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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended April 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission file number 000-23211
CASELLA WASTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 03-0338873
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Greens Hill Lane, Rutland, VT 05701
- -------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 775-0325
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, $.01 per share par value
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K / /
The aggregate value of the voting stock held by non-affiliates of the
registrant, based on the last sale price of the registrant's Class A common
stock at the close of business on July 15, 1999 was $326,323,582 (reference is
made to Part II, Item 5 herein for a statement of assumptions upon which this
calculation is based).
There were 15,031,904 shares of class A common stock, $.01 per share par value,
of the registrant outstanding as of July 15, 1999. There were 988,200 shares of
class B common stock of the registrant outstanding as of July 15, 1999.
Documents Incorporated by Reference
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company, which is set forth under Part I -
Business - "Executive Officers of the Company") have been omitted from this
report, since the Company expects to file with the Securities and Exchange
Commission, not later than 120 days after the close of its fiscal year, a
definitive proxy statement. The information required by Items 10, 11, 12 and 13
of Part III of this report, which will appear in the definitive proxy statement,
is incorporated by reference into this report.
PART I
ITEM 1. BUSINESS
The Company
Casella Waste Systems, Inc. is a regional, integrated, non-hazardous solid waste
services company that provides collection, transfer, disposal and recycling
services in Vermont, New Hampshire, Maine, Massachusetts, upstate New York and
northern Pennsylvania. As of July 15, 1999, the Company owned and/or operated
five Subtitle D landfills, two landfills permitted to accept construction and
demolition materials, 51 transfer stations, 16 recycling processing facilities,
and 40 solid and liquid waste collection divisions, which collectively served
over 500,000 commercial, industrial and residential customers. The Company was
founded in 1975 as a single-truck operation in Rutland, Vermont and subsequently
expanded its operations throughout the state of Vermont. In 1993, the Company
initiated an acquisition strategy to take advantage of anticipated reductions in
available landfill capacity in Vermont and surrounding states due to increasing
environmental regulation and other market forces driving consolidation in the
solid waste industry. From May 1, 1994 through April 30, 1999, the Company
acquired ownership or long-term operating rights to 132 solid waste businesses,
including 7 landfills, and between May 1, 1999 and July 15, 1999 the Company
acquired an additional nine such businesses.
Recent Developments
On January 12, 1999 the Company signed a definitive merger agreement with KTI, a
publicly traded solid waste handling company operating in 21 states throughout
the United States. KTI specializes in solid waste disposal and recycling, and
operates manufacturing facilities utilizing recycled materials. The Company
believes the merger will give it additional growth opportunities in its existing
and adjacent markets, and the ability to enter new markets, as well as achieve
operational efficiencies as a result of the combination. On April 13, 1999, the
Company notified KTI of its intent to terminate the merger agreement upon the
expiration of a 30-day cure period as a result of breaches by KTI of the merger
agreement. On May 12, 1999, the Company announced that it and KTI had revised
and amended the terms of the merger agreement. Pursuant to the amended merger
agreement, each share of KTI common stock will be exchanged for 0.59 shares of
the Company's class A common stock.
In July 1998 the Company completed a second public offering of 2,060,587 shares
of its class A common stock at $27.25 per share. Proceeds of approximately
$52,231,490 after underwriters discounts and issuance expenses were used for
debt reduction, acquisitions and other general corporate purposes.
During the fiscal year ended April 30, 1999, the Company expanded and
strengthened its market presence throughout its three geographic regions by
acquiring 55 solid and liquid waste management businesses totaling approximately
$54.5 million in revenues, including the following:
On September 4, 1998 the Company completed a merger with Hakes C & D Disposal,
Inc. This facility is a permitted landfill in western New York State designed to
accept construction and demolition material. As of July 15, 1999 the facility
was under construction and had not begun accepting waste. The Company believes
this facility will allow it to realize the financial and operational benefits of
disposing of construction and demolition debris collected by its own operations
in its own facility in a key market for the Company.
On October 29, 1998, the Company completed a merger with Waste Stream Inc., B&C
Sanitation Corporation, North Country Trucking, Inc., Better Bedding Corp., R.A.
Bronson, Inc., BBC LLC, NTC LLC and Grasslands, Inc., (together - "Waste
Stream"), which provide solid waste and recycling collection services in
northern New York State. The Company believes the acquisition of Waste Stream
further strengthens the Company's market position in upstate New York.
On December 23, 1998, the Company completed a merger with Northern Sanitation,
Inc and Northern Properties Corp. of Plattsburgh, Inc. (together - "Northern
Sanitation"), a solid waste collection company in Clinton County, New York. The
Company believes the proximity of Northern Sanitation to the Company's Clinton
County landfill gives it a stronger market presence in that region.
On April 30, 1999 the Company completed a merger with Natural Environmental,
Inc., Schultz Landfill, Inc. and Blasdell Development Group, Inc. (together -
"NEI"), a collection, transfer and construction & demolition debris disposal
company serving the Buffalo, New York region. Also on April 30, 1999, the
Company completed a merger with Westfield Disposal Service, Inc. and Portland C
& D Landfill, Inc. (together - "Westfield Disposal"), a collection company,
transfer station, and construction and demolition debris landfill serving
Chautauqua County, New York and Erie, Pennsylvania. The Company believes that
these acquisitions provide the Company with a new growth platform in western New
York and expand geographically the Company's existing operations in its Western
Region.
Since the end of the Company's 1999 fiscal year on April 30, 1999, the Company
entered the eastern Massachusetts market with the acquisition of Resource Waste
Systems, Inc., Resource Recovery of Cape Cod, Inc., and Resource Transfer, Inc.
(collectively, "Resource Waste Systems, Inc."), which provide solid waste
collection and transfer services, and construction and demolition debris
processing in eastern Massachusetts. The Company believes that the acquisition
of Resource Waste Systems provides the Company with a new growth platform in a
market contiguous to its existing markets, particularly when matched with the
assets and operations in southern Maine expected to be acquired in the merger
with KTI, Inc.
Service Area
The Company is managed on a decentralized basis, with its operations divided
into three geographic regions: the Central, Eastern and Western regions. These
three regions are further divided into divisions organized around smaller market
areas, known as "waste sheds", each of which contains the complete cycle of
activities in the solid waste service process, from collection to transfer
stations to disposal. The following are the Company's three geographic regions
that comprise the Company's service area:
Central Region
The Central Region consists of Vermont, portions of New Hampshire and eastern
upstate New York. The Company was founded in 1975 in Rutland, Vermont, and has
continued to grow its market presence in the Central Region. The portion of
upstate New York within the Company's Central Region as of July 15, 1999 extends
from Interstate 90 north to the Canadian border and from the Vermont border west
to Interstate 81 and the eastern shore of Lake Ontario. The Company owns and
operates Subtitle D landfills in Bethlehem, New Hampshire (See Part I, Item 3,
`Legal Proceedings'); Coventry, Vermont; and, through a 25-year capital lease,
operates the Clinton County landfill located in Schuyler Falls, New York. In
addition, the Company operated 21 collection operations and 24 transfer stations
in the Central Region as of July 15, 1999.
Eastern Region
The Company's Eastern Region consists of the State of Maine and southeastern New
Hampshire. The Company established a market presence in Maine through the
acquisition of the Sawyer Companies in January 1996. The Company owns the SERF
landfill located in Hampden, Maine, which disposes of ash, construction and
demolition debris, special waste and front end processing residue primarily from
throughout the State of Maine. In addition, at July 15, 1999 the Company
operated five collection operations and nine transfer stations, and collected
solid waste from commercial, industrial and residential customers in the Eastern
Region. The Company's waste tire processing facility, located in Eliot, Maine,
has the capacity to process approximately 3.5 million tires per year and
generates tire derived fuel, which the Company sells to paper mills for
consumption as a supplemental energy source for boiler fuel.
Unlike the other states in the Company's existing market area, Maine has an
aggressive incineration program and the Company believes that approximately 80%
of the waste shed in the Company's market area is disposed of through
incineration. However, the Company believes that approximately 35% of the
tonnage delivered to incinerators is returned to landfills as ash and front end
processing residue, and the Company is the largest disposer of incinerated waste
material in Maine.
Western Region
The Western Region is comprised of the south central, western and southern
tier of upstate New York (including Ithaca, Elmira, Horsehead, Corning and
Watkins Glen) and the northern tier of Pennsylvania. Through the acquisition
of the Superior Disposal Services companies in January 1997, the Company
established its market presence in the Western Region. At July 15, 1999 the
Company operated 18 transfer stations and 14 collection operations, and
collected solid waste from commercial, industrial and residential customers.
During fiscal 1999 the Company acquired a Subtitle D permitted landfill, the
Hyland facility, in Angelica, New York, which serves the western upstate
portion of our New York waste shed (See Part I, Item 3, `Legal Proceedings').
The Company also acquired two landfills in fiscal 1999 permitted to accept
construction and demolition materials, the Hakes and Portland facilities.
Operations
The Company's operations include the ownership and/or operation of landfills,
solid waste collection services, transfer stations, recycling services,
septic/liquid waste operations, and tire processing and other services.
Landfills
The Company currently owns four Subtitle D landfill operations and operates a
fifth Subtitle D landfill under a 25-year lease arrangement with a county. All
of the Company's operating Subtitle D landfills include leachate collection
systems, groundwater monitoring systems and, where required, active methane gas
extraction and recovery systems. In addition to these landfills the Company owns
two landfills permitted to accept only construction and demolition materials.
These types typically, depending on the state in which they are located, are
constructed in accordance with lower environmental standards than Subtitle D
landfills, reflecting the inert nature of the materials deposited in them.
During the year ended April 30, 1999, approximately 71% of the waste volumes
received by the Company's landfills were from internal sources such as the
Company's hauling divisions or transfer stations.
The following table provides certain information regarding the landfills that
the Company operates. All of such information is provided as of July 15, 1999.
Approximate Estimated
Estimated in Permitting
Total Remaining Process
Permitted Capacity Capacity
Landfill Location (Tons)(1) (Tons) (1)(2)
-------- -------- --------- -------------
Clinton County (3)............................ Schuyler Falls, NY 788,000 990,000
Waste USA .................................... Coventry, VT 2,241,400 - 0 -
SERF (4)...................................... Hampden, ME 53,000 3,500,000
NCES.......................................... Bethlehem, NH 150,000 544,000
Hyland........................................ Angelica, NY 1,615,000 - 0 -
Hakes (5)..................................... Campbell, NY 825,000 - 0 -
Portland (6).................................. Portland, NY 20,250 - 0 -
(1) The Company converts estimated remaining permitted and permittable capacity
calculated in cubic yards to tons by assuming a compaction factor equal to the
historic average compaction factor applicable for the respective landfill.
(2) Represents capacity for which the Company has begun the permitting process.
Does not include additional available capacity at the site for which permits
have not yet been sought.
(3) Operated pursuant to a capital lease expiring in 2021.
(4) Of the 3,500,000 additional in-process tonnage, 3,300,000 has received all
required permits from the State of Maine; however the town of Hampden, Maine,
where the site is located, has not issued the required construction permits for
work to begin on the expansion. If these permits are not received in a
reasonable time the Company may pursue legal remedies. The remaining 200,000
tons meets all state and local requirements.
(5) First cell under construction. Projected opening September 1999.
(6) Facility currently under construction.
SERF. The SERF landfill is located in Hampden, Maine. The SERF landfill
processes ash, special waste and front end processing residue (i.e., glass and
other material segregated and disposed of separately from solid waste prior to
incineration), for the Penobscot Energy Recovery Corporation's incinerator under
a contract expiring in 2003. As noted above, the Town of Hampden has delayed the
construction of the newest permitted cell of this site by failing to issue a
construction permit in a timely manner. Although the Company will consider legal
remedies in the event the Town continues to obstruct expansion, there can be no
assurance the Company will prevail. The Penobscot Energy Recovery Corporation's
incinerator is owned by a limited partnership in which KTI holds a 70.36%
ownership interest.
NCES. The NCES landfill, located in Bethlehem, New Hampshire, serves the
northern and central New Hampshire waste sheds and portions of the Maine and
Vermont waste sheds. The Town of Bethlehem has adopted a zoning ordinance
which precludes the `expansion of any existing landfills'. The Company has
contested this ordinance vigorously. See Part I, Item 3, `Legal Proceedings'
for details of these proceedings.
Waste USA. The Waste USA landfill is located in Coventry, Vermont and serves the
northern two-thirds of Vermont.
Clinton County. The Clinton County landfill, located in Schuyler Falls, New
York, is leased by the Company from Clinton County, New York pursuant to a
25-year capital lease which expires in 2021. Under the lease, the Company is
generally obligated to expand the landfill at its own cost. Under the terms of
the lease, the Clinton County landfill cannot receive waste from certain
geographic regions in New York. The facility has a permitted capacity of 140,000
tons per year. Under the lease, the Company is responsible for operating the
landfill in compliance with all applicable environmental laws, including without
limitation, possessing and complying with all necessary permits and licenses.
The Company must indemnify the County for all liabilities resulting from any
violations of those laws (exclusive of violations based on pre-existing
conditions, which remain the responsibility of the County and with
respect to which the County indemnifies the Company). In addition, the Company
is responsible for the composition of waste deposited at the landfill during the
lease term, regardless of the Company's knowledge or monitoring efforts. The
lease gives the Company full physical and managerial control over an unlined
landfill on the site, which was operated by the Company from July 1996 through
July 1997, while the lined landfill was under construction. Clinton County has
agreed to indemnify the Company for environmental liabilities arising from the
unlined landfill prior to its operation by the Company. The Company was
responsible for the closure of the unlined landfill, and post-closure care is
the responsibility of the County. The Company completed the closure and capping
activities at this landfill in September 1997. The Company is also responsible
for performing certain cleanup work with respect to the unlined landfill and has
agreed to absorb the resulting costs subject to satisfactory construction of the
lined portion. The Company is responsible for both closure and post-closure care
with respect to the lined landfill upon exhaustion of the corresponding
airspace.
Hyland. The Hyland landfill, located in Angelica, New York in Allegany County,
serves the Company's Western Region. The Town of Angelica has adopted a local
ordinance seeking to restrict the manner in which the Company may operate or
expand this facility. For a full explanation, see Part I, Item 3, "Legal
Proceedings".
Hakes. This facility is located in Campbell, New York. The first cell of this
facility is currently under construction and is projected to be open in
September 1999.
Portland. This facility, acquired on April 30, 1999 as part of the Westfield
Disposal merger, is located in Portland, New York. The facility is currently
under construction and is projected to re-open in October 1999.
The Company also owns and/or operated five unlined landfills, which are not
currently in operation. All of these landfills have been closed and
environmentally capped by the Company. One of the unlined landfills, a municipal
landfill which is adjacent to the Subtitle D Clinton County landfill being
operated by the Company, was operated by the Company from July 1996 through July
1997. The Company completed the closure and capping activities at this landfill
in September 1997, and is indemnified by Clinton County for environmental
liabilities arising from such landfill prior to the Company's operation.
The Company regularly monitors the available permitted in-place disposal
capacity at each of its landfills and evaluates whether to seek to expand this
capacity. In making this evaluation, the Company considers various factors,
including the volume of solid waste projected to be disposed of at the landfill,
the size of the unpermitted capacity included in the landfill, the likelihood
that the Company will be successful in obtaining the approvals and permits
required for the expansion and the costs that would be involved in developing
the expanded capacity. The Company also considers on an ongoing basis the extent
to which it is advisable, in light of changing market conditions and/or
regulatory requirements, to seek to expand or change the permitted waste streams
at a particular landfill or to seek other permit modifications.
The permitting process is lengthy, difficult and expensive, and is subject to
substantial uncertainty and there can be no assurance that any such permits or
expansion requests will be granted. Often, even when permits are granted, they
are not granted until the landfill's remaining capacity is very low. There can
be no assurance that the Company will be able to add additional disposal
capacity when needed or, if added, that such capacity can be added on
satisfactory terms or at its landfills where expansion is most immediately
needed. If the Company is not able to add additional disposal capacity when and
where needed, it may need to dispose of its collected waste at its other
landfills or at landfills owned by others. Such a circumstance could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Once the permitted capacity of a particular landfill is reached, the landfill
must be closed and capped if additional capacity is not authorized. The Company
establishes reserves for the estimated costs associated with such closure and
post-closure costs over the anticipated useful life of such landfill.
Solid Waste Collection
The Company's 38 solid waste collection divisions served over 500,000
commercial, industrial and residential customers at July 15, 1999. During fiscal
1999, approximately 49% of the solid waste collected by the Company was
delivered for disposal at its landfills. The Company's collection operations are
generally conducted within a 125-mile radius of its landfills. A majority of the
Company's commercial and industrial collection services are performed under
one-to-three-year service agreements, and fees are determined by such factors as
collection frequency, type of equipment and containers furnished, the type,
volume and weight of the solid waste collected, the distance to the disposal or
processing facility and the cost of disposal or processing. The Company's
residential collection and disposal services are performed either on a
subscription basis (i.e., with no underlying contract) with individuals, or
under contracts with municipalities, homeowners associations, apartment owners
or mobile home park operators.
Transfer Station Services
The Company operated 51 transfer stations as of July 15, 1999, of which 31 were
owned by the Company and 20 were operated under contracts with municipalities.
The transfer stations receive, compact and transfer solid waste collected
primarily from the Company's various collection operations to larger
Company-owned vehicles for transport to landfills. The Company believes that
transfer stations benefit the Company by: (i) increasing the size of the waste
shed which has access to the Company's landfills; (ii) reducing costs by
improving utilization of collection personnel and equipment; and (iii) building
relationships with municipalities that may lead to future business
opportunities, including privatization of the municipality's waste management
services.
Recycling Services
The Company has sought to position itself to provide recycling services to
customers who are willing to pay for the cost of the recycling service.
Depending on the terms of the individual customer contracts and the level of
recovered material commodity prices, the proceeds generated from reselling the
recycled materials are occasionally shared between the Company and its
customers. In addition, the Company has adopted a pricing strategy of charging
collection and processing fees for recycling volume collected from its
customers. By structuring its recycling service program in this way, the Company
has sought to reduce its exposure to commodity price risk with respect to the
recycled materials.
As of July 15, 1999 the Company operated 16 recycling processing facilities. The
Company processes more than 20 classes of recyclable materials originating from
the municipal solid waste stream, including cardboard, office paper, containers
and bottles. The Company's recycling operations are concentrated principally in
Vermont, as the public sector in other states in the Company's service area has
generally taken primary responsibility for recycling efforts. At July 15, 1999,
the Company employed one commodity sales manager to develop end markets, and had
80 employees in the recycling facilities to support the processing of
approximately 70,000 tons of recyclable materials annually.
Waste Tire Processing and Other Services
The Company's waste tire processing facility, located in Eliot, Maine, has the
capacity to process approximately 3.5 million tires per year and generates tire
derived fuel, which the Company sells to paper mills for consumption as a
supplemental energy source for boiler fuel. In June 1997, the Company was
selected by the State of Maine to process an estimated 2.5 million tires over an
18-month period. Because of continuing losses in the Company's waste tire
processing facility, in the fourth quarter of fiscal 1998 the Company wrote-down
the carrying value of the tire processing facility in the amount of $971,000.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2(j) of Notes to Consolidated Financial Statements.
The Company's other services include two septic/liquid waste operations, located
in the Company's Central Region.
Competition
The solid waste services industry is highly competitive, undergoing a period of
consolidation, and requires
substantial labor and capital resources. The Company competes with numerous
solid waste management companies, many of which are significantly larger and
have greater access to capital and greater financial, marketing or technical
resources than the Company. Certain of the Company's competitors are large
national companies that may be able to achieve greater economies of scale than
the Company. The Company also competes with a number of regional and local
companies. In addition, the Company competes with operators of alternative
disposal facilities, including incinerators, and with certain municipalities,
counties and districts that operate their own solid waste collection and
disposal facilities. Public sector facilities may have certain advantages over
the Company due to the availability of user fees, charges or tax revenues and
the greater availability to them of tax-exempt financing. In addition, recycling
and other waste reduction programs may reduce the volume of waste deposited in
landfills.
The Company competes for collection and disposal volume primarily on the basis
of the price and quality of its services. From time to time, competitors may
reduce the price of their services in an effort to expand market share or to win
a competitively bid municipal contract. These practices may also lead to reduced
pricing for the Company's services or the loss of business.
Competition exists within the industry not only for collection, transportation
and disposal volume, but also for acquisition candidates. The Company generally
competes for acquisition candidates with publicly owned regional and national
waste management companies.
Marketing and Sales
The Company has a coordinated marketing and sales strategy which is formulated
at the corporate level and implemented at the divisional level. The Company
markets its services locally through division managers and direct sales
representatives who focus on commercial, industrial, municipal and residential
customers. As of July 15, 1999, the Company had 35 division managers, 3 sales
managers and 42 direct sales representatives. The Company also obtains new
customers from referral sources, its general reputation and local market print
advertising. Leads are also developed from new building permits, business
licenses and other public records. Additionally, each division generally
advertises in the yellow pages and other local business print media that cover
its service area.
Maintenance of a local presence and identity is an important aspect of the
Company's marketing plan, and many of the Company's managers are involved in
local governmental, civic and business organizations. The Company's name and
logo, or, where appropriate, that of the Company's divisional operations, are
displayed on all Company containers and trucks. Additionally, the Company
attends and makes presentations at municipal and state conferences and
advertises in governmental associations' membership publications.
The Company markets its commercial, industrial and municipal services through
its sales representatives who visit customers on a regular basis and make sales
calls to potential new customers. These sales representatives receive a
significant portion of their compensation based upon meeting certain incentive
targets. The Company emphasizes providing quality services and customer
satisfaction and retention, and believes that its focus on quality service will
help retain existing and attract additional customers.
Employees
At July 15, 1999, the Company employed approximately 1,401 full-time employees,
including approximately 115 professionals or managers, approximately 1,076
employees involved in collection, transfer and disposal operations, and
approximately 210 sales, clerical, data processing or other administrative
employees.
On October 30, 1998, the Company merged with Waste Stream (see `Recent
Developments') . Prior to the merger the employees of Waste Stream's Malone, New
York location had voted in favor of representation by Chauffeurs, Teamsters,
Warehousemen and Helpers Union (`Teamsters') Local #687, but at that time they
did not have an approved, ratified contract with Waste Stream. Negotiations
between the represented employees and the Company are ongoing.
On May 11, 1999 a petition for representation was filed with the National
Labor Relations Board by Teamsters Local #597 on Casella Transportation, Inc.
On June 25, 1999 the employees of Casella Transportation, Inc. rejected the
measure to select union representation.
On July 1, 1999 the Company acquired Resource Waste Systems, Inc. The drivers at
Resource Waste Systems, Inc. are represented by the National Industries Union
Local #88 and the Teamsters Local #379.
Through a labor utilization agreement, the Company utilizes the services of
Clinton County employees at the Clinton County landfill. The Clinton County
employees are represented by a labor union.
The Company is aware of no other organizational efforts among its employees. The
Company believes that its relations with its employees are good.
Risk Management, Insurance and Performance or Surety Bonds
The Company actively maintains environmental and other risk management programs
which it believes are appropriate for its business. The Company's environmental
risk management program includes evaluating existing facilities, as well as
potential acquisitions, for environmental law compliance and operating
procedures. The Company also maintains a worker safety program which encourages
safe practices in the workplace. Operating practices at all Company operations
are intended to reduce the possibility of environmental contamination and
litigation.
The Company carries a range of insurance intended to protect its assets and
operations, including a commercial general liability policy and a property
damage policy. A partially or completely uninsured claim against the Company
(including liabilities associated with cleanup or remediation at its own
facilities) if successful and of sufficient magnitude, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any future difficulty in obtaining insurance could also impair the
Company's ability to secure future contracts, which may be conditioned upon the
availability of adequate insurance coverage.
Effective July 1, 1999, the Company has established a Captive Insurance Company,
`Casella Insurance Company', through which it is self-insured for Workman's
Compensation coverage. The Company's maximum exposure under this plan is
$250,000 per individual event, $2.7 million total, after which reinsurance
takes effect and limits the Company's exposure.
Municipal solid waste collection contracts and landfill closure obligations may
require performance or surety bonds, letters of credit or other means of
financial assurance to secure contractual performance. The Company has not
experienced difficulty in obtaining performance or surety bonds or letters of
credit. If the Company were unable to obtain performance or surety bonds or
letters of credit in sufficient amounts or at acceptable rates, it may be
precluded from entering into additional municipal solid waste collection
contracts or obtaining or retaining landfill operating permits.
Regulation
Introduction
The Company is subject to extensive and evolving Federal, state and local
environmental laws and regulations which have become increasingly stringent in
recent years. The environmental regulations affecting the Company are
administered by the EPA and other Federal, state and local environmental,
zoning, health and safety agencies. The Company believes that it is currently in
substantial compliance with applicable Federal, state and local environmental
laws, permits, orders and regulations, and it does not currently anticipate any
material environmental costs to bring its operations into compliance (although
there can be no assurance in this regard). The Company anticipates there will
continue to be increased regulation, legislation and regulatory enforcement
actions related to the solid waste services industry. As a result, the Company
attempts to anticipate future regulatory requirements and to plan accordingly to
remain in compliance with the regulatory framework.
In order to transport solid waste, it is necessary for the Company to possess
and comply with one or more permits from state or local agencies. These permits
also must be periodically renewed and may be modified or revoked by the issuing
agency.
The principal Federal, state and local statutes and regulations applicable to
the Company's various operations are as follows:
The Resource Conservation and Recovery Act of 1976 ("RCRA")
RCRA regulates the generation, treatment, storage, handling, transportation and
disposal of solid waste and requires states to develop programs to ensure the
safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and nonhazardous. Wastes are generally classified as hazardous if they
(i) either (a) are specifically included on a list of hazardous wastes, or (b)
exhibit certain characteristics defined as hazardous; and (ii) are not
specifically designated as nonhazardous. Wastes classified as hazardous under
RCRA are subject to much stricter regulation than wastes classified as
nonhazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of nonhazardous
waste.
Among the wastes that are specifically designated as nonhazardous are household
waste and "special" waste, including items such as petroleum contaminated soils,
asbestos, foundry sand, shredder fluff and most nonhazardous industrial waste
products.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation, treatment,
storage and disposal of hazardous wastes. The Subtitle C Regulations impose
obligations on generators, transporters and disposers of hazardous wastes, and
require permits that are costly to obtain and maintain for sites where such
material is treated, stored or disposed. Subtitle C requirements include
detailed operating, inspection, training and emergency preparedness and response
standards, as well as requirements for manifesting, record keeping and
reporting, corrective action, facility closure, post-closure and financial
responsibility. Most states have promulgated regulations modeled on some or all
of the Subtitle C provisions issued by the EPA. Some state regulations impose
different, additional obligations.
The Company is currently not involved with transportation or disposal of
hazardous substances (as defined in CERCLA) in concentrations or volumes that
would classify those materials as hazardous wastes. However, the Company has
transported hazardous substances in the past and very likely will remain
involved with hazardous substance transportation and disposal in the future to
the extent that materials defined as hazardous substances under CERCLA are
present in consumer goods and in the waste streams of its customers.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Groundwater monitoring wells must also be installed at virtually all
landfills to monitor groundwater quality and, indirectly, the effectiveness of
the leachate collection system. The Subtitle D Regulations also require, where
certain regulatory thresholds are exceeded, that facility owners or operators
control emissions of methane gas generated at landfills in a manner intended to
protect human health and the environment. Each state is required to revise its
landfill regulations to meet these requirements or such requirements will be
automatically imposed by the EPA upon landfill owners and operators in that
state. Each state is also required to adopt and implement a permit program or
other appropriate system to ensure that landfills within the state comply with
the Subtitle D Regulations criteria. Various states in which the Company
operates or in which it may operate in the future have adopted regulations or
programs as stringent as, or more stringent than, the Subtitle D Regulations.
The Federal Water Pollution Control Act of 1972
The Federal Water Pollution Control Act of 1972, as amended ("Clean Water
Act"), regulates the discharge of pollutants from a variety of sources,
including solid waste disposal sites and transfer stations, into waters of
the United States. If run-off from the Company's transfer stations or if
run-off or collected leachate from the Company's owned or operated landfills
is discharged into streams, rivers or other surface waters, the Clean Water
Act would require the Company to apply for and obtain a discharge permit,
conduct sampling and monitoring and, under certain circumstances, reduce the
quantity of pollutants in such discharge. Also, virtually all landfills are
required to
comply with the EPA's storm water regulations issued in November 1990, which
are designed to prevent contaminated landfill storm water runoff from flowing
into surface waters. The Company believes that its facilities are in
compliance in all material respects with Clean Water Act requirements.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980
CERCLA established a regulatory and remedial program intended to provide for the
investigation and cleanup of facilities where or from which a release of any
hazardous substance into the environment has occurred or is threatened. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, as well as the generators of the hazardous substances
and the transporters who arranged for disposal or transportation of the
hazardous substances. In addition, CERCLA also imposes liability for the cost of
evaluating and remedying any damage done to natural resources. The costs of
CERCLA investigation and cleanup can be very substantial. Liability under CERCLA
does not depend upon the existence or disposal of "hazardous waste" as defined
by RCRA, but can also be founded upon the existence of even very small amounts
of the more than 700 "hazardous substances" listed by the EPA, many of which can
be found in household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances designated as hazardous or toxic
under the federal Clean Water Act, Clear Air Act and Toxic Substances Control
Act. If the Company were found to be a responsible party for a CERCLA cleanup,
the enforcing agency could hold the Company, or any other generator, transporter
or the owner or operator of the contaminated facility, responsible for all
investigative and remedial costs even if others may also be liable. CERCLA also
authorizes the imposition of a lien in favor of the United States upon all real
property subject to, or affected by, a remedial action for all costs for which a
party is liable. CERCLA provides a responsible party with the right to bring a
contribution action against other responsible parties for their allocable shares
of investigative and remedial costs. The Company's ability to get others to
reimburse it for their allocable shares of such costs would be limited by the
Company's ability to find other responsible parties and prove the extent of
their responsibility and by the financial resources of such other parties.
The Clean Air Act
The Clean Air Act generally, through state implementation of Federal
requirements, regulates emissions of air pollutants from certain landfills based
upon the date of the landfill construction and volume per year of emissions of
regulated pollutants. The EPA has promulgated new source performance standards
regulating air emissions of certain regulated pollutants (methane and
non-methane organic compounds) from municipal solid waste landfills. Landfills
located in areas that do not comply with certain requirements of the Clean Air
Act may be subject to even more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards regulating the disposal
of asbestos-containing materials.
All of the Federal statutes described above contain provisions authorizing,
under certain circumstances, the institution of lawsuits by private citizens to
enforce the provisions of the statutes. In addition to a penalty award to the
United States, some of those statutes authorize an award of attorney's fees to
parties successfully advancing such an action.
The Occupational Safety and Health Act of 1970 ("OSHA")
OSHA establishes employer responsibilities and authorizes the promulgation by
the Occupational Safety and Health Administration of occupational health and
safety standards, including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury, to comply with
adopted worker protection standards, to maintain certain records, to provide
workers with required disclosures and to implement certain health and safety
training programs. Various of those promulgated standards may apply to the
Company's operations, including those standards concerning notices of hazards,
safety in excavation and demolition work, the handling of asbestos and
asbestos-containing materials, and worker training and emergency response
programs.
State and Local Regulations
Each state in which the Company now operates or may operate in the future has
laws and regulations governing the generation, storage, treatment, handling,
transportation and disposal of solid waste, water and air pollution and, in
most cases, the siting, design, operation, maintenance, closure and post-closure
maintenance of landfills and transfer stations. In addition, many states have
adopted statutes comparable to, and in some cases more stringent than, CERCLA.
These statutes impose requirements for investigation and cleanup of contaminated
sites and liability for costs and damages associated with such sites, and some
provide for the imposition of liens on property owned by responsible parties.
Some of those liens may take priority over previously filed instruments.
Furthermore, many municipalities also have local ordinances, laws and
regulations affecting Company operations. These include zoning and health
measures that limit solid waste management activities to specified sites or
conduct, flow control provisions that direct the delivery of solid wastes to
specific facilities or to facilities in specific areas, laws that grant the
right to establish franchises for collection services and then put out for bid
the right to provide collection services, and bans or other restrictions on the
movement of solid wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be accepted
at a landfill or the quantity of waste that may be accepted at a landfill during
a given time period. In addition, certain permits and approvals, as well as
certain state and local regulations, may limit a landfill to accepting waste
that originates from specified geographic areas or seek to restrict the
importation of out-of-state waste or otherwise discriminate against out-of-state
waste. Generally, restrictions on importing out-of-state waste have not
withstood judicial challenge. However, from time to time Federal legislation is
proposed which would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain circumstances, to
reduce the amounts of waste exported to other states. Although such legislation
has not been passed by Congress, if this or similar legislation is enacted,
states in which the Company operates landfills could limit or prohibit the
importation of out-of-state waste. Such state actions could materially adversely
affect the business, financial condition and results of operations of landfills
within those states that receive a significant portion of waste originating from
out-of-state.
In addition, certain states and localities may for economic or other reasons
restrict the export of waste from their jurisdiction or require that a specified
amount of waste be disposed of at facilities within their jurisdiction. In 1994,
the U.S. Supreme Court held unconstitutional, and therefore invalid, a local
ordinance that sought to impose flow controls on taking waste out of the
locality. However, certain state and local jurisdictions continue to seek to
enforce such restrictions and, in certain cases, the Company may elect not to
challenge such restrictions. In addition, the aforementioned proposed Federal
legislation would allow states and localities to impose certain flow control
restrictions. These restrictions could reduce the volume of waste going to
landfills in certain areas, which may materially adversely affect the Company's
ability to operate its landfills and/or affect the prices that can be charged
for landfill disposal services. These restrictions may also result in higher
disposal costs for the Company's collection operations. If the Company were
unable to pass such higher costs through to its customers, the Company's
business, financial condition and results of operations could be materially
adversely affected.
There has been an increasing trend at the Federal, state and local levels to
mandate or encourage both waste reduction at the source and waste recycling, and
to prohibit or restrict the disposal in landfills of certain types of solid
wastes, such as yard wastes, leaves and tires. The enactment of regulations
reducing the volume and types of wastes available for transport to and disposal
in landfills could affect the Company's ability to operate its landfill
facilities.
Executive Officers and Other Key Employees of the Company
The executive officers and other key employees of the Company, their positions,
and their ages as of July 15, 1999 are as follows:
Name Age Position
---- --- --------
Executive Officers
- ------------------
John W. Casella 48 President, Chief Executive Officer, Chairman of
the Board of Directors and Secretary
Douglas R. Casella 43 Vice Chairman of the Board of Directors
James W. Bohlig 53 Senior Vice President and Chief Operating
Officer, Director
Jerry S. Cifor 38 Senior Vice President and Chief Financial Officer,
Treasurer
Other Key Employees
- -------------------
Michael P. Barrett 45 Vice President, Transportation, Liquid Waste and Recycling
Christopher M. DesRoches 41 Vice President, Sales and Marketing
Joseph S. Fusco 35 Vice President, Communications
James M. Hiltner 35 Regional Vice President
Michael Holmes 44 Regional Vice President
Larry B. Lackey 38 Vice President, Permits, Compliance and
Engineering
Alan N. Sabino 39 Regional Vice President
Gary Simmons 49 Vice President, Fleet Management
John W. Casella has served as President, Chief Executive Officer and Chairman of
the Board of Directors of the Company since 1993, and has been Chairman of the
Board of Directors of Casella Waste Management, Inc. since 1977. Mr. Casella has
actively supervised all aspects of Company operations since 1976, sets overall
corporate policies, and serves as chief strategic planner of corporate
development. Mr. Casella is also an executive officer and director of Casella
Construction, a company owned by Mr. Casella and Douglas R. Casella. Mr. Casella
has been a member of numerous industry-related and community service-related
state and local boards and commissions including the Board of Directors of the
Associated Industries of Vermont, The Association of Vermont Recyclers, Vermont
State Chamber of Commerce and the Rutland Industrial Development Corporation.
Mr. Casella has also served on various state task forces, serving in an advisory
capacity to the Governor of Vermont on solid waste issues. Mr. Casella was an
executive officer and director of Meridian Group, Inc. Mr. Casella holds an
Associate of Science in Business Management from Bryant & Stratton University
and a Bachelor of Science in Business Education from Castleton State College.
Mr. Casella is the brother of Douglas R. Casella.
Douglas R. Casella founded Casella Waste Management, Inc. in 1975, and has been
a director of that company since that time. He has served as Vice Chairman of
the Board of Directors of the Company since 1993 and has been President of
Casella Waste Management, Inc. since 1975. Since 1989, Mr. Casella has been
President of Casella Construction, a company owned by Mr. Casella and John W.
Casella which specializes in general contracting, soil excavation and related
heavy equipment work. Mr. Casella attended the University of Wisconsin's College
of Engineering continuing education programs in sanitary landfill design, ground
water remediation, landfill gas and
leachate management and geosynthetics. Mr. Casella is the brother of John W.
Casella.
James W. Bohlig joined the Company as Senior Vice President and Chief Operating
Officer in 1993 with primary responsibility for business development,
acquisitions and operations. Mr. Bohlig has served as a director of the Company
since 1993. From 1989 until he joined the Company, Mr. Bohlig was Executive Vice
President and Chief Operating Officer of Russell Corporation, a general
contractor and developer based in Rutland, Vermont. In addition, Mr. Bohlig was
the President and a director of Meridian Group, Inc. Mr. Bohlig is a licensed
professional engineer. Mr. Bohlig holds a Bachelor of Science in Engineering and
Chemistry from the U.S. Naval Academy, and is a graduate of the Columbia
University Management Program in Business Administration.
Jerry S. Cifor joined the Company as Chief Financial Officer in January 1994.
From 1992 to 1993, Mr. Cifor was Vice President and Chief Financial Officer of
Earthwatch Waste Systems, a waste management company based in Buffalo, New York.
From 1986 to 1991, Mr. Cifor was employed by Waste Management of North America,
Inc., a waste management company, in a number of financial and operational
management positions. Mr. Cifor is a certified public accountant and was with
KPMG Peat Marwick from 1983 until 1986. Mr. Cifor is a graduate of Hillsdale
College with a Bachelor of Arts in Accounting.
Michael P. Barrett has served as Vice President, Transportation and Recycling
of the Company since January 1997. In 1998 Mr. Barrett became Vice President
of Liquid Waste Services. From June 1991 to January 1997, Mr. Barrett served
as the Company's Division Manager for Transfer Stations, Recycling and
Rutland Hauling.
Christopher M. DesRoches has served as Vice President, Sales and Marketing of
the Company since November 1996. From January 1989 to November 1996, he was a
regional vice president of sales of Waste Management, Inc., a solid waste
management company. Mr. DesRoches is a graduate of Arizona State University.
Joseph S. Fusco has served as Vice President, Communications of the Company
since January 1995. From January 1991 through January 1995, Mr. Fusco was
self-employed as a corporate and political communications consultant. Mr. Fusco
is a graduate of the State University of New York at Albany.
James M. Hiltner has served as Regional Vice President of the Company since
March 1998. From 1990 to March 1998, Mr. Hiltner was employed by Waste
Management, Inc. as a region president (July 1996 through March 1998), where his
responsibilities included overseeing that company's waste management operations
in upstate New York and northwestern Pennsylvania, a division president (from
April 1992 through July 1996) and a general manager (from November 1990 through
April 1992.)
Michael Holmes has served as a Regional Vice President of the Company since
January 1997. From November 1995 to January 1997, Mr. Holmes was Vice President
of Superior Disposal Services, Inc., which was acquired by the Company in
January 1997. From November 1993 to November 1995, he was Superintendent of
Recycling and Solid Waste for the town of Weston, Massachusetts Solid Waste
Department where he managed all aspects of the town's recycling and solid waste
services. From June 1983 to October 1992, he served as the Division Manager of
all divisions in the Binghamton, N.Y. area and the Boston, Massachusetts area
for Laidlaw Waste Services, Inc. Mr. Holmes is a graduate of Broome Community
College.
Larry B. Lackey joined the Company in 1993 and has served as Vice President,
Permits, Compliance and Engineering since 1995. From 1984 to 1993, Mr. Lackey
was an Associate Engineer for Dufresne-Henry, Inc., an engineering consulting
firm. Mr. Lackey is a graduate of Vermont Technical College.
Alan N. Sabino has served as Regional Vice President of the Company since July
1996. From 1995 to July 1996, Mr. Sabino served as a Division President for
Waste Management, Inc. From 1989 to 1994, he served as Region Operations Manager
for Chambers Development Company, Inc., a waste management company. Mr. Sabino
is a graduate of Pennsylvania State University.
Gary Simmons joined the Company in May 1997 as Vice President, Fleet Management.
From 1995 to May 1997, Mr. Simmons served as National and Regional Fleet Service
Manager for USA Waste Services, Inc., a waste management company. From 1977 to
1995, Mr. Simmons served in various fleet maintenance and management positions
for Chambers Development Company, Inc.
ITEM 2. PROPERTIES
The principal fixed assets used by the Company in connection with its landfill
operations are its landfills which are described in Item 1.
Other than the landfills, the principal fixed assets used by the Company in its
solid waste collection and landfill operations included, at July 15, 1999,
approximately 1,402 collection vehicles, 195 pieces of heavy equipment and 261
support vehicles. At July 15, 1999, transfer station operations included 51
transfer stations, 31 of which are owned and 20 of which are leased and/or
operated under agreements expiring between 1999 and 2021.
At July 15, 1999, the Company utilized 16 recycling facilities in its service
areas, of which seven are owned and nine are leased and/or operated under
agreements expiring between 1999 and 2021.
The Company owns and operates a 46-acre tire processing facility located in
Eliot, Maine, consisting of storage facilities, tire shredding machines and a
scale and receiving area.
The Company's facility in Rutland, Vermont, consisting of approximately 10,000
square feet utilized for the Company's headquarters, and its solid waste
collection, maintenance and septic hauling facility located in Montpelier,
Vermont, consisting of an aggregate of approximately 24,000 square feet, are
leased from Casella Associates, a company owned by John and Douglas Casella.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil lawsuit
against the Company and two of the Company's officers and directors in the
Rutland Superior Court, Rutland County, State of Vermont. In the Complaint, Mr.
Freeman seeks compensation for services allegedly performed by him prior to
1995. Mr. Freeman is seeking a three-percent equity interest in the Company or
the monetary equivalent thereof, as well as punitive damages. The Company and
the officers and directors have answered the Complaint, denied Mr. Freeman's
allegations of wrongdoing, and asserted various defenses. In order to facilitate
the completion of the initial public offering of the Company's Class A Common
Stock in November, 1997, certain stockholders of the Company agreed to indemnify
the Company for any settlement by the Company or any award against the Company
in excess of $350,000 (but not legal fees paid by or on behalf of the Company or
any other third party). The Company accrued a $215,000 reserve for this claim
during the year ended April 30, 1998.
On May 12, 1998, the Company filed suit in New York Supreme Court, Allegany
County against the Town of Angelica, New York seeking a temporary restraining
order and preliminary injunctive relief against the Town's enforcement of a
recently-enacted local law which would prohibit the expansion of the Hyland
landfill, would require the landfill and the operator thereof to receive an
additional permit from the Town of Angelica to continue to operate, would
prevent the disposal of yard waste, may preclude the disposal of certain types
of industrial waste and would impose certain other restrictions on the landfill.
A temporary restraining order was granted by the court on May 14, 1998 in favor
of the Company, and by a decision dated July 13, 1998, the court granted the
Company's motion for a preliminary injunction. On September 9, 1998, the Town of
Angelica filed a Notice of Appeal but has not yet perfected that appeal. If the
Company is not successful in its lawsuit, and if the Town of Angelica seeks to
enforce the law by its terms, then the Company would be required to obtain an
additional permit from the Town of Angelica to operate the Hyland landfill, the
expansion of the landfill beyond the current permitted capacity would be
prohibited, and the Company would be unable to dispose of yard waste and may be
precluded from disposing of certain industrial wastes at the landfill. There can
be no assurance that such limitations would not have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company began accepting waste at the Hyland facility on July 22, 1998, and is in
active settlement negotiations with the town.
The Company's wholly-owned subsidiary, North Country Environmental Services,
Inc. ("NCES"), is a party to consolidated civil actions (Case Nos. 98-E-141 and
98-E-151) against the Town of Bethlehem, New Hampshire (the "Town"), before the
Grafton Superior Court in North Haverhill, New Hampshire. On October 16, 1998,
NCES
commenced an action for declaratory relief against the Town seeking, on a
variety of grounds, to invalidate a Town zoning ordinance which purports to
prohibit the expansion of NCES's landfill beyond its currently permitted
capacity. The Town has taken the position that NCES may not expand the landfill
beyond Stage II, Phase I, which has reached capacity. NCES sought a declaration
that it requires no further approvals from the Town to expand the landfill
throughout its 87-acre parcel and that certain financial exactions imposed by a
1986 Town land-use approval are invalid. In the alternative, NCES sought
compensation under state law for the inverse condemnation of its property.
On October 23, 1998, the Town filed a petition for injunctive and declaratory
relief against NCES. The Town's petition sought to enjoin NCES's construction of
Stage II, Phase II of the landfill and to prevent any further expansion as
violative of the above-noted Town zoning ordinance. The construction of Stage
II, Phase II was proceeding at that time pursuant to a construction permit
issued by the New Hampshire Department of Environmental Services (NHDES) on
September 15, 1998. On October 30, 1998, the court entered a preliminary
injunction requiring NCES to suspend construction of Stage II, Phase II. When
the Town failed to post an injunction bond, however, the court permitted NCES to
complete and cover the liner system in Stage II, Phase II, before the onset of
winter.
On November 30, 1998, NCES and the Town proceeded to trial on eight of NCES's
eleven claims for relief and on the Town's claims for permanent injunctive and
declaratory relief. Earlier, the remaining three NCES claims were bifurcated for
later trial, if needed. On the day of trial, the Town filed two counterclaims
seeking to establish the lawfulness of the financial exactions challenged by
NCES's October 16, 1998 petition.
The Grafton Superior Court issued its order on NCES's first eight claims and the
Town's request for a permanent injunction and declaratory relief on February 1,
1999. The court declined to decide whether the Town's zoning ordinance is valid;
rather, the court held that NCES had appropriated a 51-acre tract of land
comprised of a 10-acre and a 41-acre parcel for landfilling purposes. Stage II,
Phase II is within the 51-acre tract. The court also found that NCES had
obtained permission to operate its landfill facility on this 51-acre tract prior
to the enactment of the challenged zoning ordinance and held that the ordinance
did not apply to NCES's operation of its landfill facility on this tract.
Consequently, the court held that the Town lacked authority to enforce the
zoning ordinance against NCES with respect to the 51-acre tract and denied the
Town's petition in its entirety. The court did not decide the validity of the
zoning ordinance as it relates to 36 acres adjoining the 51-acre tract after
finding that NCES had not demonstrated a present intent to develop this property
for landfilling. Consequently, NCES's ability to use this 36 acres for
landfilling remains unresolved.
On February 10, 1999, the Town moved the Grafton Superior Court to clarify and
reconsider its order. On March 22, 1999, the court denied reconsideration but
offered some clarification which did not result in any substantive change in its
earlier order. On April 20, 1999, the Town filed a notice of appeal with the New
Hampshire Supreme Court seeking review of the superior court's order. NCES filed
a notice of cross-appeal on April 29, 1999.
Concurrently, on March 24, 1999, a special interest group, Environmental Action
for Northern New Hampshire, Inc. ("EANNH") sought to intervene before the
superior court. The reason EANNH gave for seeking intervention was to introduce
evidence which it claimed showed that there were size limitations on the
landfill implicit in the land-use approvals obtained by NCES's predecessors in
1976 and 1986. The superior court denied EANNH intervention on April 22, 1999,
and on May 24, 1999, EANNH appealed the denial of intervention to the New
Hampshire Supreme Court.
The Town's notice of appeal centers on its argument that there were implied
limitations upon the size of the landfill that could be operated by NCES and its
predecessors under the land-use approvals granted by the Town in 1976 and 1986.
NCES's cross-appeal seeks a determination that it has all local approvals
necessary to landfill throughout the entire 87-acre parcel, that the Town's
restrictive zoning ordinance is unlawful for several reasons, and that the
Town's attempted enforcement of the zoning ordinance was in bad faith, entitling
NCES to its attorney's fees.
The New Hampshire Supreme Court has yet to accept any of the appeals. NCES has
filed a motion for summary disposition of EANNH's appeal, but there has yet to
be a ruling on that motion. NCES has also learned that a second special interest
group, AWARE, Inc., intends to seek AMICUS CURIAE status so it may submit briefs
to the Supreme Court in support of the Town's appeal.
The sole issue remaining before the superior court is the lawfulness of the
financial exactions imposed in 1986 by the Town as a condition of land-use
approval. These exactions consist of a discounted tipping fee for Town solid
waste and a per-ton payment to the Town for all solid waste originating from
outside the Town and deposited at the landfill. NCES stopped complying with the
exactions in October of 1998. NCES and the Town have filed cross-motions for
summary judgment respecting the enforceability of the exactions and are awaiting
a ruling. Whatever the court's decision, NCES expects an appeal.
In a separate but related matter, the Waste Management Division of NHDES ("WMD")
issued operating approval to NCES for Stage II, Phase II of the landfill on
March 25, 1999. NCES has been landfilling in Stage II, Phase II since that time.
On April 23, 1999, EANNH appealed the operating approval to the Waste Management
Council, an appellate administrative body with jurisdiction to review certain
decisions of the WMD. EANNH has contended on its appeal that the operating
approval should be suspended because the superior court's order in NCES's favor
is on appeal and hence not final. EANNH has also argued that NCES misled the WMD
into issuing the operating approval by certifying that it had all local
approvals necessary to operate Stage II, Phase II when the order establishing
this proposition was on appeal.
NCES has filed a motion to dismiss EANNH's appeal to the Waste Management
Council on the ground that the Council lacks jurisdiction over the appeal and
that EANNH lacks standing to assert it. The Office of the Attorney General of
the State of New Hampshire has joined in that motion. In the alternative, NCES
has sought a stay of the Council proceedings pending the outcome of the Supreme
Court appeal. EANNH has agreed to a stay provided there is a suspension of the
operating approval during the pendency of the Supreme Court appeal. NCES has
objected to any such suspension.
The Company offers no prediction of the outcome of any of the proceedings
described above.
In addition to the foregoing, the Company may periodically become subject to
various judicial and administrative proceedings involving Federal, state or
local agencies in the normal course of its business and as a result of the
extensive governmental regulation of the waste industry. In these proceedings,
an agency may seek to impose fines on the Company or to revoke, or to deny
renewal of, an operating permit held by the Company. In addition, the Company
may become party to various claims and suits pending for alleged damages to
persons and property, alleged violation of certain laws and for alleged
liabilities arising out of matters occurring during the normal operation of the
waste management business. However, there is no current proceeding or litigation
involving the Company that it believes will have a material adverse effect upon
the Company's business, financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
fiscal quarter ended April 30, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Class A Common Stock began trading on the Nasdaq National Market
under the symbol "CWST" on October 29, 1997. Prior to such date, there was no
established public trading market for the Company's Class A Common Stock. The
following table sets forth the high and low sale prices of the Company's Class A
Common Stock for the periods indicated as quoted on the Nasdaq National Market.
Period High Low
- ------ ---- ---
Fiscal 1998
Second quarter (commencing October 29, 1997) $ 22.75 $ 20.25
Third quarter .............................. $ 26.375 $ 19.00
Fourth quarter ............................. $ 34.00 $ 23.75
Fiscal 1999
First quarter .............................. $ 30.75 $ 24.375
Second quarter ............................. $ 34.00 $ 24.00
Third quarter .............................. $ 39.00 $ 24.625
Fourth quarter ............................. $ 26.625 $ 17.25
Fiscal 2000
First quarter (through July 15, 1999) ...... $ 26.50 $ 19.0625
On July 15, 1999, the high and low sale prices per share of the Company's Class
A Common Stock as quoted on the Nasdaq National Market were $26.0625 and $25.50,
respectively. As of July 15, 1999 there were approximately 221 holders of record
of the Company's Class A Common Stock and two holders of record of the Company's
Class B Common Stock.
The closing price for the Class A Common Stock on July 15, 1999 was $26.00. For
purposes of calculating the aggregate market value of the shares of common stock
of the Company held by nonaffiliates, as shown on the cover page of this report,
it has been assumed that all the outstanding shares were held by nonaffiliates
except for the shares held by directors and executive officers of the Company.
However, this should not be deemed to constitute an admission that all such
persons are, in fact, affiliates of the Company, or that there are not other
persons who may be deemed to be affiliates of the Company.
No dividends have ever been declared or paid on the Company's capital stock and
the Company does not anticipate paying any cash dividends on the Common Stock in
the foreseeable future. The Company's credit facility restricts the payment of
dividends.
Sales of Unregistered Securities
No unregistered securities of the Company were sold by the Company during the
fiscal year ended April 30, 1999 that were not previously reported by the
Company in its quarterly reports on Form 10-Q.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data set forth
below with respect to the Company's consolidated statements of operations and
cash flows for the fiscal years ended April 30, 1997, 1998 and 1999, and the
consolidated balance sheets as of April 30, 1998 and 1999 are derived from
the Company's consolidated financial statements included elsewhere in this
Annual Report. The consolidated statements of operations and cash flows data
for the fiscal years ended April 30, 1995 and 1996 and the consolidated
balance sheet data as of April 30, 1995, 1996 and 1997 are derived in part
from the Company's consolidated financial statements not included in this
annual report. The Selected Historical Information presented below, has been
restated to reflect mergers completed by the Company during the current
fiscal year, in transactions accounted for as poolings of interests as more
fully discussed in note(1) below. The data set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report.
Casella Waste Systems, Inc.
Selected Consolidated Financial and Operating Data
(In thousands, except per share data)
FISCAL YEAR ENDED APRIL 30,
RESTATED(1)
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Statement of Operations Data:
Revenues $ 38,633 $ 58,247 $ 102,545 $ 140,191 $ 173,418
Cost of operations 23,631 35,244 64,654 86,670 99,869
General and administrative 6,065 10,374 16,053 20,495 25,598
Merger-related costs - - 0 290 1,951
Depreciation and amortization 6,106 9,180 15,310 19,819 24,836
Loss on impairment of long-lived assets - - 0 1,571 0
--------- --------- --------- --------- ---------
Operating income 2,831 3,449 6,528 11,346 21,164
Interest expense, net 2,067 3,275 4,928 7,245 4,924
Other expense (income), net (116) (103) 847 (334) (369)
--------- --------- --------- --------- ---------
Income (loss) before provision
(benefit) for income taxes
and extraordinary items 880 277 753 4,435 16,609
Provision (benefit) for income
taxes 222 148 680 2,510 7,510
Extraordinary items, net - 326 - - -
--------- --------- --------- --------- ---------
Net income (loss) $ 658 $ (197) $ 73 $ 1,925 $ 9,099
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Accretion of preferred stock
and put warrants (2,380) (2,967) (8,530) (5,738) (0)
--------- --------- --------- --------- ---------
Net income (loss) applicable
to common stockholders $ (1,722) $ (3,164) $ (8,457) $ (3,813) $ 9,099
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic net income (loss) per common share $ (0.45) $ (0.75) $ (1.63) $ (0.42) $ 0.62
Basic weighted average common
shares outstanding (2) 3,822 4,201 5,185 9,184 14,782
Diluted net income (loss) per common share $ (0.45) $ (0.75) $ (1.63) $ (0.42) $ 0.58
Diluted weighted average common
shares outstanding (2) 3,822 4,201 5,185 9,184 15,637
Other Operating Data:
Capital Expenditures $ 4,590 $ 12,293 $ 20,050 $ 28,126 $ 47,723
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Other Data:
Cash flows from operating activities $ 6,650 $ 9,826 $ 17,283 $ 21,100 $ 38,069
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash flows from investing activities ($ 9,347) ($ 29,547) ($ 55,720) ($ 59,973) ($ 88,463)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Cash flows from financing activities $ 3,178 $ 19,135 $ 39,299 $ 39,300 $ 51,180
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Adjusted EBITDA (3) $ 8,937 $ 12,629 $ 21,838 $ 32,736 $ 46,000
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Balance Sheet Data:
Cash and cash equivalents $ 1,433 $ 847 $ 2,704 $ 3,131 $ 3,917
Working capital (deficit) (866) (1,907) (4,787) 3,845 7,755
Property and equipment, net 27,215 43,138 74,906 89,582 124,377
Total assets 45,607 72,732 152,298 202,414 270,209
Long-term obligations, less
current maturities 22,914 25,909 81,502 81,438 80,013
Redeemable preferred stock 0 22,896 31,426 0 0
Redeemable put warrants (4) 3,142 400 400 0 0
Total stockholders' equity
(deficit) 129 (235) 3,325 83,743 150,396
(1) The Company has restated the selected historical financial information
for all periods presented to reflect the mergers with Waste Stream and
Northern Sanitation, consummated during the year ended April 30, 1999,
accounted for as poolings of interests. The Company has restated the selected
historical financial information for the fiscal years ended April 30, 1997,
1998 and 1999, to reflect the mergers with NEI and Westfield Disposal,
consumated during the year ended April 30, 1999, accounted for as poolings of
interests. See Note 3 of the Notes to Consolidated Financial Statements.
(2) Computed on the basis described in Note 2 of Notes to Consolidated Financial
Statements.
(3) Adjusted EBITDA is defined as operating income plus depreciation and
amortization and loss on impairment of long-lived assets. Adjusted EBITDA does
not represent, and should not be considered as, an alternative to net income or
cash flows from operating activities, each as determined in accordance with
GAAP. Moreover, Adjusted EBITDA does not necessarily indicate whether cash flow
will be sufficient for such items as working capital or capital expenditures, or
to react to changes in the Company's industry or to the economy generally. The
Company believes that adjusted EBITDA is a measure commonly used by lenders and
certain investors to evaluate a company's performance in the solid waste
industry. The Company also believes that adjusted EBITDA data may help to
understand the Company's performance because such data may reflect the Company's
ability to generate cash flows, which is an indicator of its ability to satisfy
its debt service, capital expenditure and working capital requirements. Because
adjusted EBITDA is not calculated by all companies and analysts in the same
fashion, the adjusted EBITDA measures presented by the Company may not be
comparable to similarly titled measures reported by other companies. Therefore,
in evaluating adjusted EBITDA data, investors should consider, among other
factors: the non-GAAP nature of adjusted EBITDA data; actual cash flows; the
actual availability of funds for debt service; capital expenditures and working
capital; and the comparability of the Company's adjusted EBITDA data to
similarly-titled measures reported by other companies. For more information
about the Company's cash flows, see the Consolidated Statement of Cash Flows in
the Company's Consolidated Financial Statements.
(4) Represents warrants to purchase 100,000 shares of Class A Common Stock
exercisable at $6.00 per share. Pursuant to the terms of these warrants, in
September 1997, warrants to purchase 25,000 shares were exercised by the holder
at $6.00 per share, and warrants to purchase 75,000 shares were called by the
Company at $7.00 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, and other financial Information included
elsewhere in this Annual Report.
OVERVIEW
The Company is a regional, integrated solid waste services company that provides
collection, transfer, disposal and recycling services in Vermont, New Hampshire,
Maine, upstate New York, Massachusetts and northern Pennsylvania. The Company's
objective is to continue to grow by expanding its services in markets where it
can be one of the largest and most profitable fully-integrated solid waste
services companies.
The Company's revenues have increased from $38.6 million for the fiscal year
ended April 30, 1995, to $173.4 million for the fiscal year ended April 30,
1999. From May 1, 1994 through April 30, 1999, the Company acquired 132 solid
waste collection, transfer and disposal operations. Between May 1 and July 15,
1999, the Company acquired an additional nine such businesses. All but six of
these acquisitions were accounted for under the purchase method of accounting
for business combinations. Under the rules of purchase accounting the acquired
companies' revenues and results of operations have been included together with
those of Casella Waste Systems, Inc. from the actual dates of the acquisitions
and will materially affect the period-to-period comparisons of the Company's
historical results of operations. In December 1997 the Company acquired a waste
collection and transfer operation in a transaction recorded as a pooling of
interests. During the fiscal year ended April 30, 1999 the Company acquired five
waste collection, transfer and disposal operations in transactions accounted for
as poolings of interest. Under the rules governing poolings of interest, the
prior period and year to date financial statements of the Company have been
restated for all prior years to reflect the financial position, results of
operations and cash flows of the merged entities as if they had been one company
for all periods presented in the accompanying financial statements.
This Annual Report and other reports, proxy statements, and other communications
to stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Securities Exchange Act, with
respect to, among other things, the Company's future revenues, operating income,
or earnings per share. Without limiting the foregoing, any statements contained
in this Annual Report that are not statements of historical fact may be deemed
to be forward-looking statements, and the words "believes", "anticipates",
"plans", "expects", and similar expressions are intended to identify
forward-looking statements. There are a number of factors of which the Company
is aware that may cause the Company's actual results to vary materially from
those forecast or projected in any such forward-looking statement, certain of
which are beyond the Company's control. These factors include, without
limitation, those outlined below in the section entitled `Certain Factors That
May Affect Future Results'. The Company's failure to successfully address any of
these factors could have a material adverse effect on the Company's results of
operations.
GENERAL
The Company's revenues are attributable primarily to fees charged to customers
for solid waste collection, disposal, transfer and recycling services. The
Company derives a substantial portion of its collection revenues from
commercial, industrial and municipal services that are generally performed under
service agreements or pursuant to contracts with municipalities. The majority of
the Company's 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 the
Company's disposal facilities and transfer stations. The majority of the
Company's landfill and transfer customers are under one-year to ten-year
disposal contracts, with most having clauses for annual cost of living
increases. Recycling revenues consist of revenues from the sale of recyclable
commodities and from the sale of tire derived fuel. Other revenues consist
primarily of revenue from waste tire tipping fees, and septic/liquid waste
operations. The Company's revenues are shown net of intercompany eliminations.
The Company typically establishes its intercompany transfer pricing based upon
prevailing market rates.
The table below shows, for the periods indicated, the percentage of the
Company's revenues attributable to services provided. The increase in the
Company's collection revenues as a percentage of revenues in fiscal 1998 and
fiscal 1999 is primarily attributable to the impact of the Company's acquisition
of collection businesses during these periods, as well as to internal growth
through price and business volume increases. The decrease in the Company's
landfill revenues and in the Company's transfer revenues as a percentage of
revenues in fiscal 1998 and fiscal 1999 is mainly due to a proportionately
greater increase in collection and other revenues occurring as the result of
acquisitions in those areas; also, as the Company acquires collection businesses
from which it previously had derived transfer or disposal revenues, the acquired
revenues are recorded by the Company as collection revenues.
% OF REVENUES
YEAR ENDED APRIL 30,
1997 1998 1999
------ ------ ------
Collection ............... 76.4% 77.7% 80.5%
Landfill ................. 12.0 10.3 8.4
Transfer ................. 5.1 4.9 4.6
Recycling ................ 5.5 5.5 5.9
Other .................... 1.0 1.6 0.6
------ ------ ------
Total Revenues ........... 100.0% 100.0% 100%
------ ------ ------
------ ------ ------
Cost of operations includes labor, tipping fees paid to third party disposal
facilities, fuel, maintenance and repair of vehicles and equipment, worker's
compensation and vehicle insurance, the cost of purchasing materials to be
recycled, third party transportation expense, district and state taxes, host
community fees and royalties. Landfill operating expenses also include a
provision for closure and post-closure expenditures anticipated to be incurred
in the future, and leachate treatment and disposal costs.
General and administrative expenses include management, clerical and
administrative compensation and overhead, professional services and costs
associated with the Company's marketing and sales force and community relations
expense.
Depreciation and amortization expense includes depreciation of fixed assets over
the estimated useful lives of the assets using the straight line method,
amortization of landfill airspace assets under the units-of-production method,
and the amortization of goodwill and other intangible assets using the straight
line method. The amount of landfill amortization expense related to airspace
consumption can vary materially from landfill to landfill depending upon the
purchase price and landfill site and cell development costs. The Company
depreciates all fixed and intangible assets, excluding non-depreciable land,
down to a $0 net book value, and does not apply a salvage value to any of its
fixed assets.
Certain direct landfill development costs, such as engineering, permitting,
legal, construction and other costs directly associated with expansion of
existing landfills, are capitalized by the Company. Additionally, the Company
also capitalizes certain third party expenditures related to pending
acquisitions, such as legal and engineering. The Company will have material
financial obligations relating to closure and post-closure costs of its existing
landfills and any disposal facilities which it may own or operate in the future.
The Company has provided and will in the future provide accruals for future
financial obligations relating to closure and post-closure costs of its
landfills (generally for a term of 30 years after final closure of a landfill)
based on engineering estimates of consumption of permitted landfill airspace
over the useful life of any such landfill. There can be no assurance that the
Company's financial obligations for closure or post-closure costs will not
exceed the amount accrued and reserved or amounts otherwise receivable pursuant
to trust funds. The Company routinely evaluates all such capitalized costs, and
expenses those costs related to projects not likely to be successful. Internal
and indirect landfill development and acquisition costs, such as executive and
corporate overhead, public relations and other corporate services, are expensed
as incurred.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
relationship that certain items from the
Company's Consolidated Financial Statements bear in relation to revenues.
% OF REVENUES
YEAR ENDED APRIL 30,
1997 1998 1999
------ ------ ------
Revenues ................................... 100.0% 100.0% 100.0%
Cost of operations ......................... 63.0 61.8 57.6
General and administrative ................. 15.7 14.6 14.8
Merger related costs ....................... 0.0 0.2 1.1
Depreciation and amortization .............. 14.9 14.2 14.3
Loss on impairment of long-lived assets .... 0.0 1.1 0.0
------ ------ ------
Operating income ........................... 6.4 8.1 12.2
Interest expense, net ...................... 4.8 5.1 2.9
Other (income) expenses, net ............... 0.8 (0.2) (0.2)
Provision for income taxes ................. 0.7 1.8 4.3
------ ------ ------
Net income (loss) 0.1 1.4 5.2
------ ------ ------
------ ------ ------
Adjusted EBITDA* ........................... 21.3% 23.4% 26.5%
------ ------ ------
------ ------ ------
* See discussion and computation of adjusted EBITDA below.
FISCAL YEAR ENDED APRIL 30, 1999 VERSUS APRIL 30, 1998
Revenues. Revenues increased $33.2 million, or 23.7%, to $173.4 million in
fiscal 1999 from $140.2 million in fiscal 1998. Approximately $23.6 million of
the increase was attributable to the impact of businesses acquired throughout
fiscal 1998 and fiscal 1999. In addition, approximately $9.6 million of the
increase was attributable to internal volume and price growth (net of the
negative impact of lower average recycled commodity processing in fiscal 1999
compared to fiscal 1998).
Cost of Operations. Cost of operations increased approximately $13.2 million, or
15.2%, to $99.9 million in fiscal 1999 from $86.7 million in fiscal 1998, an
increase corresponding primarily to the Company's revenue growth described
above. Cost of operations as a percentage of revenues decreased to 57.6% in
fiscal 1999 from 61.8% in fiscal 1998. The decrease was primarily the result of:
(i) productivity improvements in the Company's collection operations as a result
of better route density from acquisitions, routing efficiencies through route
audits and front-end loader vehicle conversions completed throughout fiscal 1998
and 1999; (ii) margin improvements because of price increases in fiscal 1998 and
1999 and (iii) higher landfill internalization due to the Hyland landfill
becoming operational in July, 1998.
General and Administrative. General and administrative expenses increased
approximately $5.1 million, or 24.9%, to $25.6 million in fiscal 1999 from $20.5
million in fiscal 1998. General and administrative expenses as a percentage of
revenues increased to 14.8% in fiscal 1999 from 14.6% in fiscal 1998 due
primarily to an increase in management information systems spending and public
company expenditures for a full year in fiscal 1999 compared to a partial year
in fiscal 1998.
Merger-Related Costs. Merger-related costs consists of legal, engineering,
accounting and other costs associated with the various poolings of interests
consummated during fiscal 1998 and 1999. One such transaction occurred during
fiscal 1998 and five occurred fiscal 1999, resulting in an increase of $1.7
million or 573%. Merger-related costs as a percentage of revenue increased from
0.2% in fiscal 1998 to 1.1% in fiscal 1999.
Depreciation and Amortization. Depreciation and amortization expense increased
$5.0 million, or 25.3%, to $24.8 million in fiscal 1999 from $19.8 million in
fiscal 1998. As a percentage of revenues, depreciation and amortization expense
increased to 14.3% in fiscal 1999 from 14.2% in fiscal 1998. The increase in
depreciation and amortization expense as a percentage of revenues was primarily
the result of: (i) higher rates of disposal internalization due to the
opening of the Hyland landfill, (ii) higher landfill volumes in fiscal 1999
compared to fiscal 1998, resulting in higher landfill amortization expense, and
(iii) front end loader conversions resulting in double container depreciation
charges at certain locations.
Loss on Impairment of Long-Lived Assets. The Company recognized losses on
impairment of long-lived assets in the fourth quarter of fiscal 1998 in the
amount of $1.6 million. The impairment charges were non-cash charges to write
down the assets of the Company's waste tire processing facility in Eliot,
Maine and the Grasslands composting facility in Malone, New York to their
fair market values as of April 30, 1998.
Interest expense, net. Net interest expense decreased approximately $2.3
million, or 32.0% to $4.9 million in fiscal 1999 from $7.2 million in fiscal
1998. This decrease primarily reflects decreased average indebtedness in
fiscal 1999, resulting from debt payoffs following the public stock offerings
in October 1997 and July 1998, from the increased use of the Company's Class
A common stock in effecting acquisitions, and from improved collections
efforts. Days sales in accounts receivable was 45.3 at April 30, 1999
compared to 50.3 at April 30, 1998. The Company capitalized a total of $0.5
million in interest expense in fiscal 1999, compared to a total of $0.1
million in fiscal 1998.
Other (income) expense, net. Net other (income) expense was not material to the
Company's results of operations in fiscal 1998 and 1999.
Provision for income taxes. Provision for income taxes increased
approximately $5.0 million, or 199.2%, to $7.5 million in fiscal 1999 from
$2.5 million in fiscal 1998. This increase reflects the Company's increase in
profitability in fiscal 1999 compared to fiscal 1998. Among the factors
causing income tax expense as a percentage of pre-tax net income to vary
materially from year to year are: (i) the recording of a fixed asset
impairment charge in fiscal 1998 which was non-deductible for income tax
purposes, and (ii) poolings of interest resulting in prior period
restatements of entities not liable for federal income tax due to subchapter
S status.
FISCAL YEAR ENDED APRIL 30, 1998 VERSUS APRIL 30, 1997
Revenues. Revenues increased $37.6 million, or 36.7%, to $140.2 million in
fiscal 1998 from $102.5 million in fiscal 1997. Approximately $33.4 million of
the increase was attributable to the impact of businesses acquired throughout
fiscal 1997 and fiscal 1998. In addition, approximately $3.8 million of the
increase was attributable to internal volume and price growth. The balance of
the increase of approximately $400,000 was due to higher average recyclable
commodity prices in fiscal 1998 compared to fiscal 1997.
Cost of operations. Cost of operations increased $22.0 million, or 34.1%, to
$86.7 million in fiscal 1998 from $64.7 million in fiscal 1997, an increase
corresponding primarily to the Company's revenue growth described above. Cost of
operations as a percentage of revenues decreased to 61.8% in fiscal 1998 from
63.0% in fiscal 1997. The decrease was primarily the result of: (i) productivity
improvements in the Company's collection operations as a result of better route
density from acquisitions, routing efficiencies through route audits and
front-end loader vehicle conversions completed throughout fiscal 1998, and (ii)
margin improvements because of price increases in fiscal 1998.
General and administrative. General and administrative expenses increased
approximately $4.4 million, or 27.7%, to $20.5 million in fiscal 1998 from $16.1
million in fiscal 1997. General and administrative expenses as a percentage of
revenues decreased to 14.6% in fiscal 1998 from 15.7% in fiscal 1997 due to
improved economies of scale related to the significant increase in revenues, and
operating enhancements made to certain acquired operations.
Depreciation and amortization. Depreciation and amortization expense increased
approximately $4.5 million, or 29.5%, to $19.8 million in fiscal 1998 compared
to $15.3 million in fiscal 1997. As a percentage of revenues, depreciation and
amortization expense decreased to 14.2% during fiscal 1998 from 14.9% in fiscal
1997. The decrease in depreciation and amortization expense as a percentage of
revenues was primarily the result of an increase in the Company's collection
operations as a percentage of total revenues in fiscal 1998, which generally
have lower depreciation and amortization expenses than other operations.
Interest expense, net. Net interest expense increased approximately $2.3
million, or 47.0%, to $7.2 million in fiscal 1998 from $4.9 million in fiscal
1997. This increase primarily reflects increased indebtedness incurred in
connection with acquisitions and capital expenditures.
Other (income) expense. Other (income) expense has not historically been
material to the Company's results of operations. However, during fiscal 1997,
the Company established a reserve of $650,000 related to a lawsuit that was
settled for $450,000 in the first quarter of fiscal 1998. The Company also paid
$200,000 in attorneys' fees in connection with such settlement. Additionally,
the Company wrote off $283,000 for recycling facility assets that were deemed to
have no value in the year ended April 30, 1997.
Provision for income taxes. Provision for income taxes increased approximately
$1.8 million, or 269.1%, to $2.5 million in fiscal 1998 from $680,000 in fiscal
1997. Among the factors causing income tax expense as a percentage of pre-tax
net income to vary materially from year to year are: (i) the recording of a
fixed asset impairment charge in fiscal 1998 which was non-deductible for income
tax purposes and (ii) poolings of interest resulting in prior period
restatements of entities not liable for federal income due to subchapter S
status.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business is capital intensive. The Company's capital
requirements include acquisitions, fixed asset purchases and capital
expenditures for landfill development, cell construction, and site and cell
closure. The Company had positive net working capital of $7.8 million at
April 30, 1999 compared to $3.8 million positive net working capital at April
30, 1998.
The Company has a $150 million revolving line of credit with a group of banks
for which BankBoston, N.A. is acting as agent. This line of credit is secured by
all assets of the Company, including the Company's interest in the equity
securities of its subsidiaries. Subject to the following paragraph, this
revolving line of credit matures in January, 2003. Funds available to the
Company under the line of credit were $78 million at April 30, 1999.
As a result of its announced merger with KTI, the Company is required to obtain
a new line of credit within 30 days after the closing of the merger or August
31, 1999, whichever is earlier. The Company is currently seeking a new five-year
revolving line of credit of $350 million to $400 million. The syndication of
this credit facility was not complete as of July 15, 1999.
In July 1998 the Company completed a follow-on public offering of 2,060,587
shares of its Class A Common Stock at $27.25 per share. In addition, as part of
this same offering, 1,470,580 shares of the Company's Class A Common Stock were
sold by certain selling shareholders at $27.25 per share. The Company's proceeds
of the offering, net of underwriters' discounts and issuance costs were
$52,231,490. The proceeds were used for debt reduction, acquisitions and other
general corporate purposes.
As part of the July 1998 public stock offering the Company registered an
additional 2,000,000 shares of its class A common stock as a `shelf'
registration. The intended use of these additional registered but unissued
shares is as an additional source of capital for the Company's acquisition
policy. As of April 30, 1999, 990,042 shares of the Company's class A common
stock had been issued pursuant to this registration statement.
The Company believes that its cash provided internally from operations together
with the Company's available credit facilities and anticipated new credit
facility should enable it to meet its needs for working capital for the next
twelve months. In addition, the Company also plans to file a new shelf
registration statement following the KTI merger for use in connection with its
acquisition program.
Net cash provided by operations for the fiscal years ended April 30, 1999 and
April 30, 1998 was $38.1 million and $21.1 million, respectively. The
increase was primarily due to the increase in the Company's net income for
the 1999 fiscal year, together with an increase in depreciation and
amortization and an increase in the Company's
accrued closure and post closure costs. The increase in the closure/post closure
accrual is due to the completion in the 1998 fiscal year of work required to
close an unlined cell at the Clinton County landfill and at stage one of the
Company's NCES landfill.
Net cash provided by operations in fiscal 1998 increased to $21.1 million from
$17.3 million in fiscal 1997 primarily due to increases in net income,
depreciation and amortization, asset impairment charges and deferred income tax
provisions, offset by decreases in accrued closure/post closure costs and in the
Company's working capital.
For fiscal 1999 and fiscal 1998, cash used in investing activities was $88.5
million and $60.0 million, respectively. The increase in investing activities
reflects the Company's capital expenditure and capital needs for acquisitions
which have increased significantly, reflecting the Company's rapid growth by
acquisition and development of revenue producing assets. The Company's cash
needs to fund investing activities are expected to increase further as the
Company continues to complete acquisitions.
For fiscal 1999 and fiscal 1998, the Company's financing activities provided
cash of $51.2 million and $39.3 million, respectively. Net cash provided by
financing activities was $39.3 million in the fiscal year ended April 30,
1997. The net cash provided by financing activities in the fiscal years ended
April 30, 1999 and 1998 primarily reflects the net proceeds of the public
stock offerings and borrowings on the Company's credit facility, offset by
repayments. Net cash provided by financing activities in fiscal 1997 reflects
primarily bank borrowings and seller subordinated notes, less principal
payments on debt.
SEASONALITY
The Company's revenues have historically been lower during the months of
November through March. This seasonality reflects the lower volume of waste
during the late fall, winter and early spring months primarily because: (i) the
volume of waste relating to construction and demolition activities decreases
substantially during the winter months in the northeastern United States; and
(ii) decreased tourism in Vermont, Maine and eastern New York during the winter
months tends to lower the volume of waste generated by commercial and restaurant
customers, which is partially offset by the winter ski industry. Since certain
of the Company's operating and fixed costs remain constant throughout the fiscal
year, operating income results are therefore impacted by a similar seasonality.
In addition, particularly harsh weather conditions could result in increased
operating costs to certain of the Company's operations.
The Company's quarterly revenues and operating results have varied significantly
in the past and are likely to vary substantially from quarter to quarter in the
future. The Company establishes its expenditure levels based on its expectations
as to future revenues, and, if revenue levels are below expectations, expenses
can be disproportionately high. Due to a variety of factors including general
economic conditions, governmental regulatory action, acquisitions, capital
expenditures and other costs related to the expansion of operations and services
and pricing changes, it is possible that in some future quarter, the Company's
operating results will be below the expectations of public market analysts and
investors. In such events, the Company's Class A Common Stock price would likely
be materially and adversely affected.
INFLATION AND PREVAILING ECONOMIC CONDITIONS
To date, inflation has not had a significant impact on the Company's operations.
Consistent with industry practice, most of the Company's contracts provide for a
pass through of certain costs, including increases in landfill tipping fees and,
in some cases, fuel costs. The Company therefore believes it should be able to
implement price increases sufficient to offset most cost increases resulting
from inflation. However, competitive factors may require the Company to absorb
at least a portion of these cost increases, particularly during periods of high
inflation.
The Company's business is located in the northeastern United States. Therefore,
the Company's business, financial condition and results of operations are
susceptible to downturns in the general economy in this geographic region and
other factors affecting the region such as state regulations and severe weather
conditions. The Company is unable to forecast or determine the timing and/or the
future impact of a sustained economic slowdown.
YEAR 2000 ISSUES
The approach of the year 2000 has raised concerns about the ability of
information technology systems and non-information technology systems, primarily
computer software programs, to properly recognize and process date-sensitive
information with respect to the Year 2000.
The Company has undertaken a Year 2000 project, comprised of four phases, to
address these concerns. Phase one, which has been completed, consisted of
awareness, Year 2000 planning, preparing a written plan, management approval
and support. Phase two involved the evaluation of all systems and equipment,
including hardware, software, security and voice mail, with respect to Year
2000 compliance. The completion date for phase two was June 30, 1999. Phase
three involves addressing any deficiencies identified in Phase two, and the
anticipated completion date is July 31, 1999. Phase four involves the
validation and testing of all systems and equipment, and the anticipated
completion date is August 31, 1999. The Company has performed, and continues
to perform routine updates of all software and hardware systems to facilitate
Year 2000 compliance.
The Company has completed numerous acquisitions in recent months, and the
information systems of a limited number of these acquired operations have not
yet been fully integrated with the Company's information systems. This
integration of the completed acquisitions is expected to occur by July 31, 1999.
The Company continues to make acquisitions as an integral component of its
growth strategy. There is no assurance that the information systems of all
acquired operations, particularly those acquisitions completed in the latter
portion of calendar 1999, will be Year 2000 compliant by December 31, 1999.
The Company uses well-regarded nationally known software vendors for both its
general accounting applications and industry-specific customer information
and billing systems, and all internal productivity software. The Company has
been informed by the respective vendors that all application software is
fully Year 2000 compliant.
The Company's banking arrangement is with an international banking institution
which has informed the Company that it is taking all necessary steps to insure
its customers uninterrupted service throughout applicable Year 2000 time frames.
The Company's payroll is out-sourced by the largest provider of third-party
payroll services in the country, which has made a commitment of uninterrupted
service to their customers throughout applicable Year 2000 time frames.
The Company is currently in the process of replacing all older personal
computers and servers. There are two servers and 25 additional personal
computers that will be replaced, 16 of which will be for the weight-measurement
systems. The two servers will be replaced within the first quarter of fiscal
2000 (ending July 31, 1999). The Company has identified a vendor for the
weight-measurement systems and is in the final stage of evaluating its software
offering. The Company anticipates implementing the product within three months
of acceptance of it, which the Company expects will be in the first quarter of
fiscal 2000.
The Company currently plans a final testing of all systems in the second quarter
of fiscal 2000 (ending October 31, 1999) and expects to be fully Year 2000
compliant by the end of that fiscal quarter.
The Company has expended approximately $1.2 million dollars over the last
eighteen months to address hardware and software-related Year 2000 compliance
issues, principally through the implementation of a new frame network system. A
portion of this investment is attributable to integrating information systems of
companies that the Company has acquired. Once the Company has finished
negotiations with the weight-measurement vendor, the Company will be able to
determine the remaining budget requirements for the Year 2000 compliance
project. The Company will use funds from current operations or the Company's
line of credit to meet Year 2000 remediation expenses.
No single customer represents more than one percent of the Company's revenues,
and we do not expect any material adverse effect on the Company's revenues in
the event an individual customer experiences Year 2000 problems.
In addition, the Company does not believe the Year 2000 noncompliance of the
Company's suppliers of goods and services, other than as specifically discussed
above, would have a material adverse effect on the Company's
revenues and results of operations. Accordingly, the Company has not sought
assurances of Year 2000 compliance from these other vendors.
The Company expects to begin its evaluation of its most reasonably likely worst
case scenarios with respect to the Year 2000 in the second quarter of fiscal
2000. Based upon the results of that evaluation, the Company will determine an
appropriate contingency plan, which the Company believes would be implemented in
the second and third quarters of fiscal 2000.
ADJUSTED EBITDA
Adjusted EBITDA represents operating income (earnings before interest and taxes,
or "EBIT") plus depreciation and amortization expense and loss on impairment of
long-lived assets. Adjusted EBITDA is not a measure of financial performance
under generally accepted accounting principles, but is provided because the
Company understands that certain investors use this information when analyzing
the financial position and performance of the Company.
FISCAL YEAR ENDED APRIL 30,
RESTATED
1997 1998 1999
---- ---- ----
(in thousands)
Operating income ................. $ 6,528 $11,346 $21,164
Depreciation and amortization .... 15,310 19,819 24,836
Loss on impairment of long-lived
assets (1) .................... 0 1,571 0
------- ------- -------
Adjusted EBITDA .................. $21,838 $32,736 $46,000
------- ------- -------
------- ------- -------
EBITDA as a percentage of revenues 21.3% 23.4% 26.5%
(1) See Note 2 of Notes to Consolidated Financial Statements.
Analysis of the factors contributing to the change in EBITDA is included in the
discussions above.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report and presented elsewhere by management from time to time.
The Company is party to an Agreement and Plan of Merger with KTI, Inc. There can
be no assurance that the merger will take place on the anticipated timetable, if
at all, or if it does, that management will be able to integrate KTI's
operations effectively into the Company and that the merger will result in the
synergies and other benefits anticipated by the two companies.
In connection with the merger with KTI, the Company will be required to obtain a
new credit facility within 30 days following the earlier of the closing of the
merger or August 31, 1999. Although the Company is in the process of negotiating
a new credit facility, there can be no assurance that it will obtain such a
credit facility in the amount, or on the timetable, sought by the Company. In
the event that it is unable to obtain a sufficient credit facility, the Company
would be required to repay its current credit facility. The Company does not
have sufficient funds to repay the outstanding balance of the existing credit
facility in the event a new credit facility is not obtained on a timely basis.
If the Company cannot obtain a new credit facility on favorable terms within the
required time period its acquisition program, results of operations and
financial condition would be materially and adversely affected.
The Company's objective is to continue to grow by expanding its services in
markets where it can be one of the largest and most profitable fully-integrated
solid waste services companies. Such growth, if it were to occur, could
place a significant strain on the Company's management and operational,
financial and other resources.
The Company has incurred net losses in the past. There can be no assurance that
the Company will be profitable in the future.
The Company's strategy envisions that a substantial part of the Company's future
growth will come from making acquisitions consistent with its strategy. There
can be no assurance that the Company will be able to identify suitable
acquisition candidates and, once identified, to negotiate successfully their
acquisition at a price or on terms and conditions favorable to the Company, or
to integrate the operations of such acquired businesses with the Company.
Certain of these acquisitions may be of significant size and may include assets
that are outside the Company's geographic territories or are ancillary to the
Company's core business strategy.
The Company is highly dependent upon the services of the members of its senior
management team, the loss of any of whom may have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company's future success depends on its continuing ability to
identify, hire, train, motivate and retain highly trained personnel.
The Company anticipates that any future business acquisitions will be financed
through cash from operations, borrowings under its bank line of credit, the
issuance of shares of the Company's class A common stock and/or seller
financing. There can be no assurance that the Company will have sufficient
existing capital resources or will be able to raise sufficient additional
capital resources on terms satisfactory to the Company, if at all, in order to
meet its capital requirements.
The Company's operating program depends on its ability to operate and expand the
landfills it owns and leases and to develop new landfill sites. Several of the
Company's landfills are subject to local laws purporting to regulate their
expansion and other aspects of their operations. There can be no assurance that
the laws adopted by municipalities in which the Company's landfills are located
will not have a material adverse effect on the Company's utilization of its
landfills or that the Company will be successful in obtaining new landfill sites
or expanding the permitted capacity of any of its current landfills once its
remaining disposal capacity has been consumed.
The Company's results of operations could be adversely affected by changing
prices or market conditions for recycled materials. The purchase and resale
prices of and market demand for recycled materials has been and could continue
to be volatile. These changes in the past have contributed and may in the future
continue to contribute to variability in the Company's period-to-period results
of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to interest rate fluctuation risk with regards to its
variable rate revolving credit facility. To modify the risk from these possible
interest-rate fluctuations, the Company enters into hedging transactions that
have been authorized pursuant to the Company's policies and procedures. The
Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
On January 21, 1998 the Company entered into a three-year interest rate swap
agreement (the Swap Agreement) with a bank. The purpose was to effectively
convert a portion of the Company's interest rate exposure on advances under
its revolving credit facility from a floating rate to a fixed rate until the
expiration of the Swap Agreement. The Swap Agreement effectively fixes the
Company's interest rate on the notional amount of $45,000,000 at 5.8% per
annum. The Company is exposed to interest rate risk on the balance of its
revolving line of credit balance which exceeds the swap amount of
$45,000,000. Based on the amount due on the Company's line of credit at April
30, 1999, a 1% increase in effective interest rates would reduce the
Company's net income before income taxes by $273,650. In addition, in the
event of nonperformance by the counterparty, the Company would be exposed to
interest rate risk on the entire balance in the event the variable interest
rate paid was to exceed the fixed rate paid under the terms of the swap
agreement. The remainder of the Company's debt is at fixed rates and not
subject to interest rate risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Casella Waste Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Casella Waste
Systems, Inc. (a Delaware corporation) and subsidiaries as of April 30, 1998
and 1999, and the related consolidated statements of operations, redeemable
preferred stock, redeemable put warrants and stockholders' equity (deficit)
and cash flows for each of the three years in the period ended April 30, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Casella Waste Systems, Inc. and
subsidiaries as of April 30, 1998 and 1999, and the results of their operations
and their cash flows for each of the three years in the period ended April 30,
1999, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 18, 1999
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
April 30, April 30,
1998 1999
ASSETS (Restated)
------ ---------------------- ---------
CURRENT ASSETS:
Cash and Cash Equivalents $3,131 $3,917
Restricted Cash - Closure Fund Escrow 304 524
Accounts Receivable-trade, less allowance
for doubtful accounts of $1,283 and $1,430. 19,602 21,809
Refundable Income Taxes 921 2,010
Prepaid Income Taxes 866 1,016
Prepaid Expenses 1,219 1,397
Other Current Assets 931 1,106
-------- --------
Total Current Assets 26,974 31,779
PROPERTY AND EQUIPMENT, at Cost:
Land and Land Held for Investment 8,106 6,291
Landfills 34,276 50,736
Landfill Development 3,319 7,559
Buildings and Improvements 15,019 23,247
Machinery and Equipment 12,813 22,517
Rolling Stock 46,271 55,229
Containers 16,079 24,945
-------- --------
135,883 190,524
Less - Accumulated Depreciation and
Amortization 46,301 66,147
-------- --------
Property and Equipment, net 89,582 124,377
-------- --------
OTHER ASSETS:
Intangible Assets, net 80,041 103,494
Restricted Funds - Closure Fund Escrow 3,865 4,834
Other Assets 1,952 5,725
-------- --------
85,858 114,053
-------- --------
$202,414 $270,209
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
April 30, April 30,
LIABILITIES and 1998 1999
STOCKHOLDERS EQUITY (Restated)
------------------- ---------------------- ---------
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $4,249 $3,351
Current Maturities of Capital Lease Obligations 481 402
Accounts Payable 12,334 13,915
Accrued Payroll and Related Expenses 625 733
Accrued Closure and Postclosure Costs, Current
Portion 374 330
Deferred Revenue 2,087 2,580
Other Accrued Expenses 2,979 2,713
-------- --------
Total Current Liabilities 23,129 24,024
Long-Term Debt, Less Current Maturities 80,353 78,559
-------- --------
Capital Lease Obligations, Less Current Maturities 1,085 1,454
-------- --------
Deferred Income Taxes 3,913 5,710
-------- --------
Accrued Closure and Postclosure Costs, less
Current Portion 6,731 9,672
-------- --------
Other Long-Term Liabilities 3,460 394
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Preferred Stock -
Authorized - 1,000,000 Shares
Issued and Outstanding - No shares as of April 30, 1998
and 1999, respectively. -- --
Class A Common Stock -
Authorized - 100,000,000 Shares, $.01 par value
Issued and Outstanding - 11,795,000 and
14,506,000 shares, as of April 30, 1998 and 1999,
respectively. 118 145
Class B Common Stock -
Authorized - 1,000,000 Shares, $.01 par value;
10 Votes per Share.
Issued and Outstanding - 988,000 shares, as of April 30,
1998 and 1999, respectively. 10 10
Additional Paid-In Capital 96,385 154,720
Accumulated Deficit (12,770) (4,479)
-------- --------
Total Stockholders' Equity 83,743 150,396
-------- --------
$202,414 $270,209
-------- --------
-------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999
(Restated) (Restated)
------- -------
Revenues $ 102,545 $ 140,191 $ 173,418
--------- --------- ---------
Operating Expenses:
Cost of Operations 64,654 86,670 99,869
General and Administrative 16,053 20,495 25,598
Merger-Related Costs 0 290 1,951
Depreciation and Amortization 15,310 19,819 24,836
Loss on Impairment of Long-Lived Assets 0 1,571 0
--------- --------- ---------
96,017 128,845 152,254
--------- --------- ---------
Operating Income 6,528 11,346 21,164
Other (Income) Expenses:
Interest Income (284) (262) (73)
Interest Expense 5,212 7,507 4,997
Other Expense (Income), net 847 (334) (369)
--------- --------- ---------
5,775 6,911 4,555
--------- --------- ---------
Income Before Provision for Income Taxes 753 4,435 16,609
Provision for Income Taxes 680 2,510 7,510
--------- --------- ---------
Net Income 73 1,925 9,099
Accretion of Preferred Stock and Put Warrants (8,530) (5,738) (0)
--------- --------- ---------
Net Income (Loss) Applicable to Common
Stockholders ($ 8,457) ($ 3,813) $ 9,099
--------- --------- ---------
--------- --------- ---------
Basic net income (loss) per Common Share ($ 1.63) ($ 0.42) $ 0.62
--------- --------- ---------
--------- --------- ---------
Basic weighted average Common Shares
outstanding 5,185 9,184 14,782
--------- --------- ---------
--------- --------- ---------
Diluted net income (loss) per Common Share ($ 1.63) ($ 0.42) $ 0.58
--------- --------- ---------
--------- --------- ---------
Diluted weighted average Common Shares
outstanding 5,185 9,184 15,637
--------- --------- ---------
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT
WARRANTS AND STOCKHOLDERS EQUITY (DEFICIT)
(In thousands)
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Redeemable Preferred Stock
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Series A Series B Series C Series D
Number Redemption Number Redemption Number Redemption Number Redemption
of Shares Value of Shares Value of Shares Value of Shares Value
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Balance, April 30, 1996 517 $2,376 1,295 $5,956 424 $2,017 1,922 $12,547
Adjustments in Connection
with Poolings of Interests
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Adjusted Balance,
April 30, 1996 517 $2,376 1,295 $5,956 424 $2,017 1,922 $12,547
Issuance of Class A
Common Stock in various
acquisitions
Accretion of preferred
stock 1,262 3,162 204 3,902
Equity Transactions/
Adjustments to Poolings
Net Income
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Balance, April 30, 1997 517 3,638 1,295 9,118 424 2,221 1,922 16,449
Issuance of Class A Common
Stock-Net of Issuance
Costs
Issuance of Class A Common
Stock in Various
Acquisitions, Net of
Retirements
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options
Exercise and Call of
Put Warrants
Accretion of Preferred
Stock and Issuance
Costs 707 1,770 749 2,287
Conversion of Convertible
Preferred Stock (517) (4,345) (1,295) (10,888) (1,922) (18,736)
Redemption of Mandatorily
Redeemable Preferred Stock (424) (2,970)
Conversion of class B
common into class A
Equity Transactions/
Adjustments to Poolings
Net Income
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Balance, April 30, 1998 0 $0 0 $0 0 $0 0 $0
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Issuance of Class A Common
Stock-Net of
Issuance Costs
Issuance of Class A Common
Stock in Connection with
Exercise of Warrants/Options
Tax Benefit of Stock
Options Exercised
Equity Transactions/
Adjustments to Poolings
Net Income
----------- ----------- ----------- ----------- ----------- ------------ ---------- -----------
Balance, April 30, 1999 0 $0 0 $0 0 $0 0 $0
----------- ----------- ----------- ----------- ----------- ------------ ---------- --------
----------- ----------- ----------- ----------- ----------- ------------ ---------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK, REDEEMABLE PUT
WARRANTS AND STOCKHOLDERS EQUITY (DEFICIT)
(In thousands)
------------ ----------- ---------- ------------ --------- ---------- --------- ----------------
Stockholders' Equity (Deficit)
-------------------------------------------------------------------------------------
Retained
Class A Common Stock Class B Common Stock Additional Earnings Total Stock-
Redeemable ---------------------------------------------- Paid - in (Accumulated holders Equity
Put Warrants # of Shares Par Value # of Shares Par Value Capital Deficit) (Deficit)
------------ ----------- ---------- ------------ --------- ---------- ------------ --------------
|
Balance, April 30, 1996 $400 | 2,398 $24 1,000 $10 $1,087 $(1,996) $(875)
Adjustments in Connection |
with Poolings of Interests | 1,272 13 484 2,458 2,955
----- |---------- ------ --------- ------ --------- -------- --------
Adjusted Balance, |
April 30, 1996 400 | 3,670 37 1,000 10 1,571 462 2,080
Issuance of Class A |
Common Stock in various |
acquisitions | 756 8 9,367 9,375
Accretion of preferred |
stock | (8,530) (8,530)
Equity Transactions/ |
Adjustments to Poolings | 304 3 522 (198) 327
Net Income | 73 73
----- |---------- ------ --------- ------ ------- -------- --------
Balance, April 30, 1997 400 | 4,730 48 1,000 10 11,460 (8,193) 3,325
Issuance of Common A |
Stock-Net of |
Issuance Costs | 3,000 30 48,428 48,458
Issuance of Common A |
Stock-in Various | 103 1 1,599 1,600
Acquisitions, Net of |
Retirements |
Issuance of Class A Common |
Stock in Connection with |
Exercise of Warrants/Options | 192 2 716 718
Exercise and Call of |
Redeemable Put Warrants (400) | 25 250 (225) 25
Accretion of Preferred |
|
Stock and Issuance |
Costs | (5,513) (5,513)
Conversion of Convertible |
Preferred Stock | 3,733 37 33,932 33,969
Redemption of Mandatorily |
Redeemable Preferred Stock |
Conversion of class B |
common into class A | 12 (12) 0
Equity Transactions/ |
Adjustments to Poolings | (764) (764)
Net Income | 1,925 1,925
|
------------|------------- ----------- ------------ ---------- ---------- --------- -----------
Balance, April 30, 1998 $0 | 11,795 $118 988 $10 $96,385 ($12,770) $83,743
------------|------------- ----------- ------------ ---------- ---------- --------- -----------
Issuance of Common A |
Stock-Publicly Traded-Net |
of Issuance Costs | 2,061 20 52,211 52,231
Issuance of class A |
common stock in connection |
with exercise of warrants/ |
options | 582 6 3,805 3,811
Tax Benefit of Stock |
Options Exercised | 2,220 2,220
Equity Transactions/ |
Adjustments to Poolings | 68 1 99 (808) (708)
Net Income | 9,099 9,099
------------|------------- ----------- ------------ ---------- ---------- --------- -----------
Balance, April 30, 1999 $0 | 14,506 $145 988 $10 $154,720 $(4,479) $150,396
------------|------------- ----------- ------------ ---------- ---------- --------- -----------
------------|------------- ----------- ------------ ---------- ---------- --------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999
Restated Restated
--------------- ---------------
Cash Flows from Operating Activities:
Net income $ 73 $ 1,925 $ 9,099
--------- --------- ---------
Adjustments to reconcile net income
to net cash provided by operating activities -
Depreciation and amortization 15,310 19,819 24,836
Loss on impairment of long-lived assets 0 1,571 0
(Gain) loss on sale of assets 313 (335) 3
Provision for deferred income taxes 139 2,237 1,647
Non-cash employee compensation 0 60 0
Changes in assets and liabilities, net of
effects of acquisitions -
Accounts receivable (4,106) (1,083) (1,630)
Refundable income taxes (189) (474) (1,089)
Accounts payable 6,121 759 1,204
Accrued closure and postclosure costs 336 (1,763) 2,094
Other current assets and liabilities (714) (1,616) 1,905
--------- --------- ---------
17,210 19,175 28,970
--------- --------- ---------
Net cash provided by operating activities 17,283 21,100 38,069
--------- --------- ---------
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired (35,225) (35,793) (33,336)
Additions to property and equipment (20,050) (28,126) (47,723)
Proceeds from sale of equipment 166 1,182 587
Restricted funds - closure fund escrow (625) 698 (1,189)
Other 14 2,066 (6,802)
--------- --------- ---------
Net cash used in investing activities (55,720) (59,973) (88,463)
--------- --------- ---------
Cash Flows from Financing Activities:
Deferred debt acquisition costs (400) 0 0
Proceeds from issuance of common stock 525 48,455 52,231
Proceeds from exercise of stock warrants/options 0 869 3,811
Equity Transactions of pooled Entities (245) (701) 147
Call of redeemable put warrants 0 (525) 0
Redemption of Series C Preferred Stock 0 (2,970) 0
Proceeds from long-term borrowings 48,017 160,797 65,800
Principal payments on long-term debt (8,598) (166,625) (70,809)
--------- --------- ---------
Net cash provided by financing activities 39,299 39,300 51,180
--------- --------- ---------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999
Restated Restated
---------- ----------
Continued -
Net increase in cash and cash equivalents 862 427 786
Cash and cash equivalents, beginning of year 1,842 2,704 3,131
-------- -------- --------
Cash and cash equivalents, end of year $ 2,704 $ 3,131 $ 3,917
-------- -------- --------
-------- -------- --------
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for -
Interest $ 4,890 $ 7,857 $ 5,633
-------- -------- --------
-------- -------- --------
Income taxes $ 826 $ 672 $ 6,952
-------- -------- --------
-------- -------- --------
Supplemental Disclosures of Non Cash Investing
And Financing Activities:
Summary of entities acquired -
Fair market value of assets acquired $ 67,106 $ 42,554 $ 36,210
Common stock issued (9,374) (1,603) 0
Cash paid, Net (35,225) (35,793) (33,336)
-------- -------- --------
Liabilities assumed and notes payable to
sellers $ 22,507 $ 5,158 $ 2,874
-------- -------- --------
-------- -------- --------
The accompanying notes are an integral part of these consolidated financial
statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Casella Waste Systems, Inc. (the Company or Casella), a Delaware corporation,
is a regional, integrated, non-hazardous solid waste services company that
provides collection, transfer, disposal and recycling services in Vermont,
New Hampshire, Maine, upstate New York, northern Pennsylvania and Massachusetts.
As of June 18, 1999, the Company owned and/or operated five subtitle D
landfills, two landfills permitted to accept construction and demolition
materials, 50 transfer stations, 15 recycling processing facilities, and 39
solid and liquid waste collection divisions, which collectively serve over
500,000 commercial, industrial and residential customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies follows:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
(c) Revenue Recognition
The Company recognizes revenues 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.
(d) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in closure trust funds, trade
payables and debt instruments. The book values of cash and cash equivalents,
trade receivables, investments in closure trust funds and trade payables
approximate their respective fair values. The Company's debt instruments that
are outstanding as of April 30, 1999 have carrying values that approximate their
respective fair values. See Note 4 for the terms and carrying values of the
Company's various debt instruments.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents.
(f) Closure Fund Escrow
Restricted funds held in trust consist of amounts on deposit with various banks
that support the Company's financial assurance obligations for its facilities'
closure and postclosure costs.
(g) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation and
amortization. The Company provides for depreciation 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:
Estimated
Asset Classification Useful Life
-------------------- -----------
Buildings and improvements 10-35 years
Machinery and equipment 2-15 years
Rolling stock 1-12 years
Containers 2-12 years
The cost of maintenance and repairs is charged to operations as incurred.
Depreciation expense for the years ended April 30, 1997, 1998 and 1999 was
$8,544,000, $10,491,000 and $13,599,000 respectively.
Capitalized landfill costs include expenditures for land and related airspace,
permitting costs and preparation costs. Landfill permitting and preparation
costs represent only direct costs related to these activities, including legal,
engineering and construction. Interest is capitalized on landfill permitting and
construction projects and other projects under development while the assets are
undergoing activities to ready them for their intended use. The interest
capitalization rate is based on the Company's weighted average cost of
indebtedness. Interest capitalized for the years ended April 30, 1997, 1998 and
1999 was $182,000, $136,000 and $530,000 respectively. Management routinely
reviews its investment in operating landfills, transfer stations and other
significant facilities to determine whether the costs of these investments are
realizable.
Landfill permitting, acquisition and preparation costs, excluding the estimated
residual value of land, are amortized as permitted airspace of the landfill is
consumed. Landfill preparation costs include the costs of construction
associated with excavation, liners, site berms and the installation of leak
detection and leachate collection systems. In determining the amortization rate
for these landfills, preparation costs include the total estimated costs to
complete construction of the landfills' permitted and probable to be permitted
capacity. Units-of-production amortization rates are determined annually for
each of the Company's operating landfills. The rates are based on estimates
provided by the Company's engineers and accounting personnel and consider the
information provided by surveys which are performed at least annually.
(h) Accrued Closure and Postclosure Costs
Accrued closure and postclosure costs include the current and noncurrent portion
of accruals associated with obligations for closure and postclosure of the
Company's operating and closed landfills. The Company, based on input from its
engineers and accounting personnel, estimates its future cost requirements for
closure and postclosure monitoring and maintenance for solid waste landfills
based on its interpretation of the technical standards of the U.S. Environmental
Protection Agency's Subtitle D regulations and the air emissions standards under
the Clean Air Act as they are being applied on a state-by-state basis. Closure
and postclosure monitoring and maintenance costs represent the costs related to
cash expenditures yet to be incurred when a landfill facility ceases to accept
waste and closes.
Accruals for closure and postclosure monitoring and maintenance requirements in
the U.S. consider final capping of the site, site inspection, groundwater
monitoring, leachate management, methane gas control and recovery, and operation
and maintenance costs to be incurred during the period after the facility
closes. Certain of these environmental costs, principally capping and methane
gas control costs, are also incurred during the operating life of the site in
accordance with the landfill operation requirements of Subtitle D and the air
emissions standards. Reviews of the future cost requirements for closure and
postclosure monitoring and maintenance for the Company's operating landfills by
the Company's engineers and accounting personnel are performed at least annually
and are the basis upon which the Company's estimates of these future costs and
the related accrual rates are revised. The Company provides accruals for these
estimated costs as the remaining permitted airspace of such facilities is
consumed.
The states in which the Company operates require a certain portion of these
accrued closure and postclosure obligations to be funded at any point in time.
Accordingly, the Company has placed $4,169,000 and $5,357,000 at April 30, 1998
and 1999, respectively, in restricted investment accounts to fund these future
obligations.
In addition, the Company has been required to post a surety bond or bank letter
of credit to secure its obligations to close its landfills in accordance with
environmental regulations. At April 30, 1999, the Company had provided one
letter of credit totaling $1,307,000, expiring on April 15, 2000, to secure the
Company's landfill closure obligations.
(i) Intangible Assets
Intangible assets at April 30, 1998 and 1999 consist of the following (in
thousands):
April 30,
---------
1998 1999
---- ----
Goodwill $74,662 $100,037
Covenants not to compete 8,941 12,456
Customer lists 420 562
Deferred debt acquisition costs and other 1,879 1,704
------- --------
85,902 114,759
Less--accumulated amortization 5,861 11,265
------- --------
$80,041 $103,494
------- --------
------- --------
Goodwill is the cost in excess of fair value of identifiable assets of acquired
businesses and is amortized using the straight-line method over periods not
exceeding 40 years. Covenants not to compete and customer lists are amortized
using the straight-line method over their estimated useful lives, typically no
more than 10 years.
Deferred debt acquisition costs are capitalized and amortized over the life of
the related debt using the effective interest method.
(j) Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of," the Company evaluates
the recoverability of its carrying value of the Company's long-lived assets
and certain intangible assets when events and circumstances have occurred
that indicate potential impairment of such assets. The assessment is based on
estimated undiscounted cash flows to be generated from each asset as compared
to its carrying value. To the extent impairment is identified, the Company
reduces the carrying value of such impaired assets to their fair market value.
The Casella T.I.R.E.S. plant in Eliot, Maine was established by purchasing the
waste tire processing assets of the Seaward companies in June, 1996. The ongoing
profitability of this location is dependent on a continuing secondary market for
the product of its tire shredding operations, primarily as tire derived fuel
(TDF). Due to pressures on the Company's TDF customers to meet requirements of
the Clean Air Act, management projects that over the next few years these
customers will replace TDF with natural gas as a fuel, and that the future
undiscounted cash flows will be less than the current carrying value of the
assets associated with this site.
The primary assets associated with this site include real estate, tire
processing and other equipment, and goodwill. The Company recognized a
$971,000 non-cash pre-tax charge related to the impairment of these assets
during fiscal 1998. The impairment charge was computed as the difference
between the April 30, 1998 carrying value of the affected assets, and their
fair market value as of that date. The fair market value of the affected
assets is computed in accordance with SFAS No. 121 as the discounted
projected future net cash inflows.
In addition, during fiscal 1998, Waste Stream recognized a $600,000 non-cash
pretax charge related to the impairment of certain assets located at its
Grasslands facility. The impairment charge was computed as the difference
between the April 30, 1998 carrying value of the affected assets, and the
fair value at that time. Generally, fair value represents the Company's
discounted projected future cash inflows from the use of the asset or group
of assets.
(k) Income Taxes
The Company records income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes". Under SFAS No. 109, 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.
(l) Earnings per Share
During 1997, the Company adopted the provisions of SFAS No. 128 "Earnings Per
Share" and retroactively restated all prior periods in accordance with SFAS
No. 128. In accordance with SFAS No. 128, basic earnings per share is
computed by dividing net income (loss) by the weighted average number of
shares of Common Stock outstanding during the year. The computation of
diluted earnings per share is similar to the computation of basic earnings
per share, except that the denominator is increased for the assumed exercise
of dilutive options using the treasury stock method and other dilutive
securities unless the effect is antidilutive. The following is a reconciliation
of shares outstanding used to compute basic and diluted earnings (loss) per
share (in thousands):
Year Ended April 30,
--------------------
1997 1998 1999
---- ---- ----
Number of shares outstanding, end of period:
Class A Common Stock 4,729 11,795 14,506
Class B Common Stock 1,000 988 988
Effect of weighting the average shares
outstanding during the period (544) (3,599) (712)
------- ------- -------
Basic shares outstanding 5,185 9,184 14,782
Potentially dilutive shares - - 855
------- ------- -------
Diluted shares outstanding 5,185 9,184 15,637
------- ------- -------
------- ------- -------
Potentially dilutive shares are excluded from diluted shares outstanding for
the years ended April 30, 1997 and 1998 because they are anti-dilutive due to
the losses of the Company. The number of potentially dilutive shares excluded
from the earnings per share calculation was 4,480,000 and 3,045,000 for the
years ended April 30, 1997 and 1998, respectively.
(m) Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". Statement 130 establishes standards for
reporting and presentation of comprehensive income and its components.
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources and includes all changes in equity during a period
except those resulting from investments by owners and distributions to owners.
The Company adopted Statement 130 effective May 1, 1998 and there was no effect
on the Company's financial statements upon adoption.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133
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. SFAS No. 133 requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. A company may also implement SFAS No. 133 as of
the beginning of any fiscal quarter after issuance (that is, fiscal quarters
beginning June 16, 1998 and thereafter). The Company does not believe this
statement will have a material impact on the consolidated balance sheet or
statement of operations.
3. BUSINESS COMBINATIONS
(a) Transactions Recorded as Poolings of Interests
During 1999, the Company completed several mergers in business combinations
recorded as pooling of interests. Accordingly, the accompanying financial
statements have been restated to include these businesses for all periods
presented. The Company issued the following shares of Class A Common Stock in
connection with the mergers:
Merger Date Shares Issued
------ ---- -------------
Waste Stream October 29, 1998 701,461
Northern Sanitation December 23, 1998 220,964
NEI April 30, 1999 105,052(1)
Westfield April 30, 1999 244,082
- ---------------
(1) Shares issued are exclusive of up to 59,450 shares issuable following an
indemnification period, as defined.
Revenues and net income have been restated for these acquisitions accounted
for as poolings of interests, as presented in the following table (in
thousands):
Casella Casella,
Before 1999 As
Poolings Poolings Restated
----------- ---------- ----------
Year ended April 30, 1997
Revenues $ 79,532 $ 23,013 $ 102,545
Net income (loss) (419) 492 73
Year ended April 30, 1998
Revenues 118,067 22,124 140,191
Net income (loss) 2,657 (732) 1,925
Year ended April 30, 1999
Revenues 156,133 17,285 173,418
Net income (loss) 10,199 (1,100) 9,099
All of the pooled entities had fiscal year ends of December 31 and,
subsequent to the poolings, changed their year ends to conform with that of
the Company. For the calendar quarter ended March 31, 1997, $480,524 in
revenues and $47,034 in net income were excluded from results of operations
in order to conform the accounting period of the pooled companies with that
of the Company. For the month ended January 31, 1998 $717,767 in revenues and
$66,485 in net income were excluded from results of operations. For the month
ended January 31, 1999 $209,399 in revenues and $124,027 in net loss were
excluded from results of operations. Retained earnings was increased by
$47,034 and $66,485 in the fiscal years ended April 30, 1997 and 1998
respectively and decreased by $124,027 during the year ended April 30, 1999
in order to effect these changes. Cash flows resulting from the periods
excluded from results of operation discussed above are immaterial and have
been included in the Statement of Cash Flows.
On September 4, 1998 the Company completed its merger with Hakes C & D
Disposal, Inc. (Hakes) in a business combination recorded as a pooling of
interests. The Company issued 67,617 shares of its class A common stock for
all of the outstanding stock of Hakes. This transaction has been accounted
for as an immaterial pooling. Accordingly, retained earnings has been
adjusted to reflect the accumulated deficit of Hakes on the acquisition date,
and prior periods have not been restated.
(b) Transactions Recorded as Purchases
During fiscal 1997, the Company completed 25 acquisitions, including the
25-year capital lease of a landfill. During fiscal 1998, the Company acquired
33 solid waste hauling operations, exclusive of the All Cycle merger
accounted for as a pooling of interests. During fiscal 1999, the Company
acquired 50 solid waste hauling operations, exclusive of the pooling
transactions discussed above. These transactions were accounted for as
purchases. Accordingly, the operating results of these businesses are
included in the Consolidated Statements of Operations from the dates of
acquisition, and the purchase prices have been allocated to the net assets
acquired based on fair values at the dates of acquisition with the residual
amounts allocated to goodwill.
The purchase prices allocated to the net assets acquired were as follows (in
thousands):
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999
-------- -------- --------
Accounts receivable and prepaid expenses $ 4,127 $ 2,923 $ 613
Investments--restricted 450 0 0
Landfills 8,013 0 0
Property and equipment 17,378 9,105 10,768
Covenants not to compete and customer lists 2,445 2,498 2,681
Goodwill 34,694 28,028 22,148
Deferred taxes (73) (75) 0
Debt and notes payable (6,709) (2,650) (2,607)
Other liabilities assumed (15,726) (2,433) (267)
-------- -------- --------
Total consideration $ 44,599 $ 37,396 $ 33,336
-------- -------- --------
-------- -------- --------
The following unaudited pro forma combined information (in thousands except
for per share information) shows the results of the Company's operations for
the years ended April 30, 1998 and 1999 as if all of the companies acquired
in 1998 and 1999 accounted for using the purchase method were acquired as of
May 1, 1997.
Year Ended
----------
4/30/98 4/30/99
------- -------
Revenues $179,152 $184,146
Operating Income 13,053 21,918
Net Income (Loss) (3,813) 8,996
Diluted income (loss) per common share ($0.42) $.58
Weighted average diluted shares outstanding 9,184 15,637
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, 1997 or the results of future operations
of the Company. 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.
4. LONG-TERM DEBT
Long-term debt as of April 30, 1998 and 1999 consists of the following (in
thousands):
April 30,
---------
1998 1999
---- ----
Advances on revolving credit facility, which provides for advances of up to
$150,000,000, due January 12, 2003. Interest on outstanding advances
accrues at the election of the Company at either the bank's base rate
(7.75% at April 30, 1999), or LIBOR plus a percentage (6.03% at April 30,
1999), based on a pricing grid, payable monthly in arrears. The interest
rate is subject to adjustment under the Swap Agreement described below.
The debt is collateralized by all assets of the Company, whether now
owned or hereafter acquired. $64,150 $72,365
Notes payable in connection with businesses acquired, bearing interest at
rates of 6% to 10% (weighted-average interest at 6.3% and 5.7%,
respectively), due in monthly installments ranging from $882 to $17,500,
expiring May 1999 through November 2004 5,548 3,361
Payments due to Clinton County, discounted at
4.75%, due in quarterly installments of $375,046
through March 2003 6,645 5,438
Notes payable, secured by assets purchased 8,259 746
------- -------
84,602 81,910
Less--current portion 4,249 3,351
------- -------
$80,353 $78,559
------- -------
------- -------
On January 21, 1998 the Company entered into a three-year interest rate swap
agreement (the Swap Agreement) with a bank. The purpose was to effectively
convert a portion of the Company's interest rate exposure on advances under
its revolving credit facility from a floating rate to a fixed rate until the
expiration of the Swap Agreement. The Swap Agreement effectively fixes the
Company's interest rate on the notional amount of $45,000,000 to 5.8% per
annum. Net monthly payments or monthly receipts under the Swap Agreement are
recorded as adjustments to interest expense. The Company paid $163,000 and
$174,000 under this agreement during the years ended April 30, 1998 and 1999,
respectively. The fair market value of the the Company's interest rate swap,
based on the estimated termination value at April 30, 1998 and 1999 was $1.1
million and $0.7 million, respectively. In the event of nonperformance by the
counterparty, the Company would be exposed to interest rate risk on the
entire amount outstanding.
The revolving credit facility contains certain covenants that, among other
things, restrict dividends or stock repurchases, limit capital expenditures and
annual operating lease payments, and set minimum fixed charges,
interest coverage and leverage ratios and minimum consolidated adjusted net
worth requirements. As of April 30, 1999, the Company was in compliance with all
covenants.
As of April 30, 1999, debt matures as follows (Amounts in thousands):
Year Ending April 30,
2000 $3,351
2001 2,328
2002 1,767
2003 74,148
2004 264
Thereafter 52
-------
$81,910
-------
-------
5. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments (in thousands),
together with the present value of the net minimum lease payments under capital
leases, as of April 30, 1999.
Operating Capital
Leases Leases
------ ------
Year Ended April 30,
2000 $658 $479
2001 527 478
2002 419 460
2003 261 460
2004 488 165
Thereafter 1,179 - 0 -
----- -----
Total minimum lease payments 3,532 2,042
-----
-----
Less--amount representing interest (186)
-----
1,856
Current maturities of capital lease obligations 402
-----
Present value of long-term capital lease obligations $1,454
------
------
The Company leases real estate, compactors and hauling vehicles under leases
that qualify for treatment as capital leases. The assets related to these leases
have been capitalized and are included in property and equipment at April 30,
1998 and 1999.
The Company leases operating facilities and equipment under operating leases
with monthly payments ranging from $5 to $11,000.
Total rent expense under operating leases charged to operations was $1,298,000,
$1,500,000 and $1,873,000 for each of the three years ended April 30, 1997, 1998
and 1999 respectively.
(b) Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company may periodically
become subject to various judicial and administrative proceedings involving
Federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company or to revoke, or to deny renewal of, an operating
permit held by the Company. In addition, the Company may become party to various
claims and suits pending for alleged damages to persons and property, alleged
violation of certain laws and for alleged liabilities arising out of matters
occurring during the normal operation of the waste management business. However,
there is no current proceeding or litigation involving the Company that it
believes will have a material adverse effect upon the Company's business,
financial condition and results of operations.
(c) Environmental Liability
The Company is subject to liability for any environmental damage, including
personal injury and property damage, that its solid waste facilities may cause
to neighboring property owners, particularly as a result of the contamination of
drinking water sources or soil, possibly including damage resulting from
conditions existing before the Company acquired the facilities. The Company may
also be subject to liability for similar claims arising from off-site
environmental contamination caused by pollutants or hazardous substances if the
Company or its predecessors arrange to transport, treat or dispose of those
materials. Any substantial liability incurred by the Company arising from
environmental damage could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company is not
presently aware of any situations that may have a material adverse impact.
(d) Sawyer Landfill Royalty Payments
In connection with an acquisition, the Company agreed to pay to the seller a
royalty for certain additional permitted landfill capacity. The royalty due is
equal to $2.50 per ton for the first 400,280 tons of such additional capacity
and $3.50 per ton thereafter. The payments are generally due as the landfill
is utilized except that at the time of the successful permitting, the first
51 million of royalties becomes immediately due and payable. This amount may
be taken in cash or stock or an equivalent per share price of $6.55. This
option is at the election of the seller and is only available for the first
royalty payment.
As of April 30, 1999, all permits required for expansion of the site have
been obtained from the appropriate State of Maine authorities. The required
permits and licenses have not been obtained from the Town of Hampden, Maine.
Therefore, the initial Royalty Payment is not due as of April 30, 1999.
6. STOCKHOLDERS' EQUITY
(a) Public Offerings
In November 1997, the Company completed an initial public offering of
3,000,000 shares of its Class A Common Stock (the "IPO") for proceeds of
42,428,000, net of underwriters discount and offering expenses. In
accordance with the terms of the Company's agreements: (i) the Series A and
Series B Redeemable Preferred Stock with warrants exercisable for Class A
Common Stock (Series A and Series B, respectively) were automatically redeemed
and the redemption price was applied to the exercise price of the warrants;
(ii) the Series D Convertible Preferred Stock (Series D) was converted
automatically into shares of Class A Common Stock; and (iii) the Series C
Mandatorily Redeemable Preferred Stock (Series C) was redeemed at its stated
redemption price of $7.00 per share.
Up to the date of the IPO, the Company had been accreting the difference
between the carrying value and the redemption value using the effective
interest method through the earliest redemption date for the Series A, B, C
and D Preferred Stock.
In July 1998 the Company completed a public offering of 2,060,587 shares of
its Class A Common Stock at $27.25 per share. In addition, as part of this
same offering, 1,470,580 shares of the Company's Class A Common Stock were
sold by certain selling shareholders at $27.25 per share. The Company's
proceeds of the offering, net of underwriter's discount and issuance costs
were $52,232,000.
(b) Preferred Stock
The Company is authorized, with stockholder approval, to issue up to
1,000,000 shares of preferred stock in one or more series. As of April 30,
1999 and 1998, respectively, no shares of Preferred Stock are outstanding.
(c) 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.
(d) Stock Warrants
At April 30, 1999, the Company had issued and outstanding warrants to
purchase 100,300 shares of the Company's Class A Common Stock at exercise
prices between $0.01 and $7.25 per share, based on the fair market value of
the underlying common stock at the time of the warrants' issuance. The
warrants become exercisable upon vesting and notification and expire between
July 1998 and October 2003.
(e) Put Warrants
In connection with an acquisition in April 1995, the Company issued 100,000
warrants to purchase one share each of Class A Common Stock exercisable at
$6.00 per share. These warrants were putable to the Company at $4.00 per
share or callable by the Company at $7.00 per share beginning in April 1997
and were initially recorded at their put price. These warrants were stated at
their put price per share in the accompanying balance sheet as of April 30,
1998. During fiscal 1998 (but prior to the IPO), warrants to
acquire 25,000 shares of Class A Common Stock for cash proceeds of $150,000
were exercised. During the same period the Company called the remaining
75,000 warrants in exchange for total cash consideration of $525,000. The
difference between the put price and the call price was accreted through a
charge to accumulated deficit at the time of the call.
(f) Stock Option Plans
During 1993, the Company adopted an incentive stock option plan for officers
and other key employees. The 1993 Incentive Stock Option Plan (the "1993
Option Plan") provided for the issuance of a maximum of 300,000 shares of
Class A Common Stock. As of April 30, 1999, options to purchase 169,500
shares of Class A Common Stock at an average exercise price of $1.18 were
outstanding under the 1993 Option Plan. No further options may be granted
under this plan.
During 1994, the Company adopted a nonstatutory stock option plan for
officers and other key employees. The 1994 Stock Option Plan (the "1994
Option Plan") provided for the issuance of a maximum of 150,000 shares of
Class A Common Stock. Options to purchase 15,000 shares of Class A Common
Stock at an average exercise price of $0.60 were outstanding under the 1994
Option Plan as of April 30, 1999. No further options may be granted under
this plan.
In connection with the May 1994 Senior Note and Warrant Purchase Agreement
(the "Purchase Agreement"), the Company established a nonqualified stock
option pool for certain key employees. The purchase agreement established
338,000 stock options to purchase Class A Common Stock. Options to purchase
302,656 shares of Class A Common Stock at an average exercise price of $2.00
were outstanding under the Purchase Agreement as of April 30, 1999. No
further options may be granted under this Agreement.
During 1996, the Company adopted a stock option plan for employees, officers
and directors of, and consultants and advisors to, the Company. The 1996
Stock Option Plan (the "1996 Option Plan") provided for the issuance of a
maximum of 918,135 shares of Class A Common Stock pursuant to the grant of
either incentive stock options or nonstatutory options. As of April 30, 1999,
a total of 392,443 options to purchase Class A Common Stock were outstanding
at an average exercise price of $12.23. No further options may be granted
under this plan.
On July 31, 1997, the Company adopted a stock option plan for employees,
officers and directors of, and consultants and advisors to the Company. The
Board of Directors has the authority to select the optionees and determine
the terms of the options granted. The 1997 Stock Option Plan (the "1997
Option Plan") provides for the issuance of 2,000,000 shares of Class A Common
Stock pursuant to the grant of either incentive stock options or nonstatutory
options. Under the terms of the 1997 Option Plan, all authorized but unissued
options under previous plans are added to the shares available under this
plan. A total of 321,501 authorized but unissued shares under the 1996 Option
Plan have been transferred to the 1997 Option Plan under this provision. As
of April 30, 1999, options to purchase 1,081,960 shares of Class A Common
Stock at an average exercise price of $26.72 were outstanding under the 1997
Option Plan.
On July 31, 1997, the Company adopted a stock option plan for non-employee
directors of the Company. The 1997 Non-Employee Director Stock Option Plan
provides for the issuance of a maximum of 50,000 shares of Class A Common
Stock pursuant to the grant of non-statutory options. As of April 30, 1999,
options to purchase 8,000 shares of Class A Common Stock at an average
exercise price of $31.25 were outstanding under the Directors' Option Plan.
Stock option activity for each of the three years ended April 30, 1997, 1998 and
1999 is as follows:
Number Weighted Average
of shares exercise price
--------- --------------
Outstanding, April 30, 1996 788,000 $ 1.63
Granted 463,135 10.52
Terminated -- --
Exercised -- --
-- --
--------- ------
Outstanding, April 30, 1997 1,251,135 4.92
Granted 419,500 19.90
Terminated (31,000) (15.19)
Exercised (44,333) (1.49)
--------- ------
Outstanding, April 30, 1998 1,595,302 8.75
Granted 870,000 27.68
Terminated (9,033) (11.17)
Exercised (486,710) (6.43)
--------- ------
Outstanding, April 30, 1999 1,969,559 $17.65
--------- ------
--------- ------
Exercisable, April 30, 1998 985,710 $ 4.26
--------- ------
--------- ------
Exercisable, April 30, 1999 1,346,557 $13.67
--------- ------
--------- ------
Set forth is a summary of options outstanding and exercisable as of April 30,
1999:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Shares Life (Years) Price Options Price
-------- ------ ------------ ----- ------- -----
$0.60- $2.00 462,656 4.87 $ 1.52 462,656 $ 1.52
$4.61-$7.00 103,836 6.91 4.61 103,836 4.61
$12.00-$16.00 313,107 7.57 14.16 283,772 14.11
$18.00-$27.00 878,960 8.98 26.02 392,626 25.83
OVER $27.00 211,000 4.86 29.81 103,667 29.79
- ------------- --------- ---- ------ --------- ------
All 1,969,559 6.77 $17.65 1,346,557 $13.67
---- --------- ---- ------ --------- ------
---- --------- ---- ------ --------- ------
During fiscal 1996, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which defines a fair value based method of accounting for
stock-based employee compensation and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
those plans using the intrinsic method of accounting prescribed by APB Opinion
No. 25. Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans under
APB Opinion No. 25. However, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during the years ended April 30,
1997, 1998 and 1999 using the Black-Scholes option pricing model as prescribed
by SFAS No. 123, using the following weighted average assumptions for grants in
the years ended April 30, 1997, 1998 and 1999.
April 30,
---------
1997 1998 1999
---- ---- ----
Risk-free interest rate 6.84% 5.78%-6.49% 4.6%-5.68%
Expected dividend yield N/A N/A N/A
Expected life 10 Years 9 years 5 years
Expected volatility N/A 40.39% 52.40%
The total value of options granted during the years ended April 30, 1997, 1998
and 1999 would be amortized on a pro forma basis over the vesting period of the
options. Options generally vest over a one to three year period. Because the
method of accounting prescribed by SFAS No. 123 has not been applied to options
granted prior to May 1, 1995, the resulting pro forma compensation costs may not
be representative of that to be expected in future years. If the Company had
accounted for these plans in accordance with SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have decreased (increased)
as reflected in the following pro forma amounts (in thousands, except for per
share amounts):
April 30,
---------
1997 1998 1999
---- ---- ----
Net income (loss)
As reported $(8,457) $(3,813) $9,099
Pro forma $(8,613) $(4,584) $5,019
Net income (loss) per share of
common stock
As reported $ (1.63) $ (0.42) $ 0.62
Pro forma $ (1.66) $ (0.50) $ 0.34
The weighted-average grant-date fair value of options granted during the years
ended April 30, 1997, 1998 and 1999 is $4.56, $11.94 and $14.35, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes for the years ended April 30, 1997,
1998 and 1999 consists of the following (in thousands):
April 30,
---------
1997 1998 1999
---- ---- ----
Federal--
Current $306 $ 232 $4,984
Deferred 330 1,901 1,400
---- ------ ------
636 2,133 6,384
---- ------ ------
State--
Current 7 41 879
Deferred 37 336 247
---- ------ ------
44 377 1,126
---- ------ ------
Total $680 $2,510 $7,510
---- ------ ------
---- ------ ------
The differences in the provisions for income taxes and the amounts determined by
applying the Federal statutory rate of 34% to income before provision for income
taxes for the years ended April 30, 1997, 1998 and 1999
are as follows (in thousands):
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999
---- ---- ----
Tax at statutory rate $256 $1,508 $5,647
State income taxes, net of federal
benefit 42 248 894
Meals and entertainment
disallowance 18 23 85
Nondeductible goodwill 134 114 590
Other, net (mainly imputed interest
income for
tax purposes) 230 617 294
---- ------ ------
$680 $2,510 $7,510
---- ------ ------
---- ------ ------
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.
Deferred tax assets and liabilities consist of the following at April 30, 1998
and 1999 (in thousands):
April 30,
---------
1998 1999
---- ----
Deferred tax assets--
Allowance for doubtful accounts $449 $703
Treatment of lease obligations 64 59
Accrued expenses 490 964
Net operating loss carryforwards 679 367
Alternative minimum tax credit carryforwards 494 510
Other tax carryforwards 150 - 0 -
Other 526 575
------- -------
Total deferred tax assets 2,852 3,178
------- -------
Deferred tax liabilities--
Accelerated depreciation of property and
Equipment (3,245) (5,014)
Amortization of intangibles (543) (1,165)
Other (2,111) (1,693)
------- -------
Total deferred tax liabilities (5,899) (7,872)
------- -------
Net deferred tax liability $(3,047) $(4,694)
------- -------
------- -------
At April 30, 1999, the Company has net operating loss carryforwards for
income tax purposes of approximately $894,000 that expire through 2010. At
April 30, 1999, the Company also has $510,000 of alternative minimum tax
credit carryforwards available indefinitely to reduce any further federal
income taxes payable.
8. EMPLOYEE BENEFIT PLANS
On May 1, 1996, the Company adopted the Casella Waste Systems, Inc. 401(k)
Plan and appointed the First National Bank of Boston as trustee of the plan.
The plan went into effect on July 1, 1996 and has a December 31 year end.
Pending board approval, the Company may contribute up to $500 per individual
per calendar year. Participants vest in employer contributions ratably over a
three-year period. Employer contributions for the years ended April 30, 1997,
1998 and 1999 amounted to $146,000, $176,000 and $275,000 respectively.
In January, 1998 the Company implemented its 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. 300,000
shares of Class A Common Stock have been reserved for this purpose. At April
30, 1998, no shares of Class A Common Stock have been issued under this plan.
During the year ended April 30, 1999 5,812 shares of Class A Common Stock
were issued under this plan.
9. RELATED PARTY TRANSACTIONS
(a) Management Services Agreement
As part of the Series D Preferred Stock transaction described in Note 7(a),
the Company entered into a Management Services Agreement with certain
shareholders of the Series A, Series B and Series C Preferred Stock. In
consideration for certain advisory services to the Company, as defined, a
management fee of approximately $22,300 per month was due. At the closing of
the IPO, the agreement terminated and the total accrued
management fees paid to the shareholders was $495,000.
(b) Services
During 1997, 1998 and 1999, the Company retained the services of a related
party, a company wholly owned by two of the Company's stockholders, as a
contractor in closing certain landfills owned by the Company. Total purchased
services charged to operations for each of the three years ended April 30, 1997,
1998 and 1999 were $2,126,000, $4,202,000 and $5,198,000 respectively, of which
$0 and $50,302 were outstanding and included in accounts payable at April 30,
1998 and 1999, respectively. In 1997, the Company entered into agreements with
this company, totaling $4,065,000, to close the unlined municipal landfill which
is adjacent to the Subtitle D Clinton County landfill and to close a portion of
another of the Company's lined landfills. In 1998, the Company entered into
agreements with this company, totaling approximately $3,000,000, to construct a
portion of a landfill. In 1999, the Company entered into agreements with this
company, totaling approximately $4,808,000, to construct improvements or
expansions at three of its landfills.
(c) Leases and Land Purchase
On August 1, 1993, the Company entered into three leases for operating
facilities with a related party, a partnership including two of the Company's
stockholders. During 1997, one of the leases was terminated early for
$192,000. The remaining leases are classified as capital leases in the
accompanying consolidated balance sheets. The leases call for monthly
payments ranging from $8,800 and $9,000 and expire in April 2003. Total
interest and amortization expense charged to operations for the years ended
April 30, 1997, 1998 and 1999 under these agreements was $249,000, $245,000
and $237,000 respectively.
On November 8, 1996, the Company purchased a certain plot of land from the same
related party for $122,000.
(d) Postclosure Landfill
The Company has agreed to pay the cost of postclosure on a landfill owned by
certain principal stockholders. The Company paid the cost of closing this
landfill in 1992, and the postclosure maintenance obligations are expected to
last until 2012. In each of the three years ended April 30, 1997, 1998 and 1999,
the Company paid $9,605, $3,019 and $3,161 respectively, pursuant to this
agreement. As of April 30, 1999, the Company has accrued $102,000 for costs
associated with its postclosure obligations.
10. SEGMENT REPORTING
In 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". SFAS
131 establishes standards for reporting information about operating segments
in financial statements. In general, SFAS 131 requires that business entities
report selected information about operating segments in a manner consistent
with that used for internal management reporting.
The Company classifies its operations into three geographical regions:
Eastern, Central and Western. The Company's revenues are derived from one
industry segment, which includes the collection, transfer, recycling and
disposal of non-hazardous solid waste. The table below reflects certain
geographic information relating to the Company's operations (in thousands):
(In thousands)
Eastern Central Western Corp. Elim Total
------- ------- ------- ----- ---- -----
YEAR ENDED 4/30/97:
Outside Revenue $ 16,659 $ 61,148 $ 24,578 $ 160 $- 0 - $ 102,545
Interco. Revenue 1,994 16,779 453 (1) (19,225) - 0 -
Net Income(Loss) (808) 1,098 843 (1,060) - 0 - 73
Depreciation & 2,847 10,548 1,615 300 - 0 - 15,310
Amortization
Interest Expense, Net 1,011 3,190 1,020 (293) - 0 - 4,928
Capital Expenditures 4,787 13,511 1,488 264 - 0 - 20,050
Total Assets 23,928 81,760 43,349 3,261 - 0 - 152,298
YEAR ENDED 4/30/98:
Outside Revenue $ 23,443 $ 69,965 $ 46,545 $ 238 $ - 0 - $ 140,191
Interco. Revenue 2,241 22,490 3,206 (14) (27,923) - 0 -
Net Income(Loss) (1,697) 4,148 654 (1,180) - 0 - 1,925
Depreciation & 3,740 11,850 3,765 464 - 0 - 19,819
Amortization
Merger Costs - 0 - 290 - 0 - - 0 - - 0 - 290
Impairment Charge 971 - 0 - 600 - 0 - - 0 - 1,571
Interest Expense, Net 1,287 3,472 3,103 (617) - 0 - 7,245
Capital Expenditures 5,515 14,184 7,326 1,101 - 0 - 28,126
Total Assets 29,739 99,285 66,855 6,535 - 0 - 202,414
YEAR ENDED 4/30/99:
Outside Revenue $ 29,272 $ 81,400 $ 62,060 $ 686 $ - 0 - $ 173,418
Interco. Revenue 2,218 28,397 6,711 (1) (37,325) - 0 -
Net Income(Loss) 1,644 8,368 2,333 (3,246) - 0 - 9,099
Depreciation & 4,665 12,430 6,910 831 - 0 - 24,836
Amortization
Merger Costs - 0 - 332 546 1,073 - 0 - 1,951
Interest Expense, Net 1,412 3,933 4,055 (4,476) - 0 - 4,924
Capital Expenditures 7,704 18,161 19,079 2,779 - 0 - 47,723
Total Assets 40,134 115,383 99,236 15,456 - 0 - 270,209
11. SUBSEQUENT EVENTS
During the period between May 1, 1999 and June 18, 1999 the Company acquired
three companies in transactions accounted for as purchases. The total value of
the assets acquired was approximately $315,000, paid in cash. During this same
period the Company completed one merger accounted for a pooling of interests,
for which it issued 59,375 of its class A common stock.
On May 12, 1999, the Company and KTI, Inc (KTI) agreed to merge subject to a
revised definitive merger agreement, originally signed on January 12, 1999,
in a transaction to be accounted for as a pooling of interests. Under the
terms of the revised agreement, each share of KTI will be exchanged for 0.59
shares of Casella's Class A common stock. KTI specializes in solid waste
disposal and recycling, and operates manufacturing facilities utilizing
recycled materials.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company which is set forth under
"Executive Officers of the Company" in Item 1 of Part I of this report) have
been omitted from this report, since the Company expects to file with the
Securities and Exchange Commission, not later than 120 days after the close
of its fiscal year, a definitive proxy statement. The information required by
Items 10, 11, 12 and 13 of this report, which will appear in the definitive
proxy statement, is incorporated by reference into Part III of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 14(a)(1) Consolidated Financial Statements included under Item 8:
Report of Independent Auditors
Consolidated Balance Sheets as of April 30, 1998 and 1999
Consolidated Statements of Operations for the Years Ended April 30, 1997,
1998 and 1999.
Consolidated Statements of Redeemable Preferred Stock, Redeemable Put
Warrants and Stockholders Equity for the Years Ended April 30, 1997, 1998
and 1999.
Consolidated Statements of Cash Flow for the Years Ended April 30, 1997,
1998 and 1999.
Notes to Consolidated Financial Statements
Item 14(a)(2) Schedule II - Valuation and Qualifying Accounts
Schedule II - Allowance for Doubtful Accounts
Item 14(a)(3) Exhibits:
The following Exhibits are filed as part of this report under Item 14(c):
Exhibit
No. Description
--- -----------
*3.1 Amended and Restated Certificate of Incorporation of the Registrant.
*3.2 Certificate of Amendment to Certificate of Incorporation.
*3.3 Amended and Restated Certificate of Amendment of the Registrant.
*3.4 Amended and Restated By-Laws of the Registrant.
*3.5 Second Amended and Restated By-Laws of the Registrant.
*4 Specimen Certificate for Class A Common Stock.
*10.1 1993 Incentive Stock Option Plan.
*10.2 1994 Nonstatutory Stock Option Plan.
*10.3 1996 Stock Option Plan.
*10.4 1997 Stock Incentive Plan.
*10.5 1997 Non-Employee Director Stock Option Plan.
*10.6 Registration Rights Agreement between the Registrant and
Susan Olivieri and Robert MacNeil, dated January 3, 1996.
*10.7 1995 Stockholders Agreement between the Registrant and the
stockholders who are a party thereto, dated as of December 22, 1995.
*10.8 1995 Registration Rights Agreement between the Registrant and the
stockholders who are a party thereto, dated as of December 22, 1995.
*10.9 1995 Repurchase Agreement between the Registrant and the stockholders
who are a party thereto, dated as of December 22, 1995.
*10.10 Management Services Agreement between the Registrant, BCI Growth III,
L.P., North Atlantic Venture Fund, L.P., and Vermont Venture
Capital Fund, L.P., dated as of December 22, 1995.
*10.11 Warrant to Purchase Common Stock of the Registrant granted to John W.
Casella, dated as of July 26, 1993.
*10.12 Warrant to Purchase Common Stock of the Registrant granted to Douglas
R. Casella, dated as of July 26, 1993.
*10.13 Asset Purchase Agreement by and among Kenneth H. Mead, Kerkim, Inc.
and Casella Waste Management of N.Y., dated as of January 17, 1997.
*10.14 Reorganization Agreement by and among Kenneth H. Mead, Superior
Disposal Services, Inc., Kensue, Inc., S.D.S. at PA, Inc. and Claws
Refuse, Inc., dated as of January 17, 1997.
*10.15 Termination of Lease Agreement by and between Casella Associates and
Casella Waste Management, Inc. dated September 25, 1996.
*10.16 Amended and Restated Revolving Credit and Term Loan Agreement
between the Registrant and BankBoston, dated as of August 6,
1997.
*10.17 Lease Agreement, as Amended, between Casella Associates and Casella
Waste Management, Inc., dated December 9, 1994 (Rutland lease).
*10.18 Lease Agreement, as Amended, between Casella Associates and Casella
Waste Management, Inc., dated December 9, 1994 (Montpelier lease).
*10.19 Furniture and Fixtures Lease Renewal Agreement between Casella
Associates and Casella Waste Management, Inc., dated May 1, 1994.
*10.20 Lease, Operations and Maintenance Agreement between CV Landfill, Inc.
and the Registrant dated June 30, 1994
*10.21 Restated Operation and Management Agreement by and between Clinton
County (N.Y.) and the Registrant dated September 9, 1996.
*10.22 Labor Utilization Agreement by and between Clinton County (N.Y.) and
the Registrant dated August 7, 1996.
*10.23 Lease and Option Agreement by and between Waste U.S.A., Inc. and New
England Waste Services of Vermont, Inc., dated December 14, 1995.
*10.24 Consulting and Non-Competition Agreement between the Registrant and
Kenneth H. Mead, dated January 23, 1997.
*10.25 Issuance of Shares by the Registrant to National Waste Industries,
Inc., dated October 19, 1994.
10.26 Registration Rights Agreement by and among the Registrant, Joseph M.
Winters, Andrew B. Winters, Brigid Winters, Sean Winters and Maureen
Winters (the "All Cycle Stockholders"), dated as of December 19,
1997. (Previously filed as part of the Company's Registration Statement
filed on Form S-1 and declared effective on July 20, 1998 and hereby
incorporated by reference.
10.27 Amendment No. 1 to Registration Rights Agreement by and among the
Registrant, the All Cycle Stockholders, Winters Family Partnership
and Goldman, Sachs & Co., dated as of June 3, 1998. (Previously filed
as part of the Company's Annual Report on Form 10-K filed on
June 25, 1998 and hereby incorporated by reference).
10.28 Amendment No. 2 to Lease Agreement, by and between Casella Associates
and Casella Waste Management, Inc., dated as of November 20, 1997
(Rutland lease). (Previously filed as part of the Company's Annual
Report on Form 10-K filed on June 25, 1998 and hereby incorporated by
reference).
10.29 Amended and Restated 1997 Stock Incentive Plan (Previously filed as
part of the Company's Definitive Proxy Statement filed on September 21, 1998
and hereby incorporated by reference).
10.30 Agreement and Plan of Merger dated January 12, 1999, by and among
Casella Waste Systems, Inc., Rutland Acquisition Sub, Inc. and KTI,
Inc. (Previously filed as part of the Company's Current Report on
Form 8-K filed January 21, 1999 and hereby incorporated by reference).
10.31 Amendment No. 1 to Agreement and Plan of Merger (Previously filed as
part of the Company's Current Report on Form 8-K filed May 13, 1999 and
hereby incorporated by reference).
10.32 Amendment No. 1 to Stock Option Agreement (Previously filed as part
of the Company's Current Report on Form 8-K filed May 13, 1999 and hereby
incorporated by reference).
21 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule - for the year ended April 30, 1999.
27.2 Financial Data Schedule - for the year ended April 30, 1998,
Restated.
27.3 Financial Data Schedule - for the year ended April 30, 1997,
Restated.
* Previously filed as part of the Company's Registration Statement filed on form
S-1 and declared effective on October 27, 1997 and hereby incorporated by
reference.
Item 14(b) Reports on Form 8-K
During the quarter ended April 30, 1999 the Company filed one report on Form
8-K:
On April 16, 1999 the Company filed a report on Form 8-K including one event
under Item 5, `Other Events'. The event described was the announcement of the
Company's intent to terminate its merger agreement with KTI.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CASELLA WASTE SYSTEMS, INC.
By: /s/ JOHN W. CASELLA
----------------------------
John W. Casella
President and Chief
Executive Officer
Date: July 15, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
- --------- ----- ----
/s/ JOHN W. CASELLA President, Chief Executive Officer
- --------------------------- and Chairman July 27, 1999
John W. Casella
/s/ JAMES W. BOHLIG Senior Vice President and Chief
- --------------------------- Operating Officer, Director July 27, 1999
James W. Bohlig
/s/ JERRY S. CIFOR Vice President and Chief Financial
- --------------------------- Officer (Principal Accounting and
Jerry S. Cifor Financial Officer) July 27, 1999
/s/ DOUGLAS R. CASELLA Director July 27, 1999
- ---------------------------
Douglas R. Casella
/s/ JOHN F. CHAPPLE III Director July 27, 1999
- ---------------------------
John F. Chapple III
/s/ GREGORY B. PETERS Director July 27, 1999
- ---------------------------
Gregory B. Peters
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Valuation Accounts Schedule
(Schedule II), is presented for purposes of additional analysis and are not a
required part of the basic financial statements. This information has been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 18, 1999
FINANCIAL STATEMENT SCHEDULES
Schedule II
Valuation Accounts
Allowance for Doubtful Accounts
- -------------------------------
(In thousands of dollars)
Year Ended April 30,
--------------------
1997 1998 1999
---- ---- ----
Balance at beginning of period $353 $722 $1,283
Additions - Charged to expense 332 951 1,640
Acquisition related 494 697 273
Deductions - Bad debts written off, net of
Recoveries (457) (1,087) (1,766)
----- ------ ------
Balance at end of period $722 $1,283 $1,430