Casella Waste Systems Annual Report 1998

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FY1998 Annual Report · Casella Waste Systems

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annual

report 1998

casella

waste systems, inc.

Casella Waste Systems provides

integrated waste management solutions

crucial to public health in a unique

collection of communities throughout

Vermont, New Hampshire, Maine, upstate

New York and northern Pennsylvania.

Founded in Rutland, Vermont in 1975

with a single truck, Casella has grown

by anticipating and meeting changing

cultural and public policy expectations

about how our environment and

natural resources are managed.

By focusing our strategy

on a defined market with the vision to

address our region’s waste management

challenges intelligently, we’ve built an

enduring foundation — as a steward of

our natural heritage, as a

partner in public policy, as a livelihood for

dedicated people — to deliver long-term

value for our shareholders.

Focused vision. Enduring value.

This and every year,

i t ’s the measure of our success.

our

fellow

shareholders

financial highlights
(in thousands)

year ending April 30

1998

1997

1996

r e v e n u e s
operating income
e b i t d a
net income (loss)
earnings (loss) per share
total assets
shareholders equity (deficit)

$118,067
11,494
30,810
2657
0.37
189,033
81,860

$79,532
5,246
18,941
(419)
(0.11)
140,882
76

$42,829
2,477
10,629
(520)
(0.16)
64,893
(874)

*Fiscal year results are stated on a pro forma basis,
giving effect to the company’s second quarter initial
public offering as if it had occurred on May 1, 1997,
and excludes merger costs of $290,478 and a
non-cash asset impairment charge of $970,732.

The market value of our company – your company

That foundation is a twenty-three year track

performance; and taking advantage of

– grew by over seventy percent since the pricing

record of doing what we said we’d do –

opportunities within our sector to create greater

of our initial public offering last fall.

identifying and capitalizing on opportunities;

shareholder value.

consolidating and operating in unique and

This growth in shareholder value is the simplest

challenging markets; managing a financially

By any measure of success, our first year as a

measure of our success.

responsible business; building a solid operating

publicly traded company was outstanding. Jim

infrastructure; and developing a mature,

Bohlig, Jerry Cifor, and our entire team hav e

Behind this simple measure, of course, are a

experienced management team.

always placed a premium on creating shareholder

number of equally important results:

value, and we think our performance and results

Revenues, cash flow and earnings all grew at a

indicator of our ability to consistently build

enduring vision, and a track record of building

dramatic rate from the previous year

long-term value for you, and will allow us to

value – a foundation – that will earn us the right

We exceeded our acquisition target for the

achieve our goals for growth this year as well.

to continue to manage your resources.

This foundation is the single most compelling

give you a sense of a company with focus,

year by over thirty-six percent

We acquired our first landfill in our western

These goals include continuing our acquisition

Sincerely,

region – a crucial strategic goal – more than

pace in our core markets; forming partnerships

six months ahead of schedule

with local governments and bidding on landfill

privatization projects; attracting and motivating

Underlying the results we’ve delivered to you,

outstanding management at all levels; continuing

beyond these successes, we’ve built a strong,

improvements in

enduring foundation.

operational and financial

John W. Casella
Chairman & Chief Executive Officer

Our market – the rural northeastern

United States – is a unique collection of

towns, villages, and small cities.

The waste management industry in this

region is highly fragmented, and consists

mainly of small, independent companies.

And Casella Waste Systems.

We are the leading waste

industry consolidator of this

fragmented market.

Our focus is simple.

Build on a two-decade, proven track

record of acquisition

throughout the region.

Build an unparalleled, high performing

network of integrated waste

management operations

in a well-defined market.

Build market leadership in adjacent

markets, and leverage capital intensive

assets, such as landfills,

to serve more than one market.

the market

the strategy

is defined

focused

Last fall, we projected our acquisition strategy

would deliver at least $20 million of revenue

between our initial public offering and the end of

our fiscal year – a six month period.

We reached that target – $20 million – in December 1997, four-and-a-half months early, and by the end of the fiscal
year in April 1998, we had acquired $30 million in revenue, exceeding our post-IPO projections by fifty percent. For
the entire fiscal year, the company acquired annualized revenues totalling $41 million.

Our focus is to capture a
significant share of this
market over the next
three to five years.

The rural Northeast is a $1 billion waste
management market, of which only twenty-five
percent is controlled by public companies.

Casella Waste Systems accounts for approximately
$145 million of this revenue, leaving a large
portion in the hands of independent companies.

The opportunities to execute our strategy are
abundant.

A vast majority of the regional
waste market’s potential
revenue remains
unconsolidated.

we are the leading consolidator
of this regional specific market

we entered three new
markets this year – each in a
leadership position

we acquired thirty-four
companies in fiscal year 1998,
adding a total of $41 million in
annual revenues

Rural marketplaces such as ours face a

unique challenge.

How to meet the high standards of

environmental management

rural communities deserve

without the depth of economic

resources found in more urban areas?

Our vision is clear.

Be a leader in making

the investment necessary to meet

the mandates of public policy.

Build and leverage a network

of capital intensive assets,

such as landfills,

that serve several communities,

and markets, at once.

Build innovative privatization

partnerships with municipalities

who look to us to help them to achieve

environmental and public policy goals –

partnerships that leverage and

strengthen our market leadership.

a focused

platform

clear

vision

This year we set out to acquire a landfill in

western upstate New York, our newest region,

We’d built a strong collection network here but

lacked a company disposal facility. This effort

would be crucial to building our network of

resources in that market.

Late in the fiscal year, we acquired our first landfill in our western region – five months ahead of schedule. Our new
facility in Angelica, New York will not only serve as a regional resource, it will achieve several important goals for the
company – allow us to dispose of a portion of the waste we collect in that region in our own facility, and serve as a
platform to acquire new collection companies.

The management of solid waste in our region
continues to undergo dramatic transformations.
Throughout the marketplace, communities and
their elected leaders are looking for skilled
partners to help them navigate difficult regulatory
and economic changes.

Increasingly, local governments are retaining the
public policy responsibility for waste management
and public health, but leveraging the resources
and skills of companies for the management,
ownership and market risk of waste management
assets.

Several of these public policy initiatives, including
the privatization of landfills, should come to
fruition in our current fiscal year.

Because of our focused platform, network of
integrated operations in the region, and unique
privatization experience in Clinton County,
New York, we believe we have an unequalled
opportunity to form partnerships that strengthen
our position as a market leader, and play an
important role in helping our communities
achieve public policy goals.

our regional network of five
landfills is unlikely to be
duplicated, and allows us to
aggressively pursue collection
company acquisitions

by building a network of assets
in a defined, contiguous region,
we link markets and leverage
facilities to serve more than
one market

our history of partnership with
municipalities, and our market
leadership, position us to take
advantage of a trend towards
privatization of solid waste
assets and services

Growing through the consolidation of a

defined, fragmented waste management

market is a proven strategy. With a

balanced, solid infrastructure dedicated to

consistent performance, the ability to

create long-term value is enhanced.

And with a strong, enduring foundation to

support and fuel that growth, the ability to

focus on new challenges and new

markets is strengthened.

Our foundation is strong.

For twenty-three years, Casella Waste

Systems has been building a tangible

track record of successfully integrating

waste company acquisitions.

For twenty-three years, we’ve been

building senior management and a team

of strong, tested and proven

operators.

For twenty-three years, we’ve been

building an irreplaceable network of

operations, facilities, and markets –

a foundation, an infrastructure –

aimed at creating long-term value.

the foundation

the strategy

is strong

enduring

Entering the 1998 fiscal year on a wave of rapid

growth, and with the goal of becoming a public

company, we knew the strength of that foundation

would be crucial to execute the challenges

directly in front of us and to build on our strategy

over the long-term.

As the fiscal year ended, the success of our decades-long commitment to building the necessary infrastructure was evident. We continued to quickly integrate and leverage key acquisitions
– for example, our purchase of Pine Tree Waste allowed us to strengthen our position in southern Maine. And, we continued to build market “maturity” in all of our regions, ranging
from greater integration to productivity benchmarking to overall enhanced market leadership.

Best of all, we continued to position ourselves to
manage rapid growth in a focused,
high-performing manner.

Whether integrating acquisitions,

entering new markets, or fine-tuning
our existing operations,

additional challenges to

grow our business

– and the value of your investment – will come
our way.

From our perspective, there is no doubt our
record of endurance and our skilled, proven
infrastructure are the necessary foundation to
manage these challenges well.

Our strength – our endurance – is the single most
compelling indicator of our ability to build value
for our shareholders.

the company has a two-decade
history of creating value – since
1993 the value of a share of
casella stock has grown more
than eighteen times

mature, performing operations
are leveraging their market
leadership

we’ve shown a proven ability to
apply our focused strategy in
new markets from maine to
upstate new york

we’ve built a management team
with a track record – and
strategic focus

Crucial to Casella Waste Systems’

growth has been disciplined financial

management and performance.

All of the elements of our business, and

our long-term strategy – executing and

integrating acquisitions, assembling a

network of linked assets, building a solid

infrastructure – rely heavily on our

commitment to world class financial

management.

As do, of course, all the elements of our

ability to grow the value of your

investment.

Our ability to deliver outstanding financial

results was enhanced by our initial public

offering in October 1997 and our

secondary offering in July 1998, which

not only provided us with fuel for growth,

but endowed us with an even more

vigorous financial structure.

a focused

building

vision

enduring

value

As an aggressively growing company, we strove this

year to deliver equally impressive results for our

shareholders.

In 1998 we met this challenge.

EBITDA* as a % of revenue

Most compelling, however, is that the market
value of the company on April 30, 1998 had
grown over seventy percent since the pricing of
our initial public offering and the end of the fiscal
year.

Fueled by our initial public offering, we are in
every way focused on the paths to creating value
through disciplined growth in revenue, cash flow,
and earnings.

Going forward, we will continue to hold ourselves
to these high standards.

1998

$ 1 1 8 , 0 6 7

fiscal year ending
April 30

revenue figures in
thousands

1997

$ 7 9 , 5 3 2

1996

$ 4 2 , 8 2 9

24.8%

26.1%

25.1%

*Earnings before interest, taxes, depreciation, and amortization

revenues increased by over
forty-eight percent over the previous
year

earnings before interest, taxes,
depreciation, and amortization
(EBITDA) jumped by sixty-four percent

earnings grew dramatically to
thirty-seven cents a share

the company increased its credit
facility to $150 million, providing
working capital, additional fuel for
acquisitions, and lowering its
borrowing rate by one full
percentage point

balance sheet data

in thousands (except share data)

1998

1997

cash and cash equivalents
working capital (deficit)
property and equipment, net
total assets
long-term obligations, less
current liabilities
redeemable preferred stock
redeemable put warrants
total stockholders’ equity (deficit)

$1,946
3,818
81,684
189,033

74,833
0
0
81,860

$1,349
(5,577)
67,983
140,882

76,901
31,426
400
76

1996

$470
(2,205)
37,955
64,893

24,103
22,896
400
(874)

On the following pages you will find all of the

traditional financial data included in

the pages of an annual report, and the

additional information contained in our Form

10K which you may find of interest.

For example, the Form 10K contains more

details about our operating regions, facilities,

management team, and other relevant

information about Casella Waste Systems.

We have listed on the right a table of

contents to help you navigate your way

through this excellent source of financial and

operational data. We hope that you will like

this efficient and informative method.

“safe harbor” statement
under the private securities litigation reform act of 1995

This Annual Report to Stockholders contains forward-looking

statements. For this purpose, any statements contained herein that

are not statements of historical fact may be deemed forward-looking

statements. Without limiting the foregoing, the words “believes”,

“anticipates”, “plans”, “expects”, and similar expressions are

intended to identify forward-looking statements. There are a number

of important factors that could cause the Company’s actual results to

differ materially from those indicated by such forward-looking

statements. These factors include, without limitation, those set forth

herein under the caption “Certain Factors That May Affect Future

Results” in “Management’s Discussion and Analysis of Financial;

Condition and Results of Operations.”

1998 10-K

performance

business 12

properties 22

legal proceedings 22 market for registrant’s

common equity 23

selected consolidated and

operating data 24 management’s discussion and

analysis of financial condition and results of

operations 25

consolidated balance sheet 32

consolidated statement of operations 33

consolidated statement of cash flow 36 notes to

consolidated financial statements 37

united states securities and exchange commission
form 10–K
washington, d.c. 20549

[ X] Annual Report Pursuant To Section 13 or 15(d) Of The Securities Exchange Act Of 1934
For the fiscal year ended April 30, 1998

O R

[ ] 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)

state or other jurisdiction of incorporation or organization: D e l a w a r e
address of principal executive offices: 25 Greens Hill Lane, Rutland, VT
registrant's telephone number: (802)-775-0325
securities registered pursuant to section 12(b) of the act: N o n e .
securities registered pursuant to section 12(g) of the act: Class A common stock, $.01 per share par value

I.R.S. employer identification no.: 0 3 - 0 3 3 8 8 7 3
zip code: 0 5 7 0 1

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes[X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]

The aggregate value of the voting stock held by non-affiliates of the registrant, based on the last sale price of the registrant's Class A common stock at the close of business on June 15,
1998 was $197,277,111 (reference is made to Part II, Item 5 herein for a statement of assumptions upon which this calculation is based).

There were 10,563,504 shares of class A common stock, $.01 per share par value, of the registrant outstanding as of June 15, 1998. There were 988,200 shares of class B common stock
of the registrant outstanding as of June 15, 1998.

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 will 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

one

item one:

business

the company
Casella Waste Systems, Inc. is a regional, integrated,
non-hazardous solid waste services company that provides
collection, transfer, disposal and recycling services in
Vermont, New Hampshire, Maine, upstate New York and
northern Pennsylvania. At of June 15, 1998, the Company
owned and/or operated five Subtitle D landfills, 35 transfer
stations, nine recycling processing facilities, 28 collection
divisions, and two septic/liquid waste divisions, which
collectively serve over 180,000 commercial, industrial and
residential customers. The Company was founded in 1975
as a single-truck operation in Rutland, Vermont and
subsequently expanded its operations throughout the state
of Vermont. In 1993, the Company initiated an acquisition
strategy to take advantage of anticipated reductions in
available landfill capacity in Vermont and surrounding
states due to increasing environmental regulation and other
market forces driving consolidation in the solid waste
industry. From May 1, 1994 through April 30, 1998, the
Company acquired ownership or long-term operating rights
to 77 solid waste businesses, including four landfills, and
between May 1, 1998 and June 15, 1998 the Company
acquired an additional eight such businesses, including a
Subtitle D landfill in western upstate New York.

recent developments
Since the Company's initial public offering of Common
Stock consummated in November 1997 (the "November
Offering"), the Company has expanded and strengthened
its market presence in its three geographic regions through
the acquisition of 28 solid waste management businesses,
whose operations collectively included one subtitle D
landfill in western upstate New York (the "Hyland
Landfill"), 25 collection operations, four transfer stations
and six septic/liquid waste operations.

In November 1997, the Company completed the
acquisition of BDS Sanitation, Inc., Vets Disposal, Inc. and
Brookman Disposal, Inc. (collectively, the "Teelon
Group"), which provide solid waste collection and transfer
services in various counties in central New York. The
Company believes that the acquisition of the Teelon Group
provides the Company with a new growth platform in cen-
tral New York and expands geographically the Company's
existing operations in its Western Region (which includes
upstate New York and northern Pennsylvania). Subsequent
to the acquisition of the Teelon Group, the Company
completed two "tuck-in" acquisitions in central New York.
See "Business - Service Area - Western Region".

In December 1997, the Company completed the acquisi-
tion of All Cycle Waste, Inc. and Winters Brothers, Inc.
(collectively, the "All Cycle Acquisition"), which provide
solid waste collection and transfer services in Chittenden
County, Vermont. The Company believes that the
acquisition of All Cycle further strengthens the Company's
market position in its Central Region (which includes
Vermont and certain areas of New Hampshire and upstate
New York). See "Business - Service Area - Central Region".

In February 1998, the Company completed the acquisition
of Atlantic Waste Systems North, Inc., which provides solid
waste collection to approximately 6,000 commercial, resi-
dential and industrial customers in Salem, New Hampshire
and surrounding counties. The Company believes that this
acquisition provides the Company with a new growth
platform in southern New Hampshire and expands
geographically the Company's existing operations in its
Eastern Region located in Maine. See "Business - Service
Area - Eastern Region".

In May, 1998, the Company acquired the Hyland landfill
in Angelica, Allegany County, New York. The Hyland

landfill is the Company's first disposal facility in its Western
Region, and serves the western upstate New York waste
shed. The Company has received a permit from the State of
New York Department of Environmental Conservation for
approximately 1,500,000 tons of disposal capacity at this
facility. The Hyland landfill may be subject to additional
local restrictions and permits. The Company has not yet
begun accepting waste at the Hyland landfill. See Part I,
Item 3, "Legal Proceedings".

In January 1998, the Company increased its borrowing
capacity, including its ability to obtain letters of credit, to
$150 million from $110 million with a group of banks for
which BankBoston, N.A. is acting as agent. See Part III,
Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity
and Capital Resources".

service area
The Company is managed on a decentralized basis, with its
operations divided into three geographic regions: the
Central, Eastern and Western Regions. These three regions
are further divided into divisions organized around smaller
market areas, known as "waste sheds", each of which
contains the complete cycle of activities in the solid waste
service process, from "curb control" (collection) to transfer
stations to landfill (disposal facility). The following are the
Company's three geographic regions that comprise the
Company's service area:

central region
The Central Region consists of Vermont, portions of New
Hampshire and eastern upstate New York. The Company
was founded in 1975 in Rutland, Vermont, and has contin-
ued to grow its market presence in the Central Region. The
portion of upstate New York within the Company's Central
Region as of June 15, 1998 extends from Interstate 90

north to the Canadian border and from the Vermont
border west to Interstate 81 and the eastern shore of Lake
Ontario. The Company owns and operates Subtitle D land-
fills in Bethlehem, New Hampshire; Coventry, Vermont;
and, through a 25-year capital lease, operates the Clinton
County landfill located in Schuyler Falls, New York. In
addition, the Company operated 13 collection operations,
23 transfer stations and two septic/liquid waste pumping
operations in the Central Region as of June 15, 1998.

eastern region
The Company's Eastern Region consists of the central and
southern portions of Maine (including Bangor and
Augusta) and southeastern New Hampshire. The Company
established a market presence in Maine through the
acquisition of the Sawyer Companies in December 1995.
Through its Sawyer operations, the Company owns the
SERF landfill located in Hampden, Maine, which processes
ash, special waste and front end processing residue from a
regional incinerator. In addition, at June 15, 1998 the
Company operated six transfer stations, and collects solid
waste from commercial, industrial and residential
customers. The Company's waste tire processing facility,
located in Eliot, Maine, has the capacity to process
approximately 3.5 million tires per year and generates tire
derived fuel, which the Company sells to paper mills for
consumption as a supplemental energy source for boiler
fuel. In the fourth quarter of fiscal 1998, the Company
wrote-down the carrying value of the tire processing facility
in the amount of $971,000. There can be no assurance that
the Company will not incur additional losses relating to the
continued operation of the waste tire processing facility,
including in the event of, among other reasons, a weakening
of the market for tire-derived fuel. See "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" and Note 3(j) of Notes to Consolidated
Financial Statements.

Unlike the other states in the Company's existing market
area, Maine has an aggressive incineration program and the
Company believes that approximately 80% of the waste
shed in the Company's market area is disposed of through
incineration. However, the Company believes that
approximately 45% of the tonnage delivered to incinerators
is returned to landfills as ash and front end processing
residue, and the Company believes it is the largest disposer
of incinerated waste material in Maine.

western region
The Western Region is comprised of the south central,
western and southern tier of upstate New York (including
Ithaca, Elmira, Horsehead, Corning and Watkins Glen)
and the northern tier of Pennsylvania. Through the
acquisition of the Superior Disposal Services companies in
January 1997, the Company established its market presence
in the Western Region. At June 15, 1998 the Company
operated six transfer stations and nine collection operations,
and collects solid waste from commercial, industrial and
residential customers in the Western Region. In May 1998,
the Company acquired a Subtitle D landfill in Angelica,
New York, located in the Western Region. The Hyland
landfill is the Company's first disposal facility in its Western

Region, and serves the western upstate New York waste
shed. See "Landfills - Hyland" and Part 1, Item 3, "Legal
Proceedings".

o p e r a t i o n s
The Company's operations include the ownership and/or
operation of landfills, solid waste collection services, transfer
stations, recycling services, septic/liquid waste operations,
and tire processing and other services.

landfills
The Company currently owns four Subtitle D landfill oper-
ations and operates a fifth Subtitle D landfill under a long-
term lease arrangement with a county. All of the Company's
operating landfills include leachate collection systems,
groundwater monitoring systems and, where required,
active methane gas extraction and recovery systems.

The following table provides certain information regarding
the landfills that the Company operates. All of such
information is provided as of June 15, 1998.

(1) The Company converts estimated remaining permitted
and permittable capacity calculated in cubic yards to tons by

l a n d f i l l

l o c a t i o n

Clinton County (3).

Schuyler Falls, NY

Waste USA (4)

S E R F

N C E S

H y l a n d

Coventry, VT

Hampden, ME

Bethlehem, NH

Angelica, NY

e s t i m a t e d
total remaining
p e r m i t t e d
c a p a c i t y
(tons) (1)

1 , 1 4 0 , 0 0 0

1 , 4 2 4 , 0 0 0

1 6 2 , 0 0 0

4 6 , 0 0 0

1 , 5 0 0 , 0 0 0

estimated in
p e r m i t t i n g
process
c a p a c i t y
(tons) (1)(2)

1 , 1 6 0 , 0 0 0

6 0 0 , 0 0 0

3 , 2 0 0 , 0 0 0

1 , 5 0 0 , 0 0 0

- 0 -

assuming a compaction factor equal to the historic average
compaction factor applicable for the respective landfill. At
June 15, 1998 the Company had not begun accepting
waste at the Hyland landfill. Consequently, for the Hyland
landfill, the Company has used a compaction factor equal
to the lowest compaction rate applicable to any existing
facility (1,408 pounds per cubic yard). Actual compaction
rates at the Company's landfills range up to 1,550 pounds
per cubic yard, which would translate into permitted capaci-
ty at the Hyland landfill of 1,650,000 tons. See "Landfills -
Hyland" and Part 1, Item 3, "Legal Proceedings".

(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 Company leases the airspace above this landfill
under a lease which expires in 2001 and contains an option
to renew.

The Company regularly monitors the available permitted
in-place disposal capacity at each of its landfills and
evaluates whether to seek to expand this capacity. In making
this evaluation, the Company considers various factors,
including the volume of solid waste projected to be disposed
of at the landfill, the size of the unpermitted capacity
included in the landfill, the likelihood that the Company
will be successful in obtaining the approvals and permits
required for the expansion and the costs that would be
involved in developing the expanded capacity. The
Company also considers on an ongoing basis the extent to
which it is advisable, in light of changing market conditions
and/or regulatory requirements, to seek to expand or change
the permitted waste streams at a particular landfill or to seek

other permit modifications.

The permitting process is lengthy, difficult and expensive,
and is subject to substantial uncertainty and there can be no
assurance that any such permits or expansion requests will
be granted. Often, even when permits are granted, they are
not granted until the landfill's remaining capacity is very
low. There can be no assurance that the Company will be
able to add additional disposal capacity when needed or, if
added, that such capacity can be added on satisfactory terms
or at its landfills where expansion is most immediately
needed. If the Company is not able to add additional
disposal capacity when and where needed, it may need to
dispose of its collected waste at its other landfills or at
landfills owned by others. Such a circumstance could have a
material adverse effect on the Company's business, financial
condition and results of operations.

Set forth below is certain information concerning the
Company's landfills.

clinton county. The Clinton County landfill, located in
Schuyler Falls, New York, is leased by the Company from
Clinton County, New York pursuant to a 25-year capital
lease which expires in 2021. The Company estimates, based
on current usage levels, that the Clinton County landfill has
permitted air space capacity remaining for approximately
seven-and-a-half-years of disposal. The Company expects to
file applications with state regulatory officials seeking to
further expand the permitted landfill capacity. See Item 2 -
"Properties".

Company also has an option to purchase the company from
which it leases the air space. In the last quarter of fiscal 1998
the Company received a permit for an additional 1,300,000
tons of capacity. The Company estimates, based on current
usage levels, that the Waste USA landfill has permitted air
space capacity for approximately eight-and-a-half years of
disposal. In addition, the Company has applied for a
variance, which, if obtained, would enable the Company to
amend its permit to add an additional 600,000 tons of per-
mitted capacity. The Waste USA landfill is subject to state
regulations and practices that generally do not allow permits
for more than five years of expected annual capacity.

s e r f . The SERF landfill is located in Hampden, Maine.
The SERF landfill processes ash, special waste and front end
processing residue (i.e., glass and other material segregated
and disposed of separately from solid waste prior to
incineration), for the Penobscot Energy Recovery
Corporation's incinerator under a contract expiring in
2003. The Company estimates, based on current usage
levels, that the SERF landfill has permitted air space
capacity for approximately one-and-a-half years of disposal.
The Company has filed an application for a permit to
expand the capacity of the landfill in three phases. The
Company believes that most elements of the first two of the
three phases of its planned expansion are permittable under
the grandfather provisions of local ordinances. Approval for
the third phase of the Company's planned expansion will
require the town of Hampden, Maine to amend a local
ordinance. The Company may not succeed in its effort to
amend that ordinance.

waste usa. The Waste USA landfill is located in
Coventry, Vermont and serves the northern two-thirds of
Vermont. The Company owns the landfill and leases the
permitted air space capacity above the landfill through
January 2001 with an option to renew the lease. The

n c e s . The NCES landfill, located in Bethlehem, New
Hampshire, serves the northern and central New
Hampshire waste sheds and portions of the Maine and
Vermont waste sheds. In 1992, the town of Bethlehem
adopted a zoning ordinance which precludes the "expansion

of any existing landfills" which are not operated by the
town. A proposed zoning ordinance change was defeated by
town residents in March 1997 and March 1998, and it is
not anticipated that another vote would take place until at
least March 1999. In an effort to prolong the useful life of
the permitted capacity until March 1999, the Company is
limiting the rate of disposal at the facility and expects that
the capacity at that restricted rate will be filled no later than
March 1999 at which time, if the Company does not
obtain local approval for additional air space capacity, the
Company will be required to initiate closure of the landfill.
There can be no assurance that another vote will take place
or that in such a vote the zoning ordinance will be approved
by Bethlehem town voters prior to the time the estimated
total remaining permitted disposal capacity of the NCES
landfill is exhausted. The Company has obtained the
necessary state permit to expand its air space capacity,
contingent on local approval. The Company believes that
the proximity of the Waste USA landfill to the NCES
landfill would enable the Company to redirect solid waste
to the Waste USA landfill in the event that permitting takes
longer than expected or if no expansion is allowed at
NCES. If such redirection of solid waste is required, it may
result in additional costs to the Company's operations.

hyland. The Hyland landfill, located in Angelica, New
York in Allegany County, serves the Company's Western
Region. The Company has received a permit from the State
of New York Department of Environmental Conservation
for approximately 1,500,000 tons of disposal capacity at the
facility and is permitted to accept 500 tons of municipal
solid waste per day. Prior to its acquisition by the Company
in May 1998, the first cell (with permitted capacity of
80,000 tons) of the facility was fully constructed and had
not accepted any waste for disposal. The Company
estimates that the Hyland landfill has permitted air space
capacity under the permit from the State of New York

Department of Environmental Conservation for 11 years of
disposal. The Town of Angelica, New York has adopted
certain laws which would require the Company to obtain
an additional permit from the Town of Angelica for the
operation of the Hyland landfill, would prohibit the
expansion of the landfill and would prevent the disposal of
yard waste and may preclude the disposal of industrial waste
at that facility. The Company has filed a lawsuit against the
Town of Angelica seeking to set aside enforcement of the
law, and a temporary restraining order has been issued in
favor of the Company. 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 industrial waste 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. At
June 15, 1998, the Company had not yet begun accepting
waste at the Hyland landfill. See Part I, Item 3, "Legal
Proceedings".

The Company also owns and/or operated five unlined
landfills, which are not currently in operation. Three of
these landfills have been closed and environmentally capped
by the Company. Governmental approval has been
obtained for closure of a fourth landfill and closure is
expected to begin shortly. The fifth unlined landfill, 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 indemni-
fied 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 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 28 solid waste collection divisions served
over 180,000 commercial, industrial and residential
customers at June 15, 1998. During fiscal 1998,
approximately 52% 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 associa-
tions, apartment owners or mobile home park operators.

transfer station services
The Company operated 35 transfer stations as of June 15,
1998, of which 14 were owned by the Company and 21
were operated under contracts with municipalities. The
transfer stations receive, compact and transfer solid waste
collected primarily from the Company's various collection
operations to larger Company-owned vehicles for transport
to landfills. The Company believes that transfer stations

benefit the Company by: (i) increasing the size of the waste
shed which has access to the Company's landfills; (ii)
reducing costs by improving utilization of collection
personnel and equipment; and (iii) building relationships
with municipalities that may lead to future business
opportunities, including privatization of the municipality's
waste management services.

recycling services
The Company has positioned itself to provide recycling
services to customers who are willing to pay for the cost of
the recycling service. The proceeds generated from reselling
the recycled materials are increasingly 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 third
parties. By structuring its recycling service program in this
way, the Company has sought to reduce its exposure to
commodity price risk with respect to the recycled materials.

As of June 15, 1998 the Company operated nine recycling
processing facilities. The Company processes more than 20
classes of recyclable materials originating from the
municipal solid waste stream, including cardboard, office
paper, containers and bottles. The Company's recycling
operations are concentrated principally in Vermont, as the
public sector in other states in the Company's service area
has taken primary responsibility for recycling efforts. At June
15, 1998, the Company employed one commodity sales
manager to develop end markets, and had 56
employees in the recycling facilities to support the
processing of approximately 65,000 tons of recyclable
materials annually.

waste tire processing and other services
The Company's waste tire processing facility, located in
Eliot, Maine, has the capacity to process approximately 3.5

million tires per year and generates tire derived fuel, which
the Company sells to paper mills for consumption as a
supplemental energy source for boiler fuel. In June 1997,
the Company was selected by the State of Maine to process
an estimated 2.5 million tires over an 18-month period.
Because of continuing losses in the Company's waste tire
processing facility, in the fourth quarter of fiscal 1998 the
Company wrote-down the carrying value of the tire
processing facility in the amount of $971,000. See
"Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 3(j) of
Notes to Consolidated Financial Statements.

The Company's other services include two septic/liquid
waste operations, located in the Company's Central Region.

c o m p e t i t i o n
The solid waste services industry is highly competitive,
undergoing a period of consolidation, and requires
substantial labor and capital resources. The Company
competes with numerous solid waste management
companies, many of which are significantly larger and have
greater access to capital and greater financial, marketing or
technical resources than the Company. Certain of the
Company's competitors are large national companies that
may be able to achieve greater economies of scale than the
Company. The Company also competes with a number of
regional and local companies. In addition, the Company
competes with operators of alternative disposal facilities,
including incinerators, and with certain municipalities,
counties and districts that operate their own solid waste
collection and disposal facilities. Public sector facilities may
have certain advantages over the Company due to the
availability of user fees, charges or tax revenues and the
greater availability to them of tax-exempt financing. In
addition, recycling and other waste reduction programs may
reduce the volume of waste deposited in landfills.

The Company competes for collection and disposal volume
primarily on the basis of the price and quality of its services.
From time to time, competitors may reduce the price of
their services in an effort to expand market share or to win a
competitively bid municipal contract. These practices may
also lead to reduced pricing for the Company's services or
the loss of business.

Competition exists within the industry not only for
collection, transportation and disposal volume, but also for
acquisition candidates. The Company generally competes
for acquisition candidates with publicly owned regional and
national waste management companies.

marketing and sales
The Company has a coordinated marketing and sales
strategy which is formulated at the corporate level and
implemented at the divisional level. The Company markets
its services locally through division managers and direct sales
representatives who focus on commercial, industrial,
municipal and residential customers. As of June 15, 1998,
the Company had 29 division managers and 28 direct sales
representatives. The Company also obtains new customers
from referral sources, its general reputation and local market
print advertising. Leads are also developed from new
building permits, business licenses and other public records.
Additionally, each division generally advertises in the yellow
pages and other local business print media that cover its
service area.

Maintenance of a local presence and identity is an impor-
tant aspect of the Company's marketing plan, and many of
the Company's managers are involved in local governmen-
tal, 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 con-
tainers and trucks. Additionally, the Company attends and

makes presentations at municipal and state conferences and
advertises in governmental associations' membership
publications.

The Company markets its commercial, industrial and
municipal services through its sales representatives who visit
customers on a regular basis and make sales calls to potential
new customers. These sales representatives receive a
significant portion of their compensation based upon
meeting certain incentive targets. The Company emphasizes
providing quality services and customer satisfaction and
retention, and believes that its focus on quality service will
help retain existing and attract additional customers.

employees
At June 15, 1998, the Company employed approximately
1,043 full-time employees, including approximately 63
professionals or managers, approximately 814 employees
involved in collection, transfer and disposal operations, and
approximately 166 sales, clerical, data processing or other
administrative employees. None of the Company's
employees are represented by unions. The employees of
SDS of PA, Inc., located in Wellsboro, Pennsylvania, which
the Company acquired in January 1997, rejected a measure
in the first half of fiscal 1998 to select a union to represent
the employees in labor negotiations with management. In
addition, in the second half of fiscal 1998, the production
workers of the Company's tire recycling facility in Maine
rejected a measure to select a union to represent them in
labor negotiations with management. An unfair labor
charge was filed against the Company with the Region 1
office of the National Labor Relations Board in Boston,
Massachusetts alleging that on the day the petition was
received at the tire recycling facility, workers were
improperly interrogated and/ or threatened by local
management. The Company reached an agreement resolv-
ing these charges, with no liability to the Company. The

Company is aware of no other organizational efforts among
its employees. Through a labor utilization agreement, the
Company utilizes the services of Clinton County employees
at the Clinton County landfill. The Clinton County
employees are represented by a labor union. The Company
believes that its relations with its employees are good.

risk management, insurance and
performance or surety bonds
The Company actively maintains environmental and other
risk management programs which it believes are appropriate
for its business. The Company's environmental risk
management program includes evaluating existing facilities,
as well as potential acquisitions, for environmental law
compliance and operating procedures. The Company also
maintains a worker safety program which encourages safe
practices in the workplace. Operating practices at all
Company operations are intended to reduce the possibility
of environmental contamination and litigation.

The Company carries a range of insurance intended to
protect its assets and operations, including a commercial
general liability policy and a property damage policy. A
partially or completely uninsured claim against the
Company (including liabilities associated with cleanup or
remediation at its own facilities) if successful and of
sufficient magnitude, could have a material adverse effect on
the Company's business, financial condition and results of
operations. Any future difficulty in obtaining insurance
could also impair the Company's ability to secure future
contracts, which may be conditioned upon the availability
of adequate insurance coverage.

Municipal solid waste collection contracts and landfill
closure obligations may require performance or surety
bonds, letters of credit or other means of financial assurance
to secure contractual performance. The Company has not

experienced difficulty in obtaining performance or surety
bonds or letters of credit. If the Company were unable to
obtain performance or surety bonds or letters of credit in
sufficient amounts or at acceptable rates, it may be
precluded from entering into additional municipal solid
waste collection contracts or obtaining or retaining landfill
operating permits.

regulation

introduction

The Company is subject to extensive and evolving Federal,
state and local environmental laws and regulations which
have become increasingly stringent in recent years. The
environmental regulations affecting the Company are
administered by the EPA and other Federal, state and local
environmental, zoning, health and safety agencies. The
Company believes that it is currently in substantial
compliance with applicable Federal, state and local environ-
mental laws, permits, orders and regulations, and it does not
currently anticipate any material environmental costs to
bring its operations into compliance (although there can be
no assurance in this regard). The Company anticipates there
will continue to be increased regulation, legislation and
regulatory enforcement actions related to the solid waste ser-
vices industry. As a result, the Company attempts to antici-
pate future regulatory requirements and to plan accordingly
to remain in compliance with the regulatory framework.

In order to transport solid waste, it is necessary for the
Company to possess and comply with one or more permits
from state or local agencies. These permits also must be
periodically renewed and may be modified or revoked by
the issuing agency.

The principal Federal, state and local statutes and

regulations applicable to the Company's various operations
are as follows:

the resource conservation and
recovery act of 1976 ("RCRA")
RCRA regulates the generation, treatment, storage,
handling, transportation and disposal of solid waste and
requires states to develop programs to ensure the safe
disposal of solid waste. RCRA divides solid waste into two
groups, hazardous and nonhazardous. Wastes are generally
classified as hazardous if they (i) either (a) are specifically
included on a list of hazardous wastes, or (b) exhibit certain
characteristics defined as hazardous; and (ii) are not
specifically designated as nonhazardous. Wastes classified as
hazardous under RCRA are subject to much stricter
regulation than wastes classified as nonhazardous, and
businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on
handlers of nonhazardous waste.

Among the wastes that are specifically designated as
nonhazardous are household waste and "special" waste,
including items such as petroleum contaminated soils,
asbestos, foundry sand, shredder fluff and most
nonhazardous industrial waste products.

The EPA regulations issued under Subtitle C of RCRA
impose a comprehensive "cradle to grave" system for track-
ing the generation, transportation, treatment, storage and
disposal of hazardous wastes. The Subtitle C Regulations
impose obligations on generators, transporters and disposers
of hazardous wastes, and require permits that are costly to
obtain and maintain for sites where such material is treated,
stored or disposed. Subtitle C requirements include detailed
operating, inspection, training and emergency preparedness
and response standards, as well as requirements for mani-
festing, record keeping and reporting, corrective action,

facility closure, post-closure and financial responsibility.
Most states have promulgated regulations modeled on some
or all of the Subtitle C provisions issued by the EPA. Some
state regulations impose different, additional obligations.

The Company is currently not involved with transportation
or disposal of hazardous substances (as defined in
CERCLA) in concentrations or volumes that would classify
those materials as hazardous wastes. However, the
Company has transported hazardous substances in the past
and very likely will remain involved with hazardous
substance transportation and disposal in the future to the
extent that materials defined as hazardous substances under
CERCLA are present in consumer goods and in the waste
streams of its customers.

In October 1991, the EPA adopted the Subtitle D
Regulations governing solid waste landfills. The Subtitle D
Regulations, which generally became effective in October
1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements,
financial assurance requirements, groundwater monitoring
requirements, groundwater remediation standards and
corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more
stringent liner design criteria (typically, composite soil and
synthetic liners or two or more synthetic liners) intended to
keep leachate out of groundwater and have extensive
collection systems to carry away leachate for treatment prior
to disposal. Groundwater monitoring wells must also be
installed at virtually all landfills to monitor groundwater
quality and, indirectly, the effectiveness of the leachate
collection system. The Subtitle D Regulations also require,
where certain regulatory thresholds are exceeded, that
facility owners or operators control emissions of methane
gas generated at landfills in a manner intended to protect
human health and the environment. Each state is required

to revise its landfill regulations to meet these requirements
or such requirements will be automatically imposed by the
EPA upon landfill owners and operators in that state. Each
state is also required to adopt and implement a permit
program or other appropriate system to ensure that landfills
within the state comply with the Subtitle D Regulations
criteria. Various states in which the Company operates or in
which it may operate in the future have adopted regulations
or programs as stringent as, or more stringent than, the
Subtitle D Regulations.

the federal water pollution control
act of 1972
The Federal Water Pollution Control Act of 1972, as
amended ("Clean Water Act"), regulates the discharge of
pollutants from a variety of sources, including solid waste
disposal sites and transfer stations, into waters of the United
States. If run-off from the Company's transfer stations or if
run-off or collected leachate from the Company's owned or
operated landfills is discharged into streams, rivers or other
surface waters, the Clean Water Act would require the
Company to apply for and obtain a discharge permit,
conduct sampling and monitoring and, under certain
circumstances, reduce the quantity of pollutants in such
discharge. Also, virtually all landfills are required to comply
with the EPA's storm water regulations issued in November
1990, which are designed to prevent contaminated landfill
storm water runoff from flowing into surface waters. The
Company believes that its facilities are in compliance in all
material respects with Clean Water Act requirements.

the comprehensive environmental
response, compensation, and
liability act of 1980
CERCLA established a regulatory and remedial program
intended to provide for the investigation and cleanup of
facilities where or from which a release of any hazardous

substance into the environment has occurred or is
threatened. CERCLA's primary mechanism for remedying
such problems is to impose strict joint and several liability
for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time
of the disposal of the hazardous substances, as well as the
generators of the hazardous substances and the transporters
who arranged for disposal or transportation of the
hazardous substances. In addition, CERCLA also imposes
liability for the cost of evaluating and remedying any
damage done to natural resources. The costs of CERCLA
investigation and cleanup can be very substantial. Liability
under CERCLA does not depend upon the existence or
disposal of "hazardous waste" as defined by RCRA, but can
also be founded upon the existence of even very small
amounts of the more than 700 "hazardous substances"
listed by the EPA, many of which can be found in
household waste. In addition, the definition of "hazardous
substances" in CERCLA incorporates substances
designated as hazardous or toxic under the federal Clean
Water Act, Clear Air Act and Toxic Substances Control
Act. If the Company were found to be a responsible party
for a CERCLA cleanup, the enforcing agency could hold
the Company, or any other generator, transporter or the
owner or operator of the contaminated facility, responsible
for all investigative and remedial costs even if others may
also be liable. CERCLA also authorizes the imposition of a
lien in favor of the United States upon all real property
subject to, or affected by, a remedial action for all costs for
which a party is liable. CERCLA provides a responsible
party with the right to bring a contribution action against
other responsible parties for their allocable shares of inves-
tigative and remedial costs. The Company's ability to get
others to reimburse it for their allocable shares of such costs
would be limited by the Company's ability to find other
responsible parties and prove the extent of their responsibil-
ity and by the financial resources of such other parties.

the clean air act
The Clean Air Act generally, through state implementation
of Federal requirements, regulates emissions of air
pollutants from certain landfills based upon the date of the
landfill construction and volume per year of emissions of
regulated pollutants. The EPA has promulgated new
source performance standards regulating air emissions of
certain regulated pollutants (methane and non-methane
organic compounds) from municipal solid waste landfills.
Landfills located in areas that do not comply with certain
requirements of the Clean Air Act may be subject to even
more extensive air pollution controls and emission
limitations. In addition, the EPA has issued standards
regulating the disposal of asbestos-containing materials.

All of the Federal statutes described above contain
provisions authorizing, under certain circumstances, the
institution of lawsuits by private citizens to enforce the
provisions of the statutes. In addition to a penalty award to
the United States, some of those statutes authorize an
award of attorney's fees to parties successfully advancing
such an action.

the occupational safety and health
act of 1970 ("OSHA")
OSHA establishes employer responsibilities and authorizes
the promulgation by the Occupational Safety and Health
Administration of occupational health and safety standards,
including the obligation to maintain a workplace free of
recognized hazards likely to cause death or serious injury,
to comply with adopted worker protection standards, to
maintain certain records, to provide workers with required
disclosures and to implement certain health and safety
training programs. Various of those promulgated standards
may apply to the Company's operations, including those
standards concerning notices of hazards, safety in
excavation and demolition work, the handling of asbestos

and asbestos-containing materials, and worker training and
emergency response programs.

state and local regulations
Each state in which the Company now operates or may
operate in the future has laws and regulations governing
the generation, storage, treatment, handling, transportation
and disposal of solid waste, water and air pollution and, in
most cases, the siting, design, operation, maintenance,
closure and post-closure maintenance of landfills and
transfer stations. In addition, many states have adopted
statutes comparable to, and in some cases more stringent
than, CERCLA. These statutes impose requirements for
investigation and cleanup of contaminated sites and
liability for costs and damages associated with such sites,
and some provide for the imposition of liens on property
owned by responsible parties. Some of those liens may take
priority over previously filed instruments. Furthermore,
many municipalities also have local ordinances, laws and
regulations affecting Company operations. These include
zoning and health measures that limit solid waste
management activities to specified sites or conduct, flow
control provisions that direct the delivery of solid wastes to
specific facilities or to facilities in specific areas, laws that
grant the right to establish franchises for collection services
and then put out for bid the right to provide collection
services, and bans or other restrictions on the movement of
solid wastes into a municipality.

Certain permits and approvals may limit the types of waste
that may be accepted at a landfill or the quantity of waste
that may be accepted at a landfill during a given time
period. In addition, certain permits and approvals, as well
as certain state and local regulations, may limit a landfill to
accepting waste that originates from specified geographic
areas or seek to restrict the importation of out-of-state
waste or otherwise discriminate against out-of-state waste.

Generally, restrictions on importing out-of-state waste have
not withstood judicial challenge. However, from time to
time Federal legislation is proposed which would allow
individual states to prohibit the disposal of out-of-state waste
or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to
other states. Although such legislation has not been passed
by Congress, if this or similar legislation is enacted, states in
which the Company operates landfills could limit or
prohibit the importation of out-of-state waste. Such state
actions could materially adversely affect the business,
financial condition and results of operations of landfills
within those states that receive a significant portion of waste
originating from out-of-state.

In addition, certain states and localities may for economic or
other reasons restrict the export of waste from their
jurisdiction or require that a specified amount of waste be
disposed of at facilities within their jurisdiction. In 1994, the
U.S. Supreme Court held unconstitutional, and therefore
invalid, a local ordinance that sought to impose flow
controls on taking waste out of the locality. However, certain
state and local jurisdictions continue to seek to enforce such
restrictions and, in certain cases, the Company may elect not
to challenge such restrictions. In addition, the aforemen-
tioned proposed Federal legislation would allow states and
localities to impose certain flow control restrictions. These
restrictions could reduce the volume of waste going to land-
fills in certain areas, which may materially adversely affect
the Company's ability to operate its landfills and/or affect
the prices that can be charged for landfill disposal services.
These restrictions may also result in higher disposal costs for
the Company's collection operations. If the Company were
unable to pass such higher costs through to its customers,
the Company's business, financial condition and results of
operations could be materially adversely affected.

There has been an increasing trend at the Federal, state and
local levels to mandate or encourage both waste reduction at
the source and waste recycling, and to prohibit or restrict
the disposal in landfills of certain types of solid wastes, such
as yard wastes, leaves and tires. The enactment of
regulations reducing the volume and types of wastes
available for transport to and disposal in landfills could
affect the Company's ability to operate its landfill facilities.

executive officers of the company
john w. casella has served as President, Chief
Executive Officer and Chairman of the Board of Directors
of the Company since 1993, and has been Chairman of the
Board of Directors of Casella Waste Management, Inc.
since 1977. Mr. Casella has actively supervised all aspects of
Company operations since 1976, sets overall corporate
policies, and serves as chief strategic planner of corporate
development. Mr. Casella is also an executive officer and

director of Casella Construction, a company owned by
Mr. Casella and Douglas R. Casella. Mr. Casella has been a
member of numerous industry-related and community
service-related state and local boards and commissions
including the Board of Directors of the Associated
Industries of Vermont, The Association of Vermont
Recyclers, Vermont State Chamber of Commerce and the
Rutland Industrial Development Corporation. Mr. Casella
has also served on various state task forces, serving in an
advisory capacity to the Governor of Vermont on solid
waste issues. Mr. Casella was an executive officer and
director of Meridian Group, Inc. Mr. Casella holds an
Associate of Science in Business Management from Bryant
& Stratton University and a Bachelor of Science in Business
Education from Castleton State College. Mr. Casella is the
brother of Douglas R. Casella.

The executive

officers of the

company, their

positions, and

their ages as of

June 15, 1998

are as follows:

n a m e

a g e

p o s i t i o n

John W. Casella (1)

Douglas R. Casella

James W. Bohlig

Jerry S. Cifor

Michael P. Barrett

Christopher M. DesRoches

Joseph S. Fusco
James M. Hiltner

Michael Holmes

Larry B. Lackey

Alan N. Sabino

Gary Simmons

4 7

4 2

5 2

3 7

4 4

4 0

3 4
3 4

4 3

3 7

3 8

4 8

President, Chief Executive Officer,

Chairman of the Board of Directors and Secretary

Vice Chairman of the Board of Directors

Senior Vice President and Chief Operating Officer,

D i r e c t o r

Vice President and Chief Financial Officer, Treasurer

Vice President, Transportation and Recycling

Vice President, Sales and Marketing

Vice President, Communications
Regional Vice President

Regional Vice President

Vice President, Permits, Compliance and Engineering

Regional Vice President

Vice President, Fleet Management

douglas r. casella founded the Company in 1975,
and has been a director of the Company since that time.
He has served as Vice Chairman of the Board of Directors
of the Company since 1993 and has been President of
Casella Waste Management, Inc. since 1975. Since 1989,
Mr. Casella has been President of Casella Construction, a
company owned by Mr. Casella and John W. Casella
which specializes in general contracting, soil excavation and
related heavy equipment work. Mr. Casella attended the
University of Wisconsin's College of Engineering
continuing education programs in sanitary landfill design,
ground water remediation, landfill gas and leachate
management and geosynthetics. Mr. Casella is the brother
of John W. Casella.

james w. bohlig joined the Company as Senior Vice
President and Chief Operating Officer in 1993 with
primary responsibility for business development,
acquisitions and operations. Mr. Bohlig has served as a
director of the Company since 1993. From 1989 until he
joined the Company, Mr. Bohlig was Executive Vice
President and Chief Operating Officer of Russell
Corporation, a general contractor and developer based in
Rutland, Vermont. In addition, Mr. Bohlig was the
President and a director of Meridian Group, Inc. Mr.
Bohlig is a licensed professional engineer. Mr. Bohlig holds
a Bachelor of Science in Engineering and Chemistry from
the U.S. Naval Academy, and is a graduate of the
Columbia University Management Program in Business
Administration.

jerry s. cifor joined the Company as Chief Financial
Officer in January 1994. From 1992 to 1993, Mr. Cifor
was Vice President and Chief Financial Officer of
Earthwatch Waste Systems, a waste management company
based in Buffalo, New York. From 1986 to 1991, Mr.
Cifor was employed by Waste Management of North

America, Inc., a waste management company, in a
number of financial and operational management
positions. Mr. Cifor is a certified public accountant and
was with KPMG Peat Marwick from 1983 until 1986. Mr.
Cifor is a graduate of Hillsdale College with a Bachelor of
Arts in Accounting.

michael p. barrett has served as Vice President,
Transportation and Recycling of the Company since
January 1997. From June 1991 to January 1997, Mr.
Barrett served as the Company's Division Manager for
Transfer Stations, Recycling and Rutland Hauling.

christopher m. desroches has served as Vice
President, Sales and Marketing of the Company since
November 1996. From January 1989 to November 1996,
he was a regional vice president of sales of Waste
Management, Inc., a solid waste company. Mr. DesRoches
is a graduate of Arizona State University.

joseph s. fusco has served as Vice President,
Communications of the Company since January 1995.
From January 1991 through January 1995, Mr. Fusco was
self-employed as a corporate and political communications
consultant. Mr. Fusco is a graduate of the State University
of New York at Albany.

james m. hiltner has served as Regional Vice President
of the Company since March 1998. From 1990 to March
1998, Mr. Hiltner was employed by Waste Management,
Inc. as a region president (July 1996 through March 1998),
where his responsibilities included overseeing that
company's waste management operations in upstate New
York and northwestern Pennsylvania, a division president
(from April 1992 through July 1996) and a general
manager (from November 1990 through April 1992.)

michael holmes has served as a Regional Vice
President of the Company since January 1997. From
November 1995 to January 1997, Mr. Holmes was Vice
President of Superior Disposal Services, Inc., which was
acquired by the Company in January 1997. From
November 1993 to November 1995, he was
Superintendent of Recycling and Solid Waste for the town
of Weston, Massachusetts Solid Waste Department where
he managed all aspects of the town's recycling and solid
waste services. From June 1983 to October 1992, he served
as the Division Manager of all divisions in the Binghamton,
N.Y. area and the Boston, Massachusetts area for Laidlaw
Waste Services, Inc. Mr. Holmes is a graduate of Broome
Community College.

larry b. lackey joined the Company in 1993 and has
served as Vice President, Permits, Compliance and
Engineering since 1995. From 1984 to 1993, Mr. Lackey
was an Associate Engineer for Dufresne-Henry, Inc., an
engineering consulting firm. Mr. Lackey is a graduate of
Vermont Technical College.

alan n. sabino has served as Regional Vice President of
the Company since July 1996. From 1995 to July 1996,
Mr. Sabino served as a Division President for Waste
Management, Inc. From 1989 to 1994, he served as Region
Operations Manager for Chambers Development
Company, Inc., a waste management company. Mr. Sabino
is a graduate of Pennsylvania State University.

gary simmons joined the Company in May 1997 as
Vice President, Fleet Management. From 1995 to May
1997, Mr. Simmons served as National and Regional Fleet
Service Manager for USA Waste Services, Inc., a waste
management company. From 1977 to 1995, Mr. Simmons
served in various fleet maintenance and management
positions for Chambers Development Company, Inc.

part

one

item two:

properties

The principal fixed assets used by the Company in
connection with its landfill operations are its landfills which
are described in Item 1.

The Clinton County landfill is operated under a capital
lease scheduled to expire in 2021. The Company is
generally obligated under the lease to expand the landfill at
its own cost, subject to market forces and demand. The
Clinton County landfill is not permitted to receive waste
from certain geographic regions in New York and has a
permitted capacity of 125,000 tons per year. The tipping
fee paid for waste generated in Clinton County is fixed for
25 years subject to limited inflation increases during the
term of the lease. During fiscal 1998, approximately 18.4%
(by tonnage) of the solid waste disposed of at the Clinton
County landfill was generated in Clinton County.

Under the lease, the Company is responsible for operating
the landfill in compliance with all applicable environmental
laws, including without limitation, possessing and comply-
ing with all necessary permits and licenses. The Company
must indemnify the County for all liabilities resulting from
any violations of those laws (exclusive of violations based on
pre-existing conditions, which remain the responsibility of
the County and with respect to which the County indemni-
fies the Company). In addition, the Company is responsible
for the composition of waste deposited at the landfill during
the lease term, regardless of the Company's knowledge or
monitoring efforts. The lease gives the Company full physi-
cal and managerial control over an unlined landfill on the
site, which was operated by the Company from July 1996
through July 1997, while the lined landfill was under
construction. Clinton County has agreed to indemnify the
Company for environmental liabilities arising from the
unlined landfill prior to its operation by the Company. The

Company is responsible for the closure of the unlined
landfill, and post-closure care is the responsibility of the
County. The Company completed the closure and capping
activities at this landfill in September 1997. The Company
is also responsible for performing certain cleanup work with
respect to the unlined landfill and has agreed to absorb the
resulting costs subject to satisfactory construction of the
lined portion. The Company is responsible for both closure
and post-closure care with respect to the lined landfill upon
exhaustion of the corresponding airspace.

The Company owns the Waste USA landfill and leases the
permitted airspace capacity above the landfill under a lease
which is scheduled to expire in 2001 and which is
extendible for an additional six years. The lease payments
are made quarterly in an amount equal to the greater of (a)
the rate of $3.75 per ton of all solid waste accepted at the
landfill, as adjusted, or (b) $33,000. The Company is
required to pay the lessor at the end of the lease term the
difference between $6,000,000 and the actual amounts paid
under the lease. In addition, at the end of the lease term, the
Company is obligated to exercise one of the following
options: (i) to purchase all of the stock of the lessor for
$300,000; (ii) to purchase the leased airspace for $300,000;
or (iii) to extend the term of the lease for the remaining
permitted life of the landfill operation for $300,000. The
Company may exercise the option at any time before
January 25, 2001.

Other than the landfills, the principal fixed assets used by
the Company in its solid waste collection and landfill
operations included, at June 15, 1998, approximately 946
collection vehicles, 130 pieces of heavy equipment and 191
support vehicles. At June 15, 1998, transfer station
operations included 35 transfer stations, 14 of which are
owned and 21 of which are leased and/or operated under
agreements expiring between 1998 and 2021.

At June 15, 1998, the Company utilized nine recycling
facilities in its service areas, of which seven are owned and
two are leased and/or operated under agreements expiring
between 1999 and 2021.

The Company owns and operates a 46-acre tire processing
facility located in Eliot, Maine, consisting of storage facili-
ties, tire shredding machines and a scale and receiving area.

The Company's facility in Rutland, Vermont, consisting of
approximately 10,000 square feet utilized for the
Company's headquarters, and its recycling processing
facility and office located in Montpelier, Vermont,
consisting of an aggregate of approximately 24,000 square
feet, are leased from Casella Associates, a company owned
by John and Douglas Casella.

part

one

item three:

legal proceedings

legal proceedings
On or about October 30, 1997, Mr. Matthew M. Freeman
commenced a civil lawsuit against the Company and two of
the Company's officers and directors in the Rutland
Superior Court, Rutland County, State of Vermont. In the
complaint, Mr. Freeman seeks compensation for services
allegedly performed by him prior to 1995. Mr. Freeman is
seeking a three percent equity interest in the Company or
the monetary equivalent thereof, as well as punitive
damages. The Company and the officers and directors have
answered the complaint, denied Mr. Freeman's allegations
of wrongdoing, and asserted various defenses. In order to
facilitate the completion of the November Offering, certain
stockholders of the Company, including the two officers
named as defendants, agreed to indemnify the Company for
any settlement by the Company or any award against the

Company in excess of $350,000 (but not including legal fees
paid by or on behalf of the Company or any other party).

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. 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 industrial waste 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. At
June 15, 1998, the Company had not yet begun accepting
waste at the Hyland landfill.

In the normal course of its business and as a result of the
extensive governmental regulation of the waste industry, the
Company may periodically become subject to various
judicial and administrative proceedings involving Federal,
state or local agencies. In these proceedings, an agency may
seek to impose fines on the Company or to revoke, or to
deny renewal of, an operating permit held by the Company.
In addition, the Company may become party to various

claims and suits pending for alleged damages to persons and
property, alleged violation of certain laws and for alleged
liabilities arising out of matters occurring during the normal
operation of the waste management business. However,
there is no current proceeding or litigation involving the
Company that it believes will have a material adverse effect
upon the Company's business, financial condition and
results of operations.

part

one

item four:

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, 1998.

part

two

item five:

market for registrant’s common

equity and related shareholder matters

The Company's Class A Common Stock began trading on
the Nasdaq National Market under the symbol "CWST" on
October 29, 1997. Prior to such date, there was no estab-
lished public trading market for the Company's Class A
Common Stock. The following table sets forth the high and
low sale prices of the Company's Class A Common Stock
for the periods indicated as quoted on the Nasdaq National
Market.

period

high low

Fiscal 1998

Second quarter

(commencing October 29, 1997)

Third quarter
Fourth quarter

Fiscal 1999

$ 2 2 . 7 5
$ 2 6 . 3 7 5
$ 3 4 . 0 0

$ 2 0 . 2 5
$ 1 9 . 0 0
$ 2 3 . 7 5

First quarter (through June 24, 1998)

$ 3 0 . 7 5

$ 2 4 . 5 0

On June 24, 1998, the high and low sale prices per share of
the Company's Class A Common Stock as quoted on the
Nasdaq National Market were $25.25 and $24.625,
respectively. As of June 24, 1998 there were approximately
198 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 June
24, 1998 was $24.75. 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 out-
standing 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 revolving
line of credit 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, 1998 that
were not previously reported by the Company in its
quarterly reports on Form 10-Q.

part

two

item six:

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,
1996, 1997 and 1998, and the consolidated
balance sheets as of April 30, 1997 and 1998 are
derived from the Company's consolidated
financial statements included elsewhere in this
Annual Report, and the consolidated statement of
operations and cash flows data for the fiscal years
ended April 30, 1994 and 1995 and the
consolidated balance sheet data as of April 30,
1994, 1995 and 1996 are derived from the
Company's consolidated financial statements, all
of which statements have been audited by Arthur
Andersen LLP. In December 1997, the Company
completed the acquisition of All Cycle in a trans-
action recorded as a pooling of interests.
Accordingly, 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.
The data set forth below should be read in
conjunction with the "Management's Discussion
and Analysis of Financial Condition and Results
of Operations" and the Company's Consolidated
Financial Statements and Notes thereto included
elsewhere in this Annual Report.

(1) The Company has restated issued audited
consolidated statements of operations and
consolidated statements of cash flows to reflect
the merger with All Cycle consummated on

casella waste systems, inc. selected consolidated financial and operating data
(in thousands, except per share data)
fiscal year ended april 30,

1994

1995

1996

1997

1998

Statement of operations data:
R e v e n u e s
Cost of operations
General and administrative
Merger-related costs
Depreciation and amortization
Loss on impairment of long-lived assets

Operating income (loss)

Interest expense, net
Other expense (income), net

Income (loss) before provision

(benefit) for income taxes,
extraordinary items and
cumulative effect of change
in accounting principle

Provision (benefit) for income
T a x e s

Extraordinary items
Change in accounting principle

Net income (loss)

Accretion of preferred stock
and put warrants

$13,491
9,640
2,702
0
1,483
0

(334)

613
207

(1,154)

(441)

124

($837)

$23,869
13,721
2,909
0
4,815
0

2,424

1,826
36

562

220

$42,829
25,137
7,063
0
8,152
0

2,477

2,617
(90)

(50)

144
326

$79,532
48,057
12,534
0
13,695
0

5,246

4,290
923

$118,067
69,878
17,089
290
18,345
971

11,494

6,532
(80)

452

5,042

2,385

$342

($520)

($419)

$2,657

(2,380)

(2,967)

(8,530)

(5,738)

Net income (loss) applicable

to common shareholders

Basic net income (loss) per common share
Basic weighted average common
shares outstanding (2)

Diluted net income (loss) per common share
Diluted weighted average common

shares outstanding (2)

Other Operating Data:

EBITDA (3)

Capital Expenditures

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

($837)

($0.35)

2,355

($0.35)

2,355

$1,149

$843

$1,559

($2,270)

$1,007

($2,038)

($3,487)

($8,949)

($3,081)

($0.70)

2,900

($0.70)

2,900

$7,239

$3,731

$4,978

($0.96)

3,279

($0.96)

3,279

$10,629

$10,750

$8,642

($2.29)

3,913

($2.29)

3,913

$18,941

$16,971

$14,765

($0.39)

7,912

($0.39)

7,912

$30,810

$24,652

$19,447

($9,187)

($28,209)

($52,641)

($56,499)

$4,547

$19,272

$38,755

$37,649

casella waste systems, inc. selected consolidated financial and operating data
(in thousands, except per share data)
fiscal year ended april 30,

balance sheet data 1994

1995

1996

1997

1998

Cash and cash equivalents
Working capital (deficit)
Property and equipment, net
Total assets
Long-term obligations, less

current maturities

Redeemable preferred stock
Redeemable put warrants (4)
Total stockholders’ equity

( d e f i c i t )

$427
(729)
6,394
13,055

7,331
0
62

738

$765
(1,393)
23,203
38,534

22,998
0
3,142

2,338

$470
(2,205)
37,955
64,893

24,103
22,896
400

(874)

$1,349
(5,577)
67,983
140,882

76,901
31,426
400

$1,946
3,818
81,684
189,033

74,833
0
0

81,860

December 19, 1997, accounted for using the pooling of
interests method of accounting.

(2) Computed on the basis described in Note 3 of Notes to
Consolidated Financial Statements.

(3) EBITDA is defined as operating income plus deprecia-
tion and amortization and loss on impairment of long-lived
assets. EBITDA does not represent, and should not be con-
sidered as, an alternative to net income or cash flows from
operating activities, each as determined in accordance with
GAAP. Moreover, EBITDA does not necessarily indicate
whether cash flow will be sufficient for such items as work-
ing capital or capital expenditures, or to react to changes in
the Company's industry or to the economy generally. The
Company believes that 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 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 indica-
tor of its ability to satisfy its debt service, capital expenditure
and working capital requirements. Because EBITDA is not
calculated by all companies and analysts in the same fashion,

the EBITDA measures presented by the Company may not
be comparable to similarly-titled measures reported by other
companies. Therefore, in evaluating EBITDA data, investors
should consider, among other factors: the non-GAAP nature
of 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 EBITDA
data to similarly-titled measures reported by other
companies. For more information about the Company's
cash flows, see the Consolidated Statement of Cash Flows in
the Company's Consolidated Financial Statements.

(4) Represents warrants to purchase 100,000 shares of Class
A Common Stock exercisable at $6.00 per share. Pursuant
to the terms of these warrants, in September 1997, warrants
to purchase 25,000 shares were exercised by the holder at
$6.00 per share, and warrants to purchase 75,000 shares
were called by the Company at $7.00 per share.

part

two

item seven:

management’s discussion and

analysis of financial condition and

results of operations

The following discussion of the Company's financial
condition and results of operations should be read in
conjunction with the Company's Consolidated Financial
Statements and Notes thereto, and other financial
Information included elsewhere in this Annual Report.

o v e r v i e w
The Company is a regional, integrated solid waste services
company that provides collection, transfer, disposal and
recycling services in Vermont, New Hampshire, Maine,
upstate New York and northern Pennsylvania. The
Company's objective is to continue to grow by expanding its
services in markets where it can be one of the largest and
most profitable fully-integrated solid waste services
companies.

The Company's revenues have increased from $13.5 million
for the fiscal year ended April 30, 1994, to $118.1 million
for the fiscal year ended April 30, 1998. From May 1, 1994
through April 30, 1998, the Company acquired 77 solid
waste collection, transfer and disposal operations. Between
May 1 and June 15, 1998, the Company acquired an
additional eight such businesses, including the Hyland
landfill, a Subtitle D landfill in western upstate New York.
All but one of these acquisitions were accounted for under
the purchase method of accounting for business
combinations. Under the rules of purchase accounting the
acquired companies' revenues and results of operations have
been included together with those of Casella Waste Systems,
Inc. from the actual dates of the acquisitions and will
materially affect the period-to-period comparisons of the
Company's historical results of operations. In December
1997 the Company acquired a waste collection and transfer
operation in a transaction recorded as a pooling of interests.
Under the rules governing poolings of interest, the prior
period and year to date financial statements of the Company
have been restated for all prior years to reflect the financial

position, results of operations and cash flows of the merged
entities as if they had been one company for all periods
presented in the accompanying financial statements.

This Annual Report and other reports, proxy statements,
and other communications to stockholders, as well as oral
statements by the Company's officers or its agents, may
contain forward-looking statements within the meaning of
Section 27A of the Securities Act, with respect to, among
other things, the Company's future revenues, operating
income, or earnings per share. Without limiting the
foregoing, any statements contained in this Annual Report
that are not statements of historical fact may be deemed to
be forward-looking statements, and the words "believes",
"anticipates", "plans", "expects", and similar expressions are
intended to identify forward-looking statements. There are
a number of factors of which the Company is aware that
may cause the Company's actual results to vary materially
from those forecast or projected in any such forward-look-
ing 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 materi-
al adverse effect on the Company's results of operations.

general
The Company's revenues are attributable primarily to fees
charged to customers for solid waste collection, landfill,
transfer and recycling services. The Company derives a
substantial portion of its collection revenues from
commercial, industrial and municipal services that are gener-
ally performed under service agreements or pursuant to
contracts with municipalities. The majority of the
Company's residential collection services are performed on a
subscription basis with individual households. Landfill and
transfer customers are charged a tipping fee on a per ton
basis for disposing of their solid waste at the Company's

disposal facilities and transfer stations. The majority of the
Company's landfill and transfer customers are under
one-year to ten-year disposal contracts, with most having
clauses for annual cost of living increases. Recycling revenues
consist of revenues from the sale of recyclable commodities
and from the sale of tire derived fuel. Other revenues consist
primarily of revenue from waste tire tipping fees, and
septic/liquid waste operations. The Company's revenues are
shown net of intercompany eliminations. The Company
typically establishes its intercompany transfer pricing based
upon prevailing market rates.

The table below shows, for the periods indicated, the per-
centage of the Company's revenues attributable to services
provided. The increase in the Company's collection revenues
as a percentage of revenues in fiscal 1997 and fiscal 1998 is
primarily attributable to the impact of the Company's acqui-
sition of collection businesses during fiscal 1996 and fiscal
1997, as well as to internal growth through price and
business volume increases. The decrease in the Company's
landfill revenues and in the Company's transfer revenues as a
percentage of revenues in fiscal 1997 and fiscal 1998 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 decline in recycling
revenues as a percentage of revenues in fiscal 1997 and fiscal

% revenues year ended april 30,

C o l l e c t i o n
L a n d f i l l
T r a n s f e r
R e c y c l i n g
O t h e r

1996

1997 1998

6 8 . 7 %
1 5 . 8
7 . 1
7 . 4
1 . 0

6 9 . 7 %
1 5 . 5
6 . 5
7 . 1
1 . 2

7 3 . 4 %
1 2 . 4
5 . 8
6 . 5
1 . 9

Total Revenues

1 0 0 . 0 %

1 0 0 %

1998 principally reflects an absence of acquisitions in this
area coupled with a decline in recyclable commodity prices.
The increase in other revenues as a percentage of revenues in
fiscal 1997 and fiscal 1998 is primarily due to the
Company's acquisition and integration of tire processing
and septic/liquid waste operations during these periods.

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, pro-
fessional services and costs associated with the Company's
marketing and sales force and community relations expense.

Depreciation and amortization expense includes deprecia-
tion 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 amor-
tization expense related to airspace consumption can vary
materially from landfill to landfill depending upon the pur-
chase price and landfill site and cell development costs. The
Company depreciates all fixed and intangible assets, exclud-
ing non-depreciable land, down to a $0 net book value, and
does not apply a salvage value to any of its fixed assets.

Certain direct landfill development costs, such as engineer-
ing, 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 over-
head, public relations and other corporate services, are
expensed as incurred.

% of revenues year ended april 30,

1996 1997 1998

1 0 0 . 0 %
5 8 . 5
1 6 . 7
0 . 0
1 9 . 0

1 0 0 . 0 %
6 0 . 4
1 5 . 8
0 . 0
1 7 . 2

1 0 0 . 0 %
5 9 . 2
1 4 . 5
0 . 2
1 5 . 6

0 . 0

5 . 8
6 . 1
( 0 . 2 )
0 . 3

0 . 0

6 . 6
5 . 4
1 . 1
0 . 6

0 . 8

9 . 7
5 . 5
( 0 . 1 )
2 . 0

R e v e n u e s
Cost of operations
General and administrative
Merger related costs
Depreciation and amortization
Loss on impairment of
long-lived assets

Operating income
Interest expense, net
Other (income) expenses, net
Provision for income taxes

Net income (loss)

before extraordinary items

( 0 . 4 )

( 0 . 5 )

2 . 3

E B I T D A *

2 4 . 8 %

2 3 . 8 %

2 6 . 1 %

* See discussion and computation of EBITDA below.

results of operations
The adjacent 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.

fiscal year ended april 30, 1998
versus april 30, 1997
r e v e n u e s . Revenues increased $38.5 million, or 48.5%,
to $118.1 million in fiscal 1998 from $79.6 million in fiscal
1997. Approximately $33.4 million of the increase was
attributable to the impact of businesses acquired throughout
fiscal 1997 and fiscal 1998. In addition, approximately $4.7
million of the increase was attributable to internal volume
and price growth. The balance of the increase of
approximately $400,000 was due to higher average recy-
clable commodity prices in fiscal 1998 versus fiscal 1997.

cost of operations. Cost of operations increased
approximately $21.8 million, or 45.4%, to $69.9 million in
fiscal 1998 from $48.1 million in fiscal 1997, an increase
corresponding primarily to the Company's revenue growth
described above. Cost of operations as a percentage of
revenues decreased to 59.2% in fiscal 1998 from 60.4% in
fiscal 1997. The decrease was primarily the result of: (i)
productivity improvements in the Company's collection
operations as a result of better route density from
acquisitions, routing efficiencies through route audits and
front-end loader vehicle conversions completed throughout
fiscal 1998; and (ii) margin improvements because of price
increases in fiscal 1998.

general and administrative. General and adminis-
trative expenses increased approximately $4.6 million, or
36.3%, to $17.1 million in fiscal 1998 from $12.5 million
in fiscal 1997. General and administrative expenses as a per-
centage of revenues decreased to 14.5% in fiscal 1998 from

15.8% in fiscal 1997 due primarily to improved economies
of scale related to the significant increase in revenues.

merger-related costs. Merger-related costs consists
of legal and professional fees associated with the All Cycle
pooling of interests, as well as bonus payments made to All
Cycle management personnel in consideration of the
pending merger.

depreciation and amortization. Depreciation and
amortization expense increased $4.7 million, or 34.0%, to
$18.3 million in fiscal 1998 from $13.7 million in fiscal
1997. As a percentage of revenues, depreciation and
amortization expense decreased to 15.6% in fiscal 1998
from 17.2% in fiscal 1997. The decrease in depreciation
and amortization expense as a percentage of revenues was
primarily the result of: (i) the increase as a percentage of the
total revenues in fiscal 1998 of the Company's collection
operations, which have lower depreciation and amortization
expenses than the Company's other operations; and (ii)
lower amortization expense at the Company's Waste USA
landfill in Coventry, Vermont due to the landfill receiving a
permit for a significant expansion in fiscal 1998, which
allows the Company to write off the landfill assets over a
longer period.

loss on impairment of long-lived assets. T h e
Company recognized a loss on impairment of long-lived
assets in the fourth quarter of fiscal 1998 in the amount of
$971,000. The impairment charge was a non-cash charge to
write down the assets of the Company's waste tire
processing facility in Eliot, Maine to fair market value as of
April 30, 1998, because of continuing losses of that facility.
Due to pressures on the Company's tire derived fuel
customers to meet the requirements of the Clean Air Act,
the Company believes that in the future these customers
will replace tire derived fuel with natural gas as a fuel, and,

therefore, the future undiscounted cash flows will be less
than the carrying value of the waste tire processing facility
before the charge.

revenue increases was partially offset by a decrease of
approximately $1.0 million due to lower recyclable
commodity prices in fiscal 1997 versus fiscal 1996.

interest expense, net. Net interest expense increased
approximately $2.2 million, or 52.3% to $6.5 million in
fiscal 1998 from $4.3 million in fiscal 1997. This increase
primarily reflects increased average indebtedness in fiscal
1998 principally incurred in connection with acquisitions.
The Company capitalized a total of $137,535 in interest
expense in fiscal 1998, down from a total of $182,418 in
fiscal 1997.

other (income) expense, net. Net other (income)
expense has not historically been material to the Company's
results of operations. However, during fiscal 1997, the
Company settled a lawsuit for $450,000 and also paid
approximately $200,000 in attorneys' fees in connection
with such settlement. Additionally, the Company wrote off
$283,000 in recycling assets that were deemed to have no
value in fiscal 1997.

provision for income taxes. Provision for income
taxes increased approximately $1.9 million, or 427.7%, to
$2.4 million in fiscal 1998 from $500,000 in fiscal 1997.
This increase reflects the Company's increase in profits in
fiscal 1998, compared to losses in prior years. See Note 8 of
Notes to Consolidated Financial Statements.

fiscal year ended april 30, 1997
versus april 30, 1996
r e v e n u e s . Revenues increased $36.7 million, or 85.6%,
to $79.5 million in fiscal 1997 from $42.8 million in fiscal
1996. Approximately $33.6 million of the increase was
attributable to the impact of businesses acquired throughout
fiscal 1996 and fiscal 1997. In addition, approximately $4.1
million of the increase was attributable to internal growth,
primarily through volume increases. The effect of these

cost of operations. Cost of operations increased $22.9
million, or 91.1%, to $48.1 million in fiscal 1997 from
$25.1 million in fiscal 1996, an increase corresponding
primarily to the Company's revenue growth described
above. Cost of operations as a percentage of revenues
increased to 60.4% in fiscal 1997 from 58.7% in fiscal
1996. The increase was primarily the result of: (i) an increase
in collection operations, which have higher operating costs
than other operations, as a percentage of the Company's
total operations as a result of acquisitions completed in fiscal
1996 and fiscal 1997; (ii) lower margins in recycling services
due to lower commodity prices in fiscal 1997; and (iii)
start-up and transitional expenses related to the acquisitions
completed in fiscal 1997. The Company has historically
expensed all costs related to post acquisition start-up and
transitional expenditures.

general and administrative. General and
administrative expenses increased approximately $5.5
million, or 77.4%, to $12.5 million in fiscal 1997 from $7.1
million in fiscal 1996. General and administrative expenses
as a percentage of revenues decreased to 15.8% in fiscal
1997 from 16.5% in fiscal 1996 due to improved economies
of scale related to the significant increase in revenues, and
operating enhancements made to certain acquired
operations.

depreciation and amortization. Depreciation and
amortization expense increased approximately $5.5 million,
or 67.9%, to $13.7 million in fiscal 1997 compared to $8.2
million in fiscal 1996. As a percentage of revenues,
depreciation and amortization expense decreased to 17.2%
during fiscal 1997 from 19.0% in fiscal 1996. The decrease
in depreciation and amortization expense as a percentage of

revenues was primarily the result of an increase in the
Company's collection operations as a percentage of total
revenues in fiscal 1997, which generally have lower deprecia-
tion and amortization expenses than other operations.

interest expense, net. Net interest expense increased
approximately $1.7 million, or 65.3%, to $4.3 million in
fiscal 1997 from $2.6 million in fiscal 1996. This increase
primarily reflects increased indebtedness incurred in connec-
tion with acquisitions and capital expenditures and was off-
set to a small degree by slightly lower average interest rates.

other (income) expense. Other (income) expense
has not historically been material to the Company's results
of operations. However, during fiscal 1997, the Company
established a reserve of $650,000 related to a lawsuit that
was settled for $450,000 in the first quarter of fiscal 1998.
The Company also paid $200,000 in attorneys' fees in con-
nection with such settlement. Additionally, the Company
wrote off $283,000 for recycling facility assets that were
deemed to have no value in the year ended April 30, 1997.

provision for income taxes. Provision for income
taxes increased approximately $308,000, or 213.8%, to
$452,000 in fiscal 1997 from $144,000 in fiscal 1996, due
principally to an increase in the amount of amortization of
non-deductible goodwill and other non-deductible items in
fiscal 1997 as compared to fiscal 1996.

liquidity and capital resources
The Company's business is capital intensive. The
Company's capital requirements include acquisitions, fixed
asset purchases and capital expenditures for landfill
development, cell construction, and site and cell closure.
Because of these needs the Company has in the past had
working capital deficits. The Company had positive net
working capital of $3.8 million at April 30, 1998 compared
to a $5.6 million working capital deficit at April 30, 1997.

The Company has a $150 million revolving line of credit
with a group of banks for which BankBoston, N.A. is acting
as agent. This line of credit is secured by all assets of the
Company, including the Company's interest in the equity
securities of its subsidiaries. This revolving line of credit
matures in January, 2003.

The proceeds from the November offering were $48.4
million, net of underwriters' discounts and issuance costs. A
portion of the November Offering proceeds, $45 million,
was used to repay long term debt, and to pay down the line
of credit. Subsequently, the Company re-borrowed under
the line of credit to finance acquisitions. Funds available to
the Company under the line of credit were $86 million at
April 30, 1998.

On June 24, 1998, the Company filed an S-1 Registration
Statement (the "Registration Statement") with the Securities
and Exchange Commission to register an aggregate of
5,500,949 shares for sale. Of these shares, 1,600,000 are
expected to be sold by the Company and 1,444,304 shares
are expected to be sold by selling stockholders. In addition,
the Company granted the underwriters an option to
purchase up to an additional 456,645 shares to cover
overallotments, if any. The Registration Statement also
covers up to 2,000,000 shares which may be issued by the
Company from time to time in connection with acquisitions
of businesses or assets. There can be no assurance that the
Registration Statement will be declared effective by the
Securities and Exchange Commission or that any of the
shares offered pursuant to the Registration Statement will be
sold.

The Company believes that its cash provided internally from
operations together with the Company's available credit
facilities and the proceeds of this offering should enable it to
meet its needs for working capital for the next fiscal year.

Net cash provided by operations for the fiscal years ended
April 30, 1998 and April 30, 1997 was $19.4 million and
$14.8 million, respectively. The increase was primarily due
to the increase in the Company's net income for the 1998
fiscal year, together with an increase in depreciation and
amortization and a decrease in the Company's accrued
closure and post closure costs. The decrease in the
closure/post closure accrual is due to the completion in the
1998 fiscal year of work required to close an unlined cell at
the Clinton County landfill and at stage one of the
Company's NCES landfill.

Net cash provided by operations in fiscal 1997 increased to
$14.8 million from $8.6 million in fiscal 1996 primarily due
to an increase in depreciation and amortization of
approximately $5.5 million in fiscal 1997 from fiscal 1996,
and improvement of the Company's working capital.

For fiscal 1998 and fiscal 1997, cash used in investing
activities was $56.5 million and $52.6 million, respectively.
The increase in investing activities reflects the Company's
capital expenditure and capital needs for acquisitions which
have increased significantly, reflecting the Company's rapid
growth by acquisition and development of revenue
producing assets. The Company's cash needs to fund
investing activities are expected to increase further as the
Company continues to complete acquisitions.

For fiscal 1998 and fiscal 1997, the Company's financing
activities provided cash of $37.6 million and $38.8 million,
respectively. Net cash provided by financing activities was
$19.3 million in the fiscal year ended April 30, 1996. The
net cash provided by financing activities of $37.6 million in
the fiscal year ended April 30, 1998 reflects the net proceeds
of the November Offering and borrowings on the
Company's credit facility, offset by repayments. Net cash
provided by financing activities in fiscal 1997 reflects

primarily bank borrowings and seller subordinated notes,
less principal payments on debt. In fiscal 1996, net cash
provided by financing activities reflects the net proceeds of
approximately $12.5 million from the private placement of
preferred stock in December 1995.

s e a s o n a l i t y
The Company's revenues have historically been lower
during the months of November through March. This
seasonality reflects the lower volume of waste during the late
fall, winter and early spring months primarily because: (i) the
volume of waste relating to construction and demolition
activities decreases substantially during the winter months in
the northeastern United States; and (ii) decreased tourism in
Vermont, Maine and eastern New York during the winter
months tends to lower the volume of waste generated by
commercial and restaurant customers, which is partially
offset by the winter ski industry. Since certain of the
Company's operating and fixed costs remain constant
throughout the fiscal year, operating income results are
therefore impacted by a similar seasonality. In addition,
particularly harsh w (,)18 ( )44ther conditions could result in
increased oper ( )44ting costs to certain of the Company's
oper ( )44tions.

The Company's quarterly revenues and operating results
have varied significantly in the past and are likely to vary
substantially from quarter to quarter in the future. The
Company establishes its expenditure levels based on its
expec( )44tations as to future revenues, and, if revenue levels are

investors. In such events, the Company's Class A Common
Stock price would likely be materially and adversely affected.

inflation and prevailing economic
conditions
To date, inflation has not had a significant impact on the
Company's operations. Consistent with industry practice,
most of the Company's contracts provide for a pass through of
certain costs, including increases in landfill tipping fees and, in
some cases, fuel costs. The Company therefore believes it
should be able to implement price increases sufficient to offset
most cost increases resulting from inflation. However,
competitive factors may require the Company to absorb at
least a portion of these cost increases, particularly during
periods of high inflation.

The Company's business is located in the northeastern United
States. Therefore, the Company's business, financial condition
and results of operations are susceptible to downturns in the
general economy in this geographic region and other factors
affecting the region such as state regulations and severe weather
conditions. The Company is unable to forecast or determine
the timing and/or the future impact of a sustained economic
slowdown.

year 2000 issues
The Company uses well-regarded nationally known software
vendors for both its general accounting applications and
industry-specific customer information and billing systems.
The general accounting package which the Company uses is
fully year 2000 compatible, and the provider of the solid waste
industry customer information and billing system has made a
commitment to be year 2000 compatible by August, 1998.

The Company's banking arrangements are with an
international banking institution which is taking all necessary
steps to insure its customers' uninterrupted service throughout

applicable Year 2000 time frames. The Company's payroll is
performed out-of-house by the largest provider of 3rd party
payroll services in the country, which has made a commitment
of uninterrupted service to their customers throughout
applicable Year 2000 time frames.

None of the Company's customers represent a large enough
share of the Company's revenues to materially affect overall
Company revenues in the event of an individual customer
experiencing year 2000 problems. The Company believes that
the same is true of any of the Company's suppliers of goods
and services, aside from those discussed above.

EBITDA
EBITDA represents operating income (earnings before interest
and taxes, or "EBIT") plus depreciation and amortization
expense and loss on impairment of long-lived assets. EBITDA
is not a measure of financial performance under generally
accepted accounting principles, but is provided because the
Company understands that certain investors use this
information when analyzing the financial position and
performance of the Company.

Analysis of the factors contributing to the change in EBITDA
is included in the discussions above.

fiscal year ended april 30,
(in thousands)

1996 1997 1998
(restated) (restated)

Operating income
Depreciation and amortization
Loss on impairment of

long-lived assets ( 1 )

$ 2 , 4 7 7
8 , 1 5 2

$ 5 , 2 7 9
1 3 , 0 5 3

$ 1 1 , 4 9 4
1 8 , 3 4 5

9 7 1

E B I T D A

$ 1 0 , 6 2 9

$ 1 8 , 3 3 2

$ 3 0 , 8 1 0

EBITDA as a percentage

of revenues

2 4 . 8 %

2 5 . 1 %

2 6 . 1 %

(1) See Note 3 of Notes to Consolidated Financial Statements.

certain factors that may affect
future results
The following important factors, among others, could cause
actual results to differ materially from those indicated by
forward-looking statements made in this Annual Report
and presented elsewhere by management from time to time.

The Company's objective is to continue to grow by
expanding its services in markets where it can be one of
the largest and most profitable fully-integrated solid waste
services companies. Such growth, if it were to occur, could
place a significant strain on the Company's management
and operational, financial and other resources.

The Company has incurred net losses in fiscal 1996 and
fiscal 1997. There can be no assurance that the Company
will be profitable in the future.

The Company's strategy envisions that a substantial part
of the Company's future growth will come from acquiring
and integrating solid waste collection, transfer and disposal
operations. There can be no assurance that the Company
will be able to identify suitable acquisition candidates and,
once identified, to negotiate successfully their acquisition at
a price or on terms and conditions favorable to the
Company, or to integrate the operations of such acquired
businesses with the Company.

The Company is highly dependent upon the services
of the members of its senior management team, the loss of
any of whom may have a material adverse effect on the
Company's business, financial condition and results of
operations. In addition, the Company's future success
depends on its continuing ability to identify, hire, train,
motivate and retain highly trained personnel.

The Company anticipates that any future business
a c q u i s itions will be financed through cash from operations,
borrowings under its bank line of credit, the issuance of
shares of the Company's class A common stock and/or seller
financing. There can be no assurance that the Company will
have sufficient existing capital resources or will be able to
raise sufficient additional capital resources on terms
satisfactory to the Company, if at all, in order to meet its
capital requirements.

The Company's operating program depends on its ability to
operate and expand the landfills it owns and leases and to
develop new landfill sites. Several of the Company's landfills
are subject to local laws purporting to regulate their
expansion and other aspects of their operations. There can be
no assurance that the laws adopted by municipalities in
which the Company's landfills are located will not have a
material adverse effect on the Company's utilization of its
landfills or that the Company will be successful in obtaining
new landfill sites or expanding the permitted capacity of any
of its current landfills once its remaining disposal capacity
has been consumed.

part

two

item seven a:

quantitative and qualitative

disclosure about market risk

This item is not applicable to the Company for the fiscal
year ended April 30, 1998.

part

two

item eight:

financial statements and

supplementary data

1997 and 1998, and the results of their operations and their
cash flows for each of the three years ended April 30, 1998,
in conformity with generally accepted accounting principles.

report of independent public
a c c o u n t a n t s
To the Stockholders and Board of Directors of Casella Waste
Systems, Inc.:

ARTHUR ANDERSEN LLP
Arthur Andersen LLP
/ s /

Boston, Massachusetts
June 12, 1998

We have audited the accompanying consolidated balance
sheets of Casella Waste Systems, Inc. (a Delaware
corporation) and subsidiaries as of April 30, 1997 and 1998,
and the related consolidated statements of operations,
redeemable preferred stock, redeemable put warrants and
stockholders' equity (deficit) and cash flows for each of the
three years ended April 30, 1998. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial state-
ments based on our audits.

We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Casella Waste Systems, Inc. and subsidiaries as of April 30,

casella waste systems, inc. and subsidiaries
consolidated balance sheets
(in thousands)

assets

april 30,
1997
(restated, see note 1)

april 30,
1998

liabilities and
stockholders equity

(in thousands except per share data)

april 30,
1997
(restated, see note 1)

april 30,
1998

$1,349
1,532
14,107

447
543
906
745

$1,946
304
17,112

921
546
1,204
561

CURRENT LIABILITIES:

Current Maturities of Long-Term Debt
Current Maturities of Capital Lease Obligations
Accounts Payable
Accrued Payroll and Related Expenses
Accrued Closure and Postclosure Costs, Current

P o r t i o n

Deferred Revenue
Other Accrued Expenses

19,629

22,594

Total Current Liabilities

$6,272
392
9,034
1,222
3,417

2,075
2,794

25,206

75,528

1,373

1,599

4,910

364

3,638

9,118

$2,595
481
10,141
625
374

2,021
2,539

18,776

73,748

1,085

3,913

6,191

3,460

Long-Term Debt, Less Current Maturities

Capital Lease Obligations, Less Current Maturities

Deferred Income Taxes

Accrued Closure and Postclosure Costs, less

Current Portion

Other Long-Term Liabilities

COMMITMENTS AND CONTINGENCIES (Note 6)
REDEEMABLE PREFERRED STOCK:
Series A Redeemable with warrants

Exercisable for Class A Common Stock, $.01
par value (stated at redemption value) -
Authorized - 617 Shares Issued and
Outstanding - 517 and - 0 - shares.

Series B Redeemable with warrants

Exercisable for Class A Common Stock, $.01
par value (stated at redemption value) -

Authorized - 1,402 Shares Issued and
Outstanding - 1.295 and - 0- shares.

CURRENT ASSETS:

Cash and cash Equivalents
Restricted Cash - Closure Fund Escrow
Accounts Receivable-trade, less allowance

for doubtful accounts of $722 and $1,123.

Refundable Income Taxes
Prepaid Income Taxes
Prepaid Expenses
Other Current Assets

Total Current Assets

PROPERTY AND EQUIPMENT, at Cost:
Land and Land Held for Investment
L a n d f i l l s
Landfill Development
Buildings and Improvements
Machinery and Equipment Rolling Stock
C o n t a i n e r s

Less - Accumulated Depreciation and

A m o r t i z a t i o n

Property and Equipment, net

OTHER ASSETS:

Intangible Assets, net
Restricted Funds - Closure Fund Escrow
Other Assets

3,293
30,793
1,332
12,353
10,420
21,666
11,305

91,162

23,179

67,983

49,038
3,335
897

53,270

4,390
34,276
3,319
15,019
12,770
32,611
16,079

118,464

36,780

81,684

78,939
3,865
1,951

84,755

The accompanying notes are an integral part of these consolidated financial statements.

$140,882

$189,033

casella waste systems, inc. and subsidiaries
consolidated balance sheets

(in thousands,
except per share data)

casella waste systems, inc. and subsidiaries
consolidated statements of operations

(in thousands,
except per share data)

liabilities and
stockholders equity

april 30,
1997
(restated, see note 1)

april 30,
1998

fiscal year ended april 30,

1996

1997

1998

(restated, see note 1) (restated, see note 1)

R e v e n u e s

$42,829

$79,532

$118,067

Continued From Page 32-

Series C Mandatorily Redeemable, $.01 par

value ($7.00 redemption value) -

Authorized - 1,000 Shares Issued and
Outstanding - 424 and - 0 - shares.

Series D Convertible Redeemable, $.01 par
value (stated at redemption value) -

Authorized - 1,922 Shares Issued and
Outstanding - 1,922 and - 0 - shares.

Redeemable Put Warrants to purchase 100

Shares of Class A Common Stock

TOTAL REDEEMABLE PREFERRED
STOCK and PUT WARRANTS

STOCKHOLDERS’ EQUITY:
Class A Common Stock -
Authorized - 30,000 Shares, $.01 par value
Issued and Outstanding - 3,458 and
10,523 shares.
Class B Common Stock -
Authorized - 1,000 and 988 shares
Additional Paid-In Capital
Accumulated Deficit

Total Stockholders’ Equity

2,221

16,449

400

31,826

105

Operating Expenses:
Cost of Operations
General and Administrative
Merger-Related Costs
Depreciation and Amortization
Loss on Impairment of Long-Lived Assets

Operating Income

Other (Income) Expenses:
Interest Income
Interest Expense
Other Expense (Income), net

Income (Loss) Before Provision for Income

Taxes And Extraordinary Items

Provision for Income Taxes

10,976
(10,945)

95,901
(14,156)

81,860

$140,882

$189,033

Income (Loss) before extraordinary items
Extraordinary items from extinguishment of debt
(Net of $168 income tax benefit) (Note 7)

Net Income (loss)
Accretion of Preferred Stock and Put Warrants

The accompanying notes are an integral part of these consolidated financial statements.

Net Income (Loss) Applicable to Common

S t o c k h o l d e r s

Basic net income (loss) per Common Share

Basic weighted average Common Shares

o u t s t a n d i n g

Diluted net income (loss) per Common Share

Diluted weighted average Common Shares

o u t s t a n d i n g

25,137
7,063
0
8,152
0

40,352

2,477

(196)
2,813
(90)

2,527

(50)
144

(194)

(326)

(520)
(2,967)

($3,487)

($1.06)

3,279

($1.06)

48,057
12,534
0
13,695
0

74,286

5,246

(257)
4,547
923

5,213

33
452

(419)

69,878
17,089
290
18,345
971

106,573

11,494

(265)
6,797
(80)

6,452

5,042
2,385

2,657

(419)
(8,530)

2,657
(5,738)

($8,949)

($3,081)

($2.29)

($0.39)

3,913

($2.29)

7,912

($0.39)

3,279

3,913

7,912

The accompanying notes are an integral part of these consolidated financial statements.

casella waste systems, inc. and subsidiaries
consolidated statement of redeemable preferred stock, redeemable put warrants and stockholders’ equity (deficit)
redeemable preferred stock (restated, see note 1)
(in thousands)

series A redeemable with warrants
exerciseable for
class A common stock

series B redeemable with warrants
exerciseable for
class A common stock

series C mandatorily redeemable

series D convertible redeemable

# of
shares

redemption
value

# of
shares

redemption
value

# of
shares

517

2,376

1,295

5,956

424

517

2,376

1,295

5,956

424

redemption
value

1,952

2,017

204

# of
shares

1,922

redemption
value

13,455
(973)
65

1,922

12,547

3,902

1,262

3,638

517

3,162

9,118

1,295

424

2,221

1,922

16,449

(517)

707

(4,345)

1,770

749

2,287

(1,295)

(10,888)

(1,922)

(18,736)

(424)

(2,970)

Balance, April 30, 1995
Adjustment in connection with
pooling of interest (Note 1)
Capital contribution by pooled entity
Issuance of preferred stock

and other capital Transactions

Issuance costs
Accretion of preferred Stock
Net loss

Balance, April 30, 1996
Issuance of Class A Common Stock

in various Acquisitions

Capital contribution by pooled entity
Accretion of preferred Stock and Warrants
Net loss

Balance, April 30, 1997
Initial Public Offering -

net of issuance costs (Note 1)
Issuance of Class A Common Stock

in various acquisitions

Exercise of Common Stock Warrants
Exercise of Employee Stock Options
Exercise and Call of Redeemable

Put Warrants

Accretion of Preferred Stock and

Issuance Costs

Conversion of convertible

Preferred Stock

Redemption of Mandatorily

Redeemable Preferred Stock

Conversion of Class B

Common into Class A
Distributions to Shareholders
Net Income

Balance, April 30, 1998

The accompanying notes are an integral part of these consolidated financial statements.

casella waste systems, inc. and subsidiaries
consolidated statement of redeemable preferred stock, redeemable put warrants and stockholders’ equity (deficit)
(in thousands)
stockholder’s equity(deficit) (restated, see note 1)

class A common stock

class B common stock

r e d e e m a b l e
put warrants

# of
shares

$0.01
par value

$3,142

(2,742)

400

(400)

Balance, April 30, 1995
Adjustment in connection with
pooling of interest (Note 1)
Capital contribution by pooled entity
Issuance of preferred stock

and other capital Transactions

Issuance costs
Accretion of preferred Stock
Net loss

Balance, April 30, 1996
Issuance of Class A Common Stock

in various Acquisitions

Capital contribution by pooled entity
Accretion of preferred Stock and Warrants
Net loss

Balance, April 30, 1997
Initial Public Offering -

net of issuance costs (Note 1)
Issuance of Class A Common Stock

in various acquisitions

Exercise of Common Stock Warrants
Exercise of Employee Stock Options
Exercise and Call of Redeemable

Put Warrants

Accretion of Preferred Stock and

Issuance Costs

Conversion of convertible

Preferred Stock

Redemption of Mandatorily

Redeemable Preferred Stock

Conversion of Class B

Common into Class A
Distributions to Shareholders
Net Income

2,099

156
143

2,398

756
304

3,458

3,000

103
148
44

3,733

$21

2
1

8
3

1
2
0

Balance, April 30, 1998

10,523

$105

The accompanying notes are an integral part of these consolidated financial statements.

# of
shares

1,000

(12)

988

$0.01
par value

additional paid-
in capital

(accumulated
deficit)

total stockholders
equity (deficit)

$10

$3,452

($1,385)

$2,098

198
274

(2,837)

1,087

9,367
522

10,976

48,428

1,599
651
65

250

33,932

(130)
(520)

(1,996)

(8,530)
(419)

(10,945)

(255)

(5,513)

(130)
2,657

239
275

(2,837)
0
(130)
(520)

(875)

9,375
525
(8,530)
(419)

48,458

1,600
653
65

(5,513)

33,969

0
(130)
2,657

$10

$95,901

($14,156)

$81,860

casella waste systems, inc. and subsidiaries
consolidated statements of cash flows
(in thousands)

fiscal year ended april 30,

Cash Flows from Operating Activities:

Net income (loss)

Adjustments to reconcile net income (loss)

to net cash provided by operating activities -

Depreciation and amortization
Loss on impairment of long-lived assets
(Gain) loss on sale of assets
Provision for deferred income taxes
Non-cash employee compensation
Extraordinary items - loss on extinguishment

of debt

Changes in assets and liabilities, net of

effects of acquisitions -

Accounts receivable
Refundable income taxes
Accounts payable
Accrued closure and postclosure costs
Other current assets and liabilities

Net cash provided by operating activities

Cash Flows from Investing Activities:
Acquisitions, net of cash acquired
Additions to property and equipment
Proceeds from sale of equipment
Restricted funds - closure fund escrow
O t h e r

1996
(restated,
see note 1)

1997
(restated,
see note 1)

1998

($520)

($419)

$2,657

8,152
0
(41)
569
0

326

(1,756)
4
482
732
694

9,162

8,642

13,695
0
313
139
0

(3,741)
(189)
5,458
228
(719)

15,184

14,765

18,345
971
(335)
2,237
60

(454)
(474)
169
(1,763)
(1,966)

16,790

19,447

(17,328)
(10,750)
66
(214)
17

(35,225)
(16,971)
166
(625)
14

(35,793)
(24,652)
1,182
698
2,066

Net cash used in investing activities

(28,209)

(52,641)

(56,499)

(in thousands)

fiscal year ended april 30,

Continued -
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for -
I n t e r e s t

Income taxes

Supplemental Disclosures of Non Cash Investing
And Financing Activities:
Summary of entities acquired -
Fair market value of assets acquired
Common stock issued
Cash paid

1996
(restated,
see note 1)

1997
(restated,
see note 1)

1998

(295)
765

$470

879
470

597
1,349

$1,349

$1,946

$2,481

$4,252

$7,144

$117

$598

$547

$22,432
0
(17,328)

$67,106
(9,374)
(35,225)

$42,554
(1,603)
(35,793)

Liabilities assumed and notes payable to sellers

$5,104

$22,507

$5,158

The accompanying notes are an integral part of these consolidated financial statements.

Cash Flows from Financing Activities:

Proceeds from issuance of preferred stock,

net of issuance costs

Payments to subordinated debtholders
Deferred debt acquisition costs
Proceeds from issuance of common stock
Proceeds from exercise of stock warrants/options
Call of redeemable put warrants
Redemption of Series C Preferred Stock
Proceeds from long-term borrowings
Principal payments on long-term debt

Net cash provided by financing activities

12,482
(2,072)
(125)
275
0
0
0
23,591
(14,879)

0
0
(400)
525
0
0
0
47,228
(8,598)

0
0
0
48,455
869
(525)
(2,970)
158,445
(166,625)

19,272

38,755

37,649

casella waste systems, inc.
and subsidiaries notes to
consolidated financial statements

1. merger and initial public offering
Casella Waste Systems, Inc. has restated the previously
issued audited consolidated balance sheet as of April 30,
1997, the previously issued audited consolidated
statements of operations, consolidated statements of
redeemable preferred stock, redeemable put warrants and
stockholders' equity (deficit) and consolidated statements
of cash flows for the years ended April 30, 1996 and 1997
to reflect the merger with All Cycle Waste, Inc. and
Winters Brothers, Inc. ("All Cycle") consummated on
December 19, 1997, accounted for using the pooling of
interests method of accounting.

On November 3, 1997, the Company completed an
initial public offering of 3,000,000 shares of its Class A
Common Stock (the "November Offering") and in
accordance with the terms of the Company's agreements
(i) the Series A and Series B Redeemable Preferred Stock
with warrants exercisable for Class A Common Stock, the
preferred stock was automatically redeemed and the
redemption price was applied to the exercise price of the
warrants; (ii) the Series D Convertible Preferred Stock was
converted automatically into shares of Class A Common
Stock; and (iii) the Series C Mandatorily Redeemable
Preferred Stock was redeemed at its stated redemption
price of $7.00 per share.

Proceeds of the November Offering were $48,427,918,
net of underwriters' discount and offering expenses. Of
this amount, $44,962,548 was used for repayment of
indebtedness, $2,970,149 was used for redemption of the
Series C Mandatorily Redeemable Preferred Stock and
$495,221 was used for payments under the Management

Services Agreement (See Note 10).

2. operations
The Company is a regional, integrated, non-hazardous
solid waste services company that provides collection,
transfer, disposal and recycling services in Vermont, New
Hampshire, Maine, upstate New York and northern
Pennsylvania.

The consolidated financial statements of the Company
include the accounts of Casella Waste Systems, Inc. and its
wholly owned subsidiaries: Casella Waste Management,
Inc., Forest Acquisitions, Inc., New England Waste
Services, Inc., New England Waste Services of Vermont,
Inc., Bristol Waste Management, Inc., Sunderland Waste
Management, Inc., Newbury Waste Management, Inc.,
North Country Environmental Services, Inc., North
Country Composting Services, Inc., Sawyer
Environmental Recovery Facilities, Inc., Sawyer
Environmental Services, Casella T.I.R.E.S., Inc., Pine Tree
Waste Services of Maine, Inc., New England Waste
Services of N.Y., Inc., Casella Waste Management of N.Y.,
Inc. and Casella Waste Management of Pennsylvania, Inc.

generally accepted accounting principles requires manage-
ment to make estimates and assumptions that affect the
amounts reported in the financial statements and accom-
panying notes and the disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.

(c) revenue recognition
The Company recognizes revenues as the services are
provided. Certain customers are billed in advance and,
accordingly, recognition of the related revenues is deferred
until the services are provided.

(d) fair value of financial instruments
The Company's financial instruments consist primarily of
cash and cash equivalents, trade receivables, investments in
closure trust funds, trade payables and debt instruments.
The book values of cash and cash equivalents, trade
receivables, investments in closure trust funds and trade
payables approximate their respective fair values. The
Company's debt instruments that are outstanding as of
April 30, 1998 have carrying values that approximate their
respective fair values. See Note 5 for the terms and carrying
values of the Company's various debt instruments.

3. summary of significant
accounting policies
A summary of the Company's significant accounting
policies follows:

(e) cash and cash equivalents
The Company considers all highly liquid investments
purchased with maturities of three months or less to be
cash equivalents.

(a) principles of consolidation
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries. All
significant intercompany transactions and balances have
been eliminated in consolidation.

(f) closure fund escrow
Restricted funds held in trust consist of amounts on
deposit with various banks that support the Company's
financial assurance obligations for its facilities' closure and
postclosure costs.

(b) use of estimates
The preparation of financial statements in conformity with

(g) property and equipment
Property and equipment are stated at cost, less accumulated

depreciation and amortization. The Company provides for
depreciation using the straight-line method by charges to
operations in amounts that allocate the cost of the assets
over their estimated useful lives as follows:

asset
classification

Buildings and improvements
Machinery and equipment
Rolling stock
C o n t a i n e r s

estimated
useful life

10-35 years
2-15 years
1-10 years
2-12 years

The cost of maintenance and repairs is charged to
operations as incurred. Depreciation expense for the years
ended April 30, 1996, 1997 and 1998 was $3,269,639,
$6,929,283 and $9,487,641 respectively.

Capitalized landfill costs include expenditures for land and
related airspace, permitting costs and preparation costs.
Landfill permitting and preparation costs represent only
direct costs related to these activities, including legal,
engineering and construction. Interest is capitalized on
landfill permitting and construction projects and other
projects under development while the assets are undergoing
activities to ready them for their intended use. The interest
capitalization rate is based on the Company's weighted
average cost of indebtedness. No interest was capitalized for
the year ended April 30, 1996. Interest capitalized for the
years ended April 30, 1997 and 1998 was $182,418 and
$137,535 respectively. Management routinely reviews its
investment in operating landfills, transfer stations and other
significant facilities to determine whether the costs of these
investments are realizable.

Landfill permitting, acquisition and preparation costs,
excluding the estimated residual value of land, are amortized
as permitted airspace of the landfill is consumed. Landfill
preparation costs include the costs of construction

associated with excavation, liners, site berms and the
installation of leak detection and leachate collection systems.
In determining the amortization rate for these landfills,
preparation costs include the total estimated costs to com-
plete construction of the landfills' permitted capacity. Units-
of-production amortization rates are determined annually
for each of the Company's operating landfills. The rates are
based on estimates provided by the Company's engineers
and accounting personnel and consider the information
provided by surveys which are performed at least annually.

(h) accrued closure and postclosure costs
Accrued closure and postclosure costs include the current
and noncurrent portion of accruals associated with obliga-
tions for closure and postclosure of the Company's operat-
ing and closed landfills. The Company, based on input
from its engineers and accounting personnel, estimates its
future cost requirements for closure and postclosure
monitoring and maintenance for solid waste landfills based
on its interpretation of the technical standards of the U.S.
Environmental Protection Agency's Subtitle D regulations
and the air emissions standards under the Clean Air Act as
they are being applied on a state-by-state basis. Closure and
postclosure monitoring and maintenance costs represent the
costs related to cash expenditures yet to be incurred when a
landfill facility ceases to accept waste and closes.

Accruals for closure and postclosure monitoring and
maintenance requirements in the U.S. consider final cap-
ping of the site, site inspection, groundwater monitoring,
leachate management, methane gas control and recovery,
and operation and maintenance costs to be incurred during
the period after the facility closes. Certain of these environ-
mental costs, principally capping and methane gas control
costs, are also incurred during the operating life of the site in
accordance with the landfill operation requirements of
Subtitle D and the air emissions standards. Reviews of the

future cost requirements for closure and postclosure
monitoring and maintenance for the Company's operating
landfills by the Company's engineers and accounting
personnel are performed at least annually and are the basis
upon which the Company's estimates of these future costs
and the related accrual rates are revised. The Company
provides accruals for these estimated costs as the remaining
permitted airspace of such facilities is consumed.

The states in which the Company operates require a certain
portion of these accrued closure and postclosure obligations
to be funded at any point in time. Accordingly, the
Company has placed $4,866,981 and $4,169,139 at April
30, 1997 and 1998, respectively, in restricted investment
accounts to fund these future obligations.

In addition, the Company has been required to post a
surety bond or bank letter of credit to secure its obligations
to close its landfills in accordance with environmental
regulations. At April 30, 1998, the Company had provided
letters of credit totaling $4,276,302, expiring between May
1998 and June 1999, to secure the Company's landfill
closure obligations.

(i) intangible assets
Intangible assets at April 30, 1997 and 1998 consist of the
following (in thousands):

april 30,

1997

1998

G o o d w i l l
Covenants not to compete
Customer lists
Deferred debt acquisition costs and other

$ 4 5 , 0 7 5
6 , 0 1 6
4 3 1
7 1 0

Less--accumulated amortization

5 2 , 2 3 2
3 , 1 9 4

$ 7 3 , 6 2 1
8 , 9 4 1
4 2 0
1 , 8 1 8

8 4 , 8 0 0
5 , 8 6 1

$ 4 9 , 0 3 8

$ 7 8 , 9 3 9

Goodwill is the cost in excess of fair value of identifiable assets
of acquired businesses and is amort i zed using the straight-line
method over periods not exceeding 40 years. Covenants not
to compete and customer lists are amort i zed using the
straight-line method over their estimated useful lives, typically
no more than 10 years. The Company continually eva l u a t e s
whether events and circumstances have occurred subsequent
to an acquisition that indicate the remaining estimated useful
life or carrying value of these intangible assets may warrant
revision. When factors indicate that these assets should be
e valuated for possible impairment, the Company uses an
estimate of the related business segment's undiscounted cash
f l ows over the remaining life of the asset in measuring
re c ove r a b i l i t y.

De f e r red debt acquisition costs are capitalized and amort i ze d
over the life of the related debt using the effective intere s t
method.

(j) impairment of long-lived assets
Ef f e c t i ve May 1, 1996, the Company adopted Statement of
Financial Accounting St a n d a rds (SFAS) No. 121,
“Accounting for the Impairment of Long-Lived Assets and for
L o n g - L i ved Assets To Be Disposed Of”. In accordance with
S FAS No. 121, the Company evaluates the re c overability of
its carrying value of the Company's long-lived assets and
c e rtain intangible assets based on estimated undiscounted
cash flows to be generated from each of such assets as
c o m p a red to the original estimates used in measuring the
assets. To the extent impairment is identified, the Company
reduces the carrying value of such impaired assets to their fair
m a rket value.

The Casella T.I.R.E.S. plant in Eliot, Maine was established
by purchasing the waste tire processing assets of the Se a w a rd
companies in June, 1996. The ongoing profitability of this
location is dependent on a continuing secondary market for

the product of its tire shredding operations, primarily as tire
d e r i ved fuel (TDF). Due to pre s s u res on the Company's
TDF customers to meet re q u i rements of the Clean Air Ac t ,
management projects that over the next few years these
customers will replace TDF with natural gas as a fuel, and
that the future undiscounted cash flows will be less than the
c u r rent carrying value of the assets associated with this site.

The primary assets associated with this site include real estate,
t i re processing and other equipment, and goodwill. T h e
impairment charge was computed as the difference betwe e n
the April 30, 1998 carrying value of the affected assets, and
their fair market value as of that date. The fair market va l u e
of the affected assets is computed in accordance with SFA S
No. 121 as the discounted projected future net cash inflow s .
The charge was allocated as follows (in thousands):

Goodwill
Tire processing equipment
Other equipment

Impairment charge

$471
453
47

$971

(k) income taxes
The Company re c o rds income taxes in accordance with
S FAS No. 109, Accounting for Income Ta xes. Under SFA S
No. 109, deferred income taxes are re c o g n i zed based on the
expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and
liabilities, calculated using currently enacted tax rates.

(l) earnings per share and unaudited pro
forma earnings per share of common stock
In Fe b ru a ry 1997, the Financial Accounting St a n d a rds Board
( “ FASB”) issued Statement of Financial Ac c o u n t i n g
St a n d a rds (SFAS) No. 128, “Earnings Per Sh a re”. This
statement supersedes Accounting Principal Board Op i n i o n
No. 15. SFAS No. 128 is effective for interim and annual

periods ending after December 15, 1997. The Company has
adopted SFAS No. 128 and applied the provisions of this
statement re t ro a c t i vely to all periods presented.

Pr i m a ry EPS is replaced by Basic EPS, which is computed by
dividing income (loss) available to common stockholders by
the weighted average number of common shares outstanding
for the period. Basic common shares no longer include
common equivalents such as conve rtible pre f e r red shares. In
addition, Fully Diluted EPS is replaced with Diluted EPS,
which gives effect to all common shares that would have
been outstanding if all dilutive potential common share s
( relating to such things as the exe rcise of stock warrants and
c o n ve rtible pre f e r red stock) had been issued. The tre a s u ry
stock method used to compute the number of
p o t e n t i a l l y - d i l u t i ve shares that would be re p u rchased with
the proceeds of potential stock issuances has been changed.
The tre a s u ry stock method now re q u i res use of the ave r a g e
s h a re price for each period instead of the greater of the
ending share price or the average share price.

The following is a reconciliation of the ending number of
s h a res outstanding with the number of shares used in the
calculation of basic and diluted earnings per share
(in thousands):

year ended april 30,

1996 1997 1998

Number of shares outstanding

end of period

Class A Common St o c k
Class B Common St o c k
Effect of weighting the average share s
outstanding during the period

2 , 3 9 8
1 , 0 0 0

3 , 4 5 8
1 , 0 0 0

1 0 , 5 2 3
9 8 8

( 1 1 9 )

( 5 4 5 )

( 3 , 5 9 9 )

Basic shares outstanding

3 , 2 7 9

3 , 9 1 3

7 , 9 1 2

Potentially dilutive share s :

Diluted shares outstanding:

- 0 -

3 , 2 7 9

- 0 -

3 , 9 1 3

7 , 9 1 2

Diluted earnings per share are not presented for the ye a r s
ended April 30, 1996, 1997 and 1998 because they are
a n t i - d i l u t i ve. The number of potentially dilutive share s
e xcluded from the earnings per share calculation was
1,604,138, 4,420,835 and 2,986,424 for the years ended
April 30, 1996, 1997 and 1998, re s p e c t i ve l y.

4. business combinations

(a) transaction recorded as a pooling of
interests
On December 19, 1997, the Company completed its
merger with All Cycle in a business combination re c o rded as
a pooling of interests and, accord i n g l y, the accompanying
financial statements have been restated to include the
accounts and operations of All Cycle for all periods
p resented. The two businesses acquired we re under
common control, and the transaction was considered to be
and accounted for as a single acquisition. All Cycle Wa s t e ,
Inc. is a solid waste collection and transfer operation in
Chittenden County, Vermont. Winters Brothers, Inc. ow n s
the real estate that All Cycle Waste Inc. operates out of in
Williston, Vermont. The Company issued 416,103 shares of
its Class A Common Stock for all of the outstanding stock
of All Cycle Waste, Inc. and 187,244 shares of its Class A
Common Stock for all of the outstanding stock of Wi n t e r s
Brothers, Inc.

Prior to December 19, 1997, Casella Waste Systems, In c .
i n c u r red disposal expense and All Cycle Waste, Inc. earned
disposal re venue through the operations of All Cycle's waste
transfer station. These transactions have been eliminated in
the accompanying financial statements.

Fo l l owing is a reconciliation of the amounts (in thousands)
of net sales and net income previously re p o rted for the ye a r s
ended April 30, 1996 and 1997:

year ended april 30, 1998

4/30/96 4/30/97

fiscal year ended april 30,

1996 1997 1998

Re ve n u e s :
Casella Waste Systems, In c .
As previously re p o rt e d
All Cyc l e
Elimination of

$ 3 8 , 1 0 9
4 , 7 2 1

$ 7 3 , 1 7 6
7 , 3 5 8

i n t e rcompany re ve n u e

( 1 , 0 0 2 )

Casella Waste Systems, In c .

As re s t a t e d

Net income:
Casella Waste Systems, In c .
As previously re p o rt e d
All Cyc l e

Casella Waste Systems, In c .

As re s t a t e d

4 2 , 8 3 0

7 9 , 5 3 2

( $ 2 7 4 )
( 2 4 6 )

( $ 1 2 )
( 4 0 7 )

( $ 5 2 0 )

( $ 4 1 9 )

(b) transactions recorded as purchases
During fiscal 1996, the Company completed 17
acquisitions including one landfill. During fiscal 1997, the
Company completed 25 acquisitions, including the 25-ye a r
capital lease of a landfill. During fiscal 1998, the Company
a c q u i red 33 solid waste hauling operations, exc l u s i ve of the
All Cycle transaction discussed above. These transactions
we re accounted for as purchases. Ac c o rd i n g l y, the operating
results of these businesses are included in the Consolidated
Statement of Operations from the dates of acquisition, and
the purchase prices have been allocated to the net assets
a c q u i red based on fair values at the dates of acquisition with
the residual amounts allocated to goodwill.

The purchase prices allocated to the net assets acquired we re
as follows (in thousands):

Accounts re c e i vable and prepaid

e x p e n s e s

In ve s t m e n t s - - re s t r i c t e d
L a n d f i l l s
Pro p e rty and equipment
C ovenants not to compete and

customer lists

Go o d w i l l
De f e r red taxe s
Debt and notes payable
Other liabilities assumed

$ 2 , 9 4 7
1 , 2 4 0
3 , 4 9 5
7 , 4 5 1

2 , 0 6 0
5 , 2 4 0
( 8 0 6 )
( 3 , 7 3 8 )
( 5 6 1 )

$ 4 , 1 2 7
4 5 0
8 , 0 1 3
1 7 , 3 7 8

2 , 4 4 5
3 4 , 6 9 4
( 7 3 )
( 6 , 7 0 9 )
( 1 5 , 7 2 6 )

$ 2 , 9 2 3
0
0
9 , 1 0 5

2 , 4 9 8
2 8 , 0 2 8
( 7 5 )
( 2 , 6 5 0 )
( 2 , 4 3 3 )

Total consideration

$ 1 7 , 3 2 8

$ 4 4 , 5 9 9

$ 3 7 , 3 9 6

The following unaudited pro forma combined information
(in thousands except for per share information) shows the
results of the Company's operations for the years ended
April 30, 1997 and 1998, exc l u s i ve of the effects of the
Company's November Offering, as though each of the
completed acquisitions had occurred as of May 1, 1996:

year ended

4/30/97 4/30/98

Re ve n u e s
Operating In c o m e
Net Income (Loss)
Diluted Pro forma income (loss) per

$ 1 3 2 , 2 6 1
7 , 6 2 6
( 9 8 5 )

$ 1 3 1 , 4 3 7
1 2 , 8 2 2
3 , 4 8 7

common share

( $ 0 . 2 5 )

$ . 3 2

Weighted average diluted share s

o u t s t a n d i n g

3 , 9 1 3

1 0 , 8 9 8

The pro forma results have been pre p a red for comparative
purposes only and are not necessarily indicative of the actual
results of operations had the acquisitions taken place as of
May 1, 1996 or the results of future operations of the
C o m p a n y. Fu rt h e r m o re, the pro forma results do not give
effect to all cost savings or incremental costs that may occur
as a result of the integration and consolidation of the
completed acquisitions.

5. long-term debt
Long-term debt as of april 30, 1997 and 1998 consists of
the follow i n g :

On Ja n u a ry 21, 1998 the Company entered into a thre e -
year interest rate swap agreement (the Swap Agre e m e n t )
with a bank. The purpose was to effectively conve rt a
p o rtion of the Company's interest rate exposure on
a d vances under its re volving credit facility from a floating
rate to a fixed rate until the expiration of the Sw a p
A g reement. The Swap Agreement effectively fixes the
Company's interest rate on the notional amount of

april 30,

1997

1998

(in thousands)

Advances on revolving credit facility, which provides for advances of up to$150,000,000, due
January 12, 2003. Interest on outstanding advances accrues at the election of the Company at
either the bank's base rate (8.75% at April 30, 1998), or LIBOR plus a percentage (6.875% at
April 30, 1998), based on a pricing grid, payable monthly in arrears. The interest rate is subject
to adjustment under the Swap Agreement described below. The debt is collateralized by all
assets of the Company, whether now owned or hereafter acquired.

$45,000,000 to 5.8% per annum. Net monthly payments
or monthly receipts under the Swap Agreement are
re c o rded as adjustments to interest expense. T h e
Company paid $162,535 in interest under this agre e m e n t
during the year ended April 30, 1998. In the event of
n o n p e rformance by the counterpart y, the Company
would be exposed to interest rate risk if the variable
i n t e rest rate re c e i ved we re to exceed the fixed rate paid by
the Company under the terms of the Swap Agreement.

The re volving credit facility contains certain cove n a n t s
that, among other things, restrict dividends or stock
re p u rchases, limit capital expenditures and annual
operating lease payments, and set minimum fixed charges,
i n t e rest coverage and leverage ratios and minimum
consolidated adjusted net worth re q u i rements. As of Ap r i l
30, 1998, the Company was in compliance with all
c ovenants.

$52,359

$64,150

As of April 30, 1998, debt matures as follows (Amounts
in thousands):

Bank term notes payable, bearing interest at the bank's base rate plus .25% per annum, secured
by all assets of the Company.

9,431

- 0 -

year ending april 30,

Notes payable in connection with businesses acquired, bearing interest at rates of 7% to 10%,
due in monthly installments ranging from $939 to $11,152, expiring September 1998 through
January 2007.

Payments due to Clinton County, discounted at 4.75%, due in quarterly
installments of $375,046 through March 2003

Notes payable, secured by assets purchased, bearing interest at rates of 6% to 30%.

Less--current portion

6,508

5,548

7,796

6,645

5,706

- 0 -

81,800

76,343

6,272

2,595

$75,528

$73,748

1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
T h e re a f t e r

$ 2 , 5 9 5
2 , 5 9 2
2 , 5 6 1
1 , 9 2 4
6 6 , 0 1 8
6 5 3

$ 7 6 , 3 4 3

6. commitments and contingencies

(a) leases
The following is a schedule of future minimum lease
payments (in thousands), together with the present va l u e
of the net minimum lease payments under capital leases,
as of April 30, 1998.

year ending
april 30,

operating
leases

capital
leases

1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
T h e re a f t e r

$ 4 0 8
3 4 3
2 9 9
2 2 7
1 4 8
2 5 8

Total minimum lease payments

1 , 6 8 3

Less--amount re p resenting intere s t

Cu r rent maturities of capital lease obligations

Present value of long-term capital

lease obligations

$ 5 0 9
3 6 8
3 6 6
3 5 0
2 7 4
- 0 -

1 , 8 6 7

( 3 0 1 )

1 , 5 6 6
4 8 1

$ 1 , 0 8 5

The Company leases real estate, compactors and hauling
vehicles under leases that qualify for treatment as capital
leases. The assets related to these leases have been
c a p i t a l i zed and are included in pro p e rty and equipment
at April 30, 1997 and 1998.

The Company leases operating facilities and equipment
under operating leases with monthly payments ranging
f rom $43 to $3,903.

Total rent expense under operating leases charged to
operations was $502,122, $933,294 and $936,103 for
each of the three years ended April 30, 1996, 1997 and
1998 re s p e c t i ve l y.

(b) legal proceedings
In 1997, the Company was a defendant in a lawsuit
re g a rding certain assets of the Company. The suit was
settled for $450,000, and the Company paid an
a g g regate of $200,000 re p resenting the legal fees of all
defendants. The settlement was accrued for and included
in other accrued expenses in the accompanying
consolidated balance sheet at April 30, 1997.

On or about October 30, 1997, an individual
commenced a civil lawsuit against the Company and two
of the Company's officers and directors in the Ru t l a n d
Superior Court, Rutland County, State of Vermont. In
the Complaint, the individual seeks compensation for
s e rvices allegedly performed by him prior to 1995. T h e
individual is seeking a thre e - p e rcent equity interest in the
Company or the monetary equivalent there o f, as well as
p u n i t i ve damages. The Company and the officers and
d i rectors have answe red the Complaint, denied the
individual's allegations of wrongdoing, and asserted
various defenses. Certain stockholders of the Company
h a ve agreed to indemnify the Company for any
settlement by the Company or any award against the
Company in excess of $350,000 (but not legal fees paid
by or on behalf of the Company or any other third
p a rty). The Company accrued a $215,000 re s e rve for this
claim during the year ended April 30, 1998.

In the normal course of conducting its operations, the
Company may become invo l ved in certain legal and
a d m i n i s t r a t i ve proceedings. Some of these actions may
result in fines, penalties or judgements against the

C o m p a n y, which may have an impact on earnings for a
p a rticular period. Management expects that such matters
in process at April 30, 1998 will not have a material
a d verse effect on the Company's financial position,
including its liquidity or its results of operations.

(c) environmental liability
The Company is subject to liability for any
e n v i ronmental damage, including personal injury and
p ro p e rty damage, that its solid waste facilities may cause
to neighboring pro p e rty owners, particularly as a result of
the contamination of drinking water sources or soil,
possibly including damage resulting from conditions
existing before the Company acquired the facilities. T h e
Company may also be subject to liability for similar
claims arising from off-site environmental contamination
caused by pollutants or hazardous substances if the
Company or its predecessors arrange to transport, treat or
dispose of those materials. Any substantial liability
i n c u r red by the Company arising from enviro n m e n t a l
damage could have a material adverse effect on the
Company's business, financial condition and results of
operations. The Company is not presently aware of any
situations that may have a material adverse impact.

(d) sawyer landfill royalty payments
In connection with an acquisition, the Company agre e d
to pay to the seller a royalty for certain additional permit-
ted landfill capacity. The royalty due is equal to $2.50 per
ton for the first 400,000 tons of such additional capacity
and $3.50 per ton there a f t e r. The payments are generally
due as the landfill is utilized except that at the time of the
successful permitting, the first $1 million of roy a l t i e s
becomes immediately due and payable. This amount may
be taken in cash or stock on an equivalent per share price
of $6.55. This option is at the election of the seller and is
only available for the first royalty payment.

7. redeemable preferred stock,
redeemable put warrants, and
stockholders’ equity (deficit)

(a) preferred stock
On December 22, 1995, the Company sold 1,922,169
s h a res of Series D Conve rtible Redeemable Pre f e r red St o c k ,
raising proceeds of $12,482,412, net of $972,771 in
issuance costs. In addition, the Company extinguished
c e rtain subordinated debt through proceeds raised in this
Series D Pre f e r red Stock transaction, and by issuing cert a i n
s u b o rdinated debt holders 516,620 shares of the
Company's Series A Redeemable Pre f e r red St o c k ,
1,294,579 shares of the Company's Series B Re d e e m a b l e
Pre f e r red Stock and 424,307 shares of the Company's
Series C Mandatorily Redeemable Pre f e r red Stock. T h e
Company has re c o rded a charge of $2,963,317 based on
the difference between the fair market value of considera-
tion (pre f e r red stock and cash) issued to the subord i n a t e d
debt holders and the carrying value of the subord i n a t e d
debt extinguished. The charge, net of tax, was allocated to
earnings as an extraord i n a ry charge ($126,523) and equity
($2,836,794) based on the re l a t i ve fair value of the debt
and warrants, re s p e c t i ve l y. The Company also wrote off the
u n a m o rt i zed issuance costs associated with certain subord i-
nated debt. This write-off resulted in an extraord i n a ry
charge, net of tax, of $199,785. The total extraord i n a ry loss
f rom the extinguishment of debt amounted to $326,308
(net of $168,098 income tax benefit).

The difference between the carrying value and the re d e m p-
tion value (defined as the higher of $1.50, $2.00 and $7.00
or the underlying fair market value of the Company's Class
A Common Stock, re s p e c t i vely) of the Series A and Se r i e s
B Redeemable Pre f e r red Stock with warrants exe rcisable for
Class A Common Stock and the Series D Conve rt i b l e
Redeemable Pre f e r red Stock was being accreted using the

e f f e c t i ve interest method through the earliest re d e m p t i o n
date (December 31, 2000, December 31, 2000 and Ja n u a ry
1, 2001, re s p e c t i vely). In accordance with its original terms,
immediately prior to the closing of the November Of f e r i n g ,
each share of Series A Pre f e r red Stock and Series B Pre f e r re d
Stock through the exe rcise of warrants and redemption of
p re f e r red stock in connection therewith, and each share of
Series D Pre f e r red Stock automatically conve rted into one
s h a re of Class A Common Stock.

Also in accordance with its original terms, the Series C
Mandatorily Redeemable Pre f e r red Stock was re d e e m e d
immediately following the closing of the Nove m b e r
Offering. The Company had been accreting the differe n c e
b e t ween the carrying value and redemption value ($7.00
per share) using the effective interest method through the
earliest fixed redemption date (December 31, 2000).
T h e re f o re, the Company re c o rded an accelerated accre t i o n
charge immediately prior to the November Offering in
o rder to state the Series C Stock at its redemption price.

(b) common stock
The holders of the Class A Common Stock are entitled to
one vote for each share held. The holders of the Class B
Common Stock are entitled to ten votes for each share
held, except for the election of one dire c t o r, who is elected
by the holders of the Class A Common Stock exc l u s i ve l y.
The Class B Common Stock is conve rtible into Class A
Common Stock on a share - f o r - s h a re basis at the option of
the share h o l d e r.

(c) stock warrants
At April 30, 1998, the Company had outstanding warrants
to purchase 190,392 shares of the Company's Class A
Common Stock at exe rcise prices between $0.01 and $7.25
per share, based on the fair market value of the underlying
common stock at the time of the warrants' issuance. T h e

warrants become exe rcisable upon vesting and notification
and expire between July 1998 and October 2003.

(d) put warrants
In connection with an acquisition in April 1995, the
Company issued 100,000 warrants to purchase one share
each of Class A Common Stock exe rcisable at $6.00 per
s h a re. These warrants we re putable to the Company at
$4.00 per share or callable by the Company at $7.00 per
s h a re beginning in April 1997 and we re initially re c o rded at
their put price. These warrants we re stated at their put price
per share in the accompanying balance sheet as of April 30,
1998. During fiscal 1998 (but prior to the Nove m b e r
Offering), warrants to acquire 25,000 shares of Class A
Common Stock for cash proceeds of $150,000 we re
e xe rcised. During the same period the Company called the
remaining 75,000 warrants in exchange for total cash
consideration of $525,000. The difference between the put
price and the call price was accreted through a charge to
accumulated deficit at the time of the call.

(e) stock option plans
During 1993, the Company adopted an incentive stock
option plan for officers and other key employees. The 1993
In c e n t i ve Stock Option Plan (the "1993 Option Pl a n " )
p rovided for the issuance of a maximum of 300,000 share s
of Class A Common Stock. As of April 30, 1998, options
to purchase 258,000 shares of Class A Common Stock at
an average exe rcise price of $1.87 we re outstanding under
the 1993 Option Plan. No further options may be granted
under this plan.

During 1994, the Company adopted a nonstatutory stock
option plan for officers and other key employees. The 1994
Stock Option Plan (the "1994 Option Plan") provided for
the issuance of a maximum of 150,000 shares of Class A
Common Stock. Options to purchase 150,000 shares of

Class A Common Stock at an average exe rcise price of $0.60
we re outstanding under the 1994 Option Plan as of Ap r i l
30, 1997 and April 30, 1998. No further options may be
granted under this plan.

In connection with the May 1994 Senior Note and Wa r r a n t
Pu rchase Agreement (the “Pu rchase Agre e m e n t”), the
Company established a nonqualified stock option pool for
c e rtain key employees. The purchase agreement established
338,000 stock options to purchase Class A Common St o c k .
Options to purchase 338,000 shares of Class A Common
Stock at an average exe rcise price of $2.00 we re outstanding
under the Pu rchase Agreement as of April 30, 1997 and
April 30, 1998. No further options may be granted under
this plan.

During 1996, the Company adopted a stock option plan for
e m p l oyees, officers and directors of, and consultants and
advisors to, the Company. The 1996 Stock Option Plan (the
“1996 Option Pl a n”) provided for the issuance of a
maximum of 918,135 shares of Class A Common Stock
pursuant to the grant of either incentive stock options or
n o n s t a t u t o ry options. As of April 30, 1997, options to
p u rchase 418,135 shares of Class A Common Stock at an
a verage exe rcise price of $10.04 we re outstanding under the
1996 Option Plan. As of April 30, 1998, a total of 601,302
options to purchase Class A Common Stock we re
outstanding at an average exe rcise price of $11.86. No
f u rther options may be granted under this plan.

On July 31, 1997, the Company adopted a stock option
plan for employees, officers and directors of, and consultants
and advisors to the Company. The Board of Di rectors has
the authority to select the optionees and determine the terms
of the options granted. The 1997 Stock Option Plan (the
“1997 Option Pl a n”) provides for the issuance of 1,000,000
s h a res of Class A Common Stock pursuant to the grant of

either incentive stock options or nonstatutory options.
Under the terms of the 1997 Option Plan, all authorized but
unissued options under previous plans are added to the
s h a res available under this plan. A total of 308,500 autho-
r i zed but unissued shares under the 1996 Option Plan have
been transferred to the 1997 Option Plan under this prov i-
sion. As of April 30, 1998, options to purchase 248,000
s h a res of Class A Common Stock at an average exe rcise price
of $22.52 we re outstanding under the 1997 Option Plan.

On July 31, 1997, the Company adopted a stock option
plan for non-employee directors of the Company. The 1997
No n - Em p l oyee Di rector Stock Option Plan provides for the
issuance of a maximum of 50,000 shares of Class A
Common Stock pursuant to the grant of non-statutory
options. As of April 30, 1998, no options have been granted
under this plan.

Set forth is a summary of options outstanding and
e xe rcisable as of April 30, 1998:

stock option activity for each of
the three years ended april 30,
1996, 1997 and 1998 is as follows:

number
of
shares

weighted
average
exercise
price

Outstanding, April 30, 1995
Gr a n t e d
Te r m i n a t e d
Exe rc i s e d

Outstanding, April 30, 1996
Gr a n t e d
Te r m i n a t e d
Exe rc i s e d

Outstanding, April 30,1997
Gr a n t e d
Te r m i n a t e d
Exe rc i s e d

Outstanding, April 30,1998

673,000
115,000
--
--

788,000
463,135
--
--

1,251,135
419,500
31,000
44,333

1,595,302

Exe rcisable, April 30, 1998

985,710

$1.30
3.53
--
--

1.63
10.52
--
--

4.92
19.90
15.19
1.49

$8.75

$4.26

summary of options outstanding and exercisable as of april 30, 1998:

options outstanding

options exercisable

range of
exercise

number of
outstanding
shares

weighted
average
remaining
contractual
life (years)

weighted
average
exercise
price

number of
exercisable
options

weighted
average
exercise
price

$ 0 . 6 0 - $ 2 . 0 0

4 . 6 1 - 7 . 0 0

1 2 . 0 0 - 1 6 . 0 0

O ver $16.00

6 7 3 , 0 0 0

1 9 7 , 0 0 0

4 9 7 , 3 0 2

2 2 8 , 0 0 0

A l l

1 , 5 9 5 , 3 0 2

4 . 3 5

7 . 3 5

8 . 5 8

9 . 7 0

6 . 8 0

$ 1 . 3 6

4 . 6 6

1 3 . 7 8

2 3 . 1 8

$ 8 . 7 5

673,000

150,333

118,711

43,666

985,710

$1.36

4.67

12.74

24.46

$4.26

During fiscal 1996, the FASB issued SFAS No. 123,
Accounting for St o c k - Based Compensation, which
defines a fair value based method of accounting for
stock-based employee compensation and encourages all
entities to adopt that method of accounting for all of
their employee stock compensation plans. Howe ve r, it
also allows an entity to continue to measure
compensation costs for those plans using the intrinsic
method of accounting prescribed by APB Opinion No.
25. Entities electing to remain with the accounting in
APB Opinion No. 25 must make pro forma disclosure s
of net income and earnings per share as if the fair va l u e
based method of accounting defined in SFAS No. 123
had been applied.

The Company has elected to account for its stock-based
compensation plans under APB Opinion No. 25.
Howe ve r, the Company has computed, for pro forma
d i s c l o s u re purposes, the value of all options granted
during the years ended April 30, 1996, 1997 and 1998
using the Black-Scholes option pricing model as
p rescribed by SFAS No. 123, using the following
weighted average assumptions for grants in the ye a r s
ended April 30, 1996, 1997 and 1998.

april 30,

1996 1997 1998

R i s k - f ree interest rate - 6.49%
Expected dividend yield
Expected life
Expected vo l a t i l i t y

5 . 6 9 %
N / A
10 Ye a r s
N / A

6 . 8 4 %
N / A
10 Ye a r s
N / A

5 . 7 8 %
N / A
9 Ye a r s
4 0 . 3 9 %

purposes using the Black-Scholes option pricing model
using the following assumptions:

R i s k - f ree interest rate

5 . 3 0 %

Expected dividend yield

N / A

Expected life

Expected vo l a t i l i t y

1/3 ye a r

4 0 . 3 9 %

The total value of options granted during the years ended
April 30, 1996, 1997 and 1998 would be amort i zed on a
p ro forma basis over the vesting period of the options.
Options generally vest over a one to three year period.
Because the method of accounting prescribed by SFA S
No. 123 has not been applied to options granted prior to
May 1, 1995, the resulting pro forma compensation costs
may not be re p re s e n t a t i ve of that to be expected in future
years. If the Company had accounted for these plans in
a c c o rdance with SFAS No. 123, the Company's net loss
and net loss per share would have increased as reflected in
the following pro forma amounts (in thousands, exc e p t
for per share amounts):

april 30,

1996 1997 1998

( $ 3 , 4 8 6 )
( $ 3 , 5 2 2 )

( $ 8 , 9 4 9 )
( $ 9 , 1 4 3 )

( $ 3 , 0 8 1 )
( $ 3 , 9 0 4 )

( $ 1 . 0 6 )
( $ 1 . 0 7 )

( $ 2 . 2 9 )
( $ 2 . 3 4 )

( $ 0 . 3 9 )
( $ 0 . 4 9 )

Net income (loss)

As re p o rt e d
Pro forma
Net income (loss) per share of

common stock
As re p o rt e d
Pro forma

The value of shares to be issued to employees under the
Em p l oyee Stock Pu rchase Plan (see note 9) as of Ap r i l
30, 1998 has been computed for pro forma disclosure

The we i g h t e d - a verage grant-date fair value of options
granted during the years ended April 30, 1996, 1997 and
1998 is $0.51, $0.56 and $1.54, re s p e c t i ve l y.

(f) reserved shares
At April 30, 1997 and 1998, shares of Class A Common
Stock we re re s e rved for the following reasons:

(in thousands)

april 30,

1997

1998

Exe rcise of stock warrants related to

Series A and Series B Pre f e r red St o c k

1 , 8 1 1

- 0 -

Exe rcise of Series D Conve rtible

Pre f e r red St o c k

Exe rcise of stock warrants/put warrants
Exe rcise of management stock options

1 , 9 2 2
4 5 6
1 , 7 0 6

- 0 -
1 9 1
2 , 9 8 1

5 , 8 9 5

3 , 1 7 2

8. income taxes
The provision (benefit) for income taxes for the ye a r s
ended April 30, 1996, 1997 and 1998 consists of the
f o l l owing (in thousands):

Fe d e r a l - -

St a t e - -

Cu r re n t
De f e r re d

april 30,

1996 1997 1998

( $ 3 2 9 )
4 5 8

$ 3 0 6
1 3 6

$ 4 9 5
1 , 5 8 6

1 2 9

( 9 6 )
1 1 1

1 5

4 4 2

2 , 0 8 1

7
3

1 0

2 4
2 8 0

3 0 4

To t a l

$ 1 4 4

$ 4 5 2

$ 2 , 3 8 5

The differences in the provisions for income taxes and the
amounts determined by applying the Federal statutory
rate of 34% to income before provision for income taxe s
and extraord i n a ry loss for the years ended April 30, 1996,

1997 and 1998 are as follows (in thousands):

Tax at statutory rate
State income taxes, net of

federal benefits

Meals and entertainment

d i s a l l ow a n c e

Nondeductible goodwill
Ot h e r, net (mainly imputed
i n t e rest income for
tax purposes)

fiscal year ended april 30,

1996 1997 1998

( $ 1 7 )

$ 1 1

$ 1 , 7 1 4

( 3 )

1 1
2 0

1 3 3

$ 1 4 4

1 8
1 3 4

2 6 6

2 3
1 1 4

2 8 7

2 6 8

$ 4 5 2

$ 2 , 3 8 5

De f e r red income taxes reflect the impact of temporary
d i f f e rences between the amounts of assets and liabilities
re c o g n i zed for financial re p o rting purposes and such
amounts re c o g n i zed for income tax purposes. De f e r red tax
assets and liabilities consist of the following at April 30,
1997 and 1998 (in thousands):

april 30,

1997 1998

De f e r red tax assets--

A l l owance for doubtful accounts
Treatment of lease obligations
Ac c rued expenses
Net operating loss carry f o rw a rd s
A l t e r n a t i ve minimum tax credit carry f o rw a rd s
Other tax carry f o rw a rd s
A m o rtization of intangibles
Ot h e r

$ 1 7 7
6 5
3 4 4
5 7 4
3 0 6
1 8 5
3 5
9 1

$ 4 4 9
6 4
4 9 0
6 7 9
4 9 4
1 5 0
- 0 -
2 0 6

Total deferred tax assets

1 , 7 7 7

2 , 5 3 2

De f e r red tax liabilities--

Accelerated depreciation of pro p e rty and
Eq u i p m e n t
A m o rtization of intangibles
Ot h e r

Total deferred tax liabilities

Net deferred tax liability

( 2 , 2 4 5 )
- 0 -
( 5 8 8 )

( 3 , 2 4 5 )
( 5 4 3 )
( 2 , 1 1 1 )

( 2 , 8 3 3 )

( 5 , 8 9 9 )

( $ 1 , 0 5 6 )

( $ 3 , 3 6 7 )

At April 30, 1998, the Company has net operating loss carry
f o rw a rds and other tax carry f o rw a rds for income tax purposes of
a p p roximately $1,698,000 and $375,000, re s p e c t i ve l y, that expire
principally through 2010. At April 30, 1998, the Company also
has $494,000 of alternative minimum tax credit carry f o rw a rd s
a vailable indefinitely to reduce any further federal income taxe s
payable.

9. employee benefit plans
On May 1, 1996, the Company adopted the Casella Wa s t e
Systems, Inc. 401(k) Plan and appointed the First National Ba n k
of Boston as trustee of the plan. The plan went into effect on Ju l y
1, 1996 and has a December 31 year end. Pending board
a p p roval, the Company may contribute up to $500 per
individual per calendar ye a r. Pa rticipants vest in employer
contributions ratably over a thre e - year period. Em p l oyer
contributions for the years ended April 30, 1997 and 1998
amounted to $149,469 and $176,143, re s p e c t i ve l y.

In Ja n u a ry, 1998 the Company implemented its Em p l oyee St o c k
Pu rchase Plan. Under this plan, qualified employees may
p u rchase shares of Class A Common Stock by payroll deduction
at a 15% discount from the market price. 300,000 shares of
Class A Common Stock have been re s e rved for this purpose. At
April 30, 1998, no shares of Class A Common Stock have been
issued under this plan.

10. related party transactions

(a) management services agreement
As part of the Series D Pre f e r red Stock transaction described in
Note 7(a), the Company entered into a Management Se rv i c e s
A g reement with certain shareholders of the Series A, Series B and
Series C Pre f e r red Stock. In consideration for certain advisory
s e rvices to the Company, as defined, a management fee of
a p p roximately $22,300 per month was due. At the closing of the
November Offering, the agreement terminated and the total
a c c rued management fees paid to the shareholders was $495,221.

(b) services
During 1996, 1997 and 1998, the Company retained the
s e rvices of a related part y, a company wholly owned by two of
the Company's stockholders, as a contractor in closing cert a i n
landfills owned by the Company. Total purchased serv i c e s
charged to operations for each of the three years ended Ap r i l
30, 1996, 1997 and 1998 we re $1,291,435, $2,125,606 and
$4,202,200, re s p e c t i ve l y, of which $24,988 and $0 we re
outstanding and included in accounts payable at April 30,
1997 and 1998, re s p e c t i ve l y. In 1997, the Company entere d
into agreements with this company, totaling $4,065,000, to
close the unlined municipal landfill which is adjacent to the
Subtitle D Clinton County landfill and to close a portion of
another of the Company's lined landfills. In 1998, the
Company entered into agreements with this company, totaling
a p p roximately $3,000,000, to construct a portion of a landfill.

(c) leases and land purchase
The Company leases furniture and fixtures from a part n e r s h i p
in which two of the Company's stockholders are the general
p a rtners. This operating lease re q u i res a monthly payment of
$950 and expires in 1999.

On August 1, 1993, the Company entered into three leases for
operating facilities with the same part n e r s h i p. During 1997,
one of the leases was terminated early for $191,869. T h e
remaining leases are classified as capital leases in the
accompanying consolidated balance sheets. The leases call for
monthly payments ranging from $3,200 to $9,000 and expire
in April 2003. Total interest and amortization expense charged
to operations for the years ended April 30, 1996, 1997 and
1998 under these agreements was $252,000, $249,379 and
$244,500, re s p e c t i ve l y.

On November 8, 1996, the Company purchased a certain plot
of land from the same related party for $122,000.

(d) postclosure landfill
The Company has agreed to pay the cost of postclosure on
a landfill owned by certain principal stockholders. T h e
Company paid the cost of closing this landfill in 1992, and
the postclosure maintenance obligations are expected to last
until 2012. In each of the three years ended April 30, 1996,
1997 and 1998, the Company paid $14,502, $9,605 and
$3,019, re s p e c t i ve l y, pursuant to this agreement. As of Ap r i l
30, 1998, the Company has accrued $104,772 for costs
associated with its postclosure obligations.

11. subsequent events
During the period between May 1, 1998 and June 15,1998
the Company acquired 8 companies, all accounted for as
p u rchases. The total value of the assets acquired was
a p p roximately $10.2 million. The Company paid $9.6
million in cash for the companies and assumed $600,000
in liabilities.

item nine:

part

two

changes in and disagreements

with accountants on accounting

and financial disclosure

None.

part

three

items ten, eleven, twelve

& thirteen

Items 10, 11, 12 and 13 of Pa rt III (except for information
re q u i red with respect to exe c u t i ve officers of the Company
which is set forth under “Exe c u t i ve Officers of the
C o m p a n y” in Item 1 of Pa rt I of this re p o rt) have been
omitted from this re p o rt, since the Company will file with
the Securities and Exchange Commission, not later than
120 days after the close of its fiscal ye a r, a definitive prox y

statement. The information re q u i red by Items 10, 11, 12
and 13 of this re p o rt, which will appear in the definitive
p roxy statement, is incorporated by re f e rence into Pa rt III of
this re p o rt.

item fourteen:

part

four

exhibits, financial statement

schedules and reports on

form 8-k

item 14(a)(1) consolidated financial
statements included under item 8:

Re p o rt of Independent Auditors

Consolidated Balance Sheets as of April 30, 1997 and
1998

Consolidated Statements of Operations for the Years
Ended April 30, 1996, 1997 and 1998.

Consolidated Statements of Redeemable Pre f e r red Stock,
Redeemable Put Warrants and Stockholders Equity for
the Years Ended April 30, 1996, 1997 and 1998.

Consolidated Statements of Cash Fl ow for the Years
Ended April 30, 1996, 1997 and 1998.

Notes to Consolidated Financial Statements

item 14(a)(2) schedule II - valuation and
qualifying accounts

Schedule II - Allowance for Doubtful Accounts

item 14(a)(3) exhibits:
The following Exhibits are filed as part of this re p o rt under It e m
14(c):

exhibit no.
* 3 . 1

d e s c r i p t i o n

*3 . 2
*3 . 3

*3 . 4
*3 . 5

Amended and Restated Certificate of Incorporation of
the Re g i s t r a n t .
C e rtificate of Amendment to Certificate of In c o r p o r a t i o n .
Amended and Restated Certificate of Amendment of the
Re g i s t r a n t .
Amended and Restated By-Laws of the Re g i s t r a n t .
Second Amended and Restated By-Laws of the
Re g i s t r a n t .
Specimen Certificate for Class A Common St o c k .

*4
*1 0 . 1 1993 In c e n t i ve Stock Option Pl a n .
*1 0 . 2 1994 No n s t a t u t o ry Stock Option Pl a n .
*1 0 . 3 1996 Stock Option Pl a n .
*1 0 . 4 1997 Stock In c e n t i ve Pl a n .
*1 0 . 5 1997 No n - Em p l oyee Di rector Stock Option Pl a n .
*1 0 . 6 Registration Rights Agreement between the Registrant
and Susan Olivier and Ro b e rt Ma c Neil, dated Ja n u a ry
3, 1996.

*1 0 . 7 1995 Stockholders Agreement between the Registrant

and the stockholders who are a party thereto, dated as of
December 22, 1995.

*1 0 . 8 1995 Registration Rights Agreement between the

Registrant and the stockholders who are a party thereto,
dated as of December 22, 1995.

*1 0 . 9 1995 Re p u rchase Agreement between the Registrant and

the stockholder who are a party thereto, dated as of
December 22, 1995.

*1 0 . 1 0 Management Se rvices Agreement between the Registrant,

BCI Growth III, L.P., No rth Atlantic Ve n t u re Fund,
L . P., and Vermont Ve n t u re Capital Fund, L.P., dated as
of December 22, 1995.

*1 0 . 1 1 Warrant to Pu rchase Common Stock of the Registrant

granted to John W.Casella, dated as of July 26, 1993.

*1 0 . 1 2 Warrant to Pu rchase Common Stock of the Registrant
granted to Douglas R. Casella, dated as of July 26, 1993.

*1 0 . 1 3 Asset Pu rchase Agreement by and among Kenneth H.
Mead, Ke rkim, Inc. and Casella Waste Management

of N.Y., dated as of Ja n u a ry 17, 1997.

*1 0 . 1 4 Reorganization Agreement by and among Kenneth H.

Mead, Superior Disposal Se rvices, Inc., Ke n s u e , Inc.,
S.D.S. at PA, Inc. and Claws Refuse, Inc., dated as of
Ja n u a ry 17, 1997.

*1 0 . 1 5 Termination of Lease Agreement by and between

Casella Associates and Casella Waste Management, Inc.
dated September 25, 1996.

*1 0 . 1 6 Amended and Restated Re volving Credit and Term

Loan Agreement between the Registrant and
BankBoston, dated as of August 6, 1997.

*1 0 . 1 7 Lease Agreement, as Amended,between Casella

Associates and Casella Waste Management, Inc., dated
December 9, 1994 (Rutland lease).
*1 0 . 1 8 Lease Agreement, as Amended, between Casella

Associates and Casella Waste Management, Inc., dated
December 9, 1994 (Montpelier lease).
*1 0 . 1 9 Fu r n i t u re and Fi x t u res Lease Re n ewal Agreement

b e t ween Casella Associates and Casella Waste
Management, Inc., dated May 1, 1994.

*1 0 . 2 0 Lease, Operations and Maintenance Agreement between
CV Landfill, Inc. and the Registrant dated June 30, 1994

*1 0 . 2 1 Restated Operation and Management Agreement by

and between Clinton County (N.Y.) and the Registrant
dated September 9, 1996.

*1 0 . 2 2 Labor Utilization Agreement by and between Clinton

County (N.Y.) and the Registrant dated August 7, 1996.

*1 0 . 2 3 Lease and Option Agreement by and between Waste

U.S.A., Inc. and New England Waste Se rvices of
Vermont, Inc., dated December 14, 1995.
*1 0 . 2 4 Consulting and Non-Competition Agreement between
the Registrant and Kenneth H. Mead, dated Ja n u a ry 23,
1 9 9 7 .

*1 0 . 2 5 Issuance of Sh a res by the Registrant to National Waste
Industries, Inc., dated October 19, 1994.
1 0 . 2 6 Registration Rights Agreement by and among the
Registrant, Joseph M.Winters, Andrew B. Winters,

Brigid Winters, Sean Winters and Ma u reen Winters (the
“All Cycle St o c k h o l d e r s”), dated as of December 19,
1997. (Incorporated herein by re f e rence to Exhibit 10.23
to the Company's Registration Statement on Form S-1
as filed June 3, 1998 (SEC File No. 333-55879)).

1 0 . 2 7 Amendment No. 1 to Registration Rights Agreement
by and among the Registrant, the All Cycle
Stockholders, Winters Family Pa rtnership and Go l d m a n ,
Sachs & Co., dated as of June 3, 1998.

2 1

1 0 . 2 8 Amendment No. 2 to Lease Agreement, by and betwe e n
Casella Associates and Casella Waste Management, Inc.,
dated as of November 20, 1997 (Rutland lease).
Subsidiaries of the Registrant. (Incorporated here in by
re f e rence to Exhibit 21 to the Company's Registration
Statement on Form S-1 as filed June 3, 1998 (SEC File
No. 333-55879)).
Consent of Arthur Andersen LLP.
Financial Data Schedule - for the year ended April 30,
1 9 9 8 .
Financial Data Schedule - for the year ended April 30,
1997, Re s t a t e d .
Financial Data Schedule - for the year ended April 30,
1996, Re s t a t e d .

2 3 . 1
2 7 . 1

2 7 . 2

2 7 . 3

* Previously filed as part of the Company's Registration Statement filed on
form S-1 and declared effective on October 27, 1997 and here by
incorporated by re f e re n c e .

item 14(b) reports on form 8-k

The Company filed no re p o rts on Form 8-K during the quart e r
ended April 30, 1998.

s i g n a t u r e s
Pursuant to the re q u i rements of the Securities Exchange Act of
1934, the Registrant has duly caused this Re p o rt to be signed on its
behalf by the undersigned, thereunto duly authorized.

casella waste systems, inc.

By: /s/ John W. Casella

John W. Casella, President and Chief Exe c u t i ve Of f i c e r
Da t e :

June 25, 1998

Pursuant to the re q u i rements of the Securities Exchange Act of
1934, this Re p o rt has been signed below by the following persons
on behalf of the registrant and in the capacities and on the date
indicated.
/s/ John W. Casella

June 25, 1998

john w. casella, President, Chief Exe c u t i ve Officer and
C h a i rm a n

/s/ James W. Bohlig

June 25, 1998

james w. bohlig,, Senior Vice President and Chief
Op e rating Of f i c e r, Dire c t o r

/s/ Je r ry S. Cifor

June 25, 1998

jerry s. cifor, Vice President and Chief Financial Officer
( Principal Accounting and Financial Of f i c e r )

/s/ Douglas R. Casella

June 25, 1998

douglas r. casella, D i re c t o r

/s/ John F. Chapple III

June 25, 1998

john f. chapple III, D i re c t o r

/s/ Kenneth H. Me a d

June 25, 1998

kenneth h. mead, D i re c t o r

/s/ Michael F. Cro n i n

June 25, 1998

michael f. cronin, D i re c t o r

/s/ Gre g o ry B. Pe t e r

June 25, 1998

gregory b. peters, D i re c t o r

board of directors &
executive officers
John W. Casella, Director (1)
Chairman & Chief Executive Officer, Secretary

James W. Bohlig, Director
Senior Vice-President & Chief Operating Officer

Jerry S. Cifor
Vice-President & Chief Financial Officer, Treasurer

Douglas R. Casella, Director
Vice-Chairman
Michael F. Cronin, Director (1)(2)
General Partner, Weston Presidio Capital

Kenneth H. Mead, Director
President, Materials Exchange Corporation
Gregory B. Peters, Director (1)(2)
Managing Ge n e ral Pa rt n e r, Ve rmont Ve n t u re Capital Pa rtners, L.P.
John F. Chapple III, Director (2)
President, Marlin Management Services

(1) Member of Compensation Committee
(2) Member of Audit Committee

officers
Michael P. Barrett
Vice-President, Transportation & Recycling

Robert Banfield
Vice-President Operations, Central Region

Christopher M. DeRoches
Vice-President, Sales & Marketing

Joseph S. Fusco
Vice-President, Communications

James M. Hiltner
Regional Vice-President

Michael Holmes
Regional Vice-President

Larry B. Lackey
Vice-President, Permits, Compliance & Engineering

Alan N. Sabino
Regional Vice-President

Gary Simmons
Vice-President, Fleet Management

stock
exchange

Casella Waste Systems, Inc. is traded on the NASDAQ
National Market, and is listed on the Russell 3000 Index.
Our ticker symbol is CWST.

company offices
25 Greens Hill Lane
Rutland, Vermont 05701
Telephone: (802) 775-0325

annual meeting
Shareholders are invited to attend Casella Waste Systems’ annual
meeting on October 14, 1998 at 10:00 a.m. at the Killington Grand
Hotel, Killington, Vermont

transfer agent & registrar
Boston EquiServe
150 Royall Street
Boston, MA 02021

www.equiserve.com

auditors
Arthur Anderson, LLP
225 Franklin Street
Boston, MA 02110

legal counsel
Hale and Dorr, LLP
60 State Street
Boston, MA 02109

shareholder information
Direct inquiries to:
Joseph Fusco, Vice-President
Telephone: (802) 775-0325
Facsimile: (802) 775-6198
E-mail: jsfusco@casella.com

www.casella.com

Shown on the

cover is a newly

constructed

and double-lined

cell at our

Coventry, Vermont

landfill. This facility

received a permit

in April of 1998

to add over

1.3 million tons

of capacity, giving it

nearly twelve years

of useful life.

Printed on recycled paper.

25 Greens Hill Lane

Rutland, Vermont 05701

(802) 775-0325

(802) 775-6198 FAX

www.casella.com

casella

waste systems, inc.