Form 10-Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

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

For the quarterly period ended January 31, 2013

OR

 

¨ 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  ¨

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 preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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   ¨    Accelerated filer    x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    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  ¨    No  x

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of February 28, 2013:

 

Class A common stock, $0.01 par value per share:

     38,657,836   

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)

 

     January 31,      April 30,  
     2013      2012  
ASSETS      

CURRENT ASSETS:

     

Cash and cash equivalents

   $ 1,112       $ 4,534   

Restricted cash

     76         76   

Accounts receivable - trade, net of allowance for doubtful accounts of $1,513 and $740

     50,425         47,472   

Refundable income taxes

     1,209         1,281   

Prepaid expenses

     8,961         6,077   

Inventory

     3,923         3,595   

Deferred income taxes

     3,253         3,712   

Other current assets

     854         609   
  

 

 

    

 

 

 

Total current assets

     69,813         67,356   

Property, plant and equipment, net of accumulated depreciation and amortization of $636,868 and $593,206

     428,452         416,717   

Goodwill

     116,281         101,706   

Intangible assets, net

     11,979         2,970   

Restricted assets

     523         424   

Notes receivable - related party/employee

     516         722   

Investments in unconsolidated entities

     19,431         22,781   

Other non-current assets

     26,158         21,067   
  

 

 

    

 

 

 
     603,340         566,387   
  

 

 

    

 

 

 
   $ 673,153       $ 633,743   
  

 

 

    

 

 

 

 

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)

 

     January 31,     April 30,  
     2013     2012  
LIABILITIES AND STOCKHOLDERS’ EQUITY     

CURRENT LIABILITIES:

    

Current maturities of long-term debt and capital leases

   $ 992      $ 1,228   

Current maturities of financing lease obligations

     355        338   

Accounts payable

     47,695        46,709   

Accrued payroll and related expenses

     4,354        4,142   

Accrued interest

     12,702        9,803   

Current accrued capping, closure and post-closure costs

     4,903        4,907   

Other accrued liabilities

     27,590        21,208   
  

 

 

   

 

 

 

Total current liabilities

     98,591        88,335   

Long-term debt and capital leases, less current maturities

     490,686        473,381   

Financing lease obligations, less current maturities

     1,549        1,818   

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

     37,681        34,722   

Deferred income taxes

     5,958        5,336   

Other long-term liabilities

     11,753        11,920   

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ EQUITY:

    

Casella Waste Systems, Inc. stockholders’ equity:

    

Class A common stock -
Authorized - 100,000,000 shares, $0.01 par value per share, issued and outstanding - 38,658,000 and 25,991,000 shares as of January 31, 2013 and April 30, 2012, respectively

     387        260   

Class B convertible common stock -
Authorized - 1,000,000 shares, $0.01 par value per share, 10 votes per share, issued and outstanding - 988,000 shares as of January 31, 2013 and April 30, 2012, respectively

     10        10   

Additional paid-in capital

     335,451        288,348   

Accumulated deficit

     (310,982     (270,235

Accumulated other comprehensive loss

     (619     (1,952
  

 

 

   

 

 

 

Total Casella Waste Systems, Inc. stockholders’ equity

     24,247        16,431   

Noncontrolling interest

     2,688        1,800   
  

 

 

   

 

 

 

Total stockholders’ equity

     26,935        18,231   
  

 

 

   

 

 

 
   $ 673,153      $ 633,743   
  

 

 

   

 

 

 

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     Nine Months Ended  
     January 31,     January 31,  
     2013     2012     2013     2012  

Revenues

   $ 115,002      $ 114,578      $ 356,531      $ 371,637   

Operating expenses:

        

Cost of operations

     84,168        81,398        254,417        253,248   

General and administration

     14,480        13,933        43,788        46,202   

Depreciation and amortization

     14,045        14,827        43,433        44,394   

Severance and reorganization costs

     1,636        —          3,463        —     

Expense from divestiture, acquisition and financing costs

     372        —          1,003        —     

Loss on divestiture

     353        —          353        —     

Legal settlement

     —          —          —          1,359   

Development project charge

     —          —          —          131   
  

 

 

   

 

 

   

 

 

   

 

 

 
     115,054        110,158        346,457        345,334   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (52     4,420        10,074        26,303   

Other expense (income):

        

Interest income

     (50     (20     (68     (32

Interest expense

     9,407        11,528        32,958        33,897   

Loss from equity method investments

     1,436        6,383        3,311        10,163   

Impairment of equity method investment

     —          10,680        —          10,680   

(Gain) loss on derivative instruments

     (24     —          3,871        —     

Loss on debt extinguishment

     5,914        —          15,584        —     

Other income

     (298     (117     (737     (549
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     16,385        28,454        54,919        54,159   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and discontinued operations

     (16,437     (24,034     (44,845     (27,856

(Benefit) provision for income taxes

     (4,963     601        (3,899     1,330   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before discontinued operations

     (11,474     (24,635     (40,946     (29,186

Discontinued operations:

        

Gain on disposal of discontinued operations (net of income tax provision of $0, $0, $0 and $489)

     —          —          —          725   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (11,474     (24,635     (40,946     (28,461
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net loss attributable to noncontrolling interest

     (67     —          (199     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (11,407   $ (24,635   $ (40,747   $ (28,461
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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     Nine Months Ended  
     January 31,     January 31,  
     2013     2012     2013     2012  

Amounts attributable to common stockholders:

        

Loss from continuing operations before discontinued operations

   $ (11,407   $ (24,635   $ (40,747   $ (29,186

Gain on disposal of discontinued operations, net of tax

     —          —          —          725   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (11,407   $ (24,635   $ (40,747   $ (28,461
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per share:

        

Loss from continuing operations before discontinued operations

   $ (0.29   $ (0.92   $ (1.26   $ (1.09

Gain on disposal of discontinued operations, net of tax

     —          —          —          0.02   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share

   $ (0.29   $ (0.92   $ (1.26   $ (1.07
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

        

Basic and diluted

     39,230        26,822        32,365        26,715   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2013     2012     2013     2012  

Net loss

   $ (11,474   $ (24,635   $ (40,946   $ (28,461

Other comprehensive income (loss), net of tax:

        

Unrealized loss resulting from changes in fair value of derivative instruments, net of tax provision of $0, $0, $0 and $99

     (11     (1,981     (2,810     (1,798

Realized loss (gain) on derivative instruments reclassified into earnings, net of tax provision of $0, $0, $0 and $99

     149        109        4,139        (607

Unrealized (loss) gain resulting from changes in fair value of marketable securities

     (11     (16     4        (27
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     127        (1,888     1,333        (2,432
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (11,347     (26,523     (39,613     (30,893

Less: Comprehensive loss attributable to noncontrolling interest

     (67     —          (199     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (11,280   $ (26,523   $ (39,414   $ (30,893
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

6


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

 

          Casella Waste Systems, Inc. Stockholders’ Equity        
          Class A     Class B     Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other
Comprehensive
Loss
    Noncontrolling
Interest
 
          Common Stock     Common Stock          
    Total     Shares     Amount     Shares     Amount          

Balance, April 30, 2012

  $ 18,231        25,991      $ 260        988      $ 10      $ 288,348      $ (270,235   $ (1,952   $ 1,800   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

    (40,946     —          —          —          —          —          (40,747     —          (199

Other comprehensive income

    1,333        —          —          —          —          —          —          1,333        —     

Issuances of Class A common stock

    2,849        1,167        12        —          —          2,837        —          —          —     

Sale of Class A common stock, net

    42,184        11,500        115        —          —          42,069        —          —          —     

Stock-based compensation and related severance expense

    1,840        —          —          —          —          1,840        —          —          —     

Contributions from noncontrolling interest holder

    1,345        —          —          —          —          —          —          —          1,345   

Change in ownership of noncontrolling interest

    —          —          —          —          —          258        —          —          (258

Other

    99        —          —          —          —          99        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 31, 2013

  $ 26,935        38,658      $ 387        988      $ 10      $ 335,451      $ (310,982   $ (619   $ 2,688   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

7


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

     Nine Months Ended  
     January 31,  
     2013     2012  

Cash Flows from Operating Activities:

    

Net loss

   $ (40,946   $ (28,461

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

    

Gain on disposal of discontinued operations, net

     —          (725

Gain on sale of property and equipment

     (422     (902

Depreciation and amortization

     43,433        44,394   

Depletion of landfill operating lease obligations

     7,358        6,570   

Interest accretion on landfill and environmental remediation liabilities

     2,756        2,613   

Loss on divestiture

     353        —     

Development project charge

     —          131   

Amortization of discount on second lien notes and senior subordinated notes

     568        712   

Loss from equity method investments

     3,311        10,163   

Impairment of equity method investment

     —          10,680   

Loss on derivative instruments, net

     3,871        —     

Loss on debt extinguishment

     15,584        —     

Stock-based compensation and related severance expense

     1,840        1,307   

Excess tax benefit on the vesting of share based awards

     (98     (254

Deferred income taxes

     (4,057     1,548   

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

    

Accounts receivable

     (1,544     6,882   

Accounts payable

     (110     2,753   

Prepaid expenses, inventories and other assets

     (686     (758

Accrued expenses and other liabilities

     (685     (6,911
  

 

 

   

 

 

 

Net cash provided by operating activities

     30,526        49,742   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Acquisitions, net of cash acquired

     (25,106     (2,102

Additions to property, plant and equipment - acquisitions

     (528     (168

   - growth

     (10,415     (9,833

   - maintenance

     (33,526     (39,279

Payment for capital related to divestiture

     (618     —     

Payments on landfill operating lease contracts

     (5,726     (6,052

Proceeds from sale of property and equipment

     795        1,337   

Investments in unconsolidated entities

     (1,000     (4,146
  

 

 

   

 

 

 

Net cash used in investing activities

     (76,124     (60,243
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from long-term borrowings

     334,497        127,900   

Principal payments on long-term debt

     (320,483     (119,433

Payment of tender premium and costs on second lien notes

     (10,743     —     

Payments of financing costs

     (4,572     (142

Net proceeds from the sale of Class A common stock

     42,184        —     

Proceeds from the exercise of share based awards

     —          337   

Excess tax benefit on the vesting of share based awards

     98        254   

Contributions from noncontrolling interest holder

     1,195        174   
  

 

 

   

 

 

 

Net cash provided by financing activities

     42,176        9,090   
  

 

 

   

 

 

 

Discontinued Operations:

    

Net cash provided by investing activities

     —          725   
  

 

 

   

 

 

 

Net cash provided by discontinued operations

     —          725   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (3,422     (686

Cash and cash equivalents, beginning of period

     4,534        1,817   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 1,112      $ 1,131   
  

 

 

   

 

 

 

 

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

 

8


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

     Nine Months Ended  
     January 31,  
     2013      2012  

Supplemental Disclosures of Cash Flow Information:

     

Cash paid during the period for -

     

Interest

   $ 26,933       $ 31,952   

Income taxes, net of refunds

   $ 97       $ 5,314   

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

     

Summary of entities acquired in purchase business combinations -

     

Fair value of net assets acquired and goodwill

   $ 27,936       $ 2,284   

Common stock issued

   $ 2,650       $ —     

Cash paid, net

   $ 25,106       $ 2,102   
  

 

 

    

 

 

 

Holdbacks to sellers

   $ 180       $ 182   
  

 

 

    

 

 

 

Equipment contributed by noncontrolling interest holder

   $ —         $ 1,270   
  

 

 

    

 

 

 

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

 

9


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except for per share data)

 

1. BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements include the accounts of Casella Waste Systems, Inc. (the “Parent”), its wholly-owned subsidiaries and an entity in which it has a controlling financial interest (collectively, “we”, “us” or “our”). For the consolidated subsidiary that is less than wholly-owned, the third-party holding of equity interest is referred to as a noncontrolling interest. The portion of net loss attributable to the noncontrolling interest holder of this subsidiary is presented as net loss attributable to noncontrolling interest in the unaudited consolidated statements of operations and the portion of comprehensive loss attributable to the noncontrolling interest holder of this subsidiary is presented as comprehensive loss attributable to noncontrolling interest in the unaudited consolidated statements of comprehensive loss. The portion of stockholders’ equity of this subsidiary attributable to the noncontrolling interest holder is presented as noncontrolling interest in the unaudited consolidated balance sheets and the unaudited consolidated statement of stockholders’ equity.

We are a regional, vertically-integrated solid waste services company that provides collection, transfer, disposal, landfill, landfill gas-to-energy, recycling and organics services in the northeastern United States. We market recyclable metals, aluminum, plastics, paper and corrugated cardboard, which have been processed at our recycling facilities, as well as recyclables purchased from third parties. We manage our solid waste operations on a geographic basis through two regional operating segments, the Eastern and Western regions, each of which includes a full range of solid waste services, and our larger-scale recycling and commodity brokerage operations through our Recycling segment. Ancillary operations, major customer accounts, discontinued operations and earnings through equity method investees are included in our Other segment.

The consolidated financial statements as of January 31, 2013 and for the three and nine months ended January 31, 2013 and 2012 are unaudited. These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and in the opinion of management, 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 results for the three and nine months ended January 31, 2013 may not be indicative of the results that may be expected for any other interim period or the fiscal year ending April 30, 2013. The unaudited consolidated financial statements presented herein should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2012, which was filed with the SEC on June 28, 2012.

The preparation of our unaudited consolidated 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 unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Our significant accounting policies are more fully discussed in Item 8 of our Annual Report on Form 10-K for the year ended April 30, 2012.

Certain reclassifications have been made to previously reported amounts. These reclassifications had no effect on the previously reported consolidated financial position, results of operations or retained earnings.

 

10


We consider events or transactions that have occurred after the unaudited consolidated balance sheet date of January 31, 2013, but prior to the filing of the unaudited consolidated financial statements with the SEC on this Form 10-Q. We have evaluated subsequent events through the date of the filing of this Quarterly Report on Form 10-Q with the SEC.

Adoption of New Accounting Pronouncements

Comprehensive Income

In June 2011, the Financial Accounting Standards Board (the “FASB”) issued an accounting standards update for the presentation of comprehensive income. This guidance requires the presentation of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated standard also requires presentation of adjustments for items that are reclassified from other comprehensive income to net income in the statement where the components of net income and the components of other comprehensive income are presented. The FASB deferred certain portions of the accounting standard update related to presentation of reclassification adjustments from other comprehensive income to net income. This guidance, except for the deferred portion noted above, is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011 with early adoption permitted. We adopted this guidance effective May 1, 2012. It only impacts the presentation of our financial statements and does not impact our consolidated financial position or results of operations.

New Accounting Pronouncements Pending Adoption

Comprehensive Income

In February 2013, the FASB issued an accounting standards update for the reporting of reclassifications out of accumulated other comprehensive income. This guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under generally accepted accounting principles in the United States (“GAAP”) to be reclassified in its entirety to net income. For other amounts not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other disclosures required under GAAP that provide additional detail about those amounts. This guidance is effective prospectively for annual and interim reporting periods beginning after December 15, 2012 and it will only impact the presentation of our financial statements or require additional disclosure and will not impact our consolidated financial position or results of operations.

Indefinite-Lived Intangible Assets Impairment Test

In July 2012, the FASB issued an accounting standards update on indefinite-lived intangible assets impairment testing. This guidance permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the quantitative impairment test. If after assessing the totality of events or circumstances, we determine that it is not more likely than not that an indefinite-lived intangible asset is impaired, then we will not need to perform the quantitative impairment test in accordance with Accounting Standards Codification (“ASC”) 350-30. This guidance is effective for annual and interim indefinite-lived assets impairment tests performed for fiscal years beginning after September 15, 2012 with early adoption permitted, and we expect that it will have no impact on our consolidated financial position or results of operations.

Disclosures About Offsetting Assets and Liabilities

In December 2011, the FASB issued an accounting standards update regarding the disclosure of offsetting assets and liabilities in financial statements. This guidance requires an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of GAAP and those entities that prepare their financial statements on the basis of International Financial Reporting Standards. In January 2013, the FASB issued an accounting standards update to address implementation issues about the December 2011 accounting standards update by clarifying the scope of the offsetting disclosures. This guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods, and it will only impact the presentation of our financial statements or require additional disclosure and will not impact our consolidated financial position or results of operations.

 

11


2. BUSINESS ACQUISITIONS

During the nine months ended January 31, 2013, we acquired four solid waste hauling operations in the Western region for total consideration of $5,384, including $4,854 in cash and $530 in holdbacks to the sellers, and all of the outstanding capital stock of Bestway Disposal Services and BBI Waste Services (“BBI”) in the Eastern region for total consideration, subject to certain closing adjustments based on the terms of the agreement, of $22,650, including $20,000 in cash and 625 shares of our Class A common stock, valued at an aggregate of $2,650. We recorded an additional $5,242 to goodwill for the increased deferred tax liability related to the BBI acquisition based on the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes, see Note 10 for further discussion. The acquisition of BBI, a provider of solid waste collection, transfer and liquid waste services in New Hampshire and Maine, on December 6, 2012 provides us the opportunity to internalize additional waste and recyclables and to consolidate operations, routes and transportation within the Eastern region. Revenue generated from BBI amounted to $2,924 from December 6, 2012 to January 31, 2013. During the nine months ended January 31, 2012, we acquired five solid waste hauling operations and completed the acquisition of the McKean County landfill business in Pennsylvania, by acquiring additional equipment not included in the original acquisition, for total consideration of $2,284, including $2,102 in cash and $182 in holdbacks to the sellers.

The operating results of these businesses are included in the accompanying unaudited consolidated statements of operations from the dates of acquisition, and the purchase prices have been allocated to the net assets acquired based on fair values at the dates of acquisition, with the residual amounts recorded as goodwill. Acquired intangible assets other than goodwill that are subject to amortization include client lists and non-compete covenants. These are amortized over a five to ten year period from the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes, except for $8,078 of the current year goodwill related to the BBI acquisition. The purchase price allocated to net assets acquired and the residual amount allocated to goodwill during the nine months ended January 31, 2013 and 2012 are as follows:

 

     January 31,  
     2013 (1)     2012  

Equipment

   $ 9,403      $ 605   

Goodwill

     14,575        569   

Intangible assets

     9,601        1,136   

Current assets

     1,475        —     

Current liabilities

     (7,118     (26
  

 

 

   

 

 

 

Total

   $ 27,936      $ 2,284   
  

 

 

   

 

 

 

 

1) The purchase price allocated to net assets acquired and the residual amount allocated to goodwill associated with the BBI acquisition has not been finalized and is provisional in nature. Management’s estimates and assumptions are subject to change upon finalization of the valuation and may be adjusted in accordance with ASC 805.

The following unaudited pro forma combined financial information shows the results of our operations for the three and nine months ended January 31, 2013 and 2012 as though each of the acquisitions made in the nine months ended January 31, 2013 and the twelve months ended April 30, 2012 had occurred as of May 1, 2011.

 

     Three Months Ended     Nine Months Ended  
     January 31,     January 31,  
     2013     2012     2013     2012  

Revenue

   $ 116,291      $ 119,456      $ 366,089      $ 386,578   

Operating income

   $ 40      $ 4,753      $ 10,748      $ 27,306   

Net loss attributable to common stockholders

   $ (11,442   $ (24,795   $ (41,042   $ (28,951

Basic and diluted loss per common share attributable to common stockholders

   $ (0.29   $ (0.92   $ (1.27   $ (1.08

Basic and diluted weighted average shares outstanding

     39,230        26,822        32,365        26,715   

The pro forma results set forth in the table above have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions occurred as of May 1, 2011 or the results of our future operations. Furthermore, the 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.

 

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3. GOODWILL AND INTANGIBLE ASSETS

The following table shows the activity and balances related to goodwill from April 30, 2012 through January 31, 2013:

 

     April 30, 2012      Acquisitions      January 31, 2013  

Eastern region

   $ 58       $ 13,339       $ 13,397   

Western region

     89,458         1,236       $ 90,694   

Recycling

     12,190         —         $ 12,190   
  

 

 

    

 

 

    

 

 

 

Total

   $ 101,706       $ 14,575       $ 116,281   
  

 

 

    

 

 

    

 

 

 

Intangible assets as of January 31, 2013 and April 30, 2012 consist of the following:

 

     Covenants
Not to
Compete
    Client Lists     Total  

Balance, January 31, 2013

      

Intangible assets

   $ 17,022      $ 11,432      $ 28,454   

Less accumulated amortization

     (14,661     (1,814     (16,475
  

 

 

   

 

 

   

 

 

 
   $ 2,361      $ 9,618      $ 11,979   
  

 

 

   

 

 

   

 

 

 

Balance, April 30, 2012

      

Intangible assets

   $ 15,601      $ 3,093      $ 18,694   

Less accumulated amortization

     (14,324     (1,400     (15,724
  

 

 

   

 

 

   

 

 

 
   $ 1,277      $ 1,693      $ 2,970   
  

 

 

   

 

 

   

 

 

 

Intangible amortization expense for the three and nine months ended January 31, 2013 and 2012 was $353, $156, $751 and $460, respectively. The intangible amortization expense estimated for the five fiscal years following fiscal year 2012 and thereafter is as follows:

 

2013

 

2014

 

2015

 

2016

 

2017

 

Thereafter

$    1,829   $    1,660   $    1,610   $    1,429   $    1,325   $    4,877

 

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4. ACCRUED CAPPING, CLOSURE AND POST CLOSURE

Accrued capping, closure and post-closure costs include the current and non-current portion of costs associated with obligations for closure and post-closure of our landfills. We estimate our future capping, closure and post-closure costs in order to determine the capping, closure and post-closure expense per ton of waste placed into each landfill. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill, as well as the duration of the post-closure monitoring period. The changes to accrued capping, closure and post-closure liabilities for the nine months ended January 31, 2013 and 2012 are as follows:

 

     Nine Months Ended January 31,  
     2013     2012  

Beginning balance

   $ 39,629      $ 36,407   

Obligations incurred

     2,606        2,350   

Accretion expense

     2,653        2,510   

Payments

     (2,304     (1,298
  

 

 

   

 

 

 

Ending balance

   $ 42,584      $ 39,969   
  

 

 

   

 

 

 

 

5. LONG-TERM DEBT AND CAPITAL LEASES

Amendment and Refinancing Transactions

On September 20, 2012, we entered into a second amendment to and consent under our senior secured first lien credit facility (the “Senior Credit Facility”). The amendment provided that we could use up to $50,000 of the senior secured revolving credit facility (the “2011 Revolver”) proceeds under the Senior Credit Facility to redeem our $180,000 in aggregate principal amount 11% senior second lien notes due 2014 (the “Second Lien Notes”) and to pay for any interest, fees, premium or other amounts in connection with the refinancing of the Second Lien Notes, subject to the terms and conditions to such use, as described in the amendment. The amendment also contains additional modifications, including increasing the allowed amount of senior subordinated debt from $350,000 to $450,000, adjusting the definition of bank-defined cash flow by allowing for certain add backs, adjusting the definition of consolidated total interest expense by allowing for an exclusion of non-cash interest expense associated with interest rate derivatives, and providing for adjustments to the financial covenants in the event that we tendered the Second Lien Notes.

On September 24, 2012, we initiated a cash tender offer and consent solicitation for our Second Lien Notes (the “Tender Offer”). On October 9, 2012, we repurchased $107,318 in aggregate principal amount of our then outstanding Second Lien Notes through the Tender Offer, leaving $72,682 in aggregate principal amount of Second Lien Notes outstanding. Holders who tendered the Second Lien Notes prior to the early tender date received $1,060 for each $1,000 in principal amount of Second Lien Notes repurchased, which included an early tender premium of $30 per $1,000 in principal amount of Second Lien Notes, plus accrued and unpaid interest to, but not including the early tender offer settlement date. On November 8, 2012, we redeemed the remaining $72,682 in aggregate principal amount the outstanding Second Lien Notes. The remaining holders who tendered the Second Lien Notes received $1,055 for each $1,000 in principal amount of Second Lien Notes redeemed, plus accrued and unpaid interest to, but not including the redemption date.

On October 9, 2012, we completed the offering of an additional $125,000 of 7.75% senior subordinated notes (the “2019 Notes”), which will mature on February 15, 2019. The 2019 Notes were issued at a discount of $1,863, which will be amortized to interest expense over the life of the 2019 Notes, with interest payable semiannually in arrears on February 15 and August 15 of each year, commencing February 15, 2013. The net proceeds from the offering of additional 2019 Notes, along with $50,000 of 2011 Revolver borrowings, $42,184 of net equity proceeds from the offering and sale of Class A common stock discussed in Note 7 and other available funds were used to redeem our Second Lien Notes in full and to pay related transaction costs.

The Senior Credit Facility, as amended, is subject to customary affirmative, negative and financial covenants. As of January 31, 2013, these covenants restrict fiscal year capital expenditures to 1.5 times our consolidated depreciation expenses, depletion expenses and landfill amortization expenses, set a minimum interest coverage ratio of 2.00, a maximum consolidated total funded debt to consolidated EBITDA ratio of 5.75 and a maximum senior funded debt to consolidated EBITDA ratio of 2.75. In addition to the financial covenants described above, the Senior Credit Facility, as amended, also contains a number of important negative covenants which restrict, among other things, our ability to sell assets, pay dividends, invest in non-wholly owned entities, repurchase stock, incur debt, grant liens and issue preferred stock. As of January 31, 2013, we were in compliance with all covenants under the indenture governing our Senior Credit Facility and we do not believe that these restrictions impact our ability to meet future liquidity needs except that they may impact our ability to increase our investments in non-wholly owned entities, including the joint ventures to which we are already party to.

 

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Loss on Debt Extinguishment

In the three months ended January 31, 2013, we recorded a charge of $5,914 as a loss on debt extinguishment related to the refinancing of our remaining Second Lien Notes. The loss on debt extinguishment consisted of a $1,100 non-cash write off of deferred financing costs, a $816 non-cash write off of the unamortized original issue discount and a $3,998 charge associated with the early tender premium and other fees associated with the redemption of the remaining Second Lien Notes.

In the nine months ended January 31, 2013, we recorded a charge of $15,584 as a loss on debt extinguishment related to the full refinancing of our Second Lien Notes. The loss on debt extinguishment consisted of a $2,667 non-cash write off of deferred financing costs, a $2,074 non-cash write off of the unamortized original issue discount and a $10,743 charge associated with the early tender premium and tender fees associated with the redemption of the Second Lien Notes.

Long Term Debt and Capital Leases

Long-term debt and capital leases as of January 31, 2013 and April 30, 2012 consist of the following:

 

     January 31,      April 30,  
     2013      2012  

Senior subordinated notes due February 15, 2019, bearing interest at 7.75%, interest payable semiannually, unsecured and unconditionally guaranteed (including unamortized discount of $1,792 and $0)

     $323,208       $ 200,000   

Senior second lien notes, due July 15, 2014 and redeemed on November 8, 2012, bearing interest at 11.0%, interest payable semiannually, secured by second priority lien on substantially all of our assets (including unamortized discount of $0 and $3,536)

     —           177,428   

Senior secured revolving credit facility, which provides for advances or letters of credit of up to $227,500, due March 18, 2016, bearing interest at LIBOR plus 3.75%, (approximately 3.96% at January 31, 2013 based on one month LIBOR), secured by substantially all of our assets

     141,700         69,600   

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1 due January 1, 2025, dated December 1, 2005, bearing interest at BMA Index (approximately 0.14% at January 31, 2013) enhanced by an irrevocable, transferable direct-pay letter of credit (3.875% at January 31, 2013)

     3,600         3,600   

Finance authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 1, 2025, dated February 1, 2012, bearing interest at 6.25% through January 31, 2017, unsecured and guaranteed by our significant wholly-owned subsidiaires

     21,400         21,400   

Notes payable in connection with businesses acquired, bearing interest at rates of 2.49% - 6.50%, due in monthly or annual installments varying to $575, maturing May 2013 through April 2017

     1,485         2,033   

Capital leases for facilities and equipment, bearing interest rates of 4.50% - 4.72%, due in monthly installments varying to $78, expiring April 2013 through January 2015

     285         548   
  

 

 

    

 

 

 
     491,678         474,609   

Less—current maturities

     992         1,228   
  

 

 

    

 

 

 
   $ 490,686       $ 473,381   
  

 

 

    

 

 

 

 

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6. CONTINGENCIES

 

(a) Legal Proceedings

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

In accordance with ASC 450-20, we accrue for legal proceedings when losses become probable and reasonably estimable. As of the end of each applicable reporting period, we review each of our legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated under the provisions of ASC 450-20-25-2. In instances where we determine that a loss is probable and we can reasonably estimate a range of losses we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate of the possible loss. If we are able to reasonably estimate a range but no amount within the range appears to be a better estimate than any other, we record an accrual in the amount that is the low end of such range. When a loss is reasonably possible, but not probable, we will not record an accrual but we will disclose our estimate of the possible range of loss where such estimate can be made in accordance with ASC 450-20-25-3. As of January 31, 2013, there were no accruals established related to our outstanding legal proceedings.

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

Penobscot Energy Recovery Company Matter

On May 31, 2011, we received formal written notice from the Penobscot Energy Recovery Company (“PERC”) submitting to arbitration what it alleges is a disputed invoice in the amount of approximately $3,195 dated March 2, 2011. PERC contended that Pine Tree Waste, Inc., our subsidiary, failed since 2001 to honor a “put-or-pay” waste disposal arrangement. Arbitration of this matter was initiated, but in January 2012 a global settlement was reached in principle and memorialized in a letter of intent dated February 1, 2012, which documented the final terms of the settlement and dismissal of the arbitration action. The final global settlement documents were executed effective October 1, 2012. Pursuant to the terms of the settlement, we will not be required to make a cash payout. We anticipate that there may be nonmaterial incremental operational expenses that arise from implementing the terms of the settlement with regard to waste deliveries.

New York State Tax Litigation Matter

On January 18, 2011, certain of our subsidiaries doing business in New York State received a Notice of Deficiency (the “Notices”) from the New York State Department of Taxation and Finance asserting liability for corporation franchise tax for one or more of the tax years ended April 30, 2004 through April 30, 2006. The Notices, in the aggregate, assert liability of $3,852, comprising $2,220 of tax and $1,632 of penalties and interest. New York State has alleged that we are not permitted to file a single combined corporation franchise tax return with our subsidiaries for each of the years audited.

We filed Petitions for Redetermination (“Petitions”) with the State of New York Division of Tax Appeals on April 13-14, 2011, and an administrative hearing before a single tax tribunal administrative law judge on all Petitions that was scheduled for December 12, 2012 has been rescheduled to April 17-19, 2013. We expect to aggressively defend against this claim through the administrative adjudication and appeals process and the courts, if necessary. Under ASC 740, we believe our position will more likely than not be successful in contesting the deficiencies and consequently, we have not established any reserve for this matter.

 

(b) Environmental Liability

We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling and power generation facilities may cause to neighboring property owners, particularly as a result of the

 

16


contamination of drinking water sources or soil, possibly including damage resulting from conditions existing before we acquired the facilities. We may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if we or our predecessors arrange or arranged to transport, treat or dispose of those materials.

On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), our 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 preparation of a Remedial Investigation and Feasibility Study (the “Study”). A draft of the Study was submitted to DEC in January 2009 (followed by a final report in May 2009). The Study estimated 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 2014. On February 28, 2011, the DEC issued a Proposal Remedial Action Plan for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to the DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the present cost associated with implementing the preferred remedies would be approximately $12,130. The DEC issued the final ROD in June 2011 with proposed remedies consistent with its earlier ROD. A new Order on Consent and Administrative Settlement naming WSI and NiMo as Respondents was received by us on November 13, 2012, requiring that we enter into a Consent Order with DEC within 60 days and mandating implementation of the ROD. The deadline for execution of the Consent Order has recently been extended until March 27, 2013.

WSI is jointly and severally liable for the total cost to remediate and we initially expected to be responsible for approximately 30% upon implementation of a cost-sharing agreement with NiMo and GM. Based on these estimates, we recorded an environmental remediation charge of $2,823 in the third quarter of fiscal year 2009. In the fourth quarter of fiscal year 2009, we recognized an additional charge of $1,532, representing an additional 15% of the estimated costs, in recognition of the deteriorating financial condition and eventual bankruptcy filing of GM. In the fourth quarter of fiscal year 2010, we recognized an additional charge of $335 based on changes in the expected timing of cash outflows. Based on the estimated costs in the ROD, and changes in the estimated timing of cash flows, we recorded an environmental remediation charge of $549 in the fourth quarter of fiscal year 2011. Such charges could be significantly higher if costs exceed estimates. We inflate these estimated costs in current dollars until the expected time of payment and discount the cost to present value using a risk free interest rate (2.70%). At January 31, 2013 and April 30, 2012, we have recorded liabilities of $5,313 and $5,210, respectively, including the recognition of $34, $34, $103, and $103 of accretion expense in the three and nine months ended January 31, 2013 and 2012, respectively.

In September 2011, the DEC settled its environmental claim against the estate of the former GM (known as the “Motors Liquidation Trust”) for future remediation costs relating to the WSI site for face value of $3,000. In addition, in November 2011 we settled our own claim against the Motors Liquidation Trust for face value of $100. These claims will be paid by GM in warrants to obtain stock of the reorganized GM. We expect the warrants to be issued in fiscal year 2013. We have not assumed that the payment of these claims will reduce our exposure.

 

7. STOCKHOLDERS’ EQUITY

 

(a) Stock Issuance

On October 3, 2012, in a registered public offering we sold 11,500 shares of Class A common stock at an average price of $4.00 per share. The net proceeds received from the registered public offering, after deducting underwriting discounts, commissions and offering expenses, were $42,184 and were used to refinance our Second Lien Notes.

 

(b) Stock Incentive Plans

In May 2012, we granted restricted stock units and performance stock units under the 2006 Stock Incentive Plan (the “2006 Plan”) to certain employees. The vesting of the performance stock units is based on our attainment of a targeted annual return on net assets in fiscal year 2015 and the vesting of the restricted stock units is based on continued employment over a three year period beginning on the grant date. As of January 31, 2013, the performance stock units included in the May 2012 grant could result in the issuance of up to 529 shares of Class A common stock based on the attainment of a targeted maximum annual return on net assets in fiscal year 2015 and the restricted stock units could result in the issuance of an aggregate of up to 264 shares of Class A common stock based on continued employment over the remainder of the three year service period. The performance stock units and the restricted stock units were granted at a grant date fair value of $5.17 per share.

 

17


As of January 31, 2013, we had 1,320 Class A common stock equivalents available for future grant under the 2006 Plan, inclusive of additional Class A common stock equivalents which were previously issued under our terminated plans but which have become available for grant because such awards expired or otherwise resulted in shares not being issued.

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

A summary of stock option activity for the nine months ended January 31, 2013 is as follows:

 

     Stock Options     Weighted
Average
Exercise
Price
 

Outstanding, April 30, 2012

     1,661      $ 10.55   

Granted

     285      $ 4.03   

Exercised

     —        $ —     

Forfeited

     (589   $ 11.43   
  

 

 

   

Outstanding, January 31, 2013

     1,357      $ 8.81   
  

 

 

   

Exercisable, January 31, 2013

     981      $ 10.64   
  

 

 

   

A summary of restricted stock, restricted stock unit and performance stock unit activity for the nine months ended January 31, 2013 is as follows:

 

     Restricted Stock /
Restricted Stock
Units
    Weighted
Average
Grant
Price
     Performance
Stock Units (1)
    Weighted
Average
Grant
Price
 

Outstanding, April 30, 2012

     784      $ 4.47         596      $ 4.96   

Granted

     415      $ 5.02         316      $ 5.17   

Class A Common Stock Vested

     (489   $ 4.01         —        $ —     

Forfeited

     (69   $ 4.82         (166   $ 5.01   
  

 

 

      

 

 

   

Outstanding, January 31, 2013

     641      $ 5.09         746      $ 5.04   
  

 

 

      

 

 

   

 

(1) Performance stock units are included at the 100% attainment level. Attainment of maximum annual returns on net assets could result in the issuance of an additional 435 shares of Class A common stock.

We recorded $232, ($91), $1,486 and $1,222 of stock-based compensation expense (income) related to stock options, performance stock units, restricted stock units and restricted stock, respectively, during the three and nine months ended January 31, 2013 and 2012. We also recorded $22, $33, $75 and $85 of stock-based compensation expense related to our Employee Stock Purchase Plan during the three and nine months ended January 31, 2013 and 2012, respectively.

Stock-based compensation expense is included in general and administration expenses in the unaudited consolidated statements of operations. The unrecognized stock-based compensation expense at January 31, 2013 related to unvested stock options, restricted stock and restricted stock units was $3,017, to be recognized over a weighted average period of 1.70 years. Maximum unrecognized stock-based compensation expense at January 31, 2013 related to outstanding performance stock units, and subject to the attainment of targeted maximum annual returns on net assets, was $5,219, to be recognized over a weighted average period of 1.39 years. The unrecognized stock-based compensation expense that we expect to recognize as of January 31, 2013 related to outstanding performance stock units based on our expected attainment levels was $0.

 

18


Our calculations of stock-based compensation expense associated with stock options and our Employee Stock Purchase Plan for the three and nine months ended January 31, 2013 and 2012 were made using the Black-Scholes valuation model. The fair value of stock options grants and shares to be purchased under our Employee Stock Purchase Plan were estimated assuming no expected dividend yield using the following weighted average assumptions for the three and nine months ended January 31, 2013 and 2012:

 

     Three Months Ended January 31,     Nine Months Ended January 31,  
     2013     2012     2013     2012  

Stock Options:

        

Expected life

     6.79 years        —          6.79 years        —     

Risk-free interest rate

     1.04     0.00     1.04     0.00

Expected volatility

     84.55     0.00     84.55     0.00
     Three Months Ended January 31,     Nine Months Ended January 31,  
     2013     2012     2013     2012  

Employee Stock Purchase Plan:

        

Expected life

     0.5 years        0.5 years        0.5 years        0.5 years   

Risk-free interest rate

     0.12     0.06     0.11     0.12

Expected volatility

     53.09     53.78     43.73     47.54

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. Expected volatility is calculated using the weekly historical volatility of our Class A common stock over the expected life.

The Black-Scholes valuation model requires extensive use of accounting judgment and financial estimation, including estimates of the expected term option holders will retain their vested stock options before exercising them, the estimated volatility of our Class A common stock price over the expected term, and the number of stock 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 unaudited consolidated statements of operations.

 

(c) Noncontrolling Interest

Casella-Altela Regional Environmental Services, LLC (“CARES”) is a joint venture that develops, owns and operates water and leachate treatment projects for the natural gas drilling industry in Pennsylvania and New York. Our joint venture partner in CARES is Altela, Inc. On December 13, 2012, we entered into an agreement with Altela, Inc., which increased our membership interest in CARES from 51% to 66.1% subject to a one-year claw back provision. We recorded an adjustment to reduce the noncontrolling interest by $258 to reflect the change in ownership interest in CARES. We consolidate the assets, liabilities, noncontrolling interest, and results of operations of CARES into our unaudited consolidated financial statements due to our controlling financial interest in the joint venture.

 

19


8. EARNINGS PER SHARE

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

 

     Three Months Ended     Nine Months Ended  
     January 31,     January 31,  
     2013     2012     2013     2012  

Numerator:

        

Loss from continuing operations before discontinued operations attributable to common stockholders

   $ (11,407   $ (24,635   $ (40,747   $ (29,186
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Number of shares outstanding, end of period:

        

Class A common stock

     38,658        25,987        38,658        25,987   

Class B common stock

     988        988        988        988   

Unvested restricted stock

     (134     (127     (134     (127

Effect of weighted average shares outstanding during period

     (282     (26     (7,147     (133
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares used in basic and diluted EPS

     39,230        26,822        32,365        26,715   
  

 

 

   

 

 

   

 

 

   

 

 

 

For the three and nine months ended January 31, 2013 and 2012, 1,998 and 2,576 shares, respectively, of potential common stock related to restricted stock, restricted stock units, performance stock units, and stock options were excluded from the calculation of dilutive shares since we experienced a loss from continuing operations in each fiscal year period and the inclusion of potential shares would be anti-dilutive.

 

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

We use valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of our financial assets and liabilities, we rely on market data or assumptions which we believe market participants would use in pricing an asset or a liability.

Our financial instruments include cash and cash equivalents, trade receivables, restricted trust and escrow accounts, commodity and interest rate derivatives, trade payables and long-term debt. The carrying values of cash and cash equivalents, trade receivables and trade payables approximate their respective fair values. At January 31, 2013, the fair value of our fixed rate debt, including the 2019 Notes and the Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 1, 2025 (the “Converted Bonds”) was approximately $342,349 and the carrying value was $344,608. The fair value of the 2019 Notes is considered to be Level 1 within the fair value hierarchy as the fair value is based off of a quoted market price in an active market. The fair value of the Converted Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined using market approach pricing that utilizes pricing models and pricing systems, mathematical tools and judgment to determine the evaluated price for the security based on the market information of the Converted Bonds or securities with similar characteristics. As of January 31, 2013, the fair value of the 2011 Revolver approximated its carrying value of $141,700 based on current borrowing rates for similar types of borrowing arrangements.

 

20


As of January 31, 2013 our assets and liabilities that are measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at January 31, 2013 Using:  
     Quoted Prices in                
     Active Markets for      Significant Other      Significant  
     Identical Assets      Observable Inputs      Unobservable Inputs  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

        

Restricted assets

   $ 523       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Interest rate derivatives

   $ —         $ 3,871       $ —     
  

 

 

    

 

 

    

 

 

 

As of April 30, 2012 our assets and liabilities that are measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at April 30, 2012 Using:  
     Quoted Prices in                
     Active Markets for      Significant Other      Significant  
     Identical Assets      Observable Inputs      Unobservable Inputs  
     (Level 1)      (Level 2)      (Level 3)  

Assets:

        

Restricted assets

   $ 424       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Interest rate derivatives

   $ —         $ 2,369       $ —     
  

 

 

    

 

 

    

 

 

 

Our strategy to hedge against fluctuations in variable interest rates involves entering into interest rate derivative agreements to hedge against adverse movements in interest rates. In fiscal year 2012, we entered into two forward starting interest rate derivative agreements to hedge the interest rate risk associated with the forecasted financing transaction to redeem our Second Lien Notes effective January 15, 2013. The total notional amount of these agreements is $150,000 and require us to receive interest based on changes in the London Interbank Offered Rate index and pay interest at a rate of approximately 1.40%. The agreements mature on March 15, 2016.

For interest rate derivatives deemed to be effective cash flow hedges, the change in fair value is recorded in our stockholders’ equity as a component of accumulated other comprehensive loss and included in interest expense at the same time as interest expense is affected by the hedged transaction. Differences paid or received over the life of the agreements are recorded as additions to or reductions of interest expense of the underlying debt. For interest rate derivatives deemed to be ineffective cash flow hedges, the change in fair value is recorded through earnings and included in (gain) loss on derivative instruments.

We dedesignated both of the $75,000 forward starting interest rate derivative agreements and discontinued hedge accounting in accordance with ASC 815-30 in the second quarter of fiscal year 2013 because the interest payments associated with the forecasted financing transaction were no longer deemed probable due to the redemption of our Second Lien Notes as discussed in Note 5. We recognized a $3,626 loss, reclassified from accumulated other comprehensive loss, as a loss on derivative instruments in the second quarter of fiscal year 2013.

The fair values of the interest rate derivatives are obtained from third-party counter-parties and adjusted based on the credit risk of our counter-parties and us. We recognize all derivatives on the balance sheet at fair value.

 

10. INCOME TAXES

The benefit for income taxes for the three and nine months ended January 31, 2013 includes a $5,242 deferred tax benefit due to a reduction of the valuation allowance. In determining the need for a valuation allowance, we have assessed the available means of recovering deferred tax assets, including the existence of reversing temporary differences. The valuation allowance decreased due to the recognition of additional reversing temporary differences from the $5,242 deferred tax liability recorded

 

21


through goodwill related to the BBI acquisition. The $5,242 deferred tax liability related to the BBI acquisition was based on the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. The remaining portion of the $3,899 benefit for income taxes for the nine months ending January 31, 2013 and the $1,330 provision for income taxes for the nine months ending January 31, 2012 include $1,176 and $1,085 deferred tax provisions, respectively, due mainly to the increase in the deferred tax liability for indefinite lived assets and a $167 and $245 current tax provision, respectively. Since we cannot determine when the deferred tax liability related to indefinite lived assets will reverse, this amount cannot be used as a future source of taxable income against which to benefit deferred tax assets.

 

11. DEVELOPMENT PROJECT CHARGE

In the second quarter of fiscal year 2012, we recorded a charge of $131 for deferred costs associated with certain development projects no longer deemed viable. As of January 31, 2013 and April 30, 2012, we had $1,554 and $1,163 of deferred costs associated with development projects included in other non-current assets within our unaudited consolidated balance sheets.

 

12. SEVERANCE AND REORGANIZATION

On August 8, 2012, we realigned our operations in order to streamline functions and improve our cost structure. Through the reorganization we have targeted improvements in certain aspects of the sales function to better facilitate customer service and retention, pricing growth, and support of strategic growth initiatives; better aligned transportation, route management and maintenance functions at the local level; and reduced corporate overhead and staff to match organizational needs and reduce costs. We recorded a one-time severance and reorganization charge of $1,793 in the second quarter of fiscal year 2013 with respect to the realignment.

In the three months ended January 31, 2013, we recorded a $1,636 severance charge related primarily to the closing of Maine Energy Recovery Company LP (“Maine Energy”), see Note 13 for further discussion, and a reorganization of senior management. The liability associated with severance and reorganization as of January 31, 2013, which is recorded in other accrued liabilities, is $1,111.

 

13. DIVESTITURE AND DISCONTINUED OPERATIONS

Maine Energy Divestiture

On August 1, 2012, we executed a purchase and sale agreement with the City of Biddeford, Maine pursuant to which we agreed to sell the real property of Maine Energy, which is located in our Eastern region, to the City of Biddeford, subject to satisfaction of conditions precedent and closing. We agreed to sell Maine Energy for undiscounted purchase consideration of $6,650, which shall be paid to us in equal installments over the next 21 years, subject to the terms of the purchase and sale agreement. The transaction closed on November 30, 2012, and we waived certain conditions precedent not satisfied at that time. Effective December 31, 2012, we closed the facility and initiated the decommissioning process in accordance with the provisions of the agreement. Following the decommissioning of Maine Energy, it is our responsibility to demolish the facility, at our cost, within twelve months of the closing date and in accordance with the terms of the purchase and sale agreement. We recorded a charge to loss on divestiture of $353 in the three months ended January 31, 2013 as a result of this transaction.

As a part of the closure and decommissioning of Maine Energy, we are withdrawing from a multiemployer pension plan that we have made contributions to for the benefit of Maine Energy employees covered under a collective bargaining agreement. We have a potential liability associated with our withdrawal from the multiemployer pension plan based on the value of the plan’s unfunded vested benefits. In accordance with ASC 715-80, in a situation with unfunded vested benefits, a liability is not recorded by a participating employer as no single employer has an identifiable share of the actuarial obligation of the multiemployer pension plan.

In accordance with ASC 450-20, we accrue for an obligation when an obligation becomes probable and reasonably estimable. We currently believe that an obligation associated with withdrawal from the multiemployer pension plan is probable, but we cannot reasonably estimate the amount of loss or possible range of loss due to a lack of information being made available by the fund administrator in regards to the unfunded vested benefits. The fund administrator will quantify our withdrawal liability based on the unfunded vested benefits as of the plan year preceding actual withdrawal. As we expect to completely withdraw from the plan in early fiscal year 2014, we expect the plan administrator to base our obligation on the plan year ended January 31, 2013. We expect to record an obligation associated with our portion of unfunded vested benefits in fiscal year 2014. As of January 31, 2013, no accrual is established related to withdrawal from the multiemployer pension plan.

 

22


Discontinued Operations

On January 23, 2011, we entered into a purchase and sale agreement and related agreements to sell non-integrated recycling assets and select intellectual property assets to a new company (the “Purchaser”) formed by Pegasus Capital Advisors, L.P. and Intersection LLC. Pursuant to these agreements, we divested non-integrated recycling assets located outside our core operating regions of New York, Massachusetts, Vermont, New Hampshire, Maine and northern Pennsylvania, including 17 material recovery facilities (“MRFs”), one transfer station and certain related intellectual property assets. Following the transaction, we retained four integrated MRFs located in our core operating regions. As a part of the disposition, we also entered into a ten-year commodities marketing agreement with the Purchaser to market 100% of the tonnage from three of our remaining integrated MRFs.

We completed the transaction on March 1, 2011 for $134,195 in gross cash proceeds. This included an estimated $3,795 working capital and other purchase price adjustment, which was subject to further adjustment, as defined in the purchase and sale agreement. The final working capital adjustment, along with additional legal expenses related to the transaction, of $646 was recorded to gain on disposal of discontinued operations, net of income taxes in the first quarter of fiscal year 2012.

In the second quarter of fiscal year 2012, we recorded an additional working capital adjustment of $79 to gain on disposal of discontinued operations, net of income taxes, which related to our subsequent collection of receivable balances that were released to us for collection by the Purchaser.

 

14. SEGMENT REPORTING

We report selected information about operating segments in a manner consistent with that used for internal management reporting. We classify our solid waste operations on a geographic basis through regional operating segments. Revenues are derived mainly from collection, transfer, disposal, landfill, landfill-gas-to energy, recycling and organic services in the northeastern United States. Our revenues in the Recycling segment are derived from municipalities and customers in the form of processing fees, tipping fees and commodity sales. Ancillary operations, major customer accounts, discontinued operations, and earnings from equity method investees are included in our “Other” reportable segment. Segment data for the three and nine months ended January 31, 2012 has been revised to properly align with internal management reporting.

 

23


Three Months Ended January 31, 2013

 

  

    

Segment

   Outside
revenues
     Inter-company
revenue (1)
    Depreciation and
amortization
     Operating
income (loss)
    Total assets  

Eastern

   $ 43,777       $ 7,553      $ 5,699       $ (3,156   $ 206,885   

Western

     51,165         16,729        6,989         4,268        362,092   

Recycling

     9,904         (9     1,039         (23     51,700   

Other

     10,156         34        318         (1,141     52,476   

Eliminations

     —           (24,307     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 115,002       $ —        $ 14,045       $ (52   $ 673,153   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Three Months Ended January 31, 2012

 

            

Segment

   Outside
revenues
     Inter-company
revenue (1)
    Depreciation and
amortization
     Operating
income (loss)
    Total assets  

Eastern

   $ 42,208       $ 7,818      $ 6,272       $ (975   $ 213,058   

Western

     50,746         16,274        6,922         5,354        345,371   

Recycling

     10,872         (75     1,074         562        56,844   

Other

     10,752         821        559         (521     59,096   

Eliminations

     —            (24,838     —           —          —      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 114,578       $ —        $ 14,827       $ 4,420      $ 674,369   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Nine Months Ended January 31, 2013

 

            

Segment

   Outside
revenues
     Inter-company
revenue (1)
    Depreciation and
amortization
     Operating
income (loss)
    Total assets  

Eastern

   $ 134,726       $ 24,087      $ 18,177       $ (4,299   $ 206,885   

Western

     159,879         52,206        20,889         17,762        362,092   

Recycling

     29,308         (72     3,158         (422     51,700   

Other

     32,618         1,300        1,209         (2,967     52,476   

Eliminations

     —            (77,521     —           —          —      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 356,531       $ —        $ 43,433       $ 10,074      $ 673,153   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Nine Months Ended January 31, 2012

 

            

Segment

   Outside
revenues
     Inter-company
revenue (1)
    Depreciation and
amortization
     Operating
income (loss)
    Total assets  

Eastern

   $ 132,158       $ 27,111      $ 18,301       $ (87   $ 213,058   

Western

     167,154         55,395        21,652         24,175        345,371   

Recycling

     37,595         (179     2,935         4,905        56,844   

Other

     34,730         1,897        1,506         (2,690     59,096   

Eliminations

     —            (84,224     —           —          —      
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 371,637       $ —        $ 44,394       $ 26,303      $ 674,369   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

1) Inter-company revenues reflect transactions with and between segments that are generally made on a basis intended to reflect the market value of such services.

 

24


Amounts of our total revenue attributable to services provided are as follows:

 

     Three Months Ended January 31      Nine Months Ended January 31,  
     2013      2012      2013      2012  

Collection

   $ 51,459       $ 48,875       $ 157,124       $ 157,265   

Disposal

     27,219         30,220         90,569         96,645   

Power generation

     3,400         3,182         8,856         9,415   

Processing and organics

     14,469         12,231         43,378         40,961   
  

 

 

    

 

 

    

 

 

    

 

 

 

Solid waste operations

     96,547         94,508         299,927         304,286   

Major accounts

     8,551         9,198         27,296         29,756   

Recycling

     9,904         10,872         29,308         37,595   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 115,002       $ 114,578       $ 356,531       $ 371,637   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

15. INVESTMENTS IN UNCONSOLIDATED ENTITIES

Equity Method Investments

GreenFiber. We entered into a joint venture agreement in July 2000 with Louisiana-Pacific Corporation (“LP”) to combine our respective cellulose insulation businesses into a single operating entity, US GreenFiber LLC (“GreenFiber”). We account for our 50% membership interest in GreenFiber using the equity method of accounting.

In April 2011, we issued a guaranty in support of GreenFiber’s amended and restated loan and security agreement. The guaranty can be drawn on upon an event of default and remains in place through December 1, 2014, the extended term of GreenFiber’s modified and restated loan and security agreement. Our guaranty associated with the credit facility is $2,200 as of January 31, 2013. The fair value of our guaranty as of January 31, 2013, which is recorded in other long-term liabilities, is $264.

As of December 31, 2011, GreenFiber performed a test for goodwill impairment. The goodwill impairment analysis indicated that the carrying value of their reporting unit exceeded the fair value of their reporting unit, and GreenFiber determined that the entire amount of their goodwill was impaired. Consequently, we recorded our portion of the goodwill impairment charge of $5,090 as a part of the loss on equity method investment in the third quarter of fiscal year 2012.

Based on the analysis performed, we determined that the current book value of our investment in GreenFiber at that time exceeded its fair value. The analysis calculated GreenFiber’s fair value based on the income approach using discounted cash flows taking into account current expectations for asset utilization, housing starts and the remaining useful life of related assets. We recorded a charge of $10,680 as an impairment on equity method investment in the third quarter of fiscal year 2012.

In May 2012, we and LP made identical commitments to fund any liquidity shortfalls of GreenFiber related to covenant compliance as defined in and through the term of GreenFiber’s modified and restated loan and security agreement. Based on the terms of this agreement, in May 2012, we and LP made identical equity contributions to GreenFiber of $500 to cure such shortfall.

Our investment in GreenFiber amounted to $2,638 and $6,502 at January 31, 2013 and April 30, 2012, respectively. Summarized financial information for GreenFiber is as follows:

 

     January 31,
2013
     April 30,
2012
 

Current assets

   $ 15,470       $ 17,513   

Noncurrent assets

   $ 30,246       $ 34,597   

Current liabilities

   $ 14,406       $ 12,815   

Noncurrent liabilities

   $ 5,126       $ 5,382   

 

25


     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2013     2012     2013     2012  

Revenue

   $ 17,608      $ 23,460      $ 50,203      $ 61,317   

Gross profit (loss)

   $ 3,638      $ (5,597   $ 9,538      $ (2,082

Net loss

   $ (2,785   $ (12,818   $ (6,651   $ (20,382

Tompkins. In May 2011, we finalized the terms of a joint venture agreement with FCR, LLC (“FCR”) to form Tompkins County Recycling LLC (“Tompkins”), a joint venture that operates a MRF located in Tompkins County, NY and processes and sells commodities delivered to the Tompkins MRF. In connection with the formation of the joint venture, we acquired a 50% membership interest in Tompkins in exchange for an initial cash contribution to Tompkins of $285. FCR made an initial cash contribution of $285 as well, and acquired a 50% membership interest in Tompkins. Income and losses are allocated to members based on membership interest percentage. Our investment in Tompkins amounted to $307 and $292 at January 31, 2013 and April 30, 2012, respectively. We account for our 50% membership interest in Tompkins using the equity method of accounting.

Cost Method Investments

Evergreen. Our investment and ownership interest in Evergreen National Indemnity Company, a surety company which provides surety bonds to us and other parties, amounted to $10,657 and 19.9%, as of January 31, 2013 and April 30, 2012.

RecycleRewards. Our investment and ownership interest in RecycleRewards, Inc., a company that markets an incentive based recycling service, amounted to $4,479 and 6.0% as of January 31, 2013 and $4,479 and 6.2% as of April 30, 2012.

AGreen. In May 2011, we entered into a renewable energy project operating agreement with AGreen Energy LLC (“AGreen”). As a part of the agreement, we provide certain operation, maintenance and administrative services, as well as procure organic materials that would otherwise be disposed of to small farm-based biogas renewable energy projects that produce renewable energy and other valuable products and services. Our investment and membership interest in AGreen amounted to $350 and 11.9% as of January 31, 2013 and April 30, 2012.

GreenerU . In March 2012, we entered into a strategic partnership agreement with GreenerU, Inc. (“GreenerU”), a company that delivers energy and sustainability solutions to the college, university and preparatory school markets in order to reduce their energy costs and carbon emissions through the formulation of programs and policies and the running of renewable energy projects. As a part of the agreement, we work with GreenerU to formulate compelling offers and approaches for colleges, universities and preparatory schools in the area of waste, recycling, energy, composting, resource conservation and other appropriate sustainability initiatives. In the first quarter of fiscal year 2013, we made a $500 investment in GreenerU through the purchase of preferred stock, bringing our investment and ownership interest in GreenerU to $1,000 and 6.3% as of January 31, 2013. Our investment and ownership interest in GreenerU was $500 and 4.2% as of April 30, 2012.

 

16. SUBSIDIARY GUARANTORS

Our 2019 Notes are guaranteed jointly and severally, fully and unconditionally, by our significant wholly-owned subsidiaries. The Parent is the issuer and a non-guarantor of the 2019 Notes and the Parent has no independent assets or operations. The information which follows presents the condensed consolidating financial position as of January 31, 2013 and April 30, 2012, the consolidating results of operations and comprehensive loss for the three and nine months ended January 31, 2013 and 2012, and the condensed consolidating statements of cash flows for the nine months ended January 31, 2013 and 2012 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 consolidated total.

 

26


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JANUARY 31, 2013

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

 

ASSETS

   Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

CURRENT ASSETS:

          

Cash and cash equivalents

   $ 820      $ 227      $ 65      $ —        $ 1,112   

Accounts receivable - trade, net of allowance for doubtful accounts

     229        49,756        440        —          50,425   

Prepaid expenses

     3,308        5,653        —          —          8,961   

Other current assets

     4,831        4,419        65        —          9,315   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     9,188        60,055        570        —          69,813   

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

     3,024        416,934        8,494        —          428,452   

Goodwill

     —          116,281        —          —          116,281   

Intangible assets

     272        11,707        —          —          11,979   

Notes receivable - related party/employee

     516        —          —          —          516   

Investments in unconsolidated entities

     16,486        2,239        2,638        (1,932     19,431   

Investments in subsidiaries

     (47,081     —          —          47,081        —     

Other non-current assets

     15,010        11,671        —          —          26,681   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (11,773     558,832        11,132        45,149        603,340   

Intercompany receivable

     577,898        (539,265     (40,565     1,932        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 575,313      $ 79,622      $ (28,863   $ 47,081      $ 673,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

CURRENT LIABILITIES:

          

Current maturities of long-term debt and capital leases

   $ 37      $ 955      $ —         $ —         $ 992   

Current maturities of financing lease obligations

     —          355        —          —          355   

Accounts payable

     22,111        24,754        830        —          47,695   

Accrued interest

     12,691        11        —          —          12,702   

Current accrued capping, closure and post-closure costs

     —          4,903        —          —          4,903   

Other current liabilities

     14,790        16,849        305        —          31,944   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     49,629        47,827        1,135        —          98,591   

Long-term debt and capital leases, less current maturities

     489,908        778        —          —          490,686   

Financing lease obligations, less current maturities

     —          1,549        —          —          1,549   

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

     —          37,637        44        —          37,681   

Other long-term liabilities

     11,529        6,182        —          —          17,711   

STOCKHOLDERS’ EQUITY:

          

Casella Waste Systems, Inc. stockholders’ equity:

          

Class A common stock -
Authorized - 100,000,000 shares, $0.01 par value per share, issued and outstanding - 38,658,000 shares

     387        100        —          (100     387   

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   

Additional paid-in capital

     335,451        45,391        5,608        (50,999     335,451   

Accumulated deficit

     (310,982     (59,851     (37,710     97,561        (310,982

Accumulated other comprehensive income (loss)

     (619     9        (628     619        (619
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Casella Waste Systems, Inc. stockholders’ equity

     24,247        (14,351     (32,730     47,081        24,247   

Noncontrolling interest

     —          —          2,688        —          2,688   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

     24,247        (14,351     (30,042     47,081        26,935   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 575,313      $ 79,622      $ (28,863   $ 47,081      $ 673,153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

27


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2012

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

 

                Non -              

ASSETS

  Parent     Guarantors     Guarantors     Elimination     Consolidated  

CURRENT ASSETS:

         

Cash and cash equivalents

  $ 3,799      $ 368      $ 367      $ —        $ 4,534   

Accounts receivable - trade, net of allowance for doubtful accounts

    652        46,820        —          —          47,472   

Refundable income taxes

    1,281        —          —          —          1,281   

Deferred income taxes

    3,712        —          —          —          3,712   

Other current assets

    1,903        8,454        —          —          10,357   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    11,347        55,642        367        —          67,356   

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

    3,486        409,383        3,848        —          416,717   

Goodwill

    —          101,706        —          —          101,706   

Intangible assets

    340        2,630        —          —          2,970   

Restricted assets

    —          424        —          —          424   

Notes receivable - related party/employee

    722        —          —          —          722   

Investments in unconsolidated entities

    15,986        2,225        6,502        (1,932     22,781   

Investments in subsidiaries

    (34,443     —          —          34,443        —     

Other non-current assets

    15,056        6,011        —          —          21,067   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    1,147        522,379        10,350        32,511        566,387   

Intercompany receivable

    532,950        (494,819     (40,063     1,932        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 545,444      $ 83,202      $ (29,346   $ 34,443      $ 633,743   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                Non -              

LIABILITIES AND STOCKHOLDERS’ EQUITY

  Parent     Guarantors     Guarantors     Elimination     Consolidated  

CURRENT LIABILITIES:

         

Current maturities of long-term debt and capital leases

  $ 142      $ 1,086      $ —        $ —        $ 1,228   

Current maturities of financing lease obligations

    —          338        —          —          338   

Accounts payable

    21,952        24,757        —          —          46,709   

Current accrued capping, closure and post-closure costs

    —          4,907        —          —          4,907   

Other current liabilities

    23,738        10,872        543        —          35,153   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    45,832        41,960        543        —          88,335   

Long-term debt and capital leases, less current maturities

    472,028        1,353        —          —          473,381   

Financing lease obligations, less current maturities

    —          1,818        —          —          1,818   

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

    —          34,681        41        —          34,722   

Other long-term liabilities

    11,153        6,103        —          —          17,256   

STOCKHOLDERS’ EQUITY:

         

Casella Waste Systems, Inc. stockholders’ equity:

         

Class A common stock -
Authorized - 100,000,000 shares, $ 0.01 par value per share, issued and outstanding - 25,991,000 shares

    260        100        —          (100     260   

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   

Additional paid-in capital

    288,348        46,279        1,998        (48,277     288,348   

Accumulated deficit

    (270,235     (49,097     (34,140     83,237        (270,235

Accumulated other comprehensive income (loss)

    (1,952     5        412        (417     (1,952
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Casella Waste Systems, Inc. stockholders’ equity

    16,431        (2,713     (31,730     34,443        16,431   

Noncontrolling interest

    —          —          1,800        —          1,800   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    16,431        (2,713     (29,930     34,443        18,231   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 545,444      $ 83,202      $ (29,346   $ 34,443      $ 633,743   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JANUARY 31, 2013

(in thousands)

 

     Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 114,299      $ 703      $ —        $ 115,002   

Operating expenses:

          

Cost of operations

     12        83,487        669        —          84,168   

General and administration

     705        13,748        27        —          14,480   

Depreciation and amortization

     236        13,629        180        —          14,045   

Severance and reorganization costs

     81        1,555        —          —          1,636   

Expense from divestiture, acquisition and financing costs

     —          372        —          —          372   

Loss on divestiture

     —          353        —          —          353   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,034        113,144        876        —          115,054   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,034     1,155        (173     —          (52

Other expense (income), net:

          

Interest income

     (8,275     (49     —          8,274        (50

Interest expense

     9,422        8,259        —          (8,274     9,407   

Loss (income) from equity method investments

     8,480        43        1,393        (8,480     1,436   

Loss (gain) on derivative instruments

     (24     —          —          —          (24

Loss on debt extinguishment

     5,914        —          —          —          5,914   

Other income

     (181     (117     —          —          (298
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     15,336        8,136        1,393        (8,480     16,385   

Income (loss) from continuing operations before income taxes

     (16,370     (6,981     (1,566     8,480        (16,437

Provision (benefit) for income taxes

     (4,963     —          —          —          (4,963
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (11,407     (6,981     (1,566     8,480        (11,474
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interest

     —          —          (67     —          (67

Net income (loss) attributable to common stockholders

   $ (11,407   $ (6,981   $ (1,499   $ 8,480      $ (11,407
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JANUARY 31, 2012

(in thousands)

 

     Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 114,578      $ —        $ —        $ 114,578   

Operating expenses:

          

Cost of operations

     20        81,377        1        —          81,398   

General and administration

     8        13,924        1        —          13,933   

Depreciation and amortization

     367        14,460        —          —          14,827   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     395        109,761        2        —          110,158   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (395     4,817        (2     —          4,420   

Other expense/(income), net:

          

Interest income

     (9,798     (19     —          9,797        (20

Interest expense

     11,523        9,802        —          (9,797     11,528   

Loss (income) from equity method investments

     21,940        (26     6,409        (21,940     6,383   

Impairment of equity method investment

     —          —          10,680        —          10,680   

Other income

     (26     (91     —          —          (117
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     23,639        9,666        17,089        (21,940     28,454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (24,034     (4,849     (17,091     21,940        (24,034

Provision (benefit) for income taxes

     601        —          —          —          601   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (24,635   $ (4,849   $ (17,091   $ 21,940      $ (24,635
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED JANUARY 31, 2013

(in thousands)

 

     Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 355,383      $ 1,148      $ —        $ 356,531   

Operating expenses:

          

Cost of operations

     4        253,119        1,294        —          254,417   

General and administration

     (60     43,791        57        —          43,788   

Depreciation and amortization

     770        42,422        241        —          43,433   

Severance and reorganization costs

     1,766        1,697        —          —          3,463   

Expense from divestiture, acquisition and financing costs

     303        700        —          —          1,003   

Loss on divestiture

     —          353        —          —          353   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,783        342,082        1,592        —          346,457   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,783     13,301        (444     —          10,074   

Other expense (income), net:

          

Interest income

     (24,515     (64     —          24,511        (68

Interest expense

     33,000        24,469        —          (24,511     32,958   

Loss (income) from equity method investments

     14,324        (14     3,325        (14,324     3,311   

Loss (gain) on derivative instruments

     3,871        —          —            3,871   

Loss on debt extinguishment

     15,584        —          —          —          15,584   

Other income

     (401     (336     —          —          (737
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     41,863        24,055        3,325        (14,324     54,919   

Income (loss) from continuing operations before income taxes

     (44,646     (10,754     (3,769     14,324        (44,845

Provision (benefit) for income taxes

     (3,899     —          —          —          (3,899
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (40,747     (10,754     (3,769     14,324        (40,946
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interest

     —          —          (199     —          (199

Net income (loss) attributable to common stockholders

   $ (40,747   $ (10,754   $ (3,570   $ 14,324      $ (40,747
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

31


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

NINE MONTHS ENDED JANUARY 31, 2012

(in thousands)

 

     Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 371,637      $ —        $ —        $ 371,637   

Operating expenses:

          

Cost of operations

     49        253,196        3        —          253,248   

General and administration

     421        45,780        1        —          46,202   

Depreciation and amortization

     1,041        43,353        —          —          44,394   

Legal settlement

     1,000        359        —          —          1,359   

Development project cost

     —          131        —          —          131   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2,511        342,819        4        —          345,334   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,511     28,818        (4     —          26,303   

Other expense (income), net:

          

Interest income

     (29,514     (26     —          29,508        (32

Interest expense

     33,982        29,423        —          (29,508     33,897   

Loss (income) from equity method investments

     20,385        (27     10,190        (20,385     10,163   

Impairment of equity method investment

     —          —          10,680        —          10,680   

Other income

     (233     (316     —          —          (549
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     24,620        29,054        20,870        (20,385     54,159   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (27,131     (236     (20,874     20,385        (27,856

Provision (benefit) for income taxes

     1,330        —          —          —          1,330   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (28,461     (236     (20,874     20,385        (29,186
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Discontinued operations:

          

Gain on disposal of discontinued operations, net of tax

     —          725        —          —          725   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (28,461   $ 489      $ (20,874   $ 20,385      $ (28,461
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

32


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED JANUARY 31, 2013

(in thousands)

 

     Parent     Guarantors     Non -
Guarantors
    Elimination      Consolidated  

Net income (loss)

   $ (11,407   $ (6,981   $ (1,566   $ 8,480       $ (11,474

Other comprehensive income (loss), net of taxes:

           

Unrealized gain (loss) resulting from changes in fair value of derivative instruments, net of tax provision of $0

     —          —          (11     —           (11

Realized loss (gain) on derivative instruments reclassified into earnings, net of tax provision of $0

     —          —          149        —           149   

Unrealized gain (loss) resulting from changes in fair value of marketable securities

     —          (11     —          —           (11
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss)

     —          (11     138        —           127   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)

     (11,407     (6,992     (1,428     8,480         (11,347

Less: Comprehensive income (loss) attributable to noncontrolling interest

     —          —          (67     —           (67
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (11,407   $ (6,992   $ (1,361   $ 8,480       $ (11,280
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

33


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED JANUARY 31, 2012

(in thousands)

 

    Parent     Guarantors     Non -
Guarantors
    Elimination     Consolidated  

Net income (loss) attributable to common stockholders

  $ (24,635   $ (4,849   $ (17,091   $ 21,940      $ (24,635

Other comprehensive income (loss), net of taxes:

         

Unrealized gain (loss) resulting from changes in fair value of derivative instruments, net of tax provision of $0

    (2,474     —          493        —          (1,981

Realized loss (gain) on derivative instruments reclassified into earnings, net of tax provision of $0

    —          —          109        —          109   

Unrealized gain (loss) resulting from changes in fair value of marketable securities

    —          (16     —          —          (16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

    (2,474     (16     602        —          (1,888
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

  $ (27,109   $ (4,865   $ (16,489   $ 21,940      $ (26,523
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

34


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

NINE MONTHS ENDED JANUARY 31, 2013

(in thousands)

 

     Parent     Guarantors     Non -
Guarantors
    Elimination      Consolidated  

Net income (loss)

   $ (40,747   $ (10,754   $ (3,769   $ 14,324       $ (40,946

Other comprehensive income (loss), net of taxes:

           

Unrealized gain (loss) resulting from changes in fair value of derivative instruments, net of tax provision of $0

     (1,257     —          (1,553     —           (2,810

Realized loss (gain) on derivative instruments reclassified into earnings, net of tax provision of $0

     3,625        —          514        —           4,139   

Unrealized gain (loss) resulting from changes in fair value of marketable securities

     —          4        —          —           4   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss)

     2,368        4        (1,039     —           1,333   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)