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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
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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, accountin