NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for per share data)
1. BASIS OF PRESENTATION
Casella Waste Systems, Inc. (“Parent”), its consolidated subsidiaries and any partially owned entities over which it has a controlling financial interest (collectively, “we”, “us” or “our”), is a regional, vertically integrated solid waste services company that provides collection, transfer, disposal, landfill, landfill gas-to-energy, recycling and organics services in the northeastern United States. We market recyclable metals, aluminum, plastics, paper and corrugated cardboard, which have been processed at our recycling facilities, as well as recyclables purchased from third-parties. We manage our solid waste operations on a geographic basis through
two
regional operating segments, our Eastern and Western regions, each of which provides a full range of solid waste services, and our larger-scale recycling and commodity brokerage operations through our Recycling segment. Organics services, ancillary operations, major account and industrial services, discontinued operations and earnings from equity method investees, as applicable, are included in our Other segment.
The accompanying consolidated financial statements, which include the accounts of the Parent, our wholly-owned subsidiaries and any partially owned entities over which we have a controlling financial interest, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). All significant intercompany accounts and transactions are eliminated in consolidation. Investments in entities in which we do not have a controlling financial interest are accounted for under either the equity method or the cost method of accounting, as appropriate.
When necessary, certain prior period amounts in the consolidated financial statements, including the presentation of debt issuance costs, have been reclassified to conform to the current period presentation. See Note 2,
Accounting Changes
for discussion regarding changes to the presentation of debt issuance costs and Note 9,
Long-Term Debt
for the updated disclosure.
2. Accounting Changes
A table providing a brief description of recent Accounting Standards Updates (“ASU”) to the Accounting Standards Codification (“ASC”) issued by the Financial Accounting Standards Board (“FASB”) deemed to have a potentially material effect on our consolidated financial statements upon adoption follows:
Accounting standards that were adopted in fiscal year 2016
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Standard
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Description
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Effect on the Financial Statements or Other
Significant Matters
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ASU 2016-09: Compensation - Stock Compensation (Topic 718)
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Several aspects of the accounting for share-based payment award transactions are simplified, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows.
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The adoption of this ASU resulted in the following: (1) our stock-based compensation accounting policy was updated to record stock-based compensation expense for all equity-based awards by accounting for forfeitures as they occur; (2) our accounting for excess tax benefits and tax deficiencies in the calculation of income tax expense was updated; (3) excess tax benefits are classified as a cash flow from operating activities and are no longer separated from income tax cash flows and classified as a cash flow from financing activities; and (4) the assumed proceeds from applying the treasury stock method when computing earnings per share is amended to exclude excess tax benefits.
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ASU 2015-03 and ASU 2015-15: Imputation of Interest (Topic 835-30)
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These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.
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The adoption of this ASU resulted in the presentation of debt issuance costs on our balance sheet being treated as a direct reduction of the carrying amount of the debt liability rather than a capitalized other non-current asset. See Note 6,
Long-Term Debt
for the updated disclosure.
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A table providing a brief description of recent accounting pronouncements that may have a material effect on our consolidated financial statements upon adoption follows:
Accounting standards that are pending adoption
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Standard
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Description
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Effect on the Financial Statements or Other
Significant Matters
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ASU 2016-02: Leases (Topic 842)
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Requires that a lessee recognize at the commencement date: a lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
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We are currently assessing the provisions of this guidance and evaluating the timing and impact guidance will have on our consolidated financial statements and related disclosures. We are also in the process of aggregating operating lease documentation for review. The adoption of this ASU primarily impacts the balance sheet through the recognition of a right-of-use asset and a lease liability for all leases with terms in excess of 12 months and currently classified as operating leases. This guidance is effective January 1, 2019 using a modified retrospective transition approach with early adoption permitted.
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ASU 2016-01: Financial Instruments - Overall (Topic 825-10)
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Requires the following: (1) equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (2) entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (3) separate presentation of financial assets and financial liabilities by measurement category and form of financial asset; and (4) the elimination of the disclosure requirement to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost.
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The adoption of this guidance results in a cumulative-effect adjustment to the balance sheet, the recognition of changes in fair value of certain equity investments in net income, and enhanced disclosure. This guidance is effective January 1, 2018 with a cumulative-effect adjustment.
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ASU 2014-09, ASU 2015-14, ASU 2016-06, ASU 2016-10, ASU 2016-12 and ASU 2016-20: Revenue from Contracts with Customers (Topic 606)
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The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
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We are currently evaluating the alternative methods of adoption and the effect of this guidance on our consolidated financial statements and related disclosures. To assess the impact of this standard, our internal resources have read the amended guidance and attended training to assist with interpretation of the amended guidance. We are also in the process of identifying material contracts and revenue streams that are impacted by this guidance. This guidance is effective January 1, 2018 using a full or modified retrospective approach with early adoption permitted January 1, 2017.
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3. Summary of Significant Accounting Policies
Management’s Estimates and Assumptions
Preparation of our consolidated financial statements in accordance with GAAP requires management to make certain estimates and assumptions. These estimates and assumptions affect the accounting for and recognition and disclosure of assets, liabilities, equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is dependent on future events, cannot be calculated with a high degree of precision given the available data or simply cannot be readily calculated. In some cases, these estimates are difficult to determine, and we must exercise significant judgment. In preparing our consolidated financial statements, the estimates and assumptions that we consider to be significant and that present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, asset impairments, accounts receivable valuation allowance, self-insurance reserves, deferred taxes and uncertain tax positions, estimates of the fair values of assets acquired and liabilities assumed in any acquisition, contingent liabilities and stock-based compensation. Each of these items is discussed in more detail elsewhere in these notes to consolidated financial statements. Actual results may differ materially from the estimates and assumptions that we use in the preparation of our consolidated financial statements.
Change in Fiscal Year
In June 2014, we elected to change our fiscal year-end from April 30
th
to December 31
st
. This change in fiscal year became effective for our fiscal year beginning January 1, 2015 and ended December 31, 2015. As a result of this change, we filed a Transition Report on Form 10-KT for the eight-month transition period ended December 31, 2014. The references in these notes to the consolidated financial statements to the terms below reflect the respective reporting periods presented in the consolidated financial statements:
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Term
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Financial Reporting Period
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fiscal year 2016
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January 1, 2016 through December 31, 2016
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fiscal year 2015
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January 1, 2015 through December 31, 2015
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transition period 2014
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May 1, 2014 through December 31, 2014
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fiscal year 2014
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May 1, 2013 through April 30, 2014
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Cash and Cash Equivalents
We consider all highly liquid investments purchased with original maturities of
three months
or less to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted cash, accounts receivable-trade and derivative instruments. We maintain cash and cash equivalents and restricted cash with banks that at times exceed applicable insurance limits. We reduce our exposure to credit risk by maintaining such deposits with high quality financial institutions. Our concentration of credit risk with respect to accounts receivable-trade is limited because of the large number and diversity of customers we serve, thus reducing the credit risk associated with any one customer group. As of
December 31, 2016
, no single customer or customer group represented greater than
5%
of total accounts receivable - trade. We manage credit risk through credit evaluations, credit limits, and monitoring procedures, but generally do not require collateral to support accounts receivable - trade. We reduce our exposure to credit risk associated with derivative instruments by entering into agreements with high quality financial institutions and by evaluating and regularly monitoring their creditworthiness.
Accounts Receivable – Trade, Net of Allowance for Doubtful Accounts
Accounts receivable – trade represent receivables from customers for collection, transfer, recycling, disposal and other services. Our accounts receivable – trade are recorded when billed or when related revenue is earned, if earlier, and represent claims against third-parties that will be settled in cash. The carrying value of our accounts receivable – trade, net of allowance for doubtful accounts, represents its estimated net realizable value. Estimates are used in determining our allowance for doubtful accounts based on our historical collection experience, current trends, credit policy and a review of our accounts receivable – trade by aging category. Our reserve is evaluated and revised on a monthly basis. Past due accounts receivable - trade are written off when deemed to be uncollectible.
Inventory
Inventory includes secondary fibers, recyclables ready for sale, and parts and supplies. Inventory is stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost, less accumulated depreciation and amortization. We provide for depreciation and amortization using the straight-line method by charges to operations in amounts that allocate the cost of the assets over their estimated useful lives as follows:
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Asset Classification
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Estimated
Useful Life
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Buildings and improvements
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10-30 years
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Machinery and equipment
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5-10 years
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Rolling stock
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5-10 years
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Containers
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5-12 years
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Furniture and Fixtures
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3-8 years
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The cost of maintenance and repairs is charged to operations as incurred.
Landfill development costs are included in property, plant and equipment. Landfill development costs include costs to develop each of our landfill sites, including such costs related to landfill liner material and installation, excavation for airspace, landfill leachate collection systems, landfill gas collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized interest, on-site road construction, and other capital infrastructure. Additionally, landfill development costs include all land purchases within the landfill footprint and the purchase of any required landfill buffer property. Under life-cycle accounting, these costs are capitalized and charged to expense based on tonnage placed into each site. See the “
Landfill Accounting
” accounting policy below for disclosure over the amortization of landfill development costs and Note 6,
Property, Plant and Equipment
for disclosure over property, plant and equipment.
Landfill Accounting
Life Cycle Accounting
Under life-cycle accounting, all costs related to acquisition and construction of landfill sites are capitalized and charged to expense based on tonnage placed into each site. Landfill permitting, acquisition and preparation costs are amortized on the units-of-consumption method as landfill airspace is consumed. In determining the amortization rate for each of our landfills, preparation costs include the total estimated costs to complete construction of the landfills’ permitted and expansion capacity.
Landfill Development Costs
We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity (see landfill development costs discussed within the “
Property, Plant and Equipment
” accounting policy above). The projection of these landfill costs is dependent, in part, on future events. The remaining amortizable basis of each landfill includes costs to develop a site to its remaining permitted and expansion capacity and includes amounts previously expended and capitalized, net of accumulated airspace amortization, and projections of future purchase and development costs including capitalized interest. The interest capitalization rate is based on our weighted average interest rate incurred on borrowings outstanding during the period. Interest capitalized during fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014. was
$273
,
$62
,
$333
and
$256
, respectively.
Landfill Airspace
We apply the following guidelines in determining a landfill’s remaining permitted and expansion airspace:
Remaining Permitted Airspace.
Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey, which is then used to compare the existing landfill topography to the expected final landfill topography.
Expansion Airspace
. We currently include unpermitted expansion airspace in our estimate of remaining permitted and expansion airspace in certain circumstances. To be considered expansion airspace all of the following criteria must be met:
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we control the land on which the expansion is sought;
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all technical siting criteria have been met or a variance has been obtained or is reasonably expected to be obtained;
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we have not identified any legal or political impediments which we believe will not be resolved in our favor;
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we are actively working on obtaining any necessary permits and we expect that all required permits will be received; and
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senior management has approved the project.
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For unpermitted airspace to be included in our estimate of remaining permitted and expansion airspace, the expansion effort must meet all of the criteria listed above. These criteria are evaluated annually by our engineers, accountants, lawyers, managers and others to identify potential obstacles to obtaining the permits. Once the remaining permitted and expansion airspace is determined in cubic yards, an airspace utilization factor (“AUF”) is established to calculate the remaining permitted and expansion capacity in tons. The AUF is established using the measured density obtained from annual surveys. When we include the expansion airspace in our calculation of remaining permitted and expansion airspace, we include the projected costs for development, as well as the projected asset retirement costs related to final capping, closure and post-closure of the expansion airspace in the amortization basis of the landfill.
After determining the costs and the remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates that will be expensed as waste is received and deposited at each of our landfills by dividing the costs by the corresponding number of tons. We calculate per ton amortization rates for assets associated with each final capping event, for assets related to closure and post-closure activities and for all other costs capitalized or to be capitalized in the future for each landfill. These rates per ton are updated annually, or more frequently, as significant facts change.
It is possible that actual results, including the amount of costs incurred, the timing of final capping, closure and post-closure activities, our airspace utilization or the success of our expansion efforts could ultimately turn out to be significantly different from our estimates and assumptions. To the extent that such estimates or related assumptions prove to be significantly different than actual results, lower profitability may be experienced due to higher amortization rates, higher final capping, closure or post-closure rates, or higher expenses. Higher profitability may result if the opposite occurs. Most significantly, if it is determined that the expansion capacity should no longer be considered in calculating the recoverability of the landfill asset, we may be required to recognize an asset impairment. If it is determined that the likelihood of receiving an expansion permit has become remote, the capitalized costs related to the expansion effort are expensed immediately.
Final Capping, Closure and Post-Closure Costs
The following is a description of our landfill asset retirement activities and related accounting:
Final Capping Costs.
Final capping activities include the installation of liners, drainage, compacted soil layers and topsoil over areas of a landfill where total airspace has been consumed and waste is no longer being received. Final capping activities occur throughout the life of the landfill. Our engineering personnel estimate the cost for each final capping event based on the acreage to be capped, along with the final capping materials and activities required. The estimates also consider when these costs would actually be paid and factor in inflation and discount rates. The engineers then quantify the landfill capacity associated with each final capping event and the costs for each event are amortized over that capacity as waste is received at the landfill.
Closure and Post-Closure Costs.
Closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill after a landfill facility ceases to accept waste and closes. We estimate, based on input from our engineers, accountants, lawyers, managers and others, our future cost requirements for closure and post-closure monitoring and maintenance based on our interpretation of the technical standards of the Subtitle D regulations and the air emissions standards under the Clean Air Act of 1970, as amended, as they are being applied on a state-by-state basis. Closure and post-closure accruals for the cost of monitoring and maintenance include site inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operation and maintenance costs to be incurred for a period which is generally for a term of
30
years after final closure of a landfill. In determining estimated future closure and post-closure costs, we consider costs associated with permitted and permittable airspace.
Our estimated future final capping, closure and post-closure costs, based on our interpretation of current requirements and proposed regulatory changes, are intended to approximate fair value. Absent quoted market prices, our cost estimates are based on historical experience, professional engineering judgment and quoted or actual prices paid for similar work. Our estimate of costs to discharge final capping, closure and post-closure asset retirement obligations for landfills are developed in today’s dollars. These costs are then inflated to the period of performance using an estimate of inflation, which is updated annually (
1.7%
as of
December 31, 2016
). Final capping, closure and post-closure liabilities are discounted using the credit adjusted risk-free rate in effect at the time the obligation is incurred. The weighted average rate applicable to our asset retirement obligations as of
December 31, 2016
is between approximately
9.2%
and
9.9%
, the range of the credit adjusted risk free rates effective since the adoption of guidance associated with asset retirement obligations in the fiscal year ended April 30, 2004. Accretion expense is necessary to increase the accrued final capping, closure and post-closure liabilities to the future anticipated obligation. To accomplish this, we accrete our final capping, closure and post-closure accrual balances using the same credit-adjusted risk-free rate that was used to calculate the recorded liability. Accretion expense on recorded landfill liabilities is recorded to cost of operations from the time the liability is recognized until the costs are paid. Accretion expense on recorded landfill liabilities amounted to
$3,606
,
$3,370
,
$2,275
and
$3,967
in fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, respectively.
We provide for the accrual and amortization of estimated future obligations for closure and post-closure based on tonnage placed into each site. With regards to final capping, the liability is recognized and the costs are amortized based on the airspace related to the specific final capping event. See Note 8,
Final Capping, Closure and Post-Closure Costs
for disclosure over asset retirement obligations related to final capping, closure and post-closure costs.
We operate in states which require a certain portion of landfill final capping, closure and post-closure obligations to be secured by financial assurance, which may take the form of surety bonds, letters of credit and restricted cash and investments. Surety bonds securing closure and post-closure obligations at
December 31, 2016
and
December 31, 2015
totaled
$161,095
and
$156,163
, respectively. Letters of credit securing closure and post-closure obligations as of
December 31, 2016
and
December 31, 2015
totaled
$0
and
$1,000
, respectively. See Note 5,
Restricted Cash / Restricted Assets
for disclosure over restricted cash securing closure and post-closure obligations.
Landfill Operating Lease Contracts
We are entered into
five
landfill operation and management agreements. These agreements are long-term landfill operating contracts with government bodies whereby we receive tipping revenue, pay normal operating expenses and assume future final capping, closure and post-closure liabilities. The government body retains ownership of the landfill. There is no bargain purchase option and title to the property does not pass to us at the end of the lease term. We allocate the consideration paid to the landfill airspace rights and underlying land lease based on the relative fair values.
In addition to up-front or one-time payments, the landfill operating agreements may require us to make future minimum rental payments, including success/expansion fees, other direct costs and final capping, closure and post-closure costs. The value of all future minimum rental payments is amortized and charged to cost of operations over the life of the contract. We amortize the consideration allocated to airspace rights as airspace is utilized on a units-of-consumption basis and such amortization is charged to cost of operations as airspace is consumed (e.g., as tons are placed into the landfill). The underlying value of any land lease is amortized to cost of operations on a straight-line basis over the estimated life of the operating agreement. See Note 6,
Property, Plant and Equipment
for disclosure over depletion of landfill operating lease contracts.
Leases
We lease property and equipment in the ordinary course of our business. Our most significant lease obligations are for property and equipment specific to our industry. Our leases have varying terms. Some may include renewal or purchase options, escalation clauses, restrictions, lease concessions, capital project funding, penalties or other obligations that we consider in determining minimum rental payments. Leases are classified as either operating leases or capital leases, as appropriate.
Operating Leases.
Many of our leases are operating leases. This classification generally can be attributed to either (i) relatively low fixed minimum rental payments or (2) minimum lease terms that are much shorter than the assets’ economic useful lives. We expect that, in the normal course of business, our operating leases will be replaced by other leases, or replaced with fixed asset expenditures. See Note 10,
Commitments and Contingencies
for disclosure over future minimum lease payments related to our operating leases.
Capital Leases.
We capitalize assets acquired under capital leases at the inception of each lease and amortize them to depreciation expense over the lesser of the useful life of the asset or the lease term, as appropriate. The present value of the related lease payments is recorded as a debt obligation. See Note 9,
Long-Term Debt and Capital Leases
for disclosure over our future maturities of debt, which includes capital lease payments.
Goodwill and Intangible Assets
Goodwill.
Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not amortize goodwill, but as discussed in the “
Asset Impairments
” accounting policy below, we assess our goodwill for impairment at least annually. See Note 7,
Goodwill and Intangible Assets
for disclosure over goodwill.
Intangible Assets.
Intangible assets consist primarily of covenants not-to-compete and customer lists. Intangible assets are recorded at fair value and are amortized based on the economic benefit provided or using the straight-line method over their estimated useful lives. Covenants not-to-compete and customer lists are typically amortized over a term of no more than
10 years
. See Note 7,
Goodwill and Intangible Assets
for disclosure over intangible assets.
Investments in Unconsolidated Entities
Investments in unconsolidated entities over which we have significant influence over the investees’ operating and financing activities are accounted for under the equity method of accounting. Investments in affiliates in which we do not have the ability to exert significant influence over the investees’ operating and financing activities are accounted for under the cost method of accounting. As of
December 31, 2016
and
December 31, 2015
, we had no investments accounted for under the equity method of accounting.
We monitor and assess the carrying value of our investments throughout the year for potential impairment and write them down to their fair value when other-than-temporary declines exist. Fair value is generally based on (i) other third-party investors’ recent transactions in the securities; (ii) other information available regarding the current market for similar assets and/or (iii) a market or income approach, as deemed appropriate.
When we assess the carrying value of our investments for potential impairment, determining the fair value of our investments is reliant upon the availability of market information and/or other information provided by third-parties to be able to develop an estimate of fair value. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, our estimates are not necessarily indicative of the amounts that we, or other holders of these investments, could realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a significant effect on the estimated fair values. The current estimates of fair value could differ significantly from the amounts presented. See
“Asset Impairments”
accounting policy below and Note 12,
Fair Value of Financial Instruments
for further disclosure over our investments.
Equity Method Investments
GreenFiber.
In the fiscal year ended April 30, 2001, we entered into a joint venture agreement with Louisiana-Pacific Corporation (“LP”) to combine our respective cellulose insulation businesses into a single operating entity, US GreenFiber LLC (“GreenFiber”). In fiscal year 2014, we and LP executed a purchase and sale agreement with a limited liability company formed by Tenex Capital Partners, L.P., pursuant to which we and LP agreed to sell our membership interests in GreenFiber for total cash consideration of
$18,000
plus an expected working capital true up less any indebtedness and other unpaid transaction costs of GreenFiber as of the closing date. The transaction was completed in fiscal year 2014 for
$19,194
in gross cash proceeds, including a
$1,194
working capital adjustment. After netting indebtedness of GreenFiber and transaction costs, our portion of the net cash proceeds based on our
50%
membership interest amounted to
$3,442
. After considering the
$593
impact of our unrealized losses relating to derivative instruments in accumulated other comprehensive loss on our investment in GreenFiber, we recorded a gain on sale of equity method investment of
$593
in fiscal year 2014. We had previously accounted for our
50%
membership interest in GreenFiber using the equity method of accounting.
Tompkins.
In the fiscal year ended April 30, 2012, we finalized the terms of a joint venture agreement with FCR, LLC (“FCR”) to form Tompkins County Recycling LLC (“Tompkins”), a joint venture that operates a material recovery facility (“MRF”) located in Tompkins County, New York and processes and sells commodities delivered to the Tompkins MRF. In fiscal year 2014, we purchased the remaining
50%
membership interest of Tompkins for total cash consideration of
$425
. The acquisition-date fair value of our investment in Tompkins, which was determined using the cost approach based on an assessment of the price to purchase the acquired assets of Tompkins, prior to the acquisition date was
$300
. We recognized a
$106
gain through loss from equity method investments due to the remeasurement in fiscal year 2014. As a result of the purchase, we no longer account for our investment in Tompkins using the equity method of accounting and began including the results of Tompkins in our consolidated financial statements.
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, accounts receivable-trade, restricted cash and investments held in trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and post-closure costs and restricted cash reserved to finance certain capital projects, interest rate derivatives, trade payables and long-term debt. Accounting standards include disclosure requirements around fair values used for certain financial instruments and establish a fair value hierarchy. The three-tier hierarchy prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data. See Note 9,
Long-Term Debt and Capital Leases
and Note 12,
Fair Value of Financial Instruments
for fair value disclosure over long-term debt and financial instruments, respectively. See the “
Derivatives and Hedging
” accounting policy below for the fair value disclosure over interest rate derivatives.
Business Combinations
We acquire businesses in the waste industry, including non-hazardous waste collection, transfer station, recycling and disposal operations, as part of our growth strategy. Businesses are included in the consolidated financial statements from the date of acquisition.
We recognize, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition-date fair values. We measure and recognize goodwill as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any noncontrolling interest in the acquiree (if any) and the acquisition date fair value of our previously held equity interest in the acquiree (if any), over (b) the fair value of net assets acquired and liabilities assumed. If information about facts and circumstances existing as of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, we will report provisional amounts for the items for which the accounting is incomplete. The measurement period ends once we receive the information we were seeking; however, this period will not extend beyond one year from the acquisition date. Any material adjustments recognized during the measurement period will be recognized retrospectively in the consolidated financial statements of the current period. All acquisition related transaction and restructuring costs are to be expensed as incurred. See Note 4,
Business Combinations
for disclosure over business acquisitions
.
Environmental Remediation Liabilities
We have recorded environmental remediation liabilities representing our estimate of the most likely outcome of the matters for which we have determined that a liability is probable. These liabilities include potentially responsible party investigations, settlements, certain legal and consultant fees, as well as costs directly associated with site investigation and clean up, such as materials and incremental internal costs directly related to the remedy. We provide for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. We estimate costs required to remediate sites where it is probable that a liability has been incurred based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed using third-party environmental engineers or other service providers. Where we believe that both the amount of a particular environmental remediation liability and timing of payments are reliably determinable, we inflate the cost in current dollars until the expected time of payment and discount the cost to present value. See Note 10,
Commitments and Contingencies
for disclosure over environmental remediation liabilities.
Self-Insurance Liabilities and Related Costs
We are self-insured for vehicles and workers’ compensation with reinsurance coverage limiting our maximum exposure. Our maximum exposure in fiscal year
2016
under the workers’ compensation plan was
$1,000
per individual event. Our maximum exposure in fiscal year
2016
under the automobile plan was
$1,200
per individual event. The liability for unpaid claims and associated expenses, including incurred but not reported losses, is determined by management with the assistance of a third-party actuary and reflected in our consolidated balance sheet as an accrued liability. We use a third-party to track and evaluate actual claims experience for consistency with the data used in the annual actuarial valuation. The actuarially determined liability is calculated based on historical data, which considers both the frequency and settlement amount of claims. Our self-insurance reserves totaled
$13,707
and
$11,560
as of
December 31, 2016
and
December 31, 2015
, respectively. Our estimated accruals for these liabilities could be significantly different than our ultimate obligations if variables such as the frequency or severity of future events differ significantly from our assumptions.
Income Taxes
We use estimates to determine our provision for income taxes and related assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Valuation allowances have been established for the possibility that tax benefits may not be realized for certain deferred tax assets. Deferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using currently enacted tax rates. We record net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In the event we determine that we would be able to realize our deferred income tax assets in the future in excess of their net recorded amount, we will make an adjustment to the valuation allowance which would reduce the provision for income taxes.
We account for income tax uncertainties according to guidance on the recognition, de-recognition and measurement of potential tax benefits associated with tax positions. We recognize interest and penalties relating to income tax matters as a component of income tax expense. See Note 14,
Income Taxes
for disclosure related to income taxes.
Derivatives and Hedging
We account for derivatives and hedging activities in accordance with derivatives and hedging accounting guidance that establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The guidance also requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Our objective for utilizing derivative instruments is to reduce our exposure to fluctuations in cash flows due to changes in the commodity prices of recycled paper and adverse movements in interest rates.
Our 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. We evaluate the hedges and ensure that these instruments qualify for hedge accounting pursuant to derivative and hedging guidance. Designated as effective cash flow hedges, the change in the fair value of these derivatives is recorded in our stockholders’ deficit as a component of accumulated other comprehensive (loss) income until the hedged item is settled and recognized as part of commodity revenue.
If the price per short ton of the underlying commodity, as reported on the Official Board Market, is less than the contract price per short ton, we receive the difference between the average price and the contract price (multiplied by the notional tons) from the respective counter-party. If the price per short ton of the underlying commodity exceeds the contract price per short ton, we pay the calculated difference to the counter-party.
The fair value of commodity hedges are obtained or derived from our counter-parties using valuation models that take into consideration market price assumptions for commodities based on underlying active markets. We were not party to any commodity hedge contracts as of
December 31, 2016
.
Our strategy to hedge against fluctuations in variable interest rates involves entering into interest rate derivative agreements to hedge against adverse movements in interest rates. For interest rate derivatives deemed to be effective cash flow hedges, the change in fair value is recorded in our stockholders’ deficit as a component of accumulated other comprehensive (loss) income and included in interest expense at the same time as interest expense is affected by the hedged transaction. Differences paid or received over the life of the agreements are recorded as additions to or reductions of interest expense on the underlying debt. We were not party to any interest rate derivative agreements deemed to be effective cash flow hedges as of
December 31, 2016
.
For interest rate derivatives deemed to be ineffective cash flow hedges, the change in fair value is recorded through earnings and included in loss (gain) on derivative instruments. We were party to
one
interest rate swap deemed to be an ineffective cash flow hedge that matured on
March 15, 2016
and were party to another interest rate swap deemed to be an ineffective cash flow hedge that was settled in fiscal year 2015 for
$830
in conjunction with the refinancing of our senior revolving credit and letter of credit facility that was due
March 18, 2016
(“Refinanced Revolving Credit Facility”). See Note 12,
Fair Value of Financial Instruments
for fair value disclosure over derivative instruments.
In January 2017, we entered into
three
interest rate agreements to hedge interest rate risk associated with the variable rate portion of our long-term debt. The total notional amount of these agreements is
$60,000
and requires us to receive interest based on changes in the 1-month LIBOR index with a
1.0%
floor and pay interest at a weighted average rate of approximately
1.95%
. Two of the agreements, with a total notional amount of
$35,000
, mature in February 2021, and the final agreement, with a total notional amount of
$25,000
, matures in February 2022.
Contingent Liabilities
We are subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to significant uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is remote, reasonably possible or probable, and whether it can be reasonably estimated. We analyze our litigation and regulatory matters based on available information to assess the potential liabilities. Management’s assessment is developed based on an analysis of possible outcomes under various strategies. We accrue for loss contingencies when such amounts are probable and reasonably estimable. If a contingent liability is only reasonably possible, we will disclose the potential range of the loss, if estimable. We record losses related to contingencies in cost of operations or general and administration expenses, depending on the nature of the underlying transaction leading to the loss contingency. See Note 10,
Commitments and Contingencies
for disclosure over loss contingencies, as applicable. Contingent liabilities accounted for under purchase accounting are recorded at their fair values. These fair values may be different from the values we would have otherwise recorded, had the contingent liability not been assumed as part of an acquisition of a business. See Note 4,
Business Combinations
for disclosure over a contingent liability assumed as part of the acquisition of a business.
Revenue Recognition
We recognize revenues for collection, transfer, recycling, disposal and other waste services as the services are provided. Certain customers are billed in advance and, accordingly, recognition of the related revenues is deferred until the services are provided.
Revenues from the sale of recycled materials are recognized upon shipment. Rebates to certain municipalities based on sales of recyclable materials are recorded upon the sale of such recyclables to third-parties and are included as a reduction of revenues. Revenues for processing of recyclable materials are recognized when the related service is provided. Revenues from the brokerage of recycled materials are recognized on a net basis at the time of shipment.
Asset Impairments
Recovery of Long-Lived Assets.
We continually assess whether events or changes in circumstances have occurred that may warrant revision of the estimated useful lives of our long-lived assets (other than goodwill) or whether the remaining balances of those assets should be evaluated for possible impairment. Long-lived assets include, for example, capitalized landfill costs, other property, plant and equipment, and identifiable intangible assets. Events or changes in circumstances that may indicate that an asset may be impaired include the following:
|
|
•
|
a significant decrease in the market price of an asset or asset group;
|
|
|
•
|
a significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical condition;
|
|
|
•
|
a significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset group, including an adverse action or assessment by a regulator;
|
|
|
•
|
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset;
|
|
|
•
|
a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group;
|
|
|
•
|
a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life; or
|
|
|
•
|
an impairment of goodwill at a reporting unit.
|
There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to landfill development or expansion. For example, a regulator may initially deny a landfill expansion permit application although the expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not necessarily be considered indicators of impairment due to the unique nature of the waste industry.
If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. We group our long-lived assets for this purpose at the lowest level for which identifiable cash flows are primarily independent of the cash flows of other assets or asset groups. If the carrying values are in excess of undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its carrying value.
To determine fair value, we use discounted cash flow analyses and estimates about the future cash flows of the asset or asset group. This analysis includes a determination of an appropriate discount rate, the amount and timing of expected future cash flows and growth rates. The cash flows employed in our discounted cash flow analyses are typically based on financial forecasts developed internally by management. The discount rate used is commensurate with the risks involved. We may also rely on third-party valuations and or information available regarding the market value for similar assets.
If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in the amount of the difference is recorded in the period that the impairment occurs. Estimating future cash flows requires significant judgment and projections may vary from the cash flows eventually realized.
See Note 15,
Other Items and Charges
for disclosure related to long-lived asset impairments recognized during the reporting periods.
Goodwill.
We annually assess goodwill for impairment at the end of our fiscal year or more frequently if events or circumstances indicate that impairment may exist. Historically, we had performed our annual goodwill impairment test using our fiscal year-end of April 30
th
as the measurement date. Effective with the change in our fiscal year-end from April 30
th
to December 31
st
, we voluntarily changed our goodwill impairment measurement date from April 30
th
to December 31
st
to coincide with the change in our fiscal year-end. The voluntary change in our goodwill impairment measurement date was applied prospectively beginning December 31, 2014 as it represents the modification of an existing principle based on new facts and circumstances.
We may assess whether a goodwill impairment exists using either a qualitative or a quantitative assessment. If we perform a qualitative assessment, it involves determining whether events or circumstances exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we will not perform a quantitative assessment. If the qualitative assessment indicates that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, we perform a quantitative assessment, or two-step impairment test, to determine whether goodwill impairment exists at the reporting unit.
In the first step (defined as “Step 1”) of testing for goodwill impairment, we estimate the fair value of each reporting unit, which we have determined to be our geographic operating segments, our Recycling segment and our Customer Solutions business, which is included in the Other segment, and compare the fair value with the carrying value of the net assets of each reporting unit. If the fair value is less than its carrying value, then we would perform a second step (defined as “Step 2”) and determine the fair value of the goodwill. In Step 2, the fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated.
To determine the fair value of each of our reporting units as a whole we use discounted cash flow analyses, which require significant assumptions and estimates about the future operations of each reporting unit. Significant judgments inherent in this analysis include the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows employed in our discounted cash flow analyses are based on financial forecasts developed internally by management. Our discount rate assumptions are based on an assessment of our risk adjusted discount rate, applicable for each reporting unit. In assessing the reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization.
If the fair value of goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to earnings. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill becomes its new accounting basis.
In addition to an annual goodwill impairment assessment, we would evaluate a reporting unit for impairment if events or circumstances change between annual tests indicating a possible impairment. Examples of such events or circumstances include the following:
|
|
•
|
a significant adverse change in legal status or in the business climate;
|
|
|
•
|
an adverse action or assessment by a regulator;
|
|
|
•
|
a more likely than not expectation that a segment or a significant portion thereof will be sold; or
|
|
|
•
|
the testing for recoverability of a significant asset group within the segment.
|
We elected to perform a quantitative analysis as part of our annual goodwill impairment test for fiscal year
2016
. As of
December 31, 2016
, the Step 1 testing for goodwill impairment performed for our Eastern, Western, Recycling and Customer Solutions reporting units indicated that the fair value of each reporting unit exceeded its carrying amount, including goodwill. Furthermore, the Step 1 test indicated that in each case the fair value of our Eastern, Western, Recycling and Customer Solutions reporting units exceeded its carrying value by in excess of
74.6%
. We incurred
no
impairment of goodwill as a result of our annual goodwill impairment tests in fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014. However, there can be no assurance that goodwill will not be impaired at any time in the future.
Cost Method Investments.
As of
December 31, 2016
, we owned
5.4%
of the outstanding common stock of Recycle Rewards, Inc. (“Recycle Rewards”), a company that markets an incentive based recycling service. In both fiscal year 2015 and transition period 2014, it was determined based on the operating performance of Recycle Rewards that our cost method investment in Recycle Rewards was potentially impaired. As a result, we performed a valuation analysis in fiscal year 2015, and had a valuation analysis performed by a third-party valuation specialist in transition period 2014, both of which used an income approach based on discounted cash flows to determine an equity value for Recycle Rewards in order to properly value our cost method investment in Recycle Rewards. Based on these analyses, it was determined in each case that the fair value of our cost method investment in Recycle Rewards was less than the carrying amount and, therefore, we recorded other-than-temporary investment impairment charges of
$1,090
and
$2,320
in fiscal year 2015 and transition period 2014, respectively. As of
December 31, 2016
, the carrying amount of our cost method investment in Recycle Rewards was
$1,069
.
As of
December 31, 2016
, we owned
9.8%
of the outstanding equity value of GreenerU, Inc. (“GreenerU”), a services company focused on providing energy efficiency, sustainability and renewable energy solutions to colleges and universities. In fiscal year 2015, it was determined based on the operating performance and recent indications of third-party interest in GreenerU that our cost method investment in GreenerU was potentially impaired. A valuation analysis was performed by a third-party valuation specialist using a market approach based on an option pricing methodology to determine an equity value and fair market value per share for GreenerU. Based on this analysis, it was determined that the fair value of our cost method investment in GreenerU was less than the carrying amount and, therefore, we recorded an other-than-temporary investment impairment charge of
$691
in fiscal year 2015. As of
December 31, 2016
, the carrying amount of our cost method investment in GreenerU was
$309
.
As of
December 31, 2016
, we owned
17.0%
and
16.2%
of the outstanding common stock of AGreen Energy LLC (“AGreen”) and BGreen Energy LLC (“BGreen”), respectively. In fiscal year 2015, AGreen and BGreen, both of which we account for as cost method investments, entered into agreements that resulted in the contribution and sale of certain assets and liabilities of AGreen and BGreen to a limited liability company in exchange for partial ownership interests in a parent of that limited liability company. As a result of the transactions, we performed an analysis to determine whether an other-than-temporary impairment in the carrying value of our cost method investments had occurred. Based on the analysis performed, which measured the fair value of our cost method investments using an in-exchange valuation premise under the market approach that utilized the estimated purchase consideration received, we recorded an other-than-temporary investment impairment charge of
$318
in fiscal year 2015. As of
December 31, 2016
, the carrying amount of our cost method investments in AGreen and BGreen was
$297
.
Defined Benefit Pension Plan
We currently have one qualified multiemployer defined benefit pension plan, the New England Teamsters and Trucking Industry Pension Fund ("Pension Plan"), that we make contributions to. The Pension Plan provides retirement benefits to participants based on their service to contributing employers. We do not administer this plan. The Pension Plan’s benefit formula is based on credited years of service and hours worked as defined in the Pension Plan document. However, the benefits accruals of all current plan participants are frozen. Our pension contributions are made in accordance with funding standards established by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code, as amended by the Pension Protection Act of 2006. The Pension Plan’s assets have been invested as determined by the Pension Plan's fiduciaries in accordance with the Pension Plan's investment policy. The Pension Plan’s asset allocation is based on the Pension Plan's investment policy and is reviewed as deemed necessary.
See Note 13,
Employee Benefit Plans
for disclosure over the multiemployer defined benefit pension plan.
Stock-Based Compensation
All share-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense-in general and administration expense over the employee’s requisite service period. For purposes of calculating stock-based compensation expense, forfeitures are accounted for as they occur. Our equity awards granted generally consist of stock options, including market-based performance stock options, restricted stock awards, restricted stock units and performance stock units, including market-based performance stock units.
The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model, with the exception of market-based performance stock option grants which are valued using a Monte Carlo option-pricing model. The fair value of restricted stock award, restricted stock unit and performance stock unit grants is at a price equal to the fair market value of our Class A common stock at the date of grant. The fair value of market-based performance stock unit grants is valued using a Monte Carlo pricing model.
See Note 11,
Stockholders Equity
for disclosure over stock-based compensation.
Earnings per Share
Basic earnings per share is computed by dividing the net loss from continuing operations attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is calculated based on the combined weighted average number of common shares and potentially dilutive shares, which include the assumed exercise of employee stock options, including market-based performance stock options based on the expected achievement of performance targets, unvested restricted stock awards, unvested restricted stock units and unvested performance stock units, including market-based performance units based on the expected achievement of performance targets. In computing diluted earnings per share, we utilize the treasury stock method. See Note 17,
Earnings Per Share
for disclosure over the calculation of earnings per share.
Discontinued Operations
We analyze our operations that have been divested or classified as held-for-sale to determine if they qualify for discontinued operations accounting. A component of an entity, a group of components of an entity, or a business is required to be reported in discontinued operations once it meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. See Note 16,
Divestiture Transactions and Discontinued Operations
for disclosure over discontinued operations.
Subsequent Events
Except as disclosed, no material subsequent events have occurred since
December 31, 2016
through the date of this filing that would require recognition or disclosure in our consolidated financial statements.
4. BUSINESS COMBINATIONS
We acquired various businesses during fiscal year 2016, transition period 2014 and fiscal year 2014, including several solid waste hauling operations, a transfer station, a MRF and an industrial service management business (included in the Other segment). The operating results of these businesses are included in the accompanying audited consolidated statements of operations from each date of acquisition, and the purchase price has been allocated to the net assets acquired based on fair values at each date of acquisition, with the residual amounts recorded as goodwill. Acquired intangible assets other than goodwill that are subject to amortization include client lists and non-compete covenants. These are amortized over a
five
to
ten
year period from the date of acquisition. All amounts recorded to goodwill are expected to be deductible for tax purposes. We did not acquire any businesses during fiscal year 2015.
The purchase price paid for these acquisitions and the allocation of the purchase price is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31,
2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016
|
|
2015
|
|
|
Purchase Price:
|
|
|
|
|
|
|
|
Cash used in acquisitions, net of cash acquired
|
$
|
2,439
|
|
|
$
|
—
|
|
|
$
|
314
|
|
|
$
|
7,860
|
|
Other non-cash considerations
|
—
|
|
|
—
|
|
|
—
|
|
|
555
|
|
Contingent consideration and holdbacks (1)
|
400
|
|
|
—
|
|
|
67
|
|
|
1,653
|
|
Total
|
2,839
|
|
|
—
|
|
|
381
|
|
|
10,068
|
|
Current assets
|
40
|
|
|
—
|
|
|
—
|
|
|
814
|
|
Land
|
353
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Buildings
|
1,360
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equipment
|
269
|
|
|
—
|
|
|
99
|
|
|
2,010
|
|
Other liabilities, net
|
(106
|
)
|
|
—
|
|
|
—
|
|
|
(241
|
)
|
Intangible assets
|
—
|
|
|
—
|
|
|
251
|
|
|
4,302
|
|
Fair value of assets acquired and liabilities assumed
|
1,916
|
|
|
—
|
|
|
350
|
|
|
6,885
|
|
Excess purchase price to be allocated to goodwill
|
$
|
923
|
|
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
3,183
|
|
|
|
(1)
|
In fiscal year 2014, we recovered a portion of the purchase price holdback amount we had previously paid and were relieved of any potential contingent consideration obligation associated with the acquisition of an industrial service management business completed earlier in fiscal year 2014. As a result, we recorded a
$1,058
gain on settlement of acquisition related contingent consideration in fiscal year 2014.
|
The following unaudited pro forma combined information shows our operational results as though each of the acquisitions completed during fiscal year 2016, transition period 2014 and fiscal year 2014 had occurred as of May 1, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31,
2014
|
|
Fiscal Year
Ended
April 30
2014
|
|
2016
|
|
2015
|
|
|
Revenue
|
$
|
565,853
|
|
|
$
|
549,794
|
|
|
$
|
370,837
|
|
|
$
|
505,598
|
|
Operating income
|
$
|
44,866
|
|
|
$
|
31,549
|
|
|
$
|
21,931
|
|
|
$
|
12,453
|
|
Net loss attributable to common stockholders
|
$
|
(6,896
|
)
|
|
$
|
(13,158
|
)
|
|
$
|
(6,141
|
)
|
|
$
|
(22,964
|
)
|
Basic and diluted net loss per common share attributable to common stockholders
|
$
|
(0.17
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.58
|
)
|
Basic and diluted weighted average shares outstanding
|
41,233
|
|
|
40,642
|
|
|
40,262
|
|
|
39,820
|
|
The 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, 2013 or the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.
5. RESTRICTED ASSETS
Restricted assets consist of cash and investments held in trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and post-closure costs and restricted cash reserved to finance certain capital projects.
A summary of restricted assets is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Non Current:
|
|
|
|
Restricted assets - capital projects
|
$
|
—
|
|
|
$
|
1,348
|
|
Restricted assets - landfill closure
|
1,002
|
|
|
903
|
|
|
$
|
1,002
|
|
|
$
|
2,251
|
|
6. PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Land
|
$
|
24,517
|
|
|
$
|
24,161
|
|
Landfills
|
570,464
|
|
|
536,577
|
|
Landfill operating lease contracts
|
133,239
|
|
|
125,991
|
|
Buildings and improvements
|
143,036
|
|
|
140,046
|
|
Machinery and equipment
|
132,748
|
|
|
131,384
|
|
Rolling stock
|
133,840
|
|
|
139,557
|
|
Containers
|
97,744
|
|
|
94,302
|
|
|
1,235,588
|
|
|
1,192,018
|
|
Less: accumulated depreciation and amortization
|
(837,122
|
)
|
|
(789,766
|
)
|
|
$
|
398,466
|
|
|
$
|
402,252
|
|
Depreciation expense for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 was
$33,186
,
$33,168
,
$21,599
and
$33,094
, respectively. Landfill amortization expense for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 was
$26,529
,
$26,969
,
$17,912
and
$24,689
, respectively. Depletion expense on landfill operating lease contracts for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 was
$9,295
,
$9,428
,
$7,799
and
$9,948
, respectively, and was recorded in cost of operations.
7. GOODWILL AND INTANGIBLE ASSETS
A summary of the activity and balances related to goodwill by reporting segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Acquisitions
|
|
December 31, 2016
|
Eastern
|
$
|
17,429
|
|
|
$
|
—
|
|
|
$
|
17,429
|
|
Western
|
87,503
|
|
|
923
|
|
|
88,426
|
|
Recycling
|
12,315
|
|
|
—
|
|
|
12,315
|
|
Other
|
1,729
|
|
|
—
|
|
|
1,729
|
|
Total
|
$
|
118,976
|
|
|
$
|
923
|
|
|
$
|
119,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2014
|
|
Other (1)
|
|
December 31, 2015
|
Eastern
|
$
|
17,429
|
|
|
$
|
—
|
|
|
$
|
17,429
|
|
Western
|
87,697
|
|
|
(194
|
)
|
|
87,503
|
|
Recycling
|
12,315
|
|
|
—
|
|
|
12,315
|
|
Other
|
1,729
|
|
|
—
|
|
|
1,729
|
|
Total
|
$
|
119,170
|
|
|
$
|
(194
|
)
|
|
$
|
118,976
|
|
|
|
(1)
|
Goodwill adjustment related to the allocation of goodwill to a business that was divested in fiscal year 2015.
|
A summary of intangible assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants
Not-to-Compete
|
|
Client Lists
|
|
Total
|
Balance, December 31, 2016
|
|
|
|
|
|
Intangible assets
|
$
|
17,594
|
|
|
$
|
16,071
|
|
|
$
|
33,665
|
|
Less accumulated amortization
|
(16,402
|
)
|
|
(9,567
|
)
|
|
(25,969
|
)
|
|
$
|
1,192
|
|
|
$
|
6,504
|
|
|
$
|
7,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covenants
Not-to-Compete
|
|
Client Lists
|
|
Total
|
Balance, December 31, 2015
|
|
|
|
|
|
Intangible assets
|
$
|
17,266
|
|
|
$
|
16,065
|
|
|
$
|
33,331
|
|
Less accumulated amortization
|
(16,198
|
)
|
|
(7,881
|
)
|
|
(24,079
|
)
|
|
$
|
1,068
|
|
|
$
|
8,184
|
|
|
$
|
9,252
|
|
Intangible amortization expense for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 was
$2,141
,
$2,567
,
$1,974
and
$2,556
, respectively.
The intangible amortization expense estimated for the five fiscal years following fiscal year
2016
and thereafter is as follows:
|
|
|
|
|
|
|
Estimated Future Amortization Expense as of December 31, 2016
|
|
For the fiscal year ending December 31, 2017
|
$
|
1,901
|
|
For the fiscal year ending December 31, 2018
|
$
|
1,698
|
|
For the fiscal year ending December 31, 2019
|
$
|
1,330
|
|
For the fiscal year ending December 31, 2020
|
$
|
1,137
|
|
For the fiscal year ending December 31, 2021
|
$
|
884
|
|
Thereafter
|
$
|
746
|
|
8. FINAL CAPPING, CLOSURE AND POST-CLOSURE COSTS
Accrued final capping, closure and post-closure costs include the current and non-current portion of costs associated with obligations for final capping closure and post-closure of our landfills. We estimate our future final capping, closure and post-closure costs in order to determine the final capping, closure and post-closure expense per ton of waste placed into each landfill as further described in Note 3,
Summary of Significant Accounting Policies
. The anticipated time frame for paying these costs varies based on the remaining useful life of each landfill, as well as the duration of the post-closure monitoring period.
The changes to accrued final capping, closure and post-closure liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
41,041
|
|
|
$
|
39,829
|
|
Obligations incurred
|
2,441
|
|
|
1,798
|
|
Revisions in estimates (1)
|
(2,052
|
)
|
|
(2,030
|
)
|
Accretion expense
|
3,606
|
|
|
3,370
|
|
Obligations settled (2)
|
(829
|
)
|
|
(1,926
|
)
|
Ending balance
|
$
|
44,207
|
|
|
$
|
41,041
|
|
|
|
(1)
|
The revisions in estimates for final capping, closure and post-closure liabilities for fiscal year
2016
and fiscal year
2015
consist of changes in cost estimates and the timing of final capping and closure events, as well as changes to expansion airspace and tonnage placement assumptions.
|
|
|
(2)
|
Includes amounts paid and amounts that are being processed through accounts payable as a part of our disbursement cycle.
|
9. LONG TERM DEBT AND CAPITAL LEASES
A summary of long-term debt and capital leases is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Senior Secured Credit Facility:
|
|
|
|
Revolving Credit Facility due October 2021; bearing interest at LIBOR plus 3.00%
|
$
|
62,600
|
|
|
$
|
—
|
|
Term Loan B Facility due October 2023; bearing interest at LIBOR plus 3.00%
|
350,000
|
|
|
—
|
|
Senior Secured Asset-Based Revolving Credit Facility:
|
|
|
|
Due February 2020; bore interest at LIBOR plus 2.25%
|
—
|
|
|
57,422
|
|
Tax-Exempt Bonds:
|
|
|
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 due December 2044 - fixed rate interest period through 2019; bearing interest at 3.75%
|
25,000
|
|
|
25,000
|
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2 due December 2044 - fixed rate interest period through 2026; bearing interest at 3.125%
|
15,000
|
|
|
—
|
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 2025 - fixed rate interest period through 2017; bearing interest at 6.25%
|
21,400
|
|
|
21,400
|
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 due August 2035 - fixed rate interest period through 2025; bearing interest at 5.125%
|
15,000
|
|
|
15,000
|
|
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 due April 2036 - fixed rate interest period through 2018; bearing interest at 4.75%
|
16,000
|
|
|
16,000
|
|
Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds Series 2013 due April 2029 - fixed rate interest period through 2019; bearing interest at 4.00%
|
11,000
|
|
|
11,000
|
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1; letter of credit backed due January 2025 - bearing interest at SIFMA Index
|
3,600
|
|
|
3,600
|
|
Other:
|
|
|
|
Capital leases maturing through April 2023; bearing interest at up to 7.70%
|
5,534
|
|
|
4,130
|
|
Notes payable maturing through January 2021; bearing interest at up to 7.00%
|
449
|
|
|
1,167
|
|
Senior Subordinated Notes:
|
|
|
|
Due February 2019; bore interest at 7.75%
|
—
|
|
|
370,300
|
|
Principal amount of long-term debt and capital leases
|
525,583
|
|
|
525,019
|
|
Less—unamortized discount and debt issuance costs (1)
|
16,936
|
|
|
17,586
|
|
Long-term debt and capital leases less unamortized discount and debt issuance costs
|
508,647
|
|
|
507,433
|
|
Less—current maturities of long-term debt
|
4,686
|
|
|
1,448
|
|
|
$
|
503,961
|
|
|
$
|
505,985
|
|
|
|
(1)
|
A summary of unamortized discount and debt issuance costs by debt instrument follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Revolving Credit Facility
|
$
|
4,965
|
|
|
$
|
—
|
|
Term Loan B Facility (including unamortized discount of $1,712 and $0)
|
7,718
|
|
|
—
|
|
Senior Secured Asset-Based Revolving Credit Facility
|
—
|
|
|
5,593
|
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014
|
1,221
|
|
|
1,407
|
|
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014R-2
|
571
|
|
|
—
|
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2
|
502
|
|
|
566
|
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015
|
760
|
|
|
830
|
|
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013
|
605
|
|
|
636
|
|
Business Finance Authority of the State of NH Solid Waste Disposal Revenue Bonds Series 2013
|
563
|
|
|
690
|
|
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1
|
31
|
|
|
35
|
|
Senior Subordinated Notes (including unamortized discount of $0 and $1,372)
|
—
|
|
|
7,829
|
|
|
$
|
16,936
|
|
|
$
|
17,586
|
|
Credit Facility
In fiscal year 2016, we entered into a credit agreement ("Credit Agreement"), which provides for a
$350,000
aggregate principal amount term loan B facility ("Term Loan B Facility") and a
$160,000
revolving line of credit facility ("Revolving Credit Facility" and, together with the Term Loan B Facility, the "Credit Facility"). The net proceeds from this transaction were used to repay in full our senior secured asset-based revolving credit and letter of credit facility ("ABL Facility") and to redeem all of our remaining outstanding
7.75%
Senior Subordinated Notes due 2019 ("2019 Notes") at a redemption price equal to
101.938%
of the principal amount thereof plus accrued and unpaid interest thereon and to pay related transaction expenses. We have the right to request, at our discretion, an increase in the amount of loans under the Credit Facility by an aggregate amount of
$100,000
, subject to the terms and conditions set forth in the Credit Agreement.
The Term Loan B Facility has a
7
-year term and will initially bear interest at a rate of LIBOR plus
3.00%
per annum (with a
1.00%
LIBOR floor), which will be reduced to a rate of LIBOR plus
2.75%
upon us reaching a consolidated net leverage ratio of
3.75
x or less. The Revolving Credit Facility has a
5
-year term and will initially bear interest at a rate of LIBOR plus
3.00%
per annum, which can be adjusted from an applicable rate of LIBOR plus
2.50%
to
3.25%
depending on our consolidated net leverage ratio. Our Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries and secured by substantially all of our assets. As of
December 31, 2016
, further advances were available under the Revolving Credit Facility in the amount of
$72,072
. The available amount is net of outstanding irrevocable letters of credit totaling
$25,328
, at which date no amount had been drawn.
The Credit Agreement requires us to maintain a minimum interest coverage ratio and a maximum consolidated net leverage ratio, to be measured at the end of each fiscal quarter. As of
December 31, 2016
, we were in compliance with the covenants contained in the Credit Agreement. In addition to these financial covenants, the Credit Agreement also contains a number of important customary affirmative and negative covenants which restrict, among other things, our ability to sell assets, incur additional debt, create liens, make investments, and pay dividends. We do not believe that these restrictions impact our ability to meet future liquidity needs. An event of default under any of our debt agreements could permit some of our lenders, including the lenders under the Credit Facility, to declare all amounts borrowed from them to be immediately due and payable, together with accrued and unpaid interest, or, in the case of the Credit Facility, terminate the commitment to make further credit extensions thereunder, which could, in turn, trigger cross-defaults under other debt obligations. If we were unable to repay debt to our lenders, or were otherwise in default under any provision governing our outstanding debt obligations, our secured lenders could proceed against us and against the collateral securing that debt.
Tax-Exempt Financings
New York Bonds.
In fiscal year 2016, we completed a financing transaction involving the issuance by the New York State Environmental Facilities Corporation of
$15,000
aggregate principal amount of Solid Waste Disposal Revenue Bonds Series 2014R-2 (“New York Bonds 2016”).
As of
December 31, 2016
, we had outstanding
$40,000
aggregate principal amount of Solid Waste Disposal Revenue Bonds Series 2014 ("New York Bonds 2014") and New York Bonds 2016 issued by the New York State Environmental Facilities Corporation under the indenture dated December 1, 2014 (collectively, the “New York Bonds”). The New York Bonds 2014 accrue interest at
3.75%
per annum through December 1, 2019, at which time they may be converted from a fixed rate to a variable rate. The New York Bonds 2016 accrue interest at
3.125%
per annum through May 31, 2026, at which time they may be converted from a fixed rate to a variable rate. The New York Bonds, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, require interest payments on June 1 and December 1 of each year and mature on
December 1, 2044
. We borrowed the proceeds of the New York Bonds to finance or refinance certain capital projects in the state of New York and to pay certain costs of issuance of the New York Bonds.
Maine Bonds.
As of
December 31, 2016
, we had outstanding
$21,400
aggregate principal amount of senior unsecured Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”). The FAME Bonds 2005R-2, which were guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrued interest at
6.25%
per annum through January 31, 2017. During the fixed interest rate period, the FAME Bonds 2005R-2 were not supported by a letter of credit. Interest was payable semiannually in arrears on February 1 and August 1 of each year. The FAME Bonds 2005R-2 were set to mature on
January 1, 2025
.
As of
December 31, 2016
, we had outstanding
$3,600
aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1 (“FAME Bonds 2005R-1”). The FAME Bonds 2005R-1 were variable rate bonds secured by a letter of credit issued by our administrative agent bank and interest was payable semiannually in arrears on February 1 and August 1 of each year. The FAME Bonds 2005R-1 were set to mature on January 1, 2025.
We borrowed the proceeds of the FAME Bonds 2005R-1 and 2005R-2 to pay for certain costs relating to the following: landfill development and construction; the acquisition of vehicles, containers and related equipment for solid waste collection and transportation services; improvements to existing solid waste disposal, hauling, transfer station and other facilities; other infrastructure improvements; and the acquisition of machinery and equipment for solid waste disposal operations owned and operated by us, or a related party, all located in Maine.
In February 2017, we completed the remarketing of the FAME Bonds 2005R-1 and the FAME Bonds 2005R-2 as one series of bonds knows as
$25,000
aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 (“FAME Bonds 2005R-3”). The FAME Bonds 2005R-3, which are guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at
5.25%
per annum until they mature on January 1, 2025.
As of
December 31, 2016
, we had outstanding
$15,000
aggregate principal amount of senior unsecured FAME Bonds 2015. The FAME Bonds 2015, which are guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at
5.125%
per annum through August 1, 2025, at which time they may be converted from a fixed to a variable rate. During the fixed interest rate period, the FAME Bonds 2015 will not be supported by a letter of credit. Interest is payable semiannually in arrears on February 1 and August 1 of each year. An additional
$15,000
aggregate principal amount of FAME Bonds 2015 may be offered under the same indenture in the future. The FAME Bonds 2015 mature on
August 1, 2035
.
Vermont Bonds.
As of
December 31, 2016
, we had outstanding
$16,000
aggregate principal amount of senior unsecured Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”). The Vermont Bonds, which are guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at
4.75%
per annum through April 1, 2018, at which time they may be converted from a fixed rate to a variable rate. During the fixed interest rate period, the Vermont Bonds will not be supported by a letter of credit. Interest is payable semiannually in arrears on April 1 and October 1 of each year. The Vermont Bonds mature on
April 1, 2036
. We borrowed the proceeds of the Vermont Bonds to finance or refinance certain qualifying property, plant and equipment assets purchased in the state of Vermont.
New Hampshire Bonds.
As of
December 31, 2016
, we had outstanding
$11,000
aggregate principal amount of senior unsecured Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New Hampshire (“New Hampshire Bonds”). The New Hampshire Bonds, which are guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at
4.00%
per annum through October 1, 2019, at which time they may be converted from a fixed rate to a variable rate. During the fixed interest rate period, the New Hampshire Bonds will not be supported by a letter of credit. Interest is payable in arrears on April 1 and October 1 of each year. The New Hampshire Bonds mature on
April 1, 2029
. We borrowed the proceeds of the New Hampshire Bonds to finance or refinance certain qualifying property, plant and equipment assets purchased in the state of New Hampshire.
Loss on Debt Extinguishment
We recorded a loss on debt extinguishment of
$13,747
and
$999
in fiscal year
2016
and fiscal year
2015
, respectively, associated with the following:
|
|
•
|
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our Refinanced Revolving Credit Facility to the ABL Facility in fiscal year 2015.
|
|
|
•
|
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our ABL Facility to the Credit Facility in fiscal year 2016; and
|
|
|
•
|
the repurchase price premium and write-off of debt issuance costs and unamortized original issue discount associated with the early redemption, repurchase and retirement of our 2019 Notes in fiscal year 2016 and 2015.
|
Interest Expense
The components of interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31,
2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016
|
|
2015
|
|
|
Interest expense on long-term debt and capital leases
|
$
|
34,741
|
|
|
$
|
35,868
|
|
|
$
|
23,065
|
|
|
$
|
34,216
|
|
Amortization of debt issuance costs and discounts on long-term debt
|
3,881
|
|
|
3,977
|
|
|
2,193
|
|
|
3,000
|
|
Letter of credit fees
|
593
|
|
|
637
|
|
|
714
|
|
|
1,215
|
|
Less: capitalized interest
|
(273
|
)
|
|
(62
|
)
|
|
(333
|
)
|
|
(256
|
)
|
Total interest expense
|
$
|
38,942
|
|
|
$
|
40,420
|
|
|
$
|
25,639
|
|
|
$
|
38,175
|
|
Fair Value of Debt
As of
December 31, 2016
, the fair value of our fixed rate debt, including the FAME Bonds 2005R-2, FAME Bonds 2015, Vermont Bonds, New York Bonds and New Hampshire Bonds was approximately
$101,449
and the carrying value was
$103,400
. The fair value of the FAME Bonds 2005R-2, the FAME Bonds 2015, the Vermont Bonds, the New York Bonds and the New Hampshire Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined using market approach pricing provided by a third-party that utilizes pricing models and pricing systems, mathematical tools and judgment to determine the evaluated price for the security based on the market information of each of the bonds or securities with similar characteristics.
As of
December 31, 2016
, the fair value of our Term Loan B Facility was approximately
$353,063
and the carrying value was
$350,000
. The fair value of the Term Loan B Facility is considered to be Level 2 within the fair value hierarchy as its fair value is based off of quoted market prices in a principal to principal market with limited public information. As of
December 31, 2016
, the fair value of our Revolving Credit Facility approximated its carrying value of
$62,600
based on current borrowing rates for similar types of borrowing arrangements, or Level 2 inputs. The carrying value of our remaining material variable rate debt, the FAME Bonds 2005R-1, approximates fair value because the interest rate for the debt instrument is based on a market index that approximates current market rates for instruments with similar risk and maturities.
Although we have determined the estimated fair value amounts of the Term Loan B Facility, FAME Bonds 2005R-2, FAME Bonds 2015, Vermont Bonds, New York Bonds and New Hampshire Bonds using available market information and commonly accepted valuation methodologies, a change in available market information, and/or the use of different assumptions and/or estimation methodologies could have a material effect on the estimated fair values. These amounts have not been revalued, and current estimates of fair value could differ significantly from the amounts presented.
Future Maturities of Debt
Aggregate principal maturities of long-term debt and capital leases are as follows:
|
|
|
|
|
|
|
Estimated Future Payments as of December 31, 2016
|
2017
|
$
|
4,686
|
|
2018
|
4,486
|
|
2019
|
4,554
|
|
2020
|
4,873
|
|
2021
|
66,991
|
|
Thereafter
|
439,993
|
|
|
$
|
525,583
|
|
10. COMMITMENTS AND CONTINGENCIES
Lease Commitments
We lease operating facilities and equipment in the ordinary course of our business under various operating leases with monthly payments varying up to approximately
$20
. Future minimum rental payments are recognized on a straight-line basis over the minimum lease term. Total rent expense under operating leases charged to operations was
$11,437
,
$9,392
,
$4,868
and
$5,651
in fiscal year
2016
, fiscal year
2015
,transition period 2014 and fiscal year
2014
, respectively.
Future minimum rental payments under non-cancellable operating leases, which include landfill operating leases, are as follows:
|
|
|
|
|
Estimated Future Minimum Lease Payments as of December 31, 2016
|
|
2017
|
$
|
18,269
|
|
2018
|
16,270
|
|
2019
|
15,228
|
|
2020
|
12,407
|
|
2021
|
9,173
|
|
Thereafter
|
53,186
|
|
Total minimum lease payments
|
$
|
124,533
|
|
Legal Proceedings
In the ordinary course of our business and as a result of the extensive governmental regulation of the solid waste industry, we are subject to various judicial and administrative proceedings involving state and local agencies. In these proceedings, an agency may seek to impose fines or to revoke or deny renewal of an operating permit held by us. From time to time, we may also be subject to actions brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of landfills and transfer stations, or allegations of environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may be named defendants in various claims and suits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the ordinary operation of a waste management business.
In accordance with FASB ASC 450-20, we accrue for legal proceedings, inclusive of legal costs, when losses become probable and reasonably estimable. As of the end of each applicable reporting period, we review each of our legal proceedings to determine whether it is probable, reasonably possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably estimated under the provisions of FASB ASC 450-20. In instances where we determine that a loss is probable and we can reasonably estimate a range of loss we may incur with respect to such a matter, we record an accrual for the amount within the range that constitutes our best estimate of the possible loss. If we are able to reasonably estimate a range, but no amount within the range appears to be a better estimate than any other, we record an accrual in the amount that is the low end of such range. When a loss is reasonably possible, but not probable, we will not record an accrual, but we will disclose our estimate of the possible range of loss where such estimate can be made in accordance with FASB ASC 450-20.
Expera Old Town, LLC v. Casella Waste Systems, Inc.
On or about November 6, 2015, Expera Old Town, LLC (“Expera”) filed a lawsuit against us in Maine Superior Court, seeking damages for breach of contract and unjust enrichment and an action for declaratory judgment ( “Lawsuit”). Expera was a successor-in-interest to a contract between us and Old Town Fuel and Fiber (“OTFF”), the former owner of a pulp manufacturing facility (“Facility”) located in Old Town, Maine (“Contract”). Expera purchased the Facility during the pendency of the bankruptcy of OTFF. Since the filing of the Lawsuit, Expera has sold the Facility and related assets to MFGR LLC (“MFGR”). MFGR alleged that we had the obligation to provide a specialized type of wood fuel to the Facility or, alternatively, that we owed a “Fuel Replacement Fee” of up to
$2,000
a year (subject to the possibility of certain credits against such payments). The Contract was to expire in 2036.
On or about February 10, 2016, we reached an agreement in principle with MFGR to dismiss the Lawsuit with prejudice, and to resolve all outstanding claims of any nature including future claims which could arise under the Contract, and a Joint Stipulation of Dismissal with Prejudice was filed with the Maine Superior Court on April 15, 2016. On or about April 12, 2016, the parties entered into a Settlement Agreement (“SA”) along with other ancillary agreements. Pursuant to the SA, we paid MFGR
$1,250
upon execution of the SA, and are to pay
$350
a year for
five years
following execution of the SA. Accordingly, taking into account the net present value of the settlement payments, we recorded a reserve of
$2,616
that included a contract settlement charge of
$1,940
and operating expenses of
$676
recorded in fiscal year 2015. As of
December 31, 2016
,
$1,448
of this reserve remains outstanding.
We have also entered into a new leachate disposal agreement at market prices with MFGR for the treatment of leachate from the landfill managed by us for the State of Maine located in Old Town, Maine (“Juniper Ridge Landfill”), and MFGR has entered into a waste disposal agreement at market prices with us for the disposal at Juniper Ridge Landfill of waste materials produced in the demolition or re-purposing of the Facility.
Environmental Remediation Liability
We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of drinking water sources or soil, possibly including damage resulting from conditions that existed before we acquired the facilities. We may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances if we or our predecessors arrange or arranged to transport, treat or dispose of those materials. The following matters represents our outstanding material claims.
Southbridge Recycling & Disposal Park, Inc.
In October 2015, our Southbridge Recycling and Disposal Park, Inc. (“SRD”) subsidiary reported to the Massachusetts Department of Environmental Protection (“MADEP”) results of analysis of samples collected pursuant to our existing permit from private drinking water wells located near the Town of Southbridge, Massachusetts Landfill (“Southbridge Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response Action pursuant to state law. Further, we have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are investigating with the objective of identifying the source or sources of the elevated levels of contamination measured in the well samples. If it is determined that some or all of the contamination originated at the Southbridge Landfill, we will work with the Town of Southbridge (“Town”), the Southbridge Landfill owner and the former operator of an unlined portion of the Southbridge Landfill, which was used prior to our operation of a double-lined portion of the Southbridge Landfill
commencing in 2004, to evaluate and allocate the liabilities related to that contamination. In July 2016, we sent correspondence to the Town pursuant to Chapter 21E of Massachusetts General Laws ("Chapter 21E") demanding that the Town reimburse us for the incurrence of environmental response costs and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to the Town pursuant to the Operating Agreement between us and the Town dated May 29, 2007, as amended. As of
December 31, 2016
, we have incurred total environmental response costs of approximately
$2,465
. We have entered into a Tolling Agreement with the Town to delay any further administrative or legal actions until our work with MADEP more specifically defines the parties’ responsibilities in these matters, if any.
In February 2016, we and the Town received a Notice of Intent to Sue under the Resource Conservation and Recovery Act ("RCRA") from a law firm purporting to represent residents proximate to the Southbridge Landfill, indicating its intent to file suit against us because of the groundwater contamination. In February 2017, we received an additional Notice of Intent to Sue from the National Environmental Law Center under the Federal Clean Water Act ("CWA") and RCRA (the “Acts”) on behalf of Environment America, Inc., d/b/a Environment Massachusetts, and Toxics Action Center, Inc., which have referred to themselves as the Citizen Groups. The Citizen Groups allege that we have violated the Acts, and that they they intend to seek appropriate relief in federal court for those alleged violations. We believe it is reasonably possible that a loss will occur as a result of these potential matters although an estimate of loss cannot be reasonably provided at this time. We believe the Town should be responsible for costs or liabilities associated with these possible suits relative to alleged contamination originating from the unlined portion of the Southbridge Landfill, although there can be no assurance that we will not be required to incur some or all of such costs and liabilities.
While no suit has yet been filed against us or the Town related to the foregoing, we have reached an agreement in principle, subject to a definitive agreement between MADEP, the Town of Southbridge, the Town of Charlton, and ourselves, for the equal sharing of costs between MADEP and us, of up to
$10,000
(
$5,000
each) for the Town to install a municipal waterline in the Town of Charlton. It is expected that the Town will issue a Bond for our portion of the waterline costs, and we expect to amend the Operating Agreement to provide for us to reimburse the Town for periodic payments under such Bond. This waterline will provide municipal water to certain Charlton residents.
In August 2016, we filed a complaint against Steadfast Insurance Company (“Steadfast”) in the Superior Court of Suffolk County, Massachusetts, alleging among other things, that Steadfast breached its Pollution Liability Policy (“Policy”) purchased by us in April 2015, by refusing to acknowledge coverage under the Policy, and refusing to cover any of the costs and liabilities incurred by us as described above as well as costs and liabilities that we may incur in the future. Steadfast filed an answer and counterclaim in September 2016, denying that it has any obligations to us under the Policy, and seeking declaratory judgment of Steadfast’s obligations under the Policy.
The costs and liabilities we may be required to incur in connection with the foregoing could be material to our results of operations, our cash flows and our financial condition. We are carefully evaluating the impact and potential impact of the foregoing matters, together with estimated future costs associated with the permitting, engineering and construction activities for the planned expansion of the Southbridge Landfill, against the possible outcomes of the permitting process and the anticipated future benefits of a successful expansion. It is possible that based on this analysis we may conclude that closing the Southbridge Landfill is in our best economic interest. While no conclusions have been reached at this time and we continue to be committed to the expansion process, we are acting to prudently manage waste volumes into the Southbridge Landfill to prolong the useful life of the Southbridge Landfill in the event we are unsuccessful in obtaining the expansion permit or choose to modify or withdraw our permit application due to our estimate of the economic benefit of the expansion relative to costs.
Potsdam Environmental Remediation Liability
On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent (“Order”) which named Waste-Stream, Inc. (“WSI”), our subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk Power Corporation (“NiMo”) as Respondents. The Order required that the Respondents undertake certain work on a
25
-acre scrap yard and solid waste transfer station owned by WSI in Potsdam, New York, including the preparation of a Remedial Investigation and Feasibility Study (“Study”). A draft of the Study was submitted to the DEC in January 2009 (followed by a final report in May 2009). The Study estimated that the undiscounted costs associated with implementing the preferred remedies would be approximately
$10,219
. On February 28, 2011, the DEC issued a Proposed Remedial Action Plan for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to the DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the present cost associated with implementing the preferred remedies would be approximately
$12,130
. The DEC issued the final ROD in June 2011 with proposed remedies consistent with its earlier ROD. An Order on Consent and Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an effective date of October 25, 2013. On January 29, 2016, a Cost-Sharing Agreement was executed between WSI, NiMo, Alcoa Inc. (“Alcoa”) and Reynolds Metal Company (“Reynolds”) whereby Alcoa and Reynolds elected to voluntarily participate in the onsite remediation activities at a
15%
participant share. It is unlikely that any significant expenditures relating to onsite remediation will be incurred until the fiscal year ending December 31, 2018. WSI is jointly and severally liable with NiMo, Alcoa and Reynolds for the total cost to remediate.
We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and estimated costs to complete the remediation in other accrued liabilities and other long-term liabilities. Our expenditures could be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars to the expected time of payment and discount the total cost to present value using a risk free interest rate of
1.5%
.
A summary of the changes to the environmental remediation liability associated with the Potsdam environmental remediation liability follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
2016
|
|
2015
|
Beginning balance
|
$
|
5,221
|
|
|
$
|
5,142
|
|
Accretion expense
|
—
|
|
|
79
|
|
Payments
|
(255
|
)
|
|
—
|
|
Revisions in estimates
(1)
|
900
|
|
|
—
|
|
Ending balance
|
$
|
5,866
|
|
|
$
|
5,221
|
|
|
|
(1)
|
The revisions in estimates is due to changes to our estimated costs to complete the remediation. See Note 15,
Other Items and Charges
for disclosure over environmental remediation charges.
|
The total expected environmental remediation payments, in today’s dollars, for each of the five succeeding fiscal years and the aggregate amount thereafter are as follows:
|
|
|
|
|
Estimated Future Environmental Remediation Payments as of December 31, 2016
|
2017
|
$
|
120
|
|
2018
|
2,892
|
|
2019
|
1,386
|
|
2020
|
51
|
|
2021
|
33
|
|
Thereafter
|
993
|
|
Total
|
$
|
5,475
|
|
A reconciliation of the expected aggregate non-inflated, undiscounted environmental remediation liability to the amount recognized in the statement of financial position is as follows:
|
|
|
|
|
|
|
Undiscounted liability
|
$
|
5,475
|
|
Plus inflation, net
|
391
|
|
Liability balance - December 31, 2016
|
$
|
5,866
|
|
Any substantial liability incurred by us arising from environmental damage could have a material adverse effect on our business, financial condition and results of operations. We are not presently aware of any other situations that would have a material adverse impact on our business, financial condition, results of operations or cash flows.
Employment Contracts
We have entered into employment contracts with
five
of our executive officers. The contracts are dated June 18, 2001, March 31, 2006, July 6, 2010, September 1, 2012 and March 1, 2016. Each contract had an initial term between
one
and
three
years and a covenant not-to-compete ranging from
one
to
two
years from the date of termination. These contracts automatically extend for a
one
year period at the end of the initial term and any renewal period. Total annual commitments for salaries under these contracts are
$1,646
. In the event of a change in control of us, or in the event of involuntary termination without cause, the employment contracts provide for a payment ranging from
one
to
three
years of salary and bonuses. We also have other employment contracts or arrangements with employees who are not executive officers.
11. STOCKHOLDERS' EQUITY
Common Stock
The holders of the Class A common stock are entitled to
one
vote for each share held. The holders of the Class B common stock are entitled to
ten
votes for each share held, except for the election of one director, who is elected by the holders of the Class A common stock exclusively. The Class B common stock is convertible into Class A common stock on a share-for-share basis at the option of the shareholder.
Preferred Stock
We are authorized to issue up to
944
shares of preferred stock in one or more series. As of
December 31, 2016
and
December 31, 2015
we had
no
shares issued.
Stock Based Compensation
Stock Incentive Plans
1997 Stock Option Plan.
In the fiscal year ended April 30, 1998, we adopted the 1997 Stock Option Plan (“1997 Plan”). The 1997 Plan terminated as of July 31, 2007 and as a result no additional awards may be made pursuant to the 1997 Plan. Outstanding shares which are not actually issued under the 1997 Plan because such stock options expire or otherwise result in shares not being issued are reserved for issuance under the 2006 Plan.
2006 Stock Incentive Plan.
In the fiscal year ended April 30, 2007, we adopted the 2006 Stock Incentive Plan (“2006 Plan”). The 2006 Plan was amended in the fiscal year ended April 30, 2010. The 2006 Plan terminated as of October 9, 2016 and as a result no additional awards may be made pursuant to the 2006 Plan. Outstanding shares which are not actually issued under the 2006 Plan because such awards expire or otherwise result in shares not being issued are reserved for issuance under the 2016 Plan.
2016 Incentive Plan.
In fiscal year 2016, we adopted the 2016 Incentive Plan (“2016 Plan”). Under the 2016 Plan, we may grant awards up to an aggregate amount of shares equal to the sum of: (i)
2,250
shares of Class A common stock (subject to adjustment in the event of stock splits and other similar events), plus (ii) such additional number of shares of Class A common stock as is equal to the sum of the number of shares of Class A common stock remaining available for grant under the 2006 Plan immediately prior to the expiration of the 2006 Plan and the number of shares of Class A common stock subject to awards granted under the 2006 Plan that expire or otherwise result in shares not being issued.
As of
December 31, 2016
, there were
2,489
Class A common stock equivalents available for future grant under the 2016 Plan, inclusive of additional Class A common stock equivalents that were previously issued under terminated plans and have become available for grant because such awards expired or otherwise resulted in shares not being issued.
Our equity awards granted consist of stock options, including market-based performance stock options, restricted stock awards, restricted stock units and performance stock units, including market-based performance stock units.
Stock options are granted at a price equal to the prevailing fair value of our Class A common stock at the date of grant. Generally, stock options granted have a term not to exceed
ten years
and vest over a
one year
to
four
year period from the date of grant.
The fair value of each stock option granted, with the exception of market-based performance stock option grants, is estimated using a Black-Scholes option-pricing model, which requires extensive use of accounting judgment and financial estimation, including estimates of the expected term stock option holders will retain their vested stock options before exercising them and the estimated volatility of our Class A common stock price over the expected term. The fair value of each market-based performance stock option granted is estimated using a Monte Carlo option-pricing model, which also requires extensive use of accounting judgment and financial estimation, including estimates of the expected term stock option holders will retain their vested stock options before exercising them and the estimated volatility of our Class A common stock price over the expected term, but also including estimates of share price appreciation of our Class A common stock as compared to the Russell 2000 Index over the requisite service period.
Restricted stock awards, restricted stock units and performance stock units are granted at a price equal to the fair value of our Class A common stock at the date of grant. The fair value of each market-based performance stock unit is estimated using a Monte Carlo pricing model, which requires extensive use of accounting judgment and financial estimation, including the estimated share price appreciation plus the value of dividends of our Class A common stock as compared to the Russell 2000 Index over the requisite service period.
Restricted stock awards granted to non-employee directors vest incrementally over a
three
year period beginning on the first anniversary of the date of grant. Restricted stock units vest incrementally over an identified service period beginning on the grant date based on continued employment. Performance stock units and market-based performance stock units vest at a future date following the grant date and are based on the attainment of performance targets and market achievements.
Stock Options
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options (1)
|
|
Weighted
Average
Exercise Price
|
|
Weighted
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic Value
|
Outstanding, December 31, 2015
|
1,297
|
|
|
$
|
7.03
|
|
|
|
|
|
Granted
|
50
|
|
|
$
|
12.48
|
|
|
|
|
|
Exercised
|
(12
|
)
|
|
$
|
10.85
|
|
|
|
|
|
Forfeited or expired
|
(220
|
)
|
|
$
|
12.64
|
|
|
|
|
|
Outstanding, December 31, 2016
|
1,115
|
|
|
$
|
6.13
|
|
|
5.8
|
|
$
|
7,086
|
|
Exercisable, December 31, 2016
|
782
|
|
|
$
|
5.73
|
|
|
4.6
|
|
$
|
5,293
|
|
Unvested, December 31, 2016
|
373
|
|
|
$
|
7.62
|
|
|
8.7
|
|
$
|
1,793
|
|
|
|
(1)
|
Market-based performance stock option grants are included at
100%
. Attainment of maximum performance targets and market achievements would result in the issuance of
40
shares of Class A common stock currently included in unvested.
|
During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, stock-based compensation expense for stock options was
$605
,
$671
,
$386
, and
$464
, respectively.
During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, the aggregate intrinsic value of stock options exercised was
$22
,
$52
,
$31
and
$23
.
As of
December 31, 2016
, total unrecognized stock-based compensation expense related to all outstanding stock options, assuming the attainment of maximum performance targets, was
$1,218
, which will be recognized over a weighted average period of
1.5 years
.
Our calculation of stock-based compensation expense associated with stock options granted, with the exception of market-based performance stock option grants which are valued using a Monte Carlo option-pricing model, was made using the Black-Scholes valuation model. The weighted average fair value of stock options granted, with the exception of market-based performance stock option grants, during fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 were
$0
,
$5.35
,
$3.62
and
$4.22
per option, respectively, which were calculated assuming
no
expected dividend yield using the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31, 2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016 (1)
|
|
2015
|
|
|
Expected life
|
0.0 years
|
|
|
7.2 years
|
|
|
7.0 years
|
|
|
6.8 years
|
|
Risk-free interest rate
|
—
|
%
|
|
2.02
|
%
|
|
2.15
|
%
|
|
2.22
|
%
|
Expected volatility
|
—
|
%
|
|
81.31
|
%
|
|
82.76
|
%
|
|
83.96
|
%
|
|
|
(1)
|
In fiscal year 2016, we only granted market-based performance stock options, which are discussed separately below.
|
The weighted average fair value of market-based performance stock options granted during fiscal year
2016
was
$6.70
per option, which was calculated using a Monte Carlo option-pricing model assuming an expected life of
7.4 years
, a risk free interest rate of
2.15%
, and an expected volatility of
43.10%
assuming
no
expected dividend yield.
Expected life is calculated based on the weighted average historical life of the vested stock options, giving consideration to vesting schedules and historical exercise patterns. Risk-free interest rate is based on the U.S. Treasury yield curve for the period of the expected life of the stock option. Expected volatility is calculated using the weekly historical volatility of our Class A common stock over the expected life, except in the case of market-based performance stock option where the daily historical volatility of our Class A common stock over the expected life is used.
The Black-Scholes valuation model and the Monte Carlo option-pricing model each require extensive use of accounting judgment and financial estimation. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the consolidated statements of operations.
Other Stock Awards
A summary of restricted stock, restricted stock unit and performance stock unit activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock,
Restricted Stock Units,
and Performance Stock
Units (1)
|
|
Weighted
Average
Grant Price
|
|
Weighted Average
Remaining
Contractual Term
(years)
|
|
Aggregate Intrinsic
Value
|
Outstanding, December 31, 2015
|
962
|
|
|
$
|
4.49
|
|
|
|
|
|
Granted
|
608
|
|
|
$
|
8.97
|
|
|
|
|
|
Class A common stock vested
|
(453
|
)
|
|
$
|
4.47
|
|
|
|
|
|
Forfeited or canceled
|
(18
|
)
|
|
$
|
5.40
|
|
|
|
|
|
Outstanding, December 31, 2016
|
1,099
|
|
|
$
|
7.03
|
|
|
1.6
|
|
$
|
6,330
|
|
Unvested, December 31, 2016
|
1,286
|
|
|
$
|
7.76
|
|
|
1.7
|
|
$
|
6,593
|
|
|
|
(1)
|
Market-based performance stock unit grants are included at
100%
. Attainment of maximum performance targets and market achievements would result in the issuance of an additional
187
shares of Class A common stock currently included in unvested.
|
During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, stock-based compensation expense related to restricted stock, restricted stock units and performance stock units was
$2,673
,
$2,314
,
$1,202
and
$1,861
, respectively. Stock-based compensation expense related to restricted stock and restricted stock units during fiscal year 2015 included
$270
of incremental compensation expense resulting from the modification of restricted stock awards associated with the retirement of two members of our Board of Directors.
During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, the total fair value of other stock awards vested was
$3,238
,
$2,340
,
$1,866
and
$1,458
, respectively.
As of
December 31, 2016
, total unrecognized stock-based compensation expense related to restricted stock and restricted stock units was
$3,212
, which will be recognized over a weighted average period of
1.7
years. Total unrecognized stock-based compensation expense related to performance stock units, assuming the attainment of maximum performance targets, was
$4,037
, which will be recognized over a weighted average period of
2.0 years
.
During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, the weighted-average grant date fair value of restricted stock, restricted stock units and performance stock units granted was
$8.97
,
$4.40
,
$4.90
and
$4.28
, respectively. The weighted average fair value of market-based performance stock units granted during fiscal year
2016
was
$14.30
per award, which was calculated using a Monte Carlo pricing model assuming a risk free interest rate of
1.07%
and an expected volatility of
33.00%
assuming
no
expected dividend yield. Risk-free interest rate is based on the U.S. Treasury yield curve for the expected service period of the award. Expected volatility is calculated using the daily volatility of our Class A common stock over the expected service period of the award.
The Monte Carlo pricing model requires extensive use of accounting judgment and financial estimation. 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.
We also recorded
$115
,
$94
,
$52
and
$79
of stock-based compensation expense related to our Amended and Restated 1997 Employee Stock Purchase Plan during fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, respectively.
There was
$0
,
$19
,
$0
and
$0
of tax benefit in the provision for income taxes associated with stock-based compensation expense during fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, respectively. We recorded a tax benefit of
$0
,
$185
,
$84
and
$0
to additional paid-in-capital related to the exercise of various share based awards in fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, respectively. Effective fiscal year
2016
, tax savings from stock-based compensation resulting from tax deductions in excess of expense are no longer reflected as a financing cash flow in our consolidated financial statements.
Accumulated Other Comprehensive (Loss) Income
Accumulated other comprehensive (loss) income
is a component of
stockholders' deficit
included in the accompanying consolidated balance sheets and includes, as applicable, the effective portion of changes in the fair value of our cash flow hedges, the changes in fair value of our marketable securities, as well as our portion of the changes in the fair value of GreenFiber’s commodity hedges up until the date of divestiture.
The changes in the balances of each component of
accumulated other comprehensive (loss) income
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable
Securities
|
|
Commodity
Hedges
|
|
Total
|
Balance as of April 30, 2013
|
$
|
27
|
|
|
$
|
(619
|
)
|
|
$
|
(592
|
)
|
Other comprehensive income (loss) before reclassifications
|
12
|
|
|
(36
|
)
|
|
(24
|
)
|
Amounts reclassified from accumulated other comprehensive loss
|
—
|
|
|
655
|
|
|
655
|
|
Other comprehensive income, net
|
12
|
|
|
619
|
|
|
631
|
|
Balance as of April 30, 2014
|
39
|
|
|
—
|
|
|
39
|
|
Other comprehensive income
|
19
|
|
|
—
|
|
|
19
|
|
Balance as of December 31, 2014
|
58
|
|
|
—
|
|
|
58
|
|
Other comprehensive loss
|
(51
|
)
|
|
—
|
|
|
(51
|
)
|
Balance as of December 31, 2015
|
7
|
|
|
—
|
|
|
7
|
|
Other comprehensive loss
|
(75
|
)
|
|
—
|
|
|
(75
|
)
|
Balance as of December 31, 2016
|
$
|
(68
|
)
|
|
$
|
—
|
|
|
$
|
(68
|
)
|
A summary of reclassifications out of
accumulated other comprehensive (loss) income
for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31, 2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
|
|
2016
|
|
2015
|
|
|
|
|
Details About Accumulated Other Comprehensive (Loss) Income Components
|
Amounts Reclassified Out of Accumulated Other Comprehensive (Loss) Income
|
|
Affected Line Item in the Consolidated
Statements of Operations
|
Loss on derivative instruments:
|
|
|
|
|
|
|
|
|
|
GreenFiber commodity hedges
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(405
|
)
|
|
Loss from equity method investments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(405
|
)
|
|
Loss from continuing operations before income taxes and discontinued operations
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(250
|
)
|
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(655
|
)
|
|
Loss from continuing operations before discontinued operations
|
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; and Level 3, defined as unobservable inputs that are not corroborated by market data.
We use valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable inputs. In measuring the fair value of our financial assets and liabilities, we rely on market data or assumptions that we believe market participants would use in pricing an asset or a liability.
Assets and Liabilities Accounted for at Fair Value on a Recurring Basis
Our financial instruments include cash and cash equivalents, accounts receivable-trade, restricted cash and investments held in trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and post-closure costs and restricted cash reserved to finance certain capital projects, interest rate derivatives, trade payables and long-term debt. The carrying values of cash and cash equivalents, accounts receivable - trade and trade payables approximate their respective fair values due to their short-term nature. The fair value of restricted cash and investments held in trust, which are valued using quoted market prices, are included as restricted assets in the Level 1 tier below. The fair value of the interest rate derivative, included in the Level 2 tier below, was calculated based on a valuation obtained from our counter-party based primarily on the three month London Interbank Offered Rate yield curve that was observable at commonly quoted intervals for the full term of the swap. The interest rate derivative matured on March 15, 2016. We recognize all derivatives accounted for on the balance sheet at fair value. See Note 9,
Long-Term Debt and Capital Leases
for disclosure over the fair value of debt.
Recurring Fair Value Measurements
Summaries of our financial assets and liabilities that are measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2016 Using:
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
Restricted assets - landfill closure
|
$
|
1,002
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement at December 31, 2015 Using:
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
Assets:
|
|
|
|
|
|
Restricted assets - capital projects
|
$
|
1,348
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted assets - landfill closure
|
903
|
|
|
—
|
|
|
—
|
|
|
$
|
2,251
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Liabilities:
|
|
|
|
|
|
Interest rate derivative
|
$
|
—
|
|
|
$
|
178
|
|
|
$
|
—
|
|
Non-Recurring Fair Value Measurements
Summaries of our financial assets and liabilities that are measured at fair value on a non-recurring basis as of December 31, 2015 (no assets or liabilities measured at fair value on a non-recurring basis as of December 31, 2016) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2015 Using:
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
Significant
Unobservable Inputs
(Level 3)
|
|
|
|
|
|
|
Cost method investment - GreenerU
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
309
|
|
Cost method investment - Recycle Rewards
|
—
|
|
|
—
|
|
|
1,069
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,378
|
|
As of
December 31, 2015
, our financial assets and liabilities recorded at fair value on a non-recurring basis include our cost method investments in GreenerU and Recycle Rewards. The fair value of our cost method investment in GreenerU was measured by a third-party valuation specialist who completed a valuation analysis using a market approach based on an option pricing methodology that considers comparable publicly traded companies revenue multiples to determine an equity value and fair market value per share for GreenerU, which we used to properly value our cost method investment in GreenerU. The fair value of our cost method investment in RecycleRewards was measured by us when we completed a valuation analysis using an income approach based on discounted cash flows to determine an equity value for Recycle Rewards in order to properly value our cost method investment in Recycle Rewards.
13. EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
We offer our eligible employees the opportunity to contribute to a 401(k) plan (“401(k) Plan”). Under the provisions of the 401(k) Plan participants may direct us to defer a portion of their compensation to the 401(k) Plan, subject to Internal Revenue Code limitations.
We provide an employer matching contribution equal to fifty cents for every dollar an employee invests in the 401(k) Plan up to our maximum match of one thousand dollars per employee per calendar year, subject to revision.
Participants vest in employer contributions ratable over a
three
year period. Employer contributions for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 amounted to
$1,119
,
$1,033
,
$497
and
$784
, respectively.
Employee Stock Purchase Plan
We offer our eligible employees the opportunity to participate in an employee stock purchase plan. Under this plan, qualified employees may purchase shares of Class A common stock by payroll deduction at a
15%
discount from the market price. During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014
70
,
80
,
79
and
70
shares, respectively, of Class A common stock were issued under this plan. As of
December 31, 2016
,
184
shares of Class A common stock were available for distribution under this plan.
Multiemployer Pension Plan
We make contributions to a multiemployer defined benefit pension plan, the New England Teamsters and Trucking Industry Pension Fund, under the terms of a collective bargaining agreement that covers our union represented employees. The Pension Plan provides retirement benefits to participants based on their service to contributing employers. We do not administer this plan. The risks of participating in a multiemployer plan are different from a single-employer plan in that (i) assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees or former employees of other participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be required to be assumed by the remaining participating employers; and (iii) if we choose to stop participating in our multiemployer plan, we may be required to pay the plan a withdrawal amount based on the underfunded status of the plan.
The following table outlines our participation in the multiemployer defined benefit pension plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Fund
|
|
EIN/Pension
Plan Number
|
|
Pension Protection Act Zone Status
|
|
Funding Improvement or Rehabilitation Plan Status
|
|
Contributions to Plan
|
|
Expiration Date of CBA
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31, 2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
|
|
2016
|
|
2015
|
|
|
2016
|
|
2015
|
|
|
|
New England Teamsters and Trucking Industry Pension Fund
|
|
04-6372430
|
|
Critical
|
|
Critical
|
|
Implemented
|
|
$
|
523
|
|
|
$
|
413
|
|
|
$
|
244
|
|
|
$
|
303
|
|
|
6/30/20
|
The status is based on the latest plan information for the plan year ended September 30, 2016 that we received from the pension plan and is certified by the pension plans’ actuary. Plans with a “critical” status are funded at less than 65%. Our contributions to the multiemployer pension plan represent less than 5% of total contributions to such plan for the plan year ended September 30, 2015 and a rehabilitation plan has been implemented with no surcharge imposed. Under current law regarding multiemployer benefit plans, a plan’s termination, our voluntary withdrawal, or the withdrawal of all contributing employers from any under-funded multiemployer pension plan would require us to make payments to the plan for our proportionate share of the multiemployer plan’s unfunded vested liabilities. We could have adjustments to estimates for these matters in the near term that could have a material effect on its consolidated financial position, results of operations or cash flows. At the date these financial statements were issued, a Form 5500 was not available for the plan year ended September 30, 2016.
14. INCOME TAXES
A summary of the provision for income taxes from continuing operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31, 2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016
|
|
2015
|
|
|
Federal
|
|
|
|
|
|
|
|
Current
|
$
|
—
|
|
|
$
|
2,899
|
|
|
$
|
2,231
|
|
|
$
|
—
|
|
Current benefit of loss carryforwards
|
—
|
|
|
(2,899
|
)
|
|
(2,231
|
)
|
|
—
|
|
Deferred
|
458
|
|
|
395
|
|
|
463
|
|
|
1,262
|
|
|
458
|
|
|
395
|
|
|
463
|
|
|
1,262
|
|
State
|
|
|
|
|
|
|
|
Current
|
(90
|
)
|
|
1,112
|
|
|
500
|
|
|
219
|
|
Current benefit of loss carryforwards
|
—
|
|
|
(557
|
)
|
|
(402
|
)
|
|
—
|
|
Deferred
|
126
|
|
|
401
|
|
|
142
|
|
|
318
|
|
|
36
|
|
|
956
|
|
|
240
|
|
|
537
|
|
Provision for income taxes
|
$
|
494
|
|
|
$
|
1,351
|
|
|
$
|
703
|
|
|
$
|
1,799
|
|
In fiscal year 2016, we elected early adoption of ASU 2016-09 using the prospective transition method related to stock compensation which contains several amendments that simplify the accounting for employee share-based payment transactions. Related to the accounting for income taxes, the new standard eliminates the accounting for excess tax benefits to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital. Under the new standard, all excess tax benefits and tax deficiencies are recorded in the income tax provision. We recognized no net tax impact upon adoption due to the valuation allowance position and prior periods have not been adjusted.
Included in the current state tax provision for fiscal year 2015 is a
$180
settlement with New York State, comprised of
$168
of tax and
$12
of interest. New York State had alleged that we were not permitted to file a single combined corporation franchise tax return with our subsidiaries. We believe that our position related to the filing of our State of New York tax returns was correct, and, based on the prior settlement related to 2004 to 2010 tax returns and subsequent favorable litigation related to similar issues, we concluded at December 31, 2014 that no reserve would be required for our State of New York filings. During fiscal year 2015, we reached the
$180
settlement with the State of New York for the tax years ended April 30, 2011 through April 30, 2013 on a basis similar to the prior settlement to minimize out-of-pocket costs. The settlement, which represented less than
8%
of the potential cumulative liability for the years settled, was a monetary settlement without any change to our filing combined returns in New York and it closed tax years ending April 30, 2011 through April 30, 2013. Due to a change in law, we have elected to file a single combined corporation franchise tax return with our subsidiaries in New York beginning with 2015. We have not established any reserve under ASC 740 for the tax years ended April 30, 2014 and December 31, 2014, since we believe our position would more likely than not be successful.
The differences in the provision for income taxes and the amounts determined by applying the Federal statutory rate to income before provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31, 2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016
|
|
2015
|
|
|
Federal statutory rate
|
35
|
%
|
|
35
|
%
|
|
35
|
%
|
|
35
|
%
|
Tax at statutory rate
|
$
|
(2,228
|
)
|
|
$
|
(3,650
|
)
|
|
$
|
(1,787
|
)
|
|
$
|
(8,929
|
)
|
State income taxes, net of federal benefit
|
(265
|
)
|
|
198
|
|
|
(59
|
)
|
|
(1,271
|
)
|
Other increase in valuation allowance
|
4,370
|
|
|
5,272
|
|
|
2,532
|
|
|
13,605
|
|
Non-deductible expenses
|
100
|
|
|
467
|
|
|
505
|
|
|
505
|
|
Tax credits
|
(1,085
|
)
|
|
(671
|
)
|
|
(380
|
)
|
|
(598
|
)
|
Non-deductible equity income in subsidiaries and GreenFiber goodwill impairment
|
—
|
|
|
(415
|
)
|
|
(73
|
)
|
|
1,548
|
|
Tax over book basis in GreenFiber on sale
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,570
|
)
|
Other, net
|
(398
|
)
|
|
150
|
|
|
(35
|
)
|
|
(491
|
)
|
Provision for income taxes
|
$
|
494
|
|
|
$
|
1,351
|
|
|
$
|
703
|
|
|
$
|
1,799
|
|
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and such amounts recognized for income tax purposes. A summary of deferred tax assets and liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
Deferred tax assets:
|
|
|
|
Book over tax depreciation of property and equipment
|
$
|
30,012
|
|
|
$
|
37,383
|
|
Net operating loss carryforwards
|
46,846
|
|
|
36,187
|
|
Accrued expenses and reserves
|
32,185
|
|
|
31,611
|
|
Alternative minimum tax credit carryforwards
|
3,804
|
|
|
3,766
|
|
General business tax credit carryforwards
|
4,433
|
|
|
3,379
|
|
Stock awards
|
1,720
|
|
|
1,338
|
|
Other
|
2,806
|
|
|
2,778
|
|
Total deferred tax assets
|
121,806
|
|
|
116,442
|
|
Less: valuation allowance
|
(97,589
|
)
|
|
(93,007
|
)
|
Total deferred tax assets after valuation allowance
|
24,217
|
|
|
23,435
|
|
Deferred tax liabilities:
|
|
|
|
Amortization of intangibles
|
(30,296
|
)
|
|
(28,935
|
)
|
Other
|
(99
|
)
|
|
(95
|
)
|
Total deferred tax liabilities
|
(30,395
|
)
|
|
(29,030
|
)
|
Net deferred tax liability
|
$
|
(6,178
|
)
|
|
$
|
(5,595
|
)
|
As of
December 31, 2016
, we have, for federal income tax purposes, net operating loss carryforwards of approximately
$98,735
that expire in the fiscal years ending December 31,
2031 through 2036
and state net operating loss carryforwards of approximately
$110,486
that expire in the fiscal years ending December 31,
2017 through 2036
. In addition, we have
$3,804
minimum tax credit carryforwards available that are not subject to a time limitation and
$4,433
general business credit carryforwards which expire in the fiscal years ending December 31,
2023 through 2036
. Sections 382 and 383 of the Internal Revenue Code can limit the amount of net operating loss and credit carryforwards which may be used in a tax year in the event of certain stock ownership changes. We are not currently subject to these limitations but could become subject to them if there were significant changes in the ownership of our stock.
In assessing the realizability of carryforwards and other deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.
The net increase in the valuation allowance was
$4,582
for fiscal year
2016
,
$5,886
for fiscal year
2015
and
$2,581
for transition period 2014. In determining the need for a valuation allowance, we have assessed the available means of recovering deferred tax assets, including the ability to carryback net operating losses, the existence of reversing temporary differences, the availability of tax planning strategies, and available sources of future taxable income. We have also considered the ability to implement certain strategies, such as a potential sale of assets that would, if necessary, be implemented to accelerate taxable income and use expiring deferred tax assets. We believe we are able to support the deferred tax assets recognized as of the end of the year based on all of the available evidence. The net deferred tax liability as of
December 31, 2016
includes deferred tax liabilities related to amortizable goodwill, which are anticipated to reverse in an indefinite future period and which are not currently available as a source of taxable income.
The provisions of FASB ASC 740-10-25-5 prescribe the minimum recognition threshold that a tax position is required to meet before being recognized in the financial statements. Additionally, FASB ASC 740-10-25-5 provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under FASB ASC 740-10-25-5, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not” threshold.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 31,
|
|
2016
|
|
2015
|
Unrecognized tax benefits at beginning of period
|
$
|
3,379
|
|
|
$
|
3,073
|
|
Gross increases for tax positions of prior years
|
—
|
|
|
168
|
|
Gross decreases for tax positions of prior years
|
(2
|
)
|
|
(1
|
)
|
Reductions resulting from lapse of statute of limitations
|
(270
|
)
|
|
(409
|
)
|
Gross increases resulting from reversal of benefit from lapse of statute of limitations
|
—
|
|
|
716
|
|
Settlements
|
—
|
|
|
(168
|
)
|
Unrecognized tax benefits at end of period
|
$
|
3,107
|
|
|
$
|
3,379
|
|
The gross increases for tax positions of prior years for fiscal year 2015 includes
$168
tax from the settlement with New York State, which is offset by the
($168)
settlements for fiscal year 2015. Included in the balances at
December 31, 2016
and
December 31, 2015
are
$9
and
$279
, respectively, of unrecognized tax benefits (net of the federal benefit on state issues) that, if recognized, would favorably affect the effective income tax rate in future periods. We anticipate a
$3
to unrecognized tax benefits within the next 12 months due to the expiration of the applicable statute of limitations.
Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Related to uncertain tax positions during fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, we have accrued interest of
$5
,
$92
,
$143
and
$116
and penalties of
$4
,
$8
,
$8
and
$8
, respectively. We accrued
($91)
,
($51)
,
$26
and
$40
for interest and penalties in income tax expense related to uncertain tax positions during fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, respectively. To the extent interest and penalties are not assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax provision.
We are subject to U.S. federal income tax, as well as income tax of multiple state jurisdictions. Due to Federal and state net operating loss carryforwards, income tax returns from years ending in 1998 through 2016 remain open for examination, with limited exceptions.
15. OTHER ITEMS AND CHARGES
Environmental Remediation Charge
We recorded an environmental remediation charge of
$900
in fiscal year 2016 due to changes in cost estimates associated with the Potsdam environmental remediation liability. See Item 3, “
Legal Proceedings
” and Note 10,
Commitments and Contingencies
for further disclosure.
In transition period 2014, we recorded an environmental remediation charge of
$950
associated with remediation performed at Southbridge Landfill in our Eastern region. We had previously recorded an environmental remediation charge of
$400
in fiscal year 2014 associated with remediation activities at this site.
Expense from Divestiture, Acquisition and Financing Costs
In fiscal year 2014, we incurred
$144
of expenses primarily associated with legal costs for the acquisition of the remaining
50%
membership interest of Tompkins. See Note 3,
Summary of Significant Accounting Policies
for disclosure over the acquisition of Tompkins.
Development Project Charge
In fiscal year 2014, we recorded a charge of
$1,394
for deferred costs associated with a gas pipeline development project in Maine no longer deemed viable.
Severance and Reorganization Costs
In fiscal year 2014, we recorded a charge of
$586
for severance costs associated with various planned reorganization efforts including the divestiture of Maine Energy.
16. DIVESTITURE TRANSACTIONS AND DISCONTINUED OPERATIONS
We review planned business dispositions based on available information and events that have occurred to determine whether or not a business or disposal group qualifies for discontinued operations treatment. We analyze our operations that have been divested or classified as held-for-sale to determine if they qualify for discontinued operations accounting. A component of an entity, a group of components of an entity, or a business is required to be reported in discontinued operations once it meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale. A disposal is required to be reported in discontinued operations if the disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results. We evaluate whether the component has met the criteria to be classified as held-for-sale. To be classified as held-for-sale, the criteria established by FASB ASC 360-10 must be met as of the reporting date, including an active program to market the business and the disposition of the business within one year. A business that has not been disposed of may not be classified as discontinued operations until the held-for-sale criteria are met. No depreciation is recorded during the periods in which a disposal group is classified as held-for-sale.
Discontinued Operations
In the fiscal year ended April 30, 2013, we initiated a plan to dispose of KTI BioFuels, Inc. (“BioFuels”) and as a result, the assets associated with BioFuels were classified as held-for-sale and the results of operations were recorded as income from discontinued operations. Assets of the disposal group previously classified as held-for-sale, and subsequently included in discontinued operations, included certain inventory along with plant and equipment. In the first quarter of fiscal year 2014, we executed a purchase and sale agreement with ReEnergy Lewiston LLC (“ReEnergy”), pursuant to which we agreed to sell certain assets of BioFuels, which was located in our Eastern region, to ReEnergy. We agreed to sell the BioFuels assets for undiscounted purchase consideration of
$2,000
, which was to be paid to us in equal quarterly installments over
five years
commencing November 1, 2013, subject to the terms of the purchase and sale agreement. The related note receivable was paid in full by ReEnergy in transition period 2014. We recognized a
$378
loss on disposal of discontinued operations in fiscal year 2014 associated with the disposition.
The operating results of these operations, including those related to prior years, have been reclassified from continuing to discontinued operations in the accompanying consolidated financial statements. Revenues and income before income taxes attributable to discontinued operations are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31,
2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016
|
|
2015
|
|
|
Revenues
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,316
|
|
Income before income taxes
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
284
|
|
We allocate interest expense to discontinued operations. We have also eliminated inter-company activity associated with discontinued operations.
Divestiture Transactions
Sale of Business.
In fiscal year 2015, we divested of a business, which included the sale of certain assets associated with various waste collection routes in our Western region, for total consideration of
$872
, resulting in a gain of
$590
.
Maine Energy.
In the fiscal year ended April 30, 2013, we executed a purchase and sale agreement with the City of Biddeford, Maine, pursuant to which we agreed to sell the real property of Maine Energy Recovery Company, LP (“Maine Energy”) to the City of Biddeford. We agreed to sell Maine Energy for an undiscounted purchase consideration of
$6,650
, which was to be paid to us in installments over
twenty-one years
. The transaction closed in November 2012. In December 2012, we ceased operations of the Maine Energy facility and initiated the decommissioning, demolition and site remediation process in accordance with the provisions of the agreement. We have completed the demolition process and site remediation under the auspices and in accordance with work plans approved by the Maine Department of Environmental Protection and the U.S. Environmental Protection Agency. In consideration of the fact that the project was substantially completed and based on incurred costs to date and estimates at that time regarding the remaining costs to fulfill our obligation under the purchase and sale agreement, we reversed a reserve of
$1,149
of excess costs to complete the divestiture in fiscal year 2015. As of
December 31, 2016
, we had
no
remaining costs to complete the divestiture accrued as we had fulfilled our obligation under the agreement.
CARES and Related Transaction.
Casella-Altela Regional Environmental Services, LLC (“CARES”) is a joint venture that owned and operated a water and leachate treatment facility for the natural gas drilling industry in Pennsylvania. Our joint venture partner in CARES is Altela, Inc. (“Altela”). We held an ownership interest in CARES of
51%
and, in accordance with FASB ASC 810-10-15, we consolidated the assets, liabilities and results of operations of CARES into our consolidated financial statements due to our controlling financial interest in the joint venture. In fiscal year 2014, we determined that assets of the CARES water treatment facility were no longer operational or were not operating within product performance parameters. As a result, we initiated a plan to abandon and shut down the operations of CARES. It was determined that the carrying value of the assets of CARES was no longer recoverable and, as a result, the carrying value of the asset group was assessed for impairment and impaired in transition period 2014. As a result, we recorded an impairment charge of
$7,455
transition period 2014 to the asset group of CARES in our Western region.
We executed a purchase and sale agreement in fiscal year 2015 pursuant to which we and Altela agreed to sell certain assets of the CARES water treatment facility to an unrelated third-party. We sold these assets of CARES for purchase consideration of
$3,500
, resulting in a gain of
$2,850
in fiscal year 2015,
49%
of which was attributable to Altela, the noncontrolling interest holder. In connection with this transaction, we also sold certain of our equipment and real estate to the same unrelated third-party for total consideration of
$1,050
, resulting in a gain of
$928
in fiscal year 2015.
In fiscal year 2016, we dissolved CARES in accordance with the CARES Limited Liability Company Agreement. We are in the process of dissolving CARES McKean, LLC in accordance with Pennsylvania dissolution proceedings and upon dissolution we will deconsolidate the assets, liabilities and equity components, including the noncontrolling interest.
BioFuels.
In transition period 2014, we recorded a
$553
gain associated with the disposition of BioFuels in fiscal year 2014. As a part of the divestiture, we agreed to complete certain site improvements at BioFuels which were completed in December 2014. The gain recorded is the result of reversing the excess remaining reserves not needed to complete the site improvements.
17. EARNINGS PER SHARE
A summary of the numerator and denominators used in the computation of earnings per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31,
2014
|
|
Fiscal Year
Ended
April 30,
2014
|
|
2016
|
|
2015
|
|
|
Numerator:
|
|
|
|
|
|
|
|
Loss from continuing operations before discontinued operations attributable to common stockholders
|
$
|
(6,849
|
)
|
|
$
|
(12,969
|
)
|
|
$
|
(6,018
|
)
|
|
$
|
(23,001
|
)
|
Denominator:
|
|
|
|
|
|
|
|
Class A common stock
|
40,572
|
|
|
40,064
|
|
|
39,587
|
|
|
39,086
|
|
Class B common stock
|
988
|
|
|
988
|
|
|
988
|
|
|
988
|
|
Unvested restricted stock
|
(88
|
)
|
|
(115
|
)
|
|
(159
|
)
|
|
(130
|
)
|
Effect of weighted average shares outstanding
|
(239
|
)
|
|
(295
|
)
|
|
(154
|
)
|
|
(124
|
)
|
Weighted average common shares outstanding
|
41,233
|
|
|
40,642
|
|
|
40,262
|
|
|
39,820
|
|
Antidilutive potentially issuable shares
|
2,442
|
|
|
2,259
|
|
|
2,178
|
|
|
2,190
|
|
18. RELATED PARTY TRANSACTIONS
Services
During fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014, we retained the services of Casella Construction, Inc. ("CCI"), a company wholly owned by sons of John Casella, our Chairman and Chief Executive Officer, and Douglas Casella, a member of our Board of Directors, as a contractor in developing or closing certain landfills owned by us. Total purchased services charged to operations or capitalized to landfills for fiscal year
2016
, fiscal year
2015
, transition period 2014 and fiscal year
2014
were
$4,024
,
$1,341
,
$5,562
and
$7,818
, respectively, of which
$18
and
$28
were outstanding and included in either accounts payable or other current liabilities as of
December 31, 2016
and
December 31, 2015
, respectively.
In addition to the total purchased services, we provided various waste collection and disposal services to CCI. Total revenues recorded for fiscal year
2016
, fiscal year
2015
, transition period
2014
and fiscal year 2014 were
$307
,
$415
,
$29
and
$48
, respectively. CCI also contributed
$350
in cash and
$390
in non-compensable services for work performed at the Southbridge Landfill to assist in the remediation of the site. See Note 15,
Other Items and Charges
for discussion over the Southbridge Landfill environmental remediation.
Leases
In the fiscal year ended April 30, 1994, we entered into
two
leases for operating facilities with a partnership of which John Casella, our Chairman and Chief Executive Officer, and Douglas Casella, a member of our Board of Directors, are the general partners. The leases have since been extended through
April 2018
with a
five
year option to extend the terms. The terms of the lease agreements require monthly payments of approximately
$28
. Total expense charged to operations for fiscal year
2016
, fiscal year
2015
, transition period 2014 and fiscal year
2014
under these agreements was
$371
,
$384
,
$263
and
$386
, respectively.
Landfill Post-closure
We have agreed to pay the cost of post-closure on a landfill owned by John Casella, our Chairman and Chief Executive Officer, and Douglas Casella, a member of our Board of Directors. We paid the cost of closing this landfill in 1992, and the post-closure maintenance obligations are expected to last until the fiscal year ending December 31, 2024. In fiscal year
2016
, fiscal year
2015
, transition period 2014 and fiscal year
2014
, we paid
$10
,
$9
,
$8
, and
$8
, respectively, pursuant to this agreement. As of
December 31, 2016
and
December 31, 2015
, we have accrued
$70
and
$75
, respectively, for costs associated with its post-closure obligations.
Employee Loan
In fiscal year 2014, we entered into an agreement with an employee to amend a promissory note, whereas the outstanding balance of
$149
, which had been included in Notes receivable – related party in the accompanying consolidated balance sheet, will be deemed paid in full in exchange for continued employment and the employee forgoing participation in the annual cash incentive plan and restricted stock program for a period of time specified in the amended note. Upon entering into the amended note, interest ceased accruing on the note and we recorded a charge of
$149
in general and administration to reserve for the note.
19. SEGMENT REPORTING
We report selected information about operating segments in a manner consistent with that used for internal management reporting. We classify our solid waste operations on a geographic basis through regional operating segments, our Western and Eastern regions. Revenues associated with our solid waste operations are derived mainly from solid waste collection and disposal, landfill, landfill gas-to-energy, transfer and recycling services in the northeastern United States. Our revenues in the Recycling segment are derived from municipalities and customers in the form of processing fees, tipping fees and commodity sales. Organics services, ancillary operations, major account and industrial services, discontinued operations, and earnings from equity method investees, as applicable, are included in our Other segment.
Fiscal Year Ended
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating income (loss)
|
|
Interest
expense, net
|
|
Capital
expenditures
|
|
Goodwill
|
|
Total assets
|
Eastern
|
$
|
176,539
|
|
|
$
|
45,728
|
|
|
$
|
27,036
|
|
|
$
|
9,697
|
|
|
$
|
(16
|
)
|
|
$
|
18,363
|
|
|
$
|
17,429
|
|
|
$
|
202,420
|
|
Western
|
233,168
|
|
|
67,985
|
|
|
27,511
|
|
|
30,576
|
|
|
(248
|
)
|
|
31,637
|
|
|
88,426
|
|
|
327,628
|
|
Recycling
|
52,911
|
|
|
1,003
|
|
|
4,212
|
|
|
2,542
|
|
|
156
|
|
|
2,218
|
|
|
12,316
|
|
|
49,931
|
|
Other
|
102,412
|
|
|
1,615
|
|
|
3,097
|
|
|
2,130
|
|
|
38,760
|
|
|
2,020
|
|
|
1,728
|
|
|
51,533
|
|
Eliminations
|
—
|
|
|
(116,331
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
565,030
|
|
|
$
|
—
|
|
|
$
|
61,856
|
|
|
$
|
44,945
|
|
|
$
|
38,652
|
|
|
$
|
54,238
|
|
|
$
|
119,899
|
|
|
$
|
631,512
|
|
Fiscal Year Ended
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating income (loss)
|
|
Interest
expense, net
|
|
Capital
expenditures
|
|
Goodwill
|
|
Total assets
|
Eastern
|
$
|
167,467
|
|
|
$
|
43,560
|
|
|
$
|
25,977
|
|
|
$
|
7,338
|
|
|
$
|
(200
|
)
|
|
$
|
24,840
|
|
|
$
|
17,429
|
|
|
$
|
212,922
|
|
Western
|
231,951
|
|
|
68,284
|
|
|
29,488
|
|
|
26,035
|
|
|
165
|
|
|
20,282
|
|
|
87,503
|
|
|
318,730
|
|
Recycling
|
46,338
|
|
|
995
|
|
|
4,480
|
|
|
(2,406
|
)
|
|
25
|
|
|
1,770
|
|
|
12,315
|
|
|
49,355
|
|
Other
|
100,744
|
|
|
1,014
|
|
|
2,759
|
|
|
899
|
|
|
40,100
|
|
|
3,103
|
|
|
1,729
|
|
|
52,662
|
|
Eliminations
|
—
|
|
|
(113,853
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
546,500
|
|
|
$
|
—
|
|
|
$
|
62,704
|
|
|
$
|
31,866
|
|
|
$
|
40,090
|
|
|
$
|
49,995
|
|
|
$
|
118,976
|
|
|
$
|
633,669
|
|
Eight Months Ended
December 31, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating income (loss)
|
|
Interest
expense, net
|
|
Capital
expenditures
|
|
Goodwill
|
|
Total assets
|
Eastern
|
$
|
108,423
|
|
|
$
|
31,840
|
|
|
$
|
17,195
|
|
|
$
|
3,434
|
|
|
$
|
(315
|
)
|
|
$
|
27,354
|
|
|
$
|
17,429
|
|
|
$
|
211,020
|
|
Western
|
156,877
|
|
|
50,235
|
|
|
19,775
|
|
|
18,840
|
|
|
(6
|
)
|
|
21,884
|
|
|
87,697
|
|
|
333,028
|
|
Recycling
|
33,741
|
|
|
(175
|
)
|
|
2,876
|
|
|
(238
|
)
|
|
—
|
|
|
3,016
|
|
|
12,315
|
|
|
52,016
|
|
Other
|
69,333
|
|
|
1,763
|
|
|
1,639
|
|
|
74
|
|
|
25,713
|
|
|
2,807
|
|
|
1,729
|
|
|
62,135
|
|
Eliminations
|
—
|
|
|
(83,663
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
368,374
|
|
|
$
|
—
|
|
|
$
|
41,485
|
|
|
$
|
22,110
|
|
|
$
|
25,392
|
|
|
$
|
55,061
|
|
|
$
|
119,170
|
|
|
$
|
658,199
|
|
Fiscal Year Ended April 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
Outside
revenues
|
|
Inter-company
revenue
|
|
Depreciation and
amortization
|
|
Operating income (loss)
|
|
Interest
expense, net
|
|
Capital
expenditures
|
|
Goodwill
|
|
Total assets
|
Eastern
|
$
|
147,330
|
|
|
$
|
38,946
|
|
|
$
|
24,961
|
|
|
$
|
(1,105
|
)
|
|
$
|
(272
|
)
|
|
$
|
19,870
|
|
|
$
|
17,429
|
|
|
$
|
200,235
|
|
Western
|
216,911
|
|
|
70,809
|
|
|
28,693
|
|
|
13,298
|
|
|
112
|
|
|
20,471
|
|
|
87,666
|
|
|
331,304
|
|
Recycling
|
43,825
|
|
|
(139
|
)
|
|
4,262
|
|
|
(2,435
|
)
|
|
—
|
|
|
1,111
|
|
|
12,315
|
|
|
49,652
|
|
Other
|
89,567
|
|
|
2,019
|
|
|
2,423
|
|
|
2,158
|
|
|
38,023
|
|
|
4,507
|
|
|
1,729
|
|
|
57,094
|
|
Eliminations
|
—
|
|
|
(111,635
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
497,633
|
|
|
$
|
—
|
|
|
$
|
60,339
|
|
|
$
|
11,916
|
|
|
$
|
37,863
|
|
|
$
|
45,959
|
|
|
$
|
119,139
|
|
|
$
|
638,285
|
|
Amount of our total revenue attributable to services provided are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
December 31,
|
|
Eight Months
Ended
December 31, 2014
|
|
Fiscal Year
Ended
April 30, 2014
|
|
2016
|
|
2015
|
|
|
Collection
|
$
|
249,640
|
|
|
44.2
|
%
|
|
$
|
238,301
|
|
|
43.6
|
%
|
|
$
|
157,809
|
|
|
42.8
|
%
|
|
$
|
225,441
|
|
|
45.3
|
%
|
Disposal
|
154,211
|
|
|
27.3
|
%
|
|
156,536
|
|
|
28.6
|
%
|
|
102,304
|
|
|
27.8
|
%
|
|
128,778
|
|
|
25.9
|
%
|
Power generation
|
5,921
|
|
|
1.0
|
%
|
|
6,796
|
|
|
1.2
|
%
|
|
5,049
|
|
|
1.4
|
%
|
|
9,512
|
|
|
1.9
|
%
|
Processing
|
6,282
|
|
|
1.1
|
%
|
|
6,061
|
|
|
1.1
|
%
|
|
6,643
|
|
|
1.8
|
%
|
|
8,852
|
|
|
1.8
|
%
|
Solid waste operations
|
416,054
|
|
|
73.6
|
%
|
|
407,694
|
|
|
74.5
|
%
|
|
271,805
|
|
|
73.8
|
%
|
|
372,583
|
|
|
74.9
|
%
|
Organics
|
41,587
|
|
|
7.4
|
%
|
|
39,134
|
|
|
7.2
|
%
|
|
27,012
|
|
|
7.3
|
%
|
|
37,829
|
|
|
7.6
|
%
|
Customer solutions
|
54,478
|
|
|
9.6
|
%
|
|
53,334
|
|
|
9.8
|
%
|
|
35,816
|
|
|
9.7
|
%
|
|
43,396
|
|
|
8.7
|
%
|
Recycling
|
52,911
|
|
|
9.4
|
%
|
|
46,338
|
|
|
8.5
|
%
|
|
33,741
|
|
|
9.2
|
%
|
|
43,825
|
|
|
8.8
|
%
|
Total revenues
|
$
|
565,030
|
|
|
100.0
|
%
|
|
$
|
546,500
|
|
|
100.0
|
%
|
|
$
|
368,374
|
|
|
100.0
|
%
|
|
$
|
497,633
|
|
|
100.0
|
%
|
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of certain items in the consolidated statements of operations by quarter. The impact of discontinued operations, as described in Note 16,
Divestiture Transactions and Discontinued Operations
is included in all periods in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Revenues
|
$
|
125,432
|
|
|
$
|
144,670
|
|
|
$
|
151,133
|
|
|
$
|
143,795
|
|
Operating income
|
$
|
1,974
|
|
|
$
|
15,596
|
|
|
$
|
17,378
|
|
|
$
|
9,997
|
|
Net (loss) income
|
$
|
(7,614
|
)
|
|
$
|
5,192
|
|
|
$
|
7,537
|
|
|
$
|
(11,973
|
)
|
Net (loss) income attributable to common stockholders
|
$
|
(7,608
|
)
|
|
$
|
5,195
|
|
|
$
|
7,537
|
|
|
$
|
(11,973
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
—
|
|
Basic weighted average common shares outstanding
|
40,996
|
|
|
41,132
|
|
|
41,377
|
|
|
41,422
|
|
Basic earnings per share
|
$
|
(0.19
|
)
|
|
$
|
0.13
|
|
|
$
|
0.18
|
|
|
$
|
(0.29
|
)
|
Diluted weighted average common shares outstanding
|
40,996
|
|
|
41,598
|
|
|
42,287
|
|
|
41,422
|
|
Diluted earnings per share
|
$
|
(0.19
|
)
|
|
$
|
0.12
|
|
|
$
|
0.18
|
|
|
$
|
(0.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2015
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
Revenues
|
$
|
116,577
|
|
|
$
|
143,714
|
|
|
$
|
146,185
|
|
|
$
|
140,024
|
|
Operating income
|
$
|
3,126
|
|
|
$
|
11,342
|
|
|
$
|
12,696
|
|
|
$
|
4,702
|
|
Net (loss) income
|
$
|
(7,963
|
)
|
|
$
|
943
|
|
|
$
|
2,259
|
|
|
$
|
(7,020
|
)
|
Net (loss) income attributable to common stockholders
|
$
|
(9,271
|
)
|
|
$
|
1,025
|
|
|
$
|
2,296
|
|
|
$
|
(7,019
|
)
|
Earnings per common share:
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
40,417
|
|
|
40,447
|
|
|
40,810
|
|
|
40,889
|
|
Basic earnings per share
|
$
|
(0.23
|
)
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
(0.17
|
)
|
Diluted weighted average common shares outstanding
|
40,417
|
|
|
40,846
|
|
|
41,283
|
|
|
40,889
|
|
Diluted earnings per share
|
$
|
(0.23
|
)
|
|
$
|
0.03
|
|
|
$
|
0.06
|
|
|
$
|
(0.17
|
)
|
Our transfer and disposal revenues historically have been lower from the months of November through March. This seasonality reflects the lower volume of waste during the late fall, winter and early spring months. Since certain of our operating and fixed costs remain constant throughout fiscal year, operating income is impacted by a similar seasonality. In addition, particularly harsh weather conditions typically result in increased operating costs.
Our recycling business experiences increased volumes of newspaper in November and December due to increased newspaper advertising and retail activity during the holiday season.