UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2012
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 No. 1-31507
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 94-3283464 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
Waterway Plaza Two 10001 Woodloch Forest Drive, Suite 400 The Woodlands, Texas |
77380 | |
(Address of principal executive offices) | (Zip Code) |
(832) 442-2200
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.01 per share |
New York Stock Exchange | |
(Title of each class) | (Name of each exchange on which registered) |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of June 30, 2012, the aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant, based on the closing sales price for the registrants common stock, as reported on the New York Stock Exchange, was $3,664,771,905.
Number of shares of common stock outstanding as of February 15, 2013: 123,327,573
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants definitive Proxy Statement for the 2013 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.
WASTE CONNECTIONS, INC.
ANNUAL REPORT ON FORM 10-K
i
Our Company
Waste Connections, Inc. is an integrated municipal solid waste, or MSW, services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and a leading provider of non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in several of the most active natural resource producing areas of the U.S. We also provide intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities.
As of December 31, 2012, we served residential, commercial, industrial and E&P customers from a network of operations in 31 states: Alabama, Alaska, Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming. As of December 31, 2012, we owned or operated a network of 151 solid waste collection operations; 68 transfer stations; seven intermodal facilities, 38 recycling operations, 54 active MSW, E&P and/or non-MSW landfills, 20 E&P liquid waste injection wells, 15 E&P waste treatment and recovery facilities and 19 oil recovery facilities. Non-MSW landfills accept construction and demolition, industrial and other non-putrescible waste.
Our senior management team has extensive experience in operating, acquiring and integrating non-hazardous waste services businesses, and we intend to continue to focus our efforts on balancing internal and acquisition-based growth. We anticipate that a part of our future growth will come from acquiring additional solid waste collection, transfer and disposal businesses and, therefore, we expect that additional acquisitions could continue to affect period-to-period comparisons of our operating results.
Waste Connections, Inc. is a Delaware corporation organized in 1997.
Our Operating Strategy
Our operating strategy seeks to improve financial returns and deliver superior stockholder value creation within the solid waste industry. We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. We also target niche markets, like E&P waste treatment and disposal services, with similar characteristics and, we believe, higher comparative growth potential. We are a leading provider of waste services in most of our markets, and the key components of our operating strategy, which are tailored to the competitive and regulatory factors that affect our markets, are as follows:
Target Secondary and Rural Markets. By targeting secondary and rural markets, we believe that we are able to garner a higher local market share than attainable in more competitive urban markets, which reduces our exposure to customer churn and improves financial returns. In certain niche markets, like E&P waste treatment and disposal, early mover advantage in certain rural basins may improve market positioning and financial returns given the limited availability of existing third party-owned waste disposal alternatives.
Control the Waste Stream. In markets where waste collection services are provided under exclusive arrangements, or where waste disposal is municipally owned or funded or available at multiple sources, we believe that controlling the waste stream through the provision of collection services is often more important to our profitability and growth than owning or operating landfills. In addition, in certain E&P markets with no pit rules or other regulations that prohibit on-site storage or treatment of waste, control of the waste stream allows us to generate additional service revenue from the transportation of waste, as well as the waste treatment and disposal, thus increasing the overall scope and value of the services provided.
Optimize Asset Positioning. We believe that the location of disposal sites within competitive markets is a critical success factor in both solid waste and E&P waste services. Given the importance and costs associated with the transportation of waste to treatment and disposal sites, having disposal capacity proximate to the waste stream may provide a competitive advantage and serve as a barrier to entry.
Provide Vertically Integrated Services. In markets where we believe that owning landfills is a strategic element to a collection operation because of competitive and regulatory factors, we generally focus on providing integrated services, from collection through disposal of solid waste in landfills that we own or operate. Similarly, we see this strategic advantage in E&P waste services where we offer closed loop systems for liquid and solid waste storage, transportation, treatment, and disposal.
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Manage on a Decentralized Basis. We manage our operations on a decentralized basis. This places decision-making authority close to the customer, enabling us to identify and address customers needs quickly in a cost-effective manner. We believe that decentralization provides a low-overhead, highly efficient operational structure that allows us to expand into geographically contiguous markets and operate in relatively small communities that larger competitors may not find attractive. We believe that this structure gives us a strategic competitive advantage, given the relatively rural nature of many of the markets in which we operate, and makes us an attractive buyer to many potential acquisition candidates.
As of December 31, 2012, we delivered our services from over 200 operating locations grouped into four operating segments: our Western Region is comprised of operating locations in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; our Central Region is comprised of operating locations in Arizona, Colorado, Kansas, Louisiana, Minnesota, Nebraska, New Mexico, Oklahoma, South Dakota, Texas, Utah and eastern Wyoming; our Eastern Region is comprised of operating locations in Alabama, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, New York, North Carolina, South Carolina and Tennessee; and, our E&P Group includes the majority of our E&P waste service operations in Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico. Some E&P operations are also included in other operating segments, where we accept E&P waste at some of our solid waste landfills.
We manage and evaluate our business on the basis of the operating segments geographic characteristics, interstate waste flow, revenue base, employee base, regulatory structure, and acquisition opportunities. Each operating segment has a regional vice president, or equivalent, and a regional controller, reporting directly to our corporate management. These regional officers are responsible for operations and accounting in their operating segments and supervise their regional staff. See Note 15 to the consolidated financial statements for further information on our segment reporting of our operations.
Each operating location has a district or site manager who has a high degree of decision-making authority for his or her operations and is responsible for maintaining service quality, promoting safety, implementing marketing programs and overseeing day-to-day operations, including contract administration. Local managers also help identify acquisition candidates and are responsible for integrating acquired businesses into our operations and obtaining the permits and other governmental approvals required for us to operate.
Implement Operating Standards. We develop company-wide operating standards, which are tailored for each of our markets based on industry norms and local conditions. We implement cost controls and employee training and safety procedures and establish a sales and marketing plan for each market. By internalizing the waste stream of acquired operations, we can further increase operating efficiencies and improve capital utilization. We use a wide-area information system network, implement financial controls and consolidate certain accounting, personnel and customer service functions. While regional and district management operate with a high degree of autonomy, our executive officers monitor regional and district operations and require adherence to our accounting, purchasing, marketing and internal control policies, particularly with respect to financial matters. Our executive officers regularly review the performance of regional officers, district managers and operations. We believe we can improve the profitability of existing and newly acquired operations by establishing operating standards, closely monitoring performance and streamlining certain administrative functions.
Our Growth Strategy
We tailor the components of our growth strategy to the markets in which we operate and into which we hope to expand.
Obtain Additional Exclusive Arrangements. Our operations include market areas where we have exclusive arrangements, including franchise agreements, municipal contracts and governmental certificates, under which we are the exclusive service provider for a specified market. These exclusive rights and contractual arrangements create a barrier to entry that is usually obtained through the acquisition of a company with such exclusive rights or contractual arrangements or by winning a competitive bid.
We devote significant resources to securing additional franchise agreements and municipal contracts through competitive bidding and by acquiring other companies. In bidding for franchises and municipal contracts and evaluating acquisition candidates holding governmental certificates, our management team draws on its experience in the waste industry and knowledge of local service areas in existing and target markets. Our district management and sales and marketing personnel maintain relationships with local governmental officials within their service areas, maintain, renew and renegotiate existing franchise agreements and municipal contracts, and secure additional agreements and contracts while targeting acceptable financial returns. Our sales and marketing personnel also expand our presence into areas adjacent to or contiguous with our existing markets, and market additional services to existing customers. We believe our ability to offer comprehensive rail haul disposal services in the Pacific Northwest improves our competitive position in bidding for such contracts in that region.
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Generate Internal Growth. To generate internal revenue growth, our district management and sales and marketing personnel focus on increasing market penetration in our current and adjacent markets, soliciting new customers in markets where such customers have the option to choose a particular waste collection service and marketing upgraded or additional services (such as compaction or automated collection) to existing customers. We also focus on raising prices and instituting surcharges, when appropriate, to offset cost increases. Where possible, we intend to leverage our franchise-based platforms to expand our customer base beyond our exclusive market territories. As customers are added in existing markets, our revenue per routed truck increases, which generally increases our collection efficiencies and profitability. In markets in which we have exclusive contracts, franchises and certificates, we expect internal volume growth generally to track population and business growth. In niche disposal markets, like E&P, our focus is on increasing market penetration, developing and permitting new disposal sites, and providing additional service offerings where appropriate.
Expand Through Acquisitions. We intend to expand the scope of our operations by continuing to acquire MSW and E&P waste facilities and companies in new markets and in existing or adjacent markets that are combined with or tucked in to our existing operations. We focus our acquisition efforts on markets that we believe provide significant growth opportunities for a well-capitalized market entrant and where we can create economic and operational barriers to entry by new competitors. This focus typically highlights markets in which we can: (1) provide waste collection services under exclusive arrangements such as franchise agreements, municipal contracts and governmental certificates; (2) gain a leading market position and provide vertically integrated collection and disposal services; or (3) gain a leading market position in a niche market through the provision of disposal services. We believe that our experienced management, decentralized operating strategy, financial strength, size, and public company status make us an attractive buyer to certain waste collection and disposal acquisition candidates. We have developed an acquisition discipline based on a set of financial, market and management criteria to evaluate opportunities. Once an acquisition is closed, we seek to integrate it while minimizing disruption to our ongoing operations and those of the acquired business.
In new markets, we often use an initial acquisition as an operating base and seek to strengthen the acquired operations presence in that market by providing additional services, adding new customers and making tuck-in acquisitions of other waste companies in that market or adjacent markets. We believe that many suitable tuck-in acquisition opportunities exist within our current and targeted market areas that may provide us with opportunities to increase our market share and route density.
The U.S. solid waste services industry experienced significant consolidation during the 1990s. The consolidation trend has continued, most notably with the merger between Republic Services, Inc. and Allied Waste Industries, Inc. in 2008, the merger between IESI-BFC Ltd. and Waste Services, Inc. in 2010, and the sale of the U.S. solid waste business of Veolia Environnement S.A. to Advanced Disposal Services, Inc. in 2012. In spite of this consolidation, the solid waste services industry remains regional in nature, with acquisition opportunities available in selected markets. The E&P waste services industry is similarly regional in nature and is also highly fragmented, with acquisition opportunities available in several active basins. In some markets in both MSW and E&P waste, independent landfill, collection or service providers lack the capital resources, management skills and/or technical expertise necessary to comply with stringent environmental and other governmental regulations and to compete with larger, more efficient, integrated operators. In addition, many of the remaining independent operators may wish to sell their businesses to achieve liquidity in their personal finances or as part of their estate planning.
During 2012, we acquired the business of R360 Environmental Solutions, Inc., or R360, a leading provider of non-hazardous E&P waste treatment, recovery and disposal services, for total fair value of consideration transferred of $1.38 billion. During the year ended December 31, 2012, we completed 12 other acquisitions, none of which individually or in the aggregate accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the 12 other acquisitions completed during the year ended December 31, 2012 was approximately $275.8 million. During the year ended December 31, 2011, we completed 13 acquisitions, none of which individually accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the 13 acquisitions completed during the year ended December 31, 2011 was approximately $375.7 million. During the year ended December 31, 2010, we completed 19 acquisitions, none of which individually or in the aggregate accounted for greater than 10% of our total assets. The total fair value of consideration transferred for the 19 acquisitions completed during the year ended December 31, 2010 was approximately $105.6 million.
WASTE SERVICES
Collection Services
We provide collection services to residential, commercial, industrial and E&P customers. Our services are generally provided under one of the following arrangements: (1) governmental certificates; (2) exclusive franchise agreements; (3) exclusive municipal contracts; (4) residential subscriptions; (5) residential contracts; or (6) commercial, industrial and E&P service agreements.
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Governmental certificates, exclusive franchise agreements and exclusive municipal contracts grant us rights to provide MSW services within specified areas at established rates and are long term in nature. Governmental certificates, or G Certificates, are unique to the State of Washington and are awarded by the Washington Utilities and Transportation Commission, or WUTC, to solid waste collection service providers in unincorporated areas and electing municipalities. These certificates typically grant the holder the exclusive and perpetual right to provide specific residential, commercial and/or industrial waste services in a defined territory at specified rates subject to divestiture and/or cancellation by the WUTC on specified, limited grounds. Franchise agreements typically provide an exclusive period of seven years or longer for a specified territory; they specify a broad range of services to be provided, establish rates for the services and often give the service provider a right of first refusal to extend the term of the agreement. Municipal contracts typically provide a shorter service period and a more limited scope of services than franchise agreements and generally require competitive bidding at the end of the contract term. In markets where exclusive arrangements are not available, we may enter into residential contracts with homeowners associations, apartment owners, mobile home park operators or work on a subscription basis with individual households. In such markets, we may also provide commercial and industrial services under customer service agreements generally ranging from one to five years in duration. Finally, in certain E&P markets with no pit rules or other regulations that prohibit on-site storage or treatment of waste, we offer containers and collection services to provide a closed loop system for the collection of drilling wastes at customers well sites and subsequent transportation of the waste to our facilities for treatment and disposal.
Landfill Disposal Services
As of December 31, 2012, we owned or operated 42 MSW landfills, five E&P waste landfills, which only accept E&P waste, and seven non-MSW landfills, which only accept construction and demolition, industrial and other non-putrescible waste. Twelve of our MSW landfills also received E&P waste during 2012. We generally own landfills to achieve vertical integration in markets where the economic and regulatory environments make landfill ownership attractive. We also own landfills in certain markets where it is not necessary to provide collection services because we believe that we are able to attract volume to our landfills, given our location or other market dynamics. Over time, MSW landfills generate a greenhouse gas, methane, which can be converted into a valuable source of clean energy. We deploy gas recovery systems at 28 of our landfills to collect methane, which can then be used to generate electricity for local households, fuel local industrial power plants, power alternative fueled vehicles, or qualify for carbon emission credits.
Our landfill facilities consisted of the following at December 31, 2012:
Owned and operated landfills |
43 | |||
Operated landfills under life-of-site agreements |
6 | |||
Operated landfills under limited-term operating agreements |
5 | |||
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54 | ||||
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Under landfill operating agreements, the owner of the property, generally a municipality, usually owns the permit and we operate the landfill for a contracted term, which may be the life of the landfill. Where the contracted term is not the life of the landfill, the property owner is generally responsible for final capping, closure and post-closure obligations. We are responsible for all final capping, closure and post-closure obligations at five of our six operated landfills for which we have life-of-site agreements. Our five operating contracts for which the contracted term is less than the life of the landfill have expiration dates from 2014 to 2018, and we intend to seek renewal of these contracts prior to, or upon, their expiration.
Based on remaining permitted capacity as of December 31, 2012, and projected annual disposal volumes, the average remaining landfill life for our owned and operated landfills and landfills operated, but not owned, under life-of-site agreements, is estimated to be approximately 39 years. Many of our existing landfills have the potential for expanded disposal capacity beyond the amount currently permitted. We regularly consider whether it is advisable, in light of changing market conditions and/or regulatory requirements, to seek to expand or change the permitted waste streams or to seek other permit modifications. We also monitor the available permitted in-place disposal capacity of our landfills on an ongoing basis and evaluate whether to seek capacity expansion using a variety of factors.
We are currently seeking to expand permitted capacity at ten of our landfills, for which we consider expansions to be probable. Although we cannot be certain that all future expansions will be permitted as designed, the average remaining landfill life for our owned and operated landfills and landfills operated, but not owned, under life-of-site agreements is estimated to be approximately 48 years when considering remaining permitted capacity, probable expansion capacity and projected annual disposal volume.
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The following table reflects estimated landfill capacity and airspace changes, as measured in tons, for owned and operated landfills and landfills operated, but not owned, under life-of-site agreements (in thousands):
2012 | 2011 | |||||||||||||||||||||||
Permitted | Probable Expansion |
Total | Permitted | Probable Expansion |
Total | |||||||||||||||||||
Balance, beginning of year |
532,650 | 141,814 | 674,464 | 531,905 | 133,324 | 665,229 | ||||||||||||||||||
Acquired landfills |
64,595 | 37,628 | 102,223 | 1,846 | 4,000 | 5,846 | ||||||||||||||||||
Permits granted |
46,962 | (46,962 | ) | | 12,047 | (12,047 | ) | | ||||||||||||||||
Airspace consumed |
(15,383 | ) | | (15,383 | ) | (14,387 | ) | | (14,387 | ) | ||||||||||||||
Pursued expansions |
| 6,405 | 6,405 | | 16,537 | 16,537 | ||||||||||||||||||
Changes in engineering estimates |
25,940 | | 25,940 | 1,239 | | 1,239 | ||||||||||||||||||
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Balance, end of year |
654,764 | 138,885 | 793,649 | 532,650 | 141,814 | 674,464 | ||||||||||||||||||
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The estimated remaining operating lives for the landfills we own and landfills we operate under life-of-site agreements, based on remaining permitted and probable expansion capacity and projected annual disposal volume, in years, as of December 31, 2012, and December 31, 2011, are shown in the tables below. The estimated remaining operating lives include assumptions that the operating permits are renewed.
2012 | ||||||||||||||||||||||||||||
0 to 5 | 6 to 10 | 11 to 20 | 21 to 40 | 41 to 50 | 51+ | Total | ||||||||||||||||||||||
Owned and operated landfills |
1 | 2 | 8 | 8 | 6 | 18 | 43 | |||||||||||||||||||||
Operated landfills under life-of-site agreements |
| 1 | 2 | 2 | | 1 | 6 | |||||||||||||||||||||
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1 | 3 | 10 | 10 | 6 | 19 | 49 | ||||||||||||||||||||||
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0 to 5 | 6 to 10 | 11 to 20 | 21 to 40 | 41 to 50 | 51+ | Total | ||||||||||||||||||||||
Owned and operated landfills |
1 | 2 | 4 | 8 | 4 | 16 | 35 | |||||||||||||||||||||
Operated landfills under life-of-site agreements |
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1 | 2 | 6 | 10 | 4 | 17 | 40 | ||||||||||||||||||||||
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The disposal tonnage that we received in 2012 and 2011 at all of our landfills is shown in the tables below (tons in thousands):
Three months ended | Twelve months ended December 31, 2012 |
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March 31, 2012 |
June 30, 2012 |
September 30, 2012 |
December 31, 2012 |
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Number of Sites |
Total Tons |
Number of Sites |
Total Tons |
Number of Sites |
Total Tons |
Number of Sites |
Total Tons |
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Owned landfills and landfills operated under life-of-site agreements |
40 | 3,276 | 41 | 3,716 | 44 | 4,199 | 49 | 4,192 | 15,383 | |||||||||||||||||||||||||||
Operated landfills |
6 | 134 | 6 | 148 | 6 | 140 | 5 | 118 | 540 | |||||||||||||||||||||||||||
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46 | 3,410 | 47 | 3,864 | 50 | 4,339 | 54 | 4,310 | 15,923 | ||||||||||||||||||||||||||||
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Three months ended | Twelve months ended December 31, 2011 |
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March 31, 2011 |
June 30, 2011 |
September 30, 2011 |
December 31, 2011 |
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Number of Sites |
Total Tons |
Number of Sites |
Total Tons |
Number of Sites |
Total Tons |
Number of Sites |
Total Tons |
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Owned landfills and landfills operated under life-of-site agreements |
39 | 3,059 | 39 | 3,592 | 40 | 4,134 | 40 | 3,602 | 14,387 | |||||||||||||||||||||||||||
Operated landfills |
5 | 120 | 5 | 136 | 5 | 150 | 6 | 140 | 546 | |||||||||||||||||||||||||||
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44 | 3,179 | 44 | 3,728 | 45 | 4,284 | 46 | 3,742 | 14,933 | ||||||||||||||||||||||||||||
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5
Transfer Station and Intermodal Services
As of December 31, 2012, we owned or operated 61 MSW transfer stations and seven E&P waste transfer stations with marine access. Transfer stations receive, compact and load waste to be transported to landfills or treatment facilities via truck, rail or barge. They extend our direct-haul reach and link collection operations or waste generators with distant disposal or treatment facilities by concentrating the waste stream from a wider area and thus providing better utilization rates and operating efficiencies.
Intermodal logistics is the movement of containers using two or more modes of transportation, usually including a rail or truck segment. We entered the intermodal services business in the Pacific Northwest through the acquisition of Northwest Container Services, Inc., which provides repositioning, storage, maintenance and repair of cargo containers for international shipping companies. We provide these services for containerized cargo primarily to international shipping companies importing and exporting goods through the Pacific Northwest. We also operate two intermodal facilities primarily for the shipment of waste by rail to distant disposal facilities that we do not own. As of December 31, 2012, we owned or operated seven intermodal operations in Washington and Oregon. Our fleet of double-stack railcars provides dedicated direct-line haul services among terminals in Portland, Tacoma and Seattle. We have contracts with the Burlington Northern Santa Fe and Union Pacific railroads for the movement of containers among our seven intermodal operations. We also provide our customers container and chassis sales and leasing services.
We intend to further expand our intermodal business through cross-selling efforts with our solid waste services operations. We believe that a significant amount of solid waste is transported currently by truck, rail and barge from primarily the Seattle-Tacoma and Metro Portland areas to remote landfills in Eastern Washington and Eastern Oregon. We believe our ability to market both intermodal and disposal services will enable us to more effectively compete for these volumes.
Recycling Services
We offer residential, commercial, industrial and municipal customers recycling services for a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. We own or operate 38 recycling processing operations and sell other collected recyclable materials to third parties for processing before resale. The majority of the recyclables we process for sale are paper products and are shipped to customers in Asia. Changes in end market demand can cause fluctuations in the prices for such commodities, which can affect revenue, operating income and cash flows. To reduce our exposure to commodity price volatility and 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. We believe that recycling will continue to be an important component of local and state solid waste management plans due to the publics increasing environmental awareness and expanding regulations that mandate or encourage recycling.
E&P Waste Treatment, Recovery and Disposal Services
E&P waste is a broad term referring to the by-products resulting from oil and natural gas exploration and production activity. These generally include: waste created throughout the initial drilling and completion of an oil or natural gas well, such as drilling fluids, drill cuttings, completion fluids and flowback water; production wastes and produced water during a wells operating life; contaminated soils that require treatment during site reclamation; and substances that require clean-up after a spill, reserve pit clean-up or pipeline rupture. E&P customers are principally integrated oil and natural gas exploration and production companies operating in the areas that we serve. E&P revenue is therefore driven by vertical and horizontal drilling, hydraulic fracturing, production and clean-up activity; it is complemented by other services including closed loop collection systems and the sale of recovered products. E&P activity varies across market areas which are tied to the natural resource basins in which the drilling activity occurs and reflects the regulatory environment, pricing and disposal alternatives available in any given market.
Our customers are generally responsible for the delivery of their waste streams to us. We receive flowback water, produced water and other drilling and production wastes at our facilities in vacuum trucks, dump trucks or containers deposited by roll-off trucks. In certain markets we offer bins and rails systems that capture and separate liquid and solid oilfield waste streams at our customers well sites and deliver the drilling and production wastes to our facilities. Waste generated by offshore drilling is delivered by supply vessel from the drilling rig to one of our transfer stations, where the waste is then transferred to our network of barges for transport to our treatment facilities.
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As of December 31, 2012, we provided E&P waste treatment, recovery and/or disposal services from a network of five E&P waste landfills, 12 MSW landfills that also received E&P waste during 2012, 20 E&P liquid waste injection wells, 15 E&P waste treatment and recovery facilities and 19 oil recovery facilities. Treatment processes vary by site and regulatory jurisdiction. At certain treatment facilities, loads of flowback and produced water and other drilling and production wastes delivered by our customers are sampled, assessed and tested by third parties according to state regulations. Solids contained in a waste load are deposited into a land treatment cell where liquids are removed from the solids and are sent through an oil recovery system before being injected into saltwater disposal injection wells or placed in evaporation cells that utilize specialized equipment to accelerate evaporation of liquids. In certain locations, fresh water is then added to the remaining solids in the cell to wash the solids several times to remove contaminants, including oil and grease, chlorides and other contaminants, to ensure the solids meet specific regulatory criteria that, in certain areas, are administered by third-party labs and submitted to the regulatory authorities.
After the washing or treatment process, the treated solids are designated reuse materials, and are no longer considered a waste product by state regulation. These materials are dried, removed from the treatment cells, stockpiled and compacted in designated stockpile areas on site and at certain locations are available for use as feedstock for roadbase. At certain of our facilities, during the treatment process we reclaim oil for resale and we treat and recycle liquids for re-use in our operations or for sale to third parties as fresh or brine water.
COMPETITION
The U.S. municipal solid waste services industry is highly competitive and requires substantial labor and capital resources. Besides Waste Connections, the industry includes: two national, publicly-held solid waste companies Waste Management, Inc. and Republic Services, Inc.; several regional, publicly-held and privately-owned companies; and several thousand small, local, privately-owned companies. Certain of the markets in which we compete or will likely compete are served by one or more large, national solid waste companies, as well as by numerous regional and local solid waste companies of varying sizes and resources, some of which we believe have accumulated substantial goodwill in their markets. We compete for collection, transfer and disposal volume based primarily on the price and, to a lesser extent, quality of our services. We also compete with operators of alternative disposal facilities, including incinerators, and with counties, municipalities and solid waste districts that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees and similar charges, tax revenues and tax-exempt financing.
From time to time, competitors may reduce the price of their services in an effort to expand their market shares or service areas or to win competitively bid municipal contracts. These practices may cause us to reduce the price of our services or, if we elect not to do so, to lose business. We provide a significant amount of our residential, commercial and industrial collection services under exclusive franchise and municipal contracts and G Certificates. Exclusive franchises and municipal contracts may be subject to periodic competitive bidding.
The U.S. municipal solid waste services industry has undergone significant consolidation, and we encounter competition in our efforts to acquire collection operations, transfer stations and landfills. We generally compete for acquisition candidates with publicly-owned regional and national waste management companies. Accordingly, it may become uneconomical for us to make further acquisitions or we may be unable to locate or acquire suitable acquisition candidates at price levels and on terms and conditions that we consider appropriate, particularly in markets we do not already serve. Competition in the disposal industry is also affected by the increasing national emphasis on recycling and other waste reduction programs, which may reduce the volume of waste deposited in landfills.
Competition for E&P waste comes primarily from smaller regional companies that utilize a variety of disposal methods and generally serve specific geographic markets. We also compete with publicly-held companies such as Waste Management, Inc., Clean Harbors, Inc. and Newpark Resources, Inc. in certain markets. In addition, customers in many markets have the option of using internal disposal methods or outsourcing to another third party disposal company. The principal competitive factors in this business include: gaining customer approval of treatment and disposal facilities; location of facilities in relation to customer activity; reputation; reliability of services; track record of environmental compliance; ability to accept multiple waste types at a single facility; and price.
The intermodal services industry is also highly competitive. We compete against other intermodal rail services companies, trucking companies and railroads, many of which have greater financial and other resources than we do. Competition is based primarily on price, reliability and quality of service.
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REGULATION
Introduction
Our operations, including landfills, solid waste transportation, transfer stations, intermodal operations, vehicle maintenance shops, fueling facilities, and oilfield waste treatment, recovery and disposal operations are all subject to extensive and evolving federal, state and local environmental, health, and safety laws and regulations, the enforcement of which has become increasingly stringent. These laws and regulations may, among other things, require the acquisition of permits for regulated activities; govern the amounts and types of substances that may be released into the environment in connection with our operations; restrict the way we handle or dispose of wastes; limit or prohibit our or our customers activities in sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered or threatened species; require investigatory and remedial actions to mitigate pollution conditions caused by our operations or attributable to former operations; and impose specific standards addressing worker protections. Compliance is often costly or difficult, and the violation of these laws and regulations may result in the denial or revocation of permits, issuance of corrective action orders, assessment of administrative and civil penalties and even criminal prosecution. The environmental regulations that affect us are administered by the Environmental Protection Agency, or the EPA, and numerous other federal, state and local environmental, zoning, health and safety agencies. For example, the WUTC regulates the portion of our collection business in Washington performed under G Certificates.
We currently comply in all material respects with applicable federal, state and local environmental and occupational health and safety laws, permits, orders and regulations. In addition, we attempt to anticipate future regulatory requirements and plan in advance as necessary to comply with them. We do not presently anticipate incurring any material costs to bring our operations into environmental compliance with existing or expected future regulatory requirements, although we can give no assurance that this will not change in the future. It is possible that substantial costs for compliance or penalties for non-compliance may be incurred in the future. It is also possible that other developments, such as the adoption of stricter environmental laws, regulations and enforcement policies, could result in additional costs or liabilities that we cannot currently quantify. Moreover, changes in environmental laws could reduce the demand for our services and adversely impact our business. For example, changes in environmental laws could limit our customers oil and natural gas E&P businesses or encourage our customers to handle and dispose of oil and natural gas E&P wastes in other ways.
A number of the major federal, state and local statutes and regulations that apply to our operations are described generally below. Certain of the statutes described below contain provisions that authorize, under certain circumstances, lawsuits by private citizens to enforce the provisions of the statutes. In addition to penalties, some of those statutes authorize an award of attorneys fees to parties that successfully bring such an action. Enforcement actions under these statutes may include both civil and criminal penalties, as well as injunctive relief in some instances.
The Resource Conservation and Recovery Act of 1976, or RCRA
RCRA regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. RCRA divides solid waste into two groups, hazardous and nonhazardous. Wastes are generally classified as hazardous if they either: (1) are specifically included on a list of hazardous wastes; or (2) exhibit certain characteristics defined as hazardous. Household wastes are specifically designated as nonhazardous. Wastes classified as hazardous under RCRA are subject to much stricter regulation than wastes classified as nonhazardous, and businesses that deal with hazardous waste are subject to regulatory obligations in addition to those imposed on handlers of nonhazardous waste. From time to time, our intermodal services business transports hazardous materials in compliance with federal transportation requirements. Some of our ancillary operations, such as vehicle maintenance operations, may generate hazardous wastes. We manage these wastes in substantial compliance with applicable laws.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid waste landfills. The Subtitle D Regulations, which generally became effective in October 1993, include location restrictions, facility design standards, operating criteria, closure and post-closure requirements, financial assurance requirements, groundwater monitoring requirements, groundwater remediation standards and corrective action requirements. In addition, the Subtitle D Regulations require that new landfill sites meet more stringent liner design criteria (typically, composite soil and synthetic liners or two or more synthetic liners) intended to keep leachate out of groundwater and have extensive collection systems to carry away leachate for treatment prior to disposal. Groundwater monitoring wells must also be installed at virtually all landfills to monitor groundwater quality and, indirectly, the effectiveness of the leachate collection system. The Subtitle D Regulations also require, where certain regulatory thresholds are exceeded, that facility owners or operators control emissions of methane gas generated at landfills in a manner intended to protect human health and the environment. Each state is required to revise its landfill regulations to meet these requirements or such requirements will be automatically imposed by the EPA on landfill owners and operators in that state. Each state is also required to adopt and implement a permit program or other appropriate system to ensure that landfills in the state comply with the Subtitle D Regulations. Various states in which we operate or may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations.
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Most E&P waste is exempt from stringent regulation as a hazardous waste under RCRA. None of our oilfield waste recycling, treatment, and disposal facilities are currently permitted to accept hazardous wastes for disposal, and we take precautions to help ensure that hazardous wastes do not enter or are not disposed of at these facilities. Some wastes handled by us that currently are exempt from treatment as hazardous wastes may in the future be designated as hazardous wastes under RCRA or other applicable statutes. For example, in September 2010, a nonprofit environmental group filed a petition with the EPA requesting reconsideration of the RCRA E&P waste exemption. To date, the EPA has not taken any action on the petition. If the RCRA E&P waste exemption is repealed or modified, we could become subject to more rigorous and costly operating and disposal requirements.
We are required to obtain permits for the land treatment and disposal of E&P waste as part of our operations. The construction, operation and closure of E&P waste land treatment and disposal operations are generally regulated at the state level. These regulations vary widely from state to state. State permits can restrict size and location of disposal operations, impose limits on the types and amount of waste a facility may receive and the overall capacity of a waste disposal facility. States may add additional restrictions on the operations of a disposal facility when a permit is renewed or amended. As these regulations change, our permit requirements could become more stringent and may require material expenditures at our facilities or impose significant restraints or financial assurances on our operations.
In the course of our E&P waste operations, some of our equipment may be exposed to naturally occurring radiation associated with oil and gas deposits, and this exposure may result in the generation of wastes containing naturally occurring radioactive materials, or NORM. NORM wastes exhibiting trace levels of naturally occurring radiation in excess of established state standards are subject to special handling and disposal requirements, and any storage vessels, piping and work area affected by NORM may be subject to remediation or restoration requirements. It is possible that we may incur costs or liabilities associated with elevated levels of NORM.
RCRA also regulates underground storage of petroleum and other regulated materials. RCRA requires registration, compliance with technical standards for tanks, release detection and reporting, and corrective action, among other things. Certain of our facilities and operations are subject to these requirements.
The Federal Water Pollution Control Act of 1972, or the Clean Water Act
The Clean Water Act regulates the discharge of pollutants from a variety of sources, including solid waste disposal sites, transfer stations, and oilfield waste facilities, into waters of the United States. If run-off from our owned or operated transfer stations or oilfield waste facilities or run-off or collected leachate from our owned or operated landfills is discharged into streams, rivers or other surface waters, the Clean Water Act would require us to apply for and obtain a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in such discharge. Also, virtually all landfills are required to comply with the EPAs storm water regulations issued in November 1990, which are designed to prevent contaminated landfill storm water run-off from flowing into surface waters. Spill prevention, control and countermeasure requirements of federal laws require appropriate containment berms and similar structures to help prevent the contamination of regulated waters in the event of a hydrocarbon storage tank spill, rupture or leak. We believe that our facilities comply in all material respects with the Clean Water Act requirements. Various states in which we operate or may operate in the future have been delegated authority to implement the Clean Water Act permitting requirements, and some of these states have adopted regulations that are more stringent than the federal Clean Water Act requirements. For example, states often require permits for discharges that may impact ground water as well as surface water. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and analogous state laws and regulations. We believe that compliance with existing permits and regulatory requirements under the Clean Water Act and state counterparts will not have a material adverse effect on our business. Future changes to permits or regulatory requirements under the Clean Water Act, however, could adversely affect our business.
Safe Drinking Water Act (SDWA)
Our E&P underground injection operations are subject to the SDWA, as well as analogous state laws and regulations. Under the SDWA, the EPA established the underground injection control or UIC program, which includes requirements for permitting, testing, monitoring, record keeping, and reporting of injection well activities, as well as a prohibition against the migration of fluid containing any contaminant into underground sources of drinking water. State regulations require us to obtain a permit from the applicable regulatory agencies to operate our underground injection wells. We believe that we have obtained the necessary permits from these agencies for our underground injection wells and that we are in substantial compliance with permit conditions and state rules. Although we monitor the injection process of our wells, any leakage from the subsurface portions of the injection wells could cause degradation of fresh groundwater resources, potentially resulting in suspension of our UIC permit, issuance of fines and penalties from governmental agencies, incurrence of expenditures for remediation of the affected resource and imposition of liability by third parties for property damages and personal injuries. In addition, our sales of residual crude oil collected as part of the saltwater injection process could impose liability on us in the event that the entity to which the oil was transferred fails to manage and, as necessary, dispose of residual crude oil in accordance with applicable environmental and occupational health and safety laws.
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Oil Pollution Act of 1990 (OPA)
The OPA, as amended, establishes strict liability for owners and operators of facilities that are the site of a release of oil into the waters of the U.S. The OPA also imposes ongoing requirements on owners or operators of facilities that handle certain quantities of oil, including the preparation of oil spill response plans and proof of financial responsibility to cover environmental clean-up and restoration costs that could be incurred in conjunction with an oil spill. We handle oil at many of our facilities, and if a release of oil into the waters of the U.S. occurred at one of our facilities, we could be liable for cleanup costs and damages under the OPA.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA
CERCLA established a regulatory and remedial program intended to provide for the investigation and cleanup of facilities where or from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLAs primary mechanism for remedying such problems is to impose strict joint and several liability for cleanup of facilities on current owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, any person who arranges for the transportation, disposal or treatment of the hazardous substances, and the transporters who select the disposal and treatment facilities, regardless of the care exercised by such persons. CERCLA also imposes liability for the cost of evaluating and remedying any damage to natural resources. The costs of CERCLA investigation and cleanup can be very substantial. Liability under CERCLA does not depend on the existence or disposal of hazardous waste as defined by RCRA; it can also be based on the release of even very small amounts of the more than 700 hazardous substances listed by the EPA, many of which can be found in household waste. In addition, the definition of hazardous substances in CERCLA incorporates substances designated as hazardous or toxic under the federal Clean Water Act, Clear Air Act and Toxic Substances Control Act.
We may handle hazardous substances within the meaning of CERCLA, or similar state statutes, in the course of our ordinary operations and, as a result, may be jointly and severally liable under CERCLA for all or part of the costs required to clean up sites at which these hazardous substances have been released into the environment. If we were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold us, or any other generator, transporter or the owner or operator of the contaminated facility, responsible for all investigative and remedial costs, even if others were also liable. Under such laws, we could be required to remove previously disposed substances and wastes (including substances disposed of or released by prior owners or operators) or remediate contaminated property (including groundwater contamination, whether from prior owners or operators or other historic activities or spills). These laws may also require us to conduct natural resource damage assessments and pay penalties for such damages. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances or other pollutants into the environment. These laws and regulations may also expose us to liability for our acts that were in compliance with applicable laws at the time the acts were performed.
CERCLA also authorizes the imposition of a lien in favor of the United States on all real property subject to, or affected by, a remedial action for all costs for which a party is liable. Subject to certain procedural restrictions, CERCLA gives a responsible party the right to bring a contribution action against other responsible parties for their allocable shares of investigative and remedial costs. Our ability to obtain reimbursement from others for their allocable shares of such costs would be limited by our ability to find other responsible parties and prove the extent of their responsibility, their financial resources, and other procedural requirements. Various state laws also impose strict joint and several liability for investigation, cleanup and other damages associated with hazardous substance releases.
Petroleum hydrocarbons and other substances and wastes arising from E&P-related activities have been disposed of or released on or under many of our sites. At some of our facilities, we have conducted and continue to conduct monitoring or remediation of known soil and groundwater contamination, and we will continue to perform such monitoring and remediation of known contamination, including any post remediation groundwater monitoring that may be required, until the appropriate regulatory standards have been achieved. These monitoring and remediation efforts are usually overseen by state environmental regulatory agencies.
The Clean Air Act
The Clean Air Act, or CAA, generally, through state implementation of federal requirements, regulates emissions of air pollutants from emissions sources, including certain landfills and oilfield waste facilities, based on factors such as the date of the construction and tons per year of emissions of regulated pollutants. The CAA and analogous state laws require permits for and impose other restrictions on facilities that have the potential to emit substances into the atmosphere above certain specified quantities or in a manner that could adversely affect environmental quality. Failure to obtain a permit or to comply with permit requirements could result in the imposition of substantial administrative, civil and even criminal penalties.
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Larger landfills and landfills located in areas where the ambient air does not meet certain requirements of the CAA may be subject to even more extensive air pollution controls and emission limitations. In addition, the EPA has issued standards regulating the disposal of asbestos-containing materials. Air permits may be required to construct gas collection and flaring systems and composting operations, and operating permits may be required, depending on the potential air emissions. State air regulatory programs may implement the federal requirements but may impose additional restrictions. For example, some state air programs uniquely regulate odor and the emission of toxic air pollutants.
We do not believe that any of our oilfield waste operations are subject to CAA permitting or regulatory requirements for major sources of air emissions, but some of our facilities are subject to state minor source air permitting requirements and other state regulatory requirements for air emissions. In addition, our customers operations may be subject to existing and future CAA permitting and regulatory requirements that could have a material effect on their operations. For example, on April 17, 2012, the EPA approved new CAA rules requiring additional emissions controls and practices for oil and natural gas production wells, including wells that are the subject of hydraulic fracturing operations. These rules may increase the costs to our customers of developing and producing hydrocarbons, and as a result, may have an indirect and adverse effect on the amount of oilfield waste delivered to our facilities by our customers.
The EPA recently modified, or is in the process of modifying, standards promulgated under the CAA in a manner which could increase our compliance costs. For example, the EPA has recently modified or discussed modifying boiler emission standards, national ambient air quality standards applicable to particulate matter, carbon monoxide, and oxides of sulfur and nitrogen, and other standards to make them more stringent.
Climate Change Laws and Regulations
On September 27, 2006, California enacted AB 32, the Global Warming Solutions Act of 2006, which established the first statewide program in the United States to limit greenhouse gas, or GHG, emissions and impose penalties for non-compliance. Because landfill and collection operations emit GHGs, our operations in California are subject to regulations issued under AB 32. The California Air Resources Board, or CARB, has taken, and plans to take, various actions to implement AB 32, including the approval in December 2008 of an AB 32 Scoping Plan summarizing the main GHG-reduction strategies for California. CARB approved a landfill methane control measure, which became effective in June 2010, and this measure requires that certain uncontrolled landfills install gas collection and control systems and also sets operating standards for gas collection and control systems. In addition, CARB approved in December 2010 and revised in October 2011 regulations implementing a GHG cap-and-trade program, which began imposing compliance obligations in January 2013.
State climate change laws could also affect our non-California operations. For example, the Western Climate Initiative, which once included seven states and four Canadian provinces, has developed GHG reduction strategies, among them a GHG cap-and-trade program.
The EPAs regulation of GHG emissions under its CAA authority may also impact our operations. In 2009, the EPA made an endangerment finding allowing GHGs to be regulated under the CAA. The CAA requires stationary sources of air pollution to obtain New Source Review, or NSR, permits prior to construction and, in some cases, Title V operating permits. Pursuant to the EPAs rulemakings and interpretations, certain Title V and NSR Prevention of Significant Deterioration, or PSD, permits issued on or after January 2, 2011, must address GHG emissions. As a result, new or modified emissions sources may be required to install Best Available Control Technology to limit GHG emissions. The EPA may in the future promulgate CAA New Source Performance Standards, or NSPS, applicable to landfills. The EPAs Mandatory Greenhouse Gas Reporting Rule sets monitoring, recordkeeping, and reporting requirements applicable to certain landfills and other entities.
Regulation of GHG emissions from oil and gas E&P operations may also increase the costs to our customers of developing and producing hydrocarbons, and as a result, may have an indirect and adverse effect on the amount of oilfield waste delivered to our facilities by our customers. For example, a group of state attorneys general petitioned EPA in December 2012 requesting that EPA set methane emissions standard for the oil and gas sector pursuant to its CAA authority.
These statutes and regulations increase the costs of our operations, and future climate change statutes and regulations may have an impact as well. If we are unable to pass such higher costs through to our customers, our business, financial condition and operating results could be adversely affected.
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The Occupational Safety and Health Act of 1970, or the OSH Act
The OSH Act is administered by the Occupational Safety and Health Administration, or OSHA, and many state agencies whose programs have been approved by OSHA. The OSH Act establishes employer responsibilities for worker health and safety, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious injury, comply with adopted worker protection standards, maintain certain records, provide workers with required disclosures and implement certain health and safety training programs. Various OSHA standards may apply to our operations, including standards concerning notices of hazards, safety in excavation and demolition work, the handling of asbestos and asbestos-containing materials and worker training and emergency response programs.
Hydraulic Fracturing Regulation
We do not conduct hydraulic fracturing operations, but we do provide treatment, recovery and disposal services with respect to the fluids used and wastes generated by our customers in such operations, which are often necessary to drill and complete new wells and maintain existing wells. Recently, there has been increased public concern regarding the alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate federal legislation or legislation at the state and local government levels that would increase the regulatory burden imposed on hydraulic fracturing. Bills and regulations have been proposed and/or adopted at the federal, state and local levels that would regulate, restrict or prohibit hydraulic fracturing operations or require the reporting and public disclosure of chemicals used in the hydraulic fracturing process. Additionally, the EPA is currently studying the environmental impacts of hydraulic fracturing, including the impacts resulting from the treatment and disposal of E&P wastes associated with the hydraulic fracturing process. This study, expected to be completed in 2014, could result in increased regulation of hydraulic fracturing and new rules regarding the treatment and disposal of E&P wastes associated with fracturing.
Presently, hydraulic fracturing is regulated primarily at the state level, typically by state oil and natural gas commissions and similar agencies. Several states, including Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming, where we conduct business, have adopted or proposed laws and/or regulations to require oil and natural gas operators to disclose information concerning their operations, which could result in increased public scrutiny.
If new federal, state or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities and make it more difficult or costly for our customers to perform fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas exploration and production activities by our customers and, therefore, adversely affect our business. Such laws or regulations could also materially increase our costs of compliance.
Flow Control/Interstate Waste Restrictions
Certain permits and approvals and state and local regulations may limit a landfills or transfer stations ability to accept waste that originates from specified geographic areas, import out-of-state waste or wastes originating outside the local jurisdictions or otherwise discriminate against non-local waste. These restrictions, generally known as flow control restrictions, are controversial, and some courts have held that some state and local flow control schemes violate constitutional limits on state or local regulation of interstate commerce, while other state and local flow control schemes do not. Certain state and local jurisdictions may seek to enforce flow control restrictions through local legislation or contractually. These actions could limit or prohibit the importation of wastes originating outside of local jurisdictions or direct that wastes be handled at specified facilities. Such actions could adversely affect our transfer stations and landfills. These restrictions could also result in higher disposal costs for our collection operations. If we were unable to pass such higher costs through to our customers, our business, financial condition and operating results could be adversely affected.
State and Local Regulations
Each state in which we now operate or may operate in the future has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, oilfield waste, occupational safety and health, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of landfills and transfer stations. State and local permits and approval for these operations may be required and may be subject to periodic renewal, modification or revocation by the issuing agencies. In addition, many states have adopted statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation and cleanup of contaminated sites and liability for costs and damages associated with such sites, and some provide for the imposition of liens on property owned by responsible parties.
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Many municipalities also have enacted or could enact ordinances, local laws and regulations affecting our operations. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct or restrict the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and bidding for such franchises, and bans or other restrictions on the movement of solid wastes into a municipality.
Various jurisdictions have enacted fitness regulations which allow agencies with authority over waste service contracts or permits to deny or revoke such contracts or permits based on the compliance history of the provider. Some jurisdictions also consider the compliance history of the parent, subsidiaries, or affiliated companies of the provider in making these decisions.
Permits or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period and/or the types of waste that may be accepted at the landfill. Once an operating permit for a landfill is obtained, it generally must be renewed periodically.
There has been an increasing trend at the state and local level to mandate and encourage waste reduction at the source and waste recycling, and to prohibit or restrict the disposal in landfills of certain types of solid wastes, such as yard wastes, leaves, tires, computers and other electronic equipment waste, and painted wood and other construction and demolition debris. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could prevent us from operating our facilities at their full capacity.
Some state and local authorities enforce certain federal requirements in addition to state and local laws and regulations. For example, in some states, local or state authorities enforce requirements of RCRA, the OSH Act and parts of the Clean Air Act and the Clean Water Act instead of the EPA or OSHA, as applicable, and in some states such laws are enforced jointly by state or local and federal authorities.
E&P waste treatment, recovery and disposal operations are also regulated at the state level. For example, in Louisiana, the Louisiana Department of Natural Resources, or LDNR is responsible for regulating and permitting all oil and natural gas activities in the state, including E&P waste treatment and disposal operations, such as injection wells, land treatment and disposal facilities and transfer stations. As an example of the impact state regulations can have, in November 2009, the LDNR amended its regulations allowing operators to reuse certain E&P waste in hydraulic fracturing operations one time before the operators must dispose of the waste, and on June 20, 2010, the LDNR amended its regulations to allow operators to reuse E&P waste from hydraulic fracturing as many times as reasonably feasible. This regulatory action allows operators to, in some cases, forego sending their E&P waste to commercial disposal facilities such as ours, directly impacting our operations in Louisiana. State environmental laws and regulations require that we obtain permits and authorizations prior to the development and operation of E&P waste treatment and storage facilities and in connection with the disposal and transportation of certain types of waste. The applicable regulatory agencies strictly monitor production and disposal practices at all of our facilities. As part of our permitting process, we participate in annual monitoring, internal testing and third-party testing. A breach of such laws or regulations may result in suspension or revocation of necessary permits and authorizations, civil liability and imposition of fines and penalties. Moreover, if we experience a delay in obtaining, are unable to obtain, or suffer the revocation of required permits, we may be unable to serve our customers, our operations may be interrupted, and our growth and revenue may be limited.
Public Utility Regulation
In some states, public authorities regulate the rates that landfill operators may charge. The adoption of rate regulation or the reduction of current rates in states in which we own or operate landfills could adversely affect our business, financial condition and operating results.
Solid waste collection services in all unincorporated areas of Washington and in electing municipalities in Washington are provided under G Certificates awarded by the WUTC. In association with the regulation of solid waste collection service levels in these areas, the WUTC also reviews and approves rates for regulated solid waste collection and transportation service.
RISK MANAGEMENT, INSURANCE AND FINANCIAL SURETY BONDS
Risk Management
We maintain environmental and other risk management programs that we believe are appropriate for our business. Our environmental risk management program includes evaluating existing facilities and potential acquisitions for environmental law compliance. We do not presently expect environmental compliance costs to increase materially above current levels, but we cannot predict whether future acquisitions will cause such costs to increase. We also maintain a worker safety program that encourages safe practices in the workplace. Operating practices at our operations emphasize minimizing the possibility of environmental contamination and litigation. Our facilities comply in all material respects with applicable federal and state regulations.
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Insurance
We have a high deductible insurance program for automobile liability, property, general liability, workers compensation, employers liability claims, employee group health insurance and employment practices liability. Our loss exposure for insurance claims is generally limited to per incident deductibles. Losses in excess of deductible levels are insured subject to policy limits. Under our current insurance program, we carry per incident deductibles of $2 million for automobile liability claims, $1.5 million for workers compensation and employers liability claims, $1 million ($2 million aggregate) for general liability claims, $250,000 for employee group health insurance and employment practices liability, and primarily $100,000 for property claims. Additionally, we have umbrella policies with insurance companies for automobile liability, general liability and employers liability. Since workers compensation is a statutory coverage limited by the various state jurisdictions, the umbrella coverage is not applicable. Also, our umbrella policy does not cover property claims, as the insurance limits for these claims are in accordance with the replacement values of the insured property. From time to time, actions filed against us include claims for punitive damages, which are generally excluded from coverage under our liability insurance policies.
We carry environmental protection insurance which has a $250,000 per incident deductible. This insurance policy covers all owned or operated landfills, certain transfer stations and other facilities, subject to the policy terms and conditions. Our policy provides insurance for new pollution conditions that originate after the commencement of our coverage. Pollution conditions existing prior to the commencement of our coverage, if found, could be excluded from coverage.
Financial Surety Bonds
We use financial surety bonds for a variety of corporate guarantees. The financial surety bonds are primarily used for guaranteeing municipal contract performance and providing financial assurances to meet asset closure and retirement requirements under certain environmental regulations. In addition to surety bonds, such guarantees and obligations may also be met through alternative financial assurance instruments, including insurance, letters of credit and restricted asset deposits. At December 31, 2012 and 2011, we had provided customers and various regulatory authorities with surety bonds in the aggregate amount of approximately $277.8 million and $243.3 million, respectively, to secure our asset closure and retirement requirements and $83.7 million and $68.7 million, respectively, to secure performance under collection contracts and landfill operating agreements.
We own a 9.9% interest in a company that, among other activities, issues financial surety bonds to secure landfill final capping, closure and post-closure obligations for companies operating in the solid waste sector, including a portion of our own.
EMPLOYEES
At December 31, 2012, we employed 6,606 employees, of which 847, or approximately 12.8% of our workforce, were employed under collective bargaining agreements, primarily with the Teamsters Union. These employees are subject to labor agreements that are renegotiated periodically. We have 13 collective bargaining agreements covering 471 employees that have expired or are set to expire during 2013. We do not expect any significant disruption in our overall business in 2013 as a result of labor negotiations, employee strikes or organizational efforts.
SEASONALITY
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. This seasonality reflects (a) the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during winter months in the U.S., and (b) reduced E&P activity during harsh weather conditions, with expected fluctuation between our highest and lowest quarters of approximately 10% to 13%. 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 municipal solid waste, resulting in higher disposal costs, which are calculated on a per ton basis.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning our executive officers as of March 1, 2013:
NAME |
AGE | POSITIONS | ||||
Ronald J. Mittelstaedt (1) |
49 | Chief Executive Officer and Chairman | ||||
Steven F. Bouck |
55 | President | ||||
Darrell W. Chambliss |
48 | Executive Vice President and Chief Operating Officer | ||||
Worthing F. Jackman |
48 | Executive Vice President and Chief Financial Officer | ||||
David G. Eddie |
43 | Senior Vice President and Chief Accounting Officer | ||||
David M. Hall |
55 | Senior Vice President Sales and Marketing | ||||
James M. Little |
51 | Senior Vice President Engineering and Disposal | ||||
Matthew S. Black |
40 | Vice President and Chief Tax Officer | ||||
Eric O. Hansen |
48 | Vice President Chief Information Officer | ||||
Scott I. Schreiber |
56 | Vice President Disposal Operations | ||||
Patrick J. Shea |
42 | Vice President, General Counsel and Secretary | ||||
Gregory Thibodeaux |
46 | Vice President Maintenance and Fleet Management | ||||
Mary Anne Whitney |
49 | Vice President Finance | ||||
Richard K. Wojahn |
55 | Vice President Business Development |
(1) | Member of the Executive Committee of the Board of Directors. |
Ronald J. Mittelstaedt has been Chief Executive Officer and a director of Waste Connections since the company was formed, and was elected Chairman in January 1998. Mr. Mittelstaedt also served as President from Waste Connections formation through August 2004. Mr. Mittelstaedt has more than 24 years of experience in the solid waste industry. Mr. Mittelstaedt holds a B.A. degree in Business Economics with a finance emphasis from the University of California at Santa Barbara.
Steven F. Bouck has been President of Waste Connections since September 1, 2004. From February 1998 to that date, Mr. Bouck served as Executive Vice President and Chief Financial Officer. Mr. Bouck held various positions with First Analysis Corporation from 1986 to 1998, focusing on financial services to the environmental industry. Mr. Bouck holds B.S. and M.S. degrees in Mechanical Engineering from Rensselaer Polytechnic Institute, and an M.B.A. in Finance from the Wharton School.
Darrell W. Chambliss has been Executive Vice President and Chief Operating Officer of Waste Connections since October 2003. From October 1, 1997, to that date, Mr. Chambliss served as Executive Vice President Operations. Mr. Chambliss has more than 23 years of experience in the solid waste industry. Mr. Chambliss holds a B.S. degree in Business Administration from the University of Arkansas.
Worthing F. Jackman has been Executive Vice President and Chief Financial Officer of Waste Connections since September 1, 2004. From April 2003 to that date, Mr. Jackman served as Vice President Finance and Investor Relations. Mr. Jackman held various investment banking positions with Alex. Brown & Sons, now Deutsche Bank Securities, Inc., from 1991 through 2003, including most recently as a Managing Director within the Global Industrial & Environmental Services Group. In that capacity, he provided capital markets and strategic advisory services to companies in a variety of sectors, including solid waste services. Mr. Jackman serves as a director for Quanta Services, Inc. He holds a B.S. degree in Finance from Syracuse University and an M.B.A. from the Harvard Business School.
David G. Eddie has been Senior Vice President and Chief Accounting Officer of Waste Connections since January 2011. From February 2010 to that date, Mr. Eddie served as Vice President Chief Accounting Officer. From March 2004 to February 2010, Mr. Eddie served as Vice President Corporate Controller. From April 2003 to February 2004, Mr. Eddie served as Vice President Public Reporting and Compliance. From May 2001 to March 2003, Mr. Eddie served as Director of Finance. Mr. Eddie served as Corporate Controller for International Fibercom, Inc. from April 2000 to May 2001. From September 1999 to April 2000, Mr. Eddie served as Waste Connections Manager of Financial Reporting. From September 1994 to September 1999, Mr. Eddie held various positions, including Audit Manager, for PricewaterhouseCoopers LLP. Mr. Eddie is a Certified Public Accountant and holds a B.S. degree in Accounting from California State University, Sacramento.
David M. Hall has been Senior Vice President Sales and Marketing of Waste Connections since October 2005. From August 1998 to that date, Mr. Hall served as Vice President Business Development. Mr. Hall has more than 25 years of experience in the solid waste industry with extensive operating and marketing experience in the Western U.S. Mr. Hall received a B.S. degree in Management and Marketing from Missouri State University.
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James M. Little has been Senior Vice President Engineering and Disposal of Waste Connections since February 2009. From September 1999 to that date, Mr. Little served as Vice President Engineering. Mr. Little held various management positions with Waste Management, Inc. (formerly USA Waste Services, Inc., which acquired Waste Management, Inc. and Chambers Development Co. Inc.) from April 1990 to September 1999, including Regional Environmental Manager and Regional Landfill Manager, and most recently Division Manager in Ohio, where he was responsible for the operations of ten operating companies in the Northern Ohio area. Mr. Little is a certified professional geologist and holds a B.S. degree in Geology from Slippery Rock University.
Matthew S. Black has been Vice President and Chief Tax Officer of Waste Connections since March 2012. From December 2006 to that date, Mr. Black served as Executive Director of Taxes. Mr. Black served as Tax Director for The McClatchy Company from April 2001 to November 2006, and served as Tax Manager from December 2000 to March 2001. From January 1994 to November 2000, Mr. Black held various positions, including Tax Manager, for PricewaterhouseCoopers LLP. Mr. Black is a Certified Public Accountant and holds a B.S. degree in Accounting and M.S. degree in Taxation from California State University, Sacramento.
Eric O. Hansen has been Vice President Chief Information Officer of Waste Connections since July 2004. From January 2001 to that date, Mr. Hansen served as Vice President Information Technology. From April 1998 to December 2000, Mr. Hansen served as Director of Management Information Systems. Mr. Hansen holds a B.S. degree from Portland State University.
Scott I. Schreiber has been Vice President Disposal Operations of Waste Connections since February 2009. From October 1998 to that date, Mr. Schreiber served as Director of Landfill Operations. Mr. Schreiber has more than 33 years of experience in the solid waste industry. From September 1993 to September 1998, Mr. Schreiber served as corporate Director of Landfill Development and corporate Director of Environmental Compliance for Allied Waste Industries, Inc. From August 1988 to September 1993, Mr. Schreiber served as Regional Engineer (Continental Region) and corporate Director of Landfill Development for Laidlaw Waste Systems Inc. From June 1979 to August 1988, Mr. Schreiber held several managerial and technical positions in the solid waste and environmental industry. Mr. Schreiber holds a B.S. degree in Chemistry from the University of Wisconsin at Parkside.
Patrick J. Shea has been Vice President, General Counsel and Secretary of Waste Connections since February 2009. From February 2008 to that date, Mr. Shea served as General Counsel and Secretary. He served as Corporate Counsel from February 2004 to February 2008. Mr. Shea practiced corporate and securities law with Brobeck, Phleger & Harrison LLP in San Francisco from 1999 to 2003 and Winthrop, Stimson, Putnam & Roberts (now Pillsbury Winthrop Shaw Pittman LLP) in New York and London from 1995 to 1999. Mr. Shea holds a B.S. degree in Managerial Economics from the University of California at Davis and a J.D. degree from Cornell University.
Gregory Thibodeaux has been Vice President Maintenance and Fleet Management of Waste Connections since January 2011. From January 2000 to that date, Mr. Thibodeaux served as Director of Maintenance. Mr. Thibodeaux has more than 27 years of experience in the solid waste industry having held various management positions with Browning Ferris Industries, Sanifill, and USA Waste Services, Inc. Before coming to Waste Connections, Mr. Thibodeaux served as corporate Director of Maintenance for Texas Disposal Systems.
Mary Anne Whitney has been Vice PresidentFinance of Waste Connections since March 2012. From November 2006 to that date, Ms. Whitney served as Director of Finance. Ms. Whitney held various finance positions for Wheelabrator Technologies from 1990 to 2001. Ms. Whitney holds a B.A. degree in Economics from Georgetown University and an M.B.A. in Finance from New York University Stern School of Business.
Richard K. Wojahn has been Vice President Business Development of Waste Connections since February 2009. From September 2005 to that date, Mr. Wojahn served as Director of Business Development. Mr. Wojahn served as Vice President of Operations for Mountain Jack Environmental Services, Inc. (which was acquired by Waste Connections in September 2005) from January 2004 to September 2005. Mr. Wojahn has more than 31 years of experience in the solid waste industry having held various management positions with Waste Management, Inc. and Allied Waste Industries, Inc. Mr. Wojahn attended Western Illinois University.
AVAILABLE INFORMATION
Our corporate website address is http://www.wasteconnections.com. The information on our website is not incorporated by reference in this annual report on Form 10-K. We make our reports on Forms 10-K, 10-Q and 8-K and any amendments to such reports available on our website free of charge as soon as reasonably practicable after we file them with or furnish them to the Securities and Exchange Commission, or SEC. The public may read and copy any materials we file with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC, 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
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Certain statements contained in this Annual Report on Form 10-K are forward-looking in nature, including statements related to our ability to obtain additional exclusive arrangements, our ability to generate internal growth, our ability to generate free cash flow and reduce our leverage, our ability to provide adequate cash to fund our operating activities, our ability to draw on our credit facility or raise additional capital, the impact of global economic conditions on our volume, business and results of operations, the effects of landfill special waste projects on volume results, the effects of seasonality on our business and results of operations, demand for recyclable commodities and recyclable commodity pricing, our ability to grow through acquisitions and our expectations with respect to the impact of acquisitions on our expected revenues and expenses, our ability to expand permitted capacity at landfills we own or operate, the impact of the relocation of our corporate headquarters to The Woodlands, Texas, our expectations with respect to capital expenditures, and our expectations with respect to the purchase of fuel and fuel prices. These statements can be identified by the use of forward-looking terminology such as believes, expects, may, will, should, or anticipates, or the negative thereof or comparable terminology, or by discussions of strategy.
Our business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, those listed below and elsewhere in this report. There may be additional risks of which we are not presently aware or that we currently believe are immaterial which could have an adverse impact on our business. We make no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.
Risks Related to Our Business
Our acquisitions may not be successful, which may reduce the anticipated benefit from acquired businesses.
Even if we are able to make acquisitions on advantageous terms and are able to integrate them successfully into our operations and organization, some acquisitions may not fulfill our anticipated financial or strategic objectives in a given market due to factors that we cannot control, such as market position, competition, customer base, loss of key employees, third party legal challenges or governmental actions. For example, see the discussion regarding the Solano County, California Measure E/Landfill Expansion Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report. In addition, we may change our strategy with respect to a market or acquired businesses and decide to sell such operations at a loss, or keep those operations and recognize an impairment of goodwill and/or intangible assets. Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills. For example, see the discussion regarding the Colonie, New York Landfill Privatization Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report.
A portion of our growth and future financial performance depends on our ability to integrate acquired businesses into our organization and operations.
A component of our growth strategy involves achieving economies of scale and operating efficiencies by growing through acquisitions. We may not achieve these goals unless we effectively combine the operations of acquired businesses with our existing operations. Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills. In addition, we are not always able to control the timing of our acquisitions. Our inability to complete acquisitions within the time frames that we expect may cause our operating results to be less favorable than expected, which could cause our stock price to decline.
Our indebtedness could adversely affect our financial condition and limit our financial flexibility.
As of December 31, 2012, we had approximately $2.2 billion of total indebtedness outstanding, and we may incur additional debt in the future. This amount of indebtedness could:
| increase our vulnerability to general adverse economic and industry conditions or increases in interest rates; |
| limit our ability to obtain additional financing or refinancings at attractive rates; |
| require the dedication of a substantial portion of our cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our growth strategy, working capital, capital expenditures, dividends, share repurchases and other general corporate purposes; |
| limit our flexibility in planning for, or reacting to, changes in our business and the industry; and |
| place us at a competitive disadvantage relative to our competitors with less debt. |
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Further, our outstanding indebtedness is subject to financial and other covenants, which may be affected by changes in economic or business conditions or other events that are beyond our control. If we fail to comply with the covenants under any of our indebtedness, we may be in default under the loan, which may entitle the lenders to accelerate the debt obligations. A default under one of our loans could result in cross-defaults under our other indebtedness. In order to avoid defaulting on our indebtedness, we may be required to take actions such as reducing or delaying capital expenditures, reducing or eliminating dividends or stock repurchases, selling assets, restructuring or refinancing all or part of our existing debt, or seeking additional equity capital, any of which may not be available on terms that are favorable to us, if at all.
Competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit our ability to grow through acquisitions.
Most of our growth since our inception has been through acquisitions. Although we have identified numerous acquisition candidates that we believe are suitable, we may not be able to acquire them at prices or on terms and conditions favorable to us.
Other companies have adopted or may in the future adopt our strategy of acquiring and consolidating regional and local businesses. We expect that increased consolidation in the solid waste services industry will continue to reduce the number of attractive acquisition candidates. Moreover, general economic conditions and the environment for attractive investments may affect the desire of the owners of acquisition candidates to sell their companies. As a result, we may have fewer acquisition opportunities and those opportunities may be on less attractive terms than in the past, which could cause a reduction in our rate of growth from acquisitions.
Our ability to access the capital markets may be severely restricted at a time when we would like, or need, to do so. While we expect we will be able to fund some of our acquisitions with our existing resources, additional financing to pursue additional acquisitions may be required. However, if market conditions deteriorate, we may be unable to secure additional financing or any such additional financing may be available to us on unfavorable terms, which could have an impact on our flexibility to pursue additional acquisition opportunities. In addition, disruptions in the capital and credit markets could adversely affect our ability to draw on our credit facility or raise other capital. Our access to funds under the credit facility is dependent on the ability of the banks that are parties to the facility to meet their funding commitments. Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time.
Our industry is highly competitive and includes larger and better capitalized companies, companies with lower prices, return expectations or other advantages, and governmental service providers, which could adversely affect our ability to compete and our operating results.
Our industry is highly competitive and requires substantial labor and capital resources. Some of the markets in which we compete or will likely compete are served by one or more large, national companies, as well as by regional and local companies of varying sizes and resources, some of which we believe have accumulated substantial goodwill in their markets. Some of our competitors may also be better capitalized than we are, have greater name recognition than we do, or be able to provide or be willing to bid their services at a lower price than we may be willing to offer. In addition, existing and future competitors may develop or offer services or new technologies, new facilities or other advantages. Our inability to compete effectively could hinder our growth or negatively impact our operating results.
In solid waste, we also compete with counties, municipalities and solid waste districts that maintain or could in the future choose to maintain their own waste collection and disposal operations, including through the implementation of flow control ordinances or similar legislation. These operators may have financial advantages over us because of their access to user fees and similar charges, tax revenues and tax-exempt financing. In E&P waste, customers in certain markets may also decide to use internal disposal methods for the treatment and disposal of their waste. To the extent that oil production companies elect not to outsource their E&P waste disposal, our results may be affected.
We may lose contracts through competitive bidding, early termination or governmental action.
We derive a significant portion of our revenues from market areas where we have exclusive arrangements, including franchise agreements, municipal contracts and G Certificates. Many franchise agreements and municipal contracts are for a specified term and are, or will be, subject to competitive bidding in the future. For example, we have approximately 306 contracts, representing approximately 3.7% of our annual revenues, which are set for expiration or automatic renewal on or before December 31, 2013. Although we intend to bid on additional municipal contracts and franchise agreements, we may not be the successful bidder. In addition, some of our customers, including municipalities, may terminate their contracts with us before the end of the terms of those contracts. Similar risks may affect contracts that we are awarded to operate municipally-owned assets, such as landfills. For example, see the discussion regarding the Madera County, California Materials Recovery Facility Contract Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report.
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Governmental action may also affect our exclusive arrangements. Municipalities may annex unincorporated areas within counties where we provide collection services. As a result, our customers in annexed areas may be required to obtain services from competitors that have been franchised by the annexing municipalities to provide those services. In addition, municipalities in which we provide services on a competitive basis may elect to franchise those services. Unless we are awarded franchises by these municipalities, we will lose customers. Municipalities may also decide to provide services to their residents themselves, on an optional or mandatory basis, causing us to lose customers. Municipalities in Washington may, by law, annex any unincorporated territory, which could remove such territory from an area covered by a G Certificate issued to us by the WUTC. Such occurrences could subject more of our Washington operations to competitive bidding. Moreover, legislative action could amend or repeal the laws governing WUTC regulation, which could harm our competitive position by subjecting more areas to competitive bidding and/or overlapping service. If we are not able to replace revenues from contracts lost through competitive bidding or early termination or from the renegotiation of existing contracts with other revenues within a reasonable time period, our revenues could decline.
Price increases may not be adequate to offset the impact of increased costs or may cause us to lose volume.
We seek to secure price increases necessary to offset increased costs, to improve operating margins and to obtain adequate returns on our deployed capital. Contractual, general economic, competitive or market-specific conditions may limit our ability to raise prices. As a result of these factors, we may be unable to offset increases in costs, improve operating margins and obtain adequate investment returns through price increases. We may also lose volume to lower-price competitors.
Economic downturns adversely affect operating results.
Negative effects of a weak economy include decreases in volume generally associated with the drilling and construction industries, reduced personal consumption and declines in recycled commodity prices. In an economic slowdown, we also experience the negative effects of increased competitive pricing pressure, customer turnover, and reductions in customer service requirements. Worsening economic conditions or a prolonged or recurring economic recession could adversely affect our operating results and expected seasonal fluctuations. Further, we cannot assure you that an improvement in economic conditions after such a downturn will result in an immediate, if at all positive, improvement in our operating results or cash flows.
Our results are vulnerable to economic conditions and seasonal factors affecting the regions in which we operate.
Our business and financial results would be harmed by downturns in the general economy of the regions in which we operate and other factors affecting those regions, such as state regulations affecting the waste services industry and severe weather conditions. Based on historic trends, we expect our operating results to vary seasonally, with revenues typically lowest in the first quarter, higher in the second and third quarters, and lower in the fourth quarter than in the second and third quarters. We expect the fluctuation in our revenues between our highest and lowest quarters to be approximately 10% to 13%. This seasonality reflects the lower volume of solid waste generated during the late fall, winter and early spring because of decreased construction and demolition activities during the winter months in the U.S., and reduced E&P activity during harsh weather conditions. Conversely, mild winter weather conditions may reduce demand for oil and natural gas, which may cause our customers to curtail their drilling programs, which could result in production of lower volumes of E&P waste. 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. Because of these factors, we expect operating income to be generally lower in the winter months, and our stock price may be negatively affected by these variations.
The E&P waste disposal business depends on oil and gas prices and the level of drilling and production activity in the basins in which we operate.
The demand for our services in our markets may be adversely affected if drilling activity slows due to industry conditions beyond our control. We depend on our customers willingness to make operating and capital expenditures to develop and produce oil and natural gas in the U.S. This may be affected by a variety of factors, including: the supply of and demand for oil and natural gas, oil and natural gas prices, expectations for oil and natural gas prices, production rates, development, production and transportation costs, discovery rates, regulations, domestic and worldwide economic conditions, credit markets, and political stability. These factors introduce greater volatility to our revenues and operating margins for this business, and the impact will vary depending on the basin.
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We have limited experience in running an E&P waste treatment, recovery and disposal business.
In 2012, we acquired the non-hazardous E&P waste treatment, recovery and disposal businesses of R360, which are included in what we refer to as our E&P waste business. Our E&P waste business is expected to account for approximately 15% of our revenues. While we have conducted limited E&P waste treatment and disposal prior to the R360 acquisition, the E&P waste business is outside of our historical core business of municipal solid waste. We expect revenues and operating margins, as well as customer demand, for our E&P waste business to be more volatile than our historical MSW business. If we are unable to effectively manage this business, or if we do not adequately anticipate the volatility of this business, our financial condition and results of operations may suffer.
Our E&P waste business is dependent upon the willingness of our customers to outsource their waste management activities.
Our E&P waste business is largely dependent on the willingness of customers to outsource their waste management activities generally, and to us specifically rather than to our competitors. Currently, many oil and natural gas producing companies own and operate waste treatment, recovery and disposal facilities. In addition, most oilfield operators, including many of our customers, have numerous abandoned wells that could be licensed for use in the disposition of internally generated waste and third-party waste in competition with us, as well as access to technologies that could be used to recover oil through oilfield waste processing. Production companies in the industries we service, including our current customers, could decide to process and dispose of their waste internally for any reason, which could have a material adverse effect on our financial position, results of operations and cash flows.
Changes in laws or government regulations regarding hydraulic fracturing could increase our customers costs of doing business and reduce oil and gas production by our customers, which could adversely impact our business.
We do not conduct hydraulic fracturing operations, but we do provide treatment, recovery and disposal services with respect to the fluids used and wastes generated by our customers in such operations, which are often necessary to drill and complete new wells and maintain existing wells. Recently, there has been increased public concern regarding the alleged potential for hydraulic fracturing to adversely affect drinking water supplies, and proposals have been made to enact separate federal, state and local legislation that would increase the regulatory burden imposed on hydraulic fracturing. Bills and regulations have been proposed and/or adopted at the federal, state, and local levels that would regulate, restrict, or prohibit hydraulic fracturing operations or require the reporting and public disclosure of chemicals used in the hydraulic fracturing process. Additionally, the EPA is currently studying the environmental impacts of hydraulic fracturing, including the impacts resulting from the treatment and disposal of E&P wastes associated with the hydraulic fracturing process. This study, expected to be completed in 2014, could result in increased regulation of hydraulic fracturing and new rules regarding the treatment and disposal of E&P wastes associated with fracturing.
Presently, hydraulic fracturing is regulated primarily at the state level, typically by state oil and natural gas commissions and similar agencies. Several states where we conduct business, including Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming, have adopted or proposed laws and/or regulations to require oil and natural gas operators to disclose information concerning their operations, which could result in increased public scrutiny.
If new federal, state, or local laws or regulations that significantly restrict hydraulic fracturing are adopted, such legal requirements could result in delays, eliminate certain drilling and injection activities, and make it more difficult or costly for our customers to perform fracturing. Any such regulations limiting or prohibiting hydraulic fracturing could reduce oil and natural gas E&P activities by our customers and, therefore, adversely affect our business. Such laws or regulations could also materially increase our costs of compliance and doing business by more strictly regulating how hydraulic fracturing wastes are handled or disposed.
Our E&P waste business could be adversely affected by changes in laws regulating E&P waste.
We believe that the demand for our services is directly related to the regulation of E&P waste. In particular, the RCRA, which governs the disposal of solid and hazardous waste, currently exempts certain E&P wastes from classification as hazardous wastes. In recent years, proposals have been made to rescind this exemption from RCRA. For example, in September 2010 an environmental group filed a petition with the EPA requesting reconsideration of this RCRA exemption. To date, the EPA has not taken any action on the petition. If the exemption covering E&P wastes is repealed or modified, or if the regulations interpreting the rules regarding the treatment or disposal of this type of waste were changed, our operations could face significantly more stringent regulations, permitting requirements, and other restrictions, which could have a material adverse effect on our business.
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We may be subject in the normal course of business to judicial, administrative or other third party proceedings that could interrupt or limit our operations, require expensive remediation, result in adverse judgments, settlements or fines and create negative publicity.
Governmental agencies may, among other things, impose fines or penalties on us relating to the conduct of our business, attempt to revoke or deny renewal of our operating permits, franchises or licenses for violations or alleged violations of environmental laws or regulations or as a result of third party challenges, require us to install additional pollution control equipment or require us to remediate potential environmental problems relating to any real property that we or our predecessors ever owned, leased or operated or any waste that we or our predecessors ever collected, transported, disposed of or stored. Individuals, citizens groups, trade associations or environmental activists may also bring actions against us in connection with our operations that could interrupt or limit the scope of our business. Any adverse outcome in such proceedings could harm our operations and financial results and create negative publicity, which could damage our reputation, competitive position and stock price.
Increases in the price of diesel fuel may adversely affect our collection business and reduce our operating margins.
The market price of diesel fuel is volatile and has risen substantially in recent years. We generally purchase diesel fuel at market prices, and such prices have fluctuated significantly. A significant increase in our fuel cost could adversely affect our waste collection business and reduce our operating margins and reported earnings. To manage a portion of this risk, we have entered into fuel hedge agreements related to forecasted diesel fuel purchases and may also enter into fixed-price fuel purchase contracts. During periods of falling diesel fuel prices, our hedge payable positions may increase and it may become more expensive to purchase fuel under fixed-price fuel purchase contracts than at market prices.
Increases in labor and disposal and related transportation costs could impact our financial results.
Our continued success will depend on our ability to attract and retain qualified personnel. We compete with other businesses in our markets for qualified employees. From time to time, the labor supply is tight in some of our markets. A shortage of qualified employees would require us to enhance our wage and benefits packages to compete more effectively for employees, to hire more expensive temporary employees or to contract for services with more expensive third-party vendors. Labor is one of our highest costs and relatively small increases in labor costs per employee could materially affect our cost structure. If we fail to attract and retain qualified employees, control our labor costs during periods of declining volumes, or recover any increased labor costs through increased prices we charge for our services or otherwise offset such increases with cost savings in other areas, our operating margins could suffer. Moreover, our E&P waste business will expose us to the cyclical variations in demand that are particular to the development and production of oil and gas in the U.S. Periods of high demand could create corresponding shortages of quality employees and significantly increase our labor costs. Disposal and related transportation costs are our second highest cost category. If we incur increased disposal and related transportation costs to dispose of waste, and if, in either case, we are unable to pass these costs on to our customers, our operating results would suffer.
Efforts by labor unions could divert management attention and adversely affect operating results.
From time to time, labor unions attempt to organize our employees. Some groups of our employees are represented by unions, and we have negotiated collective bargaining agreements with most of these groups. We are currently engaged in negotiations with other groups of employees represented by unions. Additional groups of employees may seek union representation in the future. As a result of these activities, we may be subjected to unfair labor practice charges, complaints and other legal and administrative proceedings initiated against us by unions or the National Labor Relations Board, which could negatively impact our operating results. Negotiating collective bargaining agreements with these groups could divert management attention, which could also adversely affect operating results. If we are unable to negotiate acceptable collective bargaining agreements, we might have to wait through cooling off periods, which are often followed by union-initiated work stoppages, including strikes. Furthermore, any significant work stoppage or slowdown at ports or by railroad workers could reduce or interrupt the flow of cargo containers through our intermodal facilities. Depending on the type and duration of any labor disruptions, our operating expenses could increase significantly, which could adversely affect our financial condition, results of operations and cash flows.
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We could face significant withdrawal liability if we withdraw from participation in one or more multiemployer pension plans in which we participate and the accrued pension benefits are not fully funded.
We participate in various multiemployer pension plans administered by employee and union trustees. We make periodic contributions to these plans to fund pension benefits for our union employees pursuant to our various contractual obligations to do so. In the event that we withdraw from participation in or otherwise cease our contributions to one of these plans, then applicable law regarding withdrawal liability could require us to make additional contributions to the plan if the accrued benefits are not fully funded, and we would have to reflect that withdrawal liability as an expense in our consolidated statement of operations and as a liability on our consolidated balance sheet. Our withdrawal liability for any multiemployer plan would depend on the extent to which accrued benefits are funded. In the ordinary course of our renegotiation of collective bargaining agreements with labor unions that participate in these plans, we may decide to discontinue participation in a multiemployer plan, and in that event, we could face withdrawal liability. Some multiemployer plans in which we participate may from time to time have significant accrued benefits that are not funded. The size of our potential withdrawal liability may be affected by the level of unfunded accrued benefits, the actuarial assumptions used by the plan and the investment gains and losses experienced by the plan.
Increases in insurance costs and the amount that we self-insure for various risks could reduce our operating margins and reported earnings.
We maintain high deductible insurance policies for automobile, general, employers, environmental and directors and officers liability as well as for employee group health insurance, property insurance and workers compensation. We carry umbrella policies for certain types of claims to provide excess coverage over the underlying policies and per incident deductibles. The amounts that we effectively self-insure could cause significant volatility in our operating margins and reported earnings based on the event and claim costs of incidents, accidents, injuries and adverse judgments. Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from our third-party actuary and our third-party claims administrator. To the extent these estimates are inaccurate, we may recognize substantial additional expenses in future periods that would reduce operating margins and reported earnings. From time to time, actions filed against us include claims for punitive damages, which are generally excluded from coverage under all of our liability insurance policies. A punitive damage award could have an adverse effect on our reported earnings in the period in which it occurs. Significant increases in premiums on insurance that we retain also could reduce our margins.
Each business that we acquire or have acquired may have liabilities or risks that we fail or are unable to discover, including environmental liabilities.
It is possible that the corporate entities or sites we have acquired, or which we may acquire in the future, have liabilities or risks in respect of former or existing operations or properties, or otherwise, which we have not been able to identify and assess through our due diligence investigations. As a successor owner, we may be legally responsible for those liabilities that arise from businesses that we acquire. Even if we obtain legally enforceable representations, warranties and indemnities from the sellers of such businesses, they may not cover the liabilities fully or the sellers may not have sufficient funds to perform their obligations. Some environmental liabilities, even if we do not expressly assume them, may be imposed on us under various regulatory schemes and other applicable laws. In addition, our insurance program may not cover such sites and will not cover liabilities associated with some environmental issues that may have existed prior to attachment of coverage. A successful uninsured claim against us could harm our financial condition or operating results. Additionally, there may be other risks of which we are unaware that could have an adverse affect on businesses that we acquire or have acquired. For example, interested parties may bring actions against us in connection with operations that we acquire or have acquired. Any adverse outcome in such proceedings could harm our operations and financial results and create negative publicity, which could damage our reputation, competitive position and stock price.
Liabilities for environmental damage may adversely affect our financial condition, business and earnings.
We may be liable for any environmental damage that our current or former facilities cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, and especially drinking water, or to natural resources. We may be liable for damage resulting from conditions existing before we acquired these facilities. We may also be liable for any on-site environmental contamination caused by pollutants or hazardous substances whose transportation, treatment or disposal we or our predecessors arranged or conducted. Some environmental laws and regulations may impose strict, joint and several liability in connection with releases of regulated substances into the environment. Therefore, in some situations we could be exposed to liability as a result of our conduct that was lawful at the time it occurred or the conduct of, or conditions caused by, third parties. If we were to incur liability for environmental damage, environmental cleanups, corrective action or damage not covered by insurance or in excess of the amount of our coverage, our financial condition or operating results could be materially adversely affected.
Laws protecting the environment generally have become more stringent over time. We expect this trend to continue, which could lead to material increases in our costs for future environmental compliance and remediation, and could adversely affect our operations by restricting the way in which we treat and dispose of E&P or other waste or our ability to expand our business.
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Our accruals for our landfill site closure and post-closure costs may be inadequate.
We are required to pay capping, closure and post-closure maintenance costs for landfill sites that we own and operate. We are also required to pay capping, closure and post-closure maintenance costs for five of our six operated landfills for which we have life-of-site agreements. Our obligations to pay closure or post-closure costs may exceed the amount we have accrued and reserved and other amounts available from funds or reserves established to pay such costs. In addition, the completion or closure of a landfill site does not end our environmental obligations. After completion or closure of a landfill site, there exists the potential for unforeseen environmental problems to occur that could result in substantial remediation costs. Paying additional amounts for closure or post-closure costs and/or for environmental remediation could harm our financial condition or operating results.
The financial soundness of our customers could affect our business and operating results.
As a result of the disruptions in the financial markets and other macro-economic challenges currently affecting the economy of the United States and other parts of the world, our customers may experience cash flow concerns. As a result, if customers operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, customers may not be able to pay, or may delay payment of, accounts receivable owed to us. Any inability of current and/or potential customers to pay us for services may adversely affect our financial condition, results of operations and cash flows.
We depend significantly on the services of the members of our senior, regional and district management team, and the departure of any of those persons could cause our operating results to suffer.
Our success depends significantly on the continued individual and collective contributions of our senior, regional and district management team. Key members of our management have entered into employment agreements, but we may not be able to enforce these agreements. The loss of the services of any member of our senior, regional or district management or the inability to hire and retain experienced management personnel could harm our operating results.
Our decentralized decision-making structure could allow local managers to make decisions that adversely affect our operating results.
We manage our operations on a decentralized basis. Local managers have the authority to make many decisions concerning their operations without obtaining prior approval from executive officers, subject to compliance with general company-wide policies. Poor decisions by local managers could result in the loss of customers or increases in costs, in either case adversely affecting operating results.
We may incur charges related to capitalized expenditures of landfill development projects, which would decrease our earnings.
In accordance with U.S. generally accepted accounting principles, we capitalize some expenditures and advances relating to landfill development projects. We expense indirect costs such as executive salaries, general corporate overhead and other corporate services as we incur those costs. We charge against earnings any unamortized capitalized expenditures and advances (net of any amount that we estimate we will recover, through sale or otherwise) that relate to any operation that is permanently shut down or determined to be impaired and any landfill development project that we do not expect to complete. For example, if we are unsuccessful in our attempts to obtain or defend permits that we are seeking or have been awarded to operate or expand a landfill, we will no longer generate anticipated income from the landfill and we will be required to expense in a future period the amount of capitalized expenditures related to the landfill or expansion project, less the recoverable value of the property and other amounts recovered. Additionally, we may incur increased operating expenses to dispose of the previously internalized waste that would need to be transported to another disposal location. Any such charges could have a material adverse effect on our results of operations for that period and could decrease our stock price. For example, see the discussion regarding the Chaparral, New Mexico Landfill Permit Litigation, the Harper County, Kansas Permit Litigation and the Solano County, California Measure E/Landfill Expansion Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report.
Because we depend on railroads for our intermodal operations, our operating results and financial condition are likely to be adversely affected by any reduction or deterioration in rail service.
We depend on two major railroads for the intermodal services we provide the Burlington Northern Santa Fe and Union Pacific. Consequently, a reduction in, or elimination of, rail service to a particular market is likely to adversely affect our ability to provide intermodal transportation services to some of our customers. In addition, the railroads are relatively free to adjust shipping rates up or down as market conditions permit when existing contracts expire. Rate increases would result in higher intermodal transportation costs, reducing the attractiveness of intermodal transportation compared to solely trucking or other transportation modes, which could cause a decrease in demand for our services. Our business could also be adversely affected by harsh weather conditions or other factors that hinder the railroads ability to provide reliable transportation services.
23
Our financial results could be adversely affected by impairments of goodwill or indefinite-lived intangibles.
As a result of our acquisition strategy, we have a material amount of goodwill and indefinite-lived intangibles recorded in our financial statements. We do not amortize our existing goodwill or indefinite-lived intangibles and are required to test goodwill and indefinite-lived intangibles for impairment annually using the two-step process prescribed in the accounting guidance for intangibles. The first step is a screen for potential impairment, using either a qualitative or quantitative assessment, while the second step measures the amount of the impairment, if any. We perform the first step of the required impairment tests of goodwill and indefinite-lived intangible assets annually using a quantitative assessment.
We have an indefinite-lived intangible asset related to an operating permit at our MRF facility in the Albany, NY market (Sierra Processing) with a carrying value of $42.2 million at December 31, 2012 that experienced a decline in its estimated fair value in 2012 due to both decreases in revenue from reductions in market prices for recyclable commodities and increases in logistics and processing expenses. We have developed and commenced implementing plans for cost controls and operating efficiencies in order to decrease per ton processing costs at Sierra Processing. If we are unable to successfully implement our plans for cost controls and operating efficiencies at Sierra Processing, or if future market prices and volume increases at Sierra Processing are significantly less than our expectations, we may be required to recognize an impairment charge on this indefinite-lived intangible asset of up to approximately $22 million. This impairment charge could increase if per ton processing costs at Sierra Processing increase or if revenues continue to decline due to lower recyclable commodity volumes and/or lower market prices.
We cannot assure you that our remaining indefinite-lived intangible assets, or our goodwill, will not be impaired at any time in the future. If, as a result of performing impairment tests, we are required to write down any of our goodwill or indefinite-lived intangible assets, our operating results would be negatively impacted.
Our financial results are based upon estimates and assumptions that may differ from actual results.
In preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles, several estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made because certain information that is used in the preparation of our financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is not capable of being readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine and we must exercise significant judgment. The estimates and the assumptions having the greatest amount of uncertainty, subjectivity and complexity are related to our accounting for landfills, self-insurance, intangibles, allocation of acquisition purchase price, income taxes, asset impairments and litigation, claims and assessments. Actual results for all estimates could differ materially from the estimates and assumptions that we use, which could have an adverse effect on our financial condition and results of operations.
The adoption of new accounting standards or interpretations could adversely affect our financial results.
Our implementation of and compliance with changes in accounting rules and interpretations could adversely affect our operating results or cause unanticipated fluctuations in our results in future periods. The accounting rules and regulations that we must comply with are complex and continually changing. Recent actions and public comments from the SEC have focused on the integrity of financial reporting generally. The Financial Accounting Standards Board, or FASB, has recently introduced several new or proposed accounting standards, or is developing new proposed standards, which would represent a significant change from current industry practices. For example, the proposed derivatives guidance would change the overall accounting for hedges by requiring only a qualitative assessment of hedge effectiveness at inception and reassessments only under certain circumstances. The proposed guidance also eliminates the short cut and critical terms match methods to attain hedge effectiveness. Additionally, the proposed lease accounting pronouncement would change the accounting for operating leases by requiring a right-of-use-asset to be recorded on the balance sheet as well as a corresponding liability for the obligation to pay lease rentals. The proposed guidance also changes how lease expense is recognized in the income statement; depending on the type of lease, the new guidance may require more expense to be recorded in the initial years of the lease.
In addition, many companies accounting policies are being subjected to heightened scrutiny by regulators and the public. While our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, we cannot predict the impact of future changes to accounting principles or our accounting policies on our financial statements going forward.
24
Pending or future litigation or governmental proceedings could result in material adverse consequences, including judgments or settlements.
We are, and from time to time become, involved in lawsuits, regulatory inquiries, and governmental and other legal proceedings arising out of the ordinary course of our business. Many of these matters raise difficult and complicated factual and legal issues and are subject to uncertainties and complexities. The timing of the final resolutions to lawsuits, regulatory inquiries, and governmental and other legal proceedings is uncertain. Additionally, the possible outcomes or resolutions to these matters could include adverse judgments or settlements, either of which could require substantial payments, adversely affecting our consolidated financial condition, results of operations and cash flows. See discussion under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report.
If we are not able to develop and protect intellectual property, or if a competitor develops or obtains exclusive rights to a breakthrough technology, our financial results may suffer.
Our existing and proposed service offerings to customers may require that we develop or license, and protect, new technologies. We may experience difficulties or delays in the research, development, production and/or marketing of new products and services which may negatively impact our operating results and prevent us from recouping or realizing a return on the investments required to bring new products and services to market. Further, protecting our intellectual property rights and combating unlicensed copying and use of intellectual property is difficult, and any inability to obtain or protect new technologies could impact our services to customers and development of new revenue sources. Additionally, a competitor may develop or obtain exclusive rights to a breakthrough technology that provides a revolutionary change in traditional waste management. If we have inferior intellectual property to our competitors, our financial results may suffer.
Risks Related to Our Industry
Fluctuations in prices for recycled commodities that we sell and rebates we offer to customers may cause our revenues and operating results to decline.
We provide recycling services to some of our customers. The majority of the recyclables we process for sale are paper products that are shipped to customers in Asia. The sale prices of and demands for recyclable commodities, particularly paper products, are frequently volatile and when they decline, our revenues, operating results and cash flows will be affected. Our recycling operations offer rebates to customers based on the market prices of commodities we buy to process for resale. Therefore, if we recognize increased revenues resulting from higher prices for recyclable commodities, the rebates we pay to suppliers will also increase, which also may impact our operating results.
Our financial and operating performance may be affected by the inability to renew landfill operating permits, obtain new landfills and expand existing ones.
We currently own and/or operate 54 landfills. Our ability to meet our financial and operating objectives may depend in part on our ability to acquire, lease, or renew landfill operating permits, expand existing landfills and develop new landfill sites. It has become increasingly difficult and expensive to obtain required permits and approvals to build, operate and expand solid waste management facilities, including landfills and transfer stations. Operating permits for landfills in states where we operate must generally be renewed every five to ten years, although some permits are required to be renewed more frequently. These operating permits often must be renewed several times during the permitted life of a landfill. The permit and approval process is often time consuming, requires numerous hearings and compliance with zoning, environmental and other requirements, is frequently challenged by special interest and other groups, and may result in the denial of a permit or renewal, the award of a permit or renewal for a shorter duration than we believed was otherwise required by law, or burdensome terms and conditions being imposed on our operations. We may not be able to obtain new landfill sites or expand the permitted capacity of our landfills when necessary. Obtaining new landfill sites is important to our expansion into new, non-exclusive markets. If we do not believe that we can obtain a landfill site in a non-exclusive market, we may choose not to enter that market. Expanding existing landfill sites is important in those markets where the remaining lives of our landfills are relatively short. We may choose to forego acquisitions and internal growth in these markets because increased volumes would further shorten the lives of these landfills. Any of these circumstances could adversely affect our operating results.
25
Future changes in laws or renewed enforcement of laws regulating the flow of solid waste in interstate commerce could adversely affect our operating results.
Various state and local governments have enacted, or are considering enacting, laws and regulations that restrict the disposal within the jurisdiction of solid waste generated outside the jurisdiction. In addition, some state and local governments have promulgated, or are considering promulgating, laws and regulations which govern the flow of waste generated within their respective jurisdictions. These flow control laws and regulations typically require that waste generated within the jurisdiction be directed to specified facilities for disposal or processing, which could limit or prohibit the disposal or processing of waste in our transfer stations and landfills. Such flow control laws and regulations could also require us to deliver waste collected by us within a particular jurisdiction to facilities not owned or controlled by us, which could increase our costs and reduce our revenues. In addition, such laws and regulations could require us to obtain additional costly licenses or authorizations to be deemed an authorized hauler or disposal facility.
Additionally, public interest and pressure from competing industry segments has caused some trade associations and environmental activists to seek enforcement of laws regulating the flow of solid waste that have not been recently enforced and which, in at least one case, we believe are unconstitutional and otherwise unlawful. For example, see the discussion regarding the Solano County, California Measure E/Landfill Expansion Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report. If successful, these groups may advocate for the enactment of similar laws in neighboring jurisdictions through local ballot initiatives or otherwise. All such waste disposal laws and regulations are subject to judicial interpretation and review. Court decisions, congressional legislation, and state and local regulation in the waste disposal area could adversely affect our operations.
Our E&P waste business in New Mexico could be adversely impacted if the New Mexico Pit Rule is rescinded or relaxed.
In 2008, the New Mexico Oil Conservation Commission, or NMOCC, promulgated Rule 17, also known as the Pit Rule, stringently regulating the use of earthen pits by oil and natural gas operators for storing or disposing of drilling fluids and E&P waste. The requirements of the Pit Rule include setback, siting, groundwater separation and other requirements that make the establishment of compliant pits much more difficult. NMOCC amended the Pit Rule in 2009, slightly relaxing the permissible chloride concentrations for onsite disposal of E&P waste, but as a practical matter, the Pit Rule still forecloses the use of pits and onsite disposal as a viable waste management option for many oil and natural gas operators. The Pit Rule, in many cases, forces operators to use closed loop systems, such as the ones that we rent to our customers, to contain drilling fluids and E&P waste. It also frequently requires operators to dispose of E&P wastes at commercial land treatment and disposal facilities, such as some of our New Mexico facilities, that are permitted by the New Mexico Oil Conservation Division, or NMOCD, the agency that administers and enforces NMOCC rules.
On September 30, 2011, an oil and gas industry group proposed amendments to the Pit Rule to the NMOCC. The proposed amendments, if adopted, would likely lead to a significant reduction in both the monetary cost and regulatory burden associated with pit construction and the disposal of E&P waste at well sites. Therefore, these proposed changes have the potential to increase the use of pits for on-site storage and disposal of drilling fluids and E&P waste, reduce the need for closed loop systems and reduce the amount of E&P waste sent to NMOCD permitted disposal sites, such as some of sites that we own and operate in New Mexico. Public hearings on the proposed amendments were conducted by the NMOCC in 2012. The NMOCC will consider comments received during these hearings in evaluating the proposed changes. Moreover, both the original Pit Rule and the 2009 amendment have been challenged in New Mexico State Court. The outcome of this pending litigation remains uncertain. If the original Pit Rule is struck down by the courts, or if the NMOCC adopts amendments to the Pit Rule making it less stringent, the demand for our E&P waste business in New Mexico could be adversely impacted.
Extensive and evolving environmental, health, safety and employment laws and regulations may restrict our operations and growth and increase our costs.
Existing environmental and employment laws and regulations have become more stringently enforced in recent years. Competing industry segments and other interested parties have sought enforcement of laws that local jurisdictions have not recently enforced and which, in at least one case, we believe are unconstitutional and otherwise unlawful. For example, see the discussion regarding the Solano County, California Measure E/Landfill Expansion Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report. If successful, such groups may advocate for the enactment of similar laws in neighboring jurisdictions through local ballot initiatives or otherwise. In addition, our industry is subject to regular enactment of new or amended federal, state and local environmental and health and safety statutes, regulations and ballot initiatives, as well as judicial decisions interpreting these requirements. These requirements impose substantial capital and operating costs and operational limitations on us and may adversely affect our business. In addition, federal, state and local governments may change the rights they grant to, the restrictions they impose on, or the laws and regulations they enforce against, solid waste and E&P waste services companies, and those changes could restrict our operations and growth.
26
Climate change regulations may adversely affect operating results.
Governmental authorities and various interest groups have promoted laws and regulations that could limit greenhouse gas, or GHG, emissions due to concerns that GHGs are contributing to climate change. The State of California has already adopted a climate change law, and other states in which we operate are considering similar actions. For example, California enacted AB 32, the Global Warming Solutions Act of 2006, which established the first statewide program in the United States to limit GHG emissions and impose penalties for non-compliance. The California Air Resources Board has taken and plans to take various actions to implement the program, including the approval in December 2008 of an AB 32 Scoping Plan summarizing the main GHG-reduction strategies for California; a landfill methane control measure, which became effective in June 2010; and, in December 2010, a GHG cap-and-trade program which began imposing compliance obligations in 2013. Because landfill and collection operations emit GHGs, our operations in California are subject to regulations issued under AB 32. These regulations increase our costs for those operations and adversely affect our operating results. The Western Climate Initiative, which once included seven states, all of which we operate in, and four Canadian provinces, has also developed GHG reduction strategies, among them a GHG cap-and-trade program. In addition, the EPA made an endangerment finding in 2009 allowing certain GHGs to be regulated under the Clean Air Act. This finding allows the EPA to create regulations that will impact our operations including imposing emission reporting, permitting, control technology installation, and monitoring requirements, although the materiality of the impacts will not be known until all regulations are finalized. The EPA has already finalized its GHG reporting rule, which requires that municipal solid waste landfills and oil and natural gas E&P operations monitor and report GHG emissions. The EPA has also finalized its tailoring rule, which imposes certain permitting and control technology requirements upon newly-constructed or modified facilities which emit GHGs over a certain threshold under the Clean Air Act New Source Review Prevention of Significant Deterioration, or NSR PSD, and Title V permitting programs. As a result, NSR PSD or Title V permits issued after January 2, 2011, for new or modified emissions sources may need to address GHG emissions, including by requiring the installation of Best Available Control Technology. Notably, emissions sources may become subject to such permitting requirements under the tailoring rule based on their GHG emissions even if their emission of other regulated pollutants would not otherwise trigger permitting requirements. The EPA may in the future promulgate CAA New Source Performance Standards, or NSPS, applicable to landfills. In addition, EPA and the National Highway Transportation Safety Administration promulgated in August 2011 standards to reduce GHG emissions from, and increase the fuel efficiency of, medium- and heavy-duty vehicles. Regulation of GHG emissions from oil and gas E&P operations may also increase the costs to our customers of developing and producing hydrocarbons, and as a result, may have an indirect and adverse effect on the amount of oilfield waste delivered to our facilities by our customers. For example, a group of state attorneys general petitioned EPA in December 2012 requesting that EPA set methane emissions standard for the oil and gas sector pursuant to its CAA authority. These statutes and regulations increase the costs of our operations, and future climate change statutes and regulations may have an impact as well.
Extensive regulations that govern the design, operation and closure of landfills may restrict our landfill operations or increase our costs of operating landfills.
Regulations that govern municipal solid waste landfill design, operation, closure and financial assurances include the regulations that establish minimum federal requirements adopted by the EPA in October 1991 under Subtitle D of RCRA. If we fail to comply with these regulations or their state counterparts, we could be required to undertake investigatory or remedial activities, curtail operations or close such landfills temporarily or permanently. Future changes to these regulations may require us to modify, supplement or replace equipment or facilities at substantial costs. If regulatory agencies fail to enforce these regulations vigorously or consistently, our competitors whose facilities are not forced to comply with the Subtitle D regulations or their state counterparts may obtain an advantage over us. Our financial obligations arising from any failure to comply with these regulations could harm our business and operating results.
Alternatives to landfill disposal may cause our revenues and operating results to decline.
Counties and municipalities in which we operate landfills may be required to formulate and implement comprehensive plans to reduce the volume of municipal solid waste deposited in landfills through waste planning, composting, recycling or other programs. Some state and local governments prohibit the disposal of certain types of wastes, such as yard waste, at landfills. Although such actions are useful to protect our environment, these actions, as well as the actions of our customers to reduce waste or seek disposal alternatives, have reduced and may in the future further reduce the volume of waste going to landfills in certain areas, which may affect our ability to operate our landfills at full capacity and could adversely affect our operating results.
27
Unusually adverse weather conditions may interfere with our operations, harming our operating results.
Our operations could be adversely affected, beyond the normal seasonal variations described above, by unusually long periods of inclement weather, which could interfere with collection, landfill and intermodal operations, reduce the volume of waste generated by our customers, delay the development of landfill capacity, and increase the costs we incur in connection with the construction of landfills and other facilities. Periods of particularly harsh weather may force us to temporarily suspend some of our operations.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
As of December 31, 2012, we owned 151 collection operations, 53 transfer stations, 33 municipal solid waste landfills, five E&P waste landfills, five non-municipal solid waste landfills, 38 recycling operations, five intermodal operations, 20 liquid E&P waste injection wells, 15 E&P waste treatment and recovery facilities and 19 oil recovery facilities, and operated, but did not own, an additional 15 transfer stations, nine municipal solid waste landfills, two non-municipal solid waste landfills and two intermodal operations, in 31 states. Non-municipal solid waste landfills accept construction and demolition, industrial and other non-putrescible waste. We lease certain of the sites on which these facilities are located. We lease various office facilities, including our temporary corporate offices in The Woodlands, Texas, where we occupy approximately 19,000 square feet of space. We have signed a lease for new corporate offices of approximately 53,000 square feet in The Woodlands, Texas, which we expect to occupy in 2013. We also lease approximately 64,000 square feet of space in our former corporate offices in Folsom, California. We will incur a loss on lease in the second or third quarter of 2013 on the cessation of use of our former corporate offices, which we estimate could range between $8 million and $10 million. We also maintain regional administrative offices in each of our regions. We own various equipment, including waste collection and transportation vehicles, related support vehicles, double-stack rail cars, carts, containers, chassis and heavy equipment used in landfill, collection, transfer station, waste treatment and intermodal operations. We believe that our existing facilities and equipment are adequate for our current operations. However, we expect to make additional investments in property and equipment for expansion and replacement of assets in connection with future acquisitions.
Information regarding our legal proceedings can be found under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report and is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURE
None.
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ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the symbol WCN. The following table sets forth, for the periods indicated, the high and low prices per share of our common stock, as reported on the New York Stock Exchange.
HIGH | LOW | DIVIDENDS DECLARED(1) |
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2013 |
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First Quarter (through February 15, 2013) |
$ | 36.26 | $ | 33.82 | $ | 0.10 | ||||||
2012 |
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Fourth Quarter |
$ | 33.82 | $ | 29.25 | $ | 0.10 | ||||||
Third Quarter |
33.30 | 28.72 | 0.09 | |||||||||
Second Quarter |
33.23 | 28.70 | 0.09 | |||||||||
First Quarter |
33.94 | 30.77 | 0.09 | |||||||||
2011 |
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Fourth Quarter |
$ | 35.95 | $ | 31.26 | $ | 0.090 | ||||||
Third Quarter |
35.35 | 29.06 | 0.075 | |||||||||
Second Quarter |
32.69 | 28.77 | 0.075 | |||||||||
First Quarter |
29.86 | 26.99 | 0.075 |
(1) | The Board will review the cash dividend periodically, with a long-term objective of increasing the amount of the dividend. We cannot assure you as to the amounts or timing of future dividends. We have the ability under our senior revolving credit facility to repurchase our common stock and pay dividends provided we maintain specified financial ratios. |
As of February 15, 2013, there were 99 record holders of our common stock.
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Performance Graph
The following performance graph compares the total cumulative stockholder returns on our common stock over the past five fiscal years with the total cumulative returns for the S&P 500 Index and a peer group index we selected. The graph assumes an investment of $100 in our common stock on December 31, 2007, and the reinvestment of all dividends. This chart has been calculated in compliance with SEC requirements and prepared by Capital IQ®.
This graph and the accompanying text is not soliciting material, is not deemed filed with the SEC, and is not to be incorporated by reference in any filing by us under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Base Period Dec07 |
Indexed Returns Years Ending |
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Company Name / Index |
Dec08 | Dec09 | Dec10 | Dec11 | Dec12 | |||||||||||||||||||
Waste Connections, Inc. |
$ | 100 | $ | 102.17 | $ | 107.90 | $ | 133.89 | $ | 162.75 | $ | 167.92 | ||||||||||||
S&P 500 Index |
$ | 100 | $ | 63.00 | $ | 79.67 | $ | 91.68 | $ | 93.61 | $ | 108.59 | ||||||||||||
Peer Group (a) |
$ | 100 | $ | 97.63 | $ | 109.83 | $ | 124.62 | $ | 115.13 | $ | 125.16 |
(a) | Peer Group Companies: Casella Waste Systems, Inc.; Republic Services, Inc.; Waste Management, Inc.; Progressive Waste Solutions Ltd. (included from June 5, 2009, when it began trading on a U.S. stock exchange) |
THE STOCK PRICE PERFORMANCE INCLUDED IN THIS GRAPH IS NOT NECESSARILY INDICATIVE OF FUTURE STOCK PRICE PERFORMANCE.
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ITEM 6. SELECTED FINANCIAL DATA
This table sets forth our selected financial data for the periods indicated. This data should be read in conjunction with, and is qualified by reference to, Managements Discussion and Analysis of Financial Condition and Results of Operations included in Item 7 of this Annual Report on Form 10-K and our audited consolidated financial statements, including the related notes and our independent registered public accounting firms report and the other financial information included in Item 8 of this Annual Report on Form 10-K. The selected data in this section is not intended to replace the consolidated financial statements included in this report.
YEARS ENDED DECEMBER 31, | ||||||||||||||||||||
2012 (a) | 2011 (a) | 2010 (a) | 2009 | 2008 | ||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||
STATEMENT OF OPERATIONS DATA: |
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Revenues |
$ | 1,661,618 | $ | 1,505,366 | $ | 1,319,757 | $ | 1,191,393 | $ | 1,049,603 | ||||||||||
Operating expenses: |
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Cost of operations |
956,357 | 857,580 | 749,487 | 692,415 | 628,075 | |||||||||||||||
Selling, general and administrative |
197,454 | 161,967 | 149,860 | 138,026 | 111,114 | |||||||||||||||
Depreciation |
169,027 | 147,036 | 132,874 | 117,796 | 91,095 | |||||||||||||||
Amortization of intangibles |
24,557 | 20,064 | 14,582 | 12,962 | 6,334 | |||||||||||||||
Loss (gain) on disposal of assets |
1,627 | 1,657 | 571 | (481 | ) | 629 | ||||||||||||||
Gain from litigation settlement |
(3,551 | ) | | | | | ||||||||||||||
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Operating income |
316,147 | 317,062 | 272,383 | 230,675 | 212,356 | |||||||||||||||
Interest expense |
(53,037 | ) | (44,520 | ) | (40,134 | ) | (49,161 | ) | (43,102 | ) | ||||||||||
Interest income |
773 | 530 | 590 | 1,413 | 3,297 | |||||||||||||||
Loss on extinguishment of debt |
| | (10,193 | ) | | | ||||||||||||||
Other income (expense), net |
1,220 | 57 | 2,830 | (7,551 | ) | (633 | ) | |||||||||||||
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Income before income tax provision |
265,103 | 273,129 | 225,476 | 175,376 | 171,918 | |||||||||||||||
Income tax provision |
(105,443 | ) | (106,958 | ) | (89,334 | ) | (64,565 | ) | (56,775 | ) | ||||||||||
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Net income |
159,660 | 166,171 | 136,142 | 110,811 | 115,143 | |||||||||||||||
Less: Net income attributable to noncontrolling interests |
(567 | ) | (932 | ) | (1,038 | ) | (986 | ) | (12,240 | ) | ||||||||||
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Net income attributable to Waste Connections |
$ | 159,093 | $ | 165,239 | $ | 135,104 | $ | 109,825 | $ | 102,903 | ||||||||||
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Earnings per common share attributable to Waste Connections common stockholders: |
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Basic |
$ | 1.31 | $ | 1.47 | $ | 1.17 | $ | 0.92 | $ | 0.98 | ||||||||||
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Diluted |
$ | 1.31 | $ | 1.45 | $ | 1.16 | $ | 0.91 | $ | 0.96 | ||||||||||
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Shares used in the per share calculations: |
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Basic (b) |
121,172,381 | 112,720,444 | 115,646,173 | 119,119,601 | 105,037,311 | |||||||||||||||
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Diluted (b) |
121,824,349 | 113,583,486 | 116,894,204 | 120,506,162 | 107,129,568 | |||||||||||||||
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Cash dividends per common share |
$ | 0.37 | $ | 0.315 | $ | 0.075 | $ | | $ | | ||||||||||
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Cash dividends paid |
$ | 44,465 | $ | 35,566 | $ | 8,561 | $ | | $ | | ||||||||||
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YEARS ENDED DECEMBER 31, | ||||||||||||||||||||
2012 (a) | 2011 (a) | 2010 (a) | 2009 | 2008 | ||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||
BALANCE SHEET DATA: |
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Cash and equivalents |
$ | 23,212 | $ | 12,643 | $ | 9,873 | $ | 9,639 | $ | 265,264 | ||||||||||
Working capital (deficit) |
(55,086 | ) | (34,544 | ) | (37,976 | ) | (45,059 | ) | 213,747 | |||||||||||
Property and equipment, net |
2,457,606 | 1,450,469 | 1,337,476 | 1,308,392 | 984,124 | |||||||||||||||
Total assets |
5,076,026 | 3,328,005 | 2,915,984 | 2,820,448 | 2,600,357 | |||||||||||||||
Long-term debt and notes payable |
2,204,967 | 1,172,758 | 909,978 | 867,554 | 819,828 | |||||||||||||||
Total equity |
1,883,130 | 1,399,687 | 1,370,418 | 1,357,036 | 1,261,997 |
(a) | For more information regarding this financial data, see the Managements Discussion and Analysis of Financial Condition and Results of Operations section included in this report. For disclosures associated with the impact of the adoption of new accounting pronouncements and the comparability of this information, see Note 1 of the consolidated financial statements. |
(b) | Share amounts have been retroactively adjusted to reflect our three-for-two stock split, in the form of a 50% stock dividend, effective as of November 12, 2010. |
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected Financial Data included in Item 6 of this Annual Report on Form 10-K, our consolidated financial statements and the related notes included elsewhere in this report.
Industry Overview
The municipal solid waste industry is a local and highly competitive business, requiring substantial labor and capital resources. The participants compete for collection accounts primarily on the basis of price and, to a lesser extent, the quality of service, and compete for landfill business on the basis of tipping fees, geographic location and quality of operations. The municipal solid waste industry has been consolidating and continues to consolidate as a result of a number of factors, including the increasing costs and complexity associated with waste management operations and regulatory compliance. Many small independent operators and municipalities lack the capital resources, management, operating skills and technical expertise necessary to operate effectively in such an environment. The consolidation trend has caused municipal solid waste companies to operate larger landfills that have complementary collection routes that can use company-owned disposal capacity. Controlling the point of transfer from haulers to landfills has become increasingly important as landfills continue to close and disposal capacity moves further from collection markets.
Generally, the most profitable operators within the municipal solid waste industry are those companies that are vertically integrated or enter into long-term collection contracts. A vertically integrated operator will benefit from: (1) the internalization of waste, which is bringing waste to a company-owned landfill; (2) the ability to charge third-party haulers tipping fees either at landfills or at transfer stations; and (3) the efficiencies gained by being able to aggregate and process waste at a transfer station prior to landfilling.
The E&P waste services industry is similarly regional in nature and is also highly fragmented, with acquisition opportunities available in several active basins. Competition for E&P waste comes primarily from smaller regional companies that utilize a variety of disposal methods and generally serve specific geographic markets. In addition, customers in many markets have the option of using internal disposal methods or outsourcing to another third party disposal company. The principal competitive factors in this business include: gaining customer approval of treatment and disposal facilities; location of facilities in relation to customer activity; reputation; reliability of services; track record of environmental compliance; ability to accept multiple waste types at a single facility; and price.
Executive Overview
We are an integrated municipal solid waste services company that provides solid waste collection, transfer, disposal and recycling services primarily in exclusive and secondary markets in the U.S. and a leading provider of non-hazardous exploration and production, or E&P, waste treatment, recovery and disposal services in several of the most active natural resource producing areas of the U.S. We also provide intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest through a network of intermodal facilities.
We seek to avoid highly competitive, large urban markets and instead target markets where we can attain high market share either through exclusive contracts, vertical integration or asset positioning. In markets where waste collection services are provided under exclusive arrangements, or where waste disposal is municipally funded or available at multiple municipal sources, we believe that controlling the waste stream by providing collection services under exclusive arrangements is often more important to our growth and profitability than owning or operating landfills. We also target niche markets, like E&P waste treatment and disposal services, with similar characteristics and, we believe, higher comparative growth potential.
As of December 31, 2012, we served residential, commercial, industrial and E&P customers from a network of operations in 31 states: Alabama, Alaska, Arizona, California, Colorado, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Mexico, New York, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Texas, Utah, Washington and Wyoming. As of December 31, 2012, we owned or operated a network of 151 solid waste collection operations; 68 transfer stations; seven intermodal facilities, 38 recycling operations, 54 active MSW, E&P and/or non-MSW landfills, 20 E&P liquid waste injection wells, 15 E&P waste treatment and recovery facilities and 19 oil recovery facilities.
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2012 Financial Performance
Operating Results
Revenues in 2012 increased 10.4% to $1.66 billion from $1.51 billion in 2011, primarily as a result of acquisitions. Decreased volumes and recycled commodity values offset internal growth from price increases. We expect acquisitions completed in the year to provide opportunities for future growth both in new markets such as Alaska and Minnesotas Twin Cities region, and in niche waste segments such as E&P waste.
As shown in the table below, internal growth decreased to negative 0.1% in 2012, from 4.7% in 2011. Pricing growth was 0.4 percentage points lower than in 2011, due to lower surcharges partially offset by a slight increase in core pricing. Decreases in landfill volumes, driven primarily by our decision to forego low-priced tonnage from one large hauler at one of our large landfills, decreased commercial hauling revenue due to declines in container sizes and service frequencies for our existing customers, and a reduction in customer counts due to competition in certain markets contributed to total volume growth decreasing to negative 2.1% in 2012 from negative 0.3% in 2011. Intermodal, recycling and other contributed negative 1.2% to internal growth in 2012, compared to 1.4% realized in 2011, due primarily to decreases in recycled commodity prices from record levels in the prior year.
2012 | 2011 | |||||||
Price |
3.2 | % | 3.6 | % | ||||
Volume |
(2.1 | %) | (0.3 | %) | ||||
Intermodal, Recycling and Other |
(1.2 | %) | 1.4 | % | ||||
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Internal Growth |
(0.1 | %) | 4.7 | % | ||||
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In 2012, adjusted operating income before depreciation and amortization, a non-GAAP financial measure (refer to page 56 of this report for a definition and reconciliation to Operating income), increased 7.9% to $528.4 million, from $489.6 million in 2011. As a percentage of revenue, adjusted operating income before depreciation and amortization decreased from 32.5% in 2011, to 31.8% in 2012. This 0.7 percentage point decrease was primarily attributable to lower contributions from higher margin revenue components resulting from lower recycled commodity values and disposal volumes, and increased maintenance and repair costs. Adjusted net income attributable to Waste Connections, a non-GAAP financial measure (refer to page 57 of this report for a definition and reconciliation to Net income attributable to Waste Connections), in 2012 increased 4.4% to $188.1 million from $180.1 million in 2011.
Adjusted Free Cash Flow
Net cash provided by operating activities increased 7.3% to $416.3 million in 2012, from $388.2 million in 2011, and capital expenditures increased 8.2% to $153.5 million over that period. Adjusted free cash flow, a non-GAAP financial measure (refer to page 55 of this report for a definition and reconciliation to Net cash provided by operating activities), increased 8.2% to $275.8 million in 2012, from $254.8 million in 2011. Adjusted free cash flow as a percentage of revenues was 16.6% in 2012, compared to 16.9% in 2011. This decrease as a percentage of revenues was primarily due to increased cash taxes associated with year-to-year changes in tax deductible timing differences associated with depreciation.
Return of Capital to Stockholders
In 2012, we returned $63.1 million to stockholders through a combination of cash dividends and stock repurchases. Our Board of Directors declared dividends totaling $44.5 million throughout 2012, and increased the quarterly cash dividend by 11.1% from $0.09 to $0.10 per share of common stock in October 2012. Our Board of Directors intends to review the quarterly dividend during the fourth quarter of each year, with a long-term objective of increasing the amount of the dividend. We also repurchased approximately 0.6 million shares of common stock at a cost of $18.6 million during 2012. We expect the amount of capital we return to stockholders through stock repurchases to vary depending on our financial condition and results of operations, capital structure, the amount of cash we deploy on acquisitions, the market price of our common stock, and overall market conditions. We cannot assure you as to the amounts or timing of future stock repurchases or dividends. We have the ability under our senior revolving credit facility to repurchase our common stock and pay dividends provided we maintain specified financial ratios.
Capital Position
We target a leverage ratio, as defined in our credit facility, at approximately 2.75x total debt to earnings before interest, taxes, depreciation and amortization, or EBITDA. We deployed $1.580 billion during 2012 for acquisitions, which was primarily funded by borrowings during the year, proceeds from a common stock offering and, to a lesser extent, operating cash flow. As a result, our leverage ratio increased approximately 0.5x above our targeted level at year-end 2012, but we expect our free cash flow in 2013 to reduce this ratio below 3.0x by year-end 2013, excluding the impact of any additional acquisitions that may close during the year.
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Critical Accounting Estimates and Assumptions
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in the consolidated financial statements. As described by the SEC, critical accounting estimates and assumptions are those that may be material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and that have a material impact on the financial condition or operating performance of a company. Such critical accounting estimates and assumptions are applicable to our reportable segments. Based on this definition, we believe the following are our critical accounting estimates.
Insurance liabilities. We maintain high deductible insurance policies for automobile, general, employers, environmental and directors and officers liability as well as for employee group health insurance, property insurance and workers compensation. We carry umbrella policies for certain types of claims to provide excess coverage over the underlying policies and per incident deductibles. Our insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by our management with assistance from our third-party actuary and third-party claims administrator. The insurance accruals are influenced by our past claims experience factors, which have a limited history, and by published industry development factors. If we experience insurance claims or costs above or below our historically evaluated levels, our estimates could be materially affected. The frequency and amount of claims or incidents could vary significantly over time, which could materially affect our self-insurance liabilities. Additionally, the actual costs to settle the self-insurance liabilities could materially differ from the original estimates and cause us to incur additional costs in future periods associated with prior year claims.
Income taxes. Deferred tax assets and liabilities are determined based on differences between financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. If our judgment and estimates concerning assumptions made in calculating our expected future income tax rates are incorrect, our deferred tax assets and liabilities would change. Based on our net deferred tax liability balance at December 31, 2012, each 0.1 percentage point change to our expected future income tax rate would change our net deferred tax liability balance and income tax expense by approximately $1.1 million.
Accounting for landfills. We recognize landfill depletion expense as airspace of a landfill is consumed. Our landfill depletion rates are based on the remaining disposal capacity at our landfills, considering both permitted and probable expansion airspace. We calculate the net present value of our final capping, closure and post-closure commitments by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in our final capping, closure and post-closure liabilities being recorded in layers. The resulting final capping, closure and post-closure obligation is recorded on the balance sheet along with an offsetting addition to site costs, which is amortized to depletion expense as the remaining landfill airspace is consumed. Interest is accreted on the recorded liability using the corresponding discount rate. The accounting methods discussed below require us to make certain estimates and assumptions. Changes to these estimates and assumptions could have a material effect on our financial condition and results of operations. Any changes to our estimates are applied prospectively.
Landfill development costs. Landfill development costs include the costs of acquisition, construction associated with excavation, liners, site berms, groundwater monitoring wells, gas recovery systems and leachate collection systems. We estimate the total costs associated with developing each landfill site to its final capacity. Total landfill costs include the development costs associated with expansion airspace. Expansion airspace is described below. Landfill development costs depend on future events and thus actual costs could vary significantly from our estimates. Material differences between estimated and actual development costs may affect our cash flows by increasing our capital expenditures and thus affect our results of operations by increasing our landfill depletion expense.
Final capping, closure and post-closure obligations. We accrue for estimated final capping, closure and post-closure maintenance obligations at the landfills we own, and five of the six landfills that we operate, but do not own, under life-of-site agreements. We could have additional material financial obligations relating to final capping, closure and post-closure costs at other disposal facilities that we currently own or operate or that we may own or operate in the future. Our discount rate assumption for purposes of computing 2012 and 2011 layers for final capping, closure and post-closure obligations was 5.75% for each year, which reflects our long-term cost of borrowing as of the end of 2011 and 2010. Our inflation rate assumption was 2.5% for the years ended December 31, 2012 and 2011. Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the landfill final capping, closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of operations. Additionally, changes in regulatory or legislative requirements could increase our costs related to our landfills, resulting in a material adverse effect on our financial condition and results of operations.
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We own two landfills for which the prior owners are obligated to reimburse us for certain costs we incur for final capping, closure and post-closure activities on the portion of the landfill utilized by the prior owners. We accrue the prior owners portion of the final capping, closure and post-closure obligation within the balance sheet classification of Other long-term liabilities, and a corresponding receivable from the prior owner in long-term Other assets.
Disposal capacity. Our internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at our landfills. Our landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills that we own and at certain landfills that we operate, but do not own, under life-of-site agreements. Our landfill depletion rate is based on the term of the operating agreement at our operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets the following criteria is included in our estimate of total landfill airspace:
1) | whether the land where the expansion is being sought is contiguous to the current disposal site, and we either own the expansion property or have rights to it under an option, purchase, operating or other similar agreement; |
2) | whether total development costs, final capping costs, and closure/post-closure costs have been determined; |
3) | whether 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) | whether internal personnel or external consultants are actively working to obtain the necessary approvals to obtain the landfill expansion permit; and |
5) | whether we consider it probable that we will achieve the expansion (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 we believe are more likely than not to impair the success of the expansion). |
We may be unsuccessful in obtaining permits for expansion disposal capacity at our landfills. In such cases, we will charge the previously capitalized development costs to expense. This will adversely affect our operating results and cash flows and could result in greater landfill depletion expense being recognized on a prospective basis.
We periodically evaluate our landfill sites for potential impairment indicators. Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of our landfills. Future events could cause us to conclude that impairment indicators exist and that our landfill carrying costs are impaired. Any resulting impairment loss could have a material adverse effect on our financial condition and results of operations.
Goodwill and indefinite-lived intangible assets testing. Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year. In the first step of testing for goodwill impairment, we estimate the fair value of each reporting unit, which we have determined to be our three geographic operating segments and our E&P group, and compare the fair value with the carrying value of the net assets assigned to each reporting unit. If the fair value of a reporting unit is greater than the carrying value of the net assets, including goodwill, assigned to the reporting unit, then no impairment results. If the fair value is less than its carrying value, then we would perform a second step and determine the fair value of the goodwill. In this second step, the fair value of goodwill is determined by deducting the fair value of a reporting units identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated. If the fair value of the goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to earnings in our Consolidated Statements of Net Income. In testing indefinite-lived intangible assets for impairment, we compare the estimated fair value of each indefinite-lived intangible asset to its carrying value. If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment charge would be recorded to earnings in our Consolidated Statements of Net Income.
To determine the fair value of each of our reporting units as a whole and each indefinite-lived intangible asset, we use discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit and the future discrete cash flows related to each indefinite-lived intangible asset. Significant judgments inherent in these analyses include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows employed in our 2012 discounted cash flow analyses were based on ten-year financial forecasts, which in turn were based on the 2013 annual budget developed internally by management. These forecasts reflect operating profit margins that were consistent with 2012 results and perpetual revenue growth rates of 3.5%. Our discount rate assumptions are based on an assessment of our weighted average cost of capital. In assessing the reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization.
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In addition, we would evaluate a reporting unit for impairment if events or circumstances change between annual tests indicating a possible impairment. Examples of such events or circumstances include the following:
| a significant adverse change in legal factors or in the business climate; |
| an adverse action or assessment by a regulator; |
| a more likely than not expectation that a segment or a significant portion thereof will be sold; or |
| the testing for recoverability of a significant asset group within the segment. |
We did not record an impairment charge as a result of our goodwill and indefinite-lived intangible assets impairment tests in 2012 and 2011.
Business Combination Accounting. We recognize, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. We measure and recognize goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of our previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed.
General
Our revenues consist mainly of fees we charge customers for collection, transfer, recycling and disposal of non-hazardous solid waste and treatment, recovery and disposal of non-hazardous E&P waste. 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 residential, commercial and industrial services. We frequently perform these services under service agreements, municipal contracts or franchise agreements with governmental entities. Our existing franchise agreements and most 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.
We typically determine the prices of our solid waste collection 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.
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 our transfer stations and landfill facilities. Many of our transfer station and landfill customers have entered into one to ten year disposal contracts with us, most of which provide for annual indexed price increases.
Our revenues from E&P treatment and disposal consist mainly of fees that we charge for the treatment of liquid and solid waste derived from the production of oil and natural gas. We also generate income from the transportation of waste to the disposal facility in certain markets and the sale of reclaimed oil and processed and treated waters.
Our revenues from recycling services consist of selling recyclable materials (including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals) collected from our residential customers and at our recycling processing operations to third parties for processing before resale.
Our revenues from intermodal services consist mainly of fees we charge customers for the movement of cargo and solid waste containers between our intermodal facilities. We also generate revenue from the storage, maintenance and repair of cargo and solid waste containers and the sale or lease of containers and chassis.
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No single contract or customer accounted for more than 10% of our total revenues at the consolidated or reportable segment level during the periods presented. The table below shows for the periods indicated our total reported revenues attributable to services provided (dollars in thousands).
Years Ended December 31, | ||||||||||||||||||||||||
2012 | 2011 | 2010 | ||||||||||||||||||||||
Solid waste collection |
$ | 1,176,333 | 62.1 | % | $ | 1,069,065 | 62.0 | % | $ | 951,327 | 62.9 | % | ||||||||||||
Solid waste disposal and transfer |
524,861 | 27.7 | 497,584 | 28.9 | 456,741 | 30.2 | ||||||||||||||||||
E&P waste treatment, disposal and recovery |
61,350 | 3.2 | 12,746 | 0.7 | 1,500 | 0.1 | ||||||||||||||||||
Solid waste recycling |
81,512 | 4.3 | 96,417 | 5.6 | 61,062 | 4.0 | ||||||||||||||||||
Intermodal and other |
50,321 | 2.7 | 48,166 | 2.8 | 42,912 | 2.8 | ||||||||||||||||||
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1,894,377 | 100.0 | % | 1,723,978 | 100.0 | % | 1,513,542 | 100.0 | % | ||||||||||||||||
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Less: intercompany elimination |
(232,759 | ) | (218,612 | ) | (193,785 | ) | ||||||||||||||||||
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Total revenue |
$ | 1,661,618 | $ | 1,505,366 | $ | 1,319,757 | ||||||||||||||||||
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Cost of operations includes labor and benefits, tipping fees paid to third-party disposal facilities, vehicle and equipment maintenance, workers compensation, vehicle and equipment insurance, insurance and employee group health 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 significant costs of operations in 2012 were labor, third-party disposal and transportation, vehicle and equipment maintenance, taxes and fees, insurance 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, utilizing comprehensive maintenance and health and safety programs, and increasing the use of transfer stations to further enhance internalization rates. We carry high-deductible insurance for automobile liability, property, general liability, workers compensation, employers liability and employer 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, or SG&A, expense includes management, sales force, clerical and administrative employee compensation and benefits, legal, accounting and other professional services, acquisition expenses, bad debt expense and rent expense for our corporate headquarters.
Depreciation expense includes depreciation of equipment and 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 probable expansion airspace. Amortization expense includes the amortization of finite-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.
We capitalize some third-party expenditures related to development projects, such as legal, engineering and interest expenses. We expense all third-party and indirect acquisition costs, including third-party legal and engineering expenses, 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 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. For example, if we are unsuccessful in our attempts to obtain or defend permits that we are seeking or have been awarded to operate or expand a landfill, we will no longer generate anticipated income from the landfill and we will be required to expense in a future period the amount of capitalized expenditures related to the landfill or expansion project, less the recoverable value of the property and other amounts recovered. See discussions regarding the Chaparral, New Mexico Landfill Permit Litigation, the Harper County, Kansas Landfill Permit Litigation and the Solano County, California Measure E/Landfill Expansion Litigation under the Legal Proceedings section of Note 11 of our consolidated financial statements included in Item 8 of this report.
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Results of Operations
The following table sets forth items in our Consolidated Statements of Net Income in thousands and as a percentage of revenues for the periods indicated:
Years Ended December 31, | ||||||||||||||||||||||||
2012 | % of Revenues | 2011 | % of Revenues | 2010 | % of Revenues | |||||||||||||||||||
Revenues |
$ | 1,661,618 | 100.0 | % | $ | 1,505,366 | 100.0 | % | $ | 1,319,757 | 100.0 | % | ||||||||||||
Cost of operations |
956,357 | 57.6 | 857,580 | 57.0 | 749,487 | 56.8 | ||||||||||||||||||
Selling, general and administrative |
197,454 | 11.9 | 161,967 | 10.8 | 149,860 | 11.3 | ||||||||||||||||||
Depreciation |
169,027 | 10.2 | 147,036 | 9.8 | 132,874 | 10.1 | ||||||||||||||||||
Amortization of intangibles |
24,557 | 1.5 | 20,064 | 1.3 | 14,582 | 1.1 | ||||||||||||||||||
Loss on disposal of assets |
1,627 | 0.0 | 1,657 | 0.0 | 571 | 0.1 | ||||||||||||||||||
Gain from litigation settlement |
(3,551 | ) | (0.2 | ) | | | | | ||||||||||||||||
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Operating income |
316,147 | 19.0 | 317,062 | 21.1 | 272,383 | 20.6 | ||||||||||||||||||
Interest expense |
(53,037 | ) | (3.2 | ) | (44,520 | ) | (3.0 | ) | (40,134 | ) | (3.0 | ) | ||||||||||||
Interest income |
773 | 0.0 | 530 | 0.0 | 590 | 0.1 | ||||||||||||||||||
Loss on extinguishment of debt |
| | | | (10,193 | ) | (0.8 | ) | ||||||||||||||||
Other income, net |
1,220 | 0.1 | 57 | 0.0 | 2,830 | 0.2 | ||||||||||||||||||
Income tax provision |
(105,443 | ) | (6.3 | ) | (106,958 | ) | (7.1 | ) | (89,334 | ) | (6.8 | ) | ||||||||||||
Net income attributable to noncontrolling interests |
(567 | ) | (0.0 | ) | (932 | ) | (0.0 | ) | (1,038 | ) | (0.1 | ) | ||||||||||||
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Net income attributable to Waste Connections |
$ | 159,093 | 9.6 | % | $ | 165,239 | 11.0 | % | $ | 135,104 | 10.2 | % | ||||||||||||
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Years Ended December 31, 2012 and 2011
Revenues. Total revenues increased $156.2 million, or 10.4%, to $1.662 billion for the year ended December 31, 2012, from $1.505 billion for the year ended December 31, 2011.
Revenues during the period from October 25, 2012 to December 31, 2012 from the R360 acquisition were $40.2 million. All other acquisitions closed during, or subsequent to, the year ended December 31, 2011, increased revenues by approximately $125.7 million. Operations divested during, or subsequent to, the year ended December 31, 2011, decreased revenues by approximately $7.1 million.
During the year ended December 31, 2012, the net increase in prices charged to our customers was $47.5 million, consisting of $45.1 million of core price increases and $2.4 million of fuel, materials and environmental surcharges.
Volume decreases in our existing business during the year ended December 31, 2012, decreased revenues by approximately $31.4 million. The net decreases in volume were primarily attributable to decreases in landfill municipal solid waste volumes, due primarily to the decision to forego low-priced tonnage from one large hauler at one of our large landfills; lower landfill special waste volumes, due primarily to a decrease in large non-recurring projects; decreased commercial hauling revenue, due primarily to service level declines with existing customers and a reduction in customer counts due to competition in our markets; and decreased roll off hauling activity, due primarily to construction slowdowns affecting our markets, partially offset by increased E&P waste treatment and disposal activity, due to increased drilling activity.
Decreased recyclable commodity prices during the year ended December 31, 2012, partially offset by increased recyclable commodity volumes collected, decreased revenues by $20.0 million. The decrease in recyclable commodity prices was primarily due to decreased overseas demand for recyclable commodities.
Other revenues increased by $1.3 million during the year ended December 31, 2012, primarily due to an increase in cargo volume at our intermodal operations.
We expect our revenues to increase during the year ending December 31, 2013 compared to the year ended December 31, 2012, due to the impact of a full year of results from acquisitions completed during 2012, particularly our R360 acquisition, which has only been reflected in our results since the closing of the acquisition on October 25, 2012.
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Cost of Operations. Total cost of operations increased $98.8 million, or 11.5%, to $956.4 million for the year ended December 31, 2012, from $857.6 million for the year ended December 31, 2011. The increase was primarily the result of $18.0 million of additional operating costs during the period from October 25, 2012 to December 31, 2012 from the R360 acquisition, $63.4 million of additional operating costs from all other acquisitions closed during, or subsequent to, the year ended December 31, 2011, and the following changes at operations owned in comparable periods in 2011 and 2012: an increase in labor expenses of $5.1 million due to employee pay increases, an increase in truck, container and equipment maintenance and repair expenses of $5.1 million due to increases in the prices for parts and services and variability in the timing and severity of major equipment repairs, an increase in third party trucking and transportation expenses of $3.0 million due to changes in the disposal internalization of collected waste volumes and increased special waste projects that require us to transport the volume to our disposal sites, an increase in disposal expenses on collected volumes of $2.7 million due to disposal rate increases and re-directing collected waste volumes to alternative third party disposal sites, an increase in employee benefit expenses of $2.0 million due to an increase in claims severity under our self-insured medical plan, an increase in leachate disposal costs of $1.8 million at certain landfills we own, an increase in auto and workers compensation expense under our high deductible insurance program of $1.8 million due to an increase in projected losses on open claims, an increase in equipment and real estate rental expense of $0.8 million associated with new facility leases and an increase in short-term equipment rentals, an increase in diesel fuel expenses of $0.7 million resulting from the net impact of higher market prices for fuel and reduced fuel gallons consumed in our operations, an increase in landfill monitoring and maintenance expenses of $0.5 million, an increase in insurance premiums under our high deductible insurance program of $0.5 million due to our growth from acquisitions, an increase in rail transportation expenses at our intermodal operations of $0.4 million due to rate increases and increased rail cargo volume and $0.7 million of other net increases, partially offset by a decrease in taxes on revenues of $6.2 million due primarily to lower landfill revenues at our Western segment, which has higher tax rates on disposal revenues, and a decrease in the cost of recyclable commodities of $1.5 million due to declines in commodity values.
Cost of operations as a percentage of revenues increased 0.6 percentage points to 57.6% for the year ended December 31, 2012, from 57.0% for the year ended December 31, 2011. The increase as a percentage of revenues was attributable to a 0.4 percentage point increase from increased vehicle, container and equipment maintenance expenses, a 0.3 percentage point increase from increased labor expenses, a 0.2 percentage point increase in disposal expenses, a 0.2 percentage point increase from increased third party trucking expenses, a 0.1 percentage point increase from increased employee benefit expenses, a 0.1 percentage point increase from increased leachate disposal expenses, a 0.1 percentage point increase in equipment and real estate rental expenses and a 0.1 percentage point increase from increased auto and workers compensation expenses, partially offset by a 0.5 percentage point decrease from decreased taxes on revenues and a 0.4 percentage point decrease due to acquisitions closed during, or subsequent to, the year ended December 31, 2011 having lower cost of operations as a percentage of revenue than our company average.
We expect our cost of operations to increase during the year ending December 31, 2013 compared to the year ended December 31, 2012, due to the impact of a full year of results from acquisitions completed during 2012, particularly our R360 acquisition.
SG&A. SG&A expenses increased $35.5 million, or 21.9%, to $197.5 million for the year ended December 31, 2012, from $162.0 million for the year ended December 31, 2011. The increase was primarily the result of $5.4 million of additional SG&A expenses during the period from October 25, 2012 to December 31, 2012 from the R360 acquisition, $8.7 million of additional SG&A expenses from all other acquisitions closed during, or subsequent to, the year ended December 31, 2011, and the following changes at operations owned in comparable periods in 2011 and 2012: $7.9 million of expenses associated with the relocation of our corporate headquarters from Folsom, California to The Woodlands, Texas, $3.6 million of equity-based compensation expense resulting from a grant of immediately vested restricted stock units to certain executive officers at the time the executives agreed to modifications to their employment contracts, an increase in payroll and payroll-related expenses of $3.0 million primarily related to annual compensation increases, $2.7 million of direct acquisition expenses associated with completing the R360 acquisition, an increase in direct acquisition expenses of $0.9 million associated with all other acquisitions closed during, or subsequent to, the year ended December 31, 2011, an increase in equity-based compensation expense associated with our annual grant of restricted stock units to our personnel of $1.3 million, $1.1 million of severance expenses associated with headcount reductions at our R360 business, an increase in benefit expenses for sales and administrative employees of $1.0 million due to an increase in claims severity under our self-insured medical plan, an increase in deferred compensation expense resulting from deferred compensation liabilities to employees being increased as a result of increases in the market value of investments to which employee deferred compensation balances are tracked of $0.9 million, an increase in employee travel expenses of $0.8 million and an increase in real estate rental expense of $0.8 million due primarily to the lease of our temporary corporate offices in The Woodlands, TX, partially offset by a decrease in uncollectible accounts receivable expenses of $1.5 million due primarily to a charge recorded in 2011 resulting from the bankruptcy filing of a customer in our Western segment and a decrease in professional fees of $1.1 million due primarily to decreased legal expenses and decreased third party payroll processing expenses.
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SG&A expenses as a percentage of revenues increased 1.1 percentage points to 11.9% for the year ended December 31, 2012, from 10.8% for the year ended December 31, 2011. The increase as a percentage of revenues was attributable to a 0.6 percentage point increase from expenses associated with the relocation of our corporate headquarters to The Woodlands, Texas, a 0.4 percentage point increase from higher equity-based compensation expense, a 0.3 percentage point increase from the increase in direct acquisition expenses and a 0.3 percentage point increase from increased payroll and severance expenses, partially offset by a 0.4 percentage point decrease due to acquisitions closed during, or subsequent to, the year ended December 31, 2011 having lower SG&A expenses as a percentage of revenue than our company average and a 0.1 percentage point decrease due to the decrease in uncollectible accounts receivable.
In December 2011, we commenced a relocation of our corporate headquarters from Folsom, California to The Woodlands, Texas. The relocation was substantially completed in 2012. In connection with the relocation, we have incurred a total of $8.1 million in increased SG&A costs in 2011 and 2012 related to personnel and office relocation expenses and estimate that we will incur between $0.5 million and $1.5 million in 2013 as we complete our relocation. In addition, we expect to incur a loss on lease in either the second or third quarter of 2013 on the cessation of use of our former corporate headquarters in Folsom, California, which we estimate could range between $8 million and $10 million.
We expect our SG&A expenses to increase during the year ending December 31, 2013 compared to the year ended December 31, 2012, due to the impact of a full year of results from acquisitions completed during 2012, particularly our R360 acquisition.
Depreciation. Depreciation expense increased $22.0 million, or 15.0%, to $169.0 million for the year ended December 31, 2012, from $147.0 million for the year ended December 31, 2011. The increase was primarily attributable to $2.6 million of depreciation and $5.3 million of depletion during the period from October 25, 2012 to December 31, 2012 from the R360 acquisition, $7.1 million of depreciation and $6.9 million of depletion from all other acquisitions closed during, or subsequent to, the year ended December 31, 2011, and an increase in depreciation expense associated with additions to our fleet and equipment purchased to support our existing operations of $2.1 million, partially offset by a $2.0 million decrease in depletion at our existing operations due primarily to a decrease in municipal solid waste and special waste landfill volumes.
Depreciation expense as a percentage of revenues increased 0.4 percentage points to 10.2% for the year ended December 31, 2012, from 9.8% for the year ended December 31, 2011. The increase as a percentage of revenues was attributable to a 0.5 percentage point increase from increase in depletion expense from landfills acquired during, or subsequent to, the year ended December 31, 2011, which have a higher depletion rate per ton relative to our company average, and a 0.1 percentage point increase in depreciation expense at our existing operations due primarily to our operating equipment requirements remaining constant despite declines in revenues from volume decreases and decreased recyclable commodity prices, partially offset by a 0.2 percentage point decrease in depletion expense at our existing operations due primarily to lower landfill municipal solid waste and special waste volumes.
Amortization of Intangibles. Amortization of intangibles expense increased $4.5 million, or 22.4%, to $24.6 million for the year ended December 31, 2012, from $20.1 million for the year ended December 31, 2011. The increase was primarily attributable to $0.4 million of amortization expense during the period from October 25, 2012 to December 31, 2012 for permits and customer lists from the R360 acquisition and $4.1 million of amortization expense for contracts and customer lists acquired from all other acquisitions closed during, or subsequent to, the year ended December 31, 2011.
Amortization expense as a percentage of revenues increased 0.2 percentage points to 1.5% for the year ended December 31, 2012, from 1.3% for the year ended December 31, 2011. The increase in amortization expense as a percentage of revenues was due to the aforementioned amortization expense increases.
Gain from Litigation Settlement. Gain from litigation settlement of $3.6 million for the year ended December 31, 2012 consists of an award received from an arbitration we filed against a counter-party to a disposal agreement that breached that agreement.
Operating Income. Operating income decreased $1.0 million, or 0.3%, to $316.1 million for the year ended December 31, 2012, from $317.1 million for the year ended December 31, 2011. The decrease was primarily attributable to the $98.8 million increase in operating costs, $35.5 million increase in SG&A expense, $22.0 million increase in depreciation expense and $4.5 million increase in amortization of intangibles expense, partially offset by the $156.2 million increase in revenues and $3.6 million increase in gain from litigation settlement.
Operating income as a percentage of revenues decreased 2.1 percentage points to 19.0% for the year ended December 31, 2012, from 21.1% for the year ended December 31, 2011. The decrease as a percentage of revenues was due to the previously described 1.1 percentage point increase in SG&A expense, 0.6 percentage point increase in cost of operations, 0.4 percentage point increase in depreciation expense and 0.2 percentage point increase in amortization expense, partially offset by the 0.2 percentage point increase in gain from litigation settlement.
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Interest Expense. Interest expense increased $8.5 million, or 19.1%, to $53.0 million for the year ended December 31, 2012, from $44.5 million for the year ended December 31, 2011, due to the following changes for the comparable periods in 2011 and 2012: an increase of $3.3 million from the issuance of our $800 million term loan facility to fund a portion of the consideration for the R360 acquisition, an increase of $2.5 million from the April 2011 issuance of our 2016 Notes, 2018 Notes and 2021 Notes, an increase of $1.2 million from the amortization of debt issuance costs and increased commitment fees on the increased unused portion of our senior revolving credit facility, an increase of $1.2 million from an increase in the applicable margin above the base rate or LIBOR rate under our senior revolving credit facility that we entered into in July 2011, an increase of $1.3 million resulting from interest accretion expense recorded on long-term liabilities recorded at fair value associated with acquisitions closed during, or subsequent to, the year ended December 31, 2011, and an increase of $0.5 million due to the commencement of a $150 million interest rate swap in April 2012 with a fixed rate of 0.80%, partially offset by a decrease of $1.0 million due to a reduction in the average outstanding balance on our senior revolving credit facility during the comparable 12 month periods, a decrease of $0.3 million due to the expiration of a $50 million interest rate swap in June 2011 with a fixed rate of 4.29% and a decrease of $0.2 million due to a reduction in the fixed interest rate paid on $175 million of interest rate swaps. In February 2011, three interest rate swaps with a combined notional amount of $175 million and a fixed interest rate of 4.37% expired and we commenced a new $175 million interest rate swap with a fixed interest rate of 2.85%.
Income Tax Provision. Income taxes decreased $1.6 million, or 1.4%, to $105.4 million for the year ended December 31, 2012, from $107.0 million for the year ended December 31, 2011, as a result of decreased pre-tax income.
Our effective tax rates for the years ended December 31, 2012 and 2011, were 39.8% and 39.2%, respectively.
During the year ended December 31, 2012, income tax expense and our effective tax rate were increased by $2.6 million and 1.0 percentage points, respectively, associated with an adjustment in deferred tax liabilities resulting from changes in the geographical apportionment of our state income taxes primarily due to the R360 acquisition, and $1.1 million and 0.4 percentage points, respectively, due to $2.9 million of the $3.6 million equity-based compensation granted to certain executive officers, incurred at the time the executives agreed to modifications to their employment contracts, being non-deductible expenses.
Additionally, the reconciliation of the income tax provision to the 2011 federal and state tax returns, which were filed during 2012, decreased tax expense by $1.7 million and reduced our effective tax rate by 0.6 percentage points for the year ended December 31, 2012.
Years Ended December 31, 2011 and 2010
Revenues. Total revenues increased $185.6 million, or 14.1%, to $1.51 billion for the year ended December 31, 2011, from $1.32 billion for the year ended December 31, 2010.
Acquisitions closed during, or subsequent to, the year ended December 31, 2010, increased revenues by approximately $128.1 million. Operations divested during, or subsequent to, the year ended December 31, 2010, decreased revenues by approximately $3.4 million.
During the year ended December 31, 2011, the net increase in prices charged to our customers was $47.0 million, consisting of $36.7 million of core price increases and $10.3 million of fuel, materials and environmental surcharges.
Volume decreases in our existing business during the year ended December 31, 2011, decreased revenues by approximately $3.9 million. The net decrease in volume was primarily attributable to decreases in commercial hauling activity, partially offset by increases in landfill special waste volumes and roll off hauling activity.
Recyclable commodity price increases, which occurred during the nine months ended September 30, 2011, and increased recyclable commodity volumes collected, increased revenues by $14.0 million. The increase in recyclable commodity prices during the nine months ended September 30, 2011 was primarily due to increased overseas demand for recyclable commodities. Recyclable commodity prices during the three months ended December 31, 2011 and 2010 were consistent, as the increased demand occurring during the nine months ended September 30, 2011 did not continue during the final three months of 2011.
Other revenues increased by $3.8 million during the year ended December 31, 2011, primarily due to an increase in cargo volume at our intermodal operations.
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Cost of Operations. Total cost of operations increased $108.1 million, or 14.4%, to $857.6 million for the year ended December 31, 2011, from $749.5 million for the year ended December 31, 2010. The increase was primarily attributable to $67.4 million of additional operating costs associated with acquisitions closed during, or subsequent to, the year ended December 31, 2010, and the following changes at operations owned in comparable periods in 2010 and 2011: an increase in diesel fuel expense of $13.8 million resulting from higher market prices for fuel, an increase in labor expenses of $6.1 million due primarily to employee pay rate increases and an increase in temporary labor, an increase in franchise fees and taxes on revenues of $5.0 million due to increased tax rates and increased landfill volumes, an increase in truck, equipment and container repair expenses of $4.8 million due to increases in the prices for parts and services and variability in the timing and severity of major equipment repairs, an increase in third party trucking and transportation expenses of $3.1 million due to increased waste disposal internalization, an increase in expenses associated with the cost of purchasing recyclable commodities of $2.6 million due to recyclable commodity pricing increases, an increase in rail transportation expenses at our intermodal operations of $2.5 million, an increase in employee medical benefit expenses of $1.9 million resulting from increased claims cost and severity and $0.9 million of other net increases.
Cost of operations as a percentage of revenues increased 0.2 percentage points to 57.0% for the year ended December 31, 2011, from 56.8% for the year ended December 31, 2010. The increase as a percentage of revenues was attributable to a 0.7 percentage point increase from increased diesel fuel expense, a 0.3 percentage point increase from acquisitions closed during, or subsequent to, the year ended December 31, 2010 having higher disposal costs as a percentage of revenue relative to our company average and a 0.2 percentage point increase from increased costs of purchasing recyclable commodities, partially offset by a 0.5 percentage point decrease from higher gross margins on landfill special waste volumes and a 0.5 percentage point decrease from leveraging existing personnel to support increases in landfill volumes, recyclable commodity revenue and intermodal revenue.
SG&A. SG&A expenses increased $12.1 million, or 8.1%, to $162.0 million for the year ended December 31, 2011, from $149.9 million for the year ended December 31, 2010. The increase was primarily attributable to $8.2 million of additional SG&A expenses from acquisitions closed during, or subsequent to, the year ended December 31, 2010, and the following changes at operations owned in comparable periods in 2010 and 2011: an increase in payroll and payroll-related expenses of $3.3 million primarily related to annual compensation increases, an increase in equity compensation expense of $0.8 million due to an increase in the total value of restricted stock units granted to our employees, an increase in contributions to community organizations and public programs in our operating markets of $0.8 million, an increase in employee travel expenses of $0.8 million, an increase in cash incentive compensation expense of $0.6 million due to improved consolidated financial results and an increase in expenses for uncollectible accounts receivable of $0.2 million, partially offset by a decrease in employee deferred compensation expense of $0.8 million resulting from deferred compensation liabilities to employees being reduced as a result of declines in the market value of investments to which employee deferred compensation balances are tracked, a decrease in advertising expenses of $0.8 million, a decrease in direct acquisition expenses of $0.3 million and $0.7 million of other net decreases.
SG&A expenses as a percentage of revenues decreased 0.5 percentage points to 10.8% for the year ended December 31, 2011, from 11.3% for the year ended December 31, 2010. The decrease was comprised of a 0.3 percentage point decrease from acquisitions closed during, or subsequent to, the year ended December 31, 2010 having lower SG&A expenses as a percentage of revenue than our company average, a 0.1 percentage point decrease from decreased employee deferred compensation expense and a 0.1 percentage point decrease from decreased advertising expenses.
Depreciation. Depreciation expense increased $14.1 million, or 10.7%, to $147.0 million for the year ended December 31, 2011, from $132.9 million for the year ended December 31, 2010. The increase was primarily attributable to $7.9 million of depreciation and $1.5 million of depletion from acquisitions closed during, or subsequent to, the year ended December 31, 2010, and an increase in depreciation expense associated with additions to our fleet and equipment purchased to support our existing operations of $3.9 million and an increase in depletion at our existing operations of $0.8 million due to increases in landfill volumes.
Depreciation expense as a percentage of revenues decreased 0.3 percentage points to 9.8% for the year ended December 31, 2011, from 10.1% for the year ended December 31, 2010. The decrease as a percentage of revenues was attributable to a 0.1 percentage point decrease in depletion expense from landfills acquired during, or subsequent to, the year ended December 31, 2010, which have a lower depletion rate per ton relative to our company average, a 0.1 percentage point decrease in depreciation expense at our existing operations due primarily to leveraging existing property and equipment to support increases in landfill volumes, recyclable commodity revenue and intermodal revenue and a 0.1 percentage point decrease in depletion expense at our existing operations.
Amortization of Intangibles. Amortization of intangibles expense increased $5.5 million, or 37.6%, to $20.1 million for the year ended December 31, 2011, from $14.6 million for the year ended December 31, 2010. Amortization expense as a percentage of revenues increased 0.2 percentage points to 1.3% for the year ended December 31, 2011, from 1.1% for the year ended December 31, 2010. The increases were due primarily to the amortization of contracts and customer lists acquired during, or subsequent to, the year ended December 31, 2010.
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Operating Income. Operating income increased $44.7 million, or 16.4%, to $317.1 million for the year ended December 31, 2011, from $272.4 million for the year ended December 31, 2010. The increase was primarily attributable to increased revenues, partially offset by increased operating costs, increased SG&A expense, and increased depreciation expense and amortization of intangibles expense.
Operating income as a percentage of revenues increased 0.5 percentage points to 21.1% for the year ended December 31, 2011, from 20.6% for the year ended December 31, 2010. The increase as a percentage of revenues was primarily due to the previously described 0.5 percentage point decrease in SG&A expense and 0.3 percentage point decrease in depreciation expense, partially offset by the 0.2 percentage point increase in cost of operations and 0.2 percentage point increase in amortization expense.
Interest Expense. Interest expense increased $4.4 million, or 10.9%, to $44.5 million for the year ended December 31, 2011, from $40.1 million for the year ended December 31, 2010. The increase was comprised of a $7.5 million increase from the April 2011 issuance of our 2016 Notes, 2018 Notes and 2021 Notes, an increase of $1.5 million from a higher average outstanding balance on our senior revolving credit facility during the comparable 12 month periods and an increase in the applicable margin above the base rate or LIBOR rate under our senior revolving credit facility that we entered into in July 2011, an increase of $0.4 million resulting from interest accretion expense recorded on long-term liabilities recorded at fair value associated with acquisitions closed during the year ended December 31, 2011, a $0.9 million increase in the amortization of debt issuance costs and increased commitment fees on the increased unused portion of our senior revolving credit facility and $0.1 million of other net increases, partially offset by a decrease of $1.4 million due to funding the redemption of our 2026 Notes with borrowings under our credit facility at lower interest rates, a decrease of $1.3 million due to a reduction in the amortization of our debt discount and debt issuance costs on the redeemed 2026 Notes and a combined decrease of $3.3 million due to the expiration of a $50 million interest rate swap in June 2011 with a fixed rate of 4.29% and the reduction in the fixed interest rate paid on $175 million of interest rate swaps. In February 2011, three interest rate swaps with a combined notional amount of $175 million and fixed interest rate of 4.37% expired and we commenced a new $175 million interest rate swap with a fixed interest rate of 2.85%.
Loss on Extinguishment of Debt. Loss on extinguishment of debt for the year ended December 31, 2010, consisted of an expense charge of $9.7 million associated with the redemption of our 2026 Notes and an expense charge of $0.5 million associated with the redemption of our Wasco Bonds.
Income Tax Provision. Income taxes increased $17.7 million, or 19.7%, to $107.0 million for the year ended December 31, 2011, from $89.3 million for the year ended December 31, 2010.
Our effective tax rates for the years ended December 31, 2011 and 2010, were 39.2% and 39.6%, respectively.
During the year ended December 31, 2010, we recorded a $1.5 million increase in the income tax provision associated with an adjustment in deferred tax liabilities resulting from a voter-approved increase in Oregon state income tax rates and changes to the geographic apportionment of our state income taxes.
Segment Reporting
Our Chief Operating Decision Maker evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement. Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies. Our management uses operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in the evaluation of segment operating performance as it is a profit measure that is generally within the control of the operating segments.
Prior to October 2012, we managed our operations through three geographic operating segments which were also our reportable segments. In October 2012, as a result of the R360 acquisition described in Note 3 of our consolidated financial statements included in Item 8 of this report, we realigned our reporting structure and created a fourth operating segment, the E&P group, which includes the majority of our E&P waste treatment and disposal operations; our three geographic operating segments and our E&P group are also our reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of districts. The segment information presented herein reflects the addition of the new E&P group. Under the current orientation, our Western Region is comprised of operating locations in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; our Central Region is comprised of operating locations in Arizona, Colorado, Kansas, Louisiana, Minnesota, Nebraska, New Mexico, Oklahoma, South Dakota, Texas, Utah and eastern Wyoming; and our Eastern Region is comprised of operating locations in Alabama, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, New York, North Carolina, South Carolina and Tennessee. The E&P group is comprised of our E&P operations in Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.
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Revenues, net of intercompany eliminations, for our reportable segments are shown in the following table for the periods indicated (in thousands):
Years Ended December 31, | ||||||||||||||||||||||||
2012 | % of Revenues | 2011 | % of Revenues | 2010 | % of Revenues | |||||||||||||||||||
Western |
$ | 782,134 | 47.1 | % | $ | 742,588 | 49.3 | % | $ | 709,821 | 53.8 | % | ||||||||||||
Central |
472,469 | 28.4 | 430,177 | 28.6 | 386,697 | 29.3 | ||||||||||||||||||
Eastern |
366,825 | 22.1 | 332,601 | 22.1 | 223,239 | 16.9 | ||||||||||||||||||
E&P |
40,190 | 2.4 | | | | | ||||||||||||||||||
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$ | 1,661,618 | 100.0 | % | $ | 1,505,366 | 100.0 | % | $ | 1,319,757 | 100.0 | % | |||||||||||||
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Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement for our reportable segments is shown in the following table for the periods indicated (in thousands):
Years Ended December 31, | ||||||||||||||||||||||||
2012 | % of Revenues | 2011 | % of Revenues | 2010 | % of Revenues | |||||||||||||||||||
Western |
$ | 229,427 | 13.8 | % | $ | 232,940 | 15.5 | % | $ | 218,254 | 16.5 | % | ||||||||||||
Central |
171,616 | 10.3 | 152,059 | 10.1 | 127,861 | 9.7 | ||||||||||||||||||
Eastern |
101,046 | 6.1 | 95,301 | 6.3 | 69,013 | 5.2 | ||||||||||||||||||
E&P |
16,791 | 1.0 | | | | | ||||||||||||||||||
Corporate(a) |
(11,073 | ) | (0.6 | ) | 5,519 | 0.4 | 5,282 | 0.4 | ||||||||||||||||
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$ | 507,807 | 30.6 | % | $ | 485,819 | 32.3 | % | $ | 420,410 | 31.8 | % | |||||||||||||
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(a) | Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions. Amounts reflected are net of allocations to the four operating segments. |
A reconciliation of Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement to Income before income tax provision is included in Note 15 of our consolidated financial statements included in Item 8 of this report.
Significant changes in revenue and operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement for our reportable segments for the year ended December 31, 2012, compared to the year ended December 31, 2011 and for the year ended December 31, 2011, compared to the year ended December 31, 2010, are discussed below.
Segment Revenue
Revenue in our Western segment increased $39.5 million, or 5.3%, to $782.1 million for the year ended December 31, 2012, from $742.6 million for the year ended December 31, 2011. The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2011, of $59.1 million, net price increases of $17.8 million and intermodal revenue increases of $1.0 million, partially offset by decreases of $2.2 million from divested operations, volume decreases of $21.6 million, recyclable commodity sales decreases of $14.2 million and other revenue decreases of $0.4 million.
Revenue in our Western segment increased $32.8 million, or 4.6%, to $742.6 million for the year ended December 31, 2011, from $709.8 million for the year ended December 31, 2010. The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2010, of $0.7 million, net price increases of $17.4 million, recyclable commodity sales increases of $11.9 million, intermodal revenue increases of $3.8 million and other revenue increases of $0.4 million, partially offset by decreases of $1.3 million from divested operations and volume decreases of $0.1 million.
Revenue in our Central segment increased $42.3 million, or 9.8%, to $472.5 million for the year ended December 31, 2012, from $430.2 million for the year ended December 31, 2011. The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2011, of $28.5 million and net price increases of $19.7 million, partially offset by decreases of $3.1 million from divested operations, recyclable commodity sales decreases of $2.6 million and other revenue decreases of $0.2 million.
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Revenue in our Central segment increased $43.5 million, or 11.2%, to $430.2 million for the year ended December 31, 2011, from $386.7 million for the year ended December 31, 2010. The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2010, of $29.4 million, net price increases of $20.0 million and recyclable commodity sales increases of $1.4 million, partially offset by decreases of $1.5 million from divested operations and volume decreases of $5.8 million.
Revenue in our Eastern segment increased $34.2 million, or 10.3%, to $366.8 million for the year ended December 31, 2012, from $332.6 million for the year ended December 31, 2011. The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2011, of $38.1 million, net price increases of $10.0 million and other revenue increases of $0.9 million, partially offset by decreases of $1.8 million from divested operations, volume decreases of $9.8 million and recyclable commodity sales decreases of $3.2 million.
Revenue in our Eastern segment increased $109.4 million, or 49.0%, to $332.6 million for the year ended December 31, 2011, from $223.2 million for the year ended December 31, 2010. The components of the increase consisted of revenue growth from acquisitions closed during, or subsequent to, the year ended December 31, 2010, of $98.0 million, net price increases of $9.6 million, volume increases of $2.0 million and recyclable commodity sales increases of $0.7 million, partially offset by decreases of $0.6 million from divested operations and other revenue decreases of $0.3 million.
Revenue in our E&P segment was $40.2 million for the period from October 25, 2012 to December 31, 2012 due to the R360 acquisition, which created the new segment.
Segment Operating Income before Depreciation, Amortization, Gain (Loss) on Disposal of Assets and Gain From Litigation Settlement
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our Western segment decreased $3.5 million, or 1.5%, to $229.4 million for the year ended December 31, 2012, from $232.9 million for the year ended December 31, 2011. The decrease was primarily due to decreased recyclable commodity revenue, decreased collection and landfill municipal solid waste and special waste volumes, increased allocation of expenses from corporate due to an increase in budgeted revenues, increased leachate disposal expenses, increased disposal expenses, increased third party trucking and transportation expenses and increased property and equipment rent expenses, partially offset by price increases charged to our customers, decreased taxes on revenues, decreased expenses associated with the cost of recyclable commodities, decreased professional fees, decreased expenses for uncollectible accounts receivable and income generated from acquisitions closed during, or subsequent to, the year ended December 31, 2011.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our Western segment increased $14.6 million, or 6.7%, to $232.9 million for the year ended December 31, 2011, from $218.3 million for the year ended December 31, 2010. The increase was primarily due to increased revenues, decreased disposal expenses and decreased third party trucking and transportation expenses at our collection and disposal operations, partially offset by increased rail transportation expenses at our intermodal operations, increased franchise fees and taxes on revenues, increased expenses associated with the cost of purchasing recyclable commodities, increased direct and administrative labor expenses, increased diesel fuel expense and increased truck, equipment and container repair expenses.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our Central segment increased $19.5 million, or 12.9%, to $171.6 million for the year ended December 31, 2012, from $152.1 million for the year ended December 31, 2011. The increase was primarily due to increased E&P waste treatment and disposal revenue at operating locations owned prior to the R360 acquisition, price increases charged to our customers and income generated from acquisitions closed during, or subsequent to, the year ended December 31, 2011, partially offset by decreased collection and landfill municipal solid waste volumes, decreased recyclable commodity revenue, increased allocation of expenses from corporate due to an increase in budgeted revenues, increased third party trucking and transportation expenses, increased truck, container and equipment maintenance and repair expenses, increased landfill monitoring and maintenance expenses, increased diesel fuel expenses and increased labor expenses.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our Central segment increased $24.2 million, or 18.9%, to $152.1 million for the year ended December 31, 2011, from $127.9 million for the year ended December 31, 2010. The increase was primarily due to income generated from acquisitions closed during, or subsequent to, the year ended December 31, 2011 and the following changes at operations owned in comparable periods in 2010 and 2011: increased revenues, decreased auto and workers compensation insurance expenses and decreased advertising expenses, partially offset by increased disposal expenses, increased third party trucking and transportation expenses, increased taxes on revenues, increased diesel fuel expense and increased truck, equipment and container repair expenses.
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Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our Eastern segment increased $5.7 million, or 6.0%, to $101.0 million for the year ended December 31, 2012, from $95.3 million for the year ended December 31, 2011. The increase was primarily due to price increases charged to our customers and income generated from acquisitions closed during, or subsequent to, the year ended December 31, 2011 and decreased expenses for uncollectible accounts receivable, partially offset by decreased collection and landfill municipal solid waste volumes, decreased recyclable commodity revenue, increased allocation of expenses from corporate due to an increase in budgeted revenues, increased diesel fuel expenses, increased third party trucking and transportation expenses, increased truck, container and equipment maintenance and repair expenses, increased auto and workers compensation expense under our high deductible insurance program and increased labor expenses.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our Eastern segment increased $26.3 million, or 38.1%, to $95.3 million for the year ended December 31, 2011, from $69.0 million for the year ended December 31, 2010. The increase was primarily due to income generated from acquisitions closed during, or subsequent to, the year ended December 31, 2010 and the following changes at operations owned in comparable periods in 2010 and 2011: increased revenues, partially offset by increased third party trucking and transportation expenses, increased taxes on revenues, increased direct labor expenses, increased diesel fuel expense, increased truck, equipment and container repair expenses and increased expenses for uncollectible accounts receivable.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in our E&P segment was $16.8 million for the period from October 25, 2012 to December 31, 2012, due to the R360 acquisition, which created this new segment.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement at Corporate decreased $16.6 million, or 300.6%, to a loss of $11.1 million for the year ended December 31, 2012, from income of $5.5 million for the year ended December 31, 2011. The decrease was primarily due to an increase in direct acquisition expenses, increased deferred compensation expense resulting from deferred compensation liabilities to employees being increased as a result of increases in the market value of investments to which employee deferred compensation balances are tracked, expenses associated with the relocation of our corporate headquarters from Folsom, California to The Woodlands, Texas and increased equity-based compensation expense, including a grant of immediately vested restricted stock units to certain executive officers at the time the executives agreed to modifications to their employment contracts.
Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement at Corporate increased $0.2 million, or 4.5%, to $5.5 million for the year ended December 31, 2011, from $5.3 million for the year ended December 31, 2010. Our estimated recurring corporate expenses, which can vary from the actual amount of incurred corporate expenses, are allocated to our three geographic operating segments based upon each geographic operating segments pro rata portion of current year consolidated budgeted revenue.
Liquidity and Capital Resources
The following table sets forth certain cash flow information for the years ended December 31, 2012, 2011 and 2010 (in thousands):
2012 | 2011 | 2010 | ||||||||||
Net cash provided by operating activities |
$ | 416,327 | $ | 388,170 | $ | 332,179 | ||||||
Net cash used in investing activities |
(1,733,847 | ) | (400,005 | ) | (214,224 | ) | ||||||
Net cash provided by (used in) financing activities |
1,328,089 | 14,605 | (117,721 | ) | ||||||||
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Net increase in cash and equivalents |
10,569 | 2,770 | 234 | |||||||||
Cash and equivalents at beginning of year |
12,643 | 9,873 | 9,639 | |||||||||
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Cash and equivalents at end of year |
$ | 23,212 | $ | 12,643 | $ | 9,873 | ||||||
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Operating Activities Cash Flows
For the year ended December 31, 2012, net cash provided by operating activities was $416.3 million. For the year ended December 31, 2011, net cash provided by operating activities was $388.2 million. The $28.1 million net increase in cash provided by operating activities was due primarily to the following:
1) | A decrease in net income of $6.5 million adjusted for: |
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2) | An increase in cash flows from operating assets and liabilities, net of effects from acquisitions, of $22.7 million to cash provided by operating assets and liabilities of $14.1 million for the year ended December 31, 2012, from cash used by operating assets and liabilities of $8.6 million for the year ended December 31, 2011. The significant components of the $14.1 million in net cash inflows from changes in operating assets and liabilities for the year ended December 31, 2012, include the following: |
a) | an increase in cash resulting from an increase in accrued liabilities of $7.8 million due primarily to increased liabilities for auto and workers compensation claims, increased liabilities for payroll related expenses and increased liabilities for employee benefit claims; |
b) | an increase in cash resulting from a $2.8 million increase in accounts payable due primarily to the timing of payments; |
c) | an increase in cash resulting from a $2.5 million increase in other long term liabilities due primarily to increased deferred compensation plan liabilities resulting from employee contributions and plan earnings; |
d) | an increase in cash resulting from a $1.5 million decrease in accounts receivable due to improved collection timing at our existing operations; less |
e) | a decrease in cash resulting from a $0.7 million increase in prepaid expenses and other current assets due primarily to an increase in parts inventory, partially offset by a decrease in prepaid income taxes; |
3) | An increase in depreciation and amortization expense of $26.5 million due primarily to assets acquired in acquisitions closed during, or subsequent to, the year ended December 31, 2011; |
4) | An increase in equity-based compensation expense of $5.4 million due to a $3.6 million grant of immediately vested restricted stock units to certain executive officers at the time the executives agreed to modifications to their employment contracts during the three months ended March 31, 2012, a $1.2 million increase associated with our annual grant of restricted stock units to our personnel, and a $0.6 million increase in the fair value of warrants issued as compensation for acquisition-related services; less |
5) | A decrease in our provision for deferred taxes of $21.3 million due primarily to the recognition during the year ended December 31, 2011, of tax benefits associated with a change in our tax method for deducting depreciation expense for certain landfills as well as other tax deductible timing differences associated with depreciation. |
For the year ended December 31, 2011, net cash provided by operating activities was $388.2 million. For the year ended December 31, 2010, net cash provided by operating activities was $332.2 million. The $56.0 million net increase in cash provided by operating activities was due primarily to the following:
1) | An increase in net income of $30.0 million adjusted for: |
2) | An increase in our provision for deferred taxes of $24.6 million due primarily to the recognition during the year ended December 31, 2011, of tax benefits totaling $16.4 million associated with an Internal Revenue Service approved change in our tax method for deducting depreciation expense for certain landfills as well as other tax deductible timing differences associated with depreciation; |
3) | An increase in depreciation and amortization expense of $19.6 million due primarily to additions to our fleet and equipment purchased to support our existing operations and assets acquired in acquisitions closed during, or subsequent to, the year ended December 31, 2010; |
4) | An increase of $7.2 million attributable to a decrease in the excess tax benefit associated with equity-based compensation, due to a decrease in stock option exercises resulting in decreased taxable income recognized by employees that is tax deductible to us; less |
5) | A decrease in cash flows from operating assets and liabilities, net of effects from acquisitions, of $24.5 million to cash used by operating assets and liabilities of $8.6 million for the year ended December 31, 2011, from cash provided by operating assets and liabilities of $15.9 million for the year ended December 31, 2010. The significant components of the $8.6 million in cash outflows from changes in operating assets and liabilities for the year ended December 31, 2011, include the following: |
a) | a decrease in cash resulting from a $14.5 million increase in accounts receivable due to an increase in revenues; |
b) | a decrease in cash resulting from a $4.2 million increase in prepaid expenses and other current assets due primarily to increases in prepaid insurance expenses, income taxes receivable, other prepaid expenses and parts inventory; |
c) | a decrease in cash resulting from a $2.9 million decrease in accounts payable due primarily to the timing of payments; less |
d) | an increase in cash resulting from an increase in accrued liabilities of $9.6 million due primarily to increased accrued interest expense due to increased debt balances and the timing of interest payments, increased liabilities for auto and workers compensation claims, and increased liabilities for employee medical benefit expenses, increased liabilities for property taxes and increased liability for cash incentive compensation; less |
e) | an increase in cash resulting from an increase in deferred revenue of $4.2 million due primarily to increased revenues and timing of billing for services. |
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As of December 31, 2012, we had a working capital deficit of $55.1 million, including cash and equivalents of $23.2 million. Our working capital deficit increased $20.6 million from a deficit of $34.5 million at December 31, 2011. To date, we have experienced no loss or lack of access to our cash or cash equivalents; however, we can provide no assurances that access to our cash and cash equivalents will not be impacted by adverse conditions in the financial markets. 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, along with stock repurchase and dividend programs, to reduce the unhedged portion of our indebtedness under our credit facility and to minimize our cash balances.
Investing Activities Cash Flows
Net cash used in investing activities increased $1.334 billion to $1.734 billion for the year ended December 31, 2012, from $400.0 million for the year ended December 31, 2011. The significant components of the increase in net cash used include the following:
1) | An increase in payments for acquisitions of $1.322 billion primarily due to the cash consideration we paid in 2012 for the R360, Alaska Waste and SKB Environmental acquisitions exceeding the cash consideration we paid in 2011 for the acquisition of County Waste and for the Colonie Landfill transaction; |
2) | An increase in capital expenditures for property and equipment of $11.6 million due to increases in expenditures for trucks, leasehold improvements, equipment and land, partially offset by a decrease in expenditures for buildings and site costs at various landfills; |
3) | An increase in other assets of $1.2 million due to increases in notes receivable and deferred compensation plan investments; less |
4) | An increase in cash provided of $2.6 million due to an increase in the liquidation of restricted asset accounts that were replaced with financial surety bonds during the year ended December 31, 2012. |
Net cash used in investing activities increased $185.8 million to $400.0 million for the year ended December 31, 2011, from $214.2 million for the year ended December 31, 2010. The significant components of the increase include the following:
1) | An increase in payments for acquisitions of $176.8 million primarily due to the acquisition of County Waste and for the Colonie Landfill transaction; |
2) | An increase in capital expenditures for property and equipment of $7.1 million due to increases in expenditures for site costs at various landfills, equipment, computers and buildings, partially offset by a decrease in expenditures for land and trucks, and |
3) | A decrease in proceeds from the sale of property, plant and equipment of $2.2 million. |
Financing Activities Cash Flows
Net cash provided by financing activities increased $1.313 billion to $1.328 billion for the year ended December 31, 2012, from $14.6 million for the year ended December 31, 2011. The significant components of the increase include the following:
1) | An increase in cash flows from the proceeds from our common stock offering of $369.6 million, net, due to the March 2012 sale of 12,000,000 shares of our common stock in a public offering; |
2) | A decrease in payments to repurchase our common stock of $98.2 million due to less shares repurchased; |
3) | An increase in net long-term borrowings of $867.4 million due primarily to funding $1.275 billion of the purchase price for the R360 acquisition with $475 million of proceeds from borrowings under our credit facility and $800 million of proceeds from our new term loan facility; partially offset by the repayment of debt with the $369.6 million of proceeds from our common stock offering; less |
4) | An increase in cash dividends paid of $8.9 million due to an increase in our dividend rate to an annual total of $0.37 per share in 2012 and an increase in our total common shares outstanding; less |
5) | An increase in payments of contingent consideration of $12.0 million due to the payout of $8.4 million of contingent consideration assumed in the R360 acquisition and the payout of $4.1 million of contingent consideration related to the achievement of earnings targets for acquisitions closed in 2011 and 2010; partially offset by the payout of $0.5 million of contingent consideration in 2011 related to the achievement of earnings targets for an acquisition closed in 2010; less |
6) | A decrease in proceeds from option and warrant exercises of $1.1 million due to a decrease in the number of options and warrants exercised in the year ended December 31, 2012. |
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Net cash flows from financing activities increased $132.3 million to a net cash provided by financing activities total of $14.6 million for the year ended December 31, 2011, from a net cash used in financing activities total of $117.7 million for the year ended December 31, 2010. The significant components of the increase include the following:
1) | An increase in net long-term borrowings of $155.0 million due primarily to the issuance of new debt to fund the acquisition of County Waste and for the Colonie Landfill transaction; |
2) | A decrease in payments to repurchase our common stock of $49.5 million; less |
3) | A decrease in proceeds from option and warrant exercises of $27.9 million due to a decrease in the number of options and warrants exercised in the year ended December 31, 2011; less |
4) | An increase in cash dividends paid of $27.0 million with the initiation of a quarterly cash dividend in November 2010; less |
5) | A decrease in the excess tax benefit associated with equity-based compensation of $7.2 million; less |
6) | An increase in debt issuance costs of $6.6 million in conjunction with our new senior revolving credit facility entered into during the year ended December 31, 2011. |
Our business is capital intensive. Our capital requirements include acquisitions and capital expenditures for landfill cell construction, landfill development, landfill closure activities and intermodal facility construction in the future.
On February 27, 2012, we entered into an underwriting agreement with Morgan Stanley & Co. LLC, in connection with the offer and sale by us of 12,000,000 shares of our common stock, par value $0.01 per share. The shares of common stock were sold to Morgan Stanley & Co. LLC at a price of $30.83 per share. The offering closed on March 2, 2012. We received net proceeds from this offering of $369.6 million after deducting transaction expenses paid by us of approximately $0.4 million. We used $247.0 million of the net proceeds to repay the unhedged borrowings under our credit facility and the remaining proceeds to partially fund the acquisition of Alaska Waste (see Note 3 of our consolidated financial statements included in Item 8 of this report for further information on the Alaska Waste acquisition).
Our Board of Directors has authorized a common stock repurchase program for the repurchase of up to $1.2 billion of our common stock through December 31, 2014. Under the program, stock repurchases may be made in the open market or in privately negotiated transactions from time to time at managements discretion. The timing and amounts of any repurchases will depend on many factors, including our capital structure, the market price of the common stock and overall market conditions. As of December 31, 2012 and 2011, we had repurchased in aggregate 39.9 million and 39.2 million shares, respectively, of our common stock at an aggregate cost of $784.0 million and $765.4 million, respectively. As of December 31, 2012, the remaining maximum dollar value of shares available for purchase under the program was approximately $416.0 million.
On October 19, 2010, our Board of Directors authorized a three-for-two split of our common stock, in the form of a 50% stock dividend, payable to stockholders of record as of October 29, 2010. Shares resulting from the split were issued on November 12, 2010. All share and per share amounts for all periods presented have been retroactively adjusted to reflect the stock split.
In addition, in October 2010, our Board of Directors authorized the initiation of a quarterly cash dividend of $0.075 per share, adjusted for the three-for-two stock split described above. In October 2011, our Board of Directors authorized an increase to our regular quarterly cash dividend from $0.075 to $0.09 per share. In October 2012, the Board of Directors authorized an increase to our regular quarterly cash dividend from $0.09 to $0.10 per share. Cash dividends of $44.5 million and $35.6 million were paid during the years ended December 31, 2012 and 2011, respectively. We cannot assure you as to the amounts or timing of future dividends.
We made $153.5 million in capital expenditures during the year ended December 31, 2012. We expect to make capital expenditures of approximately $185 million in 2013 in connection with our existing business. We intend to fund our planned 2013 capital expenditures principally through cash on hand, internally generated funds and borrowings under our credit facility. In addition, we may make substantial additional capital expenditures in acquiring MSW and E&P waste 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 cash and equivalents, 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. However, disruptions in the capital and credit markets could adversely affect our ability to draw on our credit facility or raise other capital. Our access to funds under the credit facility is dependent on the ability of the banks that are parties to the facility to meet their funding commitments. Those banks may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time.
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On October 25, 2012, we completed the acquisition of the business of R360, through the acquisition of all of R360s principal operating subsidiaries, for total cash consideration of approximately $1.34 billion. Additionally, we assumed approximately $9.3 million of outstanding R360 debt and $37.3 million of contingent consideration. The R360 business consists of E&P landfills, E&P liquid waste injection wells, E&P waste treatment and recovery facilities and oil recovery facilities at 24 operating locations across Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming.
The R360 acquisition was funded with available cash and with borrowings of $475 million under our existing senior revolving credit facility and $800 million under a new uncollateralized term loan facility with Bank of America, N.A. and the other banks and lending institutions party thereto, as lenders, Bank of America, N.A., as administrative agent, and JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents. The term loan is subject to principal payments commencing at $10.0 million per quarter in April 2013, increasing to $20.0 million per quarter in April 2014 and increasing again to $30.0 million per quarter in April 2015. A final principal payment of $390.0 million is due upon maturity of the term loan on October 25, 2017. The borrowings under the term loan facility are required to be used only to fund the R360 acquisition pursuant to the R360 purchase and sale agreement and to pay fees and expenses incurred in connection with the R360 acquisition and our entry into the term loan facility.
We may elect to draw amounts on the term loan facility in either base rate loans or LIBOR loans. At December 31, 2012, all amounts outstanding under the term loan facility were in LIBOR loans which bear interest at the LIBOR rate plus the applicable LIBOR margin (approximately 2.21% at December 31, 2012). The LIBOR rate is determined by the administrative agent in a customary manner as described in the term loan agreement. The applicable margins under the term loan agreement vary depending on our leverage ratio, as defined in the term loan agreement, and range from 1.375% per annum to 2.500% per annum for LIBOR loans. As of December 31, 2012, the margin was 2.0% for LIBOR loans. Borrowings under the term loan facility are not collateralized.
The term loan facility contains representations and warranties and places certain business, financial and operating restrictions on us relating to, among other things, indebtedness, liens, investments, mergers, consolidation and disposition of assets, sale and leaseback transactions, restricted payments and redemptions, burdensome agreements, business activities, transactions with affiliates, prepayments of indebtedness and accounting changes. The term loan facility requires that we maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.50x total debt to earnings before interest, taxes, depreciation and amortization, or EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to earnings before interest and taxes, or EBIT. As of December 31, 2012, our leverage and interest coverage ratios were 3.28x and 6.88x, respectively. We expect to be in compliance with all applicable covenants in the term loan facility for the next 12 months.
We have a $1.2 billion senior revolving credit facility, or the credit facility, with a syndicate of banks for which Bank of America, N.A. acts as administrative agent and J.P. Morgan Chase Bank, N.A. and Wells Fargo Bank, National Association act as co-syndication agents. As of December 31, 2012, $787.0 million was outstanding under the credit facility, exclusive of outstanding standby letters of credit of $87.3 million. As of December 31, 2011, $519.0 million was outstanding under the credit facility, exclusive of outstanding standby letters of credit of $80.4 million. As of December 31, 2010, $511.0 million was outstanding under the credit facility, exclusive of outstanding standby letters of credit of $82.9 million.
Under the credit facility, there is no maximum amount of standby letters of credit that can be issued; however, the issuance of standby letters of credit reduces the amount of total borrowings available. The credit facility requires us to pay a commitment fee ranging from 0.200% per annum to 0.350% per annum of the unused portion of the facility. The borrowings under the credit facility bear interest, at our option, at either the base rate plus the applicable base rate margin on base rate loans, or the LIBOR rate plus the applicable margin on LIBOR loans. The base rate for any day is a fluctuating rate per annum equal to the highest of: (1) the federal funds rate plus one half of one percent (0.500%); (2) the LIBOR rate plus one percent (1.000%), and (3) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate. The LIBOR rate is determined by the administrative agent pursuant to a formula in the credit agreement. The applicable margins under the credit agreement vary depending on our leverage ratio, as defined in the credit agreement, and range from 1.150% per annum to 2.000% per annum for LIBOR loans and 0.150% per annum to 1.000% per annum for base rate loans. The credit facility matures in July 2016. The borrowings under the credit facility are not collateralized. The credit facility contains representations and warranties and places certain business, financial and operating restrictions on us relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, sale and leaseback transactions, and dividends, distributions and redemptions of capital stock. The credit facility requires that we maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.50x total debt to EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2012 and 2011, our leverage ratio was 3.28x and 2.33x, respectively. As of December 31, 2012 and 2011, our interest coverage ratio was 6.88x and 7.69x, respectively. We expect to be in compliance with all applicable covenants under the credit facility for the next 12 months. We use the credit facility for acquisitions, capital expenditures, working capital, standby letters of credit and general corporate purposes.
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On March 20, 2006, we completed the offering of $200 million aggregate principal amount of our 3.75% Convertible Senior Notes due 2026, or the 2026 Notes, pursuant to a private placement. The 2026 Notes were convertible into cash and, if applicable, shares of our common stock based on an initial conversion rate of 44.1177 shares of common stock per $1,000 principal amount of 2026 Notes (which was equal to an initial conversion price of approximately $22.67 per share), subject to adjustment, and only under certain circumstances. Upon a surrender of the 2026 Notes for conversion, we were required to deliver cash equal to the lesser of the aggregate principal amount of notes to be converted or our total conversion obligation.
On April 1, 2010, we redeemed the $200 million aggregate principal amount of the 2026 Notes. Holders of the notes chose to convert a total of $22.7 million principal amount of the notes. In addition to paying the principal amount of these notes with proceeds from our credit facility, we issued 32,859 shares of our common stock in connection with the conversion and redemption. We redeemed the remaining $177.3 million principal amount of the notes with proceeds from our credit facility. All holders of the notes also received accrued interest and an interest make-whole payment. As a result of the redemption, we recognized $9.7 million of pre-tax expense ($6.0 million net of taxes) in April 2010.
On July 15, 2008, we entered into a Master Note Purchase Agreement with certain accredited institutional investors pursuant to which we issued and sold to the investors at a closing on October 1, 2008, $175 million of senior uncollateralized notes due October 1, 2015, or the 2015 Notes, in a private placement. The 2015 Notes bear interest at the fixed rate of 6.22% per annum with interest payable in arrears semi-annually on April 1 and October 1 beginning on April 1, 2009, and with principal payable at the maturity of the 2015 Notes on October 1, 2015.
On October 26, 2009, we entered into a First Supplement to the Master Note Purchase Agreement with certain accredited institutional investors pursuant to which we issued and sold to the investors on that date $175 million of senior uncollateralized notes due November 1, 2019, or the 2019 Notes, in a private placement. The 2019 Notes bear interest at the fixed rate of 5.25% per annum with interest payable in arrears semi-annually on May 1 and November 1 beginning on May 1, 2010, and with principal payable at the maturity of the 2019 Notes on November 1, 2019.
On April 1, 2011, we entered into a Second Supplement to Master Note Purchase Agreement with certain accredited institutional investors, pursuant to which we issued and sold to the investors on that date $250 million of senior uncollateralized notes at fixed interest rates with interest payable in arrears semi-annually on October 1 and April 1 beginning on October 1, 2011 in a private placement. Of these notes, $100 million will mature on April 1, 2016 with an annual interest rate of 3.30% (the 2016 Notes), $50 million will mature on April 1, 2018 with an annual interest rate of 4.00% (the 2018 Notes), and $100 million will mature on April 1, 2021 with an annual interest rate of 4.64% (the 2021 Notes).
The 2015 Notes, 2016 Notes, 2018 Notes, 2019 Notes, and 2021 Notes (collectively, the Senior Notes) are uncollateralized obligations and rank equally in right of payment with each of the Senior Notes, the obligations under our senior uncollateralized revolving credit facility and the obligations under our term loan facility. The Senior Notes are subject to representations, warranties, covenants and events of default. The Master Note Purchase Agreement requires that we maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.75x total debt to EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2012 and 2011, our leverage ratio was 3.28x and 2.33x, respectively. As of December 31, 2012 and 2011, our interest coverage ratio was 6.88x and 7.69x, respectively. We expect to be in compliance with all applicable covenants under the Senior Notes for the next 12 months.
Upon the occurrence of an event of default, payment of the Senior Notes may be accelerated by the holders of the respective notes. The Senior Notes may also be prepaid at any time in whole or from time to time in any part (not less than 5% of the then-outstanding principal amount) by us at par plus a make-whole amount determined in respect of the remaining scheduled interest payments on the Senior Notes, using a discount rate of the then current market standard for United States treasury bills plus 0.50%. In addition, we will be required to offer to prepay the Senior Notes upon certain changes in control.
We may issue additional series of senior uncollateralized notes pursuant to the terms and conditions of the Master Note Agreement, provided that the purchasers of the Senior Notes shall not have any obligation to purchase any additional notes issued pursuant to the Master Note Agreement and the aggregate principal amount of the outstanding notes and any additional notes issued pursuant to the Master Note Agreement shall not exceed $750 million. We currently have $600 million of Notes outstanding under the Master Note Agreement.
53
As of December 31, 2012, we had the following contractual obligations (in thousands):
Payments Due by Period | ||||||||||||||||||||
Recorded Obligations |
Total | Less Than 1 Year |
1 to 3 Years |
3 to 5 Years | Over 5 years |
|||||||||||||||
Long-term debt |
$ | 2,238,935 | $ | 33,968 | $ | 334,441 | $ | 1,509,465 | $ | 361,061 | ||||||||||
Cash interest payments |
295,613 | 68,002 | 126,089 | 63,307 | 38,215 | |||||||||||||||
Contingent consideration |
97,507 | 49,622 | 6,978 | 4,580 | 36,327 |
Long-term debt payments include:
1) | $787.0 million in principal payments due July 2016 related to our credit facility. We may elect to draw amounts on our credit facility in either base rate loans or LIBOR loans. At December 31, 2012, all amounts outstanding under the credit facility were in LIBOR loans which bear interest at the LIBOR rate plus applicable LIBOR margin (approximately 1.48% at December 31, 2012). As of December 31, 2012, our credit facility allowed us to borrow up to $1.2 billion. |
2) | $800.0 million in principal payments related to our term loan facility. We may elect to draw amounts on the term loan facility in either base rate loans or LIBOR loans. At December 31, 2012, all amounts outstanding under the term loan facility were in LIBOR loans which bear interest at the LIBOR rate plus the applicable LIBOR margin (approximately 2.21% at December 31, 2012). Our term loan facility matures on October 25, 2017. |
3) | $175.0 million in principal payments due 2015 related to our 2015 Notes. Holders of the 2015 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2015 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2015 Notes bear interest at a rate of 6.22%. |
4) | $100.0 million in principal payments due 2016 related to our 2016 Notes. Holders of the 2016 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2016 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2016 Notes bear interest at a rate of 3.30%. |
5) | $50.0 million in principal payments due 2018 related to our 2018 Notes. Holders of the 2018 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2018 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2018 Notes bear interest at a rate of 4.00%. |
6) | $175.0 million in principal payments due 2019 related to our 2019 Notes. Holders of the 2019 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2019 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2019 Notes bear interest at a rate of 5.25%. |
7) | $100.0 million in principal payments due 2021 related to our 2021 Notes. Holders of the 2021 Notes may require us to purchase their notes in cash at a purchase price of 100% of the principal amount of the 2021 Notes plus accrued and unpaid interest, if any, upon a change in control, as defined in the Master Note Purchase Agreement. The 2021 Notes bear interest at a rate of 4.64%. |
8) | $35.7 million in principal payments related to our tax-exempt bonds, which bear interest at variable rates (between 0.17% and 0.24%) at December 31, 2012. The tax-exempt bonds have maturity dates ranging from 2014 to 2033. |
9) | $16.3 million in principal payments related to our notes payable to sellers and other third parties. Our notes payable to sellers and other third parties bear interest at rates between 2.50% and 10.9% at December 31, 2012, and have maturity dates ranging from 2014 to 2036. |
The following assumptions were made in calculating cash interest payments:
1) | We calculated cash interest payments on the credit facility using the LIBOR rate plus the applicable LIBOR margin at December 31, 2012. We assumed the credit facility is paid off when it matures in July 2016. |
2) | We calculated cash interest payments on the term loan facility using the LIBOR rate plus the applicable LIBOR margin at December 31, 2012. |
3) | We calculated cash interest payments on our interest rate swaps using the stated interest rate in the swap agreement less the LIBOR rate through the earlier expiration of the term of the swaps or the term of the credit facility. |
54
Contingent consideration payments include $79.4 million recorded as liabilities in our consolidated financial statements at December 31, 2012, and $18.1 million of future interest accretion on the recorded obligations.
Amount of Commitment Expiration Per Period | ||||||||||||||||||||
(amounts in thousands) | ||||||||||||||||||||
Unrecorded Obligations(1) |
Total | Less Than 1 Year |
1 to 3 Years |
3 to 5 Years |
Over 5 Years |
|||||||||||||||
Operating leases |
$ | 148,559 | $ | 19,121 | $ | 33,615 | $ | 25,398 | $ | 70,425 |
(1) | We are party to operating lease agreements as discussed in Note 11 to the consolidated financial statements. These lease agreements are established in the ordinary course of our business and are designed to provide us with access to facilities at competitive, market-driven prices. These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2012, nor are they expected to have a material impact on our future financial position, results of operations or liquidity. |
We have obtained standby letters of credit as discussed in Note 7 to the consolidated financial statements and financial surety bonds as discussed in Note 11 to the consolidated financial statements. These standby letters of credit and financial surety bonds are generally obtained to support our financial assurance needs and landfill and E&P operations. These arrangements have not materially affected our financial position, results of operations or liquidity during the year ended December 31, 2012, nor are they expected to have a material impact on our future financial position, results of operations or liquidity.
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 reporting units would not be impaired by such dispositions, we could incur losses on them.
New Accounting Pronouncements
See Note 1 to the consolidated financial statements for a description of the new accounting standards that are applicable to us.
Non-GAAP Financial Measures
Reconciliation of Adjusted Free Cash Flow
We present adjusted free cash flow, a non-GAAP financial measure, supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. Management uses adjusted free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We define adjusted free cash flow as net cash provided by operating activities, plus proceeds from disposal of assets, plus or minus change in book overdraft, plus excess tax benefit associated with equity-based compensation, less capital expenditures for property and equipment and distributions to noncontrolling interests. We further adjust this calculation to exclude the effects of items management believes impact the ability to assess the operating performance of our business. This measure is not a substitute for, and should be used in conjunction with, GAAP liquidity or financial measures. Other companies may calculate adjusted free cash flow differently. Our adjusted free cash flow for the years ended December 31, 2012, 2011 and 2010, are calculated as follows (amounts in thousands):
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net cash provided by operating activities |
$ | 416,327 | $ | 388,170 | $ | 332,179 | ||||||
Plus/less: Change in book overdraft |
398 | (227 | ) | 279 | ||||||||
Plus: Proceeds from disposal of assets |
2,741 | 4,434 | 6,659 | |||||||||
Plus: Excess tax benefit associated with equity-based compensation |
5,033 | 4,763 | 11,997 | |||||||||
Less: Capital expenditures for property and equipment |
(153,517 | ) | (141,924 | ) | (134,829 | ) | ||||||
Less: Distributions to noncontrolling interests |
(198 | ) | (675 | ) | | |||||||
Adjustment: |
||||||||||||
Corporate office relocation, net of taxes (a) |
4,975 | 251 | | |||||||||
|
|
|
|
|
|
|||||||
Adjusted free cash flow |
$ | 275,759 | $ | 254,792 | $ | 216,285 | ||||||
|
|
|
|
|
|
(a) | Reflects the addback of third party expenses and reimbursable advances to employees associated with the relocation of our corporate headquarters from California to Texas. |
55
Reconciliation of Adjusted Operating Income Before Depreciation and Amortization
We present adjusted operating income before depreciation and amortization, a non-GAAP financial measure, supplementally because it is widely used by investors as a performance and valuation measure in the solid waste industry. Management uses adjusted operating income before depreciation and amortization as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We define adjusted operating income before depreciation and amortization as operating income, plus depreciation and amortization expense, plus closure and post-closure accretion expense, plus or minus any gain or loss on disposal of assets. We further adjust this calculation to exclude the effects of items management believes impact the ability to assess the operating performance of our business. This measure is not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate adjusted operating income before depreciation and amortization differently. Our adjusted operating income before depreciation and amortization for the years ended December 31, 2012, 2011 and 2010, are calculated as follows (amounts in thousands):
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Operating income |
$ | 316,147 | $ | 317,062 | $ | 272,383 | ||||||
Plus: Depreciation and amortization |
193,584 | 167,100 | 147,456 | |||||||||
Plus: Closure and post-closure accretion |
2,581 | 1,967 | 1,766 | |||||||||
Plus: Loss on disposal of assets |
1,627 | 1,657 | 571 | |||||||||
Adjustments: |
||||||||||||
Plus: Acquisition-related costs (a) |
6,415 | 1,744 | 2,081 | |||||||||
Plus: Corporate relocation expenses (b) |
8,031 | 83 | | |||||||||
Plus: Named executive officers one-time equity grants (c) |
3,585 | | | |||||||||
Less: Gain from litigation settlement (d) |
(3,551 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Adjusted operating income before depreciation and amortization |
$ | 528,419 | $ | 489,613 | $ | 424,257 | ||||||
|
|
|
|
|
|
(a) | Reflects the addback of acquisition-related transaction and severance costs. |
(b) | Reflects the addback of costs associated with the relocation of our corporate headquarters from California to Texas. |
(c) | Reflects the addback of one-time equity compensation expense incurred at the time our named executive officers employment contracts were modified. |
(d) | Reflects the elimination of a non-recurring gain from an arbitration award. |
56
Reconciliation of Net Income to Adjusted Net Income and Adjusted Net Income per Diluted Share
We present adjusted net income and adjusted net income per diluted share, both non-GAAP financial measures, supplementally because they are widely used by investors as a valuation measure in the solid waste industry. Management uses adjusted net income and adjusted net income per diluted share as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. We provide adjusted net income to exclude the effects of items management believes impact the comparability of operating results between periods. Adjusted net income has limitations due to the fact that it may exclude items that have an impact on our financial condition and results of operations. Adjusted net income and adjusted net income per diluted share are not a substitute for, and should be used in conjunction with, GAAP financial measures. Other companies may calculate adjusted net income and adjusted net income per diluted share differently. Our adjusted net income and adjusted net income per diluted share for the years ended December 31, 2012, 2011 and 2010, are calculated as follows (amounts in thousands, except per share amounts):
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Reported net income attributable to Waste Connections |
$ | 159,093 | $ | 165,239 | $ | 135,104 | ||||||
Adjustments: |
||||||||||||
Amortization of intangibles, net of taxes (a) |
15,209 | 12,440 | 9,041 | |||||||||
Acquisition-related costs, net of taxes (b) |
4,052 | 1,327 | 1,290 | |||||||||
Loss on disposal of assets, net of taxes (c) |
1,006 | 1,027 | 776 | |||||||||
Corporate relocation expenses, net of taxes (d) |
4,975 | 51 | | |||||||||
Named executive officers one-time equity grants, net of taxes (e) |
3,315 | | | |||||||||
Gain from litigation settlement, net of taxes (f) |
(2,202 | ) | | | ||||||||
Impact of deferred tax adjustment (g) |
2,602 | | 1,547 | |||||||||
Loss on extinguishment of debt, net of taxes (h) |
| | 6,320 | |||||||||
|
|
|
|
|
|
|||||||
Adjusted net income attributable to Waste Connections |
$ | 188,050 | $ | 180,084 | $ | 154,078 | ||||||
|
|
|
|
|
|
|||||||
Diluted earnings per common share attributable to Waste Connections common stockholders: |
||||||||||||
Reported net income |
$ | 1.31 | $ | 1.45 | $ | 1.16 | ||||||
|
|
|
|
|
|
|||||||
Adjusted net income |
$ | 1.54 | $ | 1.59 | $ | 1.32 | ||||||
|
|
|
|
|
|
(a) | Reflects the elimination of the non-cash amortization of acquisition-related intangible assets. |
(b) | Reflects the elimination of acquisition-related costs. |
(c) | Reflects the elimination of a loss on disposal of assets. |
(d) | Reflects the addback of costs associated with the relocation of our corporate headquarters from California to Texas. |
(e) | Reflects the addback of one-time equity compensation expense incurred at the time our named executive officers employment contracts were modified. |
(f) | Reflects the elimination of a non-recurring gain from an arbitration award. |
(g) | Reflects (1) the elimination in 2012 of an increase to the income tax provision associated with an increase in our deferred tax liabilities primarily resulting from the R360 acquisition and (2) the elimination in 2010 of an increase to the income tax provision associated with an adjustment in our deferred tax liabilities primarily resulting from a voter-approved increase in Oregon state income tax rates. |
(h) | Reflects the elimination of costs associated with early redemption of outstanding debt. |
Inflation
Other than volatility in fuel prices and labor costs in certain markets, inflation has not materially affected our operations in recent years. Consistent with industry practice, many of our contracts allow us to pass through certain costs to our customers, including increases in landfill tipping fees and, in some cases, fuel costs. Therefore, we believe that we should be able to increase prices to offset many cost increases that result from inflation in the ordinary course of business. However, competitive pressures or delays in the timing of rate increases under our contracts may require us to absorb at least part of these cost increases, especially if cost increases exceed the average rate of inflation. Managements estimates associated with inflation have an impact on our accounting for landfill liabilities.
57
ITEM 7A. 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 prices of certain commodities. We use hedge agreements to manage a portion of our risks related to interest rates and fuel prices. 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 over the unhedged fuel and variable rate debt positions.
At December 31, 2012, our derivative instruments included three interest rate swap agreements that effectively fix the interest rate on the applicable notional amounts of our variable rate debt as follows (dollars in thousands):
Date Entered |
Notional Amount |
Fixed Interest Rate Paid* |
Variable Interest Rate |
Effective Date |
Expiration Date | |||||||||
March 2009 |
$ | 175,000 | 2.85 | % | 1-month LIBOR | February 2011 | February 2014 | |||||||
August 2011 |
$ | 150,000 | 0.80 | % | 1-month LIBOR | April 2012 | January 2015 | |||||||
December 2011 |
$ | 175,000 | 1.60 | % | 1-month LIBOR | February 2014 | February 2017 |
* | plus applicable margin. |
Under derivatives and hedging guidance, the interest rate swap agreements are considered cash flow hedges for a portion of our variable rate debt, and we apply hedge accounting to account for these instruments. The notional amounts and all other significant terms of the swap agreements are matched to the provisions and terms of the variable rate debt being hedged.
We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged floating rate debt. Such an analysis is inherently limited in that it reflects a singular, hypothetical set of assumptions. Actual market movements may vary significantly from our assumptions. Fair value sensitivity is not necessarily indicative of the ultimate cash flow or earnings effect we would recognize from the assumed market rate movements. We are exposed to cash flow risk due to changes in interest rates with respect to the unhedged floating rate balances owed at December 31, 2012 and 2011, of $1.298 billion and $382.5 million, respectively, including floating rate debt under our credit facility, term loan facility and floating rate municipal bond obligations. A one percentage point increase in interest rates on our variable-rate debt as of December 31, 2012 and 2011, would decrease our annual pre-tax income by approximately $13.0 million and $3.8 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, subject to counterparty default risk.
The market price of diesel fuel is unpredictable and can fluctuate significantly. We purchase approximately 30 million gallons of fuel per year; therefore, a significant increase in the price of fuel could adversely affect our business and reduce our operating margins. To manage a portion of this risk, we periodically entered into fuel hedge agreements related to forecasted diesel fuel purchases.
At December 31, 2012, our derivative instruments included one fuel hedge agreement as follows:
Date Entered |
Notional Amount (in gallons per month) |
Diesel Rate Paid Fixed (per gallon) |
Diesel Rate Received |
Effective Date |
Expiration Date | |||||||||
June 2012 |
300,000 | $ | 3.60 | DOE Diesel Fuel Index* | January 2014 | December 2015 |
* | If the national U.S. on-highway average price for a gallon of diesel fuel (average price), as published by the Department of Energy, exceeds the contract price per gallon, we receive the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty. If the average price is less than the contract price per gallon, we pay the difference to the counterparty. |
Under derivatives and hedging guidance, the fuel hedge is considered a cash flow hedge for a portion of our forecasted diesel fuel purchases, and we apply hedge accounting to account for this instrument.
58
We have performed sensitivity analyses to determine how market rate changes will affect the fair value of our unhedged diesel fuel purchases. 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. For the year ending December 31, 2013, we expect to purchase approximately 30 million gallons of fuel at market prices, and a $0.10 per gallon increase in the price of fuel over the year would decrease our pre-tax income during this period by approximately $3.0 million.
We market a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles and ferrous and aluminum metals. We own and operate 38 recycling processing operations and sell other collected recyclable materials to third parties for processing before resale. To reduce our exposure to commodity price risk with respect to recycled materials, we have adopted a pricing strategy of charging collection and processing fees for recycling volume collected from third parties. In the event of a decline in recycled commodity prices, a 10% decrease in average recycled commodity prices from the average prices that were in effect during the year ended December 31, 2012 and 2011, would have had a $7.3 million and $8.7 million impact on revenues for the year ended December 31, 2012 and 2011, respectively.
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
WASTE CONNECTIONS, INC.
60
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Waste Connections, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Waste Connections, Inc. and its subsidiaries at December 31, 2012 and 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
As described in Managements Report on Internal Control over Financial Reporting, management has excluded the former principal operating subsidiaries of R360 Environmental Solutions, Inc. (the R360 subsidiaries) from its assessment of internal control over financial reporting as of December 31, 2012 because they were acquired by the Company in a purchase business combination in 2012. We have also excluded the R360 subsidiaries from our audit of internal control over financial reporting. The R360 subsidiaries are wholly-owned subsidiaries whose total assets and total revenues represent 28.5% and 2.4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2012.
/s/ PricewaterhouseCoopers LLP
Houston, TX
March 1, 2013
61
WASTE CONNECTIONS, INC.
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
December 31, | ||||||||
2012 | 2011 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and equivalents |
$ | 23,212 | $ | 12,643 | ||||
Accounts receivable, net of allowance for doubtful accounts of $6,548 and $6,617 at December 31, 2012 and 2011, respectively |
235,762 | 176,277 | ||||||
Deferred income taxes |
45,798 | 20,630 | ||||||
Prepaid expenses and other current assets |
57,714 | 39,708 | ||||||
|
|
|
|
|||||
Total current assets |
362,486 | 249,258 | ||||||
Property and equipment, net |
2,457,606 | 1,450,469 | ||||||
Goodwill |
1,636,557 | 1,116,888 | ||||||
Intangible assets, net |
541,908 | 449,581 | ||||||
Restricted assets |
34,889 | 30,544 | ||||||
Other assets, net |
42,580 | 31,265 | ||||||
|
|
|
|
|||||
$ | 5,076,026 | $ | 3,328,005 | |||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 130,260 | $ | 95,097 | ||||
Book overdraft |
12,567 | 12,169 | ||||||
Accrued liabilities |
121,829 | 97,020 | ||||||
Deferred revenue |
69,930 | 64,694 | ||||||
Current portion of contingent consideration |
49,018 | 8,923 | ||||||
Current portion of long-term debt and notes payable |
33,968 | 5,899 | ||||||
|
|
|
|
|||||
Total current liabilities |
417,572 | 283,802 | ||||||
Long-term debt and notes payable |
2,204,967 | 1,172,758 | ||||||
Long-term portion of contingent consideration |
30,346 | 22,573 | ||||||
Other long-term liabilities |
75,129 | 52,051 | ||||||
Deferred income taxes |
464,882 | 397,134 | ||||||
|
|
|
|
|||||
Total liabilities |
3,192,896 | 1,928,318 | ||||||
Commitments and contingencies (Note 11) |
||||||||
Equity: |
||||||||
Preferred stock: $0.01 par value per share; 7,500,000 shares authorized; none issued and outstanding |
| | ||||||
Common stock: $0.01 par value per share; 250,000,000 shares authorized; 123,019,494 and 110,907,782 shares issued and outstanding at December 31, 2012 and 2011, respectively |
1,230 | 1,109 | ||||||
Additional paid-in capital |
779,904 | 408,721 | ||||||
Accumulated other comprehensive loss |
(6,165 | ) | (3,480 | ) | ||||
Retained earnings |
1,103,188 | 988,560 | ||||||
|
|
|
|
|||||
Total Waste Connections equity |
1,878,157 | 1,394,910 | ||||||
Noncontrolling interest in subsidiaries |
4,973 | 4,777 | ||||||
|
|
|
|
|||||
Total equity |
1,883,130 | 1,399,687 | ||||||
|
|
|
|
|||||
$ | 5,076,026 | $ | 3,328,005 | |||||
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
62
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF NET INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Revenues |
$ | 1,661,618 | $ | 1,505,366 | $ | 1,319,757 | ||||||
Operating expenses: |
||||||||||||
Cost of operations |
956,357 | 857,580 | 749,487 | |||||||||
Selling, general and administrative |
197,454 | 161,967 | 149,860 | |||||||||
Depreciation |
169,027 | 147,036 | 132,874 | |||||||||
Amortization of intangibles |
24,557 | 20,064 | 14,582 | |||||||||
Loss on disposal of assets |
1,627 | 1,657 | 571 | |||||||||
Gain from litigation settlement |
(3,551 | ) | | | ||||||||
|
|
|
|
|
|
|||||||
Operating income |
316,147 | 317,062 | 272,383 | |||||||||
Interest expense |
(53,037 | ) | (44,520 | ) | (40,134 | ) | ||||||
Interest income |
773 | 530 | 590 | |||||||||
Loss on extinguishment of debt |
| | (10,193 | ) | ||||||||
Other income, net |
1,220 | 57 | 2,830 | |||||||||
|
|
|
|
|
|
|||||||
Income before income tax provision |
265,103 | 273,129 | 225,476 | |||||||||
Income tax provision |
(105,443 | ) | (106,958 | ) | (89,334 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income |
159,660 | 166,171 | 136,142 | |||||||||
Less: Net income attributable to noncontrolling interests |
(567 | ) | (932 | ) | (1,038 | ) | ||||||
|
|
|
|
|
|
|||||||
Net income attributable to Waste Connections |
$ | 159,093 | $ | 165,239 | $ | 135,104 | ||||||
|
|
|
|
|
|
|||||||
Earnings per common share attributable to Waste Connections common stockholders: |
||||||||||||
Basic |
$ | 1.31 | $ | 1.47 | $ | 1.17 | ||||||
|
|
|
|
|
|
|||||||
Diluted |
$ | 1.31 | $ | 1.45 | $ | 1.16 | ||||||
|
|
|
|
|
|
|||||||
Shares used in the per share calculations: |
||||||||||||
Basic |
121,172,381 | 112,720,444 | 115,646,173 | |||||||||
|
|
|
|
|
|
|||||||
Diluted |
121,824,349 | 113,583,486 | 116,894,204 | |||||||||
|
|
|
|
|
|
|||||||
Cash dividends per common share |
$ | 0.37 | $ | 0.315 | $ | 0.075 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
63
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Net income |
$ | 159,660 | $ | 166,171 | $ | 136,142 | ||||||
Other comprehensive income (loss), before tax: |
||||||||||||
Interest rate swap amounts reclassified into interest expense |
5,289 | 5,803 | 9,052 | |||||||||
Fuel hedge amounts reclassified into cost of operations |
(4,513 | ) | (4,297 | ) | 3,932 | |||||||
Changes in fair value of interest rate swaps |
(7,333 | ) | (5,200 | ) | (11,013 | ) | ||||||
Changes in fair value of fuel hedges |
2,194 | 3,073 | 902 | |||||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss) before tax |
(4,363 | ) | (621 | ) | 2,873 | |||||||
Income tax expense (benefit) related to items of other comprehensive income |
1,678 | 236 | (1,076 | ) | ||||||||
|
|
|
|
|
|
|||||||
Other comprehensive income (loss), net of tax |
(2,685 | ) | (385 | ) | 1,797 | |||||||
|
|
|
|
|
|
|||||||
Comprehensive income |
156,975 | 165,786 | 137,939 | |||||||||
Less: Comprehensive income attributable to noncontrolling interests |
(567 | ) | (932 | ) | (1,038 | ) | ||||||
|
|
|
|
|
|
|||||||
Comprehensive income attributable to Waste Connections |
$ | 156,408 | $ | 164,854 | $ | 136,901 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
64
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
WASTE CONNECTIONS EQUITY | ||||||||||||||||||||||||||||
COMMON STOCK | ADDITIONAL PAID-IN |
ACCUMULATED OTHER COMPREHENSIVE |
RETAINED | NONCONTROLLING | ||||||||||||||||||||||||
SHARES | AMOUNT | CAPITAL | (LOSS) | EARNINGS | INTERESTS | TOTAL | ||||||||||||||||||||||
Balances at December 31, 2009 |
117,898,624 | $ | 786 | $ | 625,173 | $ | (4,892 | ) | $ | 732,738 | $ | 3,231 | $ | 1,357,036 | ||||||||||||||
Stock split |
| 394 | | | (394 | ) | | | ||||||||||||||||||||
Vesting of restricted stock units |
511,196 | 5 | (5 | ) | | | | | ||||||||||||||||||||
Tax withholdings related to net share settlements of restricted stock units |
(175,776 | ) | (2 | ) | (3,781 | ) | | | | (3,783 | ) | |||||||||||||||||
Equity-based compensation |
| | 11,331 | | | | 11,331 | |||||||||||||||||||||
Exercise of stock options and warrants |
2,572,195 | 25 | 33,049 | | | | 33,074 | |||||||||||||||||||||
Excess tax benefit associated with equity-based compensation |
| | 11,997 | | | | 11,997 | |||||||||||||||||||||
Repurchase of common stock |
(6,889,017 | ) | (69 | ) | (166,251 | ) | | | | (166,320 | ) | |||||||||||||||||
Cash dividends on common stock |
| | | | (8,561 | ) | | (8,561 | ) | |||||||||||||||||||
Reacquisition of equity component resulting from conversion of 2026 Convertible Senior Notes |
| | (2,295 | ) | | | | (2,295 | ) | |||||||||||||||||||
Issuance of shares in connection with conversion of 2026 Convertible Senior Notes |
32,859 | | | | | | | |||||||||||||||||||||
Amounts reclassified into earnings, net of taxes |
| | | 8,050 | | | 8,050 | |||||||||||||||||||||
Changes in fair value of cash flow hedges, net of taxes |
| | | (6,253 | ) | | | (6,253 | ) | |||||||||||||||||||
Net income |
| | | | 135,104 | 1,038 | 136,142 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances at December 31, 2010 |
113,950,081 | 1,139 | 509,218 | (3,095 | ) | 858,887 | 4,269 | 1,370,418 | ||||||||||||||||||||
Vesting of restricted stock units |
545,223 | 6 | (6 | ) | | | | | ||||||||||||||||||||
Tax withholdings related to net share settlements of restricted stock units |
(186,811 | ) | (2 | ) | (5,509 | ) | | | | (5,511 | ) | |||||||||||||||||
Equity-based compensation |
| | 11,879 | | | | 11,879 | |||||||||||||||||||||
Exercise of stock options and warrants |
407,012 | 4 | 5,155 | | | | 5,159 | |||||||||||||||||||||
Excess tax benefit associated with equity-based compensation |
| | 4,763 | | | | 4,763 | |||||||||||||||||||||
Repurchase of common stock |
(3,807,723 | ) | (38 | ) | (116,779 | ) | | | | (116,817 | ) | |||||||||||||||||
Cash dividends on common stock |
| | | | (35,566 | ) | | (35,566 | ) | |||||||||||||||||||
Amounts reclassified into earnings, net of taxes |
| | | 934 | | | 934 | |||||||||||||||||||||
Changes in fair value of cash flow hedges, net of taxes |
| | | (1,319 | ) | | | (1,319 | ) | |||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | (675 | ) | (675 | ) | |||||||||||||||||||
Fair value of noncontrolling interest associated with business acquired |
| | | | | 251 | 251 | |||||||||||||||||||||
Net income |
| | | | 165,239 | 932 | 166,171 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances at December 31, 2011 |
110,907,782 | 1,109 | 408,721 | (3,480 | ) | 988,560 | 4,777 | 1,399,687 | ||||||||||||||||||||
Vesting of restricted stock units |
591,165 | 6 | (6 | ) | | | | | ||||||||||||||||||||
Tax withholdings related to net share settlements of restricted stock units |
(189,939 | ) | (2 | ) | (6,060 | ) | | | | (6,062 | ) | |||||||||||||||||
Equity-based compensation |
| | 17,289 | | | | 17,289 | |||||||||||||||||||||
Exercise of stock options and warrants |
329,933 | 3 | 4,054 | | | | 4,057 | |||||||||||||||||||||
Issuance of common stock, net of issuance costs of $376 |
12,000,000 | 120 | 369,464 | | | | 369,584 | |||||||||||||||||||||
Excess tax benefit associated with equity-based compensation |
| | 5,033 | | | | 5,033 | |||||||||||||||||||||
Repurchase of common stock |
(619,447 | ) | (6 | ) | (18,591 | ) | | | | (18,597 | ) | |||||||||||||||||
Cash dividends on common stock |
| | | | (44,465 | ) | | (44,465 | ) | |||||||||||||||||||
Amounts reclassified into earnings, net of taxes |
| | | 481 | | | 481 | |||||||||||||||||||||
Changes in fair value of cash flow hedges, net of taxes |
| | | (3,166 | ) | | | (3,166 | ) | |||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | (198 | ) | (198 | ) | |||||||||||||||||||
Divestiture of noncontrolling interest |
| | | | | (173 | ) | (173 | ) | |||||||||||||||||||
Net income |
| | | | 159,093 | 567 | 159,660 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balances at December 31, 2012 |
123,019,494 | $ | 1,230 | $ | 779,904 | $ | (6,165 | ) | $ | 1,103,188 | $ | 4,973 | $ | 1,883,130 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
65
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||||||
Net income |
$ | 159,660 | $ | 166,171 | $ | 136,142 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Loss on disposal of assets |
1,627 | 1,657 | 571 | |||||||||
Depreciation |
169,027 | 147,036 | 132,874 | |||||||||
Amortization of intangibles |
24,557 | 20,064 | 14,582 | |||||||||
Deferred income taxes, net of acquisitions |
29,689 | 50,989 | 26,431 | |||||||||
Loss on redemption of 2026 Convertible Senior Notes, net of make-whole payment |
| | 2,255 | |||||||||
Amortization of debt issuance costs |
1,993 | 1,420 | 1,574 | |||||||||
Amortization of debt discount |
| | 1,245 | |||||||||
Equity-based compensation |
17,289 | 11,879 | 11,331 | |||||||||
Interest income on restricted assets |
(603 | ) | (454 | ) | (511 | ) | ||||||
Interest accretion |
4,000 | 2,771 | 1,778 | |||||||||
Excess tax benefit associated with equity-based compensation |
(5,033 | ) | (4,763 | ) | (11,997 | ) | ||||||
Changes in operating assets and liabilities, net of effects from acquisitions: |
||||||||||||
Accounts receivable, net |
1,549 | (14,507 | ) | (9,321 | ) | |||||||
Prepaid expenses and other current assets |
(733 | ) | (4,236 | ) | 3,304 | |||||||
Accounts payable |
2,761 | (2,912 | ) | (853 | ) | |||||||
Deferred revenue |
180 | 4,161 | 3,244 | |||||||||
Accrued liabilities |
7,835 | 9,551 | 19,074 | |||||||||
Other long-term liabilities |
2,529 | (657 | ) | 456 | ||||||||
|
|
|
|
|
|
|||||||
Net cash provided by operating activities |
416,327 | 388,170 | 332,179 | |||||||||
|
|
|
|
|
|
|||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||||||
Payments for acquisitions, net of cash acquired |
(1,579,869 | ) | (257,852 | ) | (81,010 | ) | ||||||
Capital expenditures for property and equipment |
(153,517 | ) | (141,924 | ) | (134,829 | ) | ||||||
Proceeds from disposal of assets |
2,741 | 4,434 | 6,659 | |||||||||
Decrease (increase) in restricted assets, net of interest income |
2,983 | 351 | (2,552 | ) | ||||||||
Other |
(6,185 | ) | (5,014 | ) | (2,492 | ) | ||||||
|
|
|
|
|
|
|||||||
Net cash used in investing activities |
(1,733,847 | ) | (400,005 | ) | (214,224 | ) | ||||||
|
|
|
|
|
|
|||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||||||
Proceeds from long-term debt |
1,647,000 | 592,500 | 483,253 | |||||||||
Principal payments on notes payable and long-term debt |
(609,014 | ) | (421,872 | ) | (467,660 | ) | ||||||
Payment of contingent consideration |
(12,473 | ) | (500 | ) | | |||||||
Change in book overdraft |
398 | (227 | ) | 279 | ||||||||
Proceeds from option and warrant exercises |
4,057 | 5,159 | 33,074 | |||||||||
Excess tax benefit associated with equity-based compensation |
5,033 | 4,763 | 11,997 | |||||||||
Payments for repurchase of common stock |
(18,597 | ) | (116,817 | ) | (166,320 | ) | ||||||
Payments for cash dividends |
(44,465 | ) | (35,566 | ) | (8,561 | ) | ||||||
Tax withholdings related to net share settlements of restricted stock units |
(6,062 | ) | (5,511 | ) | (3,783 | ) | ||||||
Distributions to noncontrolling interests |
(198 | ) | (675 | ) | | |||||||
Debt issuance costs |
(7,174 | ) | (6,649 | ) | | |||||||
Proceeds from common stock offering, net |
369,584 | | | |||||||||
|
|
|
|
|
|
|||||||
Net cash provided by (used in) financing activities |
1,328,089 | 14,605 | (117,721 | ) | ||||||||
|
|
|
|
|
|
|||||||
Net increase in cash and equivalents |
10,569 | 2,770 | 234 | |||||||||
Cash and equivalents at beginning of year |
12,643 | 9,873 | 9,639 | |||||||||
|
|
|
|
|
|
|||||||
Cash and equivalents at end of year |
$ | 23,212 | $ | 12,643 | $ | 9,873 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
66
WASTE CONNECTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION AND NON-CASH TRANSACTIONS:
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Cash paid for income taxes |
$ | 69,954 | $ | 52,729 | $ | 50,111 | ||||||
|
|
|
|
|
|
|||||||
Cash paid for interest |
$ | 49,826 | $ | 39,499 | $ | 39,913 | ||||||
|
|
|
|
|
|
|||||||
In connection with its acquisitions, the Company assumed liabilities as follows: |
||||||||||||
Fair value of assets acquired |
$ | 1,748,458 | $ | 404,550 | $ | 107,144 | ||||||
Cash paid for current year acquisitions |
(1,579,869 | ) | (257,852 | ) | (81,010 | ) | ||||||
|
|
|
|
|
|
|||||||
Liabilities assumed and notes payable issued to sellers of businesses acquired |
$ | 168,589 | $ | 146,698 | $ | 26,134 | ||||||
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
67
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Waste Connections, Inc. (WCI or the Company) was incorporated in Delaware on September 9, 1997, and commenced its operations on October 1, 1997, through the purchase of certain solid waste operations in the state of Washington. The Company is an integrated municipal solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly exclusive and secondary markets in the U.S. and a leading provider of non-hazardous exploration and production (E&P) waste treatment, recovery and disposal services in several of the most active natural resource producing areas of the U.S. The Company also provides intermodal services for the rail haul movement of cargo and solid waste containers in the Pacific Northwest.
Basis of Presentation
These consolidated financial statements include the accounts of WCI and its wholly-owned and majority-owned subsidiaries. The consolidated entity is referred to herein as the Company. All significant intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at purchase to be cash equivalents. As of December 31, 2012 and 2011, cash equivalents consisted of demand money market accounts.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and equivalents, restricted assets and accounts receivable. The Company maintains cash and equivalents with banks that at times exceed applicable insurance limits. The Company reduces its exposure to credit risk by maintaining such deposits with high quality financial institutions. The Companys restricted assets are invested primarily in U.S. government and agency securities. The Company has not experienced any losses related to its cash and equivalents or restricted asset accounts. The Company generally does not require collateral on its trade receivables. Credit risk on accounts receivable is minimized as a result of the large and diverse nature of the Companys customer base. The Company maintains allowances for losses based on the expected collectability of accounts receivable.
Revenue Recognition and Accounts Receivable
Revenues are recognized when persuasive evidence of an arrangement exists, the service has been provided, the price is fixed or determinable and collection is reasonably assured. Certain customers are billed in advance and, accordingly, recognition of the related revenues is deferred until the services are provided. In accordance with revenue recognition guidance, any tax assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer is presented in the statements of net income on a net basis (excluded from revenues).
The Companys receivables are recorded when billed or accrued and represent claims against third parties that will be settled in cash. The carrying value of the Companys receivables, net of the allowance for doubtful accounts, represents their estimated net realizable value. The Company estimates its allowance for doubtful accounts based on historical collection trends, type of customer such as municipal or non-municipal, the age of outstanding receivables and existing economic conditions. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due receivable balances are written off when the Companys internal collection efforts have been unsuccessful in collecting the amount due.
68
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Property and Equipment
Property and equipment are stated at cost. Improvements or betterments, not considered to be maintenance and repair, which add new functionality or significantly extend the life of an asset are capitalized. Third-party expenditures related to pending development projects, such as legal and engineering expenses, are capitalized. Expenditures for maintenance and repair costs, including planned major maintenance activities, are charged to expense as incurred. The cost of assets retired or otherwise disposed of and the related accumulated depreciation are eliminated from the accounts in the year of disposal. Gains and losses resulting from disposals of property and equipment are recognized in the period in which the property and equipment is disposed. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the lease term, whichever is shorter.
The estimated useful lives are as follows:
Buildings |
10 20 years | |||
Land and leasehold improvements |
3 20 years | |||
Machinery and equipment |
3 12 years | |||
Rolling stock |
2 10 years | |||
Containers |
5 12 years | |||
Rail cars |
20 years |
Landfill Accounting
The Company utilizes the life cycle method of accounting for landfill costs. This method applies the costs to be capitalized associated with acquiring, developing, closing and monitoring the landfills over the associated consumption of landfill capacity. The Company utilizes the units of consumption method to amortize landfill development costs over the estimated remaining capacity of a landfill. Under this method, the Company includes future estimated construction costs using current dollars, as well as costs incurred to date, in the amortization base. When certain criteria are met, the Company includes expansion airspace, which has not been permitted, in the calculation of the total remaining capacity of the landfill.
| Landfill development costs. Landfill development costs include the costs of acquisition, construction associated with excavation, liners, site berms, groundwater monitoring wells, gas recovery systems and leachate collection systems. The Company estimates the total costs associated with developing each landfill site to its final capacity. This includes certain projected landfill site costs that are uncertain because they are dependent on future events and thus actual costs could vary significantly from estimates. The total cost to develop a site to its final capacity includes amounts previously expended and capitalized, net of accumulated depletion, and projections of future purchase and development costs, liner construction costs, and operating construction costs. Total landfill costs include the development costs associated with expansion airspace. Expansion airspace is addressed below. |
| Final capping, closure and post-closure obligations. The Company accrues for estimated final capping, closure and post-closure maintenance obligations at the landfills it owns and five of the six landfills that it operates, but does not own under life-of-site agreements. Accrued final capping, closure and post-closure costs represent an estimate of the current value of the future obligation associated with final capping, closure and post-closure monitoring of non-hazardous solid waste landfills currently owned or operated under life-of-site agreements by the Company. Final capping costs represent the costs related to installation of clay liners, drainage and compacted soil layers and topsoil constructed over areas of the landfill where total airspace capacity has been consumed. Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes. Accruals for final capping, closure and post-closure monitoring and maintenance requirements in the U.S. consider site inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operating and maintenance costs to be incurred during the period after the facility closes. Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the air emissions standards. Daily maintenance activities, which include many of these costs, are expensed as incurred during the operating life of the landfill. Daily maintenance activities include leachate disposal; surface water, groundwater, and methane gas monitoring and maintenance; other pollution control activities; mowing and fertilizing the landfill final cap; fence and road maintenance; and third party inspection and reporting costs. Site specific final capping, closure and post-closure engineering cost estimates are prepared annually for landfills owned or landfills operated under life-of-site agreements by the Company for which it is responsible for final capping, closure and post-closure. |
69
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The net present value of landfill final capping, closure and post-closure liabilities are calculated by estimating the total obligation in current dollars, inflating the obligation based upon the expected date of the expenditure and discounting the inflated total to its present value using a credit-adjusted risk-free rate. Any changes in expectations that result in an upward revision to the estimated undiscounted cash flows are treated as a new liability and are inflated and discounted at rates reflecting current market conditions. Any changes in expectations that result in a downward revision (or no revision) to the estimated undiscounted cash flows result in a liability that is inflated and discounted at rates reflecting the market conditions at the time the cash flows were originally estimated. This policy results in the Companys final capping, closure and post-closure liabilities being recorded in layers. The Companys discount rate assumption for purposes of computing 2012 and 2011 layers for final capping, closure and post-closure obligations was 5.75% for each year, which reflects the Companys long-term cost of borrowing as of the end of 2011 and 2010. The Companys inflation rate assumption was 2.5% for the years ended December 31, 2012 and 2011.
In accordance with the accounting guidance on asset retirement obligations, the final capping, closure and post-closure liability is recorded on the balance sheet along with an offsetting addition to site costs which is amortized to depletion expense on a units-of-consumption basis as remaining landfill airspace is consumed. The impact of changes determined to be changes in estimates, based on an annual update, is accounted for on a prospective basis. Depletion expense resulting from final capping, closure and post-closure obligations recorded as a component of landfill site costs will generally be less during the early portion of a landfills operating life and increase thereafter. Owned landfills and landfills operated under life-of-site agreements have estimated remaining lives, based on remaining permitted capacity, probable expansion capacity and projected annual disposal volumes, that range from approximately 5 to 240 years, with an average remaining life of approximately 48 years. The costs for final capping, closure and post-closure obligations at landfills the Company owns or operates under life-of-site agreements are generally estimated based on interpretations of current requirements and proposed or anticipated regulatory changes.
The estimates for landfill final capping, closure and post-closure costs consider when the costs would actually be paid and factor in inflation and discount rates. Interest is accreted on the recorded liability using the corresponding discount rate. When using discounted cash flow techniques, reliable estimates of market premiums may not be obtainable. In the waste industry, there is no market for selling the responsibility for final capping, closure and post-closure obligations independent of selling the landfill in its entirety. Accordingly, the Company does not believe that it is possible to develop a methodology to reliably estimate a market risk premium and has therefore excluded any such market risk premium from its determination of expected cash flows for landfill asset retirement obligations. The possibility of changing legal and regulatory requirements and the forward-looking nature of these types of costs make any estimation or assumption less certain.
The following is a reconciliation of the Companys final capping, closure and post-closure liability balance from December 31, 2010 to December 31, 2012:
Final capping, closure and post-closure liability at December 31, 2010 |
$ | 28,537 | ||
Adjustments to final capping, closure and post-closure liabilities |
(1,038 | ) | ||
Liabilities incurred |
2,088 | |||
Accretion expense |
1,967 | |||
Closure payments |
(2,100 | ) | ||
Assumption of closure liabilities from acquisitions |
1,429 | |||
|
|
|||
Final capping, closure and post-closure liability at December 31, 2011 |
30,883 | |||
Adjustments to final capping, closure and post-closure liabilities |
3,535 | |||
Liabilities incurred |
2,926 | |||
Accretion expense |
2,581 | |||
Closure payments |
(22 | ) | ||
Assumption of closure liabilities from acquisitions |
6,570 | |||
|
|
|||
Final capping, closure and post-closure liability at December 31, 2012 |
$ | 46,473 | ||
|
|
The Adjustments to final capping, closure and post-closure liabilities for the year ended December 31, 2012, primarily consisted of increases in estimated closure costs and changes in timing of closure activities at some of the Companys landfills, partially offset by a decrease in closure liabilities from third parties due to changes in timing of closure activities and reduced closure expenses. The Adjustments to final capping, closure and post-closure liabilities for the year ended December 31, 2011, primarily consisted of an increase in estimated airspace at one of the Companys landfills at which an expansion is being pursued. The final capping, closure and post-closure liability is included in Other long-term liabilities in the Consolidated Balance Sheets. The Company performs its annual review of its cost and capacity estimates in the first quarter of each year.
70
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
At December 31, 2012, $32,457 of the Companys restricted assets balance was for purposes of securing its performance of future final capping, closure and post-closure obligations.
| Disposal capacity. The Companys internal and third-party engineers perform surveys at least annually to estimate the remaining disposal capacity at its landfills. This is done by using surveys and other methods to calculate, based on the terms of the permit, height restrictions and other factors, how much airspace is left to fill and how much waste can be disposed of at a landfill before it has reached its final capacity. The Companys landfill depletion rates are based on the remaining disposal capacity, considering both permitted and probable expansion airspace, at the landfills it owns, and certain landfills it operates, but does not own, under life-of-site agreements. The Companys landfill depletion rate is based on the term of the operating agreement at its operated landfill that has capitalized expenditures. Expansion airspace consists of additional disposal capacity being pursued through means of an expansion that has not yet been permitted. Expansion airspace that meets the following criteria is included in the estimate of total landfill airspace: |
1) | whether the land where the expansion is being sought is contiguous to the current disposal site, and the Company either owns the expansion property or has rights to it under an option, purchase, operating or other similar agreement; |
2) | whether total development costs, final capping costs, and closure/post-closure costs have been determined; |
3) | whether 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) | whether internal personnel or external consultants are actively working to obtain the necessary approvals to obtain the landfill expansion permit; and |
5) | whether the Company considers it probable that the Company will achieve the expansion (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 the Company believes are more likely than not to impair the success of the expansion). |
It is possible that the Companys estimates or assumptions could ultimately be significantly different from actual results. In some cases, the Company may be unsuccessful in obtaining an expansion permit or the Company may determine that an expansion permit that the Company previously thought was probable has become unlikely. To the extent that such estimates, or the assumptions used to make those estimates, prove to be significantly different than actual results, or the belief that the Company will receive an expansion permit changes adversely in a significant manner, the costs of the landfill, including the costs incurred in the pursuit of the expansion, may be subject to impairment testing, as described below, and lower profitability may be experienced due to higher amortization rates, higher capping, closure and post-closure rates, and higher expenses or asset impairments related to the removal of previously included expansion airspace.
The Company periodically evaluates its landfill sites for potential impairment indicators. The Companys judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of its landfills. Future events could cause the Company to conclude that impairment indicators exist and that its landfill carrying costs are impaired.
Cell Processing Reserves
The Company records a cell processing reserve related to its E&P group for certain locations in Louisiana and Texas for the estimated amount of expenses to be incurred upon the treatment and excavation of oilfield waste received. The cell processing reserve is the future cost to properly treat and dispose of existing waste within the cells at the various facilities. The reserve generally covers estimated costs to be incurred over a period of time up to 24 months, with the current portion representing costs estimated to be incurred in the next 12 months. The estimate is calculated based on current estimated volume in the cells, estimated percentage of waste treated, and historical average costs to treat and excavate the waste. The processing reserve represents the estimated costs to process the volumes of oilfield waste on-hand for which revenue has been recognized. At December 31, 2012, the current portion of cell processing reserves was $6,442, which is included in Accrued liabilities in the Consolidated Balance Sheets. At December 31, 2012, the long-term portion of cell processing reserves was $2,043, which is included in Other long-term liabilities in the Consolidated Balance Sheets.
71
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Business Combination Accounting
The Company accounts for business combinations as follows:
| The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The Company measures and recognizes goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Companys previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed. |
| At the acquisition date, the Company measures the fair values of all assets acquired and liabilities assumed that arise from contractual contingencies. The Company measures the fair values of all noncontractual contingencies if, as of the acquisition date, it is more likely than not that the contingency will give rise to an asset or liability. |
Finite-Lived Intangible Assets
The amounts assigned to franchise agreements, contracts, customer lists and non-competition agreements are being amortized on a straight-line basis over the expected term of the related agreements (ranging from 1 to 56 years).
Goodwill and Indefinite-Lived Intangible Assets
The Company acquired indefinite-lived intangible assets in connection with certain of its acquisitions. The amounts assigned to indefinite-lived intangible assets consist of the value of certain perpetual rights to provide solid waste collection and transportation services in specified territories and to operate exploration and production waste treatment and disposal facilities. The Company measures and recognizes acquired indefinite-lived intangible assets at their estimated acquisition date fair values. Indefinite-lived intangible assets are not amortized. Goodwill represents the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Companys previously held equity interest in the acquiree (if any), over (b) the fair value of assets acquired and liabilities assumed. Goodwill and intangible assets, deemed to have indefinite lives, are subject to annual impairment tests as described below.
Goodwill and indefinite-lived intangible assets are tested for impairment on at least an annual basis in the fourth quarter of the year. In the first step of testing for goodwill impairment, the Company estimates the fair value of each reporting unit, which the Company has determined to be its three geographic operating segments and its E&P group, and compares the fair value with the carrying value of the net assets assigned to each reporting unit. If the fair value of a reporting unit is greater than the carrying value of the net assets assigned to the reporting unit, including goodwill, then no impairment results. If the fair value is less than the carrying value, then the Company would perform a second step and determine the fair value of the goodwill. In this second step, the fair value of goodwill is determined by deducting the fair value of a reporting units identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated. If the fair value of the goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to earnings in the Companys Consolidated Statements of Net Income. In testing indefinite-lived intangible assets for impairment, the Company compares the estimated fair value of each indefinite-lived intangible asset to its carrying value. If the fair value of the indefinite-lived intangible asset is less than its carrying value, an impairment charge would be recorded to earnings in the Companys Consolidated Statements of Net Income.
To determine the fair value of each of the Companys reporting units as a whole and each indefinite-lived intangible asset, the Company uses discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit and the future discrete cash flows related to each indefinite-lived intangible asset. Significant judgments inherent in these analyses include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows employed in the Companys 2012 discounted cash flow analyses were based on ten-year financial forecasts, which in turn were based on the 2013 annual budget developed internally by management. These forecasts reflect operating profit margins that were consistent with 2012 results and perpetual revenue growth rates of 3.5%. The Companys discount rate assumptions are based on an assessment of the Companys weighted average cost of capital which approximated 5.7%. In assessing the reasonableness of the Companys determined fair values of its reporting units, the Company evaluates its results against its current market capitalization.
72
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In addition, the Company would evaluate a reporting unit for impairment if events or circumstances change between annual tests indicating a possible impairment. Examples of such events or circumstances include the following:
| a significant adverse change in legal factors or in the business climate; |
| an adverse action or assessment by a regulator; |
| a more likely than not expectation that a segment or a significant portion thereof will be sold; or |
| the testing for recoverability of a significant asset group within the segment. |
As a result of performing the tests for potential impairment of goodwill and indefinite-lived intangible assets, the Company determined that no impairment existed as of December 31, 2012 or 2011, and, therefore, there were no write-downs to any of its goodwill or indefinite-lived intangible assets.
Impairments of Property, Plant and Equipment and Other Intangible Assets
Property, plant, equipment and other intangible assets are carried on the Companys consolidated financial statements based on their cost less accumulated depreciation or amortization. Other intangible assets consist of long-term franchise agreements, contracts, customer lists and non-competition agreements. The recoverability of these assets is tested whenever events or changes in circumstances indicate that their carrying amount may not be recoverable.
Typical indicators that an asset may be impaired include:
| a significant adverse change in legal factors or in the business climate; |
| an adverse action or assessment by a regulator; |
| a more likely than not expectation that a segment or a significant portion thereof will be sold; or |
| the testing for recoverability of a significant asset group within a segment. |
If any of these or other indicators occur, 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 value is in excess of the undiscounted expected future cash flows, impairment is measured by comparing the fair value of the asset to its carrying value. Fair value is determined by an internally developed discounted projected cash flow analysis of the asset. Cash flow projections are sometimes based on a group of assets, rather than a single asset. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether an impairment has occurred for the group of assets for which the projected cash flows can be identified. 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. Several impairment indicators are beyond the Companys control, and whether or not they will occur cannot be predicted with any certainty. Estimating future cash flows requires significant judgment and projections may vary from cash flows eventually realized. There are other considerations for impairments of landfills, as described below.
Landfills There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to landfill development or expansion projects.
A regulator or court may deny or overturn a landfill development or landfill expansion permit application before the development or expansion permit is ultimately granted. For example, see Note 11 for discussion of the Chaparral, New Mexico Landfill Permit Litigation, the Harper County, Kansas Landfill Permit Litigation and the Solano County, California Measure E/Landfill Expansion Litigation.
Management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace.
Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators of impairment due to the unique nature of the waste industry.
73
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Restricted Assets
Restricted assets held by trustees consist principally of funds deposited in connection with landfill final capping, closure and post-closure obligations and other financial assurance requirements. Proceeds from these financing arrangements are directly deposited into trust funds, and the Company does not have the ability to utilize the funds in regular operating activities. See Note 8 for further information on restricted assets.
Fair Value of Financial Instruments
The Companys financial instruments consist primarily of cash and equivalents, trade receivables, restricted assets, trade payables, debt instruments, contingent consideration obligations, interest rate swaps and fuel hedges. As of December 31, 2012 and 2011, the carrying values of cash and equivalents, trade receivables, restricted assets, trade payables and contingent consideration are considered to be representative of their respective fair values. The carrying values of the Companys debt instruments, excluding certain notes as listed in the table below, approximate their fair values as of December 31, 2012 and 2011, based on current borrowing rates, current remaining average life to maturity and borrower credit quality for similar types of borrowing arrangements, and are therefore classified as Level 2 within the fair value hierarchy. The carrying values and fair values of the Companys debt instruments where the carrying values do not approximate their fair values as of December 31, 2012 and 2011, are as follows:
Carrying Value
at December 31, |
Fair Value* at December 31, |
|||||||||||||||
2012 | 2011 | 2012 | 2011 | |||||||||||||
6.22% Senior Notes due 2015 |
$ | 175,000 | $ | 175,000 | $ | 193,949 | $ | 186,305 | ||||||||
3.30% Senior Notes due 2016 |
$ | 100,000 | $ | 100,000 | $ | 103,068 | $ | 98,980 | ||||||||
4.00% Senior Notes due 2018 |
$ | 50,000 | $ | 50,000 | $ | 52,476 | $ | 51,220 | ||||||||
5.25% Senior Notes due 2019 |
$ | 175,000 | $ | 175,000 | $ | 195,584 | $ | 174,125 | ||||||||
4.64% Senior Notes due 2021 |
$ | 100,000 | $ | 100,000 | $ | 107,418 | $ | 104,250 |
* | Senior Notes are classified as Level 2 within the fair value hierarchy. Fair value is based on quotes of bonds with similar ratings in similar industries. |
For details on the fair value of the Companys interest rate swaps, fuel hedge and restricted assets, refer to Note 8.
Derivative Financial Instruments
The Company recognizes all derivatives on the balance sheet at fair value. All of the Companys derivatives have been designated as cash flow hedges; therefore, the effective portion of the changes in the fair value of derivatives will be recognized in accumulated other comprehensive loss (AOCL) until the hedged item is recognized in earnings. The ineffective portion of the changes in the fair value of derivatives will be immediately recognized in earnings. The Company classifies cash inflows and outflows from derivatives within operating activities on the statement of cash flows.
One of the Companys objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates of certain borrowings issued under its revolving credit facility. The Companys strategy to achieve that objective involves entering into interest rate swaps that are specifically designated to the Companys revolving credit facility and accounted for as cash flow hedges.
74
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
At December 31, 2012, the Companys derivative instruments included three interest rate swap agreements as follows:
Date Entered |
Notional Amount |
Fixed Interest Rate Paid* |
Variable Interest Rate Received |
Effective Date | Expiration Date | |||||||||||
March 2009 |
$ | 175,000 | 2.85 | % | 1-month LIBOR | February 2011 | February 2014 | |||||||||
August 2011 |
$ | 150,000 | 0.80 | % | 1-month LIBOR | April 2012 | January 2015 | |||||||||
December 2011 |
$ | 175,000 | 1.60 | % | 1-month LIBOR | February 2014 | February 2017 |
* | plus applicable margin. |
Another of the Companys objectives for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the price of diesel fuel. The Companys strategy to achieve that objective involves periodically entering into fuel hedges that are specifically designated to certain forecasted diesel fuel purchases and accounted for as cash flow hedges.
At December 31, 2012, the Companys derivative instruments included one fuel hedge agreement as follows:
Date Entered |
Notional Amount (in gallons per month) |
Diesel Rate Paid Fixed (per gallon) |
Diesel Rate
Received Variable |
Effective Date |
Expiration Date | |||||||||
June 2012 |
300,000 | $ | 3.60 | DOE Diesel Fuel Index* | January 2014 | December 2015 |
* | If the national U.S. on-highway average price for a gallon of diesel fuel (average price), as published by the Department of Energy, exceeds the contract price per gallon, the Company receives the difference between the average price and the contract price (multiplied by the notional number of gallons) from the counterparty. If the average price is less than the contract price per gallon, the Company pays the difference to the counterparty. |
The fair values of derivative instruments designated as cash flow hedges as of December 31, 2012, were as follows:
Derivatives Designated as Cash | Asset Derivatives | Liability Derivatives | ||||||||||
Flow Hedges |
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Interest rate swaps |
Accrued liabilities(a) | $ | (5,374 | ) | ||||||||
Other long-term liabilities | (5,789 | ) | ||||||||||
Fuel hedge |
Other assets, net | $ | 1,187 | |||||||||
|
|
|
|
|||||||||
Total derivatives designated as cash flow hedges |
$ | 1,187 | $ | (11,163 | ) | |||||||
|
|
|
|
(a) | Represents the estimated amount of the existing unrealized losses on interest rate swaps as of December 31, 2012 (based on the interest rate yield curve at that date), included in AOCL expected to be reclassified into pre-tax earnings within the next 12 months. The actual amounts reclassified into earnings are dependent on future movements in interest rates. |
The fair values of derivative instruments designated as cash flow hedges as of December 31, 2011, were as follows:
Derivatives Designated as Cash | Asset Derivatives | Liability Derivatives | ||||||||||
Flow Hedges |
Balance Sheet Location | Fair Value | Balance Sheet Location | Fair Value | ||||||||
Interest rate swaps |
Accrued liabilities | $ | (4,476 | ) | ||||||||
Other long-term liabilities | (4,642 | ) | ||||||||||
Fuel hedge |
Prepaid expenses and other current assets |
$ | 3,506 | |||||||||
|
|
|
|
|||||||||
Total derivatives designated as cash flow hedges |
$ | 3,506 | $ | (9,118 | ) | |||||||
|
|
|
|
75
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The following table summarizes the impact of the Companys cash flow hedges on the results of operations, comprehensive income and AOCL for the years ended December 31, 2012, 2011 and 2010:
Derivatives Designated as Cash Flow Hedges |
Amount of Gain or (Loss) Recognized as AOCL on Derivatives, Net of Tax (Effective Portion)(a) |
Statement of Income Classification |
Amount of (Gain) or Loss Reclassified from AOCL into Earnings, Net of Tax (Effective Portion)(b), (c) |
|||||||||||||||||||||||
Years Ended December 31, | Years Ended December 31, | |||||||||||||||||||||||||
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | |||||||||||||||||||||
Interest rate swaps |
$ | (4,524 | ) | $ | (3,224 | ) | $ | (6,812 | ) | Interest expense | $ | 3,279 | $ | 3,598 | $ | 5,612 | ||||||||||
Fuel hedge |
1,358 | 1,905 | 559 | Cost of operations | (2,798 | ) | (2,664 | ) | 2,438 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Total |
$ | (3,166 | ) | $ | (1,319 | ) | $ | (6,253 | ) | $ | 481 | $ | 934 | $ | 8,050 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) | In accordance with the derivatives and hedging guidance, the effective portions of the changes in fair values of interest rate swaps and the fuel hedge have been recorded in equity as a component of AOCL. As the critical terms of the interest rate swaps match the underlying debt being hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in AOCL. Because changes in the actual price of diesel fuel and changes in the DOE index price do not offset exactly each reporting period, the Company assesses whether the fuel hedge is highly effective using the cumulative dollar offset approach. |
(b) | Amounts reclassified from AOCL into earnings related to realized gains and losses on interest rate swaps are recognized when interest payments or receipts occur related to the swap contracts, which correspond to when interest payments are made on the Companys hedged debt. |
(c) | Amounts reclassified from AOCL into earnings related to realized gains and losses on the fuel hedge are recognized when settlement payments or receipts occur related to the hedge contract, which correspond to when the underlying fuel is consumed. |
The Company measures and records ineffectiveness on the fuel hedge in Cost of operations in the Consolidated Statements of Net Income on a monthly basis based on the difference between the DOE index price and the actual price of diesel fuel purchased, multiplied by the notional number of gallons on the contracts. There was no significant ineffectiveness recognized on the fuel hedges during the years ended December 31, 2012, 2011 and 2010.
See Note 13 for further discussion on the impact of the Companys hedge accounting to its consolidated Comprehensive income and AOCL.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between the financial reporting and income tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. The Company records valuation allowances to reduce net deferred tax assets to the amount considered more likely than not to be realized.
The Company is required to evaluate whether the tax positions taken on its federal and state income tax returns will more likely than not be sustained upon examination by the appropriate taxing authority. If the Company determines that such tax positions will not be sustained, it records a liability for the related unrecognized tax benefits. The Company classifies its liability for unrecognized tax benefits as a current liability to the extent it anticipates making a payment within one year.
Equity-Based Compensation
The fair value of restricted stock and restricted stock units is determined based on the number of shares granted and the closing price of the Companys common stock.
All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized on a straight-line basis as expense over the employees requisite service period. The Company calculates potential income tax windfalls and shortfalls under the treasury stock method by including the impact of pro forma deferred tax assets in the calculation of diluted earnings per common share. Under the stock-based compensation guidance, the Company elected to use the short-cut method to calculate the historical pool of windfall tax benefits. The Company elected to use the tax law ordering approach for purposes of determining whether an excess of tax benefit has been realized.
Warrants are valued using the Black-Scholes pricing model with a contractual life of five years, a risk free interest rate based on the 5-year U.S. treasury yield curve and expected volatility. The Company uses the historical volatility of its common stock over a period equivalent to the contractual life of the warrants to estimate the expected volatility. Warrants issued to consultants are recorded as an element of the related cost of landfill development projects or to expense for warrants issued in connection with acquisitions.
76
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Equity-based compensation expense recognized during the years ended December 31, 2012, 2011 and 2010, was approximately $17,289 ($11,803 net of taxes), $11,879 ($7,365 net of taxes) and $11,331 ($7,033 net of taxes), respectively, and consisted of stock option, restricted stock unit and warrant expense. The Company records equity-based compensation expense in Selling, general and administrative expenses in the Consolidated Statements of Net Income. The total unrecognized compensation cost at December 31, 2012, related to unvested restricted stock unit awards was $22,475 and that future expense will be recognized over the remaining vesting period of the restricted stock unit awards, which extends to 2016. The weighted average remaining vesting period of those awards is 1.1 years.
Per Share Information
Basic net income per share attributable to Waste Connections common stockholders is computed using the weighted average number of common shares outstanding and vested and unissued restricted stock units deferred for issuance into the deferred compensation plan. Diluted net income per share attributable to Waste Connections common stockholders is computed using the weighted average number of common and potential common shares outstanding. Potential common shares are excluded from the computation if their effect is anti-dilutive.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2012, 2011 and 2010, was $3,737, $3,679 and $4,171, respectively, which is included in Selling, general and administrative expense in the Consolidated Statements of Net Income.
Insurance Liabilities
As a result of its high deductible insurance policies, the Company is effectively self-insured for automobile liability, general liability, employers liability, environmental liability, directors and officers liability as well as for employee group health claims, property and workers compensation. The Companys insurance accruals are based on claims filed and estimates of claims incurred but not reported and are developed by the Companys management with assistance from its third-party actuary and its third-party claims administrator. The insurance accruals are influenced by the Companys past claims experience factors, which have a limited history, and by published industry development factors. At December 31, 2012 and 2011, the Companys total accrual for self-insured liabilities was $43,935 and $40,137, respectively, which is included in Accrued liabilities in the Consolidated Balance Sheets.
Reclassification
Certain amounts reported in the Companys prior years financial statements have been reclassified to conform with the 2012 presentation.
New Accounting Pronouncements
Fair Value Measurement. In May 2011, the FASB issued additional guidance on fair value disclosures. This guidance contains certain updates to the measurement guidance as well as enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements including enhanced disclosure for: (1) the valuation processes used by the reporting entity; and (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. This guidance was effective for interim and annual periods beginning on or after December 15, 2011. As of December 31, 2012, the only assets or liabilities which require Level 3 measurements are the Companys diesel fuel hedge. The Company adopted this guidance as of January 1, 2012. See Note 8 for further information.
77
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Presentation of Comprehensive Income. In September 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance eliminates the option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: present items of net income and other comprehensive income (1) in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. This guidance was effective as of the beginning of a fiscal year that begins after December 15, 2011. Full retrospective application is required. The guidance also previously required the presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented; however, this portion of the guidance has been deferred. The Company adopted this guidance as of January 1, 2012 and elected to present items of net income and other comprehensive income in two separate, but consecutive, statements of net income and comprehensive income.
Impairment of Indefinite-lived Intangible Assets. In July 2012, the FASB issued guidance on testing indefinite-lived intangible assets for impairment. The guidance provides entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. This guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. However, an entity can choose to early adopt, provided that the entity has not yet performed its 2012 annual impairment test or issued its financial statements. The Company performed the quantitative assessment for testing indefinite-lived intangible assets for impairment for the year ended December 31, 2012. See Goodwill and Indefinite-Lived Intangible Assets within this Note 1 for further details.
Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. In February 2013, the FASB issued guidance requiring entities to provide information about the amounts reclassified out of accumulated other comprehensive income (AOCI) by component. In addition, it requires entities to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income if the amount reclassified is required under U.S. generally accepted accounting principles to be reclassified to net income in its entirety in the same reporting period. This guidance is effective prospectively for annual and interim reporting periods beginning after December 15, 2012, with early adoption permitted. The amounts required to be disclosed under this guidance are disclosed in Derivative Financial Instruments within this Note 1 and in Note 13.
2. USE OF ESTIMATES AND ASSUMPTIONS
In preparing the Companys consolidated financial statements, several estimates and assumptions are made that affect the accounting for and recognition of assets, liabilities, revenues and expenses. These estimates and assumptions must be made because certain of the information that is used in the preparation of the Companys consolidated financial statements is dependent on future events, cannot be calculated with a high degree of precision from data available or is simply not capable of being readily calculated based on generally accepted methodologies. In some cases, these estimates are particularly difficult to determine and the Company must exercise significant judgment. The most difficult, subjective and complex estimates and the assumptions that deal with the greatest amount of uncertainty are related to the Companys accounting for landfills, self-insurance accruals, income taxes, allocation of acquisition purchase price and asset impairments, which are discussed in Note 1. An additional area that involves estimation is when the Company estimates the amount of potential exposure it may have with respect to litigation, claims and assessments in accordance with the accounting guidance on contingencies. Actual results for all estimates could differ materially from the estimates and assumptions that the Company uses in the preparation of its consolidated financial statements.
3. ACQUISITIONS
The Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values. The Company measures and recognizes goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of the Companys previously held equity interest in the acquiree (if any), over (b) the fair value of assets acquired and liabilities assumed. If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, the Company will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once the Company receives the information it was seeking; however, this period will not exceed one year from the acquisition date. Any material adjustments recognized during the measurement period will be reflected retrospectively in the consolidated financial statements of the subsequent period. The Company recognizes acquisition-related costs as expense.
78
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
R360 Acquisition
On October 25, 2012, the Company completed the acquisition of all of the outstanding equity interests in certain entities that, together with the operating subsidiaries of such entities, hold the business of R360 Environmental Solutions, Inc. (R360) for total cash consideration of $1,338,344, net of cash acquired, the assumption of outstanding debt totaling $9,306 and the assumption of contingent consideration totaling $37,293. The acquisition was funded with available cash and with borrowings of $475,000 under the Companys existing senior revolving credit facility and of $800,000 under a new uncollateralized term loan facility. The R360 business consists of E&P landfills, E&P liquid waste injection wells, E&P waste treatment and recovery facilities and oil recovery facilities at 24 operating locations across Louisiana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming. The R360 acquisition enabled the Company to significantly expand its scope of E&P waste services and contributed towards the achievement of the Companys strategy to expand through acquisitions.
The results of operations of the R360 business have been included in the Companys consolidated financial statements from its acquisition date. Total revenues during the period from October 25, 2012 to December 31, 2012, generated from the R360 operations and included within consolidated revenues were $40,190. Total pre-tax earnings during the period from October 25, 2012 to December 31, 2012, generated from the R360 operations and included within consolidated income before income taxes, were $8,669.
The following table summarizes the consideration transferred to acquire the R360 business and the amounts of identifiable assets acquired and liabilities assumed:
Fair value of consideration transferred: |
||||
Cash |
$ | 1,338,344 | ||
Debt assumed* |
9,306 | |||
Contingent consideration |
37,293 | |||
|
|
|||
1,384,943 | ||||
|
|
|||
Recognized amounts of identifiable assets acquired and liabilities assumed associated with businesses acquired: |
||||
Accounts receivable |
50,161 | |||
Other current assets |
19,716 | |||
Property and equipment |
894,651 | |||
Indefinite-lived intangibles |
27,096 | |||
Customer lists |
21,016 | |||
Accounts payable |
(31,702 | ) | ||
Accrued liabilities |
(19,286 | ) | ||
Other long-term liabilities |
(8,066 | ) | ||
Deferred income taxes |
(14,568 | ) | ||
|
|
|||
Total identifiable net assets |
939,018 | |||
|
|
|||
Goodwill |
$ | 445,925 | ||
|
|
* | Debt assumed was paid at close of acquisition. |
Contingent consideration consists of obligations assumed by the Company related to previous acquisitions completed by R360, and consists of the following:
Prairie Disposal contingent consideration |
$ | 24,376 | ||
Oilfield Holdings contingent consideration |
8,000 | |||
Calpet contingent consideration |
4,176 | |||
Claco Services contingent consideration |
741 | |||
|
|
|||
$ | 37,293 | |||
|
|
79
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Prairie Disposal contingent consideration represents the fair value of up to $25,000 of contingent consideration payable to the former owners of Prairie Disposal, LLC and Prairie Liquids, LLC (Prairie) based on the future achievement of certain milestones over a two-year period ending in June 2014. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the two-year period in which the obligation is expected to be settled, and applied a discount rate of 2.0%. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.
The Oilfield Holdings contingent consideration represents the fair value of up to $8,000 payable to the former owners of Oilfield Holdings if R360 completed a qualifying cash event, as defined in the Oilfield Holdings purchase agreement. A qualifying cash event included the sale of R360. Payment of the contingent consideration required the qualifying cash event to generate a return on investment above a certain minimum threshold. The Companys R360 acquisition generated a return on investment that resulted in the payment of the $8,000 liability to the former owners of Oilfield Holdings in November 2012.
The Calpet contingent consideration represents the fair value of up to $4,221 payable to the former owners of Calpet, LLC based on the future achievement of revenue targets through June 2013. The fair value of the contingent consideration was determined using probability assessments of the expected future cash flows over the one-year period in which the obligations is expected to be settled, and applied a discount rate of 2.0%. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.
The Claco Services contingent consideration represents the fair value of up to $750 payable to the former owners of Claco Services through December 2013. The Company paid $374 of this assumed liability in December 2012.
The R360 acquisition resulted in goodwill acquired totaling $395,339, which is expected to be deductible for tax purposes. The goodwill is attributable to growth opportunities, at existing R360 operations as well additional acquisitions of companies providing non-hazardous oilfield waste treatment and disposal services, and synergies that are expected to arise as a result of the acquisition.
The fair value of acquired working capital related to R360 is provisional pending receipt of information from the acquiree to support the fair value of the assets acquired and liabilities assumed. The fair value related to certain other assets and liabilities is provisional as well. The preliminary allocation of the purchase price is based on information existing at the acquisition date and is subject to change. Measurement period adjustments will be evaluated to determine whether they relate to facts and circumstances that existed at the acquisition date. Any measurement period adjustments recorded will be an adjustment to goodwill and are not expected to be material to the Companys financial position.
The gross amount of trade receivables due under contracts is $52,777, of which $2,616 is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the R360 acquisition.
The Company paid $8,374 of contingent consideration assumed with the R360 acquisition during the year ended December 31, 2012, which represented the payout of $8,000 related to Oilfield Holdings and $374 related to Claco Services, as described above.
The Company incurred $2,655, of acquisition-related costs for the R360 acquisition. These expenses are included in Selling, general and administrative expenses in the Companys Consolidated Statements of Net Income.
Other Acquisitions
In July 2012, the Company completed the acquisition of 100% of the interests in the operations of SKB Environmental, Inc. (SKB), a provider of solid waste transfer and disposal services in Minnesota, in exchange for total consideration of $86,763. Pursuant to the stock purchase agreement, the Company is required to remit additional consideration to the former shareholders of SKB if the acquired operations exceed earnings targets specified in the stock purchase agreement over a one-year period ending June 30, 2013. The Company computed the fair value of the contingent consideration at the purchase date to be $20,711, based upon probability assessments of the expected future cash flows over the one-year period in which the obligation is expected to be settled, to which the Company applied a discount rate of 2.0%. As of December 31, 2012, the obligation recognized at the purchase date has not materially changed. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.
80
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On March 1, 2012, the Company completed the acquisition of 100% of the interests in the operations of Alaska Pacific Environmental Services Anchorage, LLC and Alaska Green Waste Solutions, LLC (together, Alaska Waste). Alaska Waste provides solid waste collection, transfer and composting services in Anchorage, the Mat-Su Valley, Fairbanks, the Kenai Peninsula and Kodiak Island. The Company paid $133,402 for the purchased operations. Pursuant to the asset purchase agreement, the Company is required to remit up to $4,000 of additional consideration to the former owners of Alaska Waste if new business is generated through the privatization of certain markets currently serviced by municipalities. The Company computed the fair value of the contingent consideration at the purchase date to be $602, based upon probability assessments of the expected future cash flows over the two-year period in which the obligation is expected to be settled, to which the Company applied a discount rate of 2.8%. As of December 31, 2012, the obligation recognized at the purchase date has not materially changed. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to expense until the contingency is settled.
In addition to the acquisitions of SKB and Alaska Waste, the Company acquired 10 individually immaterial non-hazardous solid waste collection, transfer, disposal and E&P businesses during the year ended December 31, 2012. The total acquisition-related costs incurred for these acquisitions was $2,658. These expenses are included in Selling, general and administrative expenses in the Companys Consolidated Statements of Net Income.
In August 2011, the Companys subsidiary, Capital Region Landfills, Inc. (CRL), entered into an agreement with the Town of Colonie, a municipal corporation of the state of New York, to operate a municipal solid waste disposal facility (the Colonie Landfill) for an initial term of 25 years. The agreement became effective on September 19, 2011. As consideration for operating equipment and the right to operate the Colonie Landfill, CRL remitted an initial payment of $23,860. CRL is also required to remit up to $55,470 of additional consideration over the term of the agreement, comprised of $11,500 payable over a five-year period ending September 2016 and up to $43,970 payable over the term of the agreement if certain expansion criteria are met and certain annual tonnage targets are exceeded as specified in the operating agreement. The Company computed the fair value of the additional consideration using probability assessments of the expected future cash flows over estimated payment terms of four to 25 years, to which the Company applied discount rates ranging from 2.5% to 5.0%, resulting in a total obligation recognized at the effective date of $32,928, which consisted of $10,656 recorded as Notes issued to sellers and $22,272 recorded as contingent consideration in Long-term contingent consideration. CRL is also responsible for all final capping, closure and post-closure liabilities and estimates the total obligation in current dollars to be $21,287, the net present value of which is $1,429. This obligation was recorded in Other long-term liabilities. As of December 31, 2012, the obligation for contingent consideration recognized at the purchase date increased $1,386 due to the accretion of interest on the liability. Any changes in the fair value of the contingent consideration subsequent to the acquisition date will be charged or credited to income until the contingency is settled.
On April 1, 2011, the Company completed the acquisition of a 100% interest in Hudson Valley Waste Holding, Inc., and its wholly-owned subsidiary, County Waste and Recycling Service, Inc. (collectively, County Waste). As part of this acquisition, the Company acquired a 50% interest in Russell Sweepers, LLC, a provider of sweeper services, resulting in a 50% noncontrolling interest that was recognized at fair value on the purchase date. The operations include six collection operations, three transfer stations and one recycling facility across six markets in New York and Massachusetts. The Company paid $299,000 for the purchased operations plus amounts paid for the purchase of accounts receivable and other prepaid assets and estimated working capital, which amounts were subject to post-closing adjustments. No other consideration, including contingent consideration, was transferred by the Company to acquire these operations. Total revenues during the year ended December 31, 2011, generated from the County Waste operations and included within consolidated revenues were $93,713. Total pre-tax earnings during the year ended December 31, 2011, generated from the County Waste operations and included within consolidated income before income taxes were $7,276.
In addition to the County Waste acquisition and Colonie Landfill transaction, the Company acquired 11 individually immaterial non-hazardous solid waste collection and transfer businesses during the year ended December 31, 2011. The total acquisition-related costs incurred for these acquisitions was $1,744. These expenses are included in Selling, general and administrative expenses in the Companys Consolidated Statements of Net Income.
During the year ended December 31, 2010, the Company acquired 18 non-hazardous solid waste collection, disposal and recycling businesses and one exploration and production waste treatment and disposal business. The total acquisition-related costs incurred for these acquisitions was $2,081. These expenses are included in Selling, general and administrative expenses in the Companys Consolidated Statements of Net Income.
81
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The results of operations of the acquired businesses have been included in the Companys consolidated financial statements from their respective acquisition dates. The Company expects these acquired businesses to contribute towards the achievement of the Companys strategy to expand through acquisitions. Goodwill acquired is attributable to the synergies and ancillary growth opportunities expected to arise after the Companys acquisition of these businesses.
The following table summarizes the consideration transferred to acquire these businesses and the amounts of identifiable assets acquired, liabilities assumed and noncontrolling interests associated with businesses acquired at the acquisition date for acquisitions consummated in the years ended December 31, 2012, 2011 and 2010:
2012 Acquisitions |
2011 Acquisitions |
2010 Acquisitions |
||||||||||
Fair value of consideration transferred: |
||||||||||||
Cash |
$ | 241,525 | $ | 257,852 | $ | 81,010 | ||||||
Debt assumed* |
12,986 | 84,737 | 20,633 | |||||||||
Notes issued to sellers |
| 10,656 | | |||||||||
Contingent consideration |
21,314 | 22,486 | 3,928 | |||||||||
|
|
|
|
|
|
|||||||
275,825 | 375,731 | 105,571 | ||||||||||
|
|
|
|
|
|
|||||||
Recognized amounts of identifiable assets acquired, liabilities assumed and noncontrolling interests associated with businesses acquired: |
||||||||||||
Accounts receivable |
10,874 | 9,613 | 3,864 | |||||||||
Other current assets |
1,062 | 1,056 | 742 | |||||||||
Restricted assets |
6,725 | | | |||||||||
Property and equipment |
127,023 | 114,463 | 37,881 | |||||||||
Long-term franchise agreements and contracts |
10,307 | 3,269 | 4,208 | |||||||||
Indefinite-lived intangibles |
35,344 | 42,283 | 32,759 | |||||||||
Customer lists |
21,837 | 34,463 | 5,373 | |||||||||
Other intangibles |
2,295 | 10,367 | | |||||||||
Other long-term assets |
185 | | | |||||||||
Deferred revenue |
(5,056 | ) | (6,376 | ) | (775 | ) | ||||||
Accounts payable |
(3,393 | ) | (6,183 | ) | (248 | ) | ||||||
Accrued liabilities |
(2,139 | ) | (2,398 | ) | (404 | ) | ||||||
Noncontrolling interests |
| (251 | ) | | ||||||||
Other long-term liabilities |
(3,480 | ) | (2,145 | ) | (146 | ) | ||||||
Deferred income taxes |
| (11,466 | ) | | ||||||||
|
|
|
|
|
|
|||||||
Total identifiable net assets |
201,584 | 186,695 | 83,254 | |||||||||
|
|
|
|
|
|
|||||||
Goodwill |
$ | 74,241 | $ | 189,036 | $ | 22,317 | ||||||
|
|
|
|
|
|
* | Debt assumed as part of 2011 and 2012 acquisitions was paid at close of acquisition. |
The 2012 acquisitions of SKB, Alaska Waste and other individually immaterial non-hazardous solid waste collection, transfer, disposal and E&P businesses resulted in goodwill acquired in 2012 totaling $74,241, which is expected to be deductible for tax purposes. Goodwill acquired in 2011 and 2010 totaling $24,242 and $21,948, respectively, is expected to be deductible for tax purposes.
The fair value of acquired working capital related to five individually immaterial acquisitions completed during the year ended December 31, 2012, is provisional pending receipt of information from the acquirees to support the fair value of the assets acquired and liabilities assumed. Any adjustments recorded relating to finalizing the working capital for these five acquisitions are not expected to be material to the Companys financial position.
The gross amount of trade receivables due under contracts acquired with the acquisitions of SKB, Alaska Waste and other individually immaterial non-hazardous solid waste collection, transfer, disposal and E&P businesses during the year ended December 31, 2012, is $10,984, of which $110 is expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2011, is $10,232, of which $619 is expected to be uncollectible. The gross amount of trade receivables due under contracts acquired during the year ended December 31, 2010, is $4,317, of which $453 is expected to be uncollectible. The Company did not acquire any other class of receivable as a result of the acquisition of these businesses.
82
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company paid $4,099 of contingent consideration during the year ended December 31, 2012, related to the achievement of earnings targets for certain acquisitions closed in 2011 and 2010. The Company paid $500 of contingent consideration during the year ended December 31, 2011, which primarily represented the achievement of earnings targets for an acquisition closed in 2010.
Pro Forma Results of Operations
The following pro forma results of operations assume that the Companys significant acquisitions occurring in 2012 and 2011, including the R360 acquisition, were acquired as of January 1, 2011 (unaudited):
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
Total revenue |
$ | 1,866,458 | $ | 1,792,220 | ||||
Net income |
164,176 | 184,109 | ||||||
Basic income per share |
1.35 | 1.63 | ||||||
Diluted income per share |
1.35 | 1.62 |
The unaudited pro forma results of operations do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions occurred on January 1, 2011, nor are they necessarily indicative of future operating results. The above unaudited pro forma financial information includes adjustments to acquisition expenses incurred by the Company and the acquired businesses, interest expense for additional financing and repayments of debt as part of the acquisitions, depreciation expense on acquired property, plant and equipment, amortization of identifiable intangible assets acquired, accretion of closure and post-closure interest expense on acquired landfills and provision for income taxes.
4. INTANGIBLE ASSETS, NET
Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2012:
Gross
Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
Amortizable intangible assets: |
||||||||||||
Long-term franchise agreements and contracts |
$ | 198,779 | $ | (38,447 | ) | $ | 160,332 | |||||
Customer lists |
139,354 | (43,457 | ) | 95,897 | ||||||||
Non-competition agreements |
9,374 | (6,815 | ) | 2,559 | ||||||||
Other |
32,098 | (2,621 | ) | 29,477 | ||||||||
|
|
|
|
|
|
|||||||
379,605 | (91,340 | ) | 288,265 | |||||||||
Nonamortized intangible assets: |
||||||||||||
Solid waste collection and transportation permits |
151,505 | | 151,505 | |||||||||
Material recycling facility permits |
42,283 | | 42,283 | |||||||||
E&P facility permits |
59,855 | | 59,855 | |||||||||
|
|
|
|
|
|
|||||||
253,643 | | 253,643 | ||||||||||
|
|
|
|
|
|
|||||||
Intangible assets, exclusive of goodwill |
$ | 633,248 | $ | (91,340 | ) | $ | 541,908 | |||||
|
|
|
|
|
|
The weighted-average amortization period of long-term franchise agreements and contracts acquired during the year ended December 31, 2012 was 12.3 years. The weighted-average amortization period of customer lists acquired during the year ended December 31, 2012 was 9.7 years. The weighted-average amortization period of other intangibles acquired during the year ended December 31, 2012 was 40.0 years.
83
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Intangible assets, exclusive of goodwill, consisted of the following at December 31, 2011:
Gross
Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||
Amortizable intangible assets: |
||||||||||||
Long-term franchise agreements and contracts |
$ | 190,532 | $ | (31,592 | ) | $ | 158,940 | |||||
Customer lists |
96,501 | (28,475 | ) | 68,026 | ||||||||
Non-competition agreements |
9,374 | (6,389 | ) | 2,985 | ||||||||
Other |
31,603 | (3,175 | ) | 28,428 | ||||||||
|
|
|
|
|
|
|||||||
328,010 | (69,631 | ) | 258,379 | |||||||||
Nonamortized intangible assets: |
||||||||||||
Solid waste collection and transportation permits |
116,160 | | 116,160 | |||||||||
Material recycling facility permits |
42,283 | | 42,283 | |||||||||
E&P facility permits |
32,759 | | 32,759 | |||||||||
|
|
|
|
|
|
|||||||
191,202 | | 191,202 | ||||||||||
|
|
|
|
|
|
|||||||
Intangible assets, exclusive of goodwill |
$ | 519,212 | $ | (69,631 | ) | $ | 449,581 | |||||
|
|
|
|
|
|
The weighted-average amortization period of long-term franchise agreements and contracts acquired during the year ended December 31, 2011 was 22.3 years. The weighted-average amortization period of customer lists acquired during the year ended December 31, 2011 was 6.8 years. The weighted-average amortization period of other intangibles acquired during the year ended December 31, 2011 was 40.0 years.
The amounts assigned to indefinite-lived intangible assets consist of the value of certain perpetual rights to provide solid waste collection and transportation services in specified territories and to operate exploration and production waste treatment and disposal facilities.
Estimated future amortization expense for the next five years relating to amortizable intangible assets is as follows:
For the year ending December 31, 2013 |
$ | 25,066 | ||
For the year ending December 31, 2014 |
$ | 24,412 | ||
For the year ending December 31, 2015 |
$ | 23,761 | ||
For the year ending December 31, 2016 |
$ | 19,804 | ||
For the year ending December 31, 2017 |
$ | 17,832 |
5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
Landfill site costs |
$ | 1,974,994 | $ | 1,066,282 | ||||
Rolling stock |
555,680 | 497,984 | ||||||
Land, buildings and improvements |
349,567 | 247,907 | ||||||
Containers |
247,440 | 217,401 | ||||||
Machinery and equipment |
266,196 | 216,749 | ||||||
Construction in progress |
27,346 | 19,617 | ||||||
|
|
|
|
|||||
3,421,223 | 2,265,940 | |||||||
Less accumulated depreciation and depletion |
(963,617 | ) | (815,471 | ) | ||||
|
|
|
|
|||||
$ | 2,457,606 | $ | 1,450,469 | |||||
|
|
|
|
The Companys landfill depletion expense, recorded in Depreciation in the Consolidated Statements of Net Income, for the years ended December 31, 2012, 2011 and 2010, was $53,429, $43,217 and $40,884, respectively.
84
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
Insurance claims |
$ | 43,935 | $ | 40,137 | ||||
Payroll and payroll-related |
35,601 | 30,181 | ||||||
Interest payable |
8,555 | 8,395 | ||||||
Cell processing reservecurrent portion |
6,442 | | ||||||
Unrealized interest rate losses |
5,374 | 4,476 | ||||||
Environmental remediation reservecurrent portion |
4,097 | | ||||||
Other |
17,825 | 13,831 | ||||||
|
|
|
|
|||||
$ | 121,829 | $ | 97,020 | |||||
|
|
|
|
7. LONG-TERM DEBT
Long-term debt consists of the following:
Year Ended December 31, | ||||||||
2012 | 2011 | |||||||
Revolver under Credit Facility |
$ | 787,000 | $ | 519,000 | ||||
Term Loan Facility |
800,000 | | ||||||
2015 Notes |
175,000 | 175,000 | ||||||
2016 Notes |
100,000 | 100,000 | ||||||
2018 Notes |
50,000 | 50,000 | ||||||
2019 Notes |
175,000 | 175,000 | ||||||
2021 Notes |
100,000 | 100,000 | ||||||
Tax-exempt bonds |
35,655 | 38,460 | ||||||
Notes payable to sellers and other third parties, bearing interest at 2.50% to 10.9%, principal and interest payments due periodically with due dates ranging from 2014 to 2036 |
16,280 | 21,197 | ||||||
|
|
|
|
|||||
2,238,935 | 1,178,657 | |||||||
Less current portion |
(33,968 | ) | (5,899 | ) | ||||
|
|
|
|
|||||
$ | 2,204,967 | $ | 1,172,758 | |||||
|
|
|
|
Revolver under Credit Facility
The Company has a senior revolving credit facility with a syndicate of banks for which Bank of America, N.A. acts as administrative agent and J.P. Morgan Chase Bank, N.A. and Wells Fargo Bank, National Association act as co-syndication agents. The maximum borrowings available under the Companys credit facility were $1,200,000 as of December 31, 2012 and 2011. The Company has the ability to increase commitments under the revolving credit facility from $1,200,000 to $1,500,000, subject to conditions including that no default, as defined in the credit agreement, has occurred, although no existing lender has any obligation to increase its commitment. There is no maximum amount of standby letters of credit that can be issued under the credit facility; however, the issuance of standby letters of credit reduces the amount of total borrowings available. As of December 31, 2012, $787,000 was outstanding under the credit facility, exclusive of outstanding standby letters of credit of $87,252. As of December 31, 2011, $519,000 was outstanding under the credit facility, exclusive of outstanding standby letters of credit of $80,395. The credit facility matures in July 2016. The Company is amortizing the $5,160 debt issuance costs through the maturity date, or July 2016.
The borrowings under the credit facility bear interest, at the Companys option, at either the base rate plus the applicable base rate margin (approximately 3.53% and 3.65% at December 31, 2012 and 2011, respectively) on base rate loans, or the LIBOR rate plus the applicable LIBOR margin (approximately 1.48% and 1.70% at December 31, 2012 and 2011, respectively) on LIBOR loans. The applicable margins under the credit facility vary depending on the Companys leverage ratio, as defined in the credit agreement. As of December 31, 2012 and 2011, the margins were 1.28% and 1.40%, respectively, for LIBOR loans and 0.28% and 0.40%, respectively, for base rate loans. As of December 31, 2012 and 2011, all outstanding borrowings under the credit facility were in LIBOR loans.
85
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The credit facility requires the Company to pay an annual commitment fee on the unused portion of the facility. The commitment fee was 0.23% and 0.25% as of December 31, 2012 and 2011, respectively.
The borrowings under the credit facility are not collateralized. The credit facility contains representations and warranties and places certain business, financial and operating restrictions on the Company relating to, among other things, indebtedness, liens and other encumbrances, investments, mergers and acquisitions, asset sales, sale and leaseback transactions, and dividends, distributions and redemptions of capital stock. The credit facility requires that the Company maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.50x total debt to earnings before interest, taxes, depreciation and amortization, or EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to earnings before interest and taxes, or EBIT. As of December 31, 2012 and 2011, the Companys leverage ratio was 3.28x and 2.33x, respectively. As of December 31, 2012 and 2011, the Companys interest coverage ratio was 6.88x and 7.69x, respectively.
Term Loan Facility
On October 25, 2012, the Company entered into a term loan facility in the original principal amount of $800,000 with Bank of America, N.A. and the other banks and lending institutions party thereto, as lenders, Bank of America, N.A., as administrative agent, and JPMorgan Chase Bank, N.A. and Wells Fargo Bank, National Association, as co-syndication agents. The term loan is subject to principal payments commencing at $10,000 per quarter in April 2013, increasing to $20,000 per quarter in April 2014 and increasing again to $30,000 per quarter in April 2015. A final principal payment of $390,000 is due upon maturity of the term loan facility on October 25, 2017. The Borrowings under the term loan facility are required to be used only to fund the R360 acquisition pursuant to the R360 purchase and sale agreement and to pay fees and expenses incurred in connection with the R360 acquisition and the Companys entry into the term loan facility. The Company is amortizing the $7,245 debt issuance costs through the maturity date, or October 2017.
The Company may elect to draw amounts on the term loan facility in either base rate loans or LIBOR loans. At December 31, 2012, all amounts outstanding under the term loan facility were in LIBOR loans which bear interest at the LIBOR rate plus the applicable LIBOR margin (approximately 2.21% at December 31, 2012). The LIBOR rate is determined by the administrative agent in a customary manner as described in the term loan agreement. The applicable margins under the term loan agreement vary depending on the Companys leverage ratio, as defined in the term loan agreement, and range from 1.375% per annum to 2.500% per annum for LIBOR loans. As of December 31, 2012, the margin was 2.0% for LIBOR loans. Borrowings under the term loan facility are uncollateralized.
The term loan facility contains representations and warranties and places certain business, financial and operating restrictions on the Company relating to, among other things, indebtedness, liens, investments, mergers, consolidation and disposition of assets, sale and leaseback transactions, restricted payments and redemptions, burdensome agreements, business activities, transactions with affiliates, prepayments of indebtedness and accounting changes. The term loan facility requires that the Company maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.50x total debt to EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2012, the Companys leverage and interest coverage ratios were 3.28x and 6.88x, respectively.
Master Note Purchase Agreement
Senior Notes due 2015
On July 15, 2008, the Company entered into a Master Note Purchase Agreement with certain accredited institutional investors pursuant to which the Company issued and sold to the investors at a closing on October 1, 2008, $175,000 of senior uncollateralized notes due October 1, 2015 in a private placement. The 2015 Notes bear interest at the fixed rate of 6.22% per annum with interest payable in arrears semi-annually on April 1 and October 1 beginning on April 1, 2009, and with principal payable at the maturity of the 2015 Notes on October 1, 2015. The Company is amortizing the $1,026 debt issuance costs over a seven-year term through the maturity date, or October 1, 2015.
86
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Senior Notes due 2019
On October 26, 2009, the Company entered into a First Supplement to the Master Note Purchase Agreement with certain accredited institutional investors pursuant to which the Company issued and sold to the investors on that date $175,000 of senior uncollateralized notes due November 1, 2019 in a private placement. The 2019 Notes bear interest at the fixed rate of 5.25% per annum with interest payable in arrears semi-annually on May 1 and November 1 beginning on May 1, 2010, and with principal payable at the maturity of the 2019 Notes on November 1, 2019. The Company is amortizing the $152 debt issuance costs over a 10-year term through the maturity date, or November 1, 2019.
Senior Notes due 2016, 2018 and 2021
On April 1, 2011, the Company entered into a Second Supplement to the Master Note Purchase Agreement with certain accredited institutional investors, pursuant to which the Company issued and sold to the investors on that date $250,000 of senior uncollateralized notes at fixed interest rates with interest payable in arrears semi-annually on October 1 and April 1 beginning on October 1, 2011 in a private placement. Of these notes, $100,000 will mature on April 1, 2016 with an annual interest rate of 3.30% (the 2016 Notes), $50,000 will mature on April 1, 2018 with an annual interest rate of 4.00% (the 2018 Notes), and $100,000 will mature on April 1, 2021 with an annual interest rate of 4.64% (the 2021 Notes). The Company is amortizing the $1,489 debt issuance costs through the maturity dates of the respective notes.
The 2015 Notes, 2016 Notes, 2018 Notes, 2019 Notes, and 2021 Notes (collectively, the Senior Notes) are uncollateralized obligations and rank equally in right of payment with each of the Senior Notes, the obligations under the Companys senior uncollateralized revolving credit facility and the obligations under the Companys term loan facility. The Senior Notes are subject to representations, warranties, covenants and events of default. The Master Note Purchase Agreement requires that the Company maintain specified quarterly leverage and interest coverage ratios. The required leverage ratio cannot exceed 3.75x total debt to EBITDA. The required interest coverage ratio must be at least 2.75x total interest expense to EBIT. As of December 31, 2012 and 2011, the Companys leverage ratio was 3.28x and 2.33x, respectively. As of December 31, 2012 and 2011, the Companys interest coverage ratio was 6.88x and 7.69x, respectively.
Upon the occurrence of an event of default, payment of the Senior Notes may be accelerated by the holders of the respective notes. The Senior Notes may also be prepaid at any time in whole or from time to time in any part (not less than 5% of the then-outstanding principal amount) by the Company at par plus a make-whole amount determined in respect of the remaining scheduled interest payments on the Senior Notes, using a discount rate of the then current market standard for United States treasury bills plus 0.50%. In addition, the Company will be required to offer to prepay the Senior Notes upon certain changes in control.
The Company may issue additional series of senior uncollateralized notes pursuant to the terms and conditions of the Master Note Purchase Agreement, as amended, provided that the purchasers of the Senior Notes shall not have any obligation to purchase any additional notes issued pursuant to the Master Note Purchase Agreement and the aggregate principal amount of the outstanding notes and any additional notes issued pursuant to the Master Note Purchase Agreement shall not exceed $750,000.
87
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Tax-Exempt Bonds
The Companys tax-exempt bond financings are as follows:
Type of Interest |
Interest Rate on Bond at December 31, |
Maturity Date of | Outstanding Balance at December 31, |
Backed by Letter of Credit |
||||||||||||||||||
Name of Bond |
Rate | 2012 | Bond |
2012 | 2011 | (Amount) | ||||||||||||||||
Madera Bond |
Variable | | % | May 1, 2016 | $ | | $ | 1,800 | $ | | ||||||||||||
Tehama Bond |
Variable | 0.24 | June 1, 2014 | 290 | 370 | 294 | ||||||||||||||||
San Jose Bond Series 1997A |
Variable | | August 1, 2012 | | 160 | | ||||||||||||||||
San Jose Bond Series 2001A |
Variable | 0.24 | September 1, 2016 | 1,815 | 2,580 | 2,062 | ||||||||||||||||
West Valley Bond |
Variable | 0.17 | August 1, 2018 | 15,500 | 15,500 | 15,678 | ||||||||||||||||
LeMay Washington Bond |
Variable | 0.19 | April 1, 2033 | 15,930 | 15,930 | 16,126 | ||||||||||||||||
LeMay Olympia Bond |
Variable | 0.19 | April 1, 2019 | 2,120 | 2,120 | 2,151 | ||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
$ | 35,655 | $ | 38,460 | $ | 36,311 | |||||||||||||||||
|
|
|
|
|
|
In January 2010, the Company gave notice to redeem two of its tax-exempt bonds (the Wasco Bond 2012 and the Wasco Bond 2021) with a remaining principal balance of $10,275. The Company paid the principal, accrued interest and call premium on these bonds on March 1, 2010, recording $459 to Loss on extinguishment of debt in the Consolidated Statements of Net Income.
In October 2012, the Company gave notice to redeem its Madera tax-exempt bond with a remaining principal balance of $1,800. The Company paid the principal and accrued interest on this bond on December 5, 2012.
The variable-rate bonds are all remarketed weekly by a remarketing agent to effectively maintain a variable yield. If the remarketing agent is unable to remarket the bonds, then the remarketing agent can put the bonds to the Company. The Company has obtained standby letters of credit, issued under its senior revolving credit facility, to guarantee repayment of the bonds in this event. The Company classified these borrowings as long-term at December 31, 2012, because the borrowings are supported by standby letters of credit issued under the Companys senior revolving credit facility which matures in July 2016.
As of December 31, 2012, aggregate contractual future principal payments by calendar year on long-term debt are due as follows:
2013 |
$ | 33,968 | ||
2014 |
75,357 | |||
2015 |
259,084 | |||
2016 |
999,028 | |||
2017 |
510,437 | |||
Thereafter |
361,061 | |||
|
|
|||
$ | 2,238,935 | |||
|
|
Convertible Senior Notes due 2026
On March 20, 2006, the Company completed its offering of $200,000 aggregate principal amount of its 3.75% Convertible Senior Notes due 2026 in an offering pursuant to Rule 144A of the Securities Act of 1933, as amended. The terms and conditions of the 2026 Notes were set forth in the Indenture, dated as of March 20, 2006, between the Company and U.S. Bank National Association, as trustee. The 2026 Notes were convertible into cash and, if applicable, shares of common stock based on an initial conversion rate of 44.1177 shares of common stock per $1 principal amount of 2026 Notes (which was equal to an initial conversion price of approximately $22.67 per share), subject to adjustment, and only under certain circumstances. Upon surrender of the 2026 Notes for conversion, the Company was required to deliver cash equal to the lesser of the aggregate principal amount of notes to be converted and its total conversion obligation.
88
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
On April 1, 2010, the Company redeemed the $200,000 aggregate principal amount of its 2026 Notes. Holders of the notes chose to convert a total of $22,700 principal amount of the notes. In addition to paying the principal amount of these notes with proceeds from its credit facility, the Company issued 32,859 shares of its common stock in connection with the conversion and redemption. The Company redeemed the remaining $177,300 principal amount of the notes with proceeds from its credit facility. All holders of the notes that were redeemed also received accrued interest of $0.01875 per $1 principal amount of the notes and an interest make-whole payment of $0.037396 per $1 principal amount of the notes. As a result of the redemption, the Company recognized $9,734 of pre-tax expense ($6,035 net of taxes) in April 2010, which was included in Loss on extinguishment of debt in the Consolidated Statements of Net Income.
For the year ended December 31, 2010, the total interest expense recognized by the Company relating to both the contractual interest coupon and amortization of the non-cash debt discount on the 2026 Notes was $3,120 ($1,935, net of taxes). The portion of total interest expense related to the contractual interest coupon on the 2026 Notes during the year ended December 31, 2010 was $1,875 ($1,163, net of taxes). The portion of total interest expense related to amortizing the non-cash debt discount during the year ended December 31, 2010 was $1,245 ($772, net of taxes). The effective interest rate on the liability component for the year ended December 31, 2010 was 6.4%.
Under the guidance for accounting for convertible debt, upon conversion of the 2026 Notes, the Company was required to allocate the fair value of the consideration transferred and any transaction costs incurred between the equity and liability components. This was done by first allocating to the liability component an amount equal to the fair value of the liability component immediately prior to its conversion, with the residual consideration allocated to the equity component. A loss equal to the difference between the consideration allocated to the liability component and the carrying value of the liability component, including any unamortized debt discount or issuance costs, was recorded in Loss on extinguishment of debt in the Consolidated Statements of Net Income.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data.
The Companys financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments and restricted assets. The Companys derivative instruments are pay-fixed, receive-variable interest rate swaps and a pay-fixed, receive-variable diesel fuel hedge. The Companys interest rate swaps are recorded at their estimated fair values based on quotes received from financial institutions that trade these contracts. The Company verifies the reasonableness of these quotes using similar quotes from another financial institution as of each date for which financial statements are prepared. The Company uses a discounted cash flow (DCF) model to determine the estimated fair value of the diesel fuel hedge. The assumptions used in preparing the DCF model include: (i) estimates for the forward DOE index curve; and (ii) the discount rate based on risk-free interest rates over the term of the agreements. The DOE index curve used in the DCF model was obtained from financial institutions that trade these contracts and ranged from $3.68 to $3.87 at December 31, 2012. The weighted average DOE index curve used in the DCF model was $3.77 at December 31, 2012. Significant increases (decreases) in the forward DOE index curve would result in a significantly higher (lower) fair value measurement. For the Companys interest rate swaps and fuel hedge, the Company also considers its creditworthiness in its determination of the fair value measurement of these instruments in a net liability position and the banks creditworthiness in its determination of the fair value measurements of these instruments in a net asset position. The Companys restricted assets are valued at quoted market prices in active markets for identical assets, which the Company receives from the financial institutions that hold such investments on its behalf. The Companys restricted assets measured at fair value are invested primarily in U.S. government and agency securities.
89
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Companys assets and liabilities measured at fair value on a recurring basis at December 31, 2012 and 2011, were as follows:
Fair Value Measurement at December 31, 2012 Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Interest rate swap derivative instruments net liability position |
$ | (11,163 | ) | $ | | $ | (11,163 | ) | $ | | ||||||
Fuel hedge derivative instruments net asset position |
$ | 1,187 | $ | | $ | | $ | 1,187 | ||||||||
Restricted assets |
$ | 33,425 | $ | 33,425 | $ | | $ | |
Fair Value Measurement at December 31, 2011 Using | ||||||||||||||||
Total | Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Interest rate swap derivative instruments net liability position |
$ | (9,118 | ) | $ | | $ | (9,118 | ) | $ | | ||||||
Fuel hedge derivative instruments net asset position |
$ | 3,506 | $ | | $ | | $ | 3,506 | ||||||||
Restricted assets |
$ | 30,728 | $ | 30,728 | $ | | $ | |
The following table summarizes the change in the fair value for Level 3 derivatives for the years ended December 31, 2012 and 2011:
Level 3 Derivatives |
||||
Balance as of December 31, 2010 |
$ | 4,730 | ||
Realized gains included in earnings |
(4,297 | ) | ||
Unrealized gains included in AOCL |
3,073 | |||
|
|
|||
Balance as of December 31, 2011 |
3,506 | |||
Realized gains included in earnings |
(4,513 | ) | ||
Unrealized gains included in AOCL |
2,194 | |||
|
|
|||
Balance as of December 31, 2012 |
$ | 1,187 | ||
|
|
9. CORPORATE OFFICE RELOCATION
In December 2011, the Company commenced a relocation of its corporate headquarters from Folsom, California to The Woodlands, Texas. The relocation is expected to be completed in 2013. In connection with the relocation, the Company has incurred in aggregate $8,114 and $83 as of December 31, 2012 and 2011, respectively, related to personnel and office relocation expenses, and expects to incur an estimated $500 to $1,500 of related costs during 2013. These costs are recorded in Selling, general and administrative expenses in the Consolidated Statements of Net Income. In addition, the Company will incur a loss on lease in either the second or third quarter of 2013, the timing of which is dependent on the cessation of use of its former corporate headquarters in Folsom, California. The Company estimates the loss could range between $8,000 and $10,000.
90
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
10. GAIN FROM LITIGATION SETTLEMENT
In November 2010, the Companys subsidiary, Potrero Hills Landfill, Inc. (PHLF), which owns and operates the Potrero Hills Landfill in Solano County, California, initiated contractual arbitration proceedings with Judicial Arbitration and Mediation Services, Inc. in San Francisco against The Ratto Group of Companies, Inc. (Ratto) alleging Rattos breach of the parties Solid Waste Disposal Agreement.
The case was arbitrated in February and March 2012 before the Honorable Fern Smith (ret.). On August 13, 2012, Judge Smith issued her Final Award finding that Ratto had breached the Solid Waste Disposal Agreement by failing to include PHLF in its 2010 bid to Sonoma County and awarding PHLF lost profits, attorneys fees and costs. Pursuant to this Final Award, on September 13, 2012, Ratto remitted to PHLF $3,551, which was recorded as Gain from litigation settlement in the Consolidated Statements of Net Income.
11. COMMITMENTS AND CONTINGENCIES
COMMITMENTS
Leases
The Company leases its facilities and certain equipment under non-cancelable operating leases for periods ranging from one to 34 years, with renewal options for certain leases. The Companys total rent expense under operating leases during the years ended December 31, 2012, 2011 and 2010, was $19,424, $13,519 and $12,222, respectively.
As of December 31, 2012, future minimum lease payments, by calendar year, are as follows:
2013 |
$ | 19,121 | ||
2014 |
17,922 | |||
2015 |
15,693 | |||
2016 |
13,929 | |||
2017 |
11,469 | |||
Thereafter |
70,425 | |||
|
|
|||
$ | 148,559 | |||
|
|
Financial Surety Bonds
The Company uses financial surety bonds for a variety of corporate guarantees. The two largest uses of financial surety bonds are for municipal contract performance guarantees and asset closure and retirement requirements under certain environmental regulations. Environmental regulations require demonstrated financial assurance to meet final capping, closure and post-closure requirements for landfills. In addition to surety bonds, these requirements may also be met through alternative financial assurance instruments, including insurance, letters of credit and restricted asset deposits.
At December 31, 2012 and 2011, the Company had provided customers and various regulatory authorities with surety bonds in the aggregate amount of approximately $277,841 and $243,323, respectively, to secure its asset closure and retirement requirements and $83,738 and $68,698, respectively, to secure performance under collection contracts and landfill operating agreements.
The Company owns a 9.9% interest in a company that, among other activities, issues financial surety bonds to secure landfill final capping, closure and post-closure obligations for companies operating in the solid waste industry. The Company accounts for this investment under the cost method of accounting. There have been no identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investment. This investee company and the parent company of the investee have written financial surety bonds for the Company, of which $153,337 and $141,272 were outstanding as of December 31, 2012 and 2011, respectively. The Companys reimbursement obligations under these bonds are secured by a pledge of its stock in the investee company.
91
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
CONTINGENCIES
Environmental Risks
The Company expenses costs incurred to investigate and remediate environmental issues unless they extend the economic useful life of related assets. The Company records liabilities when it is probable that an obligation has been incurred and the amounts can be reasonably estimated. The remediation reserves cover anticipated costs, including remediation of environmental damage that waste facilities may have caused to neighboring landowners or residents as a result of contamination of soil, groundwater or surface water, including damage resulting from conditions existing prior to the acquisition of such facilities by the Company. The Companys estimates are based primarily on investigations and remediation plans established by independent consultants, regulatory agencies and potentially responsible third parties. The Company does not discount remediation obligations. At December 31, 2012, the current portion of remediation reserves was $4,097, which is included in Accrued liabilities in the Consolidated Balance Sheets. At December 31, 2012, the long-term portion of remediation reserves was $1,214, which is included in Other long-term liabilities in the Consolidated Balance Sheets. The Companys liabilities for remediation reserves were assumed in the R360 acquisition. The Company did not have liabilities for remediation reserves recorded at December 31, 2011 or 2010. Any substantial increase in the liabilities for remediation of environmental damage incurred by the Company could have a material adverse effect on the Companys financial condition, results of operations or cash flows.
Legal Proceedings
In the normal course of its business and as a result of the extensive governmental regulation of the solid waste and oilfield waste industries, the Company is subject to various judicial and administrative proceedings involving federal, state or local agencies. In these proceedings, an agency may seek to impose fines on the Company or to revoke or deny renewal of an operating permit held by the Company. From time to time, the Company may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills, transfer stations, and oilfield waste recycling, treatment and disposal operations, or alleging environmental damage or violations of the permits and licenses pursuant to which the Company operates.
In addition, the Company is a party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business. Except as noted in the matters described below, as of December 31, 2012, there is no current proceeding or litigation involving the Company or its property that the Company believes could have a material adverse impact on its business, financial condition, results of operations or cash flows.
Chaparral, New Mexico Landfill Permit Litigation
The Companys subsidiary, High Desert Solid Waste Facility, Inc. (formerly known as Rhino Solid Waste, Inc.) (HDSWF), owns undeveloped property in Chaparral, New Mexico, for which it sought a permit to operate a municipal solid waste landfill. After a public hearing, the New Mexico Environment Department (the Department) approved the permit for the facility on January 30, 2002. Colonias Development Council (CDC), a nonprofit organization, opposed the permit at the public hearing and appealed the Departments decision to the courts of New Mexico, primarily on the grounds that the Department failed to consider the social impact of the landfill on the community of Chaparral, and failed to consider regional planning issues. On July 18, 2005, in Colonias Dev. Council v. Rhino Envtl. Servs., Inc. (In re Rhino Envtl. Servs.), 2005 NMSC 24, 117 P.3d 939, the New Mexico Supreme Court remanded the matter back to the Department to conduct a limited public hearing on certain evidence that CDC claimed was wrongfully excluded from consideration by the hearing officer, and to allow the Department to reconsider the evidence already proffered concerning the impact of the landfill on the surrounding communitys quality of life. In July 2007, the Department, CDC, the Company and Otero County signed a stipulation requesting a postponement of the limited public hearing to allow the Company time to explore a possible relocation of the landfill to a new site. Since 2007, the Department has issued several orders postponing the limited public hearing, and on October 17, 2012, it granted a request by the parties to hold the limited public hearing in abeyance until further notice.
92
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In July 2009, HDSWF purchased approximately 325 acres of undeveloped land comprising a proposed new site from the State of New Mexico. HDSWF filed a formal landfill permit application for the new site with the Department on September 17, 2010. On September 12, 2011, the Department deemed the permit application complete and a public hearing on the matter had been tentatively scheduled for April 9, 2012 in Chaparral, New Mexico. On November 9, 2011, HDSWF filed a motion with the Department to hold in abeyance indefinitely the notice for public hearing and the permit hearing. As part of its motion, HDSWF agreed to provide the Department with at least 120 days prior notice of any desired, future permit hearing. The Department issued a response in which it did not oppose the motion and agreed to the 120-day notice provision. HDSWF requested the abeyance to defer capital expenditures related to permitting the new site until mid to late 2014, when HDSWF expects to have a better understanding of several current market conditions and regulatory factors that affect the timing and feasibility of the project. These conditions and factors include: the status of the Companys Solid Waste Disposal and Operating Agreement for the collection and disposal of solid waste generated within the City of El Paso, effective April 28, 2004, which has a 10-year term; the status of El Paso Disposal, LPs Solid Waste Franchise Agreement for the collection of solid waste generated within the City of El Paso, effective September 1, 2011, which has a 40-month term; whether the City of El Paso implements flow control in September 2014 directing waste collected within its boundaries to City-owned disposal facilities; and whether certain closed or non-operating disposal facilities in the El Paso market area are reopened and whether those facilities are operated by private or public entities.
At December 31, 2012, the Company had $11,778 of capitalized expenditures related to this landfill development project. Depending on the outcome of the market conditions and regulatory factors described above, the Company may decide in mid to late 2014 to abandon the project and expense the $11,778 of capitalized expenditures, less the recoverable value of the undeveloped properties and other amounts recovered, which would likely have a material adverse effect on the Companys results of operations for that period. Alternatively, if the outcome of the market conditions and regulatory factors described above is such that the Company believes the market for disposal of solid waste generated in the City of El Paso will remain competitive, HDSWF may decide in mid to late 2014 to resume its permitting process for the new site. Under those circumstances, if the Department ultimately denies the landfill permit application for the new site, HDSWF intends to actively resume its efforts to enforce the previously issued landfill permit for the original site in Chaparral. If the Company is ultimately issued a permit to operate the landfill at the new site purchased in July 2009, the Company will be required to expense in a future period $10,324 of capitalized expenditures related to the original Chaparral property, less the recoverable value of that undeveloped property and other amounts recovered, which would likely have a material adverse effect on the Companys results of operations for that period. If the Company instead is ultimately issued a permit to operate the landfill at the original Chaparral property, the Company will be required to expense in a future period $1,454 of capitalized expenditures related to the new site purchased in July 2009, less the recoverable value of that undeveloped property and other amounts recovered. If the Company is not ultimately issued a permit to operate the landfill at either one of the two sites, the Company will be required to expense in a future period the $11,778 of capitalized expenditures, less the recoverable value of the undeveloped properties and other amounts recovered, which would likely have a material adverse effect on the Companys results of operations for that period.
Harper County, Kansas Landfill Permit Litigation
The Company opened a municipal solid waste landfill in Harper County, Kansas in January 2006, following the issuance by the Kansas Department of Health and Environment (KDHE) of a permit to operate the landfill. The landfill has operated continuously since that time. In 2005, landfill opponents (the Plaintiffs) filed a suit (Board of Commrs of Sumner County, Kansas, Tri-County Concerned Citizens and Dalton Holland v. Roderick Bremby, Secy of the Kansas Dept of Health and Envt, et al.) in the District Court of Shawnee County, Kansas, seeking a judicial review of KDHEs decision to issue the permit, alleging that a site analysis prepared for the Company and submitted to KDHE as part of the process leading to the issuance of the permit was deficient in several respects. The action sought to stay the effectiveness of the permit and to nullify it. The Company intervened in this lawsuit shortly after it was filed. After years of challenging the Plaintiffs standing, and the limiting of those matters properly before it, in June 2012 the District Court ruled on the merits of the matter. The Honorable Larry D. Hendricks, District Judge, entered a Memorandum Decision and Order denying the Plaintiffs demand for revocation of the permit, and affirming KDHEs decision that the issuance of the permit met all applicable regulatory requirements. The Plaintiffs filed an appeal with the Kansas Court of Appeals and the parties briefing on the appeal is currently scheduled to be completed in April 2013. The Company believes that it will prevail in this matter, and the Company will continue to have the right to operate the landfill during the pendency of the appeal. Only in the event that a final, materially adverse determination with respect to the permit is received would there likely be a material adverse effect on the Companys reported results of operations in the future. If as a result of this litigation, after exhausting all appeals, the Company was unable to continue to operate the landfill, the Company estimates that it would be required to record a pre-tax impairment charge of approximately $18,700 to reduce the carrying value of the landfill to its estimated fair value. In addition, the Company estimates the current annual impact to its pre-tax earnings that would result if it was unable to continue to operate the landfill would be approximately $6,700 per year.
93
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Solano County, California Measure E/Landfill Expansion Litigation
The Company and one of its subsidiaries, Potrero Hills Landfill, Inc. (PHLF), were named as real parties in interest in an amended complaint captioned Sustainability, Parks, Recycling and Wildlife Legal Defense Fund v. County of Solano, which was filed in the Superior Court of California, County of Solano, on July 9, 2009 (the original complaint was filed on June 12, 2009). This lawsuit seeks to compel Solano County to comply with Measure E, a ballot initiative and County ordinance passed in 1984 that the County has not enforced against PHLF since at least 1992. Measure E directs in part that Solano County shall not allow the importation into the County of any solid waste which originated or was collected outside the County in excess of 95,000 tons per year. PHLF accepts for disposal, beneficial reuse and recycling approximately 935,000 tons of solid waste annually, approximately 787,000 tons of which originate from sources outside of Solano County. The Sustainability, Parks, Recycling and Wildlife Legal Defense Fund (SPRAWLDEF) lawsuit also seeks to overturn Solano Countys approval of the use permit for the expansion of the Potrero Hills Landfill and the related Environmental Impact Report (EIR), arguing that both violate Measure E and that the EIR violates the California Environmental Quality Act (CEQA). Two similar actions seeking to enforce Measure E, captioned Northern California Recycling Association v. County of Solano and Sierra Club v. County of Solano, were filed in the same court on June 10, 2009, and August 10, 2009, respectively. The Northern California Recycling Association (NCRA) case does not name the Company or any of its subsidiaries as parties and does not contain any CEQA claims. The Sierra Club case names PHLF as a real party in interest, and seeks to overturn the use permit for the expansion of the landfill on Measure E grounds (but does not raise CEQA claims).
In December 2009, the Company and PHLF filed briefs vigorously opposing enforcement of Measure E on constitutional and other grounds. The Companys position is supported by Solano County, a co-defendant in the Measure E litigation. It is also supported by the Attorney General of the State of California, the National Solid Wastes Management Association (NSWMA) and the California Refuse Recycling Council (CRRC), each of which filed supporting friend of court briefs or letters. In addition, numerous waste hauling companies in California, Oregon and Nevada intervened on the Companys side in the state cases, subsequent to their participation in the federal action challenging Measure E discussed below.
On May 12, 2010, the Solano County Superior Court issued a written opinion addressing all three cases. The Court upheld Measure E in part by judicially rewriting the law, and then issued a writ of mandamus directing Solano County to enforce Measure E as rewritten. The Court decided that it could cure the laws discrimination against out-of-county waste by revising Measure E to only limit the importation of waste into Solano County from other counties in California, but not from other states. In the same opinion, the Court rejected the requests from petitioners in the cases for a writ of administrative mandamus to overturn the use permit approved by Solano County in June 2009 for the expansion of PHLFs landfill, thereby leaving the expansion permit in place.
In December 2010, the Court entered final judgments and writs of mandamus in the three cases, and Solano County, the Company, PHLF and the waste hauling company intervenors filed notices of appeal, which stayed the judgments and writs pending the outcome of the appeal. Petitioners Sierra Club and SPRAWLDEF cross-appealed the Courts ruling denying their petitions for writs to overturn PHLFs use permit for the expansion. Seventeen separate entities filed friend of court briefs on behalf of the Company and Solano County in September 2011, including the California Attorney General on behalf of the California Department of Resources Recycling and Recovery; the City and County of San Francisco; solid waste joint powers authorities serving the areas of Napa County, the City of Vallejo, the South Lake Tahoe Basin, Central Contra Costa County and the Salinas Valley; the California Association of Sanitation Agencies; sanitation districts serving Los Angeles County and Orange County; the NSWMA; the National Association of Manufacturers; the CRRC; the Los Angeles County Waste Management Association; the Solid Waste Association of Orange County; the Inland Empire Disposal Association; and the California Manufacturers and Technology Association. No friend of court briefs were filed on behalf of the petitioners. The case is now fully briefed and all parties have requested oral argument.
As part of the final judgments, the Solano County Superior Court retained jurisdiction over any motions for attorneys fees under Californias Private Attorney General statute. Petitioners NCRA, SPRAWLDEF and Sierra Club each filed a bill of costs and a motion for attorney fees totaling $771. On May 31, 2011, the court issued a final order awarding petitioners $452 in attorneys fees, $411 of which relates to the SPRAWLDEF and Sierra Club cases in which the Company or PHLF is a named party. The court allocated 50% of the fee amount to PHLF, none of which the Company recorded as a liability at December 31, 2012. The Company and Solano County appealed this attorneys fees order in July 2011. The Court of Appeal has not yet issued a briefing schedule. Once
94
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
this procedural step is completed, the Company will request a stay of this appeal until the merits of the underlying Measure E cases have been finally determined. If the Company prevails on the appeals of the three underlying cases, then none of the Petitioners would be entitled to attorneys fees and costs. If the Company is unsuccessful on these appeals and its future appeals of the attorneys fees judgment, PHLF and the County would each ultimately be severally liable for $206 in attorneys fees for the SPRAWLDEF and Sierra Club cases. However, in all three cases, the Company may reimburse the County for any such attorneys fees under the indemnification provision in PHLFs use permit.
On February 9, 2012, the California Department of Resources Recycling and Recovery (CalRecycle) concurred in the solid waste facilities permit related to the Potrero Hills Landfills expansion, and the permit was approved and issued by the Solano County Department of Resource Management on February 14, 2012.
On September 25, 2012, Governor Jerry Brown signed into law Assembly Bill 845 (AB 845), an act of the California Legislature, effective January 1, 2013. AB 845 expressly prohibits counties from restricting or limiting the importation of solid waste into a privately owned facility in a county based on the wastes place of origin. Because the Company believes that neither the Court of Appeal nor the trial court can grant Petitioners any relief in light of AB 845, it filed a motion with the Court of Appeal on September 27, 2012. The motion seeks to dismiss the cross appeals and reverse and remand the portions of the judgments rendered in Petitioners favor regarding enforcement and implementation of Measure E by Solano County, including Petitioners recovery of costs, for mootness in light of AB 845, with instructions to the trial court to dismiss the underlying writ petitions with prejudice. Sierra Club and SPRAWLDEF filed oppositions to the Companys motion. The Court of Appeal has not yet ruled on this pending motion or set an argument date for the appeal.
At this point, the Company is not able to determine the likelihood of any outcome in this matter. If the court grants the Companys motion to dismiss the appeals, the judgments requiring Solano County to enforce Measure E and for the Company to pay attorneys fees related to the Measure E litigation will be dismissed as moot. However, in the event that after all appeals are exhausted the Superior Courts writ of mandamus enforcing Measure E as rewritten is upheld, the Company estimates that the current annual impact to its pre-tax earnings resulting from the restriction on imports into Solano County would be approximately $6,000 per year. The Companys estimate could be impacted by various factors, including the Countys allocation of the 95,000 tons per year import restriction among PHLF and the other disposal and composting facilities in Solano County. In addition, if the final rulings on Measure E do not limit the importation of waste into Solano County from other states, the Company could potentially offset a portion of the estimated reduction to its pre-tax earnings by internalizing waste for disposal at PHLF from other states in which the Company operates, or by accepting waste volumes from third party haulers operating outside of California.
SPRAWLDEF additionally filed a lawsuit seeking a writ of mandate in Sacramento County Superior Court on August 20, 2009, captioned SPRAWLDEF v. California Integrated Waste Management Board (CIWMB), County of Solano, et al., challenging a CIWMB decision to dismiss SPRAWLDEFs administrative appeal to the CIWMB seeking to set aside a 2006 solid waste facilities permit issued to Potrero Hills Landfill by the Solano County Local Enforcement Agency. The case names the Company and PHLF as real parties in interest. The appeal was dismissed by the CIWMB for failure to raise a substantial issue. The 2006 facilities permit authorizes operational modifications and enhanced environmental control measures. The case was tried in Sacramento County Superior Court in October 2010, and the Superior Court rejected all of SPRAWLDEFs claims and ordered the writ petition dismissed. SPRAWLDEF appealed the dismissal to the Third District Court of Appeal. The case has been fully briefed. On March 8, 2012, the Court of Appeal asked for supplemental briefing on two questions, one of which implicates the standing of SPRAWLDEF relative to a claim against the former CIWMB, and the Company responded with a letter brief. Both CIWMB and the County also filed letter briefs. The Company believes (and so advised the Court of Appeal) the case may be moot in light of the February 14, 2012 issuance of the new solid waste facilities permit for the landfill, which supersedes the 2006 permit at issue in the appeal. While the Company believes that the respondent agencies will prevail in this case, in the unlikely event that the 2006 permit was set aside, PHLF would continue to operate the Potrero Hills Landfill under the sites new 2012 solid waste facilities permit.
On December 17, 2010, SPRAWLDEF and one its members filed a petition for writ of mandate in San Francisco Superior Court seeking to overturn the October 2010 approval of the marsh development permit issued by the San Francisco Bay Conservation and Development Commission (BCDC) for PHLFs landfill expansion, alleging that the approval is contrary to the Suisun Marsh Protection Act (the Marsh Act). Petitioners claim that BCDC abused its discretion by issuing the marsh development permit in contravention of the Marsh Act. The petition, captioned SPRAWLDEF v. San Francisco Bay Conservation and Development Commission, names BCDC as a respondent and the Company as the real party in interest. On its own motion, the San Francisco Superior Court stayed the action and, on April 5, 2012, transferred the case to Solano County Superior Court, citing that courts
95
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
experience in the related CEQA case and judicial economy. On June 5, 2012, Solano County Superior Court assigned the case to Judge Beeman, who held a hearing for oral argument on October 4, 2012. On November 29, 2012, the court issued an order finding that the administrative record before BCDC did not contain sufficient evidence regarding net profits for the proposed project or the alternative to support the agencys finding that the alternative was economically infeasible. The court therefore issued a writ of mandamus and final judgment on January 14, 2013 setting aside the BCDC permit and remanding it back to the agency for further consideration. On January 15, 2013, the Company filed a notice of appeal, staying execution of the writ and judgment pending the appeal. On January 28, 2013, BCDC also filed a notice of appeal to the writ and judgment. At this point the Company is not able to determine the likelihood of any outcome in this matter.
On June 10, 2011, June Guidotti, a property owner adjacent to PHLF, and SPRAWLDEF and one of its members, each filed administrative petitions for review with the State Water Resources Control Board (State Board) seeking to overturn a May 11, 2011 Order No. 2166-(a) approving waste discharge requirements issued by the San Francisco Bay Regional Water Quality Control Board (Regional Board) for PHLFs landfill expansion, alleging that the order is contrary to the State Boards Title 27 regulations authorizing waste discharge requirements for landfills, and in the case of the SPRAWLDEF petition, further alleging that the Regional Boards issuance of a Clean Water Act section 401 certification is not supported by an adequate alternatives analysis as required by the federal Clean Water Act. The Regional Board is preparing the administrative record of its decision to issue Order 2166-(a) to be filed with the State Board as well as its response to the petitions for review. It is anticipated that the Regional Board will vigorously defend its actions and seek dismissal of the petitions for review. A hearing date has not yet been set on either petition, and the State Board has held both the Guidotti and SPRAWLDEF petitions in abeyance at the petitioners requests. At this point the Company is not able to determine the likelihood of any outcome in this matter.
If as a result of any of the matters described above, after exhausting all appeals, PHLFs use permit or marsh development permit is permanently rescinded, and the Superior Courts writ of mandamus enforcing Measure E as rewritten is ultimately upheld, the Company estimates that it would be required to recognize a pre-tax impairment charge of approximately $39,000 to reduce the carrying value of PHLF to its estimated fair value, in addition to the approximately $6,000 annual impact to its pre-tax earnings described above. If PHLFs use permit or marsh development permit is permanently rescinded but Measure E is ultimately ruled to be unenforceable, the Company estimates that it would be required to recognize a pre-tax impairment charge of approximately $33,000 to reduce the carrying value of PHLF to its estimated fair value.
Colonie, New York Landfill Privatization Litigation
In August 2011, one of the Companys wholly-owned subsidiaries, Capital Region Landfills, Inc. (CRL) and the Town of Colonie, New York (Colonie), entered into a Solid Waste Facility Operating Agreement (Agreement). CRL was selected to operate Colonies solid waste management operations, which include the Colonie Landfill, pursuant to a request for proposals initiated under New York State General Municipal Law (GML) section 120-w. CRL commenced solid waste management operations under the Agreement on September 19, 2011.
On September 29, 2011, seven individuals filed a petition in New York State Supreme Court (Albany County) against Colonie, its Town Board and its Supervisor (Town Respondents) to challenge the Agreement. The case is captioned, Conners, et al. v. Town of Colonie, et al., Index No. 006312/2011 (Sup. Ct., Albany Co.). On October 17, 2011, the petition was amended to add CRL and the Company as respondents. The petition alleged that the Agreement is the functional equivalent of a lease and therefore should have been subject to the permissive referendum requirements of New York State Town Law sections 64(2) and 90. The petition specifically alleged that Colonie failed to post and publish a notice that the Colonie Boards resolution authorizing execution of the Agreement was subject to a permissive referendum. The Town Respondents, CRL and the Company filed motions to dismiss on various procedural and substantive grounds.
By decision, order and judgment dated April 5, 2012, the Supreme Court dismissed the petition, finding that, even if the Agreement was construed as a lease, (i) a lease entered into pursuant to GML section 120-w is not subject to Town Laws permissive referendum requirements, and (ii) the petitioners claims did not fall within those permitted under GML section 120-w. On May 3, 2012, petitioners filed a notice of appeal with the Appellate Division of the New York State Supreme Court, Third Department. The petitioners perfected their appeal on January 30, 2013, and CRLs responsive brief is due in March 2013.
96
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
If the petitioners ultimately prevail on appeal such that the Agreement is nullified and CRL is unable to continue to operate Colonies solid waste management operations, the Agreement requires Colonie to repay to CRL an amount equal to a prorated amount of $23,000 of the initial payment made by CRL to Colonie plus the amount of any capital that CRL has invested in the Colonie Landfill. The prorated amount owed to CRL by Colonie would be calculated by dividing the $23,000 plus the amount of invested capital by the number of years of remaining airspace at the Colonie Landfill, as measured from the effective date of the Agreement, and then multiplying the result by the number of years of remaining airspace at the Colonie Landfill, as measured from the date the Agreement is nullified. Furthermore, if the Agreement is nullified as a result of the litigation, Colonie would resume responsibility for all final capping, closure and post-closure liabilities for the Colonie Landfill.
Madera County, California Materials Recovery Facility Contract Litigation
The Companys subsidiary, Madera Disposal Systems, Inc. (MDSI) was named in a complaint captioned County of Madera vs. Madera Disposal Systems, Inc., et al, which was filed in Madera County Superior Court (Case No. MCV 059402) on March 5, 2012, and subsequently transferred to Fresno County Superior Court. In its complaint, Madera County alleges that from 2007 through 2010, MDSI breached a contract with the County for the operation of a materials recovery facility by withholding profits from facility operations in excess of those authorized by the contract. The County further alleges that the breach gives the County the unilateral right to terminate all of its contracts with MDSI, including contracts for (1) the collection of residential and commercial waste in the unincorporated parts of the County, (2) operation of the materials recovery facility, (3) operation of the North Fork Transfer Station and (4) operation of the Fairmead Landfill. The County seeks monetary damages of $2,962 from MDSI, plus pre-judgment interest at 10% per annum.
MDSI had been under contract with the County to collect residential and commercial waste and operate the county-owned Fairmead Landfill continuously since at least 1981. In 1994, MDSI contracted with the County to construct and operate a materials recovery facility for the County on the premises of the Fairmead Landfill. At the time it entered into the materials recovery facility contract, MDSI entered into new contracts with the County for waste collection and landfill operation that were to run concurrently with the materials recovery facility contract. In 1998, MDSI and the County agreed to extend the term of the materials recovery facility and the terms of the other County contracts until November 10, 2012, with MDSI holding a unilateral option to extend all of the contracts for an additional five-year term.
In March 2011, the County issued a Notice of Default to MDSI under the materials recovery facility contract and gave MDSI 30 days to cure the default. MDSI provided information that it believed demonstrated that it was not in default under the contract and had not withheld profits that it was obligated to deliver to the County under the terms of the contract.
On February 7, 2012, the County issued a Notice of Termination to MDSI terminating all of its contracts effective November 1, 2012. The lawsuit followed on March 5, 2012. MDSI has answered the complaint and has asserted a claim against the County for wrongful termination of the contracts. On October 31, 2012, MDSI ceased providing services and vacated the County premises.
At this point, the Company is not able to determine the likelihood of any outcome in this matter. The Company disputes Madera Countys right to terminate the MDSI contracts effective November 1, 2012, and seeks damages for the profits lost as a result of the wrongful termination. The Company estimates that the current annual impact to its pre-tax earnings resulting from the termination of MDSIs contracts with Madera County will be approximately $2,300 per year, not including any monetary damages and interest the Court could order MDSI to pay the County.
Collective Bargaining Agreements
Thirteen of the Companys collective bargaining agreements have expired or are set to expire in 2013. The Company does not expect any significant disruption in its overall business in 2013 as a result of labor negotiations, employee strikes or organizational efforts.
12. STOCKHOLDERS EQUITY
Sale of Common Stock
On February 27, 2012, the Company entered into an underwriting agreement with Morgan Stanley & Co. LLC, in connection with the offer and sale by the Company of 12,000,000 shares of its common stock, par value $0.01 per share. The shares of common stock were sold to Morgan Stanley & Co. LLC at a price of $30.83 per share. The offering closed on March 2, 2012. The Company received net proceeds from this offering of $369,584 after deducting transaction expenses paid by the Company of approximately $376.
97
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Stock Split
On October 19, 2010, the Companys Board of Directors authorized a three-for-two split of its common stock, in the form of a 50% stock dividend, payable to stockholders of record as of October 29, 2010. Shares resulting from the split were issued on November 12, 2010. In connection therewith, the Company transferred $394 from retained earnings to common stock, representing the par value of additional shares issued. As a result of the stock split, fractional shares equal to 2,479 whole shares were repurchased for $101. All share and per share amounts for all periods presented have been retroactively adjusted to reflect the stock split.
Cash Dividend
In October 2010, the Companys Board of Directors declared the initiation of a quarterly cash dividend of $0.075 per share, as adjusted for the three-for-two stock split described above. In October 2011, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.015, from $0.075 to $0.09 per share. In October 2012, the Company announced that its Board of Directors increased its regular quarterly cash dividend by $0.01, from $0.09 to $0.10 per share. Cash dividends of $44,465, $35,566 and $8,561 were paid during the years ended December 31, 2012, 2011 and 2010, respectively.
Share Repurchase Program
The Companys Board of Directors has authorized a common stock repurchase program for the repurchase of up to $1,200,000 of common stock through December 31, 2014. Under the program, stock repurchases may be made in the open market or in privately negotiated transactions from time to time at managements discretion. The timing and amounts of any repurchases will depend on many factors, including the Companys capital structure, the market price of the common stock and overall market conditions. As of December 31, 2012 and 2011, the Company had repurchased in aggregate 39,865,266 and 39,245,819 shares, respectively, of its common stock at an aggregate cost of $784,040 and $765,443, respectively. As of December 31, 2012, the remaining maximum dollar value of shares available for purchase under the program was approximately $415,960. The Companys policy related to repurchases of its common stock is to charge any excess of cost over par value entirely to additional paid-in capital.
Common Stock
Of the 126,980,506 shares of common stock authorized but unissued as of December 31, 2012, the following shares were reserved for issuance:
Stock option and restricted stock unit plans |
4,979,110 | |||
Consultant Incentive Plan |
326,480 | |||
2002 Restricted Stock Plan |
15,752 | |||
|
|
|||
5,321,342 | ||||
|
|
Restricted Stock, Stock Options and Restricted Stock Units
During 2002, the Companys Board of Directors adopted the 2002 Restricted Stock Plan in which selected employees, other than officers and directors, may participate. Restricted stock awards under the 2002 Restricted Stock Plan may or may not require a cash payment from a participant to whom an award is made. The awards become free of the stated restrictions over periods determined at the date of the grant, subject to continuing employment, the achievement of particular performance goals and/or the satisfaction of certain vesting provisions applicable to each award of shares. The Board of Directors authorizes the grant of any stock awards and determines the employees to whom shares are awarded, number of shares to be awarded, award period and other terms and conditions of the awards. Unvested shares of restricted stock may be forfeited and revert to the Company if a plan participant resigns from the Company and its subsidiaries, is terminated for cause or violates the terms of any noncompetition or nonsolicitation agreements to which that plan participant is bound (if such plan participant has been terminated without cause). A total of 320,625 shares of the Companys common stock were reserved for issuance under the 2002 Restricted Stock Plan. As of December 31, 2012, 15,752 shares of common stock were available for future grants of restricted stock under the 2002 Restricted Stock Plan. There were no restricted shares granted or outstanding under the 2002 Restricted Stock Plan during the years ended December 31, 2012, 2011 and 2010.
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WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In 2002, the Companys Board of Directors authorized two additional equity-based compensation plans: the 2002 Stock Option Plan and 2002 Senior Management Equity Incentive Plan. A total of 8,244,546 shares of the Companys common stock were reserved for future issuance under the 2002 Stock Option Plan. Participation in the 2002 Stock Option Plan is limited to consultants and employees, other than officers and directors. Options granted under the 2002 Stock Option Plan are nonqualified stock options and have a term of no longer than 10 years from the date they are granted. Options generally become exercisable in installments pursuant to a vesting schedule set forth in each option agreement. The Board of Directors authorizes the granting of options and determines the employees and consultants to whom options are to be granted, the number of shares subject to each option, the exercise price, option term, vesting schedule and other terms and conditions of the options. A total of 9,216,710 shares of the Companys common stock were reserved for future issuance under the 2002 Senior Management Equity Incentive Plan. The Companys stockholders approved the 2002 Senior Management Equity Incentive Plan on May 16, 2002. Participation in the 2002 Senior Management Equity Incentive Plan is limited to officers and directors of the Company and its subsidiaries. Options granted under the 2002 Senior Management Equity Incentive Plan may be either incentive stock options or nonqualified stock options and have a term of no longer than 10 years from the date they are granted. Options generally become exercisable in installments pursuant to a vesting schedule set forth in each option agreement. The Board of Directors authorizes the granting of options and determines the officers and directors to whom options are to be granted, the number of shares subject to each option, the exercise price, option term, vesting schedule and other terms and conditions of the options. In the case of incentive stock options, the exercise price will be at least 100% or 110% of the fair market value of the Companys common stock on the date of grant as provided for in the 2002 Senior Management Equity Incentive Plan. As of December 31, 2012, no options were available for future grants under the 2002 Stock Option Plan and 1,500,000 shares of common stock were available for future grants under the 2002 Senior Management Equity Incentive Plan.
In 2004, the Companys Board of Directors authorized the 2004 Equity Incentive Plan. On May 7, 2010, the Companys stockholders approved the latest amendment to the plan, now the Third Amended and Restated 2004 Equity Incentive Plan (the 2004 Equity Incentive Plan). A total of 7,162,500 shares of the Companys common stock were reserved for future issuance under the 2004 Equity Incentive Plan, all of which may be used for grants of stock options, restricted stock, and/or restricted stock units. Participation in the 2004 Equity Incentive Plan is limited to consultants and employees, including officers and directors. Options granted under the 2004 Equity Incentive Plan are nonqualified stock options and have a term of no longer than five years from the date they are granted. Restricted stock, restricted stock units, and options generally vest in installments pursuant to a vesting schedule set forth in each option or restricted stock or unit agreement. The Board of Directors authorizes the granting of options, restricted stock and restricted stock units, and determines the employees and consultants to whom options, restricted stock, and restricted stock units are to be granted, the number of shares subject to each option, restricted stock, or restricted stock unit, the exercise price, term, vesting schedule and other terms and conditions of the options, restricted stock, or restricted stock units. The exercise prices of the options shall not be less than the fair market value of the Companys common stock on the date of grant. Restricted stock awards under the plan may or may not require a cash payment from a participant to whom an award is made; restricted stock unit awards under the plan do not require any cash payment from the participant to whom an award is made. The fair value of restricted stock units granted during the years ended December 31, 2012, 2011 and 2010, was determined based on the number of restricted stock units granted and the quoted price of the Companys common stock on the date of grant. As of December 31, 2012, 1,572,181 shares of common stock were available to be issued pursuant to future awards granted under the 2004 Equity Incentive Plan.
The following table summarizes restricted stock units activity for the 2004 Equity Incentive Plan:
Year Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Restricted stock units granted |
635,266 | 500,048 | 596,463 | |||||||||
Weighted average grant-date fair value of restricted stock units granted |
$ | 31.52 | $ | 29.28 | $ | 21.32 | ||||||
Total fair value of restricted stock units granted |
$ | 20,025 | $ | 14,643 | $ | 12,750 | ||||||
Restricted stock units becoming free of restrictions |
662,909 | 576,522 | 511,196 | |||||||||
Weighted average restriction period (in years) |
3.2 | 3.9 | 3.8 |
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WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
A summary of activity related to restricted stock units under the 2004 Equity Incentive Plan during the year ended December 31, 2012, is presented below:
Unvested Shares | Weighted-Average Grant Date Fair Value Per Share |
|||||||
Outstanding at December 31, 2011 |
1,393,009 | $ | 22.79 | |||||
Granted |
635,266 | 31.52 | ||||||
Forfeited |
(47,568 | ) | 26.92 | |||||
Vested and Issued |
(591,165 | ) | 23.10 | |||||
Vested and Unissued |
(71,744 | ) | 26.35 | |||||
|
|
|||||||
Outstanding at December 31, 2012 |
1,317,798 | 26.34 | ||||||
|
|
A summary of the Companys stock option activity and related information during the year ended December 31, 2012, is presented below:
Number of Shares (Options) |
Weighted Average Exercise Price |
|||||||
Outstanding as of December 31, 2011 |
813,767 | $ | 12.89 | |||||
Granted |
| | ||||||
Forfeited |
| | ||||||
Exercised |
(328,973 | ) | 12.33 | |||||
|
|
|||||||
Outstanding as of December 31, 2012 |
484,794 | 13.26 | ||||||
|
|
The following table summarizes information about stock options outstanding as of December 31, 2012:
Options Outstanding | Options Vested and Exercisable | |||||||||||||||||||||||||
Exercise Price |
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) |
Shares | Weighted Average Exercise Price |
Weighted Average Remaining Contractual Life (in years) |
||||||||||||||||||||
$9.00 to $12.00 |
197,980 | $ | 10.85 | 0.9 | 197,980 | $ | 10.85 | 0.9 | ||||||||||||||||||
$12.01 to $15.00 |
184,126 | 14.63 | 2.1 | 184,126 | 14.63 | 2.1 | ||||||||||||||||||||
$15.01 to $17.00 |
102,688 | 15.45 | 3.1 | 102,688 | 15.45 | 3.1 | ||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
484,794 | 13.26 | 1.8 | 484,794 | 13.26 | 1.8 | |||||||||||||||||||||
|
|
|
|
The aggregate intrinsic value for both options outstanding and options exercisable at December 31, 2012, was $9,952. During the year ended December 31, 2010, the final 164,314 of unvested options to purchase common stock became vested.
The total intrinsic value of stock options exercised during the years ended December 31, 2012, 2011 and 2010, was $6,239, $7,597 and $30,059, respectively. The total fair value of stock options vested during the year ended December 31, 2010, was $726. As of December 31, 2012, 2011 and 2010, a total of 484,794, 813,767 and 1,217,146 options to purchase common stock were exercisable under all stock option plans, respectively.
100
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Stock Purchase Warrants
In 2002, the Companys Board of Directors authorized the 2002 Consultant Incentive Plan, under which warrants to purchase the Companys common stock may be issued to certain consultants to the Company. Warrants awarded under the Consultant Incentive Plan are subject to a vesting schedule set forth in each warrant agreement. Historically, warrants issued have been fully vested and exercisable at the date of grant. The Board of Directors authorizes the issuance of warrants and determines the consultants to whom warrants are to be issued, the number of shares subject to each warrant, the purchase price, exercise date and period, warrant term and other terms and conditions of the warrants. The Board reserved 675,000 shares of the Companys common stock for future issuance under the Consultant Incentive Plan. As of December 31, 2012, 205,991 shares of common stock were available for future grants of warrants under the 2002 Consultant Incentive Plan.
A summary of warrant activity during the year ended December 31, 2012, is presented below:
Warrants | Weighted-Average Exercise Price |
|||||||
Outstanding at December 31, 2011 |
50,200 | $ | 25.83 | |||||
Granted |
75,006 | 31.94 | ||||||
Forfeited |
(960 | ) | 21.25 | |||||
Exercised |
(3,757 | ) | 21.73 | |||||
|
|
|||||||
Outstanding at December 31, 2012 |
120,489 | 29.80 | ||||||
|
|
The following table summarizes information about warrants outstanding as of December 31, 2012 and 2011:
Warrants | Fair Value of Warrants |
Outstanding at December 31, | ||||||||||||||||||
Grant Date |
Issued | Exercise Price | Issued | 2012 | 2011 | |||||||||||||||
Throughout 2007 |
21,206 | $ | 19.80 to $22.68 | $ | 123 | | 1,391 | |||||||||||||
Throughout 2008 |
13,901 | $ | 18.97 to $22.70 | 79 | | | ||||||||||||||
Throughout 2009 |
5,589 | $ | 14.67 to $19.61 | 22 | 713 | 1,735 | ||||||||||||||
Throughout 2010 |
51,627 | $ | 20.64 to $27.41 | 351 | 35,446 | 37,750 | ||||||||||||||
Throughout 2011 |
9,324 | $ | 27.53 to $33.14 | 79 | 9,324 | 9,324 | ||||||||||||||
Throughout 2012 |
75,006 | $ | 30.52 to $33.79 | 628 | 75,006 | | ||||||||||||||
|
|
|
|
|||||||||||||||||
120,489 | 50,200 | |||||||||||||||||||
|
|
|
|
The warrants are exercisable when granted and expire between 2014 and 2017.
101
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
13. OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) includes changes in the fair value of interest rate swaps and fuel hedges that qualify for hedge accounting. The components of other comprehensive income (loss) and related tax effects for the years ended December 31, 2012, 2011 and 2010, are as follows:
Year Ended December 31, 2012 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense |
$ | 5,289 | $ | (2,010 | ) | $ | 3,279 | |||||
Fuel hedge amounts reclassified into cost of operations |
(4,513 | ) | 1,715 | (2,798 | ) | |||||||
Changes in fair value of interest rate swaps |
(7,333 | ) | 2,809 | (4,524 | ) | |||||||
Changes in fair value of fuel hedge |
2,194 | (836 | ) | 1,358 | ||||||||
|
|
|
|
|
|
|||||||
$ | (4,363 | ) | $ | 1,678 | $ | (2,685 | ) | |||||
|
|
|
|
|
|
|||||||
Year Ended December 31, 2011 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense |
$ | 5,803 | $ | (2,205 | ) | $ | 3,598 | |||||
Fuel hedge amounts reclassified into cost of operations |
(4,297 | ) | 1,633 | (2,664 | ) | |||||||
Changes in fair value of interest rate swaps |
(5,200 | ) | 1,976 | (3,224 | ) | |||||||
Changes in fair value of fuel hedges |
3,073 | (1,168 | ) | 1,905 | ||||||||
|
|
|
|
|
|
|||||||
$ | (621 | ) | $ | 236 | $ | (385 | ) | |||||
|
|
|
|
|
|
|||||||
Year Ended December 31, 2010 | ||||||||||||
Gross | Tax effect | Net of tax | ||||||||||
Interest rate swap amounts reclassified into interest expense |
$ | 9,052 | $ | (3,440 | ) | $ | 5,612 | |||||
Fuel hedge amounts reclassified into cost of operations |
3,932 | (1,494 | ) | 2,438 | ||||||||
Changes in fair value of interest rate swaps |
(11,013 | ) | 4,201 | (6,812 | ) | |||||||
Changes in fair value of fuel hedges |
902 | (343 | ) | 559 | ||||||||
|
|
|
|
|
|
|||||||
$ | 2,873 | $ | (1,076 | ) | $ | 1,797 | ||||||
|
|
|
|
|
|
A rollforward of the amounts included in AOCL, net of taxes, is as follows:
Fuel Hedges |
Interest Rate Swaps |
Accumulated Other Comprehensive Loss |
||||||||||
Balance at December 31, 2010 |
$ | 2,931 | $ | (6,026 | ) | $ | (3,095 | ) | ||||
Amounts reclassified into earnings |
(2,664 | ) | 3,598 | 934 | ||||||||
Changes in fair value |
1,905 | (3,224 | ) | (1,319 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2011 |
2,172 | (5,652 | ) | (3,480 | ) | |||||||
Amounts reclassified into earnings |
(2,798 | ) | 3,279 | 481 | ||||||||
Changes in fair value |
1,358 | (4,524 | ) | (3,166 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31, 2012 |
$ | 732 | $ | (6,897 | ) | $ | (6,165 | ) | ||||
|
|
|
|
|
|
102
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
14. INCOME TAXES
The provision for income taxes for the years ended December 31, 2012, 2011 and 2010, consists of the following:
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 65,099 | $ | 45,922 | $ | 54,652 | ||||||
State |
10,655 | 10,047 | 8,251 | |||||||||
Deferred: |
||||||||||||
Federal |
24,795 | 48,011 | 24,315 | |||||||||
State |
4,894 | 2,978 | 2,116 | |||||||||
|
|
|
|
|
|
|||||||
Provision for income taxes |
$ | 105,443 | $ | 106,958 | $ | 89,334 | ||||||
|
|
|
|
|
|
The significant components of deferred income tax assets and liabilities as of December 31, 2012 and 2011 are as follows:
2012 | 2011 | |||||||
Deferred income tax assets: |
||||||||
Accounts receivable reserves |
$ | 2,504 | $ | 2,514 | ||||
Accrued expenses |
30,926 | 23,320 | ||||||
Compensation |
9,625 | 8,288 | ||||||
Interest rate and fuel hedges |
3,811 | 2,133 | ||||||
Leases |
1,181 | 1,355 | ||||||
State taxes |
3,482 | 2,952 | ||||||
Contingent liabilities |
28,390 | 8,578 | ||||||
|
|
|
|
|||||
Gross deferred income tax assets |
79,919 | 49,140 | ||||||
Less: Valuation allowance |
| | ||||||
|
|
|
|
|||||
Net deferred income tax assets |
79,919 | 49,140 | ||||||
Deferred income tax liabilities: |
||||||||
Goodwill and other intangibles |
(213,564 | ) | (184,573 | ) | ||||
Property and equipment |
(246,091 | ) | (207,681 | ) | ||||
Landfill closure/post-closure |
(26,363 | ) | (21,321 | ) | ||||
Prepaid expenses |
(12,493 | ) | (10,775 | ) | ||||
Other |
(492 | ) | (1,294 | ) | ||||
|
|
|
|
|||||
Total deferred income tax liabilities |
(499,003 | ) | (425,644 | ) | ||||
|
|
|
|
|||||
Net deferred income tax liability |
$ | (419,084 | ) | $ | (376,504 | ) | ||
|
|
|
|
During the years ended December 31, 2012, 2011 and 2010, the Company reduced its taxes payable by $9,603, $8,990 and $15,609 respectively, as a result of the exercise of non-qualified stock options, the vesting of restricted stock units, and the disqualifying disposition of incentive stock options. The excess tax benefit associated with equity-based compensation of $5,033, $4,763 and $11,997 for the years ended December 31, 2012, 2011 and 2010, respectively, was recorded in additional paid-in capital.
103
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The differences between the Companys income tax provision as presented in the accompanying statements of net income and income tax provision computed at the federal statutory rate consist of the items shown in the following table as a percentage of pre-tax income:
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Income tax provision at the statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State taxes, net of federal benefit |
3.6 | 3.7 | 3.4 | |||||||||
Deferred income tax liability adjustments |
1.0 | | 0.4 | |||||||||
Noncontrolling interests |
(0.1 | ) | (0.1 | ) | (0.2 | ) | ||||||
Other |
0.3 | 0.6 | 1.0 | |||||||||
|
|
|
|
|
|
|||||||
39.8 | % | 39.2 | % | 39.6 | % | |||||||
|
|
|
|
|
|
During the year ended December 31, 2012, the Deferred income tax liability adjustments, due primarily to changes in the geographical apportionment of the Companys state income taxes associated with the R360 acquisition, resulted in an increase to tax expense of $2,602. During the year ended December 31, 2010, the Deferred income tax liability adjustments, due primarily to a voter-approved increase in Oregon state income tax rates and changes in the geographical apportionment of the Companys state income taxes, resulted in an increase to tax expense of $1,547. Additionally, the Company recorded an increase to tax expense of $1,580 associated with the reconciliation of the income tax provision to the 2009 federal and state tax returns, which were filed during 2010, and the disposal of certain assets that had no tax basis. During the year ended December 31, 2010, the Company also recorded a reduction to tax expense of $563 due primarily to the reversal of certain tax contingences for which the statutes of limitations expired in 2010.
At December 31, 2012 and 2011, the Company did not have any significant federal or state net operating loss carryforwards.
The Company and its subsidiaries are subject to U.S. federal income tax as well as to income tax of multiple state jurisdictions. The Company has concluded all U.S. federal income tax matters for years through 2008. All material state and local income tax matters have been concluded for years through 2007.
The Company did not have any unrecognized tax benefits recorded at December 31, 2012 or 2011. The Company does not anticipate the total amount of unrecognized tax benefits will significantly change by December 31, 2013. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. The Company released, net of recognition, approximately $29 for interest, net of tax, and recognized no expense for penalties during the year ended December 31, 2011.
The following is a rollforward of the Companys unrecognized tax benefits from January 1, 2010 to December 31, 2012:
2012 | 2011 | 2010 | ||||||||||
Unrecognized tax benefits at beginning of period |
$ | | $ | 341 | $ | 942 | ||||||
Gross increases tax positions in prior periods |
| | | |||||||||
Gross decreases tax positions in prior periods |
| | | |||||||||
Lapse of statutes of limitations |
| (341 | ) | (601 | ) | |||||||
|
|
|
|
|
|
|||||||
Unrecognized tax benefits at end of period |
$ | | $ | | $ | 341 | ||||||
|
|
|
|
|
|
15. SEGMENT REPORTING
The Companys revenues include the collection, transfer, recycling and disposal of non-hazardous solid waste and the treatment, recovery and disposal of non-hazardous E&P waste. No single contract or customer accounted for more than 10% of the Companys total revenues at the consolidated or reportable segment level during the periods presented.
Prior to October 2012, the Company managed its operations through three geographic operating segments which were also its reportable segments. In October 2012, as a result of the R360 acquisition described in Note 3, the Company realigned its reporting structure and created a fourth operating segment, the E&P group, which includes the majority of the Companys E&P waste treatment and disposal operations; the Companys three geographic operating segments and its E&P group are also the Companys reportable segments. Each operating segment is responsible for managing several vertically integrated operations, which are comprised of
104
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
districts. The segment information presented herein reflects the addition of the new E&P group. Under the current orientation, the Companys Western Region is comprised of operating locations in Alaska, California, Idaho, Montana, Nevada, Oregon, Washington and western Wyoming; the Companys Central Region is comprised of operating locations in Arizona, Colorado, Kansas, Louisiana, Minnesota, Nebraska, New Mexico, Oklahoma, South Dakota, Texas, Utah and eastern Wyoming; and the Companys Eastern Region is comprised of operating locations in Eastern Region is comprised of operating locations in Alabama, Illinois, Iowa, Kentucky, Massachusetts, Michigan, Mississippi, New York, North Carolina, South Carolina and Tennessee. The E&P group is comprised of the Companys E&P operations in Louisiana, New Mexico, North Dakota, Oklahoma, Texas, Wyoming and along the Gulf of Mexico.
The Companys Chief Operating Decision Maker (CODM) evaluates operating segment profitability and determines resource allocations based on several factors, of which the primary financial measure is operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement. Operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement is not a measure of operating income, operating performance or liquidity under GAAP and may not be comparable to similarly titled measures reported by other companies. The Companys management uses operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement in the evaluation of segment operating performance as it is a profit measure that is generally within the control of the operating segments. A reconciliation of operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement to income before income tax provision is included at the end of this Note 15.
Summarized financial information concerning the Companys reportable segments for the years ended December 31, 2012, 2011 and 2010, is shown in the following tables:
Year Ended December 31, |
Gross Revenues | Intercompany Revenues(b) |
Net Revenues |
Operating Income Before Depreciation, Amortization, Gain (Loss) on Disposal of Assets and Gain From Litigation Settlement(c) |
Depreciation and Amortization |
Capital Expenditures |
Total Assets(e) | |||||||||||||||||||||
Western |
$ | 882,228 | $ | (100,094 | ) | $ | 782,134 | $ | 229,427 | $ | 78,191 | $ | 64,583 | $ | 1,507,081 | |||||||||||||
Central |
528,510 | (56,041 | ) | 472,469 | 171,616 | 55,614 | 51,480 | 1,159,107 | ||||||||||||||||||||
Eastern |
441,907 | (75,082 | ) | 366,825 | 101,046 | 49,289 | 32,037 | 826,687 | ||||||||||||||||||||
E&P |
41,732 | (1,542 | ) | 40,190 | 16,791 | 8,147 | 1,791 | 1,449,065 | ||||||||||||||||||||
Corporate(a), (d) |
| | | (11,073 | ) | 2,343 | 3,626 | 134,086 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 1,894,377 | $ | (232,759 | ) | $ | 1,661,618 | $ | 507,807 | $ | 193,584 | $ | 153,517 | $ | 5,076,026 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, |
Gross Revenues | Intercompany Revenues(b) |
Net Revenues |
Operating Income Before Depreciation, Amortization, Gain (Loss) on Disposal of Assets and Gain From Litigation Settlement(c) |
Depreciation and Amortization |
Capital Expenditures |
Total Assets(e) | |||||||||||||||||||||
Western |
$ | 841,006 | $ | (98,418 | ) | $ | 742,588 | $ | 232,940 | $ | 74,628 | $ | 57,037 | $ | 1,370,098 | |||||||||||||
Central |
481,835 | (51,658 | ) | 430,177 | 152,059 | 49,490 | 46,463 | 1,040,962 | ||||||||||||||||||||
Eastern |
401,137 | (68,536 | ) | 332,601 | 95,301 | 41,135 | 35,139 | 841,251 | ||||||||||||||||||||
Corporate(a), (d) |
| | | 5,519 | 1,847 | 3,285 | 75,694 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 1,723,978 | $ | (218,612 | ) | $ | 1,505,366 | $ | 485,819 | $ | 167,100 | $ | 141,924 | $ | 3,328,005 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Year Ended December 31, |
Gross Revenues | Intercompany Revenues(b) |
Net Revenues | Operating Income Before Depreciation, Amortization, Gain (Loss) on Disposal of Assets and Gain From Litigation Settlement(c) |
Depreciation and Amortization |
Capital Expenditures |
Total Assets(e) | |||||||||||||||||||||
Western |
$ | 801,854 | $ | (92,033 | ) | $ | 709,821 | $ | 218,254 | $ | 72,563 | $ | 54,697 | $ | 1,378,920 | |||||||||||||
Central |
436,630 | (49,933 | ) | 386,697 | 127,861 | 44,247 | 46,573 | 1,007,173 | ||||||||||||||||||||
Eastern |
275,058 | (51,819 | ) | 223,239 | 69,013 | 28,979 | 32,272 | 466,329 | ||||||||||||||||||||
Corporate(a), (d) |
| | | 5,282 | 1,667 | 1,287 | 63,562 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
$ | 1,513,542 | $ | (193,785 | ) | $ | 1,319,757 | $ | 420,410 | $ | 147,456 | $ | 134,829 | $ | 2,915,984 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Corporate functions include accounting, legal, tax, treasury, information technology, risk management, human resources, training and other administrative functions. Amounts reflected are net of allocations to the four operating segments. |
(b) | Intercompany revenues reflect each segments total intercompany sales, including intercompany sales within a segment and between segments. Transactions within and between segments are generally made on a basis intended to reflect the market value of the service. |
(c) | For those items included in the determination of operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement, the accounting policies of the segments are the same as those described in Note 1. |
(d) | Corporate assets include cash, net deferred tax assets, debt issuance costs, equity investments, and corporate facility leasehold improvements and equipment. |
(e) | Goodwill is included within total assets for each of the Companys four operating segments. |
The following table shows changes in goodwill during the years ended December 31, 2011 and 2012, by reportable segment:
Western | Central | Eastern | E&P | Total | ||||||||||||||||
Balance as of December 31, 2010 |
$ | 313,038 | $ | 305,774 | $ | 309,040 | $ | | $ | 927,852 | ||||||||||
Goodwill transferred (a) |
| 111,806 | (111,806 | ) | | | ||||||||||||||
Goodwill acquired |
| 6,643 | 182,393 | | 189,036 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of December 31, 2011 |
313,038 | 424,223 | 379,627 | | 1,116,888 | |||||||||||||||
Goodwill acquired |
60,105 | 6,686 | 934 | 452,441 | 520,166 | |||||||||||||||
Goodwill divested |
| (497 | ) | | | (497 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Balance as of December 31, 2012 |
$ | 373,143 | $ | 430,412 | $ | 380,561 | $ | 452,441 | $ | 1,636,557 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(a) | In April 2011, as a result of the County Waste acquisition described in Note 3, the Company realigned its reporting structure and changed its three geographic operating segments from Western, Central and Southern to Western, Central and Eastern. Additionally, the Company realigned certain of the Companys districts between operating segments. This realignment resulted in the reallocation of goodwill among its segments, which is reflected in the Goodwill transferred line item. |
The Company has no accumulated impairment losses associated with goodwill.
106
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
A reconciliation of the Companys primary measure of segment profitability (operating income before depreciation, amortization, gain (loss) on disposal of assets and gain from litigation settlement for reportable segments) to Income before income tax provision in the Consolidated Statements of Net Income is as follows:
Years ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Operating income before depreciation, amortization, loss on disposal of assets and gain from litigation settlement |
$ | 507,807 | $ | 485,819 | $ | 420,410 | ||||||
Depreciation |
(169,027 | ) | (147,036 | ) | (132,874 | ) | ||||||
Amortization of intangibles |
(24,557 | ) | (20,064 | ) | (14,582 | ) | ||||||
Loss on disposal of assets |
(1,627 | ) | (1,657 | ) | (571 | ) | ||||||
Gain from litigation settlement |
3,551 | | | |||||||||
Interest expense |
(53,037 | ) | (44,520 | ) | (40,134 | ) | ||||||
Interest income |
773 | 530 | 590 | |||||||||
Loss on extinguishment of debt |
| | (10,193 | ) | ||||||||
Other income, net |
1,220 | 57 | 2,830 | |||||||||
|
|
|
|
|
|
|||||||
Income before income tax provision |
$ | 265,103 | $ | 273,129 | $ | 225,476 | ||||||
|
|
|
|
|
|
The table below shows, for the periods indicated, the Companys total reported revenues by service line and with intercompany eliminations:
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Solid waste collection |
$ | 1,176,333 | $ | 1,069,065 | $ | 951,327 | ||||||
Solid waste disposal and transfer |
524,861 | 497,584 | 456,741 | |||||||||
E&P waste treatment, disposal and recovery |
61,350 | 12,746 | 1,500 | |||||||||
Solid waste recycling |
81,512 | 96,417 | 61,062 | |||||||||
Intermodal and other |
50,321 | 48,166 | 42,912 | |||||||||
|
|
|
|
|
|
|||||||
1,894,377 | 1,723,978 | 1,513,542 | ||||||||||
Less: intercompany elimination |
(232,759 | ) | (218,612 | ) | (193,785 | ) | ||||||
|
|
|
|
|
|
|||||||
Total revenues |
$ | 1,661,618 | $ | 1,505,366 | $ | 1,319,757 | ||||||
|
|
|
|
|
|
107
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
16. NET INCOME PER SHARE INFORMATION
The following table sets forth the calculation of the numerator and denominator used in the computation of basic and diluted net income per common share attributable to the Companys common stockholders for the years ended December 31, 2012, 2011 and 2010:
Years Ended December 31, | ||||||||||||
2012 | 2011 | 2010 | ||||||||||
Numerator: |
||||||||||||
Net income attributable to Waste Connections for basic and diluted earnings per share |
$ | 159,093 | $ | 165,239 | $ | 135,104 | ||||||
|
|
|
|
|
|
|||||||
Denominator: |
||||||||||||
Basic shares outstanding |
121,172,381 | 112,720,444 | 115,646,173 | |||||||||
Dilutive effect of stock options and warrants |
308,681 | 425,085 | 833,502 | |||||||||
Dilutive effect of restricted stock units |
343,287 | 437,957 | 414,529 | |||||||||
|
|
|
|
|
|
|||||||
Diluted shares outstanding |
121,824,349 | 113,583,486 | 116,894,204 | |||||||||
|
|
|
|
|
|
As of December 31, 2012, 2011 and 2010, warrants to purchase 75,352, 5,301 and 18,712 shares of common stock, respectively, were excluded from the computation of diluted earnings per share as they were anti-dilutive. As of December 31, 2012, 2011 and 2010, all outstanding stock options were dilutive and included in the computation of diluted earnings per share.
17. EMPLOYEE BENEFIT PLANS
WCI has a voluntary savings and investment plan (the WCI 401(k) Plan), which is available to all eligible, non-union employees of WCI. Under the WCI 401(k) Plan, WCI makes matching contributions of 50% of every dollar of a participating employees pre-tax contributions until the employees contributions equal 5% of the employees eligible compensation, subject to certain limitations imposed by the U.S. Internal Revenue Code. Waste Connections of Alaska, Inc., a wholly-owned subsidiary of the Company (Alaska), has a voluntary savings and investment plan (the Alaska 401(k) Plan). The Alaska 401(k) Plan is available to all eligible employees of Alaska. Under the Alaska 401(k) Plan, Alaska makes contributions based on a participating employees hours worked and makes matching contributions of 100% of every dollar of a participating employees pre-tax contributions until the employees contributions equal 3% of the employees eligible compensation, subject to certain limitations imposed by the U.S. Internal Revenue Code. WCI sponsors a voluntary savings and investment plan (the R360 401(k) Plan) on behalf of its wholly-owned subsidiary, R360 Environmental Solutions, LLC (R360). The R360 401(k) Plan is available to all eligible employees in the E&P group who work at operations acquired in the R360 acquisition. Under the R360 401(k) Plan, R360 makes matching contributions of 50% of every dollar of a participating employees pre-tax contributions until the employees contributions equal 6% of the employees eligible compensation, subject to certain limitations imposed by the U.S. Internal Revenue Code. Waste Connections of California, Inc., a wholly-owned subsidiary of the Company (California), has a voluntary savings and investment plan (the GreenTeam 401(k) Plan). The GreenTeam 401(k) Plan is available to certain union employees of California, as provided in applicable collective bargaining agreements. Under the GreenTeam 401(k) Plan, California makes matching contributions of 50% of every dollar of a participating employees pre-tax contributions until the employees contributions equal 5% of the employees eligible compensation, subject to certain limitations imposed by the U.S. Internal Revenue Code.
Prior to February, 2010, three wholly-owned subsidiaries of the Company also maintained voluntary savings and investment plans, which were available to all eligible, non-union employees of the respective subsidiaries: Murreys Disposal Company, Inc.; Harold LeMay Enterprises, Incorporated; and Pierce County Recycling, Composting, and Disposal, LLC. The assets of all three plans maintained by these subsidiaries were merged into the WCI 401(k) Plan in January 2010. Effective January 1, 2010, all eligible employees of the three subsidiaries participate in the WCI 401(k) Plan and their respective employers make matching contributions to the WCI 401(k) Plan, consistent with WCIs matching contributions described above.
Total employer expenses, including employer matching contributions, for the 401(k) Plans described above were approximately $3,304, $2,759 and $2,662, respectively, during the years ended December 31, 2012, 2011 and 2010. These amounts include matching contributions made under the Deferred Compensation Plan, described below.
108
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The Company also participates in various multiemployer pension plans administered by employer and union trustees. The Company makes periodic contributions to these plans pursuant to its labor agreements. None of the multiemployer pension plans in which the Company participates have been certified to be in endangered or critical status, as defined by the Pension Protection Act of 2006. The Companys contributions to each individual multiemployer pension plan represent less than 5% of total contributions to such plan. Based on the most recent information available, the Companys withdrawal liability from each individual multiemployer plan in which the Company participates is not material to the Companys results of operations. During the years ended December 31, 2012, 2011 and 2010, the Companys total employer contributions to the multiemployer pension plans were approximately $3,812, $3,906 and $3,970, respectively.
Effective for compensation paid on and after July 1, 2004, the Company established a Deferred Compensation Plan for eligible employees, which was amended and restated effective January 1, 2008, and January 1, 2010 (the Deferred Compensation Plan). The Deferred Compensation Plan is a non-qualified deferred compensation program under which the eligible participants, including officers and certain employees who meet a minimum salary threshold, may voluntarily elect to defer up to 80% of their base salaries and up to 100% of their bonuses, commissions and restricted stock unit grants. Members of the Companys Board of Directors are eligible to participate in the Deferred Compensation Plan with respect to their Director fees. Although the Company periodically contributes the amount of its obligation under the plan to a trust for the benefit of the participants, the amounts of any compensation deferred under the Plan constitute an unsecured obligation of the Company to pay the participants in the future and, as such, are subject to the claims of other creditors in the event of insolvency proceedings. Participants may elect certain future distribution dates on which all or a portion of their accounts will be paid to them, including in the case of a change in control of the Company. Their accounts will be distributed to them in cash, except for amounts credited with respect to deferred restricted stock unit grants, which will be distributed in shares of the Companys common stock pursuant to the Third Amended and Restated 2004 Equity Incentive Plan. In addition to the amount of participants contributions, the Company will pay participants an amount reflecting a deemed return based on the returns of various mutual funds or measurement funds selected by the participants, except in the case of restricted stock units that are deferred, which are credited to their accounts as shares of Company common stock. The measurement funds are used only to determine the amount of return the Company pays to participants and participant funds are not actually invested in the measurement fund, nor are any shares of Company common stock acquired under the Deferred Compensation Plan. The Company also makes a matching contribution to the Deferred Compensation Plan of 50% of every dollar of a participating employees pre-tax contributions until the employees contributions equal 5% of the employees eligible compensation, less the amount of any match the Company makes on behalf of the employee under the WCI 401(k) Plan, and subject to the same limits that apply to the WCI 401(k) Plan, except that the Companys matching contributions under the Deferred Compensation Plan are 100% vested when made. The total liability for deferred compensation at December 31, 2012 and 2011 was $12,541 and $9,656, respectively, which was recorded in Other long-term liabilities in the Consolidated Balance Sheets.
18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the unaudited consolidated quarterly results of operations for 2012:
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Revenues |
$ | 376,430 | $ | 410,731 | $ | 425,654 | $ | 448,803 | ||||||||
Operating income |
65,056 | 81,737 | 89,147 | 80,206 | ||||||||||||
Net income |
31,439 | 42,515 | 49,620 | 36,086 | ||||||||||||
Net income attributable to Waste Connections |
31,303 | 42,415 | 49,385 | 35,989 | ||||||||||||
Basic income per common share attributable to Waste Connections common stockholders |
0.27 | 0.34 | 0.40 | 0.29 | ||||||||||||
Diluted income per common share attributable to Waste Connections common stockholders |
0.27 | 0.34 | 0.40 | 0.29 |
109
WASTE CONNECTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
In December 2011, the Company commenced a relocation of its corporate headquarters from Folsom, California to The Woodlands, Texas. During the year ended December 31, 2012, the Company incurred $8,031 ($4,975 net of taxes) related to this relocation. The amounts incurred were materially consistent throughout the four quarters. During the first quarter of 2012, the Company recognized $3,585 of pre-tax expense ($3,315 net of taxes) in Selling, general and administrative expense resulting from a grant of immediately vested restricted stock units to certain executive officers at the time the executives agreed to modification to their employment contracts. During the third quarter of 2012, the Company received an award from an arbitration it filed against a counter-party to a disposal agreement that breached that agreement. The award in the amount of $3,551 ($2,202 net of taxes) was recorded as Gain from litigation settlement.
The following table summarizes the unaudited consolidated quarterly results of operations for 2011:
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||
Revenues |
$ | 331,468 | $ | 390,184 | $ | 403,962 | $ | 379,752 | ||||||||
Operating income |
68,575 | 84,798 | 89,314 | 74,374 | ||||||||||||
Net income |
36,793 | 44,605 | 46,584 | 38,189 | ||||||||||||
Net income attributable to Waste Connections |
36,539 | 44,413 | 46,329 | 37,958 | ||||||||||||
Basic income per common share attributable to Waste Connections common stockholders |
0.32 | 0.39 | 0.41 | 0.34 | ||||||||||||
Diluted income per common share attributable to Waste Connections common stockholders |
0.32 | 0.39 | 0.41 | 0.34 |
110
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2012, at the reasonable assurance level such that information required to be disclosed in our Exchange Act reports: (1) is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms; and (2) is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Managements Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. This process includes policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles; (3) provide reasonable assurance that receipts and expenditures of ours are being made only in accordance with authorizations of our management; and (4) provide reasonable assurance that unauthorized acquisition, use or disposition of our assets that could have a material affect on our financial statements would be prevented or timely detected.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our internal control over financial reporting as of December 31, 2012. In conducting our evaluation, we used the framework set forth in the report titled Internal Control Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission. We have excluded our acquisition of the business of R360 which we completed in October 2012, from the scope of managements evaluation, as the late timing of this acquisition made it impracticable to conduct a meaningful evaluation of the acquired business internal control over financial reporting before the end of the fiscal year. This exclusion is in accordance with the SECs general guidance that an assessment of a recently acquired business may be omitted from our scope in the year of acquisition. The total assets and total revenues recorded generated from the business of R360 represent approximately 28.5% of our total assets and 2.4% of our total revenues, respectively, as of and for the year ended December 31, 2012. Notwithstanding the exclusion of the R360 acquisition from our assessment, there was no material change to our internal control over financial reporting due to the acquisition pursuant to Rule 15d-15 of the Exchange Act. Our assessment on internal control over financial reporting for fiscal year 2013 will include the R360 acquisition. Based on the results of our evaluation, our management has concluded that our internal control over financial reporting was effective as of December 31, 2012.
The effectiveness of our internal control over financial reporting as of December 31, 2012, has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, as stated in its report which appears in Item 8 of this Annual Report of Form 10-K.
Changes in Internal Control Over Financial Reporting
Based on an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, there has been no change to our internal control over financial reporting that occurred during the three month period ended December 31, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
111
None.
112
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth above in Part I under Executive Officers of the Registrant and in the paragraph below, the information required by Item 10 has been omitted from this report, and is incorporated by reference to the sections Election of Directors, Corporate Governance and Board Matters and Section 16(a) Beneficial Ownership Reporting Compliance in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders, which we will file with the SEC pursuant to Regulation 14A within 120 days after the end of our 2012 fiscal year.
We have adopted a Code of Conduct and Ethics that applies to our officers, including our principal executive officer, principal financial officer, principal accounting officer and all other officers, directors and employees. We have also adopted Corporate Governance Guidelines to promote the effective functioning of our Board of Directors and its committees, to promote the interests of stockholders and to ensure a common set of expectations concerning how the Board, its committees and management should perform their respective functions. Our Code of Conduct and Ethics and our Corporate Governance Guidelines are available on our website at http://www.wasteconnections.com as are the charters of our Boards Audit, Nominating and Corporate Governance and Compensation Committees. Information on or that can be accessed through our website is not incorporated by reference to this report. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding any amendments to, or waiver from, a provision of our Code of Conduct by posting such information on our website.
Stockholders may also obtain copies of the Corporate Governance documents discussed above by contacting our Secretary at the address or phone number listed on the cover page of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by Item 11 has been omitted from this report and is incorporated by reference to the sections Executive Compensation and Corporate Governance and Board Matters in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 12 has been omitted from this report and is incorporated by reference to the sections Principal Stockholders and Equity Compensation Plan Information in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by Item 13 has been omitted from this report and is incorporated by reference to the sections Certain Relationships and Related Transactions and Corporate Governance and Board Matters in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information required by Item 14 has been omitted from this report and is incorporated by reference to the section Appointment of Independent Registered Public Accounting Firm in our definitive Proxy Statement for the 2013 Annual Meeting of Stockholders.
113
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) | See Index to Consolidated Financial Statements on page 60. The following Financial Statement Schedule is filed herewith on page 116 and made a part of this Report: |
Schedule IIValuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted.
(b) | See Exhibit Index immediately following signature pages. |
114
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Waste Connections, Inc. | ||||||
By: | /s/ Ronald J. Mittelstaedt | |||||
Ronald J. Mittelstaedt | ||||||
Date: March 1, 2013 | Chief Executive Officer and Chairman |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald J. Mittelstaedt and Worthing F. Jackman, jointly and severally, his true and lawful attorneys-in-fact, each with the power of substitution, for him in any and all capacities to sign any amendments to this Annual Report on Form 10-K, and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature |
Title |
Date | ||
/s/ Ronald J. Mittelstaedt |
Chief Executive Officer and Chairman | |||
Ronald J. Mittelstaedt | (principal executive officer) | March 1, 2013 | ||
/s/ Worthing F. Jackman |
Executive Vice President and Chief Financial Officer | |||
Worthing F. Jackman | (principal financial officer) | March 1, 2013 | ||
/s/ David G. Eddie |
Senior Vice President and Chief Accounting Officer | |||
David G. Eddie | (principal accounting officer) | March 1, 2013 | ||
/s/ Michael W. Harlan |
||||
Michael W. Harlan | Director | March 1, 2013 | ||
/s/ William J. Razzouk |
||||
William J. Razzouk | Director | March 1, 2013 | ||
/s/ Robert H. Davis |
||||
Robert H. Davis | Director | March 1, 2013 | ||
/s/ Edward E. Guillet |
||||
Edward E. Guillet | Director | March 1, 2013 |
115
WASTE CONNECTIONS, INC.
SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2012, 2011 and 2010
(in thousands)
Description |
Additions | Deductions | Balance at End of Year |
|||||||||||||||||
Balance at Beginning of Year |
Charged to Costs and Expenses |
Charged to Other Accounts |
(Write-offs, Net of Collections) |
|||||||||||||||||
Allowance for Doubtful Accounts: |
||||||||||||||||||||
Year Ended December 31, 2012 |
$ | 6,617 | $ | 5,153 | $ | | $ | (5,222 | ) | $ | 6,548 | |||||||||
Year Ended December 31, 2011 |
5,084 | 6,428 | | (4,895 | ) | 6,617 | ||||||||||||||
Year Ended December 31, 2010 |
4,058 | 5,126 | | (4,100 | ) | 5,084 |
116
Exhibit |
Description of Exhibits | |
2.1 | Stock Purchase Agreement, dated as of March 31, 2011, by and among Waste Connections, Inc., on the one hand, and Hudson Valley Waste Holding, Inc. (Hudson Valley Waste Holding), its wholly-owned subsidiary, County Waste and Recycling Service, Inc., and Hudson Valley Waste Holdings shareholders, on the other hand (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on April 5, 2011) | |
2.2 | Purchase and Sale Agreement, dated as of September 16, 2012, by an among R360 Environmental Solutions, Inc. and the other Sellers named therein and WCI Holdings Co., Inc. and, for the limited purposes described therein, the Registrant (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on October 23, 2012) | |
3.1 | Amended and Restated Certificate of Incorporation of the Registrant (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 8, 2012) | |
3.2 | Third Amended and Restated Bylaws of the Registrant, effective May 15, 2009 (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on April 23, 2009) | |
4.1 | Form of Common Stock Certificate (incorporated by reference to the exhibit filed with the Registrants Form S-1/A filed on May 6, 1998) | |
4.2 | Master Note Purchase Agreement, dated July 15, 2008 (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on July 18, 2008) | |
4.3 | Amendment No. 1 to Master Note Purchase Agreement, dated as of July 20, 2009 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on August 5, 2009) | |
4.4 | First Supplement to Master Note Purchase Agreement, dated as of October 26, 2009 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on October 27, 2009) | |
4.5 | Amendment No. 2 to Master Note Purchase Agreement, dated as of November 24, 2010 (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on November 26, 2010) | |
4.6 | Second Supplement to Master Note Purchase Agreement, dated as of April 1, 2011 (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on April 5, 2011) | |
4.7 | Amendment No. 3 to Master Note Purchase Agreement, dated as of October 12, 2011 (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 8, 2012) | |
4.8 | Amended and Restated Credit Agreement, dated as of July 11, 2011 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on October 19, 2011) | |
4.9 * | Term Loan Agreement, dated as of October 25, 2012 | |
10.1 + | Form of Warrant Agreement (incorporated by reference to the exhibit filed with the Registrants Form S-1 filed on March 16, 1998) | |
10.2 + | Employment Agreement between the Registrant and James M. Little, dated as of September 13, 1999 (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on March 13, 2000) | |
10.3 + | Employment Agreement between the Registrant and Eric O. Hansen, dated as of January 1, 2001 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on May 3, 2005) |
117
Exhibit |
Description of Exhibits | |
10.4 + | 2002 Senior Management Equity Incentive Plan (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 11, 2008) | |
10.5 + | 2002 Stock Option Plan (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 11, 2008) | |
10.6 + | 2002 Restricted Stock Plan (incorporated by reference to the exhibit filed with the Registrants Form S-8 filed on June 19, 2002) | |
10.7 + | First Amended and Restated Employment Agreement between the Registrant and David M. Hall, dated as of October 1, 2005 (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on October 4, 2005) | |
10.8 + | First Amended and Restated Employment Agreement between the Registrant and David G. Eddie, dated as of October 1, 2005 (incorporated by reference to the exhibit filed with the Registrants Form 8-K filed on October 4, 2005) | |
10.9 + | Form of Indemnification Agreement between the Registrant and each of its directors and officers (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on July 31, 2006) | |
10.10 + | Employment Agreement between the Registrant and Patrick J. Shea, dated as of February 1, 2008 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on April 23, 2008) | |
10.11 + | Consultant Incentive Plan (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on April 23, 2008) | |
10.12 + | Amended and Restated Senior Management Incentive Plan (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on July 30, 2008) | |
10.13 + | Form of Amendment to Employment Agreement between the Registrant and each of David G. Eddie, David M. Hall and Patrick J. Shea (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 10, 2009) | |
10.14 + | Form of Amendment to Employment Agreement between the Registrant and James M. Little (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 10, 2009) | |
10.15 + | Form of Amendment to Employment Agreement between the Registrant and Eric O. Hansen (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 10, 2009) | |
10.16 + | Employment Agreement between the Registrant and Rick Wojahn, dated as of February 9, 2009 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on May 8, 2009) | |
10.17 + | Employment Agreement between the Registrant and Scott Schreiber, dated as of February 9, 2009 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on May 8, 2009) | |
10.18 +* | Amended and Restated Compensation Plan for Independent Directors, dated January 1, 2013 | |
10.19 + | Employment Agreement between the Registrant and Greg Thibodeaux, dated as of July 1, 2000 (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 9, 2011) | |
10.20 + | Form of Amendment to Employment Agreement between the Registrant and Greg Thibodeaux (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 9, 2011) |
118
Exhibit |
Description of Exhibits | |
10.21 + | Nonqualified Deferred Compensation Plan, amended and restated as of September 22, 2011 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on October 19, 2011) | |
10.22 + | Third Amended and Restated 2004 Equity Incentive Plan (incorporated by reference to the exhibit filed with the Registrants Form 10-K filed on February 8, 2012) | |
10.23 + | Separation Benefits Plan and Employment Agreement by and between the Registrant and Ronald J. Mittelstaedt, effective February 13, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 8-K/A filed on February 27, 2012) | |
10.24 + | Separation Benefits Plan, effective February 13, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 8-K/A filed on February 27, 2012) | |
10.25 + | Separation Benefits Plan Participation Letter Agreement by and between the Registrant and Steven F. Bouck, effective February 13, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 8-K/A filed on February 27, 2012) | |
10.26 + | Separation Benefits Plan Participation Letter Agreement by and between the Registrant and Worthing F. Jackman, effective February 13, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 8-K/A filed on February 27, 2012) | |
10.27 + | Separation Benefits Plan Participation Letter Agreement by and between the Registrant and Darrell W. Chambliss, effective February 13, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 8-K/A filed on February 27, 2012) | |
10.28 + | Employment Agreement between the Registrant and Matthew Black, dated as of March 1, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on April 26, 2012) | |
10.29 + | Employment Agreement between the Registrant and Mary Anne Whitney, dated as of March 1, 2012 (incorporated by reference to the exhibit filed with the Registrants Form 10-Q filed on April 26, 2012) | |
12.1 * | Statement regarding Computation of Ratios | |
21.1 * | Subsidiaries of the Registrant | |
23.1 * | Consent of Independent Registered Public Accounting Firm | |
24.1 * | Power of Attorney (see signature page of this Annual Report on Form 10-K) | |
31.1 * | Certification of Chief Executive Officer | |
31.2 * | Certification of Chief Financial Officer | |
32.1 * | Certificate of Chief Executive Officer and Chief Financial Officer | |
101.INS * | XBRL Instance Document | |
101.SCH * | XBRL Taxonomy Extension Schema Document | |
101.CAL * | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB * | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE * | XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF * | XBRL Taxonomy Extension Definition Linkbase Document |
* | Filed herewith. |
+ | Management contract or compensatory plan, contract or arrangement. |
119
Exhibit 4.9
EXECUTION VERSION
Published CUSIP Number: 94105JAJ4
TERM LOAN AGREEMENT
dated as of October 25, 2012,
among
WASTE CONNECTIONS, INC.,
and its Subsidiaries listed on Schedule 1 hereto
under the heading Borrower Subsidiaries,
as the Borrowers,
BANK OF AMERICA, N.A.,
as the Administrative Agent,
and
THE OTHER LENDERS PARTY HERETO,
with
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
J.P. MORGAN SECURITIES LLC,
and
WELLS FARGO SECURITIES, LLC,
as the Joint Lead Arrangers and Joint Book Managers,
and
JPMORGAN CHASE BANK, N.A.,
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Co-Syndication Agents
and
PNC BANK, NATIONAL ASSOCIATION,
and
UNION BANK, N.A.,
as Co-Documentation Agents
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS |
1 | |||
1.01 Defined Terms |
1 | |||
1.02 Other Interpretive Provisions |
22 | |||
1.03 Accounting Terms |
23 | |||
1.04 Rounding |
23 | |||
1.05 Times of Day |
23 | |||
ARTICLE II. THE COMMITMENTS AND LOANS |
24 | |||
2.01 The Term A Loans |
24 | |||
2.02 Term A Loan Borrowings; Conversions and Continuations of Term A Loans |
24 | |||
2.03 [Reserved] |
25 | |||
2.04 [Reserved] |
25 | |||
2.05 Prepayments |
25 | |||
2.06 [Reserved] |
26 | |||
2.07 Repayment of Term A Loans |
26 | |||
2.08 Interest |
27 | |||
2.09 Fees |
28 | |||
2.10 Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate |
28 | |||
2.11 Evidence of Debt |
28 | |||
2.12 Payments Generally; the Administrative Agents Clawback |
29 | |||
2.13 Sharing of Payments |
31 | |||
2.14 [Reserved] |
31 | |||
2.15 Joint and Several Liability of the Borrowers |
31 | |||
2.16 Designation of Parent as the Agent for the Borrowers |
34 | |||
2.17 [Reserved] |
35 | |||
2.18 Defaulting Lenders |
35 | |||
ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY |
36 | |||
3.01 Taxes |
36 | |||
3.02 Illegality |
40 | |||
3.03 Inability to Determine Rates |
41 | |||
3.04 Increased Costs; Reserves on LIBOR Rate Loans |
41 | |||
3.05 Compensation for Losses |
43 | |||
3.06 Mitigation Obligations; Replacement of Lenders |
43 | |||
3.07 Survival |
44 | |||
ARTICLE IV. CONDITIONS PRECEDENT TO BORROWING |
44 | |||
4.01 Conditions of Term A Loan Borrowing |
44 | |||
ARTICLE V. REPRESENTATIONS AND WARRANTIES |
47 | |||
5.01 Corporate Authority |
47 | |||
5.02 Governmental Approvals |
48 | |||
5.03 Title to Properties; Leases |
48 | |||
5.04 Financial Statements; Solvency |
48 | |||
5.05 No Material Changes, Etc |
48 |
i
5.06 Permits, Franchises, Patents, Copyrights, Etc |
49 | |||
5.07 Litigation |
49 | |||
5.08 No Materially Adverse Contracts, Etc |
49 | |||
5.09 Compliance with Other Instruments, Laws, Etc |
49 | |||
5.10 Tax Status |
49 | |||
5.11 No Event of Default |
49 | |||
5.12 Holding Company and Investment Company Acts |
49 | |||
5.13 Absence of Financing Statements, Etc |
50 | |||
5.14 ERISA Compliance |
50 | |||
5.15 Use of Proceeds |
51 | |||
5.16 Environmental Compliance |
51 | |||
5.17 Transactions with Affiliates |
52 | |||
5.18 Subsidiaries |
53 | |||
5.19 True Copies of Charter and Other Documents |
53 | |||
5.20 Disclosure |
53 | |||
5.21 Capitalization |
53 | |||
5.22 Permits and Licenses |
53 | |||
5.23 Excluded Subsidiaries |
53 | |||
5.24 OFAC; FCPA; Act |
54 | |||
ARTICLE VI. AFFIRMATIVE COVENANTS |
54 | |||
6.01 Punctual Payment |
54 | |||
6.02 Maintenance of Offices |
54 | |||
6.03 Records and Accounts |
54 | |||
6.04 Financial Statements, Certificates and Information |
55 | |||
6.05 Legal Existence and Conduct of Business |
56 | |||
6.06 Maintenance of Properties |
56 | |||
6.07 Insurance |
57 | |||
6.08 Taxes |
57 | |||
6.09 Inspection of Properties, Books, and Contracts |
57 | |||
6.10 Compliance with Laws, Contracts, Licenses and Permits; Maintenance of Material Licenses and Permits |
57 | |||
6.11 Environmental Indemnification |
58 | |||
6.12 Further Assurances |
58 | |||
6.13 Notice of Potential Claims or Litigation |
58 | |||
6.14 Notice of Certain Events Concerning Insurance and Environmental Claims |
58 | |||
6.15 Notice of Default |
59 | |||
6.16 New Subsidiaries |
59 | |||
6.17 [Reserved] |
60 | |||
6.18 Additional Notices |
60 | |||
6.19 Designation of Excluded Subsidiaries |
60 | |||
ARTICLE VII. NEGATIVE COVENANTS |
60 | |||
7.01 Restrictions on Indebtedness |
60 | |||
7.02 Restrictions on Liens |
62 | |||
7.03 Restrictions on Investments |
64 | |||
7.04 Merger, Consolidation and Disposition of Assets |
64 |
ii
7.05 Sale and Leaseback |
65 | |||
7.06 Restricted Payments and Redemptions |
65 | |||
7.07 Employee Benefit Plans |
66 | |||
7.08 Burdensome Agreements |
66 | |||
7.09 Business Activities |
67 | |||
7.10 Transactions with Affiliates |
67 | |||
7.11 Prepayments of Indebtedness |
67 | |||
7.12 Accounting Changes |
67 | |||
7.13 Use of Proceeds |
67 | |||
7.14 Financial Covenants |
67 | |||
7.15 Restrictions on Excluded Subsidiaries |
68 | |||
7.16 OFAC; FCPA |
68 | |||
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES |
68 | |||
8.01 Events of Default |
68 | |||
8.02 Remedies Upon Event of Default |
70 | |||
8.03 Application of Funds |
71 | |||
ARTICLE IX. ADMINISTRATIVE AGENT |
72 | |||
9.01 Appointment and Authorization of the Administrative Agent |
72 | |||
9.02 Rights as a Lender |
72 | |||
9.03 Exculpatory Provisions |
72 | |||
9.04 Reliance by the Administrative Agent |
73 | |||
9.05 Delegation of Duties |
73 | |||
9.06 Resignation of the Administrative Agent |
74 | |||
9.07 Non-Reliance on the Administrative Agent and Other the Lenders |
75 | |||
9.08 No Other Duties, Etc |
75 | |||
9.09 The Administrative Agent May File Proofs of Claim |
75 | |||
9.10 Release of Borrowers |
76 | |||
ARTICLE X. MISCELLANEOUS |
76 | |||
10.01 Amendments, Etc |
76 | |||
10.02 Notices; Effectiveness; Electronic Communications |
78 | |||
10.03 No Waiver; Cumulative Remedies; Enforcement |
80 | |||
10.04 Expenses; Indemnity; Damage Waiver |
81 | |||
10.05 Payments Set Aside |
83 | |||
10.06 Successors and Assigns |
83 | |||
10.07 Treatment of Certain Information; Confidentiality |
87 | |||
10.08 Right of Setoff |
88 | |||
10.09 Interest Rate Limitation |
89 | |||
10.10 Counterparts; Effectiveness |
89 | |||
10.11 Survival of Representations and Warranties |
89 | |||
10.12 Severability |
89 | |||
10.13 Replacement of Lenders |
90 | |||
10.14 Governing Law; Jurisdiction; Etc. |
91 | |||
10.15 Waiver of Right to Trial by Jury |
92 | |||
10.16 USA PATRIOT Act Notice |
92 | |||
10.17 No Advisory or Fiduciary Responsibility |
92 | |||
10.18 ENTIRE AGREEMENT |
93 |
iii
SCHEDULES
1 | List of Subsidiaries of the Parent | |
1.01 | Covenanted Senior Debt | |
2.01 | Term A Loan Commitments and Term A Loan Percentages | |
5.07 | Litigation | |
5.16 | Environmental Matters | |
5.17 | Related Party Transactions | |
6.07 | Permitted Self-Insurance | |
7.01 | Existing Indebtedness | |
7.02 | Existing Liens | |
10.02 | Administrative Agents Office, Certain Addresses for Notices |
EXHIBITS
A | Form of Loan Notice | |
B | Form of Term A Note | |
C | Form of Compliance Certificate | |
D-1 | Form of Assignment and Assumption | |
D-2 | Form of Administrative Questionnaire | |
E | Forms of U.S. Tax Compliance Certificates |
iv
TERM LOAN AGREEMENT
TERM LOAN AGREEMENT (this Agreement) is entered into as of October 25, 2012, among WASTE CONNECTIONS, INC., a Delaware corporation (the Parent), the Subsidiaries listed on Schedule 1 hereto under the heading Borrower Subsidiaries (together with Parent, collectively the Borrowers), each lender from time to time party hereto (collectively, the Lenders, and each individually, a Lender), and BANK OF AMERICA, N.A., as the Administrative Agent.
In consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows:
ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
Accountants means an independent accounting firm of national standing reasonably acceptable to the Required Lenders and the Administrative Agent.
Act has the meaning specified in Section 10.16.
Administrative Agent means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
Administrative Agents Office means the Administrative Agents address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify the Borrowers and the Lenders.
Administrative Questionnaire means an Administrative Questionnaire substantially in the form of Exhibit D-2 or any other form approved by the Administrative Agent.
Affiliate means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
Applicable Rate means, from time to time, the following percentages per annum, based upon the Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to (i) Section 4.01(a)(ix) for the initial period following the Closing Date and (ii) thereafter, Section 6.04(c):
Level |
Leverage Ratio | LIBOR Rate Loans |
Base Rate Loans |
|||||||
I |
> 3.25:1.00 | 2.500 | % | 1.500 | % | |||||
II |
> 3.00:1.00 and <3.25:1.00 |
2.000 | % | 1.000 | % | |||||
III |
> 2.50:1.00 and <3.00:1.00 |
1.750 | % | 0.750 | % | |||||
IV |
> 1.75:1.00 and <2.50:1.00 |
1.500 | % | 0.500 | % | |||||
V |
< 1.75:1.00 | 1.375 | % | 0.375 | % |
Any increase or decrease in the Applicable Rate resulting from a change in the Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is received by the Administrative Agent pursuant to Section 6.04(c); provided, however, that if a Compliance Certificate is not delivered within ten (10) days after the time periods specified in such Section 6.04(c), then Level I (as set forth in the table above) shall apply as of the first Business Day thereafter, subject to prospective adjustment upon actual receipt of such Compliance Certificate.
As of the Closing Date, the Applicable Rate shall be determined by reference to Level II.
Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.10(b).
Approved Fund means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Arrangers means, collectively, Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Wells Fargo Securities, LLC, in their respective capacities as joint lead arrangers and joint book managers.
Assignment and Assumption means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit D-1 or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by the Administrative Agent.
Attributable Indebtedness means, with respect to any Person, on any date, (a) in respect of any Capital Lease, the capitalized amount thereof that would appear on the balance sheet of such Person prepared as of such date in accordance with GAAP, and (b) in respect of any Synthetic Lease, the capitalized amount of the remaining lease payments thereunder that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such Synthetic Lease were accounted for as a Capital Lease.
2
Audited Financial Statements means the audited consolidated balance sheet of the Parent and its Subsidiaries for the fiscal year ended December 31, 2011, and the related consolidated statements of income or operations, shareholders equity and cash flows for such fiscal year of the Parent and its Subsidiaries, including the notes thereto.
Balance Sheet Date means December 31, 2011.
Bank of America means Bank of America, N.A. and its successors.
Bankruptcy Code means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended and in effect from time to time.
Base Rate means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the LIBOR Rate plus 1%, and (c) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its prime rate. The prime rate is a rate set by Bank of America based upon various factors including Bank of Americas costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such prime rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.
Base Rate Loan means a Term A Loan that bears interest based on the Base Rate.
Benefit Amount has the meaning specified in Section 2.15(f).
Borrowers has the meaning specified in the introductory paragraph hereto.
Borrower Materials has the meaning specified in Section 6.04.
Business Day means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agents Office is located and, if such day relates to any LIBOR Rate Loan, means any such day that is also a London Banking Day.
Capital Lease means, with respect to any Person, any lease of (or other agreement conveying the right to use) any real or personal property by such Person that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person.
CERCLA means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended and in effect from time to time.
CFO means the principal financial or accounting officer of the Borrowers.
3
Change in Law means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided, that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law, regardless of the date enacted, adopted or issued.
Closing Date means the date all the conditions precedent set forth in Section 4.01 are satisfied or waived in accordance with Section 10.01, which date is October 25, 2012.
Code means the Internal Revenue Code of 1986, as amended and in effect from time to time.
Commitment Letter means the Project Rodeo Commitment Letter dated as of September 16, 2012 (as supplemented by the joinder thereto dated as of October 1, 2012), from the Arrangers to the Parent.
Companies means, collectively, the entities comprising the Transferred Group (as defined in the R360 Purchase Agreement) which are being acquired in connection with the R360 Acquisition.
Company Material Adverse Effect means a Material Adverse Effect (as defined in the R360 Purchase Agreement).
Compliance Certificate means a certificate substantially in the form of Exhibit C.
Connection Income Taxes means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated EBIT means, for any period, the Consolidated Net Income (or Deficit) of the Consolidated Group determined in accordance with GAAP, plus (a) interest expense, plus (b) income taxes, plus (c) non-cash stock compensation charges, to the extent that such charges were deducted in determining Consolidated Net Income (or Deficit), all as determined in accordance with GAAP, including, without limitation, charges for stock options and restricted stock grants, plus (d) one-time, non-recurring acquisition costs to the extent such costs are expensed in accordance with FAS 141R and not capitalized, plus (e) non-controlling interest expense, plus (f) non-cash extraordinary non-recurring writedowns or writeoffs of assets, including non-cash losses on the sale of assets outside the ordinary course of business, plus (g) any losses associated with the extinguishment of Indebtedness, plus (h) special charges relating to the termination of a Swap Contract, plus (i) any accrued settlement payments in respect of any Swap Contract owing by any members of the Consolidated Group, plus (j) one-time, non-recurring charges in connection with the modification of employment agreements with certain members of senior management as approved by the Administrative Agent (with such approval not to be unreasonably withheld), minus (k) non-cash extraordinary gains on the sale of assets to the extent included in Consolidated Net Income (or Deficit), and minus (l) any accrued settlement payments in respect of any Swap Contact payable to any members of the Consolidated Group.
4
Consolidated EBITDA means, for any period (without duplication), (a) Consolidated EBIT plus the depreciation expense and amortization expense, to the extent that each was deducted in determining Consolidated Net Income (or Deficit), determined in accordance with GAAP, plus (b) the depreciation expense and amortization expense (without duplication) of any company whose Consolidated EBITDA was included under clause (c) hereof, plus (c) Consolidated EBITDA for the prior twelve (12) months of companies or business segments acquired by the Consolidated Group during the respective reporting period (without duplication); provided, that (i) the financial statements of such acquired companies or business segments have been audited for the period sought to be included by an independent accounting firm satisfactory to the Administrative Agent, or (ii) the Administrative Agent consents to such inclusion after being furnished with other acceptable financial statements; and provided further, that such acquired Consolidated EBITDA may be further adjusted to add-back non-recurring private company expenses which are discontinued upon acquisition (such as owners compensation), as approved by the Administrative Agent. Simultaneously with the delivery of the financial statements referred to in clauses (c)(i) and (c)(ii) hereof, the CFO shall deliver to the Administrative Agent a Compliance Certificate and appropriate documentation certifying the historical operating results, adjustments and balance sheet of the acquired company or business segment.
Consolidated Group means the Parent and its consolidated Subsidiaries.
Consolidated Net Income (or Deficit) means the consolidated net income (or deficit) of the Consolidated Group after deduction of all expenses, taxes, and other proper charges, determined in accordance with GAAP.
Consolidated Total Funded Debt means, with respect to the Consolidated Group, the sum, without duplication, of (a) the aggregate amount of Indebtedness of the Consolidated Group on a consolidated basis, relating to (i) the borrowing of money or the obtaining of credit, including the issuance of notes, bonds, debentures or similar debt instruments, (ii) Attributable Indebtedness in respect of any Capital Leases and Synthetic Leases, (iii) the non-contingent deferred purchase price of assets and companies (typically known as holdbacks) to the extent recognized as a liability in accordance with GAAP, but excluding short-term trade payables incurred in the ordinary course of business, and (iv) any unpaid reimbursement obligations with respect to letters of credit outstanding, but excluding any contingent obligations with respect to letters of credit outstanding; plus (b) Indebtedness of the type referred to in clause (a) of another Person who is not a member of the Consolidated Group Guaranteed by one or more members of the Consolidated Group.
Consolidated Total Interest Expense means, for any period, the aggregate amount of interest required to be paid or accrued by the Consolidated Group during such period on all Indebtedness of the Consolidated Group outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments treated as interest under GAAP in respect of any Capital Lease or any Synthetic Lease and including commitment fees, agency fees, facility fees, balance deficiency
5
fees and similar fees or expenses in connection with the borrowing of money, but (a) excluding (i) any amortization and other non-cash charges or expenses incurred during such period to the extent included in determining consolidated interest expense, including without limitation, non-cash amortization of deferred debt origination and issuance costs and amortization of accumulated other comprehensive income, (ii) all amounts associated with the unwinding or termination of any Swap Contract, (iii) any accrued settlement payments in respect of any Swap Contract payable to any member of the Consolidated Group and (iv) to the extent included as an item of interest expense, any premium paid to prepay, repurchase or redeem any Indebtedness incurred pursuant to Section 7.01, and (b) including any accrued settlement payments in respect of any Swap Contract owing by any member of the Consolidated Group.
Control means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. Controlling and Controlled have meanings correlative thereto.
Covenanted Senior Debt means those notes identified on Schedule 1.01 hereto and all other senior Indebtedness for borrowed money incurred by the Borrowers from time to time which impose performance-based covenants upon any Borrower.
Debtor Relief Laws means the Bankruptcy Code and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
Default means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
Default Rate means (a) with respect to any Term A Loan, the interest rate otherwise applicable to such Term A Loan plus 2% per annum, and (b) with respect to all other Obligations under this Agreement then due and payable, an interest rate equal to the Base Rate plus the Applicable Rate otherwise applicable to Base Rate Loans plus 2% per annum.
Defaulting Lender means, subject to Section 2.18(b), any Lender that (a) has failed to (i) fund all or any portion of its Term A Loan within two (2) Business Days after the date such Term A Loan was required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrowers in writing that such failure is the result of such Lenders good faith determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two (2) Business Days after the date such payment is due, (b) has notified the Borrowers, the Administrative Agent or any Lender in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lenders obligation to fund a Term A Loan hereunder and states that such position is based on such Lenders good faith determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or
6
public statement) cannot be satisfied), (c) has failed, within two (2) Business Days after written request by the Administrative Agent, to confirm in writing to the Administrative Agent that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided, that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.18(b)) as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Borrowers and each other Lender promptly following such determination.
Designated Jurisdiction means any country or territory to the extent that such country or territory itself is the subject of any Sanction.
Disposition or Dispose means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
Distribution means the declaration or payment of any dividend or distribution on or in respect of any Equity Interest (other than dividends or other distributions payable solely in additional Equity Interests); the purchase, redemption, retirement or other acquisition of any Equity Interest, directly or indirectly through a Subsidiary or otherwise; the return of equity capital by any Person to its shareholders, partners or members as such; or any other distribution on or in respect of any Equity Interest.
Dollar and $ mean lawful money of the United States.
Domestic Subsidiary means any Subsidiary that is organized under the laws of any political subdivision of the United States.
Eligible Assignee means any Person that meets the requirements to be an assignee under Sections 10.06(b)(iii) and (v) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)).
7
Environmental Laws has the meaning specified in Section 5.16(a).
Environmental Liability means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrowers directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
Environmental Permit means any permit, approval, identification number, license or other authorization required under any Environmental Law.
Equity Interests means, with respect to any Person, all of the shares of capital stock of any class of, or other ownership or profit interests in, such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
ERISA means the Employee Retirement Income Security Act of 1974, as amended and in effect from time to time.
ERISA Affiliate means any trade or business (whether or not incorporated) under common control with any Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
ERISA Event means (a) a Reportable Event with respect to a Pension Plan (other than a Multiemployer Plan); (b) the withdrawal of any Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a substantial employer as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate or the treatment of a Pension Plan (other than a Multiemployer Plan) amendment as a termination under Section 4041 of ERISA or notification of a filing of a notice of intent to terminate or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan (other than a Multiemployer Plan) or notification of the institution by the PBGC of proceedings to terminate a Multiemployer Plan; (f) any event or condition which could reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan (other than a Multiemployer Plan); (g) the determination that any Pension Plan (other than a Multiemployer Plan) is considered an at-risk plan within the meaning of Section 430 of the Code or Section 303 of ERISA or notification that any Multiemployer Plan is considered a plan in endangered or critical status within the meaning of Sections 431 and 432 of the Code or Sections 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any ERISA Affiliate.
8
Event of Default has the meaning specified in Section 8.01.
Exchange Act means the Securities Exchange Act of 1934, as amended and in effect from time to time.
Excluded Subsidiaries means each of the Subsidiaries listed on Schedule 1 under the heading Excluded Subsidiaries, each Foreign Subsidiary and each other Subsidiary from time to time designated as an Excluded Subsidiary in accordance with Section 6.19 and subject to Section 7.15.
Excluded Taxes means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Term A Loan pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Term A Loan (other than pursuant to an assignment request by the Borrowers under Section 10.13) or (ii) such Lender changes its Lending Office, except in each case to the extent that, pursuant to Section 3.01(a)(ii), (a)(iii) or (c), amounts with respect to such Taxes were payable either to such Lenders assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office, (c) Taxes attributable to such Recipients failure to comply with Section 3.01(e), and (d) any withholding Taxes imposed pursuant to FATCA.
FASB ASC means the Accounting Standards Codification of the Financial Accounting Standards Board.
FATCA means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
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Federal Funds Rate means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.
Fee Letter means the letter agreement, dated as of September 16, 2012, among the Parent, the Administrative Agent and Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Foreign Lender means (a) with respect to any Borrower that is a U.S. Person, a Lender that is not a U.S. Person, and (b) with respect to any Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which such Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
Foreign Subsidiary means any Subsidiary of the Parent that is not a Domestic Subsidiary.
FRB means the Board of Governors of the Federal Reserve System of the United States.
Fuel Derivatives Obligations means fuel price swaps, fuel price caps and fuel price collar and floor agreements, and similar agreements or arrangements designed to protect against or manage fluctuations in fuel prices.
Fund means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business.
GAAP means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
Governmental Authority means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
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Guarantee means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the primary obligor) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term Guarantee as a verb has a corresponding meaning.
Hazardous Materials means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
Indebtedness means, as to any Person and whether recourse is secured by or is otherwise available against all or only a portion of the assets of such Person and whether or not contingent, but without duplication:
(a) every obligation of such Person for money borrowed;
(b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses;
(c) every reimbursement obligation of such Person with respect to letters of credit, bankers acceptances or similar facilities issued for the account of such Person;
(d) the net present value (using the Base Rate as the discount rate) of every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding (A) trade accounts payable or accrued liabilities arising in the ordinary course of business which are not overdue or which are being contested in good faith and (B) contingent purchase price obligations solely to the extent that the contingency upon which such obligation is conditioned has not yet occurred);
(e) Attributable Indebtedness of such Person in respect of Capital Leases;
(f) Attributable Indebtedness of such Person in respect of Synthetic Leases;
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(g) all sales by such Person of (A) accounts or general intangibles for money due or to become due, (B) chattel paper, instruments or documents creating or evidencing a right to payment of money or (C) other receivables (collectively, Receivables), whether pursuant to a purchase facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of defaulted Receivables for collection and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith; provided, however, that sales referred to in clauses (B) and (C) shall not constitute Indebtedness to the extent that such sales are non-recourse to such Person;
(h) every obligation of such Person (an equity related purchase obligation) to purchase, redeem, retire or otherwise acquire for value any Equity Interest of any class issued by such Person, or any rights measured by the value of such Equity Interest;
(i) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices;
(j) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Persons ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law; and
(k) all Guarantees of such Person in respect of any of the foregoing.
The amount or principal amount of any Indebtedness at any time of determination represented by (x) any Indebtedness, issued at a price that is less than the principal amount at maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (y) any sale of Receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than the Borrowers) thereof, excluding amounts representative of yield or interest earned on such investment, and (z) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price.
Indemnified Taxes means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Borrower under any Loan Document and (b) to the extent not otherwise described in the foregoing clause (a), Other Taxes.
Indemnitees has the meaning specified in Section 10.04(b).
Information has the meaning specified in Section 10.07.
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Interest Payment Date means, (a) as to any Term A Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Term A Loan and the Maturity Date; provided, however, that if any Interest Period for a LIBOR Rate Loan, exceeds three (3) months, the respective dates that fall every three (3) months after the beginning of such Interest Period shall also be Interest Payment Dates and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date.
Interest Period means, as to each LIBOR Rate Loan, the period commencing on the date such LIBOR Rate Loan is disbursed or converted to or continued as a LIBOR Rate Loan and ending on the date one (1), two (2), three (3) or six (6) months thereafter, as selected by the Borrowers in a Loan Notice; provided, that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Maturity Date.
Interim Balance Sheet Date means September 30, 2012.
Investment means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition (or assumption, as applicable) of capital stock or other Equity Interests, Indebtedness, assets constituting a business unit or all or a substantial part of the business of, another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
IRB LOC means any Letter of Credit providing credit support for an IRB, which may be a so-called direct pay Letter of Credit.
IRBs means industrial revenue bonds, solid waste disposal bonds or similar tax-exempt bonds issued by or at the request of the Borrowers.
KYC Requirement Information means, with respect to any Subsidiary of the Parent, such Subsidiarys tax identification number, physical address, country of principal place of business, headquarters and formation, type of legal entity and phone number.
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Laws means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial determinations, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, licenses, authorizations and permits of, and agreements with, any Governmental Authority; provided, however, that with respect to Taxes, Laws shall also include guidelines issued by any Governmental Authority, whether or not having the force of law.
L/C Supported IRBs means IRBs which are enhanced by IRB LOCs.
Lender has the meaning specified in the introductory paragraph hereto.
Lending Office means, as to any Lender, the office or offices of such Lender described as such in such Lenders Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrowers and the Administrative Agent.
Letter of Credit means any standby letter of credit issued under the Senior Revolving Credit Agreement and shall include IRB LOCs issued thereunder and the Existing Letters of Credit (as defined in the Senior Revolving Credit Agreement).
Leverage Ratio has the meaning specified in Section 7.14(a).
LIBOR Rate means,
(a) for any Interest Period with respect to a LIBOR Rate Loan, the rate per annum equal to (i) the British Bankers Association LIBOR Rate or the successor thereto if the British Bankers Association is no longer making a LIBOR rate available (BBA LIBOR), as published by Reuters (or such other commercially available source providing quotations of BBA LIBOR as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) London Banking Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period or, (ii) if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the LIBOR Rate Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by Bank of Americas London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two (2) London Banking Days prior to the commencement of such Interest Period; and
(b) for any interest calculation with respect to a Base Rate Loan on any date, the rate per annum equal to (i) BBA LIBOR, at approximately 11:00 a.m., London time determined two (2) London Banking Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one (1) month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination in same day funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one (1) month would be offered by Bank of Americas London Branch to major banks in the London interbank Eurodollar market at their request at the date and time of determination.
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LIBOR Rate Loan means a Term A Loan that bears interest at a rate based on clause (a) of the definition of LIBOR Rate.
Lien means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).
Loan Documents means this Agreement, each Term A Note, the Fee Letter, each joinder agreement and related documents entered into or delivered by a Subsidiary of the Parent in connection with such Subsidiary becoming a Borrower hereunder, and each amendment, consent and/or waiver executed in connection with any of the foregoing imposing Obligations of any kind on any Borrower, each as amended, modified, supplemented or replaced from time to time.
Loan Notice means a notice of (a) a Term A Loan Borrowing, (b) a conversion of Term A Loans from one Type to the other, or (c) a continuation of Term A Loans that are LIBOR Rate Loans, in each case pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.
London Banking Day means any day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
Material Adverse Effect means, with respect to any event or occurrence of whatever nature (including any adverse determination in any litigation, arbitration or governmental investigation or proceeding), (a) a material adverse effect on the business, properties, condition (financial or otherwise), assets or operations of the Borrowers taken as a whole or (b) any impairment of the validity, binding effect or enforceability of this Agreement or any of the other Loan Documents or any impairment of the material rights, remedies or benefits available to the Administrative Agent or any Lender under any Loan Document. In determining whether any individual event could reasonably be expected to result in a Material Adverse Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse Effect shall be deemed to have occurred if the cumulative effect of such event and all other then-existing events could reasonably be expected to result in a Material Adverse Effect.
Maturity Date means October 25, 2017.
Multiemployer Plan means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five (5) plan years, has made or been obligated to make contributions.
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Multiple Employer Plan means a Plan covered by Title IV of ERISA (other than a Multiemployer Plan) which has two or more contributing sponsors (including any Borrower or any ERISA Affiliate) at least two of whom are not under common control, as such a plan is described in Section 4064 of ERISA.
Municipal Contracts means governmental permits issued to a Borrower by, and franchises and contracts entered into between a Borrower and, any municipal or other governmental entity, as the same may be amended from time to time.
Non-Consenting Lender has the meaning specified in Section 10.01.
Non-Defaulting Lender means, at any time, each Lender that is not a Defaulting Lender at such time.
Obligations means all advances to, and debts, liabilities, obligations, covenants and duties of, any Borrower arising under any Loan Document or otherwise with respect to any Term A Loan, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Borrower or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
OFAC means the Office of Foreign Assets Control of the United States Department of the Treasury.
Organization Documents means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and including any certificate or articles of formation or organization of such entity.
Other Connection Taxes means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections solely to the extent arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Term A Loan or Loan Document pursuant to Section 3.06).
Other Taxes means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.06).
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Parent has the meaning specified in the preamble to this Agreement.
Participant has the meaning specified in Section 10.06(d).
Participant Register has the meaning specified in Section 10.06(d).
PBGC means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA.
Pension Act means the Pension Protection Act of 2006, as amended and in effect from time to time.
Pension Funding Rules means the rules of the Code and ERISA regarding minimum required contributions (including any installment payment thereof) to Pension Plans and set forth in, with respect to plan years ending prior to the effective date of the Pension Act, Section 412 of the Code and Section 302 of ERISA, each as in effect prior to the Pension Act and, thereafter, Section 412, 430, 431, 432 and 436 of the Code and Sections 302, 303, 304 and 305 of ERISA.
Pension Plan means any employee pension benefit plan (including a Multiple Employer Plan or a Multiemployer Plan) that is maintained or is contributed to by any Borrower and any ERISA Affiliate and is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code.
Permitted Lien has the meaning specified in Section 7.02.
Permitted Receivables Transactions means any sale or sales of, and/or securitization of, or transfer of, any Receivables of the Borrowers pursuant to which (a) the Receivables SPV realizes aggregate net proceeds of not more than $100,000,000 at any one time outstanding, including, without limitation, any revolving purchase(s) of Receivables where the maximum aggregate uncollected purchase price (exclusive of any deferred purchase price) for such Receivables at any time outstanding does not exceed $100,000,000, (b) the Receivables shall be transferred or sold to the Receivables SPV at fair market value or at a market discount, and shall not exceed $125,000,000 in the aggregate at any one time and (c) obligations arising therefrom shall be non-recourse to the Parent and its Subsidiaries (other than the Receivables SPV).
Person means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
Plan means any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of any Borrower or any ERISA Affiliate or any such Plan to which any Borrower or any ERISA Affiliate is required to contribute on behalf of any of its employees.
Platform has the meaning specified in Section 6.04.
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Pro Forma Reference Period means, as of the calculation date for any pro forma covenant calculation hereunder, the most recently completed Reference Period prior to such calculation date for which financial statements have been delivered pursuant to Section 6.04.
Public Lender has the meaning specified in Section 6.04.
R360 Acquisition means the acquisition by a Subsidiary of the Parent of the outstanding equity interests of the Companies pursuant to the R360 Purchase Agreement.
R360 Purchase Agreement means that certain Purchase and Sale Agreement dated as of September 16, 2012, by and among WCI Holdings Co., Inc., a Delaware corporation, the Sellers named therein and, for the limited purposes set forth therein, the Parent, as amended, restated, supplemented or otherwise modified from time to time, provided that, prior to the Closing Date, such amendments, restatements, supplements or other modifications must be in accordance with Section 4.01(d).
R360 Purchase Agreement Representations means those representations made by or with respect to the Companies in the R360 Purchase Agreement that are material to the interests of the Lenders, but only to the extent that the Parent or its applicable Subsidiary has or had the right to terminate its obligations under the R360 Purchase Agreement (or to refuse to consummate the R360 Acquisition) as a result of a breach of such representations in the R360 Purchase Agreement.
Real Estate means all real property at any time owned or leased (as lessee or sublessee) by any Borrower.
Receivables has the meaning set forth in clause (g) of the definition of Indebtedness.
Receivables SPV means any one or more direct or indirect wholly-owned Subsidiaries of the Parent formed for the sole purpose of engaging in Permitted Receivables Transactions, and which engage in no business activities other than those related to Permitted Receivables Transactions.
Recipient means the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of any Borrower hereunder.
Reference Period means as of any date of determination, the period of four (4) consecutive fiscal quarters of the Consolidated Group or the twelve (12) month period ending on such date, or if such date is not a fiscal quarter end date, the period of four (4) consecutive fiscal quarters or the twelve (12) month period most recently ended (in each case treated as a single accounting period).
Register has the meaning specified in Section 10.06(c).
Related Parties means, with respect to any Person, such Persons Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Persons Affiliates.
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Release has the meaning specified in CERCLA; provided, that in the event CERCLA is amended so as to broaden the meaning of any term defined thereby, such broader meaning shall apply as of the effective date of such amendment; and provided further, to the extent that the laws of a state wherein the property lies establishes a meaning for Release which is broader than specified in CERCLA, such broader meaning shall apply.
Reportable Event means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30) day notice period has been waived.
Required Lenders means, as of any date of determination, Lenders holding more than fifty percent (50%) of the sum of (a) the aggregate outstanding principal amount of all Term A Loans and (b) the unused amount of all Term A Loan Commitments; provided, that the unused Term A Loan Commitment of, and the outstanding principal amount of all Term A Loans held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
Responsible Officer means the chief executive officer, president, chief operating officer, CFO, treasurer or assistant treasurer of a Borrower, and solely for purposes of the delivery of the certificate referred to in Section 4.01(a)(iii), the secretary or any assistant secretary of a Borrower. Any document delivered hereunder that is signed by a Responsible Officer of a Borrower shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Borrower and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Borrower.
Restricted Payment means any (a) Distribution, (b) payment or prepayment by any Borrower or any Subsidiary to (i) such Borrowers or such Subsidiarys shareholders (or other equity holders), in each case, other than to another Borrower, or (ii) any Affiliate of such Borrower or such Subsidiary or any Affiliate of such Borrowers or such Subsidiarys shareholders (or other equity holders), in each case, other than to another Borrower; provided, however, that in the case of each of clauses (b)(i) and (b)(ii), no Restricted Payment shall be deemed to have occurred as a result of a payment to an executive or an employee of a Borrower in such Persons capacity as an executive or an employee, or (c) derivatives or other transactions with any financial institution, commodities or stock exchange or clearinghouse (a Derivatives Counterparty) obligating such Borrower or such Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of any Equity Interest of such Borrower or such Subsidiary.
Sanction(s) means any international economic sanction administered or enforced by OFAC, the United Nations Security Council, the European Union, Her Majestys Treasury or other relevant sanctions authority.
Sarbanes-Oxley means the Sarbanes-Oxley Act of 2002, as amended and in effect from time to time.
Securities Laws means the Securities Act of 1933, the Exchange Act, Sarbanes-Oxley and the applicable accounting and auditing principles, rules, standards and practices promulgated, approved or incorporated by the SEC or the Public Company Accounting Oversight Board, as each of the foregoing may be amended and in effect on any applicable date hereunder.
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Senior Revolving Credit Agreement means that certain Amended and Restated Credit Agreement dated as of July 11, 2011, by and among the Parent and certain of its Subsidiaries, as Borrowers, the lenders from time to time party thereto, and Bank of America, N.A., as the Administrative Agent, Swing Line Lender and L/C Issuer.
Solvent and Solvency mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Persons ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Persons property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
Specified Representations means the representations and warranties set forth in Sections 5.01(a)(i) (solely with respect to due organization and valid existence), 5.01(b) (solely with respect to the execution, delivery and performance of the Loan Documents, and in the case of Section 5.01(b)(iv) shall be limited to Organizational Documents and other material agreements or instruments), 5.01(c), 5.04(b), 5.12 (as it pertains to the Investment Company Act of 1940), 5.15(b) and 5.24.
Subsidiary of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a Subsidiary or to Subsidiaries shall refer to a Subsidiary or Subsidiaries of the Parent.
Swap Contract means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement and, for
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the avoidance of doubt, the foregoing shall include Fuel Derivatives Obligations and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a Master Agreement), including any such obligations or liabilities under any Master Agreement.
Synthetic Lease means, with respect to any Person, any (a) so-called synthetic, off-balance sheet or tax retention lease, or (b) agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
Taxes means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
Term A Loan has the meaning specified in Section 2.01.
Term A Loan Borrowing means a borrowing consisting of simultaneous Term A Loans of the same Type and, in the case of LIBOR Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.
Term A Loan Commitment means, as to each Lender, its obligation to make a Term A Loan to the Borrowers pursuant to Section 2.01, in an aggregate principal amount not to exceed the amount set forth opposite such Lenders name on Schedule 2.01 under the caption Term A Loan Commitment, as such amount may be adjusted from time to time in accordance with this Agreement. As of the Closing Date, prior to any Term A Loan Borrowing, the aggregate Term A Loan Commitments of the Lenders is equal to $800,000,000.
Term A Loan Facility means (a) at any time prior to any Term A Loan Borrowing on the Closing Date, the aggregate amount of the Term A Loan Commitments at such time, and (b) thereafter, the aggregate principal amount of the Term A Loans of all Lenders outstanding at such time.
Term A Loan Percentage means, with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Term A Loan Facility represented by (a) prior to any Term A Loan Borrowing on the Closing Date, such Lenders Term A Loan Commitment at such time, and (b) thereafter, the outstanding principal amount of such Lenders Term A Loan at such time. The initial Term A Loan Percentage of each Lender is set forth in Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
Term A Note means a promissory note made by the Borrowers in favor of a Lender evidencing the Term A Loan made by such Lender, substantially in the form of Exhibit B.
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Transactions means (a) the execution, delivery and performance by the Borrowers of the Loan Documents or any agreement or instrument contemplated thereby, (b) the borrowing of Term A Loans and the use of the proceeds thereof, and (c) consummation of the R360 Acquisition.
Type means, with respect to a Term A Loan, its character as a Base Rate Loan or a LIBOR Rate Loan.
United States and U.S. mean the United States of America.
U.S. Person means any Person that is a United States Person as defined in Section 7701(a)(30) of the Code.
U.S. Tax Compliance Certificate has the meaning specified in Section 3.01(e)(ii)(B)(III).
1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words include, includes and including shall be deemed to be followed by the phrase without limitation. The word will shall be construed to have the same meaning and effect as the word shall. Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Persons successors and assigns, (iii) the words hereto, herein, hereof and hereunder, and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Recitals, Articles, Sections, Exhibits and Schedules shall be construed to refer to Recitals, Articles and Sections of, and Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words asset and property shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word from means from and including; the words to and until each mean to but excluding; and the word through means to and including.
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(c) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
1.03 Accounting Terms.
(a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Parent and its Subsidiaries shall be deemed to be carried at one hundred percent (100%) of the outstanding principal amount thereof, and the effects of FASB ASC 825 on financial liabilities shall be disregarded.
(b) Changes in GAAP. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrowers or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided, that until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
(c) Consolidation of Variable Interest Entities. All references herein to consolidated financial statements of the Parent and its Subsidiaries or to the determination of any amount for the Parent and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Parent is required to consolidate pursuant to FASB ASC 810 as if such variable interest entity were a Subsidiary as defined herein.
1.04 Rounding. Any financial ratios required to be maintained by the Consolidated Group pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
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ARTICLE II. THE COMMITMENTS AND LOANS
2.01 The Term A Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make a single term loan (each such loan, a Term A Loan) to the Borrowers on the Closing Date in an aggregate amount of up to but not to exceed such Lenders Term A Loan Percentage of the Term A Loan Facility. Each Term A Loan Borrowing shall consist of Term A Loans made simultaneously by the Lenders on the Closing Date in accordance with their respective Term A Loan Percentage of the Term A Loan Facility. Only one Term A Loan Borrowing shall be permitted on the Closing Date, unless the Borrowers request Term A Loans of different Types and/or (in the case of LIBOR Rate Loans) Interest Periods, in which case multiple simultaneous Term A Loan Borrowings shall be permitted on the Closing Date. Amounts borrowed under this Section 2.01 and repaid or prepaid may not be reborrowed. Term A Loans may be Base Rate Loans or LIBOR Rate Loans, as further provided herein. The Borrowers jointly and severally promise to pay to the Administrative Agent, for the account of the Lenders in accordance with their respective Term A Loan Percentage, all amounts due under the Term A Loans on the Maturity Date or such earlier date as is required hereunder.
2.02 Term A Loan Borrowings; Conversions and Continuations of Term A Loans.
(a) Each Term A Loan Borrowing, each conversion of Term A Loans from one Type to the other, and each continuation of LIBOR Rate Loans shall be made upon the Borrowers irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent. (i) not later than 10:00 a.m. two (2) Business Days prior to the requested date of any Term A Loan Borrowing to be made on the Closing Date, (ii) not later than 1:00 p.m. three (3) Business Days prior to the requested date of any conversion to or continuation of LIBOR Rate Loans or of any conversion of LIBOR Rate Loans to Base Rate Loans, and (iii) not less than one (1) Business Day prior to the requested date of any Term A Loan Borrowing of Base Rate Loans. Each telephonic notice by the Borrowers pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrowers. Any Term A Loan Borrowing of, and each conversion to or continuation of, LIBOR Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof. Any Term A Loan Borrowing of, and each conversion to, Base Rate Loans shall be in a principal amount of $1,000,000 or a whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrowers are requesting a Term A Loan Borrowing, a conversion of Term A Loans from one Type to the other or a continuation of LIBOR Rate Loans, (ii) the requested date of the Term A Loan Borrowing (which shall be the Closing Date) or conversion or continuation (which in each case shall be a Business Day), as the case may be, (iii) the principal amount of Term A Loans to be borrowed, converted or continued, (iv) the Type of Term A Loans to be borrowed or to which existing Term A Loans are to be converted and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrowers fail to specify a Type of Term A Loan in a Loan Notice or if the Borrowers fail to give a timely notice requesting a conversion or continuation, then the applicable Term A Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable LIBOR Rate Loans. If the Borrowers request a Term A Loan Borrowing of, conversion to, or continuation of LIBOR Rate Loans in any such Loan Notice, but fail to specify an Interest Period, they will be deemed to have specified an Interest Period of one (1) month.
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(b) Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Term A Loan Percentage of the applicable Term A Loans, and if no timely notice of a conversion or continuation is provided by the Borrowers, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in the preceding subsection. In the case of a Term A Loan Borrowing, each Lender shall make the amount of its applicable Term A Loan available to the Administrative Agent in immediately available funds at the Administrative Agents Office not later than 10:00 a.m. on the Closing Date (or such later time as may be agreed by the Administrative Agent). Upon satisfaction of the applicable conditions set forth in Section 4.01, the Administrative Agent shall make all funds so received available to the Borrowers in like funds as received by the Administrative Agent either by (i) crediting the account of the relevant Borrower on the books of the Administrative Agent with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrowers.
(c) Except as otherwise provided herein, a LIBOR Rate Loan may be continued or converted only on the last day of an Interest Period for such LIBOR Rate Loan. During the existence of a Default, no Term A Loans may be converted to or continued as LIBOR Rate Loans without the consent of the Required Lenders.
(d) The Administrative Agent shall promptly notify the Borrowers and the Lenders of the interest rate applicable to any Interest Period for LIBOR Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrowers and the Lenders of any change in the Administrative Agents prime rate used in determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to all Term A Loan Borrowings, all conversions of Term A Loans from one Type to the other, and all continuations of Term A Loans as the same Type, unless the Administrative Agent otherwise consents, there shall not be more than eight (8) Interest Periods in effect with respect to all Term A Loans.
2.03 [Reserved].
2.04 [Reserved].
2.05 Prepayments. The Borrowers may, upon notice to the Administrative Agent, at any time or from time to time, voluntarily prepay the Term A Loans in whole or in part without premium or penalty; provided, that (a) such notice must be received by the Administrative Agent not later than 1:00 p.m. three (3) Business Days prior to the date of prepayment and (b) any such prepayment shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof or, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment, the Type(s) of Term A Loans to be prepaid and, if LIBOR Rate Loans are to be prepaid, the Interest Period(s) of such Term A
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Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lenders ratable portion of such prepayment (based on such Lenders Term A Loan Percentage). If such notice is given, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein; provided, that any such notice of a prepayment in full of the Term A Loans may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrowers (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any prepayment of a LIBOR Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Subject to Section 2.18, each prepayment of the Term A Loans pursuant to this Section 2.05 shall be applied to the principal repayment installments thereof in direct order of maturity and shall be paid to the Lenders in accordance with their respective Term A Loan Percentages.
2.06 [Reserved].
2.07 Repayment of Term A Loans. The Borrowers shall repay to the Lenders the aggregate principal amount of all Term A Loans outstanding on the following dates in the respective amounts set forth opposite such dates (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.05), unless accelerated sooner pursuant to Section 8.02:
Payment Dates |
Principal Repayment Installments |
|||
April 1, 2013 |
$ | 10,000,000 | ||
July 1, 2013 |
$ | 10,000,000 | ||
October 1, 2013 |
$ | 10,000,000 | ||
January 1, 2014 |
$ | 10,000,000 | ||
April 1, 2014 |
$ | 20,000,000 | ||
July 1, 2014 |
$ | 20,000,000 | ||
October 1, 2014 |
$ | 20,000,000 | ||
January 1, 2015 |
$ | 20,000,000 | ||
April 1, 2015 |
$ | 20,000,000 | ||
July 1, 2015 |
$ | 20,000,000 | ||
October 1, 2015 |
$ | 20,000,000 | ||
January 1, 2016 |
$ | 20,000,000 | ||
April 1, 2016 |
$ | 30,000,000 | ||
July 1, 2016 |
$ | 30,000,000 | ||
October 1, 2016 |
$ | 30,000,000 | ||
January 1, 2017 |
$ | 30,000,000 | ||
April 1, 2017 |
$ | 30,000,000 | ||
July 1, 2017 |
$ | 30,000,000 | ||
October 1, 2017 |
$ | 30,000,000 |
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provided, however, that (i) the final principal repayment installment of the Term A Loans shall be repaid on the Maturity Date and in any event shall be in an amount equal to the aggregate principal amount of all Term A Loans outstanding on such date and (ii) (A) if any principal repayment installment to be made by the Borrowers (other than principal repayment installments on LIBOR Rate Loans) shall come due on a day other than a Business Day, such principal repayment installment shall be due on the next succeeding Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be, and (B) if any principal repayment installment to be made by the Borrowers on a LIBOR Rate Loan shall come due on a day other than a Business Day, such principal repayment installment shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such principal repayment installment into another calendar month, in which event such principal repayment installment shall be due on the next preceding Business Day.
2.08 Interest.
(a) Subject to the provisions of subsection (b) below, (i) each LIBOR Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the LIBOR Rate for such Interest Period plus the Applicable Rate for LIBOR Loans; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for Base Rate Loans.
(b)
(i) If any amount of principal of any Term A Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration (including automatic acceleration) or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Term A Loan) payable by the Borrowers under any Loan Document is not paid when due (including any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iii) Upon the request of the Required Lenders, while any Event of Default exists, the Borrowers shall pay interest on the principal amount of all outstanding Term A Loans and all other Obligations that are then due and payable at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(c) Interest on each Term A Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
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2.09 Fees. The Borrowers, jointly and severally, shall pay to the Administrative Agent, the Arrangers and their respective Affiliates, for the accounts of the Persons identified therein, fees in the amounts and at the times specified in the Fee Letter and the Commitment Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
2.10 Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate.
(a) All computations of interest for Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Term A Loan for the day on which the Term A Loan is made, and shall not accrue on a Term A Loan, or any portion thereof, for the day on which the Term A Loan or such portion is paid; provided, that any Term A Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one (1) day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
(b) If, as a result of any restatement of or other adjustment to the financial statements of the Borrowers or for any other reason, the Borrowers or the Lenders determine that (i) the Leverage Ratio as calculated by the Borrowers as of any applicable date was inaccurate and (ii) a proper calculation of the Leverage Ratio would have resulted in higher pricing for such period, the Borrowers shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code, automatically and without further action by the Administrative Agent or any Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period. This paragraph shall not limit the rights of the Administrative Agent or any Lender, as the case may be, under Section 2.08(b) or under Article VIII. The Borrowers obligations under this paragraph shall survive the repayment of all Obligations hereunder.
2.11 Evidence of Debt. The Term A Loan made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Term A Loans made by the Lenders to the Borrowers and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative Agent) a Term A Note. Each Lender may attach schedules to its Term A Note and endorse thereon the date, Type, amount and maturity of its Term A Loan and payments with respect thereto.
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2.12 Payments Generally; the Administrative Agents Clawback
(a) General. All payments to be made by the Borrowers shall be made free and clear of and without condition or deduction (subject to Section 3.01) for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrowers hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agents Office in Dollars and in immediately available funds not later than 12:00 Noon on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Term A Loan Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lenders Lending Office. All payments received by the Administrative Agent after 12:00 Noon shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(b)
(i) Funding by the Lenders; Presumption by the Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the Closing Date that such Lender will not make available to the Administrative Agent such Lenders share of the applicable Term A Loan Borrowing, the Administrative Agent may assume that such Lender has made such share available in accordance with and at the time required by Section 2.02 and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Term A Loan Borrowing available to the Administrative Agent, then the applicable Lender and the Borrowers severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrowers to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing and (B) in the case of a payment to be made by the Borrowers, the interest rate applicable to Base Rate Loans. If the Borrowers and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrowers the amount of such interest paid by the Borrowers for such period. Any payment by the Borrowers shall be without prejudice to any claim the Borrowers may have against a Lender that shall have failed to make such payment to the Administrative Agent.
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(ii) Payments by the Borrowers; Presumptions by the Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrowers prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the appropriate Lenders the amount due. In such event, if the Borrowers have not in fact made such payment, then each of the appropriate Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or any Borrower with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Term A Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrowers by the Administrative Agent because the conditions to a Term A Loan Borrowing set forth in Section 4.01 are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d) Obligations of the Lenders Several. The obligations of the Lenders hereunder to make the Term A Loans and to make payments under Section 10.04(c) are several and not joint. The failure of any Lender to make any Term A Loan or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Term A Loan or to make its payment under Section 10.04(c).
(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Term A Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Term A Loan in any particular place or manner.
(f) Insufficient Funds. If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
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2.13 Sharing of Payments.
(a) If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on the Term A Loan made by it, resulting in such Lenders receiving payment of a proportion of the aggregate amount of such Term A Loan and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Term A Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Term A Loans and other amounts owing them; provided, that:
(i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(ii) the provisions of this Section shall not be construed to apply to (A) any payment made by or on behalf of the Borrowers pursuant to and in accordance with the express terms of this Agreement (including, but not limited to, the application of funds arising from the existence of a Defaulting Lender), (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Term A Loan to any assignee or participant, or (C) any payment of consideration for executing any amendment, waiver or consent in connection with this Agreement so long as such consideration has been offered to all consenting Lenders.
Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against such Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of such Borrower in the amount of such participation.
2.14 [Reserved].
2.15 Joint and Several Liability of the Borrowers.
(a) Each of the Borrowers is accepting joint and several liability for the Obligations of all of the Borrowers hereunder and under the other Loan Documents in consideration of the financial accommodations to be provided by the Administrative Agent and the Lenders under this Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the undertakings of each other Borrower to accept joint and several liability for the Obligations.
(b) Each of the Borrowers, jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other the Borrowers with respect to the payment and performance of all of the Obligations of the Borrowers (including, without limitation, any Obligations arising under this Section 2.15), it being the intention of the parties hereto that all of the Obligations shall be the joint and several obligations of each of the Borrowers without preferences or distinction among them.
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(c) If and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the Obligations in accordance with the terms thereof, then in each such event the Borrowers will make such payment with respect to, or perform, such Obligation.
(d) The Obligations of each of the Borrowers under the provisions of this Section 2.15 constitute full recourse obligations of each of such the Borrowers enforceable against each such Borrower to the full extent of its properties and assets.
(e) Except as otherwise expressly provided in this Agreement, each of the Borrowers, to the fullest extent permitted by applicable law, hereby waives notice of acceptance of its joint and several liability, notice of any Term A Loans or other extensions of credit made under this Agreement, notice of any action at any time taken or omitted by the Administrative Agent or the Lenders under or in respect of any of the Obligations, and, generally, to the extent permitted by applicable law, all demands, notices (other than those required pursuant to the terms of this Agreement or the Loan Documents) and other formalities of every kind in connection with this Agreement. Each Borrower, to the fullest extent permitted by applicable law, hereby waives all defenses which may be available by virtue of any valuation, stay, moratorium law or other similar law now or hereafter in effect, any right to require the marshaling of assets of the Borrowers and any other entity or Person primarily or secondarily liable with respect to any of the Obligations and all suretyship defenses generally. Each of the Borrowers, to the fullest extent permitted by applicable law, hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by the Lenders at any time or times in respect of any default by any of the Borrowers in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by the Lenders in respect of any of the Obligations, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any of the Borrowers. Without limiting the generality of the foregoing, each of the Borrowers assents to any other action or delay in acting or failure to act on the part of the Lenders with respect to the failure by any of the Borrowers to comply with any of its respective Obligations including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.15, afford grounds for terminating, discharging or relieving any Borrower, in whole or in part, from any of its Obligations under this Section 2.15, it being the intention of each of the Borrowers that, so long as any of the Obligations hereunder remain unsatisfied, the Obligations of such the Borrowers under this Section 2.15 shall not be discharged except by performance and then only to the extent of such performance. The Obligations of each of the Borrowers under this Section 2.15 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, re-construction or similar proceeding with respect to any of the Borrowers, the Administrative Agent or the Lenders. The joint and several liability of the Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any of the Borrowers, the Administrative Agent or the Lenders.
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(f) To the extent any Borrower makes a payment hereunder in excess of the aggregate amount of the benefit received by such Borrower in respect of the extensions of credit under this Agreement (the Benefit Amount), then such Borrower, after the payment in full in cash, of all of the Obligations, shall be entitled to recover from each other Borrower such excess payment, pro rata, in accordance with the ratio of the Benefit Amount received by each such other Borrower to the total Benefit Amount received by all the Borrowers, and the right to such recovery shall be deemed to be an asset and property of such Borrower so funding; provided, that each of the Borrowers hereby agrees that it will not enforce any of its rights of contribution or subrogation against the other the Borrowers with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to any of the Lenders or the Administrative Agent with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations have been irrevocably paid in full in cash. Any claim which any Borrower may have against any other Borrower with respect to any payments to the Lenders or the Administrative Agent hereunder or under any other Loan Document are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases in the Obligations arising hereunder or thereunder, to the prior payment in full of the Obligations and, in the event of any insolvency, bankruptcy, receivership, liquidation, reorganization or other similar proceeding under the laws of any jurisdiction relating to any Borrower, its debts or its assets, whether voluntary or involuntary, all such Obligations shall be paid in full before any payment or distribution of any character, whether in cash, securities or other property, shall be made to any other Borrower therefor.
(g) Each of the Borrowers hereby agrees that the payment of any amounts due with respect to the indebtedness owing by any Borrower to any other Borrower is hereby subordinated to the prior payment in full in cash of the Obligations. Each Borrower hereby agrees that after the occurrences and during the continuance of any Default or Event of Default, such Borrower will not demand, sue for or otherwise attempt to collect any indebtedness of any other Borrower owing to such Borrower until the Obligations shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Borrower shall collect, enforce or receive any amounts in respect of such indebtedness before payment in full in cash of the Obligations, such amounts shall be collected, enforced, received by such Borrower as trustee for the Administrative Agent and be paid over to the Administrative Agent for the pro rata accounts of the Lenders (in accordance with each such Lenders Term A Loan Percentage) to be applied to repay (or be held as security for the repayment of) the Obligations.
(h) The provisions of this Section 2.15 are made for the benefit of the Administrative Agent and the Lenders and their successors and assigns, and may be enforced in good faith by them from time to time against any or all of the Borrowers as often as the occasion therefor may arise and without requirement on the part of the Administrative Agent or the Lenders first to marshal any of their claims or to exercise any of their rights against any other Borrower or to exhaust any remedies available to them against any other Borrower or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this Section 2.15 shall remain in effect until all of the Obligations shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by the Administrative Agent or the Lenders upon the insolvency, bankruptcy or reorganization of any of the Borrowers or is repaid in good faith settlement of a pending or threatened avoidance claim, or otherwise, the provisions of this Section 2.15 will forthwith be reinstated in effect, as though such payment had not been made.
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(i) It is the intention and agreement of the Borrowers and the Lenders that the obligations of the Borrowers under this Agreement shall be valid and enforceable against each Borrower to the maximum extent permitted by applicable law. Accordingly, if any provision of this Agreement creating any obligation of the Borrowers in favor of the Administrative Agent and the Lenders shall be declared to be invalid or unenforceable in any respect or to any extent, it is the stated intention and agreement of the Borrowers, the Administrative Agent and the Lenders that any balance of the obligation created by such provision and all other obligations of the Borrowers to the Administrative Agent and the Lenders created by other provisions of this Agreement shall remain valid and enforceable. Likewise, if by final order a court of competent jurisdiction shall declare any sums which the Administrative Agent and the Lenders may be otherwise entitled to collect from the Borrowers under this Agreement to be in excess of those permitted under any law (including any federal or state fraudulent conveyance or like statute or rule of law) applicable to the Borrowers obligations under this Agreement, it is the stated intention and agreement of the Borrowers and the Administrative Agent and the Lenders that all sums not in excess of those permitted under such applicable law shall remain fully collectible by the Administrative Agent and the Lenders from the Borrowers.
(j) Notwithstanding anything contained herein, the obligations of each Borrower under this Section 2.15 at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or any other Debt Relief Laws.
2.16 Designation of Parent as the Agent for the Borrowers. For purposes of this Agreement, each of the Borrowers hereby designates the Parent as its agent and representative for all purposes hereunder (including with respect to any notices, demands, communications or requests under this Agreement or the other Loan Documents) and the Parent hereby accepts each such appointment. The Administrative Agent and each Lender may regard any notice or other communication pursuant to any Loan Document from the Parent as a notice or communication from all the Borrowers, and may give any notice or communication required or permitted to be given to any Borrower or the Borrowers hereunder to the Parent on behalf of such Borrower or the Borrowers. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by the Parent shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower.
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2.17 [Reserved].
2.18 Defaulting Lenders.
(a) Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as that Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(i) Waivers and Amendments. Such Defaulting Lenders right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 10.01.
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from such Defaulting Lender pursuant to Section 10.08, shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, as the Borrowers may request (so long as no Default or Event of Default exists), to the funding of any Term A Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; third, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; fourth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrowers as a result of any judgment of a court of competent jurisdiction obtained by the Borrowers against such Defaulting Lender as a result of such Defaulting Lenders breach of its obligations under this Agreement; and fifth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(b) Defaulting Lender Cure. If the Borrowers and the Administrative Agent agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase at par that portion of outstanding Term A Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Term A Loans to be held on a pro rata basis by the Lenders in accordance with their respective Term A Loan Percentages (calculated as if such Defaulting Lender had funded its Term A Loan), whereupon such Lender will cease to be a Defaulting Lender; provided, that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrowers while that Lender was a Defaulting Lender; and provided further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender.
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ARTICLE III. TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes.
(i) Any and all payments by or on account of any obligation of any Borrower under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Laws. If any applicable Laws (as determined in the good faith discretion of a Borrower or the Administrative Agent) require the deduction or withholding of any Tax from any such payment by the Administrative Agent or such Borrower, then the Administrative Agent or such Borrower shall be entitled to make such deduction or withholding, upon the basis of the information and documentation to be delivered pursuant to subsection (e) below.
(ii) If any Borrower or the Administrative Agent shall be required by the Code to withhold or deduct any Taxes, including both United States Federal backup withholding and withholding taxes, from any payment, then (A) such Borrower or the Administrative Agent, as applicable, shall withhold or make such deductions as are determined by it to be required based upon the information and documentation it has received pursuant to subsection (e) below, (B) such Borrower or the Administrative Agent, as applicable, shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with the Code, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Borrower shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
(iii) If any Borrower or the Administrative Agent shall be required by any applicable Laws other than the Code to withhold or deduct any Taxes from any payment, then (A) such Borrower or the Administrative Agent, as required by such Laws, shall withhold or make such deductions as are determined by it to be required based upon the information and documentation it has received pursuant to subsection (e) below, (B) such Borrower or the Administrative Agent, to the extent required by such Laws, shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with such Laws, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Borrower shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
(b) Payment of Other Taxes by the Borrowers. Without limiting the provisions of subsection (a) above, but subject to subsection (c) below, the Borrowers shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
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(c) Tax Indemnifications.
(i) Each of the Borrowers shall, and does hereby, jointly and severally indemnify each Recipient, and shall make payment in respect thereof within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority; provided, however, that the Borrowers shall not be obligated to make payment to such Recipient pursuant to this Section 3.01 in respect of penalties, interest and other similar liabilities attributable to any Indemnified Taxes or Other Taxes if (A) written demand therefor has not been made by such Recipient within one hundred eighty (180) days after the date on which such Recipient received written notice of the imposition of Indemnified Taxes or Other Taxes by the relevant Governmental Authority, but only to the extent such penalties, interest and other similar liabilities are attributable to such failure or delay by such Recipient in making such written demand, or (B) such penalties, interest and other similar liabilities are attributable to the gross negligence or willful misconduct of such Recipient or its Affiliates. A certificate as to the amount of such payment or liability delivered to the Borrowers by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error. Each of the Borrowers shall, and does hereby, jointly and severally indemnify the Administrative Agent, and shall make payment in respect thereof within 10 days after demand therefor, for any amount which a Lender for any reason fails to pay indefeasibly to the Administrative Agent as required pursuant to Section 3.01(c)(ii).
(ii) Each Lender shall, and does hereby, severally indemnify, and shall make payment in respect thereof within 10 days after demand therefor, (x) the Administrative Agent against any Indemnified Taxes attributable to such Lender (but only to the extent that any Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrowers to do so), (y) the Administrative Agent and the Borrowers, as applicable, against any Taxes attributable to such Lenders failure to comply with the provisions of Section 10.06(d) relating to the maintenance of a Participant Register and (z) the Administrative Agent and the Borrowers, as applicable, against any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent or a Borrower in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this clause (ii).
(d) Evidence of Payments. Upon request by the Borrowers or the Administrative Agent, as the case may be, after any payment of Taxes by any Borrower or by the Administrative Agent to a Governmental Authority as provided in this Section 3.01, the Borrowers shall deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrowers, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to the Borrowers or the Administrative Agent, as the case may be.
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(e) Status of Lenders; Tax Documentation.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrowers and the Administrative Agent, at the time or times reasonably requested by the Borrowers or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrowers or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrowers or the Administrative Agent, shall deliver such other documentation prescribed by applicable Law or reasonably requested by the Borrowers or the Administrative Agent as will enable the Borrowers or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.01(e)(ii)(A), (ii)(B) and (ii)(D)) shall not be required if in the Lenders reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that any Borrower is a U.S. Person,
(A) any Lender that is a U.S. Person shall deliver to the Borrowers and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrowers or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrowers and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrowers or the Administrative Agent), whichever of the following is applicable:
(I) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the interest article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the business profits or other income article of such tax treaty;
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(II) executed originals of IRS Form W-8ECI;
(III) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit E-1 to the effect that such Foreign Lender is not a bank within the meaning of Section 881(c)(3)(A) of the Code, a 10 percent shareholder of any Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a controlled foreign corporation described in Section 881(c)(3)(C) of the Code (a U.S. Tax Compliance Certificate) and (y) executed originals of IRS Form W-8BEN; or
(IV) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-2 or Exhibit E-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided, that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrowers and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrowers or the Administrative Agent), executed originals of any other form prescribed by applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable Law to permit the Borrowers or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrowers and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrowers or the Administrative Agent such documentation prescribed by applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrowers or the Administrative Agent as may be necessary for the Borrowers and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lenders obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), FATCA shall include any amendments made to FATCA after the date of this Agreement.
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(iii) Each Lender agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrowers and the Administrative Agent in writing of its legal inability to do so.
(f) Treatment of Certain Refunds. Unless required by applicable Laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender, or have any obligation to pay to any Lender, any refund of Taxes withheld or deducted from funds paid for the account of such Lender. If any Recipient determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified by any Borrower or with respect to which any Borrower has paid additional amounts pursuant to this Section 3.01, it shall pay to such Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by such Borrower under this Section 3.01 with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) incurred by such Recipient, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that such Borrower, upon the request of the Recipient, agrees to repay the amount paid over to such Borrower (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Recipient in the event the Recipient is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this subsection, in no event will the applicable Recipient be required to pay any amount to such Borrower pursuant to this subsection the payment of which would place the Recipient in a less favorable net after-Tax position than such Recipient would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This subsection shall not be construed to require any Recipient to make available its tax returns (or any other information relating to its taxes that it deems confidential) to any Borrower or any other Person.
(g) Survival. Each partys obligations under this Section 3.01 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, and the repayment, satisfaction or discharge of all Obligations.
3.02 Illegality. If any Lender reasonably determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund a Term A Loan whose interest is determined by reference to the LIBOR Rate, or to determine or charge interest rates based upon the LIBOR Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrowers through the Administrative Agent, (i) any obligation of such Lender to make or continue LIBOR Rate Loans or to convert Base Rate Loans to LIBOR Rate Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the LIBOR Rate component of the Base Rate, the interest
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rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the LIBOR Rate component of the Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrowers that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (x) the Borrowers shall, upon demand from such Lender (with a copy to the Administrative Agent), at the Borrowers option, prepay or, if applicable, convert all LIBOR Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the LIBOR Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such LIBOR Rate Loans and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the LIBOR Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the LIBOR Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the LIBOR Rate. Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.
3.03 Inability to Determine Rates. If the Administrative Agent determines in connection with any request for a LIBOR Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank LIBOR market for the applicable amount and Interest Period of such LIBOR Rate Loan, (b) adequate and reasonable means do not exist for determining the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan or in connection with an existing or proposed Base Rate Loan, or (c) the LIBOR Rate for any requested Interest Period with respect to a proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lenders of funding such LIBOR Rate Loan, the Administrative Agent will promptly so notify the Borrowers and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain LIBOR Rate Loans shall be suspended, and (y) in the event of a determination described in the preceding sentence with respect to the LIBOR Rate component of the Base Rate, the utilization of the LIBOR Rate component in determining the Base Rate shall be suspended, in each case until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrowers may revoke any pending request for a Term A Loan Borrowing of, conversion to or continuation of LIBOR Rate Loans or, failing that, will be deemed to have converted such request into a request for a Term A Loan Borrowing of Base Rate Loans in the amount specified therein.
3.04 Increased Costs; Reserves on LIBOR Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e));
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(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, commitments or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or the London interbank market any other condition, cost or expense (other than Taxes) affecting this Agreement or LIBOR Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to, continuing or maintaining any LIBOR Rate Loan (or of maintaining its obligation to make any such LIBOR Rate Loan), or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lenders holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lenders capital or on the capital of such Lenders holding company, if any, as a consequence of this Agreement or the Term A Loan made by such Lender to a level below that which such Lender or such Lenders holding company could have achieved but for such Change in Law (taking into consideration such Lenders policies and the policies of such Lenders holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lenders holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section, together with a brief explanation for the increased costs and the basis for the calculation thereof, and delivered to the Borrowers shall be conclusive absent manifest error. The Borrowers shall pay such Lender the amount shown as due on any such certificate within ten (10) days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lenders right to demand such compensation; provided, that the Borrowers shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than 180 days prior to the date that such Lender notifies the Borrowers of the Change in Law giving rise to such increased costs or reductions and of such Lenders intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 180 day period referred to above shall be extended to include the period of retroactive effect thereof).
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(e) Reserves on LIBOR Rate Loans. The Borrowers shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as Eurocurrency liabilities), additional interest on the unpaid principal amount of each LIBOR Rate Loan equal to the actual costs of such reserves allocated to such LIBOR Rate Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such LIBOR Rate Loan, provided the Borrowers shall have received at least ten (10) days prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice ten (10) days prior to the relevant Interest Payment Date, such additional interest shall be due and payable ten (10) days from receipt of such notice.
3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrowers shall promptly compensate such Lender (except, in the case of Section 3.05(c), any Defaulting Lender) for and hold such Lender (except, in the case of Section 3.05(c), any Defaulting Lender) harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Term A Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Term A Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrowers (for a reason other than the failure of such Lender to make a Term A Loan) to prepay, borrow, continue or convert any Term A Loan other than a Base Rate Loan on the date or in the amount notified by the Borrowers; or
(c) any assignment of a LIBOR Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrowers pursuant to Section 10.13;
including any cost or expense arising from the liquidation, or redeployment of funds obtained by it to maintain such Term A Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing. For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each LIBOR Rate Loan made by it at the LIBOR Rate used in determining the LIBOR Rate for such LIBOR Rate Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such LIBOR Rate Loan was in fact so funded.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or requires the Borrowers to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then at the request of the Borrowers such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Term A Loan hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrowers hereby agree to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
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(b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, and, in each case, such Lender has declined or is unable to designate a different lending office in accordance with Section 3.06(a), the Borrowers may replace such Lender in accordance with Section 10.13.
3.07 Survival. All of the Borrowers obligations under this Article III shall survive the repayment of all Obligations hereunder, only if such Obligations accrue prior to the termination of this Agreement and the repayment in full in cash of all Obligations outstanding hereunder and the resignation of the Administrative Agent.
ARTICLE IV. CONDITIONS PRECEDENT TO BORROWING
4.01 Conditions of Term A Loan Borrowing. The obligation of each Lender to make its Term A Loan hereunder is subject to satisfaction of the following conditions precedent:
(a) the Administrative Agent shall have received each of the following, each of which shall be originals or electronic copies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Borrower, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date or such other date acceptable to the Administrative Agent) and each in form and substance reasonably satisfactory to the Administrative Agent unless otherwise specified:
(i) counterparts of this Agreement, sufficient in number for distribution to the Administrative Agent, each Lender and the Parent;
(ii) a Term A Note in favor of each Lender requesting a Term A Note;
(iii) a certificate of a Responsible Officer of each Borrower, attaching copies of the following for such Borrower and certifying that the same are true, correct and complete and in full force and effect, as applicable (or, with respect to its charter or similar formation documents and bylaws or similar governing document of Borrowers other than the Parent, providing a bringdown from the prior copy of such documents previously certified and delivered to the Administrative Agent): (A) its charter (or similar formation document), certified by the appropriate Governmental Authority, (B) its bylaws (or similar governing document), (C) resolutions duly adopted by its board of directors (or similar governing body) approving such Borrowers execution, delivery and performance of this Agreement and the other Loan Documents to which it is party, and (D) incumbency certificates evidencing the identity, authority and capacity of each Responsible Officer of such Borrower authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Borrower is a party; and provided, however, that with respect to Borrowers that are the Companies, the certificate of the respective Responsible Officer of each thereof may attach a copy of the charter that will be filed on or immediately following the Closing Date, together with a certification by such Responsible Officer with respect to such filing in form reasonably satisfactory to the Administrative Agent;
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(iv) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Borrower is duly organized or formed, and that each such Borrower is (A) validly existing, (B) in good standing in its jurisdiction of organization, and (C) qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification except, in the case of clause (C), to the extent that the failure to do so would not reasonably be expected to have a Material Adverse Effect;
(v) a favorable opinion of Latham & Watkins LLP, counsel to the Borrowers, addressed to the Administrative Agent and each Lender, covering such matters concerning the Borrowers and the Loan Documents as the Administrative Agent may reasonably request (limited to New York law, federal law and Delaware corporate and limited liability company matters) and otherwise in form and substance reasonably satisfactory to the Administrative Agent;
(vi) a certificate of a Responsible Officer of each Borrower certifying that the conditions specified in Sections 4.01(b), (c), (d), (e), (f) and (i) have been satisfied;
(vii) copies of the consolidated balance sheets of the Consolidated Group (other than the Companies) as at the Interim Balance Sheet Date and the related consolidated statements of income and cash flows of the Consolidated Group (other than the Companies) for the Reference Period ended on the Interim Balance Sheet Date, which financial statements shall be in form reasonably satisfactory to the Administrative Agent;
(viii) forecasts prepared by management of the Parent of consolidated balance sheets, income statements and cash flow statements of the Consolidated Group for the period commencing January 1, 2013 through December 31, 2017 (it being acknowledged that the forecasts included in the Confidential Information Memorandum dated October 1, 2012 provided to the Administrative Agent and the Lenders in connection with the Transactions are sufficient to satisfy the condition precedent under this subclause (viii));
(ix) a duly completed Compliance Certificate in form and detail reasonably satisfactory to the Administrative Agent, evidencing pro forma compliance, at the time of and immediately after giving effect to the R360 Acquisition, with the covenant set forth in Section 7.14(a), using (i) Consolidated EBITDA for the Reference Period ended on the Interim Balance Sheet Date (in each case re-computed as if the R360 Acquisition had occurred at the beginning of such Reference Period and giving effect to a credit to Consolidated EBITDA in connection with the R360 Acquisition in an amount satisfactory to the Administrative Agent) and (ii) Consolidated Total Funded Debt after giving effect to all Indebtedness (including the Term A Loans) of the Consolidated Group incurred or assumed or otherwise outstanding on the Closing Date; and
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(x) a signed Loan Notice for the borrowing of the Term A Loans on the Closing Date, together with a funds flow attached thereto, and, if the Closing Date borrowing will include any LIBOR Rate Loans, a funding indemnity letter in form reasonably satisfactory to the Administrative Agent.
(b) (i) With respect to the Borrowers (other than the Companies), taken as a whole, there shall not have occurred since December 31, 2011, any event or condition that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect, and (ii) with respect to the Companies, taken as a whole, there shall not have occurred any Company Material Adverse Effect.
(c) All governmental, shareholder and third party consents (including Hart-Scott-Rodino clearance) and approvals necessary in connection with the R360 Acquisition shall have been received (or, with respect to any such third party consents or approvals, waived in accordance with the terms of the R360 Purchase Agreement to the extent any such waiver (i) would not be materially adverse to the Borrowers, taken as a whole, or the Lenders or (ii) is granted with the prior written consent of the Administrative Agent), and all applicable waiting periods shall have expired without any action being taken by any authority to restrain, prevent or impose any material adverse conditions on the Borrowers, taken as a whole, or the R360 Acquisition, and no law or regulation shall be applicable which would have such effect.
(d) The R360 Purchase Agreement shall not have been altered, amended or otherwise changed or supplemented or any condition therein waived or consent thereunder given in any manner materially adverse to the Borrowers (other than the Companies), taken as a whole, or the Lenders without the prior written consent of the Administrative Agent.
(e) The final terms and conditions of the R360 Acquisition shall, to the extent not governed by the R360 Purchase Agreement, be consistent in all material respects with the description thereof received in writing as part of the Information (as defined in the Commitment Letter).
(f) The R360 Acquisition shall have been consummated in accordance with the terms of the R360 Purchase Agreement and in compliance with applicable law and regulatory approvals and, after giving effect to the R360 Acquisition, the Companies shall have no outstanding Indebtedness, except for Indebtedness permitted under Section 7.01, and the Administrative Agent shall have received satisfactory payoff and release letters with respect to any of the Companies Indebtedness to be paid off in connection with the R360 Acquisition.
(g) Arrangements reasonably satisfactory to the Administrative Agent, the Arrangers and their respective Affiliates for the payment at closing of all accrued fees and expenses of the Administrative Agent required to be paid on or prior to the Closing Date, and of all upfront and other fees required to be paid on or prior to the Closing Date to the Administrative Agent, the Arrangers and the Lenders pursuant to the Fee Letter and the Commitment Letter, shall have been made (including the reasonable fees and expenses of counsel for the Administrative Agent to the extent invoiced prior to the Closing Date).
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(h) The Administrative Agent and the Lenders shall have received all documentation and other information reasonably required by them under applicable know your customer and anti-money laundering rules and regulations, including the Act.
(i) (i) With respect to the Parent and its Subsidiaries (other than the Companies), the representations and warranties set forth in Article V shall be true and correct in all material respects (except, if a qualifier relating to materiality, Material Adverse Effect or a similar concept applies, such representation or warranty shall be required to be true and correct in all respects) on and as of the Closing Date after giving effect to the Term A Loans being made on the Closing Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct in such respects as of such earlier date, (ii) with respect to the Companies, the Specified Representations shall be true and correct on and as of the Closing Date after giving effect to the Term A Loans being made on the Closing Date, and (iii) the R360 Purchase Agreement Representations shall be true and correct on and as of the Closing Date after giving effect to the Term A Loans being made on the Closing Date.
Without limiting the generality of the provisions of Section 9.04, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
The Borrowers represent and warrant to the Administrative Agent and the Lenders that:
5.01 Corporate Authority.
(a) Incorporation; Good Standing. Each Borrower (i) is a corporation, partnership, limited liability company or similar business entity duly organized, validly existing and in good standing or in current status under the laws of its respective state of organization, (ii) has all requisite corporate (or equivalent company or partnership) power to own its property and conduct its business as now conducted and as presently contemplated, and (iii) is in good standing as a foreign corporation, partnership, limited liability company or similar business entity and is duly authorized to do business in each jurisdiction in which its property or business as presently conducted or contemplated makes such qualification necessary, except where a failure to be in good standing or so qualified would not have a Material Adverse Effect.
(b) Authorization. The execution, delivery and performance of the Loan Documents and the Transactions (i) are within the corporate (or equivalent company or partnership) authority of each Borrower, (ii) have been duly authorized by all necessary corporate (or equivalent company or partnership) proceedings, (iii) do not conflict with or result in any material breach or contravention of any provision of law, statute, rule or regulation to which any Borrower is subject or any judgment, order, writ, injunction, license or permit applicable to any Borrower so as to materially adversely affect the assets, business or any activity of the Borrowers, and (iv) do not conflict with any provision of the Organization Documents of any Borrower or any agreement or other instrument binding upon them including, without limitation, those documents executed and/or delivered in connection with any Covenanted Senior Debt.
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(c) Enforceability. The execution, delivery and performance of the Loan Documents will result in valid and legally binding obligations of the Borrowers enforceable against each in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought.
5.02 Governmental Approvals. The execution, delivery and performance by the Borrowers of the Loan Documents and the Transactions (other than consummation of the R360 Acquisition) do not require any approval or consent of, or filing with, any Governmental Authority or other Person, other than those approvals and consents already obtained and filings already made.
5.03 Title to Properties; Leases. The Borrowers own all of the assets reflected in the consolidated balance sheets as at the Balance Sheet Date or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no mortgages, capitalized leases, conditional sales agreements, title retention agreements or other Liens except Permitted Liens.
5.04 Financial Statements; Solvency.
(a) There has been furnished to the Lenders (i) audited consolidated financial statements of the Consolidated Group (other than the Companies) dated the Balance Sheet Date and (ii) consolidated financial statements of the Consolidated Group (other than the Companies) dated the Interim Balance Sheet Date. Said financial statements have been prepared in accordance with GAAP and fairly present in all material respects the financial condition of the Consolidated Group (other than the Companies) on a consolidated basis, as at the close of business on the respective dates thereof and the results of operations for the respective periods then ended. There are no contingent liabilities of the Consolidated Group (other than the Companies) involving material amounts, known to the officers of the Borrowers, which have not been disclosed in said balance sheets and the related notes thereto or otherwise in writing to the Lenders.
(b) The Borrowers on a consolidated basis (both before and after giving effect to the Transactions) are and will be Solvent.
5.05 No Material Changes, Etc. Since the Balance Sheet Date, no Material Adverse Effect has occurred with respect to the financial condition or businesses of the Borrowers (other than the Companies), taken as a whole, as shown on or reflected in the consolidated balance sheet of the Borrowers as of the Balance Sheet Date, or the consolidated statement of income for the four (4) fiscal quarters then ended. Since the Balance Sheet Date, with respect to the Borrowers (other than the Companies) there have not been any Restricted Payments other than as permitted by Section 7.06.
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5.06 Permits, Franchises, Patents, Copyrights, Etc. Each Borrower owns or has been granted the right to use from another Borrower, all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of others.
5.07 Litigation. Except as shown on Schedules 5.07 and 5.16 hereto, there are no actions, suits, proceedings or investigations of any kind pending or, to the knowledge of any Borrower, threatened against any Borrower before any court, tribunal or administrative agency or board which either in any individual case or in the aggregate, has or could reasonably be expected to have a Material Adverse Effect.
5.08 No Materially Adverse Contracts, Etc. No Borrower is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Borrowers officers has or is expected in the future to have a Material Adverse Effect. No Borrower is a party to any contract or agreement which in the judgment of the Borrowers officers has or is expected to have a Material Adverse Effect, except as otherwise reflected in adequate reserves.
5.09 Compliance with Other Instruments, Laws, Etc. No Borrower is violating any provision of its Organization Documents, any agreement or instrument by which any of them may be subject or by which any of them or any of their properties may be bound, or any Law, in a manner which could reasonably be expected to result in the imposition of substantial penalties or have a Material Adverse Effect.
5.10 Tax Status. Each of the Borrowers has (a) made or filed (x) all federal income tax returns, reports and declarations, (y) all material state income tax returns, reports and declarations, and (z) all other material tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that such Borrower has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes), (b) has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith, and (c) has set aside on its books provisions adequate for the payment of all material Taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction.
5.11 No Event of Default. No Default or Event of Default has occurred and is continuing.
5.12 Holding Company and Investment Company Acts. Neither the Parent nor any of its Subsidiaries is a public utility, as that term is defined under the Federal Power Act, as amended, and the regulations of the Federal Energy Regulatory Commission (FERC) promulgated thereunder. Neither the Parent nor any of its Subsidiaries (i) is subject to any of the accounting or cost-allocation requirements of the Public Utility Holding Company Act of 2005, or the regulations or orders of the FERC promulgated thereunder or (ii) is or is required to be registered as an investment company under the Investment Company Act of 1940.
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5.13 Absence of Financing Statements, Etc. Other than Permitted Liens, there is no financing statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry, or other public office, which purports to cover, affect or give notice of any present or possible future Lien on, or security interest in, any assets or property of any Borrower, or any rights relating thereto.
5.14 ERISA Compliance.
(a) Each Plan (other than a Multiemployer Plan) and, to the Borrowers knowledge, each Multiemployer Plan, is in compliance with the applicable provisions of ERISA, the Code and other Federal or state laws except as could not reasonably be expected to result in a Material Adverse Effect. Each Pension Plan (other than a Multiemployer Plan) that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination or opinion letter from the Internal Revenue Service to the effect that the form of such Pension Plan is qualified under Section 401(a) of the Code and the trust related thereto has been determined by the Internal Revenue Service to be exempt from federal income tax under Section 501(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service. To the best knowledge of the Borrowers, nothing has occurred that would prevent or cause the loss of such tax-qualified status.
(b) There are no pending or, to the best knowledge of the Borrowers, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred, and neither any Borrower nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) each Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan (other than a Multiemployer Plan), and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan (other than a Multiemployer Plan), the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is sixty percent (60%) or higher and neither any Borrower nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below sixty percent (60%) as of the most recent valuation date; (iv) neither any Borrower nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (v) neither any Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan (other than a Multiemployer Plan) has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan (other than a Multiemployer Plan) and, to the knowledge of the Borrowers, there has been no notification to the Borrowers that a Multiemployer Plan has been terminated by the plan administrator thereof or by the PBGC, and, to the knowledge of the Borrowers, no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Multiemployer Plan.
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5.15 Use of Proceeds.
(a) General. The proceeds of the Term A Loans shall be used solely as follows: (a) to finance in part the R360 Acquisition and (b) to pay fees and expenses incurred in connection with the R360 Acquisition and the Term A Loans.
(b) Regulations U and X. The Borrowers are not engaged and will not engage, principally or as one of their important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock. Following the application of the proceeds of any Term A Loan Borrowing, not more than 25% of the value of the assets (either of the applicable Borrower only or of the Consolidated Group) subject to any restriction on sale, pledge, or disposal under this Agreement or subject to any restriction contained in any agreement or instrument between the Borrowers and any Lender or any Affiliate of any Lender relating to Indebtedness and within the scope of Section 8.01(f) will be margin stock.
5.16 Environmental Compliance. The Borrowers have taken all necessary steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, have determined that, except as set forth on Schedule 5.16:
(a) none of the Borrowers or Excluded Subsidiaries, nor any operator of any Real Estate, nor any operations thereon, is in violation, or alleged violation, of any judgment, decree, order, law, permit, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act of 1976, CERCLA, the Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any Federal, state, local or foreign law, statute, regulation, ordinance, rule, order, decree, permit, concession, grant, franchise, license, agreement or governmental restriction relating to health, safety, waste transportation or disposal, pollution or the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions or discharges to public or private wastewater systems (the Environmental Laws), which violation would have a Material Adverse Effect;
(b) none of the Borrowers has received written notice from any third party, including any Governmental Authority, (i) that any one of them has been identified by the United States Environmental Protection Agency (EPA) as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. §6903(5), any hazardous substances as defined by 42 U.S.C. §9601(14), any pollutant or contaminant as defined by 42 U.S.C. §9601(33), or any other Hazardous Materials which any one of them has generated, transported or disposed of has been found at any site at which a Governmental Authority has conducted or has ordered that the Borrowers conduct a remedial investigation, removal or other response
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action pursuant to any Environmental Law; or (iii) that any one of them is or will be named party to any claim, action, cause of action, complaint or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third partys incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Materials which notice (or any related proceeding or other action) would have a Material Adverse Effect;
(c) except where it would not have a Material Adverse Effect, (i) no portion of the Real Estate has been used for the handling, processing, storage or disposal of Hazardous Materials and no underground tank or other underground storage receptacle for Hazardous Materials is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrowers, or, to the Borrowers knowledge by any other operators of the Real Estate, no Hazardous Materials have been generated or are being used on the Real Estate; (iii) there have been no unpermitted Releases or threatened Releases of Hazardous Materials on, upon, into or from the Real Estate; (iv) to the Borrowers knowledge, there have been no Releases of Hazardous Materials on, upon, into or from any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on the Real Estate; and (v) any Hazardous Materials that have been generated on any of the Real Estate that are regulated as hazardous have been transported offsite only by carriers having an identification number issued by the EPA (or the equivalent thereof in any foreign jurisdiction), and treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the Borrowers knowledge, operating in compliance with such permits and applicable Environmental Laws; and
(d) except where it would not have a Material Adverse Effect, none of the Borrowers is required under any applicable Environmental Law to perform Hazardous Materials site assessments, or remove or remediate Hazardous Materials, or provide notice to any Governmental Authority or record or deliver to other Persons an environmental disclosure document or statement by virtue of the Transactions, or as a condition to the effectiveness of the Transactions.
5.17 Transactions with Affiliates. Except as disclosed in Schedule 5.17 or filings made by the Borrowers under the Exchange Act prior to the Closing Date, and except for arms length transactions pursuant to which a Borrower makes payments in the ordinary course of business upon terms no less favorable than such Borrower could obtain from third parties, none of the officers, directors, or employees of any Borrower is presently a party to any transaction with another Borrower (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of any Borrower, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
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5.18 Subsidiaries. Schedule 1 (as updated from time to time pursuant to Section 6.16) sets forth a complete and accurate list of the Subsidiaries of the Parent (after giving effect to the Transactions), including the name of each Subsidiary and its jurisdiction of incorporation. After giving effect to the Transactions, each Subsidiary listed on Schedule 1 is (a) wholly owned by the Parent (except as noted in such Schedule) and (b) is a Borrower hereunder (except the Excluded Subsidiaries and any Receivables SPVs). After giving effect to the Transactions, the Parent has good and marketable title to all of the Equity Interests it purports to own of each such Subsidiary, and each other Borrower has good and marketable title to all of the Equity Interests it purports to own of such Subsidiary, free and clear in each case of any Lien. All such Equity Interests have been duly issued and are fully paid and non-assessable.
5.19 True Copies of Charter and Other Documents. Each Borrower has furnished the Administrative Agent copies, in each case true and complete as of the Closing Date, of its Organization Documents, including any amendments thereto.
5.20 Disclosure. Neither this Agreement, nor any of the other Loan Documents, nor any document or information furnished by the Borrowers in connection therewith contains any untrue statement of a material fact or omits to state a material fact (known to any Borrower in the case of any document or information not furnished by the Borrowers) necessary in order to make the statements herein or therein not misleading. There is no fact known to any Borrower which materially adversely affects, or which is reasonably likely in the future to materially adversely affect, the business, assets, or financial condition of any Borrower, exclusive of effects resulting from changes in general economic conditions, legal standards or regulatory conditions.
5.21 Capitalization. As of the Interim Balance Sheet Date, the authorized Equity Interests of the Parent consist of (i) 250,000,000 shares of common stock (par value $0.01 per share) of which 122,783,945 shares were outstanding as of such date, and (ii) 7,500,000 shares of preferred stock of which none were outstanding as of such date. All of such outstanding shares are fully paid and non-assessable. In addition, as of the Closing Date, the board of directors of the Parent has duly reserved (A) 15,752 shares of the Parents common stock for issuance upon vesting of outstanding restricted stock units, (B) 5,214,847 shares of the Parents common stock for issuance upon exercise of outstanding options, (C) 326,480 shares of the Parents common stock for issuance upon exercise of outstanding warrants, (D) zero shares of the Parents common stock for issuance upon the vesting of outstanding restricted stock, (E) zero shares of the Parents common stock for issuance upon the exercise of stock options or on satisfaction of conditions in restricted stock or restricted stock unit awards, all of which are available to be granted pursuant to the Parents equity incentive plans, and (F) 207,894 shares of the Parents common stock available to be granted pursuant to the Parents warrant plans.
5.22 Permits and Licenses. All permits and licenses (other than those the absence of which would not have a Material Adverse Effect) required for the construction, ownership and operation of the landfills, solid waste facilities, and solid waste collection, transfer, hauling, recycling and disposal operations owned or operated by the Parent and the Subsidiaries have been obtained and remain in full force and effect and are not subject to any appeals or further proceedings or to any unsatisfied conditions that may allow material modification or revocation. Neither any Parent nor any Subsidiary nor, to the knowledge of a Responsible Officer of the Borrowers, the holder of such licenses or permits is in violation of any such licenses or permits, except for any violation which would not have a Material Adverse Effect.
5.23 Excluded Subsidiaries. Except as permitted under Section 7.01 or Section 7.03, no Borrower has or has committed to (a) Guarantee Indebtedness or other financial obligations of any Excluded Subsidiary or (b) make any advance, loan, assumption of debt, extension of credit or capital contribution to or any other Investment in any Excluded Subsidiary.
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5.24 OFAC; FCPA; Act. No Borrower, nor, to the knowledge of any Borrower, any Related Party, (a) is currently the subject of any Sanctions, (b) is located, organized or residing in any Designated Jurisdiction, or (c) is or has been (within the previous five (5) years) engaged in any transaction with any Person who is now or was then the subject of Sanctions or who is located, organized or residing in any Designated Jurisdiction. No Term A Loan, nor the proceeds from any Term A Loan, has been or will be used, directly or indirectly, (y) to lend, contribute or provide to, or otherwise has been or will be made available to fund, any activity or business in any Designated Jurisdiction or any activity or business of any Person located, organized or residing in any Designated Jurisdiction or who is the subject of any Sanctions, or in any other manner that will result in any violation by any Person (including any Lender, any Arranger or the Administrative Agent) of Sanctions, or (z) for any payments to any government official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977. To the extent applicable, the Borrowers are in compliance in all material respects with the Act.
ARTICLE VI. AFFIRMATIVE COVENANTS
So long as any Lender shall have any Term A Loan Commitment hereunder or any Term A Loan or other Obligation hereunder (other than contingent indemnity obligations with respect to then unasserted claims) shall remain unpaid or unsatisfied:
6.01 Punctual Payment. The Borrowers will duly and punctually pay or cause to be paid the principal and interest on the Term A Loans, fees and other amounts provided for in this Agreement and the other Loan Documents, all in accordance with the terms of this Agreement and such other Loan Documents.
6.02 Maintenance of Offices. The Parent will maintain its chief executive offices at Waterway Plaza Two, 4th Floor, 10001 Woodloch Forest Drive, Suite 400, The Woodlands, Texas 77380 or such other place in the United States as the Parent shall designate upon thirty (30) days prior written notice to the Administrative Agent. Upon request of the Administrative Agent from time to time after the Closing Date, the Borrowers shall promptly provide the Administrative Agent with the principal place of business of each Borrower.
6.03 Records and Accounts. Each Borrower will (i) keep true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles, (ii) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties, contingencies, and other reserves, and (iii) at all times engage the Accountants as the independent certified public accountants of the Borrowers.
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6.04 Financial Statements, Certificates and Information. The Borrowers will deliver to the Administrative Agent and any Lender upon request of such Lender (made through the Administrative Agent):
(a) within five (5) days after the filing with the Securities and Exchange Commission of the Parents Annual Report on Form 10-K with respect to each fiscal year (and in any event within one hundred (100) days after the end of such fiscal year), the consolidated balance sheets of the Consolidated Group as at the end of such year, and the related consolidated statements of income and cash flows of the Consolidated Group, each setting forth in comparative form the figures for the previous fiscal year, all such financial statements to be in reasonable detail, prepared in accordance with GAAP and audited and accompanied by a report and opinion of the Accountants, which report and opinion shall state that such financial statements present fairly the financial position of the Consolidated Group and shall not be subject to any qualification as to going concern or the scope of the audit;
(b) within five (5) days after the filing with the Securities and Exchange Commission of the Parents Quarterly Report on Form 10-Q with respect to each of the first three (3) fiscal quarters of each fiscal year (and in any event within 55 days after the end of each such fiscal quarter), copies of the consolidated balance sheets of the Consolidated Group as at the end of such fiscal quarter, and the related consolidated statements of income and cash flows of the Consolidated Group as at the end of such quarter, subject to normal year-end adjustments and the absence of footnotes, all in reasonable detail and prepared in accordance with GAAP subject to normal year-end adjustments and the absence of footnotes, with a certification by the CFO that the consolidated financial statements are prepared in accordance with GAAP and fairly present the consolidated financial condition of the Consolidated Group as at the close of business on the date thereof and the results of operations for the period then ended;
(c) simultaneously with the delivery of the financial statements referred to in subsections (a) and (b) above, a Compliance Certificate certified by the CFO that the Consolidated Group is in compliance with the covenants contained in Sections 7.14 and 7.15 as of the end of the applicable period setting forth in reasonable detail computations evidencing such compliance; provided, that if the Borrowers shall at the time of issuance of such certificate or at any other time obtain knowledge of any Default or Event of Default, the Borrowers shall include in such certificate or otherwise deliver forthwith to the Lenders a certificate specifying the nature and period of existence thereof and what action the Borrowers propose to take with respect thereto;
(d) contemporaneously with, or promptly following, the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Borrowers; and
(e) from time to time, such other financial data and other information (including accountants management letters and a copy of the Borrowers annual budget and projections for any fiscal year) as the Lenders may reasonably request.
Borrowers shall be deemed to have delivered reports and other information referred to in clauses (a), (b), and (d) of this Section 6.04 when (A) such reports or other information have been posted on the Internet website of the Securities and Exchange Commission (http://www.sec.gov) or on Parents Internet website as previously identified to the Administrative Agent and Lenders and (B) Parent or Borrowers have notified the Administrative Agent by electronic mail of such posting.
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The Borrowers hereby acknowledge that (a) the Administrative Agent and/or the Arrangers may, but shall not be obligated to, make available to the Lenders materials and/or information provided by or on behalf of the Borrowers hereunder (collectively, Borrower Materials) by posting the Borrower Materials on Debt Domain, IntraLinks, Syndtrak or another similar electronic system (the Platform) and (b) certain of the Lenders (each, a Public Lender) may have personnel who do not wish to receive material non-public information with respect to the Parent or its Subsidiaries, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons securities. The Borrowers hereby agree that (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked PUBLIC which, at a minimum, shall mean that the word PUBLIC shall appear prominently on the first page thereof; (x) by marking Borrower Materials PUBLIC, the Borrowers shall be deemed to have authorized the Administrative Agent, the Arrangers and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrowers or their securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked PUBLIC are permitted to be made available through a portion of the Platform designated Public Side Information; and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked PUBLIC as being suitable only for posting on a portion of the Platform not designated Public Side Information. Notwithstanding the foregoing, the Borrowers shall be under no obligation to mark any Borrower Materials PUBLIC.
6.05 Legal Existence and Conduct of Business. Except as otherwise permitted by Section 7.04, each Borrower will do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence, legal rights and franchises; effect and maintain its foreign qualifications, licensing, domestication or authorization except as terminated by such Borrowers board of directors (or similar governing body) in the exercise of its reasonable judgment and except where the failure of a Borrower to remain so qualified would not have a Material Adverse Effect; and shall not become obligated under any contract or binding arrangement which, at the time it was entered into would have a Material Adverse Effect. Each Borrower will continue to engage primarily in the businesses conducted by it on the Closing Date and in related businesses, except to the extent otherwise permitted under Sections 7.03 and 7.04.
6.06 Maintenance of Properties. The Borrowers will cause all material properties used or useful in the conduct of their businesses to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrowers may be necessary so that the businesses carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this section shall prevent the Borrowers from discontinuing the operation and maintenance of any of their properties if such discontinuance is, in the judgment of the Borrowers, desirable in the conduct of their business and which does not in the aggregate have a Material Adverse Effect.
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6.07 Insurance. The Borrowers will maintain with financially sound and reputable insurance companies, funds or underwriters insurance of the kinds, covering the risks (other than risks arising out of or in any way connected with personal liability of any officers and directors thereof) and in the relative proportionate amounts typically carried by reasonable and prudent companies conducting businesses similar to that of the Borrowers. In addition, the Borrowers will furnish from time to time, upon the Administrative Agents request, a summary of the insurance coverage, which summary shall be in form and substance reasonably satisfactory to the Administrative Agent and, if requested by the Administrative Agent, will furnish to the Administrative Agent certificates evidencing such insurance and, with respect to the certificate evidencing liability insurance, naming the Administrative Agent as the certificate holder thereunder. Notwithstanding the foregoing, the Borrowers shall be permitted to maintain self insurance programs of the kinds, covering the risks and in the relative amounts as more particularly described on Schedule 6.07.
6.08 Taxes. The Borrowers will duly pay and discharge, or cause to be paid and discharged, before any material penalty accrues thereon, all taxes, assessments and other governmental charges (other than taxes, assessments and other governmental charges imposed by foreign jurisdictions which in the aggregate are not material to the business or assets of any Borrower on an individual basis or of the Borrowers on a consolidated basis) imposed upon it and its real properties, sales and activities, or any material part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies, which if unpaid might by law become a Lien or charge upon any material portion of its property, unless such Lien is a Permitted Lien; provided, however, that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if such Borrower shall have set aside on its books adequate reserves with respect thereto; and provided further, that the Borrowers will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor.
6.09 Inspection of Properties, Books, and Contracts. The Borrowers will permit the Administrative Agent or any other designated representative of the Lenders (including any Lender), upon reasonable notice and during normal business hours, to visit and inspect any of their properties, to examine their books of account (including the making of periodic accounts receivable reviews), or contracts (and to make copies thereof and extracts therefrom), and to discuss their affairs, finances and accounts with, and to be advised as to the same by, their officers, all at such times and intervals as the Lenders or the Administrative Agent may reasonably request.
6.10 Compliance with Laws, Contracts, Licenses and Permits; Maintenance of Material Licenses and Permits. The Borrowers will and will cause the Excluded Subsidiaries to (i) comply with the provisions of their Organization Documents, (ii) comply with the provisions of all agreements and instruments by which they or any of their properties may be bound; and (iii) comply with all applicable Laws (including Environmental Laws and Environmental Permits) except, in the cause of subsections (ii) and (iii), where noncompliance with such applicable Laws would not have a Material Adverse Effect. If at any time while any Term A Loan is outstanding or any Lender or the Administrative Agent has any obligation to make Term A Loans hereunder, any authorization, consent, approval, permit or license from any Governmental Authority shall become necessary or required in order that the Borrowers may fulfill any of their obligations hereunder, the Borrowers will immediately take or cause to be taken all reasonable steps within the power of the Borrowers to obtain such authorization, consent, approval, permit or license and furnish the Lenders with evidence thereof.
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6.11 Environmental Indemnification. Each Borrower covenants and agrees that it will indemnify and hold the Administrative Agent and the Lenders harmless from and against any and all claims, expense, damage, loss or liability incurred by the Administrative Agent or the Lenders (including all costs of legal representation) relating to (a) any Release or threatened Release of Hazardous Materials on the Real Estate; (b) any violation of any Environmental Laws with respect to conditions at the Real Estate or the operations conducted thereon; (c) the investigation or remediation of offsite locations at which any Borrower or its predecessors are alleged to have directly or indirectly disposed of Hazardous Materials; or (d) any Environmental Liability related in any way to any Borrower or any Excluded Subsidiary. It is expressly acknowledged by each Borrower that this covenant of indemnification shall include claims, expense, damage, loss or liability incurred by the Administrative Agent or the Lenders based upon the Administrative Agents or the Lenders negligence (but not gross negligence or willful misconduct, in each case as determined by a court of competent jurisdiction by a final and nonappealable judgment), and this covenant shall survive any foreclosure or any modification, release or discharge of the Loan Documents or the payment of the Term A Loans and shall inure to the benefit of the Administrative Agent, the Lenders and their successors and assigns.
6.12 Further Assurances. The Borrowers will cooperate with the Administrative Agent and the Lenders and execute such further instruments and documents as the Lenders or the Administrative Agent shall reasonably request to carry out to the Lenders satisfaction the Transactions (other than the R360 Acquisition).
6.13 Notice of Potential Claims or Litigation. The Borrowers will deliver to the Lenders, within thirty (30) days of receipt thereof, written notice of the initiation of any action, claim, complaint, or any other notice of dispute or potential litigation (including without limitation any alleged violation of any Environmental Law or any dispute, litigation, investigation or proceeding between any Borrower and any Governmental Authority), wherein the potential liability could reasonably be expected to be in excess of $15,000,000, together with a copy of each such notice received by any Borrower or any Excluded Subsidiary.
6.14 Notice of Certain Events Concerning Insurance and Environmental Claims.
(a) The Borrowers will provide the Lenders with written notice as to any material cancellation or material change in any insurance of the Borrowers within ten (10) Business Days after the Borrowers receipt of any written notice of such cancellation or change by any of their insurers.
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(b) The Borrowers will promptly notify the Lenders in writing of any of the following events:
(i) upon obtaining knowledge of any violation of any Environmental Law regarding the Real Estate or any Borrowers operations which could reasonably be expected to result in liability in excess of $15,000,000; (ii) upon obtaining knowledge of any potential or known Release or threat of Release of any Hazardous Materials at, from, or into the Real Estate which it reports or is reportable in writing to any Governmental Authority which could reasonably be expected to result in liability in excess of $15,000,000; (iii) upon receipt of any notice of violation of any Environmental Laws or of any Release or threatened Release of Hazardous Materials, including a notice or claim of liability or potential responsibility from any third party (including without limitation any Governmental Authority) and including notice of any formal inquiry, proceeding, demand, investigation or other action with regard to (A) operation of the Real Estate, (B) contamination on, from or into the Real Estate, or (C) investigation or remediation of offsite locations at which any Borrower or any of its predecessors is alleged to have directly or indirectly disposed of Hazardous Materials, which violation or Release in any such case could reasonably be expected to have a Material Adverse Effect; or (iv) upon obtaining knowledge that any material expense or loss has been incurred by such Governmental Authority in connection with the assessment, containment, removal or remediation of any Hazardous Materials with respect to which any Borrower could reasonably be expected to have liability in excess of $15,000,000 or for which a Lien for a like amount could reasonably be expected to be imposed on the Real Estate.
6.15 Notice of Default. The Borrowers will promptly notify the Lenders in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Agreement or any other note, evidence of Indebtedness, indenture or other obligation evidencing Indebtedness in excess of $15,000,000 as to which any Borrower is a party or obligor, whether as principal or surety, the Borrowers shall forthwith give written notice thereof to the Lenders, describing the notice or action and the nature of the claimed default.
6.16 New Subsidiaries.
(a) Any new Subsidiary (other than permitted Excluded Subsidiaries and Receivables SPVs) created or acquired by a Borrower as permitted under Section 7.04 shall become a Borrower hereunder. Such Subsidiary shall become a Borrower hereunder on or before the fifteenth (15th) Business Day after the end of the fiscal quarter in which such Subsidiary was created or acquired. A Subsidiary shall become a Borrower by (x) signing a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent providing that such Subsidiary shall become a Borrower hereunder, and (y) providing such other documentation as the Administrative Agent may reasonably request, including, without limitation, (i) KYC Requirement Information with respect to such new Subsidiary, (ii) applicable documentation with respect to the conditions specified in Section 4.01(a), clauses (i) through (iv), (iii) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect with respect to such new Subsidiary, together with insurance binders or other satisfactory certificates of insurance, (iv) the results of UCC searches with respect to such new Subsidiary indicating no Liens other than Permitted Liens and otherwise in form and substance satisfactory to the Administrative Agent, and (v) an opinion of in-house counsel to the Parent, in form and substance reasonably satisfactory to the Administrative Agent, with respect to (x) each such new Subsidiary that is organized under California, Delaware and/or New York law, and (y) such joinder agreement and related documentation. In such event, the Administrative Agent is hereby authorized by the parties to amend Schedule 1 to include such new Subsidiary and the KYC Requirement Information in respect thereof.
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(b) The Parent shall at all times directly or indirectly through a Subsidiary own all of the Equity Interests of each of the Subsidiaries (other than the Excluded Subsidiaries).
6.17 [Reserved].
6.18 Additional Notices. The Borrowers will promptly notify the Administrative Agent in writing of (a) any material change by any Borrower in accounting policies, financial reporting practices (subject to Section 7.12) or attestation reports concerning internal controls pursuant to Section 404 of Sarbanes-Oxley, and (b) the occurrence of any ERISA Event.
6.19 Designation of Excluded Subsidiaries. The Parent may from time to time designate any Subsidiary (other than, during the one year period after the Closing Date, a Company or any Subsidiary used to acquire a Company) as an Excluded Subsidiary, provided that the following conditions precedent to the effectiveness of such designation are satisfied:
(a) at the time of such designation, no Default or Event of Default has occurred and is continuing, and such designation will not otherwise create a Default or an Event of Default;
(b) the Borrowers will be in pro forma compliance with the restrictions on Excluded Subsidiaries set forth in Section 7.15, measured as of the end of the most recent fiscal quarter of the Consolidated Group for which a Compliance Certificate has been or is required to have been delivered pursuant to Section 6.04(c) (with assets values and revenues of the Excluded Subsidiaries adjusted as if such designation occurred on the first day of the applicable Reference Period); and
(c) the Parent has delivered to the Administrative Agent (i) written notice of such designation and (ii) a Compliance Certificate certifying compliance with the conditions set forth in the foregoing clause (b) and setting forth reasonably detailed calculations in support thereof.
For the avoidance of doubt, in the event that any Borrower is designated as an Excluded Subsidiary in accordance with this Section 6.19, such Subsidiary shall be released from its obligations under the Loan Documents.
ARTICLE VII. NEGATIVE COVENANTS
So long as any Lender shall have any Term A Loan Commitment hereunder or any Term A Loan or other Obligation hereunder (other than contingent indemnity obligations with respect to then unasserted claims) shall remain unpaid or unsatisfied:
7.01 Restrictions on Indebtedness. No Borrower shall create, incur, assume or suffer to exist any Indebtedness other than:
(a) Indebtedness existing on the Closing Date and set forth on Schedule 7.01, including any renewals, extensions, refinancings and replacements thereof so long as the principal amount thereof (plus all accrued interest on such Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith, the amount of which may be included in the principal amount of any refinancing) is not increased;
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(b) incurrence of guaranty, suretyship or indemnification obligations in connection with the Borrowers performance of services for their respective customers in the ordinary course of their businesses;
(c) Indebtedness of one Borrower to another Borrower;
(d) Indebtedness of the Borrowers incurred in connection with the acquisition or lease of any equipment or other property by the Borrowers under any Synthetic Lease, Capital Lease or other lease arrangement or purchase money financing;
(e) Indebtedness of the Borrowers with respect to bonds for closure and post-closure obligations relating to any landfill owned or operated by the Borrowers;
(f) Indebtedness of the Borrowers in respect of Swap Contracts (including Fuel Derivatives Obligations) entered into in the ordinary course of business and not for speculative purposes;
(g) Indebtedness of the Borrowers with respect to letters of credit of Persons acquired by the Borrowers; provided, that such letters of credit shall be retired immediately or replaced by Letters of Credit under the Senior Revolving Credit Agreement as soon as possible but in any event not later than one hundred twenty (120) days after the closing of any such acquisition;
(h) Indebtedness of the Borrowers in respect of IRBs; provided, that (i) such Indebtedness may be secured only to the extent such IRBs are L/C Supported IRBs and (ii) after taking into account all Indebtedness incurred pursuant to this clause (h), the Borrowers on a consolidated basis shall be in pro forma compliance with each of the financial covenants set forth in Section 7.14 (using Consolidated EBITDA of the Consolidated Group as of the last day of the applicable Pro Forma Reference Period (but including any addbacks to Consolidated EBITDA previously approved in the period following the last day of the applicable Pro Forma Reference Period) and Consolidated Total Funded Debt as of the date of, and after giving effect to, such Indebtedness (with such amounts adjusted as if such Indebtedness was incurred on the first day of the applicable Pro Forma Reference Period)).
(i) other secured Indebtedness (other than as permitted under other subsections hereof), not in excess of $20,000,000 in the aggregate at any time outstanding;
(j) other unsecured Indebtedness; provided, that, at the time of incurrence thereof, the Borrowers shall be in pro forma compliance with each of the financial covenants set forth in Section 7.14 (using Consolidated EBITDA of the Consolidated Group as of the last day of the applicable Pro Forma Reference Period (but including any addbacks to Consolidated EBITDA previously approved in the period following the last day of the applicable Pro Forma Reference Period) and Consolidated Total Funded Debt as of the date of, and after giving effect to, such Indebtedness (with such amounts adjusted as if such Indebtedness was incurred on the first day of the applicable Pro Forma Reference Period));
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(k) the Obligations; and
(l) Indebtedness under the Senior Revolving Credit Agreement.
7.02 Restrictions on Liens. No Borrower shall create or incur or suffer to be created or incurred or to exist any Lien of any kind upon any property or assets of any character, whether now owned or hereafter acquired, or upon the income or profits therefrom; or transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; or acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; or suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it which if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; or sell, assign, pledge or otherwise transfer any accounts, contract rights, general intangibles or chattel paper, with or without recourse, except as follows (the Permitted Liens):
(a) Liens to secure taxes, assessments and other government charges in respect of obligations not overdue or Liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue or that are being contested in good faith by appropriate proceedings (provided that, if the obligation with respect to which any such Lien arises is being contested in good faith by appropriate proceedings, such obligation may remain unpaid during the pendency of such proceedings as long as the Borrowers shall have set aside on their books adequate reserves with respect thereto);
(b) Deposits or pledges made in connection with, or to secure payment of, workmens compensation, unemployment insurance, old age pensions or other social security obligations other than any Lien imposed by ERISA and not permitted pursuant to Section 7.07;
(c) Liens in respect of judgments or awards which have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which the applicable Borrower shall at the time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review and in respect of which such Borrower maintains adequate reserves;
(d) Liens of carriers, warehousemen, mechanics and materialmen, and other like Liens, in existence less than one hundred twenty (120) days from the date of creation thereof in respect of obligations not overdue; provided, that such Liens may continue to exist for a period of more than one hundred twenty (120) days if the validity or amount thereof shall currently be contested by the applicable Borrower in good faith by appropriate proceedings and if such Borrower shall have set aside on its books adequate reserves with respect thereto as required by GAAP; and provided further, that such Borrower will pay any such claim forthwith upon commencement of proceedings to foreclose any such Lien;
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(e) Encumbrances on Real Estate consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlords or lessors Liens under leases to which any Borrower is a party, and other minor Liens none of which in the opinion of such Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of such Borrower, which defects do not individually or in the aggregate have a Material Adverse Effect;
(f) Liens securing Indebtedness permitted under Section 7.01(d) incurred in connection with the lease or acquisition of property or fixed assets or industrial bond financings; provided, that such Liens shall encumber only the property or assets so acquired or financed and shall not exceed the purchase price thereof;
(g) Liens, whether created by contract, law, regulation or ordinance, securing Indebtedness permitted by Sections 7.01(b), (e) and (g); provided, that any security granted therefor is limited to (i) rights to payment under, and use of equipment or related assets to perform, the contracts to which such guaranty, suretyship or bond obligations relate, (ii) Liens arising under the laws of suretyship and (iii) similar Liens granted in favor of municipalities or other governmental entities pursuant to any Municipal Contract; provided, that such Liens (A) encumber only the containers, bins, carts and vehicles used in connection with such Municipal Contract and (B) are promptly released as soon as such release is not prohibited under the terms of such Municipal Contract;
(h) Liens listed on Schedule 7.02 hereto;
(i) Liens securing Indebtedness permitted under Section 7.01(h) in the form of L/C Supported IRBs;
(j) Liens securing deposits made on account of liabilities to insurance carriers under insurance or self-insurance arrangements;
(k) Liens granted to a Receivables SPV in connection with a Permitted Receivables Transaction and securing Indebtedness of the Parent and its Subsidiaries existing as of the Closing Date and listed on Schedule 7.01 in connection therewith; provided, that such Liens attach only to the accounts receivable which are the subject of such Indebtedness and to the Equity Interests of the Receivables SPV;
(l) Liens granted in connection with secured Indebtedness incurred pursuant to Sections 7.01(a) or (i); and
(m) Liens granted to secure Indebtedness and other liabilities and obligations under the Senior Revolving Credit Agreement or any Covenanted Senior Debt so long as the Obligations are simultaneously secured on a pari passu basis pursuant to customary documentation reasonably acceptable to the Administrative Agent.
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7.03 Restrictions on Investments. No Borrower shall make any Investments unless (i) the Borrowers are in pro forma compliance with each of the financial covenants set forth in Section 7.14 (using Consolidated EBITDA of the Consolidated Group as of the last day of the applicable Pro Forma Reference Period (but including any addbacks to Consolidated EBITDA previously approved in the period following the last day of the applicable Pro Forma Reference Period) and Consolidated Total Funded Debt as of the date of, and after giving effect to, such Investment (with such amounts adjusted as if such Investment occurred on the first day of the Pro Forma Reference Period)), (ii) at the time of such Investment, no Default or Event of Default has occurred and is continuing or would result therefrom and (iii) to the extent such proposed Investment constitutes a transaction described in Section 7.04(a), the Borrowers comply with the requirements set forth in such Section 7.04(a); provided, that nothing set forth in this Section 7.03 shall prohibit ordinary course Investments made by the Borrowers from time to time in cash and cash equivalents.
7.04 Merger, Consolidation and Disposition of Assets.
(a) No Borrower shall become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition (other than the acquisition of assets in the ordinary course of business consistent with past practices and with respect to asset swaps) except the merger or consolidation of, or asset or stock acquisitions between existing Borrowers, and except as otherwise provided in this Section 7.04(a). The Borrowers may purchase or otherwise acquire assets or the Equity Interests of any other Person; provided, that:
(i) the Borrowers are in pro forma compliance with each of the financial covenants set forth in Section 7.14 (using Consolidated EBITDA of the Consolidated Group as of the last day of the applicable Pro Forma Reference Period (but including any addbacks to Consolidated EBITDA previously approved in the period following the last day of the applicable Pro Forma Reference Period) and Consolidated Total Funded Debt as of the date of, and after giving effect to, such acquisition (with such amounts adjusted as if such acquisition occurred on the first day of the applicable Pro Forma Reference Period));
(ii) at the time of such acquisition, no Default or Event of Default has occurred and is continuing, and such acquisition will not otherwise create a Default or an Event of Default hereunder;
(iii) the business to be acquired is predominantly in the same lines of business as the Borrowers, or businesses reasonably related or incidental thereto (e.g., non-hazardous solid waste collection, transfer, hauling, recycling, or disposal), except for Investments in other lines of business in an aggregate amount not to exceed $50,000,000 at any time outstanding for all such Investments (the amount of any such Investment being the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment);
(iv) all of the assets to be acquired shall be owned by an existing or newly created Subsidiary of the Parent which Subsidiary shall be or become a Borrower hereunder in accordance with Section 6.16 or be designated an Excluded Subsidiary in accordance with Section 6.19 and subject to Section 7.15;
(v) the board of directors and (if required by applicable law) the shareholders, or the equivalents thereof, of the business to be acquired has approved such acquisition; and
(vi) if such acquisition is made by a merger, a Borrower, or a wholly-owned Subsidiary of the Parent which shall become a Borrower in connection with such merger, shall be the surviving entity.
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Notwithstanding anything to the contrary set forth in this clause (a), the Parent shall not consummate any merger in which it is not the surviving entity.
(b) No Borrower shall become a party to or agree to or effect any Disposition of assets, other than (a) the sale of inventory, the licensing of intellectual property and the Disposition of obsolete assets, in each case in the ordinary course of business consistent with past practices, (b) a Disposition of assets from a Borrower to any other Borrower, (c) the sale or exchange of routes and related assets which, in the business judgment of the Borrowers, will not have a Material Adverse Effect, (d) assets with a fair market value of less than $50,000,000 per year transferred in connection with an asset sale or swap, which sale or swap, in the business judgment of the Borrowers, will not have a Material Adverse Effect, and (e) the sale, lease, assignment, transfer or other Disposition of Receivables in connection with any Permitted Receivables Transaction.
7.05 Sale and Leaseback. No Borrower shall enter into any arrangement, directly or indirectly, whereby such Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property which such Borrower intends to use for substantially the same purpose as the property being sold or transferred, without the prior written consent of the Required Lenders.
7.06 Restricted Payments and Redemptions. No Borrower shall make any Restricted Payments (provided, however, that neither the exercise of common stock purchase warrants or options to purchase common stock on a cashless exercise basis under a Borrowers equity incentive plans shall constitute a purchase or redemption of Equity Interests), except that (a) a Borrower may make any Restricted Payment to another Borrower, (b) the Parent may make any Restricted Payment so long as no Default or Event of Default exists or would be created by the making of such Restricted Payment (provided, that if as of the end of any fiscal quarter in any fiscal year (and after giving effect to any Indebtedness incurred to finance such Restricted Payment, if any), the Consolidated Group have on a consolidated basis a Leverage Ratio of greater than or equal to 3.00 to 1.00, as determined by reference to the most recent Compliance Certificate delivered to the Administrative Agent pursuant to Section 6.04, the Parent shall not make Restricted Payments in excess of $200,000,000 in the aggregate in such fiscal year, unless and until such time as the Consolidated Group shall have on a consolidated basis a Leverage Ratio of less than 3.00 to 1.00 as determined by reference to any subsequent Compliance Certificate delivered to the Administrative Agent pursuant to Section 6.04; provided further, that if (x) the Parent shall be prohibited from making Restricted Payments in excess of $200,000,000 in the aggregate in any fiscal year as a result of the application of the foregoing Leverage Ratio and (y) the Parent shall have previously made Restricted Payments in an aggregate amount greater than or equal to $200,000,000 during such fiscal year, the Parent shall not be deemed to be in violation of this Section 7.06 as a result of such pre-existing Restricted Payments but shall not make any additional Restricted Payments for the remainder of such fiscal year, unless and until such time as the Consolidated Group have on a consolidated basis a Leverage Ratio of less than 3.00 to 1.00 as determined by reference to any subsequent Compliance Certificate delivered to the Administrative Agent pursuant to Section 6.04) and (c) the Borrowers may make cash payments to its employees pursuant to one or more profit sharing, equity incentive or other benefit plan.
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7.07 Employee Benefit Plans. No Borrower nor any ERISA Affiliate will:
(a) engage in any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code or otherwise incur any excise taxes under Sections 4971, 4975, 4980B or 4980D of the Code which could reasonably be expected to result in a material liability (and in any event not in excess of $15,000,000) for any Borrower; or
(b) fail to satisfy the Pension Funding Rules with respect to any Pension Plan (other than a Multiemployer Plan) which could reasonably be expected to result in a material liability (and in any event not in excess of $15,000,000) for any Borrower or fail to meet or seek any waiver of the minimum funding standards or incur any funding shortfall (within the meaning of Sections 302 and 303 of ERISA or Sections 430 and 436 of the Code) with respect to any such Pension Plan which could reasonably be expected to result in a material liability (and in any event not in excess of $15,000,000) for any Borrower; or
(c) fail to contribute to any Pension Plan to an extent which, or terminate any Pension Plan (other than a Multiemployer Plan) in a manner which, could reasonably be expected to result in the imposition of a Lien securing material obligations (and in any event obligations in excess of $15,000,000) on any assets of any Borrower pursuant to Section 303(k) or Section 4068 of ERISA or Section 430(k) of the Code; or
(d) post any security pursuant to Section 436(f) of the Code or fail to meet the minimum required contribution payment obligations under Section 303(j) of ERISA with respect to any Pension Plan (other than a Multiemployer Plan) which could reasonably be expected to result in a material liability (and in any event not in excess of $15,000,000) for any Borrower; or
(e) permit or take any action which would result in the aggregate benefit liabilities (within the meaning of Section 4001 of ERISA) of all Pension Plans (other than any Multiemployer Plans) exceeding the value of the aggregate assets of such Pension Plans, disregarding for this purpose the benefit liabilities and assets of any such Pension Plan with assets in excess of benefit liabilities which could reasonably be expected to result in a material liability (and in any event not in excess of $15,000,000) for any Borrower; or
(f) incur any withdrawal liability within the meaning of Section 4201 of ERISA with respect to any Multiemployer Plan which could reasonably be expected to result in a material liability (and in any event not in excess of $15,000,000) for any Borrower.
7.08 Burdensome Agreements. Except as required by any Municipal Contract, no Borrower shall enter into or permit to exist any arrangement or agreement, enforceable under applicable law, which directly or indirectly prohibits such Borrower from (a) making Restricted Payments to the Parent or any other Borrower or otherwise transferring property to or investing in the Parent or any other Borrower, except for any such agreement or arrangement in effect at the time such Borrower became a Subsidiary of the Parent, so long as such agreement or arrangement was not entered into solely in contemplation of such Borrower becoming a Subsidiary of the Parent, (b) Guaranteeing the Indebtedness of the Parent or any other Borrower or (c) creating or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest or Lien in favor of the Administrative Agent for the
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benefit of the Lenders and the Administrative Agent under the Loan Documents other than customary anti-assignment provisions in leases and licensing agreements entered into by such Borrower in the ordinary course of its business; provided, however, that clause (c) of this Section 7.08 shall not prohibit any negative pledge (i) incurred or provided in favor of any holder of Indebtedness permitted under Section 7.01, (A) solely to the extent any such negative pledge relates to the property financed by such Indebtedness or (B) the terms of which are customary at the time of incurrence and are approved by the Administrative Agent in writing, (ii) with respect to any Subsidiary of Parent, imposed pursuant to an agreement which has been entered into for the sale or disposition permitted under Section 7.04(b), or (iii) in connection with restrictions imposed by applicable laws.
7.09 Business Activities. No Borrower will engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of business other than the businesses conducted by such Borrower on the Closing Date and in related businesses, except to the extent otherwise permitted under Sections 7.03 and 7.04.
7.10 Transactions with Affiliates. No Borrower will engage in any transaction with any non-Borrower Affiliate (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such non-Borrower Affiliate or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in which any such non-Borrower Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arms-length basis in the ordinary course of business.
7.11 Prepayments of Indebtedness. No Borrower shall prepay, redeem or repurchase any Indebtedness incurred by the Borrowers pursuant to Section 7.01 (other than Indebtedness under the Senior Revolving Credit Agreement) unless no Default or Event of Default has occurred and is continuing, or would be created thereby.
7.12 Accounting Changes. No Borrower will make any change in its accounting policies or reporting practices, except as required by GAAP.
7.13 Use of Proceeds. None of the Borrowers shall use the proceeds of any Term A Loan Borrowing, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
7.14 Financial Covenants.
(a) Leverage Ratio. As of the last day of each fiscal quarter of the Consolidated Group, the ratio of (i) Consolidated Total Funded Debt outstanding on such date to (ii) Consolidated EBITDA for the Reference Period ending on such date (the Leverage Ratio), shall not exceed 3.50:1.00.
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(b) Interest Coverage Ratio. As of the last day of any fiscal quarter of the Consolidated Group, the ratio of Consolidated EBIT to Consolidated Total Interest Expense, in each case for the Reference Period ending on such date, shall not be less than 2.75:1.00.
7.15 Restrictions on Excluded Subsidiaries. As of the end of each fiscal quarter of the Borrowers, (a) the aggregate book value of the assets of all Excluded Subsidiaries, shall not exceed five percent (5%) of the aggregate book value of the assets of the Consolidated Group as of the end of such fiscal quarter, and (b) the aggregate revenues of all Excluded Subsidiaries, shall not exceed five percent (5%) of the aggregate revenues of the Consolidated Group for the same period, in either case unless, within thirty (30) days after such date, the Parent re-designates one or more Excluded Subsidiaries as a Borrower or Borrowers hereunder to the extent necessary to satisfy the requirements of the foregoing clauses (a) and (b) (as re-measured for the relevant date or period). Any such re-designated Subsidiary shall become a Borrower by (x) signing a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent, providing that such Subsidiary shall become a Borrower hereunder, and (y) providing such other documentation as the Administrative Agent may reasonably request, including, without limitation, (i) KYC Requirement Information with respect to such re-designated Subsidiary and (ii) documentation with respect to the conditions specified in Section 4.01. In such event, the Administrative Agent is hereby authorized by the parties to amend Schedule 1 to designate such Subsidiary as a Borrower and add the KYC Requirement Information in respect thereof. For the avoidance of doubt, in the event that any Excluded Subsidiary is joined as a Borrower in accordance with this Section 7.15, such Subsidiary shall immediately cease to be an Excluded Subsidiary hereunder upon the effectiveness of such Subsidiary becoming a Borrower.
7.16 OFAC; FCPA. Permit any Term A Loan or the proceeds of any Term A Loan, to be used, directly or indirectly, (a) to lend, contribute or provide to, or otherwise be made available to fund, any activity or business in any Designated Jurisdiction or any activity or business of any Person located, organized or residing in any Designated Jurisdiction or who is the subject of any Sanctions, or in any other manner that will result in any violation by any Person (including any Lender, any Arranger or the Administrative Agent) of Sanctions, or (b) for any payments to any government official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977.
ARTICLE VIII. EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an Event of Default:
(a) the Borrowers fail to pay any principal of the Term A Loans when the same shall become due and payable, whether at the Maturity Date, or any accelerated date of maturity or at any other date fixed for payment;
(b) the Borrowers fail to pay any interest or fees or other amounts owing under the Loan Documents within five (5) Business Days after the same shall become due and payable whether at the Maturity Date or any accelerated date of maturity or at any other date fixed for payment;
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(c) the Borrowers fail to comply with the covenants contained in Sections 6.05, 6.13, 6.14 or 6.15 or Article VII;
(d) the Borrowers fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified in subsections (a), (b) and (c) above) within thirty (30) days after written notice of such failure has been given to the Borrowers by the Administrative Agent or any Lender;
(e) any representation or warranty contained in this Agreement or in any document or instrument delivered pursuant to or in connection with this Agreement proves to have been false in any material respect upon the date when made or repeated;
(f) any Borrower or any Excluded Subsidiary fails to pay at maturity, or within any applicable period of grace, any and all obligations for borrowed money (other than the Obligations) or any guaranty with respect thereto in an aggregate amount greater than $50,000,000 (or in any amount in the case of the Obligations under, and as defined in, the Senior Revolving Credit Agreement) or fails to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money in an aggregate amount greater than $50,000,000 (or in any amount in the case of the Obligations under, and as defined in, the Senior Revolving Credit Agreement) for such period of time as would permit (after the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof, unless the same shall have been waived by the holder(s) thereof;
(g) any Borrower or any Excluded Subsidiary institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for sixty (60) days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for sixty (60) days, or an order for relief is entered in any such proceeding;
(h) (i) any Borrower or any Excluded Subsidiary becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within thirty (30) days after its issue or levy;
(i) there remains in force, undischarged, unsatisfied and unstayed, for more than forty-five (45) days, whether or not consecutive, any final judgment against any Borrower or any Excluded Subsidiary which, with other outstanding final judgments against the Borrowers and the Excluded Subsidiaries, exceeds in the aggregate $20,000,000 after taking into account any undisputed insurance coverage;
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(j) (i) an ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrowers under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $20,000,000, or (ii) the Borrowers or any ERISA Affiliate fail to pay when due, after the expiration of any applicable grace period (or any period during which (x) any Borrower is permitted to contest its obligations to make such payment without incurring any liability (other than interest) or penalty and (y) any Borrower is contesting such obligation in good faith and by appropriate proceedings), any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $20,000,000;
(k) any of the Loan Documents is cancelled, terminated, revoked or rescinded, in each case other than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Lenders, or any action at law, suit in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents is commenced by or on behalf of any Borrower or any stockholder of any Borrower who is an officer or director of such Borrower, or any court or any other governmental or regulatory authority or agency of competent jurisdiction makes a determination that, or issues a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof;
(l) (i) other than pursuant to the sale of all of the Equity Interests of a Borrower permitted under Section 7.04, the Parent at any time legally or beneficially owns less than one hundred percent (100%) of the shares of the Equity Interests of each other Borrower (directly or indirectly in accordance with Section 6.16), or (ii) any person or group of persons (within the meaning of Section 13 or 14 of the Exchange Act) has acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of twenty-five percent (25%) or more of the outstanding shares of common stock of the Parent; or, during any period of twelve (12) consecutive calendar months, individuals who were directors of the Parent on the first day of such period cease to constitute a majority of the board of directors unless such new directors were approved by a majority of the directors who were directors on the first day of such period; provided, however, that any such change of control described in this clause (ii) resulting from an acquisition permitted under Section 7.04 shall not constitute a Default or an Event of Default hereunder; or
(m) the occurrence of a Change of Control under and as defined in any documents executed and/or delivered in connection any Covenanted Senior Debt.
8.02 Remedies Upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders:
(a) declare the commitment of each Lender to make a Term A Loan to be terminated, whereupon such commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Term A Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; and
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(c) exercise on behalf of itself and the Lenders any other right or remedy available under any other Loan Document, at law, in equity, under any other instrument, document or agreement or otherwise;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to any Borrower under the Bankruptcy Code, the obligation of each Lender to make a Term A Loan shall automatically terminate, the unpaid principal amount of all outstanding Term A Loans and all interest and other amounts as aforesaid shall automatically become due and payable, in each case without further act of the Administrative Agent or any Lender.
The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law, in equity, under any other instrument, document or agreement or otherwise, whether now existing or hereafter arising.
8.03 Application of Funds. After the exercise of remedies provided for in Section 8.02 (or after the Term A Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall, subject to the provisions of Section 2.18, be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders and amounts payable under Article III), ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Term A Loans and other Obligations arising under the Loan Documents, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Term A Loans ratably among the Lenders in proportion to the respective amounts described in this clause Fourth held by them; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
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ARTICLE IX. ADMINISTRATIVE AGENT
9.01 Appointment and Authorization of the Administrative Agent. Each of the Lenders hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof and thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and none of the Borrowers nor any other Borrower shall have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term agent herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term Lender or the Lenders shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrowers or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law;
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(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrowers or any of their Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity; and
(d) shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 8.02 and 10.01) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until written notice describing such Default is given in writing to the Administrative Agent by the Borrowers or a Lender. The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Section 4.01 or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
9.04 Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Term A Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Term A Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
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9.06 Resignation of the Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrowers. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrowers, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the Resignation Effective Date), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders appoint a successor Administrative Agent meeting the qualifications set forth above. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrowers and such Person remove such Person as Administrative Agent and, in consultation with the Borrowers, appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the Removal Effective Date), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents and (ii) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successors appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than as provided in Section 3.01(h) and other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor. After the retiring or removed Administrative Agents resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
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9.07 Non-Reliance on the Administrative Agent and Other the Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, no Lender holding a title listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder.
9.09 The Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Borrower, the Administrative Agent (irrespective of whether the principal of any Term A Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrowers) shall be entitled and empowered, by intervention in such proceeding or otherwise;
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Term A Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.09 and 10.04) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04. Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
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9.10 Release of Borrowers. The Lenders irrevocably authorize the Administrative Agent to release any Borrower from its obligations under the Loan Documents if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder or is designated as an Excluded Subsidiary in accordance with Section 6.19. Upon request by the Administrative Agent at any time, subject to the provisions of Section 10.01(g), the Required Lenders will confirm in writing the Administrative Agents authority to release any Borrower from its obligations under the Loan Documents pursuant to this Section 9.10.
ARTICLE X. MISCELLANEOUS
10.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrowers or any other Borrower therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrowers or the applicable Borrower, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:
(a) waive any condition set forth in Section 4.01 (other than subsection (g) thereof) without the written consent of each Lender except that, in the sole discretion of the Administrative Agent, only a waiver by the Administrative Agent shall be required with respect to immaterial matters or items noted in any post-closing letter made available to the Lenders with respect to which the Borrowers have given assurances satisfactory to the Administrative Agent that such items shall be delivered promptly following the Closing Date;
(b) extend or increase the Term A Loan Commitment of any Lender (or reinstate any Term A Loan Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;
(c) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments, if any) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly affected thereby (it being understood that any vote to rescind acceleration of amounts owing with respect to the Term A Loans and other Obligations under the Loan Documents shall only require the approval of the Required Lenders);
(d) reduce the principal of, or the rate of interest specified herein on, any Term A Loan or (subject to clause (iv) of the second proviso to this Section 10.01 with respect to the Fee Letter) any fees or other amounts payable hereunder or under any other Loan Document, without the written consent of each Lender directly affected thereby except that only the consent of the Required Lenders shall be necessary (i) to amend the definition of Default Rate or to waive any obligation of the Borrowers to pay interest at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Term A Loan or to reduce any fee;
(e) change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
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(f) change any provision of this Section or the definition of Required Lenders or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
(g) except as provided in Section 9.10, release the Parent or all or substantially all of the Borrowers from their Obligations under the Loan Documents without the written consent of each Lender; or
(h) release all or substantially all of any collateral hereafter securing all or any portion of the Obligations without the written consent of each Lender, subject to customary Lien release exceptions as may be provided in the documentation pursuant to which any such collateral is obtained;
and, provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Term A Loan Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender, and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than other affected Lenders shall require the consent of such Defaulting Lender.
Notwithstanding any provision in this Section 10.01 to the contrary, this Agreement may be amended with the written consent of the Required Lenders, the Administrative Agent and the Borrowers (i) to add one or more additional revolving credit or term loan facilities to this Agreement and to permit the extensions of credit and all related obligations and liabilities arising in connection therewith from time to time outstanding to share ratably (or on a basis subordinated to the existing facilities hereunder) in the benefits of this Agreement and the other Loan Documents with the obligations and liabilities from time to time outstanding in respect of the existing facilities hereunder, and (ii) in connection with the foregoing, to permit, as deemed appropriate by the Administrative Agent and approved by the Required Lenders, the Lenders providing such additional credit facilities to participate in any required vote or action required to be approved by the Required Lenders or by any other number, percentage or class of Lenders hereunder.
If any Lender does not consent to a proposed amendment, waiver, consent or release with respect to any Loan Document that requires the consent of each Lender, or requires the consent of each Lender directly affected by such proposed amendment, waiver, consent or release, and such amendment, waiver, consent or release has been approved by the Required Lenders or, as applicable, by more than fifty percent (50%) of the Lenders who would be directly affected by such amendment, waiver, consent or release (such non-consenting Lender in any such case, a Non-Consenting Lender), the Borrowers may, with the consent of the Administrative Agent, (y) repay such Non-Consenting Lenders Term A Loan on a non-pro-rata basis, or (z) replace such Non-Consenting Lender in accordance with Section 10.13; provided, that (i) such amendment, waiver, consent or release can be effected as a result of the assignment contemplated by such Section and/or by such repayment (together with all other such repayments effected by, or assignments required by, the Borrowers to be made pursuant to this paragraph) and (ii) no Event of Default will be continuing after giving effect to such amendment, waiver, consent or release and such assignment(s) and/or repayment(s).
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10.02 Notices; Effectiveness; Electronic Communications.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Borrowers or the Administrative Agent, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and
(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire (including, as appropriate, notices delivered solely to the Person designated by a Lender on its Administrative Questionnaire then in effect for the delivery of notices that may contain material non-public information relating to the Borrowers), as may be updated pursuant to Section 10.02(d).
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient), with confirmation of transmission by the transmitting equipment. Notices delivered through electronic communications to the extent provided in subsection (b) below, shall be effective as provided in such subsection (b).
(b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrowers may, in their discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by them, provided that approval of such procedures may be limited to particular notices or communications. Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the senders receipt of an acknowledgement from the intended recipient (such as by the return receipt requested function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii), if such notice, e-mail or other communication is not sent during the normal business hours of the recipient, such notice, e-mail or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
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(c) The Platform. THE PLATFORM IS PROVIDED AS IS AND AS AVAILABLE. THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the Agent Parties) have any liability to the Borrowers, any Lender or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrowers or the Administrative Agents transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such the Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrowers, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc. Each of the Borrowers and the Administrative Agent may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the other parties hereto. Each other Lender may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the Borrowers and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the Private Side Information or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lenders compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the Public Side Information portion of the Platform and that may contain material non-public information with respect to the Borrowers or their securities for purposes of United States Federal or state securities laws.
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(e) Reliance by the Administrative Agent and the Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic or electronic Loan Notices) purportedly given by or on behalf of a Responsible Officer of the Borrowers even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof. The Borrowers shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of the Borrowers, except in the case of any of the foregoing Persons who are seeking indemnification hereunder, to the extent such reliance resulted from such Persons gross negligence or willful misconduct as determined by a court of competent jurisdiction by a final and nonappealable judgment. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
10.03 No Waiver; Cumulative Remedies; Enforcement. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Borrowers or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Lenders; provided, however, that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 10.08 (subject to the terms of Section 2.13), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Borrower under any Debtor Relief Law; and provided further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b) and (c) of the preceding proviso and subject to Section 2.13, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
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10.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the Transactions shall be consummated), and (ii) all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent or any Lender; provided that for any individual enforcement action or series or related actions, the Borrowers shall not be required to pay legal fees, charges and disbursements of more than one primary outside counsel and any reasonably necessary local outside counsel for the Administrative Agent and the Lenders collectively, unless the representation of all such Persons by one counsel would be inappropriate due to the existence of an actual or potential conflict of interest, in which case the Borrower shall also be required to pay the legal fees, charges and disbursements of additional outside counsel to such conflicted Persons), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Term A Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Term A Loans.
(b) Indemnification by the Borrowers. The Borrowers shall indemnify the Administrative Agent (and any sub-agent thereof), each Arranger, each Lender and each Related Party of any of the foregoing Persons (each such Person being called an Indemnitee) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including settlement costs and the reasonable fees, charges and disbursements of any counsel for any Indemnitee; provided that for any individual claim or series or related claims, this indemnity shall only apply to the legal fees, charges and disbursements of one primary outside counsel and any reasonably necessary local outside counsel for all Indemnitees, unless the representation of all Indemnitees by one counsel would be inappropriate due to the existence of an actual or potential conflict of interest, in which case this indemnity shall also apply to the legal fees, charges and disbursements of additional outside counsel to such conflicted Indemnitees), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrowers) other than such Indemnitee and its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the Transactions, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Term A Loan or the use or proposed use of the proceeds therefrom, (iii) any aspect of the R360 Acquisition, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrowers or any other Borrower, and regardless of whether any Indemnitee is a party thereto, in all cases, whether or not caused by or arising, in whole or in part, out of the comparative, contributory or sole negligence of the Indemnitee; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrowers against an Indemnitee for material breach of such Indemnitees obligations hereunder or under any other Loan Document, if the Borrowers have obtained a final and nonappealable judgment in their favor on such claim as determined by a court of competent jurisdiction. Without limiting the provisions of Section 3.01(c), this Section 10.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
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(c) Reimbursement by the Lenders. To the extent that the Borrowers for any reason fail to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing (and without limiting their obligation to do so), each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lenders Term A Loan Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought and calculated as if any Defaulting Lender had funded its Term A Loan) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, each of the Borrowers shall not assert, and hereby waives, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the Transactions, any Term A Loan or the use of the proceeds thereof. No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the Transactions other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
(e) Payments. All amounts due under this Section shall be payable not later than ten (10) Business Days after demand therefor.
(f) Survival. The agreements in this Section and the indemnity provisions of Section 10.02(e) shall survive the resignation of the Administrative Agent, the replacement of any Lender and the repayment, satisfaction or discharge of all the other Obligations.
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10.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrowers is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
10.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by the Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of the Term A Loan at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) In the case of an assignment of the entire remaining amount of the Term A Loan at the time owing to such assigning Lender or contemporary assignments to related Approved Funds that equal at least the amount specified in subsection (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) In any case not described in subsection (b)(i)(A) of this Section, the outstanding principal amount of the Term A Loan of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if Trade Date is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrowers otherwise consent (each such consent not to be unreasonably withheld or delayed).
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(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lenders rights and obligations under this Agreement with respect to the Term A Loan assigned.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by clause (b)(i)(B) of this Section and, in addition:
(A) The consent of the Borrowers (not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrowers shall be deemed to have consented to any such assignment unless they object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; and
(B) The consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.
(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that, the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made (A) to the Borrowers or any of their respective Affiliates or Subsidiaries, (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B), or (C) to a natural Person.
(vi) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrowers and the Administrative Agent, the applicable pro rata share of Term A Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Term A Loans in accordance with its Term A Loan Percentage (calculated as if such Defaulting Lender had funded its Term A Loan). Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
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Subject to acceptance and recording thereof by the Administrative Agent pursuant to clause (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lenders rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits and subject to the obligations of Sections 3.01, 3.04, 3.05, and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lenders having been a Defaulting Lender. Upon request, the Borrowers (at their expense) shall execute and deliver a Term A Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section.
(c) Register. The Administrative Agent, acting solely for this purpose as an agent of the Borrowers (and such agency being solely for tax purposes), shall maintain at the Administrative Agents Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the principal amount (and stated interest) of the Term A Loan owing to each Lender pursuant to the terms hereof from time to time (the Register). The entries in the Register shall be conclusive absent manifest error, and the Borrowers, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by each of the Borrowers at any reasonable time and from time to time upon reasonable prior notice. In addition, at any time that a request for a consent for a material or substantive change to the Loan Documents is pending, any Lender may request and receive from the Administrative Agent a copy of the Register. Upon its receipt of and, if required, consent to, a duly completed Assignment and Assumption executed by an assigning Lender and an Eligible Assignee, such Eligible Assignees completed Administrative Questionnaire and any tax forms required by Section 3.01 (unless such assignee is already a Lender), together with the fee payable under Section 10.06(b)(iii), the Administrative Agent will, on the effective date thereof, record the Assignment and Assumption on the Register.
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(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrowers or the Administrative Agent, sell participations to any Person (other than a natural Person, a Defaulting Lender or any Borrower or any of the Borrowers respective Affiliates or Subsidiaries) (each, a Participant) in all or a portion of such Lenders rights and/or obligations under this Agreement (including all or a portion of the Term A Loan owing to it); provided, that (i) such Lenders obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lenders rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 10.04(c) without regard to the existence of any participation.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant. The Borrowers agree that each Participant shall be entitled to the benefits and subject to the obligations of Sections 3.01, 3.04 and 3.05 and shall be subject to the mitigation obligations and replacement pursuant to Section 3.06 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section (it being understood that the documentation required under Section 3.01(e) shall be delivered to the Lender who sells the participation) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided, that such Participant (A) agrees to be subject to the provisions of Sections 3.06 and 10.13 as if it were an assignee under paragraph (b) of this Section and (B) shall not be entitled to receive any greater payment under Sections 3.01 or 3.04, with respect to any participation, than the Lender from whom it acquired the applicable participation would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation, which Change in Law would have entitled the Lender from whom it acquired the applicable participation to receive such greater payment. Each Lender that sells a participation agrees, at the Borrowers request and expense, to use reasonable efforts to cooperate with the Borrowers to effectuate the provisions of Section 3.06 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender; provided, that such Participant agrees to be subject to Section 2.13 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrowers, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participants interest in the Term A Loans or other obligations under the Loan Documents (the Participant Register); provided, that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participants interest in any Term A Loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such Term A Loans or other obligations are in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
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(e) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Term A Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided, that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(f) Electronic Execution of Assignments. The words execution, signed, signature, and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
(g) Successor Administrative Agent. The Borrowers shall have the right to approve any successor Administrative Agent appointed pursuant to Section 9.6 at all times other than during the existence of an Event of Default (which consent shall not be unreasonably withheld or delayed). The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed by the Borrowers and such successor.
10.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed, subject to the provisions set forth in this Section 10.07, (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any Governmental Authority, purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrowers and their obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Parent or its Subsidiaries or the Term A Loans or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the Term A Loans, (h) with the consent of the Borrowers or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section or (y) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrowers.
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For purposes of this Section, Information means all information received from the Parent or any Subsidiary relating to the Parent, any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by the Parent or any Subsidiary, provided that, in the case of information received from the Parent or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential (other than Information provided under Sections 6.04, 6.13, 6.14, 6.15, 6.18 or 7.14 (i.e., such Information provided under such sections does not need to be labeled confidential to be treated as confidential)). Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Parent or any Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including Securities Laws and state securities Laws.
Notwithstanding the foregoing, unless specifically prohibited by applicable Law or court order, each of the Administrative Agent, the Lenders and each of their respective Affiliates shall, prior to disclosure thereof, notify the Borrowers of any request for disclosure of any such non-public information by any Governmental Authority or representative thereof (other than any such request in connection with an examination of the Administrative Agent, such Lender or such Affiliate by such Governmental Authority) or pursuant to legal process.
The provisions of this Section 10.07 do not apply to any proceedings between the parties to this Agreement.
10.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of its Affiliates is hereby authorized at any time and from time to time, after giving prior written notice to the Administrative Agent, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrowers or any of them against any and all of the obligations of the Borrowers now or hereafter existing under this Agreement or any other Loan Document to such Lender or any such Affiliate, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrowers may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness; provided, that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.18 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have. Each Lender agrees to notify the Borrowers and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
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10.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the Maximum Rate). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Term A Loans or, if it exceeds such unpaid principal, refunded to the Borrowers. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
10.10 Counterparts; Effectiveness. This Agreement and the other Loan Documents may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in Section 4.01 or as provided in the applicable Loan Document, this Agreement or such other Loan Documents shall become effective when they shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof or thereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement and any other Loan Document by telecopy or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement and the other Loan Documents.
10.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Term A Loan Borrowing, and shall continue in full force and effect as long as any Term A Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.
10.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 10.12, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent, then such provisions shall be deemed to be in effect only to the extent not so limited.
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10.13 Replacement of Lenders. If the Borrowers are entitled to replace a Lender pursuant to the provisions of Section 3.06, or if any Lender is a Defaulting Lender or a Non-Consenting Lender, or if any other circumstance exists hereunder that gives the Borrowers the right to replace a Lender as a party hereto, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01 and 3.04) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which Eligible Assignee may be another Lender, if a Lender accepts such assignment), provided, that:
(a) the Borrowers or assignee Lender shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b)(iv) unless such assignment fee is waived by the Administrative Agent in its sole discretion pursuant to Section 10.06(b)(iv);
(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Term A Loan, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the Eligible Assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);
(c) in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter;
(d) such assignment does not conflict with applicable Laws; and
(e) in the case of an assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
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10.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS (EXCLUDING THE CONSUMMATION OF THE R360 ACQUISITION) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ANY PARTY HERETO MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY OTHER PARTY HERETO OR ANY OF THEIR PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
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10.15 Waiver of Right to Trial by Jury. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS (EXCLUDING THE CONSUMMATION OF THE R360 ACQUISITION BUT NOT THE FUNDING OF SUCH ACQUISITION UNDER THE LOAN DOCUMENTS) (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.16 USA PATRIOT Act Notice. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act), it is required to obtain, verify and record information that identifies the Borrowers, which information includes the name and address of each of the Borrowers and other information that will allow such Lender or the Administrative Agent, as applicable, to identify the Borrowers in accordance with the Act. The Borrowers shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable know your customer an anti-money laundering rules and regulations, including the Act.
10.17 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Borrowers acknowledges and agrees that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent, the Arrangers and the Lenders are arms-length commercial transactions between the Borrowers and their Affiliates, on the one hand, and the Administrative Agent, the Arrangers and the Lenders on the other hand, (B) each of the Borrowers has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrowers is capable of evaluating, and understands and accepts, the terms, risks and conditions of the Transactions; (ii) (A) each of the Administrative Agent, each Arranger and each Lender is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for any of the Borrowers or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent nor any Arranger nor any Lender has any obligation to the Borrowers or any of their Affiliates with respect to the Transactions except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Arrangers, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrowers and their Affiliates, and neither the Administrative Agent nor any Arranger nor any Lender has any obligation to disclose any of such interests to the Borrowers or any of their Affiliates. To the fullest extent permitted by law, each of the Borrowers hereby waive and release any claims that they may have against the Administrative Agent, any Arranger or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any of the Transactions.
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10.18 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
[Remainder of Page Intentionally Left Blank.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
BORROWERS:
WASTE CONNECTIONS, INC.
ADVANCED SYSTEMS PORTABLE RESTROOMS, INC.
ALASKA WASTE-INTERIOR, LLC
ALASKA WASTE-KENAI PENINSULA, LLC
ALASKA WASTE MAT-SU, LLC
AMERICAN DISPOSAL COMPANY, INC.
AMERICAN SANITARY SERVICE, INC.
ANDERSON COUNTY LANDFILL, INC.
ANDERSON REGIONAL LANDFILL, LLC
BITUMINOUS RESOURCES, INC.
BRENT RUN LANDFILL, INC.
BROADACRE LANDFILL, INC.
BUTLER COUNTY LANDFILL, INC.
CALPET, LLC
CAMINO REAL ENVIRONMENTAL CENTER, INC.
CAPITAL REGION LANDFILLS, INC.
CARPENTER WASTE HOLDINGS, LLC
CHAMBERS DEVELOPMENT OF NORTH CAROLINA, INC.
CHIQUITA CANYON, INC.
CHIQUITA CANYON, LLC
CLIFTON ORGANICS, LLC
COLD CANYON LAND FILL, INC.
COLUMBIA RESOURCE CO., L.P.
COMMUNITY REFUSE DISPOSAL INC.
CONTRACTORS WASTE SERVICES, INC.
CORRAL DE PIEDRA LAND COMPANY
COUNTY WASTE ULSTER, LLC
COUNTY WASTE AND RECYCLING SERVICE, INC.
COUNTY WASTE TRANSFER CORP.
CRI HOLDINGS, LLC
CURRY TRANSFER & RECYCLING, INC.
D. M. DISPOSAL CO., INC.
DELTA CONTRACTS, LLC
DENVER REGIONAL LANDFILL, INC.
DIVERSIFIED BUILDINGS, L.L.C.
EL PASO DISPOSAL, LP
ELKO SANITATION COMPANY
EMPIRE DISPOSAL, INC.
ENVIRONMENTAL TRUST COMPANY
ENTECH ALASKA LLC
EVERGREEN DISPOSAL, INC.
FINLEY-BUTTES LIMITED PARTNERSHIP
(Signature Page to Credit Agreement)
FINNEY COUNTY LANDFILL, INC.
FORT ANN TRANSFER STATION, LLC
FRONT RANGE LANDFILL, INC.
G & P DEVELOPMENT, INC.
GREEN WASTE SOLUTIONS OF ALASKA, LLC
HAROLD LEMAY ENTERPRISES, INCORPORATED
HIGH DESERT SOLID WASTE FACILITY, INC.
HUDSON VALLEY WASTE HOLDING, INC.
ISLAND DISPOSAL, INC.
J BAR J LAND, INC.
LACASSINE HOLDINGS, L.L.C.
LAKESHORE DISPOSAL, INC.
LAUREL RIDGE LANDFILL, L.L.C.
LEALCO, INC.
LFC, INC.
MADERA DISPOSAL SYSTEMS, INC.
MAMMOTH DISPOSAL COMPANY
MANAGEMENT ENVIRONMENTAL NATIONAL, INC.
MASON COUNTY GARBAGE CO., INC.
MBO, LLC
MDSI OF LA, INC.
MILLENNIUM WASTE INCORPORATED
MISSION COUNTRY DISPOSAL
MORRO BAY GARBAGE SERVICE
MURREYS DISPOSAL COMPANY, INC.
NEBRASKA ECOLOGY SYSTEMS, INC.
NOBLES COUNTY LANDFILL, INC.
NORTHWEST CONTAINER SERVICES, INC.
OKLAHOMA CITY WASTE DISPOSAL, INC.
OKLAHOMA LANDFILL HOLDINGS, INC.
OSAGE LANDFILL, INC.
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER I, INC.
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER II, INC.
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER III, INC.
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER IV, INC.
PIERCE COUNTY RECYCLING, COMPOSTING AND DISPOSAL, LLC
POTRERO HILLS LANDFILL, INC.
PRAIRIE DISPOSAL, LLC
PRAIRIE LIQUIDS, LLC
PSI ENVIRONMENTAL SERVICES, INC.
PSI ENVIRONMENTAL SYSTEMS, INC.
R360 ARTESIA, LLC
R360 CLACO, LLC
R360 ENVIRONMENTAL SOLUTIONS, LLC
R360 HITCHCOCK, LLC
R360 LOGISTICS, LLC
95
R360 OKLAHOMA, LLC
R360 PERMIAN BASIN, LLC
R360 SHUTE CREEK, LLC
R360 SILO, LLC
R360 WILLISTON BASIN, LLC
R.A. BROWNRIGG INVESTMENTS, INC.
R.J.C. TRUCKING CO.
RAILROAD AVENUE DISPOSAL, LLC
RED CARPET LANDFILL, INC.
RH FINANCIAL CORPORATION
RICH VALLEY, LLC
RKS HOLDING, CORP.
RURAL WASTE MANAGEMENT, INC.
SAN LUIS GARBAGE COMPANY
SANIPAC, INC.
SCOTT SOLID WASTE DISPOSAL COMPANY
SCOTT WASTE SERVICES, LLC
SEABREEZE RECOVERY, INC.
SEDALIA LAND COMPANY
SIERRA HOLDING GROUP, LLC
SIERRA PROCESSING, LLC
SILVER SPRINGS ORGANICS L.L.C.
SKB ENVIRONMENTAL, INC.
SKB (AUSTIN) ENVIRONMENTAL, LLC
SKB RECYCLING, LLC
SOUTH COUNTY SANITARY SERVICE, INC.
STERLING AVENUE PROPERTIES, LLC
STUTZMAN REFUSE DISPOSAL INC.
TACOMA RECYCLING COMPANY, INC.
TENNESSEE WASTE MOVERS, INC.
US LIQUIDS OF LA, L.P.
VOORHEES SANITATION, L.L.C.
WASCO COUNTY LANDFILL, INC.
WASTE CONNECTIONS MANAGEMENT SERVICES, INC.
WASTE CONNECTIONS OF ALABAMA, INC.
WASTE CONNECTIONS OF ALASKA, INC.
WASTE CONNECTIONS OF ARIZONA, INC.
WASTE CONNECTIONS OF ARKANSAS, INC.
WASTE CONNECTIONS OF CALIFORNIA, INC.
WASTE CONNECTIONS OF CANADA HOLDINGS, INC.
WASTE CONNECTIONS OF COLORADO, INC.
WASTE CONNECTIONS OF GEORGIA, INC.
WASTE CONNECTIONS OF IDAHO, INC.
WASTE CONNECTIONS OF ILLINOIS, INC.
WASTE CONNECTIONS OF IOWA, INC.
WASTE CONNECTIONS OF KANSAS, INC.
WASTE CONNECTIONS OF KENTUCKY, INC.
96
WASTE CONNECTIONS OF LEFLORE, LLC
WASTE CONNECTIONS OF LOUISIANA, INC.
WASTE CONNECTIONS OF MINNESOTA, INC.
WASTE CONNECTIONS OF MISSISSIPPI DISPOSAL SERVICES, LLC
WASTE CONNECTIONS OF MISSISSIPPI, INC.
WASTE CONNECTIONS OF MONTANA, INC.
WASTE CONNECTIONS OF NEBRASKA, INC.
WASTE CONNECTIONS OF NEW MEXICO, INC.
WASTE CONNECTIONS OF NORTH CAROLINA, INC.
WASTE CONNECTIONS OF OKLAHOMA, INC.
WASTE CONNECTIONS OF OREGON,INC.
WASTE CONNECTIONS OF SOUTH CAROLINA, INC.
WASTE CONNECTIONS OF SOUTH DAKOTA, INC.
WASTE CONNECTIONS OF TENNESSEE, INC.
WASTE CONNECTIONS OF TEXAS, LLC
WASTE CONNECTIONS OF THE CENTRAL VALLEY, INC.
WASTE CONNECTIONS OF UTAH, INC.
WASTE CONNECTIONS OF WASHINGTON, INC.
WASTE CONNECTIONS OF WYOMING, INC.
WASTE CONNECTIONS TRANSPORTATION COMPANY, INC.
WASTE REDUCTION SERVICES, L.L.C.
WASTE SERVICES OF N.E. MISSISSIPPI, INC.
WASTE SOLUTIONS GROUP OF SAN BENITO, LLC
WCI-WHITE OAKS LANDFILL, INC.
WCI HOLDINGS CO., INC.
WEST BANK ENVIRONMENTAL SERVICES, INC.
WEST COAST RECYCLING AND TRANSFER, INC.
WYOMING ENVIRONMENTAL SERVICES, INC.
YAKIMA WASTE SYSTEMS, INC.
By: | /s/ Worthing F. Jackman | |
Name: Worthing F. Jackman | ||
Title: Authorized Signatory to Each of the | ||
Above-Listed Borrowers |
97
BANK OF AMERICA, N.A., | ||
as Administrative Agent | ||
By: | /s/ Maria F. Maia | |
Name: Maria F. Maia | ||
Title: Managing Director |
(Signature Page to Credit Agreement)
BANK OF AMERICA, N.A., | ||
as a Lender | ||
By: | /s/ Maria F. Maia | |
Name: Maria F. Maia | ||
Title: Managing Director |
(Signature Page to Credit Agreement)
Wells Fargo Bank, N.A., | ||
as a Lender | ||
By: | /s/ Hamid Hussain | |
Name: Hamid Hussain | ||
Title: Senior Vice President |
(Signature Page to Credit Agreement)
JPMorgan Chase Bank, N.A., | ||
as a Lender | ||
By: | /s/ Keith Winzenried | |
Name: Keith Winzenried | ||
Title: Credit Executive |
(Signature Page to Credit Agreement)
PNC BANK, NATIONAL BANK, | ||
as a Lender | ||
By: | /s/ Jennifer L. Shafer | |
Name: Jennifer L. Shafer | ||
Title: Vice President |
(Signature Page to Credit Agreement)
Union Bank, N.A. | ||
as a Lender | ||
By: | /s/ Sandra Cortes | |
Name: Sandra Cortes | ||
Title: Vice President |
(Signature Page to Credit Agreement)
SUMITOMO MITSUI BANKING CORPORATION, | ||
as a Lender | ||
By: | /s/ David W. Kee | |
David W. Kee | ||
Managing Director |
(Signature Page to Credit Agreement)
Compass Bank, | ||
as a Lender | ||
By: | /s/ Randall Morrison | |
Name: Randall Morrison | ||
Title: Executive Director |
(Signature Page to Credit Agreement)
Branch Banking and Trust Company | ||
as a Lender | ||
By: | /s/ Mark B. Grover | |
Name: Mark B. Grover | ||
Title: Senior Vice President |
(Signature Page to Credit Agreement)
CoBank, ACB | ||
as a Lender | ||
By: | /s/ Bryan Ervin | |
Name: Bryan Ervin | ||
Title: Vice President |
(Signature Page to Credit Agreement)
Comerica Bank, | ||
as a Lender | ||
By: | /s/ Erik McKay | |
Name: Erik McKay | ||
Title: Vice President |
(Signature Page to Credit Agreement)
SCHEDULE 1
Borrower Subsidiaries
Name of Subsidiary |
Jurisdiction of | |
ADVANCED SYSTEMS PORTABLE RESTROOMS, INC. |
Oregon | |
ALASKA WASTE-INTERIOR, LLC |
Alaska | |
ALASKA WASTE-KENAI PENINSULA, LLC |
Alaska | |
ALASKA WASTE MAT-SU, LLC |
Alaska | |
AMERICAN DISPOSAL COMPANY, INC. |
Washington | |
AMERICAN SANITARY SERVICE, INC. |
Oregon | |
ANDERSON COUNTY LANDFILL, INC. |
Delaware | |
ANDERSON REGIONAL LANDFILL, LLC |
Delaware | |
BITUMINOUS RESOURCES, INC. |
Kentucky | |
BRENT RUN LANDFILL, INC. |
Delaware | |
BROADACRE LANDFILL, INC. |
Colorado | |
BUTLER COUNTY LANDFILL, INC. |
Nebraska | |
CALPET, LLC |
Wyoming | |
CAMINO REAL ENVIRONMENTAL CENTER, INC. |
New Mexico | |
CAPITAL REGION LANDFILLS, INC. |
New York | |
CARPENTER WASTE HOLDINGS, LLC |
New York | |
CHAMBERS DEVELOPMENT OF NORTH CAROLINA, INC. |
North Carolina | |
CHIQUITA CANYON, INC. |
Delaware | |
CHIQUITA CANYON, LLC |
Delaware | |
CLIFTON ORGANICS, LLC |
New York | |
COLD CANYON LAND FILL, INC. |
California | |
COLUMBIA RESOURCE CO., L.P. |
Washington | |
COMMUNITY REFUSE DISPOSAL INC. |
Nebraska | |
CONTRACTORS WASTE SERVICES, INC. |
Kentucky | |
CORRAL DE PIEDRA LAND COMPANY |
California | |
COUNTY WASTE ULSTER, LLC |
New York | |
COUNTY WASTE AND RECYCLING SERVICE, INC. |
New York | |
COUNTY WASTE TRANSFER CORP. |
New York | |
CRI HOLDINGS, LLC |
Delaware | |
CURRY TRANSFER & RECYCLING, INC. |
Oregon | |
D. M. DISPOSAL CO., INC. |
Washington | |
DELTA CONTRACTS, LLC |
Delaware |
Schedule 1
Borrower Subsidiaries
Name of Subsidiary |
Jurisdiction of | |
DENVER REGIONAL LANDFILL, INC. |
Colorado | |
DIVERSIFIED BUILDINGS, L.L.C. |
Kansas | |
EL PASO DISPOSAL, LP |
Texas | |
ELKO SANITATION COMPANY |
Nevada | |
EMPIRE DISPOSAL, INC. |
Washington | |
ENVIRONMENTAL TRUST COMPANY |
Tennessee | |
ENTECH ALASKA LLC |
Alaska | |
EVERGREEN DISPOSAL, INC. |
Montana | |
FINLEY-BUTTES LIMITED PARTNERSHIP |
Oregon | |
FINNEY COUNTY LANDFILL, INC. |
Delaware | |
FORT ANN TRANSFER STATION, LLC |
New York | |
FRONT RANGE LANDFILL, INC. |
Delaware | |
G & P DEVELOPMENT, INC. |
Nebraska | |
GREEN WASTE SOLUTIONS OF ALASKA, LLC |
Alaska | |
HAROLD LEMAY ENTERPRISES, INCORPORATED |
Washington | |
HIGH DESERT SOLID WASTE FACILITY, INC. |
New Mexico | |
HUDSON VALLEY WASTE HOLDING, INC. |
Delaware | |
ISLAND DISPOSAL, INC. |
Washington | |
J BAR J LAND, INC. |
Nebraska | |
LACASSINE HOLDINGS, L.L.C. |
Louisiana | |
LAKESHORE DISPOSAL, INC. |
Idaho | |
LAUREL RIDGE LANDFILL, L.L.C. |
Delaware | |
LEALCO, INC. |
Texas | |
LFC, INC. |
Delaware | |
MADERA DISPOSAL SYSTEMS, INC. |
California | |
MAMMOTH DISPOSAL COMPANY |
California | |
MANAGEMENT ENVIRONMENTAL NATIONAL, INC. |
Washington | |
MASON COUNTY GARBAGE CO., INC. |
Washington | |
MBO, LLC |
Delaware | |
MDSI OF LA, INC. |
California | |
MILLENNIUM WASTE INCORPORATED |
Indiana | |
MISSION COUNTRY DISPOSAL |
California | |
MORRO BAY GARBAGE SERVICE |
California | |
MURREYS DISPOSAL COMPANY, INC. |
Washington | |
NEBRASKA ECOLOGY SYSTEMS, INC. |
Nebraska |
Schedule 1
Borrower Subsidiaries
Name of Subsidiary |
Jurisdiction of | |
NOBLES COUNTY LANDFILL, INC. |
Minnesota | |
NORTHWEST CONTAINER SERVICES, INC. |
Oregon | |
OKLAHOMA CITY WASTE DISPOSAL, INC. |
Oklahoma | |
OKLAHOMA LANDFILL HOLDINGS, INC. |
Delaware | |
OSAGE LANDFILL, INC. |
Oklahoma | |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER I, INC. |
Delaware | |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER II, INC. |
Delaware | |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER III, INC. |
Delaware | |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER IV, INC. |
Delaware | |
PIERCE COUNTY RECYCLING, COMPOSTING AND DISPOSAL, LLC |
Washington | |
POTRERO HILLS LANDFILL, INC. |
California | |
PRAIRIE DISPOSAL, LLC |
North Dakota | |
PRAIRIE LIQUIDS, LLC |
Delaware | |
PSI ENVIRONMENTAL SERVICES, INC. |
Indiana | |
PSI ENVIRONMENTAL SYSTEMS, INC. |
Indiana | |
R360 ARTESIA, LLC |
Delaware | |
R360 CLACO, LLC |
Delaware | |
R360 ENVIRONMENTAL SOLUTIONS, LLC |
Delaware | |
R360 HITCHCOCK, LLC |
Delaware | |
R360 LOGISTICS, LLC |
Delaware | |
R360 OKLAHOMA, LLC |
Delaware | |
R360 PERMIAN BASIN, LLC |
New Mexico | |
R360 SHUTE CREEK, LLC |
Delaware | |
R360 SILO, LLC |
Delaware | |
R360 WILLISTON BASIN, LLC |
Delaware | |
R.A. BROWNRIGG INVESTMENTS, INC. |
Oregon | |
R.J.C. TRUCKING CO. |
Oregon | |
RAILROAD AVENUE DISPOSAL, LLC |
Delaware | |
RED CARPET LANDFILL, INC. |
Oklahoma | |
RH FINANCIAL CORPORATION |
Washington | |
RICH VALLEY, LLC |
Minnesota | |
RKS HOLDING, CORP. |
New York | |
RURAL WASTE MANAGEMENT, INC. |
Oklahoma | |
SAN LUIS GARBAGE COMPANY |
California | |
SANIPAC, INC. |
Oregon |
Schedule 1
Borrower Subsidiaries
Name of Subsidiary |
Jurisdiction of | |
SCOTT SOLID WASTE DISPOSAL COMPANY |
Tennessee | |
SCOTT WASTE SERVICES, LLC |
Kentucky | |
SEABREEZE RECOVERY, INC. |
Delaware | |
SEDALIA LAND COMPANY |
Colorado | |
SIERRA HOLDING GROUP, LLC |
New York | |
SIERRA PROCESSING, LLC |
New York | |
SILVER SPRINGS ORGANICS L.L.C. |
Washington | |
SKB ENVIRONMENTAL, INC. |
Minnesota | |
SKB (AUSTIN) ENVIRONMENTAL, LLC |
Minnesota | |
SKB RECYCLING, LLC |
Minnesota | |
SOUTH COUNTY SANITARY SERVICE, INC. |
California | |
STERLING AVENUE PROPERTIES, LLC |
New York | |
STUTZMAN REFUSE DISPOSAL INC. |
Kansas | |
TACOMA RECYCLING COMPANY, INC. |
Washington | |
TENNESSEE WASTE MOVERS, INC. |
Delaware | |
US LIQUIDS OF LA, L.P. |
Delaware | |
VOORHEES SANITATION, L.L.C. |
Idaho | |
WASCO COUNTY LANDFILL, INC. |
Delaware | |
WASTE CONNECTIONS MANAGEMENT SERVICES, INC. |
Delaware | |
WASTE CONNECTIONS OF ALABAMA, INC. |
Delaware | |
WASTE CONNECTIONS OF ALASKA, INC. |
Delaware | |
WASTE CONNECTIONS OF ARIZONA, INC. |
Delaware | |
WASTE CONNECTIONS OF ARKANSAS, INC. |
Delaware | |
WASTE CONNECTIONS OF CALIFORNIA, INC. |
California | |
WASTE CONNECTIONS OF CANADA HOLDINGS, INC. |
Delaware | |
WASTE CONNECTIONS OF COLORADO, INC. |
Delaware | |
WASTE CONNECTIONS OF GEORGIA, INC. |
Delaware | |
WASTE CONNECTIONS OF IDAHO, INC. |
Indiana | |
WASTE CONNECTIONS OF ILLINOIS, INC. |
Delaware | |
WASTE CONNECTIONS OF IOWA, INC. |
Iowa | |
WASTE CONNECTIONS OF KANSAS, INC. |
Delaware | |
WASTE CONNECTIONS OF KENTUCKY, INC. |
Delaware | |
WASTE CONNECTIONS OF LEFLORE, LLC |
Mississippi | |
WASTE CONNECTIONS OF LOUISIANA, INC. |
Delaware | |
WASTE CONNECTIONS OF MINNESOTA, INC. |
Minnesota |
Schedule 1
Borrower Subsidiaries
Name of Subsidiary |
Jurisdiction of | |
WASTE CONNECTIONS OF MISSISSIPPI DISPOSAL SERVICES, LLC |
Mississippi | |
WASTE CONNECTIONS OF MISSISSIPPI, INC. |
Delaware | |
WASTE CONNECTIONS OF MONTANA, INC. |
Delaware | |
WASTE CONNECTIONS OF NEBRASKA, INC. |
Delaware | |
WASTE CONNECTIONS OF NEW MEXICO, INC. |
Delaware | |
WASTE CONNECTIONS OF NORTH CAROLINA, INC. |
Delaware | |
WASTE CONNECTIONS OF OKLAHOMA, INC. |
Oklahoma | |
WASTE CONNECTIONS OF OREGON, INC. |
Oregon | |
WASTE CONNECTIONS OF SOUTH CAROLINA, INC. |
Delaware | |
WASTE CONNECTIONS OF SOUTH DAKOTA, INC. |
South Dakota | |
WASTE CONNECTIONS OF TENNESSEE, INC. |
Delaware | |
WASTE CONNECTIONS OF TEXAS, LLC |
Delaware | |
WASTE CONNECTIONS OF THE CENTRAL VALLEY, INC. |
California | |
WASTE CONNECTIONS OF UTAH, INC. |
Delaware | |
WASTE CONNECTIONS OF WASHINGTON, INC. |
Washington | |
WASTE CONNECTIONS OF WYOMING, INC. |
Delaware | |
WASTE CONNECTIONS TRANSPORTATION COMPANY, INC. |
Oregon | |
WASTE REDUCTION SERVICES, L.L.C. |
Oregon | |
WASTE SERVICES OF N.E. MISSISSIPPI, INC. |
Mississippi | |
WASTE SOLUTIONS GROUP OF SAN BENITO, LLC |
Delaware | |
WCI-WHITE OAKS LANDFILL, INC. |
Delaware | |
WCI HOLDINGS CO., INC. |
Delaware | |
WEST BANK ENVIRONMENTAL SERVICES, INC. |
Indiana | |
WEST COAST RECYCLING AND TRANSFER, INC. |
Oregon | |
WYOMING ENVIRONMENTAL SERVICES, INC. |
Indiana | |
YAKIMA WASTE SYSTEMS, INC. |
Washington |
Excluded Subsidiaries
Name of Excluded Subsidiary |
Jurisdiction of | |
ECOSORT, L.L.C. | Oregon | |
WEST VALLEY COLLECTION & RECYCLING, LLC | California |
Schedule 1
Borrower Subsidiaries
SCHEDULE 1.01
Covenanted Senior Debt
Pursuant to the terms and conditions of that certain Master Note Purchase Agreement, dated July 15, 2008, by and among certain of the Borrowers and certain accredited institutional investors, as amended, including the First and Second Supplements thereto, the following senior unsecured notes are issued and outstanding:
1. | $175,000,000 of 6.22% Senior Notes due 2015 |
2. | $175,000,000 of 5.25% Senior Notes due 2019 |
3. | $100,000,000 of 3.30% Senior Notes due 2016, $50,000,000 of 4.00% Senior Notes due 2018, and $100,000,000 of 4.64% Senior Notes due 2021 |
Schedule 1.01
Covenanted Senior Debt
SCHEDULE 2.01
Commitments and Applicable Percentages
Lender |
Term A Loan Commitment | Term A Loan Percentage | ||||||
Bank of America, N.A. |
$ | 225,000,000 | 28.125000000 | |||||
Wells Fargo Bank, National Association |
$ | 150,000,000 | 18.750000000 | |||||
JPMorgan Chase Bank, N.A. |
$ | 100,000,000 | 12.500000000 | |||||
PNC Bank, National Association |
$ | 100,000,000 | 12.500000000 | |||||
Union Bank, N.A. |
$ | 50,000,000 | 6.250000000 | |||||
Sumitomo Mitsui Banking Corporation |
$ | 50,000,000 | 6.250000000 | |||||
Compass Bank |
$ | 50,000,000 | 6.250000000 | |||||
Branch Banking and Trust Company |
$ | 25,000,000 | 3.125000000 | |||||
CoBank, ACB |
$ | 25,000,000 | 3.125000000 | |||||
Comerica Bank |
$ | 25,000,000 | 3.125000000 | |||||
TOTAL |
$ | 800,000,000 | 100.000000000 | % |
Schedule 2.01
Commitments and Applicable Percentages
SCHEDULE 5.07
Litigation
None.
Schedule 5.07
Litigation
SCHEDULE 5.16
Environmental Matters
None.
Schedule 5.16
Environmental Matters
SCHEDULE 5.17
Related Party Transactions
In fiscal 2012, Parent relocated its corporate headquarters from Folsom, California to The Woodlands, Texas. In connection with the relocation, Parent established a company-wide relocation program for all employees. Parents relocation program includes home marketing assistance to help sell an employees home, a guaranteed purchase offer, a directed offer above appraised value benefit, home purchase assistance, reimbursement of certain out-of-pocket expenses related to relocating and certain home sale expenses, shipment of household goods, temporary living allowance for relocation costs and tax gross-ups for certain relocation benefits. These relocation benefits are available to all employees, including Parents named executive officers, who relocated from Parents previous headquarters in Folsom, California, to Parents new headquarters in The Woodlands, Texas, and are subject to a five-year repayment obligation under which the employee may be required to refund to Parent all or a portion of the moving and relocation expenses Parent reimburses to the employee or pays for the employee in the event of certain terminations of employment before the expiration of the five-year repayment period.
Parent engaged the services of an independent relocation company (the Provider) to provide the relocation and related services. Pursuant to the guaranteed purchase offer provision of the relocation program, the Provider offers to purchase an employees former residence at a purchase price equal to the average of two independent appraisals of the property (or if there is more than a 5% variance between the two appraised values, the average of the two out of three closest appraisal values) or equal to an independent third-party offer. Pursuant to the directed offer above appraised value provision of the relocation program, under which an employee that purchased or built their home within two years of the relocation may be offered a purchase price equal to such employees cost basis, the Provider offers to purchase such employees former residence at a purchase price equal to his or her cost basis of purchasing or building his or her home. Parent will reimburse the Provider for all expenses, including any losses from the resale of the residence to a third-party buyer, and Parent will receive the gains from the resale of the residence, if the resale price is greater than the price the Provider paid for the property.
Schedule 5.17
Related Party Transactions
SCHEDULE 6.07
Permitted Self-Insurance
Deductible levels in the Borrowers high deductible insurance program are listed below:
Automobile Liability Insurance |
$ | 2,000,000.00 | ||
Workers Compensation and Employers Liability Insurance |
$ | 1,500,000.00 | ||
General Liability Insurance |
$ | 1,000,000.00 | ||
Pollution Legal Liability (PLL) Insurance |
$ | 250,000.00 | ||
Employment Practices Liability |
$ | 250,000.00 | ||
Employee Group Health Insurance |
$ | 250,000.00 | ||
All-Risk Property Insurance |
$ | 25,000.00 |
Schedule 6.07
Permitted Self-Insurance
SCHEDULE 7.01
Existing Indebtedness
Outstanding | ||||||
Lender |
Borrower |
Balance | ||||
California Pollution Control Financing Authority |
Waste Connections, Inc. | 15,500,000 | ||||
California Pollution Control Financing Authority |
Madera Disposal Systems, Inc. | 1,800,000 | ||||
California Pollution Control Financing Authority |
Waste Connections of California, Inc. | 1,815,000 | ||||
California Pollution Control Financing Authority |
Waste Connections of California, Inc. | 290,000 | ||||
Washington Economic Development Finance Authority |
Harold LeMay Enterprises, Incorporated | 15,930,000 | ||||
Washington Economic Development Finance Authority |
Harold LeMay Enterprises, Incorporated | 2,120,000 | ||||
SEI Solid Waste, Inc. |
Waste Connections of California, Inc. | 951,793 | ||||
American Strategic Income Portfolio Inc.-II |
Waste Connections of Colorado, Inc. | 1,257,300 | ||||
Michael L. Zupan |
Waste Connections of Colorado, Inc. | 437,948 | ||||
Laura J. Long |
LeMay Enterprises, Inc. | 913,228 | ||||
Antonio M. Totorica |
Lakeshore Disposal, Inc. | 59,276 | ||||
Brenda Totorica |
Lakeshore Disposal, Inc. | 59,276 | ||||
Craig and Linda Van Bockern |
Waste Connections of South Dakota, Inc. | 239,197 | ||||
Northmarq Capital, Inc. |
Waste Connections, Inc. | 1,218,924 | ||||
Statzman Trusts |
Waste Connections of Kansas, Inc. | 4,000,000 | ||||
Paul and Brenda Pennington |
Waste Connections of Tennessee, Inc. | 790,265 | ||||
Blue Star Holdings, Inc. |
Waste Connections, Inc. | 1,113,355 | ||||
Private Placement Senior Note Holders |
Waste Connections, Inc. | 175,000,000 | ||||
Private Placement Senior Note Holders |
Waste Connections, Inc. | 175,000,000 | ||||
Private Placement Senior Note Holders |
Waste Connections, Inc. | 250,000,000 |
Schedule 7.01
Existing Indebtedness
Outstanding | ||||||
Lender |
Borrower |
Balance | ||||
Financial Federal Credit Inc. |
Sanipac, Inc. | 95,475 | ||||
Town of Colonie |
Capital Regional Landfills, Inc. | 8,149,411 | ||||
|
|
|||||
Bank of America |
Waste Connections, Inc. | 325,000,000 | ||||
|
|
|||||
981,740,449 | ||||||
|
|
Schedule 7.01
Existing Indebtedness
SCHEDULE 7.02
Existing Liens
1. | Parents investment in Evergreen National Indemnity Company ($5,000,000) is posted as security to support surety and performance bonds issued by Evergreen on behalf of the Borrowers. |
2. | Liens Securing Indebtedness Listed on Schedule 7.01 |
COMPANY |
SECURED PARTY |
COLLATERAL | ||
WASTE CONNECTIONS, INC. | Northmarq Capital, Inc. | Land and Improvements | ||
WASTE CONNECTIONS OF COLORADO, INC. | American Strategic Income Portfolio Inc.-II | All Assets | ||
WASTE CONNECTIONS OF TENNESSEE, INC. | Paul and Brenda Pennington | Deed of Trust | ||
LAKESHORE DISPOSAL, INC. | Antonio M. Totorica | All Assets and Vehicles | ||
LAKESHORE DISPOSAL, INC. | Brenda Totorica | All Assets and Vehicles |
Schedule 7.02
Existing Liens
3. | Other Liens |
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
COLUMBIA RESOURCE CO., L.P. | WA | Dell Financial Services L.L.C. | 2003-265-9726-4 09/2003 |
Specific leased computer equipment | ||||
Dell Financial Services, L.L.C. | 2003-276-3578-1 10/03/2003 |
Specific leased computer equipment | ||||||
Dell Financial Services, L.L.C. | 2003-280-4224-3 10/07/2003 |
Specific leased computer equipment | ||||||
EMPIRE DISPOSAL, INC. |
WA | Kenworth Sales Co. Spokane | 2010-228-9183-0 08/16/2010 |
Specific equipment and inventory | ||||
FINLEY-BUTTES LIMITED PARTNERSHIP |
OR | Les Schwab Tire Centers of Portland, Inc. | 8660664 11/16/2010 |
Goods and proceeds purchased from Secured Party by Debtor | ||||
LACASSINE HOLDINGS, L.L.C. |
LA | CNH Capital America LLC | 117-1327329 06/06/2008 |
Specific Leased Equipment (Kobelc Excavator) | ||||
LAKESHORE DISPOSAL, INC. |
ID | Fluid Connector Products, Inc. | 2010-1079717-3 06/07/2010 |
Specific Tools Loaned to Debtor | ||||
MURREYS DISPOSAL COMPANY, INC. |
WA | Associated Petroleum Products, Inc. | 2008-168-2648-5 06/16/2008 |
Rectangular Tank | ||||
POTRERO HILLS LANDFILL, INC. |
CA | United Rentals Northwest, Inc. | 08-7142219569 01/03/2008 |
Towable Light Tower | ||||
United Rentals Northwest, Inc. | 08-7142220591 01/03/2008 |
Trash Pump |
Schedule 7.02
Existing Liens
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
PRAIRIE DISPOSAL, INC. | ND | RDO Equipment Co. | 10-000608553-7 07/01/2010 |
Specific Leased Equipment (Compost Turner) | ||||
North Central Rental & Leasing, LLC | 11-000713030-0 12/22/2011 |
Specific Leased Equipment (Caterpillar) | ||||||
North Central Rental & Leasing, LLC | 12-000725720-2 02/15/2012 |
Specific Leased Equipment (Caterpillar) | ||||||
North Central Rental & Leasing, LLC | 12-000735036-4 03/26/2012 |
Specific Leased Equipment (Caterpillar) | ||||||
North Central Rental & Leasing, LLC | 12-000756735-4 06/29/2012 |
Specific Leased Equipment (Caterpillar) | ||||||
R360 ENVIRONMENTAL SOLUTIONS, LLC |
DE | North Central Rental & Leasing, LLC | 2012 2907097 07/28/2012 |
Specific Leased Equipment (Caterpillar) | ||||
North Central Rental & Leasing, LLC | 2012 3304195 08/26/2012 |
Specific Leased Equipment (Caterpillar) |
Schedule 7.02
Existing Liens
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
SANIPAC, INC. | OR | Financial Federal Credit Inc. | 6988577 07/22/2005 |
All Assets | ||||
Financial Federal Credit Inc. | 7037432 09/13/2005 |
All Assets | ||||||
Financial Federal Credit Inc. | 7760093 10/02/2007 |
All Assets | ||||||
Financial Federal Credit Inc. | 7760104 10/02/2007 |
All Assets | ||||||
Financial Federal Credit Inc. | 7788752 11/01/2007 |
All Assets | ||||||
Financial Federal Credit Inc. | 7788780 11/01/2007 |
All Assets | ||||||
SILVER SPRINGS ORGANICS L.L.C. |
WA | Bank of the West, Trinity Division | 2008-067-3426-4 03/07/2008 |
Komptech Crambo Shredders | ||||
Clyde/West, Inc. | 2008-162-1243-1 06/10/2008 |
Volvo Wheel Loader | ||||||
VFS Leasing Co. | 2008-254-6392-3 09/19/2008 |
2008 Volvo | ||||||
US LIQUIDS OF LA, L.P. |
DE | Holt Cat | 2011 2245721 06/13/2011 |
Specific Leased Equipment (Caterpillar Tractor) | ||||
Holt Cat | 2011 2474115 06/28/2011 |
Specific Leased Equipment (Caterpillar) | ||||||
WASTE CONNECTIONS OF CALIFORNIA, INC. |
CA | Wells Fargo Financial Leasing, Inc. | 09-7208086212 09/14/2009 |
Specific Leased Equipment (Copiers) | ||||
Bank of the West, Trinity Division | 09-7212870703 10/30/2009 |
Security System | ||||||
WASTE CONNECTIONS OF IOWA, INC. |
IA | Bankers Leasing Company | E940742-6 09/26/2008 |
Specific Leased Equipment (Copier) |
Schedule 7.02
Existing Liens
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
WASTE CONNECTIONS OF KANSAS, INC. |
DE | Key Equipment Finance Inc. | 2007 1714715 05/07/2007 |
Specific Leased Equipment (pursuant to Master Lease) | ||||
Deere Credit, Inc. | 2008 0516391 02/12/2008 |
Specific Leased Equipment (John Deere Tractors) | ||||||
Deere Credit, Inc. | 2008 3354691 10/03/2008 |
Specific Leased Equipment (John Deere Scraper) | ||||||
WASTE CONNECTIONS OF MINNESOTA, INC. |
MN | First National Bank | 200813761116 11/04/2008 |
Specific Leased Equipment (Scanners, Copier) | ||||
WASTE CONNECTIONS OF MONTANA, INC. |
DE | Deere Credit, Inc. | 2007 2374030 | Specific Leased Equipment (John Deere Excavator) | ||||
WASTE CONNECTIONS OF OKLAHOMA, INC. |
OK | Oklahoma Office Systems, Inc. | E2006012339026 10/12/2006 |
Specific Leased Equipment (Copiers, Printers) | ||||
Oklahoma Office Systems, Inc. | E2007015127631 12/28/2007 |
Specific Leased Equipment (Copiers, Printers) | ||||||
LCA Bank Corporation | E2008001361627 02/06/2008 |
Specific Leased Equipment (Security Equipment) | ||||||
Oklahoma Office Services | E2009006106832 06/18/2009 |
Specific Leased Equipment (Copiers, Printers) |
Schedule 7.02
Existing Liens
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
WASTE CONNECTIONS OF OREGON, INC. |
OR | Les Schwab Warehouse Center, Inc. | 7127192 12/19/2005 |
Purchased Goods (New and Used Wheels, Batteries) | ||||
WASTE CONNECTIONS OF TENNESSEE, INC. |
DE | First Tennessee Bank National Association | 2007 0360437 01/26/2007 |
Specific Leased Equipment (Power Washers) | ||||
The McPherson Companies, Inc. | 2007 1115566 03/26/2007 |
Specific Leased Equipment (Meters, Tubing, Reels) | ||||||
GreatAmerica Leasing Corporation | 2009 0899200 03/20/2009 |
Specific Leased Equipment (Copiers) | ||||||
U.S. Bancorp | 2008 1503919 04/30/2008 |
Specific Leased Equipment (Identifies by Serial Numbers Only) | ||||||
U.S. Bancorp | 2009 3310718 10/14/2009 |
Specific Leased Equipment (Identifies by Serial Number Only) | ||||||
WASTE CONNECTIONS OF TEXAS, LLC | DE | General Electric Capital Corporation | 2009 1853552 06/10/2009 |
Specific Leased Equipment (Pursuant to Master Lease) | ||||
U.S. Bancorp Business Equipment Finance Group | 2011 0638224 02/22/2011 |
Specific Leased Equipment (Identifies by Serial Number Only) |
Schedule 7.02
Existing Liens
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
U.S. Bancorp Business Equipment Finance Group | 2011 0718992 02/26/2011 |
Specific Leased Equipment (Identifies by Serial Number Only) | ||||||
WASTE CONNECTIONS OF WASHINGTON, INC. |
WA | Holt Cat | 2009-182-9173-0 07/01/2009 |
Specific Leased Equipment (Caterpillar) | ||||
WASTE CONNECTIONS, INC. | DE | US Bancorp | 2010 2827040 08/12/2010 |
Specific Leased Equipment (Identifies by Serial Number Only) | ||||
Les Schwab Tire Centers of Washington, Inc. | 2011 3457325 09/08/2011 |
Specific Leased Equipment (Tires) | ||||||
The McPherson Companies, Inc. | 2007 1122802 03/26/2007 |
Specific Leased Equipment (Pumps, Handles, Hardware) | ||||||
LCA Bank Corporation | 2008 2385357 07/11/2008 |
Specific Leased Equipment (Radios) | ||||||
LC Bank Corporation | 2008 2898789 08/26/2008 |
Specific Leased Equipment (Radios) | ||||||
Copeco Inc DBA Seamless Solutions | 2009 2415872 07/28/2009 |
Specific Leased Equipment (Copiers, Printers) | ||||||
Wilmington Trust Company, not in its individual capacity but solely as Trustee under Trust Agreement dated as of April 3, 2006 | 2010 0114151 12/24/2009 |
Specific Leased Equipment (Aircraft) |
Schedule 7.02
Existing Liens
COMPANY |
JUR. |
SECURED PARTY |
FILE NO./ FILE DATE |
COLLATERAL | ||||
Holt Cat | 2010 0198402 01/20/2010 |
Specific Leased Equipment (Caterpillar Tractor) | ||||||
US Bancorp | 2010 0352603 02/01/2010 |
Specific Leased Equipment (Identifies by Serial Number Only) | ||||||
U.S. Bancorp Equipment Finance, Inc. | 2011 2298704 06/15/2011 |
Specific Leased Equipment (Identifies by Serial Number Only) | ||||||
U.S. Bancorp Equipment Finance, Inc. | 2012 374719 09/28/2012 |
Specific Leased Equipment (Copier) | ||||||
YAKIMA WASTE SYSTEMS, INC. |
WA | Les Schwab Warehouse Center, Inc. | 200533429334 11/30/2005 |
Specific Leased Equipment (Batteries) |
Schedule 7.02
Existing Liens
SCHEDULE 10.02
ADMINISTRATIVE AGENTS OFFICE; CERTAIN ADDRESSES FOR NOTICES
BORROWERS:
Waste Connections, Inc.
10001 Woodloch Forest Drive
Waterway Plaza Two, Suite 400
The Woodlands, TX 77380
Attention: Worthing F. Jackman, Executive Vice President
and Chief Financial Officer
Phone: (877) 288-9269
Fax: (916) 471-0369
Email: worthingj@wasteconnections.com
with a copy to:
Latham & Watkins LLP
811 Main Street, Suite 3700
Houston, TX 77002
Attn: Craig Kornreich, Esq.
Telephone: (713) 546-7489
Facsimile: (713) 546-5401
Email: craig.kornreich@lw.com
ADMINISTRATIVE AGENT:
Administrative Agents Office
(for payments and Requests for Credit Extensions):
Bank of America, N.A.
101 N. Tryon Street
Mail Code: NC1-001-04-39
Charlotte, NC 28255-0001
Attention: Rose M. Bollard
Telephone: (980) 386-2881
Telecopier: (704) 409-0355
Electronic Mail: rose.bollard@baml.com
Account No.: 1366212250600
Ref: Waste Connections
ABA# 026009593
Schedule 10.02
Administrative Agents Office; Certain Addresses for Notices
Other Notices as Administrative Agent:
Bank of America, N.A.
Agency Management
901 Main Street
Mail Code: TX1-492-14-11
Dallas, TX 75202
Attention: Ronaldo Naval
Telephone: (214) 209-1162
Telecopier: (877) 511-6124
Electronic Mail: ronaldo.naval@baml.com
Other Notices as Administrative Agent (also copy):
Bank of America, N.A.
100 Federal Street
Mail Code: MA5-100-09-07
Boston, MA 02110
Attention: Maria F. Maia, Managing Director
Telephone: (617) 434-5751
Telecopier: (980) 233-7700
Electronic Mail: maria.f.maia@baml.com
Other Notices as Administrative Agent (also copy):
Goulston & Storrs
400 Atlantic Avenue
Boston, MA 02110
Attention: Pamela M. MacKenzie, Esq.
Telephone: (617) 574-4106
Telecopier: (617) 574-4112
Electronic Mail: pmackenzie@goulstonstorrs.com
zzz
Schedule 10.02
Administrative Agents Office; Certain Addresses for Notices
EXHIBIT A
FORM OF LOAN NOTICE
Date: ,
To: | Bank of America, N.A., as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Term Loan Agreement, dated as of October 25, 2012 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement; the terms defined therein being used herein as therein defined), by and among Waste Connections, Inc., and certain of its Subsidiaries party thereto (collectively, the Borrowers), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
The undersigned hereby requests (select one):
¨ A Term A Loan Borrowing1 ¨ A conversion or continuation of Term A Loans
1. | On (a Business Day). | |||
2. | In the amount of $ . | |||
3. | Comprised of . | |||
[Type of Loan requested] |
||||
4. | For LIBOR Rate Loans: with an Interest Period of months. |
WASTE CONNECTIONS, INC., on behalf of itself and the other Borrowers | ||
By: | ||
Name: | ||
Title: |
1 | For use only on the Closing Date. |
Exhibit A
Form of Loan Notice
EXHIBIT B
FORM OF TERM A NOTE
$ | , 20 |
FOR VALUE RECEIVED, the undersigned (the Borrowers) hereby, jointly and severally, promise to pay to or registered assigns (the Lender), in accordance with the provisions of the Agreement (as hereinafter defined), the principal amount of the Term A Loan made by the Lender to the Borrowers under that certain Term Loan Agreement, dated as of October 25, 2012 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement; the terms defined therein being used herein as therein defined), among the Borrowers, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
The Borrowers, jointly and severally, promise to pay interest on the unpaid principal amount of the Term A Loan from the date of such Term A Loan until such principal amount is paid in full, at such interest rates and at such times as provided in the Agreement. All payments of principal and interest shall be made to the Administrative Agent for the account of the Lender in Dollars in immediately available funds at the Administrative Agents Office. If any amount is not paid in full when due hereunder, such unpaid amount shall bear interest, to be paid upon demand, from the due date thereof until the date of actual payment (and before as well as after judgment) computed at the per annum rate set forth in the Agreement.
This Term A Note is one of the Term A Notes referred to in the Agreement, is entitled to the benefits thereof and may be prepaid in whole or in part subject to the terms and conditions provided therein. Upon the occurrence and continuation of one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Term A Note shall become, or may be declared to be, immediately due and payable all as provided in the Agreement. The Term A Loan made by the Lender shall be evidenced by one or more loan accounts or records maintained by the Lender in the ordinary course of business. The Lender may also attach schedules to this Term A Note and endorse thereon the date, amount and maturity of its Term A Loan and payments with respect thereto.
Each of the Borrowers, for itself, its successors and assigns, hereby waives diligence, presentment, protest and demand and notice of protest, demand, dishonor and non-payment of this Term A Note.
THIS TERM A NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[Remainder of page intentionally left blank.]
Exhibit B
Form of Term A Note
IN WITNESS WHEREOF, the Borrowers hereto have caused this Term A Note to be duly executed as of the date first above written.
BORROWERS:
WASTE CONNECTIONS, INC. |
ADVANCED SYSTEMS PORTABLE RESTROOMS, INC. |
ALASKA WASTE-INTERIOR, LLC |
ALASKA WASTE-KENAI PENINSULA, LLC ALASKA WASTE MAT-SU, LLC |
AMERICAN DISPOSAL COMPANY, INC. |
AMERICAN SANITARY SERVICE, INC. |
ANDERSON COUNTY LANDFILL, INC. |
ANDERSON REGIONAL LANDFILL, LLC |
BITUMINOUS RESOURCES, INC. |
BRENT RUN LANDFILL, INC. |
BROADACRE LANDFILL, INC. |
BUTLER COUNTY LANDFILL, INC. |
CALPET, LLC |
CAMINO REAL ENVIRONMENTAL CENTER, INC. |
CAPITAL REGION LANDFILLS, INC. |
CARPENTER WASTE HOLDINGS, LLC |
CHAMBERS DEVELOPMENT OF NORTH CAROLINA, INC. |
CHIQUITA CANYON, INC. |
CHIQUITA CANYON, LLC |
CLIFTON ORGANICS, LLC |
COLD CANYON LAND FILL, INC. |
COLUMBIA RESOURCE CO., L.P. |
COMMUNITY REFUSE DISPOSAL INC. |
CONTRACTORS WASTE SERVICES, INC. |
CORRAL DE PIEDRA LAND COMPANY |
COUNTY WASTE ULSTER, LLC |
COUNTY WASTE AND RECYCLING SERVICE, INC. |
COUNTY WASTE TRANSFER CORP. |
CRI HOLDINGS, LLC |
CURRY TRANSFER & RECYCLING, INC. |
D. M. DISPOSAL CO., INC. |
DELTA CONTRACTS, LLC |
DENVER REGIONAL LANDFILL, INC. |
DIVERSIFIED BUILDINGS, L.L.C. |
EL PASO DISPOSAL, LP |
ELKO SANITATION COMPANY |
EMPIRE DISPOSAL, INC. |
ENVIRONMENTAL TRUST COMPANY |
ENTECH ALASKA LLC |
EVERGREEN DISPOSAL, INC. |
FINLEY-BUTTES LIMITED PARTNERSHIP |
FINNEY COUNTY LANDFILL, INC. |
FORT ANN TRANSFER STATION, LLC |
FRONT RANGE LANDFILL, INC. |
Exhibit B
Form of Term A Note
G & P DEVELOPMENT, INC. |
GREEN WASTE SOLUTIONS OF ALASKA, LLC |
HAROLD LEMAY ENTERPRISES, INCORPORATED |
HIGH DESERT SOLID WASTE FACILITY, INC. |
HUDSON VALLEY WASTE HOLDING, INC. |
ISLAND DISPOSAL, INC. |
J BAR J LAND, INC. |
LACASSINE HOLDINGS, L.L.C. |
LAKESHORE DISPOSAL, INC. |
LAUREL RIDGE LANDFILL, L.L.C. |
LEALCO, INC. |
LFC, INC. |
MADERA DISPOSAL SYSTEMS, INC. |
MAMMOTH DISPOSAL COMPANY |
MANAGEMENT ENVIRONMENTAL NATIONAL, INC. |
MASON COUNTY GARBAGE CO., INC. |
MBO, LLC |
MDSI OF LA, INC. |
MILLENNIUM WASTE INCORPORATED |
MISSION COUNTRY DISPOSAL |
MORRO BAY GARBAGE SERVICE |
MURREYS DISPOSAL COMPANY, INC. |
NEBRASKA ECOLOGY SYSTEMS, INC. |
NOBLES COUNTY LANDFILL, INC. |
NORTHWEST CONTAINER SERVICES, INC. |
OKLAHOMA CITY WASTE DISPOSAL, INC. |
OKLAHOMA LANDFILL HOLDINGS, INC. |
OSAGE LANDFILL, INC. |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER I, INC. |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER II, INC. |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER III, INC. |
PAINE & PARTNERS CAPITAL FUND III AIV II B BLOCKER IV, INC. |
PIERCE COUNTY RECYCLING, COMPOSTING AND DISPOSAL, LLC |
POTRERO HILLS LANDFILL, INC. |
PRAIRIE DISPOSAL, LLC |
PRAIRIE LIQUIDS, LLC |
PSI ENVIRONMENTAL SERVICES, INC. |
PSI ENVIRONMENTAL SYSTEMS, INC. |
R360 ARTESIA, LLC |
R360 CLACO, LLC |
R360 ENVIRONMENTAL SOLUTIONS, LLC |
R360 HITCHCOCK, LLC |
R360 LOGISTICS, LLC |
R360 OKLAHOMA, LLC |
R360 PERMIAN BASIN, LLC |
R360 SHUTE CREEK, LLC |
R360 SILO, LLC |
R360 WILLISTON BASIN, LLC |
R.A. BROWNRIGG INVESTMENTS, INC. |
R.J.C. TRUCKING CO. |
Exhibit B
Form of Term A Note
RAILROAD AVENUE DISPOSAL, LLC |
RED CARPET LANDFILL, INC. |
RH FINANCIAL CORPORATION |
RICH VALLEY, LLC |
RKS HOLDING, CORP. |
RURAL WASTE MANAGEMENT, INC. |
SAN LUIS GARBAGE COMPANY |
SANIPAC, INC. |
SCOTT SOLID WASTE DISPOSAL COMPANY |
SCOTT WASTE SERVICES, LLC |
SEABREEZE RECOVERY, INC. |
SEDALIA LAND COMPANY |
SIERRA HOLDING GROUP, LLC |
SIERRA PROCESSING, LLC |
SILVER SPRINGS ORGANICS L.L.C. |
SKB ENVIRONMENTAL, INC. |
SKB (AUSTIN) ENVIRONMENTAL, LLC |
SKB RECYCLING, LLC |
SOUTH COUNTY SANITARY SERVICE, INC. |
STERLING AVENUE PROPERTIES, LLC |
STUTZMAN REFUSE DISPOSAL INC. |
TACOMA RECYCLING COMPANY, INC. |
TENNESSEE WASTE MOVERS, INC. |
US LIQUIDS OF LA, L.P. |
VOORHEES SANITATION, L.L.C. |
WASCO COUNTY LANDFILL, INC. |
WASTE CONNECTIONS MANAGEMENT SERVICES, INC. |
WASTE CONNECTIONS OF ALABAMA, INC. |
WASTE CONNECTIONS OF ALASKA, INC. |
WASTE CONNECTIONS OF ARIZONA, INC. |
WASTE CONNECTIONS OF ARKANSAS, INC. |
WASTE CONNECTIONS OF CALIFORNIA, INC. |
WASTE CONNECTIONS OF CANADA HOLDINGS, INC. |
WASTE CONNECTIONS OF COLORADO, INC. |
WASTE CONNECTIONS OF GEORGIA, INC. |
WASTE CONNECTIONS OF IDAHO, INC. |
WASTE CONNECTIONS OF ILLINOIS, INC. |
WASTE CONNECTIONS OF IOWA, INC. |
WASTE CONNECTIONS OF KANSAS, INC. |
WASTE CONNECTIONS OF KENTUCKY, INC. |
WASTE CONNECTIONS OF LEFLORE, LLC |
WASTE CONNECTIONS OF LOUISIANA, INC. |
WASTE CONNECTIONS OF MINNESOTA, INC. |
WASTE CONNECTIONS OF MISSISSIPPI DISPOSAL SERVICES, LLC |
WASTE CONNECTIONS OF MISSISSIPPI, INC. |
WASTE CONNECTIONS OF MONTANA, INC. |
WASTE CONNECTIONS OF NEBRASKA, INC. |
WASTE CONNECTIONS OF NEW MEXICO, INC. |
WASTE CONNECTIONS OF NORTH CAROLINA, INC. |
WASTE CONNECTIONS OF OKLAHOMA, INC. |
Exhibit B
Form of Term A Note
WASTE CONNECTIONS OF OREGON, INC. |
WASTE CONNECTIONS OF SOUTH CAROLINA, INC. |
WASTE CONNECTIONS OF SOUTH DAKOTA, INC. |
WASTE CONNECTIONS OF TENNESSEE, INC. |
WASTE CONNECTIONS OF TEXAS, LLC |
WASTE CONNECTIONS OF THE CENTRAL VALLEY, INC. |
WASTE CONNECTIONS OF UTAH, INC. |
WASTE CONNECTIONS OF WASHINGTON, INC. |
WASTE CONNECTIONS OF WYOMING, INC. |
WASTE CONNECTIONS TRANSPORTATION COMPANY, INC. |
WASTE REDUCTION SERVICES, L.L.C. |
WASTE SERVICES OF N.E. MISSISSIPPI, INC. |
WASTE SOLUTIONS GROUP OF SAN BENITO, LLC |
WCI-WHITE OAKS LANDFILL, INC. |
WCI HOLDINGS CO., INC. |
WEST BANK ENVIRONMENTAL SERVICES, INC. |
WEST COAST RECYCLING AND TRANSFER, INC. |
WYOMING ENVIRONMENTAL SERVICES, INC. |
YAKIMA WASTE SYSTEMS, INC. |
By: |
||
Name: |
Worthing F. Jackman | |
Title: |
Authorized Signatory of Each of the Above-Listed Borrowers |
Exhibit B
Form of Term A Note
LOAN AND PAYMENTS WITH RESPECT THERETO
Date |
Amount of Loan Made |
Amount of Principal or Interest Paid This Date |
Outstanding Principal Balance This Date |
Notation Made By |
Exhibit B
Form of Term A Note
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: [ , ]
To: | Bank of America, N.A., as Administrative Agent |
Ladies and Gentlemen:
Reference is made to that certain Term Loan Agreement, dated as of October 25, 2012 (as amended, restated, extended, supplemented or otherwise modified in writing from time to time, the Agreement; the terms defined therein being used herein as therein defined), by and among Waste Connections, Inc. (the Parent), and the other borrowers party thereto (collectively with the Parent, the Borrowers), the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
The undersigned hereby certifies as of the date hereof that he/she is the Chief Financial Officer of the Parent, and that, as such, he/she is authorized to execute and deliver this Compliance Certificate to the Administrative Agent on the behalf of the Parent and the other Borrowers, and that:
1. Accompanying this certificate are the [audited][unaudited] financial statements required by Section 6.04[(a)][(b)] of the Agreement for the fiscal quarter of the Consolidated Group ended as of the above date. [Such consolidated financial statements are prepared in accordance with GAAP and fairly present the consolidated financial condition of the Consolidated Group as at the close of business on such date and the results of operations for the period then ended.]2
2. The undersigned has reviewed and is familiar with the terms of the Agreement and has made, or has caused to be made under his/her supervision, a detailed review of the transactions and condition (financial or otherwise) of the Borrowers during the accounting period covered by the attached financial statements.
3. A review of the activities of the Borrowers during such fiscal period has been made under the supervision of the undersigned with a view to determining whether during such fiscal period the Borrowers performed and observed all their Obligations under the Loan Documents[, and to the best knowledge of the undersigned during such fiscal period, the Borrowers performed and observed each covenant and condition of the Loan Documents applicable to them, and no Default has occurred and is continuing].3
2 | Include in quarterly Compliance Certificate only. |
3 | Address any Defaults or Events of Default in this paragraph. |
Exhibit C
Form of Compliance Certificate
4. Set forth on Annex A attached hereto is a description of all changes to the information included in Schedule 1 (Subsidiaries) to the Agreement as may be necessary for such Schedule to be accurate and complete.
5. Complete and correct copies of all documents modifying any Organization Document of any Borrower on or prior to the date hereof have been previously delivered to the Administrative Agent or are attached hereto as Annex B.
6. The representations and warranties of the Borrowers contained in Article V of the Agreement, are true and correct on and as of the date hereof, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they are true and correct as of such earlier date, and except that for purposes of this Compliance Certificate, the representations and warranties contained in Section 5.04(a) of the Agreement shall be deemed to refer to the most recent statements furnished pursuant to clauses (a) and (b), as applicable, of Section 6.04 of the Agreement, including the statements in connection with which this Compliance Certificate is delivered.
7. The financial covenant analyses and information set forth on Schedule 1 attached hereto are true and accurate [on and as of the date of this Compliance Certificate] [on a pro forma basis as of the Interim Balance Sheet Date4].
[Remainder of page intentionally left blank.]
4 | For Certificate delivered on the Closing Date. |
Exhibit C
Form of Compliance Certificate
IN WITNESS WHEREOF, the undersigned has executed this Compliance Certificate as of , .
WASTE CONNECTIONS, INC., on behalf of itself and the other Borrowers | ||
By: |
||
Name: |
||
Title: |
Chief Financial Officer |
Exhibit C
Form of Compliance Certificate
Waste Connections, Inc. |
Term Loan Agreement Compliance Certificate |
(All Figures To Be Rounded to the Nearest $1,000) |
For the Fiscal Quarter/Year ended [ , 20 ] (the Statement Date) |
Leverage Ratio | As of Statement | |||
Ratio of Consolidated Total Funded Debt outstanding to Consolidated EBITDA |
||||
1.a. | Indebtedness relating to the borrowing of money or the obtaining of credit | |||
b. | Indebtedness in respect of any Capital Leases or Synthetic Leases | |||
c. | Indebtedness relating to the non-contingent deferred purchase price of assets and companies (excluding short-term trade payables incurred in the ordinary course of business) | |||
d. | Indebtedness relating to any unpaid reimbursement obligations with respect to letters of credit outstanding (excluding any contingent obligations with respect to letters of credit outstanding) | |||
e. | Guarantees of Indebtedness of the type referred to in Lines 1(a), (b),(c), and (d)
total equals: |
|||
2. | Consolidated Total Funded Debt (The sum of Lines 1(a), (b), (c), (d) and (e)) |
|||
to the result of: |
||||
3. | Consolidated Net Income (or Deficit) of the Consolidated Group | |||
4. | Interest Expense | |||
5. | Income Taxes | |||
6. | Non-cash compensation charges, to the extent that each was deducted in determining Consolidated Net Income (or Deficit), all as determined in accordance with GAAP | |||
7. | One-time, non-recurring acquisition costs to the extent such costs are expensed in accordance with FAS 141R and not capitalized | |||
8. | Noncontrolling interests expense |
Exhibit C
Form of Compliance Certificate
9. | Non-cash extraordinary non-recurring writedowns or writeoffs of assets, including non-cash losses on sale of assets outside the ordinary course of business | |||
10. | Any losses associated with the extinguishment of Indebtedness | |||
11. | Special charges relating to termination of a Swap Contract | |||
12. | Any accrued settlement payments in respect of any Swap Contract owing by any member of the Consolidated Group | |||
13. | One-time, non-recurring charges in connection with the modification of employment agreements with certain members of senior management as approved by the Administrative Agent | |||
14. | Non-cash extraordinary gains on the sale of assets to the extent included in Consolidated Net Income (or Deficit) | |||
15. | Any accrued settlement payments in respect of any Swap Contract payable to any member of the Consolidated Group | |||
16. | Consolidated EBIT | |||
(Result of (i) the sum of Lines 3 through 13, minus (ii) the sum of Lines 14 and 15) | ||||
plus: | ||||
17. | Depreciation and amortization expense to the extent that such was deducted in determining Consolidated Net Income (or Deficit), determined in accordance with GAAP | |||
18. | EBITDA for the prior twelve months of all companies acquired by the Borrowers during the Reference Period (without duplication of any amounts previously reported) | |||
19. | Depreciation and Amortization Expense (without duplication) of any company whose Consolidated EBITDA was included under Line 17 above | |||
total equals: | ||||
20. | Consolidated EBITDA (Sum of Lines 16 through 19) |
|||
21. | Leverage Ratio | |||
(Ratio of Line 2 to Line 20) | ||||
Maximum Permitted under Term Loan Agreement: 3.50 to 1.00 |
Exhibit C
Form of Compliance Certificate
Waste Connections, Inc. | ||||
Term Loan Agreement Compliance Certificate |
Interest Coverage Ratio | As of Statement Date | |||
Ratio of Consolidated EBIT to Consolidated Total Interest Expense |
22. |
Consolidated EBIT (from Line 16 above) | |||
23. |
Consolidated Total Interest Expense | |||
24. |
Interest Coverage Ratio | |||
(Ratio of Line 22 to Line 23) | ||||
Minimum Permitted under Term Loan Agreement: 2.75 to 1.00 | ||||
Restrictions on Excluded Subsidiaries |
||||
A. Asset Value Limitation |
||||
1. | Aggregate book value of the assets of all Excluded Subsidiaries on Statement Date | |||
2. | Aggregate book value of the assets of the Consolidated Group on Statement Date | |||
3. | Asset value percentage | |||
(Ratio of Line A.2 to Line A.1 above) | ||||
Maximum Permitted under Term Loan Agreement: 5% | ||||
B. Revenue Limitation |
||||
1. | Aggregate revenue of all Excluded Subsidiaries for the Subject Period | |||
2. | Aggregate revenue of the Consolidated Group for the Subject Period | |||
3. |
Revenue percentage | |||
(Ratio of Line B.2 to Line B.1 above) | ||||
Maximum Permitted under Term Loan Agreement: 5% |
Exhibit C
Form of Compliance Certificate
EXHIBIT D-1
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (this Assignment and Assumption) is dated as of the Effective Date set forth below and is entered into by and between [the][each] Assignor identified in item 1 below ([the][each, an] Assignor) and [the][each] Assignee identified in item 2 below ([the][each, an] Assignee). [It is understood and agreed that the rights and obligations of [the Assignors][the Assignees] hereunder are several and not joint.] Capitalized terms used but not defined herein shall have the meanings given to them in the Term Loan Agreement identified below (the Loan Agreement), receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, [the][each] Assignor hereby irrevocably sells and assigns to [the Assignee][the respective Assignees], and [the][each] Assignee hereby irrevocably purchases and assumes from [the Assignor][the respective Assignors], subject to and in accordance with the Standard Terms and Conditions and the Loan Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of [the Assignors][the respective Assignors] rights and obligations in [its capacity as a Lender][their respective capacities as Lenders] under the Loan Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of [the Assignor][the respective Assignors] under the [respective] facility[y][ies] identified below and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of [the Assignor (in its capacity as a Lender)][the respective Assignors (in their respective capacities as Lenders)] against any Person, whether known or unknown, arising under or in connection with the Loan Agreement, any other documents or instruments delivered pursuant thereto or the loan transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned by [the][any] Assignor to [the][any] Assignee pursuant to clauses (i) and (ii) above being referred to herein collectively as [the][an] Assigned Interest). Each such sale and assignment is without recourse to [the][any] Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by [the][any] Assignor.
1. | Assignor[s]: |
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2. | Assignee[s]: |
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[for each Assignee, indicate [Affiliate][Approved Fund] of [identify Lender]] |
Exhibit D-1
Form of Assignment and Assumption
3. | Borrowers: Waste Connections, Inc., and certain of its Subsidiaries |
4. | Administrative Agent: Bank of America, N.A., as the administrative agent under the Loan Agreement |
5. | Loan Agreement: Term Loan Agreement, dated as of October 25, 2012, by and among Waste Connections, Inc., the other Borrowers party thereto, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent |
6. | Assigned Interest[s]: |
Assignor[s] |
Assignee[s] | Outstanding Principal Amount of all Term A Loans of all Lenders |
Principal Amount of Term A Loan Assigned |
Term A Loan Percentage Assigned |
||||||||||
$ | $ | % | ||||||||||||
$ | $ | % | ||||||||||||
$ | $ | % |
[7. | Trade Date: ] |
Effective Date: , 20 [TO BE INSERTED BY ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
Exhibit D-1
Form of Assignment and Assumption
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR | ||
[NAME OF ASSIGNOR] | ||
By: |
| |
Title: | ||
ASSIGNEE | ||
[NAME OF ASSIGNEE] | ||
By: |
| |
Title: |
[Consented to and]5 Accepted: | ||
BANK OF AMERICA, N.A., as | ||
Administrative Agent | ||
By: |
| |
Name: | ||
Title: | ||
[Consented to:]6 | ||
WASTE CONNECTIONS, INC., on behalf of itself and the other Borrowers | ||
By: |
| |
Name: | ||
Title: |
5 | To be added only if the consent of the Administrative Agent is required by the terms of the Loan Agreement. |
6 | To be added only if the consent of the Borrower is required by the terms of the Loan Agreement. |
Exhibit D-1
Form of Assignment and Assumption
ANNEX 1 TO ASSIGNMENT AND ASSUMPTION
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1. Assignor. [The][Each] Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of [the][[the relevant] Assigned Interest, (ii) [the][such] Assigned Interest is free and clear of any lien, encumbrance or other adverse claim and (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Loan Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. [The][Each] Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Loan Agreement, (ii) it meets all the requirements to be an assignee under Section 10.06(b)(iii) and (v) of the Loan Agreement (subject to such consents, if any, as may be required under Section 10.06(b)(iii) of the Loan Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Loan Agreement as a Lender thereunder and, to the extent of [the][the relevant] Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it is sophisticated with respect to decisions to acquire assets of the type represented by [the][such] Assigned Interest and either it, or the Person exercising discretion in making its decision to acquire [the][such] Assigned Interest, is experienced in acquiring assets of such type, (v) it has received a copy of the Loan Agreement, and has received or has been accorded the opportunity to receive copies of the most recent financial statements delivered pursuant to Section 6.04 thereof, as applicable, and such other documents and information as it deems appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, (vi) it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Assignment and Assumption and to purchase [the][such] Assigned Interest, and (vii) attached hereto is any documentation required to be delivered by it pursuant to the terms of the Loan Agreement, duly completed and executed by [the][such] Assignee; and (b) agrees that (i) it will, independently and without reliance upon the Administrative Agent, [the][any] Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations which by the terms of the Loan Documents are required to be performed by it as a Lender.
Exhibit D-1
Form of Assignment and Assumption
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of [the][each] Assigned Interest (including payments of principal, interest, fees and other amounts) to [the][the relevant] Assignor for amounts which have accrued to but excluding the Effective Date and to [the][the relevant] Assignee for amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the law of the State of New York.
Exhibit D-1
Form of Assignment and Assumption
EXHIBIT D-2
FORM OF ADMINISTRATIVE QUESTIONNAIRE
FAX ALONG WITH COMMITMENT LETTER TO:
FAX #
I. Borrower Name: Waste Connections, Inc. and certain of its Subsidiaries
$ | Type of Loan Facility |
II. Legal Name of Lender of Record for Signature Page:
Signing Term Loan Agreement |
¨ YES | ¨ NO | ||
Coming in via Assignment |
¨ YES | ¨ NO |
III. Type of Lender: (Bank, Asset Manager, Broker/Dealer, CLO/CDO, Finance Company, Hedge Fund, Insurance, Mutual Fund, Pension Fund, Other Regulated Investment Fund, Special Purpose Vehicle, Other please specify)
IV. Domestic Address: | V. LIBOR Rate Address: | |||
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| |||
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VI. Contact Information:
Syndicate level information (which may contain material non-public information about the Borrower and its related parties or their respective securities) will be made available to the Loan Contact(s). The Loan Contacts identified must be able to receive such information in accordance with his/her institutions compliance procedures and applicable laws, including Federal and State securities laws.
Loan Contact |
Primary Operations Contact |
Secondary Operations Contact | ||||
Name: |
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Title: |
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Address: |
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Telephone: |
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Facsimile: |
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E Mail Address: | ||||||
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Does Secondary Operations Contact need copy of notices? ¨ YES ¨ NO
Exhibit D-2
Form of Administrative Questionnaire
VII. Lenders Fed Wire Payment Instructions:
Pay to: |
| |||||
(Bank Name) | ||||||
| ||||||
(ABA#) | (City/State) | |||||
| ||||||
(Account #) |
(Account Name) | |||||
| ||||||
(Attention) |
IX. Organizational Structure and Tax Status
Please refer to the enclosed withholding tax instructions below and then complete this section accordingly:
Lender Taxpayer Identification Number (TIN):
Tax Withholding Form Delivered to Bank of America*:
|
W-9 | |||
W-8BEN |
||||
W-8ECI |
||||
W-8EXP |
||||
W-8IMY |
NONU.S. LENDER INSTITUTIONS
1. Corporations:
If your institution is incorporated outside of the United States for U.S. federal income tax purposes, and is the beneficial owner of the interest and other income it receives, you must complete one of the following three tax forms, as applicable to your institution: a.) Form W-8BEN (Certificate of Foreign Status of Beneficial Owner), b.) Form W-8ECI (Income Effectively Connected to a U.S. Trade or Business), or c.) Form W-8EXP (Certificate of Foreign Government or Governmental Agency).
A U.S. taxpayer identification number is required for any institution submitting a Form W-8 ECI. It is also required on Form W-8BEN for certain institutions claiming the benefits of a tax treaty with the U.S. Please refer to the instructions when completing the form applicable to your institution. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. An original tax form must be submitted.
2. Flow-Through Entities
If your institution is organized outside the U.S., and is classified for U.S. federal income tax purposes as either a Partnership, Trust, Qualified or Non-Qualified Intermediary, or other non-U.S. flow-through entity, an original Form
Exhibit D-2
Form of Administrative Questionnaire
W-8IMY (Certificate of Foreign Intermediary, Foreign Flow-Through Entity, or Certain U.S. branches for United States Tax Withholding) must be completed by the intermediary together with a withholding statement. Flow-through entities other than Qualified Intermediaries are required to include tax forms for each of the underlying beneficial owners.
Please refer to the instructions when completing this form. In addition, please be advised that U.S. tax regulations do not permit the acceptance of faxed forms. Original tax form(s) must be submitted.
U.S. LENDER INSTITUTIONS:
If your institution is incorporated or organized within the United States, you must complete and return Form W-9 (Request for Taxpayer Identification Number and Certification). Please be advised that we require an original form W-9.
Pursuant to the language contained in the tax section of the Loan Agreement, the applicable tax form for your institution must be completed and returned on or prior to the date on which your institution becomes a lender under this Loan Agreement. Failure to provide the proper tax form when requested will subject your institution to U.S. tax withholding.
* | Additional guidance and instructions as to where to submit this documentation can be found at this link: |
X. Bank of America Payment Instructions:
Pay to: | Bank of America, N.A. | |||||
ABA # 026009593 | ||||||
New York, NY | ||||||
Acct. # | ||||||
Attn: [Corporate Credit Services] | ||||||
Ref: Waste Connections, Inc. |
Exhibit D-2
Form of Administrative Questionnaire
EXHIBIT E-1
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders that Are Not Partnerships for U.S. Federal Income Tax Purposes)
Reference is hereby made to the Term Loan Agreement, dated as of October 25, 2012 (as amended, supplemented or otherwise modified from time to time, the Loan Agreement), by and among Waste Connections, Inc., the other Borrowers party thereto, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
Pursuant to the provisions of Section 3.01(e) of the Loan Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Term A Loan(s) (as well as any Term A Note(s) evidencing such Term A Loan(s)) in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrowers with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrowers and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrowers and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement.
[NAME OF LENDER] | ||
By: |
| |
Name: | ||
Title: |
Date:
Exhibit E-1
Form of U.S. Tax Compliance Certificate
EXHIBIT E-2
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants that Are Not Partnerships for U.S. Federal Income Tax Purposes)
Reference is hereby made to the Term Loan Agreement, dated as of October 25, 2012 (as amended, supplemented or otherwise modified from time to time, the Loan Agreement), by and among Waste Connections, Inc., the other Borrowers party thereto, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
Pursuant to the provisions of Section 3.01(e) of the Loan Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform its participating Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement.
[NAME OF PARTICIPANT] | ||
By: |
| |
Name: | ||
Title: |
Date:
Exhibit E-2
Form of U.S. Tax Compliance Certificate
EXHIBIT E-3
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Term Loan Agreement, dated as of October 25, 2012 (as amended, supplemented or otherwise modified from time to time, the Loan Agreement), by and among Waste Connections, Inc., the other Borrowers party thereto, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
Pursuant to the provisions of Section 3.01(e) of the Loan Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code, and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform its participating Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement.
[NAME OF PARTICIPANT] | ||
By: |
| |
Name: | ||
Title: |
Date:
Exhibit E-3
Form of U.S. Tax Compliance Certificate
EXHIBIT E-4
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Term Loan Agreement, dated as of October 25, 2012 (as amended, supplemented or otherwise modified from time to time, the Loan Agreement), by and among Waste Connections, Inc., the other Borrowers party thereto, the Lenders from time to time party thereto, and Bank of America, N.A., as Administrative Agent.
Pursuant to the provisions of Section 3.01(e) of the Loan Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Term A Loan(s) (as well as any Term A Note(s) evidencing such Term A Loan(s)) in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Term A Loan(s) (as well as any Term A Note(s) evidencing such Term A Loan(s)), (iii) with respect to the extension of credit pursuant to the Loan Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members is a ten percent shareholder of any Borrower within the meaning of Section 871(h)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to any Borrower as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Administrative Agent and the Borrowers with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN from each of such partners/members beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Borrowers and the Administrative Agent, and (2) the undersigned shall have at all times furnished the Borrowers and the Administrative Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Loan Agreement and used herein shall have the meanings given to them in the Loan Agreement.
[NAME OF LENDER] | ||
By: |
| |
Name: | ||
Title: |
Date:
Exhibit E-4
Form of U.S. Tax Compliance Certificate
Exhibit 10.18
Waste Connections, Inc.
Amended and Restated
Compensation Plan for Independent Directors
This Compensation Plan for Independent Directors, as amended and restated herein, shall be effective January 1, 2013, until changed by the Board of Directors. This Plan shall apply to independent directors only. Directors who are employed by Waste Connections, Inc. (the Company) are not entitled to receive separate compensation for participation in Board or Committee Meetings.
Independent directors shall be compensated by payment of a basic monthly retainer of $5,000 per month. Committee Chairs shall be entitled to additional compensation, to be added to their monthly retainers, as follows:
Audit Committee Chair |
$ | 1,250 per month | ||
Compensation Committee Chair |
$ | 833.33 per month | ||
Nominating and Corporate Governance Committee Chair |
$ | 416.67 per month |
No additional payment shall be made with respect to attendance or participation in Board and Committee meetings, other than payment or reimbursement of out of pocket travel expenses incurred in connection with meetings attended in person.
All payments under this Compensation Plan shall be paid monthly on the 15th day of each month, or as soon thereafter as administratively practicable and, in any event, prior to March 15 of the calendar year following the year in which the services with respect to such payment were performed.
Independent directors shall be granted, at the discretion of the Board, an annual award of restricted stock units with a targeted value of approximately $150,000 on the date of grant. The grant shall be made in conjunction with the Companys annual grant to officers and employees, typically in February of each year, provided that the grant date may be changed from time to time at the discretion of the Board. The restricted stock units will be granted pursuant to the Companys Third Amended and Restated 2004 Equity Incentive Plan and will vest, at the discretion of the Board, in two equal installments on the date of grant and the first anniversary of the date of grant. The number of restricted stock units granted may be less in future years if other types of equity awards are issued to independent directors in conjunction with the restricted stock unit grants.
EXHIBIT 12.1
STATEMENT OF COMPUTATION OF RATIO OF EARNINGS
TO FIXED CHARGES
(In thousands)
2012 | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||
Earnings: |
||||||||||||||||||||
Income before income tax provision |
265,103 | 273,129 | 225,476 | 175,376 | 171,918 | |||||||||||||||
Plus: fixed charges per below |
57,274 | 46,562 | 43,163 | 52,798 | 45,462 | |||||||||||||||
Less: capitalized interest per below |
| | | | 29 | |||||||||||||||
Plus: current period amortization of interest capitalized in prior periods |
49 | 39 | 39 | 39 | 39 | |||||||||||||||
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Total earnings |
$ | 322,426 | $ | 319,730 | $ | 268,678 | $ | 228,213 | $ | 217,390 | ||||||||||
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Fixed charges |
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Interest expense |
$ | 53,037 | $ | 44,520 | $ | 40,134 | $ | 49,161 | $ | 43,102 | ||||||||||
Capitalized interest |
| | | | 29 | |||||||||||||||
Interest portion of rent expense |
4,237 | 2,042 | 3,029 | 3,637 | 2,331 | |||||||||||||||
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Total fixed charges |
$ | 57,274 | $ | 46,562 | $ | 43,163 | $ | 52,798 | $ | 45,462 | ||||||||||
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Ratio of earnings to fixed charges |
5.6 | 6.9 | 6.2 | 4.3 | 4.8 | |||||||||||||||
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EXHIBIT 21.1
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Subsidiary |
State of Incorporation/ Organization |
Other Names Under Which Conducts Business | ||
ADVANCED SYSTEMS PORTABLE RESTROOMS, INC. | Oregon | Advanced Mobile Storage | ||
Advanced Systems Portable Restrooms | ||||
McDonald Portable | ||||
Toilets | ||||
ALASKA WASTE-INTERIOR, LLC | Alaska | |||
ALASKA WASTE-KENAI PENINSULA, LLC | Alaska | |||
ALASKA WASTE MAT-SU, LLC | Alaska | |||
AMERICAN DISPOSAL COMPANY, INC. | Washington | Vashon Disposal | ||
AMERICAN SANITARY SERVICE, INC. | Oregon | |||
ANDERSON COUNTY LANDFILL, INC. | Delaware | Anderson County Landfill | ||
ANDERSON REGIONAL LANDFILL, LLC | Delaware | |||
BITUMINOUS RESOURCES, INC. | Kentucky | Hopkins County Regional | ||
Landfill | ||||
BRENT RUN LANDFILL, INC. | Delaware | Brent Run Landfill | ||
BROADACRE LANDFILL, INC. | Colorado | Pueblo Landfill and | ||
Recycling Center | ||||
BUTLER COUNTY LANDFILL, INC. | Nebraska | |||
CALPET, LLC | Wyoming | |||
CAMINO REAL ENVIRONMENTAL CENTER, INC. | New Mexico | |||
CAPITAL REGION LANDFILLS, INC. | New York | |||
CARPENTER WASTE HOLDINGS, LLC | New York | Carpenter Waste | ||
Carpenter Waste Removal | ||||
CHAMBERS DEVELOPMENT OF NORTH CAROLINA, INC. | North Carolina | Anson County Landfill | ||
CHIQUITA CANYON, INC. | Delaware | |||
CHIQUITA CANYON, LLC | Delaware | Chiquita Canyon Landfill | ||
CLIFTON ORGANICS, LLC | New York | |||
COLD CANYON LANDFILL, INC. | California | Cold Canyon Processing | ||
Facility | ||||
COLUMBIA RESOURCE CO., L.P. | Washington | |||
COMMUNITY REFUSE DISPOSAL, INC. | Nebraska | |||
CONTRACTORS WASTE SERVICES, INC. | Kentucky | |||
CORRAL DE PIEDRA LAND COMPANY | California | |||
COUNTY WASTE ULSTER, LLC | New York | |||
COUNTY WASTE AND RECYCLING SERVICE, INC. | New York | Ace Carting | ||
County Waste | ||||
MRI Rubbish | ||||
Murphys Disposal | ||||
Superior Waste | ||||
COUNTY WASTE TRANSFER CORP. | New York | Troy Transfer | ||
Troy Transfer Station | ||||
CRI HOLDINGS, LLC | Delaware | |||
CURRY TRANSFER AND RECYCLING, INC. | Oregon | City Transfer & Recycling | ||
County Transfer | ||||
& Recycling | ||||
Country Transfer | ||||
& Recycling | ||||
Extra Mile Disposal | ||||
& Hauling | ||||
Harrells Septic | ||||
Roto-Rooter of Curry County | ||||
Westlane Disposal | ||||
D.M. DISPOSAL CO., INC. | Washington | American Portable Storage | ||
D.M. Recycling | ||||
Superior Refuse Removal | ||||
DELTA CONTRACTS, LLC | Delaware | |||
DENVER REGIONAL LANDFILL, INC. | Colorado | |||
DIVERSIFIED BUILDINGS, L.L.C. | Kansas | |||
ECOSORT, L.L.C. | Oregon | |||
EL PASO DISPOSAL, LP | Texas | El Paso Disposal | ||
ELKO SANITATION COMPANY | Nevada | Waste Connections of | ||
Nevada | ||||
EMPIRE DISPOSAL, INC. | Washington | |||
ENTECH ALASKA, LLC | Alaska | |||
ENVIRONMENTAL TRUST COMPANY | Tennessee | |||
EVERGREEN DISPOSAL, INC. | Montana | Glacier Disposal | ||
FORT ANN TRANSFER STATION, LLC | New York | |||
FINLEY-BUTTES LIMITED PARTNERSHIP | Oregon | Finley Buttes Landfill | ||
Company | ||||
FINNEY COUNTY LANDFILL, INC. | Delaware | |||
FRONT RANGE LANDFILL, INC. | Delaware | Front Range Landfill | ||
G&P DEVELOPMENT, INC. | Nebraska | |||
GREEN WASTE SOLUTIONS OF ALASKA, LLC | Alaska | |||
HARDIN SANITATION, INC. | Idaho | |||
HAROLD LEMAY ENTERPRISES, INCORPORATED | Washington | AA Better Trash & Junk | ||
Clean Up | ||||
Aberdeen Sanitation Co. | ||||
Butlers Cove Refuse | ||||
Service |
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Subsidiary |
State of Incorporation/ Organization |
Other Names Under Which Conducts Business | ||
City Sanitary Co. | ||||
Eastern Grays Harbor | ||||
Disposal | ||||
EGH Disposal | ||||
Harbor Disposal Co. | ||||
Harold LeMay Enterprises | ||||
Joes Refuse Service | ||||
Lakewood Recycling | ||||
Service | ||||
Lakewood Refuse Service | ||||
LeMay Inc | ||||
LeMay Mobile Shredding | ||||
LeMay Transportation | ||||
Services | ||||
Pacific Disposal | ||||
Pierce County Refuse | ||||
Recycle Services | ||||
Rural Garbage Service | ||||
White Pass Garbage | ||||
HIGH DESERT SOLID WASTE FACILITY, INC. | New Mexico | |||
HUDSON VALLEY WASTE HOLDING, INC. | Delaware | |||
ISLAND DISPOSAL, INC. | Washington | Whidbey Recycling | ||
Services | ||||
J BAR J LAND, INC. | Nebraska | |||
LACASSINE HOLDINGS, L.L.C. | Louisiana | |||
LAKESHORE DISPOSAL, INC. | Idaho | |||
LAUREL RIDGE LANDFILL, L.L.C. | Delaware | |||
LEALCO, INC. | Texas | ABC Waste Collection | ||
Waste Connections of Texas | ||||
Waste Connections of Texas Rio Grande Valley | ||||
LFC, INC. | Delaware | |||
MADERA DISPOSAL SYSTEMS, INC. | California | Allied Disposal Company | ||
Avenal Landfill | ||||
Bishop Waste Disposal | ||||
Coastal Rolloff Service | ||||
Riverdale Disposal Service | ||||
Sierra Disposal | ||||
Western Johns | ||||
MAMMOTH DISPOSAL COMPANY | California | |||
MANAGEMENT ENVIRONMENTAL NATIONAL, INC. | Washington | |||
MASON COUNTY GARBAGE CO., INC. | Washington | |||
MBO, LLC | Delaware | Lacassine Oilfield Services | ||
MDSI OF LA, INC. | California | |||
MILLENIUM WASTE INCORPORATED | Indiana | Quad Cities Landfill | ||
MISSION COUNTRY DISPOSAL | California | |||
MORRO BAY GARBAGE SERVICE | California | |||
MURREYS DISPOSAL COMPANY, INC. | Washington | Olympic Disposal | ||
NEBRASKA ECOLOGY SYSTEMS, INC. | Nebraska | |||
NOBLES COUNTY LANDFILL, INC. | Minnesota | |||
NORTHWEST CONTAINER SERVICES, INC. | Oregon | |||
OKLAHOMA CITY WASTE DISPOSAL, INC. | Oklahoma | |||
OKLAHOMA LANDFILL HOLDINGS, INC. | Delaware | |||
OSAGE LANDFILL, INC. | Oklahoma | |||
PIERCE COUNTY RECYCLING COMPOSTING AND DISPOSAL, LLC | Washington | LRI | ||
POTRERO HILLS LANDFILL, INC. | California | Potrero Hills Landfill | ||
PRAIRIE DISPOSAL LLC | North Dakota | |||
PRAIRIE LIQUIDS, LLC | Delaware | |||
PSI ENVIRONMENTAL SERVICES INC. | Indiana | PSI WASTE | ||
PSI ENVIRONMENTAL SYSTEMS, INC. | Indiana | PSI WASTE | ||
R360 ARTESIA, LLC | Delaware | |||
R360 CLACO, LLC | Delaware | |||
R360 ENVIRONMENTAL SOLUTIONS, LLC | Delaware | |||
R360 ES HOLDINGS, INC. | Delaware | |||
R360 HITCHCOCK, LLC | Delaware | |||
R360 LOGISTICS, LLC | Delaware | |||
R360 OKLAHOMA, LLC | Delaware | |||
R360 PERMIAN BASIN, LLC | New Mexico | |||
R360 SHUTE CREEK, LLC | Delaware | |||
R360 SILO, LLC | Delaware | |||
R360 WILLISTON BASIN, LLC | Delaware | |||
R.A. BROWNRIGG INVESTMENTS, INC. | Oregon | Cascade Disposal Company | ||
Cascade Recycling Co. | ||||
Kelvic Disposal Co. | ||||
Kelvic Dropbox Company | ||||
Sun Country Disposal | ||||
RAILROAD AVENUE DISPOSAL, LLC | Delaware | |||
RED CARPET LANDFILL, INC. | Oklahoma |
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Subsidiary |
State of Incorporation/ Organization |
Other Names Under Which Conducts Business | ||
RH FINANCIAL CORPORATION | Washington | |||
RICH VALLEY, LLC | Minnesota | |||
R.J.C. TRUCKING CO. | Oregon | Eugene Drop Box | ||
RKS HOLDING, CORP. | New York | |||
SANIPAC, INC. | Oregon | |||
SAN LUIS GARBAGE COMPANY | California | |||
SCOTT SOLID WASTE DISPOSAL COMPANY | Tennessee | Reliable Waste Services | ||
Volunteer Landfill | ||||
SCOTT WASTE SERVICES, LLC | Kentucky | |||
SEABREEZE RECOVERY, INC. | Delaware | Seabreeze Environmental | ||
Seabreeze Environmental | ||||
Landfill | ||||
SEDALIA LAND COMPANY | Colorado | |||
SIERRA HOLDING GROUP, LLC | New York | |||
SIERRA PROCESSING, LLC | New York | |||
SILVER SPRINGS ORGANICS L.L.C. | Washington | |||
SKB (AUSTIN) ENVIRONMENTAL, LLC | Minnesota | |||
SKB ENVIRONMENTAL, INC. | Minnesota | |||
SKB RECYCLING, LLC | Minnesota | |||
SOUTH COUNTY SANITARY SERVICE, INC. | California | |||
STERLING AVENUE PROPERTIES, LLC | New York | |||
STUTZMAN REFUSE DISPOSAL, INC. | Kansas | |||
TACOMA RECYCLING COMPANY, INC. | Washington | |||
TENNESSEE WASTE MOVERS, INC. | Delaware | TWM-Landfill | ||
US LIQUIDS OF LA., L.P. | Delaware | |||
VOORHEES SANITATION, L.L.C. | Idaho | |||
WASCO COUNTY LANDFILL, INC. | Delaware | |||
WASTE CONNECTIONS MANAGEMENT SERVICES, INC. | Delaware | |||
WASTE CONNECTIONS OF ALABAMA, INC. | Delaware | Competitive Waste Systems | ||
WASTE CONNECTIONS OF ALASKA, INC. | Delaware | Alaska Green Waste Solutions | ||
Alaska Pacific Environmental | ||||
Services Anchorage | ||||
Alaska Waste | ||||
Alaska WasteAnchorage | ||||
Alaska Waste Transfer | ||||
Anchorage Refuse | ||||
Commercial Refuse | ||||
Eagle River Refuse | ||||
Green Waste | ||||
Kodiak Sanitation | ||||
Peninsula Sanitation | ||||
Valley Refuse | ||||
Wasilla Refuse | ||||
WASTE CONNECTIONS OF ARIZONA, INC. | Delaware | |||
WASTE CONNECTIONS OF ARKANSAS, INC. | Delaware | |||
WASTE CONNECTIONS OF CALIFORNIA, INC. | California | Amador Disposal Service | ||
Bear Valley Disposal Service | ||||
Betts Disposal Service | ||||
Calaveras Sanitation Services | ||||
Ebbetts Pass Disposal Service | ||||
El Dorado Disposal Service | ||||
GreenTeam | ||||
GreenTeam of San Jose | ||||
GreenWaste of Tehama | ||||
GT Waste | ||||
Mother Lode Sani-Hut | ||||
Rent-A-Bin | ||||
Sani-Hut Portable Toilets | ||||
SEI Debris Box | ||||
SEI Solid Waste | ||||
Western El Dorado Recovery Systems | ||||
Westside Sanitation | ||||
WASTE CONNECTIONS OF CANADA HOLDINGS, INC. | Delaware | |||
WASTE CONNECTIONS OF COLORADO, INC. | Delaware | All Trash Service | ||
Aspen Waste | ||||
Aspen Waste Systems | ||||
Community Recycling | ||||
Denver Roll-Off Service | ||||
Diamond Disposal | ||||
Eagle Waste & Recycling Service |
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Subsidiary |
State of Incorporation/ Organization |
Other Names Under Which Conducts Business | ||
Eagle Waste Services | ||||
Eagle Waste Services, Inc. | ||||
Eagle Roll-Off, Inc. | ||||
El Paso Disposal Services | ||||
Fremont Disposal | ||||
Horizon Property Management | ||||
Platte Valley Disposal | ||||
Pueblo Disposal | ||||
Pueblo Disposal & Recycling Service | ||||
Snowy Peaks Trash Company | ||||
Solid Waste Transfer Services | ||||
Southside Landfill | ||||
The Trash Company | ||||
Town & Country Disposal | ||||
U.S. Disposal | ||||
U.S. Disposal Services | ||||
WASTE CONNECTIONS OF GEORGIA, INC. | Delaware | Baxter Waste Systems | ||
WASTE CONNECTIONS OF IDAHO, INC. | Indiana | Mountain Jack Environmental Services | ||
T, T & R Enterprises | ||||
Valley Waste and Recycling | ||||
WASTE CONNECTIONS OF ILLINOIS, INC. | Delaware | Millenium Waste | ||
WASTE CONNECTIONS OF IOWA, INC. | Iowa | EZ Roll Off | ||
EZ Roll Off Systems | ||||
E-Z Sanitation | ||||
Frangenberg Sanitation | ||||
Huberg Solid Waste Management | ||||
Millenium Waste | ||||
Stone Roll-Off | ||||
Stone Sanitation | ||||
Town & Country Disposal | ||||
Whaley Waste Systems | ||||
WASTE CONNECTIONS OF KANSAS, INC. | Delaware | Anderson Trash Service | ||
Best Yet Refuse | ||||
Collectia LTD. | ||||
Dual County Sanitation | ||||
Northend Disposal | ||||
Plumb Thicket Landfill | ||||
R-Arrow | ||||
Salina Waste Systems | ||||
WASTE CONNECTIONS OF KENTUCKY, INC. | Delaware | Corbins Disposal Service | ||
Kentucky Waste Systems, Inc. | ||||
Mid-State Recycling Waste Disposal | ||||
Mid-State Recycling Waste Systems | ||||
Mid-State Waste Waste Systems, Inc. | ||||
WASTE CONNECTIONS OF LEFLORE, LLC | Mississippi | |||
WASTE CONNECTIONS OF LOUISIANA, INC. | Delaware | Delta Disposals | ||
Diamond Disposal | ||||
Good Neighbor Disposal | ||||
WASTE CONNECTIONS OF MINNESOTA, INC. | Minnesota | Hendrickson Sanitation | ||
L & L Sanitation | ||||
Schaap Sanitation | ||||
Scotting Sanitation | ||||
Ulrich Sanitation | ||||
WASTE CONNECTIONS OF MISSISSIPPI DISPOSAL SERVICES, LLC | Mississippi | |||
WASTE CONNECTIONS OF MISSISSIPPI, INC. | Delaware | Asco Sanitation | ||
Best Waste & Recycling | ||||
Best Waste and Recycling | ||||
Buck Run Landfill | ||||
Northeast Mississippi Regional Landfill | ||||
Oxford Waste Services | ||||
WASTE CONNECTIONS OF MONTANA, INC. | Delaware | Bitterroot Disposal | ||
Valley Recycling | ||||
Victor Transfer | ||||
WASTE CONNECTIONS OF NEBRASKA, INC. | Delaware | Allied Refuse Countryside Services | ||
Arts Garbage Service | ||||
B&B Sanitary Service | ||||
Big Red Roll Off |
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Subsidiary |
State of Incorporation/ Organization |
Other Names Under Which Conducts Business | ||
Central Waste Disposal | ||||
Community Refuse | ||||
Countryside Services | ||||
Duren Sanitation | ||||
J&J Sanitation | ||||
Junk in the Box | ||||
Midwest Refuse Service Commercial | ||||
Omega Systems | ||||
Papillion Sanitation | ||||
River City Recycling | ||||
Sanitation Systems | ||||
Saunders County Disposal | ||||
Schaben Sanitation | ||||
SGS Sanitation | ||||
Shrader Refuse and Recycling Service Company | ||||
Steves Sanitation | ||||
Steves Sanitation Service | ||||
The Garbage Company | ||||
Ummel Sanitation | ||||
Wahoo Sanitation | ||||
White Sanitation | ||||
WASTE CONNECTIONS OF NEW MEXICO, INC. | Delaware | Silva Sanitation | ||
Southwest Disposal | ||||
WASTE CONNECTIONS OF NORTH CAROLINA, INC. | Delaware | Queen City Transfer Station | ||
Waste Connections of the Carolinas | ||||
WASTE CONNECTIONS OF OKLAHOMA, INC. | Oklahoma | Metropolitan Waste Services | ||
Oklahoma Disposal & Sanitation | ||||
Waste Connections | ||||
WASTE CONNECTIONS OF OREGON, INC. | Oregon | Arrow Sanitary Service | ||
Babes Garbage Service | ||||
Bandon Disposal & Recycling | ||||
Clatskanie Sanitary Service | ||||
EWSI | ||||
Environmental Waste Systems | ||||
Hood River Garbage Service | ||||
Hood River Recycling | ||||
& Transfer Station | ||||
Hudson Portable Toilet Service | ||||
Hudsons Garbage Service | ||||
Jack Fleming Sanitary Service | ||||
Les County Sanitary | ||||
Les Sanitary Service | ||||
North Bend Sanitation Service | ||||
Oregon Paper Fiber | ||||
Public Disposal and | ||||
Recyling Center | ||||
Refuse Removal | ||||
Sweet Home Sanitation Service | ||||
Sweet Home Transfer & Recycling | ||||
The Dalles Disposal | ||||
The Dalles Transfer Station | ||||
Wallys Portable Restrooms | ||||
WASTE CONNECTIONS OF SOUTH CAROLINA, INC. | Delaware | Waste Connections of the Carolinas | ||
WASTE CONNECTIONS OF SOUTH DAKOTA, INC. | South Dakota | A & C Keiffer Sanitation | ||
Arts Garbage Service | ||||
Cooks Wastepaper & Recycling | ||||
Dakota Data Shred | ||||
Envirotech Waste Services | ||||
Kieffer Sanitation | ||||
Novak Enterprises |
SUBSIDIARIES OF WASTE CONNECTIONS, INC.
Subsidiary |
State of Incorporation/ Organization |
Other Names Under Which Conducts Business | ||
Novak Sanitary Service | ||||
Pierre Recycling Center | ||||
Rons Dray | ||||
Sioux Valley Sanitation Service | ||||
Steves Garbage Service | ||||
Van Zee Sanitary Service | ||||
Walker Refuse | ||||
WASTE CONNECTIONS OF TENNESSEE, INC. | Delaware | Asco Sanitation | ||
Clarksville Disposal | ||||
Cumberland Waste | ||||
Cumberland Waste Disposal | ||||
LMP Transportation Company | ||||
Ocoee Environmental Services | ||||
Scott Solid Waste | ||||
Snelsons Trash Service | ||||
Southern Disposal | ||||
WASTE CONNECTIONS OF TEXAS, LLC | Delaware | Hardy Road Transfer Station | ||
Waste Connections of Texas | ||||
West Texas Disposal | ||||
WASTE CONNECTIONS OF THE CENTRAL VALLEY, INC. | California | Environmental Waste Management | ||
Kingsburg Disposal Service | ||||
WASTE CONNECTIONS OF UTAH, INC. | Delaware | City Sanitation | ||
Roche & Sons | ||||
WASTE CONNECTIONS OF WASHINGTON, INC. | Washington | Buchmann Sanitation Service | ||
Empire Disposal Hauling | ||||
Lakeside Disposal & | ||||
Recycling Company | ||||
The Disposal Group | ||||
Triangle Resources | ||||
Twin City Sanitary Service | ||||
Vancouver Sanitary Service | ||||
WASTE CONNECTIONS OF WYOMING, INC. | Delaware | American Disposal | ||
American Disposal, Inc. | ||||
BW Waste | ||||
Edwal Services | ||||
Green River Valley Refuse | ||||
WASTE CONNECTIONS TRANSPORTATION COMPANY, INC. | Oregon | |||
WASTE REDUCTION SERVICES, L.L.C. | Oregon | |||
WASTE SERVICES OF N.E. MISSISSIPPI, INC. | Mississippi | |||
WASTE SOLUTIONS GROUP OF SAN BENITO, LLC | Delaware | |||
WCI HOLDINGS CO., INC. | Delaware | |||
WCI-WHITE OAKS LANDFILL, INC. | Delaware | White Oaks Landfill | ||
WEST BANK ENVIRONMENTAL SERVICES, INC | Indiana | Jackson Hole Environmental Systems, Inc. | ||
Westbank Sanitation | ||||
WEST COAST RECYCLING AND TRANSFER, INC. | Oregon | Public Disposal and | ||
Recycling Center | ||||
Store-It | ||||
WEST VALLEY COLLECTION & RECYCLING, LLC | California | |||
WYOMING ENVIRONMENTAL SERVICES, INC. | Indiana | Wyoming Waste Systems | ||
YAKIMA WASTE SYSTEMS, INC. | Washington |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements of Waste Connections, Inc. listed below of our report dated March 1, 2013 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K:
Registration Statement (Form S-8 No. 333-170193) pertaining to the Amended and Restated 2004 Equity Incentive Plan of Waste Connections, Inc.;
Registration Statement (Form S-8 No. 333-153621) pertaining to the Amended and Restated 2004 Equity Incentive Plan of Waste Connections, Inc.;
Registration Statement (Form S-8 No. 333-83172) pertaining to the 2002 Stock Option Plan and 2002 Senior Management Equity Incentive Plan of Waste Connections, Inc.;
Registration Statement (Form S-8 No. 333-90810) pertaining to the 2002 Restricted Stock Plan;
Registration Statement (Form S-8 No. 333-102413) pertaining to the Consultant Incentive Plan;
Registration Statement (Form S-8 No. 333-117764) pertaining to the Amended and Restated 2004 Equity Incentive Plan of Waste Connections, Inc.; and
Registration Statement (Form S-3 No. 333-179724) pertaining to the offer and sale from time to time of debt securities, common stock, preferred stock, warrants, shareholder rights or units.
/s/ PricewaterhouseCoopers LLP
Houston, TX
March 1, 2013
Exhibit 31.1
CERTIFICATION OF CHAIRMAN AND CHIEF EXECUTIVE OFFICER
I, Ronald J. Mittelstaedt, certify that:
1. | I have reviewed this annual report on Form 10-K 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 registrants 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants 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 |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants fourth fiscal quarter of 2012 that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing 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 registrants 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 registrants internal control over financial reporting. |
Date: March 1, 2013
/s/ Ronald J. Mittelstaedt |
Ronald J. Mittelstaedt |
Chairman and |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Worthing F. Jackman, certify that:
1. | I have reviewed this annual report on Form 10-K 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 registrants 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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | evaluated the effectiveness of the registrants 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 |
d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants fourth fiscal quarter of 2012 that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing 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 registrants 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 registrants internal control over financial reporting. |
Date: March 1, 2013
/s/ Worthing F. Jackman |
Worthing F. Jackman |
Executive Vice President and |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATE OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
The undersigned, Ronald J. Mittelstaedt and Worthing F. Jackman, 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 the annual report of the Company on Form 10-K for the year ended December 31, 2012, fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 1, 2013 | By: | /s/ Ronald J. Mittelstaedt | ||||
Ronald J. Mittelstaedt | ||||||
Chief Executive Officer | ||||||
Date: March 1, 2013 | By: | /s/ Worthing F. Jackman | ||||
Worthing F. Jackman | ||||||
Executive Vice President and Chief Financial Officer |
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