================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
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. 0-28652
WASTE CONNECTIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3283464
(State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization)
35 Iron Point Circle
Suite 200
Folsom, California 95630
(Address of principal executive offices) (Zip Code)
(916) 608-8200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
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 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 registrant's 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [X] No [_]
Aggregate market value of voting stock held by non-affiliates of registrant as
of June 30, 2003: $973,781,357
Number of shares of Common Stock outstanding as of February 29, 2004: 28,925,102
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 2004 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
================================================================================
WASTE CONNECTIONS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
ITEM NO. PAGE
-------- ----
PART I
1. BUSINESS 1
2. PROPERTIES 20
3. LEGAL PROCEEDINGS 20
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 21
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 24
6. SELECTED FINANCIAL DATA 25
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 27
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 39
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 40
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 40
9A. CONTROLS AND PROCEDURES 41
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 77
11, 12, 13, 14. 77
PART IV
15. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS
ON FORM 8-K 77
SIGNATURES 78
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS 79
EXHIBIT INDEX 80
PART I
Forward Looking Statements
Certain information contained in this Annual Report on Form 10-K,
including, without limitation, information appearing under Item 1, "Business,"
and Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," includes statements that are forward-looking in nature.
These statements can be identified by the use of forward-looking terminology
such as "believes", "expects", "may", "will", "should" or "anticipates" or the
negative thereof or comparable terminology, or by discussions of strategy. Our
business and operations are subject to a variety of risks and uncertainties and,
consequently, actual results may materially differ from those projected by any
forward-looking statements in this Annual Report on Form 10-K. Factors that
could cause actual results to differ from those projected include, but are not
limited to: (1) competition or unfavorable economic or industry conditions could
lead to a decrease in demand for our services and/or to a decline in prices we
realize for our services, (2) we depend in part on acquisitions for growth; we
may be required to pay higher prices for acquisitions, and we may experience
difficulty in integrating and deriving synergies from acquisitions, or finding
acquisition targets suitable to our growth strategy, (3) we may not always have
access to the additional capital that we require to execute our growth strategy
or our cost of capital may increase, (4) governmental regulations may require
increased capital expenditures or otherwise affect our business, (5) businesses
that we acquire could have undiscovered liabilities, (6) large, long-term
collection contracts on which we depend may not be replaced when they expire or
are terminated, (7) we are highly dependent on the services of our senior
management, who would be difficult or impossible to replace, and (8) we have a
substantial amount of goodwill; if indicators of impairment arise, a write-down
of our goodwill may be required, which could materially impair our net worth.
These risks and uncertainties, as well as others, are discussed in greater
detail in our other filings with the Securities and Exchange Commission. We make
no commitment to revise or update any forward-looking statement to reflect
events or circumstances after the date any such statement is made.
ITEM 1. BUSINESS
General
Waste Connections, Inc., a Delaware corporation organized in 1997, is an
integrated solid waste services company that provides solid waste collection,
transfer, disposal and recycling services in mostly secondary markets in the
Western and Southern U.S. As of December 31, 2003, we served more than one
million commercial, residential and industrial customers from operations in 23
states: Alabama, Arizona, California, Colorado, Georgia, Illinois, Iowa, Kansas,
Kentucky, Minnesota, Mississippi, Montana, Nebraska, New Mexico, Ohio, Oklahoma,
Oregon, South Dakota, Tennessee, Texas, Utah, Washington, and Wyoming. As of
that date, we owned or operated a network of 101 collection operations, 33
transfer stations, 34 municipal solid waste landfills, one construction and
demolition landfill and 26 recycling operations. We also owned one municipal
solid waste landfill site that is permitted for operation, but not constructed
as of December 31, 2003.
Our growth strategy focuses on expanding into secondary markets located
primarily in the Western and Southern U.S. that have strong demographic growth
trends and where competitive barriers to entry can be developed. We target
markets where we can either (1) provide waste collection services under
franchises, exclusive contracts or other arrangements, or (2) garner a leading
market position and provide vertically integrated collection and disposal
services. We generally seek to avoid operating in highly competitive, larger
urban markets. We are a leading provider of solid waste services in most of our
markets, and more than 50% of our revenues are derived from market areas where
we have franchise or exclusive rights to provide our services.
We have focused on secondary markets mostly in the Western and Southern
U.S. because we believe that in those areas: (1) there is a greater opportunity
to enter into exclusive arrangements; (2) there is less competition from larger
solid waste services companies; (3) strong economic and population growth rates
are projected; and (4) there remain a number of independent solid waste services
companies suitable for acquisition.
We have developed a two-pronged business strategy tailored to the
competitive and regulatory factors that affect our markets:
- - Control the Waste Stream. 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 is often
more important to our growth and profitability than owning or operating
1
landfills. In addition, contracts in some western U.S. markets dictate the
disposal facility to be used. The large size of many western states
increases the cost of interstate and long haul disposal, heightening the
effects of regulations that direct waste disposal, which may make it more
difficult for a landfill to obtain the disposal volume necessary to operate
profitably. In markets with these characteristics, we believe that landfill
ownership or vertical integration is not as critical to our success.
- - 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. In December 2003, approximately 69% of
waste we collected in our markets was disposed of at landfills we owned or
operated.
Our senior management team has extensive experience in acquiring,
integrating and operating solid waste services businesses, and we intend to
continue to pursue an acquisition-based growth strategy. As of December 31,
2003, we had acquired 167 businesses since our inception in September 1997. We
anticipate that a substantial part of our future growth will come from acquiring
additional solid waste collection, transfer and disposal businesses and,
therefore, we expect additional acquisitions could continue to affect
period-to-period comparisons of our operating results.
Unless otherwise noted, all descriptions of our business in this Annual
Report on Form 10-K are as of December 31, 2003.
Industry Background
We estimate that the U.S. solid waste services industry generated revenues
of approximately $40 billion in 2003. The solid waste services industry has
undergone significant consolidation and integration since 1990. We believe that
the following factors have primarily caused this consolidation and integration:
- - Increased Regulations. Industry regulations implemented in the early 1990s
caused operating and capital costs to rise. Many smaller industry
participants have found these costs difficult to bear and have closed their
operations or sold them to larger operators. In addition, Subtitle D
regulations require more stringent engineering of solid waste landfills and
mandate liner systems, leachate collection, treatment and monitoring
systems and gas collection and monitoring systems. These ongoing costs are
combined with increased financial reserve requirements for solid waste
landfill operators relating to closure and post-closure monitoring. As a
result, the number of solid waste landfills is declining while the average
size is increasing.
- - Increased Integration of Collection and Disposal Operations. In certain
markets, competitive pressures are forcing operators to become more
efficient by establishing an integrated network of solid waste collection
operations and transfer stations, through which they secure solid waste
streams for disposal. Operators have adopted a variety of disposal
strategies, including owning landfills, establishing strategic
relationships to secure access to landfills and capture significant waste
stream volumes to gain leverage in negotiating lower landfill fees, and
securing long-term, most-favored-pricing contracts with high capacity
landfills.
- - Pursuit of Economies of Scale. Larger operators achieve economies of scale
by vertically integrating their operations or by spreading their facility,
asset and management infrastructure over larger volumes. Larger solid waste
collection and disposal companies have become more cost-effective and
competitive by controlling a larger waste stream and by gaining access to
significant financial resources to make acquisitions.
In the Western U.S., we believe these factors did not accelerate
consolidation as much as in other regions because waste collection services in
these markets are provided largely under three types of contractual arrangements
which limit the impact of factors that have driven consolidation elsewhere in
the United States. These arrangements include certificates or permits, franchise
agreements and municipal contracts. Certificates of public convenience and
necessity or permits, such as governmental certificates awarded to solid waste
collection service providers in unincorporated areas and electing municipalities
in Washington state by the Washington Utilities and Transportation Commission
(the "WUTC"), 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. See "G certificates" on page 8. Franchise
agreements typically provide an exclusive service period of five to ten years or
longer and specify the service territory, a broad range of services to be
provided, and rates for the services. They also 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. Unless customers within the areas covered by
2
certain governmental certificates, franchise agreements and municipal contracts
elect not to receive any waste collection services, they are required to pay
collection fees to the company providing these services in their area. These
exclusive rights and contractual arrangements create barriers to entry that can
be overcome mostly by the acquisition of the company with such exclusive rights
or contractual arrangements.
The solid waste services industry remains very regional in nature with
acquisition opportunities available in selected markets. Due to the prevalence
of exclusive arrangements and the reduced pace of consolidation, we believe the
Western markets contain the largest and most attractive number of acquisition
opportunities. We expect the consolidation trend in the solid waste industry to
continue, but at a slowing pace. Some of the remaining independent landfill and
collection operators lack the capital resources, management skills and 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.
GROWTH STRATEGY
- - Internal Growth. To generate continued internal revenue growth, we focus on
increasing market penetration in our current and adjacent markets,
soliciting new commercial, industrial, and residential customers in markets
where such customers may elect whether or not to receive waste collection
services, marketing upgraded or additional services (such as compaction or
automated collection) to existing customers and, where appropriate, raising
prices. 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.
- - Exclusive Arrangements. We derive a significant portion of our revenues
from arrangements, including franchise agreements, municipal contracts and
governmental certificates, under which we are the exclusive service
provider in a specified market. We intend to devote significant resources
to securing additional franchise agreements and municipal contracts through
competitive bidding and additional governmental certificates 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 its
knowledge of local service areas in existing and target markets. Our
district managers maintain relationships with local governmental officials
within their service areas, and sales representatives may be assigned to
cover specific municipalities. These personnel focus on maintaining,
renewing and renegotiating existing franchise agreements and municipal
contracts and on securing additional agreements and contracts while
maintaining acceptable financial returns.
- - Expansion Through Acquisitions. We intend to expand the scope of our
operations by continuing to acquire solid waste operations 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. We believe that our
experienced management, decentralized operating strategy, financial
strength, size and public company status make us an attractive buyer to
certain solid 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 and to minimize disruption to the ongoing
operations of both Waste Connections and the acquired business.
In new markets, we often use an initial acquisition as an operating base
and seek to strengthen the acquired operation's presence in that market by
providing additional services, adding new customers and making "tuck-in"
acquisitions. We next seek to broaden our regional presence by adding
additional operations in markets adjacent to the new location. We believe
that many suitable "tuck-in" acquisition opportunities exist within our
current and targeted market areas that provide us with opportunities to
increase our market share and route density.
OPERATING STRATEGY
- - Decentralized Operations. We manage our operations on a decentralized
basis. This places decision-making authority close to the customer,
enabling us to identify customers' needs quickly and to address those needs
in a cost-effective manner. We believe that decentralization provides a
3
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 much of the Western and Southern U.S.,
and makes us an attractive buyer to many potential acquisition candidates.
We currently deliver our services from approximately 118 operating
locations grouped into the following four regions: Pacific Northwest,
Western, Central and Eastern. We organized our business into these four
regions on the basis of their respective geographic characteristics,
interstate waste flow, revenue base, employee base, regulatory structure
and acquisition opportunities. Each region has a regional vice president
and a regional controller, reporting directly to the corporate management.
They are responsible for operations and accounting in their respective
region and supervise a regional staff.
Each operating location has a district manager with autonomous service and
decision-making authority for their operations and who is responsible for
maintaining service quality, promoting safety, implementing marketing
programs, and overseeing day-to-day operations, including contract
administration. District 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 them.
- - Operating Enhancements. We develop company-wide operating standards, which
are tailored for each of our markets based on industry standards and local
conditions. Upon closing an acquisition, we implement cost controls and
employee training and safety procedures, and establish a sales and
marketing plan for each market. 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 senior 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 district managers and operations. We
believe that by establishing operating standards, closely monitoring
performance and streamlining certain administrative functions, we can
improve the profitability of existing and newly acquired operations.
If we can internalize the waste stream of acquired operations, we can
further increase operating efficiencies and improve capital utilization.
Where not restricted by exclusive agreements, contracts, permits or
certificates, we also solicit new commercial, industrial and residential
customers in areas within and surrounding the markets served by acquired
collection operations, to further improve economies of scale and increase
collection volumes.
SERVICES
Commercial, Industrial and Residential Collection Services
We serve more than one million commercial, industrial and residential
customers from operations in 23 states. Our services are generally provided
under one of the following arrangements: (1) governmental certificates; (2)
exclusive franchise agreements; (3) exclusive municipal contracts; (4)
commercial and industrial service agreements; (5) residential subscriptions; and
(6) residential contracts.
Governmental certificates, exclusive franchise agreements and exclusive
municipal contracts grant us rights to provide services within specified areas
at established rates. We currently have in excess of 650 such exclusive
arrangements, which vary in both size and duration. Governmental certificates
are unique to the State of Washington and are generally perpetual in duration.
Generally, franchise agreements with government entities tend to be larger and
of longer duration than municipal contracts. We continue to provide service
under some municipal contracts that have expired, while new agreements are being
negotiated. We do not expect that the loss of any current contracts in
negotiation for renewal or contracts likely to terminate in 2004 would have a
material adverse affect on our revenues or cash flows. No individual contract or
customer accounted for more than 5% of our total revenues for the year ended
December 31, 2003.
We provide commercial and industrial services, other than those we perform
under exclusive arrangements, under service agreements generally ranging from
one to three years. We determine fees under these agreements by such factors as
collection frequency, level of service, route density, the type, volume and
weight of the waste collected, type of equipment and containers furnished, the
4
distance to the disposal or processing facility, the cost of disposal or
processing and prices charged in our markets for similar services. Collection of
larger volumes associated with commercial and industrial waste streams generally
help improve our operating efficiencies, and consolidation of these volumes
allows us to negotiate more favorable disposal prices. Our commercial and
industrial customers use portable containers for storage, enabling us to service
many customers with fewer collection vehicles. Commercial and industrial
collection vehicles normally require one operator. We provide one to ten cubic
yard containers to commercial customers, 10 to 50 cubic yard containers to
industrial customers, and 30 to 96 gallon carts to residential customers. For an
additional fee, we install on the premises of large volume customers stationary
compactors that compact waste prior to collection.
We provide residential waste services, other than those we perform under
exclusive arrangements, under contracts with homeowners' associations, apartment
owners or mobile home park operators, or on a subscription basis with individual
households. We set base residential fees on a contract basis primarily based on
route density, the frequency and level of service, the distance to the disposal
or processing facility, weight and type of waste collected, type of equipment
and containers furnished, the cost of disposal or processing and prices charged
by competitors in that market for similar services. Collection fees are paid
either by the municipalities from tax revenues or directly by the residents
receiving the services.
Landfills
Currently, solid waste landfills in the United States must be designed,
permitted, operated, closed and maintained after closure in compliance with
federal, state and local regulations pursuant to Subtitle D of the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"). Operating a solid
waste landfill involves excavating, constructing liners and final caps,
continually spreading and compacting waste, covering waste with earth or other
inert material at least once a day to maintain sanitary conditions, using the
airspace effectively and preparing the site so it can ultimately be used for
other purposes.
We seek to identify solid waste landfill acquisition candidates to achieve
vertical integration in markets where the economic and regulatory environment
makes landfill acquisitions attractive. In some markets, acquiring landfills
provides opportunities to vertically integrate our collection, transfer and
disposal operations while improving operating margins. When we have vertical
integration, we eliminate third party disposal costs and generally are able to
realize higher margins and stronger operating cash flows. The fees charged at
disposal facilities, which are known as "tipping fees," are based on market
factors and take into account the type and weight or volume of solid waste
deposited and the type and size of the vehicles used to transport waste. We
evaluate landfill acquisition candidates by determining, among other factors,
whether access to the landfill is economically feasible from our existing market
areas either directly or through transfer stations, the amount and disposal cost
of waste we currently dispose of at a facility owned by a third party that could
be diverted to the landfill, the expected life of the landfill, the potential
for expanding the landfill and the potential for material environmental
liabilities at the landfill.
Our municipal solid waste landfill facilities consisted of the following at
December 31, 2003:
Owned and operated landfills 20
Operated landfills under limited-term operating agreements 9
Operated landfills under life-of-site operating agreements 5
------
34
======
We also own one municipal solid waste landfill site that is permitted for
operation, but not constructed as of December 31, 2003. Currently, we own
landfills in California, Colorado, Illinois, Kansas, Minnesota, Nebraska, New
Mexico, Oklahoma, Oregon, Tennessee and Washington. In addition, we operate, but
do not own, landfills in California, Colorado, Georgia, Mississippi, Nebraska
and New Mexico. With the exception of one landfill located in Tennessee that
only accepts construction and demolition waste, all landfills that we own or
operate are municipal solid waste landfills. In January 2004, we also acquired a
company operating a construction and demolition landfill in Kentucky. For
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. Under our operating
agreements for which the contracted term is not the life of the landfill, the
property owner is generally responsible for closure and post-closure
obligations. We are operating at reduced disposal volumes at one of our operated
landfills under a limited-term operating agreement, for which we had no closure
or post-closure obligations. The limited term operating agreement for another of
our landfills is set to expire in July 2004 from which we generate approximately
$0.7 million of annualized revenues. The loss of these two limited-term
5
operating agreements is not expected to have a material financial impact. We are
responsible for all closure and post-closure liabilities at four of our five
operated landfills for which we have life-of-site operating agreements.
Based on remaining permitted capacity as of December 31, 2003, 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 operating agreements, is estimated to be approximately 49 years.
Many of our existing landfills have the potential for expanded disposal capacity
beyond the amount currently permitted. We monitor the available permitted
in-place disposal capacity of our landfills on an ongoing basis and evaluate
whether to seek to expand this capacity. In making this evaluation, we consider
various factors, including the volume of waste projected to be disposed of at
the landfill, the size of the unpermitted acreage included in the landfill, the
likelihood that we will be able to obtain the necessary approvals and permits
required for the expansion, and the costs that would be involved in developing
the additional capacity. We also 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 are currently seeking to expand permitted capacity at 11 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 operating agreements is
estimated to be approximately 63 years when considering remaining permitted
capacity, probable expansion capacity and projected annual disposal volume. The
operating contracts for which the contracted term is not the life of the
landfill have expiration dates from 2004 to 2013. 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
operating agreements (in thousands):
2002 2003
------------------------------------------ ------------------------------------------
Probable Probable
Permitted Expansion Total Permitted Expansion Total
---------- ---------- ---------- ---------- ---------- ----------
Balance, beginning of year 271,139 21,890 293,029 290,942 47,542 338,484
Acquisitions and new life-of-site
operating agreements 16,195 -- 16,195 9,561 1,400 10,961
New expansions pursued -- 34,901 34,901 -- 29,548 29,548
Permits granted 6,133 (6,133) -- 550 (550) --
Airspace consumed (5,454) -- (5,454) (5,894) -- (5,894)
Changes in engineering estimates 2,929 (3,116) (187) (6,367) 5,358 (1,009)
---------- ---------- ---------- ---------- ---------- ----------
Balance, end of year 290,942 47,542 338,484 288,792 83,298 372,090
========== ========== ========== ========== ========== ==========
The estimated remaining operating lives for our owned and operated
landfills and landfills operated, but not owned, under life-of-site operating
agreements, based on remaining permitted and probable expansion capacity and
projected annual disposal volume, in years, as of December 31, 2002, was as
follows:
0 to 10 11 to 20 21 to 40 41 to 50 51 + Total
-------- -------- -------- -------- -------- --------
Owned and operated
landfills 2 2 4 1 11 20
Operated landfills under
life-of-site operating
agreements -- -- -- 1 2 3
-------- -------- -------- -------- -------- --------
2 2 4 2 13 23
======== ======== ======== ======== ======== ========
6
The estimated remaining operating lives for our owned and operated
landfills and landfills operated, but not owned, under life-of-site operating
agreements, based on remaining permitted and probable expansion capacity and
projected annual disposal volume, in years, as of December 31, 2003, was as
follows:
0 to 10 11 to 20 21 to 40 41 to 50 51 + Total
-------- -------- -------- -------- -------- --------
Owned and operated
landfills 2 2 3 4 9 20
Operated landfills under
life-of-site operating
agreements -- -- 2 1 2 5
-------- -------- -------- -------- -------- --------
2 2 5 5 11 25
======== ======== ======== ======== ======== ========
The disposal tonnage that we received in 2002 and 2003 at all of our
municipal solid waste landfills is shown below (tons in thousands):
2002 2003
------------------- -------------------
Number of Total Number of Total
Sites Tons Sites Tons
--------- -------- --------- --------
Owned and operated
landfills 20 5,057 20 5,335
Operated landfills under 7 610 9 896
limited-term operating
agreements
Operated landfills under
life-of-site operating 3 397 5 559
agreements
--------- -------- --------- --------
30 6,064 34 6,790
--------- -------- --------- --------
Transfer Station Services
We have an active program to acquire, develop, own and operate transfer
stations in markets proximate to our collection operations. Transfer stations
extend our direct-haul reach and link disparate collection operations with
disposal facilities that we own, operate or have under contract. We owned or
operated 33 transfer stations at December 31, 2003. Currently, we own transfer
stations in Colorado, Georgia, Kansas, Montana, Nebraska, Oklahoma, Oregon,
Tennessee and Washington. In addition, we operate, but do not own, transfer
stations in California, Kentucky, Nebraska, and Washington. Transfer stations
receive, compact, and load solid waste onto larger vehicles to be transported to
landfills. We believe that transfer stations benefit us by:
- concentrating the waste stream from a wider area, which increases the
volume of disposal at our landfill facilities and gives us greater
leverage in negotiating for more favorable disposal rates at other
landfills;
- improving utilization of collection personnel and equipment; and
- building relationships with municipalities and private operators that
deliver waste, which can lead to additional growth opportunities.
Recycling Services
We offer municipal, commercial, industrial and residential 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 26 recycling processing operations and sell other collected
recyclable materials to third parties for processing before resale. We often
7
share the profits from our resale of recycled materials with other parties to
our recycling contracts. For example, certain of our municipal recycling
contracts in Washington, negotiated before we acquired those businesses, specify
certain benchmark resale prices for recycled commodities. To the extent the
prices we actually receive for the processed recycled commodities collected
under those contracts exceed the prices specified in the contracts, we share the
excess with the municipality, after recovering any previous shortfalls resulting
from actual market prices falling below the prices specified in the contracts.
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 public's increasing environmental
awareness and expanding regulations that mandate or encourage recycling.
G CERTIFICATES
A substantial portion of our Washington collection business is performed
under governmental certificates (referred to as "G certificates") awarded by the
WUTC. G certificates apply only to unincorporated areas of Washington and
municipalities that have elected to have their solid waste collection overseen
by the WUTC. G certificates generally grant the holder the exclusive and
perpetual right to provide certain solid waste collection and transportation
services in a specified territory. The WUTC has repeatedly determined that, in
enacting the statute authorizing G certificates, the Washington legislature
intended to favor grants of exclusive, rather than overlapping, service rights
for conventional solid waste services. Accordingly, most G certificates
currently grant exclusive solid waste collection and transportation rights for
conventional solid waste services in specified territories.
SALES AND MARKETING
In many of our existing markets, we provide waste collection, transfer and
disposal services to municipalities and governmental authorities under exclusive
arrangements, and, therefore, do not contract directly with individual
customers. In addition, because we have grown primarily through acquisitions, we
have generally assumed existing franchise agreements, municipal contracts and G
certificates from the acquired companies, rather than obtaining new contracts.
For these reasons, our sales and marketing efforts to date have been narrowly
focused. We have added sales and marketing personnel as necessary to extend or
renew existing contracts, solicit new contracts or customers in markets where we
are not the exclusive provider of solid waste services, expand our presence into
areas adjacent to or contiguous with our existing markets, and market additional
services to existing customers.
COMPETITION
The solid waste services industry is highly competitive and requires
substantial labor and capital resources. The industry presently includes three
large national waste companies: Allied Waste Industries, Inc., Republic
Services, Inc., and Waste Management, Inc. Casella Waste Systems, Inc., and
Waste Industries USA, Inc. are two other public companies with a regional focus
and annual revenues in excess of $200 million. 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 privately held regional and local
solid waste companies of varying sizes and resources, some of which have
accumulated substantial goodwill in their markets. 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.
We compete for collection, transfer and disposal volume based primarily on
the price and quality of our services. 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 substantial portion of our residential,
commercial and industrial collection services under exclusive franchise and
municipal contracts and certificates, some of which are subject to periodic
competitive bidding. We provide the balance of our services under subscription
agreements with individual households and one to three year service contracts
with commercial and industrial customers.
The solid waste collection and disposal industry has undergone significant
consolidation, and we encounter competition in our efforts to acquire landfills,
transfer and collection operations. Intense competition exists not only for
collection, transfer and disposal volume, but also for remaining acquisition
candidates. We generally compete for acquisition candidates with publicly owned
8
regional and large national waste management companies. 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. 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.
REGULATION
Introduction
Our landfill operations and non-landfill operations, including waste
transportation, transfer stations, vehicle maintenance shops and fueling
facilities, are all subject to extensive and evolving federal, state and local
environmental laws and regulations, the enforcement of which has become
increasingly stringent. The environmental regulations that affect us are
administered by the EPA and other federal, state and local environmental,
zoning, health and safety agencies. The WUTC regulates the portion of our
collection business in Washington performed under G certificates, which
generally grant us perpetual and exclusive collection rights in certain areas.
We are currently in substantial compliance with applicable federal, state and
local environmental laws, permits, orders and regulations. We do not currently
anticipate any material costs necessary to bring our operations into
environmental compliance (although there can be no assurance in this regard). We
attempt to anticipate future regulatory requirements and to plan in advance as
necessary to comply with them.
The principal federal, state and local statutes and regulations that apply
to our operations are described below. All of the federal 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 ("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 (i) are specifically included on a list of hazardous wastes, or (ii)
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 the date of inception through December 31, 2003, we did not, to our
knowledge, transport hazardous wastes under circumstances that would subject us
to hazardous waste regulations under RCRA. Some of our ancillary operations
(e.g., vehicle maintenance operations) may generate hazardous wastes. We manage
these wastes in substantial compliance with applicable laws.
In October 1991, the Environmental Protection Agency 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 in which we
may operate in the future have adopted regulations or programs as stringent as,
or more stringent than, the Subtitle D Regulations.
9
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 (the "Clean Water Act")
The Clean Water Act regulates the discharge of pollutants from a variety of
sources, including solid waste disposal sites and transfer stations, into waters
of the United States. If run-off from our owned or operated transfer stations 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 EPA's
storm water regulations issued in November 1990, which are designed to prevent
contaminated landfill storm water runoff from flowing into surface waters. We
believe that our facilities comply in all material respects with the Clean Water
Act requirements. Various states in which we operate or in which we 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 requirements. For example, states often
require permits for discharges to ground water as well as surface water.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("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.
CERCLA's 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. 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 existence 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. 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. 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.
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 and by the
financial resources of such other parties. Various state laws also impose
liability for investigation, cleanup and other damages associated with hazardous
substance releases.
The Clean Air Act
The Clean Air Act generally, through state implementation of federal
requirements, regulates emissions of air pollutants from certain landfills based
on factors such as the date of the landfill construction and tons per year of
emissions of regulated pollutants. Larger landfills and landfills located in
areas where the ambient air does not meet certain requirements of the Clean Air
Act 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 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.
The Occupational Safety and Health Act of 1970 (the "OSH Act")
The OSH Act is administered by the Occupational Safety and Health
Administration ("OSHA"), and in many states by state agencies whose programs
have been approved by OSHA. The OSH Act establishes employer responsibilities
10
for worker health and safety, including the obligation to maintain a workplace
free of recognized hazards likely to cause death or serious injury, to comply
with adopted worker protection standards, to maintain certain records, to
provide workers with required disclosures and to 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.
Flow Control/Interstate Waste Restrictions
Certain permits and approvals, as well as certain state and local
regulations, may limit a landfill or transfer station to accepting waste that
originates from specified geographic areas, restrict the importation of
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 flow control schemes violate constitutional limits on state or local
regulation of interstate commerce. From time to time, federal legislation is
proposed that would allow some local flow control restrictions. Although no such
federal legislation has been enacted to date, if such federal legislation should
be enacted in the future, states in which we own or operate landfills could
limit or prohibit the importation of out-of-state waste or direct that wastes be
handled at specified facilities. Such state actions could adversely affect our
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.
Certain state and local jurisdictions may also seek to enforce flow control
restrictions through local legislation or contractually. In certain cases, we
may elect not to challenge such restrictions. These restrictions could reduce
the volume of waste going to landfills in certain areas, which may prevent us
from operating our landfills at their full capacity and/or reduce the prices
that we can charge for landfill disposal services. These restrictions may 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 Regulation
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, 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. Furthermore, many
municipalities also have 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
then put such franchises out for bid, and bans or other restrictions on the
movement of solid wastes into a municipality.
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 specify the types
of waste that may be accepted at the landfill. Once an operating permit for a
landfill is obtained, it must generally 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 and tires. 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 laws in addition
to state and local laws and regulations. For example, in some states, RCRA, the
OSH Act, parts of the Clean Air Act and parts of the Clean Water Act are
enforced by local or state authorities instead of by the EPA, and in some states
those laws are enforced jointly by state or local and federal authorities.
11
Public Utility Regulation
In many 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. The WUTC also sets rates for regulated solid waste
collection services in Washington.
RISK MANAGEMENT, INSURANCE AND FINANCIAL SURETY BONDS
Risk Management
We maintain environmental and other risk management programs 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.
Insurance
Beginning August 1, 2002, we significantly changed our insurance programs
for automobile liability, property, general liability, workers' compensation and
employer's liability. Prior to this date, each of these areas was third-party
insured with a per incident deductible of up to $5,000. Under our current
insurance program, we carry per incident deductibles of $2 million for
automobile liability claims, $1.5 million for workers' compensation and
employer's liability claims, and $1 million for general liability claims.
During a 12 month period, our automobile liability policy will pay up to $3
million in the aggregate per incident, after we pay the $2 million deductible.
Additionally, we have an umbrella policy with a third party insurance company
for automobile liability, general liability and employer's liability that will
pay, during a 12 month period, up to an aggregate of $25 million of claims in
excess of the $5 million limit for automobile claims and in excess of the $1
million limit for general liability and $1.5 million limit for employer's
liability claims. Since workers' compensation is a statutory coverage limited
only 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.
In November 2002, we purchased environmental protection insurance under a
three-year policy with limits of $10 million per occurrence, with a $20 million
aggregate limit. This insurance covers all owned or operated landfills and
transfer stations and all owned materials recycling operations. Under our
policy, insurance is guaranteed for acquired and newly constructed facilities,
but each addition to the policy is underwritten on a site-specific basis and the
premium is set according to the conditions found at the site. 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
two largest uses of financial surety bonds are for municipal contract
performance guarantees and landfill closure and post-closure financial assurance
required under certain environmental regulations. Environmental regulations
require demonstrated financial assurance to meet 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 cash deposits.
In August 2003, we paid $5.3 million to acquire a 9.9% interest in a
company that, among other activities, issues financial surety bonds to secure
landfill closure and post-closure obligations for companies operating in the
solid waste sector.
12
EMPLOYEES
At December 31, 2003, we employed 3,541 full-time employees, including 409
employees classified as professionals or managers, 2,671 employees involved in
collection, transfer, disposal and recycling operations, and 461 sales,
clerical, data processing or other administrative employees.
Approximately 308 of our drivers, mechanics, equipment operators and
sorters in various locations are employed under collective bargaining agreements
primarily with the Teamsters Union. These employees are subject to labor
agreements that are subject to renegotiation periodically.
We do not expect any significant disruption in our business in 2004 as a
result of labor negotiations or employee strikes. We are not aware of any
organizational efforts among our employees and we believe that our relations
with our employees are good. Approximately 30 of our gate clerks and operators
at one of our majority-owned subsidiaries in Pierce County, Washington are
represented by the Teamsters and the Operating Engineers Unions. On August 31,
2003, the labor agreement with these employees expired, and the employees have
continued to work under the terms of the expired labor agreement. We are
currently negotiating a new labor agreement with these employees and have no
reason to believe that we will not be successful in reaching a mutually
acceptable agreement.
AVAILABLE INFORMATION
Our internet website address is http://wasteconnections.com. We make our
reports on Forms 10-K, 10-Q and 8-K available on our website free of charge
after we file them with the SEC.
13
RISK FACTORS
Outlined below are some of the risks that we face and that could affect our
business and financial statements for 2004 and beyond. However, they are not the
only risks that we face. There may be additional risks that we do not presently
know of or that we currently believe are immaterial that could also impair our
business.
RISKS RELATED TO OUR BUSINESS
Difficulties in making acquisitions, acquiring exclusive contracts and
- ----------------------------------------------------------------------
generating internal growth may cause our growth to be slower than expected.
- ---------------------------------------------------------------------------
Our growth strategy includes expanding through acquisitions, acquiring
additional exclusive arrangements and generating internal growth. Most of our
growth has been through acquisitions. From inception through December 31, 2003,
we acquired 167 solid waste services related businesses. 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. Our ability to grow also depends on several other factors, including:
- the availability of capital to support our growth;
- our ability to compete with existing and emerging companies;
- our ability to maintain profit margins in the face of competitive
pressures;
- our ability to continue to recruit, train and retain qualified
employees; and
- continued strong demand for our services.
Difficulties in any of these areas could hinder our growth.
Our growth and future financial performance depend significantly on our ability
- -------------------------------------------------------------------------------
to integrate acquired businesses into our organization and operations.
- ----------------------------------------------------------------------
Part of our strategy is to achieve 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. Our senior management team may not be able to integrate our
completed and future acquisitions. Any difficulties we encounter in the
integration process could interfere with our operations and reduce our operating
margins.
Our acquisitions may not be successful, resulting in changes in strategy,
- -------------------------------------------------------------------------
operating losses or a loss on sale of the business acquired.
- ------------------------------------------------------------
Even if we are able to make acquisitions on advantageous terms and are able
to integrate them successfully into our operations and organization, some may
not fulfill our strategy in a given market due to factors that we cannot
control, such as market position or customer base. As a result, operating
margins could be less than we originally anticipated when we made those
acquisitions. We then may change our strategy with respect to that market or
those businesses and decide to sell the operations at a loss, or keep those
operations and recognize an impairment of goodwill and/or intangible assets.
We compete for acquisition candidates with other purchasers, some of which have
- -------------------------------------------------------------------------------
greater financial resources than we do. These competitors may be able to offer
- ------------------------------------------------------------------------------
more favorable acquisition terms, thus limiting our ability to grow through
- ---------------------------------------------------------------------------
acquisition.
- ------------
Other companies have adopted or will probably adopt our strategy of
acquiring and consolidating regional and local businesses. We expect that
increased consolidation in the solid waste services industry will increase
competitive pressures. Increased competition for acquisition candidates may make
fewer acquisition opportunities available to us, and may cause us to make
acquisitions on less attractive terms, such as higher purchase prices.
Acquisition costs may increase to levels beyond our financial capability or to
levels that would adversely affect our operating results and financial
condition.
14
Timing of acquisitions may cause fluctuations in our quarterly results, which
- -----------------------------------------------------------------------------
may cause our stock price to decline.
- -------------------------------------
We are not always able to control the timing of our acquisitions. Obtaining
third-party consents and regulatory approvals, completing due diligence on the
acquired businesses, and finalizing transaction terms and documents are not
entirely within our control and may take longer than we anticipate, causing
certain transactions to be delayed. Our inability to complete acquisitions in
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.
Rapid growth may strain our management, operational, financial and other
- ------------------------------------------------------------------------
resources.
- ----------
To maintain and manage our growth, we will need to expand our management
information systems capabilities and our operational and financial systems and
controls. We will also need to attract, train, motivate, retain and manage
additional senior managers, technical professionals and other employees. Failure
to do any of these things would restrict our ability to maintain and improve our
profitability while continuing to grow.
We may be unable to compete effectively with governmental service providers and
- -------------------------------------------------------------------------------
larger and better capitalized companies, which may result in reduced revenues
- -----------------------------------------------------------------------------
and lower profits.
- ------------------
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 solid waste companies, as well
as by regional and local solid waste companies of varying sizes and resources,
some of which have accumulated substantial goodwill in their markets.
We also compete with counties, municipalities and solid waste districts
that maintain their own waste collection and disposal operations. These
operators may have financial advantages over us because of their access to user
fees and similar charges, tax revenues and tax-exempt financing. 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.
We may lose contracts through competitive bidding, early termination or
- -----------------------------------------------------------------------
governmental action, which would cause our revenues to decline.
- ---------------------------------------------------------------
We derive a substantial portion of our revenue from services provided under
exclusive municipal contracts, franchise agreements and governmental
certificates. Many of these will be subject to competitive bidding at some time
in the future. For example, we have approximately 47 municipal contracts,
representing annual revenues of approximately $4.2 million, that could expire in
the next 12 months and have no renewal provisions. We also intend to bid on
additional municipal contracts and franchise agreements. We may not be the
successful bidder. In addition, some of our customers may terminate their
contracts with us before the end of the contract term. 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. Municipalities in which services are currently provided on a
competitive basis may elect to franchise collection services. Unless we are
awarded franchises by these municipalities, we will lose customers.
Municipalities may 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 unincorporated territory, which would likely remove
such territory from the area covered by governmental certificates issued to us
by the Washington Utility and Transportation Commission. Annexation would reduce
the areas covered by our governmental certificates and subject more of our
Washington operations to competitive bidding in the future. 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. 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 will decline.
We depend significantly on the services of the members of our senior 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 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
15
senior 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 loss of
customers or increases in costs, in either case adversely affecting operating
results.
Efforts by labor unions to organize our employees could divert management
- -------------------------------------------------------------------------
attention and increase our operating expenses.
- ----------------------------------------------
From time to time, labor unions attempt to organize our employees, and
these efforts will likely continue in the future. Some groups of our employees
are represented by unions, and we have negotiated collective bargaining
agreements with some of these groups. Additional groups of employees may seek
union representation in the future, and negotiating collective bargaining
agreements with these groups could divert management attention and result in
increased operating expenses and lower net income. 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. 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.
The geographic concentration of our business makes our results vulnerable to
- ----------------------------------------------------------------------------
factors affecting the regions in which we operate, and seasonal fluctuations may
- --------------------------------------------------------------------------------
cause our business and financial results to vary among quarters, which could
- ----------------------------------------------------------------------------
create volatility in our stock price.
- -------------------------------------
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
the regions, such as state regulations affecting the solid waste services
industry and severe weather conditions. Based on historic trends experienced by
the businesses we have acquired, we expect our operating results to vary
seasonally, with revenues typically lowest in the first quarter, higher in the
second and third quarters, and lower in the fourth quarter than in the second
and third quarters. We expect the fluctuation in our revenues between our
highest and lowest quarters to be in the range of approximately 10% to 12%. This
seasonality reflects the lower volume of solid waste generated during the late
fall, winter and early spring months because of decreased construction and
demolition activities during the winter months. In 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.
Unusually adverse weather conditions may interfere with our operations, harming
- -------------------------------------------------------------------------------
our operating results.
- ----------------------
Our collection and landfill operations could be adversely affected, beyond
the normal seasonal variations described above, by unusually long periods of
inclement weather, which could interfere with collection and landfill
operations, reduce the volume of waste generated by our customers and delay the
development of landfill capacity. Periods of particularly harsh weather may
force us to temporarily suspend some of our operations.
Increases in the costs of labor, disposal, fuel or energy could reduce operating
- --------------------------------------------------------------------------------
margins.
- --------
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 or to hire more
expensive temporary employees. Labor is one of our largest costs, and even
relatively small increases in labor costs per employee could materially affect
our cost structure. If we fail to attract and retain qualified employees, to
control our labor costs, or to 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. If we
incur increased disposal costs in areas where we do not dispose of solid waste
at landfills that we own or operate or if we incur increased disposal costs at
16
landfills that we do own or operate and if, in either case, we are unable to
pass these costs on to our customers, our operating results would suffer.
Although fuel and energy costs account for a relatively small portion of our
total operating expenses, the price of fuel and energy is volatile, and
shortages sometimes occur. Significant increases in the cost of fuel or energy,
or shortages of fuel or energy, could interrupt or curtail our operations and
lower our operating margins.
Decreased availability of surety bonds could require us to obtain other means of
- --------------------------------------------------------------------------------
financial assurance, which could result in additional capital outlays and
- -------------------------------------------------------------------------
increased expense and cause a reduction in our operating margins.
- -----------------------------------------------------------------
We use financial surety bonds for a variety of corporate guarantees. The
two largest uses of financial surety bonds are for municipal contract
performance guarantees and landfill closure and post-closure financial assurance
required under certain environmental regulations. Environmental regulations
require demonstrated financial assurance to meet 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 cash deposits.
If our current bond underwriters are unwilling to issue additional bonds,
renew existing bonds when such bonds expire, or increase their total bond
commitment, or if we are unable to obtain surety bonds through new underwriters
as such needs arise, we would need to arrange other means of financial
assurance, such as a cash trust or a letter of credit, to secure contract
performance or meet closure and post-closure requirements. Such alternate
financial assurance may not be readily available, and may result in additional
expense or capital outlays.
Increases in insurance costs and in the amount that we self-insure for various
- ------------------------------------------------------------------------------
risks could reduce our operating margins and reported earnings.
- ---------------------------------------------------------------
We maintain insurance programs for employee group health, automobile
liability, property, general liability, workers' compensation, employer's
liability, environmental protection and directors and officers' liability. To
control rising insurance costs, beginning August 2002, we became effectively
self-insured by increasing our per incident deductibles. We carry umbrella
policies for certain types of claims to provide excess coverage over the
underlying policies and per incident deductibles. The increased amounts that we
self-insure could cause significant volatility in our operating margins and
reported earnings based on the occurrence and claim costs of incidents,
accidents and injuries. 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. 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 that we fail
- --------------------------------------------------------------------------------
or are unable to discover, including liabilities that arise from prior owners'
- ------------------------------------------------------------------------------
failure to comply with environmental laws, which may harm our financial
- -----------------------------------------------------------------------
condition.
- ----------
As a successor owner, we may be legally responsible for 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. Some environmental liabilities, even
if we do not expressly assume them, may be imposed on us under various legal
theories. Our insurance program does not cover liabilities associated with some
environmental issues that may exist prior to attachment of coverage. A
successful uninsured claim against us could harm our financial condition.
Our growth may be limited by the inability to obtain new landfills and expand
- -----------------------------------------------------------------------------
existing ones.
- --------------
We currently own and/or operate a number of landfills. Our ability to meet
our growth objectives may depend in part on our ability to acquire, lease and
expand landfills and develop new landfill sites. 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. Either of these circumstances could result in
slower growth.
17
In some areas in which we operate, suitable land for new sites or expansion of
- ------------------------------------------------------------------------------
existing landfill sites may be unavailable, which could increase our disposal
- -----------------------------------------------------------------------------
costs and reduce our operating margins.
- ---------------------------------------
Operating permits for landfills in states where we operate must generally
be renewed every five to ten years. 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.
The process often takes several years, requires numerous hearings and compliance
with zoning, environmental and other requirements, and is frequently resisted by
citizen, public interest and other groups. We may not be able to obtain or
maintain the permits we require to expand, and such permits may contain
burdensome terms and conditions. Even when granted, final permits to expand are
often not approved until the remaining permitted disposal capacity of a landfill
is very low. Local laws and ordinances also may affect our ability to obtain
permits to expand landfills. If we were to exhaust our permitted capacity at a
landfill, our ability to expand internally would be limited, and we could be
required to cap and close that landfill and be forced to dispose of collected
waste at more distant landfills or at landfills operated by our competitors. The
resulting increased costs would reduce our operating margins.
Our accruals for our landfill closure and post-closure costs may be inadequate,
- -------------------------------------------------------------------------------
and our earnings would be lower if we are required to pay additional amounts.
- -----------------------------------------------------------------------------
We will generally be required to pay closure and post-closure costs for
landfills and disposal facilities that we own or operate under a life-of-site
operating agreement. Closure and post-closure costs are generally paid for a
term of 30 years after final closure of a landfill, and accrued during the
operating life of the landfill based on engineering estimates of future
requirements associated with the final landfill design, final landfill capping
and closure and post-closure process. Our obligations to pay closure or
post-closure costs may exceed the amount we accrued and reserved and other
amounts available from funds or reserves established to pay such costs. Paying
additional amounts would lower our earnings and could cause our stock price to
decline.
We may incur additional charges related to capitalized expenditures, which would
- --------------------------------------------------------------------------------
lower our earnings.
- -------------------
In accordance with accounting principles generally accepted in the United
States, we capitalize some expenditures and advances relating to acquisitions,
pending acquisitions and landfill development projects. We expense indirect
acquisition costs such as executive salaries, general corporate overhead, public
affairs 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, any
pending acquisition that is not consummated and any landfill development project
that we do not expect to complete. Any such charges against earnings could lower
our stock price.
Recent accounting pronouncements may require a write-down of our goodwill, which
- --------------------------------------------------------------------------------
could materially impair our net worth.
- --------------------------------------
As a result of our acquisition strategy, we have a material amount of
goodwill recorded on our financial statements. Under SFAS No. 142, effective
January 1, 2002, we no longer amortize our existing goodwill. We are required to
test goodwill for impairment using the two-step process prescribed in SFAS No.
142. The first step is a screen for potential impairment, while the second step
measures the amount of the impairment, if any. We perform the first of the
required impairment tests of goodwill and indefinite-lived intangible assets
annually on October 1. To date, no events or changes in circumstances have
occurred that indicated the potential existence of goodwill or indefinite-lived
intangible asset impairment and it has not been necessary to write down any of
our goodwill or indefinite-lived intangible assets. 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 and our net worth would be reduced. Our credit agreement contains a
covenant requiring us to maintain a minimum net worth. A reduction in net worth,
therefore, if substantial, could limit the amount that we can borrow under our
credit agreement and any failure to comply with the agreement could result in an
event of default under the credit agreement.
If we fail to comply with covenants and conditions in our credit facility, we
- -----------------------------------------------------------------------------
may be unable to make acquisitions and may be required to repay our debt early,
- -------------------------------------------------------------------------------
which could harm our financial results.
- ---------------------------------------
Our credit facility requires us to obtain the consent of the lending banks
before acquiring any other business for more than $100 million in cash and
assumed debt. If we are not able to obtain our banks' consent to acquisitions of
18
this size, we may not be able to complete them, which could inhibit our growth.
Our credit facility also contains financial covenants based on our current and
projected financial condition after completing an acquisition. If we are not
able to satisfy these financial covenants on a pro forma basis upon completing
an acquisition, we would not be able to complete the acquisition without a
waiver from our lending banks. Whether or not a waiver is needed, if the results
of our future operations differ materially from what we expect, we may no longer
be able to comply with the covenants in the credit facility. Our failure to
comply with these covenants may result in a default under the credit facility,
which would allow our lending banks to accelerate the date for repayment of debt
incurred under the credit facility and could harm our business and financial
results.
Provisions in our charter and bylaws may deter changes in control that could
- ----------------------------------------------------------------------------
benefit our stockholders.
- -------------------------
Provisions in our Certificate of Incorporation and By-Laws, and in the
Delaware General Corporation Law, may deter tender offers and hostile takeovers
and delay or prevent changes in control or management of Waste Connections,
including transactions in which stockholders might be paid more than current
market prices for their shares. These provisions may also limit our
stockholders' ability to approve transactions that they believe are in their
best interests.
We face uncertainties relating to pending litigation.
- -----------------------------------------------------
We and some of our subsidiaries are currently involved in civil litigation
relating to the conduct of our business. The timing and final resolution of
these matters are uncertain. Additionally, the possible outcomes or resolutions
of these matters could include judgments against us or settlements, either of
which could require substantial payments by us, adversely affecting our
operating results.
RISKS RELATED TO OUR INDUSTRY
Extensive and evolving environmental laws and regulations may restrict our
- --------------------------------------------------------------------------
operations and growth and increase our costs.
- ---------------------------------------------
Environmental laws and regulations have been enforced more and more
stringently in recent years because of greater public interest in protecting the
environment. These laws and regulations impose substantial costs on us and
affect our business in many ways, including as described below. In addition,
federal, state and local governments may change the rights they grant to, and
the restrictions they impose on, solid waste services companies, and those
changes could restrict our operations and growth.
We may be unable to obtain and maintain licenses or permits and zoning,
- -----------------------------------------------------------------------
environmental and/or other land use approvals that we need to own and operate
- -----------------------------------------------------------------------------
our landfills.
- --------------
These licenses or permits and approvals are difficult and time-consuming to
obtain and renew, and elected officials and citizens' groups frequently oppose
them. Failure to obtain and maintain the permits and approvals we need to own or
operate landfills (including increasing their capacity) could force us to
dispose of collected waste at more distant landfills or at landfills owned by
our competitors, thus increasing our disposal costs and reducing our operating
margins.
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 landfill operations include the regulations that
establish minimum federal requirements adopted by the EPA in October 1991 under
Subtitle D of the RCRA. If we fail to comply with these regulations, we could be
required to undertake investigatory or remedial activities, curtail operations
or close 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 do not
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 earnings.
19
We may be subject in the normal course of business to judicial and
- ------------------------------------------------------------------
administrative proceedings involving federal, state or local agencies or
- ------------------------------------------------------------------------
citizens' groups, which could interrupt our operations, require expensive
- -------------------------------------------------------------------------
remediation and create negative publicity.
- ------------------------------------------
Governmental agencies may impose fines or penalties on us. They may also
attempt to revoke or deny renewal of our operating permits, franchises or
licenses for violations or alleged violations of environmental laws or
regulations, or require us to remediate potential environmental problems
relating to waste that we or our predecessors collected, transported, disposed
of or stored. Individuals or community groups might also bring actions against
us in connection with our operations. Any adverse outcome in these proceedings
could harm our operations and financial results and create adverse publicity,
which could damage our competitive position and stock price.
Liabilities for environmental damage may adversely affect our business and
- --------------------------------------------------------------------------
earnings.
- ---------
We are liable for any environmental damage that our solid waste 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. 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. We
have limited insurance coverage to compensate us for damages associated with
environmental conditions. 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
could be materially and adversely affected.
Fluctuations in prices for recycled commodities that we sell may cause our
- --------------------------------------------------------------------------
revenues and operating results to decline.
- ------------------------------------------
We provide recycling services to some of our customers. The sale prices of
and demand for recyclable materials, particularly paper products, are frequently
volatile and when they decline our revenues and operating results may decline.
Future changes in laws regulating the flow of solid waste in interstate commerce
- --------------------------------------------------------------------------------
could adversely affect our operating results.
- ---------------------------------------------
The U.S. Supreme Court has held that states may not regulate the flow of
solid waste in interstate commerce if the effect would be to discriminate
between interstate and intrastate commerce. If legislation is enacted that
overturns or modifies this decision, and if one or more of the states in which
we dispose of interstate waste takes action that would prohibit or increase the
costs of our continued disposal of interstate waste, our operating results could
be adversely affected.
ITEM 2. PROPERTIES
As of December 31, 2003, we owned 101 collection operations, 26 transfer
stations, 20 municipal solid waste landfills, one construction and demolition
landfill and 26 recycling operations and operated, but did not own, an
additional seven transfer stations and 14 municipal solid waste landfills. We
also own one municipal solid waste landfill site which was permitted for
operation, but not constructed as of December 31, 2003. We lease various offices
and facilities, including our corporate offices in Folsom, California. We own
various equipment, including waste collection and transportation vehicles,
related support vehicles, carts, containers, and heavy equipment used in
landfill operations. We believe that our existing facilities and equipment are
generally adequate for our current operations. However, we expect to make
additional investments in property and equipment for expansion and replacement
of assets and in connection with future acquisitions.
Our corporate headquarters is located in Folsom, California, where we lease
approximately 31,000 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
We own undeveloped property in Harper County, Kansas, where we are seeking
permits to construct and operate a municipal solid waste landfill. In 2002, we
received a special use permit from Harper County for zoning the landfill and in
2003 we received a draft permit from the Kansas Department of Health and
Environment to construct and operate the landfill. In July 2003, the District
Court of Harper County invalidated the previously issued zoning permit. We have
appealed the District Court's decision to invalidate the zoning permit. The
Kansas Department of Health and Environment has notified us that it will not
issue a final permit to construct and operate the landfill until the zoning
matter is resolved. At December 31, 2003, we had $3.9 million of capitalized
20
expenditures related to this landfill development project. Based on the advice
of counsel, we believe that we will prevail in this matter and do not believe
that an impairment of the capitalized expenditures exists. If we do not prevail
on appeal, however, we will be required to expense in a future period the $3.9
million of capitalized expenditures, less the recoverable value of the
undeveloped property and other amounts recovered, which would likely have a
material adverse effect on our reported income for that period.
We are primarily self-insured for automobile liability, general liability
and workers' compensation claims. We are a party to various claims and suits
pending for alleged damages to persons and property and alleged liabilities
occurring during the normal operations of our solid waste management business.
On October 31, 2003, our subsidiary, Waste Connections of Nebraska, Inc. was
named as a defendant in the case of KAREN COLLERAN, CONSERVATOR OF THE ESTATE OF
ROBERT ROONEY V. WASTE CONNECTIONS OF NEBRASKA, INC. The plaintiff seeks
recovery for damages allegedly suffered by Father Robert Rooney when the bicycle
he was riding collided with one of our garbage trucks. The complaint alleges
that Father Rooney suffered serious bodily injury, including traumatic brain
injury. The plaintiff seeks recovery of past medical expenses of approximately
$430,000 and an unspecified amount for future medical expenses and home
healthcare, past pain and suffering, future pain and suffering, lost income,
loss of earning capacity, and permanent injury and disability. Our primary
defense is that the plaintiff is not entitled to any damages under Nebraska law,
where the accident occurred, because the negligence of Father Rooney was equal
to or greater than any negligence on the part of our driver, and we intend to
defend this case vigorously on these and other grounds. This case is in the
preliminary stages of discovery, and we have not accrued any potential loss as
of December 31, 2003; however, an adverse outcome in this case coupled with a
significant award to the plaintiff could have a material adverse effect on our
reported income in the period incurred.
Additionally, we are a party to various legal proceedings resulting from
the ordinary course of business and the extensive governmental regulation of the
solid waste industry. Our management does not believe that these proceedings,
either individually or in the aggregate, are likely to have a material adverse
effect on our business, financial condition, operating results or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 2003.
EXECUTIVE OFFICERS
The following table sets forth certain information concerning our executive
officers as of March 1, 2004:
NAME AGE POSITIONS
- ---- --- ---------
Ronald J. Mittelstaedt (1) 40 President, Chief Executive Officer and Chairman
Steven F. Bouck 47 Executive Vice President and Chief Financial Officer
Darrell W. Chambliss 39 Executive Vice President and Chief Operating Officer
Robert D. Evans 57 Executive Vice President, General Counsel and Secretary
Kenneth O. Rose 55 Senior Vice President - Administration
David G. Eddie 34 Vice President - Corporate Controller
Michael R. Foos 38 Vice President - Chief Information Officer
David M. Hall 46 Vice President - Business Development
Eric O. Hansen 39 Vice President - Information Technology
Jerri L. Hunt 52 Vice President - Human Resources
Worthing F. Jackman 39 Vice President - Finance and Investor Relations
James M. Little 42 Vice President - Engineering
(1) Member of the Executive Committee of the Board of Directors.
Ronald J. Mittelstaedt has been President, Chief Executive Officer and a
director since Waste Connections was formed, and was elected Chairman in January
1998. Mr. Mittelstaedt has more than 15 years of experience in the solid waste
industry. He served as a consultant to United Waste Systems, Inc., with the
title of Executive Vice President, from January 1997 to August 1997, where he
was responsible for corporate development for all states west of Colorado. As
Regional Vice President of USA Waste Services, Inc. (including Sanifill, Inc.,
which was acquired by USA Waste Services, Inc.) from November 1993 to January
1997, he was responsible for all operations in 16 states and Canada. Mr.
Mittelstaedt held various positions at Browning-Ferris Industries, Inc. ("BFI")
from August 1988 to November 1993, most recently as Division Vice President in
northern California, overseeing the San Jose market. Previously he was the
21
District Manager responsible for BFI's operations in Sacramento and the
surrounding areas. He holds a B.S. degree in Finance from the University of
California at Santa Barbara.
Steven F. Bouck has been Executive Vice President and Chief Financial
Officer since February 1998. Mr. Bouck held various positions with First
Analysis Corporation from 1986 to 1998, including most recently as Managing
Director coordinating corporate finance. In that capacity, he provided merger
and acquisition advisory services to companies in the environmental industry.
Mr. Bouck was also responsible for investing venture capital funds focused on
the environmental industry that were managed by First Analysis. In connection
with those investments, he served on the boards of directors of several
companies. 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. He has been a Chartered Financial Analyst since 1990.
Darrell W. Chambliss has been Executive Vice President and Chief Operating
Officer since October 2003. From October 1, 1997 to that date, he served as
Executive Vice President - Operations. Mr. Chambliss held various management
positions at USA Waste Services, Inc. (including Sanifill, Inc. and United
Waste, Inc., both of which were acquired by USA Waste Services, Inc.) from April
1995 to September 1997, including most recently Division Manager in Corning,
California, where he was responsible for the operations of 19 operating
companies as well as supervising and integrating acquisitions. From July 1989 to
April 1995, he held various management positions with BFI, including serving as
Assistant District Manager in San Jose, California, where he was responsible for
a significant hauling operation, and serving as District Manager in Tucson,
Arizona for more than three years. Mr. Chambliss holds a B.S. degree in Business
Administration from the University of Arkansas.
Robert D. Evans has been Executive Vice President, General Counsel and
Secretary of Waste Connections since June 2002. From 1978 until he joined the
company, Mr. Evans was a partner in the San Francisco law firm of Shartsis,
Friese & Ginsburg LLP, where he was also a member of the Management Committee.
Mr. Evans' practice included representing companies in mergers and acquisitions
and corporate finance transactions. Prior to joining Waste Connections, Mr.
Evans had been the Company's primary outside counsel since its formation. Mr.
Evans holds a B.A. degree in Economics and a J.D. degree from the University of
California at Berkeley.
Kenneth O. Rose has been Senior Vice President - Administration since May
2002. He also served as a consultant to Waste Connections in March and April
2002. From May 2000 to March 2002, he provided consulting services to
WorldOil.Com, Inc. and Gulf Publishing Company. As Vice President -
Administration for Coach USA, Inc., from October 1996 to April 2000, Mr. Rose
was responsible for all corporate administrative activities in the United
States, Canada and Mexico. Mr. Rose has over seven years experience in the solid
waste industry obtained primarily with USA Waste Services, Inc. (including
Sanifill, Inc., which was acquired by USA Waste Services, Inc.) where he held
the position of Corporate Director - Administration from December 1990 to
September 1996. From August 1989 to November 1990, Mr. Rose provided consulting
and personnel services to BSI, Inc., a solid waste services company in Houston,
Texas acquired by Sanifill, Inc. Prior to joining the waste industry, Mr. Rose
held various administrative positions in the oil and offshore drilling
industries from 1971 to 1989 with Standard Oil Company-Indiana, Gulf Oil
Corporation and Chevron Corporation. Mr. Rose holds a B.S. degree in Accounting
from the University of Wyoming.
David G. Eddie has been Vice President -Corporate Controller since March
2004. From April 2003 to February 2004, Mr. Eddie served as Waste Connections'
Vice President - Public Reporting and Compliance. From May 2001 to March 2003,
Mr. Eddie served as Waste Connections' 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.
Michael R. Foos has been Vice President - Chief Information Officer since
April 2003. From October 1999 to March 2003, Mr. Foos served as Vice President -
Finance and Chief Accounting Officer of Waste Connections. From October 1997 to
September 1999, Mr. Foos served as Vice President and Corporate Controller of
Waste Connections. Mr. Foos served as Division Controller of USA Waste Services,
Inc. (including Sanifill, Inc., which was acquired by USA Waste Services, Inc.)
from October 1996 to September 1997, where he was responsible for financial
compilation and reporting and acquisition due diligence for a seven-state
region. Mr. Foos served as Assistant Regional Controller at USA Waste Services,
Inc. from August 1995 to September 1996, where he was responsible for internal
financial reporting for operations in six states and Canada. Mr. Foos also
22
served as District Controller for Waste Management, Inc. from February 1990 to
July 1995, and was a member of the audit staff of Deloitte & Touche from 1987 to
1990. Mr. Foos holds a B.S. degree in Accounting from Ferris State University.
David M. Hall has been Vice President - Business Development since August
1, 1998. Mr. Hall has more than 17 years of experience in the solid waste
industry with extensive operating and marketing experience in the Western U.S.
From October, 1995 to July 1998, Mr. Hall was the Divisional Vice President of
USA Waste Services, Inc., Rocky Mountain Division (including Sanifill, Inc.
which was acquired by USA Waste Services, Inc.). In that position, he oversaw
all operations and business development in six Rocky Mountain states. Prior to
his employment with Sanifill, Mr. Hall held various management positions with
BFI from October 1986 to October 1995, including Vice President of Sales for the
Western United States. Mr. Hall was employed from 1979 to 1986 in a variety of
sales and marketing management positions in the high technology sector. Mr. Hall
received a B.S. degree in Management and Marketing from Southwest Missouri State
University.
Eric O. Hansen has been Vice President - Information Technology since
January 2001. From April 1998 to December 2000, Mr. Hansen served as Waste
Connections' Director of Management Information Systems. Mr. Hansen served as
Information Systems Manager with Fibres International from October 1997 to April
1998. Mr. Hansen held various positions including NT Administrator for the
Multnomah Athletic Club in Portland, Oregon from August 1989 to October 1997.
Mr. Hansen holds a B.S degree from Portland State University.
Jerri L. Hunt has been Vice President - Human Resources since December
1999. Ms. Hunt also served as Vice President - Human Resources and Risk
Management from December 1999 to May 2002. From 1994 to 1999, Ms. Hunt held
various positions with First Union National Bank (including the Money Store,
which was acquired by First Union National Bank), most recently Vice President
of Human Resources in which she managed all aspects of human resources for over
5,000 employees located throughout the United States. From 1989 to 1994, Ms.
Hunt served as Manager of Human Resources and Risk Management for BFI, where she
was responsible for all aspects of human resources and safety and environmental
compliance matters. Ms. Hunt also served as a Human Resources Supervisor for
United Parcel Service from 1976 to 1989. She holds a B.S. degree from California
State University,