2007
Annual
Report
FSC Mixed Sources
Products with an FSC Mixed
Sources label support the
development of responsible
forest management
worldwide. The wood comes
from FSC-certified well-
managed forests, company
controlled sources and/or
recycled material.
Company controlled sources
are controlled, in accordance
with FSC standards, to
exclude illegally harvested
timber, forests where high
conservation values are
threatened, genetically
modified organisms, and
violation of people’s civil and
traditional rights.
C
a
s
e
l
l
a
W
a
s
t
e
S
y
s
t
e
m
s
,
I
n
c
.
2
0
0
7
A
n
n
u
a
l
R
e
p
o
r
t
25 greens hill lane
rutland, vermont 05701
(802) 775-0325
(802) 775-6198 fax
casella.com
1
Annual Report 2007
Planning for Tomorrow
Throughout this annual report you will find the
customers wanted to recycle materials; (2) there
word “sustainability” used to describe our
was a viable business model that supported the
business model; our relationships with our
entry; and (3) we believed that the business would
customers, communities and employees; and our
have positive societal and environmental impacts
approach to environmental services.
that would ultimately translate into increased
Use of the term “sustainability” has grown
business opportunities and activity.
recently as our society grasps for new vocabulary
As a small business in 1977, we were
to describe the intricate balance required to
acutely aware of the needs and demands
meet today’s needs without compromising
of our customers, our communities and the
future needs.
environment. Meeting those evolving needs was
The concept of sustainability is not new to
our daily passion and business mission. We acted
Casella. For over thirty years
consistent with our instincts; adhered to simple,
the foundation of our
business has been built on
managing and conserving
environmental resources
for our customers and
communities in a viable
economic model.
In 1977, we
built and opened
the first recycling
center in Vermont, an
early implementation
of an environmentally
and socially sustainable
component to our
overall business model.
We entered the recycling
business because: (1) our
timeless standards; and listened to
our customers.
We are a much
larger organization
today; however,
this very same
passion for listening
still defines our
business approach –
listening to customers,
and also listening
and thinking about
what the future of
our industry might
look like.
Casella Waste Systems, Inc. Annual Report 2007
2
Disposal Capacity:
Building Value Today
We spent all of fiscal 2007 and expect to
spend fiscal 2008 purposefully and strategically
leveraging the drivers in our business that
create value.
Disposal capacity is one of those drivers.
In fiscal year 2003, we set a goal to expand our
long-term disposal foundation in our northeastern
resource management approaches to the solid
waste disposal needs of municipalities.
Our SEEDTM (Sustainable Environmental and
Economic Development) program was conceived
of and implemented as a framework to develop
Total Landfill Capacity1
(millions of tons)
94.1
81.7
86.7
U.S. solid waste footprint. This was an ambitious
65.6
goal in a market where disposal capacity has
not been added at a rate fast enough to meet
increased waste generation over the past
29.6
fifteen years.
As a result of limited disposal capacity, each
year millions of tons of waste are exported from
the northeast to distant landfill sites. Today, the
rising costs of energy and transportation make
it vitally important to provide our customers and
communities with in-market disposal capacity to
meet their needs.
2003
2004
2005
2006
2007
Fiscal year ending April 30,
1 Total Landfill Capacity excludes Maine Energy Waste-to-Energy
facility (MERC) and all landfill closure projects.
To achieve our development goal, we sought
disposal capacity in a way in which the interests of
to differentiate ourselves in the solid waste
all stakeholders are aligned. Because the concept
market by linking recycling and other
has proven attractive to local policymakers, we
leading-edge
have won four landfill
operating contracts, adding
significant long-term
disposal capacity to our
franchise. Since April
30, 2003, we have
added 64.5 million
tons of permitted and
permittable landfill
capacity to our solid
3
3.8
0.9
2010
Projected
waste business, bringing the total permitted and
permittable landfill capacity to 94.1 million tons as
of April 30, 2007—a significant achievement in just
four short years.
Our long-term landfill operating contract
with Ontario County exemplifies the success
of the SEED™ program. Beyond the municipal
solid waste landfill, the Ontario County facility
includes state-of-the-art single-stream recycling,
Annual Landfill Disposal Capacity1
(millions of tons)
2.9
2.9
2.6
1.9
1.4
landfill-gas-to-energy, glass beneficiating, and
2003
2004
2005
2006
2007
economic and community development projects.
The majority of our landfill sites have permits
Fiscal year ending April 30,
that limit the amount of waste that can be placed
at the site in a year or other specified time
period. Our strategic focus has now shifted from
developing total landfill capacity to increasing
1 Annual Landfill Disposal Capacity excludes MERC and all landfill
closure projects.
annual permitted capacity and converting one of
the annual capacity by over 900,000 tons at
our C&D (construction and demolition) landfills
our existing landfill facilities. The addition of
to a MSW (municipal solid waste) landfill. Since
this incremental annual permitted capacity is
April 30, 2003, we have added 1.5 million tons of
an important step forward in our strategy
annual landfill disposal capacity, bringing the total
to harvest the value inherent in our disposal
to 2.9 million as of April 30, 2007. Operating at
infrastructure because it will increase cash
today’s annual disposal capacity, we have on
flows, enabling us to de-lever the balance sheet,
average over 30 years of landfill life and cash
increase the return on landfill investments, and
flows at our existing facilities.
drive overall margin expansion.
We are currently in various stages of
permitting aimed at increasing
Casella Waste Systems, Inc. Annual Report 2007
4
Taking Costs Out of
Our Business
Labor and Risk Management Costs1
(as a percentage of revenues)
20.7%
20.3%
During the past four years we have implemented
standardized performance and efficiency
enhancement programs that have aimed to give
our people the right tools to excel in their roles.
Our increased focus on building the skills of our
people has yielded significant results in reduced
fleet accidents and workman’s compensation
claims, reduced employee turnover and increased
productivity. Collectively, these programs are
19.1%
18.8%
18.2%
2003
2004
2005
2006
2007
Fiscal year ending April 30,
making the workplace safer and more
efficient—and reducing costs.
1 Labor and risk management costs include: direct labor
and benefits; facilities labor and benefits; and workman’s
compensation, auto, and facility insurance..
As a result of these efforts, direct labor and
risk management costs are down as a percentage
of revenue over the past four years.
This year we are focused on driving cost
The Future of our Industry
reductions through maintenance standardization,
We believe that our industrialized society is
procurement rationalization, and market area
moving away from resource “consumption”
restructuring. Our people are committed to
towards “conservation, contribution and
innovation and we are capturing their best ideas
sustainability” as an approach to natural and
to improve customer service, make the workplace
economic resource management.
safer, and reduce the cost of doing business.
As a result, we also believe that the world
will demand, and reward, very different skills and
capabilities from our industry in the next few
decades. Our industry can no longer purely rely on
a business model that depends on its customers
consuming, and then
disposing of, limited
resources and
materials. It is simply
not sustainable.
Waste is a
resource for
producing
5
renewable energy
investing in resource
and a raw material for manufacturing
management
new products. We see “waste management”
programs that create value by transforming
transitioning towards “resource management.”
traditional waste streams into resources.
Already, many of our customers are starting
Today, investments in GreenFiber, LLC
to view their waste streams much like their
(“GreenFiber”); New England Organics (“NEO”);
supply chains: anywhere there is waste, there is
single-stream recycling, RecycleBank, LLC
increased cost and reduced efficiency. We are
(“RecycleBank”); glass beneficiating; and
building resource management programs that will
landfill-gas-to-energy are excellent examples of
help companies reduce costs while building their
how we are creating sustainable value beyond
business reputation through implementation of
traditional landfill disposal.
environmentally and socially-sound programs to
GreenFiber has successfully built a business
reduce waste, increase the recyclability of their
model that closes the loop between recycling and
products, increase facility recycling, and reduce
manufacturing. Each year, GreenFiber produces
greenhouse gas emissions.
cellulose insulation for residential housing from
With the introduction of our SEED™
over 1 billion pounds of recycled old newspapers.
program, we have witnessed a shift in how
Using recycled raw materials gives GreenFiber
our disposal facilities are viewed by many
a competitive advantage over traditional
communities. Historically, landfills have been
fiberglass insulation because of the low energy
generally perceived as a liability by communities.
requirements to manufacture
Through our investment of time and capital to
build a sustainable infrastructure around our
disposal projects, we have helped to shift this
belief system to one in which communities today
often view solid waste infrastructure as an asset
in the community that adds sustainable economic
and environmental value.
As our industry’s paradigm shifts from
“consumption” to “sustainability,” we have been
preparing ourselves for the last several years by
Casella Waste Systems, Inc. Annual Report 2007
6
cellulose insulation, the
low greenhouse gas emissions, the ability to
co-locate manufacturing facilities with recycling
processing facilities eliminating the transportation
of raw materials, and the brand equity gained from
same market pressures to change their
a green building product. GreenFiber’s successful
behavior and recycle more waste. RecycleBank,
business model serves as a great proxy for other
in which we have made an investment of time
industries seeking to close the loop between
and funds, is changing this dynamic with a
manufacturing and recycling.
market-based solution that provides compelling
Another Casella business that has
economic incentives to consumers to recycle
successfully closed the loop between
more household waste.
recycling and manufacturing value-added
RecycleBank has built an innovative
products is New England Organics (NEO). NEO
incentive-based recycling business model that
uses leading-edge technologies to transform
increases participation in municipal recycling
organic wastes into renewable products for farm
programs by providing residential participants
fertilization and landscaping. NEO transforms
with marketing partner rewards from companies
traditional organic waste streams, including short
such as Staples, Starbucks, Coca-Cola, Patagonia,
paper fiber, ash, wood wastes, food wastes,
and Home Depot. The program integrates single-
biosolids and compost into organic renewable
stream recycling technology (making recycling
products. NEO’s earthlifeTM brand compost, soil,
much easier for the consumer) with a
and mulch products are used in landscaping, at
proprietary curbside
sports fields, and in land reclamation projects
across the northeast.
While our commercial customers react
to the pressures of globalization and adjust
their business models to better manage
resources, residential consumers
historically have not felt the
7
RFID weighing system. Over 250 local and
resource management strategy in the future.
national partners provide point of service coupons
Innovation and development will occur around
to “reward” participants for their participation
existing solid waste infrastructure. Our challenge
in the program. The program is in the pilot stage
is to provide our customers with integrated
in Pennsylvania, Delaware, and New Jersey.
services that build value beyond disposal. Today,
We expect to bring the program into locations
recycling and landfill gas to energy are two
in Vermont and Massachusetts during fiscal
tangible expressions of this strategy; the future
year 2008.
will bring others.
Where we are headed…
And, while we are looking at the future,
we are committed to running the very best
solid waste services company possible
today—efficient, smart and leveraging the drivers
Much like we felt in 1977, we are certain the
of value and shareholder returns.
future of our industry will be radically different
over the next decade and beyond. Therefore,
The building blocks are squarely in place and
we have the people, resources, and passion to
we recognize a major responsibility to all our
make it happen.
stakeholders, including our shareholders, to
anticipate and prepare for those shifts which
Sincerely,
we believe are coming.
We have worked hard and invested wisely
in innovation to build the highest performing
recycling and resource management business in
John W. Casella
the solid waste industry. One fundamental truth
Chairman & Chief Executive Officer
underpins our strategy; sustainability only truly
August 31, 2007
works with a viable economic model.
Landfills are the foundation of the business
today and they will remain
the key platform for an
integrated
Casella Waste Systems, Inc. Annual Report 2007
8
Safe Harbor Statement
Certain matters discussed in this report are “forward-looking
of landfills and other disposal facilities is inherently risky and
statements” intended to qualify for the safe harbors from
is subject to political, regulatory, and other factors; we may
liability established by the Private Securities Litigation Reform
be unable to make acquisitions; we may be unable to reduce
Act of 1995. These forward-looking statements can generally be
costs sufficiently to achieve estimated EBITDA and other
identified as such by the context of the statements, including
targets; anticipated revenue may not materialize; continuing
words such as the Company “believes,” “expects,” “anticipates,”
weakness in general economic conditions and poor weather
“plans,” “may,” “will,” “would,” “intends,” “estimates” and other
conditions may affect our revenues; we may be required to
similar expressions, whether in the negative or affirmative.
incur capital expenditures in excess of our estimates; and
These forward-looking statements are based on current
fluctuations in the commodity pricing of our recyclables may
expectations, estimates, forecasts and projections about the
make it more difficult for us to predict our results of operations
industry and markets in which we operate and management’s
or meet our estimates. There are a number of other important
beliefs and assumptions. We cannot guarantee that we actually
risks and uncertainties that could cause our actual results to
will achieve the plans, intentions or expectations disclosed in
differ materially from those indicated by such forward-looking
the forward-looking statements made. Such forward-looking
statements. These risks and uncertainties include, without
statements, and all phases of our operations, involve a number
limitation, those detailed in Item 1A, “Risk Factors” in our Form
of risks and uncertainties, any one or more of which could
10-K for the year ended April 30, 2007, and in our most recently
cause actual results to differ materially from those described in
filed Form 10-Q. We do not necessarily intend to update
our forward-looking statements. Such risks and uncertainties
publicly any forward-looking statements whether as a result of
include or relate to, among other things: prices for our services
new information, future events or otherwise.
fluctuate due to reasons beyond our control; the development
9
Shareholder Information
Annual Meeting of Shareholders
Killington Grand Hotel
Killington, VT
Tuesday, October 9, 2007
10:00 a.m.
Legal Counsel
Wilmer Cutler Pickering Hale and
Dorr, LLP
60 State Street
Boston, MA 02109
Casella Waste Systems
25 Greens Hill Lane
Rutland, VT 05701
Toll Free: (800) 227-3552
Telephone: (802) 775-0325
Direct inquiries to:
Ned Coletta
Telephone: (802) 775-0325
E-mail: ned.coletta@casella.com
Auditors
Vitale, Caturano & Company Ltd.
80 City Square
Boston, MA 02129
Transfer Agent & Registrar
Computershare
PO Box 43078
Providence, RI 02940-3078
Shareholder Inquiries:
(781) 575-2879
Stock Exchange
Casella Waste System, Inc.
is traded on the NASDAQ
Global Select Market under
the ticker symbol “CWST.”
Board of Directors
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
James F. Callahan, Jr.
Retired Partner, Arthur Andersen, LLP
Joseph G. Doody
President, North American Delivery, Staples, Inc.
D. Randolph Peeler
Managing Director, Berkshire Partners, LLC
James P. McManus
President & Chief Executive Officer,
The Hinckley Company
Company Officers
John W. Casella
Chairman,
Chief Executive Officer & Secretary
James W. Bohlig
President & Chief Operating Officer
Richard A. Norris
Senior Vice President,
Chief Financial Officer & Treasurer
Charles E. Leonard
Senior Vice President,
Solid Waste Operations
Christopher M. DesRoches
Vice President, Selection and Training
Gary R. Simmons
Vice President, Fleet Management
Joseph S. Fusco
Vice President, Communications
Timothy A. Cretney
Regional Vice President
Gerald P. Gormley
Vice President, Human Resources
Sean P. Duffy
Regional Vice President
William Hanley
Vice President, Sales & Marketing
Brian G. Oliver
Regional Vice President
Eric Reibsane
Vice President & Chief Information Officer
Alan N. Sabino
Regional Vice President
Donald A. Wallgren
Senior Vice President, Permitting,
Compliance, Engineering & Construction
Larry B. Lackey
Vice President, Permitting,
Compliance & Engineering
Michael J. Wall
Regional Vice President
David L. Schmitt
Vice President, General Counsel
Casella Waste Systems, Inc. Annual Report 2007
10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(cid:95)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2007
Or
(cid:134)
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 000-23211
CASELLA WASTE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
25 Greens Hill Lane, Rutland, VT
(Address of principal executive offices)
03-0338873
(I.R.S. Employer
Identification No.)
05701
(Zip Code)
Registrant’s telephone number, including area code: (802) 775-0325
Securities registered pursuant to Section 12(b) of the Act: Class A common stock, $.01 per share par value
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes (cid:134) No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes (cid:134) No (cid:95)
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
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 (cid:95)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
See definition of “accelerated filer and large accelerated filer” in rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer (cid:134)(cid:3)
Accelerated filer (cid:95)
Non-accelerated filer (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes (cid:134) No (cid:95)
The aggregate market value of the common equity held by non-affiliates of the registrant, based on the last reported
sale price of the registrant’s Class A common stock on the NASDAQ Stock Market at the close of business on October 31,
2006 was $252,131,836. The Company does not have any non-voting common stock outstanding.
There were 24,332,420 shares of Class A common stock, $.01 par value per share, of the registrant outstanding as of
May 31, 2007. There were 988,200 shares of Class B common stock, $.01 par value per share, of the registrant outstanding as
of May 31, 2007.
Documents Incorporated by Reference
Items 10, 11, 12, 13 and 14 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, because 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, 13 and 14 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.
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
CASELLA WASTE SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UNRESOLVED STAFF COMMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . .
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . . . . . . . .
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL AND
OPERATING DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS .
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . .
CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCORPORATED BY REFERENCE FROM DEFINITIVE
PROXY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
PART III.
ITEM 10, 11,
12, 13, 14.
PART IV.
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE. . . . . . . .
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . .
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
3
24
29
30
30
32
33
35
37
53
55
109
109
109
110
111
113
114
Forward Looking Statements
PART I
This Form 10-K and other reports, proxy statements, and other communications to stockholders, as
well as oral statements by our officers or our 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, our future revenues, operating income, or earnings per share. Without limiting the
foregoing, any statements contained in this Form 10-K that are not statements of historical fact may be
deemed to be forward-looking statements, and the words “believes”, “anticipates”, “plans”, “expects”, and
similar expressions are intended to identify forward-looking statements. There are a number of important
factors of which we are aware that may cause our actual results to vary materially from those forecasted or
projected in any such forward-looking statement, certain of which are beyond our control. Our failure to
successfully address any of these factors could have a material adverse effect on our results of operations.
ITEM 1. BUSINESS
Overview
Casella Waste Systems, Inc. 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 United States. Our Company was founded in 1975 as a single truck
operation in Rutland, Vermont and the business now operates in fourteen states. We operate vertically
integrated solid waste operations in Vermont, New Hampshire, New York, Massachusetts, and Maine; and
stand alone materials processing facilities in Pennsylvania, New Jersey, North Carolina, South Carolina,
Tennessee, Georgia, Florida, Michigan, and Wisconsin.
As of May 31, 2007, the Company owned and/or operated 38 solid waste collection operations,
32 transfer stations, 38 recycling facilities, eight Subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 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 and a 20.5%
common stock interest in a company that markets an incentive based recycling service.
The long-term vision of the organization is to build a highly sustainable and profitable company by
reinventing the way the world manages waste. We recognize that we live and operate in a closed-loop
environment. Many other businesses are recognizing this same fact as globalization consumes the world’s
resources and energy. Since we opened the first recycling facility in Vermont in 1977, our business strategy
has been firmly tied to creating a sustainable resource management model and we continue to be firmly
rooted in these same tenets today. Each day we strive to create long-term value for all our stakeholders:
our customers, our employees, our communities, and our shareholders, by helping our customers and
communities manage their resources in a sustainable and financially sound manner.
Strategy
During fiscal year 2007, after making significant progress with our landfill development growth
initiative, we entered the next phase of our long-term business strategy. Our primary focus has shifted from
new development projects to harvesting the cash flows from existing investments to repay debt. We believe
that this evolution will further enhance our position as the leading, vertically-integrated regional solid
waste services provider in the eastern United States.
From fiscal year 2003 through fiscal year 2007, we made strides in executing our landfill development
growth initiative by adding significant total and annual permitted disposal capacity within our solid waste
footprint, primarily through our partnership model. Total and annual disposal capacity additions resulted
from: (1) the addition of four new landfills (Southbridge landfill in Massachusetts; Ontario County landfill
3
in New York; Juniper Ridge landfill in Maine; and Chemung County landfill in New York); and (2) permit
expansions at our existing landfills. Since April 30, 2003, we have added 64.5 million tons of permitted and
permittable total landfill capacity to our solid waste business, bringing the total landfill capacity to 94.1
million tons as of April 30, 2007. During this same period, we have added 1.7 million tons of annual
disposal capacity bringing the total to 3.1 million as of April 30, 2007. We believe that this landfill capacity
is the core long-term foundation of the business.
Our operating and financial objectives going forward are to generate positive free cash flow and
increase shareholder returns by balancing the following objectives: (1) profitable revenue growth; (2) cost
reductions, continuous improvement, and innovation; and (3) efficient capital deployment.
Revenue Growth
We are focused on profitable revenue growth in three primary areas: (1) landfill development;
(2) pricing discipline and organic growth; and (3) accretive acquisitions.
Four years ago, we set an initiative to add disposal capacity to the solid waste franchise to strengthen
our market position and to create a sustainable long-term franchise. With the addition of this capacity, the
strategic emphasis has shifted to a focus on harvesting free cash flow and generating an appropriate return
on invested capital at the new and existing landfill sites. To increase the return on invested capital, we are
focused on: increasing annual permitted capacity; converting one C&D (construction and demolition)
landfill to a MSW (municipal solid waste) landfill; and increasing internalization of waste through better
integration of assets and increased penetration of existing markets.
Over the past two years, we have realigned the sales organization with the addition of a new Vice
President of Sales and the introduction of a new pricing discipline. Key elements of the program are:
pricing models for new and existing collection customers with profitability analysis at the account level; a
restructured account turnover tracking system; the introduction of a prospect database management
system; and realigned incentive compensation for the sales team.
To further enhance the return on solid waste and recycling investments, management is committed to
a tuck-in and strategic acquisition program. Tuck-in acquisitions are highly accretive because the acquired
customer accounts are added to existing routes to increase route density, asset utilization, and
internalization of waste to our landfill sites. Tuck-in acquisitions effectively increase the vertical integration
of the waste stream and maximize pricing control and cash flows. We will also look to opportunistically
acquire or operate strategically located solid waste or recycling operations that will further enhance the
current investment in our existing infrastructure.
Cost Reductions, Continuous Improvement, and Innovation
During the fourth quarter of fiscal year 2007, we began the process of consolidating select divisions
into a market area management structure. As we grew through acquisitions over the past 20 years, separate
management teams were maintained for many entities, adding cost and complexity to our business
structure. We believe that the market area restructuring will: (1) enable our managers to better manage
waste flows and service customers; (2) reduce management and accounting overhead costs; and
(3) streamline the accounting process and simplify Sarbanes-Oxley testing.
We continue to search for the best practices throughout our organization and implement these
solutions through standardized continuous improvement programs. The goals of these programs are to
enhance customer service, increase safety for our employees, and to reduce operating and administrative
costs. We have implemented continuous improvement programs in safety, productivity, maintenance,
customer service, environmental compliance, and procurement.
4
The main focal point of the continuous improvement programs is the emphasis on building our people
at all levels in the business. We have invested significant time and corporate resources in hiring the right
people, providing technical training and resources, and creating incentives to retain and reward our key
employees. Specific programs in leadership development, selection, driver and mechanic training, and
safety have given our people the right tools to excel in their roles.
Our Company believes that continuous improvement goes beyond what we are doing today as an
organization to make the workplace safer and to reduce costs; the concept is broader, and extends to the
challenge of continually adding value for our customers, employees, communities, and shareholders into
the future. To drive innovation at all levels of the organization, we have created an infrastructure to
capitalize on the innovative ideas of all employees.
An example is our ability to link recycling and transformational environmental approaches to meet the
constantly evolving resource management needs of communities, businesses and homeowners throughout
our operating regions. One of the most successful and innovative programs that we have introduced is the
SEED™ (Sustainable Environmental Economic Development) program. The SEED™ program seeks to
align the interests of all stakeholders around the development of a sustainable solid waste infrastructure.
We have successfully utilized this concept to win four landfill operating lease contracts during the past four
years, which have helped to build a long-term landfill franchise in our solid waste footprint.
Capital Deployment
Our deployment of capital has evolved with our business strategy during the past year from a focus on
growth capital to debt repayment and positive free cash flow generation. We are focused on three main
areas: (1) improving operations through divestitures, swaps or closures; (2) reducing growth capital
expenditures associated with existing landfill development; and (3) pursuing select strategic investment
opportunities.
During the fourth quarter of our fiscal year 2007, we announced a plan to divest, swap, or close
underperforming and non-strategic operations amounting to $22.0 million of annual revenues. The assets
are expected to be swapped or divested during the next fiscal year. In the central Massachusetts’ market,
our strategy is to migrate away from lower margin Construction & Demolition (C&D) business towards
higher margin MSW business. As a first step, on April 30, 2007, we divested our Holliston, Massachusetts
transfer station.
We have invested approximately $200.0 million of capital during the past four years to acquire and
develop strategically located landfill capacity. Capital spending was elevated during this period as we
built-out 25 to 30-year infrastructure and met contractual obligations associated with operating leases at
the landfill facilities. The heightened growth capital investment for existing landfill development projects is
largely completed and our focus has shifted to extracting appropriate returns from the invested capital.
Innovation and long-term strategic investments remain important to the organization, especially
within the context of the growing trend in society and business to recognize the importance of sustainability
and managing natural resources. We have built our business over the past 30 years by continually meeting
customer needs with solutions that add value to their businesses and communities. Investments in resource
management programs such as: single-stream recycling, landfill gas-to-energy projects, glass beneficiating,
and incentive based recycling: position our Company well for the evolution of our industry from waste
management to resource management.
5
Solid Waste Operations
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 19 MRFs in geographic areas not served by
our collection divisions or disposal facilities and four in geographic areas served by our collection divisions.
Revenues are received from municipalities and customers in the form of processing fees, 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
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 has 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, 2005, 2006 and 2007, for landfills we operated during the years then
ended:
Estimated
Remaining
Permitted
Capacity
in Tons
(1)
15,307
—
11,453
(2,527 )
1,448
25,681
April 30, 2005
Estimated
Additional
Permittable
Capacity
in Tons
(1)(2)
50,337
—
16,830
(11,453)
—
Estimated
Remaining
Permitted
Capacity
in Tons
(1)
25,681
1,243
—
349
(2,889)
April 30, 2006
Estimated
Additional
Permittable
Capacity
in Tons
(1)(2)
56,008
3,288
2,182
(349)
—
Estimated
Total
Capacity
81,689
4,531
2,182
—
(2,889)
Estimated
Remaining
Permitted
Capacity
in Tons
(1)
24,076
—
—
15,467
(2,904 )
April 30, 2007
Estimated
Additional
Permittable
Capacity
in Tons
(1)(2)
62,577
—
10,283
(15,864 )
—
Estimated
Total
Capacity
86,653
—
10,283
(397)
(2,904)
Estimated
Total
Capacity
65,644
—
16,830
—
(2,527)
294
56,008
1,742
81,689
(308)
24,076
1,448
62,577
1,140
86,653
513
37,152
(27 )
56,969
486
94,121
Balance, beginning of year . . . . .
Acquisitions(3) . . . . . . . . . . .
New expansions pursued(4) . .
Permits granted(5). . . . . . . . .
Airspace consumed . . . . . . . .
Changes in engineering
estimates . . . . . . . . . . . . . .
Balance, end of year . . . . . . . . .
(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) 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;
6
(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; and (v) senior management has approved the project.
(3)
The increase in fiscal year 2006 acquired airspace capacity is due to our Chemung landfill operating contract.
(4)
The increase in fiscal year 2005 is primarily due to a determination of additional permittable airspace capacity at our Hyland, Juniper Ridge and
Waste USA landfills. The increase in fiscal year 2006 is due to a determination of additional permittable airspace capacity at our Southbridge and
Clinton County landfills. The increase in fiscal year 2007 is primarily due to a determination of additional permittable airspace capacity at our
Ontario and Clinton County landfills. This caption does not include certain expansion capacity which we are seeking at our NCES landfill.
Because expansion capacity at our NCES landfill has been the subject of litigation, the capacity associated with the litigation, 1.1 million tons with
an estimated useful life of 8.0 years, has been omitted.
(5)
The increase in permitted airspace capacity in fiscal 2005 is associated with permits obtained at our Ontario, Juniper Ridge and Waste USA
landfill facilities. The increase in permitted airspace capacity in fiscal 2007 is associated with permits received at our Hyland, Hakes, Pine Tree
and Waste USA landfill facilities.
NCES. The North Country Environmental Services (“NCES”) landfill located in Bethlehem,
New Hampshire serves the wastesheds of New Hampshire and certain contiguous Vermont, Maine and
Massachusetts wastesheds. The facility is currently permitted to accept municipal solid waste and C&D
material with no annual permit cap. Since the purchase of this landfill in 1994, we have experienced
opposition from the local town through enactment of restrictive local zoning and planning ordinances. In
each case, in order to access additional capacity, we have been required to assert our rights through
litigation in the New Hampshire court system. In August 2005, we received approval for additional
permitted capacity within the original 51 acres, which we expect to last into fiscal year 2010. The site also
includes, as permittable airspace, an additional 1.1 million tons within the existing 51 acre footprint. This
will extend the site life by approximately eight years to 2018.
In addition, although we received state approval for an additional use of approximately 1.1 million
tons, outside the original 51 acres, our right to use that capacity has been limited by both a ruling of the
New Hampshire Supreme Court, which remains subject to litigation as a result of a partial remand of
certain outstanding issues back to the trial court, and the adoption of an ordinance by the Town in
March 2005 prohibiting expansion outside the original 51 acres, which is also the subject of on-going
litigation.
Waste USA. The Waste USA landfill is located in Coventry, Vermont and serves the major
wastesheds throughout Vermont. The landfill is permitted to accept 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 its capacity which we expect to last through
approximately fiscal year 2030. In fiscal year 2005, the annual permit was increased from 240,000 to
370,000 tons.
Clinton County. The Clinton County landfill, located in Schuyler Falls, New York, is leased from
Clinton County and the landfill serves the principal wastesheds of Clinton, Franklin, Essex, Warren,
Washington, and Saratoga 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. The facility is currently pursuing a multi-year landfill
expansion permitting process which, if successful, would provide considerable additional volume. We have
modified the lease agreement with the Town and County to accommodate permitted and permittable
airspace.
Pine Tree. The Pine Tree landfill is located in Hampden, Maine. It is a secure, special waste landfill,
permitted to accept construction and demolition debris, ash from municipal solid waste incinerators and
fossil fuel boilers, sandblast grits, oily waste and oil spill debris, non-friable asbestos, and other approved
special wastes. There are no tonnage limitations at Pine Tree Landfill. In November 2006 a phased closure
of the landfill was approved by the Town of Hampden and the Maine Department of Environmental
Protection, which will require cessation of waste acceptance by December 31, 2009. As of May 1, 2007,
7
potentially odiferous waste has been excluded from the landfill, including sludges, front-end processing
residues (“FEPR”), and bypass MSW.
Juniper Ridge. On February 5, 2004, we completed transactions with the State of Maine and Georgia-
Pacific, pursuant to which the State of Maine took ownership of the landfill located in West Old Town,
Maine, formerly owned by Georgia Pacific, and we became the operator of that facility under a 30 year
operating and services agreement between us and the State of Maine. The landfill was originally licensed in
1993 as a generator-owned landfill for disposal of pulp and papermaking residuals generated by the
Georgia-Pacific Mill, with an approved capacity of 3.3 million cubic yards. The Maine DEP permitted
6.9 million cubic yards of capacity in fiscal year 2005. The site is located on a 780-acre parcel of property
with 68 acres currently dedicated for waste disposal. The site has sufficient acreage within the 780 acres to
permit the additional airspace required for the term of the 30 year operating and services agreement. The
site is currently permitted to take construction and demolition debris, ash from municipal solid waste
incinerators and fossil fuel boilers, FEPR and bypass municipal solid waste (MSW) from waste-to-energy
facilities, treatment plant sludges and biosolids sandblast grits, oily waste and oil spill debris, and other
approved special wastes from within the state of Maine. There are no annual tonnage limitations at
Juniper Ridge landfill.
Southbridge. On November 25, 2003, we acquired Southbridge Recycling and Disposal Park, Inc.
(“Southbridge Recycling and Disposal”). Southbridge Recycling and Disposal has a contract with the
Town of Southbridge, Massachusetts to maintain and operate a 13-acre construction and demolition
recycling facility and a 52-acre landfill currently permitted to accept residuals from the recycling facility
and a limited amount of municipal solid waste. The contract has a remaining life of nine years and is
renewable by us for four additional five-year terms or until the landfill has reached full capacity, whichever
is greater. In May, 2007, we finalized an amendment to our contract with the Town of Southbridge which
would allow the company to seek approvals to convert the landfill from C&D to municipal solid waste and
to increase the annual tonnage to 405,000 tons per year of municipal solid waste. The operation of the
facility as outlined in the amended agreement remains subject to the receipt of necessary permits. The
landfill is currently permitted to accept up to 180,960 tons per year, consisting of 156,000 tons of
construction and demolition material and 24,960 tons of municipal solid waste.
Maine Energy Waste-to-Energy Facility. We own a waste-to-energy facility, Maine Energy, 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 raw materials 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.
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.
During the 2004 local elections, the town passed the required permissive referendum related to the future
expansion of the site. The technical permitting process is complete. The permit was issued in December,
2006 for an additional 11.0 million cubic yards representing approximately 6.3 million tons of additional
capacity. The landfill is currently permitted to accept approximately 312,000 tons annually, and we are
currently seeking a minor modification to expand annual permitted tonnage by an incremental 153,000
tons per year.
8
Ontario. We have entered into a 25-year operation, management and lease agreement with the
Ontario County Board of Supervisors for the Ontario County Landfill, which is located in the Town of
Seneca, New York. We commenced operations on December 8, 2003. This landfill serves the central
New York wasteshed and is strategically situated to accept long haul volume from both Eastern and
downstate markets. The site consists of a 387-acre landfill permitted to accept 624,000 tons per year of
municipal solid waste. During fiscal 2005 we received a permit modification for an additional 3.9 million
tons. Additional potential expansions amount to an estimated 13.7 million tons. The Ontario site also
houses a single stream recycling facility and a landfill-gas-to energy plant producing seven mgw/hr of
power.
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. The lead permitting agency, NYSDEC, has accepted the final
supplemental environmental impact statement and all permits were received in November, 2006
representing an additional 5.8 million cubic yards or approximately 3.7 million tons. We have entered into
a revised long-term host community agreement related to the expansion of the facility. In November 2003
we were successful in securing an increase of our permitted volume capacity to approximately 306,000 tons
annually, and we are currently seeking a minor modification to expand annual permitted tonnage by an
incremental 110,000 tons per year.
Chemung. We have entered into a 25-year operation, management and lease agreement with
Chemung County for certain facilities located within the county utilized in the collection, management and
disposal of solid waste including the Chemung County Landfill, which is located in the Town of Chemung,
New York. We commenced operations on September 19, 2005. This landfill serves the central and
southern tier New York wastesheds and is strategically situated to accept long haul volume from both
Eastern and downstate markets. The site consists of 37.8 active acres permitted to accept 120,000 tons of
municipal solid waste per year and 12.8 active acres permitted to accept 20,400 tons of construction and
demolition material per year. We are pursuing an increase in annual permitted volumes through a minor
modification to the existing permit which could expand municipal solid waste volumes by 60,000 tons
annually. The landfill has further expansion capabilities of an additional 25 acres and an estimated
5.1 million cubic yards, representing approximately 3.3 million tons.
Closure Projects and Closed Landfills
In April 2005, we started operations at the Worcester, MA landfill, a closure project with
approximately 2.4 million tons of available capacity as of April 30, 2007. In January 2006, we assumed the
closure contract for this landfill. Purchase consideration was comprised of forgiveness of receivables and
assumption of certain liabilities amounting to $4.6 million.
In addition, in December, 2005, through an agreement with the Town of Colebrook, NH, we began
accepting non hazardous waste to shape, cap, and close that Town’s landfill site. Approximately 237,000
tons of capacity remains as of April 30, 2007.
The Worcester and Colebrook landfills are not included in the above table of remaining landfill
capacity. In addition, we own and/or operated six unlined landfills and one lined landfill which are not
currently in operation. All of these landfills have been closed and capped to applicable environmental
regulatory standards by us.
The Hardwick landfill, which was acquired in March 2003, located in Hardwick, Massachusetts, was
closed following the defeat of a proposed amendment to the Hardwick zoning bylaws at a Hardwick Town
Meeting held in January 2007. Following such closure, the Company reviewed its options available and
efforts to overturn the adverse decisions of the Town of Hardwick and its Zoning Board of Appeals,
including the Company’s pending litigation and its efforts to effect a reconsideration of the adverse Town
9
Meeting votes. In connection with such review, the Company assessed the likelihood of a successful
outcome in relation to the expected costs of those efforts, and on the basis of the assessment the Company
decided to cease such efforts. As a result, the Company recorded an impairment charge of $26.9 million
which reflects the write-off of the net book value of the facility and includes an estimated $8.2 million in
future cash expenditures on capping, closure and post closure of the landfill, $2.3 million of which had
been previously accrued as part of normal operations.
Operating Segments
We manage our solid waste operations on a geographic basis through four regions, which we have
designated as the North Eastern, South Eastern, Central and Western regions and which each include a
full range of solid waste services, and FCR, which comprises our larger-scale non-solid waste recycling and
our brokerage operations (See Note 21 to our Consolidated Financial Statements included under Item 8 of
this Form 10-K for a summary of revenues, profitability and total assets of our five operating segments).
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. During the fourth quarter of fiscal year 2007, we began the
process of consolidating select divisions into a market area management structure.
Through its 23 material recycling facilities and 1 transfer station, FCR services 31 anchor contracts,
which are long-term commitments of five years or greater which guarantee the delivery of all recycled
residential recyclables to FCR. These contracts may include a minimum volume guarantee 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 23 FCR material recycling facilities process recyclables collected from
approximately 3.0 million households, representing a population of approximately 10.4 million people.
The following table provides information about each solid waste region and FCR (as of May 31, 2007
except revenue information, which is for the fiscal year ended April 30, 2007).
Revenues (in millions). . . . . . .
Solid waste collection
operations . . . . . . . . . . . . . . .
Transfer stations. . . . . . . . . . . .
Recycling facilities . . . . . . . . . .
Subtitle D landfills . . . . . . . . . .
North Eastern
Region
$117.8
South Eastern
Region
$67.8
Central
Region
$126.0
Western
Region
$108.1
FCR
Recycling
$ 102.4
7
3
5
Pine Tree
Juniper Ridge
6
3
2
12
14
5
NCES
Waste USA
Clinton County
13
11
3
Hyland
Ontario
Chemung
—
1
23
—
—
Other disposal facilities(1) . . . Maine Energy
Southbridge
—
Hakes
(1) In addition to the disposal facilities shown above, in April 2005, we started operations at the
Worcester, MA landfill, a closure project with approximately 2.4 million tons of available capacity as
of April 30, 2007. In December, 2005, through an agreement with the Town of Colebrook, NH, we
began accepting non hazardous waste to shape, cap, and close that Town’s landfill site. Approximately
237,000 tons of capacity remains as of April 30, 2007.
10
North Eastern region. The North Eastern region consists of wastesheds located in Maine. 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 North Eastern region relies more heavily on non-landfill waste-to-energy disposal
capacity than our other regions. Maine Energy is one of four waste-to-energy facilities in the
North 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, which included the Pine Tree landfill. Our acquisition of
KTI in 1999 significantly improved our disposal capacity in this region as the acquisition included the
Maine Energy waste-to-energy facility and provided an alternative internalization option for our solid
waste assets in eastern Massachusetts. In 2004, we obtained the right to operate the Juniper Ridge landfill
under a 30 year agreement with the State of Maine. Our major competitor in the State of Maine is Waste
Management, Inc., and we also compete with smaller local competitors.
South Eastern region. We entered eastern Massachusetts in fiscal year 2000 with the acquisition of
assets that were divested by Allied Waste Industries, Inc. and through the acquisition of smaller
independent operators. In this region, we rely to a large extent on third party disposal capacity. We believe
we have a greater opportunity to increase our internalization rates and operating efficiencies in the South
Eastern region through our operating contract with the Town of Southbridge to operate the Southbridge
landfill which is currently permitted to accept 156,000 tons of construction and demolition material and
24,960 tons of municipal solid waste annually. In May 2007 the Town and the company agreed to amend
the operating contract to allow the company to seek approvals to convert the landfill from C&D to
municipal solid waste and to increase the annual tonnage to 405,000 tons per year of municipal solid waste.
The operation of the facility as outlined in the amended agreement remains subject to the receipt of
necessary permits.
During the fourth quarter of fiscal year 2007, we completed the sale of the assets of the Holliston
Transfer Station for cash sale proceeds of $7.4 million. The transaction required discontinued operations
treatment under SFAS No. 144; therefore the operating results of the Holliston Transfer Station have been
reclassified from continuing to discontinued operations in fiscal years 2005 and 2006 and the operating
results for fiscal year 2007 are classified as loss from discontinued operations. Also in connection with the
discontinued accounting treatment, the loss (net of tax) from the sale amounting to $0.7 million has been
recorded and classified as a loss on disposal of discontinued operations.
Our primary competitors in eastern Massachusetts are Waste Management, Inc., Allied Waste
Industries, Inc., and smaller independent operators.
Central region. The Central region consists of wastesheds located in Vermont, north and south
western New Hampshire and eastern New York. The portion of New York served by the Central region
includes Clinton (operation of the Clinton County landfill), 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 waste
stream 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. and Allied
Waste Industries, Inc. in the larger population centers (primarily southern New Hampshire and
11
Eastern New York) and from smaller independent operators in the more rural areas. As our most mature
region, we believe that future operating efficiencies will be driven primarily by improving our core
operating efficiencies, offering increased recycling capabilities such as single stream processing, and
providing enhanced customer service.
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). We
entered the Western region with our acquisition of Superior Disposal Services, Inc.’s business in 1997 and
have 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 and Albany.
While we have achieved strong market positions in this region, we remain focused on increasing our
vertical integration through expansion of annual permitted capacity at existing landfills and densification of
hauling businesses that can internalize waste to our landfills. In the Western region, where we own the
Hyland and Hakes landfills and operate the Ontario and Chemung County landfills, our strategy is to
expand annual landfill permits to drive return on invested capital and cash flows. Future opportunities may
exist to replicate our strategic partnerships with county and municipal governments for the operation
and/or utilization of their landfills, and we expect that we would pursue these opportunities if it enhances
our shareholder returns.
Our primary competitors in the Western region are Waste Management, 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 23 material recycling facilities that process and then market
recyclable materials that municipalities and commercial customers deliver to it under long-term contracts.
Nine of FCR’s facilities are leased, eight are owned and six are operated under contracts. In fiscal year
2007, FCR processed and marketed approximately 1.3 million tons of recyclable materials. FCR’s facilities
are principally located in key urban markets, including Connecticut; North Carolina; New Jersey; Florida;
Tennessee; Georgia; Michigan; New York; South Carolina; Massachusetts; Wisconsin; Maine; and
Pennsylvania.
A significant portion of the material provided to FCR is delivered pursuant to 31 anchor contracts,
which are long-term contracts. The anchor contracts generally have an original term of five to ten years
and expire at various times between 2007 and 2028. The terms of each of the contracts vary, but all of the
contracts provide that the municipality or a third party delivers materials to our facility. In approximately
one-fifth 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, aluminum and 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 2007, 48% 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
12
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, 2007, we were party to 23 commodity hedge contracts. These contracts expire
between June 2007 and November 2008.
As part of our acquisition of KTI, we had acquired brokerage businesses which were focused on
domestic and export markets. In September 2002, we transferred our export brokerage operations to
employees who had been responsible for managing that business. Effective April 1, 2004, the transfer of
those export brokerage operations were reflected as a sale for total consideration of approximately
$5.0 million. The gain on the sale amounted to approximately $1.1 million. In June 2003, we transferred
our domestic brokerage operations and a commercial recycling business to employees who managed those
businesses. The brokerage businesses derived all of their revenues from the sale of recyclable materials,
predominately old newspaper, old corrugated cardboard, mixed paper and office paper. The brokers in the
brokerage operation were required to identify both the buyer and the seller of the recyclable materials
before committing to broker the transaction, thereby minimizing pricing risk, and were not permitted to
enter into speculative trading of commodities.
During the second quarter of fiscal 2005, we completed the sale of the assets of Data Destruction
Services, Inc. (Data Destruction) for cash sale proceeds of $3.0 million. This shredding operation had been
historically accounted for as a component of continuing operations as part of the FCR Recycling region up
until its sale. The transaction required discontinued operations treatment under SFAS No. 144; therefore
the operating results of Data Destruction were reclassified from continuing to discontinued operations.
Also in connection with the discontinued accounting treatment, the loss (net of tax) from the sale
amounting to $0.1 million has been recorded and classified as a loss on disposal of discontinued
operations.
Effective August 1, 2005, we transferred our Canadian recycling operation to a former employee who
had been responsible for managing that business. Consideration for this transaction was in the form of a
note receivable amounting up to $1.3 million which is payable within six years of the anniversary date of
the transaction to the extent of free cash flow generated from the operations.
GreenFiber Cellulose Insulation Joint Venture
We are a 50% partner in US GreenFiber LLC (“GreenFiber”), a joint venture with Louisiana-Pacific.
GreenFiber, which we believe is the largest manufacturer 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
fourteen manufacturing facilities, located in Atlanta, Georgia; Charlotte, North Carolina; Delphos, Ohio;
Elkwood, Virginia; Norfolk, Nebraska; Phoenix, Arizona; Sacramento, California; Tampa, Florida;
Denver, Colorado; Albany, New York; Waco, Texas; East St. Louis, IL; and Salt Lake City, UT.
GreenFiber utilizes a hedging strategy to help stabilize its exposure to fluctuating newsprint costs, which
generally represent approximately 68% of its raw material costs, 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 $186.3 million for the twelve months ended April 30, 2007. For the same period,
we recognized equity income from GreenFiber of $2.1 million.
Competition
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
13
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 potential acquisition candidates.
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. and Allied Waste Industries, 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, Certain Teed Corporation
and Johns Manville. These manufacturers have significant market shares and are substantially better
capitalized than GreenFiber.
Marketing and Sales
We have a coordinated marketing and sales strategy, which is formulated at the corporate level and
implemented at the divisional level. Casella seeks to differentiate itself in the marketplace by offering
customers value-added resource management solutions and quality service. Our business strategy has been
tied to creating a sustainable resource management model for over thirty years and we continue to
emphasize these value-added services today.
The sales and marketing organization has been realigned during the past two years to incorporate a
standardized pricing discipline, provide enhanced sales tools, and to further build Casella brand equity.
The realigned sales program integrates: an updated sales incentive program tied to customer profitability,
new sales, and account turnover; standardized pricing models for new and existing collection customers
with profitability analysis at the account level; a restructured account turnover tracking system; and the
introduction of a prospect database management system. The prospect database enables the sales force to
identify and sell new collection customers at a profitable level as well as increasing the density of existing
routes. The prospect database is augmented by traditional sales techniques, such as leads developed from
new building permits, business licenses and other public records.
We market our services locally through division managers and direct sales representatives who focus
on commercial, industrial, municipal and residential customers. 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 of our containers and trucks. We attend and make presentations
at municipal and state conferences and advertise in governmental associations’ membership publications.
Additionally, each division generally advertises in the yellow pages and other local business print media
that cover its service area.
Employees
As of May 31, 2007, we employed approximately 2,800 people, including approximately
550 professionals or managers, sales, clerical, information systems or other administrative employees and
approximately 2,250 employees involved in collection, transfer, disposal, recycling or other operations.
Approximately 138 of our employees are covered by collective bargaining agreements. We believe relations
with our employees to be satisfactory.
14
Risk Management, Insurance and Performance or Surety Bonds
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 in fiscal 2007 under the worker’s compensation and automobile plan is
$1.0 million and $0.8 million, respectively, per individual event, after which reinsurance takes effect.
Municipal solid waste collection contracts and landfill closure and post-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.
Customers
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 fiscal
year 2008.
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.
Raw Materials
Maine Energy received approximately 22% of its solid waste in fiscal year 2007 from 19 Maine
municipalities under long-term waste handling agreements. Maine Energy also receives raw materials from
15
commercial and private waste haulers and municipalities with short-term contracts, as well as from our
own collection operations.
In fiscal year 2007, FCR received approximately 56% 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 2007,
GreenFiber received approximately 13% 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.
Seasonality
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, 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.
Because 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. GreenFiber experiences
lower sales from April through July due to lower retail activity.
Regulation
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 in this
Form 10-K, 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 there can be no assurance in this
regard 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.
16
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 businesses 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 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 facility. We typically test
ash produced at our waste-to-energy facility 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
17
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 landfill gas (including methane) 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
facility, 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 regulate the
discharge of impacted storm water to 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 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.
18
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 facility 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
19
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 materially and adversely affect
the business, financial condition and results of operations of any of our landfills within those states that
receive a significant portion of waste originating from out-of-state.
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 privately-owned facility. However, on April 30, 2007, the U.S. Supreme Court upheld a
U.S. District Court ruling that the flow control regulations in Oneida and Herkimer Counties in New York
requiring trash haulers to use publicly-owned transfer stations are constitutional, and therefore valid.
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. In sum, flow control restrictions could
have a material adverse effect on our business, financial condition and results of 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. 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% (9.41 cents
per kWh as of April 30, 2007). 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. When that agreement
expires, or if the electric utility were to default under the agreement, there is no guarantee that any new
agreement would contain a purchase price as favorable as the one in the current agreement.
20
Executive Officers and Other Key Employees of the Company
Our executive officers and other key employees and their respective ages as of May 31, 2007 are as
follows:
Name
Executive Officers
Age
Position
John W. Casella . . . . . . . . . . . . . . . . .
James W. Bohlig. . . . . . . . . . . . . . . . .
Richard A. Norris. . . . . . . . . . . . . . . .
Charles E. Leonard . . . . . . . . . . . . . .
56 Chairman, Chief Executive Officer and Secretary
60 President, Chief Operating Officer and Director
63 Senior Vice President, Chief Financial Officer and Treasurer
52 Senior Vice President, Solid Waste Operations
Other Key Employees
Donald A. Wallgren. . . . . . . . . . . . . .
65 Senior Vice President of Permitting, Compliance,
Engineering & Construction
Timothy A. Cretney . . . . . . . . . . . . . .
Christopher M. DesRoches . . . . . . .
Sean P. Duffy . . . . . . . . . . . . . . . . . . .
Joseph S. Fusco . . . . . . . . . . . . . . . . .
William Hanley. . . . . . . . . . . . . . . . . .
Larry B. Lackey . . . . . . . . . . . . . . . . .
Brian G. Oliver . . . . . . . . . . . . . . . . . .
Eric Reibsane . . . . . . . . . . . . . . . . . . .
Alan N. Sabino . . . . . . . . . . . . . . . . . .
David L. Schmitt. . . . . . . . . . . . . . . . .
Gary R. Simmons . . . . . . . . . . . . . . . .
Michael J. Wall. . . . . . . . . . . . . . . . . .
43 Regional Vice President
49 Vice President, Selection and Training
47 Regional Vice President
43 Vice President, Communications
53 Vice President, Sales and Marketing
46 Vice President, Permitting, Compliance and Engineering
45 Regional Vice President
38 Vice President and Chief Information Officer
47 Regional Vice President
56 Vice President, General Counsel
57 Vice President, Fleet Management
47 Regional Vice President
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.
21
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.
Donald A. Wallgren has served as our Senior Vice President of Permitting, Compliance,
Engineering & Construction since May 2006. From 1997 until he joined us, he served as an environmental
consultant for both international government projects and a variety of environmental projects in the U.S.
He worked for Waste Management, Inc. from 1979 to 1997 including serving as the Vice President and
Chief Environmental Officer of the Company. He worked for the U.S. Dept. of Interior and U.S. EPA
from 1969 to 1979. Mr. Wallgren is a licensed professional engineer, and has an MBA from Northern
Illinois University and a Bachelor of Civil Engineering (Environmental Specialty) from the University of
Minnesota.
Timothy A. Cretney has served as our Western 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.
Christopher M. DesRoches has served as our Vice President, Selection and Training since June 1, 2005.
From November 1996 to June 2005, Mr. DesRoches served as our Vice President, Sales and Marketing.
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 FCR 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.
William Hanley has served as our Vice-President, Sales and Marketing since June 1, 2005. From 2001
until 2005, Mr. Hanley served as Vice-President, General Sales Manager of Waste Industries, USA. From
1994-2001, he held various sales management positions for Waste Management, Inc and predecessor
companies. Mr. Hanley is a graduate of Clarion State University with a Bachelor of Science in Business
Administration.
22
Larry B. Lackey has served as our Vice President, Permitting, 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.
Brian G. Oliver has served as our North Eastern Regional Vice President since June 2004. From
April 1998 to June 2004 he served as our Eastern Regional Controller. From June 1996 to April 1998,
Mr. Oliver served as Division Controller of two Vermont operations. Mr. Oliver holds a Bachelor of
Science in Business Administration from Bryant College and also holds a Masters degree from St.
Michael’s College.
Eric Reibsane has served as our Vice President and Chief Information Offices since May 2007. From
2000 to 2007, Mr. Reisbane served as Chief Information Officer for the Asplundh Tree Expert Company.
Mr. Reibsane holds a Bachelor of Science—Information Systems Management degree from Saint Leo
College.
Alan N. Sabino has served as our Central 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.
David L. Schmitt has served as our Vice President and General Counsel since May, 2006. Prior to that,
Mr. Schmitt was President of his privately held consulting firm, and further served from 2002 until 2005 as
Vice President and General Counsel of BioEnergy International, LLC. He further served from 1995 until
2001, as Senior Vice President, General Counsel and Secretary of Bradlees, Inc., a large box retailer in the
northeast United States, and from 1986 through 1990, as Vice President and General Counsel of
Wheelabrator Technologies Inc. He is admitted to the Bar of Pennsylvania, and earned a Bachelor of Arts
degree from The Pennsylvania State University, and his Juris Doctor from Duquesne University School
of Law.
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.
Michael J. Wall has served as our South Eastern Regional Vice President since June 2004. From
2002-2004, Mr. Wall served as Director of Operations for Waste Management, Inc. in Massachusetts.
From 1998-2002, Mr. Wall served as a Division Manager for Waste Management, Inc. overseeing
operations in Central New York and Eastern Massachusetts. From 1993-1998, Mr. Wall held the position
of Group Sales Manager for USA Waste Services, Inc. From 1983-1993, Mr. Wall held various sales
management positions throughout the Northeast for Browning Ferris Industries. Mr. Wall is a graduate of
New England College of New Hampshire.
Available Information
Our internet website is http://www.casella.com. We make available, through our website free of
charge, 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 (the “Exchange Act”). We make these reports available through our
website at the same time that they become available on the Securities and Exchange Commission’s website.
23
ITEM 1A. RISK FACTORS
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.
The Company has substantial indebtedness. 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 the Company’s ability to incur additional indebtedness, and thereby may
limit its acquisition program.
The Company’s leverage will further increase as the Company will be required to redeem its
outstanding Series A redeemable preferred stock on August 11, 2007. The aggregate redemption price is
expected to be approximately $75.1 million. The Company will need to utilize its revolving credit facility to
effect this redemption.
The Company 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 the
Company’s future growth.
The Company’s strategy envisions that a substantial part of the Company’s 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 the Company’s
existing markets, assets that are adjacent to or outside the Company’s existing markets, or larger, more
strategic acquisitions. In addition, from time to time the Company may acquire businesses that are
complementary to the Company’s core business strategy. The Company may not be able to identify suitable
acquisition candidates. If the Company identifies suitable acquisition candidates, the Company may be
unable to negotiate successfully their acquisition at a price or on terms and conditions favorable to the
Company. Furthermore, the Company may be unable to obtain the necessary regulatory approval to
complete potential acquisitions.
The Company’s ability to achieve the benefits it anticipates from acquisitions, including cost savings
and operating efficiencies, depends in part on the Company’s ability to successfully integrate the
operations of such acquired businesses with the Company’s 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 the Company’s existing operations.
In addition, the process of acquiring, developing and permitting additional disposal capacity is
lengthy, expensive and uncertain. For example, the Company is currently involved in litigation with the
Town of Bethlehem, New Hampshire relating to the expansion of a landfill owned by the Company’s
wholly owned subsidiary, North Country Environmental Services, Inc. Moreover, the disposal capacity at
the Company’s existing landfills is limited by the remaining available volume at the Company’s landfills
and annual, quarterly and/or daily disposal limits imposed by the various governmental authorities with
jurisdiction over the Company’s landfills. The Company typically reaches or approximates the Company’s
daily, quarterly and annual maximum permitted disposal capacity at the majority of the Company’s
landfills. If the Company is unable to develop or acquire additional disposal capacity, the Company’s
ability to achieve economies from the internalization of the Company’s waste stream will be limited and
the Company may be required to increase the Company’s utilization of disposal facilities owned by third
parties, which could reduce the Company’s revenues and/or the Company’s operating margins.
24
The Company’s ability to make acquisitions is dependent on the availability of adequate cash and the
attractiveness of the Company’s stock price.
The Company anticipates that any future business acquisitions will be financed through cash from
operations, borrowings under the Company’s senior secured credit facility, additional tax-exempt
financing, the issuance of shares of the Company’s Class A common stock or subordinated notes and/or
seller financing. The Company may not have sufficient existing capital resources and may be unable to
raise sufficient additional capital resources on terms satisfactory to the Company, if at all, in order to meet
the Company’s capital requirements for such acquisitions.
The Company also believes that a significant factor in the Company’s ability to close acquisitions will
be the attractiveness to the Company and to persons selling businesses to the Company of the Company’s
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 the
Company’s Class A common stock compared to the equity securities of the Company’s competitors. The
trading price of the Company’s Class A common stock on the NASDAQ National Market has limited the
Company’s willingness to use the Company’s equity as consideration and the willingness of sellers to accept
the Company’s shares and as a result has limited, and could continue to limit, the size and scope of the
Company’s acquisition program.
Environmental regulations and litigation could subject the Company to fines, penalties, judgments and
limitations on the Company’s ability to expand.
The Company is 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
assurance requirements, as well as to attempts to further regulate the industry through new legislation. The
Company’s waste-to-energy facility is subject to regulations limiting discharges of pollution into the air and
water, and the Company’s 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. If the Company is not able to comply
with the requirements that apply to a particular facility or if the Company operates without necessary
approvals, the Company could be subject to civil, and possibly criminal, fines and penalties, and the
Company may be required to spend substantial capital to bring an operation into compliance or to
temporarily or permanently discontinue activities, and/or take corrective actions, possibly including
removal of landfilled materials, regarding an operation that is not permitted under the law. The Company
may not have sufficient insurance coverage for the Company’s environmental liabilities. Those costs or
actions could be significant to the Company and impact the Company’s results of operations, cash flows, as
well as the Company’s available capital.
Environmental and land use laws also impact the Company’s ability to expand and, in the case of the
Company’s solid waste operations, may dictate those geographic areas from which the Company must, or,
from which the Company 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 the Company is not able to expand
or otherwise operate one or more of the Company’s facilities because of limits imposed under
environmental laws, the Company may be required to increase the Company’s utilization of disposal
facilities owned by third parties, which could reduce the Company’s revenues and/or operating margins.
The Company has historically grown and intends to continue to grow through acquisitions, and the
Company has tried and will continue to try to evaluate and limit environmental risks and liabilities
presented by businesses to be acquired prior to the acquisition. 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 the Company anticipates. It is also possible that government officials
25
responsible for enforcing environmental laws may believe an issue is more serious than the Company
expects, or that the Company will fail to identify or fully appreciate an existing liability before the
Company becomes legally responsible to address it. Some of the legal sanctions to which the Company
could become subject could cause the Company to lose a needed permit, or prevent the Company from or
delay the Company in obtaining or renewing permits to operate the Company’s facilities or harm the
Company’s reputation.
The Company’s operating program depends on the Company’s ability to operate and expand the
landfills and transfer stations the Company owns and leases and to develop new landfill and transfer sites.
Localities where the Company operates generally seek to regulate some or all landfill and transfer station
operations, including siting and expansion of operations. The laws adopted by municipalities in which the
Company’s landfills and transfer stations are located may limit or prohibit the expansion of the landfill or
transfer station as well as the amount of waste that the Company can accept at the landfill or transfer
station on a daily, quarterly or annual basis and any effort to acquire or expand landfills and transfer
stations typically involves a significant amount of time and expense. For example, expansion at the
Company’s North Country Environmental Services landfill, outside the original 51 acres, will be prohibited
as a result of a recent decision by the New Hampshire Supreme Court unless the Company prevails in
certain remanded issues under zoning laws or the Town revises its local ordinance prohibiting expansions.
The Company may not be successful in obtaining new landfill or transfer station sites or expanding the
permitted capacity of any of the Company’s current landfills and transfer stations. If the Company is
unable to develop additional disposal capacity, the Company’s ability to achieve economies from the
internalization of the Company’s wastestream will be limited and the Company will be required to utilize
the disposal facilities of the Company’s competitors.
In addition to the costs of complying with environmental laws and regulations, the Company incurs
costs defending against environmental litigation brought by governmental agencies and private parties. The
Company is, and also may be in the future, a defendant in lawsuits brought by parties alleging
environmental damage, personal injury, and/or property damage.
The Company’s operations would be adversely affected if the Company does not have access to sufficient
capital.
The Company’s ability to remain competitive and sustain its operations depends in part on cash flow
from operations and the Company’s access to capital. The Company currently funds its cash needs
primarily through cash from operations and borrowings under the Company’s senior secured credit facility.
However, the Company may require additional equity and/or debt financing for debt repayment and equity
redemption obligations and to fund the Company’s growth and operations. In addition, if the Company
undertakes more acquisitions or further expands the Company’s operations, the Company’s capital
requirements may increase. The Company may not have access to the amount of capital that the Company
requires from time to time, on favorable terms or at all.
The Company’s results of operations could continue to be affected by changing prices or market
requirements for recyclable materials.
The Company’s results of operations have been and may continue to be affected by changing purchase
or resale prices or market requirements for recyclable materials. The Company’s recycling business
involves the purchase and sale of recyclable materials, some of which are priced on a commodity basis. The
resale and purchase prices of, and market demand for, recyclable materials, particularly waste paper,
plastic and ferrous and aluminum metals, can be volatile due to numerous factors beyond the Company’s
control. Although the Company seeks to limit the Company’s exposure to fluctuating commodity prices
through the use of hedging agreements, floor price contracts and long-term supply contracts with
customers, these fluctuations have in the past contributed, and may continue to contribute, to significant
variability in the Company’s period-to-period results of operations.
26
The Company’s business is geographically concentrated and is therefore subject to regional economic
downturns.
The Company’s operations and customers are principally located in the eastern United States.
Therefore, the Company’s 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 the Company expands in the Company’s existing markets,
opportunities for growth within these regions will become more limited and the geographic concentration
of the Company’s business will increase.
The Company 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 the Company competes
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 the
Company’s competitors have significantly greater financial and other resources than the Company. 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 the Company to reduce the pricing of
the Company’s services or result in the Company’s loss of business.
As is generally the case in the industry, some municipal contracts are subject to periodic competitive
bidding. The Company may not be the successful bidder to obtain or retain these contracts. If the
Company is 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 the Company’s revenues would decrease and the Company’s operating
results would be harmed.
In the Company’s solid waste disposal markets the Company also competes 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 the Company.
The Company’s 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 the Company’s detriment.
The Company’s results of operations and financial condition may be negatively affected if the Company
inadequately accrues for capping, closure and post-closure costs.
The Company has material financial obligations relating to capping, closure and post-closure costs of
the Company’s existing owned or operated landfills and will have material financial obligations with
respect to any disposal facilities which the Company 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. The Company establishes accruals for the
estimated costs associated with such capping, closure and post-closure obligations over the anticipated
useful life of each landfill on a per ton basis. In addition to the landfills the Company currently operates,
the Company owns six unlined landfills and one lined landfill, which are not currently in operation. The
Company has provided and will in the future provide accruals for financial obligations relating to capping,
27
closure and post-closure costs of the Company’s owned or operated landfills, generally for a term of
30 years after final closure of a landfill. The Company’s financial obligations for capping, 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 the Company’s operating expenses and results.
The price and supply of fuel is unpredictable and fluctuates based on events beyond the Company’s
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 the Company’s fleet of trucks, price escalations for fuel increase
the Company’s operating expenses. In fiscal year 2007, the Company used approximately 7.5 million
gallons of diesel fuel in the Company’s solid waste operations. Effective May 1, 2003, the Company
implemented a fuel surcharge program, based on a fuel index, to recover fuel cost increases arising from
price volatility. This program was revised effective May 1, 2005 to cover oil and lubricants as well as fuel.
The surcharge has been passed on to all customers where their contracts permit.
The Company could be precluded from entering into contracts or obtaining permits if the Company is
unable to obtain third party financial assurance to secure the Company’s contractual obligations.
Public solid waste collection, recycling and disposal contracts, obligations associated with landfill
closure and the operation and closure of the Company’s waste-to-energy facility may require performance
or surety bonds, letters of credit or other means of financial assurance to secure the Company’s contractual
performance. If the Company is unable to obtain the necessary financial assurance in sufficient amounts or
at acceptable rates, the Company could be precluded from entering into additional municipal solid waste
collection contracts or from obtaining or retaining landfill management contracts or operating permits.
Any future difficulty in obtaining insurance could also impair the Company’s ability to secure future
contracts conditioned upon the contractor having adequate insurance coverage.
The Company may be required to write-off capitalized charges or intangible assets in the future, which
could harm the Company’s earnings.
Any write-off of capitalized costs or intangible assets reduces the Company’s earnings and,
consequently, could affect the market price of the Company’s Class A common stock. In accordance with
generally accepted accounting principles, the Company capitalizes certain expenditures and advances
relating to the Company’s acquisitions, pending acquisitions, landfills and development projects. From
time to time in future periods, the Company 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
the Company estimates 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. The Company has incurred such charges in the past.
28
The Company’s revenues and the Company’s operating income experience seasonal fluctuations.
The Company’s transfer and disposal revenues have historically been lower during the months of
November through March. This seasonality reflects the lower volume of waste during the late fall, winter
and early spring months primarily because:
• the volume of waste relating to construction and demolition activities decreases substantially during
the winter months in the north eastern 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.
The Company’s recycling business experiences increased volumes of newspaper in November and
December due to increased newspaper advertising and retail activity during the holiday season.
GreenFiber experiences lower sales from April through July due to lower retail activity.
Efforts by labor unions to organize the Company’s employees could divert management attention and
increase the Company’s operating expenses.
Labor unions regularly make attempts to organize the Company’s employees, and these efforts will
likely continue in the future. Certain groups of the Company’s employees have chosen to be represented by
unions, and the Company has negotiated collective bargaining agreements with these groups. The
negotiation of collective bargaining agreements could divert management attention and result in increased
operating expenses and lower net income. If the Company is unable to negotiate acceptable collective
bargaining agreements, the Company 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, the Company’s revenues could decrease and the Company’s operating expenses could
increase, which could adversely affect the Company’s financial condition, results of operations and cash
flows. As of May 31, 2007, approximately 4.9% of the Company’s employees involved in collection,
transfer, disposal, recycling, waste-to-energy or other operations were represented by unions.
The Company’s Class B common stock has ten votes per share and is held exclusively by John W. Casella
and Douglas R. Casella.
The holders of the Company’s Class B common stock are entitled to ten votes per share and the
holders of the Company’s Class A common stock are entitled to one vote per share. At May 31, 2007, an
aggregate of 988,200 shares of the Company’s Class B common stock, representing 9,882,000 votes, were
outstanding, all of which were beneficially owned by John W. Casella, the Company’s Chairman and Chief
Executive Officer, or by his brother, Douglas R. Casella, a member of the Company’s Board of Directors.
Based on the number of shares of common stock and Series A redeemable convertible preferred stock
outstanding on May 31, 2007, the shares of the Company’s Class A common stock and Class B common
stock beneficially owned by John W. Casella and Douglas R. Casella represent approximately 28.3% of the
aggregate voting power of the Company’s stockholders. Consequently, John W. Casella and Douglas R.
Casella are able to substantially influence all matters for stockholder consideration.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
29
ITEM 2. PROPERTIES
At May 31, 2007, we owned and/or operated eight subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 32 transfer stations, 22 of which are owned, six of which are leased
and four of which are under operating contract, 38 solid waste collection facilities, 25 of which are owned
and 13 of which are leased, 38 recyclable processing facilities, 16 of which are owned, 15 of which are
leased and seven of which are under operating contracts, one waste-to-energy facility, and we utilized ten
corporate office and other administrative facilities, three of which are owned and seven of which are leased
(See Item 1—Business section of this Form 10-K for property information by operating segment).
ITEM 3. LEGAL PROCEEDINGS
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 the Company’s subsidiary Maine Energy for
(1) failure to pay certain residual cancellation payments in connection with the Company’s 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 the Company, Maine Energy
and other subsidiaries. The complaint in that action, which was amended by the City of Saco on July 22,
2002, alleged breaches of the 1991 waste handling agreement for failure to pay the residual cancellation
payment, which Saco alleged was due as a result of, among other things, (1) the Company’s 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 sought damages for breach of contract and a court order requiring the
Company 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. As the result of extensive settlement negotiations
with the City of Biddeford concerning this lawsuit and other matters, the lawsuit filed by the City of
Biddeford has been resolved by a settlement between the parties, effective March 1, 2007, and the lawsuit
was dismissed with prejudice on or about May 8, 2007. On June 18, 2007, the Company and the City of
Saco agreed to settle their dispute under the terms of a mutual release and settlement agreement, whereby
the Company will pay the City of Saco $1.4 million and the City of Saco will release the Company from any
further residual cancellation payment obligations. The Company provided for the residual cancellation
payment obligations to the City of Biddeford and the City of Saco in prior years in amounts sufficient to
cover the settlements.
The New Hampshire Superior Court in Grafton County, NH (the “Superior Court”) ruled on
February 1, 1999 that the Town of Bethlehem, NH (the “Town”) could not enforce an ordinance
prohibiting expansion of the Company’s landfill owned by its subsidiary North Country Environmental
Services, Inc. (“NCES”), at least with respect to 51 acres of NCES’s 105 acre parcel. As a result, NCES was
able to construct and operate “Stage II, Phase II” of the landfill. In May 2001, the New Hampshire
Supreme Court (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 (within the 51 acres) and further stated that the Town’s height ordinance and building permit
process may apply to Stage III. On September 12, 2001, the Company filed a petition for declaratory relief.
On December 4, 2001, the Town filed an answer and counterclaims seeking authorization to assert site
plan review over Stage III and the methane gas utilization/leachate handling facility operating in
connection with Stage III, as well as an order declaring that the ordinance prohibiting landfills applies to
Stage IV expansion. On April 24, 2003, the Grafton Superior Court upheld 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; and ruling that the methane gas
30
utilization/leachate handling facility is not subject to the Town’s ordinance forbidding incinerators. On
May 27, 2003, NCES appealed the Superior Court’s ruling to the Supreme Court. On March 1, 2004, the
Supreme Court affirmed that NCES has all of the local approvals that it needs to operate within the
51 acres and that the Town cannot therefore require site plan review for landfill development within the
51 acres. The Supreme Court’s opinion left open for further review the question of whether the Town’s
1992 ordinance can prevent expansion of the facility outside the 51 acres, remanding to the Superior Court
four issues, including two defenses raised by NCES as grounds for invalidating the 1992 ordinance. On
April 19, 2005, the Superior Court judge granted NCES’ motion for partial summary judgment, ruling that
the 1992 ordinance is invalid because it distinguishes between “users” of land rather than “uses” of land,
and that a state statute preempts the Town’s ability to issue a building permit for the methane gas
utilization/leachate handling facility to the extent the Town’s regulations relate to design, installation,
construction, modification or operation. After this ruling, the Town amended its counterclaim to request a
declaration that another zoning ordinance it enacted in March of 2005 is lawful and prevents the expansion
of the landfill outside of the 51 acres. In the fall of 2005 NCES and the Town engaged in private mediation
in an effort to resolve the disputes between them, but the mediation was unsuccessful. NCES filed a
motion with the court on December 15, 2005 for partial summary judgment asserting six different
arguments challenging the lawfulness of the March 2005 amendment to the zoning ordinance, and the
town filed a cross-motion on January 13, 2006 for partial summary judgment on the same issue. In
April 2006, the court ruled against NCES on the applicability of all six arguments challenging the
lawfulness of the March 2005 ordinance and NCES filed a motion for reconsideration. On May 30, 2006,
the judge issued a ruling on the motion for reconsideration, reversing her prior ruling with respect to two
of the six arguments, thereby restoring such arguments for trial. Additionally, several issues related to the
March 2005 amendment that were not the subject of such motions remain to be decided by a trial, in
addition to the two remaining issues remanded by the Supreme Court, which are whether the Town can
impose site plan review requirements outside the 51 acres, and whether the 1992 ordinance contravenes
the general welfare of the community. On June 6, 2006, the Town rejected a settlement proposal from
NCES at a special town meeting. The trial date has been continued to October 2007. NCES’s March 2007
application to the New Hampshire Department of Environmental Services for an amendment to the
Stage IV permit enabling it to construct all of the Stage IV capacity within the 51 acres may, if granted,
affect which of the parties’ claims will be adjudicated at the October 2007 trial.
On July 12, 2005, NCES received notice from the Office of the Attorney General of the State of
New Hampshire that it has commenced an official investigation into allegations that asbestos was
concealed in loads of construction and demolition debris from a hotel renovation, delivered to the
NCES landfill by a third party, and disposed there on several occasions between 1999 and 2002. NCES has
cooperated fully in the investigation. NCES is engaged in discussions with the Office of the Attorney
General over the terms of a possible civil settlement regarding this matter. The Company does not believe
the outcome of this matter will have a material adverse effect on its business, financial condition, results of
operations or cash flows.
On April 6, 2007, a former employee of the Company’s subsidiary Northeast Waste Services, Inc. sued
a current employee of the Company for injuries sustained by the former employee due to alleged
workplace negligence. Although the claim is not against the Company, the Company has a duty to defend
under its business auto policy and will be liable for any damages up to the Company’s deductible limit, but
will have a lien against any recovery to recover any worker’s compensation payments made by the
Company to the former employee. No discovery has occurred in the case and the Company is unable to
predict the probability of the outcome or any range of potential loss.
The Company offers no prediction of the outcome of any of the proceedings described above. The
Company is vigorously defending each of these lawsuits. However, there can be no guarantee the Company
31
will prevail or that any judgments against the Company, if sustained on appeal, will not have a material
adverse effect on the Company’s business, financial condition or results of operations.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the fiscal quarter ended
April 30, 2007.
32
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our Class A common stock trades on the Nasdaq Global Select Market under the symbol “CWST”.
The following table sets forth the high and low sale prices of our Class A common stock for the periods
indicated as quoted on the Nasdaq Global Select Market.
Period
Fiscal Year Ending April 30, 2006
High
Low
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 13.57
$ 13.87
$ 13.84
$ 15.76
$ 10.88
$ 11.67
$ 11.36
$ 12.60
Fiscal Year Ending April 30, 2007
First quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 16.48
$ 13.88
$ 12.95
$ 12.62
$ 11.35
$ 10.01
$ 10.30
$ 8.86
On May 31, 2007, the high and low sale prices per share of our Class A common stock as quoted on
the Nasdaq Global Select Market were $10.79 and $10.67, respectively. As of May 31, 2007 there were
approximately 488 holders of record of our Class A common stock and two holders of record of our
Class B common stock. There is no established trading market for our Class B common stock.
For purposes of calculating the aggregate market value of the shares of common stock 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 non-affiliates except for the shares beneficially
held by directors and executive officers and funds represented by them.
No dividends have ever been declared or paid on our common stock and we do not anticipate paying
any cash dividends on our common stock in the foreseeable future. Our credit facility restricts the payment
of dividends on common stock. The information required by Item 201(d) of Regulation S-K is included in
Part III of this Form 10-K.
33
Stock Performance Graph
The stock performance graph below compares the percentage change in cumulative stockholder
return on Class A common stock for the period from April 30, 2002 through April 30, 2007, with the
cumulative total return on The NASDAQ Stock Market (U.S. & Foreign) Index and the Company’s
Industry Peer Group on The NASDAQ Stock Market. The stock performance graph assumes the
investment on April 30, 2002 of $100.00 in Class A common stock of the Company at the closing price on
such date, in The NASDAQ Stock Market (U.S. & Foreign) Index and the Company’s Industry Peer
Group, and that dividends are reinvested. No dividends have been declared or paid on the Class A
common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Casella Waste Systems, Inc., The NASDAQ Composite Index And A Peer Group
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
4/02
4/03
4/04
4/05
4/06
4/07
Casella Waste Systems, Inc.
NASDAQ Composite
Peer Group
* $100 invested on 4/30/02 in stock or index-including reinvestment of dividends.
Fiscal year ending April 30.
Casella Waste Systems, Inc.. . . . . . . . .
NASDAQ (U.S. and Foreign) . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2002
100.00
100.00
100.00
April 30,
2003
69.07
84.83
84.60
April 30,
2004
117.41
114.47
116.93
April 30,
2005
95.47
114.98
102.12
April 30,
2006
125.91
142.84
117.06
April 30,
2007
75.30
156.41
136.52
(1) The selected peer group is comprised of securities of Waste Industries USA, Inc. and Waste
Connections, Inc.
34
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data set forth below with respect to our
consolidated statements of operations and cash flows for the fiscal years ended April 30, 2005, 2006 and
2007, and the consolidated balance sheets as of April 30, 2006 and 2007 are derived from the Consolidated
Financial Statements included elsewhere in this Form 10-K. The consolidated statements of operations
and cash flows data for the fiscal years ended April 30, 2003 and 2004, and the consolidated balance sheet
data as of April 30, 2003, 2004 and 2005 are derived from previously filed Consolidated Financial
Statements. The data set forth below should be read in conjunction with the “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial
Statements and Notes thereto included elsewhere in this Form 10-K.
2003
Fiscal Year Ended April 30,
2006
2005
2004
2007
Statement of Operations Data:
(in thousands, except per share data)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 408,408 $ 426,854 $ 471,323 $ 515,172 $ 546,990
360,652
Cost of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,855
General and administration. . . . . . . . . . . . . . . . . . . . . . . .
71,740
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
26,892
Impairment and closing charge . . . . . . . . . . . . . . . . . . . . .
Development project charges . . . . . . . . . . . . . . . . . . . . . .
752
12,099
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
38,859
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,623)
Other (income)/expense, net. . . . . . . . . . . . . . . . . . . . . . .
339,945
67,111
64,383
—
1,329
42,404
31,287
(7,622 )
302,061
62,166
65,432
—
295
41,369
28,767
(1,266)
268,157
54,306
47,710
4,864
—
33,371
25,694
122
276,194
57,051
59,409
1,663
—
32,537
24,947
3,993
(Loss) income from continuing operations before
income taxes, discontinued operations and
cumulative effect of change in accounting principle . .
(Benefit) provision for income taxes . . . . . . . . . . . . . . . .
Income from continuing operations before
discontinued operations and cumulative effect of
change in accounting principle . . . . . . . . . . . . . . . . . . .
(Loss) income from discontinued operations, net. . . . . .
Loss on disposal of discontinued operations, net . . . . . .
Reclassification from discontinued operations, net . . . .
Cumulative effect of change in accounting principle,
7,555
3,694
3,597
(1,684)
13,868
6,083
18,739
7,225
(25,137)
(8,529)
3,861
197
—
50
5,281
101
—
—
7,785
(434)
(82)
—
11,514
(410 )
—
—
(16,608)
(558)
(717)
—
net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income available to common stockholders. . . $ (62,902) $ 4,853 $ 3,931 $
(63,916)
(59,808)
3,094
—
7,269
3,338
2,723
8,105
3,252
—
—
11,104
(17,883)
3,588
3,432
7,672 $ (21,471)
Basic net (loss) income per common share . . . . . . . . . . . $
Basic weighted average common shares
(2.65) $
0.20 $
0.16 $
0.31 $
(0.85)
outstanding(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,716
24,002
24,679
24,980
25,272
Diluted net (loss) income per common share . . . . . . . . . $
Diluted weighted average common shares
(2.63) $
0.20 $
0.16 $
0.30 $
(0.85)
outstanding(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23,904
24,445
25,193
25,368
25,272
35
2003
2004
Fiscal Year Ended April 30,
2005
(in thousands)
2006
2007
Other Operating Data:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (42,001) $ (55,805) $ (79,074) $ (112,843 ) $ (102,173)
Other Data:
Cash flows provided by operating activities . . . . . . . . . . $ 66,095 $ 69,435 $ 83,208 $ 75,500 $ 81,455
Cash flows used in investing activities . . . . . . . . . . . . . . $ (63,284) $ (121,128) $ (102,765) $ (149,050 ) $ (98,788)
Cash flows provided by financing activities . . . . . . . . . . $ 7,581 $ 46,122 $ 21,301 $ 74,018 $ 23,801
Balance Sheet Data:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 15,549 $
7,923 $
8,578 $
7,425 $ 12,363
Working capital (deficit), net(2) . . . . . . . . . . . . . . . . . . . $ (11,591) $ (25,875) $ (31,949) $ (23,216 ) $ (105,715)
Property, plant and equipment, net . . . . . . . . . . . . . . . . $ 299,426 $ 366,739 $ 406,723 $ 474,292 $ 487,621
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 159,682 $ 157,230 $ 157,492 $ 171,258 $ 173,350
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 602,641 $ 676,277 $ 712,454 $ 811,111 $ 832,566
Long-term debt, less current maturities . . . . . . . . . . . . . $ 302,389 $ 349,163 $ 378,436 $ 452,720 $ 476,225
Redeemable preferred stock . . . . . . . . . . . . . . . . . . . . . .
$ 63,824 $ 67,076 $ 67,964 $ 70,430 $ 74,018
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . $ 119,152 $ 130,055 $ 138,782 $ 149,490 $ 129,496
(1) Computed on the basis described in Note 1(m) of Notes to Consolidated Financial Statements.
(2) Working capital (deficit), net is defined as current assets, excluding cash and cash equivalents, minus current
liabilities.
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Form10-K. This discussion contains forward-looking statements and involves numerous risks
and uncertainties. Our actual results may differ materially from those contained in any forward-looking
statements.
Company Overview
Casella Waste Systems, Inc. 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 United States. Our Company was founded in 1975 as a single truck
operation in Rutland, Vermont and the business now operates in fourteen states. We operate vertically
integrated solid waste operations in Vermont, New Hampshire, New York, Massachusetts, and Maine; and
stand alone materials processing facilities in Pennsylvania, New Jersey, North Carolina, South Carolina,
Tennessee, Georgia, Florida, Michigan, and Wisconsin.
As of May 31, 2007, the Company owned and/or operated 38 solid waste collection operations,
32 transfer stations, 38 recycling facilities, eight Subtitle D landfills, two landfills permitted to accept
construction and demolition materials, 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 and a 20.5%
common stock interest in a company that markets an incentive based recycling service.
Operating Results
The Company publicly announced its guidance for fiscal year 2007 and stated that results would be in
the following approximate ranges (assuming no material change in the health of the regional economy;
solid waste operation growth of 5.0% including price growth of 3.0%; FCR Recycling growth of 9.4%
including a commodity price reduction of 2.6%; and no major acquisitions):
• Revenues between $550.0 million and $570.0 million;
• Total expected capital expenditures between $100.0 million and $104.0 million; and
• Free cash flow (a non-GAAP measure) between $(30.0) million and $(22.0) million.
For the fiscal year ended April 30, 2007, the company reported revenues of $547.0 million, an increase
of $31.8 million, or 6.2%, from $515.2 million in fiscal year 2006. Solid waste revenue growth was 3.3%
year over year, with 3.1% coming from price increases and 2.8 % from the effect of acquisitions, partially
offset by lower volumes. FCR Recycling revenue growth was 13.9%, with 6.3% coming from commodity
price increases, 4.0% from higher volumes and the balance from the effect of acquisitions.
Operating income decreased by $30.3 million, or 71.5%, to $12.1 million in fiscal year 2007 from
$42.4 million in fiscal year 2006. Operating results were impacted by the charge associated with the
impairment of the Hardwick landfill facility along with charges related to the future closure of the facility
and the write-off of certain deferred acquisition costs associated with projects determined to be no longer
viable. The Hardwick landfill, which was acquired in March 2003, located in Hardwick, Massachusetts, was
closed following the defeat of a proposed amendment to the Hardwick zoning bylaws at a Hardwick Town
Meeting held in January 2007. Following such closure, the Company reviewed its options available and
efforts to overturn the adverse decisions of the Town of Hardwick and its Zoning Board of Appeals,
including the Company’s pending litigation and its efforts to effect a reconsideration of the adverse Town
Meeting votes. In connection with such review, the Company assessed the likelihood of a successful
37
outcome in relation to the expected costs of those efforts, and on the basis of the assessment the Company
decided to cease such efforts. As a result, the Company recorded a charge of $26.9 million which reflects
the write-off of the net book value of the facility and includes an estimated $8.2 million in future cash
expenditures on capping, closure and post closure of the landfill, $2.3 million of which had been previously
accrued for as part of normal operations. All regions reported an increase in revenues year over year;
however operating income for the solid waste regions was relatively flat as higher revenues were offset by
higher operating costs, as described above. FCR’s operating income increased in fiscal year 2007 compared
to fiscal year 2006 mainly due to higher commodity prices and volumes as well as the effect of acquisitions.
Capital expenditures in fiscal year 2007 were $102.2 million, which was at the mid-point of our
guidance. Free cash flow is a non-GAAP financial measure provided because certain investors use this
information when analyzing the financial position of the solid waste industry, including us, and assists
investors in measuring our ability to meet capital expenditure and working capital requirements. The most
comparable GAAP financial measure to free cash flow is net cash provided by operating activities. Our
free cash flow for fiscal year 2007 and 2006 is calculated as follows (in thousands):
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Free cash flow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal year ended April 30,
2006
$ 75,500
(112,843 )
(999 )
2007
$ 81,455
(102,173)
601
$ (38,342 ) $ (20,117)
Free cash flow results for fiscal year 2007 exceeded the high end of our guidance and improved
compared to fiscal year 2006 primarily due to lower levels of capital expenditures.
During the fourth quarter of fiscal year 2007, the Company completed the sale of the assets of the
Holliston Transfer Station for cash sale proceeds of $7.4 million. The transaction required discontinued
operations treatment under SFAS No. 144, therefore the operating results of the Holliston transfer station
have been reclassified from continuing to discontinued operations. Also in connection with the
discontinued accounting treatment, the loss (net of tax) from the sale amounting to $0.7 million has been
recorded and classified as a loss on disposal of discontinued operations.
Critical Accounting Policies and Estimates
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 contained elsewhere in this Form 10-K.
Landfill Accounting—Capitalized Costs and Amortization
We use life-cycle accounting and the units-of-consumption method to recognize certain landfill costs.
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
38
leachate collection systems. Interest is capitalized on landfill 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, 2005,
2006 and 2007 was $0.5 million, $1.2 million and $1.4 million, 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. 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.
Under life-cycle accounting, all costs related to acquisition and construction of landfill sites are
capitalized and charged to income based on tonnage placed into each site. Landfill permitting, acquisition
and preparation costs are amortized on the units-of-consumption 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. In determining estimated
future landfill permitting, acquisition, construction and preparation costs, we consider the landfill costs
associated with permitted and permittable airspace. 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; and
• senior management has approved the project.
Units-of-consumption 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 airspace 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. Our estimate of future landfill permitting, acquisition,
construction and preparation costs as of April 30, 2007 decreased to $387.7 million, compared to
$398.8 million as of April 30, 2006 and $363.3 million as of April 30, 2005. The decrease in estimated
future costs in fiscal 2007 is primarily as a result of work completed, the closure of the Hardwick facility
and revised engineering estimates, partially offset by increases related to expansions planned at Ontario
and Clinton County landfills. The increase in estimated future costs in fiscal year 2006, compared to fiscal
year 2005, was primarily due to the new Chemung County landfill operating contract.
The planned expansions at Ontario and Clinton landfills was the primary reason for the increase in
remaining permitted and permittable airspace to 94.1 million tons as of April 30, 2007 compared to
86.7 million tons as of April 30, 2006. Permitted and permittable airspace remaining as of April 30, 2005
was 81.7 million tons. The increase in fiscal year 2006 airspace, compared to fiscal year 2005 was primarily
as a result of additional permitted and permittable airspace from our newly acquired landfill operating
contract at Chemung. Landfill amortization expense for the years ended April 30, 2007, 2006 and 2005 was
$28.5 million, $23.8 million and $27.6 million, respectively. Landfill amortization expense increased in
fiscal year 2007 compared to fiscal 2006 primarily due to the startup of the Colebrook closure project in the
Central region and the true up of the Brockton closure project in the South Eastern region, partially offset
39
by a decrease due to lower volumes at the Worcester closure project. The decrease in landfill amortization
expense in fiscal year 2006 compared to fiscal year 2005 was primarily due to lower volumes in the
South Eastern region resulting from the completion of the Brockton project, partially offset by increased
amortization associated with the startup of the Worcester and Colebrook closure projects and the
Chemung County landfill.
Landfill Accounting—Capping, Closure and Post-Closure Costs
Capping includes installation of liners, drainage, compacted soil layers and topsoil over areas of a
landfill where total airspace has been consumed and waste is no longer being received. Capping activities
occur throughout the life of the landfill. Our engineering personnel estimate the cost for each capping
event based on the acreage to be capped and the capping materials and activities required. The estimates
also consider when these costs would actually be paid and factor in inflation and discount rates. The
engineers then quantify the landfill capacity associated with each capping event and the costs for each
event are amortized over that capacity as waste is received at the landfill.
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 site inspection, groundwater monitoring, leachate management, methane gas control
and recovery, and operation and maintenance costs to be incurred for a period which is generally for a
term of 30 years after final closure of a landfill. 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 estimates of costs to discharge capping, closure and post-closure asset retirement obligations for
landfills are developed in today’s dollars. These costs are then inflated to the period of performance using
an estimate of inflation which is updated annually (2.8% and 2.7% for fiscal year 2007 and 2006,
respectively). Capping, closure and post-closure liabilities are discounted using the credit adjusted risk-free
rate in effect at the time the obligation is incurred (8.9% and 7.6% for fiscal year 2007 and 2006
respectively). Accretion expense is necessary to increase the accrued capping, closure and post-closure
liabilities to the future anticipated obligation. To accomplish this, we accrete our capping, closure and
post-closure accrual balances using the same credit-adjusted, risk-free rate that was used to calculate the
recorded liability. Accretion expense on recorded landfill liabilities is recorded to cost of operations from
the time the liability is recognized until the costs are paid. Accretion expense amounted to $2.3 million,
$2.2 million and $2.2 million in fiscal years 2007, 2006 and 2005, respectively.
Our estimate of future capping, closure and post-closure costs was $205.0 million as of April 30, 2007,
compared to $185.1 million as of April 30, 2006 and $157.6 million as of April 30, 2005. The increase in
estimated costs in fiscal 2006 compared to fiscal year 2005 was primarily as a result of additional permitted
and permittable airspace from our newly acquired landfill operating contract at Chemung.
We provide for the accrual and amortization of estimated future obligations for closure and post-
closure based on tonnage placed into each site. With regards to capping, the liability is recognized and
these costs are amortized based on the airspace related to the specific capping event.
40
Accrued capping, closure and post-closure costs include the current and non-current portion of costs
associated with obligations for capping, closure and post-closure of our landfills. The changes to accrued
capping, closure and post-closure liabilities are as follows (in thousands):
Beginning balance, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revisions in estimates(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and other adjustments(3) . . . . . . . . . . . . . . . . . . . . .
Balance, April 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended April 30,
2006
$ 26,628
4,330
(1,252 )
2,224
(3,914 )
—
$ 28,016
2005
$ 25,223
4,774
(2,795)
2,201
(6,068)
3,293
$ 26,628
2007
$ 28,016
3,696
7,697
2,253
(3,290)
—
$ 38,372
(1) The increase in fiscal 2007 is primarily from capping, closure and post closure costs provided in
conjunction with the closure of the Hardwick landfill facility.
(2) Spending levels increased in fiscal year 2005 mainly due to closure activities at our Southbridge,
Massachusetts landfill.
(3) The increase in fiscal 2005 is as a result of capping, closure and post-closure accruals relating to the
acquisition of the Southbridge, Massachusetts landfill operating contract.
We estimate our future capping, closure and post-closure costs in order to determine the capping,
closure and post-closure expense per ton of waste placed into each landfill as further described in
Note 1(k) 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, 2007, we expect to make payments
relative to capping, closure and post-closure activities from fiscal year 2008 through fiscal year 2094.
Asset Impairment
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we
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 discounted future cash flows to
determine 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.
Upon adoption of SFAS No. 142 we eliminated the amortization of goodwill and annually assess
goodwill impairment at each fiscal year end by applying a fair value based test. We evaluate goodwill for
impairment based on fair value of each operating segment. We estimate fair value based on net future cash
flows discounted using an estimated weighted average cost of capital. We recognize an impairment if the
net book value exceeds the fair value of the discounted future cash flows.
41
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 management with the
assistance of 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 reference to past
claims experience, which considers both the frequency and settlement amount of claims.
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.
General
Revenues
Our revenues in our North Eastern, South 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 the Central and Western regions, consist of revenues from the sale of recyclable
commodities and operations and maintenance contracts of recycling facilities for municipal customers.
Our cellulose insulation business is conducted through a 50/50 joint venture with Louisiana-Pacific,
and accordingly, we recognize half of the joint venture’s net income on the equity method in our results of
operations. Also, in the “Other” segment, we have ancillary revenues including major customer accounts
and earnings from equity method investees.
Our revenues are shown net of inter-company eliminations. We typically establish our inter-company
transfer pricing based upon prevailing market rates. The table below shows, for the periods indicated, the
percentages and dollars of revenue attributable to services provided.
Despite an increase in the absolute dollar amounts, collection revenues as a percentage of total
revenues for fiscal year 2007 compared to fiscal year 2006 were lower compared to the prior year, mainly
because of the increase in landfill and recycling revenues. Overall, the dollar increase in collection
revenues year over year, was due to the positive impact of acquisitions in the Central, Western and
42
North Eastern regions and price increases throughout the solid waste segment. These increases were
partially offset by lower collection volumes, with the most significant impact coming from the
South Eastern region. The South Eastern region collection volumes declined as a result of overall market
declines in construction activity. Transfer volumes in the South Eastern and Central regions were also
impacted by these market conditions, which mainly accounted for the decrease in transfer revenues in
fiscal year 2007 compared to 2006.
Collection revenues as a percentage of total revenue in fiscal year 2006 were lower compared to fiscal
year 2005, mainly because of the increase in landfill revenue dollars. Total collection volume, including the
positive impact of acquisitions in the Central and Western regions, was down, which was more than offset
by price increases across all regions.
Landfill/disposal revenues increased in fiscal year 2007 compared to fiscal year 2006 primarily due to a
full year of both Chemung landfill in the Western region and the Colebrook closure project in the Central
region. Landfill price increases came from the North Eastern and Western regions in fiscal year 2007,
however, the price increases were partially offset by lower volumes in the South Eastern and North Eastern
regions. As a percentage of total revenues, landfill/disposal revenues increased in fiscal year 2006
compared to fiscal 2005 due to higher landfill prices across all regions and the effect of the addition of
Chemung landfill in the Western region and the Worcester and Colebrook closure projects in the
South Eastern and Central regions. In 2006, landfill/disposal volumes increased in all regions except the
South Eastern region, which reflected the impact of the completion of the Brockton closure project.
Recycling revenues are primarily from recycling facilities in the FCR region. The increase in recycling
revenue dollars for fiscal year 2007 compared to fiscal 2006 is primarily attributable to higher commodity
prices and volumes from the Company’s existing facilities. The dollar increase in fiscal year 2007 was also
due in part to a full year of Blue Mountain Recycling which included two recycling facilities and a small
recyclable material transfer station. Recycling revenues as a percentage of total revenue in fiscal year 2006
were lower compared fiscal year 2005, despite an increase in the absolute dollar amounts, mainly because
of the increase in landfill revenue dollars. The increase in recycling revenue dollars is primarily attributable
to higher volumes from our existing facilities as well as the acquisition of Blue Mountain Recycling.
2005
Fiscal Year Ended April 30,
2006
2007
Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Landfill/disposal facilities . . . . . . . . . . . . . . .
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . . . . . . . . . . . . . .
$ 237,877
80,132
31,221
122,093
$ 471,323
50.5% $ 253,282
97,801
17.0
33,638
6.6
25.9
130,451
100.0% $ 515,172
49.2% $ 260,951
106,465
19.0
6.5
30,892
25.3
148,682
100.0% $ 546,990
47.7%
19.5
5.6
27.2
100.0%
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. Cost of operations also includes accretion expense related to landfill capping, closure and
post closure, leachate treatment and disposal costs and depletion of landfill operating lease obligations.
General and administration expenses include management, clerical and administrative compensation
and overhead, professional services and costs associated with 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
43
units-of-consumption method, and the amortization of intangible assets (other than goodwill) using the
straight-line method. In accordance with SFAS No. 143, Accounting for Asset Retirement Obligations, except
for accretion expense, we amortize landfill retirement assets through a charge to cost of operations using a
straight-line rate per ton as landfill airspace is utilized. 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, other than
goodwill, to a zero net book value, and do not apply a salvage value to any 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 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.
We will have material financial obligations relating to capping, 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 these future financial obligations based on engineering estimates
of consumption of permitted landfill airspace over the useful life of any such landfill. There can be no
assurance that our financial obligations for capping, closure or post-closure costs will not exceed the
amount accrued and reserved or amounts otherwise receivable pursuant to trust funds.
Results of Operations
The following table sets forth for the periods indicated the percentage relationship that certain items
from our consolidated financial statements bear in relation to revenues.
Fiscal Year
Ended April 30,
2006
2007
2005
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 % 100.0 % 100.0%
64.1
Cost of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.1
General and administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13.9
Hardwick impairment and closing charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
0.1
Development project charges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65.9
13.8
13.1
4.9
0.1
66.0
13.0
12.5
—
0.3
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.8
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1
Income from equity method investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.6 )
0.4
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
1.3
(Benefit) provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.2
6.1
(1.1 )
—
(0.4 )
1.4
2.2
7.1
(0.2)
—
(0.1)
(1.6)
(Loss) income from continuing operations before discontinued operations . . . .
1.6 %
2.2 % (3.0)%
44
Fiscal Year 2007 versus Fiscal Year 2006
Revenues. Revenues increased $31.8 million, or 6.2% to $547.0 million in fiscal year 2007 from
$515.2 million in fiscal year 2006. Revenues from the rollover effect of acquired businesses accounted for
$15.1 million of the increase, including tuck-in hauling acquisitions in the Central, Western and
North Eastern regions, a full year of a newly acquired landfill closure project in the Central region, the
acquisition of three recycling facilities and a small recyclable material transfer station in the FCR region
and the new Chemung contract to operate a landfill and transfer station in the Western region. The effect
of acquisitions was partially offset by $0.5 million as a result of the transfer of a Canadian recycling
operation to a former employee. The revenue increase is also attributable to an increase in solid waste
revenues of $7.9 million, due to higher prices, accounting for $12.4 million, partially offset by decrease of
$4.5 million primarily due to lower volumes in the Central, Western and South Eastern regions. The
South Eastern region reductions in volume were partially offset by revenues from the true-up of the
Brockton closure project. Excluding the rollover effect of acquisitions, FCR revenue increased $9.3 million
due to increases in commodity prices and volume.
Cost of operations. Cost of operations increased $20.8 million or 6.1% to $360.7 million in fiscal year
2007 from $339.9 million in fiscal year 2006. Cost of operations as a percentage of revenues in fiscal year
2007 was 65.9%, which was relatively flat compared to 66.0% in fiscal year 2006.
General and administration. General and administration expenses increased $7.8 million, or 11.6% to
$74.9 million in fiscal year 2007 from $67.1 million in fiscal year 2006, and increased as a percentage of
revenues to 13.8% in fiscal year 2007 from 13.0% in fiscal year 2006. The dollar increase in general and
administration expenses was due primarily to higher compensation which includes the adoption of
SFAS No. 123(R), legal expenses, and bad debt allowances, partially offset by lower audit costs.
Depreciation and amortization. Depreciation and amortization expense increased $7.3 million, or
11.3%, to $71.7 million in fiscal year 2007 from $64.4 million in fiscal year 2006. Depreciation expense
increased by $3.2 million between periods due to capital additions. Landfill amortization expense increased
by $4.6 million primarily due to the startup of the Colebrook closure project in the Central region and the
true up of the Brockton closure project in the South Eastern region, partially offset by a decrease due to
lower volumes at the Worcester closure project. Depreciation and amortization expense as a percentage of
revenue increased to 13.1% for fiscal year 2007 from 12.5% for fiscal year 2006.
Hardwick impairment and closing charge. The Hardwick landfill, which was acquired in March 2003,
located in Hardwick, Massachusetts, was closed following the defeat of a proposed amendment to the
Hardwick zoning bylaws at a Hardwick Town Meeting held in January 2007. Following such closure, the
Company reviewed its options available and efforts to overturn the adverse decisions of the Town of
Hardwick and its Zoning Board of Appeals, including the Company’s pending litigation and its efforts to
effect a reconsideration of the adverse Town Meeting votes. In connection with such review, the Company
assessed the likelihood of a successful outcome in relation to the expected costs of those efforts, and on the
basis of the assessment the Company decided to cease such efforts. As a result, the Company recorded an
impairment charge of $18.7 million which reflects the write-off of the net book value of the facility along
with closing charges of $8.2 million in estimated future cash expenditures on capping, closure and post
closure of the landfill.
Development project charges. In the fourth quarter of fiscal year 2007, the Company wrote-off
$0.8 million in deferred acquisition costs associated with certain development projects deemed no longer
viable. Due to the uncertainty regarding if and when the project will be restarted, a charge of $1.3 million
was recorded in fiscal year 2006 to write-off the development costs incurred in pursuit of a contract to
develop and operate the Town of Templeton, Massachusetts sanitary landfill.
45
Operating income. Operating income decreased by $30.3 million, or 71.5%, to $12.1 million in fiscal
year 2007 from $42.4 million in fiscal year 2006 and decreased as a percentage of revenues to 2.2% in fiscal
year 2007 compared to 8.2% in fiscal year 2006. The margin decrease was primarily due to the impairment
charge taken for the closure of the Hardwick landfill facility and the write-off of deferred acquisition costs
as described above. Operating income for the solid waste regions was relatively flat as higher revenues
were offset by higher operating costs, as described above. FCR’s operating income increased in fiscal year
2007 compared to fiscal year 2006 mainly due to the effect of acquisitions, higher commodity prices and
volumes.
Interest expense, net. Net interest expense increased $7.6 million, or 24.3% to $38.9 million in fiscal
year 2007 from $31.3 million in fiscal year 2006. This increase is attributable to higher average interest
rates, an increase from 7.8% to 8.5%, along with higher debt levels in fiscal year 2007 compared to the
prior year period. Net interest expense, as a percentage of revenues, increased to 7.1% for fiscal year 2007
from 6.1% for fiscal year 2006.
Income from equity method investments. The income from equity method investments for fiscal year
2007 is derived from the Company’s interests in GreenFiber and RecycleRewards (formerly RecycleBank).
GreenFiber reported income of which the Company’s share was $2.1 million for fiscal year 2007, compared
to $5.7 million for fiscal year 2006. GreenFiber’s revenue and income were down in fiscal year 2007 due to
a decline in new residential construction and the higher cost of fiber and transportation. RecycleRewards
reported a loss for fiscal year 2007, of which the Company’s share was $1.1 million compared to a loss of
$0.1 million in fiscal year 2006.
Other (income)/expense, net. Other income in fiscal year 2007 was $0.6 million compared to other
income of $1.9 million in fiscal year 2006. Included in other income are dividends of $0.2 million and
$0.4 million for fiscal year 2007 and 2006 respectively from our investment in Evergreen National
Indemnity Company (“Evergreen”). Other income in fiscal year 2006 also consisted of a gain on the sale of
Sterling Construction, Inc. (formerly Oakhurst Company, Inc.) warrants in the amount of $1.2 million. At
the time of sale, there was no book value associated with these warrants as they had been previously
written off.
(Benefit) provision for income taxes. (Benefit) provision for income taxes decreased $15.7 million for
fiscal year 2007 to ($8.5) million from $7.2 million for fiscal year 2006. The effective tax rate decreased to
33.9% for fiscal year 2007 from 38.6% for fiscal year 2006. Due to the pre-tax loss from continuing
operations, the income tax benefit and the resulting effective tax rate for fiscal 2007 decreased primarily
due to certain state net operating losses for which the Company is receiving no tax benefit. In fiscal 2006
when the Company had pre-tax income from continuing operations, the income tax provision and resulting
effective tax rate were reduced primarily due to a decrease in the overall state tax rate and a decrease in
the valuation allowance on certain state net operating losses.
Loss from discontinued operations/Loss on disposal of discontinued operations. During the fourth
quarter of fiscal year 2007, the Company completed the sale of the assets of the Holliston transfer station
for cash sale proceeds of $7.4 million. The transaction required discontinued operations treatment under
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. Therefore the operating
losses (net of tax) of the Holliston transfer station have been reclassified from continuing to discontinued
operations in fiscal years 2007, 2006 and 2005. Also in connection with the discontinued accounting
treatment, the loss (net of tax) from the sale amounting to $0.7 million has been recorded and classified as
a loss on disposal of discontinued operations.
Fiscal Year 2006 versus Fiscal Year 2005
Revenues. Revenues increased $43.9 million, or 9.3% to $515.2 million in fiscal year 2006 from
$471.3 million in fiscal year 2005. Revenues from the rollover effect of acquired businesses accounted for
46
$18.7 million of the increase, including tuck-in hauling acquisitions in the Central and Western regions,
newly acquired landfill closure projects in the Central and South Eastern regions, the acquisition of two
recycling facilities and a small recyclable material transfer station in the FCR region and the new Chemung
contract to operate a landfill and transfer station in the Western region. The effect of acquisitions was
partially offset by $1.2 million as a result of the transfer of a Canadian recycling operation to its former
manager. The revenue increase is also attributable to an increase in solid waste revenues of $24.3 million,
due to higher prices and landfill volumes in the North Eastern and Western regions. FCR revenue
increased $2.1 million in fiscal year 2006 compared to fiscal year 2005 due primarily to volume increases,
pricing being flat to down slightly.
Cost of operations. Cost of operations increased $37.9 million or 12.5% to $339.9 million in fiscal
year 2006 from $302.0 million in fiscal year 2005. Cost of operations as a percentage of revenues increased
to 66.0% in fiscal year 2006 from 64.1% in the prior year. The percentage increase in cost of operations
expense is primarily due to higher fuel costs as well as higher transportation costs arising from the
shipments of higher volumes to our landfills and the higher than expected costs associated with the
obligation to provide wood chips to a bio-fuel plant in connection with the acquisition of the Juniper Ridge
landfill in the North Eastern region.
General and administration. General and administration expenses increased $4.9 million, or 7.9% to
$67.1 million in fiscal year 2006 from $62.2 million in fiscal year 2005, and remained nearly flat as a
percentage of revenues at 13.0% for fiscal year 2006 versus 13.1% for fiscal year 2005. The dollar increase
in general and administration expenses was due to higher legal, travel, compensation, consulting costs
related to software development, communication and training costs and expenses related to compliance
with the Sarbanes Oxley Act.
Development project charges. Due to the uncertainty regarding if and when the project will be
restarted, a charge of $1.3 million was recorded in fiscal year 2006 to write-off the development costs
incurred in pursuit of a contract to develop and operate the Town of Templeton, Massachusetts sanitary
landfill. A charge of $0.3 million was recorded in fiscal year 2005 to reflect the write-off of development
costs associated with the unsuccessful negotiations for the development and operation of the McKean
County, Pennsylvania landfill.
Depreciation and amortization. Depreciation and amortization expense decreased $1.0 million, or
1.5%, to $64.4 million in fiscal year 2006 from $65.4 million in fiscal year 2005. While depreciation expense
increased by $2.7 million between periods, landfill amortization expense decreased by $3.7 million
primarily due to the South Eastern region Brockton project reaching completion, amounting to a
$5.1 million decrease, partially offset by increased amortization associated with the startup of the
Worcester and Colebrook closure projects and the Chemung County landfill. Depreciation and
amortization expense as a percentage of revenue decreased to 12.5% for fiscal year 2006 from 13.9% for
fiscal year 2005.
Operating income. Operating income increased by $1.0 million, or 2.4%, to $42.4 million in fiscal
year 2006 from $41.4 million in fiscal year 2005 and decreased as a percentage of revenues to 8.2% in fiscal
year 2006 compared to 8.8% in fiscal year 2005. The margin decrease was due to higher revenues being
more than offset by higher operating costs and development project charges as described above. The
North Eastern region’s operating income increased slightly in fiscal year 2006 compared to the prior year
due to higher collection volumes and pricing and higher operating income at the Maine Energy facility due
to higher power production. The South Eastern region’s operating income increased in fiscal year 2006
compared to fiscal year 2005 due primarily to lower landfill amortization, partially offset by deferred costs
as mentioned above. The Central and Western region’s operating income decreased in fiscal year 2006
compared to fiscal year 2005 due primarily to higher operating costs and in the Western region, the
temporary closing of the Wellsboro location and the associated legal costs. FCR’s operating income
47
increased in fiscal year 2006 compared to the prior year due to the effect of the acquisitions, partially offset
by higher operating costs.
Interest expense, net. Net interest expense increased $2.5 million, or 8.7% to $31.3 million in fiscal
year 2006 from $28.8 million in fiscal year 2005. This increase is attributable to higher average interest
rates along with higher average borrowings in fiscal year 2006 compared to the prior year, driven by the
higher capital expenditures in fiscal year 2006 versus 2005 plus the acquisitions. Net interest expense, as a
percentage of revenues, remained constant at 6.1% for fiscal year 2006 compared to fiscal year 2005.
Income from equity method investments. The income from equity method investment of $5.7 million
and $2.9 million for fiscal years 2006 and 2005, respectively, was primarily from the Company’s 50% joint
venture interest in GreenFiber. The increase is attributable to higher sales volume and prices in the
current fiscal year compared to the prior year comparable period. Late in the third quarter of fiscal year
2006 the Company made a $3.0 million investment, representing at that time a 20.0% interest in the
common stock, in RecycleBank LLC, a company which markets an incentive-based recycling service that
gives homeowners credits for recycling which can be used with participating merchants. This investment is
accounted for as an equity method investment. The loss from this equity method investment was
$0.1 million in fiscal year 2006.
Other (income)/expense, net. Other income in fiscal year 2006 was $1.9 million compared to other
income of $0.1 million in fiscal year 2005. Other income in fiscal year 2006 consisted primarily of a gain on
the sale of Sterling Construction, Inc. (formerly Oakhurst Company, Inc.) warrants in the amount of
$1.2 million. At the time of sale, there was no book value associated with these warrants as they had been
previously written off. Also included in other income in both periods are dividends of $0.4 million from our
investment in Evergreen National Indemnity Company (“Evergreen”). Other expense in fiscal year 2005
consisted of the costs of winding down the operations of the New Heights power plant and a loss on
retirement of fixed assets, partially offset by the dividend from Evergreen.
(Benefit) provision for income taxes. Provision for income taxes increased $1.1 million for fiscal year
2006 to $7.2 million from $6.1 million for fiscal year 2005. The effective tax rate decreased to 38.6% for
fiscal year 2006 from 43.9% for fiscal year 2005 primarily due to a decrease in the overall state tax rate and
a decrease in the valuation allowance on certain state net operating losses.
Loss from discontinued operations/Loss on disposal of discontinued operations. During the second
quarter of fiscal 2005, we completed the sale of the assets of Data Destruction Services, Inc. (“Data
Destruction”) for cash sale proceeds of $3.0 million. This shredding operation had been historically
accounted for as a component of continuing operations up until its sale. The transaction required
discontinued operations treatment under SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Therefore the operating results of Data Destruction have been reclassified from
continuing to discontinued operations in fiscal 2005 and 2004. Also in connection with the discontinued
accounting treatment, the loss (net of tax) from the sale amounting to $0.1 million has been recorded and
classified as a loss on disposal of discontinued operations.
Liquidity and Capital Resources
Our business is capital intensive. Our capital requirements include acquisitions, fixed asset purchases
and capital expenditures for landfill development and cell construction, as well as site and cell closure. Our
capital expenditures are broadly defined as pertaining to either growth or maintenance activities. Growth
capital expenditures are defined as costs related to development of new airspace, permit expansions, new
recycling contracts along with incremental costs of equipment and infrastructure added to further such
activities. Growth capital expenditures include the cost of equipment added directly as a result of new
business as well as expenditures associated with increasing infrastructure to increase throughput at transfer
stations and recycling facilities. Growth capital expenditures also include those outlays associated with
48
acquiring landfill operating leases, which do not meet the operating lease payment definition, but which
were included as a commitment in the successful bid. Maintenance capital expenditures are defined as
landfill cell construction costs not related to expansion airspace, costs for normal permit renewals and
replacement costs for equipment due to age or obsolescence.
Our capital expenditures were $102.1 million in fiscal year 2007 compared to $112.8 million in fiscal
year 2006. Growth capital expenditures were $36.7 and $47.5 million in fiscal years 2007 and 2006
respectively, and maintenance capital expenditures were $65.4 and $65.3 million in fiscal years 2007 and
2006 respectively. Capital spending was higher in fiscal year 2006 mainly due to capital expenditures
related to newly acquired landfill operating contracts and existing landfills as well as upgrades to
equipment at various recycling facilities. We expect capital spending to decrease to between $76.0 million
and $80.0 million in fiscal year 2008, because the capital investment in the new landfills has been
completed.
We had a net working capital deficit of $105.7 million at April 30, 2007 compared to a net working
capital deficit of $23.2 million at April 30, 2006. Working capital, net comprises current assets, excluding
cash and cash equivalents, minus current liabilities. The main factor accounting for the decrease was the
classification of the Company’s Series A preferred shares as a current liability at April 30, 2007 as the
Company expects to redeem these in fiscal year 2008. Also contributing to the decrease were higher
accounts payable and higher current accruals for landfill capping, closure and post closure obligations.
Accrued interest was also higher at April 30, 2007 due to slightly higher borrowings, higher interest rates as
well as the timing of borrowings on the Company’s credit facility. Offsetting the decrease in working capital
were higher accounts receivable associated with higher revenues as well as higher deferred income taxes.
On April 29, 2005, we entered into a senior credit facility with a group of banks for which Bank of
America is acting as agent. The facility originally consisted of a senior secured revolving credit facility in
the amount of $350.0 million. On July 25, 2006, we amended the facility to increase the amount of the
facility per the original agreement to $450.0 million, and on May 9, 2007, we further amended the facility
to increase the amount of the facility to $525.0 million, including a $175.0 million term B loan and a
revolver of $350.0 million. This credit facility is secured by all of our assets, including our interest in the
equity securities of our subsidiaries. The credit facility matures April 2010. The initial borrowings under
the credit facility were used to repay all outstanding indebtedness under the former credit facility. Further
advances were available under the revolver in the amount of $145.5 million and $65.4 million as of
April 30, 2007 and 2006, respectively. These available amounts are net of outstanding irrevocable letters of
credit totaling $52.5 million and $56.7 million as of April 30, 2007 and 2006, respectively. As of April 30,
2007 and 2006 no amounts had been drawn under the outstanding letters of credit.
The credit facility agreement contains covenants that may limit our activities, including covenants that
restrict dividends on common stock, limit capital expenditures, and set minimum net worth and interest
coverage and leverage ratios. As of April 30, 2007, we were in compliance with all covenants. See Note 11
to the financial statements for further disclosure regarding the May 9, 2007 amendment to the credit
facility agreement.
In fiscal year 2005, we recorded a loss on extinguishment of debt of $1.7 million as a result of the
write-off of deferred financing costs associated with the old senior secured credit facility.
We have historically 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. We terminated two interest rate swap agreements effective April 28, 2005
49
concurrent with entering into the new credit facility. We received net proceeds of $0.4 million which were
amortized against interest expense over the original term of the swap contracts, to February 2006.
We are party to three separate interest rate swap agreements with three banks for a notional amount
of $75.0 million, which effectively fix the interest index rate on the entire notional amount at 4.4% from
May 4, 2006 through May 5, 2008. These agreements are specifically designated to interest payments under
our term loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
On August 1, 2007, we entered into three separate interest rate zero-cost collars for a notional amount
of $80.0 million. The collars have an interest index rate cap of 6.00% and an interest index rate floor of
approximately 4.48% and are effective from November 6, 2006 through May 5, 2009. These agreements are
specifically designated to interest payments under the revolving credit facility are accounted for as effective
cash flow hedges pursuant to SFAS No. 133.
As of April 30, 2006, we had outstanding $195.0 million of 9.75% senior subordinated notes (the
“notes”) which mature in January 2013. The senior subordinated note indenture contains covenants that
restrict dividends, stock repurchases and other payments, and limits the incurrence of debt and issuance of
preferred stock. The notes are guaranteed jointly and severally, fully and unconditionally by our significant
wholly-owned subsidiaries.
On December 28, 2005, we completed a $25.0 million financing transaction involving the issuance by
the Finance Authority of Maine (the “Authority”) of $25.0 million aggregate principal amount of its Solid
Waste Disposal Revenue Bonds (Casella Waste Systems, Inc. Project) Series 2005 (the “Bonds”). The
Bonds are issued pursuant to an indenture, dated as of December 1, 2005 (the “Indenture”) and are
enhanced by an irrevocable, transferable direct-pay letter of credit issued by Bank of America, N.A.
Pursuant to a Financing Agreement, dated as of December 1, 2005, by and between us and the Authority,
we have borrowed the proceeds of the Bonds to pay for certain costs relating to (1) landfill development
and construction, vehicle, container and related equipment acquisition for solid waste collection and
transportation services, improvements to existing solid waste disposal, hauling, transfer station and other
facilities, other infrastructure improvements, and machinery and equipment for solid waste disposal
operations owned and operated by us, or a related party, all located in Maine; and (2) the issuance of the
Bonds. At April 30, 2006, remaining issuance proceeds of $5.5 million were recorded as restricted cash to
be used to pay for the capital expenditures in Maine as they are incurred. All proceeds related to the
issuance were drawn and utilized according to the terms of the agreement during fiscal year 2007.
Net cash provided by operating activities in fiscal years ended April 30, 2007 and 2006 amounted to
$81.5 million and $75.5 million, respectively. Fiscal year 2007 net loss adjusted for impairment charge, loss
on disposal of discontinued operations, loss from discontinued operations and development project
charges totaled $11.0 million. This resulted in a decrease of $2.0 million when compared to the fiscal year
2006 total of $13.0 million. Deferred taxes also contributed to a reduction of $16.2 million in fiscal year
2007 compared to fiscal year 2006. More than offsetting these reductions were higher depreciation and
amortization in fiscal year 2007 versus fiscal year 2006 resulting in a $7.4 million increase. Changes in
assets and liabilities, net of effects of acquisitions and divestitures increased $11.2 million from fiscal year
2006 to fiscal year 2007. Changes in accounts receivable amounted to a $1.4 million increase in fiscal year
2007 compared to fiscal year 2006. This is attributable to larger increases in revenue from fiscal year 2005
to fiscal year 2006 versus the increase from fiscal year 2006 to fiscal year 2007. The increase in accounts
payable in fiscal year 2007 amounted to an increase of $6.5 million compared with a decrease of
$1.2 million in fiscal year 2006. The increase is due to higher accounts payable at April 30, 2007 versus the
prior year related to the timing of capital and other expenditures. Changes in other assets and liabilities
increased $2.0 million from the prior year due primarily to the following: (1) lower payroll accruals at
April 30, 2006 associated with year end bonus accruals amounting to a $4.6 million increase as well as
(2) higher interest accruals in the current fiscal year amounting to a $0.8 million increase which is related
50
to higher borrowings and higher interest rates in fiscal year 2007, offset by (3) reductions associated with
higher net refundable income taxes amounting to $2.6 million decrease in fiscal year 2007 compared to
fiscal year 2006 and (4) lower increases in other accrued current liabilities in fiscal year 2007 versus fiscal
year 2006 amounting to a $1.0 million decrease.
Net cash used in investing activities was $98.8 million in fiscal year 2007 compared to $149.1 used in
investing activities in fiscal year 2006. The decrease in cash used in investing activities was due to (1) higher
acquisition activity in the prior year when the Company acquired the entire membership interest in Blue
Mountain Recycling, LLC, amounting to $16.9 million, (2) lower capital expenditures in fiscal year 2007 of
$10.7 million, (3) lower payments on landfill operating lease contracts amounting to a $5.5 million
reduction as the Company made initial payments associated with the Chemung County landfill in fiscal
year 2006, (4) the result of $5.5 million in funds becoming available from escrow associated with the
Company’s revenue bonds during fiscal year 2007 and (5) the receipt of proceeds on the divestiture of the
Holliston Transfer Stations amounting to $7.4 million.
Net cash provided by financing activities was $23.8 million for fiscal year 2007 compared to
$74.0 million in fiscal year 2006. The decrease in cash provided by financing activities is primarily due to
lower net borrowings to fund investing activities in the current period. The term B loan proceeds were used
to pay down the revolver for no net change in total borrowings.
In fiscal year 2007, we acquired thirteen solid waste hauling operations for an aggregate consideration
of $3.4 million, consisting of $2.8 million in cash, $0.4 million in notes payable and $0.2 in other liabilities
assumed. In fiscal year 2006, we acquired fifteen solid waste hauling, disposal and recycling operations for
an aggregate consideration of $26.1 million, consisting of $19.7 million in cash, $0.8 million in notes
payable and $5.6 in other liabilities assumed. We also obtained a landfill operating lease contract in fiscal
year 2006 for the Chemung County landfill which also includes a transfer station and recycling facility. In
fiscal year 2005, we acquired ten solid waste hauling and disposal operations for an aggregate
consideration of $10.4 million, consisting of $9.5 million in cash and $0.9 million in other liabilities
assumed. For the landfill operating lease contracts, we made payments totaling $5.0 million, $10.5 million
and $20.3 million in fiscal years 2007, 2006 and 2005, respectively.
We generally meet liquidity needs from operating cash flow and our credit facility. These liquidity
needs are primarily for capital expenditures for landfill development, vehicles and containers, debt service
costs and capping, closure and post-closure expenditures. It is our intention to continue to grow organically
and through acquisitions. The funds to do so are expected to be obtained from operations and our credit
facility which has an accordion feature for an additional $50.0 million in credit availability based on the
amendment completed on May 9, 2007.
We are expecting to redeem our outstanding Series A redeemable preferred stock on August 11, 2007.
The aggregate redemption price will be approximately $75.1 million and we expect to borrow under our
existing credit facility to effect this redemption.
We have filed a universal shelf registration statement with the SEC. We could from time to time issue
securities thereunder in an amount of up to $250.0 million. However, our ability and willingness to issue
securities pursuant to this registration statement will depend on market conditions at the time of any such
desired offering and therefore we may not be able to issue such securities on favorable terms, if at all.
51
Contractual Obligations
The following table summarizes our significant contractual obligations and commitments as of
April 30, 2007 (in thousands) and the anticipated effect of these obligations on our liquidity in future years:
2008
2009-2010 2011-2012
Thereafter
Total
Fiscal Year(s) ending April 30,
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,215 $ 251,602
579
Capital lease obligations . . . . . . . . . . . . . . . . . . .
82,178
Interest obligations(1) . . . . . . . . . . . . . . . . . . . . .
38,303
Operating leases(2) . . . . . . . . . . . . . . . . . . . . . . .
13,381
Capping / closure / post-closure. . . . . . . . . . . . .
Redeemable preferred securities(3) . . . . . . . . .
—
Total contractual cash obligations(4) . . . . . . . . $ 141,485 $ 386,043
1,104
40,607
14,384
9,118
75,057
$
278 $ 220,000 $ 473,095
1,754
—
71
198,718
34,454
41,479
145,960
78,273
15,000
204,980
172,825
9,656
75,057
—
—
$ 66,484 $ 505,552 $ 1,099,564
(1) Interest obligations based on long-term debt and capital lease balances as of April 30, 2007. Interest
obligations related to variable rate debt were calculated using variable rates in effect at April 30, 2007.
(2) Includes obligations related to landfill operating lease contracts.
(3) Assumes redemption on the seventh anniversary of the closing date at book value which includes all
accrued and unpaid dividends.
(4) Contractual cash obligations do not include accounts payable or accrued liabilities, which will be paid
in fiscal year 2008.
We believe that our cash provided internally from operations together with our senior secured credit
facility as amended May 9, 2007, including the accordion feature for an additional $50.0 million, should
enable us to meet our working capital and other cash needs for the foreseeable future.
Inflation and Prevailing Economic Conditions
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 have implemented a fuel surcharge program, which is
designed to recover fuel price fluctuations. 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.
New Accounting Standards
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
(“SFAS No. 154”) which replaces APB Opinion No. 20, Accounting Changes (“APB No. 20”), and
SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB
Opinion No. 28. SFAS No. 154 provides guidance on the accounting for and reporting of accounting
changes and error corrections. Specifically, this statement requires “retrospective application” of the direct
effect for a voluntary change in accounting principle to prior periods’ financial statements, if it is
practicable to do so. SFAS No. 154 also strictly redefines the term “restatement” to mean the correction of
an error by revising previously issued financial statements. SFAS No. 154 replaces APB No. 20, which
52
required that most voluntary changes in accounting principles be recognized by including in net income of
the period of the change the cumulative effect of changing to the new accounting principle. The adoption
of SFAS No. 154, effective May 1, 2006, had no impact on the Company’s financial position or results of
operations.
On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.
FIN No. 48 requires a company to evaluate whether the tax positions taken by a company will more likely
than not be sustained upon examination by the appropriate taxing authority. FIN No. 48 also provides
guidance on how a company should measure the amount of benefit that the company is to recognize in its
financial statements. Under FIN No. 48, a company should also classify a liability for unrecognized tax
benefits as current to the extent the company anticipates making a payment within one year. FIN No. 48
also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact this statement will have on its financial position and
results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”),
which defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to other existing
accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not
require any new fair value measurements. However, the application of this statement may change the
current practice for fair value measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the
impact this statement will have on its financial position and results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”).
SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 is
effective for fiscal years ending after November 15, 2006. The Company adopted this statement during
fiscal year 2007, which did not have a material impact on its financial position and results of operations.
In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and
Financial Liabilities—Including an amendment of FASB Statement No. 155 (‘SFAS No. 159”).
SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair
value.SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the impact this statement will have on its
financial position and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
At April 30, 2007, our outstanding variable rate debt consisted of the $252.0 million senior secured
revolving credit facility and $25.0 million of FAME Bonds. 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 $2.8 million. The remainder of our debt is at fixed rates and not subject to interest rate risk.
We are party to three separate interest rate swap agreements with three banks for a notional amount
of $75.0 million, which effectively fix the interest index rate on the entire notional amount at 4.4% from
May 4, 2006 through May 5, 2008. These agreements are specifically designated to interest payments under
our term loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
53
On August 1, 2006, we entered into three separate interest rate zero-cost collars for an additional
notional amount of $80.0 million. The collars have an interest index rate cap of 6.00% and an interest
index rate floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009.
These agreements are specifically designated to interest payments under the revolving credit facility and
are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
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, 2007, to minimize our
commodity exposure, we were party to twenty-three 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 income is estimated at $5.9 million as of
April 30, 2007, without considering our hedging agreements, which are solely for OCC and ONP, but
considering our revenue share contracts. The use of the Company’s hedging instruments would reduce the
impact by approximately $0.9 million.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Casella Waste Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Casella Waste Systems, Inc. and
subsidiaries (“the Company”) as of April 30, 2007 and the related consolidated statements of operations,
stockholders’ equity and comprehensive income (loss), and cash flows for the year then ended. We also
have audited management’s assessment, included in the accompanying Management’s Report on Internal
Control over Financial Reporting, appearing under item 9A, that Casella Waste Systems, Inc. and
subsidiaries maintained effective internal control over financial reporting as of April 30, 2007, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Casella Waste Systems, Inc. and subsidiaries’
management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting.
Our responsibility is to express an opinion on these financial statements, an opinion on management’s
assessment, and an opinion on the effectiveness of the Company’s internal control over financial reporting
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material respects. Our
audit of the financial statements included 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. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial
reporting, evaluating management’s assessment, testing and evaluating the design and operating
effectiveness of internal control, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Casella Waste Systems, Inc. and subsidiaries as of April 30, 2007 and the
results of their operations and their cash flows for the year then ended in conformity with accounting
55
principles generally accepted in the United States of America. Also, in our opinion, management’s
assessment that Casella Waste Systems, Inc. and subsidiaries maintained effective internal control over
financial reporting as of April 30, 2007 is fairly stated, in all material respects, based on criteria established
in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Furthermore, in our opinion, Casella Waste Systems, Inc. and
subsidiaries maintained, in all material respects, effective internal control over financial reporting as of
April 30, 2007, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO).
As discussed in Note 13 to the consolidated financial statements, the Company adopted
SFAS No. 123(R), Share-Based Payment, effective May 1, 2006.
VITALE, CATURANO & COMPANY, LTD.
June 18, 2007
Boston, Massachusetts
56
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Casella Waste Systems, Inc.:
In our opinion, the consolidated balance sheet as of April 30, 2006 and the related consolidated statements
of operations, stockholders’ equity and cash flows for each of two years in the period ended April 30, 2006
present fairly, in all material respects, the financial position of Casella Waste Systems, Inc. and its
subsidiaries at April 30, 2006, and the results of their operations and their cash flows for each of the two
years in the period ended April 30, 2006, in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement schedule listed under Item
15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility is to express an opinion
on these financial statements and financial statement schedule based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
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.
PricewaterhouseCoopers LLP
Boston, MA
June 21, 2006, except with respect to our opinion on the consolidated financial statements insofar as it
relates to the effects to discontinued operations discussed in Note 18 as to which the date is June 22, 2007.
57
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control
over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. The Company’s management assessed the effectiveness of the Company’s
internal control over financial reporting as of April 30, 2007. In making this assessment, the Company’s
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on its assessment, management
concluded that, as of April 30, 2007, the Company’s internal control over financial reporting is effective
based on those criteria. The Company’s management assessment of the effectiveness of the Company’s
internal control over financial reporting as of April 30, 2007 has been audited by Vitale Caturano &
Company, LTD., an independent registered public accounting firm, as stated in their report which appears
herein.
58
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 $650
and $1,592 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable—officers/employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refundable income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net of accumulated depreciation and
amortization of $387,615 and $421,532 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes receivable—officers/employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in unconsolidated entities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets under contractual obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-current assets of discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2006
April 30,
2007
$ 7,425
72
$ 12,363
73
55,359
87
—
5,115
2,975
5,034
1,982
925
78,974
474,292
171,258
2,762
17,887
916
—
44,491
937
12,602
6,992
732,137
60,517
87
1,340
5,518
3,524
8,215
1,636
—
93,273
487,621
173,350
2,217
12,734
916
1,546
49,969
55
10,885
—
739,293
$ 811,111
$ 832,566
The accompanying notes are an integral part of these consolidated financial statements.
59
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Series A redeemable, convertible preferred stock . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current accrued capping, closure and post-closure costs . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities of discontinued operations. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt, less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations, less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued capping, closure and post-closure costs, less current portion . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
COMMITMENTS AND CONTINGENCIES
Series A redeemable, convertible preferred stock—
April 30,
2006
April 30,
2007
$
527
1,061
—
45,770
6,776
6,650
200
4,771
28,184
826
94,765
452,720
1,747
23,245
6,957
11,757
$
1,215
1,104
74,018
52,371
8,555
9,275
—
8,921
31,166
—
186,625
476,225
650
29,451
—
10,119
Authorized—55,750 shares, issued and outstanding—53,000 as of April 30,
2006, liquidation preference of $1,000 per share plus accrued but
unpaid dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70,430
—
STOCKHOLDERS’ EQUITY:
Class A common stock—
Authorized—100,000,000 shares, $0.01 par value; issued and outstanding—
24,185,000 and 24,332,000 shares as of April 30, 2006 and April 30, 2007,
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 (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
242
243
10
159
274,297
(125,218 )
149,490
10
(1,001)
273,345
(143,101)
129,496
$ 811,111
$ 832,566
The accompanying notes are an integral part of these consolidated financial statements.
60
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses:
Cost of operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General and administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hardwick impairment and closing charge . . . . . . . . . . . . . . . . . . . . . .
Development project charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended April 30,
2006
$ 515,172
2007
$ 546,990
2005
$ 471,323
302,061
62,166
65,432
—
295
339,945
67,111
64,383
—
1,329
360,652
74,855
71,740
26,892
752
429,954
472,768
534,891
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
41,369
42,404
12,099
Other expense/(income), net:
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from equity method investments. . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(453)
29,220
(2,883)
1,716
(99)
(928 )
32,215
(5,742 )
—
(1,880 )
(1,265)
40,124
(1,051)
—
(572)
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27,501
23,665
37,236
(Loss) income from continuing operations before income taxes and
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Benefit) provision for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations before discontinued
13,868
6,083
18,739
7,225
(25,137)
(8,529)
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,785
11,514
(16,608)
Discontinued Operations:
Loss from discontinued operations (net of income tax benefit of
$262, $265 and $349) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(434)
(410 )
(558)
Loss on disposal of discontinued operations (net of income tax
benefit (provision) of ($692) and $449) . . . . . . . . . . . . . . . . . . . . . .
(82)
—
(717)
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income available to common stockholders . . . . . . . . . . . . . .
7,269
3,338
$ 3,931
11,104
3,432
$ 7,672
(17,883)
3,588
$ (21,471)
The accompanying notes are an integral part of these consolidated financial statements.
61
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(in thousands, except for per share data)
Fiscal Year Ended April 30,
2006
2005
2007
Earnings Per Share:
Basic:
(Loss) income from continuing operations before discontinued
operations available to common stockholders . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of discontinued operations, net . . . . . . . . . . . . . . . . . . . .
$ 0.18
(0.02)
—
$ 0.33
(0.02 )
—
$ (0.80)
(0.02)
(0.03)
Net (loss) income per common share available to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.16
$ 0.31
$ (0.85)
Basic weighted average common shares outstanding. . . . . . . . . . . . . . . . .
24,679
24,980
25,272
Diluted:
(Loss) income from continuing operations before discontinued
operations available to common stockholders . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of discontinued operations, net . . . . . . . . . . . . . . . . . . . .
$ 0.18
(0.02)
—
$ 0.32
(0.02 )
—
$ (0.80)
(0.02)
(0.03)
Net (loss) income per common share available to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.16
$ 0.30
$ (0.85)
Diluted weighted average common shares outstanding . . . . . . . . . . . . . .
25,193
25,368
25,272
The accompanying notes are an integral part of these consolidated financial statements.
62
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands)
Stockholders’ Equity
Class A
Common
Stock
Class B
Common
Stock
Balance, April 30, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of Class A common stock from the exercise of stock
# of
Shares
23,496 $ 235
Par
Value Shares
988
# of
Par
Value
$ 10
warrants, options and employee stock purchase plan, net . . . . . . . . .
189 $ 2
—
$ —
Issuance of Class A common stock from the conversion of
preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate swaps and commodity hedges,
175
2
— —
— —
—
—
—
—
—
—
net of taxes and reclassification adjustments. . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, April 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— —
— —
— —
23,860 $239
—
—
—
988
—
—
—
$10
Issuance of Class A common stock from the exercise of stock
options and employee stock purchase plan, net . . . . . . . . . . . . . . . . . .
256 $ 2
—
$ —
Issuance of Class A common stock from the conversion of
preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate swaps and commodity hedges,
69
1
— —
— —
—
—
—
—
—
—
net of taxes and reclassification adjustments. . . . . . . . . . . . . . . . . . . . .
Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, April 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— —
— —
— —
24,185 $ 242
—
—
—
988
—
—
—
$ 10
Issuance of Class A common stock from the exercise of stock options
and employee stock purchase plan, net . . . . . . . . . . . . . . . . . . . . . . . . .
Equity compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of preferred stock dividend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate swaps and commodity hedges,
147 $ 1
— —
— —
— —
—
—
—
—
$ —
—
—
—
net of taxes and reclassification adjustments. . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, April 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
— —
— —
24,332 $ 243
—
—
988
—
—
$ 10
The accompanying notes are an integral part of these consolidated financial statements.
63
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)
(In thousands)
Balance, April 30, 2004 . . . . . . . . . . . . . . .
Issuance of Class A common stock
from the exercise of stock warrants,
options and employee stock
purchase plan, net . . . . . . . . . . . . . . . . .
Issuance of Class A common stock
from the conversion of preferred
stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of preferred stock dividend . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate
swaps and commodity hedges, net
of taxes and reclassification
adjustments . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income. . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, April 30, 2005 . . . . . . . . . . . . . . .
Issuance of Class A common stock from the
exercise of stock options and employee
stock purchase plan, net . . . . . . . . . . . . .
Issuance of Class A common stock
from the conversion of preferred
stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrual of preferred stock dividend . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate
swaps and commodity hedges, net
of taxes and reclassification
adjustments . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive income. . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance, April 30, 2006 . . . . . . . . . . . . . . .
Issuance of Class A common stock from the
exercise of stock options and employee
stock purchase plan, net . . . . . . . . . . . . .
Equity compensation expense . . . . . . . . . .
Accrual of preferred stock dividend . . . . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in fair value of interest rate
swaps and commodity hedges, net
of taxes and reclassification
adjustments . . . . . . . . . . . . . . . . . . . . . .
Total comprehensive loss. . . . . . . . . . . . . .
Balance, April 30, 2007 . . . . . . . . . . . . . . .
Additional
Paid-In
Capital
$ 272,993
Accumulated
Other
Total
(Accumulated Comprehensive
Stockholders’ Comprehensive
Deficit)
$ (143,591)
Income
$ 408
Equity
$ 130,055
Total
Income
$ 1,992
$
—
$ —
$ 1,994
2,448
(3,338)
—
—
—
7,269
—
—
—
2,450
(3,338 )
7,269
—
—
(7)
$ 274,088
—
—
—
$ (136,322)
359
—
—
$ 767
359
—
(7 )
$ 138,782
$ 2,675
$
—
$ —
$ 2,677
965
(3,432)
—
—
—
11,104
—
—
—
966
(3,432 )
11,104
—
—
1
$ 274,297
—
—
—
$ (125,218)
(608)
—
—
$ 159
(608 )
—
1
$ 149,490
$ 7,269
359
$ 7,628
$ 11,104
(608)
$ 10,496
$ 1,934
702
(3,588)
—
$
—
—
—
(17,883)
$ —
—
—
—
$ 1,935
702
(3,588 )
(17,883 )
$ (17,883)
—
—
$ 273,345
—
—
$ (143,101)
(1,160)
—
$ (1,001)
(1,160 )
—
$ 129,496
(1,160)
$ (19,043)
The accompanying notes are an integral part of these consolidated financial statements.
64
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss from discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of discontinued operations, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net (loss) income to net cash provided by operating activities—
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depletion of landfill operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hardwick impairment and closing charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Development project charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from equity method investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend from equity method investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Gain) loss on sale of equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to property, plant and equipment—growth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—maintenance. . . . . . . . . . . . . . . . . . . . . . . . .
Payments on landfill operating lease contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash from revenue bond issuance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in unconsolidated entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from assets under contractual obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Used In Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Flows from Financing Activities:
Fiscal Year Ended April 30,
2007
2006
2005
$
7,269 $ 11,104 $ (17,883)
558
410
717
—
434
82
65,432
4,785
—
295
(2,883 )
2,000
1,716
372
—
5,132
(2,328 )
5,885
(4,983 )
75,423
83,208
64,383
6,284
—
1,329
(5,742 )
—
—
(105 )
—
4,984
(6,508 )
(1,234 )
595
63,986
75,500
(9,513 )
(24,723 )
(54,351 )
(20,276 )
3,050
2,292
—
—
756
(102,765 )
(19,691 )
(47,474 )
(65,369 )
(10,539 )
—
1,678
(5,469 )
(3,047 )
861
(149,050 )
71,740
7,021
26,892
752
(1,051)
—
—
(806)
702
(11,246)
(5,126)
6,507
2,678
98,063
81,455
(2,750)
(36,738)
(65,435)
(4,995)
7,383
1,708
5,535
(4,378)
882
(98,788)
Proceeds from long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal payments on long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Provided by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
318,900
(296,201 )
(3,051 )
1,653
21,301
208,997
(136,411 )
(768 )
2,200
74,018
267,525
(244,750)
(582)
1,608
23,801
Discontinued Operations:
Used in Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Used in Investing Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Used in Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Used in Discontinued Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(90 )
(990 )
(9 )
(1,089 )
655
7,923
(440 )
(1,168 )
(13 )
(1,621 )
(1,153 )
8,578
(879)
(651)
—
(1,530)
4,938
7,425
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8,578 $
7,425 $ 12,363
Supplemental Disclosures of Cash Flow Information:
Cash paid 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 value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,802 $ 29,563 $ 36,040
2,708
$
1,103 $
1,286 $
$ 10,398 $ 26,077 $
(9,513 )
(19,691 )
3,420
(2,750)
Notes payable, liabilities assumed and holdbacks to sellers . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
885 $
6,386 $
670
The accompanying notes are an integral part of these consolidated financial statements.
65
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Casella Waste Systems, Inc. (“the Company” or “the Parent”) together with its subsidiaries 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 have 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 and complies with Financial Accounting Standards Board (FASB)
Interpretation No. 46 (revised December 2003) (FIN 46). All significant intercompany accounts and
transactions are 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 consolidated 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 consolidated financial statements.
Landfill Accounting-Capitalized Costs and Amortization
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 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, 2005,
2006 and 2007 was $492, $1,239 and $1,397, respectively.
Under life-cycle accounting, all costs related to acquisition and construction of landfill sites are
capitalized and charged to income based on tonnage placed into each site. 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 controls the land on which the expansion is sought;
66
• all technical siting criteria have been met or a variance has been obtained or is reasonably expected
to be obtained;
• the Company has not identified any legal or political impediments which the Company believes will
not be resolved in our favor;
• the Company is actively working on obtaining any necessary permits and we expect that all required
permits will be received; and
• senior management has approved the project.
Units-of-consumption 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.
The Company routinely reviews its investment in operating landfills, transfer stations and other
significant facilities to determine whether the carrying value 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.
Landfill Accounting-Landfill Operating Lease Contracts
The Company entered into three landfill operation and management agreements in fiscal 2004 and
one landfill operation and management agreement in fiscal 2006. These agreements are long-term landfill
operating contracts with government bodies whereby the Company receives tipping revenue, pays normal
operating expenses and assumes future capping, closure and post-closure liabilities. The government body
retains ownership of the landfill. There is no bargain purchase option and title to the property does not
pass to the Company at the end of the lease term. The Company allocates the consideration paid to the
landfill airspace rights and underlying land lease based on the relative fair values.
In addition to up-front or one-time payments, the landfill operating agreements require the Company
to make future minimum rental payments, including success/expansion fees, other direct costs and capping,
closure, and post closure costs. The value of all future minimum lease payments are amortized and charged
to cost of operations over the life of the contract. The Company amortizes the consideration allocated to
airspace rights as airspace is utilized on a units-of-consumption basis and such amortization is charged to
cost of operations as airspace is consumed i.e. as tons are placed into the landfill. The underlying value of
the land lease is amortized to cost of operations on a straight-line basis over the estimated life of the
operating agreement.
Landfill Accounting-Accrued Capping, Closure and Post-Closure Costs
Capping includes installation of liners, drainage, compacted soil layers and topsoil over areas of a
landfill where total airspace has been consumed and waste is no longer being received. Capping activities
occur throughout the life of the landfill. The Company’s engineering personnel estimate the cost for each
capping event based on the acreage to be capped and the capping materials and activities required. The
estimates also consider when these costs would actually be paid and factor in inflation and discount rates.
The engineers then quantify the landfill capacity associated with each capping event and the costs for each
event are amortized over that capacity as waste is received at the landfill.
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. The
Company estimates, based on input from our engineers, accounting personnel and consultants, the
Company’s future cost requirements for closure and post-closure monitoring and maintenance based on
the Company’s interpretation of the technical standards of the Subtitle D regulations and the air emissions
67
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 site inspection, groundwater
monitoring, leachate management, methane gas control and recovery, and operation and maintenance
costs to be incurred for a period which is generally for a term of 30 years after final closure of a landfill. In
determining estimated future capping, closure and post-closure costs, the Company considers costs
associated with permitted and permittable airspace.
The Company’s estimates of costs to discharge capping, closure and post-closure asset retirement
obligations for landfills are developed in today’s dollars. These costs are then inflated to the period of
performance using an estimate of inflation which is updated annually (2.8% and 2.7% for fiscal year 2007
and 2006, respectively). Capping, closure and post-closure liabilities are discounted using the credit
adjusted risk-free rate in effect at the time the obligation is incurred (8.9% and 7.6% for fiscal year 2007
and 2006 respectively). Accretion expense is necessary to increase the accrued capping, closure and post-
closure liabilities to the future anticipated obligation. To accomplish this, the Company accretes its
capping, closure and post-closure accrual balances using the same credit-adjusted, risk-free rate that was
used to calculate the recorded liability. Accretion expense on recorded landfill liabilities is recorded to cost
of operations from the time the liability is recognized until the costs are paid. Accretion expense amounted
to $2,201, $2,224 and $2,253 in fiscal years 2005, 2006 and 2007, respectively.
The Company provides for the accrual and amortization of estimated future obligations for closure
and post-closure based on tonnage placed into each site. With regards to capping, the liability is recognized
and these costs are amortized based on the airspace related to the specific capping event.
Recovery of Long-Lived Assets
In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the
Company 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. Our maximum exposure in fiscal
2007 under the worker’s compensation plan is $1,000 per individual event, after which reinsurance takes
effect. Our maximum exposure under the automobile plan is $750 per individual event, after which
reinsurance takes effect. The liability for unpaid claims and associated expenses, including incurred but not
reported losses, is determined by management with the assistance of a third party actuary and reflected in
the Company’s consolidated balance sheet as an accrued liability. The Company uses 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 based on historical data, which considers both the
frequency and settlement amount of claims. The Company’s self insurance reserves totaled $13,699 and
$13,564 at April 30, 2006 and 2007, respectively.
68
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 of revenues. Revenues for processing of recyclable materials are
recognized when the related service is provided. Revenues from brokerage of recycled materials 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. At April 30, 2007, the fair market value of
the Company’s long term fixed rate debt was approximately $213,525. 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 original 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
$2,975 and $3,524 at April 30, 2006 and 2007, respectively.
(g) 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 5):
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
69
The cost of maintenance and repairs is charged to operations as incurred.
(h) 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 6).
Under SFAS No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets deemed to
have indefinite lives are no longer amortized but are subject to annual impairment tests at each fiscal year
end. The Company evaluates goodwill for impairment based on fair value of each operating segment. The
Company estimates fair value based on net future cash flows discounted using an estimated weighted
average cost of capital. The Company recognizes an impairment if the net book value of the operating
segment exceeds the fair value based upon the discounted future cash flows. Other intangible assets are
amortized over their useful lives.
(i) 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’s investment in
GreenFiber amounted to $30,899 and $33,054 at April 30, 2006 and 2007, respectively. The Company
accounts for its 50% ownership in GreenFiber under the equity method of accounting.
In January 2006, the Company acquired an interest in the common stock of RecycleBank, LLC
(“RecycleBank”) for total consideration of $3,000. During fiscal year 2007, RecycleBank borrowed $2,000
from the Company under a convertible loan agreement. In accordance with the terms of the agreement,
the Company converted this note to equity thereby increasing the Company’s investment. Additional
investments in RecycleBank were made during fiscal year 2007 increasing the Company’s total common
stock ownership interest to 20.5% at April 30, 2007. As a result of an internal reorganization by
RecycleBank, the Company’s investment is now held in RecycleRewards, Inc. (“RecycleRewards”) the
parent entity of RecycleBank. The Company’s investment in RecycleRewards amounted to $2,932 and
$6,258 at April 30, 2006 and 2007, respectively. The Company accounts for its investment in
RecycleRewards under the equity method of accounting.
Aggregated summarized financial information for the Company’s equity method investments is as
follows:
Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2006
$ 31,592
72,021
23,662
$ 13,296
April 30,
2007
$ 38,273
$ 72,135
$ 19,307
$ 11,833
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended April 30,
2006
$ 178,836
41,837
$ 10,455
2005
$ 136,409
28,218
$ 5,568
2007
$ 186,500
44,360
265
$
In April 2003, the Company acquired a 9.9% interest in Evergreen National Indemnity Company
(“Evergreen”) for total consideration of $5,329. In December, 2003, the Company acquired an additional
9.9% interest in Evergreen for total consideration of $5,306. The Company’s investment in Evergreen
70
amounted to $10,657 at April 30, 2006 and 2007. The Company accounts for its investment in Evergreen
under the cost method of accounting.
The Company formerly held an investment interest in the tire and power plant assets of New Heights,
which it wrote-off in fiscal year 2004. On October 6, 2004 the Illinois Supreme Court decided not to hear
an appeal for reconsideration of a previously announced Appellate Court decision which ruled against
New Heights in its claim to receive a retail payment rate for electricity generated at the facility. As a result
New Heights proceeded with a plan to liquidate. On October 25, 2004 the bankruptcy judge confirmed the
liquidation plan and the assets were sold to a third party on March 15, 2005. In fiscal 2005, the Company
recorded in other expense/(income) costs of $667 related to debtor in possession financing offset by
income of $117 upon liquidation.
(j) 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.
(k) Accrued Capping, Closure and Post-Closure Costs
Accrued capping, closure and post-closure costs include the current and non-current portion of
accruals associated with obligations for capping, 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 capping, 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. Capping, 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 capping, 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 capping, 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 prospectively.
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 capping, 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, 2006
and 2007 totaled $78,476 and $95,626 respectively.
(l) 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 owners. Accumulated other
71
comprehensive (loss) income included in the accompanying balance sheets consists of changes in the fair
value of the Company’s interest rate swap and commodity hedge agreements as well as the Company’s
portion of the changes in the fair value of GreenFiber’s commodity hedge agreements.
The components of other comprehensive (loss) income for the fiscal years ended April 30, 2005, 2006
and 2007 are shown as follows:
2005
Fiscal Year Ended April 30,
2006
2007
Gross
Tax effect Net of Tax Gross Tax effect Net of Tax Gross
Tax effect Net of Tax
Changes in fair value of marketable securities
during the period. . . . . . . . . . . . . . . . . . . . . .
$ (82)
$ (29)
$ (53) $ (105)
$ (37)
$ (68) $ 181
$ 63
$ 118
Change in fair value of interest rate swaps
and commodity hedges during period . . . . . . .
(506)
(378)
(128)
571
225
346
(1,909 )
(778 )
(1,131)
Reclassification to earnings for interest rate
swaps and commodity hedge contracts . . . . . .
899
$ 311
359
$ (48)
540
$ 359
(1,193)
$ (727)
(307)
$ (119)
(886)
(241 )
$ (608) $ (1,969 )
(94 )
$ (809 )
(147)
$ (1,160)
(m) Earnings per Share
Basic earnings per share is computed by dividing net income available to common stockholders 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 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 preferred stock.
(n) Stock Based Compensation Plans
Effective May 1, 2006, the Company adopted the provisions of SFAS No. 123 (revised 2004),
Share-Based Payment (“SFAS No. 123(R)”). SFAS No. 123(R) establishes accounting for stock based
awards exchanged for employee services. The Company previously accounted for these awards under the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees
(“APB 25”) and related interpretations and disclosure requirements established by SFAS No. 123,
Accounting for Stock-Based Compensation (“SFAS No. 123”).
Under APB 25, no expense was recorded in the income statement for the Company’s stock options
granted at fair market value. The pro forma effects on income for stock options and the Company’s
employee stock purchase plan were instead disclosed in a footnote to the financial statements.
The Company adopted SFAS No. 123(R) using the modified prospective method on May 1, 2006.
Under this method, all share-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the specified vesting period. Prior
periods are not restated. See Note 14(d) for additional disclosures.
The Company has elected to adopt the alternative transition method for calculating the tax effects of
stock-based compensation under SFAS No. 123(R). The alternative transition method represents a
simplified approach to establish the beginning balance of the additional paid-in capital pool (“APIC pool”)
related to the tax effects of employee stock-based compensation, and to determine the subsequent impact
on the APIC pool and the consolidated statements of cash flows of the tax effects of employee stock-based
compensation awards that are outstanding upon the adoption of SFAS No. 123(R).
(o) Accounting for Derivatives and Hedging Activities
The Company accounts for derivatives and hedging activities in accordance with SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No.133 establishes accounting and
72
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 derivative contracts that are specifically designated to existing interest payments under the
credit facility and accounted for as cash flow hedges pursuant to SFAS No. 133.
The Company is party to three separate interest rate swap agreements with three banks for a notional
amount of $75,000, which effectively fix the interest index rate on the entire notional amount at 4.4% from
May 4, 2006 through May 5, 2008. These agreements are specifically designated to interest payments under
the Company’s term B loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
The fair value of these swaps was $1,091 and $540, with the net amount (net of taxes of $442 and $219)
recorded as an unrealized gain in accumulated other comprehensive (loss) income at April 30, 2006 and
2007, respectively. Amounts reclassified into earnings are dependent on future movements in interest
rates.
On August 1, 2006, the Company entered into three separate interest rate zero-cost collars for a
notional amount of $80,000. The collars have an interest index rate cap of 6.00% and an interest index rate
floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009. These
agreements are specifically designated to interest payments under the revolving credit facility and are
accounted for as effective cash flow hedges pursuant to SFAS No. 133. As of April 30, 2007, the fair value
of these collars was an obligation of $216, with the net amount (net of taxes of $88) recorded as an
unrealized loss in accumulated other comprehensive (loss) income.
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
twenty-three commodity hedges, which expire at various times between June 2007 and November 2008.
The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting
pursuant to SFAS No. 133. The fair value of these hedges was an obligation of $773 and $2,204, with the
net amount (net of taxes of $313 and $895) recorded as an unrealized loss in accumulated other
comprehensive (loss) income at April 30, 2006 and 2007, respectively.
(p) 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, 2006 and 2007, no single group or customer
represents greater than 3.4% of total accounts receivable. The Company controls credit risk through credit
evaluations, credit limits, credit insurance 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.
73
2. RECLASSIFICATIONS
The Company has made reclassifications in the Company’s Consolidated Statements of Operations to
conform prior year information to the Company’s current period presentation. The supplementary
financial information included in this section has also been updated to reflect these changes. Effective
May 1, 2006, the Company began recording (gain) loss on sale of equipment as a component of cost of
operations. Previously this had been recorded as a component of other income. This resulted in (gain) loss
on sale of equipment being reclassified in the amount of $372 and ($105) for fiscal years 2005 and 2006,
respectively. During the fourth quarter of fiscal year 2007, the Company began recording personnel costs
associated with engineering and permitting activities as a cost of operations where previously these costs
had been recorded as general and administration. This resulted in costs reclassified amounting to $1,056
and $1,569 for fiscal years 2005 and 2006 respectively.
3. NEW ACCOUNTING STANDARDS
In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
(“SFAS No. 154”) which replaces APB Opinion No. 20, Accounting Changes (“APB No. 20”), and SFAS
No. 3, Reporting Accounting Changes in Interim Financial Statements—An Amendment of APB Opinion
No. 28. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and
error corrections. Specifically, this statement requires “retrospective application” of the direct effect for a
voluntary change in accounting principle to prior periods’ financial statements, if it is practicable to do so.
SFAS No. 154 also narrowly redefines the term “restatement” to mean the correction of an error by
revising previously issued financial statements. SFAS No. 154 replaces APB No. 20, which required that
most voluntary changes in accounting principles be recognized by including in net income of the period of
the change, the cumulative effect of changing to the new accounting principle. The adoption of SFAS
No. 154, effective May 1, 2006, had no impact on the Company’s financial position or results of operations.
On July 13, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN No. 48”). FIN No. 48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes.
FIN No. 48 requires a company to evaluate whether the tax positions taken by a company will more likely
than not be sustained upon examination by the appropriate taxing authority. FIN No. 48 also provides
guidance on how a company should measure the amount of benefit that the company is to recognize in its
financial statements. Under FIN No. 48, a company should also classify a liability for unrecognized tax
benefits as current to the extent the company anticipates making a payment within one year. FIN No. 48
also provides guidance on derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently evaluating the impact this statement will have on its financial position and
results of operations.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”),
which defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosures about fair value measurements. SFAS No. 157 applies to other existing
accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not
require any new fair value measurements. However, the application of this statement may change the
current practice for fair value measurements. SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the
impact this statement will have on its financial position and results of operations.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”).
SAB No. 108 provides guidance on the consideration of the effects of prior year misstatements in
74
quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 is
effective for fiscal years ending after November 15, 2006. The Company has adopted this statement during
fiscal year 2007, which did not have a material impact on its financial position and results of operations.
In February 2007, the FASB issued SFAS No.159, The Fair Value Option for Financial Assets and
Financial Liabilities—Including an amendment of FASB Statement No. 155 (‘SFAS No. 159”).
SFAS No. 159 provides companies with an option to report selected financial assets and liabilities at fair
value. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after
November 15, 2007. The Company is currently evaluating the impact this statement will have on its
financial position and results of operations.
4. BUSINESS COMBINATIONS
The Company acquired ten, fifteen and thirteen solid waste hauling, landfill disposal or material
recycling operations in fiscal years ended April 30, 2005, 2006 and 2007, 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. All amounts allocated to goodwill are expected to be deductible for
tax purposes. 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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006
2007
$ (1,254 ) $ —
905
2,269
246
(55)
(388)
$ 2,977
12,449
13,939
943
(3,406 )
(2,658 )
$ 20,013
The following unaudited pro forma combined information shows the results of the Company’s
operations for the fiscal years ended April 30, 2006 and 2007 as though each of the acquisitions completed
in the fiscal years ended April 30, 2006 and 2007 had occurred as of May 1, 2005.
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted pro forma net (loss) income per common share . . . . . . . . . . . . . .
Weighted average diluted shares outstanding. . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended
April 30,
2006
$ 525,178
44,557
11,764
0.46
25,368
$
2007
$ 548,576
12,521
(17,717)
(0.70)
25,272
$
The pro forma results have been prepared for comparative purposes only and are not necessarily
indicative of the actual results of operations had the acquisitions taken place 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.
75
5. RESTRICTED CASH
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 capping,
closure and post-closure costs and other facilities’ closure costs. Cash is also restricted by specific
agreement for facilities’ maintenance and other purposes. Restricted cash at April 30, 2006 also included
remaining proceeds related to the Company’s issuance of $25,000 Finance Authority of Maine Solid Waste
Disposal Revenue Bonds. See Note 10 for more information on the issuance.
A summary of restricted cash is as follows:
Current:
Landfill closure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 72
$ 72
$ 73
$ 73
April 30,
2006
2007
Non Current:
Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue bond proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2006
2007
$ 12,418
5,469
$ 17,887
$ 12,734
—
$ 12,734
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at April 30, 2006 and 2007 consist of the following:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Landfills. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Landfill operating lease contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rolling stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Containers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation and amortization. . . . . . . . . . . . . . . . . . . . .
April 30,
2006
$ 21,151
299,621
59,857
87,543
203,133
133,785
56,817
861,907
387,615
$ 474,292
2007
$ 20,507
300,439
64,853
100,393
215,287
148,709
58,965
909,153
421,532
$ 487,621
Depreciation expense for the fiscal years ended April 30, 2005, 2006 and 2007 was $36,365, $39,263
and $42,445, respectively. Landfill amortization expense for the fiscal years ended April 30, 2005, 2006 and
2007 was $27,588, $23,823 and $28,452, respectively. Depletion expense on landfill operating lease
contracts for the fiscal years ended April 30, 2005, 2006 and 2007 was $4,785, $6,284 and $7,021,
respectively and was recorded in cost of operations. See Note 17 for a discussion of the Hardwick
impairment and closing charge.
76
7.
INTANGIBLE ASSETS
Intangible assets at April 30, 2006 and 2007 consist of the following:
Balance, April 30, 2006
Intangible assets. . . . . . . . . . . . . . .
Less accumulated amortization. .
Balance, April 30, 2007
Intangible assets. . . . . . . . . . . . . . .
Less accumulated amortization. .
Covenants
not to
compete
Customer
lists
Licensing
Agreements
Contract
Acquisition
Costs
$ 16,654
(14,771)
$ 1,883
$ 688
(688)
$ —
$ 920
(41)
$ 879
$ 15,464
(14,121)
$ 1,343
$ 688
(688)
$ —
$ 920
(100)
$ 820
$ —
—
$ —
$ 58
(4 )
$ 54
Total
$ 18,262
(15,500)
$ 2,762
$ 17,130
(14,913)
$ 2,217
Intangible amortization expense for the fiscal years ended April 30, 2005, 2006 and 2007 was $1,478,
$1,297 and $843, respectively. The intangible amortization expense estimated as of April 30, 2007, for the
five fiscal years following the fiscal year ended April 30, 2007 is as follows:
2008
$596
2009
$ 415
2010
$ 303
2011
$ 212
2012
$ 133
The following table shows the activity and balances related to goodwill from April 30, 2005 through
April 30, 2007:
North Eastern region . . . . . . . .
South Eastern region. . . . . . . . .
Central region. . . . . . . . . . . . . . .
Western region . . . . . . . . . . . . . .
FCR Recycling . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . .
North Eastern region . . . . . . . .
South Eastern region. . . . . . . . .
Central region. . . . . . . . . . . . . . .
Western region . . . . . . . . . . . . . .
FCR Recycling . . . . . . . . . . . . . .
Total. . . . . . . . . . . . . . . . . . . . . . .
Balance
April 30, 2005 Acquisitions Divestitures Other(1)
$ (13 )
$ 25,340
—
31,645
6
30,158
(5 )
53,450
(82 )
16,899
$ (94 )
$ 157,492
$ —
—
1,021
2,251
10,667
$ 13,939
$ —
—
(79)
—
—
$ (79)
Balance
April 30, 2006 Acquisitions Divestitures Other(1)
$ (16 )
$ 25,327
—
31,645
(22 )
31,106
(44 )
55,696
(95 )
27,484
$ (177 )
$ 171,258
$ 714
—
876
679
—
$ 2,269
$ —
—
—
—
—
$ —
Balance
April 30, 2006
$ 25,327
31,645
31,106
55,696
27,484
$ 171,258
Balance
April 30, 2007
$ 26,025
31,645
31,960
56,331
27,389
$ 173,350
(1) Consists primarily of a decrease in Federal and state tax valuation allowances related to goodwill
acquired as part of the KTI acquisition.
8. NET ASSETS UNDER CONTRACTUAL OBLIGATION
Effective 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. Consideration for the transaction was in the form of two notes receivable amounting up to
77
$6,925. These notes are payable within twelve years of the anniversary date of the transaction to the extent
of free cash flow generated from the operations. Interest is payable only in the event of default in which
case interest is payable on the unpaid principal balance at an adjustable rate equal to the Company’s then
current average composite borrowing rate plus 4.0% per annum.
Effective August 1, 2005, the Company transferred its Canadian recycling operation to a former
employee who had been responsible for managing that business. Consideration for this transaction was in
the form of a note receivable amounting up to $1,313 which is payable within six years of the anniversary
date of the transaction to the extent of free cash flow generated from the operations. Interest is payable
only in the event of default in which case interest is payable on the unpaid principal balance at an
adjustable rate equal to the Company’s then current average composite borrowing rate plus 4.0% per
annum.
The Company has not accounted for these transactions as sales based on an assessment that the risks
and other incidents of ownership did not initially and have not yet sufficiently transferred to the buyer. The
net assets of these operations are disclosed in the balance sheet as “net assets under contractual
obligations” and are being reduced as payments are made. During the fourth quarter of fiscal year 2007,
the Company recognized income on the transaction involving the domestic brokerage operations in the
amount of $190 as payments received on the notes receivable exceeded the balance of the net assets under
contractual obligation. Net assets under contractual obligation amounted to $937 and $55 at April 30, 2006
and 2007, respectively. Minimum amounts owed to the Company under these notes amounted to $4,810
and $3,736 at April 30, 2006 and 2007, respectively.
9. ACCRUED CAPPING, CLOSURE AND POST CLOSURE
Accrued capping, 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 Company estimates its future
capping, closure and post-closure costs in order to determine the capping, closure and post-closure
expense per ton of waste placed into each landfill as further described in Note 1(k) to these 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
capping, closure and post-closure liabilities are as follows:
Beginning balance, May 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Obligations incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revisions in estimates(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accretion expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions and other adjustments(3) . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended April 30,
2006
$ 26,628
4,330
(1,252 )
2,224
(3,914 )
—
2005
$ 25,223
4,774
(2,795)
2,201
(6,068)
3,293
2007
$ 28,016
3,696
7,697
2,253
(3,290)
—
Balance, April 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 26,628
$ 28,016
$ 38,372
(1) The increase in fiscal 2007 is primarily from capping, closure and post closure costs provided in
conjunction with the closure of the Hardwick landfill facility (see Note 17).
(2) Spending levels increased in fiscal year 2005 mainly due to closure activities at our Southbridge,
Massachusetts landfill.
(3) The increase in fiscal 2005 is as a result of capping, closure and post-closure accruals relating to the
acquisition of the Southbridge, Massachusetts landfill operating contract.
78
10. OTHER ACCRUED LIABILITIES
Other accrued liabilities at April 30, 2006 and 2007 consist of the following:
Self insurance reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2006
$ 11,639
16,551
$ 28,190
2007
$ 11,518
19,648
$ 31,166
11. LONG-TERM DEBT
Long-term debt as of April 30, 2006 and 2007 consists of the following:
Senior subordinated notes, due February 1, 2013, 9.75%, interest payable
semiannually, unsecured and unconditionally guaranteed (including
unamortized premium of $4,924 and $4,345) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior secured revolving credit facility (the “revolver”), which provides for
advances or letters of credit of up to $350,000, due April 28, 2010, bearing
interest at LIBOR plus 2.75%, (approximately 8.11% at April 30, 2007 based
on three month LIBOR). This loan is secured by substantially all of the assets
of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior secured term B loan (the “term loan”) due April 28, 2010, bearing interest
at LIBOR plus 2.00% with principal payments of $900 per year, beginning in
July 2007 with the remaining principal balance due at maturity. . . . . . . . . . . . . . . .
Finance authority of Maine Solid Waste Disposal Revenue Bonds Series 2005,
dated December 1, 2005, bearing interest at BMA Index (approximately 4.00%
at April 30, 2007) enhanced by an irrevocable, transferable direct-pay letter of
credit (2.875% at April 30, 2007). Due January 1, 2025 . . . . . . . . . . . . . . . . . . . . . .
Notes payable in connection with businesses acquired, bearing interest at rates
of 0% - 7.51%, due in monthly, quarterly or annual installments varying to
$97, expiring May 2008 through February 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less—current maturities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 30,
2006
April 30,
2007
$ 199,924
$ 199,345
226,900
162,000
—
90,000
25,000
25,000
1,423
453,247
527
$ 452,720
1,095
477,440
1,215
$ 476,225
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. The
notes are guaranteed jointly and severally, fully and unconditionally by the Company and its significant
subsidiaries.
On February 2, 2004, the Company issued an additional $45,000 of 9.75% senior subordinated notes
due 2013. The notes were issued at a premium of $6,075, which will be amortized over the life of the notes.
Premium amortization of $536 and $579 was recorded to interest expense in fiscal 2006 and 2007,
respectively, using the effective interest rate method.
On April 29, 2005, the Company entered into a senior credit facility with a group of banks for which
Bank of America is acting as agent. The facility originally consisted of a senior secured revolving credit
facility in the amount of $350,000. On July 25, 2006, the Company amended the facility to increase the
79
amount of the facility per the original agreement to $450,000. This increase took the form of a $90,000
term loan and an increase of $10,000 to the revolver. The Company further amended the credit facility
agreement on May 9, 2007. The amendment increased the allowed borrowings under the facility to
$525,000 by increasing the term loan by $85,000 and reducing the revolver by $10,000. Proceeds from the
term loan increase were used to pay down amounts drawn on the revolver. The amendment also reset the
accordion provision in the agreement to permit an increase in the amount of the facility by an additional
$50,000 provided that the Company is not in default at the time of the increase, and subject to the receipt
of commitments from lenders for such additional amount. The amendment also modified the definitions of
“Consolidated Adjusted Net Income” and “Consolidated Net Worth” to adjust for various non recurring
charges incurred or expected to be incurred. The various covenant ratios were revised to provide more
flexibility. This credit facility is secured by all of the Company’s assets, including the interests in the equity
securities of the Company’s subsidiaries. The revolving credit facility matures April 2010. Further advances
were available under the revolver in the amount of $65,374 and $145,479 as of April 30, 2006 and 2007,
respectively. These available amounts are net of outstanding irrevocable letters of credit totaling $57,726
and $52,521 as of April 30, 2006 and 2007. As of April 30, 2006 and 2007 no amounts had been drawn
under the outstanding letters of credit.
The senior revolving credit facility agreement, as amended May 9, 2007, contains covenants that may
limit the Company’s activities including covenants that forbid the payment of dividends on common stock.
As of April 30, 2007, these covenants restricted capital expenditures to 2.00 times depreciation and landfill
amortization, set a minimum net worth requirement of $80,359, a minimum interest coverage ratio of 2.50,
a maximum consolidated total funded debt to consolidated EBITDA ratio of 5.25 and a maximum senior
funded debt to consolidated EBITDA ratio of 3.50. As of April 30, 2007, the company was in compliance
with all covenants.
The Company recorded a loss on extinguishment of debt of $1,716 in fiscal 2005 as a result of the
write-off of deferred financing costs related to the former credit facility.
On December 28, 2005, the Company completed a $25,000 financing transaction involving the
issuance by the Finance Authority of Maine (the “Authority”) of $25,000 aggregate principal amount of its
Solid Waste Disposal Revenue Bonds Series 2005 (the “Bonds”). The Bonds are issued pursuant to an
indenture, dated as of December 1, 2005 (the “Indenture”) and are enhanced by an irrevocable,
transferable direct-pay letter of credit issued by Bank of America, N.A. Pursuant to a Financing
Agreement, dated as of December 1, 2005, by and between the Company and the Authority, the Company
borrowed the proceeds of the Bonds to pay for certain costs relating to (1) landfill development and
construction, vehicle, container and related equipment acquisition for solid waste collection and
transportation services, improvements to existing solid waste disposal, hauling, transfer station and other
facilities, other infrastructure improvements, and machinery and equipment for solid waste disposal
operations owned and operated by the Company, or a related party, all located in Maine; and (2) the
issuance of the Bonds. At April 30, 2006, remaining issuance proceeds of $5,469 were recorded as
restricted cash to be used to pay for the future capital costs as they were incurred. All proceeds related to
the issuance were drawn and utilized according to the terms of the agreement during fiscal year 2007.
The Company has historically 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.
80
The Company was party to two interest rate swaps outstanding, expiring in February 2006, with an
aggregate notional amount of $53,000. The Company evaluated these swaps and determined that these
instruments qualified for hedge accounting pursuant to SFAS No. 133. These interest rate swaps were
terminated on April 28, 2005 concurrent with the Company entering into the new senior credit facility. The
Company received net proceeds of $443 which were amortized against interest expense over the remaining
original term of the swap contracts through February 2006.
The Company is party to three separate interest rate swap agreements with three banks for a notional
amount of $75,000, which effectively fix the interest index rate on the entire notional amount at 4.4% from
May 4, 2006 through May 5, 2008. These agreements are specifically designated to interest payments under
the Company’s term loan and are accounted for as effective cash flow hedges pursuant to SFAS No. 133.
As of April 30, 2007, interest rate swap agreements in notional amounts and with terms as set forth in the
following table were outstanding:
Bank
Bank A. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank B . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Bank C . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Receive
Notional
Amounts
$ 25,000 LIBOR
$ 25,000 LIBOR
$ 25,000 LIBOR
Pay
Range of Agreement
4.444% May 2006 to May 2008
4.444% May 2006 to May 2008
4.440% May 2006 to May 2008
On August 1, 2006, the Company entered into three separate interest rate zero-cost collars for a
notional amount of $80,000. The collars have an interest index rate cap of 6.00% and an interest index rate
floor of approximately 4.48% and are effective from November 6, 2006 through May 5, 2009. These
agreements are specifically designated to interest payments under the revolving credit facility are
accounted for as effective cash flow hedges pursuant to SFAS No. 133. As of April 30, 2007, interest rate
collar agreements in notional amounts and with terms as set forth in the following table were outstanding:
Bank
Bank D. . . . . . . . . . . . . . . . . . . .
Bank E . . . . . . . . . . . . . . . . . . . .
Bank F . . . . . . . . . . . . . . . . . . . .
Notional
Amounts
$ 20,000
$ 20,000
$ 40,000
Floor Rate Cap Rate
Range of Agreement
4.480%
4.500%
4.480%
6.000% November 2006 to May 2009
6.000% November 2006 to May 2009
6.000% November 2006 to May 2009
As of April 30, 2007, debt matures as follows:
Fiscal Year Ended April 30,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,215
1,162
250,440
200
78
224,345
$ 477,440
(1) Includes unamortized premium of $4,345.
81
12. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments, together with the present value of the
net minimum lease payments under capital leases, as of April 30, 2007:
Operating
Leases
Capital
Leases
Fiscal Year Ended April 30,
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total minimum lease payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less—amount representing interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 14,384
11,734
26,569
7,679
7,321
78,273
$ 145,960
Less—current maturities of capital lease obligations . . . . . . . . . . . . . . . . . . . .
Present value of long term capital lease obligations . . . . . . . . . . . . . . . . . . . . .
$ 1,217
455
161
73
—
—
1,906
152
1,754
1,104
$ 650
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, 2005 and 2006. The Company leases operating facilities and
equipment under operating leases with monthly payments varying to $50. Total rent expense under
operating leases charged to operations was $4,882, $4,651 and $5,368 in fiscal years ended April 30, 2005,
2006 and 2007, respectively.
During fiscal 2004, the Company entered into three landfill operation and management agreements
and one landfill operation and management agreement in fiscal 2006. These agreements are long-term
landfill operating contracts with government bodies whereby the Company receives tipping revenue, pays
normal operating expenses and assumes future capping, closure and post-closure liabilities. The
government body retains ownership of the landfill. There is no bargain purchase option and title to the
property does not pass to the Company at the end of the lease term. The Company allocated the
consideration paid to the landfill airspace rights and underlying land lease based on the relative fair values.
In addition to up-front or one-time payments, the landfill operating agreements require the Company
to make future minimum rental payments, including success/expansion fees, other direct costs and capping,
closure, and post closure costs. The value of all future probable lease payments are amortized and charged
to cost of operations over the life of the contract. The Company amortizes the consideration allocated to
airspace rights as airspace is utilized on a units-of-consumption basis and such depletion is charged to cost
of operations as airspace is consumed i.e. as tons are placed into the landfill. The underlying value of the
land lease is amortized to cost of operations on a straight-line basis over the estimated life of the operating
agreement. Depletion expense on landfill operating lease contracts charged to operations was $4,785,
$6,284 and $7,021 in fiscal years ended April 30, 2005, 2006 and 2007, respectively.
(b) Waste-to-Energy Facility
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
82
Energy will 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 escalated annually by 2% (9.41 cents per kWh as of April 30,
2007). 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, 2007 was $3,750.
Maine Energy produced and sold 156,146,000 kWh, 163,065,000 kWh and 161,077,000 kWh of
electricity to Central Maine in the fiscal years ended April 30, 2005, 2006 and 2007, respectively, thereby
meeting its kWh requirements under the power purchase agreement.
(c) Legal Proceedings
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 the Company’s subsidiary Maine Energy for
(1) failure to pay certain residual cancellation payments in connection with the Company’s 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 the Company, Maine Energy
and other subsidiaries. The complaint in that action, which was amended by the City of Saco on July 22,
2002, alleged breaches of the 1991 waste handling agreement for failure to pay the residual cancellation
payment, which Saco alleged was due as a result of, among other things, (1) the Company’s 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 sought damages for breach of contract and a court order requiring the
Company 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. As the result of extensive settlement negotiations
with the City of Biddeford concerning this lawsuit and other matters, the lawsuit filed by the City of
Biddeford has been resolved by a settlement between the parties, effective March 1, 2007, and the lawsuit
was dismissed with prejudice on or about May 8, 2007. On June 18, 2007, the Company and the City of
Saco agreed to settle their dispute under the terms of a mutual release and settlement agreement, whereby
the Company will pay the City of Saco $1.4 million and the City of Saco will release the Company from any
further residual cancellation payment obligations. The Company provided for the residual cancellation
payment obligations to the City of Biddeford and the City of Saco in prior years in amounts sufficient to
cover the settlements.
The New Hampshire Superior Court in Grafton County, NH (the “Superior Court”) ruled on
February 1, 1999 that the Town of Bethlehem, NH (the “Town”) could not enforce an ordinance
prohibiting expansion of the Company’s landfill owned by its subsidiary North Country Environmental
Services, Inc. (“NCES”), at least with respect to 51 acres of NCES’s 105 acre parcel. As a result, NCES was
able to construct and operate “Stage II, Phase II” of the landfill. In May 2001, the New Hampshire
Supreme Court (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 (within the 51 acres) and further stated that the Town’s height ordinance and building permit
process may apply to Stage III. On September 12, 2001, the Company filed a petition for declaratory relief.
On December 4, 2001, the Town filed an answer and counterclaims seeking authorization to assert site
plan review over Stage III and the methane gas utilization/leachate handling facility operating in
83
connection with Stage III, as well as an order declaring that the ordinance prohibiting landfills applies to
Stage IV expansion. On April 24, 2003, the Grafton Superior Court upheld 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; and 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 Superior Court’s ruling to the Supreme Court. On March 1, 2004, the
Supreme Court affirmed that NCES has all of the local approvals that it needs to operate within the
51 acres and that the Town cannot therefore require site plan review for landfill development within the
51 acres. The Supreme Court’s opinion left open for further review the question of whether the Town’s
1992 ordinance can prevent expansion of the facility outside the 51 acres, remanding to the Superior Court
four issues, including two defenses raised by NCES as grounds for invalidating the 1992 ordinance. On
April 19, 2005, the Superior Court judge granted NCES’ motion for partial summary judgment, ruling that
the 1992 ordinance is invalid because it distinguishes between “users” of land rather than “uses” of land,
and that a state statute preempts the Town’s ability to issue a building permit for the methane gas
utilization/leachate handling facility to the extent the Town’s regulations relate to design, installation,
construction, modification or operation. After this ruling, the Town amended its counterclaim to request a
declaration that another zoning ordinance it enacted in March of 2005 is lawful and prevents the expansion
of the landfill outside of the 51 acres. In the fall of 2005 NCES and the Town engaged in private mediation
in an effort to resolve the disputes between them, but the mediation was unsuccessful. NCES filed a
motion with the court on December 15, 2005 for partial summary judgment asserting six different
arguments challenging the lawfulness of the March 2005 amendment to the zoning ordinance, and the
town filed a cross-motion on January 13, 2006 for partial summary judgment on the same issue. In
April 2006, the court ruled against NCES on the applicability of all six arguments challenging the
lawfulness of the March 2005 ordinance and NCES filed a motion for reconsideration. On May 30, 2006,
the judge issued a ruling on the motion for reconsideration, reversing her prior ruling with respect to two
of the six arguments, thereby restoring such arguments for trial. Additionally, several issues related to the
March 2005 amendment that were not the subject of such motions remain to be decided by a trial, in
addition to the two remaining issues remanded by the Supreme Court, which are whether the Town can
impose site plan review requirements outside the 51 acres, and whether the 1992 ordinance contravenes
the general welfare of the community. On June 6, 2006, the Town rejected a settlement proposal from
NCES at a special town meeting. The trial date has been continued to October 2007. NCES’s March 2007
application to the New Hampshire Department of Environmental Services for an amendment to the
Stage IV permit enabling it to construct all of the Stage IV capacity within the 51 acres may, if granted,
affect which of the parties’ claims will be adjudicated at the October 2007 trial.
On July 12, 2005, NCES received notice from the Office of the Attorney General of the State of
New Hampshire that it has commenced an official investigation into allegations that asbestos was
concealed in loads of construction and demolition debris from a hotel renovation, delivered to the
NCES landfill by a third party, and disposed there on several occasions between 1999 and 2002. NCES has
cooperated fully in the investigation. NCES is engaged in discussions with the Office of the Attorney
General over the terms of a possible civil settlement regarding this matter. The Company does not believe
the outcome of this matter will have a material adverse effect on its business, financial condition, results of
operations or cash flows.
On April 6, 2007, a former employee of the Company’s subsidiary Northeast Waste Services, Inc. sued
a current employee of the Company for injuries sustained to the former employee due to alleged
workplace negligence. Although the claim is not against the Company, the Company has a duty to defend
under its business auto policy and will be liable for any damages up to the Company’s deductible limit, but
will have a lien against any recovery to recover any worker’s compensation payments made by the
84
Company to the former employee. No discovery has occurred in the case and the Company is unable to
predict the probability of the outcome or any range of potential loss.
The Company offers no prediction of the outcome of any of the proceedings described above. The
Company is vigorously defending each of these lawsuits. However, there can be no guarantee the Company
will prevail or that any judgments against the Company, if sustained on appeal, will not have a material
adverse effect on the Company’s business, financial condition or results of operations.
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 may be subject to liability for any environmental damage, including personal injury and
property damage, that its solid waste, recycling and power generation facilities 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 also may 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 aware of any situations that it expects would have
a material adverse impact on the results of operations or financial condition.
(e)(cid:3) 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 had an initial three year term and a two year covenant not 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 $1,221. 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.
13. PREFERRED STOCK
The Company is authorized to issue up to 1,000 shares of preferred stock in one or more series. As of
April 30, 2006 and 2007, the Company had 56 shares authorized and 53 shares issued and outstanding,
respectively, 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 from the issuance date of August 11, 2000. 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 of August 11,
2007, 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.
On April 30, 2007, since the Company does not anticipate that the shares will be converted to Class A
common stock by the redemption date, the Company has reflected the redemption value of the shares,
$74,018, as a current liability. The value includes the liquidation preference of $1,000 per share plus
accrued but unpaid dividends.
85
During the fiscal years ended April 30, 2005, 2006 and 2007, the Company accrued $3,338, $3,432 and
$3,588 of dividends, respectively, which are included in the carrying value of the preferred stock in the
accompanying consolidated balance sheets.
14. STOCKHOLDERS’ EQUITY
(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, 2006 and 2007, there were outstanding warrants to purchase 91 and 78 shares of the
Company’s Class A Common Stock, respectively, at exercise prices between $18.14 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 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 shares of Class A Common Stock pursuant to the grant of either
incentive stock options or non-statutory options. As of April 30, 2006, a total of 167 options to purchase
Class A Common Stock were outstanding at a weighted average exercise price of $14.30. As of April 30,
2007, a total of 86 options to purchase Class A common Stock were outstanding at an average exercise
price of $16.00. 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. As amended in 1998, the 1997 Stock Option
Plan (the “1997 Plan”) provides for the issuance of up to 5,328 shares of Class A Common Stock pursuant
to 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, 2006, options to purchase 3,056 shares of Class A
Common Stock at an average exercise price of $13.12 were outstanding under the 1997 Plan. As of
April 30, 2007, options to purchase 3,403 shares of Class A Common Stock at a weighted average exercise
price of $13.19 were outstanding under the 1997 Plan. As of April 30, 2007, 648 options were available for
future grant under the 1997 Plan.
86
Additionally, options outstanding under the assumed KTI Stock Option Plan totaled 18 and 10 at
April 30, 2006 and April 30, 2007, respectively, at weighted average exercise prices of $17.65 and $21.56,
respectively. Upon assumption of this plan, options under the KTI plan became exercisable for an equal
number of shares of the Company’s stock. 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 (the “Non-Employee Director Plan”)
provides for the issuance of a maximum of 200 shares of Class A Common Stock pursuant to the grant of
non-statutory options. As of April 30, 2006 and 2007, options to purchase 189 shares of Class A Common
Stock at a weighted average exercise price of $11.87 were outstanding. As of April 30, 2006 and 2007,
9 options were available for future grant under the Non-Employee Director Plan.
On October 10, 2006, the Company adopted the 2006 Stock Incentive Plan (the “2006 Plan”). Up to
an aggregate amount equal to the sum of: (i) 1,275 shares of Class A Common Stock (subject to
adjustment in the event of stock splits and other similar events), of which 275 are reserved for issuance to
non-employee directors pursuant to the formula grants described below, plus (ii) such additional number
of shares of Class A Common Stock as are currently subject to options granted under the Company’s 1993
Incentive Stock Option Plan, 1994 Non-statutory Stock Option Plan, 1996 Option Plan, and 1997 Plan (the
“Prior Plans”) which are not actually issued under the Prior Plans because such options expire or otherwise
result in shares not being issued, may be issued pursuant to awards granted under the 2006 Plan.
The 2006 Plan is intended to replace the 1997 Plan, which expires by its terms on July 31, 2007 and the
Non-Employee Director Plan. Upon the expiration of the 1997 Plan on July 31, 2007, all then outstanding
options will remain in effect, but no additional option grants may be made under the 1997 Plan. As of
April 30, 2007, options to purchase 45 shares of Class A Common Stock at a weighted average exercise
price of $10.22 were outstanding under the 2006 plan and 1,230 options were available for future grant.
Options granted under the plans described above generally vest over a one to four 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. Shares issued by the Company upon
exercise of stock options are issued from the pool of authorized shares of Class A Common Stock.
On March 2, 2006, the Company’s Compensation Committee of the Board of Directors approved the
accelerated vesting of all outstanding unvested stock options to purchase shares of common stock of the
Company. Accordingly, all of the Company’s then outstanding unvested options became vested as of
March 3, 2006. The decision to accelerate the vesting of stock options was made primarily to reduce non-
cash compensation expense that would have been recorded in future periods. The estimated future
compensation expense associated with these options was approximately $705, net of tax, and would have
been required to be recorded in the Company’s income statement in future periods upon the adoption of
SFAS No. 123R effective May 1, 2006. The Company incurred a non-cash charge of $39 ($24 net of taxes),
which was based upon the in-the- money value at the time of acceleration associated only with an
estimated number of options that might have been forfeited pursuant to their original terms, absent
acceleration. The Company will not be required to recognize future compensation expense for the
accelerated options under SFAS No. 123R unless the Company makes modifications to the options, which
is not anticipated.
87
Stock option activity for the fiscal years ended April 30, 2005, 2006 and 2007 is as follows:
Outstanding, April 30, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding, April 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding, April 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Outstanding, April 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Number of
Options
3,400
357
(209 )
(168 )
3,380
395
(108 )
(237 )
3,430
498
(63 )
(130 )
3,735
Weighted
Average
Exercise
Price
12.93
13.15
(16.98 )
(9.48 )
12.87
12.06
(11.41 )
(8.41 )
13.13
12.91
(13.24 )
(11.13 )
$ 13.17
Exercisable, April 30, 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,908
$ 12.94
Exercisable, April 30, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,430
$ 13.13
Exercisable, April 30, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,260
$ 13.22
Set forth below is a summary of options outstanding and exercisable as of April 30, 2007:
Range of Exercise Price
$4.61 - $6.91. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6.92 - $10.38 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10.39 - $15.58 . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.59 - $23.38 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Over $23.39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options Outstanding
Weighted
Average
Remaining
Contractual
Life (Years)
5.4
4.4
5.8
2.4
1.0
Number of
Outstanding
Options
32
814
2,402
259
228
Weighted
Average
Exercise
Price
$ 5.66
8.78
13.07
17.14
26.53
Options Exercisable
Number of
Exercisable
Options
32
770
1,991
239
228
Weighted
Average
Exercise
Price
$ 5.66
8.70
13.08
17.27
26.53
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,735
5.0
$ 13.17
3,260
$ 13.22
(d) Stock-Based Compensation
Effective May 1, 2006, the Company adopted the provisions of SFAS No. 123(R) which establishes
accounting for stock based awards exchanged for employee services using the modified prospective
method. Under this method, all share-based compensation cost is measured at the grant date, based on the
estimated fair value of the award, and is recognized as expense over the specified vesting period. Prior
periods are not restated.
The Company previously accounted for these awards under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related
interpretations and disclosure requirements established by SFAS No. 123, Accounting for Stock-Based
Compensation (“SFAS No. 123”). Under APB 25, no expense was recorded in the income statement for
the Company’s stock options granted at fair market value. The pro forma effects on income for stock
88
options and the Company’s employee stock purchase plan were instead disclosed in a footnote to the
financial statements. The following table illustrates the effect on net income and earnings per share as if
the Company had applied the fair-value recognition provisions of SFAS No. 123 to stock options and the
employee stock purchase program prior to adoption of SFAS No. 123(R).
Net income available to common stockholders, as reported . . . . . . . . .
Add: Compensation expense, net recorded for the acceleration of
vesting of options previously awarded . . . . . . . . . . . . . . . . . . . . . . . .
Deduct: Total stock-based compensation expense determined
under fair value based method, net . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma, net income available to common stockholders . . . . . . . . . . .
Basic income per common share:
Fiscal Year Ended April 30,
2005 2006
$ 7,672
$ 3,931
—
24
(1,372 )
$ 2,559
(2,167 )
$ 5,529
As reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.16
$ 0.10
$ 0.31
$ 0.22
Diluted income per common share:
As reported. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.16
$ 0.10
$ 0.30
$ 0.22
Effective March 2, 2006, the Company accelerated the vesting of all unvested stock options. As a
result, stock-based compensation in periods subsequent to the acceleration is significantly reduced. The
Company recognized stock-based compensation expense totaling $39 ($24 net of tax) related to the
accelerated vesting of options previously awarded. This expense was included in General and
Administration expenses in the Consolidated Statements of Operations for the fiscal year ended
April 30, 2006.
Stock-based compensation expense recognized for the fiscal year ended April 30, 2007 totaled
approximately $702, or approximately a $0.03 per share decrease to basic and diluted net income per
common share. Of these amounts, expense recorded with respect to stock options was $601 and expense
recorded with respect to the Company’s employee stock purchase plan was $101. This expense is included
in General and Administration expenses in the Consolidated Statements of Operations. The total
compensation cost at April 30, 2007 related to unvested stock options was $1,938 and that future expense
will be recognized over the remaining vesting periods of the stock options. The weighted average
remaining vesting period of those awards is approximately 3.0 years.
The company did not record a tax benefit related to the exercise of stock options in the fiscal year
ended April 30, 2007. Prior to the adoption of SFAS No. 123(R), the Company presented all tax benefits
net of deductions resulting from the exercise of stock options as an operating cash flow, in accordance with
Emerging Issues Task Force (“EITF”) Issue No. 00-15, Classification in the Statement of Cash Flows of the
Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option.
SFAS No. 123(R) requires the Company to reflect the tax savings resulting from tax deductions in excess of
expense as a financing cash flow in its financial statements.
89
The Company’s calculations of stock-based compensation expense for the fiscal years April 30, 2005,
2006 and 2007 were made using the Black-Scholes valuation model. The fair value of the Company’s stock
option grants was estimated assuming no expected dividend yield and the following weighted average
assumptions for the fiscal years ended April 30, 2005, 2006 and 2007 as follows:
Fiscal Year Ended April 30,
2006
2005
2007
Stock Options:
Expected life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 years
5 years
6 years
3.87%
3.81 %
40.35% 30.42 %
5.10 %
31.02 %
Stock Purchase Plan:
Expected life. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 years 0.5 years 0.5 years
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.69%
4.30 %
40.35% 30.42 %
5.10 %
33.03 %
Expected life is calculated based on the weighted average historical life of the vested stock options,
giving consideration to vesting schedules and historical exercise patterns. Risk-free interest rate is based on
the U.S. treasury yield curve for the period of the expected life of the stock option. For fiscal year 2007,
expected volatility is calculated using the average of weekly historical volatility over the last six years. One
and three year historical volatility is based on the weekly price changes of the Company’s Class A Common
Stock. The six year historical volatility is based on peer group volatility and the weekly price changes of the
common stock of various other publicly traded solid waste companies.
The Black-Scholes valuation model requires extensive use of accounting judgment and financial
estimation, including estimates of the expected term option holders will retain their vested stock options
before exercising them, the estimated volatility of the Company’s common stock price over the expected
term, and the number of options that will be forfeited prior to the completion of their vesting
requirements. Application of alternative assumptions could produce significantly different estimates of the
fair value of stock-based compensation and consequently, the related amounts recognized in the
Consolidated Statements of Operations.
A summary of options outstanding as of April 30, 2006, and changes during the fiscal year ended
April 30, 2007, is presented below:
Outstanding, April 30, 2006 . . . .
Granted . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . .
Outstanding, April 30, 2007 . . . .
Exercisable, April 30, 2007 . . . . .
Unvested
Options
—
488
(13)
—
475
Vested
Options
3,430
10
(50)
(130)
3,260
3,260
Total
Options
3,430
498
(63)
(130)
3,735
3,260
Weighted
Average
Exercise
Price
$ 13.13
12.91
13.24
11.13
13.17
$ 13.22
Aggregate
Intrinsic
Value of
Vested
Options
$ 11,206
Weighted
Average
Remaining
Term
(Years)
5.2
582
582
$
5.0
4.3
The weighted average grant date fair value per share for the stock options granted during the fiscal
years ended April 30, 2005, 2006 and 2007 was $5.43, $4.09 and $5.24, respectively. The total intrinsic value
of stock options exercised during the fiscal year ended April 30, 2007 was $384. The total fair value of the
10 stock options vested during the fiscal year ended April 30, 2007 was $64.
90
15. EMPLOYEE BENEFIT PLANS
The Company offers its eligible employees the opportunity to contribute to a 401(k) plan. The
Company will contribute fifty cents for every dollar an employee invests in the 401(k) plan up to a
maximum Company match of seven-hundred fifty dollars per calendar year. Participants vest in employer
contributions ratably over a three year period. Employer contributions for the fiscal years ended April 30,
2005, 2006 and 2007 amounted to $365, $570 and $587, 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 shares of Class A Common Stock have been reserved for this purpose.
During the fiscal years ended April 30, 2005, 2006 and 2007, 22, 26 and 30 shares, respectively, of Class A
Common Stock were issued under this plan. As of April 30, 2007, 382 shares of Class A Common Stock
were available for distribution under this plan.
16. INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the fiscal years ended
April 30, 2005, 2006 and 2007 consists of the following:
Federal—
Fiscal Year Ended April 30,
2007
2006
2005
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred benefit of loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . .
92 $ 410 $ 194
(4,805 )
(3,195 )
(7,806 )
6,079
—
6,489
4,099
—
4,191
State—
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred benefit of loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . .
527
1,365
—
1,892
935
(1,174 )
(484 )
(723 )
$ 6,083 $ 7,225 $ (8,529 )
1,578
(632 )
(210 )
736
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, 2005, 2006 and 2007 are as follows:
Fiscal Year Ended April 30,
2007
2006
2005
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35 %
Tax at statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,854 $ 6,559 $ (8,798 )
(959 )
State income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . . . .
541
(Decrease)/increase in valuation allowance . . . . . . . . . . . . . . . . . . . .
235
Non-deductible stock option charges . . . . . . . . . . . . . . . . . . . . . . . . . .
—
Change in state tax rate, net of federal benefit. . . . . . . . . . . . . . . . . .
452
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 6,083 $ 7,225 $ (8,529 )
763
(242 )
—
(136 )
281
675
554
—
(95)
95
35 %
35%
91
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, 2006 and 2007:
April 30,
2006
2007
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,550 $ 33,197
13,870
Accrued expenses and reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.537
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,651
Alternative minimum tax credit carryforwards. . . . . . . . . . . . . . . . . . . . . .
864
Unrealized loss on hedges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
709
Gain on business dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,776
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
53,604
Total deferred tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5,459)
Less: valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48,145
Total deferred tax assets after valuation allowance . . . . . . . . . . . . . . . .
11,374
1,460
1,492
—
711
2,111
46,698
(6,070 )
40,628
Deferred tax liabilities:
(19,745)
Accelerated depreciation of property and equipment. . . . . . . . . . . . . . . .
(17,908)
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(649)
Basis difference in equity interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(82)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(38,384)
Net deferred tax (liability) asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,923 ) $ 9,761
(25,881 )
(15,202 )
(1,114 )
(354 )
(42,551 )
At April 30, 2007, the Company has, for Federal income tax purposes, net operating loss
carryforwards of approximately $77,850 that expire in years 2008 through 2027 and state net operating loss
carryforwards of approximately $76,093 that expire in years 2008 through 2027. The net operating loss
carryforwards include $383 for which a benefit will be recorded in additional paid-in capital when realized.
Substantial limitations restrict the Company’s ability to utilize certain state loss carryforwards. Due to
uncertainty of the utilization of the carryforwards, no tax benefit has been recognized for $55,951 of the
state net operating loss carryforwards. In addition, the Company has $1,651 minimum tax credit
carryforward available that is not subject to limitation.
The $611 net decrease in the valuation allowance is primarily due to the expiration of certain state loss
carryforwards, offset in part by an increase in the valuation allowance for other state loss carryforwards.
The valuation allowance includes $220 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.
17. HARDWICK IMPAIRMENT AND CLOSING CHARGES AND DEVELOPMENT PROJECT
CHARGES.
Hardwick impairment and closing charges:
In the fourth quarter of fiscal year 2007, the Company suspended operations at the Hardwick Landfill
in the South Eastern region. At April 30, 2007, the Company recorded an impairment and closing charge
associated with this site of $26,892. Included in the amount is $8,154 associated with future cash
92
expenditures on capping, closure and post-closure activities at the landfill, $2,323 of which had been
previously accrued as part of normal operations.
Development project charges:
In the second quarter of fiscal 2005, the Company recorded a charge of $295 as to reflect the write-off
of development costs associated with unsuccessful negotiations to operate and develop a landfill located in
McKean County, Pennsylvania in the Western region.
In the third quarter of fiscal 2006, the Company recorded a charge of $1,329 as to write-off the
development costs incurred in pursuit of a contract to develop and operate the Town of Templeton,
Massachusetts sanitary landfill in the South Eastern region. The Company plans to continue pursuing this
contract but feels additional time is required before the project is restarted.
At April 30, 2007, the Company recorded charges totaling $752 related to one landfill development
project and one composting development project in the North Eastern region and one landfill
development project in the South Eastern region which the Company has deemed to be unsuccessful.
18. DISCONTINUED OPERATIONS
Discontinued Operations:
During the second quarter of fiscal year 2005, the Company completed the sale of the assets of Data
Destruction Services, Inc. (“Data Destruction”) for cash sale proceeds of $3,050. This shredding operation
had been historically accounted for as a component of continuing operations in FCR Recycling up until its
sale. The transaction required discontinued operations treatment under SFAS No. 144; therefore the
operating results of Data Destruction were reclassified from continuing to discontinued operations in fiscal
year 2005. Also in connection with the discontinued accounting treatment, the loss (net of tax) from the
sale amounting to $82 has been recorded and classified as a loss on disposal of discontinued operations.
During the fourth quarter of fiscal year 2007, the Company completed the sale of the assets of the
Holliston Transfer Station in the South Eastern region for cash sale proceeds of $7,383. The transaction
required discontinued operations treatment under SFAS No. 144; therefore the operating results of the
Holliston Transfer Station have been reclassified from continuing to discontinued operations in fiscal years
2005 and 2006 and the operating results for fiscal year 2007 are classified as loss from discontinued
operations. Also in connection with the discontinued accounting treatment, the loss (net of tax) from the
sale amounting to $717 has been recorded and classified as a loss on disposal of discontinued operations.
Revenues and loss before tax benefit attributable to discontinued operations for fiscal years 2005,
2006 and 2007 are as follows:
Fiscal Year Ended April 30,
2007
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,603 10,756 10,387
(675 ) (2,072)
Loss before income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . .
(86)
2006
2005
In accordance with EITF Issue No. 87-24, Allocation of Interest to Discontinued Operations, the
Company allocates interest to discontinued operations. The Company has also eliminated certain
immaterial intercompany activity associated with discontinued operations.
93
19. EARNINGS PER SHARE
The following table sets forth the numerator and denominator used in the computation of earnings
per share:
Numerator:
(Loss) income from continuing operations before discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: preferred stock dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations before
Fiscal Year Ended April 30,
2007
2006
2005
$ 7,785 $ 11,514 $ (16,608)
(3,588)
(3,432 )
(3,338)
discontinued operations available to common stockholders . .
$ 4,447 $ 8,082 $ (20,196)
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
23,860 24,185
988
(193 )
988
(169)
24,332
988
(48)
basic EPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24,679 24,980
25,272
Impact of potentially dilutive securities:
Dilutive effect of options, warrants and contingent stock . . . .
514
388
—
Weighted average number of common shares used in
diluted EPS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,193 25,368
25,272
For the fiscal years ended April 30, 2005, 2006 and 2007, 6,079, 6,453 and 8,948, respectively, of
potentially dilutive common stock related to options, 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.
20. RELATED PARTY TRANSACTIONS
(a) Services
During fiscal years ended April 30, 2005, 2006 and 2007, 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 ended April 30, 2005, 2006 and 2007 were $9,193, $13,286 and $13,180, respectively, of
which $1,162 and $1,890 were outstanding and included in either accounts payable or other current
liabilities at April 30, 2006 and 2007, 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 $23 and expire in
April 2008. Total expense charged to operations for fiscal years ended April 30, 2005, 2006 and 2007 under
these agreements was $275, $277 and $277, respectively.
94
(c) Landfill Post-closure
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 ended April 30, 2005, 2006 and 2007, the
Company paid $8, $4 and $15 respectively, pursuant to this agreement. As of April 30, 2006 and 2007, the
Company has accrued $65 and $120 respectively, for costs associated with its post-closure obligations.
(d) Employee Loans
As of April 30, 2006 and 2007, the Company has recourse loans to officers and employees outstanding
in the amount of $1,003. 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 (8.25% at April 30, 2007),
none of which has been recorded for fiscal years 2005, 2006 and 2007. Non current assets includes notes
from officers consisting of $916 at April 30, 2006 and 2007. Current assets include receivables associated
with loans to employees of the Company amounting to $87 at April 30, 2006 and 2007.
(e) Commodity Sales
The Company sells recycled paper products to its equity method investee, GreenFiber. Revenue from
sales to GreenFiber amounted to $3,560, $4,578 and $4,142 for fiscal years ended April 30, 2005, 2006 and
2007, respectively.
21. SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes
standards for reporting information about operating segments in financial statements. In general,
SFAS No. 131 requires that business entities report selected information about operating segments in a
manner consistent with that used for internal management reporting.
The Company classifies its operations into North Eastern region, South Eastern region, Central
region, Western region and FCR Recycling. The Company’s revenues in the North Eastern region, South
Eastern region, Central region and Western region segments are derived mainly from one industry
segment, which includes the collection, transfer, recycling and disposal of non-hazardous solid waste. The
North Eastern region also includes Maine Energy, which generates electricity from non-hazardous solid
waste. The Company’s revenues in the FCR Recycling segment are derived from integrated waste handling
services, including processing and recycling of paper, cardboard, metals, aluminum, plastics and glass and
brokerage of recycled materials. Ancillary operations, major customer accounts, discontinued operations
and earnings from equity method investees, are included in Other.
North Eastern
region
South Eastern
region
Central
region
Western
region
FCR
Recycling
Year Ended April 30, 2005(1)
Outside revenues . . . . . . . . . . . . . . .
Inter-segment revenues. . . . . . . . . .
Operating income . . . . . . . . . . . . . .
Depreciation and amortization . . .
Interest expense (net) . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . .
$ 93,439
24,383
6,527
18,059
5,241
14,707
25,340
$ 172,427
95
$ 78,535 $ 108,700 $ 92,684
21,271
12,818
12,999
8,560
22,323
53,450
$ 128,341 $ 125,592 $ 149,317
28,963
(5,863)
13,936
12,133
10,216
31,645
53,527
17,450
14,855
(1,738)
21,087
30,158
$ 82,009
462
12,640
3,723
2,782
9,325
16,899
$ 60,000
Other
Eliminations
Total
Year Ended April 30, 2005(1)
Outside revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 15,956
2
(2,203)
1,860
1,789
1,416
—
$ 76,777
$
—
(128,608 )
—
—
—
—
—
—
$
$ 471,323
—
41,369
65,432
28,767
79,074
157,492
$ 712,454
North Eastern South Eastern Central
region
region
region
Western
region
FCR
Recycling
Year Ended April 30, 2006(1)
Outside revenues . . . . . . . . . . . . .
Inter-segment revenues. . . . . . . .
Operating income . . . . . . . . . . . .
Depreciation and amortization .
Interest expense (net) . . . . . . . . .
Capital expenditures . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . .
Year Ended April 30, 2006(1)
$ 109,869
26,652
7,022
18,403
4,890
23,801
25,327
$ 179,661
$ 77,634 $ 117,792 $ 101,145
21,774
8,932
13,442
9,755
20,769
55,696
$ 140,300 $ 143,562 $ 166,331
31,667
(1,926)
10,004
13,382
18,395
31,645
58,089
17,025
15,673
(2,897)
26,924
31,106
$ 89,842
470
13,533
4,949
3,261
20,861
27,484
$ 90,853
Other
Eliminations
Total
Outside revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,890
—
(2,182)
1,912
2,896
2,093
—
$ 90,404
$
—
(138,652 )
—
$
—
$ 515,172
—
42,404
64,383
31,287
112,843
171,258
$ 811,111
North Eastern South Eastern Central
region
region
region
Western
region
FCR
Recycling
$ 67,771 $ 126,018 $ 108,086 $ 102,376
185
14,895
5,915
3,915
12,035
27,389
$ 128,263 $ 151,890 $ 175,385 $ 98,700
34,674
(31,746)
9,267
15,892
19,540
31,645
58,598
14,213
19,415
(3,186)
26,641
31,960
25,366
10,772
15,429
10,738
22,799
56,331
Year Ended April 30, 2007
Outside revenues . . . . . . . . . . . . . .
Inter-segment revenues. . . . . . . . .
Operating income . . . . . . . . . . . . .
Depreciation and amortization . .
Interest expense (net) . . . . . . . . . .
Capital expenditures . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . .
$ 117,763
27,798
6,534
19,677
5,561
20,002
26,025
$ 187,692
96
Other
Eliminations
Total
Year Ended April 30, 2007
Outside revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inter-segment revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 24,976
—
(2,569)
2,037
5,939
1,156
—
$ 90,636
$
—
(146,621 )
—
$
—
$ 546,990
—
12,099
71,740
38,859
102,173
173,350
$ 832,566
(1) Effective May 1, 2006, the Company began recording (gain) loss on sale of equipment as a component
of cost of operations. Previously this had been recorded as a component of other income. Accordingly,
segment data for the fiscal years 2005 and 2006 has been conformed to reflect this modification.
Amounts of our total revenue attributable to services provided are as follows:
Fiscal Year Ended April 30,
2006
2007
2005
Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 237,877 $ 253,282 $ 260,951
106,465
Landfill / disposal facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
30,892
Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
148,682
Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
80,132
31,221
122,093
97,801
33,638
130,451
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 471,323 $ 515,172 $ 546,990
22.(cid:3) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of certain items in the Consolidated Statements of Operations by quarter
for fiscal years ended April 30, 2006 and 2007.
Fiscal Year 2007
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(Loss) income from continuing operations before
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (loss) income available to common stockholders . . . .
(Loss) income per common share:
Basic:
(Loss) income from continuing operations before
First
Quarter
Second
Quarter
Fourth
Quarter
$ 140,757 $ 144,940 $ 131,038 $ 130,255
(19,910)
Third
Quarter
14,482
8,823
8,705
89
(934)
2,444
1,498
(714 )
(1,747 )
(18,427)
(20,288)
discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
(0.03)
0.06
(0.06 )
(0.76)
Net (loss) income available to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.04)
0.06
(0.07 )
(0.80)
Diluted:
(Loss) income from continuing operations before
discontinued operations . . . . . . . . . . . . . . . . . . . . . . .
(0.03)
0.06
(0.06 )
(0.76)
Net (loss) income available to common
stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(0.04)
0.06
(0.07 )
(0.80)
97
Fourth
Fiscal Year 2006
Quarter
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,241 $ 133,926 $ 127,880 $ 124,125
Operating income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10,067
Income from continuing operations before discontinued
Third
Quarter
Second
Quarter
First
Quarter
13,701
12,865
5,771
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders. . . . . . . . . . .
Income per common share:
Basic:
Income from continuing operations before
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders . . . . . .
Diluted:
Income from continuing operations before
discontinued operations . . . . . . . . . . . . . . . . . . . . . . . .
Net income available to common stockholders . . . . . .
3,136
2,257
4,213
3,303
1,398
428
2,768
1,682
0.09
0.09
0.09
0.09
0.14
0.13
0.13
0.13
0.02
0.02
0.02
0.02
0.08
0.07
0.08
0.07
23. CONDENSED CONSOLIDATING FINANCIAL INFORMATION
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, 2006 and 2007; the condensed consolidating results of operations for the fiscal years ended
April 30, 2005, 2006 and 2007; and the condensed consolidating statements of cash flows for the fiscal years
ended April 30, 2005, 2006 and 2007 of (a) the Parent company only, (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.
98
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 2006
(In thousands, except for share and per share data)
CURRENT ASSETS:
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . .
Accounts receivable—trade, net of
allowance for doubtful accounts. . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . .
Current assets of discontinued
operations. . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net of
accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . . . .
Assets under contractual obligation . . . . . . . . .
Non-current assets of discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . .
Intercompany receivable . . . . . . . . . . . . . . . . . .
656,623
(657,153)
(3,849)
Parent
Guarantors
Non-Guarantors Elimination Consolidated
$ (3,840) $ 10,743
$
522
$ —
$ 7,425
35
4,029
—
2,456
2,680
3,252
—
5,469
1,189
—
—
27,467
37,377
54,731
—
925
7,852
74,251
471,733
171,258
3
—
937
6,992
37,563
688,486
620
1,005
—
—
2,147
(693)
—
12,415
—
—
—
120
11,842
(27 )
—
55,359
5,034
—
(77 )
(104 )
925
10,231
78,974
—
—
—
(1,189 )
—
—
(4,379 )
(5,568 )
4,379
474,292
171,258
17,887
—
937
6,992
60,771
732,137
—
$ 696,680
$ 105,584
$ 10,140
$ (1,293 )
$ 811,111
99
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (Continued)
AS OF APRIL 30, 2006
(In thousands, except for share and per share data)
LIABILITIES AND STOCKHOLDERS’
CURRENT LIABILITIES:
EQUITY
Current maturities of long term debt . . . . . . $
Current maturities of capital lease
Parent
Guarantors
Non-Guarantors
Elimination Consolidated
—
$
527
$ —
$ —
$
527
obligations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and related expenses. . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . .
Accrued income taxes . . . . . . . . . . . . . . . . . . .
Current liabilities of discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities. . . . . . . . . . . . . . . . . .
121
2,227
1,413
6,648
200
—
5,688
Total current liabilities. . . . . . . . . . . . . . . . . . . .
Long-term debt, less current maturities . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . .
16,297
451,824
6,957
1,682
940
43,402
5,334
2
—
826
13,422
64,453
896
—
33,372
—
245
29
—
—
—
13,845
14,119
—
—
1,695
—
(104 )
—
—
—
—
—
(104 )
—
—
—
1,061
45,770
6,776
6,650
200
826
32,955
94,765
452,720
6,957
36,749
COMMITMENTS AND CONTINGENCIES
Series A redeemable, convertible preferred
stock, authorized—55,750, issued and
outstanding—53,000, 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—
24,185,000 shares . . . . . . . . . . . . . . . . . . . . . .
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. . .
Additional paid-in capital . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . .
70,430
—
—
—
70,430
242
101
100
(201 )
242
10
159
274,297
(125,218)
149,490
—
91
48,360
(41,689)
6,863
—
(122)
2,743
(8,395)
(5,674)
—
31
(51,103 )
50,084
(1,189 )
10
159
274,297
(125,218)
149,490
$ 696,680
$ 105,584
$ 10,140
$ (1,293 )
$ 811,111
100
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 2007
(in thousands, except for share and per share data)
CURRENT ASSETS:
ASSETS
Cash and cash equivalents. . . . . . . . . . . . .
Accounts receivable—trade, net of
allowance for doubtful accounts. . . . . .
Refundable income taxes . . . . . . . . . . . . .
Deferred taxes . . . . . . . . . . . . . . . . . . . . . .
Other current assets. . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net of
accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . .
Investment in subsidiaries . . . . . . . . . . . . . . .
Assets under contractual obligation . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . .
Parent
Guarantors
Non-Guarantors Elimination Consolidated
$ (1,967) $ 13,012
$ 1,318
$ —
$ 12,363
31
1,340
7,306
1,679
8,389
2,587
—
—
1,546
(12,170)
—
29,589
21,552
60,347
—
—
9,159
82,518
485,509
173,350
4
—
—
55
38,657
697,575
166
—
909
—
2,393
(475)
—
12,730
—
—
—
120
12,375
(27 )
—
—
—
(27 )
60,517
1,340
8,215
10,838
93,273
—
—
—
—
12,170
—
(4,379 )
7,791
487,621
173,350
12,734
1,546
—
55
63,987
739,293
—
$ 832,566
Intercompany receivable . . . . . . . . . . . . . . . .
670,919
$ 700,860
(669,191)
$ 110,902
(6,107)
$ 8,661
4,379
$ 12,143
101
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET (Continued)
AS OF APRIL 30, 2007
(in thousands, except for share and per share data)
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . .
94,372
83,235
Long-term debt, less current maturities . . . . . . . . .
Capital lease obligations, less current
475,445
780
maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
650
—
LIABILITIES AND STOCKHOLDERS’
CURRENT LIABILITIES:
EQUITY
Current maturities of long term debt . . . . . . . . . $
Series A redeemable, convertible preferred
stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued payroll and related expenses. . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued closure and post-closure costs,
current portion . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities. . . . . . . . . . . . . . . . . . . . .
Accrued closure and post closure costs, less
current portion. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . .
STOCKHOLDERS’ EQUITY:
Class A common stock—
Authorized—100,000,000 shares, $0.01 par
value; issued and outstanding—
24,332,000 shares . . . . . . . . . . . . . . . . . . . . . . . . .
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)
Parent
Guarantors Non-Guarantors Elimination Consolidated
900 $
315
$ —
$ —
$
1,215
74,018
1,580
1,795
9,268
—
50,722
6,760
7
—
6,811
8,386
17,045
—
96
—
—
535
8,414
9,045
—
—
1,547
29,408
—
6,526
43
—
2,046
—
(27 )
—
—
—
—
74,018
52,371
8,555
9,275
8,921
32,270
(27 )
186,625
—
476,225
—
—
—
—
650
29,451
—
10,119
243
101
100
(201 )
243
10
—
—
—
10
income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . . . . . . . . . .
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . .
(1,001)
273,345
(143,101)
129,496
120
46,704
(56,622)
(9,697)
(4)
3,813
(6,382)
(2,473)
(116 )
(50,517 )
63,004
12,170
(1,001)
273,345
(143,101)
129,496
$ 700,860 $ 110,902
$ 8,661
$ 12,143
$ 832,566
102
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 30, 2005
(In thousands)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 466,760
Parent
Guarantors
Non - Guarantors
$ 14,429
Elimination
$ (9,866 )
Consolidated
$ 471,323
Operating expenses:
Cost of operations. . . . . . . . . . . . . . . . .
General and administration . . . . . . . .
Depreciation and amortization. . . . . .
Development project charge. . . . . . . .
Operating income (loss) . . . . . . . . . . . . .
Other expense/(income), net:
Interest income . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . .
(Income) loss from equity method
investments . . . . . . . . . . . . . . . . . . . . .
Loss on debt extinguishment. . . . . . . .
Other expense/(income), net:
Other expense/(income), net . . . . . . . . .
Income (loss) from continuing
operations before income taxes and
discontinued operations . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . .
Income (loss) from continuing
operations before discontinued
operations . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations:
Income from discontinued
(187)
506
1,621
—
1,940
(1,940)
301,284
60,583
58,437
295
420,599
46,161
(29,044)
30,812
(116)
27,308
(18,199)
1,716
(411)
(15,126)
(2,883)
—
314
24,623
10,830
1,077
5,374
—
17,281
(2,852)
(325)
132
—
—
(2)
(195)
(9,866 )
—
—
—
(9,866 )
—
302,061
62,166
65,432
295
429,954
41,369
29,032
(29,032 )
(453)
29,220
18,199
—
—
18,199
(2,883)
1,716
(99)
27,501
13,186
5,917
21,538
—
(2,657)
166
(18,199 )
—
13,868
6,083
7,269
21,538
(2,823)
(18,199 )
7,785
operations, net . . . . . . . . . . . . . . . . . .
—
(434)
—
—
(434)
Loss on disposal of discontinued
operations, net . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . .
Preferred stock dividend . . . . . . . . . . . . .
Net income (loss) available to
—
7,269
3,338
(82)
21,022
—
—
(2,823)
—
—
(18,199 )
—
(82)
7,269
3,338
common stockholders . . . . . . . . . . . . . $ 3,931 $ 21,022
$ (2,823)
$ (18,199 )
$ 3,931
103
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 30, 2006
(In thousands)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 513,188
Parent
Guarantors
Non-Guarantors
$ 10,012
Elimination
$ (8,028 )
Consolidated
$ 515,172
Operating expenses:
Cost of operations . . . . . . . . . . . . . . . .
General and administration . . . . . . . .
Depreciation and amortization . . . . .
Development project charge . . . . . . .
12
(429)
1,660
—
1,243
338,064
66,842
62,453
1,329
468,688
9,897
698
270
—
10,865
(8,028 )
—
—
—
(8,028 )
339,945
67,111
64,383
1,329
472,768
Operating income (loss) . . . . . . . . . . . . .
(1,243)
44,500
(853)
—
42,404
Other expense/(income), net:
Interest income. . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . .
(Income) loss from equity method
investments . . . . . . . . . . . . . . . . . . . .
Other (income)/expense, net:
Other expense/(income), net . . . . . . . . .
Income (loss) from continuing
operations before income taxes and
discontinued operations . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . .
Income (loss) from continuing
operations before discontinued
operations . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations:
Income from discontinued
operations, net . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . .
Preferred stock dividend . . . . . . . . . . . . .
Net income (loss) available to
(32,500)
35,451
(370)
29,104
(20,870)
(1,703)
(19,622)
(5,742)
(177)
22,815
(453)
55
—
—
(398)
32,395
(32,395 )
(928)
32,215
20,870
—
20,870
(5,742)
(1,880)
23,665
18,379
7,275
21,685
—
(455)
(50)
(20,870 )
—
18,739
7,225
11,104
21,685
(405)
(20,870 )
11,514
—
11,104
3,432
(410)
21,275
—
—
(405)
—
—
(20,870 )
—
(410)
11,104
3,432
common stockholders . . . . . . . . . . . . . $ 7,672 $ 21,275
$ (405)
$ (20,870 )
$ 7,672
104
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED APRIL 30, 2007
(in thousands)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . $ — $ 544,911
Parent
Guarantors
Non-Guarantors
$ 11,975
Elimination
$ (9,896 )
Consolidated
$ 546,990
Operating expenses:
Cost of operations . . . . . . . . . . . . . . . .
General and administration . . . . . . . .
Depreciation and amortization . . . . .
Hardwick impairment and closing
charge. . . . . . . . . . . . . . . . . . . . . . . . .
Development project charges . . . . . .
2,775
400
1,774
—
—
4,949
360,036
73,996
69,045
26,892
752
530,721
Operating income (loss) . . . . . . . . . . . . .
(4,949)
14,190
Other expense/(income), net:
Interest income. . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . .
(Income) loss from equity method
(37,237)
43,280
(537)
33,721
investments . . . . . . . . . . . . . . . . . . . .
Other income . . . . . . . . . . . . . . . . . . . .
Other expense/(income), net . . . . . . . . .
16,797
(254)
22,586
(2,105)
(318)
30,761
7,737
459
921
—
—
9,117
2,858
(581)
213
—
—
(368)
(9,896 )
—
—
360,652
74,855
71,740
—
—
(9,896 )
26,892
752
534,891
—
12,099
37,090
(37,090 )
(1,265)
40,124
(15,743 )
—
(15,743 )
(1,051)
(572)
37,236
(Loss) income from continuing
operations before income taxes and
discontinued operations . . . . . . . . . . .
(Benefit) provision for income taxes. . .
(Loss) income from continuing
operations before discontinued
operations . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations:
Loss from discontinued
(27,535)
(9,652)
(16,571)
—
3,226
1,123
15,743
—
(25,137)
(8,529)
(17,883)
(16,571)
2,103
15,743
(16,608)
operations, net . . . . . . . . . . . . . . . . .
—
(558)
—
—
(558)
Loss on disposal of discontinued
operations, net . . . . . . . . . . . . . . . . .
Net (loss) income . . . . . . . . . . . . . . . . . . .
Preferred stock dividend . . . . . . . . . . . . .
Net (loss) income available to
—
(17,883)
3,588
(717)
(17,846)
—
—
2,103
—
—
15,743
—
(717)
(17,883)
3,588
common stockholders . . . . . . . . . . . . . $ (21,471) $ (17,846)
$ 2,103
$ 15,743
$ (21,471)
105
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED APRIL 30, 2005
(In thousands)
Net Cash Provided by (Used in)
Operating Activities. . . . . . . . . . . . . . . $
(1,325) $ 81,745
$ 2,788
$ —
$ 83,208
Parent
Guarantors Non-Guarantors Elimination Consolidated
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired. . .
Additions to property, plant and
—
(9,513)
—
equipment—growth. . . . . . . . . . . . .
—maintenance . . . . . . .
—
(1,314)
(24,723)
(51,957)
—
(1,080)
Payments on landfill operating lease
contracts . . . . . . . . . . . . . . . . . . . . . .
Proceeds from divestitures . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Used In Investing
—
—
—
(20,276)
3,050
3,048
—
—
—
Activities . . . . . . . . . . . . . . . . . . . . . . . .
(1,314)
(100,371)
(1,080)
Cash Flows from Financing Activities:
Proceeds from long-term
borrowings. . . . . . . . . . . . . . . . . . . . .
318,900
—
—
Principal payments on long-term
debt. . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred financing costs . . . . . . . . . . .
Proceeds from exercise of
stock options . . . . . . . . . . . . . . . . . . .
Intercompany borrowings. . . . . . . . . .
Net Cash Provided by (Used in)
(290,668)
(3,051)
(4,205)
—
(1,328)
—
1,653
(28,373)
—
28,336
—
37
Financing Activities . . . . . . . . . . . . . . .
(1,539)
24,131
(1,291)
Discontinued Operations:
Used in Operating Activities . . . . . . .
Used in Investing Activities . . . . . . . .
Used in financing Activities . . . . . . . .
Cash Used in Discontinued
Operations. . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and
—
—
—
—
(90)
(990)
(9)
(1,089)
cash equivalents . . . . . . . . . . . . . . . .
(4,178)
4,416
Cash and cash equivalents,
beginning of period . . . . . . . . . . . . .
1,795
5,730
Cash and cash equivalents, end of
—
—
—
—
417
398
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(9,513)
(24,723)
(54,351)
(20,276)
3,050
3,048
(102,765)
318,900
(296,201)
(3,051)
1,653
—
21,301
(90)
(990)
(9)
(1,089)
655
7,923
period. . . . . . . . . . . . . . . . . . . . . . . . . . . $
(2,383) $ 10,146
$ 815
$ —
$
8,578
106
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED APRIL 30, 2006
(In thousands)
Net Cash Provided by (Used in)
Operating Activities. . . . . . . . . . . . . . . . . . $
(4,113) $ 78,752
$ 861
$ —
$ 75,500
Parent
Guarantors Non-Guarantors Elimination Consolidated
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$ —
(19,691)
(47,474)
(65,369)
(10,539)
(5,469)
(508)
(149,050)
208,997
(136,411)
1,432
—
74,018
(440)
(1,168)
(13)
(1,621)
(1,153)
8,578
7,425
$
Cash Flows from Investing Activities:
Acquisitions, net of cash acquired. . . . . .
Additions to property, plant and
—
(19,691)
—
equipment—growth. . . . . . . . . . . . . . . .
—maintenance . . . . . . . . . .
—
(1,981)
(47,474)
(62,683)
—
(705)
Payments on landfill operating lease
contracts . . . . . . . . . . . . . . . . . . . . . . . . .
—
(10,539)
—
Restricted cash from revenue bond
issuance . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash Used In Investing Activities . . . .
(5,469)
(3,047)
(10,497)
—
2,539
(137,848)
Cash Flows from Financing Activities:
Proceeds from long-term borrowings . . .
Principal payments on long-term debt . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany borrowings. . . . . . . . . . . . .
Net Cash Provided by (Used in) Financing
Activities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued Operations:
Used in Operating Activities . . . . . . . . . .
Used in Investing Activities . . . . . . . . . . .
Used in financing Activities . . . . . . . . . . .
Cash Used in Discontinued
Operations. . . . . . . . . . . . . . . . . . . . . . . . . .
Net (decrease) increase in cash and
—
—
(705)
—
—
—
(449)
208,197
(135,366)
1,432
(61,110)
800
(1,045)
—
61,559
13,153
61,314
(449)
—
—
—
—
(440)
(1,168)
(13)
(1,621)
—
—
—
—
cash equivalents . . . . . . . . . . . . . . . . . . .
(1,457)
597
(293)
Cash and cash equivalents, beginning
of period . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of period . $
(2,383)
10,146
(3,840) $ 10,743
815
$ 522
107
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED APRIL 30, 2007
(in thousands)
Net Cash Provided by (Used in)
Operating Activities. . . . . . . . . . . . . .
$
(1,906) $ 84,664
$ (1,303)
$ —
$ 81,455
Parent
Guarantors Non-Guarantors Elimination Consolidated
Cash Flows from Investing
Activities:
Acquisitions, net of cash acquired. .
Additions to property, plant and
equipment—growth. . . . . . . . . . . .
—maintenance . . . . . .
Payments on landfill operating
lease contracts . . . . . . . . . . . . . . . .
Proceeds from divestitures . . . . . . . .
Restricted cash from revenue
—
(2,750)
—
—
(1,106)
(36,738)
(63,192)
—
(1,137)
—
—
(4,995)
7,383
—
—
—
—
—
bond issuance . . . . . . . . . . . . . . . . .
5,535
—
Investment in unconsolidated
entities . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Cash (Used In) Provided by
(4,378)
—
—
2,590
Investing Activities. . . . . . . . . . . . . . .
51
(97,702)
(1,137)
Cash Flows from Financing
Activities:
Proceeds from long-term
borrowings. . . . . . . . . . . . . . . . . . . .
267,137
388
—
Principal payments on
long-term debt . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Intercompany borrowings. . . . . . . . .
(243,150)
1,026
(21,285)
(1,600)
—
18,049
—
—
3,236
Net Cash Provided by (Used in)
Financing Activities . . . . . . . . . . . . . .
3,728
16,837
3,236
Discontinued Operations:
Used in Operating Activities . . . . . .
Used in Investing Activities . . . . . . .
Cash Used in Discontinued
Operations. . . . . . . . . . . . . . . . . . . . . .
Net increase in cash and cash
—
—
—
(879)
(651)
(1,530)
equivalents . . . . . . . . . . . . . . . . . . .
1,873
2,269
Cash and cash equivalents,
beginning of period . . . . . . . . . . . .
(3,840)
10,743
Cash and cash equivalents,
—
—
—
796
522
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2,750)
(36,738)
(65,435)
(4,995)
7,383
5,535
(4,378)
2,590
(98,788)
267,525
(244,750)
1,026
—
23,801
(879)
(651)
(1,530)
4,938
7,425
end of period. . . . . . . . . . . . . . . . . . . .
$
(1,967) $ 13,012
$ 1,318
$ —
$ 12,363
108
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s chief executive officer and
chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as
of April 30, 2007. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and
15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed
to ensure that information required to be disclosed by a 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. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company in the
reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s
management, including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and
procedures as of April 30, 2007, the Company’s chief executive officer and chief financial officer concluded
that, as of such date, the Company’s disclosure controls and procedures were effective at the reasonable
assurance level.
Management’s report on the Company’s internal control over financial reporting (as defined in
Rules 13(a)-15(f) and 15(d)-15(f) under the Exchange Act) and the independent registered public
accounting firm’s related audit report are included in Item 8 of this Form 10-K and are incorporated
herein by reference.
No change in the Company’s internal control over financial reporting occurred during the fiscal
quarter ended April 30, 2007 that has materially affected, or is reasonably likely to materially affect, the
Company’s internal control over financial reporting.
PART III
Items 10, 11, 12, 13 and 14 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, 13 and 14 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.
109
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, 2007:
(a)
(b)
Number of securities
to be issued upon
exercise of
outstanding
options(1)
Weighted-average
exercise price of
outstanding options
(c)
Number of securities
remaining
available for future
issuance
under equity
compensation
plans (excluding
securities reflected
in column (a))(2)
Plan Category
Equity compensation plans approved by
security holders. . . . . . . . . . . . . . . . . . . . . . . . .
3,727,386
$ 13.15
2,269,176 (3)
Equity compensation plans not approved by
security holders. . . . . . . . . . . . . . . . . . . . . . . . .
—
$ —
—
(1) This table excludes an aggregate of 9,692 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 $22.56.
(2) In addition to being available for future issuance upon exercise of options that may be granted after
April 30, 2007, 648,456 shares under the Company’s Amended and Restated 1997 Stock Incentive
Plan and 1,230,000 shares under the Company’s 2006 Stock Incentive Plan, of the 2,269,176 shares
reflected in column (c), may instead be issued in the form of restricted stock or other equity-based
awards.
(3) Includes 381,720 shares issuable under the Company’s 1997 Employee Stock Purchase Plan.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Consolidated Financial Statements included under Item 8.
PART IV
Report of Independent Registered Public Accounting Firm.
Consolidated Balance Sheets as of April 30, 2005 and 2006.
Consolidated Statements of Operations for the fiscal years ended April 30, 2004, 2005, and 2006.
Consolidated Statements of Stockholders’ Equity for the fiscal years ended April 30 2004, 2005,
and 2006.
Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2004, 2005, and 2006.
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.
110
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.
SIGNATURES
Dated: June 22, 2007
CASELLA WASTE SYSTEMS, INC.
By:
/s/ JOHN W. CASELLA
John W. Casella
Chairman and Chief Executive Officer
Date:
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)
June 22, 2007
s/ JAMES W. BOHLIG
James W. Bohlig
/s/ RICHARD A. NORRIS
Richard A. Norris
President and Chief Operating Officer, Director
Senior Vice President and Chief Financial
Officer (Principal Accounting and Financial
Officer)
/s/ DOUGLAS R. CASELLA
Douglas R. Casella
Director
/s/ JOHN F. CHAPPLE III
John F. Chapple III
Director
/s/ GREGORY B. PETERS
Gregory B. Peters
Director
/s/ JAMES F. CALLAHAN, JR.
James F. Callahan, Jr.
Director
/s/ D. RANDOLPH PEELER
D. Randolph Peeler
Director
/s/ JOSEPH G. DOODY
Joseph G. Doody
Director
/s/ JAMES P. MCMANUS
James P. McManus
Director
111
June 22, 2007
June 22, 2007
June 22, 2007
June 22, 2007
June 22, 2007
June 22, 2007
June 22, 2007
June 22, 2007
June 22, 2007
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM ON FINANCIAL STATEMENTS
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Casella Waste Systems, Inc.:
Our audits of the consolidated financial statements, of management’s assessment of the effectiveness
of internal control over financial reporting and of the effectiveness of internal control over financial
reporting referred to in our report dated June 18, 2007 appearing in this Annual Report on Form 10-K
also included an audit of the financial statement schedule for the year ended April 30, 2007 listed in Item
15(a)(2) of this Form 10-K. In our opinion, this financial statement schedule for the year ended April 30,
2007 presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
VITALE, CATURANO & COMPANY, LTD.
June 18, 2007
Boston, Massachusetts
112
FINANCIAL STATEMENT SCHEDULES
Schedule II
Valuation Accounts
Allowance for Doubtful Accounts
(in thousands)
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions—Charged to expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deductions—Bad debts written off, net of recoveries . . . . . . . . . . . . . . . . . . . . .
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended April 30,
2007
2006
2005
$ 650
$ 698
$ 581
2,074
562
954
(1,132)
(837 )
(610 )
$ 1,592
$ 650
$ 698
113
Exhibit
No.
2.1
3.1
3.3
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
EXHIBIT INDEX
Description
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)).
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)).
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)).
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)).
114
Exhibit
No.
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
Description
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
115
Exhibit
No.
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
Description
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
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)).
116
Exhibit
No.
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
Description
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)).
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)).
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 quarterly report on
Form 10-Q of Casella Waste Systems Inc. as filed September 12, 2003 (file no. 000-23211)).
Construction, Operation and Management Agreement between New England Waste Services
of Massachusetts, Inc. and the Town of Templeton, Massachusetts (incorporated herein by
reference to Exhibit 10.35 to the annual report on Form 10-K of Casella as filed on
July 24, 2003 (file no. 000-23211)).
Amendment No. 1 and Release to Second Amended and Restated Revolving Credit and Term
Loan Agreement (incorporated herein by reference to Exhibit 10.36 to the annual report on
Form 10-K of Casella as filed on July 24, 2003 (file no. 000-23211)).
Amendment No. 2 to Second Amended and Restated Revolving Credit and Term Loan
Agreement (incorporated by reference to Exhibit 10.2 to the quarterly report on Form 10-Q of
Casella Waste Systems, Inc. as filed on September 12, 2003 (file no. 000-23211)).
Amendment No. 3 and Consent to Certain Acquisitions to Second Amended and Restated
Revolving Credit and Term Loan Agreement (incorporated herein by reference to
Exhibit 10.4 to the registration statement on Form S-4 of Casella Waste Systems, Inc. as filed
on February 20, 2004 (file no. 000-23211)).
Joinder Agreement to Second Amended and Restated Revolving Credit and Term Loan
Agreement (incorporated herein by reference to Exhibit 10.5 to the registration statement on
Form S-4 of Casella Waste Systems, Inc. as filed on February 20, 2004 (file no. 000-23211)).
Amendment No. 4 to Second Amended and Restated Revolving Credit and Term Loan
Agreement. (incorporated herein by reference to Exhibit 10.40 to the annual report on
Form 10-K of Casella as filed on June 25, 2004 (file no. 000-23211)).
Summary of compensatory arrangements including cash bonus arrangement, and salaries and
other compensatory terms for executive officers (incorporated herein by reference to the
current report on Form 8-K of Casella as filed on June 21, 2005 (file no. 000-23211)).
Summary of compensating arrangements for non-employee directors (incorporated herein by
reference to the current report on Form 8-K of Casella as filed on March 8, 2005
(file no. 000-23211)).
117
Exhibit
No.
10.43
10.44
10.45
10.46
10.47
10.48
Description
Amended and Restated Revolving Credit Agreement, dated April 28, 2005, by and among
Casella Waste Systems, Inc. and its Subsidiaries (other than Excluded Subsidiaries), the
lending institutions party thereto and Bank of America, N.A., individually and as
administrative agent, and Bank of America Securities LLC, as sole arranger and sole book
manager, with Citizens Bank, as syndication agent and Sovereign Bank, Wachovia Bank and
Calyon New York Branch, as co-documentation agents. (incorporated herein by reference to
Exhibit 10.43 to the annual report on Form 10-K of Casella as filed on June 28, 2005
(file no. 000-23211)).
Summary of compensatory arrangements for non-employee directors (incorporated herein by
reference to the current report on Form 8-K of Casella as filed on September 9, 2005
(file no. 000-23211)).
Financing Agreement between Casella Waste Systems, Inc. and Finance Authority of Maine,
Dated as of December 1, 2006 relating to issuance of Finance Authority of Maine Solid Waste
Disposal Revenue Bonds (Casella Waste Services, Inc. Project) Series 2005 (incorporated
herein by reference to the current report on Form 8-K of Casella as filed on January 4, 2006
(file no. 000-23211)).
First Amendment To Amended And Restated Revolving Credit Agreement by and among the
Company, the Borrowers, the Lenders, and Bank of America, N.A. as Administrative Agent,
Swing Line Lender and L/C Issuer (incorporated herein by reference to the current report on
Form 8-K of Casella as filed on June 8, 2006 (file no. 000-23211)).
2006 Stock Incentive Plan (incorporated herein by reference to the current report on
Form 10-Q of Casella as filed on December 7, 2006 (file no. 000-23211)).
Third Amendment To Amended And Restated Revolving Credit Agreement by and among
the Company, the Borrowers, the Lenders, and Bank of America, N.A. as Administrative
Agent, Swing Line Lender and L/C Issuer (incorporated herein by reference to the current
report on Form 8-K of Casella as filed on May 15, 2007 (file no. 000-23211)).
21.1 +
Subsidiaries of Casella Waste Systems, Inc.
23.1
Consent of Vitale Caturano & Company, LTD.
23.2 +
Consent of PricewaterhouseCoopers LLP.
23.3
Consent of PricewaterhouseCoopers LLP on financial statements of US Green Fiber, LLC.
31.1 +
31.2 +
Certification of Principal Executive Officer required by Rule 13a-15(e) or Rule 15d-15(e) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
Certification of Principal Financial Officer required by Rule 13a-15(e) or Rule 15d-15(e) of
the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002
32.1 ++ Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1
99.2
Financial Statements of US Green Fiber, LLC - December 31, 2005, 2004 and 2003.
Financial Statements of US Green Fiber, LLC - December 31, 2006, 2005 and 2004.
+ Filed herewith
++ Furnished herewith
118
Subsidiaries of Registrant
Name
All Cycle Waste, Inc.
Atlantic Coast Fibers, Inc.
B. and C. Sanitation Corporation
Better Bedding Corp.
Blasdell Development Group, Inc.
Blue Mountain Recycling LLC
Bristol Waste Management, Inc.
C.V. Landfill, Inc.
Casella Insurance Company
Casella Major Account Services LLC
Casella Renewable Systems, LLC
Casella RTG Investors Co., LLC
Casella Transportation, Inc.
Casella Waste Management of Massachusetts, Inc.
Casella Waste Management of N.Y., Inc.
Casella Waste Management of Pennsylvania, Inc.
Casella Waste Management, Inc.
Casella Waste Services of Ontario LLC
Casella Waste Systems, Inc.
Chemung Landfill LLC
Colebrook Landfill LLC
Culchrome LLC
Corning Community Disposal Service, Inc.
CWM All Waste LLC
Fairfield County Recycling, LLC
FCR Camden, LLC
FCR Florida, LLC
FCR Greensboro, LLC
FCR Greenville, LLC
FCR Morris, LLC
FCR Redemption, LLC
FCR Tennessee, LLC
FCR, LLC
Forest Acquisitions, Inc.
Green Mountain Glass LLC
Grasslands, Inc.
GroundCo LLC
Hakes C & D Disposal, Inc.
Hardwick Landfill, Inc.
Hiram Hollow Regeneration Corp.
K-C International, Ltd.
KTI Bio-Fuels, Inc.
KTI Environmental Group, Inc.
KTI New Jersey Fibers, Inc.
KTI Operations, Inc.
KTI Recycling of New England, LLC
KTI Specialty Waste Services, Inc.
KTI, Inc.
Exhibit 21.1
Jurisdiction of Incorporation
Vermont
Delaware
New York
New York
New York
Pennsylvania
Vermont
Vermont
Vermont
Vermont
Delaware
Delaware
Vermont
Massachusetts
New York
Pennsylvania
Vermont
New York
Delaware
New York
New Hampshire
Delaware
New York
New Hampshire
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
Delaware
New Hampshire
Delaware
New York
New York
New York
Massachusetts
New York
Oregon
Maine
New Jersey
Delaware
Delaware
Maine
Maine
New Jersey
Name
Lewiston Landfill LLC
Maine Energy Recovery Company, Limited Partnership
Mecklenburg County Recycling, Inc.
New England Landfill Solutions, LLC
Natural Environmental, Inc.
New England Waste Services of Massachusetts, Inc.
New England Waste Services of ME, Inc.
New England Waste Services of N.Y., Inc.
New England Waste Services of Vermont, Inc.
New England Waste Services, Inc.
Newbury Waste Management, Inc.
NEWS of Worcester LLC
NEWSME Landfill Operations LLC
North Country Composting Services, Inc.
North Country Environmental Services, Inc.
North Country Trucking, Inc.
Northern Properties Corporation of Plattsburgh
Northern Sanitation, Inc.
PERC Management Company, LP
PERC, Inc.
Pine Tree Waste, Inc.
Portland C&D Site, Inc.
R.A Bronson, Inc.
Resource Recovery Systems of Sarasota, Inc.
Resource Recovery Systems, LLC
ReSource Transfer Services, Inc.
ReSource Waste Systems, Inc.
Rockingham Sand & Gravel, LLC
Schultz Landfill, Inc.
Southbridge Recycling & Disposal Park, Inc.
Sunderland Waste Management, Inc.
Templeton Landfill LLC
The Hyland Facility Associates
Total Waste Management Corp.
Trilogy Glass LLC
U.S. Fiber, LLC
Waste-Stream, Inc.
Westfield Disposal Service, Inc
Winters Brothers, Inc.
Jurisdiction of Incorporation
Maine
Maine
Connecticut
Massachusetts
New York
Massachusetts
Maine
New York
Vermont
Vermont
Vermont
Massachusetts
Maine
New Hampshire
Virginia
New York
New York
New York
Maine
Delaware
Maine
New York
New York
Florida
Delaware
Massachusetts
Massachusetts
Vermont
New York
Massachusetts
Vermont
Massachusetts
New York
New Hampshire
New York
North Carolina
New York
New York
Vermont
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8
(Nos. 333-31022, 333-40267, 333-43537, 333-43539, 333-43541, 333-43543, 333-43635, 333-67487,
333-92735, 333-100553 and 333-141038), and on Form S-3 (Nos. 333-121088, 333-31268, 333-85279,
333-88097 and 333-95841) of Casella Waste Systems, Inc. of our reports dated June 18, 2007 relating to the
financial statements, financial statement schedule, management’s assessment of the effectiveness of
internal control over financial reporting and the effectiveness of internal control over financial reporting,
which appear in this Form 10-K.
Exhibit 23.1
/s/ Vitale, Caturano, and Company, Ltd.
Boston, MA
June 21, 2007
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (Nos.
333-31022, 333-40267, 333-43537, 333-43539, 333-43541, 333-43543, 333-43635, 333-67487, 333-92735,
333-100553 and 333-141038), and on Form S-3 (Nos. 333-121088, 333-31268, 333-85279, 333-88097 and
333-95841) of Casella Waste Systems, Inc. of our report dated June 21, 2006, except with respect to our
opinion on the consolidated financial statements insofar as it relates to the effects to discontinued
operations discussed in Note 18 as to which the date is June 22, 2007, relating to the financial statements
and the financial statement schedule, which appear in this Form 10-K.
Exhibit 23.2
/s/ PricewaterhouseCoopers LLP
Boston, MA
June 22, 2007
EXHIBIT 31.1
I, John W. Casella, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of Casella Waste Systems, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this
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 report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability
to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.
Date: June 22, 2007
By: /s/ JOHN W. CASELLA
John W. Casella
Chief Executive Officer
EXHIBIT 31.2
I, Richard A. Norris, certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K of Casella Waste Systems, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial information included in this
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 report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, 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 report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation
of internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to adversely affect the registrant’s ability
to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have
a significant role in the registrant’s internal control over financial reporting.
Date: June 22, 2007
By: /s/ RICHARD A. NORRIS
Richard A. Norris
Chief Financial Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
STATEMENT PURSUANT TO 18 U.S.C. §1350
Exhibit 32.1
Pursuant to 18 U.S.C. §1350, each of the undersigned certifies that this Annual Report on Form 10-K
for the year ended April 30, 2007 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that the information contained in this report fairly presents, in all
material respects, the financial condition and results of operations of Casella Waste Systems, Inc.
Dated: June 22, 2007
Dated: June 22, 2007
/s/ JOHN W. CASELLA
John W. Casella
Chief Executive Officer and Director
/s/ RICHARD A. NORRIS
Richard A. Norris
Senior Vice President, Chief Financial Officer