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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.
25 Greens Hill Lane
Rutland, Vermont 05701
(802) 775-0325
(802) 775-6198 fax
casella.com
2011 Annual Report
CASELLA WASTE SYSTEMS, INC.
collection | zero-sort® recycling | organics | landfill | gas-to-energy | bio-fuel
Casella Waste Systems, Inc.
2011 ANNUAL REPORT
To Our Fellow Shareholders:
Fiscal year 2011 was a year of transformation and renewal for Casella Waste Systems. By
achieving our goals to sell non-core assets to pay down high cost debt, refinancing two
borrowings to reduce interest costs and extend maturities, and gaining traction on our pricing
programs, we did the necessary and hard work of placing ourselves in a solid position to create
additional value for our shareholders, our communities and ourselves.
During the last six months of our fiscal year, these important strategic
(3) improving the profitability of our customer relationships; and (4)
accomplishments were partially overshadowed by a fickle and
improving our cost structure and service performance.
challenging operating environment. Record snowfalls and rainfalls
deeply affected our operations and delayed our usually robust seasonal
(1) DIVESTING NON-CORE ASSETS:
increase of landfill volumes.
As part of this strategy, in December 2009, we set a two-year goal to
Because of the significant steps we took in fiscal year 2011 to improve
pay down debt and reduce leverage by selling up to $75.0 million of
our balance sheet, I would like to take this opportunity to review where
non-core assets. To date we have sold $147.0 million of assets well
we were as a company about two years ago and the roadmap that we
ahead of our planned timeline. This includes the sale of our non-
laid out for investors at that time, where we stand today, and our next
integrated recycling facilities outside of our Northeast footprint in
steps on this same roadmap.
Where We Were
As you might remember, amidst the collapse of the credit and
commodity markets and the deepening recession during the fall of
2008 and into the spring of 2009, we needed to refinance our $525
million senior credit facilities. While the bank and term loan markets
were almost non-existent, we were still successful in getting our
balance sheet refinanced. However, it came at a high price — roughly
$20 million more a year in interest costs.
Our balance sheet reflected the development of over 70 million tons of
‘low-emission” landfill capacity across the Northeast, in addition to key
recycling facilities and clean energy assets. Strategically, our development
of this landfill capacity and our resource recovery assets is extremely
important over the long-term. However, our timing was unfortunate. We
had invested hundreds of millions of dollars in these assets, and just as
we began to harvest their value, the economy ground to a halt.
The Roadmap, And Where
We Stand Today
early March for roughly $134 million. We used 100 percent of the
net proceeds from these divestitures to repay debt, including the full
repayment of our $128.1 million Term Loan B, reducing our annual
interest expense by roughly $9.0 million per year.
Shortly after announcing the sale of the recycling facilities, we
successfully refinanced our Senior Subordinated Notes and our
Senior Secured Credit Facility. By refinancing this debt, we reduced
our interest expense by another $3.5 million per year, moved out our
maturities 5 to 8 years, and better positioned ourselves to be able to
call our expensive Second Lien Notes in July 2012.
The divestitures and debt refinancing have strengthened our balance
sheet and credit profile, reduced our cash interest costs by roughly
$12.5 million per year (not including the planned refinancing of the
Second Lien Notes which we expect will yield an additional $10.0
million per year of interest savings), and have positioned us well for
the future.
(2) HARVESTING VALUE FROM THE LANDFILLS:
We continue to make great progress on our landfill development
efforts. In fiscal year 2012 we expect to yield further benefits from
these efforts with expected permit expansions at the Southbridge and
In the fall of 2009, we introduced a comprehensive strategy to our investors
Chemung landfills, and the continued increase of tons at the newly
to reduce our leverage and to improve our operating performance. This
acquired McKean landfill.
strategy focused in four key areas: (1) divesting non-core assets and
opportunistically refinancing debt; (2) harvesting value from the landfills;
We recently installed a small landfill gas-to-energy facility at the
Southbridge landfill and, once we complete the electrical interconnect
this fall; we will be in a position to obtain an expansion of the annual
customers, we realigned our sales commission structure to focus
permit from 180,960 tons per year to 300,000 tons per year. In the near
on customer profitability, we indexed our fuel and oil recovery fees
future, we hope to further increase the site to 405,000 tons per year.
into base pricing on a higher percentage of our customer base, and
At the Chemung landfill, we are waiting for the final DEC approval of
our minor modification to expand the landfill permit from 140,500
tons per year to 200,500 tons per year. We expect to have this
approval by early fall.
The acquisition of the McKean landfill out of bankruptcy court in
mid-February for just $500,000 of cash and the assumption of closure
liabilities was a huge success for our team. We attempted to buy this
facility when it was first privatized back in 2004 and we were outbid.
The McKean landfill is in great shape, and the site does not require any
investment beyond the normal day-to-day operating capital. The site
has a permit for 1,000 tons per day by truck and 5,000 tons per day
by rail, although we would need to build a rail siding to access the rail
tons. McKean is just west of the Marcellus Shale natural gas drilling
activity in northern Pennsylvania and provides us additional capacity
to meet the needs of our drilling customers in our Western region.
Combined, the expected permit increases at Southbridge and
Chemung, along with the incremental volumes from the newly
acquired McKean landfill, are projected to add over 250,000 tons of
disposal capacity in fiscal year 2012, and over 600,000 tons in the
next 3 years.
(3) IMPROVING THE PROFITABILITY OF OUR
CUSTOMER RELATIONSHIPS:
While much effort was devoted during the last year to divesting the
non-core assets and refinancing the balance sheet, we also undertook
the challenge of improving how we do business on a daily basis.
One of our focused efforts was breaking down the internal cultural
barriers to pricing. Like many organizations, our managers have been
under tremendous pressure since the beginning of the recession to
we recently introduced price growth as an element to our managers’
incentive compensation for fiscal year 2012. As a result, collection
pricing was up from slightly negative in January to +1.7% in April, and
has further improved into early fiscal year 2012.
(4) IMPROVING OUR COST STRUCTURE AND
SERVICE PERFORMANCE:
Of nearly equal importance to our pricing initiatives has been our
focus on improving our cost structure and service performance
through operating efficiency programs and consolidation of our
operating units.
Over the past year we built out our shared services center and
centralized all of our customer care operations, cash application and
collections efforts into this center. The main goals of our shared service
center are to improve customer service and sales performance, reduce
back-office functions at our divisions, and reduce costs. We have been
successful in achieving these goals. In fiscal year 2012 our focus will
shift to consolidating additional back office functions such as accounts
payable and accounting into the center. We also plan to expand our
successful fleet efficiency programs in the next year, with an emphasis
on dynamic truck routing and driver incentive pay.
All in all, we continue to execute well against the plan that we
introduced 18 months ago. We have worked hard to change how we
do business, and we believe we have overcome key internal cultural
hurdles. We fully expect to begin harvesting the fruits of these labors in
fiscal 2012.
Thank you for being part of our team, and for the trust and faith you
have placed in our company and the 1,700 hardest working people I
know.
retain customers and improve performance. We believe that this stress
Sincerely,
was exacerbated because of the balance sheet issues that we faced in
2008 and 2009. Our managers retreated to a defensive position, and
focused on saving customers, instead of focusing on the profitability of
those customers.
Over the past year, we have worked hard from a process and system
John W. Casella
Chairman and Chief Executive Officer
perspective to improve our pricing strategies. We built an excellent
August 25, 2011
customer profitability tool to help our managers more effectively price
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)
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
� TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 2011
Or
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:
Title of each class
Class A common stock, $.01 per share par value
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes � No ⌧
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 � No ⌧
None.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes � No �
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 ⌧ No �
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer �
Non-accelerated filer �
(Do not check if a smaller reporting company)
Accelerated filer ⌧
Smaller reporting company �
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes � No ⌧
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, 2010 was $124,160,862. The Company does not have any non-voting common stock outstanding.
There were 25,732,717 shares of Class A common stock, $.01 par value per share, of the registrant outstanding as of May 31, 2011. There were 988,200 shares of Class B common stock,
$.01 par value per share, of the registrant outstanding as of May 31, 2011.
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 pursuant to Regulation 14A. 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.
CASELLA WASTE SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
BUSINESS
RISK FACTORS
UNRESOLVED STAFF COMMENTS
PROPERTIES
LEGAL PROCEEDINGS
RESERVED
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
SELECTED CONSOLIDATED FINANCIAL DATA
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART I.
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
PART II.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
ITEM 8.
ITEM 9.
ITEM 9A.
PART III.
ITEM 10
ITEM 11
ITEM 12
ITEM 13
ITEM 14
PART IV.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
ITEM 15.
SIGNATURES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT INDEX
2
18
23
24
24
27
27
29
30
46
46
87
87
88
88
88
88
89
89
90
91
92
1
Forward-Looking Statements
PART I
This Annual Report on Form 10-K contains or incorporates a number of forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended (the “Exchange
Act”), including statements regarding:
•
•
•
•
•
•
•
•
•
•
•
•
expected future revenues, operations, expenditures and cash needs;
fluctuations in the commodity pricing of our recyclables, increases in landfill tipping fees and fuel costs and general
economic and weather conditions;
projected future obligations related to capping, closure and post-closure costs of our existing landfills and any disposal
facilities which we may own or operate in the future;
expected liquidity and financing plans;
our ability to use our net operating losses and tax positions;
the projected development of additional disposal capacity or expectations regarding permits of existing capacity;
the recoverability or impairment of any of our assets or goodwill;
estimates of the potential markets for our products and services, including the anticipated drivers for future growth;
sales and marketing plans or price and volume assumptions;
the outcome of any legal or regulatory matter;
potential business combinations or divestitures; and
projected improvements to our infrastructure and impact of such improvements on our business and operations.
In addition, any statements contained in or incorporated by reference into this report that are not statements of historical fact should be
considered forward-looking statements. You can identify these forward-looking statements by the use of the words “believes”,
“expects”, “anticipates”, “plans”, “may”, “will”, “would”, “intends”, “estimates” and other similar expressions, whether in the
negative or affirmative. These forward-looking statements are based on current expectations, estimates, forecasts and projections
about the industry and markets in which we operate as well as management’s beliefs and assumptions, and should be read in
conjunction with our Consolidated Financial Statements and notes thereto. We cannot guarantee that we actually will achieve the
plans, intentions or expectations disclosed in the forward-looking statements made. The occurrence of the events described and the
achievement of the expected results depends on many events, some or all of which are not predictable or within our control. Actual
results may differ materially from those set forth in forward-looking statements.
There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by
such forward-looking statements. These risks and uncertainties include, without limitation, those detailed in Item 1A, “Risk Factors”
of this Annual Report on Form 10-K. We explicitly disclaim any obligation to update any forward-looking statements whether as a
result of new information, future events or otherwise, except as otherwise required by law.
ITEM 1. BUSINESS
Overview
Casella Waste Systems, Inc. is a vertically-integrated solid waste, recycling, and resource management services company. We provide
resource management expertise and services to residential, commercial, municipal, and industrial customers, primarily in the areas of
solid waste collection, transfer, disposal, recycling, and organics services. We operate in Vermont, New Hampshire, New York,
Massachusetts, Maine, and Pennsylvania.
2
As of May 31, 2011, we owned and/or operated 31 solid waste collection operations, 29 transfer stations, 17 recycling facilities, nine
Subtitle D landfills, three landfill gas to energy facilities, one landfill permitted to accept construction and demolition materials, and
one waste-to-energy facility. In addition, we hold a 50% interest in US Green Fiber, LLC (“GreenFiber”), a joint venture that
manufactures, markets and sells cellulose insulation made from recycled fiber. We also hold a 8.2% interest in RecycleRewards, Inc.
(“RecycleRewards”), a company that markets an incentive based recycling service, and a 19.9% interest in Evergreen National
Indemnity Company (“Evergreen”), a surety company which provides surety bonds to secure contractual performance for municipal
solid waste collection contracts and landfill closure and post-closure obligations.
We manage our solid waste operations on a geographic basis through regional operating segments, each of which include a full range
of solid waste services. During the fourth quarter of fiscal year 2011, we consolidated the Central and Western regions into a single
segment as the Western region. Furthermore, the four remaining Material Recovery Facilities (“MRFs”) that were previously included
in the FCR Recycling operating segment, along with the two MRFs from the Central region and our commodity brokerage operations,
were brought together to form our newly created Recycling operating segment. Ancillary operations, major customer accounts,
discontinued operations and earnings from equity method investees are included in our “Other” reportable segment.
Strategy
Our vision is to build a sustainable and profitable company by transforming traditional solid waste streams into renewable resources.
We believe that global competition for limited resources is creating significant business opportunities for companies that can sustain
and extract value—in the form of energy and raw materials—from resources previously considered an irretrievable waste stream.
Since the opening of our 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 rooted in these same tenets today. We strive to create long-term value for all
stakeholders, which include customers, employees, communities, and shareholders, by helping them manage their resources in a
sustainable and financially sound manner.
Our long-term strategy is to create economically beneficial uses for waste streams through resource transformation solutions. We
continue to make great progress against this goal with programs such as Zero-Sort Recycling®, which makes recycling easier for our
customers and drives higher recycling rates, and organic solutions, which creates saleable compost or clean energy from traditional
organic waste streams, and our landfill gas-to-energy facilities, which create clean energy from landfill methane gases.
Over the past year, our key goals were to improve cash flows and reduce leverage by driving profitable revenue growth, further
enhancing operating efficiencies, concentrating capital spending on maintaining the existing asset base, selectively divesting non-core
assets, and opportunistically accessing the capital markets to refinance existing borrowings. We made significant progress against
these goals during fiscal year 2011, by selling our non-integrated FCR recycling assets located outside of our core operating regions of
New York, Massachusetts, Vermont, New Hampshire, Maine, and northern Pennsylvania and refinancing our senior secured first lien
credit facility (the “2009 Senior Secured Credit Facility”) and 9.75% senior subordinated notes due February 2013 (the “Senior
Subordinated Notes”).
In March 2011, we completed the sale of our non-integrated recycling assets and certain intellectual assets for $134.2 million in gross
proceeds. This sale, combined with several smaller asset sales during the fiscal year, yielded gross proceeds to us of approximately
$147.0 million. The assets were sold at attractive valuations and we used one hundred percent of the net proceeds to repay debt,
including the complete retirement of our senior secured term B loan due April 2014 (the “2009 Term Loan”). This debt repayment far
exceeded the debt reduction goal of $75.0 million we established in December of 2009.
Through the sale of these assets we strengthened our balance sheet, improved our risk profile, simplified our business structure, and,
most importantly, maintained a strong set of integrated solid waste, recycling, and resource management assets across the Northeast.
While we plan to opportunistically pursue additional selective divestitures of non-core assets to further strengthen our credit profile,
we believe that certain markets must improve for us to yield attractive valuations for any such sales.
In early February 2011, we successfully completed the refinancing of our Senior Subordinated Notes with new $200.0 million 7.75%
senior subordinated notes due 2019 (the “2019 Notes”). With the refinancing, we reduced our interest expense by 200 basis points
and extended the maturity out 8 years. In mid March 2011, we amended and restated our senior secured revolving credit facility (the
“2009 Revolver”) that was a part of our amended and restated 2009 Senior Secured Credit Facility, extending the maturity date out 5
years, reducing the interest rate by 50 basis points, increasing the facility size by $50.0 million, and adding an accordion feature which
allows us at our discretion to add up to $182.5 million to the facility, subject to lender participation. The amended and restated senior
secured credit facility (the “2011 Revolver”) is intended to provide us the flexibility to call our most expensive debt, which is our 11%
senior second lien notes due 2014 (the “Second Lien Notes”), with senior secured borrowing when the Second Lien Notes first
become callable in July 2012.
3
As of May 31, 2011, we owned and/or operated 31 solid waste collection operations, 29 transfer stations, 17 recycling facilities, nine
Subtitle D landfills, three landfill gas to energy facilities, one landfill permitted to accept construction and demolition materials, and
one waste-to-energy facility. In addition, we hold a 50% interest in US Green Fiber, LLC (“GreenFiber”), a joint venture that
manufactures, markets and sells cellulose insulation made from recycled fiber. We also hold a 8.2% interest in RecycleRewards, Inc.
(“RecycleRewards”), a company that markets an incentive based recycling service, and a 19.9% interest in Evergreen National
Indemnity Company (“Evergreen”), a surety company which provides surety bonds to secure contractual performance for municipal
solid waste collection contracts and landfill closure and post-closure obligations.
We manage our solid waste operations on a geographic basis through regional operating segments, each of which include a full range
of solid waste services. During the fourth quarter of fiscal year 2011, we consolidated the Central and Western regions into a single
segment as the Western region. Furthermore, the four remaining Material Recovery Facilities (“MRFs”) that were previously included
in the FCR Recycling operating segment, along with the two MRFs from the Central region and our commodity brokerage operations,
were brought together to form our newly created Recycling operating segment. Ancillary operations, major customer accounts,
discontinued operations and earnings from equity method investees are included in our “Other” reportable segment.
Strategy
Our vision is to build a sustainable and profitable company by transforming traditional solid waste streams into renewable resources.
We believe that global competition for limited resources is creating significant business opportunities for companies that can sustain
and extract value—in the form of energy and raw materials—from resources previously considered an irretrievable waste stream.
Since the opening of our 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 rooted in these same tenets today. We strive to create long-term value for all
stakeholders, which include customers, employees, communities, and shareholders, by helping them manage their resources in a
sustainable and financially sound manner.
Our long-term strategy is to create economically beneficial uses for waste streams through resource transformation solutions. We
continue to make great progress against this goal with programs such as Zero-Sort Recycling®, which makes recycling easier for our
customers and drives higher recycling rates, and organic solutions, which creates saleable compost or clean energy from traditional
organic waste streams, and our landfill gas-to-energy facilities, which create clean energy from landfill methane gases.
Over the past year, our key goals were to improve cash flows and reduce leverage by driving profitable revenue growth, further
enhancing operating efficiencies, concentrating capital spending on maintaining the existing asset base, selectively divesting non-core
assets, and opportunistically accessing the capital markets to refinance existing borrowings. We made significant progress against
these goals during fiscal year 2011, by selling our non-integrated FCR recycling assets located outside of our core operating regions of
New York, Massachusetts, Vermont, New Hampshire, Maine, and northern Pennsylvania and refinancing our senior secured first lien
credit facility (the “2009 Senior Secured Credit Facility”) and 9.75% senior subordinated notes due February 2013 (the “Senior
Subordinated Notes”).
In March 2011, we completed the sale of our non-integrated recycling assets and certain intellectual assets for $134.2 million in gross
proceeds. This sale, combined with several smaller asset sales during the fiscal year, yielded gross proceeds to us of approximately
$147.0 million. The assets were sold at attractive valuations and we used one hundred percent of the net proceeds to repay debt,
including the complete retirement of our senior secured term B loan due April 2014 (the “2009 Term Loan”). This debt repayment far
exceeded the debt reduction goal of $75.0 million we established in December of 2009.
Through the sale of these assets we strengthened our balance sheet, improved our risk profile, simplified our business structure, and,
most importantly, maintained a strong set of integrated solid waste, recycling, and resource management assets across the Northeast.
While we plan to opportunistically pursue additional selective divestitures of non-core assets to further strengthen our credit profile,
we believe that certain markets must improve for us to yield attractive valuations for any such sales.
In early February 2011, we successfully completed the refinancing of our Senior Subordinated Notes with new $200.0 million 7.75%
senior subordinated notes due 2019 (the “2019 Notes”). With the refinancing, we reduced our interest expense by 200 basis points
and extended the maturity out 8 years. In mid March 2011, we amended and restated our senior secured revolving credit facility (the
“2009 Revolver”) that was a part of our amended and restated 2009 Senior Secured Credit Facility, extending the maturity date out 5
years, reducing the interest rate by 50 basis points, increasing the facility size by $50.0 million, and adding an accordion feature which
allows us at our discretion to add up to $182.5 million to the facility, subject to lender participation. The amended and restated senior
secured credit facility (the “2011 Revolver”) is intended to provide us the flexibility to call our most expensive debt, which is our 11%
senior second lien notes due 2014 (the “Second Lien Notes”), with senior secured borrowing when the Second Lien Notes first
become callable in July 2012.
Looking forward to fiscal year 2012, our strategy will remain similar to last year’s, with a focus on improving performance of base
operations and increasing cash flow generation through: (1) profitable revenue growth and pricing initiatives; (2) cost controls and
operating efficiencies; (3) landfill development initiatives; and (4) asset management.
Profitable revenue growth and pricing initiatives
In fiscal year 2011, we continued to reorganize the solid waste sales organization by moving revenue generation and sales force
reporting responsibility to the regional and divisional management teams, implementing customer profitability analytical tools, and
realigning the sales incentive compensation programs.
By placing revenue generation and customer responsibility with local teams, we believe that each team will be able to more quickly
react to local conditions, cross-sell customers with differentiated resource transformation solutions (e.g., Zero-Sort Recycling® and
organics offerings), help to steward local marketing programs and retain more existing business. The shared services model discussed
below has helped to create additional margin for these managers, so they can focus more of their time on revenue generation.
During the past year, our team developed and implemented a comprehensive customer profitability tool that allows our pricing team,
division managers, and sales force to calculate the profitability of all of our collection customers. This tool, combined with our
knowledge of local markets, has enabled our team to begin addressing customer pricing at a granular level, implementing larger price
increases for customers who do not meet our return metrics and smaller price increases on higher margin customers to cover increased
cost inflation.
To drive implementation of the pricing programs, we changed the sales incentive compensation structure in late fiscal year 2011.
Commissions are now directly tied to the profitability of each sales person’s book of business. By making this change, we incentivize
our sales people to price customers appropriately, to work to retain existing high margin customers, and to work with operating teams
to drive down costs.
We recently rolled our fuel and oil recovery fee into our base pricing for our collection customer base. The recovery fee was reset to
zero and began floating on any future increases to fuel and oil. This billing change helps our customers to better understand the true
cost of their service, as the fuel and oil recovery fee had grown significantly over the past seven years since it was first adopted.
With the implementation of these changes in fiscal year 2011, we believe we are now well positioned to meet our goal to achieve core
pricing increases of 50 basis points above the consumer price index across the board.
Landfill sales and major accounts sales continue to be managed centrally in order to optimize cross-selling and internalization
benefits. Over the past two years, we have increased our sales efforts in the major accounts business. While the major accounts
business negatively impacts overall company margins, this business generates positive free cash flow because it requires little to no
direct capital investment. This business is focused on winning new contracts that can be serviced, either directly by us, or through a
contracted third party.
The Recycling operating segment derives revenue from a combination of commodity sales and tipping fees paid for material
processing. Fluctuations in commodity pricing are managed by a number of risk mitigation strategies including: financial hedging
instruments, floor prices, forward sales contracts, index purchases, floating customer revenue shares and tipping fees. Our goal is to
offset the variability in commodity revenues with tipping fees to maintain stable cash flows and returns across a spectrum of
commodity pricing. This is achieved by sharing commodity revenues with municipal partners and lowering tipping fees in high
commodity price environments, while lowering commodity revenue shares and increasing tipping fees in lower priced environments.
Cost controls and operating efficiencies
As part of an ongoing effort, we continue to identify and implement best practices throughout the entire organization and then seek to
implement these solutions through standardized continuous improvement programs. The goals of these programs are to enhance
customer service, increase safety for employees and reduce operating and administrative costs. We have implemented continuous
improvement programs in safety, productivity, maintenance, environmental compliance, procurement, customer care and back-office
functions.
In fiscal year 2011, we expanded our successful cost control efforts from the previous year, with a focus on improving fleet routing
efficiencies and on customer care and reducing back-office costs through the new shared services center. In fiscal year 2012, we will
continue to focus on the same areas and continue implementation of fleet efficiency programs and the shared service center.
3
4
The fleet efficiency programs focus on dynamic fleet routing, on-board computers, front-load conversions, container upsizing, long-
haul optimization, and driver incentive pay with the purpose of reducing labor costs and operating hours. In fiscal year 2011, we
introduced on-board computer technology to roughly 50% of our locations and we plan to roll out the system to our remaining sites in
fiscal year 2012. The on-board computer systems help us to dynamically route our trucks to continuously improve route structure,
while automatically providing critical service time and weight data for our customer profitability analytics. One of the most
successful operating programs in the last year was the introduction of driver incentive pay, which has allowed our drivers to help
improve our customer service, reduce operating time, and earn incentives.
We launched a new shared services center in late fiscal year 2010, with the goals of improving customer care, simplifying customer
interactions, improving our sales performance on standardized products such as roll-off, implementing new streamlined IT tools,
consolidating decentralized functions into one center, and reducing costs. The initial focus on the shared services model was to
centralize customer care and improve the service level to our customers. By the end of fiscal year 2011 we had integrated over 90%
of our divisions into the customer care center and had substantially achieved the performance goals that we set for the center. The
introduction of new IT tools into the center has also allowed us to begin tracking the success of our marketing efforts, allowing us to
more effectively target programs and customers.
In fiscal year 2011, we began the second phase of the shared services center transition by consolidating all of our cash application
functions into the center and introducing the necessary systems and technologies to automate the majority of our customer payments.
In fiscal year 2012, our focus will be to consolidate additional back office functions into the center. Our performance goals will
mirror those from the successful customer care integration, with the most important goals being to, first, improve customer service,
and, second, reduce overhead costs.
Landfill Development Initiative
In 2003, we set an ambitious goal to add disposal capacity to the solid waste franchise both to strengthen market position and to create
a sustainable long-term foundation for the business.
We have made great strides in executing the landfill development growth strategy by adding significant total and annual permitted
disposal capacity within our solid waste footprint, primarily through operating contracts for publicly-owned landfills. Total and annual
disposal capacity additions resulted from: (1) the addition of five landfills (Southbridge landfill in Massachusetts, Ontario County
landfill in New York, Juniper Ridge landfill in Maine, Chemung County landfill in New York, and, most recently, McKean County
landfill in Pennsylvania); and (2) permit expansions at existing landfills.
In fiscal year 2011, we acquired the McKean County, Pennsylvania landfill out of bankruptcy proceedings. This landfill adds
important capacity to our Western region and will allow us to better balance annual tonnages against landfill permit levels.
Since April 30, 2003, we have added 91.3 million tons of permitted and permittable total landfill capacity to the solid waste business,
bringing the total landfill capacity to 120.9 million tons as of April 30, 2011. During this same period, we also added 1.9 million tons
of annual disposal capacity, bringing the total to 3.3 million tons as of April 30, 2011.
With this disposal capacity, our strategic emphasis is on increasing free cash flow and generating an enhanced return on invested
capital at the landfill sites. Going forward, we are seeking to finalize regulatory approval for the Southbridge and Chemung permit
modifications to increase annual permitted capacity and optimize flows of waste across the northeast to obtain better integration and
asset profitability.
Asset Management
Our deployment of capital has evolved with our business strategy over the past five years from an emphasis on growth investments,
primarily in long-term landfill capacity, to an approach that focuses on free cash flow generation from base operations with limited
investments in high return resource transformation solutions.
From fiscal year 2003 to fiscal year 2007, we invested approximately $177.5 million of capital 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 certain of the landfill facilities. The heightened growth capital investment
for existing landfill development projects was largely completed by the end of fiscal year 2007 when the focus shifted to extracting
appropriate returns from the invested capital. The landfill capacity added to the business is the foundation of today’s integrated solid
waste strategy, and these sites will serve as a platform for emerging resource transformation programs into the future.
5
We shifted our capital strategy over the past several years to focus in three main areas: (1) improving the mix of base operations
through divestitures, swaps, or acquisitions; (2) implementing operating programs that improve capital efficiency and asset utilization;
and (3) pursuing select strategic investment opportunities in waste transformation and resource optimization. We remain focused on
these three goals in fiscal year 2012.
After the divestiture of our non-integrated recycling assets and select intellectual property assets in fiscal year 2011, we remain
committed to further exploring accretive divestiture opportunities. However, current market conditions make it unlikely that we will
sell any additional non-core assets in the near term. We expect to more actively consider acquisition opportunities over the next
several years to improve route densities and internalize additional tonnages, and improve operating and overhead leverage.
Over the past several years, we have selectively invested growth capital in high-return opportunities that enhance our ability to support
emerging customer and market needs in waste transformation and resource optimization. The investment strategy seeks to leverage
core competencies in materials processing, organics, and clean energy to create additional value from the waste stream. We believe
that these investments, in Zero-Sort Recycling®, organic waste solutions, and landfill gas-to-energy facilities, position us well for the
evolution of the industry from waste management to resource management.
We now have landfill gas-to-energy facilities at five of our landfills, with three owned and operated by us and two owned and
operated by partners. Over the next several years we plan to further develop this line of business, and we expect to have additional
landfill gas-to-energy facilities operating at the Southbridge landfill in fiscal year 2012 and at the North Country landfill in fiscal year
2013. These sites are important to our long-term strategy because beyond producing clean energy, they are integral to our model to
create a low-emission landfill, whereby landfill methane emissions are virtually eliminated and fossil fuels are displaced with a clean
energy source.
As a key initiative to improve existing asset utilization and to advance our resource transformation strategy, we plan to convert one
additional facility to Zero-Sort Recycling® during fiscal year 2012. We branded our recycling process to differentiate the high quality
end-use commodities produced as the result of our innovative approach. With Zero-Sort Recycling®, a customer can commingle all
of his or her recyclables (paper, cardboard, plastics, metals, and glass) into a right sized residential container or commercial dumpster.
By making it easier for a customer to recycle, we increase recycling participation and yields, thereby increasing volumes through the
Zero-Sort Recycling® facilities and increasing asset utilization.
Our New England Organics team has been working to develop and/or partner with firms that have developed innovative approaches to
deriving incremental value from the organic portion of the waste stream. We recently introduced our Earthlife® soils products into
the retail market, and we continue to offer a full array of recycled organic fertilizers, composts, and mulches that help our customers
close the loop with organic waste streams. We have also recently partnered with AGreen, an innovative firm that is building small
anaerobic digesters in the Northeast to generate electricity from farm and food waste streams.
Solid Waste Operations
Our solid waste operations comprise a full range of non-hazardous solid waste services, including collections, transfer stations, MRFs
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, 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 (e.g., 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 Recovery Facilities. Our MRFs, receive, sort, bale and resell recyclable materials originating from the municipal solid waste
stream, including newsprint, cardboard, office paper, containers and bottles. We operate six MRFs 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, two in Vermont, two in Massachusetts and two in New York, are large-scale, high-volume facilities
6
that process over 0.4 million tons per year of 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.
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, 2011,
2010 and 2009, for landfills we operated during the years then ended:
Estimated
Remaining
Permitted
Capacity
in Tons
(1)
April 30, 2011
Estimated
Additional
Permittable
Capacity
in Tons
(1)(2)
36,411
2,392
—
1,124
(3,257)
5,008
41,678
66,661
—
7,255
(1,124)
—
6,402
79,194
Estimated
Remaining
Permitted
Capacity
in Tons
(1)
April 30, 2010
Estimated
Additional
Permittable
Capacity
in Tons
(1)(2)
38,244
—
—
174
(3,074)
1,067
36,411
59,673
—
8,728
(174)
—
(1,566)
66,661
Estimated
Remaining
Permitted
Capacity
in Tons
(1)
April 30, 2009
Estimated
Additional
Permittable
Capacity
in Tons
(1)(2)
33,019
—
—
5,272
(3,006)
2,959
38,244
59,404
—
2,643
(5,272)
—
2,898
59,673
Estimated
Total
Capacity
97,917
—
8,728
—
(3,074)
(499)
103,072
Estimated
Total
Capacity
103,072
2,392
7,255
—
(3,257)
11,410
120,872
Estimated
Total
Capacity
92,423
—
2,643
—
(3,006)
5,857
97,917
Balance, beginning of year
Acquisitions, divestitures and closures
New expansions pursued(3)
Permits granted(4)
Airspace consumed
Changes in engineering estimates(5)
Balance, end of year
(1)
(2)
(3)
(4)
(5)
We convert estimated remaining permitted capacity and estimated additional permittable capacity from cubic yards to
tons generally 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.
Represents capacity which we have determined to be “permittable” in accordance with the following criteria: (i) we
control the land on which the expansion is sought; (ii) all technical siting criteria have been met or a variance has been
obtained or is reasonably expected to be obtained; (iii) we have not identified any legal or political impediments which
we believe will not be resolved in our favor; (iv) we are actively working on obtaining any necessary permits and we
expect that all required permits will be received; and (v) senior management has approved the project.
The increase in fiscal year 2009 was due to a determination of additional permittable airspace capacity at our
Southbridge and Clinton County landfills. The increase in fiscal year 2010 is associated with expansions at Hyland and
Chemung landfills, partially offset by a reduction of expansions pursued at the Ontario landfill site. In fiscal year 2011,
the increase is partially attributable to new expansions pursued at our Waste USA and NCES landfill sites.
The increase in permitted airspace capacity in fiscal year 2009 was the result of permits received at our Clinton County
landfill facility. The increase in permitted airspace capacity in fiscal year 2011 was the result of permits received at our
NCES landfill facility.
The increase in airspace capacity in fiscal year 2009 was the result of improved airspace utilization and compaction at
the Western and Eastern region landfills. Most notably, the Juniper Ridge site in the Eastern region reflected an increase
of 4.3 million tons due to depth of waste, as well as the positive compaction effect of a change in waste mix inside the
three year average from only unprocessed construction and demolition materials to processed construction and
demolition materials, residue, soil, ash and sludge. The increase in airspace capacity in fiscal year 2011 was the result of
a positive compaction effect due to a change in waste mix inside of the three year average, which is primarily the result
of drill-cutting materials received at our Western region landfills.
NCES. The North Country Environmental Services (“NCES”) landfill in Bethlehem, New Hampshire serves the wastesheds of
New Hampshire and certain Vermont, Maine and Massachusetts wastesheds. The facility is currently permitted to accept
municipal solid waste and construction and demolition, or C&D, material. Since the purchase of this landfill in 1994, we have
experienced opposition from the 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 2010, we received approval for additional permitted capacity within the original 51 acres. We believe that the
site has additional permittable airspace of up to 1.38 million cubic yards. This airspace is subject to approvals from the New
Hampshire Department of Environmental Services. See Item 3 Legal Proceedings of this Form 10-K.
7
Waste USA. The Waste USA landfill in Coventry, Vermont serves the major wastesheds throughout Vermont. The landfill is
permitted to accept residential and commercially generated municipal solid waste, including pre-approved sludges, soils, and C&D
debris. Since our purchase of this landfill in 1995, we have expanded its capacity which we expect to last through approximately fiscal
year 2033.
Clinton County. The Clinton County landfill is located in Schuyler Falls, New York and serves the principal wastesheds of Clinton,
Essex, Warren, Washington and Saratoga Counties in New York, and certain selected contiguous Vermont wastesheds. Permitted
waste accepted includes residential and commercially generated municipal solid waste, construction and demolition debris and special
waste which is approved by regulatory agencies. The facility recently received a permit for a multi-year landfill expansion which will
provide considerable additional volume. The Clinton County site commenced operations of a landfill gas-to-energy facility in fiscal
year 2009 which has the capacity to generate 6.4mW/hr of energy.
Juniper Ridge. On February 5, 2004, we completed transactions with the State of Maine and Georgia-Pacific Corporation 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 site
is located on approximately 780 acres with 68 acres currently dedicated for waste disposal. The site has sufficient acreage to permit
the additional airspace required for the term of the 30-year operating and services agreement. The site is currently permitted to take
C&D debris, ash from municipal solid waste incinerators and fossil fuel boilers, front end processed residuals and bypass municipal
solid waste from waste-to-energy facilities, treatment plant sludge and biosolids sandblast grits, oily waste and oil spill debris, and
other approved special wastes from within 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 owns a 13-acre recycling facility and has a contract with the Town of Southbridge,
Massachusetts to operate a 146-acre landfill currently permitted to accept residuals from the recycling facility and municipal solid
waste. In June 2008, the Southbridge, Massachusetts Board of Health modified the landfill site assignment allowing the site to receive
municipal solid waste from communities other than Southbridge, and to increase the annual disposal volume from approximately 0.2
million tons per year to approximately 0.4 million tons per year. In May 2010, we received a permit from the Massachusetts
Department of Environmental Protection (“MADEP”) which allows the facility to accept approximately 0.2 million tons per year in
total of construction and demolition material and municipal solid waste without regard to the geographic origin of the waste. The
Board of Health decision was appealed by opponents of the landfill and will be decided by the Massachusetts Supreme Judicial Court.
See Item 3. Legal Proceedings of this Form 10-K.
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 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 Nextera Energy Power Marketing, LLC, an
electric utility.
Hyland. The Hyland landfill, located in Angelica, New York, serves certain wastesheds located throughout western New York. The
facility is permitted to accept residential, commercial and municipal solid waste, C&D debris and special waste. The site consists of
approximately 624 acres, which represents considerable additional expansion capabilities. A permit for future expansion was issued in
December 2006 for approximately 11 million cubic yards and we are currently seeking an additional 9.9 million cubic yards of
permittable capacity. The landfill is currently permitted to accept approximately 0.3 million tons annually and has a minor
modification pending with the NYS DEC to increase the annual capacity by 49%. In late August 2008, the Hyland site commenced
operation of a landfill gas to energy facility which has the capacity to generate 4.8 mW/hr of energy. The Hyland landfill benefits
from the Marcellus Shale natural gas extractions, which in fiscal year 2011 made up approximately 50% of the tons accepted at
Hyland.
Ontario. We 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 approximately 380 total acres with additional potential expansions amounting to an estimated
12.2 million tons. During fiscal year 2008 we successfully requested and received a minor modification to increase our annual
allowance of placed tons over the original permit of 0.6 million tons to 0.9 million tons. The Ontario site also houses a single stream
recycling facility and a landfill-gas-to energy plant, which has the capacity to generate 6.4 mW/hr of energy. See Note 11(b) to our
Consolidated Financial Statements included under Item 8 of this Form 10-K.
8
Hakes. The Hakes construction and demolition landfill in Campbell, New York is permitted to accept only C&D material. The
landfill serves the principal rural wastesheds of western New York. During fiscal year 2008, we successfully requested and received a
minor modification to increase our annual allowance of placed tons over the original permit of 0.3 million tons to 0.5 million tons.
Chemung. We 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 approximately 38 active acres permitted to accept 0.1 million tons of municipal solid waste per year and 12.8
active acres permitted to accept approximately twenty thousand tons of C&D 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
approximately sixty thousand tons annually. The landfill has further expansion capabilities of an additional 25 acres and an estimated
11.7 million cubic yards, representing approximately 6.4 million tons. In addition, in April 2010 we successfully negotiated an
amendment to the management and lease agreement allowing the annual tonnage to be increased to 0.4 million tons per year, subject
to regulatory approval.
McKean. We were successful in acquiring the McKean landfill business out of bankruptcy during February 2011. This facility is
located in Mount Jewitt, McKean County, Pennsylvania and serves the PA Northern Tier and NY Southern Tier wastesheds. The
facility consists of 131 acres of which 52.1 acres are dedicated to landfilling and has a daily permitted capacity to receive one
thousand tons. The site has more than 3 million cubic yards of remaining airspace with future expansion capacity for an additional 33
million cubic yards. Also, the site has the capability to accept waste delivered by rail including a daily limit of five thousand tons.
We expect this site to benefit from the Marcellus Shale natural gas extractions in the wastesheds served by the landfill.
Closure Projects
In April 2005 we started closure operations at the Worcester, Massachusetts landfill, a closure project with approximately 0.7 million
tons of available capacity as of April 30, 2011. In January 2006, we assumed the closure contract for this landfill. In addition, in the
second quarter of fiscal year 2009, as part of a planned closure, we ceased operations at the Colebrook facility and began the process
of capping and closing the site. The Worcester landfill is not included in the above table of remaining landfill capacity.
In addition, we own and/or operated six unlined landfills and three lined landfills that are not currently in operation. All of these
landfills have been closed and capped to applicable environmental regulatory standards by us.
Operating Segments
We manage our solid waste operations, which include a full range of solid waste services, on a geographic basis through two regional
operating segments, which we designate as the Eastern and Western regions. Our third operating segment is Recycling, which
comprises our larger-scale, non-solid waste recycling and our commodity brokerage operations. See Note 20 to our Consolidated
Financial Statements included under Item 8 of this Form 10-K for a summary of revenues, certain expenses, profitability, capital
expenditures, goodwill, and total assets of our operating segments. Ancillary operations, major customer accounts, discontinued
operations and earnings from equity method investees are included in our “Other” reportable segment.
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 operates interdependently with the other divisions within the
wasteshed. Each wasteshed generally operates autonomously from adjoining wastesheds.
Through its 6 MRFs and one commodity brokerage operation, Recycling services 4 anchor contracts, which generally have an original
term of five to ten years and expire at various times between 2011 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. 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.
9
The following table provides information about each solid waste region and Recycling (as of May 31, 2011 except revenue
information, which is for the fiscal year ended April 30, 2011).
Revenues (in millions)
Solid waste collection operations
Transfer stations
Recycling facilities
Subtitle D landfills
Other disposal facilities(1)
Eastern
Region
$167.3
12
5
7
2
Maine Energy
Western
Region
$210.3
19
24
4
7
Hakes
Recycling
$43.6
—
—
6
—
—
(1)
In addition to the disposal facilities shown above we operate the Worcester, Massachusetts landfill, a closure project with
approximately 0.7 million tons of available capacity as of April 30, 2011.
Eastern region
The Eastern region consists of wastesheds located in Maine and the assets located in eastern Massachusetts and in the New Hampshire
seacoast area. The Maine 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 ten years, either limited new landfill
development or precluded development of additional capacity from existing landfills. Consequently, the Eastern region relies more
heavily on non-landfill waste-to-energy disposal capacity than the Western region. Maine Energy is one of four waste-to-energy
facilities in Maine.
We entered Maine in 1996 with the purchase of the assets comprising New England Waste Services of ME, Inc. in Hampden, Maine.
The acquisition of KTI, Inc. in 1999 significantly improved disposal capacity in this region, as the acquisition included the Maine
Energy waste-to-energy facility, and provided an alternative internalization option for 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.
We entered eastern Massachusetts in fiscal year 2000 with the acquisition of assets that were divested by Allied Waste Industries
(prior to its merger with Republic Services, Inc.) and through the acquisition of smaller independent operators. In this market, we rely
to a large extent on third party disposal capacity. We believe that there is a greater opportunity to increase internalization rates and
operating efficiencies in eastern Massachusetts facilities through the operating contract with the Town of Southbridge to operate the
Southbridge landfill, which is currently permitted to accept up to a combined 0.2 million tons per year of construction and demolition
material and municipal solid waste.
Western region
The Western region includes wastesheds located in Vermont, north and south western New Hampshire and eastern New York that
were previously included in the now eliminated Central region. The portion of New York served by the Western 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 operating permitted Subtitle D landfills in Vermont, and our NCES
landfill in Bethlehem, New Hampshire is one of only six operating permitted Subtitle D landfills in New Hampshire. Additionally, the
Western region now includes an additional 13 operating permitted Subtitle D landfills that were previously included in the Central
region.
Vermont, New Hampshire and eastern New York wastesheds have become our most mature operating platform, as we have operated
in this area since our inception in 1975. We have achieved a high degree of vertical integration of the waste stream in this portion of
the Western region, resulting in stable cash flow performance and a market leadership position.
We believe that future operating efficiencies in Vermont, New Hampshire and eastern New York will be driven primarily by
improving our core operating efficiencies, offering increased recycling capabilities such as single stream processing, providing
enhanced customer service, and further building relationships with our customers and communities.
The Western region also consists of wastesheds in upstate New York (which includes Ithaca, Elmira, Oneonta, Lowville, Potsdam,
Geneva, Auburn, Dunkirk, Jamestown and Olean). Our entrance into these wastesheds began with our acquisition of Superior
Disposal Services, Inc.’s business in 1997 and has expanded largely through tuck-in acquisitions and internal growth. Our collection
operations include leadership positions in nearly every rural market outside of the larger metropolitan markets such as Syracuse,
Rochester, Buffalo and Albany.
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While we have achieved strong market positions in the New York wastesheds, 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. With the ownership of the Hyland and Hakes landfills and operation of 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, subject to capital allocation, we expect that we would pursue these opportunities if they would
enhance our shareholder returns.
Recycling
Recycling is one of the largest processors and marketers of recycled materials in the eastern United States, comprising 6 MRFs that
process and then market recyclable materials that municipalities and commercial customers deliver to them under long-term contracts.
3 of the 6 MRFs are leased, the other 3 are owned. In fiscal year 2011, Recycling processed and marketed approximately 0.5 million
tons of recyclable materials. Recycling’s facilities are located in the states of Vermont, New York, Massachusetts, New Hampshire
and Maine.
A significant portion of the material provided to Recycling is delivered pursuant to 4 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 2011 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-third of the contracts, the municipalities agree to deliver a guaranteed tonnage and the municipality pays
a fee for the amount of any shortfall from the guaranteed tonnage if certain other conditions are not met. 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.
Recycling 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 2011, 51% of the revenues from the sale of residential recyclable
materials were derived from sales under long-term contracts with floor prices. We also hedge against fluctuations in the commodity
prices of recycled paper and corrugated containers in order to mitigate the variability in cash flows and earnings generated from the
sales of recycled materials at floating prices.
GreenFiber Cellulose Insulation Joint Venture
We are a 50% partner in GreenFiber, a joint venture with Louisiana-Pacific Corporation. 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 8 manufacturing facilities, located in Charlotte, North
Carolina; Delphos, Ohio; Norfolk, Nebraska; Phoenix, Arizona; Tampa, Florida; Albany, New York; Waco, Texas; and Salt Lake
City, Utah. GreenFiber utilizes a hedging strategy to help stabilize its exposure to fluctuating newsprint costs, which generally
represent approximately 45% of its raw material costs. We account for our investment in GreenFiber under the equity method of
accounting.
RecycleRewards
In January 2006, we acquired an interest in the common stock of RecycleBank, LLC (“RecycleBank”), a company that markets an
incentive-based recycling service, for total consideration of $3.0 million. During fiscal year 2007, RecycleBank borrowed $2.0 million
from us under a convertible loan agreement. In accordance with the terms of the agreement, we converted this note to equity thereby
increasing our investment. Additional investments in RecycleBank were made during fiscal year 2007 increasing our total common
stock ownership interest to 20.5% at April 30, 2007. In April 2008, RecycleBank completed an equity offering to third party investors
that reduced our common share interest to 16.2%. In November 2009, RecycleBank completed an equity offering to third party
investors that reduced our common share interest to 10.6%. In January 2011, RecycleBank completed an equity offering to third party
investors that reduced our common share interest to 8.2%. As a result of an internal reorganization by RecycleBank, our investment is
11
now held in RecycleRewards, the parent entity of RecycleBank. Our investment in RecycleRewards amounted to $4.5 million at
April 30, 2011 and 2010, respectively. Effective April 2008, we accounted for our investment in RecycleRewards under the cost
method of accounting. Prior to April 2008, we had accounted for this investment under the equity method of accounting.
Evergreen
In April 2003, we acquired a 9.9% interest in Evergreen for total consideration of $5.3 million. In December 2003, we acquired an
additional 9.9% interest in Evergreen for total consideration of $5.3 million. Our investment in Evergreen amounted to $10.7 million
at April 30, 2011 and 2010, respectively. We account for our investment in Evergreen under the cost method of accounting.
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 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, including
Waste Management, Inc. and Republic Services, Inc., that may be able to achieve greater economies of scale than us. We also
compete with a number of regional and local companies that offer competitive prices and quality service. In addition, we compete with
operators of alternative disposal facilities, including incinerators, and with certain municipalities, counties and districts that operate
their own solid waste collection and disposal facilities. Public sector facilities may have certain advantages over us due to the
availability of user fees, charges or tax revenues and tax-exempt financing.
The insulation industry is highly competitive and labor intensive. In our cellulose insulation manufacturing activities, GreenFiber, our
joint venture with Louisiana-Pacific Corporation, competes primarily with manufacturers of fiberglass insulation such as Owens
Corning, CertainTeed Corporation and Johns Manville. These manufacturers have significant market shares and are substantially
better capitalized than GreenFiber.
Marketing and Sales
We have fully integrated sales and marketing strategies, originating at the enterprise level with the primary focus of acquiring and
retaining commercial, industrial, municipal and residential customers. Our business strategy for over thirty-five years has been tied to
creating a highly differentiated sustainable resource management model that meets customers’ unique needs and provides value
“beyond the curb”.
Maintenance of a local presence and identity is an important aspect of our sales and marketing strategy, and many of our divisional
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.
The selling organization has been completely realigned over the past year to incorporate, a more robust sales training curriculum, fully
revamped marketing collateral, as well as enhanced brand building advertising across our entire operating footprint. The realigned
sales program encompasses an updated sales incentive program tied solely to the overall profitability of a territory manager’s book of
business; and the introduction of a redesigned prospect database management system that allows a territory to manager to identify new
collection customers, as well as view all existing customer data in one consolidated platform. This prospect database is also
augmented by more traditional sales techniques, such as leads developed from new building permits, business licenses and other
public records.
Employees
As of May 31, 2011, we employed approximately 1,800 people, including approximately 400 professionals or managers, sales,
clerical, information systems or other administrative employees and approximately 1,400 employees involved in collection, transfer,
disposal, recycling or other operations. Approximately 100 of our employees are covered by collective bargaining agreements. We
believe relations with our employees are satisfactory.
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Risk Management, Insurance and Performance or Surety Bonds
We actively maintain environmental and other risk management programs that we believe are appropriate for our business. Our
environmental risk management program includes evaluating existing facilities, as well as potential acquisitions, for compliance with
environmental law requirements. We also maintain a worker safety program, which focuses on safe practices in the workplace.
Operating practices at all of our operations are intended to reduce the possibility of environmental contamination enforcement actions
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.
We are self insured for automobile and workers’ compensation coverage. Our maximum exposure in fiscal 2011 under the workers’
compensation plan was $1.0 million per individual event, after which reinsurance takes effect. Our maximum exposure under the
automobile plan was $0.8 million 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.
We hold a 19.9% ownership interest in Evergreen, a surety company which provides surety bonds to us to secure our contractual
obligations for certain municipal solid waste collection contracts and landfill closure and post-closure obligations.
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 (e.g., 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 Nextera Energy Power Marketing, LLC,
an electric utility, and guarantees 100% of its electricity generating capacity to FPL Energy Power Marketing, Inc., both pursuant to a
contract that was amended to extend its term to December 31, 2011 and is based on “day ahead” electricity prices.
Recycling provides recycling services to municipalities, commercial haulers and commercial waste generators within the geographic
proximity of the processing facilities.
Our cellulose insulation joint venture, GreenFiber, sells to contractors, manufactured home builders and retailers.
Raw Materials
Maine Energy received approximately 9% of its solid waste in fiscal year 2011 from 17 Maine municipalities under long-term waste
handling agreements. Maine Energy also receives raw materials from commercial and private waste haulers and municipalities with
short-term contracts, as well as from our own collection operations.
Seasonality
Our transfer and disposal revenues historically have 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 C&D activities decreases substantially during the winter months in the northeastern
United States; and
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•
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
due to the 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. 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. Our waste-to-energy facility also is subject to federal energy law. 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. Other than as disclosed herein, we do not
currently anticipate any material costs to bring our operations into environmental compliance, although there can be no assurance in
this regard for 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 renew these permits periodically, and the permits may be modified or
revoked by the issuing agency.
The principal federal 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 categories, 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.
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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 law, although there is no guarantee that leachate generated from our facilities in the future will not be classified 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 siting restrictions, facility design standards, operating criteria, closure and
post-closure requirements, financial assurance requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D regulations require that new landfill sites meet more stringent
liner design criteria (typically, composite soil and synthetic liners or two or more synthetic liners) intended to keep leachate out of
groundwater and have extensive collection systems to carry away leachate for treatment prior to disposal. Regulations generally
require us to install groundwater monitoring wells at virtually all landfills we operate, to monitor groundwater quality and, indirectly,
the effectiveness of the leachate collection systems. The Subtitle D regulations also require facility owners or operators to control
emissions of 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.
The Federal Water Pollution Control Act of 1972, as amended (“Clean Water Act”)
efforts to control GHG emissions.
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. 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 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, Clean 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.
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 EPA is focusing on the emissions of greenhouse gases (“GHG”), including carbon dioxide and methane. In December, 2009, EPA
issued its “endangerment finding” that carbon dioxide poses a threat to human health and welfare, providing the basis for EPA to
promulgate GHG air quality standards. This could, in turn, require us to install systems to monitor and control such emissions. In
addition, in December 2009 the EPA’s “Mandatory Reporting of Greenhouse Gases” rule went into effect, requiring facilities that emit
25,000 metric tons or more per year of GHG emissions to submit annual reports to EPA commencing in March 2011 — this deadline
was extended by the EPA on March 18, 2011 to September 30, 2011.
In June 2010, EPA issued the so-called “GHG Tailoring Rule’, which described how certain sources that emit GHG would be subject
to heightened Clean Air Act PSD / Title V regulation. More recently, however, in March 2011, EPA issued a proposed rule that
would, broadly, defer for three years its development of those regulations with regard to sources emitting carbon dioxide from
biomass-fired and other “biogenic” sources.
The adoption of other laws and regulations, which may include the imposition of fees or taxes, could adversely affect our collection
and disposal operations. Additionally, certain of the states in which we operate are contemplating air pollution control regulations
relating to GHG that may be more stringent than regulations EPA may promulgate. Changing environmental regulations could require
us to take any number of actions, including the purchase of emission allowances or installation of additional pollution control
technology, and could make some operations less profitable, which could adversely affect our results of operations.
Congress also is considering various options, including a cap and trade system, which could impose a limit on and establish a pricing
mechanism for GHG emissions and emission allowances. There also is increasing pressure for the United States to join international
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 and
enforce 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.
The Public Utility Regulatory Policies Act of 1978, As Amended (“PURPA”)
Our waste-to-energy facility has been certified by the Federal Energy Regulatory Commission as a “qualifying small power
production facility” under the 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 three landfill gas-to-energy facilities are self- certified as “qualifying facilities”
as well.
State and Local Regulations
Each state in which we now operate or may operate in the future has laws and regulations governing (1) water and air pollution, and
the generation, storage, treatment, handling, processing, transportation, incineration and disposal of solid waste and hazardous waste;
(2) in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of solid waste management
facilities; and (3) in some cases, vehicle emissions limits or fuel types, which impact our collection operations. Such standards
typically are as stringent as, and may be more stringent and broader in scope than, the federal regulations. 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.
15
16
The EPA is focusing on the emissions of greenhouse gases (“GHG”), including carbon dioxide and methane. In December, 2009, EPA
issued its “endangerment finding” that carbon dioxide poses a threat to human health and welfare, providing the basis for EPA to
promulgate GHG air quality standards. This could, in turn, require us to install systems to monitor and control such emissions. In
addition, in December 2009 the EPA’s “Mandatory Reporting of Greenhouse Gases” rule went into effect, requiring facilities that emit
25,000 metric tons or more per year of GHG emissions to submit annual reports to EPA commencing in March 2011 — this deadline
was extended by the EPA on March 18, 2011 to September 30, 2011.
In June 2010, EPA issued the so-called “GHG Tailoring Rule’, which described how certain sources that emit GHG would be subject
to heightened Clean Air Act PSD / Title V regulation. More recently, however, in March 2011, EPA issued a proposed rule that
would, broadly, defer for three years its development of those regulations with regard to sources emitting carbon dioxide from
biomass-fired and other “biogenic” sources.
The adoption of other laws and regulations, which may include the imposition of fees or taxes, could adversely affect our collection
and disposal operations. Additionally, certain of the states in which we operate are contemplating air pollution control regulations
relating to GHG that may be more stringent than regulations EPA may promulgate. Changing environmental regulations could require
us to take any number of actions, including the purchase of emission allowances or installation of additional pollution control
technology, and could make some operations less profitable, which could adversely affect our results of operations.
Congress also is considering various options, including a cap and trade system, which could impose a limit on and establish a pricing
mechanism for GHG emissions and emission allowances. There also is increasing pressure for the United States to join international
efforts to control GHG emissions.
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 and
enforce 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.
The Public Utility Regulatory Policies Act of 1978, As Amended (“PURPA”)
Our waste-to-energy facility has been certified by the Federal Energy Regulatory Commission as a “qualifying small power
production facility” under the 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 three landfill gas-to-energy facilities are self- certified as “qualifying facilities”
as well.
State and Local Regulations
Each state in which we now operate or may operate in the future has laws and regulations governing (1) water and air pollution, and
the generation, storage, treatment, handling, processing, transportation, incineration and disposal of solid waste and hazardous waste;
(2) in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of solid waste management
facilities; and (3) in some cases, vehicle emissions limits or fuel types, which impact our collection operations. Such standards
typically are as stringent as, and may be more stringent and broader in scope than, the federal regulations. 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.
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Many municipalities in which we currently operate or may operate in the future 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.
Some states have enacted laws that allow agencies with jurisdiction over waste management facilities to deny or revoke permits based
on the applicant’s or permit holder’s compliance status. Some states also consider the compliance history of the corporate parent,
subsidiaries and affiliates.
Certain permits and approvals issued under state or local law may limit the types of waste that may be accepted at a solid waste
management facility or the quantity of waste that may be accepted at a solid waste management facility during a given time period. In
addition, certain permits and approvals, as well as certain state and local regulations, may limit a solid waste management facility to
accepting waste that originates from specified geographic areas or seek to restrict the importation of out-of-state waste or otherwise
discriminate against out-of-state waste. Generally, restrictions on importing out-of-state waste have not withstood judicial challenge.
However, from time to time federal legislation is proposed which would allow individual states to prohibit the disposal of out-of-state
waste or to limit the amount of out-of-state waste that could be imported for disposal and would require states, under certain
circumstances, to reduce the amounts of waste exported to other states. Although such legislation has not been passed by Congress, if
similar legislation is enacted, states in which we operate solid waste management facilities 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, in 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. Further, some proposed federal legislation would allow states and localities to impose flow restrictions.
Those restrictions could reduce the volume of waste going to solid waste management facilities 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 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, including yard wastes and leaves,
beverage containers, newspapers, household appliances and electronics such as computers, 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.
Executive Officers and Other Key Employees of the Company
Our executive officers and other key employees and their respective ages as of May 31, 2011 are as follows:
Name
Age
Position
Executive Officers
John W. Casella
Paul A. Larkin
Edwin D. Johnson
Other Key Employees
60
46
54
Chairman of the Board of Directors, Chief Executive Officer and Secretary
President and Chief Operating Officer
Senior Vice President and Chief Financial Officer
David L. Schmitt
60
Vice President and General Counsel
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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.
Paul A. Larkin has served as our President and Chief Operating Officer since January 2008. From June 1998 until he joined us,
Mr. Larkin served in a number of operating capacities for Office Depot, Inc., including, from 2007 through 2008 as Vice President for
international strategy, from 2005 to 2007 as Regional Vice President of retail stores responsible for overseeing $1.0 billion of sales,
and from 2000 to 2005 as Vice President of supply chain and inventory management. From 1996 to 1998, Mr. Larkin was the Director
of Logistics for AutoNation USA, Inc. From 1987 to 1996, Mr. Larkin served in the United States Army in a number of command and
staff positions culminating as Aide de Camp for the Director of Logistics, United States Atlantic Command. Mr. Larkin received his
Bachelor of Arts degree from Clark University.
Edwin D. Johnson has served as our Senior Vice President and Chief Financial Officer since July 2010. From March 2007 to July
2010, Mr. Johnson served as Executive Vice President, Chief Financial Officer and Chief Accounting Officer at Waste Services, Inc.
From November 2004 to March 2007, Mr. Johnson served as Chief Financial Officer of Expert Real Estate Services, Inc., a full
service real estate brokerage company. Mr. Johnson holds an MBA from Florida International University and a Bachelor of Science in
Accounting and Administration from Washington & Lee 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 served from 1995 until 2001, as Senior Vice President, General Counsel and Secretary of Bradlees, Inc., a
large box retailer in the northeastern United States, and from 1986 through 1990, as Vice President and General Counsel of
Wheelabrator Technologies Inc. He earned a Bachelor of Arts degree from The Pennsylvania State University, and his Juris Doctor,
cum laude, from Duquesne University School of Law.
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 any 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 as soon as reasonably practicable after we electronically file such materials with or furnish them to the Securities
and Exchange Commission, or SEC. The information found on our website is not part of this or any other report we file with or
furnish to the SEC.
You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC
20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
also maintains an Internet website that contains reports, proxy and information statements, and other information regarding Casella
and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.
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 risks and
uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Our
business is also subject to general risks and uncertainties that affect many other companies, including overall economic and industry
conditions, especially in the northeastern United States, where our operations and customers are principally located, changes in laws
or accounting rules or other disruptions of expected economic or business conditions. Additional risks and uncertainties not currently
known to us or that we currently believe are not material also may impair our business results of operations and financial condition.
18
Economic conditions have adversely affected our revenues and our operating margin and may impact our efforts to pay our
outstanding indebtedness.
Our business has been affected by changes in economic conditions that are outside of our control, including reductions in business and
consumer activity generally, and of construction spending in particular, which have significantly impacted the demand for our
collection and landfill services, and declines in commodity prices, which have materially reduced our recycling revenues. As a result
of the economic environment we may also be adversely impacted by our customers’ inability to pay us in a timely manner, if at all,
due to their financial difficulties, which could include bankruptcies. The availability of credit since the second half of calendar year
2008 has been severely limited, which has negatively affected business and consumer spending generally. If our customers do not
have access to capital, we do not expect that our volumes will improve or that we will increase new business.
We face substantial competition in the solid waste services industry.
The solid waste services industry is highly competitive, has undergone a period of consolidation and requires substantial labor and
capital resources. Some of the markets in which we compete or will likely compete are served by, or are adjacent to markets served
by, one or more of the large national or multinational solid waste companies, as well as numerous regional and local solid waste
companies. Intense competition exists not only to provide services to customers, but also to acquire other businesses within each
market. Some of our competitors have significantly greater financial and other resources than we do. 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
require us to reduce the pricing of our services and may result in a loss of business.
As is generally the case in our industry, some municipal contracts are subject to periodic competitive bidding. We may not be the
successful bidder to obtain or retain these contracts. If we are unable to compete with larger and better capitalized companies or
replace municipal contracts lost through the competitive bidding process with comparable contracts or other revenue sources within a
reasonable time period, our revenues would decrease and our operating results would be harmed.
In our solid waste disposal markets, we also compete with operators of alternative disposal and recycling facilities and with counties,
municipalities and solid waste districts that maintain their own waste collection, recycling and disposal operations. We are also
increasingly competing with companies which seek to use parts of the waste stream as feedstock for renewable energy supplies. Public
entities may have financial advantages because of their ability to charge user fees or similar charges, impose tax revenues, access tax-
exempt financing and in some cases utilize government subsidies.
Our GreenFiber insulation manufacturing joint venture with Louisiana-Pacific Corporation competes with other parties, principally
national manufacturers of fiberglass insulation, that have substantially greater resources than GreenFiber does, which they could use
for product development, marketing or other purposes to our detriment.
The waste management industry is undergoing fundamental change as traditional waste streams are increasingly viewed as
renewable resources, which may adversely impact volumes and tipping fees at our landfills.
From fiscal 2003 year through fiscal year 2007, we executed a strategy to grow our landfill capacity, and since that time, we have
focused on increasing free cash flow and generating an enhanced return on invested capital at our landfills. As we have continued to
develop our landfill capacity, the waste management industry has increasingly recognized the value of the waste stream as a renewable
resource, and accordingly, new alternatives to landfilling are being developed that seek to maximize the renewable energy and other
resource benefits of waste. These alternatives may impact the demand for landfill space, which may affect our ability to operate our
landfills at full capacity, as well as the tipping fees and prices that waste management companies generally, and that we in particular,
can charge for utilization of landfill space. As a result, our revenues and operating margins could be adversely affected due to these
disposal alternatives.
We incur substantial costs to comply with environmental requirements. Failure to comply with these requirements, as well as
enforcement actions and litigation arising from an actual or perceived breach of such requirements, could subject us to fines,
penalties, and judgments, and impose limits on our ability to operate and expand.
We are subject to potential liability and restrictions under environmental laws, including those relating to transportation, recycling,
treatment, storage and disposal of wastes, discharges of pollutants 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, including efforts to regulate the
emission of greenhouse gases. Our waste-to-energy facility is subject to regulations limiting discharges of pollutants into the air and
water, and our solid waste operations are subject to a wide range of federal, state and, in some cases, local environmental, odor and
noise and land use restrictions. If we are not able to comply with the requirements that apply to a particular facility or if we operate
without the necessary approvals or permits, we could be subject to administrative or civil, and possibly criminal, fines and penalties,
and we may be required to spend substantial capital to bring an operation into compliance, to temporarily or permanently discontinue
activities, and/or take corrective actions, possibly including removal of landfilled materials. Those costs or actions could be significant
to us and impact our results of operations, cash flows, and available capital. We may not have sufficient insurance coverage for our
environmental liabilities, such coverage may not cover all of the potential liabilities we may be subject to and/or we may not be able to
obtain insurance coverage in the future at reasonable expense, or at all.
Environmental and land use laws also impact our ability to expand and, in the case of our solid waste operations, may dictate those
geographic areas from which we must, or, from which we may not, accept waste. Those laws and regulations may limit the overall
size and daily waste volume that may be accepted by a solid waste operation. If we are not able to expand or otherwise operate one or
more of our facilities because of limits imposed under such laws, we may be required to increase our utilization of disposal facilities
owned by third parties, which could reduce our revenues and/or operating margins. In addition, we are required to obtain
governmental permits to operate our facilities, including all of our landfills. Even if we were to comply with applicable environmental
law, there is no guarantee that we would be able to obtain the requisite permits and, even if we could, that any permit (and any existing
permits we currently hold) will be renewed or modified as needed to fit our business needs.
We have historically grown through acquisitions and may make additional acquisitions from time to time in the future, and we have
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 we anticipate. It is also possible that government officials
responsible for enforcing environmental laws may believe an issue is more serious than we expect, or that we will fail to identify or
fully appreciate an existing liability before we become legally responsible for addressing it. Some of the legal sanctions to which we
could become subject could cause the suspension or revocation of a needed permit, prevent us from, or delay us, in obtaining or
renewing permits to operate or expand our facilities, or harm our reputation. At April 30, 2011, we had recorded $5.1 million in
environmental remediation liabilities for the estimated cost of our share of work associated with a consent order issued by the State of
New York to remediate a scrap yard and solid waste transfer station owned by one of our acquired subsidiaries, including the
recognition of accretion expense. There can be no assurance that the cost of such cleanup or our share will not exceed our estimates.
Our operating program depends on our ability to operate the landfills and transfer stations we own and lease. Localities where we
operate 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 our landfills and transfer stations are located may limit or prohibit the expansion of a landfill
or transfer station, as well as the amount of waste that we 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.
We may not be successful in obtaining new landfill or transfer station sites or expanding the permitted capacity of any of our current
landfills and transfer stations. If we are unable to develop additional disposal and transfer station capacity, our ability to achieve
economies from the internalization of our waste stream will be limited. If we fail to receive new landfill permits or renew existing
permits, we may incur landfill asset impairment and other charges associated with accelerated closure.
In addition to the costs of complying with environmental laws and regulations, we incur costs defending against environmental
litigation brought by governmental agencies and private parties. We are, and also may be in the future, a defendant in lawsuits brought
by parties alleging environmental damage, personal injury, and/or property damage, or which seek to overturn or prevent the issuance
of an operating permit or authorization, all of which may result in us incurring significant liabilities.
See also “Business—Regulation,” “Legal Proceedings” and Note 11(b) to our Consolidated Financial Statements included under Item
8 of this Form 10-K.
Our results of operations could continue to be affected by changing prices or market requirements for recyclable materials.
Our results of operations have been and may continue to be affected by changing purchase or resale prices or market requirements for
recyclable materials. Our recycling business involves the purchase and sale of recyclable materials, some of which are priced on a
commodity basis. The market for recyclable materials, particularly newspaper, corrugated containers, plastic and ferrous and
aluminum metals, has been affected by unprecedented price decreases since October 2008, resulting in a severe impact on our results
of operations. Although we have begun to experience some recovery in commodity pricing, such prices will continue to be volatile
due to numerous factors beyond our control. Although we seek to limit our exposure to fluctuating commodity prices through the use
of hedging agreements, floor price contracts and long-term supply contracts with customers and have sought to mitigate commodity
price fluctuations by reducing the prices we pay for purchased materials or increasing tip fees at our facilities, these fluctuations have
in the past contributed, and may continue to contribute, to significant variability in our period-to-period results of operations.
19
20
noise and land use restrictions. If we are not able to comply with the requirements that apply to a particular facility or if we operate
without the necessary approvals or permits, we could be subject to administrative or civil, and possibly criminal, fines and penalties,
and we may be required to spend substantial capital to bring an operation into compliance, to temporarily or permanently discontinue
activities, and/or take corrective actions, possibly including removal of landfilled materials. Those costs or actions could be significant
to us and impact our results of operations, cash flows, and available capital. We may not have sufficient insurance coverage for our
environmental liabilities, such coverage may not cover all of the potential liabilities we may be subject to and/or we may not be able to
obtain insurance coverage in the future at reasonable expense, or at all.
Environmental and land use laws also impact our ability to expand and, in the case of our solid waste operations, may dictate those
geographic areas from which we must, or, from which we may not, accept waste. Those laws and regulations may limit the overall
size and daily waste volume that may be accepted by a solid waste operation. If we are not able to expand or otherwise operate one or
more of our facilities because of limits imposed under such laws, we may be required to increase our utilization of disposal facilities
owned by third parties, which could reduce our revenues and/or operating margins. In addition, we are required to obtain
governmental permits to operate our facilities, including all of our landfills. Even if we were to comply with applicable environmental
law, there is no guarantee that we would be able to obtain the requisite permits and, even if we could, that any permit (and any existing
permits we currently hold) will be renewed or modified as needed to fit our business needs.
We have historically grown through acquisitions and may make additional acquisitions from time to time in the future, and we have
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 we anticipate. It is also possible that government officials
responsible for enforcing environmental laws may believe an issue is more serious than we expect, or that we will fail to identify or
fully appreciate an existing liability before we become legally responsible for addressing it. Some of the legal sanctions to which we
could become subject could cause the suspension or revocation of a needed permit, prevent us from, or delay us, in obtaining or
renewing permits to operate or expand our facilities, or harm our reputation. At April 30, 2011, we had recorded $5.1 million in
environmental remediation liabilities for the estimated cost of our share of work associated with a consent order issued by the State of
New York to remediate a scrap yard and solid waste transfer station owned by one of our acquired subsidiaries, including the
recognition of accretion expense. There can be no assurance that the cost of such cleanup or our share will not exceed our estimates.
Our operating program depends on our ability to operate the landfills and transfer stations we own and lease. Localities where we
operate 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 our landfills and transfer stations are located may limit or prohibit the expansion of a landfill
or transfer station, as well as the amount of waste that we 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.
We may not be successful in obtaining new landfill or transfer station sites or expanding the permitted capacity of any of our current
landfills and transfer stations. If we are unable to develop additional disposal and transfer station capacity, our ability to achieve
economies from the internalization of our waste stream will be limited. If we fail to receive new landfill permits or renew existing
permits, we may incur landfill asset impairment and other charges associated with accelerated closure.
In addition to the costs of complying with environmental laws and regulations, we incur costs defending against environmental
litigation brought by governmental agencies and private parties. We are, and also may be in the future, a defendant in lawsuits brought
by parties alleging environmental damage, personal injury, and/or property damage, or which seek to overturn or prevent the issuance
of an operating permit or authorization, all of which may result in us incurring significant liabilities.
See also “Business—Regulation,” “Legal Proceedings” and Note 11(b) to our Consolidated Financial Statements included under Item
8 of this Form 10-K.
Our results of operations could continue to be affected by changing prices or market requirements for recyclable materials.
Our results of operations have been and may continue to be affected by changing purchase or resale prices or market requirements for
recyclable materials. Our recycling business involves the purchase and sale of recyclable materials, some of which are priced on a
commodity basis. The market for recyclable materials, particularly newspaper, corrugated containers, plastic and ferrous and
aluminum metals, has been affected by unprecedented price decreases since October 2008, resulting in a severe impact on our results
of operations. Although we have begun to experience some recovery in commodity pricing, such prices will continue to be volatile
due to numerous factors beyond our control. Although we seek to limit our exposure to fluctuating commodity prices through the use
of hedging agreements, floor price contracts and long-term supply contracts with customers and have sought to mitigate commodity
price fluctuations by reducing the prices we pay for purchased materials or increasing tip fees at our facilities, these fluctuations have
in the past contributed, and may continue to contribute, to significant variability in our period-to-period results of operations.
20
Our business requires a high level of capital expenditures.
Our business is capital intensive. Capital expenditures related to growth activities, which were $2.8 million in fiscal year 2011, consist
of costs related to development of new airspace, permit expansions and new recycling contracts, along with incremental costs of
equipment and infrastructure added to further such activities. Capital expenditures related to maintenance activities, which were
$52.4 million in fiscal year 2011, consist of landfill cell construction costs not related to airspace expansion, costs of normal permit
renewals and replacement costs for equipment due to age or obsolescence. We must use a substantial portion of our cash flows from
operating activities toward maintenance capital expenditures, which reduces our flexibility to use such cash flows for other purposes,
such as reducing our indebtedness. Our capital expenditures could increase if we make acquisitions or further expand our operations or
as a result of factors beyond our control, such as changes in federal, state or local governmental requirements. The amount that we
spend on capital expenditures may exceed current expectations, which may require us to obtain additional funding for our operations
or impair our ability to grow our business.
Our business is geographically concentrated and is therefore subject to regional economic downturns.
Our operations and customers are concentrated principally in New England and New York. Therefore, our business, financial
condition and results of operations are susceptible to regional economic downturns and other regional factors, including state
regulations and budget constraints and severe weather conditions. In addition, as we seek to expand in our existing markets,
opportunities for growth within this region will become more limited and the geographic concentration of our business will increase.
A substantial amount of the material delivered to our Chemung, Hakes, Hyland and McKean landfills consist of extractions from the
Marcellus Shale formations in Western New York and Pennsylvania. These extractions are the subject of political opposition and there
can be no assurance that they will not be halted or retried. In such an event, our revenues from these landfills would be materially
adversely affected.
Our results of operations and financial condition may be negatively affected if we inadequately accrue for capping, closure and
post-closure costs or by the timing of these costs for our waste disposal facilities.
We have material financial obligations relating to capping, closure and post-closure costs of our existing owned or operated landfills
and will have material financial obligations with respect to any disposal facilities which we may own or operate in the future. Once the
permitted capacity of a particular landfill is reached and additional capacity is not authorized, the landfill must be closed and capped,
and post-closure maintenance started. We establish 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. We have provided and expect that we will in the
future provide accruals for financial obligations relating to capping, closure and post-closure costs of our owned or operated landfills,
generally for a term of 30 years after final closure of a landfill. Our financial obligations for capping, closure or post-closure costs
could exceed the amounts accrued or amounts otherwise receivable pursuant to trust funds established for this purpose. Such a
circumstance could result in significant unanticipated charges which would have an adverse impact on our business.
In addition, the timing of any such capping, closure or post-closure costs which exceed established accruals may further negatively
impact our business. Since we will be unable to control the timing and amounts of such costs, we may be forced to delay investments
or planned improvements in other parts of our business or we may be unable to meet applicable financial assurance requirements. Any
of the foregoing would negatively impact our business and results of operations.
Fluctuations in fuel costs could affect our operating expenses and results.
The price and supply of fuel is unpredictable and fluctuates based on events beyond our control, including among others, geopolitical
developments, supply and demand for oil and gas, actions by the Organization of the Petroleum Exporting Countries and other oil and
gas producers, war and unrest in oil producing countries and regional production patterns. Because fuel is needed to run our fleet of
trucks, price escalations for fuel increase our operating expenses. In fiscal year 2011, we used approximately 5.7 million gallons of
diesel fuel in our solid waste operations. We have a fuel surcharge program, based on a fuel index, to help offset increases in the cost
of fuel, oil and lubricants arising from price volatility. This fee has been passed on to our customers where their contracts and
competition conditions permit.
We could be precluded from entering into contracts or obtaining or maintaining permits or certain contracts if we are unable to
obtain third party financial assurance to secure our contractual obligations.
Public solid waste collection, recycling and disposal contracts, obligations associated with landfill closure and the operation and
closure of our waste-to-energy facility typically require performance or surety bonds, letters of credit or other means of financial
assurance to secure our contractual performance. If we are unable to obtain the necessary financial assurance in sufficient amounts or
at acceptable rates, we could be precluded from entering into additional municipal solid waste collection contracts or from obtaining
21
or retaining landfill management contracts or operating permits. Any future difficulty in obtaining insurance could also impair our
ability to secure future contracts conditioned upon having adequate insurance coverage. We currently obtain performance and surety
bonds from Evergreen, in which we hold a 19.9% equity interest.
We may be required to write-off or impair capitalized costs or intangible assets in the future or we may incur restructuring costs or
other charges, each of which could harm our earnings.
In accordance with U.S. generally accepted accounting principles, we capitalize certain expenditures and advances relating to our
acquisitions, pending acquisitions, landfills and development projects. In addition, we have considerable unamortized assets. From
time to time in future periods, we may be required to incur a charge against earnings in an amount equal to any unamortized
capitalized expenditures and advances, net of any portion thereof that we estimate will be recoverable, through sale or otherwise,
relating to (1) any operation or other asset that is being sold, permanently shut down, impaired 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.
In response to such charges and costs and other market factors, we may be required to implement restructuring plans in an effort to
reduce the size and cost of our operations and to better match our resources with our market opportunities. As a result of such actions,
we would expect to incur restructuring expenses and accounting charges which may be material. Several factors could cause a
restructuring to adversely affect our business, financial condition and results of operations. These include potential disruption of our
operations, the development of our landfill capacity and recycling technologies and other aspects of our business. Employee morale
and productivity could also suffer and result in unintended employee attrition. Any restructuring would require substantial
management time and attention and may divert management from other important work. Moreover, we could encounter delays in
executing any restructuring plans, which could cause further disruption and additional unanticipated expense.
Our revenues and our operating income experience seasonal fluctuations.
Our transfer and disposal revenues historically have been lower during the months of November through March. This seasonality
reflects the lower volume of waste during the late fall, winter and early spring months primarily because:
•
•
the volume of waste relating to construction and demolition activities decreases substantially during the winter months in
the northeastern United States; and
decreased tourism in Vermont, Maine and eastern New York during the winter months tends to lower the volume of
waste generated by commercial and restaurant customers, which is partially offset by increased volume from the ski
industry.
Since certain of our operating and fixed costs remain constant throughout the fiscal year, operating income is impacted by a similar
seasonality. Particularly harsh weather conditions typically result in increased operating costs.
Our 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.
We may, in the future, attempt to divest or sell certain parts or components of our business to third parties which may result in
lower than expected proceeds or losses or we may be unable to identify potential purchasers.
From time to time in the future, we may sell or divest certain other components of our business. These divestitures may be undertaken
for a number of reasons, including to generate proceeds to pay down debt, or as a result of a determination that the specified asset will
provide inadequate returns to us, or that the asset no longer serves a strategic purpose in connection with our business or if we
determine the asset may be more valuable to a third party. The timing of such sales or divestures may not be entirely within our
control. For example, we may need to quickly divest assets to satisfy immediate cash requirements, or we may be forced to sell certain
assets prior to canvassing the market or at a time when market conditions for valuations or for financing for buyers are unfavorable,
which would result in proceeds to us in an amount less than we expect or less than our assessment of the value of those assets. We also
may not be able to identify buyers for certain of our assets, particularly given the difficulty that potential acquirers may face in
obtaining financing, or we may face opposition from municipalities or communities to a disposition or the proposed buyer. Any sale of
our assets could result in a loss on divestiture. Any of the foregoing would have an adverse effect on our business and results of
operations.
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We previously announced our efforts to divest our waste to energy facility, Maine Energy. Public opposition to these efforts and the
continued operation of Maine Energy have impacted our ability to sell the Maine Energy facility to date, and although we intend to
continue to explore opportunities to divest Maine Energy in whole or in part in the future, there is no certainty that we will be able to
divest Maine Energy.
We may engage in acquisitions in the future with the goal of complementing or expanding our business, including developing
additional disposal capacity. However, we may be unable to complete these transactions and, if executed, these transactions may
not improve our business or may pose significant risks and could have a negative effect on our operations.
We have in the past, and we may in the future, make acquisitions in order to acquire or develop additional disposal capacity. These
acquisitions may include “tuck-in” acquisitions within our existing markets, assets that are adjacent to or outside our existing markets,
or larger, more strategic acquisitions. In addition, from time to time we may acquire businesses that are complementary to our core
business strategy. We may not be able to identify suitable acquisition candidates. If we identify suitable acquisition candidates, we
may be unable to negotiate successfully their acquisition at a price or on terms and conditions acceptable to us, including as a result of
the limitations imposed by our debt obligations. Furthermore, we may be unable to obtain the necessary regulatory approval to
complete potential acquisitions.
Our ability to achieve the benefits from any potential future acquisitions, including cost savings and operating efficiencies, depends in
part on our ability to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired
businesses and other assets may require significant management time and resources that would otherwise be available for the ongoing
management of our existing operations.
Any properties or facilities that we acquire may be subject to unknown liabilities, such as undisclosed environmental contamination,
for which we would have no recourse, or only limited recourse, to the former owners of such properties. As a result, if a liability were
asserted against us based upon ownership of an acquired property, we might be required to pay significant sums to settle it, which
could adversely affect our financial results and cash flow.
In addition, the process of acquiring, developing and permitting additional disposal capacity is lengthy, expensive and uncertain.
Moreover, the disposal capacity at our existing landfills is limited by the remaining available volume at our landfills and annual,
quarterly and/or daily disposal limits imposed by the various governmental authorities with jurisdiction over our landfills. If we are
unable to develop or acquire additional disposal capacity, our ability to achieve economies from the internalization of our waste
stream will be limited and we may be required to increase our utilization of disposal facilities owned by third parties, which could
reduce our revenues and/or our operating margins.
Efforts by labor unions to organize our employees could divert management attention and increase our operating expenses.
Labor unions regularly make attempts to organize our employees, and these efforts will likely continue in the future. Certain groups of
our employees have chosen to be represented by unions, and we have negotiated collective bargaining agreements with these groups.
The negotiation of collective bargaining agreements could divert management attention and result in increased operating expenses and
lower net income (or increased net loss). If we are unable to negotiate acceptable collective bargaining agreements, we may be subject
to union-initiated work stoppages, including strikes. Depending on the type and duration of any labor disruptions, our revenues could
decrease and our operating expenses could increase, which could adversely affect our financial condition, results of operations and
cash flows. As of May 31, 2011, approximately 6.8% of our employees were represented by unions.
Our Class B common stock has ten votes per share and is held exclusively by John W. Casella and Douglas R. Casella.
The holders of our Class B common stock are entitled to ten votes per share and the holders of our Class A common stock are entitled
to one vote per share. At December 31, 2010, an aggregate of 988,200 shares of our Class B common stock, representing 9,882,000
votes, were outstanding, all of which were beneficially owned by John W. Casella, our Chairman and Chief Executive Officer, and his
brother, Douglas R. Casella, a member of our Board of Directors. Based on the number of shares of common stock outstanding on
May 31, 2011, the shares of our Class A common stock and Class B common stock beneficially owned by John W. Casella and
Douglas R. Casella represent approximately 31.4% of the aggregate voting power of our stockholders. Consequently, John W. Casella
and Douglas R. Casella are able to substantially influence all matters for stockholder consideration.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
At May 31, 2011, we operated nine subtitle D landfills, four of which are owned and five of which are leased, one landfill permitted to
accept construction and demolition materials that we own, 29 transfer stations, 19 of which are owned, six of which are leased and
four of which are under operating contract, 31 solid waste collection facilities, 19 of which are owned and 12 of which are leased, 17
recycling processing facilities, 10 of which are owned, six of which are leased and one of which is under an operating contract, one
waste-to-energy facility that we own, three landfill gas to energy facilities that we own, and we utilized 12 corporate office and other
administrative facilities, two of which are owned and ten of which are leased (See Item 1—Business section of this Form 10-K for
property information by operating segment).
ITEM 3. LEGAL PROCEEDINGS
In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we are
subject to various judicial and administrative proceedings involving state or local agencies. In these proceedings, an agency may seek
to impose fines or to revoke or deny renewal of an operating permit held by us. From time to time, we may also be subject to actions
brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of
landfills and transfer stations, or alleging environmental damage or violations of the permits and licenses pursuant to which we
operate. In addition, we are party to various claims and suits pending for alleged damages to persons and property, alleged violations
of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business.
We offer no prediction of the outcome of any of the proceedings or negotiations described below. We are vigorously defending each
of these lawsuits and claims. However, there can be no guarantee we will prevail or that any judgments against us, if sustained on
appeal, will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
North Country Landfill Expansion
Our subsidiary, North Country Environmental Services, Inc. (“NCES”) is located in Bethlehem, New Hampshire, and is currently
permitted to accept municipal solid waste and C&D material from a wide geographic region. As discussed below, NCES projects that
its permitted capacity will last into fiscal year 2018.
NCES and the Town of Bethlehem (the “Town”) have been in prolonged zoning litigation over NCES’s expansion of the landfill.
Currently, there are two court actions between NCES and the Town: a declaratory judgment action initiated by NCES on September
12, 2001, and a zoning enforcement action initiated by the Town on February 2, 2009. In the declaratory judgment action, the New
Hampshire Supreme Court ruled that NCES has all necessary local approvals to expand its landfill within a 51-acre area, but
remanded to the New Hampshire Superior Court issues related to the validity of the Town’s zoning ordinance as it relates to a
proposed landfill expansion outside that 51-acre area. In the enforcement action, the Town has requested an injunction requiring
NCES to remove a leachate force main, a landfill gas line, storm water drainage lines, catch basins and outfalls, a landfill liner anchor
trench, and storm water detention ponds that are located outside the 51-acre area. It has also sought a civil penalty of two hundred
seventy five dollars per day from the date of filing, plus costs and attorneys’ fees. NCES and the Town filed cross-motions for
summary judgment on the validity of the ordinance the Town is attempting to enforce, and the court denied both motions in October
2009. On February 5, 2010, the court granted NCES’s motion to consolidate the remanded action with the enforcement action. The
trial of the consolidated actions was set for January 2011, but the court continued the trial in early December 2010. A new trial date
has been set for March 2012. In January 2011, the court denied three partially dispositive motions filed by the Town. The court held
a hearing on a fourth dispositive motion filed by NCES on February 14, 2011. If granted, NCES’s motion would invalidate two
amendments of the Town’s zoning ordinance, thereby resolving both the enforcement action and two counts of the declaratory
judgment action in NCES’s favor.
On April 29, 2010, NCES filed an application with NHDES to modify its Stage IV permit to develop nearly all of the remaining
undeveloped capacity under that permit. On August 27, 2010, NHDES granted the permit modification, thereby authorizing NCES to
develop State IV, Phase 2, of the landfill, comprising approximately one million cubic yards of disposal capacity. There were two
appeals filed with the New Hampshire Waste Management Council. One appeal was filed by a group of local citizens and seeks to
invalidate the approval. The other appeal was filed by a company with which NCES has certain agreements relating to the operation
of the gas management system at the landfill and the use of the landfill gas and sought modification of the approval with respect to the
criteria governing the operation of the gas management system. NCES has sought dismissal of the first appeal on the grounds that the
appellants lack standing to bring it. That motion is pending. The second of these appeals has since been voluntarily dismissed. On
February 14, 2011, NHDES issued construction approval for State IV, Phase 2-A, of the landfill, and construction commenced shortly
thereafter. The group of local citizens who had appealed the August 26, 2010, permit modification also appealed the construction
approval to the Waste Management Council. NCES has sought dismissal of this appeal on the grounds it was untimely filed. That
motion is pending. The filing of an appeal of a NHDES approval does not suspend or otherwise affect the approval. Accordingly,
NCES has commenced and continues construction activities at the Landfill. No hearing has been set on these appeals.
24
New York Department of Labor Prevailing Wage Dispute
We have been involved in an inquiry by the New York Department of Labor (“DOL”) regarding the applicability of certain state
“Prevailing Wage” laws pertaining to work being undertaken by us at certain landfill sites operated by us in New York State that are
owned by municipalities (Chemung, Ontario and Clinton Counties). On August 21, 2009, the DOL issued a letter opinion with regard
to cell construction and capping work and other activities at these landfills, concluding that: (1) the construction activity necessary for
the recovery, use and sale of gases created by the landfill is not a public work project to which the Prevailing Wage Law applies;
(2) cell construction and capping activities are public work where that work takes place on publicly owned lands in the furtherance of
the operation of a publicly accessible landfill facility; (3) construction on lands acquired by Casella which adjoin a County-owned
landfill are akin to a privately owned and operated landfill and would not be subject to the Prevailing Wage Law. A settlement with
the DOL was reached to resolve this matter, which required the payment of increased wages and benefits to employees of Rifenburg
Construction, Inc. and Casella Construction, Inc., in an aggregate amount of $0.5 million. No penalties or interest were required.
These amounts were accrued and capitalized as part of the related landfill asset, and will be amortized prospectively over the
remaining life of the landfill as tons of waste are placed at each landfill site. This matter is now closed.
Southbridge Landfill Site Assignment Appeal
On June 9, 2008, the Southbridge Board of Health (“Southbridge BOH”) issued a Decision and Statement of Findings pursuant to
Massachusetts General Laws ch.111, §§150A and 150 A1/2 and 310 CMR 16.00 (“2008 Site Assignment”) granting our subsidiary,
Southbridge Recycling and Disposal Park, a minor modification to the existing site assignment for the Southbridge Sanitary Landfill
(the “Landfill”). The 2008 Site Assignment allows Southbridge Recycling and Disposal Park, subject to numerous conditions, to
accept into the Landfill up to 0.4 million tons of waste per year without regard to geographic origin.
On or about July 14, 2008, the Sturbridge Board of Health (“Sturbridge BOH”), an abutting municipality to Southbridge, together with
several 10-citizen groups, filed a complaint in Worcester County Superior Court contesting the 2008 Site Assignment (the “Appeal”).
The Appeal named as defendants the Southbridge BOH, its individual members and Southbridge Recycling and Disposal Park. On
August 21, 2008, Southbridge Recycling and Disposal Park reached a settlement with the Sturbridge BOH, pursuant to which
Southbridge Recycling and Disposal Park has funded an escrow account to be controlled by the Sturbridge BOH in the amount of fifty
thousand dollars. The Sturbridge BOH withdrew as a party to the Appeal on August 22, 2008.
On December 11, 2009, the Worcester County Superior Court dismissed the plaintiffs’ complaint following briefing and a court
hearing. Plaintiffs appealed that decision, and we have filed a joint motion with the Southbridge BOH to dismiss that appeal,
contending that the appeal was filed late and is subject to dismissal as a matter of law. On November 19, 2010, all parties received
Notice from the Appeals Court Clerk’s Office that this appeal will be heard by the Massachusetts Supreme Judicial Court, upon its
own motion. It appears that this hearing will occur no sooner than September, 2011. While it is too early to assess the outcome of the
appellate action, Southbridge Recycling and Disposal Park will continue to aggressively defend the appellate action. We believe it is
remote that this appellate action could result in a threat to the validity of the 2008 site assignment.
In July 2008, Southbridge Recycling and Disposal Park filed an application with the Massachusetts Department of Environmental
Protection (“MADEP”) for a minor modification to the existing landfill operating permit, to allow Southbridge Recycling and
Disposal Park to operate in a manner consistent with the Site Assignment (conversion from 0.2 million tons per year of construction
and demolition debris to 0.2 million tons per year of any combination of construction and demolition debris and municipal solid waste,
with no geographic limitations). The MADEP issued a “provisional” final permit granting this minor modification on April 23, 2010,
and invited public comment through May 19, 2010. On May 28, 2010, the MADEP issued a final permit granting the minor
modification to Southbridge Recycling and Disposal Park’s existing operating permit (the “Conversion Permit”). On or about August
1, 2010, despite its prior settlement, the Board of Health of the Town of Sturbridge filed a complaint in Worcester Superior Court
challenging MADEP’s issuance of the Conversion Permit. Defendants moved to dismiss the complaint. On January 27, 2011, the
Court heard oral argument on defendants’ motions to dismiss, and on February 4, 2011, the Court granted those motions, dismissing
the complaint.
CRMC Bethlehem, LLC Litigation
CRMC Bethlehem, LLC and Commonwealth Bethlehem Energy, LLC (collectively, “CRMC”), filed claims in the US District Court
for the District of New Hampshire against NCES. CRMC sought declaratory and injunctive relief and damages in the amount of
approximately $1.5 million. CRMC alleged that NCES had breached the terms of a Gas Lease and Easement Agreement by and
between CRMC and NCES, entered into on September 10, 1998, as amended on March 1, 2000 (the “Gas Lease”). CRMC alleged
that NCES had inappropriately interfered with CRMC rights pursuant to the Gas Lease to develop a landfill gas-to-energy project to
be sited on the Landfill. CRMC also had alleged that NCES violated the terms of an Operations and Maintenance Agreement in
operating the landfill gas management system. NCES denied these allegations, and vigorously defended against these claims.
25
On or about March 23, 2011, we elected, in a separate transaction, to purchase from CRMC the gas rights subject to the terms of the
Gas Lease, for the total sum of $1.8 million, $1.2 million of which was paid at closing on or about April 11, 2011, and the remainder
of which will be paid in five installments of $0.1 million on the anniversary of the closing date. This litigation was dismissed with
prejudice as part of the purchase of the CRMC gas rights.
Vermont Attorney General Matter
We entered into an Assurance of Discontinuance (“AOD”) with the Vermont Attorney General’s Office (“AG”) on or about May 17,
2002, concerning, among other matters, the conduct of our business in Vermont as related to certain contract terms applicable to our
small commercial container customers. On March 23, 2010, we were a recipient of a Civil Investigative Subpoena (“CIS”) issued by
the AG requesting information and documents from us regarding our compliance with the AOD. We provided all information
requested by the AG in a timely manner. However, in the course of responding to the AG’s requests, we discovered that some of our
small commercial container customers were mistakenly issued contracts which did not strictly comply with the terms of the AOD.
This error occurred during a one (1) year period starting in 2009 and ending in 2010, and only a portion of our small commercial
container customers in Vermont were affected. We immediately terminated the use of these contracts, and we intend to issue revised
contracts to those affected customers. We have not had any occasion to enforce the terms of any of these contracts.
On or about April 25, 2011, the AG asserted that we violated the terms of the AOD, and that we pay civil penalties of approximately
$4.8 million. The AG also requested that the AOD be extended beyond its initial expiration date in 2012, and that certain of our
business practices with respect to our small commercial container customers be discontinued.
We do not agree with the AG regarding the enforceability and terms of the AOD or that the AOD term should be extended. We intend
to vigorously defend ourselves against the assertions of the AG.
Town of Seneca Matter
Casella Waste Services of Ontario, LLC operates the Ontario County Landfill and recycling facilities located in the Town of Seneca,
New York, pursuant to an Operation, Management and Lease Agreement with Ontario County (the “OMLA”), and a Host Agreement
with the Town of Seneca (the “Host Agreement”).
On May 6, 2011, the Town of Seneca filed a complaint in Ontario County Supreme Court naming Ontario County (the “County”) and
various Casella entities (collectively, “Casella”) as defendants (the “Seneca Litigation”), alleging that both Casella and the County
have breached their obligations to the Town under both the Host Agreement and the OMLA. The Town’s complaint alleges a variety
of contract breaches stemming from Casella’s decision to pay the County stipulated in-lieu fees for certain projects described in the
OMLA rather than constructing those projects. The complaint demands, among other things, payment of $3.8 million.
We firmly believe the Town’s position is without legal merit. We will defend the Seneca Litigation aggressively.
Penobscot Energy Recovery Company Matter
On May 31, 2011 we received formal written notice from the Penobscot Energy Recovery Company (“PERC”) that it is submitting to
arbitration what it alleges is a disputed invoice in the amount of approximately $3.2 million dated March 2, 2011. PERC states that
Pine Tree Waste, Inc., our subsidiary, has failed since 2001 to honor a “put-or-pay” waste disposal arrangement. We have been
investigating the merit of this claim since receipt of the invoice, and will aggressively defend against this claim in arbitration and/or
the courts.
Environmental Liability
We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling
and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of drinking
water sources or soil, possibly including damage resulting from conditions existing before we acquired the facilities. We may also be
subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances
if we or our predecessors arrange or arranged to transport, treat or dispose of those materials.
On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent
(“Order”) which named Waste-Stream, Inc. (“WSI”), a Casella subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk
Power Corporation (“NiMo”) as Respondents. The Order required that the Respondents undertake certain work on a 25-acre scrap
yard and solid waste transfer station owned by WSI, including the drafting of a Remedial Investigation and Feasibility Study (the
26
“Study”). A draft of the Study was submitted to DEC in January 2009 (followed by a final report in May 2009). The Study estimates
that the undiscounted costs associated with implementing the preferred remedies will be approximately $10.2 million and it is unlikely
that any costs relating to onsite remediation will be incurred until fiscal year 2012. On February 28, 2011, the DEC issued a Proposal
Remedial Action Plan (the “PRAP”) for the site and accepted public comments on the proposed remedy through March 29, 2011. We
submitted extensive comments. In early April the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was
subsequently rescinded for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the
estimated present worth cost associated with implementing the preferred remedies would be approximately $12.1 million. The DEC
issued the final ROD in June 2011 with proposed remedies consistent with the earlier ROD that had been rescinded.
WSI is jointly and severally liable for the total cost to remediate and we initially expected to be responsible for approximately 30%
upon implementation of a cost-sharing agreement with NiMo and GM. Based on these estimates, we recorded an environmental
remediation charge of $2.8 million in third quarter of fiscal year 2009. In the fourth quarter of fiscal year 2009, we recognized an
additional charge of $1.5 million, representing an additional 15% of the estimated costs, in recognition of the deteriorating financial
condition and eventual bankruptcy filing of GM. In the fourth quarter of fiscal year 2010, we recognized an additional charge of $0.3
million based on changes in the expected timing of cash outflows. Based on the estimated costs in the rescinded ROD, and changes in
the estimated timing of cash flows, at April 30, 2011 we recorded an environmental remediation charge of $0.5 million. Such charges
could be significantly higher if costs exceed estimates. We inflate these estimated costs in current dollars until the expected time of
payment and discount the cost to present value using a risk free interest rate (2.31%). At April 30, 2011 and April 30, 2010, we have
recorded $5.1 million and $4.6 million, respectively, related to this liability including the recognition of $0.1 million and $0.2 million
of accretion expense in the fiscal years ended April 30, 2011 and 2010, respectively.
ITEM 4. REMOVED AND RESERVED
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 (the “NASDAQ Stock 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 Stock Market.
Period
Fiscal Year Ending April 30, 2010
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal Year Ending April 30, 2011
First quarter
Second quarter
Third quarter
Fourth quarter
High
Low
3.67
3.30
4.80
5.34
5.39
5.00
8.18
8.29
$
$
$
$
$
$
$
$
1.82
2.46
2.55
4.03
3.20
3.70
4.30
6.20
$
$
$
$
$
$
$
$
On May 31, 2011, the high and low sale prices per share of our Class A common stock as quoted on the NASDAQ Stock Market were
$6.37 and $6.05, respectively. As of May 31, 2011 there were approximately 500 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, we have 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 and indentures restrict 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.
27
Stock Performance Graph
The following performance graph and related information shall not be deemed “soliciting material” or “filed” with the SEC, nor
shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act
of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The stock performance graph below compares the percentage change in cumulative stockholder return on Class A common stock for
the period from April 30, 2006 through April 30, 2011, with the cumulative total return on The NASDAQ Stock Market (U.S. &
Foreign) Index and our Industry Peer Group on The NASDAQ Stock Market. The stock performance graph assumes the investment on
April 30, 2006 of $100.00 in our Class A common stock at the closing price on such date, in The NASDAQ Stock Market (U.S. &
Foreign) Index and our 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
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
4/06
4/07
4/08
4/09
4/10
4/11
Casella Waste Systems, Inc.
NASDAQ Composite
Peer Group
*$100 invested on 4/30/06 in stock or index, including reinvestment of dividends. Fiscal year ending April 30.
Casella Waste Systems, Inc.
NASDAQ Composite
Peer Group
April 30,
April 30,
April 30,
April 30,
April 30,
April 30,
2006
$ 100.00 $
$ 100.00 $
$ 100.00 $
2007
2008
2009
2010
59.81 $
111.24 $
121.48 $
68.55 $
107.01 $
121.13 $
33.18 $
13.25 $
75.98 $ 109.83 $
95.48 $ 134.14 $
2011
43.47
129.57
173.48
(1)
The peer group is comprised of securities of Waste Connections, Inc. and WCA Waste Corp. Waste Connections, Inc. was
added to the peer group in fiscal year 2011 to replace Waste Services, Inc. which merged with another public company that is
not traded on the NASDAQ Stock Market.
28
ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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, 2011, 2010 and 2009, and the consolidated balance sheets as of April 30,
2011 and 2010 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, 2008 and 2007, and the consolidated balance sheet
data as of April 30, 2008, 2007 and 2006 are derived from previously filed Consolidated Financial Statements after giving effect to
discontinued operations. 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.
Statement of Operations Data:
Revenues
Cost of operations
General and administration
Depreciation and amortization
Asset impairment charge
Environmental remediation charge
Bargain purchase gain
Gain on sale of assets
Goodwill impairment charge
Hardwick impairment and closing charges
Operating income (loss)
Interest expense, net
Other expense / (income), net
Loss from continuing operations before
income taxes and discontinued operations
(Benefit) provision for income taxes
Loss from continuing operations before
discontinued operations
(Loss) income from discontinued
operations, net
Gain (loss) on disposal of discontinued
operations, net
Net income (loss)
Preferred stock dividend
Net income (loss) available to common
stockholders
Basic net income (loss) per common share
Basic weighted average common shares
outstanding (1)
Diluted net income (loss) per common share
$
$
$
2011
466,064
317,504
64,010
58,261
3,654
549
(2,975)
(3,502)
—
—
28,563
45,858
10,626
Fiscal Year Ended April 30,
(in thousands, except per share data)
2009
2010
2008
$
457,642
303,399
57,476
63,619
—
335
—
—
—
—
32,813
44,265
2,355
$
482,851
322,605
63,202
68,432
355
4,356
—
—
55,286
—
(31,385)
33,120
1,366
$ 503,925
338,167
69,638
73,479
534
—
—
—
—
1,400
20,707
31,952
3,410
(27,921)
(24,217)
(13,807)
2,242
(65,871)
6,247
(14,655)
(3,555)
2007
470,497
310,140
69,574
67,168
752
—
—
—
—
26,892
(4,029)
27,306
(1,430)
(29,905)
(10,674)
(3,704)
(16,049)
(72,118)
(11,100)
(19,231)
(1,458)
1,011
4,030
4,410
1,949
43,590
38,428
—
1,180
(13,858)
—
63
(68,025)
—
(1,145)
(7,835)
—
(601)
(17,883)
3,588
$
$
38,428
1.47
$
$
$
(13,858) $
(0.54) $
(68,025) $
(2.66) $
(7,835) $
(0.31) $
(21,471)
(0.85)
25,731
25,584
25,382
(0.54) $
(2.66) $
(0.31) $
25,272
(0.85)
26,105
1.47
29
Other Operating Data:
Capital expenditures
Other Data:
2011
2010
Fiscal Year Ended April 30,
(in thousands)
2009
2008
2007
$
55,249
$
52,834
$
54,330
$
68,370
$
91,917
Cash flows provided by operating
activities
Cash flows used in investing activities
$
$
47,091
$
64,086
$
69,145
$
60,981
$
74,447
(55,764) $
(63,050) $
(62,877) $
(84,933) $
(89,527)
Cash flows (used in) provided by
financing activities
Balance Sheet Data:
Cash and cash equivalents
Working capital deficit, net (2)
Property, plant and equipment, net
Goodwill
Total assets
Long-term debt, capital, and financing
lease obligations, less current
maturities
Redeemable preferred stock
Total stockholders’ equity
$
(117,895) $
(7,281) $
(16,408) $
4,842
$
25,184
$
$
$
$
$
$
$
$
1,817
$
2,035
$
1,838
$
2,814
$
12,366
(13,333) $
(10,190) $
(2,138) $
(20,153) $
(105,718)
453,361
101,204
690,581
463,574
—
93,987
$
$
$
$
$
$
457,670
100,526
754,814
564,032
—
50,296
$
$
$
$
$
$
461,027
100,443
750,962
562,665
—
$
$
$
$
$
468,278
156,829
836,087
562,326
—
66,310
$
124,682
$
$
$
$
$
$
468,582
160,816
834,093
478,613
74,018
129,496
(1)
(2)
Computed on the basis described in Note 1(j) to the Consolidated Financial Statements included in Item 8 of this Form 10-K.
Working capital deficit, net is defined as current assets, excluding cash and cash equivalents, minus current liabilities.
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 Form 10-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.
Recent Developments
On January 23, 2011, we entered into a purchase and sale agreement and related agreements to sell non-integrated FCR recycling
assets and select intellectual property assets to a new company formed by Pegasus Capital Advisors, L.P. and Intersection, LLC.
Pursuant to these agreements, we divested our non-integrated recycling assets located outside our core operating region of New York,
Massachusetts, Vermont, New Hampshire, Maine and northern Pennsylvania, including 17 MRF’s, one transfer station and certain
related intellectual property assets. Following the transaction, we retained four integrated MRFs located in our core operating regions.
As a part of the disposition, we also entered into a ten year commodities marketing agreement with the Purchaser to market 100% of
the tonnage from three of our remaining integrated MRFs.
30
We completed the transaction on March 1, 2011 for $134.2 million in gross cash proceeds, including an estimated $3.8 million
working capital and other purchase price adjustment, which is subject to further adjustment, as defined in the purchase and sale
agreement. After netting transaction costs and cash taxes payable in conjunction with the divestiture, net cash proceeds amounted to
approximately $123.0 million. We used the net cash proceeds from the divestiture and borrowings under our 2009 Revolver to repay
the 2009 Term Loan in full. In addition, at the closing of the transaction, Jim Bohlig, an executive officer and Board Member of ours
resigned from our company and joined the Purchaser as CEO.
On February 7, 2011, we completed the offering of $200.0 million aggregate principal amount of 7.75% senior subordinated notes due
2019. The 2019 Notes are fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our existing and
future domestic restricted subsidiaries that guaranteed our 2009 Senior Secured Credit Facility and that currently guarantee our 2011
Revolver and our 11% senior second lien notes due 2014 ( the “Second Lien Notes”). Interest is payable semi-annually in arrears on
February 15 and August 15 of each year, commencing on August 15, 2011. We used the net proceeds from the offering of the 2019
Notes, together with other available funds, to refinance our Senior Subordinated Notes and to pay related transaction costs.
On March 18, 2011, we completed the refinancing of our 2009 Senior Secured Credit Facility with the 2011 Revolver, consisting of a
$227.5 million revolving credit and letter of credit facility. The 2011 Revolver is due March 18, 2016. If we fail to refinance our
Second Lien Notes by March 1, 2014, the maturity date for the 2011 Revolver shall be accelerated to March 31, 2014. We have the
right to request, at our discretion, an increase in the amount of the 2011 Revolver by an aggregate amount of $182.5 million, subject to
certain conditions set forth in the 2011 Revolver agreement.
Company Overview
Founded in 1975 with a single truck, Casella Waste Systems, Inc. is a vertically-integrated solid waste, recycling, and resource
management services company. We provide resource management expertise and services to residential, commercial, municipal, and
industrial customers, primarily in the areas of solid waste collection, transfer, disposal recycling, and organics services. We operate in
six states— including Vermont, New Hampshire, New York, Massachusetts, Maine, and Pennsylvania.
As of May 31, 2011, we owned and/or operated 31 solid waste collection operations, 29 transfer stations, 17 recycling facilities, nine
Subtitle D landfills, three landfill gas to energy facilities, one landfill permitted to accept construction and demolition materials, and
one waste-to-energy facility. In addition, we hold a 50% interest in GreenFiber, a joint venture that manufactures, markets and sells
cellulose insulation made from recycled fiber. We also hold a 8.2% interest in RecycleRewards, a company that markets an incentive
based recycling service, and a 19.9% interest in Evergreen, a surety company which provides surety bonds to secure contractual
performance for municipal solid waste collection contracts and landfill closure and post-closure obligations.
Overview of Fiscal Year 2011 Operating Results
Revenues and operating income (loss) based on our segments for the fiscal years ended April 30, 2011 and 2010, are as follows (in
millions):
Segment
Eastern
Western
Recycling
Other
Total
Revenues
Operating Income (Loss)
2011
Fiscal Year Ended April 30,
2011
2010
2010
$
$
167.3
210.3
43.6
44.9
466.1
$
$
177.3
201.8
35.5
43.0
457.6
$
$
(5.0) $
32.0
4.1
(2.5)
28.6
$
(0.1)
33.5
1.9
(2.5)
32.8
For the year ended April 30, 2011, we reported revenues of $466.1 million, an increase of $8.5 million, or 1.9%, from $457.6 million
for the year ended April 30, 2010. Solid waste revenues decreased 0.4% with lower disposal and waste-to-energy prices accounting for
a 0.3% decrease, lower collection volumes of 1.4%, a 0.3% decline in commodity prices, 1.7% related to a divestiture in the Eastern
region, and 2.3% decline from the closure of a landfill. These decreases were partially offset by 4.5% positive effect of disposal,
recycling, and waste-to-energy volumes, 0.4% from collection and recycling price increases, 0.2% higher commodity volume, and
0.5% from acquisitions. Major accounts revenues included in Other increased 4.4%, in fiscal year 2011 compared to the prior year
primarily due to higher volumes of 4.7% offset by 0.3% price decline. As a percentage of total Recycling revenues, Recycling
revenues increased 22.8% in fiscal year 2011 compared to the prior year with 23.5% related primarily to a steady uptrend in
commodity price offset by a 1.3% decline in commodity volumes.
31
Eastern region revenues decreased $10.0 million, or 5.6%, in fiscal year 2011 compared to the prior year primarily due to the closure
of a landfill, a divestiture, negative collection and processing and recycling volume, and a decline in waste-to-energy price and
commodity volume. These declines were offset by collection, processing and recycling, and disposal price improvement and
increased disposal, waste-to-energy, processing and recycling volumes, and a tuck-in acquisition. Western region revenues for fiscal
year 2011 increased $8.5 million, or 4.2%, compared to the prior year due to higher disposal, commodity, and recycling volumes,
improved collection and commodity pricing, and acquisitions. These increases were offset by decreases in disposal price as well as a
decline in collection volumes.
Operating income for fiscal year 2011 was $28.6 million compared to operating income of $32.8 million in fiscal year 2010. Our
operating results were negatively impacted by the $3.7 million impairment on long-lived assets, increases in cost of operations and
general and administration expenses, both in dollars and as a percentage of revenue when compared to fiscal year 2010, along with
decreases in collection and recycling revenues due to lower volumes and a divestiture. Operating results were positively impacted by
increased disposal, processing and recycling, and major accounts revenues, lower depreciation and landfill amortization due to the
closure of the Pinetree landfill, a $3.0 million gain on bargain purchase related to the McKean landfill business, and a $3.5 million
gain on sale of assets in the first quarter of fiscal year 2011. On a segment basis, operating income for the Eastern region decreased
$4.9 million due primarily to a $10.0 million decrease in revenues combined with the $3.7 million impairment on long-lived assets
and increased operating costs associated with maintenance and labor, offset partially by lower landfill amortization. Operating income
for the Western region decreased $1.5 million despite the fact that revenues increased $8.5 million year over year and a $3.0 million
gain on bargain purchase related to the McKean landfill business was recorded in fiscal year 2011. The decrease in operating income
was associated with increases in cost of operations, general and administration expenses, and landfill amortization, which outweighed
the increases in revenue and the gain on bargain purchase.
We recorded net income of $38.4 million for the fiscal year ended April 30, 2011 compared to a net loss of $13.9 million in fiscal year
2010, primarily due to the fiscal 2011 gain on disposal of discontinued operations, net of taxes, amounting to $43.6 million. The fiscal
year 2011 operating income discussed above was offset by a $7.4 million loss on debt refinancing, as well as declining performance
from our unconsolidated subsidiary, GreenFiber. Our pre-tax loss was $27.9 million in fiscal year 2011 compared to a pre-tax loss of
$13.8 million in fiscal year 2010.
Net cash provided by operations was $47.1 million in fiscal year 2011 down from $64.1 million in fiscal year 2010. Fiscal year 2011
net income adjusted for the gain on disposal of discontinued operations and income (loss) from discontinued operations totaled ($3.7)
million. This resulted in an increase to net income of $39.9 million when compared to the fiscal year 2010 total of $2.2 million.
Depreciation and amortization was lower in fiscal year 2011 by $5.4 million over the prior year. Loss on debt refinancing was higher
in fiscal year 2011 by $6.9 million over the prior year. An asset impairment charge resulted in a $3.7 million increase year over year.
The McKean landfill bargain purchase gain resulted in a $3.0 million decrease year over year. Net cash provided by operations was
further decreased by $5.5 million in cash outflows associated with changes in assets and liabilities, net of effects of acquisitions and
divestitures.
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 were $55.2 million in fiscal year 2011 compared to
$52.8 million in fiscal year 2010.
Acquisitions and Divestitures
We completed the divestiture of our Great Northern Recycling Canadian operation in the third quarter of fiscal year 2010 for a
settlement amount of $0.4 million in cash. In the fourth quarter of fiscal year 2010, we also completed the divestiture of our domestic
brokerage operations for a settlement amount of $1.4 million in cash. This resulted in a gain on disposal of discontinued operations
(net of tax) amounting to $1.1 million and $0.1 million for fiscal years 2010 and 2009, respectively.
In the quarter ended July 31, 2010, we completed the sale of certain assets in Southeastern Massachusetts. Total consideration
amounted to $7.8 million with cash proceeds of 7.5 million. We recorded a gain on sale of assets of $3.5 million.
Our contract with our Recycling Cape May operation expired in the third quarter of fiscal year 2010. This operation was treated as a
discontinued operation.
During the third quarter of fiscal year 2011, we completed the sale of the assets of the Trilogy Glass business for cash proceeds of $1.8
million. A loss amounting to $0.1 million (net of tax) was recorded to gain on disposal of discontinued operations in fiscal year 2011.
32
We completed the divestiture of our non-integrated FCR recycling assets and select intellectual property assets in the fourth quarter of
fiscal year 2011 for $134.2 million in gross proceeds. This resulted in a gain on disposal of discontinued operations (net of tax)
amounting to $43.7 million in the fourth quarter of fiscal year 2011.
The operating results of these operations, including those related to prior years, have been reclassified from continuing to discontinued
operations in the accompanying Consolidated Financial Statements. Revenues and income (loss) before income taxes (in millions)
attributable to discontinued operations for fiscal years 2011, 2010 and 2009 are as follows (in millions):
Revenues
(Loss) income before income taxes
$
$
62.5
$
(2.3) $
66.2
1.9
$
$
71.7
6.8
2011
Fiscal Year Ended April 30,
2010
2009
In fiscal year 2011 we acquired two solid waste hauling operations in exchange for $1.1 million in cash and $0.3 million in notes
payable. Also in fiscal year 2011, we acquired the McKean County landfill business in Pennsylvania in exchange for $0.7 million in
cash and the assumption of $1.4 million in liabilities. We acquired the McKean County landfill business out of bankruptcy
proceedings and recognized a bargain purchase gain of $3.0 million based on the amount by which the fair value of assets acquired
exceeded the purchase price consideration. In fiscal year 2010, we acquired two solid waste hauling operations. These transactions
were in exchange for total consideration of $1.6 million, including $0.9 million in cash and $0.6 million in notes payable to the seller
and liabilities assumed. In fiscal year 2009, we acquired three solid waste hauling operations in exchange for $2.4 million in cash
consideration.
General
Revenues
Revenues in our Eastern and Western regions are attributable primarily to fees charged to customers for solid waste disposal and
collection, landfill, landfill gas-to-energy, 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. Recycling revenues consist of revenues from the sale of
recyclable commodities and operations and maintenance contracts of recycling facilities for municipal customers. We also generate
and sell electricity under a contract at our waste-to-energy facility and at certain of our landfill facilities.
Our cellulose insulation business is conducted through a 50/50 joint venture with Louisiana-Pacific Corporation, and accordingly, we
recognize half of the joint venture’s net income (loss) on the equity method in our results of operations. We also have a 8.2% interest
in a company that markets an incentive-based recycling service and a 19.9% interest in a surety company which provides surety bonds
to us to secure contractual performance for municipal solid waste collection contracts and landfill closure and post-closure obligations.
We accounts for these investments under the cost method of accounting. Also, in the “Other” segment, we have ancillary revenues
including major customer accounts.
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 (in millions) of revenue
attributable to services provided.
$
Collection
Disposal
Power generation
Processing and recycling
Solid waste operations
Major accounts
Recycling
Total revenues
$
2011
Fiscal Year Ended April 30,
2010
199.9
106.6
25.1
50.5
382.1
40.4
43.6
466.1
42.9% $
22.9%
5.4%
10.8%
82.0%
8.7%
9.3%
100.0% $
204.2
107.4
27.8
44.0
383.4
38.7
35.5
457.6
44.6% $
23.5%
6.1%
9.6%
83.8%
8.5%
7.7%
100.0% $
2009
218.4
111.1
28.5
46.0
404.0
34.7
44.2
482.9
45.2%
23.0%
5.9%
9.5%
83.6%
7.2%
9.2%
100.0%
33
The dollar decrease in collection revenues in fiscal year 2011 compared to fiscal year 2010 is primarily due to lower volumes and a
divestiture partially offset by price increases and the effect of acquisitions. Disposal revenues decreased slightly in fiscal year 2011
due to the closure of a landfill, a divestiture, and a decline in disposal price offset by higher volumes. Waste-to-energy volumes
increased in fiscal year 2011 but declines in price resulted in a revenue decline for the power generation operations. The dollar
increase in processing and recycling revenues in fiscal year 2011 compared to fiscal year 2010 is primarily due to stronger volume and
price increases. Major accounts revenues improved in fiscal year 2011 with higher volumes offset slightly by price decline. As noted
above, Recycling revenues were positively impacted as a result of a sharp improvement in average commodity prices in fiscal year
2011 compared to fiscal year 2010 offset to a lesser extent by commodity volume decline.
Operating Expenses
Cost of operations includes labor, tipping fees paid to third-party disposal facilities, fuel, maintenance and repair of vehicles and
equipment, workers’ 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 units-of-consumption method, and the amortization of
intangible assets (other than goodwill) using the straight-line method. 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
development projects and 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.
Revenues
Cost of operations
General and administration
Depreciation and amortization
Asset impairment charge
Environmental remediation charge
Bargain purchase gain
Gain on sale of assets
Goodwill impairment charge
Operating income (loss)
Interest expense, net
Loss from equity method investments
Other expense (income), net
Provision for income taxes
Loss from continuing operations
2011
Fiscal Year Ended April 30,
2010
2009
100.0%
68.1%
13.7%
12.5%
0.8%
0.1%
-0.6%
-0.7%
0.0%
6.1%
9.8%
0.9%
1.4%
-5.2%
-0.8%
100.0%
66.3%
12.5%
13.9%
0.0%
0.1%
0.0%
0.0%
0.0%
7.2%
9.7%
0.6%
-0.1%
0.5%
-3.5%
100.0%
66.8%
13.1%
14.2%
0.1%
0.9%
0.0%
0.0%
11.4%
-6.5%
6.9%
0.4%
-0.2%
1.3%
-14.9%
34
Fiscal Year 2011 versus Fiscal Year 2010
Revenues. Revenues increased $8.5 million, or 1.9%, to $466.1 million in fiscal year 2011 from $457.6 million in fiscal year 2010.
Solid waste revenues decreased $1.3 million with lower disposal and waste-to-energy prices accounting for $1.1 million of the
decrease, lower collection volumes of $5.3 million, a $1.1 million decline due to a reductions in commodity prices, a $6.4 million
decrease related to a divestiture in the Eastern region, and a $8.8 million decline from the closure of a landfill. These decreases were
partially offset by $17.4 million positive effect of disposal, recycling, and waste-to-energy volumes, $1.5 million from collection and
recycling price increases, $0.6 million higher commodity volume, and $1.8 million from acquisitions. Major accounts revenues
increased $1.7 million in fiscal year 2011 compared to the prior year primarily due to higher volumes of $1.8 million offset by $0.1
million price decline. As a percentage of total Recycling revenues, Recycling revenues increased $8.1 million in fiscal year 2011
compared to the prior year with $7.9 million related primarily to the uptrend in commodity price and a $0.2 million increase in
commodity volumes.
Cost of operations. Cost of operations increased $14.1 million, or 4.6%, to $317.5 million in fiscal year 2011 from $303.4 million in
fiscal year 2010. Cost of operations as a percentage of revenues increased to 68.1% in fiscal year 2011 from 66.3% in the prior year.
The dollar increase was due to higher revenues, but more specifically, cost of operations increased due to higher cost of purchased
materials associated with increased prices, higher fuel costs associated with rising gas prices, higher maintenance and hauling costs,
increased depletion of landfill operating lease obligations, and a lower gain on sale of equipment. These cost increases were partially
offset by various cost reductions associated with other operational costs such as insurance along with registration and permits.
General and administration. General and administration expenses increased $6.5 million, or 11.3%, to $64.0 million in fiscal year
2011 compared to $57.5 million in fiscal year 2010, and increased as a percentage of revenues to 13.7% in fiscal year 2011 from
12.5% in fiscal year 2010. The dollar increase was primarily due to higher expenses associated with salaries, employee awards and
bonuses, advertising, legal, and consulting. Specifically, employee awards and bonuses increased due to a fourth quarter discretionary
bonus of $3.5 million. These costs were partially offset by reduced bad debt expense and lower equity compensation costs in fiscal
year 2011 associated with a change to the expected performance attainment levels related to performance stock units.
Depreciation and amortization. Depreciation and amortization expense decreased $5.3 million, or 8.3%, to $58.3 million in fiscal
year 2011 from $63.6 million in fiscal year 2010. Landfill amortization expense decreased by $3.6 million primarily due to lower
volumes and the closure of the Pinetree facility. Depreciation expense decreased $1.9 million year over year due to timing and fixed
asset sales. Depreciation and amortization expense as a percentage of revenue decreased to 12.5% in fiscal year 2011 from 13.9% in
fiscal year 2010.
Environmental remediation charge. In fiscal year 2011, we recorded an environmental remediation charge of $0.5 million associated
with changes in expected cash flows for its share of work associated with a consent order issued by the State of New York to
remediate the scrap yard and solid waste transfer station owned by Waste-Stream, Inc., a subsidiary of ours in the Western region. In
fiscal year 2010, we recorded a $0.3 million charge for this remediation work. Note 11(d) to our Consolidated Financial Statements
included under Item 8 of this Form 10-K.
Interest expense, net. Net interest expense increased $1.6 million, or 3.6% to $45.9 million in fiscal year 2011 from $44.3 million in
fiscal year 2010. This increase was attributable to higher average interest rates associated with our capital structure which was put in
place on July 9, 2009. This increase was partially offset by a reduction of interest expense associated with the refinancing of the 2009
Revolver in March 2011, the full paydown of our 2009 Term Loan in March 2011, and the offering of the 2019 Notes in
February 2011. Net interest expense, as a percentage of revenues, increased to 9.8% in fiscal year 2011 from 9.7% in fiscal year 2010.
Loss from equity method investments. The loss from equity method investments in fiscal year 2011 relates to our 50% joint venture
interest in GreenFiber. GreenFiber reported a loss for fiscal year 2011, of which our share was $4.1 million, compared to a loss in
fiscal year 2010 of which our share was $2.7 million. GreenFiber continues to be negatively impacted by the overall slowdown in the
housing market.
Loss on debt refinancing. The loss in fiscal year 2011 of $7.4 million was attributable to the non-cash write-off of unamortized
financing costs associated with the repayment of financing lease obligations and other costs associated with fiscal year 2011
refinancing efforts, which include the write off of deferred financing costs associated with the 2009 Term Loan and Senior
Subordinated Notes, the write-off of the discount and premium associated with the 2009 Term Loan and Senior Subordinated Notes, a
gain associated with the discount on the tender of the Senior Subordinated Notes, and a loss associated with the consent payment on
the Senior Subordinated Notes. The loss in fiscal year 2010 of $0.5 million was due to the write-off of unamortized financing costs
associated with the former senior credit facility, which was amended in the quarter ended July 31, 2009.
35
Other income. Other income remained unchanged at $0.8 million in fiscal years 2011 and 2010. Other income in fiscal years 2011
and 2010 include a dividend of $0.5 million from our investment in Evergreen and the balance represents fees charged to customers
and other miscellaneous non-operational income.
(Benefit) provision for income taxes. (Benefit) provision for income taxes from continuing operations decreased $26.4 million in
fiscal year 2011 to ($24.2) million from $2.2 million in fiscal year 2010. The effective tax rate changed to 86.7% in the year ended
April 30, 2011 from (16.2)% in fiscal year 2010. The rate variance between the periods is due mainly to the current year tax benefit
from the utilization of net operating loss carryforwards and other deferred tax assets resulting from the gain on the disposal of
discontinued operations.
(Loss) income from discontinued operations/Gain on disposal of discontinued operations. (Loss) income from discontinued
operations decreased $2.5 million in fiscal year 2011 to ($1.5) million from $1.0 million. Gain on disposal of discontinued operations
increased $42.4 million in fiscal year 2011 to $43.6 million from $1.2 million. Fiscal year 2011 discontinued operations were the
result of two separate transactions; the sale of non-integrated FCR recycling assets and select intellectual property assets and the sale
of the Trilogy Glass business. We completed the divestiture of our non-integrated recycling assets and select intellectual property
assets in the fourth quarter of fiscal year 2011 for $134.2 million in gross proceeds. This resulted in a gain on disposal of discontinued
operations (net of tax) amounting to $43.7 million in the fourth quarter of fiscal year 2011. We completed the sale of the assets of the
Trilogy Glass business for cash proceeds of $1.8 million. A loss amounting to $0.1 million (net of tax) was recorded to gain on
disposal of discontinued operations in fiscal year 2011.
We also completed the divestiture of our Great Northern Recycling Canadian operation in the third quarter of fiscal year 2010 for a
settlement amount of $0.4 million in cash. In the fourth quarter of fiscal year 2010, we also completed the divestiture of our domestic
brokerage operations for a settlement amount of $1.4 million in cash. We had previously accounted for these transactions as assets
under contractual obligation. This resulted in a gain on disposal of discontinued operations (net of tax) amounting to $1.1 million and
$0.1 million for fiscal years 2010 and 2009, respectively.
Our contract for our Recycling Cape May operation expired in the third quarter of fiscal year 2010. This operation has been treated as
a discontinued operation.
The operating results of the operations discussed above, including those related to prior years, have been reclassified from continuing
to discontinued operations in the accompanying Consolidated Financial Statements.
Fiscal Year 2010 versus Fiscal Year 2009
Revenues. Revenues decreased $25.3 million, or 5.2%, to $457.6 million in fiscal year 2010 from $482.9 million in fiscal year 2009.
Solid waste revenues decreased $20.6 million. The decrease was related to overall lower volumes of $26.7 and a $4.8 million decline
in disposal, waste-to-energy, and commodity prices. The decrease was partially offset by $9.1 million in price increases in our
collections and processing and recycling operations, $0.9 million favorable waste-to-energy commodity volume, and $1.0 million of
revenues from the rollover effect a tuck-in acquisition. Major Accounts revenues increased $4.0 million in fiscal year 2010 compared
to the prior year with $3.9 million related to higher and $0.1 million price increases. As a percentage of total Recycling revenues,
Recycling revenues decreased $8.7 million in fiscal year 2010 compared to the prior year with $6.8 million related primarily to a
decrease in commodity volume and a $1.9 million decline in commodity prices.
Cost of operations. Cost of operations decreased $19.2 million, or 6.0% to $303.4 million in fiscal year 2010 from $322.6 million in
fiscal year 2009. Cost of operations as a percentage of revenues decreased to 66.3% in fiscal year 2010 from 66.8% in the prior year.
The dollar decrease is primarily due to lower direct labor costs, vehicle maintenance and fuel costs. These dollar decreases were
partially offset by higher hauling, accretion and third party disposal expenses, and by a benefit in the prior year period of $0.8 million
related to the reimbursement from the Town of Southbridge for previously paid and expensed closure and post closure costs at the
Southbridge landfill site in the Eastern region.
General and administration. General and administration expenses decreased $5.7 million, or 9.0%, to $57.5 million in fiscal year
2010 compared to $63.2 million in fiscal year 2009, and decreased as a percentage of revenues to 12.5% in fiscal year 2010 from
13.1% in fiscal year 2009. The dollar decrease is primarily due to lower costs associated with reduced salary, travel, legal, consulting
and bad debt expenses and the current year benefit of a general and administrative charge in fiscal year 2009 of $1.2 million for
severance and reorganization. These costs were offset by higher incentive compensation costs in fiscal year 2010.
Depreciation and amortization. Depreciation and amortization expense decreased $4.8 million, or 7.0%, to $63.6 million in fiscal
year 2010 from $68.4 million in fiscal year 2009. Landfill amortization expense decreased by $4.8 million primarily due to lower
volumes and the planned closure of our Colebrook facility in the Western region and Pinetree facility in the Eastern region.
36
Depreciation expense and amortization expense remained consistent year over year. Depreciation and amortization expense as a
percentage of revenue decreased to 13. 9% in fiscal year 2010 from 14.2% in fiscal year 2009.
Environmental remediation charge. In fiscal year 2010, we recorded an environmental remediation charge of $0.3 million associated
with changes in expected cash flows for its share of work associated with a consent order issued by the State of New York to
remediate the scrap yard and solid waste transfer station owned by Waste-Stream, Inc., a subsidiary of ours in the Western region. In
fiscal year 2009, we recorded $4.4 million for this remediation work.
Goodwill impairment charge. In fiscal year 2009 we performed our annual assessment of goodwill impairment by applying a fair
value test to identified reporting units. Our step one analysis indicated that the fair value of its Eastern region reporting segment was
less than its carrying value and proceeded to a step two analysis, which included valuing the tangible and intangible assets and
liabilities’ of the Eastern region to determine the implied fair value of goodwill. The result of this assessment indicated that the
implied fair value of goodwill was zero. As a result we recognized a non-cash charge of $55.3 million to write-off the entire carrying
value of the Eastern region goodwill.
Asset impairment charge. In fiscal year 2009, we wrote-off $0.4 million in deferred costs associated with certain development
projects deemed no longer viable.
Interest expense, net. Net interest expense increased $11.1million, or 33.5% to $44.3 million in fiscal year 2010 from $33.1 million in
fiscal year 2009. This increase is attributable to higher average interest rates with our capital structure which was put in place on
July 9, 2009. Net interest expense, as a percentage of revenues, increased to 9.7% in fiscal year 2010 from 6.9% in fiscal year 2009.
Loss from equity method investments. The loss from equity method investments in fiscal year 2010 relates to our 50% joint venture
interest in GreenFiber. GreenFiber reported a loss for fiscal year 2010, of which our share was $2.7 million, compared to a loss in
fiscal year 2009, of which our share was $2.2 million. In fiscal year 2010, GreenFiber continued to be negatively impacted by the
overall slowdown in the housing market.
Other income. Other income in fiscal year 2010 remained unchanged at $0.8 million in fiscal years 2010 and 2009. Other income in
fiscal year 2010 includes a dividend of $0.5 million from our investment in Evergreen and the balance represents a gain on the sale of
assets and certain marketable securities and fees charged to customers.
(Benefit) provision for income taxes. Provision for income taxes decreased $4.0 million in fiscal year 2010 to $2.2 million from $6.2
million in fiscal year 2009. The effective tax rate changed to (16.2)% in fiscal year 2010 from (9.5)% in fiscal year 2009. The rate
variance between the periods is due mainly to changing our assessment of the realizability of deferred tax assets in the fourth quarter
of 2009, resulting in a $24.1 million increase in the valuation allowance in 2009, and due to the impairment of non-deductible
goodwill in 2009. The remaining rate variance is primarily a result of an increase in the valuation allowance in 2010 due to the book
loss for the year and the provision of deferred tax liabilities related to indefinite lived intangible asset amortization for tax purposes.
(Loss) income from discontinued operations/Gain on disposal of discontinued operations. We terminated our operation of MTS
Environmental, a soils processing operation in the Eastern region, in fiscal year 2008. A charge was recorded amounting to
$3.2 million associated with the abandonment. Included in this charge was the write off of the carrying value of assets along with costs
associated with vacating the site. A loss amounting to $1.9 million (net of tax) has been recorded as loss on disposal of discontinued
operations in fiscal year 2008. In fiscal year 2010, we recorded a true-up of certain liabilities associated with the site amounting to a
gain of forty five thousand dollars. As of April 30, 2008, we also deemed our Recycling Greenville operation as held for sale and
classified this operation as a discontinued operation. The divestiture was completed in June 2008 for cash proceeds of $0.7 million. A
loss amounting to $0.03 million (net of tax) was recorded as loss on disposal of discontinued operations in fiscal year 2009
We also completed the divestiture of our Great Northern Recycling Canadian operation in the third quarter of fiscal year 2010 for a
settlement amount of $0.4 million in cash. In the fourth quarter of fiscal year 2010, we also completed the divestiture of our domestic
brokerage operations for a settlement amount of $1.4 million in cash. We had previously accounted for these transactions as assets
under contractual obligation. This resulted in a gain on disposal of discontinued operations (net of tax) amounting to $1.1 million and
$0.1 million for fiscal years 2010 and 2009, respectively.
Our contract for our Recycling Cape May operation expired in the third quarter of fiscal year 2010. This operation has been treated as
a discontinued operation.
The operating results of the operations discussed above, including those related to the current year, have been included in discontinued
operations in the accompanying Consolidated Financial Statements.
37
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 and 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 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.
We had a net working capital deficit of $13.3 million at April 30, 2011 compared to a deficit of $10.2 million at April 30, 2010. Net
working capital comprises current assets, excluding cash and cash equivalents, minus current liabilities. The $3.1 million decrease in
net working capital at April 30, 2011 was primarily due to a $4.4 million positive working capital reduction due to the sale of non-
integrated FCR recycling assets and select intellectual property assets. Net working capital related to continuing operations increased
by $1.3 million year over year, somewhat offsetting the loss, with the primary drivers being a $3.4 million increase in accounts
receivable, net, a $1.3 million decrease in refundable income taxes, and a $1.3 million decrease in other current assets, a $7.4 million
increase in accounts payable, a $3.8 million increase in taxes payable, a $2.0 million decrease in accrued interest, and a $6.1 million
decrease in current accrued capping, closure and post closure costs.
Fiscal Year 2011 Financing Activities
On May 27, 2010, we amended our then outstanding 2009 Senior Secured Credit Facility to create additional capital structure
flexibility. As amended, the 2009 Senior Secured Credit Facility permitted us to use net proceeds of up to $150.0 million from equity
offerings to repurchase outstanding Second Lien Notes. We were also permitted to use up to $50.0 million of borrowings under the
2009 Senior Secured Credit Facility to repurchase Senior Subordinated Notes.
On February 7, 2011, we completed an offering of $200.0 million of 7.75% Senior Subordinated 2019 Notes, the terms of which are
described below. We used the net proceeds from the 2019 Notes, together with other available funds, to refinance our then-
outstanding Senior Subordinated Notes and to pay related transaction costs.
On February 7, 2011, we repurchased $166.8 million of our then outstanding $200.0 million aggregate principal amount of Senior
Subordinated Notes through a cash tender offer and consent solicitation. Holders who tendered Senior Subordinated Notes received
$1,003.75 for each $1,000 in principal amount of the Senior Subordinated Notes repurchased (which included a consent payment of
$10 per $1,000 in principal amount of Senior Subordinated Notes), plus accrued and unpaid interest up to, but not including, the
tender offer settlement date.
On March 9, 2011, we redeemed all of the remaining Senior Subordinated Notes at a price of $1,000 per $1,000 in principal amount of
Senior Subordinated Notes, plus accrued and unpaid interest to, but not including, the redemption date.
On March 18, 2011, we refinanced and replaced the 2009 Senior Secured Credit Facility with the 2011 Revolver, consisting of a
$227.5 million revolving credit and letter of credit facility, the terms of which are described below.
Outstanding Long-Term Debt
2011 Senior Secured Revolving Credit Facility. The 2011 Revolver is a $227.5 million revolving credit and letter of credit facility,
and is due March 18, 2016. If we fail to refinance the Second Lien Notes by March 1, 2014, the maturity date for the 2011 Revolver
shall be March 31, 2014. We have the right to request, at our discretion, an increase in the amount of the 2011 Revolver by an
aggregate amount of $182.5 million, subject to certain conditions set forth in the 2011 Revolver agreement. The 2011 Revolver is
guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries.
38
As of April 30, 2011, we were in compliance with all financial covenants contained in the 2011 Revolver as follows:
Senior Secured Credit Facility Covenant
Total funded debt / Bank-defined cash flow metric (1)
Senior funded debt / Bank-defined cash flow metric (1)
Interest coverage
Capital expenditures
Twelve Months Ended
April 30, 2011
4.42
2.54
2.41
$55.2 Million
Covenant
requirements -
April 30, 2011
4.75 Max.
3.00 Max.
1.95 Min.
$87.4 Million Max.
(1) Bank-defined cash flow metric is based on operating results for the twelve months preceding the measurement date, April 30,
2011. A reconciliation of net cash provided by operating activities to bank-defined cash flow metric is as follows (in
millions):
Twelve Months Ended
April 30, 2011
Net cash provided by operating activities
$
Changes in assets and liabilities, net of effects of acquisitions and divestitures
Gain on sale of equipment and assets
Stock based compensation, net of excess tax benefit on exercise of options
Environmental remediation charge
Asset impairment charge
Bargain purchase gain
Interest expense plus amortization of premium on senior notes less discount on term loan
and second lien notes
Loss on debt refinancing
Adjustments as allowed by Senior Secured Credit Facility Agreement
47.1
5.5
4.0
(1.6)
(0.5)
(3.7)
3.0
45.7
(7.4)
14.2
Bank - defined cash flow metric
$
106.3
In addition to the financial covenants described above, the 2011 Revolver also contains a number of important negative covenants
which restrict, among other things, our ability to sell assets, pay dividends, repurchase stock, incur debt, grant liens and issue preferred
stock.
Further advances were available under the 2011 Revolver in the amount of $120.4 million as of April 30, 2011. The available amount
is net of outstanding irrevocable letters of credit totaling $49.7 million as of April 30, 2011, at which date no amount had been drawn.
Second Lien Notes. As of April 30, 2011, we had $ 180.0 million aggregate principal amount of Second Lien Notes outstanding. The
Second Lien Notes will mature on July 15, 2014, and interest will accrue at the rate of 11% per annum. Interest is payable
semiannually in arrears on January 15th, and July 15th of each year. The Second Lien Notes are guaranteed jointly and severally, fully
and unconditionally by all of the subsidiaries that guarantee the 2011 Revolver.
Although the Second Lien Notes do not contain financial ratio covenants, they do contain certain negative covenants which restrict,
among other things, our ability to sell assets, pay dividends, repurchase stock, incur debt, grant liens and issue preferred stock. As of
April 30, 2011, we were in compliance with all covenants under the indenture governing the Second Lien Notes and we do not believe
that these restrictions impact our ability to meet future liquidity needs.
2019 Notes. As of April 30, 2011, we had outstanding $200.0 million of the 2019 Notes. The 2019 Notes will mature on February 15,
2019, and interest will accrue at the rate of 7.75% per annum. Interest is payable semiannually in arrears on February 15 and
August 15 of each year, commencing on August 15, 2011.
The indenture governing the 2019 Notes contains certain negative covenants which restrict, among other things, our ability to sell
assets; pay dividends, repurchase stock, incur debt, grant liens and issue preferred stock. As of April 30, 2011, we were in compliance
with all covenants under the indenture governing the Second Lien Notes but we do not believe that these restrictions impact our ability
to meet future liquidity needs.
39
The 2019 Notes are fully and unconditionally guaranteed on a senior subordinated basis by substantially all of our existing and future
domestic restricted subsidiaries that guarantee our 2011 Revolver and Second Lien Notes.
Maine Bonds. 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 were issued pursuant to an indenture, dated as of
December 1, 2005 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.
Preferred Stock. On August 13, 2007, we redeemed for cash all of the outstanding shares of our Series A Preferred Stock, pursuant to
the mandatory redemption requirements set forth in the Certificate of Designation for the Series A Preferred Stock. The shares were
redeemed at an aggregate redemption price of $75.1 million, which was the liquidation value equal to the original price plus accrued
but unpaid dividends through the date of redemption. We borrowed against the then-outstanding Senior Secured Credit Facility to
fund this redemption.
Cash Flows for Fiscal Year 2011 Compared to Fiscal Year 2010
Net cash provided by operating activities for the fiscal years ended April 30, 2011 and 2010 amounted to $47.1 million and
$64.1 million, respectively. The decrease in cash flow provided by operating activities of $17.0 million is due primarily to the
following items. Our loss from continuing operations decreased by $14.1 million, driven in part by the recognition of non-cash
charges during fiscal year 2011 associated with a gain on sale of assets, $3.5 million, a bargain purchase gain, $3.0 million, an asset
impairment charge, $3.7 million, a loss on debt refinancing, $7.4 million, and a loss from equity method investment, $4.1 million.
The $6.9 million increase in loss on debt refinancing in fiscal year 2011 versus fiscal year 2010 is attributable to the non-cash write-
off of unamortized financing costs associated with the repayment of financing lease obligations, a write off of deferred financing costs
associated with the 2009 Term Loan, $1.4 million, and Senior Subordinated Notes, $1.8 million, a write-off of the discount and
premium associated with the 2009 Term Loan, $5.0 million, and Senior Subordinated Notes, $1.7 million, and a gain associated with
the discount on the tender of the Senior Subordinated Notes, $1.0 million, and a loss associated with the consent payment and on the
Senior Subordinated Notes, $1.8 million. The $1.4 million increase in loss from equity method investment in fiscal year 2011 versus
fiscal year 2010 is due primarily to decreased performance in our 50% joint venture interest in GreenFiber associated with a continued
slowdown in the housing market. In addition to these items, our loss from continuing operations was further affected by the following
non-cash adjustments. Lower depreciation and amortization expense in fiscal year 2011 versus fiscal year 2010, which resulted in a
$1.8 million decrease. Lower landfill amortization expense in fiscal year 2011 versus fiscal year 2010, which resulted in a $3.6 million
decrease, due primarily to the closure of the Pinetree landfill which ceased operations in the quarter ended January 31, 2010. The
decrease in deferred taxes in fiscal year 2011 versus 2010 was primarily associated with the current year tax benefit from the
utilization of net operating loss carryforwards and other deferred tax assets resulting from the gain on disposal of discontinued
operations.
In both fiscal years 2011 and 2010, our cash flow from operations was negatively impacted by changes in our asset and liability
accounts, net of effects of acquisitions and divestitures. In fiscal year 2011 the negative impact decreased by $4.5 million to ($5.5)
million in fiscal year 2011 from ($1.0) million in fiscal year 2010. Although our asset and liability balances vary year over year, the
change is normally driven by changes in accounts receivable, which is primarily driven by revenue and the timing of payments,
accounts payable, which is driven by costs incurred and the timing of payments, and accrued expenses and other liabilities, which is
driven by changes related to accrued interest and accrued capping, closure, and post closure costs. In both fiscal year 2011 and 2010,
our cash flow from operations was negatively impacted by changes in accounts receivable. However, in fiscal year 2011 the negative
impact decreased by $4.9 million from ($8.2) million in fiscal year 2010 to ($3.3) million in fiscal year 2011. Accounts payable had a
positive impact on our cash flow from operations in both fiscal year 2011 and 2010. Cash flow from operations related to accounts
payable increased $2.4 million to $7.4 million in fiscal year 2011 from $5.1 million in fiscal year 2010. In both fiscal year 2011 and
2010, our cash flow from operations was negatively impacted by changes in accrued expenses and other liabilities. In fiscal year
2011, the negative impact increased by $12.8 million to ($13.5) million from ($0.7) million. The primary reasons for this negative
impact relate to cash flow changes associated with taxes payable related to the gain on discontinued operations, accrued interest and
accrued capping, closure, and post closure costs. In fiscal year 2011, accrued interest decreased by $2.0 million to $9.8 million at
April 30, 2011 from $11.8 million at April 30, 2010. The decrease was due to a debt reduction associated with the payoff of the 2009
Term Loan in the fourth quarter of fiscal year 2011and lower interest rates due to the refinancing of our 2011 Revolver and the
repurchase and redemption of our Senior Subordinated Notes and related issuance of our 2019 Notes. The cash flow impact related to
accrued capping, closure and post-closure costs as it pertains to the change in accrued expenses and other liabilities, excluding the
40
non-cash charge related to depletion of landfill operating lease obligations, decreased $3.1 million year over year due to a $1.2 million
decrease in obligations incurred and a $1.8 million decrease in revisions in estimates. In fiscal year 2011 our cash flow from
operations was positively impacted by changes in prepaid expenses, inventories and other assets totaling $3.8 million. This represents
a favorable cash flow impact year over year of 1.1 million as the cash flow impact was a favorable $2.8 million in fiscal year 2010.
Net cash used in investing activities was $55.8 million in fiscal year 2011 compared to $63.1 million in fiscal year 2010. The decrease
in cash used in investing activities was due primarily to (1) $8.1 million in lower payments for landfill operating lease contracts in
fiscal year 2011, (2) $7.5 million in proceeds received from the divestiture in the first quarter of fiscal year 2011, offset by (3) $3.5
million less in proceeds from the sale of equipment year over year, (4) $1.6 million of payments associated with the purchase of gas
rights, and (5) $2.4 million in additional capital expenditures.
Net cash used in financing activities was $117.9 million for fiscal year 2011 compared to $7.3 million in fiscal year 2010. The
increase in cash used relates primarily to the $128.1 million paydown of the 2009 Term Loan in the fourth quarter of fiscal year 2011
offset by additional borrowings including the 2019 Notes.
In fiscal year 2011 we acquired two solid waste hauling operations in exchange for $1.1 million in cash and $0.3 million in notes
payable. Also in fiscal year 2011, we acquired the McKean County landfill business in Pennsylvania in exchange for $0.7 million in
cash and the assumption of $1.4 million in liabilities. We acquired the McKean County landfill business out of bankruptcy
proceedings and recognized a bargain purchase gain of $3.0 million based on the amount by which the fair value of assets acquired
exceeded the purchase price consideration. In fiscal year 2010, we acquired two solid waste hauling operations. These transactions
were in exchange for total consideration of $1.6 million, including $0.9 million in cash and $0.6 million in notes payable to the seller
and liabilities assumed. In fiscal year 2009, we acquired three solid waste hauling operations in exchange for $2.4 million in cash
consideration.
We generally meet liquidity needs from operating cash flow and the 2011 Revolver. These liquidity needs are primarily for capital
expenditures for vehicles, containers and landfill development, debt service costs and capping, closure and post-closure expenditures
and acquisitions.
We use a variety of strategies to mitigate the impact of fluctuations in commodity prices including entering into fixed price contracts
and entering into hedges which 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. As of April 30, 2011, to minimize our commodity exposure, we were party
to three commodity hedging agreements. For further discussion on commodity price volatility, see “Item 3 — Quantitative and
Qualitative Disclosures about Market Risk — Commodity Price Volatility” below.
We have filed a universal shelf registration statement with the SEC. We may from time to time issue securities thereunder in an
amount of up to $250.0 million. 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.
Contractual Obligations
The following table summarizes our significant contractual obligations and commitments as of April 30, 2011 (in thousands) and the
anticipated effect of these obligations on our liquidity in future years:
$
Long-term debt
Financing lease obligations
Interest obligations (1)
Operating leases (2)
Capping / closure / post-closure
Total contractual cash obligations (3) $
2012
1,217 $
316
39,621
10,835
1,678
53,667 $
Fiscal Year(s) ending April 30,
2015-2016
Thereafter
2013-2014
Total
2,110 $
699
78,955
18,702
9,082
109,548 $
237,844 $
1,457
48,977
33,867
13,497
335,642 $
225,000 $ 466,171
—
2,472
73,565
241,118
125,285
188,689
119,749
95,492
519,342 $ 1,018,199
(1)
(2)
(3)
Interest obligations based on debt and capital lease balances as of April 30, 2011. Interest obligations related to variable rate
debt were calculated using variable rates in effect at April 30, 2011.
Includes obligations related to landfill operating lease contracts.
Contractual cash obligations do not include accounts payable or accrued liabilities, which will be paid in fiscal year 2012.
41
In addition to the above obligations, we have unrecognized tax benefits at April 30, 2011 of approximately $0.0 million. Due to the
uncertainty with respect to the timing of future cash flows associated with the unrecognized tax benefits at April 30, 2011, we are
unable to make reasonably reliable estimates as to the timing of cash settlements.
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 northeastern 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.
Limitations on Ownership of Notes
Pursuant to the first paragraph of Section 2.17 of the indentures governing the Second Lien Notes and the 2019 Notes, no beneficial
holder of the Second Lien Notes and/or 2019 Notes is permitted to knowingly acquire Second Lien Notes and/or 2019 Notes if such
person would own 10% or more of the consolidated debt for which relevant subsidiaries of ours are obligated (and must dispose of
Second Lien Notes and 2019 Notes or other debt of ours to the extent such person becomes aware of exceeding such threshold), if
such ownership would require consent of any regulatory authority under applicable law or regulation governing solid waste operators
and such consent has not been obtained. We have agreed that, for so long as any of the Second Lien Notes remain outstanding, we will
furnish to the holders of the Second Lien Notes, in each quarterly and annual report, the dollar amount of our debt that would serve as
the threshold for evaluating a beneficial holder’s compliance with these ownership restrictions. As of April 30, 2011, that dollar
amount was $43.7 million.
Critical Accounting Estimates and Assumptions
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 Note 1 of our Consolidated Financial Statements included in Item 8 of this Form 10-K.
Landfills
The cost estimates for capping, closure and post-closure activities at landfills for which we have responsibility are estimated based on
our interpretations of current requirements and proposed or anticipated regulatory changes. We also estimate additional costs based on
the amount a third party would charge us to perform such activities even when we expect to perform these activities internally. We
estimate the airspace to be consumed related to each capping event and the timing of construction related to each capping event and of
closure and post-closure activities. Because landfill capping, closure and post-closure obligations are measured at estimated fair value
using present value techniques, changes in the estimated timing of construction of future landfill capping and closure and post-closure
activities would have an effect on these liabilities, related assets and results of operations.
Landfill Development Costs
We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity. This estimate
includes such costs as landfill liner material and installation, excavation for airspace, landfill leachate collection systems, landfill gas
collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized
interest, on-site road construction and other capital infrastructure costs. Additionally, landfill development includes all land purchases
for landfill footprint and required landfill buffer property. The projection of these landfill costs is dependent, in part, on future events.
The remaining amortizable basis of each landfill includes costs to develop a site to its remaining permitted and expansion capacity and
includes amounts previously expended and capitalized, net of accumulated airspace amortization, and projections of future purchase
and development costs.
42
Landfill Capping 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.
Landfill Closure and Post-Closure
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. 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
expansion airspace.
Remaining Permitted Airspace
Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible for determining remaining
permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey, which is then used to compare
the existing landfill topography to the expected final landfill topography.
Expansion Airspace
We include currently unpermitted expansion airspace in our estimate of remaining permitted and expansion airspace in certain
circumstances. To be considered expansion airspace all of the following criteria must be met:
• 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.
For unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, the expansion effort
must meet all of the criteria listed above. These criteria are annually evaluated by our engineers, accountants, managers and others to
identify potential obstacles to obtaining the permits. Once the remaining permitted and expansion airspace is determined in cubic
yards, an airspace utilization factor, or AUF, is established to calculate the remaining permitted and expansion capacity in tons. The
AUF is established using the measured density obtained from previous annual surveys. When we include the expansion airspace in our
calculations of remaining permitted and expansion airspace, we also include the projected costs for development, as well as the
projected asset retirement cost related to capping, and closure and post-closure of the expansion in the amortization basis of the
landfill.
After determining the costs and remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates
that will be expensed as waste is received and deposited at the landfill by dividing the costs by the corresponding number of tons. We
calculate per ton amortization rates for each landfill for assets associated with each capping event, for assets related to closure and
post-closure activities and for all other costs capitalized or to be capitalized in the future. These rates per ton are updated annually, or
more often, as significant facts change.
43
It is possible that actual results, including the amount of costs incurred, the timing of capping, closure and post-closure activities, our
airspace utilization or the success of our expansion efforts could ultimately turn out to be significantly different from our estimates and
assumptions. To the extent that such estimates, or related assumptions, prove to be significantly different than actual results, lower
profitability may be experienced due to higher amortization rates, higher capping, closure or post-closure rates, or higher expenses; or
higher profitability may result if the opposite occurs. Most significantly, if it is determined that the expansion capacity should no
longer be considered in calculating the recoverability of the landfill asset, we may be required to recognize an asset impairment. If it is
determined that the likelihood of receiving an expansion permit has become remote, the capitalized costs related to the expansion
effort are expensed immediately.
Environmental Remediation Liabilities
Recorded environmental liabilities represent our estimate of the most likely outcome of the matters for which we have determined
liability is probable. These liabilities include potentially responsible party, or PRP, investigations, settlements, certain legal and
consultant fees, as well as costs directly associated with site investigation and clean up, such as materials and incremental internal
costs directly related to the remedy. We provide for expenses associated with environmental remediation obligations when such
amounts are probable and can be reasonably estimated. We estimate costs required to remediate sites where it is probable that a
liability has been incurred based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed
using third-party environmental engineers or other service providers.
Goodwill and Other Intangibles
We do not amortize goodwill. We annually assess goodwill impairment at the end of the fourth quarter of our fiscal year by applying
a fair value test. In the first step of testing for goodwill impairment, we estimate the fair value of each reporting unit, which we have
determined to be our geographic operating segments and Recycling, and compare the fair value with the carrying value of the net
assets assigned to each reporting unit. We test goodwill at this reporting unit level because the business is managed and reported at
this level. If the fair value is less than its carrying value, then we would perform a second step and determine the fair value of the
goodwill. In this second step, the fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable
assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the
purchase price were being initially allocated. If the fair value of the goodwill is less than its carrying value for a reporting unit, an
impairment charge would be recorded to earnings.
To determine the fair value of each of our reporting units as a whole we use discounted cash flow analyses, which require significant
assumptions and estimates about the future operations of each reporting unit. Significant judgments inherent in this analysis include
the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows
employed in our discounted cash flow analyses are based on financial forecasts developed internally by management. Our discount
rate assumptions are based on an assessment of our risk adjusted discount rate, applicable for each reporting unit. In assessing the
reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization.
In addition, we would evaluate a reporting unit for impairment if events or circumstances change between annual tests indicating a
possible impairment. Examples of such events or circumstances include the following:
•
•
•
•
a significant adverse change in legal status or in the business climate,
an adverse action or assessment by a regulator,
a more likely than not expectation that a segment or a significant portion thereof will be sold, or
the testing for recoverability of a significant asset group within the segment.
The goodwill impairment analysis performed for fiscal years ended April 30, 2011 and 2010 did not result in an impairment charge.
As of April 30, 2011, we determined that the indicated fair value of the Western reporting unit exceeds its carrying value by 37.4%
which we believe substantially exceeds the carrying value. The indicated fair value of the Recycling reporting unit exceeded its
carrying value by 7.7%. The carrying value of the Eastern reporting unit goodwill is deminimus and its impact to our operating results
would be immaterial. As of April 30, 2011, goodwill allocated to the Recycling reporting unit amounted to $11.2 million.
The Step 1 test for the Recycling reporting unit and the resulting calculation of the indicated fair value was performed as described
above based on certain specific assumptions. We relied on a weighted average cost of capital of 13.0% for this reporting unit which
takes into consideration certain industry and specific premiums. We utilized a long term growth rate of approximately 2.5% for this
reporting unit which considers industry research and management’s representations as to the prospects for long term growth in this
44
industry. We have experienced some volatility in growth in the Recycling reporting unit associated with the pricing of the underlying
commodities that are processed and marketed. The long term growth assumed in our model represents more consistent growth. We
have assumed a tax rate of 40% in our model which is based on our historical effective tax rate with some consideration given to rates
observed within the industry as well.
Recovery of Long-Lived Assets
We continually consider whether events or changes in circumstances have occurred that may warrant revision of the estimated useful
lives of our long-lived assets (other than goodwill) or whether the remaining balances of those assets should be evaluated for possible
impairment. Long-lived assets include, for example, capitalized landfill costs, other property and equipment, and identifiable
intangible assets. Events or changes in circumstances that may indicate that an asset may be impaired include the following:
•
•
•
•
•
•
•
a significant decrease in the market price of an asset or asset group,
a significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical
condition,
a significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset
group, including an adverse action or assessment by a regulator,
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a
long-lived asset,
a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group,
a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life, or
an impairment of goodwill at a reporting unit.
There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to
landfill development or expansion. For example, a regulator may initially deny a landfill expansion permit application although the
expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to
conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not
necessarily be considered indicators of impairment due to the unique nature of the waste industry.
If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its
undiscounted expected future cash flows. We group our long-lived assets for this purpose at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets or asset groups. If the carrying values are in excess of
undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its
carrying value.
To determine fair value we use discounted cash flow analyses and estimates about the future cash flows of the asset or asset group.
This analysis includes a determination of an appropriate discount rate, the amount and timing of expected future cash flows and
growth rates. The cash flows employed in our discounted cash flow analyses are typically based on financial forecasts developed
internally by management. The discount rate used is commensurate with the risks involved. We may also rely on third party
valuations and or information available regarding the market value for similar assets.
If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in
the amount of the difference is recorded in the period that the impairment occurs. Estimating future cash flows requires significant
judgment and projections may vary from the cash flows eventually realized.
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. Our estimated accruals for these liabilities could be significantly different than our
ultimate obligations if variables such as the frequency or severity of future events differ significantly from our assumptions.
45
New Accounting Standards
For a description of the new accounting standards that may affect us, see Note 2, New Accounting Standards, to our Consolidated
Financial Statements included in Item 8 of this Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Interest Rate Volatility
We had interest rate risk relating to approximately $82.4 million of long-term debt at April 30, 2011. The interest rate on the variable
rate portion of this debt was approximately 4.0% at April 30, 2011. Should the average interest rate on the variable rate portion of this
debt change by 100 basis points, our annual interest expense would increase or decrease by $0.8 million.
The remainder of our long-term debt is at fixed rates and not subject to interest rate risk.
Commodity Price Volatility
Through our Recycling operation, we market a variety of materials, including fibers such as old corrugated cardboard (“OCC”) and
old newsprint (“ONP”), plastics, glass, ferrous and aluminum metals. We use a number of strategies to mitigate impacts from
commodity price fluctuations, such as indexed purchases, floor prices, fixed price agreements, and revenue share arrangements. In
addition, as of April 30, 2011 we were party to seven commodity hedge contracts that manage pricing fluctuations on a portion of our
OCC and ONP volumes. These contracts expire through September 2011. We do not use financial instruments for trading purposes
and are not a party to any leveraged derivatives. We expect to be able to replace our expiring hedges with existing or new
counterparties; however, the availability and pricing terms at any given time will be subject to prevailing market conditions.
If commodity prices were to have changed by 10% in the year ended April 30, 2011, the impact on our operating income is estimated
to have been between 0.4 million and 1.4 million based on the observed impact of commodity price changes on operating income
margin during the years ended April 30, 2011 and April 30, 2010. Our sensitivity to changes in commodity prices is complex because
each customer contract is unique relative to revenue sharing, tipping or processing fees and other arrangements. The above estimated
ranges of operating income impact may not be indicative of future operating results and actual results may vary materially.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Management’s Report on Internal Control Over Financial Reporting
Our 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.
Our management assessed the effectiveness of our internal control over financial reporting as of April 30, 2011. In making this
assessment, our 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, 2011, our
internal control over financial reporting is effective based on those criteria. The effectiveness of our internal control over financial
reporting as of April 30, 2011 has been audited by McGladrey & Pullen, LLP, an independent registered public accounting firm.
McGladrey & Pullen, LLP has issued an attestation report on our internal control over financial reporting, which is included herein.
46
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, 2011, and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash
flows for the years ended April 30, 2011. Our audit also includes the financial statement schedule for the year ended April 30, 2011
listed in item 15(a)(2). We also have audited the Company’s internal control over financial reporting as of April 30, 2011, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management is responsible for these financial statements and the financial statement
schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting.
Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over
financial reporting based on our audit. We also audited the adjustments described in Note 17 that were applied retrospectively to the
2010 and 2009 consolidated financial statements and the financial statement schedule. In our opinion, such adjustments are
appropriate and have been properly applied. However, we were not engaged to audit, review, or apply any procedures to the 2010 or
2009 consolidated financial statements of the Company other than with respect to such adjustments and, accordingly, we do not
express an opinion or any other form of assurance on the 2010 and 2009 consolidated financial statements taken as a whole.
We conducted our audit 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 and whether effective internal control over financial reporting was maintained in all material respects. Our audit
of the financial statements and the financial statement schedule 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, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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 (a) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (b) 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 (c) 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 consolidated 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, 2011 and the consolidated results of its operations, changes in
stockholders’ equity and its cash flows for the year ended April 30, 2011 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the related financial statement schedule listed in Item 15(a)(2) of this
Form 10-K when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material
respects the information set forth therein. Also in our opinion, Casella Waste Systems, Inc. and subsidiaries maintained, in all material
respects, effective internal control over financial reporting as of April 30, 2011, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
/s/ McGladrey & Pullen, LLP
Boston, Massachusetts
June 17, 2011
47
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of Casella Waste Systems, Inc.:
We have audited, before the effects of the adjustments related to the discontinued operations described in Note 17, the accompanying
consolidated balance sheet of Casella Waste Systems, Inc. and subsidiaries (the Company) as of April 30, 2010, and the related
consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for the years ended April 30, 2010
and 2009. We have also audited, before the effects of the adjustments related to the discontinued operations described in Note 17, the
financial statement schedule for the years ended April 30, 2010 and 2009 listed in Item 15(a)(2) of this Form 10-K. The Company’s
management is responsible for these financial statements and the financial statement schedule. Our responsibility is to express an
opinion on these financial statements and schedule 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. Our audits of the financial statements and financial statement schedule 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 audits also included performing such
other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our
opinions.
In our opinion, before the effects of the adjustments related to the discontinued operations described in Note 17, the consolidated
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, 2010, and the consolidated results of their operations, and their cash flows for each of
the years in the two-year period ended April 30, 2010 in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, before the effects of the adjustments related to the discontinued operations described in Note
17, the financial statement schedule listed in Item 15(a)(2) of this Form 10-K presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated financial statements.
We were not engaged to audit, review, or apply any procedures to the adjustments related to the discontinued operations described in
Note 17 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are
appropriate and have been properly applied. Those adjustments were audited by McGladrey & Pullen, LLP, as stated in their report
appearing herein.
/s/ Caturano and Company, P.C.
Boston, Massachusetts
June 10, 2010
48
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
CURRENT ASSETS:
ASSETS
Cash and cash equivalents
Restricted cash
Accounts receivable - trade, net of allowance for doubtful accounts of $920 and $1,602
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 $624,044
and $570,079
Goodwill
Intangible assets, net
Restricted assets
Notes receivable - related party/employee
Deferred income taxes
Investments in unconsolidated entities
Other non-current assets
Non-current assets held for sale
Non-current assets of discontinued operations
April 30,
2011
April 30,
2010
$
1,817
76
54,914
—
5,856
3,461
5,600
681
—
72,405
453,361
101,204
2,455
334
1,297
—
38,263
21,262
—
—
2,035
76
51,370
1,316
5,414
2,928
5,461
2,001
11,324
81,925
457,670
100,526
2,404
228
1,288
553
40,965
17,025
3,708
48,522
The accompanying notes are an integral part of these consolidated financial statements.
618,176
672,889
$
690,581
$
754,814
49
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 and capital leases
Current maturities of financing lease obligations
Accounts payable
Accrued payroll and related expenses
Accrued interest
Current accrued capping, closure and post-closure costs
Taxes payable
Other accrued liabilities
Current liabilities of discontinued operations
Total current liabilities
Long-term debt and capital leases, less current maturities
Financing lease obligations, less current maturities
Accrued capping, closure and post-closure costs, less current portion
Deferred income taxes
Other long-term liabilities
Non-current liabilities of discontinued operations
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS’ EQUITY:
Class A common stock -
April 30,
2011
April 30,
2010
$
$
1,217
316
42,499
3,702
9,776
1,702
3,786
20,923
—
83,921
461,418
2,156
34,705
5,578
8,816
—
1,929
1,045
35,056
3,890
11,769
7,765
—
21,727
6,899
90,080
556,130
7,902
32,237
6,277
8,962
2,930
Authorized - 100,000,000 shares, $0.01 par value per share, issued and outstanding -
25,589,000 and 24,944,000 shares as of April 30, 2011 and April 30, 2010, respectively
256
249
Class B common stock -
Authorized - 1,000,000 shares, $0.01 par value per share, 10 votes per share, issued and
outstanding - 988,000 shares
Accumulated other comprehensive income (loss)
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
10
378
285,992
(192,649)
93,987
10
(785)
281,899
(231,077)
50,296
$
690,581
$
754,814
The accompanying notes are an integral part of these consolidated financial statements.
50
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Revenues
Operating expenses:
Cost of operations
General and administration
Depreciation and amortization
Asset impairment charge
Environmental remediation charge
Bargain purchase gain
Gain on sale of assets
Goodwill impairment charge
Operating income (loss)
Other expense/(income), net:
Interest income
Interest expense
Loss from equity method investment
Loss on debt refinancing
Other income
Other expense, net
2011
Fiscal Year Ended April 30,
2010
2009
$
466,064
$
457,642
$
482,851
317,504
64,010
58,261
3,654
549
(2,975)
(3,502)
—
437,501
28,563
(54)
45,912
4,096
7,390
(860)
56,484
303,399
57,476
63,619
—
335
—
—
—
424,829
32,813
(110)
44,375
2,691
511
(847)
46,620
322,605
63,202
68,432
355
4,356
—
—
55,286
514,236
(31,385)
(720)
33,840
2,157
—
(791)
34,486
Loss from continuing operations before income taxes and discontinued
operations
(Benefit) provision for income taxes
(27,921)
(24,217)
(13,807)
2,242
(65,871)
6,247
Loss from continuing operations before discontinued operations
(3,704)
(16,049)
(72,118)
Discontinued operations:
(Loss) income from discontinued operations (net of income tax (benefit)
provision of ($800), $920, and $2,802)
Gain on disposal of discontinued operations (net of income tax
provision of $31,714, $795, and $327)
Net income (loss) available (attributable) to common stockholders
$
(1,458)
1,011
4,030
43,590
38,428
$
1,180
(13,858) $
63
(68,025)
The accompanying notes are an integral part of these consolidated financial statements.
51
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(in thousands, except for per share data)
2011
Fiscal Year Ended April 30,
2010
2009
Earnings per share:
Basic and diluted:
Loss from continuing operations before discontinued operations
available to common stockholders
(Loss) income from discontinued operations, net
Gain on disposal of discontinued operations, net
Net income (loss) per common share available (attributable) to common
stockholders
$
$
(0.14) $
(0.06)
1.67
(0.62) $
0.03
0.05
(2.82)
0.16
0.00
1.47
$
(0.54) $
(2.66)
Basic and diluted weighted average common shares outstanding
26,105
25,731
25,584
The accompanying notes are an integral part of these consolidated financial statements.
52
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In thousands)
Balance, April 30, 2008
Issuance of Class A common stock from the exercise
of stock options and employee stock purchase plan
Stock-based compensation expense
Net loss
Change in fair value of interest rate derivatives,
commodity hedges and marketable securities, net of
taxes and reclassification adjustments
Total comprehensive loss
Balance, April 30, 2009
Issuance of Class A common stock from the exercise
of stock options and employee stock purchase plan
Stock-based compensation expense
Other
Net loss
Change in fair value of interest rate derivatives,
commodity hedges and marketable securities, net of
taxes and reclassification adjustments
Total comprehensive loss
Balance, April 30, 2010
Issuance of Class A common stock from the exercise
of stock options, vesting of restricted stock units,
vesting of restricted stock, vesting of performance
stock units, and employee stock purchase plan
Stock-based compensation expense
Net income
Change in fair value of commodity hedges and
marketable securities, net of taxes and
reclassification adjustments
Total comprehensive income
Balance, April 30, 2011
Class A
Common
Stock
# of
Shares
24,466
$
Par
Value
213
—
—
—
—
24,679
265
—
—
—
—
—
24,944
645
—
—
—
—
25,589
$
245
2
—
—
—
—
247
2
—
—
—
—
—
249
7
—
—
—
—
256
Class B
Common
Stock
# of
Shares
988
$
Par
Value
—
—
—
—
—
988
—
—
—
—
—
—
988
—
—
—
—
—
988
$
10
—
—
—
—
—
10
—
—
—
—
—
—
10
—
—
—
—
—
10
The accompanying notes are an integral part of these consolidated financial statements.
53
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS) (Continued)
(In thousands)
Accumulated
Balance, April 30, 2008
Issuance of Class A common stock from the
exercise of stock options and employee stock
purchase plan
Stock-based compensation expense
Net loss
Change in fair value of interest rate derivatives,
commodity hedges and marketable securities,
net of taxes and reclassification adjustments
Total comprehensive loss
Balance, April 30, 2009
Issuance of Class A common stock from the
exercise of stock options and employee stock
purchase plan
Stock-based compensation expense
Other
Net loss
Change in fair value of interest rate derivatives,
commodity hedges and marketable securities,
net of taxes and reclassification adjustments
Total comprehensive loss
Balance, April 30, 2010
Issuance of Class A common stock from the
exercise of stock options, vesting of restricted
stock units, vesting of restricted stock, vesting
of performance stock units, and employee
stock purchase plan
Stock-based compensation expense
Net income
Change in fair value of commodity hedges and
marketable securities, net of taxes and
reclassification adjustments
Total comprehensive income
Balance, April 30, 2011
Additional
Paid-In
Capital
Accumulated
Deficit
(149,194) $
Other
Comprehensive
Income (Loss)
Total
Total
Stockholders’
Equity
Comprehensive
Income (Loss)
$
276,189
$
(2,568) $
124,682
1,576
1,679
—
—
—
(68,025)
—
—
279,444
—
—
(217,219)
241
2,242
(28)
—
—
—
(13,858)
—
—
—
6,396
—
3,828
—
—
—
—
—
—
281,899
—
—
(231,077)
(4,613)
—
(785)
1,578
1,679
(68,025) $
6,396
—
66,310
243
2,242
(28)
(13,858)
(4,613)
—
50,296
589
3,504
—
—
—
38,428
—
—
—
596
3,504
38,428
—
—
285,992
$
—
—
(192,649) $
$
1,163
—
378
$
1,163
—
93,987
$
(68,025)
6,396
(61,629)
(13,858)
(4,613)
(18,471)
38,428
1,163
39,591
The accompanying notes are an integral part of these consolidated financial statements.
54
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
2011
Fiscal Year Ended April 30,
2010
2009
Cash Flows from Operating Activities:
Net income (loss)
Income (loss) from discontinued operations, net
Gain on disposal of discontinued operations, net
Adjustments to reconcile net income (loss) to net cash provided by operating activities -
$
Gain on sale of assets
Gain on sale of equipment
Depreciation and amortization
Depletion of landfill operating lease obligations
Interest accretion on landfill and environmental remediation liabilities
Goodwill impairment charge
Environmental remediation charge
Asset impairment charge
Bargain purchase gain
Amortization of premium on senior subordinated notes
Amortization of discount on term loan and second lien notes
Loss from equity method investment
Loss on debt refinancing
Stock-based compensation
Excess tax benefit on the vesting of share based awards
Deferred income taxes
Changes in assets and liabilities, net of effects of acquisitions and divestitures -
Accounts receivable
Accounts payable
Restricted cash liquidation
Prepaid expenses, inventories and other assets
Accrued expenses and other 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
Purchase of gas rights
Proceeds from sale of assets
Proceeds from sale of equipment
Investment in unconsolidated entities
Net Cash Used In Investing Activities
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Principal payments on long-term debt
Payment of financing costs
Proceeds from exercise of share based awards
Excess tax benefit on the vesting of restricted stock
Net Cash Used In Financing Activities
Discontinued Operations:
Net cash (used in) provided by operating activities
Net cash provided by (used in) investing activities
Net cash (used in) provided by financing activities
Net Cash Provided By Discontinued Operations
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
38,428
1,458
(43,590)
(3,502)
(470)
58,261
7,878
3,331
—
549
3,654
(2,975)
(611)
801
4,096
7,390
1,592
(129)
(23,615)
(3,273)
7,443
—
3,834
(13,459)
50,795
47,091
(1,744)
(2,803)
(52,446)
(5,655)
(1,608)
7,533
959
—
(55,764)
383,757
(491,669)
(10,588)
476
129
(117,895)
(359)
130,114
(3,405)
126,350
(218)
2,035
$
$
(13,858)
(1,011)
(1,180)
—
(1,343)
63,619
6,867
3,506
—
335
—
—
(727)
685
2,691
511
1,987
—
3,031
(8,179)
5,092
—
2,755
(695)
80,135
64,086
(864)
(4,187)
(48,647)
(13,737)
—
—
4,434
(49)
(63,050)
492,344
(485,796)
(14,089)
260
—
(7,281)
5,651
1,317
(526)
6,442
197
1,838
Cash and cash equivalents, end of period
$
1,817
$
2,035
$
The accompanying notes are an integral part of these consolidated financial statements.
(68,025)
(4,030)
(63)
—
(373)
68,433
6,416
3,262
55,286
4,356
355
—
(675)
—
2,157
—
1,530
(162)
8,436
7,272
(14,088)
13,974
3,077
(17,993)
141,263
69,145
(2,394)
(9,383)
(44,947)
(5,102)
—
—
1,479
(2,530)
(62,877)
124,319
(142,003)
(348)
1,462
162
(16,408)
7,690
(1,807)
3,281
9,164
(976)
2,814
1,838
55
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
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
Bargain purchase gain
Cash paid, net
Notes payable, liabilities assumed and holdbacks to sellers
Property, plant and equipment acquired through lease obligations
$
$
$
$
$
$
$
2011
Fiscal Year Ended April 30,
2010
2009
44,291
1,480
$
$
35,583
234
$
$
35,544
332
$
6,456
(2,975) $
(1,744) $
1,737
$
—
$
$
1,512
—
$
(864) $
648
404
$
$
2,466
—
(2,394)
72
14,115
The accompanying notes are an integral part of these consolidated financial statements.
56
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 “Parent”) together with its subsidiaries (collectively, “we”, “us” or “our”) is a regional, integrated
solid waste services company that provides collection, transfer, disposal and recycling services, primarily in the eastern United States.
We market recyclable metals, aluminum, plastics, paper and corrugated cardboard which have been processed at our facilities, as well
as recyclables purchased from third parties. We also generate and sell electricity under a contract at a waste-to-energy facility, Maine
Energy Recovery Company LP (“Maine Energy”).
Recent Development
On January 23, 2011 we entered into a purchase and sale agreement and related agreements to sell non-integrated FCR recycling
assets and select intellectual property assets to a new company formed by Pegasus Capital Advisors, L.P. and Intersection LLC (the
“Purchaser”) for $130,400 in gross proceeds. Pursuant to these agreements, we divested non-integrated recycling assets located
outside our core operating region of New York, Massachusetts, Vermont, New Hampshire, Maine and northern Pennsylvania,
including 17 MRFs, one transfer station and certain related intellectual property assets. Following the transaction, we retained four
integrated MRFs located in our core operating regions. As a part of the disposition, we also entered into a ten year commodities
marketing agreement with the Purchaser to market 100% of the tonnage from three of our remaining integrated MRFs.
We completed the transaction on March 1, 2011 for $134,195 in gross cash proceeds, including an estimated $3,795 working capital
adjustment, which is subject to further adjustment, as defined in the purchase and sale agreement. After netting transaction costs and
cash taxes payable in conjunction with the divestiture, the net cash proceeds amounted to $122,953. We used the net cash proceeds
from the divestiture and borrowings under our 2009 Revolver to repay the 2009 Term Loan in full. See Note 17 for further discussion
of this transaction.
A summary of our significant accounting policies follows:
(a)
Principles of Consolidation
The consolidated financial statements include the accounts of the Parent and all of its subsidiaries. All significant intercompany
accounts and transactions are eliminated in consolidation. Investments in entities in which we do not have a controlling financial
interest are accounted for under either the equity method or cost method of accounting, as appropriate. Assets and liabilities of
discontinued operations and assets held for sale are segregated from those of continuing operations and reported in separate captions
in the balance sheet. The results of operations that have been disposed of or classified as held for sale are reported in discontinued
operations. See Note 17 for discussion of transactions related to discontinued operations and assets held for sale.
(b)
Use of Estimates and Assumptions
Preparation of our 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 we consider to be significant in the preparation of our consolidated financial statements.
Landfill Development Costs
We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity. This estimate
includes such costs as landfill liner material and installation, excavation for airspace, landfill leachate collection systems, landfill gas
collection systems, environmental monitoring equipment for groundwater and landfill gas, directly related engineering, capitalized
interest, on-site road construction and other capital infrastructure costs. Additionally, landfill development includes all land purchases
for landfill footprint and required landfill buffer property. The projection of these landfill costs is dependent, in part, on future events.
The remaining amortizable basis of each landfill includes costs to develop a site to its remaining permitted and expansion capacity and
includes amounts previously expended and capitalized, net of accumulated airspace amortization, and projections of future purchase
and development costs. The interest capitalization rate is based on our weighted average interest rate incurred on borrowings
outstanding during the period. Interest capitalized for the years ended April 30, 2011, 2010 and 2009 was $1,078, $349 and $214,
respectively.
57
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 expansion capacity.
We apply the following guidelines in determining a landfill’s remaining permitted and expansion airspace:
Remaining Permitted Airspace Our engineers, in consultation with third-party engineering consultants and surveyors, are responsible
for determining remaining permitted airspace at our landfills. The remaining permitted airspace is determined by an annual survey,
which is then used to compare the existing landfill topography to the expected final landfill topography.
Expansion Airspace We currently include unpermitted expansion airspace in our estimate of remaining permitted and expansion
airspace in certain circumstances. To be considered expansion airspace all of the following criteria must be met:
• 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.
For unpermitted airspace to be initially included in our estimate of remaining permitted and expansion airspace, the expansion effort
must meet all of the criteria listed above. These criteria are annually evaluated by our engineers, accountants, managers and others to
identify potential obstacles to obtaining the permits. Once the remaining permitted and expansion airspace is determined in cubic
yards, an airspace utilization factor, or AUF, is established to calculate the remaining permitted and expansion capacity in tons. The
AUF is established using the measured density obtained from previous annual surveys. When we include the expansion airspace in our
calculation of remaining permitted and expansion airspace, we also includes the projected costs for development, as well as the
projected asset retirement cost related to capping, and closure and post-closure of the expansion in the amortization basis of the
landfill.
After determining the costs and remaining permitted and expansion capacity at each of our landfills, we determine the per ton rates
that will be expensed as waste is received and deposited at the landfill by dividing the costs by the corresponding number of tons. We
calculate per ton amortization rates for each landfill for assets associated with each capping event, for assets related to closure and
post-closure activities and for all other costs capitalized or to be capitalized in the future. These rates per ton are updated annually, or
more often, as significant facts change.
Landfill Capping, Closure and Post-Closure Costs
The following is a description of our asset retirement activities:
Capping 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 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, its 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 of
1970, as amended (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 closure and post-closure costs, we consider costs associated with permitted and
permittable airspace.
58
Our estimate 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 (2.7% and
2.8% for fiscal years 2011 and 2010, 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. The weighted average rate applicable to our asset retirement
obligations at April 30, 2011 is between 9.2% and 11.5%, the range of the credit adjusted risk free rates effective since the adoption of
guidance associated with asset retirement obligations in fiscal year 2004. 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 on recorded landfill liabilities amounted to $3,193, $3,281 and $3,208 in fiscal years 2011, 2010 and
2009, respectively.
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.
We operate 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, 2011 and 2010 totaled $120,291 and $113,387, respectively. Letters of credit securing closure and
post-closure obligations at April 30, 2011 and 2010 totaled $1,752, respectively. See Note 4 for amounts related to restricted cash.
Landfill Accounting-Landfill Operating Lease Contracts
We entered into three landfill operation and management agreements in fiscal year 2004 and one landfill operation and management
agreement in fiscal year 2006. These agreements are long-term landfill operating contracts with government bodies whereby we
receive tipping revenue, pay normal operating expenses and assume 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 us at
the end of the lease term. We allocate 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 us 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 is amortized and charged to cost of operations over the life of the contract. We amortize 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 (e.g., 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.
Environmental Remediation Liabilities
We have recorded environmental liabilities representing our estimate of the most likely outcome of the matters for which we have
determined liability is probable. These liabilities include potentially responsible party, or PRP, investigations, settlements, certain
legal and consultant fees, as well as costs directly associated with site investigation and clean up, such as materials and incremental
internal costs directly related to the remedy. We provide for expenses associated with environmental remediation obligations when
such amounts are probable and can be reasonably estimated. We estimate costs required to remediate sites where it is probable that a
liability has been incurred based on site-specific facts and circumstances. Estimates of the cost for the likely remedy are developed
using third-party environmental engineers or other service providers. Where we believe that both the amount of a particular
environmental remediation liability and timing of payments are reliably determinable, we inflate the cost in current dollars until the
expected time of payment and discount the cost to present value.
Goodwill and Other Intangibles
We do not amortize goodwill. We annually assess goodwill impairment at the end of the fourth quarter of our fiscal year by applying
a fair value test. In the first step of testing for goodwill impairment, we estimate the fair value of each reporting unit, which we have
determined to be our geographic operating segments and Recycling, and compare the fair value with the carrying value of the net
assets assigned to each reporting unit. We test goodwill at this reporting unit level because the business is managed and reported at
this level. If the fair value is less than its carrying value, then we would perform a second step and determine the fair value of the
goodwill. In this second step, the fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable
assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the
purchase price were being initially allocated. If the fair value of the goodwill is less than its carrying value for a reporting unit, an
impairment charge would be recorded to earnings.
To determine the fair value of each of our reporting units as a whole we use discounted cash flow analyses, which require significant
assumptions and estimates about the future operations of each reporting unit. Significant judgments inherent in this analysis include
the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows
employed in our discounted cash flow analyses are based on financial forecasts developed internally by management. Our discount
rate assumptions are based on an assessment of our risk adjusted discount rate, applicable for each reporting unit. In assessing the
reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization.
In addition, we would evaluate a reporting unit for impairment if events or circumstances change between annual tests indicating a
possible impairment. Examples of such events or circumstances include the following:
•
•
•
•
•
•
•
•
•
•
•
a significant adverse change in legal status or in the business climate,
an adverse action or assessment by a regulator,
a more likely than not expectation that a segment or a significant portion thereof will be sold, or
the testing for recoverability of a significant asset group within the segment.
In connection with our annual fair value test of goodwill, performed at the end of the fourth quarter of fiscal year 2009, our step one
analysis indicated that the fair value of our Eastern region reporting segment was less than its carrying value and proceeded to a step
two analysis, which included valuing the tangible and intangible assets and liabilities of the Eastern region reporting segment to
determine the implied fair value of goodwill. The result of this assessment indicated that the implied fair value of goodwill was zero.
As a result, we recognized a non-cash, pre-tax charge of $55,286, in the year ended April 30, 2009, to write-off the entire carrying
value of the Eastern region reporting segment goodwill. See Note 6 for further details.
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 for further details.
Recovery of Long-Lived Assets
We continually assess whether events or changes in circumstances have occurred that may warrant revision of the estimated useful
lives of our long-lived assets (other than goodwill) or whether the remaining balances of those assets should be evaluated for possible
impairment. Long-lived assets include, for example, capitalized landfill costs, other property and equipment, and identifiable
intangible assets. Events or changes in circumstances that may indicate that an asset may be impaired include the following:
a significant decrease in the market price of an asset or asset group,
a significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical
condition,
long-lived asset,
a significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset
group, including an adverse action or assessment by a regulator,
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a
a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group,
a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life, or
an impairment of goodwill at a reporting unit.
There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to
landfill development or expansion. For example, a regulator may initially deny a landfill expansion permit application although the
expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to
conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not
necessarily be considered indicators of impairment due to the unique nature of the waste industry.
59
60
To determine the fair value of each of our reporting units as a whole we use discounted cash flow analyses, which require significant
assumptions and estimates about the future operations of each reporting unit. Significant judgments inherent in this analysis include
the determination of appropriate discount rates, the amount and timing of expected future cash flows and growth rates. The cash flows
employed in our discounted cash flow analyses are based on financial forecasts developed internally by management. Our discount
rate assumptions are based on an assessment of our risk adjusted discount rate, applicable for each reporting unit. In assessing the
reasonableness of our determined fair values of our reporting units, we evaluate our results against our current market capitalization.
In addition, we would evaluate a reporting unit for impairment if events or circumstances change between annual tests indicating a
possible impairment. Examples of such events or circumstances include the following:
•
•
•
•
a significant adverse change in legal status or in the business climate,
an adverse action or assessment by a regulator,
a more likely than not expectation that a segment or a significant portion thereof will be sold, or
the testing for recoverability of a significant asset group within the segment.
In connection with our annual fair value test of goodwill, performed at the end of the fourth quarter of fiscal year 2009, our step one
analysis indicated that the fair value of our Eastern region reporting segment was less than its carrying value and proceeded to a step
two analysis, which included valuing the tangible and intangible assets and liabilities of the Eastern region reporting segment to
determine the implied fair value of goodwill. The result of this assessment indicated that the implied fair value of goodwill was zero.
As a result, we recognized a non-cash, pre-tax charge of $55,286, in the year ended April 30, 2009, to write-off the entire carrying
value of the Eastern region reporting segment goodwill. See Note 6 for further details.
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 for further details.
Recovery of Long-Lived Assets
We continually assess whether events or changes in circumstances have occurred that may warrant revision of the estimated useful
lives of our long-lived assets (other than goodwill) or whether the remaining balances of those assets should be evaluated for possible
impairment. Long-lived assets include, for example, capitalized landfill costs, other property and equipment, and identifiable
intangible assets. Events or changes in circumstances that may indicate that an asset may be impaired include the following:
•
•
•
•
•
•
•
a significant decrease in the market price of an asset or asset group,
a significant adverse change in the extent or manner in which an asset or asset group is being used or in its physical
condition,
a significant adverse change in legal factors or in the business climate that could affect the value of an asset or asset
group, including an adverse action or assessment by a regulator,
an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a
long-lived asset,
a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group,
a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of
significantly before the end of its previously estimated useful life, or
an impairment of goodwill at a reporting unit.
There are certain indicators listed above that require significant judgment and understanding of the waste industry when applied to
landfill development or expansion. For example, a regulator may initially deny a landfill expansion permit application although the
expansion permit is ultimately granted. In addition, management may periodically divert waste from one landfill to another to
conserve remaining permitted landfill airspace. Therefore, certain events could occur in the ordinary course of business and not
necessarily be considered indicators of impairment due to the unique nature of the waste industry.
60
If an impairment indicator occurs, we perform a test of recoverability by comparing the carrying value of the asset or asset group to its
undiscounted expected future cash flows. We group our long-lived assets for this purpose at the lowest level for which identifiable
cash flows are largely independent of the cash flows of other assets or asset groups. If the carrying values are in excess of
undiscounted expected future cash flows, we measure any impairment by comparing the fair value of the asset or asset group to its
carrying value.
To determine fair value we use discounted cash flow analyses and estimates about the future cash flows of the asset or asset group.
This analysis includes a determination of an appropriate discount rate, the amount and timing of expected future cash flows and
growth rates. The cash flows employed in our discounted cash flow analyses are typically based on financial forecasts developed
internally by management. The discount rate used is commensurate with the risks involved. We may also rely on third party
valuations and or information available regarding the market value for similar assets.
If the fair value of an asset or asset group is determined to be less than the carrying amount of the asset or asset group, impairment in
the amount of the difference is recorded in the period that the impairment occurs. Estimating future cash flows requires significant
judgment and projections may vary from the cash flows eventually realized.
In the fourth quarter of fiscal year 2011, we recorded an impairment charge of $3,654 related to a recycling processing facility.
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. Our maximum exposure in fiscal 2011 under the workers’ 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 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 based on historical data, which considers both
the frequency and settlement amount of claims. Our self insurance reserves totaled $13,102 and $12,647 at April 30, 2011 and 2010,
respectively. Our estimated accruals for these liabilities could be significantly different than our ultimate obligations if variables such
as the frequency or severity of future events differ significantly from our assumptions.
Income Tax Accruals
We use estimates to determine our provision for income taxes and related assets 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. 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. We record
net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we
consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable
income, tax planning strategies and recent financial operations. In the event we determine that we would be able to realize our
deferred income tax assets in the future in excess of their net recorded amount, we will make an adjustment to the valuation allowance
which would reduce the provision for income taxes.
We account for income tax uncertainties according to guidance on the recognition, de-recognition and measurement of potential tax
benefits associated with tax positions. We recognize interest and penalties relating to income tax matters as a component of income
tax expense. For additional information see Note 15.
Loss Contingencies
We are subject to various legal proceedings, claims and regulatory matters, the outcomes of which are subject to significant
uncertainty. We determine whether to disclose or accrue for loss contingencies based on an assessment of whether the risk of loss is
remote, reasonably possible or probable, and whether it can be reasonably estimated. We analyze our litigation and regulatory matters
based on available information to assess the potential liabilities. Management’s assessment is developed based on an analysis of
possible outcomes under various strategies. We accrue for loss contingencies when such amounts are probable and reasonably
61
estimable. If a contingent liability is only reasonably possible, we will disclose the potential range of the loss, if estimable. We record
losses related to contingencies in cost of operations or selling, general and administrative expenses, depending on the nature of the
underlying transaction leading to the loss contingency.
Stock-Based Compensation
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 employee’s requisite service period. Stock-based compensation expense is based on the number of awards
ultimately expected to vest and is therefore reduced for an estimate of the awards that are expected to be forfeited prior to vesting.
Consistent with prior years, we use the Black-Scholes option pricing model which 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 and the estimated volatility of our common stock price over the expected term.
(c)
Revenue Recognition
We recognize 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 utilities by our waste-to-energy facility are recorded at the contract rate specified by our power
purchase agreement as the electricity is delivered. Contractual rental payments associated with power purchase agreements accounted
for as embedded operating leases are recognized on a straight-line basis over the life of the power purchase agreement.
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 the brokerage of
recycled materials are recognized on a net basis at the time of shipment.
(d)
Fair Value of Financial Instruments
Our financial instruments include cash and cash equivalents, trade receivables, investments in closure trust funds and trade payables.
The carrying values of these instruments approximate their respective fair values based on their short term nature. At April 30, 2011
and 2010, the fair market value of our fixed rate debt, based on publicly quoted trading pricing, was approximately $403,846 and
$388,050, respectively. At April 30, 2011, the fair market value of our amended and restated senior secured credit facility (the “2011
Revolver”), which includes a revolving credit and letter of credit facility, was approximately $57,357. At April 30, 2010 the fair
market value of our then existing senior secured first lien credit facility (the “2009 Senior Secured Credit Facility”), which included
our senior secured revolving credit facility (the “2009 Revolver”) and senior secured term B loan (the “2009 Term Loan”) was
approximately $164,709. The fair value our 2009 Term Loan was based on quote yields provided to qualified investors while the
carrying value of each revolving credit facility was and is considered to be representative of its fair value. See Note 9 for the terms
and carrying values of our various debt instruments. See Note 1(k) regarding derivative instruments.
(e)
Cash and Cash Equivalents
We consider 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 $3,461 and $2,928 at April 30, 2011 and 2010,
respectively.
62
(g)
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated depreciation and amortization. We provide 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 to the Consolidated Financial Statements.
Asset Classification
Buildings
Machinery and equipment
Rolling stock
Containers
Furniture and Fixtures
Estimated
Useful Life
25-30 years
5-10 years
5-10 years
5-12 years
3-8 years
Building improvements are amortized over a 10 year period or the remaining life of the building, whichever is shorter. Machinery and
equipment includes landfill equipment, balers and shredders with useful lives ranging from eight to ten years and maintenance
equipment with useful lives ranging from five to 10 years. Rolling stock includes collection vehicles, trailers and automobiles with
useful lives ranging from five to ten years. Containers include steel containers in a variety of sizes generally ranging from two to 40
cubic yards with estimated useful lives of ten to 12 years. Containers also include residential carts and recycling bins with useful lives
of five to 10 years. Except at our Maine Energy Recovery Company, where we capitalized certain major maintenance and repair costs
and amortized them over their useful lives, the cost of maintenance and repairs is charged to operations as incurred,
(h)
Investments in Unconsolidated Entities
We entered into an agreement in July 2000 with the Louisiana-Pacific Corporation (“LP”) 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. Our investment in GreenFiber amounted to $23,137 and $25,840 at April 30, 2011 and 2010, respectively. We
account for our 50% ownership in GreenFiber using the equity method of accounting.
In April 2011, we issued a guaranty of up to $1,500 in support of GreenFiber’s restated and amended loan and security agreement in
order to induce the borrower to enter into a waiver and amend the agreement. The guaranty can be drawn on upon an event of default.
As of April 30, 2011 we have recorded a $95 liability as the fair value of the guaranty.
Summarized financial information for GreenFiber is as follows:
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities
April 30,
2011
April 30,
2010
$
$
$
$
20,077
49,618
10,756
12,863
$
$
$
$
16,969
56,770
11,553
9,625
2011
Fiscal Years Ended April 30,
2010
2009
Revenues
Gross profit
Net income (loss)
$
$
$
$
84,903
14,025
$
(8,192) $
$
102,785
23,010
$
(5,380) $
129,810
24,619
(4,315)
In January 2006, we acquired an interest in the common stock of RecycleBank, LLC (“RecycleBank”), a company that markets an
incentive-based recycling service, for total consideration of $3,000. During fiscal year 2007, RecycleBank borrowed $2,000 from us
under a convertible loan agreement. In accordance with the terms of the agreement, we converted this note to equity thereby
increasing our investment. Additional investments in RecycleBank were made during fiscal year 2007 increasing our total common
stock ownership interest to 20.5% at April 30, 2007. In April 2008, November 2009 and January 2011, RecycleBank completed equity
offerings to third party investors that have reduced our common share interest to 8.2% as of April 30, 2011. As a result of an internal
63
reorganization by RecycleBank, our investment is now held in RecycleRewards, Inc. (“RecycleRewards”), the parent entity of
RecycleBank. Our investment in RecycleRewards amounted to $4,467 and $4,465 at April 30, 2011 and 2010, respectively. Effective
April 2008, we account for our investment in RecycleRewards under the cost method of accounting. Prior to April 2008, we accounted
for this investment under the equity method of accounting.
In April 2003, we acquired a 9.9% interest in Evergreen National Indemnity Company (“Evergreen”), a surety company which
provides surety bonds to us, for total consideration of $5,329. In December 2003, we acquired an additional 9.9% interest in
Evergreen for total consideration of $5,306. Our investment in Evergreen amounted to $10,657 at April 30, 2011 and 2010,
respectively. We account for our investment in Evergreen under the cost method of accounting.
(i)
Comprehensive Loss
Comprehensive loss 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 comprehensive income (loss) included in the accompanying balance sheets consists of
changes in the fair value of our commodity hedge agreements, marketable securities as well as our portion of the changes in the fair
value of GreenFiber’s commodity hedge agreements.
Other comprehensive (loss) income for the fiscal years ended April 30, 2011, 2010 and 2009 is shown as follows:
Gross
2011
Tax
Net
Fiscal Year Ended April 30,
2010
Tax
Net
Gross
Gross
2009
Tax
Net
Changes in fair value of
marketable securities
during the period
Reclassification to earnings
for marketable securities
Change in fair value of
$
(6) $
10 $
(16) $
32 $
— $
32 $
(26) $
(10) $
(16)
—
—
—
—
—
—
(208)
(73) $
(135)
617
(1,269)
1,886
(3,773)
(523)
(3,250)
10,150
4,087
6,063
—
—
—
—
—
—
963
386
577
interest rate derivatives and
commodity hedges during
period
Reclassification to earnings
for interest rate derivative
ineffectiveness
Reclassification to earnings
for interest rate derivatives
and commodity hedge
contracts
(309)
302 $
398
(861) $
$
(707)
(940)
1,163 $ (6,076) $ (1,463) $ (4,613) $ 10,741 $
(1,395)
(2,335)
(138)
(45)
4,345 $
(93)
6,396
The components of accumulated other comprehensive income (loss) for the fiscal years ended April 30, 2011 and 2010 are shown as
follows:
Commodity Hedge Contracts
Marketable Securities
Accumulated other comprehensive income (loss)
$
$
620 $
14
634 $
(250) $
(6)
(256) $
370 $
8
378 $
(j)
Earnings per Share
Gross
April 30, 2011
Tax
Net
Gross
April 30, 2010
Tax
(1,122) $
5
(1,117) $
312 $
20
332 $
Net
(810)
25
(785)
Basic earnings per share is computed by dividing net income (loss) from continuing operations before discontinued operations
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, restricted stock, restricted stock units, performance stock units, the assumed exercise of employee stock options and the
conversion of convertible preferred stock. In computing diluted earnings per share, we utilize the treasury stock method with regard to
employee stock options.
64
(k)
Accounting for Derivatives and Hedging Activities
We account for derivatives and hedging activities in accordance with derivatives and hedging accounting guidance that establishes
accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The guidance also requires
that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Our
objective for utilizing derivative instruments is to reduce our exposure to fluctuations in cash flows due to changes in the commodity
prices of recycled paper.
Our 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.
At April 30, 2011, we were party to two commodity hedge contracts for old corrugated cardboard (“OCC”) and five commodity hedge
contracts for old newsprint (“ONP”) as follows:
Inception Date Range
May 2008 - March 2010
May 2008 - March 2010
Commodity
Type
OCC
ONP
Contract Date Range
July 2008 - June 2011
July 2008 - September 2011
Monthly Notional
Ton Range
75 - 350
350 - 750
Fixed Price
Per Ton
Received
Range
$110.00 - $114.50
$86.00 - $127.00
If the price per short ton of the underlying commodity as reported on the Official Board Market is less than the contract price per short
ton, we receive the difference between the average price and the contract price (multiplied by the notional tons) from the respective
counter-party. If the price of the commodity exceeds the contract price per short ton, we pay the calculated difference to the counter-
party.
The fair values of the commodity hedges are obtained or derived from third-party counter-parties and are determined using valuation
models with assumptions about market prices for commodities being based on those in underlying active markets. The gross carrying
value of our commodity hedges was $230 at April 30, 2011 and recorded in other current liabilities. We have entered into agreements
for four of our outstanding commodity hedge contracts with mirrored terms with the purchaser of our non-integrated MRFs and have
recorded a receivable of $166 in other current assets. We have evaluated the remaining three hedges and believe that these instruments
qualify for hedge accounting pursuant to derivatives and hedging guidance; therefore, the changes in fair value have been recorded in
stockholders’ equity as components of accumulated other comprehensive income(loss).
(l)
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and accounts receivable. We
maintain cash and cash equivalents with banks that at times exceed applicable insurance limits. We reduce our exposure to credit risk
by maintaining such deposits with high quality financial institutions. Concentration of credit risk with respect to accounts receivable is
limited because a large number of geographically diverse customers comprise our customer base, thus spreading the trade credit risk.
For the years ended April 30, 2011 and 2010, no single group or customer represents greater than 1.76% of total accounts receivable.
We control credit risk through credit evaluations, credit limits and monitoring procedures. We may also use credit insurance from time
to time. We perform credit evaluations for commercial and industrial customers and perform ongoing credit evaluations of its
customers, but generally do not require collateral to support accounts receivable. Credit risk related to derivative instruments results
from the fact we enter into interest rate derivative and commodity price hedge agreements with various counterparties. However, we
monitor our derivative positions by regularly evaluating positions and the creditworthiness of the counterparties.
(m)
Reclassifications
Certain reclassifications have been made to the prior years’ Consolidated Financial Statements to conform to current year presentation.
These reclassifications had no effect on previously reported results of operations or retained earnings.
(n)
Subsequent Events
No material subsequent events have occurred since April 30, 2011 through the date of this filing that required recognition or
disclosure in our current period Consolidated Financial Statements, except as disclosed in Note 11(b).
65
2.
NEW ACCOUNTING STANDARDS
Adoption of New Accounting Pronouncements
Fair Value Measurements and Disclosures
In January 2010, the FASB issued guidance on fair value disclosures. This guidance clarifies two existing disclosure requirements and
requires two new disclosures as follows: (1) a “gross” presentation of activities (purchases, sales, and settlements) within the Level 3
rollforward reconciliation, and (2) detailed disclosures about the transfers in and out of Level 1 and 2 measurements. This guidance
was effective for the first interim or annual reporting period beginning after December 15, 2009, except for the gross presentation of
the Level 3 rollforward information, which was required for annual reporting periods beginning after December 15, 2010, and for
interim reporting periods within those years. We adopted this guidance effective May 1, 2010 with no effect on our consolidated
financial position or results of operations.
New Accounting Pronouncements Pending Adoption
Goodwill Impairment Test
In December 2010, the FASB issued authoritative guidance which modifies the requirements of Step 1 of the goodwill impairment test
for reporting units with zero or negative carrying amounts. This guidance is effective for fiscal years beginning after December 15,
2010, and we anticipate that it will not have a material impact on our consolidated financial position or results of operations.
Fair Value Measurements and Disclosures
In May 2010, FASB issued additional guidance on fair value disclosures. This guidance is intended to develop common requirements
for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRSs). This guidance is effective for the first
interim or annual reporting period beginning after December 15, 2011, and we anticipate that it will not have a material impact on our
consolidated financial position or results of operations.
3.
BUSINESS COMBINATIONS
In December 2007, the FASB issued new guidance on business combinations, which revised previous guidance on accounting for
business combinations and retains the fundamental concept of the purchase method of accounting and introduces new requirements for
the recognition and measurement of assets acquired, liabilities assumed and noncontrolling interests. This guidance also requires
acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. This
guidance applies prospectively to business combinations for which the acquisition date is on or after our adoption date. We adopted
this new guidance on accounting for business combinations on May 1, 2009. Assets and liabilities that arose from business
combinations that preceded the application of this guidance were not adjusted upon application of the new standard.
For all acquisitions completed after May 1, 2009, as of the respective acquisition dates, we recognize, separately from goodwill, the
identifiable assets acquired and liabilities assumed at their estimated acquisition-date fair values. We measure and recognize goodwill
as of the acquisition date as the excess of: (a) the aggregate of the fair value of consideration transferred, the fair value of any
noncontrolling interest in the acquiree (if any) and the acquisition-date fair value of our previously held equity interest in the acquiree
(if any), over (b) the fair value of net assets acquired and liabilities assumed. If information about facts and circumstances existing as
of the acquisition date is incomplete by the end of the reporting period in which a business combination occurs, we will report
provisional amounts for the items for which the accounting is incomplete. The measurement period ends once we receive the
information we were seeking; however, this period will not extend beyond one year from the acquisition date. Any material
adjustments recognized during the measurement period will be recognized retrospectively in the consolidated financial statements of
the then current period. All acquisition-related transaction and restructuring costs are to be expensed as incurred.
In fiscal year 2011 we acquired two solid waste hauling operations in exchange for $1,073 in cash and $300 in notes payable. Also in
fiscal year 2011, we acquired the McKean County landfill business in Pennsylvania in exchange for $671 in cash and the assumption
of $1,437 in liabilities. We acquired the McKean County landfill business out of bankruptcy proceedings and recognized a bargain
purchase gain of $2,975 based on the amount by which the fair value of assets acquired exceeded the purchase price consideration. In
fiscal year 2010 we acquired two solid waste hauling operations in exchange for $864 in cash and $648 in notes payable to seller and
liabilities assumed. 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. Acquired intangible assets other than goodwill that are
subject to amortization include client lists and non compete covenants. These are to be amortized over a five year period from the date
of acquisition. 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:
66
Property, plant and equipment
Goodwill
Intangible assets
Current assets
Current liabilities
Total
April 30,
2011
2010
5,095
678
441
277
(35)
6,456
$
$
548
85
925
—
(46)
1,512
$
$
The following unaudited pro forma combined information shows the results of our continuing operations for the fiscal years ended
April 30, 2011 and 2010 as though each of the acquisitions completed in the fiscal years ended April 30, 2011 and 2010 had occurred
as of May 1, 2009.
Revenue
Operating income
Net income (loss)
Diluted net income (loss) per common share
Weighted average diluted shares outstanding
Fiscal Year Ended April 30,
2010
2011
470,717
29,051
38,628
1.48
26,105
$
$
$
$
458,786
32,997
(13,822)
(0.54)
25,731
$
$
$
$
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 our future operations. 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.
4.
RESTRICTED CASH / RESTRICTED ASSETS
Restricted cash / restricted assets consists of cash and investments held in trust on deposit with various banks as collateral for our
obligations relative to our 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. A summary of restricted cash / restricted assets is as follows:
Current:
Landfill closure
Total
Non Current:
Landfill closure
Total
April 30,
2011
2010
$
$
$
$
76
76
334
334
$
$
$
$
76
76
228
228
5.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at April 30, 2011 and 2010 consist of the following:
Land
Landfills
Landfill operating lease contracts
Buildings and improvements
Machinery and equipment
Rolling stock
Containers
Less: accumulated depreciation and amortization
67
April 30,
2011
20,691
420,875
96,487
119,691
227,556
123,444
69,161
1,077,905
624,044
453,861
$
$
2010
20,231
391,517
90,833
118,822
216,191
125,773
64,382
1,027,749
570,079
457,670
$
$
Depreciation expense for the fiscal years ended April 30, 2011, 2010 and 2009 was $36,079, $37,959 and $38,207 respectively.
Landfill amortization expense for the fiscal years ended April 30, 2011, 2010 and 2009 was $21,342, $24,906 and $29,725
respectively. Depletion expense on landfill operating lease contracts for the fiscal years ended April 30, 2011, 2010 and 2009 was
$7,878, $6,867 and $6,416, respectively and was recorded in cost of operations.
6.
INTANGIBLE ASSETS AND GOODWILL
Intangible assets at April 30, 2011 and 2010 consist of the following:
Balance, April 30, 2011
Intangible assets
Less accumulated amortization
Balance, April 30, 2010
Intangible assets
Less accumulated amortization
Covenants
not to
compete
$
$
$
$
15,076
(13,966)
1,110
14,488
(13,666)
822
$
$
$
$
Client Lists
Licensing
Agreements
Patents
Total
2,474
(1,129)
1,345
2,177
(922)
1,255
$
$
$
$
250
(250)
—
250
—
250
$
$
$
$
250
(250)
—
250
(173)
77
$
$
$
$
18,050
(15,595)
2,455
17,165
(14,761)
2,404
Intangible amortization expense for the fiscal years ended April 30, 2011, 2010 and 2009 was $840, $754 and $500, respectively. The
intangible amortization expense estimated as of April 30, 2011, for the five fiscal years and thereafter following the fiscal year ended
April 30, 2011 is as follows:
2012
2013
2014
2015
2016
Thereafter
$
554
$
497
$
449
$
399
$
221
$
335
The following table shows the activity and balances related to goodwill from April 30, 2009 through April 30, 2011:
Eastern region
Western region
Recycling
Total
Eastern region
Western region
Recycling
Total
April 30, 2010
Acquisitions
Other
April 30, 2011
$
$
$
$
38
88,298
12,190
100,526
April 30, 2009
—
88,253
12,190
100,443
$
$
$
$
—
678
—
678
Acquisitions
38
47
—
85
$
$
$
$
—
—
—
—
$
$
38
88,976
12,190
101,204
Other
April 30, 2010
$
—
(2)
—
(2) $
38
88,298
12,190
100,526
We perform our annual assessment of goodwill impairment at the end of the fourth quarter of the fiscal year. The first step (defined as
“Step 1”) of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its
carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit
is considered not impaired, thus the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit
exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if
any.
In the Step 1 testing for goodwill impairment, we estimate the fair value of each reporting unit, which we determined to be our three
operating regions (Eastern, Western, and Recycling). The estimated fair value of each reporting unit is compared with the carrying
value of the net assets assigned to each reporting unit. The sum of the fair values of the reporting units is reconciled to our current
market capitalization (based on our stock price) plus an estimated control premium. The discounted cash flow method is used to
measure the fair value of our equity under the income approach for each reporting unit. Determining the fair value using a discounted
cash flow method requires us to make significant estimates and assumptions, including market conditions, discount rates, and long-
term projections of cash flows. Our estimates are based upon historical experience, current market trends, projected future volumes
and other information. We believe that the estimates and assumptions underlying the valuation methodology are reasonable; however,
different estimates and assumptions could result in a different estimate of fair value. In estimating future cash flows, we rely on
internally generated projections for a defined time period for revenue and operating profits, including capital expenditures, changes in
net working capital, and adjustments for non-cash items to arrive at the free cash flow available to invested capital. A terminal value
utilizing a constant growth rate of cash flows is used to calculate a terminal value after the explicit projection period. The future
projected cash flows for the discrete projection period and the terminal value are discounted at a risk adjusted discount rate to
determine the fair value of the reporting unit.
68
In fiscal year 2009, the Step 1 test resulted in the determination that the carrying value of equity exceeded the fair value of equity for
the Eastern reporting unit, thus requiring us to measure the amount of any goodwill impairment by performing the second step of the
impairment test. The reasons for this outcome were the continued deterioration of the equity and credit markets and the economy and
their related impact on (i) our projected near term cash flows, due to lower projected landfill volumes and commodity pricing and
(ii) an increase in our risk adjusted discount rate. Holding all other assumptions constant at the test date, a 1.0% increase in the risk
adjusted discount rate, applicable to each reporting unit, would have reduced aggregate cash flows by 11.3%.
The second step (defined as “Step 2”) of the goodwill impairment test, used to measure the amount of impairment loss, compares the
implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of our goodwill
exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss
recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying
amount of goodwill becomes its new accounting basis. The implied fair value of goodwill is determined in the same manner as the
amount of goodwill recognized in a business combination is determined. The excess of the fair value of the reporting unit over the
amounts assigned to its assets and liabilities is the implied amount of goodwill. We estimate the fair value of several tangible and
intangible assets during the process that are valued during this process. Intangible assets included landfill air rights, customer
relationships and trade names. For intangible assets, we select an income approach to value the air rights, customer relationships, and
trade names. The landfill air rights and customer relationships are valued using the multi-period excess earnings method under the
income approach, which estimates the fair value of the asset by discounting the future projected earnings of the asset to present value
as of the valuation date. The trade names were valued using a relief from royalty method.
The Step 2 test performed as of April 30, 2009 resulted in the impairment of goodwill in an amount equal to its carrying value of
$55,286. As a result we recognized a non-cash pre-tax charge of $55,286 for the quarter ended April 30, 2009, to write-off the entire
carrying value of the Eastern region goodwill. We also performed a sensitivity analysis on certain key assumptions in the Step 2 test.
Changes in the underlying assumptions were not deemed to have a material impact on the conclusion.
The goodwill impairment analysis performed for fiscal years ended April 30, 2011 and 2010 did not result in an impairment charge.
As of April 30, 2011, we determined that the indicated fair value of the Western reporting unit exceeds its carrying value by 37.4%
which we believe substantially exceeds the carrying value. The indicated fair value of the Recycling reporting unit exceeded its
carrying value by 7.7%. The carrying value of the Eastern reporting unit goodwill is deminimus and its impact to our operating results
would be immaterial. As of April 30, 2011, goodwill allocated to the Recycling reporting unit amounted to $11,191.
The Step 1 test for the Recycling reporting unit and the resulting calculation of the indicated fair value was performed as described
above based on certain specific assumptions. We relied on a weighted average cost of capital of 13.0% for this reporting unit which
takes into consideration certain industry and specific premiums. We utilized a long term growth rate of approximately 2.5% for this
reporting unit which considers industry research and management’s representations as to the prospects for long term growth in this
industry. We have experienced some volatility in growth in the Recycling reporting unit associated with the pricing of the underlying
commodities that are processed and marketed. The long term growth assumed in our model represents more consistent growth. We
have assumed a tax rate of 40% in our model which is based on our historical effective tax rate with some consideration given to rates
observed within the industry as well.
7.
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. 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(b) 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
Obligations incurred
Revisions in estimates (1)
Accretion expense
Payments
Acquisitions
Ending Balance
April 30,
2011
April 30,
2010
40,002
2,769
(4,273)
3,193
(6,647)
1,363
36,407
$
$
41,890
4,016
(2,438)
3,281
(6,747)
—
40,002
$
$
69
(1)
The revision in estimates for capping, closure and post-closure for the years ended April 30, 2011 and 2010 consist of
changes in cost estimates and timing of capping and closure events as well as changes to expansion airspace and tonnage
placement assumptions.
8.
OTHER ACCRUED LIABILITIES
Other accrued liabilities, classified as current liabilities, at April 30, 2011 and 2010 consist of the following:
Self insurance reserve - current portion
Other accrued liabilities
Total other accrued liabilities
April 30,
2011
April 30,
2010
$
$
11,514
9,409
20,923
$
$
11,058
10,669
21,727
9.
LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital leases as of April 30, 2011 and 2010 consist of the following:
Senior subordinated notes due February 15, 2019, 7.75%, interest payable
semiannually, unsecured and unconditionally guaranteed (the “2019 Notes”)
$
200,000
$
—
April 30,
2011
April 30,
2010
Senior subordinated notes due February 1, 2013, 9.75%, interest payable
semiannually, unsecured and unconditionally guaranteed (including unamortized
premium of $0 and $2,318) (the”Senior Subordinated Notes”)
Senior second lien notes, due July 15, 2014, 11.00%, interest payable semiannually,
secured by second priority lien on substantially all of our assets (including
unamortized discount of $3,536 and $4,393) (the “Second Lien Notes”)
Senior secured revolving credit facility, which provides for advances or letters of
credit of up to $227,500, due March 18, 2016, bearing interest at LIBOR plus
3.50%, (approximately 3.72% at April 30, 2011 based on one month LIBOR),
secured by substantially all of our assets (the “2011 Revolver”)
Senior secured revolving credit facility, which provides for advances or letters of
credit of up to $177,500, due December 31, 2012, bearing interest at LIBOR plus
4.25%, (approximately 4.48% at April 30, 2010 based on one month LIBOR),
secured by substantially all of our assets (the “2009 Revolver”)
Senior secured term B loan due April 9, 2014, bearing interest at LIBOR plus 5.00%
with a LIBOR floor of 2.00% (7.00% at April 30, 2010) with principal payments
of $325 per quarter, beginning in September 2009 with the remaining principal
balance due at maturity (including unamortized discount of $0 and $6,109) (the
“2009 Term Loan”)
Finance authority of Maine Solid Waste Disposal Revenue Bonds Series 2005 due
January 1, 2025, dated December 1, 2005, bearing interest at BMA Index
(approximately 0.36% at April 30, 2011) enhanced by an irrevocable, transferable
direct-pay letter of credit (3.625% at April 30, 2011) (the “Bonds”)
Notes payable in connection with businesses acquired, bearing interest at rates of
2.49% - 6.50%, due in monthly or annual installments varying to $575, maturing
February 2012 through April 2016
Capital leases for facilities and equipment, bearing interest rates of 4.50% - 4.72%,
due in monthly installments varying to $78, expiring April 2013 through January
2015
Less—current maturities
—
197,317
176,464
175,607
57,357
—
—
35,200
—
122,916
25,000
25,000
2,936
835
878
462,635
1,217
461,418
$
1,184
558,059
1,929
556,130
$
70
On January 24, 2003, we issued $150,000 of 9.75% senior subordinated notes that were due February 2013 (the “Senior Subordinated
Notes”). The indenture governing the Senior Subordinated Notes contains covenants that restrict dividends, stock repurchases and
other payments, and limits the incurrence of debt and issuance of preferred stock. The Senior Subordinated Notes are guaranteed
jointly and severally, fully and unconditionally by our significant wholly-owned subsidiaries.
On February 2, 2004, we issued an additional $45,000 of Senior Subordinated Notes. The Senior Subordinated Notes were issued at a
premium of $6,075, which was amortized over the life of the Senior Subordinated Notes. Premium amortization of $611, $727 and
$675 was recorded to interest expense in fiscal 2011, 2010 and 2009, respectively, using the effective interest rate method.
On February 7, 2011, we completed the offering of $200,000 of 7.75% senior subordinated notes due 2019 (the “2019 Notes”). The
net proceeds from the 2019 Notes, together with other available funds, were used to refinance our Senior Subordinated Notes and to
pay related transaction costs.
The loss on debt refinancing in fiscal year 2011 of $7,390 million is attributable to the $115 non-cash write-off of unamortized
financing costs associated with the repayment of financing lease obligations and other costs associated with fiscal year 2011
refinancing efforts, which include the write off of $1,415 and $1,812 in deferred financing costs associated with the 2009 Term Loan
and Senior Subordinated Notes, the write-off of the $4,976 discount and $1,706 premium associated with the 2009 Term Loan and
Senior Subordinated Notes, a $1,043 gain associated with the discount on the tender of the Senior Subordinated Notes and a $1,821
loss associated with the consent payment on the Senior Subordinated Notes.
The 2019 Notes will mature on February 15, 2019, and interest will accrue at the rate of 7.75% per annum. Interest is payable semi-
annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2011.
The indenture governing the 2019 Notes contains certain negative covenants which restrict, among other things, our ability to sell
assets; pay dividends, repurchase stock, incur debt, grant liens and issue preferred stock. The 2019 Notes are fully and unconditionally
guaranteed on a senior subordinated basis by substantially all of our existing and future domestic restricted subsidiaries that
guaranteed our 2009 Senior Secured Credit Facility and that guarantee our 2011 Revolver and Second Lien Notes.
On December 28, 2005, we 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 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 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.
On March 18, 2011, we completed the amendment of the 2009 Senior Secured Credit Facility with our amended and restated senior
credit facility, consisting of a $227,500 revolving credit and letter of credit facility. The 2011 Revolver is due March 18, 2016. If we
fail to refinance the Second Lien Notes by March 1, 2014, the maturity date for the 2011 Revolver shall be March 31, 2014. We have
the right to request, at our discretion, an increase in the amount of the 2011 Revolver by an aggregate amount of $182,500 subject to
certain conditions set forth in the 2011 Revolver agreement.
On July 9, 2009, we successfully completed the amendment of our existing senior credit facility with the 2009 Senior Secured Credit
Facility, consisting of the $177,500 then existing senior secured revolving credit facility and the $130,000 2009 Term Loan. In
connection with the 2009 Senior Secured Credit Facility, we simultaneously completed the offering of $180,000 aggregate principal
amount of 11% senior second lien notes due 2014 (the “Second Lien Notes”). The net proceeds from the 2009 Senior Secured Credit
Facility and Second Lien Notes offering were used to refinance the borrowings under our $525,000 senior credit facility due
April 2010.
On May 27, 2010, we entered into an amendment to the 2009 Senior Secured Credit Facility to create additional capital structure
flexibility. As amended, the 2009 Senior Secured Credit Facility had permitted us to use net proceeds of up to $150.0 million from
equity offerings to repurchase our outstanding Second Lien Notes. We were also permitted to use up to $50.0 million of borrowings
under the 2009 Senior Secured Credit Facility to repurchase Senior Subordinated Debt.
The 2009 Revolver was due December 31, 2012 and the 2009 Term Loan was due April 9, 2014. We had the right to request an
increase of the amount of the 2009 Senior Secured Credit Facility by an aggregate amount of $42,500, in its discretion, subject to
certain conditions of the Senior Secured Credit Facility.
71
We completed the sale of non-integrated recycling assets and select intellectual property assets on March 1, 2011 for $134,195 in
gross cash proceeds, including an estimated $3,795 working capital and other purchase price adjustment, which is subject to
adjustment, as defined in the purchase and sale agreement (see Note 17). After netting transaction costs and cash taxes payable in
conjunction with the divestitures, net cash proceeds amounted to approximately $122,953. We used cash proceeds from the
divestiture and borrowings under our 2009 Revolver to repay the aggregate balance of the 2009 Term Loan in full upon completion of
the disposition.
The 2011 Revolver is subject to customary affirmative, negative, and financial covenants generally consistent with the 2009 Senior
Secured Credit Facility. As of April 30, 2011, these covenants restricted capital expenditures to 1.5 times our consolidated
depreciation and amortization, or $58,261 for fiscal year 2011, set a minimum interest coverage ratio of 1.95, a maximum
consolidated total funded debt to consolidated EBITDA ratio of 4.75 and a maximum senior funded debt to consolidated EBITDA
ratio of 3.00. In addition to the financial covenants described above, the 2011 Revolver also contains a number of important negative
covenants which restrict, among other things, our ability to sell assets, pay dividends, repurchase stock, incur debt, grant liens and
issue preferred stock.
Further advances were available under the 2011 Revolver in the amount of $120,415 as of April 30, 2011. The available amount is net
of outstanding irrevocable letters of credit totaling $49,728 as of April 30, 2011, at which date no amount had been drawn.
The Second Lien Notes were issued at an original issue price of 97.2% of the principal amount. The Second Lien Notes pay interest on
a semi-annual basis and are due on July 15, 2014. The Second Lien Notes were sold in a private placement to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons outside
the United States under Regulation S under the Securities Act. The Second Lien Notes have not been registered under the Securities
Act, and unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from, or in
a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.
We recorded a charge of $511 as a loss on debt modification in the quarter ended July 31, 2009 relating to the non-cash write off of
unamortized deferred financing costs associated with the refinancing of our previous senior credit facility. We recorded a charge of
$115 as a loss on debt modification in the quarter ended January 31, 2011 relating to the non-cash write off of unamortized deferred
financing costs associated with the repayment of certain financing lease obligations to facilitate the sale of non-integrated recycling
assets and select intellectual property. Further information regarding this transaction is included in Note 17.
We have historically entered into interest rate derivative agreements to balance fixed and floating rate 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 were
party to no such agreements at April 30, 2011 or 2010.
In accordance with derivatives and hedging accounting guidance, for those interest rate derivatives deemed to be effective cash flow
hedges, the changes in fair value have been recorded in stockholders’ equity as components of accumulated other comprehensive
(loss) income. Ineffective portions of the changes in fair value as of April 30, 2009 were recorded in interest expense in our
consolidated statements of operations and amounted to $963.
As of April 30, 2011, debt and capital leases mature as follows:
Fiscal Year Ended April 30,
2012
2013
2014
2015 (1)
2016
Thereafter
$
$
1,217
1,243
867
176,768
57,540
225,000
462,635
(1)
Includes unamortized discount of $3,536.
72
10.
FAIR VALUE OF FINANCIAL INSTRUMENTS
We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as
well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. These
tiers include: Level 1, defined as quoted market prices in active markets for identical assets or liabilities; Level 2, defined as inputs
other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, and Level 3,
defined as unobservable inputs that are not corroborated by market data.
Our financial assets and liabilities recorded at fair value on a recurring basis include restricted assets and derivative instruments. Our
derivative instruments include commodity hedges. As of April 30, 2011 and 2010, we had no interest rate derivatives. We use
commodity hedges to hedge against fluctuations in commodity pricing. The fair value of these hedges is based on futures pricing in
the underlying commodities.
We use valuation techniques that maximize the use of market prices and observable inputs and minimize the use of unobservable
inputs. In measuring the fair value of our financial assets and liabilities, we rely on market data or assumptions which we believe
market participants would use in pricing an asset or liability.
As of April 30, 2011, our assets and liabilities that are measured at fair value on a recurring basis included the following:
Assets:
Restricted assets
Liabilities:
Commodity derivatives
Fair Value Measurement at April 30, 2011 Using:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
$
$
334
$
—
$
—
$
230
$
—
—
During the fiscal year ended April 30, 2011 there were no nonrecurring fair value measurements of assets and liabilities measured at
fair value on a nonrecurring basis subsequent to initial measurement.
Our financial instruments include cash and cash equivalents, trade receivables, investments in closure trust funds and trade payables.
The carrying values of these financial instruments approximate their respective fair values. At April 30, 2011, the fair value of our
fixed rate debt including the Second Lien Notes and the 2019 Notes was approximately $403,846 and the carrying value was
$376,464. At April 30, 2011, the fair value of our 2011 Revolver approximates its carrying value of $57,357.
11.
(a)
COMMITMENTS AND CONTINGENCIES
Leases
The following is a schedule of future minimum operating lease and finance lease obligation payments, together with the present value
of the net minimum lease payments under finance lease obligations, as of April 30, 2011:
Fiscal Year Ended April 30,
2012
2013
2014
2015
2016
Thereafter
Total minimum lease payments
Less—amount representing interest
Less—current maturities of finance lease obligations
Present value of long term finance lease obligations
73
Operating
Leases
Financing Lease
Obligations
$
$
10,835
9,389
9,313
26,132
7,735
125,285
188,689
$
$
472
472
472
472
1,098
—
2,986
514
2,472
316
2,156
We lease real estate and equipment under leases that qualify for treatment as capital leases. On July 31, 2008, we completed a
financing transaction for the construction of two single stream material recovery facilities as well as engines for a landfill gas to
energy project with a third-party leasing company. In December 2010, we repaid the financing associated with the construction of the
two single stream facilities to facilitate the sale of the non-integrated recycling assets and select intellectual property assets. The
remaining financing lease obligation has a seven year term at a fixed rate of interest (approximately 6.7%). The assets related to the
remaining obligation in the amount of $3,213 have been capitalized and are included in property and equipment at April 30, 2011 and
2010. Depreciation expense associated with these assets amounted to $293 for fiscal years ended April 30, 2011 and 2010,
respectively.
We lease operating facilities and equipment under operating leases with monthly payments varying up to $34. Future minimum lease
payments under these operating leases include the effect of escalation clauses, lease concessions and capital project funding, as
applicable. Future minimum lease payments are recognized on a straight-line basis over the minimum lease term. Total rent expense
under operating leases charged to operations was $5,109, $5,111 and $4,907 in fiscal years ended April 30, 2011, 2010 and 2009,
respectively.
During fiscal 2004, we 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 we receive
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 us at the end of the
lease term. We allocate 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 us 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 is amortized and charged to cost of operations over the life of the contract. We amortize 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 (e.g., 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 $7,878, $6,867 and $6,416 in fiscal years ended April 30, 2011, 2010 and 2009, respectively.
(b)
Legal Proceedings
In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we are
subject to various judicial and administrative proceedings involving state or local agencies. In these proceedings, an agency may seek
to impose fines or to revoke or deny renewal of an operating permit held by us. From time to time, we may also be subject to actions
brought by special interest or other groups, adjacent landowners or residents in connection with the permitting and licensing of
landfills and transfer stations, or alleging environmental damage or violations of the permits and licenses pursuant to which we
operate. In addition, we are party to various claims and suits pending for alleged damages to persons and property, alleged violations
of certain laws and alleged liabilities arising out of matters occurring during the normal operation of the waste management business.
In accordance with ASC 450-20, we accrue for legal proceedings when losses become probable and reasonably estimable. As of the
end of each applicable reporting period, we review each of our legal proceedings to determine whether it is probable, reasonably
possible or remote that a liability has been incurred and, if it is at least reasonably possible, whether a range of loss can be reasonably
estimated under the provisions of ASC 450-20-25-2. In instances where we determine that a loss is probable and we can reasonably
estimate a range of losses we may incur with respect to such a matter, we record an accrual for the amount within the range that
constitutes our best estimate of the possible loss. If we are able to reasonably estimate a range but no amount within the range appears
to be a better estimate than any other, we record an accrual in the amount that is the low end of such range. When a loss is reasonably
possible but not probable we will not record an accrual but we will disclose our estimate of the possible range of loss where such
estimate can be made in accordance with ASC 450-20-25-3. As of April 30, 2011, there were no accruals established related to our
outstanding legal proceedings.
We offer no prediction of the outcome of any of the proceedings or negotiations described below. We are vigorously defending each
of these lawsuits and claims. However, there can be no guarantee we will prevail or that any judgments against us, if sustained on
appeal, will not have a material adverse effect on our business, financial condition, results of operations or cash flows.
74
CRMC Bethlehem, LLC Litigation
CRMC Bethlehem, LLC and Commonwealth Bethlehem Energy, LLC (collectively, “CRMC”), filed claims in the US District Court
for the District of New Hampshire against NCES. CRMC sought declaratory and injunctive relief and damages in the amount of
approximately $1.5 million. CRMC alleged that NCES had breached the terms of a Gas Lease and Easement Agreement by and
between CRMC and NCES, entered into on September 10, 1998, as amended on March 1, 2000 (the “Gas Lease”). CRMC alleged
that NCES had inappropriately interfered with CRMC rights pursuant to the Gas Lease to develop a landfill gas-to-energy project to
be sited on the Landfill. CRMC also had alleged that NCES violated the terms of an Operations and Maintenance Agreement in
operating the landfill gas management system. NCES denied these allegations, and vigorously defended against these claims.
On or about March 23, 2011, we elected, in a separate transaction, to purchase from CRMC the gas rights and other assets subject to
the terms of the Gas Lease, for the total sum of $1,800, $1,200 of which was paid at closing on or about April 11, 2011, and the
remainder of which will be paid in five installments of $120 on the anniversary of the closing date. This litigation was dismissed with
prejudice as part of the purchase of the CRMC gas rights.
Town of Seneca Matter
Casella Waste Services of Ontario, LLC operates the Ontario County Landfill and recycling facilities located in the Town of Seneca,
New York, pursuant to an Operation, Management and Lease Agreement with Ontario County (the “OMLA”), and a Host Agreement
with the Town of Seneca (the “Host Agreement”).
On May 6, 2011, the Town of Seneca filed a complaint in Ontario County Supreme Court naming Ontario County (the “County”) and
various Casella entities (collectively, “Casella”) as defendants (the “Seneca Litigation”), alleging that both Casella and the County
have breached their obligations to the Town under both the Host Agreement and the OMLA. The Town’s complaint alleges a variety
of contract breaches stemming from Casella’s decision to pay the County stipulated in-lieu fees for certain projects described in the
OMLA rather than constructing those projects. The complaint demands, among other things, payment of $3,800. We believe that a
loss in the range of zero to $3,800 is reasonably possible but not probable.
We firmly believe the Town’s position is without legal merit. We will defend the Seneca Litigation aggressively.
Vermont Attorney General Matter
We entered into an Assurance of Discontinuance (“AOD”) with the Vermont Attorney General’s Office (“AG”) on or about May 17,
2002, concerning, among other matters, the conduct of our business in Vermont as related to certain contract terms with our small
commercial container customers. On March 23, 2010, we were a recipient of a Civil Investigation Subpoena (“CIS”) issued by the
AG requesting information and documents from us regarding our compliance with the AOD. We provided all information requested
by the AG in a timely manner. However, in the course of responding to the requests, we discovered that some of our small
commercial container customers were mistakenly issued contracts which did not strictly comply with the terms of the AOD. This
error occurred only during a one (1) year period starting in 2009 and ending in 2010, and only a portion of our small commercial
container customers were affected. We immediately terminated the use of these contracts, and we intend to issue revised contracts to
those affected customers.
On or about April 25, 2011, the AG provided us with correspondence asserting that we violated the terms of the AOD, and making a
demand that we pay an amount of approximately $4,800 in liquidated damages. The AG also requested that the AOD be extended
beyond its initial expiration date in 2012, and that certain of our business practices with respect to our small commercial container
customers, such as the offer of “free services,” be discontinued.
We do not agree with the AG regarding the enforceability and terms of the AOD or that the AOD term should be extended. We intend
to vigorously defend ourselves against the assertions of the AG. We believe that a loss in the range of zero to $4,800 is reasonably
possible but not probable.
Penobscot Energy Recovery Company
On May 31, 2011 we received formal written notice from the Penobscot Energy Recovery Company (“PERC”) that it is submitting to
arbitration what it alleges is a disputed invoice in the amount of approximately $3,195 dated March 2, 2011. PERC states that Pine
Tree Waste, Inc., our subsidiary, has failed since 2001 to honor a “put-or-pay” waste disposal arrangement. We have been
investigating the merit of this claim since receipt of the invoice, and will aggressively defend against this claim in arbitration and/or
the courts. We believe that a loss in the range of zero to $3,195 is reasonably possible but not probable.
75
(c)
Tax Matters
During the quarter ended January 31, 2011, we received an income tax assessment for years ending April 30, 2004 through April 30,
2006 of $3,852, which includes $1,632 in interest and penalties, from the State of New York related to the filing of combined returns
in the state. We do not believe that a loss is reasonably possible and no amounts have been accrued for this claim.
(d)
Environmental Liability
We are subject to liability for environmental damage, including personal injury and property damage, that our solid waste, recycling
and power generation facilities may cause to neighboring property owners, particularly as a result of the contamination of drinking
water sources or soil, possibly including damage resulting from conditions existing before we acquired the facilities. We may also be
subject to liability for similar claims arising from off-site environmental contamination caused by pollutants or hazardous substances
if we or our predecessors arrange or arranged to transport, treat or dispose of those materials.
On December 20, 2000, the State of New York Department of Environmental Conservation (“DEC”) issued an Order on Consent
(“Order”) which named Waste-Stream, Inc. (“WSI”), a Casella subsidiary, General Motors Corporation (“GM”) and Niagara Mohawk
Power Corporation (“NiMo”) as Respondents. The Order required that the Respondents undertake certain work on a 25-acre scrap
yard and solid waste transfer station owned by WSI, including the drafting of a Remedial Investigation and Feasibility Study (the
“Study”). A draft of the Study was submitted to DEC in January 2009 (followed by a final report in May 2009). The Study estimates
that the undiscounted costs associated with implementing the preferred remedies will be approximately $10,219 and it is unlikely that
any costs relating to onsite remediation will be incurred until fiscal year 2012. On February 28, 2011, the DEC issued a Proposal
Remedial Action Plan (the “PRAP”) for the site and accepted public comments on the proposed remedy through March 29, 2011. We
submitted extensive comments. In early April of 2011 the DEC issued the final Record of Decision (“ROD”) for the site. The ROD
was subsequently rescinded for failure to respond to all submitted comments. The preliminary ROD, however, estimated that the
estimated present worth cost associated with implementing the preferred remedies would be approximately $12,130. The DEC issued
the final ROD in June 2011 with proposed remedies consistent with the earlier ROD that had been rescinded.
WSI is jointly and severally liable for the total cost to remediate and we initially expected to be responsible for approximately 30%
upon implementation of a cost-sharing agreement with NiMo and GM. Based on these estimates, we recorded an environmental
remediation charge of $2,823 in the third quarter of fiscal year 2009. In the fourth quarter of fiscal year 2009, we recognized an
additional charge of $1,532, representing an additional 15% of the estimated costs, in recognition of the deteriorating financial
condition and eventual bankruptcy filing of GM. In the fourth quarter of fiscal year 2010, we recognized an additional charge of $335
based on changes in the expected timing of cash outflows. Based on the estimated costs in the rescinded ROD, and changes in the
estimated timing of cash flows, at April 30, 2011 we recorded an environmental remediation charge of $549. Such charges could be
significantly higher if costs exceed estimates. We inflate these estimated costs in current dollars until the expected time of payment
and discount the cost to present value using a risk-free interest rate (2.31%). At April 30, 2011 and April 30, 2010, we have recorded
$5,147 and $4,551, respectively, related to this liability including the recognition of $138 and $226 of accretion expense in the fiscal
years ended April 30, 2011 and 2010, respectively.
The payments we expect to make, in today’s dollars, for each of the five succeeding years and the aggregate amount thereafter are as
follows:
Fiscal Year Ended April 30,
2012
2013
2014
2015
2016
Thereafter
Total
$
$
225
2,997
1,033
27
42
750
5,074
A reconciliation of the expected aggregate undiscounted amount to the amount recognized in the statements of financial position is as
follows:
Reconcilation of Undiscounted Amount to Liability
Undiscounted liability
Less inflation / discount
Liability balance - April 30, 2011
$
$
5,074
(73)
5,147
76
Any substantial liability incurred by us arising from environmental damage could have a material adverse effect on our business,
financial condition and results of operations. We are not presently aware of any other situations that it expects would have a material
adverse impact on its business, financial condition, results of operations or cash flows.
(e)
Employment Contracts
We have entered into employment contracts with three of our senior officers. Contracts are dated June 18, 2001, January 9, 2008, and
July 6, 2010. Each contract has an initial three year term and a covenant not to compete ranging from one to two years 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 $941. In the event of a change in control of us, 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. We also have other employment contracts or arrangements with employees who are not senior officers.
12.
PREFERRED STOCK
We are authorized to issue up to 944 shares of preferred stock in one or more series. As of April 30, 2011 and 2010, we had zero
shares issued.
13.
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 Incentive Plans
On July 31, 1997, we adopted the 1997 Stock Option Plan (the “1997 Plan”) a stock option plan for employees, officers and directors
of, and consultants and advisors to us. As of April 30, 2011, options to purchase 1,667 shares of Class A Common Stock at a weighted
average exercise price of $11.81 were outstanding under the 1997 Plan. As of April 30, 2010, options to purchase 2,286 shares of
Class A Common Stock at a weighted average exercise price of $11.25 were outstanding under the 1997 Plan. The 1997 Plan
terminated as of July 31, 2007 and as a result no additional awards may be made pursuant to the 1997 Plan.
On July 31, 1997, we adopted a stock option plan for our non-employee directors. The 1997 Non-Employee Director Stock Option
Plan (the “Non-Employee Director Plan”) provided 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, 2011 options to purchase 110 shares of Class A Common Stock at a weighted
average exercise price of $11.07 were outstanding. As of April 30, 2010 options to purchase 125 shares of Class A Common Stock at
a weighted average exercise price of $10.75 were outstanding. The Non-Employee Director Plan terminated as of July 31, 2007.
On October 10, 2006, we adopted the 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan was amended on October 13,
2009. Up to an aggregate amount equal to the sum of: (i) 2,475 shares of Class A Common Stock (subject to adjustment in the event
of stock splits and other similar events), plus (ii) such additional number of shares of Class A Common Stock as are currently subject
to options granted under our 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. As of April 30, 2011, options to purchase 478 shares
of Class A Common Stock at a weighted average exercise price of $7.66 were outstanding under the 2006 Plan. As of April 30, 2010,
options to purchase 228 shares of Class A Common Stock at a weighted average exercise price of $11.90 were outstanding under the
2006 plan.
During fiscal year 2009, we granted performance stock units under the 2006 plan to certain employees. The performance stock units
could have resulted in the issuance of shares of Class A Common stock based on the attainment of a targeted average return on net
assets over a three year period ending April 30, 2011. We did not record equity compensation expense or issue any shares of Class A
Common stock as we did not attain the performance metrics associated with this grant. These shares expired April 30, 2011.
77
In June 2009, we granted a combination of restricted stock units and performance stock units under the 2006 Plan to certain
employees. The stock units are subject to vesting, one half of which is based on our attainment of a targeted annual return on assets in
fiscal year 2012 (performance stock units) and the other half of which vests based on continued employment over a three year period
starting on the first anniversary of the grant (restricted stock units). As a result of the sale of non-integrated recycling assets and select
intellectual property assets on March 1, 2011, we modified certain awards to allow employees who left us as a result of the transaction
to become immediately vested in full with respect to their performance stock units and partially vested with respect to their restricted
stock units based on their continued employment through the transaction date. This modification resulted in 106 and 25 shares of
Class A Common Stock to be issued and $702 in total compensation expense being recognized related to discontinued operations in
the fourth quarter of fiscal year 2011. As of April 30, 2011, the performance stock units for employees who remained with us could
result in the issuance of up to 862 shares of Class A Common Stock based on the attainment of a targeted annual return on assets in
fiscal 2012 and the restricted stock could result in the issuance of up to 286 shares of Class A Common Stock based on vesting over a
three year period starting on the first anniversary of the grant.
The initial grant date of these awards was June 11, 2009. Subsequent to the initial grant, we determined that due to a clerical error, the
number of awards made on June 11, 2009 exceeded the number of shares that were available for issuance under the 2006 Plan. As a
result, we asked officers and certain employees who received a performance stock unit award on June 11, 2009 and July 28, 2008 to
agree to termination of the agreements evidencing such awards. Upon stockholder approval to increase the number of shares
authorized for issuance under the 2006 Plan on October 13, 2009, we granted performance stock units under the 2006 Plan for the
same number of shares and subject to the same terms as those awards that had been terminated. The performance and restricted stock
units were granted at an average grant date fair value of $2.69 per share.
In June 2010, we granted a combination of restricted stock units and performance stock units under the 2006 Plan to certain
employees. The vesting of half of the stock units is based on the attainment of a targeted annual return on net assets in fiscal year
2013 (performance stock units) and the vesting of the other half is based on continued employment over a three year period starting on
the first anniversary of the grant (restricted stock units). As a result of the sale of non-integrated recycling assets and select intellectual
property assets on March 1, 2011, we modified certain awards to allow employees who left us as a result of the transaction to become
immediately vested with respect to their performance stock units and partially vested with respect to their restricted stock units based
on their continued employment through the transaction date. This modification resulted in 107 and 21 shares of Class A Common
Stock to be issued and $736 in total compensation expense being recognized related to discontinued operations in the fourth quarter of
fiscal year 2011. As of April 30, 2011, the performance stock units included in the June, 2010 grant for employees who remained with
us could result in the issuance of up to 469 shares of Class A Common Stock based on the attainment of a targeted annual return on
net assets in fiscal year 2013 and the restricted stock units could result in the issuance of up to 375 shares of Class A Common Stock
based on vesting over a three year period starting on the first anniversary of the date of the grant. The performance stock units were
granted at a grant date fair value of $4.20 per share and the restricted stock units were granted at a grant date fair value of $3.46 per
share.
As of April 30, 2011 there were 865 Class A Common Stock equivalents available for future grant under the 2006 Plan inclusive of
additional Class A Common Stock equivalents which were previously issued under our terminated plans, and which have become
available for grant because such awards expired or otherwise resulted in shares not being issued.
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 us upon exercise of stock options are issued from the pool of authorized shares of Class A Common Stock. As
a result of the sale of non-integrated recycling assets and select intellectual property assets on March 1, 2011, employees who left us
as a result of the transaction and held stock options, subject to certain limitations, had the exercise period of their stock options
extended 18 months.
Stock option activity for the fiscal years ended April 30, 2011 is as follows:
Number of
Options
Weighted
Average
Exercise
Price
2,639
280
(641)
(24)
2,254
3,036
2,466
1,997
$
$
$
$
$
11.28
3.86
9.61
5.89
10.89
12.09
11.25
11.80
Outstanding, April 30, 2010
Granted
Terminated
Exercised
Outstanding, April 30, 2011
Exercisable, April 30, 2009
Exercisable, April 30, 2010
Exercisable, April 30, 2011
78
Set forth below is a summary of options outstanding and exercisable as of April 30, 2011:
Options Outstanding
Weighted
Average
Remaining
Contractual Life
(Years)
Number of
Options
Outstanding
Weighted
Average
Exercise Price
Number of
Exerciseable
Options
Options Exercisable
$0.00 - $3.99
$4.00 - $6.91
$6.92 - $10.38
$10.39 - $12.60
$12.61 - $15.58
Over $15.59
Totals
(d)
Stock-Based Compensation
250
45
307
717
920
15
2,254
9.2
4.7
2.4
3.1
3.2
5.1
3.8
$
$
3.81
5.31
9.06
11.44
13.20
15.60
10.89
0
38
307
717
920
15
1,997
Weighted
Avereage
Exercise Price
—
5.41
9.06
11.40
13.20
15.60
11.80
$
$
We recognized stock-based compensation expense of $1,592, $1,987 and $1,529 for the fiscal years ended April 30, 2011, 2010 and
2009, respectively. Of these amounts, expense recorded with respect to stock options was $387, $925 and $1,227, expense recorded
with respect to our employee stock purchase plan was $122, $188 and $137, and expense recorded with respect to restricted stock,
restricted stock units, and performance stock units was $1,083, $875 and $165 for the fiscal years ended April 30, 2011, 2010 and
2009, respectively. The tax benefit in the provision for income taxes associated with stock-based compensation expense for the fiscal
years ended April 30, 2011, 2010 and 2009 was $97, $0, and $0, respectively.
Stock-based compensation expense is included in general and administration expenses in the Consolidated Statements of Operations.
The unrecognized stock-based compensation expense at April 30, 2011 related to unvested stock options and restricted stock units was
$2,172, to be recognized over a weighted average period of 1.8 years. Maximum unrecognized stock-based compensation expense at
April 30, 2011 related to performance stock units was $3,643, to be recognized over a weighted average period of 1.4 years subject to
the attainment of performance metrics. We expect to recognize $447 of expense related to performance stock units over the weighted
average period based on the projected attainment of certain target metrics at April 30, 2011.
We recorded a tax benefit of $129, $0 and $162 to additional paid in capital related to the exercise of various share based awards in
the fiscal years ended April 30, 2011, 2010 and 2009, respectively. Prior to the adoption of guidance on equity based compensation,
we presented all tax benefits net of deductions resulting from the exercise of share based awards as an operating cash flow, in
accordance with appropriate guidance. Current guidance on equity based compensation requires us to reflect the tax savings resulting
from tax deductions in excess of expense as a financing cash flow in its financial statements.
Our calculations of stock-based compensation expense for the fiscal years April 30, 2011, 2010 and 2009 were made using the Black-
Scholes valuation model. The fair value of our stock option grants was estimated assuming no expected dividend yield and the
following weighted average assumptions for the fiscal years ended April 30, 2011, 2010 and 2009 as follows:
Stock Options:
Expected life
Risk-free interest rate
Expected volatility
Stock Purchase Plan:
Expected life
Risk-free interest rate
Expected volatility
Fiscal Year Ended April 30,
2010
2011
2009
6.5 years
1.80%
85.59%
0.5 years
0.20%
46.53%
6 years
2.28%
84.98%
0.5 years
0.19%
210.97%
7 years
1.74%
36.80%
0.5 years
1.25%
145.64%
The fair value of the stock option modification related to the sale of non-integrated recycling assets and select intellectual property
assets was calculated as of the agreement date using the following assumptions: expected life 1.5 years, risk-free interest rate of
0.46%, and expected volatility rate of 52.19%. 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. Expected volatility is calculated using the average of
weekly historical volatility of our Class A Common Stock over the expected term.
79
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 and the estimated volatility of our common
stock price over the expected term. 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 stock options, restricted stock and restricted / performance stock units outstanding as of April 30, 2011 and 2010, and
changes during the fiscal year ended April 30, 2011, is presented below:
Unvested
Options
Vested
Options
Total
Options
Weighted
Average
Exercise
Price
Outstanding, April 30, 2010
Granted
Vested (options only)
Forfeited
Exercised/Issued
Outstanding, April 30, 2011
Exercisable, April 30, 2011
Expected to vest at April 30, 2011
173
280
(172)
(24)
—
257
257
2,466
—
172
(616)
(24)
1,998
1,998
2,639 $
280
—
(641)
(24)
2,254
1,998 $
11.28 $
3.86
11.51
9.61
5.89
11.80 $
Aggregate
Intrinsic
Value of
Vested
Options
Weighted
Average
Remaining
Term
(Years)
9
3.6
803
52
3.8
3.1
Restricted
Stock Units,
Restricted
Stock and
Performance
Stock Units
Unvested (1)
1,470
1,030
—
(390)
(480)
1,630
(1) Performance stock units are included at the 100% attainment level. Attainment of performance metrics at maximum levels could
result in the issuance of an additional 525 shares of Class A Common Stock.
The weighted average grant date fair value per share for the stock options granted during the fiscal years ended April 30, 2011, 2010
and 2009 was $2.85, $3.48 and $1.75, respectively. The total fair value of the 172 stock options vested during the fiscal year and
outstanding as of April 30, 2011 was approximately 858.
Stock options exercisable as of April 30, 2011 have an aggregate intrinsic value of $52 based on the market value of our Class A
common stock as of April 30, 2011. The aggregate intrinsic value of the stock options exercised during the fiscal year ended April 30,
2011 was approximately $43.
14.
EMPLOYEE BENEFIT PLANS
We offer our eligible employees the opportunity to contribute to a 401(k) plan. Effective May 1, 2008, we contributed fifty cents for
every dollar an employee invests in the 401(k) plan up to our maximum match of one thousand dollars per calendar year. Previously
this amount had been seven hundred fifty dollars per calendar year. Effective January 1, 2009, we suspended our matching provision
of the 401(k) plan. Effective July 1, 2010, we reinstated our matching provision of the 401(k) and contribute fifty cents for every
dollar an employee invests in the 401(k) plan up to our maximum match of five hundred dollars per calendar year. Effective January 1,
2011, the maximum match was revised to one thousand dollars per calendar year. Participants vest in employer contributions ratably
over a three year period. Employer contributions for the fiscal years ended April 30, 2011, 2010, and 2009 amounted to $600, $0 and
$362, respectively.
In January 1998, we implemented our 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. 900 shares of Class A Common Stock have
been reserved for this purpose. During the fiscal years ended April 30, 2011, 2010 and 2009, 105, 146 and 68 shares, respectively, of
Class A Common Stock were issued under this plan. As of April 30, 2011, 325 shares of Class A Common Stock were available for
distribution under this plan.
80
15.
INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the fiscal years ended April 30, 2011, 2010 and 2009 consists
of the following:
Federal—
Current
Deferred
Deferred benefit of loss carryforwards
State—
Current
Deferred
Deferred benefit of loss carryforwards
2011
Fiscal Year Ended April 30,
2010
2009
$
$
$
—
(9,047)
(15,748)
(24,795)
(599)
2,253
(1,076)
578
(24,217) $
51
1,601
—
1,652
46
737
(193)
590
2,242
$
$
(51)
8,787
—
8,736
563
(3,046)
(6)
(2,489)
6,247
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, 2011, 2010 and 2009 are as follows:
Federal statutory rate
Tax at statutory rate
State income taxes, net of federal benefit
(Decrease) increase in valuation allowance
Tax credits
Non-deductible expenses
Non-deductible stock option charges
Non-deductible goodwill impairment
Other, net
2011
Fiscal Year Ended April 30,
2010
2009
$
$
35%
(9,772) $
217
(14,454)
(637)
409
107
—
(87)
(24,217) $
35%
(4,832) $
677
6,367
(701)
446
381
—
(96)
2,242
$
35%
(23,055)
(2,689)
24,082
(468)
417
383
7,498
79
6,247
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, 2011 and 2010:
Deferred tax assets:
Accrued expenses and reserves
Net operating loss carryforwards
Alternative minimum tax credit carryforwards
Book over tax depreciation of property and equipment
Stock awards
General business tax credit carryforwards
Deferred revenue
Other
Total deferred tax assets
Less: valuation allowance
Total deferred tax assets after valuation allowance
Deferred tax liabilities:
Amortization of intangibles
Basis difference in equity interests
Unrealized gain on commodity hedges
Accelerated depreciation of property and equipment
Total deferred tax liabilities
Net deferred tax asset (liability)
$
$
April 30,
2011
2010
24,914
3,883
3,303
3,360
1,052
711
315
383
37,921
(20,618)
17,303
(16,485)
(545)
(250)
—
(17,280)
23
$
$
25,853
19,582
2,403
—
—
981
704
1,142
50,665
(35,685)
14,980
(12,953)
(198)
(125)
(1,967)
(15,243)
(263)
81
At April 30, 2011 we have, for federal income tax purposes, net operating loss carryforwards of approximately $2,734 that expire in
fiscal years 2024 through 2030 and state net operating loss carryforwards of approximately $25,188 that expire in fiscal years 2012
through 2031. The net operating loss carryforwards include approximately $383 for which a benefit will be recorded in additional
paid-in capital when realized. In addition, we have $3,303 minimum tax credit carryforwards available that are not subject to a time
limitation and $711 general business credit carryforwards which expire in fiscal years 2023 through 2031.
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. We adjust the valuation allowance in the period management
determines it is more likely than not that deferred tax assets will or will not be realized. During the fourth quarter of 2009, we
evaluated the realizability of deferred tax assets as a result of recent economic conditions, the increased uncertainty of the debt and
commodity markets, our recent operating results, and our revised estimate of pre-tax income in the near-term. Based on this review,
we recognized a $19,045 addition to the beginning of the year valuation allowance in 2009.
For the fiscal year ended April 30, 2011, the net decrease in the valuation allowance was $15,067. The valuation allowance decreased
as a result of the realization of net operating loss carryforwards and other deferred tax assets resulting from the gain on disposal of
discontinued operations. In assessing the need for a valuation allowance, we have assessed the available means of recovering deferred
tax assets, including the ability to carryback net operating losses, the existence of reversing temporary differences, the availability of
tax planning strategies, and available sources of future taxable income. We have also considered the ability to implement certain
strategies, such as a potential sale of assets that would, if necessary, be implemented to accelerate taxable income and use expiring
deferred tax assets. We believe we are able to support the deferred tax assets recognized as of the end of the year based on all of the
available evidence. The net deferred tax liability as of April 30, 2011 includes deferred tax liabilities related to amortizable goodwill,
which are anticipated to reverse in an indefinite future period and which are not currently available as a source of taxable income.
The provisions of ASC 740-10-25-5 prescribe the minimum recognition threshold that a tax position is required to meet before being
recognized in the financial statements. Additionally, ASC 740-10-25-5 provides guidance on de-recognition, measurement,
classification, interest and penalties, accounting in interim periods, disclosure and transition. Under ASC 740-10-25-5, an entity may
only recognize or continue to recognize tax positions that meet a “more likely than not” threshold.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits for the fiscal years ended April 30, 2011 and
2010 are as follows:
Unrecognized tax benefits at beginning of period
Gross increases for tax positions related to the current year
Gross increases for tax positions of prior years
Gross decreases for tax positions of prior years
Reductions resulting from lapse of statute of limitations
Settlements
Unrecognized tax benefits at end of period
$
$
Fiscal Year Ended April 30,
2011
2010
5,859
1
34
(305)
(657)
—
4,932
$
$
6,551
20
—
(22)
(689)
(1)
5,859
Included in the balances at April 30, 2011 and 2010 are approximately $16 and $151, respectively, of unrecognized tax benefits (net of
the federal benefit on state issues) that, if recognized, would favorably affect the effective income tax rate in future periods. We
anticipate that approximately $234 of unrecognized tax benefits, all related to deferred tax assets which are subject to a full valuation
allowance, may be reversed within the next 12 months due to the expiration of the applicable statute of limitations.
Our continuing practice is to recognize interest and penalties related to income tax matters in income tax expense. Related to uncertain
tax positions, we have accrued interest of $129 and penalties of $9 during 2011, including ($440) accrued in income tax expense
during the year ended April 30, 2011. During 2010, we accrued interest of $569 and penalties of $9 related to uncertain tax positions,
including $83 accrued in income tax expense during the year ended April 30, 2010. To the extent interest and penalties are not
assessed with respect to uncertain tax positions, amounts accrued will be reduced and reflected as a reduction of the overall income tax
provision.
We are subject to U.S. federal income tax, as well as income tax of multiple state jurisdictions. Due to Federal and state net operating
loss carryforwards, income tax returns from fiscal years 1998 through 2011 remain open for examination, with limited exceptions.
82
16.
DEVELOPMENT PROJECT CHARGES
In fiscal year 2009, we wrote-off $355 in deferred costs associated with certain development projects deemed no longer viable. These
costs are included in asset impairment charge in the accompanying Consolidated Statements of Operations.
17.
ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
Assets held for sale:
In fiscal year 2011, we completed the sale of certain assets in Southeastern Massachusetts and recorded a gain on sale of assets of
$3,502. Total consideration amounted to $7,750 with cash proceeds of $7,533. Assets of these operations were deemed as held for
sale as of April 30, 2010. Non-current assets held for sale at April 30, 2010 were related to property, plant and equipment and
amounted to $3,708.
Discontinued operations:
As discussed in Note 1, on March 1, 2011 we completed the divestiture of our non-integrated recycling assets and certain intellectual
property assets. This resulted in a gain on disposal of discontinued operations (net of tax) amounting to $43,718 in the fourth quarter
of fiscal year 2011.
During the third quarter of fiscal year 2011, we completed the sale of the assets of the Trilogy Glass business for cash proceeds of
$1,840. A loss amounting to $128 (net of tax) was recorded to gain on disposal of discontinued operations in fiscal year 2011.
The assets and liabilities of total discontinued operations were comprised of the following at April 30, 2010:
$
ASSETS:
Accounts receivable - trade, net
Prepaid expenses
Inventory
Other current assets
Total current assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other non-current assets
Total assets
LIABILITIES:
Current maturities of long-term debt and capital leases
Accounts payable
Accrued payroll and related expenses
Other accrued liabilites
Total current liabilities
Long-term debt and capital leases, less current maturities
Total liabilities
$
April 30,
2010
10,352
296
676
—
11,324
22,383
25,266
681
192
48,522
59,846
475
5,083
706
635
6,899
2,930
9,829
In fiscal year 2010 we completed divestitures and closed operations resulting in a gain on disposal of discontinued operations (net of
tax) amounting to $1,135 and $97 for the fiscal year ended April 30, 2010 and 2009, respectively. We received cash proceeds of
$1,750 related to these divestiture transactions in fiscal year 2010.
83
The operating results of these operations, including those related to prior years, have been reclassified from continuing to discontinued
operations in the accompanying consolidated financial statements. Revenues and income before income tax (benefit) provision
attributable to discontinued operations for the fiscal years ended April 30, 2011, 2010 and 2009, respectively, are as follows:
$
Revenues
(Loss) income before income taxes $
62,510 $
(2,258) $
66,242 $
1,931 $
71,672
6,832
Fiscal Year Ended April 30,
2010
2011
2009
We have recorded contingent liabilities associated with these divestitures amounting to approximately $332 and $350 at April 30,
2011 and 2010, respectively.
We allocate interest expense to discontinued operations. We have also eliminated certain immaterial inter-company activity
associated with discontinued operations.
18.
EARNINGS PER SHARE
The following table sets forth the numerator and denominator used in the computation of earnings per share:
Numerator:
Loss from continuing operations before discontinued
operations applicable to common stockholders
$
(3,204) $
(16,049) $
(72,118)
Fiscal Year Ended April 30,
2010
2011
2009
Denominator:
Number of shares outstanding, end of period:
Class A common stock
Class B common stock
Unvested restricted stock
Effect of weighted average shares outstanding during period
Weighted average number of common shares used in basic
EPS
Impact of potentially dilutive securities:
Dilutive effect of options and restricted / performance stock
units
Weighted average number of common shares used in diluted
EPS
25,589
988
(141)
(331)
24,944
988
(122)
(79)
24,679
988
—
(83)
26,105
25,731
25,584
—
—
—
26,105
25,731
25,584
For the fiscal years ended April 30, 2011, 2010 and 2009, 3,870, 3,854 and 3,605, respectively, of potentially dilutive common stock
related to restricted stock, restricted stock units, performance stock units, and options, respectively, were excluded from the
calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.
19.
(a)
RELATED PARTY TRANSACTIONS
Services
During fiscal years ended April 30, 2011, 2010 and 2009, we retained the services of a related party, a company wholly owned by
John Casella, our Chairman and Chief Executive Officer, and Douglas Casella, a member of our Board of Directors, as a contractor in
developing or closing certain landfills owned by us. Total purchased services charged to operations or capitalized to landfills for the
fiscal years ended April 30, 2011, 2010 and 2009 were $6,053, $9,297 and $7,626, respectively, of which $209 and $467 were
outstanding and included in either accounts payable or other current liabilities at April 30, 2011 and 2010, respectively.
(b)
Leases
On August 1, 1993, we initially entered into two leases for operating facilities with a partnership of which John Casella, our Chairman
and Chief Executive Officer, and Douglas Casella, a member of our Board of Directors are the general partners. The leases have been
extended according to the terms of the agreements and are classified as capital leases in the accompanying consolidated balance
sheets. The leases call for monthly payments of approximately $25 and expire in April 2013. Total expense charged to operations for
fiscal years ended April 30, 2011, 2010 and 2009 under these agreements was $311, $321 and $330, respectively.
84
(c)
Landfill Post-closure
We have agreed to pay the cost of post-closure on a landfill owned by two of our major stockholders and members of the Board of
Directors (one of whom is also an officer). We 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, 2011, 2010 and 2009, we paid $8, $9 and $10
respectively, pursuant to this agreement. As of April 30, 2011 and 2010, we have accrued $94 and $104 respectively, for costs
associated with its post-closure obligations.
(d)
Employee Loans
As of April 30, 2011 and 2010, we have recourse loans to a related party and employee outstanding in the amount of $1,297 and
$1,288, respectively. The principal and interest on these notes is payable upon demand by us. Interest which has been fully accrued
for as of April 30, 2011 is at the Wall Street Journal Prime Rate (3.25% at April 30, 2011). Non current assets include a note from Jim
Bohlig amounting to $1,155 and $1,149 at April 30, 2011 and 2010, respectively. Jim Bohlig was an officer and Board Member of
ours before joining the Purchaser, see Note 17, as CEO upon the closing of the transaction to sell non-integrated recycling and select
intellectual property assets. Mr. Bohlig ceased serving as an officer and Director of our Company on March 1, 2011. Receivables
associated with a loan to an employee of ours amounting to $142 and $139 at April 30, 2011 and 2010, respectively, are included in
Notes receivable - related party/employee in the accompanying Consolidated Balance Sheets.
20.
SEGMENT REPORTING
We report selected information about operating segments in a manner consistent with that used for internal management reporting.
We classify our solid waste operations on a geographic basis through regional operating segments. Revenues are derived mainly from
collection, transfer, landfill-gas-to energy, recycling and disposal of non-hazardous solid waste. The Eastern region also includes
Maine Energy, which generates electricity from non-hazardous solid waste. Our revenues in the Recycling segment are derived from
municipalities and customers in the form of processing fees, tipping fees and commodity sales. During the fourth quarter of fiscal
year 2011, we consolidated the Central and Western regions into a single segment as the Western region. Furthermore, the four
remaining Material Recovery Facilities (“MRFs) that were previously included in the FCR Recycling operating segment, along with
the two MRFs from the Central region and our commodity brokerage operations, were brought together to form the newly created
Recycling operating segment. Therefore, segment data for the fiscal years 2010 and 2009 has been revised to reflect these changes in
our segment classifications. Ancillary operations, major customer accounts, discontinued operations, and earnings from equity
method investees are included in our “Other” reportable segment.
Year Ended April 30, 2011
Inter-company
revenue (2)
Depreciation and
amortization
Operating
income (loss)
Interest
expense (net)
Capital
expenditures
36,990 $
66,126
(402)
2,788
(105,502)
— $
23,066 $
29,052
3,573
2,570
—
58,261 $
(5,035) $
32,012
4,116
(2,530)
—
28,563 $
28,009 $
(1,961)
4,550
15,260
—
45,858 $
Goodwill
20,085 $
30,797
1,764
2,603
—
Total assets
38 $ 217,774
342,832
52,047
77,928
—
55,249 $ 101,204 $ 690,581
88,975
12,191
—
—
Inter-company
revenue (2)
Depreciation and
amortization
Operating
income (loss)
Interest
expense (net)
Capital
expenditures
Goodwill
41,462 $
65,474
39
2,473
(109,448)
28,951 $
28,465
3,423
2,780
—
(93) $
33,500
1,854
(2,448)
—
25,122 $
1,947
4,076
13,120
—
17,227 $
28,685
3,647
3,275
—
Total assets
38 $ 226,620
334,976
40,029
153,189
—
88,297
12,191
—
—
100,52
Total
$ 457,642 $
— $
63,619 $
32,813 $
44,265 $
52,834 $
6 $ 754,814
85
Segment
Eastern
Western
Recycling
Other
Eliminations
Total
Outside
revenues
$ 167,314 $
210,266
43,557
44,927
—
$ 466,064 $
Year Ended April 30, 2010 (1)
Segment
Eastern
Western
Recycling
Other
Eliminations
Outside
revenues
$ 177,349 $
201,816
35,467
43,010
—
Year Ended April 30, 2009 (1)
Segment
Eastern
Western
Recycling
Other
Eliminations
Total
Outside
revenues
$ 186,209 $
214,419
44,214
38,009
—
$ 482,851 $
Inter-company
revenue (2)
Depreciation and
amortization
Operating
income (loss)
Interest
expense (net)
Capital
expenditures
Goodwill
44,122 $
71,621
1,263
5,807
(122,813)
— $
33,737 $
29,643
2,787
2,265
—
68,432 $
(54,595) $
30,316
(724)
(6,382)
—
(31,385) $
22,968 $
3,737
3,056
3,359
—
33,120 $
— $
22,381 $
29,019
1,455
1,475
—
88,252
12,191
—
—
54,330 $ 100,443 $
Total assets
232,826
325,977
37,897
154,262
—
750,962
(1) Segment data as of and for the fiscal years ended April 30, 2010 and 2009 has been revised to reflect a change in our internal
reporting structure and a realignment of certain operations between segments.
(2) Inter-segment revenues reflect transactions with and between segments that are generally made on a basis intended to reflect the
market value of such services.
Amounts of our total revenue attributable to services provided are as follows:
Collection
Disposal
Power generation
Processing and recycling
Solid waste operations
Major accounts
Recycling
Total revenues
2011
Fiscal Year Ended April 30,
2010
2009
$
$
199,892
106,572
25,090
50,590
382,144
40,363
43,557
466,064
$
$
204,241
107,398
27,778
44,081
383,498
38,677
35,467
457,642
$
$
218,373
111,134
28,448
46,023
403,978
34,659
44,214
482,851
We have revised our table of revenue by source to more closely align the types of revenue generated by our operating segments.
Amounts for fiscal years ended April 30, 2010 and 2009 have been revised to conform to this presentation.
21.
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,
2011 and 2010. The impact of the discontinued operations described in Note 17 is included in all periods in the table below.
Fiscal Year 2011
Revenues
Operating income (loss)
(Loss) income from continuing operations before
discontinued operations
Net (loss) income applicable to common stockholders
(Loss) income per common share:
Basic and diluted:
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
121,992
12,656
$
122,896
12,266
$
111,627
6,289
$
109,549
(2,648)
(1,926)
(2,902)
177
(1,154)
(6,373)
(6,365)
4,418
48,849
(Loss) income from continuing operations before
discontinued operations
Net (loss) income applicable to common stockholders
$
Diluted:
(Loss) income from continuing operations before
discontinued operations
Net (loss) income available to common stockholders
(0.07)
(0.11) $
0.01
(0.04) $
(0.24)
(0.24) $
(0.07)
(0.11)
0.01
(0.04)
(0.24)
(0.24)
0.17
1.85
0.17
1.85
86
Fiscal Year 2010
Revenues
Operating income
Loss from continuing operations before discontinued
operations
Net loss applicable to common stockholders
Loss per common share:
Basic and diluted:
Loss from continuing operations before discontinued
operations
Net loss applicable to common stockholders
Diluted:
(Loss) from continuing operations before discontinued
operations
Net (loss) available to common stockholders
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
117,028
6,702
$
118,035
10,968
$
109,884
7,410
$
112,695
7,733
(3,398)
(2,778)
(1,575)
(1,550)
(5,120)
(4,377)
(5,956)
(5,153)
(0.13)
(0.11) $
(0.06)
(0.06) $
(0.20)
(0.17) $
(0.13)
(0.11)
(0.06)
(0.06)
(0.20)
(0.17)
(0.23)
(0.20)
(0.23)
(0.20)
Our transfer and disposal revenues historically have 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. Since certain of our operating and fixed costs
remain constant throughout the fiscal year, operating income is impacted by a similar seasonality. In addition, particularly harsh
weather conditions typically result in increased operating costs.
Our 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.
22.
SUBSIDIARY GUARANTORS
Our 2019 Notes and Second Lien Notes are guaranteed jointly and severally, fully and unconditionally, by our significant wholly-
owned subsidiaries. The Parent is the issuer and a non-guarantor of the 2019 Notes and Second Lien Notes and the Parent has no
independent assets or operations. Non-guarantor subsidiaries of the parent are considered minor as each represents less than 3% of
total assets, stockholders’ equity, revenues, loss from continuing operations before income taxes and discontinued operations and cash
flow from operating activities. There are no significant restrictions on the ability of the Parent and the guarantor subsidiaries to obtain
funds from subsidiaries by dividend or loan.
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
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our
disclosure controls and procedures as of April 30, 2011. 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 our disclosure controls and procedures as of April 30,
2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures
were effective at the reasonable assurance level.
87
Management’s report on our 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 our internal control over financial reporting occurred during the fiscal quarter ended April 30, 2011 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Item 10 of Part III (except for information required with respect to our executive officers 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) has been omitted from this
Annual Report on Form 10-K, since we expect 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 “Proxy Statement”). The information required by Item 10 this Annual Report
on Form 10-K, which will appear in the Proxy Statement, is incorporated by reference into Part III of this Annual Report on Form 10-
K.
Equity Compensation Plan Information
The following table shows information about the securities authorized for issuance under our equity compensation plans as of
April 30, 2011:
(a)
(b)
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Number of
securities
to be issued upon
exercise of
outstanding
options(1)
2,254,136
0
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)
10.89
0
1,189,096
0
(1)
In addition to being available for future issuance in the form of options, 864,534 shares under our 2006 Stock Incentive Plan
may instead be issued in the form of restricted stock or other equity-based awards.
(2)
Includes 324,562 shares issuable under our 1997 Employee Stock Purchase Plan.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the Proxy Statement under “Executive Compensation” and
“Compensation of Directors.”
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item is incorporated by reference from the Proxy Statement under “Beneficial Ownership of Voting
Stock.”
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference from the Proxy Statement under “Certain Relationships and Related
Party Transactions” and “Board Determination of Independence.”
88
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated by reference from the Proxy Statement under “Audit Fees and Other Matters”
and “Pre-Approval Policies and Procedures.”
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 — Caturano and Company, Inc.
Report of Independent Registered Public Accounting Firm — McGladrey & Pullen, LLP.
Consolidated Balance Sheets as of April 30, 2011 and 2010.
Consolidated Statements of Operations for the fiscal years ended April 30, 2011, 2010, and 2009.
Consolidated Statements of Stockholders’ Equity for the fiscal years ended April 30, 2011, 2010, and 2009.
Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2011, 2010, and 2009.
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.
89
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 17, 2011
CASELLA WASTE SYSTEMS, INC.
/s/ JOHN W. CASELLA
By:
John W. Casella
Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)
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
/s/ John W. Casella
John W. Casella
Chairman of the Board of Directors and Chief
Executive Officer (Principal Executive Officer)
Date
June 17, 2011
/s/ Edwin D. Johnson
Edwin D. Johnson
/s/ Douglas R. Casella
Douglas R. Casella
/s/ John F. Chapple III
John F. Chapple III
/s/ Gregory B. Peters
Gregory B. Peters
/s/ James F. Callahan, Jr.
James F. Callahan, Jr.
/s/ Joseph G. Doody
Joseph G. Doody
/s/ James P. McManus
James P. McManus
/s/ Michael K. Burke
Michael K. Burke
Senior Vice President and Chief Financial
Officer (Principal Financial and Accounting Officer)
June 17, 2011
June 17, 2011
June 17, 2011
June 17, 2011
June 17, 2011
June 17, 2011
June 17, 2011
June 17, 2011
Director
Director
Director
Director
Director
Director
Director
90
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
2011
Fiscal Year Ended April 30,
2010
2009
$
$
1,602
363
(1,045)
920
$
$
1,711
1,204
$
(1,313)
1,602
$
1,645
1,474
(1,408)
1,711
91
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,
2011
2010
2009
$
$
1,602
$
363
(1,045)
920
$
1,711
1,204
$
(1,313)
1,602
$
1,645
1,474
(1,408)
1,711
Exhibit No.
EXHIBIT INDEX
Description
2.1 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)).
Second Amended and Restated Certificate of Incorporation of Casella Waste Systems, Inc., as amended (incorporated
herein by reference to Exhibit 3.1 to the quarterly report on Form 10-Q of Casella Waste Systems Inc. as filed
December 7, 2007 (file no. 000-23211)).
3.1
3.3 Third Amended and Restated By-Laws of Casella Waste Systems, Inc., (incorporated herein by reference to Exhibit 3.1
4.1
to the quarterly report on Form 10-Q of Casella Waste Systems Inc. as filed February 27, 2009 (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)).
4.3
4.4
4.2 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)).
Indenture, dated July 9, 2009, by and among Casella Waste Systems, Inc., the Guarantors named therein and
Wilmington Trust Company, as Trustee, governing the 11% Senior Second Lien Notes due 2014 (incorporated by
reference herein by reference to Exhibit 4.1 to the current report on Form 8-K of Casella as filed on July 9, 2009 (file
no. 000-23211)).
Indenture, dated February 7, 2011, by and among Casella Waste Systems, Inc., the Guarantors named therein and U.S.
Bank National Association, as Trustee, governing the 7.75% Senior Subordinated Notes due 2019 (incorporated by
reference herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella Waste Systems, Inc. as filed
on February 8, 2011 (file no. 000-23211)).
4.5
4.6 Registration Rights Agreement, dated July 9, 2009, by and among Casella Waste Systems, Inc., the Guarantors listed
therein and Purchasers listed therein, relating to the 11% Senior Second Lien Notes due 2014 (incorporated by
reference herein by reference to Exhibit 4.5 to the annual report on Form 10-K of Casella as filed on June 10, 2010 (file
no. 000-23211)).
4.7 Registration Rights Agreement, dated as of February 7, 2011, by and among Casella Waste Systems, Inc., Merrill
10.1
10.2
Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities LLC and Credit Agricole Securities (USA) Inc.
(incorporated by reference herein by reference to Exhibit 99.1 to the current report on Form 8-K of Casella Waste
Systems, Inc. as filed on February 8, 2011 (file no. 000-23211)).
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)).
10.5 Amended and Restated 1997 Stock Incentive Plan (incorporated herein by reference to the Definitive Proxy Statement
10.3
10.4
10.6
on Schedule 14A of Casella as filed September 21, 1998).
1995 Registration Rights Agreement between Casella and the stockholders who are a party thereto, dated as of
December 22, 1995 (incorporated herein by reference to Exhibit 10.8 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.7 Warrant to Purchase Common Stock of Casella granted to John W. Casella, dated as of July 26, 1993 (incorporated
herein by reference to Exhibit 10.11 to Amendment No. 1 to the registration statement on Form S-1 of Casella as filed
September 24, 1997 (file no. 333-33135)).
10.8 Warrant to Purchase Common Stock of Casella granted to Douglas R. Casella, dated as of July 26, 1993 (incorporated
herein by reference to Exhibit 10.12 to Amendment No. 1 to the registration statement on Form S-1 of Casella as filed
September 24, 1997 (file no. 333-33135)).
10.9 Lease Agreement, as Amended, between Casella Associates and Casella Waste Management, Inc., dated December 9,
1994 (Rutland lease) (incorporated herein by reference to Exhibit 10.17 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
91
92
10.10 Lease Agreement, as Amended, between Casella Associates and Casella Waste Management, Inc., dated December 9,
1994 (Montpelier lease) (incorporated herein by reference to Exhibit 10.18 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.11 Lease, Operations and Maintenance Agreement between CV Landfill, Inc. and the Registrant dated June 30, 1994
(incorporated herein by reference to Exhibit 10.20 to the registration statement on Form S-1 of Casella as filed
August 7, 1997 (file no. 333-33135)).
10.12 Restated Operation and Management Agreement by and between Clinton County (N.Y.) and the Registrant dated
September 9, 1996 (incorporated herein by reference to Exhibit 10.21 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.13 Labor Utilization Agreement by and between Clinton County (N.Y.) and the Registrant dated August 7, 1996
(incorporated herein by reference to Exhibit 10.22 to the registration statement on Form S-1 of Casella as filed
August 7, 1997 (file no. 333-33135)).
10.14 Lease and Option Agreement by and between Waste U.S.A., Inc. and New England Waste Services of Vermont, Inc.,
dated December 14, 1995 (incorporated herein by reference to Exhibit 10.23 to the registration statement on Form S-1
of Casella as filed August 7, 1997 (file no. 333-33135)).
10.15 Amendment No. 2 to Lease Agreement, by and between Casella Associates and Casella Waste Management, Inc.,
dated as of November 20, 1997 (Rutland lease). (incorporated herein by reference to Exhibit 10.25 to the registration
statement on Form S-1 of Casella as filed on June 25, 1998 (file no. 333-57745)).
10.16* Amendment No. 1 to Stock Option Agreement, dated as of May 12, 1999, by and between KTI, Inc. and the Registrant
10.17
(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)).
10.18 Host Municipalities’ Waste Handling Agreement among Biddeford-Saco Solid Waste Committee, City of Biddeford,
City of Saco and Maine Energy Recovery Company dated June 7, 1991 (incorporated herein by reference to
Exhibit 10.10 to the registration statement on Form S-4 of KTI as filed October 18, 1994 (file no. 33-85234)).
Form of Maine Energy Recovery Company Waste Handling Agreement (Town of North Berwick) dated June 7, 1991
and Schedule of Substantially Identical Waste Disposal Agreements (incorporated herein by reference to Exhibit 10.11
to the registration statement on Form S-4 of KTI as filed October 18, 1994 (file no. 33-85234)).
10.19
10.20 Third Amendment to Power Purchase Agreement between Maine Energy Recovery Company, L.P. and Central Maine
Power Company dated November 6, 1995. (incorporated herein by reference to Exhibit 10.38 to the registration
statement on Form S-4 as filed November 12, 1999 (file no. 333-90913)).
10.21 Non-Exclusive License to Use Technology between KTI and Oakhurst Technology, Inc. dated December 29, 1998
(incorporated herein by reference to Exhibit 4.5 to the current report on Form 8-K of KTI as filed January 15, 1999 (file
no. 000-25490)).
10.22* Management Compensation Agreement between Casella Waste Systems, Inc. and John W. Casella dated December 8,
1999 (incorporated herein by reference to Exhibit 10.43 to the annual report on Form 10-K of Casella as filed August 4,
2000 (file no. 000-23211)).
10.23* Management Compensation Agreement between Casella Waste Systems, Inc. and James W. Bohlig dated December 8,
1999 (incorporated herein by reference to Exhibit 10.44 to the annual report on Form 10-K of Casella as filed August 4,
2000 (file no. 000-23211)).
10.24 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)).
10.25 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)).
10.26* Management Compensation Agreement between Casella Waste Systems, Inc. and Charles E. Leonard dated June 18,
2001 (incorporated herein by reference to Exhibit 10.39 to the annual report on Form 10-K of Casella as filed on
July 12, 2002 (file no. 000-23211)).
10.27* Management Compensation Agreement between Casella Waste Systems, Inc. and Richard Norris dated July 20, 2001
(incorporated herein by reference to Exhibit 10.40 to the annual report on Form 10-K of Casella as filed on July 12,
2002 (file no. 000-23211)).
10.28 US GreenFiber LLC Limited Liability Company Agreement, dated June 26, 2000, between U.S. Fiber, Inc. and
10.29
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)).
93
10.30
Purchase Agreement, dated August 17, 2001, by and among New Heights Holding Corporation, KTI, Inc., KTI
Operations, Inc. and Casella Waste Systems, Inc. (incorporated herein by reference to Exhibit 10.43 to the annual
report on Form 10-K of Casella as filed on July 12, 2002 (file no. 000-23211)).
10.31*
Form of Non-Plan Non-Statutory Stock Option Agreement as issued by Casella Waste Systems, Inc. to certain
individuals as of May 25, 1994 (incorporated herein by reference to Exhibit 10.44 to the annual report on Form 10-K of
Casella as filed on July 12, 2002 (file no. 000-23211)).
10.32 Construction, Operation and Management Agreement between New England Waste Services of Massachusetts, Inc.
10.33*
10.34*
10.35*
10.36
10.37*
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)).
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)).
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)).
2006 Stock Incentive Plan, as amended (incorporated herein by reference to Exhibit 99.1 to the current report on
Form 8-K of Casella as filed on October 19, 2009 (file no. 000-23211)).
10.38* Employment Agreement, General Release and Noncompete Agreement by and between Casella Waste Systems, Inc.
and Richard A. Norris dated as of January 23, 2008 (incorporated herein by reference to Exhibit 10.1 to the current
report on Form 8-K of Casella as filed on January 28, 2008 (file no. 000-23211)).
10.39* Employment Agreement by and between Casella Waste Systems, Inc. and Paul Larkin dated as of January 9, 2008
10.40*
(incorporated herein by reference to Exhibit 10.3 to the current report on Form 8-K of Casella as filed on January 28,
2008 (file no. 000-23211)).
Severance Agreement; General Release and Consulting Agreement by and between Casella Waste Systems, Inc. and
Charles E. Leonard dated as of January 23, 2008 (incorporated herein by reference to Exhibit 10.2 to the current report
on Form 8-K of Casella as filed on January 28, 2008 (file no. 000-23211)).
10.41* Amendment to Employment Agreement by and between Casella Waste Systems, Inc. and James W. Bohlig dated as of
January 8, 2008 (incorporated herein by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Casella as
filed on September 4, 2008 (file no. 000-23211)).
10.42* Employment Agreement by and between Casella Waste Systems, Inc. and John S. Quinn dated as of December 18,
2008 (incorporated herein by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Casella as filed on
March 6, 2009 (file no. 000-23211)).
10.43* Amendment to Employment Agreement by and between Casella Waste Systems, Inc. and James W. Bohlig dated as of
December 30, 2008 (incorporated herein by reference to Exhibit 10.2 to the quarterly report on Form 10-Q of Casella
as filed on March 6, 2009 (file no. 000-23211)).
10.44* Amendment to Employment Agreement by and between Casella Waste Systems, Inc. and John W. Casella dated as of
December 29, 2008 (incorporated herein by reference to Exhibit 10.3 to the quarterly report on Form 10-Q of Casella
as filed on March 6, 2009 (file no. 000-23211)).
10.45* Amendment to Employment Agreement by and between Casella Waste Systems, Inc. and Paul Larkin dated as of
10.46
10.47
December 30, 2008 (incorporated herein by reference to Exhibit 10.4 to the quarterly report on Form 10-Q of Casella
as filed on March 6, 2009 (file no. 000-23211)).
Second Amended and Restated Revolving Credit and Term Loan Agreement by and among Casella Waste
Systems, Inc., certain of its Subsidiaries (defined therein), each lender from time to time a party to the Credit
Agreement, and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, dated July 9,
2009 (incorporated herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed July 9,
2009 (file no. 000-23211)).
First Amendment to the Second Amended and Restated Revolving Credit and Term Loan Agreement by and among the
Company, certain of its Subsidiaries (defined therein), each lender from time to time a party to the Credit Agreement,
and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, dated May 27, 2010
(incorporated herein by reference to Exhibit 10.2 to the current report on Form 8-K of Casella as filed on June 3, 2010
(file no. 000-23211)).
94
10.48 Amended and Restated Credit Agreement, dated as of March 18, 2011, by and among Bank of America, N.A., as
administrative agent, Bank of America, N.A., as lender, and the other lenders party thereto, Casella Waste Systems,
Inc. and Casella’s subsidiaries identified therein (incorporated by reference herein by reference to Exhibit 10.1 to the
current report on Form 8-K of Casella Waste Systems, Inc. as filed on March 24, 2011 (file no. 000-23211)).
21.1 + Subsidiaries of Casella Waste Systems, Inc.
23.1 + Consent of McGladrey & Pullen, LLP
23.2 + Consent of Caturano and Company, Inc.
23.3 + Consent of PricewaterhouseCoopers LLP on financial statements of US Green Fiber, LLC.
31.1 + 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
31.2 + 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 + Financial Statements of US Green Fiber, LLC—December 31, 2010, 2009 and 2008.
+
*
Filed herewith
This is a management contract or compensatory plan or arrangement.
95
Subsidiaries of Registrant
Name
All Cycle Waste, Inc.
Atlantic Coast Fibers, Inc.
B. and C. Sanitation Corporation
Better Bedding Corp.
Bristol Waste Management, Inc.
C.V. Landfill, Inc.
Casella Major Account Services LLC
Casella Albany Renewables, LLC
Casella Renewable Systems, LLC
Casella Recycling, 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
Chemung Landfill LLC
Colebrook Landfill LLC
Corning Community Disposal Service, Inc.
CWM All Waste LLC
Forest Acquisitions, Inc.
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 Specialty Waste Services, Inc.
KTI, Inc.
Maine Energy Recovery Company, Limited Partnership
New England Landfill Solutions, LLC
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
PERC, Inc.
Pine Tree Waste, Inc.
Portland C&D Site, Inc.
ReSource Transfer Services, Inc.
ReSource Waste Systems, Inc.
Schultz Landfill, Inc.
Southbridge Recycling & Disposal Park, Inc.
Sunderland Waste Management, Inc.
The Hyland Facility Associates
Total Waste Management Corp.
U.S. Fiber, LLC
Waste-Stream, Inc.
Winters Brothers, Inc.
Exhibit 21.1
Jurisdiction of Incorporation
Vermont
Delaware
New York
New York
Vermont
Vermont
Vermont
Delaware
Delaware
Maine
Vermont
Massachusetts
New York
Pennsylvania
Vermont
New York
New York
New Hampshire
New York
New Hampshire
New Hampshire
New York
New York
New York
Massachusetts
New York
Oregon
Maine
New Jersey
Delaware
Delaware
Maine
New Jersey
Maine
Massachusetts
Massachusetts
Maine
New York
Vermont
Vermont
Vermont
Massachusetts
Maine
New Hampshire
Virginia
New York
New York
Delaware
Maine
New York
Massachusetts
Massachusetts
New York
Massachusetts
Vermont
New York
New Hampshire
North Carolina
New York
Vermont
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements on Form S-8 (Nos. 333-40267, 333-43537, 333-43539, 333-
43541, 333-43543, 333-43635, 333-67487, 333-92735, 333-31022, 333-100553, 333-141038 and 333-163645) and on Form S-
3(Nos. 333-85279, 333-88097, 333-95841, 333-31268, 333-121088 and 333-154309) of Casella Waste Systems, Inc. and its
subsidiaries of our report dated June XX, 2011, relating to our audit of the consolidated financial statements, the financial statement
schedule and internal control over financial reporting, which appear in this Annual Report on Form 10-K of Casella Waste
Systems, Inc. and its subsidiaries for the year ended April 30, 2011, including the adjustments that were applied to the 2010 and 2009
consolidated financial statements to retrospectively reflect discontinued operations.
Exhibit 23.1
/s/ McGladrey & Pullen, LLP
Boston, Massachusetts
June 17, 2011
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-40267, 333-43537, 333-
43539, 333-43541, 333-43543, 333-43635, 333-67487, 333-92735, 333-31022, 333-100553, 333-141038 and 333-163645) and
Form S-3 (Nos. 333-85279, 333-88097, 333-95841, 333-31268, 333-121088 and 333-154309) of the report of Caturano and
Company, P.C. (whose name has since been changed to Caturano and Company, Inc.) dated June 10, 2010 relating to the consolidated
financial statements and financial statement schedule for the two years ended April 30, 2010 of Casella Waste Systems, Inc. and its
subsidiaries, which appears in this Annual Report on Form 10-K. We were not engaged to audit, review, or apply any procedures to
the adjustments to retroactively reflect the discontinued operations described in Note 17 and, accordingly, we do not express an
opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those
adjustments were audited by McGladrey & Pullen, LLP, as stated in their report appearing herein.
Exhibit 23.2
/s/ Caturano and Company, Inc.
Boston, Massachusetts
June 17, 2011
CONSENT OF INDEPENDENT ACCOUNTANTS
Exhibit 23.3
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-141038, 333-31022, 333-
40267, 333-43537, 333-43539, 333-43541, 333-43543, 333-43635, 333-67487, 333-92735, 333-100553, and 333-163645) and on
Form S-3 (Nos. 333-31268, 333-121088, 333-85279, 333-88097, 333-154309, and 333-95841) of Casella Waste Systems, Inc. of our
report dated June 2, 2011 relating to the financial statements of US GreenFiber, LLC, which appears in this Form 10-K.
Charlotte, North Carolina
June 17, 2011
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 17, 2011
/s/ JOHN W. CASELLA
By:
John W. Casella
Chairman and Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
I, Edwin D. Johnson, 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 17, 2011
/s/ EDWIN D. JOHNSON
By:
Edwin D. Johnson
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting 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
Pursuant to 18 U.S.C. §1350, each of the undersigned certifies that, to his knowledge, this Annual Report on Form 10-K for
the year ended April 30, 2010 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 17, 2011
Dated: June 17, 2011
/s/ JOHN W. CASELLA
John W. Casella
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ EDWIN D. JOHNSON
Edwin D. Johnson
Senior Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
Company Officers
Board of Directors
John W. Casella
Chairman, Chief Executive Officer
& Secretary
Paul A. Larkin
President & Chief Operating Officer
Edwin D. Johnson
Senior Vice President, Chief Financial
Officer & Treasurer
David L. Schmitt
Vice President, General Counsel
John W. Casella
Chairman, Chief Executive Officer
& Secretary
Michael K. Burke
Vice Chairman, Albany Medical Center
James F. Callahan, Jr.
Retired Partner, Arthur Andersen, LLP
Douglas R. Casella
Vice Chairman, President, Casella
Construction, Inc.
John F. Chapple III
Retired President,
Marlin Management Services
Joseph G. Doody
President, North American Delivery,
Staples, Inc.
James P. McManus
President & Chief Executive Officer,
The Hinckley Company
Gregory B. Peters
Managing General Partner, Lake
Champlain Capital Management, LLC
Shareholder Information
Annual Meeting of Shareholders
Killington Grand Hotel
Killington, VT
Tuesday, October 11, 2011
10:00 a.m.
Casella Waste Systems, Inc.
25 Greens Hill Lane
Rutland, VT 05701
Telephone: (802) 775-0325
Direct inquiries to:
Ned Coletta
Telephone: (802) 772-2239
E-mail: ned.coletta@casella.com
Auditors
McGladrey & Pullen, LLP
80 City Square
Boston, MA 02129
Legal Counsel
Wilmer Cutler Pickering Hale
and Dorr LLP
60 State Street
Boston, MA 02109
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.”
Safe Harbor Statement
Certain matters discussed in this annual report are “forward-looking statements” intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be
identified as such by the context of the statements, including words such as “believe,” “expect,” “anticipate,” “plan,” “may,” “will,”
“would,” “intend,” “estimate,” “guidance” and other similar expressions, whether in the negative or affirmative. These forward-
looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which
we operate and management’s beliefs and assumptions. We cannot guarantee that we actually will achieve the plans, intentions,
expectations or guidance disclosed in the forward-looking statements made. Such forward-looking statements, and all phases of our
operations, involve a number of risks and uncertainties, any one or more of which could cause actual results to differ materially from
those described in our forward-looking statements. Such risks and uncertainties include or relate to, among other things: current
economic conditions that have adversely affected and that may continue to adversely affect our revenues and our operating margin;
we may be unable to reduce costs or increase pricing or volumes sufficiently to achieve estimated Adjusted EBITDA and other
targets; landfill operations and permit status may be affected by factors outside our control; we may be required to incur capital
expenditures in excess of our estimates; fluctuations in the commodity pricing of our recyclables may make it more difficult for us to
predict our results of operations or meet our estimates; and we may incur environmental charges or asset impairments in the future.
There are a number of other important risks and uncertainties that could cause our actual results to differ materially from those
indicated by such forward-looking statements. These additional risks and uncertainties include, without limitation, those detailed in
Item 1A, “Risk Factors” in our Form 10-K for the year ended April 30, 2011.
We undertake no obligation to update publicly any forward-looking statements whether as a result of new information, future
events or otherwise, except as required by law.
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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.
25 Greens Hill Lane
Rutland, Vermont 05701
(802) 775-0325
(802) 775-6198 fax
casella.com
2011 Annual Report
CASELLA WASTE SYSTEMS, INC.
collection | zero-sort® recycling | organics | landfill | gas-to-energy | bio-fuel