CASELLA WASTE SYSTEMS, INC. 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 fiscal year endedDecember 31, 2019 filed with theSecurities and Exchange Commission ("SEC") onFebruary 21, 2020 . 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, including statements regarding: •the expected and potential direct or indirect impacts of the novel coronavirus ("COVID-19") pandemic on our business; •expected liquidity and financing plans; •expected future revenues, operations, expenditures and cash needs; •fluctuations in 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 the impact of such improvements on our business and operations. In addition, any statements contained in or incorporated by reference into this report that are not statements of historical fact should be considered forward-looking statements. You can identify these forward-looking statements by the use of the words "believes", "expects", "anticipates", "plans", "may", "will", "would", "intends", "estimates" and other similar expressions, whether in the negative or affirmative. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate, as well as management's beliefs and assumptions, and should be read in conjunction with our consolidated financial statements and notes thereto. These forward-looking statements are not guarantees of future performance, circumstances or events. 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 the 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 fiscal year endedDecember 31, 2019 and those included under Part II, Item 1A of this Quarterly Report on Form 10-Q. There may be additional risks that we are not presently aware of or that we currently believe are immaterial, which could have an adverse impact on our business. 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. 28 -------------------------------------------------------------------------------- Company Overview Founded in 1975 with a single truck,Casella Waste Systems, Inc. , aDelaware corporation and its wholly-owned subsidiaries (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 andPennsylvania , with our headquarters located inRutland, 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. We manage our larger-scale recycling and commodity brokerage operations along with our organics services and major account and industrial services through our single resource-renewal focusedResource Solutions segment. As ofJuly 15, 2020 , we owned and/or operated 48 solid waste collection operations, 58 transfer stations, 20 recycling facilities, eight Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept construction and demolition ("C&D") materials. Results of Operations Recent Events With the global outbreak of COVID-19 and the declaration of a pandemic by theWorld Health Organization inMarch 2020 , theU.S. Government and all of the states in which we operate have declared the waste services industry as an essential services provider and as a result we are committed to continue to operate and provide our full breadth of services. We have prioritized the safety and well-being of our employees by strictly adhering to recommendations of theCenters for Disease Control and Prevention as well as executive orders of the states in which we operate. The COVID-19 outbreak has caused, and is likely to continue to cause, significant economic disruption across our geographic footprint and has adversely affected, and is expected to continue to adversely affect, our business. COVID-19 negatively impacted our revenues starting at the end of the quarter endedMarch 31, 2020 as many collection customers required service level changes and volumes into our landfills declined. We experienced increased demand for services in the quarter endedJune 30, 2020 as local economies started to reopen as allowed by state governments. This demand has continued to grow at a fairly steady rate, but our collection and disposal operations remain negatively impacted by lower volumes attributed to COVID-19. We continue to experience increased costs associated with the protection of our employees including costs for additional safety equipment, hygiene products and enhanced facility cleaning. These costs are expected to continue throughout the remainder of the year. We have also taken immediate measures to reduce costs in other areas and preserve liquidity during this period of uncertainty. As of the date of this filing, we are unable to determine or predict the nature, duration or scope of the overall impact that COVID-19 will have on our business, results of operations, liquidity or capital resources. For further information regarding the impact of COVID-19 on us, see Part II, Item 1A, "Risk Factors" included in this Quarterly Report on Form 10-Q. 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. We classify our resource-renewal services by service in ourResource Solutions segment. Revenues associated with our resource renewal operations are derived from organics services, major account and industrial services, as well as recycling services generated from both municipalities and customers in the form of processing fees, tipping fees and commodity sales. 29 --------------------------------------------------------------------------------
A summary of revenues attributable to service provided (dollars in millions and as a percentage of total revenues) follows:
Three Months Ended June 30 , $ Six Months Ended June 30 , $
2020 2019 Change 2020 2019 Change
Collection $ 94.0 49.8 % $ 92.1 49.1 % $ 1.9 $ 188.6 50.7 % $ 175.1 49.9 % $ 13.5
Disposal 43.7 23.1 % 48.1 25.7 % (4.4) 82.4 22.2 % 84.2 24.0 % (1.8)
Power 0.9 0.5 % 0.7 0.4 % 0.2 1.9 0.5 % 1.8 0.5 % 0.1
Processing 2.0 1.1 % 1.9 1.0 % 0.1 3.1 0.9 % 2.9 0.8 % 0.2
Solid waste 140.6 74.5 % 142.8 76.2 % (2.2) 276.0 74.3 % 264.0 75.2 % 12.0
Organics 15.5 8.2 % 15.0 7.9 % 0.5 30.3 8.1 % 28.4 8.1 % 1.9
Customer solutions 20.2 10.7 % 19.2 10.3 % 1.0 41.9 11.3 % 37.4 10.6 % 4.5
Recycling 12.5 6.6 % 10.5 5.6 % 2.0 23.5 6.3 % 21.3 6.1 % 2.2
Resource solutions 48.2 25.5 % 44.7 23.8 % 3.5 95.7 25.7 % 87.1 24.8 % 8.6
Total revenues $ 188.8 100.0 % $ 187.5 100.0 % $ 1.3 $ 371.7 100.0 % $ 351.1 100.0 % $ 20.6 A summary of the period-to-period changes in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows:
Period-to-Period Change for the
Period-to-Period Change for the Three Months Six Months Ended June 30, 2020
Ended June 30, 2020 vs. 2019 vs. 2019
Amount % Growth Amount % Growth
Price $ 6.3 4.4 % $ 13.4 5.1 %
Volume (1) (17.7) (12.4) % (21.0) (8.0) %
Surcharges and other fees - - % 1.2 0.5 %
Commodity price and volume 0.1 0.1 % (0.2) (0.1) %
Acquisitions 9.7 6.8 % 20.0 7.6 %
Solid waste revenues $ (1.6) (1.1) % $ 13.4 5.1 %
(1)Adjusted for $0.6 million in the quarter and $1.4 million year-to-date of
inter-company movements between solid waste collection volume and customer
solutions associated with the acquisition of a business.
Solid waste revenues
Price.
The price impact on the change in quarterly solid waste revenues is the result
of the following:
•$3.9 million from favorable collection pricing; and
•$2.4 million from favorable disposal pricing associated with our landfills and
transfer stations.
The price impact on the change in year-to-date solid waste revenues is the
result of the following:
•$8.3 million from favorable collection pricing; and
•$5.1 million from favorable disposal pricing associated with our landfills and
transfer stations.
Volume.
The volume impact on the change in quarterly solid waste revenues is the result
of the following:
•$(9.8) million from lower collection volumes due to the negative impacts of
COVID-19;
•$(7.7) million from lower disposal volumes (of which $(6.0) million relates to
lower landfill volumes due to the negative impacts of COVID-19, $(1.4) million
relates to lower transfer station volumes and $(0.3) million relates to lower
transportation volumes); and
•$(0.2) million from lower processing volumes.
The volume impact on the change in year-to-date solid waste revenues is the
result of the following:
•$(12.5) million from lower collection volumes due to the negative impacts of
COVID-19;
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•$(8.3) million from lower disposal volumes (of which $(7.3) million relates to
lower landfill volumes due to the negative impacts of COVID-19, $(0.8) million
relates to lower transfer station volumes and $(0.2) million relates to lower
transportation volumes); and
•$(0.2) million from lower processing volumes.
Surcharges and other fees.
The surcharges and other fees impact on the change in year-to-date solid waste
revenues is associated primarily with the Energy component of the Energy and
Environmental fee and the Sustainability Recycling Adjustment fee. The Energy
component of the fee floats on a monthly basis based on diesel fuel prices. The
Sustainability Recycling Adjustment fee floats on a monthly basis based on
recycled commodity prices.
Commodity price and volume.
The commodity price and volume impact on the change in quarterly solid waste
revenues is the result of the following:
•$0.3 million from favorable commodity and energy pricing; partially offset by
•$(0.2) million due to lower commodity processing volumes.
The commodity price and volume impact on the change in year-to-date solid waste
revenues is the result of the following:
•$(0.3) million from lower commodity processing volumes; and
•$(0.2) million from unfavorable energy pricing; partially offset by
•$0.3 million due to higher landfill gas-to-energy volumes.
Acquisitions.
The acquisitions impact on the change in quarterly and year-to-date solid waste
revenues is associated with the following acquisition activity:
•the acquisition of three tuck-in solid waste collection business in our Western
region; and
•the acquisition of nine businesses throughout the prior year: seven tuck-in
solid waste collection businesses, a business comprised of solid waste
collection, transfer and recycling operations, and a business comprised of solid
waste hauling and transfer assets.
Resource Solutions revenues
Organics.
Organics revenues increased $0.5 million quarterly and $1.9 million year-to-date
as a result of higher volumes associated with two large transportation and
disposal contracts.
Customer solutions.
Customer solutions revenues increased $0.4 million quarterly and $3.1 million
year-to-date as the result of higher volumes mainly due to multi-site retail and
industrial services organic growth. The increase was adjusted for $0.6 million
quarterly and $1.4 million year-to-date of inter-company movements between solid
waste collection volume and customer solutions associated with the acquisition
of a business.
Recycling.
Quarterly recycling revenues increased $2.0 million as a result of the
following:
•$1.2 million from favorable commodity pricing in the marketplace with higher
cardboard pricing, partially offset by lower plastics pricing;
•$0.6 million from higher recycling processing fees; and
•$0.2 million from the acquisition of recycling operations.
Year-to-date recycling revenues increased $2.2 million as a result of the
following:
•$2.6 million from higher recycling processing fees;
•$0.5 million from the acquisition of recycling operations; and
•$0.1 million from higher commodity volumes; partially offset by
•$(1.0) million from unfavorable commodity pricing in the marketplace in the
first quarter.
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Operating Expenses
A summary of cost of operations, general and administration expense, and
depreciation and amortization expense (dollars in millions and as a percentage
of total revenues) is as follows:
Three Months Ended June 30 , $ Six Months Ended June 30 , $
2020 2019 Change 2020 2019 Change
Cost of operations $ 123.5 65.4 % $ 128.7 68.6 % $ (5.2) $ 252.0 67.8 % $ 246.4 70.2 % $ 5.6
General and administration $ 24.9 13.2 % $ 22.1 11.8 % $ 2.8 $ 49.2 13.2 % $ 44.9 12.8 % $ 4.3
Depreciation and amortization $ 22.1 11.7 % $ 19.7 10.5 % $ 2.4 $ 43.5 11.7 % $ 37.2 10.6 % $ 6.3
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, 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.
As a percentage of revenues, cost of operations decreased 320 basis points and
240 basis points during the three and six months ended June 30, 2020 ,
respectively, from the same periods of the prior year. The period-to-period
changes in cost of operations can be primarily attributed to the following:
Third-party direct costs decreased $(3.2) million quarterly while decreasing 190
basis points as a percentage of revenues, and increased $1.9 million
year-to-date, but decreased 100 basis points as a percentage of revenues due to
the following:
•lower disposal costs associated with lower volumes, including commercial
collection, construction and demolition, and landfills, due to the negative
economic impacts of COVID-19 combined with lower organic collection and landfill
volumes due to our focus on pricing; more than offset on a year-to-date basis
with higher disposal costs associated with increased disposal pricing in the
northeastern United States , additional volumes related to acquisition activity
in the Western region, and additional volumes within our Resource Solutions
segment due to multi-site retail and industrial services organic growth in our
customer solutions line-of-business and organic growth in our organics
line-of-business.
•lower hauling and third-party transportation costs associated with lower
volumes due to the negative impacts of COVID-19; more than offset on a
year-to-date basis with higher hauling and third-party transportation costs
associated with higher collection volumes related to acquisition activity in the
Western region; higher brokerage volumes in our customer solutions
line-of-business with high pass through direct costs; higher recycling volumes
related to acquisition activity; and higher transportation rates.
Direct operational costs decreased $(1.7) million quarterly while decreasing 100
basis points as a percentage of revenues, and remained flat year-to-date while
decreasing 60 basis points as a percentage of revenues, due to lower landfill
operating costs, offset on a year-to-date basis by higher auto insurance costs,
associated primarily with claims activity in the first quarter, and higher
operating costs related to business growth.
Fuel costs decreased $(0.8) million quarterly while decreasing 50 basis points
as a percentage of revenues, and decreased $(0.4) million year-to-date while
decreasing 40 basis points as a percentage of revenues, due primarily to lower
fuel prices and fleet efficiency, partially offset by higher volumes associated
with acquisition activity.
Labor and related benefit costs decreased $(0.2) million quarterly while
decreasing 20 basis points as a percentage of revenues, and increased
$1.0 million year-to-date, but decreased 50 basis points as a percentage of
revenues, due to lower labor costs on decreased overtime and lower benefit
costs; more than offset on a year-to-date basis with higher labor costs related
primarily to acquisition activity in the Western region and a discretionary
bonus for our front-line employees.
Maintenance and repair costs increased $0.7 million quarterly while increasing
30 basis points as a percentage of revenues, and increased $3.1 million
year-to-date while remaining flat as a percentage of revenues, due primarily to
higher facility maintenance costs, and to a lesser extent, higher fleet
maintenance costs associated with acquisition activity and related business
growth, which was partially offset in the quarter associated with less wear and
tear based on activity levels and lower volumes as a result of COVID-19.
General and Administration
General and administration expense includes management, clerical and
administrative compensation, bad debt expense, as well as overhead costs,
professional service fees and costs associated with marketing, sales force and
community relations efforts.
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The period-to-period changes in general and administration expense can be
primarily attributed to higher labor costs associated with acquisition activity,
higher bad debt expense year-to-date based on the continued economic downturn
associated with COVID-19, higher accrued incentive compensation and a
discretionary bonus for our hourly back-office employees.
Depreciation and Amortization
Depreciation and amortization expense includes: (i) depreciation of property and
equipment (including assets recorded for finance leases) on a straight-line
basis over the estimated useful lives of the assets; (ii) amortization of
landfill costs (including those costs incurred and all estimated future costs
for landfill development and construction, along with asset retirement costs
arising from closure and post-closure obligations) 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 certain criteria for amortization purposes, and
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
(iii) amortization of intangible assets with a definite life, using either an
economic benefit provided approach or on a straight-line basis over the
definitive terms of the related agreements.
A summary of the components of depreciation and amortization expense (dollars in
millions and as a percentage of total revenues) follows:
Three Months Ended June 30 , $ Six Months Ended June 30 , $
2020 2019 Change 2020 2019 Change
Depreciation $ 13.5 7.1 % $ 11.0 5.8 % $ 2.5 $ 26.3 7.1 % $ 21.2 6.0 % $ 5.1
Landfill amortization 6.4 3.4 % 7.1 3.8 % (0.7) 12.8 3.4 % 12.9 3.7 % (0.1)
Other amortization 2.2 1.2 % 1.6 0.9 % 0.6 4.4 1.2 % 3.1 0.9 % 1.3
$ 22.1 11.7 % $ 19.7 10.5 % $ 2.4 $ 43.5 11.7 % $ 37.2 10.6 % $ 6.3
The period-to-period changes in depreciation and amortization expense can be
primarily attributed to increased investment in our fleet, acquisition activity
and higher landfill amortization expense associated with changes in cost
estimates and other assumptions, partially offset by lower landfill volumes
associated with the negative impacts of COVID-19.
Expense from Acquisition Activities
In the three and six months ended June 30, 2020 , we recorded charges of $0.4
million and $1.4 million , respectively, and in the three and six months ended
June 30, 2019 , we recorded charges of $0.5 million and $1.1 million ,
respectively, comprised primarily of legal, consulting and other similar costs
associated with the acquisition and integration of acquired businesses or select
development projects.
Southbridge Landfill Closure Charge
In 2017, we initiated the plan to cease operations of the Town of Southbridge,
Massachusetts landfill ("Southbridge Landfill ") and later closed it in November
2018 when Southbridge Landfill reached its final capacity. Accordingly, in the
three and six months ended June 30, 2020 we recorded charges of $0.6 million and
$1.2 million , respectively, comprised of $0.6 million and $1.2 million of legal
and other costs pertaining to various matters as part of the unplanned early
closure of the Southbridge Landfill through completion of the closure process, a
charge of $0.2 million due to changes in estimated costs and timing of final
capping, closure and post-closure activities at the Southbridge Landfill , and a
charge of $(0.2) million associated with the completion of the environmental
remediation at the site. In the three and six months ended June 30, 2019 we
recorded charges of $0.9 million and $1.5 million , respectively, associated with
legal and other costs pertaining to various matters as part of the unplanned
early closure of the Southbridge Landfill through completion of the closure
process.
Other Expenses
Interest Expense, net
Our interest expense, net decreased $(0.6) million quarterly and $(1.0) million
year-to-date due primarily to lower average interest rates associated with
changes in LIBOR and the remarketing of our New York State Environmental
Facilities Corporation Solid Waste Disposal Revenue Bonds Series 2014 ("New York
Bonds 2014") and our Business Finance Authority of the State of New Hampshire
Solid Waste Disposal Revenue Bonds Series 2013 ("New Hampshire Bonds").
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Provision for Income Taxes
Our provision for income taxes increased $2.3 million quarterly and $2.4 million
year-to-date, as compared to the same periods in the prior year. During the
quarter ended June 30, 2019 , we recognized a $2.1 million deferred tax benefit
due to a reduction of the valuation allowance based on the recognition of
additional reversing temporary differences related to the $2.1 million deferred
tax liability recorded through goodwill for the acquisition of a company in May
2019 . The deferred tax liability related to the acquisition was based on the
impact of temporary differences between the amounts of assets and liability
recognized for financial reporting purposes and the related tax bases.
On March 27, 2020 , the Coronavirus Aid, Relief, and Economic Security Act (the
"CARES Act") was enacted which, among other things, allows the carryback of
remaining minimum tax credit carryforwards to tax year 2018. Prior to the CARES
Act, the minimum tax credit carryforwards were fully refunded through tax year
2021, if not otherwise used to offset tax liabilities. A current income tax
benefit of $(1.0) million , offset by a $1.0 million deferred tax provision, was
recognized in the quarter ended March 31, 2020 for the remaining minimum tax
credit being carried back to tax year 2018 by us. In the six months ended June
30, 2019 , we recognized a $(0.5) million current income tax benefit, offset by a
$0.5 million deferred tax provision, for the portion of the minimum tax credit
carryforward refundable for 2019 based on law then enacted.
On December 22, 2017 , the Tax Cuts and Jobs Act (the "TCJ Act") was enacted. The
TCJ Act significantly changed U.S. corporate income tax laws by, among other
things, changing carryforward rules for net operating losses. Our $110.6 million
in federal net operating loss carryforwards generated as of the end of 2017
continue to be carried forward for 20 years and are expected to be available to
fully offset taxable income earned in 2020 and future tax years. Federal net
operating losses generated after 2017, totaling $51.2 million carried forward to
2020, will be carried forward indefinitely, but generally may only offset up to
80% of taxable income earned in a tax year. The total federal net operating
losses generated after 2017 and carried forward to 2020 has been updated from
$67.4 million as estimated in the quarter ended December 31, 2019 with
corresponding changes to the deferred tax asset and valuation allowance.
Although the CARES Act further modifies the net operating loss rules to permit
net operating losses incurred in tax years 2018 through 2020 to be carried back
5 years and to temporarily permit such losses to offset 100% of taxable income
in tax year 2020, these modifications under the CARES Act are not anticipated to
impact us.
We are continuing to evaluate the CARES Act, but other income tax changes are
not expected to have a material impact.
Segment Reporting
Revenues
A summary of revenues by reportable operating segment (in millions) follows:
Three Months Ended Six Months Ended
June 30, $ June 30, $
2020 2019 Change 2020 2019 Change
Eastern $ 53.3 $ 57.1 $ (3.8) $ 103.5 $ 104.1 $ (0.6)
Western 87.3 85.7 1.6 172.5 159.9 12.6
Resource solutions 48.2 44.7 3.5 95.7 87.1 8.6
Corporate entities - - - - - -
Total revenues $ 188.8 $ 187.5 $ 1.3 $ 371.7 $ 351.1 $ 20.6
Eastern Region
A summary of the period-to-period changes in solid waste revenues (dollars in
millions and as percentage growth of solid waste revenues) follows:
Period-to-Period Change for the
Period-to-Period Change for the Three Months Six Months Ended June 30, 2020
Ended June 30, 2020 vs. 2019 vs. 2019
Amount % Growth Amount % Growth
Price $ 2.2 3.8 % $ 4.7 4.5 %
Volume (6.3) (11.0) % (7.3) (7.0) %
Surcharges and other fees (0.3) (0.4) % - - %
Commodity price and volume - - % 0.1 0.1 %
Acquisitions 0.6 1.0 % 1.9 1.8 %
Solid waste revenues $ (3.8) (6.6) % $ (0.6) (0.6) %
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Price.
The price impact on the change in quarterly solid waste revenues is the result of the following: •$1.6 million from favorable collection pricing; and •$0.6 million from favorable disposal pricing related to transfer stations and landfills. The price impact on the change in year-to-date solid waste revenues is the result of the following: •$3.5 million from favorable collection pricing; and •$1.2 million from favorable disposal pricing related to transfer stations and landfills. Volume. The volume impact on the change in quarterly solid waste revenues is the result of the following: •$(4.3) million from lower collection volumes due to the negative impacts of COVID-19; •$(1.9) million from lower disposal volumes related to landfills and transfer stations due to the negative impacts of COVID-19; and •$(0.1) million from lower processing volumes; The volume impact on the change in year-to-date solid waste revenues is the result of the following: •$(4.9) million from lower collection volumes due to the negative impacts of COVID-19; •$(2.3) million from lower disposal volumes related to landfills and transfer stations due to the negative impacts of COVID-19; and •$(0.1) million from lower processing volumes. Surcharges and other fees. The surcharge and other fees impact on the change in quarterly solid waste revenues is associated primarily with the Energy component of the Energy and Environmental fee and the Sustainability Recycling Adjustment fee. The Energy component of the fee floats on a monthly basis based on diesel fuel prices. The Sustainability Recycling Adjustment fee floats on a monthly basis based on recycled commodity prices. Commodity price and volume. The commodity price and volume impact on the change in year-to-date solid waste revenues is the result of higher landfill gas-to-energy volumes. Acquisitions. The acquisitions change impact on the change in quarterly and year-to-date solid waste revenues is the result of the acquisition of three tuck-in solid waste collection businesses in the prior year.Western Region A summary of the period-to-period changes in solid waste revenues (dollars in millions and as percentage growth of solid waste revenues) follows: Period-to-Period Change for the Period-to-Period Change for the Three Six Months Ended June 30, 2020 Months Ended June 30, 2020 vs. 2019 vs. 2019 Amount % Growth Amount % Growth Price $ 4.1 4.8 %$ 8.6 5.4 % Volume (1) (11.3) (13.3) % (13.5) (8.5) % Surcharges and other fees 0.2 0.2 % 1.2 0.8 % Commodity price and volume 0.1 0.2 % (0.3) (0.2) % Acquisitions 9.1 10.6 % 18.0 11.3 % Solid waste revenues $ 2.2 2.5 %$ 14.0 8.8 %
(1)Adjusted for
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The price impact on the change in quarterly solid waste revenues is the result of the following: •$2.3 million from favorable collection pricing; and •$1.8 million from favorable disposal pricing related to landfills and transfer stations. The price impact on the change in year-to-date solid waste revenues is the result of the following: •$4.7 million from favorable collection pricing; and •$3.9 million from favorable disposal pricing related to landfills and transfer stations. Volume. The volume impact on the change in quarterly solid waste revenues is the result of the following: •$(5.5) million from lower collection volumes due to the negative impacts of COVID-19; and •$(5.8) million from lower disposal volumes related to landfills due to the negative impacts of COVID-19, which more than offset higher disposal volumes related to transfer stations and transportation. The volume impact on the change in year-to-date solid waste revenues is the result of the following: •$(5.9) million from lower disposal volumes related to landfills, transfer stations and transportation due to the negative impacts of COVID-19; and •$(7.6) million from lower collection volumes due to the negative impacts of COVID-19. Surcharges and other fees. The surcharge and other fees impact on the change in quarterly and year-to-date solid waste revenues is associated primarily with the Energy component of the Energy and Environmental fee and the Sustainability Recycling Adjustment fee. The Energy component of the fee floats on a monthly basis based on diesel fuel prices. The Sustainability Recycling Adjustment fee floats on a monthly basis based on recycled commodity prices. Commodity price and volume. The commodity price and volume change impact on the change in quarterly and year-to-date solid waste revenues is the result of favorable energy and commodity pricing in the quarter and higher landfill gas-to-energy volumes, more than offset on a year-to-date basis by lower commodity processing volumes. Acquisitions. The acquisitions impact on the change in quarterly and year-to-date solid waste revenues is the result of the acquisition of three tuck-in solid waste collection business in the six months endedJune 30, 2020 and the acquisition of four tuck-in solid waste collection businesses, a business comprised of solid waste collection, transfer and recycling operations and a business comprised of solid waste hauling and transfer assets in the prior year. Operating Income A summary of operating income (loss) by operating segment (in millions) follows: Three Months Ended Six Months Ended June 30, $ June 30, $ 2020 2019 Change 2020 2019 Change Eastern$ 4.4 $ 4.2 $ 0.2 $ 5.3 $ 3.6 $ 1.7 Western 11.9 10.4 1.5 17.5 15.7 1.8 Resource solutions 1.8 1.6 0.2 2.8 2.0 0.8 Corporate entities (0.7) (0.7) - (1.1) (1.3) 0.2 Operating income$ 17.4 $ 15.5 $ 1.9 $ 24.5 $ 20.0 $ 4.5 36
--------------------------------------------------------------------------------Eastern Region Operating results improved$0.2 million quarterly and$1.7 million year-to-date. Excluding the impact of theSouthbridge Landfill closure charge and the expense from acquisition activities, our operating performance in the three and six months endedJune 30, 2020 was driven by lower revenues due to the negative impact of COVID-19 on volumes in the quarter and, to a lesser extent, year-to-date and the following cost changes: Cost of operations: Cost of operations decreased$(4.7) million quarterly and$(2.3) million year-to-date due to the following: •lower disposal costs associated with lower volumes due to the negative impacts of COVID-19 and to a lesser extent our focus on pricing; •lower hauling and third-party transportation costs associated with lower collection volumes in the quarter due to the negative impacts of COVID-19, which offset additional costs related to acquisition activity and higher transportation rates; •lower labor and related benefit costs due to decreased overtime and lower benefit costs more than offsetting a discretionary bonus for our front-line employees; •lower direct operational costs in the quarter associated with landfill operations and lower equipment costs; •lower fuel costs due primarily to lower fuel prices and fleet efficiency; and •lower fleet maintenance costs due to less wear and tear in the quarter based on activity levels and lower volumes as a result of COVID-19; partially offset by •higher facility maintenance costs associated with acquisition activity and related business growth. General and administration: General and administration expense increased$0.4 million quarterly and$0.1 million year-to-date due to higher accrued incentive compensation and professional fees in the quarter combined with higher bad debt expense year-to-date based on the continued economic downturn associated with COVID-19 and a discretionary bonus for our hourly back-office employees. Depreciation and amortization: Depreciation and amortization expense remained flat quarterly and increased$0.7 million year-to-date due to higher depreciation and amortization expense associated with the timing of acquisition activity in prior year.Western Region Operating results improved$1.5 million quarterly and$1.8 million year-to-date. Excluding the impact of the expense from acquisition activities, our operating performance in the three and six months endedJune 30, 2020 was driven by revenue growth and the following cost changes: Cost of operations: Cost of operations increased$1.5 million quarterly and$12.9 million year-to-date due to the following: •lower disposal costs associated with lower volumes, including commercial collection, construction and demolition, and landfills, due to the negative impacts of COVID-19 combined with lower volumes due to our focus on pricing; more than offset on a year-to-date basis with higher disposal costs associated with increased disposal pricing in the northeastern United Sates and additional volumes related to acquisition activity; •higher hauling and third-party transportation costs associated with higher collection volumes related to acquisition activity and higher transportation rates; •higher maintenance and repair costs associated with higher facility maintenance costs, and to a lesser extent, higher fleet maintenance costs associated with acquisition activity and related business growth, which was partially offset in the quarter associated with less wear and tear based on activity levels and lower volumes as a result of COVID-19; and •higher labor costs associated with acquisition activity and a discretionary bonus for our front-line employees, partially offset by lower labor costs on decreased overtime and lower benefit costs; partially offset by •lower direct operational costs associated with lower landfill operating costs, offset on a year-to-date basis by higher auto insurance costs, associated primarily with claims activity in the first quarter, and higher operating costs related to business growth; and •lower fuel costs associated with lower fuel prices and fleet efficiency, partially offset by higher volumes associated with acquisition activity. General and administration: General and administration expense increased$0.8 million quarterly and$2.1 million year-to-date due to higher labor costs associated with acquisition activity, higher accrued incentive compensation and a discretionary bonus for our hourly back-office employees. 37 -------------------------------------------------------------------------------- Depreciation and amortization: Depreciation and amortization expense increased$2.2 million quarterly and$5.2 million year-to-date due primarily to acquisition activity and higher landfill amortization expense associated with changes in cost estimates and other assumptions, partially offset by lower landfill volumes associated with the negative impacts of COVID-19.Resource Solutions Operating results improved$0.2 million quarterly and$0.8 million year-to-date due to the following: Recycling. Our operating performance in the three and six months endedJune 30, 2020 improved primarily due to revenue growth on higher recycling processing fees and acquisition activity combined with lower operating costs on a year-to-date basis, including lower maintenance costs and lower direct operational costs, partially offset by higher depreciation expense. Organics. Our operating performance in the three and six months endedJune 30, 2020 improved as revenue growth on higher volumes outpaced higher operating costs driven by two large lower margin transportation and disposal contracts. Customer solutions. Our operating performance in the three and six months endedJune 30, 2020 declined as revenue growth associated with increased volumes was outpaced by higher cost of operations associated with the corresponding increase in hauling, transportation and disposal costs and higher labor and personnel costs. Liquidity and Capital Resources Recent Events We continue to monitor the impact that the COVID-19 pandemic has had and will continue to have on our actual and forecasted cash flows, our liquidity, and our capital requirements in order to properly manage our liquidity needs as we move forward. Because of the nature of the services we provide, we expect to continue to generate positive operating cash flows through stable revenue sources. To counter the impact of expected revenue declines, we have initiated steps to reduce discretionary spending and delay certain capital expenditures and can further scale down these expenditures to meet liquidity needs. We have$135.9 million of undrawn capacity from our$200.0 million revolving line of credit facility ("Revolving Credit Facility") as ofJune 30, 2020 to help meet our liquidity needs, and our next significant debt maturity, which is comprised of our Revolving Credit Facility and term loan A facility ("Term Loan Facility", together with the Revolving Credit Facility, the "Credit Facility"), is inMay 2023 . We believe that we will remain in compliance with all necessary covenants of our Credit Facility over the remaining term of this facility. A summary of cash and cash equivalents, restricted assets and debt balances, excluding any debt issuance costs (in millions), follows: June 30, December 31, 2020 2019 Cash and cash equivalents$ 3.1 $ 3.5 Restricted assets: Restricted investment securities - landfill closure$ 1.6 $ 1.6 Debt: Current portion$ 6.9 $ 4.3 Non-current portion 536.2 518.4 Total debt$ 543.1 $ 522.7 Summary of Cash Flow Activity A summary of cash flows (in millions) follows:
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