Casella Waste Systems
Annual Report 2000

Plain-text annual report

casella waste systems, inc. We are directing investors to the daily record of our growth, activities, thoughts, and performance — www.casella.com. C O M P L E T I N G T H E P I C T U R E In our letter to shareholders, we stress that the investor only completes the picture of a company if he or she can combine past performance with an understanding of what lies ahead. As we did last year, we are directing investors to the daily record of our growth, activities, thoughts, and performance — www.casella.com. You will note that in various places throughout this report and 10-K, we provide contextual "links," or guideposts, to online resources, where the investor can learn more about a particular company region, facility or financial data, for example. Once at our website, an investor will be able to customize individual pages and resources to meet his or her particular needs, revisit it as often as necessary, or even have it e-mailed directly to them. While it is not a crystal ball, these day-to-day information resources at the very least help the information contained in this report age a little better. Because each of our efforts undertaken in the past was driven by our own understanding and vision of what lies in the future. In short, a more complete picture. 1 “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”, 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” found in the printed Form 10-K. 0 0 0 2 k - 0 1 m r o f a l l e s a c 2 T O O U R F E L L O W S H A R E H O L D E R S : Annual reports, as we’ve said in previous years, aren’t all Yet, each challenge we faced, and each of our efforts that helpful to investors when they talk exclusively about undertaken over the last year, were driven almost the past, even though that is what their name implies exclusively by our own understanding and vision of what they ought to do. lies ahead. Surely, all the information in the printed 10-K that follows Please understand — as shareholders and managers it is gives you a picture of the company over our fiscal year not easy or comfortable to watch value evaporate in the ended April 30, 2000 and, for many, that is a useful tool short term. But, the question for us is, and always has and a necessary accounting of a company’s immediate been: are we creating long-term value? past performance. But, at best, it is an incomplete tool. We believe we are, and will continue to be able to do so. Our faith in that statement is based on the answers to a What completes the picture for the investor is an number of important questions. understanding of what lies ahead. Or, perhaps more accurately, what management believes lies ahead—what • Are we building a company uniquely positioned to the market will look like, what customers are expecting solve problems for our markets and our customers? and demanding, what opportunities for growth are emerging, and how a company has configured its • Do we have a platform of assets in our market resources to meet those challenges. that would be difficult for competitors to duplicate? We don’t entirely dismiss the past, either. Without a • Do we enjoy a position of leadership in the vast doubt, our fiscal year 2000 was a challenge. majority of local markets we serve? 3 0 0 0 2 k - 0 1 m r o f a l l e s a c 4 • Have we invested in and placed a solid, disciplined "the curb." That is, companies who want to be able to tell management and systems foundation under our stories of long-term value creation must configure businesses? themselves to meet the demands of the marketplace. • Do we enjoy fertile and numerous growth and We have built a collection of assets — from disposal to market development opportunities in our markets? collection to recycling — in our core markets that has • Are the economic factors that drive our business solution for a broad range of customers, particularly public fundamentally sound and sustainable? policymakers. made us the premiere integrated waste management • Are our businesses positioned to generate strong, This platform, we which believe cannot be duplicated easily growing cash flows? by competitors, can now be fully utilized in our core Those answers — no surprise — are yes. challenges, giving us a long-term, unbeatable competitive markets to address some of our customers most difficult These criteria are as true for us today as they were six, twelve or eighteen months ago. They are very nearly "…A POSITION OF LEADERSHIP" permanent characteristics of our franchise and, as such, edge. are reliable, sustainable indicators of the opportunity we We have concentrated on local markets where we can have to create — again, no surprise — long term growth. build, and have built, significant leadership positions. The We believe this very strongly. benefits are obvious. "…SOLVE PROBLEMS FOR OUR CUSTOMERS" In fact, in over 90 percent of our markets, we are either the number one or two provider of services. More and more, our conversations with customers, particularly municipal governments, center around their "…A SOLID FOUNDATION" desire to address their more and diverse waste management challenges, and do it comprehensively. We have put skilled people and the systems — from Successful companies in this industry will be defined by information to financial controls — in place to manage a their ability to solve waste management problems beyond disciplined, growing company over the long-term. “We have built a collection of assets — from disposal to collection to recycling — in our core markets that has made us the premiere integrated waste management solution for a broad range of customers, particularly public policymakers.“ “We are blessed with a broad variety of outstanding opportunities in a number of our markets, particularly in eastern Massachusetts, where we can enhance and fully leverage the investments we’ve made in solid waste management infrastructure.” "…NUMEROUS OPPORTUNITIES IN OUR MARKETS" Quite frankly, we don’t think investors are interested in "stories." We think investors are interested in We are blessed with a broad variety of outstanding performance. opportunities in a number of our markets, particularly in eastern Massachusetts, where we can enhance and fully That’s our plan. And we thank you for your support. leverage the investments we’ve made in solid waste management infrastructure. "…POSITIONED TO GENERATE STRONG, GROWING CASH FLOWS" We believe the best measure of performance in our industry remains cash flow. We continue to focus on earnings before interest, taxes, depreciation and amortization (EBITDA) as our performance yardstick. The vast majority of our cash flow is generated by traditional solid waste management assets and businesses, which grew significantly last year. In short, all of the factors that serve as a solid foundation necessary for a company to deliver performance and the creation of value well into the future are in place. In the pursuit of meaningful, long-term value, our goals are simple: take advantage of the many opportunities to build a market-focused business; make that business stable and predictable; and make it perform to expectations. We are sometimes asked, "what’s your plan to get investors interested in the Casella Waste Systems ‘story’?" JOHN W. CASELLA President & CEO JIM BOHLIG Sr. Vice President & COO JERRY CIFOR Sr. Vice President & CFO September 11, 2000 5 0 0 0 2 k - 0 1 m r o f a l l e s a c 6 F I N A N C I A L H I G H L I G H T S ( i n t h o u s a n d s ) Year Ended April 30, 1998 1999 2000 Revenues Operating Income EBITDA Net Income Loss Earnings (Loss) per Share Total Assets Shareholders Equity (Deficit) $143,711 $182,557 $337,347 11,383 32,913 1,835 (0.41) 205,509 83,764 19,391 45,116 6,615 0.44 282,129 147,978 42,800 83,011 11,050 0.59 872,177 274,718 E B I T D A * , a n d a s a p e r c e n t o f r e v e n u e ( i n t h o u s a n d s ) Year Ended April 30, 1998 1999 2000 $83,011 24.6% *Earnings Before Interest, Taxes, Depreciation, and Amortization $45,116 24.7% $32,913 22.9% S H A R E H O L D E R I N F O R M AT I O N COMPANY OFFICES 25 Greens Hill Lane Rutland, Vermont 05701 (802) 775-0325 AUDITORS Arthur Anderson, LLP 225 Franklin Street Boston, MA 02110 TRANSFER AGENT & REGISTER Boston EquiServe 150 Royal Street Boston, MA 02021 www.equiserve.com DIRECT INQUIRIES TO: Joseph Fusco, Vice-President (802) 775-0325, (802) 775-6198 Fax E-mail: joe.fusco@casella.com LEGAL COUNSEL Hale & Dorr LLP 60 State Street Boston, MA 02110 STOCK EXCHANGE Casella Waste Systems, Inc. is traded on the NASDAQ National Market under the ticker symbol CWST, and is listed on the Russell 3000 Index. www.casella.com COMPANY OFFICERS JOHN W. CASELLA President, Chief Executive Officer, Secretary JOSEPH S. FUSCO Vice President, Communications DOUGLAS R. CASELLA Vice Chairman of the Board of Directors, Vice President JAMES W. BOHLIG Senior Vice President & Chief Operating Officer JAMES M. HILTNER Regional Vice President MICHAEL HOLMES Regional Vice President JERRY S. CIFOR Senior Vice President & Chief Financial Officer, Treasurer LARRY B. LACKEY Vice President, Permits, Compliance & Engineering MARTIN J. SERGI Executive Vice President, Business Development MICHAEL BRENNAN Vice President, General Counsel CHRISTOPHER M. DESROCHES Vice President, Sales & Marketing SEAN DUFFY Regional Vice President BOARD OF DIRECTORS ROSS PIRASTEH Chairman of the Board of Directors JOHN W. CASELLA President & Chief Executive Officer, Director JAMES W. BOHLIG Senior Vice President & Chief Operating Officer, Director DOUGLAS R. CASELLA Director JOHN F. CHAPPLE III Director President, Marlin Management Services RICHARD NORRIS Vice President, Controller ALAN N. SABINO Regional Vice President GARY SIMMONS Vice President, Fleet Management GREGORY B. PETERS Director Managing General Partner, Vermont Venture Capital Partners, L.P. MARTIN J. SERGI Director, Executive Vice President WILBUR L. ROSS Director Chairman & CEO W.L. Ross & Co. LLC GEORGE MITCHELL Director Special Counsel, Verner Liipfert Bernhard McPherson & Hand 7 0 0 0 2 k - 0 1 m r o f a l l e s a c 8 U N I T E D S T AT E S S E C U R I T I E S A N D E X C H A N G E C O M M I S S I O N 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, 1999 OR [ ] Transition Report Pursuant To Section 13 or 15(D) Of The Securities Exchange Act of 1934 For The Transition Period From To Commission file number 0 0 0 - 2 3 2 1 1 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 (I.R.S. Employer Identification No.) 0 3 - 0 3 3 8 8 7 3 (Address of principal executive offices) 2 5 G R E E N S H I L L L A N E , R U T L A N D , V T (Zip Code) 0 5 7 0 1 Registrant's telephone number, including area code: ( 8 0 2 ) 7 7 5 - 0 3 2 5 Securities registered pursuant to Section 12(b) of the Act: N O N E . Securities registered pursuant to Section 12(g) of the Act: C L A S S A C O M M O N S T O C K , $ . 0 1 P E R S H A R E P A R V A L U E 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 9 On the internet Maine Energy is a crucial regional waste disposal resource and a key component of our ability to build market leadership in eastern New England. Learn more, including a “tour” of this facility at: www.casella.com/main energy 0 0 0 2 k - 0 1 m r o f a l l e s a c The aggregate value of the voting stock held by non-affiliates United States and parts of Canada. The Company also of the registrant, based on the last sale price of the markets recyclable metals, aluminum, plastics, paper and registrant's Class A Common Stock at the close of business corrugated cardboard all processed at its facilities and on July 21, 2000 was $273,751,210 (reference is made to recyclables purchased from third parties. The Company also Part II, Item 5 herein for a statement of assumptions upon generates electricity under its contracts with its two majority which this calculation is based). owned subsidiaries, Maine Energy Recovery Company LP There were 22,232,698 shares of Class A Common Stock, ("Maine Energy") and Penobscot Energy Recovery Company $.01 per share par value, of the registrant outstanding as of July LP ("PERC"), and through its wholly owned subsidiary, Timber 21, 2000. There were 988,200 shares of Class B Common Energy Recovery, Inc. ("TERI"). As of July 21, 2000, the Stock of the registrant outstanding as of July 21, 2000. Company owned and/or operated five Subtitle D landfills, two DOCUMENTS INCORPORATED BY REFERENCE landfills permitted to accept construction and demolition materials, 39 transfer stations, 40 recycling processing Items 10, 11, 12 and 13 of Part III (except for information facilities, 39 solid and liquid waste collection divisions, 12 required with respect to executive officers of the Company, power generation facilities, three finished products which is set forth under Part I -Business - "Executive Officers processing facilities and an interest in its cellulose insulation of the Company") have been omitted from this report, since joint venture with Louisiana Pacific. the Company expects to file with the Securities and Exchange Commission, not later than 120 days after the RECENT DEVELOPMENTS close of its fiscal year, a definitive proxy statement. The On December 14, 1999, the Company consummated its information required by Items 10, 11, 12 and 13 of Part III of acquisition of KTI, Inc. ("KTI"), a publicly traded solid waste this report, which will appear in the definitive proxy statement, handling company. KTI specialized in solid waste disposal and is incorporated by reference into this report. recycling, and operated waste-to-energy facilities and PART 1 Item 1. Business 10 THE COMPANY Casella Waste Systems, Inc. ("the Company") is a regional, integrated solid waste services company that provides manufacturing facilities utilizing recycled materials. All of KTI's common stock was acquired in exchange for 7,152,157 shares of Class A Common Stock. The acquisition of KTI essentially more than doubled the revenues of the Company. The acquisition was accounted for as a purchase, and accordingly, results are included in the Consolidated Statements of Operations from December 15, 1999 forward. During the fiscal year ended April 30, 2000, the Company also acquired 35 solid and liquid waste collection, transfer, disposal and recycling services, generates management businesses with approximately $82.9 million in steam and manufactures finished products utilizing recyclable annualized revenues, including the following: materials primarily throughout the eastern portion of the On the internet To learn more about the company’s growth and performance visit us at casella.com. To review recent press releases, go to Value and choose Recent Releases. In July 1999, the Company completed a merger with the Company expects to use to pay down debt and continue Resource Waste Systems, Inc. and related entities, which its strategic plan. process recyclable materials and market commodities. Resource Waste Systems and its affiliates are in the Eastern SERVICES Massachusetts market. The Company's waste collection, landfill, transfer, In October 1999, the Company acquired Eirco, Inc., a certain of the Company's recycling services operations and disposal outlet for processed construction and demolition two of its waste-to-energy facilities, which incinerate non- debris in Eastern Massachusetts. hazardous solid waste to generate electricity, are managed on In February 2000, the Company completed the a geographic basis and are divided into three geographic acquisition of Alternate Energy, Inc. and Rochester regions: the Central, Eastern and Western regions. These Environmental Park LLC (together, "AEI"), a bulk hauling three regions are further divided into divisions organized operation and construction and demolition debris processing around smaller market areas, known as "waste sheds", each facility in Eastern Massachusetts. of which contains the complete cycle of activities in the solid In spring 2000 the Company acquired certain assets from waste service process, from collection to transfer operations Allied Waste Industries, Inc. The assets included of two transfer and recycling to disposal in either landfills or waste-to-energy stations, one recycling facility and various hauling operations in facilities. Each is managed separately and provides distinct Eastern Massachusetts and Northern Rhode Island. products or services using different production facilities. The The Company has entered into an agreement with Company's other operations, comprising its waste-to-energy Louisiana-Pacific Corp. to combine their respective cellulose facilities exclusive of the two managed in the Eastern region insulation businesses into a single operating entity under a and its residential recycling operations, exclusive of the joint venture agreement effective August 1, 2000. The new recycling facilities which operate within the waste sheds, Company, to be known as U.S. Green Fiber LLC, is an commercial recycling operations and the finished products equally-owned joint venture formed through the combination operations are managed on a line-of-business basis of Louisiana-Pacific's GreenStone Industries, Inc. and independently of the three geographic regions. The waste-to- Casella Waste Systems' U.S. Fibers, Inc.'s operations. The energy segment is managed out of Saco, Maine, the new entity will supply cellulose insulation to existing commercial recycling segment is managed out of Passaic, residential construction, retail and manufactured housing New Jersey and the residential recycling and finished supply channels. products segments are managed out of Charlotte, North 11 In June 2000, the Company agreed to issue redeemable Carolina. The following are the Company's three geographic convertible preferred stock to Berkshire Partners of Boston, regions and four line-of-business segments that comprise the Massachusetts. The preferred stock will be convertible into Company's operations: Class A Common Stock at $14.00 per share. The Company expects to raise approximately $55.8 million in capital, which 0 0 0 2 k - 0 1 m r o f a l l e s a c CENTRAL REGION approximately 3.5 million tires per year and generates tire The Central Region consists of Vermont, New Hampshire and derived fuel, which the Company sells to paper mills for eastern upstate New York. The portion of upstate New York consumption as a supplemental energy source for boiler fuel. within the Company's Central Region as of July 21, 2000 The Eastern Region also includes two majority-owned includes Clinton, Franklin, Essex, Warren, Washington, subsidiaries, which generate electricity from non-hazardous Saratoga, Rennselaer and Albany counties. The Company solid waste. The first facility is an 83.75% owned subsidiary, owns and operates Subtitle D landfills in Bethlehem, New Maine Energy Recovery Company LP ("Maine Energy"), a Hampshire (See Part I, Item 3, `Legal Proceedings') and Maine limited partnership, which is located in Biddeford, Coventry, Vermont, and, through a 25-year capital lease, Maine. The other facility is a 66.59% owned subsidiary, operates the Clinton County landfill located in Schuyler Falls, Penobscot Energy Recovery Company LP ("PERC"), a Maine New York. In addition, as of July 21, 2000, the Company limited partnership, located in Orrington, Maine. operated 16 solid waste collection operations, of which 7 are leased and 9 are owned, 2 liquid waste collection operations, one of which is leased and one of which is owned, 11 transfer stations, 4 of which are leased and 7 of which are owned, four recycling facilities, three of which are leased and one of which is owned and 1 leased transportation operation in the Central Region. The Central Region also had two transfer stations under development as of July 21, 2000. WESTERN REGION The Western Region is comprised of upstate New York and northern Pennsylvania (including Ithaca, Elmira, Oneonta, Lowville, Potsdam, Geneva, Auburn, Buffalo, Jamestown, Olean, and Wellsboro, PA). At July 21, 2000 the Company operated 11 transfer stations, all of which are owned, 12 collection operations, all of which are owned and 5 recycling On the internet Casella Waste Systems serves communities throughout the eastern United States. See how and where at Places. operations, all of which are owned and collected solid waste Maine Energy Recovery provides EASTERN REGION from commercial, industrial and residential customers in the safe, secure waste disposal to The Company's Eastern Region consists of Maine, southeastern New Hampshire, eastern Massachusetts and northern Rhode Island. The Company owns the SERF landfill located in Hampden, Maine, which disposes of ash, Western Region. The Company owns a Subtitle D permitted communities in coastal landfill, the Hyland facility, in Angelica, New York, which New England – and electricity to serves the western upstate portion of our New York waste more than 35,000 homes and shed (See Part I, Item 3, `Legal Proceedings'). The Company businesses. construction and demolition debris, special waste and front also owns two landfills permitted to accept construction and end processing residue primarily from the State of Maine. In demolition materials, the Hakes and Portland facilities. 12 addition, at July 21, 2000 the Company operated 10 collection operations, 4 of which are leased and 6 of which OPERATIONS are owned and 15 transfer stations, 10 of which are leased The following is a description of the Company's operations. and 5 of which are owned and collected solid waste from commercial, industrial and residential customers in the LANDFILLS EasternRegion. The Company's waste tire processing facility, The Company currently owns four Subtitle D landfill located in Eliot, Maine, has the capacity to process operations and operates a fifth Subtitle D landfill under a 25- On the internet A virtual tour of our Clinton County landfill is available on the web in Skills and includes information about landfill construction as well as what we’re doing to extend the life of this resource. year lease arrangement with a county. All of the Company's (2) Represents capacity for which the Company has begun operating Subtitle D landfills include leachate collection the permitting process. Does not include additional systems, groundwater monitoring systems and, where available capacity at the site for which permits have not required, active methane gas extraction and recovery yet been sought. systems. In addition to these landfills, the Company owns two (3) Operated pursuant to a capital lease expiring in 2021. landfills permitted to accept only construction and demolition (4) The 3,100,000 of additional in-process tonnage has materials. These C&D landfills, depending on the state in received all required permits from the State of Maine; which they are located, are typically constructed in however the town of Hampden, Maine, where the site is accordance with lower environmental standards than Subtitle located, has not issued the required construction permits L A N D F I L L L O C AT I O N ( T O N S ) ( 1 ) ( T O N S ) ( 1 ) ( 2 ) Approximate Estimated Total Remaining Permitted Capacity Estimated in Permitting Process Capacity Clinton County (3) Schuyler Falls, NY Waste USA SERF (4) NCES Hyland Hakes (C&D) Portland (C&D) Coventry, VT Hampden, ME Bethlehem, NH Angelica, NY Campbell, NY Portland, NY 710,000 1,690,000 120,000 6,000 1,620,000 941,000 20,250 990,000 - 0 - 3,100,000 544,000 - 0 - - 0 - - 0 - D landfills, reflecting the inert nature of the materials for work to begin on the expansion (See Part I, Item 3 deposited in them. "Legal Proceedings"). During the year ended April 30, 2000, approximately (5) Facility currently under construction. 67% of the waste volumes received by the Company's The Company also owns and/or operates five unlined landfills were from the Company's hauling divisions or transfer landfills, which are not currently in operation. All of these stations. The following table provides certain information landfills have been closed and environmentally capped by the regarding the landfills that the Company operates. All of such Company. One of the unlined landfills, a municipal landfill 13 information is provided as of July 21, 2000. which is adjacent to the Subtitle D Clinton County landfill (1) The Company converts estimated remaining permitted and being operated by the Company, was operated by the permittable capacity calculated in cubic yards to tons by Company from July 1996 through July 1997. The Company assuming a compaction factor equal to the historic average completed the closure and capping activities at this landfill in compaction factor applicable to the respective landfill. September 1997, and is indemnified by Clinton County for On the internet Profiles of each of our regions, their companies, and the services we offer are located in Places. You will need to have an appropriate browser and common plug-ins to take full advantage of this area’s features - all available in Internet Tools. 0 0 0 2 k - 0 1 m r o f a l l e s a c environmentalliabilities arising from such landfill prior to the transfer stations benefit the Company by: (i) increasing the Company's operation. Once the permitted capacity of a size of the waste shed which has access to the Company's particular landfill is reached, the landfill must be closed and landfills; (ii) reducing costs by improving utilization of capped, and post-closure care started, if additional capacity is collection personnel and equipment; and (iii) building not authorized. The Company establishes reserves for the relationships with municipalities that may lead to future estimated costs associated with such closure and post- business opportunities, including privatization of the closure costs over the anticipated useful life of such landfill. municipality's waste management services. SOLID WASTE COLLECTION RECYCLING SERVICES The Company's 39 solid and liquid waste collection The Company has sought to position itself to provide operations served over 500,000 commercial, industrial and recycling services to customers who are willing to pay for the residential customers at July 21, 2000. During 2000, cost of the recycling service. Depending on the terms of the approximately 49% of the solid waste collected by the individual customer contracts and the level of recovered Company was delivered for disposal at its landfills. The material commodity prices, the proceeds generated from Company's collection operations are generally conducted reselling the recycled materials are usually shared between within a 125-mile radius of its landfills. A majority of the the Company and its customers. In addition, the Company Company's commercial and industrial collection services are has adopted a pricing strategy of charging collection and performed under one to three year service agreements, and processing fees for recycling volume collected from its fees are determined by such factors as collection frequency, customers. type of equipment and containers furnished, the type, volume As of July 21, 2000 the Company operated 15 recycling and weight of the solid waste collected, the distance to the processing facilities throughout the three geographic regions. disposal or processing facility and the cost of disposal or The Company processes more than 20 classes of recyclable processing. The Company's residential collection and disposal materials originating from the municipal solid waste stream, services are performed either on a subscription basis (i.e., including cardboard, office paper, containers and bottles. The with no underlying contract) with individuals, or under Company's regional recycling operations, as they relate to the contracts with municipalities, homeowners associations, three geographic regions, are concentrated principally in the apartment owners or mobile home park operators. Vermont, which is in the Central Region, as the public sector 14 TRANSFER STATION SERVICES The Company operated 39 transfer stations as of in other states in the Company's service area has generally taken primary responsibility for recycling efforts. July 21, 2000. The transfer stations receive, compact and WASTE TIRE PROCESSING AND OTHER SERVICES transfer solid waste collected primarily from the Company's The Company's waste tire processing facility, located in Eliot, various collection operations to larger Company-owned Maine, has the capacity to process approximately 3.5 million vehicles for transport to landfills. The Company believes that tires per year and generates tire derived fuel, which the On the internet You can read more about the company’s recent activities by visiting Value and selecting Press Releases. Company sells to paper mills for consumption as a these crumb rubber systems. Oakhurst also agreed to supplemental energy source for boiler fuel. The Company's engage a subsidiary of the Company to be the operating other services include a septic/liquid waste operation, located manager of New Heights and to pay the subsidiary of the in the Company's Central Region. Company management fees for each facility operated. WASTE-TO-ENERGY The Company owns a 60% limited partnership interest in American Ash Recycling of Tennessee Ltd., a limited In addition to its interests in Maine Energy and PERC, the partnership that operates a permitted municipal waste Company has the following interests in waste-to-energy facilities: combustor ash recycling facility in Nashville, Tennessee. Timber Energy Resources, located in Telogia, Florida, This facility, which commenced operations in 1993, is the first uses biomass waste as its source of fuel to be combusted commercially operational municipal waste combustor ash for the production of electricity for sale to the local electric recycling facility in the United States. utility. The Company also operates two wood processing The waste-to-energy segment also engages in other facilities, BioFuels in Lewiston, Maine and Timber Chip, also a waste management and processing activities, including part of Timber Energy Resources, in Cairo, Georgia. commercial hauling and non-hazardous waste management. The Company operates three waste-to-energy facilities, These activities are complementary extensions of the waste- two of which are owned and one of which is leased, in to-energy facilities that enable the Company to provide a Martinsville, Virginia. These facilities use biomass and coal to wider range of services to customers and provide strategic produce steam for sale to industrial users under long-term opportunities for future growth through vertical integration. contracts. One of the plants was closed in December 1999 pursuant to that plant's only customer going out of business. RESIDENTIAL RECYCLING KTI Recycling of Canada, which includes three tire The residential recycling segment is comprised of 20 processing facilities, two of which are owned and one of recycling facilities, 19 of which are leased and one of which is which is leased, produce crumb rubber from waste tires owned, that process and market recyclable materials under using a proprietary cryogenic technology. KTI Recycling of long-term contracts with municipalities and commercial Canada has two additional facilities under construction, customers. Additionally, the residential recycling segment located in Canada. operates one leased transfer station. The recyclable materials The Company holds a 35% stake in Oakhurst Company consist principally of old newspapers, old corrugated Inc., which owns two distributors in the automotive containers, mixed paper and commingled bottles and cans 15 aftermarket. The Company has assigned the Company's consisting of steel, aluminum, plastic and glass. This line of proprietary cryogenic rubber technology to Oakhurst, for use business segment provides residential recycling, commercial at the New Heights facility. In return, Oakhurst agreed to recycling, processing and marketing services. purchase an unspecified number of crumb rubber systems A significant portion of the material provided to the and entered into a royalty agreement with the Company to residential recycling segment is delivered pursuant to long- pay $0.0075 cents per tire processed by Oakhurst using term contracts with municipal customers. The contracts 0 0 0 2 k - 0 1 m r o f a l l e s a c generally have a term of five to ten years and expire at various COMMERCIAL RECYCLING times between 2000 and 2018. The terms of each of the The commercial recycling segment consists of five leased contracts vary, but all the contracts provide that the recycling facilities, which process and market paper fibers municipality or a third party deliver materials to the Company's obtained from municipalities, commercial customers and facility. In approximately one-third of the contracts, the commercial waste generators and brokers paper fibers, municipalities agree to deliver a guaranteed tonnage and the processed at facilities operated by the residential and municipality pays a fee for the amount of any shortfall from the commercial recycling segments, to the Company's guaranteed tonnage. Under the terms of the individual processing facilities and external customers. contracts, the Company pays the municipality a fee per ton of material delivered or in the event of a shortfall, charges the FINISHED PRODUCTS Commercial and residential recycling removes material from the waste stream and reclaims it for reuse and manufacture – helping to extend our natural municipality a fee for each ton of material shortfall below the The finished products segment consists primarily of plastic resources. municipality's guaranteed tonnage amount. Some contracts reprocessing plants and the Company's interest in a joint contain revenue sharing arrangements under which the venture with Louisiana-Pacific for the manufacture and sale of Company pays the municipality a specified percentage of the cellulose insulation. revenue from the sale of the recovered materials. The joint venture with Louisiana-Pacific manufactures The residential recycling segment derives a significant cellulose insulation, which is primarily used in the construction portion of its revenues from the sale of recyclable materials. of manufactured housing and single-family residential homes. The resale and purchase prices of the recyclable materials, The Company believes that the joint venture is the largest particularly newspaper, corrugated containers, plastic, ferrous producer of cellulose insulation in the United States and and aluminum, can fluctuate based upon market conditions. operates six manufacturing facilities located in Ronda, North The Company uses long-term supply contracts with Carolina; Tampa, Florida; Phoenix, Arizona; Clackamas, customers with floor price arrangements to reduce the Oregon; Delphos, Ohio; and Waco, Texas. The joint venture commodity risk for certain recyclables, particularly newspaper primarily sells the insulation to the makers of manufactured and aluminum metals. Under such contracts, the Company housing and insulation contractors throughout the country. obtains a guaranteed minimum price for the recyclable The plastics division is a reprocessor of high density materials along with a commitment to receive additional polyethylene ("HDPE") plastics collected primarily from amounts if the current market price rises above the floor residential recycling programs and industrial suppliers. The 16 price. The contracts are generally with large domestic plastics division obtains a majority of its raw materials from companies that use the recyclable materials in their the residential recycling segment. The plastics division manufacturing process. In fiscal 2000, 18.7% of the revenues operates three manufacturing facilities located in Reidsville, from the sale of recyclable materials of the residential North Carolina and Hamlet, North Carolina. recycling segment were derived from sales under these long- term contracts. On the internet Take a closer look at our services and the people who provide them in Skills – from collection and transfer to recycling and disposal. COMPETITION experience to bid on municipal contracts. Competition is both The solid waste services industry is highly competitive, and national and regional in nature. Some of the markets in which has undergone a long period of consolidation, and requires the Company competes are served by one or more of the substantial labor and capital resources. The Company large national solid waste companies including Waste competes with numerous solid waste management Management, Allied Waste and Republic Services, as well as companies, several of which are significantly larger and have numerous regional and local competitors that offer greater access to capital and greater financial, marketing or competitive prices and quality service. technical resources than the Company. Certain of the The Company's waste paper brokerage business and Company's competitors are large national companies that waste paper processing plants face extensive competition. may be able to achieve greater economies of scale than the Principal attributes of these markets contributing to such Company. The Company also competes with a number of competition are industry-wide overcapacity and continual regional and local companies. In addition, the Company price pressures. competes with operators of alternative disposal facilities, The insulation industry is highly competitive and requires including incinerators, and with certain municipalities, counties substantial capital and labor resources. In its insulation and districts that operate their own solid waste collection and manufacturing activities, the Company's joint venture with disposal facilities. Public sector facilities may have certain Louisiana-Pacific primarily competes with manufacturers of advantages over the Company due to the availability of user fiberglass insulation such as Owens Corning, Certainteed and fees, charges or tax revenues and tax-exempt financing. In Schuller International. The fiberglass insulation manufacturers addition, recycling and other waste reduction programs may currently have a significant market share and are substantially reduce the volume of waste deposited in landfills. better capitalized than the Company. The Company believes The Company competes for collection and disposal that the joint venture will compete with fiberglass insulation volume primarily on the basis of the price and quality of its manufacturers by charging competitive prices and offering a services. From time to time, competitors may reduce the price quality product and excellent customer service support. of their services in an effort to expand market share or to win The plastics industry is highly competitive and requires a competitively bid municipal contract. These practices may substantial capital investment in equipment. The plastics also lead to reduced pricing for the Company's services or the division's primary competition comes from other reprocessors loss of business. In addition, competition exists within the of recycled plastics, as well as suppliers of virgin HDPE resin. industry not only for collection, transportation and disposal These competitors have significantly greater financial and 17 volume, but also for acquisition candidates. The Company other resources than the Company. The Company believes generally competes for acquisition candidates with publicly- that it offers competitive pricing because the cost to owned regional and national waste management companies. reprocess plastics generally requires a lower amount of The residential recycling industry is highly competitive investment in capital than the manufacturing of virgin plastic and requires substantial capital resources and prior resin. The Company also competes with several other Well-trained and highly resourced, Casella people are working hard to make a lot of places, better places. 0 0 0 2 k - 0 1 m r o f a l l e s a c recycled plastic brokers and direct marketing from plastic new customers. These sales representatives receive a recycling plants for post-industrial plastic scrap, and with significant portion of their compensation based upon meeting materials recovery facilities for post-consumer plastics. The certain incentive targets. The Company emphasizes providing Company believes that it will continue to be competitive quality services and customer satisfaction and retention, and because of its knowledge of the plastic recycling market and believes that its focus on quality service will help retain its reputation and relationship with its customers. existing and attract additional customers. MARKETING AND SALES EMPLOYEES The Company has a coordinated marketing and sales strategy, The Company employs approximately 3,700 persons. Certain which is formulated at the corporate level and implemented at of the Company's employees are covered by collective the divisional level. The Company markets its services locally bargaining agreements. The Company believes relations with through division managers and direct sales representatives its employees to be satisfactory. who focus on commercial, industrial, municipal and residential customers. The Company also obtains new customers from referral sources, its general reputation and local market print RISK MANAGEMENT, INSURANCE AND PERFORMANCE OR SURETY BONDS advertising. Leads are also developed from new building The Company actively maintains environmental and other risk permits, business licenses and other public records. management programs, which it believes are appropriate for Additionally, each division generally advertises in the yellow its business. The Company's environmental risk management pages and other local business print media that cover its program includes evaluating existing facilities, as well as service area. potential acquisitions, for environmental law compliance and Maintenance of a local presence and identity is an operating procedures. The Company also maintains a worker important aspect of the Company's marketing plan, and many safety program, which encourages safe practices in the of the Company's managers are involved in local workplace. Operating practices at all Company operations are governmental, civic and business organizations. The intended to reduce the possibility of environmental Company's name and logo, or, where appropriate, that of the contamination and litigation. Company's divisional operations, are displayed on all The Company carries a range of insurance intended to Company containers and trucks. Additionally, the Company protect its assets and operations, including a commercial 18 attends and makes presentations at municipal and state general liability policy and a property damage policy. A partially conferences and advertises in governmental associations' or completely uninsured claim against the Company (including membership publications. liabilities associated with cleanup or remediation at its own The Company markets its commercial, industrial and facilities) if successful and of sufficient magnitude, could have municipal services through its sales representatives who visit a material adverse effect on the Company's business, financial customers on a regular basis and make sales calls to potential condition and results of operations. Any future difficulty in On the internet In CustomerFirst, you can learn more about our local businesses, the services they offer, and what’s going on in the communities they serve. obtaining insurance could also impair the Company's ability and commercial recycling segments, principally to paper and to secure future contracts, which may be conditioned upon box board manufacturers in the United States, Canada, the availability of adequate insurance coverage. Pacific Rim countries, Europe and South America. Effective July 1, 1999, the Company established a The Company's cellulose insulation joint venture sells captive insurance company, `Casella Insurance Company', its products to manufacturers of manufactured homes, through which it is self-insured for Workman's Compensation insulation contractors, and retail home improvement stores and Automobile coverage. The Company's maximum throughout the United States. The plastics division sells the exposure under this plan is $250,000 per individual event majority of its products under long-term contracts with two with no aggregate limit, after which reinsurance takes effect customers located adjacent to the Company's facility. and limits the Company's exposure. Municipal solid waste collection contracts and landfill RAW MATERIALS closure obligations may require performance or surety The raw material demands of the PERC's facility currently bonds, letters of credit or other means of financial assurance are met mainly by PERC long-term waste handling to secure contractual performance. The Company has not agreements with approximately 200 municipalities in Maine. experienced difficulty in obtaining performance or surety PERC received approximately 75% of its raw materials in bonds or letters of credit. If the Company were unable to fiscal 2000 from these municipalities. Maine Energy received obtain performance or surety bonds or letters of credit in 28% of its raw materials in fiscal 2000 from 18 Maine sufficient amounts or at acceptable rates, it may be municipalities under long term waste handling agreements. precluded from entering into additional municipal solid waste Maine Energy also receives raw materials from commercial collection contracts or obtaining or retaining landfill operating and private waste haulers and municipalities with short-term permits. CUSTOMERS contracts. The Telogia facility uses biomass fuels that are a by-product of the paper pulp woodchip industry as its raw material. Under the terms of their contracts, Maine Energy must sell The residential recycling segment received 38.1% of its all of the electricity generated at its facilities to Central material under long-term agreements with municipalities. Maine, Timber Energy Resources must sell all of its These contracts generally provide that all recyclables electricity to Florida Power and PERC must sell all of its collected from the municipal recycling programs be delivered electricity to Bangor Hydro. to a facility that is owned or operated by the Company. The 19 The commercial recycling segment processing facilities quantity of material delivered by these communities is provide recycling services to municipalities, commercial dependent on the participation of individual households in the haulers and commercial waste generators within the recycling program. geographic proximity of the processing facilities. The The raw materials for the Company's commercial Company acts as a broker of products, including recyclable recycling segment generally come from printers and material processed at facilities operated by the residential publishing houses and other recyclers and haulers. More information A complete guide to our on-line resources is located at the end of this 10K. You may also request information or join our e-mail list by filling out and returning the pre-paid mailer. 0 0 0 2 k - 0 1 m r o f a l l e s a c The waste paper brokered by the Company is generated costs remain constant throughout the fiscal year, operating principally from the commercial recycling segment, from income results are therefore impacted by a similar waste generators, and from third party processors. seasonality. In addition, particularly harsh weather conditions The primary raw material for the Company's insulation could result in increased operating costs to certain of the joint venture is newspaper collected from residential recycling Company's operations. programs, including those operated by the Company's The residential recycling segment experiences increased residential recycling segment. In 2000, the insulation division volumes of newspaper in November and December due to received 10.8% of the newspaper used by it from the increased newspaper advertising and retail activity during the residential recycling segment. It purchased the remaining holiday season. Additionally, the facilities located in Florida newspaper from municipalities, commercial haulers, and paper experience increased volumes of recyclable materials during brokers. The chemicals used to make the newspaper fire the winter months, followed by decreases in the summer retardant are purchased from industrial chemical manufacturers months in connection with seasonal changes in population. located in the United States and South America. The commercial recycling segment experiences The plastics division's primary raw materials are baled increased quantities of newspaper and corrugated containers plastic containers collected from residential recycling in November and December, followed by reduced quantities programs, such as those operated by the Company's in January and decreased quantities of newspaper and residential recycling segment, and ground material from corrugated containers in July and August, followed by industrial customers. In 2000, the plastics division received increased quantities in September, due to increased 57.2% of its raw material from the Company's residential newspaper advertising and retail activity during the holiday recycling facilities. SEASONALITY season. The insulation business experiences lower sales in November and December because of lower production of The Company's transfer and disposal revenues have manufactured housing due to holiday plant shut downs. historically been lower during the months of November through March. This seasonality reflects the lower volume of REGULATION waste during the late fall, winter and early spring months primarily because: (i) the volume of waste relating to INTRODUCTION 20 construction and demolition activities decreases substantially The Company is subject to extensive and evolving Federal, during the winter months in the northeastern United States; state and local environmental laws and regulations which have and (ii) decreased tourism in Vermont, Maine and eastern become increasingly stringent in recent years. The New York during the winter months tends to lower the environmental regulations affecting the Company are volume of waste generated by commercial and restaurant administered by the EPA and other Federal, state and local customers, which is partially offset by the winter ski environmental, zoning, health and safety agencies. The industry.Since certain of the Company's operating and fixed Company believes that it is currently in substantial By operating one of the industry’s most modern fleet of trucks and equipment, maintenance costs are managed and we assure that our services are provided reliably and safely. compliance with applicable Federal, state and local businesses that deal with hazardous waste are subject to environmental laws, permits, orders and regulations, and it regulatory obligations in addition to those imposed on handlers does not currently anticipate any material environmental costs of non-hazardous waste. to bring its operations into compliance (although there can be Among the wastes that are specifically designated as no assurance in this regard in the future). The Company non-hazardous are household waste and "special" waste, expects that its operations in the solid waste services industry including items such as petroleum contaminated soils, will be subject to continued and increased regulation, asbestos, foundry sand, shredder fluff and most non- legislation and regulatory enforcement actions. The Company hazardous industrial waste products. attempts to anticipate future legal and regulatory requirements The EPA regulations issued under Subtitle C of RCRA and to carry out plans intended to keep its operations incompliance with those requirements. In order to transport process, incinerate, or dispose of solid waste, it is necessary for the Company to possess and comply with one or more permits from Federal, state and/or local agencies. The Company must review these permits periodically, and the permits may be modified or revoked by the issuing agency. The principal Federal, state and local statutes and regulations applicable to the Company's various operations are as follows: THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976 ("RCRA") RCRA regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. RCRA divides solid waste into two groups, hazardous and non-hazardous. Wastes are generally classified as hazardous if they (i) either (a) are specifically included on a list of hazardous wastes, or (b) exhibit certain characteristics defined as hazardous; and (ii) are not impose a comprehensive "cradle to grave" system for tracking the generation, transportation, treatment, storage and disposal of hazardous wastes. The Subtitle C Regulations impose obligations on generators, transporters and disposers of hazardous wastes, and require permits that are costly to obtain and maintain for sites where those businesses treat, store or dispose of such material. Subtitle C requirements include detailed operating, inspection, training and emergency preparedness and response standards, as well as requirements for manifesting, record keeping and reporting, corrective action, facility closure, post-closure and financialresponsibility. Most states have promulgated regulations modeled on some or all of the Subtitle C provisions issued by the EPA, and in many instances EPA has delegated to those states the principal role in regulating industries which are subject to those requirements. Some state regulations impose different, additional obligations. The Company currently does not accept for transportation or disposal of hazardous substances (as defined in CERCLA, discussed below) in concentrations or 21 volumes that would classify those materials as hazardous wastes. However, the Company has transported hazardous substances in the past and very likely will transport and specifically designated as non-hazardous. Wastes classified as dispose of hazardous substance in the future, to the extent hazardous under RCRA are subject to more extensive that materials defined as hazardous substances under regulation than wastes classified as non-hazardous, and CERCLA are present in consumer goods and in the 0 0 0 2 k - 0 1 m r o f a l l e s a c non-hazardous waste streams of its customers. The Company disposal. Regulations generally require the Company to install does not accept hazardous wastes for incineration at its waste- groundwater monitoring wells at virtually all landfills it to-energy facilities. The Company typically tests ash produced operates, to monitor groundwater quality and, indirectly, the at those facilities on a regular basis; that ash generally does effectiveness of the leachate collection systems. The Subtitle not contain hazardous substances in sufficient concentrations D Regulations also require facility owners or operators to or volumes to result in the ash being classified as hazardous control emissions of methane gas generated at landfills where Throughout the communities we waste. However, it is possible that future waste streams certain regulatory thresholds are exceeded. Each state must serve, we work to provide safe, accepted for incineration could contain elevated volumes or revise its landfill regulations to meet these requirements or concentrations of hazardous substances or that legal the EPA will automatically impose such requirements upon environmentally responsible waste management solutions – requirements will change, and that theresulting incineration landfill owners and operators in that state. Each state also today and tomorrow. ash would be classified as hazardous waste. must adopt and implement a permit program or other Leachate generated at the Company's landfills and appropriate system to ensure that landfills within the state transfer stations is tested on a regular basis, and generally is comply with the Subtitle D regulatory criteria. Various states not regulated as a hazardous waste under Federal or state in which the Company operates or in which it may operate in law. In the past, however, leachate generated from certain of the future have adopted regulations or programs as stringent the Company's landfills has been classified as hazardous as, or more stringent than, the Subtitle D Regulations. waste under state law, and there is no guarantee that leachate generated from the Company's facilities in the future THE FEDERAL WATER POLLUTION will not be classified under Federal or state law as hazardous CONTROL ACT OF 1972 waste. The Federal Water Pollution Control Act of 1972, as amended In October 1991, the EPA adopted the Subtitle D ("Clean Water Act"), regulates the discharge of pollutants into Regulations governing solid waste landfills. The Subtitle D the "waters of the United States" from a variety of sources, Regulations, which generally became effective in October including solid waste disposal sites and transfer stations, 1993, include location restrictions, facility design standards, processing facilities, and waste-to-energy facilities operating criteria, closure and post-closure requirements, (collectively, "solid waste management facilities"). If run-off or financial assurance requirements, groundwater monitoring collected leachate from the Company's solid waste requirements, groundwater remediation standards and management facilities, or process or cooling waters 22 corrective action requirements. In addition, the Subtitle D generated at one of the Company's waste-to-energy facilities, Regulations require that new landfill sites meet more stringent is discharged into streams, rivers or other surface waters, the liner design criteria (typically, composite soil and synthetic Clean Water Act would require the Company to apply for and liners or two or more synthetic liners) intended to keep obtain a discharge permit, conduct sampling and monitoring leachate out of groundwater and have extensive collection and, under certain circumstances, reduce the quantity of systems to carry away leachate for treatment prior to pollutants in such discharge. A permit also may be required if On the internet You can find out more about waste management and other environmental web resources in the Library under Transfer Station. that run-off, leachate, or process or cooling water is Act and Toxic Substances Control Act. If the Company were discharged to a treatment facility that is owned by a local found to be a responsible party for a CERCLA cleanup, the municipality. Numerous states have enacted regulations, enforcing agency could hold the Company, or any other which are equivalent to the Clean Water Act, and which also generator, transporter or the owner or operator of the regulate the discharge of pollutants to groundwater. Finally, contaminated facility, responsible for all investigative and virtually all solid waste management facilities must comply with remedial costs even if others also were liable. CERCLA also the EPA's storm water regulations, which are designed to authorizes EPA to impose a lien in favor of the United States prevent contaminated storm water runoff from flowing into upon all real property subject to, or affected by, a remedial surface waters. action for all costs for which a party is liable. CERCLA provides a responsible party with the right to bring a contribution action THE COMPREHENSIVE ENVIRONMENTAL against other responsible parties for their allocable shares of RESPONSE, COMPENSATION, AND LIABILITY ACT investigative and remedial costs. The Company's ability to get OF 1980 ("CERCLA") others to reimburse it for their allocable shares of such costs CERCLA established a regulatory and remedial program would be limited by the Company's ability to identify and locate intended to provide for the investigation and cleanup of facilities other responsible parties and prove the extent of their where or from which a release of any hazardous substance into responsibility and by the financial resources of such other the environment has occurred or is threatened. CERCLA's parties. primary mechanism for remedying such problems is to impose strict joint and several liability for cleanup of facilities on current THE CLEAN AIR ACT owners and operators of the site, former owners and operators The Clean Air Act, generally through state implementation of of the site at the time of the disposal of the hazardous Federal requirements, regulates emissions of air pollutants from substances, as well as the generators of the hazardous certain landfills based upon the date of the landfill was substances and the transporters who arranged for disposal or constructed and the annual volume of emissions. The EPA has transportation of the hazardous substances. In addition, promulgated new source performance standards regulating air CERCLA also imposes liability for the costs of evaluating and emissions of certain regulated pollutants (methane and non- addressing damage done to natural resources. The costs of methane organic compounds) from municipal solid waste CERCLA investigation and cleanup can be very substantial. landfills. Landfills located in areas where levels of regulated Liability under CERCLA does not depend upon the existence or pollutants exceed certain requirements of the Clean Air Act may disposal of "hazardous waste" as defined by RCRA, but can be be subject to even more extensive air pollution controls and based on the existence of any of more than 700 "hazardous emission limitations. In addition, the EPA has issued standards 23 substances" listed by the EPA, many of which can be found in regulating the disposal of asbestos-containing materials. household waste. In addition, the definition of "hazardous The Clean Air Act also regulates emissions of air substances" in CERCLA incorporates substances designated as pollutants from the Company's waste-to-energy facilities and hazardous or toxic under the Federal Clean Water Act, Clear Air certain of its processing facilities. The EPA has enacted State-of-the-art landfills, using the latest technology and developments, serve regional waste-sheds. 0 0 0 2 k - 0 1 m r o f a l l e s a c standards that apply to those emissions. It is possible that the maintenance of solid waste management facilities. In addition, EPA, or a state where the Company operates, will enact many states have adopted statutes comparable to, and in additional or different emission standards in the future. some cases more stringent than, CERCLA. These statutes All of the Federal statutes described above authorize impose requirements for investigation and cleanup of lawsuits by private citizens to enforce certain provisions of contaminated sites and liability for costs anddamages the statutes. In addition to a penalty award to the associated with such sites, and some authorize liens on United States, some of those statutes authorize an award of property owned by responsible parties. Some of those liens attorney's fees to parties successfully advancing may take priority over previously filed instruments. such an action. Furthermore, many municipalities also have local ordinances, laws and regulations affecting Company operations. These THE OCCUPATIONAL SAFETY AND HEALTH ACT include zoning and health measures that limit solid waste OF 1970 ("OSHA") management activities to specified sites or conduct, flow OSHA establishes employer responsibilities and authorizes control provisions that direct the delivery of solid wastes to the promulgation by the Occupational Safety and Health specific facilities or to facilities in specific areas, laws that Administration to promulgate occupational health and safety grant the right to establish franchises for collection services standards, including the obligation to maintain a workplace and then put out for bid the right to provide collection free of recognized hazards likely to cause death or serious services, and bans or other restrictions on the movement of injury, to comply with adopted worker protection standards, to solid wastes into a municipality. maintain certain records, to provide workers with required Certain permits and approvals may limit the types of disclosures and to implement certain health and safety waste that may be accepted at a landfill or the quantity of training programs. Various of those promulgated standards waste that may be accepted at a landfill during a given time may apply to the Company's operations, including those period. In addition, certain permits and approvals, as well as standards concerning notices of hazards, safety in excavation certain state and local regulations, may limit a landfill to and demolition work, the handling of asbestos and asbestos- accepting waste that originates from specified geographic containing materials, and worker training and emergency areas or seek to restrict the importation of out-of-state waste response programs. STATE AND LOCAL REGULATIONS 24 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 Each state in which the Company now operates or may Federal legislation is proposed which would allow individual operate in the future has laws and regulations governing the states to prohibit the disposal of out-of-state waste or to limit generation, storage, treatment, handling, processing, the amount of out-of-state waste that could be imported for transportation, incineration and disposal of solid waste, water disposal and would require states, under certain and air pollution and, in most cases, the siting, design, circumstances, to reduce the amounts of waste exported to operation, maintenance, closure and post-closure other states. Although such legislation has not been passed On the internet Maine Energy, with a sophisticated front-end process, recycles a significant amount of waste before converting it to electricity. Learn how this unique WTE plant works and what it does at: casella.com/mainenergy. by Congress, if this or similar legislation is enacted, states in transport to and disposal in landfills could affect the which the Company operates landfills could limit or prohibit Company's ability to operate its landfill facilities. the importation of out-of-state waste. Such actions could materially and adversely affect the business, financial ENERGY AND UTILITY REGULATION condition and results of operations of any landfills within Each of the Company's waste-to-energy facilities has been those states that receive a significant portion of waste certified by the Federal Energy Regulatory Commission as a originating from out-of-state. "qualifying small power production facility" under the Public In addition, certain states and localities may for Utility Regulatory Policies Act of 1978, as amended economic or other reasons restrict the export of waste from ("PURPA"). PURPA exempts qualifying facilities from most their jurisdiction or require that a specified amount of waste Federal and state laws governing electric utility rates and be disposed of at facilities within their jurisdiction. In 1994, financial organization, and generally requires electric utilities the U.S. Supreme Court rejected as unconstitutional, and to purchase electricity generated by qualifying facilities at a therefore invalid, a local ordinance that sought to impose flow price equal to the utility's full "avoid cost". controls on taking waste out of the locality. However, certain The Company's waste-to-energy business is dependent state and local jurisdictions continue to seek to enforce such upon its ability to sell the electricity generated by each of its restrictions and, in certain cases, the Company may elect not facilities to an electric utility (or, in certain instances, a third- to challenge such restrictions. In addition, some proposed party such as an energy marketer). Those purchases Federal legislation would allow states and localities to impose generally occur under long-term power purchase agreements, flow restrictions. Those restrictions could reduce the volume some of which will expire in the near future. There is no of waste going to landfills in certain areas, which may guarantee that new agreements will replace those that expire, materially adversely affect the Company's ability to operate or that any new agreement will contain a purchase price, its landfills and/or affect the prices the Company can charge which is as favorable as the one in the expiring agreement. for landfill disposal services. Those restrictions also may Additionally, in the event that the electric utility industry in a result in higher disposal costs for the Company's collection state where the Company generates electricity is deregulated operations. If the Company were unable to pass such higher in the future, it is possible that the applicable regulatory costs through to its customers, the Company's business, agency will require that an existing agreement be financial condition and results of operations could be renegotiated (the resulting agreement may be less favorable materially adversely affected. to the Company) or transferred to a third-party. 25 There has been an increasing trend at the Federal, state and local levels to mandate or encourage both waste reduction at the source and waste recycling, and to prohibit or restrict the disposal in landfills of certain types of solid wastes, such as yard wastes, leaves and tires. Regulations reducing the volume and types of wastes available for More information You can learn more about the company’s leadership by going to People on our web site or by filling out the pre-paid mailer at the back of this 10K and requesting the Management Brochure. E X E C U T I V E O F F I C E R S A N D O T H E R K E Y E M P L O Y E E S O F T H E C O M P A N Y The Executive Officers and other key employees of the Company, their positions, and their ages as of July 21, 2000 are as follows: 0 0 0 2 k - 0 1 m r o f a l l e s a c N A M E A G E P O S I T I O N E X E C U T I V E O F F I C E R S John W. Casella Douglas R. Casella James W. Bohlig Jerry S. Cifor Martin J. Sergi O T H E R K E Y E M P L O Y E E S Michael Brennan Christopher M. DesRoches Sean Duffy Joseph S. Fusco James M. Hiltner Michael Holmes Larry B. Lackey Richard Norris Alan N. Sabino Gary Simmons 49 44 54 39 43 42 42 40 36 36 45 39 57 40 50 President, Chief Executive Officer, Secretary, Director Vice Chairman of the Board of Directors, Vice President Senior Vice President and Chief Operating Officer, Director Senior Vice President and Chief Financial Officer, Treasurer Executive Vice President - Business Development, Director Vice President & General Counsel Vice President, Sales and Marketing Regional Vice President Vice President, Communications Regional Vice President Regional Vice President Vice President, Permits, Compliance and Engineering Vice President & Corporate Controller Regional Vice President Vice President, Fleet Management John W. Casella has served as President and Chief related state and local boards and commissions including the Executive Officer of the Company since 1993, and has been Board of Directors of the Associated Industries of Vermont, Chairman of the Board of Directors of Casella Waste The Association of Vermont Recyclers, Vermont State Management, Inc. since 1977. From 1993 until 1999, Mr. Chamber of Commerce and the Rutland Industrial Casella was also the Chairman of the Board of Directors of Development Corporation. Mr. Casella has also served on the Company. Mr. Casella has actively supervised all aspects various state task forces, serving in an advisory capacity to 26 of Company operations since 1976, sets overall corporate the Governor of Vermont on solid waste issues. Mr. Casella policies, and serves as chief strategic planner of corporate holds an Associate of Science in Business Management from development. Mr. Casella is also an executive officer and Bryant & Stratton University and a Bachelor of Science in director of Casella Construction, a company owned by Mr. Business Education from Castleton State College. Mr. Casella and Douglas R. Casella. Mr. Casella has been a Casella is the brother of Douglas R. Casella. member of numerous industry-related and community service- Douglas R. Casella founded Casella Waste Management, 1983 until 1986. Mr. Cifor is a graduate of Hillsdale College Inc. in 1975, and has been a director of that company since with a Bachelor of Arts in Accounting. that time. He has served as Vice Chairman of the Board of Martin J. Sergi has served as Executive Vice President- Directors of the Company since 1993 and has been President Business Development of the Company since December of Casella Waste Management, Inc. since 1975. Since 1989, 1999. From November 1997 to December 1999, Mr. Sergi Mr. Casella has been President of Casella Construction, a served as President of KTI, Inc., prior to its acquisition by the company owned by Mr. Casella and John W. Casella which Company. From October 1985 to August 1998, Mr. Sergi specializes in general contracting, soil excavation and related served as Chief Financial Officer of KTI, Inc. and from 1985 to heavy equipment work. Mr. Casella attended the University of December 1999 as Vice Chairman of the Board of Directors. Wisconsin's College of Engineering continuing education Michael Brennan joined the company in July 2000 as Vice programs in sanitary landfill design, ground water remediation, President and General Counsel. From July 1998 to July 2000, landfill gas and leachate management and geosynthetics. Mr. he served as Associate General Counsel for Waste Casella is the brother of John W. Casella. Management, Inc., a waste management company. From James W. Bohlig joined the Company as Senior Vice January 1996 to July 1998 he served as Senior Counsel and President and Chief Operating Officer in 1993 with primary from March 1993 to January 1996 he served as Environmental responsibility for business development, acquisitions and Counsel for Waste Management, Inc. operations. Mr. Bohlig has served as a director of the Christopher M. DesRoches has served as Vice Company since 1993. From 1989 until he joined the Company, President, Sales and Marketing of the Company since Mr. Bohlig was Executive Vice President and Chief Operating November 1996. From January 1989 to November 1996, he Officer of Russell Corporation, a general contractor and was a regional vice president of sales of Waste Management, developer based in Rutland, Vermont. Mr. Bohlig is a licensed Inc., a solid waste management company. Mr. DesRoches is a professional engineer. Mr. Bohlig holds a Bachelor of Science graduate of Arizona State University. in Engineering and Chemistry from the U.S. Naval Academy, Sean Duffy has served as Regional Vice President of the and is a graduate of the Columbia University Management Company since December 1999. He began in May of 1983 at Program in Business Administration. FCR, Inc. as one of the founders of the FCR, Inc. In 1996, he Jerry S. Cifor joined the Company as Chief Financial became the Chief Operating Officer of FCR, Inc. In 1997, he Officer in January 1994. From 1992 to 1993, Mr. Cifor was became an executive vice president of FCR. In 1998, he also Vice President and Chief Financial Officer of Earthwatch became the President of FCR Plastics, Inc. In 1999 he 27 Waste Systems, a waste management company based in became the president of FCR Recycling and was promoted to Buffalo, New York. From 1986 to 1991, Mr. Cifor was President of FCR, Inc., where he remained until the employed by Waste Management of North America, Inc., a Company's acquisition of KTI, Inc. in December 1999, when waste management company, in a number of financial and he became a Regional Vice President of the Company and operational management positions. Mr. Cifor is a certified remains President of FCR Plastics, Inc. and FCR, Inc. Mr. public accountant and was with KPMG Peat Marwick from Duffy is a graduate of Central Connecticut State University. 0 0 0 2 k - 0 1 m r o f a l l e s a c Joseph S. Fusco has served as Vice President, Richard Norris joined the Company in July 2000 as Vice Communications of the Company since January 1995. From President and Corporate Controller. From 1997 to July 2000, January 1991 through January 1995, Mr. Fusco was self- Mr. Norris served as Vice President and Chief Financial employed as a corporate and political communications Officer for Nexcycle, Inc., a processor of secondary consultant. Mr. Fusco is a graduate of the State University of materials. From 1986 to 1997, he served as Vice President of New York at Albany. Finance, US Operations for Laidlaw Waste Systems, Inc., a James M. Hiltner has served as Regional Vice President waste management company. of the Company since March 1998. From 1990 to March Alan N. Sabino has served as Regional Vice President of 1998, Mr. Hiltner was employed by Waste Management, Inc. the Company since July 1996. From 1995 to July 1996, as a region president (July 1996 through March 1998), where Mr. Sabino served as a Division President for Waste his responsibilities included overseeing that company's waste Management, Inc. From 1989 to 1994, he served as Region management operations in upstate New York and Operations Manager for Chambers Development Company, northwestern Pennsylvania, a division president (from April Inc., a waste management company. Mr. Sabino is a graduate 1992 through July 1996) and a general manager (from of Pennsylvania State University. November 1990 through April 1992.) Gary Simmons joined the Company in May 1997 as Vice Michael Holmes has served as a Regional Vice President President, Fleet Management.From 1995 to May 1997, of the Company since January 1997. From November 1995 Mr. Simmons served as National and Regional Fleet Service to January 1997, Mr. Holmes was Vice President of Superior Manager for USA Waste Services, Inc., a waste management Disposal Services, Inc., which was acquired by the Company company. From 1977 to 1995, Mr. Simmons served in various in January 1997. From November 1993 to November 1995, fleet maintenance and management positions for Chambers he was Superintendent of Recycling and Solid Waste for the Development Company, Inc. Town of Weston, Massachusetts Solid Waste epartment where he managed all aspects of the town's recycling and Item 2. Properties solid waste services. From June 1983 to October 1992, he At July 21, 2000: (A) the Company operated seven landfills, served as the Division Manager of all divisions in the including one operated under a lease expiring in 2021; (B) 39 Binghamton, N.Y. area and the Boston, Massachusetts area transfer stations, 24 of which are owned and 15 of which are for Laidlaw Waste Services, Inc. Mr. Holmes is a graduate of leased; (C) 39 hauling operations, 27 of which are owned 28 Broome Community College. and 12 of which are leased; (D) 40 recyclable operations, 10 Larry B. Lackey joined the Company in 1993 and has of which are owned and 30 of which are leased; (E) 12 served as Vice President, Permits, Compliance and power generation facilities, six of which are owned, three of Engineering since 1995. From 1984 to 1993, Mr. Lackey was which are leased and three of which are partnership interests; an Associate Engineer for Dufresne-Henry, Inc., an (F) three manufacturing of finished goods operations, two of engineering consulting firm. Mr. Lackey is a graduate of which are owned and one of which is leased and one Vermont Technical College. cellulose insulation joint venture and (G) utilized 14 corporate office and other administrative facilities, two of which are landfill and the operator thereof to receive an additional owned and 12 of which are leased. The Company's landfill permit from the Town of Angelica to continue to operate, operations are described in Item 1. would prevent the disposal of yard waste, may preclude the Other than the foregoing, at July 21, 2000 the principal disposal of certain types of industrial waste and would fixed assets used by the Company in its solid waste impose certain other restrictions on the landfill. A temporary collection and landfill operations included approximately 2,650 restraining order was granted by the court on May 14, 1998 collection vehicles, 450 pieces of heavy equipment and 350 in favor of the Company, and by a decision dated July 13, support vehicles. Item 3. Legal Proceedings On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil lawsuit against the Company and two of its officers and directors in Vermont Superior Court. Mr. Freeman claims to have performed services for the 1998, the court granted the Company's motion for a preliminary injunction. On September 9, 1998, the Town of Angelica filed a Notice of Appeal but has not yet perfected that appeal. If the Company is not successful in its lawsuit, and if the Town of Angelica seeks to enforce the law by its terms, then the Company would be required to obtain an additional permit from the Town of Angelica to operate the Company prior to 1995 and in his lawsuit is seeking a three- Hyland landfill, the expansion of the landfill beyond the current percent equity interest in the Company or the monetary equivalent thereof, as well as punitive damages. The permitted capacity would be prohibited, and the Company would be unable to dispose of yard waste and may be Company and the officers and directors have answered the precluded from disposing of certain industrial wastes at the Complaint, denied Mr. Freeman's allegations of wrongdoing, landfill. There can be no assurance that such limitations would and asserted various defenses. In order to facilitate the not have a material adverse effect on the Company's completion of the initial public offering of the Company's business, financial condition and results of operations. The Class A Common Stock in November 1997, certain Company and the Town have signed an amendment to the stockholders of the Company agreed to indemnify the Host Community Agreement and both sides have terminated Company for any settlement by the Company or any award the action with prejudice. against the Company in excess of $350,000 (but not for legal The Company's wholly owned subsidiary, North Country fees paid by or on behalf of the Company or any other third Environmental Services, Inc. ("NCES"), is a party to an appeal party). The Company accrued a $215,000 reserve for this against the Town of Bethlehem, New Hampshire ("Town") claim during the year ended April 30, 1998. before the New Hampshire Supreme Court. The appeal arises 29 On May 12, 1998, the Company filed suit in New York from cross actions for declaratory and injunctive relief filed by Supreme Court, Allegany County against the Town of NCES and the Town to determine the permitted extent of Angelica, New York seeking a temporary restraining order NCES's landfill in the Town. The Grafton Superior Court ruled and preliminary injunctive relief against the Town's on February 1, 1999 that the Town could not enforce an enforcement of a recently-enacted local law which would ordinance purportedly prohibiting expansion of the landfill, at prohibit the expansion of the Hyland landfill, would require the least within 51 acres of NCES's 87 -acre parcel, based upon 0 0 0 2 k - 0 1 m r o f a l l e s a c certain existing land-use approvals. As a result, NCES was servicing of portable chemical toilets during the Woodstock able to construct and operate "Stage II, Phase II" of the Concert held in Rome, N.Y. in late July 1999. Woodstock '99, landfill. If the Town were to prevail on appeal, the range of LLC is seeking damages of up to $2,000,000. The Company possible outcomes includes, without limitation, a new trial, intends to vigorously defend the lawsuit and has filed its Answer closure of the landfill, or remediation (i.e., removal) of Stage and Counterclaim, along with extensive discovery requests. II, Phase II. A separate appeal by two citizens groups of the On May 11, 1994, Maine Energy filed a suit in a Maine construction and operating approvals issued by the New state court against United Steel Structures, Inc. under a Hampshire Department of Environmental Services to NCES warranty to recover the costs which were, or will be incurred for Stage II, Phase II has been stayed by the New Hampshire to replace the roof and walls of the Maine Energy tipping and Waste Management Council pending the resolution of the processing building. The judge in the case entered an order appeal before the Supreme Court. awarding Maine Energy approximately $3.3 million plus On or about December 7, 1999, Earth Waste Systems, interest from May 10, 1994, to the date of the filing of the Inc., Kevin Elnicki and Frank Elnicki filed a civil lawsuit against lawsuit, and court costs. The defendant filed an appeal on the Company, two of the Company's officers and directors, December 19, 1997. In February 1999, the appellate court and a former employee in Vermont State Court, Rutland reversed the trial court's verdict in favor of Maine Energy and County. The plaintiffs allege that the Company and the returned the case to the trial court, which ordered a new trial. individual defendants breached contractual obligations and The case has been settled in principle by a proposed payment engaged in other wrongdoing related to, among other things, of $800,000 to Maine Energy. Settlement documents are a now-terminated scrap metal agreement. Plaintiffs are being prepared. seeking monetary damages, including punitive damages, in an On April 1, 1999, William F. Kaiser, a former Executive unspecified amount. On May 12, 2000, the Company filed a Vice President and Treasurer of KTI, filed a lawsuit against motion to dismiss the case on jurisdictional grounds, onwhich KTI in the U.S. District Court for the District of New Jersey. the Court has not yet ruled. The Company believes it has The suit alleges breach of contract, wrongful termination, meritorious defenses to this lawsuit. breach of the implied covenant of good faith and fair dealing, The Company has brought an action against the Town of misrepresentation of employment terms and failure to pay Hampden, Maine to setaside the Town's efforts to block the wages, all arising out of Mr. Kaiser's employment agreement Company's construction of approximately 3,100,000 tons of with KTI. The suit also alleges that KTIinaccurately reported 30 capacity, for which the Company has been granted a permit its financial results for the first quarter of 1998 and failed to by the State of Maine. The action is pending in the Penobscot properly disclose the change of control provision in Mr. County Superior Court in Bangor, Maine. Kaiser's employment agreement. Mr. Kaiser is seeking a The Company is a defendant in a lawsuit brought by declaratory judgment that, upon closing of the merger, the Woodstock '99, LLC seeking damages for breach of two change of control provision entitles him to receive a service contracts entered into by the Company for the severance payment of two years' salary, in the amount of $320,000, and to exercise 132,000 unvested options for KTI defend this suit and has filed an action to stay the arbitration common stock. Mr. Kaiser is also seeking damages in the in Mecklenburg County Superior Court in North Carolina. On amount of $40,000 for an additional severance payment, as October 11, 1999, the Superior Court denied KTI's request to well as undisclosed damages for outstanding salary, bonus stay the arbitration. The matter was subsequently settled by and other payments and from his sale of approximately the payment to Mr. Kuruc of approximately $190,000. 20,000 shares of KTI common stock resulting from KTI's On April 6, 1999, Dennis McDonnell filed a lawsuit in a allegedly inaccurate financial reports. Florida state court against U.S. Fiber, Inc., a subsidiary of the On April 15, 1999, C.H. Lee, a former employee of FCR Company. Mr. McDonnell, a former employee of U.S. Fiber, is and a former majority shareholder of Resource Recycling, seeking a declaratory judgment regarding his rights and Inc., commenced arbitration proceedings with the American obligations under an employment non-competition agreement Arbitration Association in Charlotte, North Carolina against and an employment agreement that he previously had signed KTI, FCR and FCR Plastics, Inc. in connection with the with two corporations that subsequently were merged with acquisition of Resource Recycling by FCR. Mr. Lee alleges and into U.S. Fiber. The case was settled in 1999 by the that FCR and FCR Plastics acted to frustrate the "earn-out" payment of $30,000 to McDonnell. provisions of the acquisition agreement and thereby On or about April 26, 1999, Salvatore Russo filed an precluded Mr. Lee from receiving, or alternatively, reduced, action in the U.S. District Court, District of New Jersey the sums to which he was entitled to under the agreement. against KTI and two of its principal officers, Ross Pirasteh He also alleges that FCR and FCR Plastics wrongfully and Martin J. Sergi, purportedly on behalf of all shareholders terminated his employment agreement. The claim for who purchased KTI common stock from May 4, 1998 through arbitration alleges direct charges in excess of $5.0 million and August 14, 1998. Melanie Miller filed an identical complaint requests punitive damages, treble damages and attorneys on May 14, 1999. The complaints allege that the defendants fees. KTI, FCR and FCR Plastics responded to the demand, made material misrepresentations in KTI's quarterly report on denying liability and filed a counterclaim for $1.0 million for form 10-Q for the period ended March 31, 1998 in violation misrepresentations. The arbitration proceeding was held. On of Sections 10(b) and 20(a) of the Securities Exchange Act of June 19, 2000, the arbitration panel determined that FCR 1934, as amended, concerning KTI's allowance for doubtful was entitled to recover $7,000 from Mr. Lee. accounts and net income. The Plaintiffs are seeking On July 1, 1999, Michael P. Kuruc filed a demand for undisclosed damages. The Company believes it has arbitration with the American Arbitration Association in meritorious defenses to these complaints. On June 15, 1999, 31 Charlotte, North Carolina, seeking approximately $1.0 million Mr. Russo and Ms. Miller, together with Fransisco Munero, for compensation due under an employment agreement that Timothy Ryan and Steve Storch, moved to consolidate the he alleges he has with KTI and losses allegedly suffered in two complaints. This motion is currently pending in the connection with his sale of KTI common stock. KTI believes District Court of New Jersey. that it has meritorious defenses, has retained counsel to More information Copies of prior annual reports are available at casella.com or by filling out the pre-paid mailer at the back of this 10K and requesting them. 0 0 0 2 k - 0 1 m r o f a l l e s a c On October 22, 1999, Kyle Trayner filed an action in contract, breach of fiduciary duties and fraud and also claims Putnam Superior Court in Connecticut against K-C treble damages of $100 million based on alleged fraudulent International seeking approximately $400,000 allegedly due transfer of Maine Energy's assets. The notice also reserves for compensation under an employment agreement and for the right to seek punitive damages. Although the City of payment on a promissory note issued by K-C International to Biddeford, Maine has not filed a notice of claims, it has given Mr. Trayner. The Company believes that it has meritorious noticed that it will be initiating a suit to receive the residual defenses to these claims. This suit was settled in July 2000 cancellation payments. Under the agreement, the aggregate for $100,000. amount to be paid upon the exercise of the put right is 18% On May 11, 2000, The Company was granted a permit of the fair market value of the equity of the partners in Maine modification by the New Hampshire Department of Energy, and such amount is required to be paid within 120 Environmental Services to increase the volume of solid waste days after the exercise of the put by the respective parties processed and stored at its GDS transfer station in Newport, entitled thereto. The Companybelieves it has meritorious New Hampshire. On or about June 12, 2000, a local defenses to these claims. environmental activist appealed the permit modification to the On or about March 24, 2000, a complaint was filed in New Hampshire Waste Management Council. The appeal the United States DistrictCourt, District of New Jersey claims that the modification will lead to adverse environmental against the Company, KTI, and three of KTI's principal impacts through higher waste flows and increased levels of officers, Ross Pirasteh, Martin J. Sergi, and Paul A. Garrett. incineration at a nearby waste-to-energy facility, that the The complaint purported to be behalf of all shareholders who Company has been the subject of "complaints" arising from purchased KTI common stock from January 1, 1998 through its New England and New York operations, and that the April 14, 1999. The Complaint alleged that the defendants Company has failed to demonstrate that the modification is made unspecified misrepresentations regarding KTI's financial consistent with the waste management plan of the local condition during the class period in violation of Sections 10(b) waste management district. The Company expects to seek a and 20(a) of the Securities Exchange Act of 1934, as dismissal of the appeal for the appellant's lack of standing. amended. The plaintiffs seek undiscloseddamages. On or On January 7, 2000, the City of Saco, Maine filed a about April 6, 2000, the plaintiffs filed an amended class notice of claims with the Company and Maine Energy action complaint, which changes the class period covered by claiming entitlement to certain "residual cancellation" the complaint on behalf of all the defendants on July 21, 32 payments from Maine Energy under the waste handling 2000. agreement dated June 7, 1991 among the Biddeford-Saco The Company is a defendant in certain other lawsuits Waste Handling Committee, Biddeford, Saco and Maine alleging various claims incurred in the ordinary course of Energy on the basis of the satisfaction of certain conditions, business. The Company believes that none of the above including the acquisition of KTI by the Company. The notice of lawsuits, either individually or in the aggregate, will be settled claims alleges that the payments due to Saco exceed $33 in a manner that will have a material impact toits financial million, and claims damages in such amounts for breach of condition, results of operations or cash flows. On the internet Current financial data, stock quotes, and other investment tools are available by going to Value where you can select just the information you want to know and save it for future reference. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of the security holders during the fiscal quarter ended April 30, 2000. PART II Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters approximately 470 holders of record of the Company's Class A Common Stock and two holders of record of the Company'sClass B Common Stock. The closing price for the Class A Common Stock on July 21, 2000 was $12.313. For purposes of calculating the aggregate market value of the shares of common stock of the Company held by nonaffiliates, as shown on the cover page of this report, it has been assumed that all the outstanding shares were held by nonaffiliates except for the shares held by directors and executive officers of the Company. However, this should not be deemed to constitute The Company's Class A Common Stock trades on the an admission that all such persons are, in fact, affiliates of the Nasdaq National Market under the symbol "CWST". The Company, or that there are not other persons who may be following table sets forth the high and low sale prices of the deemed to be affiliates of the Company. Company's Class A Common Stock for the periods indicated No dividends have ever been declared or paid on the as quoted on the Nasdaq National Market. Company's capital stock and the Company does not P E R I O D Fiscal 1999 First quarter Second quarter Third quarter Fourth quarter Fiscal 2000 First quarter Second quarter Third quarter Fourth quarter H I G H L O W $31.50 $34.00 $39.00 $27.00 $27.250 $26.625 $19.313 $15.438 $24.375 $24.00 $25.00 $17.25 $19.063 $12.75 $13.125 $5.563 On July 21, 2000, the high and low sale prices per anticipate paying any cash dividends on the Common Stock share of the Company's Class A Common Stock as quoted in the foreseeable future. The Company's credit facility on the Nasdaq National Market were $12.313 and restricts the payment of dividends. $12.125,respectively. As of July 21, 2000 there were 33 0 0 0 2 k - 0 1 m r o f a l l e s a c SALES OF UNREGISTERED SECURITIES The following selected consolidated financial and operating No unregistered securities of the Company were sold data set forth below with respect to the Company's by the Company during the fiscal year ended April 30, 2000 consolidated statements of operations and cash flows for the that were not previously reported by the Company in its fiscal years ended April 30, 1998, 1999 and 2000, and the quarterly reports on Form 10-Q. consolidated balance sheets as of April 30, 1999 and 2000 are derived from the Company's consolidated financial Item 6. Selected Consoldated Financing and Operating Data statements included elsewhere in this Form 10-K, and the consolidated statements of operations and cash flows data C A S E L L A W A S T E S Y S T E M S , I N C . Selected Consolidated Financial and Operating Data (In thousands, except share and per share data F I S C A L Y E A R E N D E D A P R I L 3 0 , ( 1 ) Statement of Operations Data: 2000 1999 1998 1997 1996 $143,711 $103,520 $58,932 Revenues Cost of operations General and administrative Depreciation and amortization Merger-related costs Loss on impairment of long-lived assets Operating income Interest expense, net Other expense (income), net Income before provision for income taxes, discontinued $337,347 210,730 $182,557 108,874 42,116 40,211 1,490 - 42,800 15,034 2,165 26,616 25,725 1,951 - 19,391 5,564 (352) 89,582 20,926 19,959 290 1,571 11,383 7,373 (337) operations and extraordinary items 25,601 14,179 4,347 Provision for income taxes Discontinued operations Extraordinary items, net Net income (loss) Accretion of preferred stock and put warrants 12,258 (1,662) (631) $11,050 - 7,531 (33) - $6,615 - 2,512 - - $1,835 (5,738) 34 Net income (loss) applicable to common stockholders $11,050 $6,615 $(3,903) 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) $0.59 18,731 $0.57 19,272 $0.44 15,145 $0.41 16,019 $(0.41) 9,547 $0.41 9,547 65,460 16,139 15,371 - - 35,878 10,416 9,206 - - 6,550 3,432 4,940 846 764 681 - - $83 (8,530) $(8,447) $(1.52) 5,548 $(1.52) 5,548 - 3,168 264 148 - 326 $(210) (2,967) $(3,177) $(0.71) 4,504 $(0.71) 4,504 C A S E L L A W A S T E S Y S T E M S , I N C . Selected Consolidated Financial and Operating Data (In thousands, except share and per share data) F I S C A L Y E A R E N D E D A P R I L 3 0 , ( 1 ) Statement of Operations Data: 2000 1999 1998 1997 1996 Other Operating Data: Capital Expenditure Other Data: Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Adjusted EBITDA (3) Balance Sheet Data: 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 $(69,455) $(54,118) $(29,416) $(20,825) $(12,293) $41,585 $(156,343) $119,390 $83,011 $8,864 $84,302 $379,086 $872,177 $440,804 - - $37,727 $(95,976) $59,154 $45,116 $4,232 $6,117 $131,076 $282,129 $86,739 - - $21,079 $(61,263) $40,673 $32,913 $3,327 $4,210 $91,451 $205,509 $83,681 - - $274,718 $147,978 $83,764 $17,280 $(56,495) $40,116 $21,921 $2,838 $(4,554) $75,626 $153,366 $82,187 $31,426 $ 400 $35,449 $ 9,840 $(29,547) $19,164 $12,638 $1,938 (716) $43,528 $74,650 $28,165 $22,896 $400 $25,451 for the fiscal years ended April 30, 1996 and 1997 and the Company's Consolidated Financial Statements and Notes consolidated balance sheet data as of April 30, 1996, 1997 thereto included elsewhere in this Form 10-K. and 1998 are derived from the Company's consolidated (1) The Company has restated its consolidated financial statements, all of which have been audited by Arthur statements of operations and consolidated statements of Andersen LLP. During the year ended April 30, 2000, the cash flows to reflect the mergers with Resource Waste Company completed two mergers, which were accounted for Systems, Inc. and Corning Community Disposal, Inc. as poolings of interests. Accordingly, the Company's financial consummated during the year ended April 30, 2000, and operating data for all periods presented have been accounted for using the pooling of interests method of 35 restated to reflect the financial position, results of operations accounting. See Note 2 of the Notes to Consolidated and cash flows of the merged entities as if they had been one Financial Statements. company. The data set forth below should be read in (2) Computed on the basis described in Note 1 of conjunction with the "Management's Discussion and Analysis Notes to Consolidated Financial Statements. of Financial Condition and Results of Operations" and the On the internet The Library contains copies of recent press releases, past and current financial data, and links to other waste and environmental sites as well as news, information, and opinion. 0 0 0 2 k - 0 1 m r o f a l l e s a c (3) Adjusted EBITDA is defined as operating income 1997, warrants to purchase 25,000 shares were exercised by plus depreciation and amortization and loss on impairment of the holder at $6.00 per share, and warrants to purchase 75,000 long-lived assets. Adjusted EBITDA does not represent, and shares were called by the Company at $7.00 per share. should not be considered as, an alternative to net income or cash flows from operating activities, each as determined in accordance with GAAP. Moreover, Adjusted EBITDA does not necessarily indicate whether cash flow will be sufficient Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations for such items as working capital or capital expenditures, or The following discussion of the Company's financial condition to react to changes in the Company's industry or to the and results of operations should be read in conjunction with economy generally. The Company believes that adjusted the Company's Consolidated Financial Statements and Notes EBITDA is a measure commonly used by lenders and certain thereto, and other financial Information included elsewhere in investors to evaluate a company's performance in the solid this Form 10-K. waste industry. The Company also believes that adjusted Casella Waste Systems, Inc. ("the Company") is a EBITDA data may help to understand the Company's regional, integrated solid waste services company that performance because such data may reflect the Company's provides collection, transfer, disposal and recycling services, ability to generate cash flows, which is an indicator of its generates steam and manufactures finished products utilizing ability to satisfy its debt service, capital expenditure and recyclable materials primarily throughout the eastern portion working capital requirements. Because adjusted EBITDA is of the United States and parts of Canada. The Company also not calculated by all companies and analysts in the same markets recyclable metals, aluminum, plastics, paper and fashion, the adjusted EBITDA measures presented by the corrugated cardboard all processed at its facilities and Company may not be comparable to similarly titled measures recyclables purchased from third parties. The Company also reported by other companies. Therefore, in evaluating generates electricity under its contracts with its two majority adjusted EBITDA data, investors should consider, among owned subsidiaries, Maine Energy Recovery Company LP other factors: the non-GAAP nature of adjusted EBITDA data; ("Maine Energy") and Penobscot Energy Recovery Company actual cash flows; the actual availability of funds for debt LP ("PERC"), and through its wholly owned subsidiary, Timber service; capital expenditures and working capital; and the Energy Resource, Inc. ("TERI"). As of July 21, 2000, the comparability of the Company's adjusted EBITDA data to Company owned and/or operated five Subtitle D landfills, two 36 similarly-titled measures reported by other companies. For landfills permitted to accept construction and demolition more information about the Company's cash flows, see the materials, 39 transfer stations, 40 recycling processing Consolidated Statements of Cash Flows in the Company's facilities, 39 solid and liquid waste collection divisions, 12 Consolidated Financial Statements. power generation facilities, 3 finished products processing (4) Represents warrants to purchase 100,000 facilities and its cellulose insulation joint venture. shares of Class A Common Stock exercisable at $6.00 per The Company's revenues have increased from $38.6 share. Pursuant to the terms of these warrants, in September million for the fiscal year ended April 30, 1995, to $337.3 More information To find out more about what we’re doing and thinking, fill out and return the pre-paid information request mailer at the back of this 10K. million for the fiscal year ended April 30, 2000. From May 1, factors include, without limitation, those outlined below in the 1994 through April 30, 2000, the Company acquired 167 solid section entitled "Certain Factors That May Affect Future waste collection, transfer and disposal operations, as well as Results". The Company's failure to successfully address any KTI, Inc. ("KTI") in December 1999. Under the rules of of these factors could have a material adverse effect on the purchase accounting the acquired companies' revenues and Company's results of operations. results of operations have been included together with those of the Company from the actual dates of the acquisitions and GENERAL materially affect the period-to-period comparisons of the The Company's revenues are attributable primarily to Company's historical results of operations. During the year fees charged to customers for solid and disposal waste ended April 30, 2000, the Company acquired two waste collection, landfill, waste-to-energy, transfer and recycling collection, transfer and disposal operations in transactions services. The Company derives a substantial portion of its accounted for as poolings of interests. Under the rules collection revenues from commercial, industrial and municipal governing poolings of interests, the prior period and year to services that are generally performed under service date financial statements of the Company have been restated agreements or pursuant to contracts with municipalities. for all prior years to reflect the financial position, results of The majority of the Company's residential collection operations and cash flows of the merged entities as if they services are performed on a subscription basis with individual had been one company for all periods presented in the households. Landfill, waste-to-energy facility and transfer accompanying financial statements. This Form 10-K and other customers are charged a tipping fee on a per ton basis for reports, proxy statements, and other communications to disposing of their solid waste at the Company's disposal stockholders, as well as oral statements by the Company's facilities and transfer stations. The majority of the Company's officers or its agents, may contain forward-looking statements disposal and transfer customers are under one to ten-year within the meaning of Section 27A of the Securities Act and disposal contracts, with most having clauses for annual cost section 21E of the Securities Exchange Act, with respect to, of living increases. Recycling revenues consist of revenues among other things, the Company's future revenues, operating from the sale of recyclable commodities, operations and income, or earnings per share. Without limiting the foregoing, maintenance contracts of recycling facilities for municipal any statements contained in this Form 10-K that are not customers, recyclable brokering operations and from the sale statements of historical fact may be deemed to be forward- of tire derived fuel. The Company, as a result of the KTI looking statements, and the words "believes", "anticipates", acquisition, provides integrated waste handling services, 37 "plans", "expects", and similar expressions are intended to including processing and recycling of wood, paper, metals, identify forward-looking statements. There are a number of aluminum, plastics and glass, municipal solid waste factors of which the Company is aware that may cause the processing and disposal, specialty waste disposal, ash Company's actual results to vary materially from those residue recycling, brokerage of recycled materials and the forecasted or projected in any such forward-looking statement, manufacturing of finished products, primarily consisting of certain of which are beyond the Company's control. These cellulose insulation manufacturing, using recyclable materials. The company is poised to address a broad range of waste management challenges on behalf of public policymakers. 0 0 0 2 k - 0 1 m r o f a l l e s a c 38 Effective August 1, 2000, the Company contributed its revenues as a percentage of revenues in fiscal 1999 is cellulose insulation assets to a joint venture with Louisiana- primarily attributable to the impact of the Company's Pacific, and accordingly, will recognize half of the joint acquisition of collection businesses during these periods, as venture's net income/(loss). The Company emphasizes the well as to internal growth through price and business volume use of low-cost processing to add value to the waste increases. The decrease in the Company's collection products delivered and, in some cases, the generation of revenues as a percentage of revenues in fiscal 2000 is electric power and steam. The Company operates these non- primarily attributable to the effects of the KTI acquisition. core businesses under four reportable line of business Significant recycling, finished products and brokerage segments: Waste-to-Energy, Residential Recycling, revenues were added through that acquisition. The decrease Commercial Recycling and Finished Products. These line of in the Company's landfill revenues and in the Company's business segments are reflected in the Company's revenues transfer revenues as a percentage of revenues in fiscal 1999 as follows: Waste-to-Energy is reflected under "disposal", is mainly due to a proportionately greater increase in Residential Recycling is reflected under "recycling", collection and other revenues occurring as the result of Commercial Recycling is reflected under "recycling" and acquisitions in those areas; also, as the Company acquires "brokerage", and Finished Products is reflected under its own collection businesses from which it previously had derived line. The Company's revenues are shown net of transfer or disposal revenues, the acquired revenues are intercompany eliminations. The Company typically establishes recorded by the Company as collection revenues. The its intercompany transfer pricing based upon prevailing increase in the Company's landfill/disposal facilities revenues market rates. and the Company's transfer revenues as a percentage of The table below shows, for the periods indicated, the revenue in fiscal 2000 is primarily attributable to the effects percentage of the Company's revenues attributable to of the KTI acquisition. services provided. The increase in the Company's collection % O F R E V E N U E S Y E A R E N D E D A P R I L 3 0 , 1 9 9 8 Collection Landfill/Disposal Facilities Transfer Recycling Finished Products Brokerage Other 77.7% 10.3 4.9 5.5 0.0 0.0 1.6 1 9 9 9 80.5% 8.4 4.6 5.9 0.0 0.0 0.6 2 0 0 0 49.1% 15.1 6.4 7.5 4.2 15.1 2.6 Total Revenues 100.0% 100.0% 100.0% On the internet You can reveiw consolidated statements of operations for the current and previous quarters as well as other selected financial data in Value. Cost of operations includes labor, tipping fees paid to which it may own or operate in the future. The Company has third party disposal facilities, fuel, maintenance and repair of provided and will in the future provide accruals for future vehicles and equipment, worker's compensation and vehicle financial obligations relating to closure and post-closure costs insurance, the cost of purchasing materials to be recycled, of its landfills (generally for a term of 30 years after final third party transportation expense, district and state taxes, closure of a landfill) based on engineering estimates of host community fees and royalties. Landfill operating consumption of permitted landfill airspace over the useful life expenses also include a provision for closure and post- of any such landfill. There can be no assurance that the closure expenditures anticipated to be incurred in the future, Company's financial obligations for closure or post-closure and leachate treatment and disposal costs. costs will not exceed the amount accrued and reserved or General and administrative expenses include amounts otherwise receivable pursuant to trust funds. The management, clerical and administrative compensation and Company routinely evaluates all such capitalized costs, and overhead, professional services and costs associated with expenses those costs related to projects not likely to be the Company's marketing and sales force and community successful. Internal and indirect landfill development and relations expense. acquisition costs, such as executive and corporate overhead, Depreciation and amortization expense includes public relations and other corporate services, are expensed depreciation of fixed assets over the estimated useful life of as incurred. the assets using the straight-line method, amortization of landfill airspace assets under the units-of-production method, and the RESULTS OF OPERATIONS amortization of goodwill and other intangible assets using the The following table sets forth for the periods indicated the straight line method. The amount of landfill amortization percentage relationship that certain items from the expense related to airspace consumption can vary materially Company's Consolidated Financial Statements bear in relation from landfill to landfill depending upon the purchase price and to revenues. landfill site and cell development costs. The Company depreciates all fixed and intangible assets, excluding non- REVENUES: depreciable land, down to a zero net book value, and does not Revenues increased approximately $154.7 million, or 84.7% apply a salvage value to any of its fixed assets. to $337.3 million in fiscal 2000 from $182.6 million in fiscal Certain direct landfill development costs, such as 1999. Approximately $138.7 million of the increase was engineering, permitting, legal, construction and other costs attributable to the impact of businesses acquired throughout 39 directly associated with expansion of existing landfills, are fiscal 1999 and fiscal 2000, including KTI, which was acquired capitalized by the Company. Additionally, the Company also in December 1999. In addition, the balance of the increase of capitalizes certain third party expenditures related to pending approximately $16.0 million was attributable to internal acquisitions, such as legal and engineering. The Company will volume and price growth, including the positive impact of have material financial obligations relating to closure and post- higher average recyclable commodity prices in fiscal 2000 closure costs of its existing landfills and any disposal facilities compared to fiscal 1999. Casella Class A common stock is traded on the NASDAQ market under the symbol CWST. 0 0 0 2 k - 0 1 m r o f a l l e s a c % O F R E V E N U E S Y E A R E N D E D A P R I L 3 0 , Revenues 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 before discontinued operations and extraordinary item Adjusted EBITDA* 1 9 9 8 1 9 9 9 2 0 0 0 100.0% 100.0% 100.0% 62.3 14.6 0.2 13.9 1.1 7.9 5.1 (0.2) 1.7 1.3 22.9% 59.6 14.6 1.1 14.1 0.0 10.6 3.1 (0.2) 4.1 3.6 24.7% 62.5 12.5 0.4 11.9 0.0 12.7 4.5 0.6 3.6 4.0 24.6% *See discussion and computation of adjusted EBITDA below Fiscal Year Ended Arril 30, 2000 versus April 30, 1999 COST OF OPERATIONS: GENERAL AND ADMINISTRATIVE: Cost of operations increased approximately $101.8 million or General and administrative expenses increased approximately 93.5% to $210.7 million in fiscal 2000 from $108.9 million in $15.5 million, or 58.2% to $42.1 million in fiscal 2000 from fiscal 1999. Cost of operations as a percentage of revenues $26.6 million in fiscal 1999. General and administrative increased to 62.5% in fiscal 2000 from 59.6% in fiscal 1999. expenses as a percentage of revenues decreased to 12.5% The increase in cost of operations as a percentage of in 2000 from 14.6% in fiscal 1999. The decrease in general revenues was primarily the result of acquiring KTI's recyclable and administrative expenses as a percentage of revenues brokerage operations, which carry high cost of operations as a was primarily the result of acquiring KTI's recyclable 40 percentage of revenues (approximately 90%). Brokerage brokerage operations, which carry low general and comprised approximately 15% of the Company's revenues in administrative costs as a percentage of revenues fiscal 2000, versus 0% in fiscal 1999. Additionally, the finished (approximately 6%). The general and administrative cost products line of business carries a lower operating margin savings from acquiring KTI also contributed to the lower than the Company's core solid waste business operations. general and administrative expenses as a percentage of revenues in fiscal 2000. MERGER-RELATED COSTS: Merger-related costs consist of legal, engineering, accounting and other costs associated with the various poolings of interests consummated during fiscal 1999 and fiscal 2000. Four such transactions occurred during fiscal 1999 and two occurred in fiscal 2000, resulting in a decrease of $0.5 million or 23.6%. Merger related costs as a percentage of revenues decreased to 0.4% in fiscal 2000 from 1.1% in fiscal 1999. DEPRECIATION AND AMORTIZATION: Depreciation and amortization expenses increased $14.5 million, or 56.4%, to $40.2 million in fiscal 2000 from $25.7 million in fiscal 1999. Depreciation and amortization expenses as a percentage of revenue decreased to 11.9% in fiscal 2000 from 14.1% in fiscal 1999. The decrease in depreciation and amortization expenses as a percentage of revenues was the result of the Company's acquisition of KTI. KTI carried lower depreciation expense as a percentage of revenues (approximately 7%) than the Company (approximately 14.5%). INTEREST EXPENSE, NET: Net interest expense increased approximately $9.4 million, or 167.9% to $15.0 million in fiscal 2000 from $5.6 million in OTHER (INCOME)/EXPENSE (INCLUDING MINORITY INTEREST AND EQUITY IN LOSS ON UNCONSOLIDATED SUBSIDIARY): Other (income)/expense increased $2.6 million, or 650%, to $2.2 million in fiscal 2000 from $(0.4) million in fiscal 1999. Other (income)/expense, as a percentage of revenues, increased to 0.6% in fiscal 2000 from (0.2%) in fiscal 1999. The other (income)/expense in fiscal 2000 is primarily attributable to the loss on sale of certain assets in the fourth quarter of fiscal 2000, and the equity loss on KTI's investment in Oakhurst. PROVISION FOR INCOME TAXES: Provision for income taxes increased $4.8 million, or 64.0%, to $12.3 million in fiscal 2000 from $7.5 million in fiscal 1999. Provision for income taxes, as a percentage of revenues, decreased to 3.6% in fiscal 2000 from 4.1% in fiscal 1999. The increase is primarily due to the Company's increase in profitability in fiscal 2000 compared to fiscal 1999. An additional factor causing provision for income taxes, as a percentage of pre-tax net income to vary was poolings of interest resulting in prior period restatements of entities not liable for federal income tax due to Subchapter S Status. fiscal 1999. Interest expense, net, as a percentage of FISCAL YEAR ENDED APRIL 30, 1999 VERSUS revenues, increased to 4.5% in 2000 from 3.1% in fiscal 1999. The increase in net interest expense as a percentage of revenues is primarily attributable to two factors. They are as follows: (i) higher average debt balance in fiscal 2000, versus fiscal 1999 and (ii) the Company closed on a new $450 million senior credit facility in December 1999 that raised the Company's borrowing cost by approximately 200 basis points over the Company's previous senior credit facility. APRIL 30, 1998 REVENUES: Revenues increased $38.9 million, or 27.1%, to $182.6 million in fiscal 1999 from $143.7 million in fiscal 1998. 41 Approximately $29.2 million of the increase was attributable to the impact of businesses acquired throughout fiscal 1998 and fiscal 1999. In addition, approximately $9.6 million of the increase was attributable to internal volume and price growth On the internet Elements provides you with a picture of who we are, what we do, and where we do it. It’s complete. It’s available 24 hours a day, seven days a week, anytime you are. And it’s all at casella.com. 0 0 0 2 k - 0 1 m r o f a l l e s a c (net of the negative impact of lower average recycled interests consummated during fiscal 1998 and 1999. One commodity prices in fiscal 1999 compared to fiscal 1998). such transaction occurred during fiscal 1998 and four occurred COST OF OPERATIONS: during fiscal 1999, resulting in an increase of $1.7 million or 573%. Merger-related costs as a percentage of revenue Cost of operations increased approximately $19.3 million, or increased from 0.2% in fiscal 1998 to 1.1% in fiscal 1999. 21.5%, to $108.9 million in fiscal 1999 from $89.6 million in fiscal 1998, an increase corresponding primarily to the DEPRECIATION AND AMORTIZATION: Company's revenue growth described above. Cost of operations as a percentage of revenues decreased to 59.6% in fiscal 1999 from 62.3% in fiscal 1998. The decrease was primarily the result of: (i) productivity improvements in the Company's collection operations as a result of better route density from acquisitions, routing efficiencies through route audits and front-end loader vehicle conversions completed throughout fiscal 1998 and 1999; (ii) margin improvements because of price increases in fiscal 1998 and 1999 and (iii) higher landfill internalization due to the Hyland landfill becoming operational in July 1998. GENERAL AND ADMINISTRATIVE: General and administrative expenses increased approximately $5.7 million, or 27.3%, to $26.6 million in fiscal 1999 from $20.9 million in fiscal 1998. General and administrative expenses as a percentage of revenues remained constant at 14.6% from fiscal 1998 to fiscal 1999 due primarily to an increase in management information systems spending and public company expenditures for a full year in fiscal 1999 compared to a partial year in fiscal 1998. This increase was Depreciation and amortization expense increased $5.7 million, or 28.5%, to $25.7 million in fiscal 1999 from $20.0 million in fiscal 1998. As a percentage of revenues, depreciation and amortization expense increased to 14.1% in fiscal 1999 from 13.9% in fiscal 1998. The increase in depreciation and amortization expense as a percentage of revenues was primarily the result of: (i) higher rates of disposal internalization due to the opening of the Hyland landfill, (ii) higher landfill volumes in fiscal 1999 compared to fiscal 1998, resulting in higher landfill amortization expense, and (iii) front-end loader conversions resulting in double container depreciation charges at certain locations. LOSS ON IMPAIRMENT OF LONG-LIVED ASSETS: The Company recognized losses on impairment of long-lived assets in the fourth quarter of fiscal 1998 in the amount of $1.6 million. The impairment charges were non-cash charges to write down the assets of the Company's waste tire processing facility in Eliot, Maine and the Grasslands composting facility in Malone, New York to their fair market values as of April 30, 42 substantially offset by two acquisitions accounted for using the 1998. pooling of interest method. These acquisitions had relatively low general and administrative costs as a percentage of revenue. INTEREST EXPENSE, NET: MERGER-RELATED COSTS: 24.3%, to $5.6 million in fiscal 1999 from $7.4 million in fiscal Merger-related costs consists of legal, engineering, accounting 1998. This decrease primarily reflects decreased average and other costs associated with the various poolings of indebtedness in fiscal 1999, resulting from debt payoffs Net interest expense decreased approximately $1.8 million, or following the public stock offerings in October 1997 and July The Company has a $450 million revolving line of credit 1998, from the increased use of the Company's Class A with a group of banks for which BankBoston, N.A. is acting Common Stock in effecting acquisitions, and from improved as agent. This line of credit consists of a $300 million Senior collections efforts. Days sales in accounts receivable was Secured Revolving Credit Facility ("Revolver") and a $150 45.3 at April 30, 1999 compared to 50.3 at April 30, 1998. million Senior Secured Delayed Draw Term "B" Loan ("Term The Company capitalized a total of $0.5 million in interest Loan"). This line of credit is secured by all assets of the expense in fiscal 1999, compared to a total of $.1 million in Company, including the Company's interest in the equity fiscal 1998. OTHER (INCOME) EXPENSE, NET: Net other (income) expense was not material to the Company's results of operations in fiscal 1998 and 1999. PROVISION FOR INCOME TAXES: Provision for income taxes increased approximately $5.0 million, or 200.0%, to $7.5 million in fiscal 1999 from $2.5 million in fiscal 1998. This increase reflects the Company's increase in profitability in fiscal 1999 compared to fiscal 1998. The other primary factors causing income tax expense as a percentage of pre-tax net income to vary were: (i) the recording of a fixed asset impairment charge in fiscal 1998 which was non-deductible for income tax purposes and (ii) poolings of interests resulting in prior period restatements of entities not liable for federal income tax due to Subchapter S status. securities of its subsidiaries. The Revolver matures in December 2004 and the Term Loan matures in December 2006. Funds available to the Company under the line of credit were $71.1 million at April 30, 2000. On June 28, 2000, the Company entered into an agreement with Berkshire Partners pursuant to which it agreed to sell Berkshire redeemable convertible preferred stock, which is convertible into the Company's Class A Common Stock at $14.00 per share. The Company expects to raise approximately $55.8 million in the transaction, which is expected to close in August 2000. The Company believes that its cash provided internally from operations together with the Company's available credit facilities and the preferred stock financing should enable it to meet its needs for working capital for the next twelve months. Net cash provided by operations for the fiscal years ended April 30, 2000 and April 30, 1999 was $41.6 million LIQUIDITY AND CAPITAL RESOURCES and $37.7 million, respectively. The increase was primarily The Company's business is capital intensive. The Company's due to the increase in the Company's net income for the capital requirements include acquisitions, fixed asset fiscal year 2000, net of non-cash depreciation and purchases and capital expenditures for landfill development, amortization expense, which was partially offset by an 43 cell construction, and site and cell closure. Because of these increase in net working capital. needs the Company has in the past had working capital Net cash provided by operations in fiscal 1999 deficits. The Company had positive net working capital of increased to $37.7 million from $21.1 million in fiscal 1998 $84.3 million at April 30, 2000 compared to $6.1 million primarily due to increases in net income, net of non-cash positive net working capital at April 30, 1999. depreciation and amortization expense. Our residential collection and recycling operations provide an important and necessary community service – helping communities meet their public responsibility to provide safe and environmentally sound waste management. For fiscal 2000 and fiscal 1999, cash used in investing general economy in this geographic region and other factors activities was $156.3 million and $96.0 million, respectively. The affecting the region such as state regulations and severe increase in investing activities reflects the Company's capital weather conditions. The Company is unable to forecast or expenditure and capital needs for acquisitions which have determine the timing and/or the future impact of a sustained increased significantly, reflecting the Company's rapid growth by economic slowdown. 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 YEAR 2000 ISSUES As of the date of this filing, the Company has not incurred any acquisitions. For fiscal 1998, cash used in investing activities was significant business disruptions as a result of Year 2000 issues. $61.3 million. For fiscal 2000 and fiscal 1999, the Company's financing NEW ACCOUNTING PRONOUNCEMENTS activities provided cash of $119.4 million and $59.2 million, In June 1999, the Financial Accounting Standards Board respectively. Net cash provided by financing activities was $40.7 ("FASB") issued Statement of Financial Accounting Standards million in the fiscal year ended April 30, 1998. The net cash No. 137, "Accounting for Derivative Instruments and Hedging provided by financing activities in the fiscal years ended April 30, Activities-Deferral of the Effective Date of FASB Statement No. 2000 and 1999 primarily reflects the net proceeds of the 133". SFAS No. 137 amends FASB Statement of Financial Company's secondary public stock offering and borrowings on Accounting Standards No. 133, "Accounting for Derivative the Company's credit facility, offset by repayments. Net cash Instruments and Hedging Activities", by deferring the effective provided by financing activities in fiscal 1998 reflects primarily date of SFAS No. 133 to fiscal years beginning after June 15, bank borrowings and seller subordinated notes, less principal 2000. SFAS No. 133 establishes accounting and reporting 0 0 0 2 k - 0 1 m r o f a l l e s a c payments on debt. INFLATION AND PREVAILING ECONOMIC CONDITIONS To date, inflation has not had a significant impact on the Company's operations. Consistent with industry practice, most of the Company's contracts provide for a pass through of certain costs, including increases in landfill tipping fees and, in some 44 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 standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. The Company will adopt SFAS No. 133 beginning May 1, 2001. The Company has yet to quantify the impacts of adopting SFAS No. 133 on its financial statements and has not determined the timing or method of adoption. However, SFAS No. 133 could increase volatility in earnings and other comprehensive income. cost increases, particularly during periods of high inflation. ADJUSTED EBITDA The Company's business is located in the eastern United Adjusted EBITDA represents operating income (earnings before States. Therefore, the Company's business, financial condition interest and taxes, or "EBIT") plus depreciation and amortization and results of operations are susceptible to downturns in the expense and loss on impairment of long-lived assets. On the internet Links to past and future SEC filings can and will be found in Value under Financial Tools and in the Library. Adjusted EBITDA is not a measure of financial performance the KTI acquisition we assume certain obligations to finance under generally accepted accounting principles, but is and support a tire recycling joint venture. We cannot assure provided because the Company understands that certain you that the joint venture will achieve projected financial investors use this information when analyzing the financial results or not divert management resources. position and performance of the Company. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The following important factors, among others, could cause OUR INCREASED LEVERAGE MAY IMPACT OUR ABILITY TO MAKE FUTURE ACQUISITIONS. actual results to differ materially from those indicated by As a result of the acquisition of KTI and the increase in our forward-looking statements made in this Form 10-K and credit facility, our indebtedness has increased substantially. presented elsewhere by management from time to time. This increased indebtedness has resulted in increased WE MAY EXPERIENCE DIFFICULTIES INTEGRATING results. In addition, the aggregate amount of indebtedness has KTI'S OPERATIONS AND ASSETS. limited and may continue to limit the Company's ability to incur We acquired KTI on December 14, 1999. Since that time, we additional indebtedness, and thereby may limit the Company's have experienced difficulties in integrating the operations of ongoing acquisition program. borrowing costs, which have adversely impacted our operating KTI and these difficulties have caused us to revise our publicly disclosed projections. There can be no assurance that we will not continue to experience difficulties in WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS, WHICH COULD AFFECT OUR integrating KTI's operations effectively and that the acquisition FUTURE GROWTH. will result in the synergies and other benefits anticipated by Our strategy envisions that a substantial part of our future the two companies. Among other matters, in connection with growth will come from making acquisitions consistent with our F I S C A L Y E A R E N D E D A P R I L 3 0 ( R E S T AT E D ) Operating income Depreciation and amortization Loss on impairment of long-lived assets (1) 1998 $11,383 19,959 1,571 1999 $19,391 25,725 0 2000 $42,800 40,211 0 45 Adjusted EBITDA $32,913 $45,116 $83,011 EBITDA as a percentage of revenues 22.9% 24.7% 24.6% (1) See Note 1 of Notes to Consolidated Financial Statements. Analysis of the factors contributing to the change in EBITDA is included in the discussions above. 0 0 0 2 k - 0 1 m r o f a l l e s a c 46 strategy. There can be no assurance that we will be able to additional capital resources on terms satisfactory to us, if at identify suitable acquisition candidates and, once identified, to all, in order to meet our capital requirements. We also believe negotiate successfully their acquisition at a price or on terms that a significant factor in our ability to close acquisitions will and conditions favorable to us, or to integrate the operations be the attractiveness of our Class A Common Stock as of such acquired businesses with our operations. Certain of consideration for potential acquisition candidates. This these acquisitions may be of significant size and may include attractiveness may, in large part, be dependent upon the assets that are outside our geographic territories or are relative market price and capital appreciation prospects of our ancillary to our core business strategy. In addition, due to the Class Common Stock compared to the equity securities of increased consolidation of the solid waste industry and our our competitors. The recent declines in the market price of our current size, we cannot assure you that we will be able to Class A Common Stock could materially adversely affect our make acquisitions in the future at a rate consistent with our acquisition program. historical growth rate. WE ARE DEPENDENT ON THE MEMBERS OF OUR SUBJECT US TO FINES, PENALTIES AND SENIOR MANAGEMENT TEAM. LIMITATIONS ON OUR ABILITY TO EXPAND ENVIRONMENTAL REGULATIONS COULD We are highly dependent upon the services of the members We are subject to potential liability and restrictions under of our senior management team, the loss of any of whom environmental laws. Our waste-to-energy and manufacturing may have a material adverse effect on our business, financial facilities are subject to regulations limiting discharges of condition and results of operations. In addition, our future pollution into the air and water, and the solid waste operations success depends on our continuing ability to identify, hire, are subject to a wide range of Federal, state and, in some train, motivate and retain highly trained personnel. We may be cases, local environmental and land use restrictions. If we are in default under our credit facility if either John Casella or not able to comply with the requirements that apply to a James Bohlig ceases to be employed by us. particular facility, we could be subject to fines and penalties, and we may be required to spend large amounts to bring an OUR ABILITY TO MAKE ACQUISITIONS IS DEPENDENT operation into compliance or to temporarily or permanently ON THE AVAILABILITY OF ADEQUATE CASH AND THE ATTRACTIVENESS OF OUR STOCK PRICE. stop an operation that is not permitted under the law. Those costs or actions could have a material adverse effect upon We anticipate that any future business acquisitions will be our business, financial condition and results of operations. financed through cash from operations, borrowings under our Environmental and land use laws also can have an bank line of credit, the issuance of shares of our Class A impact on whether our operations can expand and, in the Common Stock and/or seller financing. There can be no case of our solid waste operations, may dictate those assurance that we will have sufficient existing capital geographic areas from which we must, or, from which we may resources, that our stock price will be sufficiently attractive for not, accept waste. The waste management industry has been use in an acquisition or that we will be able to raise sufficient and likely will continue to be subject to regulation, as well as to attempts to regulate the industry through new legislation. sites or expanding the permitted capacity of any of our current Those regulations and laws also may limit the overall size and landfills once their remaining disposal capacity has been daily waste volume that may be accepted by a solid waste consumed. operation. If we are not able to expand or otherwise operate one or more of our facilities profitably because of limits OUR RESULTS OF OPERATIONS COULD BE imposed under environmental laws, we may be required to ADVERSELY AFFECTED BY CHANGING PRICES OR increase our utilization of disposal facilities owned by third MARKET REQUIREMENTS FOR RECYCLABLE parties, and if so, our business, financial condition and results MATERIALS of operation could suffer a material adverse effect. Our results of operations may be materially adversely affected We have grown through acquisitions, and we have tried by changing purchase or resale prices or market requirements to evaluate and address environmental risks and liabilities for recyclable materials. Our recycling business involves the presented by newly acquired businesses as we have identified purchase and sale of recyclable materials, some of which are them. It is possible that some liabilities, including ones that priced on a commodity basis. The resale and purchase prices may exist only because of the past operations of an acquired of, and market demand for, recyclable materials, particularly business, may prove to be more difficult or costly to address wastepaper, plastic and ferrous and aluminum metals, can be than we anticipate. It is also possible that government officials volatile due to numerous factors beyond our control. These responsible for enforcing environmental laws may believe an changes have in the past contributed, and may continue to issue is more serious than we would expect, or that we will fail contribute, to significant variability in our period-to-period to identify or fully appreciate a historic liability before we results of operations. become legally responsible to address it. Some of the legal Some of our subsidiaries involved in the recycling sanctions to which we could become subject could cause us business use long-term supply contracts with customers with to lose a needed permit, or prevent us from or delay us in floor price arrangements to minimize the commodity risk for obtaining or renewing permits to operate our facilities. The recyclable materials, particularly wastepaper and aluminum number, size and nature of those liabilities could have a metals. Under these contracts, our subsidiaries obtain a material adverse effect on our business, financial conditions guaranteed minimum floor price for the recyclable materials and results of operations. along with a commitment to receive additional amounts if the Our operating program depends on our ability to operate current market price rises above the minimum price. These and expand the landfills we own and lease and to develop new contracts are generally with large domestic companies, which 47 landfill sites. Several of our landfills are subject to local laws use the recyclable materials in their manufacturing processes. purporting to regulate their expansion and other aspects of Any failure to continue to secure long-term supply contracts their operations. There can be no assurance that the laws with minimum price arrangements, or a breach by customers adopted by municipalities in which our landfills are located will of one or more of these contracts could reduce our recycling not have a material adverse effect on our utilization of our revenues and have a material adverse effect on our business, landfills or that we will be successful in obtaining new landfill financial condition and results of operations. In an activity where the capital and skill requirements are high, not every company is willing or able to make the necessary investments to respond to competition in the marketplace. 0 0 0 2 k - 0 1 m r o f a l l e s a c THE SEASONALITY OF OUR REVENUES COULD vertically in these markets. We cannot assure you that we will ADVERSELY IMPACT OUR FINANCIAL CONDITION complete enough acquisitions in other markets to lessen our Future seasonal fluctuations in our revenues could have a regional geographic concentration. material adverse effect on our business, financial condition and results of operations. Our revenues have historically been lower during the months of November through March. This seasonality reflects the lower volume of solid waste during WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE IN THE HIGHLY COMPETITIVE SOLID WASTE SERVICES INDUSTRY the late fall, winter and early spring months resulting primarily The solid waste services industry is highly competitive, is from the volume of solid waste relating to construction and undergoing a period of increasingly rapid consolidation, and demolition activities decreasing substantially during the winter requires substantial labor and capital resources. Some of the months in the northeastern United States; and decreased markets in which we compete or will likely compete are tourism in Vermont, Maine, New Hampshire and eastern New served by one or more of the large national or multinational York during the winter months, which tends to lower the volume of solid waste generated by commercial and restaurant customers, which is only partially offset by the winter ski industry. solid waste companies, as well as numerous regional and local solid waste companies. Intense competition exists not only to provide services to customers, but also to acquire other businesses within each market. Some of our Since some of our operating and fixed costs remain competitors have significantly greater financial and other constant throughout the fiscal year, our operating income is seasonally impacted. In addition, particularly harsh weather resources than us. From time to time, competitors may reduce the price of their services in an effort to expand conditions could result in increased operating costs for some market share or to win a competitively bid municipal contract. of our operations. These practices may either require us to reduce the pricing of our services or result in our loss of business. As is generally OUR BUSINESS IS GEOGRAPHICALLY the case in the industry, municipal contracts are subject to CONCENTRATED AND IS THEREFORE SUBJECT TO periodic competitive bidding. There can be no assurance that REGIONAL ECONOMIC DOWNTURNS we will be the successful bidder to obtain or retain these Our operations and customers are principally located in the contracts. If we are unable to compete with larger and better eastern United States. Therefore, our business, financial capitalized companies, or to replace municipal contracts lost 48 condition and results of operations are susceptible to regional through the competitive bidding process with comparable economic downturns and other regional factors, including contracts or other revenue sources within a reasonable time state regulations and severe weather conditions. In addition, period, our business, financial condition and results of as we expand in our existing markets, opportunities for operations could be materially adversely affected. growth within these regions will become more limited. The In our solid waste disposal markets, we also compete costs and time involved in permitting and the scarcity of with operators of alternative disposal and recycling facilities available landfills will make it difficult for us to expand and with counties, municipalities and solid waste districts that More information A complete, convenient, tear-out guide to our internet resources is located at the end of this 10K. maintain their own waste collection, recycling and disposal necessary to respond to peak demands, is expected to be operations. These entities may have financial advantages approximately $1.2 million. We have closed the third steam because user fees or similar charges, tax revenues and tax- generating plant, which sold all of its output to a customer exempt financing may be more available to them than to us. which has filed for bankruptcy. The termination of the contract Our finished products divisions and our insulation with du Pont or any of the significant customers who manufacturing joint venture with Louisiana-Pacific compete purchase steam from our subsidiary or its subsidiary could with other parties, some of which have substantially greater have a material adverse effect on our business, financial resources than we do, which they could use for product condition and results of operations. development, marketing or other purposes to our detriment. OUR RESULTS OF OPERATIONS AND FINANCIAL ONE OF OUR SUBSIDIARIES SELLS ITS ENTIRE CONDITION MAY BE NEGATIVELY AFFECTED IF OUTPUT TO A FEW CUSTOMERS AND LACKS THE WE INADEQUATELY ACCRUE FOR CLOSURE AND CAPACITY TO MEET ALL OF ITS COMMITMENTS POST-CLOSURE COSTS One of our subsidiaries operates three steam generating We have material financial obligations relating to closure and plants, one of which produces steam for a facility owned by post-closure costs of our existing landfills and will have E. I. du Pont de Nemours and Company under a five-year material financial obligations with respect to any disposal contract expiring on May 30, 2003. Du Pont has significantly facilities which we may own or operate in the future. In reduced operations at this facility, and has the option to addition to the landfills we currently operate, we own four terminate the contract upon payment of a termination fee. unlined landfills which are not currently in operation. We have The second plant produces steam for an industrial park. provided and will in the future provide accruals for financial Approximately 85% of the steam produced by the plant is obligations relating to closure and post-closure costs of our purchased by one customer under a contract that may not be owned or operated landfills, generally for a term of 30 years terminated by the customer except for cause, and the after final closure of a landfill. We cannot assure you that our balance is sold to ten customers under contracts which financial obligations for closure or post-closure costs will not provide that our subsidiary may elect not to supply steam. exceed the amount accrued and reserved or amounts Currently, maximum contracted capacity for all customers for otherwise receivable pursuant to trust funds established for steam exceeds the maximum rated capacity that may be this purpose. Such a circumstance could result in produced by this plant. Actual demand, however, has not unanticipated charges and have a material adverse effect on 49 exceeded the maximum rated capacity. If actual demand our business, financial condition and results of operations. grows, the plant may need to install equipment to respond to peak demands, as well as equipment which may be necessary to allow the plant to meet stricter air quality standards, which may be adopted in the near future. The cost of this air quality equipment, not including the equipment 0 0 0 2 k - 0 1 m r o f a l l e s a c WE COULD BE PRECLUDED FROM ENTERING expenditures and advances, net of any portion thereof that INTO CONTRACTS OR OBTAINING PERMITS IF WE we estimate will be recoverable, through sale or otherwise, ARE UNABLE TO OBTAIN THIRD PARTY FINANCIAL relating to (a) any operation that is permanently shut down or ASSURANCE TO SECURE OUR CONTRACTUAL OBLIGATIONS has not generated or is not expected to generate sufficient cash flow, (b) any pending acquisition that is not Municipal solid waste collection and recycling contracts, consummated and (c) any landfill or development project that obligations associated with landfill closure and the operation is not expected to be successfully completed. We have and closure of waste-to-energy facilities may require incurred such charges in the past. performance or surety bonds, letters of credit or other means of financial assurance to secure our contractual performance. OUR CLASS B COMMON STOCK HAS TEN VOTES If we are unable to obtain the necessary financial assurance in PER SHARE AND IS HELD EXCLUSIVELY BY JOHN sufficient amounts or at acceptable rates, we could be W. CASELLA AND DOUGLAS R. CASELLA precluded from entering into additional municipal solid waste The holders of our Class B Common Stock are entitled to ten collection contracts or from obtaining or retaining landfill votes per share and the holders of our Class A Common operating permits. Any future difficulty in obtaining insurance Stock are entitled to one vote per share. At July 21, 2000, an could also impair our ability to secure future contracts aggregate of 988,200 shares of our Class B Common Stock, conditioned upon the contractor having adequate insurance representing 9,882,000 votes, were outstanding, all of which coverage. Accordingly, our failure to obtain financial were beneficially owned by John W. Casella, our President assurance bonds, letters of credit or other means of financial and Chief Executive Officer, or by his brother, Douglas R. assurance or to maintain adequate insurance could have a material adverse effect on our business, financial condition and results of operations. Casella, a Director. Based on the number of shares of common stock outstanding at July 21, 2000, the shares of our Class A Common Stock and Class B Common Stock held by John W. Casella and Douglas R. Casella represent WE MAY BE REQUIRED TO WRITE-OFF approximately 34.7% of the aggregate voting power of our CAPITALIZED CHARGES IN THE FUTURE, WHICH stockholders. Consequently, John W. Casella and Douglas R. COULD ADVERSELY AFFECT OUR EARNINGS Casella will be able to substantially influence all matters for Any charge against earnings could have a material adverse stockholder consideration. 50 effect on our earnings and the market price of our Class A Common Stock. In accordance with generally accepted accounting principles, we capitalize certain expenditures and advances relating to our acquisitions, pending acquisitions, Item 7a. Quantitative and Qualitative Discloser About Market Risk landfills and development projects. From time to time in future The Company is subject to interest rate fluctuation risk with periods, we may be required to incur a charge against regards to its variable rate revolving credit facility. To modify the earnings in an amount equal to any unamortized capitalized risk from these possible interest-rate fluctuations, the Throughout our service areas, we are helping to build the infrastructure that will support communities, industries, and business’ efforts to meet their waste management challenges. Company enters into hedging transactions that have been consolidated balance sheets of Casella Waste Systems, Inc. authorized pursuant to the Company's policies and procedures. (a Delaware corporation) and subsidiaries as of April 30, 1999 The Company does not use financial instruments for trading and 2000, and the related consolidated statements of purposes and is not a party to any leveraged derivatives. operations, redeemable preferred stock, redeemable put In April 2000, the Company entered into two three-year warrants and stockholders' equity and cash flows for each of interest rate swap agreements (the "Swap Agreements") with the three years ended April 30, 2000. These financial two banks. The purpose was to effectively convert a portion statements are the responsibility of the Company's of the Company's interest rate exposure on advances under management. Our responsibility is to express an opinion on its revolving credit facility from a floating rate to a fixed rate. these financial statements based on our audits. The Swap Agreements effectively fix the Company's interest We conducted our audits in accordance with auditing rate on the notional amount of $100 million, $50 million is standards generally accepted in the United States. Those fixed at 6.875% and $50 million is swapped in a collar standards require that we plan and perform the audit to obtain arrangement with interest between 6.28% and 9.0%. Net reasonable assurance about whether the financial statements monthly payments or monthly receipts under the Swap are free of material misstatement. An audit includes Agreements are recorded as adjustments to interest examining, on a test basis, evidence supporting the amounts expense. The Company also has an existing, five year Swap and disclosures in the financial statements. An audit also Agreement which fixes the Company's interest rate on the includes assessing the accounting principles used and notional amount $45 million. The rate is fixed at 5.2% and significant estimates made by management, as well as expires in January 2001. In addition, in the event of evaluating the overall financial statement presentation. We nonperformance by the counterparty, the Company would be believe that our audits provide a reasonable basis for our exposed to interest rate risk on the entire balance in the opinion. event the variable interest rate paid was to exceed the fixed In our opinion, the financial statements referred to above rate paid under the terms of the Swap Agreements. If interest present fairly, in all material respects, the financial position of rates changed by 100 basis points, the impact on the Casella Waste Systems, Inc. and subsidiaries as of April 30, Company would be an increase or decrease in annual interest 1999 and 2000, and the results of their operations and their expense of approximately $1.5 million. cash flows for each of the three years ended April 30, 2000, in conformity with accounting principles generally accepted in Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Casella Waste Systems, Inc.: We have audited the accompanying the United States. ARTHUR ANDERSEN LLP /s/ Arthur Andersen LLP Boston, Massachusetts June 30, 2000 51 0 0 0 2 k - 0 1 m r o f a l l e s a c 52 C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Balance Sheets (in thousands) A S S E T S A P R I L 3 0 , 1 9 9 9 A P R I L 3 0 , 2 0 0 0 CURRENT ASSETS: Cash and Cash Equivalents Restricted Cash Accounts Receivable - trade, net of allowance for doubtful accounts of $1,430 and $6,247 Accounts Receivable - Other Notes Receivable - Officers/Employees Prepaid Expenses Inventory Investments Deferred Income Taxes Other Current Assets Total Current Assets PROPERTY AND EQUIPMENT, at Cost: Land and Land Held for Investment Landfills Landfill Development Buildings and Improvements Machinery and Equipment Rolling Stock Containers Less - Accumulated Depreciation and Amortization Property, Plant and Equipment, net OTHER ASSETS: Intangible Assets, net Restricted Cash Investment in OCI/New Heights Other Non-Curent Assets $4,232 626 22,815 - - 3,528 889 - 1,016 3,188 36,294 7,258 50,736 7,559 24,727 23,653 57,487 26,679 198,099 (67,023) 131,076 104,199 4,834 - 5,726 114,759 $282,129 The accompanying notes are an integral part of these consolidated financial statements. $8,864 17,609 80,720 14,429 2,095 5,929 10,986 5,156 12,730 10,299 168,817 11,784 64,254 10,353 45,494 230,852 78,740 34,761 476,238 (97,152) 379,086 294,283 10,881 14,695 4,415 324,274 $872,177 C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Balance Sheets (in thousands except for per share data) L I A B I L I T I E S A N D S T O C K H O L D E R ’ S E Q U I T Y A P R I L 3 0 , 1 9 9 9 A P R I L 3 0 , 2 0 0 0 CURRENT LIABILITIES: Current Maturities of Long-Term Debt Current Maturities of Capital Lease Obligations Accounts Payable Accrued Payroll and Related Expenses Accured Intrest Accured Income Taxes Accrued Closure and Postclosure Costs, Current Portion Deferred Revenue Other Current Liabilities Total Current Liabilities Long-Term Debt, Less Current Maturities Capital Lease Obligations, Less Current Maturities Deferred Income Taxes Accured Closure and Post-Closure Costs, Less Current Maturities Minority Interests Other Long-Term Liabilities COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY: Class A Common Stock - Authorized - 100,000,000 Shares, $0.01 par value Issued and Outstanding - 14,869,000 and 22,215,000 Shares as of April 30, 1999 and 2000, respectively Class B Common Stock - Authorized - 1,000,000 Shares, $.01 par value 10 Votes per Share Issued and Outstanding -988,000 Shares as of April 30, 1999 and 2000 Accumulated Other Comprehensive Loss Additional Paid-In Capital Retained Earnings/(Accumulated Deficit) Total Stockholders’ Equity $5,344 402 17,883 857 167 - 330 2,648 2,546 30,177 86,739 1,454 5,710 9,677 - 394 149 10 - 154,733 (6,914) 147,978 $8,367 788 43,335 5,536 3,994 3,766 259 3,317 15,153 84,515 440,804 3,748 30,948 12,017 16,378 9,049 222 10 (305) 270,655 4,136 274,718 53 The accompanying notes are an integral part of these consolidated financial statements. $282,129 $872,177 C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statement of Operations (in thousands) F I S C A L Y E A R E N D E D A P R I L 3 0 , 1 9 9 8 1 9 9 9 2 0 0 0 0 0 0 2 k - 0 1 m r o f a l l e s a c Revenues Operating Expenses: Cost of Operations General and Administration Depreciation and Amortization Merger-Related Costs Loss on Impairment of Long-Lived Assets Operating Income Other (Income)/Expense: Interest Income Interest Expense Minority Interest Equity in Loss of OCI/New Heights Other Expense/(Income) Other Expenses, net Income from Continuing Operations Before Income Taxes, Discontinued Operations and Extraordinary Item Provision for Income Taxes Income from Continuing Operations Before Discontinued Operations and Extraordinary Item Discontinued Operations: Loss from Discontinued Operations, net of Income Taxes Estimated Loss on Disposal of Discontinued Operations, net of Income Taxes $143,711 $182,557 $337,347 89,582 20,926 19,959 290 1,571 132,328 11,383 (265) 7,638 - - (337) 7,036 4,347 2,512 1,835 - - - 1,835 (5,738) 108,874 26,616 25,725 1,951 - 163,166 19,391 (77) 5,641 - - (352) 5,212 14,179 7,531 210,730 42,116 40,211 1,490 - 294,547 42,800 (1,307) 16,341 502 1,062 (601) 17,199 25,601 12,258 6,648 13,343 (33) - - 6,615 - (269) (1,393) (631) 11,050 - 54 Extraordinary Item - Early Extinguishment of Debt, net of Income Taxes Net Income Accretion of Preferred Stock and Put Warrants Net Income/(Loss) Applicable to Common Stockholders $(3,903) $(6,615) $11,050 The accompanying notes are an integral part of these consolidated financial statements. C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statements of Operations (in thousands except for share and per share data) F I S C A L Y E A R E N D E D A P R I L 3 0 , 1 9 9 8 1 9 9 9 2 0 0 0 Earnings Per Common Share: Basic: Income/(Loss) from Continuing Operations Before Discontinued Operations and Extraordinary Item $(0.41) Loss on/from Discontinued Operations Extraordinary Item Net Income/(Loss) per Common Share Basic Weighted Average Common Shares Outstanding - - $(0.41) 9,547 Diluted: Income/(Loss) from Continuing Operations Before Discontinued Operations and Extraordinary Item $(0.41) Loss on/from Discontinued Operations Extraordinary Item Net Income/(Loss) per Common Share Diluted Weighted Average Common Shares Outstanding - - $(0.41) 9,547 The accompanying notes are an integral part of these consolidated financial statements. $0.44 - - $0.44 15,145 $0.41 - - $0.41 16,019 $0.71 $(0.09) $(0.03) $0.59 18,731 $0.69 $(0.09) $(0.03) $0.57 19,272 55 0 0 0 2 k - 0 1 m r o f a l l e s a c C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statement of Redeemable Preferred Stock, Redeemable Put Warrants and Stockholders Equity (deficit) (in thousands) R E D E E M A B L E P R E F E R R E D S T O C K SERIES A SERIES B SERIES C SERIES D Number of Shares Liquidation Value Number of Shares Liquidation Value Number of Shares Liquidation Value Number of Shares Liquidation Value Balance, April 30, 1997 517 $3,638 1,295 $9,118 424 $2,221 1,922 $16,449 Issuance of Class A Common Stock-Net of Issuance Costs Issuance of Class A Common Stock in Various Acquistions- Net of Retirements Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Exercise and Call of Redeemable Put Warrants Accretion of Preferred Stock and Issuance Costs 707 1,770 749 2,287 Conversion of Convertible Preferred Stock (517) (4,345) (1,295) (10,888) (1,922) (18,736) Redemption of Manditorily Redeemable Preferred Stock (424) (2,970) Conversion of Class B Common into Class A Equity Transactions/Adjustments to Poolings Net Income Balance, April 30, 1998 Issuance of Class A Common Stock-Net of Issuance Costs Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Tax Benefit of Stock Options Exercised Equity Transactions/Adjustments to Poolings Net Income Balance, April 30, 1999 Issuance of Class A Common Stock and Stock Options - KTI Acquisition Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Equity transactions of Majority- Owned Subsidiary - $ - - $ - - $ - - $ -- - $ - - $ - - $ - - $ - 56 Comprehensive Income Net Income Unrealized Loss on Securites Total Comprehensive Income Balance, April 30, 2000 - - $ - - $ - - $ - - $ - The accompanying notes are an integral part of these consolidated financial statements. C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statement of Redeemable Preferred Stock, Redeemable Put Warrants and Stockholder’s Equity (in thousands) S T O C K H O L D E R S ’ E Q U I T Y CLASS A COMMON STOCK CLASS B COMMON STOCK Redeemable Put Warrants # of Shares Par Value # of Shares Par Value Balance, April 30, 1997 $400 5,093 Issuance of Class A CommonStock-Net of Issuance Costs Issuance of Class A Common Stock in Various Acquistions- Net of Retirements Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Exercise and Call of Redeemable Put Warrants (400) 3,000 103 192 25 $51 30 1 2 1,000 $10 Accretion of Preferred Stock and Issuance Costs Conversion of Convertible Preferred Stock Redemption of Manditorily Redeemable Preferred Stock Conversion of Class B Common into Class A Equity Transactions/ Adjustments to Poolings Net Income 3,733 38 12 (12) Balance, April 30, 1998 $ -- 12,158 $122 988 $10 Issuance of Class A Common Stock-Net of Issuance Costs Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Tax Benefit of Stock Options Exercised Equity Transactions/Adjustments to Poolings Net Income 2,061 582 68 20 6 1 Balance, April 30, 1999 $ -- 14,869 $149 988 $10 Issuance of Class A Common Stock and Stock Options - KTI Acquisition Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Equity transactions of Majority- Owned Subsidiary Comprehensive Income Net Income Unrealized Loss on Securites Total Comprehensive Income 7,152 194 72 1 57 Balance, April 30, 2000 $ -- 22,215 $222 988 $10 0 0 0 2 k - 0 1 m r o f a l l e s a c C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statement of Redeemable Preferred Stock, Redeemable Put Warrants and Stockholder’s Equity (in thousands) S T O C K H O L D E R S ’ E Q U I T Y Balance, April 30, 1997 $11,661 $(8,099) $ - $3,623 Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive (Loss)- Total Stock Holders' Equity Issuance of Class A Common Stock-Net of Issuance Costs 48,428 Issuance of Class A Common Stock in Various Acquistions- Net of Retirements Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Exercise and Call of Redeemable Put Warrants Accretion of Preferred Stock and Issuance Costs 1,599 716 250 Conversion of Convertible Preferred Stock 33,932 Redemption of Manditorily Redeemable Preferred Stock Conversion of Class B Common into Class A Equity Transactions/Adjustments to Poolings (188) Net Income (225) (5,513) (764) 1,835 48,458 1,600 718 25 (5,513) 33,970 - - (952) 1,835 Balance, April 30, 1998 $96,398 $(12,766) $ - $83,764 Issuance of Class A Common Stock-Net of Issuance Costs 52,211 Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options Tax Benefit of Stock Options Exercised Equity Transactions/Adjustments to Poolings Net Income 3,805 2,220 99 (763) 6,615 52,231 3,811 2,220 (663) 6,615 Balance, April 30, 1999 $154,733 $(6,914) $ - $147,978 Issuance of Class A Common Stock and Stock Options - KTI Acquisition Issuance of Class A Common Stock in Connection with Exercise of Warrants/Options 58 Equity transactions of Majority- - Owned Subsidiary 113,788 859 1,275 Comprehensive Income Net Income Unrealized Loss on Securites Total Comprehensive Income 11,050 (305) 113,860 860 1,275 - - 10,745 Balance, April 30, 2000 $270,655 $ 4,136 $(305) $274,718 The accompanying notes are an integral part of these consolidated financial statements. C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statements of Cash Flows (in thousands) S T O C K H O L D E R S ’ E Q U I T Y Cash Flows from Operating Activities: Net Income $1,835 $6,615 $11,050 FISCAL YEAR ENDED APRIL 30, 1998 1999 2000 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities - Depreciation and Amortization Loss on/from Discontinued Operations - Extraordinary Item Loss on Impairment of Long-Lived Assets (Gain)/Loss on Sale of Fixed Assets Provision for Deferred Income Taxes Minority Interest Non-Cash Employee Compensation Changes in Assets and Liabilities, net of Effects of Acquisitions - Accounts Receivable Deferred Income Taxes Accounts Payable Accrued Closure and Post-Closure 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 Advances to Unconsolidated Subsidiary Other 19,959 - 1,571 (335) 2,237 - 60 (1,819) (474) 1,486 (1,763) (1,678) 19,244 21,079 (35,793) (29,416) 1,182 698 - 2,066 25,725 33 - - 3 1,647 - - (1,754) (1,089) 4,349 2,099 99 31,112 37,727 (33,336) (54,118) 587 (1,291) - (7,818) 40,211 1,662 631 - 840 4,094 502 - (14,186) 7,845 (2,498) 2,269 (10,385) 30,535 41,585 (81,838) (69,455) 1,317 (375) (5,580) (412) 59 Net Cash Used in Investing Activities (61,263) (95,976) (156,343) CONTINUED C A S E L L A W A S T E S Y S T E M S , I N C . A N D S U B S I D I A R I E S Consolidated Statements of Cash Flows (in thousands) S T O C K H O L D E R S ’ E Q U I T Y CONTINUED Cash Flows from Financing Activities: Proceeds from Issuance of Common Stock Proceeds from Equity Transactions of Majority- Owned Subsidiary Proceeds from Exercise of Stock Warrants/Options Equity Transactions of Pooled Entities Call of Redeemable Put Warrants Redemption of Series C Preferred Stock Proceeds from Long-Term Borrowings Principal Payments on Long-Term Debt 1998 48,455 - 869 (887) (525) (2,970) 162,356 (166,625) FISCAL YEAR ENDED APRIL 30, 1999 52,231 - 3,811 193 - - 73,728 (70,809) 2000 - 1,275 860 - - - 423,955 (306,700) Net Cash Provided by Financing Activities 40,673 59,154 119,390 Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year 489 2,838 905 3,327 4,632 4,232 Cash and Cash Equivalents, End of Year $3,327 $4,232 $8,864 The accompanying notes are an integral part of these consolidated financial statements. 0 0 0 2 k - 0 1 m r o f a l l e s a c Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for - Interest Income Taxes Supplemental Disclosures of Non-Cash Investing and Financing Activities: Summary of Entities Acquired in Purchase Business Combinations $7,988 $672 $6,288 $6,952 $12,514 $1,876 60 Fair Market Value of Assets Acquired Common Stock and Stock Options Issued Cash Paid, net $42,554 (1,603) (35,793) $36,210 - (33,336) $519,054 (113,860) (81,838) Liabilities Assumed and Notes Payable to Sellers $5,158 $2,874 $323,356 The accompanying notes are an integral part of these consolidated financial statements. 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Casella Waste Systems, Inc. ("the Company") is a regional, integrated solid waste services company that provides collection, transfer, disposal and recycling services, generates steam and manufactures finished products utilizing recyclable materials primarily throughout the eastern portion of the United States and parts of Canada. The Company also markets recyclable metals, aluminum, plastics, paper and corrugated cardboard all processed at its facilities and recyclables purchased from third parties. The Company also generates electricity under its contracts with its two majority owned subsidiaries, Maine Energy Recovery Company LP ("Maine Energy") and Penobscot Energy Recovery Company LP ("PERC"), and through its wholly owned subsidiary, Timber reclassifications have been made to the prior period financial statements to conform to the current presentation. (b) use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. (c) Revenue Recognition The Company recognizes collection, transfer, recycle and disposal revenues as the services are provided. Certain customers are billed in advance and, accordingly, recognition Energy Recovery, Inc. ("TERI"). As of April 30, 2000, the of the related revenues is deferred until the services are Company owned and/or operated five Subtitle D landfills, two provided. landfills permitted to accept construction and demolition materials, 39 transfer stations, 40 recycling processing Revenues from the sale of electricity to local utilities by the Company's majority owned waste-to-energy facilities (see facilities, 39 solid and liquid waste collection divisions, 12 Note 3) are recorded at the contract rate specified in each power generation facilities, three finished products entity's power purchase agreement as it is delivered. processing facilities and an interest in its cellulose insulation Revenues from the sale of recycled materials and joint venture with Louisiana Pacific. finished products are recognized upon shipment. Rebates to A SUMMARY OF THE COMPANY'S SIGNIFICANT are recorded upon the sale of such recyclables to third ACCOUNTING POLICIES FOLLOWS: parties and are included in revenues. Revenues for certain municipalities based on sales of recyclable materials (a) Principles of Consolidation processing of recyclable materials are recognized when the The consolidated financial statements include the accounts of related service is provided. the Company and its wholly owned and majority owned Revenues from brokerage are recognized when the 61 subsidiaries. All significant intercompany transactions and goods are shipped to their end market. balances have been eliminated in consolidation. The (d) Fair Value of Financial Instruments consolidated financial statements and accompanying notes The Company's financial instruments consist primarily of cash have also been restated to reflect material acquisitions and cash equivalents, trade receivables, investments in accounted for as poolings-of-interests. Certain closure trust funds, trade payables and debt instruments. 0 0 0 2 k - 0 1 m r o f a l l e s a c 62 The book values of cash and cash equivalents, trade (g) Inventory receivables, investments in closure trust funds and trade Inventory consists primarily of secondary fibers, recyclables payables approximate their respective fair values. The ready for sale and certain finished products and is stated at Company's debt instruments that are outstanding as of April the lower of cost (first-in, first-out) or market. Inventory 30, 2000 have carrying values that approximate their consisted of finished goods of approximately $889 and $9,003 respective fair values. See Note 4 for the terms and carrying at April 30, 1999 and 2000 respectively, and raw materials of As a company, we’re committed to providing leadership in addressing the increasingly complex local challenges of waste management. values of the Company's various debt instruments. $1,983 at April 30, 2000. (e) Cash and Cash Equivalents (h) Investments The Company considers all highly liquid investments The Company owns warrants to purchase 542,786 shares of purchased with maturities of three months or less to be cash common stock in Bangor-Hydro Electric, PERC's sole equivalents. (f) Restricted Cash customer for electricity. In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Restricted cash consists of cash held in trust on deposit with Securities," the Company classifies these securities as various banks that support the Company's financial assurance "available for sale," and records them at their fair value. The obligations for its facilities' closure and post-closure costs and change in the fair value of the securities is adjusted through cash held in trust, all of which are available, under certain other comprehensive income/(loss). circumstances, for current operating expenses, debt service, (i) Property, Plant and Equipment capital improvements and repairs and maintenance in Property and equipment are recorded at cost, less accordance with certain contractual obligations. Restricted accumulated depreciation and amortization. The Company cash available for current operating and debt service purposes provides for depreciation and amortization using the straight- is classified as a current asset. A summary of restricted cash line method by charges to operations in amounts that allocate is as follows: the cost of the assets over their estimated useful lives as follows: A P R I L 3 0 , 1 9 9 9 2 0 0 0 Short Term Long Term Total Short Term Long Term Total Debt Service Landfill Closure Other Facilities Closure Facility Maintenance and Operations Other Total $0 626 0 0 0 $0 4,834 $0 5,460 0 0 0 0 0 0 $4,478 154 0 $5,677 3,566 410 $10,155 3,720 410 12,612 1,228 365 0 13,840 365 $626 $4,834 $5,460 $17,609 $10,881 $28,490 A S S E T C L A S S I F I C AT I O N E S T I M AT E D U S E F U L L I F E Buildings and improvements Machinery and equipment Rolling stock Containers 10-35 years 2-15 years 1-12 years 2-12 years The cost of maintenance and repairs is charged to landfills' permitted and probable to be permitted capacity. operations as incurred. Depreciation expense for the years Units-of-production amortization rates are determined ended April 30, 1998, 1999 and 2000 was $10,776, $14,151 annually for each of the Company's operating landfills. The and $25,046 respectively. rates are based on estimates provided by the Company's Capitalized landfill costs include expenditures for land engineers and accounting personnel and consider the and related airspace, permitting costs and preparation costs. information provided by surveys, which are performed at Landfill permitting and preparation costs represent only direct least annually. costs related to these activities, including legal, engineering (j) Investment in OCI/New Heights and construction. Landfill preparation costs include the costs As part of its acquisition of KTI (see Note 2), the Company of construction associated with excavation, liners, site berms obtained a 35% ownership in Oakhurst Company, Inc. and the installation of leak detection and leachate collection ("OCI"), which it accounts for on the equity basis of systems. Interest is capitalized on landfill permitting and accounting. OCI reported revenues of $20.5 million and net construction projects and other projects under development loss of $5.5 million for its fiscal year ended February 29, while the assets are undergoing activities to ready them for 2000. At April 30, 2000, among other businesses, OCI has a their intended use. The interest capitalization rate is based on 50% ownership in New Heights Recovery and Power LLC the Company's weighted average cost of indebtedness. ("New Heights"), a fully integrated waste tire and glass Interest capitalized for the years ended April 30, 1998, 1999 recycling and power generation facility in Ford Heights, IL. and 2000 was $136, $530 and $640 respectively. In addition to its ownership of OCI, the Company had a Management routinely reviews its investment in operating commitment to loan up to $17 million in the form of a note landfills, transfer stations and other significant facilities to receivable to OCI for the purpose of allowing OCI to fund its determine whether the costs of these investments are equity commitment and investment ($17 million) in New realizable. Heights. The Company had loaned $14.7 million to OCI 63 Landfill permitting, acquisition and preparation costs, through April 30, 2000, including $5,580 loaned by the excluding the estimated residual value of land, are amortized Company since the date of the KTI acquisition. These funds as landfill airspace is consumed. In determining the were used by New Heights for capital improvements amortization rate for these landfills, preparation costs include necessary to upgrade the facility into a fully integrated the total estimated costs to complete construction of the recycling and power generation facility, to fund certain On the internet You can find links to other waste management and environmental sites in the Library under Transfer Station. 0 0 0 2 k - 0 1 m r o f a l l e s a c acquisitions of waste tire collection companies and to fund closed landfills. The Company, based on input from its operating costs and working capital needs of the facility. engineers, accounting personnel and consultants, estimates The New Heights facility has been in development and its future cost requirements for closure and post-closure start-up for over one year, as of April 30, 2000, and has monitoring and maintenance for solid waste landfills based on sustained substantial operating losses. OCI's ability to repay its interpretation of the technical standards of the U.S. its note to the Company is predicated upon the success of Environmental Protection Agency's Subtitle D regulations and the New Heights facility. the air emissions standards under the Clean Air Act as they In addition, the Company has directly loaned $1.5 million are being applied on a state-by-state basis. Closure and post- to New Heights, which is secured by a First Mortgage on the closure monitoring and maintenance costs represent the facility, and has an operations and management service costs related to cash expenditures yet to be incurred when a agreement for the operations and management of the New landfill facility ceases to accept waste and closes. Heights facility. Accruals for closure and post-closure monitoring and The equity investment in OCI, the notes receivable from maintenance requirements in the U.S. consider final capping OCI and the note receivable from New Heights are together of the site, site inspection, groundwater monitoring, leachate reflected as an investment in unconsolidated subsidiary on management, methane gas control and recovery, and the accompanying Consolidated Balance Sheets. During May operation and maintenance costs to be incurred during the 2000, OCI agreed to transfer 12.5% direct ownership interest period after the facility closes. Certain of these environmental in New Heights to the Company, in return for the Company costs, principally capping and methane gas control costs, are agreeing to complete OCI's remaining funding commitment to also incurred during the operating life of the site in New Heights. accordance with the landfill operation requirements of Subtitle (k) Accrued Closure and Post-closure Costs D and the air emissions standards. Reviews of the future cost Accrued closure and post-closure costs include the current requirements for closure and post-closure monitoring and and noncurrent portion of accruals associated with obligations maintenance for the Company's operating landfills by the for closure and post-closure of the Company's operating and Company's engineers, accounting personnel and consultants A P R I L 3 0 , 64 Goodwill Covenants not to compete Customer lists Deferred debt acquisition costs and other Less--accumulated amortization 1 9 9 9 $98,827 13,956 594 2,125 115,502 11,303 $104,199 2 0 0 0 $289,574 14,291 562 8,359 312,786 18,503 $294,283 The value of a diverse team of companies and talents is our ability to use our collective resources to create local solutions. are performed at least annually and are the basis upon which impairment whenever events or changes in circumstances the Company's estimates of these future costs and the indicate that the remaining estimated useful life of goodwill or related accrual rates are revised. The Company provides other intangible assets might warrant revision or that the accruals for these estimated costs as the remaining permitted balance may not be recoverable. The Company evaluates airspace of such facilities is consumed. possible impairment by comparing estimated future cash The states in which the Company operates require a flows, before interest expense and on an undiscounted basis, certain portion of these accrued closure and post-closure and the net book value of assets including goodwill and other obligations to be funded at any point in time. Accordingly, the intangible assets. If undiscounted cash flows are insufficient Company has placed $5,640 and $3,720 at April 30, 1999 and 2000, respectively, in restricted investment accounts to fund these future obligations. In addition, the Company has been required to post a surety bond or bank letter of credit to secure its obligations to close its landfills in accordance with environmental regulations. At April 30, 2000, the Company had provided one letter of credit totaling $10,436, expiring on April 15, 2001, to secure the Company's landfill closure obligations. (l) Intangible Assets Intangible assets at April 30, 1999 and 2000 consist of the following: Goodwill is the cost in excess of fair value of identifiable assets of acquired businesses and is amortized using the straight-line method over periods not exceeding 40 years. Covenants not to compete and customer lists are amortized using the straight-line method over their estimated useful lives, typically no more than 10 years. Deferred debt acquisition costs are capitalized and amortized over the life of the related debt using the effective interest method. Amortization Expense for the years ended April 30, 1998, 1999 and 2000 was $9,182, $11,574 and $15,165, respectively. to recover assets, further analysis is performed in order to determine the amount of the impairment. An impairment loss would then be recorded equal to the amount by which, the carrying amount of the assets exceeds their fair market value. Fair market value is usually determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved. In instances where goodwill is identified with assets that are subject to an impairment loss, the carrying amount of the identified goodwill is reduced before making any reduction to the carrying amounts of other impaired long-lived assets. During 1998, the Company recorded a charge of $1,571 to reduce certain assets (including goodwill), to their estimated fair value. There were no such impairments in 1999 and 2000. (m) Income Taxes The Company records income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". Under SFAS No. 109, deferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets and liabilities, calculated using currently enacted tax rates. 65 In accordance with SFAS No. 121,"Accounting for the (n) Earnings Per Share Impairment of Long-Lived Assets and for Long-Lived Assets to Basic earnings per share is computed by dividing net income Be Disposed Of", the Company continually reviews for by the weighted average number of common shares As a group of skilled professionals, we have the resources and vision to operate within a strict regulatory framework. 0 0 0 2 k - 0 1 m r o f a l l e s a c Y E A R E N D E D A P R I L 3 0 , 1 9 9 8 1 9 9 9 2 0 0 0 Number of Shares Outstanding, End of Period: Class A Common Stock Class B Common Stock Effect of Weighting the Average Shares Outstanding 12,158 988 14,869 988 22,215 988 During the Period (3,599) (712) (4,472) Basic Shares Outstanding Potentially Dilutive Shares 9,547 0 15,145 874 18,731 541 Diluted Shares Outstanding 9,547 16,019 19,272 outstanding during the period. Diluted earnings per share is ("FASB") issued Statement of Financial Accounting Standards based on the combined weighted average number of common No. 137, "Accounting for Derivative Instruments and Hedging shares and potentially dilutive common shares which include, Activities-Deferral of the Effective Date of FASB Statement where appropriate, the assumed exercise of employee stock No. 133". SFAS No. 137 amends FASB Statement of options and exercise of convertible debt. In computing diluted Financial Accounting Standards No. 133, "Accounting for earnings per share, the Company utilizes the treasury stock Derivative Instruments and Hedging Activities", by deferring method with regard to employee stock options and the the effective date of SFAS No. 133 to fiscal years beginning "if converted" method with regard to its convertible debt. after June 15, 2000. SFAS No. 133 establishes accounting The following is a reconciliation of the ending number of and reporting standards requiring that every derivative shares outstanding with the number of shares used in the instrument (including certain derivative instruments embedded calculation of basic and diluted earnings per share. in other contracts) be recorded in the balance sheet as either Potentially dilutive shares are excluded from diluted an asset or liability measured at its fair value. SFAS No. 133 shares outstanding for the year ended April 30, 1998 due to requires that changes in the derivative's fair value be their impact being anti-dilutive. The number of potentially recognized currently in earnings unless specific hedge dilutive shares excluded from the earnings per share accounting criteria are met. The Company will adopt SFAS 66 calculation was 3,045,000 for the year ended April 30, 1998. No. 133 beginning May 1, 2001. The Company has yet to Additionally, for the years ended April 30, 1999 and 2000, quantify the impacts of adopting SFAS No. 133 on its options to purchase 211,000 and 2,033,000 common share financial statements and has not determined the timing or were excluded from the calculation of potentially dilutive method of adoption. However, SFAS No. 133 could increase shares because their impact was anti-dilutive. volatility in earnings and other comprehensive income. (o) New Accounting Pronouncements In June 1999, the Financial Accounting Standards Board 2. BUSINESS COMBINATIONS Operations from the dates of acquisition, and the purchase (a) Transactions Recorded as Purchases On December 14, 1999, the Company consummated its acquisition of KTI, a publicly traded solid waste handling company. KTI specializes in solid waste disposal and On the internet recycling, and operates manufacturing facilities utilizing A complete set of customizable financial tools is available in Value. recycled materials. All of KTI's common stock was acquired in exchange for 7,152,157 shares of the Company's Class A Common Stock. prices have been allocated to the net assets acquired based on fair values at the dates of acquisition, with the residual amounts allocated to goodwill. Management does not believe the final purchase price allocation will produce materially different results than those reflected herein. The purchase prices allocated to those net assets acquired were as follows: The following unaudited pro forma combined information Y E A R E N D E D A P R I L 3 0 , 1 9 9 8 1 9 9 9 2 0 0 0 Current Assets Property and Equipment Intangible Assets (including goodwill) Other Non-Current Assets Current Liabilities Other Non-Current Liabilities $2,923 9,105 30,526 0 (75) $613 10,768 24,829 0 0 $107,457 220,830 190,178 589 (41,647) (5,083) (2,874) (281,709) Total Consideration $37,396 $33,336 $195,698 In addition to above, the Company also acquired 33, 50 and 38 solid waste hauling operations in 1998, 1999 and 2000. All of these transactions were accounted for as shows the results of the Company's operations for the years ended April 30, 1999 and 2000 as though each of the completed acquisitions had occurred as of May 1, 1998: purchases. Accordingly, the operating results of these The pro forma results have been prepared for businesses are included in the Consolidated Statements of comparative purposes only and are not necessarily indicative Y E A R E N D E D A P R I L 3 0 , 1 9 9 9 2 0 0 0 67 Revenues Operating Income Net Income Diluted Pro forma net income per common share Weighted average diluted shares outstanding $578,100 $584,976 20,732 6,569 $0.41 16,019 57,031 11,345 $0.59 19,272 0 0 0 2 k - 0 1 m r o f a l l e s a c 68 of the actual results of operations had the acquisitions taken 30, 1998, 1999 and 2000 to amounts adjusted for poolings- place as of May 1, 1998 or the results of future operations of of-interests that took place in 2000. the Company. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions. 3. INVESTMENT IN MAJORITY OWNED WASTE-TO- ENERGY FACILITIES The Company owns majority interests in two limited partnerships, Maine Energy (83.75% interest) and PERC (b) Transactions Recorded as Poolings of Interests (66.59% interest). These facilities utilize non-hazardous solid The Company has completed several mergers in business waste as the fuel for the generation of electricity. acquisitions accounted for as poolings-of-interests. For the Maine Energy sells the electricity it produces to Central years ended April 30, 1998, 1999 and 2000, the Company Maine Power ("Central Maine") pursuant to a long-term power merged with 1, 4 and 2 businesses, respectively, and issued purchase agreement. Under this agreement, Maine Energy common stock of 603,347, 1,271,559 and 362,973 shares, has agreed to sell energy to Central Maine through May 31, respectively. The accompanying consolidated financial 2007 at an initial rate of 7.18 cents per kilowatt-hour ("kWh"), statements have been restated to reflect all material as determined in 1996, which escalates annually by 2% (7.92 A P R I L 3 0 , Revenues: 1 9 9 8 1 9 9 9 2 0 0 0 Casella, before Fiscal 2000 Poolings Fiscal 2000 Poolings $140,191 3,520 $171,728 10,829 $335,303 2,044 Casella, as restated $143,711 $182,557 $337,347 Net Income: Casella, before Fiscal 2000 Poolings Fiscal 2000 Poolings $1,925 (90) $9,099 (2,484) $11,257 (207) Casella, as restated $1,835 $6,615 $11,050 acquisitions (including the 2 in 2000) for all periods cents per kWh as of April 30, 2000). From June 1, 2007 until presented. December 31, 2012, Maine Energy is to be paid at the then Following is a reconciliation of the amounts of revenues current market value for both its energy and capacity by and net income previously reported for the years ended April Central Maine. Under the terms of the agreement, a $45.0 million letter 4. LONG-TERM DEBT of credit was issued to Central Maine by ING (US) Capital Corporation. If, in any year, Maine Energy fails to produce 100,000,000 kWh of electricity and Maine Energy does not have a force majeure defense, such as physical damage to the plant and other similar events, Maine Energy must pay approximately $3.8 million to Central Maine as liquidated damages. This payment obligation is secured by the ING letter of credit. In each year in which 100,000,000 kWh is produced, the balance of the ING letter of credit is to be reduced by approximately $3.8 million. Additionally, if, in any year, Maine Energy fails to produce 15,000,000 kWh of electricity and Maine Energy does not have a force majeure defense, Maine Energy must pay the balance of the ING letter of credit to Central Maine as liquidated damages. The balance of the letter of credit was approximately $30 million at April 30, 2000. PERC sells the electricity it produces to Bangor Hydro, a local utility, under a power purchase agreement. Under the terms of the agreement, Bangor Hydro agrees to purchase all the electricity generated by PERC through 2018. Under the agreement, PERC is required to deliver at least 105,000,000 kWh to Bangor Hydro in any calendar year. If PERC fails to deliver this output, PERC must pay Bangor Hydro $4 for each 1,000,000 kWh that the deliveries fall below 105,000,000 kWh. As of April 30, 2000, the Company has met all of its kWh requirements under both power purchase agreements. Additionally, the Company owns 100% of TERI. TERI uses biomass waste as its source of fuel to be combusted for the generation of electricity. TERI also operates two wood processing facilities. TERI sells the electricity that it generates to Florida Power Corporation ("Florida Power"), a local electric utility, under a power purchase agreement. Under the Long-term debt as of April 30, 1999 and 2000 consists of the following: April 30, 1999 2000 Advances on revolving credit facility, which provides for advances of up to $150,000, due January 12, 2003. Interest on outstanding advances accrues at the election of the Company at either the bank's base rate (7.75% at April 30, 1999), or LIBOR plus a percentage (6.03% at April 30, 1999), based on a pricing grid, payable monthly in arrears. The debt is collateralized by all assets of the Company, whether now owned or hereafter acquired. $ 72,365 $ 0 Advances on Senior Secured Revolving Credit Facility ( the "Revolver") which provides for advances of up to $300,000, due December 14, 2004, bearing interest at LIBOR plus 2.75%, (8.95% at April 30, 2000), with the availability decreasing by $25,000 in years 3 and 4. The debt is collateralized by a pledge of all of the Company's subsidiaries stock and by certain assets of the Company. Advances on Senior Secured Delayed Draw Term "B" Loan ( the "Term Loan") which provides for up to $150,000, due December 14, 2006, bearing interest at LIBOR plus 3.5% (9.7% at April 30, 2000), and calling for principal payments of $1,500 per year, beginning in Fiscal 2001 with the remaining principal balance due at maturity. The debt is collateralized by a pledge of all of the Company's subsidiaries stock and by certain assets of the Company. Notes Payable in connection with businesses acquired, bearing interest at rates of 6% to 10%, due in monthly installments varying to $22, expiring May 2000 through April 2009. Subordinated, Convertible Notes payable in connection with business acquired, bearing interest at 7.5%, due in monthly installments varying to $50, expiring on March 15, 2003. Convertible to Class A Common Stock of the Company, at the note holders election, at the rate of one share of common stock for each $15.375 of the principal amount surrendered for conversion. Payments due to Clinton County, discounted at 4.74%, due in quarterly installments of $375 through March 2003. 0 228,890 0 150,000 13,534 9,459 0 6,144 69 5,438 4,173 0 0 0 2 k - 0 1 m r o f a l l e s a c 70 April 30, 1999 2000 PERC Bonds Payable - Issued by the Finance Authority of Maine ("FAME"), Electric Rate Stabilization Revenue Refunding Bonds, Series 1998 A and Series B, subject to mandatory redemption in annual installments of varying amounts through July 1, 2018. Beginning July 1, 2008 the Bonds are subject to redemption at the option of the Company at a price equal to 102%, through June 30, 2009, 101% for the period July 1, 2009 through June 30, 2010 and 100% thereafter of the principal and accrued interest. Various covenants restrict the ability of PERC to incur additional indebtedness and the ability of general partners to sell, assign or transfer their partnership interest. Interest is based on rates for certain tax-exempt obligations, as determined weekly by the remarketing agent, with a weighted average interest rate of 5.0% at April 30, 2000. The bonds are collateralized by substantially all of PERC's assets. Timber Energy Revenue Bonds Payable - Industrial Development Revenue Bonds, Series A, interest at 7%, annual sinking fund requirements of $2,320, $2,665 and $4,620, due December 2000 through 2002. The Bond Agreements require, among other things, maintenance of various insurance coverages and restrict the borrowers ability to incur additional indebtedness. The bonds are collateralized by liens on TERI's electric generating facility located in Telogia, Florida. Notes Payable, secured by assets purchased 0 40,900 0 746 9,605 0 92,083 449,171 Less - Current Portion 5,344 8,367 $86,739 $440,804 In April 2000, the Company entered into two three-year interest rate swap agreements (the "Swap Agreements") with two banks. The purpose was to effectively convert a portion of the Company's interest rate exposure on advances under its revolving credit facility from a floating rate to a fixed rate. The Swap Agreements effectively fix the Company's interest rate on the notional amount of $100 million, $50 million is fixed at 6.875% and $50 million is swapped in a collar arrangement with interest between 6.28% and 9.0%. Net monthly payments or monthly receipts under the Swap Agreements are recorded as adjustments to interest expense. The Company also has an existing, five year Swap Agreement which fixes the Company's interest rate on the notional amount $45 million. The rate is fixed at 5.2% and expires in January 2001. In addition, in the event of nonperformance by the counterparty, the Company would be exposed to interest rate risk on the entire balance in the event the variable interest rate paid was to exceed the fixed rate paid under the terms of the Swap Agreements. The Revolver and the Term Loan contain certain covenants that, among other things, restrict dividends or stock repurchases, limit capital expenditures and annual operating lease payments, and set minimum fixed charges, interest coverage and leverage ratios and minimum consolidated adjusted net worth requirements. As of April 30, 2000, the Company was in compliance with all covenants. As of April 30, 2000, debt matures as follows: Year Ending April 30, 2001 2002 2003 2004 2005 $ 8,367 7,816 12,479 2,098 151,982 Thereafter 266,429 $449,171 terms of the power purchase agreement, Florida Power has The Company leases operating facilities and equipment agreed to purchase all of the electricity generated by TERI. under operating leases with monthly payments varying to $11. The ownership interest of minority owners in the equity and Total rent expense under operating leases charged to earnings of the Company's less than 100 percent-owned operations was $1,500, $1,873 and $2,968 for each of the consolidated subsidiaries is recorded as minority interest. three years ended April 30, 1998, 1999 and 2000, 5. COMMITMENTS AND CONTINGENCIES (a) Leases respectively. (b) Legal Proceedings The following is a schedule of future minimum lease In the normal course of its business and as a result of the payments, together with the present value of the net minimum extensive governmental regulation of the waste industry, the lease payments under capital leases, as of April 30, 2000. Company may periodically become subject to various judicial The Company leases real estate, compactors and hauling and administrative proceedings involving Federal, state or vehicles under leasesthat qualify for treatment as capital local agencies. In these proceedings, an agency may seek to leases. The assets related to these leases have been impose fines on the Company or to revoke, or to deny capitalized and are included in property and equipment at April renewal of, an operating permit held by the Company. In 30, 1999 and 2000. addition, the Company may become party to various claims Y E A R E N D I N G A P R I L 3 0 Operating Leases Capital Leases $ 4,660 4,866 3,614 3,236 2,095 4,640 $23,111 2001 2002 2003 2004 2005 Thereafter Total minimum lease payments Less - amount representing interest Current maturities of capital lease obligations Present value of long term capital lease obligations $ 1,095 1,004 986 672 494 1,564 5,815 1,279 4,536 788 $ 3,748 71 0 0 0 2 k - 0 1 m r o f a l l e s a c and suits pending for alleged damages to persons and transfer of Maine Energy's assets. The notice also reserves property, alleged violation of certain laws and for alleged the right to seek punitive damages. Although the City of liabilities arising out of matters occurring during the normal Biddeford, Maine has not filed a notice of claims, it has given operation of the waste management business. notice that it will be initiating a suit to receive the residual On or about October 30, 1997, Mr. Matthew M. cancellation payments. Under the agreement, the aggregate Freeman commenced a civil lawsuit against the Company and amount to be paid upon the exercise of the put right is 18% two of its officers and directors in Vermont Superior Court. of the fair market value of the equity of the partners in Maine Mr. Freeman claims to have performed services for the Energy, and such amount is required to be paid within 120 Company prior to 1995 and in his lawsuit is seeking a three- days after the exercise of the put by the respective parties percent equity interest in the Company or the monetary entitled thereto. The Company believes it has meritorious equivalent thereof, as well as punitive damages. The defenses to these claims. Company and the officers and directors have answered the On or about April 26, 1999, Salvatore Russo filed an Complaint, denied Mr. Freeman's allegations of wrongdoing, action in the U.S. District Court, District of New Jersey and asserted various defenses. In order to facilitate the against KTI and two of its principal officers, Ross Pirasteh and completion of the initial public offering of the Company's Martin J. Sergi, purportedly on behalf of all shareholders who Class A Common Stock in November 1997, certain purchased KTI common stock from May 4, 1998 through stockholders of the Company agreed to indemnify the August 14, 1998. Melanie Miller filed an identical complaint on Company for any settlement by the Company or any award May 14, 1999. The complaints allege that the defendants against the Company in excess of $350,000 (but not for legal made material misrepresentations in KTI's quarterly report on fees paid by or on behalf of Casella or any other third party). form 10-Q for the period ended March 31, 1998 in violation of The Company accrued a $215,000 reserve for this claim Sections 10(b) and 20(a) of the Securities Exchange Act of during the year ended April 30, 1998. 1934, as amended, concerning KTI's allowance for doubtful On January 7, 2000, the City of Saco, Maine filed a accounts and net income. The Plaintiffs are seeking notice of claims with the Company and Maine Energy undisclosed damages. The Company believes it has claiming entitlement to certain "residual cancellation" meritorious defenses to these complaints. On June 15, 1999, payments from Maine Energy under the waste handling Mr. Russo and Ms. Miller, together with Fransisco Munero, agreement dated June 7, 1991 among the Biddeford-Saco Timothy Ryan and Steve Storch, moved to consolidate the 72 Waste Handling Committee, Biddeford, Saco and Maine two complaints. This motion is currently pending in the District Energy on the basis of the satisfaction of certain conditions, Court of New Jersey. The Company is a defendant in certain including the acquisition of KTI by the Company. The notice of other lawsuits alleging various claims incurred in the ordinary claims alleges that the payments due to Saco exceed $33 course of business. The Company believes that none of the million, and claims damages in such amounts for breach of above lawsuits, either individually or in the aggregate, will be contract, breach of fiduciary duties and fraud and also claims settled in a manner that will have a material impact to its treble damages of $100 million based on alleged fraudulent financial condition, results of operations or cash flows. (c) Environmental Liability the 200,000 tons of undisputed additional permitted capacity. The Company is subject to liability for any environmental The seller elected to be paid this royalty in cash. damage, including personal injury and property damage, that (e) Employment Contracts its solid waste, recycling and power generation facilities may The Company has entered into five employment contracts cause to neighboring property owners, particularly as a result with its senior officers and Chairman of the Board. The of the contamination of drinking water sources or soil, contracts, dated December 8, 1999, have a three-year term possibly including damage resulting from conditions existing and a two-year covenant not to compete from the date of any before the Company acquired the facilities. The Company termination. Total annual commitments for salaries under may also be subject to liability for similar claims arising from these contracts are $1.2 million. In the event of a change in off-site environmental contamination caused by pollutants or control of the Company, or in the event of involuntary hazardous substances if the Company or its predecessors termination without cause, the employment contracts provide arrange to transport, treat or dispose of those materials. Any for the payment of three years of salary and bonuses. substantial liability incurred by the Company arising from environmental damage could have a material adverse effect on the Company's business, financial condition and results of operations. The Company is not presently aware of any situations that may have a material adverse impact. (d) Sawyer Landfill Royalty Payments (f) Maine Energy Waste Handling Agreement Liability Under the terms of a Waste Handling Agreement between certain municipalities and the Company's majority owned subsidiary, Maine Energy, Maine Energy is obligated to make a payment at the point in time that Maine Energy pays off its debt (as defined) obligations, currently estimated to occur In connection with an acquisition, the Company agreed to pay between 2003 and 2005, or upon the consummation of an to the seller a royalty for certain additional permitted landfill outright sale of Maine Energy, individually. The estimated capacity. The royalty due is equal to $2.50 per ton for the first obligation has been recorded in other long-term liabilities as 400,000 tons of such additional capacity and $3.50 per ton of April 30, 2000. thereafter. The payments are generally due as the landfill is utilized, except that at the time of the successful permitting, 6. DISCONTINUED OPERATIONS AND the first $1 million of royalties becomes immediately due and EXTRAORDINARY ITEM payable. This amount may be taken in cash or common stock on an equivalent per share price of $6.55. This option is at the DISCONTINUED OPERATIONS: election of the seller and is only available for the first royalty During the third quarter, the Company adopted a formal plan 73 payment. The Company received permits from the State of to dispose of its construction and emergency response Maine for a 3.3 million ton expansion on the Sawyer Landfill. business ("discontinued business"). The Company has The host community for the Sawyer Landfill, the Town of accounted for this planned disposition in accordance with Hampden, Maine, is disputing 3.1 million tons of the 3.3 million APB Opinion No. 30, and accordingly, the results of ton expansion. The Company paid the royalty due the seller on operations of the discontinued business have been On the internet Casella’s symbol on the NASDAQ market is CWST. Stock updates and other financial information are available in Value. 0 0 0 2 k - 0 1 m r o f a l l e s a c segregated from continuing operations and reported as a more series. As of April 30, 1999 and 2000, respectively, no separate line in its Consolidated Statements of Operations. shares of Preferred Stock are outstanding. Additionally, the estimated loss on the disposal of the (b) Common Stock discontinued operations of $1,393 (net of income tax benefit Y E A R E N D E D A P R I L 3 0 , Revenues Operating Expenses General and Administrative Depreciation and Amortization Operating (Loss) Other (Expense) Benefit from Income Taxes Net (Loss) 1 9 9 9 $ 1,690 1,133 426 175 (44) (10) 21 $ (33) 2 0 0 0 $ 795 795 321 113 (434) (7) 172 $ (269) of $891), represents the estimated loss on the disposal of The holders of the Class A Common Stock are entitled to the assets of the discontinued segment. one vote for each share held. The holders of the Class B A summary of the operating results of the discontinued Common Stock are entitled to ten votes for each share held, business is as follows: except for the election of one director, who is elected by the EXTRAORDINARY ITEM: holders of the Class A Common Stock exclusively. The Class B Common Stock is convertible into Class A Common Stock During the third quarter of its fiscal year 2000, the Company paid on a share-for-share basis at the option of the shareholder. off its existing revolving credit facility with a bank and incurred an (c) Stock Warrants extraordinary loss of $631 (net of tax benefit of $448), resulting At April 30, 2000, the Company had outstanding warrants to 74 from the write-off of related debt acquisition costs. purchase 315,943 shares of the Company's Class A 7. STOCKHOLDERS' EQUITY (a) Preferred Stock Common Stock at exercise prices between $0.01 and $43.63 per share, based on the fair market value of the underlying common stock at the time of the warrants' issuance. The The Company is authorized, with stockholder approval, to warrants are exercisable and expire at varying times through issue up to 1,000,000 shares of preferred stock in one or November 2008. (d) Stock Option Plans of 918,135 shares of Class A Common Stock pursuant to During 1993, the Company adopted an incentive stock option the grant of either incentive stock options or nonstatutory plan for officers and other key employees. The 1993 options. As of April 30, 1999, a total of 392,443 options to Incentive Stock Option Plan (the "1993 Option Plan") purchase Class A Common Stock were outstanding at an provided for the issuance of a maximum of 300,000 shares of average exercise price of $12.23. As of April 30, 2000, a Class A Common Stock. As of April 30, 1999, options to total of 372,707 options to purchase Class A Common Stock purchase 169,500 shares of Class A Common Stock at an were outstanding at an average exercise price of $12.08. No average exercise price of $1.18 were outstanding under the further options may be granted under this plan. 1993 Option Plan. As of April 30, 2000, options to purchase On July 31, 1997, the Company adopted a stock option 17,000 shares of Class A Common Stock at an average plan for employees, officers and directors of, and consultants exercise price of $4.61 were outstanding under the 1993 and advisors to the Company. The Board of Directors has the Option Plan. No further options may be granted under this authority to select the optionees and determine the terms of plan. the options granted. The 1997 Stock Option Plan (the "1997 During 1994, the Company adopted a nonstatutory Option Plan") provides for the issuance of 5,328,135 shares stock option plan for officers and other key employees. The of Class A Common Stock pursuant to the grant of either 1994 Stock Option Plan (the "1994 Option Plan") provided incentive stock options or nonstatutory options. Under the for the issuance of a maximum of 150,000 shares of Class A terms of the 1997 Option Plan, all authorized but unissued Common Stock. Options to purchase 15,000 shares of Class options under previous plans are added to the shares A Common Stock at an average exercise price of $0.60 were available under this plan. A total of 321,501 authorized but outstanding under the 1994 Option Plan as of April 30, 1999 unissued shares under the 1996 Option Plan have been and 2000. No further options may be granted under this plan transferred to the 1997 Option Plan under this provision. As In connection with the May 1994 Senior Note and of April 30, 1999, options to purchase 1,081,960 shares of Warrant Purchase Agreement (the "Purchase Agreement"), Class A Common Stock at an average exercise price of the Company also established a nonqualified stock option $26.72 were outstanding under the 1997 Option Plan. As of pool for certain key employees. The purchase agreement April 30, 2000, options to purchase 3,190,377 shares of established 338,000 stock options to purchase Class A Class A Common Stock at an average exercise price of Common Stock. Options to purchase 302,656 shares of $22.37 were outstanding under the 1997 Option Plan. Class A Common Stock at an average exercise price of On July 31, 1997, the Company adopted a stock option 75 $2.00 were outstanding as of April 30, 1999 and 2000. No plan for non-employee directors of the Company. The 1997 further options may be granted from this pool. Non-Employee Director Stock Option Plan provides for the During 1996, the Company adopted a stock option plan issuance of a maximum of 100,000 shares of Class A for employees, officers and directors of, and consultants and Common Stock pursuant to the grant of nonstatutory advisors to the Company. The 1996 Stock Option Plan (the options. As of April 30, 1999 and 2000, options to purchase "1996 Option Plan") provided for the issuance of a maximum 8,000 shares of Class A Common Stock at an average 0 0 0 2 k - 0 1 m r o f a l l e s a c exercise price of $31.25 and 19,000 shares of Class A During fiscal 1996, the FASB issued SFAS No. 123, Common Stock at an average exercise price of $6.58, "Accounting for Stock-Based Compensation", which defines a Outstanding, April 30, 1997 Granted Terminated Exercised Outstanding, April 30, 1998 Granted Terminated Exercised Outstanding, April 30, 1999 Granted Issued in Connection with the Acquisition of KTI Terminated Exercised Number of shares 1,251,135 419,500 (31,000) (44,333) 1,595,302 870,000 (9,033) (486,710) 1,969,559 1,402,000 930,417 (216,335) (168,901) Weighted Average exercise price $ 4.92 19.90 (15.19) (1.49) 8.75 27.68 (11.17) (6.43) 17.65 16.27 26.59 (20.56) (2.05) Outstanding, April 30, 2000 3,916,740 $ 19.78 Exercisable, April 30, 1999 1,346,557 $ 13.67 Exercisable, April 30, 2000 2,321,432 $ 18.35 respectively, were outstanding under the Non-Employee fair value based method of accounting for stock-based Director Stock Option Plan. employee compensation and encourages all entities to adopt 76 Options generally vest over a two year period from the that method of accounting for all of their employee stock date of grant, and are granted at prices at least equal to the compensation plans. However, it also allows an entity to prevailing fair market value at the issue date. continue to measure compensation costs for those plans Stock option activity for each of the three years ended using the intrinsic method of accounting prescribed by APB April 30, 1998, 1999 and 2000 is as follows: Opinion No. 25. Entities electing to remain with the Set forth is a summary of options outstanding and accounting in APB Opinion No. 25 must make pro forma exercisable as of April 30, 2000: disclosures of net income and earnings per share as if the fair A P R I L 3 0 , 2 0 0 0 Range of Exercise Number of Outstanding Shares $60-$2.00 $4.61-$8.00 317,656 152,002 $10.00-$18.00 1,566,211 $18.00-$27.00 467,028 Over $27.00 1,413,843 ALL 3,916,740 Options Outstanding Options Exercisable Weighted Average Remaining Contractual Life (Years) 0.83 7.42 7.00 8.70 7.45 6.88 Weighted Average Exercise Price $1.93 5.42 15.28 20.95 29.94 Number of Exercisable Options 317,656 108,002 850,118 226,484 819,172 Weighted Average Exercise Price $1.93 4.90 14.86 21.65 29.20 $19.78 2,321,432 $18.35 A P R I L 3 0 , Risk-free interest rate Expected dividend yield Expected life Expected volatility 1 9 9 8 1 9 9 9 2 0 0 0 5.78%-6.49% 4.6%-5.68% 5.81%-6.69% 0% 9 Years 40.39% 0% 5 years 52.40% 0% 5 years 67.37% value based method of accounting defined in SFAS No. 123 No. 123, using the following weighted average assumptions had been applied. for grants in the years ended April 30, 1998, 1999 and 2000 The Company has elected to account for its stock- The total value of options granted during the years based compensation plans under APB Opinion No. 25. ended April 30, 1998, 1999 and 2000 would be amortized on However, the Company has computed, for pro forma a pro forma basis over the vesting period of the options. disclosure purposes, the value of all options granted during Because the method of accounting prescribed by SFAS No. the years ended April 30, 1998, 1999 and 2000 using the 123 has not been applied to options granted prior to May 1, 77 Black-Scholes option pricing model as prescribed by SFAS 1995, the resulting pro forma compensation costs may not be representative of that to be expected in future years. If the 0 0 0 2 k - 0 1 m r o f a l l e s a c 78 A P R I L 3 0 , Net income (loss) As reported Pro forma Diluted Net income (loss) per share of common stock As reported Pro forma 1 9 9 8 1 9 9 9 2 0 0 0 $(3,903) $(4,674) $(0.41) $(0.49) $6,615 $2,534 $0.41 $0.16 $11,050 $4,379 $0.57 $0.23 The weighted-average grant-date fair value of options granted during the years ended April 30, 1998, 1999 and 2000 is $1.54, $6.43 and $3.30, respectively. Company had accounted for these plans in accordance with 8. INCOME TAXES SFAS No. 123, the Company's net loss and net loss per The provision for income taxes for the years ended April 30, share would have increased as reflected in the following pro 1998, 1999 and 2000 consists of the following: forma amounts: April 30, A P R I L 3 0 , Federal- Current Deferred State- Current Deferred 1 9 9 8 1 9 9 9 2 0 0 0 $234 1,901 $4,996 1,400 $6,089 3,216 2,135 6,396 9,305 41 336 377 888 247 1,135 2,075 878 2,953 Total $2,512 $7,531 $12,258 The weighted-average grant-date fair value of options granted The differences in the provisions for income taxes and the during the years ended April 30, 1998, 1999 and 2000 is amounts determined by applying the Federal statutory rate to $1.54, $6.43 and $3.30, respectively. income before provision for income taxes for the years ended April 30, 1998, 1999 and 2000 are as follows: F I S C A L Y E A R E N D E D A P R I L 3 0 , 1 9 9 8 1 9 9 9 2 0 0 0 Federal Statutory Rate Tax at Statutory Rate State Income Taxes, net of Federal Benefit Meal and Entertainment Disallowance Nondeductible Goodwill Equity in Loss of Oakhurst Other, net 34% $1,478 248 23 114 0 649 34% $4,821 749 29 201 0 1,731 35% $8,960 1,919 77 245 295 762 $2,512 $7,531 $12,258 F I S C A L Y E A R E N D E D A P R I L 3 0 , 1 9 9 9 2 0 0 0 Deferred Tax Assets: Allowance for Doubtful Accounts Treatment of Lease Obligations Accrued Expenses Basis Difference in Partnership Interests Net Operating Loss Carryforwards Alternative Minimum Tax Credit Carryforwards Other Tax Carryforwards Other Total Deferred Tax Assets Less: Valuation Allowance Total Deferred Tax Assets After Valuation Allowance Deferred Tax Liabilities: Accelerated Depreciation of Property and Equipment Amortization of Intangibles Other Total Deferred Tax Liabilities Net Deferred Tax Liability $ 703 59 964 0 367 510 0 575 3,178 0 3,178 (5,014) (1,165) (1,693) (7,872) (4,694) $ 2,818 52 10,645 14,091 30,794 1,795 530 880 61,605 (24,778) 36,827 (49,546) (3,407) (2,092) (55,045) (18,218) 79 0 0 0 2 k - 0 1 m r o f a l l e s a c Deferred income taxes reflect the impact of temporary realized. The Company adjusts the valuation allowance in the differences between the amounts of assets and liabilities period management determines it is more likely than not that recognized for financial reporting purposes and such amounts deferred tax assets will or will not be realized. recognized for income tax purposes. Deferred tax assets and liabilities consist of the 9. EMPLOYEE BENEFIT PLANS following at April 30, 1999 and 2000: The Company offers its eligible employees the opportunity to contribute to a 401(k) plan. Pending board approval, the Company may contribute up to $500 dollars per individual per calendar year. Participants vest in employer contributions At April 30, 2000, the Company has for income tax ratably over a three-year period. Employer contributions for purposes federal net operating loss carryforwards of the years ended April 30, 1998, 1999 and 2000 amounted to approximately $70,507 that expire in years 2003 through $176, $275 and $387, respectively. 2019, state net operating loss carryforwards of approximately In January 1998, the Company implemented its $83,304 that expire in years 2001 through 2019, and Employee Stock Purchase Plan. Under this plan, qualified business tax credit carryforwards of approximately $530 that employees may purchase shares of Class A Common Stock expire in years 2001 through 2006. The federal net operating by payroll deduction at a 15% discount from the market price. loss carryforwards, certain state net operating loss 600,000 shares of Class A Common Stock have been carryforwards and the business tax credit carryforwards are reserved for this purpose. At April 30, 1998, no shares of subject to substantial limitations. In addition, the Company Class A Common Stock have been issued under this plan. has approximately $1,795 minimum tax credit carryforward During the years ended April 30, 1999 and 2000, 5,812 and available that is not subject to limitation. Due to uncertainty of 6,616 shares, respectively, of Class A Common Stock were the utilization of the carryforwards, the Company has issued under this plan. recorded a valuation allowance against approximately $51,805 of the federal net operating loss carryforwards, all of the state 10. RELATED PARTY TRANSACTIONS net operating loss carryforwards and all of the business tax (a) Services credit carryforwards. Since the Company's carryforwards During 1998, 1999 and 2000, the Company retained the were primarily acquired through acquisitions, to the extent services of a related party, a company wholly owned by two 80 that future realization of such carryforwards exceeds the of the Company's major stockholders and members of the Company's current estimates, additional amounts received Board of Directors, as a contractor in closing certain landfills will be recorded as a reduction of goodwill. In assessing the owned by the Company. Total purchased services charged to realizability of carryforwards and other deferred tax assets, operations for each of the three years ended April 30, 1998, management considers whether it is more likely than not that 1999 and 2000 were $4,202, $5,198 and $5,338 some portion or all of the deferred tax assets will not be respectively, of which $50 and $450 were outstanding and included in accounts payable at April 30, 1999 and 2000, (d) Employee Loans respectively. In 1998, the Company entered into agreements The Company has made loans to officers and employees in with this company, totaling approximately $3,000, to the amount of $2,095 during the year ended April 30, 2000. construct a portion of a landfill. In 1999, the Company The notes have required quarterly interest payments but no entered into agreements with this company, totaling fixed repayment terms. Interest is at the Wall Street Journal approximately $4,808, to construct improvements or Prime Rate (9% at April 30, 2000). Notes from officers expansions at three of its landfills. In 2000, the Company consisted of $2,000 at April 30, 2000, with the remainder entered into an agreement with this company, totaling being from employees of the Company. approximately $4,500 to construct a new cell at Clinton (e) Other Relationships County Landfill. (b) Leases On August 1, 1993, the Company entered into two leases for operating facilities with a partnership in which two of the Company's major stockholders and members of the Board of Directors are the general partners. The leases are classified as capital leases in the accompanying Consolidated Balance Sheets. The leases call for monthly payments of approximately $18 and expire in April 2003. Total interest and amortization expense charged to operations for the years ended April 30, 1998, 1999 and 2000 under these agreements was, $245, $237 and $179, respectively. (c) Post-Closure Landfill Two of the Company's stockholders and members of its Board of Directors are also direct stockholders and members of the Board of Directors of OCI, an investee of the Company. These individuals own aggregate shares and options to purchase shares for up to 4% of OCI. 11. SEGMENT REPORTING SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes standards for reporting information about operating segments in financial statements. In general, SFAS No. 131 requires that business entities report selected information about operating segments in a manner consistent with that used for internal management reporting. The Company classifies its operations into Eastern The Company has agreed to pay the cost of post-closure on a (which includes Maine Energy and PERC), Central and landfill owned by certain principal shareholders. The Company Western, Power Generation, Residential Recycling, Finished paid the cost of closing this landfill in 1992, and the post- Products and Commercial Recycling. The Company's closure maintenance obligations are expected to last until revenues in the Eastern, Central and Western segments are 2012. In each of the three years ended April 30, 1998, 1999 derived mainly from one industry segment, which includes the 81 and 2000, the Company paid $3, $3 and $5 respectively, collection, transfer, recycling and disposal of non-hazardous pursuant to this agreement. As of April 30, 1999 and 2000, solid waste. The Company's revenues in the Power the Company has accrued $102 and $96, respectively, for Generation, Residential Recycling, Finished Products and costs associated with its post-closure obligations. Commercial Recycling segments are derived from integrated 0 0 0 2 k - 0 1 m r o f a l l e s a c 82 Year Ended April 30, 1998: Outside Revenue Inter-Segment Revenue Net Income/(Loss) Depreciation & Amortization Merger Costs Impairment Charge Interest Expense (Net) Capital Expenditures Total Assets Year Ended April 30, 1999: Outside Revenue Inter-Segment Revenue Net Income/(Loss) Depreciation & Amortization Merger Costs Interest Expense (Net) Capital Expenditures Total Assets Year Ended April 30, 2000: Outside Revenue Inter-Segment Revenue Net Income/(Loss) Depreciation & Amortization Merger Costs Interest Expense (Net) Capital Expenditures Total Assets Waste Handling and Disposal Eastern Regions Central Regions Western Regions Power Generation Residential Recycling $26,242 $2,241 $(1,830) $3,871 $- $971 $1,418 $6,805 $6,002 $39,240 $2,218 $(895) $5,722 $- $2,067 $17,107 $17,072 $82,310 $15,965 $1,815 $11,917 $1,101 $4,085 $18,092 $390,559 $70,045 $22,410 $4,148 $11,850 $290 $ $3,472 $14,184 $34,387 $79,710 $28,397 $8,368 $12,255 $332 $3,922 $15,328 $34,622 $106,262 $35,572 $15,008 $14,223 $- $3,815 $15,806 $128,416 $47,707 $2,765 $697 $3,774 $- $600 $3,100 $7,326 $18,347 $62,920 $6,711 $2,387 $6,917 $546 $4,051 $19,079 $12,284 $60,671 $12,776 $5,227 $7,847 $389 $2,925 $17,422 $112,237 $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $- $8,606 $(68) $(485) $925 $- $653 $2,176 $51,429 $13,767 $9,242 $3,297 $1,147 $- $1,539 $4,566 $61,509 Finished Products Commercial Recycling Corporate Eliminations Total Year Ended April 30, 1998: Outside Revenue Inter-Segment Revenue Net Income/(Loss) Depreciation & Amortization Merger Costs Impairment Charge Interest Expense (Net) Capital Expenditures Total Assets Year Ended April 30, 1999: Outside Revenue Inter-Segment Revenue Net Income/(Loss) Depreciation & Amortization Merger Costs Interest Expense (Net) Capital Expenditures Total Assets Year Ended April 30, 2000: Outside Revenue Inter-Segment Revenue Net Income/(Loss) Depreciation & Amortization Merger Costs Interest Expense (Net) Capital Expenditures Total Assets $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 23,214 $ - $ (1,874) $ 1,221 $ - $ 1,634 $ 5,920 $ 44,614 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 50,429 $ 13,906 $ 2,745 $ 1,288 $ - $ 937 $ 4,603 $ 55,568 $ 238 $ (14) $ (1,180) $ 464 $ - $ - $ (617) $ 1,101 $ 148,706 $ 687 $ (1) $ (3,245) $ 831 $ 1,073 $ (4,476) $ 2,604 $ 220,084 $ 740 $ 225 $ (15,078) $ 1,963 $ - $ (443) $ 870 $ 39,497 $ (521) $ 143,711 $ (27,402) $ - $ - $ - $ - $ - $ - $ (1,933) $ - $ 1,835 $ 19,959 $ 290 $ 1,571 $ 7,373 $ 29,416 $ 205,509 $ - $ 182,557 $ (37,325) $ - $ - $ - $ - $ - $ (1,933) $ (8,652) $ (87,618) $ 395 $ (320) $ - $ (111) $ - $ - $ 6,615 $ 25,725 $ 1,951 $ 5,564 $ 54,118 $ 282,129 $ 337,347 $ - $ 11,050 $ 40,211 $ 1,490 $ 15,034 $ 69,455 $ (11,652) $ 872,177 83 0 0 0 2 k - 0 1 m r o f a l l e s a c 2 0 0 0 Revenues As Reported As Restated Operating Income As Reported As Restated Income Before Income Taxes, Discontinued Operations and Extraordinary Item As Reported As Restated Net Income As Reported As Restated Basic Earnings per Share As Reported As Restated Diluted Earnings per Share As Reported As Restated First Quarter (1) Second Quarter (1) Third Quarter Fourth Quarter 55,036 54,676 7,180 7,333 5,632 5,787 3,041 3,041 0.19 0.19 0.18 0.18 56,120 55,748 9,620 9,925 8,459 8,618 4,872 4,872 0.30 0.30 0.30 0.30 93,004 93,004 9,946 9,946 5,291 5,291 755 755 0.04 0.04 0.04 0.04 133,919 133,919 15,596 15,596 5,905 5,905 2,382 2,382 0.10 0.10 0.10 0.10 waste handling services, including processing and recycling of (1) The first two quarters of fiscal 2000 were restated to wood, paper, metals, plastics and glass, municipal solid waste present the effects of discontinued operations (see Note 6). processing and disposal, specialty waste disposal, ash residue recycling, brokerage of recycled materials and the 13. SUBSEQUENT EVENTS manufacturing of finished products using recycled materials. The Company has entered into an agreement, in June 2000 Any other activities in which the Company is engaged are not with Louisiana-Pacific Corporation to combine their respective material to the total results of operations of the Company; cellulose insulation businesses into a single operating entity these activities are reflected within the reporting structure under a joint venture agreement effective August 1, 2000. 84 outlined above. The accounting policies of the business The Company will contribute the operating assets of its segments are the same as those described in Note 1. cellulose insulation manufacturing business together with 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED) The following is an analysis of certain items in the $2,500 in cash. The new Company, to be known as U.S. Green Fiber LLC, is an equally owned joint venture formed through the combination of Louisiana-Pacific's GreenStone Consolidated Statements of Operations by quarter for 2000 Industries, Inc. and the Company's U.S. Fiber, Inc. operations. and 1999. The new entity will supply cellulose insulation to existing 1 9 9 9 Revenues As Reported As Restated Operating Income As Reported As Restated Income Before Income Taxes, Discontinued Operations and Extraordinary Item As Reported As Restated Net Income As Reported As Restated Basic Earnings per Share As Reported As Restated Diluted Earnings per Share As Reported As Restated First Quarter (1) Second Quarter (1) Third Quarter Fourth Quarter 45,084 44,673 5,435 5,390 3,796 3,753 2,121 2,121 0.16 0.16 0.15 0.15 47,813 47,422 5,185 5,185 4,126 4,130 2,208 2,208 0.14 0.14 0.13 0.13 44,109 44,109 3,749 3,749 2,529 2,529 879 879 0.06 0.06 0.05 0.05 46,353 46,353 5,067 5,067 3,767 3,767 1,407 1,407 0.09 0.09 0.08 0.08 (1) The first two quarters of fiscal 2000 were restated to present the effects of discontinued operations (see Note 6). residential construction, retail and manufactured housing ITEM 9. CHANGES IN AND DISAGREEMENTS WITH supply channels. ACCOUNTANTS ON ACCOUNTING AND On June 28, 2000, the Company has entered into an FINANCIAL DISCLOSURE agreement with Berkshire Partners of Boston, Massachusetts None. to issue $55.8 million worth of redeemable convertible preferred stock, which may convert into Class A Common Stock at $14.00 per share. Proceeds will be used to pay down debt and continue the Company's strategic plan. Although there are no assurances, it is anticipated that the agreement will close in August 2000. PART III Items 10, 11, 12 and 13 of Part III (except for information required with respect to executive officers of the Company which is set forth under "Executive Officers of the Company" in Item 1 of Part I of this report) have been omitted from this report, since the Company expects to file with the Securities 85 0 0 0 2 k - 0 1 m r o f a l l e s a c and Exchange Commission, not later than 120 days after the thereto, among Casella Waste Systems, Inc. ("Casella"), KTI, Inc. close of its fiscal year, a definitive proxy statement. The ("KTI") and Rutland Acquisition Sub, Inc. (incorporated herein by information required by Items 10, 11, 12 and 13 of this reference to Annex A to the registration statement on Form S-4 report, which will appear in the definitive proxy statement, is as filed November 12, 1999(file no,.333-90913)). incorporated by reference into Part III of this report. 3.1 Amended and Restated Certificate of Incorporation of PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K Casella (incorporated herein by reference to Exhibit 4.1 to the registration statement on Form S-8 of Casella as filed November 18, 1998(file no. 333-67487)). 3.3 Second Amended and Restated By-Laws of Casella (incorporated herein by reference to Exhibit 3.4 to the registration statement on Form S-1 of Casella as filed September 24, 1997 (file no. 333-33135)). Item 14(a)(1) Consolidated Financial Statements included 4.1 Form of stock certificate of Casella Class A Common under Item 8: Stock (incorporated herein by reference to Exhibit 4 to Report of Independent Public Accountants Amendment No. 2 to the registration statement on Form S-1 of Consolidated Balance Sheets as of April 30, 1999 and 2000 Casella as filed October 9, 1997 (file no. 333-33135)). Consolidated Statements of Operations for the Years Ended 10.1 1993 Incentive Stock Option Plan (incorporated herein April 30, 1998, 1999 and 2000. by reference to Exhibit 10.1 to the registration statement on Form Consolidated Statements of Redeemable Preferred Stock, S-1 of Casella as filed August 7, 1997 (file no. 333-33135)). Redeemable Put Warrants and Stockholders' Equity for the 10.2 1994 Nonstatutory Stock Option Plan (incorporated Years Ended April 30, 1998, 1999 and 2000. herein by reference to Exhibit 10.2 to the registration statement on Consolidated Statements of Cash Flow for the Years Ended Form S-1 of Casella as filed August 7, 1997 (file no. 333-33135)). April 30, 1998, 1999 and 2000. 10.3 1996 Stock Option Plan (incorporated herein by Notes to Consolidated Financial Statements reference to Exhibit 10.3 to the registration statement on Form S- Item 14(a)(2) Schedule II - Valuation and Qualifying 1 of Casella as filed August 7, 1997 (file no. 333-33135)). Accounts 10.4 1997 Non-Employee Director Stock Option Plan Schedule II - Allowance for Doubtful Accounts (incorporated herein by reference to Exhibit 10.5 to Amendment Item 14(a)(3) Exhibits: 86 No. 1 to the registration statement on Form S-1 of Casella as filed September 24, 1997 (file no. 333-33135)). The following Exhibits are filed as part of this report under 10.5 Amended and Restated 1997 Stock Incentive Plan Item 14(c): ExhibitNo. Description (incorporated herein by reference to the Definitive Proxy Statement on Schedule 14A of Casella as filed September 21, 1998). 10.6 Registration Rights Agreement between Casella and 2.1(1) Agreement and Plan of Merger dated as of January Susan Olivieri and Robert MacNeil, dated January 3, 1996 12, 1999 and as amended by Amendments No. 1, 2 and 3 (incorporated herein by reference to Exhibit 10.6 to Amendment No. 1 to the registration statement on Form S-1 of Casella as dated as of January 17, 1997 (incorporated herein by reference filed September 24, 1997 (file no. 333-33135)). to Exhibit 10.13 to the registration statement on Form S-1 of 10.7 1995 Stockholders Agreement between Casella and Casella as filed August 7, 1997 (file no. 333-33135)). the stockholders who are a party thereto, dated as of December 10.14 Reorganization Agreement by and among Kenneth H. 22, 1995 (incorporated herein by reference to Exhibit 10.7 to the Mead, Superior Disposal Services, Inc., Kensue, Inc., S.D.S. at registration statement on Form S-1 of Casella as filed August 7, PA, Inc. and Claws Refuse, Inc., dated as of January 17, 1997 1997 (file no. 333-33135)). (incorporated herein by reference to Exhibit 10.14 to the 10.8 1995 Registration Rights Agreement between Casella registration statement on Form S-1 of Casella as filed August 7, and the stockholders who are a party thereto, dated as of 1997 (file no. 333-33135)). December 22, 1995 (incorporated herein by reference to Exhibit 10.15 Termination of Lease Agreement by and between 10.8 to the registration statement on Form S-1 of Casella as filed Casella Associates and Casella Waste Management, Inc. dated August 7, 1997 (file no.333-33135)). September 25, 1996 (incorporated herein by reference to Exhibit 10.9 1995 Repurchase Agreement between Casella and 10.15 to the registration statement on Form S-1 of Casella as the stockholders who are a party thereto, dated as of December filed August 7, 1997 (file no. 333-33135)). 22, 1995 (incorporated herein by reference to Exhibit 10.9 to the 10.16 Amended and Restated Revolving Credit and Term registration statement on Form S-1 of Casella as filed August 7, Loan Agreement between the Registrant and BankBoston, dated 1997 (file no. 333-33135)). as of January 12, 1998 (incorporated herein by reference to 10.10 Management Services Agreement between Casella, Exhibit 10.13 to the registration statement on Form S-1 of Casella BCI Growth III, L.P., North Atlantic Venture Fund, L.P., and as filed June 3, 1998 (file no. 333-55879)). Vermont Venture Capital Fund, L.P., dated as of December 22, 10.17 Lease Agreement, as Amended, between Casella 1995 (incorporated herein by reference to Exhibit 10.10 to the Associates and Casella Waste Management, Inc., dated registration statement on Form S-1 of Casella as filed August 7, December 9, 1994 (Rutland lease) (incorporated herein by 1997 (file no. 333-33135)). reference to Exhibit 10.17 to the registration statement on Form 10.11 Warrant to Purchase Common Stock of Casella S-1 of Casella as filed August 7, 1997 (file no. 333-33135)). granted to John W. Casella, dated as of July 26, 1993 10.18 Lease Agreement, as Amended, between Casella (incorporated herein by reference to Exhibit 10.11 to Amendment Associates and Casella Waste Management, Inc., dated No. 1 to the registration statement on Form S-1 of Casella as December 9, 1994 (Montpelier lease) (incorporated herein by filed September 24, 1997 (file no. 333-33135)). reference to Exhibit 10.18 to the registration statement on Form 10.12 Warrant to Purchase Common Stock of Casella S-1 of Casella as filed August 7, 1997 (file no. 333-33135)). 87 granted to Douglas R. Casella, dated as of July 26, 1993 10.19 Furniture and Fixtures Lease Renewal Agreement (incorporated herein by reference to Exhibit 10.12 to Amendment between Casella Associates and Casella Waste Management, No. 1 to the registration statement on Form S-1 of Casella as Inc., dated May 1, 1994 (incorporated herein by reference to filed September 24, 1997 (file no. 333-33135)). Exhibit 10.19 to the registration statement on Form S-1 of Casella 10.13 Asset Purchase Agreement by and among Kenneth H. as filed August 7, 1997 (file no. 333-33135)). Mead, Kerkim, Inc. and Casella Waste Management of N.Y., 0 0 0 2 k - 0 1 m r o f a l l e s a c 10.20 Lease, Operations and Maintenance Agreement 10.27 Amendment No. 1 to Registration Rights Agreement by between CV Landfill, Inc and the Registrant dated June 30, 1994 and among the Registrant, the All Cycle Stockholders, Winters (incorporated herein by reference to Exhibit 10.20 to the Family Partnership and Goldman, Sachs & Co., dated as of June 3, registration statement on Form S-1 of Casella as filed August 7, 1998. (incorporated herein by reference to Exhibit 10.24 to the 1997 (file no. 333-33135)). registration statement on Form S-1 of Casella as filed June 3, 10.21 Restated Operation and Management Agreement by 1998 (file no. 333-55879)). and between Clinton County (N.Y.) and the Registrant dated 10.28 Amendment No. 2 to Lease Agreement, by and September 9, 1996 (incorporated herein by reference to Exhibit between Casella Associates and Casella Waste Management, Inc., 10.21 to the registration statement on Form S-1 of Casella as filed dated as of November 20, 1997 (Rutland lease). (incorporated August 7, 1997 (file no. 333-33135)). herein by reference to Exhibit 10.25 to the registration statement 10.22 Labor Utilization Agreement by and between Clinton on Form S-1 of Casella as filed on June 25, 1998 (file no. 333- County (N.Y.) and the Registrant dated August 7, 1996 57745)). (incorporated herein by reference to Exhibit 10.22 to the 10.29 Amendment No. 1 to Stock Option Agreement registration statement on Form S-1 of Casella as filed August 7, (incorporated herein by reference to the Current Report on Form 1997 (file no. 333-33135)). 8-K of Casella as filed May 13, 1999). 10.23 Lease and Option Agreement by and between Waste 10.30 Agreement between Penobscot Energy Recovery U.S.A., Inc. and New England Waste Services of Vermont, Inc., Company and Bangor Hydro-Electric Company dated June 21, dated December 14, 1995 (incorporated herein by reference to 1984, as amended (incorporated herein by reference to Exhibit Exhibit 10.23 to the registration statement on Form S-1 of Casella 10.2 to the registration statement on Form S-4 of KTI as filed as filed August 7, 1997 (file no. 333-33135)). October 18, 1994 (file no. 33-85234)). 10.24 Consulting and Non-Competition Agreement between 10.31 Agreement between Timber Energy Resources, Inc. and Casella and Kenneth H. Mead, dated January 23, 1997 Florida Power Corporation dated December 31, (incorporated herein by reference to Exhibit 10.24 to the 1984.(incorporated herein by reference to exhibit 10.31 to the registration statement on Form S-1 of Casella as filed August 7, registration statement on Form S-4 as filed November 12, 1997 (file no. 333-33135)). 1999(file no. 333-90913)). 10.25 Issuance of Shares by Casella to National Waste 10.32 Steam Agreement between Multitrade Group, Inc. and Industries, Inc., dated October 19, 1994 (incorporated herein by Tultex Corporation dated August 11, 1987, as reference to Exhibit 10.25 to the registration statement on Form S- amended.(incorporated herein by reference to Exhibit 10.32 to the 88 1 of Casella as filed August 7, 1997 (file no. 333-33135)). registration statement on Form S-4 as filed November 12, 10.26 Registration Rights Agreement by and among Casella, 1999(file no. 333-90913)). Joseph M. Winters, Andrew B. Winters, Brigid Winters, Sean 10.33 Form of Penobscot Energy Recovery Company Waste Winters and Maureen Winters (the "All Cycle Stockholders"), Disposal Agreement (City of Bangor) dated April 1, 1991 and dated as of December 19, 1997. (incorporated herein by reference Schedule of Substantially Identical Waste Disposal Agreements Exhibit 10.23 to the registration statement filed on Form S-1 of (incorporated herein by reference to Exhibit 10.3 to the registration Casella as filed June 3, 1998 (file no. 333-55879)). statement on Form S-4 of KTI as filed October 18, 1994 (file no. 33- reference to Exhibit 4.1 to the Current Report on Form 8-K of KTI as 85234)). filed July 8, 1998). 10.34 Steam Agreement between Multitrade Group, Inc. and 10.41 Second Amended and Restated Waste Disposal Bassett-Walker, Inc. dated March 1, 1993, as amended.(incorporated Agreements between Penobscot Energy Recovery Company and the herein by reference to Exhibit 10.34 to the registration statement on Municipal Review Committee, Inc. dated June 26, 1998 (incorporated Form S-4 as filed November 12, 1999(file no. 333-90913)). 10.35 herein by reference to Exhibit 4.2 to the Current Report on Form 8-K Power Purchase Agreement between Maine Energy Recovery of KTI as filed July 8, 1998). Company and Central Maine Power Company dated January 12, 1984, 10.42 Non-Exclusive License to Use Technology between KTI as amended (incorporated herein by reference to Exhibit 10.8 to the and Oakhurst Technology, Inc. dated December 29, 1998 registration statement on Form S-4 of KTI as filed October 18, 1994 (incorporated herein by reference to Exhibit 4.5 to the Current Report (file no. 33-85234)). on Form 8-K of KTI as filed January 15, 1999) 10.36 Host Municipalities' Waste Handling Agreement among 10.43* Employment Agreement between Casella Waste Biddeford-Saco Solid Waste Committee, City of Biddeford, City of Saco Systems, Inc. and John W. Casella dated December 8, 1999. and Maine Energy Recovery Company dated June 7, 1991 (incorporated 10.44* Employment Agreement between Casella Waste herein by reference to Exhibit 10.10 to the registration statement on Form Systems, Inc. and James W. Bohlig dated December 8, 1999. S-4 of KTI as filed October 18, 1994 (file no. 33-85234)). 10.45* Employment Agreement between Casella Waste 10.37 Form of Maine Energy Recovery Company Waste Handling Systems, Inc. and Jerry S. Cifor dated December 8, 1999. Agreement (Town of North Berwick) dated June 7, 1991 and Schedule of 10.46* Employment Agreement between Casella Waste Substantially Identical Waste Disposal Agreements (incorporated herein by Systems, Inc. and Martin J. Sergi dated December 8, 1999. reference to Exhibit 10.11 to the registration statement on Form S-4 of KTI 10.47* Employment Agreement between Casella Waste as filed October 18, 1994 (file no. 33-85234)). Systems, Inc. and Ross Pirasteh dated December 8, 1999. 10.38 Third Amendment to Power Purchase Agreement between Maine Energy Recovery Company, L.P. and Central Maine Power Company dated November 6, 1995.(incorporated herein by reference to Exhibit 10.38 to the registration statement on Form S-4 as filed November 12, 1999(file no. 333-90913)). 21.1 23.1 27.1 2000. 27.2 Subsidiaries of Casella Waste Systems, Inc. Consent of Arthur Andersen LLP. Financial Data Schedule - for the year ended April 30, Financial Data Schedule - for the year ended April 30, 10.39 Steam Supply and Operating Agreement between 1999 - as restated. Multitrade Group, Inc. and E.I. DuPont De Nemours & Co. dated 27.3 Financial Data Schedule - for the year ended April 30, February 11, 1998, as amended.(incorporated herein by reference to 1998 - as restated. 89 Exhibit 10.39 to the registration statement on Form S-4 as filed * - Management Compensation Agreements November 12, 1999(file no. 333-90913)). 10.40 Amendment No. 2 to Power Purchase Agreement Item 14(b) Reports on Form 8-K between Penobscot Energy Recovery Company, L.P. and Bangor- During the quarter ended April 30, 2000 the Company filed no Hydro Electric Company dated June 26, 1998 (incorporated herein by reports on Form 8-K: 0 0 0 2 k - 0 1 m r o f a l l e s a c 90 S I G N AT U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. CASELLA WASTE SYSTEMS, INC. By: /s/ John W. Casella ------------ John W. Casella President and Chief Executive Officer Date: August 4, 2000 /s/ JOHN W. CASELLA John W. Casella /s/ JAMES W. BOHLIG James W. Bohlig /s/ JERRY S. CIFOR Jerry S. Cifor Douglas R. Casella /s/ JOHN F. CHAPPLE III John F. Chapple III /s/ GREGORY B. PETERS Gregory B. Peters President and Chief Executive Officer, Director Senior Vice President and Chief Operating Officer, Director Senior Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) Director Director Director August 4, 2000 August 4, 2000 August 4, 2000 August 4, 2000 August 4, 2000 August 4, 2000 Pursuant to the requirements of the Securities Exchange Act Ross Pirasteh /s/ ROSS PIRASTEH Chairman of the Board of Directors August 4, 2000 of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ MARTIN J. SERGI Martin J. Sergi George Mitchell Wilbur L. Ross Jr. Director Director Director August 4, 2000 August 4, 2000 August 4, 2000 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS state in all material respects the financial data required to be set ON SCHEDULE forth therein in relation to the basic financial statements taken as a whole. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Valuation Accounts Schedule (Schedule II), is presented for purposes of complying with the Securities and Exchange Commission's rules Arthur Andersen LLP /s/ Arthur Andersen LLP Boston Massachusetts and are not part of the basic financial statements. This Schedule June 30, 2000 has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly Don’t wait for the annual report to follow our progress. 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