-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I5siQ36YUD1kA9QWaQPSHY1LKb77wk3yabHkH8Uuz73YkzDsZnrLlWxrtJ+PP2gT mgG5KwQnczTzbMR2C2VJzw== 0000950149-99-000647.txt : 19990406 0000950149-99-000647.hdr.sgml : 19990406 ACCESSION NUMBER: 0000950149-99-000647 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990402 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990405 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WASTE CONNECTIONS INC/DE CENTRAL INDEX KEY: 0001057058 STANDARD INDUSTRIAL CLASSIFICATION: REFUSE SYSTEMS [4953] IRS NUMBER: 943283464 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 333-72113 FILM NUMBER: 99587259 BUSINESS ADDRESS: STREET 1: 2260 DOUGLAS BLVD STREET 2: SUITE 280 CITY: ROSEVILLE STATE: CA ZIP: 95661 BUSINESS PHONE: 9167722221 MAIL ADDRESS: STREET 1: 2260 DOUGLAS BLVD STREET 2: SUITE 280 CITY: ROSEVILLE STATE: CA ZIP: 95661 8-K/A 1 FORM 8-K/A DATE OF REPORT APRIL 2, 1999 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-KA CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report April 2, 1999 WASTE CONNECTIONS, INC. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation) 0-19674 (Commission File Number) 94-3283464 (IRS Employer Identification No.) 2260 Douglas Boulevard, Suite 280, Roseville, California 95661 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (916) 772-2221 Not Applicable (Former name or former address, if changed since last report.) 1 2 INFORMATION TO BE INCLUDED IN THE REPORT Item 2. Acquisition or Disposition of Assets On February 1, 1999, Waste Connections, Inc. ("WCI") filed a Form 8-K describing the merger on January 19, 1999, of WCI Acquisition Corporation I, WCI Acquisition Corporation II, WCI Acquisition Corporation III and WCI Acquisition Corporation IV, four Delaware corporations wholly owned by WCI, into Murrey's Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co., Inc. and Tacoma Recycling Company, Inc., respectively (collectively, the "Murrey Companies"). Certain financial statements of the Murrey Companies and certain pro forma financial data of WCI were not then available and therefore were not included in the February 1, 1999 Form 8-K filing. WCI hereby amends its Form 8-K filed on February 1, 1999, to include the financial statements and pro forma financial information set forth below in Item 7. 2 3 Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (a) Financial Statements of Businesses Acquired. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Board of Directors and Shareholders Murrey's Disposal Company, Inc. American Disposal Company, Inc. D.M. Disposal Co., Inc. Tacoma Recycling Company, Inc. We have audited the accompanying combined balance sheets of Murrey's Disposal Company, Inc., American Disposal Company, Inc., D.M. Disposal Co., Inc., and Tacoma Recycling Company, Inc. (collectively the "Murrey Companies") as of December 31, 1997 and 1998, and the related combined statements of income and retained earnings, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Murrey Companies' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Murrey Companies at December 31, 1997 and 1998, and the combined results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Sacramento, California February 4, 1999 3 4 THE MURREY COMPANIES COMBINED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
DECEMBER 31, ---------------------- 1997 1998 ------- ------- Current assets: Cash and equivalents ............................... $ 126 $ 173 Accounts receivable, less allowance for doubtful accounts of $74 in 1997 and $149 in 1998 ......... 2,779 3,007 Prepaid expenses and other current assets .......... 79 27 ------- ------- Total current assets ................................. 2,984 3,207 Property, plant and equipment, net ................... 14,819 13,943 Intangible assets, net ............................... 1,862 1,801 Other assets ......................................... 31 184 ------- ------- $19,696 $19,135 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Short-term borrowings .............................. $ 1,628 $ 1,500 Accounts payable ................................... 1,617 1,509 Advances from a related party ...................... 543 543 Deferred revenue ................................... 919 1,095 Other current liabilities .......................... -- 106 Accrued liabilities ................................ 832 993 Income taxes payable ............................... 228 337 Current portion of long-term debt .................. 873 731 ------- ------- Total current liabilities ............................ 6,640 6,814 Long-term debt ....................................... 4,907 3,879 Deferred income taxes ................................ 658 623 Other long-term liabilities .......................... -- 353 Commitments and contingencies (Note 7) Shareholders' equity: Common stock at par value; 60,500 shares authorized; 1,470 shares issued and outstanding ............. 45 45 Additional paid-in capital ......................... 455 455 Retained earnings .................................. 6,991 6,966 ------- ------- Total shareholders' equity ........................... 7,491 7,466 ------- ------- $19,696 $19,135 ======= =======
See accompanying notes. 4 5 THE MURREY COMPANIES COMBINED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, -------------------------------------------- 1996 1997 1998 -------- -------- -------- Revenues .................................. $ 25,024 $ 28,874 $ 32,528 Operating expenses: Cost of operations ...................... 20,465 23,133 26,410 Selling, general and administrative ..... 2,142 2,323 2,791 Depreciation and amortization ........... 1,236 1,371 2,194 -------- -------- -------- Income from operations .................... 1,181 2,047 1,133 Interest expense .......................... (284) (380) (535) Other income (expense), net ............... 309 283 79 -------- -------- -------- Income before income taxes ................ 1,206 1,950 677 Income tax provision ...................... (543) (634) (535) -------- -------- -------- Net income ................................ 663 1,316 142 Retained earnings, beginning of period .... 5,095 5,758 6,991 Dividends ................................. -- (83) (167) -------- -------- -------- Retained earnings, end of period .......... $ 5,758 $ 6,991 $ 6,966 ======== ======== ======== Pro forma income taxes (unaudited -- Note 11) .................. $ (432) $ (697) $ (238) -------- -------- -------- Pro forma net income (unaudited -- Note 11) $ 774 $ 1,253 $ 439 ======== ======== ========
See accompanying notes. 5 6 THE MURREY COMPANIES COMBINED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEARS ENDED DECEMBER 31, ----------------------------------------- 1996 1997 1998 ------- ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .............................. $ 663 $ 1,316 $ 142 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...... 1,236 1,371 2,194 Deferred income taxes .............. (19) (44) (35) Gain on sale of land ............... -- -- (8) Changes in operating assets and liabilities: Accounts receivable, net ........ 63 (446) (228) Prepaid expenses and other assets (36) 40 52 Accounts payable ................ 932 509 (108) Deferred revenue ................ 42 154 176 Accrued liabilities ............. 129 127 161 Other liabilities ............... -- -- 459 Income taxes payable ............ (232) (93) 109 ------- ------- ------- Net cash provided by operating activities 2,778 2,934 2,914 CASH FLOWS FROM INVESTING ACTIVITIES: Payments for acquisitions ............... -- (2,900) -- Capital expenditures for property and equipment............................. (4,790) (2,108) (1,874) Proceeds from sale of land .............. -- -- 625 Net change in other assets .............. 31 (28) (153) ------- ------- ------- Net cash used in investing activities ..... (4,759) (5,036) (1,402) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt ............ 1,418 3,414 -- Principal payments on long-term debt .... (615) (928) (1,170) Net change in short-term borrowings ..... 659 19 (128) Net change in advances from a related party.................................. (259) (275) -- Payment of dividends .................... -- (83) (167) ------- ------- ------- Net cash provided by (used in) financing activities............................... 1,203 2,147 (1,465) ------- ------- ------- Net increase (decrease) in cash and equivalents ............................. (778) 45 47 Cash and equivalents: Beginning of year .................... 859 81 126 ------- ------- ------- End of year .......................... $ 81 $ 126 $ 173 ======= ======= ======= SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH TRANSACTIONS: Cash paid for interest ............... $ 284 $ 358 $ 540 ======= ======= ======= Cash paid for income taxes ........... $ 792 $ 744 $ 461 ======= ======= ======= Issuance of notes payable for land and buildings ......................... $ 260 $ 315 $ -- ======= ======= ======= In connection with acquisitions (Note 3) the Murrey Companies acquired assets and issued notes payable to sellers as follows: Fair value of assets acquired ... $ -- $ 3,100 $ -- Notes payable to sellers ........ -- (200) -- ------- ------- ------- Cash paid for acquisitions ...... $ -- $ 2,900 $ -- ======= ======= =======
See accompanying notes. 6 7 THE MURREY COMPANIES NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1998 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1. BUSINESS, ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS AND ORGANIZATION Murrey's Disposal Company, Inc. ("Murrey's"), American Disposal Company, Inc. ("American"), D.M. Disposal Co., Inc. ("DM"), and Tacoma Recycling Company, Inc. ("Tacoma") (collectively the "Murrey Companies") are regional, integrated, non-hazardous solid waste services companies that provide collection, transfer, and disposal of solid waste and recyclables to residential and commercial customers in and around the Tacoma, Washington area. Murrey's, American, DM and Tacoma were incorporated in Washington on March 13, 1963, October 27, 1966, July 12, 1979 and January 30, 1990, respectively. Each of the Murrey Companies' Common Stock is owned 90% by one or both of two trusts. The beneficiary of both trusts is also an officer and director of the Murrey Companies. The remaining stock is owned by two individuals (5% each) who are also officers and directors of the Murrey Companies. BASIS OF COMBINATION The combined financial statements of the Murrey Companies include the accounts of Murrey's, American, DM and Tacoma as a result of their common management which exercises significant influence over their operations. Significant intercompany balances and transactions between the Murrey Companies have been eliminated in combination. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH EQUIVALENTS The Murrey Companies consider all highly liquid investments with a maturity of three months or less to be cash equivalents. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Murrey Companies to concentrations of credit risks consist primarily of accounts receivable. Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Murrey Companies' customer base. 7 8 The Murrey Companies maintain allowances for losses based on the expected collectibility of accounts receivable. Credit losses have been within management's expectations. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost. Improvements or betterments which significantly extend the life of an asset are capitalized. Expenditures for maintenance and repair costs are charged to operations as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains and losses resulting from property disposals are included in other income (expense). Depreciation is computed using the straight-line method over the estimated useful lives of the assets. 8 9 The estimated useful lives are as follows: Buildings.......................................... 20 years Machinery and equipment............................ 5 -- 15 years Rolling stock...................................... 10 years Containers......................................... 5 -- 15 years Furniture and fixtures............................. 3 -- 5 years
In connection with the Acquisitions (Note 3) the Murrey Companies acquired certain used property and equipment. This used property and equipment is being depreciated using the straight-line method over its estimated remaining useful lives, which range from one to twelve years. GOODWILL Goodwill represents the excess of the purchase price over the fair value of the net assets acquired (Notes 3 and 4), and is amortized on a straight-line basis over the period of expected benefit of 40 years. The Murrey Companies continually evaluate the value and future benefits of its intangible assets, including goodwill. The Murrey Companies assess recoverability from future operations using cash flows and income from operations of the related acquired business as measures. Under this approach, the carrying value would be reduced if it becomes probable that the Murrey Companies' best estimate for expected future cash flows of the related business would be less than the carrying amount of the related intangible assets. There have been no adjustments to the carrying amounts of intangible assets resulting from these evaluations as of December 31, 1998. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of cash and cash equivalents approximate their fair values as of December 31, 1997 and 1998. The carrying values of short-term borrowings (Note 5) and long-term debt (Note 6) approximate their fair values as of December 31, 1997 and 1998, based on current incremental borrowing rates for similar types of borrowing arrangements. REVENUE RECOGNITION The Murrey Companies recognize revenues as services are provided. Certain customers are billed in advance and, accordingly, recognition of the related revenues is deferred until the services are provided. INCOME TAXES DM uses the liability method to account for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. 9 10 Murrey's, American and Tacoma operate under Subchapter S of the Internal Revenue Code for federal and state income tax reporting purposes. Consequently all of the income tax attributes and liabilities of these companies' operations flow through to the individual shareholders. 10 11 2. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1997 and 1998 consists of the following:
DECEMBER 31, -------------------------- 1997 1998 -------- -------- Land and buildings .......... $ 6,668 $ 6,174 Machinery and equipment ..... 3,780 3,772 Rolling stock ............... 7,570 8,388 Containers .................. 4,380 5,234 Furniture and fixtures ...... 255 249 -------- -------- 22,653 23,817 Less accumulated depreciation (7,834) (9,874) -------- -------- $ 14,819 $ 13,943 ======== ========
3. ACQUISITIONS During 1997, the Murrey Companies purchased substantially all of the assets of Island Disposal (effective May 2, 1997) and Environmental Waste Systems and Olympic Disposal (both effective December 1, 1997) (collectively the "Acquisitions"). The total purchase price for the Acquisitions was approximately $3,100, comprised of $2,900 in cash and promissory notes payable to the sellers totaling $200. Of the combined $3,100 purchase price, $1,791 was recorded as goodwill and $80 was assigned to non-competition agreements. The Acquisitions were accounted for in accordance with the purchase method of accounting and, accordingly, the net assets acquired were included in the Murrey Companies' combined balance sheet based upon their estimated fair values on the date of the Acquisitions. The Murrey Companies' combined statement of operations includes the revenues and expenses of the acquired businesses after the effective date of the transactions. A summary of the purchase price allocation for the Acquisitions is as follows: Acquired assets: Property and equipment................. $1,229 Goodwill............................... 1,791 Non-competition agreements............. 80 ------ $3,100 ======
The following unaudited pro forma information shows the results of the Murrey Companies' operations as though the Acquisitions had occurred as of January 1, 1996:
YEARS ENDED DECEMBER 31, ----------------------- 1996 1997 ------- ------- (UNAUDITED) Revenue .. $27,485 $31,106 ======= ======= Net income $ 706 $ 1,094 ======= =======
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the Acquisitions occurred on January 1, 1996, or the results of future operations of the Murrey Companies. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the Acquisitions. 4. INTANGIBLE ASSETS 11 12 Intangible assets consist of the following as of December 31, 1997 and 1998:
DECEMBER 31, ------------------------ 1997 1998 ------- ------- Goodwill .................... $ 1,791 $ 1,791 Non-competition agreement ... 80 80 ------- ------- 1,871 1,871 Less accumulated amortization (9) (70) ------- ------- $ 1,862 $ 1,801 ======= =======
12 13 5. SHORT-TERM BORROWINGS Short-term borrowings consist of various revolving and non-revolving lines-of-credit with a bank, bearing interest at 8.50% as of December 31, 1998 and which mature at various dates through February 28, 1999. The lines of credit are secured by all accounts receivable and inventory accounts, which totaled $3,176 as of December 31, 1998. The lines-of-credit were fully utilized as of December 31, 1998. 6. LONG-TERM DEBT Long-term debt consists of the following as of December 31, 1997 and 1998:
DECEMBER 31, --------------------- 1997 1998 ------ ------ Note payable to a bank bearing interest at a variable rate (approximately 8.4% as of December 31, 1998); monthly payments of principal and interest of $25; maturing in November 2007; secured by certain cash accounts and a pledge of one of the Murrey Companies' exclusive franchise agreements ...................................... $2,000 $1,866 Note payable to a bank bearing interest at 8.6%; monthly payments of principal and interest aggregating $13; maturing in October 2001; secured by equipment with a net book value of approximately $400 as of December 31, 1998 and certain cash accounts ................................... 632 514 Notes payable to a bank bearing interest at various fixed rates (ranging from 9.1% to 9.2% as of December 31, 1998); monthly payments of principal and interest aggregating $25 and one-time payments of $470 and $751 in September 2000 and May 2001, respectively; maturing at various dates between September 2000 and May 2001; secured by land and buildings with a net book value of approximately $2,463 as of December 31, 1998 ........................................ 1,544 1,350 Equipment financing notes payable bearing interest at various rates (ranging from 8.6% to 8.8% as of December 31, 1998); monthly payments of principal and interest aggregating $21; maturing at various dates through September 2001; secured by equipment with an aggregate net book value of approximately $660 as of December 31, 1998 ........................................ 822 423 Notes payable to sellers bearing interest at 9.0% as of December 31, 1998; monthly principal and interest payments of $3; maturing October, 2007; secured by land and buildings with a net book value of approximately $901 as of December 31, 1998 ........................................ 471 291 Unsecured notes payable to seller bearing interest at 8.0% as of December 31, 1998; monthly principal and interest payments of $4; maturing in June 2002 ........................... 189 90 Other ............................................. 122 76 ------ ------ 5,780 4,610 Less: current portion ............................. 873 731 ------ ------ Long-term debt .................................... $4,907 $3,879 ====== ======
As of December 31, 1998, aggregate contractual future principal payments by calendar year on long-term debt are due as follows: 1999..................................... $ 731 2000..................................... 936 2001..................................... 1,182 2002..................................... 336 2003..................................... 226 Thereafter............................... 1,199 ------ $4,610 ======
13 14 7. COMMITMENTS AND CONTINGENCIES COMMITMENTS Operating Leases The Murrey Companies lease certain equipment and facilities under non-cancelable operating leases. Rent expense under all operating leases during the years ended December 31, 1996, 1997 and 1998 amounted to $170, $183, and $230, respectively. As of December 31, 1998, future minimum lease payments under these operating leases, by calendar year, are as follows: 1999..................................... $194 2000..................................... 174 2001..................................... 109 2002..................................... 86 2003..................................... 72 Thereafter............................... 285 ---- $920 ====
CONTINGENCIES Environmental Risks The Murrey Companies are subject to liability for any environmental damage that the solid waste facilities they operate may cause to neighboring landowners, particularly as a result of the contamination of drinking water sources or soil, including damage resulting from conditions existing prior to the operation of such facilities by the Murrey Companies. The Murrey Companies may also be subject to liability for any off-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal was arranged by the Murrey Companies. Any substantial liability for environmental damage incurred by the Murrey Companies could have a material adverse effect on the Murrey Companies' combined financial condition, results of operations or cash flows. As of December 31, 1998, the Murrey Companies are not aware of any such environmental liabilities. Legal Proceedings In the normal course of their business and as a result of the extensive governmental regulation of the solid waste industry, the Murrey Companies may periodically become subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines or to revoke or deny renewal of an operating permit held by the Murrey Companies. From time to time the Murrey Companies may also become parties to various claims or suits for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal course of operating a waste management business. However, as of December 31, 1998, there is no current proceeding or litigation involving the Murrey Companies that the Murrey Companies believe will have a material adverse impact on their business, financial condition, results of operations or cash flows. 14 15 Disposal Site The Murrey Companies have been informed that the Hidden Valley Landfill, which is currently utilized by them for disposal of waste collected in Pierce County, is currently operating under a Consent Decree with the Washington State Department of Ecology and the Environmental Protection Agency. Under the terms of the Consent Decree, the Hidden Valley Landfill was closed on December 31, 1998; and subsequent to that date, all of the waste collected by the Murrey Companies in Pierce County was long hauled to an alternate disposal site pending completion of a new solid waste landfill in Pierce County. Management of the Murrey Companies does not believe that the closure of the Hidden Valley Landfill will have a material adverse impact on the Murrey Companies' business, combined financial position, results of operations or cash flows. 15 16 Employees Approximately 46 of the Murrey Companies' route drivers are represented by the Teamsters Union. The Murrey Companies have a collective bargaining agreement that expires in June 1999. The Murrey Companies are not aware of any other organizational efforts among their employees and believes that their relations with their employees are good. 8. RELATED PARTY TRANSACTIONS OPERATING LEASE The Murrey Companies lease land on which certain of their facilities are located from a shareholder of the Murrey Companies. This lease is pursuant to an informal arrangement whereby the Murrey Companies pay all of the property taxes and other expenses associated with the leased land in lieu of monthly rent. These payments totaled approximately $10 during each of the years ended December 31, 1996, 1997, and 1998. ADVANCES As of December 31, 1997 and 1998, the Murrey Companies had non-interest bearing advances payable to one of their shareholders totaling $543. DISPOSAL FEES During the years ended December 31, 1996, 1997 and 1998, the Murrey Companies paid $7,730, $8,592, and $8,816, respectively, in disposal fees to a landfill that is owned and operated by a company in which one of the Murrey Companies shareholders has an approximate 33% ownership interest. 9. 401(k) PLAN The Murrey Companies have a voluntary savings and investment plan (the "401(k) Plan"). The 401(k) Plan is available to all eligible, non-union employees of the Murrey Companies. Under the 401(k) Plan the Murrey Companies' contributions are at the discretion of management of the Murrey Companies. During the years ended December 31, 1996, 1997 and 1998, the Murrey Companies' 401(k) Plan expense was approximately $267, $316, and $336, respectively. 10. INCOME TAXES The provision (benefit) for income taxes for the Murrey Companies pertains solely to DM and consists of the following:
YEARS ENDED DECEMBER 31, ----------------------------------- 1996 1997 1998 ----- ----- ----- Federal: Current $ 562 $ 678 $ 570 Deferred (19) (44) (35) ----- ----- ----- $ 543 $ 634 $ 535 ===== ===== =====
16 17 Deferred taxes result from temporary differences in the recognition of certain expense items for income tax and financial reporting purposes. The Murrey Companies' deferred taxes as of December 31, 1997 and 1998 are substantially comprised of depreciation deducted for tax purposes that will be recorded in future periods for financial reporting purposes. 17 18 The principal reasons for the difference between the federal statutory income tax rate and the effective income tax rate are as follows:
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1997 1998 ----- ----- ----- Federal expense expected at statutory rates on combined income before income taxes ........... $ 410 $ 663 $ 230 Tax effect of companies reporting under Subchapter S 124 (42) 302 Other .............................................. 9 13 3 ----- ----- ----- $ 543 $ 634 $ 535 ===== ===== =====
11. PRO FORMA INCOME TAX INFORMATION (UNAUDITED) As described in Note 1, Murrey's, American, and Tacoma (the "S Corporations") operate under Subchapter S of the Internal Revenue Code and are not subject to federal income taxes. In connection with the Murrey Companies' proposed merger with Waste Connections, Inc. ("WCI") (Note 12), the Subchapter S election will be terminated. As a result, the S Corporations (as wholly-owned subsidiaries of WCI) will be subject to corporate income taxes subsequent to the termination of S corporation status. The Murrey Companies had combined income for income tax purposes of $2,135, $1,941 and $1,924 for 1996, 1997 and 1998, respectively. Had the Murrey Companies filed federal income tax returns as regular corporations for 1996, 1997 and 1998, income tax expense under the provisions of Financial Accounting Standards No. 109 would have been $432, $697 and $238, respectively. The following unaudited pro forma information reflects income tax expense (benefit) for the Murrey Companies as if the S Corporations had also been subject to federal income taxes:
YEARS ENDED DECEMBER 31, ---------------------------------- 1996 1997 1998 ----- ----- ----- Federal: Current ..................................... $ 726 $ 660 $ 654 Deferred .................................... (294) 37 (416) ----- ----- ----- Pro forma income taxes ........................ $ 432 $ 697 $ 238 ===== ===== =====
The pro forma provisions for income taxes for the years ended December 31, 1996, 1997, and 1998 differ from the amounts computed by applying the applicable statutory federal income tax rate (34%) to income before income taxes due to certain non-deductible expenses. The Murrey Companies pro forma deferred income tax asset of approximately $71 and $301 as of December 31, 1997 and 1998, respectively, relates principally to differences in the recognition of bad debt expenses, vacation accruals, accruals for contract losses and certain other temporary differences. The Murrey Companies also had pro forma deferred tax liabilities as of December 31, 1997 and 1998 of approximately $1,332 and $1,147 which relate to differences between tax and financial methods of depreciation and the use of the cash method of accounting for tax purposes by certain of the S Corporations. 12. SUBSEQUENT EVENT MERGER OF THE MURREY COMPANIES On January 19, 1999, the Murrey Companies merged with wholly-owned subsidiaries of Waste Connections, Inc. ("WCI") whereby all shares of common stock of the Murrey Companies 18 19 were exchanged for 2,888,880 shares of WCI common stock. The transactions were accounted for as poolings-of-interests. 13. YEAR 2000 (UNAUDITED) The Murrey Companies will need to modify or replace portions of their software so that their computer systems will function properly with respect to dates in the year 2000 ("Year 2000") and thereafter. To date, the Murrey Companies have not incurred any costs related to the Year 2000 project. The Murrey Companies do not believe that their expenditures relating to the Year 2000 project will be material. However, if the required Year 2000 modifications and conversions are not made or are not completed in a timely manner, the Year 2000 issue could materially affect their operations. 19 20 (b) Pro Forma Financial Information. Waste Connections, Inc. Unaudited Pro Forma Financial Statements WASTE CONNECTIONS, INC. INTRODUCTION TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS The Unaudited Pro Forma Statements of Operations for each of the three years in the period ended December 31, 1998, give effect to the mergers involving WCI and the Murrey Companies as if such mergers occurred on January 1, 1996 and were accounted for as poolings-of-interests. The following Unaudited Pro Forma Balance Sheet as of December 31, 1998 assumes WCI's mergers with the Murrey Companies occurred on December 31, 1998. WCI has preliminarily analyzed the savings that it expects to be realized by consolidating certain operational and general and administrative functions. WCI has not and cannot quantify all of these savings due to the short period of time since the mergers occurred. It is anticipated that these savings will be partially offset by the incremental increase in costs related to WCI's corporate management. However, these costs, like the savings they offset, cannot be quantified accurately. Neither the anticipated savings nor the anticipated costs have been included in the Unaudited Pro Forma Financial Statements. The pro forma adjustments are based on preliminary estimates, available information and certain assumptions, and may be revised as additional information becomes available. The Unaudited Pro Forma Financial Statements do not purport to represent what WCI's financial position or results of operations would actually have been if such transactions in fact had occurred on those dates or to project WCI's financial position or results of operations for any future period. Because WCI and the Murrey Companies were not under common control or management for all periods, historical combined results may not be comparable to, or indicative of, future performance. The Unaudited Pro Forma Financial Statements should be read in conjunction with WCI's financial statements and notes thereto filed with the Securities and Exchange Commission in the Company's Annual Report on Form 10-K, and the Murrey Companies' financial statements and notes thereto included elsewhere herein. 20 21 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
WASTE THE MURREY CONNECTIONS, INC. COMPANIES CONSOLIDATED COMBINED PRO FORMA ------------ ------------ ------------ Revenues ............................................ $ 54,042 $ 32,528 $ 86,570 Operating expenses: Cost of operations ................................ 36,554 26,410 62,964 Selling, general and administrative ............... 5,317 2,791 8,108 Depreciation and amortization ..................... 4,112 2,194 6,306 Stock compensation ................................ 632 -- 632 ------------ ------------ ------------ Income from operations .............................. 7,427 1,133 8,560 Interest expense .................................... (2,257) (535) (2,792) Other income (expense), net ......................... -- 79 79 ------------ ------------ ------------ Income before income taxes .......................... 5,170 677 5,847 Income tax provision ................................ (2,395) (535) (2,930) ------------ ------------ ------------ Income before extraordinary item .................... 2,775 142 2,917 Extraordinary item -- early extinguishment of debt, net of tax benefit of $264 .............. (1,027) -- (1,027) ------------ ------------ ------------ Net income .......................................... $ 1,748 $ 142 $ 1,890 ============ ============ ============ Redeemable convertible preferred stock accretion .... (917) -- (917) ------------ ------------ ------------ Net income applicable to common stockholders ........ $ 831 $ 142 $ 973 ============ ============ ============ Basic earnings per share: Income before extraordinary item .................. $ 0.29 $ 0.21 Extraordinary item ................................ (0.16) (0.11) ------------ ------------ Net income per share .............................. $ 0.13 $ 0.10 ============ ============ Diluted earnings per share: Income before extraordinary item .................. $ 0.22 $ 0.18 Extraordinary item ................................ (0.12) (0.09) ------------ ------------ Net income per share .............................. $ 0.10 $ 0.09 ============ ============ Shares used in calculating basic earnings per share . 6,460,293 9,349,173 ============ ============ Shares used in calculating diluted earnings per share 8,371,415 11,260,295 ============ ============
21 22 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
WASTE CONNECTIONS, INC. CONSOLIDATED PERIOD FROM THE MURREY INCEPTION COMPANIES (SEPTEMBER 9, COMBINED PRO FORMA 1997) THROUGH YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER DECEMBER 31, 1997 31, 1997 1997 ----------- ----------- ----------- Revenues ....................................... $ 6,237 $ 28,874 $ 35,111 Operating expenses: Cost of operations ........................... 4,703 23,133 27,836 Selling, general and administrative .......... 619 2,323 2,942 Depreciation and amortization ................ 354 1,371 1,725 Start-up and integration ..................... 493 -- 493 Stock compensation ........................... 4,395 -- 4,395 ----------- ----------- ----------- Income (loss) from operations .................. (4,327) 2,047 (2,280) Interest expense ............................... (1,035) (380) (1,415) Other income (expense), net .................... (36) 283 247 ----------- ----------- ----------- Income (loss) before income taxes .............. (5,398) 1,950 (3,448) Income tax benefit (provision) ................. 332 (634) (302) ----------- ----------- ----------- Net income (loss) ............................. $ (5,066) $ 1,316 $ (3,750) =========== =========== =========== Redeemable convertible preferred stock accretion (531) (531) ----------- ----------- Net income (loss) applicable to common stockholders ................................. $ (5,597) $ (4,281) =========== =========== Basic and diluted net loss per share ........... $ (2.99) $ (0.90) =========== =========== Shares used in calculating per share amounts ... 1,872,567 4,761,447 =========== ===========
22 23 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
THE MURREY COMPANIES ----------- Revenues ............................... $ 25,024 Operating expenses: Cost of operations ................... 20,465 Selling, general and administrative .. 2,142 Depreciation and amortization ........ 1,236 ----------- Income from operations ................. 1,181 Interest expense ....................... (284) Other income (expense), net ............ 309 ----------- Income before provision for income taxes 1,206 Income tax provision ................... (543) ----------- Net income ............................. $ 663 =========== Basic and diluted earnings per share ... $ 0.23 =========== Shares used in per share calculations .. 2,888,880 ===========
23 24 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSUMPTIONS. WCI's mergers with the Murrey Companies will be accounted for under the pooling of interests method of accounting for business combinations. The pro forma financial statements assume the issuance of 2,888,880 shares, which represents the number of shares exchanged. PRO FORMA ADJUSTMENTS. The unaudited pro forma statements of operations do not reflect non-recurring costs resulting directly from the merger between WCI and the Murrey Companies. The management of WCI estimates that these costs will approximate $6,200 and will be charged to operations in the quarter that the merger was consummated. The amount includes costs to merge the companies, signing bonuses to be paid to Murrey Company officers, and professional fees. PRO FORMA PER SHARE DATA. The shares used in computing the unaudited pro forma net income (loss) per share for each of the three years in the period ended December 31, 1998 are based upon the pro forma number of common shares as summarized in the table below.
YEARS ENDED DECEMBER 31, ------------------------------------------------------ 1996 1997 1998 ---------- ---------- ---------- Basic Share Count: WCI weighted average shares outstanding .................. -- 1,872,567 6,460,293 Shares issued in exchange for the Murrey Companies' stock ....................................... 2,888,888 2,888,880 2,888,880 ---------- ---------- ---------- Shares used in calculating pro forma basic net income (loss) per share ............................... 2,888,880 4,761,447 9,349,173 ========== ========== ========== Diluted Share Count: Shares used in calculating pro forma basic income net (loss) per share ................................... 2,888,880 4,761,447 9,349,173 Dilutive effect of common stock equivalents outstanding... -- -- 1,911,122 ---------- ---------- ---------- Shares used in calculating pro forma diluted net income (loss) per share ................................ 2,888,880 4,761,447 11,260,295 ========== ========== ==========
ACCOUNTING POLICIES. No adjustments have been made in these pro forma statements of operations to conform accounting policies of the Murrey Companies with those of WCI. The nature and extent of such adjustments, if any, are not expected to be significant. 24 25 WASTE CONNECTIONS, INC. UNAUDITED PRO FORMA BALANCE SHEET DECEMBER 31, 1998 (IN THOUSANDS)
WASTE THE MURREY CONNECTIONS, INC. COMPANIES PRO FORMA CONSOLIDATED COMBINED ADJUSTMENTS PRO FORMA ---------------- ---------- ----------- --------- ASSETS Current assets: Cash and equivalents $ 2,675 $ 173 $ -- $ 2,848 Accounts receivable, net 10,769 3,007 -- 13,776 Prepaid expenses and other current assets 2,246 27 -- 2,273 --------- --------- --------- --------- Total current assets 15,690 3,207 -- 18,897 Property and equipment, net 33,043 13,943 -- 46,986 Intangible assets, net 98,785 1,801 -- 100,586 Other assets 1,794 184 -- 1,978 --------- --------- --------- --------- $ 149,312 $ 19,135 $ -- $ 168,447 ========= ========= ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Short-term borrowings $ -- $ 1,500 $ -- $ 1,500 Accounts payable 6,598 1,509 -- 8,107 Advances from a related party -- 543 -- 543 Deferred revenue 2,052 1,095 -- 3,147 Accrued liabilities 4,154 1,330 -- 5,484 Current portion of long-term debt 9,516 731 -- 10,247 Other current liabilities 2,087 106 -- 2,193 Accrued merger related expenses -- -- 6,200(1) 6,200 --------- --------- --------- --------- Total current liabilities 24,407 6,814 6,200 37,421 Long-term debt 60,106 3,879 -- 63,985 Deferred income taxes 1,645 623 -- 2,268 Other long-term liabilities 2,091 353 -- 2,444 Stockholders' equity: Common stock 94 45 (16)(2) 123 Additional paid-in capital 66,163 455 16 (2) 66,634 Deferred stock compensation (428) -- -- (428) Retained earnings (deficit) (4,766) 6,966 (6,200)(1) (4,000) --------- --------- --------- --------- Total stockholders' equity 61,063 7,466 (6,200) 62,329 --------- --------- --------- --------- $ 149,312 $ 19,135 $ -- $ 168,447 ========= ========= ========= =========
25 26 WASTE CONNECTIONS, INC. NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSUMPTIONS. The unaudited pro forma balance sheet as of December 31, 1998 combines the historical balance sheet of Waste Connections, Inc. with the historical balance sheet of the Murrey Companies to be accounted for as poolings-of-interests as of December 31, 1998. PRO FORMA ADJUSTMENTS. The following adjustments have been made to the unaudited pro forma consolidated balance sheet. (1) To record estimated non-recurring costs of the mergers with the Murrey Companies. The management of WCI estimates that the non-recurring costs will approximate $6,200 and will be charged to operations in the quarter the merger was consummated. This estimated expense has been charged to retained earnings on the accompanying unaudited pro forma balance sheet. (2) To adjust the capital accounts to properly reflect the issuance of 2,888,880 shares of WCI's stock. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. WASTE CONNECTIONS, INC. (Registrant) Date: April 2, 1999 By /s/ Ronald J. Mittelstaedt Ronald J. Mittelstaedt President and Chief Executive Officer 26 27 EXHIBIT INDEX Exhibit No. Description - ------- ----------- 23.1 Consent of Ernst & Young LLP, Independent Auditors EX-23.1 2 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8) pertaining to the First Amended and Restated 1997 Stock Option Plan of Waste Connections, Inc. of our report dated February 4, 1999, with respect to the combined financial statements of the Murrey Companies included in the Current Report (Form 8-KA) dated April 2, 1999. ERNST & YOUNG LLP Sacramento, California April 1, 1999 27 -----END PRIVACY-ENHANCED MESSAGE-----