<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1999 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.)
2260 DOUGLAS BOULEVARD, SUITE 280, ROSEVILLE, CALIFORNIA 95661
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (916) 772-2221
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 the number of shares outstanding of each of the issuer's classes of
Common Stock:
As of May 7, 1999: 17,537,769 Shares of Common Stock
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1998 and
March 31, 1999
Condensed Consolidated Statements of Operations for the three months ended
March 31, 1998 and 1999
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1998 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
Item 2 - Changes in securities
Item 4 - Submission of matters to a vote of security holders.
Item 6 - Exhibits and Reports on Form 8-K
Signatures
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,165 $ 3,361
Accounts receivable, less allowance for doubtful
accounts of $692 at December 31, 1998 and
$766 at March 31, 1999 14,207 15,484
Prepaid expenses and other current assets 2,273 1,629
--------- ---------
Total current assets 19,646 20,474
Property and equipment, net 48,955 131,586
Intangible assets 100,645 110,666
Other assets 2,115 2,875
--------- ---------
$ 171,360 $ 265,601
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 731 $ 940
Short-term borrowings 1,500 --
Accounts payable 8,252 13,129
Advances from related party 543 --
Deferred revenue 3,439 3,725
Accrued liabilities 5,615 6,497
Current portion of notes payable 10,423 1,020
Other current liabilities 2,193 249
--------- ---------
Total current liabilities 32,696 25,560
Long-term debt and notes payable, net 64,573 103,525
Other long term liabilities 2,598 2,585
Deferred income taxes 2,339 2,339
Commitments and Contingencies
Stockholders' equity:
Preferred stock $.01 par value; 7,500,000 shares
authorized; none issued and outstanding -- --
Common stock: $.01 par value; 50,000,000 shares
authorized; 12,878,361 shares issued and
outstanding at December 31, 1998, 17,139,357
shares issued and outstanding at March 31, 1999 128 171
Additional paid-in capital 66,299 132,988
Deferred stock compensation (428) (358)
Retained Earnings (Accumulated deficit) 3,155 (1,209)
--------- ---------
Total stockholders' equity 69,154 131,592
--------- ---------
$ 171,360 $ 265,601
========= =========
</TABLE>
See accompanying notes.
3
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WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
MARCH 31,
1998 1999
------------ ------------
(RESTATED)
<S> <C> <C>
Revenues $ 16,478 $ 30,883
Operating Expenses:
Cost of operations 12,114 20,120
Selling, general and administrative 1,631 2,713
Depreciation and amortization 1,166 2,319
Stock compensation 320 70
Acquisition related expenses -- 7,800
------------ ------------
Income (loss) from operations 1,247 (2,139)
Interest expense (476) (935)
Other income (expense), net (27) 37
------------ ------------
Income (expense) before income tax provision 744 (3,037)
Income tax provision (392) (1,325)
------------ ------------
Net income (loss) 352 (4,362)
Redeemable convertible preferred stock accretion (572) --
------------ ------------
Net loss applicable to common stockholders $ (220) $ (4,362)
============ ============
Basic and diluted net loss per common share $ (0.04) $ (0.28)
============ ============
Shares used in the per share calculations 5,754,239 15,472,768
============ ============
</TABLE>
See accompanying notes.
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WASTE CONNECTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------------
1998 1999
-------- --------
(Restated)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 352 $ (4,362)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of assets (29) (37)
Depreciation and amortization 1,166 2,319
Amortization of debt issuance costs, debt guarantee fees and
accretion of discount on long term debt 47 9
Stock issued for compensation and services 320 714
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable, net 1,072 805
Prepaid expenses and other current assets (619) 729
Accounts payable (430) 3,769
Deferred revenue 356 584
Accrued liabilities 597 (1,666)
Other liabilities (78) (1,835)
-------- --------
Net cash provided by operating activities 2,754 1,029
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 586 145
Payments for acquisitions, net of cash acquired (8,848) (73,137)
Capital expenditures for property and equipment (1,190) (1,892)
(Increase) Decrease in other assets 12 (61)
-------- --------
Net cash used in investing activities (9,440) (74,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 17,336 85,600
Net change in short term borrowings (548) --
Principal payments on long-term debt (7,478) (76,053)
Proceeds from sale of common stock -- 65,041
Payments for treasury stock (81) --
Payment of dividends (54) --
Proceeds from options and warrants 140 97
Debt issuance costs (248) (573)
-------- --------
Net cash provided by financing activities 9,067 74,112
-------- --------
Net increase in cash 2,381 196
Cash at beginning of period 1,125 3,165
-------- --------
Cash at end of period $ 3,506 $ 3,361
======== ========
</TABLE>
See accompanying notes.
5
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WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
1. BASIS OF PRESENTATION
The accompanying statements of operations and cash flows relate to Waste
Connections, Inc. and its subsidiaries (the "Company") for the three month
periods ended March 31, 1998 and 1999. The consolidated financial statements of
the Company include the accounts of Waste Connections, Inc. and its wholly 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, 1999 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1999.
The Company's consolidated balance sheet as of March 31, 1999, the consolidated
statements of operations for the three months ended March 31, 1999 and 1998, and
the consolidated statements of cash flows for the three months ended March 31,
1999 and 1998 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.
The Company has also restated its previously issued financial statements as of
and for the three months ended March 31, 1998 to reflect the acquisitions of the
Murrey Companies, Ritter, and Roche (Note 3) consummated during the three months
ended March 31, 1999 and all accounted for using the pooling-of -interests
method of accounting.
2. LONG-TERM DEBT
On March 30, 1999, the Company entered into a new revolving credit facility with
a syndicate of banks for which BankBoston N.A. acts as agent (the "Credit
Facility"). The maximum amount available under the Credit Facility is $225,000
(including stand-by letters of credit) and the borrowings bear interest at
various fixed and/or variable rates at the Company's option (approximately 6.8%
as of March 31, 1999). The Credit Facility replaced an existing revolving credit
facility. The Credit Facility allows for the Company to issue up to $20,000 in
stand-by letters of credit. The Credit Facility requires quarterly payments of
interest and it matures in March 2004. Borrowings under the Credit Facility are
secured by virtually all of the Company's assets. The Credit Facility requires
the Company to pay an annual commitment fee equal to 0.375% of the unused
portion of the Credit Facility. The Credit Facility places certain business,
financial and operating restrictions on the Company relating to, among other
things, the incurrance of additional indebtedness, investments, acquisitions,
asset sales, mergers, dividends, distributions and repurchases and redemption of
capital stock. The Credit Facility also requires that specified financial ratios
and balances be maintained.
3. ACQUISITIONS
For the three months ended March 31, 1999, the Company acquired 13 solid waste
collection businesses that were accounted for using the purchase method of
accounting. The aggregate consideration for these acquisitions was approximately
$73,239 consisting of $73,137 in cash, $93 in seller notes, and $9 in stock.
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WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
The purchase prices have been allocated to the identified intangible assets and
tangible assets acquired based on fair values at the dates of acquisition, with
any residual amounts allocated to goodwill.
During the three months ended March 31, 1999, the Company merged with Roche and
Sons Inc. ("Roche"), Murrey's Disposal Company, Inc., D.M. Disposal Co., Inc.,
American Disposal Company, Inc., and Tacoma Recycling, Inc. (collectively, the
"Murrey Companies"), and Ritter's Sanitary Service, Inc. ("Ritter"). These
transactions were accounted for as poolings-of-interests, whereby the Company
issued an aggregate of 3,443,128 shares of its common stock for all of the
outstanding shares of Roche, the Murrey Companies and Ritter. In connection with
the mergers, the Company incurred transaction-related costs of approximately
$7,800, which were charged to operations in the first quarter of 1999.
The following pro forma information shows the results of the Company's
operations as though the significant acquisitions that occurred during the three
months ended March 31, 1999, had occurred as of January 1, 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Revenue $ 20,234 $ 33,705
Net income (loss) 296 (3,989)
Pro forma basic income (loss) per share of common stock $ 0.05 $ (0.26)
Pro forma diluted income (loss) per share of common stock $ 0.03 $ (0.26)
Basic common shares outstanding 5,754,239 5,472,768
Dilutive common shares outstanding 10,121,256 5,472,768
</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 taken place as of January 1, 1998, or the results of future
operations of the Company. 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. STOCKHOLDERS' EQUITY
Effective February 9, 1999, the Company sold approximately 4,000,000 shares of
its common stock at $17.50 per share. As a result of the offering, the Company
received approximately $65,300 in net proceeds and used the proceeds to pay
down approximately $50,200 of its then outstanding debt.
5. EARNINGS PER SHARE CALCULATION
The following table sets forth the numerator and denominator used in the
computation of earnings per common share:
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WASTE CONNECTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1998 1999
------------ ------------
<S> <C> <C>
Numerator:
Net income (loss) $ 352 $ (4,362)
Redeemable convertible preferred stock accretion (572) --
------------ ------------
Net loss applicable to common stockholders $ (220) $ (4,362)
============ ============
Denominator:
Basic shares outstanding 5,754,239 15,472,768
============ ============
</TABLE>
For the three months ended March 31, 1999, outstanding options to purchase
1,439,447 shares of common stock (with exercise prices ranging from $2.80 to
$23.88) and outstanding warrants to purchase 1,291,135 shares of common stock
(with exercise prices ranging from $2.80 to $22.13) could potentially dilute
basic earnings per share in the future and have not been included in the
computation of diluted net loss per share because to do so would have been
antidilutive for the periods presented.
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WASTE CONNECTIONS, INC.
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 statements included 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," are
forward-looking statements (within the meaning of Section 27A of the Securities
Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange
Act of 1934) that involve risks and uncertainties. Factors set forth under the
caption "Risk Factors" in the Company's Registration Statement could affect the
Company's actual results and could cause the Company's actual results to differ
materially from those expressed in any forward-looking statements made by, or on
behalf of, the Company in this Quarterly Report on Form 10-Q.
OVERVIEW
Waste Connections, Inc. is a regional, integrated solid waste services company
that provides solid waste collection, transfer, disposal and recycling services
in secondary markets of the Western U.S. As of March 31, 1999, the Company
served more than 330,000 commercial, industrial and residential customers in
California, Idaho, Kansas, Minnesota, Nebraska, Oklahoma, Oregon, South Dakota,
Utah, Washington, and Wyoming. The Company currently owns 33 collection
operations and operates or owns 18 transfer stations, five Subtitle D landfills
and 10 recycling facilities.
The Company generally intends to pursue an acquisition-based growth strategy and
as of March 31, 1999 had acquired 63 businesses since its inception in September
1997. The results of operations of these acquired businesses have been included
in the Company's financial statements only from the respective dates of
acquisition, except three acquisitions accounted for under the
pooling-of-interests method of accounting, which are included for all periods
presented. The Company anticipates that a substantial part of its future growth
will come from acquiring additional solid waste collection, transfer and
disposal businesses and, therefore, it is expected that additional acquisitions
could continue to affect period-to-period comparisons of the Company's operating
results.
GENERAL
Our revenues consist mainly of fees we charge customers for solid waste
collection, transfer, disposal and recycling services. A large part of our
collection revenues come from providing commercial, industrial and residential
services. We frequently perform these services under service agreements or
franchise agreements with counties or municipal contracts. County franchise
agreements and municipal contracts generally last from one to ten years. Our
existing franchise agreements and all of our existing municipal contracts give
Waste Connections 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 70% of our revenues
for the three months ended March 31, 1999 were derived from services provided
under exclusive franchise agreements, long term municipal contracts and
governmental certificates. Governmental certificates grant Waste Connections
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 Waste Connections. Our collection business also generates
revenues from the sale of recyclable commodities.
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, the disposal
facilities we operate in Madera, California and Clarkson, Nebraska and the
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landfills we own and operate in Major County, Oklahoma, Butler County, Nebraska
and Morrow County, Oregon. Most of our transfer and landfill customers have
entered into one to ten year disposal contracts with us, most of which provide
for annual cost of living increases.
We typically determine the prices for our solid waste services by the collection
frequency and level of service, route density, volume, weight and type of waste
collected, type of equipment and containers furnished, the distance to the
disposal or processing facility, the cost of disposal or processing, and prices
charged by competitors for similar services. The terms of our contracts
sometimes limit our ability to pass on price increases. Long-term solid waste
collection contracts typically contain a formula, generally based on a published
price index that automatically adjusts fees to cover increases in some, but not
all, operating costs.
Costs of operations include labor, fuel, equipment maintenance and tipping fees
paid to third party disposal facilities, worker's compensation and vehicle
insurance, the cost of materials we purchase for recycling, third party
transportation expense, district and state taxes and host community fees and
royalties. Waste Connections owns and/or operates 18 transfer stations, which
reduce our costs by allowing us to use collection personnel and equipment more
efficiently and by consolidating waste to gain more favorable disposal rates
that may be available for larger quantities of waste.
Selling, general and administrative ("SG&A") expenses include management,
clerical and administrative compensation overhead costs associated with our
marketing and sales force, professional services and community relations
expense.
Depreciation and amortization expense includes depreciation of fixed assets over
their estimated useful lives using the straight-line method and amortization of
goodwill and other intangible assets using the straight-line method.
Waste Connections capitalizes some third-party expenditures related to pending
acquisitions or development projects, such as legal and engineering expenses. We
expense indirect acquisition costs, such as executive and corporate overhead,
public relations and other corporate services, as we incur them. We charge
against net income any unamortized capitalized expenditures and advances (net of
any portion that we believe we may recover, through sale or otherwise) that
relate to any operation that is permanently shut down and any pending
acquisition or landfill development project that is not completed. We routinely
evaluate all capitalized costs, and expense those related to projects that we
believe are not likely to succeed. As of March 31, 1999, Waste Connections had
no capitalized expenditures relating to landfill development projects and
$26,973 in capitalized expenditures relating to pending acquisitions.
We accrue for estimated landfill closure and post-closure maintenance costs at
the Red Carpet Landfill we own in Major County, Oklahoma, the Butler County
Landfill we own in Butler County, Nebraska, and the Finley-Buttes Regional
Landfill we own in Morrow County, Oregon. Under applicable regulations, Waste
Connections and Madera County, as operator and owner, respectively, are jointly
liable for closure and post-closure liabilities with respect to the Fairmead
Landfill. We have not accrued for such liabilities because Madera County, as
required by state law, has established a special fund into which it deposits a
portion of tipping fee surcharges to pay such liabilities. Consequently, we do
not believe that Madera had any financial obligation for closure and
post-closure costs for the Fairmead Landfill as of March 31,1999. We will have
additional material financial obligations relating to closure and post-closure
costs of any disposal facilities we may own or operate in the future. In such
case, Waste Connections will accrue for those obligations, based on engineering
estimates of consumption of permitted landfill airspace over the useful life of
any such landfill.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1999
The following table sets forth items in Waste Connections' consolidated
statement of operations as a percentage of revenues for the periods indicated.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
1998 1999
----- -----
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of operations 73.5 65.1
Selling, general and
administrative expenses 9.9 8.8
Depreciation and
amortization expense 7.1 7.5
Stock compensation 1.9 0.2
Acquisition related expenses -- 25.3
----- -----
Operating income (loss) 7.6 (6.9)
Interest expense, net (2.9) (3.0)
Other income (expense), net (0.2) 0.1
Income tax benefit (expense ) (2.4) (4.3)
----- -----
Net income (loss) 2.1% (14.1)
===== =====
EBITDA margin(1) 16.6% 26.1%
===== =====
</TABLE>
(1) EBITDA margin represents EBITDA expressed as a percentage of revenues.
EBITDA represents earnings presented above before interest, income taxes,
depreciation and amortization expense, acquisition related expenses, and stock
compensation expense. EBITDA is not a measure of cash flow, operating results or
liquidity, as determined in accordance with generally accepted accounting
principles.
Revenues. Total revenues increased $14.4 million, or 87.4%, to $30.9 million for
the three months ended March 31, 1999 from $16.5 million for the three months
ended March 31, 1998. The increase was primarily attributable to the inclusion
of the acquisitions closed in the last nine months of 1998 with a nominal
contribution from growth in the existing businesses.
Cost of Operations. Total cost of operations increased $8.0 million, or 66.1%,
to $20.1 million for the three months ended March 31, 1999 from $12.1 million
for the three months ended March 31, 1998. The increase was primarily
attributable to tuck-in acquisitions closed since the beginning of 1998, offset
by economies of scale from the greater revenue base, greater integration of
collection volumes into Company owned or operated landfills and selective price
increases.
SG&A. SG&A expenses increased $1.1 million, or 66.4%, to $2.7 million for the
three months ended March 31, 1999 from $1.6 million for the three months ended
March 31, 1998. Our SG&A increased as a result of additional personnel from
companies acquired and some additional corporate overhead to accommodate our
growth. SG&A as a percentage of revenues declined 1.1% to 8.8% for the three
months ended March 31, 1999 from 9.9% for the three months ended March 31, 1998.
The decline in SG&A as a percentage of revenues was a result of spreading of
overhead expenses over a larger base of revenue from the acquisitions completed
in the course of 1998, offset by increases in corporate overhead and the costs
associated with being a public company.
Depreciation and Amortization. Depreciation and amortization expense increased
$1.2 million, or 98.9%, to $2.3 million for the three months ended March 31,
1999 from $1.2 million for the three months ended March 31, 1998. The increase
resulted primarily from the acquisitions and the inclusion of their depreciation
and amortization as well as the amortization of goodwill associated with such
acquisitions. Depreciation and amortization as a percentage of revenues
increased 0.4% to 7.5% for the three months ended March 31, 1999 from 7.1% for
the three months ended March 31, 1998. The increase in depreciation and
amortization as a percentage of revenues was primarily a result of amortization
of goodwill associated with acquisitions and a higher proportion of landfill
revenues, which have associated higher depreciation and amortization costs.
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associated higher depreciation and amortization costs.
Stock Compensation Expense. Stock compensation expense decreased $250,000, or
78.1%, to $70,000 for the three months ended March 31, 1999 from $320,000 for
the three months ended March 31, 1998. Our stock compensation expense in 1998
was attributable to the valuation of common stock options and warrants with
exercise prices less than the estimated fair value of our common stock on the
date of the grant. Stock compensation as a percentage of revenues decreased 1.7%
to 0.2% for the three months ended March 31, 1999 from 1.9% for the three months
ended March 31, 1999. Our stock compensation expense in 1999 consists of
continued amortization of deferred stock compensation recorded in 1998.
Acquisition Related Expenses. Acquisition related expenses increased $7.8
million for the three months ended March 31, 1999 from zero for the three months
ended March 31, 1998. The largest part of the acquisition related expenses were
related to the Murreys Companies ($6.4 million) and were for signing bonuses
paid to key employees based renegotiation of prior employment agreements with
these employees, professional fees, and other direct costs resulting directly
from the merger. We closed two other acquisitions during the quarter that were
accounted for using poolings-of-interests method. The remainder of the
acquisition related expenses are for transaction expenses associated with these
other transactions, including legal, accounting and commission costs.
Operating Income. Operating income decreased $3.4 million from income of $1.2
million for the three months ended March 31, 1998 to a loss of $2.1 million for
the three months ended March 31, 1999. The decrease was attributable to the
acquisition related expenses, without which operating income would have
increased to $5.7 million, an increase of 354.0%. The increase before
acquisition related expenses is attributable to the improvement in gross margins
coupled with declines in SG&A expenses as a percent of revenue, offset by
increases in depreciation and amortization as a percentage of revenue.
Interest Expense. Interest expense increased $459,000, or 96.4%, to $935,000 for
the three months ended March 31, 1999 from $476,000 for the three months ended
March 31, 1998. The increase was primarily attributable to higher debt levels
incurred to fund certain of our acquisitions.
Provision for Income Taxes. Income taxes increased $933,000 to $1.3 million for
the three months ended March 31, 1999 from $392,000 for the three months ended
March 31, 1998. The effective income tax rate for the three months ended March
31, 1999, before acquisition related and stock compensation expenses was 39.4%,
which is above the federal statutory of 34.0% rate as the result of state and
local taxes and non-deductible goodwill associated with certain acquisitions.
Net Income (loss). Net income (loss) decreased by $4.7 million to a loss of $4.4
million for the three months ended March 31, 1999, from net income of $352,000
for the three months ended March 31, 1998. The decline was attributable to the
acquisition related expenses, without which net income would have increased $2.5
million to $2.9 million for the three months ended March 31, 1999 from $352,000
for the three months ended March 31, 1998. The increase before acquisition
related expenses is attributable to the increased gross margins as a percent of
sales, a decline in the SG&A expenses offset by higher D&A and interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had a working capital deficit of $2.2 million,
including cash and cash equivalents of $3.4 million. The Company's strategy in
managing its working capital is generally to apply the cash generated from its
operations that remains available after satisfying its working capital and
capital expenditure requirements to reduce its indebtedness under its bank
revolving credit facility and to minimize its cash balances.
The Company has a $225 million revolving credit facility with a syndicate of
banks for which BankBoston, N.A. acts as agent, which is secured by virtually
all assets of the Company, including the Company's interest in the equity
securities of its subsidiaries. The credit facility matures in 2004 and bears
interest at a rate per annum equal to, at the Company's discretion, either: (i)
the BankBoston Base Rate; or (ii) the Eurodollar Rate plus applicable margin.
The credit facility requires the Company to maintain certain financial ratios
and satisfy other predetermined requirements, such as minimum net worth, net
income and limits on capital expenditures. It also requires the
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lenders' approval of acquisitions in certain circumstances. As of March 31,
1999, an aggregate of approximately $100.8 million was outstanding under the
Company's credit facility, and the interest rate on outstanding borrowings under
the credit facility was approximately 6.8%.
For the three months ended March 31, 1999, net cash provided by operations was
approximately $1.0 million, of which $5.2 million was provided by operating
results for the period exclusive of acquisition related and non-cash stock
compensation expenses. Acquisition related expenses were $7.2 million, net of
income taxes. $2.4 million of net cash provided by operations was provided by a
decrease in working capital (net of acquisitions) for the period.
For the three months ended March 31, 1999, net cash used by investing activities
was $74.9 million. Of this, $73.1 million was used to fund the cash portion of
acquisitions. The remaining cash uses were investments in fixed assets,
primarily trucks, containers and other equipment.
For the three months ended March 31, 1999, net cash provided by financing
activities was $74.1 million, which was provided by net borrowings under the
Company's various debt arrangements and $65.0 million in proceeds from the sale
of 3,999,307 shares of common stock in a secondary public offering.
Capital expenditures relating to existing businesses for 1999 are currently
expected to be approximately $6.0 million. The Company intends to fund its
remaining planned 1999 capital expenditures principally through internally
generated funds, and borrowings under its existing credit facility. The Company
intends to fund its future acquisitions and capital requirements through
additional borrowings under its credit facility and funds raised from sale of
the Company's common stock. The Company believes that the credit facility, and
the funds expected to be generated from operations, will provide adequate cash
to fund the Company's working capital and other cash needs for the foreseeable
future.
YEAR 2000 ISSUES
We will need to modify or replace portions of our software so that our computer
systems will function properly with respect to dates in the year 2000 ("Year
2000") and afterwards. We expect to complete those modifications and upgrades
during 1999 at a total cost of approximately $100,000. Additional acquisitions,
depending on the size of the operation, could increase the budget required for
Year 2000 modifications. We spent part of our Year 2000 budget on replacing our
billing systems in Vancouver, Washington, Idaho Falls and Mountain Home, Idaho,
Orem and Layton, Utah and Madera and Amador, California. Because our operations
rely primarily on mechanical systems such as trucks to collect solid waste, we
do not expect our operations to be significantly affected by Year 2000 issues.
Our customers may need to make Year 2000 modifications to software and hardware
that they use to generate records, bills and payments relating to Waste
Connections. We do not rely on vendors on a routine basis except for providers
of disposal services. We take waste to a site and are normally billed based on
tonnage disposed. We believe that if our disposal vendors encounter Year 2000
problems, they will convert to manual billing based on scale recordings until
they resolve those issues.
In assessing our exposure to Year 2000 issues, we believe our biggest challenges
lie in the following areas: Year 2000 issues at our banks, large (typically
municipal) customers and acquired businesses between the time we acquire them
and the time we implement our own systems. We are obtaining Year 2000 compliance
certifications from our vendors, banks and customers. If Waste Connections and
our vendors, banks and customers do not complete required Year 2000
modifications on time, the Year 2000 issue could materially affect our
operations. We believe, however, that in the most reasonably likely worst case,
the effects of Year 2000 issues on our operations would be brief and small
relative to our overall operations. We have not made a contingency plan to
minimize operational problems if Waste Connections and our vendors, banks and
customers do not timely complete all required Year 2000 modifications.
13
<PAGE> 14
WASTE CONNECTIONS, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is 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.
ITEM 2. CHANGES IN SECURITIES
Sales of Unregistered Securities
On March 31, 1999, the Company issued 196,064 shares of Common Stock to the
shareholders of Ritter's Sanitary Service, Inc. ("Ritter") at a price of $21.00
per share in connection with the merger of a wholly owned subsidiary of the
Company into Ritter. The transaction was accounted for under the
pooling-of-interests method. Such shares were issued pursuant to Regulation D
under the Securities Act.
On March 31, 1999, the Company issued 500 shares of Common Stock to a
shareholder of Jack Fleming Sanitary Service ("Fleming"), at a price of $23.875
per share, in connection with the Company's acquisition of the assets of
Fleming. Such shares were issued pursuant to Regulation D under the Securities
Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 19, 1999, the Company held a Special Meeting of Stockholders to
approve (i) the issuance of shares of the Company's common stock in connection
with the merger with the Murreys Companies (the "Merger Proposal") and (ii) the
amendment of the Company's 1997 Stock Option Plan to increase the number of
shares reserved for issuance under the Plan to 12% of the shares of the
Company's common stock outstanding at any given time (the "Option Plan
Proposal"). The Merger Proposal was approved by the affirmative vote of
6,525,281 shares, with no shares voting against and no shares abstaining. The
Option Plan Proposal was approved by the affirmative vote of 6,411,338 shares,
with 113,943 shares voting against and no shares abstaining.
14
<PAGE> 15
WASTE CONNECTIONS, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule
(b) Reports on Form 8-K:
On January 5, 1999, the Company filed a report on Form 8-K describing a
correction related to a printer's error to the Post-Effective Amendment No. 2 of
its Registration Statement on Form S-4 that was also filed on January 5, 1999.
On January 13, 1999, the Company filed a report on Form 8-K describing its
acquisition of the stock of Butler County Landfill, Inc. ("Butler County
Landfill"), and substantially all of the business assets of Kobus Construction,
Inc. ("Kobus"). Butler County Landfill is a Nebraska corporation that provides
solid waste disposal services to approximately 300 customers in eastern
Nebraska. Kobus is a Nebraska corporation that provides solid waste
transportation services in eastern Nebraska.
On February 1, 1999, the Company filed a report on Form 8-K describing the
consummation on January 19, 1999 of its merger with four companies: Murrey's
Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co., Inc.
and Tacoma Recycling Company, Inc., (collectively, the "Murrey Companies"). The
Murrey companies are Washington corporations that provide solid waste
collection, transportation and recycling services to more than 65,000 customers
in the Seattle-Tacoma, Washington area. Certain financial statements of the
Murrey Companies and certain proforma financial data were not then available and
therefore were not included. The Company filed an amended report on Form 8-KA on
April 5, 1999, to include the required updated financial statements and proforma
financial information relating to the Murrey Companies.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Amendment No. 1 to its report to be signed on
its behalf by the undersigned thereto duly authorized.
WASTE CONNECTIONS, INC.
BY: /s/ Ronald J. Mittelstaedt Date: June 14, 1999
-------------------------------------
Ronald J. Mittelstaedt, President and
Chief Executive Officer
BY: /s/ Steven F. Bouck Date: June 14, 1999
-------------------------------------
Steven F. Bouck, Vice President and
Chief Financial Officer
15
<PAGE> 16
WASTE CONNECTIONS, INC. AND PREDECESSORS
FORM 10-Q/A
INDEX TO EXHIBITS
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This exhibit contains summary financial information extracted from the March 31,
1999, Condensed Consolidated Balance Sheet and Condensed Consolidated Statement
of Operations for the three-month period ended March 31, 1999, and is qualified
in its entirety by reference to such financial statements and the footnotes
thereto.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 3,361
<SECURITIES> 0
<RECEIVABLES> 15,484
<ALLOWANCES> 766
<INVENTORY> 0
<CURRENT-ASSETS> 20,474
<PP&E> 137,233
<DEPRECIATION> 5,647
<TOTAL-ASSETS> 265,601
<CURRENT-LIABILITIES> 25,561
<BONDS> 103,525
0
0
<COMMON> 171
<OTHER-SE> 131,421
<TOTAL-LIABILITY-AND-EQUITY> 265,601
<SALES> 0
<TOTAL-REVENUES> 30,883
<CGS> 0
<TOTAL-COSTS> 33,022
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 935
<INCOME-PRETAX> (3,307)
<INCOME-TAX> 1,325
<INCOME-CONTINUING> (4,362)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,362)
<EPS-BASIC> (.28)
<EPS-DILUTED> (.25)
</TABLE>
