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 October 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)
|
Registrants 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 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 proceeding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
o
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 registrants classes of common
stock, as of November 30, 2009:
|
Class A Common Stock, $0.01 par value per share:
|
24,745,079
|
|
|
Class B Common Stock, $0.01 par value per share:
|
988,200
|
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(in
thousands)
|
|
April 30,
|
|
October 31,
|
|
|
|
2009
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,838
|
|
$
|
2,004
|
|
Restricted
cash
|
|
508
|
|
76
|
|
Accounts
receivable - trade, net of allowance for doubtful accounts of $2,014 and
$1,706
|
|
51,296
|
|
56,179
|
|
Notes
receivable - officer/employees
|
|
136
|
|
137
|
|
Refundable
income taxes
|
|
1,195
|
|
1,623
|
|
Prepaid
expenses
|
|
6,679
|
|
5,923
|
|
Inventory
|
|
3,114
|
|
3,431
|
|
Deferred
income taxes
|
|
4,392
|
|
4,618
|
|
Other
current assets
|
|
7,577
|
|
4,913
|
|
|
|
|
|
|
|
Total
current assets
|
|
76,735
|
|
78,904
|
|
|
|
|
|
|
|
Property,
plant and equipment, net of accumulated depreciation and amortization of
$549,952 and $580,646
|
|
490,360
|
|
487,003
|
|
Goodwill
|
|
125,709
|
|
125,709
|
|
Intangible
assets, net
|
|
2,635
|
|
2,377
|
|
Restricted
assets
|
|
127
|
|
211
|
|
Notes
receivable - officer/employees
|
|
1,128
|
|
1,138
|
|
Deferred
income taxes
|
|
428
|
|
763
|
|
Investments
in unconsolidated entities
|
|
41,798
|
|
41,742
|
|
Other
non-current assets
|
|
12,042
|
|
20,571
|
|
|
|
674,227
|
|
679,514
|
|
|
|
|
|
|
|
|
|
$
|
750,962
|
|
$
|
758,418
|
|
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
2
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (Continued)
(Unaudited)
(in
thousands, except for share and per share data)
|
|
April 30,
|
|
October 31,
|
|
|
|
2009
|
|
2009
|
|
LIABILITIES AND STOCKHOLDERS
EQUITY
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
Current
maturities of long-term debt and capital leases
|
|
$
|
1,718
|
|
$
|
1,827
|
|
Current
maturities of financing lease obligations
|
|
1,344
|
|
1,418
|
|
Accounts
payable
|
|
34,623
|
|
34,270
|
|
Accrued
payroll and related expenses
|
|
4,180
|
|
4,133
|
|
Accrued
interest
|
|
6,407
|
|
11,984
|
|
Current
accrued capping, closure and post-closure costs
|
|
6,426
|
|
1,009
|
|
Other
accrued liabilities
|
|
22,337
|
|
22,778
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
77,035
|
|
77,419
|
|
|
|
|
|
|
|
Long-term
debt and capital leases, less current maturities
|
|
547,145
|
|
555,743
|
|
Financing
lease obligations, less current maturities
|
|
12,281
|
|
11,570
|
|
Accrued
capping, closure and post-closure costs, less current portion
|
|
35,464
|
|
40,578
|
|
Deferred
income taxes
|
|
2,684
|
|
3,552
|
|
Other
long-term liabilities
|
|
10,043
|
|
9,194
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS
EQUITY:
|
|
|
|
|
|
Class A
common stock -
|
|
|
|
|
|
Authorized
- 100,000,000 shares, $0.01 par value per share, issued and outstanding -
24,679,000 and 24,745,000 shares as of April 30, 2009 and
October 31, 2009, respectively
|
|
247
|
|
247
|
|
Class B
common stock -
|
|
|
|
|
|
Authorized
- 1,000,000 shares, $0.01 par value per share, 10 votes per share, issued and
outstanding - 988,000 shares
|
|
10
|
|
10
|
|
Accumulated
other comprehensive income
|
|
3,828
|
|
1,099
|
|
Additional
paid-in capital
|
|
279,444
|
|
280,554
|
|
Accumulated
deficit
|
|
(217,219
|
)
|
(221,548
|
)
|
Total
stockholders equity
|
|
66,310
|
|
60,362
|
|
|
|
|
|
|
|
|
|
$
|
750,962
|
|
$
|
758,418
|
|
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
3
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
(in
thousands)
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
157,538
|
|
$
|
133,733
|
|
$
|
315,442
|
|
$
|
266,833
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of operations
|
|
103,728
|
|
86,674
|
|
208,170
|
|
174,560
|
|
General
and administration
|
|
18,299
|
|
14,818
|
|
36,739
|
|
31,106
|
|
Depreciation
and amortization
|
|
19,505
|
|
18,347
|
|
38,975
|
|
37,876
|
|
|
|
141,532
|
|
119,839
|
|
283,884
|
|
243,542
|
|
Operating
income
|
|
16,006
|
|
13,894
|
|
31,558
|
|
23,291
|
|
Other
expense/(income), net:
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
(85
|
)
|
(28
|
)
|
(267
|
)
|
(61
|
)
|
Interest
expense
|
|
10,338
|
|
15,006
|
|
20,494
|
|
24,851
|
|
Loss
from equity method investments
|
|
1,045
|
|
159
|
|
2,173
|
|
1,378
|
|
Loss
on debt modification
|
|
|
|
|
|
|
|
511
|
|
Other
income
|
|
(64
|
)
|
(247
|
)
|
(152
|
)
|
(291
|
)
|
Other
expense, net
|
|
11,234
|
|
14,890
|
|
22,248
|
|
26,388
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations before income taxes and discontinued
operations
|
|
4,772
|
|
(996
|
)
|
9,310
|
|
(3,097
|
)
|
Provision
for income taxes
|
|
2,706
|
|
555
|
|
5,023
|
|
1,232
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations before discontinued operations
|
|
2,066
|
|
(1,551
|
)
|
4,287
|
|
(4,329
|
)
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations (net of income tax benefit of $8)
|
|
|
|
|
|
(11
|
)
|
|
|
Loss
on disposal of discontinued operations (net of income tax provision of $262)
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income (applicable) available to common stockholders
|
|
$
|
2,066
|
|
$
|
(1,551
|
)
|
$
|
4,242
|
|
$
|
(4,329
|
)
|
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
4
CASELLA
WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
(in
thousands, except for per share data)
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Earnings
Per Share:
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations before discontinued operations (applicable)
available to common stockholders
|
|
$
|
0.08
|
|
$
|
(0.06
|
)
|
$
|
0.17
|
|
$
|
(0.17
|
)
|
Loss
from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
Loss
on disposal of discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income per common share (applicable) available to common stockholders
|
|
$
|
0.08
|
|
$
|
(0.06
|
)
|
$
|
0.17
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
25,561
|
|
25,733
|
|
25,517
|
|
25,711
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
(Loss)
income from continuing operations before discontinued operations (applicable)
available to common stockholders
|
|
$
|
0.08
|
|
$
|
(0.06
|
)
|
$
|
0.17
|
|
$
|
(0.17
|
)
|
Loss
from discontinued operations, net
|
|
|
|
|
|
|
|
|
|
Loss
on disposal of discontinued operations, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) income per common share (applicable) available to common stockholders
|
|
$
|
0.08
|
|
$
|
(0.06
|
)
|
$
|
0.17
|
|
$
|
(0.17
|
)
|
|
|
|
|
|
|
|
|
|
|
Diluted
weighted average common shares outstanding
|
|
25,745
|
|
25,733
|
|
25,720
|
|
25,711
|
|
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
5
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
|
Six
Months Ended October 31,
|
|
|
|
2008
|
|
2009
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
Net (loss) income
|
|
$
|
4,242
|
|
$
|
(4,329
|
)
|
Loss from discontinued operations, net
|
|
11
|
|
|
|
Loss on disposal of discontinued operations, net
|
|
34
|
|
|
|
Adjustments to reconcile net (loss) income to net
cash provided by operating activities -
|
|
|
|
|
|
Gain on sale of equipment
|
|
(577
|
)
|
(916
|
)
|
Depreciation and amortization
|
|
38,975
|
|
37,876
|
|
Depletion of landfill operating lease obligations
|
|
3,520
|
|
3,165
|
|
Interest accretion on landfill and environmental
remediation liabilities
|
|
1,603
|
|
1,738
|
|
Income from assets under contractual obligation
|
|
(114
|
)
|
(150
|
)
|
Amortization of premium on senior subordinated
notes
|
|
(331
|
)
|
(356
|
)
|
Amortization of discount on term loan and second
lien notes
|
|
|
|
626
|
|
Loss from equity method investments
|
|
2,173
|
|
1,378
|
|
Loss on debt modification
|
|
|
|
511
|
|
Stock-based compensation
|
|
954
|
|
1,040
|
|
Excess tax benefit on the exercise of stock options
|
|
(157
|
)
|
|
|
Deferred income taxes
|
|
4,647
|
|
1,088
|
|
Changes in assets and liabilities, net of effects
of acquisitions and divestitures -
|
|
|
|
|
|
Accounts receivable
|
|
(3,978
|
)
|
(4,883
|
)
|
Accounts payable
|
|
(4,400
|
)
|
(353
|
)
|
Prepaid expenses, inventories and other assets
|
|
1,851
|
|
1,453
|
|
Accrued expenses and other liabilities
|
|
(9,236
|
)
|
2,664
|
|
|
|
34,930
|
|
44,881
|
|
Net Cash Provided by Operating Activities
|
|
39,217
|
|
40,552
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
(458
|
)
|
|
|
Additions to property, plant and equipment - growth
|
|
(8,232
|
)
|
(2,643
|
)
|
- maintenance
|
|
(29,964
|
)
|
(29,757
|
)
|
Payments on landfill operating lease contracts
|
|
(1,825
|
)
|
(4,538
|
)
|
Proceeds from divestitures
|
|
670
|
|
|
|
Proceeds from sale of equipment
|
|
895
|
|
2,497
|
|
Investment in unconsolidated entities
|
|
(2,510
|
)
|
|
|
Proceeds from assets under contractual obligation
|
|
114
|
|
150
|
|
Net Cash Used In Investing Activities
|
|
(41,310
|
)
|
(34,291
|
)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
60,000
|
|
413,144
|
|
Principal payments on long-term debt
|
|
(59,104
|
)
|
(405,344
|
)
|
Payment of financing costs
|
|
|
|
(13,980
|
)
|
Proceeds from exercise of stock options
|
|
1,289
|
|
85
|
|
Excess tax benefit on the exercise of stock options
|
|
157
|
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
|
2,342
|
|
(6,095
|
)
|
|
|
|
|
|
|
Discontinued Operations:
|
|
|
|
|
|
Net Cash Provided by Operating Activities
|
|
47
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
296
|
|
166
|
|
Cash and cash equivalents, beginning of period
|
|
2,814
|
|
1,838
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
3,110
|
|
$
|
2,004
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
6
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
|
|
Six
Months Ended October 31,
|
|
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow Information:
|
|
|
|
|
|
Cash paid during the period for -
|
|
|
|
|
|
Interest
|
|
$
|
20,463
|
|
$
|
17,212
|
|
Income taxes, net of refunds
|
|
$
|
258
|
|
$
|
550
|
|
|
|
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
|
|
|
|
|
|
Summary of entities acquired in purchase business
combinations -
|
|
|
|
|
|
Fair value of assets acquired
|
|
$
|
458
|
|
$
|
|
|
Cash paid, net
|
|
$
|
(458
|
)
|
$
|
|
|
|
|
|
|
|
|
Property, plant and equipment acquired through
financing lease obligations
|
|
$
|
11,940
|
|
$
|
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
7
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. (the Parent) and its subsidiaries (collectively, the
Company) is a regional, integrated solid waste services company which
provides a full range of solid waste services including collection, transfer,
recycling and disposal of non-hazardous solid waste. The Company also generates electricity
through its solid waste processing and markets recyclable paper, metals,
aluminum, plastics and glass which have been processed at its facilities or
purchased from third parties.
The
consolidated balance sheet of the Company as of October 31, 2009, the
consolidated statements of operations for the three and six months ended October 31,
2008 and 2009 and the consolidated statements of cash flows for the six months
ended October 31, 2008 and 2009 are unaudited. In the opinion of management, such financial
statements, together with the consolidated balance sheet as of April 30,
2009, 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
preparation of the Companys financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The Companys
significant accounting policies are more fully discussed in Item 7 of the
Companys Annual Report on Form 10-K/A for the year ended April 30,
2009 (the Annual Report), which was filed with the Securities and Exchange
Commission (the SEC) on July 24, 2009.
The consolidated financial statements presented herein should be read in
conjunction with the Companys audited consolidated financial statements as of
and for the twelve months ended April 30, 2009 included in the Annual
Report. The results for the three and
six month period ended October 31, 2009 may not be indicative of the
results that may be expected for any other interim period or the fiscal year
ending April 30, 2010.
Adoption of New Accounting Pronouncements
Fair Value Measurements and Disclosures
In
February 2008, the Financial Accounting Standards Board (FASB) issued
fair value measurement guidance to allow filers to defer for one year the
effective date of previously issued guidance as it relates to nonfinancial
assets and nonfinancial liabilities that are recognized or disclosed at fair
value in the financial statements on a nonrecurring basis. This additional guidance does not defer
recognition and disclosure requirements for financial assets and financial
liabilities or for nonfinancial assets and nonfinancial liabilities that are
remeasured at least annually. Effective May 1,
2009, the Company adopted this guidance with respect to non-financial assets
and liabilities measured on a non-recurring basis. The adoption did not have a material impact
on the Companys financial position, results of operations or cash flows.
Business Combinations
In
December 2007, the FASB issued new guidance on business combinations,
which revised previous guidance on accounting for business combinations and
retains the fundamental concept of the purchase
8
method
of accounting and introduces new requirements for the recognition and
measurement of assets acquired, liabilities assumed and noncontrolling
interests. This guidance also requires acquisition-related transaction and
restructuring costs to be expensed rather than treated as part of the cost of
the acquisition. This guidance applies prospectively to business
combinations for which the acquisition date is on or after the Companys
adoption date. The Company adopted this guidance on May 1, 2009 (See
Note 3).
Derivatives and Hedging Disclosures
In
March 2008, the FASB issued guidance which amends and expands the
disclosure requirements for derivative instruments and hedging activities. This
guidance 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. The Company adopted this
guidance on May 1, 2009. As this
guidance relates specifically to disclosures, the adoption had no impact on the
Companys financial position, results of operations or cash flows.
Intangible Assets
In
April 2008, the FASB issued guidance on determining the useful life of
intangible assets. This guidance amends
the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset. This guidance is intended to improve the
consistency between the useful life of a recognized intangible asset and the
period of expected cash flows used to measure the fair value. The Company adopted this guidance on May 1,
2009. The adoption of this guidance did
not have a material impact on the Companys financial position, results of
operations or cash flows.
Subsequent Events
In
May 2009, the FASB issued guidance on subsequent events which establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. This guidance
addresses the period after the balance sheet date during which the management
of a reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The Company adopted this guidance
during the quarter ended July 31, 2009.
The Company evaluated subsequent events through December 3, 2009,
which was the date the accompanying financial statements were available to be
issued. No material subsequent events
have occurred since October 31, 2009 that require recognition or
disclosure in the Companys current period financial statements.
2.
NEW
ACCOUNTING PROUNOUNCEMENTS PENDING ADOPTION
Variable Interest Entities
In
June 2009, the FASB issued guidance
for determining whether an entity is a variable interest entity (VIE) and
requires an enterprise to perform an analysis to determine whether the
enterprises variable interest or interests give it a controlling financial
interest in a VIE. Under this guidance, an enterprise has a controlling
financial interest when it has (i) the power to direct the activities of a
VIE that most significantly impact the entitys economic performance and (ii) the
obligation to absorb losses of the entity or the right to receive benefits from
the entity that could potentially be significant to the VIE. This
9
guidance
requires an enterprise to assess whether it has an implicit financial
responsibility to ensure that a VIE operates as designed when determining
whether it has power to direct the activities of the VIE that most
significantly impact the entitys economic performance. This guidance also
requires ongoing assessments of whether an enterprise is the primary
beneficiary of a VIE, requires enhanced disclosures and eliminates the scope
exclusion for qualifying special-purpose entities. This guidance is effective for annual
reporting periods beginning after November 15, 2009. The Company does not
believe the impact of adopting this guidance will have a material effect on the
Companys consolidated financial position or results of operations.
3.
BUSINESS
COMBINATIONS
As
disclosed in Note 1, the Company adopted new guidance on accounting for
business combinations on May 1, 2009.
Assets and liabilities that arose from business combinations that
preceded the application of this guidance were not adjusted upon application of
the new standard.
For
all acquisitions completed prior to the Companys adoption of this guidance,
acquisition purchase prices were allocated to the identified intangible assets
and tangible assets acquired and liabilities assumed based on their estimated
fair values at the dates of acquisition, with any residual amounts allocated to
goodwill. The time period for finalizing purchase price allocations did
not exceed one year from the consummation of a business combination. Any
adjustments made during the one year allocation period were recorded
prospectively as an adjustment to the acquired goodwill from the business
combination.
For
all acquisitions completed after the adoption of this guidance, as of the
respective acquisition dates, the Company recognizes, separately from goodwill,
the identifiable assets acquired and liabilities assumed at their estimated
acquisition-date fair values. The Company measures and recognizes
goodwill as of the acquisition date as the excess of: (a) the
aggregate of the fair value of consideration transferred, the fair value of any
noncontrolling interest in the acquiree (if any) and the acquisition-date fair
value of the Companys previously held equity interest in the acquiree (if
any), over (b) the fair value of net assets acquired and liabilities assumed.
If information about facts and circumstances existing as of the acquisition
date is incomplete by the end of the reporting period in which a business
combination occurs, the Company will report provisional amounts for the items
for which the accounting is incomplete. The measurement period ends once
the Company receives the information it was seeking; however, this period will
not extend beyond one year from the acquisition date. Any material
adjustments recognized during the measurement period will be recognized
retrospectively in the consolidated financial statements of the then current
period. All acquisition-related
transaction and restructuring costs are to be expensed as incurred rather than
capitalized as part of the cost of the acquisition.
During
the six months ended October 31, 2008, the Company acquired two solid
waste hauling operations in exchange for total consideration of $458 in
cash. The operating results of these
businesses are included in the consolidated statements of operations from the
dates of acquisition. The purchase price
has been allocated to the net assets acquired based on their fair values at the
dates of acquisition, including the value of non-compete agreements, with the
residual amounts allocated to goodwill.
Fair value of tangible assets is determined by the Company based on fair
market value of similar property using industry accepted sources. The pro forma results, as if these
acquisitions had been made on May 1, 2008, do not vary materially from
actual reported results for the three and six months ended October 31,
2008 and 2009.
4.
GOODWILL
AND INTANGIBLE ASSETS
The
following table shows the balances related to goodwill at April 30, 2009
and October 31, 2009:
10
Eastern
Region
|
|
Central
Region
|
|
Western
Region
|
|
FCR
Recycling
|
|
Total
|
|
$
|
|
|
$
|
32,951
|
|
$
|
55,302
|
|
$
|
37,456
|
|
$
|
125,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets at April 30, 2009 and October 31, 2009 consist of the
following:
|
|
Covenants
not to
compete
|
|
Client Lists
|
|
Licensing Agreements
|
|
Contract Acquisition Costs
|
|
Total
|
|
Balance,
April 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
$
|
14,125
|
|
$
|
1,597
|
|
$
|
920
|
|
$
|
424
|
|
$
|
17,066
|
|
Less
accumulated amortization
|
|
(13,308
|
)
|
(817
|
)
|
(235
|
)
|
(71
|
)
|
(14,431
|
)
|
|
|
$
|
817
|
|
$
|
780
|
|
$
|
685
|
|
$
|
353
|
|
$
|
2,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Intangible
assets
|
|
$
|
14,142
|
|
$
|
1,597
|
|
$
|
920
|
|
$
|
424
|
|
$
|
17,083
|
|
Less
accumulated amortization
|
|
(13,481
|
)
|
(863
|
)
|
(268
|
)
|
(94
|
)
|
(14,706
|
)
|
|
|
$
|
661
|
|
$
|
734
|
|
$
|
652
|
|
$
|
330
|
|
$
|
2,377
|
|
Intangible
amortization expense for the three and six months ended October 31, 2008
and 2009 was $154, $133, $301 and $285, respectively. The intangible amortization expense estimated
for the five fiscal years following fiscal year 2009 and thereafter is as
follows:
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014
|
|
Thereafter
|
|
$
|
520
|
|
$
|
412
|
|
$
|
331
|
|
$
|
269
|
|
$
|
221
|
|
$
|
899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
LONG-TERM
DEBT
On July 9, 2009, the
Company successfully completed the refinancing of its existing senior credit
facility with a senior secured first lien credit facility (the Senior Secured
Credit Facility), consisting of a $177,500 revolving credit facility (the New
Revolver) and a $130,000 aggregate principal term loan (the New Term Loan).
In connection with the Senior Secured Credit Facility, the Company simultaneously
completed the offering of $180,000 aggregate principal amount of 11% senior
second lien notes due 2014 (the Second Lien Notes). The net proceeds from the Senior Secured
Credit Facility and from the Second Lien Notes offering were used to refinance
the borrowings under the Companys $525,000 senior credit facility due April 2010.
For the first two quarters
after July 9, 2009, the interest rate for borrowings under the New
Revolver will be LIBOR plus a margin of 4.50% per annum, and thereafter the applicable
margin will be determined in accordance with the pricing grid as set forth in
the Senior Secured Credit Facility Agreement dated July 9, 2009. The
interest rate for the New Term Loan is LIBOR plus a margin of 5.00% per annum,
provided that LIBOR shall not be less than 2.00% per annum. The New Term Loan
was issued at an original issue price of 94.5% of the principal amount of the
loan.
The Senior Secured Credit
Facility is subject to customary affirmative, negative, and financial
covenants, generally consistent with the Companys prior credit agreement. The
New Revolver is due December 31, 2012 and the New Term Loan is due April 9,
2014. If the Company fails to refinance the Companys 9.75% Senior Subordinated
Notes due February 2013 on or before October 31, 2012, the due date
for the
11
New Term Loan shall be December 31,
2012. The Company has the right to increase the amount of the Senior Secured
Credit Facility by an aggregate amount of $42,500, in its discretion, subject
to certain conditions of the Senior Secured Credit Facility Agreement.
The Second Lien Notes were
issued at an original issue price of 97.2% of the principal amount. The Second Lien Notes will pay interest on a
semi-annual basis and are due on July 15, 2014.
The Second Lien Notes were
sold in a private placement to qualified institutional buyers pursuant to Rule 144A
under the Securities Act of 1933, as amended (the Securities Act), and to
non-U.S. persons outside the United States under Regulation S under the
Securities Act.
The Second Lien Notes have
not been registered under the Securities Act, and unless so registered, may not
be offered or sold in the United States absent registration or an applicable
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and other applicable securities laws.
The Company recorded a
charge of $511 as a loss on debt modification in the quarter ended July 31,
2009 relating to the unamortized deferred financing costs associated with the
refinancing of its existing senior credit facility.
6.
COMMITMENTS
AND CONTINGENCIES
(a)
Legal Proceedings
North
Country Landfill Expansion
The
North Country Environmental Services, Inc. (NCES) landfill is located in
Bethlehem, New Hampshire, and is currently permitted to accept municipal solid
waste and construction and demolition (C&D) material from a wide
geographic region. NCES projects that
its permitted and uncontested capacity will last into fiscal year 2010.
NCES
and the Town of Bethlehem (the Town) have been in prolonged zoning litigation
over NCESs expansion of the landfill.
Currently, there are two court actions between NCES and the Town, a
declaratory judgment action initiated by NCES on September 12, 2001, and a
zoning enforcement action initiated by the Town on February 2, 2009. In the declaratory judgment action, the New
Hampshire Supreme Court ruled that NCES has all necessary local approvals to
expand its landfill within a 51-acre area, but remanded to the Superior Court
issues related to the validity of the Towns zoning ordinance as it relates to
a proposed landfill expansion outside that 51-acre area. The remanded case remains pending and no
trial date has been set. In the
enforcement action, the Town has requested an injunction requiring NCES to
remove a leachate force main, a landfill gas line, stormwater drainage lines,
catch basins and outfalls, a landfill liner anchor trench, and storm water
detention ponds that are located outside the 51-acre area. NCES and the Town filed cross-motions for
summary judgment on the validity of the ordinance the Town is attempting to
enforce, and the court denied both motions in October 2009. The enforcement action is currently scheduled
for a bench trial in March 2010.
On
December 12, 2008, the New Hampshire Department of Environmental Services
(NHDES) denied a request by NCES to modify its standard permit to develop
approximately eight years of capacity within the bounds of the 51-acre area. NCES revised and resubmitted its request, and
the NHDES denied the revised request on March 25, 2009. NCES appealed each of these denials to the
New Hampshire Waste Management Council (WMC).
NCES obtained a stay of both appeals pending the outcome of the action
for declaratory and injunctive relief described below.
12
NCES
filed a petition for declaratory and injunctive relief with the Superior Court
on February 10, 2009, related to the NHDESs December 12, 2008
denial. NCES amended this petition
following NHDESs March 25, 2009 denial.
In its amended petition, NCES sought declarations that NHDESs denials
were unlawful on several grounds. NCES
also sought preliminary injunctive relief that would have required NHDES to
immediately resume its consideration of NCESs request to modify its standard
permit. In addition, NCES sought
permanent injunctive relief that would require NHDES to review the permit
modification application in conformity with the Superior Courts
declarations. On June 11, 2009, the
Superior Court denied NCESs request for a preliminary injunction and also
denied NHDESs request to dismiss the petition.
Subsequently, NCES filed a motion for partial summary judgment on two of
its claims for declaratory relief and NHDES filed a cross-motion for partial
summary judgment. In October 2009,
NCES agreed to the dismissal of one of its claims without prejudice, and moved
successfully with NHDESs concurrence to stay the litigation so that NHDES
may consider the results of certain remedial work NCES undertook during the
2009 construction season. NCES sought
the stay because the outcome of this review by NHDES could affect the scope of
the litigation.
In
the event that the Company is unsuccessful obtaining the permits, the Company
will assess the need for a potential landfill impairment charge (the carrying
value of the NCES landfill assets as of October 31, 2009 was approximately
$6,896). The Company would also assess the need for additional closure and
post-closure charges.
GR Technologies, Inc. Litigation
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 member 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
allegations including, among others, breach of contract, breach of fiduciary
duty, fraud, tortuous interference with business relations, induced
infringement and other matters. 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 that a suit for dissolution must be
heard in the Delaware Chancery Court, as opposed to Rutland Superior Court, and
the Company has brought such an action.
A hearing has been set by the Delaware Chancery Court for the first week
in February 2010.
The
above described litigation is in discovery 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 this litigation, regardless of its outcome, will not
have a material adverse affect on the Companys financial condition, results of
operations or cash flows.
New York Department of Labor Prevailing Wage Dispute
The
Company has been involved in an inquiry by the New York Department of Labor (DOL)
regarding the applicability of certain state Prevailing Wage laws pertaining
to work being undertaken by the Company at certain landfill sites operated by
the Company in New York State that are owned by municipalities (Chemung,
Ontario and Clinton Counties). On August 21, 2009, the DOL issued a letter
opinion with regard to cell construction and capping work and other activities
at these landfills, concluding that: (1) the
construction activity necessary for the recovery, use and sale of gases created
by
13
the
landfill is not a public work project to which the Prevailing Wage Law applies;
(2) cell construction and capping activities are public work where that
work takes place on publicly owned lands in the furtherance of the operation of
a publicly accessible landfill facility; (3) construction on lands
acquired by Casella which adjoin a County-owned landfill are akin to a
privately owned and operated landfill and would not be subject to the Prevailing
Wage Law. The Company is negotiating
with the DOL to resolve this matter and though a negotiated settlement appears
more likely than not, the Company has not ruled out administrative or
litigation relief. Any charge, excluding
interest or penalties, incurred by the Company related to these claims will be
capitalized as part of the related landfill asset, and amortized prospectively
over the remaining life of the landfill as tons of waste are placed at each
landfill site. The Company does not believe that the outcome of this matter
will have a material adverse effect on the Companys business, financial
condition, results of operations or cash flows.
Southbridge
Landfill Site Assignment Appeal
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 Companys
subsidiary, Southbridge Recycling and Disposal Park, Inc. (SRD), a minor
modification to the existing site assignment for the Southbridge Sanitary
Landfill (the Landfill). The 2008 Site
Assignment allows SRD, subject to numerous conditions, to accept into the
Landfill up to 405,000 tons of MSW per year without regard to geographic origin.
On
or about July 14, 2008, the Sturbridge Board of Health (Sturbridge BOH),
an abutting municipality to Southbridge, together with several 10-citizen
groups, filed a complaint in Worcester County 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 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 hearing on
the merits occurred on August 18, 2009, and the court has not yet issued a
decision. While it is too early to assess the outcome, SRD will continue to
aggressively defend the Appeal.
Port of Albany, New York Project Development
Casella
Albany Renewables, LLC (CAR), a wholly-owned subsidiary of Casella Renewable
Systems, LLC, entered into an Option Agreement with Albany Renewable Energy,
LLC (ARE) in September, 2008 (Option Agreement). In March 2008, ARE was the successful
bidder to the Albany Port District Commission (Port) for the development of
an ethanol facility to be located on a site owned by the Port (Project). ARE has entered into a lease agreement with
the Port, and CAR has the option pursuant to the Option Agreement of entering
into a sublease with ARE should CAR elect to become involved in the development
of the Project.
On
or about September 18, 2009, Empire State Ethanol & Energy, LLC (Empire),
a putative member of a non-selected bidder for the Project, filed litigation in
Albany County Supreme Court against the Port and certain of its officers, ARE
and certain of its affiliates, and CAR and certain of its affiliates, seeking a
declaratory judgment that the bidding process for the Project was flawed and an
order finding the selection of ARE was illegal and requiring the Port to rebid
the Project. Empire also moved on an
expedited basis for a preliminary injunction in order to maintain the Projects
status quo until a hearing could be held on the merits of the declaratory
judgment action. Oral arguments were
held on the preliminary injunction motion on October 30, 2009. The court has not issued a decision. The Company intends to vigorously defend
against these claims and believes that regardless of its outcome, this matter
14
will
not have a material adverse effect on the
Companys business, financial condition or results of operations or cash
flows.
CRMC Bethlehem, LLC Litigation
CRMC
Bethlehem, LLC and Commonwealth Bethlehem Energy, LLC (collectively, CRMC),
has filed claims in the US District Court for the District of New Hampshire
against NCES. CRMC seeks declaratory and
injunctive relief and damages. CRMC
alleges that NCES has breached the terms of a Gas Lease and Easement Agreement
by and between CRMC and NCES, entered into on September 10, 1998, as
amended on March 1, 2000 (the Gas Lease). CRMC alleges that NCES has inappropriately
interfered with CRMC rights pursuant to the Gas Lease to develop a landfill
gas-to-energy project to be sited on the Landfill. NCES denies these allegations, and intends to
vigorously defend against these claims.
The Company does not believe that this matter will have a material
adverse effect on the Companys business, financial condition or results of
operations or cash flows.
Other
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.
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 Companys business, financial
condition or results of operations or cash flows.
(b)
Environmental Liability
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. 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 expected to
be responsible for approximately 30% upon implementation of a cost-sharing
agreement. Based on these estimates, the Company recorded an environmental
remediation charge of $2,823 in third quarter of fiscal 2009. In the fourth quarter of fiscal year 2009,
the Company recognized an additional charge of $1,532, representing an
additional 15% of the estimated costs, in recognition of the deteriorating
financial condition and eventual bankruptcy filing of GM. Such charges could be significantly higher if
costs exceed estimates, one or more of the other responsible parties are not
able to meet their obligation, or one or more of the
15
other
responsible parties declared bankruptcy.
The Company inflates the cost in current dollars until the expected time
of payment and discounts the cost to present value using an appropriate
discount rate (average of 6.6%. in fiscal years 2009 and 2010). As of October 31, 2009, the Company has
recorded $4,116 related to this liability, including the recognition of $56 and
$111 of accretion expense in the three and six months ended October 31,
2009.
7.
STOCK-BASED
COMPENSATION
In
the six months ended October 31, 2009, the Company granted a combination
of restricted stock units and performance stock units under the 2006 Stock
Incentive Plan (the 2006 Plan) to certain employees. The stock units, each of which represents a
share of Class A Common Stock, are subject to vesting, one half of which is
based on the attainment by the Company of a targeted annual return on assets in
fiscal year 2012 and the other half of which vests based on continued
employment over a three year period starting on the first anniversary of the
grant. As of October 31, 2009, at
the one hundred percent level of attainment, the grantee pool would be entitled
to a total of 570 shares of Class A Common Stock based on the attainment
of a targeted annual return on assets in fiscal 2012 and 570 shares of Class A
Common Stock based on vesting over a three year period starting on the first
anniversary of the grant. The maximum
payout of the performance stock units equals 200% of the established target.
The
initial grant date of these awards was June 11, 2009. Subsequent to the initial grant, the Company
determined that due to a clerical error, the number of awards made on June 11,
2009 exceeded the number of shares that were available for issuance under the
2006 Plan. As a result, the Company
asked officers and certain employees who received a performance stock unit
award on June 11, 2009 and July 28, 2008 to agree to a termination of
the agreements evidencing such awards.
Upon stockholder approval on October 13, 2009 to increase the
number of shares authorized for issuance under the 2006 Plan, the Company
granted performance stock units under the 2006 Plan for the same number of
shares and subject to the same terms as those awards that had been terminated.
The
performance and restricted stock units were granted at an average grant date
fair value of $2.73 per share. As of October 31,
2009 there were 3,272 Class A Common Stock equivalents authorized for
future grant under the 2006 Plan inclusive of additional Class A Common
Stock equivalents which were previously issued under the Companys terminated
plans because such awards expired or otherwise resulted in shares not being
issued.
On
October 13, 2009, the Company granted 104 restricted stock units under the
2006 Plan to non-employee directors of the Company. These shares were issued at a grant date fair
value of $2.89 and will vest in equal amounts over a three year period starting
on the first anniversary of the grant date.
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 and restricted / performance stock unit activity for
the six months ended October 31, 2009 is as follows:
16
|
|
Stock Options
|
|
Weighted
Average
Exercise
Price
|
|
Restricted /
Performance
Stock Units -
Unvested (1)
|
|
Outstanding,
April 30, 2009
|
|
3,522
|
|
$
|
11.88
|
|
275
|
|
Granted
|
|
|
|
|
|
1,304
|
|
Exercised
|
|
|
|
|
|
|
|
Class A
Common Stock Issued
|
|
|
|
|
|
(34
|
)
|
Forfeited
|
|
(602
|
)
|
12.58
|
|
(71
|
)
|
Outstanding,
October 31, 2009
|
|
2,920
|
|
11.73
|
|
1,474
|
|
Exercisable,
October 31, 2009
|
|
2,717
|
|
$
|
11.68
|
|
|
|
(1) Performance
stock units are included at the 100% attainment level. Attainment of performance metrics at maximum
levels could result in the issuance of an additional 674 shares of Class A
Common Stock.
The
Company recorded $536, $446, $899 and $953 of stock-based compensation
expense related to stock options, performance stock units and restricted stock
units during the three and six months ended October 31, 2008 and 2009,
respectively. The Company also recorded
$28, $64, $55 and $87 of stock-based compensation expense for the Companys
Employee Stock Purchase Plan during the three and six months ended October 31,
2008 and 2009, respectively.
Stock-based
compensation expense is included in general and administration expenses in the
consolidated statement of operations.
The unrecognized stock-based compensation expense at October 31,
2009 related to unvested stock options and restricted stock units was $2,445,
to be recognized over a weighted average period of 1.6 years. Maximum unrecognized stock-based compensation
expense at October 31, 2009 related to performance stock units was $6,786,
to be recognized over a weighted average period of 2.4 years subject to the
attainment of performance metrics.
The
Companys calculations of stock-based compensation expense associated with
stock options and the Companys Employee Stock Purchase Plan for the three and
six months ended October 31, 2008 and 2009 were made using the Black-Scholes
valuation model. The fair value of the Companys stock option grants was
estimated assuming no expected dividend yield and the following weighted
average assumptions were used for the three and six months ended October 31,
2008 and 2009:
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Stock
Options:
|
|
|
|
|
|
|
|
|
|
Expected
life
|
|
|
|
|
|
6 years
|
|
|
|
Risk-free
interest rate
|
|
|
|
|
|
3.73
|
%
|
|
|
Expected
volatility
|
|
|
|
|
|
36.80
|
%
|
|
|
Stock
Purchase Plan:
|
|
|
|
|
|
|
|
|
|
Expected
life
|
|
0.5 years
|
|
0.5 years
|
|
0.5 years
|
|
0.5 years
|
|
Risk-free
interest rate
|
|
2.49
|
%
|
0.35
|
%
|
2.49
|
%
|
0.35
|
%
|
Expected
volatility
|
|
36.44
|
%
|
243.78
|
%
|
36.44
|
%
|
243.78
|
%
|
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 six months ended October 31, 2008, expected volatility is
calculated using the average of weekly historical volatility of the Companys Class A
Common Stock over the last six years.
17
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 Companys 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 (EPS):
|
|
Three Months
Ended October 31,
|
|
Six Months
Ended October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Net
(loss) income (applicable) available to common stockholders
|
|
$
|
2,066
|
|
$
|
(1,551
|
)
|
$
|
4,242
|
|
$
|
(4,329
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Number
of shares outstanding, end of period:
|
|
|
|
|
|
|
|
|
|
Class A
common stock
|
|
24,601
|
|
24,745
|
|
24,601
|
|
24,745
|
|
Class B
common stock
|
|
988
|
|
988
|
|
988
|
|
988
|
|
Effect
of weighted average shares outstanding during period
|
|
(28
|
)
|
|
|
(72
|
)
|
(22
|
)
|
Weighted
average number of common shares used in basic EPS
|
|
25,561
|
|
25,733
|
|
25,517
|
|
25,711
|
|
Impact
of potentially dilutive securities:
|
|
|
|
|
|
|
|
|
|
Dilutive
effect of options and restricted stock units
|
|
184
|
|
|
|
203
|
|
|
|
Weighted
average number of common shares used in diluted EPS
|
|
25,745
|
|
25,733
|
|
25,720
|
|
25,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three and six months ended October 31,
2008, 2,715 and 2,713 common stock equivalents related to options, warrants and
restricted stock units, respectively, were excluded from the calculation of
dilutive shares since the inclusion of such shares would be anti-dilutive.
For the three and six months ended October 31,
2009, 4,267 common stock equivalents related to options and restricted stock
units were excluded from the calculation of dilutive shares since the inclusion
of such shares would be anti-dilutive.
9.
COMPREHENSIVE (LOSS) INCOME
Comprehensive
(loss) income is defined as the change in net assets of a business enterprise
during a period from transactions generated from non-owner sources. It includes
all changes in equity during a period except those resulting from investments
by owners and distributions to owners. Accumulated other comprehensive income
included in the accompanying balance sheets consists of changes in the fair
value of the Companys interest rate derivatives and commodity hedge
agreements. Also included in accumulated
other comprehensive income is the change in fair value of certain securities
classified as available for sale as well as the Companys portion of the change
in the fair value of commodity hedge agreements of the Companys equity method
investment, US GreenFiber, LLC (GreenFiber)
.
18
Comprehensive
(loss) income for the three and six months ended October 31, 2008 and 2009
is as follows:
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
October 31,
|
|
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Net
(loss) income
|
|
$
|
2,066
|
|
$
|
(1,551
|
)
|
$
|
4,242
|
|
$
|
(4,329
|
)
|
Other
comprehensive (loss) income
|
|
4,805
|
|
(1,016
|
)
|
5,963
|
|
(2,729
|
)
|
Comprehensive
(loss) income
|
|
$
|
6,871
|
|
$
|
(2,567
|
)
|
$
|
10,205
|
|
$
|
(7,058
|
)
|
The
components of other comprehensive (loss) income for the three and six months
ended October 31, 2008 and 2009 are shown as follows:
|
|
Three Months Ended October 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
|
|
$
|
(89
|
)
|
$
|
(32
|
)
|
$
|
(57
|
)
|
$
|
13
|
|
$
|
|
|
$
|
13
|
|
Change
in fair value of interest rate derivatives and commodity hedges during period
|
|
6,525
|
|
2,627
|
|
3,898
|
|
(592
|
)
|
|
|
(592
|
)
|
Reclassification
to earnings for interest rate derivatives and commodity hedge contracts
|
|
1,614
|
|
650
|
|
964
|
|
(732
|
)
|
(295
|
)
|
(437
|
)
|
|
|
$
|
8,050
|
|
$
|
3,245
|
|
$
|
4,805
|
|
$
|
(1,311
|
)
|
$
|
(295
|
)
|
$
|
(1,016
|
)
|
|
|
Six Months Ended October 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
|
|
$
|
(186
|
)
|
$
|
(65
|
)
|
$
|
(121
|
)
|
$
|
18
|
|
$
|
|
|
$
|
18
|
|
Change
in fair value of interest rate derivatives and commodity hedges during period
|
|
7,118
|
|
2,865
|
|
4,253
|
|
(1,589
|
)
|
|
|
(1,589
|
)
|
Reclassification
to earnings for interest rate derivatives and commodity hedge contracts
|
|
3,081
|
|
1,250
|
|
1,831
|
|
(1,939
|
)
|
(781
|
)
|
(1,158
|
)
|
|
|
$
|
10,013
|
|
$
|
4,050
|
|
$
|
5,963
|
|
$
|
(3,510
|
)
|
$
|
(781
|
)
|
$
|
(2,729
|
)
|
The
Companys 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 has evaluated these hedges and
believes that these instruments qualify for hedge accounting pursuant to
derivative and hedging guidance.
Designated as effective cash flow hedges, the changes in the fair value
of these derivatives are recognized in other comprehensive (loss) income until
the hedged item is settled and recognized as part of commodity revenue. The Company recognizes all derivatives on the
balance sheet at fair value.
At
October 31, 2009, the Company was party to twelve commodity hedge
contracts for old corrugated cardboard (OCC) and twelve commodity hedge
contracts for old newsprint (ONP) as follows:
19
Inception Date Range
|
|
Commodity
Type
|
|
Contract Date Range
|
|
Monthly
Notional Ton
Range
|
|
Fixed Price
Per Ton
Received
Range
|
|
December 2007 - September 2009
|
|
OCC
|
|
April 2008 -
June 2011
|
|
75 - 750
|
|
$50 - $127
|
|
June 2007 - September 2009
|
|
ONP
|
|
February 2008
- December 2011
|
|
200 - 1500
|
|
$70 - $127
|
|
If
the price per short ton of the underlying commodity as reported on the Official
Board Market is less than the contract price per short ton, the Company receives
the difference between the average price and the contract price (multiplied by
the notional tons) from the respective counter-party. If the price of the commodity exceeds the
contract price per short ton, the Company pays the calculated difference to the
counter-party.
The
fair values of the commodity hedges are obtained or derived from third-party
counter-parties and are determined using valuation models with assumptions
about market prices for commodities being based on those in underlying active
markets. The gross carrying value of the
Companys commodity hedges was $4,053 at October 31, 2009 with $2,447
recorded in other current assets and $1,606 recorded in other non-current
assets in the Companys Consolidated Balance Sheets. In accordance with derivative and hedging
guidance, the offset to this, net of taxes of $2,557, is recorded to
accumulated other comprehensive income.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
On
May 1, 2008, the Company adopted FASB guidance relating to financial
assets and liabilities that are being measured and reported at fair value on a
recurring basis.
This
guidance 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
Companys financial assets and liabilities recorded at fair value on a recurring
basis include restricted assets derivative instruments. The Companys derivative instruments include
commodity hedges. As of October 31,
2009, the Company had no interest rate derivatives. The Company uses commodity hedges to hedge
against fluctuations 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 Companys financial assets and liabilities, the Company
relies on market data or assumptions that the Company believes market
participants would use in pricing an asset or liability. During the three and six months ended October 31,
2009 there were no nonrecurring fair value measurements of assets and
liabilities subsequent to initial measurement.
As of October 31, 2009, the Companys assets that are measured at
fair value on a recurring basis included the following:
20
|
|
Fair Value Measurement at October 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
|
|
$
|
211
|
|
$
|
|
|
$
|
|
|
Commodity derivatives
|
|
|
|
2,780
|
|
|
|
Total
|
|
$
|
211
|
|
$
|
2,780
|
|
$
|
|
|
The
Companys financial instruments include cash and cash equivalents, trade
receivables, investments in closure trust funds and trade payables. The carrying values of these financial
instruments approximate their respective fair values. At October 31, 2009, the fair market
value of the Companys fixed rate debt including the Second Lien Notes and the
9.75% Senior Subordinated Notes due February 2013 was approximately
$377,025 and the carrying value was $372,902.
At October 31, 2009, the fair market value of the Companys Senior
Secured Credit Facility which includes the New Revolver and New Term Loan
was approximately $165,623 and the carry value was $158,217.
11. DISCONTINUED
OPERATIONS
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 this operation for the six months ended October 31,
2008 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 six months ended October 31, 2008 were $282 and $19,
respectively.
The
Company has recorded liabilities associated with previous divestitures
amounting to approximately $434 at October 31, 2009.
The
Company allocates interest to discontinued operations. The Company has also
eliminated certain immaterial inter-company activity associated with
discontinued operations.
12. SEGMENT REPORTING
The
Company manages and evaluates its solid waste operations on a geographic basis
through three regions, designated as Eastern, Central, Western regions, which
include a full range of solid waste services including collection, transfer,
recycling and disposal of non-hazardous solid waste. Solid waste operations also includes the
Companys power generation operations.
The Companys revenues in the FCR recycling segment are derived
primarily from the processing and recycling and sale of paper, metals,
aluminum, plastics and glass. Ancillary
operations, major customer accounts, discontinued operations and earnings from
equity method investments are included in Other.
21
Three
Months Ended October 31, 2008 (1)
Segment
|
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating
income (loss)
|
|
Total assets
|
|
Eastern
|
|
$
|
54,643
|
|
$
|
12,544
|
|
$
|
9,557
|
|
$
|
1,105
|
|
$
|
303,433
|
|
Central
|
|
31,815
|
|
14,982
|
|
4,041
|
|
4,717
|
|
157,772
|
|
Western
|
|
30,355
|
|
6,661
|
|
3,966
|
|
5,806
|
|
183,159
|
|
FCR recycling
|
|
31,918
|
|
168
|
|
1,562
|
|
4,731
|
|
113,241
|
|
Other
|
|
8,807
|
|
|
|
379
|
|
(353
|
)
|
98,851
|
|
Eliminations
|
|
|
|
(34,355
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
157,538
|
|
$
|
|
|
$
|
19,505
|
|
$
|
16,006
|
|
$
|
856,456
|
|
Three
Months Ended October 31, 2009
Segment
|
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating
income (loss)
|
|
Total assets
|
|
Eastern
|
|
$
|
47,253
|
|
$
|
11,002
|
|
$
|
8,677
|
|
$
|
1,788
|
|
$
|
232,606
|
|
Central
|
|
28,775
|
|
10,993
|
|
3,530
|
|
5,028
|
|
158,868
|
|
Western
|
|
25,116
|
|
6,025
|
|
3,764
|
|
4,783
|
|
177,648
|
|
FCR recycling
|
|
22,894
|
|
113
|
|
1,969
|
|
2,690
|
|
106,630
|
|
Other
|
|
9,695
|
|
|
|
407
|
|
(395
|
)
|
82,666
|
|
Eliminations
|
|
|
|
(28,133
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
133,733
|
|
$
|
|
|
$
|
18,347
|
|
$
|
13,894
|
|
$
|
758,418
|
|
Six
Months Ended October 31, 2008
Segment
|
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating
income (loss)
|
|
Total assets
|
|
Eastern
|
|
$
|
108,221
|
|
$
|
26,638
|
|
$
|
18,409
|
|
$
|
1,438
|
|
$
|
303,433
|
|
Central
|
|
65,409
|
|
30,497
|
|
8,536
|
|
9,415
|
|
157,772
|
|
Western
|
|
60,928
|
|
13,202
|
|
8,089
|
|
11,734
|
|
183,159
|
|
FCR
|
|
63,265
|
|
385
|
|
3,138
|
|
9,805
|
|
113,241
|
|
Other
|
|
17,619
|
|
|
|
803
|
|
(834
|
)
|
98,851
|
|
Eliminations
|
|
|
|
(70,722
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
315,442
|
|
$
|
|
|
$
|
38,975
|
|
$
|
31,558
|
|
$
|
856,456
|
|
Six
Months Ended October 31, 2009
Segment
|
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating
income (loss)
|
|
Total assets
|
|
Eastern
|
|
$
|
93,245
|
|
$
|
22,194
|
|
$
|
18,413
|
|
$
|
(164
|
)
|
$
|
232,606
|
|
Central
|
|
58,622
|
|
22,877
|
|
7,164
|
|
9,772
|
|
158,868
|
|
Western
|
|
50,273
|
|
12,147
|
|
7,522
|
|
9,774
|
|
177,648
|
|
FCR
|
|
45,206
|
|
277
|
|
3,938
|
|
4,714
|
|
106,630
|
|
Other
|
|
19,487
|
|
|
|
839
|
|
(805
|
)
|
82,666
|
|
Eliminations
|
|
|
|
(57,495
|
)
|
|
|
|
|
|
|
Total
|
|
$
|
266,833
|
|
$
|
|
|
$
|
37,876
|
|
$
|
23,291
|
|
$
|
758,418
|
|
(1) Segment
data as of and for the three and six months ended October 31, 2008 has
been revised to reflect a change in the Companys internal reporting structure
and a realignment of certain operations between segments.
Sources
of the Companys total revenue are as follows:
22
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Collection
|
|
$
|
57,356
|
|
$
|
52,319
|
|
$
|
115,698
|
|
$
|
104,407
|
|
Disposal
|
|
33,691
|
|
28,633
|
|
66,051
|
|
58,375
|
|
Power
generation
|
|
7,230
|
|
7,159
|
|
14,100
|
|
13,528
|
|
Processing
and recycling
|
|
18,536
|
|
13,033
|
|
38,709
|
|
25,830
|
|
Solid
waste operations
|
|
116,813
|
|
101,144
|
|
234,558
|
|
202,140
|
|
Major
accounts
|
|
8,807
|
|
9,695
|
|
17,619
|
|
19,487
|
|
FCR
recycling
|
|
31,918
|
|
22,894
|
|
63,265
|
|
45,206
|
|
Total
revenues
|
|
$
|
157,538
|
|
$
|
133,733
|
|
$
|
315,442
|
|
$
|
266,833
|
|
The
Company has revised its table of revenue by source to more closely align the
types of revenue generated by its operating segments. Amounts for the three and six months ended October 31,
2008 have been revised to conform to this presentation.
13. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The
Company entered into an agreement in July 2000 with Louisiana-Pacific
Corporation (LP) to combine their respective cellulose insulation businesses
into a single operating entity, GreenFiber, under a joint venture agreement
effective August 1, 2000. The Companys investment in GreenFiber amounted
to $26,723 and $26,667 at April 30, 2009 and October 31, 2009,
respectively. The Company accounts for
its 50% ownership in GreenFiber using the equity method of accounting.
On
August 15, 2008, the Company and LP issued a joint and several guarantee
of up to $2,000 to support the refinancing of a GreenFiber term loan that is
due in August 2010. The guarantee
can be drawn only upon a default (as defined) by GreenFiber under this term
loan. As of October 31, 2009, the
Company has recorded a liability of $75 related to the guarantee.
Summarized
financial information for GreenFiber is as follows:
|
|
April 30,
2009
|
|
October
31, 2009
|
|
|
|
|
|
Current
assets
|
|
$
|
22,326
|
|
$
|
23,772
|
|
|
|
|
|
Noncurrent
assets
|
|
63,529
|
|
60,877
|
|
|
|
|
|
Current
liabilities
|
|
14,576
|
|
20,283
|
|
|
|
|
|
Noncurrent
liabilities
|
|
$
|
16,324
|
|
$
|
10,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Revenues
|
|
$
|
35,496
|
|
$
|
28,897
|
|
$
|
65,729
|
|
$
|
50,016
|
|
Gross
profit
|
|
4,628
|
|
6,931
|
|
9,074
|
|
11,691
|
|
Net
loss
|
|
$
|
(2,090
|
)
|
$
|
(318
|
)
|
$
|
(4,347
|
)
|
$
|
(2,756
|
)
|
The
Company also has a 12.8% interest in RecycleRewards, Inc.,
a company that markets an
incentive based recycling service, and a 19.9% interest in Evergreen National
Indemnity Company, a surety company which provides surety bonds to secure
contractual performance for municipal solid waste collection contracts and
landfill closure and post-closure obligations.
The Companys investment in these interests amounted to $15,075 at April 30,
2009 and October 31, 2009. The
Company accounts for these investments under the cost method of accounting.
23
14. 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 six months ended October 31, 2008 and 2009,
the Company recognized income on the transactions in the amount of $25, $81,
$114 and $150, 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 $1,884 and $1,730 at April 30, 2009 and October 31,
2009, respectively.
15. CONDENSED CONSOLIDATING FINANCIAL
INFORMATION
The
Companys Senior Subordinated Notes due 2013 and Second Lien Notes are
guaranteed jointly and severally, fully and unconditionally, by the Companys
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,
2009 and October 31, 2009, and the condensed consolidating results of
operations for the three and six months ended October 31, 2008 and 2009
and the condensed consolidating statements of cash flows for the six months
ended October 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.
24
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 2009
(in thousands, except for share and per share data)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
873
|
|
$
|
965
|
|
$
|
|
|
$
|
|
|
$
|
1,838
|
|
Restricted cash
|
|
432
|
|
76
|
|
|
|
|
|
508
|
|
Accounts receivable - trade, net of allowance for doubtful
accounts
|
|
3
|
|
51,293
|
|
|
|
|
|
51,296
|
|
Refundable income taxes
|
|
1,195
|
|
|
|
|
|
|
|
1,195
|
|
Deferred taxes
|
|
4,392
|
|
|
|
|
|
|
|
4,392
|
|
Other current assets
|
|
8,718
|
|
8,788
|
|
|
|
|
|
17,506
|
|
Total current assets
|
|
15,613
|
|
61,122
|
|
|
|
|
|
76,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated
depreciation and amortization
|
|
2,922
|
|
487,438
|
|
|
|
|
|
490,360
|
|
Goodwill
|
|
|
|
125,709
|
|
|
|
|
|
125,709
|
|
Restricted cash
|
|
|
|
127
|
|
|
|
|
|
127
|
|
Deferred income taxes
|
|
428
|
|
|
|
|
|
|
|
428
|
|
Investment in subsidiaries
|
|
(49,753
|
)
|
|
|
|
|
49,753
|
|
|
|
Other non-current assets
|
|
26,587
|
|
32,828
|
|
120
|
|
(1,932
|
)
|
57,603
|
|
|
|
(19,816
|
)
|
646,102
|
|
120
|
|
47,821
|
|
674,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
647,299
|
|
(641,415
|
)
|
(7,816
|
)
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
643,096
|
|
$
|
65,809
|
|
$
|
(7,696
|
)
|
$
|
49,753
|
|
$
|
750,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and capital
leases
|
|
$
|
1,109
|
|
$
|
609
|
|
$
|
|
|
$
|
|
|
$
|
1,718
|
|
Current maturities of financing lease obligations
|
|
|
|
1,344
|
|
|
|
|
|
1,344
|
|
Accounts payable
|
|
3,070
|
|
31,542
|
|
11
|
|
|
|
34,623
|
|
Accrued payroll and related expenses
|
|
497
|
|
3,683
|
|
|
|
|
|
4,180
|
|
Accrued interest
|
|
6,402
|
|
5
|
|
|
|
|
|
6,407
|
|
Accrued closure and post-closure costs, current
portion
|
|
|
|
6,426
|
|
|
|
|
|
6,426
|
|
Other current liabilities
|
|
13,126
|
|
9,209
|
|
2
|
|
|
|
22,337
|
|
Total current liabilities
|
|
24,204
|
|
52,818
|
|
13
|
|
|
|
77,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, less current
maturities
|
|
546,145
|
|
1,000
|
|
|
|
|
|
547,145
|
|
Financing lease obligations, less current
maturities
|
|
|
|
12,281
|
|
|
|
|
|
12,281
|
|
Deferred income taxes
|
|
2,684
|
|
|
|
|
|
|
|
2,684
|
|
Other long-term liabilities
|
|
3,753
|
|
41,723
|
|
31
|
|
|
|
45,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock -
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 100,000,000 shares, $0.01 par value;
issued and outstanding - 24,679,000 shares
|
|
247
|
|
100
|
|
|
|
(100
|
)
|
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)
|
|
3,828
|
|
(1,494
|
)
|
|
|
1,494
|
|
3,828
|
|
Additional paid-in capital
|
|
279,444
|
|
46,392
|
|
1,679
|
|
(48,071
|
)
|
279,444
|
|
Accumulated deficit
|
|
(217,219
|
)
|
(87,011
|
)
|
(9,419
|
)
|
96,430
|
|
(217,219
|
)
|
Total stockholders equity
|
|
66,310
|
|
(42,013
|
)
|
(7,740
|
)
|
49,753
|
|
66,310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
643,096
|
|
$
|
65,809
|
|
$
|
(7,696
|
)
|
$
|
49,753
|
|
$
|
750,962
|
|
25
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 31, 2009
(Unaudited)
(in thousands, except for share and per share data)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
(239
|
)
|
$
|
2,243
|
|
$
|
|
|
$
|
|
|
$
|
2,004
|
|
Restricted cash
|
|
|
|
76
|
|
|
|
|
|
76
|
|
Accounts receivable - trade, net of allowance for doubtful
accounts
|
|
102
|
|
56,077
|
|
|
|
|
|
56,179
|
|
Refundable income taxes
|
|
1,623
|
|
|
|
|
|
|
|
1,623
|
|
Other current assets
|
|
9,209
|
|
9,813
|
|
|
|
|
|
19,022
|
|
Total current assets
|
|
10,695
|
|
68,209
|
|
|
|
|
|
78,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of accumulated
depreciation and amortization
|
|
3,488
|
|
483,515
|
|
|
|
|
|
487,003
|
|
Goodwill
|
|
|
|
125,709
|
|
|
|
|
|
125,709
|
|
Restricted cash
|
|
|
|
211
|
|
|
|
|
|
211
|
|
Deferred income taxes
|
|
763
|
|
|
|
|
|
|
|
763
|
|
Investment in subsidiaries
|
|
(31,478
|
)
|
|
|
|
|
31,478
|
|
|
|
Other non-current assets
|
|
35,519
|
|
32,121
|
|
120
|
|
(1,932
|
)
|
65,828
|
|
|
|
8,292
|
|
641,556
|
|
120
|
|
29,546
|
|
679,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany receivable
|
|
638,408
|
|
(632,519
|
)
|
(7,821
|
)
|
1,932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
657,395
|
|
$
|
77,246
|
|
$
|
(7,701
|
)
|
$
|
31,478
|
|
$
|
758,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
LIABILITIES
AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,590
|
|
$
|
27,679
|
|
$
|
1
|
|
$
|
|
|
$
|
34,270
|
|
Accrued interest
|
|
11,944
|
|
40
|
|
|
|
|
|
11,984
|
|
Accrued closure and post-closure costs, current
portion
|
|
|
|
1,007
|
|
2
|
|
|
|
1,009
|
|
Other current liabilities
|
|
16,311
|
|
13,832
|
|
13
|
|
|
|
30,156
|
|
Total current liabilities
|
|
34,845
|
|
42,558
|
|
16
|
|
|
|
77,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt and capital leases, less current
maturities
|
|
555,156
|
|
587
|
|
|
|
|
|
555,743
|
|
Other long-term liabilities
|
|
7,032
|
|
57,830
|
|
32
|
|
|
|
64,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock -
|
|
|
|
|
|
|
|
|
|
|
|
Authorized - 100,000,000 shares, $0.01 par value;
issued and outstanding - 24,745,000 shares
|
|
247
|
|
100
|
|
|
|
(100
|
)
|
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)
|
|
1,099
|
|
(397
|
)
|
|
|
397
|
|
1,099
|
|
Additional paid-in capital
|
|
280,554
|
|
46,392
|
|
1,679
|
|
(48,071
|
)
|
280,554
|
|
Accumulated deficit
|
|
(221,548
|
)
|
(69,824
|
)
|
(9,428
|
)
|
79,252
|
|
(221,548
|
)
|
Total stockholders equity
|
|
60,362
|
|
(23,729
|
)
|
(7,749
|
)
|
31,478
|
|
60,362
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
657,395
|
|
$
|
77,246
|
|
$
|
(7,701
|
)
|
$
|
31,478
|
|
$
|
758,418
|
|
26
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2008
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
157,538
|
|
$
|
1,694
|
|
$
|
(1,694
|
)
|
$
|
157,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
|
|
103,556
|
|
1,866
|
|
(1,694
|
)
|
103,728
|
|
General and administration
|
|
(7
|
)
|
18,264
|
|
42
|
|
|
|
18,299
|
|
Depreciation and amortization
|
|
310
|
|
19,195
|
|
|
|
|
|
19,505
|
|
|
|
303
|
|
141,015
|
|
1,908
|
|
(1,694
|
)
|
141,532
|
|
Operating income (loss)
|
|
(303
|
)
|
16,523
|
|
(214
|
)
|
|
|
16,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(7,708
|
)
|
(43
|
)
|
(24
|
)
|
7,690
|
|
(85
|
)
|
Interest expense
|
|
10,384
|
|
7,644
|
|
|
|
(7,690
|
)
|
10,338
|
|
Loss (income) from equity method investments
|
|
(7,788
|
)
|
1,045
|
|
|
|
7,788
|
|
1,045
|
|
Other income
|
|
(7
|
)
|
(57
|
)
|
|
|
|
|
(64
|
)
|
Other expense/(income), net
|
|
(5,119
|
)
|
8,589
|
|
(24
|
)
|
7,788
|
|
11,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
4,816
|
|
7,934
|
|
(190
|
)
|
(7,788
|
)
|
4,772
|
|
Provision (benefit) for income taxes
|
|
2,750
|
|
|
|
(44
|
)
|
|
|
2,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (applicable) to common
stockholders
|
|
$
|
2,066
|
|
$
|
7,934
|
|
$
|
(146
|
)
|
$
|
(7,788
|
)
|
$
|
2,066
|
|
27
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 31, 2009
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
133,733
|
|
$
|
|
|
$
|
|
|
$
|
133,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
2
|
|
86,724
|
|
(52
|
)
|
|
|
86,674
|
|
General and administration
|
|
237
|
|
14,567
|
|
14
|
|
|
|
14,818
|
|
Depreciation and amortization
|
|
187
|
|
18,160
|
|
|
|
|
|
18,347
|
|
|
|
426
|
|
119,451
|
|
(38
|
)
|
|
|
119,839
|
|
Operating income (loss)
|
|
(426
|
)
|
14,282
|
|
38
|
|
|
|
13,894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(7,785
|
)
|
(22
|
)
|
|
|
7,779
|
|
(28
|
)
|
Interest expense
|
|
14,738
|
|
8,047
|
|
|
|
(7,779
|
)
|
15,006
|
|
Loss (income) from equity method investments
|
|
(6,177
|
)
|
159
|
|
|
|
6,177
|
|
159
|
|
Other income
|
|
(206
|
)
|
(41
|
)
|
|
|
|
|
(247
|
)
|
Other expense/(income), net
|
|
570
|
|
8,143
|
|
|
|
6,177
|
|
14,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
(996
|
)
|
6,139
|
|
38
|
|
(6,177
|
)
|
(996
|
)
|
Provision for income taxes
|
|
555
|
|
|
|
|
|
|
|
555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income (applicable) available to common
stockholders
|
|
$
|
(1,551
|
)
|
$
|
6,139
|
|
$
|
38
|
|
$
|
(6,177
|
)
|
$
|
(1,551
|
)
|
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2008
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
315,442
|
|
$
|
3,387
|
|
$
|
(3,387
|
)
|
$
|
315,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
245
|
|
207,681
|
|
3,631
|
|
(3,387
|
)
|
208,170
|
|
General and administration
|
|
(133
|
)
|
36,762
|
|
110
|
|
|
|
36,739
|
|
Depreciation and amortization
|
|
650
|
|
38,325
|
|
|
|
|
|
38,975
|
|
|
|
762
|
|
282,768
|
|
3,741
|
|
(3,387
|
)
|
283,884
|
|
Operating income (loss)
|
|
(762
|
)
|
32,674
|
|
(354
|
)
|
|
|
31,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(15,461
|
)
|
(67
|
)
|
(163
|
)
|
15,424
|
|
(267
|
)
|
Interest expense
|
|
20,622
|
|
15,296
|
|
|
|
(15,424
|
)
|
20,494
|
|
Loss (income) from equity method investments
|
|
(15,121
|
)
|
2,173
|
|
|
|
15,121
|
|
2,173
|
|
Other income
|
|
(42
|
)
|
(110
|
)
|
|
|
|
|
(152
|
)
|
Other expense/(income), net
|
|
(10,002
|
)
|
17,292
|
|
(163
|
)
|
15,121
|
|
22,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before
income taxes and discontinued operations
|
|
9,240
|
|
15,382
|
|
(191
|
)
|
(15,121
|
)
|
9,310
|
|
Provision for income taxes
|
|
4,998
|
|
|
|
25
|
|
|
|
5,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before discontinued
operations
|
|
4,242
|
|
15,382
|
|
(216
|
)
|
(15,121
|
)
|
4,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net
|
|
|
|
(11
|
)
|
|
|
|
|
(11
|
)
|
Loss on disposal of discontinued operations, net
|
|
|
|
(34
|
)
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) available (applicable) to common
stockholders
|
|
$
|
4,242
|
|
$
|
15,337
|
|
$
|
(216
|
)
|
$
|
(15,121
|
)
|
$
|
4,242
|
|
28
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 2009
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non - Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
|
|
$
|
266,833
|
|
$
|
|
|
$
|
|
|
$
|
266,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of operations
|
|
5
|
|
174,585
|
|
(30
|
)
|
|
|
174,560
|
|
General and administration
|
|
271
|
|
30,799
|
|
36
|
|
|
|
31,106
|
|
Depreciation and amortization
|
|
398
|
|
37,478
|
|
|
|
|
|
37,876
|
|
|
|
674
|
|
242,862
|
|
6
|
|
|
|
243,542
|
|
Operating income (loss)
|
|
(674
|
)
|
23,971
|
|
(6
|
)
|
|
|
23,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense/(income), net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
(15,217
|
)
|
(49
|
)
|
|
|
15,205
|
|
(61
|
)
|
Interest expense
|
|
24,235
|
|
15,821
|
|
|
|
(15,205
|
)
|
24,851
|
|
Loss (income) from equity method investments
|
|
(6,895
|
)
|
1,378
|
|
|
|
6,895
|
|
1,378
|
|
Loss on debt modification
|
|
511
|
|
|
|
|
|
|
|
511
|
|
Other income
|
|
(211
|
)
|
(80
|
)
|
|
|
|
|
(291
|
)
|
Other expense/(income), net
|
|
2,423
|
|
17,070
|
|
|
|
6,895
|
|
26,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
(3,097
|
)
|
6,901
|
|
(6
|
)
|
(6,895
|
)
|
(3,097
|
)
|
Provision for income taxes
|
|
1,232
|
|
|
|
|
|
|
|
1,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income (applicable) available to common
stockholders
|
|
$
|
(4,329
|
)
|
$
|
6,901
|
|
$
|
(6
|
)
|
$
|
(6,895
|
)
|
$
|
(4,329
|
)
|
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 2008
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
$
|
(10,466
|
)
|
$
|
49,915
|
|
$
|
(232
|
)
|
$
|
|
|
$
|
39,217
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
(458
|
)
|
|
|
|
|
(458
|
)
|
Additions to property, plant and equipment
- growth
|
|
|
|
(8,232
|
)
|
|
|
|
|
(8,232
|
)
|
- maintenance
|
|
(1,034
|
)
|
(28,930
|
)
|
|
|
|
|
(29,964
|
)
|
Payments on landfill operating lease contracts
|
|
|
|
(1,825
|
)
|
|
|
|
|
(1,825
|
)
|
Proceeds from divestitures
|
|
|
|
670
|
|
|
|
|
|
670
|
|
Other
|
|
(2,396
|
)
|
895
|
|
|
|
|
|
(1,501
|
)
|
Net Cash Used In Investing Activities
|
|
(3,430
|
)
|
(37,880
|
)
|
|
|
|
|
(41,310
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
60,000
|
|
|
|
|
|
|
|
60,000
|
|
Principal payments on long-term debt
|
|
(58,660
|
)
|
(444
|
)
|
|
|
|
|
(59,104
|
)
|
Other
|
|
1,446
|
|
|
|
|
|
|
|
1,446
|
|
Intercompany borrowings
|
|
11,116
|
|
(11,441
|
)
|
325
|
|
|
|
|
|
Net Cash Provided by (Used in) Financing Activities
|
|
13,902
|
|
(11,885
|
)
|
325
|
|
|
|
2,342
|
|
Cash Provided by Discontinued Operations
|
|
|
|
47
|
|
|
|
|
|
47
|
|
Net increase in cash and cash equivalents
|
|
6
|
|
197
|
|
93
|
|
|
|
296
|
|
Cash and cash equivalents, beginning of period
|
|
1,260
|
|
1,306
|
|
248
|
|
|
|
2,814
|
|
Cash and cash equivalents, end of period
|
|
$
|
1,266
|
|
$
|
1,503
|
|
$
|
341
|
|
$
|
|
|
$
|
3,110
|
|
29
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED OCTOBER 31, 2009
(Unaudited)
(in thousands)
|
|
Parent
|
|
Guarantors
|
|
Non-Guarantors
|
|
Elimination
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided by (Used in) Operating Activities
|
|
$
|
(2,645
|
)
|
$
|
43,155
|
|
$
|
42
|
|
$
|
|
|
$
|
40,552
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
- growth
|
|
|
|
(2,643
|
)
|
|
|
|
|
(2,643
|
)
|
-
maintenance
|
|
(1,456
|
)
|
(28,301
|
)
|
|
|
|
|
(29,757
|
)
|
Payments on landfill operating lease contracts
|
|
|
|
(4,538
|
)
|
|
|
|
|
(4,538
|
)
|
Other
|
|
150
|
|
2,497
|
|
|
|
|
|
2,647
|
|
Net Cash Used In Investing Activities
|
|
(1,306
|
)
|
(32,985
|
)
|
|
|
|
|
(34,291
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from long-term borrowings
|
|
413,144
|
|
|
|
|
|
|
|
413,144
|
|
Principal payments on long-term debt
|
|
(404,229
|
)
|
(1,115
|
)
|
|
|
|
|
(405,344
|
)
|
Deferred financing costs
|
|
(13,980
|
)
|
|
|
|
|
|
|
(13,980
|
)
|
Other
|
|
85
|
|
|
|
|
|
|
|
85
|
|
Intercompany borrowings
|
|
7,819
|
|
(7,777
|
)
|
(42
|
)
|
|
|
|
|
Net Cash (Used in) Provided by Financing Activities
|
|
2,839
|
|
(8,892
|
)
|
(42
|
)
|
|
|
(6,095
|
)
|
Net increase (decrease) in cash and cash
equivalents
|
|
(1,112
|
)
|
1,278
|
|
|
|
|
|
166
|
|
Cash and cash equivalents, beginning of period
|
|
873
|
|
965
|
|
|
|
|
|
1,838
|
|
Cash and cash equivalents, end of period
|
|
$
|
(239
|
)
|
$
|
2,243
|
|
$
|
|
|
$
|
|
|
$
|
2,004
|
|
30
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to the
Companys audited Consolidated Financial Statements and Notes thereto and
related Managements Discussion and Analysis of Financial Condition and Results
of Operations appearing in the Companys Annual Report on Form 10-K/A for
the year ended April 30, 2009.
This
Quarterly Report on Form 10-Q and, in particular, this Managements
Discussion and Analysis 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
(the Exchange Act), including:
·
expected future
revenues, operations, expenditures and cash needs;
·
fluctuations in
the commodity pricing of the Companys recyclables, increases in landfill
tipping fees and fuel costs, and general economic and weather conditions;
·
projected
future obligations related to capping, closure and post-closure costs of the
Companys existing landfills and any disposal facilities which the Company may
own or operate in the future;
·
the Companys
ability to use its net operating losses and tax positions;
·
the projected
development of additional disposal capacity or expectations regarding permits
of existing capacity;
·
the
recoverability or impairment of any of the Companys assets or goodwill;
·
estimates of
the potential markets for the Companys 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 permitting matter;
·
potential
business combinations or divestitures; and
·
projected
improvements to the Companys infrastructure and impact of such improvements on
the Companys 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.
Forward-looking statements can be identified 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 the Company
operates as well as managements beliefs and assumptions, and should be read in
conjunction with the Companys consolidated financial statements and notes to
consolidated financial statements included in this report. The Company cannot
guarantee that it will actually achieve the plans, intentions or expectations
disclosed in the forward-looking statements made. The occurrence of the events
described and the achievement of the expected results, depends on many events,
some or all of which are not predictable or within the Companys control.
Actual results may differ materially from those set forth in forward-looking
statements.
There
are a number of important risks and uncertainties that could cause the Companys
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 the Companys Annual Report on Form 10-K/A for the year ended April 30,
2009. The Company does not intend to
update publicly any forward-looking statements whether as a result of new
information, future events or otherwise, except as otherwise required by law.
31
Company Overview
Founded
in 1975 with a single truck, Casella Waste Systems, Inc. is a
vertically-integrated company. The Company provides resource management
expertise and services to residential, commercial, municipal, and industrial
customers, primarily in the areas of solid waste collection, transfer, disposal
and recycling services. The Company operates in 14 states including vertically
integrated solid waste operations in Vermont, New Hampshire, New York,
Massachusetts and Maine; and stand alone materials processing facilities in
Connecticut, Pennsylvania, New Jersey, North Carolina, Tennessee, Georgia,
Florida, Michigan and Wisconsin.
As
of November 30, 2009, the Company owned and/or operated 32 solid waste
collection operations, 31 transfer stations, 36 recycling facilities, nine
Subtitle D landfills, one landfill permitted to accept construction and
demolition materials, and one waste-to-energy facility. In addition, the Company holds a 50% interest
in US Green Fiber, LLC (GreenFiber), a joint venture that manufactures,
markets and sells cellulose insulation made from recycled fiber. The Company also holds a 12.8% interest in
RecycleRewards, Inc. (RecycleRewards),
a company that markets an incentive based
recycling service, and a 19.9% interest in Evergreen National Indemnity Company
(Evergreen), a surety company which provides surety bonds to secure
contractual performance for municipal solid waste collection contracts and
landfill closure and post-closure obligations.
Outlook
The
continuing weak economy has had an impact on the Companys financial position
and results of operations in the quarter ended October 31, 2009. The Company experienced lower solid waste
collection volumes in the quarter, compared to the same period in the prior
year, particularly in the Companys commercial and industrial collection
lines. Landfill volumes and prices have
declined year over year with construction and demolition volume declines in the
quarter attributable to a slowdown in construction activities. Pricing initiatives in the solid waste
collection operations contributed positively in the quarter while landfill
prices declined year over year due to the effect of market pressure on pricing
due to lower volumes in the market place.
Lower fuel costs resulted in lower fuel recovery fees year over
year. FCR recycling revenues declined
year over year as a result of a sharp decline in commodity prices at the end of
the second quarter of fiscal year 2009, driven by a severe drop in demand for
all of the Companys commodity product line as a result of global economic
conditions. Beginning in the fourth
quarter of fiscal year 2009, and continuing in fiscal year 2010, prices in the
recycling commodity markets have begun to improve, including fiber (newspapers,
cardboard, and mixed papers) and plastic prices. The continuing weak economy and lack of
liquidity in the credit markets will likely result in continued negative
pressure on consumer and business spending, which could result in lower future
business volumes and resulting cash flows. The Company has reacted to these
economic conditions by managing various expense categories and capital
expenditures.
Refinancing
On July 9, 2009, the
Company completed (i) the refinancing of its existing senior credit
facility with a senior first lien credit facility (the Senior Secured Credit
Facility), consisting of a $177.5 million revolving credit facility and a
$130.0 million aggregate principal term loan and (ii) the placement of
$180.0 million aggregate principal amount of 11% senior second lien notes due
2014 (the Second Lien Notes). The net
proceeds from the Senior Secured Credit Facility and from the Second Lien Notes
offering were used to refinance the borrowings under the $525.0 million senior
credit facility due April 2010.
32
Operating Results
For
the quarter ended October 31, 2009, the Company reported revenues of
$133.7 million, a decrease of $23.8 million, or 15.1%, from
$157.5 million for the quarter ended October 31, 2008. As a percentage of total solid waste
revenues, including the Companys major accounts program, solid waste revenues
decreased 11.8%, with lower collection, disposal, processing and recycling
volumes accounting for 8.2% of the decrease, 2.5% of the decrease from lower
fuel recovery surcharges and 2.8% from lower commodity prices and volumes. These decreases were partially offset by the
positive effect of price increases of 0.8%, primarily from our collection
operations, 0.6% from higher environmental impact fees and 0.3% from the
rollover effect of tuck-in acquisitions. As a percentage of total FCR recycling
revenues, FCR revenues decreased 28.3%, with 22.1% coming from lower commodity
prices and 6.2% from lower volumes in the quarter. The total decrease in FCR
recycling revenues was partially offset by increased tipping fee revenue, lower
revenue share payments and the positive effect of commodity hedge contracts,
which reduced the impact of pricing fluctuations on a portion of FCRs fiber
volumes.
Eastern
region revenues for the quarter ended October 31, 2009 declined
$7.4 million, or 13.5%, compared to the same period last year primarily
due to lower volumes and prices from disposal facilities, lower volumes from
collection operations and lower commodity volumes, partially offset by
collection price increases. Also
contributing to revenue declines were lower fuel recovery fees. Western region revenues for the quarter ended
October 31, 2009 decreased $5.2 million, or 17.2%, compared to the
same period last year, due to lower landfill prices and volumes as well as
lower collection volumes and fuel recovery fees, partially offset by collection
price increases. In addition, the
revenue declines were attributable to lower commodity price and volumes from
its scrap metal operation. Central
region revenues for the quarter ended October 31, 2009 decreased
$3.0 million, or 9.4%, compared to the same period last year, due to lower
collection and landfill volumes and the effect of lower commodity prices and
lower fuel recovery fees. These
decreases were partially offset by landfill and collection price increases, the
positive effect of tuck-in acquisitions and the start-up of the
landfill-gas-to-energy facility at the Clinton County landfill.
Operating
income for the quarter ended October 31, 2009 was $13.9 million compared
to $16.0 million in the prior year comparable period and increased
slightly as a percentage of revenue at 10.4% from 10.2%. Operating income declined primarily due to
lower revenue levels, partially offset by lower operating and general and
administration costs. FCR recycling
operating income decreased $2.0 million compared to the prior year period
as lower net revenues, due to the impact of lower commodity prices and volumes,
and higher depreciation expense, more than offset a decrease in purchased
material costs. Operating income for the
Eastern region increased $0.7 million, due to lower general and
administration costs as well as lower fuel and hauling costs which were lower
relative to revenue reductions impacting the region. Western region operating income decreased
$1.0 million compared to the prior year period due to lower revenue,
partially offset by lower operating costs and landfill amortization. Central region operating income increased
$0.3 million compared to the prior year period as lower revenues were more than
offset by lower operating costs and lower landfill amortization expense.
The
Company recorded a net loss of $1.6 million for the quarter ended October 31,
2009 compared to net income of $2.1 million in the prior year. Interest costs increased $4.7 million year
over year due to higher interest rates associated with the Companys new
capital structure as discussed above.
Loss from the Companys unconsolidated subsidiary, GreenFiber, decreased
in the quarter ended October 31, 2009 to $0.2 million from $1.0 million in
the prior period.
33
Divestitures
The
Company completed the divestiture of its FCR Greenville operation in the
quarter ended July 31, 2008 for cash proceeds of $0.7 million. The Company recorded a loss on disposal of
discontinued operations (net of tax) of $0.03 million. The operating results of this operation for
the six months ended October 31, 2008 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 six months
ended October 31, 2008 were $0.2 million and $0.02 million, respectively.
Critical
Accounting Policies and Estimates
The
preparation of the Companys financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an
on-going basis, management evaluates its estimates and assumptions which are
based on historical experience and on various other factors that are believed
to be reasonable under the circumstances.
The results of its evaluation form the basis for making judgments about
the carrying values of assets and liabilities.
Actual results may differ from these estimates under different
assumptions and circumstances. The
Companys significant accounting policies are more fully discussed in Item 7 of
the Companys Annual Report on Form 10-K/A for the year ended April 30,
2009.
Adoption
of New Accounting Pronouncements
For
a description of the new accounting standards adopted that affect the Company,
see Note 1 to the Companys consolidated financial statements included
under Part I, Item 1 of this Quarterly Report on Form 10-Q.
General
Revenues
The
Companys revenues in our Eastern, Central and Western regions are attributable
primarily to fees charged to customers for solid waste disposal and collection,
landfill, landfill gas-to energy, waste-to-energy, transfer, as well as
processing and recycling services. The Company derives a substantial portion of
its collection revenues from commercial, industrial and municipal services that
are generally performed under service agreements or pursuant to contracts with
municipalities. The majority of the Companys residential collection services
are performed on a subscription basis with individual households. Landfill,
waste-to-energy facility and transfer customers are charged a tipping fee on a
per ton basis for disposing of their solid waste at the Companys landfill
facilities and transfer stations. Recycling revenues, which are included in FCR
recycling and the Central and Western regions, consist of revenues from the
sale of recyclable commodities and operations and maintenance contracts of
recycling facilities for municipal customers.
The Company also generates and sells electricity under a contract at our
waste-to-energy facility and at certain of its landfill facilities.
GreenFibers
business is conducted through a 50/50 joint venture with Louisiana-Pacific
Corporation, and accordingly, the Company recognizes half of the joint ventures
net income on the equity method in its results of operations. The Companys investments in RecycleRewards
and Evergreen are accounted under the cost method of accounting. Also, in the Other segment, the Company has
ancillary revenues, including major customer accounts.
The
Companys revenues are shown net of inter-company eliminations. The Company typically establishes its
inter-company transfer pricing based upon prevailing market rates. The table below shows,
34
for
the periods indicated, the percentages and dollars (in millions) of revenue
attributable to services provided.
|
|
Three Months Ended October 31,
|
|
Six Months Ended October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
Collection
|
|
$
|
57.4
|
|
36.4
|
%
|
$
|
52.3
|
|
39.1
|
%
|
$
|
115.7
|
|
36.7
|
%
|
$
|
104.4
|
|
39.1
|
%
|
Disposal
|
|
33.7
|
|
21.4
|
%
|
28.6
|
|
21.4
|
%
|
66.1
|
|
20.9
|
%
|
58.4
|
|
21.9
|
%
|
Power
generation
|
|
7.2
|
|
4.6
|
%
|
7.2
|
|
5.4
|
%
|
14.1
|
|
4.5
|
%
|
13.5
|
|
5.1
|
%
|
Processing
and recycling
|
|
18.5
|
|
11.7
|
%
|
13.0
|
|
9.7
|
%
|
38.7
|
|
12.3
|
%
|
25.8
|
|
9.7
|
%
|
Solid
waste operations
|
|
116.8
|
|
74.1
|
%
|
101.1
|
|
75.6
|
%
|
234.6
|
|
74.4
|
%
|
202.1
|
|
75.8
|
%
|
Major
accounts
|
|
8.8
|
|
5.6
|
%
|
9.7
|
|
7.3
|
%
|
17.6
|
|
5.6
|
%
|
19.5
|
|
7.3
|
%
|
FCR
recycling
|
|
31.9
|
|
20.3
|
%
|
22.9
|
|
17.1
|
%
|
63.2
|
|
20.0
|
%
|
45.2
|
|
16.9
|
%
|
Total
revenues
|
|
$
|
157.5
|
|
100.0
|
%
|
$
|
133.7
|
|
100.0
|
%
|
$
|
315.4
|
|
100.0
|
%
|
$
|
266.8
|
|
100.0
|
%
|
Solid
waste operations revenues increased as a percentage of total revenues in the
three and six months ended October 31, 2009 compared to the same periods
in the prior year, mainly because of the decrease in FCR recycling and other
recycling revenues. The dollar decrease
in collection and disposal revenues in the three and six months ended October 31,
2009 compared to the prior year is primarily due to lower volumes, partially
offset by collection price. Processing and recycling revenues were lower in the
three and six months ended October 31, 2009 due to lower prices and volumes. FCR recycling revenues were lower in the
three and six months ended October 31, 2009 due to lower commodity prices
and volumes.
Operating Expenses
Cost
of operations includes labor, tipping fees paid to third-party disposal
facilities, fuel, maintenance and repair of vehicles and equipment, workers
compensation and vehicle insurance, the cost of purchasing materials to be
recycled, third party transportation expense, district and state taxes, host
community fees and royalties. Cost of operations also includes accretion
expense related to landfill capping, closure and post closure, leachate
treatment and disposal costs and depletion of landfill operating lease obligations.
General
and administration expenses include management, clerical and administrative
compensation and overhead, professional services and costs associated with
marketing, sales force and community relations efforts.
Depreciation
and amortization expense includes depreciation of fixed assets over the
estimated useful life of the assets using the straight-line method,
amortization of landfill airspace assets under the units-of-consumption method,
and the amortization of intangible assets (other than goodwill) using the
straight-line method.
Results of Operations
The
following table sets forth for the periods indicated the percentage
relationship that certain items from the Companys consolidated financial
statements bear to revenues.
35
|
|
Three Months Ended
October 31,
|
|
Six Months Ended
October 31,
|
|
|
|
2008
|
|
2009
|
|
2008
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
Cost
of operations
|
|
65.8
|
%
|
64.8
|
%
|
66.0
|
%
|
65.4
|
%
|
General
and administration
|
|
11.6
|
%
|
11.1
|
%
|
11.6
|
%
|
11.7
|
%
|
Depreciation
and amortization
|
|
12.4
|
%
|
13.7
|
%
|
12.4
|
%
|
14.2
|
%
|
Operating
income
|
|
10.2
|
%
|
10.4
|
%
|
10.0
|
%
|
8.7
|
%
|
Interest
expense, net
|
|
6.5
|
%
|
11.2
|
%
|
6.4
|
%
|
9.3
|
%
|
Loss
from equity method investments
|
|
0.7
|
%
|
0.1
|
%
|
0.7
|
%
|
0.5
|
%
|
Other
expense (income), net
|
|
0.0
|
%
|
-0.2
|
%
|
-0.1
|
%
|
0.1
|
%
|
Provision
for income taxes
|
|
1.7
|
%
|
0.4
|
%
|
1.6
|
%
|
0.5
|
%
|
(Loss)
income before discontinued operations
|
|
1.3
|
%
|
-1.1
|
%
|
1.4
|
%
|
-1.7
|
%
|
Three months ended October 31, 2009
versus October 31, 2008
Revenues -
Revenues
decreased $23.8 million, or 15.1%, to $133.7 million in the quarter ended October 31,
2009 from $157.5 million in the quarter ended October 31, 2008. Solid waste revenues, including the Companys
major accounts program, decreased $14.8 million, with $10.3 million coming from
volume decreases in the Companys collection, disposal, processing and
recycling operations, $3.2 million from lower fuel recovery fees, $1.2 million
from lower disposal prices and $3.5 million from lower commodity prices and volumes
within the solid waste group. These
decreases were partially offset by price increases in the Companys collection,
processing and recycling operations of $3.0 million and the rollover effect of
acquisitions of $0.4 million. FCR
recycling revenues decreased $9.0 million mainly due to sharp declines in
commodity prices and, to a lesser extent, lower volumes.
Cost of operations -
Cost of operations decreased $17.0 million, or 16.4%, to $86.7 million in
the quarter ended October 31, 2009 from $103.7 million in the quarter
ended October 31, 2008 and decreased as a percentage of revenue between
periods to 64.8% from 65.8%. The dollar
decrease in cost of operations is attributable to a decrease in the cost of
purchased materials associated with lower FCR recycling revenues as well as
lower fuel costs and direct labor costs in the solid waste segments.
General and administration -
General and administration expenses decreased $3.5 million, or 19.1%, to
$14.8 million in the quarter ended October 31, 2009 from $18.3 million in
the quarter ended October 31, 2008.
The decrease in general and administration expenses is primarily from
lower expense associated with reduced salary and incentive compensation costs,
lower travel expenses and lower consulting expense. General and administration expenses as a
percentage of revenues decreased to 11.1% in the quarter ended October 31,
2009 from 11.6% million in the quarter ended October 31, 2008.
Depreciation and amortization -
Depreciation and amortization expense decreased $1.2 million, or 6.2%, to
$18.3 million in the quarter ended October 31, 2009 from $19.5 million in
the quarter ended October 31, 2008.
Compared to the prior year period, higher l
andfill amortization
expenses at the Pine Tree landfill, due to higher volumes, were more than
offset by lower amortization associated with lower volumes at other landfill
sites. Depreciation expense was relatively flat between periods. Depreciation
and amortization expense as a percentage of revenue increased to 13.7%
in the quarter ended October 31, 2009 from 12.4% in the quarter ended October 31,
2008.
Interest expense, net -
Net interest
expense increased $4.7 million, or 45.6%, to $15.0 million in the quarter ended
October 31, 2009 from $10.3 million in the quarter ended October 31,
2008. This increase
36
is
primarily attributable to higher average interest rates associated with the
Companys new capital structure which was put in place on July 9,
2009. Net interest expense, as a
percentage of revenues, increased to 11.2% in the quarter ended October 31,
2009 from 6.5% in the quarter ended October 31, 2008.
Loss from equity method investments -
The loss from
equity method investments in the quarter ended October 31, 2009 is
attributable to the Companys 50% joint venture interest in GreenFiber. GreenFiber reported a loss for the quarter
ended October 31, 2009, of which the Companys share was $0.2 million,
compared to a loss in the quarter ended October 31, 2008, of which the
Companys share was $1.0 million.
Provision
for income taxes
Provision for income taxes decreased $2.1 million
to $0.6 million for the quarter ended October 31, 2009 from $2.7 million
for the quarter ended October 31, 2008.
The effective tax rate changed to (55.7)% for the quarter ended October 31,
2009 from 56.7% in the quarter ended October 31, 2008. The rate variance between the periods is due
mainly to the Company changing its assessment of the realizability of deferred
tax assets in the fourth quarter of fiscal year 2009. The change in the effective tax rate between
periods is primarily a result of an increase in the valuation allowance related
to the book loss projected for the year and the provision of deferred tax
liabilities related to indefinite lived intangible asset amortization for tax
purposes.
Six Months Ended October 31, 2009
versus October 31, 2008
Revenues -
Revenues
decreased $48.6 million, or 15.4%, to $266.8 million in the six months ended October 31,
2009 from $315.4 million in the six months ended October 31, 2008. Solid waste revenues, including the Companys
major accounts program, decreased $30.6 million, with $20.1 million coming from
volume decreases in our collection, disposal, processing and recycling
operations, $7.0 million from lower fuel recovery fees, $1.7 million from lower
disposal prices and $8.4 million from lower commodity prices and volumes within
the solid waste group. These decreases
were partially offset by price increases in the Companys collection, processing
and recycling operations of $5.8 million and the rollover effect of
acquisitions of $0.8 million. FCR
recycling revenues decreased $18.1 million mainly due to sharp declines in
commodity prices and to a lesser extent, lower volumes.
Cost of operations -
Cost of operations decreased $33.6 million, or 16.1%, to $174.6 million
in the six months ended October 31, 2009 from $208.2 million in the six
months ended October 31, 2008 and decreased as a percentage of revenue
between periods to 65.4% from 66.0%. The
dollar decrease in cost of operations is attributable to a decrease in the cost
of purchased materials associated with lower FCR recycling revenues as well as
lower fuel costs and direct labor in the solid waste segments partially offset
by a benefit in the prior year period of $0.8 million related to the
reimbursement from the Town of Southbridge for previously paid and expensed
closure and post closure costs at the Southbridge landfill site in the Eastern
region.
General and administration -
General and administration expenses decreased $5.6 million, or 15.3%, to
$31.1 million in the six months ended October 31, 2009 from $36.7 million
in the six months ended October 31, 2008.
The decrease in general and administration expenses is primarily due to
lower expense associated with reduced salary and incentive compensation costs,
lower travel expenses and lower consulting expense. General and administration expenses as a
percentage of revenues remained relatively consistent between periods.
Depreciation and amortization -
Depreciation and amortization expense decreased $1.1 million, or 2.8%, to
$37.9 million in the six months ended October 31, 2009 from $39.0 million
in the six months ended October 31, 2008.
Compared to the prior year period, higher l
andfill amortization
expenses at the Pine
37
Tree
landfill, due to higher amortization rates associated with the planned
ramp-down of landfill volumes, were more than offset by lower amortization from
the closure of the Colebrook facility as well as lower volumes at other
landfill sites. Depreciation expense increased between periods by $0.5 million,
primarily due to the Companys landfill energy projects and investments in FCR
recycling single stream projects. Depreciation and amortization expense as a
percentage of revenue increased to 14.2% in the six months ended October 31,
2009 from 12.4% in the six months ended October 31, 2008 due to revenue
declines.
Interest expense, net -
Net interest
expense increased $4.6 million, or 22.8%, to $24.8 million in the six months
ended October 31, 2009 from $20.2 million in the six months ended October 31,
2008. This increase is primarily
attributable to higher average interest rates associated with the Companys new
capital structure which was put in place on July 9, 2009. Net interest expense, as a percentage of
revenues, increased to 9.3% in the six months ended October 31, 2009 from
6.4% in the six months ended October 31, 2008.
Loss from equity method investments -
The loss from
equity method investments in the six months ended October 31, 2009 is
attributable to the Companys 50% joint venture interest in GreenFiber. GreenFiber reported a loss for the six months
ended October 31, 2009, of which the Companys share was $1.4 million,
compared to a loss in the six months ended October 31, 2008, of which the
Companys share was $2.2 million.
Loss on debt modification -
The loss in the six months
ended October 31, 2009 of $0.5 million is due to the write-off of
unamortized financing costs associated with the former senior credit facility,
which was amended in the quarter ended July 31, 2009.
Provision
for income taxes
Provision for
income taxes decreased $3.8 million in the six months ended October 31, 2009
to $1.2 million from $5.0 million in the six months ended October 31,
2008. The effective tax rate changed to
(39.8)% for the six months ended October 31, 2009 from 54.0% in the six
months ended October 31, 2008. The
rate variance between the periods is due mainly to the Company changing its
assessment of the realizability of deferred tax assets in the fourth quarter of
fiscal year 2009. The change in the
effective tax rate between periods is primarily a result of an increase in the
valuation allowance related to the book loss projected for the year and the
provision of deferred tax liabilities related to indefinite lived intangible
asset amortization for tax purposes.
Liquidity and Capital Resources
The Companys business is capital intensive. The Companys capital requirements include
acquisitions, fixed asset purchases and capital expenditures for landfill
development and cell construction, as well as site and cell closure. The Companys capital expenditures are
broadly defined as pertaining to either growth or maintenance activities. Growth capital expenditures are defined as
costs related to development of new airspace, permit expansions and new
recycling contracts along with incremental costs of equipment and
infrastructure added to further such activities. Growth capital expenditures include the cost
of equipment added directly as a result of new business, as well as
expenditures associated with increasing infrastructure to increase throughput
at transfer stations and recycling facilities.
Growth capital expenditures also include those outlays associated with
acquiring landfill operating leases, which do not meet the operating lease
payment definition, but which were included as a commitment in the successful
bid. Maintenance capital expenditures
are defined as landfill cell construction costs not related to expansion
airspace, costs for normal permit renewals and replacement costs for equipment
due to age or obsolescence.
38
The Company had a net working capital deficit of $0.5
million at October 31, 2009 compared to a deficit of $2.1 million at April 30,
2009. Net working capital comprises
current assets, excluding cash and cash equivalents, minus current
liabilities. The increase in net working
capital at October 31, 2009 was primarily due to higher accrued interest and
lower current assets offset by lower current accrued capping, closure and post
closure costs along with higher trade receivables associated with higher revenues
in the month of October 2009 versus the month of April 2009.
On
July 9, 2009, the Company completed the refinancing of its existing senior
credit facility with a Senior Secured Credit Facility, consisting of a $177.5 million
revolving credit facility (the New Revolver), a $130.0 million aggregate
principal term loan (the New Term Loan) and the offering of $180.0 million
aggregate principal amount of Second Lien Notes. The net proceeds from the Senior Secured
Credit Facility and Second Lien Notes offering were used to refinance the
borrowings under the Companys $525.0 million existing senior credit facility
due April 2010.
For
the first two quarters after the closing date, the interest rate for borrowings
under the New Revolver will be LIBOR plus a margin of 4.50% per annum, and
thereafter the applicable margin will be determined in accordance with the
pricing grid as set forth in the Senior Secured Credit Facility Agreement dated
July 9, 2009. The interest rate for the New Term Loan will be LIBOR plus a
margin of 5.00% per annum, provided that LIBOR shall not be less than 2.00% per
annum. The New Term Loan was issued at an original issue price of 94.5% of the
principal amount of the loan.
The
Senior Secured Credit Facility is subject to customary affirmative, negative,
and financial covenants, generally consistent with the Companys prior credit
agreement. The New Revolver is due December 31, 2012 and the New Term Loan is
due April 9, 2014. If the Company fails
to refinance the Senior Subordinated Notes due 2013 on or before October 31,
2012 the due date for the New Term Loan shall be December 31, 2012. The Company
has the right to increase the amount of the Senior Secured Credit Facility by
an aggregate amount of $42.5 million at its discretion, subject to certain
conditions.
As
of October 31, 2009, the Company was in compliance with all covenants as
follows:
Senior Secured Credit Facility
Covenant
|
|
Twelve months ended
October 31, 2009
|
|
Covenant
requirements -
October 31, 2009
|
|
Total
funded debt / Bank-defined cash flow metric (1)
|
|
4.86
|
|
5.90 Max.
|
|
Senior
funded debt / Bank-defined cash flow metric (1)
|
|
3.23
|
|
3.95 Max.
|
|
Interest
coverage
|
|
2.86
|
|
2.20 Min.
|
|
(1)
Bank-defined cash flow metric is based on operating results for the twelve
months preceding the measurement date, October 31, 2009. A reconciliation of net cash provided by
operating activities to bank-defined cash flow metric is as follows (dollars in
thousands):
39
|
|
Twelve Months Ended
October 31, 2009
|
|
Net cash
provided by operating activities
|
|
$
|
82,434
|
|
|
|
|
|
Changes in
assets and liabilities, net of effects of acquisitions and divestitures
|
|
(2,787
|
)
|
Gain on sale of
equipment
|
|
496
|
|
Stock based
compensation, net of excess tax benefit on exercise of options
|
|
(1,689
|
)
|
Income from
assets under contractual obligation
|
|
142
|
|
Goodwill
Impairment, environmental remediation and development project charges
|
|
(59,997
|
)
|
Interest expense
plus amortization of premium on senior notes and discount on term loan and
second lien notes
|
|
40,022
|
|
Loss on debt
modification
|
|
(511
|
)
|
Provision for
income taxes, net of deferred taxes
|
|
488
|
|
Adjustments to
income as allowed by Senior Secured Credit Facility Agreement
|
|
64,407
|
|
|
|
|
|
Bank - defined
cash flow metric
|
|
$
|
123,005
|
|
Further
advances were available under the New Revolver in the amount of $92.3 million
as of October 31, 2009. The available amount is net of
outstanding irrevocable letters of credit totaling $50.0 million as of October 31, 2009, at which date no amount
had been drawn.
The
Second Lien Notes were issued at an original issue price of 97.2% of the
principal amount. The Second Lien Notes will pay interest on a semi-annual
basis and are due on July 15, 2014.
The
Second Lien Notes were sold in a private placement to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the Securities
Act), and to non-U.S. persons outside the United States under Regulation S
under the Securities Act.
The
Second Lien Notes indenture contains negative covenants that restrict
dividends, stock repurchases and other payments, and also limits the incurrence
of debt and issuance of preferred stock by requiring that the Company maintain
a minimum consolidated fixed charge coverage ratio. As of October
31, 2009, the Company was in compliance with all covenants under the
Second Lien Notes.
As
of October 31, 2009, the Company had
outstanding $195.0 million of Senior Subordinated Notes which mature in February
2013. The Senior Subordinated Notes are
guaranteed jointly and severally, fully and unconditionally by the Companys
significant wholly-owned subsidiaries.
The Senior Subordinated Notes indenture contains negative covenants that
restrict dividends, stock repurchases and other payments, and also limits the
incurrence of debt and issuance of preferred stock by requiring that the
Company maintain a minimum consolidated fixed charge coverage ratio. As of October
31, 2009, the Company was in compliance with all covenants under the
Senior Subordinated Notes.
On
December 28, 2005, the Company completed a $25.0 million financing transaction
involving the issuance by the Finance Authority of Maine of $25.0 million
aggregate principal amount of its Solid Waste Disposal Revenue Bonds Series 2005
(the Bonds) which mature in January 2025, subject to certain redemption
rights. The Bonds are issued pursuant to an indenture, dated as of December 1,
2005 and are enhanced by an irrevocable, transferable direct-pay letter of credit
issued by Bank of America, N.A. Pursuant to a Financing Agreement, dated as of December
1, 2005, the Company has borrowed the proceeds of the Bonds to pay for certain
costs relating to equipment acquisition for solid waste collection and
transportation services, all located in Maine.
On
July 31, 2008, the Company completed a financing transaction for the
construction of two single-stream material recovery facilities as well as
engines for a landfill gas to energy project with a third-party
40
leasing
company. The balance on the facility at October 31, 2009 was $13.0 million. The financing has a seven year term at a
fixed rate of interest (approximately 7.1%).
Net cash provided by operating activities amounted to
$40.6 million for the six months ended October 31, 2009
compared to $39.2 million for the same period of
the prior fiscal year. Net income
decreased $8.6 million in the six months ended October 31, 2009 compared to the
six months ended October 31, 2008. Deferred
taxes contributed $3.6 million less compared to the prior period due to
projected utilization of net operating losses and increases to the valuation
allowance.
Cash
from changes in assets and liabilities, net of effects of acquisitions and
divestitures, increased $14.6 million for the six months ended October 31, 2009
compared to the six months ended October 31, 2008. Changes in accounts receivable
amounted to a $0.9 million decrease for the six months ended October 31, 2009
compared to the six months ended October 31, 2008. Changes
in accounts payable during the six months ended October 31, 2009 amounted to
$0.4 million of cash used compared with $4.4 million of cash used in the prior
year comparable period due to lower operating costs and lower capital
expenditures in the period.
Changes in prepaid expenses, inventories and other
assets amounted to cash provided of $1.5 million in the six months ended October
31, 2009
compared to cash provided of $1.9
million in the six months ended October 31, 2008. The decrease in cash provided of $0.4 million
from the prior year is due primarily to the following: (1) refundable income
taxes resulting in a $1.5 decrease, offset by (2) lower restricted assets at October
31, 2009 resulting in a $0.4 increase and (3) higher inventory balances at October
31, 2008 amounting to a $0.4 million increase.
Changes in accrued expenses and other liabilities
amounted to cash provided of $2.7 million in the six months ended October 31,
2009
compared to cash used of $9.2
million in the six months ended October 31, 2008. The increase in cash provided of $11.9
million is due primarily to the following: (1) an increase associated with
higher payroll accruals at April 30, 2008 amounting to $4.0 million, (2) higher
accrued interest at October 31, 2009 associated with higher interest rates
amounting to a $6.2 million increase and (3) changes in other current
liabilities associated amounting to a $1.4 million increase.
Net cash used in investing activities was $34.3 million
for the six months ended October 31, 2009
compared to $41.3 million used in investing activities in the same period
of the prior fiscal year. The reduction
of $7.0 million is due primarily to (1) lower capital expenditures in the six
months ended October 31, 2009 compared
to the six months ended October 31, 2008, (2) investments in unconsolidated
entities in the six months ended October 31, 2008 amounting to $2.5 million of
cash used, (3) higher proceeds from sale of equipment in the six months ended October
31, 2009 amounting to a $1.6 million increase, offset by (4) higher payments on
landfill operating lease contracts in the six months ended October 31, 2009
amounting to a decrease of $2.7 million.
Net cash used in financing activities was $6.1 million
for the six months ended October 31, 2009 compared to cash provided of $2.3
million in the same period of the prior fiscal year. The increase in cash used relates primarily
to deferred financing fees associated with the refinancing as discussed above
offset by higher net borrowings.
The Company generally meets liquidity needs from
operating cash flow and its Senior Secured Credit Facility. These liquidity needs are primarily for
capital expenditures for vehicles, containers and landfill development, debt
service costs and capping, closure and post-closure expenditures and
acquisitions. The Company has reacted to
recent economic conditions by managing various expense categories and capital
expenditures. Continuation of the
weakness in the economy will likely result in continued negative
41
pressure on consumer and business spending, which could
result in lower future business volumes and resulting cash flows.
The
Company uses a variety of strategies to mitigate the impact of fluctuations in
the commodity prices including entering into fixed price contracts and entering
into hedges which 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. As of October
31, 2009, to minimize the Companys commodity exposure, the Company was party
to twenty-four commodity hedging agreements.
For further discussion on commodity price volatility, see Item 3
Quantitative and Qualitative Disclosures about Market Risk Commodity Price
Volatility below.
The Company has filed a
universal shelf registration statement with the SEC. The Company may from time to time issue
securities thereunder in an amount of up to $250.0 million. The Companys ability and willingness to
issue securities pursuant to this registration statement will depend on market
conditions at the time of any such desired offering and therefore the Company
may not be able to issue such securities on favorable terms, if at all.
Inflation and Prevailing Economic Conditions
To
date, inflation has not had a significant impact on the Companys operations.
Consistent with industry practice, most of the Companys contracts provide for
a pass-through of certain costs, including increases in landfill tipping fees
and, in some cases, fuel costs.
Increases in fuel costs have been passed on through a fuel recovery
program. The Company therefore believes it should be able to implement price
increases sufficient to offset most cost increases resulting from inflation.
However, competitive factors and economic conditions may require the Company to
absorb at least a portion of these cost increases, particularly during periods
of high inflation.
The
Companys business is located mainly in the eastern United States. Therefore, the Companys business, financial
condition and results of operations are susceptible to downturns in the general
economy in this geographic region and other factors affecting the region, such
as state regulations and severe weather conditions.
Limitations
on Ownership of Notes
Pursuant
to the first paragraph of Section 2.17 of the Indenture (the Indenture) dated
as of July 9, 2009, by and among the Company, its guarantor subsidiaries and
Wilmington Trust Company, as trustee, relating to the Second Lien Notes , each
person that is a beneficial holder of the Second Lien Notes shall not knowingly
acquire the Second Lien Notes such that, after giving effect thereto, such
person owns 10% or more of the consolidated debt of the Company for which
relevant subsidiaries of the Company are obligated (and to dispose of Notes or
other debt of the Company to the extent such person becomes aware of exceeding
such threshold), if such ownership would require consent of any regulatory
authority under applicable law or regulation governing solid waste operators
and such consent has not been obtained. Pursuant to Section 4.18 of the
Indenture, the Company has agreed that, for so long as any of the Second Lien
Notes remain outstanding, the Company will furnish to the holders of the Second
Lien Notes, in each quarterly and annual report, the dollar amount of debt of
the Company that would serve as the threshold for evaluating a beneficial
holders compliance with the first paragraph of Section 2.17 of the
Indenture. As of October 31, 2009, that
dollar amount was $54.0 million.
42
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
Interest rate volatility
The
Company had interest rate risk relating to approximately $190.0 million of
long-term debt at October 31,
2009. The interest rate on the variable
rate portion of long-term debt was approximately 6.4% at October 31, 2009. Should the average interest rate on the
variable rate portion of long-term debt change by 100 basis points, it would
have an approximate interest expense change of $0.5 million for the quarter
reported.
The
remainder of the Companys long-term debt is at fixed rates and not subject to
interest rate risk.
Commodity
price volatility
Through
its FCR recycling operation, the Company markets a variety of materials,
including fibers such as OCC (cardboard) and ONP (newspaper), plastics, glass,
ferrous and aluminum metals. The Company
uses a number of strategies to mitigate impacts from commodity price
fluctuations such as indexed purchases, floor prices, fixed price agreements,
and revenue share arrangements. In
addition, as of October 31, 2009 the
Company was party to twenty-four commodity hedge contracts that manage pricing
fluctuations on a portion of its OCC and ONP volumes. These contracts expire between November 2009
and December 2011. The Company does not
use financial instruments for trading purposes and is not a party to any
leveraged derivatives. The Company
expects to be able to replace its expiring hedges with existing or new
counterparties; however, the availability and pricing terms at any given time
will be subject to prevailing market conditions.
If
commodity prices were to have changed by 10% in the quarter ended October 31, 2009, the impact on the
Companys operating income is estimated at between $0.1 million and $0.2
million based on the observed impact of commodity price changes on operating
income margin during the quarters ended October
31, 2009 and October 31,
2008. The Companys sensitivity to
changes in commodity prices is complex because each customer contract is unique
relative to revenue sharing, tipping or processing fees and other arrangements. The above estimated ranges of operating
income impact may not be indicative of future operating results and actual
results may vary materially.
ITEM 4. CONTROLS AND PROCEDURES
a)
Evaluation
of disclosure controls and procedures
.
The Companys management,
with the participation of its chief executive officer and principal
financial officer
, evaluated the
effectiveness of the Companys disclosure controls and procedures as of October 31, 2009. The term disclosure controls and procedures,
as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934 (the Exchange Act), means controls and other procedures of a company
that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by a company in
the reports that it files or submits under the Exchange Act is accumulated and
communicated to the Companys management, including its principal executive and
p
rincipal financial officers
, as appropriate
to allow timely decisions regarding required disclosure. Management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applies its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on the
evaluation of the Companys disclosure controls and procedures as of October 31, 2009, the Companys chief
executive officer and principal
financial
officer
have concluded that, as of such date, the Companys disclosure
controls and procedures were effective at the reasonable assurance level.
43
b)
Changes
in internal controls.
No
change in the Companys internal control over financial reporting (as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
fiscal quarter ended October 31,
2009 that has materially affected, or is reasonably likely to materially affect,
the Companys internal control over financial reporting.
44
PART II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
North
Country Landfill Expansion
The
North Country Environmental Services, Inc. (NCES) landfill is located in
Bethlehem, New Hampshire, and is currently permitted to accept municipal solid
waste and construction and demolition (C&D) material from a wide
geographic region. NCES projects that
its permitted and uncontested capacity will last into fiscal year 2010.
NCES
and the Town of Bethlehem (the Town) have been in prolonged zoning litigation
over NCESs expansion of the landfill.
Currently, there are two court actions between NCES and the Town, a
declaratory judgment action initiated by NCES on September 12, 2001, and a
zoning enforcement action initiated by the Town on February 2, 2009. In the declaratory judgment action, the New
Hampshire Supreme Court ruled that NCES has all necessary local approvals to
expand its landfill within a 51-acre area, but remanded to the Superior Court
issues related to the validity of the Towns zoning ordinance as it relates to
a proposed landfill expansion outside that 51-acre area. The remanded case remains pending and no
trial date has been set. In the
enforcement action, the Town has requested an injunction requiring NCES to
remove a leachate force main, a landfill gas line, stormwater drainage lines,
catch basins and outfalls, a landfill liner anchor trench, and storm water
detention ponds that are located outside the 51-acre area. NCES and the Town filed cross-motions for
summary judgment on the validity of the ordinance the Town is attempting to
enforce, and the court denied both motions in October 2009. The enforcement action is currently scheduled
for a bench trial in March 2010.
On
December 12, 2008, the New Hampshire Department of Environmental Services (NHDES)
denied a request by NCES to modify its standard permit to develop approximately
eight years of capacity within the bounds of the 51-acre area. NCES revised and resubmitted its request, and
the NHDES denied the revised request on March 25, 2009. NCES appealed each of these denials to the
New Hampshire Waste Management Council (WMC).
NCES obtained a stay of both appeals pending the outcome of the action
for declaratory and injunctive relief described below.
NCES
filed a petition for declaratory and injunctive relief with the Superior Court
on February 10, 2009, related to the NHDESs December 12, 2008 denial. NCES amended this petition following NHDESs March
25, 2009 denial. In its amended
petition, NCES sought declarations that NHDESs denials were unlawful on
several grounds. NCES also sought
preliminary injunctive relief that would have required NHDES to immediately
resume its consideration of NCESs request to modify its standard permit. In addition, NCES sought permanent injunctive
relief that would require NHDES to review the permit modification application
in conformity with the Superior Courts declarations. On June 11, 2009, the Superior Court denied
NCESs request for a preliminary injunction and also denied NHDESs request to
dismiss the petition. Subsequently, NCES
filed a motion for partial summary judgment on two of its claims for
declaratory relief and NHDES filed a cross-motion for partial summary judgment. In October 2009, NCES agreed to the dismissal
of one of its claims without prejudice, and moved successfully with NHDESs
concurrence to stay the litigation so that NHDES may consider the results of
certain remedial work NCES undertook during the 2009 construction season. NCES sought the stay because the outcome of
this review by NHDES could affect the scope of the litigation.
In
the event that the Company is unsuccessful obtaining the permits, the Company
will assess the need for a potential landfill impairment charge (the carrying
value of the NCES landfill assets as of October 31, 2009 was approximately
$6,896). The Company would also assess the need for additional closure and
post-closure charges.
45
GR Technologies, Inc. Litigation
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 member 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 allegations including, among
others, breach of contract, breach of fiduciary duty, fraud, tortuous
interference with business relations, induced infringement and other matters.
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 that a suit for
dissolution must be heard in the Delaware Chancery Court, as opposed to Rutland
Superior Court, and the Company has brought such an action. A hearing has been set by the Delaware
Chancery Court for the first week in February 2010.
The
above described litigation is in discovery 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 this litigation, regardless of its outcome, will not
have a material adverse affect on the Companys financial condition, results of
operations or cash flows.
New York Department of Labor Prevailing Wage Dispute
The
Company has been involved in an inquiry by the New York Department of Labor (DOL)
regarding the applicability of certain state Prevailing Wage laws pertaining
to work being undertaken by the Company at certain landfill sites operated by
the Company in New York State that are owned by municipalities (Chemung,
Ontario and Clinton Counties). On August 21, 2009, the DOL issued a letter
opinion with regard to cell construction and capping work and other activities
at these landfills, concluding that: (1)
the construction activity necessary for the recovery, use and sale of gases
created by the landfill is not a public work project to which the Prevailing
Wage Law applies; (2) cell construction and capping activities are public work
where that work takes place on publicly owned lands in the furtherance of the
operation of a publicly accessible landfill facility; (3) construction on lands
acquired by Casella which adjoin a County-owned landfill are akin to a
privately owned and operated landfill and would not be subject to the
Prevailing Wage Law. The Company is
negotiating with the DOL to resolve this matter and though a negotiated
settlement appears more likely than not, the Company has not ruled out
administrative or litigation relief. Any
charge, excluding interest or penalties, incurred by the Company related to
these claims will be capitalized as part of the related landfill asset, and
amortized prospectively over the remaining life of the landfill as tons of
waste are placed at each landfill site. The Company does not believe that the
outcome of this matter will have a material adverse effect on the Companys
business, financial condition, results of operations or cash flows.
Southbridge
Landfill Site Assignment Appeal
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 Companys
subsidiary, Southbridge Recycling and Disposal Park, Inc. (SRD), a minor
modification to the existing site assignment for the Southbridge Sanitary
Landfill (the
46
Landfill). The 2008 Site Assignment allows SRD, subject
to numerous conditions, to accept into the Landfill up to 405,000 tons of MSW
per year without regard to geographic origin.
On
or about July 14, 2008, the Sturbridge Board of Health (Sturbridge BOH), an
abutting municipality to Southbridge, together with several 10-citizen groups,
filed a complaint in Worcester County 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 $0.05 million. 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
hearing on the merits occurred on August 18, 2009, and the court has not yet
issued a decision. While it is too early to assess the outcome, SRD will
continue to aggressively defend the Appeal.
Port of Albany, New York Project Development
Casella
Albany Renewables, LLC (CAR), a wholly-owned subsidiary of Casella Renewable
Systems, LLC, entered into an Option Agreement with Albany Renewable Energy,
LLC (ARE) in September, 2008 (Option Agreement). In March 2008, ARE was the successful bidder
to the Albany Port District Commission (Port) for the development of an
ethanol facility to be located on a site owned by the Port (Project). ARE has entered into a lease agreement with
the Port, and CAR has the option pursuant to the Option Agreement of entering
into a sublease with ARE should CAR elect to become involved in the development
of the Project.
On
or about September 18, 2009, Empire State Ethanol & Energy, LLC (Empire),
a putative member of a non-selected bidder for the Project, filed litigation in
Albany County Supreme Court against the Port and certain of its officers, ARE
and certain of its affiliates, and CAR and certain of its affiliates, seeking a
declaratory judgment that the bidding process for the Project was flawed and an
order finding the selection of ARE was illegal and requiring the Port to rebid
the Project. Empire also moved on an
expedited basis for a preliminary injunction in order to maintain the Projects
status quo until a hearing could be held on the merits of the declaratory
judgment action. Oral arguments were
held on the preliminary injunction motion on October 30, 2009. The court has not issued a decision. The Company intends to vigorously defend
against these claims and believes that regardless of its outcome, this matter
will not have a material adverse effect on the Companys business, financial
condition or results of operations or cash flows.
CRMC Bethlehem, LLC Litigation
CRMC
Bethlehem, LLC and Commonwealth Bethlehem Energy, LLC (collectively, CRMC),
has filed claims in the US District Court for the District of New Hampshire
against NCES. CRMC seeks declaratory and
injunctive relief and damages. CRMC
alleges that NCES has breached the terms of a Gas Lease and Easement Agreement
by and between CRMC and NCES, entered into on September 10, 1998, as amended on
March 1, 2000 (the Gas Lease). CRMC
alleges that NCES has inappropriately interfered with CRMC rights pursuant to
the Gas Lease to develop a landfill gas-to-energy project to be sited on the
Landfill. NCES denies these allegations,
and intends to vigorously defend against these claims. The Company does not believe that this matter
will have a material adverse effect on the Companys business, financial
condition or results of operations or cash flows.
47
Other
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.
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 Companys business, financial
condition or results of operations or cash flows.
ITEM 1A. RISK FACTORS
The Companys business is subject
to a number of risks, including those identified in Item 1A, Risk Factors of
its 2009 Annual Report on Form 10-K/A, that could have a material effect on its
business, results of operations, financial condition and/or liquidity and that
could cause its operating results to vary significantly from period to period.
As of October 31, 2009, there have been no material changes to the risk factors
disclosed in the Companys most recent Annual Report on Form 10-K/A, although
the Company may disclose changes to such factors or disclose additional factors
from time to time in its future filings with the SEC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the Companys annual meeting
of stockholders held on October 13, 2009, three proposals were submitted to a
vote of the Companys stockholders. The
proposals and results of voting were as follows:
PROPOSAL I.
Proposal to elect, as Class III
directors, Messrs. John W. Casella, John F. Chapple and James P. McManus.
John
W. Casella:
|
|
Votes For:
|
28,625,032
|
|
|
|
Withheld:
|
3,653,296
|
|
|
|
|
|
|
John
F. Chapple:
|
|
Votes For:
|
28,665,931
|
|
|
|
Withheld:
|
3,612,397
|
|
|
|
|
|
|
James
P. McManus:
|
|
Votes For:
|
28,663,781
|
|
|
|
Withheld:
|
3,614,547
|
|
The terms of office of the
following directors continued after the annual meeting: James W. Bohlig,
Michael K. Burke, Douglas R. Casella, James F. Callahan, Jr., Joseph G. Doody
and Gregory B. Peters.
PROPOSAL II.
To approve the amendment to
the Companys 2006 Stock Incentive Plan.
48
Votes
For:
|
|
20,523,690
|
|
Votes
Against:
|
|
6,651,775
|
|
Abstentions:
|
|
30,012
|
|
Broker
Non-Votes:
|
|
5,071,851
|
|
PROPOSAL III.
Proposal to ratify the
selection of Caturano and Company, P.C. as the Companys auditors for the
fiscal year ending April 30, 2010.
Votes
For:
|
|
29,067,246
|
|
Votes
Against:
|
|
3,157,819
|
|
Abstentions:
|
|
52,263
|
|
ITEM 6. EXHIBITS
The exhibits that are filed as part of
this Quarterly Report on Form 10-Q or that are incorporated by reference herein
are set forth in the Exhibit Index hereto.
49
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
|
Casella Waste Systems, Inc.
|
|
|
|
|
|
|
Date: December 3, 2009
|
By:
|
/s/ Paul J. Massaro
|
|
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
|
50
Exhibit Index
31.1
+
|
|
Certification
of John W. Casella, Chairman of the Board of Directors and Chief Executive
Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
|
31.2
+
|
|
Certification
of Paul J. Massaro, Principal Financial and Accounting Officer pursuant to
Section 302 of the Sarbanes Oxley Act of 2002.
|
32.1
++
|
|
Certification
pursuant to 18 U.S.C. Section 1350 of John W. Casella, Chairman of the Board
of Directors and Chief Executive Officer, pursuant to Section 906 of the
Sarbanes Oxley Act of 2002.
|
32.2
++
|
|
Certification
pursuant to 18 U.S.C. Section 1350 of Paul J. Massaro, Principal Financial
and Accounting Officer, pursuant to Section 906 of the Sarbanes Oxley Act
of 2002.
|
+
- Filed Herewith
++
- Furnished Herewith
51
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