubtful
accounts of $2,509 and $2,382 at December 31, 2002
and March 31, 2003, respectively 63,488 60,857
Prepaid expenses and other current assets 8,652 8,684
----------- -----------
Total current assets 76,207 74,346
Property and equipment, net 578,040 570,951
Goodwill, net 548,975 548,956
Intangible assets, net 33,498 33,162
Other assets, net 25,162 25,788
----------- -----------
$ 1,261,882 $ 1,253,203
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,688 $ 26,851
Accrued liabilities 45,905 45,552
Deferred revenue 19,016 20,213
Current portion of long-term debt and notes payable 3,646 5,386
----------- -----------
Total current liabilities 99,255 98,002
Long-term debt and notes payable 578,481 557,898
Other long-term liabilities 14,813 5,867
Deferred income taxes 94,543 98,775
----------- -----------
Total liabilities 787,092 760,542
Commitments and contingencies
Minority interests 23,078 23,204
Stockholders' equity:
Preferred stock: $0.01 par value; 7,500,000 shares authorized;
none issued and outstanding -- --
Common stock: $0.01 par value; 50,000,000 shares authorized;
28,046,535 and 28,152,853 shares issued and outstanding at
December 31, 2002 and March 31, 2003, respectively 280 282
Additional paid-in capital 332,705 334,711
Deferred stock compensation (775) (642)
Retained earnings 123,498 138,193
Unrealized loss on market value of interest rate swaps (3,996) (3,087)
----------- -----------
Total stockholders' equity 451,712 469,457
----------- -----------
$ 1,261,882 $ 1,253,203
=========== ===========
See accompanying notes
Waste Connections, Inc.
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except share and per share amounts)
Three months ended
March 31,
-----------------------------------
2002 2003
------------ ------------
Revenues $ 105,742 $ 128,454
Operating expenses:
Cost of operations 59,315 71,821
Selling, general and administrative 9,390 12,881
Depreciation and amortization 8,028 10,580
------------ ------------
Income from operations 29,009 33,172
Interest expense (7,369) (8,050)
Other income (expense), net (400) 38
------------ ------------
Income before income tax provision and minority
interests 21,240 25,160
Minority interests (1,766) (2,282)
------------ ------------
Income before income tax provision 19,474 22,878
Income tax provision (7,303) (8,465)
------------ ------------
Income before cumulative effect of change in
accounting principle 12,171 14,413
Cumulative effect of change in accounting
principle, net of tax expense of $166 (Note 2) -- 282
------------ ------------
Net income $ 12,171 $ 14,695
============ ============
Basic earnings per common share:
Income before cumulative effect of change in
accounting principle $ 0.44 $ 0.51
Cumulative effect of change in accounting principle -- .01
------------ ------------
Net income per common share $ 0.44 $ 0.52
============ ============
Diluted earnings per common share:
Income before cumulative effect of change in
accounting principle $ 0.43 $ 0.49
Cumulative effect of change in accounting principle -- .01
------------ ------------
Net income per common share $ 0.43 $ 0.50
============ ============
Shares used in the per share calculations:
Basic 27,469,415 28,080,260
============ ============
Diluted 31,920,243 32,656,498
============ ============
See accompanying notes.
Waste Connections, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
Three months ended
March 31,
---------------------------
2002 2003
-------- --------
Cash flows from operating activities:
Net income $ 12,171 $ 14,695
Adjustments to reconcile net income to
net cash provided by operating activities:
Loss (gain) on disposal of assets 132 (67)
Depreciation 7,745 10,235
Amortization of intangibles 283 345
Deferred income taxes -- 4,232
Minority interests 1,766 2,282
Cumulative effect of change in accounting principle -- (448)
Amortization of debt issuance costs 487 591
Stock-based compensation 17 55
Interest income on restricted cash (5) (24)
Net change in operating assets and liabilities, net of acquisitions 7,707 4,274
-------- --------
Net cash provided by operating activities 30,303 36,170
-------- --------
Cash flows from investing activities:
Proceeds from disposal of assets 1,367 89
Payments for acquisitions, net of cash acquired (32,628) (3,573)
Capital expenditures for property and equipment (9,007) (11,841)
Decrease in other assets (881) (1,186)
-------- --------
Net cash used in investing activities (41,149) (16,511)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt 72,000 11,500
Principal payments on notes payable and long-term debt (65,090) (30,344)
Distributions to minority interest holders (1,225) (2,156)
Proceeds from option and warrant exercises 2,055 2,086
Debt issuance costs (64) (7)
-------- --------
Net cash provided by (used in) financing activities 7,676 (18,921)
-------- --------
Net increase (decrease) in cash and equivalents (3,170) 738
Cash and equivalents at beginning of period 7,279 4,067
-------- --------
Cash and equivalents at end of period $ 4,109 $ 4,805
======== ========
See accompanying notes.
WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share, per share and per ton amounts)
1. BASIS OF PRESENTATION AND SUMMARY
The accompanying financial statements relate to Waste Connections, Inc. and its
subsidiaries (the "Company") as of March 31, 2003 and for the three month
periods ended March 31, 2002 and 2003. The consolidated financial statements of
the Company include the accounts of Waste Connections, Inc. and its wholly-owned
and majority-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Operating results for the three-month period ended March
31, 2003 are not necessarily indicative of the results that may be expected for
the year ending December 31, 2003.
The Company's consolidated balance sheet as of March 31, 2003, the consolidated
statements of income for the three months ended March 31, 2002 and 2003, and the
consolidated statements of cash flows for the three months ended March 31, 2002
and 2003 are unaudited. In the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the Company's financial position, results
of operations, and cash flows for the periods presented. The consolidated
financial statements presented herein should be read in conjunction with the
Company's annual report on Form 10-K for the year 2002.
2. ADOPTION OF NEW ACCOUNTING STANDARDS
SFAS No. 143
On January 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset
Retirement Obligations ("SFAS No. 143"), which provides standards for accounting
for obligations associated with the retirement of long-lived assets. The
adoption of SFAS No. 143 impacted the calculation and accounting for landfill
retirement obligations, which the Company has historically referred to as
closure and post-closure obligations, as follows:
(1) Landfill closure and post-closure liabilities are calculated by
estimating the total obligation in current dollars, inflating the
obligation based upon the expected date of the expenditure using an
inflation rate of 3% and discounting the inflated total to its present
value using an 8.5% discount rate. The 8.5% discount rate is higher
than the 7.5% discount rate used prior to the adoption of SFAS No. 143
because SFAS No. 143 requires the use of a credit-adjusted risk-free
rate. The resulting closure and post-closure obligation is recorded on
the balance sheet as the landfill's total airspace is consumed.
Discounting the obligation with a higher discount rate and recording
the liability as airspace is consumed resulted in a decrease to the
closure and post-closure liabilities recorded by the Company before it
adopted SFAS No. 143.
(2) Final capping costs are included in the calculation of closure and
post-closure liabilities. Final capping costs are estimated using
current dollars, inflated to the expected date of the final capping
expenditures, discounted to a net present value and recorded on the
balance sheet as a component of closure and post-closure liabilities as
landfill airspace is consumed.
(3) Interest accretion was reduced as a result of the decrease in the
recorded closure and post-closure liabilities and has been reclassified
from interest expense to cost of operations, thus causing a reduction
in income from operations and an increase in net income. However, there
has been no change in operating cash flow.
(4) Depletion expense resulting from the closure and post-closure
obligations recorded as a component of landfill site costs will
generally be less during the early portion of a landfill's operating
life and increase thereafter.
In accordance with SFAS No. 143, the closure and post-closure liability recorded
to site costs is charged to depletion expense on a units-of-consumption basis as
landfill airspace is consumed. The impact of changes determined to be changes in
estimates, based on an annual update, is accounted for on a prospective basis.
These policies are unchanged from the accounting policies the Company followed
for closure and post-closure obligations before it adopted SFAS No. 143.
Adopting SFAS No. 143 required a cumulative adjustment to reflect the change in
accounting for landfill obligations retroactively to the date of the inception
of the landfill. Inception of the asset retirement obligation is the date
operations commenced for landfills acquired in transactions accounted for as
poolings-of-interests or the date the asset was acquired in a transaction
accounted for as a purchase. Upon adopting SFAS No. 143 on January 1, 2003, the
Company recorded a cumulative effect of the change in accounting principle of
$448 ($282, net of tax), a decrease in its closure and post-closure liability of
$9,142 and a decrease in net landfill assets of $8,667.
The following is a reconciliation of the Company's closure and post-closure
liability balance from December 31, 2002 to March 31, 2003:
Closure and post-closure liability at December 31, 2002 $ 13,749
Decrease in closure and post-closure liability from
adopting SFAS No. 143 (9,142)
Liabilities incurred 101
Accretion expense 107
--------
Closure and post-closure liability at March 31, 2003 $ 4,815
========
Pro forma financial information to reflect the reported results of operations
for the three months ended March 31, 2002, as if SFAS No. 143 were adopted on
January 1, 2002 is as follows:
Net income as reported $ 12,171
Pro forma impact of applying SFAS No. 143, net of tax 37
--------
Pro forma net income $ 12,208
========
Basic earnings per share as reported $ 0.44
Pro forma impact of applying SFAS No. 143, net of tax --
--------
Pro forma basic earnings per share $ 0.44
========
Diluted earnings per share as reported $ 0.43
Pro forma impact of applying SFAS No. 143, net of tax --
--------
Pro forma diluted earnings per share $ 0.43
========
At March 31, 2003, the Company had restricted cash of $9,050 for purposes of
settling future closure and post-closure liabilities.
SFAS No. 146
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", effective
for transactions occurring after December 31, 2002. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
and measured initially at fair value only when the liability is incurred. The
Company's adoption of SFAS No. 146 did not have a material effect on its
financial statements.
FIN 45
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). It clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee, including its
ongoing obligation to stand ready to perform over the term of the guarantee in
the event that the specified triggering events or conditions occur. The
objective of the initial measurement of the liability is to determine the fair
value of the guarantee at its inception. The initial recognition and initial
measurement provisions of FIN 45 are effective on a prospective basis to
guarantees issued or modified after December 31, 2002, and the Company will
record the fair value of future material guarantees, if any. The Company did not
have any material guarantees at March 31, 2003.
FIN 46
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"). FIN 46
requires that unconsolidated variable interest entities be consolidated by their
primary beneficiaries. A primary beneficiary is the party that absorbs a
majority of the entity's expected losses or residual benefits. FIN 46 applies
immediately to variable interest entities created after January 31, 2003 and to
existing variable interest entities beginning after June 15, 2003. The Company
does not expect the adoption of FIN 46 to have a material impact on its
financial statements because, as of March 31, 2003, the Company does not have
any subsidiaries classified as variable interest entities.
SFAS No. 148
In December 2002, the Financial Accounting Standards Board issued FASB Statement
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure".
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting", to require disclosure in the summary of accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method. The
Company adopted the disclosure provisions of SFAS No. 148 and continues 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.
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
three months ended March 31, 2002 and 2003: risk-free interest rate of 4.46% and
2.42%, respectively; dividend yield of zero; volatility factor of the expected
market price of the Company's common stock of 40%; and a weighted-average
expected life of the option of four years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that 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 the Company's employee stock options.
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 three months ended March 31, 2002 and 2003:
Three Months Ended
March 31,
-------------------------------
2002 2003
---------- ----------
Net income, as reported $ 12,171 $ 14,695
Add: stock-based employee compensation expense
included in reported net income, net of related tax
effects 11 35
Deduct: total stock-based employee compensation
expense determined under fair value method for
all awards, net of related tax effects (1,388) (1,614)
---------- ----------
Pro forma net income $ 10,794 $ 13,116
========== ==========
Earnings per share:
Basic - as reported $ 0.44 $ 0.52
Basic - pro forma 0.39 0.47
Diluted - as reported 0.43 0.50
Diluted - pro forma 0.39 0.45
3. LANDFILL ACCOUNTING
The Company owned and operated 20 landfills and operated, but did not own, ten
landfills at March 31, 2003. Of the ten landfills that the Company operated, but
did not own, at March 31, 2003, three landfills were operated under life-of-site
contracts and seven landfills were operated under contracts with finite terms.
The Company also owns one Subtitle D landfill site that is permitted for
operation, but not constructed as of March 31, 2003. The Company's landfills
have site costs with a net book value of $371,219 at March 31, 2003. With the
exception of one owned landfill that only accepts construction and demolition
waste, all landfills that the Company owns or operates are Subtitle D landfills.
For the Company's seven landfill operating contracts with finite terms, the
owner of the property, generally a municipality, usually owns the permit and the
Company operates the landfill for a contracted term. The property owner is
generally responsible for closure and post-closure obligations under the
Company's seven operating contracts with finite terms. The Company is
responsible for all closure and post-closure liabilities for the three operating
landfills that it operates, but does not own, under life-of-site operating
agreements.
Based on remaining permitted capacity as of March 31, 2003, and projected annual
disposal volumes, the average remaining landfill life for the Company's 20 owned
and operated landfills and three landfills operated, but not owned, under
life-of-site operating contracts, is approximately 53 years. The seven landfills
that the Company operates under contracts with finite terms have remaining terms
of one to twelve years.
Many of the Company's existing landfills have the potential for expanded
disposal capacity beyond the amount currently permitted. The Company's internal
and third-party engineers perform surveys at least annually to estimate the
disposal capacity at its landfills. The Company's landfill depletion rates are
based on the remaining disposal capacity, considering both permitted and deemed
permitted airspace, at its 20 owned and operated landfills and three landfills
operated, but not owned, under life-of-site operating contracts. Deemed
permitted airspace consists of additional disposal capacity being pursued
through means of an expansion. Deemed permitted airspace that meets certain
internal criteria is included in the estimate of total landfill airspace. The
Company's internal criteria to determine when deemed permitted airspace may be
included as disposal capacity are as follows:
(1) The land where the expansion is being sought is contiguous to the
current disposal site, and is either owned by the Company or the
Company has a purchase option;
(2) Total development costs and closure/post-closure costs have been
determined;
(3) Internal personnel have performed a financial analysis of the proposed
expansion site and have determined that it has a positive financial and
operational impact;
(4) Internal or external personnel are actively working to obtain the
necessary approvals to obtain the landfill expansion permit;
(5) Obtaining the expansion is considered probable. For a pursued expansion
to be considered probable, there must be no significant known
technical, legal, community, business, or political restrictions or
similar issues existing that are likely to impair the success of the
expansion; and
(6) The land where the expansion is being sought has or can readily obtain
the proper zoning.
The Company is currently seeking to expand permitted capacity at five of its
owned landfills and two landfills that it operates, but does not own, under
life-of-site operating contracts, and considers the achievement of these
expansions to be probable. Although the Company cannot be certain that all
future expansions will be permitted as designed, the average remaining life,
when considering remaining permitted capacity, probable expansion capacity and
projected annual disposal volume, of the Company's 20 owned and operated
landfills and three landfills operated, but not owned, under life-of-site
operating agreements is 61 years, with lives ranging from 6 to 313 years.
The Company uses the units-of-production method to calculate the amortization
rate at the landfills it owns and the landfills it operates, but does not own,
under life-of-site operating contracts. This methodology divides the costs
associated with acquiring, permitting and developing the entire landfill by the
total remaining disposal capacity of that landfill. The resulting per unit
amortization rate is applied to each ton of waste disposed at the landfill and
is recorded as expense for that period. During the three months ended March 31,
2002 and 2003, the Company expensed approximately $2,274 and $2,882,
respectively, or an average of $2.00 and $2.30 per ton consumed, respectively,
related to landfill depletion and $136 and $107, respectively, or an average of
$0.12 and $0.09 per ton consumed, respectively, related to closure and
post-closure amortization.
Landfill development costs include the costs of acquisition, construction
associated with excavation, liners, site berms, groundwater monitoring wells and
leachate collection systems. Estimated total future development costs of the
Company's 20 owned and operated landfills and three landfills operated, but not
owned, under life-of-site operating contracts was $338,375 at March 31, 2003.
At March 31, 2003, the Company had 289.7 million tons of permitted remaining
airspace capacity and 42.5 million tons of deemed probable expansion airspace
capacity at its 20 owned and operated landfills and three landfills operated,
but not owned, under life-of-site operating contracts.
The disposal tonnage that the Company received in the three months ended March
31, 2002 and 2003 at all of its landfills is shown below (tons in thousands):
March 31, 2002 March 31, 2003
-------------------- --------------------
Number of Total Number of Total
Sites Tons Sites Tons
----- ----- ----- -----
Owned and operated
landfills 18 1,073 20 1,143
Operated landfills 8 213 7 223
Operated landfills under
life-of-site contracts 2 66 3 108
----- ----- ----- -----
28 1,352 30 1,474
===== ===== ===== =====
4. ACQUISITIONS
The Company did not acquire any businesses during the three months ended March
31, 2003.
The purchase prices of businesses acquired prior to January 1, 2003 have been
allocated to the identified intangible assets and tangible assets acquired and
liabilities assumed based on their estimated fair values at the dates of
acquisition, with any residual amounts allocated to goodwill. The purchase price
allocations are considered preliminary until the Company is no longer waiting
for information that it has arranged to obtain and that is known to be available
or obtainable. Although the time required to obtain the necessary information
will vary with circumstances specific to an individual acquisition, the
"allocation period" for finalizing purchase price allocations generally does not
exceed one year from the consummation of a business combination.
As of March 31, 2003, the Company had eleven acquisitions for which purchase
price allocations were preliminary, mainly as a result of tax-related
settlements. The Company believes the potential changes to its preliminary
purchase price allocations will not have a material impact on its financial
condition, results of operations or cash flows.
5. INTANGIBLE ASSETS
Intangible assets, exclusive of goodwill, consist of the following as of March
31, 2003:
Gross Carrying Accumulated Net Carrying
Amount Amortization Amount
-------- -------- --------
Amortizable intangible assets:
Long-term franchise agreements
and contracts $ 14,562 $ (1,212) $ 13,350
Non-competition agreements 3,622 (2,126) 1,496
Other, net 2,400 (794) 1,606
-------- -------- --------
20,584 (4,132) 16,452
Nonamortized intangible assets:
Indefinite-lived intangible assets 16,710 -- 16,710
-------- -------- --------
Intangible assets, exclusive of goodwill $ 37,294 $ (4,132) $ 33,162
======== ======== ========
Estimated future amortization expense for the next five years of amortizable
intangible assets is as follows:
For the year ended December 31, 2003 $ 1,287
For the year ended December 31, 2004 1,151
For the year ended December 31, 2005 1,018
For the year ended December 31, 2006 862
For the year ended December 31, 2007 671
6. EARNINGS PER SHARE CALCULATION
The following table sets forth the numerator and denominator used in the
computation of earnings per common share:
Three months ended
March 31,
--------------------------------
2002 2003
---- ----
Numerator:
Net income for basic earnings per share $ 12,171 $ 14,695
Interest expense on convertible subordinated notes due
2006, net of tax effects 1,459 1,476
--------------------------------
Net income for diluted earnings per share $ 13,630 $ 16,171
================================
Denominator:
Basic shares outstanding 27,469,415 28,080,260
Dilutive effect of convertible subordinated notes due 2006 3,944,775 3,944,775
Dilutive effect of options and warrants 506,053 625,780
Dilutive effect of restricted stock -- 5,683
--------------------------------
Diluted shares outstanding 31,920,243 32,656,498
================================
7. COMPREHENSIVE INCOME
Comprehensive income includes changes in the fair value of interest rate swaps
that qualify for hedge accounting. The difference between net income and
comprehensive income for the three months ended March 31, 2002 and 2003 is as
follows:
Three months ended
March 31,
------------------------
2002 2003
---- ----
Net income $12,171 $14,695
Unrealized gain on interest rate swaps, net of tax
expense of $836 and $585 for the three months
ended March 31, 2002 and 2003, respectively 980 908
------- -------
Comprehensive income $13,151 $15,603
======= =======
The components of other comprehensive income and related tax effects for the
three months ended March 31, 2002 and 2003 are as follows:
Three months ended March 31, 2002
---------------------------------
Gross Tax effect Net of tax
----- ---------- ----------
Amounts reclassified into earnings $1,522 $ 571 $ 951
Changes in fair value of interest rate swaps 294 265 29
--------------------------------------
$1,816 $ 836 $ 980
======================================
Three months ended March 31, 2002
---------------------------------
Gross Tax effect Net of tax
----- ---------- ----------
Amounts reclassified into earnings $1,718 $ 636 $1,082
Changes in fair value of interest rate swaps (225) (51) (174)
--------------------------------------
$1,493 $ 585 $ 908
======================================
The estimated net amount of the existing losses as of March 31, 2003 (based on
the interest rate yield curve at that date) included in accumulated other
comprehensive income expected to be reclassified into pre-tax earnings as
payments are made under the terms of the interest rate swap agreements through
their December 2003 expiration
dates is approximately $3,100. The timing of actual amounts reclassified into
earnings is dependent on future movements in interest rates.
8. LEGAL PROCEEDINGS
In January 2002, the Oklahoma Department of Environmental Quality Land
Protection Division (the "Department") issued an order to Waste Connections
requiring the Company to cease accepting more than 200 tons per day of
out-of-state waste at its Red Carpet Landfill in Oklahoma due to its alleged
failure to obtain the Department's prior approval of an out-of-state disposal
plan for that waste. At that time, the Department assessed the Company a fine of
$220 for past violations related to accepting more than 200 tons per day of
out-of-state waste prior to obtaining the Department's approval of a disposal
plan. While seeking the Department's approval of a disposal plan, the Company
continued to accept more than 200 tons a day of out-of-state waste because it
believed, based on the advice of its legal counsel, that the Department did not
have the legal right to require the Company to obtain its approval of a disposal
plan prior to accepting more than 200 tons per day of out-of-state waste. In
June 2002, the Department issued an amended order approving the Company's
disposal plan subject to conditions and increasing the fine assessed against the
Company to $2,160 because the Company continued to accept more than 200 tons per
day of out-of-state waste prior to obtaining the Department's approval of its
plan. The Company objected to some of the conditions imposed in the order and
initiated litigation against the Department challenging this order. In April
2003, the Company entered into a consent order with the Department to settle all
issues by mutual consent without the necessity of additional formal
administrative or judicial proceedings. In connection with the consent order,
the Company implemented the disposal plan and the Company agreed to pay
$160.
Additionally, the Company is 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. The Company's management does not believe that these
proceedings, either individually or in the aggregate, are likely to have a
material adverse effect on its business, financial condition, operating results
or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
financial statements and notes thereto included elsewhere herein.
FORWARD LOOKING STATEMENTS
Certain information contained in this Quarterly Report on Form 10-Q, including,
without limitation, information appearing under Part I, Item 2, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," is
forward-looking in nature. 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 Quarterly
Report on Form 10-Q. Factors that could cause actual results to differ from
those projected include, but are not limited to: (1) competition or unfavorable
industry or economic conditions could lead to a decrease in demand for our
services and to a decline in prices we realize for our services, (2) we depend
in part on acquisitions for growth, we may be required to pay higher prices for
acquisitions and we may experience difficulty in integrating and deriving
synergies from acquisitions, or finding acquisition targets suitable to our
growth strategy, (3) we may not always have access to the additional capital
that we require to execute our growth strategy or our cost of capital may
increase, (4) governmental regulations may require increased capital
expenditures or otherwise affect our business, (5) businesses that we acquire
may have undiscovered liabilities, (6) large, long-term collection contracts on
which we depend may not be replaced when they expire or are terminated, and (7)
we are highly dependent on the services of our senior management, who would be
difficult or impossible to replace. 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 to reflect events or circumstances after the date any
such statement is made.
OVERVIEW
Waste Connections, Inc. is an integrated solid waste services company that
provides solid waste collection, transfer, disposal and recycling services in
mostly secondary markets in the Western, Midwestern and Southeastern U.S. As of
March 31, 2003, we served more than one million commercial, industrial and
residential customers in Alabama, California, Colorado, Georgia, Illinois, Iowa,
Kansas, Kentucky, New Mexico, Minnesota, Mississippi, Montana, Nebraska, Ohio,
Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming.
As of that date, we owned 90 collection operations and operated or owned 29
transfer stations, 29 Subtitle D landfills, one construction and demolition
landfill and 18 recycling facilities. We also own one Subtitle D landfill site
that is permitted for operation, but not constructed as of March 31, 2003.
We generally intend to pursue an acquisition-based growth strategy and as of
March 31, 2003 have acquired 151 businesses since our inception in September
1997. We anticipate that a substantial part of our future growth will come from
acquiring additional solid waste collection, transfer and disposal businesses
and, therefore, we expect additional acquisitions could continue to affect
period-to-period comparisons of our operating results.
Critical Accounting Policies
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Self-insurance liabilities. During the third quarter of 2002, we increased our
scope of self-insurance, becoming primarily self-insured for automobile
liability, general liability and workers' compensation claims. Previously, we
were primarily self-insured only for automobile collision and employee group
health claims. Our self-insurance accruals are based on claims filed and
estimates of claims incurred but not reported and are developed by our
management and by our third-party claims administrator. The self-insurance
accruals are influenced by our past claims experience factors, which have a
limited history, and by published industry development factors. If we experience
insurance claims or costs above or below our historically evaluated levels, our
estimates could be
materially affected. The frequency and amount of claims or incidents could vary
significantly over a period of time, which could materially affect our
self-insurance liabilities. Additionally, the actual costs to settle the
self-insurance liabilities could materially differ from the original estimates.
Accounting for landfills. Our adoption of SFAS No. 143 on January 1, 2003
resulted in a significant change to our accounting policies for landfill closure
and post-closure obligations. See discussion below under "New Accounting
Pronouncements" for additional information and an analysis of the impact of the
adoption of SFAS No. 143 on our balance sheet and results of operations for the
three months ended March 31, 2003.
We recognize landfill depletion expense as airspace of the landfill is consumed.
Our landfill depletion rates are based on the remaining disposal capacity at our
landfills, considering both permitted and deemed permitted airspace. Landfill
closure and post-closure liabilities are calculated by estimating the total
obligation in current dollars, inflating the obligation based upon the expected
date of the expenditure and discounting the inflated total to its present value
using a credit-adjusted risk-free rate. The resulting closure and post-closure
obligation is recorded on the balance sheet as the landfill's total airspace is
consumed. The accounting methods discussed below require us to make certain
estimates and assumptions. Changes to these estimates and assumptions could have
a material effect on our financial position and results of operations. Any
changes to our estimates are applied prospectively.
Landfill development costs. Landfill development costs include the costs
of acquisition, construction associated with excavation, liners, site
berms, groundwater monitoring wells and leachate collection systems and
necessary infrastructure. We estimate the total costs associated with
developing each landfill site to its final capacity. Total landfill costs
include the development costs associated with "deemed" permitted airspace.
Deemed permitted airspace is addressed below. Landfill development costs
depend upon future events and thus actual costs could vary significantly
from our estimates. Material differences between estimated and actual
development costs may affect our cash flows by increasing our capital
expenditures and thus affect our results of operations by increasing our
landfill depletion expense.
Closure and post-closure obligations. We reserve for estimated closure and
post-closure maintenance obligations at the landfills we own and certain
landfills that we operate, but do not own, under life-of-site contracts.
We could 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. We
calculate landfill closure and post-closure liabilities by estimating the
total obligation in current dollars, inflating the obligation based upon
the expected date of the expenditure using an inflation rate of 3% and
discounting the inflated total to its present value using an 8.5% discount
rate. The resulting closure and post-closure obligation is recorded on the
balance sheet as the landfill's total airspace is consumed. Significant
reductions in our estimates of the remaining lives of our landfills,
significant increases in our estimates of the landfill closure and
post-closure maintenance costs, or significant changes to the discount
rate and inflation rate used in calculating the present value of our
closure and post-closure obligations could have a material adverse effect
on our financial condition and results of operations.
Disposal capacity. Our internal and third-party engineers perform surveys
at least annually to estimate the disposal capacity at our landfills. Our
landfill depletion rates are based on the remaining disposal capacity,
considering both permitted and deemed permitted airspace, at our landfills
that we own and at our landfills that we operate, but do not own, under
life-of-site operating contracts. Deemed permitted airspace consists of
additional disposal capacity being pursued through means of an expansion.
Deemed permitted airspace that meets certain internal criteria is included
in our estimate of total landfill airspace. Our internal criteria to
determine when deemed permitted airspace may be included as disposal
capacity are as follows:
(1) The land where the expansion is being sought is contiguous to the
current disposal site, and is either owned by us or we have a purchase
option;
(2) Total development costs and closure/post-closure costs have been
determined;
(3) Internal personnel have performed a financial analysis of the proposed
expansion site and have determined that it has a positive financial
and operational impact;
(4) Internal or external personnel are actively working to obtain the
necessary approvals to obtain the landfill expansion permit;
(5) Obtaining the expansion is considered probable. For a pursued
expansion to be considered probable, there must be no significant
known technical, legal, community, business, or political restrictions
or similar issues existing that are likely to impair the success of
the expansion; and
(6) The land where the expansion is being sought has or can readily obtain
the proper zoning.
We may be unsuccessful in obtaining permits for disposal capacity that has
been deemed permitted. If we are unsuccessful in obtaining such permits,
we will charge the previously capitalized development costs to expense.
This will adversely affect our operating results and cash flows and could
result in greater landfill depletion expense being recognized on a
prospective basis.
We periodically evaluate our landfill sites for potential impairment indicators.
Our judgments regarding the existence of impairment indicators are based on
regulatory factors, market conditions and operational performance of our
landfills. Future events could cause us to conclude that impairment indicators
exist and that our landfill carrying costs are impaired. Any resulting
impairment loss could have a material adverse effect on our financial condition
and results of operations.
Impairment of intangible assets. We periodically evaluate acquired businesses
for potential impairment indicators. Our judgments regarding the existence of
impairment indicators are based on regulatory factors, market conditions,
anticipated cash flows and operational performance of our acquired businesses.
Future events could cause us to conclude that impairment indicators exist and
that goodwill or other intangibles associated with our acquired businesses are
impaired. Any resulting impairment loss could reduce our net worth and have a
material adverse effect on our financial condition and results of operations.
Additionally, our credit agreement contains a covenant requiring us to maintain
a minimum funded debt to capitalization ratio, and net worth is one of the
components of capitalization. A reduction in net worth, therefore, if
substantial, could limit the amount that we can borrow under our credit
agreement and any failure to comply with the agreement could result in default
under the credit agreement. As of March 31, 2003, goodwill and intangible assets
represented 46.5% of our total assets.
Allocation of acquisition purchase price. We allocate acquisition purchase
prices to identified intangible assets and tangible assets acquired and
liabilities assumed based on their estimated fair values at the dates of
acquisition, with any residual amounts allocated to goodwill.
We consider the total remaining permitted and deemed permitted airspace of an
acquired landfill to be a tangible asset. Therefore, for acquired landfills, we
initially allocate the purchase price to identified intangible and tangible
assets acquired, excluding landfill airspace, and liabilities assumed based on
their estimated fair values at the date of acquisition. We allocate any residual
amount to landfill airspace.
We often consummate single acquisitions that include a combination of collection
operations and landfills. For each separately identified collection operation
and landfill acquired in a single acquisition, we perform an initial allocation
of total purchase price to the identified collection operations and landfills
based on their relative fair values. Following this initial allocation of total
purchase price to the identified collection operations and landfills, we further
allocate the identified intangible assets and tangible assets acquired and
liabilities assumed for each collection operation and landfill based on their
estimated fair values at the dates of acquisition, with any residual amounts
allocated to either goodwill or landfill site costs, as discussed above.
We accrue the payment of contingent purchase price if we deem it probable that
the events triggering payment of the contingent amount will occur. We allocate
contingent purchase price related to landfills to landfill site costs and
contingent purchase price for acquisitions other than landfills to goodwill.
Allowance for doubtful accounts. We maintain allowances for doubtful accounts
for estimated losses resulting from the inability of our customers to make
required payments. If the financial condition of our customers deteriorates,
impairing their ability to make payments, additional allowances may be required.
In addition, if certain customer and billing information is not properly
integrated from acquisitions that we close, additional allowances may be
required.
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 comes from providing commercial, industrial and residential
services. We frequently perform these services under service agreements or
franchise agreements with counties or municipal contracts. Our existing
franchise agreements and all 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. Approximately 50% of our revenues for the three
months ended March 31, 2003 were derived from market areas where services are
provided predominantly under exclusive franchise agreements, long-term municipal
contracts and governmental certificates. 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 quarterly, subscription agreements also provide a stable
source of revenues for us. Our collection business also generates revenues from
the sale of recyclable commodities, and these revenues vary significantly
depending on the volume of such sales and commodity prices.
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 landfill facilities that we operate, but do not
own. Many 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 often contain a formula, generally based on a published
price index that automatically adjusts fees to cover increases in some, but not
all, operating costs.
Costs of operations include labor, fuel, equipment maintenance and tipping fees
paid to third-party disposal facilities, worker's compensation and vehicle
insurance and claims expense, the cost of materials we purchase for recycling,
third-party transportation expense, district and state taxes and host community
fees and royalties. In 2002, we increased our scope of self-insurance, becoming
primarily self-insured for general liability, workers' compensation and
automobile liability. Previously, we were primarily self-insured only for
automobile collision and employee group health claims. The frequency and amount
of claims or incidents for the areas in which we are primarily self-insured
could vary significantly from quarter to quarter and/or year to year, resulting
in increased volatility of our cost of operations. As of March 31, 2003, we
owned and/or operated 29 transfer stations, which reduce our costs by allowing
us to use collection personnel and equipment more efficiently and by
consolidating waste to reduce transportation costs to remote sites and 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 expense includes depreciation of fixed assets over their estimated
useful lives using the straight-line method. Amortization expense includes the
amortization of definite-lived intangible assets, consisting primarily of
long-term franchise agreements and contracts and non-competition agreements,
over their estimated useful lives using the straight-line method. Goodwill and
indefinite-lived intangible assets, consisting primarily of certain perpetual
rights to provide solid waste collection and transportation services in
specified territories, are not amortized.
We capitalize some third-party expenditures related to pending acquisitions or
development projects, such as legal, engineering and interest 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 we believe will not be completed. We routinely evaluate all
capitalized costs, and expense those related to projects that we believe are not
likely to succeed. At March 31, 2003, we had no capitalized interest related to
landfill development projects and $0.4 million in capitalized expenditures
relating to pending acquisitions.
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 we believe that
our estimate of expected future cash flows of the related business is probably
less than the carrying amount of the intangible assets. As of March 31, 2003,
there have been no adjustments to the carrying amounts of intangibles, including
goodwill, resulting from these evaluations. As of March 31, 2003, goodwill and
other intangible assets represented approximately 46.5% of our total assets and
124.0% of stockholders' equity.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 143
In June 2001, the Financial Accounting Standards Board issued SFAS No. 143,
Accounting for Asset Retirement Obligations ("SFAS No. 143"), which outlines
standards for accounting for obligations associated with the retirement of
long-lived assets. SFAS No. 143 was effective beginning January 1, 2003 and
affected the accounting for landfill retirement obligations, which we have
historically referred to as closure and post-closure obligations. The adoption
of SFAS No. 143 had no impact on our cash requirements.
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 we currently own and/or
operate. 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. take into account site
inspection, groundwater monitoring, leachate management, methane gas control and
recovery, and operating and maintenance costs to be incurred during the period
after the facility closes. Certain of these environmental costs, principally
capping and methane gas control costs, are also incurred during the operating
life of the site in accordance with the landfill operation requirements of
Subtitle D and the air emissions standards. Site specific closure and
post-closure engineering cost estimates are prepared annually for landfills we
own and/or operate and for whose closure and post-closure costs we are
responsible.
Prior to our adoption of SFAS No. 143, landfill closure and post-closure
obligations were calculated by estimating the total obligation in current
dollars, inflating the obligation based upon the expected date of the
expenditure using an inflation rate of 3% and discounting the inflated total to
its present value using a 7.5% discount rate. The resulting obligation was
recorded as a long-term liability with a corresponding increase to landfill site
costs. Interest was accreted on the recorded liability using the corresponding
discount rate and recorded as a component of interest expense. Final capping
costs were generally included in the estimate of the total costs associated with
developing each landfill site to its final capacity and depleted on a
units-of-production basis, in accordance with our accounting policy for landfill
depletion expense, as landfill airspace was consumed. Final capping costs were
generally not included in the calculation of closure and post-closure
liabilities before we adopted SFAS No. 143.
Our adoption of SFAS No. 143 affected the calculation of landfill retirement
obligations, and the classification of amounts recorded in the financial
statements, as follows:
- - Landfill closure and post-closure liabilities are calculated by estimating
the total obligation in current dollars, inflating the obligation based upon
the expected date of the expenditure using an inflation rate of 3% and
discounting the inflated total to its present value using an 8.5% discount
rate. The 8.5% discount rate is higher than the 7.5% historically used
because SFAS No. 143 requires the use of a credit-adjusted risk-free rate.
The resulting closure and post-closure obligation is recorded on the balance
sheet as the landfill's total airspace is consumed. Discounting the
obligation with a higher discount rate and recording the liability as
airspace is
consumed results in a decrease to the closure and post-closure liabilities
we recorded before we adopted SFAS No. 143.
- - Final capping costs are included in the calculation of closure and
post-closure liabilities. Final capping costs are estimated using current
dollars, inflated to the expected date of the final capping expenditures,
discounted to a net present value and recorded on the balance sheet as a
component of closure and post-closure liabilities as landfill airspace is
consumed.
- - Interest accretion has been reduced as a result of the decrease in the
recorded closure and post-closure liabilities and has been reclassified from
interest expense to cost of operations, thus causing a reduction in income
from operations and an increase in net income. However, there has been no
change in operating cash flow.
- - Depletion expense resulting from closure and post-closure obligations
recorded as a component of landfill site costs will generally be less during
the early portion of a landfill's operating life and increase thereafter.
In accordance with SFAS No. 143, the closure and post-closure liability recorded
to site costs is charged to depletion expense on a units-of-consumption basis as
landfill airspace is consumed. The impact of changes determined to be changes in
estimates, based on an annual update, is accounted for on a prospective basis.
These policies are unchanged from the accounting policies we followed for
closure and post-closure obligations before we adopted SFAS No. 143.
Adopting SFAS No. 143 required a cumulative adjustment to reflect the change in
accounting for landfill obligations retroactively to the date of the inception
of the landfill. Inception of the asset retirement obligation is the date
operations commenced for landfills acquired in transactions accounted for as
poolings-of-interests or the date the asset was acquired in a transaction
accounted for as a purchase. Upon adopting SFAS No. 143 on January 1, 2003, we
recorded a cumulative effect of the change in accounting principle of $0.4
million ($0.3 million, net of tax), a decrease in our closure and post-closure
liability of $9.1 million and a decrease in our net landfill assets of $8.7
million.
The following is a summary of the changes that resulted from our adoption of
SFAS No. 143 on January 1, 2003 (amounts in thousands):
Balance at Balance at
December 31, January 1,
2002 Change 2003
--------- --------- ---------
Landfill site costs $ 412,226 $ (9,286) $ 402,940
Accumulated depletion (31,458) 619 (30,839)
--------- --------- ---------
Net landfill site costs $ 380,768 $ (8,667) $ 372,101
========= ========= =========
Closure and post-closure liability $ 13,749 $ (9,142) $ 4,607
========= ========= =========
The following is a reconciliation of our estimated 2003 landfill expenses, based
on landfills owned as of December 31, 2002, after adoption of SFAS No. 143, to
the estimated expense under our historical accounting practice (amounts in
thousands):
Historical
Method Change Revised
--------- --------- ---------
Closure and post-closure accretion $ 1,031 $ (639) $ 392
Landfill depletion 12,703 (1,064) 11,639
--------- --------- ---------
$ 13,734 $ (1,703) $ 12,031
========= ========= =========
SFAS No. 146
In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities",
effective for transactions occurring after December 31, 2002. SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured
initially at fair value only when the liability is incurred. Our adoption of
SFAS No. 146 did not have a material effect on our financial statements.
FIN 45
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). It clarifies that a guarantor is required to
recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee, including its ongoing
obligation to stand ready to perform over the term of the guarantee in the event
that the specified triggering events or conditions occur. The objective of the
initial measurement of the liability is to determine the fair value of the
guarantee at its inception. The initial recognition and initial measurement
provisions of FIN 45 are effective for us on a prospective basis for guarantees
issued or modified after December 31, 2002. We will record the fair value of
future material guarantees, if any. We did not have any material guarantees at
March 31, 2003.
FIN 46
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"). FIN 46
requires that unconsolidated variable interest entities be consolidated by their
primary beneficiaries. A primary beneficiary is the party that absorbs a
majority of the entity's expected losses or residual benefits. FIN 46 applies
immediately to variable interest entities created after January 31, 2003 and to
existing variable interest entities beginning after June 15, 2003. We do not
expect the adoption of FIN 46 to have a material impact on our financial
statements because, as of March 31, 2003, we do not have any subsidiaries
classified as variable interest entities.
SFAS No. 148
In December 2002, the Financial Accounting Standards Board issued FASB Statement
No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure".
SFAS No. 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation", to
provide alternative methods of transition to SFAS No. 123's fair value method of
accounting for stock-based employee compensation. SFAS No. 148 also amends the
disclosure provisions of SFAS No. 123 and APB Opinion No. 28, "Interim Financial
Reporting", to require disclosure in the summary of accounting policies of the
effects of an entity's accounting policy with respect to stock-based employee
compensation on reported net income and earnings per share in annual and interim
financial statements. SFAS No. 148 does not amend SFAS No. 123 to require
companies to account for employee stock options using the fair value method. We
adopted the disclosure provisions of SFAS No. 148 and continue 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").
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2003
The following table sets forth items in our consolidated statement of operations
as a percentage of revenues for the periods indicated.
Three Months Ended
March 31,
-----------------------
2002 2003
---- ----
Revenues 100.0% 100.0%
Cost of operations 56.1 55.9
Selling, general and
administrative expenses 8.9 10.0
Depreciation and
amortization expense 7.6 8.3
-----------------------
Operating income 27.4 25.8
Interest expense, net (7.0) (6.3)
Other expense, net (0.4) 0.0
Minority interests (1.6) (1.8)
Income tax expense (6.9) (6.5)
Cumulative effect of change in accounting principle -- 0.2
-----------------------
Net income 11.5% 11.4%
=======================
Revenues. Total revenues for the three months ended March 31, 2003 increased
$22.7 million, or 21.5%, to $128.5 million from $105.7 million for the three
months ended March 31, 2002. The increase in revenues in the three months ended
March 31, 2003 resulting from the full-quarter inclusion of revenues from
acquisitions closed during the three months ended March 31, 2002 and the
inclusion of revenues from acquisitions closed subsequent to March 31, 2002
totaled approximately $22.8 million. Selected price increases accounted for a
$2.2 million increase in revenues and improved recyclable commodity prices
increased revenues by $0.9 million. These increases were partially offset by a
$3.2 million decrease in revenues resulting from volumes or price reductions in
our existing business. The volume reductions were primarily the result of
one-time projects that occurred during the three months ended March 31, 2002
that did not recur in 2003, severe winter weather conditions encountered at some
of our operations during the three months ended March 31, 2003 and decreased
volume at our transfer station in Wichita, Kansas.
Cost of Operations. Total cost of operations increased $12.5 million, or 21.1%
to $71.8 million for the three months ended March 31, 2003 from $59.3 million
for the three months ended March 31, 2002. Total cost of operations as a
percentage of revenues for the three months ended March 31, 2003 decreased 0.2
percentage points to 55.9% from 56.1% for the three months ended March 31, 2002.
The total dollar increase was primarily attributable to the full-quarter
inclusion of operating costs from acquisitions closed during the three months
ended March 31, 2002, the inclusion of operating costs from acquisitions closed
subsequent to March 31, 2002, and cost increases in labor, fuel and insurance.
The decrease as a percentage of revenues was primarily attributable to price
increases and improved operations at certain locations, partially offset by the
severe winter weather conditions encountered at some of our operations during
the three months ended March 31, 2003 and the full quarter impact of the mix of
revenues associated with acquisitions closed during the three months ended March
31, 2002, which had gross margins lower than our company average.
SG&A. Total SG&A increased $3.5 million, or 37.2%, to $12.9 million for the
three months ended March 31, 2003 from $9.4 million for the three months ended
March 31, 2002. SG&A as a percentage of revenues for the three months ended
March 31, 2003 increased 1.1 percentage points to 10.0% from 8.9% for the three
months ended March 31, 2002.
The total dollar increase was primarily attributable to the full-quarter
inclusion of SG&A expenses from acquisitions closed during the three months
ended March 31, 2002 and the inclusion of SG&A expenses from acquisitions closed
subsequent to March 31, 2002, additional corporate, regional and district level
overhead, increased legal expenses, increased management information system
expenses incurred to support our administrative activities and increased stock
compensation expense related to the issuance of restricted stock to
district-level personnel in May 2002.
The increase in SG&A as a percentage of revenues resulted from acquisitions
closed during, and subsequent to, the three months ended March 31, 2002, that
had SG&A costs as a percentage of revenues above our company average, and, as
discussed in the preceding paragraph, increases in corporate overhead, legal
expenses, management information system expenses and stock compensation expense,
as percentages of revenues.
Depreciation and Amortization. Depreciation and amortization expenses for the
three months ended March 31, 2003 increased $2.6 million, or 31.8%, to $10.6
million from $8.0 million for the three months ended March 31, 2002.
Depreciation and amortization as a percentage of revenues for the three months
ended March 31, 2003 increased 0.7 percentage points to 8.3% from 7.6% for the
three months ended March 31, 2002.
The total dollar increase was primarily attributable to the full-quarter
inclusion of depreciation and amortization expenses from acquisitions closed
during the three months ended March 31, 2002, the inclusion of depreciation and
amortization expenses from acquisitions closed subsequent to March 31, 2002, and
increased depreciation expense resulting from new equipment acquired to support
our base operations.
The increase in depreciation and amortization as a percentage of revenues was
attributable to depreciation expense associated with new vehicles and equipment
acquired subsequent to March 31, 2002, as we continued to modernize our fleet of
vehicles and equipment, particularly from recent acquisitions.
Operating Income. Operating income for the three months ended March 31, 2003
increased $4.2 million, or 14.4%, to $33.2 million from $29.0 million for the
three months ended March 31, 2002. Operating income as a percentage of revenues
for the three months ended March 31, 2003 decreased 1.6 percentage points to
25.8% from 27.4% for the three months ended March 31, 2002.
The total dollar increase in operating income was due to increased revenues,
partially offset by increases in cost of operations, SG&A expenses and
depreciation and amortization expenses.
The decrease in operating income as a percentage of revenues was attributable to
percentage of revenues increases in depreciation and SG&A expenses, partially
offset by improved gross margins.
Interest Expense. Interest expense for the three months ended March 31, 2003
increased $0.7 million, or 9.2%, to $8.1 million from $7.4 million for the three
months ended March 31, 2002. The increase was primarily attributable to higher
debt levels incurred to fund our acquisitions, partially offset by lower
interest rates on our revolving credit facility and our replacing a portion of
the borrowings under our revolving credit facility with lower interest
subordinated debt obligations.
Other Income (Expense). Other income (expense) increased to $0.04 million for
the three months ended March 31, 2003 from other expense of $0.4 million for the
three months ended March 31, 2002. The primary components of other income
(expense) for the three months ended March 31, 2003 and 2002 were gains and
losses incurred on the disposal of certain assets.
Minority Interests. Minority interests increased $0.5 million, or 29.2%, to $2.3
million for the three months ended March 31, 2003, from $1.8 million for the
three months ended March 31, 2002. The increase was attributable to increased
earnings by our majority-owned subsidiaries.
Provision for Income Taxes. Income taxes increased $1.2 million, or 15.9%, to
$8.5 million for the three months ended March 31, 2003, from $7.3 million for
the three months ended March 31, 2002. This increase was due to increased
pre-tax earnings, partially offset by a 0.5 percentage point reduction in our
effective tax rate due to the
reduction in our blended state tax rate. The effective income tax rate for the
three months ended March 31, 2003 was 37.0%, which is above the federal
statutory rate of 35.0% primarily due to state and local taxes.
Cumulative Effect of Change in Accounting Principle. Cumulative effect of change
in accounting principle consists of a $0.3 million gain, net of tax effects,
resulting from our adoption of SFAS No. 143 on January 1, 2003. Our adoption of
SFAS No. 143 required us to record a cumulative change in accounting for
landfill closure and post-closure obligations retroactively to the date of the
inception of the landfill.
Net Income. Net income increased $2.5 million, or 20.7%, to $14.7 million for
the three months ended March 31, 2003, from $12.2 million for the three months
ended March 31, 2002. The increase was primarily attributable to increased
operating income and increased other income, partially offset by increases in
interest expense, higher income tax expense and higher minority interests
expense.
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 March 31, 2003, we had a working capital deficit of $23.7 million,
including cash and equivalents of $4.8 million. Our working capital deficit
increased $0.7 million from $23.0 million at December 31, 2002. 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 credit facility
and to minimize our cash balances.
We have a $435 million revolving credit facility with a syndicate of banks for
which Fleet Boston Financial Corp. acts as agent. As of March 31, 2003, we had
an aggregate of $198.0 million outstanding under the credit facility, exclusive
of stand-by letters of credit. The credit facility allows us to issue up to $40
million in stand-by letters of credit, which reduce the amount of total
borrowings available under the credit facility. As of March 31, 2003, we had
$21.6 million of outstanding letters of credit issued under the credit facility.
Thus, at March 31, 2003 we had approximately $215.4 million in borrowing
capacity available under our 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
National Bank Base Rate plus applicable margin, or the Eurodollar Rate plus
applicable margin. The credit facility places certain business, financial and
operating restrictions on the Company relating to, among other things, incurring
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 March 31, 2003, we were in compliance
with these covenants. The credit facility also requires the lenders' approval of
acquisitions in certain circumstances. We use the credit facility for
acquisitions, capital expenditures, working capital, standby letters of credit
and general corporate purposes. If we are unable to incur additional
indebtedness under our credit facility or obtain additional capital through
future debt or equity financings, our rate of growth through acquisitions may
decline.
As of March 31, 2003, we had the following contractual obligations and
commercial commitments (in thousands):
Payments Due by Period
----------------------
Contractual Less Than 1 to 3 4 to 5 Over 5
Obligations Total 1 Year Years Years Years
- ----------- ----- ------ ----- ----- -----
Long-term debt (1) $563,284 $ 5,386 $203,958 $155,656 $198,284
Operating leases 24,467 3,408 5,749 3,945 11,365
Unconditional purchase
obligations 5,852 5,852 -- -- --
---------------------------------------------------------------------------
Total contractual cash
obligations $593,603 $14,646 $209,707 $159,601 $209,649
===========================================================================
(1) Long-term debt payments include $198.0 million due 2005 under our credit
facility. As of March 31, 2003, our credit facility allows us to borrow up
to $435 million.
Amount of Commitment Expiration Per Period
------------------------------------------
Commercial Less Than 1 to 3 4 to 5 Over 5
Commitments Total 1 Year Years Years Years
- ----------- ----- ------ ----- ----- -----
Standby letters of credit $21,638 $21,638 $ -- $ -- $ --
Financial surety bonds (2) 73,680 43,659 30,011 10 --
---------------------------------------------------------------------------
Total commercial
commitments $95,318 $65,297 $30,011 $ 10 $ --
===========================================================================
(2) We use financial surety bonds for a variety of corporate guarantees. The
two largest uses of financial surety bonds are for municipal contract
performance guarantees and landfill closure and post-closure financial
assurance required under certain environmental regulations. As a result of
recent changes in the insurance industry, we have experienced less
availability and increased costs of surety bonds for landfill closure and
post-closure requirements. We generally have not experienced significant
difficulty in obtaining surety bonds for performance under our municipal
collection contracts or landfill operating agreements. Environmental
regulations require demonstrated financial assurance to meet closure and
post-closure requirements for landfills. In addition to surety bonds,
these requirements may also be met through alternative financial assurance
instruments, including insurance, letters of credit and restricted cash
deposits.
Our current surety bond underwriters have provided us with non-binding
commitments to issue up to $90 million of bonds, consisting of $50 million
of bonds for landfill closure and post-closure requirements and $40
million of bonds for performance under collection contracts and landfill
operating agreements. These non-binding commitments do not have a stated
expiration date; however, individual bonds issued typically have a term of
one year. At March 31, 2003, we had provided customers and various
regulatory authorities with surety bonds in the aggregate amount of
approximately $46.3 million to secure our landfill closure and
post-closure requirements and $27.4 million to secure performance under
collection contracts and landfill operating agreements.
If our current bond underwriters are unwilling to issue additional bonds
under the current non-binding commitment, renew existing bonds upon
expiration, or increase their total commitment upon reaching the maximum
issuance amount under the current non-binding commitments, or if we are
unable to obtain surety bonds through new underwriters as such needs
arise, we would need to arrange other means of financial assurance, such
as a cash trust or a letter of credit, to secure contract performance or
meet closure and post-closure requirements. While such alternate financial
assurance has been readily available, it may result in additional expense
or capital outlays.
For the three months ended March 31, 2003, net cash provided by operations was
approximately $36.2 million. Of this, $4.3 million was provided by working
capital for the period. The remaining components of the net cash provided by
operations for the three months ended March 31, 2003 include $14.7 million of
net income, $10.6
million of depreciation and amortization, $2.3 million of minority interest
expense, $0.6 million of debt issuance cost amortization and $4.2 million of
deferred income taxes.
For the three months ended March 31, 2003, net cash used in investing activities
was $16.5 million. Of this, $3.6 million was used to pay a portion of
acquisition costs that were included as a component of accrued liabilities at
December 31, 2002. Cash used for capital expenditures was $11.8 million, which
was primarily for investments in fixed assets, consisting of trucks, containers,
other equipment and landfill development. Other cash outflows from investing
activities includes $1.3 million of restricted cash funding for our landfill
closure and post-closure obligations.
For the three months ended March 31, 2003, net cash used in financing activities
was $18.9 million, which included $18.8 million of net repayments under our
various debt arrangements and $2.2 million of cash distributions to minority
interest holders, less $2.1 million of proceeds from stock option and warrant
exercises.
We made approximately $11.8 million in capital expenditures during the three
months ended March 31, 2003. We expect to make capital expenditures of
approximately $60.0 million in 2003 in connection with our existing business. We
intend to fund our planned 2003 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.
From time to time we evaluate our existing operations and their strategic
importance to Waste Connections. If we determine that a given operating unit
does not have future strategic importance, we may sell or otherwise dispose of
those operations. Although we believe our operations would not be impaired by
such dispositions, we could incur losses on them.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, we are exposed to market risk, including
changes in interest rates and certain commodity prices. We use hedge agreements
to manage a portion of our risks related to interest rates. While we are exposed
to credit risk in the event of non-performance by counterparties to our hedge
agreements, in all cases such counterparties are highly rated financial
institutions and we do not anticipate non-performance. We do not hold or issue
derivative financial instruments for trading purposes. We monitor our hedge
positions by regularly evaluating the positions at market and by performing
sensitivity analyses.
At March 31, 2003, we had interest rate swap agreements with Fleet Boston
Financial Corporation and Union Bank of California. The interest rate swap
agreement with Fleet Boston Financial Corporation expires in December 2003 and
has a notional amount of $125 million at a fixed rate of 6.17% plus applicable
margin. The interest rate swap agreement with Union Bank of California expires
in December 2003 and has a notional amount of $15 million at a fixed rate of
7.01% plus applicable margin.
We have performed sensitivity analyses to determine how market rate changes will
affect the fair value of our market risk sensitive hedge positions and all other
debt. Such an analysis is inherently limited in that it reflects a singular,
hypothetical set of assumptions. Actual market movements may vary significantly
from our assumptions. Fair value sensitivity is not necessarily indicative of
the ultimate cash flow or earnings effect we would recognize from the assumed
market rate movements. We are exposed to cash flow risk due to changes in
interest rates with respect to the $58.0 million remaining floating rate balance
owed under our credit facility, $175 million of our 2022 Notes, $8.8 million of
floating rate debt under various notes payable to third parties and floating
rate municipal bond obligations of approximately $8.9 million. A one percentage
point increase in interest rates on our variable-rate debt as of March 31, 2003
would decrease our annual pre-tax income by approximately $2.5 million. All of
our remaining debt instruments are at fixed rates, or effectively fixed under
the interest rate swap agreements described
above; therefore, changes in market interest rates under these instruments would
not significantly impact our cash flows or results of operations.
We market a variety of recyclable materials, including cardboard, office paper,
plastic containers, glass bottles and ferrous and aluminum metals. We own and
operate 18 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 benchmark
resale prices for recycled commodities. If 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. Although there can be no assurance of market
recoveries in the event of a decline, because of the provisions within certain
of our contracts that pass commodity risk along to the customers, we believe,
given historical trends and fluctuations in the recycling commodities market,
that a 10% decrease in average recycled commodity prices from the prices that
were in effect at March 31, 2003 would not materially affect our cash flows or
pre-tax income.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the filing of this report, the Company's management,
including the Company's Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective, in all material respects, to
ensure that information required to be disclosed in the reports the Company
files and submits under the Exchange Act is recorded, processed, summarized and
reported as and when required.
There have been no significant changes (including corrective actions with regard
to significant deficiencies and material weaknesses) in the Company's internal
controls or in other factors subsequent to the date the Company carried out its
evaluation that could significantly affect these controls.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In January 2002, the Oklahoma Department of Environmental Quality Land
Protection Division (the "Department") issued an order requiring us to cease
accepting more than 200 tons per day of out-of-state waste at our Red Carpet
Landfill in Oklahoma due to our alleged failure to obtain the Department's prior
approval of a disposal plan for that waste. At that time, the Department
assessed us a fine of $220,000 for past violations related to accepting more
than 200 tons per day of out-of-state waste prior to obtaining the Department's
approval of a disposal plan. While seeking the Department's approval of a
disposal plan, we continued to accept more than 200 tons a day of out-of-state
waste because we believed, based on the advice of our legal counsel, that the
Department did not have the legal right to require us to obtain its approval of
a disposal plan prior to accepting more than 200 tons per day of out-of-state
waste. In June 2002, the Department issued an amended order approving our
disposal plan subject to conditions and increasing the fine assessed against us
to $2.2 million because we continued to accept more than 200 tons per day of
out-of-state waste prior to obtaining its approval of our plan. We objected to
some of the conditions imposed in the order and initiated litigation against the
Department challenging this order. In April 2003, we entered into a consent
order with the Department to settle all issues by mutual consent without the
necessity of additional formal administrative or judicial proceedings. In
connection with the consent order, we implemented the disposal plan and we
agreed to pay $160,000.
Additionally, 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 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
Exhibit
Number Description of Exhibits
------ -----------------------
99.1 Certification Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b. Reports on Form 8-K:
On January 21, 2003, we filed a report on Form 8-K reporting the
relocation on January 20, 2003 of our principal corporate offices to 35
Iron Point Circle, Suite 200, Folsom, California 95630.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WASTE CONNECTIONS, INC.
BY: /s/ Ronald J. Mittelstaedt
----------------------------------------
Date: May 13, 2003 Ronald J. Mittelstaedt,
President and Chief Executive Officer
BY: /s/ Steven F. Bouck
----------------------------------------
Date: May 13, 2003 Steven F. Bouck,
Executive Vice President and Chief
Financial Officer
CERTIFICATIONS
I, Ronald J. Mittelstaedt, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Waste Connections,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003
/s/ Ronald J. Mittelstaedt
-------------------------------------
Ronald J. Mittelstaedt,
President and Chief Executive Officer
I, Steven F. Bouck, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Waste Connections,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date");
and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 13, 2003
/s/ Steven F. Bouck
-------------------------------------
Steven F. Bouck,
Executive Vice President and Chief
Financial Officer