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, 2014

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 14, 2014:

 

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

     39,049,818   

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

(in thousands)

 

     January 31,
2014
     April 30,
2013
 
     (Unaudited)         
ASSETS      

CURRENT ASSETS:

     

Cash and cash equivalents

   $ 2,712       $ 1,755   

Restricted cash

     76         76   

Accounts receivable - trade, net of allowance for doubtful accounts of $2,437 and $1,332

     50,330         48,689   

Refundable income taxes

     608         128   

Prepaid expenses

     8,149         5,711   

Inventory

     4,396         3,494   

Deferred income taxes

     3,149         3,730   

Other current assets

     1,844         901   

Current assets of discontinued operations

     353         61   
  

 

 

    

 

 

 

Total current assets

     71,617         64,545   

Property, plant and equipment, net of accumulated depreciation and amortization of $684,168 and $645,567

     420,769         422,502   

Goodwill

     119,064         115,928   

Intangible assets, net

     14,172         11,674   

Restricted assets

     675         545   

Notes receivable - related party

     —           147   

Investments in unconsolidated entities

     16,752         20,252   

Other non-current assets

     24,830         27,526   

Non-current assets of discontinued operations

     1,563         —     
  

 

 

    

 

 

 

Total assets

   $ 669,442       $ 663,119   
  

 

 

    

 

 

 

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

 

1


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

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

 

     January 31,
2014
    April 30,
2013
 
     (Unaudited)        
LIABILITIES AND STOCKHOLDERS’ EQUITY     

CURRENT LIABILITIES:

    

Current maturities of long-term debt and capital leases

   $ 434      $ 857   

Current maturities of financing lease obligations

     380        361   

Accounts payable

     41,999        51,974   

Accrued payroll and related expenses

     4,321        3,983   

Accrued interest

     12,943        6,074   

Current accrued capping, closure and post-closure costs

     5,714        3,835   

Other accrued liabilities

     19,865        21,014   
  

 

 

   

 

 

 

Total current liabilities

     85,656        88,098   

Long-term debt and capital leases, less current maturities

     509,759        493,531   

Financing lease obligations, less current maturities

     1,169        1,456   

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

     41,220        39,335   

Deferred income taxes

     7,108        6,798   

Other long-term liabilities

     18,117        18,450   

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ EQUITY:

    

Casella Waste Systems, Inc. stockholders’ equity:

    

Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 39,049,000 and 38,662,000 shares issued and outstanding as of January 31, 2014 and April 30, 2013, respectively

     390        387   

Class B convertible common stock, $0.01 par value per share; 1,000,000 shares authorized; 988,000 shares issued and outstanding, 10 votes per share, as of January 31, 2014 and April 30, 2013, respectively

     10        10   

Additional paid-in capital

     337,946        335,857   

Accumulated deficit

     (335,658     (324,377

Accumulated other comprehensive income (loss)

     38        (592
  

 

 

   

 

 

 

Total Casella Waste Systems, Inc. stockholders’ equity

     2,726        11,285   

Noncontrolling interests

     3,687        4,166   
  

 

 

   

 

 

 

Total stockholders’ equity

     6,413        15,451   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 669,442      $ 663,119   
  

 

 

   

 

 

 

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

 

2


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Revenues

   $ 117,852      $ 112,167      $ 378,706      $ 346,641   

Operating expenses:

        

Cost of operations

     87,602        81,436        266,565        244,867   

General and administration

     15,361        14,328        46,864        43,401   

Depreciation and amortization

     14,396        13,964        45,261        43,244   

Development project charge

     1,440        —          1,440        —     

Environmental remediation charge

     250        —          400        —     

Expense from divestiture, acquisition and financing costs

     101        372        126        1,003   

Severance and reorganization costs

     —          1,636        161        3,463   

Loss on divestiture

     —          353        —          353   
  

 

 

   

 

 

   

 

 

   

 

 

 
     119,150        112,089        360,817        336,331   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1,298     78        17,889        10,310   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income):

        

Interest income

     (109     (50     (222     (68

Interest expense

     9,568        9,209        28,562        32,415   

Loss from equity method investments

     112        1,436        998        3,311   

Gain on sale of equity method investment

     (593     —          (593     —     

Loss (gain) on derivative instruments

     233        (24     208        3,871   

Loss on debt extinguishment

     —          5,914        —          15,584   

Other income

     (132     (298     (662     (737
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     9,079        16,187        28,291        54,376   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes and discontinued operations

     (10,377     (16,109     (10,402     (44,066

Provision (benefit) for income taxes

     656        (4,963     1,275        (3,899
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before discontinued operations

     (11,033     (11,146     (11,677     (40,167

Discontinued operations:

        

(Loss) income from discontinued operations (net of income tax provision of $0, $0, $0 and $0)

     —          (328     284        (779

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

     —          —          (378     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

     (11,033     (11,474     (11,771     (40,946
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net loss attributable to noncontrolling interests

     (283     (67     (490     (199
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss attributable to common stockholders

   $ (10,750   $ (11,407   $ (11,281   $ (40,747
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(in thousands, except for per share data)

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Amounts attributable to common stockholders:

        

Loss from continuing operations before discontinued operations

   $ (10,750   $ (11,079   $ (11,187   $ (39,968

(Loss) income from discontinued operations, net of tax

     —          (328     284        (779

Loss on disposal of discontinued operations, net of tax

     —          —          (378     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (10,750   $ (11,407   $ (11,281   $ (40,747
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted earnings per share:

        

Loss from continuing operations before discontinued operations

   $ (0.27   $ (0.28   $ (0.28   $ (1.23

(Loss) income from discontinued operations, net of tax

     —          (0.01     0.01        (0.03

Loss on disposal of discontinued operations, net of tax

     —          —          (0.01     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share

   $ (0.27   $ (0.29   $ (0.28   $ (1.26
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     39,882        39,230        39,789        32,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

4


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS

(Unaudited)

(in thousands)

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Net loss

   $ (11,033   $ (11,474   $ (11,771   $ (40,946

Other comprehensive income (loss), net of taxes:

        

Unrealized income (loss) resulting from changes in fair value of derivative instruments

     533        (11     (35     (2,810

Realized loss on derivative instruments reclassified into earnings

     310        149        655        4,139   

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

     (8     (11     10        4   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     835        127        630        1,333   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

     (10,198     (11,347     (11,141     (39,613

Less: Comprehensive loss attributable to noncontrolling interests

     (283     (67     (490     (199
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss attributable to common stockholders

   $ (9,915   $ (11,280   $ (10,651   $ (39,414
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands)

 

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

Balance, April 30, 2013

   $ 15,451        38,662       $ 387         988       $ 10       $ 335,857       $ (324,377   $ (592   $ 4,166   

Net loss

     (11,771     —           —           —           —           —           (11,281     —          (490

Other comprehensive income

     630        —           —           —           —           —           —          630        —     

Issuances of Class A common stock

     241        387         3         —           —           238         —          —          —     

Stock-based compensation and related severance expense

     1,851        —           —           —           —           1,851         —          —          —     

Contributions from noncontrolling interest holders

     11        —           —           —           —           —           —          —          11   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, January 31, 2014

   $ 6,413        39,049       $ 390         988       $ 10       $ 337,946       $ (335,658   $ 38      $ 3,687   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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

 

6


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

     Nine Months Ended
January 31,
 
     2014     2013  

Cash Flows from Operating Activities:

    

Net loss

   $ (11,771   $ (40,946

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

    

(Income) loss from discontinued operations, net of tax

     (284     779   

Loss on disposal of discontinued operations, net of tax

     378        —     

Gain on sale of property and equipment

     (608     (408

Depreciation and amortization

     45,261        43,244   

Depletion of landfill operating lease obligations

     7,710        7,358   

Interest accretion on landfill and environmental remediation liabilities

     3,084        2,756   

Loss on divestiture

     —          353   

Development project charge

     1,440        —     

Amortization of discount on second lien notes and senior subordinated notes

     180        568   

Loss from equity method investments

     998        3,311   

Gain on sale of equity method investment

     (593     —     

Loss on derivative instruments

     208        3,871   

Loss on debt extinguishment

     —          15,584   

Stock-based compensation and related severance expense

     1,851        1,840   

Excess tax benefit on the vesting of share based awards

     —          (98

Deferred income taxes

     1,088        (4,057

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

    

Accounts receivable

     (1,135     (1,544

Accounts payable

     (9,975     (110

Prepaid expenses, inventories and other assets

     (2,730     (645

Accrued expenses and other liabilities

     2,576        (685
  

 

 

   

 

 

 

Net cash provided by operating activities

     37,678        31,171   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Acquisitions, net of cash acquired

     (8,519     (25,106

Additions to property, plant and equipment - acquisition

     (2,440     (528

          - growth

     (4,309     (10,356

          - maintenance

     (29,922     (32,432

Payments on landfill operating lease contracts

     (6,052     (5,726

Payment for capital related to divestiture

     —          (618

Investments in unconsolidated entities

     (2,107     (1,000

Proceeds from sale of equity method investment

     2,845        —     

Proceeds from sale of property and equipment

     1,248        781   
  

 

 

   

 

 

 

Net cash used in investing activities

     (49,256     (74,985
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from long-term borrowings

     120,890        334,497   

Principal payments on long-term debt

     (107,834     (320,483

Payment of tender premium and costs on second lien notes

     —          (10,743

Payments of financing costs

     (404     (4,572

Net proceeds from the sale of Class A common stock

     —          42,184   

Excess tax benefit on the vesting of share based awards

     —          98   

Contributions from noncontrolling interest holders

     —          1,195   
  

 

 

   

 

 

 

Net cash provided by financing activities

     12,652        42,176   
  

 

 

   

 

 

 

Discontinued Operations:

    

Net cash used in operating activities

     (201     (645

Net cash provided by (used in) investing activities

     84        (1,139
  

 

 

   

 

 

 

Net cash used in discontinued operations

     (117     (1,784
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     957        (3,422

Cash and cash equivalents, beginning of period

     1,755        4,534   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 2,712      $ 1,112   
  

 

 

   

 

 

 

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

 

7


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

     Nine Months Ended
January 31,
 
     2014      2013  

Supplemental Disclosures of Cash Flow Information:

     

Cash paid during the period for:

     

Interest

   $ 19,506       $ 26,390   

Income taxes, net of refunds

   $ 649       $ 97   

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

     

Summary of entities acquired in purchase business combinations:

     

Fair value of net assets acquired

   $ 9,996       $ 27,936   

Common stock issued

     —           2,650   

Other non-cash consideration

     483         —     

Cash paid, net of cash acquired

     8,490         25,106   
  

 

 

    

 

 

 

Holdbacks to sellers and contingent consideration

   $ 1,023       $ 180   
  

 

 

    

 

 

 

Property, plant and equipment acquired through lease obligations

   $ 2,301       $ —     
  

 

 

    

 

 

 

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

 

8


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except for per share data)

 

1. BASIS OF PRESENTATION

Casella Waste Systems, Inc. (“Parent”), its wholly-owned subsidiaries and certain partially owned entities over which it has a controlling financial interest (collectively, “we”, “us” or “our”), is 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 provides a full range of solid waste services, and our larger-scale recycling and commodity brokerage operations through our Recycling segment. Organics services, ancillary operations, major customer accounts, discontinued operations and earnings from equity method investees are included in our Other segment.

The consolidated financial statements as of January 31, 2014 and for the three and nine months ended January 31, 2014 and 2013 are unaudited. The accompanying unaudited consolidated financial statements, which include the accounts of the Parent, its wholly-owned subsidiaries and certain partially owned entities over which it has a controlling financial interest, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All intercompany accounts and transactions are eliminated in consolidation. Investments in entities in which we do not have a controlling financial interest are accounted for under either the equity method or cost method of accounting, as appropriate. Assets and liabilities of discontinued operations and assets held-for-sale are segregated from those of continuing operations and reported in separate captions in the balance sheet, as applicable. The results of operations that have been disposed of or classified as held-for-sale and qualify for discontinued operations accounting are reported in discontinued operations, as applicable. 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, 2013, which was filed with the SEC on June 27, 2013.

Preparation of our unaudited consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision given the available data or simply cannot be readily calculated. In the opinion of management, these unaudited consolidated financial statements include all adjustments, which include normal recurring and nonrecurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Interim results may not be indicative of the results for any other interim period or the entire fiscal year. 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, 2013.

Reclassifications

We have made reclassifications to the April 30, 2013 balance sheet, including a reclassification to properly state the current deferred income tax asset and the non-current deferred income tax liability. The reclassifications had no effect on the previously reported results of operations or retained earnings.

New Accounting Pronouncements Pending Adoption

Income Taxes

In July 2013, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update for the reporting of an unrecognized tax benefit, or portion thereof, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The update provides an exception, requiring the unrecognized tax benefit to be presented in the financial statements as a liability when the carryforward is not available at the reporting date under the tax laws to settle additional income taxes that would result for the disallowance of a tax provision or the tax laws do not require

 

9


the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose. This guidance is effective prospectively, with retrospective application permitted, for annual periods, and interim reporting periods within those years, beginning after December 15, 2013, with early adoption permitted. We do not expect a material impact on our consolidated financial statements as a result of adopting this standard.

Adoption of New Accounting Pronouncements

Comprehensive Income

In February 2013, the FASB issued an accounting standards update for the reporting of reclassifications out of accumulated other comprehensive income (loss). This guidance requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income (loss) on the respective line items in net income (loss) or in the notes to consolidated financial statements if the amount being reclassified is required under GAAP to be reclassified in its entirety to net income (loss). For other amounts not required under GAAP to be reclassified in their entirety to net income (loss) 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 within those years, beginning after December 15, 2012. We adopted this guidance effective May 1, 2013 and it has not had, and we believe it will not have, a material impact on our consolidated financial statements. See Note 7 for presentation of the information required by this accounting standards update.

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, an entity determines that it is not more likely than not that the indefinite-lived intangible assets are impaired, then the entity will not need to perform the quantitative impairment test in accordance with FASB Accounting Standards Codification (“ASC”) 350-30. This guidance is effective for annual and interim indefinite-lived assets impairment tests performed for annual reporting periods beginning after September 15, 2012, with early adoption permitted. We adopted this guidance effective May 1, 2013 and it has not had, and we believe it will not have, a material impact on our consolidated financial statements.

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 and interim reporting periods within those years, beginning on or after January 1, 2013. We adopted this guidance effective May 1, 2013 and it has not had, and we believe it will not have, a material impact on our consolidated financial statements.

 

2. BUSINESS ACQUISITIONS

During the nine months ended January 31, 2014, we acquired three solid waste hauling operations in the Western region for total consideration of $2,541 as of the acquisition dates, including $2,026 in cash, $36 of advanced customer billings and $479 in holdbacks to the sellers, and a solid waste hauling operation and a transfer station in the Eastern region for total consideration of $4,298 as of the acquisition dates, including $4,089 in cash and $209 associated with the forgiveness of trade receivables and advanced customer billings. We also acquired an industrial environmental service management business in the Other segment for total consideration of $2,494 as of the acquisition date, including $1,320 in cash, $330 in holdbacks to the seller and $844 in consideration, not to exceed $1,000, contingent upon the realization of a measure of operating income associated with certain prospective customer contracts within twelve months of closing. In addition, we acquired the remaining 50% membership interest of Tompkins County Recycling LLC (“Tompkins”) in the Recycling segment, which we had previously accounted for as an equity method investment, for total cash consideration of $425. See Note 15 for further disclosure regarding this transaction.

 

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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 as of the acquisition dates, 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 as of the acquisition date, 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 disclosure. The operating results of these businesses are included in the accompanying unaudited consolidated statements of operations from each date of acquisition, and the purchase price has been allocated to the net assets acquired based on fair values at each date 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, except amounts related to the acquisition of BBI, are expected to be deductible for tax purposes.

The purchase price allocated to net assets acquired and the residual amount allocated to goodwill during the nine months ended January 31, 2014 and 2013 are as follows:

 

     Nine Months Ended
January 31,
 
     2014     2013  

Equipment

   $ 2,013      $ 9,403   

Goodwill

     3,108        14,575   

Intangible assets

     4,302        9,601   

Current assets

     814        1,475   

Current liabilities

     (241     (7,118
  

 

 

   

 

 

 

Total

   $ 9,996      $ 27,936   
  

 

 

   

 

 

 

The following unaudited pro forma combined financial information shows the results of our operations for the three and nine months ended January 31, 2014 and 2013 as though each of the acquisitions made in the nine months ended January 31, 2014 and the twelve months ended April 30, 2013 had occurred as of May 1, 2012.

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Revenue

   $ 118,210      $ 116,385      $ 382,786      $ 366,889   

Operating (loss) income

   $ (1,215   $ 584      $ 18,671      $ 12,227   

Net loss attributable to common stockholders

   $ (10,721   $ (11,274   $ (10,965   $ (40,537

Basic and diluted loss per common share attributable to common stockholders

   $ (0.27   $ (0.29   $ (0.28   $ (1.25
  

 

 

   

 

 

   

 

 

   

 

 

 

Basic and diluted weighted average shares outstanding

     39,882        39,230        39,789        32,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

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, 2012 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, 2013 through January 31, 2014:

 

     April 30,
2013
     Acquisitions      January 31,
2014
 

Eastern region (1)

   $ 16,858       $ 558       $ 17,416   

Western region

     86,880         786         87,666   

Recycling

     12,190         63         12,253   

Other

     —           1,729         1,729   
  

 

 

    

 

 

    

 

 

 

Total

   $ 115,928       $ 3,136       $ 119,064   
  

 

 

    

 

 

    

 

 

 

 

(1) Included in Eastern region acquisitions activity is a $33 adjustment related to the December 5, 2012 BBI acquisition due to a finalization of the deferred tax liability for BBI at acquisition.

Intangible assets as of January 31, 2014 and April 30, 2013 consist of the following:

 

     Covenants
Not-to-Compete
    Client Lists     Total  

Balance, January 31, 2014

      

Intangible assets

   $ 17,245      $ 15,760      $ 33,005   

Less accumulated amortization

     (15,224     (3,609     (18,833
  

 

 

   

 

 

   

 

 

 
   $ 2,021      $ 12,151      $ 14,172   
  

 

 

   

 

 

   

 

 

 

 

     Covenants
Not-to-Compete
    Client Lists     Total  

Balance, April 30, 2013

      

Intangible assets

   $ 17,043      $ 11,660      $ 28,703   

Less accumulated amortization

     (14,800     (2,229     (17,029
  

 

 

   

 

 

   

 

 

 
   $ 2,243      $ 9,431      $ 11,674   
  

 

 

   

 

 

   

 

 

 

Intangible amortization expense for the three and nine months ended January 31, 2014 and 2013 was $695, $353, $1,804 and $751, respectively. The intangible amortization expense estimated for the five fiscal years following fiscal year 2013 and thereafter is as follows:

 

2014     2015     2016     2017     2018     Thereafter  
$ 750      $ 2,927      $ 2,314      $ 1,874      $ 1,652      $ 4,655   

 

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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, 2014 and 2013 are as follows:

 

     Nine Months Ended
January 31,
 
     2014     2013  

Beginning balance

   $ 43,170      $ 39,629   

Obligations incurred

     2,935        2,606   

Accretion expense

     2,981        2,653   

Payments

     (2,152     (2,304
  

 

 

   

 

 

 

Ending balance

   $ 46,934      $ 42,584   
  

 

 

   

 

 

 

 

5. LONG-TERM DEBT

Amendment of Senior Credit Facility

On June 25, 2013, we entered into a third amendment under our revolving credit and letter of credit facility due March 18, 2016 (“Senior Credit Facility”). This amendment adjusted our financial covenants, loosening our minimum interest coverage ratio and our maximum consolidated total funded debt to consolidated EBITDA ratio and reducing our maximum senior funded debt to consolidated EBITDA ratio and maximum allowed fiscal year capital expenditures. As of January 31, 2014, these covenants restrict fiscal year capital expenditures to 1.1 times our consolidated depreciation expense, depletion expense and landfill amortization expense, and set a minimum interest coverage ratio of 2.25, a maximum consolidated total funded debt to consolidated EBITDA ratio of 5.85 and a maximum senior funded debt to consolidated EBITDA ratio of 2.50. In addition to the financial covenants described above, the Senior Credit Facility also contains a number of 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, 2014, we were in compliance with all covenants under the indenture governing our Senior Credit Facility. We do not believe that these restrictions impact our ability to meet future liquidity needs, except that they may limit our ability to increase our investments in non-wholly owned entities (including the joint ventures to which we are already party).

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 $180,000 11% senior second lien notes due 2014 (“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 $2,767 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.

 

6. CONTINGENCIES

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

 

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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 FASB 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 FASB ASC 450-20. 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.

Environmental Liability

We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions existing before we acquired the facilities. We may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if we or our predecessors arrange or arranged to transport, treat or dispose of those materials. The following matters represent our potential or outstanding material claims.

Potsdam Environmental Liability

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 (“Study”). A draft of the Study was submitted to the 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 would be approximately $10,219. On February 28, 2011, the DEC issued a Proposed 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. An Order on Consent and Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an effective date of October 25, 2013. It is unlikely that any costs relating to onsite remediation will be incurred until fiscal year 2015.

WSI is jointly and severally liable for the total cost to remediate and we initially expected to be responsible for approximately 30% of such costs pursuant to 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%). As of January 31, 2014 and April 30, 2013, we have recorded liabilities of $5,406 and $5,297, respectively, including the recognition of $34 of accretion expense in the three months ended January 31, 2014 and 2013 and the recognition of $103 of accretion expense in the nine months ended January 31, 2014 and 2013.

In September 2011, the DEC settled its environmental claim against the estate of the former GM (known as “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 began receiving the warrants in May 2013 and at this time no way to accurately estimate when the remainder of these claims will be paid. We have not assumed that any proceeds from the sale of securities received in payment of these claims will reduce our exposure.

 

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Southbridge Landfill Environmental Liability

On or about August 24, 2013, we experienced the movement of stockpiled earth at our Southbridge, Massachusetts Landfill (“SBL”). The materials stockpiled consisted of soil removed and relocated to create space for the construction of additional landfill airspace at SBL. The earth had been relocated and stored during the fall, winter and spring construction season of fiscal year 2013.

The movement caused some of the stockpiled earth to enter wetlands on property owned by us. On or about August 29, 2013, we notified the Massachusetts Department of Environmental Protection (“MADEP”), and the Towns of Southbridge and Charlton, Massachusetts, of the occurrence of the movement. On or about September 6, 2013, MADEP issued an “Administrative Unilateral Order” to us, which ordered that we provide MADEP with a plan to clean the wetlands of any materials deposited therein as a result of the movement (“Plan”). On or about October 3, 2013, we submitted the Plan to MADEP, and on or about October 15, 2013, MADEP approved the Plan and verbally issued permission for us to proceed with the execution of the Plan. We are currently engaged, under the supervision of MADEP, in the execution of the Plan.

We have also received correspondence from the Massachusetts’ Office of the Attorney General (“MAAG”), dated January 28, 2014, advising us that the MAAG intends to schedule a meeting with us to discuss this incident at SBL, and to possibly file suit against us for violation of the Massachusetts Wetlands Protection, Clean Air and Solid Waste Acts. A meeting was held with the MAAG on March 6, 2014 to discuss the ongoing remediation effort and the parties have initiated discussions regarding the resolution of this matter.

It is anticipated that execution of the Plan and related matters will involve remediation costs of $2,100 and such costs could be higher if actual costs exceed estimates. We have provided notice to our insurer of the Plan, and the costs expended by us to date to comply with the Plan. We have also provided notice to certain of our contractors and technical advisors that the movement has occurred, that significant remediation costs will be incurred in executing the Plan and related matters, and that we expect our contractors and technical advisors to assist in the execution of the Plan and related matters, to share in the remediation costs thereof as responsible parties, and to provide notice to their insurers. We believe that a loss in the range of $400 to $2,100, after considering amounts to be reimbursed from our insurer and third parties, is probable and have therefore recorded a charge of $250 and $400 in the three and nine months ended January 31, 2014 as an environmental remediation charge.

Loss Contingency

Casella-Altela Regional Environmental Services, LLC (“CARES”) is a joint venture that owns and operates one water and leachate treatment facility for the natural gas drilling industry in Pennsylvania. Our joint venture partner in CARES is Altela, Inc. In accordance with ASC 810-10-15, we consolidate the assets, liabilities, noncontrolling interest and results of operations of CARES into our consolidated financial statements due to our controlling financial interest in the joint venture.

During the three months ended January 31, 2014, we determined that certain water treatment assets (“Equipment”) of CARES were no longer operational or were not operating within product performance parameters. We are currently working to secure replacements for the Equipment at no cost to CARES. We believe that a loss in the range of $0 to $864 is probable and have therefore not recorded a charge in the three and nine months ended January 31, 2014.

 

7. STOCKHOLDERS’ EQUITY

Shares Available For Issuance

In fiscal year 2007, we adopted the 2006 Stock Incentive Plan (“2006 Plan”). The 2006 Plan was amended in fiscal year 2010. Under the 2006 Plan, we may grant awards up to an aggregate number of shares equal to the sum of: (i) 2,475 shares of Class A common stock (subject to adjustment in the event of stock splits and other similar events), plus (ii) such additional number of shares of Class A common stock as are currently subject to options granted under our 1993 Incentive Stock Option Plan, 1994 Non-statutory Stock Option Plan, 1996 Option Plan and 1997 Plan (“Prior Plans”), which are not actually issued under the Prior Plans because such options expire or otherwise result in shares not being issued. As of January 31, 2014, there were 1,072 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 and which have become available for grant because such awards expired or otherwise resulted in shares not being issued.

Stock Options

We grant options under the 2006 Plan at a price equal to the prevailing fair market value of our Class A common stock at the date of grant. Generally, options granted have a term not to exceed ten years and vest over a one to four year period from the date of grant.

 

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A summary of stock option activity for the nine months ended January 31, 2014 is as follows:

 

     Stock Options     Weighted
Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term (years)
     Aggregate
Intrinsic Value
 

Outstanding, April 30, 2013

     1,442      $ 8.48         

Granted

     157      $ 5.65         

Exercised

     —        $ —            $ —     
          

 

 

 

Forfeited

     (158   $ 7.28         
  

 

 

         

Outstanding, January 31, 2014

     1,441      $ 8.47         5.2       $ 613   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable, January 31, 2014

     1,033      $ 10.05         3.6       $ 301   
  

 

 

   

 

 

    

 

 

    

 

 

 

During the three and nine months ended January 31, 2014 and 2013, stock-based compensation expense for stock options was $155, $123, $359 and $285, respectively.

As of January 31, 2014, total unrecognized stock-based compensation expense related to outstanding stock options was $961, which will be recognized over a weighted average period of 1.8 years.

Our calculations of stock-based compensation expense associated with stock options granted in the three and nine months ended January 31, 2014 and 2013 were made using the Black-Scholes valuation model. The fair value of stock options grants were estimated assuming no expected dividend yield using the following weighted average assumptions for the three and nine months ended January 31, 2014 and 2013:

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Stock Options:

        

Expected life

     6.79 years        6.79 years        6.79 years        6.79 years   

Risk-free interest rate

     2.22     1.04     2.22     1.04

Expected volatility

     83.96     84.55     83.96     84.55

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.

Other Stock Awards

We grant restricted stock awards, restricted stock units and performance stock units under the 2006 Plan at a price equal to the fair market value of our Class A common stock at the date of grant. Restricted stock awards granted to non-employee directors vest incrementally over a three year period beginning on the first anniversary of the date of grant. Restricted stock units vest incrementally over an identified service period beginning on the grant date based on continued employment. Performance stock units vest on April 30 of the third fiscal year end following the grant date and are based on our attainment of a targeted average return on net assets as of the vesting date.

 

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A summary of restricted stock, restricted stock unit and performance stock unit activity for the nine months ended January 31, 2014 is as follows:

 

     Restricted Stock,
Restricted Stock Units,
and Performance Stock
Units (1)
    Weighted
Average
Grant
Price
     Weighted Average
Remaining
Contractual Term
(years)
     Aggregate
Intrinsic
Value
 

Outstanding, April 30, 2013

     1,088      $ 5.28         

Granted

     539      $ 4.27         

Class A Common Stock Vested

     (323   $ 4.88         

Forfeited

     (21   $ 4.55         
  

 

 

         

Outstanding, January 31, 2014

     1,283      $ 4.97         1.5       $ 521   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(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 354 shares of Class A common stock.

During the nine months ended January 31, 2014, we granted certain employees restricted stock units, which vest over designated service periods of up to three years based on continued employment, and non-employee directors’ restricted stock awards, which vest incrementally over a three year period beginning on the first anniversary of the date of grant. We did not grant any performance stock units during the nine months ended January 31, 2014.

During the three and nine months ended January 31, 2014 and 2013, stock-based compensation expense related to restricted stock, restricted stock units and performance stock units was $465, $109, $1,431 and $1,201, respectively.

As of January 31, 2014, total unrecognized compensation expense related to outstanding restricted stock and restricted stock units was $2,402, which will be recognized over a weighted average period of 1.9 years. Maximum unrecognized stock-based compensation expense at January 31, 2014 related to outstanding performance stock units, and subject to the attainment of targeted maximum annual returns on net assets, was $4,082 to be recognized over a weighted average period of 0.9 years. The unrecognized stock-based compensation expense that we expect to recognize as of January 31, 2014 related to outstanding performance stock units based on our expected attainment levels was $0.

We also recorded $21, $22, $61 and $75 of stock-based compensation expense related to our Employee Stock Purchase Plan during the three and nine months ended January 31, 2014 and 2013, respectively.

Accumulated Other Comprehensive Income (Loss)

The change in the balances of each component of accumulated other comprehensive income (loss), which is included as a component of our stockholders’ equity, is as follows:

 

     Marketable
Securities
     Commodity
Hedges
 

Beginning balance, April 30, 2013

   $ 27       $ (619

Other comprehensive income (loss) before reclassifications

     11         (36

Amounts reclassified from accumulated other comprehensive income (loss)

     —           655   
  

 

 

    

 

 

 

Net current-period other comprehensive income

     11         619   
  

 

 

    

 

 

 

Ending balance, January 31, 2014

   $ 38       $ —     
  

 

 

    

 

 

 

 

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A summary of reclassifications out of accumulated other comprehensive income (loss) for the three and nine months ended January 31, 2014 and 2013 is as follows:

 

     Three Months Ended
January 31,
     
     2014     2013      

Details about Accumulated Other Comprehensive
Income (Loss) Components

   Amount Reclassified Out of
Accumulated Other Comprehensive
Income (Loss)
   

Affected Line Item in the Consolidated

Statements of Operations

Loss on derivative instruments:

      

Interest rate contracts

   $ —        $ —       

Loss on derivative instruments

Commodity hedges

     (60     (149  

Loss from equity method investments

  

 

 

   

 

 

   
     (60     (149  

Loss from continuing operations before income taxes and discontinued operations

     (250     —       

Provision for income taxes

  

 

 

   

 

 

   
   $ (310   $ (149  

Loss from continuing operations

  

 

 

   

 

 

   

 

     Nine Months Ended
January 31,
     
     2014     2013      

Details about Accumulated Other Comprehensive
Income (Loss) Components

   Amount Reclassified Out of
Accumulated Other Comprehensive
Income (Loss)
   

Affected Line Item in the Consolidated

Statements of Operations

Loss on derivative instruments:

      

Interest rate contracts

   $ —        $ (3,625  

Loss on derivative instruments

Commodity hedges

     (405     (514  

Loss from equity method investments

  

 

 

   

 

 

   
     (405     (4,139  

Loss from continuing operations before income taxes and discontinued operations

     (250     —       

Provision for income taxes

  

 

 

   

 

 

   
   $ (655   $ (4,139  

Loss from continuing operations

  

 

 

   

 

 

   

 

18


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
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Numerator:

        

Loss from continuing operations before discontinued operations attributable to common stockholders

   $ (10,750   $ (11,079   $ (11,187   $ (39,968
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Number of shares outstanding, end of period:

        

Class A common stock

     39,049        38,658        39,049        38,658   

Class B common stock

     988        988        988        988   

Unvested restricted stock

     (130     (134     (130     (134

Effect of weighted average shares outstanding during period

     (25     (282     (118     (7,147
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares - basic and diluted EPS

     39,882        39,230        39,789        32,365   
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of antidilutive potentially issuable shares not included in the diluted earnings per share calculations due to loss from continuing operations (1)

     2,272        1,998        2,272        1,998   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Performance stock units are included at the expected attainment levels.

 

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.

Assets and Liabilities Accounted for at Fair Value

Our financial instruments include cash and cash equivalents, trade receivables, restricted trust and escrow accounts, interest rate derivatives, contingent consideration associated with an acquisition, trade payables and long-term debt. The carrying values of cash and cash equivalents, trade receivables and trade payables approximate their respective fair values due to their short-term nature. The fair value of the restricted trust and escrow accounts are included as restricted assets in the Level 1 tier below. The fair values of the interest rate derivatives, included in the Level 2 tier below, are calculated based on the three month LIBOR yield curve that is observable at commonly quoted intervals for the full term of the swaps, adjusted by the credit risk of our counter-parties and us based on observable credit default swap rates. We recognize all derivatives on the balance sheet at fair value. The fair value of contingent consideration associated with an acquisition, included in the Level 3 tier below as it is based on significant unobservable inputs, is calculated using a probability weighted estimated annualized gross margin for prospective customers that are contracted within the twelve month period after closing. The significant unobservable inputs include assumptions as to the likelihood of success with each prospective customer, along with each prospective customer’s sales revenues and direct costs. There have been no changes to these assumptions or the value of the contingent consideration from the acquisition date in the second quarter of fiscal year 2014 through January 31, 2014.

 

19


As of January 31, 2014 our assets and liabilities that are measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at January 31, 2014 Using:  
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Assets:

        

Restricted assets

   $ 675       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Interest rate derivatives

   $ —         $ 3,137       $ —     
  

 

 

    

 

 

    

 

 

 

Contingent consideration - acquisition

   $ —         $ —         $ 844   
  

 

 

    

 

 

    

 

 

 

As of April 30, 2013 our assets and liabilities that are measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at April 30, 2013 Using:  
     Quoted Prices in
Active Markets
(Level 1)
     Significant Other
Observable Inputs
(Level 2)
     Significant
Unobservable Inputs
(Level 3)
 

Assets:

        

Restricted assets

   $ 545       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Interest rate derivatives

   $ —         $ 4,229       $ —     
  

 

 

    

 

 

    

 

 

 

Fair Value of Debt

As of January 31, 2014, the fair value of our fixed rate debt, including our 7.75% senior subordinated notes due 2019 (“2019 Notes”), the Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”) and the Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”), was approximately $368,494 and the carrying value was $362,400. 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 FAME Bonds 2005R-2 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 FAME Bonds 2005R-2 or securities with similar characteristics. The fair value of the Vermont Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined based on changes in the pricing of an observable five year municipal bond index. As of January 31, 2014, the fair value of our 2011 senior secured revolving credit facility (“2011 Revolver”) approximated its carrying value of $137,300 based on current borrowing rates for similar types of borrowing arrangements.

 

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 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 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 provision for income taxes for the nine months ending January 31, 2014 and the remaining portion of the ($3,899) benefit for income taxes for the nine months ending January 31, 2013 include a $1,092 and $1,176 deferred tax provision, respectively, due mainly to the increase in the deferred tax liability for indefinite lived assets, and a $183 and $167 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.

 

20


11. DEVELOPMENT PROJECT CHARGE

In the three and nine months ended January 31, 2014, we recorded a charge of $1,440 for deferred costs associated with a gas pipeline development project in Maine no longer deemed viable. As of January 31, 2014 and April 30, 2013, we had $0 and $1,644 of deferred costs associated with development projects included in other non-current assets within our consolidated balance sheets.

 

12. SEVERANCE AND REORGANIZATION

In the three and nine months ended January 31, 2014, we recorded charges of $0 and $161 for severance costs associated with various planned reorganization efforts including the divestiture of Maine Energy Recovery Company LP (“Maine Energy”), see Note 13 for further disclosure.

On August 8, 2012, we realigned our operations in order to streamline functions and improve our cost structure. Through the reorganization we enhanced 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 severance and reorganization charge of $1,793 in the second quarter of fiscal year 2013.

In the three months ended January 31, 2013, we recorded a $1,636 severance charge related primarily to the closing of Maine Energy, see Note 13 for further disclosure, and a reorganization of senior management.

 

13. DIVESTITURE AND DISCONTINUED OPERATIONS

We review planned business dispositions based on available information and events that have occurred to determine whether or not a business or disposal group qualifies for discontinued operations treatment. The review consists of evaluating whether the business qualifies as a component of an entity for which the operations and cash flows are clearly distinguishable; whether it is anticipated that the cash flows of the component have been or will be eliminated from ongoing operations after the disposal transaction and by the end of the assessment period; and whether we will have any significant continuing involvement in the operations of the component after the disposal transaction. Planned business dispositions are presented as discontinued operations when all three criteria are met. Additionally, we evaluate whether the component has met the criteria to be classified as held-for-sale. To be classified as held-for-sale, the criteria established by FASB ASC 360-10 must be met as of the reporting date, including an active program to market the business and the disposition of the business within one year. A business that has not been disposed of may not be classified as discontinued operations until the held-for-sale criteria are met. No depreciation is recorded during the periods in which a disposal group is classified as held-for-sale.

Businesses that qualify as held-for-sale are carried at the lower of their carrying value or fair value less costs to sell in the period the held-for-sale criteria are met. For a business that is classified as held-for-sale and meets the discontinued operations criteria, all initial or subsequent adjustments to the carrying value of the component are classified in discontinued operations.

Discontinued Operations

In the fourth quarter of fiscal year 2013, we initiated a plan to dispose of KTI BioFuels, Inc. (“BioFuels”), a construction and demolition material processing facility located in Lewiston, Maine, and as a result, the assets associated with BioFuels were classified as held-for-sale and the results of operations were recorded as loss from discontinued operations. Assets of the disposal group previously classified as held-for-sale, and included in discontinued operations as of April 30, 2013, include certain inventory along with plant and equipment. In the first quarter of fiscal year 2014, we executed a purchase and sale agreement with ReEnergy Lewiston LLC (“ReEnergy”), pursuant to which we agreed to sell certain assets of BioFuels, which was located in our Eastern region, to ReEnergy. We agreed to sell the BioFuels assets for undiscounted purchase consideration of $2,000, which is being paid to us in equal quarterly installments over five years commencing November 1, 2013, subject to the terms of the purchase and sale agreement. We recognized a $378 loss on disposal of discontinued operations in the first quarter of fiscal year 2014 associated with the disposition. Revenues and (loss) income before income taxes attributable to discontinued operations for the three and nine months ended January 31, 2014 and 2013, respectively, are as follows:

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014      2013     2014      2013  

Revenues

   $ —         $ 2,835      $ 3,316       $ 9,890   

(Loss) income before income taxes

   $ —         $ (328   $ 284       $ (779

 

21


We allocate interest expense to discontinued operations. We have also eliminated inter-company activity associated with discontinued operations.

Divestiture Transactions

In the first quarter of fiscal year 2013, 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 was 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 is being paid to us in equal installments over 21 years, subject to the terms of the purchase and sale agreement. The transaction closed in November 2012, and we waived certain conditions precedent not satisfied at that time. In December 2012, we closed the Maine Energy facility and initiated the decommissioning process in accordance with the provisions of the agreement. In the three months ended January 31, 2013, we had recorded a charge to loss on divestiture of $353, which was subsequently reversed in the fourth quarter of fiscal year 2013 when we revised our estimated closing costs as more information became available to us. Following the decommissioning of the Maine Energy facility, 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. Demolition is nearly complete, pending final approval of work plans by the United States Environmental Protection Agency, and the time for completion has been consensually extended by Maine Energy and the City of Biddeford. We will continue to finalize estimates and obtain additional information regarding the estimated costs associated with the divestiture. Due to the inherent judgments and estimates regarding the remaining costs to fulfill our obligation under the purchase and sale agreement to demolish the facility and remediate the site, recognition of a loss on divestiture, which we do not expect, or a potential gain on divestiture is possible.

As a part of the closure and decommissioning of the Maine Energy facility, we have withdrawn from a multiemployer pension plan to which we have made contributions 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 FASB 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 FASB 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 withdrew from the plan in the first quarter of 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, 2014, no accrual is established related to withdrawal from the multiemployer pension plan and we believe that our share of any liability associated with the unfunded vested benefits will be immaterial.

 

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 and recycling 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. Organics services, ancillary operations, major customer accounts, discontinued operations, and earnings from equity method investees are included in our Other segment. Segment data for the

 

22


three and nine months ended January 31, 2013 has been revised to properly align with internal management reporting, which was modified in the first quarter of fiscal year 2014 to move organics services from the Eastern region to the Other segment to reflect changes in management structure as these services have become integral to service offerings across our broader geographic solid waste footprint.

Three Months Ended January 31, 2014

 

Segment

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

Eastern

   $ 35,132       $ 9,043      $ 5,875       $ (3,122   $ 204,330   

Western

     50,745         16,829        6,828         3,315        345,677   

Recycling

     10,160         (44     1,056         (1,529     48,859   

Other

     21,815         463        637         38        70,576   

Eliminations

     —           (26,291     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 117,852       $ —        $ 14,396       $ (1,298   $ 669,442   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Three Months Ended January 31, 2013

 

Segment

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

Eastern

   $ 32,311       $ 7,158      $ 5,791       $ (2,783   $ 199,251   

Western

     50,274         15,954        6,590         3,937        353,418   

Recycling

     10,702         41        1,067         (120     51,814   

Other

     18,880         736        516         (956     68,670   

Eliminations

     —           (23,889     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 112,167       $ —        $ 13,964       $ 78      $ 673,153   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Nine Months Ended January 31, 2014

 

Segment

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

Eastern

   $ 114,059       $ 29,517      $ 18,947       $ 706      $ 204,330   

Western

     166,315         54,983        21,373         17,422        345,677   

Recycling

     32,850         (76     3,195         (1,724     48,859   

Other

     65,482         1,466        1,746         1,485        70,576   

Eliminations

     —           (85,890     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 378,706       $ —        $ 45,261       $ 17,889      $ 669,442   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Nine Months Ended January 31, 2013

 

Segment

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

Eastern

   $ 99,165       $ 23,162      $ 18,512       $ (4,385   $ 199,251   

Western

     157,212         49,901        19,707         16,975        353,418   

Recycling

     31,674         77        3,244         (606     51,814   

Other

     58,590         3,247        1,781         (1,674     68,670   

Eliminations

     —           (76,387     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 346,641       $ —        $ 43,244       $ 10,310      $ 673,153   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

23


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

 

     Three Months Ended
January 31,
     Nine Months Ended
January 31,
 
     2014      2013      2014      2013  

Collection

   $ 54,276       $ 51,459       $ 171,520       $ 157,124   

Disposal

     28,907         27,219         101,404         90,569   

Power generation

     2,791         3,400         6,813         8,856   

Processing

     1,806         2,111         7,169         5,150   
  

 

 

    

 

 

    

 

 

    

 

 

 

Solid waste operations

     87,780         84,189         286,906         261,699   

Organics

     8,777         8,725         28,128         25,972   

Customer solutions

     11,135         8,551         30,822         27,296   

Recycling

     10,160         10,702         32,850         31,674   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 117,852       $ 112,167       $ 378,706       $ 346,641   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

15. INVESTMENTS IN UNCONSOLIDATED ENTITIES

Investments in unconsolidated entities over which we have significant influence over the investees’ operating and financing activities are accounted for under the equity method of accounting. Investments in affiliates in which we do not have the ability to exert significant influence over the investees’ operating and financing activities are accounted for under the cost method of accounting. The following table summarizes our equity and cost method investments as of January 31, 2014 and April 30, 2013:

 

     January 31,
2014
     April 30,
2013
 

Equity method investments

   $ —         $ 3,766   

Cost method investments

     16,752         16,486   
  

 

 

    

 

 

 

Investments in unconsolidated entities

   $ 16,752       $ 20,252   
  

 

 

    

 

 

 

Equity Method Investments

GreenFiber. In fiscal year 2001, we entered into a joint venture agreement with Louisiana-Pacific Corporation (“LP”) to combine our respective cellulose insulation businesses into a single operating entity, US GreenFiber LLC (“GreenFiber”). On December 5, 2013, we and LP executed a purchase and sale agreement with a limited liability company formed by Tenex Capital Partners, L.P., pursuant to which we and LP agreed to sell our membership interests in GreenFiber for total cash consideration of $18,000 plus an expected working capital true up less any indebtedness and other unpaid transaction costs of GreenFiber as of the closing date. The transaction was completed on December 5, 2013 for $19,194 in gross cash proceeds, including a $1,194 working capital adjustment. After netting indebtedness of GreenFiber and transaction costs, our 50% of the net cash proceeds amounted to $3,442, of which $597 is recorded as a receivable within other current assets as of January 31, 2014. Considering the $593 impact of our unrealized losses relating to derivative instruments in accumulated other comprehensive loss on our investment in GreenFiber, we recorded a gain on sale of equity method investment of $593 in the three months ended January 31, 2014. We had previously accounted for our 50% membership interest in GreenFiber using the equity method of accounting.

Tompkins. In May 2011, we finalized the terms of a joint venture agreement with FCR, LLC (“FCR”) to form Tompkins, a joint venture that operates a material recovery facility (“MRF”) located in Tompkins County, NY and processes and sells commodities delivered to the Tompkins MRF. On December 31, 2013, we agreed to purchase the membership interest of Tompkins for total cash consideration of $425. The acquisition-date fair value of our investment in Tompkins, which was determined using the cost approach based on an assessment of the price to purchase the acquired assets of Tompkins, prior to the acquisition date was $238.We recognized a $44 gain through loss from equity method investments due to the remeasurement. As a result of the purchase, we no longer account our investment in Tompkins using the equity method of accounting and began including the accounts of Tompkins in our consolidated financial statements.

 

24


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, 2014 and April 30, 2013, the consolidating results of operations and comprehensive loss for the three and nine months ended January 31, 2014 and 2013, and the condensed consolidating statements of cash flows for the nine months ended January 31, 2014 and 2013 of (a) the Parent company only, (b) the combined guarantors (“Guarantors”), each of which is wholly-owned by the Parent, (c) the combined non-guarantors (“Non-Guarantors”), (d) eliminating entries and (e) the consolidated total.

 

25


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JANUARY 31, 2014

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

 

ASSETS

   Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

CURRENT ASSETS:

          

Cash and cash equivalents

   $ 2,427      $ 258      $ 27      $ —        $ 2,712   

Restricted cash

     —          76        —          —          76   

Accounts receivable - trade, net

     303        49,803        224        —          50,330   

Refundable income taxes

     608        —          —          —          608   

Prepaid expenses

     2,750        5,388        11        —          8,149   

Inventory

     —          4,344        52        —          4,396   

Deferred income taxes

     3,149        —          —          —          3,149   

Other current assets

     909        928        7        —          1,844   

Current assets of discontinued operations

     —          353        —          —          353   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     10,146        61,150        321        —          71,617   

Property, plant and equipment, net

     4,823        407,639        8,307        —          420,769   

Goodwill

     —          119,064        —          —          119,064   

Intangible assets, net

     181        13,991        —          —          14,172   

Restricted assets

     —          675        —          —          675   

Investments in unconsolidated entities

     16,752        1,932        —          (1,932     16,752   

Investments in subsidiaries

     (38,787     —          —          38,787        —     

Other non-current assets

     14,563        10,267        —          —          24,830   

Non-current assets of discontinued operations

     —          1,563        —          —          1,563   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (2,468     555,131        8,307        36,855        597,825   

Intercompany receivable

     559,064        (522,104     (38,892     1,932        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 566,742      $ 94,177      $ (30,264   $ 38,787      $ 669,442   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   Parent      Guarantors     Non-
Guarantors
    Elimination      Consolidated  

CURRENT LIABILITIES:

            

Current maturities of long-term debt and capital leases

   $ 83       $ 351      $ —        $ —         $ 434   

Current maturities of financing lease obligations

     —           380        —          —           380   

Accounts payable

     16,444         24,829        726        —           41,999   

Accrued payroll and related expenses

     402         3,918        1        —           4,321   

Accrued interest

     12,931         12        —          —           12,943   

Current accrued capping, closure and post-closure costs

     —           5,711        3        —           5,714   

Other accrued liabilities

     7,949         11,582        334        —           19,865   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total current liabilities

     37,809         46,783        1,064        —           85,656   

Long-term debt and capital leases, less current maturities

     508,236         1,523        —          —           509,759   

Financing lease obligations, less current maturities

     —           1,169        —          —           1,169   

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

     —           41,180        40        —           41,220   

Deferred income taxes

     7,108         —          —          —           7,108   

Other long-term liabilities

     10,863         7,169        85        —           18,117   

STOCKHOLDERS’ EQUITY:

            

Casella Waste Systems, Inc. stockholders’ equity

     2,726         (3,647     (35,140     38,787         2,726   

Noncontrolling interests

     —           —          3,687        —           3,687   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total stockholders’ equity

     2,726         (3,647     (31,453     38,787         6,413   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
   $ 566,742       $ 94,177      $ (30,264   $ 38,787       $ 669,442   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

26


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2013

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

 

ASSETS

   Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

CURRENT ASSETS:

          

Cash and cash equivalents

   $ 1,260      $ 253      $ 242      $ —        $ 1,755   

Restricted cash

     —          76        —            76   

Accounts receivable - trade, net

     571        47,644        474        —          48,689   

Refundable income taxes

     128        —          —          —          128   

Prepaid expenses

     1,471        4,240        —          —          5,711   

Inventory

     —          3,440        54        —          3,494   

Deferred income taxes

     3,730        —          —          —          3,730   

Other current assets

     366        528        7        —          901   

Current assets of discontinued operations

     —          61        —          —          61   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     7,526        56,242        777        —          64,545   

Property, plant and equipment, net

     2,771        411,284        8,447        —          422,502   

Goodwill

     —          115,928        —          —          115,928   

Intangible assets, net

     249        11,425        —          —          11,674   

Restricted assets

     —          545        —          —          545   

Notes receivable - related party/employee

     147        —          —          —          147   

Investments in unconsolidated entities

     16,486        2,189        3,509        (1,932     20,252   

Investments in subsidiaries

     (59,759     —          —          59,759        —     

Other non-current assets

     15,774        11,752        —          —          27,526   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (24,332     553,123        11,956        57,827        598,574   

Intercompany receivable

     580,328        (539,752     (42,508     1,932        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 563,522      $ 69,613      $ (29,775   $ 59,759      $ 663,119   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   Parent      Guarantors     Non-
Guarantors
    Elimination      Consolidated  

CURRENT LIABILITIES:

            

Current maturities of long-term debt and capital leases

   $ —         $ 857      $ —        $ —         $ 857   

Current maturities of financing lease obligations

     —           361        —          —           361   

Accounts payable

     23,492         27,847        635        —           51,974   

Accrued payroll and related expenses

     538         3,445        —          —           3,983   

Accrued interest

     6,071         3        —          —           6,074   

Current accrued capping, closure and post-closure costs

     —           3,832        3        —           3,835   

Other accrued liabilities

     10,001         10,896        117        —           21,014   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total current liabilities

     40,102         47,241        755        —           88,098   

Long-term debt and capital leases, less current maturities

     492,965         566        —          —           493,531   

Financing lease obligations, less current maturities

     —           1,456        —          —           1,456   

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

     —           39,298        37        —           39,335   

Deferred income taxes

     6,798         —          —          —           6,798   

Other long-term liabilities

     12,372         6,078        —          —           18,450   

STOCKHOLDERS’ EQUITY:

            

Casella Waste Systems, Inc. stockholders’ equity

     11,285         (25,026     (34,733     59,759         11,285   

Noncontrolling interests

     —           —          4,166        —           4,166   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

Total stockholders’ equity

     11,285         (25,026     (30,567     59,759         15,451   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 
   $ 563,522       $ 69,613      $ (29,775   $ 59,759       $ 663,119   
  

 

 

    

 

 

   

 

 

   

 

 

    

 

 

 

 

27


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED JANUARY 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 117,441      $ 411      $ —        $ 117,852   

Operating expenses:

          

Cost of operations

     (26     86,791        837        —          87,602   

General and administration

     (15     15,394        (18     —          15,361   

Depreciation and amortization

     262        13,953        181        —          14,396   

Development project charge

     —          1,440        —          —          1,440   

Environmental remediation charge

     —          250        —          —          250   

Expense from divestiture, acquisition and financing costs

     —          101        —          —          101   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     221        117,929        1,000        —          119,150   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (221     (488     (589     —          (1,298
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

     (3     (106     —          —          (109

Interest expense

     9,576        (8     —          —          9,568   

(Income) loss from equity method investments

     78        (71     183        (78     112   

(Gain) loss on sale of equity method investment

     —          —          (593     —          (593

(Gain) loss on derivative instruments

     233        —          —          —          233   

Other income

     (11     (121     —          —          (132
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     9,873        (306     (410     (78     9,079   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (10,094     (182     (179     78        (10,377

Provision (benefit) for income taxes

     656        —          —          —          656   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (10,750     (182     (179     78        (11,033
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          (283     —          (283
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (10,750   $ (182   $ 104      $ 78      $ (10,750
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

   $ —        $ 111,464      $ 703      $ —        $ 112,167   

Operating expenses:

          

Cost of operations

     12        80,755        669        —          81,436   

General and administration

     (63     14,364        27        —          14,328   

Depreciation and amortization

     236        13,548        180        —          13,964   

Severance and reorganization costs

     849        787        —          —          1,636   

Expense from divestiture, acquisition and financing costs

     —          372        —          —          372   

Loss on divestiture

     —          353        —          —          353   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,034        110,179        876        —          112,089   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,034     1,285        (173     —          78   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

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

Interest expense

     9,422        8,061        —          (8,274     9,209   

(Income) loss from equity method investments

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

(Gain) loss on derivative instruments

     (24     —          —          —          (24

Loss on debt extinguishment

     5,914        —          —          —          5,914   

Other income

     (181     (117     —          —          (298
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     15,336        7,938        1,393        (8,480     16,187   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (16,370     (6,653     (1,566     8,480        (16,109

Provision (benefit) for income taxes

     (4,963     —          —          —          (4,963
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (11,407     (6,653     (1,566     8,480        (11,146

Discontinued operations:

          

Income (loss) from discontinued operations, net

     —          (328     —          —          (328
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          (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

NINE MONTHS ENDED JANUARY 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 376,864      $ 1,842      $ —        $ 378,706   

Operating expenses:

          

Cost of operations

     (25     264,311        2,279        —          266,565   

General and administration

     733        46,107        24        —          46,864   

Depreciation and amortization

     700        44,006        555        —          45,261   

Development project charge

     —          1,440        —          —          1,440   

Environmental remediation charge

     —          400        —          —          400   

Severance and reorganization costs

     4        157        —          —          161   

Expense from divestiture, acquisition and financing costs

     —          126        —          —          126   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,412        356,547        2,858        —          360,817   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,412     20,317        (1,016     —          17,889   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

     (3     (219     —          —          (222

Interest expense

     28,539        23        —          —          28,562   

(Income) loss from equity method investments

     (19,852     (107     1,105        19,852        998   

(Gain) loss on sale of equity method investment

     —          —          (593     —          (593

(Gain) loss on derivative instruments

     208        —          —          —          208   

Other income

     (298     (363     (1     —          (662
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     8,594        (666     511        19,852        28,291   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (10,006     20,983        (1,527     (19,852     (10,402

Provision (benefit) for income taxes

     1,275        —          —          —          1,275   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (11,281     20,983        (1,527     (19,852     (11,677

Discontinued operations:

          

Income (loss) from discontinued operations, net

     —          284        —          —          284   

Gain (loss) on disposal of discontinued operations, net

     —          (378     —          —          (378
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (11,281     20,889        (1,527     (19,852     (11,771
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          (490     —          (490
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (11,281   $ 20,889      $ (1,037   $ (19,852   $ (11,281
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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

   $ —        $ 345,493      $ 1,148      $ —        $ 346,641   

Operating expenses:

          

Cost of operations

     4        243,569        1,294        —          244,867   

General and administration

     (60     43,404        57        —          43,401   

Depreciation and amortization

     770        42,233        241        —          43,244   

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        331,956        1,592        —          336,331   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (2,783     13,537        (444     —          10,310   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

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

Interest expense

     33,000        23,926        —          (24,511     32,415   

(Income) loss from equity method investments

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

(Gain) loss 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        23,512        3,325        (14,324     54,376   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (44,646     (9,975     (3,769     14,324        (44,066

Provision (benefit) for income taxes

     (3,899     —          —          —          (3,899
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (40,747     (9,975     (3,769     14,324        (40,167

Discontinued operations:

          

Income (loss) from discontinued operations, net

     —          (779     —          —          (779
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          (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 COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED JANUARY 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination      Consolidated  

Net income (loss)

   $ (10,750   $ (182   $ (179   $ 78       $ (11,033

Other comprehensive income (loss), net of taxes:

           

Unrealized gain (loss) resulting from changes in fair value of derivative instruments

     —          —          533        —           533   

Realized loss (gain) on derivative instruments reclassified into earnings

     —          —          310        —           310   

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

     —          (8     —          —           (8
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss)

     —          (8     843        —           835   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss)

     (10,750     (190     664        78         (10,198

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —          —          (283     —           (283
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (10,750   $ (190   $ 947      $ 78       $ (9,915
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

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

     —          —          (11     —           (11

Realized loss (gain) on derivative instruments reclassified into earnings

     —          —          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 interests

     —          —          (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)

NINE MONTHS ENDED JANUARY 31, 2014

(in thousands)

 

     Parent     Guarantors      Non-
Guarantors
    Elimination     Consolidated  

Net income (loss)

   $ (11,281   $ 20,889       $ (1,527   $ (19,852   $ (11,771

Other comprehensive income (loss), net of taxes:

           

Unrealized gain (loss) resulting from changes in fair value of derivative instruments

     —          —           (35     —          (35

Realized loss (gain) on derivative instruments reclassified into earnings

     —          —           655        —          655   

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

     —          10         —          —          10   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     —          10         620        —          630   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (11,281     20,899         (907     (19,852     (11,141

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —          —           (490     —          (490
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (11,281   $ 20,899       $ (417   $ (19,852   $ (10,651
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

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

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

Realized loss (gain) on derivative instruments reclassified into earnings

     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)

     (38,379     (10,750     (4,808     14,324         (39,613

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —          —          (199     —           (199
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (38,379   $ (10,750   $ (4,609   $ 14,324       $ (39,414
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

35


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED JANUARY 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination      Consolidated  

Net cash provided by (used in) operating activities

   $ (31,037   $ 68,515      $ 200      $ —         $ 37,678   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash Flows from Investing Activities:

           

Acquisitions, net of cash acquired

     —          (8,519     —          —           (8,519

Additions to property, plant and equipment     - acquisition

     —          (2,440     —          —           (2,440

                                                                            - growth

     —          (3,894     (415     —           (4,309

                                                                            - maintenance

     (1,380     (28,542     —          —           (29,922

Payments on landfill operating lease contracts

     —          (6,052     —          —           (6,052

Investments in unconsolidated entities

     (2,107     —          —          —           (2,107

Proceeds from sale of equity method investment

     2,845        —          —          —           2,845   

Proceeds from sale of property and equipment

     —          1,248        —          —           1,248   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (642     (48,199     (415     —           (49,256

Cash Flows from Financing Activities:

           

Proceeds from long-term borrowings

     120,890        —          —          —           120,890   

Principal payments on long-term debt

     (106,854     (980     —          —           (107,834

Payments of financing costs

     (404     —          —          —           (404

Intercompany borrowings

     19,214        (19,214     —          —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     32,846        (20,194     —          —           12,652   

Net cash provided by (used in) discontinued operations

     —          (117     —          —           (117
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     1,167        5        (215     —           957   

Cash and cash equivalents, beginning of period

     1,260        253        242        —           1,755   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 2,427      $ 258      $ 27      $ —         $ 2,712   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

36


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

NINE MONTHS ENDED JANUARY 31, 2013

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination      Consolidated  

Net cash provided by (used in) operating activities

   $ (3,983   $ 34,962      $ 192      $ —         $ 31,171   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash Flows from Investing Activities:

           

Acquisitions, net of cash acquired

     —          (25,106     —          —           (25,106

Additions to property, plant and equipment    - acquisition

     —          (528     —          —           (528

                                                                           - growth

     —          (5,471     (4,885     —           (10,356

                                                                           - maintenance

     (233     (32,199     —          —           (32,432

Payments on landfill operating lease contracts

     —          (5,726     —          —           (5,726

Payment for capital related to divestiture

     —          (618     —          —           (618

Investments in unconsolidated entities

     (1,000     (3,196     3,196        —           (1,000

Proceeds from sale of property and equipment

     —          781        —          —           781   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (1,233     (72,063     (1,689     —           (74,985

Cash Flows from Financing Activities:

           

Proceeds from long-term borrowings

     334,497        —          —          —           334,497   

Principal payments on long-term debt

     (319,365     (1,118     —          —           (320,483

Payment of tender premium and costs on second lien notes

     (10,743     —          —          —           (10,743

Payments on financing costs

     (4,572     —          —          —           (4,572

Net proceeds from the sale of class A common stock

     42,184        —          —          —           42,184   

Excess tax benefit on the vesting of share based awards

     98        —          —          —           98   

Contributions from noncontrolling interest holders

     —          —          1,195        —           1,195   

Intercompany borrowings

     (39,862     39,862        —          —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     2,237        38,744        1,195        —           42,176   

Net cash provided by (used in) discontinued operations

     —          (1,784     —          —           (1,784
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (2,979     (141     (302     —           (3,422

Cash and cash equivalents, beginning of period

     3,799        368        367        —           4,534   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

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

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

37


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended April 30, 2013 filed with the Securities and Exchange Commission (“SEC”) on June 27, 2013.

This Quarterly Report on Form 10-Q and, in particular, this Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended (“Exchange Act”), including:

 

    expected liquidity and financing plans;

 

    expected future revenues, operations, expenditures and cash needs;

 

    fluctuations in the commodity pricing of our recyclables, increases in landfill tipping fees and fuel costs and general economic and weather conditions;

 

    projected future obligations related to capping, closure and post-closure costs of our existing landfills and any disposal facilities which we may own or operate in the future;

 

    our ability to use our net operating losses and tax positions;

 

    our ability to service our debt obligations;

 

    the projected development of additional disposal capacity or expectations regarding permits of existing capacity;

 

    the recoverability or impairment of any of our assets or goodwill;

 

    estimates of the potential markets for our products and services, including the anticipated drivers for future growth;

 

    sales and marketing plans or price and volume assumptions;

 

    the outcome of any legal or regulatory matter;

 

    potential business combinations or divestitures; and

 

    projected improvements to our infrastructure and impact of such improvements on our business and operations.

In addition, any statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements. You can identify these forward-looking statements by the use of the words “believes”, “expects”, “anticipates”, “plans”, “may”, “will”, “would”, “intends”, “estimates” and other similar expressions, whether in the negative or affirmative. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate, as well as management’s beliefs and assumptions, and should be read in conjunction with our unaudited consolidated financial statements and unaudited notes to consolidated financial statements included in this Quarterly Report on Form 10-Q. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in the forward-looking statements made. The occurrence of the events described and the achievement of the expected results depends on many events, some or all of which are not predictable or within our control. Actual results may differ materially from those set forth in forward-looking statements.

 

38


There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, without limitation, those detailed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2013. We expressly disclaim any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as otherwise required by law.

Company Overview

Founded in 1975 with a single truck, Casella Waste Systems, Inc. is a regional, vertically-integrated solid waste, recycling and resource management services company. We provide resource management expertise and services to residential, commercial, municipal and industrial customers, primarily in the areas of solid waste collection and disposal, transfer, recycling and organics services. We operate in six states: Vermont, New Hampshire, New York, Massachusetts, Maine and Pennsylvania, with our headquarters located in Rutland, Vermont. We manage our solid waste operations on a geographic basis through two regional operating segments, the Eastern and Western regions, each of which provides a full range of solid waste services, and our larger-scale recycling and commodity brokerage operations through our Recycling segment. Organics services, ancillary operations, major customer accounts, discontinued operations, and earnings from equity method investees are included in our Other segment.

As of February 14, 2014, we owned and/or operated 34 solid waste collection operations, 38 transfer stations, 16 recycling facilities, nine Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition materials.

Acquisitions and Divestitures

Acquisitions

In fiscal year 2013, we established a dedicated business development team that identifies acquisition candidates, categorizes the opportunity by strategic fit and perceived level of financial accretion, establishes contact with the appropriate representative of the acquisition candidate and gathers further information on the acquisition candidate.

We have made in the past, and we may make in the future, acquisitions in order to acquire or develop additional disposal capacity. These acquisitions may include “tuck-in” acquisitions within our existing markets, assets that are adjacent to or outside of our existing markets, or larger, more strategic acquisitions. In addition, from time to time, we may acquire businesses that are complementary to our core business strategy. We face considerable competition for acquisition targets, particularly the larger and more meaningful targets, due to among other things our limited access to and weighted average cost of capital, but we believe that our strong relationships and reputation in the New England and upstate New York areas help to offset these factors.

During the nine months ended January 31, 2014, we acquired three solid waste hauling operations in the Western region for total consideration of $2.5 million as of the acquisition dates, including $2.0 million in cash, less than $0.1 million of advanced customer billings and $0.5 million in holdbacks to the sellers, and a solid waste hauling operation and a transfer station in the Eastern region for total consideration of $4.3 million as of the acquisition dates, including $4.1 million in cash and $0.2 million associated with the forgiveness of trade receivables and advanced customer billings. We also acquired an industrial environmental service management business in the Other segment for total consideration of $2.5 million as of the acquisition date, including $1.3 million in cash, $0.3 million in holdbacks to the seller and $0.9 million in consideration, not to exceed $1.0 million, contingent upon the realization of a measure of operating income associated with certain prospective customer contracts within twelve months of closing. In addition, we acquired the remaining 50% membership interest of Tompkins County Recycling LLC (“Tompkins”) in the Recycling segment, which we had previously accounted for as an equity method investment, for total cash consideration of $0.4 million.

During the nine months ended January 31, 2013, we acquired four solid waste hauling operations in the Western region for total consideration of $5.4 million as of the acquisition dates, including $4.9 million in cash and $0.5 million 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 $22.6 million as of the acquisition date, including $20.0 million in cash and 0.6 million shares of our Class A common stock, valued at an aggregate of $2.6 million. We recorded an additional $5.2 million to goodwill for the increased deferred tax liability related to the BBI acquisition based on the

 

39


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 acquisition of BBI, a provider of solid waste collection, transfer and liquid waste services in New Hampshire and Maine, on December 6, 2012 provided us the opportunity to internalize additional waste and recyclables and to consolidate operations, routes and transportation within the Eastern region. The operating results of these businesses are included in the accompanying unaudited consolidated statements of operations from each date of acquisition, and the purchase price has been allocated to the net assets acquired based on fair values at each date 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, except amounts related to the acquisition of BBI, are expected to be deductible for tax purposes.

Divestitures

From time to time, we may sell or divest certain investments or other components of our business. These divestitures may be undertaken for a number of reasons, including to generate proceeds to pay down debt; as a result of a determination that the specified asset will provide inadequate returns to us or that the asset no longer serves a strategic purpose in connection with our business; or if we determine the asset may be more valuable to a third party. We will continue to look to divest certain activities and investments that no longer enhance or complement our core business if the right opportunity presents itself.

On December 5, 2013, we and LP executed a purchase and sale agreement with a limited liability company formed by Tenex Capital Partners, L.P., pursuant to which we and LP agreed to sell our membership interests in US GreenFiber LLC (“GreenFiber”) for total cash consideration of $18.0 million plus an expected working capital true up less any indebtedness and other unpaid transaction costs of GreenFiber as of the closing date. The transaction was completed on December 5, 2013 for $19.2 million in gross cash proceeds, including a $1.2 million working capital adjustment. After netting indebtedness of GreenFiber and transaction costs, our 50% of the net cash proceeds amounted to $3.4 million, of which $0.6 million is recorded as a receivable within other current assets as of January 31, 2014. Considering the $0.6 million impact of our unrealized losses relating to derivative instruments in accumulated other comprehensive income (loss) on our investment in GreenFiber, we recorded a gain on sale of equity method investment of $0.6 million in the three months ended January 31, 2014. As a result of the sale, we and LP no longer guarantee up to $0.8 million in support of GreenFiber’s new term loan associated with an amended loan and security agreement, and are no longer committed to fund any liquidity shortfalls, if any such shortfalls exist, of GreenFiber related to covenant compliance as defined in GreenFiber’s amended loan and security agreement. We had previously accounted for our 50% membership interest in GreenFiber using the equity method of accounting.

In the fourth quarter of fiscal year 2013, we initiated a plan to dispose of KTI BioFuels, Inc. (“BioFuels”), a construction and demolition material processing facility located in Lewiston, Maine, and as a result, the assets associated with BioFuels were classified as held-for-sale and the results of operations were recorded as a loss from discontinued operations. Assets of the disposal group classified as held-for-sale, and now included in discontinued operations as of April 30, 2013, include certain inventory along with plant and equipment. In the first quarter of fiscal year 2014, we executed a purchase and sale agreement with ReEnergy Lewiston LLC (“ReEnergy”), pursuant to which we agreed to sell certain assets of BioFuels, which was located in our Eastern region, to ReEnergy. We agreed to sell the BioFuels assets for undiscounted purchase consideration of $2.0 million, which will be paid to us in equal quarterly installments over five years commencing November 1, 2013, subject to the terms of the purchase and sale agreement.

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 Recovery Company LP (“Maine Energy”), which was 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 $6.7 million, which is being paid to us in equal installments over 21 years, subject to the terms of the purchase and sale agreement. The transaction closed in November 2012, and we waived certain conditions precedent not satisfied at that time. In December 2012, we closed the Maine Energy facility and initiated the decommissioning process in accordance with the provisions of the agreement. In the three months ended January 31, 2013, we recorded a charge to loss on divestiture of $0.4 million, which was subsequently reversed in the fourth quarter of fiscal year 2013 when we revised our estimated closing costs as more information became available to us. Following the decommissioning of the Maine Energy facility, 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. Demolition is nearly complete, pending final approval of work plans by the United States Environmental Protection Agency, and the time for completion has been consensually extended by Maine Energy and the City of Biddeford. We will continue to finalize

 

40


estimates and obtain additional information regarding the estimated costs associated with the divestiture. Due to the inherent judgments and estimates regarding the remaining costs to fulfill our obligation under the purchase and sale agreement to demolish the facility and remediate the site, recognition of a loss on divestiture, which we do not expect, or a potential gain on divestiture is possible.

As a part of the closure and decommissioning of the Maine Energy facility, we have withdrawn from a multiemployer pension plan to which we have made contributions 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 FASB 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 withdrew from the plan in the first quarter of 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, 2014, no accrual is established related to withdrawal from the multiemployer pension plan and we believe that our share of any liability associated with the unfunded vested benefits will be immaterial.

 

41


Results of Operations

The following table summarizes our revenues and expenses from continuing operations for the three and nine months ended January 31, 2014 and 2013 (in millions and as a percentage of revenue):

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     % of
Revenue
    2013     % of
Revenue
    2014     % of
Revenue
    2013     % of
Revenue
 

Revenues

   $ 117.9        100.0   $ 112.2        100.0   $ 378.7        100.0   $ 346.6        100.0

Operating expenses:

                

Cost of operations

     87.6        74.3     81.4        72.6     266.5        70.4     244.8        70.6

General and administration

     15.4        13.0     14.3        12.8     46.9        12.4     43.4        12.5

Depreciation and amortization

     14.4        12.3     14.0        12.4     45.3        12.0     43.2        12.5

Development project charge

     1.4        1.2     —          0.0     1.4        0.4     —          0.0

Environmental remediation charge

     0.3        0.3     —          0.0     0.4        0.1     —          0.0

Expense from divestiture, acquisition and financing costs

     0.1        0.1     0.4        0.3     0.1        0.0     1.0        0.3

Severance and reorganization costs

     —          0.0     1.6        1.5     0.2        0.0     3.5        1.0

Loss on divestiture

     —          0.0     0.4        0.3     —          0.0     0.4        0.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     119.2        101.2     112.1        99.9     360.8        95.3     336.3        97.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

     (1.3     –1.2     0.1        0.1     17.9        4.7     10.3        3.0

Other expense (income), net:

                

Interest expense, net

     9.4        7.9     9.2        8.1     28.4        7.5     32.4        9.3

Loss from equity method investments

     0.1        0.1     1.4        1.3     1.0        0.3     3.3        1.0

Gain on sale of equity method investment

     (0.6     –0.5     —          0.0     (0.6     –0.2     —          0.0

Loss (gain) on derivative instruments

     0.2        0.2     —          0.0     0.2        0.1     3.9        1.1

Loss on debt extinguishment

     —          0.0     5.9        5.3     —          0.0     15.5        4.5

Other income

     (0.1     –0.1     (0.3     –0.3     (0.7     –0.2     (0.7     –0.2

Provision (benefit) for income taxes

     0.7        0.6     (5.0     –4.4     1.3        0.3     (3.9     –1.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

   $ (11.0     –9.4   $ (11.1     –9.9   $ (11.7     –3.1   $ (40.2     –11.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Revenues

We manage our solid waste operations, which include a full range of solid waste services, on a geographic basis through two regional operating segments, which we designate as the Eastern and Western regions. Revenues in our Eastern and Western regions consist primarily of fees charged to customers for solid waste disposal and collection, landfill, landfill gas-to-energy, transfer and recycling services. We derive a substantial portion of our collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of our residential collection services are performed on a subscription basis with individual households. Landfill and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our disposal facilities and transfer stations. We also generate and sell electricity at certain of our landfill facilities. In addition, revenues from our Recycling segment consist of revenues derived from municipalities and customers in the form of processing fees, tipping fees and commodity sales. Organics services, ancillary operations, major customer accounts, discontinued operations, and earnings from equity method investees are included in our “Other” reportable segment.

 

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Our revenues are shown net of inter-company eliminations. The table below shows, for the periods indicated, the percentages and dollars (in millions) of revenue attributable to services provided.

 

     Three Months Ended
January 31,
    Nine Months Ended
January 31,
 
     2014     2013     2014     2013  

Collection

   $ 54.3         46.1   $ 51.5         45.9   $ 171.5         45.3   $ 157.1         45.3

Disposal

     28.9         24.5     27.2         24.2     101.4         26.8     90.6         26.1

Power generation

     2.8         2.4     3.4         3.0     6.8         1.8     8.9         2.6

Processing

     1.8         1.5     2.1         1.9     7.2         1.9     5.1         1.5
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Solid waste operations

     87.8         74.5     84.2         75.0     286.9         75.8     261.7         75.5

Organics

     8.8         7.4     8.7         7.8     28.1         7.4     25.9         7.5

Customer solutions

     11.1         9.4     8.6         7.7     30.8         8.1     27.3         7.9

Recycling

     10.2         8.7     10.7         9.5     32.9         8.7     31.7         9.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues

   $ 117.9         100.0   $ 112.2         100.0   $ 378.7         100.0   $ 346.6         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Our revenues increased $5.7 million, or 5.1%, and $32.1 million, or 9.3%, when comparing the three and nine months ended January 31, 2014 to the same periods in the prior fiscal year. The following table provides details associated with the period-to-period changes in revenues (in millions) attributable to services provided:

 

     Period-to-Period
Change for the Three Months Ended
January 31, 2014 vs. 2013
    Period-to-Period
Change for the Nine Months Ended
January 31, 2014 vs. 2013
 
     Amount     % of Growth     Amount     % of Growth  

Solid Waste Operations:

        

Price

   $ 0.4        0.4   $ 2.1        0.6

Volume

     2.5        2.2     15.8        4.6

Fuel and oil recovery fee

     (0.3     –0.3     (0.6     –0.2

Commodity price & volume

     0.2        0.2     0.7        0.2

Acquisitions & divestitures

     0.8        0.7     7.7        2.2

Closed landfills

     —          0.0     (0.5     –0.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total solid waste

     3.6        3.2     25.2        7.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Organics

     0.1        0.1     2.2        0.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Customer solutions

     2.5        2.2     3.5        1.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Recycling Operations:

        

Commodity price

     0.3        0.3     —          0.0

Commodity volume

     (0.9     –0.8     1.1        0.3

Acquisition

     0.1        0.1     0.1        0.1
  

 

 

   

 

 

   

 

 

   

 

 

 

Total recycling

     (0.5     –0.4     1.2        0.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue growth

   $ 5.7        5.1   $ 32.1        9.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Solid waste revenues

Price.

 

    The price change component in quarterly total solid waste revenue growth period-to-period is the result of $0.5 million from favorable collection pricing, partially offset by $0.1 million from unfavorable disposal pricing.

 

    The price change component in year-to-date total solid waste revenue growth period-to-period is the result of $2.1 million from favorable collection pricing.

 

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Volume.

 

    The volume change component in quarterly total solid waste revenue growth period-to-period is the result of $2.0 million from disposal volume increases (of which $0.8 million relates to landfills, $0.9 million relates to transfer stations and $0.3 million relates to transportation) and $0.8 million from collection volume increases, partially offset by $0.3 million from processing volume decreases.

 

    The volume change component in year-to-date total solid waste revenue growth period-to-period is the result of $12.9 million from disposal volume increases (of which $5.9 million relates to landfills, $4.7 million relates to transfer stations and $2.3 million relates to transportation), $0.6 million from processing volume increases and $2.3 million from collection volume increases.

Fuel and oil recovery fee.

 

    Quarterly and year-to-date total solid waste revenues generated by our fuel and oil recovery fee program, which is based on a fuel index, decreased when compared to the prior fiscal year periods as our floating rate recovery fee declined in response to lower diesel fuel index prices on which our surcharge is based.

Commodity price and volume.

 

    The commodity price and volume change component in quarterly total solid waste revenue growth period-to-period is the result of $0.8 million from favorable pricing within power generation, partially offset by $0.5 million from decreased power generation and processing volumes and less than $0.1 million from unfavorable processing pricing.

 

    The commodity price and volume change component in year-to-date total solid waste revenue growth period-to-period is the result of $1.6 million from favorable pricing within power generation, partially offset by $0.6 million from decreased power generation and processing volumes and $0.4 million from unfavorable processing pricing.

Acquisitions and divestitures.

 

    The acquisitions and divestitures change component in quarterly total solid waste revenue growth period-to-period is the result of $2.9 million in increased revenues from acquisitions, primarily associated with our acquisition of BBI in December 2012, and our acquisition of four solid waste hauling operations and a transfer station in the nine months ended January 31, 2014. Increased revenues were partially offset by $2.1 million in decreased revenues associated with the Maine Energy divestiture.

 

    The acquisitions and divestitures change component in year-to-date total solid waste revenue growth period-to-period is the result of $15.2 million in increased revenues from acquisitions, primarily associated with our acquisition of BBI in December 2012, and our acquisition of four solid waste hauling operations and a transfer station in the nine months ended January 31, 2014. Increased revenues were partially offset by $7.5 million in decreased revenues associated with the Maine Energy divestiture.

Closed landfills.

 

    The closed landfill change component in year-to-date total solid waste revenue growth period-to-period is the result of a landfill in the Eastern region that stopped accepting waste in the second quarter of fiscal year 2013 based on the attainment of its permitted capacity. The impact of the closure was limited as we were granted a permit in May 2013 to accept an additional 0.2 million tons of waste at this landfill. We began placing additional waste at this landfill pursuant to the permit at the end of June 2013.

 

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Organics revenues

 

    The change component in quarterly organics revenue growth period-to-period is the result of $0.1 million from volume increases.

 

    The change component in year-to-date organics revenue growth period-to-period is the result of $2.3 million from volume increases, partially offset by $0.1 million from a reduction of fuel and oil recovery fees.

Customer solutions revenues

 

    The change component in quarterly customer solutions revenue growth period-to-period is the result of $1.4 million from the acquisition of an industrial environmental service management business and $1.1 million from volume increases.

 

    The change component in year-to-date customer solutions revenue growth period-to-period is the result of $2.3 million from the acquisition of an industrial environmental service management business and $1.2 million from volume increases.

Recycling revenues

 

    The change component in quarterly recycling revenue decline period-to-period is the result of $0.9 million from volume decreases, partially offset by $0.1 million from the acquisition of Tompkins and $0.3 million from favorable pricing due to improved commodity prices in the marketplace when compared to the same prior fiscal year period.

 

    The change component in year-to-date recycling revenue growth period-to-period is the result of $1.1 million from volume increases and $0.1 million from the acquisition of Tompkins.

Operating Expenses

Cost of Operations

Cost of operations includes labor, tipping fees paid to third-party disposal facilities, fuel, maintenance and repair of vehicles and equipment, workers’ compensation and vehicle insurance, the cost of purchasing materials to be recycled, third party transportation expense, district and state taxes, host community fees and royalties. Cost of operations also includes accretion expense related to landfill capping, closure and post closure, leachate treatment and disposal costs and depletion of landfill operating lease obligations.

Our cost of operations expense increased by $6.2 million, or 7.6%, and $21.8 million, or 8.9%, when comparing the three and nine months ended January 31, 2014 to the same periods in the prior fiscal year. As a percentage of revenues, cost of operations was 74.3% and 72.6% for the three months ended January 31, 2014 and 2013 and 70.4% and 70.6% for the nine months ended January 31, 2014 and 2013, respectively.

The period-to-period changes in our cost of operations can be primarily attributed to the following:

 

    Third-party direct costs increased $3.7 million and $12.1 million when comparing the three and nine months ended January 31, 2014 to the comparable prior fiscal year periods due primarily to: organic and acquisition growth in the Customer Solutions group; higher disposal volumes from organic customer growth and the acquisition of BBI and other tuck-in acquisitions; and an increase in state, local and other disposal fees associated with higher disposal volumes and higher taxes due to a shift in mix type.

 

   

Direct operational costs increased $3.6 million when comparing the nine months ended January 31, 2014 to the comparable prior fiscal year period due primarily to: $3.1 million in increased direct operational costs in the first and second quarters of fiscal year 2014 related to higher leachate treatment costs due to the timing of cell development at our landfills, higher equipment rental and lease costs associated with an increase in fleet and landfill equipment rentals, an increase in host and

 

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royalty fees and higher depletion of landfill operating lease obligations due to increased volumes at our landfills, and $0.5 million in increased direct operational costs in the three months ended January 31, 2014 associated with higher landfill sulfur treatment costs and an increase in vehicle insurance costs.

 

    Labor and related benefit costs increased $2.1 million when comparing the nine months ended January 31, 2014 to the comparable prior fiscal year period due to: $2.2 million in increased labor and related benefit costs in the first and second quarters of fiscal year 2014 related to the acquisition of BBI and labor costs associated with processing more commodity volumes in Recycling , and decreased labor and related benefit costs in the three months ended January 31, 2014 with lower benefit costs offsetting higher labor costs due to lower productivity with inclement winter weather.

 

    Vehicle maintenance costs increased $0.5 million and $1.6 million when comparing the three and nine months ended January 31, 2014 to the comparable fiscal year periods due primarily to increased fleet maintenance and costs associated with the integration of the BBI vehicle fleet.

 

    Facility costs increased $1.0 million and $0.9 million when comparing the three and nine months ended January 31, 2014 to the comparable fiscal year periods due primarily to unplanned maintenance activities within the Recycling segment in the three months ended January 31, 2014.

 

    Fuel costs remained consistent when comparing the three months ended January 31, 2014 to the comparable fiscal year period with lower fuel prices offsetting higher fuel consumption due to lower productivity with inclement winter weather, but increased $0.7 million when comparing nine months ended January 31, 2014 to the comparable fiscal year period due primarily to the acquisition of BBI.

General and Administration

General and administration expenses include management, clerical and administrative compensation and overhead, professional services and costs associated with marketing, sales force and community relations efforts.

Our general and administration expense increased $1.1 million, or 7.7%, and $3.5 million, or 8.1%, when comparing the three and nine months ended January 31, 2014 to the same periods in the prior fiscal year. As a percentage of revenues, general and administration expense was 13.0% and 12.8% for the three months ended January 31, 2014 and 2013 and 12.4% and 12.5% for the nine months ended January 31, 2014 and 2013, respectively.

The period-to-period changes in our general and administration expense can largely be attributed to the following:

 

    Labor and related benefit costs increased $0.7 million and $1.4 million when comparing the three and nine months ended January 31, 2014 to the comparable fiscal year periods due primarily to additional personnel costs associated with acquisitions, growth in the Customer Solutions and recruitment and relocation, and an increase in estimated incentive compensation costs.

 

    Bad debt expense increased slightly when comparing the three months ended January 31, 2014 to the comparable fiscal year period, but increased $0.7 million when comparing the nine months ended January 31, 2014 to the same period in prior fiscal year due primarily to collectability issues associated with two disposal customers.

Depreciation and Amortization

Depreciation and amortization expense includes depreciation of fixed assets over the estimated useful life of the assets using the straight-line method, amortization of landfill airspace assets under the units-of-consumption method, and amortization of intangible assets (other than goodwill) based on the economic benefit provided or the straight-line method over their estimated useful lives, typically no more than 10 years. We amortize landfill retirement assets through a charge to cost of operations using a straight-line rate per ton as landfill airspace is utilized. The amount of landfill amortization expense related to airspace consumption can vary materially from landfill to landfill depending upon the purchase price, landfill site and cell development costs. We amortize or depreciate all fixed and intangible assets, other than goodwill, to a zero net book value, and do not apply a salvage value to any fixed assets.

 

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We capitalize certain direct landfill development costs, such as engineering, permitting, legal, construction and other costs associated directly with the expansion of existing landfills. Additionally, we also capitalize certain third-party expenditures related to development projects and pending acquisitions, such as legal and engineering costs. We routinely evaluate all such capitalized costs, and expense those costs related to projects not likely to be successful. Internal and indirect landfill development and acquisition costs, such as executive and corporate overhead, public relations and other corporate services, are expensed as incurred.

We have material financial obligations relating to capping, closure and post-closure costs of our existing landfills and disposal facilities. We have provided accruals for these future financial obligations based on engineering estimates of consumption of permitted landfill airspace over the useful life of any such landfill. There can be no assurance that our financial obligations for capping, closure or post-closure costs will not exceed the amount accrued and reserved or amounts otherwise receivable pursuant to trust funds.

Our depreciation and amortization expense increased $0.4 million, or 2.9%, and $2.1 million, or 4.9%, when comparing the three and nine months ended January 31, 2014 to the same periods in the prior fiscal year. As a percentage of revenues, depreciation and amortization expense was 12.3% and 12.4% for the three months ended January 31, 2014 and 2013 and 12.0% and 12.5% for the nine months ended January 31, 2014 and 2013, respectively.

In the three and nine months ended January 31, 2014, landfill amortization increased by $0.5 million and $1.1 million due to increased landfill volumes within the Eastern region and at certain of our landfills within the Western region, and amortization expense increased $0.3 million and $1.1 million associated with an increase in our intangible assets due to acquisitions made in the nine months ended January 31, 2014 and the acquisition of BBI in December of 2012. This was partially offset by $0.5 million and $1.3 million in decreased depreciation expense associated largely with the makeup of our asset group after the Maine Energy divestiture and the acquisition of BBI.

Development Project Charge

In the three and nine months ended January 31, 2014, we recorded a charge of $1.4 million for deferred costs associated with a gas pipeline development project no longer deemed viable as discussed in Note 11 to our unaudited consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Environmental Remediation Charge

The $0.3 million and $0.4 million in environmental remediation charge recorded in the three and nine months ended January 31, 2014 is associated with the remediation at our Southbridge, Massachusetts landfill (“SBL”) as discussed in Note 6 to our unaudited consolidated financial statements included under Part I, Item 1 and Legal Proceedings included under Part II, Item 1 of this Quarterly Report on Form 10-Q.

Expense from Divestiture, Acquisition and Financing Costs

The $0.1 million expense from divestiture, acquisition and financing costs recorded in the nine months ended January 31, 2014 is primarily associated with legal costs associated with the acquisition of the remaining 50% membership interest of Tompkins as discussed in Note 15 to our unaudited consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

The $1.0 million expense from divestiture, acquisition and financing costs recorded in the nine months ended January 31, 2013 is associated with the following fiscal year 2013 events: a $0.3 million write-off of costs associated with the proposed refinancing of our senior second lien notes (“Second Lien Notes”) and $0.6 million of legal costs associated with the ongoing Maine Energy divestiture transaction and $0.1 million of costs associated with the BBI acquisition.

Severance and Reorganization Costs

In the nine months ended January 31, 2014, we recorded a charge of $0.2 million for severance costs associated with various planned reorganization efforts, including the divestiture of Maine Energy, which is discussed further in Note 12 to our unaudited consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

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On August 8, 2012, we realigned our operations in order to streamline functions and improve our cost structure. Through the reorganization we have enhanced 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 severance and reorganization charge of $1.8 million in the second quarter of fiscal year 2013.

In the three months ended January 31, 2013, we recorded a $1.6 million severance charge related primarily to the closing of Maine Energy, which is discussed further in Note 12 to our unaudited consolidated financial statements included under Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other Expenses

Interest Expense, net

Our interest expense, net increased $0.2 million and decreased $4.0 million when comparing the three and nine months ended January 31, 2014 to the same periods in the prior fiscal year. As a percentage of revenues, interest expense, net was 8.0% and 8.1% for the three months ended January 31, 2014 and 2013 and 7.5% and 9.3% for the nine months ended January 31, 2014 and 2013, respectively.

The increase in interest expense, net during the three months ended January 31, 2014 can largely be attributed to additional interest expense associated with the financing of $16.0 million aggregate principal amount of the Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”) and $5.5 million aggregate principal amount of the Solid Waste Disposal Revenue Bonds Series 2013 (“New Hampshire Bonds”).

The decrease in interest expense, net during the nine months ended January 31, 2014 can largely be attributed to lower interest rates associated with the refinancing in October and November of 2012 of $180.0 million in aggregate principal balance of then outstanding 11.0% Second Lien Notes.

Loss from Equity Method Investments and Gain on Sale of Equity Method Investment

In the three months ended January 31, 2014, we sold our 50% membership interest in GreenFiber and purchased the 50% membership of Tompkins, both of which were previously accounted for using the equity method of accounting.

As a result of the sale of our 50% membership interest in GreenFiber, we recorded a gain on sale of equity method investment of $0.6 million in the three and nine months ended January 31, 2014. Additionally, as a result of the sale, we and LP no longer guarantee up to $0.8 million in support of GreenFiber’s term loan associated with an amended loan and security agreement, and are no longer committed to fund any liquidity shortfalls, if any such shortfalls exist, of GreenFiber related to covenant compliance as defined in GreenFiber’s amended loan and security agreement.

As a result of the purchase of the 50% m