Table of Contents
SECURITIES AND EXCHANGE COMMISSION
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
![(LOGO)](https://capedge.com/proxy/10-Q/0000950123-10-094313/c06284c0628400.gif)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Address of principal executive offices) (Zip code)
(Registrant’s telephone number, including area code)
þ Large accelerated filer | o Accelerated filer | o Non-accelerated filer | o Smaller reporting company |
FORM 10-Q
Table of Contents
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and equivalents | $ | 9,639 | $ | 13,556 | ||||
Accounts receivable, net of allowance for doubtful accounts of $4,058 and $4,241 at December 31, 2009 and September 30, 2010, respectively | 138,972 | 155,082 | ||||||
Deferred income taxes | 17,748 | 18,554 | ||||||
Prepaid expenses and other current assets | 33,495 | 27,372 | ||||||
Total current assets | 199,854 | 214,564 | ||||||
Property and equipment, net | 1,308,392 | 1,303,463 | ||||||
Goodwill | 906,710 | 910,286 | ||||||
Intangible assets, net | 354,303 | 344,690 | ||||||
Restricted assets | 27,377 | 28,823 | ||||||
Other assets, net | 23,812 | 22,237 | ||||||
$ | 2,820,448 | $ | 2,824,063 | |||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 86,669 | $ | 80,471 | ||||
Book overdraft | 12,117 | 11,743 | ||||||
Accrued liabilities | 93,380 | 103,065 | ||||||
Deferred revenue | 50,138 | 53,598 | ||||||
Current portion of long-term debt and notes payable | 2,609 | 1,849 | ||||||
Total current liabilities | 244,913 | 250,726 | ||||||
Long-term debt and notes payable | 867,554 | 831,123 | ||||||
Other long-term liabilities | 45,013 | 49,460 | ||||||
Deferred income taxes | 305,932 | 319,870 | ||||||
Total liabilities | 1,463,412 | 1,451,179 | ||||||
Commitments and contingencies (Note 15) | ||||||||
Equity: | ||||||||
Preferred stock: $0.01 par value per share; 7,500,000 shares authorized; none issued and outstanding | — | — | ||||||
Common stock: $0.01 par value per share; 150,000,000 shares authorized; 78,599,083 and 76,757,970 shares issued and outstanding at December 31, 2009 and September 30, 2010, respectively | 786 | 767 | ||||||
Additional paid-in capital | 625,173 | 543,555 | ||||||
Accumulated other comprehensive loss | (4,892 | ) | (7,114 | ) | ||||
Retained earnings | 732,738 | 831,697 | ||||||
Total Waste Connections’ equity | 1,353,805 | 1,368,905 | ||||||
Noncontrolling interests | 3,231 | 3,979 | ||||||
Total equity | 1,357,036 | 1,372,884 | ||||||
$ | 2,820,448 | $ | 2,824,063 | |||||
Page 1
Table of Contents
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenues | $ | 315,990 | $ | 345,785 | $ | 881,496 | $ | 983,802 | ||||||||
Operating expenses: | ||||||||||||||||
Cost of operations | 180,440 | 193,638 | 510,830 | 557,974 | ||||||||||||
Selling, general and administrative | 35,753 | 38,455 | 104,411 | 110,465 | ||||||||||||
Depreciation | 31,226 | 34,441 | 86,127 | 99,349 | ||||||||||||
Amortization of intangibles | 3,671 | 3,616 | 9,351 | 10,800 | ||||||||||||
Loss (gain) on disposal of assets | 139 | (50 | ) | (1,037 | ) | 572 | ||||||||||
Operating income | 64,761 | 75,685 | 171,814 | 204,642 | ||||||||||||
Interest expense | (12,259 | ) | (9,419 | ) | (36,817 | ) | (30,842 | ) | ||||||||
Interest income | 134 | 135 | 1,275 | 453 | ||||||||||||
Loss on extinguishment of debt | — | — | — | (10,193 | ) | |||||||||||
Other income, net | 879 | 1,500 | 1,055 | 1,970 | ||||||||||||
Income before income tax provision | 53,515 | 67,901 | 137,327 | 166,030 | ||||||||||||
Income tax provision | (19,252 | ) | (26,644 | ) | (50,070 | ) | (66,323 | ) | ||||||||
Net income | 34,263 | 41,257 | 87,257 | 99,707 | ||||||||||||
Less: Net income attributable to noncontrolling interests | (113 | ) | (271 | ) | (691 | ) | (748 | ) | ||||||||
Net income attributable to Waste Connections | $ | 34,150 | $ | 40,986 | $ | 86,566 | $ | 98,959 | ||||||||
Earnings per common share attributable to Waste Connections’ common stockholders: | ||||||||||||||||
Basic | $ | 0.43 | $ | 0.53 | $ | 1.09 | $ | 1.28 | ||||||||
Diluted | $ | 0.43 | $ | 0.53 | $ | 1.08 | $ | 1.26 | ||||||||
Shares used in the per share calculations: | ||||||||||||||||
Basic | 78,837,984 | 77,062,885 | 79,618,566 | 77,419,498 | ||||||||||||
Diluted | 79,824,616 | 77,852,569 | 80,468,180 | 78,281,132 |
Page 2
Table of Contents
Waste Connections’ Equity | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Additional | Comprehensive | |||||||||||||||||||||||||||||||
Comprehensive | Common Stock | Paid-In | Income | Retained | Noncontrolling | |||||||||||||||||||||||||||
Income | Shares | Amount | Capital | (Loss) | Earnings | Interests | Total | |||||||||||||||||||||||||
Balances at December 31, 2009 | 78,599,083 | $ | 786 | $ | 625,173 | $ | (4,892 | ) | $ | 732,738 | $ | 3,231 | $ | 1,357,036 | ||||||||||||||||||
Vesting of restricted stock | 337,205 | 3 | (3 | ) | — | — | — | — | ||||||||||||||||||||||||
Shares withheld for payroll taxes for vesting of restricted stock and warrants | (115,722 | ) | (1 | ) | (3,723 | ) | — | — | — | (3,724 | ) | |||||||||||||||||||||
Equity-based compensation | — | — | 8,488 | — | — | — | 8,488 | |||||||||||||||||||||||||
Exercise of stock options and warrants | 1,262,609 | 12 | 23,232 | — | — | — | 23,244 | |||||||||||||||||||||||||
Excess tax benefit associated with equity-based compensation | — | — | 8,935 | — | — | — | 8,935 | |||||||||||||||||||||||||
Repurchase of common stock | (3,347,111 | ) | (33 | ) | (116,252 | ) | — | — | — | (116,285 | ) | |||||||||||||||||||||
Reacquisition of equity component resulting from conversion of 2026 Convertible Senior Notes | — | — | (2,295 | ) | — | — | — | (2,295 | ) | |||||||||||||||||||||||
Issuance of shares in connection with conversion of 2026 Convertible Senior Notes | 21,906 | — | — | — | — | — | — | |||||||||||||||||||||||||
Amounts reclassified into earnings, net of taxes | — | — | — | 6,308 | — | — | 6,308 | |||||||||||||||||||||||||
Changes in fair value of swaps, net of taxes | — | — | — | (8,530 | ) | — | — | (8,530 | ) | |||||||||||||||||||||||
Net income | $ | 99,707 | — | — | — | — | 98,959 | 748 | 99,707 | |||||||||||||||||||||||
Other comprehensive loss | (3,610 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
Income tax effect of other comprehensive loss | 1,388 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Comprehensive income | 97,485 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Comprehensive income attributable to noncontrolling interests | (748 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
Comprehensive income attributable to Waste Connections | $ | 96,737 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Balances at September 30, 2010 | 76,757,970 | $ | 767 | $ | 543,555 | $ | (7,114 | ) | $ | 831,697 | $ | 3,979 | $ | 1,372,884 | ||||||||||||||||||
Page 3
Table of Contents
Waste Connections’ Equity | ||||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Other | ||||||||||||||||||||||||||||||||
Additional | Comprehensive | |||||||||||||||||||||||||||||||
Comprehensive | Common Stock | Paid-In | Income | Retained | Noncontrolling | |||||||||||||||||||||||||||
Income | Shares | Amount | Capital | (Loss) | Earnings | Interests | Total | |||||||||||||||||||||||||
Balances at December 31, 2008 | 79,842,239 | $ | 798 | $ | 661,555 | $ | (23,937 | ) | $ | 622,913 | $ | 668 | $ | 1,261,997 | ||||||||||||||||||
Vesting of restricted stock | 269,165 | 3 | (3 | ) | — | — | — | — | ||||||||||||||||||||||||
Shares withheld for payroll taxes for vesting of restricted stock and warrants | (90,251 | ) | (1 | ) | (2,502 | ) | — | — | — | (2,503 | ) | |||||||||||||||||||||
Equity-based compensation | — | — | 6,965 | — | — | — | 6,965 | |||||||||||||||||||||||||
Exercise of stock options and warrants | 223,630 | 2 | 4,950 | — | — | — | 4,952 | |||||||||||||||||||||||||
Excess tax benefit associated with equity-based compensation | — | — | 696 | — | — | — | 696 | |||||||||||||||||||||||||
Repurchase of common stock | (1,557,628 | ) | (15 | ) | (40,153 | ) | — | — | — | (40,168 | ) | |||||||||||||||||||||
Amounts reclassified into earnings, net of taxes | — | — | — | 11,929 | — | — | 11,929 | |||||||||||||||||||||||||
Changes in fair value of swaps, net of taxes | — | — | — | (3,462 | ) | — | — | (3,462 | ) | |||||||||||||||||||||||
Fair value of noncontrolling interest associated with business acquired | — | — | — | — | — | 1,514 | 1,514 | |||||||||||||||||||||||||
Net income | $ | 87,257 | — | — | — | — | 86,566 | 691 | 87,257 | |||||||||||||||||||||||
Other comprehensive income | 13,737 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Income tax effect of other comprehensive income | (5,270 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
Comprehensive income | 95,724 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Comprehensive income attributable to noncontrolling interests | (691 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||
Comprehensive income attributable to Waste Connections | $ | 95,033 | — | — | — | — | — | — | — | |||||||||||||||||||||||
Balances at September 30, 2009 | 78,687,155 | $ | 787 | $ | 631,508 | $ | (15,470 | ) | $ | 709,479 | $ | 2,873 | $ | 1,329,177 | ||||||||||||||||||
Page 4
Table of Contents
Nine months ended | ||||||||
September 30, | ||||||||
2009 | 2010 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 87,257 | $ | 99,707 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Loss (gain) on disposal of assets | (1,037 | ) | 572 | |||||
Depreciation | 86,127 | 99,349 | ||||||
Amortization of intangibles | 9,351 | 10,800 | ||||||
Deferred income taxes, net of acquisitions | 28,605 | 15,925 | ||||||
Loss on redemption of 2026 Convertible Senior Notes, net of make-whole payment | — | 2,255 | ||||||
Amortization of debt issuance costs | 1,455 | 1,332 | ||||||
Amortization of debt discount | 3,513 | 1,245 | ||||||
Equity-based compensation | 6,965 | 8,488 | ||||||
Interest income on restricted assets | (369 | ) | (397 | ) | ||||
Closure and post-closure accretion | 1,496 | 1,323 | ||||||
Excess tax benefit associated with equity-based compensation | (696 | ) | (8,935 | ) | ||||
Net change in operating assets and liabilities, net of acquisitions | 19,578 | 10,634 | ||||||
Net cash provided by operating activities | 242,245 | 242,298 | ||||||
Cash flows from investing activities: | ||||||||
Payments for acquisitions, net of cash acquired | (422,078 | ) | (17,391 | ) | ||||
Capital expenditures for property and equipment | (84,289 | ) | (86,121 | ) | ||||
Proceeds from disposal of assets | 4,348 | 5,786 | ||||||
Increase in restricted assets, net of interest income | (2,014 | ) | (1,048 | ) | ||||
Increase in other assets | (887 | ) | (2,034 | ) | ||||
Net cash used in investing activities | (504,920 | ) | (100,808 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from long-term debt | 217,000 | 331,253 | ||||||
Principal payments on notes payable and long-term debt | (175,053 | ) | (384,346 | ) | ||||
Change in book overdraft | 47 | (374 | ) | |||||
Proceeds from option and warrant exercises | 4,952 | 23,244 | ||||||
Excess tax benefit associated with equity-based compensation | 696 | 8,935 | ||||||
Payments for repurchase of common stock | (40,168 | ) | (116,285 | ) | ||||
Debt issuance costs | (42 | ) | — | |||||
Net cash provided by (used in) financing activities | 7,432 | (137,573 | ) | |||||
Net increase (decrease) in cash and equivalents | (255,243 | ) | 3,917 | |||||
Cash and equivalents at beginning of period | 265,264 | 9,639 | ||||||
Cash and equivalents at end of period | $ | 10,021 | $ | 13,556 | ||||
Non-cash financing activity: | ||||||||
Liabilities assumed and notes payable issued to sellers of businesses acquired | $ | 39,782 | $ | 13,243 |
Page 5
Table of Contents
Page 6
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Unvested Shares | ||||
Outstanding at December 31, 2009 | 994,678 | |||
Granted | 389,367 | |||
Forfeited | (24,962 | ) | ||
Vested | (337,205 | ) | ||
Outstanding at September 30, 2010 | 1,021,878 | |||
Page 7
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 8
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Final capping, closure and post-closure liability at December 31, 2009 | $ | 32,235 | ||
Adjustments to final capping, closure and post-closure liabilities | (7,118 | ) | ||
Liabilities incurred | 2,030 | |||
Accretion expense | 1,323 | |||
Closure payments | (474 | ) | ||
Assumption of closure liabilities from acquisitions | 146 | |||
Final capping, closure and post-closure liability at September 30, 2010 | $ | 28,142 | ||
December 31, | September 30, | |||||||
2009 | 2010 | |||||||
Revolver under Credit Facility, bearing interest ranging from 0.85% to 3.25%* | $ | 269,000 | $ | 436,000 | ||||
2026 Notes, bearing interest at 3.75%, net of discount of $6,246 as of December 31, 2009 | 193,754 | — | ||||||
2015 Notes, bearing interest at 6.22% | 175,000 | 175,000 | ||||||
2019 Notes, bearing interest at 5.25% | 175,000 | 175,000 | ||||||
Tax-exempt bonds, bearing interest ranging from 0.19% to 0.40%* | 50,615 | 39,420 | ||||||
Notes payable to sellers in connection with acquisitions, bearing interest at 6.05% to 10.35%* | 4,872 | 4,244 | ||||||
Notes payable to third parties, bearing interest at 1.0% to 10.9%* | 1,922 | 3,308 | ||||||
870,163 | 832,972 | |||||||
Less — current portion | (2,609 | ) | (1,849 | ) | ||||
$ | 867,554 | $ | 831,123 | |||||
* | Interest rates in the table above represent the range of interest rates incurred during the nine month period ended September 30, 2010. |
Page 9
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 10
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
2009 | 2010 | |||||||
Acquisitions | Acquisitions | |||||||
Fair value of consideration transferred: | ||||||||
Cash | $ | 418,666 | $ | 17,391 | ||||
Debt assumed | 16,423 | 9,657 | ||||||
Contingent consideration | 4,274 | — | ||||||
439,363 | 27,048 | |||||||
Recognized amounts of identifiable assets acquired and liabilities assumed: | ||||||||
Accounts receivable | 15,355 | 1,187 | ||||||
Other current assets | 4,135 | 602 | ||||||
Property and equipment | 308,335 | 22,322 | ||||||
Long-term franchise agreements and contracts | 9,325 | 175 | ||||||
Customer lists | 33,620 | 1,597 | ||||||
Other intangibles | 19,133 | — | ||||||
Other long-term assets | 500 | — | ||||||
Accounts payable | (1,369 | ) | — | |||||
Accrued liabilities | (2,183 | ) | (2,899 | ) | ||||
Deferred revenue | (4,754 | ) | (541 | ) | ||||
Noncontrolling interest | (1,514 | ) | — | |||||
Other long-term liabilities | (8,489 | ) | (146 | ) | ||||
Deferred income taxes | (5,050 | ) | — | |||||
Total identifiable net assets | 367,044 | 22,297 | ||||||
Goodwill | $ | 72,319 | $ | 4,751 | ||||
Page 11
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Nine months ended September 30, | ||||||||
2009 | 2010 | |||||||
Cash consideration transferred | $ | 418,666 | $ | 17,391 | ||||
Payment of contingent consideration | 2,000 | — | ||||||
Payment of acquisition-related liabilities | 1,412 | — | ||||||
Payments for acquisitions, net of cash acquired | $ | 422,078 | $ | 17,391 | ||||
Gross Carrying | Accumulated | Net Carrying | ||||||||||
Amount | Amortization | Amount | ||||||||||
Amortizable intangible assets: | ||||||||||||
Long-term franchise agreements and contracts | $ | 186,455 | $ | (23,475 | ) | $ | 162,980 | |||||
Customer lists | 59,109 | (16,148 | ) | 42,961 | ||||||||
Non-competition agreements | 9,414 | (5,852 | ) | 3,562 | ||||||||
Other | 21,236 | (2,209 | ) | 19,027 | ||||||||
276,214 | (47,684 | ) | 228,530 | |||||||||
Nonamortized intangible assets: | ||||||||||||
Indefinite-lived intangible assets | 116,160 | — | 116,160 | |||||||||
Intangible assets, exclusive of goodwill | $ | 392,374 | $ | (47,684 | ) | $ | 344,690 | |||||
Page 12
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Gross Carrying | Accumulated | Net Carrying | ||||||||||
Amount | Amortization | Amount | ||||||||||
Amortizable intangible assets: | ||||||||||||
Long-term franchise agreements and contracts | $ | 187,105 | $ | (18,751 | ) | $ | 168,354 | |||||
Customer lists | 57,572 | (11,265 | ) | 46,307 | ||||||||
Non-competition agreements | 9,732 | (5,740 | ) | 3,992 | ||||||||
Other | 21,236 | (1,746 | ) | 19,490 | ||||||||
275,645 | (37,502 | ) | 238,143 | |||||||||
Nonamortized intangible assets: | ||||||||||||
Indefinite-lived intangible assets | 116,160 | — | 116,160 | |||||||||
Intangible assets, exclusive of goodwill | $ | 391,805 | $ | (37,502 | ) | $ | 354,303 | |||||
For the year ending December 31, 2010 | $ | 14,268 | ||
For the year ending December 31, 2011 | $ | 14,281 | ||
For the year ending December 31, 2012 | $ | 13,986 | ||
For the year ending December 31, 2013 | $ | 12,570 | ||
For the year ending December 31, 2014 | $ | 11,881 |
Page 13
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Operating Income | ||||||||||||||||
(Loss) Before | ||||||||||||||||
Three Months | Depreciation, | |||||||||||||||
Ended | Amortization and | |||||||||||||||
September 30, | Gross | Intercompany | Net | Gain (Loss) on | ||||||||||||
2009 | Revenues | Revenues(b) | Revenues | Disposal of Assets(c) | ||||||||||||
Western | $ | 189,726 | $ | (22,143 | ) | $ | 167,583 | $ | 50,987 | |||||||
Central | 81,406 | (9,019 | ) | 72,387 | 23,906 | |||||||||||
Southern | 90,654 | (14,634 | ) | 76,020 | 23,032 | |||||||||||
Corporate(a) | — | — | — | 1,872 | ||||||||||||
$ | 361,786 | $ | (45,796 | ) | $ | 315,990 | $ | 99,797 | ||||||||
Operating Income | ||||||||||||||||
Three Months | Before Depreciation, | |||||||||||||||
Ended | Amortization and | |||||||||||||||
September 30, | Gross | Intercompany | Net | Gain (Loss) on | ||||||||||||
2010 | Revenues | Revenues(b) | Revenues | Disposal of Assets(c) | ||||||||||||
Western | $ | 212,262 | $ | (23,724 | ) | $ | 188,538 | $ | 60,500 | |||||||
Central | 86,247 | (9,700 | ) | 76,547 | 25,561 | |||||||||||
Southern | 97,785 | (17,085 | ) | 80,700 | 25,610 | |||||||||||
Corporate(a) | — | — | — | 2,021 | ||||||||||||
$ | 396,294 | $ | (50,509 | ) | $ | 345,785 | $ | 113,692 | ||||||||
Operating Income | ||||||||||||||||
(Loss) Before | ||||||||||||||||
Nine Months | Depreciation, | |||||||||||||||
Ended | Amortization and | |||||||||||||||
September 30, | Gross | Intercompany | Net | Gain (Loss) on | ||||||||||||
2009 | Revenues | Revenues(b) | Revenues | Disposal of Assets(c) | ||||||||||||
Western | $ | 530,265 | $ | (62,969 | ) | $ | 467,296 | $ | 139,570 | |||||||
Central | 232,742 | (25,970 | ) | 206,772 | 68,170 | |||||||||||
Southern | 246,362 | (38,934 | ) | 207,428 | 66,298 | |||||||||||
Corporate(a) | — | — | — | (7,783 | ) | |||||||||||
$ | 1,009,369 | $ | (127,873 | ) | $ | 881,496 | $ | 266,255 | ||||||||
Page 14
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Operating Income | ||||||||||||||||
Nine Months | Before Depreciation, | |||||||||||||||
Ended | Amortization and | |||||||||||||||
September 30, | Gross | Intercompany | Net | Gain (Loss) on | ||||||||||||
2010 | Revenues | Revenues(b) | Revenues | Disposal of Assets(c) | ||||||||||||
Western | $ | 600,111 | $ | (68,609 | ) | $ | 531,502 | $ | 164,737 | |||||||
Central | 244,509 | (27,499 | ) | 217,010 | 71,292 | |||||||||||
Southern | 284,389 | (49,099 | ) | 235,290 | 75,576 | |||||||||||
Corporate(a) | — | — | — | 3,758 | ||||||||||||
$ | 1,129,009 | $ | (145,207 | ) | $ | 983,802 | $ | 315,363 | ||||||||
(a) | Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions. | |
(b) | Intercompany revenues reflect each segment’s total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service. | |
(c) | For those items included in the determination of operating income (loss) before depreciation, amortization and gain (loss) on disposal of assets, the accounting policies of the segments are the same as those described in the Company’s most recent Annual Report on Form 10-K. |
Western | Central | Southern | Total | |||||||||||||
Balance as of December 31, 2008 | $ | 257,560 | $ | 313,145 | $ | 266,225 | $ | 836,930 | ||||||||
Goodwill acquired | 34,748 | 215 | 37,356 | 72,319 | ||||||||||||
Goodwill divested | — | — | (1,526 | ) | (1,526 | ) | ||||||||||
Balance as of September 30, 2009 | $ | 292,308 | $ | 313,360 | $ | 302,055 | $ | 907,723 | ||||||||
Western | Central | Southern | Total | |||||||||||||
Balance as of December 31, 2009 | $ | 291,781 | $ | 313,366 | $ | 301,563 | $ | 906,710 | ||||||||
Goodwill transferred | 20,295 | (20,295 | ) | — | — | |||||||||||
Goodwill acquired | 731 | 2,304 | 1,716 | 4,751 | ||||||||||||
Goodwill divested | — | (64 | ) | (1,111 | ) | (1,175 | ) | |||||||||
Balance as of September 30, 2010 | $ | 312,807 | $ | 295,311 | $ | 302,168 | $ | 910,286 | ||||||||
Page 15
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Operating income before depreciation, amortization and gain (loss) on disposal of assets | $ | 99,797 | $ | 113,692 | $ | 266,255 | $ | 315,363 | ||||||||
Depreciation | (31,226 | ) | (34,441 | ) | (86,127 | ) | (99,349 | ) | ||||||||
Amortization of intangibles | (3,671 | ) | (3,616 | ) | (9,351 | ) | (10,800 | ) | ||||||||
Gain (loss) on disposal of assets | (139 | ) | 50 | 1,037 | (572 | ) | ||||||||||
Interest expense | (12,259 | ) | (9,419 | ) | (36,817 | ) | (30,842 | ) | ||||||||
Interest income | 134 | 135 | 1,275 | 453 | ||||||||||||
Loss on extinguishment of debt | — | — | — | (10,193 | ) | |||||||||||
Other income, net | 879 | 1,500 | 1,055 | 1,970 | ||||||||||||
Income before income tax provision | $ | 53,515 | $ | 67,901 | $ | 137,327 | $ | 166,030 | ||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Collection | $ | 235,735 | $ | 244,936 | $ | 672,030 | $ | 712,114 | ||||||||
Disposal and transfer | 107,438 | 125,473 | 289,021 | 342,390 | ||||||||||||
Intermodal, recycling and other | 18,613 | 25,885 | 48,318 | 74,505 | ||||||||||||
361,786 | 396,294 | 1,009,369 | 1,129,009 | |||||||||||||
Less: intercompany elimination | (45,796 | ) | (50,509 | ) | (127,873 | ) | (145,207 | ) | ||||||||
Total revenues | $ | 315,990 | $ | 345,785 | $ | 881,496 | $ | 983,802 | ||||||||
Page 16
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Fixed | Variable | |||||||||||||
Notional | Interest | Interest Rate | ||||||||||||
Date Entered | Amount | Rate Paid* | Received | Effective Date | Expiration Date | |||||||||
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 | $ | 50,000 | 4.29 | % | 1-month LIBOR | June 2009 | June 2011 | |||||||
March 2009 | $ | 175,000 | 2.85 | % | 1-month LIBOR | February 2011 | February 2014 |
* | Plus applicable margin. |
Diesel | ||||||||||||||
Notional | Rate | |||||||||||||
Amount | Paid | |||||||||||||
(in gallons | Fixed | Diesel Rate Received | ||||||||||||
Date Entered | per month) | (per gallon) | Variable | Effective Date | Expiration Date | |||||||||
October 2008 | 250,000 | $ | 3.750 | DOE Diesel Fuel Index | * | January 2009 | December 2010 | |||||||
October 2008 | 100,000 | $ | 3.745 | DOE Diesel Fuel Index | * | January 2009 | December 2010 | |||||||
October 2008 | 250,000 | $ | 3.500 | DOE Diesel Fuel Index | * | January 2009 | December 2010 | |||||||
December 2008 | 100,000 | $ | 3.000 | DOE Diesel Fuel Index | * | January 2010 | December 2010 | |||||||
December 2008 | 150,000 | $ | 3.000 | DOE Diesel Fuel Index | * | January 2010 | December 2010 | |||||||
December 2008 | 150,000 | $ | 2.820 | DOE Diesel Fuel Index | * | January 2010 | December 2010 | |||||||
December 2008 | 150,000 | $ | 2.700 | DOE Diesel Fuel Index | * | January 2010 | December 2010 | |||||||
December 2008 | 400,000 | $ | 2.950 | DOE Diesel Fuel Index | * | January 2011 | December 2011 | |||||||
December 2008 | 400,000 | $ | 3.030 | DOE Diesel Fuel Index | * | January 2012 | December 2012 |
* | If the national U.S. on-highway average price for a gallon of diesel fuel (“average price”), as published by the Department of Energy, exceeds the contract price per gallon, the Company receives the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty. If the average price is less than the contract price per gallon, the Company pays the difference to the counterparty. |
Page 17
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Derivatives | ||||||||||||
Designated as Cash | Asset Derivatives | Liability Derivatives | ||||||||||
Flow Hedges | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Interest rate swaps | $ | — | Accrued liabilities(a) | $ | (6,340 | ) | ||||||
— | Other long-term liabilities | (7,292 | ) | |||||||||
Fuel hedges | Prepaid expenses and other current assets(b) | 1,367 | Prepaid expenses and other current assets(b) | (874 | ) | |||||||
Other assets, net | 1,664 | — | ||||||||||
Total derivatives designated as cash flow hedges | $ | 3,031 | $ | (14,506 | ) | |||||||
(a) | Represents the estimated amount of the existing unrealized losses on interest rate swaps as of September 30, 2010 (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. The actual amounts reclassified into earnings are dependent on future movements in interest rates. | |
(b) | The net balance of $493 represents the estimated amount of the existing unrealized gains on fuel hedges as of September 30, 2010 (based on the forward DOE diesel fuel index curve at that date), included in accumulated other comprehensive loss expected to be reclassified into pre-tax earnings within the next 12 months. The actual amounts reclassified into earnings are dependent on future movements in diesel fuel prices. |
Derivatives | ||||||||||||
Designated as Cash | Asset Derivatives | Liability Derivatives | ||||||||||
Flow Hedges | Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Interest rate swaps | Other assets, net | $ | 1,647 | Accrued liabilities | $ | (8,235 | ) | |||||
Other assets, net | (1,173 | ) | ||||||||||
Fuel hedges | Accrued liabilities | 1,406 | Accrued liabilities | (3,884 | ) | |||||||
Other assets, net | 2,374 | |||||||||||
Total derivatives designated as cash flow hedges | $ | 5,427 | $ | (13,292 | ) | |||||||
Amount of Gain or (Loss) | Amount of (Gain) or Loss | |||||||||||||||||
Derivatives | Recognized in AOCL on | Statement of | Reclassified from AOCL into | |||||||||||||||
Designated as Cash | Derivatives, | Income | Earnings, Net of Tax | |||||||||||||||
Flow Hedges | Net of Tax (Effective Portion) | Classification | (Effective Portion) | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||||
Interest rate swaps | $ | (3,540 | ) | $ | (2,342 | ) | Interest expense | $ | 2,567 | $ | 1,283 | |||||||
Fuel hedges | (1,603 | ) | 1,164 | Cost of operations | 1,480 | 716 | ||||||||||||
Total | $ | (5,143 | ) | $ | (1,178 | ) | $ | 4,047 | $ | 1,999 | ||||||||
Page 18
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Amount of Gain or (Loss) | Amount of (Gain) or Loss | |||||||||||||||||
Derivatives | Recognized in AOCL on | Statement of | Reclassified from AOCL into | |||||||||||||||
Designated as Cash | Derivatives, | Income | Earnings, Net of Tax | |||||||||||||||
Flow Hedges | Net of Tax (Effective Portion) | Classification | (Effective Portion) | |||||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||||
Interest rate swaps | $ | (2,564 | ) | $ | (7,776 | ) | Interest expense | $ | 7,654 | $ | 4,152 | |||||||
Fuel hedges | (898 | ) | (754 | ) | Cost of operations | 4,275 | 2,156 | |||||||||||
Total | $ | (3,462 | ) | $ | (8,530 | ) | $ | 11,929 | $ | 6,308 | ||||||||
Page 19
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Numerator: | ||||||||||||||||
Net income attributable to Waste Connections for basic and diluted earnings per share | $ | 34,150 | $ | 40,986 | $ | 86,566 | $ | 98,959 | ||||||||
Denominator: | ||||||||||||||||
Basic shares outstanding | 78,837,984 | 77,062,885 | 79,618,566 | 77,419,498 | ||||||||||||
Dilutive effect of stock options and warrants | 812,514 | 487,842 | 746,769 | 620,498 | ||||||||||||
Dilutive effect of restricted stock | 174,118 | 301,842 | 102,845 | 241,136 | ||||||||||||
Diluted shares outstanding | 79,824,616 | 77,852,569 | 80,468,180 | 78,281,132 | ||||||||||||
Page 20
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Fair Value Measurement at December 31, 2009 Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Interest rate swap derivative instruments — net liability position | $ | (7,761 | ) | $ | — | $ | (7,761 | ) | $ | — | ||||||
Fuel hedge derivative instruments — net liability position | $ | (104 | ) | $ | — | $ | — | $ | (104 | ) | ||||||
Restricted assets | $ | 27,617 | $ | 27,617 | $ | — | $ | — |
Fair Value Measurement at September 30, 2010 Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Interest rate swap derivative instruments — net liability position | $ | (13,632 | ) | $ | — | $ | (13,632 | ) | $ | — | ||||||
Fuel hedge derivative instruments — net asset position | $ | 2,157 | $ | — | $ | — | $ | 2,157 | ||||||||
Restricted assets | $ | 29,351 | $ | 29,351 | $ | — | $ | — |
Page 21
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Level 3 | ||||
Derivatives | ||||
Balance as of December 31, 2008 | $ | (10,812 | ) | |
Realized losses included in earnings | 6,874 | |||
Unrealized gains included in AOCL | (1,409 | ) | ||
Balance as of September 30, 2009 | $ | (5,347 | ) | |
Level 3 | ||||
Derivatives | ||||
Balance as of December 31, 2009 | $ | (104 | ) | |
Realized losses included in earnings | 3,478 | |||
Unrealized gains included in AOCL | (1,217 | ) | ||
Balance as of September 30, 2010 | $ | 2,157 | ||
Page 22
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Three months ended September 30, 2009 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 4,127 | $ | (1,560 | ) | $ | 2,567 | |||||
Fuel hedge amounts reclassified into cost of operations | 2,379 | (899 | ) | 1,480 | ||||||||
Changes in fair value of interest rate swaps | (5,692 | ) | 2,152 | (3,540 | ) | |||||||
Changes in fair value of fuel hedges | (2,577 | ) | 974 | (1,603 | ) | |||||||
$ | (1,763 | ) | $ | 667 | $ | (1,096 | ) | |||||
Three months ended September 30, 2010 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 2,069 | $ | (786 | ) | $ | 1,283 | |||||
Fuel hedge amounts reclassified into cost of operations | 1,154 | (438 | ) | 716 | ||||||||
Changes in fair value of interest rate swaps | (3,777 | ) | 1,435 | (2,342 | ) | |||||||
Changes in fair value of fuel hedges | 1,878 | (714 | ) | 1,164 | ||||||||
$ | 1,324 | $ | (503 | ) | $ | 821 | ||||||
Page 23
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Nine months ended September 30, 2009 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 12,305 | $ | (4,651 | ) | $ | 7,654 | |||||
Fuel hedge amounts reclassified into cost of operations | 6,874 | (2,599 | ) | 4,275 | ||||||||
Changes in fair value of interest rate swaps | (4,033 | ) | 1,469 | (2,564 | ) | |||||||
Changes in fair value of fuel hedges | (1,409 | ) | 511 | (898 | ) | |||||||
$ | 13,737 | $ | (5,270 | ) | $ | 8,467 | ||||||
Nine months ended September 30, 2010 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense | $ | 6,697 | $ | (2,545 | ) | $ | 4,152 | |||||
Fuel hedge amounts reclassified into cost of operations | 3,478 | (1,322 | ) | 2,156 | ||||||||
Changes in fair value of interest rate swaps | (12,568 | ) | 4,792 | (7,776 | ) | |||||||
Changes in fair value of fuel hedges | (1,217 | ) | 463 | (754 | ) | |||||||
$ | (3,610 | ) | $ | 1,388 | $ | (2,222 | ) | |||||
Accumulated | ||||||||||||
Other | ||||||||||||
Interest | Comprehensive | |||||||||||
Fuel Hedges | Rate Swaps | Loss | ||||||||||
Balance at December 31, 2009 | $ | (66 | ) | $ | (4,826 | ) | $ | (4,892 | ) | |||
Amounts reclassified into earnings | 2,156 | 4,152 | 6,308 | |||||||||
Change in fair value | (754 | ) | (7,776 | ) | (8,530 | ) | ||||||
Balance at September 30, 2010 | $ | 1,336 | $ | (8,450 | ) | $ | (7,114 | ) | ||||
Page 24
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 25
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 26
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 27
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 28
Table of Contents
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except share, per share, per gallon, tonnage and per ton amounts)
Page 29
Table of Contents
• | Our acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; |
• | A portion of our growth and future financial performance depends on our ability to integrate acquired businesses into our organization and operations; |
• | Downturns in the worldwide economy adversely affect operating results; |
• | Our results are vulnerable to economic conditions and seasonal factors affecting the regions in which we operate; |
• | We may be subject in the normal course of business to judicial, administrative or other third party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity; |
• | We may be unable to compete effectively with larger and better capitalized companies and governmental service providers; |
• | We may lose contracts through competitive bidding, early termination or governmental action; |
• | Price increases may not be adequate to offset the impact of increased costs or may cause us to lose volume; |
• | Increases in the price of fuel may adversely affect our business and reduce our operating margins; |
• | Increases in labor and disposal and related transportation costs could impact our financial results; |
• | Efforts by labor unions could divert management attention and adversely affect operating results; |
• | We could face significant withdrawal liability if we withdraw from participation in one or more multiemployer pension plans in which we participate; |
• | Increases in insurance costs and the amount that we self-insure for various risks could reduce our operating margins and reported earnings; |
Page 30
Table of Contents
• | Competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions; |
• | Our indebtedness could adversely affect our financial condition; we may incur substantially more debt in the future; |
• | Each business that we acquire or have acquired may have liabilities or risks that we fail or are unable to discover, including environmental liabilities; |
• | Liabilities for environmental damage may adversely affect our financial condition, business and earnings; |
• | Our accruals for our landfill site closure and post-closure costs may be inadequate; |
• | The financial soundness of our customers could affect our business and operating results; |
• | 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; |
• | Our decentralized decision-making structure could allow local managers to make decisions that adversely affect our operating results; |
• | We may incur additional charges related to capitalized expenditures of landfill development projects, which would decrease our earnings; |
• | 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; |
• | Our financial results are based upon estimates and assumptions that may differ from actual results; |
• | The adoption of new accounting standards or interpretations could adversely affect our financial results; |
• | Our financial and operating performance may be affected by the inability to renew landfill operating permits, obtain new landfills and expand existing ones; |
• | Future changes in laws or renewed enforcement of laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results; |
• | Extensive and evolving environmental and health and safety laws and regulations may restrict our operations and growth and increase our costs; |
• | Climate change regulations may adversely affect operating results; |
• | Extensive regulations that govern the design, operation and closure of landfills may restrict our landfill operations or increase our costs of operating landfills; |
• | Alternatives to landfill disposal may cause our revenues and operating results to decline; |
• | Fluctuations in prices for recycled commodities that we sell and rebates we offer to customers may cause our revenues and operating results to decline; and |
• | Unusually adverse weather conditions may interfere with our operations, harming our operating results. |
Page 31
Table of Contents
Page 32
Table of Contents
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||||||||||||||||||
Collection | $ | 235,735 | 65.2 | % | $ | 244,936 | 61.8 | % | $ | 672,030 | 66.6 | % | $ | 712,114 | 63.1 | % | ||||||||||||||||
Disposal and transfer | 107,438 | 29.7 | 125,473 | 31.7 | 289,021 | 28.6 | 342,390 | 30.3 | ||||||||||||||||||||||||
Recycling and other | 18,613 | 5.1 | 25,885 | 6.5 | 48,318 | 4.8 | 74,505 | 6.6 | ||||||||||||||||||||||||
361,786 | 100.0 | % | 396,294 | 100.0 | % | 1,009,369 | 100.0 | % | 1,129,009 | 100.0 | % | |||||||||||||||||||||
Less: intercompany elimination | (45,796 | ) | (50,509 | ) | (127,873 | ) | (145,207 | ) | ||||||||||||||||||||||||
Total revenue | $ | 315,990 | $ | 345,785 | $ | 881,496 | $ | 983,802 | ||||||||||||||||||||||||
Page 33
Table of Contents
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Western | $ | 167,583 | $ | 188,538 | $ | 467,296 | $ | 531,502 | ||||||||
Central | 72,387 | 76,547 | 206,772 | 217,010 | ||||||||||||
Southern | 76,020 | 80,700 | 207,428 | 235,290 | ||||||||||||
Corporate(a) | — | — | — | — | ||||||||||||
$ | 315,990 | $ | 345,785 | $ | 881,496 | $ | 983,802 | |||||||||
(a) | Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions. |
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Western | $ | 50,987 | $ | 60,500 | $ | 139,570 | $ | 164,737 | ||||||||
Central | 23,906 | 25,561 | 68,170 | 71,292 | ||||||||||||
Southern | 23,032 | 25,610 | 66,298 | 75,576 | ||||||||||||
Corporate(a) | 1,872 | 2,021 | (7,783 | ) | 3,758 | |||||||||||
$ | 99,797 | $ | 113,692 | $ | 266,255 | $ | 315,363 | |||||||||
(a) | Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions. |
Page 34
Table of Contents
Page 35
Table of Contents
Page 36
Table of Contents
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||
Cost of operations | 57.1 | 56.0 | 57.9 | 56.7 | ||||||||||||
Selling, general and administrative | 11.3 | 11.1 | 11.8 | 11.2 | ||||||||||||
Depreciation | 9.9 | 10.0 | 9.8 | 10.1 | ||||||||||||
Amortization of intangibles | 1.2 | 1.0 | 1.1 | 1.1 | ||||||||||||
Loss (gain) on disposal of assets | — | — | (0.1 | ) | 0.1 | |||||||||||
Operating income | 20.5 | 21.9 | 19.5 | 20.8 | ||||||||||||
Interest expense | (3.9 | ) | (2.7 | ) | (4.2 | ) | (3.1 | ) | ||||||||
Interest income | — | 0.1 | 0.2 | — | ||||||||||||
Loss on extinguishment of debt | — | — | — | (1.0 | ) | |||||||||||
Other income (expense) | 0.3 | 0.4 | 0.1 | 0.2 | ||||||||||||
Income tax provision | (6.1 | ) | (7.7 | ) | (5.7 | ) | (6.7 | ) | ||||||||
Net income attributable to noncontrolling interests | — | (0.1 | ) | (0.1 | ) | (0.1 | ) | |||||||||
Net income attributable to Waste Connections | 10.8 | % | 11.9 | % | 9.8 | % | 10.1 | % | ||||||||
Page 37
Table of Contents
Page 38
Table of Contents
Page 39
Table of Contents
Page 40
Table of Contents
Page 41
Table of Contents
Nine Months Ended | ||||||||
September 30, | ||||||||
2009 | 2010 | |||||||
Net cash provided by operating activities | $ | 242,245 | $ | 242,298 | ||||
Net cash used in investing activities | (504,920 | ) | (100,808 | ) | ||||
Net cash provided by (used in) financing activities | 7,432 | (137,573 | ) | |||||
Net (decrease) increase in cash and equivalents | (255,243 | ) | 3,917 | |||||
Cash and equivalents at beginning of period | 265,264 | 9,639 | ||||||
Cash and equivalents at end of period | $ | 10,021 | $ | 13,556 | ||||
1) | An increase in net income of $12.4 million; | ||
2) | An increase in depreciation and amortization expense of $14.7 million; | ||
3) | An increase in equity-based compensation expense of $1.5 million; less | ||
4) | A decrease of $8.2 million attributable to an increase in the excess tax benefit associated with equity-based compensation, due to an increase in stock option exercises resulting in increased taxable income recognized by employees that is tax deductible to us; | ||
5) | A decrease in deferred taxes of $12.7 million due primarily to the recognition during the nine months ended September 30, 2009, of tax benefits associated with a change in our tax method for deducting depreciation expense for certain landfills; and | ||
6) | A decrease in cash flows from operating assets and liabilities, net of effects from acquisitions, of $9.0 million to cash provided by operating activities of $10.6 million for the nine months ended September 30, 2010, from cash provided by operating activities of $19.6 million for the nine months ended September 30, 2009. The significant components of the $10.6 million in cash inflows from changes in operating assets and liabilities for the nine months ended September 30, 2010, include the following: |
a) | an increase from accrued liabilities of $16.4 million due primarily to increased liabilities for payroll, property taxes, interest and auto and workers’ compensation claims; | ||
b) | an increase from prepaid expenses and other current assets of $7.2 million due primarily to decreases in prepaid income taxes and the amortization of prepaid license and permit costs; | ||
c) | an increase from deferred revenue of $2.9 million due primarily to increased revenues and the timing of billing for services; less | ||
d) | a decrease from accounts receivable of $14.9 million due to increased revenues; less, | ||
e) | a decrease from accounts payable of $1.7 million due primarily to the timing of payments for capital expenditures and operating expenses. |
Page 42
Table of Contents
1) | A decrease in payments for acquisitions of $404.7 million; | ||
2) | An increase in cash proceeds from the disposal of assets of $1.4 million, due primarily to the disposal of various operations; less | ||
3) | An increase in capital expenditures for property and equipment of $1.8 million due to increases in site costs for various landfills and construction of buildings and purchase of containers, partially offset by a decrease in truck and equipment purchases. |
1) | An increase in payments to repurchase our common stock of $76.1 million; | ||
2) | A decrease in net long-term borrowings of $95.0 million due to an increase in long-term borrowings in the nine month period ended September 30, 2009 to fund acquisitions; less | ||
3) | An increase in proceeds from option and warrant exercises of $18.3 million due to an increase in the number of options and warrants exercised in the nine month period ended September 30, 2010; less | ||
4) | An increase in the excess tax benefit associated with equity-based compensation of $8.2 million, due to the aforementioned increase in options and warrants exercised in the nine month period ended September 30, 2010, which resulted in increased taxable income, recognized by employees, that is tax deductible by us. |
Page 43
Table of Contents
Page 44
Table of Contents
Payments Due by Period | ||||||||||||||||||||
Less Than | 1 to 3 | 3 to 5 | Over 5 | |||||||||||||||||
Recorded Obligations | Total | 1 Year | Years | Years | Years | |||||||||||||||
Long-term debt | $ | 832,972 | $ | 1,849 | $ | 438,714 | $ | 3,105 | $ | 389,304 | ||||||||||
Cash interest payments | $ | 176,106 | $ | 32,922 | $ | 51,139 | $ | 41,242 | $ | 50,803 |
Long-term debt payments include: |
1) | $436.0 million in principal payments due 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 3.25% at September 30, 2010) on base rate loans, or the Eurodollar rate plus the applicable Eurodollar margin (approximately 0.88% at September 30, 2010) on Eurodollar loans. As of September 30, 2010, our credit facility allowed us to borrow up to $845 million. | ||
2) | $175.0 million in principal payments due 2019 related to our 2019 Notes. Holders of the 2019 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2019 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2019 Notes bear interest at a rate of 5.25%. | ||
3) | $175.0 million in principal payments due 2015 related to our 2015 Notes. Holders of the 2015 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2015 Notes bear interest at a rate of 6.22%. | ||
4) | $39.4 million in principal payments related to our tax-exempt bonds, which bear interest at variable rates (between 0.30% and 0.33%) at September 30, 2010. The tax-exempt bonds have maturity dates ranging from 2012 to 2033. | ||
5) | $4.2 million in principal payments related to our notes payable to sellers. Our notes payable to sellers bear interest at rates between 6.05% and 10.35% at September 30, 2010, and have maturity dates ranging from 2010 to 2036. | ||
6) | $3.3 million in principal payments related to our notes payable to third parties. Our notes payable to third parties bear interest at rates between 1.0% and 10.9% at September 30, 2010, and have maturity dates ranging from 2010 to 2019. |
1) | We calculated cash interest payments on the credit facility using the Eurodollar rate plus the applicable Eurodollar margin at September 30, 2010. We assumed the credit facility is paid off when the credit facility matures in 2012. | ||
2) | We calculated cash interest payments on our interest rate swaps using the stated interest rate in the swap agreement less the Eurodollar rate through the term of the swaps. |
Page 45
Table of Contents
Amount of Commitment Expiration Per Period | ||||||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Less Than | 1 to 3 | 3 to 5 | Over 5 | |||||||||||||||||
Unrecorded Obligations(1) | Total | 1 Year | Years | Years | Years | |||||||||||||||
Operating leases | $ | 80,417 | $ | 10,252 | $ | 19,143 | $ | 15,823 | $ | 35,199 |
(1) | We are party to operating lease agreements. These lease agreements are established in the ordinary course of our business and are designed to provide us with access to facilities at competitive, market-driven prices. These arrangements have not materially affected our financial position, results of operations or liquidity during the nine months ended September 30, 2010, nor are they expected to have a material impact on our future financial position, results of operations or liquidity. |
Nine months ended September 30, | ||||||||||||||||
2009 | 2010 | |||||||||||||||
Number of | Total | Number of | Total | |||||||||||||
Sites | Tons | Sites | Tons | |||||||||||||
Owned landfills and landfills operated under life-of-site agreements | 37 | 7,922 | 38 | 9,875 | ||||||||||||
Operated landfills | 7 | 591 | 6 | 472 | ||||||||||||
44 | 8,513 | 44 | 10,347 | |||||||||||||
Page 46
Table of Contents
Nine months ended | ||||||||
September 30, | ||||||||
2009 | 2010 | |||||||
Net cash provided by operating activities | $ | 242,245 | $ | 242,298 | ||||
Plus/less: Change in book overdraft | 47 | (374 | ) | |||||
Plus: Proceeds from disposal of assets | 4,348 | 5,786 | ||||||
Plus: Excess tax benefit associated with equity-based compensation | 696 | 8,935 | ||||||
Less: Capital expenditures for property and equipment | (84,289 | ) | (86,121 | ) | ||||
Free cash flow | $ | 163,047 | $ | 170,524 | ||||
Page 47
Table of Contents
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2010 | 2009 | 2010 | |||||||||||||
Operating income | $ | 64,761 | $ | 75,685 | $ | 171,814 | $ | 204,642 | ||||||||
Plus: Depreciation and amortization | 34,897 | 38,057 | 95,478 | 110,149 | ||||||||||||
Plus: Closure and post-closure accretion | 584 | 443 | 1,496 | 1,323 | ||||||||||||
Plus/less: Loss (gain) on disposal of assets | 139 | (50 | ) | (1,037 | ) | 572 | ||||||||||
Adjustments: | ||||||||||||||||
Plus: Acquisition-related transaction costs (a) | 897 | 782 | 4,179 | 1,177 | ||||||||||||
Plus: Loss on prior corporate office lease (b) | — | — | 1,621 | — | ||||||||||||
Adjusted operating income before depreciation and amortization | $ | 101,278 | $ | 114,917 | $ | 273,551 | $ | 317,863 | ||||||||
(a) | Reflects the addback of acquisition-related costs expensed due to the implementation of new accounting guidance for business combinations effective January 1, 2009. | |
(b) | Reflects the addback of a loss on our prior corporate office lease due to the relocation of our corporate offices. |
Page 48
Table of Contents
Fixed | Variable | |||||||||||||||||||
Notional | Interest | Interest Rate | Expiration | |||||||||||||||||
Date Entered | Amount | Rate Paid* | Received | Effective Date | Date | |||||||||||||||
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 | $ | 50,000 | 4.29 | % | 1-month LIBOR | June 2009 | June 2011 | |||||||||||||
March 2009 | $ | 175,000 | 2.85 | % | 1-month LIBOR | February 2011 | February 2014 |
* | plus applicable margin. |
Page 49
Table of Contents
Notional | ||||||||||||||
Amount | Diesel | |||||||||||||
(in gallons | Rate | |||||||||||||
per | Paid | Diesel Rate Received | Effective | Expiration | ||||||||||
Date Entered | month) | Fixed | Variable | Date | Date | |||||||||
October 2008 | 250,000 | $ | 3.750 | DOE Diesel Fuel Index* | January 2009 | December 2010 | ||||||||
October 2008 | 100,000 | $ | 3.745 | DOE Diesel Fuel Index* | January 2009 | December 2010 | ||||||||
October 2008 | 250,000 | $ | 3.500 | DOE Diesel Fuel Index* | January 2009 | December 2010 | ||||||||
December 2008 | 100,000 | $ | 3.000 | DOE Diesel Fuel Index* | January 2010 | December 2010 | ||||||||
December 2008 | 150,000 | $ | 3.000 | DOE Diesel Fuel Index* | January 2010 | December 2010 | ||||||||
December 2008 | 150,000 | $ | 2.820 | DOE Diesel Fuel Index* | January 2010 | December 2010 | ||||||||
December 2008 | 150,000 | $ | 2.700 | DOE Diesel Fuel Index* | January 2010 | December 2010 | ||||||||
December 2008 | 400,000 | $ | 2.950 | DOE Diesel Fuel Index* | January 2011 | December 2011 | ||||||||
December 2008 | 400,000 | $ | 3.030 | DOE Diesel Fuel Index* | January 2012 | December 2012 |
* | If the national U.S. on-highway average price for a gallon of diesel fuel (“average price”), as published by the Department of Energy, exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty. If the average price is less than the contract price per gallon, we pay the difference to the counterparty. |
Page 50
Table of Contents
Page 51
Table of Contents
Page 52
Table of Contents
Page 53
Table of Contents
Page 54
Table of Contents
Page 55
Table of Contents
Page 56
Table of Contents
Page 57
Table of Contents
• | increase our vulnerability to general adverse economic and industry conditions; | ||
• | limit our ability to obtain additional financing or refinancings at attractive rates; | ||
• | require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures and other general corporate purposes; | ||
• | limit our flexibility in planning for, or reacting to, changes in our business and the industry; and | ||
• | place us at a competitive disadvantage relative to our competitors with less debt. |
Page 58
Table of Contents
Page 59
Table of Contents
Page 60
Table of Contents
Page 61
Table of Contents
Page 62
Table of Contents
Page 63
Table of Contents
Maximum | ||||||||||||||||
Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased | Value of Shares that | |||||||||||||||
Total Number | Average | as Part of Publicly | May Yet Be | |||||||||||||
of Shares | Price Paid | Announced | Purchased Under | |||||||||||||
Period | Purchased | Per Share(1) | Program | the Program | ||||||||||||
7/1/10 – 7/31/10 | 18,800 | $ | 34.52 | 18,800 | $ | 233,279 | ||||||||||
8/1/10 – 8/31/10 | 821,237 | 38.19 | 821,237 | 201,912 | ||||||||||||
9/1/10 – 9/30/10 | 16,000 | 37.76 | 16,000 | 201,308 | ||||||||||||
856,037 | 38.11 | 856,037 | ||||||||||||||
(1) | This amount represents the weighted average price paid per common share. This price includes a per share commission paid for all repurchases. |
Page 64
Table of Contents
Page 65
Table of Contents
WASTE CONNECTIONS, INC. | ||||
Date: October 20, 2010 | BY: | /s/ Ronald J. Mittelstaedt | ||
Ronald J. Mittelstaedt, | ||||
Chief Executive Officer | ||||
Date: October 20, 2010 | BY: | /s/ Worthing F. Jackman | ||
Worthing F. Jackman, | ||||
Executive Vice President and Chief Financial Officer |
Page 66
Table of Contents
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 | Third Amended and Restated Bylaws of the Registrant, effective May 15, 2009 (incorporated by reference to the exhibit filed with the Registrant’s Form 8-K filed on April 23, 2009) | |||
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 | |||
101 | The following materials from Waste Connections, Inc.’s Quarterly Report on Form 10-Q for the period ended September 30, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income; (iii) the Condensed Consolidated Statements of Equity and Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text. In accordance with Regulation S-T, the XBRL-formatted interactive data files that comprise this Exhibit 101 shall be deemed “furnished” and not “filed.” |
Page 67