Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
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  ý    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  ý    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
ý
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  ý
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of October 31, 2016:
Class A common stock, $0.01 par value per share:
40,500,202

Class B common stock, $0.01 par value per share:
988,200

 




PART I.
ITEM 1.
FINANCIAL STATEMENTS
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
ASSETS
CURRENT ASSETS:
 
 
 
Cash and cash equivalents
$
3,561

 
$
2,312

Accounts receivable - trade, net of allowance for doubtful accounts of $1,081 and $988, respectively
63,355

 
60,167

Refundable income taxes
716

 
651

Prepaid expenses
9,186

 
7,670

Inventory
4,894

 
4,282

Other current assets
1,372

 
1,586

Total current assets
83,084

 
76,668

Property, plant and equipment, net of accumulated depreciation and amortization of $823,284 and $789,766, respectively
397,491

 
402,252

Goodwill
119,899

 
118,976

Intangible assets, net
8,232

 
9,252

Restricted assets
931

 
2,251

Cost method investments
12,333

 
12,333

Other non-current assets
13,285

 
11,937

Total assets
$
635,255

 
$
633,669

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)
 
September 30,
2016
 
December 31,
2015
 
(Unaudited)
 
 
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
 
 
 
Current maturities of long-term debt and capital leases
$
1,562

 
$
1,448

Accounts payable
47,297

 
44,921

Accrued payroll and related expenses
9,399

 
8,175

Accrued interest
5,153

 
12,305

Current accrued capping, closure and post-closure costs
612

 
732

Other accrued liabilities
16,830

 
17,765

Total current liabilities
80,853

 
85,346

Long-term debt and capital leases, less current portion
499,039

 
505,985

Accrued capping, closure and post-closure costs, less current portion
44,288

 
40,309

Deferred income taxes
6,123

 
5,595

Other long-term liabilities
18,859

 
18,031

COMMITMENTS AND CONTINGENCIES

 

STOCKHOLDERS' DEFICIT:
 
 
 
Casella Waste Systems, Inc. stockholders' deficit
 
 
 
Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 40,500,000 and 40,064,000 shares issued and outstanding, respectively
405

 
401

Class B common stock, $0.01 par value per share; 1,000,000 shares authorized; 988,000 shares issued and outstanding; 10 votes per share, respectively
10

 
10

Additional paid-in capital
347,079

 
344,518

Accumulated deficit
(361,334
)
 
(366,459
)
Accumulated other comprehensive (loss) income
(43
)
 
7

Total Casella Waste Systems, Inc. stockholders' deficit
(13,883
)
 
(21,523
)
Noncontrolling interests
(24
)
 
(74
)
Total stockholders' deficit
(13,907
)
 
(21,597
)
Total liabilities and stockholders' deficit
$
635,255

 
$
633,669

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, except for per share data)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenues
$
151,133

 
$
146,185

 
$
421,236

 
$
406,476

Operating expenses:
 
 
 
 
 
 
 
Cost of operations
98,803

 
99,656

 
284,409

 
286,225

General and administration
18,777

 
17,448

 
55,450

 
52,324

Depreciation and amortization
16,175

 
16,385

 
46,430

 
46,374

Divestiture transactions

 

 

 
(5,611
)
 
133,755

 
133,489

 
386,289

 
379,312

Operating income
17,378

 
12,696

 
34,947

 
27,164

Other expense (income):
 
 
 
 
 
 
 
Interest income
(64
)
 
(56
)
 
(229
)
 
(267
)
Interest expense
9,643

 
10,087

 
29,677

 
30,363

Loss on debt extinguishment
191

 
345

 
736

 
866

Loss on derivative instruments

 
41

 

 
239

Other income
(192
)
 
(178
)
 
(697
)
 
(387
)
Other expense, net
9,578

 
10,239

 
29,487

 
30,814

Income (loss) before income taxes
7,800

 
2,457

 
5,460

 
(3,650
)
Provision for income taxes
263

 
198

 
344

 
1,112

Net income (loss)
7,537

 
2,259

 
5,116

 
(4,762
)
Less: Net income (loss) attributable to noncontrolling interests

 
(37
)
 
(9
)
 
1,189

Net income (loss) attributable to common stockholders
$
7,537

 
$
2,296

 
$
5,125

 
$
(5,951
)
Basic earnings per share attributable to common stockholders:
 
 
 
 
 
 
 
Weighted average common shares outstanding
41,377

 
40,810

 
41,169

 
40,560

Basic earnings per share
$
0.18

 
$
0.06

 
$
0.12

 
$
(0.15
)
Diluted earnings per share attributable to common stockholders:
 
 
 
 
 
 
 
Weighted average common shares outstanding
42,287

 
41,283

 
41,896

 
40,560

Diluted earnings per share
$
0.18

 
$
0.06

 
$
0.12

 
$
(0.15
)
The accompanying notes are an integral part of these consolidated financial statements.

3



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(in thousands)
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Net income (loss)
$
7,537

 
$
2,259

 
$
5,116

 
$
(4,762
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Unrealized loss resulting from changes in fair value of marketable securities
(10
)
 
(44
)
 
(50
)
 
(75
)
Other comprehensive loss, net of tax
(10
)
 
(44
)
 
(50
)
 
(75
)
Comprehensive income (loss)
7,527

 
2,215

 
5,066

 
(4,837
)
Less: Comprehensive income (loss) attributable to noncontrolling interests

 
(37
)
 
(9
)
 
1,189

Comprehensive income (loss) attributable to common stockholders
$
7,527

 
$
2,252

 
$
5,075

 
$
(6,026
)
The accompanying notes are an integral part of these consolidated financial statements.

4



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' DEFICIT
(Unaudited)
(in thousands)
 
 
 
Casella Waste Systems, Inc. Stockholders' Deficit
 
 
 
 
 
Class A
Common Stock
 
Class B
Common Stock
 
Additional Paid-In Capital
 
Accumulated Deficit
 
Accumulated Other Comprehensive (Loss) Income
 
Noncontrolling Interests
 
Total
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2015
$
(21,597
)
 
40,064

 
$
401

 
988

 
$
10

 
$
344,518

 
$
(366,459
)
 
$
7

 
$
(74
)
Net income (loss)
5,116

 

 

 

 

 

 
5,125

 

 
(9
)
Other comprehensive loss
(50
)
 

 

 

 

 

 

 
(50
)
 

Issuances of Class A common stock
188

 
436

 
4

 

 

 
184

 

 

 

Stock-based compensation
2,377

 

 

 

 

 
2,377

 

 

 

Contribution from noncontrolling interest holder
59

 

 

 

 

 

 

 

 
59

Balance, September 30, 2016
$
(13,907
)
 
40,500

 
$
405

 
988

 
$
10

 
$
347,079

 
$
(361,334
)
 
$
(43
)
 
$
(24
)
The accompanying notes are an integral part of these consolidated financial statements.

5



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
Nine Months Ended
September 30,
 
2016
 
2015
Cash Flows from Operating Activities:
 
 
 
Net income (loss)
$
5,116

 
$
(4,762
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
46,430

 
46,374

Depletion of landfill operating lease obligations
7,130

 
7,019

Interest accretion on landfill and environmental remediation liabilities
2,688

 
2,572

Amortization of debt issuance costs and discount on long-term debt
3,106

 
2,941

Stock-based compensation
2,377

 
2,325

Gain on sale of property and equipment
(541
)
 
(137
)
Divestiture transactions

 
(5,611
)
Loss on debt extinguishment
736

 
866

Loss on derivative instruments

 
239

Excess tax benefit on the vesting of share based awards

 
(179
)
Deferred income taxes
528

 
627

Changes in assets and liabilities, net of effects of acquisitions and divestitures:
 
 
 
Accounts receivable
(3,188
)
 
(8,000
)
Accounts payable
2,376

 
1,588

Prepaid expenses, inventories and other assets
(3,262
)
 
1,743

Accrued expenses and other liabilities
(7,425
)
 
(7,075
)
Net cash provided by operating activities
56,071

 
40,530

Cash Flows from Investing Activities:
 
 
 
Acquisitions, net of cash acquired
(2,439
)
 

Acquisition related additions to property, plant and equipment
(38
)
 

Additions to property, plant and equipment
(37,435
)
 
(31,038
)
Payments on landfill operating lease contracts
(4,811
)
 
(2,956
)
Proceeds from divestiture transactions

 
5,335

Proceeds from sale of property and equipment
1,069

 
636

Proceeds from property insurance settlement

 
546

Net cash used in investing activities
(43,654
)
 
(27,477
)
Cash Flows from Financing Activities:
 
 
 
Proceeds from long-term borrowings
140,700

 
296,929

Principal payments on long-term debt
(152,123
)
 
(301,220
)
Payments of debt issuance costs
(682
)
 
(8,991
)
Payments of debt extinguishment costs
(410
)
 
(121
)
Proceeds from the exercise of share based awards

 
161

Excess tax benefit on the vesting of share based awards

 
179

Change in restricted cash
1,347

 
1,319

Distributions to noncontrolling interest holder

 
(1,495
)
Net cash used in financing activities
(11,168
)
 
(13,239
)
Net increase (decrease) in cash and cash equivalents
1,249

 
(186
)
Cash and cash equivalents, beginning of period
2,312

 
2,205

Cash and cash equivalents, end of period
$
3,561

 
$
2,019

Supplemental Disclosure of Cash Flow Information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
33,723

 
$
33,364

Income taxes, net of refunds
$
242

 
$
31

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
 
 
 
Non-current assets obtained through long-term obligations
$
1,841

 
$

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

6



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”), and its consolidated subsidiaries (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 account and industrial services, discontinued operations and earnings from equity method investees, as applicable, are included in our Other segment.
The accompanying unaudited consolidated financial statements, which include the accounts of the Parent, our wholly-owned subsidiaries and any partially owned entities over which we have 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 significant 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 the cost method of accounting, as appropriate. Our significant accounting policies are more fully discussed in Item 8 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, which was filed with the SEC on March 2, 2016.
Preparation of our 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 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. The results for the three and nine months ended September 30, 2016 may not be indicative of the results for any other interim period or the entire fiscal year. The 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 fiscal year ended December 31, 2015.
For comparative purposes, certain prior period amounts in the consolidated financial statements, including the presentation of debt issuance costs, have been reclassified to conform to the current period presentation. See Note 2, Accounting Changes for discussion regarding changes to the presentation of debt issuance costs and Note 6, Long-Term Debt for the updated disclosure.
Subsequent Events
We have evaluated subsequent events or transactions that have occurred after the consolidated balance sheet date of September 30, 2016, but prior to the filing of the consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q. We have determined that, except as disclosed, there are no subsequent events that require disclosure in this Quarterly Report on Form 10-Q. See Note 6, Long-Term Debt for further disclosure.

7



2.
ACCOUNTING CHANGES
A table providing a brief description of recent Accounting Standards Updates (“ASU”) to the Accounting Standards Codification (“ASC”) issued by the Financial Accounting Standards Board (“FASB”) deemed to have a potentially material effect on our consolidated financial statements upon adoption follows:
Standard
  
Description
  
Effect on the Financial Statements or Other
Significant Matters
Accounting standards that were adopted effective January 1, 2016
ASU 2016-09: Compensation - Stock Compensation (Topic 718)
  
Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.
  
The adoption of this ASU resulted in the following: (1) our stock-based compensation accounting policy was updated to record stock-based compensation expense for all equity-based awards by accounting for forfeitures as they occur; (2) our accounting for excess tax benefits and tax deficiencies in the calculation of income tax expense was updated; and (3) excess tax benefits are classified as a cash flow from operating activities and are no longer separated from income tax cash flows and classified as a cash flow from financing activities.
 
 
 
ASU 2015-03 and 15: Imputation of Interest (Topic 835-30)
  
These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
  
The adoption of this ASU resulted in the presentation of debt issuance costs on our balance sheet being treated as a direct reduction of the carrying amount of the debt liability rather than a capitalized other non-current asset. See Note 6, Long-Term Debt for the updated disclosure.

8



A table providing a brief description of recent accounting pronouncements that may have a material effect on our consolidated financial statements upon adoption follows:
Standard
  
Description
  
Effect on the Financial Statements or Other
Significant Matters
Accounting standards that are not yet adopted
ASU 2016-02: Leases (Topic 842)
  
Requires that a lessee recognize at the commencement date: a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
  
The adoption of this ASU primarily impacts the balance sheet through the recognition of a right-of-use asset and a lease liability for all leases. This guidance is effective January 1, 2019 using a modified retrospective transition approach with early adoption permitted.
 
 
 
ASU 2016-01: Financial Instruments - Overall (Topic 825-10)
  
Requires the following: (1) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (2) entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (3) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset; and (4) the elimination of the disclosure requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
  
The adoption of this ASU results in a cumulative-effect adjustment to the balance sheet, the recognition of changes in fair value of certain equity investments in net income, and enhanced disclosure. This guidance is effective January 1, 2018 with a cumulative-effect adjustment.
 
 
 
ASU 2014-09, ASU 2015-14, ASU 2016-10 and ASU 2016-12: Revenue from Contracts with Customers (Topic 606)
  
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
  
We are currently evaluating the alternative methods of adoption and the effect on our consolidated financial statements and related disclosures. This guidance is effective January 1, 2018 using a full or modified retrospective approach with early adoption permitted January 1, 2017.
3.
BUSINESS COMBINATIONS
We acquired three transfer stations in our Western region during the nine months ended September 30, 2016. The operating results of the acquired businesses are included in the accompanying unaudited consolidated statements of operations from the date of acquisition, and the purchase price has been allocated to the net assets acquired based on fair values at the date of each acquisition, with the residual amounts recorded as goodwill.

9



A summary of the purchase price for these acquisitions and the allocation of the purchase price for these acquisitions follows:
 
Nine Months Ended
September 30,
 
2016
 
2015
Purchase Price:
 
 
 
Cash used in acquisitions
$
2,439

 
$

Holdbacks
400

 

Total
2,839

 

Allocated as follows:
 
 
 
Current assets
40

 

Land
353

 

Buildings
1,360

 

Equipment
269

 

Other liabilities, net
(106
)
 

Fair value of assets acquired and liabilities assumed
1,916

 

Excess purchase price allocated to goodwill
$
923

 
$

Unaudited pro forma combined information that shows our operational results as though each of the acquisitions completed in the nine months ended September 30, 2016 had occurred as of January 1, 2015 follows.
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Revenue
$
151,133

 
$
147,008

 
$
422,059

 
$
408,946

Operating income
$
17,378

 
$
12,617

 
$
34,868

 
$
26,926

Net income (loss) attributable to common stockholders
$
7,537

 
$
2,249

 
$
5,078

 
$
(6,093
)
Basic earnings per share attributable to common stockholders
$
0.18

 
$
0.06

 
$
0.12

 
$
(0.15
)
Basic weighted average shares outstanding
41,377

 
40,810

 
41,169

 
40,560

Diluted earnings per share attributable to common stockholders
$
0.18

 
$
0.05

 
$
0.12

 
$
(0.15
)
Diluted weighted average shares outstanding
42,287

 
41,283

 
41,896

 
40,560

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 January 1, 2015 or of 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.
4.
GOODWILL AND INTANGIBLE ASSETS
A summary of the activity and balances related to goodwill by operating segment follows:
 
December 31, 2015
 
Acquisitions
 
September 30, 2016
Eastern region
$
17,429

 
$

 
$
17,429

Western region
87,503

 
923

 
88,426

Recycling
12,315

 

 
12,315

Other
1,729

 

 
1,729

Total
$
118,976

 
$
923

 
$
119,899


10



A summary of intangible assets by intangible asset type follows:
 
Covenants
Not-to-Compete
 
Client Lists
 
Total
Balance, September 30, 2016
 
 
 
 
 
Intangible assets
$
17,594

 
$
16,071

 
$
33,665

Less accumulated amortization
(16,288
)
 
(9,145
)
 
(25,433
)
 
$
1,306

 
$
6,926

 
$
8,232

 
Covenants
Not-to-Compete
 
Client Lists
 
Total
Balance, December 31, 2015
 
 
 
 
 
Intangible assets
$
17,266

 
$
16,065

 
$
33,331

Less accumulated amortization
(16,198
)
 
(7,881
)
 
(24,079
)
 
$
1,068

 
$
8,184

 
$
9,252

Intangible amortization expense was $561 and $1,604 during the three and nine months ended September 30, 2016, respectively, as compared to $595 and $1,977 during the three and nine months ended September 30, 2015, respectively.
A summary of intangible amortization expense estimated for the five fiscal years following the fiscal year ended December 31, 2015 and thereafter follows:
Estimated Future Amortization Expense as of September 30, 2016
 
Fiscal year ending December 31, 2016
$
531

Fiscal year ending December 31, 2017
$
1,901

Fiscal year ending December 31, 2018
$
1,698

Fiscal year ending December 31, 2019
$
1,330

Fiscal year ending December 31, 2020
$
1,137

Thereafter
$
1,635

 
5.
ACCRUED FINAL CAPPING, CLOSURE AND POST CLOSURE
Accrued final capping, closure and post-closure costs include the current and non-current portion of costs associated with obligations for final capping, closure and post-closure of our landfills. We estimate our future final capping, closure and post-closure costs in order to determine the final capping, closure and post-closure expense per ton of waste placed into each landfill. The anticipated time frame 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.
A summary of the changes to accrued final capping, closure and post-closure liabilities follows:
 
Nine Months Ended
September 30,
 
2016
 
2015
Beginning balance
$
41,041

 
$
39,829

Obligations incurred
1,828

 
1,971

Revisions in estimates (1)
(56
)
 

Accretion expense
2,688

 
2,513

Obligations settled (2)
(601
)
 
(2,209
)
Ending balance
$
44,900

 
$
42,104

 
(1)
Relates to changes in estimates and assumptions concerning the anticipated waste flow, cost and timing of future final capping, closure and post-closure activities at certain of our landfills.
(2)
Includes amounts that are being processed through accounts payable as a part of our disbursement cycle.

11



6.
LONG-TERM DEBT
A summary of long-term debt and capital leases by debt instrument follows:
 
September 30,
2016
 
December 31,
2015
Senior Secured Asset-Based Revolving Credit Facility:
 
 
 
Due February 2020; bearing interest at one-month LIBOR plus 2.25%
$
56,299

 
$
57,422

Tax-Exempt Bonds:
 
 
 
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 due December 2044 - fixed rate interest period through 2019, bearing interest at 3.75%
25,000

 
25,000

New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 due December 2044 - fixed rate interest period through 2026, bearing interest at 3.125%
15,000

 

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 2025 - fixed rate interest period through 2017, bearing interest at 6.25%
21,400

 
21,400

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 due August 2035 - fixed rate interest period through 2025, bearing interest at 5.125%
15,000

 
15,000

Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 due April 2036 - fixed rate interest period through 2018, bearing interest at 4.75%
16,000

 
16,000

Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013 due April 2029 - fixed rate interest period through 2019, bearing interest at 4.00%
11,000

 
11,000

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1; letter of credit backed due January 2025 - variable rate interest period through 2017, bearing interest at SIFMA Index
3,600

 
3,600

Other:
 
 
 
Capital leases maturing through April 2023, bearing interest at up to 7.70%
5,287

 
4,130

Notes payable maturing through January 2021, bearing interest at up to 7.00%
1,143

 
1,167

Senior Subordinated Notes:
 
 
 
Due February 2019; bearing interest at 7.75%
345,570

 
370,300

Principal amount of long-term debt and capital leases
515,299

 
525,019

Less—unamortized discount and debt issuance costs (1)
14,698

 
17,586

Long-term debt and capital leases less unamortized discount and debt issuance costs
500,601

 
507,433

Less—current maturities of long-term debt
1,562

 
1,448

 
$
499,039

 
$
505,985

 
(1)
A summary of unamortized discount and debt issuance costs by debt instrument follows:
 
September 30,
2016
 
December 31,
2015
Senior Secured Asset-Based Revolving Credit Facility
$
4,637

 
$
5,593

New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014
1,267

 
1,407

New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2
586

 

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2
518

 
566

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015
778

 
830

Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013
612

 
636

Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013
595

 
690

Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1
32

 
35

Senior Subordinated Notes
5,673

 
7,829

 
$
14,698

 
$
17,586


12



Financing Activities
Credit Facility
In October 2016, we entered into a credit agreement, which consists of a $350,000 aggregate principal amount term loan B facility and a $160,000 revolving line of credit facility. The net proceeds from this transaction have been used to repay in full our senior secured asset-based revolving credit and letter of credit facility ("ABL Facility") and will be used to redeem all of our remaining outstanding 7.75% Senior Subordinated Notes due 2019 ("2019 Notes") in November 2016 at a redemption price equal to 101.938% of the principal amount thereof plus accrued and unpaid interest thereon and for payment of transaction related expenses.
New York Bonds 2016
In the nine months ended September 30, 2016, we completed a financing transaction involving the issuance by the New York State Environmental Facilities Corporation of $15,000 aggregate principal amount of Solid Waste Disposal Revenue Bonds Series 2014R-2 (“New York Bonds 2016”). We borrowed the proceeds of the offering of the New York Bonds 2016 to finance or refinance certain capital projects in the state of New York, and to pay certain costs of issuance of the New York Bonds 2016.
Loss on Debt Extinguishment
We recorded a loss on debt extinguishment of $191 and $736 in the three and nine months ended September 30, 2016, respectively, as compared to $345 and $866 during the three and nine months ended September 30, 2015, respectively, associated with the following:
the repurchase price and write-off of debt issuance costs and unamortized original issue discount associated with the early redemption, repurchase and retirement of partial portions of our 2019 Notes; and
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our previous senior revolving credit and letter of credit facility that was due March 2016 to the ABL Facility in the nine months ended September 30, 2015.
7.    COMMITMENTS AND 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 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 allegations of environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may be 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 a waste management business.
In accordance with FASB ASC 450-20, we accrue for legal proceedings, inclusive of legal costs, 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 loss 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 FASB ASC 450-20.

13



Expera Old Town, LLC v. Casella Waste Systems, Inc.
On or about November 6, 2015, Expera Old Town, LLC (“Expera”) filed a lawsuit against us in Maine Superior Court, seeking damages for breach of contract and unjust enrichment and an action for declaratory judgment (“Lawsuit”). Expera was a successor-in-interest to a contract between us and Old Town Fuel and Fiber (“OTFF”), the former owner of a pulp manufacturing facility (“Facility”) located in Old Town, Maine (“Contract”). Expera purchased the Facility during the pendency of the bankruptcy of OTFF. Since the filing of the Lawsuit, Expera has sold the Facility and related assets to MFGR LLC (“MFGR”). MFGR alleged that we had the obligation to provide a specialized type of wood fuel to the Facility or, alternatively, that we owed a “Fuel Replacement Fee” of up to $2,000 a year (subject to the possibility of certain credits against such payments). The Contract was to expire in 2036.
On or about February 10, 2016, we reached an agreement in principle with MFGR to dismiss the Lawsuit with prejudice, and to resolve all outstanding claims of any nature including future claims which could arise under the Contract, and a Joint Stipulation of Dismissal with Prejudice was filed with the Superior Court on April 15, 2016. On or about April 12, 2016, the Parties entered into a Settlement Agreement (“SA”) along with other ancillary agreements. Pursuant to the SA, we paid MFGR $1,250 upon execution of the SA, and will pay $350 a year for five years following execution of the SA. Accordingly, taking into account the net present value of the settlement payments, we recorded a reserve of $2,616 that included a contract settlement charge of $1,940 and operating expenses of $676 recorded in the fiscal year ended December 31, 2015. As of September 30, 2016, $1,420 of this reserve remains outstanding. We have also reserved $34 for legal costs associated with the Lawsuit and SA as of September 30, 2016.
We have also entered into a new leachate disposal agreement at market prices with MFGR for the treatment of leachate from the landfill managed by us for the state of Maine located in Old Town, Maine (“Juniper Ridge Landfill”), and MFGR has entered into a waste disposal agreement at market prices with us for the disposal at Juniper Ridge Landfill of waste materials produced in the demolition or re-purposing of the Facility.
Environmental Remediation 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 that existed 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 material outstanding claims.
Southbridge Recycling & Disposal Park, Inc.
In October 2015, our Southbridge Recycling and Disposal Park, Inc. (“SRD”) subsidiary reported to the Massachusetts Department of Environmental Protection (“MADEP”) results of analysis of samples collected pursuant to our existing permit from private drinking water wells located near the Town of Southbridge, Massachusetts Landfill (“Southbridge Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response Action pursuant to state law. Further, we have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are investigating with the objective of identifying the source or sources of the elevated levels of contamination measured in the well samples. If it is determined that some or all of the contamination originated at the Southbridge Landfill, we will work with the Town of Southbridge (“Town”), the Southbridge Landfill owner and the former operator of an unlined portion of the Southbridge Landfill, which was used prior to our operation of a double-lined portion of the Southbridge Landfill commencing in 2004, to evaluate and allocate the liabilities related to that contamination. In July 2016, we sent correspondence to the Town pursuant to Chapter 21E of Massachusetts General Laws demanding that the Town reimburse us for the incurrence of environmental response costs and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to the Town pursuant to our Operating Agreement between us and the Town dated May 29, 2007, as amended. As of September 30, 2016, we have incurred total costs to date of approximately $1,993.

14



In February 2016, we received a Notice of Intent to Sue under the Resource Conservation and Recovery Act from a law firm representing residents from approximately 40 homes located in the vicinity of the Southbridge Landfill, indicating its intent to file suit against us. We believe it is reasonably possible that a loss may occur as a result of this potential matter although an estimate of loss cannot be reasonably provided at this time. We believe the Town should be responsible for any costs or liabilities associated with this suit relative to alleged contamination originating from the unlined portion of the Southbridge Landfill, although there can be no assurance that we will not be required to incur some or all of such costs and liabilities.
In August 2016, we filed a complaint against Steadfast Insurance Company (“Steadfast”) in the Superior Court of Suffolk County, Massachusetts, (the “Litigation”) alleging among other things, that Steadfast breached its Pollution Liability Policy (“Policy”) purchased by us in April 2015, by refusing to acknowledge coverage under the Policy, and refusing to cover any of the costs and liabilities incurred by us as described above as well as costs and liabilities that we may incur in the future. Steadfast filed an answer and counterclaim in September 2016, denying that it has any obligations to us under the Policy, and seeking declaratory judgment of Steadfast’s obligations under the Policy. The costs and liabilities we may be required to incur in connection with the foregoing could have a material impact on our results of operations and financial condition, including our permitting activities and operations at the Southbridge Landfill.
Potsdam Environmental Remediation 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 in Potsdam, New York, 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. On January 29, 2016, a Cost-Sharing Agreement was executed between WSI, NiMo, Alcoa Inc. (“Alcoa”) and Reynolds Metal Company (“Reynolds”) whereby Alcoa and Reynolds elected to voluntarily participate in the onsite remediation activities at a 15% participant share. It is unlikely that any significant expenditures relating to onsite remediation will be incurred until the fiscal year ending December 31, 2017. WSI is jointly and severally liable with NiMo, Alcoa and Reynolds for the total cost to remediate.
We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and estimated costs to complete the remediation in other accrued liabilities and other long-term liabilities. Our expenditures could be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars to the expected time of payment and discount the total cost to present value using a risk free interest rate of 1.8%.
A summary of the changes to the environmental remediation liability associated with the Potsdam environmental remediation liability follows:
 
Nine Months Ended September 30,
 
2016
 
2015
Beginning balance
$
5,221

 
$
5,142

Accretion expense

 
59

Obligations settled (1)
(255
)
 

Ending balance
$
4,966

 
$
5,201

 
(1)
Includes amounts that are being processed through accounts payable as a part of our disbursement cycle.

15



8.
STOCKHOLDERS' EQUITY
Stock Based Compensation
Shares Available For Issuance
In the fiscal year ended April 30, 2007, we adopted the 2006 Stock Incentive Plan (“2006 Plan”). The 2006 Plan was amended in the fiscal year ended April 30, 2010. Under the 2006 Plan, we could grant awards up to an aggregate amount 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 were subject to stock options granted under our 1993 Incentive Stock Option Plan, 1994 Non-statutory Stock Option Plan, 1996 Stock Option Plan, and 1997 Stock Incentive Plan (“Prior Plans”), which were not actually issued under the Prior Plans because such stock options expire or otherwise result in shares not being issued. As of September 30, 2016, there were 646 Class A common stock equivalents available for future grant under the 2006 Plan, inclusive of additional Class A common stock equivalents that were previously issued under our terminated plans and have become available for grant because such awards expired or otherwise resulted in shares not being issued. No awards may be granted under the 2006 Plan after October 9, 2016 and accordingly we expect to implement a new stock incentive plan which has been recommended to stockholders for approval at the 2016 Annual Meeting of Stockholders.
Stock Options
Stock options granted under the 2006 Plan are granted at a price equal to the prevailing fair market value of our Class A common stock at the date of grant. Generally, stock options granted have a term not to exceed ten years and vest over a one to four year period from the date of grant.
A summary of stock option activity follows:
 
Stock Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value
Outstanding, December 31, 2015
1,297

 
$
7.03

 
 
 
 
Granted

 
$

 
 
 
 
Exercised

 
$

 
 
 
 
Forfeited
(196
)
 
$
12.93

 
 
 
 
Outstanding, September 30, 2016
1,101

 
$
5.98

 
5.7
 
$
4,993

Exercisable, September 30, 2016
800

 
$
5.95

 
4.6
 
$
3,710

Expected to vest, September 30, 2016
1,100

 
$
5.98

 
5.6
 
$
4,987

Stock-based compensation expense for stock options was $143 and $435 during the three and nine months ended September 30, 2016, respectively, as compared to $161 and $478 during the three and nine months ended September 30, 2015, respectively.
As of September 30, 2016, total unrecognized stock-based compensation expense related to outstanding stock options was $782, which will be recognized over a weighted average period of 1.6 years.
Other Stock Awards
We granted restricted stock awards, restricted stock units and performance-based 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 granted vest incrementally over an identified service period beginning on the grant date based on continued employment. Performance-based stock units granted vest at a future date following the grant date and are based on the attainment of certain performance targets.

16



A summary of restricted stock, restricted stock unit and performance-based stock unit activity follows:
 
Restricted Stock, Restricted Stock Units, and Performance-Based Stock Units (1)
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Term (years)
 
Aggregate Intrinsic Value
Outstanding, December 31, 2015
962

 
$
4.49

 
 
 
 
Granted
400

 
$
6.32

 
 
 
 
Class A Common Stock Vested
(404
)
 
$
4.40

 
 
 
 
Forfeited
(7
)
 
$
5.52

 
 
 
 
Outstanding, September 30, 2016
951

 
$
5.29

 
1.8
 
$
4,768

Expected to vest, September 30, 2016
811

 
$
5.24

 
1.7
 
$
4,106

(1)
Performance-based stock units are included at the 100% attainment level. Attainment of the maximum performance targets could result in the issuance of an additional 43 shares of Class A common stock.
Stock-based compensation expense related to restricted stock, restricted stock units and performance-based stock units was $585 and $1,863 during the three and nine months ended September 30, 2016, respectively, as compared to $706 and $1,785 during the three and nine months ended September 30, 2015, respectively.
During the three and nine months ended September 30, 2016, the total fair value of restricted stock and restricted stock units vested was $50 and $2,703, respectively.
As of September 30, 2016, total unrecognized stock-based compensation expense related to outstanding restricted stock and restricted stock units was $2,907, which will be recognized over a weighted average period of 1.7 years. As of September 30, 2016, maximum unrecognized stock-based compensation expense related to outstanding performance-based stock units was $431 to be recognized over a weighted average period of 2.3 years.
We also recorded $28 and $79 of stock-based compensation expense related to our Amended and Restated 1997 Employee Stock Purchase Plan during the three and nine months ended September 30, 2016, respectively, as compared to $24 and $62 during the three and nine months ended September 30, 2015, respectively.
Accumulated Other Comprehensive (Loss) Income
A summary of the changes in the balances of each component of accumulated other comprehensive (loss) income, net of tax follows:
 
Marketable
Securities
Balance, December 31, 2015
$
7

Other comprehensive loss before reclassifications
(50
)
Amounts reclassified from accumulated other comprehensive (loss) income

Net current-period other comprehensive loss
(50
)
Balance, September 30, 2016
$
(43
)

17



9.
EARNINGS PER SHARE
A summary of the numerator and denominators used in the computation of earnings per share follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Numerator:
 
 
 
 
 
 
 
Net income (loss) attributable to common stockholders
$
7,537

 
$
2,296

 
$
5,125

 
$
(5,951
)
Denominators:
 
 
 
 
 
 
 
Number of shares outstanding, end of period:
 
 
 
 
 
 
 
Class A common stock
40,500

 
39,978

 
40,500

 
39,978

Class B common stock
988

 
988

 
988

 
988

Unvested restricted stock
(109
)
 
(127
)
 
(109
)
 
(127
)
Effect of weighted average shares outstanding
(2
)
 
(29
)
 
(210
)
 
(279
)
Basic weighted average common shares outstanding
41,377

 
40,810

 
41,169

 
40,560

Impact of potentially dilutive securities:
 
 
 
 
 
 
 
Dilutive effect of stock options and other stock awards
910

 
473

 
727

 

Diluted weighted average common shares outstanding
42,287

 
41,283

 
41,896

 
40,560

Anti-dilutive potentially issuable shares
322

 
665

 
322

 
2,157

10.
FAIR VALUE OF FINANCIAL INSRUMENTS
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 that we believe market participants would use in pricing an asset or a liability.
Assets and Liabilities Accounted for at Fair Value
Our financial instruments for the periods reported below include cash and cash equivalents, trade receivables, trade payables, restricted investments held in trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and post-closure costs, restricted cash reserved to finance certain capital projects, interest rate derivatives, 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 restricted investments held in trust and restricted cash, which are valued using quoted market prices, are included as restricted assets in the Level 1 tier below. The fair value of the interest rate derivative, included in the Level 2 tier below, was calculated based on a valuation obtained from our counter-party based primarily on the three month London Interbank Offered Rate yield curve that was observable at commonly quoted intervals for the full term of the swap. The interest rate derivative matured on March 15, 2016. We recognize all derivatives accounted for on the balance sheet at fair value.

18



Summaries of our financial assets and liabilities that are measured at fair value on a recurring basis follow:
 
Fair Value Measurement at September 30, 2016 Using:
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant Unobservable Inputs (Level 3)
Assets:
 
 
 
 
 
Restricted cash - capital projects
$

 
$

 
$

Restricted investments - landfill closure
931

 

 

Total
$
931

 
$

 
$

 
Fair Value Measurement at December 31, 2015 Using:
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
Assets:
 
 
 
 
 
Restricted cash - capital projects
$
1,348

 
$

 
$

Restricted investments - landfill closure
903

 

 

Total
$
2,251

 
$

 
$

Liabilities:
 
 
 
 
 
Interest rate derivative
$

 
$
178

 
$

Fair Value of Debt
As of September 30, 2016, the fair value of our fixed rate debt, including our 2019 Notes, Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”), Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 (“FAME Bonds 2015”), Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”), New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 (“New York Bonds 2014”), New York Bonds 2016 and Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New Hampshire (“New Hampshire Bonds”) was approximately $460,674 and the carrying value was $448,970. The fair value of the 2019 Notes are considered to be Level 1 within the fair value hierarchy as their fair value is based off of a quoted market price in an active market. The fair value of the FAME Bonds 2005R-2, the FAME Bonds 2015, the Vermont Bonds, the New York Bonds 2014, the New York Bonds 2016 and the New Hampshire Bonds is considered to be Level 2 within the fair value hierarchy as their fair value is determined using market approach pricing provided by a third-party 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 each of the bonds or securities with similar characteristics.
Although we have determined the estimated fair value amounts of the FAME Bonds 2005R-2, the FAME Bonds 2015, the Vermont Bonds, the New York Bonds 2014, the New York Bonds 2016 and the New Hampshire Bonds using available market information and commonly accepted valuation methodologies, a change in available market information, and/or the use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values. These amounts have not been revalued, and current estimates of fair value could differ significantly from the amounts presented. As of September 30, 2016, the fair value of our ABL Facility was considered to be Level 2 within the fair value hierarchy as the fair value approximates its carrying value of $56,299 based on current borrowing rates for similar types of borrowing arrangements. The carrying value of our remaining material variable rate debt, the Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1, approximates fair value because the interest rate for the debt instrument is based on a market index that approximates current market rates for instruments with similar risk and maturities.
11.
DIVESTITURE TRANSACTIONS
Sale of Business
In the quarter ended June 30, 2015, we divested of a business, which included the sale of certain assets associated with various waste collection routes in the Western region, for total consideration of $872, resulting in a gain of $677 in the nine months ended September 30, 2015.

19



Maine Energy
In the fiscal year ended April 30, 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 Recovery Company, LP (“Maine Energy”) to the City of Biddeford. We agreed to sell Maine Energy for an undiscounted purchase consideration of $6,650, which was to be paid to us in installments over twenty-one years. The transaction closed in November 2012. In December 2012, we ceased operations of the Maine Energy facility and initiated the decommissioning, demolition and site remediation process in accordance with the provisions of the agreement. We have completed the demolition process and site remediation under the auspices and in accordance with work plans approved by the Maine Department of Environmental Protection and the U.S. Environmental Protection Agency. In consideration of the fact that the project was substantially completed and based on incurred costs to date and estimates at that time regarding the remaining costs to fulfill our obligation under the purchase and sale agreement, we reversed a reserve of $1,157 of excess costs to complete the divestiture in the nine months ended September 30, 2015. As of September 30, 2016, we had no remaining costs to complete the divestiture accrued as we had fulfilled our obligation under the agreement.
CARES and Related Transaction
Casella-Altela Regional Environmental Services, LLC (“CARES”) was a joint venture that owned and operated a water and leachate treatment facility for the natural gas drilling industry in Pennsylvania. Our joint venture partner in CARES was Altela, Inc. (“Altela”). Our ownership interest in CARES was 51%. In accordance with FASB ASC 810-10-15, we consolidate the assets, liabilities and results of operations of CARES and its wholly owned subsidiary, CARES McKean, LLC, into our consolidated financial statements due to our controlling financial interest in the joint venture.
In the quarter ended March 31, 2015, we executed a purchase and sale agreement pursuant to which we and Altela agreed to sell certain assets of the CARES water treatment facility to an unrelated third-party. We sold these assets of CARES for purchase consideration of $3,500, resulting in a gain of $2,850 in the nine months ended September 30, 2015, 49% of which was attributable to Altela, the noncontrolling interest holder. In connection with this transaction, we also sold certain of our equipment and real estate to the same buyer for total consideration of $1,050, resulting in a gain of $928 in the nine months ended September 30, 2015.
In the quarter ended June 30, 2016, we dissolved CARES in accordance with the CARES Limited Liability Company Agreement. We are in the process of dissolving CARES McKean, LLC in accordance with Pennsylvania dissolution proceedings and upon dissolution we will deconsolidate the assets, liabilities and equity components, including the noncontrolling interest.
12.
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, the Western and Eastern regions. Revenues associated with our solid waste operations are derived mainly from solid waste collection and disposal, landfill, landfill gas-to-energy, transfer 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 account and industrial services, discontinued operations, and earnings from equity method investees, as applicable, are included in our Other segment.
Three Months Ended September 30, 2016
Segment
Outside
revenues
 
Inter-company
revenue
 
Depreciation and
amortization
 
Operating
income
 
Total assets
Eastern
$
47,238

 
$
12,775

 
$
7,291

 
$
4,452

 
$
206,177

Western
63,171

 
18,560

 
7,010

 
11,392

 
326,862

Recycling
14,412

 
94

 
1,055

 
1,529

 
48,531

Other
26,312

 
530

 
819

 
5

 
53,685

Eliminations

 
(31,959
)
 

 

 

Total
$
151,133

 
$

 
$
16,175

 
$
17,378

 
$
635,255


20



Three Months Ended September 30, 2015
Segment
Outside
revenues
 
Inter-company
revenue
 
Depreciation and
amortization
 
Operating
income (loss)
 
Total assets
Eastern
$
46,143

 
$
12,531

 
$
6,956

 
$
4,523

 
$
210,292

Western
62,387

 
18,236

 
7,617

 
7,792

 
323,915

Recycling
12,700

 
318

 
1,130

 
277

 
50,038

Other
24,955

 
300

 
682

 
104

 
59,209

Eliminations

 
(31,385
)
 

 

 

Total
$
146,185

 
$

 
$
16,385

 
$
12,696

 
$
643,455

Nine Months Ended September 30, 2016
Segment
Outside
revenues
 
Inter-company
revenue
 
Depreciation and
amortization
 
Operating
income (loss)
 
Total assets
Eastern
$
131,630

 
$
34,003

 
$
20,618

 
$
6,742

 
$
206,177

Western
175,093

 
51,300

 
20,409

 
24,561

 
326,862

Recycling
37,865

 
1,026

 
3,187

 
923

 
48,531

Other
76,648

 
1,213

 
2,216

 
2,721

 
53,685

Eliminations

 
(87,542
)
 

 

 

Total
$
421,236

 
$

 
$
46,430

 
$
34,947

 
$
635,255

Nine Months Ended September 30, 2015
Segment
Outside
revenues
 
Inter-company
revenue
 
Depreciation and
amortization
 
Operating
income (loss)
 
Total assets
Eastern
$
123,233

 
$
31,948

 
$
18,946

 
$
7,224

 
$
210,292

Western
173,429

 
51,138

 
22,029

 
20,471

 
323,915

Recycling
34,456

 
575

 
3,356

 
(2,134
)
 
50,038

Other
75,358

 
791

 
2,043

 
1,603

 
59,209

Eliminations

 
(84,452
)
 

 

 

Total
$
406,476

 
$

 
$
46,374

 
$
27,164

 
$
643,455

A summary of our revenues attributable to services provided follows:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2016
 
2015
 
2016
 
2015
Collection
$
65,581

 
$
63,588

 
$
187,117

 
$
177,550

Disposal
43,412

 
43,168

 
115,050

 
114,999

Power generation
1,610

 
1,694

 
4,777

 
5,305

Processing
1,974

 
1,866

 
4,694

 
4,652

Solid waste operations
112,577

 
110,316

 
311,638

 
302,506

Organics
10,266

 
9,753

 
31,372

 
29,619

Customer solutions
13,878

 
13,416

 
40,361

 
39,895

Recycling
14,412

 
12,700

 
37,865

 
34,456

Total revenues
$
151,133

 
$
146,185

 
$
421,236

 
$
406,476


21



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 fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”) on March 2, 2016.
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, 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 final 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 for 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;
actions of activist investors and the cost and disruption of responding to those actions;
potential business combinations or divestitures; and
projected improvements to our infrastructure and the impact of such improvements on our business and operations.
In addition, any statements contained in or incorporated by reference into this report 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 consolidated financial statements and notes thereto. These forward-looking statements are not guarantees of future performance, circumstances or events. 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 the forward-looking statements.
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 fiscal year ended December 31, 2015 and, if applicable, those included under Part II, Item 1A of this Quarterly Report on Form 10-Q.
There may be additional risks that we are not presently aware of or that we currently believe are immaterial, which could have an adverse impact on our business. We explicitly 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.

22



Company Overview
Founded in 1975 with a single truck, Casella Waste Systems, Inc., a Delaware corporation, 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. 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 provide integrated solid waste services 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 account and industrial services, discontinued operations, and earnings from equity method investees, as applicable, are included in our Other segment.
As of October 14, 2016, we owned and/or operated 34 solid waste collection operations, 46 transfer stations, 18 recycling facilities, nine Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition (“C&D”) materials.
Results of Operations
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 collection and disposal, 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. Revenues from our Recycling segment consist of revenues derived from municipalities and customers in the form of processing fees, tipping fees and commodity sales. Revenues from organics services, ancillary operations, and major account and industrial services are included in our Other segment. Our revenues are shown net of inter-company eliminations.
A summary of revenues attributable to service provided (dollars in millions and as a percentage of total revenues) follows:
 
Three Months Ended September 30,
 
$
Change
 
Nine Months Ended September 30,
 
$
Change
 
2016
 
2015
 
2016
 
2015
 
Collection
$
65.6

 
43.4
%
 
$
63.6

 
43.5
%
 
$
2.0

 
$
187.1

 
44.4
%
 
$
177.6

 
43.7
%
 
$
9.5

Disposal
43.4

 
28.7
%
 
43.2

 
29.5
%
 
0.2

 
115.0

 
27.3
%
 
115.0

 
28.3
%
 

Power
1.6

 
1.1
%
 
1.7

 
1.2
%
 
(0.1
)
 
4.8

 
1.1
%
 
5.3

 
1.3
%
 
(0.5
)
Processing
2.0

 
1.3
%
 
1.8

 
1.2
%
 
0.2

 
4.7

 
1.2
%
 
4.6

 
1.1
%
 
0.1

Solid waste
112.6

 
74.5
%
 
110.3

 
75.4
%
 
2.3

 
311.6

 
74.0
%
 
302.5

 
74.4
%
 
9.1

Organics
10.2

 
6.8
%
 
9.8

 
6.7
%
 
0.4

 
31.3

 
7.4
%
 
29.6

 
7.3
%
 
1.7

Customer solutions
13.9

 
9.2
%
 
13.4

 
9.2
%
 
0.5

 
40.4

 
9.6
%
 
39.9

 
9.8
%
 
0.5

Recycling
14.4

 
9.5
%
 
12.7

 
8.7
%
 
1.7

 
37.9

 
9.0
%
 
34.5

 
8.5
%
 
3.4

Total revenues
$
151.1

 
100.0
%
 
$
146.2

 
100.0
%
 
$
4.9

 
$
421.2

 
100.0
%
 
$
406.5

 
100.0
%
 
$
14.7


23



A summary of the period-to-period changes in solid waste revenues (dollars in millions) follows:
 
Period-to-Period
Change for the Three Months Ended September 30, 2016 vs. 2015
 
Period-to-Period
Change for the Nine Months Ended September 30, 2016 vs. 2015
 
Amount
 
% of Growth
 
Amount
 
% of Growth
Price
$
3.4

 
2.3
 %
 
$
11.1

 
2.7
 %
Volume
(1.6
)
 
(1.2
)%
 
(2.4
)
 
(0.6
)%
Fuel and oil recovery fee

 
 %
 
(0.1
)
 
 %
Commodity price and volume

 
 %
 
(0.4
)
 
(0.1
)%
Acquisitions and divestitures
0.5

 
0.4
 %
 
0.9

 
0.2
 %
Solid waste
$
2.3

 
1.5
 %
 
$
9.1

 
2.2
 %
Solid waste revenues
Price. 
The price change component in quarterly solid waste revenues growth is the result of the following:
$2.4 million from favorable collection pricing, including a floating sustainability recycling adjustment fee to mitigate recycling commodity risk; and
$1.0 million from favorable disposal pricing associated with our landfills and transfer stations.
The price change component in year-to-date solid waste revenues growth is the result of the following:
$8.9 million from favorable collection pricing, including a floating sustainability recycling adjustment fee to mitigate recycling commodity risk; and
$2.2 million from favorable disposal pricing associated with our landfills and transfer stations.
Volume.
The volume change component in quarterly solid waste revenues growth is the result of the following:
$(1.3) million from lower disposal volumes (of which $(1.1) million relates to lower transportation volumes associated with lower drill cutting volumes and $(0.2) million relates to lower landfill volumes, including lower drill cutting volumes and the diversion of certain lower priced tons); and
$(0.3) million from lower collection volumes in the Western region, more than offsetting higher collection volumes in the Eastern region.
The volume change component in year-to-date solid waste revenues growth is the result of the following:
$(3.5) million from lower disposal volume (of which $(3.2) million relates to lower transportation volumes associated with lower drill cutting volumes, $(1.1) million relates to lower landfill volumes, including lower drill cutting volumes and the diversion of certain lower priced tons, and $0.8 million relates to higher transfer station volumes); and
$(0.1) million from lower processing volumes; partially offset by
$1.2 million from higher collection volumes in the Eastern region, partially offset by lower collection volumes in the Western region.
Commodity price and volume.
The commodity price and volume change component in year-to-date solid waste revenues growth is the result of the following:
$(0.7) million from unfavorable energy pricing at our landfill gas-to-energy operations; partially offset by
$0.2 million from higher landfill gas-to-energy volumes; and
$0.1 million from favorable processing commodity pricing.

24



Acquisitions and divestitures.
The acquisitions and divestitures change component in quarterly and year-to-date solid waste revenues growth is the result of the acquisition of three transfer stations in the quarter ended June 30, 2016, partially offset on a year-to-date basis by the divestiture of a business in the quarter ended June 30, 2015.
Organics revenues
Quarterly and year-to-date organics revenues increased $0.4 million and $1.7 million as the result of higher volumes.
Customer Solutions revenues
Quarterly and year-to-date revenues increased $0.5 million as the result of higher volumes in the quarter.
Recycling revenues
Quarterly recycling revenues increased as a result of the following:
$2.2 million from favorable commodity pricing in the marketplace; partially offset by
$(0.3) million from lower tipping fees; and
$(0.2) million from lower commodity volumes.
Year-to-date recycling revenues increased as a result of the following:
$1.8 million from favorable commodity pricing in the marketplace;
$0.9 million from higher commodity volumes; and
$0.7 million from higher tipping fees.
Operating Expenses
A summary of cost of operations, general and administration expense, and depreciation and amortization expense (dollars in millions and as a percentage of total revenues) follows:
 
Three Months Ended September 30,
 
$
Change
 
Nine Months Ended September 30,
 
$
Change
 
2016
 
2015
 
2016
 
2015
 
Cost of operations
$
98.8

 
65.4
%
 
$
99.7

 
68.2
%
 
$
(0.9
)
 
$
284.4

 
67.5
%
 
$
286.2

 
70.4
%
 
$
(1.8
)
General and administration
$
18.8

 
12.4
%
 
$
17.4

 
11.9
%
 
$
1.4

 
$
55.5

 
13.2
%
 
$
52.3

 
12.9
%
 
$
3.2

Depreciation and amortization
$
16.2

 
10.7
%
 
$
16.4

 
11.2
%
 
$
(0.2
)
 
$
46.4

 
11.0
%
 
$
46.4

 
11.4
%
 
$

Cost of Operations
Cost of operations includes labor costs, tipping fees paid to third-party disposal facilities, fuel costs, maintenance and repair costs of vehicles and equipment, workers’ compensation and vehicle insurance costs, the cost of purchasing materials to be recycled, third-party transportation costs, district and state taxes, and host community fees and royalties. Cost of operations also includes accretion expense related to final capping, closure and post-closure obligations, leachate treatment and disposal costs and depletion of landfill operating lease obligations.
The period-to-period changes in cost of operations can be primarily attributed to the following:
Third-party direct costs changed $0.3 million quarterly and $(2.4) million year-to-date due to the following:
higher disposal costs associated with increased volumes in our Organics business; and
higher hauling and transportation costs associated with increased volumes in our Customer Solutions business; offset by

25



lower hauling and transportation costs associated with decreased collection and transportation volumes in our Western region;
lower year-to-date purchased material costs in our Recycling business; and
lower year-to-date purchased material costs in our Customer Solutions business.
Labor and related benefit costs decreased $(0.6) million quarterly and $(1.1) million year-to-date due to the following:
lower healthcare costs related to plan improvements and lower overall claim activity; and
lower labor and related benefit costs on lower volumes in the Western region; partially offset by
higher workers compensation costs; and
higher labor and related benefit costs on higher collection volumes in our Eastern region.
Direct operational costs increased $0.3 million quarterly and $2.5 million year-to-date due to the following:
higher equipment rental costs;
higher vehicle self-insurance costs;
higher landfill operating lease amortization in our Western region primarily due to higher quarterly tons at certain of our landfills;
higher gas control and other landfill operating costs in our Eastern region; and
higher host royalty fees on a year-to-date basis; partially offset by
lower leachate disposal costs at certain landfills in our Western region; and
lower landfill operating lease amortization on lower rates and tons at our Southbridge landfill in our Eastern region.
Fuel costs decreased $(0.6) million quarterly and $(2.3) million year-to-date due to the following:
lower diesel fuel prices in the marketplace; and
the consumption of less diesel fuel in our fleet year-to-date.
Maintenance and repair costs changed $(0.2) million quarterly and $1.4 million year-to-date due to the following:
higher maintenance costs in our Recycling segment; and
higher facility maintenance costs; offset by
lower quarterly, and to a lesser extent year-to-date, fleet maintenance costs in our Western region.
General and Administration
General and administration expense includes management, clerical and administrative compensation, bad debt expense, as well as overhead costs, professional service fees and costs associated with marketing, sales force and community relations efforts.
The period-to-period changes in general and administration expenses can be primarily attributed to increased labor and related benefit costs of $1.6 million quarterly and $3.1 million year-to-date due to an increase in accrued incentive compensation based on improved performance.

26



Depreciation and Amortization
Depreciation and amortization expense includes: (i) depreciation of property and equipment (including assets recorded for capital leases) on a straight-line basis over the estimated useful lives of the assets; (ii) amortization of landfill costs (including those costs incurred and all estimated future costs for landfill development and construction, along with asset retirement costs arising from closure and post-closure obligations) on a units-of-consumption method as landfill airspace is consumed over the total estimated remaining capacity of a site, which includes both permitted capacity and unpermitted expansion capacity that meets certain criteria for amortization purposes; (iii) amortization of landfill asset retirement costs arising from final capping obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each final capping event; and (iv) amortization of intangible assets with a definite life, using either an economic benefit provided approach or on a straight-line basis over the definitive terms of the related agreements.
A summary of the components of depreciation and amortization expense (dollars in millions and as a percentage of total revenues) follows:
 
Three Months Ended September 30,
 
$
Change
 
Nine Months Ended September 30,
 
$
Change
 
2016
 
2015
 
2016
 
2015
 
Depreciation
$
8.2

 
5.4
%
 
$
8.3

 
5.7
%
 
$
(0.1
)
 
$
24.9

 
5.9
%
 
$
24.9

 
6.1
%
 
$

Landfill amortization
7.4

 
4.9
%
 
7.5

 
5.1
%
 
(0.1
)
 
19.9

 
4.7
%
 
19.5

 
4.8
%
 
0.4

Other amortization
0.6

 
0.4
%
 
0.6

 
0.4
%
 

 
1.6

 
0.4
%
 
2.0

 
0.5
%
 
(0.4
)
 
$
16.2

 
10.7
%
 
$
16.4

 
11.2
%
 
$
(0.2
)
 
$
46.4

 
11.0
%
 
$
46.4

 
11.4
%
 
$

The period-to-period changes in depreciation and amortization expense can be primarily attributed to the following:
Year-to-date landfill amortization expense increased due to higher landfill volumes, combined with an increase in our overall average amortization rate.
Year-to-date other amortization expense decreased due to the makeup and timing of definite life intangible assets.
Divestiture Transactions
In the quarter ended June 30, 2015, we divested of a business, which included the sale of certain assets associated with various waste collection routes in the Western region, for total consideration of $0.9 million, resulting in a gain of $0.7 million in the nine months ended September 30, 2015.
In the nine months ended September 30, 2015, we recorded a gain of $4.9 million associated with the divestiture of Maine Energy Recovery Company, LP (“Maine Energy”) and the sale of certain assets of the Casella-Altela Regional Environmental Services, LLC (“CARES”) water treatment facility, along with certain other equipment and real estate of ours, to a third-party. See Note 11, Divestiture Transactions to our consolidated financial statements included under Item 1 of this Quarterly Report on Form 10-Q.
Other Expenses
Interest Expense, net
Our interest expense, net decreased $(0.5) million quarterly and $(0.6) million year-to-date due to lower average debt balances and changes to our capitalization structure. Specifically, in order to reduce costs and our exposure to financing and interest rate risk, we completed the following transactions:
we repurchased or redeemed, as applicable, and retired $39.4 million of our most expensive debt, the 7.75% senior subordinated notes due February 2019 (“2019 Notes”), between September 2015 and September 2016;
we completed the issuance of $15.0 million of Solid Waste Disposal Revenue Bonds Series 2014R-2 (“New York Bonds 2016”) in June 2016;
we completed the issuance of $15.0 million of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 (“FAME Bonds 2015”) in August 2015; and
we completed the refinancing of our senior revolving credit and letter of credit facility that was due March 2016 to our senior secured asset-based revolving credit and letter of credit facility due February 2020 (“ABL Facility”), which included the issuance of an additional $60.0 million of 2019 Notes, in February 2015.

27



Loss on Debt Extinguishment
We recorded a loss on debt extinguishment of $0.2 million and $0.7 million in the three and nine months ended September 30, 2016, respectively, as compared to $0.3 million and $0.9 million during the three and nine months ended September 30, 2015, respectively, associated with the following transactions:
the repurchase price and write-off of debt issuance costs and unamortized original issue discount associated with the early redemption, repurchase and retirement of partial portions of our 2019 Notes; and
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our previous senior revolving credit and letter of credit facility that was due March 2016 to the ABL Facility in the nine months ended September 30, 2015.
Loss on Derivative Instruments
We recorded a loss on derivative instruments of less than $0.1 million and $0.2 million during the three and nine months ended September 30, 2015, respectively, as we were party to an interest rate derivative agreement for an interest rate swap that was not considered to be an effective cash flow hedge, which matured in the quarter ended March 31, 2016. We recognized the change in fair value of the interest rate swap along with any cash settlements through earnings as a loss on derivative instruments.
Provision for Income Taxes
Our provision for income taxes changed $0.1 million quarterly and $(0.8) million year-to-date. The provision for income taxes in the nine months ended September 30, 2016 and September 30, 2015 includes $0.5 million and $0.6 million, respectively, of deferred tax provisions due mainly to an increase in the deferred tax liability for indefinite lived assets. 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.
In connection with New York State’s (“State”) audit of our tax returns for fiscal years ended April 30, 2011 through April 30, 2013, the State had alleged that we were not permitted to file a single combined corporation franchise tax return with our subsidiaries. During the quarter ended March 31, 2015, as a result of discussions with the State, we decided to settle the audit for an amount less than 8.0% of the total cumulative alleged liability in order to minimize the out-of-pocket costs and potential litigation. As a result of these discussions, we recorded a $0.2 million gross increase in uncertain tax positions in the quarter ended March 31, 2015 related to the settlement with the State. This settlement was finalized in August 2015 for $0.2 million. As a result of these discussions, as well as a net unfavorable reversal of a portion of other positions due to the expiration of the statute of limitations, during the quarter ended March 31, 2015 we recorded an increase in the reserve for uncertain tax positions of $0.4 million, which was reduced by $0.2 million due to the settlement with the State during the three months ended September 30, 2015. During the nine months ended September 30, 2016, we recorded a decrease in the reserve for uncertain tax positions of $0.4 million due to the expiration of the statute of limitations on other positions.