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CASELLA WASTE SYSTEMS INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 28, 2014

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to our audited consolidated financial statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the year ended April 30, 2014 filed with the Securities and Exchange Commission ("SEC") on June 26, 2014. This Quarterly Report on Form 10-Q and, in particular, this Management's Discussion and Analysis of Financial Condition and Results of Operations may contain or incorporate a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended ("Exchange Act"), including: expected liquidity and financing plans; expected future revenues, operations, expenditures and cash needs; fluctuations in the commodity pricing of our recyclables, increases in

landfill tipping fees and fuel costs and general economic and weather conditions; projected future obligations related to final capping, closure and



post-closure costs of our existing landfills and any disposal facilities

which we may own or operate in the future; our ability to use our net operating losses and tax positions; our ability to service our debt obligations;



the projected development of additional disposal capacity or expectations

regarding permits for existing capacity; the recoverability or impairment of any of our assets or goodwill;



estimates of the potential markets for our products and services, including

the anticipated drivers for future growth; sales and marketing plans or price and volume assumptions; the outcome of any legal or regulatory matter; potential business combinations or divestitures; and



projected improvements to our infrastructure and impact of such improvements

on our business and operations.

In addition, any statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q that are not statements of historical fact should be considered forward-looking statements. You can identify these forward-looking statements by the use of the words "believes", "expects", "anticipates", "plans", "may", "will", "would", "intends", "estimates" and other similar expressions, whether in the negative or affirmative. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate, as well as management's beliefs and assumptions, and should be read in conjunction with our unaudited consolidated financial statements and unaudited notes to consolidated financial statements included in this Quarterly Report on Form 10-Q. We cannot guarantee that we actually will achieve the plans, intentions or expectations disclosed in the forward-looking statements made. The occurrence of the events described and the achievement of the expected results depends on many events, some or all of which are not predictable or within our control. Actual results may differ materially from those set forth in forward-looking statements. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by such forward-looking statements. These risks and uncertainties include, without limitation, those detailed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended April 30, 2014. We explicitly disclaim any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as otherwise required by law. 29



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Company Overview

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



As of August 15, 2014, we owned and/or operated 35 solid waste collection operations, 43 transfer stations, 17 recycling facilities, nine Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition ("C&D") materials.

Accounting Period

In June 2014, we elected to change our fiscal year-end from April 30th to December 31st. The change in fiscal year will become effective for our fiscal year beginning January 1, 2015 and ending December 31, 2015. We intend to file a Transition Report on Form 10-KT for the 8-month transition period ending December 31, 2014 ("Transition Period"). This Quarterly Report on Form 10-Q for the three months ended July 31, 2014 is for the first quarter of the Transition Period. Results of Operations The following table summarizes our revenues and operating expenses for the three months ended July 31, 2014 and 2013 (in millions and as a percentage of revenue): Three Months Ended July 31, % of % of 2014 Revenue 2013 Revenue Revenues $ 141.4 100.0 % $ 128.6 100.0 % Operating expenses: Cost of operations 98.8 69.9 % 88.5 68.9 % General and administration 16.8 11.9 % 15.1 11.7 % Depreciation and amortization 16.4 11.6 % 15.2 11.8 % Environmental remediation charge 0.1 0.1 % - 0.0 % Severance and reorganization costs - 0.0 % 0.1 0.1 % Expense from divestiture, acquisition and financing costs - 0.0 % - 0.0 % 132.1 93.5 % 118.9 92.5 % Operating income $ 9.3 6.5 % $ 9.7 7.5 % Revenues We manage our solid waste operations, which include a full range of solid waste services, on a geographic basis through two regional operating segments, which we designate as the Eastern and Western regions. Revenues in our Eastern and Western regions consist primarily of fees charged to customers for solid waste collection and disposal, landfill, landfill gas-to-energy, transfer and recycling services. We derive a substantial portion of our collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of our residential collection services are performed on a subscription basis with individual households. Landfill and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our disposal facilities and transfer stations. We also generate and sell electricity at certain of our landfill facilities. In addition, revenues from our Recycling segment consist of revenues derived from municipalities and customers in the form of processing fees, tipping fees and commodity sales. Organics services, ancillary operations, major customer accounts, discontinued operations, and earnings from equity method investees are included in our "Other" reportable segment. 30

-------------------------------------------------------------------------------- Our revenues are shown net of inter-company eliminations. The table below shows the percentages and dollars (in millions) of revenue attributable to services provided for the three months ended July 31, 2014 and 2013: Three Months Ended July 31 2014 2013 Collection $ 60.0 42.4 % $ 58.2 45.3 % Disposal 40.1 28.4 % 35.1 27.3 % Power generation 1.9 1.3 % 2.0 1.5 % Processing 2.9 2.1 % 3.0 2.3 % Solid waste operations 104.9 74.2 % 98.3 76.4 % Organics 10.7 7.6 % 9.9 7.7 % Customer solutions 13.3 9.4 % 9.2 7.2 % Recycling 12.5 8.8 % 11.2 8.7 % Total revenues $ 141.4 100.0 % $ 128.6 100.0 % Our revenues increased $12.8 million, or 10.0%, when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year. The following table provides details associated with the period-to-period changes in revenues (in millions) attributable to services provided: Period-to-Period Change for the Three Months Ended July 31, 2014 vs . 2013 Amount % of Growth



Solid waste operations:

Price $ 0.8



0.6 %

Volume 5.2



4.1 %

Commodity price & volume (0.2 )



(0.2 )%

Fuel and oil recovery fee 0.1



0.1 %

Acquisitions & divestitures 1.6



1.2 %

Closed landfills (0.9 )



(0.7 )%

Total solid waste operations 6.6

5.1 % Organics 0.8 0.6 % Customer solutions 4.1 3.2 % Recycling: Commodity price 0.6 0.5 % Commodity volume 0.2 0.2 % Commodity acquisition 0.5 0.4 % Total recycling 1.3 1.1 % Total revenue growth $ 12.8 10.0 % 31



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Solid waste revenues Price. The price change component in total solid waste revenues growth



period-to-period is the result of $0.9 million from favorable collection

pricing, partially offset by $0.1 million from unfavorable disposal pricing

associated with the solid waste mix at our transfer stations.

Volume.



The volume change component in total solid waste revenues growth

period-to-period is the result of $5.0 million from disposal volume increases

(of which $2.2 million relates to landfills, $2.5 million relates to transfer

stations and $0.3 million relates to transportation) and $0.2 million from collection volume increases. Commodity price and volume.



The commodity price and volume change component in total solid waste revenues

growth period-to-period is the result of $0.1 million from favorable

commodity pricing within power generation and processing, more than offset by

$0.3 million from lower power generation and processing commodity volumes.

Fuel and oil recovery fee.



Solid waste revenues generated by our fuel and oil recovery fee program

increased period-to-period in response to an increase in the diesel fuel index upon which the surcharge is based.



Acquisitions and divestitures.

The acquisitions and divestitures change component in total solid waste

revenues growth period-to-period is the result of $1.6 million in increased

revenues from various business acquisitions, including several solid waste

hauling operations and a transfer station, completed between August and December 2013. Closed landfill.



The closed landfill change component in total solid waste revenues growth

period-to-period is the result of a landfill in the Eastern region that ceased operations in April 2014 in accordance with its permit. Organics revenues



The increase in Organics revenues period-to-period is the result of higher

volumes associated with organic business growth.

Customer Solutions revenues



The increase in Customer Solutions revenues period-to-period is the result of

$3.4 million from higher volumes and $0.8 million from the acquisition of an

industrial service management business in September 2013.

Recycling revenues



The increase in recycling revenues period-to-period is primarily the result

of favorable commodity pricing in the market, higher commodity volumes and

the acquisition of the remaining 50% membership interest of Tompkins County

Recycling LLC ("Tompkins").

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



Our cost of operations increased $10.3 million, or 1.0% as a percentage of revenues, when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year.

32



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

Third-party direct costs increased $5.9 million due to: organic and

acquisition growth in our Customer Solutions business, which has a higher

inherent direct cost structure; higher volumes in our Organics business; and

higher collection and disposal volumes from organic customer growth and the

acquisition of various hauling operations and a transfer station. Maintenance and repair costs increased $1.8 million due to: higher fleet



repair and maintenance costs and higher facility costs associated with

certain landfills in our Eastern region, hauling operations in our Western

region, and facility maintenance activities within our Recycling segment.

Labor and related benefit costs increased $1.2 million due to: additional

labor costs associated with higher collection volumes and increased healthcare costs.



Direct operational costs increased $0.9 million due to: higher depletion of

landfill operating lease obligations associated with increased volumes

received at our landfills; an increase in host community fees and royalties;

and a lower gain on sale of fixed assets in the three months ended July 31,

2014. General and Administration



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

Our general and administration expenses increased $1.7 million, or 0.2% as a percentage of revenues, when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year.



The period-to-period change in our general and administration expense can largely be attributed to the following:

Labor and related benefit costs increased $0.9 million due to additional

labor costs associated with growth in our Customer Solutions business and increased healthcare costs.



Professional fees increased $0.4 million due to higher legal costs associated

with third-party legal advice, a legal settlement with the State of New York

Attorney General's Office ("NYAG") and a loss accrued for a potential legal

settlement with the Massachusetts Department of Environmental Protection

("MADEP"). See discussion in Legal Proceedings included under Part II, Item 1

of this Quarterly Report on Form 10-Q.

Depreciation and Amortization

Depreciation and amortization includes (i) depreciation of property and equipment, including assets recorded for capital leases, on a straight-line basis over the estimated useful life of the assets; (ii) amortization of landfill costs, including those incurred and all estimated future costs for landfill development, construction and asset retirement costs arising from closure and post-closure, on a units-of-consumption method as landfill airspace is consumed over the total estimated remaining capacity of a site, which includes both permitted capacity and unpermitted expansion capacity that meets our criteria for amortization purposes; (iii) amortization of landfill asset retirement costs arising from final capping obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each final capping event and (iv) amortization of intangible assets with a definite life, using either a economic benefit provided approach or a straight-line basis over the definitive terms of the related agreements. 33



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The table below shows, for the periods indicated, the components of depreciation and amortization expense (in millions of dollars and as a percentage of revenues). Three Months Ended July 31, 2014 2013 Depreciation expense $ 8.3 5.9 % $ 8.1 6.3 % Landfill amortization expense 7.4 5.2 % 6.6 5.1 % Other amortization expense 0.7 0.5 % 0.5 0.4 % $ 16.4 11.6 % $ 15.2 11.8 %



The change in the components of depreciation and amortization expense period-to-period can largely be attributed to the following:

Landfill amortization expense increased $0.8 million primarily due to an

increase in landfill volumes at our Southbridge landfill in the Eastern

region and at certain of our landfills within the Western region.

Environmental Remediation Charge

The $0.1 million environmental remediation charge recorded in the three months ended July 31, 2014 is associated with the environmental remediation at our Southbridge landfill as discussed in Legal Proceedings included under Part II, Item 1 of this Quarterly Report on Form 10-Q.



Other Expenses

Interest Expense, net

Our interest expense, net increased $0.2 million from $9.3 million to $9.5 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year. The increase in interest expense is due to higher average debt balances in the three months ended July 31, 2014 associated with the timing and amount of borrowings under our amended and restated senior secured revolving credit facility ("2011 Revolver") to help fund operations and meet cash flow needs.



Loss from Equity Method Investments

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



Prior to these transactions, we recorded a loss from our equity method investments of $1.0 million in the three months ended July 31, 2013.

Provision for Income Taxes

Our provision for income taxes remained consistent at $0.3 million for the three months ended July 31, 2014 and July 31, 2013. The provision for income taxes includes a deferred tax provision of $0.2 million as of July 31, 2014 and $0.3 million as of July 31, 2013, both due mainly to the increase in the deferred tax liability for indefinite lived assets. Since we cannot determine when this deferred tax liability will reverse, this amount cannot be used as a future source of taxable income against which to benefit deferred tax assets. 34



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Discontinued Operations

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



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

Segment Reporting (in millions)

Revenues Operating Income (Loss) Three Months Ended July 31, Segment 2014 2013 2014 2013 Eastern $ 41.2$ 38.6$ 1.3$ 1.6 Western 61.2 57.4 7.7 6.9 Recycling 12.5 11.2 (0.1 ) - Other 26.5 21.4 0.4 1.2 Total $ 141.4$ 128.6$ 9.3$ 9.7 Eastern Region



Our Eastern region revenues increased $2.6 million, or 6.7%, when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year.

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

Period-to-Period Change for the Three Months July 31, 2014 vs . 2013 Eastern Region Amount % of Growth Price $ - 0.0 % Volume 2.4 6.2 % Acquisitions & divestitures 1.1 2.8 % Closed landfills (0.9 )



(2.3 )%

Total solid waste operations $ 2.6

6.7 % Price.



The price change component in Eastern region solid waste revenues growth

period-to-period is the result of $0.2 million from favorable collection

pricing, offset by $0.2 million from unfavorable disposal pricing related to

transfer stations. Volume.



The volume change component in Eastern region solid waste revenues growth

period-to-period is the result of $1.5 million from higher disposal volumes

(of which $1.4 million relates to higher transfer station volumes), $0.8 million from higher collection volumes and $0.1 million from higher processing volumes.



Acquisitions and divestitures.

The acquisitions and divestitures change component in Eastern region solid

waste revenues growth period-to-period is the result of the acquisition of a

solid waste hauling operation in September 2013 and a transfer station in

November 2013. 35



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Closed landfill.

The closed landfill change component in total solid waste revenues growth

period-to-period is the result of a landfill in the Eastern region that ceased operations in April 2014 in accordance with its permit.



Eastern region operating income decreased $0.3 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year. The change in operating income is largely attributable to the following:

Cost of operations: Cost of operations increased by $3.8 million

period-to-period due primarily to: an increase in third-party direct costs

associated with higher collection volumes from organic customer growth, the

acquisition of a transfer station and an increase in state disposal fees at

our Juniper Ridge landfill; and an increase in other operational costs

including labor, fuel, fleet repair and maintenance and certain landfill

facility costs.



General and administration: General and administration costs increased $0.5

million period-to-period due primarily to a loss accrued for a potential

legal settlement with the MADEP. See discussion in Legal Proceedings included

under Part II, Item 1 of this Quarterly Report on Form 10-Q.



Depreciation and amortization: Depreciation and amortization costs increased

$0.4 million period-to-period due to an increase in landfill amortization

associated with higher landfill volumes at our Southbridge landfill.



Other: Other charges impacting operating income period-to-period include a

$0.1 million environmental remediation charge recorded in the three months

ended July 31, 2014 associated with the environmental remediation at our Southbridge landfill. Western Region



Our Western region revenues increased $3.8 million, or 6.6%, when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year.

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

Period-to-Period Change for the Three Months July 31, 2014 vs . 2013 Western Region Amount % of Growth Price $ 0.8 1.4 % Volume 2.6 4.5 % Commodity price & volume (0.2 )



(0.4 )%

Fuel oil and recovery fee 0.1



0.2 %

Acquisitions & divestitures 0.5



0.9 %

Total solid waste operations $ 3.8

6.6 % Price.



The price change component in Western region solid waste revenues growth

period-to-period is the result of $0.7 million from favorable collection

pricing and $0.1 million from favorable disposal pricing related primarily to

transfer stations. Volume.



The volume change component in Western region solid waste revenues growth

period-to-period is the result of $3.3 million from higher disposal volumes

(of which $2.1 million relates to higher landfill volumes, $1.1 million

relates to higher transfer station volumes and $0.1 million relates to higher

transportation volumes), partially offset by $0.6 million from lower

collection volumes and $0.1 million from lower processing volumes.

Commodity price and volume.



The commodity price and volume change component in Western region solid waste

revenues growth period-to-period is the result of $0.2 million from lower

power generation and processing commodity volumes. 36



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Fuel and oil recovery fee.

Solid waste revenues generated by our fuel and oil recovery fee program

increased period-to-period in response to an increase in the diesel fuel index upon which the surcharge is based.



Acquisitions and divestitures.

The acquisitions and divestitures change component in Western region solid

waste revenues growth period-to-period is the result of $0.5 million in

increased revenues from various solid waste hauling operation acquisitions

completed between August and December 2013.

Western region operating income increased $0.8 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year. The change in operating income is largely attributable to the following:

Cost of operations: Cost of operations increased by $2.5 million

period-to-period due to: an increase in third-party direct costs associated

with higher hauling costs driven by organic transfer station volume growth

(including the addition of two new operating contracts for municipality-owned

transfer stations) and landfill volume growth, partially offset by lower

disposal costs driven by the winding down of business at Casella-Altela

Regional Environmental Services, LLC ("CARES") and lower collection volumes;

an increase in labor and related benefit costs; an increase in direct

operational costs including depletion of landfill operating lease obligations

due to increased volumes received at our landfills and an increase in host

community fees and royalties; and an increase in repair and maintenance costs

associated with our fleet and hauling operation facilities.



General and administration: General and administration costs remained

consistent period-to-period increasing by $0.1 million due to immaterial cost

fluctuations.



Depreciation and amortization: Depreciation and amortization costs increased

$0.7 million period-to-period due primarily to an increase in landfill

amortization associated with higher landfill volumes at certain of our landfills in the Western region.



Recycling

Recycling revenues increased $1.3 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year. The increase in recycling revenues period-to-period is primarily the result of favorable commodity pricing in the market, higher commodity volumes and the acquisition of the remaining 50% membership interest of Tompkins.



Recycling operating loss increased by $0.1 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year as increased revenues were more than offset by increased cost of operations associated with increased commodity prices in the market place and facility maintenance activities.

Other

Other revenues increased $5.1 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year as a result of $0.8 million from the acquisition of an industrial service management business in September 2013, $0.7 million in commodity volume increases from our Organics business, $3.4 million in volume increases from our Customer Solutions business, and $0.2 million in volume increases from transportation. Other operating income decreased by $0.8 million when comparing the three months ended July 31, 2014 to the same period in the prior fiscal year as increased revenues were more than offset by increased third-party direct costs (including hauling and purchased material costs associated primarily with our Customer Solutions business and, to a lesser extent, hauling costs associated with our Organics business) and labor and related benefit costs associated with growth in our Customer Solutions business.



Liquidity and Capital Resources

We continually monitor our actual and forecasted cash flows, our liquidity and our capital requirements in order to properly manage our cash needs based on the capital intensive nature of our business. Our capital requirements include acquisitions, fixed asset purchases (including capital expenditures for vehicles), debt servicing, landfill development and cell construction, as well as site and cell closure. We generally meet liquidity needs from operating cash flows or from our 2011 Revolver. 37



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Outstanding Long-Term Debt

2011 Senior Secured Revolving Credit Facility. The 2011 Revolver is a $227.5 million component of our senior revolving credit and letter of credit facility due March 18, 2016 ("Senior Credit Facility"). We have the right to request, at our discretion, an increase in the amount of the Senior Credit Facility by an aggregate amount of $100.0 million, subject to certain conditions set forth in the Senior Credit Facility agreement. The Senior Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries.



As of July 31, 2014, we were in compliance with all financial covenants contained in the Senior Credit Facility as follows:

Covenant Twelve Months Ended Requirements at Senior Secured Credit Facility Covenant July 31, 2014 July 31, 2014 Interest coverage 2.85 2.25 Min. Total funded debt / Bank-defined cash flow metric (1) 5.06 5.85 Max. Senior funded debt / Bank-defined cash flow metric (1) 1.86 2.50 Max.



(1) Bank-defined cash flow metric is based on operating results for the twelve

months preceding the measurement date, July 31, 2014. A reconciliation of

net cash provided by operating activities to the bank-defined cash flow

metric is as follows (in millions): Twelve Months Ended July 31, 2014 Net cash provided by operating activities $ 43.7



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

16.0 Gain on sale of property and equipment 0.7 Gain on sale of equity method investment 0.6 Asset impairment charge (7.5 )



Stock based compensation and related severance expense, net of excess tax benefit

(2.2 ) Development project charge (1.4 ) Loss on derivative instruments (0.8 ) Interest expense, less discount on senior subordinated notes 38.1 Provision for income taxes, net of deferred taxes 0.2



Gain on settlement of acquisition related contingent consideration

1.1 EBITDA adjustment as allowed by senior credit facility agreement 4.3 Other adjustments as allowed by senior credit facility agreement 8.7 Bank - defined cash flow metric $ 101.5 In addition to the financial covenants described above, the Senior Credit Facility, as amended, also contains a number of important customary affirmative and negative covenants which restrict, among other things, our ability to sell assets, pay dividends, invest in non-wholly owned entities, repurchase stock, incur debt, grant liens and issue preferred stock. As of July 31, 2014, we were in compliance with all covenants under the indenture governing the Senior Credit Facility. We do not believe that these restrictions impact our ability to meet future liquidity needs, except that they may impact our ability to increase our investments in non-wholly owned entities, including the joint ventures to which we are already party. Further advances were available under the 2011 Revolver in the amount of $57.3 million as of July 31, 2014. The available amount is net of outstanding irrevocable letters of credit totaling $32.2 million as of July 31, 2014, at which date no amount had been drawn. 38 -------------------------------------------------------------------------------- 2019 Notes. As of July 31, 2014, we had outstanding $325.0 million aggregate principal amount of senior subordinated notes due February 15, 2019 ("2019 Notes"). The 2019 Notes accrue interest at the rate of 7.75% per annum. Interest is payable semiannually in arrears on February 15 and August 15 of each year. The indenture governing the 2019 Notes contains certain negative covenants which restrict, among other things, our ability to sell assets, make investments in joint ventures, pay dividends, repurchase stock, incur debt, grant liens and issue preferred stock. As of July 31, 2014, we were in compliance with all covenants under the indenture governing the 2019 Notes, and we do not believe that these restrictions impact our ability to meet future liquidity needs, except that they may impact our ability to increase our investments in non-wholly owned entities, including the joint ventures to which we are already party.



The 2019 Notes are fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our existing and future domestic restricted subsidiaries that guarantee our Senior Credit Facility.

Maine Bonds. As of July 31, 2014, we had outstanding $21.4 million aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 ("FAME Bonds 2005R-2"). The FAME Bonds 2005R-2, which are guaranteed by certain of our subsidiaries, accrue interest at 6.25% per annum through January 31, 2017, at which time they may be converted from a fixed to a variable rate. The FAME Bonds 2005R-2 mature on January 1, 2025. As of July 31, 2014, we had outstanding $3.6 million 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 are variable rate bonds secured by a letter of credit issued by our administrative agent bank. The FAME Bonds 2005R-1 mature on January 1, 2025. Vermont Bonds. As of July 31, 2014, we had outstanding $16.0 million aggregate principal amount of Solid Waste Disposal Long-Term Revenue Bonds Series 2013 ("Vermont Bonds"). The Vermont Bonds, which are guaranteed by certain of our subsidiaries, accrue interest at 4.75% per annum through April 4, 2019, at which time they may be converted from a fixed rate to a variable rate. The Vermont Bonds mature on April 1, 2036. New Hampshire Bonds. As of July 31, 2014, we had outstanding $5.5 million aggregate principal amount of Solid Waste Disposal Revenue Bonds Series 2013 ("New Hampshire Bonds"). The New Hampshire Bonds are variable rate bonds secured by a letter of credit issued by our administrative agent bank. The New Hampshire Bonds also contain a drawdown structure that allows us to issue up to an additional $5.5 million of bonds at a future date. The New Hampshire Bonds mature on April 1, 2029.


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