<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report July 16, 1998
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 0-19674 94-3283464
<S> <C> <C>
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
</TABLE>
2260 Douglas Boulevard, Suite 280, Roseville, California 95661
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 772-2221
Not Applicable
(Former name or former address, if changed since last report.)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
On July 1, WCI filed a Form 8-K describing its acquisition on June
17, 1998, of the stock of Arrow Sanitary Service, Inc., an Oregon corporation
doing business as "Oregon Paper Fiber" ("OPF"). Certain financial statements of
OPF and certain pro forma financial data were not then available and therefore
were not included in the July 1, 1998, Form 8-K filing. WCI hereby amends its
Form 8-K filed on July 1, 1998, to include the financial statements and pro
forma financial information set forth below in Item 7.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Arrow Sanitary Service, Inc.
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets as of September 30, 1997 (Audited) and
March 31, 1998 (Unaudited)
Statements of Income and Retained Earnings for the year
ended September 30, 1997 (Audited) and the six
months ended March 31, 1997 and 1998 (Unaudited)
Statements of Cash Flows for the year ended September 30,
1997 (Audited) and the six months ended March 31, 1997 and
1998 (Unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Information.
Waste Connections, Inc. Unaudited Pro Forma Financial Statements
Introduction to Unaudited Pro Forma Consolidated
Financial Statements
Unaudited Pro Forma Consolidated Statement of
Operations for the year ended December 31, 1997
Unaudited Pro Forma Consolidated Statement of
Operations for the three months ended March 31, 1998
Notes to Unaudited Pro Forma Consolidated Statements
of Operations
Unaudited Pro Forma Consolidated Balance Sheet as of
March 31, 1998
Notes to Unaudited Pro Forma Consolidated Balance Sheet
<PAGE> 3
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Arrow Sanitary Service, Inc.
We have audited the accompanying balance sheet of Arrow Sanitary Service,
Inc. as of September 30, 1997, and the related statement of income and retained
earnings, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arrow Sanitary Service, Inc.
at September 30, 1997, and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Sacramento, California
July 8, 1998
<PAGE> 4
ARROW SANITARY SERVICE, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 205 $ 274
Accounts receivable....................................... 520 694
Prepaid expenses and other current assets................. 37 48
------ ------
Total current assets.............................. 762 1,016
Property and equipment, net................................. 815 926
Intangible assets, net...................................... 121 118
Other assets................................................ 48 13
------ ------
$1,746 $2,073
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 470 $ 439
Deferred revenue.......................................... 11 11
Accrued liabilities....................................... 151 213
Current portion of long-term debt......................... 168 154
------ ------
Total current liabilities......................... 800 817
Long-term portion of capital lease obligations.............. -- 45
Long-term debt.............................................. 429 450
Deferred income taxes....................................... 34 46
Commitments and contingencies (Note 4)
Shareholders' equity:
Common stock: no par value; 1,000 shares authorized; 600
shares issued and outstanding.......................... 47 47
Treasury stock payments................................... (25) (25)
Retained earnings......................................... 461 693
------ ------
Total shareholders' equity........................ 483 715
------ ------
$1,746 $2,073
====== ======
</TABLE>
See accompanying notes.
<PAGE> 5
ARROW SANITARY SERVICE, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------
1997 1997 1998
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................... $6,209 $2,872 $3,148
Operating expenses:
Cost of operations........................................ 4,970 2,080 2,255
Selling, general and administrative....................... 776 448 369
Depreciation and amortization............................. 143 70 85
------ ------ ------
Income from operations...................................... 320 274 439
Interest expense............................................ (72) (39) (30)
Other income (expense), net................................. (2) (5) 40
------ ------ ------
Income before income taxes.................................. 246 230 449
Income tax expense.......................................... (117) (98) (217)
------ ------ ------
Net income.................................................. 129 132 232
Retained earnings, beginning of period...................... 332 332 461
------ ------ ------
Retained earnings, end of period............................ $ 461 $ 464 $ 693
====== ====== ======
</TABLE>
See accompanying notes.
<PAGE> 6
ARROW SANITARY SERVICE, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31,
SEPTEMBER 30, ----------------
1997 1997 1998
------------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 129 $ 132 $ 232
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 143 70 85
Deferred income taxes.................................. 34 -- 12
Gain on sale of property and equipment................. (2) -- --
Changes in operating assets and liabilities:
Accounts receivable.................................. (2) (105) (174)
Prepaid expenses and other current assets............ 19 17 (11)
Other assets......................................... 1 2 35
Accounts payable..................................... 43 (46) (31)
Accrued liabilities.................................. 70 110 62
----- ----- -----
Net cash provided by operating activities................. 435 180 210
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment........... (117) (80) (134)
Treasury stock payments................................... (5) -- --
----- ----- -----
Net cash used in investing activities....................... (122) (80) (134)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt.............................. --....... 200 97
Principal payments on long-term debt...................... (191) (298) (104)
----- ----- -----
Net cash used in financing activities....................... (191) (98) (7)
----- ----- -----
Net increase in cash........................................ 122 2 69
Cash and cash equivalents, beginning of period.............. 83 83 205
----- ----- -----
Cash and cash equivalents, end of period.................... $ 205 $ 85 $ 274
===== ===== =====
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND
NON-CASH TRANSACTIONS:
Cash paid for interest...................................... $ 74 $ 39 $ 33
===== ===== =====
</TABLE>
See accompanying notes.
<PAGE> 7
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Arrow Sanitary Service, Inc. (the "Company") is a regional, integrated,
non-hazardous solid waste services company that provides collection, hauling and
disposal of recyclable materials for residential and commercial customers in
various counties of Oregon and Washington in and around Portland, Oregon.
SALE OF THE COMPANY
On June 17, 1998, the Company's shareholders entered into an agreement to
sell all capital stock in the Company to Waste Connections, Inc. ("WCI") for
cash and common stock of WCI.
INTERIM FINANCIAL INFORMATION
The unaudited interim financial statements as of March 31, 1998 and for the
six months ended March 31, 1997 and 1998 have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the six months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended September 30,
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. Credit
risk on accounts receivable is minimized as a result of the large and diverse
nature of the Company's customer base. Credit losses have been within
management's expectations.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Improvements or betterments
which significantly extend the life of an asset are capitalized. Expenditures
for maintenance and repair costs are charged to operations as incurred. The cost
of assets retired or otherwise disposed of and the related accumulated
depreciation are eliminated from the accounts in the year of disposal. Gains and
losses resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, or lease term, whichever is shorter.
<PAGE> 8
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Buildings............................................... 30 years
Machinery and equipment................................. 3 - 10 years
Rolling stock........................................... 10 years
Furniture and fixtures.................................. 3 - 6 years
Containers.............................................. 5 - 12 years
</TABLE>
INTANGIBLE ASSETS
Intangible assets are comprised of the following at September 30, 1997:
<TABLE>
<S> <C>
Goodwill.................................................... $126
Covenant not to compete..................................... 12
----
138
Accumulated amortization.................................... (17)
----
$121
====
</TABLE>
Goodwill represents the excess of the purchase price over the fair value of
the net assets of entities previously acquired by the Company and is amortized
on a straight-line basis over the period of expected benefit of 40 years. The
covenant not to compete is amortized on a straight-line basis over the period of
expected benefit of 5 years.
REVENUE RECOGNITION
The Company recognizes revenues as services are provided. Certain customers
are billed in advance and, accordingly, recognition of the related revenues is
deferred until the services are provided.
INCOME TAXES
The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company has three major customers which represent 21%, 14% and 11% of
total sales, respectively, for the year ended September 30, 1997. In addition,
the Company purchases a substantial portion of its recyclable materials and
equipment from four major suppliers.
<PAGE> 9
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1998
------------- -----------
(UNAUDITED)
<S> <C> <C>
Land................................................. $ 121 $ 121
Buildings............................................ 168 168
Machinery and equipment.............................. 480 593
Rolling stock........................................ 1,026 1,028
Furniture and fixtures............................... 104 109
Containers........................................... 296 342
------- -------
2,195 2,361
Less accumulated depreciation and amortization....... (1,380) (1,435)
------- -------
$ 815 $ 926
======= =======
</TABLE>
3. FINANCING ARRANGEMENTS
BANK LINE OF CREDIT
The Company maintains a revolving line of credit with a financial
institution. Under the agreement, the Company may borrow an amount up to $150.
Interest on the revolving line of credit accrues at the financial institution's
prime rate (8.5% at September 30, 1997) plus 1.5%. The agreement provides that
the Company comply with various financial and other covenants. The line of
credit had no amounts outstanding at September 30, 1997.
LONG-TERM DEBT
Long-term debt as of September 30, 1997 consists of the following:
<TABLE>
<S> <C>
Contract financing notes payable bearing interest at 9%;
payable in monthly installments of principal and interest
(ranging from $1 to $2); maturing between October 20, 1998
and November 15, 2004..................................... $159
Mortgage financing notes payable bearing interest at 8.25%;
payable in monthly installments of principal and interest
of $1; maturing on January 20, 2022; secured by certain
real estate............................................... 139
Equipment financing notes payable bearing interest (ranging
from 8.5% to 10.75%); payable in monthly installments of
principal (ranging from $2 to $5) plus interest; maturing
on March 20, 1998 and October 12, 2000; secured by the
Company's accounts receivable, inventory, equipment, and
certain other assets...................................... 299
----
597
Less: current portion....................................... 168
----
Long-term debt.............................................. $429
====
</TABLE>
One of the equipment financing notes, with no outstanding balance at
September 30, 1997, contains certain restrictive covenants, which among other
things require that specified financial balances and ratios be maintained,
restrict the payment of dividends and prohibit the incurrence of additional
indebtedness.
<PAGE> 10
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
3. FINANCING ARRANGEMENTS (CONTINUED)
As of September 30, 1997, aggregate contractual future principal payments
by fiscal year on long-term debt are due as follows:
<TABLE>
<S> <C>
1998........................................................ $168
1999........................................................ 121
2000........................................................ 81
2001........................................................ 27
2002........................................................ 26
Thereafter.................................................. 174
----
$597
====
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Company leases its facilities and certain equipment under noncancelable
operating leases. Rent expense under these agreements approximated $50 for the
year ended September 30, 1997.
The future minimum lease payments under these agreements as of September
30, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 54
1999........................................................ 54
2000........................................................ 49
2001........................................................ 48
2002........................................................ 48
Thereafter.................................................. 494
----
$747
====
</TABLE>
CONTINGENCIES
Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, the Company may
periodically become subject to various judicial and administrative proceedings
involving federal, state or local agencies. In these proceedings, an agency may
seek to impose fines on the Company or to revoke or deny renewal of an operating
permit held by the Company. From time to time the Company may also be subject to
actions brought by citizens' groups or adjacent landowners in connection with
the permitting and licensing of landfills and transfer stations, or alleging
environmental damage or violations of the permits and licenses pursuant to which
the Company operates.
In addition, the Company may become party to various claims and suits
pending for alleged damages to persons and property, alleged violations of
certain laws and alleged liabilities arising out of matters occurring during the
normal operation of the waste management business. However, as of September 30,
1997, there is
<PAGE> 11
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
4. COMMITMENTS AND CONTINGENCIES (CONTINUED)
no current proceeding or litigation involving the Company that the Company
believes will have a material adverse impact on the Company's business,
financial condition, results of operations or cash flows.
Employees
Approximately 13 of the Company's route drivers are represented by the
Teamsters Union. The Company entered into a three-year collective bargaining
agreement in March 1998. The Company is not aware of any other organizational
efforts among its employees and believes that its relations with its employees
are good.
5. 401(k) PLAN
The Company has a voluntary savings and investment plan (the "401(k)
Plan"). The 401(k) Plan is available to all eligible employees of the Company.
Under the 401(k) Plan the Company is required to match 3% of employees'
contributions up to a maximum of 6% of the employees' wages once the employee
contributes a minimum of 3%. The Company will match 100% of employee
contributions between 3 and 6%. Sixteen of twenty-one eligible employees
participated in the plan with minimum contributions of at least 3%. During the
year ended September 30, 1997, the Company's 401(k) Plan expense was
approximately $35.
6. INCOME TAXES
The provision for income taxes for the year ended September 30, 1997
consists of the following:
<TABLE>
<S> <C>
Current:
Federal................................................... $ 60
State..................................................... 23
Deferred:
Federal................................................... 29
State..................................................... 5
----
$117
====
</TABLE>
Deferred taxes result from temporary differences in the recognition of
certain expense items for income tax and financial reporting purposes. The
Company's deferred taxes as of September 30, 1997 are substantially comprised of
depreciation deducted for tax purposes that will be recorded in future periods
for financial reporting purposes.
The principal reasons for the difference between the effective income tax
rate and the federal statutory income tax rate are as follows:
<TABLE>
<S> <C>
Federal expense expected at statutory rates................. $ 84
State and local income taxes, net of Federal benefit........ 15
Officers life insurance expense............................. 17
Other....................................................... 1
----
$117
====
</TABLE>
The Company paid $10 for income taxes during the year ended September 30,
1997.
<PAGE> 12
ARROW SANITARY SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(DOLLARS IN THOUSANDS)
(INFORMATION RELATING TO MARCH 31, 1998 AND
THE SIX MONTHS ENDED MARCH 31, 1997 AND 1998 IS UNAUDITED)
7. YEAR 2000 (UNAUDITED)
The Company will need to modify or replace portions of its software so that
its computer systems will function properly with respect to dates in the year
2000 ("Year 2000") and thereafter. To date, the Company has not incurred any
costs related to the Year 2000 project. The Company does not believe that its
expenditures relating to the Year 2000 project will be material. However, if the
required Year 2000 modifications and conversions are not made or are not
completed in a timely manner, the Year 2000 issue could materially affect the
Company's operations.
<PAGE> 13
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Consolidated Balance Sheet as of March
31, 1998 assumes the Company's acquisition of Arrow Sanitary Service, Inc.
occurred on that date. The Unaudited Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1997 and the three months ended March
31, 1998, give effect to the business combinations involving Waste Connections,
Inc., (the "Company"), its predecessors, Madera Disposal Systems, Inc.
("Madera") and Arrow Sanitary Service, Inc. ("Arrow"). Such combinations were
accounted for using the purchase method of accounting.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain operational and general and administrative
functions. The Company has not and cannot quantify all of these savings due to
the short period of time since the predecessor, Madera, and Arrow acquisitions
occurred. It is anticipated that these savings will be partially offset by the
costs of being a publicly held company and the incremental increase in costs
related to the Company's corporate management. However, these costs, like the
savings they offset, cannot be quantified accurately. Neither the anticipated
savings nor the anticipated costs have been included in the Unaudited Pro Forma
Consolidated Financial Statements.
The Unaudited Pro Forma Consolidated Financial Statements include certain
adjustments to the historical financial statements, including adjusting
depreciation expense to reflect purchase price allocations, adjusting interest
expense to reflect acquisition-related debt and the related income tax effects
of these adjustments.
The pro forma adjustments are based on preliminary estimates, available
information and certain assumptions and may be revised as additional information
becomes available. The Unaudited Pro Forma Consolidated Financial Statements do
not purport to represent what the Company's financial position or results of
operations would actually have been if such transactions in fact had occurred on
those dates or to project the Company's financial position or results of
operations for any future period. Because the Company, its predecessors, Madera,
and Arrow were not under common control or management for all periods,
historical combined results may not be comparable to, or indicative of, future
performance. The Unaudited Pro Forma Consolidated Financial Statements should be
read in conjunction with the other financial statements and notes thereto
included elsewhere in this Prospectus, as well as information included under the
headings "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Risk Factors" included
elsewhere herein.
<PAGE> 14
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
WASTE ADJUSTED
CONNECTIONS, WASTE
INC. CONNECTIONS,
PERIOD FROM PRO FORMA INC. AND MADERA
INCEPTION PREDECESSORS ADJUSTMENTS PREDECESSORS DISPOSAL
(SEPTEMBER COMBINED NINE TO COMBINE WASTE COMBINED SYSTEMS, INC.
9, 1997) TO MONTHS ENDED CONNECTIONS, YEAR ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30, INC. AND DECEMBER 31, DECEMBER 31,
1997 1997 PREDECESSORS 1997 1997
------------ ------------- ---------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues........................... $ 6,237 $18,114 $ -- $24,351 $7,845
Operating expenses:
Cost of operations................ 4,703 14,753 (146)(a) 19,015 5,289
(195)(b)
(100)(c)
Selling, general and
administrative.................. 619 3,009 (570)(d) 2,926 1,041
(132)(e)
Depreciation and amortization..... 354 1,083 81(f) 1,416 627
(102)(g)
Start-up and integration.......... 493 -- -- 493 --
Stock compensation................ 4,395 -- -- 4,395 --
--------- ------- ------ ------- ------
Income (loss) from operations...... (4,327) (731) 1,164 (3,894) 888
Interest expense................... (1,035) (456) 456(h) (1,253) (280)
(218)(h)
Other income (expense), net........ (36) 14 -- (22) 173
--------- ------- ------ ------- ------
Income (loss) before (provision)
benefit for income taxes.......... (5,398) (1,173) 1,402 (5,169) 781
(Provision) benefit for income
taxes............................. 332 -- (561)(i) 240 --
469(j)
--------- ------- ------ ------- ------
Net income (loss).................. $ (5,066) $(1,173) $1,310 $(4,929) $ 781
========= ======= ====== ======= ======
Redeemable convertible preferred
stock accretion................... $ (531)
---------
Net loss applicable to common
stockholders...................... $ (5,597)
=========
Basic net loss per common share.... $ (2.99)
=========
Shares used in the per share
calculation....................... 1,872,567
=========
<CAPTION>
ARROW
SANITARY
SERVICE, INC.
YEAR
ENDED PRO FORMA
SEPTEMBER 30, PRO FORMA AS
1997 ADJUSTMENTS ADJUSTED
-------------- ----------- ---------
<S> <C> <C> <C>
Revenues........................... $6,209 -- $ 38,405
Operating expenses:
Cost of operations................ 4,970 -- 29,274
Selling, general and
administrative.................. 776 (83)(k) 4,660
Depreciation and amortization..... 143 (377)(l) 2,360
364(m)
(78)(q)
265(r)
Start-up and integration.......... -- -- 493
Stock compensation................ -- -- 4,395
------ ------- ---------
Income (loss) from operations...... 320 (91) (2,777)
Interest expense................... (72) 280(n) (2,756)
(897)(o)
72(s)
(606)(t)
Other income (expense), net........ (2) -- 149
------ ------- ---------
Income (loss) before (provision)
benefit for income taxes.......... 246 (1,242) (5,384)
(Provision) benefit for income
taxes............................. (117) (297)(p) 250
198(i)
226(u)
------ ------- ---------
Net income (loss).................. $ 129 $(1,115) $ (5,134)
====== ======= =========
Redeemable convertible preferred
stock accretion................... $ (531)
---------
Net loss applicable to common
stockholders...................... $ (5,665)
=========
Basic net loss per common share.... $ (2.72)
=========
Shares used in the per share
calculation....................... 2,086,317
=========
</TABLE>
See accompanying notes.
<PAGE> 15
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE
CONNECTIONS,
INC. MADERA
CONSOLIDATED DISPOSAL ARROW SANITARY
THREE SYSTEMS, SERVICE, INC.
MONTHS INC. ONE THREE MONTHS
ENDED MONTH ENDED ENDED PRO FORMA
MARCH 31, JANUARY 31, MARCH 31, PRO FORMA COMBINED
1998 1998 1998 ADJUSTMENTS AS ADJUSTED
------------ ----------------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 7,601 $ 611 $1,551 $ -- $ 9,763
Operating expenses:
Cost of operations.................. 5,397 412 1,145 -- 6,954
Selling, general and
administrative................... 770 112 183 (19)(k) 1,046
Depreciation and amortization....... 541 69 40 (19)(l)(m) 676
45(q)(r)
Stock compensation.................. 320 -- -- 320
--------- ----- ------ ----- ---------
Income (loss) from operations......... 573 18 183 (7) 767
Interest expense...................... (301) (289) (14) 14(s) (742)
(152)(t)
Other income (expense), net........... -- 16 4 -- 20
--------- ----- ------ ----- ---------
Income (loss) before (provision)
benefit for income taxes............ 272 (255) 173 (145) 45
(Provision) benefit for income
taxes............................... (237) -- (75) 83(p)(i) (167)
62(u)
--------- ----- ------ ----- ---------
Net income (loss)..................... $ 35 $(255) $ 98 $ -- $ (122)
========= ===== ====== ===== =========
Redeemable convertible preferred stock
accretion........................... $ (572) $ (572)
--------- ---------
Net loss applicable to common
stockholders........................ $ (537) $ (694)
========= =========
Basic net loss per common share....... $ (0.23) $ (0.27)
========= =========
Shares used in the per share
calculations:
Basic............................... 2,311,111 2,524,861
========= =========
</TABLE>
See accompanying notes.
<PAGE> 16
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
ASSUMPTIONS. The unaudited pro forma consolidated statements of operations
for the year ended December 31, 1997, and for the three months ended March 31,
1998 are presented as if the acquisitions of the Company's predecessors, Madera
and Arrow had occurred on January 1, 1997.
ACQUISITIONS. The acquisitions are being accounted for under the purchase
method of accounting for business combinations. Certain items affecting the
purchase prices and their allocations are preliminary. The preliminary purchase
prices of Madera and Arrow consist of the following:
<TABLE>
<CAPTION>
MADERA ARROW
-------- -------
<S> <C> <C>
Cash paid to shareholders............................... $6,949 $ 7,656
Common stock issued..................................... 7,500 3,045
Liabilities assumed..................................... 4,256 1,358
Acquisition costs....................................... 180 95
Common stock warrants issued............................ 954 --
-------- -------
$19,839 $12,154
======== =======
</TABLE>
The Company has preliminary allocated the purchase prices as follows:
<TABLE>
<CAPTION>
MADERA ARROW
-------- -------
<S> <C> <C>
Tangible assets purchased............................... $4,534 $ 1,334
Goodwill................................................ 14,580 10,770
Covenant not to compete................................. -- 50
Long-term franchise agreements and contracts............ 725 --
-------- -------
$19,839 $12,154
======== =======
</TABLE>
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated statements of operations:
(a) To eliminate BFI corporate environmental expense allocation related to
BFI landfill closure costs which do not exist for the Company.
(b) To record amortization of the loss contract accrual that was recorded
in connection with the acquisitions of the predecessor operations. The
loss contract accrual is being amortized to operating expenses over
the related terms of the loss contracts which range from 6 to 65
months. The loss contract accrual represents the estimated incremental
losses to the Company related to certain unfavorable contracts the
Company acquired in connection with the acquisition of the predecessor
operations.
(c) To reduce facilities lease expense to the amounts provided for in the
sublease agreement entered into with BFI in connection with the
acquisitions of the predecessor operations. The sublease agreement was
directly attributable to, a required element of, and a condition to
the closing of the acquisition.
(d) To reduce BFI corporate overhead expense allocations to the amount of
corporate overhead currently being incurred by the Company.
(e) To eliminate consulting expenses incurred by BFI related to the
acquisition of The Disposal Group which the Company did not assume in
connection with the acquisitions of the predecessors. The
non-assumption of the consulting agreement was directly attributable
to, a required element of, and a condition to the closing of the
acquisition.
<PAGE> 17
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(f) To increase depreciation for the increase in the property and
equipment's carrying value to fair value related to the Madera
acquisition.
(g) To decrease goodwill amortization for the lower goodwill amount
recorded by the Company in connection with its acquisition of the
predecessor operations.
(h) To eliminate the predecessor's interest expense and record interest
expense on the debt obligations incurred by the Company in connection
with the acquisitions of the predecessors.
(i) To record the estimated tax provision associated with the pro forma
adjustments for the Madera acquisition using the Company's estimated
effective tax rate of 40%.
(j) To record an income tax benefit for the net operating loss incurred by
the Company's predecessors for the nine months ended September 30,
1997 using the Company's effective tax rate of 40%.
(k) To adjust officers' salaries to levels provided for in the new
employment agreements which were directly attributable to, required
elements of, and a condition to the closing of the Madera acquisition.
(l) To reduce depreciation for the reduction in the property and
equipment's carrying value to fair value related to the Madera
acquisition.
(m) To increase goodwill amortization for the increase in goodwill
resulting from the Madera acquisition. Goodwill is being amortized
over a term of 40 years.
(n) To eliminate interest expense associated with the outstanding debt
obligations of Madera which were paid-off in connection with the
acquisition.
(o) To record interest expense on the additional long-term debt
obligations incurred by the Company in connection with the Madera
acquisition.
(p) To record income taxes for Madera, which was a subchapter S
corporation for income tax purposes for all periods prior to its
acquisition by the Company. The effective income tax rate used was
38%.
(q) To reduce depreciation for the reduction in property and equipment's
carrying value to fair value related to the Arrow acquisition.
(r) To increase goodwill and covenant not to compete amortization for the
increases resulting from the Arrow acquisition. Goodwill is amortized
over a term of 40 years and the covenant not to compete is amortized
over a term of five years.
(s) To eliminate interest expense associated with the debt obligations of
Arrow which were paid off in connection with the acquisition.
(t) To record interest expense on the additional long-term debt
obligations incurred by the Company in connection with the Arrow
acquisition.
(u) To record the estimated tax provision associated with the pro forma
adjustments for the Arrow acquisition at an estimated effective tax
rate of 38%.
<PAGE> 18
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA PER SHARE DATA. The shares used in computing the unaudited pro
forma net loss per share for the year ended December 31, 1997, and the three
months ended March 31, 1998 are based upon the pro forma number of common shares
as summarized in the table below. See Note 1 of the Company's Notes to Financial
Statements included elsewhere herein for information concerning the computation
of basic and diluted net income (loss) per share.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1997 1998
------------ ------------
<S> <C> <C>
Company weighted average shares outstanding....... 1,872,567 2,311,111
Shares issued in connection with the acquisition
of Arrow........................................ 213,750 213,750
---------- -----------
Shares used in calculating pro forma basic net
loss per share.................................. 2,086,317 2,524,861
========== ===========
</TABLE>
ACQUISITION COSTS. The Company incurred costs of $180 related to the Madera
acquisition, which have been factored into the purchase price. Costs incurred by
Madera were expensed as incurred. The Company incurred costs of $95 related to
the Arrow acquisition, which have been factored into the purchase price. Costs
incurred by Arrow were expensed as incurred.
CONTINGENT PAYMENTS. In connection with the Madera acquisition the Company
is required to pay contingent consideration to certain former Madera
shareholders, subject to their involvement in specified events that give rise to
the consideration. No amounts related to these contingent payments have been
included in the pro forma financial statements as the events which would give
rise to such payments have not yet occurred.
OTHER. The Professional Cleaning business of Madera ceased operations in
July 1997. This business had revenues of $193 and an operating loss of $215
during the year ended December 31, 1997.
Shortly before the acquisition of the predecessor operations by the
Company, BFI amended a franchise agreement with a municipality which provided
for a reduction in the franchise fees. Had this amended franchise agreement been
in effect as of January 1, 1997, pro forma cost of operations would have been
approximately $135 lower during the year ended December 31, 1997.
<PAGE> 19
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARROW
WASTE SANITARY
CONNECTIONS, INC. SERVICE, PRO FORMA PRO FORMA
CONSOLIDATED INC. ADJUSTMENTS AS ADJUSTED
------------------ -------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................... $ 2,386 $ 274 $(7,751)(1) $ 2,199
(510)(4)
7,800(5)
Accounts receivable, net............... 4,198 694 -- 4,892
Prepaid expenses and other current
assets.............................. 1,061 48 -- 1,109
------- ------ ------- -------
Total current assets........... 7,645 1016 (461) 8,200
Property and equipment, net.............. 7,316 926 (613)(2) 7,629
Goodwill, net............................ 24,935 -- 10,770(3) 35,705
Other intangible assets.................. -- 118 (118)(2) 50
50(3)
Other assets............................. 1,137 13 (8)(2) 1,142
------- ------ ------- -------
$41,033 $2,073 $ 9,620 $52,726
======= ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................... $ 3,661 $ 439 $ -- $ 4,100
Deferred revenue....................... 972 11 -- 983
Accrued liabilities.................... 1,701 213 -- 1,914
Current portion of long term debt...... -- 154 (154)(4) --
Current portion of accrued losses on
acquired contracts.................. 323 -- -- 323
------- ------ ------- -------
Total current liabilities...... 6,657 817 (154) 7,320
Accrued losses on acquired contracts..... 1,149 -- -- 1,149
Long-term debt, net...................... 16,289 495 (356)(4) 24,228
7,800(5) --
Deferred income taxes.................... 162 46 -- 208
Redeemable convertible preferred stock... 8,095 -- -- 8,095
Redeemable common stock.................. 7,500 -- -- 7,500
Stockholders' equity:
Common stock........................... 24 47 2(6) 26
(47)(7)
Additional paid-in capital............. 8,114 3,043(6) 11,157
Treasury stock payments................ -- (25) 25(7) --
Stockholder notes receivable........... (82) -- -- (82)
Deferred stock compensation............ (741) -- -- (741)
Retained earnings (deficit)............ (6,134) 693 (693)(7) (6,134)
------- ------ ------- -------
Total stockholders' equity..... 1,181 715 2,330 4,226
------- ------ ------- -------
$41,033 $2,073 $ 9,620 $52,726
======= ====== ======= =======
</TABLE>
See accompanying notes.
<PAGE> 20
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSUMPTIONS. The unaudited pro forma consolidated balance sheet as of March
31, 1998 is presented as if the acquisition of Arrow had occurred on March 31,
1998.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated balance sheet to reflect the acquisition of
Arrow.
(1) Cash payments to the former shareholders of Arrow ($7,656) and
payment of acquisition costs ($95).
(2) To reduce the property, plant and equipment ($613) and intangibles
($126) acquired from Arrow to fair value.
(3) To record the excess of the purchase price over the net assets
acquired from Arrow for goodwill and intangible assets of $10,770
and $50. respectively.
(4) To pay off certain of the outstanding debt obligations of Arrow.
(5) To record additional long term debt associated with the acquisition
of Arrow.
(6) To record the common stock issued in connection with the
acquisition of Arrow.
(7) To eliminate the equity accounts of Arrow.
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WASTE CONNECTIONS, INC.
(Registrant)
Date: July 16, 1998 By /s/ RONALD J. MITTELSTAEDT
------------------------------------
Ronald J. Mittelstaedt
President and Chief Executive Officer
