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, 2009

 

OR

 

o

 

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

 

For the transition period from to

 

Commission file number 000-23211

 

CASELLA WASTE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

03-0338873

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

25 Greens Hill Lane, Rutland, Vermont

 

05701

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (802) 775-0325

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act. (Check One):

 

Large accelerated filer o

 

Accelerated filer x

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 27, 2009:

Class A Common Stock

 

24,651,410

 

Class B Common Stock

 

988,200

 

 

 

 



 

PART I.    FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

 

April 30,

 

January 31,

 

 

 

2008

 

2009

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

2,814

 

$

2,982

 

Restricted cash

 

95

 

96

 

Accounts receivable - trade, net of allowance for doubtful accounts of $1,752 and $2,236

 

62,233

 

54,791

 

Notes receivable - officer/employees

 

132

 

136

 

Refundable income taxes

 

2,020

 

1,787

 

Prepaid expenses

 

6,930

 

5,923

 

Inventory

 

3,876

 

3,525

 

Deferred income taxes

 

15,433

 

12,157

 

Other current assets

 

1,692

 

8,816

 

Current assets of discontinued operations

 

260

 

 

 

 

 

 

 

 

Total current assets

 

95,485

 

90,213

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and amortization of $484,620 and $533,950

 

488,028

 

499,875

 

Goodwill

 

179,716

 

181,338

 

Intangible assets, net

 

2,608

 

2,771

 

Restricted assets

 

13,563

 

13,990

 

Notes receivable - officer/employees

 

1,101

 

1,123

 

Investments in unconsolidated entities

 

44,617

 

41,464

 

Other non-current assets

 

10,487

 

14,378

 

Non-current assets of discontinued operations

 

482

 

 

 

 

740,602

 

754,939

 

 

 

 

 

 

 

 

 

$

836,087

 

$

845,152

 

 

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

 

2



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

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

 

 

 

April 30,

 

January 31,

 

 

 

2008

 

2009

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

 

$

2,758

 

$

1,676

 

Current maturities of financing lease obligations

 

 

1,402

 

Accounts payable

 

51,731

 

35,866

 

Accrued payroll and related expenses

 

11,251

 

3,139

 

Accrued interest

 

8,668

 

11,911

 

Current accrued capping, closure and post-closure costs

 

9,265

 

5,821

 

Other accrued liabilities

 

28,202

 

24,153

 

Current liabilities of discontinued operations

 

949

 

 

 

 

 

 

 

 

Total current liabilities

 

112,824

 

83,968

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

559,227

 

566,181

 

Financing lease obligations, less current maturities

 

 

12,647

 

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

 

32,864

 

35,358

 

Deferred income taxes

 

313

 

2,916

 

Other long-term liabilities

 

6,007

 

9,290

 

Non-current liabilities of discontinued operations

 

170

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Class A common stock -

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 24,466,000 and 24,651,000 shares as of April 30, 2008 and January 31, 2009, respectively

 

245

 

247

 

Class B common stock -

 

 

 

 

 

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

 

10

 

10

 

Accumulated other comprehensive income (loss)

 

(2,568

)

4,161

 

Additional paid-in capital

 

276,189

 

279,143

 

Accumulated deficit

 

(149,194

)

(148,769

)

Total stockholders’ equity

 

124,682

 

134,792

 

 

 

 

 

 

 

 

 

$

836,087

 

$

845,152

 

 

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

 

3



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

140,879

 

$

121,151

 

$

439,889

 

$

436,593

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of operations

 

96,156

 

85,480

 

288,680

 

293,650

 

General and administration

 

18,285

 

13,934

 

55,051

 

50,673

 

Depreciation and amortization

 

19,026

 

17,033

 

59,071

 

56,008

 

Environmental remediation charge

 

 

2,823

 

 

2,823

 

Development project charge

 

 

(20

)

 

(20

)

 

 

133,467

 

119,250

 

402,802

 

403,134

 

Operating income

 

7,412

 

1,901

 

37,087

 

33,459

 

Other expense/(income), net:

 

 

 

 

 

 

 

 

 

Interest income

 

(291

)

(178

)

(965

)

(445

)

Interest expense

 

10,739

 

9,773

 

32,812

 

30,267

 

Loss (income) from equity method investments

 

907

 

(263

)

4,545

 

1,911

 

Other income

 

(56

)

(396

)

(2,417

)

(549

)

Other expense, net

 

11,299

 

8,936

 

33,975

 

31,184

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before income taxes and discontinued operations

 

(3,887

)

(7,035

)

3,112

 

2,275

 

Provision (benefit) for income taxes

 

576

 

(3,218

)

1,291

 

1,805

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations

 

(4,463

)

(3,817

)

1,821

 

470

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

Loss from discontinued operations (net of income tax benefit of $80, $0, $814 and $8)

 

(141

)

 

(1,416

)

(11

)

Loss on disposal of discontinued operations (net of income tax benefit (provision) of $0, $0, $122 and ($262))

 

 

 

(437

)

(34

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) available to common stockholders

 

$

(4,604

)

$

(3,817

)

$

(32

)

$

425

 

 

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

 

4


 


 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(in thousands, except for per share data)

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations available to common stockholders

 

$

(0.17

)

$

(0.15

)

$

0.07

 

$

0.02

 

Loss from discontinued operations, net

 

(0.01

)

 

(0.05

)

 

Loss on disposal of discontinued operations, net

 

 

 

(0.02

)

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.18

)

$

(0.15

)

$

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

25,415

 

25,606

 

25,362

 

25,547

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations before discontinued operations available to common stockholders

 

$

(0.17

)

$

(0.15

)

$

0.07

 

$

0.02

 

Loss from discontinued operations, net

 

(0.01

)

 

(0.05

)

 

Loss on disposal of discontinued operations, net

 

 

 

(0.02

)

 

 

 

 

 

 

 

 

 

 

 

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

 

$

(0.18

)

$

(0.15

)

$

 

$

0.02

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

25,415

 

25,606

 

25,362

 

25,632

 

 

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
January 31,

 

 

 

2008

 

2009

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

(32

)

$

425

 

Loss from discontinued operations, net

 

1,416

 

11

 

Loss on disposal of discontinued operations, net

 

437

 

34

 

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

 

 

 

 

 

Gain on sale of equipment

 

(54

)

(274

)

Depreciation and amortization

 

59,071

 

56,008

 

Depletion of landfill operating lease obligations

 

4,815

 

5,018

 

Environmental remediation charge

 

 

2,823

 

Income from assets under contractual obligation

 

(1,463

)

(114

)

Preferred stock dividend (included in interest expense)

 

1,038

 

 

Amortization of premium on senior notes

 

(464

)

(501

)

Maine Energy settlement

 

(2,142

)

 

Loss from equity method investments

 

4,545

 

1,911

 

Stock-based compensation

 

1,022

 

1,383

 

Excess tax benefit on the exercise of stock options

 

(111

)

(157

)

Deferred income taxes

 

(1,311

)

1,494

 

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

 

 

 

 

 

Accounts receivable

 

(669

)

7,529

 

Accounts payable

 

(8,608

)

(15,874

)

Prepaid expenses, inventories and other assets

 

(1,523

)

2,730

 

Accrued expenses and other liabilities

 

(4,559

)

(11,813

)

 

 

49,587

 

50,163

 

Net Cash Provided by Operating Activities

 

51,408

 

50,633

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(745

)

(2,196

)

Additions to property, plant and equipment - growth

 

(14,281

)

(10,165

)

                                                                          - maintenance

 

(44,834

)

(39,415

)

Payments on landfill operating lease contracts

 

(6,735

)

(4,401

)

Proceeds from divestitures

 

2,154

 

670

 

Proceeds from sale of equipment

 

1,932

 

948

 

Investment in unconsolidated entities

 

(107

)

(2,527

)

Proceeds from assets under contractual obligation

 

1,518

 

114

 

Net Cash Used In Investing Activities

 

(61,098

)

(56,972

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from long-term borrowings

 

260,700

 

105,400

 

Principal payments on long-term debt

 

(186,585

)

(100,559

)

Redemption of Series A redeemable, convertible preferred stock

 

(75,056

)

 

Proceeds from exercise of stock options

 

1,216

 

1,462

 

Excess tax benefit on the exercise of stock options

 

111

 

157

 

Net Cash Provided by Financing Activities

 

386

 

6,460

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

Provided by (Used in) Operating Activities

 

(426

)

47

 

Provided by Investing Activities

 

262

 

 

Cash Provided by (Used in) Discontinued Operations

 

(164

)

47

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(9,468

)

168

 

Cash and cash equivalents, beginning of period

 

12,366

 

2,814

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

2,898

 

$

2,982

 

 

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

 

6



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for -

 

 

 

 

 

Interest

 

$

26,870

 

$

25,982

 

Income taxes, net of refunds

 

$

1,851

 

$

361

 

 

 

 

 

 

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

 

 

 

 

 

Summary of entities acquired in purchase business combinations -

 

 

 

 

 

Fair value of assets acquired

 

$

1,169

 

$

2,504

 

Cash paid, net

 

(745

)

(2,196

)

 

 

 

 

 

 

Notes payable, liabilities assumed and holdbacks to sellers

 

$

424

 

$

308

 

 

 

 

 

 

 

Note receivable recorded upon divestiture

 

$

2,500

 

$

 

 

 

 

 

 

 

Property, plant and equipment acquired through financing arrangements

 

$

497

 

$

14,115

 

 

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

 

7



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for per share data)

 

1.                                      ORGANIZATION

 

The consolidated balance sheet of Casella Waste Systems, Inc. (the “Parent”) and Subsidiaries (collectively, the “Company”) as of January 31, 2009, the consolidated statements of operations for the three and nine months ended January 31, 2008 and 2009 and the consolidated statements of cash flows for the nine months ended January 31, 2008 and 2009 are unaudited.  In the opinion of management, such financial statements together with the consolidated balance sheet as of April 30, 2008 include all adjustments (which include normal recurring and nonrecurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.  The consolidated financial statements presented herein should be read in conjunction with the Company’s audited consolidated financial statements as of and for the twelve months ended April 30, 2008  included as part of the Company’s Annual Report on Form 10-K for the year ended April 30, 2008 (the “Annual Report”).  The results for the three and nine month periods ended January 31, 2009 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2009.

 

2.                                      BUSINESS COMBINATIONS

 

During the nine months ended January 31, 2009, the Company acquired three solid waste hauling operations.  The transactions were in exchange for total consideration of $2,504 including $2,196 in cash and $308 in liabilities assumed.  During the nine months ended January 31, 2008, the Company acquired five solid waste hauling operations.  These transactions were in exchange for total consideration of $1,169 including $745 in cash and $424 liabilities assumed.  The operating results of these businesses are included in the consolidated statements of operations from the dates of acquisition.  The purchase prices have been allocated to the net assets acquired based on their fair values at the dates of acquisition, including the value of non-compete agreements and client lists, with the residual amounts allocated to goodwill.

 

The following unaudited pro forma combined information shows the results of the Company’s operations as though each of the acquisitions made in the nine months ended January 31, 2008 and 2009 had been completed as of May 1, 2007.

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Revenue

 

$

141,686

 

$

121,151

 

$

443,610

 

$

437,548

 

Operating income

 

7,561

 

1,901

 

37,657

 

33,687

 

Net income (loss)

 

(4,556

)

(3,817

)

176

 

494

 

Diluted net income (loss) per common share

 

$

(0.18

)

$

(0.15

)

$

0.01

 

$

0.02

 

Weighted average diluted shares outstanding

 

25,415

 

25,606

 

25,362

 

25,632

 

 

The foregoing pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of May 1, 2007 or the results of future operations of the Company.  Furthermore, such pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

 

8



 

3.                                      GOODWILL AND INTANGIBLE ASSETS

 

The following table shows the activity and balances related to goodwill from April 30, 2008 through January 31, 2009:

 

 

 

North
Eastern
Region

 

South
Eastern
Region

 

Central
Region

 

Western
Region

 

FCR
Recycling

 

Total

 

Balance, April 30, 2008

 

$

23,655

 

$

31,645

 

$

31,960

 

$

54,804

 

$

37,652

 

$

179,716

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

18

 

1,408

 

196

 

 

1,622

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2009

 

$

23,655

 

$

31,663

 

$

33,368

 

$

55,000

 

$

37,652

 

$

181,338

 

 

Intangible assets at April 30, 2008 and January 31, 2009 consist of the following:

 

 

 

Covenants
not to
compete

 

Client Lists

 

Licensing
Agreements

 

Contract
Acquisition
Costs

 

Total

 

Balance, April 30, 2008

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

15,125

 

$

1,597

 

$

920

 

$

58

 

$

17,700

 

Less accumulated amortization

 

(14,189

)

(726

)

(167

)

(10

)

(15,092

)

 

 

$

936

 

$

871

 

$

753

 

$

48

 

$

2,608

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2009

 

 

 

 

 

 

 

 

 

 

 

Intangible assets

 

$

14,125

 

$

1,597

 

$

920

 

$

389

 

$

17,031

 

Less accumulated amortization

 

(13,206

)

(794

)

(218

)

(42

)

(14,260

)

 

 

$

919

 

$

803

 

$

702

 

$

347

 

$

2,771

 

 

Intangible amortization expense for the three and nine months ended January 31, 2008 and 2009 was $171, $170, $472 and $471, respectively.  The intangible amortization expense estimated as of January 31, 2009 for the five fiscal years following fiscal year 2008 and thereafter is as follows:

 

2009

 

2010

 

2011

 

2012

 

2013

 

Thereafter

 

$

628

 

$

499

 

$

402

 

$

323

 

$

266

 

$

1,124

 

 

4.                                      NEW ACCOUNTING STANDARDS

 

In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 155 (“SFAS No. 159”). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. A company shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.  Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and not deferred.  SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007.  The Company adopted this statement on May 1, 2008, but it did not have any impact on the Company’s financial position or results of operations as the Company did not make any fair value elections under this standard.

 

9



 

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (revised - 2007) (“SFAS No. 141(R)”). SFAS No. 141(R) is a revision to previously existing guidance on accounting for business combinations. The statement retains the fundamental concept of the purchase method of accounting, and introduces new requirements for the recognition and measurement of assets acquired, liabilities assumed and noncontrolling interests. SFAS No. 141(R) also requires acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition.  SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The impact of adoption of this statement on the Company’s Consolidated Financial Statements is dependent on the nature and volume of future acquisitions, and, therefore, cannot be determined at this time.

 

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

 

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

 

5.                                      LEGAL PROCEEDINGS

 

On September 12, 2001, the Company’s subsidiary, North Country Environmental Services, Inc. (“NCES”), petitioned the New Hampshire Superior Court (“Superior Court”) for a declaratory judgment concerning the extent to which the Town of Bethlehem, New Hampshire (“Town”) could lawfully prohibit NCES’s expansion of its landfill in Bethlehem.  The Town filed counterclaims seeking contrary declarations and other relief.  The parties appealed the Superior Court’s decision to the New Hampshire Supreme Court (“Supreme Court”).  On March 1, 2004, the Supreme Court ruled that NCES had all necessary local approvals to operate within a 51-acre portion of its 105-acre parcel and the Town could not prevent expansion in that area.  A significant portion of NCES’s Stage IV expansion as originally designed and approved by the New Hampshire Department of Environmental Services (“NHDES”), however, was to lie to the north of the 51 acres.  With respect to expansion to the north of the 51 acres, the Supreme Court remanded four issues to the Superior Court for further proceedings.  On April 25, 2005, the Superior Court rendered summary judgment in NCES’s favor on two of the four issues, leaving the other two issues for trial.  The two issues that were decided on summary judgment remain subject to appeal by the Town.  In March of 2005, the Town adopted a new zoning ordinance that prohibited landfilling outside of a new zoning district which corresponded to the 51 acres.  The Town then amended its pleadings to seek a declaration that the new ordinance was valid.  The parties each filed motions for partial summary judgment.  Following the court’s decisions on those motions, the validity of the new ordinance remained subject to trial based on two defenses raised by NCES.  On March 30, 2007, NCES

 

10



 

applied to the NHDES for a permit modification under which all Stage IV capacity (denominated “Stage IV, Phase II”) would be relocated within the 51 acres.  That application was superseded by a new application, filed on November 30, 2007, that would bring all proposed berms along the perimeter of the landfill’s footprint within the 51 acres as well.  NCES sought a stay of the litigation on the ground that, if NHDES were to grant the permit modification, there would be no need for NCES to expand beyond the 51 acres for eight or more years, and the case could be dismissed as moot or unripe.  The Superior Court granted the stay pending a decision by NHDES.  NHDES denied the application on December 12, 2008.  NCES has filed an administrative appeal of this decision as well as a declaratory relief action challenging the legal grounds upon which NHDES relied in the decision.  NCES also filed a revised application with NHDES on February 12, 2009 addressing the issues NHDES identified as the bases for denying the November 30, 2007 application.  NCES sought a renewal of the stay of the litigation on the same grounds upon which it sought and obtained a stay previously, and the Superior Court granted this motion on February 13, 2009.   The Town has threatened to file an enforcement action against NCES seeking the removal of certain ancillary landfill structures to the north of the 51 acres.

 

The Company, on behalf of itself, its subsidiary FCR, LLC (“FCR”), and as a Majority Managing Member of Green Mountain Glass, LLC (“GMG”), initiated a declaratory judgment action against GR Technologies, Inc. (“GRT”), Anthony C. Lane and Robert Cameron Billmyer (“the Defendants”) on June 8, 2007, to resolve issues raised by GRT as the minority shareholder of GMG.  The issues addressed in the action included exercise of management discretion, right to intellectual property, and other related disputes.  The Defendants counterclaimed in May 2008 seeking unspecified damages on a variety of bases including, among others, breach of contract, breach of fiduciary duty, fraud, tortious interference with business relations, induced infringement and other matters.  Management intends to vigorously contest those allegations, and it believes that the claims have no merit substantively or as a matter of law.  Additionally, the Defendants filed a Derivative Action in Rutland Superior Court as a Managing Member of GMG on July 2, 2008 against several employees of the Company and its subsidiary FCR, LLC, making similar allegations.  On September 16, 2008, the Company filed a Motion for Summary Judgment, and a Proposed Order Decreeing Dissolution and Appointing a Special Master, alleging that the relationship of GRT and FCR in GMG is irretrievably broken.  The Rutland Superior Court issued a decision on February 10, 2009 ordering the case to be heard in Delaware Chancery Court as opposed to Rutland Superior Court, and the Company will arrange for the Delaware hearing to be held expeditiously.  All litigation is in discovery stages and, accordingly, it is not possible at this time to evaluate the likelihood of an unfavorable outcome or provide meaningful estimates as to amount or range of potential loss, but management currently believes that the litigation, regardless of its outcome, will not have a material adverse affect on the Company’s financial condition, results of operations or cash flows.

 

On June 9, 2008, the Southbridge Board of Health (“Southbridge BOH”) issued a Decision and Statement of Findings pursuant to M.G.L. ch.111, §§150A and 150 A1/2 and 310 CMR 16.00 (“2008 Site Assignment”) granting the Company’s subsidiary, Southbridge Recycling and Disposal Park, Inc. (“SRD”), a minor modification to SRD’s existing site assignment for the Southbridge Sanitary Landfill (the “Landfill”).  The 2008 Site Assignment allows SRD, subject to several conditions, to reallocate tonnage capacity accepted at a Construction and Demolition Processing Facility located at the Landfill to solid waste to be accepted at the Landfill up to a maximum of 405,600 tons per year, including the right to import municipal solid waste to the Landfill without regard for geographic origin. On or about July 14, 2008, the Sturbridge Board of Health (“Sturbridge BOH”), an abutting municipality to Southbridge, together with 10 citizen groups, filed a complaint in Worcester Superior Court contesting the 2008 Site Assignment (the “Appeal”).  The Appeal names as defendants the Southbridge BOH and its individual members at the time of the 2008 Site Assignment, and SRD.  On August 21, 2008, SRD reached a settlement with the Sturbridge BOH, pursuant to which SRD agreed to fund an escrow account to be controlled by the Sturbridge BOH, in the amount of $50.  The escrow account will serve as a source for funds to cover the costs of SRD installing a “sentinel” downgradient well to the Landfill for tests to be

 

11



 

conducted by and results provided to the Sturbridge BOH pursuant to an environmental plan that is a condition of the 2008 Site Assignment, and for related monitoring costs to be incurred by the Sturbridge BOH in connection therewith.  The Sturbridge BOH Appeal was formally withdrawn as to all parties on August 22, 2008, and only the 10 citizen groups remain as participants in the Appeal.  A Motion to Dismiss filed by SRD and the Board of Health in August 2008 was denied on February 4, 2009.  While it is too early to assess the outcome of the Appeal, SRD will continue to aggressively defend the Appeal.

 

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

 

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

 

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

 

6.                                      ENVIRONMENTAL LIABILITIES

 

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

 

On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), a Casella subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk Power Corporation (“NiMo”) as Respondents.  The Order required that the Respondents undertake certain work on a 25-acre scrap yard and solid waste transfer station owned by WSI, including the drafting of a Remedial Investigation and Feasibility Study (“the Study”).  A draft of the Study was submitted to DEC in January 2009 by the consulting firm hired by the Respondents.  The Study estimates that the undiscounted costs associated with implementing the preferred remedies will be approximately $10,219 and it is unlikely that any costs relating to onsite remediation will be incurred until fiscal year 2011.  WSI is jointly and severally liable for the total cost to remediate but expects to be responsible for approximately 30% upon implementation of a cost-sharing agreement.  Such amounts could be significantly higher if costs exceed estimates or the other responsible parties are not able to meet their obligation.  Based on these estimates, the Company has recorded an environmental remediation charge of $2,823 in the quarter ended January 31, 2009.  This estimate is calculated based on the present value of future cash flows using a credit-adjusted risk-free rate which is consistent with the discount rate used for future capping, closure and post-closure obligations at our landfills.

 

Any substantial liability incurred by the Company arising from environmental damage could have a material adverse effect on the Company’s business, financial condition and results of operations.  The

 

12



 

Company is not presently aware of any other situations that it expects would have a material adverse impact on its business, financial condition, results of operations, or cash flows.

 

7.                                      STOCK-BASED COMPENSATION

 

During fiscal year 2009, the Company has granted performance stock units under the 2006 Stock Incentive Plan (the “2006 Plan”) to certain employees.  These performance stock units, each of which represents a share of Class A Common Stock, are subject to vesting, based on the attainment by the Company of a targeted annual return on assets over a three year period.  At the one hundred percent level of attainment the grantee pool would be entitled to a total of 230 shares of Class A Common Stock.  These units were granted at an average grant date value of $11.44 per share and are unvested and unissued at January 31, 2009.

 

The Company has also granted 25 and 52 shares of restricted stock under the 2006 Plan in the three and nine months ended January 31, 2009 that vest based on the passage of time.  These shares were granted at an average grant date value of $4.05 and $6.73 for the three and nine months ended January 31, 2009.  These shares are partially vested and unissued at January 31, 2009.

 

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

 

A summary of stock option activity for the nine months ended January 31, 2009 is as follows:

 

 

 

Total Shares

 

Weighted
Average
Exercise
Price

 

Outstanding, April 30, 2008

 

3,782

 

$

12.82

 

Granted

 

155

 

4.33

 

Exercised

 

(111

)

9.98

 

Forfeited

 

(280

)

21.24

 

Outstanding, January 31, 2009

 

3,546

 

11.88

 

Exercisable, January 31, 2009

 

3,045

 

$

12.09

 

 

The weighted average grant date fair value of options granted was $5.30 and $1.75 per option for the nine months ended January 31, 2008 and 2009, respectively.  There are 1,841 Class A Common Stock equivalents available for future grant under the 2006 plan.

 

The Company recorded $489, $410, $942 and $1,309 of stock based compensation expense related to stock options, performance stock units and restricted stock units during the three and nine months ended January 31, 2008 and 2009, respectively.  The Company also recorded $28, $19, $80 and $74 of stock based expense for the Company’s Employee Stock Purchase Plan during the three and nine months ended January 31, 2008 and 2009, respectively.

 

13



 

The Company’s calculations of stock-based compensation expense associated with stock options and the Company’s Employee Stock Purchase Plan for the three and nine months ended January 31, 2008 and 2009 were made using the Black-Scholes valuation model. The fair value of the Company’s stock option grants was estimated assuming no expected dividend yield and the following weighted average assumptions were used for the three and nine months ended January 31, 2008 and 2009:

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Stock Options:

 

 

 

 

 

 

 

 

 

Expected life

 

6 years

 

6.7 years

 

6 years

 

6.7 years

 

Risk-free interest rate

 

3.32

%

1.67

%

4.41

%

1.74

%

Expected volatility

 

37.83

%

36.80

%

37.83

%

36.80

%

Stock Purchase Plan:

 

 

 

 

 

 

 

 

 

Expected life

 

0.5 years

 

0.5 years

 

0.5 years

 

0.5 years

 

Risk-free interest rate

 

3.32

%

1.71

%

4.81

%

2.07

%

Expected volatility

 

37.22

%

36.11

%

36.59

%

36.36

%

 

Expected life is calculated based on the weighted average historical life of the vested stock options, giving consideration to vesting schedules and historical exercise patterns. Risk-free interest rate is based on the U.S. treasury yield curve for the period of the expected life of the stock option. For stock options granted during the three and nine months ended January 31, 2008 and 2009, expected volatility is calculated using the average of weekly historical volatility of the Company’s Class A Common Stock over the last six years.

 

The Black-Scholes valuation model requires extensive use of accounting judgment and financial estimation, including estimates of the expected term option holders will retain their vested stock options before exercising them, the estimated volatility of the Company’s Class A Common Stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.

 

8.                                      EARNINGS PER SHARE

 

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

 

 

 

Three Months
Ended January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Numerator:

 

 

 

 

 

 

 

 

 

Net income (loss) available to common stockholders

 

$

(4,604

)

$

(3,817

)

$

(32

)

$

425

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Number of shares outstanding, end of period:

 

 

 

 

 

 

 

 

 

Class A common stock

 

24,448

 

24,651

 

24,448

 

24,651

 

Class B common stock

 

988

 

988

 

988

 

988

 

Effect of weighted average shares outstanding during period

 

(21

)

(33

)

(74

)

(92

)

Weighted average number of common shares used in basic EPS

 

25,415

 

25,606

 

25,362

 

25,547

 

Impact of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Dilutive effect of options and restricted stock

 

 

 

 

85

 

Weighted average number of common shares used in diluted EPS

 

25,415

 

25,606

 

25,362

 

25,632

 

 

For the three and nine months ended January 31, 2008, 4,006 common stock equivalents related to options and warrants were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

14



 

For the three and nine months ended January 31, 2009, 3,848 and 3,183 common stock equivalents related to options, warrants and restricted stock units were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

9.                                      COMPREHENSIVE INCOME (LOSS)

 

Comprehensive income (loss) is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive income (loss) included in the accompanying balance sheets consists of changes in the fair value of the Company’s interest rate derivatives and commodity hedge agreements.  Also included in accumulated other comprehensive income (loss) is the change in fair value of certain securities classified as available for sale as well as the Company’s portion of the change in the fair value of commodity hedge agreements of the Company’s equity method investment, US GreenFiber, LLC (“GreenFiber”).

 

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

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 31,

 

January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Net income (loss)

 

$

(4,604

)

$

(3,817

)

$

(32

)

$

425

 

Other comprehensive income (loss)

 

(1,673

)

767

 

(1,959

)

6,729

 

Comprehensive income (loss)

 

$

(6,277

)

$

(3,050

)

$

(1,991

)

$

7,154

 

 

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

 

 

 

Three Months Ended January 31,

 

 

 

2008

 

2009

 

 

 

Gross

 

Tax effect

 

Net of Tax

 

Gross

 

Tax
effect

 

Net of
Tax

 

Changes in fair value of marketable securities during the period

 

$

272

 

$

95

 

$

177

 

$

277

 

$

96

 

$

181

 

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

 

(3,623

)

(1,466

)

(2,157

)

2,667

 

1,074

 

1,593

 

Reclassification to earnings for interest rate derivatives and commodity hedge contracts

 

515

 

208

 

307

 

(1,686

)

(679

)

(1,007

)

 

 

$

(2,836

)

$

(1,163

)

$

(1,673

)

$

1,258

 

$

491

 

$

767

 

 

 

 

Nine Months Ended January 31,

 

 

 

2008

 

2009

 

 

 

Gross

 

Tax effect

 

Net of Tax

 

Gross

 

Tax
effect

 

Net of
Tax

 

Changes in fair value of marketable securities during the period

 

$

332

 

$

116

 

$

216

 

$

91

 

$

31

 

$

60

 

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

 

(5,163

)

(2,078

)

(3,085

)

9,785

 

3,939

 

5,846

 

Reclassification to earnings for interest rate derivatives and commodity hedge contracts

 

1,514

 

604

 

910

 

1,394

 

571

 

823

 

 

 

$

(3,317

)

$

(1,358

)

$

(1,959

)

$

11,270

 

$

4,541

 

$

6,729

 

 

15



 

10.                               FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Effective May 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”) as it relates to financial assets and liabilities that are being measured and reported at fair value on a recurring basis.

 

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

 

The Company’s financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments as well as certain investments included in restricted assets.  The Company’s restricted assets measured at fair value include investments in fixed-maturity securities which serve as collateral for the Company’s self-insurance claims liability, self-insurance reserves and landfill post closure obligations.

 

The Company’s derivative instruments include interest rate swaps and collars along with commodity hedges.  The Company uses interest rate derivatives to hedge the risk of adverse movements in interest rates.  The fair value of these cash flow hedges are based primarily on the LIBOR index.  The Company uses commodity hedges to hedge the risk of adverse movements in commodity pricing.  The fair value of these hedges is based on futures pricing in the underlying commodities.

 

The Company uses valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of the Company’s financial assets and liabilities, the Company relies on market data or assumptions that the Company believes market

 

16



 

participants would use in pricing an asset or liability.  As of January 31, 2009, our assets and liabilities that are measured at fair value on a recurring basis include the following:

 

 

 

Fair Value Measurement at January 31, 2009 Using:

 

 

 

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

 

Significant Other
Observable Inputs
(Level 2)

 

Significant Unobservable
Inputs (Level 3)

 

Assets:

 

 

 

 

 

 

 

Restricted assets - available for sale securities

 

$

13,990

 

$

 

$

 

Commodity derivatives

 

 

11,155

 

 

Total

 

$

13,990

 

$

11,155

 

$

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Interest rate derivatives

 

$

 

$

1,469

 

$

 

 

 

 

 

 

 

 

 

Total

 

$

 

$

1,469

 

$

 

 

11.                               DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company’s strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales.  The Company was party to thirty commodity hedge contracts as of January 31, 2009.  These contracts expire between March 2009 and December 2011.  The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended (“SFAS No. 133”).  As of January 31, 2009 the fair value of these hedges was an asset of $11,155, with the net amount (net of taxes of $4,492) recorded as an unrealized gain in accumulated other comprehensive income (loss).  The recent appreciation of these hedges is associated with the significant declines in fiber pricing.  The unrealized gain, which is subject to variability based on future price changes, will be realized in earnings over the remaining life of the hedge agreements.

 

The Company is party to three separate interest rate swap agreements with three banks for a notional amount of $105,000.  One agreement for a notional amount of $30,000 effectively fixes the interest rate index at 4.74% from November 4, 2007 through May 7, 2009.  Two agreements, for a notional amount of $75,000, effectively fix the interest index rate on the entire notional amount at approximately 4.55% from May 6, 2008 through May 6, 2009.  These agreements are specifically designated to interest payments under the Company’s term B loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.  As of January 31, 2009, the fair value of the Company’s interest rate swaps was an obligation of $1,175, with the net amount (net of taxes of $474) recorded as an unrealized loss in accumulated other comprehensive income (loss).

 

The Company is party to two separate interest rate zero-cost collars with two banks for a notional amount of $60,000.  The collars have an interest index rate cap of 6.00% and an interest index rate floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009.  These agreements are specifically designated to interest payments under the revolving credit facility and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.  As of January 31, 2009, the fair value of these

 

17



 

collars was an obligation of $291, with the net amount (net of taxes of $116) recorded as an unrealized loss in accumulated other comprehensive income (loss).

 

12.                               DISCONTINUED OPERATIONS

 

During the second quarter of fiscal year 2008, the Company completed the sale of the Company’s Buffalo, N.Y. transfer station, hauling operation and related equipment in the Western region for proceeds of $4,873 including a note receivable for $2,500 and net cash proceeds of $2,373.  The company recorded a loss on disposal of discontinued operations (net of tax) of $437.

 

During the fourth quarter of fiscal year 2008, the Company terminated its operation of MTS Environmental, a soils processing operation in the North Eastern region.

 

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

 

The operating results of these operations for the three and nine months ended January 31, 2008 and 2009 have been reclassified from continuing to discontinued operations in the accompanying consolidated financial statements.

 

Revenues and loss before income taxes attributable to discontinued operations for the three and nine months ended January 31, 2008 and 2009 were as follows:

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

January 31,

 

January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Revenues

 

$

480

 

$

 

$

7,755

 

$

282

 

Loss before income taxes

 

$

(221

)

$

 

$

(2,230

)

$

(19

)

 

The Company has recorded contingent liabilities associated with these divestitures amounting to approximately $902 at January 31, 2009.

 

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

 

13.                               SEGMENT REPORTING

 

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

 

For the periods covered by this report, Company classifies its operations into North Eastern, South Eastern, Central, Western, FCR Recycling and Other.  The Company’s revenues in the North Eastern, South Eastern, Central and Western segments are derived mainly from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste.  The North Eastern region also includes Maine Energy, which generates electricity from non-hazardous solid waste. The Company’s revenues in the FCR Recycling segment are derived from integrated waste handling services, including processing and recycling of paper,

 

18



 

metals, aluminum, plastics and glass.  Ancillary operations, major customer accounts, discontinued operations and earnings from equity method investees are included in Other.

 

Three Months Ended January 31, 2008

 

Segment

 

Outside
revenues

 

Depreciation and
amortization

 

Operating
income (loss)

 

Total assets

 

North Eastern

 

$

28,327

 

$

5,880

 

$

(182

)

$

173,970

 

South Eastern

 

16,357

 

2,740

 

(1,281

)

128,603

 

Central

 

28,938

 

4,159

 

1,703

 

151,080

 

Western

 

25,172

 

4,018

 

1,636

 

178,643

 

FCR

 

33,730

 

1,749

 

5,999

 

97,765

 

Other

 

8,355

 

480

 

(463

)

100,080

 

Total

 

$

140,879

 

$

19,026

 

$

7,412

 

$

830,141

 

 

Three Months Ended January 31, 2009

 

Segment

 

Outside
revenues

 

Depreciation and
amortization

 

Operating
income (loss)

 

Total assets

 

North Eastern

 

$

28,178

 

$

5,366

 

$

1,397

 

$

169,780

 

South Eastern

 

14,449

 

2,358

 

(503

)

121,440

 

Central

 

26,389

 

3,732

 

3,117

 

159,738

 

Western

 

22,517

 

3,512

 

677

 

179,759

 

FCR

 

20,868

 

1,734

 

(2,155

)

113,928

 

Other

 

8,750

 

331

 

(632

)

100,507

 

Total

 

$

121,151

 

$

17,033

 

$

1,901

 

$

845,152

 

 

Nine Months Ended January 31, 2008

 

Segment

 

Outside
revenues

 

Depreciation and
amortization

 

Operating
income (loss)

 

Total assets

 

North Eastern

 

$

89,980

 

$

17,967

 

$

2,118

 

$

173,970

 

South Eastern

 

51,332

 

7,456

 

(3,399

)

128,603

 

Central

 

98,686

 

14,480

 

12,922

 

151,080

 

Western

 

81,651

 

12,594

 

10,076

 

178,643

 

FCR

 

94,472

 

5,098

 

15,323

 

97,765

 

Other

 

23,768

 

1,476

 

47

 

100,080

 

Total

 

$

439,889

 

$

59,071

 

$

37,087

 

$

830,141

 

 

Nine Months Ended January 31, 2009

 

Segment

 

Outside
revenues

 

Depreciation and
amortization

 

Operating
income (loss)

 

Total assets

 

North Eastern

 

$

93,656

 

$

18,044

 

$

3,470

 

$

169,780

 

South Eastern

 

49,285

 

8,016

 

(1,155

)

121,440

 

Central

 

93,116

 

12,352

 

12,741

 

159,738

 

Western

 

82,127

 

11,517

 

12,201

 

179,759

 

FCR

 

92,039

 

4,945

 

7,666

 

113,928

 

Other

 

26,370

 

1,134

 

(1,464

)

100,507

 

Total

 

$

436,593

 

$

56,008

 

$

33,459

 

$

845,152

 

 

19



 

Subsequent to January 31, 2009, the Company integrated the South Eastern region into the North Eastern region.

 

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

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Collection

 

$

64,649

 

$

60,700

 

$

202,981

 

$

202,122

 

Landfill / disposal facilities

 

23,979

 

23,186

 

82,147

 

83,095

 

Transfer

 

5,606

 

6,269

 

20,644

 

24,189

 

Recycling

 

46,645

 

30,996

 

134,117

 

127,187

 

Total revenues

 

$

140,879

 

$

121,151

 

$

439,889

 

$

436,593

 

 

14.                               INVESTMENTS IN UNCONSOLIDATED ENTITIES

 

The Company entered into an agreement in July 2000 with Louisiana-Pacific Corporation to combine their respective cellulose insulation businesses into a single operating entity, GreenFiber, under a joint venture agreement effective August 1, 2000. The Company’s investment in GreenFiber amounted to $29,571 and $26,391 at April 30, 2008 and January 31, 2009, respectively.

 

On August 15, 2008, the Company made a $2,500 equity contribution to GreenFiber to support a refinancing of GreenFiber’s existing revolving credit facility.  In addition, the other member of GreenFiber, Louisiana-Pacific (“LP”), made the same equity contribution resulting in no change to the Company’s ownership in GreenFiber.  The Company will continue to account for its 50% ownership in GreenFiber using the equity method of accounting.

 

In addition, the Company and LP issued a joint and several guarantee of up to $2,000 to support the refinancing of a GreenFiber term loan.  The guarantee can be drawn only upon a default (as defined) by GreenFiber under this term loan.  As of January 31, 2009, the Company has recorded $75 as the carrying amount of the guarantee.

 

Summarized financial information for GreenFiber is as follows:

 

 

 

April 30,
2008

 

January 31,
2009

 

 

 

 

 

Current assets

 

$

23,095

 

$

23,298

 

 

 

 

 

Noncurrent assets

 

69,681

 

67,219

 

 

 

 

 

Current liabilities

 

16,229

 

19,129

 

 

 

 

 

Noncurrent liabilities

 

$

17,365

 

$

18,607

 

 

 

 

 

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2008

 

2009

 

2008

 

2009

 

Revenue

 

$

44,432

 

$

36,424

 

$

119,926

 

$

102,153

 

Gross profit

 

7,531

 

8,743

 

19,964

 

17,817

 

Net (loss) income

 

$

(618

)

$

525

 

$

(6,027

)

$

(3,822

)

 

20



 

15.                               NET ASSETS UNDER CONTRACTUAL OBLIGATION

 

Effective June 30, 2003, the Company transferred its domestic brokerage operations, as well as a commercial recycling business to former employees who had been responsible for managing those businesses.  Consideration for the transaction was in the form of two notes receivable amounting up to $6,925.  These notes are payable within twelve years of the anniversary date of the transaction, to the extent of free cash flow generated from the operations.

 

Effective August 1, 2005, the Company transferred a certain Canadian recycling operation to a former employee who had been responsible for managing that business.  Consideration for this transaction was in the form of a note receivable amounting up to $1,313, which is payable within six years of the anniversary date of the transaction to the extent of free cash flow generated from the operations.

 

The Company has not accounted for these transactions as sales based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyers. The net assets of the operations were disclosed in the balance sheet as “net assets under contractual obligation”, and were being reduced as payments are made.  During the three and nine months ended January 31, 2008 and 2009, the Company recognized income on the transactions in the amount of $96, $0, $1,463 and $114, respectively, as payments received on the notes receivable exceeded the balance of the net assets under contractual obligation.  Minimum amounts owed to the Company under these notes amounted to $2,076 and $1,932 at April 30, 2008 and January 31, 2009, respectively.

 

21



 

16.                               CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

The Company’s senior subordinated notes due 2013 are guaranteed jointly and severally, fully and unconditionally, by the Company’s significant wholly-owned subsidiaries. The Parent is the issuer and a non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2008 and January 31, 2009, and the condensed consolidating results of operations for the three and nine months ended January 31, 2008 and 2009 and the condensed consolidating statements of cash flows for the nine months ended January 31, 2008 and 2009 of (a) the Parent company only, (b) the combined guarantors (“the Guarantors”), each of which is 100% wholly-owned by the Parent, (c) the combined non-guarantors (“the Non-Guarantors”), (d) eliminating entries and (e) the Company on a consolidated basis.

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2008

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

 

 

 

Parent

 

Guarantors

 

Non-Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,260

 

$

1,306

 

$

248

 

$

 

$

2,814

 

Restricted cash

 

 

95

 

 

 

95

 

Accounts receivable - trade, net of allowance for

 

 

 

 

 

 

 

 

 

 

 

doubtful accounts

 

80

 

61,969

 

184

 

 

62,233

 

Notes receivable - officers/employees

 

132

 

 

 

 

132

 

Refundable income taxes

 

2,020

 

 

 

 

2,020

 

Prepaid expenses

 

2,541

 

4,389

 

 

 

6,930

 

Deferred taxes

 

14,639

 

 

794

 

 

15,433

 

Other current assets

 

501

 

5,327

 

 

 

5,828

 

Total current assets

 

21,173

 

73,086

 

1,226

 

 

95,485

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,557

 

485,471

 

 

 

488,028

 

Goodwill

 

 

179,716

 

 

 

179,716

 

Investment in subsidiaries

 

2,898

 

 

 

(2,898

)

 

Other non-current assets

 

26,370

 

37,254

 

13,613

 

(4,379

)

72,858

 

 

 

31,825

 

702,441

 

13,613

 

(7,277

)

740,602

 

Intercompany receivable

 

652,849

 

(649,823

)

(7,405

)

4,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

705,847

 

$

125,704

 

$

7,434

 

$

(2,898

)

$

836,087

 

 

 

 

Parent

 

Guarantors

 

Non-Guarantors

 

Elimination

 

Consolidated

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long term debt

 

$

1,858

 

$

900

 

$

 

$

 

$

2,758

 

Accounts payable

 

4,084

 

47,503

 

144

 

 

51,731

 

Accrued payroll and related expenses

 

2,834

 

8,417

 

 

 

11,251

 

Other current liabilities

 

20,754

 

20,079

 

6,251

 

 

47,084

 

Total current liabilities

 

29,530

 

76,899

 

6,395

 

 

112,824

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

550,078

 

9,149

 

 

 

559,227

 

Other long-term liabilities

 

1,557

 

35,881

 

1,916

 

 

39,354

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Class A common stock -

 

 

 

 

 

 

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 24,466,000 shares

 

245

 

100

 

100

 

(200

)

245

 

Class B common stock -

 

 

 

 

 

 

 

 

 

 

 

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

 

10

 

 

 

 

10

 

Accumulated other comprehensive (loss) income

 

(2,568

)

502

 

143

 

(645

)

(2,568

)

Additional paid-in capital

 

276,189

 

46,430

 

3,988

 

(50,418

)

276,189

 

Accumulated deficit

 

(149,194

)

(43,257

)

(5,108

)

48,365

 

(149,194

)

Total stockholders’ equity

 

124,682

 

3,775

 

(877

)

(2,898

)

124,682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

705,847

 

$

125,704

 

$

7,434

 

$

(2,898

)

$

836,087

 

 

22



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JANUARY 31, 2009

(Unaudited)

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

 

 

 

Parent

 

Guarantors

 

Non-Guarantors

 

Elimination

 

Consolidated

 

ASSETS