<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 April 2, 1999
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-19674
(Commission File Number)
94-3283464
(IRS Employer Identification No.)
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.)
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<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
On February 1, 1999, Waste Connections, Inc. ("WCI") filed a Form
8-K describing the merger on January 19, 1999, of WCI Acquisition Corporation I,
WCI Acquisition Corporation II, WCI Acquisition Corporation III and WCI
Acquisition Corporation IV, four Delaware corporations wholly owned by WCI, into
Murrey's Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal
Co., Inc. and Tacoma Recycling Company, Inc., respectively (collectively, the
"Murrey Companies"). Certain financial statements of the Murrey Companies and
certain pro forma financial data of WCI were not then available and therefore
were not included in the February 1, 1999 Form 8-K filing. WCI hereby amends its
Form 8-K filed on February 1, 1999, to include the financial statements and pro
forma financial information set forth below in Item 7.
2
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Murrey's Disposal Company, Inc.
American Disposal Company, Inc.
D.M. Disposal Co., Inc.
Tacoma Recycling Company, Inc.
We have audited the accompanying combined balance sheets of Murrey's Disposal
Company, Inc., American Disposal Company, Inc., D.M. Disposal Co., Inc., and
Tacoma Recycling Company, Inc. (collectively the "Murrey Companies") as of
December 31, 1997 and 1998, and the related combined statements of income and
retained earnings, and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Murrey Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Murrey Companies
at December 31, 1997 and 1998, and the combined results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Sacramento, California
February 4, 1999
3
<PAGE> 4
THE MURREY COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
------- -------
<S> <C> <C>
Current assets:
Cash and equivalents ............................... $ 126 $ 173
Accounts receivable, less allowance for doubtful
accounts of $74 in 1997 and $149 in 1998 ......... 2,779 3,007
Prepaid expenses and other current assets .......... 79 27
------- -------
Total current assets ................................. 2,984 3,207
Property, plant and equipment, net ................... 14,819 13,943
Intangible assets, net ............................... 1,862 1,801
Other assets ......................................... 31 184
------- -------
$19,696 $19,135
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings .............................. $ 1,628 $ 1,500
Accounts payable ................................... 1,617 1,509
Advances from a related party ...................... 543 543
Deferred revenue ................................... 919 1,095
Other current liabilities .......................... -- 106
Accrued liabilities ................................ 832 993
Income taxes payable ............................... 228 337
Current portion of long-term debt .................. 873 731
------- -------
Total current liabilities ............................ 6,640 6,814
Long-term debt ....................................... 4,907 3,879
Deferred income taxes ................................ 658 623
Other long-term liabilities .......................... -- 353
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock at par value; 60,500 shares authorized;
1,470 shares issued and outstanding ............. 45 45
Additional paid-in capital ......................... 455 455
Retained earnings .................................. 6,991 6,966
------- -------
Total shareholders' equity ........................... 7,491 7,466
------- -------
$19,696 $19,135
======= =======
</TABLE>
See accompanying notes.
4
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THE MURREY COMPANIES
COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenues .................................. $ 25,024 $ 28,874 $ 32,528
Operating expenses:
Cost of operations ...................... 20,465 23,133 26,410
Selling, general and administrative ..... 2,142 2,323 2,791
Depreciation and amortization ........... 1,236 1,371 2,194
-------- -------- --------
Income from operations .................... 1,181 2,047 1,133
Interest expense .......................... (284) (380) (535)
Other income (expense), net ............... 309 283 79
-------- -------- --------
Income before income taxes ................ 1,206 1,950 677
Income tax provision ...................... (543) (634) (535)
-------- -------- --------
Net income ................................ 663 1,316 142
Retained earnings, beginning of period .... 5,095 5,758 6,991
Dividends ................................. -- (83) (167)
-------- -------- --------
Retained earnings, end of period .......... $ 5,758 $ 6,991 $ 6,966
======== ======== ========
Pro forma income taxes
(unaudited -- Note 11) .................. $ (432) $ (697) $ (238)
-------- -------- --------
Pro forma net income (unaudited -- Note 11) $ 774 $ 1,253 $ 439
======== ======== ========
</TABLE>
See accompanying notes.
5
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THE MURREY COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................. $ 663 $ 1,316 $ 142
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization ...... 1,236 1,371 2,194
Deferred income taxes .............. (19) (44) (35)
Gain on sale of land ............... -- -- (8)
Changes in operating assets and
liabilities:
Accounts receivable, net ........ 63 (446) (228)
Prepaid expenses and other assets (36) 40 52
Accounts payable ................ 932 509 (108)
Deferred revenue ................ 42 154 176
Accrued liabilities ............. 129 127 161
Other liabilities ............... -- -- 459
Income taxes payable ............ (232) (93) 109
------- ------- -------
Net cash provided by operating activities 2,778 2,934 2,914
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisitions ............... -- (2,900) --
Capital expenditures for property and
equipment............................. (4,790) (2,108) (1,874)
Proceeds from sale of land .............. -- -- 625
Net change in other assets .............. 31 (28) (153)
------- ------- -------
Net cash used in investing activities ..... (4,759) (5,036) (1,402)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt ............ 1,418 3,414 --
Principal payments on long-term debt .... (615) (928) (1,170)
Net change in short-term borrowings ..... 659 19 (128)
Net change in advances from a related
party.................................. (259) (275) --
Payment of dividends .................... -- (83) (167)
------- ------- -------
Net cash provided by (used in) financing
activities............................... 1,203 2,147 (1,465)
------- ------- -------
Net increase (decrease) in cash and
equivalents ............................. (778) 45 47
Cash and equivalents:
Beginning of year .................... 859 81 126
------- ------- -------
End of year .......................... $ 81 $ 126 $ 173
======= ======= =======
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for interest ............... $ 284 $ 358 $ 540
======= ======= =======
Cash paid for income taxes ........... $ 792 $ 744 $ 461
======= ======= =======
Issuance of notes payable for land and
buildings ......................... $ 260 $ 315 $ --
======= ======= =======
In connection with acquisitions (Note
3) the Murrey Companies acquired
assets and issued notes payable
to sellers as follows:
Fair value of assets acquired ... $ -- $ 3,100 $ --
Notes payable to sellers ........ -- (200) --
------- ------- -------
Cash paid for acquisitions ...... $ -- $ 2,900 $ --
======= ======= =======
</TABLE>
See accompanying notes.
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<PAGE> 7
THE MURREY COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND ORGANIZATION
Murrey's Disposal Company, Inc. ("Murrey's"), American Disposal Company, Inc.
("American"), D.M. Disposal Co., Inc. ("DM"), and Tacoma Recycling Company, Inc.
("Tacoma") (collectively the "Murrey Companies") are regional, integrated,
non-hazardous solid waste services companies that provide collection, transfer,
and disposal of solid waste and recyclables to residential and commercial
customers in and around the Tacoma, Washington area. Murrey's, American, DM and
Tacoma were incorporated in Washington on March 13, 1963, October 27, 1966, July
12, 1979 and January 30, 1990, respectively.
Each of the Murrey Companies' Common Stock is owned 90% by one or both of two
trusts. The beneficiary of both trusts is also an officer and director of the
Murrey Companies. The remaining stock is owned by two individuals (5% each) who
are also officers and directors of the Murrey Companies.
BASIS OF COMBINATION
The combined financial statements of the Murrey Companies include the
accounts of Murrey's, American, DM and Tacoma as a result of their common
management which exercises significant influence over their operations.
Significant intercompany balances and transactions between the Murrey Companies
have been eliminated in combination.
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 Murrey Companies consider all highly liquid investments with a maturity
of three months or less to be cash equivalents.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Murrey Companies to
concentrations of credit risks consist primarily of accounts receivable. Credit
risk on accounts receivable is minimized as a result of the large and diverse
nature of the Murrey Companies' customer base.
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The Murrey Companies maintain allowances for losses based on the expected
collectibility of accounts receivable. Credit losses have been within
management's expectations.
PROPERTY, PLANT AND EQUIPMENT
Property, plant 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.
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<PAGE> 9
The estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings.......................................... 20 years
Machinery and equipment............................ 5 -- 15 years
Rolling stock...................................... 10 years
Containers......................................... 5 -- 15 years
Furniture and fixtures............................. 3 -- 5 years
</TABLE>
In connection with the Acquisitions (Note 3) the Murrey Companies acquired
certain used property and equipment. This used property and equipment is being
depreciated using the straight-line method over its estimated remaining useful
lives, which range from one to twelve years.
GOODWILL
Goodwill represents the excess of the purchase price over the fair value of
the net assets acquired (Notes 3 and 4), and is amortized on a straight-line
basis over the period of expected benefit of 40 years.
The Murrey Companies continually evaluate the value and future benefits of
its intangible assets, including goodwill. The Murrey Companies assess
recoverability from future operations using cash flows and income from
operations of the related acquired business as measures. Under this approach,
the carrying value would be reduced if it becomes probable that the Murrey
Companies' best estimate for expected future cash flows of the related business
would be less than the carrying amount of the related intangible assets. There
have been no adjustments to the carrying amounts of intangible assets resulting
from these evaluations as of December 31, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of cash and cash equivalents approximate their fair
values as of December 31, 1997 and 1998. The carrying values of short-term
borrowings (Note 5) and long-term debt (Note 6) approximate their fair values as
of December 31, 1997 and 1998, based on current incremental borrowing rates for
similar types of borrowing arrangements.
REVENUE RECOGNITION
The Murrey Companies recognize 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
DM 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.
9
<PAGE> 10
Murrey's, American and Tacoma operate under Subchapter S of the Internal
Revenue Code for federal and state income tax reporting purposes. Consequently
all of the income tax attributes and liabilities of these companies' operations
flow through to the individual shareholders.
10
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2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1997 and 1998 consists of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
-------- --------
<S> <C> <C>
Land and buildings .......... $ 6,668 $ 6,174
Machinery and equipment ..... 3,780 3,772
Rolling stock ............... 7,570 8,388
Containers .................. 4,380 5,234
Furniture and fixtures ...... 255 249
-------- --------
22,653 23,817
Less accumulated depreciation (7,834) (9,874)
-------- --------
$ 14,819 $ 13,943
======== ========
</TABLE>
3. ACQUISITIONS
During 1997, the Murrey Companies purchased substantially all of the assets
of Island Disposal (effective May 2, 1997) and Environmental Waste Systems and
Olympic Disposal (both effective December 1, 1997) (collectively the
"Acquisitions"). The total purchase price for the Acquisitions was approximately
$3,100, comprised of $2,900 in cash and promissory notes payable to the sellers
totaling $200. Of the combined $3,100 purchase price, $1,791 was recorded as
goodwill and $80 was assigned to non-competition agreements. The Acquisitions
were accounted for in accordance with the purchase method of accounting and,
accordingly, the net assets acquired were included in the Murrey Companies'
combined balance sheet based upon their estimated fair values on the date of the
Acquisitions. The Murrey Companies' combined statement of operations includes
the revenues and expenses of the acquired businesses after the effective date of
the transactions.
A summary of the purchase price allocation for the Acquisitions is as
follows:
<TABLE>
<S> <C>
Acquired assets:
Property and equipment................. $1,229
Goodwill............................... 1,791
Non-competition agreements............. 80
------
$3,100
======
</TABLE>
The following unaudited pro forma information shows the results of the Murrey
Companies' operations as though the Acquisitions had occurred as of January 1,
1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------
1996 1997
------- -------
(UNAUDITED)
<S> <C> <C>
Revenue .. $27,485 $31,106
======= =======
Net income $ 706 $ 1,094
======= =======
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the actual results of operations had the
Acquisitions occurred on January 1, 1996, or the results of future operations of
the Murrey Companies. Furthermore, the pro forma results do not give effect to
all cost savings or incremental costs that may occur as a result of the
integration and consolidation of the Acquisitions.
4. INTANGIBLE ASSETS
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<PAGE> 12
Intangible assets consist of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
------- -------
<S> <C> <C>
Goodwill .................... $ 1,791 $ 1,791
Non-competition agreement ... 80 80
------- -------
1,871 1,871
Less accumulated amortization (9) (70)
------- -------
$ 1,862 $ 1,801
======= =======
</TABLE>
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5. SHORT-TERM BORROWINGS
Short-term borrowings consist of various revolving and non-revolving
lines-of-credit with a bank, bearing interest at 8.50% as of December 31, 1998
and which mature at various dates through February 28, 1999. The lines of credit
are secured by all accounts receivable and inventory accounts, which totaled
$3,176 as of December 31, 1998. The lines-of-credit were fully utilized as of
December 31, 1998.
6. LONG-TERM DEBT
Long-term debt consists of the following as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
------ ------
<S> <C> <C>
Note payable to a bank bearing
interest at a variable rate
(approximately 8.4% as of December
31, 1998); monthly payments of
principal and interest of $25;
maturing in November 2007; secured
by certain cash accounts and a
pledge of one of the Murrey
Companies' exclusive franchise
agreements ...................................... $2,000 $1,866
Note payable to a bank bearing interest at
8.6%; monthly payments of principal
and interest aggregating $13; maturing in October
2001; secured by equipment with a
net book value of approximately $400
as of December 31, 1998 and certain
cash accounts ................................... 632 514
Notes payable to a bank bearing interest at
various fixed rates (ranging from 9.1%
to 9.2% as of December 31, 1998); monthly
payments of principal and interest aggregating
$25 and one-time payments of $470 and $751
in September 2000 and May 2001,
respectively; maturing at various
dates between September 2000 and May
2001; secured by land and buildings
with a net book value of
approximately $2,463 as of December
31, 1998 ........................................ 1,544 1,350
Equipment financing notes payable bearing
interest at various rates (ranging from
8.6% to 8.8% as of December 31, 1998); monthly
payments of principal and interest aggregating
$21; maturing at various dates through
September 2001;
secured by equipment with an
aggregate net book value of
approximately $660 as of December
31, 1998 ........................................ 822 423
Notes payable to sellers bearing
interest at 9.0% as of December 31,
1998; monthly principal and interest
payments of $3; maturing October,
2007; secured by land and buildings
with a net book value of
approximately $901 as of December
31, 1998 ........................................ 471 291
Unsecured notes payable to seller
bearing interest at 8.0% as of
December 31, 1998; monthly principal
and interest payments of $4;
maturing in June 2002 ........................... 189 90
Other ............................................. 122 76
------ ------
5,780 4,610
Less: current portion ............................. 873 731
------ ------
Long-term debt .................................... $4,907 $3,879
====== ======
</TABLE>
As of December 31, 1998, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<S> <C>
1999..................................... $ 731
2000..................................... 936
2001..................................... 1,182
2002..................................... 336
2003..................................... 226
Thereafter............................... 1,199
------
$4,610
======
</TABLE>
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7. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Operating Leases
The Murrey Companies lease certain equipment and facilities under
non-cancelable operating leases. Rent expense under all operating leases during
the years ended December 31, 1996, 1997 and 1998 amounted to $170, $183, and
$230, respectively.
As of December 31, 1998, future minimum lease payments under these operating
leases, by calendar year, are as follows:
<TABLE>
<S> <C>
1999..................................... $194
2000..................................... 174
2001..................................... 109
2002..................................... 86
2003..................................... 72
Thereafter............................... 285
----
$920
====
</TABLE>
CONTINGENCIES
Environmental Risks
The Murrey Companies are subject to liability for any environmental damage
that the solid waste facilities they operate may cause to neighboring
landowners, particularly as a result of the contamination of drinking water
sources or soil, including damage resulting from conditions existing prior to
the operation of such facilities by the Murrey Companies. The Murrey Companies
may also be subject to liability for any off-site environmental contamination
caused by pollutants or hazardous substances whose transportation, treatment or
disposal was arranged by the Murrey Companies. Any substantial liability for
environmental damage incurred by the Murrey Companies could have a material
adverse effect on the Murrey Companies' combined financial condition, results of
operations or cash flows. As of December 31, 1998, the Murrey Companies are not
aware of any such environmental liabilities.
Legal Proceedings
In the normal course of their business and as a result of the extensive
governmental regulation of the solid waste industry, the Murrey Companies 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 or to revoke or deny renewal of an operating permit held by
the Murrey Companies. From time to time the Murrey Companies may also become
parties to various claims or suits for alleged damages to persons and property,
alleged violations of certain laws and alleged liabilities arising out of
matters occurring during the normal course of operating a waste management
business. However, as of December 31, 1998, there is no current proceeding or
litigation involving the Murrey Companies that the Murrey Companies believe will
have a material adverse impact on their business, financial condition, results
of operations or cash flows.
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<PAGE> 15
Disposal Site
The Murrey Companies have been informed that the Hidden Valley Landfill,
which is currently utilized by them for disposal of waste collected in Pierce
County, is currently operating under a Consent Decree with the Washington State
Department of Ecology and the Environmental Protection Agency. Under the terms
of the Consent Decree, the Hidden Valley Landfill was closed on December 31,
1998; and subsequent to that date, all of the waste collected by the Murrey
Companies in Pierce County was long hauled to an alternate disposal site pending
completion of a new solid waste landfill in Pierce County. Management of the
Murrey Companies does not believe that the closure of the Hidden Valley Landfill
will have a material adverse impact on the Murrey Companies' business, combined
financial position, results of operations or cash flows.
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<PAGE> 16
Employees
Approximately 46 of the Murrey Companies' route drivers are represented by
the Teamsters Union. The Murrey Companies have a collective bargaining agreement
that expires in June 1999. The Murrey Companies are not aware of any other
organizational efforts among their employees and believes that their relations
with their employees are good.
8. RELATED PARTY TRANSACTIONS
OPERATING LEASE
The Murrey Companies lease land on which certain of their facilities are
located from a shareholder of the Murrey Companies. This lease is pursuant to an
informal arrangement whereby the Murrey Companies pay all of the property taxes
and other expenses associated with the leased land in lieu of monthly rent.
These payments totaled approximately $10 during each of the years ended December
31, 1996, 1997, and 1998.
ADVANCES
As of December 31, 1997 and 1998, the Murrey Companies had non-interest
bearing advances payable to one of their shareholders totaling $543.
DISPOSAL FEES
During the years ended December 31, 1996, 1997 and 1998, the Murrey Companies
paid $7,730, $8,592, and $8,816, respectively, in disposal fees to a landfill
that is owned and operated by a company in which one of the Murrey Companies
shareholders has an approximate 33% ownership interest.
9. 401(k) PLAN
The Murrey Companies have a voluntary savings and investment plan (the
"401(k) Plan"). The 401(k) Plan is available to all eligible, non-union
employees of the Murrey Companies. Under the 401(k) Plan the Murrey Companies'
contributions are at the discretion of management of the Murrey Companies.
During the years ended December 31, 1996, 1997 and 1998, the Murrey Companies'
401(k) Plan expense was approximately $267, $316, and $336, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes for the Murrey Companies pertains
solely to DM and consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal:
Current $ 562 $ 678 $ 570
Deferred (19) (44) (35)
----- ----- -----
$ 543 $ 634 $ 535
===== ===== =====
</TABLE>
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<PAGE> 17
Deferred taxes result from temporary differences in the recognition of
certain expense items for income tax and financial reporting purposes. The
Murrey Companies' deferred taxes as of December 31, 1997 and 1998 are
substantially comprised of depreciation deducted for tax purposes that will be
recorded in future periods for financial reporting purposes.
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<PAGE> 18
The principal reasons for the difference between the federal statutory income
tax rate and the effective income tax rate are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal expense expected at statutory rates
on combined income before income taxes ........... $ 410 $ 663 $ 230
Tax effect of companies reporting under Subchapter S 124 (42) 302
Other .............................................. 9 13 3
----- ----- -----
$ 543 $ 634 $ 535
===== ===== =====
</TABLE>
11. PRO FORMA INCOME TAX INFORMATION (UNAUDITED)
As described in Note 1, Murrey's, American, and Tacoma (the "S Corporations")
operate under Subchapter S of the Internal Revenue Code and are not subject to
federal income taxes. In connection with the Murrey Companies' proposed merger
with Waste Connections, Inc. ("WCI") (Note 12), the Subchapter S election will
be terminated. As a result, the S Corporations (as wholly-owned subsidiaries of
WCI) will be subject to corporate income taxes subsequent to the termination of
S corporation status. The Murrey Companies had combined income for income tax
purposes of $2,135, $1,941 and $1,924 for 1996, 1997 and 1998, respectively. Had
the Murrey Companies filed federal income tax returns as regular corporations
for 1996, 1997 and 1998, income tax expense under the provisions of Financial
Accounting Standards No. 109 would have been $432, $697 and $238, respectively.
The following unaudited pro forma information reflects income tax expense
(benefit) for the Murrey Companies as if the S Corporations had also been
subject to federal income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal:
Current ..................................... $ 726 $ 660 $ 654
Deferred .................................... (294) 37 (416)
----- ----- -----
Pro forma income taxes ........................ $ 432 $ 697 $ 238
===== ===== =====
</TABLE>
The pro forma provisions for income taxes for the years ended December 31,
1996, 1997, and 1998 differ from the amounts computed by applying the applicable
statutory federal income tax rate (34%) to income before income taxes due to
certain non-deductible expenses.
The Murrey Companies pro forma deferred income tax asset of approximately $71
and $301 as of December 31, 1997 and 1998, respectively, relates principally to
differences in the recognition of bad debt expenses, vacation accruals, accruals
for contract losses and certain other temporary differences. The Murrey
Companies also had pro forma deferred tax liabilities as of December 31, 1997
and 1998 of approximately $1,332 and $1,147 which relate to differences between
tax and financial methods of depreciation and the use of the cash method of
accounting for tax purposes by certain of the S Corporations.
12. SUBSEQUENT EVENT
MERGER OF THE MURREY COMPANIES
On January 19, 1999, the Murrey Companies merged with wholly-owned
subsidiaries of Waste Connections, Inc. ("WCI") whereby all shares of common
stock of the Murrey Companies
18
<PAGE> 19
were exchanged for 2,888,880 shares of WCI common stock. The transactions were
accounted for as poolings-of-interests.
13. YEAR 2000 (UNAUDITED)
The Murrey Companies will need to modify or replace portions of their
software so that their computer systems will function properly with respect to
dates in the year 2000 ("Year 2000") and thereafter. To date, the Murrey
Companies have not incurred any costs related to the Year 2000 project. The
Murrey Companies do not believe that their 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 their operations.
19
<PAGE> 20
(b) Pro Forma Financial Information.
Waste Connections, Inc. Unaudited Pro Forma Financial
Statements
WASTE CONNECTIONS, INC.
INTRODUCTION TO UNAUDITED PRO FORMA
FINANCIAL STATEMENTS
The Unaudited Pro Forma Statements of Operations for each of the three years
in the period ended December 31, 1998, give effect to the mergers involving WCI
and the Murrey Companies as if such mergers occurred on January 1, 1996 and were
accounted for as poolings-of-interests.
The following Unaudited Pro Forma Balance Sheet as of December 31, 1998
assumes WCI's mergers with the Murrey Companies occurred on December 31, 1998.
WCI has preliminarily analyzed the savings that it expects to be realized by
consolidating certain operational and general and administrative functions. WCI
has not and cannot quantify all of these savings due to the short period of time
since the mergers occurred. It is anticipated that these savings will be
partially offset by the incremental increase in costs related to WCI'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 Financial Statements.
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 Financial Statements do
not purport to represent what WCI's financial position or results of operations
would actually have been if such transactions in fact had occurred on those
dates or to project WCI's financial position or results of operations for any
future period. Because WCI and the Murrey Companies 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
Financial Statements should be read in conjunction with WCI's financial
statements and notes thereto filed with the Securities and Exchange Commission
in the Company's Annual Report on Form 10-K, and the Murrey Companies' financial
statements and notes thereto included elsewhere herein.
20
<PAGE> 21
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE THE MURREY
CONNECTIONS, INC. COMPANIES
CONSOLIDATED COMBINED PRO FORMA
------------ ------------ ------------
<S> <C> <C> <C>
Revenues ............................................ $ 54,042 $ 32,528 $ 86,570
Operating expenses:
Cost of operations ................................ 36,554 26,410 62,964
Selling, general and administrative ............... 5,317 2,791 8,108
Depreciation and amortization ..................... 4,112 2,194 6,306
Stock compensation ................................ 632 -- 632
------------ ------------ ------------
Income from operations .............................. 7,427 1,133 8,560
Interest expense .................................... (2,257) (535) (2,792)
Other income (expense), net ......................... -- 79 79
------------ ------------ ------------
Income before income taxes .......................... 5,170 677 5,847
Income tax provision ................................ (2,395) (535) (2,930)
------------ ------------ ------------
Income before extraordinary item .................... 2,775 142 2,917
Extraordinary item -- early extinguishment
of debt, net of tax benefit of $264 .............. (1,027) -- (1,027)
------------ ------------ ------------
Net income .......................................... $ 1,748 $ 142 $ 1,890
============ ============ ============
Redeemable convertible preferred stock accretion .... (917) -- (917)
------------ ------------ ------------
Net income applicable to common stockholders ........ $ 831 $ 142 $ 973
============ ============ ============
Basic earnings per share:
Income before extraordinary item .................. $ 0.29 $ 0.21
Extraordinary item ................................ (0.16) (0.11)
------------ ------------
Net income per share .............................. $ 0.13 $ 0.10
============ ============
Diluted earnings per share:
Income before extraordinary item .................. $ 0.22 $ 0.18
Extraordinary item ................................ (0.12) (0.09)
------------ ------------
Net income per share .............................. $ 0.10 $ 0.09
============ ============
Shares used in calculating basic earnings per share . 6,460,293 9,349,173
============ ============
Shares used in calculating diluted earnings per share 8,371,415 11,260,295
============ ============
</TABLE>
21
<PAGE> 22
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
WASTE CONNECTIONS,
INC. CONSOLIDATED
PERIOD FROM THE MURREY
INCEPTION COMPANIES
(SEPTEMBER 9, COMBINED PRO FORMA
1997) THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER DECEMBER 31,
1997 31, 1997 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues ....................................... $ 6,237 $ 28,874 $ 35,111
Operating expenses:
Cost of operations ........................... 4,703 23,133 27,836
Selling, general and administrative .......... 619 2,323 2,942
Depreciation and amortization ................ 354 1,371 1,725
Start-up and integration ..................... 493 -- 493
Stock compensation ........................... 4,395 -- 4,395
----------- ----------- -----------
Income (loss) from operations .................. (4,327) 2,047 (2,280)
Interest expense ............................... (1,035) (380) (1,415)
Other income (expense), net .................... (36) 283 247
----------- ----------- -----------
Income (loss) before income taxes .............. (5,398) 1,950 (3,448)
Income tax benefit (provision) ................. 332 (634) (302)
----------- ----------- -----------
Net income (loss) ............................. $ (5,066) $ 1,316 $ (3,750)
=========== =========== ===========
Redeemable convertible preferred stock accretion (531) (531)
----------- -----------
Net income (loss) applicable to common
stockholders ................................. $ (5,597) $ (4,281)
=========== ===========
Basic and diluted net loss per share ........... $ (2.99) $ (0.90)
=========== ===========
Shares used in calculating per share amounts ... 1,872,567 4,761,447
=========== ===========
</TABLE>
22
<PAGE> 23
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE MURREY
COMPANIES
-----------
<S> <C>
Revenues ............................... $ 25,024
Operating expenses:
Cost of operations ................... 20,465
Selling, general and administrative .. 2,142
Depreciation and amortization ........ 1,236
-----------
Income from operations ................. 1,181
Interest expense ....................... (284)
Other income (expense), net ............ 309
-----------
Income before provision for income taxes 1,206
Income tax provision ................... (543)
-----------
Net income ............................. $ 663
===========
Basic and diluted earnings per share ... $ 0.23
===========
Shares used in per share calculations .. 2,888,880
===========
</TABLE>
23
<PAGE> 24
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSUMPTIONS. WCI's mergers with the Murrey Companies will be accounted for
under the pooling of interests method of accounting for business combinations.
The pro forma financial statements assume the issuance of 2,888,880 shares,
which represents the number of shares exchanged.
PRO FORMA ADJUSTMENTS. The unaudited pro forma statements of operations do
not reflect non-recurring costs resulting directly from the merger between WCI
and the Murrey Companies. The management of WCI estimates that these costs will
approximate $6,200 and will be charged to operations in the quarter that the
merger was consummated. The amount includes costs to merge the companies,
signing bonuses to be paid to Murrey Company officers, and professional fees.
PRO FORMA PER SHARE DATA. The shares used in computing the unaudited pro
forma net income (loss) per share for each of the three years in the period
ended December 31, 1998 are based upon the pro forma number of common shares as
summarized in the table below.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Basic Share Count:
WCI weighted average shares outstanding .................. -- 1,872,567 6,460,293
Shares issued in exchange for the Murrey
Companies' stock ....................................... 2,888,888 2,888,880 2,888,880
---------- ---------- ----------
Shares used in calculating pro forma basic net
income (loss) per share ............................... 2,888,880 4,761,447 9,349,173
========== ========== ==========
Diluted Share Count:
Shares used in calculating pro forma basic income
net (loss) per share ................................... 2,888,880 4,761,447 9,349,173
Dilutive effect of common stock equivalents outstanding... -- -- 1,911,122
---------- ---------- ----------
Shares used in calculating pro forma diluted net
income (loss) per share ................................ 2,888,880 4,761,447 11,260,295
========== ========== ==========
</TABLE>
ACCOUNTING POLICIES. No adjustments have been made in these pro forma
statements of operations to conform accounting policies of the Murrey Companies
with those of WCI. The nature and extent of such adjustments, if any, are not
expected to be significant.
24
<PAGE> 25
WASTE CONNECTIONS, INC.
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
WASTE THE MURREY
CONNECTIONS, INC. COMPANIES PRO FORMA
CONSOLIDATED COMBINED ADJUSTMENTS PRO FORMA
---------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 2,675 $ 173 $ -- $ 2,848
Accounts receivable, net 10,769 3,007 -- 13,776
Prepaid expenses and other current assets 2,246 27 -- 2,273
--------- --------- --------- ---------
Total current assets 15,690 3,207 -- 18,897
Property and equipment, net 33,043 13,943 -- 46,986
Intangible assets, net 98,785 1,801 -- 100,586
Other assets 1,794 184 -- 1,978
--------- --------- --------- ---------
$ 149,312 $ 19,135 $ -- $ 168,447
========= ========= ========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ -- $ 1,500 $ -- $ 1,500
Accounts payable 6,598 1,509 -- 8,107
Advances from a related party -- 543 -- 543
Deferred revenue 2,052 1,095 -- 3,147
Accrued liabilities 4,154 1,330 -- 5,484
Current portion of long-term debt 9,516 731 -- 10,247
Other current liabilities 2,087 106 -- 2,193
Accrued merger related expenses -- -- 6,200(1) 6,200
--------- --------- --------- ---------
Total current liabilities 24,407 6,814 6,200 37,421
Long-term debt 60,106 3,879 -- 63,985
Deferred income taxes 1,645 623 -- 2,268
Other long-term liabilities 2,091 353 -- 2,444
Stockholders' equity:
Common stock 94 45 (16)(2) 123
Additional paid-in capital 66,163 455 16 (2) 66,634
Deferred stock compensation (428) -- -- (428)
Retained earnings (deficit) (4,766) 6,966 (6,200)(1) (4,000)
--------- --------- --------- ---------
Total stockholders' equity 61,063 7,466 (6,200) 62,329
--------- --------- --------- ---------
$ 149,312 $ 19,135 $ -- $ 168,447
========= ========= ========= =========
</TABLE>
25
<PAGE> 26
WASTE CONNECTIONS, INC.
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSUMPTIONS. The unaudited pro forma balance sheet as of December 31, 1998
combines the historical balance sheet of Waste Connections, Inc. with the
historical balance sheet of the Murrey Companies to be accounted for as
poolings-of-interests as of December 31, 1998.
PRO FORMA ADJUSTMENTS. The following adjustments have been made to the
unaudited pro forma consolidated balance sheet.
(1) To record estimated non-recurring costs of the mergers with the Murrey
Companies. The management of WCI estimates that the non-recurring costs
will approximate $6,200 and will be charged to operations in the quarter
the merger was consummated. This estimated expense has been charged to
retained earnings on the accompanying unaudited pro forma balance sheet.
(2) To adjust the capital accounts to properly reflect the issuance of
2,888,880 shares of WCI's stock.
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: April 2, 1999 By /s/ Ronald J. Mittelstaedt
Ronald J. Mittelstaedt
President and Chief Executive
Officer
26
<PAGE> 27
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
23.1 Consent of Ernst & Young LLP,
Independent Auditors
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the First Amended and Restated 1997 Stock Option Plan of
Waste Connections, Inc. of our report dated February 4, 1999, with respect to
the combined financial statements of the Murrey Companies included in the
Current Report (Form 8-KA) dated April 2, 1999.
ERNST & YOUNG LLP
Sacramento, California
April 1, 1999
27
