<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 12, 2000
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-23981
(Commission File Number)
94-3283464
(IRS Employer Identification No.)
620 Coolidge Drive, Suite 350, Folsom, California 95630
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (916) 608-8200
Not Applicable
(Former name or former address, if changed since last report.)
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
On January 12, 2000, Waste Connections, Inc. ("WCI") acquired the stock of
Waste Wranglers, Inc. ("WWI"). The merger was accounted for as
poolings-of-interests. WCI hereby amends its historical audited financial
statements for each of the three years in the period ended December 31, 1999,
to include the financial information of WWI. The amended financial
statements are included under Item 7 hereof.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following exhibits are filed herewith:
Exhibit Number Description
-------------- -----------
ex-23.1 Consent of Ernst & Young LLP,
Independent Auditors
ex-99.1 Schedule II
INDEX TO FINANCIAL STATEMENTS
WASTE CONNECTIONS, INC. AND PREDECESSORS
Report of Ernst & Young LLP, Independent Auditors ................. F-2
Consolidated Balance Sheets of Waste Connections, Inc. as
of December 31, 1998 and 1999 ................................ F-3
Combined Statement of Operations of Predecessors for the
nine months ended September 30, 1997 ......................... F-4
Consolidated Statements of Operations of Waste
Connections, Inc. for the years ended
December 31, 1997, 1998 and 1999 ............................. F-4
Consolidated Statements of Redeemable Stock and
Stockholders' Equity of Waste Connections,
Inc. for the years ended December 31, 1997, 1998
and 1999 ..................................................... F-5
Combined Statement of Cash Flows of Predecessors for the
nine months ended September 30, 1997 ........................ F-7
Consolidated Statements of Cash Flows of Waste
Connections, Inc. for the years ended
December 31, 1997, 1998 and 1999 ............................. F-7
Notes to Consolidated Financial Statements ........................ F-9
F-1
<PAGE> 2
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Waste Connections, Inc.
We have audited the accompanying consolidated balance sheets of Waste
Connections, Inc., as of December 31, 1998 and 1999, the related consolidated
statements of operations, redeemable stock and stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999, and the
combined statements of operations and cash flows of Predecessors for the nine
months ended September 30, 1997. Our audits also included the financial
statement schedule in Exhibit 99.1. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Waste Connections,
Inc. and Predecessors at December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Sacramento, California
February 9, 2000,
except for the first,
second, and third
paragraphs of note 18,
as to which the dates
are June 27, 2000,
May 16, 2000 and
April 17, 2000,
respectively
F-2
<PAGE> 3
WASTE CONNECTIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 3,351 $ 2,393
Accounts receivable, less allowance for doubtful
accounts of $819 and $1,460 at December 31, 1998
and 1999, respectively 14,964 28,600
Prepaid expenses and other current assets 2,364 3,529
--------- ---------
Total current assets 20,679 34,522
Property and equipment, net 51,422 335,260
Intangible assets, net 101,849 237,402
Other assets, net 2,709 10,774
--------- ---------
$ 176,659 $ 617,958
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 8,895 $ 20,282
Accrued liabilities 5,828 15,648
Deferred revenue 3,174 5,342
Short-term borrowings 1,500 -
Current portion of long-term debt and notes payable 12,120 3,044
Other current liabilities 3,329 355
--------- ---------
Total current liabilities 34,846 44,671
Long-term debt and notes payable 68,274 275,145
Other long-term liabilities 4,396 5,201
Deferred income taxes 2,306 74,420
--------- ---------
Total liabilities 109,822 399,437
--------- ---------
Commitments and contingencies (Notes 8 and 10)
Stockholders' equity:
Preferred stock: $0.01 par value; 10,000,000 shares
authorized; none issued and outstanding - -
Common stock: $0.01 par value; 50,000,000 shares
authorized; 13,387,808 and 21,209,665 shares
issued and outstanding at December 31, 1998
and 1999, respectively 134 212
Additional paid-in capital 66,585 209,157
Deferred stock compensation (428) (163)
Retained earnings 546 9,315
--------- ---------
Total stockholders' equity 66,837 218,521
--------- ---------
$ 176,659 $ 617,958
========= =========
</TABLE>
See accompanying notes.
F-3
<PAGE> 4
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED
NINE MONTHS
ENDED WASTE CONNECTIONS, INC. CONSOLIDATED
SEPTEMBER 30, ----------------------------------------------------
1997 (NOTE 1) 1997 1998 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 18,114 $ 47,510 $ 99,624 $ 184,225
Operating expenses:
Cost of operations 14,753 36,213 71,635 112,686
Selling, general and administrative 3,009 5,088 9,967 15,754
Depreciation and amortization 1,083 3,180 8,008 14,769
Start-up and integration - 493 - -
Stock compensation - 4,395 632 265
Acquisition related expenses - - - 9,003
------------ ------------ ------------ ------------
Income (loss) from operations (731) (1,859) 9,382 31,748
Interest expense (456) (1,957) (3,458) (11,531)
Other income (expense), net 14 449 410 (66)
------------ ------------ ------------ ------------
Income (loss) before income tax provision (1,173) (3,367) 6,334 20,151
Income tax provision - (332) (3,040) (10,924)
============ ============ ============ ============
Income (loss) before extraordinary item (1,173) (3,699) 3,294 9,227
Extraordinary item - early extinguishment of
debt, net of tax benefit of $264 - - (1,027) -
------------ ------------ ------------ ------------
Net income (loss) $ (1,173) $ (3,699) $ 2,267 $ 9,227
============ ============ ============ ============
Redeemable convertible preferred stock accretion - (531) (917) -
------------ ------------ ------------ ------------
Net income (loss) applicable to common
stockholders $ (1,173) $ (4,230) $ 1,350 $ 9,227
============ ============ ============ ============
Basic income (loss) per common share:
Income (loss) before extraordinary item $ (0.73) $ 0.23 $ 0.49
Extraordinary item - (0.10) -
------------ ------------ ------------
Net income (loss) per common share $ (0.73) $ 0.13 $ 0.49
============ ============ ============
Diluted income (loss) per common share:
Income (loss) before extraordinary item $ (0.73) $ 0.19 $ 0.46
Extraordinary item - (0.08) -
------------ ------------ ------------
Net income (loss) per common share $ (0.73) $ 0.11 $ 0.46
============ ============ ============
Shares used in calculating basic income (loss) per share 5,807,592 10,412,868 18,655,801
------------ ------------ ------------
Shares used in calculating diluted income (loss) per share 5,807,592 12,323,990 19,929,539
============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 5
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Stockholders' Equity
REDEEMABLE -------------------------
CONVERTIBLE REDEEMABLE
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------------- -------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
----------- ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1996 - $ - - $ - 3,849,260 $ 38
Sale of redeemable
convertible preferred stock 2,499,998 6,992 - - - -
Sale of common stock - - - - 2,300,000 23
Shares issued for WWI at inception - - - - 103,315 1
Issuance of common
stock warrants - - - - - -
Issuance of stockholder
notes receivable - - - - - -
Accretion of redeemable
convertible preferred stock - 531 - - - -
Capital distributions and dividends paid - - - - - -
Net loss - - - - - -
----------- ----------- ----------- ----------- ----------- ----------
Balance at December 31, 1997 2,499,998 7,523 - - 6,252,575 62
Issuance of redeemable
common stock - - 1,000,000 7,500 - -
Issuance of common
stock warrants - - - - - -
Common stock sold in connection
with initial public offering - - - - 2,300,000 23
Issuance of common stock - - - - 1,054,634 11
Accretion of redeemable
convertible preferred stock - 917 - - - -
Preferred stock dividend - (161) - - - -
Conversion of redeemable
preferred stock (2,499,998) (8,279) - - 2,499,998 25
Conversion of redeemable
common stock - - (1,000,000) (7,500) 1,000,000 10
Deferred stock compensation
associated with stock options - - - - - -
Amortization of deferred
stock compensation - - - - - -
Exercise of stock options and warrants - - - - 280,601 3
Payment of stockholder notes - - - - - -
Capital distributions and dividends paid - - - - - -
Net income - - - - - -
----------- ----------- ----------- ----------- ----------- ----------
Balances at December 31, 1998 - - - - 13,387,808 134
Issuance of common
stock warrants - - - - - -
Issuance of common stock - - - - 7,011,269 70
Amortization of deferred
stock compensation - - - - - -
Exercise of stock options and warrants - - - - 810,588 8
Dividends paid - - - - - -
Net income - - - - - -
----------- ----------- ----------- ----------- ----------- ----------
Balances at December 31, 1999 - $ - - $ - 21,209,665 $ 212
=========== =========== =========== =========== =========== ==========
</TABLE>
F-5
<PAGE> 6
<TABLE>
<CAPTION>
Stockholders' Equity
------------------------------------------------------------------------
RETAINED
ADDITIONAL STOCKHOLDER DEFERRED EARNINGS/
PAID-IN NOTES STOCK (ACCUMULATED
CAPITAL RECEIVABLE COMPENSATION DEFICIT) TOTAL
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1996 $ 583 $ - $ - $ 4,176 $ 4,797
Sale of redeemable
convertible preferred stock
Sale of common stock 4,395 - - - 4,418
Shares issued for WWI at inception 9 - - - 10
Issuance of common
stock warrants 710 - - - 710
Issuance of stockholder
notes receivable - (83) - - (83)
Accretion of redeemable
convertible preferred stock - - - (531) (531)
Capital distributions and dividends paid (93) - - (193) (286)
Net loss - - - (3,699) (3,699)
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 5,604 (83) - (247) 5,336
Issuance of redeemable
common stock - - - - -
Issuance of common
stock warrants 2,388 - - - 2,388
Common stock sold in connection
with initial public offering 23,963 - - - 23,986
Issuance of common stock 17,782 - - - 17,793
Accretion of redeemable
convertible preferred stock - - - (917) (917)
Preferred stock dividend - - - - -
Conversion of redeemable
preferred stock 8,254 - - - 8,279
Conversion of redeemable
common stock 7,490 - - - 7,500
Deferred stock compensation
associated with stock options 821 - (821) - -
Amortization of deferred
stock compensation - - 393 - 393
Exercise of stock options and warrants 359 - - - 362
Payment of stockholder notes - 83 - - 83
Capital distributions and dividends paid (76) - - (557) (633)
Net income - - - 2,267 2,267
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1998 66,585 - (428) 546 66,837
Issuance of common
stock warrants 572 - - - 572
Issuance of common stock 140,514 - - - 140,584
Amortization of deferred
stock compensation - - 265 - 265
Exercise of stock options and warrants 1,486 - - - 1,494
Dividends paid - - - (458) (458)
Net income - - - 9,227 9,227
----------- ----------- ----------- ----------- -----------
Balances at December 31, 1999 $ 209,157 $ - $ (163) $ 9,315 $ 218,521
=========== ========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 7
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED
NINE MONTHS WASTE CONNECTIONS, INC.
ENDED CONSOLIDATED
SEPTEMBER 30, -----------------------------------------
1997 (NOTE 1) 1997 1998 1999
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,173) $ (3,699) $ 2,267 $ 9,227
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Loss (gain) on disposition of assets (4) (93) (302) 155
Depreciation 789 3,018 6,338 10,545
Amortization 294 162 1,670 4,223
Deferred income taxes - (429) 1,362 2,222
Amortization of debt issuance costs, debt guarantee
fees and accretion of discount on long-term debt - 860 192 256
Stock and non-cash acquisition related compensation - 4,395 632 1,448
Extraordinary item - early extinguishment of debt - - 1,291 -
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable, net (604) (1,599) (2,555) (5,203)
Prepaid expenses and other current assets (74) (50) (1,431) (1,256)
Accounts payable (221) 3,436 (771) (955)
Deferred revenue (137) 325 1,067 1,895
Accrued liabilities (450) 953 507 2,301
Other liabilities - 18 623 (2,885)
--------- --------- --------- ---------
Net cash provided (used) by operating activities (1,580) 7,297 10,890 21,973
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 188 2 1,331 990
Payments for acquisitions, net of cash acquired - (14,393) (56,569) (233,745)
Capital expenditures for property and equipment (735) (4,382) (10,065) (18,739)
Increase in restricted cash - - (1,381) (3,731)
Decrease (increase) change in other assets 22 (527) 1,118 (1,052)
Issuance (repayment) of stockholder notes receivable - (83) 83 -
--------- --------- --------- ---------
Net cash used in investing activities (525) (19,383) (65,483) (256,277)
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net intercompany balance 2,142 - - -
Proceeds from short-term borrowings - 600 - -
Proceeds from long-term debt - 10,679 80,405 275,101
Principal payments on notes payable and long-term debt (38) (4,729) (46,344) (103,646)
Proceeds from sale of common stock - 33 23,986 65,118
Proceeds from option and warrant exercises - 6,992 362 1,494
Change in short-term borrowings - 19 (128) (1,500)
Change in advances from a related party - (322) (41) (571)
Payment of capital distributions and dividends - (287) (794) (458)
Proceeds from long-term lease - 375 - -
Principal payments on long-term lease - (255) - -
Debt issuance costs - (150) (854) (2,192)
--------- --------- --------- ---------
Net cash provided by financing activities 2,104 12,955 56,592 233,346
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1) 869 1,999 (958)
Cash and equivalents at beginning of period 102 483 1,352 3,351
--------- --------- --------- ---------
Cash and equivalents at end of period $ 101 $ 1,352 $ 3,351 $ 2,393
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-7
<PAGE> 8
WASTE CONNECTIONS, INC. AND PREDECESSORS
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREDECESSORS
COMBINED
NINE MONTHS WASTE CONNECTIONS, INC.
ENDED CONSOLIDATED
SEPTEMBER 30, ------------------------------------
1997 (NOTE 1) 1997 1998 1999
------------- --------- --------- ---------
<S> <C> <C> <C> <C>
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION AND NON-CASH TRANSACTIONS:
Cash paid for income taxes $ - $ 861 $ 1,178 $ 2,636
-------------- --------- --------- ---------
Cash paid for interest $ - $ 998 $ 2,705 $ 10,117
-------------- --------- --------- ---------
Redeemable convertible preferred stock accretion $ 531 $ 917 $ -
--------- --------- ---------
Issuance of notes payable for land and buildings $ 315 $ - $ -
--------- --------- ---------
In connection with its acquisitions, the Company
assumed liabilities as follows:
Fair value of assets acquired $ 20,140 $ 120,507 $ 426,702
Cash paid for acquisitions (including acquisition costs) (11,693) (56,341) (233,745)
--------- --------- ---------
Liabilities assumed, stock and notes payable issued
to sellers $ 8,447 $ 64,166 $ 192,957
--------- --------- ---------
</TABLE>
See accompanying notes.
F-8
<PAGE> 9
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Waste Connections, Inc. ("WCI" or "the Company") was incorporated in Delaware on
September 9, 1997 and commenced its operations on October 1, 1997 through the
purchase of certain solid waste operations in Washington, as more fully
described below and in Note 2. The Company is a regional, integrated,
non-hazardous solid waste services company that provides collection, transfer,
disposal and recycling services to commercial, industrial and residential
customers in California, Colorado, Idaho, Iowa, Kansas, Minnesota, Nebraska, New
Mexico, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington and Wyoming.
Basis of Presentation
These consolidated financial statements include the accounts of WCI and its
wholly-owned subsidiaries. The consolidated entity is referred to herein as the
Company. All intercompany accounts and transactions have been eliminated in
consolidation.
The Company's consolidated financial statements have been restated to reflect
the mergers with 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"), Roche & Sons,
Inc. ("Roche"), Ritters Sanitary Service, Inc. ("Ritters"), Omega Systems, Inc.
("Omega"), G&P Development, Inc., The Garbage Company, and Nebraska Ecology
Systems, Inc. (collectively, "G&P"), Central Waste Disposal, Inc. and Cen San,
Inc. (collectively, "Central"), Cook's Wastepaper and Recycling, Inc. ("Cook's")
and Waste Wranglers, Inc. ("WWI") each accounted for as poolings-of-interests
(Note 2 and 18). For periods prior to WCI's incorporation on September 9, 1997,
the consolidated financial statements of the Company consist of entities
acquired by the Company in pooling-of-interests transactions.
The entities the Company acquired in September 1997 from Browning-Ferris
Industries, Inc. ("BFI") are collectively referred to herein as the Company's
predecessors. BFI acquired the predecessor operations at various times during
1995 and 1996, and prior to being acquired by BFI, the predecessors operated as
separate stand-alone businesses.
During the periods in which the Company's predecessors operated as wholly owned
subsidiaries of BFI, they maintained intercompany accounts with BFI for
recording intercompany charges for costs and expenses, intercompany purchases of
equipment and additions under capital leases and intercompany transfers of cash,
among other transactions. It is not feasible to ascertain the amount of related
interest expense that would have been recorded in the historical financial
statements had the predecessors been operated as stand-alone entities. Charges
for interest expense were allocated to the Company's predecessors by BFI as
disclosed in the accompanying Statement of Operations. The interest expense
allocations from BFI are based on formulas that do not necessarily correspond
with the balances in the related intercompany accounts. Moreover, the financial
position and results of operations of the predecessors during this period may
not necessarily be indicative of the financial position or results of operations
that would have been realized had the predecessors been operated as stand-alone
entities. For the periods in which the predecessors operated as wholly owned
subsidiaries of BFI, the statements of operations include amounts allocated by
BFI to the predecessors for selling, general and administrative expenses based
on certain allocation methodologies which management of the Company believes are
reasonable. Due to the manner in which BFI intercompany transactions were
recorded as described above, it is not feasible to present a detailed analysis
of transactions reflected in the net intercompany balance with BFI. The change
in the predecessors' combined intercompany balance with BFI (net of income
(loss) and initial investment in the acquired companies) was $2,142 during the
nine months ended September 30, 1997.
F-9
<PAGE> 10
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company's acquisition of the predecessors from BFI in September 1997 was
accounted for using the purchase method of accounting, and the purchase price
was allocated to the fair value of the assets acquired and liabilities assumed.
Consequently, the amounts of depreciation and amortization included in the
statements of operations for Company and Predecessors reflect the change in
basis of the underlying assets that were made as a result of the change in
ownership.
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.
Common Stock Valuation
In connection with the Company's organization and initial capitalization in
September 1997, the Company sold 2.3 million shares of common stock for $.01 per
share to certain directors, consultants, and management. As a result, the
Company recorded a non-recurring, non-cash stock compensation charge of $4,395
in the accompanying statement of operations, representing the difference between
the amount paid for the shares and the estimated fair value of the shares of
$1.92 per share on the date of sale. The estimated fair value of the common
shares was determined by the Company based on an independent valuation of the
common stock.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at purchase to be cash equivalents. As of December 31, 1998 and
1999, cash equivalents consist of demand money market accounts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risks consist primarily of accounts receivable. The Company does not
require collateral on its trade receivables. Credit risk on accounts receivable
is minimized as a result of the large and diverse nature of the Company's
customer base. The Company maintains allowances for losses based on the expected
collectibility of accounts receivable. Credit losses have been within
management's expectations.
Property and Equipment
Property and equipment are stated at cost. Improvements or betterments which
significantly extend the life of an asset are capitalized. Expenditures for
maintenance and repair costs are charged to expense as incurred. The cost of
assets retired or otherwise disposed of and the related accumulated depreciation
are eliminated from the accounts in the year of disposal. Gains and losses
resulting from property disposals are included in other income (expense).
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
F-10
<PAGE> 11
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The estimated useful lives are as follows:
Buildings 20 years
Machinery and equipment 3 - 15 years
Rolling stock 10 years
Containers 5 - 15 years
In connection with acquisitions (Note 2), the Company acquired certain used
property and equipment. This used property and equipment is being depreciated
using the straight-line method over the estimated remaining useful lives, which
range from one to fifteen years.
Capitalized landfill costs include expenditures for land and related airspace,
permitting costs and preparation costs. Landfill permitting and preparation
costs represent only direct costs related to those activities, including legal,
engineering and construction. Interest is capitalized on landfill permitting and
construction projects and other projects under development while the assets are
undergoing activities to ready them for their intended use. The interest
capitalization rate is based on the Company's weighted average cost of
indebtedness. No interest was capitalized in 1998 or 1999. Landfill permitting,
acquisition and preparation costs are amortized as permitted airspace of the
landfill is consumed. Landfill preparation costs include the costs of
construction associated with excavation, liners, site berms and the installation
of leak detection and leachate collection systems. In determining the
amortization rate for a landfill, preparation costs include the total estimated
costs to complete construction of the landfills' permitted capacity.
Units-of-production amortization rates are determined annually for the Company's
operating landfills. The rates are determined by management based on estimates
provided by the Company's internal and third party engineers and consider the
information provided by surveys which are performed at least annually.
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair
value of the net tangible and intangible assets of the acquired entities, and is
amortized on a straight-line basis over the period of expected benefit of 40
years. Accumulated amortization amounted to $1,705 and $5,353 as of December 31,
1998 and 1999, respectively.
The Company continually evaluates the value and future benefits of its
intangible assets, including goodwill. The Company assesses recoverability from
future operations using cash flows and income from operations of the related
acquired business as measures. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, the carrying value would be reduced to
estimated net realizable value if it becomes probable that the Company's best
estimate for expected future cash flows of the related business would be less
than the carrying amount of the related intangible assets. There have been no
adjustments to the carrying amount of intangible assets resulting from these
evaluations as of December 31, 1998 and 1999.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash, trade
receivables, restricted funds held in trust, trade payables and debt
instruments. The carrying values of cash, trade receivables, restricted funds
held in trust, and trade payables are considered to be representative of their
respective fair values. The carrying values of the Company's debt instruments
approximate their fair values as of December 31, 1998 and 1999, based on current
incremental borrowing rates for similar types of borrowing arrangements.
F-11
<PAGE> 12
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Interest Rate Protection Agreements
Interest rate protection agreements are used to reduce interest rate risks and
interest costs of the Company's debt portfolio. The Company enters into these
agreements to change the fixed/variable interest rate mix of the portfolio to
reduce the Company's aggregate exposure to increases in interest rates. The
Company does not hold or issue derivative financial instruments for trading
purposes. Hedge accounting treatment is applied to interest rate derivative
contracts that are designated as hedges of specified debt positions. Amounts
payable or receivable under interest rate swap agreements are recognized as
adjustments to interest expense in the periods in which they accrue. Net
premiums paid for derivative financial instruments are deferred and recognized
ratably over the life of the instruments. Under hedge accounting treatment,
current period income is not affected by the increase or decrease in the fair
market value of derivative instruments as interest rates change and these
instruments are not reflected in the financial statements at fair market value.
Early termination of a hedging instrument does not result in recognition of
immediate gain or loss except in those cases when the debt instruments to which
a contract is specifically linked is terminated.
Income Taxes
The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
During the periods in which the predecessors were owned by BFI, their operations
were included in the consolidated income tax returns of BFI, and no allocations
of income taxes were reflected in the historical statements of operations. For
purposes of the combined predecessor financial statements, current and deferred
income taxes have been provided on a separate income tax return basis.
Revenue Recognition
Revenues are recognized as services are provided. Certain customers are billed
in advance and, accordingly, recognition of the related revenues is deferred
until the services are provided.
The Company reviews its revenue producing contracts in the ordinary course of
business to determine if the direct costs, exclusive of any non-variable costs,
to service the contractual arrangements exceed the revenues to be produced by
the contract. Any resulting excess costs over the life of the contract are
expensed at the time of such determination.
Start-Up and Integration Expenses
During the period from Waste Connections' inception (September 9, 1997) through
December 31, 1997, the Company incurred certain start-up expenses relating to
the formation of the Company, primarily for legal and other professional
services, and the costs associated with recruiting the Company's initial
management team. In addition, the Company incurred certain integration expenses
relating to its initial acquisitions. These start-up and integration expenses
have been charged to operations as incurred.
Stock-Based Compensation
As permitted under the provisions of SFAS No. 123 "Accounting for Stock Based
Compensation", the Company has elected to account for stock-based compensation
using the intrinsic value method prescribed
F-12
<PAGE> 13
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
by Accounting Principles Board's Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25"). Under the intrinsic value method, compensation cost is
the excess, if any, of the quoted market price or fair value of the stock at the
grant date or other measurement date over the amount an employee must pay to
acquire the stock.
Per Share Information
Basic net income (loss) per share is computed using the weighted average number
of common shares outstanding. Diluted net income (loss) per share is computed
using the weighted average number of common and potential common shares
outstanding. Potential common shares are excluded from the computation if their
effect is anti-dilutive. Earnings per share data have not been presented for the
predecessor operations because such data is not meaningful.
Closure and Post-Closure Costs
Accrued closure and post-closure costs represent an estimate of the current
value of the future obligation associated with closure and post-closure
monitoring of non-hazardous solid waste landfills currently owned and/or
operated by the Company. Closure and post-closure monitoring and maintenance
costs represent the costs related to cash expenditures yet to be incurred when a
landfill facility ceases to accept waste and closes. Accruals for closure and
post-closure monitoring and maintenance requirements in the U.S. consider final
capping of the site, site inspection, groundwater monitoring, leachate
management, methane gas control and recovery, and operating and maintenance
costs to be incurred during the period after the facility closes. Certain of
these environmental costs, principally capping and methane gas control costs,
are also incurred during the operating life of the site in accordance with the
landfill operation requirements of Subtitle D and the air emissions standards.
Site specific closure and post-closure engineering cost estimates are prepared
annually for landfills owned and/or operated by the Company for which it is
responsible for closure and post-closure. The impact of changes determined to be
changes in estimates, based on the annual update, are accounted for on a
prospective basis. The present value of estimated future costs are accrued based
on accepted tonnage as landfill airspace is consumed. Discounting of future
costs is applied where the Company believes that both the amounts and timing of
related payments are reliably determinable.
Segment Information
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. The Company considers each
operating location that reports stand-alone financial information to be
an operating segment; however, all operating segments have been aggregated
together and are reported as a single segment consisting of the collection,
transfer, recycling and disposal of non-hazardous void waste in the Western
United States.
Comprehensive Income
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130,
"Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from non-owner sources. As of December 31, 1999, the Company has
not had any transactions, other than its reported net income and losses, that
are required to be reported in comprehensive income.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities" ("SFAS 133"). SFAS 133
establishes accounting and reporting standards of derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the Financial Accounting Standards Board
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133". SFAS 137
deferred the effective date until the first fiscal quarter of the fiscal year
F-13
<PAGE> 14
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
beginning after June 15, 2000. The Company will adopt SFAS 133 in its quarter
ending March 31, 2001 and has not yet determined whether such adoption will have
a material impact on the Company's financial statements.
Reclassifications
Certain amounts reported in the Company's prior years' financial statements have
been reclassified to conform with the 1999 presentation.
2. ACQUISITIONS
Poolings-of-Interests
On January 19, 1999, the Company consummated a business combination with the
Murrey Companies which included the exchange of 2,888,880 shares of Waste
Connections, Inc. common stock for all outstanding shares of the Murrey
Companies. In connection with the business combination with the Murrey
Companies, Waste Connections, Inc. incurred transaction related costs of
approximately $6,200 which were charged to operations.
The Company consummated business combinations with Roche and Ritter's on January
8, 1999, and March 30, 1999, respectively, which included the exchange of
554,248 shares of Waste Connections, Inc. common stock for all of the
outstanding shares of Roche and Ritter's. In connection with the business
combinations with Roche and Ritters, Waste Connections, Inc. incurred
transaction related costs of approximately $1,600 which were charged to
operations.
The Company consummated business combinations with Central, G&P, and Omega on
June 25, 1999, June 30, 1999, and June 30, 1999, respectively, which included
the exchange of 340,207 shares of Waste Connections, Inc. common stock for all
of the outstanding shares of Central, G&P, and Omega. In connection with the
business combinations with Central, G&P, and Omega, Waste Connections, Inc.
incurred transaction related costs of approximately $1,005 which were charged to
operations.
On December 30, 1999, the Company consummated a business combination with Cook's
which included the exchange of 65,925 shares of Waste Connections, Inc. common
stock for all the outstanding shares of Cook's. In connection with the business
combination with Cook's, Waste Connections, Inc. incurred transaction related
costs of approximately $198 which were charged to operations.
On January 12, 2000, the Company consummated a business combination with WWI
which included the exchange of 103,315 shares of Waste Connections, Inc. common
stock for all the outstanding shares of WWI. In connection with the business
combination with WWI, Waste Connections, Inc. incurred transactions related
costs of approximately $150 which will be charged to operations in the period
during which the merger was consummated.
The table below sets forth the combined revenues and net income (loss) of WCI,
the Murrey Companies, Roche, Ritters, Central, G&P, Omega, Cook's and WWI for
the years ended December 31, 1997, 1998 and 1999 (in thousands):
F-14
<PAGE> 15
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Waste The Murrey
Connections, Inc. Companies Other Restated
Before Pooling Pooling Pooling For Pooling
Acquisitions Acquisitions Acquisitions Acquisitions
----------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
Revenues $ 6,237 $ 28,874 $ 12,399 $ 47,510
Net income (loss) (5,066) 1,316 51 (3,699)
YEAR ENDED DECEMBER 31, 1998:
Revenues 54,042 32,528 13,054 99,624
Net income 1,748 142 377 2,267
YEAR ENDED DECEMBER 31, 1999:
Revenues 175,773 1,788 6,664 184,225
Net income 8,763 245 219 9,227
</TABLE>
1998 and 1999 Acquisitions
During 1998, the Company acquired 42 businesses which were accounted for as
purchases. Aggregate consideration for these acquisitions consisted of $56,341
in cash (net of cash acquired), $12,488 in notes payable to sellers, 2,054,634
shares of common stock valued at $25,293, and warrants to purchase 267,925
shares of common stock valued at $1,293. The results of operations of the
acquired businesses have been included in the Company's consolidated financial
statements from their respective acquisition dates.
During 1999, the Company acquired 51 businesses which were accounted for as
purchases. Aggregate consideration for these acquisitions consisted of $233,745
in cash (net of cash acquired), $763 in notes payable to sellers and 2,934,649
shares of common stock valued at $74,359.
The results of operations of the acquired businesses have been included in the
Company's consolidated financial statements from their respective acquisition
dates.
Certain items affecting the purchase price allocations of 1999 acquisitions are
preliminary. A summary of the purchase price allocations for acquisitions
consummated in 1998 and preliminary purchase price allocations for the
acquisitions consummated in 1999 is as follows:
F-15
<PAGE> 16
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
Acquisitions Acquisitions
------------- -------------
Acquired assets:
<S> <C> <C>
Accounts receivable $ 4,670 $ 8,433
Prepaid expenses and other current assets 301 239
Property and equipment 25,853 276,789
Goodwill 86,358 137,151
Long-term franchise agreements and other 2,390 558
Non-competition agreements 540 900
Other assets 395 2,512
Assumed liabilities:
Deferred revenue (577) (273)
Accounts payable and accrued liabilities (9,210) (19,952)
Other accrued liabilities (1,575) (1,257)
Long-term liabilities assumed (13,638) (26,340)
Deferred income taxes (92) (69,893)
============= =============
$ 95,415 $ 308,867
============= =============
</TABLE>
In connection with certain of the acquisitions in 1998 and 1999, the Company is
required to pay contingent consideration to certain former shareholders of the
respective companies, subject to the occurrence of specified events. As of
December 31, 1999, contingent payments relating to these acquisitions total
approximately $1,800 in cash and 61,737 shares placed into escrow, and are to be
earned based upon the achievement of certain milestones. The Company has
included the contingent cash payments in these financial statements as the
events which would give rise to such payments are considered probable. No
amounts related to the contingent shares have been included in these financial
statements as the events which would give rise to such payments have not yet
occurred and are not considered probable.
The following unaudited pro forma results of operations assume that the
Company's significant acquisitions occurring in 1998 and 1999, accounted for
using the purchase method of accounting, were acquired as of January 1, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1999
----------- -----------
<S> <C> <C>
Total revenue $ 166,356 $ 211,026
Net income 12,663 9,081
Basic income per share 0.99 0.45
Diluted income per share 0.86 0.42
</TABLE>
The unaudited pro forma results do not purport to be indicative of the results
of operations which actually would have resulted had the acquisitions occurred
on January 1, 1998, nor are they necessarily indicative of future operating
results
Browning-Ferris Industries Related
On September 29, 1997, the Company purchased all of the outstanding stock of
Browning-Ferris Industries of Washington, Inc. and Fibres International, Inc.
from BFI (collectively the "Acquisitions"). The total purchase price for the
Acquisitions was approximately $15,036, comprised principally of $11,493 in cash
and promissory notes payable to BFI totaling $3,543. Of the combined $15,036
purchase price, $9,869 was recorded as goodwill and $150 was assigned to a
non-competition agreement. The Acquisitions were
F-16
<PAGE> 17
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
accounted for in accordance with the purchase method of accounting and,
accordingly, the net assets acquired were included in the Company's consolidated
balance sheet based upon their estimated fair values on the date of the
Acquisitions. The Company's consolidated statement of operations includes the
revenues and expenses of the acquired businesses after the effective date of the
transaction.
A summary of the purchase price allocation for the BFI Acquisitions is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Acquired assets:
Accounts receivable $ 2,919
Prepaid expenses and other current assets 287
Property and equipment 4,106
Goodwill 9,869
Non-competition agreement 150
Assumed liabilities:
Deferred revenue (428)
Accounts payable and accrued liabilities (26)
Accrued losses on acquired contracts (1,309)
Deferred income taxes (532)
--------
$ 15,036
========
</TABLE>
3. INTANGIBLE ASSETS
Intangible assets consist of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
--------- ---------
<S> <C> <C>
Goodwill $ 99,716 $ 236,250
Long-term franchise agreements
and contracts 2,390 3,577
Non-competition agreements 1,210 2,015
Other, net 777 2,009
--------- ---------
104,093 243,851
Less - accumulated amortization (2,244) (6,449)
--------- ---------
$ 101,849 $ 237,402
========= =========
</TABLE>
The Company acquired certain long-term franchise agreements, contracts and
non-competition agreements in connection with certain of its acquisitions. The
estimated fair value of the acquired long-term franchise agreements and
contracts was determined by management based on the discounted net cash flows
associated with the agreements and contracts. The estimated fair value of the
non-competition agreements was determined by management based on the discounted
adjusted operating income stream that would have otherwise been subject to
competition. The amounts assigned to the franchise agreements, contracts, and
non-competition agreements is being amortized on a straight-line basis over the
remaining term of the related agreements (ranging from 5 to 18 years). Total
goodwill amortization expense for the years ended December 31, 1997, 1998 and
1999 was $150, $1,640 and $3,766, respectively.
F-17
<PAGE> 18
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1998 and
1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
--------- ---------
<S> <C> <C>
Landfill site costs $ 10,315 $ 250,187
Land, buildings and improvements 11,084 29,735
Rolling stock 25,181 42,340
Containers 18,980 26,648
Machinery and equipment 7,834 17,885
--------- ---------
73,394 366,795
Less accumulated depreciation and depletion (21,972) (31,535)
--------- ---------
$ 51,422 $ 335,260
========= =========
</TABLE>
The Company's landfill depletion expense for the years ended December 31, 1997,
1998 and 1999 was $206, $279 and $2,163, respectively.
5. OTHER ASSETS
Other assets consist of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
------- -------
<S> <C> <C>
Restricted cash $ 1,381 $ 7,624
Loan fees 250 2,186
Other 1,078 964
------- -------
$ 2,709 $10,774
======= =======
</TABLE>
Restricted funds held in trust are included as part of other assets and consist
of amounts on deposit with various banks that support the Company's financial
assurance obligations for its landfill facilities' closure and postclosure costs
and amounts outstanding under the Madera and Wasco bonds (Note 9).
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
December 31,
1998 1999
------- -------
<S> <C> <C>
Income taxes $ 1,114 $ 6,030
Payroll and payroll related 1,136 2,650
Interest payable 583 1,964
Insurance claims and premiums 405 1,374
Other 2,590 3,630
------- -------
$ 5,828 $15,648
======= =======
</TABLE>
F-18
<PAGE> 19
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
7. SHORT-TERM BORROWINGS
Short-term borrowings consisted of various revolving and non-revolving
lines-of-credit with a bank. These amounts were paid in full in February 1999.
8. CLOSURE AND POST-CLOSURE COSTS
The net present value of the closure and post-closure commitment is calculated
assuming inflation of 3% and a risk-free capital rate of 7%. Discounted amounts
previously recorded are accreted to reflect the effects of the passage of time.
The Company's current estimate of total future payments for closure and
post-closure, in accordance with Subtitle D, is $4,500,000, adjusted for
inflation, while the present value of such estimate is $8,000. At December 31,
1998 and 1999, respectively, accruals for landfill closure and post-closure
costs (including costs assumed through acquisitions) were $2,655 and $4,313,
respectively, and are recorded as other long-term liabilities on the balance
sheet. The accruals reflect landfills whose estimated remaining lives, based on
current waste flows, range from 13 to 174 years, with an estimated average
remaining life of approximately 96 years. The Company estimates that its closure
and post-closure payment commitments for certain of its landfills will begin in
2012.
9. LONG-TERM DEBT
Credit Facility
In January 1998, the Company obtained a revolving credit facility from
BankBoston N.A. (the "January Credit Facility"). The maximum amount available
under the January Credit Facility was $25,000, including up to $5,000 in
stand-by letters-of-credit, and the borrowings bore interest at various fixed
and/or variable rates at the Company's option. In connection with the January
Credit Facility the Company granted to an affiliate of BankBoston a warrant to
purchase 140,000 shares of the Company's common stock with an exercise price of
$2.80 per share and an expiration date of January 2008 (Note 12).
In May 1998, the Company entered into a new revolving credit facility with a
syndicate of banks for which BankBoston N.A. acted as agent (the "May Credit
Facility"). The maximum amount available under the May Credit Facility was
$60,000 (including $5,000 in stand-by letters of credit) and the borrowings bore
interest at various fixed and/or variable rates at the Company's option. The May
Credit Facility replaced the January Credit Facility.
In November 1998, the Company entered into a new revolving credit facility with
a syndicate of banks for which BankBoston N.A. acted as agent (the "November
1998 Credit Facility"). As of December 31, 1998, the maximum amount available
under the November Credit Facility was $115,000 (including $15,000 in stand-by
letters of credit, of which $1,829 were issued as of December 31, 1998) and the
borrowings bear interest at various fixed and/or variable rates at the Company's
option (approximately 7.0% as of December 31, 1998). The maximum amount
available was increased to $125,000 in January 1999. The November 1998 Credit
Facility replaced the May Credit Facility.
In March 1999, the Company entered into a new revolving credit facility with a
syndicate of banks for which BankBoston N.A. acts as agent (the "March 1999
Credit Facility"). As of December 31, 1999, the maximum amount available under
the March 1999 Credit Facility is $315,000 (including $35,000 in stand-by
letters of credit, of which $26,000 were issued as of December 31, 1999) and the
borrowings bear interest at various fixed and/or variable rates at the Company's
option (approximately 8.2% as of December 31, 1999). The March 1999 Credit
Facility amended the November 1998 Credit Facility. The March 1999
F-19
<PAGE> 20
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Credit Facility requires quarterly payments of interest and it matures in March
2004. Borrowings are secured by substantially all of the Company's assets and
the Company is required to pay an annual commitment fee equal to 0.5% of the
unused portion of the facility. The March 1999 Credit Facility places certain
business, financial and operating restrictions on the Company relating to, among
other things, the incurrence of additional indebtedness, investments,
acquisitions, asset sales, mergers, dividends, distributions and repurchases and
redemption of capital stock. The Credit Facility also requires that specified
financial ratios and balances be maintained. As of December 31, 1999, the
Company was in compliance with these covenants.
In December 1999, the Company completed a $13,600 tax-exempt bond financing for
its Wasco subsidiary (the "Wasco Bond"). These funds will be used for the
acquisition, construction, furnishing, equipping and improving of a landfill
located in Wasco County, Oregon (the "Landfill Project"). The bonds mature in
December 2009 and bear interest at variable rates based on market conditions for
Oregon tax exempt bonds (approximately 5.5% at December 31, 1999). The bonds are
backed by a letter of credit issued by BankBoston N.A under the March 1999
Credit Facility for $14,500. At December 31, 1999, approximately $4.6 million of
the funds from the bond offering are held by a trustee and can be used by the
Company to finance capital expenditures on the Landfill Project. These unused
funds held by the trustee are classified as restricted cash and included in
other assets in the accompanying consolidated balance sheet.
CRC Bond
In December 1991, Columbia Resource Company, a wholly-owned subsidiary of the
Company acquired in 1999, received $13,000 in financing through an Industrial
Revenue Bond (the "CRC Bond") issued by Clark County, Washington. These funds
were used for the acquisition of real property and construction thereon of a
solid waste transfer station. The CRC Bond requires escalating annual principal
payments ranging from $1,000 in December 2000 to $1,505 in December 2006 (the
maturity date), bears interest at rates ranging from 7.1% to 7.5%, is secured by
the real property and solid waste transfer station and backed by a letter of
credit issued by BankBoston N.A. under the March 1999 Credit Facility for
$8,625. Additionally, BankBoston N.A. and another lender have issued additional
letters of credit in the amount of $1,000 and $2,000, respectively, in
connection with this project.
Madera Bond
In June 1998, the Company completed a $1,800 tax-exempt bond financing for its
Madera subsidiary (the "Madera Bond"). These funds will be used for specified
capital expenditures and improvements, including installation of a landfill gas
recovery system. The bonds mature on May 1, 2016 and bear interest at variable
rates based on market conditions for California tax exempt bonds (approximately
3.8% and 4.6% at December 31, 1998 and 1999, respectively). The bonds are backed
by a letter of credit issued by BankBoston N.A. under the March 1999 Credit
Facility for $1,828. Funds from the bond offering are held by a trustee until
the capital expenditures are completed. The unused funds are classified as
restricted cash and included in other assets in the accompanying consolidated
balance sheet.
Interest Rate Protection Agreements
The Company has entered into an interest rate protection agreement (the
"Interest Agreement"), with its primary banking institution to reduce its
exposure to fluctuations in variable interest rates. The Interest Agreement,
which is effective November 2, 1998 through November 2, 2000, effectively
changes the Company's interest rate paid on a notional amount of $27,700 of its
floating rate long-term debt to a weighted average fixed rate (approximately
6.43% and 6.68% at December 31, 1998 and 1999, respectively). The fair value of
the Interest Agreement as of December 31, 1998 and 1999 is $188 and $327,
respectively, which reflects the estimated amounts that the Company would
receive to terminate the
F-20
<PAGE> 21
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Interest Agreement based on quoted market prices of comparable contracts as of
December 31, 1998 and 1999. In the event of nonperformance by the counterparty,
the Company would be exposed to interest rate risk if the variable interest rate
received were to exceed the fixed rate paid by the Company under the terms of
the Interest Agreement.
In December 1999, we entered into an interest rate hedge (the "Hedge Agreement")
with BankBoston, N.A. Under the Hedge Agreement, which is effective through
December 2001, the interest rate on $125 million of our floating rate long-term
debt is effectively fixed with an interest rate of 6.1% plus an applicable
margin. This rate remains at 6.1% if LIBOR is less than 7.0%. If LIBOR exceeds
7.0%, the interest rate under the Hedge Agreement will increase one basis point
for every LIBOR basis point above 7.0%. In the event of nonperformance by the
counterparty, the Company would be exposed to interest rate risk if the variable
interest rate received were to exceed the fixed rate paid by the Company under
the terms of the Hedge Agreement.
Long-term debt consists of the following as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
November 1998 Credit Facility $ 57,281 $ -
March 1999 Credit Facility - 247,500
Wasco Bond - 13,600
CRC Bond - 8,625
Madera Bond 1,800 1,800
Notes payable to sellers in connection with acquisitions,
unsecured, bearing interest at 6.5% to 8.4%, principal
and interest payments due periodically throughout the
year with due dates ranging from 2000 to 2005 8,927 1,570
Notes payable to third parties, secured by substantially all
assets of certain subsidiaries the Company, interest at
7.0% to 11.0%, principal and interest payments due
periodically throughout the year with due dates
ranging from 2000 to 2009 4,153 4,604
Other 8,233 490
--------- ---------
80,394 278,189
Less - current portion (12,120) (3,044)
--------- ---------
$ 68,274 $ 275,145
========= =========
</TABLE>
F-21
<PAGE> 22
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
As of December 31, 1999, aggregate contractual future principal payments by
calendar year on long-term debt are due as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 3,044
2001 3,150
2002 1,984
2003 1,982
2004 249,237
Thereafter 18,792
--------
$278,189
========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases its facilities and certain equipment under non-cancelable
operating leases for periods ranging from one to five years. Combined rent
expense for the predecessor operations was $441 for the nine months ended
September 30, 1997. The Company's consolidated rent expense under operating
leases during the years ended December 31, 1997, 1998 and 1999 was $269, $849
and $1,233, respectively.
As of December 31, 1999, future minimum lease payments under these leases, by
calendar year, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2000 $1,385
2001 1,312
2002 1,179
2003 1,022
2004 923
Thereafter 2,641
------
$8,462
======
</TABLE>
Performance Bonds and Letters of Credit
Municipal solid waste collection contracts may require performance bonds or
other means of financial assurance to secure contractual performance. As of
December 31, 1998 and 1999, WCI had provided customers and various regulatory
authorities with bonds and letters of credit of approximately $2,000 and $2,414,
respectively, to secure its obligations (exclusive of letters of credit backing
certain municipal bond obligations). If the Company were unable to obtain surety
bonds or letters of credit in sufficient amounts or at acceptable rates, it
could be precluded from entering into additional municipal solid waste
collection contracts or obtaining or retaining landfill operating permits.
CONTINGENCIES
Environmental Risks
The Company is subject to liability for any environmental damage that its solid
waste facilities may cause to neighboring landowners or residents, particularly
as a result of the contamination of soil, groundwater or
F-22
<PAGE> 23
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
surface water, and especially drinking water, including damage resulting from
conditions existing prior to the acquisition of such facilities by the Company.
The Company may also be subject to liability for any off-site environmental
contamination caused by pollutants or hazardous substances whose transportation,
treatment or disposal was arranged by the Company or its predecessors. Any
substantial liability for environmental damage incurred by the Company could
have a material adverse effect on the Company's financial condition, results of
operations or cash flows. As of December 31, 1999, the Company is not aware of
any such environmental liabilities.
Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the solid waste industry, the Company is subject to
various judicial and administrative proceedings involving federal, state or
local agencies. In these proceedings, an agency may seek to impose fines on the
Company or to revoke or deny renewal of an operating permit held by the Company.
From time to time the Company may also be subject to actions brought by
citizens' groups or adjacent landowners or residents in connection with the
permitting and licensing of landfills and transfer stations, or alleging
environmental damage or violations of the permits and licenses pursuant to which
the Company operates.
In addition, the Company is a party to various claims and suits pending for
alleged damages to persons and property, alleged violations of certain laws and
alleged liabilities arising out of matters occurring during the normal operation
of the waste management business. However, as of December 31, 1999 there is no
current proceeding or litigation involving the Company that the Company believes
will have a material adverse impact on its business, financial condition,
results of operations or cash flows.
Employees
The Teamsters Union represents approximately 85 drivers and mechanics at WCI's
Vancouver, Washington operation. The labor agreement between the Union and the
Company was renewed in January 2000 for a period of three years.
The Teamsters Union represents approximately 24 drivers and mechanics at Arrow
Sanitary Services, Inc. ("Arrow") in Portland Oregon, a wholly owned subsidiary
of the Company. The current labor agreement term is until March of 2001.
The Teamsters Union represents approximately 50 of the Murrey Companies'
drivers. A new collective bargaining agreement was negotiated during the 4th
quarter of 1999. This agreement is for a period of 3.5 years.
The Company is not aware of any other organizational efforts among its employees
and believes that its relations with its employees are good.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In September 1997, the Company received net proceeds of $6,992 from the sale of
2,499,998 shares of redeemable convertible preferred stock (the "Preferred
Stock"). The Preferred Stock accrued cumulative dividends at the rate of $.098
per share annually. Accumulated and unpaid dividends on Preferred Stock amounted
to $61 as of December 31, 1997. Each share of Preferred Stock was redeemable, at
the holder's option, during the period from April 1, 1999 through October 1,
1999 for $4.20 per share plus any accumulated and unpaid dividends. The
Preferred Stock and any accumulated and unpaid dividends were
F-23
<PAGE> 24
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
convertible at the holder's option into shares of the Company's common stock at
the calculated rate of $2.80 per share divided by the "Conversion Price" subject
to certain anti-dilution adjustments. Each share was automatically converted
into common stock immediately upon the closing of the Company's initial public
offering of common stock at a Conversion Price of $2.80 per share.
12. STOCKHOLDERS' EQUITY
Common Stock
Of the 28,790,335 shares of common stock authorized but unissued as of December
31, 1999, the following shares were reserved for issuance:
<TABLE>
<CAPTION>
<S> <C>
Stock option plan 2,532,762
Stock purchase warrants 759,569
Shares held in escrow 61,737
---------
3,354,068
=========
</TABLE>
Stockholder Notes Receivable
In December 1997, the Company provided loans in the aggregate amount of $83 to
certain employees, who are also common stockholders, for the purchase of shares
of the Company's Preferred Stock. The notes bore interest at 8%, were secured by
the Preferred Stock purchased and common stock owned by the employees, and were
paid in full during 1998.
Stock Options
In November 1997, WCI's Board of Directors adopted a stock option plan in which
all officers, employees, directors and consultants may participate (the "Option
Plan"). Options granted under the Option Plan may either be incentive stock
options or nonqualified stock options (the "Options"), generally have a term of
10 years from the date of grant, and will vest over periods determined at the
date of grant. The exercise prices of the options are determined by the
Company's Board of Directors and will be at least 100% or 110% of the fair
market value of the Company's common stock on the date of grant as provided for
in the Option Plan.
The Option Plan provides for the reservation of common stock for issuance
thereunder equal to 12% of the outstanding shares of the Company's common stock.
The amount of common stock reserved for issuance under the Option Plan is
decreased for options granted and increased for previously granted options that
have been forfeited, cancelled or exercised. As of December 31, 1997, 1998 and
1999, options for 671,500, 160,450 and 788,617 shares, respectively, of common
stock were available for future grants under the Option Plan.
As of December 31, 1997, 1998 and 1999, 35,000, 333,121 and 495,713 options to
purchase common stock were exercisable under the Option Plan, respectively.
A summary of WCI's stock option activity and related information during the
period from inception (September 9, 1997) through December 31, 1997 and the
years ended December 31, 1998 and 1999 is presented below:
F-24
<PAGE> 25
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares (Options) Exercise Price
---------------- ----------------
<S> <C> <C>
Outstanding at inception - $ -
Granted 528,500 4.92
----------------
Outstanding as of December 31, 1997 528,500 4.92
Granted 511,050 9.58
Forfeited 2,874 5.00
Exercised 57,912 4.69
----------------
Outstanding as of December 31, 1998 978,764 7.38
Granted 1,045,350 16.03
Forfeited 28,000 20.20
Exercised 251,969 5.92
----------------
Outstanding as of December 31, 1999 1,744,145 12.57
----------------
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted
Average
Weighted Remaining Weighted
Average Contractual Average
Exercise Life Exercise
Exercise Range Shares Price (In Years) Shares Price
----------------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$2.80 to 5.00 371,380 $ 2.90 7.9 222,339 $ 2.93
$6.00 to 9.50 48,833 8.48 8.1 25,666 8.45
$10.50 to 13.00 637,832 11.50 9.3 148,330 11.08
$15.19 to 22.13 617,600 18.37 9.0 92,710 19.37
$24.94 to 26.50 68,500 25.60 9.5 6,668 26.50
------------ ------------
1,744,145 12.57 8.9 495,713 9.05
============ ============
</TABLE>
The weighted average grant date fair values for options granted during 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Exercise prices equal to market price of stock $ -- $ 5.28 $ 7.80
Exercise prices less than market price of stock -- 6.52 -
Exercise prices greater than market price of stock 0.30 3.09 -
</TABLE>
Pro Forma information regarding net income (loss) and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the period from inception (September 9, 1997) through December
31, 1997 and the years ended December 31, 1998 and 1999: risk-free interest rate
of 6%, 5% and 5.8%, respectively; dividend yield of zero; volatility factor of
the expected market price of the Company's common stock of .40, .55 and .55,
respectively; and a weighted-average expected life of the option of 4 years.
F-25
<PAGE> 26
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The following table
summarizes the Company's pro forma net loss and pro forma basic net loss per
share for the years ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Net income (loss) applicable to common stockholders:
As reported $ (4,230) $ 1,350 $ 9,227
Pro forma (4,234) 27 7,631
Basic income (loss) per share:
As reported (0.73) 0.12 0.49
Pro forma (0.73) 0.00 0.41
Diluted income (loss) per share:
As reported (0.73) 0.10 0.46
Pro forma (0.73) 0.00 0.38
</TABLE>
During the year ended December 31, 1998, the Company recorded deferred stock
compensation of $821 relating to stock options granted during the period with
exercise prices less than the estimated fair value of the Company's common stock
on the date of grant. The deferred stock compensation is being amortized into
expense over the vesting periods of the stock options which generally range from
1 to 3 years. During the years ended December 31, 1998 and 1999, compensation
expense of $393 and $265, respectively, was recorded relating to these options.
Stock Purchase Warrants
The following table summarizes information about warrants outstanding as of
December 31, 1998 and 1999:
F-26
<PAGE> 27
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Outstanding at December 31,
Issue Warrants Exercise Fair Value ---------------------------
Date Issued Range of Warrants 1998 1999
--------------- --------- ------------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Warrants issued to bank September 1997 200,000 $ 0.01 $ 382 27,200 -
Warrants issued to guarantors of
Company's debt obligations December 1997 841,000 2.80 328 841,000 374,000
Warrants issued to consultants December 1997 15,000 2.80 to 5.00 15,000 15,000
Warrants issued to bank January 1998 140,000 2.80 855 140,000 -
Warrants issued in connection
with an acquisition February 1998 200,000 4.00 954 200,000 200,000
Warrants issued to an employee February 1998 50,000 2.80 240 - -
Warrants issued to market
development consultants Throughout 1998 67,935 12.00 to 22.13 339 67,935 67,935
Warrants issued to market
development consultants Throughout 1999 102,634 10.88 to 30.50 572 - 102,634
--------- ---------
1,291,135 759,569
--------- ---------
</TABLE>
The warrants are exercisable upon vesting and notification and expire between
2000 and 2009.
In September 1997, the Company issued a warrant to purchase 200,000 shares of
the Company's common stock to the Bank that provided a line of credit and term
loan payable. The fair value of the warrant was determined using the
Black-Scholes pricing model with an assumed stock price volatility of .40,
risk-free interest rate of 6.0%, estimated fair value of the common stock of
$1.92 per share and an expected life of 7 years. The value assigned to the
warrant was reflected as a discount on long-term debt. The discount was fully
accreted to interest expense using the straight-line method over the expected
term of the debt agreements (approximately three months). In 1998, the bank
received 172,578 shares of common stock through the exercise of 172,689
warrants.
In connection with their guarantee of certain of the Company's debt obligations,
the Company issued in December 1997 warrants to purchase 841,000 shares of the
Company's common stock to certain directors and stockholders of the Company. The
warrants were valued using the Black-Scholes pricing model with an assumed stock
price volatility of .40, risk-free interest rate of 6.0%, estimated fair value
of the common stock of $1.92 per share and expected lives of 3 years. The value
assigned to these warrants was fully amortized to interest expense over the
expected term of the debt agreements (approximately three months).
In January 1998, the Company issued a warrant to purchase 140,000 shares of its
common stock to BankBoston N.A. in connection with the January Credit Facility.
The warrant was valued using the Black-Scholes pricing model with an assumed
stock price volatility of .40, risk-free interest rate of 6.0%, estimated fair
value of the common stock of $7.50 per share and an expected life of 10 years.
The value assigned to the warrant was reflected as a discount on long-term debt
and accreted to interest expense using the interest method over the expected
term of the January Credit Facility. The January Credit Facility was
extinguished in May 1998 and the unamortized discount on the debt was expensed
as an extraordinary loss on early extinguishment of debt.
In February 1998, the Company issued warrants to purchase 200,000 shares of its
common stock in connection with an acquisition. The warrant was valued using the
Black-Scholes pricing model with an assumed stock price volatility of .40,
risk-free interest rate of 6.0%, estimated fair value of the common stock of
$7.50 per share and an expected life of 5 years. The value of the warrant was
recorded as an element of purchase price for the acquisition.
F-27
<PAGE> 28
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Warrants issued to third party market development consultants are valued using
the Black-Scholes pricing model with an assumed stock price volatility of .40 in
1998 and .55 in 1999, risk-free interest rate of 6.0%, and contractual term of 2
years. These warrants are recorded as an element of the related acquisitions.
13. INCOME TAXES
The provision (benefit) for income taxes for the years ended December 31, 1997,
1998 and 1999 consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal $ 794 $ 1,463 $ 7,800
State - 146 865
Deferred:
Federal (462) 1,286 2,053
State - 145 206
------- ------- -------
$ 332 $ 3,040 $10,924
======= ======= =======
</TABLE>
Significant components of deferred income tax assets and liabilities are as
follows as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred income tax assets:
Basis step-up in acquired assets $ - $ 396
Accounts receivable reserves 98 66
Accrued expenses 14 142
State taxes 22 42
Other 89 179
-------- --------
Total deferred income tax assets: 223 825
======== ========
Deferred income tax liabilities:
Net asset basis difference in
non-taxable acquisitions (255) (68,505)
Amortization (300) (1,257)
Depreciation (1,641) (3,976)
Other liabilities (153) (410)
Prepaid expenses (180) (1,097)
-------- --------
Total deferred income tax liabilities (2,529) (75,245)
-------- --------
Net deferred income tax liability $ (2,306) $(74,420)
======== ========
</TABLE>
The differences between the Company's provision (benefit) for income taxes as
presented in the accompanying statements of operations and benefit for income
taxes computed at the federal statutory rate is comprised of the items shown in
the following table as a percentage of pre-tax income (loss):
F-28
<PAGE> 29
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Income tax provision (benefit) at the statutory rate (34.0)% 34.0% 35.0%
State taxes, net of federal benefit - 4.0 3.5
Acquisition charges - - 10.3
Goodwill amortization - 3.0 2.1
Subchapter S (1.3) 3.2 1.1
Stock compensation expense 44.0 3.0 0.5
Other 1.2 0.8 1.7
------ ------ ------
9.9% 48.0% 54.2%
====== ====== ======
</TABLE>
14. NET INCOME (LOSS) PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and denominator
used in the computation of basic and diluted net loss per share for the years
ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1997 1998 1999
---------- ------------ -----------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item $ (3,699) $ 3,294 $ 9,227
Redeemable convertible preferred stock accretion (531) (917) -
---------- ------------ -----------
Income (loss) applicable to common stockholders
before extraordinary item $ (4,230) $ 2,377 $ 9,227
========== ============ ===========
Extraordinary item - (1,027) -
---------- ------------ -----------
Net income (loss) applicable to common
stockholder $ (4,230) $ 1,350 $ 9,227
========== =========== ===========
Denominator:
Weighted average common shares outstanding 5,807,592 10,412,868 18,655,801
Dilutive effect of stock options and warrants
outstanding - 1,628,930 1,273,738
Incremental common shares issuable upon redemption
of redeemable common stock - 282,192 -
---------- ----------- ------------
5,807,592 12,323,990 19,929,539
========== =========== ============
</TABLE>
As of December 31, 1998 and 1999, the Company had the following common stock
equivalents that have not been included in the computation of diluted net income
per share because to do so would have been antidilutive:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1999
------------------------------ ------------------------------
Number of Exercise Number of Exercise
Shares Price Range Shares Price Range
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Outstanding options 87,832 $18.62 to $22.13 103,000 $21.50 to $26.50
Outstanding warrants 51,485 $17.00 to $22.13 81,081 $21.50 to $30.50
------- -------
139,317 184,081
------- -------
</TABLE>
F-29
<PAGE> 30
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
15. RELATED PARTY TRANSACTIONS
Advances
As of December 31, 1998, the Murrey Companies had non-interest bearing advances
payable to one of their shareholders totaling $543. These advances were paid in
full in 1999.
Shareholder Notes Payable
As of December 31, 1998, Cook's had notes payable to shareholders and other
related parties totaling $863. These notes payable were secured by all assets of
Cook's, carried an annual interest rate of 12% and were paid in full in December
1999.
Disposal Fees
During the years ended December 31, 1997, 1998 and 1999, the Murrey Companies
paid $8,592, $8,816 and $10,328, respectively, in disposal fees to a landfill
that is owned and operated by a company in which one of the Murrey Companies'
shareholders has an approximate 33% ownership interest.
Shareholder Notes Receivable
Central, G&P, and Omega provided loans totaling $365 as of December 31, 1998 to
shareholders of those corporations. These notes were non-interest bearing and
repaid in 1999.
16. EMPLOYEE BENEFIT PLANS
WCI has a voluntary savings and investment plan (the "WCI 401(k) Plan"). The WCI
401(k) Plan is available to all eligible, non-union employees of WCI. Under the
WCI 401(k) Plan, WCI's contributions are 40% of the first 5% of the employee's
contributions. The Murrey Companies have a voluntary savings and investment plan
(the "Murrey 401(k) Plan"). The Murrey 401(k) Plan is available to all eligible,
non-union employees of the Murrey Companies. Under the Murrey 401(k) Plan, the
Murrey Companies' contributions are at the discretion of management. During the
years ended December 31, 1997, 1998 and 1999, the total 401(k) plan expense for
the WCI and Murrey 401(k) plans was approximately $318, $394 and $848,
respectively.
F-30
<PAGE> 31
WASTE CONNECTIONS, INC. AND PREDECESSORS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results of
operations as reported and as restated for poolings-of-interests for 1998 and
1999 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
1998 as reported $ 7,601 $ 10,919 $ 16,828 $ 18,706
1998 as restated 18,408 22,517 28,795 29,904
Gross profit:
1998 as reported 2,204 3,486 5,636 6,159
1998 as restated 4,891 6,540 8,490 8,068
Income before extraordinary item:
1998 as reported 35 538 1,042 1,158
1998 as restated 516 1,161 1,047 570
Net income (loss):
1998 as reported 34 (277) 1,042 946
1998 as restated 516 346 1,047 358
Basic earnings (loss) per common share:
1998 as reported (0.23) (0.12) 0.12 0.10
1998 as restated (0.01) 0.00 0.08 0.03
Diluted earnings (loss) per common share:
1998 as reported (0.23) (0.08) 0.10 0.09
1998 as restated (0.01) 0.00 0.07 0.02
Revenues:
1999 as reported 30,883 40,219 48,610 60,391
1999 as restated 33,178 40,901 49,345 60,801
Gross profit:
1999 as reported 10,763 15,414 19,302 24,726
1999 as restated 11,542 15,626 19,526 24,845
Net income (loss):
1999 as reported (4,362) 3,152 4,919 5,390
1999 as restated (4,286) 3,184 4,952 5,377
Basic earnings (loss) per common share:
1999 as reported (0.28) 0.18 0.26 0.26
1999 as restated (0.27) 0.18 0.26 0.25
Diluted earnings (loss) per common share:
1999 as reported (0.28) 0.16 0.24 0.25
1999 as restated (0.27) 0.16 0.24 0.24
</TABLE>
18. SUBSEQUENT EVENTS
Waste Wranglers Inc. Merger
The Company merged with Waste Wranglers Inc. on January 12, 2000 (Note
2). The transaction was accounted for as a pooling-of-interest, whereby the
Company issued 103,315 shares of its common stock for all of the outstanding
shares of Waste Wranglers Inc. In connection with the merger, the Company
incurred transaction related costs of approximately $150 which were charged to
operations in the first quarter 2000.
New Credit Facility
On May 16, 2000, the Company obtained commitments from a syndicate of
banks led by FleetBoston Financial Corporation, which increased the Company's
borrowing capacity from $315,000 to $425,000 and modified certain covenants. The
new credit facility matures in 2005.
Allied Waste Acquisition
On April 17, 2000, the Company acquired the stock and assets from Allied
Waste Industries, Inc. of its Wichita, Kansas collection operation and Finney
County Landfill. Total consideration paid for the stock and assets was $68,404
in cash.
F-31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Waste Connections, Inc.
By: /s/ Ronald J. Mittelstaedt
---------------------------------------
Ronald J. Mittelstaedt
President
Date: July 21, 2000
F-32
<PAGE> 33
The following exhibits are filed herewith:
Exibit Number Description
------------- -----------
ex-23.1 Consent of Ernst & Young LLP,
Independent Auditors
ex-99.1 Schedule II
