UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

 

 

x

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended January 31, 2008

 

OR

 

o

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number 000-23211

 

CASELLA WASTE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

03-0338873

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

25 Greens Hill Lane, Rutland, Vermont

 

05701

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (802) 775-0325

 

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  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o
(Do not check if a smaller reporting company)

 

Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of  February 29, 2008:

 

Class A Common Stock

24,448,193

 

 

Class B Common Stock

988,200

 

 

 

 



 

PART I.      FINANCIAL INFORMATION

 

ITEM 1.      FINANCIAL STATEMENTS

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

 

April 30,
2007

 

January 31,
2008

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

12,366

 

$

2,898

 

Restricted cash

 

73

 

95

 

Accounts receivable - trade, net of allowance
for doubtful accounts of $1,587 and $1,955

 

61,246

 

61,652

 

Notes receivable - officers/employees

 

87

 

118

 

Refundable income taxes

 

1,340

 

3,072

 

Prepaid expenses

 

5,477

 

6,885

 

Inventory

 

3,454

 

3,692

 

Deferred income taxes

 

8,215

 

13,618

 

Other current assets

 

1,631

 

1,628

 

Current assets of discontinued operations

 

911

 

430

 

 

 

 

 

 

 

Total current assets

 

94,800

 

94,088

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation
and amortization of $415,996 and $472,212

 

483,277

 

488,845

 

Goodwill

 

171,735

 

171,385

 

Intangible assets, net

 

2,217

 

2,778

 

Restricted cash

 

12,734

 

13,587

 

Notes receivable - officers/employees

 

916

 

1,192

 

Deferred income taxes

 

1,546

 

747

 

Investments in unconsolidated entities

 

49,969

 

46,060

 

Net assets under contractual obligation

 

55

 

 

Other non-current assets

 

10,885

 

11,459

 

Non-current assets of discontinued operations

 

5,959

 

 

 

 

739,293

 

736,053

 

 

 

 

 

 

 

 

 

$

834,093

 

$

830,141

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

(in thousands, except for share and per share data)

 

 

 

April 30,
2007

 

January 31,
2008

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

 

$

1,215

 

$

2,156

 

Current maturities of capital lease obligations

 

1,104

 

633

 

Series A redeemable, convertible preferred stock

 

74,018

 

 

Accounts payable

 

51,440

 

43,783

 

Accrued payroll and related expenses

 

8,489

 

9,258

 

Accrued interest

 

9,275

 

12,894

 

Current accrued capping, closure and post-closure costs

 

8,921

 

5,964

 

Other accrued liabilities

 

32,285

 

31,676

 

Current liabilities of discontinued operations

 

1,405

 

268

 

 

 

 

 

 

 

Total current liabilities

 

188,152

 

106,632

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

476,225

 

546,188

 

Capital lease obligations, less current maturities

 

650

 

4,789

 

Accrued capping, closure and post-closure costs, less current portion

 

29,451

 

34,313

 

Other long-term liabilities

 

10,119

 

7,146

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Class A common stock -

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value; issued
and outstanding - 24,332,000 and 24,448,000 shares
as of April 30, 2007 and January 31, 2008, respectively

 

243

 

244

 

Class B common stock -

 

 

 

 

 

Authorized - 1,000,000 shares, $0.01 par value, 10 votes per
share, issued and outstanding - 988,000 shares

 

10

 

10

 

Accumulated other comprehensive loss

 

(1,001

)

(2,960

)

Additional paid-in capital

 

273,345

 

275,709

 

Accumulated deficit

 

(143,101

)

(141,930

)

Total stockholders’ equity

 

129,496

 

131,073

 

 

 

 

 

 

 

 

 

$

834,093

 

$

830,141

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2007

 

2008

 

2007

 

2008

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

128,839

 

$

141,359

 

$

409,637

 

$

442,799

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of operations

 

85,879

 

96,663

 

267,078

 

291,738

 

General and administration

 

16,862

 

18,362

 

56,223

 

55,472

 

Depreciation and amortization

 

16,960

 

19,055

 

53,702

 

59,178

 

 

 

119,701

 

134,080

 

377,003

 

406,388

 

Operating income

 

9,138

 

7,279

 

32,634

 

36,411

 

Other expense/(income), net:

 

 

 

 

 

 

 

 

 

Interest income

 

(313

)

(291

)

(910

)

(965

)

Interest expense

 

9,768

 

10,827

 

28,632

 

33,072

 

Loss (income) from equity method investments

 

(988

)

907

 

(1,978

)

4,545

 

Other income

 

(49

)

(56

)

(350

)

(2,417

)

Other expense, net

 

8,418

 

11,387

 

25,394

 

34,235

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes and discontinued operations

 

720

 

(4,108

)

7,240

 

2,176

 

Provision for income taxes

 

1,026

 

496

 

4,420

 

960

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations

 

(306

)

(4,604

)

2,820

 

1,216

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (net of income tax benefit of $337, $830 and $484)

 

(539

)

 

(1,329

)

(811

)

Loss on disposal of discontinued operations (net of  income tax benefit of $122)

 

 

 

 

(437

)

Net (loss) income

 

(845

)

(4,604

)

1,491

 

(32

)

Preferred stock dividend

 

902

 

 

2,674

 

 

Net loss applicable to common stockholders

 

$

(1,747

)

$

(4,604

)

$

(1,183

)

$

(32

)

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(in thousands, except for per share data)

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2007

 

2008

 

2007

 

2008

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

Basic and diluted:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations applicable to common stockholders

 

$

(0.05

)

$

(0.18

)

$

0.01

 

$

0.05

 

Loss from discontinued operations, net

 

(0.02

)

 

(0.06

)

(0.03

)

Loss on disposal of discontinued operations, net

 

 

 

 

(0.02

)

 

 

 

 

 

 

 

 

 

 

Net loss per common share applicable to common stockholders

 

$

(0.07

)

$

(0.18

)

$

(0.05

)

$

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding

 

25,273

 

25,415

 

25,257

 

25,362

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended January 31,

 

 

 

2007

 

2008

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net (loss) income

 

$

1,491

 

$

(32

)

Loss from discontinued operations, net

 

1,329

 

811

 

Loss on disposal of discontinued operations, net

 

 

437

 

Adjustments to reconcile net income to net cash provided by operating activities -

 

 

 

 

 

Depreciation and amortization

 

53,702

 

59,178

 

Depletion of landfill operating lease obligations

 

5,543

 

4,815

 

Income from assets under contractual obligation

 

 

(1,463

)

Preferred stock dividend (included in interest expense)

 

 

1,038

 

Maine Energy settlement

 

 

(2,142

)

Loss (income) from equity method investments

 

(1,978

)

4,545

 

Gain on sale of equipment

 

(591

)

(54

)

Stock-based compensation

 

511

 

1,022

 

Excess tax benefit on the exercise of stock options

 

(145

)

(111

)

Deferred income taxes

 

464

 

(1,311

)

Changes in assets and liabilities, net of effects of acquisitions and divestitures -

 

 

 

 

 

Accounts receivable

 

(1,587

)

7

 

Accounts payable

 

(4,911

)

(8,723

)

Other assets and liabilities

 

2,620

 

(6,339

)

 

 

53,628

 

50,462

 

Net Cash Provided by Operating Activities

 

56,448

 

51,678

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(2,087

)

(745

)

Additions to property, plant and equipment - growth

 

(25,757

)

(14,281

)

                                                                      - maintenance

 

(50,939

)

(44,834

)

Payments on landfill operating lease contracts

 

(4,500

)

(6,735

)

Proceeds from divestitures

 

 

2,154

 

Proceeds from sale of equipment

 

1,369

 

1,932

 

Restricted cash from revenue bond issuance

 

5,535

 

 

Investment in unconsolidated entities

 

(2,328

)

(107

)

Proceeds from assets under contractual obligation

 

849

 

1,518

 

Net Cash Used In Investing Activities

 

(77,858

)

(61,098

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from long-term borrowings

 

239,950

 

260,700

 

Principal payments on long-term debt

 

(213,459

)

(187,049

)

Redemption of Series A redeemable, convertible preferred stock

 

 

(75,057

)

Proceeds from exercise of stock options

 

1,572

 

1,216

 

Excess tax benefit on the exercise of stock options

 

145

 

111

 

Net Cash (Used in) Provided by Financing Activities

 

28,208

 

(79

)

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

Used in Operating Activities

 

(645

)

(231

)

Provided by (Used in) Investing Activities

 

(1,653

)

262

 

Cash Provided by (Used in) Discontinued Operations

 

(2,298

)

31

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

4,500

 

(9,468

)

Cash and cash equivalents, beginning of period

 

7,429

 

12,366

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

11,929

 

$

2,898

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended January 31,

 

 

 

2007

 

2008

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for -

 

 

 

 

 

Interest

 

$

20,094

 

$

27,129

 

Income taxes, net of refunds

 

$

2,241

 

$

1,851

 

 

 

 

 

 

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

 

 

 

 

 

Summary of entities acquired in purchase business combinations -

 

 

 

 

 

Fair value of assets acquired

 

$

2,332

 

$

1,169

 

Cash paid, net

 

(2,087

)

(745

)

 

 

 

 

 

 

Notes payable, liabilities assumed and holdbacks to sellers

 

$

245

 

$

424

 

 

 

 

 

 

 

Note receivable recorded upon divestiture

 

$

 

$

2,500

 

 

 

 

 

 

 

Property, plant and equipment acquired through financing arrangement

 

$

 

$

497

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

7



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for per share data)

 

1.             ORGANIZATION

 

The consolidated balance sheet of Casella Waste Systems, Inc. (the “Parent”) and Subsidiaries (collectively, the “Company”) as of January 31, 2008, the consolidated statements of operations for the three and nine months ended January 31, 2007 and 2008 and the consolidated statements of cash flows for the nine months ended January 31, 2007 and 2008 are unaudited.  In the opinion of management, such financial statements along with the consolidated balance sheet as of April 30, 2007 include all adjustments (which include normal recurring and nonrecurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.  The consolidated financial statements presented herein should be read in conjunction with the Company’s audited consolidated financial statements as of and for the twelve months ended April 30, 2007  included as part of the Company’s Annual Report on Form 10-K for the year ended April 30, 2007 (the “Annual Report”).  The results for the three and nine month periods ended January 31, 2008 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2008.

 

2.             RECLASSIFICATIONS

 

The Company has made reclassifications in the Company’s consolidated statements of operations to conform information for the three and nine months ended January 31, 2007 to the Company’s current period presentation. The supplementary financial information included in this section has also been updated to reflect these changes.  During the fourth quarter of fiscal year 2007, the Company began recording personnel costs associated with engineering and permitting activities as a cost of operations where previously these costs had been recorded as general and administration.  This resulted in costs reclassified amounting to $460 and $1,385 for the three and nine months ended January 31, 2007, respectively.

 

3.             BUSINESS COMBINATIONS

 

During the nine months ended January 31, 2008, the Company acquired five solid waste hauling operations.  These transactions were in exchange for total consideration of $1,169 including $745 in cash and $424 in liabilities assumed.  During the nine months ended January 31, 2007, the Company acquired eleven solid waste hauling operations.  These transactions were in exchange for total consideration of $2,332 including $2,087 in cash and $245 in liabilities assumed.  The operating results of these businesses are included in the consolidated statements of operations from the dates of acquisition.  The purchase prices have been allocated to the net assets acquired based on their fair values at the dates of acquisition, including the value of non-compete agreements and client lists, with the residual amounts allocated to goodwill.

 

The following unaudited pro forma combined information shows the results of the Company’s operations as though each of the acquisitions made in the nine months ended January 31, 2007 and 2008 had been completed as of May 1, 2006.

 

8



 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

 

 

 

 

2007

 

2008

 

2007

 

2008

 

Revenue

 

$

129,837

 

$

141,668

 

$

413,495

 

$

445,025

 

Net income (loss)

 

(802

)

(4,592

)

1,698

 

54

 

Diluted net income (loss) per common share

 

$

(0.03

)

$

(0.18

)

$

(0.03

)

$

 

 

The foregoing pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of May 1, 2006 or the results of future operations of the Company.  Furthermore, such pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

 

4.             GOODWILL AND INTANGIBLE ASSETS

 

The following table shows the activity and balances related to goodwill from April 30, 2007 through January 31, 2008:

 

 

 

North

 

South

 

 

 

 

 

 

 

 

 

 

 

Eastern

 

Eastern

 

Central

 

Western

 

FCR

 

 

 

 

 

Region

 

Region

 

Region

 

Region

 

Recycling

 

Total

 

Balance, April 30, 2007

 

$

26,025

 

$

31,645

 

$

31,960

 

$

54,716

 

$

27,389

 

$

171,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

 

 

119

 

 

119

 

Other (1)

 

(65

)

 

(1

)

 

(403

)

(469

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2008

 

$

25,960

 

$

31,645

 

$

31,959

 

$

54,835

 

$

26,986

 

$

171,385

 

 


(1)  Consists primarily of a reduction associated with the adoption of FIN No. 48. See Note 5.

 

Intangible assets at April 30, 2007 and January 31, 2008 consist of the following:

 

 

 

Covenants 
not to 
compete

 

Client Lists

 

Licensing
Agreements

 

Contract 
Acquisition
Costs

 

Total

 

Balance, April 30, 2007

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

15,224

 

$

688

 

$

920

 

$

58

 

$

16,890

 

Less accumulated amortization

 

(13,881

)

(688

)

(100

)

(4

)

(14,673

)

 

 

$

1,343

 

$

 

$

820

 

$

54

 

$

2,217

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

15,259

 

$

1,597

 

$

920

 

$

58

 

$

17,834

 

Less accumulated amortization

 

(14,193

)

(704

)

(151

)

(8

)

(15,056

)

 

 

$

1,066

 

$

893

 

$

769

 

$

50

 

$

2,778

 

 

Intangible amortization expense for the three and nine months ended January 31, 2007 and 2008 was $151, $171, $689 and $472, respectively.  The intangible amortization expense estimated as of January 31, 2008 for the five fiscal years following fiscal year 2007 is as follows:

 

9



 

2008

 

2009

 

2010

 

2011

 

2012

 

$

643

 

$

530

 

$

417

 

$

326

 

$

248

 

 

5.             NEW ACCOUNTING STANDARDS

 

Effective May 1, 2007, the Company adopted the provisions of FASB Interpretation 48, Accounting for Uncertainty in Income Taxes (“FIN No. 48”).  FIN No. 48 prescribes the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements.  Additionally, FIN No. 48 provides guidance on de—recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Under FIN No. 48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold.

 

As a result of the adoption of FIN No. 48, the cumulative effect of the changes to the Company’s reserve for uncertain tax positions was accounted for as a $1,202 adjustment to increase the beginning balance of retained earnings and a $468 decrease to goodwill on the Company’s balance sheet.  As of May 1, 2007, the Company had approximately $5,879 of total gross unrecognized tax benefits.  Of this total, approximately $3,488 (net of the federal benefit on state issues) represented the amount of unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods.  The Company does not anticipate that total unrecognized tax benefits will significantly change within the next 12 months due to the settlement of audits and the expiration of statute of limitations.

 

The Company’s continuing practice is to recognize interest and penalties related to income tax matters in income tax expense.  As of May 1, 2007 and January 31, 2008, the Company had accrued interest and penalties related to uncertain tax positions of $813 and $941, respectively.

 

The Company and its subsidiaries are subject to U.S. federal income tax, as well as income tax of multiple state jurisdictions.  Due to federal and state net operating loss carryforwards, income tax returns from 1998 through 2007 remain open for examination, with limited exceptions.

 

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to other existing accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements. However, the application of this statement may change the current practice for fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.  However, in February 2008, the FASB issued a final Staff Position to allow filers to defer the effective date of SFAS No. 157 for one year for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  The FASB Staff Position (“FSP”) does not defer recognition and disclosure requirements for financial assets and financial liabilities or for nonfinancial assets and nonfinancial liabilities that are remeasured at least annually.  The Company is currently evaluating the impact this statement will have on its financial position and results of operations.

 

In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 155 (‘SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. SFAS 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  The Company is currently evaluating the impact this statement will have on its financial position and results of operations.

 

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (revised - 2007) (“SFAS No. 141(R)”). SFAS No.
141(R) is a revision to previously existing guidance on accounting for business

 

10



 

combinations. The statement retains the fundamental concept of the purchase method of accounting, and introduces new requirements for the recognition and measurement of assets acquired, liabilities assumed and noncontrolling interests. SFAS No. 141(R) also requires acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition.  SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company is currently evaluating the impact this statement will have on its financial position and results of operations.

 

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS No. 160”). The Statement requires that noncontrolling interests be reported as stockholders equity, a change that will affect the Company’s financial statement presentation of minority interests in its consolidated subsidiaries. The Statement also establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary as long as that ownership change does not result in deconsolidation.  The statement is effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the impact of SFAS No. 160 and does not expect this statement to have a material impact on its financial position and results of operations.

 

6.             LEGAL PROCEEDINGS

 

The Company is a defendant in certain lawsuits alleging various claims incurred in the ordinary course of business, none of which, either individually or in the aggregate, the Company believes are material to its financial condition, results of operations or cash flows.

 

7.             ENVIRONMENTAL LIABILITIES

 

The Company is subject to liability for environmental damage, including personal injury and property damage, that its solid waste, recycling and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions existing before the Company acquired the facilities. The Company may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if the Company or its predecessors arrange or arranged to transport, treat or dispose of those materials. Any substantial liability incurred by the Company arising from environmental damage could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company is not presently aware of any situations that it expects would have a material adverse impact on its business, financial condition, results of operations, or cash flows.

 

8.             STOCK-BASED COMPENSATION

 

On July 31, 1997, the Company adopted the 1997 Stock Option Plan (the “1997 Plan”) a stock option plan for employees, officers and directors of, and consultants and advisors to the Company.  As of April 30, 2007, options to purchase 3,403 shares of Class A Common Stock at a weighted average exercise price of $13.19 were outstanding under the 1997 Plan.  As of January 31, 2008, options to purchase 3,538 shares of Class A Common Stock at a weighted average exercise price of $13.08 were outstanding under the 1997 Plan.  The 1997 Plan terminated as of July 31, 2007 and as a result no additional awards may be made pursuant to the 1997 Plan.

 

On July 31, 1997, the Company adopted a stock option plan for non-employee directors of the Company. The 1997 Non-Employee Director Stock Option Plan (the “Non-Employee Director Plan”) provides for the issuance of a maximum of 200 shares of Class A Common Stock pursuant to the grant of non-statutory options. As of April 30, 2007 and January 31, 2008, options to purchase 189 shares of Class A

 

11



 

Common Stock at a weighted average exercise price of $11.87 were outstanding. The Non-Employee Director Plan terminated as of July 31, 2007.

 

On October 10, 2006, the Company adopted the 2006 Stock Incentive Plan (the “2006 Plan”).  Up to an aggregate amount equal to the sum of: (i) 1,275 shares of Class A Common Stock (subject to adjustment in the event of stock splits and other similar events), of which 275 are reserved for issuance to non-employee directors pursuant to the formula grants described below, plus (ii) such additional number of shares of Class A Common Stock as are currently subject to options granted under the Company’s 1993 Incentive Stock Option Plan, 1994 Non-statutory Stock Option Plan, 1996 Option Plan, and 1997 Plan (the “Prior Plans”) which are not actually issued under the Prior Plans because such options expire or otherwise result in shares not being issued, may be issued pursuant to awards granted under the 2006 Plan.  As of April 30, 2007, options to purchase 45 shares of Class A Common Stock at a weighted average exercise price of $10.22 were outstanding under the 2006 plan.  As of January 31, 2008, options to purchase 190 shares of Class A Common Stock at a weighted average exercise price of $12.87 were outstanding under the 2006 Plan and awards for 1,500 options were available for future grant which includes 423 options which were available for future grant under the 1997 Plan upon termination.

 

Options granted under the plans described above generally vest over a one to four year period from the date of grant and are granted at prices at least equal to the prevailing fair market value at the issue date. In general, options are issued with a life not to exceed ten years. Shares issued by the Company upon exercise of stock options are issued from the pool of authorized shares of Class A Common Stock.

 

A summary of stock option activity for the nine months ended January 31, 2008 is as follows:

 

 

 

 

 

Weighted

 

 

 

 

 

Average

 

 

 

Total

 

Exercise

 

 

 

Shares

 

Price

 

Outstanding, April 30, 2007

 

3,737

 

$

13.17

 

Granted

 

371

 

12.00

 

Exercised

 

(77

)

11.33

 

Forfeited

 

(114

)

16.07

 

Outstanding, January 31, 2008

 

3,917

 

13.01

 

Exercisable, January 31, 2008

 

3,244

 

$

13.15

 

 

Stock options exercisable as of January 31, 2008 have a weighted-average contractual term remaining of 4.0 years and an aggregate intrinsic value of $3,281 based on the market value of the Company’s Class A common stock as of January 31, 2008.

 

As a result of adopting SFAS No. 123(R) effective May 1, 2006, the Company recorded $166, $489, $436 and $942 of stock based compensation expense related to stock options and restricted stock units during the three and nine months ended January 31, 2007 and 2008, respectively.   The Company also recorded $24, $28, $74 and $80 of stock based expense for the Company’s Employee Stock Purchase Plan during the three and nine months ended January 31, 2007 and 2008, respectively.  The total unrecognized compensation cost at January 31, 2008 related to unvested stock option and restricted stock unit awards was $2,931 and that future expense will be recognized over the remaining vesting period of the stock option and restricted stock unit awards which currently extends to fiscal year 2011.  The weighted average remaining vesting period of those awards is 1.79 years.

 

12



 

The Company’s calculations of stock-based compensation expense for the three and nine months ended January 31, 2007 and 2008 were made using the Black-Scholes valuation model. The fair value of the Company’s stock option grants was estimated assuming no expected dividend yield and the following weighted average assumptions were used for the three and nine months ended January 31, 2007 and 2008:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 31,

 

January 31,

 

 

 

2007

 

2008

 

2007

 

2008

 

Stock Options:

 

 

 

 

 

 

 

 

 

Expected life

 

 

6 years

 

6 years

 

6 years

 

Risk-free interest rate

 

 

3.32%

 

5.10%

 

4.41%

 

Expected volatility

 

 

37.83%

 

31.02%

 

37.83%

 

Stock Purchase Plan:

 

 

 

 

 

 

 

 

 

Expected life

 

0.5 years

 

0.5 years

 

0.5 years

 

0.5 years

 

Risk-free interest rate

 

5.11%

 

3.32%

 

5.10%

 

4.81%

 

Expected volatility

 

33.50%

 

37.22%

 

32.87%

 

36.59%

 

 

Expected life is calculated based on the weighted average historical life of the vested stock options, giving consideration to vesting schedules and historical exercise patterns. Risk-free interest rate is based on the U.S. treasury yield curve for the period of the expected life of the stock option. For stock options granted during the three and nine months ended January 31, 2008, expected volatility is calculated using the average of weekly historical volatility of the Company’s Class A Common Stock over the last six years.

 

The Black-Scholes valuation model requires extensive use of accounting judgment and financial estimation, including estimates of the expected term option holders will retain their vested stock options before exercising them, the estimated volatility of the Company’s Class A Common Stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.

 

9.             EARNINGS PER SHARE

 

The following table sets forth the numerator and denominator used in the computation of earnings per share:

 

 

 

Three Months
Ended January 31,

 

Nine Months
Ended January 31,

 

 

 

2007

 

2008

 

2007

 

2008

 

Numerator:

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(845

)

$

(4,604

)

$

1,491

 

$

(32

)

Less: preferred stock dividends

 

(902

)

 

(2,674

)

 

Net loss applicable to common stockholders

 

$

(1,747

)

$

(4,604

)

$

(1,183

)

$

(32

)

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Number of shares outstanding, end of period:

 

 

 

 

 

 

 

 

 

Class A common stock

 

24,329

 

24,448

 

24,329

 

24,448

 

Class B common stock

 

988

 

988

 

988

 

988

 

Effect of weighted average shares outstanding during period

 

(44

)

(21

)

(60

)

(74

)

Weighted average number of common shares used in basic EPS

 

25,273

 

25,415

 

25,257

 

25,362

 

Impact of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Dilutive effect of options and contingent stock

 

 

 

 

 

Weighted average number of common shares used in diluted EPS

 

25,273

 

25,415

 

25,257

 

25,362

 

 

13



 

For the three and nine months ended January 31, 2007, 7,957 and 7,312 common stock equivalents related to options, warrants and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

For the three and nine months ended January 31, 2008, 4,006 common stock equivalents related to options and warrants were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

10.          COMPREHENSIVE (LOSS) INCOME

 

Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive loss included in the accompanying balance sheets consists of changes in the fair value of the Company’s interest rate swap and commodity hedge agreements.  Also included in accumulated other comprehensive loss is the change in fair value of certain securities classified as available for sale as well as the Company’s portion of the change in the fair value of commodity hedge agreements of the Company’s equity method investment, US GreenFiber, LLC (“GreenFiber”).

 

Comprehensive (loss) income for the three and nine months ended January 31, 2007 and 2008 is as follows:

 

 

 

Three Months Ended
January31,

 

Nine Months Ended
January 31,

 

 

 

 

 

 

 

2007

 

2008

 

2007

 

2008

 

Net (loss) income

 

$

(845

)

$

(4,604

)

$

1,491

 

$

(32

)

Other comprehensive loss

 

(708

)

(1,673

)

(506

)

(1,959

)

Comprehensive (loss) income

 

$

(1,553

)

$

(6,277

)

$

985

 

$

(1,991

)

 

The components of other comprehensive (loss) income for the three and nine months ended January 31, 2007 and 2008 are shown as follows:

 

14



 

 

 

Three Months Ended January 31,

 

 

 

2007

 

2008

 

 

 

Gross

 

Tax
effect

 

Net of Tax

 

Gross

 

Tax
effect

 

Net of Tax

 

Changes in fair value of marketable securities during the period

 

$

(28

)

$

(10

)

$

(18

)

$

272

 

$

95

 

$

177

 

Change in fair value of interest rate derivatives and commodity hedges during period

 

(800

)

(324

)

(476

)

(3,623

)

(1,466

)

(2,157

)

Reclassification to earnings for interest rate derivatives and commodity hedge contracts

 

(360

)

(146

)

(214

)

515

 

208

 

307

 

 

 

$

(1,188

)

$

(480

)

$

(708

)

$

(2,836

)

$

(1,163

)

$

(1,673

)

 

 

 

Nine Months Ended January 31,

 

 

 

2007

 

2008

 

 

 

Gross

 

Tax
effect

 

Net of Tax

 

Gross

 

Tax
effect

 

Net of Tax

 

Changes in fair value of marketable securities during the period

 

$

108

 

$

38

 

$

70

 

$

332

 

$

116

 

$

216

 

Change in fair value of interest rate derivatives and commodity hedges during period

 

50

 

21

 

29

 

(5,163

)

(2,078

)

(3,085

)

Reclassification to earnings for interest rate derivatives and commodity hedge contracts

 

(1,019

)

(414

)

(605

)

1,514

 

604

 

910

 

 

 

$

(861

)

$

(355

)

$

(506

)

$

(3,317

)

$

(1,358

)

$

(1,959

)

 

11.          DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company’s strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales.  The Company was party to thirty-two commodity hedge contracts as of January 31, 2008.  These contracts expire between February 2008 and December 2009.  The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, (“SFAS No. 133”) as amended.  As of January 31, 2008 the fair value of these hedges was an obligation of $2,179, with the net amount (net of taxes of $882) recorded as an unrealized loss in accumulated other comprehensive loss.

 

The Company is party to four separate interest rate swap agreements with four banks for a notional amount of $105,000.  Three agreements, for a notional amount of $75,000, effectively fix the interest index rate on the entire notional amount at 4.4% from May 4, 2006 through May 5, 2008.  The remaining agreement for a notional amount of $30,000 effectively fixes the interest rate index at 4.47% from November 4, 2007 through May 7, 2009.  These agreements are specifically designated to interest payments under the Company’s term B loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.

 

On August 22, 2007, the Company entered into two separate interest rate swap agreements for a notional amount of $75,000, which effectively fix the interest rate index at 4.68% from May 6, 2008 through May 6, 2009.   These agreements will be specifically designated to interest payments under the Company’s term B loan and will be accounted for as effective cash flow hedges pursuant to SFAS No. 133.

 

15



 

As of January 31, 2008, the fair value of the Company’s interest rate swaps was an obligation of $2,570, with the net amount (net of taxes of $1,040) recorded as an unrealized loss in accumulated other comprehensive loss.

 

The Company is party to two separate interest rate zero-cost collars with two banks for a notional amount of $60,000.  The collars have an interest index rate cap of 6.00% and an interest index rate floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009.  These agreements are specifically designated to interest payments under the revolving credit facility and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.  As of January 31, 2008, the fair value of these collars was an obligation of $1,381, with the net amount (net of taxes of $558) recorded as an unrealized loss in accumulated other comprehensive loss.

 

The Company terminated an interest rate collar in the notional amount of $20,000 during the three months ended July 31, 2007.  The Company paid net proceeds of $18, which was recorded to accumulated other comprehensive loss and is being amortized against interest expense over the remaining original term of the contract.

 

12.          DISCONTINUED OPERATIONS

 

During the fourth quarter of fiscal year 2007, the Company completed the sale of the assets of the Holliston Transfer Station in the South Eastern region.  The transaction required discontinued operations treatment under SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets (“SFAS No.144); therefore the operating results of the Holliston Transfer Station have been reclassified from continuing to discontinued operations for the three and nine months ended January 31, 2007.

 

During the quarter ended October 31, 2007, the Company completed the sale of the Company’s Buffalo, N.Y. transfer station, hauling operation and related equipment in the Western region for proceeds of $4,836 including a note receivable for $2,500 and expected net cash proceeds of $2,336 subject to a true up of working capital.  The transaction required discontinued operations treatment under SFAS No. 144; therefore the operating results have been reclassified from continuing to discontinued operations for the three and nine months ended January 31, 2007.  Also in connection with the discontinued operations treatment, the loss (net of tax) from the sale amounting to $437 has been classified as a loss on disposal of discontinued operations.

 

Revenues and loss before income taxes attributable to discontinued operations for the three and nine months ended January 31, 2007 and 2008 were as follows:

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January  31,

 

 

 

2007

 

2008

 

2007

 

2008

 

Revenue

 

$

4,654

 

$

 

$

15,192

 

$

4,845

 

Loss before income tax benefit

 

$

(876

)

$

 

$

(2,159

)

$

(1,855

)

 

The Company has recorded contingent liabilities associated with these divestitures amounting to approximately $1,183 at January 31, 2008.  A summary of discontinued operations on the consolidated balance sheets at April 30, 2007 and January 31, 2008 is as follows:

 

16



 

 

 

April 30,
2007

 

January 31,
2008

 

Accounts receivable - trade, net

 

$

798

 

$

 

Prepaid expenses

 

41

 

 

Inventory

 

70

 

 

Other current assets

 

2

 

430

 

Current assets of discontinued operations

 

$

911

 

$

430

 

 

 

 

 

 

 

Property, plant and equipment, net

 

$

4,344

 

$

 

Goodwill

 

1,615

 

 

Other non - current assets

 

 

 

Non - current assets of discontinued operations

 

$

5,959

 

$

 

 

 

 

 

 

 

Accounts payable

 

$

931

 

$

268

 

Accrued payroll and related expenses

 

66

 

 

Other accrued liabilities

 

408

 

 

Current liabilities of discontinued operations

 

$

1,405

 

$

268

 

 

13.          SEGMENT REPORTING

 

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (“SFAS No. 131”), establishes standards for reporting information about operating segments in financial statements.  In general, SFAS No. 131 requires that business entities report selected information about operating segments in a manner consistent with that used for internal management reporting.

 

The Company classifies its operations into North Eastern, South Eastern, Central, Western, FCR Recycling and Other.  The Company’s revenues in the North Eastern, South Eastern, Central and Western segments are derived mainly from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste.  The North Eastern region also includes Maine Energy, which generates electricity from non-hazardous solid waste. The Company’s revenues in the FCR Recycling segment are derived from integrated waste handling services, including processing and recycling of paper, metals, aluminum, plastics and glass.  Ancillary operations, major customer accounts, discontinued operations and earnings from equity method investees, are included in Other.

 

17



 

 

 

North Eastern

 

South Eastern

 

Central

 

Western

 

FCR

 

 

 

Region

 

Region

 

Region

 

Region

 

Recycling

 

Three Months Ended January 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

28,458

 

$

15,341

 

$

29,018

 

$

23,987

 

$

25,896

 

Depreciation and amortization

 

4,882

 

2,127

 

4,544

 

3,490

 

1,408

 

Operating income

 

777

 

(1,001

)

2,747

 

3,360

 

3,956

 

Total assets

 

$

190,855

 

$

146,378

 

$

150,442

 

$

162,733

 

$

94,289

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

Three Months Ended January 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

6,139

 

$

128,839

 

 

 

 

 

 

 

Depreciation and amortization

 

509

 

16,960

 

 

 

 

 

 

 

Operating income

 

(701

)

9,138

 

 

 

 

 

 

 

Total assets

 

$

106,489

 

$

851,186

 

 

 

 

 

 

 

 

 

 

North Eastern

 

South Eastern

 

Central

 

Western

 

FCR

 

 

 

Region

 

Region

 

Region

 

Region

 

Recycling

 

Three Months Ended January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

28,327

 

$

16,357

 

$

28,938

 

$

25,172

 

$

34,210

 

Depreciation and amortization

 

5,903

 

2,740

 

4,159

 

4,018

 

1,755

 

Operating income

 

(366

)

(1,292

)

1,703

 

1,636

 

6,096

 

Total assets

 

$

176,535

 

$

128,603

 

$

151,080

 

$

178,643

 

$

98,458

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

Three Months Ended January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

8,355

 

$

141,359

 

 

 

 

 

 

 

Depreciation and amortization

 

480

 

19,055

 

 

 

 

 

 

 

Operating income

 

(498

)

7,279

 

 

 

 

 

 

 

Total assets

 

$

96,822

 

$

830,141

 

 

 

 

 

 

 

 

18



 

 

 

North Eastern

 

South Eastern

 

Central

 

Western

 

FCR

 

 

 

Region

 

Region

 

Region

 

Region

 

Recycling

 

Nine Months Ended January 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

89,501

 

$

54,170

 

$

97,275

 

$

76,513

 

$

74,081

 

Depreciation and amortization

 

14,325

 

7,622

 

14,889

 

11,123

 

4,209

 

Operating income

 

5,584

 

(2,070

)

11,317

 

9,858

 

10,250

 

Total assets

 

$

190,855

 

$

146,378

 

$

150,442

 

$

162,733

 

$

94,289

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

Nine Months Ended January 31, 2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

18,097

 

$

409,637

 

 

 

 

 

 

 

Depreciation and amortization

 

1,534

 

53,702

 

 

 

 

 

 

 

Operating income

 

(2,305

)

32,634

 

 

 

 

 

 

 

Total assets

 

$

106,489

 

$

851,186

 

 

 

 

 

 

 

 

 

 

North Eastern

 

South Eastern

 

Central

 

Western

 

FCR

 

 

 

Region

 

Region

 

Region

 

Region

 

Recycling

 

Nine Months Ended January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

91,328

 

$

51,332

 

$

98,686

 

$

81,651

 

$

96,034

 

Depreciation and amortization

 

18,051

 

7,471

 

14,480

 

12,594

 

5,121

 

Operating income

 

1,038

 

(3,429

)

12,922

 

10,076

 

17,032

 

Total assets

 

$

176,535

 

$

128,603

 

$

151,080

 

$

178,643

 

$

98,458

 

 

 

 

Other

 

Total

 

 

 

 

 

 

 

Nine Months Ended January 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside revenues

 

$

23,768

 

$

442,799

 

 

 

 

 

 

 

Depreciation and amortization

 

1,461

 

59,178

 

 

 

 

 

 

 

Operating income

 

(1,228

)

36,411

 

 

 

 

 

 

 

Total assets

 

$

96,822

 

$

830,141

 

 

 

 

 

 

 

 

Amounts of the Company’s total revenue attributable to services provided are as follows:

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2007 (1)

 

2008

 

2007 (1)

 

2008

 

Collection

 

$

62,132

 

$

64,649

 

$

198,983

 

$

202,981

 

Landfill / disposal facilities

 

24,183

 

23,979

 

82,590

 

82,147

 

Transfer

 

4,948

 

5,606

 

18,774

 

20,644

 

Recycling

 

37,576

 

47,125

 

109,290

 

137,027

 

Total revenues

 

$

128,839

 

$

141,359

 

$

409,637

 

$

442,799

 

 


(1) Revenue attributable to services provided for the three and nine months ended January 31, 2007 has been revised to conform with the classification of revenue attributable to services provided in the current fiscal year.

 

14.          INVESTMENTS IN UNCONSOLIDATED ENTITIES

 

The Company entered into an agreement in July 2000 with Louisiana-Pacific Corporation to combine their respective cellulose insulation businesses into a single operating entity, GreenFiber, under a joint venture agreement effective August 1, 2000. The Company’s investment in GreenFiber amounted to $33,054 and $30,570 at April 30, 2007 and January 31, 2008, respectively. The Company accounts for its 50% ownership in GreenFiber under the equity method of accounting.

 

19



 

Summarized financial information for GreenFiber is as follows:

 

 

 

April 30,
2007

 

January 31,
2008

 

 

 

 

 

Current assets

 

$

25,432

 

$

26,595

 

 

 

 

 

Noncurrent assets

 

70,955

 

70,451

 

 

 

 

 

Current liabilities

 

18,371

 

17,546

 

 

 

 

 

Noncurrent liabilities

 

$

11,833

 

$

18,141

 

 

 

 

 

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2007

 

2008

 

2007

 

2008

 

Revenue

 

$

48,999

 

$

44,432

 

$

145,525

 

$

119,926

 

Gross profit

 

12,134

 

7,531

 

36,184

 

19,964

 

Net (loss) income

 

$

2,634

 

$

(618

)

$

5,418

 

$

(6,027

)

 

The Company owns a 20.5% interest in the common stock of RecycleRewards, Inc. (“RecycleRewards”), a company which markets an incentive-based recycling service that gives homeowners credits for recycling which can be used with participating merchants. This investment is accounted for as an equity method investment.

 

15.          NET ASSETS UNDER CONTRACTUAL OBLIGATION

 

Effective June 30, 2003, the Company transferred its domestic brokerage operations, as well as a commercial recycling business to former employees who had been responsible for managing those businesses.  Consideration for the transaction was in the form of two notes receivable amounting up to $6,925.  These notes are payable within twelve years of the anniversary date of the transaction, to the extent of free cash flow generated from the operations.

 

Effective August 1, 2005, the Company transferred a certain Canadian recycling operation to a former employee who had been responsible for managing that business.  Consideration for this transaction was in the form of a note receivable amounting up to $1,313, which is payable within six years of the anniversary date of the transaction to the extent of free cash flow generated from the operations.

 

The Company has not accounted for these transactions as sales based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyers. The net assets of the operations are disclosed in the balance sheet as “net assets under contractual obligation”, and were being reduced as payments are made.  During the three and nine months ended January 31, 2008, the Company recognized income on the transactions in the amount of $96 and $1,463, respectively, as payments received on the notes receivable exceeded the balance of the net assets under contractual obligation.

 

Net assets under contractual obligation amounted to $55 and $0 at April 30, 2007 and January 31, 2008, respectively.  Minimum amounts owed to the Company under these notes amounted to $3,736 and $2,217 at April 30, 2007 and January 31, 2008, respectively.

 

16.          PREFERRED STOCK

 

The Company is authorized to issue up to 944 shares of preferred stock in one or more series. As of April 30, 2007 the Company had 56 shares of Series A Redeemable Convertible Preferred Stock (“Series A Preferred Stock”) authorized, issued and outstanding, at $1,000 per share, and as of January 31, 2008,

 

20



 

the Company had zero shares authorized and issued. These shares of Series A Preferred were convertible into Class A common stock, at the option of the holders, at $14 per share. Dividends were cumulative at a rate of 5%, compounded quarterly from the issuance date of August 11, 2000.  The Company was required to redeem the Series A Preferred Stock on the seventh anniversary date of August 11, 2007, at liquidation value, which equals original cost, plus accrued but unpaid dividends, if any. Pursuant to the stock agreement, acceleration of the liquidation provisions would occur upon a change in control of the Company.

 

On April 30, 2007, since the Company did not anticipate that the shares would be converted to Class A common stock by the redemption date, the Company reflected the redemption value of the shares as a current liability. The value included the liquidation preference of $1,000 per share plus accrued but unpaid dividends.  The redemption value amounted to $74,018 at April 30, 2007.  Consistent with this classification, the Company has recorded the accrued dividends for the three and nine months ended January 31, 2008 in the amount of $0 and $1,038, respectively, as interest expense.

 

The Series A Preferred Stock was redeemed effective August 11, 2007 in the amount of $75,057, which was the liquidation value equal to the original price plus accrued but unpaid dividends through the date of redemption.  As a result of the redemption, the rights of the holders of Series A Preferred Stock to receive cumulative dividends at a rate of 5%, compounded quarterly from the issuance date of August 11, 2000, and to elect one director to the Company’s Board of Directors, among other rights, have terminated.  The Company borrowed against the senior credit facility to fund this redemption.

 

17.          CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

The Company’s senior subordinated notes due 2013 are guaranteed jointly and severally, fully and unconditionally, by the Company’s significant wholly-owned subsidiaries. The Parent is the issuer and non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2007 and January 31, 2008, and the condensed consolidating results of operations for the three and nine months ended January 31, 2007 and 2008 and the condensed consolidating statements of cash flows for the nine months ended January 31, 2007 and 2008 of (a) the Parent company only, (b) the combined guarantors (“the Guarantors”), each of which is 100% wholly-owned by the Parent, (c) the combined non-guarantors (“the Non-Guarantors”), (d) eliminating entries and (e) the Company on a consolidated basis.

 

21



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2007

(in thousands, except for share and per share data)

 

ASSETS

 

Parent

 

Guarantors

 

Non-Guarantors

 

Elimination

 

Consolidated

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

(1,967

)

$

13,015

 

$

1,318

 

$

 

$

12,366

 

Accounts receivable - trade, net of allowance for doubtful accounts

 

31

 

61,076

 

166

 

(27

)

61,246

 

Refundable income taxes

 

1,340

 

 

 

 

1,340

 

Deferred taxes

 

7,306

 

 

909

 

 

8,215

 

Other current assets

 

1,679

 

9,043

 

 

 

10,722

 

Current assets of discontinued operations

 

 

911

 

 

 

911

 

Total current assets

 

8,389

 

84,045

 

2,393

 

(27

)

94,800

 

 

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and amortization

 

2,587

 

481,165

 

(475

)

 

483,277

 

Goodwill

 

 

171,735

 

 

 

171,735

 

Restricted cash

 

 

4

 

12,730

 

 

12,734

 

Deferred income taxes

 

1,546

 

 

 

 

1,546

 

Investment in subsidiaries

 

(12,170

)

 

 

12,170

 

 

Assets under contractual obligation

 

 

55

 

 

 

55

 

Other non-current assets

 

29,589

 

38,657

 

120

 

(4,379

)

63,987

 

Non-current assets of discontinued operations

 

 

5,959

 

 

 

5,959

 

 

 

21,552

 

697,575

 

12,375

 

7,791

 

739,293

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

670,919

 

(669,191

)

(6,107

)

4,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

700,860

 

$

112,429

 

$

8,661

 

$

12,143

 

$

834,093

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Parent

 

Guarantors

 

Non - Guarantors

 

Elimination

 

Consolidated

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long term debt

 

$

900

 

$

315

 

$

 

$

 

$

1,215

 

Series Aredeemable, convertible preferred stock

 

74,018

 

 

 

 

74,018

 

Accounts payable

 

1,580

 

49,791

 

96

 

(27

)

51,440

 

Accrued payroll and related expenses

 

1,795

 

6,694

 

 

 

8,489

 

Accrued interest

 

9,268

 

7