2017 ANNUAL REPORT
COLLECTION
Capital
Discipline
RESOURCE
SOLUTIONS
Improve
Efficiencies
Drive
Profitability
CWST
Smart
Growth
LANDFILLS
Increase
Returns
ENERGY
Develop
Talent
RECYCLING
ORGANICS
CASELLA WASTE SYSTEMS, INC.
2017 ANNUAL REPORT
TO OUR FELLOW SHAREHOLDERS:
Fiscal year 2017 was another strong year for our team and I am pleased to report
that we have achieved all of the financial and operating objectives set forth in our
fiscal year 2018 plan (the “2018 plan”) that we first outlined in mid-August 2015.
The 2018 plan was focused on driving higher cash flows and improved operating performance by advancing
efforts in four key areas: (1) increasing landfill returns; (2) driving additional profitability at collection
operations; (3) creating incremental value through resource solutions; and (4) improving our balance sheet
and reducing business risk.
It is truly an exciting time to be a part of what we are accomplishing at Casella. The successful execution of our
plan is clearly demonstrated in our improved financial performance. 1
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Refer to the appendix for a reconciliation of Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss. Net loss was ($54.5mm) for
the fiscal year ended 4/30/13, ($27.4mm) for the fiscal year ended 4/30/14, ($29.1mm) for the calendar year ended 12/31/14, ($11.8mm) for the fiscal year ended
12/31/15, ($6.9mm) for the fiscal year ended 12/31/16, and ($21.8mm) for the fiscal year ended 12/31/17.
Refer to the appendix for a reconciliation of Normalized Free Cash Flow to the most directly comparable GAAP measure, which is net cash provided by operating
activities. Net cash provided by operating activities was $43.9mm for the fiscal year ended 4/30/13, $49.6mm for the fiscal year ended 4/30/14, $62.2mm for the
calendar year ended 12/31/14, $70.5mm for the fiscal year ended 12/31/15, $80.4mm for the fiscal year ended 12/31/16, and $107.5mm for the fiscal year ended
12/31/17.
Refer to the appendix for a reconciliation of Total Debt-to-EBITDA (which is defined as “Consolidated Net Leverage Ratio” in the Credit Agreement dated as of
10/17/16; and as “Consolidated Leverage Ratio” in the Loan & Security Agreement dated as of 2/27/15) to the most directly comparable GAAP measures. EBITDA
can be reconciled to net cash provided by operating activities, which was $62.2mm for the calendar year ended 12/31/14, and $107.5mm for the fiscal year ended
12/31/17. Total Debt is defined as total long-term debt and capital leases, less unencumbered cash and cash equivalents in excess of $2.0 million, as of last day of
each above listed period, which was $537.0mm on 12/31/14 and $497.7mm on 12/31/17.
CY 2018 Financial Targets as first presented on 8/11/15. Casella did not provide reconciling information for forward-looking periods because such information
was not available without an unreasonable effort. Casella believes that such information is not significant to an understanding of its non-GAAP measures for
forward-looking periods because its methodology for calculating such non-GAAP measures is based on sensitivity analysis at the business unit level rather than on
differences from GAAP financial measures.
NEXT STEPS: CONTINUE TO IMPROVE CASH FLOWS, FURTHER REDUCING LEVERAGE
We remain focused on improving cash flows and reducing debt leverage, and in early August 2017 we
announced an updated long-term strategic plan through our fiscal year ending December 31, 2021 (the “2021
Plan”). As part of the 2021 Plan, we intend to remain focused on creating shareholder value through the
following strategic initiatives:
1. Increasing landfill returns by driving pricing in excess of inflation in the disposal capacity constrained
markets in the Northeast and working to maximize capacity utilization.
2. Driving additional profitability in our collection operations through profitable revenue growth and
operating efficiencies.
3. Creating incremental value through our resource solutions offerings in our recycling, organics, and
customer solutions operations.
In addition, we also announced two new strategic initiatives:
4. Reducing general and administration costs and improving efficiencies through our efforts to update
key systems to drive back office transformation and sales force effectiveness.
5. Allocating capital to balance debt delevering with smart growth through continued capital discipline
and opportunistic investment in strategic growth.
INCREASING LANDFILL RETURNS
Our team has worked hard to develop environmentally sound landfill facilities across the Northeast to serve
the disposal needs of our customers. We are deeply committed to operating our landfill facilities to the highest
environmental standards, while maintaining a strong partnership with each respective host community. This
has been our recipe for developing long-term disposal assets in the challenging Northeast environment.
In June 2017 we made the tough decision to abandon our efforts to further expand the Southbridge landfill
given the significant regulatory and political roadblocks we faced as we worked to develop additional capacity
at the site. We did not believe that further development at the site would generate an adequate risk adjusted
return, and as such, we adopted a plan to close the landfill when the current permitted airspace is fully
consumed, with the site expected to close by December 31, 2018.
We advanced landfill pricing by +3.4% (or average price per ton by +5.2%) in fiscal year 2017 as disposal
capacity constraints become more acute across our footprint and we remain focused on further improving
landfill returns. We expect further capacity constraints over the next several years which will allow additional
opportunity to advance pricing, opportunistically source additional volumes, and drive higher returns.
DRIVING ADDITIONAL PROFITABILITY IN COLLECTION OPERATIONS
We continued to make great progress on driving additional profitability in our collection operations with
a focus on core blocking-and-tackling; namely through pricing, route optimization, fleet standardization,
and maintenance.
Collection pricing was up +3.1% in fiscal year 2017 as we continued to execute against our strategic pricing
programs. On the operating side, we have continued to advance a number of key initiatives to further improve
our operating costs in the collection line-of-business. We are in the fourth year of our comprehensive fleet plan,
which is designed to simplify our fleet and target truck replacements in order to maximize returns, reduce
our operating expenses through lower maintenance costs, and improve our service levels through reduced
down times.
The combination of these operating advancements and pricing programs are driving improved results in our
collection line-of-business, with our cost of operations as a percentage of revenues down 620 basis points from
the calendar year ended December 31, 2014 to fiscal year 2017.
CREATING INCREMENTAL VALUE THROUGH RESOURCE SOLUTIONS
One of the key objectives of our strategy is to differentiate ourselves in the marketplace by offering value-
added resource solutions to our customers. These solutions range from our customer solutions business,
which provides professional services to large industrial customers, to our organics business, which is the
leader in organics processing and disposal in the Northeast, to our world-class recycling business.
Our customer solutions business continued to improve margins and returns in fiscal year 2017, as we further
transformed the business from the legacy brokerage model to a professional services organization focused on
providing resource solutions to large industrial and institutional accounts.
In fiscal year 2017, our organics business effectively capitalized on the rapidly changing disposal and
regulatory environment for bio-solids across the Northeast by securing several new long-term contracts and
advancing pricing.
Over the last two years, we have worked to reshape our recycling business model to drive higher returns in
all market cycles and reduce recycling commodity volatility. We have accomplished much of this goal by
restructuring a number of third-party processing contracts to limit downside risk through processing fees and
with the implementation of our Sustainability Recycling Adjustment Fee or “SRA Fee.” The SRA Fee floats
inversely to changes in recycling commodity prices.
Our efforts to manage risk were timely because in 2017 China introduced a new program called “National
Sword” that banned the import of certain recycled materials and imposed strict new contamination standards
for recycled commodities. As a result of China’s actions, global demand for paper and cardboard products has
significantly dropped, leading to a 90% decline of mixed paper prices and a 60% decline of OCC prices from
July 2017 to March 2018. While at the same time, our operating costs are up as we have slowed sorting lines
and increased labor to produce higher quality end products.
Our mature risk mitigation programs have worked well to offset the majority of this commodity price decline
and we expect these programs to continue to significantly reduce our commodity risk exposure.
REDUCING GENERAL AND ADMINISTRATION COSTS AND IMPROVING EFFICIENCIES
We launched a new strategic initiative in August 2017 to reduce our general and administration costs by 75 to
100 basis points as a percentage of revenues by 2021, and more importantly to reorganize our resources and
invest intelligently to drive long-term profitable growth. We plan to focus our efforts on improving our overall
technology platform, driving salesforce effectiveness, and increasing efficiencies in our back-office and across
our operations.
We have already taken a number of key steps in these areas, including the adoption of a 5-year technology
plan focused on improving our core financial and operational systems. As part of this plan, we have
successfully implemented the Microsoft Dynamics CRM system to help manage and drive higher salesforce
effectiveness, and we recently brought online the cloud-based NetSuite ERP system as the new financial
backbone to our business.
ALLOCATING CAPITAL TO BALANCE DEBT DELEVERING WITH SMART GROWTH
Over the last five years we have made significant progress in simplifying our business structure, improving
cash flows and reducing risk exposure by: (a) divesting and closing under performing operations that did not
enhance or complement our core operations; (b) refinancing debt to lower interest costs and improve financial
flexibility; and (c) adhering to strict capital discipline and debt repayment.
As a result, we have reduced our consolidated leverage ratio from 5.42x as of December 31, 2014 to 3.68x as
of December 31, 2017 and paid down our long-term debt by $39.3 million during this same period.(3) Further,
we have reduced our interest expense by $13.8 million from fiscal year 2016 to fiscal year 2017 through our
efforts to reduce debt and the opportunistic refinancing of select debt.
Given our progress in each area and as part of the new 2021 Plan, we have shifted our capital strategy to use our
capital in a manner that balances continued delevering with smart acquisition and development growth. As
part of this new strategy, we have set a goal of $20 million to $40 million per year of acquisition or development
activity, although we may consider larger transactions if appropriate. Acquisitions or development activity
will be opportunistic, and we expect to strictly adhere to our disciplined capital return hurdles and rigorous
review process.
We believe that we have an excellent opportunity to acquire select assets across our market areas given the
continued tightening of the disposal markets across the Northeast due to permanent facility closures and
increased economic activity, coupled with changes in the recycling markets. We expect that investing a portion
of our excess cash flows to grow our business will create additional shareholder returns through higher cash
flow growth rates driven by new revenue streams, internalization to our disposal facilities and cost synergies.
While we still have work left to further improve our operating performance and to drive higher cash flows, we
are excited about our progress to date against our key strategies, and we believe that we are well positioned to
further these efforts over the next several years.
Sincerely,
John W. Casella
Chairman and Chief Executive Officer
April 20, 2018
Table of Contents
(Mark One)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-K
____________________________________________________
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
Or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 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
Name of each exchange on which registered
The NASDAQ Stock Market LLC
(NASDAQ Global Select Market)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-
K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Emerging growth company
x
¨
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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 June 30, 2017 was approximately $639.8 million. The registrant does not have any non-voting
common stock outstanding.
There were 41,294,290 shares of Class A common stock, $.01 par value per share, of the registrant outstanding at February 14, 2018. There were 988,200 shares
of Class B common stock, $.01 par value per share, of the registrant outstanding at February 14, 2018.
Documents Incorporated by Reference
Part III of this Annual Report on Form 10-K incorporates by reference information from the definitive Proxy Statement for the registrant’s 2018 Annual Meeting
of Stockholders or a Form10-K/A to be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31,
2017.
CASELLA WASTE SYSTEMS, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I.
ITEM 1.
BUSINESS
ITEM 1A. RISK FACTORS
ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 2.
PROPERTIES
ITEM 3.
LEGAL PROCEEDINGS
ITEM 4. MINE SAFETY DISCLOSURES
PART II.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
PART III.
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 11
EXECUTIVE COMPENSATION
ITEM 12
ITEM 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
ITEM 16. FORM 10-K SUMMARY
SIGNATURES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
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Table of Contents
PART I
Unless the context requires otherwise, all references in this Annual Report on Form 10-K to “Casella Waste Systems, Inc.”,
“Casella”, the “Company”, “we”, “us” or “our” refer to Casella Waste Systems, Inc. and its consolidated subsidiaries.
Forward-Looking Statements
This Annual Report on Form 10-K contains or incorporates a number of forward-looking statements, including statements
regarding:
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expected liquidity and financing plans;
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 final capping, closure and post-closure costs of our existing landfills and any
disposal facilities which we may own or operate in the future;
our ability to use our net operating losses and tax positions;
our ability to service our debt obligations;
the projected development of additional disposal capacity or expectations regarding permits for 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 the 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 the 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
Founded in 1975 with a single truck, Casella Waste Systems, Inc., a Delaware corporation, its wholly-owned subsidiaries and
any partially owned entities over which it has a controlling financial interest, is a regional, vertically-integrated solid waste
services company. We provide resource management expertise and services to residential, commercial, municipal and industrial
customers, primarily in the areas of solid waste collection and disposal, transfer, recycling and organics services. We provide
integrated solid waste services in six states: Vermont, New Hampshire, New York, Massachusetts, Maine and Pennsylvania,
with our headquarters located in Rutland, Vermont. We manage our solid waste operations on a geographic basis through two
regional operating segments, our Eastern and Western regions, each of which provides a full range of solid waste services, and
our larger-scale recycling and commodity brokerage operations through our Recycling segment. Organics services, ancillary
operations, major accounts and industrial services, discontinued operations, and earnings from equity method investees, as
applicable, are included in our Other segment.
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As of January 31, 2018, we owned and/or operated 32 solid waste collection operations, 47 transfer stations, 18 recycling
facilities, nine Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept construction and
demolition (“C&D”) materials.
Change in Fiscal Year
In June 2014, we elected to change our fiscal year-end from April 30th to December 31st. This change in fiscal year became
effective for our fiscal year beginning January 1, 2015 and ended December 31, 2015. As a result of this change, we filed a
Transition Report on Form 10-KT for the eight-month transition period ended December 31, 2014. The references in this
Annual Report on Form 10-K to the terms listed below reflect the respective period noted (all other reporting periods defined
separately):
Term
fiscal year 2018
fiscal year 2017
fiscal year 2016
fiscal year 2015
transition period 2014
fiscal year 2014
Strategy
Financial Reporting Period
January 1, 2018 through December 31, 2018
January 1, 2017 through December 31, 2017
January 1, 2016 through December 31, 2016
January 1, 2015 through December 31, 2015
May 1, 2014 through December 31, 2014
May 1, 2013 through April 30, 2014
Our goal is to build a sustainable and profitable company by providing exemplary service to our customers, while operating
safe and environmentally sound facilities. Over the last several years, many of our customers have been seeking to reduce their
environmental footprint by increasing their recycling rates, diverting organic materials out of the waste stream into beneficial
use processes and exploring emerging methods to transform traditional waste streams into renewable resources. Since we first
began operating in Vermont in 1975, 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 of our stakeholders,
including customers, employees, communities and shareholders.
Our primary objective is to maximize long-term shareholder value through a combination of financial performance and
strategic asset positioning. Annually, we complete a comprehensive strategic planning process to assess and refine our strategic
objectives in the context of our asset mix and the current market environment. This process helps the management team
allocate resources to a range of business opportunities in order to strive to maximize long-term financial returns and
competitive positioning.
Over the last five years we have made significant progress in simplifying our business structure, improving cash flows and
reducing risk exposure by divesting and closing under performing operations that did not enhance or complement our core
operations. Specifically, we have had success during this period improving our financial performance and driving positive cash
flows by advancing efforts in four key areas: (1) increasing landfill returns; (2) driving additional profitability at collection
operations; (3) creating incremental value through resource solutions; and (4) improving our balance sheet and reducing
business risk.
In early August 2017, we announced our updated strategic plan through our fiscal year ending December 31, 2021 (the “2021
Plan”). As part of the 2021 Plan, we intend to remain focused on creating shareholder value through: (1) increasing landfill
returns; (2) improving collection profitability; and (3) creating incremental value through resource solutions. In addition, we
also announced two new key strategies as part of the 2021 Plan: (4) reducing general and administration costs and improving
efficiencies; and (5) allocating capital to balance debt delevering with smart growth.
To support our efforts, we continue to invest in our employees through leadership development, technical training and job
paths, and incentive compensation structures that seek to align our employees’ incentives with our long-term goal to improve
cash flows and returns on invested capital.
Increasing landfill returns
We launched a strategic initiative in fiscal year 2014 to source incremental waste volumes to our landfills to maximize annual
capacity utilization and increase cash flows. We have made great progress towards this goal as overall landfill volumes for
fiscal year 2017 were up by approximately 0.9 million tons per year compared to the twelve months ended December 31, 2012,
excluding volumes from the Worcester, Massachusetts landfill (“Worcester Landfill”) closure project in Massachusetts.
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Landfill waste volume increases have been primarily driven by: (1) our success in acquiring new transfer station and hauling
customers; (2) our focused landfill sales strategy, which included the revamping of our special waste team to focus on sourcing
additional industrial and remediation waste volumes; (3) increasing C&D volumes as the construction market has slowly
rebounded across our market areas; and (4) our asset positioning in several key markets that have contracting permitted
capacity.
Disposal market dynamics have quickly shifted across our footprint due to improving macroeconomic conditions and a
challenging regulatory environment for new disposal capacity. In total, facilities that we estimate had approximately 1.7 million
tons of annual disposal capacity have permanently closed in Massachusetts, Maine, New Hampshire, and Vermont over the last
several years, and we expect that facilities with another 1.8 million tons of additional net annual capacity will permanently
close over the next several years. These closures and expected closures represent a reduction of over 15% of total market
capacity across these states. Furthermore, we expect that waste flow shifts in New York State and additional facility closures in
contiguous markets will keep more waste volumes in the market for ultimate disposal over the next 20 years, further tightening
available market capacity.
Given this backdrop, we shifted our landfill strategy in transition period 2014 to balance sourcing additional volumes against
improving pricing and returns at our landfills. While we believe it will take several years for the capacity constraints in our
markets to become acute, we experienced tightening pricing elasticity in our markets over the last year, which has enabled us to
begin increasing landfill disposal pricing in excess of the Consumer Price Index in several of our markets. In fiscal year 2017,
we increased our overall landfill price by 3.4% over the prior year as we selectively increased tipping fees.
We continue to work on strategies to source additional waste volumes to our landfills by increasing our geographic reach
through the use of rail transportation and accessing new end-markets and transfer stations.
Improving collection profitability
Over the last five years, we have developed and implemented a number of programs designed to improve profitability and
returns in the collection line-of-business including: pricing yield analytics; new sales force incentives; route profitability
analytics; on-route sales and marketing initiatives; a comprehensive fleet strategy; and selling or swapping under performing
routes or operations.
Our local collection teams have moved pricing from an annual process to a core process that is continually reviewed and
adjusted throughout the year. Our division management and sales teams use our customer profitability analytics tool to
calculate customer level profitability and increase pricing, where appropriate, to offset cost increases. We continue to yield
success from our collection pricing programs, with commercial and residential collection price growth of 3.1% in fiscal year
2017.
In fiscal year 2015, we implemented the Sustainability Recycling Adjustment fee (“SRA fee”) to dynamically adjust residential
and commercial collection pricing for monthly changes in recycling commodity prices. The SRA fee has been well received by
our customers and is helping to offset commodity price headwinds. In fiscal year 2017, we replaced our fuel & oil recovery fee
with our new Energy and Environmental fee (“E&E fee”). The E&E fee incorporates a floating fuel and oil recovery fee with a
fixed environmental recovery fee designed to recover environmental compliance inflation.
During fiscal year 2014, we adjusted our sales force incentive compensation program to better support our efforts to drive
responsibility to the local operating level. We introduced a uniform commission structure tracking and payment system to help
our local teams administer customized commission structures for each sales representative, while maintaining a consistent
system to track performance. Collection routes are the basic building blocks of our solid waste business and we believe that it is
imperative that we seek to ensure that each route is profitable and covers the cost of truck and container capital. In order to
achieve this goal, we have developed and implemented a route profitability tool to help our operating teams analyze and
improve their routing productivity and profitability. With the help of this tool, we have increased the frequency of re-routing
existing customers to improve efficiencies and take trucks off the road. In addition, we routinely evaluate on an account-by-
account basis existing customer service levels, service types, equipment selection and truck type selection to seek to ensure that
we are maximizing profitability and asset utilization. To further improve route density, we focus our marketing and sales efforts
on existing routes.
To augment our operating efforts, we implemented a five-year comprehensive fleet plan during transition period 2014 to define
our fleet standards and specifically target truck replacements to maximize returns. We believe that this plan will help us to
reduce our operating costs and improve our capital efficiency by reducing downtime and maintenance costs and improving
service levels.
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Differentiating business with resource solutions
To complement our traditional solid waste offerings, we have developed a set of resource solutions and invested in select assets
that are intended to enhance our ability to support emerging customer and market needs. Our resource solutions strategy seeks
to leverage our core competencies across our operating segments in materials processing, industrial recycling, clean energy, and
organics service offerings in order to generate additional value from the waste stream for our customers. In fiscal year 2017,
27.1% of our revenues were generated by our Recycling, Customer Solutions and Organics businesses in the aggregate.
For 40 years, we have been a leader in providing recycling services to our customers. We currently own or operate six material
recovery facilities (“MRFs”) that use our Zero-Sort Recycling process, which we own or operate under long-term operating
agreements. With Zero-Sort Recycling, customers can commingle all of their recyclables (paper, cardboard, plastics, metals,
and glass) into a single, right-sized residential or commercial container. By making it easier for a customer to recycle, we have
increased recycling participation and yields, thereby increasing volumes through our MRFs and enhancing asset utilization.
Prior to 2011, the average mix of recycling commodities generated by residential and commercial customers generally sold at
an average price that covered the cost of processing the materials, including an adequate return on our investment in the
processing equipment, facilities, and rolling stock necessary to process the recyclables. However, from early 2011 to the end of
fiscal year 2015, recycling commodity prices declined by approximately 60% as global demand for fiber and metal materials
significantly dropped and plastics pricing declined with lower crude oil pricing.
At these low recycling commodity pricing levels, we were not able to generate adequate revenue from the sale of commodities
to cover the cost of processing the materials or generating a positive return on our investment in recycling infrastructure. In
order to continue to provide these necessary services to our residential, commercial, municipal, and industrial customers, we
changed our pricing model for these services by introducing the SRA fee in fiscal year 2015 and fiscal year 2016.
The global recycling market has experienced further negative commodity pricing pressure in 2017, which has continued into
early 2018. Markets are expected to remain depressed into the foreseeable future, as China launched its National Sword
program aimed at reducing contamination levels in imported recyclables and eliminating certain commodity grades. Due to
China’s reduced purchasing of commodities, export pricing for mixed paper declined by 80% from July 2017 through February
2018, and old corrugated cardboard ("OCC") pricing declined 45% during the same period.
Further, in response to these changes in the global commodity markets, we have taken steps to improve the quality of our
recycled fiber commodity streams by slowing down the throughput of our processing lines, adding additional sorting and
quality control labor, and upgrading select facilities to enhance automated sorting technology. We believe that our commodity
risk mitigation programs are working well to offset the majority of the declines in commodity pricing and the increased
processing costs; however, we expect our recycling business to be a negative headwind in fiscal year 2018.
Our Customer Solutions business works with our industrial services, including multi-location customers, colleges and
universities, municipalities, and industrial customers to develop customized comprehensive solid waste solutions. The focus of
this group is to help these large scale organizations achieve waste reduction and diversion goals to meet their economic and
environmental objectives. We believe that we differentiate our services from our competitors by providing a personalized set of
resource solutions, which enables us to win new business, including traditional solid waste collection and disposal customers.
Our Organics business provides transportation, disposal and resource solutions to waste water treatment facilities across the
northeastern United States. In fiscal year 2017, our operations managed approximately 0.8 million tons of residuals, with 0.2
million tons of this material internalized to our landfills and 0.4 million tons transformed into renewable products for
fertilization and landscaping. In addition, our Organics group has been working to develop and/or partner with firms that have
developed innovative approaches to deriving incremental value from source separated organics to comply with emerging waste
regulations.
Reducing general and administration costs and improving efficiencies
In August 2017, we launched a new strategy focused on driving lower general and administration costs and improving back
office efficiencies through our multi-year technology plan and our efforts to optimize our sales organization. Our goal is to
reduce our general and administration costs as a percentage of revenues by 75 to 100 basis points by December 31, 2021.
We initially plan to focus our efforts in two key areas to accomplish this goal: (1) update key technology infrastructure to
transform our finance organization and streamline our back-office processes; and (2) optimize our sales organization and
activities to drive higher sales and productivity.
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We developed a 5-year technology plan during fiscal year 2017 that focuses investment in core systems and infrastructure to
drive cost efficiencies, customer value, and growth. Our legacy financial, work-order management, and billing systems have
provided a stable and high performance system over the last 25 years. However, as we have worked to modernize our
processes, we discovered that our legacy platforms did not afford the data integration capabilities necessary to advance these
key technology initiatives.
Our 5-year technology plan first focuses on updating our key financial systems (financial, general ledger, purchasing, and fixed
assets) with a new NetSuite cloud based Enterprise Resource Planning software that was launched in February 2018. The next
major step in this plan is to replace our field services system, including work order management, dynamic truck routing and
billing applications.
Once we have these foundational systems in place, we plan to shift our attention to further advancing our long-term technology
plan, with a focus on enhancing customer facing applications, streamlining back-office and accounting processes, automating
routine processes, translating data into actionable operating intelligence, and adding technology to the cab of our trucks to
improve customer service and efficiencies.
The second major initiative targeted at reducing general and administration costs and improving efficiencies, is our effort to
optimize our sales organization and activities. During fiscal year 2016 and into fiscal year 2017, we migrated from five
antiquated Customer Relationship Management ("CRM") systems to a newly deployed Microsoft Dynamics CRM platform. As
of mid-2017, all of our sales force was utilizing the new system to manage their day-to-day sales activities. In fiscal 2018, we
plan to focus on enhancing opportunity and retention management activities, driving higher cross-selling, and improving sales
force effectiveness and efficiency. As we gain further traction with these efforts we expect to redirect certain sales resources to
drive higher growth in key customer segments and market areas.
Allocating capital to balance debt delevering with smart growth
Over the last five years we have made significant progress in simplifying our business structure, improving cash flows and
reducing risk exposure: (1) by divesting and closing under performing operations that did not enhance or complement our core
operations; and (2) through strict capital discipline and debt repayment. Given our success in each area and as part of the 2021
Plan, we have shifted our capital strategy to use our capital in a manner that balances continued delevering with smart
acquisition and development growth.
One of the key pillars of this initiative to improving our balance sheet and reducing operational and financial risk, is our
Enterprise Risk Management program that helps us to more effectively identify and mitigate risk throughout all aspects of our
business. This program has helped us to prioritize and focus resources on mitigating key risk areas, while simplifying our
business structure, improving cash flows and reducing risk exposure by divesting and closing under performing operations that
did not enhance or complement our core operations. These actions included: (1) the divestiture of Maine Energy Recovery
Company, LP, a low margin, negative cash flow waste-to-energy operation, in the fiscal year ended April 30, 2013; (2) the
divestiture of KTI BioFuels, Inc. (“BioFuels”), a low margin, negative cash flow C&D processing facility, in fiscal year 2014;
(3) the sale of our 50% equity interest in US GreenFiber LLC, a negative cash flow cellulose insulation joint-venture, in fiscal
year 2014; (4) the wind down of Casella-Altela Regional Environmental Services, LLC (“CARES”) through the disposal of the
remaining assets of CARES in fiscal year 2015, in which we held a 51% membership interest; and (5) the sale of select low-
margin collection routes in fiscal years 2015 and 2016.
During this period, our financial strategy was focused on maximizing cash flows to permanently retire indebtedness and
refinancing higher cost indebtedness to lower our borrowing costs and reduce market risk. We made significant progress in
each area during fiscal years 2016 and 2017.
•
•
•
On October 17, 2016, we completed the refinancing of our 7.75% senior subordinated notes due February 2019 (“2019
Notes”) and our senior secured asset-based revolving credit and letter of credit facility due February 2020 with our new
term loan B facility in the amount of $350.0 million (“Term Loan B Facility”) and a revolving line of credit facility in
the amount of $160.0 million (“Revolving Credit Facility” and, together with the Term Loan B Facility, the "Credit
Facility"). This refinancing saved us approximately $11.0 million of annual cash interest expense, moved out debt
maturities, and increased our financial flexibility.
On April 18, 2017, we completed the repricing of our Term Loan B Facility and reduced the applicable interest rate
margin by 25 basis points for both LIBOR and base borrowings. This repricing saved us approximately an additional
$0.9 million of annual cash interest expense.
As of December 31, 2017, our consolidated net leverage ratio, as measured by our Credit Facility, dropped below 3.75x,
and as such the applicable interest rate margin for our Term Loan B Facility dropped by another 25 basis points for both
LIBOR and base borrowings. This interest rate step-down is expected to save us approximately an additional $0.9
million of annual cash interest expense.
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We believe that we are well-positioned for the future and remain strongly committed to a disciplined capital investment
strategy, that balances continued delevering with smart acquisition and development growth. We have set a goal of $20 million
to $40 million per year of acquisition or development activity as part of this new strategy, although we may consider larger
transactions if appropriate. Acquisitions or development activity will be opportunistic, and we expect to strictly adhere to our
disciplined capital return hurdles and rigorous review process.
Given the continued tightening of the disposal markets across the northeastern United States due to permanent facility closures
and increased economic activity, coupled with changes in the recycling markets, we believe that we have an excellent
opportunity to acquire select assets across our market areas. We estimate we have roughly $500 million of potential acquisition
opportunity in our northeastern United States markets (either tuck-in or strategically integrated with our assets).
We believe that investing a portion of our excess cash flows to grow our business will create additional shareholder returns
through higher cash flow growth rates driven by new revenue streams, internalization to our disposal facilities and cost
synergies.
Operational Overview
Our solid waste and recycling 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-five 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 (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 our various residential
and commercial 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 sell recyclable materials originating from the municipal solid
waste stream, including newsprint, cardboard, office paper, glass, plastic, steel or aluminum containers and bottles. We operate
eight large-scale, high volume MRFs within our Recycling region 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, three of which are located in New York, two of which are located in Vermont, two of which are located in
Massachusetts, and one of which is located in Maine, process over 0.5 million tons per year of recycled materials delivered to
them by municipalities and commercial customers under long-term contracts. We also operate smaller MRFs, which generally
process recyclables collected from our various residential collection operations.
Landfills. We operate nine solid waste Subtitle D landfills and one landfill permitted to accept C&D materials. Revenues are
received from municipalities and other customers in the form of tipping fees. The estimated capacity at our landfills is subject
to change based on engineering factors, requirements of regulatory authorities, our ability to continue to operate our landfills in
compliance with applicable regulations and our ability to successfully renew operating permits and obtain expansion permits at
our sites.
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The following table (in thousands) reflects the aggregate landfill capacity and airspace changes, in tons, for landfills we
operated during fiscal years 2017, 2016 and 2015:
Fiscal Year 2017
Fiscal Year 2016
Fiscal Year 2015
Estimated
Remaining
Permitted
Capacity
(1)
Estimated
Additional
Permittable
Capacity
(1)(2)
Estimated
Total
Capacity
Estimated
Remaining
Permitted
Capacity
(1)
Estimated
Additional
Permittable
Capacity
(1)(2)
Estimated
Total
Capacity
Estimated
Remaining
Permitted
Capacity
(1)
Estimated
Additional
Permittable
Capacity
(1)(2)
Estimated
Total
Capacity
Balance, beginning of year
31,022
59,089
90,111
23,208
74,443
97,651
26,456
76,547
103,003
New expansions
pursued (3)
Permits granted (4)
Airspace consumed
Changes in
engineering
estimates (5)
Balance, end of year
—
9,273
(3,958)
—
(9,273)
— (3,958)
—
—
— 11,859
(3,899)
—
(11,859)
—
—
1,366
1,366
—
— (3,899)
—
(3,793)
—
—
— (3,793)
(178)
36,159
(3,515)
46,301
(3,693)
82,460
(146)
31,022
(3,495)
59,089
(3,641)
90,111
545
23,208
(3,470)
74,443
(2,925)
97,651
(1) We convert estimated remaining permitted capacity and estimated additional permittable capacity from cubic yards to
tons generally by assuming a compaction factor derived from historical average compaction factors, with modification
for future anticipated changes. In addition to a total capacity limit, certain permits place a daily and/or annual limit on
capacity.
(2) Represents capacity which we have determined to be “permittable” in accordance with the following criteria: (i) we
control the land on which the expansion is sought; (ii) all technical siting criteria have been met or a variance has been
obtained or is reasonably expected to be obtained; (iii) we have not identified any legal or political impediments which
we believe will not be resolved in our favor; (iv) we are actively working on obtaining any necessary permits and we
expect that all required permits will be received; and (v) senior management has approved the project.
(3) The change in new expansions pursued in fiscal year 2015 relates to the determination of additional permittable airspace
at the Subtitle D landfill located in Southbridge, Massachusetts ("Southbridge Landfill") and the Subtitle D landfill
located in Bethlehem, New Hampshire ("NCES Landfill") in our Eastern region.
(4) The increase in remaining permitted airspace capacity in fiscal year 2017 was the result of a permit received at the
Subtitle D landfill located in West Old Town, Maine ("Juniper Ridge Landfill") in our Eastern region. The increase in
remaining permitted airspace capacity in fiscal year 2016 was a result of the receipt of expansion permits at the Subtitle
D landfill located in Seneca, New York ("Ontario County Landfill") and the Subtitle D Landfill located in Chemung,
New York ("Chemung County Landfill") in our Western region.
(5) The variation in changes in airspace capacity associated with engineering estimates are primarily the result of changes in
compaction at our landfills and estimated airspace changes associated with design changes at certain of our landfills,
which in fiscal year 2017 includes the impact associated with the decision to close our Southbridge Landfill.
Eastern Region
NCES Landfill. The NCES Landfill is a Subtitle D landfill located in Bethlehem, New Hampshire that we purchased in 1994.
NCES Landfill currently consists of approximately 50 acres of permitted or permittable landfill area, is permitted to accept
municipal solid waste, C&D material and certain pre-approved special waste and has no annual tonnage limitations. In fiscal
year 2017, NCES Landfill entered into an agreement for the construction of a landfill gas-to-energy plant, which will be
constructed, owned and operated by a third-party.
Juniper Ridge Landfill. The Juniper Ridge Landfill is a Subtitle D landfill located in West Old Town, Maine. In 2004, we
completed transactions with the State of Maine and Georgia-Pacific Corporation (“Georgia Pacific”), pursuant to which the
State of Maine took ownership of Juniper Ridge Landfill, formerly owned by Georgia Pacific, and we became the operator
under a 30-year operating and services agreement between us and the State of Maine. Juniper Ridge Landfill currently consists
of approximately 179 acres of permitted or permittable landfill area, which is sufficient to permit the additional airspace
required for the term of the 30-year operating and services agreement, and is permitted to accept the following waste
originating from the State of Maine: up to 0.1 million tons of municipal solid waste per year through March 2018, and C&D
material, ash from municipal solid waste incinerators and fossil fuel boilers, front end processed residuals and bypass municipal
solid waste from waste-to-energy facilities and certain pre-approved special waste. Outside of the limitations on municipal
solid waste, there are no annual tonnage limitations at Juniper Ridge Landfill.
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Southbridge Landfill. The Southbridge Landfill is a Subtitle D landfill located in Southbridge, Massachusetts. In 2003, we
acquired Southbridge Recycling and Disposal Park, Inc., which owns a recycling facility and has a contract with the Town of
Southbridge, Massachusetts to operate Southbridge Landfill. Southbridge Landfill currently consists of approximately 73 acres
of permitted or permittable landfill area, and is permitted to accept up to 0.4 million tons of municipal solid waste, processed
C&D residual material and certain pre-approved special waste annually. The Southbridge Landfill site houses a landfill gas-to-
energy plant, which is owned and operated by us, that has the capacity to generate 1.6 MW of energy. In fiscal year 2017, we
initiated a plan to cease operations of Southbridge Landfill and decided to not proceed with expansion efforts and to close
Southbridge Landfill once the remaining capacity had been exhausted, with capacity expected to be reached during fiscal year
2018. Closure operations at Southbridge Landfill are expected to begin in fiscal year 2018, or shortly thereafter, once capacity
has been reached.
Closure Projects. In 2005, we started closure operations at the Worcester Landfill. These closure operations were completed in
April 2014 when Worcester Landfill accepted its final tons of waste. We began final capping and closing of Worcester Landfill
in May 2014 and completed final capping and closing in fiscal year 2016.
Western Region
Waste USA Landfill. The Waste USA landfill, which is a Subtitle D landfill located in Coventry, Vermont ("Waste USA
Landfill") that we purchased in 1995, is the only operating permitted Subtitle D landfill in the State of Vermont. Waste USA
Landfill consists of approximately 148 acres of permitted or permittable landfill area, and is permitted to accept up to 0.6
million tons of municipal solid waste, C&D material and certain pre-approved special waste annually. The Waste USA Landfill
site houses a landfill gas-to-energy plant, which is owned and operated by a third-party, that has the capacity to generate 8.0
MW of energy.
Clinton County Landfill. The Clinton County landfill, which is a Subtitle D landfill located in Schuyler Falls, New York
(“Clinton County Landfill”). Clinton County Landfill, which currently consists of approximately 197 acres of permitted or
permittable landfill area, portions of which are leased from Clinton County, is permitted to accept up to approximately 0.2
million tons of municipal solid waste, C&D material and certain pre-approved special waste annually. The Clinton County
Landfill site houses a landfill gas-to-energy facility, which is owned by us and operated by a third-party, that has the capacity to
generate 6.4 MW of energy.
Hyland Landfill. The Hyland landfill, which is a Subtitle D landfill located in Angelica, New York (“Hyland Landfill”) that we
own, began accepting waste in 1998. Hyland Landfill currently consists of approximately 121 acres of permitted or permittable
landfill area, and is permitted to accept up to 0.5 million tons of municipal solid waste, C&D material and certain pre-approved
special waste annually. The Hyland Landfill site houses a landfill gas-to-energy facility, which is owned by us and operated by
a third-party, that has the capacity to generate 4.8 MW of energy.
Ontario County Landfill. The Ontario County Landfill, which is a Subtitle D landfill located in Seneca, New York. In 2003, we
entered into a 25-year operation, management and lease agreement for the Ontario County Landfill with the Ontario County
Board of Supervisors. Ontario County Landfill currently consists of approximately 171 acres of permitted or permittable
landfill area, and is permitted to accept up to 0.9 million tons of municipal solid waste, C&D material and certain pre-approved
special waste annually and is strategically situated to accept long haul volume from both the eastern and downstate New York
markets. In January 2016, we received an expansion permit at the Ontario County Landfill, which is sufficient to permit the
additional airspace required for the remaining term of the 25-year operation, management and lease agreement. The Ontario
County Landfill site houses a Zero-Sort MRF, which is operated by us, and a landfill gas-to-energy facility, which is owned and
operated by a third-party, that has the capacity to generate 11.2 MW of energy.
Hakes Landfill. The Hakes C&D landfill, which is a C&D landfill located in Campbell, New York (“Hakes Landfill”) that we
purchased in 1998. Hakes Landfill currently consists of approximately 78 acres of permitted or permittable landfill area, and is
permitted to accept up to 0.5 million tons of C&D material annually.
Chemung County Landfill. The Chemung County Landfill, which is a Subtitle D landfill located in Chemung, New York. In
2005, we entered into a 25-year operation, management and lease agreement for Chemung County Landfill and certain other
facilities with Chemung County. Chemung County Landfill currently consists of approximately 113 acres of permitted or
permittable landfill area strategically situated to accept long haul volume from both eastern and downstate New York markets
and is permitted to accept up to 0.4 million tons of municipal solid waste and certain pre-approved special waste annually and
20.5 thousand tons of C&D material annually. In June 2016, we received an expansion permit at Chemung County Landfill,
which is sufficient to permit the additional airspace required for the remaining term of the 25-year operation, management and
lease agreement.
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McKean Landfill. The McKean landfill, which is a Subtitle D landfill located in Mount Jewett, Pennsylvania (“McKean
Landfill”) that we purchased in 2011 as part of a bankruptcy reorganization. McKean Landfill currently consists of
approximately 256 acres of permitted or permittable landfill area, and is permitted to accept up to approximately 0.3 million
tons of municipal solid waste, C&D material and certain pre-approved special waste annually. The facility permit authorizes the
construction of the rail siding at the landfill which if completed, would expand the market reach for the landfill to other rail
capable transfer facilities. We have not yet committed to the construction of the rail siding pending a determination of the
economic viability. We believe that McKean Landfill is well situated to provide services to the oil and gas industry that
explores natural gas in the Marcellus Shale of Pennsylvania in the form of disposal capacity for residual materials.
Closed Landfills
We also own and/or manage five unlined landfills and three lined landfills that are not currently in operation. We have closed
and capped all of these landfills according to applicable environmental regulatory standards.
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 our Eastern and Western regions. Our third operating segment is
Recycling, which comprises our larger-scale recycling operations and our commodity brokerage operations. Organic services,
ancillary operations, industrial services, discontinued operations and earnings from equity method investees, as applicable, are
included in our “Other” segment. See Note 19, Segment Reporting to our consolidated financial statements included under
Item 8 of this Annual Report on Form 10-K for a summary of revenues, certain expenses, profitability, capital expenditures,
goodwill, and total assets of our operating segments.
Within each geographic region, we organize our solid waste services around smaller areas that we refer to as “wastesheds.” A
wasteshed is an area that comprises the complete cycle of activities in the solid waste services process, from collection to
transfer operations and recycling to disposal in landfills, some of which may be owned and/or 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 division operates interdependently with the other divisions within the wasteshed. Each
wasteshed generally operates autonomously from adjoining wastesheds.
Through the eight MRFs and commodity brokerage operation comprising our Recycling segment, we provide services to six
anchor contracts, which have original terms ranging from five to twenty years and expire at various times through calendar year
end 2028. The terms of each contract vary, but all of the contracts provide that the municipality or 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.
The following table provides information about each operating segment (as of January 31, 2018 except revenue information,
which is for fiscal year 2017):
Revenues (in millions)
Properties:
Solid waste collection facilities
Transfer stations
Recycling facilities
Subtitle D landfills
C&D landfills
Eastern
Region
Western
Region
Recycling
Other
$181.2
$250.8
$62.3
$105.1
14
18
3
3
—
18
29
4
6
1
—
—
9
—
—
—
—
2
—
—
See our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K for our financial results
for fiscal years 2017, 2016 and 2015, and our financial position as of December 31, 2017 and December 31, 2016.
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Eastern region
Our Eastern region consists of wastesheds located in Maine, northern, central and southeastern New Hampshire and central and
eastern Massachusetts. Our Eastern region is vertically integrated, with transfer, landfill, processing and recycling assets
serviced by our collection operations. In February 2013, we aligned management of NCES Landfill with our Eastern region.
NCES Landfill had been historically aligned with our Western region. Our December 2012 acquisition of Bestway Disposal
Services and BBI Waste Services strengthened both our collection and transfer network in New Hampshire and Maine by
adding three collection operations and four, either owned or operated, transfer stations, and by contributing additional
internalized solid waste and recycling volumes to our disposal facilities. In August 2013, we divested of our BioFuels C&D
processing facility in Lewiston, Maine, allowing us to focus on our higher margin core businesses.
We entered the Maine market in 1996 and have grown organically and through acquisitions. In 2004, we obtained the right to
operate Juniper Ridge Landfill under a 30-year agreement with the State of Maine.
We entered the southern New Hampshire market in 1999 and the eastern Massachusetts market in 2000 and since have grown
organically and through acquisitions. In this market, we rely to a large extent on third-party disposal capacity, but NCES
Landfill, Southbridge Landfill and other assets have provided additional opportunities to internalize volumes. In fiscal year
2014, we acquired a transfer station in Oxford, Massachusetts, allowing greater operational flexibility for our solid waste and
recycling collection operations, and in fiscal year 2018 we acquired Complete Disposal Company, Inc. and its subsidiary
United Material Management of Holyoke, Inc. (collectively, "Complete"), which is expected to generate approximately $17.0
million of revenues annually. Complete provides residential and roll-off collection services, operates a construction and
demolition processing facility, and operates a solid waste transfer station with both truck and rail transfer capabilities. However,
in fiscal year 2017, we also initiated the plan to cease operations of the Southbridge Landfill and decided to not proceed with
expansion efforts and close the Southbridge Landfill once the remaining capacity had been exhausted, with capacity expected
to be reached during fiscal year 2018. Closure operations at the Southbridge Landfill are expected to begin in fiscal year 2018,
or shortly thereafter, once capacity has been reached.
Western region
Our Western region includes wastesheds located in Vermont, southwestern New Hampshire, eastern, western and upstate New
York and in Pennsylvania around McKean Landfill. The portion of eastern New York served by our Western region includes
Clinton (operation of Clinton County), Franklin, Essex, Warren, Washington, Saratoga, Rennselaer and Albany counties.
Our Western region also consists of wastesheds in western New York, which includes Ithaca, Elmira, Oneonta, Lowville,
Potsdam, Geneva, Auburn, Dunkirk, Jamestown and Olean markets. We entered these wastesheds in 1997 and have expanded
primarily through tuck-in acquisitions and organic growth. Our Western region collection operations include leadership
positions in nearly every rural market outside of the larger metropolitan markets such as Syracuse, Rochester, Buffalo and
Albany.
We remain focused on increasing our vertical integration in our Western region through extension of our reach into new
markets and managing new materials. We believe that maximizing these logistics through the use of rail, if implemented, long
haul trucks and trailer tippers at our facilities will increase our reach.
Recycling
Our Recycling segment is one of the largest processors and marketers of recycled materials in the northeastern United States,
comprised of eight MRFs that process and market recyclable materials that municipalities and commercial customers deliver
under long-term contracts. Two of the eight MRFs are leased, three are owned, and three are operated by us under contracts
with municipal third-parties. In fiscal year 2017, the Recycling segment processed and/or marketed over 0.7 million tons of
recyclable materials including tons marketed through our commodity brokerage division and our baling facilities located
throughout our footprint. Recycling’s facilities are located in Vermont, New York, Maine, and Massachusetts.
A substantial portion of the material provided to Recycling is delivered pursuant to six anchor contracts. The anchor contracts
have an original term of five to twenty years and expire at various times through 2028. The terms of the recycling contracts
vary, but all of the contracts provide that the municipality or a third-party delivers the recycled materials to our facility. Under
the recycling 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 our revenues from the sale of the
recovered materials.
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Our Recycling segment derives a significant portion of its revenues from the sale of recyclable materials. Since 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 to reduce commodity risk. Under such
contracts, we obtain a guaranteed minimum price for recyclable materials through the receipt of a tipping fee when commodity
prices fall below agreed upon thresholds. Conversely, when prices for recyclable materials rise above agreed upon thresholds,
we provide the counterparty with a portion of the related revenues. 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 2017, 35.5% of the revenues from the sale of residential recyclable materials were derived from sales under long-
term contracts. At times, we also hedge against fluctuations in the commodity prices of recycled paper and corrugated
containers in order to mitigate the variability in cash flows and earnings generated from the sales of recycled materials at
floating prices. As of December 31, 2017, no such commodity hedges were in place. Also, we mitigate the impact from
commodity price fluctuations through the use of a floating SRA fee charged to collection customers to offtake recycling
commodity risk. The global recycling market has experienced further negative commodity pricing pressure in 2017, which has
continued into early 2018. Markets are expected to remain depressed into the foreseeable future, as China launched its National
Sword program aimed at reducing contamination levels in imported recyclables and eliminating certain commodity grades. Due
to China’s reduced purchasing of commodities, export pricing for mixed paper declined by 80% from July 2017 through
February 2018, and OCC pricing declined 45% during the same period.
Other
Our Other segment derives a significant portion of its revenues from our Customer Solutions and Organics businesses. Our
resource solutions strategy seeks to leverage our core competencies in materials processing, industrial recycling, clean energy,
and organics service offerings in order to generate additional value from the waste stream for our customers. Our Customer
Solutions business works with larger scale organizations (including multi-location customers, colleges and universities,
municipalities, and industrial customers) to develop customized solid waste solutions. The focus of this business is to help these
large scale organizations achieve waste reduction and diversion goals to meet their economic and environmental objectives. We
differentiate our services from our competitors by providing a customized set of comprehensive resource solutions, which
enables us to win new business, including traditional solid waste collection and disposal customers.
Our Organics business 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. Through our Earthlife® soils products, we offer a wide
array of organic fertilizers, composts, and mulches that help our customers recycle organic waste streams. We also have
ownership interests in AGreen Energy, LLC and BGreen Energy, LLC, which we account for as cost method investments, that
partner with other capital investors to build farm-based anaerobic digesters in the northeastern United States to generate
electricity from farm and food waste streams.
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 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., Republic Services, Inc. and Waste Connections, Inc., any of which may be able to achieve
greater economies of scale than we can. 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.
Marketing and Sales
We have fully integrated sales and marketing strategies with a primary focus on acquiring and retaining commercial, industrial,
municipal and residential customers. Our business strategy focuses on 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 meetings, and we advertise in a variety of media throughout our service footprint.
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The Customer Solutions business serves customers with multiple locations and is focused on growing our share of business
with municipal, institutional, commercial and industrial customers. This group provides customers with a broader set of
solutions to augment our regional and divisional service capabilities.
Marketing activities are focused on retaining existing customers and attracting new commercial and residential customers
directly on-route in order to enhance profitability. Marketing campaigns are integrated with divisional management teams, sales
personnel and the centralized customer care center.
Employees
As of January 31, 2018, we employed approximately 2,000 people, including approximately 400 professionals or managers,
sales, clerical, information systems or other administrative employees and approximately 1,600 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 good.
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. Operating practices at all of our operations are intended to reduce the
possibility of environmental contamination, enforcement actions and litigation. We also maintain a worker safety program,
which focuses on safe practices in the workplace.
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.
See also Item 1, “Business”, Item 3, “Legal Proceedings” and Note 10, Commitments and Contingencies to our consolidated
financial statements included under Item 8 of this Annual Report on Form 10-K.
We self-insure for automobile and workers’ compensation coverage with reinsurance coverage limiting our maximum exposure.
Our maximum exposure in fiscal year 2017 under the workers’ compensation plan was $1.0 million per individual event. Our
maximum exposure in fiscal year 2017 under the automobile plan was $1.2 million per individual event.
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 are unable to obtain these financial instruments in sufficient amounts or
at acceptable rates we could be precluded from entering into additional municipal contracts or obtaining or retaining landfill
operating permits.
We hold a 19.9% ownership interest in Evergreen National Indemnity Company (“Evergreen”), a surety company which
provides surety bonds to secure our contractual obligations for certain municipal solid waste collection contracts and landfill
closure and post-closure obligations. Our ownership interest in Evergreen is pledged to Evergreen as security for our
obligations under the bonds they provide on our behalf.
Customers
We provide our collection services to commercial, institutional, industrial and residential customers. A majority of our
commercial and industrial collection services are performed under one-to-five year service agreements, and fees are determined
by such factors as: professional or management services required; 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
(with no underlying contract) with individuals, or through contracts with municipalities, homeowners associations, apartment
owners or mobile home park operators.
Our Recycling segment provides recycling services to municipalities, commercial haulers and commercial waste generators
within the geographic proximity of the processing facilities.
Seasonality and Severe Weather
Our transfer and disposal revenues historically have been higher in the late spring, summer and early fall months. This
seasonality reflects lower volumes of waste in the late fall, winter and early spring months 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
from 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. Our operations can be adversely affected by periods of inclement or severe weather, which
could increase our operating costs associated with the collection and disposal of waste, delay the collection and disposal of
waste, reduce the volume of waste delivered to our disposal sites, increase the volume of waste collected under our existing
contracts (without corresponding compensation), decrease the throughput and operating efficiency of our materials recycling
facilities, or delay construction or expansion of our landfill sites and other facilities. Our operations can also be favorably
affected by severe weather, which could increase the volume of waste in situations where we are able to charge for our
additional services provided.
Our Recycling segment experiences increased volumes of fiber in November and December due to increased newspaper
advertising and retail activity during the holiday season.
Regulation
Introduction
We are subject to extensive federal, state and local environmental laws and regulations which have become increasingly
stringent in recent years. The environmental regulations affecting us are administered by the United States Environmental
Protection Agency (“EPA”) and other federal, state and local environmental, zoning, health and safety agencies. Failure to
comply with such requirements could result in substantial costs, including civil and criminal fines and penalties. Except as
described in this Annual Report on 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 existing 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 enforcement oversight. We attempt to anticipate future legal and regulatory
requirements and to keep our operations in compliance with those requirements.
In order to transport, process, 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 under certain circumstances.
The principal federal statutes and regulations applicable to our operations are as follows:
The Resource Conservation and Recovery Act of 1976, as amended (“RCRA”)
The 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. The RCRA divides waste into two categories, hazardous and
non-hazardous. Wastes are generally classified as hazardous if they either (a) are specifically included on a list of hazardous
wastes, or (b) exhibit certain characteristics defined as hazardous and are not specifically designated as non-hazardous. Wastes
classified as hazardous waste 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 businesses that deal with
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 the 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
obligations different from and in addition to those the EPA imposes under Subtitle C.
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. However, there is no guarantee that leachate generated from our facilities in the future will
not be classified as hazardous waste.
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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 those 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”)
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 treated leachate from our solid waste management facilities is discharged into
streams, rivers or other surface waters, the Clean Water Act would require us to apply for and obtain a discharge permit,
conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in such discharge. A
permit also may be required if that run-off or leachate is discharged to an offsite treatment facility. Almost all solid waste
management facilities must comply with the EPA’s storm water regulations, which govern the discharge of regulated storm
water to surface waters.
Under federal regulation, facilities that have above ground and/or below ground petroleum storage capacities over certain
thresholds may be subject to regulations and/or permitting under the Clean Water Act. Many of our facilities have petroleum
storage and are required to have a spill, prevention, control and countermeasures (“SPCC”) plan to prevent petroleum release to
waters of the U.S. due to a spill, rupture or leak.
Several states in which we operate have been delegated the authority to implement the Clean Water Act requirements and in
some cases the regulations are more stringent than the federal regulations. We believe we are in compliance with the Clean
Water Act regulations; however future changes to the law or regulations could have a material impact on our business.
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 severable, liability for the costs to
investigate and clean up 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.
CERCLA imposes liability for the costs of evaluating and addressing damage to natural resources. The costs of CERCLA
investigation and cleanup can be 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 presence of any of more than 700 “hazardous substances”
listed by the EPA, many of which can be found in household waste. 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 ("TSCA"). If we were found to be a responsible party for a CERCLA cleanup, under certain
circumstances, the enforcing agency could pursue us or any other responsible party, for all investigative and remedial costs,
even if others also were liable. CERCLA also authorizes the 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 the property owner 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 obtain reimbursement for amounts we pay in excess of our allocable share of
such costs would be limited by our ability to identify and locate other responsible parties and to 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, the total capacity of the landfill and the annual volume of
emissions. The EPA has promulgated new source performance standards regulating air emissions of certain regulated pollutants
(non-methane organic compounds) from municipal solid waste landfills. Landfills located in areas where ambient levels of
regulated pollutants exceed certain thresholds may be subject to 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.
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The EPA is also focusing on the emissions of greenhouse gases, or GHG, including carbon dioxide and methane. In December,
2009, the EPA issued its “endangerment finding” that carbon dioxide poses a threat to human health and welfare, providing the
basis for the EPA to regulate GHG emissions. In December 2009 the EPA’s “Mandatory Reporting of Greenhouse Gases”
rule went into effect, requiring facilities that emit twenty-five thousand metric tons or more per year of GHG emissions to
submit annual reports to the EPA.
In June 2010, the 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. In June 2014, the U.S. Supreme Court issued a decision
partially invalidating EPA’s Tailoring Rule. We do not know whether or when the EPA will put those regulations in place
following the Supreme Court decision, or what obligations such regulations will impose on our operations.
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, including state or regional cap and trade systems, relating to GHG that may be more stringent than
regulations the EPA may promulgate. Changing environmental regulations could require us to take any number of actions,
including purchasing emission allowances or installing additional pollution control technology, and could make some
operations less profitable, which could adversely affect our results of operations.
Congress has considered 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 pressure for the United States to join
international efforts to control GHG emissions.
The Clean Air Act regulates emissions of air pollutants from 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. A variety 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”)
PURPA exempts qualifying facilities from most federal and state laws governing the financial organization and rate regulation
of electric utilities, and generally requires electric utilities to purchase electricity generated by qualifying facilities at a price
equal to the utility’s full “avoided cost”. Our four landfill gas-to-energy facilities are self- certified as “qualifying facilities”.
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, federal
regulations. Most of the federal statutes noted above authorize states to enact and enforce laws with standards that are more
protective of the environment than the federal analog. In addition, many states have adopted statutes comparable to, and in
some cases more stringent than, CERCLA. Those 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. Some states have enacted statutes that impose liability for substances in addition to
the “hazardous substances” listed by EPA under CERCLA.
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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 of the applicant or permit holder.
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 specific 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 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. 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. 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, certain construction or architectural wastes, food wastes, 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. Vermont, for example, enacted Act 148, containing
among other things, a phased waste ban for recyclables, organics and leaf/yard waste. The law became effective July 1, 2012,
with phased deadlines for compliance beginning 2014 through 2020. Vermont also passed a law requiring recycling of
architectural waste from construction or demolition of a commercial project. The law became effective in January 2015.
Massachusetts revised its regulations governing solid waste management with a framework to encourage the re-use of organic
waste material and prohibiting such material from disposal for large-scale commercial generators by October 2014.
New York State revised its regulations governing solid waste management, 6 NYCRR Part 360, effective in November 2017.
The revised regulations, among other things, include requirements to conduct landfill liner integrity testing and install radiation
detectors at certain facilities.
Although there is no federal law governing extended producer responsibility (“EPR”) regulations; many states have
implemented EPR regulations for certain products. EPR regulations are intended to place responsibility for ultimate
management or end-of-useful-life handling of the products they create. In addition to financial responsibility, an EPR program
may include responsibility for local take-back or recycling programs. For example, several states in which we operate have
EPR regulations for electronic waste. If broad EPR laws or regulations were adopted and managed under a manufacturer
implemented program, it could have an impact on our business.
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The EPA and environmental agencies within individual states in which we operate also consider and promulgate changes to
water quality standards, action levels, remediation goals, and other federal or state regulatory standards for individual
compounds or classes of compounds. These changes can also include the development of new or more stringent standards for
“Emerging Contaminants”, including PFC compounds, pharmaceutical compounds, and a variety of synthetic chemical
compounds used in manufacturing and industrial processes. In December 2016, EPA also designated ten chemical substances
for risk evaluations under TSCA, based on the requirements of the June 2016 Frank R. Lautenberg Chemical Safety for the
21st Century Act. Changes in regulatory standards for existing or emerging contaminants can result in higher levels of cost and
effort associated with the performance of environmental investigations and ongoing compliance at our facilities.
Executive Officers of the Registrant
Our executive officers and their respective ages are as follows:
Name
John W. Casella
Edwin D. Johnson
Edmond “Ned” R. Coletta
Christopher B. Heald
David L. Schmitt
Age
67
61
42
53
67
Chairman of the Board of Directors, Chief Executive Officer and Secretary
Position
President and Chief Operating Officer
Senior Vice President and Chief Financial Officer
Vice President and Chief Accounting Officer
Senior Vice President and General Counsel
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 also served as our President from 1993 to July 2001 and as Chairman of our Board from 1993 to December
1999. In addition, Mr. Casella has served as Chairman of the Board of Directors of Casella Waste Management, Inc., a wholly-
owned subsidiary of ours, since 1977. Mr. Casella is also an executive officer and director of Casella Construction, Inc., a
company owned by Mr. Casella and his brother Douglas R. Casella, also a member of our Board of Directors, which specializes
in general contracting, soil excavation and heavy equipment work, and which performs landfill-construction and related
services for us. Mr. Casella has been a member of numerous industry-related and community service-related state and local
boards and commissions, including the National Recycling Coalition, Board of Directors of the Associated Industries of
Vermont, the Association of Vermont Recyclers, the Vermont State Chamber of Commerce, the Rutland Industrial Development
Corporation and the Rutland Regional Medical Center. 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 A.S. in
Business Management from Bryant & Stratton College and a B.S. in Business Education from Castleton State College.
Edwin D. Johnson has served as our President and Chief Operating Officer since December 2012 and as our Senior Vice
President and Chief Financial Officer from July 2010 until December 2012. From March 2007 to July 2010, Mr. Johnson
served as Executive Vice President, Chief Financial Officer and Chief Accounting Officer at Waste Services, Inc, a solid waste
services company. 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 is a Certified Public Accountant and holds an MBA
from Florida International University and a Bachelor of Science in Accounting and Administration from Washington & Lee
University.
Edmond “Ned” R. Coletta has served as our Senior Vice President, Chief Financial Officer and Treasurer since December
2012. Mr. Coletta joined us in December 2004 and has served in positions of increasing responsibility, including as our Vice
President of Finance and Investor Relations from January 2011 to December 2012. Prior to that Mr. Coletta served as our
Director of Finance and Investor Relations from August 2005 to January 2011. From 2002 until he joined us, Mr. Coletta
served as the Chief Financial Officer and was a member of the Board of Directors of Avedro, Inc. (FKA ThermalVision, Inc.),
an early stage medical device company that he co-founded. From 1997 to 2001, he served as a research and development
engineer for Lockheed Martin Michoud Space Systems. Mr. Coletta holds an MBA from the Tuck School of Business at
Dartmouth College and a Bachelor of Science in Materials Science Engineering from Brown University.
Christopher B. Heald has served as our Vice President of Finance and Chief Accounting Officer since January 2013. Mr. Heald
joined us in September 2001 and has served in positions of increasing responsibility, including as our Director of Financial
Reporting and Analysis from July 2010 to January 2013 and as our Accounting Manager from August 2002 to July 2010.
Mr. Heald is a Certified Public Accountant and holds a Bachelor of Science in Business Administration from the University of
Vermont.
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David L. Schmitt has served as our Senior Vice President and General Counsel since June 2012. Mr. Schmitt joined us in May
2006 as our Vice President, General Counsel. Prior to that, Mr. Schmitt served as President of a privately held consulting firm,
and further served from 2002 until 2005 as Vice President and General Counsel of BioEnergy International, LLC, (a
predecessor company to Myriant Corporation), a firm specializing in the production of bio-succinic acid. He served from 1995
until 2001, as Senior Vice President, General Counsel and Secretary of Bradlees, Inc., a retailer in the northeast United States,
and from 1986 through 1990, as Vice President and General Counsel of Wheelabrator Technologies, Inc., a multi-faceted
corporation specializing in the development, ownership and operation of large-scale power facilities, fueled by solid waste and
other alternative fuels. He is admitted to the Bar of Pennsylvania, and holds a Juris Doctor, cum laude, from Duquesne
University School of Law and a Bachelor of Arts degree from The Pennsylvania State University.
Available of Reports and Other Information
Our website is www.casella.com. We make available, free of charge through our website, our Annual and Transition Reports on
Form 10-K and 10-KT, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Proxy Statements on Schedule 14A,
and any amendments to those materials filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as
amended. 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 (“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 us and other issuers that file electronically with the SEC. The SEC’s Internet website address is
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’s results of operations and financial condition.
We have in place an Enterprise Risk Management process that involves systematic risk identification and mitigation covering
the categories of strategic, financial, operational, and compliance risk. The goal of enterprise risk management is not to
eliminate all risk, but rather to identify and assess risks; assign, mitigate and monitor risks; and report the status of our risks to
the Board of Directors and its committees.
Risks Related to Our Business
We face substantial competition in the solid waste services industry, and if we cannot successfully compete in the
marketplace, our business, financial condition and results of operations may be materially adversely affected.
The solid waste services industry is highly competitive, has undergone a period of consolidation and requires substantial labor
and capital resources. The markets in which we compete are served by, or are adjacent to markets served by, one or more of the
large national or super regional 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, municipal contracts are typically 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 could be materially
adversely affected.
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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 solid 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 taxes and apply resulting revenues, access tax-exempt financing and, in some cases, utilize government
subsidies.
In addition, we may be impacted by the development and commercialization of disruptive technologies that may materially
change how waste management services are provided. If we are unable to gain access to these technologies or to compete
effectively against them, our financial results may suffer.
We also experience competition in our hiring of drivers and mechanics necessary to service our customers. This competition
may come from other waste management companies, but it also comes from other employers who hire drivers and maintain
fleets, such as companies that provide courier delivery services, including United Parcel Service, Inc. and FedEx Corporation,
as well as from a tightening labor market. If we are unable to hire and retain sufficient numbers of drivers to service our
collection and disposal routes and mechanics to maintain our trucks, our financial condition and operating results could be
materially impacted.
The waste management industry is undergoing fundamental change as traditional waste streams are increasingly viewed as
renewable resources, which may adversely affect volumes and tipping fees at our landfills.
As we continue to develop our landfill capacity, the waste management industry is recognizing the value of the waste stream as
a renewable resource, and accordingly, alternatives to landfilling are being developed that seek to maximize the renewable
energy and other resource benefits of solid waste. These alternatives affect the demand for landfill airspace, and could 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 landfill airspace. Reduced tipping fees can affect our willingness to incur
the expenditures necessary to increase the permitted capacity of the landfills. As a result, our revenues and operating margins
could be materially adversely affected due to these disposal alternatives.
The waste industry is subject to extensive government regulations, including environmental regulations, and we incur
substantial costs to comply with such regulations. Failure to comply with environmental or other regulations, as well as
enforcement actions and litigation arising from an actual or perceived breach of such regulations, 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 attempts to further regulate the
industry, including efforts to regulate the emission of greenhouse gases. 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 affect our results of
operations, cash flows, and available capital. Environmental and land use laws also affect 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 solid
waste. Those laws and regulations may limit the overall size and daily solid 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.
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In addition to complying with environmental laws and regulations, we are required to obtain government permits to operate our
facilities, including all of our landfills. There is no guarantee that we will 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. 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 solid 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, which 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.
We have historically grown through acquisitions, may make additional acquisitions 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 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 responsible for addressing it.
Some of the legal sanctions to which we could become subject could cause the suspension or revocation of a permit, prevent us
from, or delay us in, obtaining or renewing permits to operate or expand our facilities, or harm our reputation. As of
December 31, 2017, we had recorded $5.8 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, and $5.9 million in environmental
remediation liabilities for the estimated cost of the future installation of a municipal waterline associated with Southbridge
Recycling & Disposal Park, Inc.("SRD") discussed below, including the recognition of accretion expense in other accrued
liabilities and other long-term liabilities. There can be no assurance that the cost of such cleanup or that our share of that cost
will not exceed our estimates.
In addition to the costs of complying with environmental laws and regulations, we incur costs defending against environmental
litigation brought by government agencies and private parties. We are, and may be in the future, a defendant in lawsuits brought
by parties alleging environmental damage, personal injury, and/or property damage, or seeking to overturn or prevent the
issuance of an operating permit or authorization, all of which may result in us incurring significant liabilities.
In October 2015, our SRD subsidiary reported to the Massachusetts Department of Environmental Protection (“MADEP”)
results of analysis of samples collected pursuant to our existing permit from private drinking water wells located near the Town
of Southbridge, Massachusetts (“Southbridge”) landfill ("Southbridge Landfill"), which is operated by SRD. Those results
indicated the presence of contaminants above the levels triggering notice and response obligations under MADEP regulations.
In response to those results, we are carrying out an Immediate Response Action pursuant to Massachusetts General Law
Chapter 21E (“Charlton 21E Obligations”). Further, we entered into an administrative consent order (“ACO”) with MADEP,
Southbridge, and the Town of Charlton, Massachusetts (“Charlton”), in April 2017. The ACO provides for equal sharing of
costs between MADEP and us, of up to $10.0 million ($5.0 million each) for the Town to install a municipal waterline in
Charlton. It is expected that Southbridge will issue a Bond for our portion of the waterline costs, and we expect to amend the
Operating Agreement between us and the Town to provide for us to reimburse Southbridge for periodic payments under such
Bond. This waterline will provide municipal water to certain Charlton residents, and under the ACO, the parties agreed that
operation of the waterline shall enable the Charlton 21E Obligations to be closed without MADEP approval.
In February 2016, we and Southbridge received a Notice of Intent to Sue under the Resource Conservation and Recovery Act
(“RCRA”) sent on behalf of residents proximate to the Southbridge Landfill (“Residents”), threatening to file suit against us
alleging the groundwater contamination orinigated from the Southbridge Landfill. In February 2017, we received an additional
Notice of Intent to Sue from the National Environmental Law Center under the Federal Clean Water Act (“CWA”) and RCRA
(collectively the “Acts”) on behalf of Environment America, Inc., d/b/a Environment Massachusetts, and Toxics Action Center,
Inc., which have referred to themselves as the Citizen Groups. On or about June 9, 2017, a lawsuit was filed against us, SRD
and Southbridge in the U.S. District Court for the District of Massachusetts by the Citizen Groups and the Residents alleging
violations of the Acts (the “Litigation”), and demanding a variety of damages and remedies under the Acts, including fines,
remediation, mitigation and costs of litigation, and remedies for violations of Massachusetts civil law related to personal and
property damages, including remediation, diminution of property values, compensation for lost use and enjoyment of
properties, enjoinment of further operation of the Southbridge Landfill and costs of litigation, plus interest on any damage
award, on behalf of the Residents.
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In November 2016, SRD received a cease and desist order (“Order”) from the Charlton alternate zoning enforcement officer,
alleging that two stormwater detention basins on SRD’s property in Charlton existed in violation of Charlton zoning
requirements. SRD appealed the Order to the Charlton Zoning Board of Appeals, which upheld the Order. In June 2017, SRD
appealed the Charlton Zoning Board of Appeals decision to the Massachusetts Land Court. We believe it is reasonably possible
that a loss will occur as a result of the Order although an estimate of loss cannot be reasonably provided at this time.
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. See "Legal Proceedings - Environmental Remediation Liability".
The conduct of our businesses is also subject to various other laws and regulations administered by federal, state and local
governmental agencies, including tax laws, employment laws and competition laws, among others. New laws, regulations or
governmental policy and their related interpretations, or changes in any of the foregoing, including taxes or other limitations on
our services, may alter the environment in which we do business and, therefore, may impact our results or increase our costs or
liabilities.
In certain jurisdictions, we are subject to compliance with specific obligations under competition laws due to our competitive
position in those jurisdictions. For example, in May 2002, we entered into an assurance of discontinuance with the Vermont
Attorney General’s Office concerning, among other matters, the conduct of our business in Vermont relating to certain contract
terms applicable to our small commercial container customers. In August 2011, a revised final judgment of consent and order
was entered by the Vermont Superior Court Washington Unit, Civil Division, as a result of some of our small commercial
container customers having been mistakenly issued contracts that did not strictly comply with the terms of the assurance of
discontinuance. Pursuant to the order, we paid a civil penalty in an aggregate amount of $1.0 million. In July 2014, we entered
into an assurance of discontinuance with the office of the New York Attorney General in connection with certain of our
commercial practices in certain specified counties in New York, pursuant to which we paid the State of New York a sum of $0.1
million. The assurances of discontinuance and order provide for certain restrictions on our customer contract terms, certain
conditions on our business acquisitions, sales and market share and require us to maintain an internal compliance program.
Failure to comply with these requirements or other laws or regulations could subject us to enforcement actions or financial
penalties which could have a material adverse effect on our business.
See also Item 1, “Business”, Item 3, “Legal Proceedings” and Note 10, Commitments and Contingencies to our consolidated
financial statements included under Item 8 of this Annual Report on Form 10-K.
Our results of operations are affected by fluctuating commodity prices and market requirements for recyclable materials.
Our results of operations have been and will 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 commodity markets continue to see ongoing negative pressure on pricing
associated with the decline of the fiber market due to less use of paper products such as newspaper and office paper as a result
of increased on-line reading. As a result of these market changes, domestic demand for various recycled fibers from mill buyers
has steadily declined over the past decade, and as such we have exported more of these materials overseas to China. In 2017,
China launched a campaign called “National Sword” which has imposed significant restrictions on the importation into China
of recyclable materials, including imposing new quality standards for contaminants in recyclable materials commencing
January 1, 2018. Furthermore, China has not issued import licenses for its mills to import recyclable commodities for 2018,
resulting in a stoppage of essentially all imports of recyclable commodities into China. These factors could have a significant
impact on our business.
We seek to limit our exposure to fluctuating commodity prices through: our revenue sharing contracts that share commodity
prices above a threshold level or charge a tipping fee below the threshold; our net commodity rate formula that allows us to
pass back higher costs to sell commodities, including higher labor costs or equipment costs to meet new quality standards; our
floating Sustainability Recycling Adjustment fee that passes back the cost of recycling to our collection customers; and as
applicable, the use of hedging agreements, floor price contracts and long-term supply contracts with customers. Although we
have introduced these risk mitigation programs to help offset volatility in commodity prices and to offset higher labor or capital
costs to meet more stringent contamination standards, we cannot provide assurance that we can use these programs with our
customers in all circumstances or that they will mitigate these risks in an evolving recycling environment.
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Our business requires a high level of capital expenditures.
Our business is capital intensive. Our capital expenditure requirements include fixed asset purchases and capital expenditures
for landfill development and cell construction, as well as site and cell closure. We use a substantial portion of our cash flows
from operating activities toward 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.
We are upgrading our technology infrastructure and there can be no assurance that our efforts will be completed on the
projected timetable or that our investment will result in the expected gains.
We are upgrading our technology infrastructure, including an enterprise resource planning package and other systems that we
believe will improve our internal processes and the productivity of our employees. These upgrades are complex and there can
be no assurance that they will result in expected productivity gains and operating cost reductions on our anticipated timeline, if
at all. In addition, if we are not able to maintain the security of our data, confidential information about us or our customers or
suppliers could be inadvertently disclosed, subjecting us to possible expenses and other liabilities as well as adversely
impacting customer and other third party relationships. If we are unable to benefit from new technologies, we may be at a
competitive disadvantage to other companies in the waste management industry, in which case our operating results could
suffer.
A cybersecurity incident could negatively impact our business and our relationships with customers, adversely affecting our
financial results and exposing us to litigation risk.
We use computer technology in substantially all aspects of our business operations. We also use mobile devices, social networking
and other online activities to connect with our customers and our employees to be able to process transactions and provide
information that we feel is necessary to manage our business. Such uses give rise to cybersecurity risks, including security breach,
espionage, system disruption, theft and inadvertent release of information. Our business involves the storage and transmission of
numerous classes of sensitive and/or confidential information and intellectual property, including customers’ personal information,
private information about employees, and financial and strategic information about us and our business partners. We also rely on
a Payment Card Industry compliant third party to protect our customers’ credit card information. Further, as we pursue our strategy
to grow through acquisitions and to pursue new initiatives that improve our operations and cost structure, we are also expanding
and improving our information technologies, resulting in a larger technological presence and corresponding exposure to
cybersecurity risk. If we fail to assess and identify cyber security risks associated with acquisitions and new initiatives, we may
become increasingly vulnerable to such risks. Additionally, while we have implemented measures to prevent security breaches
and cyber incidents, our preventive measures and incident response efforts may not be entirely effective, especially as cyber
security attacks continue to evolve. If our established network of security controls, policy enforcement mechanisms, educational
awareness programs and monitoring systems that we use to address these threats to technology fail, the theft, destruction, loss,
misappropriation, or release of sensitive and/or confidential information or intellectual property, or interference with our
information technology systems or the technology systems of third parties on which we rely, could result in business disruption,
negative publicity, brand damage, violation of privacy laws, loss of customers, potential litigation and liability and competitive
disadvantage. While we have purchased insurance coverage for cybersecurity risks, there can be no assurance that any such
coverage would be adequate to cover potential liability.
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.
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Our results of operations and financial condition may be negatively affected if we inadequately accrue for final 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 final 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 that 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 we must begin post-closure maintenance. We establish accruals for the estimated costs
associated with such final 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 final
capping, closure and post-closure costs of our owned or operated landfills, generally for a term of 30 years after closure of a
landfill. Our financial obligations for final 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 that would have an adverse effect on our business.
In addition, the timing of any such final capping, closure or post-closure costs, which exceed established accruals, may further
negatively affect 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 affect 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 2017, we used
approximately 4.9 million gallons of diesel fuel in our solid waste operations. Although 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, contractual
restrictions and competitive conditions may impact our opportunity to pass this fee on to our customers in all circumstances.
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, and obligations associated with landfill closure typically require
performance or surety bonds, letters of credit or other means of financial assurance to secure our contractual performance. We
currently obtain performance and surety bonds from Evergreen National Indemnity Company, in which we hold a 19.9% equity
interest. 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 contracts or from obtaining 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 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 generally accepted accounting principles in the United States, we capitalize certain expenditures and
advances relating to our acquisitions, pending acquisitions, landfills, cost method investments 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 or 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.
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See Note 3, Summary of Significant Accounting Policies and Note 16, Divestiture Transactions to our consolidated financial
statements included under Item 8 of this Annual Report on Form 10-K for disclosure related to asset impairments recognized
during the disclosed reporting periods.
Our revenues and our operating income experience seasonal fluctuations.
Our transfer and disposal revenues historically have been higher in the late spring, summer and early fall months. This
seasonality reflects the lower volume of solid 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
decreased tourism in Vermont, Maine and eastern New York during the winter months tends to lower the volume of solid
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. In addition, particularly harsh weather conditions typically result in increased operating costs.
Adverse weather conditions may limit our operations and increase the costs of collection and disposal.
Our collection and landfill operations could be adversely impacted by extended periods of inclement weather, or by increased
severity of weather. Adverse weather could increase our operating costs associated with the collection and disposal of waste,
delay the collection and disposal of waste, reduce the volume of waste delivered to our disposal sites, increase the volume of
waste collected under our existing contracts (without corresponding compensation), decrease the throughput and operating
efficiency of our materials recycling facilities, or delay construction or expansion of our landfill sites and other facilities. In
addition, adverse weather conditions may result in the temporary suspension of our operations, which can significantly affect
our operating results in the affected regions during those periods.
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, acquisitions of assets that are adjacent to or
outside of 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 successfully negotiate the 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.
Efforts by labor unions to organize our employees could divert management attention and increase our operating expenses.
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 January 31, 2018, approximately 5% of our
employees were represented by unions.
Our enterprise risk management process may not be effective in mitigating the risks to which we are subject, or in reducing
the potential for losses in connection with such risks.
Our enterprise risk management framework is designed to minimize or mitigate the risks to which we are subject, as well as
any losses stemming from such risks. Although we seek to identify, measure, monitor, report, and control our exposure to such
risks, and employ a broad and diversified set of risk monitoring and mitigation techniques in the process, those techniques are
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inherently limited in their ability to anticipate the existence or development of risks that are currently unknown and
unanticipated. The ineffectiveness of our enterprise risk management framework in mitigating the impact of known risks or the
emergence of previously unknown or unanticipated risks may result in our incurring losses in the future that could adversely
impact our financial condition and results of operations.
Risks Related to Our Indebtedness
We have substantial debt and have the ability to incur additional debt. The principal and interest payment obligations of
such debt may restrict our future operations.
As of December 31, 2017, we had approximately $497.7 million of outstanding principal indebtedness (excluding
approximately $22.5 million of outstanding letters of credit issued under our new term loan B facility ("Term Loan B Facility")
and revolving line of credit facility (“Revolving Credit Facility” and, together with the Term Loan B Facility, the "Credit
Facility"). The Credit Facility consists of the Term Loan B Facility with term loans in the outstanding principal amount of
$346.5 million and the Revolving Credit Facility with loans thereunder being available up to an aggregate principal amount of
$160.0 million, of which $101.5 million of unused commitments remain under the Revolving Credit Facility, subject to
customary borrowing conditions. In addition, the terms of our existing indebtedness permit us to incur additional debt. Our
substantial debt, among other things:
•
•
•
requires us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due
under our debt, which reduces funds available for other business purposes, including capital expenditures and
acquisitions;
places us at a competitive disadvantage compared with some of our competitors that may have less debt and better
access to capital resources; and
limits our ability to obtain additional financing required to fund working capital and capital expenditures and for other
general corporate purposes, but does allow us to increase the amount of our debt substantially subject to the conditions in
the Credit Facility.
Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on
economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate
sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or
to successfully execute our business strategy.
To service our indebtedness, we will require a significant amount of cash. However, our ability to generate cash depends on
many factors beyond our control.
Our ability to make payments on, and to refinance, our indebtedness and to fund planned capital expenditures will depend on
our ability to generate cash in the future which, in turn, is subject to general economic, financial, competitive, regulatory and
other factors, many of which are beyond our control.
Our business may not generate sufficient cash flows from operations and we may not have available to us future borrowings in
an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. In these circumstances, we may
need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our
indebtedness on commercially reasonable terms, or at all. Without this financing, we could be forced to sell assets or secure
additional financing to make up for any shortfall in our payment obligations under unfavorable circumstances. However, we
may not be able to secure additional financing on terms favorable to us or at all and, in addition, the terms of our debt
agreements limit our ability to sell assets and also restrict the use of proceeds from such a sale. Moreover, substantially all of
our assets have been pledged to secure repayment of our indebtedness under the Credit Facility. In addition, we may not be able
to sell assets quickly enough or for amounts sufficient to enable it to meet our obligations.
The Credit Facility requires us to meet a number of financial ratios and covenants.
The Credit Facility contains certain affirmative and negative covenants which, among other things and subject, in certain cases,
to certain basket amounts and other exceptions, limit the existence of additional indebtedness, the existence of liens or pledges,
certain investments, acquisitions and sales or other transfers of assets, the payment of dividends and distributions and
repurchases of equity, prepayments of certain junior indebtedness, and certain other transactions. Our ability to comply with
these covenants may be affected by events beyond our control, including prevailing economic, financial and industry
conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing,
merger and acquisition or other corporate opportunities. Additionally, the Credit Facility requires, solely for the benefit of the
lenders under the Revolving Credit Facility, that we meet financial tests, including, without limitation:
• minimum consolidated EBITDA to consolidated cash interest charges ratio; and
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• maximum consolidated funded debt (net of up to an agreed amount of cash and cash equivalents) to consolidated
EBITDA ratio.
An event of default under any of our debt agreements could permit some of our lenders, including the lenders under the Credit
Facility, to declare all amounts borrowed from them to be immediately due and payable, together with accrued and unpaid
interest, or, in the case of the Credit Facility, terminate the commitment to make further credit extensions thereunder, which
could, in turn, trigger cross-defaults under other debt obligations. If we were unable to repay debt to our lenders, or were
otherwise in default under any provision governing our outstanding debt obligations, our secured lenders could proceed against
us and against the collateral securing that debt.
Our ability to make acquisitions may be adversely impacted by our outstanding indebtedness.
Our ability to make future business acquisitions, particularly those that would be financed solely or in part through cash from
operations, may be curtailed due to our obligations to make payments of principal and interest on our outstanding indebtedness.
We may not have sufficient capital resources, now or in the future, and may be unable to raise sufficient additional capital
resources on terms satisfactory to us, if at all, in order to meet our capital requirements for such acquisitions. In addition, the
terms of our indebtedness include covenants that directly restrict, or have the effect of restricting, our ability to make certain
acquisitions while this indebtedness remains outstanding. If we are unable to pursue acquisitions that would enhance our
business or operations, the potential growth of our business and revenues may be adversely affected.
Risks Related to Our Common Stock
Our Class B common stock is entitled to 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. As of December 31, 2017, 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 January 31, 2018, 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 21.5% of the aggregate voting power
of our stockholders. Consequently, John W. Casella and Douglas R. Casella may be able to substantially influence certain
matters submitted to stockholders for approval, including proposed amendments to our certificate of incorporation and bylaws
requiring an affirmative vote of shares representing at least 75% of the votes that all holders of our Class A common stock and
our Class B common stock would be entitled to cast.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our headquarters is located at 25 Greens Hill Lane, Rutland, Vermont 05701, where we currently lease approximately 12,000
square feet of office space.
Our principal property and equipment consists of land, landfills, buildings, machinery and equipment, rolling stock and
containers. At January 31, 2018, we operated nine subtitle D landfills, four of which we own and five of which we lease; one
landfill permitted to accept C&D materials that we own; 47 transfer stations, 26 of which we own, seven of which we lease and
14 of which we operate under a contract; 32 solid waste collection facilities, 19 of which we own, 12 of which we lease and
one of which we operate under a contract; 18 recycling processing facilities, nine of which we own, five of which we lease and
four of which we operate under a contract; four landfill gas-to-energy facilities that we own; and 20 corporate office and other
administrative facilities, three of which we own and 17 of which we lease (See Item 1, “Business” of this Annual Report on
Form 10-K for property information by operating segment and location). We believe that our property and equipment are
adequately maintained and sufficient for our current operations.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary 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 and 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 have been named defendants in 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 ordinary operation of a waste management business.
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In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 450, we
accrue for legal proceedings, inclusive of legal costs, 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 FASB ASC 450. In instances where we determine that a loss is probable and we
can reasonably estimate a range of loss 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 FASB ASC 450.
Environmental Remediation 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 that existed 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. The following matters represent our material outstanding claims.
Southbridge Recycling & Disposal Park, Inc.
In October 2015, our Southbridge Recycling and Disposal Park, Inc. (“SRD”) subsidiary reported to the Massachusetts
Department of Environmental Protection (“MADEP”) results of analysis of samples collected pursuant to our existing permit
from private drinking water wells located near the Town of Southbridge, Massachusetts (“Town”) Landfill (“Southbridge
Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice
and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response
Action pursuant to Massachusetts General Law Chapter 21E (the "Charlton 21E Obligations") pursuant to state law. Further, we
have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are
investigating with the objective of identifying the source or sources of the elevated levels of contamination measured in the
well samples. If it is determined that some or all of the contamination originated at the Southbridge Landfill, we will work with
the Town (the Southbridge Landfill owner and the former operator of an unlined portion of the Southbridge Landfill, which was
used prior to our operation of a double-lined portion of the Southbridge Landfill commencing in 2004) to evaluate and allocate
the liabilities related to the Charlton 21E Obligations. In July 2016, we sent correspondence to the Town pursuant to Chapter
21E of Massachusetts General Laws demanding that the Town reimburse us for the environmental response costs we had spent
and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the
release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying
that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to
the Town pursuant to the Operating Agreement between us and the Town dated May 29, 2007, as amended. We entered into a
Tolling Agreement with the Town to delay any further administrative or legal actions until our work with MADEP more
specifically defines the parties’ responsibilities for the Charlton 21E Obligations, if any. Please see below for further discussion
of our relationship with the Town regarding the Charlton 21E Obligations.
In February 2016, we and the Town received a Notice of Intent to Sue under the Resource Conservation and Recovery Act
("RCRA") from a law firm purporting to represent residents proximate to the Southbridge Landfill (“Residents”), indicating its
intent to file suit against us on behalf of the Residents alleging the groundwater contamination originated from the Southbridge
Landfill. In February 2017, we received an additional Notice of Intent to Sue from the National Environmental Law Center
under the Federal Clean Water Act ("CWA") and RCRA (collectively the “Acts”) on behalf of Environment America, Inc., d/b/a
Environment Massachusetts, and Toxics Action Center, Inc., which have referred to themselves as the Citizen Groups. The
Citizen Groups alleged that we had violated the Acts, and that they intended to seek appropriate relief in federal court for those
alleged violations. On or about June 9, 2017, a lawsuit was filed against us, SRD and the Town in the United States District
Court for the District of Massachusetts by the Citizen Groups and the Residents alleging violations of the Acts (the
“Litigation”), and demanding a variety of remedies under the Acts, including fines, remediation, mitigation and costs of
litigation, and remedies for violations of Massachusetts civil law related to personal and property damages, including
remediation, diminution of property values, compensation for lost use and enjoyment of properties, enjoinment of further
operation of the Southbridge Landfill, and costs of litigation, plus interest on any damage award, on behalf of the Residents. We
believe the Litigation to be factually inaccurate, and without legal merit, and we and SRD intend to vigorously defend the
Litigation. Nevertheless, we believe it is reasonably possible that a loss will occur as a result of the Litigation although an
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estimate of loss cannot be reasonably provided at this time due to the infancy of this matter. We also continue to believe the
Town should be responsible for costs or liabilities associated with the Litigation relative to alleged contamination originating
from the unlined portion of the Southbridge Landfill, although there can be no assurance that we will not be required to incur
some or all of such costs and liabilities.
We entered into an Administrative Consent Order on April 26, 2017 (the “ACO”), with MADEP, the Town, and the Town of
Charlton ("Charlton"), committing us to equally share the costs with MADEP, of up to $10.0 million ( $5.0 million each) for
the Town to install a municipal waterline in the Town of Charlton ("Waterline"). Upon satisfactory completion of that
Waterline, and other matters covered by the ACO, we and the Town will be released by MADEP from any future
responsibilities for the Charlton 21E Obligations. We also entered into an agreement with the Town on April 28, 2017 entitled
the “21E Settlement and Water System Construction Funding Agreement” (the “Waterline Agreement”), wherein we and the
Town released each other from claims arising from the Charlton 21E Obligations. Pursuant to the Waterline Agreement, the
Town will issue a twenty (20) year bond for our portion of the Waterline costs (up to $5.0 million). We have agreed to
reimburse the Town for periodic payments under such bond.
We have recorded an environmental remediation liability associated with the future installation of the Waterline in other
accrued liabilities and other long-term liabilities. We inflate the estimated costs in current dollars to the expected time of
payment and discount the total cost to present value using a risk-free interest rate of 2.6%. Our expenditures could be
significantly higher if costs exceed estimates. The changes to the environmental remediation liability associated with the
Southbridge Landfill are as follows (in millions):
Beginning balance
Accretion expense
Obligations incurred
Obligations settled (1)
Ending balance
Fiscal Year Ended
December 31,
2017
2016
$
$
— $
0.1
6.3
(0.5)
5.9
$
—
—
—
—
—
(1)
Includes amounts that are being processed through accounts payable as a part of our disbursements cycle.
Charlton has also demanded that we relocate retention ponds incident to the operation of the Southbridge Landfill, and that we
pay damages to Charlton for the use of such retention ponds during the operation of the Southbridge Landfill. We disagree with
Charlton as to the legality of the location of those retention ponds in Charlton, and are vigorously contesting claims made by
Charlton. We cannot currently estimate the potential for loss associated with Charlton’s claim against us, and it is possible that
we could incur a material loss in the resolution of such claim.
In August 2016, we filed a complaint against Steadfast Insurance Company (“Steadfast”) in the Superior Court of Suffolk
County, Massachusetts (the "Court"), alleging among other things, that Steadfast breached its Pollution Liability Policy
(“Policy”) purchased by us in April 2015, by refusing to acknowledge coverage under the Policy, and refusing to cover any of
the costs and liabilities incurred by us as described above as well as costs and liabilities that we may incur in the future.
Steadfast filed an answer and counterclaim in September 2016, denying that it has any obligations to us under the Policy, and
seeking a declaratory judgment of Steadfast’s obligations under the Policy. We are in the discovery phase of this litigation.
Steadfast has filed a Motion to Dismiss (the "Motion") our litigation against it, and we filed our response on July 11, 2017. On
September 7, 2017, the Court denied the Motion.
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On June 13, 2017, Town voters rejected a non-binding ballot initiative intended to provide guidance to Town officials with
respect to our pursuit of other landfill development opportunities at the Southbridge Landfill. Following such rejection by the
Town voters, our board of directors and senior management determined after due consideration of all facts and circumstances
that it is no longer likely that further development at the existing landfill site will generate an adequate risk adjusted return at
the Southbridge Landfill, and accordingly we expect to cease operations at the Southbridge Landfill when no further capacity is
available, expected by no later than December 31, 2018. We delivered correspondence to the Town to this effect on August 3,
2017, citing events of Change in Law and Force Majeure pursuant to our May 29, 2007 Extension Agreement with the Town
("Extension Agreement") and the impacts of such events on further expansion of the Southbridge Landfill. We have advised the
Town that we see no economically feasible way to operate the Southbridge Landfill beyond its current permitted life and we
have filed a closure plan with MADEP. Following cessation of operations, we will proceed to conduct proper closure and other
activities at the Southbridge Landfill in accordance with the Extension Agreement with the Town, and Federal, state and local
law. We reached this conclusion after carefully evaluating the estimated future costs associated with the permitting, engineering
and construction activities for the planned expansion of the Southbridge Landfill against the possible outcomes of the
permitting process and the anticipated future benefits of successful expansions. Under the Extension Agreement, which we
account for as an operating lease, there are potential contractual obligations and commitments, including future cash payments
of $3.1 million and services that extend beyond the current useful life of the Southbridge Landfill. In accordance with FASB
ASC 420 - Exit or Disposal Cost Obligations, a liability for costs to be incurred under a contract for its remaining term without
economic benefit shall be recognized when we cease using the right conveyed by the contract. We may incur a loss associated
with these potential contractual obligations upon cessation of operations at the Southbridge Landfill when remaining capacity is
exhausted by the placement of waste at the site.
See Note 15, Other Items and Charges for disclosure over the Southbridge Landfill closure charge.
The costs and liabilities we may be required to incur in connection with the foregoing Southbridge Landfill matters could be
material to our results of operations, our cash flows and our financial condition.
Potsdam Environmental Remediation Liability
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”), our 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 in Potsdam, New York, including the preparation of a
Remedial Investigation and Feasibility Study (“Study”). A draft of the Study was submitted to the DEC in January 2009
(followed by a final report in May 2009). The Study estimated that the undiscounted costs associated with implementing the
preferred remedies would be approximately $10.2 million. On February 28, 2011, the DEC issued a Proposed Remedial Action
Plan for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to
the DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was
subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however,
estimated that the present 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 its earlier ROD. An Order on Consent and
Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an
effective date of October 25, 2013. On January 29, 2016, a Cost-Sharing Agreement was executed between WSI, NiMo, Alcoa
Inc. (“Alcoa”) and Reynolds Metal Company (“Reynolds”) whereby Alcoa and Reynolds elected to voluntarily participate in
the onsite remediation activities at a combined 15% participant share. It is unlikely that any significant expenditures relating to
onsite remediation will be incurred until the fiscal year ending December 31, 2019. WSI is jointly and severally liable with
NiMo, Alcoa and Reynolds for the total cost to remediate.
We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and
estimated costs to complete the remediation in other accrued liabilities and other long-term liabilities. Our expenditures could
be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars to the expected time of
payment and discount the total cost to present value using a risk-free interest rate of 1.5%.
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A summary of the changes to the environmental remediation liability associated with the Potsdam environmental remediation
liability follows (in millions):
Beginning balance
Payments
Obligations incurred
Ending balance
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Fiscal Year Ended
December 31,
2017
2016
$
$
5.9
(0.1)
—
5.8
$
$
5.2
(0.2)
0.9
5.9
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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 (“NASDAQ Stock Market”) under the symbol
CWST. There is no established trading market for our Class B common stock. 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
High
Low
Fiscal Year Ended December 31, 2016
First quarter
Second quarter
Third quarter
Fourth quarter
Fiscal Year Ended December 31, 2017
First quarter
Second quarter
Third quarter
Fourth quarter
$
$
$
$
$
$
$
$
6.98
7.90
10.39
13.41
14.23
16.95
19.13
23.20
$
$
$
$
$
$
$
$
4.97
6.31
7.76
10.28
11.15
13.32
15.20
16.64
On January 31, 2018, the high and low sale prices per share of our Class A common stock as quoted on the NASDAQ Stock
Market were $25.91 and $25.44, respectively. As of January 31, 2018 there were approximately 500 holders of record of our
Class A common stock and two holders of record of 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.
Dividends
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, which consists of our new $350.0 million term loan B facility
("Term Loan B Facility") and a $160.0 million revolving line of credit facility ("Revolving Credit Facility" and, together with
the Term Loan B Facility, the "Credit Facility"), and indentures restrict or condition 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 Annual Report on Form 10-K.
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 the 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 our Class A common
stock for the period from April 30, 2012 through December 31, 2017, with the cumulative total return on the Russell 2000
Index and our Industry Peer Group ("Peer Group"). The stock performance graph assumes the investment on April 30, 2012 of
$100.00 in our Class A common stock at the closing price on such date, in the Russell 2000 Index and the Peer Group, and that
dividends are reinvested. No dividends have been declared or paid on our Class A common stock.
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April 30,
2012
April 30,
2013
April 30,
2014
December
31, 2014
December
31, 2015
December
31, 2016
December
31, 2017
100.00
$
72.31
$
84.58
$
67.00
$
99.17
$
205.80
$
381.76
Casella Waste Systems, Inc. $
Russell 2000
$
Peer Group (1)
203.46
287.29
(1) The Peer Group is comprised of Waste Connections Inc., Covanta Holding Corp., Waste Management, Inc. and Republic
100.00
228.63
161.63
124.87
141.82
117.69
100.00
153.05
136.14
177.47
168.98
146.29
$
$
$
$
$
$
$
$
$
$
$
$
$
Services, Inc.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial and operating data set forth below was derived from the consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K and from the consolidated financial statements included in Item 8 of
previous Annual Reports on Form 10-K and a Transition Report on Form 10-KT that we filed with the SEC. This information
should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-
K.
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Statement of Operations Data:
Revenues
Cost of operations
General and administration
Depreciation and amortization
Southbridge Landfill closure charge
Expense from divestiture, acquisition and
financing costs
Environmental remediation charge
Contract settlement charge
Divestiture transactions
Development project charge
Severance and reorganization costs
Gain on settlement of acquisition related
contingent consideration
Operating (loss) income
Interest expense, net
Other (income) expense, net
Loss from continuing operations before income
taxes and discontinued operations
(Benefit) provision for income taxes
Loss from continuing operations before
discontinued operations
Income (loss) from discontinued operations
Loss on disposal of discontinued operations
Net loss
Fiscal Year Ended
December 31,
2017
2016
2015
Eight Months
Ended
December 31,
2014
Fiscal Year Ended
April 30,
2014
2013
(in thousands, except per share data)
$
$599,309
405,188
79,243
62,102
65,183
$565,030
381,973
75,356
61,856
—
$546,500
382,615
72,892
62,704
—
368,374
258,650
45,732
41,485
—
$497,633
354,592
61,865
60,339
—
$455,335
323,014
58,205
56,576
—
176
—
—
—
—
—
—
(12,583)
24,887
(418)
—
900
—
—
—
—
—
44,945
38,652
12,657
—
—
1,940
(5,517)
—
—
—
31,866
40,090
2,206
—
950
—
(553)
—
—
144
400
—
7,455
1,394
586
—
22,110
25,392
1,825
(1,058)
11,916
37,863
(436)
1,410
—
—
—
—
3,709
—
12,421
41,429
23,501
(37,052)
(15,253)
(6,364)
494
(10,430)
1,351
(5,107)
703
(25,511)
1,799
(52,509)
(2,526)
(21,799)
—
—
(21,799)
(6,858)
—
—
(6,858)
(11,781)
—
—
(11,781)
(5,810)
—
—
(5,810)
(27,310)
284
(378)
(27,404)
(49,983)
(4,480)
—
(54,463)
Less: Net (loss) income attributable to
noncontrolling interests
—
(9)
1,188
Net loss attributable to common stockholders
$ (21,799) $ (6,849) $ (12,969) $
208
(321)
(4,309)
(6,018) $ (23,095) $ (54,142)
Basic and diluted earnings per share:
Weighted average common shares outstanding
41,846
41,233
40,642
40,262
39,820
Net loss per common share (1)
$
(0.52) $
(0.17) $
(0.32) $
(0.15) $
(0.58) $
34,015
(1.59)
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Other Data:
Capital expenditures
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows (used in) provided by financing
activities
Balance Sheet Data:
Cash and cash equivalents
Working capital, net (2)
Property, plant and equipment, net
Goodwill
Total assets
Long-term debt and capital leases, less current
maturities
Total stockholders’ (deficit) equity
Fiscal Year Ended
December 31,
2017
2016
2015
Eight Months
Ended
December 31,
2014
Fiscal Year Ended
April 30,
2014
2013
(in thousands, except per share data)
$ 64,862
$
$107,538
$
$ (76,447) $ (62,964) $ (48,784) $
$ 49,995
$ 70,507
$ 54,238
$ 80,434
$ 45,959
$ 49,642
$ 55,027
55,061
38,286
$ 43,906
(59,697) $ (57,910) $ (89,455)
$ (31,640) $ (17,238) $ (21,616) $
19,322
$
9,008
$ 44,947
$
$
1,995
2,312
2,544
$
$
$ (6,184) $ (6,382) $ (10,990) $
$361,547
$
$122,605
$
$614,949
$
$398,466
$119,899
$631,512
$402,252
$118,976
$633,669
$
$
2,205
1,755
2,464
(9,968) $ (21,405) $ (25,308)
$422,502
$115,928
$649,154
$403,424
$119,139
$638,285
414,542
119,170
658,198
$477,576
$
$ (37,862) $ (24,550) $ (21,597) $
$503,961
$505,985
522,458
$495,522
$481,022
(12,020) $ (8,537) $ 15,451
(1) Computed as described in Note 3, Summary of Significant Accounting Policies to the consolidated financial statements
included in Item 8 of this Annual Report on Form 10-K.
(2) Working capital, 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 Annual Report
on 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.
Company Overview
Founded in 1975 with a single truck, Casella Waste Systems, Inc., a Delaware corporation, its wholly-owned subsidiaries and
certain partially owned entities over which it has a controlling financial interest (collectively, “we”, “us” or “our”), is a
regional, vertically-integrated solid waste services company. We provide resource management expertise and services to
residential, commercial, municipal and industrial customers, primarily in the areas of solid waste collection and disposal,
transfer, recycling and organics services. We provide integrated solid waste services in six states: Vermont, New Hampshire,
New York, Massachusetts, Maine and Pennsylvania, with our headquarters located in Rutland, Vermont. We manage our solid
waste operations on a geographic basis through two regional operating segments, our Eastern and Western regions, each of
which provides a full range of solid waste services, and our larger-scale recycling and commodity brokerage operations through
our Recycling segment. Organics services, ancillary operations, major account and industrial services, discontinued operations,
and earnings from equity method investees, as applicable, are included in our Other segment.
As of January 31, 2018, we owned and/or operated 32 solid waste collection operations, 47 transfer stations, 18 recycling
facilities, nine Subtitle D landfills, four landfill gas-to-energy facilities and one landfill permitted to accept C&D materials.
Acquisitions and Divestitures
Acquisitions
We have a business development team that identifies acquisition candidates, categorizes the opportunity by strategic fit and
perceived level of financial accretion, establishes contact with the appropriate representative of the acquisition candidate and
gathers further information on the acquisition candidate.
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We have made in the past, and we may make in the future, 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 of 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 face considerable competition for acquisition targets, particularly the
larger and more meaningful targets, due to among other things, our limited access to and weighted average cost of capital, but
we believe that our strong relationships and reputation in New England and the upstate New York area help to offset these
factors.
In January 2018, we acquired Complete Disposal Company, Inc. and its subsidiary United Material Management of Holyoke,
Inc. (collectively, "Complete") in our Eastern region, which is expected to generate approximately $17.0 million of revenues,
for $16.5 million of total consideration, subject to a purchase price adjustment. Complete provides residential and roll-off
collection services, operates a construction and demolition processing facility, and operates a solid waste transfer station with
both truck and rail transfer capabilities.
In fiscal year 2017, we acquired one solid waste collection business in our Eastern region and three solid waste collection
businesses in our Western region for total consideration of $8.1 million, including $4.8 million in cash, $2.4 million in notes
payable, $0.8 million in holdbacks to the sellers and $0.1 million of other consideration.
During fiscal year 2016, we acquired three transfer stations in our Western region for total consideration of $2.8 million,
including $2.4 million in cash and $0.4 million in holdbacks to the sellers.
Divestitures
From time to time, we may sell or divest certain investments or other components of our business. These divestitures may be
undertaken for a number of reasons, including: to generate proceeds to pay down debt; 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 as a result of a determination that the asset may be more valuable to a third-party. We will continue to look to
divest certain activities and investments that no longer enhance or complement our core business if the right opportunity
presents itself.
Sale of Business. In fiscal year 2015, we divested a business, which included the sale of certain assets associated with various
waste collection routes in our Western region, for total consideration of $0.9 million, resulting in a gain of $0.6 million.
Maine Energy. In the fiscal year ended April 30, 2013, we executed a purchase and sale agreement with the City of Biddeford,
Maine, pursuant to which we agreed to sell the real property of Maine Energy Recovery Company, LP (“Maine Energy”) to the
City of Biddeford. We agreed to sell Maine Energy for an undiscounted purchase consideration of $6.7 million, which is being
paid to us in installments over twenty-one years. Later in the fiscal year ended April 30, 2013, we closed the transaction, ceased
operations of the Maine Energy facility, and initiated the decommissioning, demolition and site remediation process in
accordance with the provisions of the agreement. In fiscal year 2015, we completed the demolition process and site remediation
under the auspices and in accordance with work plans approved by the Maine Department of Environmental Protection and the
United States Environmental Protection Agency (“EPA”). Based on the total incurred costs to fulfill our obligation under the
agreement, we reversed a reserve of $1.1 million of excess costs to complete the divestiture in fiscal year 2015.
CARES and Related Transaction. In fiscal year 2014, we determined that assets of the Casella-Altela Regional Environmental
Services, LLC (“CARES”) water treatment facility were no longer operational or were not operating within product
performance parameters. As a result, we initiated a plan to abandon and shut down the operations of CARES. It was determined
that the carrying value of the assets of CARES was no longer recoverable and, as a result, the carrying value of the asset group
was assessed for impairment and impaired. We recorded an impairment charge of $7.5 million in fiscal year 2014 to the asset
group of CARES in our Western region.
We executed a purchase and sale agreement in fiscal year 2015 pursuant to which we and Altela agreed to sell certain assets of
the CARES water treatment facility to a third-party. We sold these assets of CARES for purchase consideration of $3.5 million,
resulting in a gain of $2.9 million in fiscal year 2015, 49% of which was attributable to Altela, Inc., the noncontrolling interest
holder. In connection with this transaction, we also sold certain of our equipment and real estate to the same unrelated third-
party for total consideration of $1.1 million, resulting in a gain of $0.9 million in fiscal year 2015.
In fiscal year 2016, we dissolved CARES in accordance with the CARES Limited Liability Company Agreement, and in fiscal
year 2017, we dissolved CARES McKean, LLC in accordance with Pennsylvania dissolution proceedings. Upon dissolution we
deconsolidated the assets, liabilities and equity components, including the noncontrolling interest.
Results of Operations
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Revenues
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 our Eastern and Western regions. Revenues in our Eastern and Western
regions consist primarily of fees charged to customers for solid waste collection and disposal, landfill, landfill gas-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 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. We also generate and sell electricity at certain of our landfill facilities. Revenues from our Recycling segment
consist of revenues derived from municipalities and customers in the form of processing fees, tipping fees and commodity
sales. Revenues from organics services, ancillary operations, and major account and industrial services are included in our
Other segment. Our revenues are shown net of inter-company eliminations.
The table below shows revenue attributable to services provided (in millions) for the following periods:
Fiscal Year Ended
December 31,
2017
2016
$
Change
Fiscal Year Ended
December 31,
2016
2015
$
Change
$
$
263.7
160.1
5.4
7.9
437.1
39.8
60.1
62.3
599.3
$
$
249.6
154.2
5.9
6.4
416.1
41.5
54.5
52.9
565.0
$
$
14.1
5.9
(0.5)
1.5
21.0
(1.7)
5.6
9.4
34.3
$
$
249.6
154.2
5.9
6.4
416.1
41.5
54.5
52.9
565.0
$
$
238.3
156.5
6.8
6.1
407.7
39.1
53.4
46.3
546.5
$
$
11.3
(2.3)
(0.9)
0.3
8.4
2.4
1.1
6.6
18.5
Collection
Disposal
Power
Processing
Solid waste
Organics
Customer solutions
Recycling
Total revenues
Solid waste revenues
A summary of the period-to-period changes in solid waste revenues (dollars in millions) follows:
Price
Volume
Fuel surcharge and other fees
Commodity price and volume
Acquisitions and divestitures
Solid waste revenues
Price.
Period-to-Period
Change for Fiscal Year 2017 vs
Fiscal Year 2016
Period-to-Period
Change for Fiscal Year 2016 vs
Fiscal Year 2015
Amount
% of Growth
Amount
% of Growth
$
$
12.0
4.3
0.5
0.8
3.4
21.0
2.1% $
0.8%
0.1%
0.1%
0.6%
3.7% $
13.9
(6.0)
(0.1)
(0.6)
1.2
8.4
2.5 %
(1.1)%
— %
(0.1)%
0.2 %
1.5 %
The price change component in fiscal year 2017 solid waste revenues growth from the prior year is a result of the following:
•
•
$7.7 million from favorable collection pricing; and
$4.3 million from favorable disposal pricing associated with our landfills and transfer stations.
The price change component in fiscal year 2016 solid waste revenues growth from the prior year is a result of the following:
•
•
$10.9 million from favorable collection pricing, including a floating sustainability recycling adjustment fee ("SRA fee")
to mitigate recycling commodity risk; and
$3.0 million from favorable disposal pricing associated with our landfills and transfer stations.
Volume.
The volume change component in fiscal year 2017 solid waste revenues growth from the prior year is a result of the following:
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•
•
•
$2.7 million from higher collection volumes in our Eastern region;
$1.3 million from higher disposal volumes (of which $0.5 million relates to higher landfill volumes, $0.3 million relates
to higher transportation volumes, and $0.5 million relates to higher transfer station volumes); and
$0.3 million from higher processing volumes.
The volume change component in fiscal year 2016 solid waste revenues growth from the prior year is a result of the following:
•
•
•
$(7.1) million from lower disposal volumes (of which $(5.1) million relates to lower transportation volumes associated
with lower drill cutting volumes in our Western region, $(2.8) million relates to lower landfill volumes, and $0.8 million
relates to higher transfer station volumes); and
$(0.1) million from lower processing volumes in our Western region; partially offset by
$1.2 million from higher collection volumes in our Eastern region.
Fuel surcharge and other fees
The fuel surcharge and other fees change component in fiscal year 2017 solid waste revenues growth from the prior year is a
result of $0.5 million from higher collection revenues associated with volume growth.
Commodity price and volume.
The commodity price and volume change component in fiscal year 2017 solid waste revenues growth from the prior year is a
result of the following:
•
•
$1.3 million from favorable commodity pricing and higher volumes in processing; partially offset by
$(0.5) million from lower landfill gas-to-energy volumes.
The commodity price and volume change component in fiscal year 2016 solid waste revenues growth from the prior year is a
result of the following:
•
•
$(0.8) million from unfavorable energy pricing from our landfill gas-to-energy operations; partially offset by
$0.2 million from favorable commodity pricing.
Acquisitions and divestitures.
The acquisitions and divestitures change component in fiscal year 2017 solid waste revenues growth is a result of the
acquisition of four solid waste collection businesses in fiscal year 2017.
The acquisitions and divestitures change component in fiscal year 2016 solid waste revenues growth is a result of the
acquisition of three transfer stations in the quarter ended June 30, 2016, partially offset by the divestiture of a business in fiscal
year 2015.
Organics revenues
Fiscal year 2017 organics revenues decreased $(1.7) million from the prior year as a result of lower volumes.
Fiscal year 2016 organics revenues increased $2.4 million from the prior year as a result of higher volumes.
Customer Solutions revenues
Fiscal year 2017 revenues increased $5.6 million from the prior year as a result of higher volumes.
Fiscal year 2016 revenues increased $1.1 million from the prior year as a result of higher volumes.
Recycling revenues
Fiscal year 2017 recycling revenues increased from the prior year as a result of the following:
•
•
•
$10.4 million from favorable commodity pricing in the marketplace; and
$0.2 million from higher commodity volumes; partially offset by
$(1.2) million from lower tipping fees, as we reduced variable tipping fees at our facilities as commodity prices
increased.
Fiscal year 2016 recycling revenues increased from the prior year as a result of the following:
•
$5.5 million from favorable commodity pricing in the marketplace;
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•
•
$1.2 million from higher commodity volumes; partially offset by
$(0.1) million from lower tipping fees.
Results of Operations
Operating Expenses
A summary of our cost of operations, general and administration expenses and depreciation and amortization expenses is as
follows (dollars in millions and as a percentage of total revenues):
2017
Fiscal Years Ended
December 31,
2016
2015
$
$
$
405.2
79.2
62.1
67.6% $
13.2% $
10.4% $
382.0
75.4
61.9
67.6% $
13.3% $
10.9% $
382.6
72.9
62.7
70.0%
13.3%
11.5%
Cost of operations
General and administration
Depreciation and amortization
Cost of Operations
Cost of operations includes labor costs, tipping fees paid to third-party disposal facilities, fuel costs, maintenance and repair
costs of vehicles and equipment, workers’ compensation and vehicle insurance costs, the cost of purchasing materials to be
recycled, third-party transportation costs, district and state taxes, host community fees and royalties. Cost of operations also
includes accretion expense related to final capping, closure and post-closure obligations, leachate treatment and disposal costs
and depletion of landfill operating lease obligations.
Fiscal Year 2017 Compared to Fiscal Year 2016
An explanation of the period-to-period change in cost of operations is as follows:
Third-party direct costs in fiscal year 2017 increased $9.1 million from the prior year as a result of the following:
•
•
•
higher purchased material costs in our Recycling and Customer Solutions lines-of-business;
higher disposal costs associated with higher transfer station volumes in the Western region, and additional costs from the
use of alternative disposal sites in our Organics line-of-business; and
higher hauling and transportation costs associated with higher collection volumes in the Eastern region and increased
volumes on lower margin commercial work in our Customer Solutions line-of-business; partially offset by decreased
transportation services provided in the Western region; and lower commodity volumes in our Organics line-of-business.
Labor and related benefit costs in fiscal year 2017 increased $5.4 million from the prior year as a result of the following:
•
•
•
higher healthcare costs of $1.7 million associated with direct operational labor;
higher labor costs associated with higher collection volumes in the Eastern region, higher landfill and transfer station
volumes in the Western region, as well as customer growth related to several new municipal contracts; and
higher labor costs associated with higher product quality standards from commodity buyers resulting in lower throughput
and additional manpower needs in our Recycling line-of-business, and to a lesser extent higher volumes.
Direct operational costs in fiscal year 2017 increased $5.5 million from the prior year as a result of the following:
•
•
•
•
•
higher leachate disposal costs and landfill operating costs at certain landfills in the Western region due to increased
rainfall through early summer and the timing of various landfill construction projects;
higher host community fees associated with increased volumes at certain landfills in the Western region;
higher accretion expense associated with the acceleration of asset retirement obligations due to the closure of our Subtitle
D landfill located in Southbridge, Massachusetts ("Southbridge Landfill"); and
higher equipment rental costs in the Eastern region; partially offset by
lower landfill operating costs associated with certain landfills in the Eastern region.
Maintenance and repair costs in fiscal year 2017 increased $2.3 million from the prior year as a result of the following:
•
•
higher fleet maintenance costs in the Western region; and
higher facility maintenance costs in the Recycling region.
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Fuel costs in fiscal year 2017 increased $0.9 million from the prior year as a result of higher consumption and increased diesel
fuel prices.
Fiscal Year 2016 Compared to Fiscal Year 2015
An explanation of the period-to-period change in cost of operations is as follows:
Direct operational costs in fiscal year 2016 increased $2.3 million from the prior year as a result of the following:
•
•
•
•
•
•
higher equipment rental costs;
higher depletion of landfill operating lease obligations in our Western region primarily due to changes in estimates and
assumptions concerning the anticipated waste flow at certain of our landfills;
higher gas control and other landfill operating costs in our Eastern region; and
higher host royalty fees in our Western region; partially offset by
lower leachate disposal costs at certain landfills in our Western region; and
lower depletion of landfill operating lease obligations on a lower per ton rate and lower volumes at our Southbridge
Landfill in our Eastern region.
Maintenance and repair costs in fiscal year 2016 increased $2.2 million from the prior year as a result of the following:
•
•
•
higher maintenance costs in our Recycling line-of-business; and
higher facility maintenance costs; partially offset by
lower fleet maintenance costs in our Western region.
Labor and related benefit costs in fiscal year 2016 decreased $(0.7) million from the prior year as a result of the following:
•
•
•
•
lower healthcare costs related to plan improvements and lower overall claim activity; and
lower labor and related benefit costs on lower volumes in our Western region; partially offset by
higher workers compensation costs; and
higher labor and related benefit costs on higher collection volumes in our Eastern region.
Third-party direct costs in fiscal year 2016 decreased $(2.1) million from the prior year as a result of the following:
•
•
•
•
•
•
lower disposal, hauling and transportation costs associated with decreased collection and transportation volumes in our
Western region;
lower purchased material costs in our Recycling segment; and
lower purchased material costs in our Customer Solutions line-of-business, partially offset by
higher disposal costs associated with increased volumes in our Organics line-of-business;
higher disposal costs associated with increased volumes in our Recycling segment; and
higher disposal, hauling and transportation costs associated with increased volumes in our Customer Solutions line-of-
business.
Fuel costs in fiscal year 2016 decreased $(2.3) million from the prior year as a result of the following:
•
•
lower diesel fuel prices in the marketplace; and
the consumption of less diesel fuel.
General and Administration
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.
Fiscal Year 2017 Compared to Fiscal Year 2016
An explanation of the period-to-period change in general and administration expense is as follows:
Labor and related benefit costs in fiscal year 2017 increased $3.9 million from the prior year as a result of the following:
•
higher equity compensation expense of $3.0 million associated with the timing and assumptions used for market-based
performance stock option and market-based performance stock unit grants; and
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•
higher benefit costs with increased healthcare costs of $0.8 million.
Other general and administration expenses in fiscal year 2017 increased $1.0 million from the prior year as a result of higher
recruiting and software and information technology consulting costs.
Bad debt expense in fiscal year 2017 decreased $(0.8) million due to improved credit processes and collectability issues
associated with a disposal customer in the prior year.
Fiscal Year 2016 Compared to Fiscal Year 2015
An explanation of the period-to-period change in general and administration expense is as follows:
Labor and related benefit costs in fiscal year 2016 increased $3.3 million from the prior year as a result of the following:
•
•
•
•
an increase in accrued incentive compensation based on improved performance;
higher equity compensation costs;
higher wages and salaries; partially offset by
lower healthcare costs related to plan improvements and lower overall claim activity.
Other general and administration expenses in fiscal year 2016 increased $0.2 million from the prior year as a result of the
following:
•
•
higher miscellaneous administrative expenses; partially offset by
lower office and rental costs.
Professional fees in fiscal year 2016 decreased $(0.8) million from the prior year as a result of the following:
•
lower consulting fees in fiscal year 2016, with consulting fees elevated in fiscal year 2015 associated with additional
consulting and legal fees resulting from our responses to the advance notice of nomination sent to us by an activist
investor nominating its own candidates for election as directors at our 2015 Annual Meeting in opposition to the three
candidates whom we recommended. That activist investor ultimately withdrew its slate of director candidates prior to the
2015 Annual Meeting and all of our director nominees were elected at the 2015 Annual Meeting by our stockholders.
Depreciation and Amortization
Depreciation and amortization expense includes: (i) depreciation of property and equipment (including assets recorded for
capital leases) on a straight-line basis over the estimated useful lives of the assets; (ii) amortization of landfill costs (including
those costs incurred and all estimated future costs for landfill development and construction, along with asset retirement costs
arising from closure and post-closure obligations) on a units-of-consumption method as landfill airspace is consumed over the
total estimated remaining capacity of a site, which includes both permitted capacity and unpermitted expansion capacity that
meets certain criteria for amortization purposes; (iii) amortization of landfill asset retirement costs arising from final capping
obligations on a units-of-consumption method as airspace is consumed over the estimated capacity associated with each final
capping event; and (iv) amortization of intangible assets with a definite life, using either an economic benefit provided
approach or on a straight-line basis over the definitive terms of the related agreements.
A summary of the components of depreciation and amortization expense (dollars in millions and as a percentage of total
revenues) follows:
Fiscal Year Ended December 31,
2017
2016
2015
Depreciation expense
Landfill amortization expense
Other amortization expense
$
$
32.1
27.9
2.1
62.1
5.4% $
4.7%
0.3%
10.4% $
33.2
26.5
2.2
61.9
5.9% $
4.7%
0.3%
10.9% $
33.2
27.0
2.5
62.7
6.1%
4.9%
0.5%
11.5%
Fiscal Year 2017 Compared to Fiscal Year 2016
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An explanation of the period-to-period change in general and administration expense is as follows:
•
•
landfill amortization expense increased in fiscal year 2017 from the prior year due to the higher landfill volumes in the
Western region combined with an increase in our average overall amortization rate as a result of changes in cost
estimates and other assumptions associated with our landfills; partially offset by
lower depreciation expense due to the asset impairment associated with closure of the Southbridge Landfill, the timing of
capital expenditures and acquisitions, and the related make-up of fixed assets.
Fiscal Year 2016 Compared to Fiscal Year 2015
The period-to-period change in depreciation and amortization expense is primarily related to the following:
•
landfill amortization expense in fiscal year 2016 decreased from the prior year as a result of the landfill volume mix at
our landfills (with lower volumes at Southbridge Landfill, where we have diverted certain lower priced tons, and at
certain landfills in our Western region, including our Subtitle D landfill located in Mount Jewett, Pennsylvania where
we have been impacted by lower drill cutting volumes); partially offset by an increase in our overall average
amortization rate as a result of changes in cost estimates and other assumptions associated with our landfills.
Southbridge Landfill Closure Charge
In June 2017, we initiated the plan to cease operations of our Southbridge Landfill. Accordingly, in fiscal year 2017, we
recorded charges associated with the closure of our Southbridge Landfill as follows:
Asset impairment charge (1)
Project development charge (2)
Environmental remediation charge (3)
Legal and transaction costs (4)
Southbridge Landfill closure charge
Fiscal Year Ended
December 31,
2017
2016
2015
$
$
48.0
$
9.1
6.4
1.7
65.2
$
— $
—
—
—
— $
—
—
—
—
—
(1)
(2)
(3)
(4)
We performed a test of recoverability under Financial Accounting Standards Board ("FASB") Accounting Standards
Codification ("ASC") 360, which indicated that the carrying value of our asset group that includes the Southbridge
Landfill was no longer recoverable and, as a result, the asset group was assessed for impairment with an impairment
charge allocated to the long-lived assets of the Southbridge Landfill in accordance with FASB ASC 360.
We wrote-off deferred costs associated with Southbridge Landfill permitting activities no longer deemed viable.
We recorded an environmental remediation charge associated with the future installation of a municipal waterline.
We incurred legal and other transaction costs associated with various matters as part of the Southbridge Landfill
closure.
Expense from Divestiture, Acquisition and Financing Costs
In fiscal year 2017, we incurred $0.2 million of expenses primarily associated with legal costs for the acquisition of Complete
in January 2018.
See Item 7, "Acquisitions and Divestitures" and Note 4, Business Combinations to our consolidated financial statements
included under Item 8 of this Annual Report on Form 10-K for further disclosure.
Environmental Remediation Charge
We recorded an environmental remediation charge of $0.9 million in fiscal year 2016 due to changes in cost estimates
associated with the Potsdam environmental remediation liability.
See Item 3, “Legal Proceedings” and Note 10, Commitments and Contingencies to our consolidated financial statements
included under Item 8 of this Annual Report on Form 10-K for further disclosure.
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Contract Settlement Charge
In fiscal year 2015, we recorded a contract settlement charge of $1.9 million associated with the Expera Old Town, LLC v.
Casella Waste Systems, Inc. legal matter.
Divestiture Transactions
See Acquisitions and Divestitures in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 16, Divestiture Transactions in this Annual Report on Form 10-K for disclosure over divestiture
transactions.
Other expenses
Interest Expense, net
Our interest expense, net decreased $(13.8) million in fiscal year 2017 and $(1.4) million in fiscal year 2016 from the prior
years, respectively, due to lower average debt balances and lower interest rates due to changes to our capital structure. Interest
expense, net in fiscal year 2016 was unfavorably impacted by the payment of interest on both the 7.75% senior subordinated
notes due February 2019 ("2019 Notes") and our $350.0 million aggregate principal amount term loan B ("Term Loan B
Facility") during the thirty-day period between the closing of the Term Loan B Facility and the redemption of the 2019 Notes.
Specifically, in order to reduce costs and our exposure to financing and interest rate risk, we have completed the following
transactions:
•
•
•
•
•
•
•
we completed the refinancing of our senior revolving credit and letter of credit facility that was due March 2016
("Refinanced Revolving Credit Facility") with the senior secured asset-based revolving credit and letter of credit facility
due February 2020 ("ABL Facility") and the issuance of an additional $60.0 million of 2019 Notes, in the first quarter of
fiscal year 2015;
we completed the issuance of $15.0 million of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series
2015 (“FAME Bonds 2015”) in the third quarter of fiscal year 2015;
we repurchased or redeemed, as applicable, $385.0 million of our most expensive debt, the 2019 Notes, between
September 2015 and October 2016;
we completed the issuance of $15.0 million of New York State Environmental Facilities Corporation Solid Waste
Disposal Revenue Bonds Series 2014R-2 (“New York Bonds 2016”) in the second quarter of fiscal year 2016;
we completed the refinancing of the ABL Facility with a credit facility that consists of the Term Loan B Facility and a
$160.0 million revolving line of credit facility ("Revolving Credit Facility" and, together with the Term Loan B Facility,
the "Credit Facility") and repaid in full our ABL Facility in the third quarter of fiscal year 2016;
we remarketed $3.6 million aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue
Bonds Series 2005R-1 (“FAME Bonds 2005R-1”) and $21.4 million aggregate principal amount of Finance Authority of
Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 (“FAME Bonds 2005R-2”) into one series of $25.0 million
aggregate principal amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3
(“FAME Bonds 2005R-3”) in the first quarter of fiscal year 2017; and
we entered into the first amendment ("Repricing Amendment") to our Term Loan B Facility and Revolving Credit
Facility, which decreased the applicable interest margin for our Term Loan B Facility by 25 basis points for both LIBOR
borrowings and base rate borrowings in the second quarter of fiscal year 2017.
Impairment of Investments
As of December 31, 2017, we owned 5.6% of the outstanding common stock of Recycle Rewards, Inc. (“Recycle Rewards”), a
company that markets an incentive based recycling service. In fiscal year 2015, it was determined based on the operating
performance of Recycle Rewards that our cost method investment in Recycle Rewards was potentially impaired. As a result,
we performed a valuation analysis in fiscal year 2015, which used an income approach based on discounted cash flows to
determine an equity value for Recycle Rewards in order to properly value our cost method investment in Recycle Rewards.
Based on this analysis, it was determined that the fair value of our cost method investment in Recycle Rewards was less than
the carrying amount and, therefore, we recorded an other-than-temporary investment impairment charge of $1.1 million in
fiscal year 2015.
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As of December 31, 2017, we owned 5.2% of the outstanding equity value of GreenerU, Inc. (“GreenerU”), a services
company focused on providing energy efficiency, sustainability and renewable energy solutions to colleges and universities. In
fiscal year 2015, it was determined based on the operating performance and recent indications of third-party interest in
GreenerU that our cost method investment in GreenerU was potentially impaired. A valuation analysis was performed by a
third-party valuation specialist using a market approach based on an option pricing methodology to determine an equity value
and fair market value per share for GreenerU. Based on this analysis, it was determined that the fair value of our cost method
investment in GreenerU was less than the carrying amount and, therefore, we recorded an other-than-temporary investment
impairment charge of $0.7 million in fiscal year 2015.
As of December 31, 2017, we owned 17.0% and 16.2% of the outstanding common stock of AGreen Energy LLC (“AGreen”)
and BGreen Energy LLC (“BGreen”), respectively. In fiscal year 2015, AGreen and BGreen, both of which we account for as
cost method investments, entered into agreements that resulted in the contribution and sale of certain assets and liabilities of
AGreen and BGreen to a limited liability company in exchange for partial ownership interests in a parent of that limited
liability company. As a result of the transactions, we performed an analysis to determine whether an other-than-temporary
impairment in the carrying value of our cost method investments had occurred. Based on the analysis performed, which
measured the fair value of our cost method investments using an in-exchange valuation premise under the market approach that
utilized the estimated purchase consideration received, we recorded an investment impairment charge of $0.3 million in fiscal
year 2015.
Loss on Derivative Instruments
In the fiscal year ended April 30, 2012, we entered into two forward starting interest rate derivative agreements that were
initially being used to hedge the interest rate risk associated with the forecasted financing transaction to redeem our Second
Lien Notes. The total notional amount of these agreements was $150.0 million and required us to receive interest based on
changes in LIBOR and pay interest at a rate of approximately 1.40%. During the fiscal year ended April 20, 2013, we
dedesignated both of the $75.0 million forward starting interest rate derivative agreements and discontinued hedge accounting
in accordance with FASB ASC 815 because the interest payments associated with the forecasted financing transaction were no
longer deemed probable. As a result, we recognized the change in fair value of the interest rate swaps along with any cash
settlements through earnings as gain or loss on derivative instruments. We recorded a loss on derivative instruments of $0.2
million in fiscal year 2015 before both forward starting interest rate derivative agreements matured in the first quarter of fiscal
year 2016.
Loss on Debt Extinguishment
We recorded a loss on debt extinguishment in fiscal years 2017, 2016 and 2015 of $0.5 million, $13.7 million and $1.0 million,
respectively, associated with the following:
•
•
•
•
•
the write-off of debt issuance costs in connection with the Repricing Amendment in fiscal year 2017;
the write-off of debt issuance costs in connection with the remarketing of the FAME Bonds 2005R-1 and the FAME
Bonds 2005R-2 into the FAME Bonds 2005R-3 in fiscal year 2017;
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our ABL Facility to the
Credit Facility in fiscal year 2016;
the repurchase price premium and write-off of debt issuance costs and unamortized original issue discount associated
with the early redemption, repurchase and retirement of our 2019 Notes in fiscal years 2016 and 2015; and
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our Refinanced
Revolving Credit Facility to the ABL Facility in fiscal year 2015.
(Benefit) Provision for Income Taxes
Our (benefit) provision for income taxes from continuing operations for fiscal year 2017 decreased $(15.8) million to $(15.3)
million from $0.5 million in fiscal year 2016. The provision for income taxes for fiscal year 2016 decreased $(0.9) million to
$0.5 million from $1.4 million in fiscal year 2015. The (benefit) provision for income taxes for fiscal years 2017, 2016 and
2015 include a deferred tax (benefit) provision of $(15.6) million, $0.6 million and $0.8 million, respectively.
The change in the provisions for income taxes from 2015 to 2016 and the deferred tax provisions for 2016 and 2015 were
primarily related to the deferred tax liability for indefinite lived assets. Since we could not determine when the deferred tax
liability related to indefinite lived assets would reverse, this amount could not be used as a future source of taxable income
against which to benefit deferred tax assets.
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On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act, which is also commonly referred to as
“US tax reform,” significantly changes US corporate income tax laws by, among other things, reducing the US corporate
income tax rate from 35% to 21% starting in 2018. Under the Act, our $101.2 million in federal net operating loss
carryforwards generated as of the end of 2017 continue to be carried forward for 20 years and are expected to be available to
fully offset taxable income earned in future tax years. Federal net operating losses generated after 2017 will be carried forward
indefinitely, but generally may only offset up to 80% of taxable income earned in a tax year. In the quarter ending December
31, 2017, we revalued our deferred tax assets and liabilities due to these changes, including (a) revaluing our federal net
deferred tax assets before valuation allowance using the 21% tax rate, resulting in an increased federal deferred tax provision of
$33.7 million; (b) revaluing our federal valuation allowance using the 21% tax rate, including the impact of tax planning
strategies, resulting in a federal deferred tax benefit to continuing operations of $(36.6) million; (c) recognizing a federal
deferred tax benefit of $(12.8) million for 80% of indefinite lived deferred tax liabilities, which are anticipated to be available
as a source of taxable income upon reversal of deferred tax assets that would also have indefinite lives; and (d) recognizing
$0.1 million state deferred tax provision unaffected by the changes in the Act.
In connection with New York State’s (“State”) audit of our tax returns for fiscal years ended April 30, 2011 through April 30,
2013, the State had alleged that we were not permitted to file a single combined corporation franchise tax return with our
subsidiaries. During the quarter ended March 31, 2015, as a result of discussions with the State, we decided to settle the audit
for an amount less than 8.0% of the total cumulative alleged liability in order to minimize the out-of-pocket costs and potential
litigation. As a result of these discussions, we recorded a $0.2 million gross increase in uncertain tax positions in the quarter
ended March 31, 2015 related to the settlement with the State. This settlement was finalized in August 2015 for $0.2 million.
As a result of these discussions, as well as a net unfavorable reversal of a portion of other positions due to the expiration of the
statute of limitations, during the quarter ended March 31, 2015 we recorded an increase in the reserve for uncertain tax
positions of $0.4 million, which was reduced by $0.2 million due to settlement with the State on this same matter during the
quarter ended September 30, 2015. During fiscal year 2016, we recorded a decrease in the reserve for uncertain tax positions
of $0.4 million due to the expiration of the statute of limitations on other positions.
Segment Reporting
A summary of revenues by operating segment (in millions) follows:
Fiscal Year Ended
December 31,
2017
2016
$
Change
Fiscal Year Ended
December 31,
2016
2015
$
Change
$
$
181.2
250.8
62.3
105.0
599.3
$
$
176.5
233.2
52.9
102.4
565.0
$
$
4.7
17.6
9.4
2.6
34.3
$
$
176.5
233.2
52.9
102.4
565.0
$
$
167.5
232.0
46.3
100.7
546.5
$
$
9.0
1.2
6.6
1.7
18.5
Eastern
Western
Recycling
Other
Total
Eastern Region
The following table provides details associated with the period-to-period change in revenues (dollars in millions) attributable to
services provided:
Price
Volume
Fuel surcharge and other fees
Commodity price & volume
Acquisitions & divestitures
Solid waste revenues
Price.
Period-to-Period
Change for Fiscal Year 2017 vs
Fiscal Year 2016
Period-to-Period
Change for Fiscal Year 2016 vs
Fiscal Year 2015
Amount
% of Growth
Amount
% of Growth
$
$
5.4
(2.4)
—
(0.6)
2.3
4.7
3.1 % $
(1.4)%
— %
(0.4)%
1.3 %
2.6 % $
5.9
3.3
(0.1)
(0.1)
—
9.0
3.5 %
2.0 %
— %
(0.1)%
— %
5.4 %
The price change component in fiscal year 2017 solid waste revenues growth from the prior year is a result of the following:
•
$3.5 million from favorable collection pricing; and
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•
$1.9 million from favorable disposal pricing related to transfer stations and landfills.
The price change component in fiscal year 2016 solid waste revenues growth from the prior year is a result of the following:
•
•
$4.0 million from favorable collection pricing, including a floating SRA fee; and
$1.9 million from favorable disposal pricing related to transfer stations and landfills.
Volume.
The volume change component in fiscal year 2017 solid waste revenues growth from the prior year is a result of the following:
•
•
$(5.3) million from lower disposal volumes (of which $(4.6) million relates to lower landfill volumes, mainly due to the
ramp down of tons at our Southbridge Landfill, and $(0.7) million relates to lower transfer station volumes); partially
offset by
$2.9 million from higher collection volumes.
The volume change component in fiscal year 2016 solid waste revenues growth from the prior year is a result of the following:
•
•
$4.2 million from higher collection volumes; and
$(0.9) million from lower disposal volumes (of which $(1.1) million relates to lower landfill volumes and $0.2 million
relates to higher transfer station volumes).
Commodity price and volume.
The commodity price and volume change component in fiscal year 2017 total solid waste revenues growth is the result of
decreased energy pricing and volumes.
Acquisitions and divestitures.
The acquisitions and divestitures change component in fiscal year 2017 solid waste revenues growth is the result of the
acquisition of a solid waste collection business in the quarter ended June 30, 2017.
Western Region
The following table provides details associated with the period-to-period change in revenues (dollars in millions) attributable to
services provided:
Price
Volume
Fuel surcharge and other fees
Commodity price & volume
Acquisitions & divestitures
Solid waste revenues
Price.
Period-to-Period
Change for Fiscal Year 2017 vs
Fiscal Year 2016
Period-to-Period
Change for Fiscal Year 2016 vs
Fiscal Year 2015
Amount
% of Growth
Amount
% of Growth
$
6.6
8.0
0.5
1.4
1.1
$
17.6
2.8% $
3.5%
0.2%
0.6%
0.5%
7.6% $
8.0
(7.6)
—
(0.4)
1.2
1.2
3.5 %
(3.3)%
— %
(0.2)%
0.5 %
0.5 %
The price change component in fiscal year 2017 solid waste revenues growth from the prior year is a result of the following:
•
•
$4.2 million from favorable collection pricing; and
$2.4 million from favorable disposal pricing related to transfer stations and landfills.
The price change component in fiscal year 2016 solid waste revenues growth from the prior year is a result of the following:
•
•
$6.9 million from favorable collection pricing, including a floating SRA fee; and
$1.1 million from favorable disposal pricing related to transfer stations and landfills.
Volume.
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The volume change component in fiscal year 2017 solid waste revenues growth from the prior year is a result of the following:
•
•
$7.8 million from higher disposal volumes disposal volumes (of which $5.1 million relates to higher landfill volumes,
$1.2 million relates to higher transfer station volumes and $1.5 million relates to higher transportation volumes); and
0.3 million from higher processing volumes.
The volume change component in fiscal year 2016 solid waste revenues growth from the prior year is a result of the following:
•
•
$(4.3) million from lower disposal volumes (of which $(1.7) million relates to lower landfill volumes, including lower
drill cutting volumes, $(3.2) million relates to lower transportation volumes associated with lower drill cutting volumes,
and $0.6 million relates to higher transfer station volumes); and
$(3.1) million from lower collection volumes.
Fuel surcharge and other fees.
The fuel surcharge and other fees change component in fiscal year 2017 solid waste revenues growth from the prior year is the
result of higher collection revenues generated from volume growth.
Commodity price and volume.
The commodity price and volume change component in fiscal year 2017 solid waste revenues growth from the prior year is the
result of favorable commodity pricing and higher volumes within our processing operations, partially offset by lower landfill
gas-to-energy volumes.
The commodity price and volume change component in fiscal year 2016 solid waste revenues growth from the prior year is the
result of unfavorable energy pricing within our landfill gas-to-energy operations, partially offset by higher volumes within our
landfill gas-to-energy and processing operations and favorable commodity pricing within our processing operations.
Acquisitions and divestitures.
The acquisitions and divestitures change component in fiscal year 2017 solid waste revenues growth from the prior year is the
result of the acquisition of three collection operations in fiscal year 2017.
The acquisitions and divestitures change component in fiscal year 2016 solid waste revenues growth from the prior year is the
result of the acquisition of three transfer stations in the quarter ended June 30, 2016, partially offset by the divestiture of a
business in fiscal year 2015.
A summary of operating (loss) income by operating segments (in millions) follows:
Eastern
Western
Recycling
Other
Total
Eastern Region
December 31,
2017
2016
$
Change
December 31,
2016
2015
$
Change
$
$
(51.9) $
35.0
2.8
1.5
(12.6) $
9.7
30.6
2.5
2.1
44.9
$
$
(61.6) $
4.4
0.3
(0.6)
(57.5) $
9.7
30.6
2.5
2.1
44.9
$
$
7.4
26.0
(2.4)
0.9
31.9
$
$
2.3
4.6
4.9
1.2
13.0
Fiscal Year 2017 Compared to Fiscal Year 2016
Eastern region operating income decreased $(61.6) million in fiscal year 2017 from the prior year including the following
items:
•
•
the $(65.2) million Southbridge Landfill closure charge associated with our plan to cease operations of our Southbridge
Landfill; and
the $(0.2) million expense from divestiture, acquisition and financing costs associated with legal costs for the acquisition
of Complete in January 2018.
Our operating performance in fiscal year 2017 improved due to the revenue changes outlined above despite the following cost
changes:
Cost of operations: Cost of operations increased $8.0 million in fiscal year 2017 from the prior year as a result of the following:
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•
•
•
•
•
higher hauling and transportation costs associated with higher collection volumes;
higher direct labor costs associated with higher collection volumes, customer growth related to several new municipal
contracts, and higher healthcare costs of $0.8 million;
higher accretion expense associated with the acceleration of asset retirement obligations due to the closure of the
Southbridge Landfill; and
higher equipment rental costs; partially offset by
lower landfill operating costs with certain landfills.
General and administration: General and administration expense increased $1.7 million in fiscal year 2017 due to higher
shared overhead costs associated with an increase in healthcare costs and higher equity compensation expense, partially offset
by lower bad debt expense.
Depreciation and amortization: Depreciation and amortization expense decreased $(3.2) million in fiscal year 2017 due to
lower landfill amortization expense associated with lower landfill volumes at the Southbridge Landfill and the North Country
Environmental Services landfill ("NCES Landfill") and changes to the asset retirement obligation amortization rate at the
NCES Landfill, and lower depreciation expense due to the asset impairment associated with closure of the Southbridge
Landfill.
Fiscal Year 2016 Compared to Fiscal Year 2015
Eastern region operating income increased $2.3 million in fiscal year 2016 from the prior year including the following items:
•
•
the $1.1 million impact of the Maine Energy divestiture reserve reversal in fiscal year 2015; and
the $(1.9) million contract settlement charge associated with the Expera Old Town, LLC v. Casella Waste Systems, Inc.
legal matter in fiscal year 2015.
Our operating performance in fiscal year 2016 improved due to the revenue changes outlined above despite the following cost
changes:
Cost of operations: Cost of operations increased by $7.1 million in fiscal year 2016 from the prior year as a result of the
following:
•
•
•
•
•
•
•
higher third-party disposal costs associated with higher collection and, to a lesser extent, higher disposal volumes from
organic customer growth;
higher labor and related benefit costs on higher collection volumes;
higher direct operational costs (including gas control and other landfill operating costs, higher equipment rental costs,
and higher accretion expense related to final capping, closure and post-closure obligations); and
higher facility maintenance and repair costs; partially offset by
lower diesel fuel costs on lower prices;
lower depletion of landfill operating lease obligations due to a lower per ton rate and lower volumes at our Southbridge
Landfill; and
lower host royalty fees at our Southbridge Landfill.
General and administration: General and administration expenses increased by $1.5 million in fiscal year 2016 from the prior
year as a result of higher shared overhead costs due primarily to an increase in accrued incentive compensation based on
improved performance.
Depreciation and amortization: Depreciation and amortization expense increased by $1.1 million in fiscal year 2016 from the
prior year as the result of an increase in the average landfill amortization rates in the Eastern region (including Southbridge
Landfill), and the change in landfill volume mix (with lower volumes at Southbridge Landfill, where we diverted certain lower
priced tons).
Western Region
Fiscal Year 2017 Compared to Fiscal Year 2016
Western region operating income increased $4.4 million in fiscal year 2017 from the prior year including the following item:
•
the $(0.9) million impact of the Potsdam environmental remediation liability charge in fiscal year 2016.
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Our operating performance in fiscal year 2017 improved due to the revenue changes outlined above depite the following cost
changes:
Cost of operations: Cost of operations increased $12.3 million in fiscal year 2017 from the prior year as a result of the
following:
•
•
•
•
•
•
higher disposal costs associated with higher transfer station volumes and increased third-party disposal pricing;
higher direct labor costs associated with increased labor costs associated with higher landfill and transfer station volumes
and increased healthcare costs of $0.7 million;
higher direct operational costs associated with increased leachate disposal and higher landfill operating costs due to:
increased rainfall through early summer and the timing of various landfill construction projects; and higher host
community fees associated with increased volumes at certain of our landfills;
higher fuel costs as a result of higher consumption and increased diesel fuel prices; and
higher fleet maintenance costs; partially offset by
lower hauling and transportation costs associated with decreased transportation services provided.
General and administration: General and administration expense increased $2.0 million in fiscal year 2017 as a result of higher
shared overhead costs associated with an increase in healthcare costs and higher equity compensation expense, partially offset
by lower wages and personnel costs.
Depreciation and amortization: Depreciation and amortization expense increased $3.3 million in fiscal year 2017 from the prior
year due to higher landfill amortization expense (associated with the higher landfill volumes, combined with the volume mix
and changes to landfill amortization rates as a result of changes in cost estimates and other assumptions associated with our
landfills) more than offsetting lower depreciation expense attributed to the timing of capital expenditures and related make-up
of fixed assets.
Fiscal Year 2016 Compared to Fiscal Year 2015
Western region operating income increased $4.6 million in fiscal year 2016 from the prior year including the following items:
•
•
•
the $(0.9) million impact of the Potsdam environmental remediation liability charge in fiscal year 2016;
the $0.6 million impact associated with a gain on the divestiture of a business in fiscal year 2015, which included the
sale of certain assets associated with various waste collection routes; and
the $3.8 million impact of the gain associated with the disposal of certain assets of the CARES water treatment facility
in fiscal year 2015 and certain of our equipment and real estate in a related transaction.
This improvement is primarily attributable to revenue growth outlined above and the following cost changes:
Cost of operations: Cost of operations decreased by $(7.6) million in fiscal year 2016 from the prior year as a result of the
following:
•
•
•
•
•
•
•
•
lower third-party hauling and transportation costs associated with lower collection and transportation volumes;
lower healthcare costs related to plan improvements and lower overall claim activity;
lower labor and related benefit costs on lower volumes;
lower fleet maintenance costs; and
lower diesel fuel costs on lower prices and volumes; partially offset by
higher direct operational costs (including higher equipment rental costs, higher host royalty fees, higher landfill
operating lease amortization and lower leachate disposal costs);
higher workers compensation costs; and
higher facility maintenance costs.
General and administration: General and administration expenses increased by $0.7 million in fiscal year 2016 from the prior
year as a result of the following:
•
•
•
an increase in accrued incentive compensation based on improved performance; and
higher shared overhead costs due primarily to an increase in accrued incentive compensation; partially offset by
lower healthcare costs related to plan improvements and lower overall claim activity; and
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•
lower bad debt expense associated with an increase in the reserve in the prior year for certain landfill customers.
Depreciation and amortization: Depreciation and amortization expenses decreased $(2.0) million in fiscal year 2016 from the
prior year as a result of changes to certain or our landfill amortization rates from prior year and the distribution of landfill
tonnage placement across various landfills.
Recycling
Recycling operating income increased by $0.3 million in fiscal year 2017 from the prior year. Our operating performance in
fiscal year 2017 improved due to the revenue changes outlined above and the following cost changes:
•
•
•
•
higher third-party purchased material costs of operations due to higher commodity prices on average year-over-year;
higher labor and related benefit costs of operations associated with higher healthcare costs, higher volumes, and higher
product quality standards from commodity buyers resulting in lower throughput and additional manpower;
higher facility maintenance costs; and
higher general and administration expenses associated with higher labor costs and higher shared overhead costs
associated with an increase in healthcare costs and higher equity compensation expense.
Recycling operating income increased by $4.9 million in fiscal year 2016 from the prior year. Our operating performance in
fiscal year 2016 declined due to the revenue changes outlined above despite the following cost changes:
higher disposal costs associated with increased volumes;
higher maintenance costs; and
higher shared overhead costs due primarily to an increase in accrued incentive compensation based on improved
performance; partially offset by
lower purchased material costs.
•
•
•
•
Other
Other operating income decreased by $(0.6) million in fiscal year 2017 from the prior year. Our operating performance in fiscal
year 2017 declined based on lower operating performance of our Organics line-of-business, as lower operating costs did not
offset the decline in commodity volumes and higher disposal costs due to the use of alternative disposal sites; and improved
operating performance of our Customer Solutions line-of-business, as increased volumes outweighed higher cost of operations
associated with increased purchased material, hauling and transportation, and healthcare costs.
Other operating income increased by $1.2 million in fiscal year 2016 from the prior year. Our operating performance in fiscal
year 2017 improved based on the improved performance of both our Organics and Customer Solutions lines-of-business,
partially offset by an increase in accrued incentive compensation based on improved performance, higher hauling and
transportation costs associated with volume increases in our Organics line-of-business, and higher hauling, transportation and
disposal costs associated with volume increases in our Customer Solutions line-of-business.
Liquidity and Capital Resources
We continually monitor our actual and forecasted cash flows, our liquidity, and our capital requirements in order to properly
manage our cash needs based on the capital intensive nature of our business. Our capital requirements include fixed asset
purchases (including capital expenditures for vehicles), debt servicing, landfill development and cell construction, landfill site
and cell closure, as well as acquisitions. We generally meet our liquidity needs from operating cash flows and borrowings from
our Revolving Credit Facility.
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As part of our decision to cease operations at the Southbridge Landfill as discussed in Note 10, Commitments and
Contingencies to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K, we assessed
the estimated costs and timing of cash flows associated with remaining capital expenditures, environmental remediation, and
final capping, closure and post-closure activities at the Southbridge Landfill. We expect cash outflows in the next five years
associated with these activities to be approximately $19.0 million and we do not believe that this will negatively impact our
liquidity during this time. In addition, we estimate that over $10.8 million in additional tax deductions related to ceasing
operations will be recognized in the next five years. Furthermore, we do not believe that ceasing operations at the Southbridge
Landfill will impact our future operational activities in a manner that will have a material impact to our results of operations,
our cash flows and our financial condition.
A summary of cash and cash equivalents, restricted assets and long-term debt balances, excluding any unamortized debt
discount and debt issuance costs, (in millions) follows:
Cash and cash equivalents
Restricted assets:
Restricted investments - landfill closure
Long-term debt:
Current portion
Long-term portion
Total long-term debt
Summary of Cash Flow Activity
December 31,
2017
2016
$
$
$
$
2.0
1.2
4.9
492.8
497.7
$
$
$
$
2.5
1.0
4.7
520.9
525.6
The following table summarizes our cash flows (in millions) for the periods indicated:
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Fiscal Year Ended
December 31,
2017
2016
2015
$
$
$
107.5
$
(76.4) $
(31.6) $
80.4
$
(63.0) $
(17.2) $
70.5
(48.8)
(21.6)
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Cash flows from operating activities.
The following is a summary of our operating cash flows (in millions) for fiscal years 2017, 2016 and 2015:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
$
(21.8) $
(6.9) $
(11.8)
Fiscal Year Ended
December 31,
2017
2016
2015
Depreciation and amortization
Gain on sale of property and equipment
Depletion of landfill operating lease obligations
Interest accretion on landfill and environmental remediation liabilities
Stock-based compensation
Southbridge landfill non-cash closure charge
Divestiture transactions
Amortization of debt issuance costs and discount on long-term debt
Loss on debt extinguishment
Loss on derivative instruments
Impairment of investments
Excess tax benefit on the vesting of share based awards
Deferred income taxes
Changes in assets and liabilities, net
Net cash provided by operating activities
$
62.1
—
9.7
4.5
6.4
63.5
—
2.7
0.5
—
—
—
(15.5)
112.1
(4.6)
107.5
$
61.9
(0.6)
9.3
3.6
3.4
—
—
3.9
13.7
—
—
—
0.6
88.9
(8.5)
80.4
$
62.7
(0.1)
9.4
3.4
3.1
—
(5.5)
4.0
1.0
0.2
2.1
(0.2)
0.8
69.1
1.4
70.5
A summary of the most significant items affecting the changes in our operating cash flows follows:
Improved operational performance in fiscal year 2017 as compared to fiscal year 2016 due to the following:
•
•
higher revenues of $34.3 million driven by our Recycling line-of-business, our collection line-of-business, our Western
region disposal line-of-business and our Customer Solutions line-of-business; partially offset by
higher cost of operations of $23.2 million driven by higher third-party direct costs, higher labor and related benefit costs,
including significant healthcare cost increases, higher maintenance costs, and higher direct operational costs.
Improved operational performance in fiscal year 2016 as compared to fiscal year 2015 due to the following:
•
•
•
higher revenues of $18.5 million driven by our collection line-of-business, as well as our Organics and Recycling
businesses; and
lower cost of operations of $(0.6) million driven by lower third-party direct costs, lower labor and related benefit costs,
and lower fuel costs; partially offset by
higher general and administration expenses of $2.5 million driven primarily by higher accrued incentive compensation
costs based on improved performance.
The favorable cash flow impact associated with the changes in our assets and liabilities, net of effects of acquisitions and
divestitures, which are affected by both cost changes and the timing of payments, in fiscal year 2017 as compared to fiscal year
2016 was the result of the following:
lower cash outflows associated with cash interest payments running through accrued expenses and other liabilities;
lower cash outflows associated with prepaid expenses, inventories and other assets; and
lower cash outflows associated with accounts payable; partially offset by
higher cash outflows associated with accrued payroll and incentive compensation; and
lower cash inflows associated with accounts receivable.
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•
•
•
•
•
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The unfavorable cash flow impact associated with the changes in our assets and liabilities, net of effects of acquisitions and
divestitures, which are affected by both cost changes and the timing of payments, in fiscal year 2016 as compared to fiscal year
2015 was the result of the following:
•
•
•
the unfavorable cash flow impact associated with accrued expenses and other liabilities related primarily to higher
interest payments on the redemption of the 2019 Notes and related financing activities; and
the unfavorable cash flow impact associated with prepaid expenses, inventories and other assets; partially offset by
the favorable cash flow impacts associated with accounts receivable and accounts payable.
Cash flows from investing activities.
A summary of investing cash flows (in millions) follows:
Acquisitions, net of cash acquired
Acquisition related additions to property, plant and equipment
Additions to property, plant and equipment
Payments on landfill operating lease contracts
Proceeds from divestiture transactions
Proceeds from sale of property and equipment
Proceeds from property insurance settlement
Net cash used in investing activities
Fiscal Year Ended
December 31,
2017
2016
2015
(5.1) $
(0.5)
(64.4)
(7.2)
—
0.7
—
(76.5) $
(2.8) $
—
(54.2)
(7.3)
—
1.3
—
(63.0) $
—
—
(50.0)
(5.4)
5.3
0.7
0.6
(48.8)
$
$
A summary of the most significant items affecting the change in our investing cash flows for fiscal year 2017 from the prior
year follows:
Acquisitions, net of cash acquired. We acquired one solid waste collection business in our Eastern region and three solid waste
collection businesses in our Western region for total consideration of $8.1 million, including $4.8 million in cash.
Capital expenditures. Capital expenditures were $10.7 million higher in fiscal year 2017 as compared to fiscal year 2016
primarily due to timing differences with various landfill development projects and business growth.
Payments on landfill operating lease contracts. Landfill operating lease payments decreased $(0.1) million in fiscal year 2017
as compared to fiscal year 2016 due to the timing of payments at certain of our landfills based on the terms of the operating
lease contracts.
Proceeds from the sale of property and equipment. Proceeds from the sale of property and equipment decreased $(0.6) million
in fiscal year 2017 as compared to fiscal year 2016 due to the timing and make-up of various asset sales.
A summary of the most significant items affecting the change in our investing cash flows for fiscal year 2016 from the prior
year follows:
Capital expenditures. Capital expenditures were $4.2 million higher in fiscal year 2016 primarily due to increased spend on
various landfill development projects.
Proceeds from divestiture transactions. We divested a business, certain assets of the CARES water treatment facility, and other
equipment of ours as a result of the CARES transaction for cash consideration of $5.3 million in fiscal year 2015.
Acquisitions, net of cash acquired. We acquired three transfer stations in our Western region during fiscal year 2016 for total
cash consideration of $2.8 million.
Payments on landfill operating lease contracts. Landfill operating lease contract payments increased $1.9 million due to higher
payments at our Western region landfills based on the terms of the operating lease contracts.
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Cash flows from financing activities.
A summary of financing cash flows (in millions) follows:
Proceeds from long-term borrowings
Principal payments on long-term debt
Change in restricted cash
Payments of debt issuance costs
Payments of debt extinguishment costs
Proceeds from the exercise of share based awards
Excess tax benefit on the vesting of share based awards
Distribution to noncontrolling interest holders
Net cash used in financing activities
Fiscal Year Ended
December 31,
2017
2016
2015
$
185.5
$
604.9
$
(217.0)
(608.2)
—
(1.5)
—
1.3
—
—
1.3
(8.1)
(7.2)
0.1
—
—
$
(31.7) $
(17.2) $
355.2
(371.0)
4.5
(9.0)
(0.2)
0.2
0.2
(1.5)
(21.6)
A summary of the most significant items affecting the change in our financing cash flows for fiscal year 2017 from the prior
year follows:
Debt activity.
Debt payments exceeded debt borrowings in fiscal year 2017, resulting in a reduction of long-term debt by $(31.5) million
primarily associated with the repayment of $(30.1) million of long-term debt under the Credit Facility in fiscal year 2017.
Debt payments exceeded debt borrowings in fiscal year 2016, resulting in a reduction of long-term debt by $(3.3) million
associated with the following:
•
•
•
the repurchase or redemption, as applicable, of $370.3 million our 2019 Notes; partially offset by
the refinancing of our ABL Facility with our Credit Facility in fiscal year 2016, which includes the Term Loan B
Facility; and
the issuance of $15.0 million of New York Bonds 2016 in fiscal year 2016.
Payments of debt issuance costs. We made $1.5 million of debt issuance cost payments in fiscal year 2017 related to the
Repricing Amendment and the remarketing of the FAME Bonds 2005R-1 and the FAME Bonds 2005R-2 into the FAME Bonds
2005R-3 as compared to $8.1 million in fiscal year 2016 related to the refinancing of our ABL Facility with our Credit Facility
and the issuance of New York Bonds 2016.
Proceeds from the exercise of share based awards. We received $1.3 million of cash receipts associated with the exercise of
stock options in fiscal year 2017 as compared to $0.1 million in fiscal year 2016 due primarily to the appreciation of our stock
price and the expiration of certain management grants.
A summary of the most significant items affecting the change in our financing cash flows for fiscal year 2016 from the prior
year follows:
Debt activity.
Debt payments exceeded debt borrowings in fiscal year 2016, resulting in a reduction of long-term debt by $(3.3) million
associated with the following:
•
•
•
the repurchase or redemption, as applicable, of $370.3 million our 2019 Notes; partially offset by
the refinancing of our ABL Facility with our Credit Facility in fiscal year 2016, which includes the Term Loan B
Facility; and
the issuance of $15.0 million of New York Bonds 2016 in fiscal year 2016.
Debt payments exceeded debt borrowings in fiscal year 2015, resulting in a reduction of long-term debt by $(15.8) million
associated with the following:
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•
•
•
the refinancing of our Refinanced Revolving Credit Facility with the ABL Facility and the issuance of an additional
$60.0 million of 2019 Notes in fiscal year 2015, which when combined with revolver activity resulted in a reduction of
long-term debt by $(13.9) million in fiscal year 2015; and
the repurchase of $(14.7) million of our 2019 Notes in fiscal year 2015; partially offset by
the issuance of $15.0 million of FAME Bonds 2015 in fiscal year 2015.
Change in restricted cash. The change in restricted cash was a result of the following:
•
•
•
in fiscal year 2015, we obtained $5.6 million of restricted cash associated with the issuance of $15.0 million aggregate
principal amount of FAME Bonds 2015 and used $6.9 million of the restricted cash associated with the issuance of the
FAME Bonds 2015 and the New York Bonds 2014 to pay down ABL Facility borrowings used to finance certain capital
projects in the states of New York and Maine;
in fiscal year 2016, we used the remaining $1.3 million of restricted cash associated with the issuance of FAME Bonds
2015 to pay down ABL Facility borrowings for costs incurred to fund certain capital projects in the state of Maine; and
in fiscal year 2016, we obtained $3.0 million of restricted cash from the issuance of $15.0 million aggregate principal
amount of New York Bonds 2016 and subsequently used these funds to pay down ABL Facility borrowings for costs
incurred to fund certain capital projects in the state of New York.
Payments of debt issuance costs. We made $9.0 million of debt issuance cost payments in fiscal year 2015 related to the
issuance of an additional $60.0 million of 2019 Notes and $15.0 million of FAME Bonds 2015, and the refinancing of our
Refinanced Revolving Credit Facility with our ABL Facility, as compared to $8.1 million of debt issuance cost payments in
fiscal year 2016 related to the refinancing of our ABL Facility with our Credit Facility and the issuance of New York Bonds
2016.
Payments of debt extinguishment costs. We made $7.2 million of debt extinguishment cost payments in fiscal year 2016 and
$0.1 million in fiscal year 2015 related to the early redemption, repurchase and retirement, in fiscal year 2016, of our 2019
Notes.
Distribution to noncontrolling interest holder. We distributed $1.5 million in fiscal year 2015 to Altela, Inc. associated with the
disposal of certain assets of CARES as a part of the dissolution of the business.
Outstanding Long-Term Debt
Credit Facility
In fiscal year 2016, we entered into a credit agreement ("Credit Agreement"), which provides for a $350.0 million aggregate
principal amount Term Loan B Facility and a $160.0 million Revolving Credit Facility and, together with the Term Loan B
Facility. The net proceeds from this transaction were used to repay in full our ABL Facility and to redeem all of our remaining
outstanding 2019 Notes at a redemption price equal to 101.938% of the principal amount thereof plus accrued and unpaid
interest thereon and to pay related transaction expenses. We have the right to request, at our discretion, an increase in the
amount of loans under the Credit Facility by an aggregate amount of $100.0 million, subject to the terms and conditions set
forth in the Credit Agreement.
The Term Loan B Facility has a 7-year term and initially bore interest at a rate of LIBOR plus 3.00% per annum (with a 1.00%
LIBOR floor), which would be reduced to a rate of LIBOR plus 2.75% upon us reaching a consolidated net leverage ratio of
3.75x or less. The Revolving Credit Facility has a 5-year term and initially bore interest at a rate of LIBOR plus 3.00% per
annum, which is adjusted from an applicable rate of LIBOR plus 2.50% to 3.25% depending on our consolidated net leverage
ratio. In fiscal year, 2017, we entered into the Repricing Amendment. The Repricing Amendment decreased the applicable
interest margin for our Term Loan B Facility by 25 basis points for both LIBOR borrowings and base rate borrowings. The
applicable interest rate margin is determined based on our consolidated net leverage ratio, with the interest rate initially set at
2.75% for LIBOR borrowings (with a 1.00% LIBOR floor) and 1.75% for base rate borrowings at December 31, 2017. The
applicable interest rate is reduced to 2.50% for LIBOR borrowings (with a 1.00% LIBOR floor) and 1.50% for base rate
borrowings upon us reaching a consolidated net leverage ratio of 3.75x or less, which was the case at December 31, 2017.
Our Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned
subsidiaries and secured by substantially all of our assets. As of December 31, 2017, further advances were available under the
Revolving Credit Facility in the amount of $101.5 million. The available amount is net of outstanding irrevocable letters of
credit totaling $22.5 million, at which date no amount had been drawn.
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The Credit Agreement requires us to maintain a minimum interest coverage ratio and a maximum consolidated net leverage
ratio, to be measured at the end of each fiscal quarter. As of December 31, 2017, we were in compliance with all financial
covenants contained in the Credit Agreement as follows (in millions):
Credit Facility Covenant
Maximum consolidated net leverage ratio (1)
Minimum interest coverage ratio
Fiscal Year Ended
December 31, 2017
Covenant Requirements at
December 31, 2017
3.68
5.91
5.375
2.50
(1) The maximum consolidated net leverage ratio is calculated as consolidated funded debt, net of unencumbered cash and
cash equivalents in excess of $2.0 million (calculated at $497.7 million as of December 31, 2017, or $497.7 million of
consolidated funded debt less $0.0 million of cash and cash equivalents in excess of $2.0 million as of December 31,
2017), divided by minimum consolidated EBITDA. Minimum consolidated EBITDA is based on operating results for
the twelve months preceding the measurement date of December 31, 2017. Consolidated funded debt, net unencumbered
cash and cash equivalents in excess of $2.0 million, and minimum consolidated EBITDA are non-GAAP financial
measures that should not be considered an alternative to any measure of financial performance calculated and presented
in accordance with generally accepted accounting principles in the United States. A reconciliation of minimum
consolidated EBITDA to net cash provided by operating activities is as follows (in millions):
Twelve Months Ended
December 31, 2017
Net cash provided by operating activities
Changes in assets and liabilities, net of effects of acquisitions and divestitures
Loss on sale of property and equipment
Loss on debt extinguishment
Stock based compensation, net of excess tax benefit
Southbridge landfill non-cash closure charge
Interest expense, less amortization of debt issuance costs and discount on long-term debt
Provision for income taxes, net of deferred taxes
Adjustments as allowed by the Credit Agreement
Minimum consolidated EBITDA
$
$
107.5
4.6
(0.1)
(0.5)
(6.4)
(63.5)
22.5
0.3
71.0
135.4
In addition to the financial covenants described above, the Credit Agreement also contains a number of important customary
affirmative and negative covenants which restrict, among other things, our ability to sell assets, incur additional debt, create
liens, make investments, and pay dividends. We do not believe that these restrictions impact our ability to meet future liquidity
needs.
As of December 31, 2017, we were in compliance with the covenants contained in the Credit Agreement. An event of default
under any of our debt agreements could permit some of our lenders, including the lenders under the Credit Facility, to declare
all amounts borrowed from them to be immediately due and payable, together with accrued and unpaid interest, or, in the case
of the Credit Facility, terminate the commitment to make further credit extensions thereunder, which could, in turn, trigger
cross-defaults under other debt obligations. If we were unable to repay debt to our lenders, or were otherwise in default under
any provision governing our outstanding debt obligations, our secured lenders could proceed against us and against the
collateral securing that debt.
Based on the seasonality of our business, operating results in the late fall, winter and early spring months are generally lower
than the remainder of our fiscal year. Given the cash flow impact that this seasonality, the capital intensive nature of our
business and the timing of debt payments has on our business, we typically incur higher debt borrowings in order to meet our
liquidity needs during these times. Consequently, our availability and performance against our financial covenants tighten
during these times as well.
Tax-Exempt Financings
New York Bonds. In fiscal year 2016, we completed a financing transaction involving the issuance by the New York State
Environmental Facilities Corporation of $15.0 million aggregate principal amount of New York Bonds 2016.
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As of December 31, 2017, we had outstanding $40.0 million aggregate principal amount of Solid Waste Disposal Revenue
Bonds Series 2014 ("New York Bonds 2014") and New York Bonds 2016 issued by the New York State Environmental
Facilities Corporation under the indenture dated December 1, 2014 (collectively, the “New York Bonds”). The New York Bonds
2014 accrue interest at 3.75% per annum through December 1, 2019, at which time they may be converted from a fixed rate to
a variable rate. The New York Bonds 2016 accrue interest at 3.125% per annum through May 31, 2026, at which time they may
be converted from a fixed rate to a variable rate. The New York Bonds, which are unsecured and guaranteed jointly and
severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, require interest payments on June 1 and
December 1 of each year and mature on December 1, 2044. We borrowed the proceeds of the New York Bonds to finance or
refinance certain capital projects in the state of New York and to pay certain costs of issuance of the New York Bonds.
Maine Bonds
In fiscal year 2017, we completed the remarketing of $3.6 million aggregate principal amount of Finance Authority of Maine
Solid Waste Disposal Revenue Bonds Series 2005R-1 and $21.4 million aggregate principal amount of Finance Authority of
Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 as one series of bonds known as $25.0 aggregate principal amount
of FAME Bonds 2005R-3.
As of December 31, 2017, we had outstanding $25.0 million aggregate principal amount of FAME Bonds 2005R-3. The FAME
Bonds 2005R-3, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant
wholly-owned subsidiaries, accrue interest at 5.25% per annum, and interest is payable semiannually in arrears on February 1
and August 1 of each year until such bonds mature on January 1, 2025.
As of December 31, 2017, we had outstanding $15.0 million aggregate principal amount of senior unsecured FAME Bonds
2015. The FAME Bonds 2015, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of
our significant wholly-owned subsidiaries, accrue interest at 5.125% per annum through August 1, 2025, at which time they
may be converted from a fixed to a variable rate. During the fixed interest rate period, the FAME Bonds 2015 will not be
supported by a letter of credit. Interest is payable semiannually in arrears on February 1 and August 1 of each year. An
additional $15.0 million aggregate principal amount of FAME Bonds 2015 may be offered under the same indenture in the
future. The FAME Bonds 2015 mature on August 1, 2035. We borrowed the proceeds of the offering of the FAME Bonds 2015
to finance or refinance the costs of certain of our solid waste landfill facilities and solid waste collection, organics and transfer,
recycling and hauling facilities, and to pay certain costs of the issuance of the FAME Bonds 2015.
Vermont Bonds. As of December 31, 2017, we had outstanding $16.0 million aggregate principal amount of senior unsecured
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”).
The Vermont Bonds, which are guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-
owned subsidiaries, accrue interest at 4.75% per annum through April 1, 2018, at which time they may be converted from a
fixed rate to a variable rate or remarketed for a new fixed interest rate period. During the fixed interest rate period, the Vermont
Bonds will not be supported by a letter of credit. Interest is payable semiannually in arrears on April 1 and October 1 of each
year. The Vermont Bonds mature on April 1, 2036. We borrowed the proceeds of the Vermont Bonds to finance or refinance
certain qualifying property, plant and equipment assets purchased in the state of Vermont.
New Hampshire Bonds. As of December 31, 2017, we had outstanding $11.0 million aggregate principal amount of senior
unsecured Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New
Hampshire (“New Hampshire Bonds”). The New Hampshire Bonds, which are guaranteed jointly and severally, fully and
unconditionally by all of our significant wholly-owned subsidiaries, accrue interest at 4.00% per annum through October 1,
2019, at which time they may be converted from a fixed rate to a variable rate. During the fixed interest rate period, the New
Hampshire Bonds will not be supported by a letter of credit. Interest is payable in arrears on April 1 and October 1 of each year.
The New Hampshire Bonds mature on April 1, 2029. We borrowed the proceeds of the New Hampshire Bonds to finance or
refinance certain qualifying property, plant and equipment assets purchased in the state of New Hampshire.
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Contractual Obligations
The following table summarizes our significant contractual obligations and commitments as of December 31, 2017
(in thousands) and the anticipated effect of these obligations on our liquidity in future years:
Long-term debt and capital leases
Interest obligations (1)
Non-cancellable operating leases
Landfill operating lease contracts
Capping / closure / post-closure
Total contractual cash obligations (2)
Less than
one year
1 - 3 years
3 - 5 years
$
$
4,926
21,627
10,939
7,526
3,106
48,124
$
$
10,271
42,582
15,012
9,864
13,445
91,174
$
$
45,052
39,673
4,496
9,114
13,567
111,902
More than 5
years
437,431
73,789
1,242
32,519
130,935
675,916
$
$
$
$
Total
497,680
177,671
31,689
59,023
161,053
927,116
(1) Based on long-term debt and capital lease balances as of December 31, 2017. Interest obligations related to variable rate
debt were calculated using variable rates in effect at December 31, 2017.
(2) Contractual cash obligations do not include accounts payable or accrued liabilities, which will be paid in the fiscal year
ending December 31, 2018.
We have no contractual obligations related to unrecognized tax benefits at December 31, 2017. For a description of our
commitments and contingencies, see Note 8, Final Capping, Closure and Post-Closure Costs, Note 10, Commitments and
Contingencies and Note 14, Income Taxes, of our consolidated financial statements included in Item 8 of this Annual Report on
Form 10-K.
Inflation
Although inflationary increases in costs have affected our historical operating margins, we believe that inflation generally has
not had a significant impact on our operating results. Consistent with industry practice, most of our contracts provide for a
pass-through of certain costs to our customers, including increases in landfill tipping fees and in some cases fuel costs, intended
to mitigate the impact of inflation on our operating results. We have also implemented a number of operating efficiency
programs that seek to improve productivity and reduce our service costs, and a fuel surcharge, which is designed to recover
escalating fuel price fluctuations above an annually reset floor. Based on these implementations, we believe we should be able
to sufficiently offset most cost increases resulting from inflation. However, competitive factors may require us to absorb at least
a portion of these cost increases. Additionally, management’s estimates associated with inflation have had, and will continue to
have, an impact on our accounting for landfill and environmental remediation liabilities.
Regional Economic Conditions
Our business is primarily located 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.
Critical Accounting Estimates and Assumptions
Our consolidated financial statements have been prepared in accordance with GAAP and necessarily include certain estimates
and judgments made by management. 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. The following is a list of accounting policies
that we believe are the most critical in understanding our consolidated financial position, results of operations and cash flows
and that may require management to make subjective or complex judgments about matters that are inherently uncertain. Our
significant accounting policies are more fully discussed in Note 3, Summary of Significant Accounting Policies of our
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.
Landfill Accounting
Landfill Development Costs
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We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity (see landfill
development costs discussed within the “Property, Plant and Equipment” accounting policy more fully discussed in Note 3,
Summary of Significant Accounting Policies of our consolidated financial statements included in Item 8 of this Annual Report
on Form 10-K). 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
including capitalized interest. The interest capitalization rate is based on our weighted average interest rate incurred on
borrowings outstanding during the period.
Under life-cycle accounting, all costs related to acquisition and construction of landfill sites are capitalized and charged to
expense 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 each of our landfills,
preparation costs include the total estimated costs to complete construction of the landfills’ permitted and expansion capacity.
Final Capping, Closure and Post-Closure Costs
The cost estimates for final 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 final capping event and the timing
of construction related to each final capping event and of closure and post-closure activities. Because landfill final 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 final capping and closure and post-closure activities would have an effect on
these liabilities, related assets and results of operations.
Final capping activities include the 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. Final capping activities occur throughout the
life of the landfill. Our engineering personnel estimate the cost for each final capping event based on the acreage to be capped,
along with the final 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 final
capping event and the costs for each event are amortized over that capacity as waste is received at the landfill.
Closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill
after a landfill facility ceases to accept waste and closes. We estimate, based on input from our engineers, accountants, lawyers,
managers and others, 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 of
1970, as amended, 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.
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.
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For unpermitted airspace to be included in our estimate of remaining permitted and expansion airspace, the expansion effort
must meet all of the criteria listed above. These criteria are evaluated annually by our engineers, accountants, lawyers,
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 (“AUF”) is established to calculate the remaining permitted
and expansion capacity in tons. The AUF is established using a process that considers the measured density obtained from
annual surveys. When we include the expansion airspace in our calculation of remaining permitted and expansion airspace, we
include the projected costs for development, as well as the projected asset retirement costs related to final capping, closure and
post-closure of the expansion airspace in the amortization basis of the landfill.
After determining the costs and the 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 each of our landfills by dividing the costs by the
corresponding number of tons. We calculate per ton amortization rates for assets associated with each final capping event, for
assets related to closure and post-closure activities and for all other costs capitalized or to be capitalized in the future for each
landfill. These rates per ton are updated annually, or more frequently, as significant facts change.
It is possible that actual results, including the amount of costs incurred, the timing of final 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 final capping, closure or
post-closure rates, or higher expenses. 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
We have recorded environmental remediation liabilities representing our estimate of the most likely outcome of the matters for
which we have determined that a liability is probable. These liabilities include potentially responsible party 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.
Accounts Receivable – Trade, Net of Allowance for Doubtful Accounts
Accounts receivable – trade represent receivables from customers for collection, transfer, recycling, disposal and other services.
Our accounts receivable – trade are recorded when billed or when related revenue is earned, if earlier, and represent claims
against third-parties that will be settled in cash. The carrying value of our accounts receivable – trade, net of allowance for
doubtful accounts, represents its estimated net realizable value. Estimates are used in determining our allowance for doubtful
accounts based on our historical collection experience, current trends, credit policy and a review of our accounts receivable –
trade by aging category. Our reserve is evaluated and revised on a monthly basis. Past-due accounts receivable-trade are written
off when deemed to be uncollectible.
Goodwill and Other Intangibles
We annually assess goodwill for impairment at the end of our fiscal year or more frequently if events or circumstances indicate
that impairment may exist. We may assess whether a goodwill impairment exists using either a qualitative or a quantitative
assessment. If we perform a qualitative assessment, it involves determining whether events or circumstances exist that indicate
it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on
this qualitative assessment we determine it is not more likely than not that the fair value of a reporting unit is less than its
carrying amount, we will not perform a quantitative assessment. If the qualitative assessment indicates that it is more likely
than not that the fair value of a reporting unit is less than its carrying amount, or if we elect not to perform a qualitative
assessment, we perform a quantitative assessment, or two-step impairment test, to determine whether goodwill impairment
exists at the reporting unit.
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In the first step (defined as “Step 1”) of testing for goodwill impairment, we estimate the fair value of each reporting unit,
which we have determined to be our geographic operating segments, our Recycling segment and our Customer Solutions
business, which is included in the Other segment, and compare the fair value with the carrying value of the net assets of each
reporting unit. If the fair value is less than its carrying value, then we would perform a second step (defined as “Step 2”) and
determine the fair value of the goodwill. In Step 2, 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.
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
If the fair value of goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to
earnings. 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.
In addition to an annual goodwill impairment assessment, 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.
We elected to perform a quantitative analysis as part of our annual goodwill impairment test for fiscal year 2017. As of
December 31, 2017, the Step 1 testing for goodwill impairment performed for our Eastern, Western, Recycling and Customer
Solutions reporting units indicated that the fair value of each reporting unit exceeded its carrying amount, including goodwill.
Furthermore, the Step 1 test indicated that in each case the fair value of our Eastern, Western, Recycling and Customer
Solutions reporting units exceeded its carrying value by in excess of 83.6%. We incurred no impairment of goodwill as a result
of our annual goodwill impairment tests in fiscal years 2017, 2016 and 2015. However, there can be no assurance that goodwill
will not be impaired at any time in the future.
Intangible assets consist primarily of covenants not-to-compete and customer lists. Intangible assets are recorded at fair value
and are amortized based on the economic benefit provided or using the straight-line method over their estimated useful lives.
Covenants not-to-compete and customer lists are typically amortized over a term of no more than 10 years.
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;
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•
•
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 primarily 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.
See Note 3, Summary of Significant Accounting Policies and Note 16, Divestiture Transactions to our consolidated financial
statements included under Item 8 of this Annual Report on Form 10-K for further disclosure.
Investments in Unconsolidated Entities
Investments in unconsolidated entities over which we have significant influence over the investees’ operating and financing
activities are accounted for under the equity method of accounting, as applicable. Investments in affiliates in which we do not
have the ability to exert significant influence over the investees’ operating and financing activities are accounted for under the
cost method of accounting.
We monitor and assess the carrying value of our investments throughout the year for potential impairment and write them down
to their fair value when other-than-temporary declines exist. Fair value is generally based on (i) other third-party investors’
recent transactions in the securities; (ii) other information available regarding the current market for similar assets and/or (iii) a
market or income approach, as deemed appropriate.
When we assess the carrying value of our investments for potential impairment, determining the fair value of our investments is
reliant upon the availability of market information and/or other information provided by third-parties to be able to develop an
estimate of fair value. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
Accordingly, our estimates are not necessarily indicative of the amounts that we, or other holders of these investments, could
realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a
significant effect on the estimated fair values. The current estimates of fair value could differ significantly from the amounts
presented.
See Note 3, Summary of Significant Accounting Policies to our consolidated financial statements included under Item 8 of this
Annual Report on Form 10-K for further disclosure.
Self-Insurance Liabilities and Related Costs
We are self-insured for vehicles and workers’ compensation with reinsurance coverage limiting our maximum exposure. Our
maximum exposure in fiscal year 2017 under the workers’ compensation plan was $1.0 million per individual event. Our
maximum exposure in fiscal year 2017 under the automobile plan was $1.2 million per individual event. 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 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.
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See Note 3, Summary of Significant Accounting Policies to our consolidated financial statements included under Item 8 of this
Annual Report on Form 10-K for further disclosure.
Income Taxes
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.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act, which is also commonly referred to as
“U.S. tax reform,” significantly changes United States corporate income tax laws by, among other things, reducing the US
corporate income tax rate from 35% to 21% starting in 2018.
See Note 14, Income Taxes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K
for further disclosure, including the effect of the Act on income taxes.
Contingent Liabilities
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 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 general and administration expenses,
depending on the nature of the underlying transaction leading to the loss contingency. Contingent liabilities accounted for under
purchase accounting are recorded at their fair values. These fair values may be different from the values we would have
otherwise recorded, had the contingent liability not been assumed as part of an acquisition of a business.
See Note 10, Commitments and Contingencies to our consolidated financial statements included under Item 8 of this Annual
Report on Form 10-K for further disclosure.
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-in general and administration expense over the employee’s requisite service period. For purposes of
calculating stock-based compensation expense, forfeitures are accounted for as they occur. Our equity awards granted generally
consist of stock options, including market-based performance stock options, restricted stock, restricted stock units and
performance stock units, including market-based performance stock units.
The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model, with the exception of
market-based performance stock option grants which are valued using a Monte Carlo option-pricing model. The fair value of
restricted stock, restricted stock unit and performance stock unit grants is at a price equal to the fair market value of our Class A
common stock at the date of grant. The fair value of market-based performance stock unit grants is valued using a Monte Carlo
pricing model.
See Note 11, Stockholders Deficit to our consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K for further disclosure.
Defined Benefit Pension Plan
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We currently make contributions to one qualified multiemployer defined benefit pension plan, the New England Teamsters and
Trucking Industry Pension Fund ("Pension Plan"). The Pension Plan provides retirement benefits to participants based on their
service to contributing employers. We do not administer this plan. The Pension Plan’s benefit formula is based on credited
years of service and hours worked as defined in the Pension Plan document. However, the benefits accruals of all current plan
participants are frozen. Our pension contributions are made in accordance with funding standards established by the Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code, as amended by the Pension Protection Act of 2006.
The Pension Plan’s assets have been invested as determined by the Pension Plan's fiduciaries in accordance with the Pension
Plan's investment policy. The Pension Plan’s asset allocation is based on the Pension Plan's investment policy and is reviewed
as deemed necessary.
See Note 13, Employee Benefit Plans to our consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K for further disclosure.
New Accounting Standards
For a description of the new accounting standards that may affect us, see Note 2, Accounting Changes to our consolidated
financial statements included in Item 8 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business we are exposed to market risks, including changes in interest rates and certain commodity
prices. We have a variety of strategies to mitigate these market risks, including at times using derivative instruments to hedge
some portion of these risks.
Interest Rate Volatility
Our strategy to hedge against fluctuations in variable interest rates involves entering into interest rate derivative agreements to
hedge against adverse movements in interest rates. In the quarter ended March 31, 2017, we entered into three interest rate
derivative agreements to hedge interest rate risk associated with the variable rate portion of our long-term debt. The total
notional amount of these agreements is $60.0 million and requires us to receive interest based on changes in the 1-month
LIBOR index with a 1.0% floor and pay interest at a weighted average rate of approximately 1.95%. Two of the agreements,
with a total notional amount of $35.0 million, mature in February 2021, and the final agreement, with a total notional amount of
$25.0 million, matures in February 2022.
We designated the three interest rate derivative agreements as effective cash flow hedges upon inception, and therefore the
change in fair value is recorded in our stockholders’ deficit as a component of accumulated other comprehensive income (loss)
and included in interest expense at the same time as interest expense is affected by the hedged transactions. Differences paid or
received over the life of the agreements are recorded as additions to or reductions of interest expense on the underlying debt.
We had interest rate risk relating to approximately $322.5 million of long-term debt at December 31, 2017. The weighted
average interest rate on the variable rate portion of long-term debt was approximately 4.1% at December 31, 2017. Should the
average interest rate on the variable rate portion of long-term debt change by 100 basis points, we estimate that our annual
interest expense would change by up to approximately $3.2 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 and old
newsprint, plastics, glass, ferrous and aluminum metals. We may use a number of strategies to mitigate impacts from
commodity price fluctuations including: (1) charging collection customers a floating sustainability recycling adjustment fee to
offtake recycling commodity risks; (2) in-bound material recovery facilities ("MRF") customers receiving a revenue share or
indexed materials purchases in higher commodity price markets, or charging these same customers a processing cost or tipping
fee per ton in lower commodity price markets; (3) selling recycling commodities to out-bound MRF customers through floor
price or fixed price agreements; or (4) entering into fixed price contracts or hedges that mitigate the variability in cash flows
generated from the sales of recycled paper at floating prices. We do not use financial instruments for trading purposes and are
not a party to any leveraged derivatives. As of December 31, 2017, we were not party to any commodity hedging agreements.
Should commodity prices change by 10%, we estimate that our annual operating income margin would change by approximately
$0.8 million. 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 operating income impact may not be indicative of
future operating results and actual results may vary materially.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors of and Stockholders of Casella Waste Systems, Inc.
Opinions on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Casella Waste Systems, Inc. and subsidiaries (the
"Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive loss,
stockholders' deficit and cash flows for each of the three years in the period ended December 31, 2017, and the related notes
and schedules (collectively, the "financial statements"). We also have audited the Company’s internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion
on the Company's financial statements and an opinion on the company's internal control over financial reporting based on our
audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board ("United States")
("PCAOB") and are required to be independent with respect to the Company in accordance with U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the
financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures
included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. 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 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.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
We have served as the Company's auditor since 2010.
Boston, Massachusetts
March 2, 2018
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See Note 3, Summary of Significant Accounting Policies to our consolidated financial statements included under Item 8 of this
Annual Report on Form 10-K for further disclosure.
Income Taxes
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.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act, which is also commonly referred to as
“U.S. tax reform,” significantly changes United States corporate income tax laws by, among other things, reducing the US
corporate income tax rate from 35% to 21% starting in 2018.
See Note 14, Income Taxes to our consolidated financial statements included under Item 8 of this Annual Report on Form 10-K
for further disclosure, including the effect of the Act on income taxes.
Contingent Liabilities
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 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 general and administration expenses,
depending on the nature of the underlying transaction leading to the loss contingency. Contingent liabilities accounted for under
purchase accounting are recorded at their fair values. These fair values may be different from the values we would have
otherwise recorded, had the contingent liability not been assumed as part of an acquisition of a business.
See Note 10, Commitments and Contingencies to our consolidated financial statements included under Item 8 of this Annual
Report on Form 10-K for further disclosure.
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-in general and administration expense over the employee’s requisite service period. For purposes of
calculating stock-based compensation expense, forfeitures are accounted for as they occur. Our equity awards granted generally
consist of stock options, including market-based performance stock options, restricted stock, restricted stock units and
performance stock units, including market-based performance stock units.
The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model, with the exception of
market-based performance stock option grants which are valued using a Monte Carlo option-pricing model. The fair value of
restricted stock, restricted stock unit and performance stock unit grants is at a price equal to the fair market value of our Class A
common stock at the date of grant. The fair value of market-based performance stock unit grants is valued using a Monte Carlo
pricing model.
See Note 11, Stockholders Deficit to our consolidated financial statements included under Item 8 of this Annual Report on
Form 10-K for further disclosure.
Defined Benefit Pension Plan
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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except for share and per share data)
December 31,
2017
December 31,
2016
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt and capital leases
$
4,926
$
Accounts payable
Accrued payroll and related expenses
Accrued interest
Current accrued capping, closure and post-closure costs
Other accrued liabilities
Total current liabilities
Long-term debt and capital leases, less current portion
Accrued capping, closure and post-closure costs, less current portion
Deferred income taxes
Other long-term liabilities
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Casella Waste Systems, Inc. stockholders' deficit:
47,081
12,183
2,093
3,035
19,251
88,569
477,576
59,255
2,305
25,106
4,686
44,997
12,505
4,654
668
14,916
82,426
503,961
43,539
6,178
19,958
Class A commons stock, 0.01 par value per share; 100,000,000 shares
authorized; 41,298,000 and 40,572,000 shares issued and outstanding,
respectively
Class B common stock, $0.01 par value per share; 1,000,000 shares authorized;
988,000 shares issued and outstanding; 10 votes per share
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss), net of tax
Total Casella Waste Systems, Inc. stockholders' deficit
Noncontrolling interests
Total stockholders' deficit
Total liabilities and stockholders' deficit
413
10
356,638
(395,107)
184
(37,862)
—
(37,862)
614,949
$
406
10
348,434
(373,308)
(68)
(24,526)
(24)
(24,550)
631,512
$
The accompanying notes are an integral part of these consolidated financial statements.
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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
Revenues
Operating expenses:
Cost of operations
General and administration
Depreciation and amortization
Southbridge Landfill closure charge
Expense from divestiture, acquisition and financing costs
Environmental remediation charge
Contract settlement charge
Divestiture transactions
Operating (loss) income
Other expense (income):
Interest income
Interest expense
Loss on debt extinguishment
Loss on derivative instruments
Impairment of investments
Other income
Other expense, net
Loss before income taxes
(Benefit) provision for income taxes
Net loss
Fiscal Year Ended
December 31,
2017
2016
2015
$
599,309
$
565,030
$
546,500
405,188
79,243
62,102
65,183
176
—
—
—
611,892
(12,583)
(273)
25,160
517
—
—
(935)
24,469
(37,052)
(15,253)
(21,799)
—
(21,799) $
381,973
75,356
61,856
—
—
900
—
—
520,085
44,945
(290)
38,942
13,747
—
—
(1,090)
51,309
(6,364)
494
(6,858)
(9)
(6,849) $
382,615
72,892
62,704
—
—
—
1,940
(5,517)
514,634
31,866
(330)
40,420
999
227
2,099
(1,119)
42,296
(10,430)
1,351
(11,781)
1,188
(12,969)
Less: Net (loss) income attributable to noncontrolling interests
Net loss attributable to common stockholders
$
The accompanying notes are an integral part of these consolidated financial statements.
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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(in thousands, except for per share data)
Fiscal Year Ended
December 31,
2017
2016
2015
Net loss attributable to common stockholders:
Net loss attributable to common stockholders
$
(21,799) $
(6,849) $
(12,969)
Weighted average common shares outstanding:
Basic and diluted
Basic and diluted earnings per share:
Net loss per common share
41,846
41,233
40,642
$
(0.52) $
(0.17) $
(0.32)
The accompanying notes are an integral part of these consolidated financial statements.
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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE LOSS
(in thousands)
Net loss
Other comprehensive income (loss), net of taxes:
Hedging activity:
Interest rate swap settlements
Interest rate swap amounts reclassified into interest expense
Unrealized gain resulting from changes in fair value of derivative
instruments
Unrealized gain (loss) resulting from changes in fair value of marketable
securities
Other comprehensive income (loss), net of taxes
Comprehensive loss
Less: Net (loss) income attributable to noncontrolling interests
Comprehensive loss attributable to common stockholders
252
(21,547)
—
(21,547) $
$
Fiscal Year Ended
December 31,
2017
2016
2015
$
(21,799) $
(6,858) $
(11,781)
(410)
421
155
86
—
—
—
—
—
—
(75)
(75)
(6,933)
(9)
(6,924) $
(51)
(51)
(11,832)
1,188
(13,020)
The accompanying notes are an integral part of these consolidated financial statements.
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Balance, December 31, 2014
Net loss
Other comprehensive loss
Issuances of Class A common stock
Stock-based compensation
Distributions to noncontrolling interest holder
Other
Balance, December 31, 2015
Net loss
Other comprehensive loss
Issuances of Class A common stock
Stock-based compensation
Contributions from noncontrolling interest holder
Balance, December 31, 2016
Net loss
Other comprehensive income
Issuances of Class A common stock
Stock-based compensation
Other
Balance, December 31, 2017
Noncontrolling
Interests
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
STOCKHOLDERS' DEFICIT
Casella Waste Systems, Inc. Stockholders' Deficit
Class A
Common Stock
Class B
Common Stock
Total
(11,781)
(51)
486
3,079
(1,495)
185
Shares
$ (12,020) 39,587
—
—
477
—
—
—
$ (21,597) 40,064
—
(6,858)
—
(75)
508
528
—
3,393
59
—
$ (24,550) 40,572
—
(21,799)
—
252
726
1,779
—
6,432
24
—
$ (37,862) 41,298
$
Amount
396
$
—
—
5
—
—
—
401
—
—
5
—
—
406
—
—
7
—
—
413
$
$
Shares
988
—
—
—
—
—
—
988
—
—
—
—
—
988
—
—
—
—
—
988
$
Amount
10
$
—
—
—
—
—
—
10
—
—
—
—
—
10
—
—
—
—
—
10
$
$
Additional
Paid-In
Capital
$ 340,773
—
—
481
3,079
—
185
$ 344,518
—
—
523
3,393
—
$ 348,434
—
—
1,772
6,432
—
$ 356,638
$
Accumulated
Deficit
(353,490) $
(12,969)
—
—
—
—
—
$
$
$
(366,459) $
(6,849)
—
—
—
—
(373,308) $
(21,799)
—
—
—
—
(395,107) $
$
$
Accumulated
Other
Comprehensive
Income (Loss)
58
—
(51)
—
—
—
—
7
—
(75)
—
—
—
(68) $
—
252
—
—
—
184
$
The accompanying notes are an integral part of these consolidated financial statements.
72
233
1,188
—
—
—
(1,495)
—
(74)
(9)
—
—
—
59
(24)
—
—
—
—
24
—
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Table of Contents
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash Flows from Operating Activities:
Net loss
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Depletion of landfill operating lease obligations
Interest accretion on landfill and environmental remediation liabilities
Amortization of debt issuance costs and discounts on long-term debt
Stock-based compensation
Environmental remediation charge
Loss (gain) on sale of property and equipment
Southbridge Landfill non-cash closure charge
Divestiture transactions
Loss on debt extinguishment
Loss on derivative instruments
Impairment of investments
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
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
Acquisition related additions to property, plant and equipment
Additions to property, plant and equipment
Payments on landfill operating lease contracts
Proceeds from divestiture transactions
Proceeds from sale of property and equipment
Proceeds from property insurance settlement
Net cash used in investing activities
Cash Flows from Financing Activities:
Proceeds from long-term borrowings
Principal payments on long-term debt
Change in restricted cash
Payments of debt issuance costs
Payments of debt extinguishment costs
Proceeds from the exercise of share based awards
Excess tax benefit on the vesting of share based awards
Distribution to noncontrolling interest holders
Net cash used in financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Fiscal Year Ended
December 31,
2017
2016
2015
$
(21,799) $
(6,858) $
(11,781)
62,102
9,646
4,482
2,692
6,432
—
49
63,526
—
517
—
—
—
(15,525)
(4,664)
2,084
(1,404)
(600)
107,538
(5,056)
(469)
(64,393)
(7,240)
—
711
—
(76,447)
185,500
(216,966)
—
(1,452)
—
1,278
—
—
(31,640)
(549)
2,544
1,995
$
61,856
9,295
3,606
3,881
3,393
900
(574)
—
—
13,747
—
—
—
583
(1,029)
76
(2,256)
(6,186)
80,434
(2,839)
(38)
(54,200)
(7,249)
—
1,362
—
(62,964)
604,850
(608,198)
1,347
(8,146)
(7,219)
128
—
—
(17,238)
232
2,312
2,544
$
62,704
9,428
3,449
3,977
3,079
—
(131)
—
(5,517)
999
227
2,099
(185)
795
(4,419)
(3,597)
5,240
4,140
70,507
—
—
(49,995)
(5,385)
5,335
715
546
(48,784)
355,229
(370,996)
4,471
(9,025)
(146)
161
185
(1,495)
(21,616)
107
2,205
2,312
$
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
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:
Non-current assets acquired through long-term obligations
Fiscal Year Ended
December 31,
2017
2016
2015
$
$
$
25,029
146
3,564
$
$
$
42,712
274
2,299
$
$
$
35,232
282
3,264
The accompanying notes are an integral part of these consolidated financial statements.
74
74
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except for per share data)
1.
BASIS OF PRESENTATION
Casella Waste Systems, Inc. (“Parent”), its consolidated subsidiaries and any partially owned entities over which it has a
controlling financial interest (collectively, “we”, “us” or “our”), is a regional, vertically integrated solid waste services
company that provides collection, transfer, disposal, landfill, landfill gas-to-energy, recycling and organics services in the
northeastern United States. We market recyclable metals, aluminum, plastics, paper and corrugated cardboard, which have been
processed at our recycling facilities, as well as recyclables purchased from third-parties. We manage our solid waste operations
on a geographic basis through two regional operating segments, our Eastern and Western regions, each of which provides a full
range of solid waste services, and our larger-scale recycling and commodity brokerage operations through our Recycling
segment. Organics services, ancillary operations, major account and industrial services, discontinued operations and earnings
from equity method investees, as applicable, are included in our Other segment.
The accompanying consolidated financial statements, which include the accounts of the Parent, our wholly-owned subsidiaries
and any partially owned entities over which we have a controlling financial interest, have been prepared in accordance with
generally accepted accounting principles in the United States (“GAAP”) pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”). 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 the cost method of accounting, as appropriate.
2.
Accounting Changes
A table providing a brief description of recent Accounting Standards Updates (“ASU”) to the Accounting Standards
Codification (“ASC”) issued by the Financial Accounting Standards Board (“FASB”) deemed to have a potentially material
effect on our consolidated financial statements upon adoption follows:
Accounting standards that are pending adoption at December 31, 2017
Standard
Description
ASU 2017-12: Derivatives and
Hedging (Topic 815)
Requires that an entity align its risk
management activities and
financial reporting for hedging
relationships through changes to
both the designation and
measurement guidance for
qualifying hedging relationships
and the presentation of hedge
results. The amendments expand
and refine hedge accounting for
both financial and commodity risk
components and align the
recognition and presentation of the
effects of the hedging instrument
and the hedged item in the financial
statements.
Effect on the Financial Statements or Other
Significant Matters
The adoption of this guidance affects the
designation and measurement guidance for
qualifying hedging relationships and the
method of presenting hedge results, including
the addition of a tabular disclosure related to
the effect on the income statement of fair
value and cash flow hedges and no longer
measuring and reporting hedge
ineffectiveness. This guidance is effective
January 1, 2019 with early adoption
permitted.
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Table of Contents
ASU 2016-01: Financial
Instruments - Overall (Topic
825-10)
ASU 2014-09, as amended through
November 2017: Revenue from
Contracts with Customers (Topic
606)
Requires the following: (1) equity
investments (except those
accounted for under the equity
method of accounting, or those that
result in consolidation of the
investee) to be measured at fair
value with changes in fair value
recognized in net income; (2)
entities to use the exit price notion
when measuring the fair value of
financial instruments for disclosure
purposes; (3) separate presentation
of financial assets and financial
liabilities by measurement category
and form of financial asset; and (4)
the elimination of the disclosure
requirement to disclose the method
(s) and significant assumptions
used to estimate the fair value that
is required to be disclosed for
financial instruments measured at
amortized cost.
The core principle of the guidance
is that using a five step
methodology an entity should
recognize revenue to depict the
transfer of promised goods or
services to customers in an amount
that reflects the consideration to
which the entity expects to be
entitled in exchange for those
goods or services. The standard
also requires enhanced qualitative
and quantitative disclosure
regarding revenue recognition from
customer contracts.
The adoption of this guidance results in a
cumulative-effect adjustment to the balance
sheet, the recognition of changes in fair value
of certain equity investments in net income,
and enhanced disclosure. This guidance is
effective January 1, 2018 with a cumulative-
effect adjustment, and will not have a material
impact on our consolidated financial
statements.
The adoption of this guidance requires using
either a full retrospective approach for all
periods presented or a modified retrospective
approach with a cumulative effect adjustment
to Retained Earnings as of the date of
adoption. We adopted the guidance using the
modified retrospective approach effective
January 1, 2018 with no adjustment to
Retained Earnings. We will record revenue
when control is transferred to our customer,
generally at the time that we provide services.
We adopted the standard through the
application of the portfolio approach.
We selected a sample of customer contracts to
assess under the guidance of the new standard
that were characteristically representative of
each portfolio. Upon completion of our
review, we concluded that we will not have a
significant change to the timing of revenue
recognition. We have identified certain
consideration payable to customers that will
be recorded as a reduction of revenues in
accordance with Topic 606. These costs are
currently recorded as a component of cost of
operations. Additionally, we identified certain
immaterial sales commissions, which
represent costs of obtaining a contract, that
should be capitalized as contract acquisition
costs under the guidance and amortized to
general and administration expense over the
expected life of the customer contract. Based
on the immateriality of these sales
commissions, no adjustment to Retained
Earnings or the accounting of these costs was
deemed necessary. In assessing the impact of
adopting the guidance on disclosures, we
anticipate to have additional disclosures
regarding the disaggregation of revenues by
business segment, the presentation and roll
forward of various contract asset and liability
balances, changes to our accounting policy, as
well as other significant judgments and
disclosures regarding performance obligations
and the implementation of the amended
guidance.
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Table of Contents
ASU 2016-01: Financial
Instruments - Overall (Topic
825-10)
ASU 2014-09, as amended through
November 2017: Revenue from
Contracts with Customers (Topic
606)
Requires the following: (1) equity
investments (except those
accounted for under the equity
method of accounting, or those that
result in consolidation of the
investee) to be measured at fair
value with changes in fair value
recognized in net income; (2)
entities to use the exit price notion
when measuring the fair value of
financial instruments for disclosure
purposes; (3) separate presentation
of financial assets and financial
liabilities by measurement category
and form of financial asset; and (4)
the elimination of the disclosure
requirement to disclose the method
(s) and significant assumptions
used to estimate the fair value that
is required to be disclosed for
financial instruments measured at
amortized cost.
The core principle of the guidance
is that using a five step
methodology an entity should
recognize revenue to depict the
transfer of promised goods or
services to customers in an amount
that reflects the consideration to
which the entity expects to be
entitled in exchange for those
goods or services. The standard
also requires enhanced qualitative
and quantitative disclosure
regarding revenue recognition from
customer contracts.
The adoption of this guidance results in a
cumulative-effect adjustment to the balance
sheet, the recognition of changes in fair value
of certain equity investments in net income,
and enhanced disclosure. This guidance is
effective January 1, 2018 with a cumulative-
effect adjustment, and will not have a material
impact on our consolidated financial
statements.
The adoption of this guidance requires using
either a full retrospective approach for all
periods presented or a modified retrospective
approach with a cumulative effect adjustment
to Retained Earnings as of the date of
adoption. We adopted the guidance using the
modified retrospective approach effective
January 1, 2018 with no adjustment to
Retained Earnings. We will record revenue
when control is transferred to our customer,
generally at the time that we provide services.
We adopted the standard through the
application of the portfolio approach.
We selected a sample of customer contracts to
assess under the guidance of the new standard
that were characteristically representative of
each portfolio. Upon completion of our
review, we concluded that we will not have a
significant change to the timing of revenue
recognition. We have identified certain
consideration payable to customers that will
be recorded as a reduction of revenues in
accordance with Topic 606. These costs are
currently recorded as a component of cost of
operations. Additionally, we identified certain
immaterial sales commissions, which
represent costs of obtaining a contract, that
should be capitalized as contract acquisition
costs under the guidance and amortized to
general and administration expense over the
expected life of the customer contract. Based
on the immateriality of these sales
commissions, no adjustment to Retained
Earnings or the accounting of these costs was
deemed necessary. In assessing the impact of
adopting the guidance on disclosures, we
anticipate to have additional disclosures
regarding the disaggregation of revenues by
business segment, the presentation and roll
forward of various contract asset and liability
balances, changes to our accounting policy, as
well as other significant judgments and
disclosures regarding performance obligations
and the implementation of the amended
guidance.
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Table of Contents
3.
Summary of Significant Accounting Policies
Management’s Estimates and Assumptions
Preparation of our consolidated financial statements in accordance with GAAP requires management to make certain estimates
and assumptions. These estimates and assumptions affect the accounting for and recognition and disclosure of assets, liabilities,
equity, revenues and expenses. We must make these estimates and assumptions because certain information that we use is
dependent on future events, cannot be calculated with a high degree of precision given the available data or simply cannot be
readily calculated. In some cases, these estimates are difficult to determine, and we must exercise significant judgment. In
preparing our consolidated financial statements, the estimates and assumptions that we consider to be significant and that
present the greatest amount of uncertainty relate to our accounting for landfills, environmental remediation liabilities, asset
impairments, accounts receivable valuation allowance, self-insurance reserves, deferred taxes and uncertain tax positions,
estimates of the fair values of assets acquired and liabilities assumed in any acquisition, contingent liabilities and stock-based
compensation. Each of these items is discussed in more detail elsewhere in these notes to consolidated financial statements, as
applicable. Actual results may differ materially from the estimates and assumptions that we use in the preparation of our
consolidated financial statements.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents, restricted
cash, accounts receivable-trade and derivative instruments. We maintain cash and cash equivalents and restricted cash 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. Our concentration of credit risk with respect to accounts receivable-trade is limited because
of the large number and diversity of customers we serve, thus reducing the credit risk associated with any one customer group.
As of December 31, 2017, no single customer or customer group represented greater than 5% of total accounts receivable -
trade. We manage credit risk through credit evaluations, credit limits, and monitoring procedures, but generally do not require
collateral to support accounts receivable - trade. We reduce our exposure to credit risk associated with derivative instruments by
entering into agreements with high quality financial institutions and by evaluating and regularly monitoring their
creditworthiness.
Accounts Receivable – Trade, Net of Allowance for Doubtful Accounts
Accounts receivable – trade represent receivables from customers for collection, transfer, recycling, disposal and other services.
Our accounts receivable – trade are recorded when billed or when related revenue is earned, if earlier, and represent claims
against third-parties that will be settled in cash. The carrying value of our accounts receivable – trade, net of allowance for
doubtful accounts, represents its estimated net realizable value. Estimates are used in determining our allowance for doubtful
accounts based on our historical collection experience, current trends, credit policy and a review of our accounts receivable –
trade by aging category. Our reserve is evaluated and revised on a monthly basis. Past due accounts receivable - trade are
written off when deemed to be uncollectible.
Inventory
Inventory includes secondary fibers, recyclables ready for sale, and parts and supplies. Inventory is stated at the lower of cost
(first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment is 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:
Asset Classification
Buildings and improvements
Machinery and equipment
Rolling stock
Containers
Furniture and Fixtures
The cost of maintenance and repairs is charged to operations as incurred.
Estimated
Useful Life
10-30 years
5-10 years
5-10 years
5-12 years
3-8 years
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Landfill development costs are included in property, plant and equipment. Landfill development costs include costs to develop
each of our landfill sites, including such costs related to 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. Additionally,
landfill development costs include all land purchases within the landfill footprint and the purchase of any required landfill
buffer property. Under life-cycle accounting, these costs are capitalized and charged to expense based on tonnage placed into
each site.
See the “Landfill Accounting” accounting policy below for disclosure over the amortization of landfill development costs and
Note 6, Property, Plant and Equipment for disclosure over property, plant and equipment.
Landfill Accounting
Life Cycle Accounting
Under life-cycle accounting, all costs related to acquisition and construction of landfill sites are capitalized and charged to
expense 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 each of our landfills,
preparation costs include the total estimated costs to complete construction of the landfills’ permitted and expansion capacity.
Landfill Development Costs
We estimate the total cost to develop each of our landfill sites to its remaining permitted and expansion capacity (see landfill
development costs discussed within the “Property, Plant and Equipment” accounting policy above). 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 including capitalized interest.
The interest capitalization rate is based on our weighted average interest rate incurred on borrowings outstanding during the
period. Interest capitalized during the fiscal years ended December 31, 2017 ("fiscal year 2017"), December 31, 2016 ("fiscal
year 2016") and December 31, 2015 ("fiscal year 2015") was $295, $273 and $62, respectively.
Landfill Airspace
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 included in our estimate of remaining permitted and expansion airspace, the expansion effort
must meet all of the criteria listed above. These criteria are evaluated annually by our engineers, accountants, lawyers,
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 (“AUF”) is established to calculate the remaining permitted
and expansion capacity in tons. The AUF is established using a process that considers the measured density obtained from
annual surveys. When we include the expansion airspace in our calculation of remaining permitted and expansion airspace, we
include the projected costs for development, as well as the projected asset retirement costs related to final capping, closure and
post-closure of the expansion airspace in the amortization basis of the landfill.
After determining the costs and the 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 each of our landfills by dividing the costs by the
corresponding number of tons. We calculate per ton amortization rates for assets associated with each final capping event, for
assets related to closure and post-closure activities and for all other costs capitalized or to be capitalized in the future for each
landfill. These rates per ton are updated annually, or more frequently, as significant facts change.
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It is possible that actual results, including the amount of costs incurred, the timing of final 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 final capping, closure or
post-closure rates, or higher expenses. 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.
Final Capping, Closure and Post-Closure Costs
The following is a description of our landfill asset retirement activities and related accounting:
Final Capping Costs. Final capping activities include the 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. Final capping activities occur
throughout the life of the landfill. Our engineering personnel estimate the cost for each final capping event based on the acreage
to be capped, along with the final 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
final capping event and the costs for each event are amortized over that capacity as waste is received at the landfill.
Closure and Post-Closure Costs. 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, accountants, lawyers, managers and others, 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 of 1970, as amended, 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.
Our estimated future final capping, closure and post-closure costs, based on our interpretation of current requirements and
proposed regulatory changes, are intended to approximate fair value. Absent quoted market prices, our cost estimates are based
on historical experience, professional engineering judgment and quoted or actual prices paid for similar work. Our estimate of
costs to discharge final 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
(1.7% as of December 31, 2017). Final 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 as of December 31, 2017 is between approximately 9.2% and 9.9%, the range of the credit adjusted risk free rates
effective since the adoption of guidance associated with asset retirement obligations in the fiscal year ended April 30, 2004.
Accretion expense is necessary to increase the accrued final capping, closure and post-closure liabilities to the future
anticipated obligation. To accomplish this, we accrete our final 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 $4,401, $3,606 and $3,370 in fiscal years 2017, 2016 and 2015, 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 final capping, the liability is recognized and the costs are amortized based on the airspace
related to the specific final capping event.
See Note 8, Final Capping, Closure and Post-Closure Costs for disclosure over asset retirement obligations related to final
capping, closure and post-closure costs.
We operate in states which require a certain portion of landfill final capping, closure and post-closure obligations to be secured
by financial assurance, which may take the form of surety bonds, letters of credit and restricted cash and investments. Surety
bonds securing closure and post-closure obligations at December 31, 2017 and December 31, 2016 totaled $164,893 and
$161,095, respectively. Letters of credit securing closure and post-closure obligations as of December 31, 2017 and
December 31, 2016 totaled $0 and $0, respectively. See Note 5, Restricted Cash / Restricted Assets for disclosure over
restricted cash securing closure and post-closure obligations.
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Landfill Operating Lease Contracts
We are party to five landfill operation and management agreements. These agreements are long-term landfill operating
contracts with government bodies whereby we receive tipping revenue, pay normal operating expenses and assume future final
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 may require us to make future minimum rental
payments, including success/expansion fees, other direct costs and final capping, closure and post-closure costs. The value of
all future minimum rental 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 any
land lease is amortized to cost of operations on a straight-line basis over the estimated life of the operating agreement. See Note
6, Property, Plant and Equipment for disclosure over depletion of landfill operating lease contracts.
Leases
We lease property and equipment in the ordinary course of our business. Our most significant lease obligations are for property
and equipment specific to our industry. Our leases have varying terms. Some may include renewal or purchase options,
escalation clauses, restrictions, lease concessions, capital project funding, penalties or other obligations that we consider in
determining minimum rental payments. Leases are classified as either operating leases or capital leases, as appropriate.
Operating Leases. Many of our leases are operating leases. This classification generally can be attributed to either (i) relatively
low fixed minimum rental payments or (2) minimum lease terms that are much shorter than the assets’ economic useful lives.
We expect that, in the normal course of business, our operating leases will be replaced by other leases, or replaced with fixed
asset expenditures.
See Note 10, Commitments and Contingencies for disclosure over future minimum lease payments related to our operating
leases.
Capital Leases. We capitalize assets acquired under capital leases at the inception of each lease and amortize them to
depreciation expense over the lesser of the useful life of the asset or the lease term, as appropriate. The present value of the
related lease payments is recorded as a debt obligation.
See Note 9, Long-Term Debt and Capital Leases for disclosure over our future maturities of debt, which includes capital lease
payments.
Goodwill and Intangible Assets
Goodwill. Goodwill is the excess of our purchase cost over the fair value of the net assets of acquired businesses. We do not
amortize goodwill, but as discussed in the “Asset Impairments” accounting policy below, we assess our goodwill for
impairment at least annually.
See Note 7, Goodwill and Intangible Assets for disclosure over goodwill.
Intangible Assets. Intangible assets consist primarily of covenants not-to-compete and customer lists. Intangible assets are
recorded at fair value and are amortized based on the economic benefit provided or using the straight-line method over their
estimated useful lives. Covenants not-to-compete and customer lists are typically amortized over a term of no more than 10
years.
See Note 7, Goodwill and Intangible Assets for disclosure over intangible assets.
Investments in Unconsolidated Entities
Investments in unconsolidated entities over which we have significant influence over the investees’ operating and financing
activities are accounted for under the equity method of accounting. Investments in affiliates in which we do not have the ability
to exert significant influence over the investees’ operating and financing activities are accounted for under the cost method of
accounting. As of December 31, 2017 and December 31, 2016, we had no investments accounted for under the equity method
of accounting.
We monitor and assess the carrying value of our investments throughout the year for potential impairment and write them down
to their fair value when other-than-temporary declines exist. Fair value is generally based on (i) other third-party investors’
recent transactions in the securities; (ii) other information available regarding the current market for similar assets and/or (iii) a
market or income approach, as deemed appropriate.
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When we assess the carrying value of our investments for potential impairment, determining the fair value of our investments is
reliant upon the availability of market information and/or other information provided by third-parties to be able to develop an
estimate of fair value. Considerable judgment is required in interpreting market data to develop the estimates of fair value.
Accordingly, our estimates are not necessarily indicative of the amounts that we, or other holders of these investments, could
realize in a current market exchange. The use of different assumptions and/or estimation methodologies could have a
significant effect on the estimated fair values. The estimates of fair value could differ significantly from the amounts presented.
See “Asset Impairments” accounting policy below.
Fair Value of Financial Instruments
Our financial instruments may include cash and cash equivalents, accounts receivable-trade, restricted cash and investments
held in trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and
post-closure costs and restricted cash reserved to finance certain capital projects, interest rate derivatives, trade payables and
long-term debt. Accounting standards include disclosure requirements around fair values used for certain financial instruments
and establish a fair value hierarchy. The three-tier hierarchy prioritizes valuation inputs into three levels based on the extent to
which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three
levels: 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.
See Note 9, Long-Term Debt and Capital Leases and Note 12, Fair Value of Financial Instruments for fair value disclosure
over long-term debt and financial instruments, respectively. See the “Derivatives and Hedging” accounting policy below for the
fair value disclosure over interest rate derivatives.
Business Combinations
We acquire businesses in the waste industry, including non-hazardous waste collection, transfer station, recycling and disposal
operations, as part of our growth strategy. Businesses are included in the consolidated financial statements from the date of
acquisition.
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 current period. All acquisition related
transaction and restructuring costs are to be expensed as incurred.
See Note 4, Business Combinations for disclosure over business acquisitions.
Environmental Remediation Liabilities
We have recorded environmental remediation liabilities representing our estimate of the most likely outcome of the matters for
which we have determined that a liability is probable. These liabilities include potentially responsible party 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.
See Note 10, Commitments and Contingencies for disclosure over environmental remediation liabilities.
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Self-Insurance Liabilities and Related Costs
We are self-insured for vehicles and workers’ compensation with reinsurance coverage limiting our maximum exposure. Our
maximum exposure in fiscal year 2017 under the workers’ compensation plan was $1,000 per individual event. Our maximum
exposure in fiscal year 2017 under the automobile plan was $1,200 per individual event. 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 $14,480 and $13,707 as of December 31, 2017 and December 31, 2016, 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 Taxes
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.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was enacted. The Act, which is also commonly referred to as
“U.S. tax reform,” significantly changes United States corporate income tax laws by, among other things, reducing the US
corporate income tax rate from 35% to 21% starting in 2018.
See Note 14, Income Taxes for disclosure related to income taxes, including the effect of the Act on income taxes.
Derivatives and Hedging
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 and adverse movements in interest rates.
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. We evaluate the hedges and ensure that these instruments qualify for hedge accounting pursuant to derivative
and hedging guidance. Designated as effective cash flow hedges, the change in the fair value of these derivatives is recorded in
our stockholders’ deficit as a component of accumulated other comprehensive income (loss) until the hedged item is settled and
recognized as part of commodity revenue.
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 per short ton of the underlying commodity exceeds the contract price per short ton, we
pay the calculated difference to the counter-party.
The fair value of commodity hedges are obtained or derived from our counter-parties using valuation models that take into
consideration market price assumptions for commodities based on underlying active markets. We were not party to any
commodity hedge contracts as of December 31, 2017.
Our strategy to hedge against fluctuations in variable interest rates involves entering into interest rate derivative agreements to
hedge against adverse movements in interest rates. For interest rate derivatives deemed to be effective cash flow hedges, the
change in fair value is recorded in our stockholders’ deficit as a component of accumulated other comprehensive income (loss)
and included in interest expense at the same time as interest expense is affected by the hedged transaction. Differences paid or
received over the life of the agreements are recorded as additions to or reductions of interest expense on the underlying debt.
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For interest rate derivatives deemed to be ineffective cash flow hedges, the change in fair value is recorded through earnings
and included in loss (gain) on derivative instruments. We were party to one interest rate swap deemed to be an ineffective cash
flow hedge that matured on March 15, 2016 and were party to another interest rate swap deemed to be an ineffective cash flow
hedge that was settled in fiscal year 2015 for $830 in conjunction with the refinancing of our senior revolving credit and letter
of credit facility that was due March 18, 2016 (“Refinanced Revolving Credit Facility”).
See Note 12, Fair Value of Financial Instruments for fair value disclosure over derivative instruments.
In fiscal year 2017, we entered into three interest rate agreements to hedge interest rate risk associated with the variable rate
portion of our long-term debt. The total notional amount of these agreements is $60,000 and requires us to receive interest
based on changes in the 1-month LIBOR index with a 1.0% floor and pay interest at a weighted average rate of approximately
1.95%. Two of the agreements, with a total notional amount of $35,000, mature in February 2021, and the final agreement, with
a total notional amount of $25,000, matures in February 2022. We have designated these derivative instruments as effective
cash flow hedges.
In accordance with the derivatives and hedging guidance in FASB ASC 815 - Derivatives and Hedging, the effective portions
of the changes in fair values of interest rate swaps have been recorded in equity as a component of accumulated other
comprehensive income (loss), net of tax. As the critical terms of the interest rate swaps match the underlying debt being
hedged, no ineffectiveness is recognized on these swaps and, therefore, all unrealized changes in fair value are recorded in
accumulated other comprehensive income (loss), net of tax. Amounts are reclassified from accumulated other comprehensive
income (loss), net of tax into earnings in the same period or periods during which the hedged transaction affects earnings.
As of December 31, 2017, we have recorded a derivative asset with a fair value of $401 in other non-current assets and a
derivative liability with a fair value of $123 in other accrued liabilities associated with these cash flow hedges.
Contingent Liabilities
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 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 general and administration expenses,
depending on the nature of the underlying transaction leading to the loss contingency.
See Note 10, Commitments and Contingencies for disclosure over loss contingencies, as applicable. Contingent liabilities
accounted for under purchase accounting are recorded at their fair values. These fair values may be different from the values we
would have otherwise recorded, had the contingent liability not been assumed as part of an acquisition of a business.
See Note 4, Business Combinations for disclosure over a contingent liability assumed as part of the acquisition of a business.
Revenue Recognition
We recognize revenues for collection, transfer, recycling, disposal and other waste services 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 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.
Effective January 1, 2018, we adopted ASU 2014-09, as amended, Revenue from Contracts with Customers.
See Note 2, Accounting Changes for disclosure over the new guidance.
Asset Impairments
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, plant 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;
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•
•
•
•
•
•
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 primarily 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.
See Note 15, Other Items and Charges for disclosure related to long-lived asset impairments recognized during the reporting
periods.
Goodwill. We annually assess goodwill for impairment at the end of our fiscal year or more frequently if events or
circumstances indicate that impairment may exist.
We may assess whether a goodwill impairment exists using either a qualitative or a quantitative assessment. If we perform a
qualitative assessment, it involves determining whether events or circumstances exist that indicate it is more likely than not that
the fair value of a reporting unit is less than its carrying amount, including goodwill. If based on this qualitative assessment we
determine it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, we will not
perform a quantitative assessment. If the qualitative assessment indicates that it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, or if we elect not to perform a qualitative assessment, we perform a quantitative
assessment, or two-step impairment test, to determine whether goodwill impairment exists at the reporting unit.
In the first step (defined as “Step 1”) of testing for goodwill impairment, we estimate the fair value of each reporting unit,
which we have determined to be our geographic operating segments, our Recycling segment and our Customer Solutions
business, which is included in the Other segment, and compare the fair value with the carrying value of the net assets of each
reporting unit. If the fair value is less than its carrying value, then we would perform a second step (defined as “Step 2”) and
determine the fair value of the goodwill. In Step 2, 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.
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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.
If the fair value of goodwill is less than its carrying value for a reporting unit, an impairment charge would be recorded to
earnings. 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.
In addition to an annual goodwill impairment assessment, 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.
We elected to perform a quantitative analysis as part of our annual goodwill impairment test for fiscal year 2017. As of
December 31, 2017, the Step 1 testing for goodwill impairment performed for our Eastern, Western, Recycling and Customer
Solutions reporting units indicated that the fair value of each reporting unit exceeded its carrying amount, including goodwill.
Furthermore, the Step 1 test indicated that in each case the fair value of our Eastern, Western, Recycling and Customer
Solutions reporting units exceeded its carrying value by in excess of 83.6%. We incurred no impairment of goodwill as a result
of our annual goodwill impairment tests in each of fiscal years 2017, 2016 and 2015. However, there can be no assurance that
goodwill will not be impaired at any time in the future.
Cost Method Investments. As of December 31, 2017, we owned 5.6% of the outstanding common stock of Recycle Rewards,
Inc. (“Recycle Rewards”), a company that markets an incentive based recycling service. In fiscal year 2015, it was determined
based on the operating performance of Recycle Rewards that our cost method investment in Recycle Rewards was potentially
impaired. As a result, we performed a valuation analysis in fiscal year 2015, which used an income approach based on
discounted cash flows to determine an equity value for Recycle Rewards in order to properly value our cost method investment
in Recycle Rewards. Based on this analysis, it was determined that the fair value of our cost method investment in Recycle
Rewards was less than the carrying amount and, therefore, we recorded an other-than-temporary investment impairment charge
of $1,090 in fiscal year 2015. As of December 31, 2017, the carrying amount of our cost method investment in Recycle
Rewards was $1,069.
As of December 31, 2017, we owned 5.2% of the outstanding equity value of GreenerU, Inc. (“GreenerU”), a services
company focused on providing energy efficiency, sustainability and renewable energy solutions to colleges and universities. In
fiscal year 2015, it was determined based on the operating performance and recent indications of third-party interest in
GreenerU that our cost method investment in GreenerU was potentially impaired. A valuation analysis was performed by a
third-party valuation specialist using a market approach based on an option pricing methodology to determine an equity value
and fair market value per share for GreenerU. Based on this analysis, it was determined that the fair value of our cost method
investment in GreenerU was less than the carrying amount and, therefore, we recorded an other-than-temporary investment
impairment charge of $691 in fiscal year 2015. As of December 31, 2017, the carrying amount of our cost method investment
in GreenerU was $309.
As of December 31, 2017, we owned 17.0% and 16.2% of the outstanding common stock of AGreen Energy LLC (“AGreen”)
and BGreen Energy LLC (“BGreen”), respectively. In fiscal year 2015, AGreen and BGreen, both of which we account for as
cost method investments, entered into agreements that resulted in the contribution and sale of certain assets and liabilities of
AGreen and BGreen to a limited liability company in exchange for partial ownership interests in a parent of that limited
liability company. As a result of the transactions, we performed an analysis to determine whether an other-than-temporary
impairment in the carrying value of our cost method investments had occurred. Based on the analysis performed, which
measured the fair value of our cost method investments using an in-exchange valuation premise under the market approach that
utilized the estimated purchase consideration received, we recorded an other-than-temporary investment impairment charge of
$318 in fiscal year 2015. As of December 31, 2017, the carrying amount of our cost method investments in AGreen and
BGreen was $297.
Defined Benefit Pension Plan
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We make contributions to one qualified multiemployer defined benefit pension plan, the New England Teamsters and Trucking
Industry Pension Fund ("Pension Plan"). The Pension Plan provides retirement benefits to participants based on their service to
contributing employers. We do not administer this plan. The Pension Plan’s benefit formula is based on credited years of
service and hours worked as defined in the Pension Plan document. However, the benefits accruals of all current plan
participants are frozen. Our pension contributions are made in accordance with funding standards established by the Employee
Retirement Income Security Act of 1974 and the Internal Revenue Code, as amended by the Pension Protection Act of 2006.
The Pension Plan’s assets have been invested as determined by the Pension Plan's fiduciaries in accordance with the Pension
Plan's investment policy. The Pension Plan’s asset allocation is based on the Pension Plan's investment policy and is reviewed
as deemed necessary.
See Note 13, Employee Benefit Plans for disclosure over the multiemployer defined benefit pension plan.
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-in general and administration expense over the employee’s requisite service period. For purposes of
calculating stock-based compensation expense, forfeitures are accounted for as they occur. Our equity awards granted generally
consist of stock options, including market-based performance stock options, restricted stock, restricted stock units and
performance stock units, including market-based performance stock units.
The fair value of each stock option grant is estimated using a Black-Scholes option-pricing model, with the exception of
market-based performance stock option grants which are valued using a Monte Carlo option-pricing model. The fair value of
restricted stock, restricted stock unit and performance stock unit grants is at a price equal to the fair market value of our Class A
common stock at the date of grant. The fair value of market-based performance stock unit grants is valued using a Monte Carlo
pricing model.
See Note 11, Stockholders Equity for disclosure over stock-based compensation.
Earnings per Share
Basic earnings per share is computed by dividing the net income (loss) from continuing operations attributable to common
stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is
calculated based on the combined weighted average number of common shares and potentially dilutive shares. Dilutive shares
include the assumed exercise of employee stock options, including market-based performance stock options based on the
expected achievement of performance targets, unvested restricted stock awards, unvested restricted stock units and unvested
performance stock units, including market-based performance units based on the expected achievement of performance targets.
In computing diluted earnings per share, we utilize the treasury stock method.
See Note 17, Earnings Per Share for disclosure over the calculation of earnings per share.
Discontinued Operations
We analyze our operations that have been divested or classified as held-for-sale to determine if they qualify for discontinued
operations accounting. A component of an entity, a group of components of an entity, or a business is required to be reported in
discontinued operations once it meets the held for sale criteria, is disposed of by sale, or is disposed of other than by sale if the
disposal represents a strategic shift that has, or will have, a major effect on an entity’s operations and financial results.
Subsequent Events
Except as disclosed, no material subsequent events have occurred since December 31, 2017 through the date of this filing that
would require recognition or disclosure in our consolidated financial statements.
4.
BUSINESS COMBINATIONS
In January 2018, we acquired Complete Disposal Company, Inc. and its subsidiary United Material Management of Holyoke,
Inc. (collectively, "Complete") in our Eastern region for total consideration of $16,500, subject to a purchase price adjustment.
Complete provides residential and roll-off collection services, operates a construction and demolition processing facility, and
operates a solid waste transfer station with both truck and rail transfer capabilities.
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In fiscal year 2017, we acquired one solid waste collection business in our Eastern region and three solid waste collection
businesses in our Western region, and in fiscal year 2016 we acquired various transfer stations. The operating results of these
businesses are included in the accompanying audited consolidated statements of operations from each date of acquisition, and
the purchase price has been allocated to the net assets acquired based on fair values at each date of acquisition, with the residual
amounts recorded as goodwill. Acquired intangible assets other than goodwill that are subject to amortization include client
lists and non-compete covenants. These are amortized over a five to ten year period from the date of acquisition. All amounts
recorded to goodwill in fiscal years 2017 and 2016 are expected to be deductible for tax purposes. We did not acquire any
businesses during fiscal year 2015.
The purchase price paid for these acquisitions and the allocation of the purchase price is as follows:
Purchase Price:
Cash used in acquisitions, net of cash acquired
$
Notes payable
Other non-cash considerations
Contingent consideration and holdbacks
Total
Current assets
Land
Buildings
Equipment
Other liabilities, net
Intangible assets
Fair value of assets acquired and liabilities assumed
Excess purchase price to be allocated to goodwill
Fiscal Year Ended
December 31,
2017
2016
2015
$
4,823
2,400
101
736
8,060
93
—
—
2,994
(49)
2,334
5,372
$
2,439
—
—
400
2,839
40
353
1,360
269
(106)
—
1,916
$
2,688
$
923
$
—
—
—
—
—
—
—
—
—
—
—
—
—
The following unaudited pro forma combined information shows our operational results as though each of the acquisitions
completed had occurred as of January 1, 2015.
$
Revenue
$
Operating (loss) income
Net loss attributable to common stockholders
$
Basic and diluted net loss per common share attributable to common stockholders $
Basic and diluted weighted average shares outstanding
Fiscal Year Ended
December 31,
2017
$
602,754
(12,314) $
(21,647) $
(0.52) $
2016
$
572,628
45,257
$
(6,685) $
(0.16) $
41,846
41,233
2015
556,569
31,940
(12,947)
(0.32)
40,642
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 as of January 1, 2015 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.
5.
RESTRICTED ASSETS
Restricted assets consist of cash and investments held in trust on deposit with various banks as collateral for our obligations
relative to our landfill final capping, closure and post-closure costs.
A summary of restricted assets is as follows:
Non Current:
Restricted assets - landfill closure
December 31,
2017
2016
$
1,220
$
1,002
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6.
PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment is as follows:
Land
Landfills
Landfill operating lease contracts
Buildings and improvements
Machinery and equipment
Rolling stock
Containers
Less: accumulated depreciation and amortization
December 31,
2017
24,224
513,548
114,462
140,155
139,029
138,102
103,501
1,173,021
(811,474)
361,547
$
$
2016
24,517
570,464
133,239
143,036
132,748
133,840
97,744
1,235,588
(837,122)
398,466
$
$
Depreciation expense for fiscal years 2017, 2016 and 2015 was $32,131, $33,186 and $33,168, respectively. Landfill
amortization expense for fiscal years 2017, 2016 and 2015 was $27,910, $26,529 and $26,969, respectively. Depletion expense
on landfill operating lease contracts for fiscal years 2017, 2016 and 2015 was $9,646, $9,295 and $9,428, respectively, and was
recorded in cost of operations.
7.
GOODWILL AND INTANGIBLE ASSETS
A summary of the activity and balances related to goodwill by reporting segment is as follows:
Eastern
Western
Recycling
Other
Total
Eastern
Western
Recycling
Other
Total
A summary of intangible assets is as follows:
Balance, December 31, 2017
Intangible assets
Less accumulated amortization
Balance, December 31, 2016
Intangible assets
Less accumulated amortization
December 31, 2016
Acquisitions
December 31, 2017
$
$
$
$
17,429
88,426
12,315
1,729
119,899
December 31, 2015
17,429
87,503
12,315
1,729
118,976
$
$
$
$
1,763
943
—
—
2,706
$
$
19,192
89,369
12,315
1,729
122,605
Acquisitions
December 31, 2016
— $
923
—
—
923
$
17,429
88,426
12,315
1,729
119,899
Covenants
Not-to-Compete
Client Lists
Total
18,092
(16,851)
1,241
$
$
18,087
(11,179)
6,908
$
$
Covenants
Not-to-Compete
Client Lists
Total
17,594
(16,402)
1,192
$
$
16,071
(9,567)
6,504
$
$
36,179
(28,030)
8,149
33,665
(25,969)
7,696
$
$
$
$
Intangible amortization expense for fiscal years 2017, 2016 and 2015 was $2,061, $2,141 and $2,567, respectively.
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The intangible amortization expense estimated for the five fiscal years following fiscal year 2017 and thereafter is as follows:
Estimated Future Amortization Expense as of December 31, 2017
For the fiscal year ending December 31, 2018
For the fiscal year ending December 31, 2019
For the fiscal year ending December 31, 2020
For the fiscal year ending December 31, 2021
For the fiscal year ending December 31, 2022
Thereafter
$
$
$
$
$
$
2,021
1,637
1,432
1,128
821
1,110
8.
FINAL CAPPING, CLOSURE AND POST-CLOSURE COSTS
Accrued final capping, closure and post-closure costs include the current and non-current portion of costs associated with
obligations for final capping closure and post-closure of our landfills. We estimate our future final capping, closure and post-
closure costs in order to determine the final capping, closure and post-closure expense per ton of waste placed into each landfill
as further described in Note 3, Summary of Significant Accounting Policies. The anticipated time frame 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 final capping, closure and post-closure liabilities are as follows:
Beginning balance
Obligations incurred
Revisions in estimates (1)
Accretion expense
Obligations settled (2)
Ending balance
Fiscal Year Ended December 31,
2017
2016
$
$
44,207
3,022
11,498
4,401
(838)
62,290
$
$
41,041
2,441
(2,052)
3,606
(829)
44,207
(1) Relates to changes in estimates and assumptions concerning anticipated waste flow, cost and timing of future final
capping, closure and post-closure activities at certain landfills, including the Subtitle D landfill in Southbridge,
Massachusetts ("Southbridge Landfill"), as well as changes to expansion airspace. See Note 10, Commitments and
Contingencies and Note 15, Other Items and Charges for disclosure regarding Southbridge Landfill.
(2) Includes amounts paid and amounts that are being processed through accounts payable as a part of our disbursement
cycle.
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9.
LONG TERM DEBT AND CAPITAL LEASES
A summary of long-term debt and capital leases is as follows:
Senior Secured Credit Facility:
Revolving Credit Facility due October 2021; bearing interest at LIBOR plus 2.75%
Term Loan B Facility due October 2023; bearing interest at LIBOR plus 2.50%
Tax-Exempt Bonds:
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series
2014 due December 2044 - fixed rate interest period through 2019; bearing interest at 3.75%
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds Series
2014R-2 due December 2044 - fixed rate interest period through 2026; bearing interest at 3.125%
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 due January 2025
- fixed rate interest period through 2025; bearing interest at 5.25%
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015 due August 2035 -
fixed rate interest period through 2025; bearing interest at 5.125%
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series
2013 due April 2036 - fixed rate interest period through 2018; bearing interest at 4.75%
Business Finance Authority of the State of New Hampshire Solid Waste Disposal Revenue Bonds
Series 2013 due April 2029 - fixed rate interest period through 2019; bearing interest at 4.00%
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2 due January 2025
- fixed rate interest period through 2017; bore interest at 6.25%
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1; letter of credit
backed due January 2025 - bore interest at SIFMA Index
Other:
Capital leases maturing through September 2023; bearing interest at up to 7.70%
Notes payable maturing through June 2027; bearing interest at up to 7.00%
Principal amount of long-term debt and capital leases
Less—unamortized discount and debt issuance costs (1)
Long-term debt and capital leases less unamortized discount and debt issuance costs
Less—current maturities of long-term debt
(1) A summary of unamortized discount and debt issuance costs by debt instrument follows:
Revolving Credit Facility
Term Loan B Facility (including unamortized discount of $1,482 and $1,712)
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds
Series 2014
New York State Environmental Facilities Corporation Solid Waste Disposal Revenue Bonds
Series 2014R-2
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2015
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds
Series 2013
Business Finance Authority of the State of NH Solid Waste Disposal Revenue Bonds Series 2013
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-2
Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-1
December 31,
2017
2016
$
36,000
$
62,600
346,500
350,000
25,000
25,000
15,000
15,000
25,000
—
15,000
15,000
16,000
16,000
11,000
11,000
—
—
21,400
3,600
5,595
2,585
497,680
15,178
482,502
4,926
$ 477,576
5,534
449
525,583
16,936
508,647
4,686
$ 503,961
December 31,
2017
2016
$
$
3,938
7,392
4,965
7,718
1,034
1,221
511
603
691
573
436
—
—
571
—
760
605
563
502
31
$
15,178
$
16,936
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Credit Facility
In fiscal year 2016, we entered into a credit agreement ("Credit Agreement"), which provides for a $350,000 aggregate
principal amount term loan B facility ("Term Loan B Facility") and a $160,000 revolving line of credit facility ("Revolving
Credit Facility" and, together with the Term Loan B Facility, the "Credit Facility"). The net proceeds from this transaction were
used to repay in full our senior secured asset-based revolving credit and letter of credit facility ("ABL Facility") and to redeem
all of our remaining outstanding 7.75% Senior Subordinated Notes due 2019 ("2019 Notes") at a redemption price equal to
101.938% of the principal amount thereof plus accrued and unpaid interest thereon and to pay related transaction expenses. We
have the right to request, at our discretion, an increase in the amount of loans under the Credit Facility by an aggregate amount
of $100,000, subject to the terms and conditions set forth in the Credit Agreement.
The Term Loan B Facility has a 7-year term and initially bore interest at a rate of LIBOR plus 3.00% per annum (with a 1.00%
LIBOR floor), which would be reduced to a rate of LIBOR plus 2.75% upon us reaching a consolidated net leverage ratio of
3.75x or less. The Revolving Credit Facility has a 5-year term and initially bore interest at a rate of LIBOR plus 3.00% per
annum, which is adjusted from an applicable rate of LIBOR plus 2.50% to 3.25% depending on our consolidated net leverage
ratio. In fiscal year, 2017, we entered into the first amendment (“Repricing Amendment”) to the Credit Agreement. The
Repricing Amendment decreased the applicable interest margin for our Term Loan B Facility by 25 basis points for both
LIBOR borrowings and base rate borrowings. The applicable interest rate margin is determined based on our consolidated net
leverage ratio, with the interest rate initially set at 2.75% for LIBOR borrowings (with a 1.00% LIBOR floor) and 1.75% for
base rate borrowings. The applicable interest rate is reduced to 2.50% for LIBOR borrowings (with a 1.00% LIBOR floor), and
1.50% for base rate borrowings upon us reaching a consolidated net leverage ratio of 3.75x or less, which was the case at
December 31, 2017.
The Credit Facility is guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned
subsidiaries and secured by substantially all of our assets. As of December 31, 2017, further advances were available under the
Revolving Credit Facility in the amount of $101,457. The available amount is net of outstanding irrevocable letters of credit
totaling $22,543, at which date no amount had been drawn. The Credit Agreement requires us to maintain a minimum interest
coverage ratio and a maximum consolidated net leverage ratio, to be measured at the end of each fiscal quarter. As of
December 31, 2017, we were in compliance with the covenants contained in the Credit Agreement. In addition to these
financial covenants, the Credit Agreement also contains a number of important customary affirmative and negative covenants
which restrict, among other things, our ability to sell assets, incur additional debt, create liens, make investments, and pay
dividends. We do not believe that these restrictions impact our ability to meet future liquidity needs. An event of default under
any of our debt agreements could permit some of our lenders, including the lenders under the Credit Facility, to declare all
amounts borrowed from them to be immediately due and payable, together with accrued and unpaid interest, or, in the case of
the Credit Facility, terminate the commitment to make further credit extensions thereunder, which could, in turn, trigger cross-
defaults under other debt obligations. If we were unable to repay debt to our lenders, or were otherwise in default under any
provision governing our outstanding debt obligations, our secured lenders could proceed against us and against the collateral
securing that debt.
Tax-Exempt Financings
New York Bonds. In fiscal year 2016, we completed a financing transaction involving the issuance by the New York State
Environmental Facilities Corporation of $15,000 aggregate principal amount of Solid Waste Disposal Revenue Bonds Series
2014R-2 (“New York Bonds 2016”).
As of December 31, 2017, we had outstanding $40,000 aggregate principal amount of Solid Waste Disposal Revenue Bonds
Series 2014 ("New York Bonds 2014") and New York Bonds 2016 issued by the New York State Environmental Facilities
Corporation under the indenture dated December 1, 2014 (collectively, the “New York Bonds”). The New York Bonds 2014
accrue interest at 3.75% per annum through December 1, 2019, at which time they may be converted from a fixed rate to a
variable rate. The New York Bonds 2016 accrue interest at 3.125% per annum through May 31, 2026, at which time they may
be converted from a fixed rate to a variable rate. The New York Bonds, which are unsecured and guaranteed jointly and
severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, require interest payments on June 1 and
December 1 of each year and mature on December 1, 2044. We borrowed the proceeds of the New York Bonds to finance or
refinance certain capital projects in the state of New York and to pay certain costs of issuance of the New York Bonds.
Maine Bonds. In fiscal year 2017, we completed the remarketing of $3,600 aggregate principal amount of Finance Authority of
Maine Solid Waste Disposal Revenue Bonds Series 2005R-1 and $21,400 aggregate principal amount of Finance Authority of
Maine Solid Waste Disposal Revenue Bonds Serires 2005R-2 as one series of bonds known as $25,000 aggregate principal
amount of Finance Authority of Maine Solid Waste Disposal Revenue Bonds Series 2005R-3 (“FAME Bonds 2005R-3”).
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As of December 31, 2017, we had outstanding $25,000 aggregate principal amount of FAME Bonds 2005R-3. The FAME
Bonds 2005R-3, which are unsecured and guaranteed jointly and severally, fully and unconditionally by all of our significant
wholly-owned subsidiaries, accrue interest at 5.25% per annum, and interest is payable semiannually in arrears on February 1
and August 1 of each year until such bonds mature on January 1, 2025.
As of December 31, 2017, we had outstanding $15,000 aggregate principal amount of senior unsecured Finance Authority of
Maine Solid Waste Disposal Revenue Bonds Series 2015 ("FAME Bonds 2015"). The FAME Bonds 2015, which are unsecured
and guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-owned subsidiaries, accrue
interest at 5.125% per annum through August 1, 2025, at which time they may be converted from a fixed to a variable rate.
During the fixed interest rate period, the FAME Bonds 2015 are not be supported by a letter of credit. Interest is payable
semiannually in arrears on February 1 and August 1 of each year. An additional $15,000 aggregate principal amount of FAME
Bonds 2015 may be offered under the same indenture in the future. The FAME Bonds 2015 mature on August 1, 2035. We
borrowed the proceeds of the offering of the FAME Bonds 2015 to finance or refinance the costs of certain of our solid waste
landfill facilities and solid waste collection, organics and transfer, recycling and hauling facilities, and to pay certain costs of
the issuance of the FAME Bonds 2015.
Vermont Bonds. As of December 31, 2017, we had outstanding $16,000 aggregate principal amount of senior unsecured
Vermont Economic Development Authority Solid Waste Disposal Long-Term Revenue Bonds Series 2013 (“Vermont Bonds”).
The Vermont Bonds, which are guaranteed jointly and severally, fully and unconditionally by all of our significant wholly-
owned subsidiaries, accrue interest at 4.75% per annum through April 1, 2018, at which time they may be converted from a
fixed rate to a variable rate. During the fixed interest rate period, the Vermont Bonds are not be supported by a letter of credit.
Interest is payable semiannually in arrears on April 1 and October 1 of each year. The Vermont Bonds mature on April 1, 2036.
We borrowed the proceeds of the Vermont Bonds to finance or refinance certain qualifying property, plant and equipment assets
purchased in the state of Vermont.
New Hampshire Bonds. As of December 31, 2017, we had outstanding $11,000 aggregate principal amount of senior unsecured
Solid Waste Disposal Revenue Bonds Series 2013 issued by the Business Finance Authority of the State of New Hampshire
(“New Hampshire Bonds”). The New Hampshire Bonds, which are guaranteed jointly and severally, fully and unconditionally
by all of our significant wholly-owned subsidiaries, accrue interest at 4.00% per annum through October 1, 2019, at which time
they may be converted from a fixed rate to a variable rate. During the fixed interest rate period, the New Hampshire Bonds are
not be supported by a letter of credit. Interest is payable in arrears on April 1 and October 1 of each year. The New Hampshire
Bonds mature on April 1, 2029. We borrowed the proceeds of the New Hampshire Bonds to finance or refinance certain
qualifying property, plant and equipment assets purchased in the state of New Hampshire.
Loss on Debt Extinguishment
We recorded a loss on debt extinguishment in fiscal years 2017, 2016 and 2015 of $517, $13,747 and $999, respectively,
associated with the following:
•
•
•
•
•
the write-off of debt issuance costs in connection with the Repricing Amendment in fiscal year 2017;
the write-off of debt issuance costs in connection with the remarketing of the FAME Bonds 2005R-1 and the FAME
Bonds 2005R-2 into the FAME Bonds 2005R-3 in fiscal year 2017;
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our ABL Facility to the
Credit Facility in fiscal year 2016;
the repurchase price premium and write-off of debt issuance costs and unamortized original issue discount associated
with the early redemption, repurchase and retirement of our 2019 Notes in fiscal years 2016 and 2015; and
the write-off of debt issuance costs in connection with changes to the borrowing capacity from our Refinanced
Revolving Credit Facility to the ABL Facility in fiscal year 2015.
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Interest Expense
The components of interest expense are as follows:
Interest expense on long-term debt and capital leases
Amortization of debt issuance costs and discount on long-term debt
Letter of credit fees
Less: capitalized interest
Total interest expense
Fair Value of Debt
Fiscal Year Ended
December 31,
2017
2016
2015
$
$
22,060
2,692
703
(295)
25,160
$
$
34,741
3,881
593
(273)
38,942
$
$
35,868
3,977
637
(62)
40,420
As of December 31, 2017, the fair value of our fixed rate debt, including the FAME Bonds 2005R-3, FAME Bonds 2015,
Vermont Bonds, New York Bonds and New Hampshire Bonds was approximately $106,344 and the carrying value was
$107,000. The fair value of the FAME Bonds 2005R-3, FAME Bonds 2015, Vermont Bonds, New York Bonds and New
Hampshire Bonds is considered to be Level 2 within the fair value hierarchy as the fair value is determined using market
approach pricing provided by a third-party that utilizes pricing models and pricing systems, mathematical tools and judgment to
determine the evaluated price for the security based on the market information of each of the bonds or securities with similar
characteristics.
As of December 31, 2017, the fair value of our Term Loan B Facility was approximately $347,799 and the carrying value was
$346,500. The fair value of the Term Loan B Facility is considered to be Level 2 within the fair value hierarchy as its fair value
is based off of quoted market prices in a principal to principal market with limited public information. As of December 31,
2017, the fair value of our Revolving Credit Facility approximated its carrying value of $36,000 based on current borrowing
rates for similar types of borrowing arrangements, or Level 2 inputs.
Although we have determined the estimated fair value amounts of the Term Loan B Facility, FAME Bonds 2005R-3, FAME
Bonds 2015, Vermont Bonds, New York Bonds and New Hampshire Bonds using available market information and commonly
accepted valuation methodologies, a change in available market information, and/or the use of different assumptions and/or
estimation methodologies could have a material effect on the estimated fair values. These amounts have not been revalued, and
current estimates of fair value could differ significantly from the amounts presented.
Future Maturities of Debt
Aggregate principal maturities of long-term debt and capital leases are as follows:
Estimated Future Payments as of December 31, 2017
2018
2019
2020
2021
2022
Thereafter
10.
COMMITMENTS AND CONTINGENCIES
Lease Commitments
$
$
4,926
5,002
5,269
40,773
4,279
437,431
497,680
We lease operating facilities and equipment in the ordinary course of our business under various operating leases with monthly
payments varying up to approximately $20. Future minimum rental payments are recognized on a straight-line basis over the
minimum lease term. Total rent expense under operating leases charged to operations was $12,242, $11,437 and $9,392 fiscal
years 2017, 2016 and 2015, respectively.
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Future minimum rental payments under non-cancellable operating leases, which include landfill operating leases, are as
follows:
Estimated Future Minimum Lease Payments as of December 31, 2017
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
Legal Proceedings
$
$
18,465
14,365
10,511
7,905
5,705
33,760
90,711
In the ordinary 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 and 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 allegations of environmental damage or violations of the permits
and licenses pursuant to which we operate. In addition, we may be named defendants in 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 ordinary operation of a waste management business.
In accordance with FASB ASC 450, we accrue for legal proceedings, inclusive of legal costs, 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 FASB ASC 450. In instances where we determine
that a loss is probable and we can reasonably estimate a range of loss 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 FASB ASC
450.
Environmental Remediation 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 that existed 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. The following matters represent our material outstanding claims.
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Southbridge Recycling & Disposal Park, Inc.
In October 2015, our Southbridge Recycling and Disposal Park, Inc. (“SRD”) subsidiary reported to the Massachusetts
Department of Environmental Protection (“MADEP”) results of analysis of samples collected pursuant to our existing permit
from private drinking water wells located near the Town of Southbridge, Massachusetts (“Town”) Landfill (“Southbridge
Landfill”), which is operated by SRD. Those results indicated the presence of contaminants above the levels triggering notice
and response obligations under MADEP regulations. In response to those results, we are carrying out an Immediate Response
Action pursuant to Massachusetts General Law Chapter 21E (the "Charlton 21E Obligations") pursuant to state law. Further, we
have implemented a plan to analyze and better understand the groundwater near the Southbridge Landfill and we are
investigating with the objective of identifying the source or sources of the elevated levels of contamination measured in the
well samples. If it is determined that some or all of the contamination originated at the Southbridge Landfill, we will work with
the Town (the Southbridge Landfill owner and the former operator of an unlined portion of the Southbridge Landfill, which was
used prior to our operation of a double-lined portion of the Southbridge Landfill commencing in 2004) to evaluate and allocate
the liabilities related to the Charlton 21E Obligations. In July 2016, we sent correspondence to the Town pursuant to Chapter
21E of Massachusetts General Laws demanding that the Town reimburse us for the environmental response costs we had spent
and that the Town be responsible for all such costs in the future, as well as any other costs or liabilities resulting from the
release of contaminants from the unlined portion of the Southbridge Landfill. The Town responded in September 2016, denying
that the Southbridge Landfill is the source of such contamination, and claiming that if it is, that we may owe an indemnity to
the Town pursuant to the Operating Agreement between us and the Town dated May 29, 2007, as amended. We entered into a
Tolling Agreement with the Town to delay any further administrative or legal actions until our work with MADEP more
specifically defines the parties’ responsibilities for the Charlton 21E Obligations, if any. Please see below for further discussion
of our relationship with the Town regarding the Charlton 21E Obligations.
In February 2016, we and the Town received a Notice of Intent to Sue under the Resource Conservation and Recovery Act
("RCRA") from a law firm purporting to represent residents proximate to the Southbridge Landfill (“Residents”), indicating its
intent to file suit against us on behalf of the Residents alleging the groundwater contamination originated from the Southbridge
Landfill. In February 2017, we received an additional Notice of Intent to Sue from the National Environmental Law Center
under the Federal Clean Water Act ("CWA") and RCRA (collectively the “Acts”) on behalf of Environment America, Inc., d/b/a
Environment Massachusetts, and Toxics Action Center, Inc., which have referred to themselves as the Citizen Groups. The
Citizen Groups alleged that we had violated the Acts, and that they intended to seek appropriate relief in federal court for those
alleged violations. On or about June 9, 2017, a lawsuit was filed against us, SRD and the Town in the United States District
Court for the District of Massachusetts by the Citizen Groups and the Residents alleging violations of the Acts (the
“Litigation”), and demanding a variety of remedies under the Acts, including fines, remediation, mitigation and costs of
litigation, and remedies for violations of Massachusetts civil law related to personal and property damages, including
remediation, diminution of property values, compensation for lost use and enjoyment of properties, enjoinment of further
operation of the Southbridge Landfill, and costs of litigation, plus interest on any damage award, on behalf of the Residents. We
believe the Litigation to be factually inaccurate, and without legal merit, and we and SRD intend to vigorously defend the
Litigation. Nevertheless, we believe it is reasonably possible that a loss will occur as a result of the Litigation although an
estimate of loss cannot be reasonably provided at this time due to the infancy of this matter. We also continue to believe the
Town should be responsible for costs or liabilities associated with the Litigation relative to alleged contamination originating
from the unlined portion of the Southbridge Landfill, although there can be no assurance that we will not be required to incur
some or all of such costs and liabilities.
We entered into an Administrative Consent Order on April 26, 2017 (the “ACO”), with MADEP, the Town, and the Town of
Charlton ("Charlton"), committing us to equally share the costs with MADEP, of up to $10,000 ( $5,000 each) for the Town to
install a municipal waterline in the Town of Charlton ("Waterline"). Upon satisfactory completion of that Waterline, and other
matters covered by the ACO, we and the Town will be released by MADEP from any future responsibilities for the Charlton
21E Obligations. We also entered into an agreement with the Town on April 28, 2017 entitled the “21E Settlement and Water
System Construction Funding Agreement” (the “Waterline Agreement”), wherein we and the Town released each other from
claims arising from the Charlton 21E Obligations. Pursuant to the Waterline Agreement, the Town will issue a twenty (20) year
bond for our portion of the Waterline costs (up to $5,000). We have agreed to reimburse the Town for periodic payments under
such bond.
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We have recorded an environmental remediation liability associated with the future installation of the Waterline in other
accrued liabilities and other long-term liabilities. We inflate the estimated costs in current dollars to the expected time of
payment and discount the total cost to present value using a risk-free interest rate of 2.6%. Our expenditures could be
significantly higher if costs exceed estimates. The changes to the environmental remediation liability associated with the
Southbridge Landfill are as follows:
Beginning balance
Accretion expense
Obligations incurred
Obligations settled (1)
Ending balance
Fiscal Year Ended
December 31,
2017
2016
$
$
— $
82
6,379
(525)
5,936
$
—
—
—
—
—
(1)
Includes amounts that are being processed through accounts payable as a part of our disbursements cycle.
Charlton has also demanded that we relocate retention ponds incident to the operation of the Southbridge Landfill, and that we
pay damages to Charlton for the use of such retention ponds during the operation of the Southbridge Landfill. We disagree with
Charlton as to the legality of the location of those retention ponds in Charlton, and are vigorously contesting claims made by
Charlton. We cannot currently estimate the potential for loss associated with Charlton’s claim against us, and it is possible that
we could incur a material loss in the resolution of such claim.
In August 2016, we filed a complaint against Steadfast Insurance Company (“Steadfast”) in the Superior Court of Suffolk
County, Massachusetts (the "Court"), alleging among other things, that Steadfast breached its Pollution Liability Policy
(“Policy”) purchased by us in April 2015, by refusing to acknowledge coverage under the Policy, and refusing to cover any of
the costs and liabilities incurred by us as described above as well as costs and liabilities that we may incur in the future.
Steadfast filed an answer and counterclaim in September 2016, denying that it has any obligations to us under the Policy, and
seeking a declaratory judgment of Steadfast’s obligations under the Policy. We are in the discovery phase of this litigation.
Steadfast has filed a Motion to Dismiss (the "Motion") our litigation against it, and we filed our response on July 11, 2017. On
September 7, 2017, the Court denied the Motion.
On June 13, 2017, Town voters rejected a non-binding ballot initiative intended to provide guidance to Town officials with
respect to our pursuit of other landfill development opportunities at the Southbridge Landfill. Following such rejection by the
Town voters, our board of directors and senior management determined after due consideration of all facts and circumstances
that it is no longer likely that further development at the existing landfill site will generate an adequate risk adjusted return at
the Southbridge Landfill, and accordingly we expect to cease operations at the Southbridge Landfill when no further capacity is
available, expected by no later than December 31, 2018. We delivered correspondence to the Town to this effect on August 3,
2017, citing events of Change in Law and Force Majeure pursuant to our May 29, 2007 Extension Agreement with the Town
("Extension Agreement") and the impacts of such events on further expansion of the Southbridge Landfill. We have advised the
Town that we see no economically feasible way to operate the Southbridge Landfill beyond its current permitted life and we
have filed a closure plan with MADEP. Following cessation of operations, we will proceed to conduct proper closure and other
activities at the Southbridge Landfill in accordance with the Extension Agreement with the Town, and Federal, state and local
law. We reached this conclusion after carefully evaluating the estimated future costs associated with the permitting, engineering
and construction activities for the planned expansion of the Southbridge Landfill against the possible outcomes of the
permitting process and the anticipated future benefits of successful expansions. Under the Extension Agreement, which we
account for as an operating lease, there are potential contractual obligations and commitments, including future cash payments
of $3,069 and services that extend beyond the current useful life of the Southbridge Landfill. In accordance with FASB ASC
420 - Exit or Disposal Cost Obligations, a liability for costs to be incurred under a contract for its remaining term without
economic benefit shall be recognized when we cease using the right conveyed by the contract. We may incur a loss associated
with these potential contractual obligations upon cessation of operations at the Southbridge Landfill when remaining capacity is
exhausted by the placement of waste at the site.
See Note 15, Other Items and Charges for disclosure over the Southbridge Landfill closure charge.
The costs and liabilities we may be required to incur in connection with the foregoing Southbridge Landfill matters could be
material to our results of operations, our cash flows and our financial condition.
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Potsdam Environmental Remediation Liability
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”), our 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 in Potsdam, New York, including the preparation of a
Remedial Investigation and Feasibility Study (“Study”). A draft of the Study was submitted to the DEC in January 2009
(followed by a final report in May 2009). The Study estimated that the undiscounted costs associated with implementing the
preferred remedies would be approximately $10,219. On February 28, 2011, the DEC issued a Proposed Remedial Action Plan
for the site and accepted public comments on the proposed remedy through March 29, 2011. We submitted comments to the
DEC on this matter. In April 2011, the DEC issued the final Record of Decision (“ROD”) for the site. The ROD was
subsequently rescinded by the DEC for failure to respond to all submitted comments. The preliminary ROD, however,
estimated that the present 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 its earlier ROD. An Order on Consent and
Administrative Settlement naming WSI and NiMo as Respondents was executed by the Respondents and DEC with an
effective date of October 25, 2013. On January 29, 2016, a Cost-Sharing Agreement was executed between WSI, NiMo, Alcoa
Inc. (“Alcoa”) and Reynolds Metal Company (“Reynolds”) whereby Alcoa and Reynolds elected to voluntarily participate in
the onsite remediation activities at a combined 15% participant share. It is unlikely that any significant expenditures relating to
onsite remediation will be incurred until the fiscal year ending December 31, 2019. WSI is jointly and severally liable with
NiMo, Alcoa and Reynolds for the total cost to remediate.
We have recorded an environmental remediation liability associated with the Potsdam site based on incurred costs to date and
estimated costs to complete the remediation in other accrued liabilities and other long-term liabilities. Our expenditures could
be significantly higher if costs exceed estimates. We inflate the estimated costs in current dollars to the expected time of
payment and discount the total cost to present value using a risk-free interest rate of 1.5%.
A summary of the changes to the environmental remediation liability associated with the Potsdam environmental remediation
liability follows:
Beginning balance
Payments
Obligations incurred
Ending balance
Fiscal Year Ended
December 31,
2017
2016
$
$
5,866
(108)
—
5,758
$
$
5,221
(255)
900
5,866
The total expected environmental remediation payments, in today’s dollars, for each of the five succeeding fiscal years and the
aggregate amount thereafter are as follows:
Estimated Future Environmental Remediation Payments as of December 31, 2017
2018
2019
2020
2021
2022
Thereafter
Total
$
$
865
4,339
755
403
385
6,621
13,368
A reconciliation of the expected aggregate non-inflated, undiscounted environmental remediation liability to the amount
recognized in the statement of financial position is as follows:
Undiscounted liability
Less discount, net
Liability balance - December 31, 2017
$
$
13,368
(1,674)
11,694
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 would have a
material adverse impact on our business, financial condition, results of operations or cash flows.
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Employment Contracts
We have entered into employment contracts with five of our executive officers. The contracts are dated June 18,
2001, March 31, 2006, July 6, 2010, September 1, 2012 and March 1, 2016. Each contract had an initial term between one and
three years 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 $1,785. 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 executive officers.
11.
STOCKHOLDERS' EQUITY
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.
Preferred Stock
We are authorized to issue up to 944 shares of preferred stock in one or more series. As of December 31, 2017 and
December 31, 2016 we had no shares issued.
Stock Based Compensation
Stock Incentive Plans
1997 Stock Option Plan. In the fiscal year ended April 30, 1998, we adopted the 1997 Stock Option Plan (“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.
Outstanding shares which are not actually issued under the 1997 Plan because such stock options expire or otherwise result in
shares not being issued are reserved for issuance under the 2006 Plan.
2006 Stock Incentive Plan. In the fiscal year ended April 30, 2007, we adopted the 2006 Stock Incentive Plan (“2006 Plan”).
The 2006 Plan was amended in the fiscal year ended April 30, 2010. The 2006 Plan terminated as of October 9, 2016 and as a
result no additional awards may be made pursuant to the 2006 Plan. Outstanding shares which are not actually issued under the
2006 Plan because such awards expire or otherwise result in shares not being issued are reserved for issuance under the 2016
Plan.
2016 Incentive Plan. In fiscal year 2016, we adopted the 2016 Incentive Plan (“2016 Plan”). Under the 2016 Plan, we may
grant awards up to an aggregate amount of shares equal to the sum of: (i) 2,250 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 is equal to the sum of the number of shares of Class A common stock that remained available for grant under the 2006
Plan immediately prior to the expiration of the 2006 Plan and the number of shares of Class A common stock subject to awards
granted under the 2006 Plan that expire or otherwise result in shares not being issued.
As of December 31, 2017, there were 1,930 Class A common stock equivalents available for future grant under the 2016 Plan,
inclusive of additional Class A common stock equivalents that were previously issued under terminated plans and have become
available for grant because such awards expired or otherwise resulted in shares not being issued.
Our equity awards granted consist of stock options, including market-based performance stock options, restricted stock,
restricted stock units and performance stock units, including market-based performance stock units.
Stock options are granted at a price equal to the prevailing fair value of our Class A common stock at the date of grant.
Generally, stock options granted have a term not to exceed ten years and vest over a one year to four year period from the date
of grant.
The fair value of each stock option granted, with the exception of market-based performance stock option grants, is estimated
using a Black-Scholes option-pricing model, which requires extensive use of accounting judgment and financial estimation,
including estimates of the expected term stock option holders will retain their vested stock options before exercising them and
the estimated volatility of our Class A common stock price over the expected term. The fair value of each market-based
performance stock option granted is estimated using a Monte Carlo option-pricing model, which also requires extensive use of
accounting judgment and financial estimation, including estimates of the expected term stock option holders will retain their
vested stock options before exercising them and the estimated volatility of our Class A common stock price over the expected
term, but also including estimates of share price appreciation of our Class A common stock as compared to the Russell 2000
Index over the requisite service period.
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99
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Restricted stock, restricted stock units and performance stock units are granted at a price equal to the fair value of our Class A
common stock at the date of grant. The fair value of each market-based performance stock unit is estimated using a Monte
Carlo pricing model, which requires extensive use of accounting judgment and financial estimation, including the estimated
share price appreciation plus the value of dividends of our Class A common stock as compared to the Russell 2000 Index over
the requisite service period.
Restricted stock granted to non-employee directors vest incrementally over a three year period beginning on the first
anniversary of the date of grant. Restricted stock units granted to non-employee directors vest in full on the first anniversary of
the grant date. Restricted stock units vest incrementally over an identified service period beginning on the grant date based on
continued employment. Performance stock units and market-based performance stock units vest at a future date following the
grant date and are based on the attainment of performance targets and market achievements.
Stock Options
A summary of stock option activity is as follows:
Outstanding, December 31, 2016
Granted
Exercised
Forfeited or expired
Outstanding, December 31, 2017
Exercisable, December 31, 2017
Unvested, December 31, 2017
Weighted
Average
Exercise Price
Weighted
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic Value
6.13
—
6.20
13.17
5.82
4.81
9.16
6.3
5.7
8.3
$
$
$
12,495
9,590
3,326
Stock Options (1)
1,115
$
— $
(361) $
(27) $
$
727
$
527
$
240
(1) Market-based performance stock option grants are included at 100%. Attainment of maximum performance targets and
market achievements would result in the issuance of 40 shares of Class A common stock currently included in unvested.
During fiscal years 2017, 2016 and 2015, stock-based compensation expense for stock options was $644, $605 and $671,
respectively.
During fiscal years 2017, 2016 and 2015, the aggregate intrinsic value of stock options exercised was $4,664, $22 and $52,
respectively.
As of December 31, 2017, total unrecognized stock-based compensation expense related to all outstanding stock options,
assuming the attainment of maximum performance targets, was $474, which will be recognized over a weighted average period
of 0.7 years.
Our calculation of stock-based compensation expense associated with stock options granted, with the exception of market-
based performance stock option grants which are valued using a Monte Carlo option-pricing model, was made using the Black-
Scholes valuation model. The weighted average fair value of stock options granted, with the exception of market-based
performance stock option grants, during fiscal years 2017, 2016 and 2015 were $0.00, $0.00 and $5.35 per option, respectively,
which were calculated assuming no expected dividend yield using the following weighted average assumptions:
Expected life
Risk-free interest rate
Expected volatility
Fiscal Year Ended
December 31,
2017 (1)
0.0 years
—%
—%
2016 (1)
0.0 years
—%
—%
2015
7.2 years
2.02%
81.31%
(1) In fiscal years 2017 and 2016, we only granted market-based performance stock options, which are discussed separately
below.
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100
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The weighted average fair value of market-based performance stock options granted during fiscal year 2016 was $6.70 per
option, which was calculated using a Monte Carlo option-pricing model assuming an expected life of 7.4 years, a risk free
interest rate of 2.15%, and an expected volatility of 43.10% assuming no expected dividend yield.
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 weekly historical volatility of our Class A
common stock over the expected life, except in the case of market-based performance stock option where the daily historical
volatility of our Class A common stock over the expected life is used.
The Black-Scholes valuation model and the Monte Carlo option-pricing model each require extensive use of accounting
judgment and financial estimation. 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.
Other Stock Awards
A summary of restricted stock, restricted stock unit and performance stock unit activity is as follows:
Restricted Stock,
Restricted Stock Units,
and Performance Stock
Units (1)
Weighted
Average
Grant Price
Weighted Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
Outstanding, December 31, 2016
Granted
Class A common stock vested
Forfeited or canceled
Outstanding, December 31, 2017
Unvested, December 31, 2017
$
1,099
439
$
(420) $
(27) $
$
$
1,091
1,453
7.03
12.32
5.21
6.31
9.81
10.48
1.3
1.3
$
$
14,409
18,216
(1) Market-based performance stock unit grants are included at 100%. Attainment of maximum performance targets and
market achievements would result in the issuance of an additional 362 shares of Class A common stock currently
included in unvested.
During fiscal years 2017, 2016 and 2015, stock-based compensation expense related to restricted stock, restricted stock units
and performance stock units was $5,652, $2,673 and $2,314, respectively. Stock-based compensation expense related to
restricted stock and restricted stock units during fiscal year 2015 included $270 of incremental compensation expense resulting
from the modification of restricted stock associated with the retirement of two members of our Board of Directors.
During fiscal years 2017, 2016 and 2015, the total fair value of other stock awards vested was $5,706, $3,238 and $2,340,
respectively.
As of December 31, 2017, total unrecognized stock-based compensation expense related to restricted stock and restricted stock
units was $2,945, which will be recognized over a weighted average period of 1.1 years. Total unrecognized stock-based
compensation expense related to performance stock units, assuming the attainment of maximum performance targets, was
$5,268, which will be recognized over a weighted average period of 1.5 years.
During fiscal years 2017, 2016 and 2015, the weighted-average grant date fair value of restricted stock, restricted stock units
and performance stock units granted was $12.32, $8.97 and $4.40, respectively. The weighted average fair value of market-
based performance stock units granted during fiscal year 2017 was $12.51 per award, which was calculated using a Monte
Carlo pricing model assuming a risk free interest rate of 1.45% and an expected volatility of 32.80% assuming no expected
dividend yield. Risk-free interest rate is based on the U.S. Treasury yield curve for the expected service period of the award.
Expected volatility is calculated using the daily volatility of our Class A common stock over the expected service period of the
award.
The Monte Carlo pricing model requires extensive use of accounting judgment and financial estimation. 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.
We also recorded $136, $115 and $94 of stock-based compensation expense related to our Amended and Restated 1997
Employee Stock Purchase Plan during fiscal years 2017, 2016 and 2015, respectively.
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There was $117 of tax provision in the (benefit) provision for income taxes associated with stock-based compensation during
fiscal year 2017. There was $0 and $19 of tax benefit in the (benefit) provision for income taxes associated with stock-based
compensation expense in fiscal years 2016 and 2015, respectively. We recorded a tax benefit of $0, $0 and $185 to additional
paid-in-capital related to the exercise of various share based awards in fiscal years 2017, 2016 and 2015, respectively. Effective
fiscal year 2016, tax savings from stock-based compensation resulting from tax deductions in excess of expense are no longer
reflected as a financing cash flow in our consolidated financial statements.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) is a component of stockholders' deficit included in the accompanying
consolidated balance sheets and includes, as applicable, the effective portion of changes in the fair value of our cash flow
hedges and the changes in fair value of our marketable securities.
The changes in the balances of each component of accumulated other comprehensive income (loss) are as follows:
Balance as of December 31, 2014
Other comprehensive loss
Balance as of December 31, 2015
Other comprehensive loss
Balance as of December 31, 2016
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Other comprehensive income, net
Balance as of December 31, 2017
Marketable
Securities
Interest Rate
Swaps
Total
$
$
58
(51)
7
(75)
(68)
86
—
86
18
$
$
— $
—
—
—
—
(255)
421
166
166
$
58
(51)
7
(75)
(68)
(169)
421
252
184
A summary of reclassifications out of accumulated other comprehensive income (loss) for fiscal years 2017, 2016 and 2015 is
as follows:
Fiscal Year Ended
December 31,
2017
2016
2015
Details About Accumulated Other
Comprehensive Income (Loss) Components
Interest rate swaps
Amounts Reclassified Out of Accumulated Other
Comprehensive Income (Loss)
Affected Line Item in the Consolidated
Statements of Operations
$
$
$
421
421
—
421
$
— $
—
—
— $
— Interest expense
— Loss before income taxes
— (Benefit) provision for income taxes
— Net loss
12.
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.
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
that we believe market participants would use in pricing an asset or a liability.
Assets and Liabilities Accounted for at Fair Value on a Recurring Basis
102
102
Table of Contents
Our financial instruments include cash and cash equivalents, accounts receivable-trade, restricted cash and investments held in
trust on deposit with various banks as collateral for our obligations relative to our landfill final capping, closure and post-
closure costs, interest rate derivatives, trade payables and long-term debt. The carrying values of cash and cash equivalents,
accounts receivable - trade and trade payables approximate their respective fair values due to their short-term nature. The fair
value of restricted cash and investments held in trust, which are valued using quoted market prices, are included as restricted
assets in the Level 1 tier below. The fair value of the interest rate derivatives included in the Level 2 tier below is calculated
using discounted cash flow valuation methodologies based upon the one month LIBOR yield curves that are observable at
commonly quoted intervals for the full term of the swaps. We recognize all derivatives accounted for on the balance sheet at
fair value.
See Note 9, Long-Term Debt and Capital Leases for disclosure over the fair value of debt.
Recurring Fair Value Measurements
Summaries of our financial assets and liabilities that are measured at fair value on a recurring basis are as follows:
Fair Value Measurement at December 31, 2017 Using:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
1,220
—
1,220
$
$
— $
— $
401
401
123
$
$
—
—
—
—
Fair Value Measurement at December 31, 2016 Using:
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
1,002
$
— $
—
$
$
$
$
Assets:
Restricted assets - landfill closure
Interest rate swaps
Liabilities:
Interest rate swaps
Assets:
Restricted assets - landfill closure
13.
EMPLOYEE BENEFIT PLANS
Defined Contribution Plan
We offer our eligible employees the opportunity to contribute to a 401(k) plan (“401(k) Plan”). Under the provisions of the 401
(k) Plan participants may direct us to defer a portion of their compensation to the 401(k) Plan, subject to Internal Revenue Code
limitations. We provide an employer matching contribution equal to fifty cents for every dollar an employee invests in the 401
(k) Plan up to our maximum match of one thousand dollars per employee per calendar year, subject to revision. Participants
vest in employer contributions ratable over a three year period. Employer contributions for fiscal years 2017, 2016 and 2015
amounted to $1,187, $1,119 and $1,033, respectively.
Employee Stock Purchase Plan
We offer our eligible employees the opportunity to participate in an 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.
During fiscal years 2017, 2016 and 2015, 41, 70 and 80 shares, respectively, of Class A common stock were issued under this
plan. As of December 31, 2017, 143 shares of Class A common stock were available for distribution under this plan.
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Multiemployer Pension Plan
We make contributions to a multiemployer defined benefit pension plan, the New England Teamsters and Trucking Industry
Pension Fund, under the terms of a collective bargaining agreement that covers our union represented employees. The Pension
Plan provides retirement benefits to participants based on their service to contributing employers. We do not administer this
plan. The risks of participating in a multiemployer plan are different from a single-employer plan in that: (i) assets contributed
to the multiemployer plan by one employer may be used to provide benefits to employees or former employees of other
participating employers; (ii) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may
be required to be assumed by the remaining participating employers; and (iii) if we choose to stop participating in our
multiemployer plan, we may be required to pay the plan a withdrawal amount based on the underfunded status of the plan.
The following table outlines our participation in the multiemployer defined benefit pension plan:
EIN/Pension
Plan Number
Pension Protection Act Zone
Status
2017
2016
Funding
Improvement or
Rehabilitation
Plan Status
Fiscal Year Ended
December 31,
2017
2016
2015
Expiration Date
of CBA
Contributions to Plan
04-6372430
Critical and
declining
Critical
Implemented
$
627
$
523
$
413
June 30, 2020
Pension Fund
New England
Teamsters and
Trucking Industry
Pension Fund
The status is based on the latest plan information for the plan year ended September 30, 2017 that we received from the pension
plan and is certified by the pension plans’ actuary. Plans with a “critical and declining” status are funded at less than 65% and
have a projected funding deficiency in the current or next four plan years and has a projected insolvency date which is less than
the 20-year minimum statutory requirement. Our contributions to the multiemployer pension plan represent less than 5% of
total contributions to such plan for the plan year ended September 30, 2016 and a rehabilitation plan has been implemented
with no surcharge imposed. Under current law regarding multiemployer benefit plans, a plan’s termination, our voluntary
withdrawal, or the withdrawal of all contributing employers from any under-funded multiemployer pension plan would require
us to make payments to the plan for our proportionate share of the multiemployer plan’s unfunded vested liabilities. We could
have adjustments to estimates for these matters in the near term that could have a material effect on its consolidated financial
position, results of operations or cash flows. At the date these financial statements were issued, a Form 5500 was not available
for the plan year ended September 30, 2017.
14.
INCOME TAXES
A summary of the (benefit) provision for income taxes is as follows:
Federal
Current
Current benefit of loss carryforwards
Deferred
State
Current
Current benefit of loss carryforwards
Deferred
(Benefit) provision for income taxes
Fiscal Year Ended
December 31,
2017
2016
2015
$
$
— $
—
(15,614)
(15,614)
301
(28)
88
361
(15,253) $
— $
—
458
458
(90)
—
126
36
494
$
2,899
(2,899)
395
395
1,112
(557)
401
956
1,351
104
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On December 22, 2017, the Act was enacted. The Act, which is also commonly referred to as “U.S. tax reform,” significantly
changes United States corporate income tax laws by, among other things, reducing the US corporate income tax rate from 35%
to 21% starting in 2018. Under the Act, federal net operating loss carryforwards generated as of the end of 2017 continue to be
carried forward for 20 years and are generally available to fully offset taxable income earned in a tax year. Federal net
operating losses generated after 2017 will be carried forward indefinitely, but generally may only offset up to 80% of taxable
income earned in future tax years. In fiscal year 2017, we revalued our deferred taxes due to these changes, including (a)
revaluing our federal net deferred taxes before valuation allowance using the 21% tax rate resulting in an increased net federal
deferred tax provision of $33,700; (b) revaluing our federal valuation allowance using the 21% tax rate, including the impact of
tax planning strategies, resulting in a federal deferred tax benefit to continuing operations of ($36,556); and (c) recognizing a
federal deferred tax benefit of ($12,758) for 80% of indefinite lived deferred tax liabilities, which are anticipated to be available
as a source of taxable income upon reversal of deferred tax assets that would also have indefinite lives.
In fiscal year 2016, we elected early adoption of ASU 2016-09 using the prospective transition method related to stock
compensation which contains several amendments that simplify the accounting for employee share-based payment transactions.
Related to the accounting for income taxes, the new standard eliminates the accounting for excess tax benefits to be recognized
in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital.
Under the new standard, all excess tax benefits and tax deficiencies are recorded in the income tax provision. We recognized no
net tax impact upon adoption due to the valuation allowance position and prior periods have not been adjusted.
Included in the current state tax provision for fiscal year 2015 is a $180 settlement with New York State, comprised of $168 of
tax and $12 of interest. New York State had alleged that we were not permitted to file a single combined corporation franchise
tax return with our subsidiaries. We believe that our position related to the filing of our New York State tax returns was correct,
and, based on the prior settlement related to 2004 to 2010 tax returns and subsequent favorable litigation related to similar
issues, we concluded at December 31, 2014 that no reserve would be required for our New York State filings. During fiscal
year 2015, we reached the $180 settlement with the New York State for the tax years ended April 30, 2011 through April 30,
2013 on a basis similar to the prior settlement to minimize out-of-pocket costs. The settlement, which represented less than 8%
of the potential cumulative liability for the years settled, was a monetary settlement without any change to our filing combined
returns in New York and it closed tax years ending April 30, 2011 through April 30, 2013. Due to a change in law, we have
elected to file a single combined corporation franchise tax return with our subsidiaries in New York beginning with 2015. We
have not established any reserve under ASC 740 for the tax years ended April 30, 2014 and December 31, 2014, since we
believe our position would more likely than not be successful.
The differences in the (benefit) provision for income taxes and the amounts determined by applying the Federal statutory rate to
income before provision for income taxes are as follows:
Federal statutory rate
Tax at statutory rate
State income taxes, net of federal benefit
Decrease in net federal deferred tax assets before valuation allowance
change due to federal rate change
Decrease in valuation allowance by 80% of indefinite lived deferred
liabilities due to US tax reform
Other changes in valuation allowance, including due to federal rate change
Deductible stock awards
Tax credits
Non-deductible expenses
Non-deductible equity income in subsidiaries
Other, net
(Benefit) provision for income taxes
Fiscal Year Ended
December 31,
2017
2016
2015
35%
35%
35%
$
(12,968)
(1,959)
$
$
(2,228)
(265)
(3,650)
198
33,700
(12,758)
(18,848)
(1,825)
(1,000)
542
—
(137)
(15,253)
$
$
—
—
4,370
—
(1,085)
100
—
(398)
494
—
—
5,272
—
(671)
467
(415)
150
$
1,351
105
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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. A summary of deferred tax assets and
liabilities is as follows:
Deferred tax assets:
Net operating loss carryforwards
Accrued expenses and reserves
Book over tax depreciation of property and equipment
General business tax credit carryforwards
Alternative minimum tax credit carryforwards
Stock awards
Other
Total deferred tax assets
Less: valuation allowance
Total deferred tax assets after valuation allowance
Deferred tax liabilities:
Amortization of intangibles
Other
Total deferred tax liabilities
Net deferred tax asset (liability)
December 31,
2017
2016
$
33,228
$
26,572
25,615
5,439
3,804
1,958
2,050
98,666
(68,355)
30,311
(20,904)
(145)
(21,049)
9,262
$
$
46,846
32,185
30,012
4,433
3,804
1,720
2,806
121,806
(97,589)
24,217
(30,296)
(99)
(30,395)
(6,178)
The net deferred tax asset at December 31, 2017 is reflected on the balance sheet as a long-term deferred federal tax asset of
$11,567 and a long-term deferred state tax liability of ($2,305).
As of December 31, 2017, we have, for federal income tax purposes, net operating loss carryforwards of approximately
$101,187 that expire in the fiscal years ending December 31, 2031 through 2037 and state net operating loss carryforwards of
approximately $114,362 that expire in the fiscal years ending December 31, 2018 through 2037. In addition, we have $3,804
minimum tax credit carryforwards which become refundable beginning in 2018 and will be fully refunded, if not otherwise
used to offset tax liabilities, in tax year 2021. We also have $5,439 general business credit carryforwards which expire in the
fiscal years ending December 31, 2023 through 2037. Sections 382 and 383 of the Internal Revenue Code can limit the amount
of net operating loss and credit carryforwards which may be used in a tax year in the event of certain stock ownership changes.
We are not currently subject to these limitations but could become subject to them if there were significant changes in the
ownership of our stock.
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. The change in the
valuation allowance was a decrease of ($29,234) for fiscal year 2017 and an increase of $4,582 for fiscal year 2016. In
determining 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.
The net deferred tax asset as of December 31, 2017 and net deferred tax liability as of December 31, 2016 include deferred tax
liabilities related to amortizable goodwill, which are anticipated to reverse in an indefinite future period and to generate future
taxable income upon reversal. Prior to the Act, federal net operating losses, including potential losses from the reversal of
deferred tax assets, could only be carried forward for 20 years. The reversal of the indefinite lived goodwill was not available
as a source of future taxable income since it was uncertain whether the income generated would be available in the same tax
periods in which losses from the reversal of deferred tax assets could be utilized. As such, prior to the Act we did not treat the
reversal of amortizable goodwill as an available source of taxable income in determining the valuation allowance.
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Beginning in 2018 under the Act, future federal net operating losses generated may be carried forward indefinitely and
generally may offset up to 80% of taxable income earned in a tax year. Because potential losses from the reversal of deferred
tax assets in future years may be carried forward indefinitely, we consider it more likely than not that 80% of the reversal of
deferred tax liabilities for amortizable goodwill will be available as a source of taxable income.
In the fourth quarter of 2017, we revalued our net federal deferred tax assets using the 21% tax rate as enacted under the Act.
The valuation allowance was also adjusted in this quarter due to the federal tax rate change and to recognize a ($12,758) federal
deferred tax benefit for 80% of deferred tax liabilities for amortizable goodwill. Due to the Act, we recognized a ($15,614)
federal deferred tax benefit in 2017 and decreased our total valuation allowance by ($29,234). 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 provisions of FASB 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, FASB ASC 740-10-25-5 provides guidance on de-
recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. Under
FASB 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 is as follows:
Unrecognized tax benefits at beginning of period
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 December 31,
2017
2016
3,107
$
3,379
1
(1,165)
—
(2)
1,941
—
(2)
(270)
—
$
3,107
$
$
The gross decreases for tax positions of prior years for fiscal 2017 are due to the reduction in the federal corporate tax rate to
21%. Since the majority of our unrecognized benefits reduce net operating loss carryforwards, the amounts were reduced
consistent with the overall rate reduction related to the net operating loss deferred asset.
Included in the balances at December 31, 2017 and December 31, 2016 are $6 and $9, 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 $4 of unrecognized tax benefits to reverse 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 during fiscal years 2017, 2016 and 2015, we have accrued interest of $3, $5 and $92 and penalties of $2,
$4 and $8, respectively. We accrued ($3), ($91)and ($51) for interest and penalties in income tax expense related to uncertain
tax positions during fiscal years 2017, 2016 and 2015, respectively. 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 years ending in 1998 through 2017 remain open for examination, with
limited exceptions.
15.
OTHER ITEMS AND CHARGES
Southbridge Landfill Closure Charge
In June 2017, we initiated the plan to cease operations of our Southbridge Landfill. Accordingly, in fiscal year 2017, we
recorded charges associated with the closure of our Southbridge Landfill as follows:
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Asset impairment charge (1)
Project development charge (2)
Environmental remediation charge (3)
Legal and transaction costs (4)
Southbridge Landfill closure charge
Fiscal Year Ended
December 31,
2017
2016
2015
$
$
47,999
$
9,149
6,379
1,656
65,183
$
— $
—
—
—
— $
—
—
—
—
—
(1)
(2)
(3)
(4)
We performed a test of recoverability under FASB ASC 360, which indicated that the carrying value of our asset group
that includes the Southbridge Landfill was no longer recoverable and, as a result, the asset group was assessed for
impairment with an impairment charge allocated to the long-lived assets of the Southbridge Landfill in accordance
with FASB ASC 360.
We wrote-off deferred costs associated with Southbridge Landfill permitting activities no longer deemed viable.
We recorded an environmental remediation charge associated with the future installation of a municipal waterline. See
Note 10, Commitments and Contingencies for additional disclosure.
We incurred legal and other transaction costs associated with various matters as part of the Southbridge Landfill
closure. See Note 10, Commitments and Contingencies for additional disclosure.
Environmental Remediation Charge
We recorded an environmental remediation charge of $900 in fiscal year 2016 due to changes in cost estimates associated with
the Potsdam environmental remediation liability.
See Item 3, “Legal Proceedings” and Note 10, Commitments and Contingencies for further disclosure.
Expense from Divestiture, Acquisition and Financing Costs
In fiscal year 2017, we incurred $176 of expenses primarily associated with legal costs for the acquisition of Complete in
January 2018.
See Note 4, Business Combinations for disclosure over the acquisition.
Contract Settlement Charge
In fiscal year 2015, we recorded a contract settlement charge of $1,940 associated with settlement of the Expera Old Town,
LLC v. Casella Waste Systems, Inc. legal matter.
16.
DIVESTITURE TRANSACTIONS
Sale of Business. In fiscal year 2015, we divested of a business, which included the sale of certain assets associated with
various waste collection routes in our Western region, for total consideration of $872, resulting in a gain of $590.
Maine Energy. In the fiscal year ended April 30, 2013, we executed a purchase and sale agreement with the City of Biddeford,
Maine, pursuant to which we agreed to sell the real property of Maine Energy Recovery Company, LP (“Maine Energy”) to the
City of Biddeford. We agreed to sell Maine Energy for an undiscounted purchase consideration of $6,650, which was to be paid
to us in installments over twenty-one years. The transaction closed in November 2012. In December 2012, we ceased
operations of the Maine Energy facility and initiated the decommissioning, demolition and site remediation process in
accordance with the provisions of the agreement. We have completed the demolition process and site remediation under the
auspices and in accordance with work plans approved by the Maine Department of Environmental Protection and the U.S.
Environmental Protection Agency. In consideration of the fact that the project was substantially completed and based on
incurred costs to date and estimates at that time regarding the remaining costs to fulfill our obligation under the purchase and
sale agreement, we reversed a reserve of $1,149 of excess costs to complete the divestiture in fiscal year 2015. As of
December 31, 2017, we had no remaining costs to complete the divestiture accrued as we had fulfilled our obligation under the
agreement.
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CARES and Related Transaction. Casella-Altela Regional Environmental Services, LLC (“CARES”) is a joint venture that
owned and operated a water and leachate treatment facility for the natural gas drilling industry in Pennsylvania. Our joint
venture partner in CARES is Altela, Inc. (“Altela”). We held an ownership interest in CARES of 51% and, in accordance with
FASB ASC 810-10-15, we consolidated the assets, liabilities and results of operations of CARES into our consolidated
financial statements due to our controlling financial interest in the joint venture. In the fiscal year ended April 30, 2014 ("fiscal
year 2014"), we determined that assets of the CARES water treatment facility were no longer operational or were not operating
within product performance parameters. As a result, we initiated a plan to abandon and shut down the operations of CARES. It
was determined that the carrying value of the assets of CARES was no longer recoverable and, as a result, the carrying value of
the asset group was assessed for impairment. As a result, we recorded an impairment charge of $7,455 in fiscal year 2014 to the
asset group of CARES in our Western region.
We executed a purchase and sale agreement in fiscal year 2015 pursuant to which we and Altela agreed to sell certain assets of
the CARES water treatment facility to an unrelated third-party. We sold these assets of CARES for purchase consideration of
$3,500, resulting in a gain of $2,850 in fiscal year 2015, 49% of which was attributable to Altela, the noncontrolling interest
holder. In connection with this transaction, we also sold certain of our equipment and real estate to the same unrelated third-
party for total consideration of $1,050, resulting in a gain of $928 in fiscal year 2015.
In fiscal year 2016, we dissolved CARES in accordance with the CARES Limited Liability Company Agreement, and in fiscal
year 2017, we dissolved CARES McKean, LLC in accordance with Pennsylvania dissolution proceedings. Upon dissolution we
deconsolidated the assets, liabilities and equity components, including the noncontrolling interest.
17.
EARNINGS PER SHARE
A summary of the numerator and denominators used in the computation of earnings per share is as follows:
Numerator:
Loss before income taxes
Denominator:
Class A common stock
Class B common stock
Unvested restricted stock
Effect of weighted average shares outstanding
Weighted average common shares outstanding
Antidilutive potentially issuable shares
18.
RELATED PARTY TRANSACTIONS
Services
Fiscal Year Ended
December 31,
2017
2016
2015
$
(21,799) $
(6,849) $
(12,969)
41,298
988
(38)
(402)
41,846
2,219
40,572
988
(88)
(239)
41,233
2,442
40,064
988
(115)
(295)
40,642
2,259
During fiscal years 2017, 2016 and 2015, we retained the services of Casella Construction, Inc. ("CCI"), a company wholly
owned by sons of 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 fiscal years 2017, 2016 and 2015 were $3,377, $4,024 and $1,341, respectively, of which $30 and
$18 were outstanding and included in either accounts payable or other current liabilities as of December 31, 2017 and
December 31, 2016, respectively.
In addition to the total purchased services, we provided various waste collection and disposal services to CCI. Total revenues
recorded for fiscal years 2017, 2016 and 2015 were $237, $307 and $415, respectively.
Leases
In the fiscal year ended April 30, 1994, we 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 since been extended through April 2018 with a five year option to extend the terms. The terms of the
lease agreements require monthly payments of approximately $28. Total expense charged to operations for fiscal years 2017,
2016 and 2015 under these agreements was $360, $371 and $384, respectively.
Landfill Post-closure
109
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We have agreed to pay the cost of post-closure on a landfill owned by John Casella, our Chairman and Chief Executive Officer,
and Douglas Casella, a member of our Board of Directors. We paid the cost of closing this landfill in 1992, and the post-closure
maintenance obligations are expected to last until the fiscal year ending December 31, 2024. In fiscal years 2017, 2016 and
2015, we paid $27, $10 and $9, respectively, pursuant to this agreement. As of December 31, 2017 and December 31, 2016, we
have accrued $60 and $70, respectively, for costs associated with its post-closure obligations.
19.
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, our Western and
Eastern regions. Revenues associated with our solid waste operations are derived mainly from solid waste collection and
disposal, landfill, landfill gas-to-energy, transfer and recycling services in the northeastern United States. Our revenues in the
Recycling segment are derived from municipalities and customers in the form of processing fees, tipping fees and commodity
sales. Organics services, ancillary operations, major account and industrial services, discontinued operations, and earnings from
equity method investees, as applicable, are included in our Other segment.
Fiscal Year Ended December 31, 2017
Segment
Eastern
Western
Recycling
Other
Eliminations
Total
Outside
revenues
$ 181,170
250,771
62,307
105,061
—
$ 599,309
$
$
Inter-
company
revenue
50,335
71,510
246
1,881
(123,972)
Depreciation
and
amortization
23,815
$
30,766
4,125
3,396
—
62,102
— $
$
Operating
(loss) income
$
Interest
expense, net
3
(220)
143
24,961
—
24,887
Capital
expenditures
17,153
$
42,082
2,006
3,621
—
64,862
$
Goodwill
$
19,192
89,369
12,315
1,729
—
$ 122,605
Total assets
$ 157,248
344,324
48,612
64,765
—
$ 614,949
(51,867) $
35,035
2,805
1,444
—
(12,583) $
Fiscal Year Ended December 31, 2016
Segment
Eastern
Western
Recycling
Other
Outside
revenues
$ 176,539
233,168
52,911
102,412
Eliminations
Total
—
$ 565,030
Inter-
company
revenue
Depreciation
and
amortization
Operating
(loss) income
Interest
expense, net
Capital
expenditures
Goodwill
Total assets
$
45,728
$
27,036
$
9,697
$
67,985
1,003
1,615
(116,331)
27,511
30,576
4,212
3,097
—
2,542
2,130
—
(16) $
(248)
156
38,760
—
18,363
$
31,637
2,218
2,020
—
$
— $
61,856
$
44,945
$
38,652
$
54,238
17,429
88,426
12,315
1,729
$ 202,420
327,628
49,931
51,533
—
$ 119,899
—
$ 631,512
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Table of Contents
Fiscal Year Ended December 31, 2015
Segment
Eastern
Western
Recycling
Other
Eliminations
Total
Outside
revenues
$ 167,467
231,951
46,338
100,744
—
$ 546,500
Inter-
company
revenue
Depreciation
and
amortization
Operating
(loss) income
Interest
expense, net
Capital
expenditures
$
$
43,560
68,284
995
1,014
(113,853)
$
— $
25,977
29,488
4,480
2,759
—
62,704
$
$
7,338
26,035
(2,406)
899
—
31,866
$
$
(200) $
165
25
40,100
—
40,090
$
24,840
20,282
1,770
3,103
—
49,995
Goodwill
Total assets
$
17,429
87,503
12,315
1,729
—
$ 118,976
$ 212,922
318,730
49,355
52,662
—
$ 633,669
Amount of our total revenue attributable to services provided are as follows:
Collection
Disposal
Power generation
Processing
Solid waste operations
Organics
Customer solutions
Recycling
Total revenues
2017
$ 263,688
160,073
5,375
7,994
437,130
39,815
60,057
62,307
$ 599,309
Fiscal Year Ended
December 31,
2016
2015
44.0% $ 249,640
154,211
26.7%
5,921
0.9%
6,282
1.3%
416,054
72.9%
41,587
6.6%
54,478
10.1%
52,911
10.4%
100.0% $ 565,030
44.2% $ 238,301
156,536
27.3%
6,796
1.0%
6,061
1.1%
407,694
73.6%
39,134
7.4%
53,334
9.6%
46,338
9.4%
100.0% $ 546,500
43.6%
28.6%
1.2%
1.1%
74.5%
7.2%
9.8%
8.5%
100.0%
20.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of certain items in the consolidated statements of operations by quarter:
Fiscal Year 2017
Revenues
Operating income (loss)
Net (loss) income
Earnings per common share:
Basic weighted average common shares outstanding
Basic earnings per share
Diluted weighted average common shares outstanding
Diluted earnings per share
First
Quarter
Second
Quarter
Third
Quarter
133,802
$
6,564
$
(224) $
154,016
$
(47,279) $
(53,675) $
160,269
18,277
12,080
41,584
41,811
(0.01) $
(1.28) $
41,584
41,811
(0.01) $
(1.28) $
41,951
0.29
43,295
0.28
$
$
$
$
$
Fourth
Quarter
151,222
9,855
20,020
—
42,033
0.48
43,394
0.46
$
$
$
$
$
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Fiscal Year 2016
Revenues
Operating income
Net (loss) income
Net (loss) income attributable to common stockholders
Earnings per common share:
Basic weighted average common shares outstanding
Basic earnings per share
Diluted weighted average common shares outstanding
Diluted earnings per share
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
$
$
$
$
$
125,432
$
144,670
1,974
$
(7,614) $
(7,608) $
40,996
(0.19) $
40,996
(0.19) $
15,596
5,192
5,195
41,132
0.13
41,598
0.12
$
$
$
$
$
$
151,133
17,378
7,537
7,537
41,377
0.18
42,287
0.18
$
$
$
$
$
$
143,795
9,997
(11,973)
(11,973)
41,422
(0.29)
41,422
(0.29)
Our transfer and disposal revenues historically have been lower from 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 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.
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 December 31, 2017. The term “disclosure controls and procedures,” as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, 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 Securities Exchange Act of 1934, as amended, 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 Securities Exchange Act of 1934, as amended, 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 December 31, 2017, 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.
The independent registered public accounting firm’s related audit report is included in Item 8 of this Annual Report on Form
10-K and is incorporated herein by reference.
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 Securities Exchange Act of 1934, as amended. 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 December 31, 2017. In making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework in 2013.
Based on its assessment, management concluded that, as of December 31, 2017, our internal control over financial reporting is
effective based on those criteria. The effectiveness of our internal control over financial reporting as of December 31, 2017 has
been audited by RSM US LLP, an independent registered public accounting firm. RSM US LLP has issued an attestation report
on our internal control over financial reporting, which is included herein.
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Changes in Internal Control Over Financial Reporting
No change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2017 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item (except for information required with respect to our executive officers which is set forth
under “Executive Officers of the Registrant” 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 the section captioned “Equity Compensation Plan Information” below)
has been omitted from this Annual Report on Form 10-K, and is incorporated herein by reference from our definitive proxy
statement for the 2018 Annual Meeting of Stockholders that we intend to file with the Securities and Exchange Commission
within 120 days after the end of our fiscal year ended December 31, 2017 (the "Proxy Statement"), under the sections captioned
"Board of Directors", "Corporate Governance" and "Ownership of Our Common Stock".
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from the Proxy Statement under the sections
captioned "Executive and Director Compensation and Related Matters" and "Corporate Governance".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by this Item (except for the information required with respect to equity compensation plan
information, which is set forth under “Equity Compensation Plan Information” below) is incorporated herein by reference from
the Proxy Statement under the section captioned “Ownership of Our Common Stock".
Equity Compensation Plan Information
The following table shows information about the securities authorized for issuance under our equity compensation plans as of
December 31, 2017:
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(a)
(b)
(c)
Number of
securities
to be issued upon
exercise of
outstanding
options, warrants
and rights (1)
$
1,779,383
—
1,779,383
Weighted-average
exercise price of
outstanding
options, warrants
and rights (2)
5.82
—
Number of securities
remaining
available for future
issuance
under equity
compensation
plans (excluding
securities reflected
in column (a) (3))
2,073,193
—
2,073,193
(1) Performance stock units, including market-based performance stock units, and market-based performance stock options
are included at the 100% attainment level. Attainment of maximum performance targets and market achievements could
result in the issuance of an additional 402 shares of Class A common stock.
(2) The weighted average exercise price of outstanding options, warrants and rights excludes restricted stock units and other
equity-based awards that do not have an exercise price.
(3) Includes 1,929,958 shares of our Class A common stock issuable under our 2016 Incentive Plan and 143,235 shares of
our Class A common stock issuable under our Amended and Restated 1997 Employee Stock Purchase Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference from the Proxy Statement under the section captioned
"Corporate Governance".
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference from the Proxy Statement under the section captioned
"Ratification of the Appointment of Independent Auditors".
114
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ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a)(1)
Consolidated Financial Statements included under Item 8.
Report of Independent Registered Public Accounting Firm – RSM US LLP.
Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016.
Consolidated Statements of Operations for fiscal years 2017, 2016 and 2015.
Consolidated Statements of Comprehensive Loss for fiscal years 2017, 2016 and 2015.
Consolidated Statement of Stockholders’ Deficit for fiscal years 2017, 2016 and 2015.
Consolidated Statements of Cash Flows for fiscal years 2017, 2016 and 2015.
Notes to Consolidated Financial Statements.
(a)(2)
Financial Statement Schedules:
Schedule II – Valuation and Qualifying Accounts.
All other schedules have been omitted because the required information is not significant or is included
in the consolidated financial statements or notes thereto, or is not applicable.
(a)(3)
Exhibits:
Exhibit
No.
2.1
2.2
2.3
2.4
3.1
3.2
4.1
4.2
4.7
Description
Agreement and Plan of Merger dated as of January 12, 1999 and as amended by Amendments No. 1, 2
and 3 thereto, among Casella Waste Systems, Inc. (“Casella”), KTI, Inc. (“KTI”) and Rutland
Acquisition Sub, Inc. (incorporated herein by reference to Annex A to the registration statement on
Form S-4 of Casella as filed November 12, 1999
(file no. 333-90913)).
Purchase and Sale Agreement dated as of January 23, 2011 among Casella, KTI, CE Holdings II, LLC
and CE Holding Company, LLC (incorporated herein by reference to Exhibit 2.1 to the quarterly report
on Form 10-Q of Casella as filed on March 3, 2011 (file no. 000-23211)).
Stock Purchase Agreement dated as of December 6, 2012 among Casella, Blow Bros., the stockholders
of Blow Bros. named therein, Arthur E. St. Hilaire (solely in his capacity as the Representative), and
Trash Lady, LLC and Trash Lady NH, LLC (incorporated herein by reference to Exhibit 10.1 to the
current report on Form 8-K of Casella as filed on December 10, 2012 (file no. 000-23211)).
Membership Interest Purchase Agreement dated December 5, 2013, by and among Casella Waste
Systems, Inc. and the other parties named therein (incorporated herein by reference to Exhibit 10.1 to
the current report on Form 8-K of Casella as filed on December 5, 2013 (file no. 000-23211)).
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 as filed
on December 7, 2007
(file no. 000-23211)).
Third Amended and Restated By-Laws of Casella Waste Systems, Inc., as amended (incorporated herein
by reference to Exhibit 3.1 to the current report on Form 8-K of Casella as filed on 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 on October 9, 1997
(file no. 333-33135)).
Certificate of Designation creating Series A Convertible Preferred Stock (incorporated herein by
reference to Exhibit 4.1 to the current report on Form 8-K of Casella as filed on August 18, 2000 (file
no. 000-23211)).
FAME Financing Agreement, dated as of August 1, 2015, between Casella and the Finance Authority of
Maine (incorporated herein by reference to Exhibit 4.1 to the current report on Form 8-K of Casella as
filed on August 27, 2015 (file no. 000-23211)).
115
115
Table of Contents
Exhibit
No.
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
10.1*
10.2*
10.3*
10.4*
10.5
Description
FAME Guaranty Agreement, dated as of August 1, 2015, by and between the guarantors named therein
and U.S. Bank National Association, as trustee (incorporated herein by reference to Exhibit 4.2 to the
current report on Form 8-K of Casella as filed on August 27, 2015 (file no. 000-23211)).
Loan Agreement, dated as of December 1, 2014, between New York State Environmental Facilities
Corporation and Casella (incorporated herein by reference to Exhibit 4.1 to the current report on Form
8-K of Casella as filed on December 18, 2014 (file no. 000-23211)).
NYSEFC Amended and Restated Guaranty Agreement, dated as of June 1, 2016, by and between the
guarantors named therein and U.S. Bank National Association, as Trustee (incorporated herein by
reference to Exhibit 4.1 to the current report on Form 8-K of Casella as filed on June 2, 2016 (file
no. 000-23211)).
BFA Guaranty Agreement, dated as of October 1, 2014, by and among U.S. Bank National Association,
as Trustee, and the guarantors identified therein (incorporated herein by reference to Exhibit 10.1 to the
current report on Form 8-K of Casella as filed on October 16, 2014 (file no. 000-23211)).
Financing Agreement dated as of March 1, 2013 between Casella and the Vermont Economic
Development Authority, relating to issuance of Vermont Economic Development Authority Solid Waste
Disposal Revenue Bonds (incorporated herein by reference to Exhibit 10.1 to the current report on Form
8-K of Casella as filed April 5, 2013 (file no. 000-23211)).
VEDA Guaranty Agreement, dated as of March 1, 2013, by and among U.S. Bank National Association,
as Trustee, and the guarantors identified therein (incorporated herein by reference to Exhibit 4.8 to the
annual report on Form 10-K of Casella as filed on June 27, 2014 (file no. 000-23211)).
Financing Agreement dated as of March 1, 2013 between Casella and the Business Finance Authority of
the State of New Hampshire, relating to issuance of Business Finance Authority of the State of New
Hampshire Solid Waste Disposal Revenue Bonds (incorporated herein by reference to Exhibit 10.2 to
the current report on Form 8-K of Casella as filed on April 5, 2013 (file no. 000-23211)).
Financing Agreement between Casella and Finance Authority of Maine, dated as of December 1, 2005,
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 Exhibit 10.1 to the current report
on Form 8-K of Casella as filed on January 4, 2006 (file no. 000-23211)).
First Amendment dated as of February 1, 2012 to Financing Agreement dated as of December 1, 2005,
by and among Finance Authority of Maine, U.S. Bank National Association, as Trustee, Bank of
America, as Credit Provider, and Casella (incorporated herein by reference to Exhibit 10.1 to the
quarterly report on Form 10-Q of Casella as filed on March 2, 2012 (file no. 000-23211)).
Second Amendment dated as of February 1, 2017 to Financing Agreement dated as of December 1,
2005, by and among Finance Authority of Maine, U.S. Bank National Association, as Trustee, Bank of
America, as Credit Provider, and Casella (incorporated herein by reference to Exhibit 4.2 to the current
report on Form 8-K as filed on February 7, 2017 (file no. 000-23211)).
FAME Amended and Restated Guaranty Agreement, dated as of February 1, 2017, by and among U.S.
Bank National Association, as Trustee, and the guarantors identified therein (incorporated herein by
reference to Exhibit 4.1 to the current report on Form 8-K of Casella as filed on February 7, 2017 (file
no. 000-23211)).
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 on September 24, 1997
(file no. 333-33135)).
Form of Nonstatutory Stock Option Agreement granted under the Amended and Restated 1997 Non-
Employee Director Stock Option Plan (incorporated herein by reference to Exhibit 10.2 to the quarterly
report on Form 10-Q of Casella as filed on September 9, 2004 (file no. 000-23211)).
Amended and Restated 1997 Stock Incentive Plan (incorporated herein by reference to Appendix 1 to
the Definitive Proxy Statement on Schedule 14A of Casella as filed on September 21, 1998).
Form of Incentive Stock Option Agreement granted under the Amended and Restated 1997 Stock
Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of
Casella as filed on September 9, 2004 (file no. 000-23211)).
Lease Agreement, as Amended, between Casella Associates and Casella Waste Management, Inc., dated
August 1, 1993 (Rutland lease) (incorporated herein by reference to Exhibit 10.17 to the registration
statement on Form S-1 of Casella as filed on August 7, 1997 (file no. 333-33135)).
116
116
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Exhibit
No.
10.6
10.7
10.8
10.9
10.10
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
Description
Second Amendment to Lease Agreement, by and between Casella Associates and Casella Waste
Management, Inc., dated as of November 20, 1997 (Rutland lease). (incorporated herein by reference to
Exhibit 10.25 to the registration statement on Form S-1 of Casella as filed on June 25, 1998 (file no.
333-57745)).
Amendment to Lease Agreement dated as of March 13, 2008, between Casella Associates and Casella,
amending Lease Agreement dated August 1, 1993, as amended (Rutland lease) (incorporated herein by
reference to Exhibit 10.7 to the annual report on Form 10-K of Casella as filed on June 27, 2014 (file
no. 000-23211)).
Lease Agreement, as Amended, between Casella Associates and Casella Waste Management, Inc., dated
August 1, 1993 (Montpelier lease) (incorporated herein by reference to Exhibit 10.18 to the registration
statement on Form S-1 of Casella as filed on August 7, 1997 (file no. 333-33135)).
Amendment to Lease Agreement dated as of March 13, 2008, between Casella Associates and Casella,
amending Lease Agreement dated August 1, 1993, as amended (Montpelier lease) (incorporated herein
by reference to Exhibit 10.9 to the annual report on Form 10-K of Casella as filed on June 27, 2014 (file
no. 000-23211)).
Lease, Operations and Maintenance Agreement between CV Landfill, Inc. and Casella Waste Systems,
Inc. dated June 30, 1994 (incorporated herein by reference to Exhibit 10.20 to the registration statement
on Form S-1 of Casella as filed on August 7, 1997 (file no. 333-33135)).
Employment Agreement between Casella 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 on August 4,
2000 (file no. 000-23211)).
Amendment to Employment Agreement by and between Casella and John W. Casella dated as of
December 30, 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)).
2006 Stock Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.13 to the annual
report on Form 8-K of Casella as filed on March 2, 2016 (file no. 000-023211)).
Form of Incentive Stock Option Agreement granted under 2006 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.14 to the annual report on Form 10-K of Casella as filed on June 27,
2014 (file no. 000-23211)).
Form of Restricted Stock Agreement granted under 2006 Stock Incentive Plan (incorporated herein by
reference to Exhibit 10.15 to the annual report on Form 10-K of Casella as filed on June 27, 2014 (file
no. 000-23211)).
Form of Restricted Share Unit Agreement granted under 2006 Stock Incentive Plan (employee with
employment contract) (incorporated herein by reference to Exhibit 10.16 to the annual report on Form
10-K of Casella as filed on June 27, 2014 (file no. 000-23211)).
Form of Restricted Share Unit Agreement granted under 2006 Stock Incentive Plan (employee with no
employment contract) (incorporated herein by reference to Exhibit 10.17 to the annual report on Form
10-K of Casella as filed on June 27, 2014 (file no. 000-23211)).
Form of Restricted Stock Unit Agreement granted under 2006 Stock Incentive Plan (employee with
employment contract) (incorporated herein by reference to Exhibit 10.18 to the annual report on Form
10-K of Casella as filed on June 27, 2014 (file no. 000-23211)).
Form of Restricted Stock Unit Agreement granted under 2006 Stock Incentive Plan (employee with no
employment contract) (incorporated herein by reference to Exhibit 10.19 to the annual report on Form
10-K of Casella as filed on June 27, 2014 (file no. 000-23211)).
Form of Performance Share Unit Agreement granted under 2006 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.2 to the quarterly report on Form 10-Q of Casella as filed on
September 4, 2008 (file no. 000-23211)).
Form of Restricted Stock Unit Agreement granted under 2006 Stock Incentive Plan (adopted March 1,
2016) (employee with employment contract) (incorporated herein by reference to Exhibit 10.2 to the
current report on Form 8-K of Casella as filed on March 7, 2016 (file no. 000-23211)).
117
117
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Exhibit
No.
10.22*
10.23
10.24
10.25
10.26*
10.27*
10.28*
10.29*
10.30*
10.31
10.32
10.33
10.34*
10.35*
10.36*
10.37*
Description
Form of Restricted Stock Unit Agreement granted under 2006 Stock Incentive Plan (adopted March 1,
2016) (employee with no employment contract) (incorporated herein by reference to Exhibit 10.3 to the
current report on Form 8-K of Casella as filed on March 7, 2016 (file no. 000-23211)).
Third Amendment to Amended and Restated Credit Agreement, dated as of June 25, 2013, by and
among Casella, Bank of America, N.A., as Administrative Agent, Swing Line Lender and LIC Issuer,
and the Lenders party thereto (incorporated herein by reference to Exhibit 10.1 to the current report on
Form 8- K of Casella as filed on June 26, 2013 (file no. 000-23211)).
Loan and Security Agreement, dated as of February 27, 2015, among Casella, the subsidiaries of Casella
identified therein and Bank of America, N.A., as agent for the lenders party thereto (incorporated herein
by reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed on March 3, 2015 (file
no. 00-23211)).
First Amendment to Loan and Security Agreement, dated as of June 26, 2015, by and among Casella, its
subsidiaries listed in Schedule 1 to the Loan and Security Agreement, dated as of February 27, 2015, the
lenders from time to time party thereto, and Bank of America, N.A., as Agent (incorporated herein by
reference to Exhibit 10.1 to the current report on Form 8-K of Casella as filed on March 3, 2015 (file no.
00-23211)).
Employment Agreement between Casella and Edwin D. Johnson dated as of July 6, 2010 (incorporated
herein by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Casella as filed on
September 3, 2010 (file no. 000-23211)).
Letter Agreement between Casella and Edwin D. Johnson dated as of February 12, 2013 (incorporated
herein by reference to Exhibit 10.26 to the annual report on Form 10-K of Casella as filed on June 27,
2014 (file no. 000-23211)).
Employment Agreement between Casella and David L. Schmitt dated as of May 31, 2006, as amended
(incorporated herein by reference to Exhibit 10.27 to the annual report on Form 10-K of Casella as filed
on June 27, 2014 (file no. 000-23211)).
Employment Agreement between Casella and Edmond Coletta dated as of September 1, 2012
(incorporated herein by reference to Exhibit 10.28 to the annual report on Form 10-K of Casella as filed
on June 27, 2014 (file no. 000-23211)).
Employment Agreement between Casella and Christopher B. Heald dated as of March 1, 2016
(incorporated herein by reference to Exhibit 10.4 to the current report on Form 8-K of Casella as filed
on March 7, 2016 (file no. 000-23211)).
Extension of Lease Agreements dated as of April 23, 2013, between Casella Associates and Casella,
amending (i) Lease Agreement dated August 1, 1993, as amended (Montpelier lease) and (ii) Lease
Agreement dated August 1, 1993, as amended (Rutland lease) (incorporated herein by reference to
Exhibit 10.29 to the annual report on Form 10-K of Casella as filed on June 27, 2014 (file no.
000-23211)).
Credit Agreement, dated as of October 17, 2016, among Casella Waste Systems, Inc., the subsidiaries of
Casella Waste Systems, Inc. identified therein and Bank of America, N.A., as agent for the lender party
thereto (incorporated herein by reference to Exhibit 10.1 of the current report on Form 8-K as filed
October 17, 2016 (file no. 000-23211)).
First Amendment to Credit Agreement, dated as of April 18, 2017, by and among Casella Waste
Systems, Inc., the subsidiaries of Casella Waste Systems, Inc. identified therein, the lenders party thereto
and Bank of America N.A., as administrative agent (incorporated herein by reference to Exhibit 10.1 to
the Current Report on Form 8-K of Casella as filed on April 18, 2017 (file No. 000-23211)).
Casella Waste Systems, Inc. Non-Equity Incentive Plan (incorporated herein by reference to Exhibit
10.1 of the current report on Form 8-K of Casella as filed on March 7, 2016 (file no. 000-23211)).
Casella Waste Systems, Inc. 2016 Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the
Registration Statement on Form S-8 of Casella as filed on November 17, 2016 (file No. 333-214683)).
Form of Restricted Stock Unit Agreement under 2016 Incentive Plan (employee with employment
contract) (incorporated herein by reference to Exhibit 10.1 to the current report on Form 8-K of Casella
as filed on November 22, 2016 (file No. 000-23211)).
Form of Restricted Stock Unit Agreement under 2016 Incentive Plan (employee with no employment
contract) (incorporated herein by reference to Exhibit 10.2 to the current report on Form 8-K of Casella
as filed on November 22, 2016 (file No. 000-23211)).
118
118
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Exhibit
No.
10.38*
10.39*
10.40*
10.41*
10.42*
10.43*
10.44*
10.45*
10.46*
10.47*
12.1 +
21.1 +
23.1 +
31.1 +
31.2 +
32.1 +
Description
Form of Performance-Based Stock Unit Agreement under 2016 Incentive Plan (employee with
employment contract) (incorporated herein by reference to Exhibit 10.3 to the current report on Form 8-
K of Casella as filed on November 22, 2016 (file No. 000-23211)).
Form of Performance-Based Stock Unit Agreement under 2016 Incentive Plan (employee with no
employment contract) (incorporated herein by reference to Exhibit 10.4 to the current report on Form 8-
K of Casella as filed on November 22, 2016 (file No. 000-23211)).
Form of Restricted Stock Agreement under 2016 Incentive Plan (incorporated herein by reference to
Exhibit 10.5 to the current report on Form 8-K of Casella as filed on November 22, 2016 (file No.
000-23211)).
Form of Incentive Stock Option Agreement under 2016 Incentive Plan (employee with employment
contract) (incorporated herein by reference to Exhibit 10.6 to the current report on Form 8-K of Casella
as filed on November 22, 2016 (file No. 000-23211)).
Form of Nonstatutory Stock Option Agreement under 2016 Incentive Plan (employee with employment
contract) (incorporated herein by reference to Exhibit 10.7 to the current report on Form 8-K of Casella
as filed on November 22, 2016 (file No. 000-23211)).
Form of Incentive Stock Option Agreement under 2016 Incentive Plan (employee with no employment
contract) (incorporated herein by reference to Exhibit 10.8 to the current report on Form 8-K of Casella
as filed on November 22, 2016 (file No. 000-23211)).
Form of Nonstatutory Stock Option Agreement under 2016 Incentive Plan (employee with no
employment contract) (incorporated herein by reference to Exhibit 10.9 to the current report on Form 8-
K of Casella as filed on November 22, 2016 (file No. 000-23211)).
Form of Performance-Based Stock Option Agreement under 2016 Incentive Plan (employee with
employment contract) (incorporated herein by reference to Exhibit 10.10 to the current report on Form
8-K of Casella as filed on November 22, 2016 (file No. 000-23211)).
Form of Performance-Based Stock Option Agreement under 2016 Incentive Plan (employee with no
employment contract) (incorporated herein by reference to Exhibit 10.11 to the current report on Form
8-K of Casella as filed on November 22, 2016 (file No. 000-23211)).
Form of Restricted Stock Unit Agreement under 2016 Incentive Plan (non-employee director)
(incorporated herein by reference to Exhibit 10.1 to the quarterly report on Form 10-Q of Casella as
filed on November 2, 2017 (file No. 000-23211)).
Statement of Computation of Ratio of Earnings to Fixed Charges and Earnings to Combined Fixed
Charges and Preferred Stock Dividends.
Subsidiaries of Casella Waste Systems, Inc.
Consent of RSM US LLP
Certification of Principal Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
Certification of Principal Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended.
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.
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
XBRL Instance Document.**
XBRL Taxonomy Extension Schema Document.**
XBRL Taxonomy Calculation Linkbase Document.**
XBRL Taxonomy Label Linkbase Document.**
XBRL Taxonomy Presentation Linkbase Document.**
XBRL Taxonomy Extension Definition Linkbase Document.**
____________________
Filed Herewith
+
119
119
Table of Contents
This is a management contract or compensatory plan or arrangement.
*
Submitted Electronically Herewith. Attached as Exhibit 101 to this report are the following formatted in XBRL
**
(Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of December 31, 2017 and December 31, 2016,
(ii) Consolidated Statements of Operations for fiscal years 2017, 2016 and 2015, (iii) Consolidated Statements of
Comprehensive Loss for fiscal years 2017, 2016, and 2015, (iv) Consolidated Statement of Stockholders’ Deficit) for fiscal
years 2017, 2016 and 2015, (v) Consolidated Statements of Cash Flows for fiscal years 2017, 2016 and 2015, and (vi) Notes to
Consolidated Financial Statements.
120
120
Table of Contents
ITEM 16. FORM 10-K SUMMARY
Not applicable.
121
121
Table of Contents
SIGNATURES
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.
Dated: March 2, 2018
Casella Waste Systems, Inc.
By: /s/ John W. Casella
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)
/s/ Edmond R. Coletta
Edmond R. Coletta
/s/ Christopher B. Heald
Christopher B. Heald
/s/ Douglas R. Casella
Douglas R. Casella
/s/ Joseph G. Doody
Joseph G. Doody
/s/ Gregory B. Peters
Gregory B. Peters
/s/ James F. Callahan, Jr.
James F. Callahan, Jr.
/s/ James E. O’Connor
James E. O’Connor
/s/ William P. Hulligan
William P. Hulligan
/s/ Michael K. Burke
Michael K. Burke
/s/ Emily Nagle Green
Emily Nagle Green
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Chief Accounting Officer
(Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
Director
Date
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
March 2, 2018
122
122
Table of Contents
Allowance for Doubtful Accounts
(in thousands)
FINANCIAL STATEMENT SCHEDULES
Schedule II
Valuation Accounts
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
December 31,
2017
2016
2015
$
$
1,069
290
(550)
809
$
$
988
1,107
(1,026)
1,069
$
$
2,153
1,344
(2,509)
988
123
123
(THIS PAGE WAS INTENTIONALLY LEFT BLANK)
124
*NON-GAAP FINANCIAL MEASURES
In addition to disclosing financial results prepared in accordance with GAAP, the Company also discloses earnings before interest, taxes, and
depreciation and amortization, adjusted for accretion, depletion of landfill operating lease obligations, gains on asset sales, development project
charge write-offs, contract settlement charges, legal settlement costs, tax settlement costs, bargain purchase gains, asset impairment charges,
environmental remediation charges, severance and reorganization costs, expenses from divestiture, acquisition and financing costs, gains on the
settlement of acquisition related contingent consideration, fiscal year-end transition costs, proxy contest costs, as well as impacts from divestiture
transactions (“Adjusted EBITDA”), which is a non-GAAP measure.
The Company also discloses net cash provided by operating activities, less capital expenditures (excluding acquisition related capital expenditures),
less payments on landfill operating lease contracts, plus proceeds from divestiture transactions, plus proceeds from the sale of property and
equipment, plus proceeds from property insurance settlement, plus (less) contributions from (distributions to) noncontrolling interest holders,
plus certain cash outflows associated with landfill closure, site improvement and remediation expenditures, plus certain cash outflows associated
with new contract and project capital expenditures, (less) plus cash (inflows) outflows associated with certain business dissolutions, plus cash
interest outflows associated with the timing of refinancing transactions (“Normalized Free Cash Flow”), which is a non-GAAP financial measure.
The Company also discloses net cash provided by operating activities, plus changes in assets and liabilities, net of effects of acquisitions
and divestitures, gains on sale of property and equipment, environmental remediation charges, losses on debt extinguishment, stock based
compensation expense, the Southbridge Landfill closure charge, interest expense, cash interest expense, provisions for income taxes, net of
deferred taxes and adjustments as allowed by the Company’s credit facility agreement (“Consolidated EBITDA”) and total long-term debt
and capital leases, less unencumbered cash and cash equivalents in excess of $2.0 million (“Consolidated Funded Debt, Net” and, divided by
Consolidated EBITDA, the “Consolidated Net Leverage Ratio”).
Adjusted EBITDA is reconciled to net loss, Adjusted EBITDA margin is reconciled to net loss margin, Normalized Free Cash Flow is reconciled
to net cash provided by operating activities, Consolidated EBITDA is reconciled to net cash provided by operating activities, and Consolidated
Funded Debt, Net is reconciled to total long-term debt and capital leases.
The Company presents Adjusted EBITDA, Adjusted EBITDA margin, Normalized Free Cash Flow, Consolidated EBITDA, Consolidated Funded
Debt, Net and the Consolidated Net Leverage Ratio because it considers them important supplemental measure of its performance and believes it
is frequently used by securities analysts, investors and other interested parties in the evaluation of the Company’s results. Management uses these
non-GAAP measures to further understand its “core operating performance.” The Company believes its “core operating performance” is helpful in
understanding its ongoing performance in the ordinary course of operations. The Company believes that providing Adjusted EBITDA, Adjusted
EBITDA margin, Normalized Free Cash Flow, Consolidated EBITDA, Consolidated Funded Debt, Net and the Consolidated Net Leverage
Ratio to investors, in addition to corresponding income statement and cash flow statement measures, affords investors the benefit of viewing its
performance using the same financial metrics that the management team uses in making many key decisions and understanding how the core
business and its results of operations has performed. The Company further believes that providing this information allows its investors greater
transparency and a better understanding of its core financial performance.
Non-GAAP financial measures are not in accordance with or an alternative for GAAP. Adjusted EBITDA, Adjusted EBITDA margin, Normalized
Free Cash Flow, Consolidated EBITDA, Consolidated Funded Debt, Net and the Consolidated Net Leverage Ratio should not be considered in
isolation from or as a substitute for financial information presented in accordance with GAAP, and may be different from Adjusted EBITDA,
Adjusted EBITDA margin, Normalized Free Cash Flow, Consolidated EBITDA, Consolidated Funded Debt, Net and the Consolidated Net
Leverage Ratio presented by other companies.
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126
COMPANY OFFICERS
BOARD OF DIRECTORS
John W. Casella
Chairman, Chief Executive Officer & Secretary
John W. Casella
Chairman, Chief Executive Officer & Secretary
Edmond “Ned” R. Coletta
Senior Vice President, Chief Financial Officer & Treasurer
Edwin D. Johnson
President & Chief Operating Officer
David L. Schmitt
Senior Vice President & General Counsel
Christopher B. Heald
Vice President of Finance & Chief Accounting Officer
Michael K. Burke
Chief Financial Officer,
EndoGastric Solutions, Inc.
James F. Callahan, Jr.
Retired Partner,
Arthur Andersen, LLP
Douglas R. Casella
Vice Chairman, President,
Casella Construction, Inc.
Joseph G. Doody
Retired Vice Chairman,
Staples, Inc.
Emily N. Green
Senior Business Executive
William P. Hulligan
Retired President & Chief Operating Officer,
Progressive Waste Solutions Ltd.
James E. O’Connor
Retired Chairman & Chief Executive Officer,
Republic Services, Inc.
Gregory B. Peters
Managing General Partner,
Lake Champlain Capital Management, LLC
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SHAREHOLDER INFORMATION
Annual Meeting of Shareholders
Killington Grand Hotel
Killington, VT
Friday, June 1, 2018
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
RSM US 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.”
FORWARD LOOKING STATEMENTS
Certain matters discussed in this annual report, including, but not limited to, the statements regarding financial results and guidance, 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,” “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 the Company operates and management’s beliefs and assumptions. The Company cannot guarantee that it actually will
achieve the financial results, plans, intentions, expectations or guidance disclosed in the forward-looking statements made. Such forward-
looking statements, and all phases of the Company’s 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 its forward-looking statements. Such risks and uncertainties include or relate
to, among other things: new policies adopted by China as part of its “National Sword” and “Blue Sky” programs that have restricted and will
continue to restrict imports of recyclable materials into China and could have a material impact on the Company’s financial results; costs
associated with the planned capping and closure of the Southbridge Landfill and the pending litigation relating to the Southbridge Landfill;
threatened litigation relating to the North Country landfill; adverse weather conditions that have negatively impacted and may continue
to negatively impact its revenues and its operating margin; current economic conditions that have adversely affected and may continue to
adversely affect its revenues and its operating margin; the Company may be unable to increase volumes at its landfills or improve its route
profitability; the Company’s need to service its indebtedness may limit its ability to invest in its business; the Company 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 its control; the Company may be required to incur capital expenditures in excess of its
estimates; fluctuations in energy pricing or the commodity pricing of its recyclables may make it more difficult for the Company to predict
its results of operations or meet its estimates; the Company may incur environmental charges or asset impairments in the future; and the
Company’s credit facility agreement requires it to meet a number of financial ratios and covenants. There are a number of other important
risks and uncertainties that could cause the Company’s 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 the Company’s
Form 10-K for the fiscal year ended December 31, 2017.
The Company undertakes 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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25 Greens Hill Lane • Rutland, Vermont 05701
p. 802.775.0325 • f. 802.775.6198
casella.com