Date: October 23, 2006
Source: Waste Connections, Inc.
Waste Connections Reports Third Quarter 2006 Results and Announces Increase in Stock Repurchase Program
Revenue increases 14.7% to $216.5 million with stronger than expected margins
- Reports internal growth of 5.3% price and 2.6% volume
- Repurchases approximately $100.2 million YTD of common stock
- Increases stock repurchase program to $500 million
Waste Connections, Inc. (NYSE: WCN) today announced its results for the third quarter 2006. Revenue totaled $216.5 million, a 14.7% increase over revenue of $188.7 million in the year ago period. Operating income was $47.5 million versus $46.5 million in the third quarter of 2005. Net income was $21.9 million, or $0.47 per share on a diluted basis of 46.6 million shares. In the year ago period, the Company reported net income of $24.5 million and diluted earnings per share of $0.51. The current period results were affected by a higher than anticipated effective tax rate of 39.9%, compared to 34.5% in the year-ago period. This increase was due to an adjustment of $2.6 million, or approximately $0.06 per share, to accrued deferred tax liabilities resulting from an increase in the Company's estimated deferred tax rate.
"We are extremely pleased with our operating results in the quarter, which exceeded the upper end of our outlook. We expect continuing pricing strength to result in sequentially more favorable year-over-year margin comparisons in the fourth quarter, providing a springboard for further improvements in 2007," said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. "Our strong free cash flow has enabled us already to meet our goal of repurchasing at least $100 million of stock during the year while maintaining our strong credit profile. We believe our improving financial outlook and free cash flow will continue to enable us to both execute our growth strategy and repurchase approximately 6% of outstanding shares per year without a material impact to our capital structure."
The Company also announced that its Board of Directors has authorized a $200 million increase to its ongoing common stock repurchase program, increasing the total authorized amount to $500 million, and an extension of the program's term through December 31, 2008. Stock repurchases may be made in the open market or in privately negotiated transactions from time to time at management's discretion. The timing and amounts of any repurchases will depend on many factors, including the Company's capital structure, the market price of the common stock and overall market conditions.
For the nine months ended September 30, 2006, revenue was $613.7 million, a 15.0% increase over revenue of $533.5 million in the year ago period. Operating income was $127.5 million versus $128.8 million for the same period in 2005. Net income for the nine months ended September 30, 2006, was $56.8 million, or $1.21 per share on a diluted basis of 46.9 million shares. In the year ago period, the Company reported income from continuing operations of $65.8 million and diluted earnings per share from continuing operations of $1.36.
The Company noted the following items which contributed to the year-over-year change in net income and diluted earnings per share:
write-off of unamortized debt issuance costs associated with convertible notes redeemed during the second quarter of 2006 in the amount of $4.2 million ($2.6 million net of taxes), or a decrease of approximately $0.06 per share;
additional development costs in the second quarter of 2006 for insurance claims from prior years of $3.8 million ($2.4 million net of taxes), or a decrease of approximately $0.05 per share;
stock-based compensation costs of $2.6 million ($1.6 million net of taxes), or a decrease of approximately $0.03 per share;
reduced interest expense in the second quarter of 2006 due to the redemption of convertible notes of $1.0 million ($0.6 million net of taxes), or an increase of approximately $0.01 per share; and
an increase in the estimated effective state tax rate which resulted in a $2.6 million adjustment to accrued deferred tax liabilities in the third quarter, increasing the effective tax rate for the nine months ended September 30, 2006, to 38.4% from 36.2% in the year ago period.
Waste Connections will be hosting a conference call related to third quarter earnings and fourth quarter outlook on October 24th 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 on the exercise of stock options, which totaled $5.7 million for the nine months ended September 30, 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 on the exercise of stock options. 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 them directly at (916) 608-8200.
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