-----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, GZyF6kuuo8oJebS/2mlmiE6FNrr2DZZoPJTcsGVFUFMCZmMgKbNxJuDQdfGHW3CF EsUV3hjdxbLRr8B/ztjToA== 0001072613-04-000839.txt : 20040422 0001072613-04-000839.hdr.sgml : 20040422 20040422153534 ACCESSION NUMBER: 0001072613-04-000839 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040422 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-31507 FILM NUMBER: 04748145 BUSINESS ADDRESS: STREET 1: 35 IRON POINT CIRCLE STREET 2: SUITE 200 CITY: FOLSOM STATE: CA ZIP: 95630 BUSINESS PHONE: 9166088200 MAIL ADDRESS: STREET 1: 35 IRON POINT CIRCLE STREET 2: SUITE 200 CITY: FOLSOM STATE: CA ZIP: 95630-3155 10-Q 1 form10-q_12619.txt FORM 10-Q FOR PERIOD ENDED MARCH 31, 2004 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________ COMMISSION FILE NUMBER 0-23981 WASTE CONNECTIONS, INC. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of incorporation or organization) 94-3283464 (I.R.S. Employer Identification No.) 35 IRON POINT CIRCLE, SUITE 200, FOLSOM, CA 95630 (Address of principal executive offices) (916) 608-8200 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock: As of April 15, 2004: 29,089,514 shares of common stock ================================================================================ PART I - FINANCIAL INFORMATION Item 1. Financial Statements 1 Condensed Consolidated Balance Sheets - December 31, 2003 and March 31, 2004 1 Condensed Consolidated Statements of Income for the three months ended March 31, 2003 and 2004 2 Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2003 and 2004 3 Notes to Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Item 4. Controls and Procedures 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings 20 Item 6. Exhibits and Reports on Form 8-K 20 Signatures 24 i PART I - FINANCIAL INFORMATION Item 1. Financial Statements
Waste Connections, Inc. Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share amounts) December 31, March 31, ASSETS 2003 2004 ----------- ----------- Current assets: Cash and equivalents $ 5,276 $ 4,911 Accounts receivable, less allowance for doubtful accounts of $2,570 and $2,440 at December 31, 2003 and March 31, 2004, respectively 72,474 70,049 Prepaid expenses and other current assets 11,270 10,719 ----------- ----------- Total current assets 89,020 85,679 Property and equipment, net 613,225 620,257 Goodwill, net 590,054 599,713 Intangible assets, net 64,784 69,012 Restricted cash 17,734 16,537 Other assets, net 21,135 20,418 ----------- ----------- $ 1,395,952 $ 1,411,616 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 38,682 $ 37,320 Accrued liabilities 31,920 35,866 Deferred revenue 23,738 25,329 Current portion of long-term debt and notes payable 9,740 9,674 ----------- ----------- Total current liabilities 104,080 108,189 Long-term debt and notes payable 601,891 580,770 Other long-term liabilities 8,400 8,752 Deferred income taxes 120,162 125,800 ----------- ----------- Total liabilities 834,533 823,511 Commitments and contingencies Minority interests 23,925 23,617 Stockholders' equity: Preferred stock: $0.01 par value; 7,500,000 shares authorized; none issued and outstanding -- -- Common stock: $0.01 par value; 50,000,000 shares authorized; 28,666,788 and 29,086,180 shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively 287 291 Additional paid-in capital 348,146 362,818 Deferred stock compensation (436) (2,468) Retained earnings 189,094 205,296 Accumulated other comprehensive income (loss) 403 (1,449) ----------- ----------- Total stockholders' equity 537,494 564,488 ----------- ----------- $ 1,395,952 $ 1,411,616 =========== ===========
See accompanying notes. 1 Waste Connections, Inc. Condensed Consolidated Statements of Income (Unaudited) (In thousands, except share and per share amounts)
Three months ended March 31, ------------------------------ 2003 2004 ------------ ------------ Revenues $ 128,454 $ 149,258 Operating expenses: Cost of operations 71,821 85,063 Selling, general and administrative 12,881 15,595 Depreciation and amortization 10,580 13,443 ------------ ------------ Operating income 33,172 35,157 Interest expense (8,050) (6,823) Other income 38 76 ------------ ------------ Income before income tax provision and minority interests 25,160 28,410 Minority interests (2,282) (2,631) ------------ ------------ Income before income tax provision 22,878 25,779 Income tax provision (8,465) (9,577) ------------ ------------ Income before cumulative effect of change in accounting principle 14,413 16,202 Cumulative effect of change in accounting principle, net of tax expense of $166 282 -- ------------ ------------ Net income $ 14,695 $ 16,202 ============ ============ Basic earnings per common share: Income before cumulative effect of change in accounting principle $ 0.51 $ 0.56 Cumulative effect of change in accounting principle .01 -- ------------ ------------ Net income per common share $ 0.52 $ 0.56 ============ ============ Diluted earnings per common share: Income before cumulative effect of change in accounting principle $ 0.49 $ 0.53 Cumulative effect of change in accounting principle .01 -- ------------ ------------ Net income per common share $ 0.50 $ 0.53 ============ ============ Shares used in the per share calculations: Basic 28,080,260 28,856,746 ============ ============ Diluted 32,656,498 33,456,468 ============ ============
See accompanying notes. 2 Waste Connections, Inc. Condensed Consolidated Statements of Cash Flows (Unaudited) (Dollars in thousands)
Three months ended March 31, -------------------------- 2003 2004 ---------- ---------- Cash flows from operating activities: Net income $ 14,695 $ 16,202 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposal of assets (67) (38) Depreciation 10,235 12,828 Amortization of intangibles 345 615 Deferred income taxes 4,232 5,495 Minority interests 2,282 2,631 Cumulative effect of change in accounting principle (448) -- Amortization of debt issuance costs 591 625 Stock-based compensation 55 200 Interest income on restricted cash (24) (70) Closure and post-closure accretion 107 103 Net change in operating assets and liabilities, net of acquisitions 4,167 9,298 ---------- ---------- Net cash provided by operating activities 36,170 47,889 ---------- ---------- Cash flows from investing activities: Payments for acquisitions, net of cash acquired (3,573) (6,081) Capital expenditures for property and equipment (11,841) (15,628) Proceeds from disposal of assets 89 184 Net change in other assets (1,186) 1,326 ---------- ---------- Net cash used in investing activities (16,511) (20,199) ---------- ---------- Cash flows from financing activities: Proceeds from long-term debt 11,500 21,500 Principal payments on notes payable and long-term debt (30,344) (56,963) Distributions to minority interest holders (2,156) (2,940) Proceeds from option and warrant exercises 2,086 10,585 Debt issuance costs (7) (237) ---------- ---------- Net cash used in financing activities (18,921) (28,055) ---------- ---------- Net increase (decrease) in cash and equivalents 738 (365) Cash and equivalents at beginning of period 4,067 5,276 ---------- ---------- Cash and equivalents at end of period $ 4,805 $ 4,911 ========== ========== Non-cash financing activity: Liabilities assumed and notes payable issued to sellers $ -- $ 14,105
See accompanying notes. 3 WASTE CONNECTIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Dollars in thousands, except share, per share and per ton amounts) 1. BASIS OF PRESENTATION AND SUMMARY The accompanying condensed consolidated financial statements relate to Waste Connections, Inc. and its subsidiaries (the "Company") as of March 31, 2004 and for the three month periods ended March 31, 2003 and 2004. The consolidated financial statements of the Company include the accounts of Waste Connections, Inc. and its wholly-owned and majority-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. Operating results for the three month periods ended March 31, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. The Company's consolidated balance sheet as of March 31, 2004, the consolidated statements of income for the three months ended March 31, 2003 and 2004, and the consolidated statements of cash flows for the three months ended March 31, 2003 and 2004 are unaudited. In the opinion of management, such financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company's financial position, results of operations, and cash flows for the periods presented. The consolidated financial statements presented herein should be read in conjunction with the Company's 2003 annual report on Form 10-K. 2. ADOPTION OF NEW ACCOUNTING STANDARDS FIN 46 In January 2003, the FASB issued Interpretation No. 46 ("FIN 46") which was subsequently amended in December 2003. FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiaries. A primary beneficiary is the party that absorbs a majority of the entity's expected losses or residual benefits. FIN 46 applies to variable interest entities created after January 31, 2003 and to existing variable interest entities beginning after June 15, 2003. The Company fully adopted FIN 46 on March 31, 2004 and this adoption did not have a material impact on the Company's financial statements. 3. STOCK-BASED COMPENSATION As permitted under the provisions of SFAS No. 123, the Company has elected to account for stock-based compensation using the intrinsic value method prescribed by APB 25. Under the intrinsic value method, compensation cost is the excess, if any, of the quoted market price or fair value of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement using a Black-Scholes option pricing model. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. 4 The following table summarizes the Company's pro forma net income and pro forma basic and diluted earnings per share for the three months ended March 31, 2003 and 2004: Three Months Ended March 31, -------------------- 2003 2004 -------- -------- Net income, as reported $ 14,695 $ 16,202 Add: stock-based employee compensation expense included in reported net income, net of related tax effects 35 126 Deduct: total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects (1,614) (2,237) -------- -------- Pro forma net income $ 13,116 $ 14,091 ======== ======== Earnings per share: Basic - as reported $ 0.52 $ 0.56 Basic - pro forma $ 0.47 $ 0.49 Diluted - as reported $ 0.50 $ 0.53 Diluted - pro forma $ 0.45 $ 0.47 4. LANDFILL ACCOUNTING At March 31, 2004, the Company owned 21 landfills, and operated, but did not own, five landfills under life-of-site operating contracts and nine landfills under operating contracts with finite terms. The Company also owns one Subtitle D landfill site that is permitted for operation, but not constructed as of March 31, 2004. The Company's landfills have site costs with a net book value of $385,503 at March 31, 2004. With the exception of two owned landfills that only accept construction and demolition waste, all landfills that the Company owns or operates are Subtitle D landfills. For the Company's nine landfills operated under contracts with finite terms, the owner of the property, generally a municipality, usually owns the permit and is generally responsible for closure and post-closure obligations. The Company is responsible for all closure and post-closure liabilities for four of the five operating landfills that it operates under life-of-site operating contracts. Many of the Company's existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted. The Company's internal and third-party engineers perform surveys at least annually to estimate the disposal capacity at its landfills. The Company's landfill depletion rates are based on the remaining disposal capacity, considering both permitted and deemed permitted airspace, at its owned landfills and landfills operated under life-of-site operating contracts. Deemed permitted airspace consists of additional disposal capacity being pursued through means of an expansion. Deemed permitted airspace that meets certain internal criteria is included in the estimate of total landfill airspace. The Company's internal criteria to determine when deemed permitted airspace may be included as disposal capacity are as follows: (1) The land where the expansion is being sought is contiguous to the current disposal site, and the Company either owns it or the property is under option, purchase, operating or other agreements; (2) Total development costs, final capping costs, and closure/post-closure costs have been determined; (3) Internal personnel have performed a financial analysis of the proposed expansion site and have determined that it has a positive financial and operational impact; (4) Internal or external personnel are actively working to obtain the necessary approvals to obtain the landfill expansion permit; 5 (5) The Company considers it probable that the expansion will be achieved. For a pursued expansion to be considered probable, there must be no significant known technical, legal, community, business, or political restrictions or similar issues existing that could impair the success of the expansion; and (6) The land where the expansion is being sought has the proper zoning or proper zoning can readily be obtained. The Company is currently seeking to expand permitted capacity at seven of its owned landfills and four landfills that it operates under life-of-site operating contracts, and considers the achievement of these expansions to be probable. Although the Company cannot be certain that all future expansions will be permitted as designed, the average remaining life, when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume, of the Company's owned landfills and landfills operated under life-of-site operating contracts is 61 years, with lives ranging from 3 to 263 years. The Company uses the units-of-production method to calculate the depletion rate at the landfills it owns and the landfills it operates under life-of-site operating contracts. This methodology divides the costs associated with acquiring, permitting and developing the entire landfill by the total remaining disposal capacity of that landfill. The resulting per unit depletion rate is applied to each ton of waste disposed at the landfill and is recorded as expense for that period. During the three months ended March 31, 2003 and 2004, the Company expensed approximately $2,882 and $3,683, respectively, or an average of $2.30 and $2.46 per ton consumed, respectively, related to landfill depletion. The Company reserves for closure and post-closure maintenance obligations at the landfills it owns and certain landfills it operates under life-of-site operating contracts. Final capping costs are included in the calculation of closure and post-closure liabilities. The Company calculates the net present value of its closure and post-closure commitments recorded in 2004 assuming a 2.5% inflation rate and a 7.5% discount rate. The resulting closure and post-closure obligation is recorded on the balance sheet as an addition to site costs and amortized to depletion expense as the landfill's airspace is consumed. During the three months ended March 31, 2003 and 2004, the Company expensed approximately $107 and $103, respectively, or an average of $0.09 and $0.07 per ton consumed, respectively, related to closure and post-closure accretion expense. The following is a reconciliation of the Company's closure and post-closure liability balance from December 31, 2003 to March 31, 2004: Closure and post-closure liability at December 31, 2003 $ 5,479 Changes resulting from adjustments to the timing or amount of undiscounted cash flows (880) Liabilities incurred 106 Accretion expense 103 --------- Closure and post-closure liability at March 31, 2004 $ 4,808 ========= At March 31, 2004, $11,730 of the Company's restricted cash balance was for purposes of settling future closure and post-closure liabilities. 5. ACQUISITIONS During the three months ended March 31, 2004, the Company acquired three non-hazardous solid waste collection businesses. Aggregate consideration for the acquisitions consisted of $4,226 in cash (net of cash acquired) $3,096 in notes payable to sellers, and the assumption of debt totaling $11,179. The results of operations of the acquired businesses have been included in the Company's consolidated financial statements from their respective acquisition dates. The purchase prices have been allocated to the identified intangible assets and tangible assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to 6 goodwill. The purchase price allocations are considered preliminary until the Company is no longer waiting for information that it has arranged to obtain and that is known to be available or obtainable. Although the time required to obtain the necessary information will vary with circumstances specific to an individual acquisition, the "allocation period" for finalizing purchase price allocations generally does not exceed one year from the consummation of a business combination. As of March 31, 2004, the Company had six acquisitions for which purchase price allocations were preliminary, mainly as a result of pending working capital valuations. The Company believes the potential changes to its preliminary purchase price allocations will not have a material impact on its financial condition, results of operations or cash flows. A summary of the preliminary purchase price allocations for the acquisitions consummated in the three months ended March 31, 2004 is as follows: Acquired assets: Accounts receivable $ 491 Prepaid expenses and other current assets 42 Property and equipment 5,151 Goodwill 9,659 Long-term franchise agreements and contracts 4,514 Other intangibles 259 Non-competition agreements 70 Assumed liabilities: Accounts payable (982) Accrued liabilities (560) Deferred taxes (143) Debt and other liabilities assumed (14,275) ---------- $ 4,226 ---------- During the three months ended March 31, 2004, the Company paid $1,855 of acquisition-related liabilities accrued at December 31, 2003. The three acquisitions acquired in the three months ended March 31, 2004 were not significant to our results of operations. Goodwill and long-term franchise agreements and contracts acquired in the three months ended March 31, 2004 totaling $9,659 and $4,514, respectively, are expected to be deductible for tax purposes. 6. INTANGIBLE ASSETS Intangible assets, exclusive of goodwill, consist of the following as of March 31, 2004:
Gross Carrying Accumulated Net Carrying Amount Amortization Amount ------ ------------ ------ Amortizable intangible assets: Long-term franchise agreements and contracts $ 51,325 $ (2,410) $ 48,915 Non-competition agreements 4,056 (2,698) 1,358 Other, net 2,674 (970) 1,704 ----------- ----------- ---------- 58,055 (6,078) 51,977 Nonamortized intangible assets: Indefinite-lived intangible assets 17,035 -- 17,035 ----------- ----------- ---------- Intangible assets, exclusive of goodwill $ 75,090 $ (6,078) $ 69,012 =========== =========== ==========
7 The weighted-average amortization periods for long-term franchise agreements, non-competition agreements and other intangibles acquired during the three months ended March 31, 2004 are 21.4 years, 5 years and 10 years, respectively. Estimated future amortization expense of amortizable intangible assets for the next five years is as follows: For the year ended December 31, 2004 $ 2,440 For the year ended December 31, 2005 2,322 For the year ended December 31, 2006 2,131 For the year ended December 31, 2007 1,879 For the year ended December 31, 2008 1,711 7. LONG-TERM DEBT In March 2004, the Company entered into two interest rate swap agreements. Each interest rate swap agreement has a notional amount of $37,500, a three-year term, and effectively fixes the interest rate on the notional amount at an interest rate of 2.25%, plus applicable margin. These interest rate swap agreements are effective as cash flow hedges for a portion of the Company's variable rate debt and the Company applies hedge accounting pursuant to SFAS No. 133 to account for these instruments. The notional amounts and all other significant terms of the swap agreements are closely matched to the provisions and terms of the variable rate debt being hedged. In March 2004, the Company refinanced the senior secured term loan portion of its credit facility in order to reduce the effective borrowing cost. The applicable margin on the senior secured term loan was reduced by 25 basis points; all other terms remained consistent. In addition, the Company increased the amount outstanding under the senior secured term loan from $175,000 to $200,000, resulting in an increase in the size of the credit facility to $600,000. In April 2004, the Company announced that it had completed the redemption of its $150,000 aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006. Holders of the notes chose to convert a total of $123,648 principal amount of the notes into 3,251,312 shares of Waste Connections common stock at a price of $38.03 per share, or approximately 26.295 shares per $1 principal amount of notes, plus cash in lieu of fractional shares. Waste Connections redeemed the balance of $26,352 principal amount of the notes by proceeds from our credit facility at a redemption price of $1.022 per $1 principal amount of the notes. All holders of the notes also received accrued interest of $0.0275 per $1 principal amount of notes. As a result of the redemption, the Company expects to recognize an estimated $1,478 of pre-tax expense, or $1,127 expense, net of taxes, in the second quarter, 2004. 8 8. DILUTED EARNINGS PER SHARE CALCULATION The following table sets forth the numerator and denominator used in the computation of diluted earnings per common share: Three months ended March 31, ------------------------- 2003 2004 ----------- ----------- Numerator: Net income for basic earnings per share $ 14,695 $ 16,202 Interest expense on convertible subordinated notes due 2006, net of tax effects 1,476 1,476 ----------- ----------- Net income for diluted earnings per share $ 16,171 $ 17,678 ----------- ----------- Denominator: Basic shares outstanding 28,080,260 28,856,746 Dilutive effect of convertible subordinated notes due 2006 3,944,775 3,944,775 Dilutive effect of options and warrants 625,780 645,978 Dilutive effect of restricted stock 5,683 8,969 ----------- ----------- Diluted shares outstanding 32,656,498 33,456,468 =========== =========== As of March 31, 2004, all stock options and warrants were included in the computation of diluted income per share as they were all dilutive. 9. COMPREHENSIVE INCOME Comprehensive income includes changes in the fair value of interest rate swaps that qualify for hedge accounting. The difference between net income and comprehensive income for the three months ended March 31, 2003 and 2004 is as follows: Three months ended March 31, ------------------------- 2003 2004 ----------- ----------- Net income $ 14,695 $ 16,202 Unrealized gain (loss) on interest rate swaps, net of tax (benefit) expense of $585 and $(1,088) for the three months ended March 31, 2003 and 2004, respectively 908 (1,852) ----------- ----------- Comprehensive income $ 15,603 $ 14,350 =========== =========== The components of other comprehensive income and related tax effects for the three months ended March 31, 2003 and 2004 are as follows: Three months ended March 31, 2003 --------------------------------- Gross Tax effect Net of tax ----- ---------- ---------- Amounts reclassified into earnings $ 1,718 $ 636 $ 1,082 Changes in fair value of interest rate swaps (225) (51) (174) ------- ------- ------- $ 1,493 $ 585 $ 908 ======= ======= ======= 9 Three months ended March 31, 2004 --------------------------------- Gross Tax effect Net of tax ----- ---------- ---------- Amounts reclassified into earnings $ 477 $ 176 $ 301 Changes in fair value of interest rate swaps (3,417) (1,264) (2,153) ------- ------- ------- $(2,940) $(1,088) $(1,852) ======= ======= ======= The estimated net amount of the existing unrealized losses as of March 31, 2004 (based on the interest yield curve at that date) included in accumulated other comprehensive income (loss) expected to be reclassified into pre-tax earnings within the next 12 months is $2,420. The timing of actual amounts reclassified into earnings is dependent on future movements in interest rates. 10. COMMITMENTS AND CONTINGENCIES The Company owns undeveloped property in Harper County, Kansas where it is seeking permits to construct and operate a municipal solid waste landfill. In 2002, the Company received a special use permit from Harper County for zoning the landfill and in 2003 it received a draft permit from the Kansas Department of Health and Environment to construct and operate the landfill. In July 2003, the District Court of Harper County invalidated the previously issued zoning permit. The Company has appealed the District Court's decision to invalidate the zoning permit. The Kansas Department of Health and Environment has notified the Company that it will not issue a final permit to construct and operate the landfill until the zoning matter is resolved. At March 31, 2004, the Company had $4,100 of capitalized expenditures related to this landfill development project. Based on the advice of counsel, the Company believes that it will prevail in this matter and does not believe that an impairment of the capitalized expenditures exists. If the Company does not prevail on appeal, however, it will be required to expense in a future period the $4,100 of capitalized expenditures, less the recoverable value of the undeveloped property and other amounts recovered, which would likely have a material adverse effect on its reported income for that period. The Company is primarily self-insured for automobile liability, general liability and workers' compensation claims. The Company is a party to various claims and suits pending for alleged damages to persons and property and alleged liabilities occurring during the normal operations of the solid waste management business. On October 31, 2003, the Company's subsidiary, Waste Connections of Nebraska, Inc., was named as a defendant in the case of KAREN COLLERAN, CONSERVATOR OF THE ESTATE OF ROBERT ROONEY V. WASTE CONNECTIONS OF NEBRASKA, INC. The plaintiff seeks recovery for damages allegedly suffered by Father Robert Rooney when the bicycle he was riding collided with one of the Company's garbage trucks. The complaint alleges that Father Rooney suffered serious bodily injury, including traumatic brain injury. The plaintiff seeks recovery of past medical expenses of approximately $430 and an unspecified amount for future medical expenses, home healthcare, past pain and suffering, future pain and suffering, lost income, loss of earning capacity, and permanent injury and disability. The Company's primary defense is that the plaintiff is not entitled to any damages under Nebraska law, where the accident occurred, because the negligence of Father Rooney was equal to or greater than any negligence on the part of the Company's driver, and the Company intends to defend this case vigorously. This case is in the preliminary stages of discovery and the Company has not accrued any potential loss as of March 31, 2004; however, an adverse outcome in this case coupled with a significant award to the plaintiff could have a material adverse effect on the Company's reported income in the period incurred. Additionally, the Company is party to various legal proceedings in the ordinary course of business and as a result of the extensive governmental regulation of the solid waste industry. The Company's management does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on its business, financial condition, operating results or cash flows. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Certain information contained in this Quarterly Report on Form 10-Q, including, without limitation, information appearing under this Part I, Item 2, includes statements that are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as "believes", "expects", "may", "will", "should" or "anticipates" or the negative thereof or comparable terminology, or by discussions of strategy. Our business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements in this Quarterly Report on Form 10-Q. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) difficulties in making acquisitions, acquiring exclusive contracts and generating internal growth may cause our growth to be slower than expected; (2) our growth and future financial performance depend significantly on our ability to integrate acquired businesses into our organization and operations; (3) our acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (4) we compete for acquisition candidates with other purchasers, some of which have greater financial resources than we do, and these other purchasers may be able to offer more favorable acquisition terms, thus limiting our ability to grow through acquisition; (5) timing of acquisitions may cause fluctuations in our quarterly results, which may cause our stock price to decline; (6) rapid growth may strain our management, operational, financial and other resources; (7) we may be unable to compete effectively with governmental service providers and larger and better capitalized companies, which may result in reduced revenues and lower profits; and (8) we may lose contracts through competitive bidding, early termination or governmental action, which would cause our revenues to decline. These risks and uncertainties, as well as others, are discussed in greater detail in our other filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances after the date any such statement is made. The following discussion should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere herein. OVERVIEW Waste Connections, Inc. is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly secondary markets in the Western and Southern U.S. As of March 31, 2004, we served more than one million commercial, industrial and residential customers from a network of operations in 23 states: Alabama, Arizona, California, Colorado, Georgia, Illinois, Iowa, Kansas, Kentucky, Minnesota, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming. As of that date, we owned 103 collection operations and operated or owned 33 transfer stations, operated or owned 33 Subtitle D landfills, owned two construction and demolition landfills and operated or owned 26 recycling facilities. We also owned one Subtitle D landfill site that is permitted for operation, but not constructed as of March 31, 2004. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the consolidated financial statements. As described by the Securities and Exchange Commission, critical accounting estimates and assumptions are those that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on the financial condition or operating performance of the company. There were no significant changes to our critical accounting estimates and assumptions in the three months ended March 31, 2004. Refer to our Annual Report on Form 10-K for a complete description of our critical accounting estimates and assumptions. 11 GENERAL Our revenues consist mainly of fees we charge customers for solid waste collection, transfer, disposal and recycling services. Our collection business also generates revenues from the sale of recyclable commodities, which have significant variability. A large part of our collection revenues comes from providing commercial, industrial and residential services. We frequently perform these services under service agreements, municipal contracts or franchise agreements with governmental entities. Our existing franchise agreements and all of our existing municipal contracts give us the exclusive right to provide specified waste services in the specified territory during the contract term. These exclusive arrangements are awarded, at least initially, on a competitive bid basis and subsequently on a bid or negotiated basis. We also provide residential collection services on a subscription basis with individual households. More than 50% of our revenues for the three months ended March 31, 2004 were derived from market areas where services are provided predominantly under exclusive franchise agreements, long-term municipal contracts and governmental certificates. Governmental certificates grant us perpetual and exclusive collection rights in the covered areas. Contracts with counties and municipalities and governmental certificates provide relatively consistent cash flow during the terms of the contracts. Because we bill most residential customers quarterly, subscription agreements also provide a stable source of revenues for us. We charge transfer station and landfill customers a tipping fee on a per ton and/or per yard basis for disposing of their solid waste at the transfer stations and landfill facilities. Many of our transfer and landfill customers have entered into one to ten year disposal contracts with us, most of which provide for annual indexed price increases. We typically determine the prices of our solid waste services by the collection frequency and level of service, route density, volume, weight and type of waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing, and prices charged by competitors for similar services. The terms of our contracts sometimes limit our ability to pass on price increases. Long-term solid waste collection contracts often contain a formula, generally based on a published price index, that automatically adjusts fees to cover increases in some, but not all, operating costs, or that limit increases to less than 100% of the increase in the applicable price index. Cost of operations include labor and benefits, tipping fees paid to third-party disposal facilities, equipment maintenance, workers' compensation, vehicle insurance, claims expense, third-party transportation expense, fuel, the cost of materials we purchase for recycling, district and state taxes and host community fees and royalties. Our single largest cost is labor, followed by third-party disposal, cost of vehicle maintenance, taxes and fees and fuel. We use a number of programs to reduce overall cost of operations, including increasing the use of automated routes to reduce labor and workers' compensation exposure, comprehensive maintenance and health and safety programs, and increasing the use of transfer stations to further enhance internalization rates. Our high-deductible insurance covers automobile liability, general liability, workers' compensation claims, automobile collision and employee group health claims. If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected. Selling, general and administrative ("SG&A") expenses include management, sales force, clerical and administrative employee compensation and benefits, legal, accounting and other professional services, bad debt expense, and rent expense for our corporate headquarters. Depreciation expense includes depreciation of fixed assets over their estimated useful lives using the straight-line method. Depletion expense includes depletion of landfill site costs and total future development costs as remaining airspace of the landfill is consumed. Remaining airspace at our landfills includes both permitted and deemed permitted airspace. Amortization expense includes the amortization of definite-lived intangible assets, consisting primarily of long-term franchise agreements and contracts, customer lists, and non-competition agreements, over their estimated useful lives using the straight-line method. Goodwill and indefinite-lived intangible assets, consisting primarily of certain perpetual rights to provide solid waste collection and transportation services in specified territories, are not amortized. At March 31, 2004, we had 287.3 million tons of permitted remaining airspace capacity and 83.3 million tons of deemed probable expansion airspace capacity at our 26 owned and operated landfills and landfills operated under 12 life-of-site operating contracts. We do not measure remaining airspace capacity at the nine landfills we operate under contracts with finite terms. Based on remaining permitted capacity as of March 31, 2004, and projected annual disposal volumes, the average remaining landfill life for our owned landfills and landfills operated under life-of-site operating contracts is approximately 47 years. The operating contracts for which the contracted term is not the life of the landfill have expiration dates from 2004 to 2013. The disposal tonnage that we received in the three months ended March 31, 2003 and 2004 at all of our landfills is shown below (tons in thousands): March 31, 2003 March 31, 2004 ---------------- ---------------- Number of Total Number of Total Sites Tons Sites Tons --------- ----- --------- ----- Owned landfills or landfills operated under life-of-site contracts 23 1,251 26 1,494 Operated landfills 7 223 9 228 --------- ----- --------- ----- 30 1,474 35 1,722 --------- ----- --------- ----- We capitalize some third-party expenditures related to pending acquisitions or development projects, such as legal, engineering and interest expenses. We expense indirect acquisition costs, such as executive and corporate overhead, public relations and other corporate services, as we incur them. We charge against net income any unamortized capitalized expenditures and advances (net of any portion that we believe we may recover, through sale or otherwise) that may become impaired, such as those that relate to any operation that is permanently shut down and any pending acquisition or landfill development project that we believe will not be completed. We routinely evaluate all capitalized costs, and expense those related to projects that we believe are not likely to succeed. At March 31, 2004, we had $0.3 million in capitalized expenditures relating to pending acquisitions. We own undeveloped property in Harper County, Kansas, where we are seeking permits to construct and operate a municipal solid waste landfill. In 2002, we received a special use permit from Harper County for zoning the landfill and in 2003 we received a draft permit from the Kansas Department of Health and Environment to construct and operate the landfill. In July 2003, the District Court of Harper County invalidated the previously issued zoning permit. We have appealed the District Court's decision to invalidate the zoning permit. The Kansas Department of Health and Environment has notified us that it will not issue a final permit to construct and operate the landfill until the zoning matter is resolved. At March 31, 2004, we had $4.1 million of capitalized expenditures related to this landfill development project. Based on the advice of counsel, we believe that we will prevail in this matter and do not believe that an impairment of the capitalized expenditures exists. If we do not prevail on appeal, however, we will be required to expense in a future period the $4.1 million of capitalized expenditures, less the recoverable value of the undeveloped property and other amounts recovered, which would likely have a material adverse effect on our reported income for that period. We periodically evaluate acquired assets for potential impairment indicators. If any impairment indicators are present, a test of recoverability is performed by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If the carrying values are in excess of undiscounted expected future cash flows, impairment is measured by comparing the fair value of the asset to its carrying value. If the fair value of an asset is determined to be less than the carrying amount of the asset or asset group, an impairment in the amount of the difference is recorded in the period that the impairment indicator occurs. As of March 31, 2004, there have been no adjustments to the carrying amounts of intangibles, including goodwill, resulting from these evaluations. As of March 31, 2004, goodwill and other intangible assets represented 47.4% of total assets and 118.5% of stockholders' equity. NEW ACCOUNTING PRONOUNCEMENT For a description of the new accounting standards that affect us, see Note 2 to our Condensed Consolidated Financial Statements included under Item 1 of this Form 10-Q. 13 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2004 The following table sets forth items in our consolidated statements of income as a percentage of revenues for the periods indicated. Three months ended March 31, ------------------ 2003 2004 ------- ------- Revenues 100.0% 100.0% Cost of operations 55.9 57.0 Selling, general and administrative expenses 10.0 10.4 Depreciation and amortization expense 8.3 9.0 ------ ------ Operating income 25.8 23.6 Interest expense, net (6.3) (4.6) Other income 0.0 0.1 Minority interests (1.8) (1.8) Income tax expense (6.5) (6.4) Cumulative effect of change in accounting principle 0.2 -- ------ ------ Net income 11.4% 10.9% ====== ====== Revenues. Total revenues increased $20.8 million, or 16.2%, to $149.3 million for the three months ended March 31, 2004 from $128.5 million for the three months ended March 31, 2003. The increase in revenues in the three months ended March 31, 2004, resulted primarily from the full-quarter inclusion of revenues from acquisitions closed during the three months ended March 31, 2003, and the inclusion of revenues from acquisitions closed subsequent to March 31, 2003, which together totaled approximately $15.6 million. Of the remaining change in revenues, increases in recyclable commodity prices increased revenues by $0.9 million, and price and volume changes in our existing business resulted in a net revenue increase of $4.3 million. The net increase in revenues from price and volume changes in our existing business consisted of increased prices charged to our customers and increased volumes, partially offset by exiting the roll-off business at our Georgia operations and the loss of certain municipal contracts that expired subsequent to March 31, 2003, and were not renewed. Cost of Operations. Total cost of operations increased $13.3 million, or 18.4%, to $85.1 million for the three months ended March 31, 2004, from $71.8 million for the three months ended March 31, 2003. The increase was primarily attributable to operating costs associated with acquisitions closed subsequent to March 31, 2003, increases in medical expenses for our self-insured employee health plans and increased expenses associated with higher collection volumes. Cost of operations as a percentage of revenues increased 1.1 percentage points to 57.0% for the three months ended March 31, 2004 from 55.9% for the three months ended March 31, 2003. The increase as a percentage of revenues was primarily attributable to companies acquired subsequent to March 31, 2003 having operating margins below our company average associated with a higher mix of collection volumes, higher labor and other operating costs, and increased medical expenses resulting from a higher volume of claims and an increase in the number of claims reaching our per claim deductible limits for our self-insured employee health plans. SG&A. SG&A expenses increased $2.7 million, or 21.1%, to $15.6 million for the three months ended March 31, 2004 from $12.9 million for the three months ended March 31, 2003. Our SG&A expenses for the three months ended March 31, 2004, increased from the prior year period as a result of additional personnel from acquisitions closed subsequent to March 31, 2003, increased accounting expenses related to new corporate governance requirements, increased management information system expenses, increased employee bonus and stock 14 compensation expense recognized in the three months ended March 31, 2004 and increased payroll tax expenses resulting from an increase in exercises of stock options during the first three months of 2004. SG&A expenses as a percentage of revenues for the three months ended March 31, 2004, increased 0.4 percentage points to 10.4% from 10.0% for the three months ended March 31, 2003. The increase was primarily due to increased employee bonus and stock compensation expense recognized in the three months ended March 31, 2004 and increased payroll tax expense resulting from increased stock option exercises in that quarter. Depreciation and Amortization. Depreciation and amortization expense increased $2.8 million, or 27.1%, to $13.4 million for the three months ended March 31, 2004, from $10.6 million for the three months ended March 31, 2003. The increase was primarily attributable to depreciation and depletion associated with acquisitions closed subsequent to March 31, 2003, increased depreciation expense resulting from new equipment acquired to support our base operations, increased amortization expense associated with intangible assets acquired in acquisitions closed subsequent to March 31, 2003 and increased depletion expense resulting from higher volumes at our landfill operations. Depreciation and amortization expense as a percentage of revenues increased 0.7 percentage points to 9.0% for the three months ended March 31, 2004, from 8.3% for the three months ended March 31, 2003. The increase was the result of depreciation expense associated with new equipment acquired subsequent to March 31, 2003, which replaced older equipment with lower depreciation costs, increased amortization expense associated with intangible assets acquired in acquisitions closed subsequent to March 31, 2003 and increased depletion expense resulting from higher volumes at our landfill operations. Operating Income. Operating income increased $2.0 million, or 6.0%, to $35.2 million for the three months ended March 31, 2004, from $33.2 million for the three months ended March 31, 2003. The increase was primarily attributable to the growth in revenues partially offset by increased operating costs, recurring SG&A expenses to support the revenue growth, increases in employee bonus and stock compensation expense and increased depreciation and amortization expenses. Operating income as a percentage of revenues decreased 2.2 percentage points to 23.6% for the three months ended March 31, 2004, from 25.8% for the three months ended March 31, 2003. The decrease was due to the aforementioned percentage of revenue increases in cost of operations, SG&A expenses, and depreciation and amortization expenses. Interest Expense. Interest expense decreased $1.3 million, or 15.2%, to $6.8 million for the three months ended March 31, 2004, from $8.1 million for the three months ended March 31, 2003. The decrease was primarily attributable to the expiration of two interest rate swap agreements in late 2003 that required fixed interest payments in excess of our variable rate borrowing cost. Minority Interests. Minority interests increased $0.3 million, or 15.3%, to $2.6 million for the three months ended March 31, 2004, from $2.3 million for the three months ended March 31, 2003. The increase in minority interests was due to increased earnings by our majority-owned subsidiaries. Provision for Income Taxes. Income taxes increased $1.1 million, or 13.1%, to $9.6 million for the three months ended March 31, 2004, from $8.5 million for the three months ended March 31, 2003. This increase was due to increased pre-tax earnings and an increase in our effective tax rate of 0.2 percentage points due to the recognition of non-tax deductible expenses in 2004. Cumulative Effect of Change in Accounting Principle. Cumulative effect of change in accounting principle for the three months ended March 31, 2003 consisted of a $0.3 million gain, net of tax effects, resulting from our adoption of SFAS No. 143 on January 1, 2003. Our adoption of SFAS No. 143 required us to record a cumulative change in accounting for landfill closure and post-closure obligations retroactively to the date of the acquisition of each landfill. Net Income. Net income increased $1.5 million, or 10.3% to $16.2 million for the three months ended March 31, 2004, from $14.7 million for the three months ended March 31, 2003. The increase was primarily attributable to 15 increased operating income and decreased interest expense, partially offset by increased minority interest expense and income tax expense. LIQUIDITY AND CAPITAL RESOURCES Our business is capital intensive. Our capital requirements include fleet and containers, facilities, and expenditures for landfill cell construction, landfill development and landfill closure activities in the future. We plan to meet our capital needs through various financing sources, including internally generated funds, debt and equity financings. As of March 31, 2004, we had a working capital deficit of $22.5 million, including cash and equivalents of $4.9 million. Our strategy in managing our working capital is generally to apply the cash generated from our operations that remains after satisfying our working capital and capital expenditure requirements to reduce our indebtedness under our credit facility and to minimize our cash balances. In October 2003, we entered into a new credit facility to increase the maximum borrowings available to us to $575 million. This new credit facility consisted of a $400 million senior secured revolving credit facility with a syndicate of banks for which Fleet National Bank acts as agent and a $175 million senior secured term loan. In March 2004, we refinanced the senior secured term loan portion of our credit facility in order to reduce the effective borrowing cost. The applicable margin on the senior secured term loan was reduced by 25 basis points; all other terms remained consistent. In addition, we increased the amount outstanding under the senior secured term loan from $175 million to $200 million, resulting in an increase in the size of the facility to $600 million. The senior secured revolving credit facility matures in October 2008. The senior secured term loan requires annual principal payments equal to 1% of the initial term loan amount with all remaining outstanding amounts due October 2010. Under the new credit facility, there is no maximum amount of stand-by letters of credit that can be issued; however, the issuance of stand-by letters of credit reduces the amount of total borrowings available. We are able to increase the maximum borrowings under the new credit facility to $675 million, although no existing lender will have any obligation to increase its commitment, provided that no event of default, defined in the new credit facility, has occurred. The borrowings under the new credit facility bear interest at a rate per annum equal to, at our discretion, either the Fleet National Bank Base Rate plus applicable margin, or the LIBOR rate plus applicable margin. The applicable margin under the revolving credit facility varies depending on our leverage ratio. At March 31, 2004, the applicable margin on the term loan is 25 basis points in the case of loans based on the Base Rate and 175 basis points in the case of loans based on the LIBOR rate. Virtually all of our assets, including our interest in the equity securities of our subsidiaries, secure our obligations under the new credit facility. The new credit facility places certain business, financial and operating restrictions on us relating to, among other things, additional indebtedness, investments, acquisitions, asset sales, mergers, dividends, distributions, and repurchases and redemption of capital stock. The new credit facility also requires that we maintain specified financial ratios and balances. As of March 31, 2004, we were in compliance with all applicable covenants in our outstanding credit facility. The credit facility also requires the lenders' approval of acquisitions in certain circumstances. We use the credit facility for acquisitions, capital expenditures, working capital, standby letters of credit and general corporate purposes. The $21.5 million decrease in outstanding borrowings under our credit facility in 2004 was primarily due to cash generated from operations and the proceeds from stock option exercises partially offset by funding new acquisitions and capital expenditures. If we are unable to incur additional indebtedness under our credit facility or obtain additional capital through future debt or equity financings, our rate of growth through acquisitions may decline. In March 2004, we entered into two additional three-year interest rate swap agreements. Each interest rate swap agreement has a notional amount of $37.5 million and effectively fixed the interest rate on the notional amount at an interest rate of 2.25%, plus applicable margin. 16 As of March 31, 2004, we had the following contractual obligations (in thousands):
Payments Due by Period ---------------------- Less Than Recorded Obligations Total 1 Year 1 to 3 Years 4 to 5 Years Over 5 Years - -------------------- --------- --------- ------------ ------------ ------------ Long-term debt (1) $ 590,444 $ 9,674 $ 166,046 $ 21,857 $ 392,867 ---------------------------------------------------------------------- Total contractual cash obligations $ 590,444 $ 9,674 $ 166,046 $ 21,857 $ 392,867 ======================================================================
(1) Long-term debt payments include $6.5 million in principal payments due 2008 related to our senior secured revolving credit facility and $200 million in principal payments due 2010 related to our senior secured term loan, both under our credit facility. As of March 31, 2004, our credit facility allowed us to borrow up to $600 million. On April 15, 2004, we completed the redemption of our $150 million aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006. Holders of the notes chose to convert a total of $123.6 million principal amount of the notes into common stock. The balance of $26.4 million principal amount of the notes were redeemed by proceeds from our credit facility at a redemption price of $1,022 per $1,000 principal amount of the notes.
Amount of Commitment Expiration Per Period ------------------------------------------ Less Than Unrecorded Obligations Total 1 Year 1 to 3 Years 4 to 5 Years Over 5 Years - ---------------------- --------- --------- ------------ ------------ ------------ Operating leases (2) $ 27,061 $ 3,985 $ 6,272 $ 4,613 $ 12,191 Unconditional purchase obligations(2) 18,049 7,248 10,801 -- -- ---------------------------------------------------------------------- Total commercial commitments $ 45,110 $ 11,233 $ 17,073 $ 4,613 $ 12,191 ======================================================================
(2) We are party to operating lease agreements and unconditional purchase obligations. These lease agreements and purchase obligations are established in the ordinary course of our business and are designed to provide us with access to facilities and products at competitive, market-driven prices. These arrangements have not materially affected our financial position, results of operations or liquidity during the three months ended March 31, 2004 nor are they expected to have a material impact on our future financial position, results of operations or liquidity. We are party to stand-by letters of credit and financial surety bonds. These stand-by letters of credit and financial surety bonds are generally established to support our financial assurance needs and landfill operations. These arrangements have not materially affected our financial position, results of operations or liquidity during the three months ended March 31, 2004, nor are they expected to have a material impact on our future financial position, results of operations or liquidity. The minority interest holders of one of our majority-owned subsidiaries have a currently exercisable option (the "put option") to require us to complete the acquisition of this majority-owned subsidiary by purchasing their minority ownership interests for fair market value. The put option calculates the fair market value of the subsidiary based on its current operating income before depreciation and amortization, as defined in the put option agreement. The put option does not have a stated termination date. At March 31, 2004, the minority interest holders' pro rata share of the subsidiary's fair market value is estimated to be worth between $67 million and $80 million. Because the put option is required at fair market value, no amounts have been accrued relative to the put option. For the three months ended March 31, 2004, net cash provided by operating activities was $47.9 million. Of this amount, $9.3 million was provided by working capital for the period. The primary components of the reconciliation of net income to net cash provided by operations for the three months ended March 31, 2004, consist of non-cash expenses including $13.4 million of depreciation and amortization, $2.6 million of minority interest expense, $0.6 million of debt issuance cost amortization, and the deferral of $5.5 million of income tax expense resulting from temporary differences between the recognition of income and expenses for financial reporting and income tax purposes. For the three months ended March 31, 2004, net cash used in investing activities was $20.2 million. Of this amount, $6.1 million was used to fund the cash portion of acquisitions and to pay a portion of acquisition costs that were included as a component of accrued liabilities at December 31, 2003. Cash used for capital expenditures was $15.6 million, which was primarily for investments in fixed assets, consisting of trucks, containers, other equipment and 17 landfill development. Cash provided by investing activities included $1.3 million of net borrowings of restricted cash. For the three months ended March 31, 2004, net cash used in financing activities was $28.1 million, which included $10.6 million of proceeds from stock option and warrant exercises, less $35.5 million of net payments under our various debt arrangements, $2.9 million of cash distributions to minority interest holders and $0.2 million of debt issuance costs, primarily related to our amended credit facility. We made approximately $15.6 million in capital expenditures for property and equipment during the three months ended March 31, 2004. We expect to make capital expenditures of approximately $70.0 million in 2004 in connection with our existing business. We intend to fund our planned 2004 capital expenditures principally through existing cash, internally generated funds, and borrowings under our existing credit facility. In addition, we may make substantial additional capital expenditures in acquiring solid waste collection and disposal businesses. If we acquire additional landfill disposal facilities, we may also have to make significant expenditures to bring them into compliance with applicable regulatory requirements, obtain permits or expand our available disposal capacity. We cannot currently determine the amount of these expenditures because they will depend on the number, nature, condition and permitted status of any acquired landfill disposal facilities. We believe that our credit facility and the funds we expect to generate from operations will provide adequate cash to fund our working capital and other cash needs for the foreseeable future. From time to time we evaluate our existing operations and their strategic importance to us. If we determine that a given operating unit does not have future strategic importance, we may sell or otherwise dispose of those operations. Although we believe our operations would not be impaired by such dispositions, we could incur losses as a result. SEASONALITY Based on historic trends experienced by the businesses we have acquired, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters and lower in the fourth quarter than in the second and third quarters. We expect the fluctuation in our revenues between our highest and lowest quarters to be approximately 10% to 12%. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring months because of decreased construction and demolition activities during the winter months in the U.S. In addition, some of our operating costs may be higher in the winter months. Adverse winter weather conditions slow waste collection activities, resulting in higher labor and operational costs. Greater precipitation in the winter increases the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, we are exposed to market risk, including changes in interest rates and certain commodity prices. We use hedge agreements to manage a portion of our risks related to interest rates. While we are exposed to credit risk in the event of non-performance by counterparties to our hedge agreements, in all cases such counterparties are highly rated financial institutions and we do not anticipate non-performance. We do not hold or issue derivative financial instruments for trading purposes. We monitor our hedge positions by regularly evaluating the positions at market and by performing sensitivity analyses. In May 2003, we entered into two forward-starting interest rate swap agreements. Each interest rate swap agreement has a notional amount of $87.5 million and effectively fixed the interest rate on the notional amount at interest rates ranging from 2.67% to 2.68%, plus applicable margin. The effective date of the swap agreements was February 2004 and each swap agreement expires in February 2007. In March 2004, we entered into two additional three-year interest rate swap agreements. Each interest rate swap agreement has a notional amount of $37.5 million and effectively fixed the interest rate on the notional amount at an interest rate of 2.25%, plus applicable margin. 18 We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our market risk sensitive hedge positions and all other debt. Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the net floating rate balances owed at March 31, 2003 and 2004, of $250.7 million and $167.9 million, respectively, including floating rate debt under our credit facility, our 2022 Notes, various floating rate notes payable to third parties and floating rate municipal bond obligations, offset by our debt effectively fixed under interest rate swap agreements. A one percentage point increase in interest rates on our variable-rate debt as of March 31, 2003 and 2004, would decrease our annual pre-tax income by approximately $2.5 million and $1.7 million, respectively. All of our remaining debt instruments are at fixed rates, or effectively fixed under the interest rate swap agreements described above; therefore, changes in market interest rates under these instruments would not significantly impact our cash flows or results of operations. We market a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate 26 recycling processing facilities and sell other collected recyclable materials to third parties for processing before resale. We often share the profits from our resale of recycled materials with other parties to our recycling contracts. For example, certain of our municipal recycling contracts in Washington, negotiated before we acquired those businesses, specify benchmark resale prices for recycled commodities. If the prices we actually receive for the processed recycled commodities collected under the contract exceed the prices specified in the contract, we share the excess with the municipality, after recovering any previous shortfalls resulting from actual market prices falling below the prices specified in the contract. To reduce our exposure to commodity price risk with respect to recycled materials, we have adopted a pricing strategy of charging collection and processing fees for recycling volume collected from third parties. Although there can be no assurance of market recoveries, in the event of a decline, because of the provisions within certain of our contracts that pass commodity risk along to the customers, we believe, given historical trends and fluctuations in the recycling commodities market, that a 10% decrease in average recycled commodity prices from the prices that were in effect at March 31, 2004 would not materially affect our cash flows or pre-tax income. ITEM 4. CONTROLS AND PROCEDURES Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of March 31, 2004. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported as and when required. During the quarter ended March 31, 2004, there were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date they were evaluated in connection with the preparation of this quarterly report on Form 10-Q. 19 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We own undeveloped property in Harper County, Kansas, where we are seeking permits to construct and operate a municipal solid waste landfill. In 2002, we received a special use permit from Harper County for zoning the landfill and in 2003 we received a draft permit from the Kansas Department of Health and Environment to construct and operate the landfill. In July 2003, the District Court of Harper County invalidated the previously issued zoning permit. We have appealed the District Court's decision to invalidate the zoning permit. The Kansas Department of Health and Environment has notified us that it will not issue a final permit to construct and operate the landfill until the zoning matter is resolved. At March 31, 2004, we had $4.1 million of capitalized expenditures related to this landfill development project. Based on the advice of counsel, we believe that we will prevail in this matter and do not believe that an impairment of the capitalized expenditures exists. If we do not prevail on appeal, however, we will be required to expense in a future period the $4.1 million of capitalized expenditures, less the recoverable value of the undeveloped property and other amounts recovered, which would likely have a material adverse effect on our reported income for that period. We are primarily self-insured for automobile liability, general liability and workers' compensation claims. We are a party to various claims and suits pending for alleged damages to persons and property and alleged liabilities occurring during the normal operations of our solid waste management business. On October 31, 2003, our subsidiary, Waste Connections of Nebraska, Inc. was named as a defendant in the case of KAREN COLLERAN, CONSERVATOR OF THE ESTATE OF ROBERT ROONEY V. WASTE CONNECTIONS OF NEBRASKA, INC. The plaintiff seeks recovery for damages allegedly suffered by Father Robert Rooney when the bicycle he was riding collided with one of our garbage trucks. The complaint alleges that Father Rooney suffered serious bodily injury, including traumatic brain injury. The plaintiff seeks recovery of past medical expenses of approximately $430,000 and an unspecified amount for future medical expenses and home healthcare, past pain and suffering, future pain and suffering, lost income, loss of earning capacity, and permanent injury and disability. Our primary defense is that the plaintiff is not entitled to any damages under Nebraska law, where the accident occurred, because the negligence of Father Rooney was equal to or greater than any negligence on the part of our driver, and we intend to defend this case vigorously on these and other grounds. This case is in the preliminary stages of discovery, and we have not accrued any potential loss as of March 31, 2004; however, an adverse outcome in this case coupled with a significant award to the plaintiff could have a material adverse effect on our reported income in the period incurred. Additionally, we are a party to various legal proceedings resulting from the ordinary course of business and the extensive governmental regulation of the solid waste industry. Our management does not believe that these proceedings, either individually or in the aggregate, are likely to have a material adverse effect on our business, financial condition, operating results or cash flows. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: EXHIBIT NUMBER DESCRIPTION OF EXHIBITS 3.1 (a) Amended and Restated Certificate of Incorporation of the Registrant, in effect as of the date hereof 3.2 (a) Amended and Restated By-Laws of the Registrant, in effect as of the date hereof 4.1 (a) Form of Common Stock Certificate 4.2 (h) Form of Note for the Registrant's 5.5% Convertible Subordinated Notes due April 15, 2006 4.3 (h) (+) Indenture between the Registrant, as Issuer, and State Street Bank and Trust Company, as Trustee, dated as of April 4, 2001 20 4.4 (h) (+) Purchase Agreement between the Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated March 30, 2001 4.5 (h) (+) Registration Rights Agreement between the Registrant and Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated as of April 4, 2001 4.6 (i) Form of Note for the Registrant's Floating Rate Convertible Subordinated Notes Due 2022 4.7 (i) (+) Indenture between the Registrant, as Issuer, and State Street Bank and Trust Company of California, N.A., as Trustee, dated as of April 30, 2002 4.8 (i) (+) Purchase Agreement between the Registrant and Deutsche Bank Securities Inc., dated April 26, 2002 4.9 (i) (+) Registration Rights Agreement between the Registrant and Deutsche Bank Securities Inc., dated as of April 30, 2002 10.1 (d) Second Amended and Restated 1997 Stock Option Plan 10.2 (a) Form of Option Agreement 10.3 (a) Form of Warrant Agreement 10.4 (a) Form of Stock Purchase Agreement dated as of September 30, 1997 10.5 (c) Form of Third Amended and Restated Investors' Rights Agreement, dated as of December 31, 1998 10.6 (f) First Amended and Restated Employment Agreement between the Registrant and Ronald J. Mittelstaedt, dated as of June 1, 2000 10.7 (e) Second Amended Employment Agreement between the Registrant and Darrell Chambliss, dated as of June 1, 2000 10.8 (e) Second Amended Employment Agreement between the Registrant and Michael Foos, dated as of June 1, 2000 10.9 (a) Employment Agreement between the Registrant and Steven Bouck, dated as of February 1, 1998 10.10 (a) Employment Agreement between the Registrant and Eugene V. Dupreau, dated as of February 23, 1998 10.11 (a) Form of Indemnification Agreement entered into by the Registrant and each of its directors and officers 10.12 (b) (+) Loan Agreement, dated as of June 1, 1998, between Madera Disposal Systems, Inc. and the California Pollution Control Financing Authority 10.13 (b) Employment Agreement between the Registrant and David M. Hall, dated as of July 8, 1998 10.14 (g) Employment Agreement between the Registrant and James M. Little, dated as of September 13, 1999 10.15 (g) Employment Agreement between the Registrant and Jerri L. Hunt, dated as of October 25, 1999 10.16 (j) Employment Agreement between the Registrant and Kenneth O. Rose, dated as of May 1, 2002 10.17 (j) Employment Agreement between the Registrant and Robert D. Evans, dated as of May 10, 2002 10.18 (k) 2002 Senior Management Equity Incentive Plan 21 10.19 (k) 2002 Stock Option Plan 10.20 (l) 2002 Restricted Stock Plan 10.21 (m) Consultant Incentive Plan 10.22 (n) Employment Agreement between the Registrant and David G. Eddie, dated as of May 15, 2001 10.23 (n) Employment Agreement between the Registrant and Worthing F. Jackman, dated as of April 11, 2003 10.24 (o) Amended and Restated Revolving Credit and Term Loan Agreement dated as of October 22, 2003 10.25 (p) Refinancing Facility Amendment to Amended and Restated Revolving Credit and Term Loan Agreement dated as of March 2, 2004 10.26 Second Amended and Restated Employment Agreement between the Registrant and Ronald J. Mittelstaedt, dated March 1, 2004 31.1 Certification of President and Chief Executive Officer 31.2 Certification of Chief Financial Officer 32 Certificate of Chief Executive Officer and Chief Financial Officer (a) Incorporated by reference to the exhibits filed with the Registrant's Registration Statement on Form S-1, Registration No. 333-48029. (b) Incorporated by reference to the exhibits filed with the Registrant's Registration Statement on Form S-4, Registration No. 333-59199. (c) Incorporated by reference to the exhibits filed with the Registrant's Registration Statement on Form S-4, Registration No. 333-65615. (d) Incorporated by reference to the exhibit filed with the Registrant's Form S-8, Registration No. 333-42096. (e) Incorporated by reference to the exhibit filed with the Registrant's Form 10-Q filed on November 14, 2000. (f) Incorporated by reference to the exhibit filed with the Registrant's Form 10-Q filed on August 7, 2000. (g) Incorporated by reference to the exhibit filed with the Registrant's Form 10-K filed on March 13, 2000. (h) Incorporated by reference to the exhibit filed with the Registrant's Form S-3 filed on June 5, 2001. (i) Incorporated by reference to the exhibit filed with the Registrant's Form S-3 filed on July 29, 2002. (j) Incorporated by reference to the exhibit filed with the Registrant's Form 10-Q filed on August 13, 2002. (k) Incorporated by reference to the exhibit filed with the Registrant's Form S-8 filed on February 21, 2002. 22 (l) Incorporated by reference to the exhibit filed with the Registrant's Form S-8 filed on June 19, 2002. (m) Incorporated by reference to the exhibit filed with the Registrant's Form S-8 filed on January 8, 2003. (n) Incorporated by reference to the exhibit filed with the Registrant's Form 10-Q filed on August 13, 2003. (o) Incorporated by reference to the exhibit filed with the Registrant's Form 8-K filed on October 23, 2003. (p) Incorporated by reference to the exhibit filed with the Registrant's Form 10-K filed on March 12, 2004. (+) Filed without exhibits and schedules (to be provided supplementally on request of the Commission). (b) Reports on Form 8-K: On February 19, 2004, we filed a report on Form 8-K announcing the results of our earnings for the fourth quarter of 2003. On April 15, 2004, we filed a report on Form 8-K announcing the completion of the redemption of our $150 million aggregate principal amount, 5.5% Convertible Subordinated Notes due 2006. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WASTE CONNECTIONS, INC. BY: /s/ Ronald J. Mittelstaedt ------------------------------- Date: April 22, 2004 Ronald J. Mittelstaedt, President and Chief Executive Officer BY: /s/ Steven F. Bouck ------------------------------- Date: April 22, 2004 Steven F. Bouck, Executive Vice President and Chief Financial Officer 24 EX-10.1 3 exh10-1_12619.txt SECOND AMENDED & RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.1 ------------ SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT ("Agreement") is made and effective as of March 1, 2004, by and between Ronald J. Mittelstaedt (the "Employee") and Waste Connections, Inc., a Delaware corporation (the "Company"), and amends and restates in its entirety that certain Employment Agreement dated as of October 1, 1997, by and among the Employee, the Company, J. Bradford Bishop, Frank W. Cutler and James N. Cutler, Jr., as amended as of June 1, 2000 by and between the Employee and the Company. The Company desires to engage the services and employment of the Employee for the period provided in this Agreement, and the Employee is willing to accept employment by the Company for such period, on the terms and conditions set forth below. NOW THEREFORE, in consideration of the premises and the mutual covenants and conditions herein, the Company and the Employee agree as follows: 1. Employment. The Company agrees to employ the Employee, and the Employee agrees to accept employment with the Company, for the Term stated in Section 3 hereof and on the other terms and conditions herein. 2. Position and Responsibilities. During the Term, the Employee shall serve as Chief Executive Officer and President of the Company, and shall perform such other duties and responsibilities as the Board of Directors (the "Board") of the Company may reasonably assign to the Employee from time to time. In addition, the Company shall nominate the Employee to serve as a member of the Board at all times during the Term, subject to election by the Company's stockholders. During any period in which the Employee is a member of the Board, he shall serve on the Executive and Finance Committees of the Board. The Employee shall devote such time and attention to his duties as are necessary to the proper discharge of his responsibilities hereunder. The Employee agrees to perform all duties consistent with (a) policies established from time to time by the Company and (b) all applicable legal requirements. 3. Term. The period of the Employee's employment commenced on October 1, 1997 and shall continue through February 28, 2007, unless terminated earlier as provided herein or extended by the vote of a majority of the Board (the "Term"). On each anniversary of the date of this Agreement, commencing March 1, 2007, this Agreement shall be extended automatically an additional year, thus extending the Term of this Agreement to three years from such date, unless either party shall have given the other notice of termination hereof as provided herein. 4. Compensation, Benefits and Reimbursement of Expenses. The Company shall compensate the Employee during the Term of this Agreement as follows: (a) Base Salary. The Employee shall be paid a base salary ("Base Salary") of not less than Two Hundred Ninety-Five Thousand Dollars ($295,000) per year in installments consistent with the Company's usual practices. The Board shall review the Employee's Base Salary on October 1 of each year or more frequently, at the times prescribed in salary administration practices applied generally to management employees of the Company. (b) Performance Bonus. The Employee shall be entitled to an annual cash bonus (the "Bonus") based on the Company's attainment of reasonable financial objectives to be determined annually by the Board. The maximum annual Bonus will equal one hundred percent (100%) of the applicable year's ending Base Salary and will be payable if the Board determines, in its sole and exclusive discretion, that that year's financial objectives have been fully met. The Bonus shall be paid in accordance with the Company's bonus plan, as approved by the Board; provided that in no case shall any portion of the Bonus with respect to any fiscal year be paid more than seventy-five (75) days after the end of that fiscal year. (c) Grant of Options. The Employee shall be eligible for annual grants of management stock options ("Options") commensurate with his position and with option grants to chief executive officers of similarly situated businesses and other senior management employees of the Company, as approved by the Board. The terms of the Options shall be described in more detail in Stock Option Agreements to be entered into between the Employee and the Company. (d) Other Benefits. During the Term, the Employee shall be entitled to a vehicle allowance of Five Thousand Dollars ($5,000) per year net after payment of all taxes. In addition, the Company shall pay or reimburse the Employee for all fuel and maintenance on Employee's vehicle. During the Term, the Company shall provide the Employee with a cellular telephone and will pay or reimburse the Employee's monthly service fee and costs of calls attributable to Company business. During the Term, the Company will also pay for the cost of a fax line to Employee's residence. During the Term, the Employee shall be entitled to receive all other benefits of employment generally available to other management employees of the Company and those benefits for which management employees are or shall become eligible, including, without limitation and to the extent made available by the Company, medical, dental, disability and prescription coverage, life insurance and tax-qualified retirement benefits. The Employee shall be entitled to four (4) weeks of paid vacation each year of his employment. (e) Reimbursement of Other Expenses. The Company agrees to pay or reimburse the Employee for all reasonable travel and other expenses incurred by the Employee in connection with the performance of his duties under this Agreement on presentation of proper expense statements or vouchers. All such supporting information shall comply with all applicable Company policies relating to reimbursement for travel and other expenses. (f) Withholding. All compensation payable to the Employee hereunder is subject to all withholding requirements under applicable law. 5. Confidentiality. During the Term of his employment, and at all times thereafter, the Employee shall not, without the prior written consent of the Company, divulge to any third party or use for his own benefit or the benefit of any third party or for any purpose other than the exclusive benefit of the Company, any confidential or proprietary business or technical information revealed, obtained or developed in the course of his employment with the Company and which is otherwise the property of the Company or any of its affiliated corporations, including, but not limited to, trade secrets, customer lists, formulae and processes of manufacture; provided, however, that nothing herein contained shall restrict the Employee's ability to make such disclosures during the course of his employment as may be necessary or appropriate to the effective and efficient discharge of his duties to the Company. 2 6. Property. Both during the Term of his employment and thereafter, the Employee shall not remove from the Company's offices or premises any Company documents, records, notebooks, files, correspondence, reports, memoranda and similar materials or property of any kind unless necessary in accordance with the duties and responsibilities of his employment. In the event that any such material or property is removed, it shall be returned to its proper file or place of safekeeping as promptly as possible. The Employee shall not make, retain, remove or distribute any copies, or divulge to any third person the nature or contents of any of the foregoing or of any other oral or written information to which he may have access, except as disclosure shall be necessary in the performance of his assigned duties. On the termination of his employment with the Company, the Employee shall leave with or return to the Company all originals and copies of the foregoing then in his possession or subject to his control, whether prepared by the Employee or by others. 7. Termination By Company. (a) Termination for Cause. The employment of the Employee may be terminated for Cause at any time by the vote of a majority of the Board; provided, however, that before the Company may terminate the Employee's employment for Cause for any reason that is susceptible to cure, the Company shall first send the Employee written notice of its intention to terminate this Agreement for Cause, specifying in such notice the reasons for such Cause and those conditions that, if satisfied by the Employee, would cure the reasons for such Cause, and the Employee shall have 60 days from receipt of such written notice to satisfy such conditions. If such conditions are satisfied within such 60-day period, the Company shall so advise the Employee in writing. If such conditions are not satisfied within such 60-day period, the Company may thereafter terminate this Agreement for Cause on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee describing with specificity the grounds for termination. Immediately on termination pursuant to this Section 7(a), the Company shall pay to the Employee in a lump sum his then current Base Salary under Section 4(a) on a prorated basis to the Date of Termination (as defined in Section 9(b)). In addition, upon termination of this Agreement for Cause, the Company shall elect, on or prior to the Date of Termination, whether the Restricted Period, during which the Employee shall be subject to the non-competition and non-solicitation provisions of Section 12, shall be zero days, or until the end of the eighteenth full month following the Date of Termination (the "Optional Restricted Period"); if the Company elects to apply the Optional Restricted Period, then in addition to the payment described in the preceding sentence, the Company shall pay to the Employee in a lump sum on termination (i) a pro-rated portion of the maximum bonus available to the Employee under Section 4(b) for the year in which the termination occurs, plus (ii) an amount equal to three times the Employee's Total Compensation, as defined below, plus (iii) the Health Insurance Benefit, as defined below. On termination pursuant to this Section 7(a), the Employee shall forfeit his Bonus under Section 4(b) for the year in which such termination occurs, unless the Company elects the Optional Restricted Period as described in the preceding sentence, in which case the Employee shall receive the pro-rated bonus amount described in that sentence. In addition, on termination pursuant to this Section 7(a), the Employee shall forfeit all unvested Options and other options, warrants and rights relating to capital stock of the Company, unless the Company elects the Optional Restricted Period, in which case all of the Employee's unvested Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and 3 become exercisable, and the term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. The Employee acknowledges that extending the term of any incentive stock option pursuant to this Section 7(a), or Section 7(b), 7(c), 7(d), 8(a) or 8(b), could cause such option to lose its tax-qualified status under the Internal Revenue Code of 1986, as amended (the "Code"), and agrees that the Company shall have no obligation to compensate the Employee for any additional taxes he incurs as a result. For purposes of this Agreement, "Cause" shall mean: (1) a material breach of any of the terms of this Agreement that is not immediately corrected following written notice of default specifying such breach; (2) repeated intoxication with alcohol or drugs while on Company premises during its regular business hours to such a degree that, in the reasonable judgment of the other managers of the Company, the Employee is abusive or incapable of performing his duties and responsibilities under this Agreement; (3) conviction of a felony; or (4) misappropriation of property belonging to the Company and/or any of its affiliates. For purposes of this Agreement, the Employee's "Total Compensation" shall equal the sum of (i) twelve months of the Employee's Base Salary at the rate in effect on the termination date, (ii) the maximum Bonus of 100% of such Base Salary (whether or not the entire amount was actually earned or paid to the Employee), and (iii) the amount of all vehicle allowance and vehicle-related, telephone and facsimile reimbursements described in Section 4(d) that were payable to the Employee with respect to the twelve months preceding the termination date; provided that solely for the purpose of computing Total Compensation, if at the date of termination the Employee's Base Salary is less than $295,000 per year, then the Employee's Base Salary shall be deemed to be $295,000 for the purpose of such computation. For purposes of this Agreement, the "Health Insurance Benefit" shall be an amount equal to the excess of (i) the premiums payable by the Employee to cover himself, his wife and his children for a three-period period beginning on the termination date under a health insurance plan that provides benefits comparable to those available under the Company's health insurance plan then in effect, over (ii) the premiums that would be payable by the Employee, if he were still employed by the Company, to cover himself, his wife and his children for that three-year period under the Company's health insurance plan in effect on the termination date. (b) Termination Without Cause. The employment of the Employee may be terminated without Cause at any time by the vote of a majority of the Board on delivery to the Employee of a written Notice of Termination (as defined in Section 9(a)). On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(b), the Company shall pay to the Employee in a lump sum in lieu of payments under Section 4(a), 4(b) and 4(d) for the remainder of the Term an amount equal to the sum of (i) all Base Salary payable under Section 4(a) through the termination date, (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(b) for the year in which the termination occurs, (iii) an amount equal 4 to three times the Employee's Total Compensation, as defined in Section 7(a), plus (iv) the Health Insurance Benefit, as defined in Section 7(a). In addition, on termination of the Employee under this Section 7(b), all of the Employee's unvested Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. (c) Termination on Disability. If during the Term the Employee should fail to perform his duties hereunder on account of physical or mental illness or other incapacity which the Board shall in good faith determine renders the Employee incapable of performing his duties hereunder, and such illness or other incapacity shall continue for a period of more than six (6) consecutive months ("Disability"), the Company shall have the right, on written Notice of Termination (as defined in Section 9(a)) delivered to the Employee to terminate the Employee's employment under this Agreement. During the period that the Employee shall have been incapacitated due to Disability, the Employee shall continue to receive the full Base Salary provided for in Section 4(a) hereof at the rate then in effect until the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(c). On the Date of Termination pursuant to this Section 7(c), the Company shall pay to the Employee in a lump sum an amount equal to (i) the Base Salary remaining payable to the Employee under Section 4(a) for the full remaining Term, plus (ii) a pro-rated portion of the maximum Bonus available to the Employee under Section 4(b) for the year in which the termination occurs. In addition, on such termination, all of the Employee's unvested Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. (d) Termination on Death. If the Employee shall die during the Term, the employment of the Employee shall thereupon terminate. On the Date of Termination (as defined in Section 9(b)) pursuant to this Section 7(d), the Company shall pay to the Employee's estate the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof, except that the Health Insurance Benefit shall be calculated with respect to coverage only for the Employee's wife and children. In addition, on termination of the Employee under this Section 7(d), all of the Employee's unvested Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable. The term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. The provisions of this Section 7(d) shall not affect the entitlements of the Employee's heirs, executors, administrators, legatees, beneficiaries or assigns under any employee benefit plan, fund or program of the Company. 8. Termination By Employee. (a) Termination for Good Reason. The Employee may terminate his employment hereunder for Good Reason (as defined below). On the Date of Termination pursuant to this Section 8(a), the Employee shall be entitled to receive, and the Company agrees to pay and deliver, the payments and other benefits applicable to termination without Cause set forth in Section 7(b) hereof at the times and subject to the conditions set forth therein. In addition, on termination of the Employee under this Section 8(a), all of the Employee's Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and 5 become exercisable. The term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. For purposes of this Agreement, "Good Reason" shall mean: (1) assignment to the Employee of duties inconsistent with his responsibilities as they existed on the date of this Agreement; a substantial alteration in the title(s) of the Employee (so long as the existing corporate structure of the Company is maintained); or a substantial alteration in the status of the Employee in the Company organization as it existed on the date of this Agreement; (2) the relocation of the Company's principal executive office to a location more than fifty (50) miles from its present location; (3) a reduction by the Company in the Employee's Base Salary without the Employee's approval; (4) a failure by the Company to continue in effect, without substantial change, any benefit plan or arrangement in which the Employee was participating or the taking of any action by the Company which would adversely affect the Employee's participation in or materially reduce his benefits under any benefit plan (unless such changes apply equally to all other management employees of Company); (5) any material breach by the Company of any provision of this Agreement without the Employee having committed any material breach of his obligations hereunder, which breach is not cured within twenty (20) days following written notice thereof to the Company of such breach; or (6) the failure of the Company to obtain the assumption of this Agreement by any successor entity. (b) Termination Without Good Reason. The Employee may terminate his employment hereunder without Good Reason on written Notice of Termination delivered to the Company setting forth the effective date of termination. If the Employee terminates his employment hereunder without Good Reason, he shall be entitled to receive, and the Company agrees to pay on the effective date of termination specified in the Notice of Termination, his current Base Salary under Section 4(a) hereof on a prorated basis to such date of termination. In addition, upon the Employee's termination of his employment without Good Reason, the Company shall elect, within fifteen (15) days after receiving the Notice of Termination, whether the Restricted Period, during which the Employee shall be subject to the non-competition and non-solicitation provisions of Section 12, shall be zero days, or the Optional Restricted Period; if the Company elects to apply the Optional Restricted Period, then in addition to the payment described in the preceding sentence, the Company shall pay to the Employee in a lump sum on termination (i) a pro-rated portion of the maximum bonus available to the Employee under Section 4(b) for the year in which the termination occurs, plus (ii) an amount equal to three times the Employee's Total Compensation, as defined in Section 7(a), plus (iii) the Health Insurance Benefit, as defined in Section 7(a). On termination pursuant to this Section 8(b), the Employee shall forfeit his Bonus under Section 4(b) for the year in which such termination occurs, unless the Company elects the Optional Restricted Period as described in the preceding sentence, in 6 which case the Employee shall receive the pro-rated bonus amount described in that sentence. In addition, on termination pursuant to this Section 8(b), the Employee shall forfeit all unvested Options and other options, warrants and rights relating to capital stock of the Company, unless the Company elects the Optional Restricted Period, in which case all of the Employee's unvested Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable, and the term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. 9. Provisions Applicable to Termination of Employment. (a) Notice of Termination. Any purported termination of Employee's employment by the Company pursuant to Section 7 shall be communicated by Notice of Termination to the Employee as provided herein, and shall state the specific termination provisions in this Agreement relied on and set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment ("Notice of Termination"). If the Employee terminates under Section 8, he shall give the Company a Notice of Termination. (b) Date of Termination. For all purposes, "Date of Termination" shall mean, for Disability, thirty (30) days after Notice of Termination is given to the Employee (provided the Employee has not returned to duty on a full-time basis during such 30-day period), or, if the Employee's employment is terminated by the Company for any other reason or by the Employee, the date on which a Notice of Termination is given. (c) Benefits on Termination. On termination of this Agreement by the Company pursuant to Section 7 or by the Employee pursuant to Section 8, all profit-sharing, deferred compensation and other retirement benefits payable to the Employee under benefit plans in which the Employee then participated shall be paid to the Employee in accordance with the provisions of the respective plans. 10. Change In Control. (a) Payments on Change in Control. Notwithstanding any provision in this Agreement to the contrary, unless the Employee elects in writing to waive this provision, a Change in Control (as defined in Section 11(d) below) of the Company shall be deemed a termination of the Employee without Cause, and the Employee shall be entitled to receive and the Company agrees to pay to the Employee, in a lump sum upon such Change in Control, the amount determined under Section 7(b) that is payable to the Employee on termination without Cause. In addition, on a Change of Control, all of the Employee's unvested Options and other options, warrants and rights relating to capital stock of the Company shall immediately vest and become exercisable, and the term of any such options (including the Options), warrants and rights shall be extended to the fifth anniversary of the Employee's termination. After a Change in Control, if any option (including the Options), warrant or right (the "Terminated Option") relating to the Company's capital stock does not remain outstanding, the successor to the Company or its then Parent (as defined in Section 10 below) shall either: (i) Issue an option, warrant or right, as appropriate (the "Successor Option"), to purchase common stock of such successor or Parent in an amount such that on 7 exercise of the Successor Option the Employee would receive the same number of shares of the successor's/Parent's common stock as the Employee would have received had the Employee exercised the Terminated Option immediately prior to the transaction resulting in the Change in Control and received shares of such successor/Parent in such transaction. The aggregate exercise price for all of the shares covered by such Successor Option shall equal the aggregate exercise price of the Terminated Option; or (ii) Pay the Employee a bonus within ten (10) days after the consummation of the Change in Control, in an amount agreed to by the Employee and the Company. Such amount shall be at least equivalent on an after-tax basis to the net after-tax gain that the Employee would have realized if he had been issued a Successor Option under clause (i) above and had immediately exercised such Successor Option and sold the underlying stock, taking into account the different tax rates that apply to such bonus and to such gain, and such amount shall also reflect other differences to the Employee between receiving a bonus under this clause (ii) and receiving a Successor Option under clause (i) above. (b) Definitions. For the purposes of this Agreement, a Change in Control shall be deemed to have occurred if (i) there shall be consummated (aa) any reorganization, liquidation or consolidation of the Company, or any merger or other business combination of the Company with any other corporation, other than any such merger or other combination that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction, (bb) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or if (ii) any "person" (as defined in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the Company's outstanding voting securities (except that for purposes of this Section 10(b), "person" shall not include any person (or any person that controls, is controlled by or is under common control with such person) who as of the date of this Agreement owns ten percent (10%) or more of the total voting power represented by the outstanding voting securities of the Company, or a trustee or other fiduciary holding securities under any employee benefit plan of the Company, or a corporation that is owned directly or indirectly by the stockholders of the Company in substantially the same percentage as their ownership of the Company) or if (iii) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board shall cease for any reason to constitute at least one-half of the membership thereof unless the election, or the nomination for election by the Company's shareholders, of each new director was approved by a vote of at least one-half of the directors then still in office who were directors at the beginning of the period. The term "Parent" means a corporation, partnership, trust, limited liability company or other entity that is the ultimate "beneficial owner" (as defined above) of fifty percent (50%) or more of the Company's outstanding voting securities. 11. Gross Up Payments. If all or any portion of any payment or benefit that the Employee is entitled to receive from the Company pursuant to this Agreement (a "Payment") constitutes an "excess parachute payment" within the meaning of Section 280G of the Code, and as such is 8 subject to the excise tax imposed by Section 4999 of the Code or to any similar Federal, state or local tax or assessment (the "Excise Tax"), the Company or its successors or assigns shall pay to the Employee an additional amount (the "Gross-Up Payment") with respect to such Payment. The amount of the Gross-Up Payment shall be sufficient that, after paying (a) any Excise Tax on the Payment, (b) any Federal, state or local income or employment taxes and Excise Tax on the Gross-Up Payment, and (c) any interest and penalties imposed in respect of the Excise Tax, the Employee shall retain an amount equal to the full amount of the Payment. For the purpose of determining the amount of any Gross-Up Payment, the Employee shall be deemed to pay Federal income taxes at the highest marginal rate applicable in the calendar year in which the Gross-Up Payment is made, and state and local income taxes at the highest marginal rate applicable in the state and locality where the Employee resides on the date the Gross-Up Payment is made, net of the maximum reduction in Federal income taxes that could be obtained from deducting such state and local taxes. The Gross-Up Payment with respect to any Payment shall be paid to the Employee within ten (10) days after the Internal Revenue Service or any other taxing authority issues a notice stating that an Excise Tax is due with respect to the Payment, unless the Company undertakes to challenge the taxing authority on the applicability of such Excise Tax and indemnifies the Employee for (a) any amounts ultimately determined to be payable, including the Excise Tax and any related interest and penalties, (b) all expenses (including attorneys' and experts' fees) reasonably incurred by the Employee in connection with such challenge, as such expenses are incurred, and (c) all amounts that the Employee is required to pay to the taxing authorities during the pendency of such challenge (such amounts to be repaid by the Employee to the Company if they are ultimately refunded to the Employee by the taxing authority). 12. Non-Competition and Non-Solicitation. (a) In consideration of the provisions hereof and the payments provided under Sections 7, 8 and 10(a), for the Restricted Period (as hereinafter defined), the Employee will not, except as specifically provided below, anywhere in any county in any state in which the Company is engaged in business as of such termination date (the "Restricted Territory"), directly or indirectly, acting individually or as the owner, shareholder, partner or management employee of any entity, (i) engage in the operation of a solid waste collection, transporting or disposal business, transfer facility, recycling facility, materials recovery facility or solid waste landfill; (ii) enter the employ as a manager of, or render any personal services to or for the benefit of, or assist in or facilitate the solicitation of customers for, or receive remuneration in the form of management salary, commissions or otherwise from, any business engaged in such activities in such counties; or (iii) receive or purchase a financial interest in, make a loan to, or make a gift in support of, any such business in any capacity, including without limitation, as a sole proprietor, partner, shareholder, officer, director, principal agent or trustee; provided, however, that the Employee may own, directly or indirectly, solely as an investment, securities of any business traded on any national securities exchange or quoted on any NASDAQ market, provided the Employee is not a controlling person of, or a member of a group which controls, such business and further provided that the Employee does not, in the aggregate, directly or indirectly, own two percent (2%) or more of any class of securities of such business. The term "Restricted Period" shall mean, in the case of a Change of Control, the earlier of (i) the maximum period allowed under applicable law and (ii) until the end of the eighteenth full month following the effective date of the Change of Control. In the case of the Employee's termination by the Company 9 without Cause pursuant to Section 7(b) or by the Employee for Good Reason pursuant to Section 8(a), the "Restricted Period" shall mean the earlier of (i) the maximum period allowed under applicable law, and (ii) provided the Company has made the payments required under Section 7(b) or 8(a), as the case may be, the Optional Restricted Period. In the case of the Employee's termination for Cause by the Company pursuant to Section 7(a) or termination by the Employee without Good Reason pursuant to Section 8(b), the "Restricted Period" shall be, as elected by the Company in accordance with Section 7(a) or 8(b), either (i) zero days (such that the Employee is not subject for any period to the restrictions of this Section 12 following such termination), or (ii) the earlier of the maximum period allowed under applicable law, or the Optional Restricted Period. (b) During the Restricted Period, the Employee shall not (i) solicit any residential or commercial customer of the Company to whom the Company provides service pursuant to a franchise agreement with a public entity in the Restricted Territory (ii) solicit any residential or commercial customer of the Company to enter into a solid waste collection account relationship with a competitor of the Company in the Restricted Territory, (iii) solicit any such public entity to enter into a franchise agreement with any such competitor, (iv) solicit any officer of the Company to enter into an employment agreement with a competitor of the Company or otherwise interfere in any such relationship, or (v) solicit on behalf of a competitor of the Company any prospective customer of the Company in the Restricted Territory that the Employee called on or was involved in soliciting on behalf of the Company during the Term, provided, however, that nothing herein shall prevent the Employee from soliciting any of the following officers of the Company to be employed in a business that is not competitive with the business of the Company (i) at any time after any such officer's employment is terminated by the Company, (ii) at any time after any such officer's employment is terminated by the officer for Good Reason (as defined in the officer's employment agreement) and (iii) at any time after the expiration the number of months indicated after each officer's name from the date such officer notifies the Company of his intention to terminate his employment other than for Good Reason: Darrell Chambliss (twelve (12) months), David Hall (twelve (12) months), and Michael Foos (six (6) months). (c) If the final judgment of a court of competent jurisdiction declares that any term or provision of this Section 12 is invalid or unenforceable, the parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration or area of the term or provision, to delete specified words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 13. Indemnification. As an employee and agent of the Company, the Employee shall be fully indemnified by the Company to the fullest extent permitted by applicable law in connection with his employment hereunder. 14. Board Representation. The Company shall nominate the Employee to serve as a member of the Board at all times during the Term, subject to election by the Company's stockholders. 10 15. Survival of Provisions. The obligations of the Employee under Sections 5, 6 and 12 of this Agreement and of the Company under Section 13 of this Agreement shall survive both the termination of the Employee's employment and this Agreement. 16. No Duty to Mitigate; No Offset. The Employee shall not be required to mitigate damages or the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that the Employee may receive from any other sources or offset against any other payments made to him or required to be made to him pursuant to this Agreement. 17. Assignment; Binding Agreement. The Company may assign this Agreement to any parent, subsidiary, affiliate or successor of the Company. This Agreement is not assignable by the Employee and is binding on him and his executors and other legal representatives. This Agreement shall bind the Company and its successors and assigns and inure to the benefit of the Employee and his heirs, executors, administrators, personal representatives, legatees or devisees. The Company shall assign this Agreement to any entity that acquires its assets or business. 18. Notice. Any written notice under this Agreement shall be personally delivered to the other party or sent by certified or registered mail, return receipt requested and postage prepaid, to such party at the address set forth in the records of the Company or to such other address as either party may from time to time specify by written notice. 19. Entire Agreement; Amendments. This Agreement contains the entire agreement of the parties relating to the Employee's employment and supersedes all oral or written prior discussions, agreements and understandings of every nature between them. This Agreement may not be changed except by an agreement in writing signed by the Company and the Employee. 20. Waiver. The waiver of a breach of any provision of this Agreement shall not operate or as be construed to be a waiver of any other provision or subsequent breach of this Agreement. 21. Governing Law and Jurisdictional Agreement. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California. The parties irrevocably and unconditionally submit to the jurisdiction and venue of any court, federal or state, situated within Sacramento County, California, for the purpose of any suit, action or other proceeding arising out of, or relating to or in connection with, this Agreement. 22. Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held invalid in any respect, such invalidity shall not affect the validity of any other provision of this Agreement, and such provision shall be deemed modified to the extent necessary to make it enforceable. 23. Enforcement. It is agreed that it is impossible to measure fully, in money, the damage which will accrue to the Company in the event of a breach or threatened breach of Section 5 or 6 of this Agreement, and, in any action or proceeding to enforce the provisions of Section 5 or 6 hereof, the Employee waives the claim or defense that the Company has an adequate remedy at law and will not assert the claim or defense that such a remedy at law exists. The Company is entitled to injunctive relief to enforce the provisions of such sections as well as any and all other remedies available to it at law or in equity without the posting of any bond. 11 24. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and both of which together shall constitute one and the same instrument. 25. Due Authorization. The execution of this Agreement has been duly authorized by the Company by all necessary corporate action. IN WITNESS WHEREOF, the parties have executed and delivered this Second Amended and Restated Employment Agreement as of the day and year set forth above. WASTE CONNECTIONS, INC., a Delaware corporation By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- EMPLOYEE: ------------------------------------------------ Ronald J. Mittelstaedt 12 EX-31.1 4 exh31-1_12619.txt 302 CERTIFICATION OF THE PRESIDENT EXHIBIT 31.1 ------------ CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Ronald J. Mittelstaedt, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Waste Connections, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the three months ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 22, 2004 /s/ Ronald J. Mittelstaedt ------------------------------------- Ronald J. Mittelstaedt, President and Chief Executive Officer EX-31.2 5 exh31-2_12619.txt 302 CERTIFICATION OF THE CHIEF FINANCIAL OFFICER EXHIBIT 31.2 ------------ CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Steven F. Bouck, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Waste Connections, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the three months ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: April 22, 2004 /s/ Steven F. Bouck --------------------------- Steven F. Bouck, Executive Vice President and Chief Financial Officer EX-32 6 exh32_12619.txt 906 CERTIFICATIONS OF THE PRESIDENT & THE C.F.O. EXHIBIT 32 ---------- CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. SECTION 1350) The undersigned, Ronald J. Mittelstaedt and Steven F. Bouck, being the duly elected and acting Chief Executive Officer and Chief Financial Officer, respectively, of Waste Connections, Inc., a Delaware corporation (the "Company"), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The quarterly report of the Company on Form 10-Q for the quarter ended March 31, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: April 22, 2004 By: /s/ Ronald J. Mittelstaedt ------------------------------------- Ronald J. Mittelstaedt, President and Chief Executive Officer Date: April 22, 2004 By: /s/ Steven F. Bouck ------------------------------------- Steven F. Bouck, Executive Vice President and Chief Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Waste Connections, Inc. and will be retained by Waste Connections, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----