Waste Connections, Inc.
"We are extremely pleased with our continuously improving results during 2006 and the pieces we already have in place for expected margin expansion and double-digit revenue growth in 2007. Many of the improvements in our underlying financials achieved during 2006 were masked primarily by the significant year-to-year increase in our fuel costs. Now that we have transitioned to a higher fuel cost environment, we expect continuing pricing strength and increasing volume growth to drive year-over-year margin expansion in 2007," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "Our strong free cash flow in the fourth quarter enabled us to exit the year with sufficient cash balances to fund our recent acquisition of Waste Management's integrated operations in Eastern Kentucky without incremental borrowings."
For the year ended December 31, 2006, revenue was $824.4 million, a 14.2% increase over revenue of $721.9 million in 2005. Operating income was $171.4 million versus $168.0 million in 2005. Net income was $77.4 million, or $1.65 per share on a diluted basis of 46.9 million shares. In 2005, the Company reported income from continuing operations of $84.5 million and diluted earnings per share from continuing operations of $1.75.
Waste Connections also announced its outlook for 2007, its 10th anniversary year. The Company's outlook excludes the impact of any additional acquisitions and assumes: (1) approximately $5.7 million of equity-based compensation costs; and (2) $100 million of common stock is repurchased during the year. The outlook provided below is forward looking, and actual results may differ materially depending on risks and uncertainties detailed at the end of this release and in our periodic SEC filings.
-- Revenue is estimated to range between $920 million and $930 million. This assumes internal growth in a range between 8.0% and 8.5%, excluding the impact of intermodal services and commodities, with between 4.0% and 4.5% from price and surcharges, and the remainder from volume growth. -- Selling, general and administrative expense, which includes increased equity-based compensation costs, is estimated at approximately 10.2% of revenue, subject to quarterly fluctuations. -- Depreciation and amortization is estimated at approximately 9.0% of revenue, subject to quarterly fluctuations. -- Operating income is estimated at approximately 21.2% of revenue, subject to quarterly fluctuations. -- Net interest expense is estimated at approximately $33.5 million. -- Minority interest expense is estimated at approximately 1.6% of revenue, subject to quarterly fluctuations. -- Effective tax rate is expected to be approximately 38.0%, subject to quarterly fluctuations. -- Net cash provided by operating activities is estimated to be approximately 24% of revenue, subject to quarterly fluctuations. -- Capital expenditures are estimated to be approximately $115 million, of which approximately $15 million relates to up-front outlays for trucks and containers associated with the commencement of a long- term collection contract in Northern California.
Waste Connections will be hosting a conference call related to fourth quarter earnings and 2007 outlook on February 13th at 8:30 A.M. Eastern Time. The call will be broadcast live over the Internet at www.streetevents.com and through a link on the Company's web site at www.wasteconnections.com. A playback of the call will be available at both of these sites.
For non-GAAP measures, see accompanying Non-GAAP Reconciliation Schedule.
In the second quarter of 2005, Waste Connections classified as discontinued operations the results of certain operations in Utah and California that were exited during that quarter. Results for 2005 have been reclassified to present the results for these operations as discontinued operations.
In accordance with the Company's adoption of SFAS 123R at the beginning of the first quarter of 2006, excess tax benefits associated with equity-based compensation, which totaled $7.7 million for the year ended December 31, 2006, are now classified as a cash flow from financing activities, rather than as a cash flow from operating activities as classified in prior year periods. This requirement will reduce the amounts recorded as net cash provided by operating activities, and will increase the amount recorded as net cash provided by financing activities. In order to improve comparability to prior periods, the Company's definition of free cash flow, a non-GAAP financial measure, has been expanded to include the excess tax benefits associated with equity-based compensation. Total cash flow will remain unchanged from what would have been reported under prior accounting rules.
Waste Connections, Inc. is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly secondary markets in the Western and Southern U.S. The Company serves more than one million residential, commercial and industrial customers from a network of operations in 22 states. The Company also provides intermodal services for the movement of containers in the Pacific Northwest. Waste Connections, Inc. was founded in September 1997 and is headquartered in Folsom, California.
For more information, visit the Waste Connections web site at www.wasteconnections.com. Copies of financial literature, including this release, are available on the Waste Connections web site or through contacting us directly at (916) 608-8200.
Certain statements contained in this press release are forward-looking in nature. These statements can be identified by the use of forward-looking terminology such as "believes," "expects," "may," "will," "should," "anticipates," or the negative thereof or comparable terminology, or by discussions of strategy. Waste Connections' business and operations are subject to a variety of risks and uncertainties and, consequently, actual results may differ materially from those projected by any forward-looking statements. Factors that could cause actual results to differ from those projected include, but are not limited to, the following: (1) Waste Connections may be unable to compete effectively with larger and better capitalized companies and governmental service providers; (2) increases in the price of fuel may adversely affect Waste Connections' business and reduce its operating margins; (3) increases in labor and disposal and related transportation costs could impact Waste Connections' financial results; (4) increases in insurance costs and the amount that Waste Connections self- insures for various risks could reduce its operating margins and reported earnings; (5) Waste Connections' financial results are based upon estimates and assumptions that may differ from actual results; (6) efforts by labor unions could divert management attention and adversely affect operating results; (7) Waste Connections may lose contracts through competitive bidding, early termination or governmental action; (8) Waste Connections' results are vulnerable to economic conditions and seasonal factors affecting the regions in which it operates; (9) Waste Connections may be subject in the normal course of business to judicial and administrative proceedings that could interrupt its operations, require expensive remediation and create negative publicity; (10) competition for acquisition candidates, consolidation within the waste industry and economic and market conditions may limit Waste Connections' ability to grow through acquisitions; (11) Waste Connections' growth and future financial performance depend significantly on its ability to integrate acquired businesses into its organization and operations; (12) Waste Connections' acquisitions may not be successful, resulting in changes in strategy, operating losses or a loss on sale of the business acquired; (13) Waste Connections' Amended and Restated Revolving Credit and Term Loan Agreement and other factors and considerations may limit the number of shares repurchased under Waste Connections' stock repurchase program; (14) because Waste Connections depends on railroads for its intermodal operations, its operating results and financial condition are likely to be adversely affected by any reduction or deterioration in rail service; (15) Waste Connections' intermodal business could be adversely affected by steamship lines diverting business to ports other than those Waste Connections services, or by heightened security measures or actual or threatened terrorist attacks; (16) Waste Connections depends significantly on the services of the members of its senior and district management team, and the departure of any of those persons could cause its operating results to suffer; (17) Waste Connections' decentralized decision-making structure could allow local managers to make decisions that adversely affect Waste Connections' operating results; (18) Waste Connections may incur additional charges related to capitalized expenditures, which would decrease its earnings; (19) the outcome of audits by the Internal Revenue Service may adversely affect Waste Connections; (20) each business that Waste Connections acquires or has acquired may have liabilities that Waste Connections fails or is unable to discover, including environmental liabilities; (21) liabilities for environmental damage may adversely affect Waste Connections' business and earnings; and (22) the adoption of new accounting standards or interpretations could adversely impact Waste Connections' financial results. These risks and uncertainties, as well as others, are discussed in greater detail in Waste Connections' filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. There may be additional risks of which Waste Connections is not presently aware or that it currently believes are immaterial which could have an adverse impact on its business. Waste Connections makes no commitment to revise or update any forward-looking statements in order to reflect events or circumstances that may change.
WASTE CONNECTIONS, INC. CONSOLIDATED STATEMENTS OF INCOME THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2006 (Unaudited) (in thousands, except share and per share amounts) Three months ended Twelve months ended December 31, December 31, 2005 2006 2005 2006 Revenues $188,445 $210,668 $721,899 $824,354 Operating expenses: Cost of operations 111,068 124,421 416,883 492,766 Selling, general and administrative 20,470 22,695 72,395 84,541 Depreciation and amortization 17,511 18,825 64,788 74,865 Loss (gain) on disposal of assets 116 831 (216) 796 Operating income 39,280 43,896 168,049 171,386 Interest expense (6,946) (7,285) (23,489) (28,970) Minority interests (3,150) (3,157) (12,422) (12,905) Other income (expense), net 223 81 450 (3,759) Income from continuing operations before income tax 29,407 33,535 132,588 125,752 Income tax provision (10,706) (12,908) (48,066) (48,329) Income from continuing operations 18,701 20,627 84,522 77,423 Loss from discontinued operations, net of tax - - (579) - Net income $18,701 $20,627 $83,943 $77,423 Basic earnings per common share: Continuing operations $0.41 $0.45 $1.81 $1.70 Discontinued operations - - (0.01) - Net income per common share $0.41 $0.45 $1.80 $1.70 Diluted earnings per common share: Continuing operations $0.40 $0.44 $1.75 $1.65 Discontinued operations - - (0.01) - Net income per common share $0.40 $0.44 $1.74 $1.65 Shares used in the per share calculations: Basic 46,096,009 45,364,370 46,700,64945,424,084 Diluted 47,316,277 46,686,227 48,211,30146,939,115 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except share and per share amounts) December 31, December 31, 2005 2006 ASSETS Current assets: Cash and equivalents $7,514 $34,949 Accounts receivable, net of allowance for doubtful accounts of $2,826 and $3,489 at December 31, 2005 and 2006, respectively 94,438 100,269 Deferred income taxes 5,145 9,373 Prepaid expenses and other current assets 17,279 15,642 Total current assets 124,376 160,233 Property and equipment, net 700,508 736,428 Goodwill 723,120 750,397 Intangible assets, net 87,651 86,098 Restricted assets 13,888 15,917 Other assets, net 26,764 24,818 $1,676,307 $1,773,891 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $54,795 $53,010 Book overdraft 8,869 - Accrued liabilities 44,522 57,810 Deferred revenue 30,957 32,161 Current portion of long-term debt and notes payable 10,858 6,884 Total current liabilities 150,001 149,865 Long-term debt and notes payable 586,104 637,308 Other long-term liabilities 20,478 16,712 Deferred tax liabilities 175,167 205,532 Total liabilities 931,750 1,009,417 Commitments and contingencies Minority interests 26,357 27,992 Stockholders' equity: Preferred stock: $0.01 par value; 7,500,000 shares authorized; none issued and outstanding - - Common stock: $0.01 par value; 100,000,000 shares authorized; 45,924,686 and 45,510,697 shares issued and outstanding at December 31, 2005 and 2006, respectively 459 455 Additional paid-in capital 373,382 310,229 Deferred stock compensation (2,234) - Treasury stock at cost, 106,600 shares outstanding at December 31, 2005 (3,672) - Retained earnings 345,308 422,731 Accumulated other comprehensive income 4,957 3,067 Total stockholders' equity 718,200 736,482 $1,676,307 $1,773,891 WASTE CONNECTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2006 (Unaudited) (Dollars in thousands) Twelve months ended December 31, 2005 2006 Cash flows from operating activities: Net income $83,943 $77,423 Adjustments to reconcile net income to net cash provided by operating activities: Loss (gain) on disposal of assets (413) 796 Depreciation 61,968 70,785 Amortization of intangibles 3,070 4,080 Deferred income taxes, net of acquisitions (792) 26,585 Minority interests 12,422 12,905 Amortization of debt issuance costs 2,001 6,238 Stock-based compensation 2,826 3,451 Interest income on restricted assets (390) (618) Closure and post-closure accretion 681 623 Tax benefit on the exercise of stock options 7,338 - Excess tax benefit associated with equity-based compensation - (7,728) Net change in operating assets and liabilities, net of acquisitions 27,158 9,694 Net cash provided by operating activities 199,812 204,234 Cash flows from investing activities: Payments for acquisitions, net of cash acquired (80,849) (38,594) Capital expenditures for property and equipment (97,482) (96,519) Proceeds from disposal of assets 5,254 2,198 Decrease (increase) in restricted assets, net of interest income 661 (1,411) Increase in other assets (856) (224) Net cash used in investing activities (173,272) (134,550) Cash flows from financing activities: Proceeds from long-term debt 232,631 666,035 Principal payments on notes payable and long-term debt (159,688) (621,161) Change in book overdraft 208 (8,869) Proceeds from option and warrant exercises 28,716 32,146 Excess tax benefit associated with equity-based compensation - 7,728 Distributions to minority interest holders (10,486) (11,270) Payments for repurchase of common stock (113,874) (100,245) Debt issuance costs (143) (6,613) Net cash used in financing activities (22,636) (42,249) Net increase in cash and equivalents 3,904 27,435 Cash and equivalents at beginning of period 3,610 7,514 Cash and equivalents at end of period $7,514 $34,949 ADDITIONAL STATISTICS THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2006 (Dollars in thousands)
Internal Growth: The following table reflects revenue growth for operations owned for at least 12 months:
Three Months Ended Twelve Months Ended December 31, 2006 December 31, 2006 Price 5.5% 5.1% Volume 2.0% 2.8% Intermodal, Recycling and Other 0.3% (0.3%) Total 7.8% 7.6% Uneliminated Revenue Breakdown: Three Months Ended Twelve Months Ended December 31, 2006 December 31, 2006 Collection $153,221 64.1% $602,762 64.2% Disposal and Transfer 65,582 27.5% 259,190 27.6% Intermodal, Recycling and Other 20,120 8.4% 77,202 8.2% Total $238,923 100.0% $939,154 100.0% Inter-company elimination $28,255 $114,800
Days Sales Outstanding for the three months ended December 31, 2006: 44 (30 net of deferred revenue)
Internalization for the three months ended December 31, 2006: 69% Other Cash Flow Items for the three months ended December 31, 2006: Cash Interest Paid: $10,039 Cash Taxes Paid: $45 Debt to Capitalization Ratio as of December 31, 2006: 46.7% Share Information for the three months ended December 31, 2006: Basic shares outstanding 45,364,370 Dilutive effect of options and warrants 1,198,467 Dilutive effect of restricted stock 123,390 Diluted shares outstanding 46,686,227 NON-GAAP RECONCILIATION SCHEDULE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 2006 (in thousands)
Free cash flow, a non-GAAP financial measure, is provided supplementally because it is widely used by investors as a valuation and liquidity measure in the solid waste industry. Waste Connections defines free cash flow as net cash provided by operating activities, plus proceeds from disposal of assets and excess tax benefit associated with equity-based compensation, plus or minus change in book overdraft, less capital expenditures and distributions to minority interest holders. This measure is not a substitute for, and should be used in conjunction with, GAAP financial measures. Management uses free cash flow as one of the principal measures to evaluate and monitor the ongoing financial performance of our operations. Other companies may calculate free cash flow differently.
Free cash flow reconciliation: Three Months Ended Twelve Months Ended December 31, 2006 December 31, 2006 Net cash provided by operating activities $51,894 $204,234 Change in book overdraft (2,726) (8,869) Plus: Proceeds from disposal of assets 248 2,198 Plus: Excess tax benefit associated with equity-based compensation 2,068 7,728 Less: Capital expenditures for property and equipment (23,037) (96,519) Less: Distributions to minority interest holders (3,430) (11,270) Free cash flow $25,017 $97,502 Free cash flow as % of revenues 11.9% 11.8%
SOURCE: Waste Connections, Inc.
CONTACT: Worthing Jackman, +1-916-608-8266, or
Web site: http://www.wasteconnections.com/
Web site: http://www.wcnx.org/