Casella Waste Systems, Inc. — FY2013 Form 10-K
Reporting period: Fiscal year ended April 30, 2013. The filing is an annual report, not a standalone calendar-year 2012 or fiscal-year 2012 fourth-quarter filing. Fourth-quarter figures below are for the three months ended April 30, 2013, with the prior-year quarter as comparator. Unless noted, amounts are in millions of dollars.
Business context and reporting period
Casella is a regional, vertically integrated waste collection, transfer, disposal, recycling and resource-management company operating mainly in six northeastern states. It reports Eastern, Western, Recycling and Other segments. At fiscal year-end, it operated nine Subtitle D landfills, 38 transfer stations and 16 recycling facilities.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $455.3 | $468.0 |
| Operating income (loss) | $12.4 | $(11.0) |
| Operating margin | 2.7% | (2.4)% |
| Net loss attributable to common stockholders | $(54.1) | $(77.6) |
| Basic and diluted loss per share | $(1.59) | $(2.90) |
| Cash from operating activities | $43.9 | $64.2 |
| Capital expenditures | $54.8 | $58.2 |
- Revenue declined 2.7%. The $10.6 million negative impact from lower recycling commodity prices and lower solid-waste volumes outweighed acquisition-related growth and collection pricing. Collection pricing increased about 2.0%.
- Cost of operations rose to 70.9% of revenue from 68.0%; the company cited higher third-party disposal, labor and operating costs. General and administrative expense declined to $58.2 million from $60.3 million.
- FY2013 operating income improved chiefly because FY2012 included a $40.7 million Maine Energy impairment. The improvement does not indicate a comparable increase in underlying earnings: FY2013 revenue fell and operating costs increased.
- Net loss improved, but included a $15.6 million debt-extinguishment loss, a $4.5 million derivative loss and $3.7 million of severance and reorganization costs. A $3.3 million impairment of Bio Fuels was recorded in discontinued operations.
- Operating cash flow fell about 32% year over year. Capital expenditures exceeded operating cash flow by approximately $10.9 million, before other investing needs.
- At April 30, 2013, cash was $1.8 million and net working capital was negative $28.8 million. Outstanding debt principal was approximately $497.9 million, excluding $35.3 million of letters of credit; $69.0 million was available under the revolving facility after letters of credit. Interest expense, net, was $41.4 million.
- Debt and capital leases on the balance sheet were approximately $494.4 million before current maturities; financing leases were additional. Total stockholders’ equity was $15.5 million.
Fourth-quarter and segment developments
- FY2013 fourth-quarter revenue was $108.7 million, versus $106.4 million in the prior-year quarter. Operating income was $2.1 million versus a $37.7 million operating loss, primarily reflecting the prior-year Maine Energy impairment. Fourth-quarter net loss attributable to common stockholders was $13.4 million.
- Eastern revenue increased to $168.4 million from $163.1 million; operating loss narrowed to $3.5 million from $42.1 million, largely due to the prior-year impairment. Western revenue decreased to $205.7 million from $212.3 million and operating income declined to $20.1 million from $29.7 million. Recycling revenue fell to $39.1 million from $47.9 million and the segment posted a $0.5 million operating loss, versus $5.4 million operating income.
Material changes, outlook, risks and unusual items
- Casella acquired BBI in December 2012 for approximately $22.4 million of total consideration and six Western-region hauling operations for approximately $5.6 million. BBI contributed about $7.3 million of revenue after acquisition. Maine Energy was sold to Biddeford for $6.7 million, payable over 21 years; Casella closed the facility and remained responsible for demolition and site work.
- The company refinanced and fully redeemed its $180 million of 11% second-lien notes. Financing included an additional $125 million of 7.75% notes due 2019, $42.2 million of net proceeds from issuing 11.5 million Class A shares, and revolver borrowings. The equity offering increased the share count. New Vermont and New Hampshire bonds also refinanced qualifying revolver-funded assets.
- Management’s FY2014 priorities include improving collection profitability, executing its Eastern-region strategy and sourcing more waste to Western New York and Pennsylvania landfills. Its stated target is to add 0.5 million tons annually by FY2015 and raise utilization at those landfills from about 65% to above 85%. These are goals, not guaranteed results; the filing gives no consolidated revenue or earnings guidance.
- Management cited weak construction and landfill volumes, lower recycling prices, fuel and labor costs, and regional economic and weather conditions as risks. Commodity markets were expected to face additional pressure from China’s Operation Green Fence. The business is also exposed to permit, environmental, landfill-capacity and regulatory risks.
- Recorded environmental remediation liabilities were $5.3 million. A separate potential multiemployer pension withdrawal liability following the Maine Energy closure was considered probable, but the amount could not be reasonably estimated; no accrual was recorded at April 30, 2013. The company recorded a $2.1 million GreenFiber guaranty liability and Casella and its partner each contributed approximately $2.1 million in May 2013 to repay GreenFiber’s term loan; further GreenFiber liquidity support may be required.
- A June 25, 2013 amendment changed revolving-credit covenants, including leverage, interest coverage and capital-expenditure limits. Casella reported compliance with its financial covenants at April 30, 2013. The auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether operating cash flow can recover and fund maintenance capital expenditures, debt service and landfill obligations without repeated external financing.
- Progress against the landfill-volume and utilization targets, including permitting, rail access and the continued decline in Western-region volumes.
- Debt covenant headroom, availability under the revolver, refinancing needs and the effects of the equity issuance and debt refinancing on interest costs and dilution.
- Recycling commodity-price exposure and the extent to which contract floors, pricing and volumes protect segment profitability.
- Final costs and proceeds for the Maine Energy disposition and demolition, the Bio Fuels sale, the New York remediation and the Maine Energy pension withdrawal.
- GreenFiber’s operating and liquidity position and any additional funding obligations; also review the filing’s detailed debt, landfill closure and post-closure disclosures.