UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

 

 

ý

 

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

 

 

 

For the quarterly period ended July 31, 2004

 

 

 

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 ý No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act) Yes  ý  No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 31, 2004:

 

Class A Common Stock

 

23,524,014

Class B Common Stock

 

988,200

 

 



 

PART I.                  FINANCIAL INFORMATION

 

ITEM 1.                   FINANCIAL STATEMENTS

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)

 

 

 

April 30,
2004

 

July 31,
2004

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

8,007

 

$

3,418

 

Restricted cash

 

12,419

 

12,268

 

Accounts receivable - trade, net of allowance for doubtful accounts of $583 and $651

 

49,462

 

52,809

 

Notes receivable - officers/employees

 

1,105

 

1,105

 

Refundable income taxes

 

623

 

232

 

Prepaid expenses

 

4,164

 

5,825

 

Inventory

 

1,848

 

1,970

 

Deferred income taxes

 

4,328

 

4,524

 

Other current assets

 

854

 

1,102

 

Total current assets

 

82,810

 

83,253

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and amortization of $268,019 and $283,891

 

372,038

 

387,877

 

Goodwill

 

157,230

 

160,003

 

Intangible assets, net

 

3,578

 

3,378

 

Deferred income taxes

 

5,631

 

3,642

 

Investments in unconsolidated entities

 

37,914

 

36,596

 

Net assets under contractual obligation

 

2,148

 

1,569

 

Other non-current assets

 

14,928

 

15,294

 

 

 

593,467

 

608,359

 

 

 

 

 

 

 

 

 

$

676,277

 

$

691,612

 

 

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

 

2



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except for share and per share data)

 

 

 

April 30,
2004

 

July 31,
2004

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

 

$

5,542

 

$

5,197

 

Current maturities of capital lease obligations

 

602

 

764

 

Accounts payable

 

40,034

 

40,492

 

Accrued payroll and related expenses

 

7,425

 

4,389

 

Accrued interest

 

6,024

 

10,249

 

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

 

2,471

 

927

 

Other accrued liabilities

 

25,273

 

25,790

 

Total current liabilities

 

87,371

 

87,808

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

349,163

 

360,270

 

Capital lease obligations, less current maturities

 

1,367

 

1,947

 

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

 

22,752

 

23,580

 

Other long-term liabilities

 

18,493

 

17,644

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding as of April 30, 2004 and July 31, 2004, liquidation preference of $1,000 per share plus accrued but unpaid dividends

 

67,076

 

67,915

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Class A common stock -

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value issued and outstanding - 23,496,000 and 23,524,000 shares as of April 30, 2004 and July 31, 2004, respectively

 

235

 

235

 

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

 

408

 

519

 

Additional paid-in capital

 

272,993

 

272,432

 

Accumulated deficit

 

(143,591

)

(140,748

)

Total stockholders’ equity

 

130,055

 

132,448

 

 

 

 

 

 

 

 

 

$

676,277

 

$

691,612

 

 

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

 

3



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)

 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

 

 

 

 

 

 

Revenues

 

$

113,888

 

$

124,164

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

Cost of operations

 

74,278

 

78,560

 

General and administration

 

14,473

 

15,543

 

Depreciation and amortization

 

14,770

 

17,244

 

 

 

103,521

 

111,347

 

Operating income

 

10,367

 

12,817

 

Other expense/(income), net:

 

 

 

 

 

Interest income

 

(52

)

(58

)

Interest expense

 

6,275

 

7,169

 

Loss (income) from equity method investments

 

(35

)

68

 

Other expense/(income)

 

(159

)

530

 

Other expense, net

 

6,029

 

7,709

 

 

 

 

 

 

 

Income before income taxes and cumulative effect of change in accounting principle

 

4,338

 

5,108

 

Provision for income taxes

 

867

 

2,265

 

 

 

 

 

 

 

Income before cumulative effect of change in accounting principle

 

3,471

 

2,843

 

Cumulative effect of change in accounting principle (net of income taxes of $1,856)

 

2,723

 

 

Net income

 

6,194

 

2,843

 

Preferred stock dividend

 

798

 

838

 

Net income available to common stockholders

 

$

5,396

 

$

2,005

 

 

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

 

4



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)

 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

Earnings Per Share:

 

 

 

 

 

Basic:

 

 

 

 

 

Income before cumulative effect of change in accounting principle available to common stockholders

 

$

0.11

 

$

0.08

 

Cumulative effect of change in accounting principle, net

 

0.11

 

 

 

 

 

 

 

 

Net income per common share available to common stockholders

 

$

0.22

 

$

0.08

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

23,760

 

24,492

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

Income before cumulative effect of change in accounting principle available to common stockholders

 

$

0.11

 

$

0.08

 

Cumulative effect of change in accounting principle, net

 

0.11

 

 

 

 

 

 

 

 

Net income per common share available to common stockholders

 

$

0.22

 

$

0.08

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

24,006

 

25,092

 

 

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

 

5



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)

 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

6,194

 

$

2,843

 

 

 

 

 

 

 

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

 

 

 

 

 

Depreciation and amortization

 

14,770

 

17,244

 

Depletion of landfill operating lease obligations

 

 

1,347

 

Cumulative effect of change in accounting principle, net

 

(2,723

)

 

Loss (income) from equity method investments

 

(35

)

68

 

Loss (gain) on sale of equipment

 

(54

)

276

 

Deferred income taxes

 

1,351

 

1,755

 

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

 

 

 

 

 

Accounts receivable

 

(7,440

)

(3,347

)

Accounts payable

 

2,252

 

458

 

Other assets and liabilities

 

673

 

(931

)

 

 

8,794

 

16,870

 

Net Cash Provided by Operating Activities

 

14,988

 

19,713

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(6,027

)

(3,582

)

Additions to property, plant and equipment

 

(17,738

)

(22,908

)

Payments on landfill operating lease contracts

 

 

(9,363

)

Proceeds from sale of equipment

 

59

 

188

 

Advances to unconsolidated entities

 

(693

)

 

Proceeds from assets under contractual obligation

 

304

 

579

 

Net Cash Used In Investing Activities

 

(24,095

)

(35,086

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from long-term borrowings

 

33,400

 

44,850

 

Principal payments on long-term debt

 

(34,261

)

(34,306

)

Proceeds from exercise of stock options

 

53

 

240

 

Net Cash Provided by (Used in) Financing Activities

 

(808

)

10,784

 

Net decrease in cash and cash equivalents

 

(9,915

)

(4,589

)

Cash and cash equivalents, beginning of period

 

15,652

 

8,007

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

5,737

 

$

3,418

 

 

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

 

6



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for -

 

 

 

 

 

Interest

 

$

2,878

 

$

2,558

 

Income taxes, net of refunds

 

$

341

 

$

117

 

 

 

 

 

 

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

 

 

 

 

 

Summary of entities acquired in purchase business combinations

 

 

 

 

 

Fair value of assets acquired

 

$

6,213

 

$

3,704

 

Cash paid, net

 

(6,027

)

(3,582

)

 

 

 

 

 

 

Liabilities assumed

 

$

186

 

$

122

 

 

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

 

7



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)
(In thousands, except for per share data)

 

1.                                      ORGANIZATION

 

The consolidated balance sheets of Casella Waste Systems, Inc. and Subsidiaries (the “Company” or the “Parent”) as of April 30, 2004 and July 31, 2004, the consolidated statements of operations and the consolidated statements of cash flows for the three months ended July 31, 2003 and 2004 are unaudited.  In the opinion of management, such financial statements include all adjustments (which include normal recurring and nonrecurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.  The consolidated financial statements presented herein should be read in connection with the Company’s audited consolidated financial statements as of and for the twelve months ended April 30, 2004.  These were included as part of the Company’s Annual Report on Form 10-K for the year ended April 30, 2004 (the “Annual Report”).  The results of the three months ended July 31, 2004 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2005.

 

2.                                      BUSINESS COMBINATIONS

 

During the three months ended July 31, 2004, the Company acquired four solid waste hauling operations in transactions accounted for as purchases.  These transactions were in exchange for consideration of $3,582 in cash to the sellers.  The Company completed three such acquisitions during the three months ended July 31, 2003.  The operating results of these businesses are included in the consolidated statements of operations from the dates of acquisition.  The purchase prices have been allocated to the net assets acquired based on their fair values at the dates of acquisition with the residual amounts allocated to goodwill.  Management does not believe the final purchase price allocation will produce materially different results than reflected herein.

 

The following unaudited pro forma combined information shows the results of the Company’s operations as though each of the acquisitions made in the three months ended July 31, 2003 and 2004 had been completed as of May 1, 2003.

 

 

 

Three Months Ended
July 31, 2003

 

Three Months Ended
July 31, 2004

 

Revenues

 

$

115,284

 

$

124,187

 

Operating income

 

$

10,370

 

$

13,088

 

Net income available to common stockholders

 

$

3,649

 

$

2,849

 

Diluted net income per common share

 

$

0.23

 

$

0.08

 

Diluted weighted average common shares outstanding

 

24,006

 

25,092

 

 

The foregoing pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of May 1, 2003 or the results of future operations of the Company.  Furthermore, such pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

 

8



 

3.                                      ADOPTION OF NEW ACCOUNTING STANDARDS

 

FASB Interpretation No. 46 (Revised), Consolidation of Variable Interest Entities, an Interpretation of APB No. 51 was issued by the FASB in December 2003.  In January 2003, the FASB issued FIN 46, which requires variable interest entities to be consolidated by their primary beneficiaries. A primary beneficiary is the party that absorbs a majority of the entity’s expected losses or receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity.  In December 2003, the FASB revised FIN 46 to provide companies with clarification of key terms, additional exemptions for application and an extended initial application period.  FIN 46 is currently effective for all variable interest entities created or modified after January 31, 2003 and special purpose entities created on or before January 31, 2003.  The FASB’s December 2003 revision to FIN 46 makes the Interpretation effective for all other variable interest entities beginning March 31, 2004.  The adoption of FIN 46 had no impact on the Company’s consolidated financial statements.

 

SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity was issued by the FASB in May 2003.  The statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity.  The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for all financial instruments entered into or modified after June 14, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003.  We adopted SFAS No. 150 effective August 1, 2003.  In November 2003, the FASB issued an FSP delaying the effective date for certain instruments and entities.  SFAS No. 150 had no impact on the Company’s consolidated financial statements.

 

4.                                      LEGAL PROCEEDINGS

 

In the normal course of its business and as a result of the extensive governmental regulation of the waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving Federal, state or local agencies.  In these proceedings, an agency may seek to impose fines on the Company or to revoke, or to deny renewal of, an operating permit held by the Company.  In addition, the Company may become party to various claims and suits for alleged damages to persons and property, alleged violation of certain laws and for alleged liabilities arising out of matters occurring during the normal operation of the waste management business.

 

During the period of November 21, 1996 to October 9, 1997, the Company performed certain closure activities and installed a cut-off wall at the Clinton County landfill, located in Clinton County, New York. On or about April 1999, the New York State Department of Labor alleged that the Company should have paid prevailing wages in connection with the labor associated with such activities. The Company has disputed the allegations and a hearing on the liability issue was held on September 16, 2002. In November 2002, both sides submitted proposed findings of fact and conclusions of law. On May 12, 2004, the Commissioner of Labor issued an order finding that the closure activities and the cut-off wall project were “public works” projects that were subject to prevailing wage requirements. On June 10, 2004 the Company filed a Judicial challenge to the Commissioner’s decision, which has been stayed for a 9-month period during which time the Company will continue to explore settlement possibilities with the State in lieu of a hearing on damages, which is not yet scheduled. Although a loss as a result of these claims is probable, the Company cannot estimate a range of probable losses at this time.  A charge incurred by the Company related to these claims will not have an immediate impact on operations but will be capitalized as part of the related landfill asset and amortized over the life of the landfill as tons are placed at the site.

 

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

 

5.                                      ENVIRONMENTAL LIABILITIES

 

The Company is subject to liability for any environmental damage, including personal injury and property

 

9



 

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 to transport, treat or dispose of those materials. Any substantial liability incurred by the Company arising from environmental damage could have a material adverse effect on the Company’s business, financial condition and results of operations. The Company is not presently aware of any situations that it expects would have a material adverse impact on the results of operations or financial condition.

 

6.                                      EARNINGS PER SHARE

 

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

 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

Numerator:

 

 

 

 

 

Income before cumulative effect of change in accounting principle

 

$

3,471

 

$

2,843

 

Less:  preferred stock dividends

 

(798

)

(838

)

Income before cumulative effect of change in accounting principle available to common stockholders

 

$

2,673

 

$

2,005

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

Number of shares outstanding, end of period:

 

 

 

 

 

Class A common stock

 

22,796

 

23,524

 

Class B common stock

 

988

 

988

 

Effect of weighted average shares outstanding during period

 

(24

)

(20

)

Weighted average number of common shares used in basic EPS

 

23,760

 

24,492

 

Impact of potentially dilutive securities:

 

 

 

 

 

Dilutive effect of options and contingent stock

 

246

 

600

 

Weighted average number of common shares used in diluted EPS

 

24,006

 

25,092

 

 

For the three months ended July 31, 2003 and 2004, 7,163 and 6,250 common stock equivalents related to options, warrants, and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

7.                                      COMPREHENSIVE INCOME

 

Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive income included in the accompanying balance sheets consists of changes in the fair value of the Company’s interest rate swap and commodity hedge agreements as well as the cumulative effect of the change in accounting principle due to the adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  Comprehensive income for the three months ended July 31, 2003 and 2004 is as follows:

 

10



 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

Net income

 

$

6,194

 

$

2,843

 

Other comprehensive income

 

191

 

111

 

Comprehensive income

 

$

6,385

 

$

2,954

 

 

The components of other comprehensive income for the three months ended July 31, 2003 and 2004 are shown as follows:

 

 

 

Three Months Ended

 

 

 

July 31, 2003

 

July 31, 2004

 

 

 

Gross

 

Tax
effect

 

Net of
Tax

 

Gross

 

Tax
effect

 

Net of
Tax

 

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

 

$

322

 

$

131

 

$

191

 

$

187

 

$

76

 

$

111

 

 

8.                                      DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company’s strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales.  The Company is party to twenty-four commodity hedge contracts as of July 31, 2004.  These contracts expire between April 2005 and October 2006.  The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended.  As of July 31, 2004 the fair value of these hedges was an obligation of $1,353, with the net amount (net of taxes of $535) recorded as an unrealized loss in accumulated other comprehensive income.

 

The Company is party to two interest swap agreements as of July 31, 2004 for an aggregate notional amount of $53,000 expiring in February, 2006.  The Company has evaluated these swaps and believes these instruments qualify for hedge accounting pursuant to SFAS No. 133. As of July 31, 2004, the fair value of these swaps was $249, with the net amount (net of taxes of $101) recorded as an unrealized gain in other comprehensive income. The estimated net amount of the existing gains as of July 31, 2004 included in accumulated other comprehensive income expected to be reclassified into earnings as payments are either made or received under the terms of the interest rate swaps within the next 12 months is approximately $158. The actual amounts reclassified into earnings are dependent on future movements in interest rates.

 

9.                                      STOCK BASED COMPENSATION PLANS

 

The Company has elected to account for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, for which no compensation expense is recorded in the statements of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the underlying common stock on the grant date.

 

During fiscal 1996, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation, which defines a fair value based method of accounting for stock-based employee compensation and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the intrinsic method of accounting prescribed by APB Opinion No. 25. Entities electing to remain with the accounting in APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied. In addition, the Company has

 

11



 

adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.

 

In accordance with SFAS No. 123 and SFAS No. 148, the Company has computed, for pro forma disclosure purposes, the value as of the grant date of all options granted using the Black-Scholes option pricing model as prescribed by SFAS No. 123, using the following weighted average assumptions for grants in the three months ended July 31, 2003 and 2004.

 

 

 

Three Months Ended
July 31, 2003

 

Three Months Ended
July 31, 2004

 

 

 

 

 

 

 

Risk free interest rate

 

2.34%

 

3.95% - 3.97%

 

Expected dividend yield

 

N/A

 

N/A

 

Expected life

 

5 Years

 

5 Years

 

Expected volatility

 

45.88%

 

45.88%

 

 

The total value of options granted would be amortized on a pro forma basis over the vesting period of the options. Options generally vest over a one to three year period. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company’s net income and net income per share would have changed as reflected in the following pro forma amounts:

 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

Net income available to common stockholders, as reported

 

$

5,396

 

$

2,005

 

Deduct: Total stock-based compensation expense determined under fair value based method, net

 

131

 

376

 

Net income available to common stockholders, pro forma

 

$

5,265

 

$

1,629

 

 

 

 

 

 

 

Basic income per common share:

 

 

 

 

 

As reported

 

$

0.22

 

$

0.08

 

Pro forma

 

$

0.22

 

$

0.07

 

Diluted income per common share:

 

 

 

 

 

As reported

 

$

0.22

 

$

0.08

 

Pro forma

 

$

0.22

 

$

0.06

 

 

10.                               SEGMENT REPORTING

 

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

 

The Company classifies its operations into Eastern, Central, Western and FCR Recycling.  The Company’s revenues in the Eastern, Central and Western segments are derived mainly from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste.  The Eastern Region also includes Maine Energy, which generates electricity from non-hazardous solid waste. The Company’s revenues in the FCR Recycling segment are derived from integrated waste handling services, including processing and recycling of wood, paper, metals, aluminum, plastics and glass and brokerage of recycled materials.  In June 2003 the Company transferred its domestic brokerage operation and a commercial recycling business to former employees who had managed those businesses.  Included in Other are ancillary operations, mainly major customer accounts and earnings from equity method investees.

 

12



 

 

 

Eastern
Region

 

Central
Region

 

Western
Region

 

Recycling

 

Other

 

Three Months Ended July 31, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

43,656

 

$

25,970

 

$

20,604

 

$

19,497

 

$

4,161

 

Inter-segment Revenues

 

13,232

 

12,551

 

3,370

 

3,195

 

 

Income before cumulative effect of change in accounting principle

 

(1,369

)

5,441

 

981

 

400

 

(1,982

)

Total Assets

 

$

243,981

 

$

114,453

 

$

111,404

 

$

67,699

 

$

69,717

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations

 

Total

 

 

 

 

 

 

 

Three Months Ended July 31, 2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

 

$

113,888

 

 

 

 

 

 

 

Inter-segment Revenues

 

(32,348

)

 

 

 

 

 

 

 

Income before cumulative effect of change in accounting principle

 

 

3,471

 

 

 

 

 

 

 

Total Assets

 

$

 

$

607,254

 

 

 

 

 

 

 

 

 

 

Eastern
Region

 

Central
Region

 

Western
Region

 

Recycling

 

Other

 

Three Months Ended July 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

47,297

 

$

28,692

 

$

23,978

 

$

20,091

 

$

4,106

 

Inter-segment Revenues

 

15,322

 

14,236

 

5,460

 

138

 

 

Income before cumulative effect of change in accounting principle

 

(4,235

)

6,352

 

1,931

 

2,172

 

(3,377

)

Total Assets

 

$

301,378

 

$

119,911

 

$

136,550

 

$

56,956

 

$

76,817

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Eliminations

 

Total

 

 

 

 

 

 

 

Three Months Ended July 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

 

$

124,164

 

 

 

 

 

 

 

Inter-segment Revenues

 

(35,156

)

 

 

 

 

 

 

 

Income before cumulative effect of change in accounting principle

 

 

2,843

 

 

 

 

 

 

 

Total Assets

 

$

 

$

691,612

 

 

 

 

 

 

 

 

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

 

 

 

Three Months Ended
July 31,

 

 

 

2003

 

2004

 

Collection

 

$

55,553

 

$

58,523

 

Landfill/disposal facilities

 

17,827

 

20,434

 

Transfer

 

14,247

 

14,764

 

Recycling

 

22,967

 

30,443

 

Brokerage

 

3,294

 

 

Total revenues

 

$

113,888

 

$

124,164

 

 

13



 

11.                               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.

 

The Company has not accounted for this transaction as a sale based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyer. The net assets of the operations are disclosed in the balance sheet as “net assets under contractual obligation”, and are being reduced as payments are made.

 

Net assets under contractual obligations amounted to $2,148 and $1,569 at April 30, 2004 and July 31, 2004, respectively.

 

12.                               CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

The Company’s senior subordinated notes due 2013 are guaranteed jointly and severally, fully and unconditionally by the Company’s significant wholly-owned subsidiaries. The Parent is the issuer and non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2004 and July 31, 2004, and the condensed consolidating results of operations and the condensed consolidating statements of cash flows for the three months ended July 31, 2003 and 2004 of (a) the parent company only (“the Parent”), (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.

 

14



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 2004
(In thousands)

 

 

 

Parent

 

Guarantors

 

Non-
Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

7,805

 

$

(196

)

$

398

 

$

 

$

8,007

 

Accounts receivable - trade, net of allowance for doubtful accounts

 

83

 

48,096

 

1,283

 

 

49,462

 

Prepaid expenses

 

1,504

 

3,457

 

 

(797

)

4,164

 

Other current assets

 

5,436

 

2,494

 

13,247

 

 

21,177

 

Total current assets

 

14,828

 

53,851

 

14,928

 

(797

)

82,810

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,764

 

367,589

 

1,685

 

 

372,038

 

Intangible assets, net

 

 

157,230

 

 

 

157,230

 

Deferred income taxes

 

5,631

 

 

 

 

5,631

 

Investment in subsidiaries

 

(35,115

)

 

 

35,115

 

 

Investments in unconsolidated entities

 

13,105

 

29,188

 

 

(4,379

)

37,914

 

Assets under contractual obligation

 

 

2,148

 

 

 

2,148

 

Other non-current assets

 

11,849

 

6,537

 

120

 

 

18,506

 

 

 

(1,766

)

562,692

 

1,805

 

30,736

 

593,467

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

553,154

 

(555,465

)

(2,069

)

4,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

566,216

 

$

61,078

 

$

14,664

 

$

34,319

 

$

676,277

 

 

 

 

Parent

 

Guarantors

 

Non -
Guarantors

 

Elimination

 

Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long term debt

 

$

1,500

 

$

1,942

 

$

2,100

 

$

 

$

5,542

 

Accounts payable

 

1,780

 

37,516

 

738

 

 

40,034

 

Accrued interest

 

6,022

 

2

 

 

 

6,024

 

Accrued closure and post-closure costs, current portion

 

 

1,928

 

543

 

 

2,471

 

Other current liabilities

 

4,787

 

18,354

 

10,956

 

(797

)

33,300

 

Total current liabilities

 

14,089

 

59,742

 

14,337

 

(797

)

87,371

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

347,957

 

1,206

 

 

 

349,163

 

Capital lease obligations, less current maturities

 

 

1,367

 

 

 

1,367

 

Accrued closure and post closure costs, less current portion

 

 

21,453

 

1,299

 

 

22,752

 

Other long-term liabilities

 

7,039

 

10,040

 

1,414

 

 

18,493

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends

 

67,076

 

 

 

 

67,076

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Class A common stock -

 

 

 

 

 

 

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value issued and outstanding - 23,496,000 shares

 

235

 

101

 

100

 

(201

)

235

 

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

 

408

 

1,933

 

 

(1,933

)

408

 

Additional paid-in capital

 

272,993

 

48,270

 

2,595

 

(50,865

)

272,993

 

Accumulated deficit

 

(143,591

)

(83,034

)

(5,081

)

88,115

 

(143,591

)

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

130,055

 

(32,730

)

(2,386

)

35,116

 

130,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

566,216

 

$

61,078

 

$

14,664

 

$

34,319

 

$

676,277

 

 

15



 

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 31, 2004
(Unaudited)
(In thousands)

 

 

 

Parent

 

Guarantors

 

Non-
Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

(1,186

$

3,615

 

$

989

 

$

 

$

3,418

 

Refundable income taxes

 

232

 

 

 

 

232

 

Prepaid expenses

 

1,938

 

4,684

 

 

(797

)

5,825

 

Other current assets

 

6,076

 

53,460

 

14,242

 

 

73,778

 

Total current assets

 

7,060

 

61,759

 

15,231

 

(797

)

83,253

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3,053

 

384,158

 

666

 

 

387,877

 

Intangible assets, net

 

 

160,003

 

 

 

160,003

 

Investment in subsidiaries

 

(30,374

)

 

 

30,374

 

 

Assets under contractual obligation

 

 

1,569

 

 

 

1,569

 

Other non-current assets

 

28,419

 

34,750

 

120

 

(4,379

)

58,910

 

 

 

1,098

 

580,480

 

786

 

25,995

 

608,359

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

575,822

 

(578,134

)

(2,067

)

4,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

583,980

 

$

64,105

 

$

13,950

 

$

29,577

 

$

691,612

 

 

 

 

Parent

 

Guarantors

 

Non -
Guarantors

 

Elimination

 

Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of capital lease obligations

 

$

212

 

$

552

 

$

 

$

 

$

764

 

Accrued payroll and related expenses

 

968

 

3,402

 

19

 

 

4,389

 

Accrued interest

 

10,246

 

3

 

 

 

10,249

 

Accrued closure and post-closure costs, current portion

 

 

560

 

367

 

 

927

 

Other current liabilities

 

5,382

 

53,203

 

13,691

 

(797

)

71,479

 

Total current liabilities

 

16,808

 

57,720

 

14,077

 

(797

)

87,808

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

359,436

 

834

 

 

 

360,270

 

Capital lease obligations, less current maturities

 

334

 

1,613

 

 

 

1,947

 

Accrued closure and post closure costs, less current portion

 

 

 

 

 

 

Other long-term liabilities

 

7,039

 

30,810

 

3,375

 

 

41,224

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends

 

67,915

 

 

 

 

67,915

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Class A common stock -

 

 

 

 

 

 

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value issued and outstanding - 23,524,000 shares

 

235

 

101

 

100

 

(201

)

235

 

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

 

519

 

1,189

 

 

(1,189

)

519

 

Additional paid-in capital

 

272,432

 

48,314

 

2,581

 

(50,895

)

272,432

 

Accumulated deficit

 

(140,748

)

(76,476

)

(6,183

)

82,659

 

(140,748

)

 

 

 

 

 

 

 

 

 

 

 

 

Total stockholders’ equity

 

132,448

 

(26,872

)

(3,502

)

30,374

 

132,448

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

583,980

 

$

64,105

 

$

13,950

 

$

29,577

 

$

691,612

 

 

16



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2003
(Unaudited)
(In thousands)

 

 

 

Parent

 

Guarantors

 

Non -
Guarantors

 

Elimination

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

112,146

 

$

4,222

 

$

(2,480

)

$

113,888

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

204

 

73,740

 

2,814

 

(2,480

)

74,278

 

General and administration

 

(118

)

14,394

 

197

 

 

14,473

 

Depreciation and amortization

 

449

 

12,830

 

1,491

 

 

14,770

 

 

 

535

 

100,964

 

4,502

 

(2,480

)

103,521

 

Operating income

 

(535

)

11,182

 

(280

)

 

10,367

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense/(income), net:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

(5,927

)

(337

)

(26

)

6,238

 

(52

)

Interest expense

 

6,337

 

6,107

 

69

 

(6,238

)

6,275

 

Income from equity method investments

 

(7,995

)

(35

)

 

7,995

 

(35

)

Other income, net:

 

(4

)

(126

)

(29

)

 

(159

)

Other expense, net

 

(7,589

)

5,609

 

14

 

7,995

 

6,029

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and cumulative effect of change in accounting principle

 

7,054

 

5,573

 

(294

)

(7,995

)

4,338

 

Provision for income taxes

 

860

 

 

7

 

 

867

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before cumulative effect of change in accounting principle

 

6,194

 

5,573

 

(301

)

(7,995

)

3,471

 

Cumulative effect of change in accounting principle, net

 

 

2,518

 

205

 

 

2,723

 

Net income

 

6,194

 

8,091

 

(96

)

(7,995

)

6,194

 

Preferred stock dividend

 

798

 

 

 

 

798

 

Net income available to common stockholders

 

$

5,396

 

$

8,091

 

$

(96

)

$

(7,995

)

$

5,396

 

 

17



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2004
(Unaudited)
(In thousands)

 

 

 

Parent

 

Guarantors

 

Non -
Guarantors

 

Elimination

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

 

$

123,032

 

$

3,874

 

$

(2,742

)

$

124,164

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Cost of operations

 

97

 

78,286

 

2,919

 

(2,742

)

78,560

 

General and administration

 

(173

)

15,462

 

254

 

 

15,543

 

Depreciation and amortization

 

441

 

15,008

 

1,795

 

 

17,244

 

 

 

365

 

108,756

 

4,968

 

(2,742

)

111,347

 

Operating income

 

(365

)

14,276

 

(1,094

)

 

12,817

 

 

 

 

 

 

 

 

 

 

 

 

 

Other expense/(income), net:

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

(7,003

)

(16

)

(39

)

7,000

 

(58

)

Interest expense

 

7,373

 

6,758

 

38

 

(7,000

)

7,169

 

Loss from equity method investments

 

(5,858

)

68

 

 

5,858

 

68

 

Other expense, net:

 

26

 

506

 

(2

)

 

530

 

Other expense, net

 

(5,462

)

7,316

 

(3

)

5,858

 

7,709

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

5,097

 

6,960

 

(1,091

)

(5,858

)

5,108

 

Provision for income taxes

 

2,254

 

 

11

 

 

2,265

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

2,843

 

6,960

 

(1,102

)

(5,858

)

2,843

 

Preferred stock dividend

 

838

 

 

 

 

838

 

Net income available to common stockholders

 

$

2,005

 

$

6,960

 

$

(1,102

)

$

(5,858

)

$

2,005

 

 

18



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31, 2003
(Unaudited)
(In thousands)

 

 

 

Parent

 

Guarantors

 

Non-
Guarantors

 

Elimination

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

$

2,010

 

$

11,515

 

$

1,043

 

$

420

 

$

14,988

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Acquisitions, net of cash acquired

 

 

 

(6,027

)

 

 

 

 

(6,027

)

Additions to property, plant and equipment

 

(144

)

(17,028

)

(566

)

 

(17,738

)

Other

 

(693

)

363

 

 

 

(330

)

Net Cash Used In Investing Activities

 

(837

)

(22,692

)

(566

)

 

(24,095

)

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from long-term borrowings

 

33,400

 

 

 

 

33,400

 

Principal payments on long-term debt

 

(33,689

)

(262

)

(310

)

 

(34,261

)

Proceeds from exercise of stock options

 

53

 

 

 

 

53

 

Intercompany borrowings

 

(9,950

)

10,910

 

(540

)

(420

)

 

Net Cash Used In Financing Activities

 

(10,186

)

10,648

 

(850

)

(420

)

(808

)

Net decrease in cash and cash equivalents

 

(9,013

)

(529

)

(373

)

 

(9,915

)

Cash and cash equivalents, beginning of period

 

12,188

 

2,686

 

778

 

 

15,652