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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, 2014

OR

 

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

For the transition period from                      to                     

Commission file number 000-23211

 

 

CASELLA WASTE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   03-0338873

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

25 Greens Hill Lane, Rutland, Vermont   05701
(Address of principal executive offices)   (Zip Code)

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

 

 

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of November 17, 2014:

 

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

     39,544,805   

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

     988,200   

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     October 31,
2014
     April 30,
2014
 
     (Unaudited)         
ASSETS      

CURRENT ASSETS:

     

Cash and cash equivalents

   $ 2,734       $ 2,464   

Restricted cash

     76         76   

Accounts receivable - trade, net of allowance for doubtful accounts of $2,356 and $1,672

     59,303         52,603   

Refundable income taxes

     411         465   

Prepaid expenses

     8,041         7,176   

Inventory

     4,199         3,905   

Deferred income taxes

     2,222         2,502   

Other current assets

     4,287         1,255   

Current assets of discontinued operations

     371         359   
  

 

 

    

 

 

 

Total current assets

     81,644         70,805   

Property, plant and equipment, net of accumulated depreciation and amortization of $729,254 and $695,935

     406,304         403,424   

Goodwill

     119,170         119,139   

Intangible assets, net

     12,312         13,420   

Restricted assets

     790         681   

Cost method investments

     16,752         16,752   

Other non-current assets

     23,539         24,205   

Non-current assets of discontinued operations

     1,283         1,471   
  

 

 

    

 

 

 

Total assets

   $ 661,794       $ 649,897   
  

 

 

    

 

 

 

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

 

1


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

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

 

     October 31,
2014
    April 30,
2014
 
     (Unaudited)        
LIABILITIES AND STOCKHOLDERS’ DEFICIT     

CURRENT LIABILITIES:

    

Current maturities of long-term debt and capital leases

   $ 1,736      $ 885   

Accounts payable

     47,376        51,788   

Accrued payroll and related expenses

     4,410        6,062   

Accrued interest

     6,135        6,087   

Current accrued capping, closure and post-closure costs

     3,827        7,312   

Other accrued liabilities

     18,672        17,612   
  

 

 

   

 

 

 

Total current liabilities

     82,156        89,746   

Long-term debt and capital leases, less current portion

     522,042        507,134   

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

     40,451        37,342   

Deferred income taxes

     7,046        6,954   

Other long-term liabilities

     16,760        17,258   

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ DEFICIT:

    

Casella Waste Systems, Inc. stockholders’ deficit:

    

Class A common stock, $0.01 par value per share; 100,000,000 shares authorized; 39,545,000 and 39,086,000 shares issued and outstanding as of October 31, 2014 and April 30, 2014, respectively

     395        391   

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

     10        10   

Additional paid-in capital

     340,129        338,625   

Accumulated deficit

     (347,503     (347,472

Accumulated other comprehensive income

     45        39   
  

 

 

   

 

 

 

Total Casella Waste Systems, Inc. stockholders’ deficit

     (6,924     (8,407

Noncontrolling interests

     263        (130
  

 

 

   

 

 

 

Total stockholders’ deficit

     (6,661     (8,537
  

 

 

   

 

 

 

Total liabilities and stockholders’ deficit

   $ 661,794      $ 649,897   
  

 

 

   

 

 

 

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

 

2


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014     2013     2014     2013  

Revenues

   $ 141,341      $ 132,296      $ 282,728      $ 260,854   

Operating expenses:

        

Cost of operations

     98,292        90,545        197,057        178,962   

General and administration

     16,582        16,429        33,422        31,527   

Depreciation and amortization

     16,028        15,669        32,396        30,866   

Environmental remediation charge

     375        150        450        150   

Severance and reorganization costs

     —          53        —          161   
  

 

 

   

 

 

   

 

 

   

 

 

 
     131,277        122,846        263,325        241,666   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     10,064        9,450        19,403        19,188   

Other expense (income):

        

Interest income

     (81     (101     (168     (113

Interest expense

     9,623        9,635        19,173        18,994   

(Income) loss from equity method investments

     —          (91     —          887   

Loss (gain) on derivative instruments

     362        629        293        (25

Other income

     (423     (392     (614     (530
  

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     9,481        9,680        18,684        19,213   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

     583        (230     719        (25

Provision for income taxes

     222        300        512        619   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before discontinued operations

     361        (530     207        (644

Discontinued operations:

        

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

     —          (45     —          284   

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

     —          —          —          (378
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     361        (575     207        (738
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     102        (236     238        (207
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 259      $ (339   $ (31   $ (531
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

3


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(in thousands, except for per share data)

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014      2013     2014     2013  

Amounts attributable to common stockholders:

         

Income (loss) from continuing operations before discontinued operations

   $ 259       $ (294   $ (31   $ (437

(Loss) income from discontinued operations, net of tax

     —           (45     —          284   

Loss on disposal of discontinued operations, net of tax

     —           —          —          (378
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 259       $ (339   $ (31   $ (531
  

 

 

    

 

 

   

 

 

   

 

 

 

Basic earnings per share:

         

Income (loss) from continuing operations before discontinued operations

   $ 0.01       $ (0.01   $ (0.00   $ (0.01

(Loss) income from discontinued operations, net of tax

     —           (0.00     —          0.01   

Loss on disposal of discontinued operations, net of tax

     —           —          —          (0.01
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

   $ 0.01       $ (0.01   $ (0.00   $ (0.01
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     40,326         39,821        40,225        39,742   
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted earnings per share:

         

Income (loss) from continuing operations before discontinued operations

   $ 0.01       $ (0.01   $ (0.00   $ (0.01

(Loss) income from discontinued operations, net of tax

     —           (0.00     —          0.01   

Loss on disposal of discontinued operations, net of tax

     —           —          —          (0.01
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share

   $ 0.01       $ (0.01   $ (0.00   $ (0.01
  

 

 

    

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding

     40,542         39,821        40,225        39,742   
  

 

 

    

 

 

   

 

 

   

 

 

 

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

 

4


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014     2013     2014     2013  

Net income (loss)

   $ 361      $ (575   $ 207      $ (738

Other comprehensive income (loss), net of tax:

        

Unrealized loss resulting from changes in fair value of derivative instruments

     —          (279     —          (568

Realized loss on derivative instruments reclassified into earnings

     —          181        —          345   

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

     (6     18        6        18   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (loss) income, net of tax

     (6     (80     6        (205
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     355        (655     213        (943

Less: Comprehensive income (loss) attributable to noncontrolling interests

     102        (236     238        (207
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ 253      $ (419   $ (25   $ (736
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

5


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF

STOCKHOLDERS’ DEFICIT

(Unaudited)

(in thousands)

 

          Casella Waste Systems, Inc. Stockholders’ Deficit        
    Total     Class A
Common Stock
    Class B
Common Stock
    Additional
Paid-In
Capital
    Accumulated
Deficit
    Accumulated
Other

Comprehensive
Income
    Noncontrolling
Interests
 
    Shares     Amount     Shares     Amount          

Balance, April 30, 2014

  $ (8,537     39,086      $ 391        988      $ 10      $ 338,625      $ (347,472   $ 39      $ (130
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

    207        —          —          —          —          —          (31     —          238   

Other comprehensive income

    6        —          —          —          —          —          —          6        —     

Issuances of Class A common stock

    284        459        4        —          —          280        —          —          —     

Stock-based compensation

    1,209        —          —          —          —          1,209        —          —          —     

Contributions from noncontrolling interest holders

    155        —          —          —          —          —          —          —          155   

Other

    15        —          —          —          —          15        —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, October 31, 2014

  $ (6,661     39,545      $ 395        988      $ 10      $ 340,129      $ (347,503   $ 45      $ 263   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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

 

6


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

     Six Months Ended
October 31,
 
     2014     2013  

Cash Flows from Operating Activities:

    

Net income (loss)

   $ 207      $ (738

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

    

Income from discontinued operations, net of tax

     —          (284

Loss on disposal of discontinued operations, net of tax

     —          378   

Gain on sale of property and equipment

     (153     (389

Depreciation and amortization

     32,396        30,866   

Depletion of landfill operating lease obligations

     6,198        5,491   

Interest accretion on landfill and environmental remediation liabilities

     1,752        2,068   

Amortization of discount on senior subordinated notes

     129        119   

Loss from equity method investments

     —          887   

Loss (gain) on derivative instruments

     293        (25

Stock-based compensation

     1,209        1,209   

Excess tax benefit on the vesting of share based awards

     (12     —     

Deferred income taxes

     379        504   

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

    

Accounts receivable

     (6,700     (5,782

Accounts payable

     (4,412     (2,432

Prepaid expenses, inventories and other assets

     (3,017     (2,997

Accrued expenses and other liabilities

     (5,435     (756
  

 

 

   

 

 

 

Net cash provided by operating activities

     22,834        28,119   
  

 

 

   

 

 

 

Cash Flows from Investing Activities:

    

Acquisitions, net of cash acquired

     (314     (2,822

Acquisition related additions to property, plant and equipment

     (45     (1,365

Additions to property, plant and equipment

     (35,548     (26,059

Payments on landfill operating lease contracts

     (2,454     (3,471

Payments related to investments

     —          (2,148

Proceeds from sale of property and equipment

     342        929   
  

 

 

   

 

 

 

Net cash used in investing activities

     (38,019     (34,936
  

 

 

   

 

 

 

Cash Flows from Financing Activities:

    

Proceeds from long-term borrowings

     80,700        83,190   

Principal payments on long-term debt

     (65,070     (72,586

Payments of financing costs

     (506     (388

Proceeds from the exercise of share based awards

     143        —     

Excess tax benefit on the vesting of share based awards

     12        —     
  

 

 

   

 

 

 

Net cash provided by financing activities

     15,279        10,216   
  

 

 

   

 

 

 

Discontinued Operations:

    

Net cash used in operating activities

     —          (201

Net cash provided by investing activities

     176        —     
  

 

 

   

 

 

 

Net cash provided by (used in) discontinued operations

     176        (201
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     270        3,198   

Cash and cash equivalents, beginning of period

     2,464        1,755   
  

 

 

   

 

 

 

Cash and cash equivalents, end of period

   $ 2,734      $ 4,953   
  

 

 

   

 

 

 

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

 

7


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

     Six Months Ended
October 31,
 
     2014      2013  

Supplemental Disclosures of Cash Flow Information:

     

Cash paid during the period for:

     

Interest

   $ 17,439       $ 17,577   

Income taxes, net of refunds

   $ 75       $ 622   

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

     

Receivable due from noncontrolling interest holder

   $ 152       $ —     

Property, plant and equipment acquired through lease obligations

   $ —         $ 2,301   

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

 

8


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(in thousands, except for per share data)

 

1. BASIS OF PRESENTATION

Casella Waste Systems, Inc. (“Parent”), its wholly-owned subsidiaries and certain partially owned entities over which it has a controlling financial interest (collectively, “we”, “us” or “our”), is a regional, vertically-integrated solid waste services company that provides collection, transfer, disposal, landfill, landfill gas-to-energy, recycling and organics services in the northeastern United States. We market recyclable metals, aluminum, plastics, paper and corrugated cardboard, which have been processed at our recycling facilities, as well as recyclables purchased from third-parties. We manage our solid waste operations on a geographic basis through our regional operating segments, the Eastern and Western regions, each of which provides a full range of solid waste services, and our larger-scale recycling and commodity brokerage operations through our Recycling segment. Organics services, ancillary operations, major customer accounts, discontinued operations and earnings from equity method investees are included in our Other segment.

The consolidated financial statements as of October 31, 2014 and for the three and six months ended October 31, 2014 and 2013 are unaudited. The accompanying consolidated financial statements, which include the accounts of the Parent, our wholly-owned subsidiaries and certain partially owned entities over which we have a controlling financial interest, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions are eliminated in consolidation. Investments in entities in which we do not have a controlling financial interest are accounted for under either the equity method or the cost method of accounting, as applicable. Assets and liabilities of discontinued operations and assets held-for-sale are segregated from those of continuing operations and reported in separate captions in the balance sheet, as applicable. The results of operations that have been disposed of or classified as held-for-sale and qualify for discontinued operations accounting are reported in discontinued operations, as applicable. Our significant accounting policies are more fully discussed in Item 8 of our Annual Report on Form 10-K for the year ended April 30, 2014, which was filed with the SEC on June 26, 2014.

Preparation of our consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision given the available data, or simply cannot be readily calculated. In the opinion of management, these consolidated financial statements include all adjustments, which include normal recurring and nonrecurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The results for the three and six months ended October 31, 2014 may not be indicative of the results for any other interim period or the eight-month transition period described below. The consolidated financial statements presented herein should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended April 30, 2014.

 

9


We consider events or transactions that have occurred after the consolidated balance sheet date of October 31, 2014, but prior to the filing of the consolidated financial statements with the SEC on this Quarterly Report on Form 10-Q. We have evaluated subsequent events through the filing date of this Quarterly Report on Form 10-Q with the SEC.

Change in Fiscal Year

In June 2014, we elected to change our fiscal year-end from April 30th to December 31st. The change in fiscal year will become effective for our fiscal year beginning January 1, 2015 and ending December 31, 2015. We intend to file a Transition Report on Form 10-KT for the eight-month transition period ending December 31, 2014 (“Transition Period”). This Quarterly Report on Form 10-Q for the three and six month periods ended October 31, 2014 is for the second quarter of the Transition Period.

New Accounting Pronouncements Pending Adoption

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update for the recognition of revenue, which supersedes existing revenue recognition requirements and most industry-specific guidance. The update provides that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance is effective for annual reporting periods, and interim reporting periods within that reporting period, beginning after December 15, 2016 under either full or modified retrospective adoption. Early application is not permitted. We are currently assessing the potential impact of these changes to our consolidated financial statements as a result of adopting this standard.

Discontinued Operations

In April 2014, the FASB issued an accounting standards update for the requirements of reporting discontinued operations. The update provides that an entity or a group of components of an entity is required to be reported in discontinued operations once the component of an entity meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale only if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. The update also requires that additional disclosures about discontinued operations be made. This guidance is effective prospectively for annual reporting periods, and interim reporting periods within that reporting period, beginning after December 15, 2014, with early adoption permitted, but only for disposals, or classifications as held for sale, that have not been reported in financial statements previously issued or available for issuance. Adoption of this standard may impact the presentation of, and disclosures in, our consolidated financial statements and notes thereto.

Adoption of New Accounting Pronouncements

Income Taxes

In July 2013, the FASB issued an accounting standards update for the reporting of an unrecognized tax benefit, or portion thereof, as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The update provides an exception, requiring the unrecognized tax benefit to be presented in the financial statements as a liability when the carryforward is not available at the reporting date under the tax laws to settle additional income taxes that would result in the disallowance of a tax provision or the tax laws do not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose. This guidance is effective prospectively, with retrospective application permitted, for annual reporting periods, and interim reporting periods within that reporting period, beginning after December 15, 2013, with early adoption permitted. We adopted this guidance effective May 1, 2014 and it has not had, and we believe will not have, a material impact on our consolidated financial statements.

 

2. BUSINESS COMBINATIONS

During the six months ended October 31, 2014, we acquired one solid waste hauling operation in each of the Eastern and Western regions, whereas, during the six months ended October 31, 2013, we acquired three solid waste hauling operations, two of which are located in the Western region and one of which is located in the Eastern region, and an industrial service

 

10


management business (included in the Other segment). The operating results of these businesses are included in the accompanying consolidated statements of operations from each date of acquisition, and the purchase price has been allocated to the net assets acquired based on fair values at each date of acquisition, with the residual amounts recorded as goodwill. Intangible assets other than goodwill that are subject to amortization include acquired client lists and non-compete agreements, which are often negotiated as a part of our business combinations. These are amortized over a five to ten year period from the date of acquisition. Amounts recorded to goodwill are in most cases expected to be deductible for tax purposes.

The purchase price paid for these acquisitions during the six months ended October 31, 2014 and 2013 and the allocation of the purchase price is as follows:

 

     Six Months Ended October 31,  
     2014      2013  

Purchase Price:

     

Cash used in acquisitions, net of cash acquired

   $ 314       $ 2,793   

Other non-cash considerations

     —           245   

Contingent consideration and holdbacks

     67         1,556   
  

 

 

    

 

 

 

Total

     381         4,594   

Equipment

     99         495   

Other liabilities, net

     —           (38

Intangible assets

     251         1,865   
  

 

 

    

 

 

 

Fair value of assets acquired and liabilities assumed

     350         2,322   
  

 

 

    

 

 

 

Excess purchase price to be allocated to goodwill

   $ 31       $ 2,272   
  

 

 

    

 

 

 

The following unaudited pro forma combined information shows the results of our continuing operations for the three and six months ended October 31, 2014 and 2013 as though each of the acquisitions completed in the six months ended October 31, 2014 and the twelve months ended April 30, 2014 had occurred as of May 1, 2013.

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014      2013     2014     2013  

Revenue

   $ 141,461       $ 133,726      $ 282,995      $ 264,871   

Operating income

   $ 10,079       $ 9,759      $ 19,436      $ 19,923   

Net income (loss) attributable to common stockholders

   $ 261       $ (221   $ (28   $ (243

Basic net income (loss) per common share attributable to common stockholders

   $ 0.01       $ (0.01   $ (0.00   $ (0.01
  

 

 

    

 

 

   

 

 

   

 

 

 

Basic weighted average shares outstanding

     40,326         39,821        40,225        39,742   
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted net income (loss) per common share attributable to common stockholders

   $ 0.01       $ (0.01   $ (0.00   $ (0.01
  

 

 

    

 

 

   

 

 

   

 

 

 

Diluted weighted average shares outstanding

     40,542         39,821        40,225        39,742   
  

 

 

    

 

 

   

 

 

   

 

 

 

The pro forma results set forth in the table above have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions occurred as of May 1, 2013 or the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

 

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3. GOODWILL AND INTANGIBLE ASSETS

The following table shows the activity and balances related to goodwill from April 30, 2014 through October 31, 2014:

 

     April 30, 2014      Acquisitions      October 31, 2014  

Eastern region

   $ 17,429       $ —         $ 17,429   

Western region

     87,666         31         87,697   

Recycling

     12,315         —           12,315   

Other

     1,729         —           1,729   
  

 

 

    

 

 

    

 

 

 

Total

   $ 119,139       $ 31       $ 119,170   
  

 

 

    

 

 

    

 

 

 

Intangible assets as of October 31, 2014 and April 30, 2014 consisted of the following:

 

     Covenants
Not-to-Compete
    Client Lists     Total  

Balance, October 31, 2014

      

Intangible assets

   $ 17,296      $ 16,075      $ 33,371   

Less accumulated amortization

     (15,638     (5,421     (21,059
  

 

 

   

 

 

   

 

 

 
   $ 1,658      $ 10,654      $ 12,312   
  

 

 

   

 

 

   

 

 

 

 

     Covenants
Not-to-Compete
    Client Lists     Total  

Balance, April 30, 2014

      

Intangible assets

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

Less accumulated amortization

     (15,363     (4,222     (19,585
  

 

 

   

 

 

   

 

 

 
   $ 1,882      $ 11,538      $ 13,420   
  

 

 

   

 

 

   

 

 

 

Intangible amortization expense was $737 and $1,474 during the three and six months ended October 31, 2014, respectively, as compared to $586 and $1,109 during the three and six months ended October 31, 2013.

 

Estimated Future Amortization Expense as of October 31, 2014:

  

For the eight-month transition period ending December 31, 2014

   $ 502   

For the fiscal year ending December 31, 2015

   $ 2,569   

For the fiscal year ending December 31, 2016

   $ 2,045   

For the fiscal year ending December 31, 2017

   $ 1,783   

For the fiscal year ending December 31, 2018

   $ 1,582   

Thereafter

   $ 3,831   

 

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4. ACCRUED CAPPING, CLOSURE AND POST CLOSURE

Accrued final capping, closure and post-closure costs include the current and non-current portion of costs associated with obligations for final capping, closure and post-closure of our landfills. We estimate our future final capping, closure and post-closure costs in order to determine the final capping, closure and post-closure expense per ton of waste placed into each landfill. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill, as well as the duration of the post-closure monitoring period. The changes to accrued final capping, closure and post-closure liabilities for the six months ended October 31, 2014 and 2013 are as follows:

 

     Six Months Ended October 31,  
     2014     2013  

Beginning balance

   $ 44,654      $ 43,170   

Obligations incurred

     2,018        1,918   

Accretion expense

     1,683        1,999   

Payments

     (4,077     (1,106
  

 

 

   

 

 

 

Ending balance

   $ 44,278      $ 45,981   
  

 

 

   

 

 

 

 

5. LONG-TERM DEBT

Long-term debt and capital leases as of October 31, 2014 and April 30, 2014 consist of the following:

 

     October 31,
2014
     April 30,
2014
 

Senior Secured Revolving Credit Facility:

     

Due March 2016; bearing interest at LIBOR plus 3.75%

   $ 144,300       $ 133,860   

Senior Subordinated Notes:

     

Due February 2019; bearing interest at 7.75% (including unamortized discount of $1,363 and $1,491)

     323,637         323,509   

Tax-Exempt Bonds:

     

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

     21,400         21,400   

Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013; senior unsecured due April 2036 - fixed rate interest period through 2019, bearing interest at 4.75%

     16,000         16,000   

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

     11,000         —     

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

     3,600         3,600   

Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013; letter of credit backed due 2029 - converted to fixed rate interest period, bore interest at SIFMA Index

     —           5,500   

Other:

     

Notes payable maturing through April 2017

     440         440   

Capital leases maturing through April 2023

     3,401         3,710   
  

 

 

    

 

 

 
     523,778         508,019   

Less—current maturities of long-term debt

     1,736         885   
  

 

 

    

 

 

 
   $ 522,042       $ 507,134   
  

 

 

    

 

 

 

Tax-Exempt Financing Transactions

New Hampshire Bonds

In the three months ended October 31, 2014, we completed a financing transaction involving $11,000 aggregate principal amount of tax-exempt Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New Hampshire (“New Hampshire Bonds”), consisting of the conversion and remarketing of $5,500 principal amount of New Hampshire Bonds from a variable rate to a fixed term rate and the issuance of an additional $5,500 principal amount of fixed term rate New Hampshire Bonds. We borrowed the additional proceeds of the New Hampshire Bonds to repay borrowings under our senior secured revolving credit facility (“Revolver”) for qualifying property, plant and equipment assets purchased in New Hampshire since October 5, 2011.

 

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6. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

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

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

New York Attorney General Matter

In July 2014, we entered into an Assurance of Discontinuance (“AOD”) with the office of the New York Attorney General (“NYAG”) in connection with our commercial practices in certain specified counties in New York. The AOD requires, among other things, that we modify our service contracts for two to ten yard containers with our commercial customers in the specified counties by shortening the initial term of such contracts to two years and providing for only one extension term of one year. We also agreed (i) to limit the liquidated damages to be paid by a customer, if a customer prematurely terminates its contract with us, to three months in year one of the contract and one month in year two or any extension year of the contract, (ii) to provide the NYAG with post-acquisition notice within thirty days of an acquisition of a provider of solid waste services with a value of $350 or more and (iii) to pay the State of New York the sum of $100. We recorded a charge of $100, included in general and administration, in the first quarter of the Transition Period. The counties in New York covered by the AOD are Allegany, Cattaraugus, Chautauqua, Chemung, Clinton, Franklin, Schuyler, St. Lawrence, Steuben, and Tompkins. This matter is now closed other than with respect to ongoing compliance.

Greenwood Street Landfill, Worcester, Massachusetts

On July 2, 2014, we received a draft Administrative Consent Order with Penalty and Notice of Noncompliance (“Draft Order”) from the Massachusetts Department of Environmental Protection (“MADEP”) alleging that a subsidiary, NEWS of Worcester, LLC, had completed substantive closure of a portion of the Greenwood Street Landfill in Worcester, Massachusetts in 2010, at an elevation exceeding the applicable permit condition. The Draft Order seeks a civil administrative cash penalty of $67 and an additional administrative penalty in the form of a Supplemental Environmental Project in the amount of $201. We are working with the MADEP to address these allegations to arrive at an appropriate resolution thereof. It is probable that we will incur a loss with respect to this matter and as a result we recorded a charge of $172 in general and administration in the six months ended October 31, 2014.

Environmental Remediation Liability

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

 

14


Potsdam Environmental Remediation Liability

On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), our subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk Power Corporation (“NiMo”) as Respondents. The Order required that the Respondents undertake certain work on a 25-acre scrap yard and solid waste transfer station owned by WSI in Potsdam, New York, including the preparation of a Remedial Investigation and Feasibility Study (“Study”). A draft of the Study was submitted to the DEC in January 2009 (followed by a final report in May 2009). The Study estimated that the undiscounted costs associated with implementing the preferred remedies would be approximately $10,219. On February 28, 2011, the DEC issued a Proposed Remedial Action Plan for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to the DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the present cost associated with implementing the preferred remedies would be approximately $12,130. The DEC issued the final ROD in June 2011 with proposed remedies consistent with its earlier ROD. An Order on Consent and Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an effective date of October 25, 2013. It is unlikely that any significant costs relating to onsite remediation will be incurred until the fiscal year ending December 31, 2016. WSI and NiMo are jointly and severally liable for the total cost to remediate.

In September 2011, the DEC settled its environmental claim against the estate of the former GM (known as “Motors Liquidation Trust”) for future remediation costs relating to the WSI site for face value of $3,000. In addition, in November 2011 we settled our own claim against the Motors Liquidation Trust for face value of $100. These claims will be paid by GM in warrants to obtain stock of the reorganized GM. GM has issued warrants to us beginning in May 2013 and at this time there is no way to accurately estimate when the remainder of these claims will be paid. We have not assumed that any future proceeds from the sale of securities received in payment of these claims will reduce our exposure.

We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and estimated costs to complete the remediation. Our expenditures could be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars until the expected time of payment and discount the total cost to present value using a risk free interest rate of 2.0%. The changes to the environmental remediation liability associated with the Potsdam environmental remediation liability for the six months ended October 31, 2014 and 2013 are as follows:

 

     Six Months Ended October 31,  
     2014     2013  

Beginning balance

   $ 5,320      $ 5,297   

Obligations incurred

     —          31   

Accretion expense

     69        69   

Payments

     (270     —     
  

 

 

   

 

 

 

Ending balance

   $ 5,119      $ 5,397   
  

 

 

   

 

 

 

Southbridge Landfill Environmental Remediation Liability

On or about August 24, 2013, we experienced the movement of stockpiled earth at our Southbridge landfill in Southbridge, Massachusetts. The stockpiled materials consisted of soil removed and relocated to create space for the construction of additional landfill airspace at our Southbridge landfill. The earth had been relocated and stored during the fall, winter and spring construction season of the fiscal year ended April 30, 2013 (“fiscal year 2013”).

The movement caused some of the stockpiled earth to enter wetlands on property owned by us. On or about August 29, 2013, we notified the MADEP, and the Towns of Southbridge and Charlton, Massachusetts, of the occurrence of the movement. On or about September 6, 2013, MADEP issued a “Unilateral Administrative Order” (“UAO”) requiring us to provide MADEP with a plan to remove any materials deposited in the wetlands as a result of the movement (“Plan”). On or about October 3, 2013, we submitted the Plan to MADEP, and on or about October 15, 2013, MADEP approved the Plan and verbally issued permission for us to implement the Plan. We have implemented the Plan under the supervision of MADEP.

 

15


In January 2014, we received correspondence from the Massachusetts’ Office of the Attorney General (“MAAG”), advising us that the MAAG intended to schedule a meeting with us to discuss this incident, and to possibly file suit against us for violation of the Massachusetts Wetlands Protection, Clean Air and Solid Waste Acts. We met with the MAAG in March 2014 and again in July 2014 to discuss our ongoing remediation effort, and the parties are continuing to have discussions regarding the resolution of this matter.

On or about April 25, 2014, we notified MADEP and other interested parties that areas of sloughing had occurred in a plateau created as part of new cell construction at our Southbridge landfill. Some of the same contractors and technical advisors that were involved in the initial movement of stockpiled earth are also involved in the new cell construction that includes this area of sloughing. We repaired the areas of sloughing on April 25, 2014 and no damage occurred in the abutting wetlands. On May 9, 2014, MADEP issued a UAO directing us to ensure that the areas of sloughing at the plateau were repaired and to take steps to ensure that there would be no incursion into the wetlands, and requiring that we undertake corrective actions to ensure the stability of the plateau. Prior to MADEP’s issuance of the latest UAO, we were in the process of awarding a contract to a soil remediation company to undertake corrective actions and ensure stability at the plateau. This contract was awarded, and the work was finished in September 2014.

We anticipate that the execution of the Plan and related matters will involve remediation costs of approximately $2,997 and that such costs could be higher if actual costs exceed estimates. We have provided our insurer with notice of the Plan, and the costs expended by us to date to comply with the Plan. We have also provided notice to certain of our contractors and technical advisors that the movement has occurred, that significant remediation costs will be incurred in executing the Plan and related matters, and that we expect our contractor and technical advisor to assist in the execution of the Plan and related matters, to share in the remediation costs thereof as responsible parties, and to provide notice to their own insurers. We are currently engaged in discussion with our contractor and technical advisor regarding resolution of these matters. We believe that a loss in the range of $850 to $2,997, including the resolution of our discussions with the MAAG, after taking into account amounts we expect to be reimbursed by our insurer and third-parties, is probable and have therefore recorded a charge of $375 in the three months ended October 31, 2014. We had previously recorded a charge of $400 in the fiscal year ended April 30, 2014 (“fiscal year 2014”) and a charge of $75 in the first quarter of the Transition Period as an environmental remediation charge.

 

7. STOCKHOLDERS’ EQUITY

Shares Available For Issuance

In the fiscal year ended April 30, 2007, we adopted the 2006 Stock Incentive Plan (“2006 Plan”). The 2006 Plan was amended in the fiscal year ended April 30, 2010. Under the 2006 Plan, we may grant awards up to an aggregate amount of shares equal to the sum of: (i) 2,475 shares of Class A common stock (subject to adjustment in the event of stock splits and other similar events), plus (ii) such additional number of shares of Class A common stock as are currently subject to options granted under our 1993 Incentive Stock Option Plan, 1994 Non-statutory Stock Option Plan, 1996 Option Plan, and 1997 Stock Option Plan (“Prior Plans”), which are not actually issued under the Prior Plans because such options expire or otherwise result in shares not being issued. As of October 31, 2014, there were 994 Class A common stock equivalents available for future grant under the 2006 Plan, inclusive of additional Class A common stock equivalents that were previously issued under our terminated plans and have become available for grant because such awards expired or otherwise resulted in shares not being issued.

Stock Options

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

 

16


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

 

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

Outstanding, April 30, 2014

     1,368      $ 8.65         

Granted

     200      $ 4.86         

Exercised

     (33   $ 4.30         

Forfeited

     (145   $ 13.06         
  

 

 

         

Outstanding, October 31, 2014

     1,390      $ 7.75         5.4       $ 248   
  

 

 

   

 

 

    

 

 

    

 

 

 

Exercisable, October 31, 2014

     849      $ 9.73         3.2       $ 139   
  

 

 

   

 

 

    

 

 

    

 

 

 

Expected to vest, October 31, 2014

     1,389      $ 7.76         5.4       $ 248   
  

 

 

   

 

 

    

 

 

    

 

 

 

Stock-based compensation expense for stock options was $165 and $275 during the three and six months ended October 31, 2014, respectively, as compared to $88 and $203 during the three and six months ended October 31, 2013.

As of October 31, 2014, total unrecognized stock-based compensation expense related to outstanding stock options was $1,200, which will be recognized over a weighted average period of 1.8 years.

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

 

     Three Months Ended
October 31, 2014
    Six Months Ended
October 31, 2014
 

Stock Options:

    

Expected life

     7.13 years        7.00 years   

Risk-free interest rate

     2.15     2.15

Expected volatility

     82.08     82.75

Expected life is calculated based on the weighted average historical life of the vested stock options, giving consideration to vesting schedules and historical exercise patterns. Risk-free interest rate is based on the U.S. Treasury yield curve for the period of the expected life of the stock option. Expected volatility is calculated using the weekly historical volatility of our Class A common stock over the expected life.

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

Other Stock Awards

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

 

17


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

 

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

Outstanding, April 30, 2014

     1,077      $ 4.77         

Granted

     370      $ 4.91         

Class A Common Stock Vested

     (363   $ 4.89         

Forfeited

     (32   $ 4.39         
  

 

 

         

Outstanding, October 31, 2014

     1,052      $ 4.79         1.7       $ 191   
  

 

 

   

 

 

    

 

 

    

 

 

 

Expected to vest, October 31, 2014

     927      $ 4.40         1.6       $ 173   
  

 

 

   

 

 

    

 

 

    

 

 

 

 

(1) Performance stock units are included at the 100% attainment level. Attainment of maximum annual returns on net assets could result in the issuance of an additional 251 shares of Class A common stock.

During the six months ended October 31, 2014, we awarded certain employees restricted stock units, which vest incrementally over a three year period beginning on the first anniversary of the date of grant and are based on continued employment.

Stock-based compensation expense related to restricted stock, restricted stock units and performance stock units was $465 and $897 during the three and six months ended October 31, 2014, respectively, as compared to $475 and $966 during the three and six months ended October 31, 2013.

As of October 31, 2014, total unrecognized compensation expense related to outstanding restricted stock and restricted stock units was $2,685, which will be recognized over a weighted average period of 1.9 years. Maximum unrecognized stock-based compensation expense at October 31, 2014 related to outstanding performance stock units, and subject to the attainment of targeted maximum annual returns on net assets, was $2,479 to be recognized over a weighted average period of 0.5 years. We do not expect to recognize any compensation expense as of October 31, 2014 related to outstanding performance stock units based on our expected attainment levels.

We also recorded $16 and $37 of stock-based compensation expense related to our Employee Stock Purchase Plan during the three and six months ended October 31, 2014, respectively, as compared to $15 and $39 during the three and six months ended October 31, 2013.

Accumulated Other Comprehensive Income

The change in the balance of accumulated other comprehensive income, which is included as a component of our stockholders’ deficit, for the six months ended October 31, 2014 is as follows:

 

     Marketable
Securities
 

Beginning balance, April 30, 2014

   $ 39   

Other comprehensive income, net of tax before reclassifications

     6   

Amounts reclassified from accumulated other comprehensive income

     —     
  

 

 

 

Net current-period other comprehensive income, net of tax

     6   
  

 

 

 

Ending balance, October 31, 2014

   $ 45   
  

 

 

 

 

18


A summary of reclassifications out of accumulated other comprehensive income for the three and six months ended October 31, 2014 and 2013 is as follows:

 

    Three Months Ended
October 31,
     
    2014     2013      

Details about Accumulated Other
Comprehensive Income Components

  Amount Reclassified Out of
Accumulated Other

Comprehensive Income
   

Affected Line Item in the Consolidated Statements
of Operations

Loss on derivative instruments:

     

Commodity hedges

  $ —        $ (181  

(Income) loss from equity method investments

 

 

 

   

 

 

   
    —          (181  

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

    —          —       

Provision for income taxes

 

 

 

   

 

 

   
  $ —        $ (181  

(Income) loss from continuing operations

 

 

 

   

 

 

   
    Six Months Ended
October 31,
     
    2014     2013      

Details about Accumulated Other
Comprehensive Income Components

  Amount Reclassified Out of
Accumulated Other

Comprehensive Income
   

Affected Line Item in the Consolidated Statements
of Operations

Loss on derivative instruments:

     

Commodity hedges

  $ —        $ (345  

(Income) loss from equity method investments

 

 

 

   

 

 

   
    —          (345  

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

    —          —       

Provision for income taxes

 

 

 

   

 

 

   
  $ —        $ (345  

(Income) loss from continuing operations

 

 

 

   

 

 

   

 

19


8. EARNINGS PER SHARE

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

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014     2013     2014     2013  

Numerator:

        

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

   $ 259      $ (294   $ (31   $ (437
  

 

 

   

 

 

   

 

 

   

 

 

 

Denominator:

        

Number of shares outstanding, end of period:

        

Class A common stock

     39,545        39,011        39,545        39,011   

Class B common stock

     988        988        988        988   

Unvested restricted stock

     (159     (130     (159     (130

Effect of weighted average shares outstanding during period

     (48     (48     (149     (127
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares used in basic EPS

     40,326        39,821        40,225        39,742   
  

 

 

   

 

 

   

 

 

   

 

 

 

Impact of potentially dilutive securities:

        

Dilutive effect of options and restricted / performance stock units

     216        —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average number of common shares used in diluted EPS

     40,542        39,821        40,225        39,742   
  

 

 

   

 

 

   

 

 

   

 

 

 

Number of antidilutive potentially issuable shares not included in the diluted earnings per share calculations (1)

     1,230        2,332        2,191        2,332   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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

 

9. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Assets and Liabilities Accounted for at Fair Value

Our financial instruments include cash and cash equivalents, restricted cash, trade receivables, restricted trust and escrow accounts held in trusts with various banks as collateral for our obligations relative to landfill final capping, closure and post-closure costs, interest rate derivatives, trade payables and long-term debt. The carrying values of cash and cash equivalents, restricted cash, trade receivables and trade payables approximate their respective fair values due to their short-term nature. The fair value of the restricted trust and escrow accounts are included as restricted assets in the Level 1 tier below. The fair values of the interest rate derivatives, included in the Level 2 tier below, are calculated based on the three month LIBOR yield curve that is observable at commonly quoted intervals for the full term of the interest rate swaps, adjusted by the credit risk of us and our counter-parties based on observable credit default swap rates. We recognize all derivatives on the balance sheet at fair value.

 

20


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

 

     Fair Value Measurement at October 31, 2014 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

   $ 790       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Interest rate derivatives

   $ —         $ 2,177       $ —     
  

 

 

    

 

 

    

 

 

 

As of April 30, 2014 our assets and liabilities measured at fair value on a recurring basis included the following:

 

     Fair Value Measurement at April 30, 2014 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

   $ 681       $ —         $ —     
  

 

 

    

 

 

    

 

 

 

Liabilities:

        

Interest rate derivatives

   $ —         $ 2,770       $ —     
  

 

 

    

 

 

    

 

 

 

Fair Value of Debt

As of October 31, 2014, the fair value of our fixed rate debt, including our 7.75% senior subordinated notes due 2019 (“2019 Notes”), the Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”), the Vermont Economic Development Authority Solid Waste Disposal Long Term Revenue Bonds Series 2013 (“Vermont Bonds”), and the New Hampshire Bonds was approximately $382,460 and the carrying value was $373,400. The fair value of the 2019 Notes is considered to be Level 1 within the fair value hierarchy as the fair value is based off of a quoted market price in an active market. The fair value of the FAME Bonds 2005R-2, the Vermont Bonds and the New Hampshire Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined using market approach pricing that utilizes pricing models and pricing systems, mathematical tools and judgment to determine the evaluated price for the security based on the market information of each of the bonds or securities with similar characteristics. As of October 31, 2014, the fair value of our Revolver is considered to be Level 2 within the fair value hierarchy as its fair value approximated its carrying value of $144,300 based on current borrowing rates for similar types of borrowing arrangements.

 

10. SEVERANCE AND REORGANIZATION

In the three and six months ended October 31, 2013, we recorded charges totaling $53 and $161, respectively, for severance costs associated with various planned reorganization efforts including the divestiture of Maine Energy Recovery Company LP (“Maine Energy”) discussed further in Note 11.

 

11. DIVESTITURE TRANSACTIONS AND DISCONTINUED OPERATIONS

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

 

21


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

Discontinued Operations

In fiscal year 2013, we initiated a plan to dispose of KTI BioFuels, Inc. (“BioFuels”), a construction and demolition material processing facility located in Lewiston, Maine, and as a result, the assets associated with BioFuels were classified as held-for-sale and the results of operations were recorded as income from discontinued operations. Assets of the disposal group previously classified as held-for-sale, and subsequently included in discontinued operations, included certain inventory along with plant and equipment. In the first quarter of fiscal year 2014, we executed a purchase and sale agreement with ReEnergy Lewiston LLC (“ReEnergy”), pursuant to which we agreed to sell certain assets of BioFuels, which was located in our Eastern region, to ReEnergy. We agreed to sell the BioFuels assets for undiscounted purchase consideration of $2,000, which is being paid to us in equal quarterly installments over five years commencing November 1, 2013, subject to the terms of the purchase and sale agreement. The related note receivable is recorded in current and non-current assets of discontinued operations in the consolidated balance sheets. We recognized a $378 loss on disposal of discontinued operations in the first quarter of fiscal year 2014 associated with the disposition.

The operating results of these operations, including those related to prior years, have been reclassified from continuing to discontinued operations in the accompanying consolidated financial statements. Revenues and (loss) income before income taxes attributable to discontinued operations for the three and six months ended October 31, 2014 and 2013, respectively, are as follows:

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014      2013     2014      2013  

Revenues

   $ —         $ 5      $ —         $ 3,316   

(Loss) income before income taxes

   $ —         $ (45   $ —         $ 284   

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

Divestiture Transactions

In the first quarter of fiscal year 2013, we executed a purchase and sale agreement (“Agreement”) with the City of Biddeford, Maine, pursuant to which we agreed to sell the real property of Maine Energy to the City of Biddeford. We agreed to sell Maine Energy for an undiscounted purchase consideration of $6,650, which is being paid to us in equal installments over twenty-one years. The transaction closed in November 2012. In December 2012, we ceased operations of the Maine Energy facility and initiated the decommissioning, demolition and site remediation process in accordance with the provisions of the Agreement. We have completed the demolition process, and are nearly complete with site remediation under the auspices and in accordance with work plans approved by the Maine Department of Environmental Protection (“MEDEP”), and the U.S. Environmental Protection Agency (“USEPA”). The time for completion of this project has been consensually extended by us and the City of Biddeford, and we expect to complete this project and transfer ownership of the real property to the City of Biddeford by, or before, spring 2015. Based on incurred costs to date and estimates regarding the remaining costs to fulfill our obligation under the Agreement, a potential gain on divestiture of up to $1,000 is possible.

 

22


12. SEGMENT REPORTING

We report selected information about operating segments in a manner consistent with that used for internal management reporting. We classify our solid waste operations on a geographic basis through regional operating segments. Revenues associated with our solid waste operations are derived mainly from collection, transfer, disposal, landfill, landfill gas-to-energy and recycling services in the northeastern United States. Our revenues in the Recycling segment are derived from municipalities and customers in the form of processing fees, tipping fees and commodity sales. Organics services, ancillary operations, major customer accounts, discontinued operations, and earnings from equity method investees are included in our Other segment.

Three Months Ended October 31, 2014

 

Segment

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

Eastern

   $ 42,052       $ 12,541      $ 7,014       $ 2,200       $ 206,860   

Western

     60,014         19,624        7,345         7,322         332,748   

Recycling

     13,261         (50     1,081         380         52,218   

Other

     26,014         667        588         162         69,968   

Eliminations

     —           (32,782     —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 141,341       $ —        $ 16,028       $ 10,064       $ 661,794   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Three Months Ended October 31, 2013

 

Segment

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

Eastern

   $ 40,305       $ 10,043      $ 6,691       $ 2,203      $ 205,181   

Western

     58,224         18,892        7,311         7,211        348,223   

Recycling

     11,506         (26     1,074         (152     49,884   

Other

     22,261         491        593         188        75,225   

Eliminations

     —           (29,400     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 132,296       $ —        $ 15,669       $ 9,450      $ 678,513   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Six Months Ended October 31, 2014

 

Segment

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

Eastern

   $ 83,257       $ 24,777      $ 13,750       $ 3,503       $ 206,860   

Western

     121,190         39,202        15,316         15,060         332,748   

Recycling

     25,733         (104     2,146         269         52,218   

Other

     52,548         1,304        1,184         571         69,968   

Eliminations

     —           (65,179     —           —           —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

   $ 282,728       $ —        $ 32,396       $ 19,403       $ 661,794   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Six Months Ended October 31, 2013

 

Segment

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

Eastern

   $ 78,926       $ 20,474      $ 13,072       $ 3,829      $ 205,181   

Western

     115,571         38,153        14,545         14,107        348,223   

Recycling

     22,690         (31     2,139         (195     49,884   

Other

     43,667         1,003        1,110         1,447        75,225   

Eliminations

     —           (59,599     —           —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

   $ 260,854       $ —        $ 30,866       $ 19,188      $ 678,513   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

23


Amounts of our total revenue attributable to services provided for the three and six months ended October 31, 2014 and 2013 are as follows:

 

     Three Months Ended
October 31,
     Six Months Ended
October 31,
 
     2014      2013      2014      2013  

Collection

   $ 60,338       $ 58,765       $ 120,349       $ 116,978   

Disposal

     39,665         37,374         79,758         72,497   

Power generation

     1,867         1,980         3,806         4,022   

Processing

     2,582         2,679         5,441         5,631   
  

 

 

    

 

 

    

 

 

    

 

 

 

Solid waste operations

     104,452         100,798         209,354         199,128   

Organics

     10,139         9,474         20,801         19,350   

Customer solutions

     13,489         10,518         26,840         19,686   

Recycling

     13,261         11,506         25,733         22,690   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues

   $ 141,341       $ 132,296       $ 282,728       $ 260,854   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

13. SUBSIDIARY GUARANTORS

Our 2019 Notes are guaranteed jointly and severally, fully and unconditionally, by our significant wholly-owned subsidiaries. The Parent is the issuer and a non-guarantor of the 2019 Notes and the Parent has no independent assets or operations. The information which follows presents the condensed consolidating financial position as of October 31, 2014 and April 30, 2014, the consolidating results of operations and comprehensive income (loss) for the three and six months ended October 31, 2014 and 2013, and the condensed consolidating statements of cash flows for the six months ended October 31, 2014 and 2013 of (a) the Parent company only, (b) the combined guarantors (“Guarantors”), each of which is 100% wholly-owned by the Parent, (c) the combined non-guarantors (“Non-Guarantors”), (d) eliminating entries and (e) the consolidated total.

 

24


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF OCTOBER 31, 2014

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

 

ASSETS

   Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

CURRENT ASSETS:

          

Cash and cash equivalents

   $ 1,997      $ 257      $ 480      $ —        $ 2,734   

Restricted cash

     —          76        —          —          76   

Accounts receivable - trade, net

     603        58,561        139        —          59,303   

Refundable income taxes

     411        —          —          —          411   

Prepaid expenses

     2,677        5,357        7        —          8,041   

Inventory

     —          4,170        29        —          4,199   

Deferred income taxes

     2,222        —          —          —          2,222   

Other current assets

     296        3,983        8        —          4,287   

Current assets of discontinued operations

     —          371        —          —          371   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     8,206        72,775        663        —          81,644   

Property, plant and equipment, net

     4,365        401,290        649        —          406,304   

Goodwill

     —          119,170        —          —          119,170   

Intangible assets, net

     113        12,199        —          —          12,312   

Restricted assets

     —          790        —          —          790   

Cost method investments

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

Investments in subsidiaries

     (14,880     —          —          14,880        —     

Other non-current assets

     13,187        10,352        —          —          23,539   

Non-current assets of discontinued operations

     —          1,283        —          —          1,283   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     19,537        547,016        649        12,948        580,150   

Intercompany receivable

     535,113        (498,152     (38,893     1,932        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 562,856      $ 121,639      $ (37,581   $ 14,880      $ 661,794   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

   Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

CURRENT LIABILITIES:

          

Current maturities of long-term debt and capital leases

   $ 88      $ 1,648      $ —        $ —        $ 1,736   

Accounts payable

     16,559        30,324        493        —          47,376   

Accrued payroll and related expenses

     756        3,652        2        —          4,410   

Accrued interest

     6,126        9        —          —          6,135   

Current accrued capping, closure and post-closure costs

     —          3,824        3        —          3,827   

Other accrued liabilities

     9,167        9,277        228        —          18,672   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     32,696        48,734        726        —          82,156   

Long-term debt and capital leases, less current maturities

     520,861        1,181        —          —          522,042   

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

     —          40,414        37        —          40,451   

Deferred income taxes

     7,046        —          —          —          7,046   

Other long-term liabilities

     9,177        7,502        81        —          16,760   

STOCKHOLDERS’ (DEFICIT) EQUITY:

          

Casella Waste Systems, Inc. stockholders (deficit)’ equity

     (6,924     23,808        (38,688     14,880        (6,924

Noncontrolling interests

     —          —          263        —          263   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (6,924     23,808        (38,425     14,880        (6,661
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 562,856      $ 121,639      $ (37,581   $ 14,880      $ 661,794   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

25


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2014

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

 

ASSETS

   Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

CURRENT ASSETS:

          

Cash and cash equivalents

   $ 2,151      $ 271      $ 42      $ —        $ 2,464   

Restricted cash

     —          76        —          —          76   

Accounts receivable - trade, net

     534        51,983        86        —          52,603   

Refundable income taxes

     465        —          —          —          465   

Prepaid expenses

     2,617        4,557        2        —          7,176   

Inventory

     —          3,852        53        —          3,905   

Deferred income taxes

     2,502        —          —          —          2,502   

Other current assets

     312        936        7        —          1,255   

Current assets of discontinued operations

     —          359        —          —          359   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     8,581        62,034        190        —          70,805   

Property, plant and equipment, net

     4,104        398,670        650        —          403,424   

Goodwill

     —          119,139        —          —          119,139   

Intangible assets, net

     159        13,261        —          —          13,420   

Restricted assets

     —          681        —          —          681   

Cost method investments

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

Investments in subsidiaries

     (36,006     —          —          36,006        —     

Other non-current assets

     13,874        10,331        —          —          24,205   

Non-current assets of discontinued operations

     —          1,471        —          —          1,471   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1,117     545,485        650        34,074        579,092   

Intercompany receivable

     543,291        (506,348     (38,875     1,932        —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 550,755      $ 101,171      $ (38,035   $ 36,006      $ 649,897   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

   Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

CURRENT LIABILITIES:

          

Current maturities of long-term debt and capital leases

   $ 84      $ 801      $ —        $ —        $ 885   

Accounts payable

     22,678        28,286        824        —          51,788   

Accrued payroll and related expenses

     1,212        4,849        1        —          6,062   

Accrued interest

     6,084        3        —          —          6,087   

Current accrued capping, closure and post-closure costs

     —          7,309        3        —          7,312   

Other accrued liabilities

     7,289        10,081        242        —          17,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     37,347        51,329        1,070        —          89,746   

Long-term debt and capital leases, less current maturities

     504,836        2,298        —          —          507,134   

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

     —          37,306        36        —          37,342   

Deferred income taxes

     6,954        —          —          —          6,954   

Other long-term liabilities

     10,025        7,149        84        —          17,258   

STOCKHOLDERS’ (DEFICIT) EQUITY:

          

Casella Waste Systems, Inc. stockholders (deficit)’ equity

     (8,407     3,089        (39,095     36,006        (8,407

Noncontrolling interests

     —          —          (130     —          (130
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ (deficit) equity

     (8,407     3,089        (39,225     36,006        (8,537
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
   $ 550,755      $ 101,171      $ (38,035   $ 36,006      $ 649,897   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

26


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
     Elimination     Consolidated  

Revenues

   $ —        $ 141,040      $ 301       $ —        $ 141,341   

Operating expenses:

           

Cost of operations

     18        98,186        88         —          98,292   

General and administration

     617        15,961        4         —          16,582   

Depreciation and amortization

     188        15,840        —           —          16,028   

Environmental remediation charge

     —          375        —           —          375   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 
     823        130,362        92         —          131,277   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Operating income (loss)

     (823     10,678        209         —          10,064   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other expense (income), net:

           

Interest income

     —          (81     —           —          (81

Interest expense

     9,710        (87     —           —          9,623   

Earnings from consolidated entities

     (11,111     —          —           11,111        —     

(Gain) loss on derivative instruments

     362        —          —           —          362   

Other income

     (265     (158     —           —          (423
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Other expense, net

     (1,304     (326     —           11,111        9,481   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     481        11,004        209         (11,111     583   

Provision (benefit) for income taxes

     222        —          —           —          222   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss)

     259        11,004        209         (11,111     361   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          102         —          102   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 259      $ 11,004      $ 107       $ (11,111   $ 259   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

27


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2013

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 131,729      $ 567      $ —        $ 132,296   

Operating expenses:

          

Cost of operations

     —          89,740        805        —          90,545   

General and administration

     595        15,783        51        —          16,429   

Depreciation and amortization

     225        15,251        193        —          15,669   

Environmental remediation charge

     —          150        —          —          150   

Severance and reorganization costs

     —          53        —          —          53   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     820        120,977        1,049        —          122,846   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (820     10,752        (482     —          9,450   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

     (1     (100     —          —          (101

Interest expense

     9,616        19        —          —          9,635   

(Income) loss from equity method investments

     (10,757     (15     (76     10,757        (91

(Gain) loss on derivative instruments

     629        —          —          —          629   

Other income

     (268     (124     —          —          (392
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (781     (220     (76     10,757        9,680   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     (39     10,972        (406     (10,757     (230

Provision (benefit) for income taxes

     300        —          —          —          300   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (339     10,972        (406     (10,757     (530

Discontinued operations:

          

Income (loss) from discontinued operations, net

     —          (45     —          —          (45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (339     10,927        (406     (10,757     (575
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          (236     —          (236
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (339   $ 10,927      $ (170   $ (10,757   $ (339
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

28


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED OCTOBER 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 282,130      $ 598      $ —        $ 282,728   

Operating expenses:

          

Cost of operations

     35        196,903        119        —          197,057   

General and administration

     997        32,431        (6     —          33,422   

Depreciation and amortization

     382        32,014        —          —          32,396   

Environmental remediation charge

     —          450        —          —          450   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,414        261,798        113        —          263,325   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,414     20,332        485        —          19,403   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

     —          (168     —          —          (168

Interest expense

     19,300        (127     —          —          19,173   

Earnings from consolidated entities

     (21,198     —          —          21,198        —     

(Gain) loss on derivative instruments

     293        —          —          —          293   

Other income

     (290     (324     —          —          (614
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (1,895     (619     —          21,198        18,684   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     481        20,951        485        (21,198     719   

Provision (benefit) for income taxes

     512        —          —          —          512   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (31     20,951        485        (21,198     207   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          238        —          238   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (31   $ 20,951      $ 247      $ (21,198   $ (31
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

29


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF OPERATIONS

SIX MONTHS ENDED OCTOBER 31, 2013

(in thousands)

 

     Parent     Guarantors     Non-
Guarantors
    Elimination     Consolidated  

Revenues

   $ —        $ 259,423      $ 1,431      $ —        $ 260,854   

Operating expenses:

          

Cost of operations

     1        177,519        1,442        —          178,962   

General and administration

     748        30,736        43        —          31,527   

Depreciation and amortization

     437        30,055        374        —          30,866   

Environmental remediation charge

     —          150        —          —          150   

Severance and reorganization costs

     4        157        —          —          161   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     1,190        238,617        1,859        —          241,666   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (1,190     20,806        (428     —          19,188   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense (income), net:

          

Interest income

     (1     (112     —          —          (113

Interest expense

     18,963        31        —          —          18,994   

(Income) loss from equity method investments

     (19,928     (35     922        19,928        887   

(Gain) loss on derivative instruments

     (25     —          —          —          (25

Other income

     (287     (242     (1     —          (530
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other expense, net

     (1,278     (358     921        19,928        19,213   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

     88        21,164        (1,349     (19,928     (25

Provision (benefit) for income taxes

     619        —          —          —          619   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations

     (531     21,164        (1,349     (19,928     (644

Discontinued operations:

          

Income (loss) from discontinued operations, net

     —          284        —          —          284   

Gain (loss) on disposal of discontinued operations, net

     —          (378     —          —          (378
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (531     21,070        (1,349     (19,928     (738
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Less: Net income (loss) attributable to noncontrolling interests

     —          —          (207     —          (207
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (531   $ 21,070      $ (1,142   $ (19,928   $ (531
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

30


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED OCTOBER 31, 2014

(in thousands)

 

     Parent      Guarantors     Non-Guarantors      Elimination     Consolidated  

Net income (loss)

   $ 259       $ 11,004      $ 209       $ (11,111   $ 361   

Other comprehensive income (loss), net of taxes:

            

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

     —           (6     —           —          (6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss)

     —           (6     —           —          (6
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

     259         10,998        209         (11,111     355   

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —           —          102         —          102   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ 259       $ 10,998      $ 107       $ (11,111   $ 253   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

31


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

THREE MONTHS ENDED OCTOBER 31, 2013

(in thousands)

 

     Parent     Guarantors      Non-Guarantors     Elimination     Consolidated  

Net income (loss)

   $ (339   $ 10,927       $ (406   $ (10,757   $ (575

Other comprehensive income (loss), net of taxes:

           

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

     —          —           (279     —          (279

Realized loss (gain) on derivative instruments reclassified into earnings, net

     —          —           181        —          181   

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

     —          18         —          —          18   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     —          18         (98     —          (80
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (339     10,945         (504     (10,757     (655

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —          —           (236     —          (236
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (339   $ 10,945       $ (268   $ (10,757   $ (419
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

32


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

SIX MONTHS ENDED OCTOBER 31, 2014

(in thousands)

 

     Parent     Guarantors      Non-Guarantors      Elimination     Consolidated  

Net income (loss)

   $ (31   $ 20,951       $ 485       $ (21,198   $ 207   

Other comprehensive income (loss), net of tax:

            

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

     —          6         —           —          6   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     —          6         —           —          6   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income (loss)

     (31     20,957         485         (21,198     213   

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —          —           238         —          238   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (31   $ 20,957       $ 247       $ (21,198   $ (25
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

33


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (LOSS)

SIX MONTHS ENDED OCTOBER 31, 2013

(in thousands)

 

     Parent     Guarantors      Non-Guarantors     Elimination     Consolidated  

Net income (loss)

   $ (531   $ 21,070       $ (1,349   $ (19,928   $ (738

Other comprehensive income (loss), net of taxes:

           

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

     —          —           (568     —          (568

Realized loss (gain) on derivative instruments reclassified into earnings, net

     —          —           345        —          345   

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

     —          18         —          —          18   
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     —          18         (223     —          (205
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

     (531     21,088         (1,572     (19,928     (943

Less: Comprehensive income (loss) attributable to noncontrolling interests

     —          —           (207     —          (207
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Comprehensive income (loss) attributable to common stockholders

   $ (531   $ 21,088       $ (1,365   $ (19,928   $ (736
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

34


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED OCTOBER 31, 2014

(in thousands)

 

     Parent     Guarantors     Non-Guarantors      Elimination      Consolidated  

Net cash provided by (used in) operating activities

   $ (15,540   $ 38,246      $ 128       $ —         $ 22,834   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Cash Flows from Investing Activities:

            

Acquisitions, net of cash acquired

     —          (314     —           —           (314

Acquisition related additions to property, plant and equipment

     —          (45     —           —           (45

Additions to property, plant and equipment

     (598     (34,950     —           —           (35,548

Payments on landfill operating lease contracts

     —          (2,454     —           —           (2,454

Payments related to investments

     —          (310     310         —           —     

Proceeds from sale of property and equipment

     —          342        —           —           342   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (598     (37,731     310         —           (38,019

Cash Flows from Financing Activities:

            

Proceeds from long-term borrowings

     —          80,700        —           —           80,700   

Principal payments on long-term debt

     (64,802     (268     —           —           (65,070

Payments of financing costs

     (506     —          —           —           (506

Proceeds from the exercise of share based awards

     143        —          —           —           143   

Excess tax benefit on the vesting of share based awards

     12        —          —           —           12   

Intercompany borrowings

     81,137        (81,137     —           —           —     
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     15,984        (705     —           —           15,279   

Net cash provided by (used in) discontinued operations

     —          176        —           —           176   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     (154     (14     438         —           270   

Cash and cash equivalents, beginning of period

     2,151        271        42         —           2,464   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 1,997      $ 257      $ 480       $ —         $ 2,734   
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

35


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

SIX MONTHS ENDED OCTOBER 31, 2013

(in thousands)

 

     Parent     Guarantors     Non-Guarantors     Elimination      Consolidated  

Net cash provided by (used in) operating activities

   $ (25,720   $ 53,481      $ 358      $ —         $ 28,119   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash Flows from Investing Activities:

           

Acquisitions, net of cash acquired

     —          (2,822     —          —           (2,822

Acquisition related additions to property, plant and equipment

     —          (1,365     —          —           (1,365

Additions to property, plant and equipment

     (1,059     (24,575     (425     —           (26,059

Payments on landfill operating lease contracts

     —          (3,471     —          —           (3,471

Payments related to investments

     (2,148     —          —          —           (2,148

Proceeds from sale of property and equipment

     —          929        —          —           929   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) investing activities

     (3,207     (31,304     (425     —           (34,936

Cash Flows from Financing Activities:

           

Proceeds from long-term borrowings

     83,190        —          —          —           83,190   

Principal payments on long-term debt

     (71,735     (851     —          —           (72,586

Payments of financing costs

     (388     —          —          —           (388

Intercompany borrowings

     21,145        (21,145     —          —           —     
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net cash provided by (used in) financing activities

     32,212        (21,996     —          —           10,216   

Net cash provided by (used in) discontinued operations

     —          (201     —          —           (201
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Net increase (decrease) in cash and cash equivalents

     3,285        (20     (67     —           3,198   

Cash and cash equivalents, beginning of period

     1,260        253        242        —           1,755   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

Cash and cash equivalents, end of period

   $ 4,545      $ 233      $ 175      $ —         $ 4,953   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

 

 

36


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

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended April 30, 2014 filed with the Securities and Exchange Commission (“SEC”) on June 26, 2014.

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

 

  expected liquidity and financing plans;

 

  expected future revenues, operations, expenditures and cash needs;

 

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

 

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

 

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

 

  our ability to service our debt obligations;

 

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

 

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

 

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

 

  sales and marketing plans or price and volume assumptions;

 

  the outcome of any legal or regulatory matter;

 

  potential business combinations or divestitures; and

 

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

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

There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, without limitation, those detailed in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended April 30, 2014 and, as applicable, those included under Part II, Item 1A of this Quarterly Report on Form 10-Q. We explicitly disclaim any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as otherwise required by law.

 

37


Company Overview

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

As of November 17, 2014, we owned and/or operated 35 solid waste collection operations, 44 transfer stations, 18 recycling facilities, nine Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition (“C&D”) materials.

Accounting Period

In June 2014, we elected to change our fiscal year-end from April 30th to December 31st. The change in fiscal year will become effective for our fiscal year beginning January 1, 2015 and ending December 31, 2015. We intend to file a Transition Report on Form 10-KT for the eight-month transition period ending December 31, 2014 (“Transition Period”). This Quarterly Report on Form 10-Q for the three and six month periods ended October 31, 2014 is for the second quarter of the Transition Period.

Acquisitions

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

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

During the six months ended October 31, 2014, we acquired one solid waste hauling operation in each of the Eastern and Western regions for total consideration of $0.4 million, including $0.3 million in cash and $0.1 million in holdbacks to the sellers. During the six months ended October 31, 2013, we acquired three solid waste hauling operations, two of which are located in the Western region and one of which is located in the Eastern region, for total consideration of $2.1 million, including $1.5 million in cash, $0.2 million of other non-cash considerations and $0.4 million in holdbacks to the sellers. During the six months ended October 31, 2013, we also acquired an industrial service management business in the Other segment for total consideration of $2.5 million as of the acquisition date, including $1.3 million in cash, $0.3 million in holdbacks to the seller and $0.9 million in consideration, not to exceed $1.0 million, contingent upon the realization of a measure of operating income associated with certain prospective customer contracts within twelve months of closing.

 

38


Results of Operations

The following table summarizes our revenues and operating expenses for the three and six months ended October 31, 2014 and 2013 (in millions and as a percentage of revenue):

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014      % of
Revenue
    2013      % of
Revenue
    2014      % of
Revenue
    2013      % of
Revenue
 

Revenues

   $ 141.3         100.0   $ 132.3         100.0   $ 282.7         100.0   $ 260.9         100.0

Operating expenses:

                    

Cost of operations

     98.3         69.5     90.5         68.4     197.1         69.7     179.0         68.7

General and administration

     16.5         11.7     16.4         12.5     33.4         11.8     31.5         12.1

Depreciation and amortization

     16.0         11.4     15.7         11.9     32.4         11.5     30.9         11.8

Environmental remediation charge

     0.4         0.3     0.1         0.0     0.4         0.1     0.1         0.0

Severance and reorganization costs

     —           0.0     0.1         0.0     —           0.0     0.2         0.1
  

 

 

      

 

 

      

 

 

      

 

 

    
     131.2         92.9     122.8         92.8     263.3         93.1     241.7         92.7
  

 

 

      

 

 

      

 

 

      

 

 

    

Operating income

   $ 10.1         7.1   $ 9.5         7.2     19.4         6.9     19.2         7.3
  

 

 

      

 

 

      

 

 

      

 

 

    

Revenues

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

Our revenues are shown net of inter-company eliminations. The table below shows the percentages and dollars (in millions) of revenue attributable to services provided for the three and six months ended October 31, 2014 and 2013:

 

     Three Months Ended October 31,     Six Months Ended October 31,  
     2014     2013     2014     2013  

Collection

   $ 60.3         42.7   $ 58.7         44.4   $ 120.4         42.6   $ 117.0         44.8

Disposal

     39.6         28.1     37.4         28.3     79.8         28.2     72.5         27.8

Power generation

     1.9         1.3     2.0         1.5     3.8         1.3     4.0         1.5

Processing

     2.6         1.8     2.7         2.0     5.4         1.9     5.6         2.2
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Solid waste operations

     104.4         73.9     100.8         76.2     209.4         74.0     199.1         76.3

Organics

     10.1         7.2     9.5         7.2     20.8         7.4     19.4         7.4

Customer solutions

     13.5         9.5     10.5         7.9     26.8         9.5     19.7         7.6

Recycling

     13.3         9.4     11.5         8.7     25.7         9.1     22.7         8.7
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total revenues

   $ 141.3         100.0   $ 132.3         100.0   $ 282.7         100.0   $ 260.9         100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

39


Our revenues increased $9.0 million, or 6.8%, and $21.8 million, or 8.4%, during the three and six months ended October 31, 2014 as compared to the same periods in the prior fiscal year. The following table provides details associated with the period-to-period changes in revenues (in millions) attributable to services provided:

 

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

Solid waste operations:

        

Price

   $ 0.9        0.7   $ 1.8        0.7

Volume

     3.3        2.5     8.5        3.3

Commodity price & volume

     (0.2     (0.1 )%      (0.3     (0.1 )% 

Acquisitions & divestitures

     1.4        1.1     3.0        1.1

Closed landfills

     (1.8     (1.4 )%      (2.7     (1.0 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total solid waste operations

     3.6        2.8     10.3        4.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Organics

     0.6        0.5     1.4        0.5
  

 

 

   

 

 

   

 

 

   

 

 

 

Customer solutions

     3.0        2.2     7.1        2.7
  

 

 

   

 

 

   

 

 

   

 

 

 

Recycling:

        

Commodity price

     (0.1     (0.1 )%      0.5        0.2

Commodity volume

     1.5        1.1     1.7        0.7

Commodity acquisition

     0.4        0.3     0.8        0.3
  

 

 

   

 

 

   

 

 

   

 

 

 

Total recycling

     1.8        1.3     3.0        1.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue growth

   $ 9.0        6.8   $ 21.8        8.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Solid waste revenues

Price.

 

  The price change component in quarterly total solid waste revenues growth period-to-period is the result of $0.8 million from favorable collection pricing and $0.1 million from favorable disposal pricing associated with our landfills.

 

  The price change component in year-to-date total solid waste revenues growth period-to-period is the result of $1.8 million from favorable collection pricing.

Volume.

 

  The volume change component in quarterly total solid waste revenues growth period-to-period is the result of $2.8 million from disposal volume increases (of which $2.5 million relates to higher transfer station volumes associated with a mix shift from landfills to transfer stations and two new transfer station contracts, $0.2 million relates to transportation and $0.1 million relates to landfills) and $0.5 million from collection volume increases.

 

  The volume change component in year-to-date total solid waste revenues growth period-to-period is the result of $7.8 million from disposal volume increases (of which $5.1 million relates to higher transfer station volumes associated with a mix shift from landfills to transfer stations and two new transfer station contracts, $2.3 million relates to landfills and $0.4 million relates to transportation) and $0.7 million from collection volume increases.

Commodity price and volume.

 

  The commodity price and volume change component in quarterly total solid waste revenues growth period-to-period is the result of $0.1 million from favorable commodity pricing within power generation and processing, more than offset by $0.3 million from lower power generation and processing commodity volumes.

 

  The commodity price and volume change component in year-to-date total solid waste revenues growth period-to-period is the result of $0.2 million from favorable commodity pricing within power generation and processing, more than offset by $0.5 million from lower power generation and processing commodity volumes.

 

40


Acquisitions and divestitures.

 

  The acquisitions and divestitures change component in quarterly and year-to-date total solid waste revenues growth period-to-period is the result of increased revenues from various business acquisitions, including several solid waste hauling operations and a transfer station, completed between August 2013 and September 2014.

Closed landfill.

 

  The closed landfill change component in quarterly and year-to-date total solid waste revenues growth period-to-period is the result of a landfill in the Eastern region that ceased operations in April 2014 in accordance with its permit.

Organics revenues

 

  The increase in quarterly and year-to-date revenues is the result of higher volumes associated with organic business growth.

Customer Solutions revenues

 

  The increase in quarterly revenues period-to-period is the result of $2.8 million from higher volumes and $0.2 million from the acquisition of an industrial service management business in September 2013.

 

  The increase in year-to-date revenues period-to-period is the result of $6.1 million from higher volumes and $1.0 million from the acquisition of an industrial service management business in September 2013.

Recycling revenues

 

  The increase in quarterly revenues period-to-period is primarily the result of higher commodity volumes and the acquisition of the remaining 50% membership interest of Tompkins County Recycling LLC (“Tompkins”) in December 2013.

 

  The increase in year-to-date revenues period-to-period is primarily the result of favorable commodity pricing in the market, higher commodity volumes and the acquisition of the remaining 50% membership interest of Tompkins in December 2013.

Operating Expenses

Cost of Operations

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

Our cost of operations increased $7.8 million, or 1.1% as a percentage of revenues, and $18.1 million, or 1.0% as a percentage of revenues, when comparing the three and six months ended October 31, 2014 to the same periods in the prior fiscal year.

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

 

  Third-party direct costs increased $3.4 million and $9.3 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to: organic and acquisition growth in our Customer Solutions business, which has a higher inherent direct cost structure; higher volumes in our Organics business; higher collection and disposal volumes from organic customer growth and the acquisition of a transfer station in the Eastern region; and higher disposal volumes associated with two new transfer station contracts and the acquisition of various hauling operations in the Western region.

 

  Maintenance and repair costs increased $1.8 million and $3.6 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to: higher facility costs associated with hauling operations and certain landfills in our Eastern region and facility maintenance activities within our Recycling segment, and higher fleet repair and maintenance costs associated with hauling operations in our Western region.

 

41


  Labor and related benefit costs increased $2.0 million and $3.3 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to additional labor costs associated with higher collection volumes in the Eastern region and increased overall healthcare costs.

 

  Direct operational costs increased $0.6 million and $1.6 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to: higher depletion of landfill operating lease obligations associated with increased volumes received at our landfills in the Western region; an increase in landfill operating costs; and a lower gain on sale of fixed assets in the three and six months ended October 31, 2014.

General and Administration

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

Our general and administration expenses increased $0.1 million, or decreased 0.8% as a percentage of revenues, when comparing the three months ended October 31, 2014 to the same period in the prior fiscal year, and increased $1.9 million, or decreased 0.3% as a percentage of revenues, when comparing the six months ended October 31, 2014 to the same period in the prior fiscal year.

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

 

  Labor and related benefit costs increased $0.3 million and $1.2 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to additional labor costs associated with growth in our Customer Solutions business and increased healthcare costs, partially offset by a reduction of incentive compensation.

 

  Professional fees increased $0.2 million and $0.6 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to the timing of accounting and auditing services associated with the change in fiscal year-end and higher legal costs associated with third-party legal advice, a legal settlement with the State of New York Attorney General’s Office (“NYAG”) and a charge accrued for a potential legal settlement with the Massachusetts Department of Environmental Protection (“MADEP”). See discussion in Legal Proceedings included under Part II, Item 1 of this Quarterly Report on Form 10-Q.

 

  Bad debt expense decreased $0.5 million and $0.3 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due to a higher than normal bad debt expense in the prior fiscal year periods due to collectability issues associated with two disposal customers in the Western region.

Depreciation and Amortization

Depreciation and amortization includes (i) depreciation of property and equipment, including assets recorded for capital leases, on a straight-line basis over the estimated useful life of the assets; (ii) amortization of landfill costs, including those incurred and all estimated future costs for landfill development, construction and asset retirement costs arising from closure and post-closure, on a units-of-consumption method as landfill airspace is consumed over the total estimated remaining capacity of a site, which includes both permitted capacity and unpermitted expansion capacity that meets our criteria for amortization purposes; (iii) amortization of landfill asset retirement costs arising from final capping obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each final capping event; and (iv) amortization of intangible assets with a definite life, using either a economic benefit provided approach or a straight-line basis over the definitive terms of the related agreements.

 

42


The table below summarizes the components of depreciation and amortization expense for the three and six months ended October 31, 2014 and 2013 (in millions of dollars and as a percentage of revenues):

 

     Three Months Ended
October 31,
    Six Months Ended
October 31,
 
     2014     2013     2014     2013  

Depreciation expense

   $ 7.9         5.6   $ 8.3         6.3   $ 16.2         5.7   $ 16.4         6.3

Landfill amortization expense

     7.4         5.3     6.8         5.1     14.7         5.2     13.4         5.1

Other amortization expense

     0.7         0.5     0.6         0.5     1.5         0.6     1.1         0.4
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 
   $ 16.0         11.4   $ 15.7         11.9   $ 32.4         11.5   $ 30.9         11.8
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

The changes in the components of depreciation and amortization expense when comparing the three and six months ended October 31, 2014 to the same periods in the prior fiscal year can largely be attributed to the following:

 

  Landfill amortization expense increased $0.6 million and $1.3 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year due primarily to an increase in landfill volumes at our Southbridge landfill in the Eastern region and at certain of our landfills within the Western region and a $0.3 million increase in estimated final capping costs at a closed landfill in the Eastern region.

Environmental Remediation Charge

We recorded an environmental remediation charge of $0.4 million during the three and six months ended October 31, 2014, respectively, compared to $0.1 million during the three and six months ended October 31, 2013 associated with the environmental remediation at our Southbridge landfill in the Eastern region as discussed in Legal Proceedings included under Part II, Item 1 of this Quarterly Report on Form 10-Q.

Other Expenses

Interest Expense, net

Our interest expense, net remained flat when comparing the three and six months ended October 31, 2014 to the same periods in the prior fiscal year as interest expense associated with higher average debt balances in the three and six months ended October 31, 2014 was offset by interest savings associated with a reduction in the balance of our outstanding letters of credit.

Loss from Equity Method Investments

In the fiscal year ended April 30, 2014 (“fiscal year 2014”), we sold our 50% membership interest in US GreenFiber LLC and purchased the remaining 50% membership interest of Tompkins, both of which were previously accounted for using the equity method of accounting.

Prior to these transactions, we recorded income from equity method investments of $0.1 million in the three months ended October 31, 2013 and loss from equity method investments of $0.9 million in the six months ended October 31, 2013.

Provision for Income Taxes

Our provision for income taxes decreased $0.1 million during each of the three and six months ended October 31, 2014 as compared to the same periods in the prior fiscal year. The provisions for income taxes for the six months ended October 31, 2014 and October 31, 2013 include $0.4 million and $0.5 million deferred tax provisions due mainly to the increase in the deferred tax liability for indefinite lived assets and $0.1 million current tax provisions. Since we cannot determine when the deferred tax liability related to indefinite lived assets will reverse, this amount cannot be used as a future source of taxable income against which to benefit deferred tax assets.

 

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Discontinued Operations

Discontinued operations in the three and six months ended October 31, 2013 related to the disposition of KTI BioFuels, Inc. (“BioFuels”). In the first quarter of fiscal year 2014, we executed a purchase and sale agreement with ReEnergy Lewiston LLC (“ReEnergy”), pursuant to which we agreed to sell certain assets of BioFuels, which is located in our Eastern region, to ReEnergy. We agreed to sell the BioFuels assets for undiscounted purchase consideration of $2.0 million, which will be paid to us in equal quarterly installments commencing November 1, 2013 and continuing over five years, subject to the terms of the purchase and sale agreement. We recognized a $0.4 million loss on disposal of discontinued operations in the first quarter of fiscal year 2014 associated with the disposition.

The operating results of Bio Fuels have been included in discontinued operations in the accompanying consolidated financial statements.

Segment Reporting (in millions)

 

     Revenues      Operating Income (Loss)  
     Three Months Ended October 31,  

Segment

   2014      2013      2014      2013  

Eastern

   $ 42.1       $ 40.3       $ 2.2       $ 2.2   

Western

     60.0         58.2         7.3         7.2   

Recycling

     13.3         11.5         0.4         (0.1

Other

     25.9         22.3         0.2         0.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 141.3       $ 132.3       $ 10.1       $ 9.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     Revenues      Operating Income (Loss)  
     Six Months Ended October 31,  

Segment

   2014      2013      2014      2013  

Eastern

   $ 83.3       $ 78.9       $ 3.5       $ 3.8   

Western

     121.2         115.6         15.1         14.1   

Recycling

     25.7         22.7         0.2         (0.2

Other

     52.5         43.7         0.6         1.5   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 282.7       $ 260.9       $ 19.4       $ 19.2   
  

 

 

    

 

 

    

 

 

    

 

 

 

Eastern Region

Our Eastern region revenues increased $1.8 million, or 4.5%, and $4.4 million, or 5.6%, during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year.

 

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The following table provides details associated with the period-to-period changes in revenues (dollars in millions):

 

     Period-to-Period
Change for the Three Months Ended
October 31, 2014 vs. 2013
    Period-to-Period
Change for the Six Months Ended
October 31, 2014 vs. 2013
 

Eastern Region

   Amount     % of Growth     Amount     % of Growth  

Price

   $ 0.5        1.3   $ 0.6        0.7

Volume

     1.9        4.7     4.2        5.3

Acquisitions & divestitures

     1.2        3.0     2.3        2.9

Closed landfills

     (1.8     (4.5 )%      (2.7     (3.4 )% 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total solid waste operations

   $ 1.8        4.5   $ 4.4        5.6
  

 

 

   

 

 

   

 

 

   

 

 

 

Price.

 

  The price change component in Eastern region quarterly solid waste revenues growth period-to-period is the result of $0.4 million from favorable collection pricing and $0.1 million from favorable disposal pricing related to landfills.

 

  The price change component in Eastern region year-to-date solid waste revenues growth period-to-period is the result of $0.6 million from favorable collection pricing.

Volume.

 

  The volume change component in quarterly Eastern region solid waste revenues growth period-to-period is the result of $0.8 million from higher disposal volumes (which includes a mix shift in volumes from landfills to transfer stations), $1.0 million from higher collection volumes and $0.1 million from higher processing volumes.

 

  The volume change component in year-to-date Eastern region solid waste revenues growth period-to-period is the result of $2.3 million from higher disposal volumes (which includes a mix shift in volumes from landfills to transfer stations), $1.7 million from higher collection volumes and $0.2 million from higher processing volumes.

Acquisitions and divestitures.

 

  The acquisitions and divestitures change component in quarterly and year-to-date Eastern region solid waste revenues growth period-to-period is the result of the acquisition of a solid waste hauling operation in September 2013 and a transfer station in November 2013.

Closed landfill.

 

  The closed landfill change component in quarterly and year-to-date total solid waste revenues growth period-to-period is the result of a landfill in the Eastern region that ceased operations in April 2014 in accordance with its permit.

Eastern region operating income remained flat and decreased $0.3 million during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year. The changes in operating income are largely attributable to the solid waste revenues growth discussed above combined with the following cost changes:

 

  Cost of operations: Cost of operations increased by $3.4 and $7.3 million period-to-period, resulting in margin erosion for both periods as costs increased at a greater rate than revenues. The changes were due primarily to an increase in third-party direct costs associated with higher collection and disposal volumes from organic customer growth and the acquisition of a transfer station, and an increase in other operational costs, including labor and related healthcare costs, and facility costs associated with hauling operations and certain landfills in our Eastern region.

 

  General and administration: General and administration expenses increased $0.3 million and $0.8 million period-to-period due primarily to an increase in bad debt expense in the three and six months ended October 31, 2014 associated with increased customer growth and bad debt recoveries in the three months ended October 31, 2013, and a charge accrued for a potential legal settlement with the MADEP. See discussion in Legal Proceedings included under Part II, Item 1 of this Quarterly Report on Form 10-Q.

 

  Depreciation and amortization: Depreciation and amortization costs increased $0.3 million and $0.7 million period-to-period due to an increase in landfill amortization associated with higher landfill volumes at our Southbridge landfill and a $0.3 million increase in estimated final capping costs at a closed landfill, and an increase in other amortization associated with acquired intangible assets.

 

  Other: Other charges impacting operating income period-to-period include an environmental remediation charge recorded in the three and six months ended October 31, 2014 associated with the environmental remediation at our Southbridge landfill.

 

45


Western Region

Our Western region revenues increased $1.8 million, or 3.1%, and $5.6 million, or 4.8%, during the three and six months ended October 31, 2014, respectively, as compared to the same periods in the prior fiscal year (dollars in millions).

 

     Period-to-Period
Change for the Three Months Ended
October 31, 2014 vs. 2013
    Period-to-Period
Change for the Six Months Ended
October 31, 2014 vs. 2013
 

Western Region

   Amount     % of Growth     Amount     % of Growth  

Price

   $ 0.4        0.7