UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the transition period from to

Commission file number 000-23211

CASELLA WASTE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the proceeding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o 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):

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 registrant’s classes of common stock, as of February 28, 2011:

PART I.      FINANCIAL INFORMATION

ITEM 1.      FINANCIAL STATEMENTS

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

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

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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

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

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

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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

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

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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(in thousands, except for per share data)

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

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 CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Unaudited)

 (in thousands)

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

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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for per share data)

1.             BASIS OF PRESENTATION

The accompanying unaudited financial statements include the accounts of Casella Waste Systems, Inc. (the “Parent”) and its subsidiaries (collectively, “we”, “us” or “our”).  We are a regional, integrated solid waste services company, which provides a full range of solid waste services, including collection, disposal, power generation and processing and recycling.  We also market recyclable paper, metals, aluminum, plastics and glass, which have been processed at our facilities or purchased from third parties.

The consolidated balance sheet as of January 31, 2011, the consolidated statements of operations for the three and nine months ended January 31, 2011 and 2010 and the consolidated statements of cash flows for the nine months ended January 31, 2011 and 2010 are unaudited.  In the opinion of management, such financial statements, together with the consolidated balance sheet as of April 30, 2010, 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 preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Our significant accounting policies are more fully discussed in Item 7 of our Annual Report on Form 10-K for the year ended April 30, 2010 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on June 11, 2010.  The consolidated financial statements presented herein should be read in conjunction with our audited consolidated financial statements as of and for the twelve months ended April 30, 2010 included in the Annual Report.  The results for the three and nine month periods ended January 31, 2011 may not be indicative of the results that may be expected for any other interim period or the fiscal year ending April 30, 2011.

On January 23, 2011 we entered into a purchase and sale agreement and related agreements to sell select non-integrated FCR recycling assets and select intellectual property assets to a new company formed by Pegasus Capital Advisors, L.P. and Intersection, LLC (the “Purchaser”) for $130,400 in gross proceeds (the “FCR Divestiture”).  Pursuant to these agreements, we will divest FCR Recycling assets located outside our core operating region of New York, Massachusetts, Vermont, New Hampshire, Maine and northern Pennsylvania, including 17 Material Recycling Facilities (“MRF’s), one transfer station and certain related intellectual property assets.  The results of these operations have been reported as discontinued operations for the three and nine months ended January 31, 2011 and 2010, respectively.  Following the transaction, we will retain four integrated MRFs located in our core operating regions.  For additional information see Note 11.

We completed the transaction on March 1, 2011 for $134,100 in gross cash proceeds, including an estimated $3,700 working capital adjustment.

We consider events or transactions that have occurred after the balance sheet date of January 31, 2011, but prior to the filing of the financial statements with the SEC on this Form 10-Q to provide additional  evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated through the date of this filing.

Adoption of New Accounting Pronouncements

Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance for determining whether an entity is a variable interest entity (“VIE”) and requires an enterprise to perform an analysis to determine whether the enterprise’s variable interest or interests give it a controlling financial interest in a VIE. Under this guidance, an enterprise has a controlling financial interest when it has (i) the power to

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direct the activities of a VIE that most significantly impact the entity’s economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. This guidance requires an enterprise to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when determining whether it has power to direct the activities of the VIE that most significantly impact the entity’s economic performance. This guidance also requires ongoing assessments of whether an enterprise is the primary beneficiary of a VIE, requires enhanced disclosures, and eliminates the scope exclusion for qualifying special-purpose entities.  We adopted this guidance effective May 1, 2010 with no effect on our consolidated financial position or results of operations.

Fair Value Measurements and Disclosures

In January 2010, FASB issued additional guidance on fair value disclosures. This guidance clarifies two existing disclosure requirements and requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3 rollforward reconciliation, and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance was effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of the Level 3 rollforward information, which was required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years.  We adopted this guidance with no effect on our consolidated financial position or results of operations.

2.             GOODWILL AND INTANGIBLE ASSETS

The following table shows the balances related to goodwill at both January 31, 2011 and April 30, 2010:

Intangible assets at January 31, 2011 and April 30, 2010 consist of the following:

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Intangible amortization expense for the three and nine months ended January 31, 2011 and 2010 was $204, $169, $636 and $387, respectively.  The intangible amortization expense estimated for the five fiscal years following fiscal year 2010 and thereafter is as follows:

3.             ACCRUED CAPPING, CLOSURE AND POST CLOSURE

Accrued capping, closure and post-closure costs include the current and non-current portion of costs associated with obligations for closure and post-closure of our landfills. We estimate our future capping, closure and post-closure costs in order to determine the capping, closure and post-closure expense per ton of waste placed into each landfill. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill, as well as the duration of the post-closure monitoring period. The changes to accrued capping, closure and post-closure liabilities are as follows:

4.             LONG-TERM DEBT

On July 9, 2009, we completed the refinancing of our then existing senior credit facility with a senior secured first lien credit facility (the “Senior Secured Credit Facility”), consisting of a $177,500 revolving credit facility (the “New Revolver”) and a $130,000 aggregate principal term loan (the “New Term Loan”). In connection with the Senior Secured Credit Facility, we simultaneously completed the offering of $180,000 aggregate principal amount of 11% senior second lien notes due 2014 (the “Second Lien Notes”).  The net proceeds from the Senior Secured Credit Facility and from the Second Lien Notes offering were used to refinance the borrowings under our previous $525,000 senior credit facility.

For the first two fiscal quarters after July 9, 2009, the interest rate for borrowings under the New Revolver was LIBOR plus a margin of 4.50% per annum, and thereafter the applicable margin was and will be determined in accordance with the pricing grid as set forth in the Senior Secured Credit Facility Agreement dated July 9, 2009. The interest rate for the New Term Loan is LIBOR plus a margin of 5.00% per annum, provided that LIBOR shall not be less than 2.00% per annum. The New Term Loan was issued at an original issue price of 94.5% of the principal amount of the loan.

The Senior Secured Credit Facility is subject to customary affirmative, negative, and financial covenants, generally consistent with our prior credit agreement. The New Revolver is due December 31, 2012 and the New Term Loan is due April 9, 2014. We have the right to request an increase in the amount of the Senior Secured Credit Facility by an aggregate amount of $42,500, at our discretion, subject to certain conditions of the Senior Secured Credit Facility Agreement.

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Further advances were available under the New Revolver in the amount of $86,452 as of January 31, 2011.  The available amount is net of outstanding irrevocable letters of credit totaling $49,748 as of January 31, 2011, at which date no amount had been drawn.

The Second Lien Notes were issued at an original issue price of 97.2% of the principal amount.  The Second Lien Notes pay interest on a semi-annual basis and are due on July 15, 2014.  The Second Lien Notes were sold in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons outside the United States under Regulation S under the Securities Act.

We recorded a charge of $511 as a loss on debt modification in the quarter ended July 31, 2009 relating to the non-cash write off of unamortized deferred financing costs associated with the refinancing of our previous senior credit facility.  We recorded a charge of $115 as a loss on debt modification in the quarter ended January 31, 2011 relating to the non-cash write off of unamortized deferred financing costs associated with the repayment of certain financing lease obligations to facilitate the FCR Divestiture.

On May 27, 2010, we entered into an amendment to the Senior Secured Credit Facility to create additional capital structure flexibility.  As amended, the Senior Secured Credit Facility permits us to use net proceeds of up to $150,000 from equity offerings to repurchase our outstanding Second Lien Notes.  We are also permitted to use up to $50,000 of borrowings under the Senior Secured Credit Facility to repurchase Senior Subordinated Debt.

On February 7, 2011, we completed the offering of $200,000 of 7.75% senior subordinated notes due 2019 (the “2019 Notes”).  The net proceeds from the 2019 Notes, together with other available funds, were used to refinance our 9.75% senior subordinated notes due February 2013 (the “Senior Subordinated Notes”) and to pay related transaction costs.

The 2019 Notes will mature on February 15, 2019, and interest will accrue at the rate of 7.75% per annum. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2011.

The indenture governing the 2019 Notes contains certain negative covenants which restrict among other things, our ability to sell assets, pay dividends, repurchase stock, incur debt, grant liens and issue preferred stock.  The 2019 Notes are fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our existing and future domestic restricted subsidiaries that guarantee our Senior Secured Credit Facility and Second Lien Notes.

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5.             COMMITMENTS AND CONTINGENCIES

(a)           Legal Proceedings

In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we are subject to various judicial and administrative proceedings involving state or local agencies.  In these proceedings, an agency may seek to impose fines or to revoke or deny renewal of an operating permit held by us.  From time to time, we may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or alleging environmental damage or violations of the permits and licenses pursuant to which we operate.  In addition, we are party to various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business. 

In accordance with ASC 450-20, we accrue for legal proceedings when losses become probable and reasonably estimable.  As of the end of each applicable reporting period, we review each of our legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated under the provisions of ASC 450-20-25-2.  In instances where we determine that a loss is probable and we can reasonably estimate a range of losses we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate of the possible loss.  If we are able to reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we record an accrual in the amount that is the low end of such range.  When a loss is reasonably possible but not probable we will not record an accrual but we will disclose our estimate of the possible range of loss where such estimate can be made in accordance with ASC 450-20-25-3.  As of January 31, 2011, there were no accruals established related to our outstanding legal proceedings.

We offer no prediction of the outcome of any of the proceedings or negotiations described below.  We are vigorously defending each of these lawsuits and claims.  However, there can be no guarantee we will prevail or that any judgments against us, if sustained on appeal, will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

CRMC Bethlehem, LLC Litigation

CRMC Bethlehem, LLC and Commonwealth Bethlehem Energy, LLC (collectively, “CRMC”), have filed claims in the US District Court for the District of New Hampshire against NCES.  CRMC seeks declaratory and injunctive relief and damages in the amount of approximately $1,500.  CRMC alleges that NCES has breached the terms of a Gas Lease and Easement Agreement by and between CRMC and NCES, entered into on September 10, 1998, as amended on March 1, 2000 (the “Gas Lease”).  CRMC alleges that NCES has inappropriately interfered with CRMC rights pursuant to the Gas Lease to develop a landfill gas-to-energy project to be sited on the Landfill.

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CRMC also alleges that NCES has violated the terms of an Operations and Maintenance Agreement in operating the landfill gas management system.  NCES denies these allegations, and intends to vigorously defend against these claims.  We believe that a loss in the range of zero to $250 is reasonably possible but not probable.

(b)           Tax Matters

During the quarter, we received an income tax assessment for years ending April 30, 2004 through April 30, 2006 of $3,852, which includes $1,632 in interest and penalties, from the State of New York related to the filing of combined returns in the state.  We do not believe that a loss is reasonably possible and no amounts have been accrued for this claim.

(c)           Environmental Liability

We are subject to liability for environmental damage, including personal injury and property damage, that our 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 we acquired the facilities. We may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if we or our predecessors arrange or arranged to transport, treat or dispose of those materials.

On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), a Casella subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk Power Corporation (“NiMo”) as Respondents.  The Order required that the Respondents undertake certain work on a 25-acre scrap yard and solid waste

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transfer station owned by WSI, including the drafting of a Remedial Investigation and Feasibility Study (the “Study”).  A draft of the Study was submitted to DEC in January 2009 (followed by a final report in May 2009).  The Study estimates that the undiscounted costs associated with implementing the preferred remedies will be approximately $10,219 and it is unlikely that any costs relating to onsite remediation will be incurred until fiscal year 2012.  On February 28, 2011, the DEC issued their Proposed Remedial Action Plan (the “PRAP”) and will accept public comments through March 29, 2011.  We anticipate submitting extensive technical comments to the PRAP.  WSI is jointly and severally liable for the total cost to remediate and we initially expected to be responsible for approximately 30% upon implementation of a cost-sharing agreement with NiMo and GM. Based on these estimates, we recorded an environmental remediation charge of $2,823 in third quarter of fiscal year 2009.  In the fourth quarter of fiscal year 2009, we recognized an additional charge of $1,532, representing an additional 15% of the estimated costs, in recognition of the deteriorating financial condition and eventual bankruptcy filing of GM.  In the fourth quarter of fiscal year 2010, we recognized an additional charge of $335 based on changes in the expected timing of cash outflows.  Such charges could be significantly higher if costs exceed estimates.  We inflate these estimated costs in current dollars until the expected time of payment and discount the cost to present value using an appropriate discount rate (3.12%).  At January 31, 2011 and April 30, 2010, we have recorded $4,600 and $4,551, respectively, related to this liability including the recognition of $34, $57, $103 and $168 of accretion expense in the three and nine months ended January 31, 2011 and 2010.

6.             STOCK-BASED COMPENSATION

In June, 2010, we granted a combination of restricted stock units and performance stock units under the 2006 Stock Incentive Plan (the “2006 Plan”) to certain employees.  The vesting of half of the stock units is based on the attainment of a targeted annual return on net assets in fiscal year 2013 (performance stock units) and the vesting of the other half is based on continued employment over a three year period starting on the first anniversary of the grant (restricted stock units).  As of January 31, 2011, the performance stock units included in the June, 2010 grant could result in the issuance of up to 575 shares of Class A Common Stock based on the attainment of a targeted annual return on net assets in fiscal year 2013 and the restricted stock units could result in the issuance of up to 460 shares of Class A Common Stock based on vesting over a three year period starting on the first anniversary of the date of the grant.  The performance stock units were granted at a grant date fair value of $4.20 per share and the restricted stock units were granted at a grant date fair value of $3.46 per share.

As of January 31, 2011 there were 450 Class A Common Stock equivalents available for future grant under the 2006 Plan inclusive of additional Class A Common Stock equivalents which were previously issued under our terminated plans but which have become available for grant because such awards expired or otherwise resulted in shares not being issued.

Stock options granted 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 us 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, 2011 is as follows:

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A summary of restricted stock, restricted stock unit and performance stock unit activity for the nine months ended January 31, 2011 is as follows:

(1) Performance stock units are included at the 100% attainment level.  Attainment of performance metrics at maximum levels could result in the issuance of an additional 753 shares of Class A Common Stock.

We recorded $656, $548, $1,956 and $1,421 of stock-based compensation expense related to stock options, performance stock units, restricted stock units and restricted stock during the three and nine months ended January 31, 2011 and 2010.  We also recorded $49, $90, $96 and $177 of stock-based compensation expense for our Employee Stock Purchase Plan during the three and nine months ended January 31, 2011 and 2010.

Stock-based compensation expense is included in general and administration expenses in the consolidated statement of operations.  The unrecognized stock-based compensation expense at January 31, 2011 related to unvested stock options and restricted stock units was $2,487, to be recognized over a weighted average period of 2.0 years.  We expect to recognize $1,728 of expense related to outstanding performance stock units over the weighted average period based on expected metrics at January 31, 2011.  Maximum unrecognized stock-based compensation expense at January 31, 2011 related to outstanding performance stock units was $4,404, to be recognized over a weighted average period of 1.4 years subject to the attainment of performance metrics.

Our calculations of stock-based compensation expense associated with stock options and our Employee Stock Purchase Plan for the three and nine months ended January 31, 2011 and 2010 were made using the Black-Scholes valuation model. The fair value of our 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, 2011 and 2010:

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The grant date fair value of the options granted in the nine months ended January 31, 2011 was $2.85 per option.

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 shares issued under our Employee Stock Purchase Plan and stock options granted during the nine months ended January 31, 2011, expected volatility is calculated using the average of weekly historical volatility of our Class A Common Stock over the expected life.

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 our 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.

7.             EARNINGS PER SHARE

The following table sets forth the numerator and denominator used in the computation of basic and diluted earnings per share (“EPS”):

For the three and nine months ended January 31, 2011, the impact of up to 4,259 shares and 4,304 shares, respectively, of Class A common stock related to options and restricted / performance stock units were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

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For the three and nine months ended January 31, 2010, the impact of up to 3,977 shares of  Class A common Stock related to options and restricted / performance stock units were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

8.             COMPREHENSIVE LOSS

Comprehensive loss 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 our 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 our portion of the change in the fair value of commodity hedge agreements of our equity method investment, US GreenFiber, LLC (“GreenFiber”).

Comprehensive loss for the three and nine months ended January 31, 2011 and 2010 is as follows:

The components of other comprehensive income (loss) for the three and nine months ended January 31, 2011 and 2010 are shown as follows:

Our strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges

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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.  We have evaluated these hedges and believe that these instruments qualify for hedge accounting pursuant to derivative and hedging guidance.  Designated as effective cash flow hedges, the changes in the fair value of these derivatives are recognized in other comprehensive loss until the hedged item is settled and recognized as part of commodity revenue.  We recognize all derivatives on the balance sheet at fair value.

At January 31, 2011, we were party to four commodity hedge contracts for old corrugated cardboard (“OCC”) and eight commodity hedge contracts for old newsprint (“ONP”) as follows:

If the price per short ton of the underlying commodity as reported on the Official Board Market is less than the contract price per short ton, we receive the difference between the average price and the contract price (multiplied by the notional tons) from the respective counter-party.  If the price of the commodity exceeds the contract price per short ton, we pay the calculated difference to the counter-party.

The fair values of the commodity hedges are obtained or derived from third-party counter-parties and are determined using valuation models with assumptions about market prices for commodities being based on those in underlying active markets.  The gross carrying value of our commodity hedges was $159 at January 31, 2011 with $159 recorded in other current assets and $0 recorded in other non-current assets in our Consolidated Balance Sheets.  In accordance with derivative and hedging guidance, the offset to this, net of taxes of $646, is recorded to accumulated other comprehensive loss.

9.             FAIR VALUE OF FINANCIAL INSTRUMENTS

We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, and Level 3, defined as unobservable inputs that are not corroborated by market data.

Our financial assets and liabilities recorded at fair value on a recurring basis include restricted assets and derivative instruments.  Our derivative instruments include commodity hedges.  As of January 31, 2011, we had no interest rate derivatives.  We use commodity hedges to hedge against fluctuations in commodity pricing.  The fair value of these hedges is based on futures pricing in the underlying commodities.

We use valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of our financial assets and liabilities, we rely on market data or assumptions which we believe market participants would use in pricing an asset or liability. As of January 31, 2011, our assets that are measured at fair value on a recurring basis included the following:

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During the three and nine months ended January 31, 2011 and 2010 there were no nonrecurring fair value measurements of assets and liabilities measured at fair value on a nonrecurring basis subsequent to initial measurement.

Our financial instruments include cash and cash equivalents, trade receivables, investments in closure trust funds and trade payables.  The carrying values of these financial instruments approximate their respective fair values.  At January 31, 2011, the fair value of our fixed rate debt including the Second Lien Notes and the Senior Subordinated Notes was approximately $399,481 and the carrying value was $372,973.  At January 31, 2011, the fair value approximates the carrying value of our Senior Secured Credit Facility which includes the New Revolver and New Term Loan of $164,258.

10.          ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS

Assets held for sale:

In the quarter ended July 31, 2010, we completed the sale of certain assets in Southeastern Massachusetts.   Total consideration amounted to $7,750 with cash proceeds of $7,533.  We recorded a gain on sale of assets of $3,502.  Assets of these operations were deemed as held for sale in the quarter ended April 30, 2010.  Non-current assets held for sale at April 30, 2010 were related to property, plant and equipment and amounted to $3,708.

Discontinued operations:

On January 23, 2011 we entered into a purchase and sale agreement and related agreements to sell select non-integrated FCR recycling assets and select intellectual property assets to the Purchaser for $130,400 in gross proceeds.  Pursuant to these agreements, we will divest FCR Recycling assets located outside our core operating region of New York, Massachusetts, Vermont, New Hampshire, Maine and northern Pennsylvania, including 17 MRF, one transfer station and certain related intellectual property assets.  Following the transaction, we will retain four integrated MRFs located in our core operating regions.  As a part of the disposition, we also entered into a ten year commodities marketing agreement with the Purchaser to market 100% of the tonnage from three of our remaining integrated MRFs.

We completed the transaction on March 1, 2011 for $134,100 in gross cash proceeds, including an estimated $3,700 working capital adjustment.  After netting transaction costs and cash taxes payable in conjunction with the divestitures, we expect the net cash proceeds to amount to approximately $120,000. We intend to use the net cash proceeds from the divestiture and borrowings under our Senior Secured Revolving Credit Facility to repay the New Term Loan in full.

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During the third quarter of fiscal year 2011, we completed the sale of the assets of the Trilogy Glass business for cash proceeds of $1,840.  A gain amounting to $36 (net of tax) was recorded to (loss) gain on disposal of discontinued operations in the third quarter of fiscal year 2011.

The assets and liabilities of total discontinued operations are comprised of the following at January 31, 2011 and April 30, 2010, respectively: