10-Q 1 a05-4749_110q.htm 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

 

 

ý

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

 

 

For the quarterly period ended January 31, 2005

 

 

OR

 

 

o

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

 

 

For the transition period from to

 

 

Commission file number 000-23211

 

CASELLA WASTE SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

03-0338873

(State or other jurisdiction of
incorporation or organization)

 

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

 

 

 

25 Greens Hill Lane, Rutland, Vermont

 

05701

(Address of principal executive offices)

 

(Zip Code)

 

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

 

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

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act) Yes  ý  No  o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 28, 2005:

 

Class A Common Stock

23,859,311

 

 

Class B Common Stock

988,200

 

 

 

 



 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 

 

 

April 30,

 

January 31,

 

 

 

2004

 

2005

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

8,007

 

$

7,361

 

Restricted cash

 

12,419

 

12,464

 

Accounts receivable - trade, net of allowance for doubtful accounts of $583 and $813

 

49,462

 

48,356

 

Notes receivable - officers/employees

 

1,105

 

1,005

 

Refundable income taxes

 

623

 

677

 

Prepaid expenses

 

4,164

 

4,701

 

Inventory

 

1,848

 

2,146

 

Deferred income taxes

 

4,328

 

5,172

 

Other current assets

 

854

 

1,254

 

Total current assets

 

82,810

 

83,136

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation and amortization of $268,019 and $313,862

 

372,038

 

402,948

 

Goodwill

 

157,230

 

160,492

 

Intangible assets, net

 

3,578

 

3,017

 

Deferred income taxes

 

5,631

 

 

Investments in unconsolidated entities

 

37,914

 

37,899

 

Net assets under contractual obligation

 

2,148

 

1,406

 

Other non-current assets

 

14,928

 

14,990

 

 

 

593,467

 

620,752

 

 

 

 

 

 

 

 

 

$

676,277

 

$

703,888

 

 

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

 

2



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Continued)

(Unaudited)

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

 

 

 

April 30,

 

January 31,

 

 

 

2004

 

2005

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

 

$

5,542

 

$

3,385

 

Current maturities of capital lease obligations

 

602

 

636

 

Accounts payable

 

40,034

 

33,933

 

Accrued payroll and related expenses

 

7,425

 

8,041

 

Accrued interest

 

6,024

 

10,583

 

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

 

2,471

 

5,385

 

Other accrued liabilities

 

25,273

 

27,735

 

Total current liabilities

 

87,371

 

89,698

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

349,163

 

365,680

 

Capital lease obligations, less current maturities

 

1,367

 

1,638

 

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

 

22,752

 

21,574

 

Deferred income taxes

 

 

770

 

Other long-term liabilities

 

18,493

 

17,361

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable, convertible preferred stock -
Authorized - 55,750 shares, issued and outstanding - 55,750 and 53,750 as of April 30, 2004 and January 31, 2005, respectively, liquidation preference of $1,000 per share plus accrued but unpaid dividends

 

67,076

 

67,125

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Class A common stock -
Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 23,496,000 and 23,857,000 shares as of April 30, 2004 and January 31, 2005, respectively

 

235

 

239

 

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

 

10

 

10

 

Accumulated other comprehensive income

 

408

 

868

 

Additional paid-in capital

 

272,993

 

274,883

 

Accumulated deficit

 

(143,591

)

(135,958

)

Total stockholders’ equity

 

130,055

 

140,042

 

 

 

 

 

 

 

 

 

$

676,277

 

$

703,888

 

 

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

 

3



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 

 

 

Three Months Ended January 31,

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

2004

 

2005

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

104,144

 

$

116,080

 

$

329,141

 

$

366,133

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Cost of operations

 

67,540

 

76,736

 

213,187

 

234,399

 

General and administration

 

14,647

 

15,503

 

43,805

 

47,389

 

Depreciation and amortization

 

14,595

 

16,271

 

44,299

 

51,068

 

Deferred costs

 

 

 

 

295

 

 

 

96,782

 

108,510

 

301,291

 

333,151

 

Operating income

 

7,362

 

7,570

 

27,850

 

32,982

 

Other expense/(income), net:

 

 

 

 

 

 

 

 

 

Interest income

 

(53

)

(131

)

(192

)

(301

)

Interest expense

 

6,294

 

7,380

 

18,551

 

21,878

 

Income from equity method investment

 

(1,171

)

(1,556

)

(2,069

)

(2,483

)

Other expense/(income)

 

(343

)

(642

)

(721

)

109

 

Other expense, net

 

4,727

 

5,051

 

15,569

 

19,203

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle

 

2,635

 

2,519

 

12,281

 

13,779

 

Provision for income taxes

 

1,149

 

1,122

 

1,627

 

6,136

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

1,486

 

1,397

 

10,654

 

7,643

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

Income from discontinued operations (net of income taxes of $5, $0, $4 and $96)

 

4

 

 

 

140

 

Loss on disposal of discontinued operations (net of income taxes of $645)

 

 

 

 

(150

)

Cumulative effect of change in accounting principle (net of income taxes of $1,856)

 

 

 

2,723

 

 

Net income

 

1,490

 

1,397

 

13,377

 

7,633

 

Preferred stock dividend

 

818

 

829

 

2,423

 

2,499

 

Net income available to common stockholders

 

$

672

 

$

568

 

$

10,954

 

$

5,134

 

 

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

 

4



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(Unaudited)

(in thousands, except for per share data)

 

 

 

Three Months Ended January 31,

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

2004

 

2005

 

Earnings Per Share:

 

 

 

 

 

 

 

 

 

Basic:

 

 

 

 

 

 

 

 

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle available to common stockholders

 

$

0.03

 

$

0.02

 

$

0.34

 

$

0.21

 

Income from discontinued operations, net

 

 

 

 

0.01

 

Loss on disposal of discontinued operations, net

 

 

 

 

(0.01

)

Cumulative effect of change in accounting principle, net

 

 

 

0.11

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share available to common stockholders

 

$

0.03

 

$

0.02

 

$

0.45

 

$

0.21

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

24,062

 

24,768

 

23,919

 

24,625

 

 

 

 

 

 

 

 

 

 

 

Diluted:

 

 

 

 

 

 

 

 

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle available to common stockholders

 

$

0.03

 

$

0.02

 

$

0.34

 

$

0.20

 

Income from discontinued operations, net

 

 

 

 

0.01

 

Loss on disposal of discontinued operations, net

 

 

 

 

(0.01

)

Cumulative effect of change in accounting principle, net

 

 

 

0.11

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share available to common stockholders

 

$

0.03

 

$

0.02

 

$

0.45

 

$

0.20

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

24,795

 

25,380

 

24,427

 

25,125

 

 

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

 

5



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

 

$

13,377

 

$

7,633

 

Adjustments to reconcile net income to net cash provided by operating activities -

 

 

 

 

 

Depreciation and amortization

 

44,299

 

51,068

 

Depletion of landfill operating lease obligations

 

395

 

3,729

 

Loss on disposal of discontinued operations

 

 

150

 

Cumulative effect of change in accounting principle, net

 

(2,723

)

 

Income from equity method investment

 

(2,069

)

(2,483

)

Dividend from equity method investment

 

 

2,000

 

Deferred costs

 

 

295

 

Gain on sale of equipment

 

(274

)

(4

)

Deferred income taxes

 

838

 

4,760

 

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

 

 

 

 

 

Accounts receivable

 

(2,069

)

914

 

Accounts payable

 

(1,068

)

(6,101

)

Other assets and liabilities

 

(4,923

)

107

 

 

 

32,406

 

54,435

 

Net Cash Provided by Operating Activities

 

45,783

 

62,068

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisitions, net of cash acquired

 

(31,889

)

(6,486

)

Additions to property, plant and equipment

 

(37,442

)

(56,154

)

Payments on landfill operating lease contracts

 

(4,305

)

(19,790

)

Proceeds from divestitures

 

 

3,050

 

Proceeds from sale of equipment

 

451

 

1,097

 

Advances to unconsolidated entities

 

(7,074

)

 

Proceeds from assets under contractual obligation

 

515

 

742

 

Net Cash Used In Investing Activities

 

(79,744

)

(77,541

)

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from long-term borrowings

 

124,828

 

120,350

 

Principal payments on long-term debt

 

(100,933

)

(107,145

)

Proceeds from exercise of stock options

 

3,709

 

1,622

 

Net Cash Provided by Financing Activities

 

27,604

 

14,827

 

Net decrease in cash and cash equivalents

 

(6,357

)

(646

)

Cash and cash equivalents, beginning of period

 

15,652

 

8,007

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

9,295

 

$

7,361

 

 

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

 

6



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(Unaudited)

(in thousands)

 

 

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash paid during the period for -

 

 

 

 

 

Interest

 

$

13,827

 

$

16,155

 

Income taxes, net of refunds

 

$

764

 

$

999

 

 

 

 

 

 

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

 

 

 

 

 

Summary of entities acquired in purchase business combinations -

 

 

 

 

 

Fair value of assets acquired

 

$

43,862

 

$

7,327

 

Cash paid, net

 

(31,889

)

(6,486

)

 

 

 

 

 

 

Liabilities assumed and notes payable to seller

 

$

11,973

 

$

841

 

 

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

 

7



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for per share data)

 

1.             ORGANIZATION

 

The consolidated balance sheets of Casella Waste Systems, Inc. (the “Parent”) and Subsidiaries (the “Company”) as of April 30, 2004 and January 31, 2005, the consolidated statements of operations for the three and nine months ended January 31, 2004 and 2005 and the consolidated statements of cash flows for the nine months ended January 31, 2004 and 2005 are unaudited.  In the opinion of management, such financial statements include all adjustments (which include normal recurring and nonrecurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented.  The consolidated financial statements presented herein should be read in connection with the Company’s audited consolidated financial statements as of and for the twelve months ended April 30, 2004.  These were included as part of the Company’s Annual Report on Form 10-K for the year ended April 30, 2004 (the “Annual Report”).  The results for the three and nine months ended January 31, 2005 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2005.

 

2.             RECLASSIFICATIONS

 

The Company divested the assets of Data Destruction Services, Inc. (Data Destruction) during the quarter ended October 31, 2004.  The transaction required discontinued operations treatment under SFAS No. 144, therefore the operating results of Data Destruction have been reclassified from continuing to discontinued operations for the three and nine months ended January 31, 2004.

 

Effective November 1, 2004 the Eastern region was divided into the North Eastern and South Eastern regions because of a change in the Company’s internal reporting structure.  Therefore, segment data for the three and nine months ended January 31, 2005 has been revised to reflect changes in the Company’s segment classifications.

 

3.             BUSINESS COMBINATIONS

 

During the nine months ended January 31, 2005, the Company acquired seven solid waste hauling operations in transactions accounted for as purchases.  These transactions were in exchange for total consideration of $7,327 including $6,486 in cash and $841 in liabilities assumed and notes payable to the sellers.  During the nine months ended January 31, 2004, the Company acquired seven solid waste hauling operations and one construction and demolition processing facility, which also operates a landfill facility under an operations and management contract.  These transactions were in exchange for total consideration of $43,862 including $31,889 in cash and $11,973 in liabilities assumed and notes payable to the sellers.  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 with the residual amounts allocated to goodwill.  Management does not believe the final purchase price allocation will produce materially different results than reflected herein.

 

The following unaudited pro forma combined information shows the results of the Company’s operations as though each of the acquisitions made in the nine months ended January 31, 2004 and 2005 had been completed as of May 1, 2003.

 

8



 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2004

 

2005

 

2004

 

2005

 

Revenue

 

$

105,954

 

$

116,233

 

$

335,853

 

$

367,977

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

1,639

 

1,401

 

11,263

 

7,747

 

Net income

 

1,643

 

1,401

 

13,986

 

7,737

 

Diluted net income per common share

 

$

0.03

 

$

0.02

 

$

0.47

 

$

0.21

 

 

The foregoing pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of May 1, 2003 or the results of future operations of the Company.  Furthermore, such pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

 

4.             GOODWILL AND INTANGIBLE ASSETS

 

The following table shows the activity and balances related to goodwill from April 30, 2004 through January 31, 2005:

 

 

 

North Eastern Region

 

South Eastern Region

 

Central Region

 

Western Region

 

Recycling

 

Total

 

Balance, April 30, 2004

 

$

25,770

 

$

30,491

 

$

28,683

 

$

50,918

 

$

21,368

 

$

157,230

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisitions

 

 

1,156

 

1,475

 

2,453

 

 

5,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Divestitures

 

 

 

 

 

(1,822

)

(1,822

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, January 31, 2005

 

$

25,770

 

$

31,647

 

$

30,158

 

$

53,371

 

$

19,546

 

$

160,492

 

 

Intangible assets at April 30, 2004 and January 31, 2005 consist of the following:

 

 

 

Covenants
not to
compete

 

Customer
lists

 

Total

 

Balance, April 30, 2004

 

 

 

 

 

 

 

Intangible assets

 

$

16,402

 

$

688

 

$

17,090

 

Less accumulated amortization

 

(12,995

)

(517

)

(13,512

)

 

 

$

3,407

 

$

171

 

$

3,578

 

 

 

 

 

 

 

 

 

Balance, January 31, 2005

 

 

 

 

 

 

 

Intangible assets

 

$

16,883

 

$

689

 

$

17,572

 

Less accumulated amortization

 

(13,971

)

(584

)

(14,555

)

 

 

$

2,912

 

$

105

 

$

3,017

 

 

9



 

Amortization expense for the three and nine months ended January 31, 2004 and 2005 was $435, $353, $1,160 and $1,139, respectively.  The intangible amortization expense estimated as of January 31, 2005, for the five years following 2004 is as follows:

 

2005

 

2006

 

2007

 

2008

 

2009

 

$

1,476

 

$

1,201

 

$

658

 

$

385

 

$

180

 

 

5.             ADOPTION OF NEW ACCOUNTING STANDARDS

 

SFAS 123R, Share-Based Payment, was issued by FASB in December 2004.  SFAS 123R replaces SFAS 123 and supersedes APB Opinion No. 25 requiring public companies to recognize compensation expense for the cost of awards of equity instruments. This compensation cost will be measured as the fair value of the award on the grant date estimated using an option-pricing model. SFAS 123R is effective for interim and annual periods beginning after June 15, 2005.  The Company is evaluating the various transition provisions under SFAS 123R and will adopt SFAS 123R effective August 1, 2005, which is expected to result in increased compensation expense in future periods.

 

6.             LEGAL PROCEEDINGS

 

In the normal course of its business and as a result of the extensive governmental regulation of the waste industry, the Company may periodically become subject to various judicial and administrative proceedings involving Federal, state or local agencies.  In these proceedings, an agency may seek to impose fines on the Company or to revoke, or to deny renewal of, an operating permit held by the Company.  In addition, the Company may become party to various claims and suits for alleged damages to persons and property, alleged violation of certain laws and for alleged liabilities arising out of matters occurring during the normal operation of the waste management business.

 

During the period of November 21, 1996 to October 9, 1997, the Company performed certain closure activities and installed a cut-off wall at the Clinton County landfill, located in Clinton County, New York. On or about April 1999, the New York State Department of Labor (“DOL”) alleged that the Company should have paid prevailing wages in connection with the labor associated with such activities. The Company has disputed the allegations and a hearing on the liability issue was held on September 16, 2002. In November 2002, both sides submitted proposed findings of fact and conclusions of law. On May 12, 2004, the Commissioner of Labor issued an order finding that the closure activities and the cut-off wall project were “public works” projects that were subject to prevailing wage requirements. On June 10, 2004 the Company filed a judicial challenge to the Commissioner’s decision, which was stayed for a 9-month period.  On March 4, 2005, because the DOL is still reviewing the records related to potential damages, the Company made a motion to extend the period for perfecting its appeal, or alternatively, to confirm that a withdrawal of its appeal would be without prejudice and without a waiver of the right to reinstate the appeal upon a final determination of alleged damages.  The Company will continue to explore settlement possibilities with the State in lieu of a hearing on damages, which is not yet scheduled. Although a loss as a result of these claims is probable, the Company cannot estimate a range of probable losses at this time.  A charge incurred by the Company related to these claims will not have an immediate impact on operations but will be capitalized as part of the related landfill asset and amortized over the life of the landfill as tons are placed at the site.

 

The Company is a defendant in certain other lawsuits alleging various claims, 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 any environmental damage, including personal injury and property

 

10



 

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

 

8.             EARNINGS PER SHARE

 

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

 

 

 

Three Months Ended January 31,

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

2004

 

2005

 

Numerator:

 

 

 

 

 

 

 

 

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

$

1,486

 

$

1,397

 

$

10,654

 

$

7,643

 

Less: Preferred stock dividends

 

(818

)

(829

)

(2,423

)

(2,499

)

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle available to common stockholders

 

$

668

 

$

568

 

$

8,231

 

$

5,144

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

Number of shares outstanding, end of period:

 

 

 

 

 

 

 

 

 

Class A common stock

 

23,189

 

23,857

 

23,189

 

23,857

 

Class B common stock

 

988

 

988

 

988

 

988

 

Effect of weighted average shares outstanding during period

 

(115

)

(77

)

(258

)

(220

)

Weighted average number of common shares used in basic EPS

 

24,062

 

24,768

 

23,919

 

24,625

 

Impact of potentially dilutive securities:

 

 

 

 

 

 

 

 

 

Dilutive effect of options, convertible preferred stock and contingent stock

 

733

 

612

 

508

 

500

 

Weighted average number of common shares used in diluted EPS

 

24,795

 

25,380

 

24,427

 

25,125

 

 

For the three and nine months ended January 31, 2004, 6,195 and 6,703 common stock equivalents related to options and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

For the three and nine months ended January 31, 2005, 6,002 and 6,309 common stock equivalents related to options and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

 

9.             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 income included in the accompanying balance sheets consists of changes in the fair value of the Company’s interest rate swap and commodity hedge agreements as well as the cumulative effect of the change in accounting principle due to the adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended.  Also included in accumulated other comprehensive income is the

 

11



 

Company’s portion of the change in the fair value of commodity hedge agreements of the Company’s equity method investment, US GreenFiberComprehensive income for the three and nine months ended January 31, 2004 and 2005 is as follows:

 

 

 

Three Months Ended January 31,

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

2004

 

2005

 

Net income

 

$

1,490

 

$

1,397

 

$

13,377

 

$

7,633

 

Other comprehensive income (loss)

 

(1,034

)

427

 

(569

)

460

 

Comprehensive income

 

$

456

 

$

1,824

 

$

12,808

 

$

8,093

 

 

The components of other comprehensive income for the three and nine months ended January 31, 2004 and 2005 are shown as follows:

 

 

 

Three Months Ended

 

 

 

January 31, 2004

 

January 31, 2005

 

 

 

Gross

 

Tax effect

 

Net of Tax

 

Gross

 

Tax effect

 

Net of Tax

 

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

 

$

 (1,738

)

$

 (704

)

$

 (1,034

)

$

 719

 

$

 292

 

$

 427

 

 

 

 

Nine Months Ended

 

 

 

January 31, 2004

 

January 31, 2005

 

 

 

Gross

 

Tax effect

 

Net of Tax

 

Gross

 

Tax effect

 

Net of Tax

 

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

 

$

 (956

)

$

 (387

)

$

(569

)

$

 777

 

$

 317

 

$

 460

 

 

 

10.          DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

 

The Company’s strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales.  The Company is party to twenty-five commodity hedge contracts as of January 31, 2005.  These contracts expire between April 2005 and October 2006.  The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended.  As of January 31, 2005 the fair value of these hedges was an obligation of $1,695, with the net amount (net of taxes of $674) recorded as an unrealized loss in accumulated other comprehensive income.

 

The Company is party to two interest swap agreements as of January 31, 2005 for an aggregate notional amount of $53,000 expiring in February 2006.  The Company has evaluated these swaps and believes these instruments qualify for hedge accounting pursuant to SFAS No. 133. As of January 31, 2005, the fair value of these swaps was $430, with the net amount (net of taxes of $173) recorded as an unrealized gain in accumulated other comprehensive income. The estimated net amount of the existing gains as of January 31, 2005 included in accumulated other comprehensive income expected to be reclassified into earnings as payments are either made or received under the terms of the interest rate swaps within the next 12 months is approximately $403. The actual amounts reclassified into earnings are dependent on future movements in interest rates.

 

12



 

11.          STOCK BASED COMPENSATION PLANS

 

The Company has elected to account for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, for which no compensation expense is recorded in the statements of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the underlying common stock on the grant date.

 

During fiscal 1996, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation, which defines a fair value based method of accounting for stock-based employee compensation and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans using the intrinsic method of accounting prescribed by APB Opinion No. 25. Entities electing to remain with the accounting in APB Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied. In addition, the Company has adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure.  FASB issued SFAS 123R in December 2004 requiring public companies to recognize compensation expense for the cost of awards of equity instruments. (See footnote #5).

 

In accordance with SFAS No. 123 and SFAS No. 148, the Company has computed, for pro forma disclosure purposes, the value as of the grant date of all options granted using the Black-Scholes option pricing model as prescribed by SFAS No. 123, using the following weighted average assumptions for grants in the nine months ended January 31, 2004 and 2005.

 

 

 

Nine Months Ended
January 31, 2004

 

Nine Months Ended
January 31, 2005

 

 

 

 

 

 

 

Risk free interest rate

 

2.34 - 3.23

%

3.39 - 3.97

%

Expected dividend yield

 

N/A

 

N/A

 

Expected life

 

5 Years

 

5 Years

 

Expected volatility

 

45.88

%

40.90

%

 

The total value of options granted would be amortized on a pro forma basis over the vesting period of the options. Options generally vest over a one to three year period. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company’s net income and net income per share would have changed as reflected in the following pro forma amounts:

 

 

 

Three Months Ended January 31,

 

Nine Months Ended January 31,

 

 

 

2004

 

2005

 

2004

 

2005

 

Net income available to common stockholders, as reported

 

$

672

 

$

568

 

$

10,954

 

$

5,134

 

Deduct: Total stock-based compensation expense determined under fair value based method, net of income taxes

 

287

 

349

 

861

 

1,186

 

Net income available to common stockholders, pro forma

 

$

385

 

$

219

 

$

10,093

 

$

3,948

 

 

 

 

 

 

 

 

 

 

 

Basic income per common share:

 

 

 

 

 

 

 

 

 

As reported

 

$

0.03

 

$

0.02

 

$

0.45

 

$

0.21

 

Pro forma

 

$

0.02

 

$

0.01

 

$

0.42

 

$

0.16

 

Diluted income per common share:

 

 

 

 

 

 

 

 

 

As reported

 

$

0.03

 

$

0.02

 

$

0.45

 

$

0.20

 

Pro forma

 

$

0.02

 

$

0.01

 

$

0.41

 

$

0.16

 

 

13



 

12.          SEGMENT REPORTING

 

SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, 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.  Effective November 1, 2004 the Eastern region was divided into the North Eastern and South Eastern regions because of a change in the Company’s internal reporting structure.  Therefore, segment data for the three and nine months ended January 31, 2005 has been revised to reflect changes in the Company’s segment classifications.

 

The Company classifies its operations into North Eastern, South Eastern, Central, Western and FCR Recycling.  The Company’s revenues in the North Eastern, South Eastern, Central and Western segments are derived mainly from one industry segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste.  The North Eastern region also includes Maine Energy, which generates electricity from non-hazardous solid waste. The Company’s revenues in the FCR Recycling segment are derived from integrated waste handling services, including processing and recycling of wood, paper, metals, aluminum, plastics and glass.  In June 2003 the Company transferred its domestic brokerage operation and a commercial recycling business to former employees who had managed those businesses.  Included in “Other” are ancillary operations, mainly major customer accounts and earnings from equity method investees.

 

14



 

 

 

North Eastern
Region

 

South Eastern
Region

 

Central
Region

 

Western
Region

 

FCR
Recycling

 

Three Months Ended January 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

20,256

 

$

19,734

 

$

23,524

 

$

17,947

 

$

18,535

 

Inter-segment Revenues

 

5,679

 

5,758

 

11,164

 

3,980

 

172

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

734

 

(3,294

)

3,567

 

(148

)

1,517

 

Total Assets

 

$

150,614

 

$

119,460

 

$

114,938

 

$

118,214

 

$

65,515

 

 

 

 

 

Other

 

Eliminations

 

Total

 

Three Months Ended January 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

4,148

 

$

 

$

104,144

 

Inter-segment Revenues

 

 

(26,753

)

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

(890

)

 

1,486

 

Total Assets

 

$

82,483

 

$

 

$

651,224

 

 

 

 

 

North Eastern
Region

 

South Eastern
Region

 

Central
Region

 

Western
Region

 

FCR
Recycling

 

Three Months Ended January 31, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

23,099

 

$

20,110

 

$

25,638

 

$

22,093

 

$

21,254

 

Inter-segment Revenues

 

5,504

 

6,264

 

12,575

 

5,256

 

120

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

(115

)

(5,391

)

3,889

 

415

 

2,825

 

Total Assets

 

$

173,840

 

$

132,618

 

$

123,937

 

$

146,372

 

$

55,291

 

 

 

 

 

Other

 

Eliminations

 

Total

 

Three Months Ended January 31, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

3,886

 

$

 

$

116,080

 

Inter-segment Revenues

 

3

 

(29,722

)

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

(226

)

 

1,397

 

Total Assets

 

$

71,830

 

$

 

$

703,888

 

 

15



 

 

 

North Eastern
Region

 

South Eastern
Region

 

Central
Region

 

Western
Region

 

FCR
Recycling

 

Nine Months Ended January 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

63,573

 

$

63,929

 

$

76,372

 

$

57,374

 

$

55,924

 

Inter-segment Revenues

 

19,325

 

18,677

 

36,864

 

11,583

 

1,074

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

4,205

 

(9,287

)

14,512

 

1,284

 

2,472

 

Total Assets

 

$

150,614

 

$

119,460

 

$

114,938

 

$

118,214

 

$

65,515

 

 

 

 

 

Other

 

Eliminations

 

Total

 

Nine Months Ended January 31, 2004

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

12,759

 

$

(790

)

$

329,141

 

Inter-segment Revenues

 

2,394

 

(89,917

)

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

(2,532

)

 

10,654

 

Total Assets

 

$

82,483

 

$

 

$

651,224

 

 

 

 

 

North Eastern
Region

 

South Eastern
Region

 

Central
Region

 

Western
Region

 

FCR
Recycling

 

Nine Months Ended January 31, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

70,309

 

$

68,600

 

$

83,472

 

$

70,775

 

$

61,100

 

Inter-segment Revenues

 

18,600

 

22,690

 

41,234

 

16,127

 

378

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

423

 

(13,812

)

16,088

 

4,078

 

7,509

 

Total Assets

 

$

173,840

 

$

132,618

 

$

123,937

 

$

146,372

 

$

55,291

 

 

 

 

 

Other

 

Eliminations

 

Total

 

Nine Months Ended January 31, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outside Revenues

 

$

11,877

 

$

 

$

366,133

 

Inter-segment Revenues

 

3

 

(99,032

)

 

Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle

 

(6,643

)

 

7,643

 

Total Assets

 

$

71,830

 

$

 

$

703,888

 

 

16



 

Amounts of the Company’s total revenue attributable to services provided are as follows:

 

 

 

Three Months Ended
January 31,

 

Nine Months Ended
January 31,

 

 

 

2004(1)

 

2005

 

2004(1)

 

2005

 

Collection

 

$

53,863

 

$

56,578

 

$

172,064

 

$

180,424

 

Landfill/disposal facilities

 

16,926

 

18,779

 

52,302

 

61,304

 

Transfer

 

8,383

 

9,570

 

29,681

 

32,686

 

Recycling

 

24,972

 

31,153

 

71,799

 

91,719

 

Brokerage

 

 

 

3,295

 

 

Total revenues

 

$

104,144

 

$

116,080

 

$

329,141

 

$

366,133

 


(1)           Revenue attributable to services provided for the three and nine months ended January 31, 2004 has been revised to conform with the classification of revenue attributable to services provided in the current fiscal year.

 

13.          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.

 

The Company has not accounted for this transaction as a sale based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyer. The net assets of the operations are disclosed in the balance sheet as “net assets under contractual obligation”, and are being reduced as payments are made.

 

Net assets under contractual obligation amounted to $2,148 and $1,406 at April 30, 2004 and January 31, 2005, respectively.

 

14.          CONDENSED CONSOLIDATING FINANCIAL INFORMATION

 

The Company’s senior subordinated notes due 2013 are guaranteed jointly and severally, fully and unconditionally by the Company’s significant wholly-owned subsidiaries. The Company 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, 2004 and January 31, 2005, and the condensed consolidating results of operations for the three and nine months ended January 31, 2004 and 2005 and the condensed consolidating statements of cash flows for the nine months ended January 31, 2004 and 2005 of (a) the parent company only (“the Parent”), (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.

 

17



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2004

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

 

 

 

Parent

 

Guarantors

 

Non-
Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,794

 

$

5,815

 

$

398

 

$

 

$

8,007

 

Accounts receivable - trade, net of allowance for doubtful accounts

 

83

 

48,096

 

1,283

 

 

49,462

 

Prepaid expenses

 

1,504

 

3,457

 

 

(797

)

4,164

 

Other current assets

 

5,436

 

2,494

 

13,247

 

 

21,177

 

Total current assets

 

8,817

 

59,862

 

14,928

 

(797

)

82,810

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,764

 

367,589

 

1,685

 

 

372,038

 

Intangible assets, net

 

 

157,230

 

 

 

157,230

 

Deferred income taxes

 

5,631

 

 

 

 

5,631

 

Investment in subsidiaries

 

(35,115

)

 

 

35,115

 

 

Investments in unconsolidated entities

 

13,105

 

29,188

 

 

(4,379

)

37,914

 

Assets under contractual obligation

 

 

2,148

 

 

 

2,148

 

Other non-current assets

 

11,849

 

6,537

 

120

 

 

18,506

 

 

 

(1,766

)

562,692

 

1,805

 

30,736

 

593,467

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

559,165

 

(561,476

)

(2,069

)

4,380

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

566,216

 

$

61,078

 

$

14,664

 

$

34,319

 

$

676,277

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long term debt

 

$

1,500

 

$

1,942

 

$

2,100

 

$

 

$

5,542

 

Accounts payable

 

1,780

 

37,516

 

738

 

 

40,034

 

Accrued interest

 

6,022

 

2

 

 

 

6,024

 

Accrued closure and post-closure costs, current portion

 

 

1,928

 

543

 

 

2,471

 

Other current liabilities

 

4,787

 

18,354

 

10,956

 

(797

)

33,300

 

Total current liabilities

 

14,089

 

59,742

 

14,337

 

(797

)

87,371

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

347,957

 

1,206

 

 

 

349,163

 

Capital lease obligations, less current maturities

 

 

1,367

 

 

 

1,367

 

Accrued closure and post closure costs, less current portion

 

 

21,453

 

1,299

 

 

22,752

 

Other long-term liabilities

 

7,039

 

10,040

 

1,414

 

 

18,493

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends

 

67,076

 

 

 

 

67,076

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Class A common stock -

 

 

 

 

 

 

 

 

 

 

 

Authorized - 100,000,000 shares, $0.01 par value; issued and outstanding - 23,496,000 shares

 

235

 

101

 

100

 

(201

)

235

 

Class B common stock -

 

 

 

 

 

 

 

 

 

 

 

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

 

10

 

 

 

 

10

 

Accumulated other comprehensive income

 

408

 

1,933

 

 

(1,933

)

408

 

Additional paid-in capital

 

272,993

 

48,270

 

2,595

 

(50,865

)

272,993

 

Accumulated deficit

 

(143,591

)

(83,034

)

(5,081

)

88,115

 

(143,591

)

Total stockholders’ equity

 

130,055

 

(32,730

)

(2,386

)

35,116

 

130,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

566,216

 

$

61,078

 

$

14,664

 

$

34,319

 

$

676,277

 

 

18



 

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF JANUARY 31, 2005

(Unaudited)

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

 

 

 

Parent

 

Guarantors

 

Non-
Guarantors

 

Elimination

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

(3,562

)

$

10,008

 

$

915

 

$

 

$

7,361

 

Other current assets

 

8,782

 

52,273

 

14,720

 

 

75,775

 

Total current assets

 

5,220

 

62,281

 

15,635

 

 

83,136

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

2,715

 

401,059

 

(826

)

 

402,948

 

Intangible assets, net

 

 

160,492

 

 

 

160,492

 

Investment in subsidiaries

 

(20,052

)

 

 

20,052

 

 

Assets under contractual obligation

 

 

1,406

 

 

 

1,406

 

Other non-current assets

 

24,038

 

36,127

 

120

 

(4,379

)

55,906

 

 

 

6,701

 

599,084

 

(706

)

15,673

 

620,752

 

 

 

 

 

 

 

 

 

 

 

 

 

Intercompany receivable

 

588,677

 

(590,648

)

(2,408

)

4,379

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

600,598

 

$

70,717

 

$

12,521

 

$

20,052

 

$

703,888

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Current maturities of long term debt

 

$

1,500

 

$

344

 

$

1,541

 

$

 

$

3,385

 

Accrued interest

 

10,492

 

91

 

 

 

10,583

 

Accrued closure and post-closure costs, current portion

 

 

4,797

 

588

 

 

5,385

 

Other current liabilities

 

8,267

 

49,653

 

12,425

 

 

70,345

 

Total current liabilities

 

20,259

 

54,885

 

14,554

 

 

89,698

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

365,087

 

593

 

 

 

365,680

 

Other long-term liabilities

 

8,085

 

29,785

 

3,473

 

 

41,343

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES