UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark
One)
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þ
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the quarterly period ended June 30, 2008
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or
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
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For
the transition period
from
to
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Commission
file number 1-31507
WASTE
CONNECTIONS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or other jurisdiction of incorporation or organization)
94-3283464
(I.R.S.
Employer Identification No.)
35
Iron Point Circle, Suite 200, Folsom, CA 95630
(Address
of principal executive
offices) (Zip
code)
(916)
608-8200
(Registrant’s
telephone number, including area code)
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 þ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
þ
Large accelerated filer ¨ Accelerated
filer ¨ Non-accelerated
filer ¨ Smaller reporting
company
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock:
As of
July 11,
2008: 66,540,160 shares
of common stock
WASTE
CONNECTIONS, INC.
FORM 10-Q
TABLE
OF CONTENTS
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Page
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PART I
– FINANCIAL INFORMATION (unaudited)
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Item 1.
Financial Statements
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1
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2
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3
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4
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5
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19
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| Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
27
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| Item 4. | Controls and Procedures |
30
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PART II
– OTHER INFORMATION
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| Item 1. | Legal Proceedings |
31
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| Item 4. | Submission of Matters to a Vote of Security Holders |
32
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| Item 6. | Exhibits |
35
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34
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35
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PART I
– FINANCIAL INFORMATION
Item 1.
Financial Statements
WASTE
CONNECTIONS, INC.
(Unaudited)
(In
thousands, except share and per share amounts)
|
December 31,
2007
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June 30,
2008
|
|||||||
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ASSETS
|
||||||||
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Current
assets:
|
||||||||
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Cash
and equivalents
|
$ | 10,298 | $ | 10,645 | ||||
|
Accounts
receivable, net of allowance for doubtful accounts of $4,387 and $3,603 at
December 31, 2007 and June 30, 2008,
respectively
|
123,882 | 127,112 | ||||||
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Deferred
income taxes
|
14,732 | 16,591 | ||||||
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Prepaid
expenses and other current assets
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21,953 | 18,285 | ||||||
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Total current
assets
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170,865 | 172,633 | ||||||
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Property
and equipment, net
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865,330 | 873,035 | ||||||
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Goodwill
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811,049 | 824,969 | ||||||
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Intangible
assets, net
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93,957 | 108,096 | ||||||
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Restricted
assets
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19,300 | 20,486 | ||||||
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Other
assets, net
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21,457 | 21,380 | ||||||
| $ | 1,981,958 | $ | 2,020,599 | |||||
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
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Current
liabilities:
|
||||||||
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Accounts
payable
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$ | 59,912 | $ | 63,311 | ||||
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Book
overdraft
|
8,835 | 9,157 | ||||||
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Accrued
liabilities
|
69,578 | 76,734 | ||||||
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Deferred
revenue
|
44,074 | 46,764 | ||||||
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Current
portion of long-term debt and notes payable
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13,315 | 13,481 | ||||||
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Total current
liabilities
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195,714 | 209,447 | ||||||
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Long-term
debt and notes payable
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719,518 | 701,100 | ||||||
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Other
long-term liabilities
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38,053 | 36,817 | ||||||
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Deferred
income taxes
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223,308 | 238,649 | ||||||
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Total
liabilities
|
1,176,593 | 1,186,013 | ||||||
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Commitments
and contingencies (Note 12)
|
||||||||
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Minority
interests
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30,220 | 31,372 | ||||||
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Stockholders’
equity:
|
||||||||
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Preferred
stock: $0.01 par value per share; 7,500,000 shares authorized; none issued
and outstanding
|
- | - | ||||||
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Common
stock: $0.01 par value per share; 150,000,000 shares authorized;
67,052,135 and 66,540,160 shares issued and outstanding at
December 31, 2007 and June 30, 2008,
respectively
|
670 | 665 | ||||||
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Additional
paid-in capital
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254,284 | 234,218 | ||||||
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Retained
earnings
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524,481 | 573,833 | ||||||
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Accumulated
other comprehensive loss
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(4,290 | ) | (5,502 | ) | ||||
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Total stockholders’
equity
|
775,145 | 803,214 | ||||||
| $ | 1,981,958 | $ | 2,020,599 | |||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Page
1
WASTE
CONNECTIONS, INC.
(Unaudited)
(In
thousands, except share and per share amounts)
|
Three
months ended June 30,
|
Six
months ended June 30,
|
|||||||||||||||
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2007
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2008
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2007
|
2008
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|||||||||||||
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Revenues
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$ | 241,084 | $ | 267,033 | $ | 460,035 | $ | 517,333 | ||||||||
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Operating
expenses:
|
||||||||||||||||
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Cost
of operations
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141,574 | 159,862 | 270,443 | 308,994 | ||||||||||||
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Selling,
general and administrative
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24,790 | 27,065 | 48,700 | 54,155 | ||||||||||||
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Depreciation
and amortization
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20,930 | 24,065 | 40,520 | 47,288 | ||||||||||||
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Loss
on disposal of assets
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32 | 451 | 192 | 508 | ||||||||||||
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Operating
income
|
53,758 | 55,590 | 100,180 | 106,388 | ||||||||||||
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Interest
expense, net
|
(8,295 | ) | (8,920 | ) | (16,113 | ) | (18,240 | ) | ||||||||
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Other
income, net
|
365 | 345 | 417 | 333 | ||||||||||||
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Income
before income taxes and minority interests
|
45,828 | 47,015 | 84,484 | 88,481 | ||||||||||||
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Minority
interests
|
(4,130 | ) | (3,807 | ) | (6,970 | ) | (7,179 | ) | ||||||||
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Income
from operations before income taxes
|
41,698 | 43,208 | 77,514 | 81,302 | ||||||||||||
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Income
tax provision
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(16,432 | ) | (16,974 | ) | (29,868 | ) | (31,950 | ) | ||||||||
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Net
income
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$ | 25,266 | $ | 26,234 | $ | 47,646 | $ | 49,352 | ||||||||
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Basic
earnings per common share
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$ | 0.37 | $ | 0.39 | $ | 0.70 | $ | 0.74 | ||||||||
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Diluted
earnings per common share
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$ | 0.36 | $ | 0.39 | $ | 0.67 | $ | 0.73 | ||||||||
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Shares
used in calculating basic
income
per share
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68,592,474 | 66,468,457 | 68,529,546 | 66,628,927 | ||||||||||||
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Shares
used in calculating diluted
income
per share
|
70,625,086 | 67,842,845 | 70,606,846 | 67,982,399 | ||||||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Page
2
WASTE
CONNECTIONS, INC.
Six
months ended June 30, 2008
(Unaudited)
(In
thousands, except share amounts)
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STOCKHOLDERS’
EQUITY
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||||||||||||||||||||||||||||
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Comprehensive
Income
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Common
Stock
|
Additional
Paid-In
Capital
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Accumulated
Other
Comprehensive
Loss
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Retained
Earnings
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Total
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|||||||||||||||||||||||
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Shares
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Amount
|
|||||||||||||||||||||||||||
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Balances
at December 31, 2007
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67,052,135 | $ | 670 | $ | 254,284 | $ | (4,290 | ) | $ | 524,481 | $ | 775,145 | ||||||||||||||||
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Vesting
of restricted stock
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204,728 | 2 | (2 | ) | - | - | - | |||||||||||||||||||||
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Cancellation
of restricted stock
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(66,475 | ) | (1 | ) | (2,001 | ) | - | - | (2,002 | ) | ||||||||||||||||||
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Stock-based
compensation
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- | - | 3,956 | - | - | 3,956 | ||||||||||||||||||||||
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Exercise
of stock options and warrants
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391,043 | 4 | 7,539 | - | - | 7,543 | ||||||||||||||||||||||
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Excess
tax benefit associated with equity-based compensation
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- | - | 1,928 | - | - | 1,928 | ||||||||||||||||||||||
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Repurchase
of common stock
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(1,041,271 | ) | (10 | ) | (31,517 | ) | - | - | (31,527 | ) | ||||||||||||||||||
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Issuance
of common stock warrants to consultants
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- | - | 31 | - | - | 31 | ||||||||||||||||||||||
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Amounts
reclassified into earnings, net of taxes
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- | - | - | 1,623 | - | 1,623 | ||||||||||||||||||||||
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Change
in fair value of interest rate swaps, net of taxes
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- | - | - | (2,835 | ) | - | (2,835 | ) | ||||||||||||||||||||
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Net
income
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$ | 49,352 | - | - | - | - | 49,352 | 49,352 | ||||||||||||||||||||
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Other
comprehensive loss
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(1,977 | ) | - | - | - | - | - | - | ||||||||||||||||||||
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Income
tax effect of other comprehensive loss
|
765 | - | - | - | - | - | - | |||||||||||||||||||||
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Comprehensive
income
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$ | 48,140 | - | - | - | - | - | - | ||||||||||||||||||||
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Balances
at June 30, 2008
|
66,540,160 | $ | 665 | $ | 234,218 | $ | (5,502 | ) | $ | 573,833 | $ | 803,214 | ||||||||||||||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Page
3
WASTE
CONNECTIONS, INC.
(Unaudited)
(In
thousands)
|
Six
months ended June 30,
|
||||||||
|
2007
|
2008
|
|||||||
|
Cash
flows from operating activities:
|
||||||||
|
Net
income
|
$ | 47,646 | $ | 49,352 | ||||
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
|
Loss
on disposal of assets
|
192 | 508 | ||||||
|
Depreciation
|
38,459 | 44,474 | ||||||
|
Amortization
of intangibles
|
2,061 | 2,814 | ||||||
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Deferred
income taxes, net of acquisitions
|
3,741 | 13,769 | ||||||
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Minority
interests
|
6,970 | 7,179 | ||||||
|
Amortization
of debt issuance costs
|
961 | 970 | ||||||
|
Stock-based
compensation
|
3,134 | 3,956 | ||||||
|
Interest
income on restricted assets
|
(261 | ) | (287 | ) | ||||
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Closure
and post-closure accretion
|
522 | 729 | ||||||
|
Excess
tax benefit associated with equity-based compensation
|
(8,534 | ) | (1,928 | ) | ||||
|
Net
change in operating assets and liabilities, net of
acquisitions
|
12,387 | 8,391 | ||||||
|
Net
cash provided by operating activities
|
107,278 | 129,927 | ||||||
|
Cash
flows from investing activities:
|
||||||||
|
Payments
for acquisitions, net of cash acquired
|
(40,591 | ) | (33,437 | ) | ||||
|
Capital
expenditures for property and equipment
|
(64,509 | ) | (48,323 | ) | ||||
|
Proceeds
from disposal of assets
|
559 | 1,366 | ||||||
|
Increase
in restricted assets, net of interest income
|
(750 | ) | (900 | ) | ||||
|
Decrease
(increase) in other assets
|
(485 | ) | 112 | |||||
|
Net
cash used in investing activities
|
(105,776 | ) | (81,182 | ) | ||||
|
Cash
flows from financing activities:
|
||||||||
|
Proceeds
from long-term debt
|
42,000 | 90,500 | ||||||
|
Principal
payments on notes payable and long-term debt
|
(45,668 | ) | (111,046 | ) | ||||
|
Change
in book overdraft
|
5,838 | 322 | ||||||
|
Proceeds
from option and warrant exercises
|
21,082 | 7,543 | ||||||
|
Excess
tax benefit associated with equity-based compensation
|
8,534 | 1,928 | ||||||
|
Distributions
to minority interest holders
|
(6,272 | ) | (6,027 | ) | ||||
|
Payments
for repurchase of common stock
|
(51,894 | ) | (31,527 | ) | ||||
|
Debt
issuance costs
|
(100 | ) | (91 | ) | ||||
|
Net
cash used in financing activities
|
(26,480 | ) | (48,398 | ) | ||||
|
Net
increase (decrease) in cash and equivalents
|
(24,978 | ) | 347 | |||||
|
Cash
and equivalents at beginning of period
|
34,949 | 10,298 | ||||||
|
Cash
and equivalents at end of period
|
$ | 9,971 | $ | 10,645 | ||||
|
Non-cash
financing activity:
|
||||||||
|
Liabilities
assumed and notes payable issued to sellers of businesses
acquired
|
$ | 8,738 | $ | 4,965 | ||||
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
Page
4
WASTE
CONNECTIONS, INC.
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
1. BASIS
OF PRESENTATION AND SUMMARY
The
accompanying condensed consolidated financial statements relate to Waste
Connections, Inc. and its subsidiaries (“WCI” or the “Company”) for the six
month periods ended June 30, 2007 and 2008. In the opinion of
management, the accompanying balance sheets and related interim statements of
income, cash flows and stockholders’ equity include all adjustments, consisting
only of normal recurring items, necessary for their fair presentation in
conformity with U.S. generally accepted accounting principles (“GAAP”).
The Company’s condensed consolidated balance sheet as of December 31, 2007
was derived from audited financial statements, but does not include all
disclosures required by GAAP. Preparing financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses. Examples include accounting for
landfills, self-insurance, income taxes, allocation of acquisition purchase
price and asset impairments. An additional area that involves estimation
is when the Company estimates the amount of potential exposure it may have with
respect to litigation, claims and assessments in accordance with Financial
Accounting Standards Board (“FASB”) Statement No. 5, Accounting for Contingencies.
Actual results for all estimates could differ materially from the estimates and
assumptions that the Company uses in the preparation of its condensed
consolidated financial statements.
Interim
results are not necessarily indicative of results for a full year. The
information included in this Quarterly Report on Form 10-Q should be read
in conjunction with Management’s Discussion and Analysis of Financial Condition
and Results of Operations and the financial statements and notes thereto
included in the Company’s 2007 Annual Report on
Form 10-K.
2. NEW
ACCOUNTING STANDARDS
SFAS 141(R).
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations
(“SFAS 141(R)”). SFAS 141(R) will have a material impact on the
Company as it establishes principles and requirements for how the Company:
(a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree; (b) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase; and (c) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination. SFAS 141(R)
requires contingent consideration to be recognized at its fair value on the
acquisition date and, for certain arrangements, changes in fair value to be
recognized in earnings until settled. SFAS 141(R) also requires
acquisition-related transaction and restructuring costs to be expensed rather
than treated as part of the cost of the acquisition. SFAS 141(R)
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008.
SFAS 157.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”), which defines fair value, establishes a framework for
measuring fair value in accordance with GAAP, and expands disclosures about fair
value measurements. SFAS 157 applies under other existing accounting
pronouncements that require or permit fair value measurements, as the FASB
previously concluded in those accounting pronouncements that fair value is the
relevant measurement attribute. Accordingly, SFAS 157 does not
require any new fair value measurements. Effective January 1, 2008,
the Company adopted SFAS 157 as it relates to financial assets and
liabilities. The new disclosures required by SFAS 157 are included in
Note 9.
FSP
157-2. In February
2008, the FASB issued FASB Staff Position No. 157-2, Effective
Date of FASB Statement No. 157 (“FSP 157-2”), which
delays the effective date of SFAS 157 for nonfinancial assets and
nonfinancial liabilities. Therefore, the Company has delayed
application of SFAS 157 to its nonfinancial assets and nonfinancial
liabilities, which include assets and liabilities acquired in connection with a
business combination, goodwill, intangible assets and asset retirement
obligations recognized in connection with final capping, closure and
post-closure landfill obligations, until January 1, 2009. The Company
is currently evaluating the impact of SFAS 157 for nonfinancial assets and
liabilities on the Company's financial position and results of operations.
Page
5
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
SFAS 159.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities - Including an Amendment of FASB Statement
No. 115 (“SFAS 159”). SFAS 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value.
SFAS 159 permits all entities to choose, at specified election dates, to
measure eligible items at fair value (the “fair value option”). A business
entity shall report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting
date. Upfront costs and fees related to items for which the fair value
option is elected are recognized in earnings as incurred and not deferred.
SFAS 159 also establishes presentation and disclosure requirements designed
to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is
effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. The Company did not adopt the fair value option
permitted under this statement.
SFAS 160. In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements - an Amendment of ARB No. 51
(“SFAS 160”), which establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. SFAS 160
also requires consolidated net income to be reported at amounts that include the
amounts attributable to both the parent and the noncontrolling interest.
It also requires disclosure, on the face of the consolidated statement of
income, of the amounts of consolidated net income attributable to the parent and
to the noncontrolling interest. SFAS 160 also provides guidance when
a subsidiary is deconsolidated and requires expanded disclosures in the
consolidated financial statements that clearly identify and distinguish between
the interests of the parent’s owners and the interests of the noncontrolling
owners of a subsidiary. SFAS 160 is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. The Company is currently evaluating the impact
this statement will have on its financial position and results of
operations.
SFAS 161.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement No.
133 (“SFAS 161”), which amends and expands the disclosure
requirements of FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities (“SFAS 133”), with the intent to
provide users of financial statements with an enhanced understanding of:
(a) how and why an entity uses derivative instruments; (b) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations; and (c) how derivative instruments and
related hedged items affect an entity’s financial position, financial
performance and cash flows. SFAS 161 requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures
about fair value amounts of and gains and losses on derivative instruments and
disclosures about credit-risk-related contingent features in derivative
instruments. This statement applies to all entities and all derivative
instruments. SFAS 161 is effective for financial statements issued
for fiscal years and interim periods beginning after November 15,
2008.
FSP No. APB
14-1. In May 2008, the FASB issued FASB Staff Position No. APB
14-1, Accounting for
Convertible Debt Instruments That May Be Settled in Cash Upon Conversion
(Including Partial Cash Settlement) (“FSP No. APB 14-1”). FSP
No. APB 14-1 applies to convertible debt instruments that, by their stated
terms, may be settled in cash (or other assets) upon conversion, including
partial cash settlement, unless the embedded conversion option is required to be
separately accounted for as a derivative under SFAS 133. FSP No. APB
14-1 specifies that issuers of convertible debt instruments should separately
account for the liability and equity components in a manner that will reflect
the entity’s nonconvertible debt borrowing rate when interest cost is recognized
in subsequent periods. FSP No. APB 14-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. FSP No. APB 14-1 shall be
applied retrospectively to all periods presented. The cumulative effect of
the change in accounting principle on periods prior to those presented shall be
recognized as of the beginning of the first period presented. An
offsetting adjustment shall be made to the opening balance of retained earnings
for that period, presented separately.
Page
6
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
The
adoption of FSP No. APB 14-1 will not affect the Company’s cash flows;
however, it will impact the Company’s results of operations by increasing
interest expense associated with the Company’s 3.75% Convertible Senior Notes
due 2026 (“2026 Notes”) by adding a non-cash component to amortize a debt
discount calculated based on the difference between the cash coupon of the
convertible debt instrument and the estimated non-convertible debt borrowing
rate. The 2026 Notes were issued in March 2006 and bear interest at a
rate of 3.75% per annum. At the date of issuance, the Company’s borrowing
rate for similar debt instruments with no conversion rights was estimated at
6.5% per annum. The adoption of FSP No. APB 14-1 will require the
Company to record a debt discount, which will be amortized to interest expense
through April 1, 2011, representing the first date on which holders of the
2026 Notes may require the Company to repurchase all or a portion of their
notes. Upon the adoption of FSP No. APB 14-1, the annual decrease to
net income as a result of amortizing the non-cash debt discount, net of the
expected income tax benefit, will be as follows:
|
Year
ended December 31, 2006
|
$
|
1,800
|
|
|
Year
ended December 31, 2007
|
$
|
2,500
|
|
|
Year
ended December 31, 2008
|
$
|
2,600
|
|
|
Year
ended December 31, 2009
|
$
|
2,800
|
|
|
Year
ended December 31, 2010
|
$
|
3,000
|
|
|
Year
ended December 31, 2011
|
$
|
800
|
|
Upon
conversion of a convertible debt instrument, the Company must allocate the fair
value of the consideration transferred and any transaction costs incurred
between the equity and liability components. This is done by first
allocating to the liability component an amount equal to the fair value of the
liability component immediately prior to its conversion, with the residual
consideration allocated to the equity component. Any gain or loss equal to
the difference between the consideration allocated to the liability component
and the carrying value of the liability component, including any unamortized
debt discount or issuance costs, is recorded in earnings.
FSP No. FAS
142-3. In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of
Intangible Assets (“FSP FAS 142-3”), which amends the factors that should
be considered in developing renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FASB Statement No. 142,
Goodwill and Other Intangible
Assets (“SFAS 142”). The intent of FSP FAS 142-3 is to improve
the consistency between the useful life of a recognized intangible asset under
SFAS 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS 141(R) and other U.S. generally accepted accounting
principles. FSP FAS 142-3 requires an entity to disclose information
for a recognized intangible asset that enables users of the financial statements
to assess the extent to which the expected future cash flows associated with the
asset are affected by the entity’s intent and/or ability to renew or extend the
arrangement. FSP FAS 142-3 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the adoption
of FSP FAS 142-3 to have a material impact on the Company’s financial position
or results of operations.
Page
7
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
3. STOCK-BASED
COMPENSATION
A summary
of activity related to restricted stock and restricted stock units under the
2002 Restricted Stock Plan and the Second Amended and Restated 2004 Equity
Incentive Plan, as of December 31, 2007, and changes during the six month
period ended June 30, 2008, is presented below:
|
Unvested
Shares
|
|||||
|
Outstanding
at December 31, 2007
|
804,748 | ||||
|
Granted
|
375,799 | ||||
|
Forfeited
|
(37,765 | ) | |||
|
Vested
|
(204,728 | ) | |||
|
Outstanding
at June 30, 2008
|
938,054 | ||||
The
weighted average grant date fair value per share for the 375,799 shares of
common stock underlying the restricted stock units granted during the six month
period ended June 30, 2008 was $28.91. During the six months
ended June 30, 2007 and 2008, the Company's stock-based compensation
expense from restricted stock and restricted stock units was $2,804 and $3,625,
respectively.
4. LANDFILL
ACCOUNTING
At
June 30, 2008, the Company owned 26 landfills, and operated, but did
not own, three landfills under life-of-site operating agreements and
seven landfills under limited-term operating agreements. The
Company’s landfills had site costs with a net book value of $486,546 at
June 30, 2008. With the exception of two owned landfills that
only accept construction and demolition waste, all landfills that the Company
owns or operates are municipal solid waste landfills. For the Company’s
seven landfills operated under limited-term operating agreements, the owner
of the property (generally a municipality) usually owns the permit and is
generally responsible for final capping, closure and post-closure
obligations. The Company is responsible for all final capping, closure and
post-closure liabilities for the three landfills that it operates under
life-of-site operating agreements.
The
Company performs surveys at least annually to estimate the disposal capacity at
its landfills. Many of the Company’s existing landfills have the potential
for expanded disposal capacity beyond the amount currently permitted. The
Company’s landfill depletion rates are based on the remaining disposal capacity,
considering both permitted and probable expansion airspace at the landfills it
owns, and landfills it operates, but does not own, under life-of-site
agreements. Expansion airspace consists of additional disposal capacity
being pursued through means of an expansion but is not actually permitted.
Expansion airspace that meets certain internal criteria is included in the
estimate of total landfill airspace. The Company’s landfill depletion
rates are based on the term of the operating agreement at its operated landfills
that have capitalized expenditures.
Based on
remaining permitted capacity as of June 30, 2008, and projected annual
disposal volumes, the average remaining landfill life for the Company’s owned
landfills and landfills operated under life-of-site operating agreements is
approximately 45 years. The Company is currently seeking to expand
permitted capacity at five of its owned landfills and one landfill that it
operates under a life-of-site operating agreement, and considers the achievement
of these expansions to be probable. Although the Company cannot be certain
that all future expansions will be permitted as designed, the average remaining
life, when considering remaining permitted capacity, probable expansion capacity
and projected annual disposal volume, of the Company’s owned landfills and
landfills operated under life-of-site operating agreements is 50 years, with
lives ranging from 2 to 206 years.
Page
8
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
During
the six months ended June 30, 2007 and 2008, the Company expensed
approximately $9,835 and $11,100, respectively, or an average of $2.53 and
$2.66 per ton consumed, respectively, related to landfill depletion at
owned landfills and landfills operated under life-of-site
agreements.
The
Company reserves for final capping, closure and post-closure maintenance
obligations at the landfills it owns and landfills it operates under
life-of-site operating agreements. The Company calculates the net present
value of its final capping, closure and post-closure commitments recorded in
2008 assuming a 2.5% inflation rate and a 7.5% discount rate. The
resulting final capping, closure and post-closure obligation is recorded on the
balance sheet as an addition to site costs and amortized to depletion expense as
the landfill’s airspace is consumed. Interest is accreted on the recorded
liability using the corresponding discount rate. During the six months
ended June 30, 2007 and 2008, the Company expensed approximately $522 and
$729, respectively, or an average of $0.13 and $0.17 per ton consumed,
respectively, related to final capping, closure and post-closure accretion
expense.
The
following is a reconciliation of the Company’s final capping, closure and
post-closure liability balance from December 31, 2007 to June 30,
2008:
|
Final
capping, closure and post-closure liability at December 31,
2007
|
$
|
17,853
|
|||
|
Adjustments
to final capping, closure and post-closure liabilities
|
1,394
|
||||
|
Liabilities
incurred
|
856
|
||||
|
Accretion
expense
|
729
|
||||
|
Closure
payments
|
(332)
|
||||
|
Final
capping, closure and post-closure liability at June 30,
2008
|
$
|
20,500
|
The
Company recorded adjustments in its final capping, closure and post-closure
liabilities due primarily to revisions in cost estimates and changes in the
timing of capping events at an owned landfill, partially offset by an increase
in airspace at a landfill where an expansion is being pursued. The Company
performs its annual review of its cost and capacity estimates in the first
quarter of each year.
At
June 30, 2008, $18,249 of the Company’s restricted assets balance was for
purposes of settling future final capping, closure and post-closure
liabilities.
Page
9
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
5. LONG-TERM
DEBT
Long-term
debt consists of the following:
|
December 31,2007
|
June 30,
2008
|
|||||||
|
Revolver
under Credit Facility, bearing interest ranging from 3.01% to
7.25%*
|
$ | 479,000 | $ | 463,000 | ||||
|
2026
Convertible Senior Notes, bearing interest at 3.75%
|
200,000 | 200,000 | ||||||
|
2001
Wasco Bonds, bearing interest from 7.0% to 7.25%*
|
11,285 | 10,800 | ||||||
|
California
Tax-Exempt Bonds, bearing interest ranging from 1.10% to
3.44%*
|
33,225 | 33,165 | ||||||
|
Notes
payable to sellers in connection with acquisitions, bearing interest at
5.5% to 7.5%*
|
3,994 | 3,315 | ||||||
|
Notes
payable to third parties, bearing interest at 6.0% to
11.0%*
|
5,329 | 4,301 | ||||||
| 732,833 | 714,581 | |||||||
|
Less – current
portion
|
(13,315 | ) | (13,481 | ) | ||||
| $ | 719,518 | $ | 701,100 | |||||
|
|
* Interest
rates in the table above represent the range of interest rates incurred
during the six month period ended June 30,
2008.
|
In June
2008, the Company increased maximum borrowings available under its credit
facility by $45,000 to $845,000. No changes were made to the pricing,
terms, conditions and covenants of the credit facility.
6. ACQUISITIONS
Acquisitions
are accounted for under the purchase method of accounting. The results of
operations of the acquired businesses have been included in the Company’s
consolidated financial statements from their respective acquisition
dates.
During
the six months ended June 30, 2007, the Company acquired five non-hazardous
solid waste collection, transfer and disposal businesses. Aggregate
consideration for the acquisitions consisted of $39,899 in cash (net of cash
acquired), common stock warrants valued at $53 and the assumption of debt
totaling $4,403. During the six months ended June 30, 2007, the
Company paid or adjusted $692 of acquisition-related liabilities accrued at
December 31, 2006.
During
the six months ended June 30, 2008, the Company acquired six non-hazardous
solid waste collection and recycling businesses. Aggregate consideration
for the acquisitions consisted of $32,525 in cash (net of cash acquired), common
stock warrants valued at $31 and the assumption of debt totaling $2,293.
During the six months ended June 30, 2008, the Company paid or adjusted
$912 of acquisition-related liabilities accrued at December 31,
2007.
The
purchase prices have been allocated to the identified intangible assets and
tangible assets acquired and liabilities assumed based on their estimated fair
values at the dates of acquisition, with any residual amounts allocated to
goodwill. Substantially all of the goodwill is expected to be deductible
for tax purposes. The purchase price allocations are considered
preliminary until the Company is no longer waiting for information that it has
arranged to obtain and that is known to be available or obtainable.
Although the time required to obtain the necessary information will vary with
circumstances specific to an individual acquisition, the “allocation period” for
finalizing purchase price allocations does not exceed one year from the
consummation of a business combination.
Page
10
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
As of
June 30, 2008, the Company had seven acquisitions for which purchase
price allocations were preliminary, mainly as a result of pending working
capital valuations. The Company believes the potential changes to its
preliminary purchase price allocations will not have a material impact on its
financial condition, results of operations or cash flows.
A summary
of the purchase price allocations for acquisitions consummated in the six months
ended June 30, 2007 and preliminary purchase price allocations for
acquisitions consummated in the six months ended June 30, 2008 are as
follows:
|
2007
Acquisitions
|
2008
Acquisitions
|
|||||||
|
Acquired
Assets:
|
||||||||
|
Accounts
receivable
|
$ | 3,527 | $ | 1,317 | ||||
|
Prepaid
expenses and other current assets
|
151 | 367 | ||||||
|
Property
and equipment
|
28,360 | 4,822 | ||||||
|
Goodwill
|
15,160 | 14,062 | ||||||
|
Long-term
franchise agreements and contracts
|
634 | 16,052 | ||||||
|
Other
intangibles
|
504 | 869 | ||||||
|
Non-competition
agreements
|
354 | 32 | ||||||
|
Assumed
Liabilities:
|
||||||||
|
Accounts
payable
|
(295 | ) | (163 | ) | ||||
|
Accrued
liabilities
|
(1,018 | ) | (1,424 | ) | ||||
|
Debt
and long-term liabilities assumed
|
(4,403 | ) | (2,293 | ) | ||||
|
Deferred
revenue
|
(2,187 | ) | (606 | ) | ||||
|
Deferred
income taxes
|
(835 | ) | (479 | ) | ||||
|
Total
consideration, net
|
$ | 39,952 | $ | 32,556 | ||||
The
acquisitions completed during the six months ended June 30, 2007 and 2008,
were not material to the Company’s results of operations.
Page
11
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
7. INTANGIBLE
ASSETS
Intangible
assets, exclusive of goodwill, consisted of the following at June 30,
2008:
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Carrying Amount
|
||||||||||
|
Amortizable
intangible assets:
|
||||||||||||
|
Long-term
franchise agreements and contracts
|
$ | 78,310 | $ | (10,809 | ) | $ | 67,501 | |||||
|
Non-competition
agreements
|
9,735 | (4,810 | ) | 4,925 | ||||||||
|
Other
|
17,932 | (6,110 | ) | 11,822 | ||||||||
| 105,977 | (21,729 | ) | 84,248 | |||||||||
|
Nonamortized
intangible assets:
|
||||||||||||
|
Indefinite-lived
intangible assets
|
23,848 | - | 23,848 | |||||||||
|
Intangible
assets, exclusive of goodwill
|
$ | 129,825 | $ | (21,729 | ) | $ | 108,096 | |||||
The
weighted-average amortization periods of long-term franchise agreements and
contracts, non-competition agreements and other intangibles acquired during the
six months ended June 30, 2008 are 40 years, 7 years and
7 years, respectively.
8. NET
INCOME PER SHARE INFORMATION
The
following table sets forth the calculation of the numerator and denominator used
in the computation of basic and diluted net income per common share for the
three and six months ended June 30, 2007 and 2008:
|
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
|
2007
|
2008
|
2007
|
2008
|
|||||||||||||
|
Numerator:
|
||||||||||||||||
|
Net
income for basic and diluted earnings per share
|
$ | 25,266 | $ | 26,234 | $ | 47,646 | $ | 49,352 | ||||||||
|
Denominator:
|
||||||||||||||||
|
Basic
shares outstanding
|
68,592,474 | 66,468,457 | 68,529,546 | 66,628,927 | ||||||||||||
|
Dilutive
effect of stock options and warrants
|
1,687,348 | 1,214,259 | 1,762,522 | 1,202,069 | ||||||||||||
|
Dilutive
effective of restricted stock
|
345,264 | 160,129 | 314,778 | 151,403 | ||||||||||||
|
Diluted
shares outstanding
|
70,625,086 | 67,842,845 | 70,606,846 | 67,982,399 | ||||||||||||
The
Company’s 2026 Notes are convertible, under certain circumstances, into a
maximum of 5,882,354 shares of common stock. The 2026 Notes require
(subject to certain exceptions) payment of the principal value in cash and net
share settle of the conversion value in excess of the principal value of the
notes upon conversion. In accordance with EITF 04-8, The Effect of Contingently
Convertible Investments on Diluted Earnings Per Share, these shares have
not been included in the computation of diluted net income per share for the six
months ended June 30, 2007 and 2008 because the conversion value was not in
excess of the principal value of the notes. In addition, the conversion
feature of the 2026 Notes meets all the requirements of EITF 00-19,
Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock, to be accounted for as an equity interest and not as a
derivative. Therefore, in the event the 2026 Notes become
convertible, a holder electing to convert will receive a cash payment for the
principal amount of the debt and net shares of the Company’s common stock equal
to the value of the conversion spread, which the Company will account for as a
debt repayment with no gain or loss if the conversion occurs prior to December
31, 2008, and the issuance of common stock will be recorded in stockholders’
equity. For conversions that occur after December 31, 2008, the
Company will apply the provisions of FSP No. APB 14-1 to compute any gain or
loss upon conversion, as disclosed in Note 2.
Page
12
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
For the
three months ended June 30, 2007 and 2008, stock options and warrants to
purchase zero and 177 shares of common stock, respectively, were excluded
from the computation of diluted earnings per share as they were
anti-dilutive. For the six months ended June 30, 2007 and 2008,
stock options and warrants to purchase 4,608 and 10,427 shares of common
stock, respectively, were excluded from the computation of diluted earnings per
share as they were anti-dilutive.
9. FAIR
VALUE OF FINANCIAL INSTRUMENTS
As
discussed in Note 2, effective January 1, 2008, the Company adopted
SFAS 157 as it relates to financial assets and liabilities that are being
measured and reported at fair value on a recurring basis. Although the
adoption of SFAS 157 did not materially impact its financial condition,
results of operations, or cash flows, the Company is now required to provide
additional disclosures as part of its financial statements. In accordance
with FSP 157-2, the Company deferred adoption of SFAS 157 as it
relates to nonfinancial assets and liabilities measured at fair value on a
nonrecurring basis.
SFAS 157
defines fair value, establishes a framework for measuring fair value in
accordance with GAAP, and expands disclosure about fair value
measurements. This statement is intended to enable the reader of the
financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. The statement requires that
assets and liabilities carried at fair value be classified and disclosed in a
three-tier fair value hierarchy. These tiers include: Level 1,
defined as quoted market prices in active markets for identical assets or
liabilities; Level 2, defined as inputs other than Level 1 that are
observable, either directly or indirectly, such as quoted prices for similar
assets or liabilities, quoted prices in markets that are not active, model-based
valuation techniques for which all significant assumptions are observable in the
market, or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities; and
Level 3, defined as unobservable inputs that are not corroborated by market
data.
The
Company’s financial assets and liabilities recorded at fair value on a recurring
basis include derivative instruments and certain investments included in
restricted assets. The Company’s derivative instruments are pay-fixed,
receive-variable interest rate swaps. The Company’s restricted assets
measured at fair value are invested in fixed-income securities. The
Company utilizes the market approach to measure fair value for both its interest
rate swaps and its restricted assets measured at fair value. The market
approach uses prices and other relevant information generated by market
transactions involving identical or comparable assets or
liabilities.
Page
13
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
The
Company’s assets and liabilities measured at fair value on a recurring basis
subject to the disclosure requirements of SFAS 157 at June 30, 2008,
were as follows:
|
Fair
Value Measurement at
Reporting
Date Using
|
||||||||||||||||
|
Total
|
Quoted
Prices in Active Markets for Identical Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable Inputs
(Level 3)
|
|||||||||||||
|
Interest
rate swap derivative instruments – liability position
|
$ | (8,975 | ) | $ | - | $ | (8,975 | ) | $ | - | ||||||
|
Restricted
assets
|
$ | 6,733 | $ | 6,733 | $ | - | $ | - | ||||||||
10. COMPREHENSIVE
INCOME
Comprehensive
income includes changes in the fair value of interest rate swaps that qualify
for hedge accounting. The difference between net income and comprehensive
income for the three and six months ended June 30, 2007 and 2008 is as
follows:
|
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
|
2007
|
2008
|
2007
|
2008
|
|||||||||||||
|
Net
income
|
$ | 25,266 | $ | 26,234 | $ | 47,646 | $ | 49,352 | ||||||||
|
Unrealized
gain (loss) on interest rate swaps, net of tax expense (benefit) of $833
and $4,633 for the three months ended June 30, 2007 and 2008,
respectively, and $(40) and $(765) for the six months ended June 30, 2007
and 2008, respectively
|
1,319 | 7,340 | (97 | ) | (1,212 | ) | ||||||||||
|
Comprehensive
income
|
$ | 26,585 | $ | 33,574 | $ | 47,549 | $ | 48,140 | ||||||||
Page
14
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
The
components of other comprehensive loss and related tax effects for the three and
six months ended June 30, 2007 and 2008 are as follows:
|
Three
months ended June 30, 2007
|
||||||||||||
|
Gross
|
Tax
effect
|
Net
of tax
|
||||||||||
|
Amounts
reclassified into earnings
|
$ | (837 | ) | $ | 322 | $ | (515 | ) | ||||
|
Changes
in fair value of interest rate swaps
|
2,989 | (1,155 | ) | 1,834 | ||||||||
| $ | 2,152 | $ | (833 | ) | $ | 1,319 | ||||||
|
Three
months ended June 30, 2008
|
||||||||||||
|
Gross
|
Tax
effect
|
Net
of tax
|
||||||||||
|
Amounts
reclassified into earnings
|
$ | 1,860 | $ | (720 | ) | $ | 1,140 | |||||
|
Changes
in fair value of interest rate swaps
|
10,113 | (3,913 | ) | 6,200 | ||||||||
| $ | 11,973 | $ | (4,633 | ) | $ | 7,340 | ||||||
|
Six
months ended June 30, 2007
|
||||||||||||
|
Gross
|
Tax
effect
|
Net
of tax
|
||||||||||
|
Amounts
reclassified into earnings
|
$ | (2,258 | ) | $ | 868 | $ | (1,390 | ) | ||||
|
Changes
in fair value of interest rate swaps
|
2,121 | (828 | ) | 1,293 | ||||||||
| $ | (137 | ) | $ | 40 | $ | (97 | ) | |||||
|
Six
months ended June 30, 2008
|
||||||||||||
|
Gross
|
Tax
effect
|
Net
of tax
|
||||||||||
|
Amounts
reclassified into earnings
|
$ | 2,648 | $ | (1,025 | ) | $ | 1,623 | |||||
|
Changes
in fair value of interest rate swaps
|
(4,625 | ) | 1,790 | (2,835 | ) | |||||||
| $ | (1,977 | ) | $ | 765 | $ | (1,212 | ) | |||||
The
estimated net amount of the existing unrealized losses as of June 30, 2008
(based on the interest rate yield curve at that date) included in accumulated
other comprehensive loss expected to be reclassified into pre-tax earnings
within the next 12 months is $7,225. The timing of actual amounts
reclassified into earnings is dependent on future movements in interest
rates.
11. SHARE
REPURCHASE PROGRAM
The
Company’s Board of Directors has authorized a common stock repurchase program
for the repurchase of up to $500,000 of its common stock through
December 31, 2008. Under the program, stock repurchases may be made
in the open market or in privately negotiated transactions from time to time at
management’s discretion. The timing and amounts of any repurchases will
depend on many factors, including the Company’s capital structure, the market
price of the common stock and overall market conditions. During the six
months ended June 30, 2007 and 2008, the Company repurchased 1,690,430 and
1,041,271 shares, respectively, of its common stock under this program at a cost
of $51,894 and $31,527, respectively. As of June 30, 2008, the
remaining maximum dollar value of shares available for purchase under the
program is approximately $80,217. The Company’s policy related to
repurchases of its common stock is to charge any excess of cost over par value
entirely to additional paid-in capital.
Page
15
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
12. COMMITMENTS
AND CONTINGENCIES
The
Company’s subsidiary, High Desert Solid Waste Facility, Inc. (formerly known as
Rhino Solid Waste, Inc.), owns undeveloped property in Chaparral, New Mexico,
for which it sought a permit to operate a municipal solid waste landfill.
After a public hearing, the New Mexico Environment Department (the “Department”)
approved the permit for the facility on January 30, 2002. Colonias
Development Council (“CDC”), a nonprofit organization, opposed the permit at the
public hearing and appealed the Department’s decision to the courts of New
Mexico, primarily on the grounds that the Department failed to consider the
social impact of the landfill on the community of Chaparral, and failed to
consider regional planning issues. On July 18, 2005, in Colonias Dev. Council v. Rhino
Envtl. Servs., Inc. (In re Rhino Envtl. Servs.), 2005 NMSC 24, 117 P.3d
939, the New Mexico Supreme Court remanded the matter back to the
Department to conduct a limited public hearing on certain evidence that CDC
claims were wrongfully excluded from consideration by the hearing officer, and
to allow the Department to reconsider the evidence already proffered concerning
the impact of the landfill on the surrounding community’s quality of life.
The parties have agreed to postpone the hearing until January 2009 at the
earliest to allow the Company time to explore a possible relocation of the
landfill. At June 30, 2008, the Company had $9,286 of capitalized
expenditures related to this landfill development project. If the Company
is not ultimately issued a permit to operate the landfill, the Company will be
required to expense in a future period the $9,286 of capitalized expenditures,
less the recoverable value of the undeveloped property and other amounts
recovered, which would likely have a material adverse effect on the Company’s
reported income for that period.
The
Company opened a municipal solid waste landfill in Harper County, Kansas in
January 2006, following the issuance by the Kansas Department of Health and
Environment (“KDHE”) of a final permit to operate the landfill. On
October 3, 2005, landfill opponents filed a suit (Board of Comm’rs of Sumner County,
Kansas, Tri-County Concerned Citizens and Dalton Holland v. Roderick Bremby,
Sec’y of the Kansas Dep’t of Health and Env’t, et al.) in the District
Court of Shawnee County, Kansas (Case No. 05-C-1264), seeking a judicial
review of the order, alleging that a site analysis prepared for the Company and
submitted to the KDHE as part of the process leading to the issuance of the
permit was deficient in several respects. The action sought to stay the
effectiveness of the permit and to nullify it. On April 7, 2006, the
District Court issued an order denying the plaintiffs’ request for judicial
review on the grounds that they lack standing to bring the action. The
plaintiffs appealed this decision to the Kansas Court of Appeals. Oral
arguments were held on June 7, 2007, and on October 12, 2007, the
Court of Appeals issued an opinion reversing and remanding the District Court’s
decision. The Company appealed the decision to the Kansas Supreme Court,
which granted the Company’s petition for review. Oral arguments on the
matter were held on May 12, 2008, and on July 25, 2008, the Supreme Court
affirmed the decision of the Court of Appeals and remanded the case to the
District Court for further proceedings on the merits. While the Company believes
that it will prevail in this case, a final adverse determination with respect to
the permit would likely have a material adverse effect on the Company’s reported
income in the future. The Company cannot estimate the amount of any such
material adverse effect.
On
October 25, 2006, a purported shareholder derivative complaint captioned
Travis v. Mittelstaedt, et al.
was filed in the United States District Court for the Eastern District of
California, naming certain of the Company’s directors and officers as
defendants, and naming the Company as a nominal defendant. On
January 30, 2007, a similar purported derivative action, captioned Pierce and Banister v. Mittelstaedt,
et al., was
filed in the same federal court as the Travis case. The Travis and Pierce and Banister cases
have been consolidated. The consolidated complaint in the action alleges
violations of various federal and California securities laws, breach of
fiduciary duty, waste, and related claims in connection with the timing of
certain stock option grants. The consolidated complaint names as
defendants certain of the Company’s current and former directors and officers,
and names the Company as a nominal defendant. On June 22, 2007, the
Company and the individual defendants filed motions to dismiss the consolidated
action. On March 19, 2008, the Court granted the Company’s motion to
dismiss and provided the plaintiffs leave to file an amended consolidated
complaint, which the plaintiffs filed with the Court on April 8,
2008.
Page
16
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
On
October 30, 2006, the Company was served with another purported shareholder
derivative complaint, naming certain of the Company’s current and former
directors and officers as defendants, and naming the Company as a nominal
defendant. The suit, captioned Nichols v. Mittelstaedt, et
al. and filed in the Superior Court of California, County of Sacramento,
contains allegations substantially similar to the consolidated federal action
described above. On April 3, 2007, a fourth purported derivative
action, captioned Priest v.
Mittelstaedt, et al., was filed in the Superior Court of California,
County of Sacramento, and contains allegations substantially similar to the
consolidated federal action and the Nichols suit. The Nichols and Priest suits have been
consolidated and captioned In
re Waste Connections, Inc. Shareholder Derivative Litigation and stayed
pending the outcome of the consolidated federal action.
In July
2008, the Company reached a preliminary agreement with the parties to settle all
of these derivative actions. Under the terms of the preliminary agreement, the
Company agreed to reaffirm and/or implement certain corporate governance
measures and the defendants’ insurance carrier agreed to pay not more than
$3,000 to plaintiffs’ counsel to cover plaintiffs’ counsel’s fees and costs,
which are subject to court approval. The defendants expressly deny
any wrongdoing and will receive a complete release of all claims. The
preliminary agreement is subject to standard conditions, including final court
approval. There can be no assurance that final court approval will be
obtained.
In 2006,
the Company completed a review of its historical stock option granting
practices, including all option grants since its initial public offering in May
1998, and reported the results of the review to the Audit Committee of its Board
of Directors. The review identified a small number of immaterial
exceptions to non-cash compensation expense attributable to administrative and
clerical errors. These exceptions are not material to the Company’s
current and historical financial statements, and the Audit Committee concluded
that no further action was necessary. As with any litigation proceeding,
the Company cannot predict with certainty the eventual outcome of the pending
federal and state derivative litigation, nor can it estimate the amount of any
losses that might result.
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 other
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. Except as noted in the legal cases described
above, as of June 30, 2008, 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.
Page
17
WASTE
CONNECTIONS, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In
thousands, except share, per share and per ton amounts)
13. REVENUE
BY SERVICE TYPE
The
following table shows the Company’s total reported revenues by service line and
intercompany eliminations:
|
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
|
2007
|
2008
|
2007
|
2008
|
|||||||||||||
|
Collection
|
$ | 172,401 | $ | 196,047 | $ | 332,552 | $ | 382,208 | ||||||||
|
Disposal
and transfer
|
78,569 | 79,913 | 145,211 | 152,070 | ||||||||||||
|
Recycling
and other
|
22,936 | 25,327 | 45,160 | 49,287 | ||||||||||||
|
Total
|
$ | 273,906 | $ | 301,287 | $ | 522,923 | $ | 583,565 | ||||||||
|
Intercompany
elimination
|
$ | 32,822 | $ | 34,254 | $ | 62,888 | $ | 66,232 | ||||||||
14. SUBSEQUENT
EVENT
On
July 15, 2008, the Company entered into a Master Note Purchase Agreement
with certain accredited institutional investors pursuant to which the Company
intends to issue and sell to the investors at a closing on October 1, 2008,
$175,000 of senior uncollateralized notes due October 1, 2015 (the “Notes”)
in a private placement. The closing is subject to customary
conditions to be fulfilled by the Company to the reasonable satisfaction of the
purchasers. The Notes will bear interest at the fixed rate of 6.22%
per annum with interest payable in arrears semi-annually on April 1 and
October 1 beginning on April 1, 2009, and with principal payable at
the maturity of the Notes on October 1, 2015.
The
Notes, when issued, will be uncollateralized obligations and rank equally with
obligations under the Company’s senior uncollateralized revolving credit
facility. The Company intends to use proceeds from the sale of the Notes
to reduce borrowings under its senior uncollateralized revolving credit facility
and for general corporate purposes.
The Notes
will be subject to representations, warranties, covenants and events of default
customary for a private placement of senior uncollateralized notes. Upon
the occurrence of an event of default, payment of the Notes may be accelerated
by the holders of the Notes. The Notes may also be prepaid by the Company
at any time at par plus a make whole amount determined in respect of the
remaining scheduled interest payments on the Notes, using a discount rate of the
then current market standard for United States treasury bills plus 0.50%.
In addition, the Company will be required to offer to prepay the Notes upon
certain changes in control.
The
Company may issue additional series of senior uncollateralized notes pursuant to
the terms and conditions of the Agreement, provided that the purchasers of the
Notes shall not have any obligation to purchase any additional notes issued
pursuant to the Agreement and the aggregate principal amount of the Notes and
any additional notes issued pursuant to the Agreement shall not exceed
$500,000.
Page
18
FORWARD-LOOKING
STATEMENTS
Certain
statements contained in this Quarterly Report on Form 10-Q are
forward-looking in nature. These statements can be identified by the use
of forward-looking terminology such as “believes,” “expects,” “may,” “will,”
“should,” or “anticipates,” or the negative thereof or comparable terminology,
or by discussions of strategy.
Our
business and operations are subject to a variety of risks and uncertainties and,
consequently, actual results may differ materially from those projected by any
forward-looking statements. Factors that could cause actual results to
differ from those projected include, but are not limited to, the
following: (1) we may be unable to compete effectively with larger
and better capitalized companies and governmental service providers;
(2) increases in the price of fuel may adversely affect our business and
reduce our operating margins; (3) increases in labor and disposal and
related transportation costs could impact our financial results;
(4) increases in insurance costs and the amount that we self-insure for
various risks could reduce our operating margins and reported earnings;
(5) we depend significantly on the services of the members of our senior,
regional and district management team, and the departure of any of those persons
could cause our operating results to suffer; (6) our financial results are
based upon estimates and assumptions that may differ from actual results;
(7) efforts by labor unions could divert management attention and adversely
affect operating results; (8) our results are vulnerable to economic
conditions and seasonal factors affecting the regions in which we operate;
(9) we may lose contracts through competitive bidding, early termination or
governmental action; (10) we may be subject in the normal course of
business to judicial and administrative proceedings that could interrupt our
operations, require expensive remediation, result in adverse judgments or
settlement and create negative publicity; (11) competition for acquisition
candidates, consolidation within the waste industry and economic and market
conditions may limit our ability to grow through acquisitions; (12) our
growth and future financial performance depend significantly on our ability to
integrate acquired businesses into our organization and operations;
(13) our acquisitions may not be successful, resulting in changes in
strategy, operating losses or a loss on sale of the business acquired;
(14) because we depend on railroads for our intermodal operations, our
operating results and financial condition are likely to be adversely affected by
any reduction or deterioration in rail service; (15) our decentralized
decision-making structure could allow local managers to make decisions that
adversely affect our operating results; (16) we may incur additional
charges related to capitalized expenditures, which would decrease our earnings;
(17) each business that we acquire or have acquired may have liabilities
that we fail or are unable to discover, including environmental liabilities;
(18) liabilities for environmental damage may adversely affect our business
and earnings; and (19) the adoption of new accounting standards or
interpretations could adversely impact our financial results.
These
risks and uncertainties, as well as others, are discussed in greater detail in
our other filings with the Securities and Exchange Commission, or SEC, including
our most recent Annual Report on Form 10-K. There may be additional
risks of which we are not presently aware or that we currently believe are
immaterial which could have an adverse impact on our business. We make no
commitment to revise or update any forward-looking statements in order to
reflect events or circumstances that may change.
OVERVIEW
The solid
waste industry is a local and highly competitive business, requiring substantial
labor and capital resources. The participants compete for collection
accounts primarily on the basis of price and, to a lesser extent, the quality of
service, and compete for landfill business on the basis of tipping fees,
geographic location and quality of operations. The solid waste industry
has been consolidating and continues to consolidate as a result of a number of
factors, including the increasing costs and complexity associated with waste
management operations and regulatory compliance. Many small independent
operators and municipalities lack the capital resources, management, operating
skills and technical expertise necessary to operate effectively in such an
environment. The consolidation trend has caused solid waste companies to
operate larger landfills that have complementary collection routes that can use
company-owned disposal capacity. Controlling the point of transfer from
haulers to landfills has become increasingly important as landfills continue to
close and disposal capacity moves further from collection
markets.
Page
19
Generally,
the most profitable industry operators are those companies that are vertically
integrated or enter into long-term collection contracts. A vertically
integrated operator will benefit from: (1) the internalization
of waste, which is bringing waste to a company-owned landfill; (2) the
ability to charge third-party haulers tipping fees either at landfills or at
transfer stations; and (3) the efficiencies gained by being able to
aggregate and process waste at a transfer station prior to
landfilling.
We are an
integrated solid waste services company that provides solid waste collection,
transfer, disposal and recycling services in mostly secondary markets in the
Western and Southern U.S. We also provide intermodal services for the rail
haul movement of cargo containers in the Pacific Northwest through a network of
five intermodal facilities. We seek to avoid highly competitive,
large urban markets and instead target markets where we can provide either solid
waste services under exclusive arrangements, or markets where we can be
integrated and attain high market share. In markets where waste collection
services are provided under exclusive arrangements, or where waste disposal is
municipally funded or available at multiple municipal sources, we believe that
controlling the waste stream by providing collection services under exclusive
arrangements is often more important to our growth and profitability than owning
or operating landfills. As of June 30, 2008, we served approximately
1.5 million residential, commercial and industrial customers from a network of
operations in 23 states: Alabama, Arizona, California, Colorado,
Idaho, Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Montana,
Nebraska, Nevada, New Mexico, Oklahoma, Oregon, South Dakota, Tennessee, Texas,
Utah, Washington and Wyoming. As of that date, we owned or operated a
network of 127 solid waste collection operations, 48 transfer
stations, 29 recycling operations, 34 municipal solid waste landfills
and two construction and demolition landfills.
CRITICAL
ACCOUNTING ESTIMATES AND ASSUMPTIONS
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires estimates and assumptions that affect the
reported amounts of assets and liabilities, revenues and expenses, and related
disclosures of contingent assets and liabilities in the consolidated financial
statements. As described by the SEC, critical accounting estimates and
assumptions are those that may be material due to the levels of subjectivity and
judgment necessary to account for highly uncertain matters or the susceptibility
of such matters to change, and that have a material impact on the financial
condition or operating performance of a company. Refer to our most recent
Annual Report on Form 10-K for a complete description of our critical
accounting estimates and assumptions.
GENERAL
The table
below shows for the periods indicated our total reported revenues attributable
to services provided (dollars in thousands).
|
Three
months ended June 30,
|
Six
months ended June 30,
|
||||||||||||||
|
2007
|
2008
|
2007
|
2008
|
||||||||||||
|
Collection
|
$
|
172,401
|
62.9%
|
$
|
196,047
|
65.1%
|
$
|
332,552
|
63.6%
|
$
|
382,208
|
65.5%
|
|||
|
Disposal
and transfer
|
78,569
|
28.7
|
79,913
|
26.5
|
145,211
|
27.8
|
152,070
|
26.1
|
|||||||
|
Recycling
and other
|
22,936
|
8.4
|
25,327
|
8.4
|
45,160
|
8.6
|
49,287
|
8.4
|
|||||||
|
Total
|
$
|
273,906
|
100.0%
|
$
|
301,287
|
100.0%
|
$
|
522,923
|
100.0%
|
$
|
583,565
|
100.0%
|
|||
|
Intercompany
elimination
|
$
|
32,822
|
$
|
34,254
|
$
|
62,888
|
$
|
66,232
|
|||||||
Page
20
The
disposal tonnage that we received in the six months ended June 30, 2007 and
2008, at all of our landfills during the respective period, is shown below (tons
in thousands):
|
Six
months ended June 30,
|
||||||||||||||||
|
2007
|
2008
|
|||||||||||||||
|
Number
of Sites
|
Total
Tons
|
Number
of Sites
|
Total
Tons
|
|||||||||||||
|
Owned
landfills and landfills operated under life-of-site
agreements
|
28 | 3,891 | 29 | 4,176 | ||||||||||||
|
Operated
landfills
|
8 | 506 | 7 | 458 | ||||||||||||
| 36 | 4,397 | 36 | 4,634 | |||||||||||||
NEW
ACCOUNTING PRONOUNCEMENTS
For a
description of the new accounting standards that affect us, see Note 2 to
our Condensed Consolidated Financial Statements included under Part I,
Item 1 of this Quarterly Report on Form 10-Q.
RESULTS
OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND
2008
The
following table sets forth items in our condensed consolidated statements of
income as a percentage of revenues for the periods indicated.
|
Three
months ended
June 30,
|
Six
months ended
June 30,
|
|||||||||||||||
|
2007
|
2008
|
2007
|
2008
|
|||||||||||||
|
Revenues
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
||||||||||||
|
Cost
of operations
|
58.7
|
59.9
|
58.8
|
59.7
|
||||||||||||
|
Selling,
general and administrative
|
10.3
|
10.2
|
10.6
|
10.5
|
||||||||||||
|
Depreciation
and amortization
|
8.7
|
9.0
|
8.8
|
9.1
|
||||||||||||
|
Loss
on disposal of assets
|
-
|
0.1
|
-
|
0.1
|
||||||||||||
|
Operating
income
|
22.3
|
20.8
|
21.8
|
20.6
|
||||||||||||
|
Interest
expense, net
|
(3.4)
|
(3.3)
|
(3.5)
|
(3.6)
|
||||||||||||
|
Other
income
|
0.1
|
0.1
|
0.1
|
0.1
|
||||||||||||
|
Minority
interests
|
(1.7)
|
(1.4)
|
(1.5)
|
(1.4)
|
||||||||||||
|
Income
tax expense
|
(6.8)
|
(6.4)
|
(6.5)
|
(6.2)
|
||||||||||||
|
Net
income
|
10.5%
|
9.8%
|
10.4%
|
9.5%
|
||||||||||||
Revenues. Total
revenues increased $25.9 million, or 10.8%, to $267.0 million for the
three months ended June 30, 2008, from $241.1 million for the three
months ended June 30, 2007. Acquisitions closed during, or subsequent
to, the three months ended June 30, 2007, increased revenues by
approximately $14.8 million. During the three months ended
June 30, 2008, increased prices charged to our customers increased revenue
by $13.1 million. Volume decreases in our existing business during the
three months ended June 30, 2008 reduced revenue by approximately
$3.7 million. The net decrease in volume was attributable to a decline in
landfill special waste revenue and roll off hauling revenue. Increased
recyclable commodity prices and volume during the three months ended
June 30, 2008, increased revenues by $1.5 million. Other
revenues increased by $0.2 million during the three months ended
June 30, 2008.
Page
21
Total
revenues increased $57.3 million, or 12.5%, to $517.3 million for the
six months ended June 30, 2008, from $460.0 million for the six months
ended June 30, 2007. Acquisitions closed during, or subsequent to,
the six months ended June 30, 2007, increased revenues by approximately
$28.5 million. During the six months ended June 30, 2008,
increased prices charged to our customers increased revenue by
$24.6 million. During the six months ended June 30, 2008,
revenues generated from a long-term contract that commenced in March 2007
resulted in a net revenue increase of approximately $3.8 million.
Volume decreases in our existing business during the six months ended
June 30, 2008 reduced revenue by approximately $2.6 million. The
net decrease in volume was primarily attributable to a decline in roll off
hauling revenue. Increased recyclable commodity prices and volume during the six
months ended June 30, 2008, increased revenues by $3.7 million.
Other revenues decreased by $0.7 million during the six months ended
June 30, 2008.
Cost of
Operations. Total cost of operations increased $18.3 million,
or 12.9%, to $159.9 million for the three months ended June 30, 2008,
from $141.6 million for the three months ended June 30, 2007.
The increase was attributable to operating costs associated with acquisitions
closed during, or subsequent to, the three months ended June 30, 2007,
increased diesel fuel expense resulting from higher fuel costs, increased labor
expenses resulting from employee pay rate increases, increased employee medical
benefit expenses resulting from an increase in medical claims cost and severity,
increased third party trucking expenses and increased disposal expenses,
partially offset by a decrease in major vehicle and equipment repairs and
decreases in auto and workers’ compensation claims under our high deductible
insurance program.
Total
cost of operations increased $38.6 million, or 14.3%, to
$309.0 million for the six months ended June 30, 2008, from
$270.4 million for the six months ended June 30, 2007. The
increase was attributable to operating costs associated with acquisitions closed
during, or subsequent to, the six months ended June 30, 2007, operating
costs incurred to support a long-term contract that commenced in March 2007,
increased diesel fuel expense resulting from higher fuel costs, increased labor
expenses resulting from employee pay rate increases, increased employee medical
benefit expenses resulting from an increase in medical claims cost and severity,
increased franchise taxes, landfill taxes and third party trucking expenses and
increased disposal expenses, partially offset by a decrease in major vehicle and
equipment repairs and decreases in auto and workers’ compensation claims under
our high deductible insurance program.
Cost of
operations as a percentage of revenues increased 1.2 percentage points to
59.9% for the three months ended June 30, 2008, from 58.7% for the three
months ended June 30, 2007. Cost of operations as a percentage of
revenues increased 0.9 percentage points to 59.7% for the six months ended
June 30, 2008, from 58.8% for the six months ended June 30,
2007. The increases as a percentage of revenues were primarily
attributable to increased diesel fuel expense, operating costs associated with
acquisitions closed during, or subsequent to, the six months ended June 30,
2007, and increased employee medical benefit expense, partially offset by
decreased major vehicle and equipment repairs expense, increased prices charged
to our customers being higher, on a percentage basis, than certain expense
increases recognized subsequent to June 30, 2007, and decreased auto and
workers’ compensation insurance claims expense.
SG&A.
SG&A expenses increased $2.3 million, or 9.2%, to $27.1 million
for the three months ended June 30, 2008, from $24.8 million for the
three months ended June 30, 2007. SG&A expenses increased
$5.5 million, or 11.2%, to $54.2 million for the six months ended
June 30, 2008, from $48.7 million for the six months ended
June 30, 2007. The increases in SG&A expenses were primarily the
result of additional personnel from acquisitions closed during, or subsequent
to, the six months ended June 30, 2007, increased payroll expense due to
increased headcount to support our base operations and increased equity
compensation expense, partially offset by decreased bad debt expense and
professional fees.
SG&A
expenses as a percentage of revenues decreased 0.1 percentage points to
10.2% for the three months ended June 30, 2008, from 10.3% for the three
months ended June 30, 2007. SG&A expenses as a percentage of
revenues decreased 0.1 percentage points to 10.5% for the six months ended
June 30, 2008, from 10.6% for the six months ended June 30,
2007. The decreases as a percentage of revenue were primarily attributable
to the aforementioned decreases in bad debt expense and professional fees,
partially offset by increased payroll expense and equity compensation
expense.
Page
22
Depreciation and
Amortization. Depreciation and amortization expense increased
$3.2 million, or 15.0%, to $24.1 million for the three months ended
June 30, 2008, from $20.9 million for the three months ended
June 30, 2007. Depreciation and amortization expense increased
$6.8 million, or 16.7%, to $47.3 million for the six months ended
June 30, 2008, from $40.5 million for the six months ended
June 30, 2007. The increases were primarily attributable to
depreciation and amortization associated with acquisitions closed during, or
subsequent to, the six months ended June 30, 2007, additions to our fleet
and equipment purchased to support our existing operations, and higher landfill
depletion expense due to increased disposal volumes at our landfills and
increased landfill construction and closure costs.
Depreciation
and amortization expense as a percentage of revenues increased
0.3 percentage points to 9.0% for the three months ended June 30,
2008, from 8.7% for the three months ended June 30, 2007.
Depreciation and amortization expense as a percentage of revenues increased
0.3 percentage points to 9.1% for the six months ended June 30, 2008,
from 8.8% for the six months ended June 30, 2007. The increases in
depreciation and amortization expense as a percentage of revenues for the three
and six months ended June 30, 2008 were the result of amortization expense
associated with intangible assets acquired during, or subsequent to, the six
months ended June 30, 2007, and fleet and equipment purchased to support
our existing operations.
Operating
Income. Operating income increased $1.8 million, or 3.4%, to
$55.6 million for the three months ended June 30, 2008, from
$53.8 million for the three months ended June 30, 2007.
Operating income increased $6.2 million, or 6.2%, to $106.4 million
for the six months ended June 30, 2008, from $100.2 million for the
six months ended June 30, 2007. The increases were primarily
attributable to increased revenues, offset by increased operating costs,
increased SG&A expenses to support the revenue growth and increased
depreciation and amortization expenses.
Operating
income as a percentage of revenues decreased 1.5 percentage points to 20.8%
for the three months ended June 30, 2008, from 22.3% for the three months
ended June 30, 2007. Operating income as a percentage of revenues
decreased 1.2 percentage points to 20.6% for the six months ended
June 30, 2008, from 21.8% for the six months ended June 30,
2007. The decreases as a percentage of revenues were due to the previously
described percentage of revenue increases in cost of operations and depreciation
and amortization expense, partially offset by decreased SG&A
expense.
Interest
Expense. Interest expense increased $0.6 million, or 7.5%, to
$8.9 million for the three months ended June 30, 2008, from
$8.3 million for the three months ended June 30, 2007. Interest
expense increased $2.1 million, or 13.2%, to $18.2 million for the six
months ended June 30, 2008, from $16.1 million for the six months
ended June 30, 2007. The increases were attributable to increased
average debt balances, partially offset by reduced average borrowing rates on
the portion of our credit facility borrowings not fixed under interest rate swap
agreements.
Minority
Interests. During the three months ended June 30, 2008,
decreased earnings by our majority-owned subsidiaries resulted in minority
interests decreasing $0.3 million, or 7.8%, to $3.8 million, from
$4.1 million for the three months ended June 30, 2007. During
the six months ended June 30, 2008, increased earnings by our majority
owned subsidiaries resulted in minority interests increasing $0.2 million,
or 3.0%, to $7.2 million, from $7.0 million for the six months ended
June 30, 2007.
Income Tax
Provision. Income taxes increased $0.6 million, or 3.3%, to
$17.0 million for the three months ended June 30, 2008, from
$16.4 million for the three months ended June 30, 2007. Income
taxes increased $2.1 million, or 7.0%, to $32.0 million for the six
months ended June 30, 2008, from $29.9 million for the six months
ended June 30, 2007.
Our
effective tax rates for the three months ended June 30, 2007 and 2008, were
39.4% and 39.3%, respectively, and 38.5% and 39.3%, for the six months ended
June 30, 2007 and 2008, respectively. During the six months ended
June 30, 2007, we recorded adjustments to income tax expense resulting from
the reconciliation of our current and deferred income tax liability accounts and
changes to the geographical apportionment of our state income taxes. The
net impact of these adjustments was a decrease in the effective tax rate for the
six months ended June 30, 2007 of 0.5 percentage
points.
Page
23
There
have been no significant changes to our unrecognized tax benefits for the six
months ended June 30, 2008.
LIQUIDITY
AND CAPITAL RESOURCES
Our
business is capital intensive. Our capital requirements include
acquisitions and fixed asset purchases. We expect that we will also make
capital expenditures for landfill cell construction, landfill closure activities
and intermodal facility construction in the future. We plan to meet our
capital needs through various financing sources, including internally generated
funds, and debt and equity financings.
As of
June 30, 2008, we had a working capital deficit of $36.8 million,
including cash and equivalents of $10.6 million. Our working capital
deficit increased $12.0 million from a working capital deficit of
$24.8 million at December 31, 2007. Our strategy in managing our
working capital is generally to apply the cash generated from our operations
that remains after satisfying our working capital and capital expenditure
requirements to reduce our indebtedness under our credit facility and to
minimize our cash balances. The increase in our working capital deficit
from December 31, 2007, to June 30, 2008, resulted primarily from an
increase in our accounts payable and accrued liabilities and a decrease in other
current assets, partially offset by an increase in accounts receivable.
For additional information regarding the changes in our cash balances, see the
Condensed Consolidated Statements of Cash Flows in Part I, Item 1 of this
Quarterly Report on Form 10-Q.
For the
six months ended June 30, 2008, net cash provided by operating activities
was $129.9 million, including $8.4 million provided by working capital
for the period. The primary components of the reconciliation of net income
to net cash provided by operating activities for the six months ended
June 30, 2008, consist of $47.3 million of depreciation and
amortization, $13.8 million in deferred income taxes, $7.2 million of
minority interests expense, $4.0 million of stock compensation expense and
$1.0 million of debt issuance cost amortization, less $1.9 million of
excess tax benefit associated with equity-based compensation reclassified to
cash flows from financing activities.
For the
six months ended June 30, 2007, net cash provided by operating activities
was $107.3 million, including $12.4 million provided by working
capital for the period. The primary components of the reconciliation of
net income to net cash provided by operating activities for the six months ended
June 30, 2007, consist of $40.5 million of depreciation and
amortization, $7.0 million of minority interests expense, $1.0 million of
debt issuance cost amortization, $3.7 million in deferred income taxes, and
$3.1 million of stock compensation expense, less $8.5 million of
excess tax benefit from equity-based compensation reclassified to cash flows
from financing activities.
For the
six months ended June 30, 2008, net cash used in investing activities was
$81.2 million. Of this amount, $33.4 million was used to fund
the cash portion of acquisitions and to pay a portion of acquisition costs that
were included as a component of accrued liabilities at December 31,
2007. Cash used for capital expenditures was $48.3 million, which was
primarily for investments in fixed assets, consisting of trucks, containers,
other equipment and landfill development. The decrease in capital
expenditures of $16.2 million for the six months ended June 30, 2008,
as compared to the six months ended June 30, 2007, is due primarily to
capital expenditures incurred during the six months ended June 30, 2007
associated with a new long-term contract in California.
For the
six months ended June 30, 2007, net cash used in investing activities was
$105.8 million. Of this amount, $40.6 million was used to fund
the cash portion of acquisitions and to pay a portion of acquisition costs that
were included as a component of accrued liabilities at December 31,
2006. Cash used for capital expenditures was $64.5 million, which was
primarily for investments in fixed assets, consisting of trucks, containers,
other equipment and landfill development.
For the
six months ended June 30, 2008, net cash used in financing activities was
$48.4 million, which included $7.5 million of proceeds from stock
option and warrant exercises, and $1.9 million of excess tax benefit
associated with equity-based compensation, less $20.5 million of net payments
under our various debt arrangements, $6.0 million of cash distributions to
minority interest holders, and $31.5 million of repurchases of our common
stock.
Page
24
For the
six months ended June 30, 2007, net cash used in financing activities was
$26.5 million, which included $21.1 million of proceeds from stock
option and warrant exercises, a $5.8 million change in book overdraft, and
$8.5 million of excess tax benefit from equity-based compensation, less
$6.3 million of cash distributions to minority interest holders,
$3.7 million of net payments under our various debt arrangements, and
$51.9 million of repurchases of our common stock.
We made
$48.3 million in capital expenditures during the six months ended
June 30, 2008. We expect to make capital expenditures of
approximately $110.0 million in 2008 in connection with our existing
business. We intend to fund our planned 2008 capital expenditures
principally through existing cash, internally generated funds, and borrowings
under our existing credit facility. In addition, we may make substantial
additional capital expenditures in acquiring solid waste collection and disposal
businesses. If we acquire additional landfill disposal facilities, we may
also have to make significant expenditures to bring them into compliance with
applicable regulatory requirements, obtain permits or expand our available
disposal capacity. We cannot currently determine the amount of these
expenditures because they will depend on the number, nature, condition and
permitted status of any acquired landfill disposal facilities. We believe
that our credit facility and the funds we expect to generate from operations
will provide adequate cash to fund our working capital and other cash needs for
the foreseeable future.
As of
June 30, 2008, we had $463.0 million outstanding under our credit
facility, exclusive of outstanding stand-by letters of credit of
$70.8 million. As of June 30, 2008, we were in compliance with
all applicable covenants in our credit facility.
As of
June 30, 2008, we had the following contractual obligations (in
thousands):
|
Payments
Due by Period
|
||||||||||||||||||||
|
Recorded
Obligations
|
Total
|
Less
Than
1
Year
|
1
to 3
Years
|
3
to 5
Years
|
Over
5
Years
|
|||||||||||||||
|
Long-term
debt
|
$ | 714,581 | $ | 13,481 | $ | 206,009 | $ | 466,750 | $ | 28,341 | ||||||||||
Long-term
debt payments include:
|
(1)
|
$463.0 million
in principal payments due in 2012 related to our credit facility.
Our credit facility bears interest, at our option, at either the base rate
plus the applicable base rate margin (approximately 5.00% at June 30,
2008) on base rate loans, or the Eurodollar rate plus the applicable
Eurodollar margin (approximately 3.10% at June 30, 2008) on
Eurodollar loans. As of June 30, 2008, our credit facility
allowed us to borrow up to $845.0 million.
|
|
(2)
|
$200.0 million
in principal payments due in 2026 related to our 2026 Notes. Holders
of the 2026 Notes may require us to purchase their notes in cash at a
purchase price of 100% of the principal amount of the 2026 Notes plus
accrued and unpaid interest, if any, upon a change in control, as defined
in the indenture, or, for the first time, on April 1, 2011. The
2026 Notes bear interest at a rate of
3.75%.
|
|
(3)
|
$10.8 million
in principal payments related to our 2001 Wasco bonds. Our 2001
Wasco bonds consist of $2.3 million of bonds that bear interest at a
rate of 7.0% and mature on March 1, 2012, and $8.5 million of
bonds that bear interest at a rate of 7.25% and mature on March 1,
2021.
|
|
(4)
|
$33.2 million
in principal payments related to our California tax-exempt bonds.
Our California tax-exempt bonds bear interest at variable rates (1.67% at
June 30, 2008) and have maturity dates ranging from 2008 to
2018.
|
Page
25
|
(5)
|
$3.3 million
in principal payments related to our notes payable to sellers. Our
notes payable to sellers bear interest at rates between 5.5% and 7.5% at
June 30, 2008, and have maturity dates ranging from 2009 to
2036.
|
|
(6)
|
$4.3 million
in principal payments related to our notes payable to third parties.
Our notes payable to third parties bear interest at rates between 6.0% and
11.0% at June 30, 2008, and have maturity dates ranging from 2008 to
2010.
|
The total
liability for uncertain tax positions under FASB Interpretation No. 48 at
June 30, 2008 is approximately $7 million. We are not able to
reasonably estimate the amount by which the liability will increase or decrease
over time; however, at this time, we do not expect a significant payment related
to these obligations within the next year.
|
Amount
of Commitment Expiration Per Period
|
|||||||||||||||||||||
|
(amounts
in thousands)
|
|||||||||||||||||||||
|
Unrecorded
Obligations(1)
|
Total
|
Less
Than
1
Year
|
1
to 3
Years
|
3
to 5
Years
|
Over
5
Years
|
||||||||||||||||
|
Operating
leases
|
$ | 69,760 | $ | 7,294 | $ | 15,036 | $ | 13,136 | $ | 34,294 | |||||||||||
|
Unconditional
purchase obligations
|
18,313 | 18,313 | - | - | - | ||||||||||||||||
| $ | 88,073 | $ | 25,607 | $ | 15,036 | $ | 13,136 | $ | 34,294 | ||||||||||||
|
|
(1) We
are party to operating lease agreements and unconditional purchase
obligations. These lease agreements and purchase obligations are
established in the ordinary course of our business and are designed to
provide us with access to facilities and products at competitive,
market-driven prices. Our unconditional purchase obligations consist
of multiple fixed-price fuel purchase contracts under which we have 4.4
million gallons remaining to be purchased for a total of $18.3 million,
plus taxes and transportation upon delivery. The current fuel
purchase contracts expire on or before December 31, 2008. These
arrangements have not materially affected our financial position, results
of operations or liquidity during the six months ended June 30, 2008,
nor are they expected to have a material impact on our future financial
position, results of operations or
liquidity.
|
We have
obtained financial surety bonds, primarily to support our financial assurance
needs and landfill operations. We provided customers and various
regulatory authorities with surety bonds in the aggregate amounts of
approximately $164.3 million and $167.6 million at December 31,
2007 and June 30, 2008, respectively. These arrangements have not
materially affected our financial position, results of operations or liquidity
during the six months ended June 30, 2008, nor are they expected to have a
material impact on our future financial position, results of operations or
liquidity.
The
minority interests holders of one of our majority-owned subsidiaries have a
currently exercisable put option to require us to complete the acquisition of
this majority-owned subsidiary by purchasing their minority ownership interests
for fair market value. The put option calculates the fair market value of
the subsidiary based on its current operating income before depreciation and
amortization, as defined in the put option agreement. The put option does not
have a stated termination date. At June 30, 2008, the minority
interests holders’ pro rata share of the subsidiary’s fair market value is
estimated to be worth between $93 million and $100 million.
Because the put is calculated at fair market value, no amounts have been accrued
relative to the put option. In the event the minority interests holders
elect to exercise the put option, we intend to fund the transaction using
borrowings from our credit facility.
From time
to time, we evaluate our existing operations and their strategic importance to
us. If we determine that a given operating unit does not have future
strategic importance, we may sell or otherwise dispose of those
operations. Although we believe our operations would not be impaired by
such dispositions, we could incur losses on them.
FREE CASH
FLOW
We are
providing free cash flow, a non-GAAP financial measure, because it is widely
used by investors as a valuation and liquidity measure in the solid waste
industry. This measure should be used in conjunction with GAAP financial
measures. Management uses free cash flow as one of the principal measures
to evaluate and monitor the ongoing financial performance of our
operations. We define free cash flow as net cash provided by operating
activities plus proceeds from disposal of assets and excess tax benefit
associated with equity-based compensation, plus or minus change in book
overdraft, less capital expenditures for property and equipment and
distributions to minority interest holders. Other companies may calculate
free cash flow differently. Our free cash flow for the six months ended
June 30, 2007 and 2008, is calculated as follows (amounts in
thousands):
Page
26
|
Six
months ended
June 30,
|
||||||||
|
2007
|
2008
|
|||||||
|
Net
cash provided by operating activities
|
$ | 107,278 | $ | 129,927 | ||||
|
Change
in book overdraft
|
5,838 | 322 | ||||||
|
Plus:
Proceeds from disposal of assets
|
559 | 1,366 | ||||||
|
Plus:
Excess tax benefit associated with equity-based
compensation
|
8,534 | 1,928 | ||||||
|
Less:
Capital expenditures for property and equipment
|
(64,509 | ) | (48,323 | ) | ||||
|
Less:
Distributions to minority interest holders
|
(6,272 | ) | (6,027 | ) | ||||
|
Free
cash flow
|
$ | 51,428 | $ | 79,193 | ||||
INFLATION
Other
than volatility in fuel prices, inflation has not materially affected our
operations. Consistent with industry practice, many of our contracts allow
us to pass through certain costs to our customers, including increases in
landfill tipping fees and, in some cases, fuel costs. Therefore, we
believe that we should be able to increase prices to offset many cost increases
that result from inflation in the ordinary course of business. However,
competitive pressures or delays in the timing of rate increases under our
contracts may require us to absorb at least part of these cost increases,
especially if cost increases, such as recent increases in the price of fuel,
exceed the average rate of inflation. Management's estimates associated
with inflation have an impact on our accounting for landfill
liabilities.
SEASONALITY
Based on
historic trends, we expect our operating results to vary seasonally, with
revenues typically lowest in the first quarter, higher in the second and third
quarters and lower in the fourth quarter than in the second and third
quarters. We expect the fluctuation in our revenues between our highest
and lowest quarters to be approximately 9% to 11%. This seasonality
reflects the lower volume of solid waste generated during the late fall, winter
and early spring because of decreased construction and demolition activities
during winter months in the U.S. In addition, some of our operating costs
may be higher in the winter months. Adverse winter weather conditions slow
waste collection activities, resulting in higher labor and operational
costs. Greater precipitation in the winter increases the weight of
collected waste, resulting in higher disposal costs, which are calculated on a
per ton basis.
In the
normal course of business, we are exposed to market risk, including changes in
interest rates and prices of certain commodities. We use hedge agreements
to manage a portion of our risks related to interest rates. While we are
exposed to credit risk in the event of non-performance by counterparties to our
hedge agreements, in all cases such counterparties are highly rated financial
institutions and we do not anticipate non-performance. We do not hold or
issue derivative financial instruments for trading purposes. We monitor
our hedge positions by regularly evaluating the positions at market and by
performing sensitivity analyses.
Page
27
At
June 30, 2008, our derivative instruments consisted of nine interest rate
swap agreements that effectively fix the interest rate on the applicable
notional amounts of our variable rate debt as follows (dollars in
thousands):
|
Date
Entered
|
Notional
Amount
|
Fixed
Interest
Rate
Paid*
|
Variable
Interest
Rate
Received
|
Effective
Date
|
Expiration
Date
|
||||||||
|
September
2005
|
$ | 175,000 | 4.33 | % |
1-month
LIBOR
|
February
2007
|
February
2009
|
||||||
|
September
2005
|
$ | 75,000 | 4.34 | % |
1-month
LIBOR
|
March
2007
|
March
2009
|
||||||
|
December
2005
|
$ | 150,000 | 4.76 | % |
1-month
LIBOR
|
June
2006
|
June
2009
|
||||||
|
November
2007
|
$ | 50,000 | 4.37 | % |
1-month
LIBOR
|
February
2009
|
February
2011
|
||||||
|
November
2007
|
$ | 50,000 | 4.37 | % |
1-month
LIBOR
|
February
2009
|
February
2011
|
||||||
|
November
2007
|
$ | 75,000 | 4.37 | % |
1-month
LIBOR
|
February
2009
|
February
2011
|
||||||
|
November
2007
|
$ | 75,000 | 4.40 | % |
1-month
LIBOR
|
March
2009
|
March
2011
|
||||||
|
November
2007
|
$ | 50,000 | 4.29 | % |
1-month
LIBOR
|
June
2009
|
June
2011
|
||||||
|
November
2007
|
$ | 100,000 | 4.35 | % |
1-month
LIBOR
|
June
2009
|
June
2011
|
||||||
* plus
applicable margin.
All the
interest rate swap agreements are considered highly effective as cash flow
hedges for a portion of our variable rate debt, and we apply hedge accounting to
account for these instruments. The notional amounts and all other
significant terms of the swap agreements are matched to the provisions and terms
of the variable rate debt being hedged.
We have
performed sensitivity analyses to determine how market rate changes will affect
the fair value of our market risk sensitive hedge positions and all other
debt. Such an analysis is inherently limited in that it reflects a
singular, hypothetical set of assumptions. Actual market movements may
vary significantly from our assumptions. Fair value sensitivity is not
necessarily indicative of the ultimate cash flow or earnings effect we would
recognize from the assumed market rate movements. We are exposed to cash
flow risk due to changes in interest rates with respect to the unhedged floating
rate balances owed at December 31, 2007, and June 30, 2008, of
$114.8 million and $98.1 million, respectively, including floating
rate debt under our credit facility, various floating rate notes payable to
third parties and floating rate municipal bond obligations. A one percent
increase in interest rates on our variable-rate debt as of December 31,
2007, and June 30, 2008, would decrease our annual pre-tax income by
approximately $1.1 million and $1.0 million, respectively. All
of our remaining debt instruments are at fixed rates, or effectively fixed under
the interest rate swap agreements described above; therefore, changes in market
interest rates under these instruments would not significantly impact our cash
flows or results of operations.
The
market price of diesel fuel is unpredictable and can fluctuate
significantly. A significant increase in the price of fuel could adversely
affect our business and reduce our operating margins. If we purchase all
of our fuel at market prices, a $0.10 per gallon increase in the price of
fuel over a one-year period would decrease our annual pre-tax income by
approximately $2.2 million. We purchase a majority of our fuel
at market prices; however, in order to mitigate the impact of adverse fuel price
changes, in the second quarter of 2008, we entered into multiple fixed-price
fuel purchase contracts which expire on or before December 31,
2008. As of June 30, 2008, we had 4.4 million gallons remaining to be
purchased for a total unconditional purchase obligation of $18.3 million, plus
taxes and transportation upon delivery.
Page
28
We market
a variety of recyclable materials, including cardboard, office paper, plastic
containers, glass bottles and ferrous and aluminum metals. We own and
operate 29 recycling processing operations and sell other collected
recyclable materials to third parties for processing before resale.
Certain of our municipal recycling contracts in the state of Washington specify
benchmark resale prices for recycled commodities. If the prices we
actually receive for the processed recycled commodities collected under the
contract exceed the prices specified in the contract, we share the excess with
the municipality, after recovering any previous shortfalls resulting from actual
market prices falling below the prices specified in the contract. To
reduce our exposure to commodity price risk with respect to recycled materials,
we have adopted a pricing strategy of charging collection and processing fees
for recycling volume collected from third parties. In the event of a
decline in recycled commodity prices, a 10% decrease in average recycled
commodity prices from the prices that were in effect at June 30, 2007 and
2008, would have resulted in a decrease in revenues of $1.8 million and
$2.2 million, respectively, for the six months ended June 30, 2007 and
2008.
Page
29
As
required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, we carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is
defined in Rule 13a-15(e) under the Exchange Act) as of the end of the
fiscal quarter covered by this quarterly report on Form 10-Q. Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer
concluded as of June 30, 2008, that our disclosure controls and procedures
were effective at the reasonable assurance level such that information required
to be disclosed in our Exchange Act reports: (1) is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms; and (2) is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required
disclosure.
During
the quarter ended June 30, 2008, there was no change in our internal
control over financial reporting that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
Page
30
PART II
– OTHER INFORMATION
|
Legal
Proceedings
|
No
material developments have occurred in the legal proceeding involving Colonias Dev. Council v. Rhino
Envtl. Servs., Inc. (In re Rhino Envtl. Servs.) described in our
quarterly report on Form 10-Q for the quarterly period ended March 31,
2008, except that the parties have agreed to postpone the limited public hearing
on the matter until January 2009 at the earliest to allow us time to explore a
possible relocation of the landfill. Refer to Note 12 of the Notes to
Condensed Consolidated Financial Statements in Part I of this Quarterly
Report on Form 10-Q for a description of this legal
proceeding.
No
material developments have occurred in the legal proceeding involving Board of Comm’rs of Sumner County,
Kansas, Tri-County Concerned Citizens and Dalton Holland v. Roderick Bremby,
Sec’y of the Kansas Dep’t of Health and Env’t, et al. described in our
quarterly report on Form 10-Q for the quarterly period ended March 31,
2008, except that oral arguments on our appeal to the Kansas Supreme Court on
the issue of whether the plaintiffs have standing to bring the action were held
on May 12, 2008, and on July 25, 2008, the Supreme Court affirmed the
decision of the Court of Appeals and remanded the case to the District Court for
further proceedings on the merits. Refer to Note 12 of the Notes to
Condensed Consolidated Financial Statements in Part I of this Quarterly
Report on Form 10-Q for a description of this legal
proceeding.
In July
2008, we reached a preliminary agreement with the parties to settle the Travis v. Mittelstaedt, et
al. and Pierce and
Banister v. Mittelstaedt, et al. and In re Waste Connections, Inc.
Shareholder Derivative Litigation derivative
lawsuits pending against certain of our current and former officers and
directors. Under the terms of the preliminary agreement, we agreed to reaffirm
and/or implement certain corporate governance measures and the defendants’
insurance carrier agreed to pay not more than $3 million to plaintiffs’ counsel
to cover plaintiffs’ counsel’s fees and costs, which are subject to court
approval. The defendants expressly deny any wrongdoing and will
receive a complete release of all claims. The preliminary agreement
is subject to standard conditions, including final court
approval. There can be no assurance that final court approval will be
obtained. Refer to Note 12 of the Notes to Condensed
Consolidated Financial Statements in Part I of this Quarterly Report on
Form 10-Q for a description of these legal proceedings.
In the
normal course of our business and as a result of the extensive governmental
regulation of the solid waste industry, we are subject to various other judicial
and administrative proceedings involving federal, state or local agencies.
In these proceedings, an agency may seek to impose fines on us or to revoke or
deny renewal of an operating permit held by us. From time to time we 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 we operate.
In
addition, we are 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. Except as noted in the legal cases described
above, and in Note 12 of the Notes to Condensed Consolidated Financial
Statements in Part I of this Quarterly Report on Form 10-Q, as of
June 30, 2008, there is no current proceeding or litigation involving us
that we believe will have a material adverse impact on our business, financial
condition, results of operations or cash flows.
Page
31
|
Submission
of Matters to a Vote of Security
Holders
|
Our
annual meeting of stockholders was held on May 15, 2008.
Our
stockholders reelected Robert H. Davis as a Class I director by the votes
indicated below:
|
Total
Votes For:
|
63,590,333
|
|
Total
Votes Withheld:
|
1,529,829
|
Our
stockholders approved the proposal to amend our Second Amended and Restated 2004
Equity Incentive Plan by the votes indicated below:
|
Total
Votes For:
|
57,273,891
|
|
Total
Votes Against:
|
4,353,034
|
|
Total
Votes Abstained:
|
12,105
|
|
Total
Broker Non-Votes:
|
3,481,132
|
Our
stockholders approved the proposal to adopt our Amended and Restated Senior
Management Incentive Plan by the votes indicated below:
|
Total
Votes For:
|
63,036,187
|
|
Total
Votes Against:
|
2,069,739
|
|
Total
Votes Abstained:
|
14,236
|
|
Total
Broker Non-Votes:
|
0
|
In
addition, our stockholders ratified the appointment of PricewaterhouseCoopers
LLP as our independent registered public accounting firm for the fiscal year
2008 by the votes indicated below:
|
Total
Votes For:
|
65,054,586
|
|
Total
Votes Against:
|
60,342
|
|
Total
Votes Abstained:
|
5,234
|
Page
32
|
Item 6.
|
Exhibits
|
|
|
See
Exhibit Index immediately following the signature page of this Quarterly
Report on Form 10-Q.
|
Page
33
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.
|
|
Date: July 30,
2008
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BY:
|
/s/ Ronald
J. Mittelstaedt
|
|
Ronald
J. Mittelstaedt,
|
||
|
Chief
Executive Officer
|
|
Date: July 30,
2008
|
BY:
|
/s/
Worthing F. Jackman
|
|
Worthing
F. Jackman,
|
||
|
Executive
Vice President and
Chief
Financial Officer
|
Page
34
|
Exhibit Number
|
Description of Exhibits
|
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the Registrant (incorporated
by reference to the exhibit filed with the Registrant's Form 10-Q
filed on July 24, 2007)
|
|
|
3.2
|
Amended
and Restated Bylaws of the Registrant (incorporated by reference to the
exhibit filed with the Registrant’s Form 10-Q filed on July 22,
2004)
|
|
|
4.1
|
Increase
in Commitment, dated as of June 9, 2008 (incorporated by reference to the
exhibit filed with the Registrant’s Form 8-K filed on June 10,
2008)
|
|
|
4.2
|
Master
Note Purchase Agreement, dated July 15, 2008 (incorporated by reference to
the exhibit filed with the Registrant’s Form 8-K filed on
July 18, 2008)
|
|
|
10.1+
|
Second
Amended and Restated 2004 Equity Incentive Plan (as amended and
restated)
|
|
|
10.2+
|
Amended
and Restated Senior Management Incentive Plan
|
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Exchange Act
Rules 13a-14(a)/15d-14(a)
|
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Exchange Act
Rules 13a-14(a)/15d-14(a)
|
|
|
32.1
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to
18 U.S.C. §1350
|
+
Management contract or compensatory plan, contract or arrangement.
Page 35