UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended July 31, 2008 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
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Commission file number 000-23211 |
CASELLA WASTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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03-0338873 |
(State or other jurisdiction of
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(I.R.S. Employer Identification No.) |
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25 Greens Hill Lane, Rutland, Vermont |
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05701 |
(Address of principal executive offices) |
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(Zip Code) |
Registrants telephone number, including area code: (802) 775-0325
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer o |
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Accelerated filer x |
Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of August 29, 2008:
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Class A Common Stock |
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24,549,662 |
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Class B Common Stock |
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988,200 |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands)
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April 30, |
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July 31, |
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2008 |
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2008 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
2,814 |
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$ |
2,785 |
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Restricted cash |
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95 |
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95 |
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Accounts receivable - trade, net of allowance for doubtful accounts of $1,752 and $1,780 |
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62,233 |
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70,848 |
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Notes receivable - officer/employees |
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132 |
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134 |
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Refundable income taxes |
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2,020 |
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1,346 |
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Prepaid expenses |
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6,930 |
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7,062 |
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Inventory |
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3,876 |
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4,105 |
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Deferred income taxes |
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15,433 |
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18,452 |
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Other current assets |
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1,692 |
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5,135 |
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Current assets of discontinued operations |
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260 |
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Total current assets |
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95,485 |
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109,962 |
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Property, plant and equipment, net of accumulated depreciation and amortization of $484,620 and $503,513 |
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488,028 |
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494,255 |
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Goodwill |
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179,716 |
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179,734 |
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Intangible assets, net |
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2,608 |
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2,509 |
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Restricted assets |
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13,563 |
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13,608 |
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Notes receivable - officer/employees |
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1,101 |
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1,109 |
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Investments in unconsolidated entities |
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44,617 |
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43,868 |
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Other non-current assets |
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10,487 |
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10,344 |
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Non-current assets of discontinued operations |
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482 |
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740,602 |
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745,427 |
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$ |
836,087 |
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$ |
855,389 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
(in thousands, except for share and per share data)
The accompanying notes are an integral part of these consolidated financial statements.
3
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
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Three Months Ended
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2007 |
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2008 |
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Revenues |
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$ |
148,526 |
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$ |
157,904 |
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Operating expenses: |
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Cost of operations |
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96,903 |
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104,442 |
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General and administration |
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17,869 |
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18,440 |
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Depreciation and amortization |
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19,908 |
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19,470 |
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134,680 |
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142,352 |
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Operating income |
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13,846 |
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15,552 |
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Other expense/(income), net: |
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Interest income |
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(428 |
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(182 |
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Interest expense |
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11,043 |
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10,155 |
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Loss from equity method investments |
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2,151 |
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1,129 |
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Other income |
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(2,397 |
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(88 |
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Other expense, net |
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10,369 |
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11,014 |
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Income from continuing operations before income taxes and discontinued operations |
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3,477 |
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4,538 |
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Provision for income taxes |
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1,130 |
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2,317 |
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Income from continuing operations before discontinued operations |
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2,347 |
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2,221 |
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Discontinued Operations: |
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Loss from discontinued operations (net of income tax benefit of $350 and $8) |
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(604 |
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(11 |
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Loss on disposal of discontinued operations (net of income tax provision of $262) |
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(34 |
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Net income available to common stockholders |
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$ |
1,743 |
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$ |
2,176 |
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The accompanying notes are an integral part of these consolidated financial statements.
4
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS ( Continued)
(Unaudited)
(in thousands, except for per share data)
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Three Months Ended
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2007 |
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2008 |
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Earnings Per Share: |
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Basic: |
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Income from continuing operations before discontinued operations applicable to common stockholders |
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$ |
0.09 |
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$ |
0.09 |
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Loss from discontinued operations, net |
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(0.02 |
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Loss on disposal of discontinued operations, net |
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Net income per common share available to common stockholders |
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$ |
0.07 |
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$ |
0.09 |
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Basic weighted average common shares outstanding |
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25,327 |
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25,473 |
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Diluted: |
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Income from continuing operations before discontinued operations applicable to common stockholders |
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$ |
0.09 |
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$ |
0.08 |
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Loss from discontinued operations, net |
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(0.02 |
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Loss on disposal of discontinued operations, net |
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Net income per common share available to common stockholders |
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$ |
0.07 |
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$ |
0.08 |
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Diluted weighted average common shares outstanding |
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25,442 |
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25,683 |
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The accompanying notes are an integral part of these consolidated financial statements.
5
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
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Three Months Ended
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2007 |
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2008 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
1,743 |
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$ |
2,176 |
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Loss from discontinued operations, net |
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604 |
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11 |
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Loss on disposal of discontinued operations, net |
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34 |
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Adjustments to reconcile net income to net cash provided by operating activities - |
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Gain on sale of equipment |
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(241 |
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(284 |
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Depreciation and amortization |
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19,908 |
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19,470 |
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Depletion of landfill operating lease obligations |
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1,857 |
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1,723 |
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Income from assets under contractual obligation |
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(738 |
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(89 |
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Preferred stock dividend (included in interest expense) |
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925 |
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Amortization of premium on senior notes |
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(151 |
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(164 |
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Maine Energy settlement |
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(2,142 |
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Loss from equity method investments |
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2,151 |
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1,129 |
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Stock-based compensation |
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216 |
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389 |
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Excess tax benefit on the exercise of stock options |
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(31 |
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Deferred income taxes |
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856 |
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2,435 |
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Changes in assets and liabilities, net of effects of acquisitions and divestitures - |
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Accounts receivable |
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(2,633 |
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(8,604 |
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Accounts payable |
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(3,642 |
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3,118 |
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Other assets and liabilities |
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1,519 |
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(1,526 |
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17,885 |
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17,566 |
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Net Cash Provided by Operating Activities |
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20,232 |
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19,787 |
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Cash Flows from Investing Activities: |
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Acquisitions, net of cash acquired |
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(10 |
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(70 |
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Additions to property, plant and equipment - growth |
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(6,630 |
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(4,723 |
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- maintenance |
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(15,718 |
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(17,705 |
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Payments on landfill operating lease contracts |
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(474 |
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(452 |
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Proceeds from divestitures |
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670 |
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Proceeds from sale of equipment |
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806 |
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548 |
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Investment in unconsolidated entities |
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(65 |
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Proceeds from assets under contractual obligation |
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793 |
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89 |
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Net Cash Used In Investing Activities |
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(21,298 |
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(21,643 |
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Cash Flows from Financing Activities: |
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Proceeds from long-term borrowings |
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112,075 |
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22,700 |
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Principal payments on long-term debt |
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(118,321 |
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(21,447 |
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Proceeds from exercise of stock options |
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165 |
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496 |
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Excess tax benefit on the exercise of stock options |
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31 |
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Net Cash Provided by (Used in) Financing Activities |
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(6,081 |
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1,780 |
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Discontinued Operations: |
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Provided by (Used in) Operating Activities |
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(825 |
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47 |
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Used in Investing Activities |
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(13 |
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Cash Provided by (Used in) Discontinued Operations |
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(838 |
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47 |
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Net decrease in cash and cash equivalents |
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(7,985 |
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(29 |
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Cash and cash equivalents, beginning of period |
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12,363 |
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2,814 |
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Cash and cash equivalents, end of period |
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$ |
4,378 |
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$ |
2,785 |
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The accompanying notes are an integral part of these consolidated financial statements.
6
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
(in thousands)
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Three Months Ended July 31, |
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2007 |
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2008 |
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid during the period for - |
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Interest |
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$ |
4,683 |
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$ |
5,845 |
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Income taxes, net of refunds |
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$ |
311 |
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$ |
245 |
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Supplemental Disclosures of Non-Cash Investing and Financing Activities: |
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Summary of entities acquired in purchase business combinations - |
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Fair value of assets acquired |
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$ |
10 |
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$ |
70 |
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Cash paid, net |
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(10 |
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(70 |
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Notes payable, liabilities assumed and holdbacks to sellers |
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$ |
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$ |
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Property, plant and equipment acquired through financing arrangement |
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$ |
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$ |
4,453 |
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The accompanying notes are an integral part of these consolidated financial statements.
7
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
(Unaudited)
(In thousands, except for per share data)
1. ORGANIZATION
The consolidated balance sheet of Casella Waste Systems, Inc. (the Parent) and Subsidiaries (collectively, the Company) as of July 31, 2008, the consolidated statements of operations for the three months ended July 31, 2007 and 2008 and the consolidated statements of cash flows for the three months ended July 31, 2007 and 2008 are unaudited. In the opinion of management, such financial statements together with the consolidated balance sheet as of April 30, 2008 include all adjustments (which include normal recurring and nonrecurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The consolidated financial statements presented herein should be read in conjunction with the Companys audited consolidated financial statements as of and for the twelve months ended April 30, 2008 included as part of the Companys Annual Report on Form 10-K for the year ended April 30, 2008 (the Annual Report). The results for the three month period ended July 31, 2008 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2009.
2. RECLASSIFICATIONS
The Company has made reclassifications in the Companys Consolidated Statements of Operations to conform information for the three months ended July 31, 2007 to the Companys current period presentation. The supplementary financial information included in this section has also been updated to reflect these changes. During the second quarter of fiscal year 2008, the Company began recording income from assets under contractual obligations as a component of cost of operations where previously this income had been recorded as other income. This resulted in income reclassified amounting to $738 for the three months ended July 31, 2007.
3. BUSINESS COMBINATIONS
During the three months ended July 31, 2008, the Company acquired one solid waste hauling operation. This transaction was in exchange for total consideration of $70 in cash. During the three months ended July 31, 2007, the Company acquired one solid waste hauling operation. This transaction was in exchange for total consideration of $10 in cash. The operating results of these businesses are included in the consolidated statements of operations from the dates of acquisition. The purchase prices have been allocated to the net assets acquired based on their fair values at the dates of acquisition, including the value of non-compete agreements and client lists, with the residual amounts allocated to goodwill. The pro forma effect, as if each of the acquisitions had been made on May 1, 2007, do not vary materially from actual reported results for the periods ended July 31, 2007 and 2008.
4. GOODWILL AND INTANGIBLE ASSETS
The following table shows the activity and balances related to goodwill from April 30, 2008 through July 31, 2008:
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North
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South
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Central
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Western
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FCR
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Total |
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Balance, April 30, 2008 |
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$ |
23,655 |
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$ |
31,645 |
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$ |
31,960 |
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$ |
54,804 |
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$ |
37,652 |
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$ |
179,716 |
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Acquisitions |
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18 |
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18 |
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Balance, July 31, 2008 |
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$ |
23,655 |
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$ |
31,663 |
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$ |
31,960 |
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$ |
54,804 |
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$ |
37,652 |
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$ |
179,734 |
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Intangible assets at April 30, 2008 and July 31, 2008 consist of the following:
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Covenants
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Client Lists |
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Licensing
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Contract
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Total |
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Balance, April 30, 2008 |
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Intangible assets |
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$ |
15,125 |
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$ |
1,597 |
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$ |
920 |
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$ |
58 |
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$ |
17,700 |
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Less accumulated amortization |
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(14,189 |
) |
(726 |
) |
(167 |
) |
(10 |
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(15,092 |
) |
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$ |
936 |
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$ |
871 |
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$ |
753 |
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$ |
48 |
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$ |
2,608 |
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Balance, July 31, 2008 |
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Intangible assets |
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$ |
15,125 |
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$ |
1,597 |
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$ |
920 |
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$ |
93 |
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$ |
17,735 |
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Less accumulated amortization |
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(14,279 |
) |
(749 |
) |
(184 |
) |
(14 |
) |
(15,226 |
) |
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$ |
846 |
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$ |
848 |
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$ |
736 |
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$ |
79 |
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$ |
2,509 |
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Intangible amortization expense for the three months ended July 31, 2007 and 2008 was $150 and $146, respectively. The intangible amortization expense estimated as of July 31, 2008 for the five fiscal years following fiscal year 2008 is as follows:
2009 |
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2010 |
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2011 |
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2012 |
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2013 |
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Thereafter |
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$ |
562 |
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$ |
327 |
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$ |
249 |
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$ |
192 |
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$ |
171 |
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$ |
1,008 |
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5. NEW ACCOUNTING STANDARDS
In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an amendment of FASB Statement No. 155 (SFAS No. 159). SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair value. A company shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. Upfront costs and fees related to items for which the fair value option is elected are recognized in earnings as incurred and not deferred. SFAS No. 159 is effective as of the beginning of an entitys first fiscal year that begins after November 15, 2007. The Company adopted this statement on May 1, 2008, but it did not have any impact on the Companys financial position or results of operations as the Company did not make any fair value elections under this standard.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (revised - 2007) (SFAS No. 141(R)). SFAS No. 141(R) is a revision to previously existing guidance on accounting for business combinations. The statement retains the fundamental concept of the purchase method of accounting, and introduces new requirements for the recognition and measurement of assets acquired, liabilities assumed and noncontrolling interests. SFAS No. 141(R) also requires acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the
9
beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adoption of this statement on the Companys Consolidated Financial Statements is dependent on the nature and volume of future acquisitions, and, therefore, cannot be determined at this time.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS No. 161). SFAS No. 161 amends and expands the disclosure requirements of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities , and requires entities to provide enhanced qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair values and amounts of gains and losses on derivative contracts, and disclosures about credit-risk-related contingent features in derivative agreements. This statement applies to all entities and all derivative instruments. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. As SFAS No. 161 relates specifically to disclosures, the adoption will have no impact on the Companys financial position, results of operations or cash flows.
In April 2008, the FASB issued FSP No. 142-3, Determination of the Useful Life of Intangible Assets (FSP FAS No. 142-3). FSP FAS No. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). FSP FAS No. 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under SFAS No. 141(R) and other U.S. generally accepted accounting principles. FSP FAS No. 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does not expect the adoption of FSP FAS No. 142-3 to have a material impact on its financial position or results of operations.
6. LEGAL PROCEEDINGS
On September 12, 2001, the Companys subsidiary, North Country Environmental Services, Inc. (NCES), petitioned the New Hampshire Superior Court (Superior Court) for a declaratory judgment concerning the extent to which the Town of Bethlehem, New Hampshire (Town) could lawfully prohibit NCESs expansion of its landfill in Bethlehem. The Town filed counterclaims seeking contrary declarations and other relief. The parties appealed the Superior Courts decision to the New Hampshire Supreme Court (Supreme Court). On March 1, 2004, the Supreme Court ruled that NCES had all necessary local approvals to landfill within a 51-acre portion of its 105-acre parcel and the Town could not prevent expansion in that area. A significant portion of NCESs Stage IV expansion as originally designed and approved by the New Hampshire Department of Environmental Services (NHDES), however, was to lie outside the 51 acres. With respect to expansion outside the 51 acres, the Supreme Court remanded four issues to the Superior Court for further proceedings. On April 25, 2005, the Superior Court rendered summary judgment in NCESs favor on two of the four issues, leaving the other two issues for trial. The two issues that were decided on summary judgment remain subject to appeal by the Town. In March of 2005, the Town adopted a new zoning ordinance that prohibited landfilling outside of a new District V, which corresponded to the 51 acres. The Town then amended its pleadings to seek a declaration that the new ordinance was valid. The parties each filed motions for partial summary judgment. Following the courts decisions on those motions, the validity of the new ordinance remained subject to trial based on two defenses raised by NCES. On March 30, 2007, NCES applied to the NHDES for a permit modification under which all Stage IV capacity (denominated Stage IV, Phase II) would be relocated within the 51 acres. That application was superseded by a new application, filed on November 30, 2007, that would bring all berms along the perimeter of the landfills footprint within the 51 acres as well. NCES sought a stay of the litigation on the ground that, if NHDES were to grant the permit modification, there would be no need for NCES to expand beyond the 51 acres for eight or more years, and the case could be dismissed as moot or unripe. The Superior Court granted the stay pending a decision by NHDES. The permit modification application currently remains pending before NHDES.
10
The NHDES conducted a public hearing in July, and has scheduled a final public hearing in September, 2008. The NHDES decision to grant the permit modification is expected to be made during the fourth quarter of calendar year 2008.
The Company, on behalf of itself, its subsidiary FCR, LLC, and as a Majority Managing Member of Green Mountain Glass, LLC (GMG), initiated a declaratory judgment action in Rutland Superior Court against GR Technologies, Inc. (GRT), Anthony C. Lane and Robert Cameron Billmyer (the Defendants) on June 8 2007, to resolve issues raised by GRT as the minority member of GMG. The issues addressed in the action included exercise of management discretion, right to intellectual property, and other related disputes. The Defendants counterclaimed in May 2008 seeking unspecified damages on a variety of bases including, among others, breach of contract, breach of fiduciary duty, fraud, tortious interference with business relations, induced infringement and other matters. Additionally, the Defendants filed a Derivative Action in Rutland Superior Court as a Managing Member of GMG on July 2, 2008 against several employees of the Company and its subsidiary FCR, LLC. The Company is vigorously contesting these allegations on its behalf and on behalf of its employees, and believes that the claims have no merit.
On June 9, 2008, the Southbridge Board of Health (Southbridge BOH) issued a Decision and Statement of Findings pursuant to M.G.L. ch.111, §§150A and 150 A1/2 and 310 CMR 16.00 (2008 Site Assignment) granting the Companys subsidiary, Southbridge Recycling and Disposal Park, Inc. (SRD), a minor modification to SRDs existing site assignment for the Southbridge Sanitary Landfill (the Landfill). The 2008 Site Assignment allows SRD, subject to several conditions, to reallocate tonnage capacity accepted at a Construction and Demolition Processing Facility located at the Landfill to solid waste to be accepted at the Landfill up to a maximum of 405,600 tons per year, including the right to import municipal solid waste to the Landfill without regard for geographic origin. On or about July 14, 2008, the Sturbridge Board of Health (Sturbridge BOH), an abutting municipality to Southbridge, together with 10-citizens groups, filed a complaint in Worcester Superior Court contesting the 2008 Site Assignment (the Appeal). The Appeal names as defendants the Southbridge BOH and its individual members at the time of the 2008 Site Assignment, and SRD. On August 21, 2008, SRD reached a settlement with the Sturbridge BOH, pursuant to which SRD agreed to fund an escrow account to be controlled by the Sturbridge BOH, in the amount of $50,000. The escrow account will serve as a source for funds to cover the costs of SRD installing a sentinel downgradient well to the Landfill for tests to be conducted by and results provided to the Sturbridge BOH pursuant to an environmental plan that is a condition of the 2008 Site Assignment, and for related monitoring costs to be incurred by the Sturbridge BOH in connection therewith. The Sturbridge BOH Appeal was formally withdrawn as to all parties on August 22, 2008, and only the 10-citizens groups remain as participants in the Appeal. While it is too early to assess the outcome of the Appeal, SRD is, and will continue to aggressively defend the Appeal.
The Company offers no prediction of the outcome of any of the proceedings or negotiations described above. The Company is vigorously defending each of these lawsuits and claims. However, there can be no guarantee the Company will prevail or that any judgments against the Company, if sustained on appeal, will not have a material adverse effect on the Companys business, financial condition or results of operations or cash flows.
The Company is a defendant in certain other lawsuits alleging various claims incurred in the ordinary course of business, none of which, either individually or in the aggregate, the Company believes are material to its financial condition, results of operations or cash flows.
7. ENVIRONMENTAL LIABILITIES
The Company is subject to liability for environmental damage, including personal injury and property damage, that its solid waste, recycling and power generation facilities may cause to neighboring property
11
owners, particularly as a result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions existing before the Company acquired the facilities. The Company may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if the Company or its predecessors arrange or arranged to transport, treat or dispose of those materials. Any substantial liability incurred by the Company arising from environmental damage could have a material adverse effect on the Companys business, financial condition and results of operations. The Company is not presently aware of any situations that it expects would have a material adverse impact on its business, financial condition, results of operations, or cash flows.
8. STOCK-BASED COMPENSATION
On July 28, 2008, the Company granted restricted stock units under the 2006 Stock Incentive Plan (the 2006 Plan) in the form of performance shares to certain employees. Receipt of these shares is contingent upon the Companys attainment of certain performance metrics on an average basis over a three fiscal year period. At the one hundred percent level of attainment the grantee pool would be entitled to a total of 205 shares of Class A Common Stock. These units were granted at a value of $12.14 per share and are unvested and unissued at July 31, 2008.
Stock options granted generally vest over a one to four year period from the date of grant and are granted at prices at least equal to the prevailing fair market value at the issue date. In general, options are issued with a life not to exceed ten years. Shares issued by the Company upon exercise of stock options are issued from the pool of authorized shares of Class A Common Stock.
A summary of stock option activity for the three months ended July 31, 2008 is as follows:
|
|
Total
|
|
Weighted
|
|
|
Outstanding, April 30, 2008 |
|
3,782 |
|
$ |
12.82 |
|
Granted |
|
5 |
|
12.62 |
|
|
Exercised |
|
(30 |
) |
10.46 |
|
|
Forfeited |
|
(244 |
) |
22.13 |
|
|
Outstanding, July 31, 2008 |
|
3,513 |
|
12.20 |
|
|
Exercisable, July 31, 2008 |
|
3,049 |
|
$ |
12.18 |
|
The weighted average grant date fair value of options granted was $5.24 and $5.49 per option for the three months ended July 31, 2007 and 2008, respectively. There are 1,858 Class A Common Stock equivalents available for future grant under the 2006 plan.
The Company recorded $193 and $363 of stock based compensation expense related to stock options and restricted stock units during the three months ended July 31, 2007 and 2008, respectively. The Company also recorded $23 and $26 of stock based expense for the Companys Employee Stock Purchase Plan during the three months ended July 31, 2007 and 2008, respectively.
The Companys calculations of stock-based compensation expense for the three months ended July 31, 2007 and 2008 were made using the Black-Scholes valuation model. The fair value of the Companys
12
stock option grants was estimated assuming no expected dividend yield and the following weighted average assumptions were used for the three months ended July 31, 2007 and 2008:
|
|
Three Months Ended July 31, |
|
||
|
|
2007 |
|
2008 |
|
Stock Options: |
|
|
|
|
|
Expected life |
|
6 years |
|
6 years |
|
Risk-free interest rate |
|
4.85 |
% |
3.73 |
% |
Expected volatility |
|
37.83 |
% |
36.80 |
% |
Stock Purchase Plan: |
|
|
|
|
|
Expected life |
|
0.5 years |
|
0.5 years |
|
Risk-free interest rate |
|
5.07 |
% |
2.87 |
% |
Expected volatility |
|
35.10 |
% |
36.80 |
% |
Expected life is calculated based on the weighted average historical life of the vested stock options, giving consideration to vesting schedules and historical exercise patterns. Risk-free interest rate is based on the U.S. treasury yield curve for the period of the expected life of the stock option. For stock options granted during the three months ended July 31, 2007 and 2008, expected volatility is calculated using the average of weekly historical volatility of the Companys Class A Common Stock over the last six years.
The Black-Scholes valuation model requires extensive use of accounting judgment and financial estimation, including estimates of the expected term option holders will retain their vested stock options before exercising them, the estimated volatility of the Companys Class A Common Stock price over the expected term, and the number of options that will be forfeited prior to the completion of their vesting requirements. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Consolidated Statements of Operations.
9. EARNINGS PER SHARE
The following table sets forth the numerator and denominator used in the computation of earnings per share:
|
|
Three Months
|
|
||||
|
|
2007 |
|
2008 |
|
||
Numerator: |
|
|
|
|
|
||
Net income available to common stockholders |
|
$ |
1,743 |
|
$ |
2,176 |
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
||
Number of shares outstanding, end of period: |
|
|
|
|
|
||
Class A common stock |
|
24,351 |
|
24,516 |
|
||
Class B common stock |
|
988 |
|
988 |
|
||
Effect of weighted average shares outstanding during period |
|
(12 |
) |
(31 |
) |
||
Weighted average number of common shares used in basic EPS |
|
25,327 |
|
25,473 |
|
||
Impact of potentially dilutive securities: |
|
|
|
|
|
||
Dilutive effect of options and restricted stock |
|
115 |
|
210 |
|
||
Weighted average number of common shares used in diluted EPS |
|
25,442 |
|
25,683 |
|
||
For the three months ended July 31, 2007, 8,551 common stock equivalents related to options, warrants and redeemable convertible preferred stock were excluded from the calculation of dilutive shares since
13
the inclusion of such shares would be anti-dilutive.
For the three months ended July 31, 2008, 2,716 common stock equivalents related to options, warrants and restricted stock units were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.
10. COMPREHENSIVE INCOME
Comprehensive income is defined as the change in net assets of a business enterprise during a period from transactions generated from non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners. Accumulated other comprehensive loss included in the accompanying balance sheets consists of changes in the fair value of the Companys interest rate swap and commodity hedge agreements. Also included in accumulated other comprehensive loss is the change in fair value of certain securities classified as available for sale as well as the Companys portion of the change in the fair value of commodity hedge agreements of the Companys equity method investment, US GreenFiber, LLC (GreenFiber) .
Comprehensive income for the three months ended July 31, 2007 and 2008 is as follows:
|
|
Three Months Ended
|
|
||||
|
|
2007 |
|
2008 |
|
||
Net income |
|
$ |
1,743 |
|
$ |
2,176 |
|
Other comprehensive income (loss) |
|
(184 |
) |
1,159 |
|
||
Comprehensive income |
|
$ |
1,559 |
|
$ |
3,335 |
|
The components of other comprehensive income (loss) for the three months ended July 31, 2007 and 2008 are shown as follows:
|
|
Three Months Ended July 31, |
|
||||||||||||||||
|
|
2007 |
|
2008 |
|
||||||||||||||
|
|
|
|
Tax |
|
|
|
|
|
Tax |
|
|
|
||||||
|
|
Gross |
|
effect |
|
Net of Tax |
|
Gross |
|
effect |
|
Net of Tax |
|
||||||
Changes in fair value of marketable securities during the period |
|
$ |
(30 |
) |
$ |
(10 |
) |
$ |
(20 |
) |
$ |
(97 |
) |
$ |
(34 |
) |
$ |
(63 |
) |
Change in fair value of interest rate derivatives and commodity hedges during period |
|
(702 |
) |
(274 |
) |
(428 |
) |
592 |
|
237 |
|
355 |
|
||||||
Reclassification to earnings for interest rate derivatives and commodity hedge contracts |
|
431 |
|
167 |
|
264 |
|
1,467 |
|
600 |
|
867 |
|
||||||
|
|
$ |
(301 |
) |
$ |
(117 |
) |
$ |
(184 |
) |
$ |
1,962 |
|
$ |
803 |
|
$ |
1,159 |
|
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective May 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS No. 157) as it relates to financial assets and liabilities that are being measured and reported at fair value on a recurring basis.
SFAS No. 157 provides a framework for measuring fair value and establishes a fair value hierarchy that prioritizes the inputs used to measure fair value, giving the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 inputs) and the lowest priority to unobservable inputs (Level 3 inputs).
14
The Companys financial assets and liabilities recorded at fair value on a recurring basis include derivative instruments as well as certain investments included in restricted assets. The Companys restricted assets measured at fair value include investments in fixed-maturity securities which serve as collateral for the Companys self-insurance claims liability, self insurance reserves and landfill post closure obligations.
The Companys derivative instruments include interest rate swaps and collars along with commodity hedges. The Company uses interest rate derivatives to hedge the risk of adverse movements in interest rates. The fair value of these cash flow hedges are based primarily on the LIBOR index. The Company uses commodity hedges to hedge the risk of adverse movements in commodity pricing. The fair value of these hedges is based on futures pricing in the underlying commodities.
The Company uses valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of the Companys financial assets and liabilities, the Company relies on market data or assumptions that the Company believes market participants would use in pricing an asset or liability. As of July 31, 2008, our assets and liabilities that are measured at fair value on a recurring basis include the following:
12. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Companys strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales. The Company was party to thirty commodity hedge contracts as of July 31, 2008. These contracts expire between August 2008 and December 2011. The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, (SFAS No. 133) as amended. As of July 31, 2008 the fair value of these hedges was an obligation of $1,818, with the net amount (net of taxes of $732) recorded as an unrealized loss in accumulated other comprehensive loss.
The Company is party to three separate interest rate swap agreements with four banks for a notional amount of $105,000. One agreement for a notional amount of $30,000 effectively fixes the interest rate index at 4.74% from November 4, 2007 through May 7, 2009. Two agreements, for a notional amount of $75,000, effectively fix the interest index rate on the entire notional amount at 4.68% from May 6, 2008 through May 6, 2009. These agreements are specifically designated to interest payments under the
15
Companys term B loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133. As of July 31, 2008, the fair value of the Companys interest rate swaps was an obligation of $1,433, with the net amount (net of taxes of $578) recorded as an unrealized loss in accumulated other comprehensive loss.
The Company is party to two separate interest rate zero-cost collars with two banks for a notional amount of $60,000. The collars have an interest index rate cap of 6.00% and an interest index rate floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009. These agreements are specifically designated to interest payments under the revolving credit facility and are accounted for as effective cash flow hedges pursuant to SFAS No. 133. As of July 31, 2008, the fair value of these collars was an obligation of $453, with the net amount (net of taxes of $181) recorded as an unrealized loss in accumulated other comprehensive loss.
13. DISCONTINUED OPERATIONS
During the second quarter of fiscal year 2008, the Company completed the sale of the Companys Buffalo, N.Y. transfer station, hauling operation and related equipment in the Western region for proceeds of $4,873 including a note receivable for $2,500 and net cash proceeds of $2,373.
During the fourth quarter of fiscal year 2008, the Company terminated its operation of MTS Environmental, a soils processing operation in the North Eastern region.
The Company completed the divestiture its FCR Greenville operation in the quarter ended July 31, 2008 for cash proceeds of $670. For the three months ended July 31, 2008, the company recorded a loss on disposal of discontinued operations (net of tax) of $34.
The operating results of these operations for the three months ended July 31, 2007 and 2008 have been reclassified from continuing to discontinued operations in the accompanying consolidated financial statements.
Revenues and income (loss) before income taxes attributable to discontinued operations for the three months ended July 31, 2007 and 2008 were as follows:
|
|
Three Months Ended
|
|
||||
|
|
2007 |
|
2008 |
|
||
Revenues |
|
$ |
3,906 |
|
$ |
282 |
|
Income (loss) before income taxes |
|
$ |
(954 |
) |
$ |
206 |
|
The Company has recorded contingent liabilities associated with these divestitures amounting to approximately $1,563 at July 31, 2008.
In accordance with EITF Issue No. 87-24, Allocation of Interest to Discontinued Operations , the Company allocates interest to discontinued operations. The Company has also eliminated certain immaterial intercompany activity associated with discontinued operations.
14. SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS No. 131), establishes standards for reporting information about operating segments in financial statements. In general, SFAS No. 131 requires that business entities report selected information about operating segments in a manner consistent with that used for internal management reporting.
16
The Company classifies its operations into North Eastern, South Eastern, Central, Western, FCR Recycling and Other. The Companys revenues in the North Eastern, South Eastern, Central and Western segments are derived mainly from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste. The North Eastern region also includes Maine Energy, which generates electricity from non-hazardous solid waste. The Companys revenues in the FCR Recycling segment are derived from integrated waste handling services, including processing and recycling of paper, metals, aluminum, plastics and glass. Ancillary operations, major customer accounts, discontinued operations and earnings from equity method investees are included in Other.
|
|
North Eastern |
|
South Eastern |
|
Central |
|
Western |
|
FCR |
|
|||||
|
|
Region |
|
Region |
|
Region |
|
Region |
|
Recycling |
|
|||||
Three Months Ended July 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Outside revenues |
|
$ |
31,016 |
|
$ |
17,145 |
|
$ |
34,913 |
|
$ |
28,353 |
|
$ |
29,272 |
|
Depreciation and amortization |
|
5,991 |
|
2,144 |
|
5,188 |
|
4,364 |
|
1,706 |
|
|||||
Operating income |
|
601 |
|
(1,150 |
) |
5,573 |
|
4,322 |
|
4,161 |
|
|||||
Total assets |
|
$ |
175,510 |
|
$ |
129,411 |
|
$ |
153,010 |
|
$ |
170,176 |
|
$ |
95,739 |
|
|
|
Other |
|
Total |
|
||
Three Months Ended July 31, 2007 |
|
|
|
|
|
||
|
|
|
|
|
|
||
Outside revenues |
|
$ |
7,827 |
|
$ |
148,526 |
|
Depreciation and amortization |
|
515 |
|
19,908 |
|
||
Operating income |
|
339 |
|
13,846 |
|
||
Total assets |
|
$ |
107,793 |
|
$ |
831,639 |
|
|
|
North Eastern |
|
South Eastern |
|
Central |
|
Western |
|
FCR |
|
|||||
|
|
Region |
|
Region |
|
Region |
|
Region |
|
Recycling |
|
|||||
Three Months Ended July 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Outside revenues |
|
$ |
32,335 |
|
$ |
17,371 |
|
$ |
34,280 |
|
$ |
29,887 |
|
$ |
35,219 |
|
Depreciation and amortization |
|
6,179 |
|
2,637 |
|
4,537 |
|
4,081 |
|
1,613 |
|
|||||
Operating income |
|
521 |
|
(149 |
) |
4,815 |
|
5,811 |
|
5,036 |
|
|||||
Total assets |
|
$ |
175,928 |
|
$ |
125,957 |
|
$ |
154,078 |
|
$ |
164,323 |
|
$ |
119,446 |
|
|
|
Other |
|
Total |
|
||
Three Months Ended July 31, 2008 |
|
|
|
|
|
||
|
|
|
|
|
|
||
Outside revenues |
|
$ |
8,812 |
|
$ |
157,904 |
|
Depreciation and amortization |
|
423 |
|
19,470 |
|
||
Operating income |
|
(482 |
) |
15,552 |
|
||
Total assets |
|
$ |
115,657 |
|
$ |
855,389 |
|
Amounts of the Companys total revenue attributable to services provided are as follows:
17
|
|
Three Months Ended |
|
||||
|
|
July 31, |
|
||||
|
|
2007 |
|
2008 |
|
||
Collection |
|
$ |
69,155 |
|
$ |
71,327 |
|
Landfill / disposal facilities |
|
29,202 |
|
29,044 |
|
||
Transfer |
|
7,346 |
|
9,203 |
|
||
Recycling |
|
42,823 |
|
48,330 |
|
||
Total revenues |
|
$ |
148,526 |
|
$ |
157,904 |
|
15. INVESTMENTS IN UNCONSOLIDATED ENTITIES
The Company entered into an agreement in July 2000 with Louisiana-Pacific Corporation to combine their respective cellulose insulation businesses into a single operating entity, GreenFiber, under a joint venture agreement effective August 1, 2000. The Companys investment in GreenFiber amounted to $29,571 and $28,822 at April 30, 2008 and July 31, 2008, respectively. The Company accounts for its 50% ownership in GreenFiber under the equity method of accounting.
Summarized financial information for GreenFiber is as follows:
|
|
April 30,
|
|
July 31,
|
|
||
Current assets |
|
$ |
23,095 |
|
$ |
21,859 |
|
Noncurrent assets |
|
69,681 |
|
69,676 |
|
||
Current liabilities |
|
16,229 |
|
16,434 |
|
||
Noncurrent liabilities |
|
$ |
17,365 |
|
$ |
17,243 |
|
|
|
Three
Months Ended
|
|
||||
|
|
2007 |
|
2008 |
|
||
Revenue |
|
$ |
33,499 |
|
$ |
30,233 |
|
Gross profit |
|
5,434 |
|
4,448 |
|
||
Net loss |
|
$ |
(3,593 |
) |
$ |
(2,258 |
) |
16. NET ASSETS UNDER CONTRACTUAL OBLIGATION
Effective June 30, 2003, the Company transferred its domestic brokerage operations, as well as a commercial recycling business to former employees who had been responsible for managing those businesses. Consideration for the transaction was in the form of two notes receivable amounting up to $6,925. These notes are payable within twelve years of the anniversary date of the transaction, to the extent of free cash flow generated from the operations.
Effective August 1, 2005, the Company transferred a certain Canadian recycling operation to a former employee who had been responsible for managing that business. Consideration for this transaction was in the form of a note receivable amounting up to $1,313, which is payable within six years of the anniversary date of the transaction to the extent of free cash flow generated from the operations.
The Company has not accounted for these transactions as sales based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyers. The net assets of the operations were disclosed in the balance sheet as net assets under contractual obligation, and were being reduced as payments are made. During the three months ended July 31, 2007 and 2008, the
18
Company recognized income on the transactions in the amount of $738 and $89, respectively, as payments received on the notes receivable exceeded the balance of the net assets under contractual obligation. Minimum amounts owed to the Company under these notes amounted to $2,076 and $1,986 at April 30, 2008 and July 31, 2008, respectively.
17. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Companys senior subordinated notes due 2013 are guaranteed jointly and severally, fully and unconditionally, by the Companys significant wholly-owned subsidiaries. The Parent is the issuer and non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2007 and January 31, 2008, and the condensed consolidating results of operations for the three months ended July 31, 2007 and 2008 and the condensed consolidating statements of cash flows for the three months ended July 31, 2007 and 2008 of (a) the Parent company only, (b) the combined guarantors (the Guarantors), each of which is 100% wholly-owned by the Parent, (c) the combined non-guarantors (the Non-Guarantors), (d) eliminating entries and (e) the Company on a consolidated basis.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 2008
(in thousands, except for share and per share data)
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
1,260 |
|
$ |
1,306 |
|
$ |
248 |
|
$ |
|
|
$ |
2,814 |
|
Restricted cash |
|
|
|
95 |
|
|
|
|
|
95 |
|
|||||
Accounts receivable - trade, net of allowance for doubtful accounts |
|
80 |
|
61,969 |
|
184 |
|
|
|
62,233 |
|
|||||
Notes receivable - officers/employees |
|
132 |
|
|
|
|
|
|
|
132 |
|
|||||
Refundable income taxes |
|
2,020 |
|
|
|
|
|
|
|
2,020 |
|
|||||
Prepaid expenses |
|
2,541 |
|
4,389 |
|
|
|
|
|
6,930 |
|
|||||
Deferred taxes |
|
14,639 |
|
|
|
794 |
|
|
|
15,433 |
|
|||||
Other current assets |
|
501 |
|
5,327 |
|
|
|
|
|
5,828 |
|
|||||
Total current assets |
|
21,173 |
|
73,086 |
|
1,226 |
|
|
|
95,485 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Property, plant and equipment, net of accumulated depreciation and amortization |
|
2,557 |
|
485,471 |
|
|
|
|
|
488,028 |
|
|||||
Goodwill |
|
|
|
179,716 |
|
|
|
|
|
179,716 |
|
|||||
Investment in subsidiaries |
|
2,898 |
|
|
|
|
|
(2,898 |
) |
|
|
|||||
Other non-current assets |
|
26,370 |
|
37,254 |
|
13,613 |
|
(4,379 |
) |
72,858 |
|
|||||
|
|
31,825 |
|
702,441 |
|
13,613 |
|
(7,277 |
) |
740,602 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intercompany receivable |
|
652,849 |
|
(649,823 |
) |
(7,405 |
) |
4,379 |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
705,847 |
|
$ |
125,704 |
|
$ |
7,434 |
|
$ |
(2,898 |
) |
$ |
836,087 |
|
|
|
Parent |
|
Guarantors |
|
Non - Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current maturities of long term debt |
|
$ |
1,858 |
|
$ |
900 |
|
$ |
|
|
$ |
|
|
$ |
2,758 |
|
Accounts payable |
|
4,084 |
|
47,503 |
|
144 |
|
|
|
51,731 |
|
|||||
Accrued payroll and related expenses |
|
2,834 |
|
8,417 |
|
|
|
|
|
11,251 |
|
|||||
Other current liabilities |
|
20,754 |
|
20,079 |
|
6,251 |
|
|
|
47,084 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total current liabilities |
|
29,530 |
|
76,899 |
|
6,395 |
|
|
|
112,824 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt, less current maturities |
|
550,078 |
|
1,588 |
|
|
|
|
|
551,666 |
|
|||||
Financing lease obligations, less current maturities |
|
|
|
7,561 |
|
|
|
|
|
7,561 |
|
|||||
Other long-term liabilities |
|
1,557 |
|
35,881 |
|
1,916 |
|
|
|
39,354 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Class A common stock - |
|
|
|
|
|
|
|
|
|
|
|
|||||
Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 24,466,000 shares |
|
245 |
|
100 |
|
100 |
|
(200 |
) |
245 |
|
|||||
Class B common stock - |
|
|
|
|
|
|
|
|
|
|
|
|||||
Authorized - 1,000,000 shares, $0.01 par value, 10 votes per share, issued and outstanding - 988,000 shares |
|
10 |
|
|
|
|
|
|
|
10 |
|
|||||
Accumulated other comprehensive (loss) income |
|
(2,568 |
) |
502 |
|
143 |
|
(645 |
) |
(2,568 |
) |
|||||
Additional paid-in capital |
|
276,189 |
|
46,430 |
|
3,988 |
|
(50,418 |
) |
276,189 |
|
|||||
Accumulated deficit |
|
(149,194 |
) |
(43,257 |
) |
(5,108 |
) |
48,365 |
|
(149,194 |
) |
|||||
Total stockholders equity |
|
124,682 |
|
3,775 |
|
(877 |
) |
(2,898 |
) |
124,682 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
705,847 |
|
$ |
125,704 |
|
$ |
7,434 |
|
$ |
(2,898 |
) |
$ |
836,087 |
|
19
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 31, 2008
(Unaudited)
(in thousands, except for share and per share data)
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cash and cash equivalents |
|
$ |
906 |
|
$ |
1,537 |
|
$ |
342 |
|
$ |
|
|
$ |
2,785 |
|
Accounts receivable - trade, net of allowance for doubtful accounts |
|
17 |
|
70,657 |
|
174 |
|
|
|
70,848 |
|
|||||
Refundable income taxes |
|
1,346 |
|
|
|
|
|
|
|
1,346 |
|
|||||
Other current assets |
|
21,524 |
|
12,685 |
|
774 |
|
|
|
34,983 |
|
|||||
Total current assets |
|
23,793 |
|
84,879 |
|
1,290 |
|
|
|
109,962 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Property, plant and equipment, net of accumulated depreciation and amortization |
|
2,401 |
|
491,854 |
|
|
|
|
|
494,255 |
|
|||||
Goodwill |
|
|
|
179,734 |
|
|
|
|
|
179,734 |
|
|||||
Investment in subsidiaries |
|
15,573 |
|
|
|
|
|
(15,573 |
) |
|
|
|||||
Other non-current assets |
|
26,568 |
|
36,595 |
|
13,658 |
|
(5,383 |
) |
71,438 |
|
|||||
|
|
44,542 |
|
708,183 |
|
13,658 |
|
(20,956 |
) |
745,427 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Intercompany receivable |
|
649,996 |
|
(646,750 |
) |
(7,625 |
) |
4,379 |
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
718,331 |
|
$ |
146,312 |
|
$ |
7,323 |
|
$ |
(16,577 |
) |
$ |
855,389 |
|
|
|
Parent |
|
Guarantors |
|
Non - Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Current maturities of long term debt |
|
$ |
1,007 |
|
$ |
770 |
|
$ |
|
|
$ |
|
|
$ |
1,777 |
|
Accounts payable |
|
2,883 |
|
51,760 |
|
215 |
|
|
|
54,858 |
|
|||||
Accrued payroll and related expenses |
|
1,192 |
|
5,603 |
|
|
|
|
|
6,795 |
|
|||||
Accrued interest |
|
12,623 |
|
10 |
|
|
|
|
|
12,633 |
|
|||||
Accrued closure and post-closure costs, current portion |
|
|
|
6,383 |
|
4 |
|
|
|
6,387 |
|
|||||
Other current liabilities |
|
12,690 |
|
12,843 |
|
6,102 |
|
(1,004 |
) |
30,631 |
|
|||||
Total current liabilities |
|
30,395 |
|
77,369 |
|
6,321 |
|
(1,004 |
) |
113,081 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term debt, less current maturities |
|
551,337 |
|
10,450 |
|
|
|
|
|
561,787 |
|
|||||
Financing lease obligations, less current maturities |
|
|
|
3,963 |
|
|
|
|
|
3,963 |
|
|||||
Deferred income taxes |
|
5,767 |
|
|
|
|
|
|
|
5,767 |
|
|||||
Other long-term liabilities |
|
1,933 |
|
37,949 |
|
2,010 |
|
|
|
41,892 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
STOCKHOLDERS EQUITY: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Class A common stock - |
|
|
|
|
|
|
|
|
|
|
|
|||||
Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 24,516,000 shares |
|
245 |
|
100 |
|
100 |
|
(200 |
) |
245 |
|
|||||
Class B common stock - |
|
|
|
|
|
|
|
|
|
|
|
|||||
Authorized - 1,000,000 shares, $0.01 par value, 10 votes per share, issued and outstanding - 988,000 shares |
|
10 |
|
|
|
|
|
|
|
10 |
|
|||||
Accumulated other comprehensive (loss) income |
|
(1,409 |
) |
1,342 |
|
81 |
|
(1,423 |
) |
(1,409 |
) |
|||||
Additional paid-in capital |
|
277,071 |
|
46,430 |
|
3,988 |
|
(50,418 |
) |
277,071 |
|
|||||
Accumulated deficit |
|
(147,018 |
) |
(31,291 |
) |
(5,177 |
) |
36,468 |
|
(147,018 |
) |
|||||
Total stockholders equity |
|
128,899 |
|
16,581 |
|
(1,008 |
) |
(15,573 |
) |
128,899 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
$ |
718,331 |
|
$ |
146,312 |
|
$ |
7,323 |
|
$ |
(16,577 |
) |
$ |
855,389 |
|
20
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2007
(Unaudited)
(in thousands)
|
|
Parent |
|
Guarantors |
|
Non - Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues |
|
$ |
|
|
$ |
148,526 |
|
$ |
1,702 |
|
$ |
(1,702 |
) |
$ |
148,526 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cost of operations |
|
2 |
|
96,502 |
|
2,101 |
|
(1,702 |
) |
96,903 |
|
|||||
General and administration |
|
(142 |
) |
18,170 |
|
(159 |
) |
|
|
17,869 |
|
|||||
Depreciation and amortization |
|
451 |
|
19,457 |
|
|
|
|
|
19,908 |
|
|||||
|
|
311 |
|
134,129 |
|
1,942 |
|
(1,702 |
) |
134,680 |
|
|||||
Operating income (loss) |
|
(311 |
) |
14,397 |
|
(240 |
) |
|
|
13,846 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other expense/(income), net: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income |
|
(8,834 |
) |
(96 |
) |
(160 |
) |
8,662 |
|
(428 |
) |
|||||
Interest expense |
|
11,912 |
|
7,793 |
|
|
|
(8,662 |
) |
11,043 |
|
|||||
(Income) loss from equity method investments |
|
(6,041 |
) |
1,796 |
|
|
|
6,396 |
|
2,151 |
|
|||||
Other income |
|
(206 |
) |
(2,191 |
) |
|
|
|
|
(2,397 |
) |
|||||
Other expense/(income), net |
|
(3,169 |
) |
7,302 |
|
(160 |
) |
6,396 |
|
10,369 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) from continuing operations before income taxes and discontinued operations |
|
2,858 |
|
7,095 |
|
(80 |
) |
(6,396 |
) |
3,477 |
|
|||||
Provision for income taxes |
|
1,115 |
|
|
|
15 |
|
|
|
1,130 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) from continuing operations before discontinued operations |
|
1,743 |
|
7,095 |
|
(95 |
) |
(6,396 |
) |
2,347 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from discontinued operations, net |
|
|
|
(604 |
) |
|
|
|
|
(604 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) available to common stockholders |
|
$ |
1,743 |
|
$ |
6,491 |
|
$ |
(95 |
) |
$ |
(6,396 |
) |
$ |
1,743 |
|
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31, 2008
(Unaudited)
(in thousands)
|
|
Parent |
|
Guarantors |
|
Non - Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Revenues |
|
$ |
|
|
$ |
157,904 |
|
$ |
1,694 |
|
$ |
(1,694 |
) |
$ |
157,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Cost of operations |
|
245 |
|
104,125 |
|
1,766 |
|
(1,694 |
) |
104,442 |
|
|||||
General and administration |
|
(126 |
) |
18,498 |
|
68 |
|
|
|
18,440 |
|
|||||
Depreciation and amortization |
|
340 |
|
19,130 |
|
|
|
|
|
19,470 |
|
|||||
|
|
459 |
|
141,753 |
|
1,834 |
|
(1,694 |
) |
142,352 |
|
|||||
Operating income (loss) |
|
(459 |
) |
16,151 |
|
(140 |
) |
|
|
15,552 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Other expense/(income), net: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest income |
|
(7,751 |
) |
(25 |
) |
(139 |
) |
7,733 |
|
(182 |
) |
|||||
Interest expense |
|
10,236 |
|
7,652 |
|
|
|
(7,733 |
) |
10,155 |
|
|||||
Loss (income) from equity method investments |
|
(7,334 |
) |
1,129 |
|
|
|
7,334 |
|
1,129 |
|
|||||
Other income |
|
(34 |
) |
(54 |
) |
|
|
|
|
(88 |
) |
|||||
Other expense/(income), net |
|
(4,883 |
) |
8,702 |
|
(139 |
) |
7,334 |
|
11,014 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) from continuing operations before income taxes and discontinued operations |
|
4,424 |
|
7,449 |
|
(1 |
) |
(7,334 |
) |
4,538 |
|
|||||
Provision for income taxes |
|
2,248 |
|
|
|
69 |
|
|
|
2,317 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Income (loss) from continuing operations before discontinued operations |
|
2,176 |
|
7,449 |
|
(70 |
) |
(7,334 |
) |
2,221 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Discontinued operations: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Loss from discontinued operations, net |
|
|
|
(11 |
) |
|
|
|
|
(11 |
) |
|||||
Loss on disposal of discontinued operations, net |
|
|
|
(34 |
) |
|
|
|
|
(34 |
) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net income (loss) applicable to common stockholders |
|
$ |
2,176 |
|
$ |
7,404 |
|
$ |
(70 |
) |
$ |
(7,334 |
) |
$ |
2,176 |
|
21
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JULY 31, 2007
(Unaudited)
(in thousands)
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Cash Provided by (Used in) Operating Activities |
|
$ |
4,115 |
|
$ |
16,274 |
|
$ |
(157 |
) |
$ |
|
|
$ |
20,232 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Acquisitions, net of cash acquired |
|
|
|
(10 |
) |
|
|
|
|
(10 |
) |
|||||
Additions to property, plant and equipment - growth |
|
|
|
(6,630 |
) |
|
|
|
|
(6,630 |
) |
|||||
- maintenance |
|
(420 |
) |
(14,823 |
) |
(475 |
) |
|
|
(15,718 |
) |
|||||
Payments on landfill operating lease contracts |
|
|
|
(474 |
) |
|
|
|
|
(474 |
) |
|||||
Investment in unconsolidated entities |
|
(65 |
) |
|
|
|
|
|
|
(65 |
) |
|||||
Other |
|
|
|
1,599 |
|
|
|
|
|
1,599 |
|
|||||
Net Cash Used In Investing Activities |
|
(485 |
) |
(20,338 |
) |
(475 |
) |
|
|
(21,298 |
) |
|||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Proceeds from long-term borrowings |
|
112,075 |
|
|
|
|
|
|
|
112,075 |
|
|||||
Principal payments on long-term debt |
|
(118,007 |
) |
(314 |
) |
|
|
|
|
(118,321 |
) |
|||||
Other |
|
165 |
|
|
|
|
|
|
|
165 |
|
|||||
Intercompany borrowings |
|
5,422 |
|
(5,465 |
) |
43 |
|
|
|
|
|
|||||
Net Cash (Used in) Provided by Financing Activities |
|
(345 |
) |
(5,779 |
) |
43 |
|
|
|
(6,081 |
) |
|||||
Cash Used in Discontinued Operations |
|
|
|
(838 |
) |
|
|
|
|
(838 |
) |
|||||
Net (decrease) increase in cash and cash equivalents |
|
3,285 |
|
(10,681 |
) |
(589 |
) |
|
|
(7,985 |
) |
|||||
Cash and cash equivalents, beginning of period |
|
(1,967 |
) |
13,012 |
|
1,318 |
|
|
|
12,363 |
|
|||||
Cash and cash equivalents, end of period |
|
$ |
1,318 |
|
$ |
2,331 |
|
$ |
729 |
|
$ |
|
|
$ |
4,378 |
|
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JULY 31, 2008
(Unaudited)
(in thousands)
|
|
Parent |
|
Guarantors |
|
Non-Guarantors |
|
Elimination |
|
Consolidated |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Cash Provided by (Used in) Operating Activities |
|
$ |
1,222 |
|
$ |
18,692 |
|
$ |
(127 |
) |
$ |
|
|
$ |
19,787 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Acquisitions, net of cash acquired |
|
|
|
(70 |
) |
|
|
|
|
(70 |
) |
|||||
Additions to property, plant and equipment - growth |
|
|
|
(4,723 |
) |
|
|
|
|
(4,723 |
) |
|||||
- maintenance |
|
(194 |
) |
(17,511 |
) |
|
|
|
|
(17,705 |
) |
|||||
Payments on landfill operating lease contracts |
|
|
|
(452 |
) |
|
|
|
|
(452 |
) |
|||||
Proceeds from divestitures |
|
|
|
670 |
|
|
|
|
|
670 |
|
|||||
Other |
|
|
|
637 |
|
|
|
|
|
637 |
|
|||||
Net Cash Used In by Investing Activities |
|
(194 |
) |
(21,449 |
) |
|
|
|
|
(21,643 |
) |
|||||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|||||
Proceeds from long-term borrowings |
|
17,283 |
|
5,417 |
|
|
|
|
|
22,700 |
|
|||||
Principal payments on long-term debt |
|
(21,164 |
) |
(283 |
) |
|
|
|
|
(21,447 |
) |
|||||
Other |
|
527 |
|
|
|
|
|
|
|
527 |
|
|||||
Intercompany borrowings |
|
1,972 |
|
(2,193 |
) |
221 |
|
|
|
|
|
|||||
Net Cash Provided by (Used in) Financing Activities |
|
(1,382 |
) |
2,941 |
|
221 |
|
|
|
1,780 |
|
|||||
Cash Provided by Discontinued Operations |
|
|
|
47 |
|
|
|
|
|
47 |
|
|||||
Net (decrease) increase in cash and cash equivalents |
|
(354 |
) |
231 |
|
94 |
|
|
|
(29 |
) |
|||||
Cash and cash equivalents, beginning of period |
|
1,260 |
|
1,306 |
|
248 |
|
|
|
2,814 |
|
|||||
Cash and cash equivalents, end of period |
|
$ |
906 |
|
$ |
1,537 |
|
$ |
342 |
|
$ |
|
|
$ |
2,785 |
|
17. SUBSEQUENT EVENT
On August 15, 2008, the Company made a $2,500 equity contribution to GreenFiber to support a refinancing of GreenFibers existing revolving credit facility. In addition, the other member of GreenFiber, Louisiana-Pacific (LP), made the same equity contribution resulting in no change to the Companys ownership in GreenFiber. The Company will continue to account for its 50% ownership in GreenFiber using the equity method of accounting.
In addition, the Company and LP issued a joint and several guarantee of up to $2,000 to support the refinancing of a GreenFiber term loan. The guarantee can be drawn only upon a default (as defined) by GreenFiber under this term loan.
22
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to the Companys audited Consolidated Financial Statements and Notes thereto and related Managements Discussion and Analysis of Financial Condition and Results of Operations appearing in the Companys Annual Report on Form 10-K for the year ended April 30, 2008.
Forward Looking Statements
This Quarterly Report on Form 10-Q and, in particular, this management discussion and analysis contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Exchange Act of 1934, as amended (the Exchange Act), including statements regarding:
· |
|
expected future revenues, operations, expenditures and cash needs; |
· |
|
fluctuations in the commodity pricing of the Companys recyclables, increases in landfill tipping fees and fuel costs, and general economic and weather conditions; |
· |
|
projected future obligations related to capping, closure and post-closure costs of the Companys existing landfills and any disposal facilities which the Company may own or operate in the future; |
· |
|
the projected development of additional disposal capacity; |
· |
|
estimates of the potential markets for the Companys products and services, including the anticipated drivers for future growth; |
· |
|
sales and marketing plans; |
· |
|
potential business combinations; and |
· |
|
projected improvements to the Companys infrastructure and impact of such improvements on the Companys business and operations. |
In addition, any statements contained in or incorporated by reference into this report that are not statements of historical fact should be considered forward-looking statements. 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 the Company operates as well as managements beliefs and assumptions, and should be read in conjunction with the Companys consolidated financial statements and notes to consolidated financial statements included in this report. The Company cannot guarantee that the Company actually will achieve the plans, intentions or expectations disclosed in the forward-looking statements made. There are a number of important risks and uncertainties that could cause the Companys actual results to differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, without limitation, those detailed in Item 1A, Risk Factors in the Companys Annual Report on Form 10-K for the year ended April 30, 2008. The Company does not intend to update publicly any forward-looking statements whether as a result of new information, future events or otherwise, except as otherwise required by law.
Company Overview
Casella Waste Systems, Inc. is a vertically-integrated regional solid waste services company that provides collection, transfer, disposal and recycling services to residential, industrial and commercial customers, primarily in the eastern United States. Our Company was founded in 1975 as a single truck operation in Rutland, Vermont and the business now operates in fifteen states. We operate vertically integrated solid
23
waste operations in Vermont, New Hampshire, New York, Massachusetts, and Maine; and stand alone materials processing facilities in Connecticut, Pennsylvania, New Jersey, North Carolina, South Carolina, Tennessee, Georgia, Florida, Michigan, and Wisconsin.
As of August 29, 2008, the Company owned and/or operated 33 solid waste collection operations, 30 transfer stations, 37 recycling facilities, eight Subtitle D landfills, two landfills permitted to accept construction and demolition materials, and one waste-to-energy facility, as well as a 50% interest in a joint venture that manufactures, markets and sells cellulose insulation made from recycled fiber and a 16.2% interest in a company that markets an incentive based recycling service.
Operating Results
For the three months ended July 31, 2008, the Company reported revenues of $157.9 million, an increase of $9.4 million, or 6.3%, from $148.5 million in the quarter ended July 31, 2007. Solid waste revenues, including the Companys major accounts program, increased 2.9%, with 2.7% coming from higher prices, primarily from our collection and transfer operations, and the balance from the rollover effect of a major accounts tuck-in acquisition, increases in solid waste increases driven by a closure project, mostly offset by lower collection volumes. FCR Recycling revenue growth was 20.3% with 12.0% coming from commodity price increases and 8.3% from higher volumes . Operating income for the three months ended July 31, 2008 increased to $15.5 million from $13.8 million for the quarter ended July 31, 2007. Included in operating income in the quarter is a benefit of $0.8 million related to the reimbursement from the Town of Southbridge for previously paid and expensed closure and past closure costs at the Southbridge landfill site.
Between May 1, 2008 and July 31, 2008 the Company acquired one solid waste hauling operation. Under the rules of purchase accounting, the acquired companys revenues and results of operations have been included from the date of acquisition and affect the period-to-period comparisons of the Companys historical results of operations.
During the second quarter of fiscal year 2008, the Company completed the sale of the Companys Buffalo, N.Y. transfer station, hauling operation and related equipment in the Western region for proceeds of $4.9 million including a note receivable for $2.5 million and net cash proceeds of $2,373.
During the fourth quarter of fiscal year 2008, the Company terminated its operation of MTS Environmental, a soils processing operation in the North Eastern region.
The Company completed its divestiture of its FCR Greenville operation in the quarter ended July 31, 2008 for cash proceeds of $0.7 million. For the three months ended July 31, 2008, the company recorded a loss on disposal of discontinued operations (net of tax) of $0.03 million.
The operating results of these operations for the three months ended July 31, 2007 and 2008 have been reclassified from continuing to discontinued operations in the accompanying consolidated financial statements.
General
Revenues
The Companys revenues in our North Eastern, South Eastern, Central and Western regions are attributable primarily to fees charged to customers for solid waste disposal and collection, landfill, waste-to-energy, transfer and recycling services. The Company derives a substantial portion of its collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of the Companys residential collection services are performed on a subscription basis with individual households. Landfill, waste-to-energy facility and transfer customers are charged a tipping fee on a per ton basis for disposing of their
24
solid waste at the Companys disposal facilities and transfer stations. The majority of the Companys disposal and transfer customers are under one to ten year disposal contracts, with most having clauses for annual cost of living increases. Recycling revenues, which are included in FCR and the Central and Western regions, consist of revenues from the sale of recyclable commodities and operations and maintenance contracts of recycling facilities for municipal customers.
The Companys cellulose insulation business is conducted through a 50/50 joint venture with Louisiana-Pacific Corporation, and accordingly, the Company recognizes half of the joint ventures net income on the equity method in our results of operations. The Company also has a cost method investment in the common stock of RecycleRewards, Inc. (RecycleRewards), a company that markets an incentive based recycling service. In April 2008, the Companys voting interest was reduced to 16.2%. Effective April 2008, the Company accounts for its investment in RecycleRewards under the cost method of accounting. Prior to April 2008 the Company accounted for this investment under the equity method of accounting. Also, in the Other segment, we have ancillary revenues including major customer accounts.
The Companys revenues are shown net of inter-company eliminations. The Company typically establishes its inter-company transfer pricing based upon prevailing market rates. The table below shows, for the periods indicated, the percentages and dollars of revenue attributable to services provided.
|
|
Three Months Ended July 31, |
|
||||||||
|
|
2007 |
|
2008 |
|
||||||
|
|
|
|
|
|
|
|
|
|
||
Collection |
|
$ |
69,155 |
|
46.6 |
% |
$ |
71,327 |
|
45.2 |
% |
Landfill / disposal facilities |
|
29,202 |
|
19.7 |
% |
29,044 |
|
18.4 |
% |
||
Transfer |
|
7,346 |
|
4.9 |
% |
9,203 |
|
5.8 |
% |
||
Recycling |
|
42,823 |
|
28.8 |
% |
48,330 |
|
30.6 |
% |
||
Total revenues |
|
$ |
148,526 |
|
100.0 |
% |
$ |
157,904 |
|
100.0 |
% |
Collection and landfill/disposal facilities revenues each decreased as a percentage of total revenues in the three months ended July 31, 2008 compared to the prior year, mainly because of the increase in recycling revenues. Collection revenue dollars increased in the three months ended July 31, 2008 due to the positive impact of price increases and the effect of a major accounts tuck-in acquisition, partially offset by lower volumes. Recycling revenues are primarily from recycling facilities in the FCR region. The increase in recycling revenue dollars for the three months ended July 31, 2008 is primarily attributable to higher commodity prices and to a lesser extent an increase in commodity volumes.
Operating Expenses
Cost of operations includes labor, tipping fees paid to third-party disposal facilities, fuel, maintenance and repair of vehicles and equipment, workers compensation and vehicle insurance, the cost of purchasing materials to be recycled, third party transportation expense, district and state taxes, host community fees and royalties. Cost of operations also includes accretion expense related to landfill capping, closure and post closure, leachate treatment and disposal costs and depletion of landfill operating lease obligations.
General and administration expenses include management, clerical and administrative compensation and overhead, professional services and costs associated with marketing, sales force and community relations efforts.
Depreciation and amortization expense includes depreciation of fixed assets over the estimated useful life of the assets using the straight-line method, amortization of landfill airspace assets under the units-of-consumption method, and the amortization of intangible assets (other than goodwill) using the
25
straight-line method. In accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, except for accretion expense, the Company amortizes landfill retirement assets through a charge to cost of operations using a straight-line rate per ton as landfill airspace is utilized. The amount of landfill amortization expense related to airspace consumption can vary materially from landfill to landfill depending upon the purchase price and landfill site and cell development costs. The Company depreciates all fixed and intangible assets, other than goodwill, to a zero net book value, and does not apply a salvage value to any fixed assets.
The Company capitalizes certain direct landfill development costs, such as engineering, permitting, legal, construction and other costs associated directly with the expansion of existing landfills. Additionally, the Company also capitalizes certain third party expenditures related to pending acquisitions, such as legal and engineering costs. The Company routinely evaluates all such capitalized costs, and expenses those costs related to projects not likely to be successful. Internal and indirect landfill development and acquisition costs, such as executive and corporate overhead, public relations and other corporate services, are expensed as incurred.
The Company will have material financial obligations relating to capping, closure and post-closure costs of its existing landfills and any disposal facilities which it may own or operate in the future. The Company has provided, and will in the future provide, accruals for these future financial obligations based on engineering estimates of consumption of permitted landfill airspace over the useful life of any such landfill. There can be no assurance that the Companys financial obligations for capping, closure or post-closure costs will not exceed the amount accrued and reserved or amounts otherwise receivable pursuant to trust funds.
Results of Operations
The following table sets forth for the periods indicated the percentage relationship that certain items from the Companys consolidated financial statements bear in relation to revenues.
|
|
Three Months Ended
|
|
||
|
|
2007 |
|
2008 |
|
Revenues |
|
100.0 |
% |
100.0 |
% |
Cost of operations |
|
65.2 |
% |
66.1 |
% |
General and administration |
|
12.0 |
% |
11.7 |
% |
Depreciation and amortization |
|
13.5 |
% |
12.4 |
% |
Operating income |
|
9.3 |
% |
9.8 |
% |
Interest expense, net |
|
7.1 |
% |
6.3 |
% |
Loss from equity method investments |
|
1.4 |
% |
0.7 |
% |
Other income, net |
|
-1.6 |
% |
-0.1 |
% |
Provision for income taxes |
|
0.8 |
% |
1.5 |
% |
Income before discontinued operations |
|
1.6 |
% |
1.4 |
% |
26
Three months ended July 31, 2008 versus July 31, 2007
Revenues - Revenues increased $9.4 million, or 6.3%, to $157.9 million in the quarter ended July 31, 2008 from $148.5 million in the quarter ended July 31, 2007. Solid waste revenues, including the Companys major accounts program, increased $3.5 million, with $3.3 million in price increases coming from our collection and transfer operations. Revenues from the rollover effect of acquisitions, primarily from a major accounts tuck-in acquisition, accounted for $1.1 million of the increase. These increases were offset by a $0.9 million, primarily from lower collection volumes as partially offset by increases in solid waste recycling commodity prices and landfill volume increases driven by a closure project. FCR recycling revenues increased $5.9 million mainly due to higher commodity prices and volumes.
Cost of operations - Cost of operations increased $7.5 million, or 7.7%, to $104.4 million in the quarter ended July 31, 2008 from $96.9 million in the quarter ended July 31, 2007. Cost of operations as a percentage of revenues increased to 66.1% in the quarter ended July 31, 2008 compared to 65.2% in the quarter ended July 31, 2007. The cost of operations increase is attributable primarily to higher fuel costs and an increase in the cost of purchased materials associated with higher FCR recycling revenues, partially offset by a benefit of $0.8 million related to the reimbursement from the Town of Southbridge for previously paid and expensed closure and post closure costs at the Southbridge landfill site.
General and administration - General and administration expenses increased $0.6 million, or 3.4%, to $18.4 million in the quarter ended July 31, 2008 from $17.9 million in the quarter ended July 31, 2007. General and administrative expenses as a percentage of revenues decreased to 11.7% in the quarter ended July 31, 2008 from 12.0% in the quarter ended July 31, 2007. Most general and administration expense categories were down in the quarter but were offset by an increase of bad debt expense due to a large recovery in the prior year.
Depreciation and amortization - Depreciation and amortization expense decreased $0.4 million, or 2.0%, to $19.5 million in the quarter ended July 31, 2008 from $19.9 million in the quarter ended July, 31, 2007. Landfill amortization expense decreased by $0.2 million primarily due to lower amortization rates at our Colebrook closure facility, which is expected to close in the second quarter of fiscal year 2009. Depreciation expense decreased between periods by $0.2 million as certain assets came to the end of their useful lives. Depreciation and amortization expense as a percentage of revenue decreased to 12.4% for the three months ended July 31, 2008 from 13.5% for the three months ended July 31, 2007.
O perating income - Operating income increased by $1.7 million, or 12.3%, to $15.5 million for the quarter ended July 31, 2008 compared to $13.8 million for the quarter ended July 31, 2007. As a percentage of revenue, operating income increased to 9.8% in the quarter ended July 31, 2008 compared to 9.3% for the quarter ended July 31, 2007. Operating income increased year over year due to higher revenue levels and lower general and administration expenses as a percentage of revenues and lower depreciation and amortization expenses as discussed above. Operating income was also favorably impacted by $0.8 million from the benefit discussed above of the reimbursement from the Town of Southbridge for previously paid and expensed closure and post closure costs at the Southbridge landfill site. Western region operating income increased year over year due to increased landfill revenues, primarily due to higher volumes, increases in other solid waste revenues, primarily from increased prices, and lower operating costs. Central region operating income declined year over year due to lower revenues primarily due to lower landfill volumes. FCR recycling operating income increased year over year due to increased revenues from higher commodity prices and volumes partially offset by an increase in the costs of purchased materials.
Interest expense, net - Net interest expense decreased $0.6 million, or 5.7%, to $10.0 million in the quarter ended July 31, 2008 from $10.6 million in the quarter ended July 31, 2007. This decrease is attributable lower interest rates on the Companys senior credit facility partially offset by higher net debt levels. Net interest expense, as a percentage of revenues, decreased to 6.3% in the quarter ended July 31, 2008 from 7.1% in the quarter ended July 31, 2007.
27
Loss from equity method investments - The loss from equity method investments in the quarter ended July 31, 2008 relates to the Companys 50% joint venture interest in GreenFiber. GreenFiber reported a loss for the quarter ended July 31, 2008 of which the Companys share was $1.1 million, compared to a loss of $1.8 million in the quarter ended July 31, 2007. GreenFiber continues to be negatively impacted by the overall slowdown in the housing market and higher fiber prices. The Company also has an investment in the common stock of RecycleRewards, a company that markets an incentive based recycling service. In April 2008, the Companys voting interest was reduced to 16.2% from 20.5%. Effective April 2008, the Company accounts for its investment in RecycleRewards under the cost method of accounting. Prior to April 2008 the Company accounted for this investment under the equity method of accounting. RecycleRewards reported a loss for the quarter ended July 31, 2007, of which the Companys share was $0.4 million.
Other income - Other income in the quarter ended July 31, 2008 was $0.1 million compared to $2.4 million in the quarter ended July 31, 2007. Other income in the quarter ended July 31, 2007 primarily includes $2.1 million related to the reversal of residual accruals originally established in connection with waste handling agreement disputes between the Companys Maine Energy subsidiary and fifteen municipalities which were party to the agreements. On June 18, 2007, the Company settled the last of these disputes with the City of Saco and the city agreed to release the Company from any further residual cancellation payment obligations. Other income in the quarter also includes dividends of $0.2 million from our investment in Evergreen National Indemnity Company (Evergreen).
Provision for income taxes - Provision for income taxes increased $1.2 million to $2.3 million for the quarter ended July 31, 2008 from $1.1 million for the quarter ended July 31, 2007. The effective tax rate increased to 51.1% for the quarter ended July 31, 2008 from 32.5% for the quarter ended July 31, 2007. The rate variance between the periods is due mainly to the book loss projected for the prior year and the add back of non-deductible items.
The Companys business is capital intensive. The Companys capital requirements include acquisitions, fixed asset purchases and capital expenditures for landfill development and cell construction, as well as site and cell closure. The Companys capital expenditures are broadly defined as pertaining to either growth or maintenance activities. Growth capital expenditures are defined as costs related to development of new airspace, permit expansions, new recycling contracts along with incremental costs of equipment and infrastructure added to further such activities. Growth capital expenditures include the cost of equipment added directly as a result of new business, as well as expenditures associated with increasing infrastructure to increase throughput at transfer stations and recycling facilities. Growth capital expenditures also include those outlays associated with acquiring landfill operating leases, which do not meet the operating lease payment definition, but which were included as a commitment in the successful bid. Maintenance capital expenditures are defined as landfill cell construction costs not related to expansion airspace, costs for normal permit renewals and replacement costs for equipment due to age or obsolescence.
The Company had a net working capital deficit of $5.9 million and $20.2 million at July 31, 2008 and April 30, 2008, respectively. Net working capital comprises current assets, excluding cash and cash equivalents, minus current liabilities. The increase in net working capital at July 31, 2008 was primarily due to higher trade receivables associated with higher revenues along with higher current deferred income taxes due to projected utilization of net operating losses, lower payroll accruals, partially offset by higher accrued interest associated primarily with the Companys 9.75% senior subordinated notes (Senior Notes).
On April 29, 2005, the Company entered into a senior credit facility with a group of banks for which Bank of America is acting as agent. The facility originally consisted of a senior secured revolving credit
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facility in the amount of $350.0 million. On July 25, 2006, the Company amended the facility to increase the amount of the facility per the original agreement to $450.0 million, and on May 9, 2007, the Company further amended the facility to increase the amount to $525.0 million, including a $175.0 million term B loan and a revolver of $350.0 million. This credit facility is secured by all of the Companys assets, including the Companys interest in the equity securities of our subsidiaries.
The credit facility matures on April 28, 2010. There are required annual principal payments on the term B loan of $0.9 million for three years, which began July 25, 2007, with the remaining principal due at maturity. The Company was in compliance with all covenants at July 31, 2008.
Further advances were available under the revolver in the amount of $154.4 million and $156.0 million as of July 31, 2008 and April 30, 2008, respectively. These available amounts are net of outstanding irrevocable letters of credit totaling $40.6 million and $40.4 million as of July 31, 2008 and April 30, 2008, respectively, at which dates no amounts had been drawn.
The Company is party to three separate interest rate swap agreements with four banks for a notional amount of $105.0 million. One agreement for a notional amount of $30.0 million effectively fixes the interest rate index at 4.47% from November 4, 2007 through May 7, 2009. Two agreements, for a notional amount of $75.0 million, effectively fix the interest index rate on the entire notional amount at 4.68% from May 6, 2008 through May 6, 2009. These agreements are specifically designated to interest payments under the Companys term B loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
The Company is party to two separate interest rate zero-cost collars (Collars) for a notional amount of $60.0 million. The Collars have an interest index rate cap of 6.00% and an interest index rate floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009. These agreements are specifically designated to interest payments under the revolving credit facility and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
As of July 31, 2008, the Company had outstanding $195.0 million of Senior Notes which mature in January 2013. The Senior Notes contain covenants that restrict dividends, stock repurchases and other payments, and limit the incurrence of debt and issuance of preferred stock. The Senior Notes are guaranteed jointly and severally, fully and unconditionally by the Companys significant wholly-owned subsidiaries.
On December 28, 2005, the Company completed a $25.0 million financing transaction involving the issuance by the Finance Authority of Maine of $25.0 million aggregate principal amount of its Solid Waste Disposal Revenue Bonds Series 2005 (the Bonds) which mature in January 2025. The Bonds are issued pursuant to an indenture, dated as of December 1, 2005 and are enhanced by an irrevocable, transferable direct-pay letter of credit issued by Bank of America, N.A. Pursuant to a Financing Agreement, dated as of December 1, 2005, the Company has borrowed the proceeds of the Bonds to pay for certain costs relating to equipment acquisition for solid waste collection and transportation services, all located in Maine.
On August 13, 2007, the Company redeemed all of the outstanding shares of its Series A Preferred Stock, pursuant to the mandatory redemption requirements set forth in the Certificate of Designation for the Series A Preferred Stock. The shares were redeemed at an aggregate redemption price of $75.1 million, which was the liquidation value equal to the original price plus accrued but unpaid dividends through the date of redemption. The redemption of the Series A Preferred Stock was effected through cash payouts by the Company of the redemption price upon receipt of stock certificates and other related documentation from the holders thereof. The Company borrowed against the senior credit facility to fund this redemption.
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On July 31, 2008, the Company completed a $9.8 million financing for the construction of two single-stream material recovery facilities with a third-party leasing company. The financing has a seven year term at a fixed rate of interest (approximately 7.1%).
Net cash provided by operating activities amounted to $19.8 million for the three months ended July 31, 2008 compared to $20.2 million for the same period of the prior fiscal year. Net income increased $0.4 million in the three months ended July 31, 2008 compared to the three months ended July 31, 2007. Income from assets under contractual obligations decreased $0.6 million in the three months ended July 31, 2008 compared to the three months ended July 31, 2007. Also contributing to the slight decrease is the accrual of the Series A Preferred dividend for $0.9 million which was included in interest expense for the three months ended July 31, 2007 as well as loss from equity method investments amounting to a $1.0 decrease in the three months ended July 31, 2008 compared to the three months ended July 31, 2007. These amounts were offset by other income of $2.1 associated with the favorable settlement at Maine Energy resulting in the reversal of residual accruals in the three months ended July 31, 2007. Deferred taxes also contributed to an increase of $1.6 million in the same period due to projected utilization of net operating losses.
Changes in assets and liabilities, net of effects of acquisitions and divestitures, decreased $2.3 million for the three months ended July 31, 2008 compared to the three months ended July 31, 2007. Changes in accounts receivable associated primarily with higher revenue amounted to a $6.0 million increase for the three months ended July 31, 2008 compared to the three months ended July 31, 2007. The change in accounts payable during the three months ended July 31, 2008 amounted to a $3.1 million of cash provided compared with $3.6 million used in the prior year comparable period. The increase from the prior year period is due to the timing of capital and other expenditures. Changes in other assets and liabilities amounted to a $1.5 million use of cash for the three months ended July 31, 2008 compared to cash provided of $1.5 million for the three months ended July 31, 2007. The decrease of $3.0 million from the prior year is due primarily to the following: (1) higher payments for landfill capping, closure and post-closure in the three months ended July 31, 2008 versus the prior period amounting to a $2.2 million decrease, (2) reductions associated with higher payroll accruals at July 31, 2008 amounting to $2.0 million (3) lower accrued interest at July 31, 2008 associated with lower interest rates partially offset by higher debt levels amounting to a $0.9 million decrease, (4) higher current assets at July 31, 2008 associated primarily with deposits made relative to certain activities amounting to a $3.2 decrease, offset by (5) higher other long-term liabilities at April 30, 2007 associated with the Maine Energy settlement which took place in the three months ended July 31, 2007 resulting in a $3.1 million increase and (6) higher other current liabilities at July 31, 2008 associated with accruals for various capital projects and deferred revenue resulting in a $2.6 million increase.
Net cash used in investing activities was $21.6 million for the three months ended July 31, 2008 compared to $21.3 million used in investing activities in the same period of the prior fiscal year.
Net cash provided by financing activities was $1.8 million for the three months ended July 31, 2008 compared to net cash used of $6.0 million in the same period of the prior fiscal year. The increase in cash provided by financing activities is primarily due to lower net borrowings to fund investing activities.
The Company generally meets liquidity needs from operating cash flow and its senior credit facility. These liquidity needs are primarily for capital expenditures for vehicles, containers and landfill development, debt service costs and capping, closure and post-closure expenditures and acquisitions. It is the Companys intention to continue to grow organically and through acquisitions.
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The Company has filed a universal shelf registration statement with the SEC. The Company could from time to time issue securities thereunder in an amount of up to $250.0 million. However, the Companys ability and willingness to issue securities pursuant to this registration statement will depend on market conditions at the time of any such desired offering and therefore the Company may not be able to issue such securities on favorable terms, if at all.
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on the Companys operations. Consistent with industry practice, most of the Companys contracts provide for a pass-through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. Increases in fuel costs have been passed on through a fuel surcharge program. The Company therefore believes it should be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may require the Company to absorb at least a portion of these cost increases, particularly during periods of high inflation.
The Companys business is located mainly in the eastern United States. Therefore, the Companys business, financial condition and results of operations are susceptible to downturns in the general economy in this geographic region and other factors affecting the region, such as state regulations and severe weather conditions. The Company is unable to forecast or determine the timing and /or the future impact of a sustained economic slowdown.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest rate volatility
The Company had interest rate risk relating to approximately $187.6 million of long-term debt at July 31, 2008. The interest rate on the variable rate portion of long-term debt was approximately 4.36% at July 31, 2008. Should the average interest rate on the variable rate portion of long-term debt change by 100 basis points, it would have an approximate interest expense change of $0.5 million for the quarter reported.
The remainder of the Companys long-term debt is at fixed rates and not subject to interest rate risk.
Commodity price volatility
The Company is subject to commodity price fluctuations related to the portion of its sales of recyclable commodities that are not under floor or flat pricing arrangements. As of July 31, 2008, to minimize the Companys commodity exposure, the Company was party to thirty commodity hedging agreements. If commodity prices were to have changed by 10% in the quarter ended July 31, 2008, the impact on the Companys operating income is estimated at $1.8 million, without considering the Companys hedging agreements. The effect of the hedge position would reduce the impact by approximately $0.4 million. The Company does not use financial instruments for trading purposes and is not a party to any leveraged derivatives.
ITEM 4. CONTROLS AND PROCEDURES
a) Evaluation of disclosure controls and procedures . The Companys management, with the participation of its chief executive officer and p rincipal financial and accounting officer , evaluated the effectiveness of the Companys disclosure controls and procedures as of July 31, 2008. The term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
31
Exchange Act of 1934 (the Exchange Act), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its principal executive and p rincipal financial and accounting officers , as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Companys disclosure controls and procedures as of July 31, 2008, the Companys chief executive officer and p rincipal financial and accounting officer have concluded that, as of such date, the Companys disclosure controls and procedures were effective at the reasonable assurance level.
b) Changes in internal controls. No change in the Companys internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended July 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
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On September 12, 2001, the Companys subsidiary, North Country Environmental Services, Inc. (NCES), petitioned the New Hampshire Superior Court (Superior Court) for a declaratory judgment concerning the extent to which the Town of Bethlehem, New Hampshire (Town) could lawfully prohibit NCESs expansion of its landfill in Bethlehem. The Town filed counterclaims seeking contrary declarations and other relief. The parties appealed the Superior Courts decision to the New Hampshire Supreme Court (Supreme Court). On March 1, 2004, the Supreme Court ruled that NCES had all necessary local approvals to landfill within a 51-acre portion of its 105-acre parcel and the Town could not prevent expansion in that area. A significant portion of NCESs Stage IV expansion as originally designed and approved by the New Hampshire Department of Environmental Services (NHDES), however, was to lie outside the 51 acres. With respect to expansion outside the 51 acres, the Supreme Court remanded four issues to the Superior Court for further proceedings. On April 25, 2005, the Superior Court rendered summary judgment in NCESs favor on two of the four issues, leaving the other two issues for trial. The two issues that were decided on summary judgment remain subject to appeal by the Town. In March of 2005, the Town adopted a new zoning ordinance that prohibited landfilling outside of a new District V, which corresponded to the 51 acres. The Town then amended its pleadings to seek a declaration that the new ordinance was valid. The parties each filed motions for partial summary judgment. Following the courts decisions on those motions, the validity of the new ordinance remained subject to trial based on two defenses raised by NCES. On March 30, 2007, NCES applied to the NHDES for a permit modification under which all Stage IV capacity (denominated Stage IV, Phase II) would be relocated within the 51 acres. That application was superseded by a new application, filed on November 30, 2007, that would bring all berms along the perimeter of the landfills footprint within the 51 acres as well. NCES sought a stay of the litigation on the ground that, if NHDES were to grant the permit modification, there would be no need for NCES to expand beyond the 51 acres for eight or more years, and the case could be dismissed as moot or unripe. The Superior Court granted the stay pending a decision by NHDES. The permit modification application currently remains pending before NHDES. The NHDES conducted a public hearing in July, and has scheduled a final public hearing in September, 2008. The NHDES decision to grant the permit modification is expected to be made during the fourth quarter of calendar year 2008.
The Company, on behalf of itself, its subsidiary FCR, LLC, and as a Majority Managing Member of Green Mountain Glass, LLC (GMG), initiated a declaratory judgment action in Rutland Superior Court against GR Technologies, Inc. (GRT), Anthony C. Lane and Robert Cameron Billmyer (the Defendants) on June 8 2007, to resolve issues raised by GRT as the minority member of GMG. The issues addressed in the action included exercise of management discretion, right to intellectual property, and other related disputes. The Defendants counterclaimed in May 2008 seeking unspecified damages on a variety of bases including, among others, breach of contract, breach of fiduciary duty, fraud, tortious interference with business relations, induced infringement and other matters. Additionally, the Defendants filed a Derivative Action in Rutland Superior Court as a Managing Member of GMG on July 2, 2008 against several employees of the Company and its subsidiary FCR, LLC. The Company is vigorously contesting these allegations on its behalf and on behalf of its employees, and believes that the claims have no merit.
On June 9, 2008, the Southbridge Board of Health (Southbridge BOH) issued a Decision and Statement of Findings pursuant to M.G.L. ch.111, §§150A and 150 A1/2 and 310 CMR 16.00 (2008 Site Assignment) granting the Companys subsidiary, Southbridge Recycling and Disposal Park, Inc. (SRD), a minor modification to SRDs existing site assignment for the Southbridge Sanitary Landfill
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(the Landfill). The 2008 Site Assignment allows SRD, subject to several conditions, to reallocate tonnage capacity accepted at a Construction and Demolition Processing Facility located at the Landfill to solid waste to be accepted at the Landfill up to a maximum of 405,600 tons per year, including the right to import municipal solid waste to the Landfill without regard for geographic origin. On or about July 14, 2008, the Sturbridge Board of Health (Sturbridge BOH), an abutting municipality to Southbridge, together with 10-citizens groups, filed a complaint in Worcester Superior Court contesting the 2008 Site Assignment (the Appeal). The Appeal names as defendants the Southbridge BOH and its individual members at the time of the 2008 Site Assignment, and SRD. On August 21, 2008, SRD reached a settlement with the Sturbridge BOH, pursuant to which SRD agreed to fund an escrow account to be controlled by the Sturbridge BOH, in the amount of $0.1 million. The escrow account will serve as a source for funds to cover the costs of SRD installing a sentinel downgradient well to the Landfill for tests to be conducted by and results provided to the Sturbridge BOH pursuant to an environmental plan that is a condition of the 2008 Site Assignment, and for related monitoring costs to be incurred by the Sturbridge BOH in connection therewith. The Sturbridge BOH Appeal was formally withdrawn as to all parties on August 22, 2008, and only the 10-citizens groups remain as participants in the Appeal. While it is too early to assess the outcome of the Appeal, SRD is, and will continue to aggressively defend the Appeal.
The Company offers no prediction of the outcome of any of the proceedings or negotiations described above. The Company is vigorously defending each of these lawsuits and claims. However, there can be no guarantee the Company will prevail or that any judgments against the Company, if sustained on appeal, will not have a material adverse effect on the Companys business, financial condition or results of operations or cash flows.
The Company is a defendant in certain other lawsuits alleging various claims incurred in the ordinary course of business, none of which, either individually or in the aggregate, the Company believes are material to its financial condition, results of operations or cash flows.
See the Companys risk factors as previously disclosed in its Form 10-K for the year ended April 30, 2008.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
None.
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The exhibits that are filed as part of this Quarterly Report on Form 10-Q or that are incorporated by reference herein are set forth in the Exhibit Index hereto.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Casella Waste Systems, Inc. |
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Date: September 4, 2008 |
By: |
/s/ Paul J. Massaro |
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(Principal Financial and Accounting |
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Officer and Duly Authorized Officer) |
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Exhibit Index
10.1+ |
Amendment to Management Compensation Agreement between Casella Waste Systems, Inc. and James W. Bohlig dated January 8, 2008. |
10.2+ |
Form of Performance Stock Unit Agreement for Employees 2006 Stock Incentive Plan. |
31.1+ |
Certification of John W. Casella, Chairman of the Board of Directors and Chief Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
31.2+ |
Certification of Paul J. Massaro, Principal Financial and Accounting Officer and Duly Authorized Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002. |
32.1++ |
Certification pursuant to 18 U.S.C. S 1350 of John W. Casella, Chairman of the Board of Directors and Chief Executive Officer, pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
32.2++ |
Certification pursuant to 18 U.S.C. S 1350 of Paul J. Massaro, Principal Financial and Accounting Officer and Duly Authorized Officer, pursuant to Section 906 of the Sarbanes Oxley Act of 2002. |
+ - Filed herewith
++ - Furnished herewith
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Exhibit 10.1
AMENDMENT TO EMPLOYMENT AGREEMENT
BY THIS AMENDMENT, dated January 8 th , 2008, made and entered into by Casella Waste Systems, Inc., a Delaware Corporation with a principal address of 25 Greens Hill Lane, Rutland, Vermont 05701 (the Company), and James W. Bohlig, an individual, a current resident of Rutland, Vermont 05701 (the Employee), and as acknowledged and consented to by Casella Renewable Systems, LLC, a wholly-owned limited liability company (CRS) of Company.
WHEREAS, Company and Employee are parties to that certain Employment Agreement, dated December 8, 1999 (EA), wherein Employee is employed by Company, with an initial title and position of Senior Vice President, Chief Operating Officer and Director of Company; and,
WHEREAS, Company has engaged in various reorganizations and restructurings of the Company since the execution of the EA; and,
WHEREAS, such reorganizations and restructurings have not affected the fundamental employment relationship between Company and Employee, but Company is now desirous of entering into this formal Amendment to the EA to reflect the current title, position and responsibilities of Employee, and to address certain other matters in the EA; and,
WHEREAS, Employee is desirous of amending the EA to reflect his current title, position and responsibilities as President of CRS, and to address certain other matters in the EA; and,
WHEREAS, both the Company and Employee wish to cause CRS to acknowledge and consent to this Amendment to the EA.
NOW THEREFOR, in exchange for the promises and mutual conditions contained herein, and other good and valuable consideration, the parties hereto, intending to be legally bound, do hereby agree as follows:
1. Section 1.1 of the EA, shall be amended by the deletion of the first sentence thereof, and the insertion of the following in lieu thereof:
1.1 During the Agreement Term (as defined below), the Employee shall be the President and a Director of CRS (or such other and comparable titles and positions as shall be given Employee by the Board of Directors (the Board) of the Company), and shall faithfully perform for the Company the duties of such office in CRS at the behest of Company. Employee shall continue as Companys Senior Vice President, Chief Development Officer and Director of Company.
2. Section 2 of the EA entitled Term shall not be modified, but shall be ratified by virtue of this Amendment to clarify that Employee is commencing a new Initial
Term as of the date of this Amendment, which Initial Term shall expire on the third anniversary of the date of this Amendment. All other provisions of Section 2 Term shall remain unchanged.
3. Section 3.1 of the EA shall be amended by the deletion of the words in line 2, at the annual rate of $250,000 (Base Salary), and the insertion of the words at the annual rate of $334,700 (Base Salary), shall be inserted in lieu thereof.
4. Section 4.4.1 (d) shall be amended by the deletion of the words, Senior Vice President, Chief Operating Officer and Director in line 3, and the insertion of the words Senior Vice President, Chief Development Officer, Director of the Company and President of CRS in lieu thereof.
5. Section 4.4.2 shall be amended by the deletion of the last sentence and insertion of the following new sentence:
If during the Initial Term the Employees employment is terminated by the Employee for Qualified Good Reason, the Employee shall be entitled to receive the higher of an amount equal to i) his Base Salary payable through the remainder of the Initial Term, or ii) the sum of Eighteen (18) Months Base Salary, and any bonus earned and accrued for the period prior to such termination. Such ongoing payments shall be payable on a bi-weekly basis. Any bonus due shall be paid in a lump sum within sixty (60) days of the date of termination. During any subsequent Agreement Term, Termination by Employee for Qualified Good Reason shall result in a payment of Eighteen (18) Months Base Salary.
6. A new Section 4.6 shall be added to the Employment Agreement as follows:
4.6 Existing Life Insurance Policy. During the Agreement Term, the Company shall continue (annually) funding the existing whole life Life Insurance Policy held in Employees name. During any termination for any reason other than Cause the Employee shall have the right to purchase and accept assignment from the Company of the existing whole life Life Insurance Policy in consideration for the payment of $5,000.00 to Company. All the effects to Employee, if any, of transferring such Life Insurance Policy to Employee, including, without limitation, any tax effects, shall be the exclusive responsibility of Employee.
7. a) The title of Section 6 of the EA shall be modified as follows:
6. Non-competition and Assignment of Patents.
b) The terms of current 6. Covenant Not to Compete shall remain as per the EA, but shall be retitled as 6.1 Covenant Not to Compete.
c) A new Section 6.2 shall be inserted as follows:
6.2 Assignment of Inventions and Work. Employee hereby agrees to disclose in writing to Company any current, past or future Inventions or copyrightable Works, which have been or are now or in the future conceived, made, discovered, written or created by Employee, alone and/or in combination with others, during Employees prior or current employment, and that Employee will assign all rights and title to such Inventions or Works to Company.
8. All other terms and conditions of the EA, which are not specifically addressed in this Amendment, shall remain unchanged.
IN WITNESS WHEREOF, the parties, intending to be legally bound, have executed this Amendment to Agreement as of the date first set forth above.
WITNESS: |
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/s/ James W. Bohlig |
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James W. Bohlig |
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Employee |
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WITNESS: |
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John W. Casella |
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Chairman and CEO |
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Casella Waste Systems, Inc. |
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Acknowledged and Agreed to by: |
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/s/ James W. Bohlig |
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James W. Bohlig |
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President, Casella Renewable Systems, LLC |
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Exhibit 10.2
CASELLA WASTE SYSTEMS, INC.
Casella Waste Systems, Inc.
2006 Stock Incentive Plan
Performance Share Unit Agreement
Cover Sheet
This Agreement evidences the grant by Casella Waste Systems, Inc., a Delaware corporation (the Company ), on the date set forth below (the Grant Date ) to the person named below (the Participant ) of a Performance Share Unit Award (the Award ) of the target number of performance share units listed below ( Target Performance Share Units ) up to the maximum number of performance share units listed below ( Maximum Performance Share Units ) for the Performance Period listed below (the Performance Period ). Each unit ultimately earned (a Performance Share Unit ) represents the right to receive one share of the Companys Class A Common Stock, $0.01 par value per share ( Common Stock ), or the value of such Share. This Award is subject to the terms and conditions specified in the Casella Waste Systems, Inc. 2006 Stock Incentive Plan, as amended, (the Plan ), and in this Agreement, consisting of this Cover Sheet and the attached Exhibit A .
Participant Name: |
<PARTICIPANT NAME> |
Grant Date: |
<GRANT DATE> |
Performance Period: |
3 years, beginning on the first day of the current fiscal year |
Number of Target |
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Performance Share Units: |
<NUMBER OF SHARES> |
Maximum |
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Performance Share Units: |
<PERCENT> of Target Performance Share Units |
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CASELLA WASTE SYSTEMS, INC. |
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25 Greens Hill Lane |
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Rutland, Vermont 05701 |
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By: |
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Name: |
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<PARTICIPANT NAME> |
Title: |
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By accepting this Award, the Participant hereby (i) acknowledges that a copy of the Plan and a copy of the Plan prospectus have been delivered to the Participant and additional copies thereof are available upon request from the Companys Human Resources Department, (ii) acknowledges receipt of a copy of this Cover Sheet and Exhibit A thereto (collectively, the Agreement) and accepts the Award subject to all the terms and conditions of the Plan and the Agreement; (iii) represents that the Participant has read and understands the Plan, the Plan prospectus and the Agreement, and (iv) acknowledges that there are tax consequences related to the Award and that the Participant should consult a tax advisor to determine his or her actual tax consequences. The Participant must accept this Award by signing and returning it to the
Company within 30 days following notification of the grant, whereupon the Company will countersign the Award and return it to the Participant; otherwise, the Company may, in its sole discretion, rescind the Award in its entirety.
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EXHIBIT A
CASELLA WASTE SYSTEMS, INC.
Casella Waste Systems, Inc. 2006 Stock Incentive Plan
Performance Share Unit Agreement
Terms and Conditions
The Award is granted pursuant to and is subject to and governed by the Plan and the terms of this Agreement. It is a form of Restricted Stock Unit as defined in the Plan. Unless otherwise defined in this Agreement, capitalized terms used herein shall have the same meaning as in the Plan. The shares of Common Stock that are issuable after the Performance Share Units have been earned are referred to in this Agreement as Shares . The Performance Share Units shall be granted to the Participant without payment of consideration (other than continuing services).
Depending on the Companys financial performance as provided in Section 3, the Participant may earn up to the Maximum Performance Share Units (between <PERCENT> and <PERCENT> of the Target Performance Share Units).
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Targeted |
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Maximum |
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The elements of each financial measure are as defined in the financial statements, notes to the financial statements, managements discussions and analysis, or other Company filings with the Securities and Exchange Commission.
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5
Notwithstanding any of the other provisions of this Agreement, at the time when any Performance Share Units are payable pursuant to Sections 5 or 11, the Company may elect, in the sole discretion of the Committee, to deliver to the Participant in lieu of the Shares represented by Performance Share Units that are then payable an equivalent amount of cash (determined by reference to the closing price of the Shares on the principal exchange on which the Shares trade on the applicable payment date or if such date is not a trading date, on the next preceding trading date). Such payments shall be made no later than the deadline set forth in Section 5(a) hereof. If the Company elects to deliver cash to the Participant, the Company is authorized to retain such amount as is sufficient to satisfy the withholding of Tax-Related Items (as defined in Section 12 hereof).
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operation of law. Any attempt to dispose of any Performance Share Units in contravention of the above restriction shall be null and void and without effect.
The Plan contains provisions covering the treatment of Restricted Stock Awards in a number of contingencies such as stock splits and mergers. Provisions in the Plan for such adjustments are hereby made applicable hereunder and are incorporated herein by reference.
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In accepting the Performance Share Units, Participant acknowledges that: (a) the grant of the Performance Share Units is voluntary and occasional and does not create any contractual or other right to receive future grants of Performance Share Units, or benefits in lieu of Performance Share Units even if Performance Share Units have been granted repeatedly in the past; (b) all decisions with respect to future awards of Performance Share Units, if any, will be at the sole discretion of the Company; (c) the future value of the underlying Shares is unknown and cannot be predicted with certainty; (d) in consideration of the award of Performance Share Units, no claim or entitlement to
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compensation or damages shall arise from termination of the Performance Share Units or any diminution in value of the Performance Share Units or Shares received when the Performance Share Units are earned resulting from the Participants termination of employment by the Company or any Affiliate (for any reason whatsoever and whether or not in breach of local employment laws), and Participant irrevocably releases the Company and/or the Affiliate from any such claim that may arise; (e) in the event of involuntary termination of Participants employment (whether or not in breach of local employment laws), Participants right to receive Performance Share Units and vesting under the Plan, if any, will terminate effective as of the date that Participant is no longer actively employed and will not be extended by any notice period mandated under local law or contract, and the Company shall have the exclusive discretion to determine when Participant is no longer actively employed for purposes of the Performance Share Units; (f) the Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding Participants participation in the Plan, or Participants acquisition or sale of the underlying Shares; and (g) Participant is hereby advised to consult with his or her own personal tax, legal and financial advisors regarding Participants participation in the Plan before taking any action related to the Plan.
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EXHIBIT 31.1
CERTIFICATION
I, John W. Casella, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Casella Waste Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: September 4, 2008 |
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By: /s/ John W. Casella |
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John
W. Casella
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1
EXHIBIT 31.2
CERTIFICATION
I, Paul J. Massaro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Casella Waste Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: September 4, 2008 |
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By: /s/ Paul J. Massaro |
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(Principal
Financial and Accounting
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1
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Casella Waste Systems, Inc. (the Company) for the period ended July 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, John W. Casella, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 4 , 2008 |
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By: /s/ John W. Casella |
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John
W. Casella
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1
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Casella Waste Systems, Inc. (the Company) for the period ended July 31, 2008 as filed with the Securities and Exchange Commission on the date hereof (the Report), the undersigned, Paul J. Massaro, Principal Financial and Accounting Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that, to his knowledge:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: September 4, 2008 |
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By: /s/ Paul J. Massaro |
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(Principal Financial and Accounting
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1