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2 0 0 3 A N N U A L
R E P O R T
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
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We have always pursued, even when
all we had was a truck or two,
a single idea—the creation of value.
Today, at this point in our twenty-eight
year history, we’re still passionate
about that same purpose.
The opportunities and challenges
may change, we may be a little older
(and wiser!), but we are driven by that
same need: the creation of value.
Here’s how we’re doing it now.
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
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Neat idea…what’s it mean?
Where we live, be the leading
resource in every market,
in every service,
for every customer.
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
As of July 1, 2003
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#1 OR #2 IN
OF THE MARKETS WE SERVE
COLLECTION DIVISIONS
DISPOSAL FACILITIES
TRANSFER STATIONS
THE PREMIER MUNICIPAL
RECYCLING SERVICE PROVIDER
LEGEND
Eastern Region
Central Region
Western Region
FCR Region
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
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No gut-twisting, heart-stopping
thrill ride here. No, sir.
You can count on us to stick
to what we know how to do—
grow thoughtfully and
purposefully. Meet expectations.
Deliver performance.
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
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FOCUS ON
REVENUE
COLLECTIONS
Post-divestitures, our revenue is once again
TRANSFER
generated by traditional, integrated solid waste
and recycling operations.
LANDFILL/DISPOSAL
RECYCLING
2003
51%
12%
16%
21%
(BASED ON 2003 ACTUAL REVENUES, NET OF BROKERAGE REVENUE)
$450
DEBT
$310
Aggressive divestitures, smart balance sheet
management and predictable cash flow have
allowed us to lower our debt, positioning us to
continue to deliver consistent performance.
2000
2003
TOTAL DEBT OUTSTANDING
(IN MILLIONS)
ORGANIC
5.3%
Our focus on market leadership
makes growth a reliable part of
the Casella story...even in the
face of changing or uneven
economic conditions.
3.3%
2002
2003
ORGANIC GROWTH
(EXCLUDING DIVESTITURES)
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
PURSUE
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This is where most companies
unveil their plan to be the sole,
leading provider of services in the
entire universe. Godspeed.
Fortunately, in our simple corner of
the planet, there are significant
opportunities to grow and prosper,
today and tomorrow. We will
pursue them. With discipline,
with energy, with focus.
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
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CORE MARKET
Through the development of our people,
our mission is to become the premier
solid waste services company in
North America. Our vision? Double the
size of our business by the continued
concentration of our existing core
$300 MILLION
franchise over the next three to five years.
Here are the opportunities we see.
Our region remains largely unconsolidated.
Numerous opportunities to densify our
existing markets exist in areas such as upstate
$150 MILLION
New York and eastern Massachusetts.
As major publicly traded companies seek
to rationalize markets in the northeastern
United States, we remain the logical
buyer for many of these assets.
$170 MILLION
We’ve identified key development
opportunities in our core region,
ranging from disposal assets to
collection operations that we
believe would provide significant
platforms for growth.
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
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OUR MARKET LEADERSHIP
We don’t want to be just a mile
wide and an inch deep. We want to
be a mile wide a mile deep.
and
It’s about how we “flood the zone”
(remember that?). It’s about getting
better at everything we do.
It’s about continuing to build an
unparalleled infrastructure, market
by market. It’s about continuing to
develop highly skilled people not
just meeting, but exceeding,
expectations (including yours).
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
CONTINUOUSLY
From safety to customer service, we’re obsessive about
getting better at everything we do. And we do mean
everything. Every day. Like what? We reduced our
employee turnover rate by over 25% and the amount of
workman’s compensation claims by 24% in 2003.
OUR FRANCHISE
We’re building density in our markets, focusing on
reducing costs and improving the efficiency of our
operations. For example, in one of our major markets,
routing efficiency increased 44% through tuck-in
acquisitions and newly implemented routing software.
17
ADD
CAPACITY
Our most important strategic focus, adding
disposal capacity, is the linchpin of our growth
plan. Our opportunities range from municipal
partnerships to the acquisition of existing facilities.
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C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
TO OUR FELLOW
In every period and at every stage of our company’s history,
“Flooding the Zone”
whether we were serving our first handful of customers, or
We have built a collection of assets and operations—from
several hundred thousand throughout the eastern United States,
disposal to collection to recycling—in our core markets that has
one of our most important motivations has been to create value.
made us the premier integrated waste management solution for
This deep, enduring mission has been a powerful guide for
a broad range of customers. This platform, which we believe
us—it has shaped our approach to our markets and our
cannot be easily duplicated by competitors, gives us a
customers, it has defined our priorities, and driven our decisions
significant, long-term competitive edge.
and strategies.
Our primary focus in this area will be the addition of disposal
The question for us is, and always has been: are we
capacity throughout our markets, and particularly in our eastern
creating long-term value?
and western regions.
It’s what we talk about during budget meetings, or when
we’re evaluating an acquisition. It’s what we’re aiming for when
“Stable and Predictable”
we introduce a new training or safety program. It’s what we see
Through divestitures and other strategic efforts, we have
when we’re building an information systems infrastructure.
spent a great deal of time over the last few years returning to
And while we’ve been fortunate to cross paths with many,
our roots as a traditional solid waste services company.
many opportunities to create value over most of the last 28
Indeed, the vast majority of our cash flow is generated by
years, I have never been more certain that this company is as
these assets. One of the most important pillars of value that
well positioned to create value today as it has at any other time
these businesses represent is their stability and predictability
in our history.
generally, but also, combined with our market leadership,
Of course, for each enterprise, those opportunities and paths to
reliable, consistent performance. Evidence of this can be seen
value are different, as are the characteristics of each company. What
in our ability to grow pricing, even in a challenging economy.
is exciting to us are those opportunities, paths and characteristics
We also put a new capital structure in place in January 2003
that are particularly unique to Casella Waste Systems.
with the sale of $150 million in senior subordinated notes, and
What you’ve seen in the preceding pages is the Casella
the closing of a new senior secured credit facility. Combined with
Waste Systems formula for creating value—what’s worked for us
our aggressive effort to continue to reduce our debt, we feel
in the past. Hopefully, we’ve also created for you an understanding
this new capital structure not only gives us the flexibility to
of what lies ahead—our strengths, our opportunities and our
pursue responsible growth, but also provides a foundation for
priorities—and what the creation of value will look like.
consistent, reliable financial performance.
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“Our Mission and Vision”
employees come to work every day with the purpose of creating
Through the development of our people, our mission is to
value—for our customers, for our shareholders, for our
become the premier solid waste services company in North
communities and for their families. It simply does not get done
America. Our vision? Double the size of our business by the
without them.
continued concentration of our existing core franchise over the
They have embraced everything we’ve asked of them—and
next three to five years. We are blessed with a significant
more. From safety to training, they are committed to continuous
number of opportunities in our core northeastern U.S. markets
improvement and service. They are raising their own standards
where we can enhance and fully leverage our dominant waste
and strengthening their own fundamental skills.
services infrastructure. We’ve identified them, and have a
They have made Casella Waste Systems a great team, and
disciplined, energetic plan in place to pursue them.
a place I’m proud to go to work every day. I want to thank them
Of all our opportunities, whether they be tuck-ins,
for their hard work; as an investor/owner, you should, too.
divestitures from other companies, or strategic acquisitions, our
top priority is the addition of disposal capacity throughout our
Thank you for your support.
region. We are aggressively pursuing both the acquisition of
existing facilities and the development of municipal partnerships,
Sincerely,
which is a particular Casella Waste Systems strength.
We’re already delivering results. In March 2003, we
acquired the Hardwick Landfill in central Massachusetts, a
construction and demolition debris facility with the potential to
John W. Casella,
permit additional municipal solid waste volumes.
Chairman & Chief Executive Officer
In July, we announced a twenty-year service agreement with
August 15, 2003
the town of Templeton, Massachusetts to construct and operate
a new Subtitle D landfill. We expect this facility to become an
important regional disposal resource in eastern Massachusetts
when it becomes operational sometime in mid-2004.
Creating Value Every Day
Each of the more than 2,500 Casella Waste Systems
C A S E L
L A W A S T E S Y S T E M S
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T H E C R E A T
I O N O F
V A L U E
WE’RE
More than 2,500 people pursuing a vision.
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FORM
U N I T E D S TAT 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
WA S H I N G T O N , D . C . 2 0 5 4 9
F O R M 1 0 - K
(Mark One)
X
For Annual and Transition Reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended April 30, 2003
OR
❏ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
C O M M I S S I O N F I L E N U M B E R
000-23211
(Exact name of registrant as specified in its charter)
D E L AWA R E
(State or other jurisdiction of incorporation or organization)
( 8 0 2 ) 7 7 5 - 0 3 2 5
( Registrant’s telephone number, including area code)
0 3 - 0 3 3 8 8 7 3
(I.R.S. Employer Identification No.)
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
(Address of principal executive offices)
0 5 7 0 1
( Z i p C o d e )
N O N E
( Securities registered pursuant to Section 12(b) 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 PA R VA L U E
( Securities registered pursuant to Section 12(g) of the Act)
Indicate by check mark 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
No ❏
such reports), and (2) has been subject to such filing requirements for the past 90 days. ........................................Yes ❏
X
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. ........................................................................❏
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)....Yes ❏ No ❏
The aggregate value of the voting stock held by non-affiliates of the registrant, based on the last sale price of the
X
registrant's Class A common stock at the close of business on October 31, 2002 was $110,942,700. The Company
does not have any non-voting common stock outstanding.
There were 22,787,282 shares of Class A common stock, $.01 par value per share, of the registrant outstanding
as of July 1, 2003. There were 988,200 shares of Class B common stock, $.01 par value per share, of the
registrant outstanding as of July 1, 2003.
C A S E L
L A W A S T E S Y S T E M S
22
❏
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2 0 0 3
F O R M
1 0 K
D O C U M E N T S I N C O R P O R AT E D B Y R E F E R E N C E
Items 10, 11, 12 and 13 of Part III (except for information required with respect to executive officers of the Company, which is set forth
under Part I—Business—"Executive Officers and Other Key Employees of the Company" and with respect to certain equity compensation
plan information which is set forth under Part III—"Equity Compensation Plan Information") have been omitted from this Annual Report on
Form 10-K, since the Company expects to file with the Securities and Exchange Commission, not later than 120 days after the close of
its fiscal year, a definitive proxy statement. The information required by Items 10, 11, 12 and 13 of Part III of this report, which will appear
in the definitive proxy statement, is incorporated by reference into this Annual Report on Form 10-K.
I T E M 1 . B U S I N E S S
Casella Waste Systems, Inc. is a vertically-integrated regional solid waste services company that provides collection, transfer, disposal and
recycling services to approximately 293,000 residential customers and 50,000 industrial and commercial customers, primarily in the eastern
United States. We believe we are currently the number one or number two provider of solid waste collection services in 80% of the areas
served by our collection divisions. As of July 1, 2003, we owned and/or operated five Subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 37 solid waste collection operations, 33 transfer stations, 37 recycling facilities, one waste-to-energy
facility and a 50% interest in a joint venture that manufactures, markets and sells cellulose insulation made from recycled fiber.
O V E R V I E W O F O U R B U S I N E S S
Background—Casella was founded in 1975 as a single truck operation in Rutland, Vermont and subsequently expanded to include
operations in New Hampshire, Maine, upstate New York, northern Pennsylvania and eastern Massachusetts. In 1993, we initiated an
acquisition strategy to take advantage of anticipated reductions in available landfill capacity in Vermont and surrounding states due to
increasing environmental regulation and other market forces driving consolidation in the solid waste services industry. In 1995, we
expanded our operations from Vermont and New Hampshire to Maine with the acquisition of the companies comprising New England
Waste Services of ME, Inc., and in January 1997 we established a market presence in upstate New York and northern Pennsylvania
through our acquisition of Superior Disposal Services, Inc.'s business. From May 1, 1994 through December 30, 1999, when we acquired
KTI, Inc., we acquired 161 solid waste businesses, including five Subtitle D landfills.
In 1997, we raised $50.2 million from the initial public offering of shares of our Class A common stock. In 1998, we raised an
additional $41.3 million through a follow-on public offering of an additional 1.6 million shares of Class A common stock. In August 2000,
we sold 55,750 shares of our Series A redeemable convertible preferred stock to Berkshire Partners LLC, an investment firm, and other
investors for $55.8 million.
KTI Acquisition and Restructuring—In December 1999, we acquired KTI, an integrated provider of waste processing services, for
aggregate consideration of $340.0 million. KTI represented a unique opportunity to acquire disposal capacity and collection operations in
our primary market area and in contiguous markets in eastern Massachusetts, as well as other businesses which fit within our operating
strategy. KTI assets which we considered core to our operations included the following:
• A majority interest in Maine Energy Recovery Company, Limited Partnership, a waste-to-energy facility which provided us with important
additional disposal capacity in our Eastern region and which generates electric power for sale. We subsequently acquired the remaining
ownership interest in this facility;
• FCR, which consisted of 18 recycling facilities (now 22) that process and market recyclable materials under long-term contracts with
municipalities and commercial customers. FCR also included a brokerage business;
• Transfer and collection operations which were "tuck-ins" to our existing Maine operations; and
• Cellulose insulation plants which manufacture cellulose insulation for use in residential dwellings and manufactured housing and which
consume significant fiber produced from the residential recycling business of FCR.
Following our acquisition of KTI, we focused on the integration of KTI and the divestiture of non-core KTI assets, which included tire
recycling assets, commercial recycling facilities, mulch recycling, certain waste-to-energy facilities in Florida and Virginia, a waste-to-oil
remediation facility and a broker and a processor of high density polyethylene. We also sold our majority interest in another waste-to-
energy facility in Maine that we acquired as part of KTI. As part of this divestiture program, in the fourth quarter of fiscal year 2001, we
incurred non-recurring charges of $111.7 million, of which $90.6 million were non-cash, relating to the impairment of goodwill from the
acquisition of KTI, the closure of certain facilities, severance payments to terminated employees and losses on sale of non-core assets.
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We have completed the divestiture program for aggregate consideration of $107.6 million, including cash proceeds of $61.7 million which
were used to reduce our indebtedness.
In September 2002, we transferred our export brokerage operations to former employees who had been responsible for managing
that business. In June 2003, we completed the transfer of our domestic brokerage operations and a commercial recycling business to
employees who managed those businesses, in exchange for notes receivable of approximately $5.0 million, payable to the extent of cash
flow of the businesses.
S O L I D WA S T E O P E R AT I O N S
Our solid waste operations comprise a full range of non-hazardous solid waste services, including collection operations, transfer stations,
material recycling facilities and disposal facilities.
Collections—A majority of our commercial and industrial collection services are performed under one-to-three-year service agreements,
with prices and fees determined by such factors as collection frequency, type of equipment and containers furnished, the type, volume
and weight of solid waste collected, distance to the disposal or processing facility and cost of disposal or processing. Our residential
collection and disposal services are performed either on a subscription basis (i.e., with no underlying contract) with individuals, or through
contracts with municipalities, homeowner associations, apartment building owners or mobile home park operators.
Transfer Stations—Our transfer stations receive, compact and transfer solid waste collected primarily by various collection operations, for
transport to disposal facilities by larger vehicles. We believe that transfer stations benefit us by:
(1) increasing the size of the wastesheds which have access to our landfills;
(2) reducing costs by improving utilization of collection personnel and equipment; and
(3) helping us build relationships with municipalities and other customers by providing a local physical presence and enhanced local
service capabilities.
Material Recycling Facilities—Our Material Recycling Facilities, or MRFs, receive, sort, bale and resell recyclable materials originating
from the municipal solid waste stream, including newsprint, cardboard, office paper, containers and bottles. Through FCR, we operate 22
MRFs in geographic areas not served by our collection divisions or disposal facilities. Revenues are received from municipalities and
customers in the form of processing and tipping fees and commodity sales. These MRFs are large scale, high-volume facilities that
process recycled materials delivered to them by municipalities and commercial customers under long term contracts. We also operate
additional MRFs as an integral part of our core solid waste operations, which generally process recyclables collected from our various
residential collection operations. This latter group is concentrated primarily in Vermont, as the public sector in other states within our core
solid waste services market area have generally maintained primary responsibility for recycling efforts.
Disposal Facilities—We dispose of solid waste at our landfills and at our waste-to-energy facility.
Landfills—The following table (in thousands) reflects landfill capacity and airspace changes, as measured in tons, as of April 30, 2001,
2002 and 2003, for landfills we operated during the years then ended:
APRIL 30, 2001
APRIL 30, 2002
APRIL 30, 2003
Estimated
Estimated
Remaining Additional
Permitted Permittable
Capacity
in Tons
(1)(2)
in Tons
Capacity Estimated
Total
(1)(3) Capacity
Estimated
Estimated
Additional
Remaining
Permitted Permittable
Capacity
in Tons
(1)(2)
in Tons
(1)(3)
Capacity Estimated
Total
Capacity
Estimated
Estimated
Additional
Remaining
Permitted Permittable
Capacity
in Tons
(1)(2)
Capacity Estimated
Total
(1)(3) Capacity
in Tons
Balance, beginning of period
Acquisitions
New expansions pursued(4)
Permits granted
Airspace consumed
Changes in engineering estimates
5,822
—
—
2,138
(995)
31
4,900
—
—
(1,964)
—
32
10,722
—
—
174
(995)
63
6,996
—
—
3,334
(1,232)
(147)
2,968
—
17,201
(2,962)
—
(22)
9,964
—
17,201
372
(1,232)
(169)
8,951
607
(183)
—
(1,373)
(689)
17,185
422
5,663
—
—
(956)
26,136
1,029
5,480
—
(1,373)
(1,645)
Balance, end of period
6,996
2,968
9,964
8,951
17,185
26,136
7,313
22,314
29,627
C A S E L
L A W A S T E S Y S T E M S
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2 0 0 3
F O R M
1 0 K
(1) We convert estimated remaining permitted capacity and estimated additional permittable capacity from cubic yards to tons by assuming a compaction
factor equal to the historic average compaction factor applicable to the respective landfill over the last three fiscal years. In addition to a total capacity
limit, certain permits may place a daily and/or annual limit on capacity.
(2) Includes capacity of 240,000 tons at our NCES landfill which we are currently utilizing. Does not include additional capacity of 1.3 million tons which has
been permitted under the authority of the New Hampshire Department of Environmental Services. Our right to utilize this additional capacity was
recently limited by the Grafton, New Hampshire Superior Court. We are appealing this decision to the New Hampshire Supreme Court. See "Legal
Proceedings."
(3) Represents capacity which we have determined to be "permittable" in accordance with the following criteria: (i) we control the land on which the
expansion is sought; (ii) all technical siting criteria have been met or a variance has been obtained or is reasonably expected to be obtained; (iii) we
have not identified any legal or political impediments which we believe will not be resolved in our favor; (iv) we are actively working on obtaining any
necessary permits and we expect that all required permits will be received within the next two to five years; and (v) senior management has approved
the project.
(4) Does not include certain expansion capacity which we are seeking at our NCES and Hyland landfills. Since expansion capacity at our NCES landfill
requires resolution of a local dispute on land use, 1.3 million tons of expansion capacity having an estimated useful life of 9.9 years, is omitted. We
have also omitted an additional approximately 5.0 million tons of capacity having an estimated useful life of 22.5 years at our Hyland landfill which is
subject to local permissive expansion referendum targeted for calendar 2004 and our receipt of necessary permits.
Clinton County—The Clinton County landfill, located in Schuyler Falls, New York, is leased from Clinton County pursuant to a 25-year
lease which expires in 2021. The landfill serves the principal wastesheds of Clinton, Franklin, Essex, Warren and Washington Counties in
New York, and certain selected contiguous Vermont wastesheds. Permitted waste accepted includes municipal solid waste, construction
and demolition debris, and special waste which is approved by regulatory agencies. We are pursuing the landfill expansion permitting
process which, if successful, would provide additional permittable capacity of approximately 8.9 million tons which, at the current usage
rate, would add an additional 50 years of capacity. We have entered into extended agreements with the town and county applicable to this
additional volume and expect to receive the necessary approvals during the next 12 months.
Waste USA—The Waste USA landfill is located in Coventry, Vermont and serves the major wastesheds associated with the northern
two-thirds of Vermont. The landfill is permitted to accept all residential and commercially produced municipal solid waste, including
pre-approved sludges, and construction and demolition debris. Since our purchase of this landfill in 1995, we have expanded the capacity
of this landfill through approximately fiscal 2007. We are currently in the process of applying for approximately 5.0 million tons of
additional capacity which, at the current usage rate, would add an additional 20-25 years of capacity.
Pine Tree—The Pine Tree landfill is located in Hampden, Maine. It is permitted to accept ash, front-end processing residues from the
waste-to-energy facilities within the State of Maine and related sludges and special waste which is approved by regulatory agencies. In
addition, it is permitted to accept municipal solid waste that is by-pass waste, which is non-burnable waste, from the Maine Energy and
Penobscot Energy Recovery Company ("PERC") waste-to-energy facilities, as well as municipal solid waste that is in excess of the
processing capacities of other waste-to-energy facilities within the State of Maine. In January 2002, the facility received final approval for
approximately 3.0 million tons of additional capacity and is currently developing its next expansion plan. See "Regulation."
NCES—The North Country Environmental Services (NCES) landfill located in Bethlehem, New Hampshire serves the northern and central
wastesheds of New Hampshire and certain contiguous Vermont and Maine wastesheds. Since the purchase of this landfill in 1994, we
have consistently experienced expansion opposition from the local town through enactment of restrictive local zoning and planning
ordinances. In each case, in order to access additional permittable capacity, we have been required to assert our rights through litigation
in the New Hampshire court system. Our use of this capacity, which is ongoing, remains subject to court challenge by local authorities. In
April 2003, the Grafton, New Hampshire Superior Court upheld certain restrictions on the expansion of this landfill. We are appealing this
ruling to the New Hampshire Supreme Court. See "Legal Proceedings."
Hyland—The Hyland landfill located in Angelica, New York, serves certain Western region wastesheds located throughout western
New York. The facility is permitted to accept all residential and commercial municipal solid waste, construction and demolition debris and
special waste which is approved by regulatory agencies. The facility is located on a 600-acre property, which represents considerable
additional expansion capabilities. In 1999, as part of a long-term settlement with the Town of Angelica, we entered into an agreement
requiring a permissive referendum to expand beyond a pre-agreed footprint. As a result, the previous table reflects only that capacity
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which has been pre-agreed with the Town of Angelica as being permittable. We expect to seek a townwide referendum during calendar
year 2004 local elections. If successful, we expect to seek and receive a permit for an additional 38 acres, representing in excess of 5.0
million tons of additional capacity.
Hakes—The Hakes construction and demolition landfill, located in Campbell, New York, is permitted to accept only construction and
demolition material. The landfill serves the principal rural wastesheds of western New York. We believe that the site has permittable
capacity of over 3.0 million tons, based on existing regulatory requirements and local community support. We expect to apply for this
expansion during the next 18 months and do not expect substantial opposition from the local community. We recently entered into a
revised long-term host community agreement related to the expansion of the facility.
Hardwick—The Hardwick landfill, which was acquired in March 2003, located in Hardwick, Massachusetts, is permitted to accept
construction and demolition material and a limited amount of municipal solid waste and certain difficult-to-manage wastes. The facility
currently is permitted to accept 300 tons per day including 50 tons per day of municipal solid waste. The Hardwick landfill is located on a
18-acre property. In addition, we have an option to purchase approximately 160 additional acres that are adjacent to the landfill. We
estimate that at its current permit limits, the facility has between 7 and 8 years of operating life. In addition, an estimated 400,000 tons of
additional permittable capacity is currently being pursued.
Templeton—In June 2003 we signed a 20-year development and operating agreement with the Town of Templeton, Massachusetts for
the development, operation and maintenance of the Templeton Sanitary Landfill. The landfill is located on a 58-acre site and will, when
permitted, serve the eastern Massachusetts wasteshed.
We also have rights to remaining capacity at a residual landfill and a construction and demolition landfill in Brockton, Massachusetts
and Cheektowaga, New York, respectively, totaling approximately 708,000 tons as of April 30, 2003. The Cheektowaga landfill is
expected to be closed in the summer of 2003. The Brockton landfill has an expected remaining life of approximately two years. In
addition, we own and/or operated five unlined landfills which are not currently in operation. All of these landfills have been closed and
capped to environmental regulatory standards by us.
Maine Energy Waste-to-Energy Facility—We own a waste-to-energy facility, Maine Energy Recovery Company, Limited Partnership,
which generates electricity by processing non-hazardous solid waste. This waste-to-energy facility provides us with important additional
disposal capacity and generates power for sale. The facility receives solid waste from municipalities under long-term waste handling
agreements and also receives solid waste from commercial and private waste haulers and municipalities with short-term contracts, as well
as from our collection operations. Maine Energy is contractually required to sell all of the electricity generated at its facility to Central
Maine Power, an electric utility, and guarantees 100% of its electric generating capacity to CL Power Sales One, LLC. Maine Energy is
part of the Eastern region. Our use of the facility is subject to permit conditions, some of which are opposed by local authorities. See
"Regulation" and "Legal Proceedings."
O P E R AT I N G S E G M E N T S
We manage our solid waste operations on a geographic basis through three regions, which we have designated as the Central, Eastern
and Western regions and which each comprise a full range of solid waste services serving approximately an aggregate of 339,000
customers, and through FCR, which comprises our larger-scale non-solid waste recycling and our brokerage operations.
Within each geographic region, we organize our solid waste services around smaller areas that we refer to as "wastesheds". A
wasteshed is an area that comprises the complete cycle of activities in the solid waste services process, from collection to transfer
operations and recycling to disposal in either landfills or waste-to-energy facilities, some of which may be owned and operated by third
parties. We typically operate several divisions within each wasteshed, each of which provides a particular service, such as collection,
recycling, disposal or transfer. Each of these divisions is managed as a separate profit center, but operates interdependently with the
other divisions within the wasteshed. Each wasteshed generally operates autonomously from adjoining wastesheds.
Throughout its 22 material recycling facilities, FCR services 22 anchor contracts, which are long-term commitments from a
municipality of five years or greater to guarantee the delivery of all recycled residential recyclables to FCR. These contracts may include a
minimum volume guarantee committed by the municipality. We also have service agreements with individual towns and cities and
commercial customers, including small solid waste companies and major competitors that do not have processing capacity within a
specific geographic region. The 22 FCR facilities process recyclables collected from approximately 2.7 million households, representing a
population of approximately 8.2 million.
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The following table provides information about the assets held by each operating region and FCR as of July 1, 2003.
Fiscal Year 2003
CENTRAL REGION
EASTERN REGION
WESTERN REGION
FCR RECYCLING
Revenues
Solid waste collection
operations
Transfer stations
Recycling facilities
Disposal facilities (1)
$ 90.5
$ 153.3
$ 68.5
$ 94.3
12
13
5
Bethlehem, NH
Coventry, VT
Schuyler Falls, NY
12
9
8
Biddeford, ME
Hampden, ME
Hardwick, MA
13
10
2
Angelica, NY
Campbell, NY
—
1
22
—
(1) Each of the disposal facilities in the table is a Subtitle D landfill, with the exception of the disposal facility located in Campbell, New York, which is a
landfill permitted to accept only construction and demolition materials and the disposal facility located in Biddeford, Maine, which is a waste-to-energy
facility. The Hardwick, Massachusetts disposal facility is permitted to accept construction and demolition material and a limited amount of municipal
solid waste. In addition, we signed a 20-year development and operating agreement for a Subtitle D landfill in Templeton, Massachusetts, which is not
yet operating. We also have rights to the remaining air space capacity at a residual landfill and a construction and demolition landfill located in Brockton,
Massachusetts and Cheektowaga, New York, respectively, totaling approximately 708,000 tons as of April 30, 2003. The Cheektowaga landfill is
expected to be closed in the summer of 2003. The Brockton landfill has an expected remaining life of approximately two years.
Central Region—The Central region consists of wastesheds located in Vermont, northwestern New Hampshire and eastern upstate New
York. The portion of upstate New York served by the Central Region includes Clinton, Franklin, Essex, Warren, Washington, Saratoga,
Rennselaer and Albany counties. Our Waste USA landfill in Coventry, Vermont is one of only two permitted Subtitle D landfills in Vermont,
and our NCES landfill in Bethlehem, New Hampshire is one of only six permitted Subtitle D landfills in New Hampshire. In the Central
Region, there are a total of 13 permitted Subtitle D landfills.
The Central region has become our most mature operating platform, as we have operated in this region since our inception in 1975.
We have achieved a high degree of vertical integration of the wastestream in this region, resulting in stable cash flow performance. In the
Central region, we also have a market leadership position. Our primary competition in the Central region comes from Waste Management,
Inc. in the larger population centers (primarily southern New Hampshire), and from smaller independent operators in the more rural areas.
As our most mature region, future operating efficiencies will be driven primarily by improving our core operating efficiencies and providing
enhanced customer service.
Eastern Region—The Eastern region consists of wastesheds located in Maine, southeastern New Hampshire and eastern
Massachusetts. These wastesheds generally have been affected by the regional constraints on disposal capacity imposed by the public
policies of New Hampshire, Maine and Massachusetts which have, over the past 10 years, either limited new landfill development or
precluded development of additional capacity from existing landfills. Consequently, the Eastern Region relies more heavily on non-landfill
waste-to-energy disposal capacity than our other regions. Maine Energy is one of nine waste-to-energy facilities in the Eastern Region.
We entered the State of Maine in 1996 with our purchase of the assets comprising New England Waste Services of ME., Inc. in
Hampden, Maine. Our acquisition of KTI in 1999 significantly improved our disposal capacity in this region and provided an alternative
internalization option for our solid waste assets in eastern Massachusetts. Our major competitor in the State of Maine is Waste
Management, Inc., as well as several smaller local competitors.
We entered eastern Massachusetts in fiscal year 2000 with the acquisition of assets that were divested by Allied Waste Industries,
Inc. under court order following its acquisition of Browning Ferris Industries, Inc., and through the acquisition of smaller independent
operators. In this region, we generally rely on third party disposal capacity. Consequently, we believe we have a greater opportunity to
increase our internalization rates and operating efficiencies in the Eastern region than in our two other regions, where our competitive
position generally is stronger. Our primary competitors in eastern Massachusetts are Waste Management, Inc., Allied Waste Industries,
Inc., and smaller independent operators.
Western Region—The Western region consists of wastesheds in upstate New York (which includes Ithaca, Elmira, Oneonta, Lowville,
Potsdam, Geneva, Auburn, Buffalo, Jamestown and Olean) and northern Pennsylvania (Wellsboro, PA). We entered the Western Region
with our acquisition of Superior Disposal Services, Inc.'s business in 1997 and have consistently expanded in this region largely through
tuck-in acquisitions and internal growth. Our collection operations include leadership positions in nearly every rural market in the Western
region outside of larger metropolitan markets such as Syracuse, Rochester, Albany and Buffalo.
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While we have achieved strong market positions in this region, we remain focused on increasing our vertical integration through the
acquisition or privatization and operation of additional disposal capacity in the market. As compared to our other operating regions, the
Western Region, where we own the Hyland landfill, presently contains an excess of disposal capacity as a result of the proliferation during
the 1990s of publicly-developed Subtitle D landfills. As a result, we believe that opportunities exist for us to enter into long-term leasing
arrangements and other strategic partnerships with county and municipal governments for the operation and/or utilization of their landfills,
similar to our long-term lease for the Clinton County landfill being operated by our Central Region. We expect that successful
implementation of this strategy will lead to improved internalization rates.
Our primary competitors in the Western region are Waste Management, Inc., Republic Services Group, Inc. and Allied Waste
Industries, Inc. in the larger urban areas and smaller independent operators in the more rural markets.
FCR Recycling—FCR Recycling is one of the largest processors and marketers of recycled materials in the eastern United States,
comprising 22 material recycling facilities that process and then market recyclable materials that municipalities and commercial customers
deliver to it under long term contracts. Ten of FCR's facilities are leased, six are owned and six are under operating contracts. In fiscal
year 2003, FCR processed and marketed approximately 865,000 tons of recyclable materials. FCR's facilities are located in Connecticut;
North Carolina; New Jersey; Florida; Tennessee; Georgia; Michigan; New York; South Carolina; New Hampshire; Massachusetts;
Wisconsin, Maine; and Halifax, Canada.
A significant portion of the material provided to FCR is delivered pursuant to 22 anchor contracts, which are long-term contracts with
municipal customers. The anchor contracts generally have a term of five to ten years and expire at various times between 2004 and
2018. The terms of each of the contracts vary, but all the contracts provide that the municipality or a third party delivers materials to our
facility. In approximately one-third of the contracts, the municipalities agree to deliver a guaranteed tonnage and the municipality pays a
fee for the amount of any shortfall from the guaranteed tonnage. Under the terms of the individual contracts, we charge the municipality a
fee for each ton of material delivered to us. Some contracts contain revenue sharing arrangements under which the municipality receives
a specified percentage of the revenues from the sale by us of the recovered materials.
FCR derives a significant portion of its revenues from the sale of recyclable materials. The purchase and sale prices of recyclable
materials, particularly newspaper, corrugated containers, plastics, ferrous and aluminum, can fluctuate based upon market conditions. We
use long-term supply contracts with customers with floor price arrangements to reduce the commodity risk for certain recyclables,
particularly newspaper, cardboard, plastics and aluminum metals. Under such contracts, we obtain a guaranteed minimum price for the
recyclable materials along with a commitment to receive additional amounts if the current market price rises above the floor price. The
contracts are generally with large domestic companies that use the recyclable materials in their manufacturing process, such as paper,
packaging and consumer goods companies. In fiscal year 2003, 52% of the revenues from the sale of recyclable materials of the
residential recycling segment were derived from sales under long-term contracts with floor prices. We also hedge against fluctuations in
the commodity prices of recycled paper and corrugated containers in order to mitigate the variability in cash flows and earnings generated
from the sales of recycled materials at floating prices. As of April 30, 2003, we were party to twelve commodity hedge contracts
outstanding with designated terms effective through August 2005.
In September 2002, we transferred our export brokerage operations to employees who had been responsible for managing that
business. In June 2003, we completed the transfer of our domestic brokerage operations and a commercial recycling business to
employees who managed those businesses. The brokerage business derived all of its revenues from the sale of recyclable materials,
predominately old newspaper, old corrugated cardboard, mixed paper and office paper. The brokerage business marketed in excess of
250,000 per year of various paper fibers both domestically and overseas. The brokers in the brokerage operation are required to identify
both the buyer and the seller of the recyclable materials before committing to broker the transaction, thereby minimizing pricing risk, and
are not permitted to enter into speculative trading of commodities. As part of our acquisition of KTI, we had acquired brokerage
businesses which were focused on domestic and export markets.
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G R E E N F I B E R C E L L U L O S E I N S U L AT I O N J O I N T V E N T U R E
We are a 50% partner in US GreenFiber LLC, a joint venture with Louisiana-Pacific. GreenFiber, which we believe is one of the largest
manufacturers of high quality cellulose insulation for use in residential dwellings and manufactured housing, was formed through the
combination of our cellulose operations, which we acquired in our acquisition of KTI, with those of Louisiana-Pacific. Based in Charlotte,
North Carolina, GreenFiber has a national manufacturing and distribution capability and sells to contractors, manufactured home builders
and retailers, including Home Depot, Inc. GreenFiber has ten manufacturing facilities located in Atlanta, Georgia; Charlotte, North
Carolina; Delphos, Ohio; Elkwood, Virginia; Norfolk, Nebraska; Phoenix, Arizona; Sacramento, California; Tampa, Florida; and Waco,
Texas. GreenFiber utilizes a hedging strategy to help stabilize its exposure to fluctuating newsprint costs, which generally represent
approximately 35% of cost of goods sold, and is a major purchaser of FCR recycling fiber material produced at various facilities.
GreenFiber, which we account for under the equity method, had revenues of $98.6 million for the twelve months ended April 30, 2003.
For the same period, we recognized equity income from GreenFiber of $2.1 million.
C O M P E T I T I O N
The solid waste services industry is highly competitive. We compete for collection and disposal volume primarily on the basis of the
quality, breadth and price of our services. From time to time, competitors may reduce the price of their services in an effort to expand
market share or to win a competitively bid municipal contract. These practices may also lead to reduced pricing for our services or the
loss of business. In addition, competition exists within the industry not only for collection, transportation and disposal volume, but also for
acquisition candidates.
Some of the larger urban markets in which we compete are served by one or more of the large national solid waste companies that
may be able to achieve greater economies of scale than us, including Waste Management, Inc., Allied Waste Industries, Inc. and Republic
Services, Inc. We also compete with a number of regional and local companies that offer competitive prices and quality service. In
addition, we compete with operators of alternative disposal facilities, including incinerators, and with certain municipalities, counties and
districts that operate their own solid waste collection and disposal facilities. Public sector facilities may have certain advantages over us
due to the availability of user fees, charges or tax revenues and tax-exempt financing.
The insulation industry is highly competitive and labor intensive. In our cellulose insulation manufacturing activities, GreenFiber, our
joint venture with Louisiana-Pacific Corporation, competes primarily with manufacturers of fiberglass insulation such as Owens Corning,
CertainTeed Corporation and Johns Manville. These manufacturers have significant market shares and are substantially better capitalized
than GreenFiber.
M A R K E T I N G A N D S A L E S
We have a coordinated marketing and sales strategy, which is formulated at the corporate level and implemented at the divisional level.
We market our services locally through division managers and direct sales representatives who focus on commercial, industrial, municipal
and residential customers. We also obtain new customers from referral sources, our general reputation and local market print advertising.
Leads are also developed from new building permits, business licenses and other public records. Additionally, each division generally
advertises in the yellow pages and other local business print media that cover its service area.
Maintenance of a local presence and identity is an important aspect of our marketing plan, and many of our managers are involved in
local governmental, civic and business organizations. Our name and logo, or, where appropriate, that of our divisional operations, are
displayed on all our containers and trucks. Additionally, we attend and make presentations at municipal and state conferences and
advertise in governmental associations' membership publications.
We market our commercial, industrial and municipal services through our sales representatives who visit customers on a regular
basis and make sales calls to potential new customers. These sales representatives receive a significant portion of their compensation
based upon meeting certain incentive targets. We emphasize providing quality services and customer satisfaction and retention, and
believe that our focus on quality service will help retain existing and attract additional customers.
E M P L O Y E E S
As of July 1, 2003, we employed approximately 2,500 persons, including approximately 500 professionals or managers, sales, clerical,
data processing or other administrative employees and approximately 2,000 employees involved in collection, transfer, disposal, recycling
or other operations. Certain of our employees are covered by collective bargaining agreements. We believe relations with our employees
to be satisfactory.
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R I S K M A N A G E M E N T, I N S U R A N C E A N D P E R F O R M A N C E O R S U R E T Y B O N D S
We actively maintain environmental and other risk management programs, which we believe are appropriate for our business. Our
environmental risk management program includes evaluating existing facilities, as well as potential acquisitions, for environmental law
compliance and operating procedures. We also maintain a worker safety program, which encourages safe practices in the workplace.
Operating practices at all of our operations are intended to reduce the possibility of environmental contamination and litigation.
We carry a range of insurance intended to protect our assets and operations, including a commercial general liability policy and a
property damage policy. A partially or completely uninsured claim against us (including liabilities associated with cleanup or remediation at
our facilities), if successful and of sufficient magnitude, could have a material adverse effect on our business, financial condition and
results of operations. Any future difficulty in obtaining insurance could also impair our ability to secure future contracts, which may be
conditioned upon the availability of adequate insurance coverage.
Effective July 1, 1999, we established a captive insurance company, Casella Insurance Company, through which we are self-insured
for worker's compensation and, effective May 1, 2000, automobile coverage. Our maximum exposure under the worker's compensation
plan is $500,000 per individual event with a $1,000,000 aggregate limit, after which reinsurance takes effect. Our maximum exposure
under the automobile plan is $500,000 per individual event with a $3,000,000 aggregate limit, after which reinsurance takes effect.
Municipal solid waste collection contracts and landfill closure obligations may require performance or surety bonds, letters of credit
or other means of financial assurance to secure contractual performance. While we have not experienced difficulty in obtaining these
financial instruments, if we were unable to obtain these financial instruments in sufficient amounts or at acceptable rates we could be
precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill operating permits.
C U S T O M E R S
We provide our collection services to commercial, industrial and residential customers. A majority of our commercial and industrial
collection services are performed under one-to-three-year service agreements, and fees are determined by such factors as collection
frequency, type of equipment and containers furnished, the type, volume and weight of the solid waste collected, the distance to the
disposal or processing facility and the cost of disposal or processing. Our residential collection and disposal services are performed
either on a subscription basis (i.e., with no underlying contract) with individuals, or through contracts with municipalities, homeowners
associations, apartment owners or mobile home park operators.
Maine Energy is contractually required to sell all of the electricity generated at its facilities to Central Maine Power, an electric utility,
pursuant to a contract that expires in 2012, and guarantees 100% of its electricity generating capacity to CL Power Sales One, LLC,
pursuant to a contract that expires in 2007.
FCR provides recycling services to municipalities, commercial haulers and commercial waste generators within the geographic
proximity of the processing facilities. We also acted as a broker of recyclable materials, principally to paper and box board manufacturers
in the United States, Canada, the Pacific Rim, Europe, South America and Asia, until these businesses were sold as described above.
Our cellulose insulation joint venture, GreenFiber, sells to contractors, manufactured home builders and retailers.
R AW M AT E R I A L S
Maine Energy received approximately 26% of its solid waste in fiscal year 2003 from 19 Maine municipalities under long-term waste
handling agreements. Maine Energy also receives raw materials from commercial and private waste haulers and municipalities with short-
term contracts, as well as from our own collection operations.
In fiscal year 2003, FCR received approximately 60% of its material under long-term agreements with municipalities. These
contracts generally provide that all recyclables collected from the municipal recycling programs shall be delivered to a facility that is
owned or operated by us. The quantity of material delivered by these communities is dependent on the participation of individual
households in the recycling program.
The primary raw material for our insulation joint venture is newspaper. In fiscal year 2003, GreenFiber received approximately 17% of
the newspaper used by it from FCR. It purchased the remaining newspaper from municipalities, commercial haulers and paper brokers.
The chemicals used to make the newspaper fire retardant are purchased from industrial chemical manufacturers located in the United
States and South America.
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S E A S O N A L I T Y
Our transfer and disposal revenues have historically been lower during the months of November through March. This seasonality reflects
the lower volume of waste during the late fall, winter and early spring months primarily because:
• the volume of waste relating to construction and demolition activities decreases substantially during the winter months in the eastern
United States; and
• decreased tourism in Vermont, New Hampshire, Maine and eastern New York during the winter months tends to lower the volume of
waste generated by commercial and restaurant customers, which is partially offset by increased volume in the winter ski industry.
Since certain of our operating and fixed costs remain constant throughout the fiscal year, operating income is therefore impacted by a
similar seasonality. In addition, particularly harsh weather conditions typically result in increased operating costs.
The recycling segment experiences increased volumes of newspaper in November and December due to increased newspaper
advertising and retail activity during the holiday season. The insulation business experiences lower sales in November and December
because of lower production of manufactured housing due to holiday plant shutdowns.
R E G U L AT I O N
Introduction
We are subject to extensive and evolving federal, state and local environmental laws and regulations which have become increasingly
stringent in recent years. The environmental regulations affecting us are administered by the United States Environmental Protection
Agency ("EPA") and other federal, state and local environmental, zoning, health and safety agencies. Failure to comply with such
requirements could result in substantial costs, including civil and criminal fines and penalties. Except as described below, we believe that
we are currently in substantial compliance with applicable federal, state and local environmental laws, permits, orders and regulations. We
do not currently anticipate any material environmental costs to bring our operations into compliance, although such costs may be incurred
in the future. We expect that our operations in the solid waste services industry will be subject to continued and increased regulation,
legislation and regulatory enforcement actions. We attempt to anticipate future legal and regulatory requirements and to carry out plans
intended to keep our operations in compliance with those requirements.
In order to transport, process, incinerate, or dispose of solid waste, it is necessary for us to possess and comply with one or more
permits from federal, state and/or local agencies. We 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 our various operations are as follows:
The Resource Conservation and Recovery Act of 1976, as amended ("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 (1) either (a) are specifically included on a list of hazardous wastes, or (b) exhibit certain
characteristics defined as hazardous, and (2) are not specifically designated as non-hazardous. Wastes classified as hazardous under
RCRA are subject to more extensive regulation than wastes classified as non-hazardous, and businesses that deal with hazardous waste
are subject to regulatory obligations in addition to those imposed on handlers of non-hazardous waste.
Among the wastes that are specifically designated as non-hazardous are household waste and "special" waste, including items such
as petroleum contaminated soils, asbestos, foundry sand, shredder fluff and most non-hazardous industrial waste products.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive "cradle to grave" system for tracking the generation,
transportation, treatment, storage and disposal of hazardous wastes. Subtitle C regulations impose obligations on generators,
transporters and disposers of hazardous wastes, and require permits that are costly to obtain and maintain for sites where those
businesses treat, store or dispose of such material. Subtitle C requirements include detailed operating, inspection, training and
emergency preparedness and response standards, as well as requirements for manifesting, record keeping and reporting, corrective
action, facility closure, post-closure and financial responsibility. Most states have promulgated regulations modeled on some or all of the
Subtitle C provisions issued by the EPA, and in many instances the 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.
We currently do not accept for transportation or disposal hazardous substances (as defined in CERCLA, discussed below) in
concentrations or volumes that would classify those materials as hazardous wastes. However, we have transported hazardous substances
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in the past and very likely will transport and dispose of hazardous substances in the future, to the extent that materials defined as
hazardous substances under CERCLA are present in consumer goods and in the non-hazardous waste streams of our customers.
We do not accept hazardous wastes for incineration at our waste-to-energy facilities. We typically test ash produced at our
waste-to-energy facilities on a regular basis; that ash generally does not contain hazardous substances in sufficient concentrations or
volumes to result in the ash being classified as hazardous waste. However, it is possible that future waste streams accepted for
incineration could contain elevated volumes or concentrations of hazardous substances or that legal requirements will change, and that
the resulting incineration ash would be classified as hazardous waste.
Leachate generated at our landfills and transfer stations is tested on a regular basis, and generally is not regulated as a hazardous
waste under federal or state law. In the past, however, leachate generated from certain of our landfills has been classified as hazardous
waste under state law, and there is no guarantee that leachate generated from our facilities in the future will not be classified under
federal or state law as hazardous waste.
In October 1991, the EPA adopted the Subtitle D regulations under RCRA governing solid waste landfills. The Subtitle D regulations,
which generally became effective in October 1993, include location restrictions, facility design standards, operating criteria, closure and
post-closure requirements, financial assurance requirements, groundwater monitoring requirements, groundwater remediation standards
and corrective action requirements. In addition, the Subtitle D regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more synthetic liners) intended to keep leachate out of groundwater and
have extensive collection systems to carry away leachate for treatment prior to disposal. Regulations generally require us to install
groundwater monitoring wells at virtually all landfills we operate, to monitor groundwater quality and, indirectly, the effectiveness of the
leachate collection systems. The Subtitle D regulations also require facility owners or operators to control emissions of methane gas
generated at landfills exceeding certain regulatory thresholds. State landfill regulations must meet these requirements or the EPA will
impose such requirements upon landfill owners and operators in that state. Each state also must adopt and implement a permit program
or other appropriate system to ensure that landfills within the state comply with the Subtitle D regulatory criteria. Various states in which
we operate or in which we may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the
Subtitle D regulations.
The Federal Water Pollution Control Act of 1972, as amended ("Clean Water Act")
The Clean Water Act regulates the discharge of pollutants into the "waters of the United States" from a variety of sources, including solid
waste disposal sites and transfer stations, processing facilities and waste-to-energy facilities (collectively, "solid waste management
facilities"). If run-off or collected leachate from our solid waste management facilities, or process or cooling waters generated at our waste-
to-energy facilities, is discharged into streams, rivers or other surface waters, the Clean Water Act would require us to apply for and obtain
a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in such discharge.
A permit also may be required if that run-off, leachate, or process or cooling water is discharged to a treatment facility that is owned by a
local municipality. Numerous states have enacted regulations, which are equivalent to those issued under the Clean Water Act, but which
also regulate the discharge of pollutants to groundwater. Finally, virtually all solid waste management facilities must comply with the EPA's
storm water regulations, which are designed to prevent contaminated storm water from flowing into surface waters.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide for the investigation and remediation of facilities where or
from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLA has been interpreted to
impose retroactive strict, and under certain circumstances, joint and several, liability for investigation and cleanup of facilities on current
owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, as
well as the generators of the hazardous substances and certain transporters of the hazardous substances. In addition, CERCLA imposes
liability for the costs of evaluating and addressing damage to natural resources. The costs of CERCLA investigation and cleanup can be
very substantial. Liability under CERCLA does not depend upon the existence or disposal of "hazardous waste" as defined by RCRA, but
can be based on the existence of any of more than 700 "hazardous substances" listed by the EPA, many of which can be found in
household waste. In addition, the definition of "hazardous substances" in CERCLA incorporates substances designated as hazardous or
toxic under the Federal Clean Water Act, Clear Air Act and Toxic Substances Control Act. If we were found to be a responsible party for
a CERCLA cleanup, the enforcing agency could hold us, under certain circumstances, or any other responsible party, responsible for all
investigative and remedial costs, even if others also were liable. CERCLA also authorizes EPA to impose a lien in favor of the United
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States upon all real property subject to, or affected by, a remedial action for all costs for which a party is liable. CERCLA provides a
responsible party with the right to bring a contribution action against other responsible parties for their allocable share of investigative and
remedial costs. Our ability to get others to reimburse us for their allocable share of such costs would be limited by our ability to identify
and locate other responsible parties and prove the extent of their responsibility and by the financial resources of such other parties.
The Clean Air Act of 1970, as amended ("Clean Air Act")
The Clean Air Act, generally through state implementation of federal requirements, regulates emissions of air pollutants from certain
landfills based upon the date the landfill was constructed and the annual volume of emissions. The EPA has promulgated new source
performance standards regulating air emissions of certain regulated pollutants (methane and non-methane organic compounds) from
municipal solid waste landfills. Landfills located in areas where levels of regulated pollutants exceed certain thresholds may be subject to
even more extensive air pollution controls and emission limitations. In addition, the EPA has issued standards regulating the disposal of
asbestos-containing materials under the Clean Air Act.
The Clean Air Act regulates emissions of air pollutants from our waste-to-energy facilities and certain of our processing facilities. The
EPA has enacted standards that apply to those emissions. It is possible that the EPA, or a state where we operate, will enact additional or
different emission standards in the future.
All of the federal statutes described above authorize lawsuits by private citizens to enforce certain provisions of the statutes. In
addition to a penalty award to the United States, some of those statutes authorize an award of attorney's fees to private parties
successfully advancing such an action.
The Occupational Safety and Health Act of 1970, as amended ("OSHA")
OSHA establishes employer responsibilities and authorizes the Occupational Safety and Health Administration to promulgate occupational
health and safety standards, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious
injury, to comply with adopted worker protection standards, to maintain certain records, to provide workers with required disclosures and
to implement certain health and safety training programs. Various of those promulgated standards may apply to our operations, including
those standards concerning notices of hazards, safety in excavation and demolition work, the handling of asbestos and asbestos-
containing materials, and worker training and emergency response programs.
State and Local Regulations
Each state in which we now operate or may operate in the future has laws and regulations governing the generation, storage, treatment,
handling, processing, transportation, incineration and disposal of solid waste, water and air pollution and, in most cases, the siting, design,
operation, maintenance, closure and post-closure maintenance of solid waste management facilities. In addition, many states have
adopted statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation
and remediation of contaminated sites and liability for costs and damages associated with such sites, and some authorize the state to
impose liens to secure costs expended addressing contamination on property owned by responsible parties. Some of those liens may
take priority over previously filed instruments. Furthermore, many municipalities also have ordinances, laws and regulations affecting our
operations. These include zoning and health measures that limit solid waste management activities to specified sites or conduct, flow
control provisions that direct the delivery of solid wastes to specific facilities or to facilities in specific areas, laws that grant the right to
establish franchises for collection services and then put out for bid the right to provide collection services, and bans or other restrictions
on the movement of solid wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be accepted at a landfill or the quantity of waste that may be
accepted at a landfill during a given time period. In addition, certain permits and approvals, as well as certain state and local regulations,
may limit a landfill to accepting waste that originates from specified geographic areas or seek to restrict the importation of out-of-state
waste or otherwise discriminate against out-of-state waste. Generally, restrictions on importing out-of-state waste have not withstood
judicial challenge. However, from time to time federal legislation is proposed which would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to other states. Although such legislation has not been passed by Congress, if
this or similar legislation is enacted, states in which we operate landfills could limit or prohibit the importation of out-of-state waste. Such
actions could result in decreased revenues for any of our landfills within those states that receive a significant portion of waste originating
from out-of-state.
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Certain states and localities may, for economic or other reasons, restrict the export of waste from their jurisdiction, or require that a
specified amount of waste be disposed of at facilities within their jurisdiction. In 1994, the U.S. Supreme Court rejected as
unconstitutional, and therefore invalid, a local ordinance that sought to limit waste going out of the locality by imposing a requirement that
the waste be delivered to a particular facility. However, it is uncertain how that precedent will be applied in different circumstances. For
example, in 2002, the U.S. Supreme Court decided not to hear an appeal of a federal Appeals Court decision that held that the flow
control ordinances directing waste to a publicly owned facility are not per se unconstitutional and should be analyzed under a standard
that is less stringent than if waste had been directed to a private facility. The less stringent standard has not yet been applied to the facts
of that case, which involves flow control regulations in Oneida and Herkimer Counties in New York, and the outcome is uncertain.
Additionally, certain state and local jurisdictions continue to seek to enforce such restrictions and, in certain cases, we may elect not to
challenge such restrictions. Further, some proposed federal legislation would allow states and localities to impose flow restrictions. Those
restrictions could reduce the volume of waste going to landfills or transfer stations in certain areas, which may materially adversely affect
our ability to operate our facilities and/or affect the prices we can charge for certain services. Those restrictions also may result in higher
disposal costs for our collection operations.
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 and leaves,
beverage containers, newspapers, household appliances and batteries. Regulations reducing the volume and types of wastes available for
transport to and disposal in landfills could affect our ability to operate our landfill facilities.
Our waste-to-energy facility has been certified by the Federal Energy Regulatory Commission as a "qualifying small power production
facility" under the Public Utility Regulatory Policies Act of 1978, as amended ("PURPA"). PURPA exempts qualifying facilities from most
federal and state laws governing electric utility rates and financial organization, and generally requires electric utilities to purchase
electricity generated by qualifying facilities at a price equal to the utility's full "avoided cost".
Our waste-to-energy business is dependent upon our ability to sell the electricity generated by our facility to an electric utility or a
third party such as an energy marketer. Maine Energy currently sells electricity to an electric utility under a long term power purchase
agreement. When that agreement expires, or if the electric utility were to default under the agreement, any new agreement may not
contain a purchase price as favorable as the one in the current agreement.
We have obtained approval from the Maine Department of Environmental Protection ("DEP") for an odor control system at our
waste-to-energy facility in Biddeford, Maine. For optimum odor control, that system involves, among other items, an increase in the height
of our scrubber stacks and a change in our odor control chemicals. At the municipal level, the Biddeford Zoning Board of Appeals has
denied our request to increase scrubber stack heights. We have appealed that decision to the York County Superior Court. The
Biddeford Planning Board approved our request to test alternative odor control chemicals as part of the control system during the
summer of 2002. At its May 7, 2003 meeting, the Biddeford Planning Board modified the existing approval for the Maine Energy odor
control system to allow Maine Energy, with oversight by the City of Biddeford, to evaluate the efficiency of the odor control system. On
July 9, 2003 the Biddeford City Manager approved Maine Energy's Odor Control System Evaluation and Optimization Protocol. A
comprehensive report on the evaluation and testing of the odor control system is to be submitted by Maine Energy to the Biddeford
Planning Board no later than September 10, 2003. The Biddeford Planning Board is scheduled to meet on October 1, 2003 to consider
any revisions to the odor control system and whether to allow an increase in the height of our three scrubber stacks from 120 feet to 146
feet. If we are not able to increase our stack heights and continue to use odor control chemicals, our state-approved odor control system
may not operate optimally to control odors, and if it does not, our operations may be significantly curtailed.
In addition, on October 16, 2002, the City of Biddeford and Joseph Stephenson (as the Code Enforcement Officer for the City of
Biddeford) filed a Land Use Citation and Complaint against Maine Energy alleging that Maine Energy is emitting levels of volatile organic
compounds which exceed permitted levels. The complaint seeks an unspecified amount of civil penalties, a preliminary and permanent
injunction, and legal costs. On December 3, 2002, the court ruled that the complaint failed to meet certain pleading requirements and
ordered plaintiffs to file a new complaint by December 30, 2002. Plaintiffs failed to refile by the court's deadline. On April 7, 2003, the
parties filed a stipulation of dismissal with prejudice.
We own a membership interest in New Heights, through which we own a 50% interest in the power plant assets owned by New
Heights. The power plant is a waste-to-energy facility using tires as fuel, in Ford Heights, Illinois. In August 2000, the Illinois Environmental
Protection Agency ("IEPA") issued a violation notice to the facility asserting non-compliance with its construction permit related to air
emissions. The facility has undertaken certain corrective measures and is working with IEPA to negotiate a new permit. While
non-compliance with permitting requirements is subject to civil penalties, we do not expect them to be assessed. However, if civil
penalties were assessed, they may harm our operating results.
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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 PA N Y
Our executive officers and other key employees and their respective ages as of July 1, 2003 are as follows:
Name
Executive Officers
John W. Casella
James W. Bohlig
Richard A. Norris
Charles E. Leonard
Other Key Employees
Michael J. Brennan
Timothy A. Cretney
Christopher M. DesRoches
Sean P. Duffy
Joseph S. Fusco
James M. Hiltner
Larry B. Lackey
Alan N. Sabino
Gary R. Simmons
AGE
POSITION
52
57
59
49
45
39
45
43
39
39
42
43
53
Chairman, Chief Executive Officer and Secretary
President and Chief Operating Officer, Director
Senior Vice President, Chief Financial Officer and Treasurer
Senior Vice President, Solid Waste Operations
Vice President and General Counsel
Regional Vice President
Vice President, Sales
Regional Vice President
Vice President, Communications
Regional Vice President
Vice President, Permits, Compliance and Engineering
Regional Vice President
Vice President, Fleet Management
John W. Casella has served as Chairman of our Board of Directors since July 2001 and as our Chief Executive Officer since 1993.
Mr. Casella served as President from 1993 to July 2001 and as Chairman of the Board of Directors from 1993 to December 1999. In
addition, Mr. Casella has been Chairman of the Board of Directors of Casella Waste Management, Inc. since 1977. Mr. Casella is also an
executive officer and director of Casella Construction, Inc., a company owned by Mr. Casella and Douglas R. Casella. Mr. Casella has
been a member of numerous industry-related and community service-related state and local boards and commissions including the Board
of Directors of the Associated Industries of Vermont, The Association of Vermont Recyclers, Vermont State Chamber of Commerce and
the Rutland Industrial Development Corporation. Mr. Casella has also served on various state task forces, serving in an advisory capacity
to the Governors of Vermont and New Hampshire on solid waste issues. Mr. Casella holds an Associate of Science in Business
Management from Bryant & Stratton University and a Bachelor of Science in Business Education from Castleton State College. Mr.
Casella is the brother of Douglas R. Casella, a member of our Board of Directors.
James W. Bohlig has served as our President since July 2001 and as Chief Operating Officer since 1993. Mr. Bohlig also served as
Senior Vice President from 1993 to July 2001. Mr. Bohlig has served as a member of our Board of Directors since 1993. From 1989 until
he joined us, Mr. Bohlig was Executive Vice President and Chief Operating Officer of Russell Corporation, a general contractor and
developer based in Rutland, Vermont. Mr. Bohlig is a licensed professional engineer. Mr. Bohlig holds a Bachelor of Science in Engineering
and Chemistry from the U.S. Naval Academy, and is a graduate of the Columbia University Executive Program in Business Administration.
Richard A. Norris has served as our Senior Vice President, Chief Financial Officer and Treasurer since July 2001. He joined us in
July 2000 as Vice President and Corporate Controller. From 1997 to July 2000, Mr. Norris served as Vice President and Chief Financial
Officer for NexCycle, Inc., a processor of secondary materials. From 1986 to 1997, he served as Vice President of Finance, US
Operations for Laidlaw Waste Systems, Inc. Mr. Norris is qualified as a Chartered Accountant in both Canada and the United Kingdom.
Mr. Norris graduated from Leeds University with a Bachelor of Arts in German.
Charles E. Leonard has served as our Senior Vice President, Solid Waste Operations since July 2001. From December 1999 until
he joined us, he acted as a consultant to several corporations, including Allied Waste Industries, Inc. From November 1997 to December
1999, he was Regional Vice President for Service Corporation International, a provider of death-care services. From September 1988 to
January 1997, he served as Senior Vice President, US Operations for Laidlaw Waste Systems, Inc. From June 1978 to July 1988, Mr.
Leonard was employed by Browning-Ferris Industries in various management positions. Mr. Leonard is a graduate of Memphis State
University with a Bachelor of Arts in Marketing.
Michael J. Brennan has served as our Vice President and General Counsel since July 2000. From January 1996 to July 2000, he
served in various capacities at Waste Management, Inc., including most recently, as Associate General Counsel.
Timothy A. Cretney has served as our Regional Vice President since May 2002. From January 1997 to May 2002 he served as
Regional Controller for our Western region. From August 1995 to January 1997, Mr. Cretney was Treasurer and Vice President of
Superior Disposal Services, Inc., a waste services company which we acquired in January 1997. From 1992 to 1995, he was General
Manager of the Binghamton, New York office of Laidlaw Waste Systems, Inc. and from 1989 to 1992 he was Central New York
Controller of Laidlaw Waste Systems. Mr. Cretney holds a B.A. in Accounting from State University of New York College at Brockport.
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Christopher M. DesRoches has served as our Vice President, Sales since November 1996. From January 1989 to November 1996,
he was a regional vice president of sales for Waste Management, Inc. Mr. DesRoches is a graduate of Arizona State University.
Sean P. Duffy has served as our Regional Vice President since December 1999. Since December 1999, Mr. Duffy has also served
as Vice President of FCR, Inc., which he co-founded in 1983 and which became a wholly-owned subsidiary of ours in December 1999.
From May 1983 to December 1999, Mr. Duffy served in various capacities at FCR, including, most recently, as President. From May
1998 to May 2001, Mr. Duffy also served as President of FCR Plastics, Inc., a subsidiary of FCR, Inc.
Joseph S. Fusco has served as our Vice President, Communications since January 1995. From January 1991 through January 1995,
Mr. Fusco was self-employed as a corporate and political communications consultant. Mr. Fusco is a graduate of the State University of
New York at Albany.
James M. Hiltner has served as our Regional Vice President since March 1998. From 1990 to March 1998, Mr. Hiltner held various
positions at Waste Management, Inc. including serving as a region president from June 1995 to February 1998, where his responsibilities
included overseeing waste management operations in upstate New York and northwestern Pennsylvania, a division president from April
1992 to June 1995 and a general manager from November 1990 to April 1992. Mr. Hiltner holds a B.S. in Business Administration from
Millersville University of Pennsylvania.
Larry B. Lackey has served as our Vice President, Permits, Compliance and Engineering since 1995. From 1993 to 1995, Mr.
Lackey served as our Manager of Permits, Compliance and Engineering. From 1984 to 1993, Mr. Lackey was an Associate Engineer for
Dufresne-Henry, Inc., an engineering consulting firm. Mr. Lackey is a graduate of Vermont Technical College.
Alan N. Sabino has served as our Regional Vice President since July 1996. From 1995 to July 1996, Mr. Sabino served as a
Division President for Waste Management, Inc. From 1985 to 1994, he served as Region Operations Manager for Chambers
Development Company, Inc., a waste management company. Mr. Sabino is a graduate of Pennsylvania State University.
Gary R. Simmons has served as our Vice President, Fleet Management since May 1997. From December 1996 to May 1997, Mr.
Simmons was the owner of GRS Consulting, a waste industry consulting firm. From 1995 to December 1996, Mr. Simmons served as
National and Regional Fleet Service Manager for USA Waste Services, Inc., a waste management company. From 1977 to 1995, Mr.
Simmons served in various fleet maintenance and management positions for Chambers Development Company, Inc.
AVA I L A B L E I N F O R M AT I O N
Our Internet website is http://www.casella.com. We make available through our website our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended. We make these reports available on our website at the same time that they become
available on the Securities and Exchange Commission's website.
I T E M 2 . P R O P E R T I E S
At July 1, 2003, the Company owned and/or operated five subtitle D landfills, two landfills permitted to accept construction and
demolition materials, 33 transfer stations, 22 of which are owned, six of which are leased and five of which are under operating contract,
37 solid waste collection facilities, 23 of which are owned and 14 of which are leased, 37 recyclable processing facilities, 14 of which are
owned, 16 of which are leased and seven of which are under operating contracts, one waste-to-energy facility, and utilized ten corporate
office and other administrative facilities, one of which is owned and nine of which are leased.
I T E M 3 . L E G A L P R O C E E D I N G S
Our wholly owned subsidiary, North Country Environmental Services, Inc. ("NCES"), is a party to an appeal against the Town of
Bethlehem, New Hampshire ("Town") before the New Hampshire Supreme Court. The appeal arose from cross actions for declaratory
and injunctive relief filed by NCES and the Town to determine the permitted extent of NCES's landfill in the Town. The New Hampshire
Superior Court in Grafton ruled on February 1, 1999 that the Town could not enforce an ordinance purportedly prohibiting expansion of
the landfill, at least with respect to 51 acres of NCES's 87-acre parcel, based upon certain existing land-use approvals. As a result, NCES
was able to construct and operate "Stage II, Phase II" of the landfill. In May 2001, the Supreme Court denied the Town's appeal.
Notwithstanding the Supreme Court's ruling, the Town continued to assert jurisdiction to conduct unqualified site plan review with respect
to Stage III and has further stated that the Town's height ordinance and building permit process may apply to Stage III. On September 12,
2001, we filed a petition for, among other things, declaratory relief. On December 4, 2001, the Town filed an answer to our petition
asserting counterclaims seeking, among other things, authorization to assert site plan review over Stage III, which commenced operation
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in December 2000, as well as the methane gas utilization/leachate handling facility operating in Stage III, and also an order declaring that
an ordinance prohibiting landfills applies to Stage IV expansion. The trial related to the Town's jurisdiction was held in December 2002 and
on April 24, 2003, the Grafton Superior Court issued its ruling, upholding the Town's 1992 ordinance preventing the location or expansion
of any landfill, ruling that the ordinance may be applied to any part of Stage IV that goes beyond the 51 acres; ruling that the Town's
height ordinance is valid within the 51 acres; upholding the Town's right to require Site Plan Review, except that there are certain areas
within the Town's Site Plan Review regulation that are preempted; ruling that the methane gas utilization/leachate handling facility is not
subject to the Town's ordinance forbidding incinerators. On May 27, 2003, NCES appealed the Court ruling to the New Hampshire
Supreme Court, which agreed to hear the case, except for the Company's appeal of the Superior Court's ruling denying attorneys fees.
The Supreme Court scheduled briefing deadlines through October 2003, at which time oral argument will be scheduled. If upheld on
appeal, the Superior Court's rulings would have the effect of preventing the development of Stage IV and limiting the further development
of Stage III to the extent of the height restriction. If we do not prevail, we may be unable to continue, or to expand, current operations in
accordance with our plans.
On or about March 24, 2000, a complaint was filed in the United States District Court, District of New Jersey against us, KTI and
Ross Pirasteh, Martin J. Sergi, and Paul A. Garrett, who were KTI's principal officers. The complaint purported to be on behalf of all
shareholders who purchased KTI common stock from January 1, 1998 through April 14, 1999. The complaint alleged that the defendants
made unspecified misrepresentations regarding KTI's financial condition during the class period in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). On or about April 6, 2000, the plaintiffs filed an amended class
action complaint, which changed the class period covered by the complaint to the period including August 15, 1998 through April 14,
1999. At a settlement conference held on September 27, 2002 the parties reached an agreement, which requires the defendants to pay
$3.8 million in return for a full release. Our share of the settlement amount is $150,000. The remainder will be paid by insurers. The court
approved the settlement on January 24, 2003 and entered final judgment on March 31, 2003.
During the period of November 21, 1996 to October 9, 1997, we performed certain closure activities and installed a cut-off wall at
the Clinton County landfill, located in Clinton County, New York. On or about April 1999, the New York State Department of Labor
alleged that we should have paid prevailing wages in connection with the labor associated with such activities. We have disputed the
allegations and a hearing on the liability issue was held on September 16, 2002. In November 2002, both sides submitted proposed
findings of fact and conclusions of law. The hearing officer is expected to make a recommendation to the Department of Labor
commissioner during the summer of 2003. We continue to explore settlement possibilities with the State. We believe that we have
meritorious defenses to these claims. Although a loss as a result of these claims is reasonably possible, we cannot estimate a range of
reasonably possible losses at this time.
On or about July 2, 2001, we were served with a complaint filed in New York State Supreme Court, Erie County, as one of over
twenty defendants named in a toxic tort lawsuit filed by residents surrounding three sites in Cheektowaga, New York known as the
Buffalo Crushed Stone limestone quarry, the Old Land Reclamation inactive landfill and the Schultz landfill. We are alleged to have liability
as a result of our airspace agreement at the Schultz landfill, which is a permitted construction and demolition landfill. Plaintiffs claim
property damages and some personal injuries based on alleged nuisance conditions arising out of these facilities and seek compensatory
damages in excess of $3 million, punitive damages of $10 million and injunctive relief. We believe that we have meritorious defenses to
these claims. We believe that the possibility of a material loss as a result of these claims is remote.
On or about November 7, 2001, our subsidiary New England Waste Services of Maine, Inc. was served with a complaint filed in
Massachusetts Superior Court on behalf of Daniel J. Quirk, Inc. and 14 citizens against The Massachusetts Department of Environmental
Protection ("MADEP"), Quarry Hill Associates, Inc. and New England Waste Services of Maine Inc. dba New England Organics, et al. The
complaint seeks injunctive relief related to the use of MADEP-approved wastewater treatment sludge in place of naturally occurring
topsoil as final landfill cover material at the site of the Quarry Hills Recreation Complex Project in Quincy, Massachusetts (the "Project"),
including removal of the material, or placement of an additional "clean" cover. On February 21, 2002, the MADEP filed a motion for stay
pending a litigation control schedule. Plaintiffs have filed a cross-motion to consolidate the case with 11 other cases they filed related to
the Project. Additionally, we have cross-claimed against other named defendants seeking indemnification and contribution. In September
2002, the court granted a stay of all proceedings pending the filing of summary judgment motions by all defendants on the issue of
whether plaintiff is barred from suing the defendants as a result of a covenant not to sue that was signed by plaintiff in 1998. On
December 17, 2002, the court granted certain summary judgment motions filed by the defendants, the effect of which was the dismissal
of all claims against all defendants in all cases where New England Waste Services of Maine, Inc. was a defendant. Plaintiffs have filed an
appeal, and we believe that we have meritorious defenses to the claims raised on appeal.
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On or about December 11, 2001, we were served with a bill in equity in aid of discovery filed in the Strafford Superior Court in New
Hampshire by Nancy Hager. The bill in equity seeks an accounting related to non-compete tip fee payments from us to Ms. Hager
pursuant to a 1993 release and settlement agreement. The bill in equity is a request for pre-litigation discovery for the purpose of
investigating a potential claim for failure to pay appropriate non-compete tip fee amounts. In light of an arbitration clause in the 1993
release and settlement agreement, we filed a motion to stay the proceedings under the bill in equity pending completion of the arbitration
process. On March 18, 2002, the court granted our motion to stay. On August 5, 2002, the court extended the stay pending the
arbitration process. On October 17, 2002, Ms. Hager voluntarily withdrew her bill in equity without prejudice. On January 15, 2003, Ms.
Hager filed a written request for arbitration with the American Arbitration Association. The arbitration hearing is scheduled for August 19,
2003. On June 5, 2003, Mrs. Hager submitted a disclosure letter to the arbitration panel alleging that she is owed between $480,000 and
$560,000. On July 7, 2003, Ms. Hager revised her claim to allege that she is owed between $637,000 and $1,000,000. We believe we
have meritorious defenses to these claims and that no loss as a result of these claims is probable or reasonably possible.
On January 10, 2002, the City of Biddeford, Maine filed a lawsuit in York County Superior Court in Maine alleging breach of the
waste handling agreement among the Biddeford-Saco Waste Handling Committee, the cities of Biddeford and Saco, Maine and our
subsidiary Maine Energy for (1) failure to pay the residual cancellation payments in connection with our merger with KTI and (2)
processing amounts of waste above contractual limits without notice to the City. On May 3, 2002, the City of Saco filed a lawsuit in York
County Superior Court against us, Maine Energy and other subsidiaries. The complaint in that action, which was amended by the City of
Saco on July 22, 2002, alleges breaches of the 1991 waste handling agreement for failure to pay the residual cancellation payment,
which Saco alleges is due as a result of, among other things, (1) our merger with KTI and (2) Maine Energy's failure to pay off certain
limited partner loans in accordance with the terms of the agreement. The complaint also seeks damages for breach of contract and a
court order requiring us to provide an accounting of all transactions since May 3, 1996 involving transfers of assets to or for the benefit
of the equity owners of Maine Energy. On June 6, 2002, the additional 13 municipalities that were parties to the 1991 waste handling
agreements filed a lawsuit in York County Superior Court against Maine Energy alleging breaches of the 1991 waste handling agreements
for failure to pay the residual cancellation payment which they allege is due as a result of (1) our merger with KTI; and (2) failure to pay off
the limited partner loans when funds were allegedly available.
On July 25, 2002, the three actions were consolidated for purposes of discovery, case management and pretrial proceedings. We
believe we have meritorious defenses to these claims. We believe that the possibility of material loss in excess of the amount provided,
$9.7 million, to meet our obligations under the waste handling agreement is remote.
We offer no prediction of the outcome of any of the proceedings described above. We are vigorously defending each of these
lawsuits. However, we may not prevail and any judgments against us, if sustained on appeal, may result in the incurrence of significant
costs or the restriction of our operations.
We are a defendant in certain other lawsuits alleging various claims incurred in the ordinary course of business, none of which, either
individually or in the aggregate, we believe are material to our business, financial condition, results of operations or cash flows.
I T E M 4 . S U B M I S S I O N O F M AT T E R S T O A V O T E O F S E C U R I T Y H O L D E R S
There were no matters submitted to a vote of the security holders during the fiscal quarter ended April 30, 2003.
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I T E M 5 . M A R K E T F O R R E G I S T R A N T ' S C O M M O N E Q U I T Y A N D R E L AT E D
S H A R E H O L D E R M AT T E R S
The Company's Class A common stock trades on the Nasdaq National Market under the symbol "CWST". The following table sets forth
the high and low sale prices of the Company's Class A common stock for the periods indicated as quoted on the Nasdaq National Market.
Period
Fiscal Year 2002
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal Year 2003
First quarter
Second quarter
Third quarter
Fourth quarter
HIGH
LOW
$ 14.20
$ 13.67
$ 14.89
$ 13.35
$ 13.00
$ 9.45
$ 9.56
$ 8.88
$ 9.00
$ 9.50
$ 11.45
$ 9.55
$ 7.60
$ 4.86
$ 5.26
$ 6.58
On July 1, 2003, the high and low sale prices per share of the Company's Class A common stock as quoted on the Nasdaq National
Market were $9.00 and $8.76, respectively. As of July 1, 2003 there were approximately 463 holders of record of the Company's Class
A common stock and two holders of record of the Company's Class B common stock. There is no established trading market for the
Company's Class B common stock.
For purposes of calculating the aggregate market value of the shares of common stock of the Company held by non-affiliates, as
shown on the cover page of this Annual Report on Form 10-K, it has been assumed that all the outstanding shares of Class A common
stock were held by nonaffiliates except for the shares beneficially held by directors and executive officers of the Company and funds
represented by them.
No dividends have ever been declared or paid on the Company's common stock and the Company does not anticipate paying any
cash dividends on its common stock in the foreseeable future. The Company's credit facility restricts the payment of dividends.
I T E M 6 . S E L E C T E D C O N S O L I D AT E D F I N A N C I A L A N D O P E R AT I N G D ATA
The following selected consolidated financial and operating data with respect to the Company's consolidated statements of operations
and cash flows for the fiscal years 2001, 2002 and 2003, and the consolidated balance sheets as of April 30, 2002 and 2003 are derived
from the Company's Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K. The consolidated
statements of operations and cash flows data for the fiscal years ended 1999 and 2000, and the consolidated balance sheet data as of
April 30, 1999, 2000 and 2001 are derived from the Company's Consolidated Financial Statements. The data should be read in
conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K.
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Casella Waste Systems, Inc. Selected Consolidated Financial And Operating Data
(In thousands, except per share data)
Fiscal Year
1999 (1)
2000 (1)
2001 (1)
2002 (1)
2003 (1)
Statement of Operations Data:
Revenues
Cost of operations
General and administration
Depreciation and amortization
Impairment charge
Restructuring charge
Legal settlements
Other miscellaneous charges
Merger-related costs
Operating income (loss)
Interest expense, net
Other (income)/expense, net
Income (loss) from continuing operations before income
taxes, discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
(Provision) benefit for income taxes
Income (loss) from discontinued operations, net
Estimated loss on disposal of discontinued operations, net
Reclassification from discontinued operations, net
Extraordinary loss, net
Cumulative effect of change in accounting principle, net
Net (loss) income
Preferred stock dividend
Net (loss) income available to common stockholders
Basic net (loss) income per common share
Basic weighted average common shares outstanding (2)
Diluted net (loss) income per common share
Diluted weighted average common shares outstanding (2)
Other Operating Data:
Capital expenditures
Other Data:
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows (used in) provided by financing activities
Balance Sheet Data:
Cash and cash equivalents
Working capital (deficit) net (3)
Property, plant and equipment, net
Goodwill
Total assets
Long-term debt, less current maturities
Redeemable preferred stock
Total stockholders’ equity
$ 179,264
106,893
26,210
25,334
—
—
—
—
1,951
18,876
5,564
(353)
13,665
(7,315)
265
—
—
—
—
6,615
—
$ 6,615
$ 0.44
15,145
$ 0.41
16,019
$ 315,263
193,341
40,765
38,670
—
—
—
—
1,490
40,997
15,672
2,204
23,121
(11,148)
1,101
(1,393)
—
(631)
—
11,050
—
$ 11,050
$ 0.59
18,731
$ 0.57
19,272
$ 480,366
321,214
64,079
53,411
79,687
4,151
4,209
1,604
—
(47,989)
38,654
27,358
(114,001)
20,443
(4,130)
(2,657)
(1,190)
—
—
(101,535)
(1,970)
$ (103,505)
$ (4.46)
23,189
$ (4.46)
23,189
$ 421,235
276,693
54,456
50,712
—
(438)
—
—
—
39,812
30,547
(6,533)
15,798
(5,111)
—
(4,096)
1,140
—
(250)
7,481
(3,010)
$ 4,471
$ 0.19
23,496
$ 0.19
24,169
$ 420,863
278,347
55,772
47,930
4,864
—
—
—
—
33,950
26,254
(3,824)
11,520
(5,292)
—
—
50
(2,170)
(63,916)
(59,808)
(3,094)
$ (62,902)
$ (2.65)
23,716
$ (2.63)
23,904
$ (54,118)
$ (68,575)
$ (61,518)
$ (37,674)
$ (41,925)
$ 37,462
$ (95,690)
$ 59,154
$ 48,398
$ (155,088)
$ 116,423
$ 4,195
$ (1,515)
$ 128,374
$ 98,086
$ 282,228
$ 86,523
$ —
$ 148,554
$ 7,788
$ 106,580
$ 369,261
$ 259,964
$ 860,470
$ 437,853
$ —
$ 274,718
$ 63,261
$ (55,565)
$ 18,765
$ 22,001
$ 33,056
$ 290,537
$ 225,969
$ 686,293
$ 350,511
$ 57,720
$ 172,951
$ 67,687
$ (9,533)
$ (70,065)
$ 4,298
$ (635)
$ 287,206
$ 219,729
$ 621,611
$ 277,545
$ 60,730
$ 176,796
$ 64,952
$ (61,208)
$ 7,610
$ 15,652
$ (4,847)
$ 302,328
$ 159,682
$ 602,641
$ 302,389
$ 63,824
$ 119,152
C A S E L
L A W A S T E S Y S T E M S
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(1) The Company has revised its consolidated statements of operations, consolidated statements of cash flows and consolidated balance sheets to reflect the
discontinuation of certain operations during fiscal years 2000 and 1999. In the fourth quarter of fiscal 2003, we entered into negotiations with former
employees for the transfer of the Company's domestic brokerage operations and a commercial recycling business and in June 2003, we completed the
transaction. The commercial recycling business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction,
the Company could not retain discontinued accounting treatment for this operation. Therefore the commercial recycling operating results have been
reclassified from discontinued to continuing operations for fiscal years 2001, 2002 and 2003. In connection with the discontinued accounting treatment in
fiscal 2001, estimated future losses from the operations were recorded and classified as losses from discontinued operations. This amount has been
reclassified and offset against actual loss from operations in fiscal 2001, 2002 and 2003. See Note 18 of the Notes to Consolidated Financial Statements.
(2) Computed on the basis described in Note 1 (n) of notes to consolidated financial statements.
(3) Working capital, net is defined as current assets, excluding cash and cash equivalents, minus current liabilities.
I T E M 7 . M A N A G E M E N T ' S D I S C U S S I O N A N D A N A LY S I S O F F I N A N C I A L C O N D I T I O N A N D
R E S U LT S O F O P E R AT I O N S
The following discussion of our financial condition and results of operations should be read in conjunction with the consolidated financial
statements and notes thereto, and other financial information, included elsewhere in this Annual Report on Form 10-K. This discussion
contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the section
of this Annual Report on Form 10-K entitled "Certain Factors That May Affect Future Results." Our actual results may differ materially from
those contained in any forward-looking statements.
Casella is a vertically-integrated regional solid waste services company that provides collection, transfer, disposal and recycling services
to residential, industrial and commercial customers, primarily in the eastern region of the United States. As of July 1, 2003, we owned
and /or operated five Subtitle D landfills, two landfills permitted to accept construction and demolition materials, 37 solid waste collection
operations, 33 transfer stations, 37 recycling facilities and one waste-to-energy facility, as well as a 50% interest in a joint venture that
manufactures, markets and sells cellulose insulation made from recycled fiber.
From May 1, 1994 through December 1999, we acquired 161 solid waste collection, transfer and disposal operations. In December
1999, we acquired KTI. KTI assets which we considered core to our operations included interests in waste-to-energy facilities in Maine,
significant residential and commercial recycling operations, transfer and collection operations which were "tuck-ins" to existing operations
and cellulose insulation manufacturing operations. In addition, KTI's assets included a number of businesses that were not core to our
operating strategy. Following our acquisition of KTI, we focused on the integration of KTI and the divestiture of non-core KTI assets, which
has now been completed. As part of the divestiture program, in the fourth quarter of fiscal year 2001 we incurred non-recurring charges
of $111.7 million, of which $90.6 million was non-cash. The divestiture program resulted in aggregate consideration of $107.6 million,
including cash proceeds of $61.7 million which were used to reduce our indebtedness. The divestitures reduced revenues in fiscal year
2002 by $54.9 million from fiscal year 2001.
Since December 1999, we have made 33 acquisitions. Eight of our acquisitions during the three years ended April 30, 2000 were
accounted for as poolings of interests. Under the rules governing poolings of interests, our financial statements were restated for all
years prior to the acquisitions to reflect the financial position, results of operations and cash flows of the merged entities as if they had
been one company for all prior periods presented in the accompanying financial statements. All of our other acquisitions, including KTI,
were accounted for under the purchase method of accounting. Under the rules of purchase accounting, the acquired companies' revenues
and results of operations have been included together with those of ours from the actual dates of the acquisitions and materially affect the
period-to-period comparisons of our historical results of operations. As pooling accounting has been eliminated, all future acquisitions will
be accounted for under the purchase method.
C R I T I C A L A C C O U N T I N G P O L I C I E S A N D E S T I M AT E S
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and
judgments which are based on historical experience and on various other factors that are believed to be reasonable under the
circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities.
Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are
more fully discussed in the notes to our consolidated financial statements.
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Landfill Accounting—Capitalized Costs and Amortization
In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations,
which outlines standards for accounting for an obligation associated with the retirement of a long-lived tangible asset and the associated
retirement costs. This standard will impact our accounting for landfill closure and post-closure obligations. See Note 1(q) of our
consolidated financial statements for discussion of our adoption of SFAS 143, effective May 1, 2003, and the related impact on our
landfill accounting. The following discussion of our landfill accounting is based on our accounting practices in effect during fiscal year
2003, prior to the adoption of SFAS 143.
We use life-cycle accounting and the units-of-production method to recognize certain landfill costs. Under life-cycle accounting, all
costs related to the acquisition, construction, closure and post-closure of landfill sites are capitalized or accrued and charged to income
based on tonnage placed into each site. Capitalized landfill costs include expenditures for land and related airspace, permitting costs and
preparation costs. Landfill permitting and preparation costs represent only direct costs related to these activities, including legal,
engineering and construction. Landfill preparation costs include the costs of construction associated with excavation, liners, site berms
and the installation of leak detection and leachate collection systems. Interest is capitalized on landfill permitting and construction projects
while the assets are undergoing activities to ready them for their intended use. Management routinely reviews its investment in operating
landfills, transfer stations and other significant facilities to determine whether the costs of these investments are realizable. Our
judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and the operational
performance of our landfills. Future events could cause us to conclude that impairment indicators exist and that our landfill carrying costs
are impaired. Any resulting impairment charge could have a material adverse effect on our financial condition and results of operations.
Landfill permitting, acquisition and preparation costs are amortized on the units-of-production method as landfill airspace is consumed.
In determining the amortization rate for these landfills, preparation costs include the total estimated costs to complete construction of the
landfills' permitted and permittable capacity. To be considered permittable, airspace must meet all of the following criteria:
• we control the land on which the expansion is sought;
• all technical siting criteria have been met or a variance has been obtained or is reasonably expected to be obtained;
• we have not identified any legal or political impediments which we believe will not be resolved in our favor;
• we are actively working on obtaining any necessary permits and we expect that all required permits will be received within the next two
to five years; and
• senior management has approved the project.
Units-of-production amortization rates are determined annually for each of our operating landfills. The rates are based on estimates
provided by our engineers and accounting personnel and consider the information provided by surveys, which are performed at least
annually. Significant changes in our estimates could materially increase our landfill depletion rates, which could have a material adverse
effect on our financial condition and results of operations. In determining estimated future landfill permitting, acquisition, construction and
preparation costs, we consider the landfill costs associated with permitted and permittable airspace. Our estimate of future landfill
permitting, acquisition, construction and preparation costs for the year ended April 30, 2003 increased to $157.6 million as compared to
$149.1 million for the year ended April 30, 2002 and $26.1 million for the year ended April 30, 2001, primarily as a result of additional
permitted and permittable airspace at our existing landfills, which increased to approximately 30 million tons as of April 30, 2003 as
compared to 26 million tons as of April 30, 2002 and 10 million tons as of April 30, 2001. The average landfill amortization rate per ton for
the years ended April 30, 2003, 2002 and 2001 was $6.43, $5.81 and $4.91, respectively. Landfill amortization expense for the years
ended April 30, 2003, 2002 and 2001 was $13.3 million, $10.3 million and $7.9 million, respectively.
Landfill Accounting—Accrued Closure and Post-Closure Costs
Accrued closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill,
after a landfill facility ceases to accept waste and closes. We estimate, based on input from our engineers, accounting personnel and
consultants, our future cost requirements for closure and post-closure monitoring and maintenance based on our interpretation of the
technical standards of the Subtitle D regulations and the air emissions standards under the Clean Air Act as they are being applied on a
state-by-state basis. Closure and post-closure accruals for the cost of monitoring and maintenance include final capping of the site, site
inspection, groundwater monitoring, leachate management, methane gas control and recovery, and operation and maintenance costs to
be incurred during the period after the facility closes.
C A S E L
L A W A S T E S Y S T E M S
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We provide accruals for these estimated future costs on an undiscounted basis as the remaining permitted airspace of such facilities
is consumed. Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the
landfill closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of
operations. In determining estimated future closure and post-closure costs, we consider costs associated with permitted and permittable
airspace. Our estimate of future closure and post-closure costs is $82.4 million for the year ended April 30, 2003, as compared to $83.0
million for the year ended April 30, 2002 and $46.0 million for the year ended April 30, 2001. Additional permitted and permittable
airspace at our existing landfills increased to approximately 30 million tons as of April 30, 2003, as compared to 26 million tons as of April
30, 2002 and 10 million tons as of April 30, 2001. The average landfill closure and post-closure expense per ton was $4.07, $3.75 and
$3.68 for the years ended April 30, 2003, 2002 and 2001, respectively.
Accrued closure and post-closure costs include the current and non-current portion of costs associated with obligations for closure
and post-closure of our landfills. The changes to accrued closure and post-closure liabilities are as follows:
Years Ended April 30,
Balance, beginning of year
Charged to operating expense
Spending applied against the accrual (1)
Acquisitions and other adjustments (2)
Balance, end of year
2001
$ 12,276
5,917
(675)
(288)
$ 17,230
2002
$ 17,230
6,665
(408)
1,285
$ 24,772
2003
$ 24,772
8,400
(9,164)
1,941
$ 25,949
(1) Spending levels increased in fiscal year 2003 mainly due to closure activities at our Woburn, Massachusetts and Pine Tree, Maine landfills.
(2) In fiscal year 2002, we recorded additional post-closure accruals relating to one of our construction and demolition landfills. In fiscal year 2003, we
recorded closure and post closure accruals relating to the Hardwick landfill acquisition.
We estimate our future closure and post-closure costs in order to determine the closure and post-closure expense per ton of waste
placed into each landfill as further described in Note 1(1) to our consolidated financial statements. The anticipated timeframe for paying
these costs varies based on the remaining useful life of each landfill, as well as the duration of the post-closure monitoring period. Based
on our permitted and permittable airspace at April 30, 2003, we expect to make payments relative to closure and post-closure activities
from fiscal 2004 through fiscal 2092.
Asset Impairment
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we continually review our long-lived
assets for impairment whenever events or changes in circumstances indicate that the remaining estimated useful life of such assets
might warrant revision or that the balances may not be recoverable. We evaluate possible impairment by comparing estimated future cash
flows, before interest expense and on an undiscounted basis, with the net book value of long-term assets including amortizable intangible
assets. If undiscounted cash flows are insufficient to recover assets, further analysis is performed in order to determine the amount of
the impairment. An impairment loss is then recorded equal to the amount by which the carrying amount of the assets exceeds their fair
value. Fair value is usually determined based on the present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved.
We adopted SFAS No. 142 effective May 1, 2002 and, have eliminated the amortization of goodwill and annually assess goodwill
impairment by applying a fair value based test. SFAS No. 142 requires that any goodwill recorded in connection with an acquisition
consummated on or after July 1, 2001 not be amortized.
Bad Debt Allowance
Estimates are used in determining our allowance for bad debts and are based on our historical collection experience, current trends,
credit policy and a review of our accounts receivable by aging category. Our reserve is evaluated and revised on a monthly basis.
Self-Insurance Liabilities and Related Costs
We are self insured for vehicles and workers compensation. The liability for unpaid claims and associated expenses, including incurred but
not reported losses, is determined by a third party actuary and reflected in our consolidated balance sheet as an accrued liability. We use
a third party to track and evaluate actual claims experience for consistency with the data used in the annual actuarial valuation. The
actuarially determined liability is calculated in part by our past claims experience, which considers both the frequency and settlement
amount of claims.
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Discontinued Operations
In April 2001, we adopted a formal plan to dispose of our tire processing, commercial recycling and mulch recycling businesses. We have
accounted for these planned dispositions in accordance with APB Opinion No. 30, Reporting the Effects of Disposal of a Segment of a
Business, and accordingly, the discontinued businesses are carried at estimated net realizable value less costs to be incurred through the
date of disposition. Assets held for sale and liabilities of operations held for sale are stated at their expected realizable values and have
been separately classified in the accompanying consolidated balance sheets.
Income Tax Accruals
We record 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. Management judgment is required in determining our provision for
income taxes and liabilities and any valuation allowance recorded against our net deferred tax assets. Valuation allowances have been
established for the possibility that tax benefits may not be realized for certain deferred tax assets.
F O R WA R D L O O K I N G S TAT E M E N T S
This Annual Report on Form 10-K and other reports, proxy statements, and other communications to stockholders, as well as oral
statements by the Company's officers or its agents, may contain forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act, with respect to, among other things, the Company's future revenues,
operating income, or earnings per share. Without limiting the foregoing, any statements contained in this Annual Report on Form 10-K
that are not statements of historical fact may be deemed to be forward-looking statements, and the words "believes", "anticipates",
"plans", "expects", and similar expressions are intended to identify forward-looking statements. There are a number of important factors of
which the Company is aware that may cause the Company's actual results to vary materially from those forecasted or projected in any
such forward-looking statement, certain of which are beyond the Company's control. These factors include, without limitation, those
outlined below in the section entitled "Certain Factors That May Affect Future Results". The Company's failure to successfully address
any of these factors could have a material adverse effect on the Company's results of operations.
G E N E R A L
Revenues
Our revenues in our Eastern, Central and Western regions are attributable primarily to fees charged to customers for solid waste disposal
and collection, landfill, waste-to-energy, transfer and recycling services. We derive a substantial portion of our collection revenues from
commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with
municipalities. The majority of our residential collection services are performed on a subscription basis with individual households. Landfill,
waste-to-energy facility and transfer customers are charged a tipping fee on a per ton basis for disposing of their solid waste at our
disposal facilities and transfer stations. The majority of our disposal and transfer customers are under one to ten year disposal contracts,
with most having clauses for annual cost of living increases. Recycling revenues, which are included in FCR and in the Eastern, Central
and Western regions, consist of revenues from the sale of recyclable commodities and operations and maintenance contracts of recycling
facilities for municipal customers. FCR revenues include revenues from brokerage operations.
Effective August 1, 2000, we contributed our cellulose insulation assets to a joint venture with Louisiana-Pacific, and accordingly,
since that date have recognized half of the joint venture's net income/(loss) on the equity method in our results of operations. In the
"Other" segment, we have ancillary revenues including residue recycling and major customer accounts.
Our revenues are shown net of intercompany eliminations. We typically establish our intercompany transfer pricing based upon
prevailing market rates. The following table shows, for the periods indicated, the percentage of our total revenues attributable to services
provided. Collection revenues as a percentage of total revenues in fiscal 2003 compared to fiscal year 2002 remained unchanged.
Collection revenues increased as a percentage of total revenues in fiscal year 2002 compared to fiscal year 2001 due to the effects of
price and volume increases. The increase in fiscal year 2003 landfill/disposal facilities revenues compared to fiscal year 2002 is mainly
due to increased volumes during the first part of 2003 compared to the same period in fiscal year 2002. The decrease in fiscal year 2002
landfill/disposal facilities revenues compared to fiscal year 2001 is mainly attributable to the disposition of our majority interest in
Penobscot Energy Recovery Company ("PERC"), which occurred late in fiscal year 2001. Transfer revenues as a percentage of total
C A S E L
L A W A S T E S Y S T E M S
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revenues have continued to increase between years due to an increase in transfer volumes. The increase in recycling revenues as a
percentage of total revenues in fiscal year 2003 compared to fiscal year 2002 is due to higher commodity prices and volumes. The
increase in recycling revenues as a percentage of total revenues in fiscal year 2002 compared to the prior year is due to higher volumes
partially offset by lower average prices. The decrease in brokerage revenues as a percentage of revenues in fiscal year 2003 compared to
fiscal year 2002 is due to lower commodity prices and volumes as well as the transfer of the export business to the employees of that
unit in September 2002. Our domestic brokerage operations, constituting the remainder of our brokerage revenues were transferred
effective June 30, 2003 to the employees of that unit. The decrease in our brokerage revenues as a percentage of revenues in fiscal year
2002 compared to the prior year is primarily attributable to the overall effects of commodity prices. The decrease in our other revenues as
a percentage of revenues during fiscal year 2003 and 2002 is primarily attributable to divestitures made during both periods.
Fiscal Year % of Revenues(1)
2001
2002
2003
Collection
Landfill/disposal facilities
Transfer
Recycling
Brokerage
Other
Total revenues
42.8%
16.3
7.7
11.9
14.7
6.6
46.7%
13.7
10.8
15.5
11.9
1.4
46.7%
14.3
11.3
19.0
8.7
0.0
100.0%
100.0%
100.0%
(1) We revised percentages of total revenues for fiscal year 2002 and fiscal year 2001 to conform with classification of revenues attributable to services
provided in fiscal year 2003.
Operating Expenses
Cost of operations includes labor, tipping fees paid to third party disposal facilities, fuel, maintenance and repair of vehicles and
equipment, worker's compensation and vehicle insurance, the cost of purchasing materials to be recycled, third party transportation
expense, district and state taxes, host community fees and royalties. Landfill operating expenses also include a provision for closure and
post-closure expenditures anticipated to be incurred in the future, and leachate treatment and disposal costs.
General and administration expenses include management, clerical and administrative compensation and overhead, professional
services and costs associated with our marketing, sales force and community relations efforts.
Depreciation and amortization expense includes depreciation of fixed assets over the estimated useful life of the assets using the
straight-line method, amortization of landfill airspace assets under the units-of-production method, and the amortization of intangible assets
using the straight-line method. Goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but will be
subject to annual impairment tests. The amount of landfill amortization expense related to airspace consumption can vary materially from
landfill to landfill depending upon the purchase price and landfill site and cell development costs. We depreciate all fixed and intangible
assets, excluding non-depreciable land, down to a zero net book value, and do not apply a salvage value to any of our fixed assets.
We capitalize certain direct landfill development costs, such as engineering, permitting, legal, construction and other costs associated
directly with the expansion of existing landfills. Additionally, we also capitalize certain third party expenditures related to pending
acquisitions, such as legal and engineering costs. We will have material financial obligations relating to closure and post-closure costs of
our existing landfills and any disposal facilities which we may own or operate in the future. We have provided and will in the future provide
accruals for future financial obligations relating to closure and post-closure costs of our landfills (generally for a term of 30 years after final
closure) based on engineering estimates of consumption of permitted landfill airspace over the useful life of any such landfill. Our financial
obligations for closure or post-closure costs may exceed the amount accrued and reserved or amounts otherwise receivable pursuant to
trust funds. We routinely evaluate all such capitalized costs, and expense those costs related to projects not likely to be successful.
Internal and indirect landfill development and acquisition costs, such as executive and corporate overhead, public relations and other
corporate services, are expensed as incurred.
R E S U LT S O F O P E R AT I O N S
The following table sets forth for the periods indicated the percentage relationship that certain items from our consolidated statements of
operations bear in relation to revenues.
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Fiscal Year % of Revenues
Revenues
Cost of operations
General and administration
Depreciation and amortization
Impairment charge
Restructuring charge
Legal settlements
Other miscellaneous charges
Operating income (loss)
Interest expense, net
(Income) loss from equity method investments, net
Other (income)/expenses, net
(Provision) benefit for income taxes
Income (loss) from continuing operations before discontinued
operations, extraordinary item and cumulative effect of change in
accounting principle
2001
100.0 %
66.9
13.3
11.1
16.6
0.9
0.9
0.3
(10.0)
8.0
5.5
0.2
4.3
2002
100.0%
65.7
12.9
12.0
—
(0.1)
—
—
9.5
7.3
(0.5)
(1.1)
(1.2)
2003
100.0 %
66.1
13.2
11.4
1.2
—
—
—
8.1
6.2
(0.5)
(0.4)
(1.3)
(19.4)%
2.6%
1.5%
F I S C A L Y E A R 2 0 0 3 V E R S U S F I S C A L Y E A R 2 0 0 2
Revenues—Revenues decreased $0.3 million, or 0.1%, to $420.9 million in fiscal year 2003 from $421.2 million in fiscal year 2002.
Divested businesses accounted for a decrease of approximately $26.2 million. These decreases were offset by price and volume
increases in the core solid waste business amounting to $2.3 million, higher commodity prices and volumes represented $21.4 million and
the positive rollover effect of acquisitions amounted to approximately $2.2 million.
Cost of operations—Cost of operations increased $1.6 million, or 1.0%, to $278.3 million in fiscal year 2003 from $276.7 million in
fiscal year 2002. Cost of operations as a percentage of revenues increased to 66.1% in fiscal year 2003 from 65.7% in fiscal year
2002. This increase arose mainly from higher insurance costs, partially offset by operating improvements in direct labor and lower
commodity purchases resulting from the sale of the export brokerage business. The increased insurance costs arose mainly from a
negative actuarial adjustment of $1.5 million related to our captive insurance company in fiscal 2003 versus a positive adjustment of
$2.8 million in fiscal 2002.
General and administration—General and administration expenses increased $1.3 million, or 2.4%, to $55.8 million in fiscal year 2003
from $54.5 million in fiscal year 2002. General and administration expenses increased slightly as a percentage of revenues to 13.2% in
fiscal year 2003 from 12.9% in fiscal year 2002. The increase in general and administration expenses was primarily the result of legal and
insurance expenses.
Depreciation and amortization—Depreciation and amortization expense decreased $2.8 million, or 0.6%, to $47.9 million in fiscal year
2003 from $50.7 million in fiscal year 2002. The decrease was mainly attributable to the Company adopting SFAS 142 which eliminates
recognition of goodwill amortization, partially offset by higher landfill amortization expense due to volume increases. Depreciation and
amortization expense as a percentage of revenues decreased to 11.4% in fiscal year 2003 from 12.0% in fiscal year 2002.
Interest expense, net—Net interest expense decreased $4.3 million, or 14.1%, to $26.3 million in fiscal year 2003, from $30.6 million in
fiscal year 2002. This decrease is primarily attributable to lower average debt balances and lower interest rates on variable rate debt in
the current year, versus the prior period. Interest expense, as a percentage of revenues, decreased to 6.2% in fiscal year 2003 from
7.3% in fiscal year 2002.
Impairment charge—In the fourth quarter of fiscal 2003 we recorded an impairment charge of $4.9 million to adjust the book value of the
domestic brokerage and commercial recycling businesses to net realizable value.
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(Income) loss from equity method investments, net—Income from equity method investments in fiscal year 2003 of $2.1 million and $1.9
million in fiscal year 2002 reflects equity income in our 50% joint venture interest in GreenFiber.
Minority interest—This amount represented the minority owners' interest in our majority owned subsidiary American Ash Recycling of
Tennessee, Ltd, which was dissolved in February 2003.
Other (income)/expense, net—Other income was $1.6 million in fiscal year 2003 compared to $4.5 million in other expenses in fiscal
year 2002. This decrease is attributable to the difference in gain on divestitures. In addition there was a gain of $1.2 million in fiscal year
2003 related to a settlement with Oakhurst Company, Inc., partially offset by a $1.6 million charge for interest rate swap unwind costs.
Provision (benefit) for income taxes—Provision for income taxes increased $0.2 million for fiscal year 2003 to $5.3 million from $5.1
million for fiscal year 2002. The effective tax rate increased to 45.9% for fiscal year 2003 from 32.4% for fiscal year 2002. This was
primarily due to an increase in the valuation allowance for loss carryforwards, nondeductible impairment of goodwill and the loss on the
sale of a significant portion of our interest in New Heights in fiscal year 2002, partially offset by the decrease in nondeductible goodwill
amortization, recognition of additional tax losses from New Heights and the elimination of capital loss carryforwards.
Reclassification from discontinued operations, net—In the fourth quarter of fiscal 2003, we entered into negotiations with former
employees for the transfer of our domestic brokerage operation and a commercial recycling business. The commercial recycling business
had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, we could not retain
discontinued accounting treatment for this operation. Therefore the commercial recycling business has been reclassified from
discontinued to continuing operations for fiscal 2001, 2002 and 2003. In fiscal 2001, we estimated and accrued for anticipated future
losses from this business which were recorded and classified as losses from discontinued operations. This amount has been reclassified
and offset against actual losses from operations in fiscal 2001, 2003 and 2003.
Estimated loss on disposal of discontinued operations, net—The estimated loss on disposal of discontinued operations for the fiscal
year 2002 is primarily due to the loss on the sale of the commercial recycling business.
Extraordinary loss—early extinguishment of debt, net—In fiscal year 2003, we entered into a new senior secured credit facility resulting
in the extinguishment of $2.2 million (net of tax benefit of $1.5 million) in debt financing costs associated with the old senior secured
credit facility.
Cumulative effect of change in accounting principle, net—Effective May 1, 2002, we adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which, among other things, eliminates the amortization of goodwill and requires an annual assessment of goodwill
impairment by applying a fair value based test. Goodwill was determined to be impaired and the amount of $63.9 million (net of tax benefit
of $0.2 million) was charged to earnings in fiscal year 2003 as a cumulative effect of change in accounting principle. The goodwill
impairment charge was related to our waste-to-energy operation, Maine Energy, and the Brokerage business of the FCR Recycling
segment, both of which were acquired as part of our acquisition of KTI. At the time of acquisition, we recorded the fair value of these
businesses using an independent third party valuation. The underlying assumptions used to establish the value of these businesses,
including earnings projections, commodity pricing assumptions and industry valuation multiples for recycling products, were not realized.
Accordingly, goodwill impairment charges were recorded as the net book value of these businesses exceeded their fair value. In fiscal
year 2002, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which resulted in a charge to earnings
as a cumulative effect of change in accounting principle in the amount of $0.3 million (net of tax benefit of $0.2 million) for the portion of
interest rate swap hedges determined to be ineffective.
F I S C A L Y E A R 2 0 0 2 V E R S U S F I S C A L Y E A R 2 0 0 1
Revenues—Revenues decreased $59.2 million, or 12.3%, to $421.2 million in fiscal year 2002 from $480.4 million in fiscal year 2001.
Divested businesses accounted for approximately $54.9 million of the decrease, while lower average brokerage commodity prices and
volumes represented $32.7 million of the decrease. These decreases were partially offset by price and volume increases in the core solid
waste business amounting to $24.9 million and the positive rollover effect of acquisitions amounting to approximately $3.5 million.
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Cost of operations—Cost of operations decreased $44.5 million, or 13.9%, to $276.7 million in fiscal year 2002 from $321.2 million in
fiscal year 2001. This decrease arose mainly from lower volumes of recyclable material purchases and divestitures. Cost of operations as
a percentage of revenues decreased to 65.7% in fiscal year 2002 from 66.9% in the prior fiscal year. The decrease in cost of operations
as a percentage of revenues was primarily the result of a decreased contribution from brokerage operations, which carry a high cost of
operations as a percentage of revenues of approximately 90%.
General and administration—General and administration expenses decreased $9.6 million, or 15.0%, to $54.5 million in fiscal year 2002
from $64.1 million in fiscal year 2001. General and administration expenses decreased slightly as a percentage of revenues to 12.9% in
fiscal year 2002 from 13.3% in the prior fiscal year. The decrease in general and administration expenses was primarily the result of
divestitures as well as lower legal and bad debt expenses.
Depreciation and amortization—Depreciation and amortization expense decreased $2.7 million, or 5.1%, to $50.7 million in fiscal year
2002 from $53.4 million in fiscal year 2001. The decrease was attributable to lower intangible amortization due to the impairment charge
taken in fiscal year 2001 and the impact of divested entities. Depreciation and amortization expense as a percentage of revenues
increased to 12.0% in fiscal year 2002 from 11.1% in fiscal year 2001. The increase as a percentage of revenues resulted primarily from
a lower level of revenues.
Impairment charge—In fiscal 2001, we determined that certain assets (mainly goodwill) were impaired and therefore recorded a charge
of $79.7 million to reduce those assets to their estimated fair value. The assets impaired mainly arose from the acquisition of KTI.
Restructuring charge—A restructuring charge of $0.4 million in fiscal year 2002 represents the reversal of certain unrealized fiscal year
2001 restructuring expenses, partially offset by additional restructuring charges expensed in fiscal year 2002.
Interest expense, net—Net interest expense decreased $8.1 million, or 21.0%, to $30.6 million in fiscal year 2002, from $38.7 million in
fiscal year 2001. This decrease is primarily attributable to lower average debt balances and lower interest rates on variable debt in the
current period, versus the prior period. Interest expense, as a percentage of revenues, decreased to 7.3% in fiscal year 2002 from 8.0%
in fiscal year 2001.
(Income) loss from equity method investments, net—Income from equity method investments in fiscal year 2002 of $1.9 million reflects
equity income in our 50% joint venture interest in GreenFiber amounting to $4.3 million, offset by a $2.4 million loss related to our further
investment in the New Heights tire processing business. In the prior year, we recorded our share of a loss of $4.2 million, recorded at
GreenFiber due to significant transitional and restructuring expenses. In fiscal year 2001, equity method investment losses also included a
$22.0 million loss attributable to impairment charges taken to reduce our investment in Oakhurst Company, Inc. ("OCI") and New Heights
Recovery and Power, LLC ("New Heights").
A portion of our 50% interest in New Heights was sold in September 2001 for consideration of $0.3 million. We retained an interest
of 9.95% in the tire recycling assets of New Heights, as well as financial obligations related solely to the New Heights power plant. In
addition, we have an interest in certain notes granted by New Heights collectively valued at approximately $9.0 million, payment of which
is contingent upon certain events. We will record the contingent consideration when the contingency is removed. We are accounting for
our retained investment under the cost method of accounting.
Minority interest—At April 30, 2002, this amount represented the minority owners' interest in AART, which recorded a loss for the period.
At April 30, 2001 minority interest reflected the minority owners' interest in our majority owned subsidiaries Maine Energy and PERC.
Effective March 1, 2001, we acquired the remaining 16.25% minority interest in Maine Energy and sold our majority interest in PERC.
Other (income)/expense, net—Other income was $4.5 million in fiscal year 2002 compared to $0.1 million in other expenses in fiscal
year 2001. This increase is attributable to the divestitures of Multitrade and S&S Commercial, which resulted in a gain of $4.8 million.
Other income in fiscal year 2002 also includes a gain on the sale of Bangor Hydro warrants of $1.7 million and gains on the sale of
equipment of $0.1 million, offset by the write-off of $1.7 million of commodity hedges due to the bankruptcy of Enron, as well as
impairment of our U.S. Plastic Lumber Corp. equity holdings, amounting to $0.4 million.
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Provision (benefit) for income taxes—Provision for income taxes increased $25.5 million in fiscal year 2002 to $5.1 million from a benefit
of $20.4 million in fiscal year 2001. This increase, as well as the change in the effective tax rate to 32.4%, is primarily due to the change
in pretax income to a profit, the tax benefit from the sale of 80.1% of our equity interest in New Heights in fiscal year 2002 and the
write-off of non-deductible goodwill and the equity loss in OCI and in New Heights in fiscal year 2001.
Reclassification from discontinued operations, net—In the fourth quarter of fiscal 2003, we entered into negotiations with former
employees for the transfer of our domestic brokerage operations and a commercial recycling business. The commercial recycling
business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, we could not retain
discontinued accounting treatment for this operation. Therefore the commercial recycling business operating results have been
reclassified from discontinued to continuing operations for fiscal 2001, 2002 and 2003. In fiscal 2001, we estimated and accrued for
anticipated future losses from this business which were recorded and classified as losses from discontinued operations. This amount has
been reclassified and offset against actual losses from operations in fiscal 2001, 2002 and 2003.
Estimated loss on disposal of discontinued operations, net—Estimated loss on disposal of discontinued operations, net increased $1.4
million to ($4.1) million in fiscal year 2002 from ($2.7) million in fiscal year 2001. The estimated loss on disposal of discontinued
operations, net in fiscal year 2002 was attributable to the loss on the sale of discontinued assets exceeding our estimates by $4.7 million,
partially offset by positive operating results of $0.6 million.
Cumulative effect of change in accounting principle, net—On May 1, 2001, we adopted SFAS No. 133 establishing accounting and
reporting standards for derivative instruments. Because the relevant terms of certain interest rate swaps and the specific debts that they
were designated to hedge were not identical, we recorded the ineffective portion of the hedge amounting to a loss of $0.3 million (net of
tax benefit of $0.2 million) as a cumulative effect of change in accounting principle.
L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S
Our business is capital intensive. Capital requirements include acquisitions, fixed asset purchases and capital expenditures for landfill
development and cell construction as well as site and cell closure. We had a net working capital deficit of $4.8 million at April 30, 2003
compared to a net working capital deficit of $0.6 million at April 30, 2002. Working capital, net comprises current assets, excluding cash
and cash equivalents, minus current liabilities. The main factors accounting for the decrease were higher trade payable and accrual
balances, lower current deferred taxes, partially offset by decreases in current portion of debt payments and interest rate swap liabilities.
We had a net working capital of $33.1 million at April 30, 2001. The decrease from April 30, 2001 to April 30, 2002 is due primarily to
lower trade receivables, the sale of assets of discontinued operations and assets held for sale, the sale of current investments and the
increase in the current portion of accrued closure and post-closure costs. In 2002, the allowance for doubtful accounts was substantially
reduced from fiscal year 2001 because of our focus on collections and the resulting significant reduction in the old amounts outstanding
during the period. In 2003, the allowance for doubtful accounts remained relatively unchanged from fiscal year 2002.
We have a $325.0 million credit facility with a group of banks for which Fleet Bank, N.A. is acting as agent. This credit facility
consists of a $175.0 million Senior Secured Revolving Credit Facility ("Revolver") and a Senior Secured Term "B" Loan, which had an
outstanding balance of $150.0 million at April 30, 2003 ("Term Loan"). We have the right to increase the amount of the revolver and/or
the term loan by an aggregate amount of up to $50 million at our discretion, provided that we are not in default at the time of the
increase, subject to the receipt of commitments from lenders for such additional amount. The new term loan and revolving credit facility
agreement contains covenants that may limit our activities, including covenants that restrict dividends and stock repurchases, limit capital
expenditures, and set minimum net worth and profitability requirements and interest coverage and leverage ratios. As of April 30, 2003,
we considered the profitability covenant, which requires our cumulative adjusted net income for any two consecutive quarters to be
positive, to be the most restrictive. As of April 30, 2003, we were in compliance with this covenant as we reported consolidated adjusted
net income of $1.5 million for the six months ended April 30, 2003. Consolidated adjusted net income is defined by the credit facility
agreement. In accordance with such definition, consolidated net income, determined in accordance with generally accepted accounting
principles, is adjusted for elimination of certain nonrecurring charges, extraordinary gains, income from discontinued operations and
non-cash income attributable to equity investments. We used the net proceeds from the offering of the old notes and initial borrowings
under our new senior secured credit facilities to repay all outstanding amounts under our old senior secured credit facilities, for fees and
expenses related to the offering of the old notes and the new senior secured credit facilities and general corporate purposes. As of April
30, 2003, assuming the issuance of all existing letters of credit under our new senior secured credit facilities, we would have had available
borrowing capacity under our new $175.0 million revolving credit facility of up to $141.6 million, subject to our ability to meet certain
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borrowing conditions. We intend to use the additional availability under our new senior secured credit facilities to support our acquisition
program. This credit facility is secured by all of our assets, including its interest in the equity securities of its subsidiaries. The Revolver
matures in January 2008 and the Term Loan matures in January 2010.
We have outstanding $150.0 million of 9.75% senior subordinated notes (the "notes"). The notes mature in January 2013. The senior
subordinated note agreement contains covenants that restrict dividends, stock repurchases and other payments, and limits the incurrence
of debt and issuance of preferred stock subject to our meeting a minimum consolidated fixed charge ratio. The notes are guaranteed
jointly and severally, fully and unconditionally by our significant wholly-owned subsidiaries. Pursuant to the terms of the agreements under
which the notes were issued, we are required to file a registration statement with the Securities and Exchange Commission relating to an
exchange offer pursuant to which holders of the notes will have the right to exchange the notes for substantially similar registered notes.
Due to the need to revise our financial statements for 2001 for the reasons set forth elsewhere in this Form 10-K, this registration
statement has not yet become effective. Accordingly, we will be required to pay the holders, as liquidated damages, an amount per
annum equal to 0.50% of the aggregate principal amount of the notes for the first 90-day period commencing July 23, 2003, and an
increased amount thereafter until the registration statement has been declared effective. We believe that the registration statement will
be declared effective within this initial 90-day period.
Net cash provided by operating activities in fiscal year 2003 and fiscal year 2002 amounted to $65.0 million and $67.7 million,
respectively. The decrease was mainly due to the cash outflows from landfill closure activities. Net cash provided by operating activities in
fiscal year 2002 increased by $4.4 million from $63.3 in fiscal year 2001. The increase was primarily due to the change in our working
capital, reflecting an improvement in our accounts receivable collections and an increase in the current portion of accrued closure and
post-closure costs.
Net cash used in investing activities in fiscal year 2003 and fiscal year 2002 amounted to $61.2 million and $9.5 million, respectively.
The increase in cash used in investing activities reflected mainly lower proceeds from divestitures and an increase in acquisitions. The
increase in cash used in investing activities between years was also as a result of higher capital expenditures, which increased to $41.9
million in fiscal year 2003 from $37.7 million in fiscal year 2002. Net cash used in investing activities in fiscal year 2002 decreased by
$46.1 million from $55.6 in fiscal year 2001. The decrease in cash used in investing activities reflected higher proceeds from divestitures
and fewer acquisitions. The decrease in cash used in investing activities between 2001 and 2002 was also as a result of lower capital
expenditures, which decreased to $37.7 million in fiscal year 2002 from $61.5 million in fiscal year 2001.
Net cash provided in financing activities was $7.6 million in fiscal year 2003 compared to net cash used by financing activities of
$70.1 in fiscal year 2002. This increase was primarily due to paying down less debt, net of borrowings, than in fiscal year 2002, partially
offset by refinancing costs of $11.5 million. Net cash provided by financing activities in fiscal year 2002 decreased $88.9 million from
$18.8 net cash provided in fiscal year 2001. This decrease was primarily due to paying down debt with proceeds from the divestitures.
Our capital expenditures were $41.9 million in fiscal year 2003 compared to $37.7 million in fiscal year 2002. Capital spending was
higher in fiscal year 2003 mainly due to capital expenditures related to the upgrade of the truck fleet and facilities. Our capital
expenditures in fiscal year 2002 decreased $23.8 million from $61.5 in fiscal year 2001. The decrease was primarily related to a
significant non-recurring capital project in 2001 associated with Maine Energy odor control, and the upgrade of our truck fleet and
containers. We expect capital spending to total approximately $45.0 million in fiscal year 2004.
During fiscal year 2003, we completed eight acquisitions for an aggregate consideration of $21.0 million, consisting of $18.1 million
in cash and $2.9 million in notes payable and other consideration. In comparison, during fiscal year 2002, we completed four acquisitions
for an aggregate consideration of $7.4 million, consisting of $4.6 million in cash and $2.8 million in notes payable and other consideration.
In fiscal year 2002, we completed our previously announced divestiture program which was announced in March 2001, from which we
received total consideration of $107.6 million, including cash proceeds of $61.7 million which were used to reduce our indebtedness.
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C O N T R A C T U A L O B L I G AT I O N S
The following table summarizes our significant contractual obligations and commitments as of April 30, 2003 (in thousands) and the
anticipated effect of these obligations on its liquidity in future years:
Fiscal Year(s)
2004
2005-2006
2007-2008
THEREAFTER
TOTAL
Long-term debt
Capital lease obligations
Interest obligations (1)
Operating leases
Closure/post-closure
Redeemable preferred securities (2)
$ 4,534
1,287
23,252
3,965
3,587
—
$ 6,291
993
45,513
6,869
9,105
—
$ 3,272
895
43,766
5,061
5,493
78,951
$ 292,826
81
80,516
4,261
64,250
—
$ 306,923
3,256
193,047
20,156
82,435
78,951
Total contractual cash obligations (3)
$ 36,625
$ 68,771
$ 137,438
$ 441,934
$ 684,768
(1) Interest obligations based on long-term debt and capital lease balances as of April 30, 2003. Interest obligations related to variable rate debt calculated
using variable rates in effect at April 30, 2003.
(2) Assumes redemption on the seventh anniversary of the closing date at the book value which includes all accrued and unpaid dividends.
(3) Contractual cash obligations do not include accounts payable or accrued liabilities, which will be paid in fiscal year 2004.
We believe that our cash provided internally from operations together with our senior secured credit facility should enable us to meet
our working capital and other cash needs for the foreseeable future.
I N F L AT I O N A N D P R E VA I L I N G E C O N O M I C C O N D I T I O N S
To date, inflation has not had a significant impact on our operations. Consistent with industry practice, most of our contracts provide for a
pass-through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. We therefore believe we should
be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may
require us to absorb at least a portion of these cost increases, particularly during periods of high inflation.
Our business is located mainly in the eastern United States. Therefore, our business, financial condition and results of operations are
susceptible to downturns in the general economy in this geographic region and other factors affecting the region, such as state
regulations and severe weather conditions. We are unable to forecast or determine the timing and/or the future impact of a sustained
economic slowdown.
N E W A C C O U N T I N G P R O N O U N C E M E N T S
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 applies to all legally
enforceable obligations associated with the retirement of tangible long-lived assets. For us, this standard primarily impacts our accounting
for our landfill operations, specifically closure and post-closure costs. SFAS No. 143 requires entities to record the fair value of a liability
for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost
by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the
capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the
obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We
will adopt SFAS No. 143 beginning May 1, 2003. The adoption of this standard will have no impact on cash flow.
SFAS No. 143 does not change the basic accounting principles that we historically followed for accounting for these types of
obligations. In general, we have followed the practice of life cycle accounting which recognizes a liability on the balance sheet and related
expense as airspace is consumed at the landfill, in order to match operating costs with revenues.
The primary modification to our methodology required by SFAS No. 143 is to require closure and post-closure costs to be discounted
to present value. Our estimates of future closure and post-closure costs historically have not taken into account discounts for the present
value of costs to be paid in the future. Under SFAS No. 143, our estimates of costs to discharge asset retirement obligations for landfills
are developed in today's dollars. These costs are then inflated each year to reflect a normal escalation of prices up to the year they are
expected to be paid. These estimated costs are then discounted to their present value using a credit adjusted risk-free rate.
Under SFAS No. 143, we will no longer accrue landfill retirement obligations through a charge to cost of operations, but rather by an
increase to landfill assets. Under SFAS No. 143, the amortizable landfill assets include not only the landfill development costs incurred but
also the recorded capping, closure and post-closure liabilities as well as the cost estimates for future capping, closure and post-closure
costs. The landfill asset is amortized over the total capacity of the landfill, as airspace is consumed during the life of the landfill with one
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exception. The exception is for final capping for which both the recognition of the liability and the amortization of these costs are based
instead on the airspace consumed for the specific capping event.
Upon adoption of SFAS No. 143 on May 1, 2003, we expect to record a cumulative effect of change in accounting principle of
$2,700 (net of taxes of $1,900). We expect that the impact of adopting SFAS No. 143 in fiscal 2004 as well as our annual update of cost
estimates, will decrease operating income by $300.
Following is a summary of the expected balance sheet changes for landfill assets and capping, closure and post-closure liabilities at
May 1, 2003 (in thousands):
Landfill assets
Accumulated amortization
Net landfill assets
Capping, closure, and post-closure liability
BALANCE AT
APRIL 30, 2003
$ 148,029
(63,207)
$ 84,822
$ 25,949
CHANGE
$ 6,166
(9,394)
$ (3,228)
$ (7,855)
BALANCE AT
MAY 1, 2003
$ 154,195
(72,601)
$ 81,594
$ 18,094
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections. SFAS No. 145, among other things, restricts the classification of gains and losses from extinguishment of
debt as extraordinary such that most debt extinguishment gains and losses will no longer be classified as extraordinary. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. Upon adoption, gain and losses on debt extinguishment, if any, will be recorded in
pre-tax income. During fiscal year 2003, we recorded an extraordinary loss of $2,170 (net of income tax of $1,479) in connection with the
write-off of deferred financing costs related to the old term loan and the old revolver. This item will be reclassified to continuing operations
in fiscal 2004.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
addresses costs such as restructuring, involuntary termination of employees and consolidating facilities but excludes from its scope exit
and disposal activities that are in connection with a business combination and those activities to which SFAS No. 143 and No. 144 are
applicable. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. We have not engaged in
or initiated any exit and disposal activities since December 31, 2002.
In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an
amendment of FAS 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the
method used in reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. We have included the
required disclosures in these financial statements. Management is evaluating the effect of this statement on our results of operations and
financial position as well as related disclosures.
In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of APB No. 51
("FIN 46"). FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiary who absorbs a
majority of the entities expected losses or residual benefits. FIN 46 applies immediately to variable interest entities created after January
31, 2003 and to existing variable interest entities in the periods beginning after June 15, 2003. Management is evaluating the effect of
this statement on our results of operations and financial position as well as related disclosures.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and
Equity. The statement changes the accounting of certain financial instruments that, under previous guidance, issuers could account for as
equity. The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is
effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Management is evaluating the effect of the statement on our results of operations and
financial positions as well as related disclosures.
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C E RTA I N FA C T O R S T H AT M AY A F F E C T F U T U R E R E S U LT S
The following important factors, among others, could cause actual results to differ materially from those indicated by forward-looking
statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time.
The Company's increased leverage may restrict its future operations and impact its ability to make future acquisitions.
As a result of the acquisition of KTI, our indebtedness increased substantially. In addition, our indebtedness has increased further as a
result of our new credit facility and the completion of the offering of the senior subordinated notes. The payment of interest and principal
due under this indebtedness has reduced, and may continue to reduce, funds available for other business purposes, including capital
expenditures and acquisitions. In addition, the aggregate amount of indebtedness has limited and may continue to limit our ability to incur
additional indebtedness, and thereby may limit its acquisition program.
We may not be successful in making acquisitions of solid waste assets, including developing additional disposal capacity, or in
integrating acquired businesses or assets, which could limit our future growth.
Our strategy envisions that a substantial part of our future growth will come from making acquisitions of traditional solid waste assets or
operations and acquiring or developing additional disposal capacity. These acquisitions may include "tuck-in" acquisitions within our
existing markets, assets that are adjacent to or outside our existing markets, or larger, more strategic acquisitions. In addition, from time
to time we may acquire businesses that are complementary to our core business strategy. We may not be able to identify suitable
acquisition candidates. If we identify suitable acquisition candidates, we may be unable to negotiate successfully their acquisition at a
price or on terms and conditions favorable to us. Furthermore, we may be unable to obtain the necessary regulatory approval to complete
potential acquisitions.
Our ability to achieve the benefits we anticipate from acquisitions, including cost savings and operating efficiencies, depends in part
on our ability to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired
businesses and other assets may require significant management time and company resources that would otherwise be available for the
ongoing management of our existing operations.
In addition, the process of acquiring or developing additional disposal capacity is lengthy, expensive and uncertain. For example, we
are currently involved in litigation with the Town of Bethlehem, New Hampshire relating to the expansion of a landfill owned by our wholly
owned subsidiary, North Country Environmental Services, Inc. Moreover, the disposal capacity at our existing landfills is limited by the
remaining available volume at our landfills and annual and/or daily disposal limits imposed by the various governmental authorities with
jurisdiction over our landfills. We typically reach or approximate our daily and annual maximum permitted disposal capacity at all of our
landfills. If we are unable to develop or acquire additional disposal capacity, our ability to achieve economies from the internalization of our
waste stream will be limited and we may be required to increase our utilization of disposal facilities owned by third parties, which could
reduce our revenues and/or our operating margins.
Our ability to make acquisitions is dependent on the availability of adequate cash and the attractiveness of our stock price.
We anticipate that any future business acquisitions will be financed through cash from operations, borrowings under our new senior
secured credit facilities, the issuance of shares of our Class A common stock and /or seller financing. We may not have sufficient
existing capital resources and may be unable to raise sufficient additional capital resources on terms satisfactory to us, if at all, in order to
meet our capital requirements for such acquisitions.
We also believe that a significant factor in our ability to close acquisitions will be the attractiveness to us and to persons selling
businesses to us of our Class A common stock as consideration for potential acquisition candidates. This attractiveness may, in large
part, be dependent upon the relative market price and capital appreciation prospects of our Class A common stock compared to the
equity securities of our competitors. The trading price of our Class A common stock on the Nasdaq National Market has limited our
willingness to use our equity as consideration and the willingness of sellers to accept our shares and as a result has limited, and could
continue to limit, the size and scope of our acquisition program.
Environmental regulations and litigation could subject us to fines, penalties, judgments and limitations on our ability to expand.
We are subject to potential liability and restrictions under environmental laws, including those relating to transport, recycling, treatment,
storage and disposal of wastes, discharges to air and water, and the remediation of contaminated soil, surface water and groundwater.
The waste management industry has been and will continue to be subject to regulation, including permitting and related financial
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assurance requirements, as well as to attempts to further regulate the industry through new legislation. Our waste-to-energy and
manufacturing facilities are subject to regulations limiting discharges of pollution into the air and water, and our solid waste operations are
subject to a wide range of federal, state and, in some cases, local environmental, odor and noise and land use restrictions. For example,
our waste-to-energy facility in Biddeford, Maine is affected by zoning restrictions and air emissions limitations in its efforts to implement a
new odor control system. See "Business—Regulation—State and Local Regulations." If we are not able to comply with the requirements
that apply to a particular facility or if we operate without necessary approvals, we could be subject to civil, and possibly criminal, fines and
penalties, and we may be required to spend substantial capital to bring an operation into compliance or to temporarily or permanently
discontinue, and/or take corrective actions, possibly including removal of landfilled materials, regarding an operation that is not permitted
under the law. We may not have sufficient insurance coverage for our environmental liabilities. Those costs or actions could be significant
to us and impact our results of operations, as well as our available capital.
Environmental and land use laws also impact our ability to expand and, in the case of our solid waste operations, may dictate those
geographic areas from which we must, or, from which we may not, accept waste. Those laws and regulations may limit the overall size
and daily waste volume that may be accepted by a solid waste operation. If we are not able to expand or otherwise operate one or more
of our facilities because of limits imposed under environmental laws, we may be required to increase our utilization of disposal facilities
owned by third parties, which could reduce our revenues and/or operating margins.
We have historically grown and intend to continue to grow through acquisitions, and we have tried and will continue to try to evaluate
and address environmental risks and liabilities presented by newly acquired businesses as we have identified them. It is possible that
some liabilities, including ones that may exist only because of the past operations of an acquired business, may prove to be more difficult
or costly to address than we anticipate. It is also possible that government officials responsible for enforcing environmental laws may
believe an issue is more serious than we would expect, or that we will fail to identify or fully appreciate an existing liability before we
become legally responsible to address it. Some of the legal sanctions to which we could become subject could cause us to lose a
needed permit, or prevent us from or delay us in obtaining or renewing permits to operate our facilities or harm our reputation.
Our operating program depends on our ability to operate and expand the landfills we own and lease and to develop new landfill sites.
Localities where we operate generally seek to regulate some or all landfill operations, including siting and expansion of operations. The
laws adopted by municipalities in which our landfills are located may limit or prohibit the expansion of the landfill as well as the amount of
waste that we can accept at the landfill on a daily or annual basis and any effort to acquire or expand landfills typically involves a
significant amount of time and expense. For example, expansion at our North County Environmental Services, Inc. landfill will require the
New Hampshire Supreme Court to overturn a lower court ruling which interpreted a local ordinance to prohibit expansion of the landfill
with respect to 1.3 million tons of capacity, and expansion of our Hyland landfill is subject to the passage of a town-wide referendum. We
may not be successful in obtaining new landfill sites or expanding the permitted capacity of any of our current landfills once their
remaining disposal capacity has been consumed. If we are unable to develop additional disposal capacity, our ability to achieve economies
from the internalization of our waste stream will be limited and we will be required to utilize the disposal facilities of our competitors.
In addition to the costs of complying with environmental laws and regulations, we incur costs defending against environmental
litigation brought by governmental agencies and private parties. We are, and also may be in the future, defendants in lawsuits brought by
parties alleging environmental damage, personal injury, and/or property damage. For example, we are one of over twenty defendants
named in a toxic tort lawsuit filed on July 2, 2001 by residents surrounding three sites in Cheektowaga, New York alleging, among other
things, that we have liability as a result of our airspace agreement at the Schultz construction and demolition debris landfill. In addition, we
are also a defendant in a lawsuit filed on January 10, 2002 by the City of Biddeford, Maine alleging, among other things, that our
subsidiary, Maine Energy, processed amounts of waste above contractual limits without notice to the city. A significant judgment against
us could harm our business, our prospects and our reputation. See "Business—Regulation" and "Business—Legal Proceedings."
Our operations would be adversely affected if we do not have access to sufficient capital.
Our ability to remain competitive and sustain our operations depends in part on cash flow from operations and our access to capital. We
intend to fund our cash needs primarily through cash from operations and borrowings under our new senior secured credit facilities.
However, we may require additional equity and/or debt financing for debt repayment obligations and to fund our growth and operations. In
addition, if we undertake more acquisitions or further expand our operations, our capital requirements may increase. We may not have
access to the amount of capital that we require from time to time, on favorable terms or at all.
Our results of operations could continue to be affected by changing prices or market requirements for recyclable materials.
Our results of operations have been and may continue to be affected by changing purchase or resale prices or market requirements for
recyclable materials. Our recycling business involves the purchase and sale of recyclable materials, some of which are priced on a
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commodity basis. The resale and purchase prices of, and market demand for, recyclable materials, particularly waste paper, plastic and
ferrous and aluminum metals, can be volatile due to numerous factors beyond our control. Although we seek to limit our exposure to
fluctuating commodity prices through the use of hedging agreements and long-term supply contracts with customers, these changes have
in the past contributed, and may continue to contribute, to significant variability in our period-to-period results of operations.
Our business is geographically concentrated and is therefore subject to regional economic downturns.
Our operations and customers are principally located in the eastern United States. Therefore, our business, financial condition and results
of operations are susceptible to regional economic downturns and other regional factors, including state regulations and budget
constraints and severe weather conditions. In addition, as we expand in our existing markets, opportunities for growth within these
regions will become more limited and the geographic concentration of our business will increase.
Maine Energy may be required to make a payment in connection with the payoff of certain obligations and limited partner loans
earlier than we had anticipated and which may exceed the amount of the liability we recorded in connection with the KTI acquisition.
Under the terms of waste handling agreements among the Biddeford-Saco Waste Handling Committee, the cities of Biddeford and Saco,
Maine, 13 other municipalities and our subsidiary Maine Energy, Maine Energy will be required, following the date on which the bonds that
financed Maine Energy and certain limited partner loans to Maine Energy are paid in full, to pay a residual cancellation payment to the
respective municipalities party to those agreements equal to an aggregate of 18% of the fair market value of the equity of the partners in
Maine Energy. In connection with our merger with KTI, we estimated the fair market value of Maine Energy as of the date the limited
partner loans are anticipated to be paid in full, and recorded a liability equal to 18% of such amount. Our estimate of the fair market value
of Maine Energy may not prove to be accurate, and in the event we have underestimated the value of Maine Energy, we could be required
to recognize unanticipated charges, in which case our operating results could be harmed.
In connection with these waste handling agreements, the cities of Biddeford and Saco and the additional 13 municipalities that were
parties to the agreements have filed lawsuits in the State of Maine seeking the residual cancellation payments and alleging, among other
things, our breach of the waste handling agreement for our failure to pay the residual cancellation payments in connection with the KTI
merger, failure to pay off limited partner loans in accordance with the terms of the agreement and processing amounts of waste above
contractual limits without issuance of proper notice. The complaint seeks damages for breach of contract and a court order requiring us to
provide an accounting of all relevant transactions since May 3, 1996. If the plaintiffs are successful in their claims against us and damages
are awarded our operating income in the period in which such a claim is paid would be impacted. See "Business—Legal Proceedings."
We may not be able to effectively compete in the highly competitive solid waste services industry.
The solid waste services industry is highly competitive, has undergone a period of rapid consolidation and requires substantial labor and
capital resources. Some of the markets in which we compete or will likely compete are served by one or more of the large national or
multinational solid waste companies, as well as numerous regional and local solid waste companies. Intense competition exists not only to
provide services to customers, but also to acquire other businesses within each market. Some of our competitors have significantly
greater financial and other resources than us. From time to time, competitors may reduce the price of their services in an effort to expand
market share or to win a competitively bid contract. These practices may either require us to reduce the pricing of our services or result in
our loss of business.
As is generally the case in the industry, some municipal contracts are subject to periodic competitive bidding. We may not be the
successful bidder to obtain or retain these contracts. If we are unable to compete with larger and better capitalized companies, or to
replace municipal contracts lost through the competitive bidding process with comparable contracts or other revenue sources within a
reasonable time period our revenues would decrease and our operating results would be harmed.
In our solid waste disposal markets we also compete with operators of alternative disposal and recycling facilities and with counties,
municipalities and solid waste districts that maintain their own waste collection, recycling and disposal operations. These entities may
have financial advantages because user fees or similar charges, tax revenues and tax-exempt financing may be more available to them
than to us.
Our GreenFiber insulation manufacturing joint venture with Louisiana-Pacific Corporation competes with other parties, principally
national manufacturers of fiberglass insulation, which have substantially greater resources than GreenFiber does, which they could use for
product development, marketing or other purposes to our detriment.
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Our results of operations and financial condition may be negatively affected if we inadequately accrue for closure and
post-closure costs.
We have material financial obligations relating to closure and post-closure costs of our existing landfills and will have material financial
obligations with respect to any disposal facilities which we may own or operate in the future. Once the permitted capacity of a particular
landfill is reached and additional capacity is not authorized, the landfill must be closed and capped, and post-closure maintenance started.
We establish reserves for the estimated costs associated with such closure and post-closure obligations over the anticipated useful life of
each landfill on a per ton basis. In addition to the landfills we currently operate, we own four unlined landfills, which are not currently in
operation. We have provided and will in the future provide accruals for financial obligations relating to closure and post-closure costs of
our owned or operated landfills, generally for a term of 30 years after final closure of a landfill. Our financial obligations for closure or
post-closure costs could exceed the amount accrued and reserved or amounts otherwise receivable pursuant to trust funds established
for this purpose. Such a circumstance could result in significant unanticipated charges.
Fluctuations in fuel costs could affect our operating expenses and results.
The price and supply of fuel is unpredictable and fluctuates based on events beyond our control, including among others, geopolitical
developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing
countries and regional production patterns. Because fuel is needed to run our fleet of trucks, price escalations for fuel increase our
operating expenses. During fiscal 2003, we used approximately 6.5 million gallons of diesel fuel in our solid waste operations. Although
many of our customer contracts permit us to pass on some or all fuel increases to our customers, we may choose not to do so for
competitive reasons.
We could be precluded from entering into contracts or obtaining permits if we are unable to obtain third party financial assurance to
secure our contractual obligations.
Municipal solid waste collection and recycling contracts, obligations associated with landfill closure and the operation and closure of
waste-to-energy facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure our
contractual performance. If we are unable to obtain the necessary financial assurance in sufficient amounts or at acceptable rates, we
could be precluded from entering into additional municipal solid waste collection contracts or from obtaining or retaining landfill operating
permits. Any future difficulty in obtaining insurance could also impair our ability to secure future contracts conditioned upon the contractor
having adequate insurance coverage.
We may be required to write-off capitalized charges or intangible assets in the future, which could harm our earnings.
Any write-off of capitalized costs or intangible assets reduces our earnings and, consequently, could affect the market price of our Class
A common stock. In accordance with generally accepted accounting principles, we capitalize certain expenditures and advances relating
to our acquisitions, pending acquisitions, landfills and development projects. From time to time in future periods, we may be required to
incur a charge against earnings in an amount equal to any unamortized capitalized expenditures and advances, net of any portion thereof
that we estimate will be recoverable, through sale or otherwise, relating to (1) any operation that is permanently shut down or has not
generated or is not expected to generate sufficient cash flow, (2) any pending acquisition that is not consummated, (3) any landfill or
development project that is not expected to be successfully completed, and (4) any goodwill or other intangible assets that are
determined to be impaired. We have incurred such charges in the past.
Our revenues and our operating income experience seasonal fluctuations.
Our transfer and disposal revenues have historically been lower during the months of November through March. This seasonality reflects
the lower volume of waste during the late fall, winter and early spring months primarily because:
• the volume of waste relating to construction and demolition activities decreases substantially during the winter months in the
northeastern United States; and
• decreased tourism in Vermont, Maine and eastern New York during the winter months tends to lower the volume of waste generated by
commercial and restaurant customers, which is partially offset by increased volume from the winter ski industry.
Since certain of our operating and fixed costs remain constant throughout the fiscal year, operating income is therefore impacted by
a similar seasonality. In addition, particularly harsh weather conditions typically result in increased operating costs to our operations.
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Our recycling business experiences increased volumes of newspaper in November and December due to increased newspaper
advertising and retail activity during the holiday season. Our cellulose insulation joint venture experiences lower sales in November and
December because of lower production of manufactured housing due to holiday plant shutdowns.
Efforts by labor unions to organize our employees could divert management attention and increase our operating expenses.
Labor unions regularly make attempts to organize our employees, and these efforts will likely continue in the future. Certain groups of our
employees have chosen to be represented by unions, and we have negotiated collective bargaining agreements with these groups.
Additional groups of employees may seek union representation in the future, and the negotiation of collective bargaining agreements
could divert management attention and result in increased operating expenses and lower net income. If we are unable to negotiate
acceptable collective bargaining agreements, we might have to wait through "cooling off" periods, which are often followed by union-
initiated work stoppages, including strikes. Depending on the type and duration of any labor disruptions, our revenues could decrease and
our operating expenses could increase, which could adversely affect our financial condition, results of operations and cash flows. As of
July 1, 2003, approximately 5.1% of our employees involved in collection, transfer, disposal, recycling or other operations, including our
employees at our Maine Energy waste-to-energy facility, were represented by unions.
Our Class B common stock has ten votes per share and is held exclusively by John W. Casella and Douglas R. Casella.
The holders of our Class B common stock are entitled to ten votes per share and the holders of our Class A common stock are entitled
to one vote per share. At July 1, 2003, an aggregate of 988,200 shares of our Class B common stock, representing 9,882,000 votes,
were outstanding, all of which were beneficially owned by John W. Casella, our Chairman and Chief Executive Officer, or by his brother,
Douglas R. Casella, a member of our Board of Directors. Based on the number of shares of common stock and Series A redeemable
convertible preferred stock outstanding on July 1, 2003, the shares of our Class A common stock and Class B common stock
beneficially owned by John W. Casella and Douglas R. Casella represent approximately 30.9% of the aggregate voting power of our
stockholders. Consequently, John W. Casella and Douglas R. Casella are able to substantially influence all matters for stockholder
consideration, including exercising their influence over us according to interests that may differ from the interests of holders of the senior
subordinated notes. For instance, they may approve transactions that in their judgment enhance the value of their equity investment in us
despite involving risks to holders of the notes.
I T E M 7 A . Q U A N T I T A T I V E A N D Q U A L I T A T I V E D I S C L O S U R E A B O U T M A R K E T R I S K
Q U A N T I TAT I V E A N D Q U A L I TAT I V E D I S C L O S U R E A B O U T M A R K E T R I S K .
At April 30, 2003, our outstanding variable rate debt consisted of the $150.0 million term loan portion of our new senior secured credit
facility. If interest rates on this variable rate debt increased or decreased by 100 basis points, our annual interest expense would increase
or decrease by approximately $1.5 million. In addition, the revolving credit facility portion of our new senior secured credit facility, as it
may be outstanding from time to time, is variable rate debt.
The remainder of our debt is at fixed rates and not subject to interest rate risk.
On February 24, 2003, we entered into two interest rate swap agreements with two banks, effectively fixing the interest index rate
on a notional $53.0 million at approximately 2.4%. These hedges are specifically designated to existing interest payments under the term
loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133. The fair value of the swaps is estimated at a loss of
$0.6 million as of April 30, 2003.
We are subject to commodity price fluctuations related to the portion of our sales of recyclable commodities that are not under floor
or flat pricing arrangements. As of April 30, 2003, to minimize our commodity exposure, we were party to twelve commodity hedging
agreements. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. If commodity
prices were to change by 10%, the impact on our operating margin is estimated at $3.9 million as of April 30, 2003, without considering
our hedging agreements. The effect of the hedge position would reduce the impact by approximately $0.5 million.
On December 2, 2001, Enron Corporation ("Enron"), the counterparty for all of our commodity hedges as of that date, filed for Chapter
11 bankruptcy protection. As a result of the filing, we executed the early termination provisions provided under the forward contracts, and
filed a claim with the bankruptcy court. Additionally, we agreed with our equity method investee, GreenFiber, to include GreenFiber in our
claim (as allowed under the applicable affiliate provisions). We recorded a charge of $1.7 million in fiscal 2002 other expense to recognize
the change in fair value of our commodity contracts. Subsequent changes in the fair value of these commodity contracts were reflected in
earnings until their March 2003 termination. We have no remaining exposure related to our claims against Enron.
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I T E M 8 . F I N A N C I A L S TAT E M E N T S A N D S U P P L E M E N TA R Y D ATA
R E P O RT O F I N D E P E N D E N T A U D I T O R S
To the Board of Directors and Stockholders of Casella Waste Systems, Inc:
In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) on page 100 present fairly, in all
material respects, the financial position of Casella Waste Systems, Inc. and its subsidiaries (the "Company") at April 30, 2003 and April 30,
2002, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2003 in conformity
with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the consolidated financial statements, on May 1, 2001, the Company changed its method of accounting for
derivative instruments and hedging activities.
As described in Note 3 to the consolidated financial statements, on May 1, 2002, the Company changed its method of accounting for
goodwill and other intangible assets, and its method of accounting for the impairment or disposal of long-lived assets.
By:
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
Date: July 22, 2003
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Balance Sheets (In thousands)
Assets
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable—trade, net of allowance for doubtful accounts of $821 and $895
Notes receivable—officers/employees
Prepaid expenses
Inventory
Deferred income taxes
Other current assets
Total current assets
Property, plant and equipment, net of accumulated depreciation and
amortization of $163,556 and $201,681
Intangible assets, net
Deferred income taxes
Investments in unconsolidated entities
Net assets under contractual obligation
Other non-current assets
The accompanying notes are an integral part of these consolidated financial statements
The accompanying notes are an integral part of these consolidated financial statements
APRIL 30,
2002
APRIL 30,
2003
$ 4,298
10,286
43,069
1,105
3,132
2,414
8,767
4,245
77,316
287,206
223,643
648
26,865
—
5,933
544,295
$ 621,611
$ 15,652
10,839
45,649
1,105
5,906
1,740
4,275
1,111
86,277
302,328
162,696
—
34,740
3,844
12,756
516,364
$ 602,641
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Balance Sheets (Continued) (In thousands, except for share and per share data)
Liabilities and Stockholders’ Equity
Current Liabilities:
Current maturities of long-term debt
Current maturities of capital lease obligations
Accounts payable
Accrued payroll and related expenses
Accrued interest
Accrued income taxes
Accrued closure and post-closure costs, current portion
Other accrued liabilities
Total current liabilities
Long-term debt, less current maturities
Capital lease obligations, less current maturities
Accrued closure and post-closure costs, less current maturities
Minority interest
Deferred income taxes
Other long-term liabilities
Commitments and Contingencies
Series A redeemable, convertible preferred stock, 55,750 shares authorized,
issued and outstanding as of April 30, 2002 and 2003, liquidation
preference of $1,000 per share plus accrued but unpaid dividends
Stockholders’ Equity:
Class A common stock—Authorized—100,000,000 shares, $0.01 par value
issued and outstanding—22,667,000 and 22,769,000 shares
as of April 30, 2002 and 2003, respectively
Class B common stock—Authorized—1,000,000 shares, $0.01 par value
10 votes per share, issued and outstanding—988,000 shares
Accumulated other comprehensive income (loss)
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
The accompanying notes are an integral part of these consolidated financial statements
APRIL 30,
2002
APRIL 30,
2003
$ 6,436
1,816
24,154
5,797
1,481
3,676
6,465
23,828
73,653
277,545
3,051
18,307
523
—
11,006
$ 4,534
1,287
33,743
7,383
5,375
4,526
2,962
15,662
75,472
302,389
1,969
22,987
—
5,473
11,375
60,730
63,824
227
10
(4,250)
272,697
(91,888)
176,796
$ 621,611
228
10
542
270,068
(151,696)
119,152
$ 602,641
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Statements of Operation (In thousands)
Fiscal Year Ended April 30,
2001
2002
2003
Revenues
Operating expenses:
Cost of operations
General and administration
Depreciation and amortization
Impairment charge
Restructuring charge
Legal settlements
Other miscellaneous charges
Operating income (loss)
Other expense/(income), net:
Interest income
Interest expense
(Income) loss from equity method investments
Minority interest
Other (income)/expense, net
Other expense, net
Income (loss) from continuing operations before income taxes,
discontinued operations, extraordinary loss and cumulative effect
of change in accounting principle
Provision (benefit) for income taxes
Income (loss) from continuing operations before discontinued operations,
$ 480,366
$ 421,235
$ 420,863
321,214
64,079
53,411
79,687
4,151
4,209
1,604
528,355
276,693
54,456
50,712
—
(438)
—
—
381,423
278,347
55,772
47,930
4,864
—
—
—
386,913
(47,989)
39,812
33,950
(2,974)
41,628
26,256
1,026
76
66,012
(904)
31,451
(1,899)
(154)
(4,480)
(318)
26,572
(2,073)
(152)
(1,599)
24,014
22,430
(114,001)
(20,443)
15,798
5,111
11,520
5,292
extraordinary loss and cumulative effect of change in accounting principle
(93,558)
10,687
6,228
Discontinued Operations:
Loss from discontinued operations (net of income tax benefit of $1,069)
Estimated loss on disposal of discontinued operations
(net of income tax benefit of $274 and $157)
Reclassification from discontinued operations (net of income (provision)
benefit of $810, ($776) and ($34))
Extraordinary loss—early extinguishment of debt (net of income tax benefit of $1,479)
Cumulative effect of change in accounting principle
(4,130)
(2,657)
(1,190)
—
—
(4,096)
1140
—
—
—
50
(2,170)
(net of income tax benefit of $170 and $189)
—
(250)
(63,916)
Net (loss) income
Preferred stock dividend
(101,535)
1,970
7,481
3,010
(59,808)
3,094
Net (loss) income available to common stockholders
$ (103,505)
$ 4,471
$ (62,902)
The accompanying notes are an integral part of these consolidated financial statements
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Statements of Operation (Continued) (In thousands, except for per share data)
Fiscal Year Ended April 30,
2001
2002
2003
Earnings Per Share:
Basic:
Income (loss) from continuing operations before discontinued operations,
extraordinary loss and cumulative effect of change in accounting principle
Loss from discontinued operations, net
Estimated loss on disposal of discontinued operations, net
Reclassification from discontinued operations, net
Extraordinary loss—early extinguishment of debt, net
Cumulative effect of change in accounting principle, net
$ (4.12)
(0.18)
(0.11)
(0.05)
—
—
$ 0.33
—
(0.18)
0.05
—
(0.01)
$ 0.13
—
—
—
(0.09)
(2.69)
Net (loss) income per common share
$ (4.46)
$ 0.19
$ (2.65)
Basic weighted average common shares outstanding
23,189
23,496
23,716
Diluted:
Income (loss) from continuing operations before discontinued operations,
extraordinary loss and cumulative effect of change in accounting principle
Loss from discontinued operations, net
Estimated loss on disposal of discontinued operations, net
Reclassification from discontinued operations, net
Extraordinary loss—early extinguishment of debt, net
Cumulative effect of change in accounting principle, net
$ (4.12)
(0.18)
(0.11)
(0.05)
—
—
$ 0.32
—
(0.17)
0.05
—
(0.01)
$ 0.13
—
—
—
(0.09)
(2.67)
Net (loss) income per common share
$ (4.46)
$ 0.19
$ (2.63)
Diluted weighted average common shares outstanding
23,189
24,169
23,904
The accompanying notes are an integral part of these consolidated financial statements
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity (In thousands)
Balance, April 30, 2000
Issuance of Class A common stock from the exercise of
stock options and employee stock purchase plan
Issuance of Series A redeemable convertible preferred stock
Accrual of preferred stock dividend
Equity transactions of majority-owned subsidiary
Net loss
Unrealized gain on securities
Total comprehensive loss
Other
Balance, April 30, 2001
Issuance of Class A common stock
Issuance of Class A common stock from the exercise of
stock warrants, options and employee stock purchase plan
Accrual of preferred stock dividend
Net income
Unrealized gain/(loss) on securities, net of reclassification
adjustments
Change in fair value of interest rate swaps and commodity
hedges, net of reclassification adjustments
Total comprehensive income
Other
Balance, April 30, 2002
Issuance of Class A common stock from the exercise of
stock warrants, options and employee stock purchase plan
Accrual of preferred stock dividend
Net loss
Change in fair value of interest rate swaps and commodity
hedges, net of reclassification adjustments
Total comprehensive loss
Other
Balance, April 30, 2003
STOCKHOLDERS’ EQUITY
CLASS A
COMMON
STOCK
CLASS B
COMMON
STOCK
# of Shares
Par Value
# Of Shares
Par Value
22,215
$ 222
988
$ 10
32
—
—
—
—
—
—
(49)
22,198
12
457
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 222
$ —
5
—
—
—
—
—
—
—
—
—
—
—
—
—
—
988
—
—
—
—
—
—
—
—
22,667
$ 227
988
102
—
—
—
—
—
$ 1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ 10
$ —
—
—
—
—
—
—
—
$ 10
$ —
—
—
—
—
—
22,769
$ 228
988
$ 10
The accompanying notes are an integral part of these consolidated financial statements.
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Statements of Stockholders Equity (In thousands)
ADDITIONAL
ACCUMULATED
TOTAL
OTHER
PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS’ COMPREHENSIVE
INCOME (LOSS)
INCOME (LOSS)
DEFICIT
EQUITY
TOTAL
CAPITAL
$ 270,655
$ 4,136
$ (305)
$ 274,718
Balance, April 30, 2000
Issuance of Class A common stock from the exercise of
stock options and employee stock purchase plan
Issuance of Series A redeemable convertible preferred stock
Accrual of preferred stock dividend
Equity transactions of majority-owned subsidiary
Net loss
Unrealized gain on securities
Total comprehensive loss
Other
258
(1,009)
—
1,506
—
—
—
92
—
—
(1,970)
—
(101,535)
—
—
—
—
—
—
—
—
891
—
—
258
(1,009)
(1,970)
1,506
(101,535)
891
—
92
Balance, April 30, 2001
$ 271,502
$ (99,369)
$ 586
$ 172,951
Issuance of Class A common stock
Issuance of Class A common stock from the exercise of
$
138
$
stock warrants, options and employee stock purchase plan
Accrual of preferred stock dividend
Net income
Unrealized gain/(loss) on securities, net of reclassification
adjustments
Change in fair value of interest rate swaps and commodity
hedges, net of reclassification adjustments
Total comprehensive income
Other
4,063
(3,010)
—
—
—
—
4
—
—
7,481
—
—
—
—
$
—
—
—
—
(586)
$
138
4,068
(3,010)
7,481
(586)
(4,250)
(4,250)
—
—
—
4
Balance, April 30, 2002
$ 272,697
$ (91,888)
$ (4,250)
$ 176,796
$ (101,535)
891
$ (100,644)
$ 7,481
(586)
(4,250)
$ 2,645
Issuance of Class A common stock from the exercise of
stock warrants, options and employee stock purchase plan $ 459
(3,094)
—
Accrual of preferred stock dividend
Net loss
Change in fair value of interest rate swaps and commodity
hedges, net of reclassification adjustments
Total comprehensive loss
Other
—
—
6
$ —
(59,808)
—
—
—
$ —
—
—
4,792
—
—
$ 460
(3,094)
(59,808)
$ (59,808)
4,792
4,792
$ (55,016)
—
6
Balance, April 30, 2003
$ 270,068
$ (151,696)
$ 542
$ 119,152
The accompanying notes are an integral part of these consolidated financial statements.
C A S E L
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (In thousands)
Fiscal Year Ended April 30,
2001
2002
2003
Cash Flows from Operating Activities:
Net (loss) income
$ (101,535)
$ 7,481
$ (59,808)
Adjustments to reconcile net (loss) income to net cash provided by
operating activities—
Depreciation and amortization
Loss from discontinued operations, net
Estimated loss on disposal of discontinued operations, net
Reclassification from discontinued operations, net
Extraordinary loss—early extinguishment of debt, net
Cumulative effect of change in accounting principle, net
(Income) loss from equity method investments
Impairment charge
Loss from commodity hedge contracts, net
Gain on investments, net
Loss (gain) on sale of equipment
Gain on sale of assets
Minority interest
Deferred income taxes
Changes in assets and liabilities, net of effects of acquisitions and
divestitures—
Accounts receivable
Accounts payable
Other assets and liabilities
Net Cash Provided by Operating Activities
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired
Proceeds from divestitures, net of cash divested
Additions to property, plant and equipment
Proceeds from sale of equipment
Proceeds from sale of investments
Advances to unconsolidated entities
Net Cash Used In Investing Activities
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Principal payments on long-term debt
Proceeds from equity transactions of majority-owned subsidiary
Deferred financing costs
Proceeds from exercise of stock options
Proceeds from the issuance of series A redeemable, convertible preferred
stock, net
Net Cash Provided by (Used In) Financing Activities
Cash used in discontinued operations
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
53,411
4,130
2,657
1,190
—
—
26,256
79,687
—
(3,131)
1,101
—
1,026
(10,866)
16,692
(6,643)
(714)
164,796
63,261
(9,331)
15,814
(61,518)
2,298
6,718
(9,546)
(55,565)
49,590
(87,331)
1,506
—
259
54,741
18,765
(12,248)
14,213
7,788
50,712
—
4,096
(1,140)
—
250
(1,899)
—
1,289
(1,216)
(76)
(4,848)
(154)
6,121
8,116
(5,100)
4,055
60,206
67,687
(4,601)
31,216
(37,674)
1,938
3,530
(3,942)
47,930
—
—
(50)
2,170
63,916
(2,073)
4,864
—
—
386
(684)
(152)
7,531
(7,466)
12,031
(3,643)
124,760
64,952
(18,068)
875
(41,925)
1,212
—
(3,302)
(9,533)
(61,208)
73,384
(147,009)
—
—
3,560
—
(70,065)
(5,792)
(17,703)
22,001
380,521
(361,905)
—
(11,466)
460
—
7,610
—
11,354
4,298
Cash and cash equivalents, end of period
$ 22,001
$ 4,298
$ 15,652
The accompanying notes are an integral part of these consolidated financial statements.
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Casella Waste Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Fiscal Year Ended April 30,
2001
2002
2003
Supplemental Disclosures of Cash Flow Information:
Cash paid (received) during the period for—
Interest
Income taxes, net of refunds
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Summary of entities acquired in purchase business combinations
Fair market value of assets acquired
Notes receivable exchanged for assets
Cash paid, net
Liabilities assumed, Notes Payable to Seller
Common Stock and Stock Options Issued as Compensation
$ 37,484
$ (1,773)
$ 32,887
$ (1,267)
$ 20,763
$ 54
$ 22,602
(13,263)
(9,335)
$ 4
$ —
$ 7,377
—
(4,601)
$ 2,776
$ 650
$ 27,756
—
(18,068)
$ 9,688
$ —
The accompanying notes are an integral part of these consolidated financial statements.
C A S E L L A WA 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 N O T E S T O A U D I T E D C O N S O L I D AT E D
F I N A N C I A L S TAT E M E N T S ( I N T H O U S A N D S , E X C E P T F O R P E R S H A R E D ATA )
1 . O R G A N I Z AT I O N A N D S U M M A RY O F S I G N I F I C A N T A C C O U N T I N G P O L I C I E S
Casella Waste Systems, Inc. ("the Company" or "the Parent") is a regional, integrated solid waste services company, that provides
collection, transfer, disposal and recycling services, primarily in the eastern United States. The Company markets recyclable metals,
aluminum, plastics, paper and corrugated cardboard which has been processed at its facilities as well as recyclables purchased from third
parties. The Company also generates and sells electricity under a long-term contract at a waste-to-energy facility, Maine Energy Recovery
Company LP ("Maine Energy") (see Note 12).
A summary of the Company's significant accounting policies follows:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in consolidation.
(b) Use of Estimates and Assumptions
The Company's preparation of its financial statements in conformity with generally accepted accounting principles requires management to
make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and
disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and assumptions will also affect
the reported amounts of revenues and expenses during the reporting period. Summarized below are the estimates and assumptions that
the Company considers to be significant in the preparation of its financial statements.
Landfill Accounting—Capitalized Costs and Amortization
The Company uses life-cycle accounting and the units-of-production method to recognize certain landfill costs. Under life-cycle
accounting, all costs related to acquisition, construction, closure and post-closure of landfill sites are capitalized or accrued and charged
to income based on tonnage placed into each site. The Company routinely reviews its investment in operating landfills, transfer stations
and other significant facilities to determine whether the costs of these investments is realizable. The Company's judgments regarding the
existence of impairment indicators are based on regulatory factors, market conditions and operational performance of its landfills.
Units-of-production amortization rates are determined annually for each of the Company's operating landfills, and such rates are
based on estimates provided by its engineers and accounting personnel and consider the information provided by surveys, which are
performed at least annually.
Landfill Accounting—Accrued Closure and Post-Closure Costs
Accrued closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill,
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after a landfill facility ceases to accept waste and closes. The Company provides accruals for these estimated future costs on an
undiscounted basis as the remaining permitted airspace of such facilities is consumed.
Recovery of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposed of Long-Lived Assets, the Company continually reviews its
long-lived assets for impairment whenever events or changes in circumstances indicate that the remaining estimated useful life of such
assets might warrant revision or that the balances may not be recoverable. An impairment loss is recorded if the amount by which the
carrying amount of the assets exceeds their fair value. Fair value is usually determined based on the present value of estimated expected
future cash flows using a discount rate commensurate with the risks involved.
Allowance for Doubtful Accounts
The Company estimates the allowance for bad debts based on historical collection experience, current trends, credit policy and a review
of accounts receivable by aging category.
Self Insurance Reserves
The Company is self insured for vehicles and worker's compensation. Through the use of actuarial calculations provided by a third party,
the Company estimates the amounts required to settle insurance claims. The actuarially-determined liability is calculated in part by past
claims experience, which considers both the frequency and settlement of claims. The Company's self insurance reserves totaled $6,060
and $8,935 at April 30, 2002 and 2003, respectively.
Discontinued Operations
Prior to fiscal year 2003, the Company carried discontinued businesses at estimated net realizable value less costs to be incurred
through the date of disposition. Upon adoption of SFAS No. 144, the assets and liabilities of discontinued operations are separately
classified in the accompanying consolidated balance sheets.
Income Taxes
The Company uses estimates to determine its provision for income taxes and related assets and liabilities and any valuation allowance
recorded against its net deferred tax assets. Valuation allowances have been established for the possibility that tax benefits may not be
realized for certain deferred tax assets.
(c) Revenue Recognition
The Company recognizes collection, transfer, recycling and disposal revenues as the services are provided. Certain customers are billed
in advance and, accordingly, recognition of the related revenues is deferred until the services are provided.
Revenues from the sale of electricity to local utilities by the Company's waste-to-energy facility (see Note 12) are recorded at the
contract rate specified by its power purchase agreement as the electricity is delivered.
Revenues from the sale of recycled materials are recognized upon shipment. Rebates to certain municipalities based on sales of
recyclable materials are recorded upon the sale of such recyclables to third parties and are included as a reduction to revenues.
Revenues for processing of recyclable materials are recognized when the related service is provided.
Revenues from brokerage are recognized at the time of shipment.
(d) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash equivalents, trade receivables, investments in closure trust funds,
trade payables and debt instruments. The carrying values of these financial instruments approximate their respective fair values. See Note
11 for the terms and carrying values of the Company's various debt instruments.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents.
(f) Inventory
Inventory includes secondary fibers, recyclables ready for sale and supplies and is stated at the lower of cost (first-in, first-out) or market.
Inventory consisted of finished goods and supplies of approximately $2,410 and $1,814 at April 30, 2002 and 2003, respectively.
(g) Investments
In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company classifies its investment
in equity securities as "available for sale." Accordingly, the carrying value of the securities is adjusted to fair value through other
comprehensive (loss) income.
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In October, 2001, the Company sold its remaining Bangor Hydro Warrants for $3,530. The resulting gain of $1,654 is included in
other income. $1,038 (net of taxes of $707) of the gain was reclassified from other comprehensive (loss) income. The Company used the
specific identification method as a basis for calculating the gain on sale.
For the period ending April 30, 2002 and 2003, the Company wrote down to fair value certain equity security investments. The write
downs, which were reclassified from other comprehensive (loss) income, amounted to $438 and $42, respectively, and were due to
declines in the fair value which, in the opinion of management, were considered to be other than temporary. The write downs are included
in other (income)/expense in the accompanying statements of operations.
As of April 30, 2002 and 2003, the fair value of investments was approximately $62 and $20, respectively, which is included in other
current assets in the accompanying consolidated balance sheets.
(h) Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation and amortization. The Company provides for
depreciation and amortization using the straight-line method by charges to operations in amounts that allocate the cost of the assets over
their estimated useful lives as follows (See Note 6):
Asset Classification
Buildings and improvements
Machinery and equipment
Rolling stock
Containers
ESTIMATED USEFUL LIFE
10-35 years
2-15 years
1-12 years
2-12 years
The cost of maintenance and repairs is charged to operations as incurred.
Capitalized landfill costs include expenditures for land and related airspace, permitting costs and preparation costs. Landfill permitting
and preparation costs represent only direct costs related to these activities, including legal, engineering and construction. Landfill
preparation costs include the costs of construction associated with excavation, liners, site berms and the installation of leak detection and
leachate collection systems. Interest is capitalized on landfill permitting and construction projects while the assets are undergoing
activities to ready them for their intended use. The interest capitalization rate is based on the Company's weighted average cost of
indebtedness. Interest capitalized for the years ended April 30, 2001, 2002 and 2003 was $373, $437 and $719, respectively.
Management routinely reviews its investment in operating landfills, transfer stations and other significant facilities to determine whether
the costs of these investments are realizable.
Landfill permitting, acquisition and preparation costs, excluding the estimated residual value of land, are amortized as landfill
airspace is consumed. In determining the amortization rate for these landfills, preparation costs include the total estimated costs to
complete construction of the landfills' permitted and permittable capacity. To be considered permittable, airspace must meet all of the
following criteria: the Company must control the land on which the expansion is sought; all technical siting criteria have been met or a
variance has been obtained or is reasonably expected to be obtained; no legal or political impediments have been identified which the
Company believes will not be resolved in its favor; the Company is actively working on obtaining any necessary permits and expects
that all required permits will be received within the next two to five years; and senior management has approved the project. Units-of-
production amortization rates are determined annually for each of the Company's operating landfills. The rates are based on estimates
provided by the Company's engineers and accounting personnel and reflect the information provided by surveys, which are performed at
least annually.
(i) Intangible Assets
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. (See Note 7.)
Goodwill is the cost in excess of fair value of identifiable assets of acquired businesses and has been amortized through April 30,
2002 using the straight-line method over periods not exceeding 40 years. In July 2001, the FASB issued SFAS No. 141, Business
Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001.
These standards modified the accounting rules related to accounting for business acquisitions, amortization of intangible assets and the
method of accounting for impairment. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer
be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives.
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As a result of the factors discussed in Note 18, during 2001, the Company recorded a charge of $79,687 to reduce certain assets (mainly
goodwill arising from the acquisition of KTI, see Note 4), to their estimated fair value.
(j) Investments in Unconsolidated Entities
The Company entered into an agreement in July 2000 with Louisiana-Pacific to combine their respective cellulose insulation businesses into a
single operating entity, US GreenFiber LLC ("GreenFiber") under a joint venture agreement effective August 1, 2000. The Company contributed the
operating assets of its cellulose insulation manufacturing business together with $1,000 in cash. There was no gain or loss recognized on this
transaction. The Company's investment in GreenFiber amounted to $21,672 and $23,746 at April 30, 2002 and 2003, respectively. The Company
accounts for its 50% ownership in GreenFiber under the equity method of accounting.
A portion of the Company's 50% interest in New Heights was sold in September 2001 for consideration of $250. The Company retained an
interest of 9.95% in the tire assets of New Heights, as well as financial obligations related solely to the New Heights power plant. In addition, the
Company has an interest in certain notes issued by New Heights collectively valued at approximately $9,000, payment of which is contingent upon
certain events. The Company will record the contingent consideration when the contingency is removed. The Company's investment in the power
assets of New Heights amounted to $2,113 and $2,586 at April 30, 2002 and 2003, respectively. The Company accounts for this investment
under the cost method of accounting.
The Company had received a promissory note and other consideration from Oakhurst Company, Inc. ("OCI") in connection with the
Company's acquisition of OCI's 37.5% interest in New Heights on July 3, 2001. The Company estimated the realizable value at $0. The Company
reached a settlement with OCI in April, 2003 and received $1,220 which is included in other (income)/expense.
The Company sold 80.1% of Recovery Technologies Group, Inc. ("RTG") in September, 2001 as part of the sale of the tire processing
business. The Company retained a 19.9% indirect interest in the RTG tire collection and processing business which is valued at $3,080 at April 30,
2002 and 2003. The Company's interest is subject to dilution as a result of advances made by the owner of the balance of the interest in RTG,
against no advances made by the Company. The Company accounts for this investment under the cost method of accounting.
In April, 2003, the Company acquired a 9.9% interest in Evergreen National Indemnity Company ("Evergreen") for total consideration of
$5,329. The Company accounts for its investment in Evergreen under the cost method of accounting.
(k) Income Taxes
The Company records income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred income taxes
are recognized based on the expected future tax consequences of differences between the financial statement basis and the tax basis of assets
and liabilities, calculated using currently enacted tax rates.
(l) Accrued Closure and Post-Closure Costs
Accrued closure and post-closure costs include the current and non-current portion of accruals associated with obligations for closure and
post-closure of the Company's operating and closed landfills. The Company, based on input from its engineers, accounting personnel and
consultants, estimates its future cost requirements for closure and post-closure monitoring and maintenance for solid waste landfills based on its
interpretation of the technical standards of the U.S. Environmental Protection Agency's Subtitle D regulations and the air emissions standards
under the Clean Air Act as they are being applied on a state-by-state basis. Closure and post-closure monitoring and maintenance costs represent
the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes.
Accruals for closure and post-closure monitoring and maintenance requirements consider final capping of the site, site inspection,
groundwater monitoring, leachate management, methane gas control and recovery, and operation and maintenance costs to be incurred during the
period after the facility closes. Certain of these environmental costs, principally capping and methane gas control costs, are also incurred during
the operating life of the site in accordance with the landfill operation requirements of Subtitle D and the air emissions standards. Reviews of the
future cost requirements for closure and post-closure monitoring and maintenance for the Company's operating landfills by the Company's
engineers, accounting personnel and consultants are performed at least annually and are the basis upon which the Company's estimates of these
future costs and the related accrual rates are revised. The Company provides accruals for these estimated costs as the remaining permitted
airspace of such facilities is consumed.
The Company operates in states which require a certain portion of landfill closure and post-closure obligations to be secured by financial
assurance, which may take the form of restricted cash, surety bonds and letters of credit. Surety bonds securing closure and post-closure
obligations at April 30, 2002 and 2003 totaled $13,654 and $25,705, respectively.
(m) Comprehensive (Loss) Income
Comprehensive (loss) income is defined as the change in net assets of a business enterprise during a period from transactions generated from
non-owner sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to
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owners. Accumulated other comprehensive (loss) income included in the accompanying balance sheets consists of unrealized gains and
losses on the Company's available for sale securities, change in the fair value of the Company's interest rate swap and commodity hedge
agreements as well as the cumulative effect of the change in accounting principle due to the adoption of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities (See Note 1(p)).
(n) Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the
period. Diluted earnings per share is based on the combined weighted average number of common shares and potentially dilutive shares,
which include, where appropriate, the assumed exercise of employee stock options and the conversion of convertible debt and convertible
preferred stock. In computing diluted earnings per share, the Company utilizes the treasury stock method with regard to employee stock
options and the "if converted" method with regard to its convertible debt and preferred stock.
(o) Stock Based Compensation Plans
The Company has elected to account for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to
Employees, for which no compensation expense is recorded in the statements of operations for the estimated fair value of stock options
issued with an exercise price equal to the fair value of the underlying common stock on the grant date.
During fiscal 1996, the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation, which defines a fair value based
method of accounting for stock-based employee compensation and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to continue to measure compensation costs for those plans
using the intrinsic method of accounting prescribed by APB Opinion No. 25. Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting
defined in SFAS No. 123 had been applied. In addition, the Company has adopted the disclosure requirements of SFAS No. 148,
Accounting for Stock-Based Compensation—Transition and Disclosure.
In accordance with SFAS No. 123 and SFAS No. 148, the Company has computed, for pro forma disclosure purposes, the value of
all options granted during the fiscal years 2001, 2002 and 2003 using the Black-Scholes option pricing model as prescribed by SFAS No.
123, using the following weighted average assumptions for grants in the fiscal years ended 2001, 2002 and 2003.
April 30,
Risk free interest rate
Expected dividend yield
Expected life
Expected volatility
2001
2002
2003
4.85%–6.76%
N/A
7 Years
84.20%
4.03%–5.05%
N/A
5 Years
65.00%
2.57%–4.50%
N/A
5 Years
65.00%
The total value of options granted during the years ended April 30, 2001, 2002 and 2003 would be amortized on a pro forma basis
over the vesting period of the options. Options generally vest over a one to three year period. If the Company had accounted for these
plans in accordance with SFAS No. 123, the Company's net (loss) income and net (loss) income per share would have changed as
reflected in the following pro forma amounts:
Fiscal Year
2001
2002
2003
Net (loss) income available to common stockholders, as reported
$ (103,505)
$ 4,471
$ (62,902)
Deduct: Total stock-based compensation expense determined under
fair value based method, net
Pro forma, net (loss) income
Basic (loss) income per common share:
As reported
Pro forma
Diluted (loss) income per common share:
As reported
Pro forma
(13,089)
$ (116,594)
$ (4.46)
$ (5.03)
$ (4.46)
$ (5.03)
(3,804)
$ 667
$ 0.19
$ 0.03
$ 0.19
$ 0.03
(1,507)
$ (64,409)
$ (2.65)
$ (2.72)
$ (2.63)
$ (2.70)
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(p) Accounting for Derivatives and Hedging Activities
The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, on May 1, 2001. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met.
The Company's objective for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the
variable interest rates under its credit facility and changes in the commodity prices of recycled paper.
The Company's strategy to hedge against fluctuations in variable interest rates involves entering into interest rate swaps that are
specifically designated to existing interest payments under the credit facility and accounted for as cash flow hedges pursuant to SFAS
No. 133. Upon adoption of SFAS No. 133, the Company recorded the ineffective portion of the interest rate hedges in place at the time
of adoption amounting to $250 (net of taxes of $170) as a cumulative effect of change in accounting principle in fiscal year 2002.
At April 30, 2002 the Company had in place six interest rate swaps designated as cash flow hedges with a fair value of $8,225,
with the net amount (net of taxes of $3,312) recorded as an unrealized loss in other comprehensive income (loss). Due to the
Company's refinancing of its debt, the early termination costs associated with the unwind of these swaps amounted to $1,296 which is
included in other expense, net in the consolidated statements of operations for the year ended April 30, 2003. At April 30, 2003 the
Company has two interest rate swaps outstanding, expiring in February, 2004, with an aggregate notional amount of $53,000. The
Company has evaluated these swaps and believes these instruments qualify for hedge accounting pursuant to SFAS No. 133. The fair
value of these swaps was an obligation of $551, with the net amount (net of taxes of $223) recorded as an unrealized loss in other
comprehensive income (loss). The estimated net amount of the existing losses as of April 30, 2003 included in accumulated other
comprehensive income expected to be reclassified into earnings as payments are either made or received under the terms of the
interest rate swaps within the next 12 months is approximately $195. The actual amounts reclassified into earnings are dependent on
future movements in interest rates.
The Company's strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate
the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from
these sales. The Company has entered into 12 commodity hedges, which expire at various times between August 2003 and November
2005. The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS
No. 133. As of April 30, 2003, the fair value of these hedges was an obligation of $515, with the net amount (net of taxes of $197)
recorded as an unrealized loss in accumulated other comprehensive income (loss).
On December 2, 2001, Enron Corporation (Enron), the counterparty for all of the Company's commodity hedges as of that date, filed
for Chapter 11 bankruptcy protection. As a result of the filing, the Company executed the early termination provisions provided under the
forward contracts, and filed a claim with the bankruptcy court. Additionally, the Company agreed with its equity method investee,
GreenFiber, to include GreenFiber in its claim (as allowed under the applicable affiliate provisions). The Company recorded a charge of
$1,688 in fiscal 2002 in other expense to recognize the change in fair value of these commodity contracts. Subsequent changes in the
fair value of these commodity contracts were reflected in earnings until their March 2003 termination. The Company has no remaining
exposure related to its claims against Enron.
(q) New Accounting Pronouncements
In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 applies to all legally
enforceable obligations associated with the retirement of tangible long-lived assets. For the Company, this standard primarily impacts
accounting for landfill operations, specifically capping, closure and post-closure costs. SFAS No. 143 requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity
capitalizes the cost by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each
period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either
settles the obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15,
2002. The Company will adopt SFAS No. 143 beginning May 1, 2003. The adoption of this standard will have no impact on cash flow.
SFAS No. 143 does not change the basic accounting principles that the Company has historically followed for accounting for these
types of obligations. In general, the Company has followed the practice of life cycle accounting which recognizes a liability on the balance
sheet and related expense as airspace is consumed at the landfill, in order to match operating costs with revenues.
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The primary modification to the Company's methodology required by SFAS No. 143 is to require closure and post-closure costs to
be discounted to present value. The Company's estimates of future closure and post-closure costs historically have not taken into
account discounts for the present value of costs to be paid in the future. Under SFAS No. 143, the Company's estimates of costs to
discharge asset retirement obligations for landfills are developed in today's dollars. These costs are then inflated each year to reflect a
normal escalation of prices up to the year they are expected to be paid. These estimated costs are then discounted to their present value
using a credit adjusted risk-free rate.
Under SFAS No. 143, the Company will no longer accrue landfill retirement obligations through a charge to cost of operations, but
rather by an increase to landfill assets. Under SFAS No. 143, the amortizable landfill assets include not only the landfill development
costs incurred but also the recorded capping, closure and post-closure liabilities as well as the cost estimates for future capping, closure
and post-closure costs. The landfill asset is amortized over the total capacity of the landfill, as airspace is consumed during the life of the
landfill with one exception. The exception is for final capping for which both the recognition of the liability and the amortization of these
costs are based instead on the airspace consumed for the specific capping event.
Upon adoption of SFAS No. 143 on May 1, 2003, the Company expects to record a cumulative effect of change in accounting
principle of $2,700 (net of taxes of $1,900).
Following is a summary of the expected balance sheet changes for landfill assets and capping, closure and post closure liabilities at
May 1, 2003 (in thousands):
Landfill assets
Accumulated amortization
Net landfill assets
Capping, closure, and post-closure liability
BALANCE AT
APRIL 30,
2003
$ 148,029
(63,207)
$ 84,822
$ 25,949
CHANGE
$ 6,166
(9,394)
$ (3,228)
$ (7,855)
BALANCE AT
MAY 1,
2003
$ 154,195
(72,601)
$ 81,594
$ 18,094
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No., 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections. SFAS No. 145, among other things, restricts the classification of gains and losses from extinguishment of
debt as extraordinary such that most debt extinguishment gains and losses will no longer be classified as extraordinary. SFAS No. 145 is
effective for fiscal years beginning after May 15, 2002. Upon adoption, gains and losses on future debt extinguishment, if any, will be
recorded in pre-tax income. During fiscal year 2003, the Company recorded an extraordinary loss of $2,170 (net of income tax benefit of
$1,479) in connection with the write-off of deferred financing costs related to the old term loan and the old revolver. This item will be
reclassified to continuing operations in fiscal 2004.
In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146
addresses costs such as restructuring, involuntary termination of employees and consolidating facilities but excludes from its scope exit
and disposal activities that are in connection with a business combination and those activities to which SFAS No. 143 and No. 144 are
applicable. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. Management is evaluating
the effect of this statement on the Company's results of operations and financial position as well as related disclosures. The Company
has not engaged in or initiated any exit or disposal activities since December 31, 2002.
In December, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an
amendment of FAS 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the
method used in reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company has included
the required disclosures in these financial statements. Management is evaluating the effect of this statement on the Company's results of
operations and financial position as well as related disclosures.
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In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of APB No. 51
("FIN 46"). FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiary who absorbs a
majority of the entities expected losses or residual benefits. FIN 46 applies immediately to variable interest entities created after January
31, 2003 and to existing variable interest entities in the periods beginning after June 15, 2003. Management is evaluating the effect of
this statement on the Company's results of operations and financial position as well as related disclosures.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and
Equity. The statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as
equity. The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is
effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. Management is evaluating the effect of the statement on the Company's results of
operations and financial positions as well as related disclosures.
(r) Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable.
Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers
comprise the Company's customer base, thus spreading the trade credit risk. For the years ended April 30, 2002 and 2003, no single
group or customer represents greater than 2.0% of total accounts receivable. The Company controls credit risk through credit
evaluations, credit limits, and monitoring procedures. The Company performs credit evaluations for commercial and industrial customers
and performs ongoing credit evaluations of its customers, but generally does not require collateral to support accounts receivable. Credit
risk related to derivative instruments results from the fact the Company enters into interest rate and commodity price swap agreements
with various counterparties. However, the Company monitors its derivative positions by regularly evaluating positions and the credit
worthiness of the counterparties.
2 . R E C L A S S I F I C AT I O N S
Certain reclassifications have been made to the prior period financial statements to conform to the current presentation.
3 . A D O P T I O N O F N E W A C C O U N T I N G S TA N D A R D S
(a) SFAS No. 142, Goodwill and Other Intangible Assets
In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. These
new standards significantly modified the accounting rules related to accounting for business acquisitions, amortization of intangible assets
and the method of accounting for impairments of existing goodwill. The effective date for SFAS No. 142 was fiscal years beginning after
December 15, 2001.
SFAS No. 142, among other things, eliminates the amortization of goodwill and requires an annual assessment of goodwill
impairment by applying a fair value based test. SFAS No. 142 requires that any goodwill recorded in connection with an acquisition
consummated on or after July 1, 2001 not be amortized. The Company performed an impairment test as of May 1, 2002 and goodwill
was determined to be impaired and the amount of $63,916 (net of tax benefit of $189) was charged to earnings as a cumulative effect of
a change in accounting principle. The goodwill impairment is associated with the assets acquired by the Company in connection with its
acquisition of KTI. Remaining goodwill will be tested for impairment on an annual basis and further impairment charges may result. In
accordance with the non-amortization provisions of SFAS No. 142, remaining goodwill will not be amortized going forward. The following
schedule reflects net income (loss) and earnings (loss) per share for fiscal years 2001, 2002 and 2003 adjusted to exclude goodwill
amortization and impairment charges.
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Fiscal Year
2001
2002
2003
Income (loss) from continuing operations before discontinued operations,
extraordinary loss and cumulative effect of change in accounting principle
$ (93,558)
$ 10,687
$ 6,228
Discontinued Operations:
Loss from discontinued operations, net
Estimated loss on disposal of discontinued operations, net
Reclassification from discontinued operations, net
Cumulative effect of change in accounting principle, net
Reported net income (loss) before extraordinary loss
Add:
Goodwill impairment charge (net of income taxes of $189)
Goodwill amortization (net of income taxes of $1,759 and $2,143)
Adjusted net income (loss) before extraordinary loss
Less:
Preferred stock dividends
Adjusted net income (loss) available to common shareholders before
extraordinary loss
Extraordinary loss—early extinguishment of debt, net
(4,130)
(2,657)
(1,190)
—
—
(4,096)
1,140
(250)
—
—
50
(63,916)
(101,535)
7,481
(57,638)
—
6,254
(95,281)
1,970
(97,251)
—
—
4,956
12,437
3,010
9,427
—
Adjusted net income (loss) available to common stockholders
$ (97,251)
$ 9,427
Earnings per common share before extraordinary loss:
Basic earnings per common share:
Adjusted net income (loss) available to common shareholders before
extraordinary loss
Goodwill impairment charge, net
Goodwill amortization, net
$ (4.46)
—
0.27
Adjusted basic earnings (loss) per share available to common stockholders
$ (4.19)
Diluted earnings per common share:
Adjusted net income (loss) available to common shareholders before
extraordinary loss
Goodwill impairment charge, net
Goodwill amortization, net
$ (4.46)
—
0.27
Adjusted diluted earnings (loss) per share available to common stockholders
$ (4.19)
Earnings per common share:
Basic earnings per common share:
Reported net (loss) income available to common stockholders
Goodwill impairment charge, net
Goodwill amortization, net
$ (4.46)
—
0.27
Adjusted basic earnings (loss) per share available to common stockholders
$ (4.19)
Diluted earnings per common share:
Reported net (loss) income available to common stockholders
Goodwill impairment charge, net
Goodwill amortization, net
$ (4.46)
—
0.27
Adjusted diluted earnings (loss) per share available to common stockholders
$ (4.19)
$ 0.19
—
0.21
$ 0.40
$ 0.19
—
0.21
$ 0.40
$ 0.19
—
0.21
$ 0.40
$ 0.19
—
0.21
$ 0.40
63,916
—
6,278
3,094
3,184
(2,170)
$ 1,014
$ (2.56)
2.69
—
$ 0.13
$ (2.54)
2.67
—
$ 0.13
$ (2.65)
2.69
—
$ 0.04
$ (2.63)
2.67
—
$ 0.04
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(b) SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets
The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets as of May 1, 2002. Among other
things, this standard requires that the assets and liabilities of a disposal group held for sale (including those of discontinued operations)
be presented separately in the asset and liability sections, respectively, of the balance sheet. The standard also requires reclassification of
such items in prior periods if such financial statements are presented for comparative purposes.
(c) FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 clarifies the requirement of FASB No. 5, Accounting for Contingencies,
relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. It requires a guarantor to recognize, at
the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial
measurement provisions of FIN 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The
Company has no guarantees as of April 30, 2003, but will record the fair value of future material guarantees, if any.
4 . B U S I N E S S C O M B I N AT I O N S
On December 14, 1999, the Company consummated its acquisition of KTI, a publicly traded solid waste handling company. KTI
specializes in solid waste disposal and recycling, and operates manufacturing facilities utilizing recycled materials. All of KTI's common
stock was acquired in exchange for 7,152,157 shares of Class A Common Stock.
In addition to the above, the Company also acquired 13, four and eight solid waste hauling, landfill disposal or material recycling
operations in fiscal years 2001, 2002 and 2003, respectively, in transactions accounted for as purchases. Accordingly, the operating
results of these businesses are included in the accompanying consolidated statements of operations from the dates of acquisition, and
the purchase prices have been allocated to the net assets acquired based on fair values at the dates of acquisition, with the residual
amounts allocated to goodwill. Management does not believe the final purchase price allocation will produce materially different results
than reflected herein.
The purchase prices allocated to those net assets acquired were as follows:
April 30,
Current assets
Property, plant and equipment
Goodwill
Intangible assets
Current liabilities
Other non-current liabilities
Total consideration
2001
$ 644
2,671
18,568
701
(4)
—
2002
$ 60
5,821
1,380
116
—
—
2003
$ 525
21,025
5,253
953
(1,160)
(5,660)
$ 22,580
$ 7,377
$ 20,936
The following unaudited pro forma combined information shows the results of the Company's operations for the fiscal years 2002 and
2003 as though each of the acquisitions completed in the fiscal years 2002 and 2003 had occurred as of May 1, 2001.
Fiscal Year
Revenues
Operating income (loss)
Net (loss) income available to common stockholders
Diluted pro forma net (loss) income per common share
Weighted average diluted shares outstanding
2002
$ 438,688
$ 41,306
$ 4,555
$ 0.19
24,169
2003
$ 435,387
$ 34,988
$ (62,922)
$ (2.63)
23,904
The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of
operations had the acquisitions taken place or the results of future operations of the Company. Furthermore, the pro forma results do not
give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the completed
acquisitions.
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5 . R E S T R I C T E D C A S H
Restricted cash consists of cash held in trust on deposit with various banks as collateral for the Company's financial obligations relative to
its self-insurance claims liability as well as landfill closure and post-closure costs and other facilities' closure costs. Cash is also restricted
by specific agreement for facilities' maintenance and other purposes.
A summary of restricted cash is as follows:
April 30,
Insurance
Landfill closure
Facility maintenance and operations
Other
Short
Term
$ 10,144
91
50
1
2002
Long
Term
$ —
2
—
—
Total
$ 10,144
93
50
1
Short
Term
$ 10,715
73
51
—
2003
Long
Term
$ —
—
—
—
Total
$ 10,715
73
51
—
Total
$ 10,286
$ 2
$ 10,288
$ 10,839
$ —
$ 10,839
6 . P R O P E RT Y, P L A N T A N D E Q U I P M E N T
Property, plant and equipment at April 30, 2002 and 2003 consist of the following:
April 30,
Land
Landfills
Buildings and improvements
Machinery and equipment
Rolling stock
Containers
Less—Accumulated depreciation and amortization
2002
$ 10,290
115,505
51,717
147,840
84,922
40,488
450,762
163,556
$ 287,206
2003
$ 10,499
148,029
53,369
155,784
94,345
41,983
504,009
201,681
$ 302,328
Depreciation expense for the fiscal years 2001, 2002 and 2003 was $35,461, $32,397 and $33,042, respectively. Landfill
amortization expense for the fiscal years 2001, 2002 and 2003 was $7,897, $10,333 and $13,257.
7 . I N TA N G I B L E A S S E T S
Intangible assets at April 30, 2002 and 2003 consist of the following:
April 30,
Goodwill
Covenants not to compete
Customer lists
Less: accumulated amortization
2002
$ 240,099
14,447
428
254,974
31,331
$ 223,643
2003
$ 177,704
14,963
688
193,355
30,659
$ 162,696
Intangible amortization expense for the fiscal years 2001, 2002 and 2003 was $10,053, $7,982 and $1,631, respectively.
8 . N E T A S S E T S U N D E R C O N T R A C T U A L O B L I G AT I O N
Effective September 30, 2002, the Company transferred its export brokerage operations to former employees, who had been responsible
for managing that business. Consideration for the transaction was in the form of two notes receivable amounting to $5,460. These notes
are payable within five years of the anniversary date of the transaction to the extent of free cash flow generated from the operations. The
Company has not accounted for this transaction as a sale based on an assessment that the risks and other incidents of ownership have
not sufficiently transferred to the buyer. The net assets of the operation are disclosed in the balance sheet as "net assets under
contractual obligation", and will be reduced as payments are made.
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9 . A C C R U E D C L O S U R E A N D P O S T C L O S U R E
Accrued closure and post-closure costs include the current and non-current portion of costs associated with obligations for closure and
post-closure of our landfills. We estimate our future closure and post-closure costs in order to determine the closure and post-closure
expense per ton of waste placed into each landfill as further described in Note 1(1) to the consolidated financial statements. The
anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill, as well as the duration of the
post-closure monitoring period. The changes to accrued closure and post-closure liabilities are as follows:
Years Ended April 30,
Balance, beginning of year
Charged to operating expense
Spending applied against the accrual (1)
Acquisitions, divestitures and other adjustments (2)
Balance, end of year
2001
$ 12,276
5,917
(675)
(288)
$ 17,230
2002
$ 17,230
6,665
(408)
1,285
$ 24,772
2003
$ 24,772
8,400
(9,164)
1,941
$ 25,949
(1) Spending levels increased in fiscal year 2003 mainly due to closure activities at our Woburn, Massachusetts and Pine Tree, Maine landfills.
(2) In fiscal year 2002, we recorded additional post-closure accruals relating to one of our construction and demolition landfills. In fiscal year 2003, we
recorded closure and post closure accruals relating to the Hardwick landfill acquisition.
1 0 . O T H E R A C C R U E D L I A B I L I T I E S
Other accrued liabilities at April 30, 2002 and 2003 consist of the following:
April 30,
Interest rate swap obligation
Self insurance reserve
Other accrued liabilities
Total other accrued liabilities
2002
$ 8,225
5,491
10,112
$ 23,828
2003
$ 551
7,730
7,381
$ 15,662
1 1 . L O N G - T E R M D E B T
Long-term debt as of April 30, 2002 and 2003 consists of the following:
April 30,
2002
2003
Advances on senior secured revolving credit facility (the ‘‘old revolver’’) which provided for advances
of up to $280,000, bearing interest at LIBOR plus 2.50%, collateralized by substantially all of the assets
of the Company
Advances on senior secured delayed draw term ‘‘B’’ Loan (the ‘‘old term loan’’) bearing interest at LIBOR
plus 3.75%. This loan was collateralized by substantially all of the assets of the Company
Senior subordinated notes, due February 1, 2013, 9.75%, interest payable semiannually, unsecured and
unconditionally guaranteed
Senior secured term loan (the ‘‘new term loan’’) due January 24, 2010, bearing interest at LIBOR plus
3.25% (approximately 4.56% at April 30, 2003 based on three month LIBOR), with principal payments
of $1,500 per year, beginning in fiscal 2004 with the remaining principal balance due at maturity. This loan
is collateralized by substantially all of the assets of the Company
Senior secured revolving credit facility (the ‘‘new revolver’’), which provides for advances of up to $175,000,
due January 24, 2008, bearing interest at LIBOR plus 3.00%, (approximately 4.31% at April 30, 2003
based on three month LIBOR). This loan is collateralized by substantially all of the assets of the Company
Notes payable in connection with businesses acquired, bearing interest at rates of 0% — 12.5%, due in
monthly, quarterly or annual installments varying to $42, expiring March 2004 through May 2009
Subordinated, convertible notes payable in connection with business acquired, bearing interest at 7.5%,
due in monthly installments varying to $48, expiring on March 15, 2003.
Notes payable in connection with businesses acquired, bearing interest at 0%, discounted at 4.74% to 5.5%,
due in monthly and annual installments varying to $1,000 through April 2005
Less—Current maturities
77
$ 156,800
119,300
$ —
—
—
150,000
—
150,000
—
—
1,797
2,460
2,419
—
3,665
283,981
6,436
$ 277,545
4,463
306,923
4,534
$ 302,389
10K2003(9x12.5).qxd 9/29/03 10:39 AM Page 78
On January 24, 2003, the Company issued $150,000 of 9.75% senior subordinated notes (the "notes"), due 2013. The senior
subordinated note agreement contains covenants that restrict dividends, stock repurchases and other payments, and limits the incurrence
of debt and issuance of preferred stock subject to the Company meeting a minimum consolidated fixed charge ratio. The notes are
guaranteed jointly and severally, fully and unconditionally by the Company and its significant subsidiaries.
On February 11, 2003, the Company filed a registration statement on Form S-4 with the Securities and Exchange Commission
relating to an exchange offer pursuant to which senior subordinated notes (the "exchange notes") identical in terms and in principal
amount to the notes issued on January 24, 2003 (the "old notes") would be issued in exchange for the old notes. The exchange notes,
when issued, would be freely transferable under the Securities Act of 1933, as amended. The Securities and Exchange Commission is
reviewing the registration statement. Following the effectiveness of the registration statement, the Company will conduct an exchange
offer whereby each holder of the old notes would be given an opportunity to exchange the old notes held by it for exchange notes which
are equal in principal amount to the old notes surrendered. Because the registration statement was not declared effective by the
Securities and Exchange Commission by July 23, 2003, the Company is incurring liquidated damages until the registration statement is
declared effective.
Concurrently with the issuance of the notes, the Company entered into a new senior credit facility consisting of the new term loan in
the aggregate principal amount of $150,000 and the new revolver in the aggregate principal amount of $175,000. The Company, under
certain circumstances, has the option of increasing the new term loan or the new revolver by an additional $50,000. The gross proceeds
of the notes offering and initial borrowings under the Company's new term loan were used to repay all outstanding indebtedness under
the old term loan and the old revolver.
Further advances were available under the old revolver and new revolver in the amount of $83,276 and $141,586 as of April 30,
2002 and 2003, respectively. These available amounts are net of outstanding irrevocable letters of credit totaling $39,923 and $33,414 as
of April 30, 2002 and 2003. As of April 30, 2002 and 2003 no amounts had been drawn under the outstanding letters of credit.
The new term loan and revolving credit facility agreement contains covenants that may limit our activities, including covenants that
restrict dividends and stock repurchases, limit capital expenditures, and set minimum net worth and profitability requirements and interest
coverage and leverage ratios. As of April 30, 2003, we considered the profitability covenant, which requires our cumulative adjusted net
income for any two consecutive quarters to be positive, to be the most restrictive. As of April 30, 2003, we were in compliance with this
covenant as we reported consolidated adjusted net income of $1.5 million for the six months ended April 30, 2003. Consolidated adjusted
net income is defined by the credit facility agreement. In accordance with such definition, consolidated net income, determined in
accordance with generally accepted accounting principles, is adjusted for elimination of certain nonrecurring charges, extraordinary gains,
income from discontinued operations and non-cash income attributable to equity investments.
The Company recorded an extraordinary loss of $2,170 (net of income tax benefit of $1,479) as a result of the write-off of deferred
financing costs related to the old term loan and the old revolver.
The Company has entered into interest rate swap agreements to balance fixed and floating rate debt interest risk in accordance with
management's criteria. The agreements are contracts to exchange fixed and floating interest rate payments periodically over a specified
term without the exchange of the underlying notional amounts. The agreements provide only for the exchange of interest on the notional
amounts at the stated rates, with no multipliers or leverage. Differences paid or received over the life of the agreements are recorded in
the consolidated financial statements as additions to or reductions of interest expense on the underlying debt.
The Company terminated five interest rate swaps concurrent with the issuance of the notes and entering into its new senior credit
facility. These derivatives were accounted for as cash flow hedges pursuant to SFAS 133 and were designated to interest payments
under the previous credit facility. At April 30, 2002, the fair value of these swaps was $8,225. The early termination costs associated with
the unwind of these swaps amounted to $1,296 which is included in other expense/(income), net in the consolidated statements of
operations. The Company entered into new interest rate swap agreements as cash flow hedges for the new senior credit facility. As of
April 30, 2003, interest rate swap agreements in notional amounts and with terms as set forth in the following table were outstanding:
BANK NOTIONAL AMOUNTS
RECEIVE
PAY
RANGE OF AGREEMENT
Bank A
Bank B
$ 26,500
$ 26,500
LIBOR
LIBOR
2.434%
2.450%
February 2003 to February 2006
February 2003 to February 2006
The fair value of the swaps is estimated at a loss of $551 as of April 30, 2003.
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As of April 30, 2003, debt matures as follows:
Fiscal Year
2004
2005
2006
2007
2008
Thereafter
$ 4,534
4,482
1,809
1,717
1,555
292,826
$ 306,923
1 2 . C O M M I T M E N T S A N D C O N T I N G E N C I E S
(a) Leases
The following is a schedule of future minimum lease payments, together with the present value of the net minimum lease payments under
capital leases, as of April 30, 2003.
Fiscal Year
2004
2005
2006
2007
2008
Thereafter
Total Minimum Lease Payments
Less—amount representing interest
Less—current maturities of capital lease obligations
Present value of long term capital lease obligations
OPERATING
LEASES
CAPITAL
LEASES
$ 3,965
3,556
3,313
2,849
2,212
4,261
$ 20,156
$1,488
739
503
539
494
41
3,804
548
3,256
1,287
$ 1,969
The Company leases real estate, compactors and hauling vehicles under leases that qualify for treatment as capital leases. The
assets related to these leases have been capitalized and are included in property and equipment at April 30, 2002 and 2003.
The Company leases operating facilities and equipment under operating leases with monthly payments varying to $47.
Total rent expense under operating leases charged to operations was $3,087, $5,787 and $4,955 for each of the fiscal years 2001,
2002 and 2003, respectively.
(b) Investment in Waste to Energy Facilities
The Company owns a 100% interest in Maine Energy, which utilizes non-hazardous solid waste as the fuel for the generation of electricity.
Maine Energy sells the electricity it produces to Central Maine Power ("Central Maine") pursuant to a long-term power purchase
agreement. Under this agreement, Maine Energy has agreed to sell energy to Central Maine through May 31, 2007 at an initial rate of
7.18 cents (determined in 1996) per kilowatt-hour ("kWh"), which escalates annually by 2% (8.53 cents per kWh as of April 30, 2003).
From June 1, 2007 until December 31, 2012, Maine Energy is to be paid the then current market value for both its energy and capacity
by Central Maine.
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 or other similar events, Maine Energy must pay approximately $3,750 to Central Maine as
liquidated damages. This payment obligation is secured by a letter of credit with a bank. 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 letter of credit to Central Maine as liquidated damages. The balance of the letter of credit at April 30, 2003 was $18,750.
Maine Energy produced and sold 158,075,200 kWh, 159,006,000 kWh and 153,547,000 kWh of electricity to Central Maine in the
fiscal years ended April 30, 2003, 2002 and 2001, respectively, thereby meeting its kWh requirements under the power purchase
agreement.
Under the terms of a waste handling agreement between certain municipalities and Maine Energy, the latter is obligated to make a
payment at the point in time that Maine Energy pays off its debt obligations (as defined), currently estimated to occur in 2008, or upon
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the consummation of an outright sale of Maine Energy. The obligation has been estimated by management at $9,700. Management
believes the possibility of material loss in excess of this amount is remote.
Additionally, from December 1999 until July 31, 2001, the Company owned 100% of Timber Energy Resources, Inc. ("Timber
Energy"). Timber Energy uses biomass waste as its source of fuel to be combusted for the generation of electricity. Timber Energy also
operates two wood processing facilities. Timber Energy sells the electricity that it generates to Florida Power Corporation ("Florida
Power"), a local electric utility, under a power purchase agreement. Under the terms of the power purchase agreement, Florida Power has
agreed to purchase all of the electricity generated by Timber Energy. Timber Energy was sold effective July 31, 2001.
(c) Legal Proceedings
In the normal course of its business and as a result of the extensive governmental regulation of the waste industry, the Company may
periodically become subject to various judicial and administrative proceedings involving Federal, state or local agencies. In these
proceedings, an agency may seek to impose fines on the Company or to revoke, or to deny renewal of, an operating permit held by the
Company. In addition, the Company may become party to various claims and suits pending for alleged damages to persons and property,
alleged violation of certain laws and for alleged liabilities arising out of matters occurring during the normal operation of the waste
management business.
During fiscal year 2002, the Company settled four lawsuits all of which had been previously provided for, thus having no effect on the
Company's financial position.
In July 1996, Clinton County, New York entered into a privatization agreement with Casella for Casella to run the County's solid
waste management system (the "System") as a private enterprise, including operations at both the existing unlined landfill, as well as
newly constructed lined landfill areas. During the period of November 21, 1996 to October 9, 1997, we performed certain closure
activities and installed a cut-off wall at the unlined portion of the landfill. On or about April 1999, the New York State Department of Labor
alleged that we should have paid prevailing wages in connection with the labor associated with such activities related to the unlined
landfill. The DOL is attempting to apply the prevailing wage provisions of Labor Law-220 to Casella's construction activities at the unlined
portion of the Clinton County landfill, to include (1) cap construction at the unlined landfill; (2) construction of the "Casella Barrier Wall,"
which the New York State Department of Environment Conservation (the "DEC") required as a precondition to permitting the Phase III
expansion of the Lined Landfill; and (3) construction of the "County Barrier Wall," which the DEC required as a corrective measure to
control the historical contamination. We have disputed the allegations and a hearing on only the liability issue was held on September 16,
2002. Since the hearing did not address damages, relevant payroll documents have not been fully reviewed by either party. Accordingly,
neither side is in a position to estimate wage amounts that might be payable in the event the hearing officer finds that Casella is liable for
the payment of such prevailing wages. In addition, any such estimate will differ depending on whether any liability ruling applies to some or
all of the activities described above; and whether it would apply only to activities of Casella or to all subcontractors as well. In November
2002, both sides submitted proposed findings of fact and conclusions of law. The hearing officer is expected to make a recommendation
to the Department of Labor commissioner during the summer of 2003 on the liability issue. We continue to explore settlement
possibilities with the State. We believe that we have meritorious defenses to these claims. Although a loss as a result of these claims is
reasonably possible, we cannot estimate a range of reasonably possible losses at this time.
The Company is a defendant in certain other lawsuits alleging various claims incurred in the ordinary course of business, none of which,
either individually or in the aggregate, the Company believes are material to its financial condition, results of operations or cash flows.
(d) Environmental Liability
The Company is subject to liability for any environmental damage, including personal injury and property damage, that its solid waste,
recycling and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of
drinking water sources or soil, possibly including damage resulting from conditions existing before the Company acquired the facilities.
The Company may also be subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or
hazardous substances if the Company or its predecessors arrange to transport, treat or dispose of those materials. Any substantial
liability incurred by the Company arising from environmental damage could have a material adverse effect on the Company's business,
financial condition and results of operations. The Company is not presently aware of any situations that it expects would have a material
adverse impact on the results of operations or financial condition.
(e) Employment Contracts
The Company has entered into employment contracts with four of its senior officers. Two contracts are dated December 8, 1999, while
the other two are dated June 18, 2001 and July 20, 2001, respectively. Each contract has a three-year term and a two-year covenant not
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to compete from the date of termination. These contracts automatically extend for a one year period at the end of the initial term and any
renewal period. Total annual commitments for salaries under these contracts are $1,085. In the event of a change in control of the
Company, or in the event of involuntary termination without cause, the employment contracts provide for a payment ranging from one to
three years of salary and bonuses.
1 3 . P R E F E R R E D S T O C K
The Company is authorized to issue up to 1,000,000 shares of preferred stock in one or more series. As of April 30, 2002 and 2003, the
Company had 55,750 shares authorized, issued and outstanding of Series A Redeemable Convertible Preferred Stock issued at $1,000
per share. These shares are convertible into Class A common stock, at the option of the holders, at $14 per share. Dividends are
cumulative at a rate of 5%, compounded quarterly. The Company has the option to redeem the preferred stock for cash at any time after
three years at a price giving the holder a defined yield, but must redeem the shares by the seventh anniversary date at liquidation value,
which equals original cost, plus accrued but unpaid dividends, if any. Pursuant to the stock agreement, acceleration of the liquidation
provisions would occur upon change in control of the Company.
During the fiscal years 2001, 2002 and 2003, the Company accrued $1,970, $3,010 and $3,094 of dividends, respectively, which are
included in the carrying value of the preferred stock in the accompanying consolidated balance sheets.
1 4 . S T O C K H O L D E R S ' E Q U I T Y
(a) Common Stock
The holders of the Class A Common Stock are entitled to one vote for each share held. The holders of the Class B Common Stock are
entitled to ten votes for each share held, except for the election of one director, who is elected by the holders of the Class A Common
Stock exclusively. The Class B Common Stock is convertible into Class A Common Stock on a share-for-share basis at the option of the
shareholder.
(b) Stock Warrants
At April 30, 2002 and 2003, there were outstanding warrants to purchase 227,530 and 122,498 shares, respectively, of the Company's
Class A Common Stock at exercise prices between $0.01 and $43.63 per share, based on the fair value of the underlying common stock
at the time of the warrants' issuance. The warrants are exercisable and expire at varying times through November 2008.
(c) Stock Option Plans
During 1993, the Company adopted an incentive stock option plan for officers and other key employees. The 1993 Incentive Stock
Option Plan (the "1993 Option Plan") provided for the issuance of a maximum of 300,000 shares of Class A Common Stock. As of April
30, 2002 and 2003, options to purchase 15,000 shares of Class A common stock were outstanding at a weighted average exercise price
of $4.61. No further options may be granted under this plan.
During 1994, the Company adopted a non-statutory stock option plan for officers and other key employees. The 1994 Stock Option
Plan (the "1994 Option Plan") provided for the issuance of a maximum of 150,000 shares of Class A Common Stock. As of April 30,
2002 and 2003, options to purchase 15,000 shares of Class A common stock at a weighted average exercise price of $0.60 were
outstanding under the 1994 Option Plan. No further options may be granted under this plan.
In May 1994, the Company also established a nonqualified stock option pool for certain key employees. The plan, which was not
approved by stockholders, established 338,000 stock options to purchase Class A common stock. As of April 30, 2002, options to
purchase 264,000 shares of Class A Common stock were outstanding at a weighted average exercise price of $2.00. As of April 30,
2003, options to purchase 255,000 shares of Class A common stock were outstanding at a weighted average exercise price of $2.00.
No further options may be granted under this plan.
During 1996, the Company adopted a stock option plan for employees, officers and directors of, and consultants and advisors to the
Company. The 1996 Stock Option Plan (the "1996 Option Plan") provided for the issuance of a maximum of 918,135 shares of Class A
Common Stock pursuant to the grant of either incentive stock options or non-statutory options. As of April 30, 2002, a total of 320,238
options to purchase Class A Common Stock were outstanding at a weighted average exercise price of $11.76. As of April 30, 2003, a
total of 299,531 options to purchase Class A common Stock were outstanding at an average exercise price of $11.89. No further
options may be granted under this plan.
On July 31, 1997, the Company adopted a stock option plan for employees, officers and directors of, and consultants and advisors
to the Company. The Board of Directors has the authority to select the optionees and determine the terms of the options granted. The
1997 Stock Option Plan (the "1997 Option Plan") provides for the issuance of 5,328,135 shares of Class A Common Stock pursuant to
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the grant of either incentive stock options or non-statutory options, which includes all authorized, but unissued options under previous
plans. As of April 30, 2002, options to purchase 3,404,628 shares of Class A Common Stock at an average exercise price of $13.81
were outstanding under the 1997 Option Plan. As of April 30, 2003, options to purchase 3,547,628 shares of Class A Common Stock at
a weighted average exercise price of $13.58 were outstanding under the 1997 Option Plan. As of April 30, 2003, 614,475 options were
available for future grant under the 1997 Option Plan.
Additionally, options outstanding under the assumed KTI Stock Option Plan totaled 123,992 and 81,586 at April 30, 2002 and 2003,
respectively, at weighted average exercise prices of $23.18 and $22.42, respectively. Upon assumption of this plan, entitled optionees
under the KTI plan received one option to acquire one share of the Company's stock for every option held. The exercise price of the
converted options was increased by 96.1% based on relative fair values of the underlying stock at the date of the KTI acquisition.
On July 31, 1997, the Company adopted a stock option plan for non-employee directors of the Company. The 1997 Non-Employee
Director Stock Option Plan provides for the issuance of a maximum of 200,000 shares of Class A Common Stock pursuant to the grant
of non-statutory options. As of April 30, 2002 and 2003, options to purchase 94,000 shares of Class A Common Stock at a weighted
average exercise price of $14.12 and 139,000 shares of Class A Common Stock at a weighted average exercise price of $11.36,
respectively, were outstanding. As of April 30, 2003, 57,000 options were available for future grant under the 1997 Non-Employee
Director Stock Option Plan.
On July 2, 2001, the Company offered its employees, other than executive officers, the opportunity to ask the Company to exchange
options having an exercise price of $12.00 or more per share. For every two eligible options surrendered, the participating option holders
received one new option on February 4, 2002 at an exercise price of $12.75, which was equal to the closing price of a common share as
quoted by NASDAQ on that day. 666,315 options were surrendered for exchange under the offering resulting in 333,158 options being
granted to participants.
Options generally vest over a one to three year period from the date of grant and are granted at prices at least equal to the prevailing
fair market value at the issue date. In general, options are issued with a life not to exceed ten years.
Stock option activity for the fiscal years 2001, 2002 and 2003 is as follows:
NUMBER OF OPTIONS
WEIGHTED AVERAGE
EXERCISE PRICE
Outstanding, April 30, 2000
Granted
Terminated
Exercised
Outstanding, April 30, 2001
Granted
Surrendered under Exchange Program
Terminated
Exercised
Outstanding, April 30, 2002
Granted
Terminated
Exercised
Outstanding, April 30, 2003
Exercisable, April 30, 2001
Exercisable, April 30, 2002
Exercisable, April 30, 2003
3,916,740
1,929,060
(433,148)
(3,000)
5,409,652
710,565
(666,315)
(802,009)
(415,035)
4,236,858
225,000
(83,406)
(25,707)
4,352,745
4,071,188
3,811,775
3,982,129
19.78
9.26
(24.62)
(8.69)
15.65
13.09
(27.77)
(20.56)
(7.87)
13.09
8.30
(19.06)
(5.28)
$ 12.77
$ 16.44
$ 13.27
$ 13.06
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Set forth below is a summary of options outstanding and exercisable as of April 30, 2003:
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
Range of Exercise Price
$ .60—$ 2.00
$ 4.61—$ 8.69
$ 9.56—$ 18.00
$ 18.01—$ 27.00
Over $ 27.00
Totals
Number of
Weighted Average
Outstanding Remaining Contractual Weighted Average
Exercise Price
Life (years)
Options
Number of
Exercisable
Options
Weighted Average
Exercise Price
270,000
1,384,420
2,077,313
400,310
220,702
4,352,745
1.1
5.8
6.1
5.6
1.0
5.4
$ 1.92
8.24
13.43
22.66
30.33
$ 12.77
270,000
1,214,253
1,876,864
400,310
220,702
3,982,129
$ 1.92
8.33
13.64
22.66
30.33
$ 13.06
The weighted average grant date fair value of options granted during the fiscal years 2001, 2002 and 2003 is $7.28, $7.06 and $8.30,
respectively.
1 5 . R E S T R U C T U R I N G
In April 2001, the Company's Board of Directors approved a reorganization of certain of the Company's operations. This
reorganization consisted of the elimination of various positions and the closure of certain facilities. The following items were charged
to earnings during 2001:
Severance
Facility closures
$ 3,786
365
$ 4,151
Severance related to the termination of 19 employees, primarily in management and administration, as well as three officers of the
Company. Facility closures include the costs of closing two transfer stations.
During fiscal year 2002, the reversal of various prior year restructuring expenses netted with fiscal year 2002 restructuring charges
of $254, amounted to ($438).
During fiscal year 2003, $37 was charged against the accrual. The remaining balance included in other accrued liabilities in the
accompanying April 30, 2003 balance sheet amounts to $0.
1 6 . E M P L O Y E E B E N E F I T P L A N S
The Company offers its eligible employees the opportunity to contribute to a 401(k) plan. The Company may contribute up to 500 dollars
per individual per calendar year. Participants vest in employer contributions ratably over a three-year period. Employer contributions for
the fiscal years 2001, 2002 and 2003 amounted to $434, $406 and $368, respectively.
In January 1998, the Company implemented its Employee Stock Purchase Plan. Under this plan, qualified employees may purchase
shares of Class A Common Stock by payroll deduction at a 15% discount from the market price. 600,000 shares of Class A Common
Stock have been reserved for this purpose. During the fiscal years 2001, 2002 and 2003, 29,287, 30,904 and 27,633 shares,
respectively, of Class A Common Stock were issued under this plan.
1 7 . I N C O M E TA X E S
The provision (benefit) for income taxes from continuing operations for the fiscal years 2001, 2002 and 2003 consists of the following:
April 30,
Federal—
Current
Deferred
Deferred benefit of loss carryforwards
State—
Current
Deferred
Deferred benefit of loss carryforwards
Total
83
2001
2002
2003
$ (1,036)
(9,029)
(5,721)
(15,786)
(829)
(2,686)
(1,142)
(4,657)
$ (20,443)
$ (1,639)
8,458
(4,049)
2,770
565
2,803
(1,027)
2,341
$ 5,111
$ 22
448
1,970
2,440
871
1,884
97
2,852
$ 5,292
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The differences in the provision (benefit) for income taxes and the amounts determined by applying the Federal statutory rate to income
before provision (benefit) for income taxes for the years ended April 30, 2001, 2002 and 2003 are as follows:
Fiscal Year
Federal statutory rate
Tax at statutory rate
State income taxes, net of federal benefit
Non-deductible impairment charge
Non-deductible goodwil
Losses on business dispositions
Equity in loss of unconsolidated entities
Decrease in valuation allowance
Other, net
2001
35%
$ (39,900)
(3,027)
12,825
1,155
—
6,390
—
2,114
$ (20,443)
2002
35%
$ 5,529
1,523
—
1,052
(2,072)
(390)
—
(531)
$ 5,111
2003
35%
4,032
1,847
568
—
849
—
(3,173)
1,169
$ 5,292
Deferred income taxes reflect the impact of temporary differences between the amounts of assets and liabilities recognized for
financial reporting purposes and such amounts recognized for income tax purposes.
Deferred tax assets and liabilities consist of the following at April 30, 2002 and 2003:
April 30,
Deferred tax assets:
Accrued expenses and reserves
Basis difference in partnership interests
Amortization of intangibles
Unrealized loss on securities
Gain on business dispositions
Capital loss carryforward
Net operating loss carryforwards
Alternative minimum tax credit 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
Basis difference in partnership interests
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
2002
$ 14,291
5,532
8,833
3,727
—
1,900
38,672
672
1,534
75,161
(28,512)
46,649
(35,676)
—
(1,558)
(37,234)
$ 9,415
2003
$ 11,243
—
102
19
757
—
45,385
672
1,422
59,600
(24,696)
34,904
(33,181)
(1,487)
(1,434)
(36,102)
$ (1,198)
At April 30, 2003, the Company has for income tax purposes Federal net operating loss carryforwards of approximately $108,146
that expire in years 2005 through 2023 and state net operating loss carryforwards of approximately $91,887 that expire in years 2004
through 2023. Substantial limitations restrict the Company's ability to utilize certain Federal and state loss carryforwards. Due to
uncertainty of the utilization of the carryforwards, no tax benefit has been recognized for approximately $49,457 of the Federal net
operating loss carryforwards and $79,923 of the state net operating loss carryforwards. In addition, the Company has approximately $672
minimum tax credit carryforward available that is not subject to limitation.
The $3,816 net decrease in the valuation allowance is due to the decrease in the basis difference for the investment in New Heights,
the elimination of the capital loss carryforward, and the expiration of certain state loss carryforwards, partially offset by an increased
valuation allowance for Federal and state loss carryforwards.
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The valuation allowance includes $15,556 related to losses acquired through acquisitions. To the extent that future realization of such
carryforwards exceeds the Company's current estimates, additional benefits received will be recorded as a reduction of goodwill. In
assessing the realizability of carryforwards and other deferred tax assets, management considers whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The Company adjusts the valuation allowance in the period
management determines it is more likely than not that deferred tax assets will or will not be realized.
1 8 . D I S C O N T I N U E D O P E R AT I O N S , A S S E T S H E L D F O R S A L E , D I V E S T I T U R E S , I M PA I R M E N T
C H A R G E A N D E X T R A O R D I N A RY I T E M
Discontinued Operations:
At the end of fiscal year 2001, the Company adopted a formal plan to dispose of its tire processing, commercial recycling and mulch
recycling businesses (herein "discontinued businesses"). The Company is accounting for these planned dispositions in accordance with
APB Opinion No. 30, and accordingly the discontinued businesses are carried at estimated net realizable value less costs to be incurred
through date of disposition.
For the fiscal year 2001, the estimated loss on the disposal of the discontinued operations of $2,657, net of income tax benefit of
$274, represents the estimated loss on the disposal of the assets of the discontinued operations and includes costs to sell, estimated
loss on sale and a provision for losses during the phase-out period.
A summary of the operating results of the discontinued operations is as follows:
Fiscal Year
Revenues
(Loss) income before income taxes
(Benefit) provision for income taxes
Net (Loss) income from discontinued operations
2001
$ 30,047
(5,199)
(1,069)
$ (4,130)
The Company has included approximately $9,911 of intercompany sales of recyclables from the commercial recycling business to the
brokerage business in loss on discontinued operations for the fiscal year 2001. Intercompany sales of recyclables from the commercial
recycling business to the brokerage business amounted to $1,323 and $0 for fiscal years 2002 and 2003, respectively.
The mulch recycling business was sold effective June 30, 2001. The Company's tire processing business was sold in September
2001 for cash consideration of $13,745. The Company retained a 19.9% interest in the new venture, which was valued at $3,080. The
Company is accounting for its retained investment under the cost method. The commercial recycling center in Newark, New Jersey was
sold effective April 18, 2002.
Actual operating results of discontinued businesses for the fiscal year 2002 exceeded the original estimate by $599 (net of income
tax provision of $408), and the actual loss on the sale of assets exceeded the estimate by $4,695 (net of income tax benefit of $565).
Accordingly, the accompanying income statement for the year ended April 30, 2002 includes an additional loss on disposal of
discontinued operations of $4,096.
In the fourth quarter of fiscal 2003, the Company entered into negotiations with former employees for the transfer of its domestic
brokerage operations and a commercial recycling business. The transaction was completed in June 2003. The commercial recycling
business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, the Company could
not retain discontinued accounting treatment for this operation. Therefore, the commercial recycling business' operating results have been
reclassified from discontinued to continuing operations for fiscal 2001, 2002 and 2003. In fiscal 2001, estimated future losses from this
operation were recorded and classified as losses from discontinued operations. This amount has been reclassified and offset against
actual losses from operations in fiscal 2001, 2002 and 2003.
Net Assets Held for Sale
The Company had identified for sale certain other businesses which were classified as net assets held for sale as of April 30, 2001.
These included its Timber Energy business and its one remaining plastics recycling facility.
On May 17, 2001, the plastics recycling business was sold for approximately $998 in total consideration. The consideration
consisted of $406 in cash and $592 in notes.
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On July 31, 2001, the Timber Energy business was sold for approximately $15,000 in total consideration. The consideration
comprised the buyer's assumption of debt, reimbursement of restricted cash funds, and a working capital adjustment, resulting in
$10,691 cash.
As discussed above, in June 2003, the Company transferred a commercial recycling business to former employees. The net assets
of the commercial recycling business were $(306) and $(1,280) as of April 30, 2002 and 2003, respectively.
Other Divestitures
A portion of the Company's 50% interest in New Heights was sold in September 2001 for consideration of $250. The Company retained
an interest of 9.95% in the tire assets of New Heights as well as financial obligations related solely to the New Heights' power plant. At
April 30, 2001, the Company included $4,000, as its estimate of its future costs to be incurred at New Heights; as of April 30, 2003,
$2,400 has been invested in New Heights. In addition, the Company has an interest in certain notes granted by New Heights collectively
valued at approximately $9,000, payment of which is contingent upon settlement of litigation concerning the cancellation of a fixed price
power contract. The Company has not recorded a receivable in respect of these notes, as the timing of such settlement is uncertain; a
favorable summary judgment has been received but final court appeal resolution is not likely until fiscal year 2004. The Company is
accounting for its retained investment under the cost method of accounting.
In October, 2001, the Company sold its Multitrade division for consideration of $6,893. The transaction resulted in a gain of $4,156
which is included in other (income)/expense, net.
In July, 2001, the Company sold its S&S Commercial division for consideration of $887. The transaction resulted in a gain of $692
which is included in other (income)/expense, net.
In April 2003, the Company sold its FCR Virginia division for consideration of $875. The transaction resulted in a gain of $684 which
is included in other (income)/expense, net.
Impairment Charge
Prior to the adoption of SFAS 142, and in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of", the Company periodically reviewed its long-lived assets for impairment whenever events or
changes in circumstances indicate that the remaining estimated useful life of such assets might warrant revision or that the balance may
not be recoverable. The Company evaluated possible impairment by comparing estimated future cash flows, before interest expense
and on an undiscounted basis, with the net book value of long-term assets including goodwill and other intangible assets. If
undiscounted cash flows are insufficient to recover assets, further analysis is performed in order to determine the amount of the
impairment. An impairment loss was then recorded equal to the amount by which the carrying amount of the assets exceeds their fair
value. Fair value is usually determined based on the present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved. Prior to the adoption of SFAS 142, and 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 long-lived assets.
As a result of the factors discussed above, during 2001, the Company recorded a charge of $79,687 to reduce certain assets
(mainly goodwill arising from the acquisition of KTI, see Note 4), to their estimated fair value. In the fourth quarter of fiscal 2003, the
Company recorded an impairment charge of $4,864 to adjust the book value of the the domestic brokerage and commercial recycling
business to net realizable value.
Extraordinary Loss
During fiscal year 2003, the Company recorded an extraordinary loss of $2,170 (net of income tax benefit of $1,479) in connection with
the write-off of deferred financing costs related to the old term loan and the old revolver. This item will be reclassified to continuing
operations upon adoption of SFAS No. 145.
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1 9 . E A R N I N G S P E R S H A R E
The following table sets forth the numerator and denominator used in the computation of earnings per share:
Fiscal Year
2001
2002
2003
Numerator:
Income (loss) from continuing operations before discontinued
operations, extraordinary loss and cumulative effect of change
in accounting principle
Less: preferred dividends
Income (loss) from continuing operations before discontinued
operations, extraordinary loss and cumulative effect of change in
accounting principle available to common stockholders
Denominator:
Number of shares outstanding, end of period:
Class A common stock
Class B common stock
Effect of weighted average shares outstanding during period
Weighted average number of common shares used in basic EPS
Impact of potentially dilutive securities:
Dilutive effect of options, warrants and contingent stock
$ (93,558)
(1,970)
$ 10,687
(3,010)
$ 6,228
(3,094)
$ (95,528)
$ 7,677
$ 3,134
22,198
988
3
23,189
22,667
988
(159)
23,496
22,769
988
(41)
23,716
—
673
188
Weighted average number of common shares used in diluted EPS
23,189
24,169
23,904
For the fiscal years 2001, 2002 and 2003, 5,389, 6,653 and 8,408, respectively, of potentially dilutive common stock related to
options, convertible debt, warrants and redeemable convertible preferred stock, respectively, were excluded from the calculation of
dilutive shares since the inclusion of such shares would be anti-dilutive.
2 0 . R E L AT E D PA RT Y T R A N S A C T I O N S
(a) Services
During fiscal years 2001, 2002 and 2003, the Company retained the services of a related party, a company wholly owned by two of the
Company's major stockholders and members of the Board of Directors (one of whom is also an officer), as a contractor in developing or
closing certain landfills owned by the Company. Total purchased services charged to operations or capitalized to landfills for the fiscal
years 2001, 2002 and 2003 were $3,870, $2,559 and $1,525, respectively, of which $0 and $28 were outstanding and included in
accounts payable at April 30, 2002 and 2003, respectively.
(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 (one of whom is also an officer) 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 $21 and
expired in April 2003. The leases were renewed effective May 1, 2003 for a term of 60 months. Total interest and depreciation expense
charged to operations for fiscal years 2001, 2002 and 2003 under these agreements was $236, $204 and $196, respectively.
(c) Post-closure Landfill
The Company has agreed to pay the cost of post-closure on a landfill owned by certain principal shareholders. The Company paid the
cost of closing this landfill in 1992, and the post-closure maintenance obligations are expected to last until 2012. In the fiscal years 2001,
2002 and 2003, the Company paid $7, $6 and $8 respectively, pursuant to this agreement. As of April 30, 2002 and 2003, the Company
has accrued $83 and $75 respectively, for costs associated with its post-closure obligations.
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(d) Transfer Station Lease
In June 1994, the Company entered into a transfer station lease for a term of 10 years. The transfer station is owned by a current member
of the Company's Board of Directors, who became a director upon the execution of the lease. Under the terms of the lease the Company
agreed to pay monthly rent for the first five years at a rate of five dollars per ton of waste disposed of at the transfer station, with a
minimum rent of $7 per month. Since June 1999, the monthly rent was lowered to a rate of two dollars per ton of waste disposed, with a
minimum rent of $3 per month. Total lease payments for the fiscal years 2001, 2002 and 2003 were $55, $64 and $55, respectively.
(e) Employee Loans
As of April 30, 2002 and 2003, the Company has recourse loans to officers and employees outstanding in the amount of $1,105. The
interest on these notes is payable upon demand by the company. The notes have no fixed repayment terms. Interest is at the Wall Street
Journal Prime Rate (4.25% at April 30, 2003). Notes from officers consisted of $1,016 at April 30, 2002 and 2003 with the remainder
being from employees of the Company.
(f) Commodity Sales
The Company sells recycled paper products to its equity method investee, GreenFiber. Revenue from sales to GreenFiber amounted to
$2,303 and $3,375 for fiscal years 2002 and 2003, respectively.
2 1 . S E G M E N T R E P O RT I N G
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, Central, Western and FCR Recycling. The Company's revenues in the Eastern,
Central and Western segments are derived mainly from one industry segment, which includes the collection, transfer, recycling and
disposal of non-hazardous solid waste. The Eastern Region also includes Maine Energy, which generates electricity from non-hazardous
solid waste. The Company's revenues in the FCR Recycling and brokerage segment are derived from integrated waste handling services,
including processing and recycling of wood, paper, metals, aluminum, plastics and glass and brokerage of recycled materials. Ancillary
operations, mainly residue recycling, major customer accounts and earnings from equity method investees, are included in Other.
Year Ended April 30, 2001
EASTERN
REGION
CENTRAL
REGION
WESTERN
REGION RECYCLING
Outside revenues
Inter-segment revenues
Income (loss) from continuing operations before
$ 158,754
38,267
$ 99,305
40,498
$ 66,473
14,995
$ 109,453
36,473
discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
(3,876)
20,349
1,948
10,346
25,843
116,176
$ 283,967
3,706
14,330
7,765
3,564
20,545
24,567
$ 126,617
4,152
9,855
49
4,321
16,445
49,601
$ 112,882
(49,780)
3,955
69,932
6,930
7,750
42,428
$ 80,984
OTHER
$ 46,381
1,273
(36,443)
4,394
—
13,493
(9,065)
(6,803)
$ 81,843
Depreciation & amortization
Impairment charge
Interest expense (net)
Capital expenditures
Goodwill
Total assets
Year Ended April 30, 2001
Outside revenues
Inter-segment revenues
Income (loss) from continuing operations before
discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
Depreciation & amortization
Impairment charge
Interest expense (net)
Capital expenditures
Goodwill
Total assets
ELIMINATIONS
TOTAL
$ —
(131,506)
$ 480,366
—
—
—
—
—
—
—
$ —
(82,241)
52,883
79,694
38,654
61,518
225,969
$ 686,293
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Year Ended April 30, 2002
EASTERN
REGION
CENTRAL
REGION
WESTERN
REGION
RECYCLING
OTHER
Outside revenues
Inter-segment revenues
Income (loss) from continuing operations before
discontinued operations,extraordinary loss and
cumulative effect of change in accounting principle
Depreciation & amortization
Interest expense (net)
Capital expenditures
Goodwill
Total assets
$ 152,095
31,889
$ 91,935
43,777
$ 65,628
14,626
$ 94,117
18,338
$ 17,460
58
1,525
21,140
9,247
15,850
108,517
$ 270,854
19,163
12,758
2,559
11,856
25,212
$ 109,673
1,125
10,192
7,434
6,490
48,576
$ 104,479
(10,417)
4,121
10,044
2,573
37,433
$ 69,531
(708)
2,501
1,289
905
(9)
$ 67,074
ELIMINATIONS
TOTAL
Year Ended April 30, 2002
Outside revenues
Inter-segment revenues
Income (loss) from continuing operations before
discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
Depreciation & amortization
Interest expense (net)
Capital expenditures
Goodwill
Total assets
$ —
(108,688)
$ 421,235
—
—
—
—
—
—
$ —
10,688
50,712
30,573
37,674
219,729
$ 621,611
Year Ended April 30, 2003
EASTERN
REGION
CENTRAL
REGION
WESTERN
REGION
RECYCLING
OTHER
Outside revenues
Inter-segment revenues
Income (loss) from continuing operations before
discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
Depreciation & amortization
Interest expense (net)
Capital expenditures
Goodwill
Total assets
Year Ended April 30, 2003
$ 153,318
39,444
$ 90,524
43,253
$ 68,451
13,740
$ 94,326
22,577
$ 14,244
1
(6,342)
22,706
10,097
16,200
56,734
$ 239,023
19,118
11,531
(204)
9,734
25,485
$ 107,694
2,577
8,204
6,811
9,874
49,847
$ 110,045
(4,331)
3,426
10,451
4,900
27,616
$ 64,989
(4,794)
2,063
(901)
1,217
—
$ 80,890
ELIMINATIONS
TOTAL
Outside revenues
Inter-segment revenues
Income (loss) from continuing operations before
discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
Depreciation & amortization
Interest expense (net)
Capital expenditures
Goodwil
Total assets
$ —
(119,015)
$ 420,863
—
—
—
—
—
—
$ —
6,228
47,930
26,254
41,925
159,682
$ 602,641
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Amounts of our total revenue attributable to services provided are as follows:
Fiscal Year
Collection
Landfill/disposal facilities
Transfer
Recycling
Brokerage
Other (1)
Reported revenues
2001
2002
2003
$ 205,561
78,261
36,908
57,795
70,721
31,120
$ 480,366
$ 196,863
57,449
45,597
65,508
50,125
5,693
$ 421,235
$ 196,478
59,942
47,478
80,237
36,728
—
$ 420,863
(1) Other revenues consist of revenues from entities divested during fiscal 2001 and 2002, including a plastics business, Timber Energy, Multitrade and
U.S. Fiber, which was contributed to the U.S. GreenFiber joint venture.
2 2 . Q U A RT E R LY F I N A N C I A L I N F O R M AT I O N ( U N A U D I T E D )
The following is a summary of certain items in the Consolidated Statements of Operations by quarter for fiscal years 2002 and 2003.
Fiscal Year 2002
FOURTH
QUARTER (1) QUARTER (1) QUARTER (1) QUARTER (1)
SECOND
THIRD
FIRST
Revenues
Operating income
Income from continuing operations before discontinued operations,
extraordinary loss and cumulative effect of change in accounting principle
Net (loss) income available to common stockholders
Income per common share:
Basic:
Income (loss) from continuing operations before discontinued
operations, extraordinary loss and cumulative effect of change in
accounting principle
Net (loss) income available to common stockholders
Diluted:
Income (loss) from continuing operations before discontinued
operations, extraordinary loss and cumulative effect of change
in accounting principle
Net (loss) income available to common stockholders
Fiscal Year 2003
Revenues
Operating income
Income from continuing operations before discontinued
operations, extraordinary loss and cumulative effect of
change in accounting principle
Net (loss) income available to common stockholders
Income per common share:
Basic:
Income from continuing operations before discontinued operations,
extraordinary loss and cumulative effect of change in accounting
principle
Net (loss) income available to common stockholders
Diluted:
Income from continuing operations before discontinued operations,
extraordinary loss and cumulative effect of change in accounting
principle
Net (loss) income available to common stockholders
$ 112,447
11,017
$ 109,888
12,097
$ 101,286
7,684
$ 97,614
9,014
1,936
1,474
5,779
3,789
113
(732)
2,859
(60)
0.06
0.06
0.06
0.06
0.22
0.16
0.22
0.16
(0.02)
(0.03)
(0.02)
(0.03)
THIRD
QUARTER (1)(2) QUARTER (1) QUARTER (1)
SECOND
FIRST
0.06
—
0.06
—
FOURTH
QUARTER
$ 116,031
11,467
$ 114,570
13,708
$ 95,801
8,525
$ 94,461
250
2,557
(62,071)
4,714
3,860
1,348
(1,561)
(2,391)
(3,130)
0.08
(2.62)
0.08
(2.62)
0.17
0.16
0.16
0.16
0.02
(0.07)
0.02
(0.07)
(0.13)
(0.13)
(0.13)
(0.13)
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(1) In the fourth quarter of fiscal 2003, the Company entered into negotiations with former employees for the transfer of the Company's domestic
brokerage operations and a commercial recycling business and in June 2003, the Company completed the transaction. The commercial recycling
business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, the Company could not retain
discontinued accounting treatment for this operation. Therefore, the commercial recycling operating results have been reclassified from discontinued to
continuing operations for fiscal years 2001, 2002 and 2003 and the above quarterly summary data has been revised from amounts previously reported.
(2) The Company revised results for the first quarter of fiscal 2003 to include additional goodwill impairment in the amount of $1.1 million, net of taxes,
relating to our waste-to-energy operations, Maine Energy. The Company previously reported goodwill impairment upon the adoption of SFAS 142 in the
amount of $62.8 million, net of taxes.
2 3 . C O N D E N S E D C O N S O L I D AT I N G F I N A N C I A L I N F O R M AT I O N
The senior subordinated notes are guaranteed jointly and severally, fully and unconditionally by the Company's significant wholly-owned
subsidiaries. The Parent is the issuer and non-guarantor of the senior subordinated notes. The information which follows presents the
condensed consolidating financial position as of April 30, 2002 and 2003; the condensed consolidating results of operations for the years
ended April 30, 2001, 2002 and 2003; and the condensed consolidating statements of cash flows for the years ended April 30, 2001,
2002 and 2003 of (a) the parent company only ("the Parent"), (b) the combined guarantors ("the Guarantors"), each of which is 100%
wholly-owned by the Parent, (c) the combined non-guarantors ("the Non-Guarantors"), (d) eliminating entries and (e) the Company on a
consolidated basis.
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet as of April 30, 2002 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
CURRENT ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable—
trade, net of allowance for doubtful accounts
Notes receivable — officers/employees
Prepaid expenses
Other current assets
$ 4,362
—
924
1,105
487
8,795
$ (2,377)
(196)
41,643
—
2,645
6,227
$ 2,313
10,482
427
—
—
404
Total current assets
15,673
47,942
13,626
$ —
—
75
—
—
—
75
Property, plant and equipment, net of accumulated
depreciation and amortization
Intangible assets, net
Deferred income taxes
Investment in subsidiaries
Other non-current assets
Intercompany receivable
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Accounts payable
Accrued payroll and related expenses
Accrued interest
Accrued closure and post-closure costs,
current portion
Liabilities of operations held for sale
Other current liabilities
Total current liabilities
Long-term debt, less current maturities
Capital lease obligations, less current maturities
Other long-term liabilities
4,449
—
648
14,797
8,956
28,850
487,191
$ 531,714
1,260
455
1,473
—
—
15,362
18,550
274,850
788
—
277,312
223,643
—
—
30,073
531,028
(491,256)
$ 87,714
23,009
5,342
8
6,465
—
12,841
47,665
1,183
2,263
28,530
5,445
—
—
—
(552)
4,893
(1,539)
$ 16,980
—
—
—
(14,797)
(5,679)
(20,476)
5,604
$ (14,797)
(115)
—
—
—
—
7,553
7,438
1,512
—
1,306
—
—
—
—
—
—
—
—
—
—
$ 4,298
10,286
43,069
1,105
3,132
15,426
77,316
287,206
223,643
648
—
32,798
544,295
—
$ 621,611
24,154
5,797
1,481
6,465
—
35,756
73,653
277,545
3,051
29,836
COMMITMENTS AND CONTINGENCIES
Series A redeemable, convertible preferred stock,
55,750 shares authorized, issued and outstanding,
liquidation preference of $1,000 per share plus accrued
but unpaid dividends
STOCKHOLDERS’ EQUITY:
Class A common stock—
Authorized—100,000,000 shares, $0.01 par value
60,730
—
—
—
60,730
issued and outstanding—22,667,000 shares
227
105
102
(207)
227
Class B common stock—
Authorized—1,000,000 shares, $0.01 par value
10 votes per share, issued and outstanding—
988,000 shares
Accumulated other comprehensive loss
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
10
(4,250)
272,697
(91,888)
176,796
$ 531,714
—
1
54,313
(46,346)
8,073
$ 87,714
—
—
5,669
953
—
(1)
(59,982)
45,393
10
(4,250)
272,697
(91,888)
6,724
$ 16,980
(14,797)
$ (14,797)
176,796
$ 621,611
C A S E L
L A W A S T E S Y S T E M S
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F O R M
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet as of April 30, 2002 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
$ 12,188
$ 2,686
$ 778
$ —
$ 15,652
CURRENT ASSETS:
Cash and cash equivalents
Accounts receivable—trade, net of allowance for
doubtful accounts
Prepaid expenses
Inventory
Deferred taxes
Other current assets
485
613
—
3,504
1,237
44,155
5,138
1,740
—
1,103
1,009
155
—
771
10,715
Total current assets
Property, plant and equipment, net of accumulated
18,027
54,822
13,428
depreciation and amortization
Intangible assets, net
Deferred income taxes
Investment in subsidiaries
Investments in unconsolidated entities
Assets under contractual obligation
Other non-current assets
Intercompany receivable
2,996
—
—
(43,783)
7,778
—
11,046
(21,963)
507,820
$ 503,884
Liabilities and Stockholders’ Equity
CURRENT LIABILITIES:
Current maturities of long term debt
Accounts payable
Accrued payroll and related expenses
Accrued interest
Accrued closure and post-closure costs, current portion
Other current liabilities
1,500
1,350
1,368
5,373
. —
7,203
294,109
162,696
—
—
31,341
3,844
1,238
493,228
(509,887)
$ 38,163
1,777
32,285
6,015
2
2,286
5,617
5,223
—
—
—
—
—
472
5,695
(2,312)
$ 16,811
1,257
108
—
—
676
8,655
Total current liabilities
16,794
47,982
10,696
Long-term debt, less current maturities
Capital lease obligations, less current maturities
Accrued closure and post closure costs,
less current portion
Minority interest
Deferred income taxes
Other long-term liabilities
298,500
141
—
—
5,473
—
2,318
1,828
21,977
—
—
10,047
1,571
—
1,010
—
—
1,328
—
—
—
—
—
—
—
—
—
43,783
(4,379)
—
—
39,404
4,379
$ 43,783
—
—
—
—
—
—
—
—
—
—
—
—
—
45,649
5,906
1,740
4,275
13,055
86,277
302,328
162,696
—
—
34,740
3,844
12,756
516,364
—
$ 602,641
4,534
33,743
7,383
5,375
2,962
21,475
75,472
302,389
1,969
22,987
—
5,473
11,375
COMMITMENTS AND CONTINGENCIES
Series A redeemable, convertible preferred stock,55,750 shares
authorized, issued and outstanding,liquidation preference of
$1,000 per share plus accrued but unpaid dividends
63,824
—
—
—
63,824
STOCKHOLDERS’ EQUITY:
Class A common stock—
Authorized—100,000,000 shares, $0.01 par value
issued and outstanding—22,769,000 shares
Class B common stock—
Authorized—1,000,000 shares, $0.01 par value 10
228
101
100
(201)
228
Accumulated other comprehensive income (loss)
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
votes per share, issued and outstanding—988,000 shares 10
542
270,068
(151,696)
119,152
$ 503,884
—
1,190
47,885
(95,165)
(45,989)
$ 38,163
—
—
2,825
(719)
2,206
$ 16,811
—
(1,190)
(50,710)
95,884
43,783
$ 43,783
10
542
270,068
(151,696)
119,152
$ 602,641
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Statements of Operations Fiscal Year Ended April 30, 2001 (In thousands)
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
NON-
$ —
$ 478,159
$ 9,637
$ (7,430)
$ 480,366
Assets
Revenues
Operating expenses:
Cost of operations
General and administration
Depreciation and amortization
Impairment charge
Restructuring charge
Legal settlements
Other miscellaneous charges
Operating loss
Other expense/(income), net:
128
5,535
1,632
—
3,613
—
—
10,908
(10,908)
Interest income
Interest expense
Loss (income) from equity method investments, net
Minority interest
Other expense/(income), net
(32,554)
37,675
105,729
—
1,054
Other expense/(income), net
Income (loss) from continuing operations before
income taxes and discontinued operations
(Benefit) provision for income taxes
Income (loss) from continuing operations before
discontinued operations
Loss from discontinued operations, net
Estimated loss on disposal of discontinued
(122,812)
(21,277)
(101,535)
—
operations, net
—
—
Reclassification from discontinued operations, net
(101,535)
Net income (loss)
Preferred stock dividend
1,970
Net income (loss) available to common stockholders $ (103,505)
319,394
57,703
51,397
79,262
538
4,209
1,604
514,107
(35,948)
(3,207)
37,009
26,256
953
(1,110)
9,074
889
382
425
—
—
—
10,770
(1,133)
(369)
100
—
73
132
(7,382)
(48)
—
—
—
—
—
(7,430)
—
33,156
(33,156)
(105,729)
—
—
(95,849)
829
(96,678)
(4,130)
(2,657)
(1,190)
(104,655)
—
$ (104,655)
(1,069)
5
(1,074)
—
—
—
(1,074)
—
$ (1,074)
105,729
—
105,729
—
—
—
105,729
—
$ 105,729
321,214
64,079
53,411
79,687
4,151
4,209
1,604
528,355
(47,989)
(2,974)
41,628
26,256
1,026
76
66,012
(114,001)
(20,443)
(93,558)
(4,130)
(2,657)
(1,190)
(101,535)
1,970
$ (103,505)
111,904
59,901
(64)
(105,729)
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Statements of Operations Fiscal Year Ended April 30, 2002 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
$ —
$ 418,500
$ 12,232
$ (9,497)
$ 421,235
Revenues
Operating expenses:
Cost of operations
General and administration
Depreciation and amortization
Restructuring charge
Operating income
Other expense/(income), net:
Interest income
Interest expense
(Income) loss from equity method investments
Minority interest
Other expense/(income), net
4,057
(333)
1,765
(438)
5,051
(5,051)
(29,858)
31,183
(19,390)
—
1,239
273,651
54,145
48,503
—
376,299
42,201
(1,896)
31,363
(1,899)
—
(6,249)
Other expense, net
Income (loss) from continuing operations before
income taxes, discontinued operations and
cumulative effect of change in accounting principle
Provision for income taxes
Income (loss) from continuing operations before
discontinued operations and cumulative effect of
change in accounting principle
Estimated loss on disposal of discontinued operations, net
Reclassification from discontinued operations, net
Cumulative effect of change in accounting principle, net
Net income (loss)
Preferred stock dividend .
(16,826)
21,319
11,775
4,044
7,731
—
—
(250)
7,481
3,010
20,882
—
20,882
(4,096)
1,140
—
17,926
—
8,482
644
444
—
9,570
2,662
(254)
9
—
(154)
530
131
2,531
1,067
1,464
—
—
—
1,464
—
(9,497)
—
—
—
(9,497)
—
31,104
(31,104)
19,390
—
—
19,390
(19,390)
—
(19,390)
—
—
—
(19,390)
—
276,693
54,456
50,712
(438)
381,423
39,812
(904)
31,451
(1,899)
(154)
(4,480)
24,014
15,798
5,111
10,687
(4,096)
1,140
(250)
7,481
3,010
Net income (loss) available to common stockholders
$ 4,471
$ 17,926
$ 1,464
$ (19,390)
$ 4,471
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Statements of Operations Fiscal Year Ended April 30, 2003 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
Revenues
Operating expenses:
Cost of operations
General and administration
Depreciation and amortization
Impairment charge
Operating income
Other expense/(income), net:
Interest income
Interest expense
(Income) loss from equity method investments
Minority interest
Other expense/(income), net
Other expense, net
Income (loss) from continuing operations before
income taxes, discontinued operations, extraordinary
loss and cumulative effect of change in accounting
principle
Provision (benefit) for income taxes
$ —
$ 416,777
$ 13,949
$ (9,863)
$ 420,863
(926)
(3)
1,812
400
1,283
(1,283)
(27,864)
26,826
50,277
—
1,420
275,747
55,227
43,849
4,464
379,287
37,490
(3,398)
30,450
(2,073)
—
(2,536)
50,659
22,443
13,389
548
2,269
—
16,206
(2,257)
(160)
400
—
(152)
(483)
(395)
(9,863)
—
—
—
(9,863)
—
31,104
(31,104)
(50,277)
—
—
(50,277)
278,347
55,772
47,930
4,864
386,913
33,950
(318)
26,572
(2,073)
(152)
(1,599)
22,430
(51,942)
5,696
15,047
—
(1,862)
(404)
50,277
—
11,520
5,292
Income (loss) from continuing operations before
discontinued operations, extraordinary loss and
cumulative effect of change in accounting principle
Reclassification from discontinued operations, net
Extraordinary loss, net
Cumulative effect of change in accounting principle, net
Net income (loss)
Preferred stock dividend
(57,638)
—
(2,170)
—
(59,808)
3,094
15,047
50
—
(63,916)
(48,819)
—
(1,458)
—
—
—
(1,458)
—
50,277
—
—
—
50,277
—
6,228
50
(2,170)
(63,916)
(59,808)
3,094
Net income (loss) available to common stockholders
$ (62,902)
$ (48,819)
$ (1,458)
$ 50,277
$ (62,902)
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows Fiscal Year Ended April 30, 2001 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
Net Cash Provided by (Used In) Operating Activities
(27,717)
91,394
(1,960)
1,544
63,261
Cash Flows from Investing Activities
Acquisitions, net of cash acquired
Proceeds from divestitures, net of cash divested
Additions to property, plant and equipment
Proceeds from sale of equipment
Proceeds from sale of Bangor Hydro warrants
Advances to unconsolidated entities
—
—
—
(3,626)
—
6,718
—
(9,331)
15,814
(58,583)
2,298
—
(9,546)
Net Cash (Used In) Provided by Investing Activities
3,092
(59,348)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Principal payments on long-term debt
Proceeds from the issuance of series A
redeemable, convertible preferred stock, net
Intercompany borrowings
Other
Net Cash Provided by (Used In) Financing Activities
Cash (used in) provided by discontinued operations
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents, beginning of period
48,694
(34,597)
54,741
(34,192)
259
34,905
3,016
13,296
(449)
896
(52,734)
—
35,513
1,506
(14,819)
(15,264)
1,963
6,579
Cash and cash equivalents, end of period
$ 12,847
$ 8,542
—
691
—
—
691
—
—
—
223
223
—
(1,046)
1,658
$ 612
—
—
—
—
—
—
—
—
(1,544)
(1,544)
—
—
—
(9,331)
15,814
(61,518)
2,298
6,718
(9,546)
(55,565)
49,590
(87,331)
54,741
—
1,765
18,765
(12,248)
14,213
7,788
$ —
$ 22,001
Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows Fiscal Year Ended April 30, 2002 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
Net Cash Provided by (Used In) Operating Activities
$ (10,523)
$ 77,115
$ (401)
$ 1,496
$ 67,687
Cash Flows from Investing Activities:
Proceeds from divestitures, net of cash divested
Additions to property, plant and equipment
Other
(647)
3,530
31,216
(36,986)
(1,578)
(41)
(5,027)
Net Cash (Used In) Provided by Investing Activities
2,883
(7,348)
(5,068)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Principal payments on long-term debt
Proceeds from exercise of stock options
Intercompany borrowings
Net Cash (Used In) Provided by Financing Activities
Cash (used in) provided by discontinued operations
Net (decrease) increase in cash and cash
equivalents
Cash and cash equivalents, beginning of period
70,984
(141,103)
3,560
64,955
(1,604)
759
(8,485)
12,847
—
(5,710)
—
(68,425)
(74,135)
(6,551)
(10,919)
8,542
2,400
(196)
—
4,966
7,170
—
1,701
612
Cash and cash equivalents, end of period
$ 4,362
$ (2,377)
$ 2,313
—
—
—
—
—
—
(1,496)
(1,496)
—
—
—
$ —
31,216
(37,674)
(3,075)
(9,533)
73,384
(147,009)
3,560
—
(70,065)
(5,792)
(17,703)
22,001
$ 4,298
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Casella Waste Systems, Inc. and Subsidiaries
Condensed Consolidating Statements of Cash Flows Fiscal Year Ended April 30, 2003 (In thousands)
Assets
NON-
PARENT GUARANTORS GUARANTORS ELIMINATION CONSOLIDATED
Net Cash Provided by Operating Activities
$ 3,861
61,782
$ 2,534
$ (3,225)
$ 64,952
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired
Additions to property, plant and equipment
Other
(369)
(5,329)
(18,068)
(39,509)
4,114
(2,047)
—
Net Cash Used In Investing Activities
(5,698)
(53,463)
(2,047)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Principal payments on long-term debt
Deferred financing costs
Proceeds from exercise of stock options
Intercompany borrowings
376,737
(354,558)
(11,466)
460
(1,510)
2,541
(5,902)
—
—
105
1,243
(1,445)
—
—
(1,820)
Net Cash Provided by (Used In) Financing Activities
9,663
(3,256)
(2,022)
Net (decrease) increase in cash and
cash equivalents
Cash and cash equivalents, beginning of period
7,826
4,362
5,063
(2,377)
(1,535)
2,313
—
—
—
—
—
—
—
3,225
3,225
—
—
(18,068)
(41,925)
(1,215)
(61,208)
380,521
(361,905)
(11,466)
460
—
7,610
11,354
4,298
Cash and cash equivalents, end of period
$ 12,188
$ 2,686
$ 778
$ —
$ 15,652
2 4 . S U B S E Q U E N T E V E N T S
On May 1, 2003, the Company acquired the assets of All-Waste Services, located in Lebanon, New Hampshire for approximately $4.2
million. All-Waste Services provides waste and recyclables collection services.
In June 2003 the Company entered into a service agreement with the Town of Templeton, Massachusetts to construct and operate
the town's sanitary landfill. The landfill is expected to be permitted within a year to accept 500 tons a day of municipal solid waste and
operations will likely commence in the middle of calendar 2004.
On June 30, 2003, the Company transferred its domestic brokerage operations as well as a commercial recycling business to former
employees who had been responsible for managing those businesses, in exchange for notes receivable of approximately $5.0 million,
payable to the extent of cash flow of the businesses.
I T E M 9 . C H A N G E S I N A N D D I S A G R E E M E N T S W I T H A C C O U N TA N T S O N A C C O U N T I N G A N D
F I N A N C I A L D I S C L O S U R E
The information required with respect to changes in the Company's accountants was previously reported in the Current Report on Form
8-K of the Company filed on May 22, 2002 and in the Current Report on Form 8-K of the Company filed on June 18, 2002, and is
incorporated by reference into this Annual Report on Form 10-K.
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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 and Other Key Employees of the Company" in Item 1 of Part I of this Annual Report on Form 10-K and with
respect to equity compensation plan information which is set forth under "Equity Compensation Plan Information" below) have been
omitted from this Annual Report on Form 10-K, since the Company expects to file with the Securities and Exchange Commission, not
later than 120 days after the close of its fiscal year, a definitive proxy statement. The information required by Items 10, 11, 12 and 13 of
this Annual Report on Form 10-K, which will appear in the definitive proxy statement, is incorporated by reference into Part III of this
Annual Report on Form 10-K.
Equity Compensation Plan Information
The following table shows information about the securities authorized for issuance under the Company's equity compensation plans as of
April 30, 2003:
(A)
Number of Securities
to be Issued
Upon Exercise of
Outstanding Options and
Warrants (1)
(B)
Weighted-Average
Exercise Price of
Outstanding
Options
and Warrants
(C)
Number of Securities Remaining
Available for Future Issuance
Under Equity Compensation
Plans (excluding securities
reflected in column (a)(2)
4,043,159
255,000
4,298,159
$ 13.22
$ 2.00
$ 12.55
1,167,094 (3)
—
1,167,094 (3)
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans
not approved by security holders
Total
(1) This table excludes an aggregate of 81,586 shares issuable upon exercise of outstanding options assumed by the Company in connection with its
acquisition of KTI, Inc. The weighted average exercise price of the excluded options is $22.42.
(2) In addition to being available for future issuance upon exercise of options that may be granted after April 30, 2003, 614,475 shares under the
Company's Amended and Restated 1997 Stock Incentive Plan, of the 1,167,094 reflected in column (c), may instead be issued in the form of
restricted stock or other equity-based awards.
(3) Includes 495,619 shares issuable under the Company's 1997 Employee Stock Purchase Plan, of which 17,798 were issued in connection with the most
recent offering period, which ended on June 30, 2003.
A description of the material terms of the equity compensation plans not approved by the Company's security holders is included in
Note 14 "Stockholders' Equity" to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
I T E M 1 4 . C O N T R O L S A N D P R O C E D U R E S
a) Evaluation of disclosure controls and procedures.
Based on their evaluation of the Company's disclosure controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934) as of a date within 90 days of the filing date of this Annual Report on Form 10-K, the Company's chief
executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures are designed to
ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and are operating in an
effective manner.
b) Changes in internal controls. Not applicable.
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I T E M 1 5 . E X H I B I T S , F I N A N C I A L S TAT E M E N T S C H E D U L E S A N D R E P O R T S O N F O R M 8 - K
(a)(1) Consolidated Financial Statements included under Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets as of April 30, 2002 and 2003
Consolidated Statements of Operations for the fiscal years 2001, 2002, and 2003.
Consolidated Statements of Stockholders' Equity for the fiscal years 2001, 2002, and 2003.
Consolidated Statements of Cash Flows for the fiscal years 2001, 2002, and 2003.
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules:
Schedule II —Valuation and Qualifying Accounts
(a)(3) Exhibits:
The Exhibits that are filed as part of this Annual Report on Form 10-K or that are incorporated by reference herein are set forth in
the Exhibit Index hereto.
(b) Reports on Form 8-K
During the quarter ended April 30, 2003 the Company filed no reports on Form 8-K.
(c)
The Exhibits that are filed as part of this Annual Report on Form 10-K or that are incorporated by reference herein are set forth in
the Exhibit Index hereto.
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
Chairman and Chief Executive Officer
Date: July 23, 2003
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date indicated.
SIGNATURE
TITLE
DATE
/s/ John W. Casella
John W. Casella
Chairman of the Board of Directors and
Chief Executive Officer (Principal Executive Officer)
July 23, 2003
/s/ James W. Bohlig
James W. Bohlig
President and Chief Operating Officer, Director
July 23, 2003
/s/ Richard A. Norris
Richard A. Norris
Senior Vice President and Chief Financial
Officer (Principal Accounting and Financial Officer)
July 23, 2003
/s/ Douglas R. Casella
Douglas R. Casella
/s/ John F. Chapple III
John F. Chapple III
/s/ Gregory B. Peters
Gregory B. Peters
/s/ James F. Callahan, Jr.
James F. Callahan, Jr.
/s/ Wilbur L. Ross, Jr.
Wilbur L. Ross, Jr.
/s/ D. Randolph Peeler
D. Randolph Peeler
/s/ Monte R. Haymon
Monte R. Haymon
Director
Director
Director
Director
Director
Director
Director
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July 23, 2003
July 23, 2003
July 23, 2003
July 23, 2003
July 23, 2003
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C E RT I F I C AT I O N S
I, John W. Casella, certify that:
1. I have reviewed this annual report on Form 10-K of Casella Waste Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By:
/s/ John W. Casella
John W. Casella
Chief Executive Officer
Date: July 23, 2003
C E RT I F I C AT I O N S
I, Richard A. Norris, certify that:
1. I have reviewed this annual report on Form 10-K of Casella Waste Systems, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this annual report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the
filing date of this annual report (the "Evaluation Date"); and
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c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
By:
/s/ Richard A. Norris
Richard A. Norris
Chief Financial Officer
Date: July 23, 2003
E X H I B I T I N D E X
EXHIBIT NO.
DESCRIPTION
2.1
3.1
3.3
4.1
4.2
4.3
Agreement and Plan of Merger dated as of January 12, 1999 and as amended by Amendments No. 1, 2 and 3 thereto,
among Casella Waste Systems, Inc. ("Casella"), KTI, Inc. ("KTI") and Rutland Acquisition Sub, Inc. (incorporated herein
by reference to Annex A to the registration statement on Form S-4 as filed November 12, 1999 (file no. 333-90913)).
Amended and Restated Certificate of Incorporation of Casella (incorporated herein by reference to Exhibit 4.1 to the
registration statement on Form S-8 of Casella as filed November 18, 1998 (file no. 333-67487)).
Second Amended and Restated By-Laws of Casella (incorporated herein by reference to Exhibit 3.1 to the current
report on Form 8-K of Casella as filed August 18, 2000 (file no. 000-23211)).
Form of stock certificate of Casella Class A common stock (incorporated herein by reference to Exhibit 4 to
Amendment No. 2 to the registration statement on Form S-1 of Casella as filed October 9, 1997 (file no. 333-33135)).
Certificate of Designation creating Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit
4.1 to the current report on Form 8-K of Casella as filed August 18, 2000 (file no. 000-23211)).
Indenture, dated January 24, 2003, by and among Casella Waste Systems, Inc., the Guarantors named therein and
U.S. Bank National Association, as Trustee, relating to the 9.75% Senior Subordinated Notes due 2013, including the
form of 9.75% Senior Subordinated Note (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K of
Casella as filed January 24, 2003 (file no. 000-23211)).
4.4
Exchange and Registration Rights Agreement, dated January 21, 2003, by and among Casella Waste Systems, Inc.,
the Guarantors listed therein and Purchasers listed therein, relating to the 9.75% Senior Subordinated Notes due 2013
(incorporated herein by reference to Exhibit 4.2 to the registration statement on Form S-4 of Casella as filed on
February 11, 2003 (file no. 333-103106)).
10.1
10.2
10.3
10.4
1993 Incentive Stock Option Plan (incorporated herein by reference to Exhibit 10.1 to the registration statement on
Form S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
1994 Nonstatutory Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to the registration statement on
Form S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
1996 Stock Option Plan (incorporated herein by reference to Exhibit 10.3 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
1997 Non-Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.5 to Amendment No. 1
to the registration statement on Form S-1 of Casella as filed September 24, 1997 (file no. 333-33135)).
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10.5
10.6
Amended and Restated 1997 Stock Incentive Plan (incorporated herein by reference to the Definitive Proxy Statement
on Schedule 14A of Casella as filed September 21, 1998).
1995 Registration Rights Agreement between Casella and the stockholders who are a party thereto, dated as of
December 22, 1995 (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.7
Warrant to Purchase Common Stock of Casella granted to John W. Casella, dated as of July 26, 1993 (incorporated
herein by reference to Exhibit 10.11 to Amendment No. 1 to the registration statement on Form S-1 of Casella as filed
September 24, 1997 (file no. 333-33135)).
10.8
Warrant to Purchase Common Stock of Casella granted to Douglas R. Casella, dated as of July 26, 1993
(incorporated herein by reference to Exhibit 10.12 to Amendment No. 1 to the registration statement on Form S-1 of
Casella as filed September 24, 1997 (file no. 333-33135)).
10.9
Lease Agreement, as Amended, between Casella Associates and Casella Waste Management, Inc., dated December
9, 1994 (Rutland lease) (incorporated herein by reference to Exhibit 10.17 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.10
Lease Agreement, as Amended, between Casella Associates and Casella Waste Management, Inc., dated December
9, 1994 (Montpelier lease) (incorporated herein by reference to Exhibit 10.18 to the registration statement on Form S-
1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.11
Lease, Operations and Maintenance Agreement between CV Landfill, Inc. and the Registrant dated June 30, 1994
(incorporated herein by reference to Exhibit 10.20 to the registration statement on Form S-1 of Casella as filed August
7, 1997 (file no. 333-33135)).
10.12
Restated Operation and Management Agreement by and between Clinton County (N.Y.) and the Registrant dated
September 9, 1996 (incorporated herein by reference to Exhibit 10.21 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.13
Labor Utilization Agreement by and between Clinton County (N.Y.) and the Registrant dated August 7, 1996
(incorporated herein by reference to Exhibit 10.22 to the registration statement on Form S-1 of Casella as filed August
7, 1997 (file no. 333-33135)).
10.14
Lease and Option Agreement by and between Waste U.S.A., Inc. and New England Waste Services of Vermont, Inc.,
dated December 14, 1995 (incorporated herein by reference to Exhibit 10.23 to the registration statement on Form S-
1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.15
Amendment No. 2 to Lease Agreement, by and between Casella Associates and Casella Waste Management, Inc.,
dated as of November 20, 1997 (Rutland lease). (incorporated herein by reference to Exhibit 10.25 to the registration
statement on Form S-1 of Casella as filed on June 25, 1998 (file no. 333-57745)).
10.16
Amendment No. 1 to Stock Option Agreement, dated as of May 12, 1999, by and between KTI, Inc. and the
Registrant (incorporated herein by reference to the current report on Form 8-K of Casella as filed May 13, 1999 (file
no. 000-23211)).
10.17
Power Purchase Agreement between Maine Energy Recovery Company and Central Maine Power Company dated
January 12, 1984, as amended (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form
S-4 of KTI as filed October 18, 1994 (file no. 33-85234)).
10.18
Host Municipalities' Waste Handling Agreement among Biddeford-Saco Solid Waste Committee, City of Biddeford,
City of Saco and Maine Energy Recovery Company dated June 7, 1991 (incorporated herein by reference to Exhibit
10.10 to the registration statement on Form S-4 of KTI as filed October 18, 1994 (file no. 33-85234)).
10.19
Form of Maine Energy Recovery Company Waste Handling Agreement (Town of North Berwick) dated June 7, 1991
and Schedule of Substantially Identical Waste Disposal Agreements (incorporated herein by reference to Exhibit 10.11
to the registration statement on Form S-4 of KTI as filed October 18, 1994 (file no. 33- 85234)).
10.20
Third Amendment to Power Purchase Agreement between Maine Energy Recovery Company, L.P. and Central Maine
Power Company dated November 6, 1995. (incorporated herein by reference to Exhibit 10.38 to the registration
statement on Form S-4 as filed November 12, 1999 (file no. 333-90913)).
10.21
Non-Exclusive License to Use Technology between KTI and Oakhurst Technology, Inc. dated December 29, 1998
(incorporated herein by reference to Exhibit 4.5 to the current report on Form 8-K of KTI as filed January 15, 1999 (file
no. 000-25490)).
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10.22
Management Compensation Agreement between Casella Waste Systems, Inc. and John W. Casella dated December
8, 1999 (incorporated herein by reference to Exhibit 10.43 to the annual report on Form 10-K of Casella as filed
August 4, 2000 (file no. 000-23211)).
10.23
Management Compensation Agreement between Casella Waste Systems, Inc. and James W. Bohlig dated December
8, 1999 (incorporated herein by reference to Exhibit 10.44 to the annual report on Form 10-K of Casella as filed
August 4, 2000 (file no. 000-23211)).
10.24
Preferred Stock Purchase Agreement, dated as of June 28, 2000, by and among the Company and the Purchasers
identified therein (incorporated herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed
August 18, 2000 (file no. 000-23211)).
10.25
Registration Rights Agreement, dated as of August 11, 2000, by and among the Company and the Purchasers
identified therein (incorporated herein by reference to Exhibit 10.2 to the current report on Form 8-K of Casella as filed
August 18, 2000 (file no. 000-23211)).
10.26
10.27
10.28
KTI, Inc. 1994 Long-Term Incentive Award Plan (incorporated herein by reference to Exhibit (d)(3) to the Schedule TO
of Casella as filed July 2, 2001 (file no. 000-23211)).
KTI, Inc. Non-Plan Stock Option Terms and Conditions (incorporated herein by reference to Exhibit (d)(4) to the
Schedule TO of Casella as filed July 2, 2001 (file no. 000-23211)).
Management Compensation Agreement between Casella Waste Systems, Inc. and Charles E. Leonard dated June 18,
2001 (incorporated herein by reference to Exhibit 10.39 to the annual report on Form 10-K of Casella as filed on July
12, 2002 (file no. 000-23211)).
10.29
Management Compensation Agreement between Casella Waste Systems, Inc. and Richard Norris dated July 20, 2001
(incorporated herein by reference to Exhibit 10.40 to the annual report on Form 10-K of Casella as filed on July 12,
2002 (file no. 000-23211)).
10.30
US GreenFiber LLC Limited Liability Company Agreement, dated June 26, 2000, between U.S. Fiber, Inc. and
Greenstone Industries, Inc. (incorporated herein by reference to Exhibit 10.41 to the annual report on Form 10-K of
Casella as filed on July 12, 2002 (file no. 000-23211)).
10.31
Purchase Agreement, dated August 17, 2001, by and among Crumb Rubber Investors Co., LLC, Casella Waste
Systems, Inc. and KTI Environmental Group, Inc. (incorporated herein by reference to Exhibit 10.42 to the annual report
on Form 10-K of Casella as filed on July 12, 2002 (file no. 000-23211)).
10.32
Purchase Agreement, dated August 17, 2001, by and among New Heights Holding Corporation, KTI, Inc., KTI
Operations, Inc. and Casella Waste Systems, Inc. (incorporated herein by reference to Exhibit 10.43 to the annual
report on Form 10-K of Casella as filed on July 12, 2002 (file no. 000-23211)).
10.33
Form of Non-Plan Non-Statutory Stock Option Agreement as issued by Casella Waste Systems, Inc. to certain
individuals as of May 25, 1994 (incorporated herein by reference to Exhibit 10.44 to the annual report on Form 10-K of
Casella as filed on July 12, 2002 (file no. 000-23211)).
10.34
Second Amended and Restated Revolving Credit and Term Loan Agreement, dated January 24, 2003, by and among
Casella Waste Systems, Inc. and its Subsidiaries (other than Excluded Subsidiaries), the lending institutions party
thereto and Fleet National Bank, individually and as administrative agent, and Bank of America, N.A., individually and as
syndication agent, with Fleet Securities, Inc. and Banc of American Securities LLC acting as Co-Arrangers
(incorporated herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed on January 24,
2003 (file no. 000-23211)).
Construction, Operation and Management Agreement between New England Waste Services of Massachusetts, Inc.
and the Town of Templeton, Massachusetts.
Amendment No. 1 and Release to Second Amended and Restated Revolving Credit and Term Loan Agreement.
Subsidiaries of Casella Waste Systems, Inc.
Consent of PricewaterhouseCoopers LLP.
Statement Pursuant to 18 U.S.C.-1350.
Statement Pursuant to 18 U.S.C.-1350.
10.35
10.36
21.1
23.1
99.1
99.2
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R E P O RT O F I N D E P E N D E N T A U D I T O R S O N F I N A N C I A L S TAT E M E N T S C H E D U L E S
To the Board of Directors and Stockholders of Casella Waste Systems, Inc.:
Our audits of the consolidated financial statements referred to in our report dated July 22, 2003 appearing in this Annual Report on Form
10-K also included an audit of the financial statement schedules as of and for the three years ended April 30, 2003 listed in Item 15(a)(2)
of this Form 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements.
By:
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
Date: July 22, 2003
F I N A N C I A L S TAT E M E N T S C H E D U L E S
Schedule II Valuation Accounts
Allowance for Doubtful Accounts (in thousands)
April 30,
Balance at beginning of period
Additions—Charged to expense
Deductions—Bad debts written off, net of recoveries
Balance at end of period
Restructuring
(in thousands)
April 30,
Balance at beginning of period
Additions—Charged to expense
Deductions—Amounts paid
Balance at end of period
2001
$ 5,371
3,105
(3,572)
$ 4,904
2002
$ 4,904
(895)
(3,188)
$ 821
2003
$ 821
798
(724)
$ 895
2001
$ —
4,151
—
$ 4,151
2002
2003
$ 4,151
(438)
(3,676)
$ 37
$ 37
—
37
$ —
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T H E C R E A T
I O N O F
V A L U E
BOARD OF
John W. Casella
Chairman, Chief Executive Officer
& Secretary
John F. Chapple III
President,
Marlin Management Services
Douglas R. Casella
Vice Chairman
President, Casella Construction, Inc.
Gregory B. Peters
Managing General Partner,
Lake Champlain
Capital Management, LLC
James W. Bohlig
President & Chief Operating Officer
D. Randolph Peeler
Managing Director,
Berkshire Partners, LLC
James F. Callahan, Jr.
Retired Partner,
Arthur Andersen, LLP
INFORMATION
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Transfer Agent & Registrar
EquiServe Trust Company N.A.
150 Royal Street
Boston, MA 02021
Stock Exchange
Casella Waste Systems, Inc.,
is traded on the NASDAQ
National Market under the
ticker symbol “CWST.”
Annual Meeting of Shareholders
Killington Grand Hotel
Killington, VT
Tuesday, October 14, 2003
10:00 a.m.
Casella Waste Systems
25 Greens Hill Lane
Rutland, VT 05701
Toll Free: (800) 227-3552
Telephone: (802) 775-0325
Direct inquiries to:
Joseph S. Fusco
Telephone: (802) 775-0325
E-mail: joe.fusco@casella.com
Auditors
PricewaterhouseCoopers, LLP
One International Place
Boston, MA 02110
COMPANY
John W. Casella
Chairman & Chief Executive Officer
Timothy A. Cretney
Regional Vice President
James W. Bohlig
President & Chief Operating Officer
Charles E. Leonard
Senior Vice President,
Solid Waste Operations
Richard A. Norris
Senior Vice President &
Chief Financial Officer
Sean P. Duffy
Regional Vice President
James M. Hiltner
Regional Vice President
Alan N. Sabino
Regional Vice President
107
107
Michael J. Brennan
Vice President & General Counsel
Christopher M. DesRoches
Vice President, Sales
Joseph S. Fusco
Vice President, Communications
Gerry Gormley
Vice President, Human Resources
Christopher Hubbard
Vice President, Information Systems
Larry B. Lackey
Vice President, Permits,
Compliance & Engineering
Gary R. Simmons
Vice President, Fleet Management