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 July 31, 2009

 

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 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):

 

Large accelerated filer o

Accelerated filer x

 

 

Non-accelerated filer o

Smaller reporting companyo

(Do not check if a smaller reporting company)

 

 

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 August 31, 2009:

 

Class A Common Stock, $0.01 par value per share:

 

24,745,079

 

Class B Common Stock, $0.01 par value per share:

 

988,200

 

 

 

 



 

PART I.      FINANCIAL INFORMATION

 

ITEM 1.      FINANCIAL STATEMENTS

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

 

April 30,

 

July 31,

 

 

 

2009

 

2009

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

1,838

 

$

1,637

 

Restricted cash

 

508

 

76

 

Accounts receivable - trade, net of allowance for doubtful accounts of $2,014 and $2,222

 

51,296

 

56,136

 

Notes receivable - officer/employees

 

136

 

137

 

Refundable income taxes

 

1,195

 

1,075

 

Prepaid expenses

 

6,679

 

5,116

 

Inventory

 

3,114

 

3,309

 

Deferred income taxes

 

4,392

 

4,394

 

Other current assets

 

7,577

 

6,170

 

 

 

 

 

 

 

Total current assets

 

76,735

 

78,050

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and amortization of $549,952 and $568,975

 

490,360

 

489,814

 

Goodwill

 

125,709

 

125,709

 

Intangible assets, net

 

2,635

 

2,505

 

Restricted assets

 

127

 

133

 

Notes receivable - officer/employees

 

1,128

 

1,133

 

Deferred income taxes

 

428

 

564

 

Investments in unconsolidated entities

 

41,798

 

41,227

 

Other non-current assets

 

12,042

 

22,736

 

 

 

674,227

 

683,821

 

 

 

 

 

 

 

 

 

$

750,962

 

$

761,871

 

 

The accompanying notes are an integral part of these unaudited 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,

 

July 31,

 

 

 

2009

 

2009

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt and capital leases

 

$

1,718

 

$

2,186

 

Current maturities of financing lease obligations

 

1,344

 

1,369

 

Accounts payable

 

34,623

 

35,268

 

Accrued payroll and related expenses

 

4,180

 

3,564

 

Accrued interest

 

6,407

 

11,613

 

Current accrued capping, closure and post-closure costs

 

6,426

 

5,325

 

Other accrued liabilities

 

22,337

 

24,226

 

 

 

 

 

 

 

Total current liabilities

 

77,035

 

83,551

 

 

 

 

 

 

 

Long-term debt and capital leases, less current maturities

 

547,145

 

554,790

 

Financing lease obligations, less current maturities

 

12,281

 

11,929

 

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

 

35,464

 

36,836

 

Deferred income taxes

 

2,684

 

2,956

 

Other long-term liabilities

 

10,043

 

9,392

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Class A common stock -

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value per share, issued and outstanding - 24,679,000 and 24,745,000 shares as of April 30, 2009 and July 31, 2009, respectively

 

247

 

247

 

Class B common stock -

 

 

 

 

 

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

 

10

 

10

 

Accumulated other comprehensive income

 

3,828

 

2,115

 

Additional paid-in capital

 

279,444

 

280,042

 

Accumulated deficit

 

(217,219

)

(219,997

)

Total stockholders’ equity

 

66,310

 

62,417

 

 

 

 

 

 

 

 

 

$

 750,962

 

$

761,871

 

 

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

 

3



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended
July 31,

 

 

 

2008

 

2009

 

 

 

 

 

 

 

Revenues

 

$

157,904

 

$

135,861

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Cost of operations

 

104,442

 

90,646

 

General and administration

 

18,440

 

16,288

 

Depreciation and amortization

 

19,470

 

19,530

 

 

 

142,352

 

126,464

 

Operating income

 

15,552

 

9,397

 

 

 

 

 

 

 

Other expense/(income), net:

 

 

 

 

 

Interest income

 

(182

)

(32

)

Interest expense

 

10,155

 

9,846

 

Loss from equity method investments

 

1,129

 

1,219

 

Loss on debt modification

 

 

511

 

Other income

 

(88

)

(46

)

 

 

 

 

 

 

Other expense, net

 

11,014

 

11,498

 

 

 

 

 

 

 

(Loss) income from continuing operations before income taxes and discontinued operations

 

4,538

 

(2,101

)

Provision for income taxes

 

2,317

 

677

 

 

 

 

 

 

 

(Loss) income from continuing operations before discontinued operations

 

2,221

 

(2,778

)

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

Loss from discontinued operations (net of income tax benefit of $8)

 

(11

)

 

Loss on disposal of discontinued operations (net of income tax provision of $262)

 

(34

)

 

 

 

 

 

 

 

Net (loss) income available to common stockholders

 

$

2,176

 

$

(2,778

)

 

The accompanying notes are an integral part of these unaudited 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
July 31,

 

 

 

2008

 

2009

 

Earnings Per Share:

 

 

 

 

 

Basic:

 

 

 

 

 

(Loss) income from continuing operations before discontinued operations available to common stockholders

 

$

0.09

 

$

(0.11

)

Loss from discontinued operations, net

 

 

 

Loss on disposal of discontinued operations, net

 

 

 

 

 

 

 

 

 

Net (loss) income per common share available to common stockholders

 

$

0.09

 

$

(0.11

)

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

25,473

 

25,688

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

(Loss) income from continuing operations before discontinued operations available to common stockholders

 

$

0.08

 

$

(0.11

)

Loss from discontinued operations, net

 

 

 

Loss on disposal of discontinued operations, net

 

 

 

 

 

 

 

 

 

Net (loss) income per common share available to common stockholders

 

$

0.08

 

$

(0.11

)

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

25,683

 

25,688

 

 

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

 

5


 

 


 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended July 31,

 

 

 

2008

 

2009

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net (loss) income

 

$

2,176

 

$

(2,778

)

Loss from discontinued operations, net

 

11

 

 

Loss on disposal of discontinued operations, net

 

34

 

 

Adjustments to reconcile net (loss) income to net cash provided by operating activities -

 

 

 

 

 

Gain on sale of equipment

 

(284

)

(428

)

Depreciation and amortization

 

19,470

 

19,530

 

Depletion of landfill operating lease obligations

 

1,723

 

1,520

 

Interest accretion on landfill and environmental remediation liabilities

 

778

 

959

 

Income from assets under contractual obligation

 

(89

)

(69

)

Amortization of premium on senior notes

 

(164

)

(176

)

Amortization of discount on term loan and second lien notes

 

 

122

 

Loss from equity method investments

 

1,129

 

1,219

 

Loss on debt modification

 

 

511

 

Stock-based compensation

 

389

 

530

 

Excess tax benefit on the exercise of stock options

 

(31

)

 

Deferred income taxes

 

2,435

 

620

 

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

 

 

 

 

 

Accounts receivable

 

(8,604

)

(4,840

)

Accounts payable

 

3,118

 

645

 

Prepaid expenses, inventories and other assets

 

(1,965

)

2,338

 

Accrued expenses and other liabilities

 

(339

)

4,998

 

 

 

17,566

 

27,479

 

Net Cash Provided by Operating Activities

 

19,787

 

24,701

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(70

)

 

Additions to property, plant and equipment - growth

 

(4,723

)

(841

)

- maintenance

 

(17,705

)

(17,405

)

Payments on landfill operating lease contracts

 

(452

)

(1,327

)

Proceeds from divestitures

 

670

 

 

Proceeds from sale of equipment

 

548

 

583

 

Proceeds from assets under contractual obligation

 

89

 

69

 

Net Cash Used In Investing Activities

 

(21,643

)

(18,921

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from long-term borrowings

 

22,700

 

374,044

 

Principal payments on long-term debt

 

(21,447

)

(366,204

)

Payment of financing costs

 

 

(13,906

)

Proceeds from exercise of stock options

 

496

 

85

 

Excess tax benefit on the exercise of stock options

 

31

 

 

Net Cash (Used in) Provided by Financing Activities

 

1,780

 

(5,981

)

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

Net Cash Provided by Operating Activities

 

47

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

(29

)

(201

)

Cash and cash equivalents, beginning of period

 

2,814

 

1,838

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

2,785

 

$

1,637

 

 

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

 

6



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

 

 

Three Months Ended July 31,

 

 

 

2008

 

2009

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid (received) during the period for -

 

 

 

 

 

Interest

 

$

5,845

 

$

3,983

 

Income taxes, net of refunds

 

$

245

 

$

(54

)

 

 

 

 

 

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

 

 

 

 

 

Summary of entities acquired in purchase business combinations -

 

 

 

 

 

Fair value of assets acquired

 

$

70

 

$

 

Cash paid, net

 

(70

)

 

 

 

 

 

 

 

Notes payable, liabilities assumed and holdbacks to sellers

 

$

 

$

 

 

 

 

 

 

 

Property, plant and equipment acquired through financing lease obligations

 

$

4,453

 

$

 

 

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

 

7



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for per share data)

 

1.             BASIS OF PRESENTATION

 

Casella Waste Systems, Inc. (“the Parent”) and subsidiaries (collectively, the “Company”) is a regional, integrated solid waste services company which provides a full range of solid waste services including collection, transfer, recycling, electrical generation and disposal of non-hazardous solid waste.  The Company also markets recyclable paper, metals, aluminum, plastics and glass which have been processed at its facilities or purchased from third parties.

 

The consolidated balance sheet of the Company as of July 31, 2009, the consolidated statements of operations for the three months ended July 31, 2008 and 2009 and the consolidated statements of cash flows for the three months ended July 31, 2008 and 2009 are unaudited.  In the opinion of management, such financial statements together with the consolidated balance sheet as of April 30, 2009 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 the Company’s 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.  The Company’s significant accounting policies are more fully discussed in Item 7 of the Company’s Annual Report on Form 10-K/A for the year ended April 30, 2009 (the “Annual Report”), which was filed with the Securities and Exchange Commission (the “SEC”) on July 24, 2009.  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, 2009 included in the Annual Report.  The results for the three month period ended July 31, 2009 may not be indicative of the results that may be expected for any other interim period or the fiscal year ending April 30, 2010.

 

Adoption of New Accounting Pronouncements

 

In February 2008, the FASB issued FASB Staff Position No. 157-2, Effective Date of FASB Statement No. 157 (“FSP No. 157-2”), to allow filers to defer the effective date of SFAS No. 157, Fair Value Measurements (“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.  FSP No. 157-2 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.  Effective May 1, 2009, the Company adopted SFAS No. 157 with respect to non-financial assets and liabilities measured on a non-recurring basis.  The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

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 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

 

8



 

beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company adopted SFAS No. 141(R) on May 1, 2009 (See Note 3).

 

In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (“SFAS No. 161”).  SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”), and requires entities to provide enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and amounts of gains and losses on derivative contracts, and disclosures about credit-risk-related contingent features in derivative agreements.  This statement applies to all entities and all derivative instruments.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company adopted SFAS No. 161 on May 1, 2009.  As SFAS No. 161 relates specifically to disclosures, the adoption will have no impact on the Company’s financial position, results of operations or cash flows.

 

In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP FAS No. 142-3”).  FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”). FSP FAS No. 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. generally accepted accounting principles. FSP FAS No. 142-3 is effective for fiscal years beginning after December 15, 2008. The Company adopted FSP FAS No. 142-3 on May 1, 2009.  The adoption of FSP FAS No. 142-3 did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  The standard addresses the period after the balance sheet date during which the management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  The Company adopted the provisions of SFAS No. 165, which became effective for interim and annual reporting periods ending after June 15, 2009.  The Company evaluated subsequent events through September 3, 2009, which was the date the accompanying financial statements were issued.  No material subsequent events have occurred since July 31, 2009 that required recognition or disclosure in the Company’s current period financial statements.

 

2.             NEW ACCOUNTING PROUNOUNCEMENTS PENDING ADOPTION

 

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS No. 167”). SFAS No. 167 amends FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities “ 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 SFAS No. 167, an enterprise has a controlling financial interest when it has (i) the power to 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. SFAS No. 167 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. SFAS No. 167 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

 

9



 

special-purpose entities. SFAS No. 167 is effective for annual reporting periods beginning after November 15, 2009. The Company does not believe the impact of adopting SFAS No. 167 will have a material effect on the Company’s consolidated financial position or results of operations.

 

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, a replacement of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168 establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. SFAS No. 168 is effective for interim and annual periods ending after September 15, 2009. SFAS No. 168 does not change GAAP and will not have a material impact on the Company’s consolidated financial statements.

 

3.             BUSINESS COMBINATIONS

 

As disclosed in Note 1, the Company adopted SFAS No. 141(R) on May 1, 2009.  Assets and liabilities that arose from business combinations that preceded the application of SFAS No. 141(R) were not adjusted upon application of the new standard.

 

For all acquisitions completed prior to the Company’s adoption of SFAS No. 141(R), acquisition purchase prices were allocated to the identified intangible assets and tangible assets acquired and liabilities assumed based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to goodwill.  The time period for finalizing purchase price allocations did not exceed one year from the consummation of a business combination.  Any adjustments made during the one year allocation period were recorded prospectively as an adjustment to the acquired goodwill from the business combination.

 

For all acquisitions completed after the adoption of SFAS No. 141(R), as of the respective acquisition dates, the Company recognizes, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition-date fair values.  The Company measures and recognizes goodwill as of the acquisition date as the excess of:  (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition-date fair value of the Company’s previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed.  If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, the Company will report provisional amounts for the items for which the accounting is incomplete.  The measurement period ends once the Company receives the information it was seeking; however, this period will not extend beyond one year from the acquisition date.  Any material adjustments recognized during the measurement period will be reflected retrospectively in the consolidated financial statements of the subsequent period.  All acquisition-related transaction and restructuring costs are to be expensed as incurred rather than capitalized as part of the cost of the acquisition.

 

During the three months ended July 31, 2008, the Company acquired one solid waste hauling operation in exchange for total consideration of $70 in cash.  The operating results of this business are included in the Consolidated Statements of Operations from the date of acquisition.  The purchase price has been allocated to the net assets acquired based on their fair values at the dates of acquisition, including the value of non-compete agreements, with the residual amounts allocated to goodwill.  Fair value of tangible assets is determined by Company based on fair market value of similar property using industry accepted sources.  The pro forma effect, as if the acquisition had been made on May 1, 2008, does not vary materially from actual reported results for the periods ended July 31, 2008 and 2009.

 

10



 

4.             GOODWILL AND INTANGIBLE ASSETS

 

The following table shows the balances related to goodwill at April 30, 2009 and July 31, 2009:

 

Eastern
Region

 

Central
Region

 

Western
Region

 

FCR
Recycling

 

Total

 

$

 

$

32,951

 

$

55,302

 

$

37,456

 

$

125,709

 

 

Intangible assets at April 30, 2009 and July 31, 2009 consist of the following:

 

 

 

 

Covenants
not to
compete

 

Client Lists

 

Licensing
Agreements

 

Contract
Acquisition
Costs

 

Total

 

Balance, April 30, 2009

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

14,125

 

$

1,597

 

$

920

 

$

424

 

$

17,066

 

Less accumulated amortization

 

(13,308

)

(817

)

(235

)

(71

)

(14,431

)

 

 

$

 817

 

$

780

 

$

685

 

$

353

 

$

2,635

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, July 31, 2009

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

14,142

 

$

1,597

 

$

920

 

$

424

 

$

17,083

 

Less accumulated amortization

 

(13,401

)

(840

)

(251

)

(86

)

(14,578

)

 

 

$

 741

 

$

757

 

$

669

 

$

338

 

$

2,505

 

 

Intangible amortization expense for the three months ended July 31, 2008 and 2009 was $146 and $152, respectively.  The intangible amortization expense estimated as of July 31, 2009 for the five fiscal years following fiscal year 2009 and thereafter is as follows:

 

2010

 

2011

 

2012

 

2013

 

2014

 

Thereafter

 

$

518

 

$

417

 

$

332

 

$

266

 

$

218

 

$

754

 

 

5.             LONG-TERM DEBT

 

On July 9, 2009, the Company successfully completed the refinancing of its 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, the Company 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 the Company’s $525,000 senior credit facility due April 2010.

 

For the first two quarters after July 9, 2009, the interest rate for borrowings under the New Revolver will be LIBOR plus a margin of 4.50% per annum, and thereafter the applicable margin 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 will be 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.

 

11



 

The Senior Secured Credit Facility is subject to customary affirmative, negative, and financial covenants, generally consistent with the Company’s prior credit agreement. The New Revolver is due December 31, 2012 and the New Term Loan is due April 9, 2014. If the Company fails to refinance the Company’s 9.75% Senior Subordinated Notes due February 2013 on or before October 31, 2012 the due date for the New Term Loan shall be December 31, 2012. The Company has the right to increase the amount of the Senior Secured Credit Facility by an aggregate amount of $42,500, in its discretion, subject to certain conditions.

 

The Second Lien Notes were issued at an original issue price of 97.212% of the principal. The Second Lien Notes will 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.

 

The Second Lien Notes have not been registered under the Securities Act, and unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.

 

The Company recorded a charge of $511 as a loss on debt modification in the quarter ended July 31, 2009 relating to the unamortized deferred financing costs associated with the refinancing of its existing senior credit facility.

 

6.             COMMITMENTS AND CONTINGENCIES

 

(a)           Legal Proceedings

 

North Country Landfill Expansion

 

The North Country Environmental Services, Inc. (“NCES”) landfill is located in Bethlehem, New Hampshire, and is currently permitted to accept municipal solid waste and construction and demolition (“C&D”) material from a wide geographic region.  NCES projects that its permitted and uncontested capacity will last into fiscal year 2010.

 

NCES and the Town of Bethlehem (the “Town”) have been in prolonged zoning litigation over NCES’s expansion of the landfill.  Currently, there are two court actions between NCES and the Town, a declaratory judgment action initiated by NCES on September 12, 2001, and a zoning enforcement action initiated by the Town on February 2, 2009.  In the declaratory judgment action, the New Hampshire Supreme Court decided that NCES has all necessary local approvals to expand its landfill within a 51-acre area, but remanded to the superior court issues related to the validity of the Town’s zoning ordinance as it relates to a proposed landfill expansion outside that 51-acre area.  The remanded case remains pending, and no trial date has been set.  In the enforcement action, the Town has requested an injunction requiring NCES to remove a leachate force main, a landfill gas line, stormwater drainage lines, catch basins and outfalls, a landfill liner anchor trench, and storm water detention ponds that are located outside the 51-acre area.  NCES has filed a motion for summary judgment and expects a ruling on this motion before the end of 2009.  The enforcement action is currently scheduled for a bench trial in March, 2010.

 

On December 12, 2008, the New Hampshire Department of Environmental Services (“NHDES”) denied a request by NCES to modify its standard permit to develop approximately eight years of capacity within the bounds of the 51-acre area.  NCES revised and resubmitted its request, and the NHDES denied the revised request on March 25, 2009.  NCES appealed each of these denials to the New Hampshire Waste

 

12



 

Management Council (“WMC”).  NCES obtained a stay of the first appeal pending the outcome of the action for declaratory and injunctive relief described below.  NCES has requested a stay of the second appeal on the same basis.

 

NCES filed a petition for declaratory and injunctive relief with the superior court on February 10, 2009, related to the NHDES’s December 12, 2008, denial.  NCES amended this petition following NHDES’s March 25, 2009, denial.  In it its amended petition, NCES sought declarations that NHDES’s denials were unlawful on several grounds.  NCES also sought preliminary injunctive relief that would have required NHDES to immediately resume its consideration of NCES’s request to modify its standard permit.  In addition, NCES sought permanent injunctive relief that would require NHDES to review the permit modification application in conformity with the superior court’s declarations.  On June 11, 2009, the superior court denied NCES’s request for a preliminary injunction, but the superior court also denied NHDES’s request to dismiss the petition.  Subsequently, NCES filed a motion for partial summary judgment on two of its claims for declaratory relief.  NCES expects a ruling on this motion before the end of 2009.  The court has set a date for trial for the first week of November 2009.

 

In the event that the Company is unsuccessful obtaining the permits, the Company will assess the need for a potential landfill impairment charge (the carrying value of the NCES landfill assets as of July 31, 2009 was approximately $6,357). The Company would also assess the need for additional closure and post-closure charges.

 

GR Technologies, Inc. Litigation

 

The Company, on behalf of itself, its subsidiary FCR, LLC (“FCR”), and as a Majority Managing Member of Green Mountain Glass, LLC (“GMG”), initiated a declaratory judgment action against GR Technologies, Inc. (“GRT”), Anthony C. Lane and Robert Cameron Billmyer (“the Defendants”) on June 8, 2007 to resolve issues raised by GRT as the minority member of GMG. The issues addressed in the action included exercise of management discretion, right to intellectual property, and other related disputes. The Defendants counterclaimed in May 2008 seeking unspecified damages on a variety of allegations including, among others, breach of contract, breach of fiduciary duty, fraud, tortious interference with business relations, induced infringement and other matters. Additionally, the Defendants filed a Derivative Action in Rutland Superior Court as a Managing Member of GMG on July 2, 2008 against several employees of the Company and its subsidiary, FCR, LLC, making similar allegations. On September 16, 2008, the Company filed a Motion for Summary Judgment, and a Proposed Order Decreeing Dissolution and Appointing a Special Master, alleging that the relationship of GRT and FCR in GMG is irretrievably broken. The Rutland Superior Court issued a decision on February 10, 2009 ordering that a suit for dissolution must be heard in the Delaware Chancery Court as opposed to Rutland Superior Court, and the Company has brought such an action and will ask that the Delaware hearing be held expeditiously.

 

All litigation is in discovery stages and, accordingly, it is not possible at this time to evaluate the likelihood of an unfavorable outcome or provide meaningful estimates as to amount or range of potential loss, but management currently believes that the litigation, regardless of its outcome, will not have a material adverse affect on the Company’s financial condition, results of operations or cash flows.

 

New York Department of Labor Prevailing Wage Dispute

 

The Company has been involved in discussions with the New York Department of Labor (“DOL”) regarding the applicability of certain state “Prevailing Wage” laws pertaining to work being undertaken by the Company at the Chemung County Landfill (“CCL”). On August 10, 2007, the DOL issued a letter opinion that cell construction work and other construction activities, with respect to landfill sites operated by the Company in New York State (Chemung, Ontario and Clinton County), is providing a “public

 

13



 

purpose,” and accordingly are subject to the Prevailing Wage laws. The Company will continue to work with the DOL to closely define which work may be subject to the DOL opinion, and the Company may yet pursue administrative and litigation relief. Discussions with the DOL continue with a goal of resolving this matter. Any charge incurred by the Company related to these claims will be capitalized as part of the related landfill asset, and amortized over the life of the landfill as tons of waste are placed at each landfill site. The Company does not believe that the outcome of this matter will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

Southbridge Landfill Site Assignment Appeal

 

On June 9, 2008, the Southbridge Board of Health (“Southbridge BOH”) issued a Decision and Statement of Findings pursuant to M.G.L. ch.111, §§150A and 150 A1/2 and 310 CMR 16.00 (“2008 Site Assignment”) granting the Company’s subsidiary, Southbridge Recycling and Disposal Park, Inc. (“SRD”), a minor modification to the existing site assignment for the Southbridge Sanitary Landfill (the “Landfill”).  The 2008 Site Assignment allows SRD, subject to numerous conditions, to accept into the Landfill up to 405,000 tons of MSW per year without regard to geographic origin.

 

On or about July 14, 2008, the Sturbridge Board of Health (“Sturbridge BOH”), an abutting municipality to Southbridge, together with several 10-citizen groups, filed a complaint in Worcester County Superior Court contesting the 2008 Site Assignment (the “Appeal”). The Appeal names as defendants the Southbridge BOH and its individual members at the time of the 2008 Site Assignment, and SRD. On August 21, 2008, SRD reached a settlement with the Sturbridge BOH, pursuant to which SRD agreed to fund an escrow account to be controlled by the Sturbridge BOH, in the amount of fifty thousand dollars ($50,000). The Sturbridge BOH Appeal was formally withdrawn as to all parties on August 22, 2008, and only the 10 citizen groups remain as participants in the Appeal. A hearing on the merits was held on August 18, 2009. While it is too early to assess the outcome, SRD will continue to aggressively defend the Appeal.

 

Blue Mountain Recycling Class Action Litigation

 

In November 2008, a class action lawsuit was filed in United States District Court Eastern District of Pennsylvania against Blue Mountain Recycling, LLC (“BMR”) and the Company, alleging discriminatory hiring practices at BMR’s facility in Philadelphia. A companion complaint was filed in February 2009 with the Equal Employment Opportunity Commission. BMR and the Company deny all allegations and are engaged in court-mediated settlement discussions with the plaintiffs. While it is too early to assess the outcome of these actions, BMR and the Company will continue to aggressively defend this matter.

 

Other

 

The Company is a defendant in certain other 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.

 

The Company offers no prediction of the outcome of any of the proceedings or negotiations described above. The Company is vigorously defending each of these lawsuits and claims. However, there can be no guarantee the Company will prevail or that any judgments against the Company, if sustained on appeal, will not have a material adverse effect on the Company’s business, financial condition or results of operations or cash flows.

 

14



 

(c)           Environmental Liability

 

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.

 

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 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 by the consulting firm hired by the Respondents.  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 2011.  WSI is jointly and severally liable for the total cost to remediate but expected to be responsible for approximately 30% upon implementation of a cost-sharing agreement. Based on these estimates, the Company recorded an environmental remediation charge of $2,823 in third quarter of fiscal 2009.  In the fourth quarter o fiscal year 2009 the Company 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.  Such costs could be significantly higher if costs exceed estimates, one or more of the other responsible parties are not able to meet their obligation, or one or more of the other responsible parties declared bankruptcy.  The Company inflates the cost in current dollars until the expected time of payment and discounts the cost to present value using an appropriate discount rate (average of 6.6%. in fiscal years 2009 and 2010).  As of July 31, 2009, the Company has recorded $4,085 related to this liability, including the recognition of $55 of accretion expense in the quarter.

 

7.             STOCK-BASED COMPENSATION

 

On June 11, 2009, the Company granted a combination of restricted stock units and performance stock units under the 2006 Stock Incentive Plan (the “2006 Plan”) to certain employees.  The stock units, each of which represents a share of Class A Common Stock, are subject to vesting, one half of which is based on the attainment by the Company of a targeted annual return on assets in fiscal year 2012 and the other half of which vests based on continued employment over a three year period starting on the first anniversary of the grant.  At the one hundred percent level of attainment the grantee pool would be entitled to a total of 129 shares of Class A Common Stock based on the attainment of a targeted annual return on assets in fiscal 2012 and 614 shares of Class A Common Stock based on vesting over a three year period starting on the first anniversary of the grant.  The performance and restricted stock units were granted at an average grant date fair value of $2.60 per share.  The Company has agreed to issue 525 additional performance share units in the second quarter of fiscal year 2010 as awards become available for grant subject to shareholder approval.  As of July 31, 2009 there are 1,627 Class A Common Stock equivalents authorized for future grant under the 2006 plan inclusive of additional Class A Common Stock equivalents which were issued under the previous terminated plans 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 the Company upon exercise of stock options are issued from the pool of authorized shares of Class A Common Stock.

 

15



 

A summary of stock option and restricted stock unit activity for the three months ended July 31, 2009 is as follows:

 

 

 

Stock Options

 

Weighted
Average
Exercise
Price

 

Restricted /
Performance
Stock Units (1)

 

Outstanding, April 30, 2009

 

3,522

 

$

11.88

 

256

 

Granted

 

 

 

743

 

Exercised

 

 

 

 

Issued

 

 

 

(25

)

Forfeited

 

(4

)

12.72

 

(15

)

Outstanding, July 31, 2009

 

3,518

 

11.87

 

959

 

Exercisable, July 31, 2009

 

3,188

 

$

12.09

 

 

 

 


(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 237 shares of Class A Common Stock.

 

The Company recorded $363 and $507 of stock-based compensation expense related to stock options, performance stock units and restricted stock units during the three months ended July 31, 2008 and 2009, respectively.  The Company also recorded $26 and $23 of stock-based compensation expense for the Company’s Employee Stock Purchase Plan during the three months ended July 31, 2008 and 2009, respectively.

 

Stock-based compensation expense is included general and administrative expenses in the Consolidated Statement of Operations.  The unrecognized stock-based compensation expense at July 31, 2009 related to unvested stock options and restricted stock units was $2,674 to be recognized over a weighted average period of 2.1 years.  Maximum unrecognized stock-based compensation expense at July 31, 2009 related to performance stock units was $2,661 to be recognized over a weighted average period of 2.1 years subject to the attainment of performance metrics.

 

The Company’s calculations of stock-based compensation expense associated with stock options and the Company’s Employee Stock Purchase Plan for the three months ended July 31, 2008 and 2009 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 months ended July 31, 2008 and 2009:

 

 

 

Three Months Ended July 31,

 

 

 

2008

 

2009

 

Stock Options:

 

 

 

 

 

Expected life

 

6 years

 

 

Risk-free interest rate

 

3.73%

 

 

Expected volatility

 

36.80%

 

 

Stock Purchase Plan:

 

 

 

 

 

Expected life

 

0.5 years

 

0.5 years

 

Risk-free interest rate

 

2.87%

 

0.35%

 

Expected volatility

 

36.80%

 

243.78%

 

 

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

 

16



 

during the three months ended July 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.

 

8.             EARNINGS PER SHARE

 

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

 

 

 

Three Months
Ended July 31,

 

 

 

2008

 

2009

 

Numerator:

 

 

 

 

 

Net (loss) income available to common stockholders

 

$

2,176

 

$

(2,778

)

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Number of shares outstanding, end of period:

 

 

 

 

 

Class A common stock

 

24,516

 

24,745

 

Class B common stock

 

988

 

988

 

Effect of weighted average shares outstanding during period

 

(31

)

(45

)

Weighted average number of common shares used in basic EPS

 

25,473

 

25,688

 

Impact of potentially dilutive securities:

 

 

 

 

 

Dilutive effect of options and restricted stock units

 

210

 

 

Weighted average number of common shares used in diluted EPS

 

25,683

 

25,688

 

 

For the three months ended July 31, 2008 and 2009, 2,716 and 4,961 common stock equivalents related to options, warrants and restricted stock units were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

9.             COMPREHENSIVE (LOSS) INCOME

 

Comprehensive (loss) 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 income included in the accompanying balance sheets consists of changes in the fair value of the Company’s interest rate derivatives and commodity hedge agreements.  Also included in accumulated other comprehensive income 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”).

 

17



 

Comprehensive (loss) income for the three months ended July 31, 2008 and 2009 is as follows:

 

 

 

Three Months Ended

 

 

 

July 31,

 

 

 

2008

 

2009

 

Net (loss) income

 

$

2,176

 

$

(2,778

)

Other comprehensive (loss) income

 

1,159

 

(1,713

)

Comprehensive (loss) income

 

$

3,335

 

$

(4,491

)

 

The components of other comprehensive (loss) income for the three months ended July 31, 2008 and 2009 are shown as follows:

 

 

 

Three Months Ended July 31,

 

 

 

2008

 

2009

 

 

 

Gross

 

Tax
effect

 

Net of Tax

 

Gross

 

Tax
effect

 

Net of Tax

 

Changes in fair value of marketable securities during the period

 

$

(97

)

$

(34

)

$

(63

)

$

5

 

$

 

$

5

 

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

 

592

 

237

 

355

 

(998

)

 

(998

)

Reclassification to earnings for interest rate derivatives and commodity hedge contracts

 

1,467

 

600

 

867

 

(1,206

)

(486

)

(720

)

 

 

$

1,962

 

$

803

 

$

1,159

 

$

(2,199

)

$

(486

)

$

(1,713

)

 

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 has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, as amended by SFAS No. 161.  Designated as effective cash flow hedges, the changes in the fair value of these derivatives will be recognized in other comprehensive (loss) income until the hedged item is settled and recognized as part of commodity revenue.  The Company recognizes all derivatives on the balance sheet at fair value.  For purposes of cash flow presentation, the Company classifies cash inflows and outflows associated with derivatives within net income in the Consolidated Statements of Cash Flows.

 

At July 31, 2009, the Company was party to eleven commodity hedge contracts for old corrugated cardboard (“OCC”) and twelve commodity hedge contracts for old newsprint (“ONP”) as follows:

 

Inception Date Range

 

Commodity
Type

 

Contract Date Range

 

Monthly Ton
Range

 

Fixed Price
Per Ton
Received
Range

 

December 2007 - October 2008

 

OCC

 

April 2008 - June 2011

 

75 - 750

 

$50 - $127

 

June 2007 - October 2008

 

ONP

 

April 2008 - December 2011

 

200 - 1500

 

$70 - $127

 

 

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, the Company receives 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, the Company pays the calculated difference to the counter-party.

 

18



 

The fair values of the commodity hedges are obtained 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 fair value of the Company’s commodity hedges was $6,053 at July 31, 2009 with $3,678 recorded in other current assets and $2,375 recorded in other non-current assets in the Company’s Consolidated Balance Sheets.  In accordance with SFAS No. 133, the offset to this, net of taxes of $2,950, is recorded to accumulated other comprehensive income.

 

10.          FAIR VALUE OF FINANCIAL INSTRUMENTS

 

On May 1, 2008, the Company adopted SFAS No. 157, as it relates to financial assets and liabilities that are being measured and reported at fair value on a recurring basis.

 

SFAS No. 157 provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).

 

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments.  The Company’s derivative instruments include commodity hedges.  As of July 31, 2009, the Company had no interest rate derivatives.  The Company uses commodity hedges to hedge against fluctuations in commodity pricing.  The fair value of these hedges is based on futures pricing in the underlying commodities. 

 

The Company uses 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 the Company’s financial assets and liabilities, the Company relies on market data or assumptions that the Company believes market participants would use in pricing an asset or liability.  During the three months ended July 31, 2009 there were no nonrecurring fair value measurements of assets and liabilities subsequent to initial measurement. As of July 31, 2009, the Company’s assets that are measured at fair value on a recurring basis included the following:

 

 

 

Fair Value Measurement at July 31, 2009 Using:

 

 

 

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

 

Significant Other
Observable Inputs
(Level 2)

 

Significant Unobservable
Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

Restricted assets

 

$

133

 

$

 

$

 

Commodity derivatives

 

 

6,053

 

 

Total

 

$

133

 

$

6,053

 

$

 

 

The Company’s 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 July 31, 2009, the fair market value of the Company’s fixed rate debt including the Second Lien Notes and the 9.75% Senior Subordinated Notes due February 2013 was approximately $353,813.  At July 31, 2009, the fair market value of the Company’s Senior Secured Credit Facility which includes the New Revolver and New Term Loan was approximately $162,931.

 

19



 

11.          DISCONTINUED OPERATIONS

 

The Company completed the divestiture of its FCR Greenville operation in the quarter ended July 31, 2008 for cash proceeds of $670.  The Company recorded a loss on disposal of discontinued operations (net of tax) of $34.

 

The operating results of this operation for the three months ended July 31, 2008 have been reclassified from continuing to discontinued operations in the accompanying consolidated financial statements.  Revenues and loss before income taxes attributable to discontinued operations for the three months ended July 31, 2008 were $282 and $19, respectively.

 

The Company has recorded liabilities associated with previous divestitures amounting to approximately $769 at July 31, 2009.

 

In accordance with EITF Issue No. 87-24, Allocation of Interest to Discontinued Operations, the Company allocates interest to discontinued operations. The Company has also eliminated certain immaterial inter-company activity associated with discontinued operations.

 

12.          SEGMENT REPORTING

 

The Company manages and evaluates its solid waste operations on a geographic basis through three regions, designated as Eastern, Central, Western regions, which include a full range of solid waste services including collection, transfer, recycling, electrical generation and disposal of non-hazardous solid waste.  The Company’s revenues in the FCR recycling segment are derived primarily from the processing and recycling and sale of paper, metals, aluminum, plastics and glass.  Ancillary operations, major customer accounts, discontinued operations and earnings from equity method investments are included in Other.

 

Three Months Ended July 31, 2008 (1)

 

Segment

 

Outside
revenues

 

Inter-company
revenue

 

Depreciation and
amortization

 

Operating
income (loss)

 

Total assets

 

Eastern

 

$

53,578

 

$

14,095

 

$

8,853

 

$

334

 

$

308,034

 

Central

 

33,594

 

15,515

 

4,495

 

4,698

 

152,474

 

Western

 

30,573

 

6,541

 

4,123

 

5,928

 

183,671

 

FCR recycling

 

31,347

 

217

 

1,576

 

5,074

 

112,182

 

Other

 

8,812

 

 

423

 

(482

)

99,028

 

Eliminations

 

 

(36,368

)

 

 

 

Total

 

$

157,904

 

$

 

$

19,470

 

$

15,552

 

$

855,389

 

 

Three Months Ended July 31, 2009

 

Segment

 

Outside
revenues

 

Inter-company
revenue

 

Depreciation and
amortization

 

Operating
income (loss)

 

Total assets

 

Eastern

 

$

48,754

 

$

11,192

 

$

9,737

 

$

(1,953

)

$

234,209

 

Central

 

29,847

 

11,884

 

3,634

 

4,745

 

159,120

 

Western

 

25,157

 

6,123

 

3,758

 

4,992

 

175,012

 

FCR recycling

 

22,312

 

164

 

1,969

 

2,024

 

107,979

 

Other

 

9,791

 

 

432

 

(411

)

85,551

 

Eliminations

 

 

(29,363

)

 

 

 

Total

 

$

135,861

 

$

 

$

19,530

 

$

9,397

 

$

761,871

 

 


(1) Segment data as of and for the three months ended July 31, 2008 has been revised to reflect a change in the Company’s internal reporting structure and a realignment of certain operations between segments.

 

20



 

Sources of the Company’s total revenue are as follows:

 

 

 

Three Months Ended
July 31,

 

 

 

2008

 

2009

 

Collection

 

$

58,282

 

$

52,197

 

Disposal

 

32,360

 

29,742

 

Power generation

 

6,869

 

6,369

 

Processing and recycling

 

20,233

 

15,450

 

Solid waste operations

 

117,744

 

103,758

 

Major accounts

 

8,812

 

9,791

 

FCR recycling

 

31,348

 

22,312

 

Total revenues

 

$

157,904

 

$

135,861

 

 

The Company has revised its table of revenue by source to more closely align the types of revenue generated by its operating segments.  Amounts for the three months ended July 31, 2008 have been revised to conform to this presentation.

 

13.          INVESTMENTS IN UNCONSOLIDATED ENTITIES

 

The Company entered into an agreement in July 2000 with Louisiana-Pacific Corporation (“LP”) 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 $26,723 and $26,152 at April 30, 2009 and July 31, 2009, respectively.  The Company accounts for its 50% ownership in GreenFiber using the equity method of accounting.

 

On August 15, 2008, the Company and LP, issued a joint and several guarantee of up to $2,000 to support the refinancing of a GreenFiber term loan that is due in August 2010.  The guarantee can be drawn only upon a default (as defined) by GreenFiber under this term loan.  As of July 31, 2009, the Company has recorded a liability of $75 related to the guarantee.

 

Summarized financial information for GreenFiber is as follows:

 

 

 

April 30,
2009

 

July 31,
2009

 

Current assets

 

$

22,326

 

$

16,942

 

Noncurrent assets

 

63,529

 

62,346

 

Current liabilities

 

14,576

 

13,399

 

Noncurrent liabilities

 

$

16,324

 

$

12,668

 

 

 

 

 

 

 

 

 

Three Months Ended
July 31,

 

 

 

2008

 

2009

 

Revenues

 

$

30,233

 

$

21,119

 

Gross profit

 

4,448

 

4,760

 

Net loss

 

$

(2,258

)

$

(2,437

)

 

The Company also has a 16.2% interest in RecycleRewards, Inc., a company that markets an incentive based recycling service and a 19.9% interest in Evergreen National Indemnity Company, a surety

 

21



 

company which provides surety bonds to secure contractual performance for municipal solid waste collection contracts and landfill closure and post-closure obligations.  The Company’s investment in these interests amounted to $15,073 at April 30, 2009 and July 31, 2009.  The Company accounts for these investments under the cost method of accounting.

 

14.          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 were disclosed in the balance sheet as “net assets under contractual obligation”, and were being reduced as payments are made.  During the three months ended July 31, 2008 and 2009, the Company recognized income on the transactions in the amount of $89 and $69, respectively, as payments received on the notes receivable exceeded the balance of the net assets under contractual obligation.  Minimum amounts owed to the Company under these notes amounted to $1,884 and $1,815 at April 30, 2009 and July 31, 2009, respectively.

 

15.          CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

The Company’s Senior Subordinated Notes due 2013 and Second Lien Notes are guaranteed jointly and severally, fully and unconditionally, by the Company’s significant wholly-owned subsidiaries. The Parent is the issuer and a non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2009 and July 31, 2009, and the condensed consolidating results of operations for the three months ended July 31, 2008 and 2009 and the condensed consolidating statements of cash flows for the three months ended July 31, 2008 and 2009 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.

 

22



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2009

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

 

 

 

Parent

 

Guarantors

 

Non-Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

873

 

$

965

 

$

 

$

 

$

1,838

 

Restricted cash

 

432

 

76

 

 

 

508

 

Accounts receivable - trade, net of allowance for doubtful accounts

 

3

 

51,293

 

 

 

51,296

 

Refundable income taxes

 

1,195

 

 

 

 

1,195

 

Deferred taxes

 

4,392

 

 

 

 

4,392

 

Other current assets

 

8,718

 

8,788

 

 

 

17,506

 

Total current assets

 

15,613

 

61,122

 

 

 

76,735

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,922

 

487,438

 

 

 

490,360

 

Goodwill

 

 

125,709

 

 

 

125,709

 

Restricted cash

 

 

127

 

 

 

127

 

Deferred income taxes

 

428

 

 

 

 

428

 

Investment in subsidiaries

 

(49,753

)

 

 

49,753

 

 

Other non-current assets

 

26,587

 

32,828

 

120

 

(1,932

)

57,603

 

 

 

(19,816

)

646,102

 

120

 

47,821

 

674,227

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

647,299

 

(641,415

)

(7,816

)

1,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

643,096

 

$

65,809

 

$

(7,696

)

$

49,753

 

$

750,962

 

 

 

 

Parent

 

Guarantors

 

Non - Guarantors

 

Elimination

 

Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt and capital leases

 

$

1,109

 

$

609

 

$

 

$

 

$

1,718

 

Current maturities of financing lease obligations

 

 

1,344

 

 

 

1,344

 

Accounts payable

 

3,070

 

31,542

 

11

 

 

34,623

 

Accrued payroll and related expenses

 

497

 

3,683

 

 

 

4,180

 

Accrued interest

 

6,402

 

5

 

 

 

6,407

 

Accrued closure and post-closure costs, current portion

 

 

6,426

 

 

 

6,426

 

Other current liabilities

 

13,126

 

9,209

 

2

 

 

22,337

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

24,204

 

52,818

 

13

 

 

77,035

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital leases, less current maturities

 

546,145

 

1,000

 

 

 

547,145

 

Financing lease obligations, less current maturities

 

 

12,281

 

 

 

12,281

 

Deferred income taxes

 

2,684

 

 

 

 

2,684

 

Other long-term liabilities

 

3,753

 

41,723

 

31

 

 

45,507

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Class A common stock - Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 24,679,000 shares

 

247

 

100

 

 

(100

)

247

 

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 income (loss)

 

3,828

 

(1,494

)

 

1,494

 

3,828

 

Additional paid-in capital

 

279,444

 

46,392

 

1,679

 

(48,071

)

279,444

 

Accumulated deficit

 

(217,219

)

(87,011

)

(9,419

)

96,430

 

(217,219

)

Total stockholders’ equity

 

66,310

 

(42,013

)

(7,740

)

49,753

 

66,310

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

643,096

 

$

65,809

 

$

(7,696

)

$

49,753

 

$

750,962

 

 

23



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JULY 31, 2009

(Unaudited)

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

 

 

 

Parent

 

Guarantors

 

Non-Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

850

 

$

787

 

$

 

$

 

$

1,637

 

Restricted cash

 

 

76

 

 

 

76

 

Accounts receivable - trade, net of allowance for doubtful accounts

 

12

 

56,124

 

 

 

56,136

 

Other current assets

 

11,305

 

8,896

 

 

 

20,201

 

Total current assets

 

12,167

 

65,883

 

 

 

78,050

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3,296

 

486,518

 

 

 

489,814

 

Goodwill

 

 

125,709

 

 

 

125,709

 

Deferred income taxes

 

564

 

 

 

 

564

 

Investment in subsidiaries

 

(38,247

)

 

 

38,247

 

 

Other non-current assets

 

37,481

 

32,065

 

120

 

(1,932

)

67,734

 

 

 

3,094

 

644,292

 

120

 

36,315

 

683,821

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

640,722

 

(634,796

)

(7,858

)

1,932

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

655,983

 

$

75,379

 

$

(7,738

)

$

38,247

 

$

761,871

 

 

 

 

Parent

 

Guarantors

 

Non - Guarantors

 

Elimination

 

Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long-term debt and capital leases

 

$

1,415

 

$

771

 

$

 

$

 

$

2,186

 

Accounts payable

 

5,737

 

29,518

 

13

 

 

35,268

 

Accrued interest

 

11,580

 

33

 

 

 

11,613

 

Other current liabilities

 

14,163

 

20,317

 

4

 

 

34,484

 

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

32,895

 

50,639

 

17

 

 

83,551

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt and capital leases, less current maturities

 

554,118

 

672

 

 

 

554,790

 

Other long-term liabilities

 

6,553

 

54,529

 

31

 

 

61,113

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Class A common stock - Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 24,745,000 shares

 

247

 

100

 

 

(100

)

247

 

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 income (loss)

 

2,115

 

(988

)

 

988

 

2,115

 

Additional paid-in capital

 

280,042

 

46,392

 

1,679

 

(48,071

)

280,042

 

Accumulated deficit

 

(219,997

)

(75,965

)

(9,465

)

85,430

 

(219,997

)

Total stockholders’ equity

 

62,417

 

(30,461

)

(7,786

)

38,247

 

62,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

655,983

 

$

75,379

 

$

(7,738

)

$

38,247

 

$

761,871

 

 

24



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED JULY 31, 2008

(Unaudited)

(in thousands)

 

 

 

Parent

 

Guarantors

 

Non - Guarantors

 

Elimination

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

157,904

 

$

1,694

 

$

(1,694

)

$

157,904

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

245

 

104,125

 

1,766