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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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Greens Hill Lane, Rutland, VT 05701
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(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 [ ]
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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 21, 2000 was $273,751,210 (reference is
made to Part II, Item 5 herein for a statement of assumptions upon which this
calculation is based).
There were 22,232,698 shares of Class A Common Stock, $.01 per share par value,
of the registrant outstanding as of July 21, 2000. There were 988,200 shares of
Class B Common Stock of the registrant outstanding as of July 21, 2000.
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. ("the Company") is a regional, integrated solid
waste services company that provides collection, transfer, disposal and
recycling services, generates steam and manufactures finished products utilizing
recyclable materials primarily throughout the eastern portion of the United
States and parts of Canada. The Company also markets recyclable metals,
aluminum, plastics, paper and corrugated cardboard all processed at its
facilities and recyclables purchased from third parties. The Company also
generates electricity under its contracts with its two majority owned
subsidiaries, Maine Energy Recovery Company LP ("Maine Energy") and Penobscot
Energy Recovery Company LP ("PERC"), and through its wholly owned subsidiary,
Timber Energy Recovery, Inc. ("TERI"). As of July 21, 2000, the Company owned
and/or operated five Subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 39 transfer stations, 40 recycling
processing facilities, 39 solid and liquid waste collection divisions, 12 power
generation facilities, three finished products processing facilities and an
interest in its cellulose insulation joint venture with Louisiana Pacific.
Recent Developments
On December 14, 1999, the Company consummated its acquisition of KTI, Inc.
("KTI"), a publicly traded solid waste handling company. KTI specialized in
solid waste disposal and recycling, and operated waste-to-energy facilities and
manufacturing facilities utilizing recycled materials. All of KTI's common stock
was acquired in exchange for 7,152,157 shares of Class A Common Stock. The
acquisition of KTI essentially more than doubled the revenues of the Company.
The acquisition was accounted for as a purchase, and accordingly, results are
included in the Consolidated Statements of Operations from December 15, 1999
forward.
During the fiscal year ended April 30, 2000, the Company also acquired 35 solid
and liquid waste management businesses with approximately $82.9 million in
annualized revenues, including the following:
In July 1999, the Company completed a merger with Resource Waste Systems, Inc.
and related entities, which process recyclable materials and market commodities.
Resource Waste Systems and its affiliates are in the Eastern Massachusetts
market.
In October 1999, the Company acquired Eirco, Inc., a disposal outlet for
processed construction and demolition debris in Eastern Massachusetts.
In February 2000, the Company completed the acquisition of Alternate Energy,
Inc. and Rochester Environmental Park LLC (together, "AEI"), a bulk hauling
operation and construction and demolition debris processing facility in Eastern
Massachusetts.
In spring 2000 the Company acquired certain assets from Allied Waste Industries,
Inc. The assets included of two transfer stations, one recycling facility and
various hauling operations in Eastern Massachusetts and Northern Rhode Island.
The Company has entered into an agreement with Louisiana-Pacific Corp. to
combine their respective cellulose insulation businesses into a single operating
entity under a joint venture agreement effective August 1, 2000. The new
Company, to be known as U.S. Green Fiber LLC, is an equally-owned joint venture
formed through the combination of Louisiana-Pacific's GreenStone Industries,
Inc. and Casella Waste Systems' U.S. Fibers, Inc.'s operations. The new entity
will supply cellulose insulation to existing residential construction, retail
and manufactured housing supply channels.
In June 2000, the Company agreed to issue redeemable convertible preferred stock
to Berkshire Partners of Boston, Massachusetts. The preferred stock will be
convertible into Class A Common Stock at $14.00 per share. The Company expects
to raise approximately $55.8 million in capital, which the Company expects to
use to pay down debt and continue its strategic plan.
Services
The Company's waste collection, landfill, transfer, certain of the Company's
recycling services operations and two of its waste-to-energy facilities, which
incinerate non-hazardous solid waste to generate electricity, are managed on a
geographic basis and are 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 operations and recycling to disposal in
either landfills or waste-to-energy facilities. Each is managed separately and
provides distinct products or services using different production facilities.
The Company's other operations, comprising its waste-to-energy facilities
exclusive of the two managed in the Eastern region and its residential recycling
operations, exclusive of the recycling facilities which operate within the waste
sheds, commercial recycling operations and the finished products operations are
managed on a line-of-business basis independently of the three geographic
regions. The waste-to-energy segment is managed out of Saco, Maine, the
commercial recycling segment is managed out of Passaic, New Jersey and the
residential recycling and finished products segments are managed out of
Charlotte, North Carolina. The following are the Company's three geographic
regions and four line-of-business segments that comprise the Company's
operations:
Central Region
The Central Region consists of Vermont, New Hampshire and eastern upstate New
York. The portion of upstate New York within the Company's Central Region as of
July 21, 2000 includes Clinton, Franklin, Essex, Warren, Washington, Saratoga,
Rennselaer and Albany counties. The Company owns and operates Subtitle D
landfills in Bethlehem, New Hampshire (See Part I, Item 3, `Legal Proceedings')
and Coventry, Vermont, and, through a 25-year capital lease, operates the
Clinton County landfill located in Schuyler Falls, New York. In addition, as of
July 21, 2000, the Company operated 16 solid waste collection operations, of
which 7 are leased and 9 are owned, 2 liquid waste collection operations, one of
which is leased and one of which is owned, 11 transfer stations, 4 of which are
leased and 7 of which are owned, four recycling facilities, three of which are
leased and one of which is owned and 1 leased transportation operation in the
Central Region. The Central Region also had two transfer stations under
development as of July 21, 2000.
Eastern Region
The Company's Eastern Region consists of Maine, southeastern New Hampshire,
eastern Massachusetts and northern Rhode Island. 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
the State of Maine. In addition, at July 21, 2000 the Company operated 10
collection operations, 4 of which are leased and 6 of which are owned and 15
transfer stations, 10 of which are leased and 5 of which are owned 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. The Eastern Region
also includes two majority-owned subsidiaries, which generate electricity from
non-hazardous solid waste. The first facility is an 83.75% owned subsidiary,
Maine Energy Recovery Company LP ("Maine Energy"), a Maine limited partnership,
which is located in Biddeford, Maine. The other facility is a 66.59% owned
subsidiary, Penobscot Energy Recovery Company LP ("PERC"), a Maine limited
partnership, located in Orrington, Maine.
Western Region
The Western Region is comprised of upstate New York and northern Pennsylvania
(including Ithaca, Elmira, Oneonta, Lowville, Potsdam, Geneva, Auburn, Buffalo,
Jamestown, Olean, and Wellsboro, PA). At July 21, 2000 the Company operated 11
transfer stations, all of which are owned, 12 collection operations, all of
which are owned and 5 recycling operations, all of which are owned and collected
solid waste from commercial, industrial and residential customers in the Western
Region. The Company owns 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 owns two
landfills permitted to accept construction and demolition materials, the Hakes
and Portland facilities.
Operations
The following is a description of the Company's operations.
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 C&D landfills, depending on the state in which they are
located, are typically 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, 2000, approximately 67% of the waste volumes
received by the Company's landfills were from 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 21, 2000.
Estimated
Estimated in Permitting
Total Remaining Process
Permitted Capacity Capacity
Landfill Location (Tons)(1) (Tons) (1)(2)
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Clinton County (3)..... Schuyler Falls, NY 710,000 990,000
Waste USA ............. Coventry, VT 1,690,000 - 0 -
SERF (4)............... Hampden, ME 120,000 3,100,000
NCES................... Bethlehem, NH 6,000 544,000
Hyland................. Angelica, NY 1,620,000 - 0 -
Hakes(C&D) ............ Campbell, NY 941,000 - 0 -
Portland(C&D) (5)...... 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 to 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) The 3,100,000 of additional in-process tonnage 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 (See Part I, Item 3 "Legal Proceedings").
(5) Facility currently under construction.
The Company also owns and/or operates 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.
Once the permitted capacity of a particular landfill is reached, the landfill
must be closed and capped, and post-closure care started, 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 39 solid and liquid waste collection operations served over
500,000 commercial, industrial and residential customers at July 21, 2000.
During 2000, 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 39 transfer stations as of July 21, 2000. 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 usually 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.
As of July 21, 2000 the Company operated 15 recycling processing facilities
throughout the three geographic regions. 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
regional recycling operations, as they relate to the three geographic regions,
are concentrated principally in the Vermont, which is in the Central Region, as
the public sector in other states in the Company's service area has generally
taken primary responsibility for recycling efforts.
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. The Company's other services include
a septic/liquid waste operation, located in the Company's Central Region.
Waste-to-Energy
In addition to its interests in Maine Energy and PERC, the Company has the
following interests in waste-to-energy facilities:
Timber Energy Resources, located in Telogia, Florida, uses biomass waste as its
source of fuel to be combusted for the production of electricity for sale to the
local electric utility. The Company also operates two wood processing
facilities, BioFuels in Lewiston, Maine and Timber Chip, also a part of Timber
Energy Resources, in Cairo, Georgia.
The Company operates three waste-to-energy facilities, two of which are owned
and one of which is leased, in Martinsville, Virginia. These facilities use
biomass and coal to produce steam for sale to industrial users under long-term
contracts. One of the plants was closed in December 1999 pursuant to that
plant's only customer going out of business.
KTI Recycling of Canada, which includes three tire processing facilities, two of
which are owned and one of which is leased, produce crumb rubber from waste
tires using a proprietary cryogenic technology. KTI Recycling of Canada has two
additional facilities under construction, located in Canada.
The Company holds a 35% stake in Oakhurst Company Inc., which owns two
distributors in the automotive aftermarket. The Company has assigned the
Company's proprietary cryogenic rubber technology to Oakhurst, for use at the
New Heights facility. In return, Oakhurst agreed to purchase an unspecified
number of crumb rubber systems and entered into a royalty agreement with the
Company to pay $0.0075 cents per tire processed by Oakhurst using these crumb
rubber systems. Oakhurst also agreed to engage a subsidiary of the Company to be
the operating manager of New Heights and to pay the subsidiary of the Company
management fees for each facility operated.
The Company owns a 60% limited partnership interest in American Ash Recycling of
Tennessee Ltd., a limited partnership that operates a permitted municipal waste
combustor ash recycling facility in Nashville, Tennessee. This facility, which
commenced operations in 1993, is the first commercially operational municipal
waste combustor ash recycling facility in the United States.
The waste-to-energy segment also engages in other waste management and
processing activities, including commercial hauling and non-hazardous waste
management. These activities are complementary extensions of the waste-to-energy
facilities that enable the Company to provide a wider range of services to
customers and provide strategic opportunities for future growth through vertical
integration.
Residential recycling
The residential recycling segment is comprised of 20 recycling facilities, 19 of
which are leased and one of which is owned, that process and market recyclable
materials under long-term contracts with municipalities and commercial
customers. Additionally, the residential recycling segment operates one leased
transfer station. The recyclable materials consist principally of old
newspapers, old corrugated containers, mixed paper and commingled bottles and
cans consisting of steel, aluminum, plastic and glass. This line of business
segment provides residential recycling, commercial recycling, processing and
marketing services.
A significant portion of the material provided to the residential recycling
segment is delivered pursuant to long-term contracts with municipal customers.
The contracts generally have a term of five to ten years and expire at various
times between 2000 and 2018. The terms of each of the contracts vary, but all
the contracts provide that the municipality or a third party deliver materials
to the Company's facility. In approximately one-third of the contracts, the
municipalities agree to deliver a guaranteed tonnage and the municipality pays a
fee for the amount of any shortfall from the guaranteed tonnage. Under the terms
of the individual contracts, the Company pays the municipality a fee per ton of
material delivered or in the event of a shortfall, charges the municipality a
fee for each ton of material shortfall below the municipality's guaranteed
tonnage amount. Some contracts contain revenue sharing arrangements under which
the Company pays the municipality a specified percentage of the revenue from the
sale of the recovered materials.
The residential recycling segment derives a significant portion of its revenues
from the sale of recyclable materials. The resale and purchase prices of the
recyclable materials, particularly newspaper, corrugated containers, plastic,
ferrous and aluminum, can fluctuate based upon market conditions. The Company
uses long-term supply contracts with customers with floor price arrangements to
reduce the commodity risk for certain recyclables, particularly newspaper and
aluminum metals. Under such contracts, the Company obtains a guaranteed minimum
price for the recyclable materials along with a commitment to receive additional
amounts if the current market price rises above the floor price. The contracts
are generally with large domestic companies that use the recyclable materials in
their manufacturing process. In fiscal 2000, 18.7% of the revenues from the sale
of recyclable materials of the residential recycling segment were derived from
sales under these long-term contracts.
Commercial recycling
The commercial recycling segment consists of five leased recycling facilities,
which process and market paper fibers obtained from municipalities, commercial
customers and commercial waste generators and brokers paper fibers, processed at
facilities operated by the residential and commercial recycling segments, to the
Company's processing facilities and external customers.
Finished Products
The finished products segment consists primarily of plastic reprocessing plants
and the Company's interest in a joint venture with Louisiana-Pacific for the
manufacture and sale of cellulose insulation.
The joint venture with Louisiana-Pacific manufactures cellulose insulation,
which is primarily used in the construction of manufactured housing and
single-family residential homes. The Company believes that the joint venture is
the largest producer of cellulose insulation in the United States and operates
six manufacturing facilities located in Ronda, North Carolina; Tampa, Florida;
Phoenix, Arizona; Clackamas, Oregon; Delphos, Ohio; and Waco, Texas. The joint
venture primarily sells the insulation to the makers of manufactured housing and
insulation contractors throughout the country. The plastics division is a
reprocessor of high density polyethylene ("HDPE") plastics collected primarily
from residential recycling programs and industrial suppliers. The plastics
division obtains a majority of its raw materials from the residential recycling
segment. The plastics division operates three manufacturing facilities located
in Reidsville, North Carolina and Hamlet, North Carolina.
Competition
The solid waste services industry is highly competitive, and has undergone a
long period of consolidation, and requires substantial labor and capital
resources. The Company competes with numerous solid waste management companies,
several 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 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. In addition,
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.
The residential recycling industry is highly competitive and requires
substantial capital resources and prior experience to bid on municipal
contracts. Competition is both national and regional in nature. Some of the
markets in which the Company competes are served by one or more of the large
national solid waste companies including Waste Management, Allied Waste and
Republic Services, as well as numerous regional and local competitors that offer
competitive prices and quality service.
The Company's waste paper brokerage business and waste paper processing plants
face extensive competition. Principal attributes of these markets contributing
to such competition are industry-wide overcapacity and continual price
pressures.
The insulation industry is highly competitive and requires substantial capital
and labor resources. In its insulation manufacturing activities, the Company's
joint venture with Louisiana-Pacific primarily competes with manufacturers of
fiberglass insulation such as Owens Corning, Certainteed and Schuller
International. The fiberglass insulation manufacturers currently have a
significant market share and are substantially better capitalized than the
Company. The Company believes that the joint venture will compete with
fiberglass insulation manufacturers by charging competitive prices and offering
a quality product and excellent customer service support.
The plastics industry is highly competitive and requires substantial capital
investment in equipment. The plastics division's primary competition comes from
other reprocessors of recycled plastics, as well as suppliers of virgin HDPE
resin. These competitors have significantly greater financial and other
resources than the Company. The Company believes that it offers competitive
pricing because the cost to reprocess plastics generally requires a lower amount
of investment in capital than the manufacturing of virgin plastic resin. The
Company also competes with several other recycled plastic brokers and direct
marketing from plastic recycling plants for post-industrial plastic scrap, and
with materials recovery facilities for post-consumer plastics. The Company
believes that it will continue to be competitive because of its knowledge of the
plastic recycling market and its reputation and relationship with its customers.
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. 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
The Company employs approximately 3,700 persons. Certain of the Company's
employees are covered by collective bargaining agreements. The Company believes
relations with its employees to be satisfactory.
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 established a captive insurance company,
`Casella Insurance Company', through which it is self-insured for Workman's
Compensation and Automobile coverage. The Company's maximum exposure under this
plan is $250,000 per individual event with no aggregate limit, 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.
Customers
Under the terms of their contracts, Maine Energy must sell all of the
electricity generated at its facilities to Central Maine, Timber Energy
Resources must sell all of its electricity to Florida Power and PERC must sell
all of its electricity to Bangor Hydro.
The commercial recycling segment processing facilities provide recycling
services to municipalities, commercial haulers and commercial waste generators
within the geographic proximity of the processing facilities. The Company acts
as a broker of products, including recyclable material processed at facilities
operated by the residential and commercial recycling segments, principally to
paper and box board manufacturers in the United States, Canada, Pacific Rim
countries, Europe and South America.
The Company's cellulose insulation joint venture sells its products to
manufacturers of manufactured homes, insulation contractors, and retail home
improvement stores throughout the United States. The plastics division sells the
majority of its products under long-term contracts with two customers located
adjacent to the Company's facility.
Raw Materials
The raw material demands of the PERC's facility currently are met mainly by PERC
long-term waste handling agreements with approximately 200 municipalities in
Maine. PERC received approximately 75% of its raw materials in fiscal 2000 from
these municipalities. Maine Energy received 28% of its raw materials in fiscal
2000 from 18 Maine municipalities under long term waste handling agreements.
Maine Energy also receives raw materials from commercial and private waste
haulers and municipalities with short-term contracts. The Telogia facility uses
biomass fuels that are a by-product of the paper pulp woodchip industry as its
raw material.
The residential recycling segment received 38.1% of its material under long-term
agreements with municipalities. These contracts generally provide that all
recyclables collected from the municipal recycling programs be delivered to a
facility that is owned or operated by the Company. The quantity of material
delivered by these communities is dependent on the participation of individual
households in the recycling program.
The raw materials for the Company's commercial recycling segment generally come
from printers and publishing houses and other recyclers and haulers. The waste
paper brokered by the Company is generated principally from the commercial
recycling segment, from waste generators, and from third party processors.
The primary raw material for the Company's insulation joint venture is newspaper
collected from residential recycling programs, including those operated by the
Company's residential recycling segment. In 2000, the insulation division
received 10.8% of the newspaper used by it from the residential recycling
segment. It purchased the remaining newspaper from municipalities, commercial
haulers, and paper brokers. The chemicals used to make the newspaper fire
retardant are purchased from industrial chemical manufacturers located in the
United States and South America.
The plastics division's primary raw materials are baled plastic containers
collected from residential recycling programs, such as those operated by the
Company's residential recycling segment, and ground material from industrial
customers. In 2000, the plastics division received 57.2% of its raw material
from the Company's residential recycling facilities.
Seasonality
The Company's transfer and disposal 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 residential recycling segment experiences increased volumes of newspaper in
November and December due to increased newspaper advertising and retail activity
during the holiday season. Additionally, the facilities located in Florida
experience increased volumes of recyclable materials during the winter months,
followed by decreases in the summer months in connection with seasonal changes
in population.
The commercial recycling segment experiences increased quantities of newspaper
and corrugated containers in November and December, followed by reduced
quantities in January and decreased quantities of newspaper and corrugated
containers in July and August, followed by increased quantities in September,
due to increased newspaper advertising and retail activity during the holiday
season.
The insulation business experiences lower sales in November and December because
of lower production of manufactured housing due to holiday plant shut downs.
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 in the future). The Company expects
that its operations in the solid waste services industry will be subject to
continued and increased regulation, legislation and regulatory enforcement
actions. The Company attempts to anticipate future legal and regulatory
requirements and to carry out plans intended to keep its operations in
compliance with those requirements.
In order to transport process, incinerate, or dispose of solid waste, it is
necessary for the Company to possess and comply with one or more permits from
Federal, state and/or local agencies. The Company must review these permits
periodically, and the permits 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 non-hazardous. 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 non-hazardous. Wastes classified as hazardous under
RCRA are subject to more extensive regulation than wastes classified as
non-hazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of non-hazardous
waste.
Among the wastes that are specifically designated as non-hazardous are household
waste and "special" waste, including items such as petroleum contaminated soils,
asbestos, foundry sand, shredder fluff and most non-hazardous 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 those
businesses treat, store or dispose of such material. 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, and in many instances EPA has
delegated to those states the principal role in regulating industries which are
subject to those requirements. Some state regulations impose different,
additional obligations.
The Company currently does not accept for transportation or disposal of
hazardous substances (as defined in CERCLA, discussed below) 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
transport and dispose of hazardous substance in the future, to the extent that
materials defined as hazardous substances under CERCLA are present in consumer
goods and in the non-hazardous waste streams of its customers.
The Company does not accept hazardous wastes for incineration at its
waste-to-energy facilities. The Company typically tests ash produced at those
facilities on a regular basis; that ash generally does not contain hazardous
substances in sufficient concentrations or volumes to result in the ash being
classified as hazardous waste. However, it is possible that future waste streams
accepted for incineration could contain elevated volumes or concentrations of
hazardous substances or that legal requirements will change, and that the
resulting incineration ash would be classified as hazardous waste.
Leachate generated at the Company's landfills and transfer stations is tested on
a regular basis, and generally is not regulated as a hazardous waste under
Federal or state law. In the past, however, leachate generated from certain of
the Company's landfills has been classified as hazardous waste under state law,
and there is no guarantee that leachate generated from the Company's facilities
in the future will not be classified under Federal or state law as hazardous
waste.
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. Regulations generally require the Company to install groundwater
monitoring wells at virtually all landfills it operates, to monitor groundwater
quality and, indirectly, the effectiveness of the leachate collection systems.
The Subtitle D Regulations also require facility owners or operators to control
emissions of methane gas generated at landfills where certain regulatory
thresholds are exceeded. Each state must revise its landfill regulations to meet
these requirements or the EPA will automatically impose such requirements upon
landfill owners and operators in that state. Each state also must adopt and
implement a permit program or other appropriate system to ensure that landfills
within the state comply with the Subtitle D regulatory 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 into the "waters of the United States"
from a variety of sources, including solid waste disposal sites and transfer
stations, processing facilities, and waste-to-energy facilities (collectively,
"solid waste management facilities"). If run-off or collected leachate from the
Company's solid waste management facilities, or process or cooling waters
generated at one of the Company's waste-to-energy facilities, 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. A permit also may be required if that run-off, leachate, or
process or cooling water is discharged to a treatment facility that is owned by
a local municipality. Numerous states have enacted regulations, which are
equivalent to the Clean Water Act, and which also regulate the discharge of
pollutants to groundwater. Finally, virtually all solid waste management
facilities must comply with the EPA's storm water regulations, which are
designed to prevent contaminated storm water runoff from flowing into surface
waters.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("CERCLA")
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 costs
of evaluating and addressing 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 be based on the existence of any of 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 also were liable. CERCLA also authorizes EPA to impose 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 identify and
locate 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 was constructed and the annual volume of
emissions. 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
where levels of regulated pollutants exceed 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.
The Clean Air Act also regulates emissions of air pollutants from the Company's
waste-to-energy facilities and certain of its processing facilities. The EPA has
enacted standards that apply to those emissions. It is possible that the EPA, or
a state where the Company operates, will enact additional or different emission
standards in the future.
All of the Federal statutes described above authorize lawsuits by private
citizens to enforce certain 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 to promulgate 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,
processing, transportation, incineration and disposal of solid waste, water and
air pollution and, in most cases, the siting, design, operation, maintenance,
closure and post-closure maintenance of solid waste management facilities. 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 authorize 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 actions could materially and adversely
affect the business, financial condition and results of operations of any
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 rejected as 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, some proposed Federal legislation
would allow states and localities to impose flow restrictions. Those
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 the Company can charge for landfill
disposal services. Those restrictions also may 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. 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.
Energy and Utility Regulation
Each of the Company's waste-to-energy facilities has been certified by the
Federal Energy Regulatory Commission as a "qualifying small power production
facility" under the Public Utility Regulatory Policies Act of 1978, as amended
("PURPA"). PURPA exempts qualifying facilities from most Federal and state laws
governing electric utility rates and financial organization, and generally
requires electric utilities to purchase electricity generated by qualifying
facilities at a price equal to the utility's full "avoid cost".
The Company's waste-to-energy business is dependent upon its ability to sell the
electricity generated by each of its facilities to an electric utility (or, in
certain instances, a third-party such as an energy marketer). Those purchases
generally occur under long-term power purchase agreements, some of which will
expire in the near future. There is no guarantee that new agreements will
replace those that expire, or that any new agreement will contain a purchase
price, which is as favorable as the one in the expiring agreement. Additionally,
in the event that the electric utility industry in a state where the Company
generates electricity is deregulated in the future, it is possible that the
applicable regulatory agency will require that an existing agreement be
renegotiated (the resulting agreement may be less favorable to the Company) or
transferred to a third-party.
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 21, 2000 are as follows:
Name Age Position
---- --- --------
Executive Officers
- ------------------
John W. Casella 49 President, Chief Executive Officer,
Secretary, Director
Douglas R. Casella 44 Vice Chairman of the Board of Directors,
Vice President
James W. Bohlig 54 Senior Vice President and Chief Operating
Officer, Director
Jerry S. Cifor 39 Senior Vice President and Chief Financial
Officer, Treasurer
Martin J. Sergi 43 Executive Vice President - Business
Development, Director
Other Key Employees
- -------------------
Michael Brennan 42 Vice President & General Counsel
Christopher M. DesRoches 42 Vice President, Sales and Marketing
Sean Duffy 40 Regional Vice President
Joseph S. Fusco 36 Vice President, Communications
James M. Hiltner 36 Regional Vice President
Michael Holmes 45 Regional Vice President
Larry B. Lackey 39 Vice President, Permits, Compliance and
Engineering
Richard Norris 57 Vice President & Corporate Controller
Alan N. Sabino 40 Regional Vice President
Gary Simmons 50 Vice President, Fleet Management
John W. Casella has served as President and Chief Executive Officer of the
Company since 1993, and has been Chairman of the Board of Directors of Casella
Waste Management, Inc. since 1977. From 1993 until 1999, Mr. Casella was also
the Chairman of the Board of Directors of the Company. 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 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. 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.
Martin J. Sergi has served as Executive Vice President-Business Development of
the Company since December 1999. From November 1997 to December 1999, Mr. Sergi
served as President of KTI, Inc., prior to its acquisition by the Company. From
October 1985 to August 1998, Mr. Sergi served as Chief Financial Officer of KTI,
Inc. and from 1985 to December 1999 as Vice Chairman of the Board of Directors.
Michael Brennan joined the company in July 2000 as Vice President and General
Counsel. From July 1998 to July 2000, he served as Associate General Counsel for
Waste Management, Inc., a waste management company. From January 1996 to July
1998 he served as Senior Counsel and from March 1993 to January 1996 he served
as Environmental Counsel for Waste Management, Inc.
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.
Sean Duffy has served as Regional Vice President of the Company since December
1999. He began in May of 1983 at FCR, Inc. as one of the founders of the FCR,
Inc. In 1996, he became the Chief Operating Officer of FCR, Inc. In 1997, he
became an executive vice president of FCR. In 1998, he also became the
President of FCR Plastics, Inc. In 1999 he became the president of FCR Recycling
and was promoted to President of FCR, Inc., where he remained until the
Company's acquisition of KTI, Inc. in December 1999, when he became a Regional
Vice President of the Company and remains President of FCR Plastics, Inc. and
FCR, Inc. Mr. Duffy is a graduate of Central Connecticut 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.
Richard Norris joined the Company in July 2000 as Vice President and Corporate
Controller. From 1997 to July 2000, Mr. Norris served as Vice President and
Chief Financial Officer for Nexcycle, Inc., a processor of secondary materials.
From 1986 to 1997, he served as Vice President of Finance, US Operations for
Laidlaw Waste Systems, Inc., a waste management company.
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
At July 21, 2000: (A) the Company operated seven landfills, including one
operated under a lease expiring in 2021; (B) 39 transfer stations, 24 of which
are owned and 15 of which are leased; (C) 39 hauling operations, 27 of which are
owned and 12 of which are leased; (D) 40 recyclable operations, 10 of which are
owned and 30 of which are leased; (E) 12 power generation facilities, six of
which are owned, three of which are leased and three of which are partnership
interests; (F) three manufacturing of finished goods operations, two of which
are owned and one of which is leased and one cellulose insulation joint venture
and (G) utilized 14 corporate office and other administrative facilities, two of
which are owned and 12 of which are leased. The Company's landfill operations
are described in Item 1.
Other than the foregoing, at July 21, 2000 the principal fixed assets used by
the Company in its solid waste collection and landfill operations included
approximately 2,650 collection vehicles, 450 pieces of heavy equipment and 350
support vehicles.
ITEM 3. LEGAL PROCEEDINGS
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil lawsuit
against the Company and two of its officers and directors in Vermont Superior
Court. Mr. Freeman claims to have performed services for the Company prior to
1995 and in his lawsuit 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 for 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 and the Town have signed an amendment to the Host Community Agreement
and both sides have terminated the action with prejudice.
The Company's wholly owned subsidiary, North Country Environmental Services,
Inc. ("NCES"), is a party to an appeal against the Town of Bethlehem, New
Hampshire ("Town") before the New Hampshire Supreme Court. The appeal arises
from cross actions for declaratory and injunctive relief filed by NCES and the
Town to determine the permitted extent of NCES's landfill in the Town. The
Grafton Superior Court ruled on February 1, 1999 that the Town could not enforce
an ordinance purportedly prohibiting expansion of the landfill, at least within
51 acres of NCES's 87 -acre parcel, based upon certain existing land-use
approvals. As a result, NCES was able to construct and operate "Stage II, Phase
II" of the landfill. If the Town were to prevail on appeal, the range of
possible outcomes includes, without limitation, a new trial, closure of the
landfill, or remediation (i.e., removal) of Stage II, Phase II. A separate
appeal by two citizens groups of the construction and operating approvals issued
by the New Hampshire Department of Environmental Services to NCES for Stage II,
Phase II has been stayed by the New Hampshire Waste Management Council pending
the resolution of the appeal before the Supreme Court.
On or about December 7, 1999, Earth Waste Systems, Inc., Kevin Elnicki and Frank
Elnicki filed a civil lawsuit against the Company, two of the Company's officers
and directors, and a former employee in Vermont State Court, Rutland County. The
plaintiffs allege that the Company and the individual defendants breached
contractual obligations and engaged in other wrongdoing related to, among other
things, a now-terminated scrap metal agreement. Plaintiffs are seeking monetary
damages, including punitive damages, in an unspecified amount. On May 12, 2000,
the Company filed a motion to dismiss the case on jurisdictional grounds, on
which the Court has not yet ruled. The Company believes it has meritorious
defenses to this lawsuit.
The Company has brought an action against the Town of Hampden, Maine to set
aside the Town's efforts to block the Company's construction of approximately
3,100,000 tons of capacity, for which the Company has been granted a permit by
the State of Maine. The action is pending in the Penobscot County Superior Court
in Bangor, Maine.
The Company is a defendant in a lawsuit brought by Woodstock '99, LLC seeking
damages for breach of two service contracts entered into by the Company for the
servicing of portable chemical toilets during the Woodstock Concert held in
Rome, N.Y. in late July 1999. Woodstock '99, LLC is seeking damages of up to
$2,000,000. The Company intends to vigorously defend the lawsuit and has filed
its Answer and Counterclaim, along with extensive discovery requests.
On May 11, 1994, Maine Energy filed a suit in a Maine state court against United
Steel Structures, Inc. under a warranty to recover the costs which were, or will
be incurred to replace the roof and walls of the Maine Energy tipping and
processing building. The judge in the case entered an order awarding Maine
Energy approximately $3.3 million plus interest from May 10, 1994, to the date
of the filing of the lawsuit, and court costs. The defendant filed an appeal on
December 19, 1997. In February 1999, the appellate court reversed the trial
court's verdict in favor of Maine Energy and returned the case to the trial
court, which ordered a new trial. The case has been settled in principle by a
proposed payment of $800,000 to Maine Energy. Settlement documents are being
prepared.
On April 1, 1999, William F. Kaiser, a former Executive Vice President and
Treasurer of KTI, filed a lawsuit against KTI in the U.S. District Court for the
District of New Jersey. The suit alleges breach of contract, wrongful
termination, breach of the implied covenant of good faith and fair dealing,
misrepresentation of employment terms and failure to pay wages, all arising out
of Mr. Kaiser's employment agreement with KTI. The suit also alleges that KTI
inaccurately reported its financial results for the first quarter of 1998 and
failed to properly disclose the change of control provision in Mr. Kaiser's
employment agreement. Mr. Kaiser is seeking a declaratory judgment that, upon
closing of the merger, the change of control provision entitles him to receive a
severance payment of two years' salary, in the amount of $320,000, and to
exercise 132,000 unvested options for KTI common stock. Mr. Kaiser is also
seeking damages in the amount of $40,000 for an additional severance payment, as
well as undisclosed damages for outstanding salary, bonus and other payments and
from his sale of approximately 20,000 shares of KTI common stock resulting from
KTI's allegedly inaccurate financial reports.
On April 15, 1999, C.H. Lee, a former employee of FCR and a former majority
shareholder of Resource Recycling, Inc., commenced arbitration proceedings with
the American Arbitration Association in Charlotte, North Carolina against KTI,
FCR and FCR Plastics, Inc. in connection with the acquisition of Resource
Recycling by FCR. Mr. Lee alleges that FCR and FCR Plastics acted to frustrate
the "earn-out" provisions of the acquisition agreement and thereby precluded Mr.
Lee from receiving, or alternatively, reduced, the sums to which he was entitled
to under the agreement. He also alleges that FCR and FCR Plastics wrongfully
terminated his employment agreement. The claim for arbitration alleges direct
charges in excess of $5.0 million and requests punitive damages, treble damages
and attorneys fees. KTI, FCR and FCR Plastics responded to the demand, denying
liability and filed a counterclaim for $1.0 million for misrepresentations. The
arbitration proceeding was held. On June 19, 2000, the arbitration panel
determined that FCR was entitled to recover $7,000 from Mr. Lee.
On July 1, 1999, Michael P. Kuruc filed a demand for arbitration with the
American Arbitration Association in Charlotte, North Carolina, seeking
approximately $1.0 million for compensation due under an employment agreement
that he alleges he has with KTI and losses allegedly suffered in connection with
his sale of KTI common stock. KTI believes that it has meritorious defenses, has
retained counsel to defend this suit and has filed an action to stay the
arbitration in Mecklenburg County Superior Court in North Carolina. On October
11, 1999, the Superior Court denied KTI's request to stay the arbitration. The
matter was subsequently settled by the payment to Mr. Kuruc of approximately
$190,000.
On April 6, 1999, Dennis McDonnell filed a lawsuit in a Florida state court
against U.S. Fiber, Inc., a subsidiary of the Company. Mr. McDonnell, a former
employee of U.S. Fiber, is seeking a declaratory judgment regarding his rights
and obligations under an employment non-competition agreement and an employment
agreement that he previously had signed with two corporations that subsequently
were merged with and into U.S. Fiber. The case was settled in 1999 by the
payment of $30,000 to McDonnell.
On or about April 26, 1999, Salvatore Russo filed an action in the U.S. District
Court, District of New Jersey against KTI and two of its principal officers,
Ross Pirasteh and Martin J. Sergi, purportedly on behalf of all shareholders who
purchased KTI common stock from May 4, 1998 through August 14, 1998. Melanie
Miller filed an identical complaint on May 14, 1999. The complaints allege that
the defendants made material misrepresentations in KTI's quarterly report on
form 10-Q for the period ended March 31, 1998 in violation of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, concerning KTI's
allowance for doubtful accounts and net income. The Plaintiffs are seeking
undisclosed damages. The Company believes it has meritorious defenses to these
complaints. On June 15, 1999, Mr. Russo and Ms. Miller, together with Fransisco
Munero, Timothy Ryan and Steve Storch, moved to consolidate the two complaints.
This motion is currently pending in the District Court of New Jersey.
On October 22, 1999, Kyle Trayner filed an action in Putnam Superior Court in
Connecticut against K-C International seeking approximately $400,000 allegedly
due for compensation under an employment agreement and for payment on a
promissory note issued by K-C International to Mr. Trayner. The Company believes
that it has meritorious defenses to these claims. This suit was settled in July
2000 for $100,000.
On May 11, 2000, The Company was granted a permit modification by the New
Hampshire Department of Environmental Services to increase the volume of solid
waste processed and stored at its GDS transfer station in Newport, New
Hampshire. On or about June 12, 2000, a local environmental activist appealed
the permit modification to the New Hampshire Waste Management Council. The
appeal claims that the modification will lead to adverse environmental impacts
through higher waste flows and increased levels of incineration at a nearby
waste-to-energy facility, that the Company has been the subject of "complaints"
arising from its New England and New York operations, and that the Company has
failed to demonstrate that the modification is consistent with the waste
management plan of the local waste management district. The Company expects to
seek a dismissal of the appeal for the appellant's lack of standing.
On January 7, 2000, the City of Saco, Maine filed a notice of claims with the
Company and Maine Energy claiming entitlement to certain "residual cancellation"
payments from Maine Energy under the waste handling agreement dated June 7, 1991
among the Biddeford-Saco Waste Handling Committee, Biddeford, Saco and Maine
Energy on the basis of the satisfaction of certain conditions, including the
acquisition of KTI by the Company. The notice of claims alleges that the
payments due to Saco exceed $33 million, and claims damages in such amounts for
breach of contract, breach of fiduciary duties and fraud and also claims treble
damages of $100 million based on alleged fraudulent transfer of Maine Energy's
assets. The notice also reserves the right to seek punitive damages. Although
the City of Biddeford, Maine has not filed a notice of claims, it has given
noticed that it will be initiating a suit to receive the residual cancellation
payments. Under the agreement, the aggregate amount to be paid upon the exercise
of the put right is 18% of the fair market value of the equity of the partners
in Maine Energy, and such amount is required to be paid within 120 days after
the exercise of the put by the respective parties entitled thereto. The Company
believes it has meritorious defenses to these claims.
On or about March 24, 2000, a complaint was filed in the United States District
Court, District of New Jersey against the Company, KTI, and three of KTI's
principal officers, Ross Pirasteh, Martin J. Sergi, and Paul A. Garrett. The
complaint purported to be behalf of all shareholders who purchased KTI common
stock from January 1, 1998 through April 14, 1999. The Complaint alleged that
the defendants made unspecified misrepresentations regarding KTI's financial
condition during the class period in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended. The plaintiffs seek undisclosed
damages. On or about April 6, 2000, the plaintiffs filed an amended class action
complaint, which changes the class period covered by the complaint on behalf of
all the defendants on July 21, 2000.
The Company is a defendant in certain other lawsuits alleging various claims
incurred in the ordinary course of business.
The Company believes that none of the above lawsuits, either individually or in
the aggregate, will be settled in a manner that will have a material impact to
its financial condition, results of operations or cash flows.
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, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Class A Common Stock trades on the Nasdaq National Market under
the symbol "CWST". 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 1999
First quarter .............................. $31.50 $24.375
Second quarter .................................. $34.00 $24.00
Third quarter............................... $39.00 $25.00
Fourth quarter.............................. $27.00 $17.25
Fiscal 2000
First quarter .............................. $27.250 $19.063
Second quarter ............................. $26.625 $12.75
Third quarter .............................. $19.313 $13.125
Fourth quarter ............................. $15.438 $5.563
On July 21, 2000, the high and low sale prices per share of the Company's Class
A Common Stock as quoted on the Nasdaq National Market were $12.313 and $12.125,
respectively. As of July 21, 2000 there were approximately 470 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 21, 2000 was $12.313. 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, 2000 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, 1998, 1999 and 2000, and the
consolidated balance sheets as of April 30, 1999 and 2000 are derived from the
Company's consolidated financial statements included elsewhere in this Form
10-K, and the consolidated statements of operations and cash flows data for the
fiscal years ended April 30, 1996 and 1997 and the consolidated balance sheet
data as of April 30, 1996, 1997 and 1998 are derived from the Company's
consolidated financial statements, all of which have been audited by Arthur
Andersen LLP. During the year ended April 30, 2000, the Company completed two
mergers, which were accounted for as poolings of interests. Accordingly, the
Company's financial and operating data for all periods presented have been
restated to reflect the financial position, results of operations and cash flows
of the merged entities as if they had been one company. 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 Form 10-K.
Casella Waste Systems, Inc.
Selected Consolidated Financial And Operating Data
(In thousands, except share and per share data)
Fiscal Year Ended April 30, (1)
-------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Statement of Operations Data:
Revenues $ 337,347 $ 182,557 $ 143,711 $ 103,520 $ 58,932
Cost of operations 210,730 108,874 89,582 65,460 35,878
General and administrative 42,116 26,616 20,926 16,139 10,416
Depreciation and amortization 40,211 25,725 19,959 15,371 9,206
Merger-related costs 1,490 1,951 290 -- --
Loss on impairment of long-lived assets -- -- 1,571 -- --
--------- --------- --------- --------- ---------
Operating income 42,800 19,391 11,383 6,550 3,432
Interest expense, net 15,034 5,564 7,373 4,940 --
Other expense (income), net 2,165 (352) (337) 846 3,168
--------- --------- --------- --------- ---------
Income before provision for income taxes,
discontinued operations and
extraordinary items 25,601 14,179 4,347 764 264
Provision for income taxes 12,258 7,531 2,512 681 148
Discontinued operations (1,662) (33) -- -- --
Extraordinary items, net (631) -- -- -- 326
--------- --------- --------- --------- ---------
Net income (loss) $ 11,050 $ 6,615 $ 1,835 $ 83 $ (210)
Accretion of preferred stock and put
warrants -- -- (5,738) (8,530) (2,967)
--------- --------- --------- --------- ---------
Net income (loss) applicable to common
stockholders $ 11,050 $ 6,615 $ (3,903) $ (8,447) $ (3,177)
========= ========= ========= ========= =========
Basic net income (loss) per common share $ 0.59 $ 0.44 $ (0.41) $ (1.52) $ (0.71)
========= ========= ========= ========= =========
Basic weighted average common shares
outstanding (2) 18,731 15,145 9,547 5,548 4,504
========= ========= ========= ========= =========
Diluted net income (loss) per common share $ 0.57 $ 0.41 $ 0.41 $ (1.52) $ (0.71)
========= ========= ========= ========= =========
Diluted weighted average common shares
outstanding (2) 19,272 16,019 9,547 5,548 4,504
========= ========= ========= ========= =========
Casella Waste Systems, Inc.
Selected Consolidated Financial And Operating Data
(In thousands, except share and per share data)
Fiscal Year Ended April 30, (1)
-------------------------------
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
Other Operating Data:
Capital expenditures $ (69,455) $ (54,118) $ (29,416) $ (20,825) $ (12,293)
========= ========= ========= ========= =========
Other Data:
Cash flows from operating activities $ 41,585 $ 37,727 $ 21,079 $ 17,280 $ 9,840
========= ========= ========= ========= =========
Cash flows from investing activities $(156,343) $ (95,976) $ (61,263) $ (56,495) $ 29,547
========= ========= ========= ========= =========
Cash flows from financing activities $ 119,390 $ 59,154 $ 40,673 $ 40,116 $ 19,164
========= ========= ========= ========= =========
Adjusted EBITDA (3) $ 83,011 $ 45,116 $ 32,913 $ 21,921 $ 12,638
========= ========= ========= ========= =========
Balance Sheet Data:
Cash and cash equivalents $ 8,864 $ 4,232 $ 3,327 $ 2,838 $ 1,938
========= ========= ========= ========= =========
Working capital (deficit) $ 84,302 $ 6,117 $ 4,210 $ (4,554) $ (716)
========= ========= ========= ========= =========
Property and equipment, net $ 379,086 $ 131,076 $ 91,451 $ 75,626 $ 43,528
========= ========= ========= ========= =========
Total assets $ 872,177 $ 282,129 $ 205,509 $ 153,366 $ 74,650
========= ========= ========= ========= =========
Long-term obligations, less
current maturities $ 440,804 $ 86,739 $ 83,681 $ 82,187 $ 28,165
========= ========= ========= ========= =========
Redeemable preferred stock $ -- $ -- $ -- $ 31,426 $ 22,896
========= ========= ========= ========= =========
Redeemable put warrants (4) $ -- $ -- $ -- $ 400 $ 400
========= ========= ========= ========= =========
Total stockholders' equity $ 274,718 $ 147,978 $ 83,764 $ 35,449 $ 25,451
========= ========= ========= ========= =========
(1) The Company has restated its consolidated statements of operations and
consolidated statements of cash flows to reflect the mergers with Resource
Waste Systems, Inc. and Corning Community Disposal, Inc. consummated during
the year ended April 30, 2000, accounted for using the pooling of interests
method of accounting. See Note 2 of the Notes to Consolidated Financial
Statements.
(2) Computed on the basis described in Note 1 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 Statements 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 Form 10-K.
Casella Waste Systems, Inc. ("the Company") is a regional, integrated solid
waste services company that provides collection, transfer, disposal and
recycling services, generates steam and manufactures finished products utilizing
recyclable materials primarily throughout the eastern portion of the United
States and parts of Canada. The Company also markets recyclable metals,
aluminum, plastics, paper and corrugated cardboard all processed at its
facilities and recyclables purchased from third parties. The Company also
generates electricity under its contracts with its two majority owned
subsidiaries, Maine Energy Recovery Company LP ("Maine Energy") and Penobscot
Energy Recovery Company LP ("PERC"), and through its wholly owned subsidiary,
Timber Energy Resource, Inc. ("TERI"). As of July 21, 2000, the Company owned
and/or operated five Subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 39 transfer stations, 40 recycling
processing facilities, 39 solid and liquid waste collection divisions, 12 power
generation facilities, 3 finished products processing facilities and its
cellulose insulation joint venture.
The Company's revenues have increased from $38.6 million for the fiscal year
ended April 30, 1995, to $337.3 million for the fiscal year ended April 30,
2000. From May 1, 1994 through April 30, 2000, the Company acquired 167 solid
waste collection, transfer and disposal operations, as well as KTI, Inc. ("KTI")
in December 1999. Under the rules of purchase accounting the acquired companies'
revenues and results of operations have been included together with those of the
Company from the actual dates of the acquisitions and materially affect the
period-to-period comparisons of the Company's historical results of operations.
During the year ended April 30, 2000, the Company acquired two waste collection,
transfer and disposal operations in transactions accounted for as poolings of
interests. Under the rules governing poolings of interests, 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 Form 10-K 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 Form 10-K 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 forecasted 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 and disposal waste collection, landfill, waste-to-energy, 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, waste-to-energy
facility 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 disposal and transfer customers are
under one 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, operations and maintenance contracts of recycling
facilities for municipal customers, recyclable brokering operations and from the
sale of tire derived fuel. The Company, as a result of the KTI acquisition,
provides integrated waste handling services, including processing and recycling
of wood, paper, metals, aluminum, plastics and glass, municipal solid waste
processing and disposal, specialty waste disposal, ash residue recycling,
brokerage of recycled materials and the manufacturing of finished products,
primarily consisting of cellulose insulation manufacturing, using recyclable
materials. Effective August 1, 2000, the Company contributed its cellulose
insulation assets to a joint venture with Louisiana-Pacific, and accordingly,
will recognize half of the joint venture's net income/(loss). The Company
emphasizes the use of low-cost processing to add value to the waste products
delivered and, in some cases, the generation of electric power and steam. The
Company operates these non-core businesses under four reportable line of
business segments: Waste-to-Energy, Residential Recycling, Commercial Recycling
and Finished Products. These line of business segments are reflected in the
Company's revenues as follows: Waste-to-Energy is reflected under "disposal",
Residential Recycling is reflected under "recycling", Commercial Recycling is
reflected under "recycling" and "brokerage", and Finished Products is reflected
under its own line. 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 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 collection revenues as
a percentage of revenues in fiscal 2000 is primarily attributable to the effects
of the KTI acquisition. Significant recycling, finished products and brokerage
revenues were added through that acquisition. The decrease in the Company's
landfill revenues and in the Company's transfer revenues as a percentage of
revenues in 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. The increase in the Company's
landfill/disposal facilities revenues and the Company's transfer revenues as a
percentage of revenue in fiscal 2000 is primarily attributable to the effects of
the KTI acquisition.
% of Revenues
-------------
Year Ended April 30,
--------------------
1998 1999 2000
----- ----- -----
Collection ........................... 77.7% 80.5% 49.1%
Landfill/Disposal Facilities ......... 10.3 8.4 15.1
Transfer ............................. 4.9 4.6 6.4
Recycling ............................ 5.5 5.9 7.5
Finished Products .................... 0.0 0.0 4.2
Brokerage ............................ 0.0 0.0 15.1
Other ................................ 1.6 0.6 2.6
----- ----- -----
Total Revenues ....................... 100.0% 100.0% 100.0%
===== ===== =====
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 life 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 zero 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,
--------------------
1998 1999 2000
----- ----- -----
Revenues........................................ 100.0% 100.0% 100.0%
Cost of operations.............................. 62.3 59.6 62.5
General and administrative...................... 14.6 14.6 12.5
Merger related costs............................ 0.2 1.1 0.4
Depreciation and amortization................... 13.9 14.1 11.9
Loss on impairment of long-lived assets......... 1.1 0.0 0.0
----- ----- -----
Operating income................................ 7.9 10.6 12.7
Interest expense, net........................... 5.1 3.1 4.5
Other (income) expenses, net.................... (0.2) (0.2) 0.6
Provision for income taxes...................... 1.7 4.1 3.6
----- ----- -----
Net income before discontinued operations
and extraordinary item 1.3 3.6 4.0
===== ===== =====
Adjusted EBITDA*................................ 22.9% 24.7% 24.6%
===== ===== =====
* See discussion and computation of adjusted EBITDA below.
Fiscal Year Ended April 30, 2000 versus April 30, 1999
REVENUES:
Revenues increased approximately $154.7 million, or 84.7% to $337.3 million in
fiscal 2000 from $182.6 million in fiscal 1999. Approximately $138.7 million of
the increase was attributable to the impact of businesses acquired throughout
fiscal 1999 and fiscal 2000, including KTI, which was acquired in December 1999.
In addition, the balance of the increase of approximately $16.0 million was
attributable to internal volume and price growth, including the positive impact
of higher average recyclable commodity prices in fiscal 2000 compared to fiscal
1999.
COST OF OPERATIONS:
Cost of operations increased approximately $101.8 million or 93.5% to $210.7
million in fiscal 2000 from $108.9
million in fiscal 1999. Cost of operations as a percentage of revenues increased
to 62.5% in fiscal 2000 from 59.6% in fiscal 1999. The increase in cost of
operations as a percentage of revenues was primarily the result of acquiring
KTI's recyclable brokerage operations, which carry high cost of operations as a
percentage of revenues (approximately 90%). Brokerage comprised approximately
15% of the Company's revenues in fiscal 2000, versus 0% in fiscal 1999.
Additionally, the finished products line of business carries a lower operating
margin than the Company's core solid waste business operations.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased approximately $15.5 million, or
58.2% to $42.1 million in fiscal 2000 from $26.6 million in fiscal 1999. General
and administrative expenses as a percentage of revenues decreased to 12.5% in
2000 from 14.6% in fiscal 1999. The decrease in general and administrative
expenses as a percentage of revenues was primarily the result of acquiring KTI's
recyclable brokerage operations, which carry low general and administrative
costs as a percentage of revenues (approximately 6%). The general and
administrative cost savings from acquiring KTI also contributed to the lower
general and administrative expenses as a percentage of revenues in fiscal 2000.
MERGER-RELATED COSTS:
Merger-related costs consist of legal, engineering, accounting and other costs
associated with the various poolings of interests consummated during fiscal 1999
and fiscal 2000. Four such transactions occurred during fiscal 1999 and two
occurred in fiscal 2000, resulting in a decrease of $0.5 million or 23.6%.
Merger related costs as a percentage of revenues decreased to 0.4% in fiscal
2000 from 1.1% in fiscal 1999.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $14.5 million, or 56.4%, to
$40.2 million in fiscal 2000 from $25.7 million in fiscal 1999. Depreciation and
amortization expenses as a percentage of revenue decreased to 11.9% in fiscal
2000 from 14.1% in fiscal 1999. The decrease in depreciation and amortization
expenses as a percentage of revenues was the result of the Company's acquisition
of KTI. KTI carried lower depreciation expense as a percentage of revenues
(approximately 7%) than the Company (approximately 14.5%).
INTEREST EXPENSE, NET:
Net interest expense increased approximately $9.4 million, or 167.9% to $15.0
million in fiscal 2000 from $5.6 million in fiscal 1999. Interest expense, net,
as a percentage of revenues, increased to 4.5% in 2000 from 3.1% in fiscal 1999.
The increase in net interest expense as a percentage of revenues is primarily
attributable to two factors. They are as follows: (i) higher average debt
balance in fiscal 2000, versus fiscal 1999 and (ii) the Company closed on a new
$450 million senior credit facility in December 1999 that raised the Company's
borrowing cost by approximately 200 basis points over the Company's previous
senior credit facility.
OTHER (INCOME)/EXPENSE (INCLUDING MINORITY INTEREST AND EQUITY IN LOSS ON
UNCONSOLIDATED SUBSIDIARY):
Other (income)/expense increased $2.6 million, or 650%, to $2.2 million in
fiscal 2000 from $(0.4) million in fiscal 1999. Other (income)/expense, as a
percentage of revenues, increased to 0.6% in fiscal 2000 from (0.2%) in fiscal
1999. The other (income)/expense in fiscal 2000 is primarily attributable to the
loss on sale of certain assets in the fourth quarter of fiscal 2000, and the
equity loss on KTI's investment in Oakhurst.
PROVISION FOR INCOME TAXES:
Provision for income taxes increased $4.8 million, or 64.0%, to $12.3 million in
fiscal 2000 from $7.5 million in fiscal 1999. Provision for income taxes, as a
percentage of revenues, decreased to 3.6% in fiscal 2000 from 4.1% in fiscal
1999. The increase is primarily due to the Company's increase in profitability
in fiscal 2000 compared to fiscal 1999. An additional factor causing provision
for income taxes, as a percentage of pre-tax net income to vary was 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, 1999 versus April 30, 1998
- ------------------------------------------------------
REVENUES:
Revenues increased $38.9 million, or 27.1%, to $182.6 million in fiscal 1999
from $143.7 million in fiscal 1998. Approximately $29.2 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 prices in fiscal 1999 compared to fiscal
1998).
COST OF OPERATIONS:
Cost of operations increased approximately $19.3 million, or 21.5%, to $108.9
million in fiscal 1999 from $89.6 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 59.6% in fiscal 1999 from
62.3% 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 $5.7 million, or
27.3%, to $26.6 million in fiscal 1999 from $20.9 million in fiscal 1998.
General and administrative expenses as a percentage of revenues remained
constant at 14.6% from fiscal 1998 to fiscal 1999 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. This
increase was substantially offset by two acquisitions accounted for using the
pooling of interest method. These acquisitions had relatively low general and
administrative costs as a percentage of revenue.
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 four occurred
during 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 $5.7 million, or 28.5%, to $25.7
million in fiscal 1999 from $20.0 million in fiscal 1998. As a percentage of
revenues, depreciation and amortization expense increased to 14.1% in fiscal
1999 from 13.9% 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 $1.8 million, or 24.3%, to $5.6
million in fiscal 1999 from $7.4 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 $.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 200.0%, 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. The other primary
factors causing income tax expense as a percentage of pre-tax net income to vary
were: (i) the recording of a fixed asset impairment charge in fiscal 1998 which
was non-deductible for income tax purposes and (ii) poolings of interests
resulting in prior period restatements of entities not liable for federal income
tax 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. Because of
these needs the Company has in the past had working capital deficits. The
Company had positive net working capital of $84.3 million at April 30, 2000
compared to $6.1 million positive net working capital at April 30, 1999.
The Company has a $450 million revolving line of credit with a group of banks
for which BankBoston, N.A. is acting as agent. This line of credit consists of a
$300 million Senior Secured Revolving Credit Facility ("Revolver") and a $150
million Senior Secured Delayed Draw Term "B" Loan ("Term Loan"). This line of
credit is secured by all assets of the Company, including the Company's interest
in the equity securities of its subsidiaries. The Revolver matures in December
2004 and the Term Loan matures in December 2006. Funds available to the Company
under the line of credit were $71.1 million at April 30, 2000.
On June 28, 2000, the Company entered into an agreement with Berkshire Partners
pursuant to which it agreed to sell Berkshire redeemable convertible preferred
stock, which is convertible into the Company's Class A Common Stock at $14.00
per share. The Company expects to raise approximately $55.8 million in the
transaction, which is expected to close in August 2000.
The Company believes that its cash provided internally from operations together
with the Company's available credit facilities and the preferred stock financing
should enable it to meet its needs for working capital for the next twelve
months.
Net cash provided by operations for the fiscal years ended April 30, 2000 and
April 30, 1999 was $41.6 million and $37.7 million, respectively. The increase
was primarily due to the increase in the Company's net income for the fiscal
year 2000, net of non-cash depreciation and amortization expense, which was
partially offset by an increase in net working capital.
Net cash provided by operations in fiscal 1999 increased to $37.7 million from
$21.1 million in fiscal 1998 primarily due to increases in net income, net of
non-cash depreciation and amortization expense.
For fiscal 2000 and fiscal 1999, cash used in investing activities was $156.3
million and $96.0 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 1998, cash used in
investing activities was $61.3 million.
For fiscal 2000 and fiscal 1999, the Company's financing activities provided
cash of $119.4 million and $59.2 million, respectively. Net cash provided by
financing activities was $40.7 million in the fiscal year ended April 30, 1998.
The net cash provided by financing activities in the fiscal years ended April
30, 2000 and 1999 primarily reflects the net proceeds of the Company's secondary
public stock offering and borrowings on the Company's credit facility, offset by
repayments. Net cash provided by financing activities in fiscal 1998 reflects
primarily bank borrowings and seller subordinated notes, less principal payments
on debt.
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 eastern 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
- ----------------
As of the date of this filing, the Company has not incurred any significant
business disruptions as a result of Year 2000 issues.
New Accounting Pronouncements
- -----------------------------
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 amends FASB Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", by deferring the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. 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. The Company will
adopt SFAS No. 133 beginning May 1, 2001. The Company has yet to quantify the
impacts of adopting SFAS No. 133 on its financial statements and has not
determined the timing or method of adoption. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
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)
----------
1998 1999 2000
---------------------------------
Operating Income $11,383 $19,391 $42,800
Depreciation and Amortization 19,959 25,725 40,211
Loss on Impairment of Long-Lived Assets (1) 1,571 0 0
------- ------- -------
Adjusted EBITDA $32,913 $45,116 $83,011
======= ======= =======
EBITDA as a percentage of revenues 22.9% 24.7% 24.6%
======= ======= =======
(1) See Note 1 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 Form 10-K and presented elsewhere by management from time to time.
WE MAY EXPERIENCE DIFFICULTIES INTEGRATING KTI'S OPERATIONS AND ASSETS.
We acquired KTI on December 14, 1999. Since that time, we have experienced
difficulties in integrating the operations of KTI and these difficulties have
caused us to revise our publicly disclosed projections. There can be no
assurance that we will not continue to experience difficulties in integrating
KTI's operations effectively and that the acquisition will result in the
synergies and other benefits anticipated by the two companies. Among other
matters, in connection with the KTI acquisition we assume certain obligations to
finance and support a tire recycling joint venture. We cannot assure you that
the joint venture will achieve projected financial results or not divert
management resources.
OUR INCREASED LEVERAGE MAY IMPACT OUR ABILITY TO MAKE FUTURE ACQUISITIONS.
As a result of the acquisition of KTI and the increase in our credit facility,
our indebtedness has increased substantially. This increased indebtedness has
resulted in increased borrowing costs, which have adversely impacted our
operating results. In addition, the aggregate amount of indebtedness has limited
and may continue to limit the Company's ability to incur additional
indebtedness, and thereby may limit the Company's ongoing acquisition program.
WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS, WHICH COULD AFFECT OUR FUTURE
GROWTH.
Our strategy envisions that a substantial part of our future growth will come
from making acquisitions consistent with our strategy. There can be no assurance
that we 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 us, or to integrate the operations of such acquired
businesses with our operations. Certain of these acquisitions may be of
significant size and may include assets that are outside our geographic
territories or are ancillary to our core business strategy. In addition, due to
the increased consolidation of the solid waste industry and our current size, we
cannot assure you that we will be able to make acquisitions in the future at a
rate consistent with our historical growth rate.
WE ARE DEPENDENT ON THE MEMBERS OF OUR SENIOR MANAGEMENT TEAM.
We are highly dependent upon the services of the members of our senior
management team, the loss of any of whom may have a material adverse effect on
our business, financial condition and results of operations. In addition, our
future success depends on our continuing ability to identify, hire, train,
motivate and retain highly trained personnel. We may be in default under our
credit facility if either John Casella or James Bohlig ceases to be employed by
us.
OUR ABILITY TO MAKE ACQUISITIONS IS DEPENDENT ON THE AVAILABILITY OF ADEQUATE
CASH AND THE ATTRACTIVENESS OF OUR STOCK PRICE.
We anticipate that any future business acquisitions will be financed through
cash from operations, borrowings under our bank line of credit, the issuance of
shares of our Class A Common Stock and/or seller financing. There can be no
assurance that we will have sufficient existing capital resources, that our
stock price will be sufficiently attractive for use in an acquisition or that we
will be able to raise sufficient additional capital resources on terms
satisfactory to us, if at all, in order to meet our capital requirements.
We also believe that a significant factor in our ability to close acquisitions
will be the attractiveness of our Class A Common Stock as consideration for
potential acquisition candidates. This attractiveness may, in large part, be
dependent upon the relative market price and capital appreciation prospects of
our Class A Common Stock compared to the equity securities of our competitors.
The recent declines in the market price of our Class A Common Stock could
materially adversely affect our acquisition program.
ENVIRONMENTAL REGULATIONS COULD SUBJECT US TO FINES, PENALTIES AND
LIMITATIONS ON OUR ABILITY TO EXPAND
We are subject to potential liability and restrictions under environmental laws.
Our waste-to-energy and manufacturing facilities are subject to regulations
limiting discharges of pollution into the air and water, and the solid waste
operations are subject to a wide range of Federal, state and, in some cases,
local environmental and land use restrictions. If we are not able to comply with
the requirements that apply to a particular facility, we could be subject to
fines and penalties, and we may be required to spend large amounts to bring an
operation into compliance or to temporarily or permanently stop an operation
that is not permitted under the law. Those costs or actions could have a
material adverse effect upon our business, financial condition and results of
operations.
Environmental and land use laws also can have an impact on whether our
operations can expand and, in the case of our solid waste operations, may
dictate those geographic areas from which we must, or, from which we may not,
accept waste. The waste management industry has been and likely will continue to
be subject to regulation, as well as to attempts to regulate the industry
through new legislation. Those regulations and laws also may limit the overall
size and daily waste volume that may be accepted by a solid waste operation. If
we are not able to expand or otherwise operate one or more of our facilities
profitably because of limits imposed under environmental laws, we may be
required to increase our utilization of disposal facilities owned by third
parties, and if so, our business, financial condition and results of operation
could suffer a material adverse effect.
We have grown through acquisitions, and we have tried to evaluate and address
environmental risks and liabilities presented by newly acquired businesses as we
have identified them. It is possible that some liabilities, including ones that
may exist only because of the past operations of an acquired business, may prove
to be more difficult or costly to address than we anticipate. It is also
possible that government officials responsible for enforcing environmental laws
may believe an issue is more serious than we would expect, or that we will fail
to identify or fully appreciate a historic liability before we become legally
responsible to address it. Some of the legal sanctions to which we could become
subject could cause us to lose a needed permit, or prevent us from or delay us
in obtaining or renewing permits to operate our facilities. The number, size and
nature of those liabilities could have a material adverse effect on our
business, financial conditions and results of operations.
Our operating program depends on our ability to operate and expand the landfills
we own and lease and to develop new landfill sites. Several of our 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 our landfills are located will not have a material
adverse effect on our utilization of our landfills or that we will be successful
in obtaining new landfill sites or expanding the permitted capacity of any of
our current landfills once their remaining disposal capacity has been consumed.
OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY CHANGING PRICES OR
MARKET REQUIREMENTS FOR RECYCLABLE MATERIALS
Our results of operations may be materially adversely affected by changing
purchase or resale prices or market requirements for recyclable materials. Our
recycling business involves the purchase and sale of recyclable materials, some
of which are priced on a commodity basis. The resale and purchase prices of, and
market demand for, recyclable materials, particularly wastepaper, plastic and
ferrous and aluminum metals, can be volatile due to numerous factors beyond our
control. These changes have in the past contributed, and may continue to
contribute, to significant variability in our period-to-period results of
operations.
Some of our subsidiaries involved in the recycling business use long-term supply
contracts with customers with floor price arrangements to minimize the commodity
risk for recyclable materials, particularly wastepaper and aluminum metals.
Under these contracts, our subsidiaries obtain a guaranteed minimum floor price
for the recyclable materials along with a commitment to receive additional
amounts if the current market price rises above the minimum price. These
contracts are generally with large domestic companies, which use the recyclable
materials in their manufacturing processes. Any failure to continue to secure
long-term supply contracts with minimum price arrangements, or a breach by
customers of one or more of these contracts could reduce our recycling revenues
and have a material adverse effect on our business, financial condition and
results of operations.
THE SEASONALITY OF OUR REVENUES COULD ADVERSELY IMPACT OUR FINANCIAL
CONDITION
Future seasonal fluctuations in our revenues could have a material adverse
effect on our business, financial condition and results of operations. Our
revenues have historically been lower during the months of November through
March. This seasonality reflects the lower volume of solid waste during the late
fall, winter and early spring months resulting primarily from:
- the volume of solid waste relating to construction and demolition
activities decreasing substantially during the winter months in the northeastern
United States; and
- decreased tourism in Vermont, Maine, New Hampshire and eastern New York
during the winter months, which tends to lower the volume of solid waste
generated by commercial and restaurant customers, which is only partially offset
by the winter ski industry.
Since some of our operating and fixed costs remain constant throughout the
fiscal year, our operating income is seasonally impacted. In addition,
particularly harsh weather conditions could result in increased operating costs
for some of our operations.
OUR BUSINESS IS GEOGRAPHICALLY CONCENTRATED AND IS THEREFORE SUBJECT TO
REGIONAL ECONOMIC DOWNTURNS
Our operations and customers are principally located in the eastern United
States. Therefore, our business, financial condition and results of operations
are susceptible to regional economic downturns and other regional factors,
including state regulations and severe weather conditions. In addition, as we
expand in our existing markets, opportunities for growth within these regions
will become more limited. The costs and time involved in permitting and the
scarcity of available landfills will make it difficult for us to expand
vertically in these markets. We cannot assure you that we will complete enough
acquisitions in other markets to lessen our regional geographic concentration.
WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE IN THE HIGHLY COMPETITIVE SOLID
WASTE SERVICES INDUSTRY
The solid waste services industry is highly competitive, is undergoing a period
of increasingly rapid consolidation, and requires substantial labor and capital
resources. Some of the markets in which we compete or will likely compete are
served by one or more of the large national or multinational solid waste
companies, as well as numerous regional and local solid waste companies. Intense
competition exists not only to provide services to customers, but also to
acquire other businesses within each market. Some of our competitors have
significantly greater financial and other resources than us. 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
either require us to reduce the pricing of our services or result in our loss of
business. As is generally the case in the industry, municipal contracts are
subject to periodic competitive bidding. There can be no assurance that we will
be the
successful bidder to obtain or retain these contracts. If we are unable to
compete with larger and better capitalized companies, or to replace municipal
contracts lost through the competitive bidding process with comparable contracts
or other revenue sources within a reasonable time period, our business,
financial condition and results of operations could be materially adversely
affected.
In our solid waste disposal markets, we also compete with operators of
alternative disposal and recycling facilities and with counties, municipalities
and solid waste districts that maintain their own waste collection, recycling
and disposal operations. These entities may have financial advantages because
user fees or similar charges, tax revenues and tax-exempt financing may be more
available to them than to us.
Our finished products divisions and our insulation manufacturing joint venture
with Louisiana-Pacific compete with other parties, some of which have
substantially greater resources than we do, which they could use for product
development, marketing or other purposes to our detriment.
ONE OF OUR SUBSIDIARIES SELLS ITS ENTIRE OUTPUT TO A FEW CUSTOMERS AND
LACKS THE CAPACITY TO MEET ALL OF ITS COMMITMENTS
One of our subsidiaries operates three steam generating plants, one of which
produces steam for a facility owned by E. I. du Pont de Nemours and Company
under a five-year contract expiring on May 30, 2003. Du Pont has significantly
reduced operations at this facility, and has the option to terminate the
contract upon payment of a termination fee. The second plant produces steam for
an industrial park. Approximately 85% of the steam produced by the plant is
purchased by one customer under a contract that may not be terminated by the
customer except for cause, and the balance is sold to ten customers under
contracts which provide that our subsidiary may elect not to supply steam.
Currently, maximum contracted capacity for all customers for steam exceeds the
maximum rated capacity that may be produced by this plant. Actual demand,
however, has not exceeded the maximum rated capacity. If actual demand grows,
the plant may need to install equipment to respond to peak demands, as well as
equipment which may be necessary to allow the plant to meet stricter air quality
standards, which may be adopted in the near future. The cost of this air quality
equipment, not including the equipment necessary to respond to peak demands, is
expected to be approximately $1.2 million. We have closed the third steam
generating plant, which sold all of its output to a customer which has filed for
bankruptcy. The termination of the contract with du Pont or any of the
significant customers who purchase steam from our subsidiary or its subsidiary
could have a material adverse effect on our business, financial condition and
results of operations.
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE NEGATIVELY
AFFECTED IF WE INADEQUATELY ACCRUE FOR CLOSURE AND POST-CLOSURE COSTS
We have material financial obligations relating to closure and post-closure
costs of our existing landfills and will have material financial obligations
with respect to any disposal facilities which we may own or operate in the
future. In addition to the landfills we currently operate, we own four unlined
landfills which are not currently in operation. We have provided and will in the
future provide accruals for financial obligations relating to closure and
post-closure costs of our owned or operated landfills, generally for a term of
30 years after final closure of a landfill. We cannot assure you that our
financial obligations for closure or post-closure costs will not exceed the
amount accrued and reserved or amounts otherwise receivable pursuant to trust
funds established for this purpose. Such a circumstance could result in
unanticipated charges and have a material adverse effect on our business,
financial condition and results of operations.
WE COULD BE PRECLUDED FROM ENTERING INTO CONTRACTS OR OBTAINING PERMITS IF WE
ARE UNABLE TO OBTAIN THIRD PARTY FINANCIAL ASSURANCE TO SECURE OUR CONTRACTUAL
OBLIGATIONS
Municipal solid waste collection and recycling contracts, obligations associated
with landfill closure and the operation and closure of waste-to-energy
facilities may require performance or surety bonds, letters of credit or other
means of financial assurance to secure our contractual performance. If we are
unable to obtain the necessary financial assurance in sufficient amounts or at
acceptable rates, we could be precluded from entering into additional municipal
solid waste collection contracts or from obtaining or retaining landfill
operating permits. Any future difficulty in obtaining insurance could also
impair our ability to secure future contracts conditioned upon the
contractor having adequate insurance coverage. Accordingly, our failure to
obtain financial assurance bonds, letters of credit or other means of financial
assurance or to maintain adequate insurance could have a material adverse effect
on our business, financial condition and results of operations.
WE MAY BE REQUIRED TO WRITE-OFF CAPITALIZED CHARGES IN THE FUTURE, WHICH
COULD ADVERSELY AFFECT OUR EARNINGS
Any charge against earnings could have a material adverse effect on our earnings
and the market price of our Class A Common Stock. In accordance with generally
accepted accounting principles, we capitalize certain expenditures and advances
relating to our acquisitions, pending acquisitions, landfills and development
projects. From time to time in future periods, we may be required to incur a
charge against earnings in an amount equal to any unamortized capitalized
expenditures and advances, net of any portion thereof that we estimate will be
recoverable, through sale or otherwise, relating to (a) any operation that is
permanently shut down or has not generated or is not expected to generate
sufficient cash flow, (b) any pending acquisition that is not consummated and
(c) any landfill or development project that is not expected to be successfully
completed. We have incurred such charges in the past.
OUR CLASS B COMMON STOCK HAS TEN VOTES PER SHARE AND IS HELD EXCLUSIVELY BY JOHN
W. CASELLA AND DOUGLAS R. CASELLA
The holders of our Class B Common Stock are entitled to ten votes per share and
the holders of our Class A Common Stock are entitled to one vote per share. At
July 21, 2000, an aggregate of 988,200 shares of our Class B Common Stock,
representing 9,882,000 votes, were outstanding, all of which were beneficially
owned by John W. Casella, our President and Chief Executive Officer, or by his
brother, Douglas R. Casella, a Director. Based on the number of shares of common
stock outstanding at July 21, 2000, the shares of our Class A Common Stock and
Class B Common Stock held by John W. Casella and Douglas R. Casella represent
approximately 34.7% of the aggregate voting power of our stockholders.
Consequently, John W. Casella and Douglas R. Casella will be able to
substantially influence all matters for stockholder consideration.
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.
In April 2000, the Company entered into two three-year interest rate swap
agreements (the "Swap Agreements") with two banks. 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. The Swap Agreements effectively fix the Company's interest rate on the
notional amount of $100 million, $50 million is fixed at 6.875% and $50 million
is swapped in a collar arrangement with interest between 6.28% and 9.0%. Net
monthly payments or monthly receipts under the Swap Agreements are recorded as
adjustments to interest expense. The Company also has an existing, five year
Swap Agreement which fixes the Company's interest rate on the notional amount
$45 million. The rate is fixed at 5.2% and expires in January 2001. 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
Agreements. If interest rates changed by 100 basis points, the impact on the
Company would be an increase or decrease in annual interest expense of
approximately $1.5 million.
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, 1999 and
2000, and the related consolidated statements of operations, redeemable
preferred stock, redeemable put warrants and stockholders' equity and cash flows
for each of the three years ended April 30, 2000. 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 auditing standards generally accepted
in the United States. 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, 1999 and 2000, and the results of their operations
and their cash flows for each of the three years ended April 30, 2000, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Boston, Massachusetts
June 30, 2000
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
April 30, April 30,
ASSETS 1999 2000
------ ----------------------------
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,232 $ 8,864
Restricted Cash 626 17,609
Accounts Receivable - Trade, net of allowance
for doubtful accounts of $1,430 and $6,247 22,815 80,720
Accounts Receivable - Other -- 14,429
Notes Receivable - Officers/Employees -- 2,095
Prepaid Expenses 3,528 5,929
Inventory 889 10,986
Investments -- 5,156
Deferred Income Taxes 1,016 12,730
Other Current Assets 3,188 10,299
--------- ---------
Total Current Assets 36,294 168,817
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at Cost:
Land and Land Held for Investment 7,258 11,784
Landfills 50,736 64,254
Landfill Development 7,559 10,353
Buildings and Improvements 24,727 45,494
Machinery and Equipment 23,653 230,852
Rolling Stock 57,487 78,740
Containers 26,679 34,761
--------- ---------
198,099 476,238
Less: Accumulated Depreciation and Amortization (67,023) (97,152)
--------- ---------
Property, Plant and Equipment, net 131,076 379,086
--------- ---------
OTHER ASSETS:
Intangible Assets, net 104,199 294,283
Restricted Cash 4,834 10,881
Investment in OCI/New Heights -- 14,695
Other Non-Current Assets 5,726 4,415
--------- ---------
114,759 324,274
--------- ---------
$ 282,129 $ 872,177
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, except for per share data)
LIABILITIES AND April 30, April 30,
STOCKHOLDERS' EQUITY 1999 2000
-------------------- ----------------------------
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 5,344 $ 8,367
Current Maturities of Capital Lease Obligations 402 788
Accounts Payable 17,883 43,335
Accrued Payroll and Related Expenses 857 5,536
Accrued Interest 167 3,994
Accrued Income Taxes -- 3,766
Accrued Closure and Post-Closure Costs,
Current Portion 330 259
Deferred Revenue 2,648 3,317
Other Current Liabilities 2,546 15,153
--------- ---------
Total Current Liabilities 30,177 84,515
--------- ---------
Long-Term Debt, Less Current Maturities 86,739 440,804
--------- ---------
Capital Lease Obligations, Less Current Maturities 1,454 3,748
--------- ---------
Deferred Income Taxes 5,710 30,948
--------- ---------
Accrued Closure and Post-Closure Costs,
Less Current Maturities 9,677 12,017
--------- ---------
Minority Interest -- 16,378
--------- ---------
Other Long-Term Liabilities 394 9,049
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Class A Common Stock -
Authorized - 100,000,000 Shares, $0.01 par value
Issued and Outstanding - 14,869,000 and 22,215,000
Shares as of April 30, 1999 and 2000, respectively 149 222
Class B Common Stock -
Authorized - 1,000,000 Shares, $0.01 par value 10
Votes per Share, Issued and Outstanding -988,000
Shares as of April 30, 1999 and 2000 10 10
Accumulated Other Comprehensive Loss -- (305)
Additional Paid-In Capital 154,733 270,655
Retained Earnings/(Accumulated Deficit) (6,914) 4,136
--------- ---------
Total Stockholders' Equity 147,978 274,718
--------- ---------
$ 282,129 $ 872,177
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Fiscal Year Ended April 30,
-----------------------------------
1998 1999 2000
--------- --------- ---------
Revenues $ 143,711 $ 182,557 $ 337,347
--------- --------- ---------
Operating Expenses:
Cost of Operations 89,582 108,874 210,730
General and Administration 20,926 26,616 42,116
Depreciation and Amortization 19,959 25,725 40,211
Merger Related Costs 290 1,951 1,490
Loss on Impairment of Long-Lived Assets 1,571 -- --
--------- --------- ---------
132,328 163,166 294,547
--------- --------- ---------
Operating Income 11,383 19,391 42,800
--------- --------- ---------
Other (Income)/Expense:
Interest Income (265) (77) (1,307)
Interest Expense 7,638 5,641 16,341
Minority Interest -- -- 502
Equity in Loss of OCI/New Heights -- -- 1,062
Other Expenses/(Income) (337) (352) 601
--------- --------- ---------
Other Expenses, net 7,036 5,212 17,199
--------- --------- ---------
Income from Continuing Operations Before
Income Taxes, Discontinued Operations
and Extraordinary Item 4,347 14,179 25,601
Provision for Income Taxes 2,512 7,531 12,258
--------- --------- ---------
Income from Continuing Operations Before
Discontinued Operations and Extraordinary Item 1,835 6,648 13,343
--------- --------- ---------
Discontinued Operations:
Loss from Discontinued Operations,
net of Income Taxes -- (33) (269)
Estimated Loss on Disposal of Discontinued
Operations, net of Income Taxes -- -- (1,393)
Extraordinary Item - Early Extinguishment
of Debt, net of Income Taxes -- -- (631)
--------- --------- ---------
Net Income 1,835 6,615 11,050
Accretion of Preferred Stock and Put Warrants (5,738) -- --
--------- --------- ---------
Net Income/(Loss) Applicable to Common Stockholders $ (3,903) $ 6,615 $ 11,050
========= ========= =========
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 for share and per share data)
Fiscal Year Ended April 30,
--------------------------------
1998 1999 2000
-------- -------- --------
Earnings Per Common Share:
Basic:
Income/(Loss) from Continuing Operations
Before Discontinued Operations and
Extraordinary Item $ (0.41) $ 0.44 $ 0.71
Loss on/from Discontinued Operations $ -- $ -- $ (0.09)
Extraordinary Item $ -- $ -- $ (0.03)
-------- -------- --------
Net Income/(Loss) per Common Share $ (0.41) $ 0.44 $ 0.59
======== ======== ========
Basic Weighted Average Common
Shares Outstanding 9,547 15,145 18,731
======== ======== ========
Diluted:
Income/(Loss) from Continuing Operations
Before Discontinued Operations and
and Extraordinary Item $ (0.41) $ 0.41 $ 0.69
Loss on/from Discontinued Operations $ -- $ -- $ (0.09)
Extraordinary Item $ -- $ -- $ (0.03)
-------- -------- --------
Net Income/(Loss) per Common Share $ (0.41) $ 0.41 $ 0.57
======== ======== ========
Diluted Weighted Average Common
Shares Outstanding 9,547 16,019 19,272
======== ======== ========
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
(In thousands)
Redeemable Preferred Stock
Series A Series B Series C Series D
Number Liquidation Number Liquidation Number Liquidation Number Liquidation
of Shares Value of Shares Value of Shares Value of Shares Value
-------- -------- -------- -------- -------- -------- -------- --------
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 Acquistions- Net of
Retirements
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options
Exercise and Call of Redeemable
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 Manditorily
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 -- $ -- -- $ -- -- $ -- -- $ --
-------- -------- -------- -------- -------- -------- -------- --------
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 -- $ -- -- $ -- -- $ -- -- $ --
-------- -------- -------- -------- -------- -------- -------- --------
Issuance of Class A Common Stock
and Stock Options - KTI
Acquisition
Issuance of Class A Common
Stock in Connection with
Exercise of Warrants/Options
Equity transactions of Majority-
Owned Subsidiary
Comprehensive Income
Net Income
Unrealized Loss on Securites
Total Comprehensive Income
-------- -------- -------- -------- -------- -------- -------- --------
Balance, April 30, 2000 -- $ -- -- $ -- -- $ -- -- $ --
======== ======== ======== ======== ======== ======== ======== ========
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
(In thousands)
Stockholders' Equity
--------------------------------------------
Class A Common Stock Class B Common Stock
Redeemable -------------------- --------------------
Put Warrants # of Shares Par Value # of Shares Par Value
-------- -------- -------- -------- --------
Balance, April 30, 1997 $ 400 5,093 $ 51 1,000 $ 10
Issuance of Class A Common
Stock-Net of Issuance Costs 3,000 30
Issuance of Class A Common
Stock in Various Acquistions-
Net of Retirements 103 1
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options 192 2
Exercise and Call of Redeemable
Put Warrants (400) 25
Accretion of Preferred Stock and
Issuance Costs
Conversion of Convertible
Preferred Stock 3,733 38
Redemption of Manditorily
Redeemable Preferred Stock
Conversion of Class B Common
into Class A 12 (12)
Equity Transactions/
Adjustments to Poolings
Net Income
-------- -------- -------- -------- --------
Balance, April 30, 1998 $ -- 12,158 $ 122 988 $ 10
-------- -------- -------- -------- --------
Issuance of Class A Common
Stock-Net of Issuance Costs 2,061 20
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options 582 6
Tax Benefit of Stock Options
Exercised
Equity Transactions/Adjustments
to Poolings 68 1
Net Income
-------- -------- -------- -------- --------
Balance, April 30, 1999 $ -- 14,869 $ 149 988 $ 10
-------- -------- -------- -------- --------
Issuance of Class A Common
Stock and Stock Options -
KTI Acquisition 7,152 72
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options 194 1
Equity transactions of Majority-
Owned Subsidiary
Comprehensive Income
Net Income
Unrealized Loss on Securites
Total Comprehensive Income
-------- -------- -------- -------- --------
Balance, April 30, 2000 $ -- 22,215 $ 222 988 $ 10
======== ======== ======== ======== ========
Retained Accumulated- Total
Additional Earnings Other Stock-
Paid-in (Accumulated Comprehen- holders'
Capital Deficit) sive (Loss) Equity
-------- -------- -------- --------
Balance, April 30, 1997 $ 11,661 $ (8,099) $ -- $ 3,623
Issuance of Class A Common
Stock-Net of Issuance Costs 48,428 48,458
Issuance of Class A Common
Stock in Various Acquistions-
Net of Retirements 1,599 1,600
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options 716 718
Exercise and Call of Redeemable
Put Warrants 250 (225) 25
Accretion of Preferred Stock and
Issuance Costs (5,513) (5,513)
Conversion of Convertible
Preferred Stock 33,932 33,970
Redemption of Manditorily
Redeemable Preferred Stock --
Conversion of Class B Common
into Class A --
Equity Transactions/
Adjustments to Poolings (188) (764) (952)
Net Income 1,835 1,835
-------- -------- -------- --------
Balance, April 30, 1998 $ 96,398 $(12,766) $ -- $ 83,764
-------- -------- -------- --------
Issuance of Class A Common
Stock-Net of Issuance Costs 52,211 52,231
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options 3,805 3,811
Tax Benefit of Stock Options
Exercised 2,220 2,220
Equity Transactions/Adjustments
to Poolings 99 (763) (663)
Net Income 6,615 6,615
-------- -------- -------- --------
Balance, April 30, 1999 $154,733 $ (6,914) $ -- $147,978
-------- -------- -------- --------
Issuance of Class A Common
Stock and Stock Options -
KTI Acquisition 113,788 113,860
Issuance of Class A Common Stock
in Connection with Exercise of
Warrants/Options 859 860
Equity transactions of Majority- --
Owned Subsidiary 1,275 1,275
Comprehensive Income
Net Income 11,050 --
Unrealized Loss on Securites (305) --
Total Comprehensive Income 10,745
-------- -------- -------- --------
Balance, April 30, 2000 $270,655 $ 4,136 $ (305) $274,718
======== ======== ======== ========
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,
-----------------------------------
1998 1999 2000
--------- --------- ---------
Cash Flows from Operating Activities:
Net Income $ 1,835 $ 6,615 $ 11,050
--------- --------- ---------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities -
Depreciation and Amortization 19,959 25,725 40,211
Loss on/from Discontinued Operations -- 33 1,662
Extraordinary Item -- -- 631
Loss on Impairment of Long-Lived Assets 1,571 -- --
(Gain)/Loss on Sale of Fixed Assets (335) 3 840
Provision for Deferred Income Taxes 2,237 1,647 4,094
Minority Interest -- -- 502
Non-Cash Employee Compensation 60 -- --
Changes in Assets and Liabilities, net of
Effects of Acquisitions -
Accounts Receivable (1,819) (1,754) (14,186)
Deferred Income Taxes (474) (1,089) 7,845
Accounts Payable 1,486 4,349 (2,498)
Accrued Closure and Post-Closure Costs (1,763) 2,099 2,269
Other Current Assets and Liabilities (1,678) 99 (10,385)
--------- --------- ---------
19,244 31,112 30,535
--------- --------- ---------
Net Cash Provided by Operating Activities 21,079 37,727 41,585
--------- --------- ---------
Cash Flows from Investing Activities:
Acquisitions, Net of Cash Acquired (35,793) (33,336) (81,838)
Additions to Property and Equipment (29,416) (54,118) (69,455)
Proceeds from Sale of Equipment 1,182 587 1,317
Restricted Funds 698 (1,291) (375)
Advances to Unconsolidated Subsidiary -- -- (5,580)
Other 2,066 (7,818) (412)
--------- --------- ---------
Net Cash Used in Investing Activities (61,263) (95,976) (156,343)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 48,455 52,231 --
Proceeds from Equity Transactions of Majority-
Owned Subsidiary -- -- 1,275
Proceeds from Exercise of Stock Warrants/Options 869 3,811 860
Equity Transactions of Pooled Entities (887) 193 --
Call of Redeemable Put Warrants (525) -- --
Redemption of Series C Preferred Stock (2,970) -- --
Proceeds from Long-Term Borrowings 162,356 73,728 423,955
Principal Payments on Long-Term Debt (166,625) (70,809) (306,700)
--------- --------- ---------
Net Cash Provided by Financing Activities 40,673 59,154 119,390
--------- --------- ---------
Net Increase in Cash and Cash Equivalents 489 905 4,632
Cash and Cash Equivalents, Beginning of Year 2,838 3,327 4,232
--------- --------- ---------
Cash and Cash Equivalents, End of Year $ 3,327 $ 4,232 $ 8,864
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for -
Interest $ 7,988 $ 6,288 $ 12,514
========= ========= =========
Income Taxes $ 672 $ 6,952 $ 1,876
========= ========= =========
Supplemental Disclosures of Non-Cash Investing
and Financing Activities:
Summary of Entities Acquired
in Purchase Business Combinations
Fair Market Value of Assets Acquired $ 42,554 $ 36,210 $ 519,054
Common Stock and Stock Options Issued (1,603) -- (113,860)
Cash Paid, net (35,793) (33,336) (81,838)
--------- --------- ---------
Liabilities Assumed and Notes Payable
to Sellers $ 5,158 $ 2,874 $ 323,356
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All amounts in thousands, except share and per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Casella Waste Systems, Inc. ("the Company") is a regional, integrated solid
waste services company that provides collection, transfer, disposal and
recycling services, generates steam and manufactures finished products utilizing
recyclable materials primarily throughout the eastern portion of the United
States and parts of Canada. The Company also markets recyclable metals,
aluminum, plastics, paper and corrugated cardboard all processed at its
facilities and recyclables purchased from third parties. The Company also
generates electricity under its contracts with its two majority owned
subsidiaries, Maine Energy Recovery Company LP ("Maine Energy") and Penobscot
Energy Recovery Company LP ("PERC"), and through its wholly owned subsidiary,
Timber Energy Recovery, Inc. ("TERI"). As of April 30, 2000, the Company owned
and/or operated five Subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 39 transfer stations, 40 recycling
processing facilities, 39 solid and liquid waste collection divisions, 12 power
generation facilities, three finished products processing facilities and an
interest in its cellulose insulation joint venture with Louisiana Pacific.
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 and majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. The
consolidated financial statements and accompanying notes have also been restated
to reflect material acquisitions accounted for as poolings-of-interests. Certain
reclassifications have been made to the prior period financial statements to
conform to the current presentation.
(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 collection, transfer, recycle and disposal 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.
Revenues from the sale of electricity to local utilities by the Company's
majority owned waste-to-energy facilities (see Note 3) are recorded at the
contract rate specified in each entity's power purchase agreement as it is
delivered.
Revenues from the sale of recycled materials and finished products are
recognized upon shipment. Rebates to certain municipalities based on sales of
recyclable materials are recorded upon the sale of such recyclables to third
parties and are included in revenues. Revenues for processing of recyclable
materials are recognized when the related service is provided.
Revenues from brokerage are recognized when the goods are shipped to their end
market.
(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, 2000 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) Restricted Cash
Restricted cash consists of cash held in trust on deposit with various banks
that support the Company's financial assurance obligations for its facilities'
closure and post-closure costs and cash held in trust, all of which are
available, under certain circumstances, for current operating expenses, debt
service, capital improvements and repairs and maintenance in accordance with
certain contractual obligations. Restricted cash available for current operating
and debt service purposes is classified as a current asset. A summary of
restricted cash is as follows:
April 30, 1999 April 30, 2000
-------------- --------------
Short Long Short Long
Term Term Total Term Term Total
---- ---- ----- ---- ---- -----
Debt Service $ 0 $ 0 $ 0 $ 4,478 $ 5,677 $10,155
Landfill Closure 626 4,834 5,460 154 3,566 3,720
Other Facilities Closure 0 0 0 0 410 410
Facility Maintenance and
Operations 0 0 0 12,612 1,228 13,840
Other 0 0 0 365 0 365
------- ------- ------- ------- ------- -------
Total $ 626 $ 4,834 $ 5,460 $17,609 $10,881 $28,490
======= ======= ======= ======= ======= =======
(g) Inventory
Inventory consists primarily of secondary fibers, recyclables ready for sale and
certain finished products and is stated at the lower of cost (first-in,
first-out) or market. Inventory consisted of finished goods of approximately
$889 and $9,003 at April 30, 1999 and 2000 respectively, and raw materials of
$1,983 at April 30, 2000.
(h) Investments
The Company owns warrants to purchase 542,786 shares of common stock in
Bangor-Hydro Electric, PERC's sole customer for electricity. In accordance with
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company classifies these securities as "available for sale,"
and records them at their fair value. The change in the fair value of the
securities is adjusted through other comprehensive income/(loss).
(i) Property, Plant and Equipment
Property and equipment are recorded at cost, less accumulated depreciation and
amortization. The Company provides for depreciation and amortization using the
straight-line method by charges to operations in amounts that allocate the cost
of the assets over their estimated useful lives as follows:
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, 1998, 1999 and 2000 was
$10,776, $14,151 and $25,046 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. Landfill preparation costs include the costs of
construction associated with excavation, liners, site berms and the installation
of leak detection and leachate collection systems. 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, 1998, 1999 and 2000 was $136, $530 and $640 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 landfill airspace is consumed. 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.
(j) Investment in OCI/New Heights
As part of its acquisition of KTI (see Note 2), the Company obtained a 35%
ownership in Oakhurst Company, Inc. ("OCI"), which it accounts for on the equity
basis of accounting. OCI reported revenues of $20.5 million and net loss of $5.5
million for its fiscal year ended February 29, 2000. At April 30, 2000, among
other businesses, OCI has a 50% ownership in New Heights Recovery and Power LLC
("New Heights"), a fully integrated waste tire and glass recycling and power
generation facility in Ford Heights, IL.
In addition to its ownership of OCI, the Company had a commitment to loan up to
$17 million in the form of a note receivable to OCI for the purpose of allowing
OCI to fund its equity commitment and investment ($17 million) in New Heights.
The Company had loaned $14.7 million to OCI through April 30, 2000, including
$5,580 loaned by the Company since the date of the KTI acquisition. These funds
were used by New Heights for capital improvements necessary to upgrade the
facility into a fully integrated recycling and power generation facility, to
fund certain acquisitions of waste tire collection companies and to fund
operating costs and working capital needs of the facility.
The New Heights facility has been in development and start-up for over one year,
as of April 30, 2000, and has sustained substantial operating losses. OCI's
ability to repay its note to the Company is predicated upon the success of the
New Heights facility.
In addition, the Company has directly loaned $1.5 million to New Heights, which
is secured by a First Mortgage on the facility, and has an operations and
management service agreement for the operations and management of the New
Heights facility.
The equity investment in OCI, the notes receivable from OCI and the note
receivable from New Heights are together reflected as an investment in
unconsolidated subsidiary on the accompanying Consolidated Balance Sheets.
During May 2000, OCI agreed to transfer 12.5% direct ownership interest in New
Heights to the Company, in return for the Company agreeing to complete OCI's
remaining funding commitment to New Heights.
(k) Accrued Closure and Post-closure Costs
Accrued closure and post-closure costs include the current and noncurrent
portion of accruals associated with obligations for closure and post-closure of
the Company's operating and closed landfills. The Company, based on input from
its engineers, accounting personnel and consultants, estimates its future cost
requirements for closure and post-closure 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 post-closure 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 post-closure 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
post-closure monitoring and maintenance for the Company's operating landfills by
the Company's engineers, accounting personnel and consultants 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 post-closure obligations to be funded at any point in time.
Accordingly, the Company has placed $5,640 and $3,720 at April 30, 1999 and
2000, 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, 2000, the Company had provided one
letter of credit totaling $10,436, expiring on April 15, 2001, to secure the
Company's landfill closure obligations.
(l) Intangible Assets
Intangible assets at April 30, 1999 and 2000 consist of the following:
April 30,
---------
1999 2000
---- ----
Goodwill $ 98,827 $289,574
Covenants not to compete 13,956 14,291
Customer lists 594 562
Deferred debt acquisition costs and other 2,125 8,359
-------- --------
115,502 312,786
Less--accumulated amortization 11,303 18,503
-------- --------
$104,199 $294,283
======== ========
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.
Amortization Expense for the years ended April 30, 1998, 1999 and 2000 was
$9,182, $11,574 and $15,165, respectively.
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 continually
reviews for impairment whenever events or changes in circumstances indicate that
the remaining estimated useful life of goodwill or other intangible assets might
warrant revision or that the balance may not be recoverable. The Company
evaluates possible impairment by comparing estimated future cash flows, before
interest expense and on an undiscounted basis, and the net book value of assets
including goodwill and other intangible assets. If undiscounted cash flows are
insufficient to recover assets, further analysis is performed in order to
determine the amount of the impairment. An impairment loss would then be
recorded equal to the amount by which, the carrying amount of the assets exceeds
their fair market value. Fair market value is usually determined based on the
present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved. In instances where goodwill is identified
with assets that are subject to an impairment loss, the carrying amount of the
identified goodwill is reduced before making any reduction to the carrying
amounts of other impaired long-lived assets.
During 1998, the Company recorded a charge of $1,571 to reduce certain assets
(including goodwill), to their estimated fair value. There were no such
impairments in 1999 and 2000.
(m) 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.
(n) Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is based on the combined weighted average number of common shares and
potentially dilutive common shares which include, where appropriate, the assumed
exercise of employee stock options and exercise of convertible debt. In
computing diluted earnings per share, the Company utilizes the treasury stock
method with regard to employee stock options and the "if converted" method with
regard to its convertible debt.
The following is a reconciliation of the ending number of shares outstanding
with the number of shares used in the calculation of basic and diluted earnings
per share:
Year Ended April 30,
--------------------
1998 1999 2000
---------------------------------
Number of Shares Outstanding, End of Period:
Class A Common Stock 12,158 14,869 22,215
Class B Common Stock 988 988 988
Effect of Weighting the Average Shares Outstanding
During the Period (3,599) (712) (4,472)
------- ------- -------
Basic Shares Outstanding 9,547 15,145 18,731
Potentially Dilutive Shares 0 874 541
------- ------- -------
Diluted Shares Outstanding 9,547 16,019 19,272
======= ======= =======
Potentially dilutive shares are excluded from diluted shares outstanding for the
year ended April 30, 1998 due to their impact being anti-dilutive. The number of
potentially dilutive shares excluded from the earnings per share calculation was
3,045,000 for the year ended April 30, 1998. Additionally, for the years ended
April 30, 1999 and 2000, options to purchase 211,000 and 2,033,000 common shares
were excluded from the calculation of potentially dilutive shares because their
impact was anti-dilutive.
(o) New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 amends FASB Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", by deferring the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. 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. The Company will
adopt SFAS No. 133 beginning May 1, 2001. The Company has yet to quantify the
impacts of adopting SFAS No. 133 on its financial statements and has not
determined the timing or method of adoption. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
2. BUSINESS COMBINATIONS
(a) Transactions Recorded as Purchases
On December 14, 1999, the Company consummated its acquisition of KTI, a publicly
traded solid waste handling company. KTI specializes in solid waste disposal and
recycling, and operates manufacturing facilities utilizing recycled materials.
All of KTI's common stock was acquired in exchange for 7,152,157 shares of the
Company's Class A Common Stock.
In addition to above, the Company also acquired 33, 50 and 38 solid waste
hauling operations in 1998, 1999 and 2000. All of 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. Management does not believe the final
purchase price allocation will produce materially different results than those
reflected herein.
The purchase prices allocated to those net assets acquired were as follows:
Year Ended April 30,
--------------------
1998 1999 2000
---------------------------------------
Current Assets $ 2,923 $ 613 $ 107,457
Property and Equipment 9,105 10,768 220,830
Intangible Assets (including goodwill) 30,526 24,829 190,178
Other Non-Current Assets 0 0 589
Current Liabilities (75) 0 (41,647)
Other Non-Current Liabilities (5,083) (2,874) (281,709)
--------- --------- ---------
Total Consideration $ 37,396 $ 33,336 $ 195,698
========= ========= =========
The following unaudited pro forma combined information shows the results of the
Company's operations for the years ended April 30, 1999 and 2000 as though each
of the completed acquisitions had occurred as of May 1, 1998:
Year ended April 30,
--------------------
1999 2000
---- ----
Revenues $578,100 $584,976
Operating Income 20,732 57,031
Net Income 6,569 11,345
Diluted Pro forma net income per common share $ 0.41 $ 0.59
Weighted average diluted shares outstanding 16,019 19,272
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, 1998 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.
(b) Transactions Recorded as Poolings of Interests
The Company has completed several mergers in business acquisitions accounted for
as poolings-of-interests. For the years ended April 30, 1998, 1999 and 2000, the
Company merged with 1, 4 and 2 businesses, respectively, and issued common stock
of 603,347, 1,271,559 and 362,973 shares, respectively. The accompanying
consolidated financial statements have been restated to reflect all material
acquisitions (including the 2 in 2000) for all periods presented.
Following is a reconciliation of the amounts of revenues and net income
previously reported for the years ended April 30, 1998, 1999 and 2000 to amounts
adjusted for poolings-of-interests that took place in 2000.
1998 1999 2000
---- ---- ----
Revenues:
Casella, before Fiscal 2000 Poolings $ 140,191 $ 171,728 $ 335,303
Fiscal 2000 Poolings 3,520 10,829 2,044
--------- --------- ---------
Casella, as restated $ 143,711 $ 182,557 $ 337,347
========= ========= =========
Net Income:
Casella, before Fiscal 2000 Poolings $ 1,925 $ 9,099 $ 11,257
Fiscal 2000 Poolings (90) (2,484) (207)
--------- --------- ---------
Casella, as restated $ 1,835 $ 6,615 $ 11,050
========= ========= =========
3. INVESTMENT IN MAJORITY OWNED WASTE-TO-ENERGY FACILITIES
The Company owns majority interests in two limited partnerships, Maine Energy
(83.75% interest) and PERC (66.59% interest). These facilities utilize
non-hazardous solid waste as the fuel for the generation of electricity.
Maine Energy sells the electricity it produces to Central Maine Power ("Central
Maine") pursuant to a long-term power purchase agreement. Under this agreement,
Maine Energy has agreed to sell energy to Central Maine through May 31, 2007 at
an initial rate of 7.18 cents per kilowatt-hour ("kWh"), as determined in 1996,
which escalates annually by 2% (7.92 cents per kWh as of April 30, 2000). From
June 1, 2007 until December 31, 2012, Maine Energy is to be paid at the then
current market value for both its energy and capacity by Central Maine.
Under the terms of the agreement, a $45.0 million letter of credit was issued to
Central Maine by ING (US) Capital Corporation. If, in any year, Maine Energy
fails to produce 100,000,000 kWh of electricity and Maine Energy does not have a
force majeure defense, such as physical damage to the plant and other similar
events, Maine Energy must pay approximately $3.8 million to Central Maine as
liquidated damages. This payment obligation is secured by the ING letter of
credit. In each year in which 100,000,000 kWh is produced, the balance of the
ING letter of credit is to be reduced by approximately $3.8 million.
Additionally, if, in any year, Maine Energy fails to produce 15,000,000 kWh of
electricity and Maine Energy does not have a force majeure defense, Maine Energy
must pay the balance of the ING letter of credit to Central Maine as liquidated
damages. The balance of the letter of credit was approximately $30 million at
April 30, 2000.
PERC sells the electricity it produces to Bangor Hydro, a local utility, under a
power purchase agreement. Under the terms of the agreement, Bangor Hydro agrees
to purchase all the electricity generated by PERC through 2018. Under the
agreement, PERC is required to deliver at least 105,000,000 kWh to Bangor Hydro
in any calendar year. If PERC fails to deliver this output, PERC must pay Bangor
Hydro $4 for each 1,000,000 kWh that the deliveries fall below 105,000,000 kWh.
As of April 30, 2000, the Company has met all of its kWh requirements under both
power purchase agreements.
Additionally, the Company owns 100% of TERI. TERI uses biomass waste as its
source of fuel to be combusted for the generation of electricity. TERI also
operates two wood processing facilities. TERI sells the electricity that it
generates to Florida Power Corporation ("Florida Power"), a local electric
utility, under a power purchase agreement. Under the terms of the power purchase
agreement, Florida Power has agreed to purchase all of the electricity generated
by TERI.
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries is recorded as
minority interest.
4. LONG-TERM DEBT
Long-term debt as of April 30, 1999 and 2000 consists of the following:
April 30,
---------
1999 2000
-------------------------
Advances on revolving credit facility, which provides for advances of up to
$150,000, 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 debt is collateralized by all
assets of the Company, whether now owned or hereafter acquired. $ 72,365 $ 0
Advances on Senior Secured Revolving Credit Facility ( the "Revolver") which
provides for advances of up to $300,000, due December 14, 2004, bearing
interest at LIBOR plus 2.75%, (8.95% at April 30, 2000), with the availability
decreasing by $25,000 in years 3 and 4. The debt is collateralized by a
pledge of all of the Company's subsidiaries stock and by certain assets of the
Company. 0 228,890
Advances on Senior Secured Delayed Draw Term "B" Loan ( the "Term Loan") which
provides for up to $150,000, due December 14, 2006, bearing interest at LIBOR
plus 3.5% (9.7% at April 30, 2000), and calling for principal payments of
$1,500 per year, beginning in Fiscal 2001 with the remaining principal balance
due at maturity. The debt is collateralized by a pledge of all of the
Company's subsidiaries stock and by certain assets of the Company. 0 150,000
Notes Payable in connection with businesses acquired, bearing interest at rates
of 6% to 10%, due in monthly installments varying to $22, expiring May 2000
through April 2009. 13,534 9,459
Subordinated, Convertible Notes payable in connection with business acquired,
bearing interest at 7.5%, due in monthly installments varying to $50, expiring
on March 15, 2003. Convertible to Class A Common Stock of the Company, at the
note holders election, at the rate of one share of common stock for each
$15.375 of the principal amount surrendered for conversion. 0 6,144
Payments due to Clinton County, discounted at 4.74%, due in quarterly installments
of $375 through March 2003. 5,438 4,173
PERC Bonds Payable - Issued by the Finance Authority of Maine ("FAME"), Electric
Rate Stabilization Revenue Refunding Bonds, Series 1998 A and Series B,
subject to mandatory redemption in annual installments of varying amounts
through July 1, 2018. Beginning July 1, 2008 the Bonds are subject to
redemption at the option of the Company at a price equal to 102%, through June
30, 2009, 101% for the period July 1, 2009 through June 30, 2010 and 100%
thereafter of the principal and accrued interest. Various covenants restrict
the ability of PERC to incur additional indebtedness and the ability of
general partners to sell, assign or transfer their partnership interest.
Interest is based on rates for certain tax-exempt obligations, as determined
weekly by the remarketing agent, with a weighted average interest rate of 5.0%
at April 30, 2000. The bonds are collateralized by substantially all of
PERC's assets. 0 40,900
Timber Energy Revenue Bonds Payable - Industrial Development Revenue Bonds,
Series A, interest at 7%, annual sinking fund requirements of $2,320, $2,665
and $4,620, due December 2000 through 2002. The Bond Agreements require, among
other things, maintenance of various insurance coverages and restrict the
borrowers ability to incur additional indebtedness. The bonds are
collateralized by liens on TERI's electric generating facility located in
Telogia, Florida. 0 9,605
Notes Payable, secured by assets purchased 746 0
---------- ----------
92,083 449,171
Less - Current Portion 5,344 8,367
---------- ----------
$ 86,739 $ 440,804
========== ==========
In April 2000, the Company entered into two three-year interest rate swap
agreements (the "Swap Agreements") with two banks. 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. The Swap
Agreements effectively fix the Company's interest rate on the notional amount of
$100 million, $50 million is fixed at 6.875% and $50 million is swapped in a
collar arrangement with interest between 6.28% and 9.0%. Net monthly payments or
monthly receipts under the Swap Agreements are recorded as adjustments to
interest expense. The Company also has an existing, five year Swap Agreement
which fixes the Company's interest rate on the notional amount $45 million. The
rate is fixed at 5.2% and expires in January 2001. 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 Agreements.
The Revolver and the Term Loan contain 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, 2000, the Company was in compliance with all
covenants.
As of April 30, 2000, debt matures as follows:
Year Ending April 30,
2001 $ 8,367
2002 7,816
2003 12,479
2004 2,098
2005 151,982
Thereafter 266,429
--------
$449,171
========
5. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments, together with the
present value of the net minimum lease payments under capital leases, as of
April 30, 2000.
Operating Capital
Leases Leases
------- --------
Year Ended April 30,
2001 $ 4,660 $ 1,095
2002 4,866 1,004
2003 3,614 986
2004 3,236 672
2005 2,095 494
Thereafter 4,640 1,564
------- --------
Total minimum lease payments $23,111 5,815
=======
Less - amount representing interest 1,279
--------
4,536
Current maturities of capital lease obligations 788
--------
Present value of long term capital lease obligations $ 3,748
========
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,
1999 and 2000.
The Company leases operating facilities and equipment under operating leases
with monthly payments varying to $11.
Total rent expense under operating leases charged to operations was $1,500,
$1,873 and $2,968 for each of the three years ended April 30, 1998, 1999 and
2000, 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.
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil lawsuit
against the Company and two of its officers and directors in Vermont Superior
Court. Mr. Freeman claims to have performed services for the Company prior to
1995 and in his lawsuit 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 for legal fees paid by or on behalf of
Casella or any other third party). The Company accrued a $215,000 reserve for
this claim during the year ended April 30, 1998.
On January 7, 2000, the City of Saco, Maine filed a notice of claims with the
Company and Maine Energy claiming entitlement to certain "residual cancellation"
payments from Maine Energy under the waste handling agreement dated June 7, 1991
among the Biddeford-Saco Waste Handling Committee, Biddeford, Saco and Maine
Energy on the basis of the satisfaction of certain conditions, including the
acquisition of KTI by the Company. The notice of claims alleges that the
payments due to Saco exceed $33 million, and claims damages in such amounts for
breach of contract, breach of fiduciary duties and fraud and also claims treble
damages of $100 million based on alleged fraudulent transfer of Maine Energy's
assets. The notice also reserves the right to seek punitive damages. Although
the City of Biddeford, Maine has not filed a notice of claims, it has given
notice that it will be initiating a suit to receive the residual cancellation
payments. Under the agreement, the aggregate amount to be paid upon the exercise
of the put right is 18% of the fair market value of the equity of the partners
in Maine Energy, and such amount is required to be paid within 120 days after
the exercise of the put by the respective parties entitled thereto. The Company
believes it has meritorious defenses to these claims.
On or about April 26, 1999, Salvatore Russo filed an action in the U.S. District
Court, District of New Jersey against KTI and two of its principal officers,
Ross Pirasteh and Martin J. Sergi, purportedly on behalf of all shareholders who
purchased KTI common stock from May 4, 1998 through August 14, 1998. Melanie
Miller filed an identical complaint on May 14, 1999. The complaints allege that
the defendants made material misrepresentations in KTI's quarterly report on
form 10-Q for the period ended March 31, 1998 in violation of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, concerning KTI's
allowance for doubtful accounts and net income. The Plaintiffs are seeking
undisclosed damages. The Company believes it has meritorious defenses to these
complaints. On June 15, 1999, Mr. Russo and Ms. Miller, together with Fransisco
Munero, Timothy Ryan and Steve Storch, moved to consolidate the two complaints.
This motion is currently pending in the District Court of New Jersey.
The Company is a defendant in certain other lawsuits alleging various claims
incurred in the ordinary course of business.
The Company believes that none of the above lawsuits, either individually or in
the aggregate, will be settled in a manner that will have a material impact to
its financial condition, results of operations or cash flows.
(c) Environmental Liability
The Company is subject to liability for any environmental damage, including
personal injury and property damage, that its solid waste, recycling and power
generation facilities may cause to neighboring property owners, particularly as
a result of the contamination of drinking water sources or soil, possibly
including damage resulting from conditions 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 400,000 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 $1
million of royalties becomes immediately due and payable. This amount may be
taken in cash or common stock on 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. The Company received permits from the State of Maine for a 3.3
million ton expansion on the Sawyer Landfill. The host community for the Sawyer
Landfill, the Town of Hampden, Maine, is disputing 3.1 million tons of the 3.3
million ton expansion. The Company paid the royalty due the seller on the
200,000 tons of undisputed additional permitted capacity. The seller elected to
be paid this royalty in cash.
(e) Employment Contracts
The Company has entered into five employment contracts with its senior officers
and Chairman of the Board. The contracts, dated December 8, 1999, have a
three-year term and a two-year covenant not to compete from the date of any
termination. Total annual commitments for salaries under these contracts are
$1.2 million. In the event of a change in control of the Company, or in the
event of involuntary termination without cause, the employment contracts provide
for the payment of three years of salary and bonuses.
(f) Maine Energy Waste Handling Agreement Liability
Under the terms of a Waste Handling Agreement between certain municipalities and
the Company's majority owned subsidiary, Maine Energy, Maine Energy is obligated
to make a payment at the point in time that Maine Energy pays off its debt (as
defined) obligations, currently estimated to occur between 2003 and 2005, or
upon the consummation of an outright sale of Maine Energy, individually. The
estimated obligation has been recorded in other long-term liabilities as of
April 30, 2000.
6. DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM
Discontinued Operations:
During the third quarter, the Company adopted a formal plan to dispose of its
construction and emergency response business ("discontinued business"). The
Company has accounted for this planned disposition in accordance with APB
Opinion No. 30, and accordingly, the results of operations of the discontinued
business have been segregated from continuing operations and reported as a
separate line in its Consolidated Statements of Operations. Additionally, the
estimated loss on the disposal of the discontinued operations of $1,393 (net of
income tax benefit of $891), represents the estimated loss on the disposal of
the assets of the discontinued segment.
A summary of the operating results of the discontinued business is as follows:
Year Ended April 30,
--------------------
1999 2000
------- -------
Revenues $ 1,690 $ 795
------- -------
Operating Expenses 1,133 795
General and Administrative 426 321
Depreciation and Amortization 175 113
------- -------
Operating (Loss) (44) (434)
Other (Expense) (10) (7)
Benefit from Income Taxes 21 172
------- -------
Net (Loss) $ (33) $ (269)
======= =======
Extraordinary Item:
During the third quarter of its fiscal year 2000, the Company paid off its
existing revolving credit facility with a bank and incurred an extraordinary
loss of $631 (net of tax benefit of $448), resulting from the write-off of
related debt acquisition costs.
7. STOCKHOLDERS' EQUITY
(a) 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 2000,
respectively, no shares of Preferred Stock are outstanding.
(b) 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.
(c) Stock Warrants
At April 30, 2000, the Company had outstanding warrants to purchase 315,943
shares of the Company's Class A Common Stock at exercise prices between $0.01
and $43.63 per share, based on the fair market value of the underlying common
stock at the time of the warrants' issuance. The warrants are exercisable and
expire at varying times through November 2008.
(d) 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. As of April 30, 2000, options to purchase 17,000 shares of
Class A Common Stock at an average exercise price of $4.61 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 and 2000. 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 also 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 as
of April 30, 1999 and 2000. No further options may be granted from this pool.
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. As of April 30, 2000, a total of 372,707 options to purchase
Class A Common Stock were outstanding at an average exercise price of $12.08. 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 5,328,135 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. As of
April 30, 2000, options to purchase 3,190,377 shares of Class A Common Stock at
an average exercise price of $22.37 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 100,000 shares of Class A Common Stock
pursuant to the grant of nonstatutory options. As of April 30, 1999 and 2000,
options to purchase 8,000 shares of Class A Common Stock at an average exercise
price of $31.25 and 19,000 shares of Class A Common Stock at an average exercise
price of $6.58, respectively, were outstanding under the Non-Employee Director
Stock Option Plan.
Options generally vest over a two year period from the date of grant, and are
granted at prices at least equal to the prevailing fair market value at the
issue date.
Stock option activity for each of the three years ended April 30, 1998, 1999 and
2000 is as follows:
Number Weighted Average
Of Shares Exercise Price
--------- --------------
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
Granted 1,402,000 16.27
Issued in Connection with the Acquisition of KTI 930,417 26.59
Terminated (216,335) (20.56)
Exercised (168,901) (2.05)
---------- ---------
Outstanding, April 30, 2000 3,916,740 $ 19.78
========== =========
Exercisable, April 30, 1999 1,346,557 $ 13.67
========== =========
Exercisable, April 30, 2000 2,321,432 $ 18.35
========== =========
Set forth is a summary of options outstanding and exercisable as of April 30,
2000:
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
- -------- ------ ------------ ----- ------- -----
$.60-$2.00 317,656 0.83 $ 1.93 317,656 $ 1.93
$4.61-$8.00 152,002 7.42 5.42 108,002 4.90
$10.00-$18.00 1,566,211 7.00 15.28 850,118 14.86
$18.00-$27.00 467,028 8.70 20.95 226,484 21.65
Over $27.00 1,413,843 7.45 29.94 819,172 29.20
- ----------- ---------- ----- ------ -------- ------
ALL 3,916,740 6.88 $19.78 2,321,432 $18.35
=== ========== ===== ====== ========= ======
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,
1998, 1999 and 2000 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, 1998, 1999 and 2000.
April 30,
---------
1998 1999 2000
---- ---- ----
Risk-free interest rate 5.78%-6.49% 4.6%-5.68% 5.81%-6.69%
Expected dividend yield 0% 0% 0%
Expected life 9 Years 5 years 5 years
Expected volatility 40.39% 52.40% 67.37%
The total value of options granted during the years ended April 30, 1998, 1999
and 2000 would be amortized on a pro forma basis over the vesting period of the
options. 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 loss and net loss per share would have increased as
reflected in the following pro forma amounts:
April 30,
---------
1998 1999 2000
---- ---- ----
Net income (loss)
As reported $ (3,903) $ 6,615 $ 11,050
Pro forma $ (4,674) $ 2,534 $ 4,379
Diluted Net income (loss) per share of
common stock
As reported $ (0.41) $ 0.41 $ 0.57
Pro forma $ (0.49) $ 0.16 $ 0.23
The weighted-average grant-date fair value of options granted during the years
ended April 30, 1998, 1999 and 2000 is $1.54, $6.43 and $3.30, respectively.
8. INCOME TAXES
The provision for income taxes for the years ended April 30, 1998, 1999 and 2000
consists of the following:
April 30,
---------
1998 1999 2000
---- ---- ----
Federal--
Current $ 234 $ 4,996 $ 6,089
Deferred 1,901 1,400 3,216
------- ------- -------
2,135 6,396 9,305
------- ------- -------
State--
Current 41 888 2,075
Deferred 336 247 878
------- ------- -------
377 1,135 2,953
======= ======= =======
Total $ 2,512 $ 7,531 $12,258
======= ======= =======
The differences in the provisions for income taxes and the amounts determined by
applying the Federal statutory rate to income before provision for income taxes
for the years ended April 30, 1998, 1999 and 2000 are as follows:
Fiscal Year Ended April 30,
---------------------------
1998 1999 2000
---- ---- ----
Federal Statutory Rate 34% 34% 35%
Tax at Statutory Rate $ 1,478 $ 4,821 $ 8,960
State Income Taxes, net of
Federal Benefit 248 749 1,919
Meal and Entertainment Disallowance 23 29 77
Nondeductible Goodwill 114 201 245
Equity in Loss of Oakhurst 0 0 295
Other, net 649 1,731 762
------- ------- -------
$ 2,512 $ 7,531 $12,258
======= ======= =======
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, 1999
and 2000:
1999 2000
---- ----
Deferred Tax Assets:
Allowance for Doubtful Accounts $ 703 $ 2,818
Treatment of Lease Obligations 59 52
Accrued Expenses 964 10,645
Basis Difference in Partnership Interests 0 14,091
Net Operating Loss Carryforwards 367 30,794
Alternative Minimum Tax Credit Carryforwards 510 1,795
Other Tax Carryforwards 0 530
Other 575 880
-------- --------
Total Deferred Tax Assets 3,178 61,605
Less: Valuation Allowance 0 (24,778)
-------- --------
Total Deferred Tax Assets After Valuation Allowance 3,178 36,827
-------- --------
Deferred Tax Liabilities:
Accelerated Depreciation of Property and Equipment (5,014) (49,546)
Amortization of Intangibles (1,165) (3,407)
Other (1,693) (2,092)
-------- --------
Total Deferred Tax Liabilities (7,872) (55,045)
-------- --------
Net Deferred Tax Liability (4,694) (18,218)
======== ========
At April 30, 2000, the Company has for income tax purposes federal net operating
loss carryforwards of approximately $70,507 that expire in years 2003 through
2019, state net operating loss carryforwards of approximately $83,304 that
expire in years 2001 through 2019, and business tax credit carryforwards of
approximately $530 that expire in years 2001 through 2006. The federal net
operating loss carryforwards, certain state net operating loss carryforwards and
the business tax credit carryforwards are subject to substantial limitations. In
addition, the Company has approximately $1,795 minimum tax credit carryforward
available that is not subject to limitation. Due to uncertainty of the
utilization of the carryforwards, the Company has recorded a valuation allowance
against approximately $51,805 of the federal net operating loss carryforwards,
all of the state net operating loss carryforwards and all of the business tax
credit carryforwards. Since the Company's carryforwards were primarily acquired
through acquisitions, to the extent that future realization of such
carryforwards exceeds the Company's current estimates, additional amounts
received will be recorded as a reduction of goodwill. In assessing the
realizability of carryforwards and other deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company adjusts the valuation
allowance in the period management determines it is more likely than not that
deferred tax assets will or will not be realized.
9. EMPLOYEE BENEFIT PLANS
The Company offers its eligible employees the opportunity to contribute to a
401(k) plan. Pending board approval, the Company may contribute up to $500
dollars per individual per calendar year. Participants vest in employer
contributions ratably over a three-year period. Employer contributions for the
years ended April 30, 1998, 1999 and 2000 amounted to $176, $275 and $387,
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. 600,000 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
years ended April 30, 1999 and 2000, 5,812 and 6,616 shares, respectively, of
Class A Common Stock were issued under this plan.
10. RELATED PARTY TRANSACTIONS
(a) Services
During 1998, 1999 and 2000, the Company retained the services of a related
party, a company wholly owned by two of the Company's major stockholders and
members of the Board of Directors, 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, 1998, 1999 and 2000 were $4,202, $5,198 and
$5,338 respectively, of which $50 and $450 were outstanding and included in
accounts payable at April 30, 1999 and 2000, respectively. In 1998, the Company
entered into agreements with this company, totaling approximately $3,000, to
construct a portion of a landfill. In 1999, the Company entered into agreements
with this company, totaling approximately $4,808, to construct improvements or
expansions at three of its landfills. In 2000, the Company entered into an
agreement with this company, totaling approximately $4,500 to construct a new
cell at Clinton County Landfill.
(b) Leases
On August 1, 1993, the Company entered into two leases for operating facilities
with a partnership in which two of the Company's major stockholders and members
of the Board of Directors are the general partners. The leases are classified as
capital leases in the accompanying Consolidated Balance Sheets. The leases call
for monthly payments of approximately $18 and expire in April 2003. Total
interest and amortization expense charged to operations for the years ended
April 30, 1998, 1999 and 2000 under these agreements was, $245, $237 and $179,
respectively.
(c) Post-closure Landfill
The Company has agreed to pay the cost of post-closure on a landfill owned by
certain principal shareholders. The Company paid the cost of closing this
landfill in 1992, and the post-closure maintenance obligations are expected to
last until 2012. In each of the three years ended April 30, 1998, 1999 and 2000,
the Company paid $3, $3 and $5 respectively, pursuant to this agreement. As of
April 30, 1999 and 2000, the Company has accrued $102 and $96, respectively, for
costs associated with its post-closure obligations.
(d) Employee Loans
The Company has made loans to officers and employees in the amount of $2,095
during the year ended April 30, 2000. The notes have required quarterly interest
payments but no fixed repayment terms. Interest is at the Wall Street Journal
Prime Rate (9% at April 30, 2000). Notes from officers consisted of $2,000 at
April 30, 2000, with the remainder being from employees of the Company.
(e) Other Relationships
Two of the Company's stockholders and members of its Board of Directors are also
direct stockholders and members of the Board of Directors of OCI, an investee of
the Company. These individuals own aggregate shares and options to purchase
shares for up to 4% of OCI.
11. SEGMENT REPORTING
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in financial statements. In general, SFAS No. 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 Eastern (which includes Maine Energy
and PERC), Central and Western, Power Generation, Residential Recycling,
Finished Products and Commercial Recycling. The Company's revenues in the
Eastern, Central and Western segments are derived mainly from one industry
segment, which includes the collection, transfer, recycling and disposal of
non-hazardous solid waste. The Company's revenues in the Power Generation,
Residential Recycling, Finished Products and Commercial Recycling segments are
derived from integrated waste handling services, including processing and
recycling of wood, paper, metals, plastics and glass, municipal solid waste
processing and disposal, specialty waste disposal, ash residue recycling,
brokerage of recycled materials and the manufacturing of finished products using
recycled materials. Any other activities in which the Company is engaged are not
material to the total results of operations of the Company; these activities are
reflected within the reporting structure outlined above. The accounting policies
of the business segments are the same as those described in Note 1.
Power Residential
Waste Handling and Disposal Generation Recycling
Eastern Central Western
Regions Regions Regions
--------- --------- --------- --------- ---------
Year Ended April 30, 1998:
Outside Revenue $ 26,242 $ 70,045 $ 47,707 $ -- $ --
Inter-Segment Revenue $ 2,241 $ 22,410 $ 2,765 $ -- $ --
Net Income/(Loss) $ (1,830) $ 4,148 $ 697 $ -- $ --
Depreciation &
Amortization $ 3,871 $ 11,850 $ 3,774 $ -- $ --
Merger Costs $ -- $ 290 $ -- $ -- $ --
Impairment Charge $ 971 $ -- $ 600 $ -- $ --
Interest Expense (Net) $ 1,418 $ 3,472 $ 3,100 $ -- $ --
Capital Expenditures $ 6,805 $ 14,184 $ 7,326 $ -- $ --
Total Assets $ 6,002 $ 34,387 $ 18,347 $ -- $ --
Year Ended April 30, 1999:
Outside Revenue $ 39,240 $ 79,710 $ 62,920 $ -- $ --
Inter-Segment Revenue $ 2,218 $ 28,397 $ 6,711 $ -- $ --
Net Income/(Loss) $ (895) $ 8,368 $ 2,387 $ -- $ --
Depreciation &
Amortization $ 5,722 $ 12,255 $ 6,917 $ -- $ --
Merger Costs $ -- $ 332 $ 546 $ -- $ --
Interest Expense (Net) $ 2,067 $ 3,922 $ 4,051 $ -- $ --
Capital Expenditures $ 17,107 $ 15,328 $ 19,079 $ -- $ --
Total Assets $ 17,072 $ 34,622 $ 12,284 $ -- $ --
Year Ended April 30, 2000:
Outside Revenue $ 82,310 $ 106,262 $ 60,671 $ 8,606 $ 13,767
Inter-Segment Revenue $ 15,965 $ 35,572 $ 12,776 $ (68) $ 9,242
Net Income/(Loss) $ 1,815 $ 15,008 $ 5,227 $ (485) $ 3,297
Depreciation &
Amortization $ 11,917 $ 14,223 $ 7,847 $ 925 $ 1,147
Merger Costs $ 1,101 $ -- $ 389 $ -- $ --
Interest Expense (Net) $ 4,085 $ 3,815 $ 2,925 $ 653 $ 1,539
Capital Expenditures $ 18,092 $ 15,806 $ 17,422 $ 2,176 $ 4,566
Total Assets $ 390,559 $ 128,416 $ 112,237 $ 51,429 $ 61,509
Finished Commercial
Products Recycling Corporate Eliminations
Total
--------- --------- --------- --------- ---------
Year Ended April 30, 1998:
Outside Revenue $ -- $ -- $ 238 $ (521) $ 143,711
Inter-Segment Revenue $ -- $ -- $ (14) $ (27,402) $ --
Net Income/(Loss) $ -- $ -- $ (1,180) $ -- $ 1,835
Depreciation &
Amortization $ -- $ -- $ 464 $ -- $ 19,959
Merger Costs $ -- $ -- $ -- $ -- $ 290
Impairment Charge $ -- $ -- $ -- $ -- $ 1,571
Interest Expense (Net) $ -- $ -- $ (617) $ -- $ 7,373
Capital Expenditures $ -- $ -- $ 1,101 $ -- $ 29,416
Total Assets $ -- $ -- $ 148,706 $ (1,933) $ 205,509
Year Ended April 30, 1999:
Outside Revenue $ -- $ -- $ 687 $ -- $ 182,557
Inter-Segment Revenue $ -- $ -- $ (1) $ (37,325) $ --
Net Income/(Loss) $ -- $ -- $ (3,245) $ -- $ 6,615
Depreciation &
Amortization $ -- $ -- $ 831 $ -- $ 25,725
Merger Costs $ -- $ -- $ 1,073 $ -- $ 1,951
Interest Expense (Net) $ -- $ -- $ (4,476) $ -- $ 5,564
Capital Expenditures $ -- $ -- $ 2,604 $ -- $ 54,118
Total Assets $ -- $ -- $ 220,084 $ (1,933) $ 282,129
Year Ended April 30, 2000:
Outside Revenue $ 23,214 $ 50,429 $ 740 $ (8,652) $ 337,347
Inter-Segment Revenue $ -- $ 13,906 $ 225 $ (87,618) $ --
Net Income/(Loss) $ (1,874) $ 2,745 $ (15,078) $ 395 $ 11,050
Depreciation &
Amortization $ 1,221 $ 1,288 $ 1,963 $ (320) $ 40,211
Merger Costs $ -- $ -- $ -- $ -- $ 1,490
Interest Expense (Net) $ 1,634 $ 937 $ (443) $ (111) $ 15,034
Capital Expenditures $ 5,920 $ 4,603 $ 870 $ -- $ 69,455
Total Assets $ 44,614 $ 55,568 $ 39,497 $ (11,652) $ 872,177
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated Statements of
Operations by quarter for 2000 and 1999.
First Second Third Fourth
Quarter(1) Quarter(1) Quarter Quarter
---------- ---------- ------- -------
2000
Revenues
As Reported 55,036 56,120 93,004 133,919
As Restated 54,676 55,748 93,004 133,919
Operating Income
As Reported 7,180 9,620 9,946 15,596
As Restated 7,333 9,925 9,946 15,596
Income Before Income Taxes,
Discontinued Operations
and Extraordinary Item
As Reported 5,632 8,459 5,291 5,905
As Restated 5,787 8,618 5,291 5,905
Net Income
As Reported 3,041 4,872 755 2,382
As Restated 3,041 4,872 755 2,382
Basic Earnings per Share
As Reported 0.19 0.30 0.04 0.10
As Restated 0.19 0.30 0.04 0.10
Diluted Earnings per Share
As Reported 0.18 0.30 0.04 0.10
As Restated 0.18 0.30 0.04 0.10
First Second Third Fourth
Quarter(1) Quarter(1) Quarter Quarter
---------- ---------- ------- -------
1999
Revenues
As Reported 45,084 47,813 44,109 46,353
As Restated 44,673 47,422 44,109 46,353
Operating Income
As Reported 5,435 5,185 3,749 5,067
As Restated 5,390 5,185 3,749 5,067
Income Before Income Taxes,
Discontinued Operations
and Extraordinary Item
As Reported 3,796 4,126 2,529 3,767
As Restated 3,753 4,130 2,529 3,767
Net Income
As Reported 2,121 2,208 879 1,407
As Restated 2,121 2,208 879 1,407
Basic Earnings per Share
As Reported 0.16 0.14 0.06 0.09
As Restated 0.16 0.14 0.06 0.09
Diluted Earnings per Share
As Reported 0.15 0.13 0.05 0.08
As Restated 0.15 0.13 0.05 0.08
(1) The first two quarters of fiscal 2000 were restated to present the effects
of discontinued operations (see Note 6).
13. SUBSEQUENT EVENTS
The Company has entered into an agreement, in June 2000 with Louisiana-Pacific
Corporation to combine their respective cellulose insulation businesses into a
single operating entity under a joint venture agreement effective August 1,
2000. The Company will contribute the operating assets of its cellulose
insulation manufacturing business together with $2,500 in cash. The new Company,
to be known as U.S. Green Fiber LLC, is an equally owned joint venture formed
through the combination of Louisiana-Pacific's GreenStone Industries, Inc. and
the Company's U.S. Fiber, Inc. operations. The new entity will supply cellulose
insulation to existing residential construction, retail and manufactured housing
supply channels.
On June 28, 2000, the Company has entered into an agreement with Berkshire
Partners of Boston, Massachusetts to issue $55.8 million worth of redeemable
convertible preferred stock, which may convert into Class A Common Stock at
$14.00 per share. Proceeds will be used to pay down debt and continue the
Company's strategic plan. Although there are no assurances, it is anticipated
that the agreement will close in August 2000.
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 Public Accountants
Consolidated Balance Sheets as of April 30, 1999 and 2000
Consolidated Statements of Operations for the Years Ended April 30, 1998,
1999 and 2000.
Consolidated Statements of Redeemable Preferred Stock, Redeemable Put
Warrants and Stockholders' Equity for the Years Ended April 30, 1998,
1999 and 2000.
Consolidated Statements of Cash Flow for the Years Ended April 30, 1998,
1999 and 2000.
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
--- -----------
2.1(1) Agreement and Plan of Merger dated as of January 12, 1999 and as
amended by Amendments No. 1, 2 and 3 thereto, among Casella Waste
Systems, Inc. ("Casella"), KTI, Inc. ("KTI") and Rutland Acquisition
Sub, Inc. (incorporated herein by reference to Annex A to the
registration statement on Form S-4 as filed November 12, 1999(file no.
333-90913)).
3.1 Amended and Restated Certificate of Incorporation of Casella
(incorporated herein by reference to Exhibit 4.1 to the registration
statement on Form S-8 of Casella as filed November 18, 1998(file no.
333-67487)).
3.3 Second Amended and Restated By-Laws of Casella (incorporated herein by
reference to Exhibit 3.4 to the registration statement on Form S-1 of
Casella as filed September 24, 1997 (file no. 333-33135)).
4.1 Form of stock certificate of Casella Class A Common Stock
(incorporated herein by reference to Exhibit 4 to Amendment No. 2 to
the registration statement on Form S-1 of Casella as filed October 9,
1997 (file no. 333-33135)).
10.1 1993 Incentive Stock Option Plan (incorporated herein by reference to
Exhibit 10.1 to the registration statement on Form S-1 of Casella as
filed August 7, 1997 (file no. 333-33135)).
10.2 1994 Nonstatutory Stock Option Plan (incorporated herein by reference
to Exhibit 10.2 to the registration statement on Form S-1 of Casella
as filed August 7, 1997 (file no. 333-33135)).
10.3 1996 Stock Option Plan (incorporated herein by reference to Exhibit
10.3 to the registration statement on Form S-1 of Casella as filed
August 7, 1997 (file no. 333-33135)).
10.4 1997 Non-Employee Director Stock Option Plan (incorporated herein by
reference to Exhibit 10.5 to Amendment No. 1 to the registration
statement on Form S-1 of Casella as filed September 24, 1997 (file no.
333-33135)).
10.5 Amended and Restated 1997 Stock Incentive Plan (incorporated herein by
reference to the Definitive Proxy Statement on Schedule 14A of Casella
as filed September 21, 1998).
10.6 Registration Rights Agreement between Casella and Susan Olivieri and
Robert MacNeil, dated January 3, 1996 (incorporated herein by
reference to Exhibit 10.6 to Amendment No. 1 to the registration
statement on Form S-1 of Casella as filed September 24, 1997 (file no.
333-33135)).
10.7 1995 Stockholders Agreement between Casella and the stockholders who
are a party thereto, dated as of December 22, 1995 (incorporated
herein by reference to Exhibit 10.7 to the registration statement on
Form S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.8 1995 Registration Rights Agreement between Casella and the
stockholders who are a party thereto, dated as of December 22, 1995
(incorporated herein by reference to Exhibit 10.8 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
10.9 1995 Repurchase Agreement between Casella and the stockholders who are
a party thereto, dated as of December 22, 1995 (incorporated herein by
reference to Exhibit 10.9 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.10 Management Services Agreement between Casella, BCI Growth III, L.P.,
North Atlantic Venture Fund, L.P., and Vermont Venture Capital Fund,
L.P., dated as of December 22, 1995 (incorporated herein by reference
to Exhibit 10.10 to the registration statement on Form S-1 of Casella
as filed August 7, 1997 (file no. 333-33135)).
10.11 Warrant to Purchase Common Stock of Casella granted to John W.
Casella, dated as of July 26, 1993 (incorporated herein by reference
to Exhibit 10.11 to Amendment No. 1 to the registration statement on
Form S-1 of Casella as filed September 24, 1997 (file no. 333-33135)).
10.12 Warrant to Purchase Common Stock of Casella granted to Douglas R.
Casella, dated as of July 26, 1993 (incorporated herein by reference
to Exhibit 10.12 to Amendment No. 1 to the registration statement on
Form S-1 of Casella as filed September 24, 1997 (file no. 333-33135)).
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
(incorporated herein by reference to Exhibit 10.13 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
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 (incorporated herein by
reference to Exhibit 10.14 to the registration statement on Form S-1
of Casella as filed August 7, 1997 (file no. 333-33135)).
10.15 Termination of Lease Agreement by and between Casella Associates and
Casella Waste Management, Inc. dated September 25, 1996 (incorporated
herein by reference to Exhibit 10.15 to the registration statement on
Form S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.16 Amended and Restated Revolving Credit and Term Loan Agreement between
the Registrant and BankBoston, dated as of January 12, 1998
(incorporated herein by reference to Exhibit 10.13 to the registration
statement on Form S-1 of Casella as filed June 3, 1998 (file no.
333-55879)).
10.17 Lease Agreement, as Amended, between Casella Associates and Casella
Waste Management, Inc., dated December 9, 1994 (Rutland lease)
(incorporated herein by reference to Exhibit 10.17 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
10.18 Lease Agreement, as Amended, between Casella Associates and Casella
Waste Management, Inc., dated December 9, 1994 (Montpelier lease)
(incorporated herein by reference to Exhibit 10.18 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
10.19 Furniture and Fixtures Lease Renewal Agreement between Casella
Associates and Casella Waste Management, Inc., dated May 1, 1994
(incorporated herein by reference to Exhibit 10.19 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
10.20 Lease, Operations and Maintenance Agreement between CV Landfill, Inc.
and the Registrant dated June 30, 1994 (incorporated herein by
reference to Exhibit 10.20 to the registration statement on Form S-1
of Casella as filed August 7, 1997 (file no. 333-33135)).
10.21 Restated Operation and Management Agreement by and between Clinton
County (N.Y.) and the Registrant dated September 9, 1996 (incorporated
herein by reference to Exhibit 10.21 to the registration statement on
Form S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.22 Labor Utilization Agreement by and between Clinton County (N.Y.) and
the Registrant dated August 7, 1996 (incorporated herein by reference
to Exhibit 10.22 to the registration statement on Form S-1 of Casella
as filed August 7, 1997 (file no. 333-33135)).
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
(incorporated herein by reference to Exhibit 10.23 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
10.24 Consulting and Non-Competition Agreement between Casella and Kenneth
H. Mead, dated January 23, 1997 (incorporated herein by reference to
Exhibit 10.24 to the registration statement on Form S-1 of Casella as
filed August 7, 1997 (file no. 333-33135)).
10.25 Issuance of Shares by Casella to National Waste Industries, Inc.,
dated October 19, 1994 (incorporated herein by reference to Exhibit
10.25 to the registration statement on Form S-1 of Casella as filed
August 7, 1997 (file no. 333-33135)).
10.26 Registration Rights Agreement by and among Casella, Joseph M. Winters,
Andrew B. Winters, Brigid Winters, Sean Winters and Maureen Winters
(the "All Cycle Stockholders"), dated as of December 19, 1997.
(incorporated herein by reference Exhibit 10.23 to the registration
statement filed on Form S-1 of Casella as filed June 3, 1998 (file no.
333-55879)).
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. (incorporated herein
by reference to Exhibit 10.24 to the registration statement on Form
S-1 of Casella as filed June 3, 1998 (file no. 333-55879)).
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). (incorporated herein by reference to Exhibit 10.25 to
the registration statement on Form S-1 of Casella as filed on June 25,
1998 (file no. 333-57745)).
10.29 Amendment No. 1 to Stock Option Agreement (incorporated herein by
reference to the Current Report on Form 8-K of Casella as filed May
13, 1999).
10.30 Agreement between Penobscot Energy Recovery Company and Bangor
Hydro-Electric Company dated June 21, 1984, as amended (incorporated
herein by reference to Exhibit 10.2 to the registration statement on
Form S-4 of KTI as filed October 18, 1994 (file no. 33-85234)).
10.31 Agreement between Timber Energy Resources, Inc. and Florida Power
Corporation dated December 31, 1984.(incorporated herein by reference
to exhibit 10.31 to the registration statement on Form S-4 as filed
November 12, 1999(file no. 333-90913)).
10.32 Steam Agreement between Multitrade Group, Inc. and Tultex Corporation
dated August 11, 1987, as amended.(incorporated herein by reference to
Exhibit 10.32 to the registration statement on Form S-4 as filed
November 12, 1999(file no. 333-90913)).
10.33 Form of Penobscot Energy Recovery Company Waste Disposal Agreement
(City of Bangor) dated April 1, 1991 and Schedule of Substantially
Identical Waste Disposal Agreements (incorporated herein by reference
to Exhibit 10.3 to the registration statement on Form S-4 of KTI as
filed October 18, 1994 (file no. 33-85234)).
10.34 Steam Agreement between Multitrade Group, Inc. and Bassett-Walker,
Inc. dated March 1, 1993, as amended.(incorporated herein by reference
to Exhibit 10.34 to the registration statement on Form S-4 as filed
November 12, 1999(file no. 333-90913)).
10.35 Power Purchase Agreement between Maine Energy Recovery Company and
Central Maine Power Company dated January 12, 1984, as amended
(incorporated herein by reference to Exhibit 10.8 to the registration
statement on Form S-4 of KTI as filed October 18, 1994 (file no.
33-85234)).
10.36 Host Municipalities' Waste Handling Agreement among Biddeford-Saco
Solid Waste Committee, City of Biddeford, City of Saco and Maine
Energy Recovery Company dated June 7, 1991 (incorporated herein by
reference to Exhibit 10.10 to the registration statement on Form S-4
of KTI as filed October 18, 1994 (file no. 33-85234)).
10.37 Form of Maine Energy Recovery Company Waste Handling Agreement (Town
of North Berwick) dated June 7, 1991 and Schedule of Substantially
Identical Waste Disposal Agreements (incorporated herein by reference
to Exhibit 10.11 to the registration statement on Form S-4 of KTI as
filed October 18, 1994 (file no. 33-85234)).
10.38 Third Amendment to Power Purchase Agreement between Maine Energy
Recovery Company, L.P. and Central Maine Power Company dated November
6, 1995.(incorporated herein by reference to Exhibit 10.38 to the
registration statement on Form S-4 as filed November 12, 1999(file no.
333-90913)).
10.39 Steam Supply and Operating Agreement between Multitrade Group, Inc.
and E.I. DuPont De Nemours & Co. dated February 11, 1998, as
amended.(incorporated herein by reference to Exhibit 10.39 to the
registration statement on Form S-4 as filed November 12, 1999(file no.
333-90913)).
10.40 Amendment No. 2 to Power Purchase Agreement between Penobscot Energy
Recovery Company, L.P. and Bangor-Hydro Electric Company dated June
26, 1998 (incorporated herein by reference to Exhibit 4.1 to the
Current Report on Form 8-K of KTI as filed July 8, 1998).
10.41 Second Amended and Restated Waste Disposal Agreements between
Penobscot Energy Recovery Company and the Municipal Review Committee,
Inc. dated June 26, 1998 (incorporated herein by reference to Exhibit
4.2 to the Current Report on Form 8-K of KTI as filed July 8, 1998).
10.42 Non-Exclusive License to Use Technology between KTI and Oakhurst
Technology, Inc. dated December 29, 1998 (incorporated herein by
reference to Exhibit 4.5 to the Current Report on Form 8-K of KTI as
filed January 15, 1999).
10.43* Employment Agreement between Casella Waste Systems, Inc. and John W.
Casella dated December 8, 1999.
10.44* Employment Agreement between Casella Waste Systems, Inc. and James W.
Bohlig dated December 8, 1999.
10.45* Employment Agreement between Casella Waste Systems, Inc. and Jerry S.
Cifor dated December 8, 1999.
10.46* Employment Agreement between Casella Waste Systems, Inc. and Martin J.
Sergi dated December 8, 1999.
10.47* Employment Agreement between Casella Waste Systems, Inc. and Ross
Pirasteh dated December 8, 1999.
21.1 Subsidiaries of Casella Waste Systems, Inc.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule - for the year ended April 30, 2000.
27.2 Financial Data Schedule - for the year ended April 30, 1999 - as
restated.
27.3 Financial Data Schedule - for the year ended April 30, 1998 - as
restated.
- ------------------
* - Management Compensation Agreements
Item 14(b) Reports on Form 8-K
During the quarter ended April 30, 2000 the Company filed no reports on Form
8-K:
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: August 4, 2000
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 and Chief Executive Officer, August 4, 2000
- --------------------------------- Director
John W. Casella
/s/ James W. Bohlig Senior Vice President and Chief August 4, 2000
- --------------------------------- Operating Officer, Director
James W. Bohlig
/s/ Jerry S. Cifor Senior Vice President and Chief Financial August 4, 2000
- --------------------------------- Officer (Principal Accounting and
Jerry S. Cifor Financial Officer)
Director August 4, 2000
- ---------------------------------
Douglas R. Casella
/s/ John F. Chapple III Director August 4, 2000
- ---------------------------------
John F. Chapple III
/s/ Gregory B. Peters Director August 4, 2000
- ---------------------------------
Gregory B. Peters
/s/ Ross Pirasteh Chairman of the Board of Directors August 4, 2000
- ---------------------------------
Ross Pirasteh
/s/ Martin J. Sergi Director August 4, 2000
- ---------------------------------
Martin J. Sergi
Director August 4, 2000
- ---------------------------------
George Mitchell
Director August 4, 2000
- ---------------------------------
Wilbur L. Ross Jr
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 complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. This
Schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
- ------------------------------
Boston Massachusetts
June 30, 2000
FINANCIAL STATEMENT SCHEDULES
Schedule II
Valuation Accounts
Allowance for Doubtful Accounts
- -------------------------------
(In thousands of dollars)
Year ended April 30,
--------------------
1998 1999 2000
---- ---- ----
Balance at beginning of period $ 722 $ 1,283 $ 1,430
Additions -
Charged to expense 992 1,896 2,133
Acquisition related 697 273 3,427
Deductions - Bad debts written off, net of
recoveries (1,128) (2,022) (743)
------- ------- -------
Balance at end of period $ 1,283 $ 1,430 $ 6,247
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