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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/ x / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ---------------
Commission file number 000-23211
CASELLA WASTE SYSTEMS, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 03-0338873
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Greens Hill Lane, Rutland, Vermont 05701
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 775-0325
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of December 2, 1999:
Class A Common Stock 15,023,105
Class B Common Stock 988,200
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(Unaudited)
(In thousands)
April 30,
1999 October 31,
(Restated) 1999
-------- --------
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,232 $ 4,833
Restricted Cash - Closure Fund Escrow 626 897
Accounts Receivable-trade, net of allowance
for doubtful accounts of $1,429 and $2,115 23,078 31,849
Other Current Assets 5,697 4,477
-------- --------
Total Current Assets 33,633 42,056
-------- --------
Property, Plant and Equipment, net of
accumulated depreciation and amortization of
$67,123 and $78,849 131,432 155,787
Intangible Assets, net 106,677 113,971
Restricted Funds - Closure Fund Escrow 4,834 5,172
Other Assets 5,725 8,385
-------- --------
$282,301 $325,371
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS EQUITY
(Unaudited)
(In thousands, except for share data)
<TABLE>
<CAPTION>
April 30,
1999 October 31,
(Restated) 1999
--------- ---------
<S> <C> <C>
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 5,489 $ 2,816
Current Maturities of Capital Lease Obligations 402 191
Accounts Payable 17,903 17,874
Other Accrued Liabilities 6,554 12,536
--------- ---------
Total Current Liabilities 30,348 33,417
--------- ---------
Long-Term Debt, Less Current Maturities 86,739 116,328
Capital Lease Obligations, Less Current Maturities 1,454 1,467
Other Long-Term Liabilities 15,782 17,594
--------- ---------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY
Class A Common Stock -
Authorized - 100,000,000 Shares, $.01 par value
Issued and Outstanding - 14,868,739 and
15,055,775 148 151
Authorized - 1,000,000 Shares, $.01 par value;
10 Votes per Share. Issued and Outstanding - 988,200 shares 10 10
Additional Paid-In Capital 154,733 155,404
Accumulated (Deficit)/Retained Earnings (6,913) 1,000
--------- ---------
147,978 156,565
--------- ---------
$ 282,301 $ 325,371
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
October 31, October 31,
1998 October 31, 1998 October 31,
(Restated) 1999 (Restated) 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 47,813 $ 56,120 $ 92,896 $ 111,156
--------- --------- --------- ---------
Operating Expenses:
Cost of Operations 28,328 31,091 55,663 62,036
General and Administrative 6,774 7,364 13,190 15,162
Depreciation and Amortization 6,771 8,045 12,668 15,667
Merger Costs (Pooling) 755 0 755 1,490
--------- --------- --------- ---------
42,628 46,500 82,276 94,355
--------- --------- --------- ---------
Operating Income 5,185 9,620 10,620 16,801
--------- --------- --------- ---------
Other (Income)/Expenses:
Interest Income (53) (244) (94) (317)
Interest Expense 1,045 1,980 2,982 3,758
Other Expenses/(Income), Net 67 (575) (190) (732)
--------- --------- --------- ---------
1,059 1,161 2,698 2,709
--------- --------- --------- ---------
Income Before Provision for
Income Taxes 4,126 8,459 7,922 14,092
Provision for Income Taxes 1,918 3,587 3,593 6,178
--------- --------- --------- ---------
Net Income $ 2,208 $ 4,872 $ 4,329 $ 7,914
========= ========= ========= =========
Basic Earnings per
Common Share $ 0.14 $ 0.30 $ 0.30 $ 0.49
========= ========= ========= =========
Basic Weighted Average Common
Shares Outstanding 15,649 16,037 14,468 16,008
========= ========= ========= =========
Diluted Earnings per
Common Share $ 0.13 $ 0.30 $ 0.28 $ 0.48
========= ========= ========= =========
Diluted Weighted Average Common
Shares Outstanding 16,569 16,474 15,490 16,545
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 and 1999
(UNAUDITED)
(In thousands)
1998
(Restated) 1999
Cash Flows From Operating Activities:
Net Income $ 4,329 $ 7,914
-------- --------
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 12,668 15,667
Gain on Sale of Equipment (20) (246)
Changes in Assets and Liabilities, Net of
Effects of Acquisitions:
Accounts Receivable (4,642) (8,513)
Accounts Payable 5,279 (557)
Other Current Assets/Liabilities 2,516 9,874
-------- --------
15,801 16,225
-------- --------
Net Cash Provided by Operating Activities 20,130 24,139
-------- --------
Cash Flows from Investing Activities:
Acquisitions, Net of Cash Acquired (20,527) (11,810)
Additions to Property and Equipment (33,496) (36,527)
Proceeds from Sale of Equipment 193 704
Other Assets/Liabilities (3,326) (2,946)
-------- --------
Net Cash Used in Investing Activities (57,156) (50,579)
-------- --------
Cash Flows from Financing Activities:
Proceeds from Issuance of Common Stock 56,678 0
Proceeds from Long-Term Borrowings 44,310 38,123
Principal Payments on Long-Term Debt (63,684) (11,555)
Principal Payments on Capital Leases (164) (199)
Proceeds from Exercised Stock Options 0 672
-------- --------
Net Cash Provided by Financing Activities 37,140 27,041
-------- --------
Net Increase in Cash and Cash Equivalents 114 601
Cash and Cash Equivalents, Beginning of Period 3,327 4,232
-------- --------
Cash and Cash Equivalents, End of Period $ 3,441 $ 4,833
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED OCTOBER 31, 1998 and 1999
(UNAUDITED)
(In thousands)
1998
(Restated) 1999
---------- --------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest $ 2,888 $ 3,441
======== ========
Income Taxes $ 59 $ 0
======== ========
Supplemental Disclosures of Non-Cash Investing and
Financing Activities:
Summary of Entities Acquired:
Fair Market Value of Assets Acquired $ 23,141 $ 12,687
Less: Cash Paid (20,527) (11,810)
-------- --------
Liabilities Assumed and Notes Payable to Sellers $ 2,614 $ 877
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The condensed consolidated balance sheets of Casella Waste Systems, Inc. and
Subsidiaries (the "Company") as of April 30, 1999 and October 31, 1999, the
consolidated statements of operations for the three months and six months ended
October 31, 1998 and 1999, and the condensed consolidated statements of cash
flows for the six months ended October 31, 1998 and 1999 are unaudited. In the
opinion of management, such financial statements include all adjustments (which
include normal recurring and nonrecurring adjustments) necessary for a fair
presentation of financial position, results of operations, and cash flows for
the periods presented. The Company has restated the previously issued audited
balance sheet dated April 30, 1999 to reflect the mergers with Resource Waste
Systems, Inc., and Corning Community Disposal Services, Inc. (see note 1)
consummated on July 1, 1999 and June 4, 1999, respectively, accounted for using
the pooling-of-interests method of accounting. The Company has also restated the
previously issued consolidated statements of operations for the three months and
six months ended October 31, 1998 and consolidated statement of cash flows for
the six months ended October 31, 1998 to reflect the mergers with Northern
Sanitation, NEI, Westfield Disposal, Resource Recovery Systems, Inc. and Corning
Community Disposal, Inc. (see note 1). The consolidated financial statements
presented herein should be read in connection with the Company's audited
consolidated financial statements as of and for the twelve months ended April
30, 1999. These were included as part of the Company's Annual Report on Form
10-K (the "Annual Report").
1. BUSINESS COMBINATIONS
Transactions Recorded as Poolings-of-Interests
During fiscal year 1999, and during the first two quarters of fiscal year 2000,
the Company completed several mergers in business combinations recorded as
poolings-of-interests. Accordingly, the accompanying financial statements have
been restated to include these businesses for all periods presented. The Company
issued the following shares of Class A Common Stock in connection with the
mergers:
Shares
Merger Date Issued
- ------ ---- ------
Waste Stream October 29, 1998 701,461
Northern Sanitation December 23, 1998 220,964
NEI April 30, 1999 105,052 (1)
Westfield April 30, 1999 244,082
Corning Community Disposal June 4, 1999 59,375
Resource Waste Systems July 1, 1999 303,598
(1) 59,450 shares are subject to an indemnification obligation.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following is a reconciliation of the amounts (in thousands) of revenues and
net income previously reported for the three months and six months ended October
31, 1998 and 1999:
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended October Ended October Ended October Ended October
31, 1998 31, 1999 31, 1998 31, 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
As Previously Reported $ 41,548 $ 56,120 $ 82,028 $ 109,116
Poolings 6,265 0 10,868 2,040
--------- --------- --------- ---------
As Restated $ 47,813 $ 56,120 $ 92,896 $ 111,156
========= ========= ========= =========
Net Income:
As Previously Reported $ 2,644 $ 4,872 $ 4,898 $ 8,121
Poolings (436) 0 (569) (207)
--------- --------- --------- ---------
As Restated $ 2,208 $ 4,872 $ 4,329 $ 7,914
========= ========= ========= =========
</TABLE>
All of the pooled entities had fiscal year ends of December 31 and, subsequent
to the poolings, changed their year ends to conform with that of the Company.
Transactions Recorded as Purchases
During the three and six months ended October 31, 1999, the Company acquired 12
and 23 solid and liquid waste hauling operations respectively, in transactions
accounted for as purchases. These transactions were in exchange for
consideration of approximately $10.1 and $11.8 million in cash to sellers,
respectively. The operating results of these businesses are included in the
Consolidated Statement of Operations from the dates of acquisition. The purchase
prices have been allocated to the net assets acquired based on fair values at
the dates of acquisition with the residual amounts allocated to goodwill.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma combined information shows the results of the
Company's operations as though each of the acquisitions had been completed as of
May 1, 1998:
Six Months Ended Six Months Ended
October 31, 1998 October 31, 1999
---------------- ----------------
Revenues $110,814 $115,489
======== ========
Operating Income $ 11,917 $ 16,887
======== ========
Net Income $ 4,305 $ 8,034
======== ========
Diluted income per share - $ 0.28 $ 0.49
======== ========
Weighted average diluted
shares outstanding 15,490 16,545
======== ========
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 May 1, 1998 or the results of future operations
of the Company. Furthermore, the pro forma results do not give effect to all
cost savings or incremental costs that may occur as a result of the integration
and consolidation of the completed acquisitions.
2. COMMITMENTS AND CONTINGENCIES
In the normal course of business and as a result of the extensive governmental
regulation of the waste industry, the Company may periodically become subject to
various judicial and administrative proceedings involving Federal, state or
local agencies in the normal course of its business. In these proceedings, an
agency may seek to impose fines on the Company or to revoke, or to deny renewal
of, an operating permit held by the Company. In addition, the Company may become
party to various claims and suits for alleged damages to persons and property,
alleged violation of certain laws and for alleged liabilities arising out of
matters occurring during the normal operation of the waste management business.
However, there is no current proceeding or litigation involving the Company that
it believes will have a material adverse effect upon the Company's business,
financial condition and results of operations.
3. ENVIRONMENTAL LIABILITIES
The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment. As such, a significant portion
of the Company's operating costs and capital expenditures could be characterized
as costs of environmental protection. While the Company is faced, in the normal
course of business, with the need to expend funds for environmental protection
and remediation, it does not expect such expenditures to have a material adverse
effect on its financial condition or results of operations because its business
is based upon compliance with environmental laws and regulations and its
services are priced accordingly. In addition, as part of its ongoing operations,
the Company provides for estimated closure and post-closure monitoring costs
over the life of disposal sites as airspace is consumed. While all these costs
may increase in the future as a result of legislation or regulation, the Company
believes that in general it tends to benefit when government regulation
increases, since this may increase the demand for its services. Furthermore, the
Company believes it has the resources and experience to manage environmental
risk.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" which
supercedes Accounting Principal Board opinion No. 15 and establishes new
accounting standards for the presentation of earnings per share. Primary EPS is
replaced by Basic EPS, which is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Fully Diluted EPS is replaced with Diluted EPS, which gives effect to
all common shares that would have been outstanding if all dilutive potential
common shares (relating to such things as the exercise of stock warrants and
convertible preferred stock) had been issued. The treasury stock method used to
compute the number of potentially dilutive shares that would be repurchased with
the proceeds of potential stock issuances has been changed. The treasury stock
method now requires use of the average share price for the period instead of the
greater of the ending share price or the average share price.
The following is a reconciliation of the ending number of shares outstanding
with the number of shares used in the calculation of basic and diluted earnings
per share (in thousands):
<TABLE>
<CAPTION>
Three Months Three Months Six Months Six Months
Ended October Ended October Ended October Ended October
31, 1998 31, 1999 31, 1998 31, 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of shares outstanding, end of period:
Class A common stock 14,782 15,056 14,782 15,056
Class B common stock 988 988 988 988
Effect of weighted average shares
outstanding during the period (121) (7) (1,302) (36)
------- ------- ------- -------
Basic shares outstanding 15,649 16,037 14,468 16,008
Impact of potentially dilutive
Securities 920 437 1,022 537
------- ------- ------- -------
Diluted shares outstanding: 16,569 16,474 15,490 16,545
======= ======= ======= =======
</TABLE>
For the three months and six months ended October 31, 1999, options to purchase
1,056 and 996 common shares, respectively, were excluded from the calculation of
potential dilutive securities because their impact was anti-dilutive.
5. SEGMENT REPORTING
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("Statement 131"). Statement 131 establishes standards for
reporting information about operating segments in financial statements. In
general, Statement 131 requires that business entities report selected
information about operating segments in a manner consistent with that used for
internal management reporting.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The Company classifies its operations into three geographical regions: Eastern,
Central and Western. The Company's revenues are derived mainly from one industry
segment, which includes the collection, transfer, recycling and disposal of
non-hazardous solid waste. Any other activities in which the Company is engaged
are not material to the total results of operations of the Company; these
activities are reflected in with the geographic reporting structure
outlined above. (In thousands)
<TABLE>
<CAPTION>
Eastern Central Western Corporate Eliminations Total
------- ------- ------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended October 31, 1998:
Outside Revenue $ 7,143 $ 24,025 $ 16,636 $ 9 $ 0 $ 47,813
========= ========= ============ =========== ========= =========
Intercompany Revenue $ 573 $ 7,519 $ 1,454 $ 0 $ (9,546) $ 0
========= ========= ============ =========== ========= =========
Net Income/(Loss) $ 416 $ 2,323 $ 197 $ (728) $ 0 $ 2,208
========= ========= ============ =========== ========= =========
Total Assets $ 33,654 $ 123,545 $ 89,605 $ 6,911 $ 0 $ 253,715
========= ========= ============ =========== ========= =========
Six Months Ended October 31, 1998:
Outside Revenue $ 14,234 $ 47,017 $ 31,587 $ 58 $ 0 $ 92,896
========= ========= ============ =========== ========= =========
Intercompany Revenue $ 1,199 $ 14,984 $ 2,413 $ 0 $ (18,596) $ 0
========= ========= ============ =========== ========= =========
Net Income/(Loss) $ 805 $ 4,198 $ 1,062 $ (1,736) $ 0 $ 4,329
========= ========= ============ =========== ========= =========
Total Assets $ 33,654 $ 123,545 $ 89,605 $ 6,911 $ 0 $ 253,715
========= ========= ============ =========== ========= =========
Three Months Ended October 31, 1999:
Outside Revenue $ 9,989 $ 27,096 $ 18,374 $ 661 $ 0 $ 56,120
========= ========= ============ =========== ========= =========
Intercompany Revenue $ 733 $ 11,083 $ 3,503 $ 0 $(15,319) $ 0
========= ========= ============ =========== ========= =========
Net Income/(Loss) $ 1,117 $ 6,163 $ 2,020 $ (4,428) $ 0 $ 4,872
========= ========= ============ =========== ========= =========
Total Assets $ 54,773 $ 133,395 $ 112,025 $ 25,178 $ 0 $ 325,371
========= ========= ============ =========== ========= =========
Six Months Ended October 31, 1999
Outside Revenue $ 19,539 $ 53,670 $ 37,193 $ 754 $ 0 $ 111,156
========= ========= ============ =========== ========= =========
Intercompany Revenue $ 1,527 $ 19,937 $ 7,008 $ 0 $ (28,472) $ 0
========= ========= ============ =========== ========= =========
Net Income/(Loss) $ 2,191 $ 9,201 $ 3,272 $ (6,750) $ 0 $ 7,914
========= ========= ============ =========== ========= =========
Total Assets $ 54,773 $ 133,395 $ 112,025 $ 25,178 $ 0 $ 325,371
========= ========= ============ =========== ========= =========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company is a regional, integrated solid waste services company that provides
collection, transfer, disposal and recycling services in Vermont, New Hampshire,
Maine, Massachusetts, upstate New York and northern Pennsylvania. The Company's
objective is to continue to grow by expanding its services in markets where it
can be one of the largest and most profitable fully-integrated solid waste
services companies.
On January 12, 1999 the Company signed a definitive merger agreement with KTI, a
publicly traded solid waste handling company. KTI specializes in solid waste
disposal and recycling, and operates manufacturing facilities utilizing recycled
materials. The Company believes the merger will give it additional growth
opportunities in its existing and adjacent markets, and the ability to enter new
markets, as well as achieve operational efficiencies as a result of the
combination. Pursuant to the merger agreement, each share of KTI common stock
will be exchanged for 0.51 shares of the Company's class A common stock. The
stockholders of both companies approved the merger transaction on December 8,
1999. The companies anticipate that the merger will close during December, 1999.
Total merger transactional costs incurred as of October 31, 1999 related to the
KTI merger were $5.4 million. Total estimated merger costs are approximately $25
million dollars. All of these merger costs will be capitalized upon the
consummation of the purchase transaction.
The Company's revenues have increased from $47.8 million for the three months
ended October 31, 1998 to $56.1 million for the three months ended October 31,
1999 and from $92.9 million for the six months ended October 31, 1998 to $111.2
million for the six months ended October 31, 1999. From May 1, 1998 through
April 30, 1999, the Company acquired 55 solid waste collection, transfer and
disposal operations. Between May 1, 1999 and October 31, 1999, the Company
acquired an additional 23 such businesses. All but two of these acquisitions
were accounted for under the purchase method of accounting for business
combinations. Under the rules of purchase accounting, the acquired companies'
revenues and results of operations have been included together with those of
Casella Waste Systems, Inc. from the actual dates of the acquisitions and will
materially affect the period-to-period comparisons of the Company's historical
results of operations.
This Quarterly Report and other reports, proxy statements, and other
communications to stockholders, as well as oral statements by the Company's
officers or its agents, may contain forward-looking statements within the
meaning of Section 27A of the Securities Act, with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
Without limiting the foregoing, any statements contained in this Quarterly
Report that are not statements of historical fact may be deemed to be
forward-looking statements, and the words "believes", "anticipates", "plans",
"expects", and similar expressions are intended to identify forward-looking
statements. There are a number of factors of which the Company is aware that may
cause the Company's actual results to vary materially from those forecast or
projected in any such forward-looking statement, certain of which are beyond the
Company's control. These factors include, without limitation, those outlined
below in the section entitled `Certain Factors That May Affect Future Results'.
The Company's failure to successfully address any of these factors could have a
material adverse effect on the Company's results of operations.
General
The Company's revenues are attributable primarily to fees charged to customers
for solid and liquid waste collection, landfill, transfer and recycling
services. The Company derives a substantial portion of its collection revenues
from commercial, industrial and municipal services that are generally performed
under service agreements or pursuant to contracts with municipalities. The
majority of the Company's 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 the Company's disposal facilities and transfer stations. The majority of the
Company's landfill and transfer customers are under one to ten-year disposal
contracts, with most having clauses for annual cost of living increases.
Recycling revenues consist of revenues from the sale of recyclable commodities
and from the sale of tire derived fuel. Other revenues consist primarily of
revenue from septic/liquid waste operations and other sources. The Company's
revenues are shown net of intercompany eliminations. The Company typically
<PAGE>
establishes its intercompany transfer pricing based upon prevailing market
rates.
The table below shows, for the periods indicated, the percentage of the
Company's revenues attributable to services provided. The decrease in the
Company's collection revenues as a percentage of revenues and the increase of
the Company's landfill revenues as a percentage of revenues in the three and
six-month periods ended October 31, 1999 over the comparable periods of the
prior year is primarily attributable to the impact of the Company's acquisition
of Hyland Landfill during the first quarter of fiscal 1999 plus the increased
utilization of our North Country Landfill in Bethlehem, New Hampshire during the
first and second quarters of fiscal 2000. The increase in transfer revenues as a
percentage of revenues in the three and six-month periods ended October 31, 1999
over the comparable periods of the prior year is mainly due to the acquisition
of transfer station operations in the prior fiscal year. The increase in
recycling revenues is due primarily to increased volumes with additional
increased prices received from the sale of recycled commodities. The increase in
liquid waste and other revenues as a percentage of revenues in the three and
six-month periods ended October 31, 1999 over the comparable periods of the
prior year is primarily due to the impact of acquisitions of septic/liquid waste
operations since the first quarter of fiscal 1999.
Percentage of Revenue Percentage of Revenue
Three Months Ended Six Months Ended
------------------------- --------------------------
October 31, October 31, October 31, October 31,
1998 1999 1998 1999
---- ---- ---- ----
Collection 77.4% 69.8% 77.5% 70.6%
Landfill 6.8% 8.4% 6.6% 8.5%
Transfer 5.2% 6.8% 5.2% 6.4%
Recycling 7.8% 10.1% 7.7% 9.8%
Liquid Waste 2.8% 4.9% 3.0% 4.7%
------ ------ ------ ------
Total Revenue 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
Cost of operations includes labor, tipping fees paid to third party disposal
facilities, fuel, maintenance and repair of vehicles and equipment, worker's
compensation and vehicle insurance, the cost of purchasing materials to be
recycled, third party transportation expense, district and state taxes, host
community fees and royalties. Landfill operating expenses also include a
provision for closure and post-closure expenditures anticipated to be incurred
in the future, and leachate treatment and disposal costs.
General and administrative expenses include management, clerical and
administrative compensation and overhead, professional services and costs
associated with the Company's marketing and sales force and community relations
expense.
Depreciation and amortization expense includes depreciation of fixed assets over
the estimated useful life of the assets using the straight-line method,
amortization of landfill airspace assets under the units-of-production method,
and the amortization of goodwill and other intangible assets using the
straight-line method. The amount of landfill amortization expense related to
airspace consumption can vary materially from landfill to landfill depending
upon the purchase price and landfill site and cell development costs. The
Company depreciates all fixed and intangible assets, excluding non-depreciable
land, down to a $0 net book value, and does not apply a salvage value to any of
its fixed assets.
The Company capitalizes certain direct landfill development costs, such as
engineering, permitting, legal, construction and other costs directly associated
with expansion of existing landfills. Additionally, the Company also capitalizes
certain third party expenditures related to pending acquisitions, such as legal
and engineering. The Company will have material financial obligations relating
to closure and post-closure costs of its existing landfills and any disposal
facilities, which it may own or operate in the future. The Company has provided
and will in the future provide accruals for future financial obligations
relating to closure and post-closure costs of its landfills (generally for a
term of 30 years after final closure of a landfill) based on engineering
estimates of consumption of permitted landfill airspace over the useful life of
any such landfill. There can be no assurance that the Company's financial
obligations for closure or post-
<PAGE>
closure costs will not exceed the amount accrued and reserved or amounts
otherwise receivable pursuant to trust funds. The Company routinely evaluates
all such capitalized costs, and expenses those costs related to projects not
likely to be successful. Internal and indirect landfill development and
acquisition costs, such as executive and corporate overhead, public relations
and other corporate services, are expensed as incurred.
Results of Operations
The following table sets forth for the periods indicated the percentage
relationship that certain items from the Company's Consolidated Financial
Statements bear in relation to revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ------------------------
October 31, October 31, October 31, October 31,
1998 1999 1998 1999
(Restated) (Unaudited) (Restated) (Unaudited)
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Operations 59.2 55.4 59.9 55.8
General and Administrative 14.2 13.1 14.2 13.6
Depreciation and Amortization 14.2 14.3 13.6 14.1
Merger Costs - Poolings 1.6 0.0 0.8 1.3
----- ----- ----- -----
Operating Income 10.8 17.1 11.4 15.1
Interest Expense, Net 2.1 3.1 3.1 3.1
Other (Income)/Expense 0.1 (1.0) (0.2) (0.7)
Provision for Income Taxes 4.0 6.4 3.9 5.6
----- ----- ----- -----
Net Income 4.6% 8.7% 4.7% 7.1%
===== ===== ===== =====
EBITDA* 25.0% 31.5% 25.1% 29.2%
===== ===== ===== =====
</TABLE>
* See discussion and computation of EBITDA below
Revenues:
For the three months ended October 31, 1998 and 1999, revenues increased
approximately $8.3 million, or 17.4%, to $56.1 million from $47.8 million. For
the six months ended October 31, 1998 and 1999, revenue increased approximately
$18.3 million, or 19.7%, to $111.2 million from $92.9 million. Of these
increases, $3.9 million and $9.6 million, respectively, was due to the impact
of businesses acquired during fiscal year 1999 and the first six months of
fiscal year 2000. The balance of the increase was due to internal volume and
pricing growth.
Cost of Operations:
For the three months ended October 31, 1998 and 1999, cost of operations
increased approximately $2.8 million, or 9.8%, to $31.1 million from $28.3
million. Cost of operations, as a percentage of revenues decreased 3.8% to 55.4%
from 59.2%. For the six months ended October 31, 1998 and 1999, cost of
operations increased approximately $6.4 million, or 11.5%, to $62.0 million from
$55.7 million. Cost of operations as a percentage of revenues decreased by 4.1%
to 55.8% from 59.9%. The decrease was primarily the result of (i) productivity
improvements in the Company's collection operations as a result of better route
density from acquisitions, routing efficiencies through route audits and
front-end loader vehicle conversions completed throughout fiscal 1999; and (ii)
margin improvements because of price increases in fiscal 1999 and the first two
quarters of fiscal 2000.
<PAGE>
General and Administrative:
For the three months ended October 31, 1998 and 1999, general and administrative
expenses increased approximately $0.6 million, or 8.7%, to $7.4 million from
$6.8 million. General and administrative expenses, as a percentage of revenues
decreased to 13.1% from 14.2%. For the six months ended October 31, 1998 and
1999, general and administrative expenses increased approximately $2.0 million,
or 15.0%, to $15.2 million from $13.2 million. General and administrative
expenses, as a percentage of revenues, decreased to 13.6% from 14.2%. This
improvement is due to improved economies of scale achieved subsequent to the
acquisitions of the last eighteen months, and to the leveraging of our existing
corporate overhead.
Depreciation and Amortization:
For the three months ended October 31, 1998 and 1999, depreciation and
amortization increased approximately $1.3 million, or 18.8%, to $8.0 million
from $6.8 million. As a percentage of revenue, depreciation and amortization
remained relatively constant. For the six months ended October 31, 1998 and
1999, depreciation and amortization increased approximately $3.0 million, or
23.7%, to $15.7 million from $12.7 million. As a percentage of revenue,
depreciation and amortization increased to 14.1% from 13.6%. The increase in
depreciation and amortization is due to the increased concentration of revenues
in landfill activities, which typically have higher depreciation and
amortization charges relative to revenues compared to hauling revenues.
Merger Costs:
The merger related costs of $1.5 million recorded in the six months ended
October 31, 1999 were incurred in association with the Resource Waste Systems,
Inc. and Corning Community Disposal, Inc. mergers accounted for as poolings of
interests. The transactions are discussed above under `Notes to Consolidated
Financial Statements'.
Interest Expense, Net:
For the three months ended October 31, 1998 and 1999, interest expense, net
increased approximately $0.7 million, or 75%, to $1.7 million from $1.0 million.
As a percentage of revenue, interest expense, net increased to 3.1% from 2.1%.
This reflects the increase in the outstanding balance under the Company's
acquisition line of credit. For the six months ended October 31, 1998 and 1999,
interest expense, net increased approximately $0.6 million, or 19.1%, to $3.4
million from $2.9 million. As a percentage of revenue, interest expense, net
remained constant at 3.1%.
Other (income) expense, net:
Other (income) expense, net has not historically been material to the Company's
results of operations.
Provision for Income Taxes:
For the three months ended October 31, 1998 and 1999, provision for income taxes
increased approximately $1.7 million, or 87.0%, to $3.6 million from $1.9
million. As a percentage of revenue, provision for income taxes increased to
6.4% from 4.0%. For the six months ended October 31, 1998 and 1999, provision
for income taxes increased approximately $2.6 million, or 71.9%, to $6.2 million
from $3.6 million. As a percentage of revenue, provision for income taxes
increased to 5.6% from 3.9%. The increase reflects the Company's increase in
profits in the quarter and six month period ended October 31, 1999 over the same
periods in the prior fiscal year. The combined effective tax rate used by the
Company in recording taxes for interim periods has decreased from 46.5% in the
quarter ended October 31, 1998 to 43.8% in the same quarter of the current
fiscal year.
Liquidity and Capital Resources
The Company's business is capital intensive. The Company's capital requirements
include acquisitions, fixed asset purchases and capital expenditures for
landfill development, cell construction, and site and cell closure. The Company
<PAGE>
had positive net working capital of $3.3 million at April 30, 1999 and positive
net working capital of $8.6 million at October 31, 1999.
The Company has a $150 million revolving line of credit with a group of banks
for which BankBoston, N.A. is acting as agent. This line of credit is secured by
all assets of the Company, including the Company's interest in the equity
securities of its subsidiaries. This revolving line of credit matures in
January, 2003. Funds available to the Company under this line of credit were
$39.1 million at October 31, 1999. In connection with the proposed merger with
KTI, the Company will be required to replace this credit facility. The Company
has negotiated a new $450 million credit facility with a number of banks.
Net cash provided by operating activities was $24.1 million for the six months
ended October 31, 1999 compared to $20.1 million for the same period of the
prior fiscal year. The increase was primarily due to the increase in the
Company's net income for the six months ended October 31, 1999 over the prior
fiscal year, increased depreciation and amortization and increased closure/post
closure accruals.
Cash used in investing activities decreased $6.6 million from $57.2 million to
$50.6 million in the six months ended October 31, 1999 over the same period of
the prior fiscal year. The decrease in investing activities reflects fewer
acquisitions for the two quarters ended October 31, 1999 accounted for as
purchases, offset by capital expenditures. The Company's cash needs to fund
investing activities are expected to increase further as the Company continues
to complete acquisitions, and continues to expend capital in order to service
internal growth.
Net cash provided by financing activities was $27.0 million in the six months
ended October 31, 1999 compared to $37.1 million for the same period of the
prior year. The net cash provided by financing activities in the current fiscal
year reflects the borrowings on the Company's credit facility, offset by
repayments. Net cash provided by financing activities in the comparable period
of the prior year reflects the net proceeds of the follow-on offering and
borrowings on the Company's credit facility, offset by repayments.
Seasonality
The Company's revenues have historically been lower during the months of
November through March. This seasonality reflects the lower volume of waste
during the late fall, winter and early spring months primarily because: (i) the
volume of waste relating to construction and demolition activities decreases
substantially during the winter months in the northeastern United States; and
(ii) 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 the winter ski
industry. Since certain of the Company's operating and fixed costs remain
constant throughout the fiscal year, operating income results are therefore
impacted by a similar seasonality. In addition, particularly harsh weather
conditions could result in increased operating costs to certain of the Company's
operations.
The Company's quarterly revenues and operating results have varied significantly
in the past and are likely to vary substantially from quarter to quarter in the
future. The Company establishes its expenditure levels based on its expectations
as to future revenues, and, if revenue levels are below expectations, expenses
can be disproportionately high. Due to a variety of factors including general
economic conditions, governmental regulatory action, acquisitions, capital
expenditures and other costs related to the expansion of operations and services
and pricing changes, it is possible that in some future quarter, the Company's
operating results will be below the expectations of public market analysts and
investors. In such events, the Company's Stock price would likely be materially
and adversely affected.
Inflation and Prevailing Economic Conditions
To date, inflation has not had a significant impact on the Company's operations.
Consistent with industry practice, most of the Company's contracts provide for a
pass through of certain costs, including increases in landfill tipping fees and,
in some cases, fuel costs. The Company therefore believes it should be able to
implement price increases sufficient to offset most cost increases resulting
from inflation. However, competitive factors may require the Company to absorb
at least a portion of these cost increases, particularly during periods of high
inflation.
<PAGE>
The Company's business is primarily located in the northeastern United States.
Therefore, the Company's 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. The Company is unable to forecast or determine the timing
and/or the future impact of a sustained economic slowdown.
Year 2000 Issues
- ----------------
The approach of the year 2000 has raised concerns about the ability of
information technology systems and non-information technology systems, primarily
computer software programs, to properly recognize and process date-sensitive
information with respect to the Year 2000.
The Company has undertaken a Year 2000 project, comprised of four phases, to
address these concerns. Phase one, which has been completed, consisted of
awareness, Year 2000 planning, preparing a written plan, management approval and
support. Phase two involved the evaluation of all systems and equipment,
including hardware, software, security and voice mail, with respect to Year 2000
compliance. The completion date for phase two was June 30, 1999. Phase three
involved addressing any deficiencies identified in Phase two. The completion
date for Phase three was July 31, 1999. Phase four involved the validation and
testing of all systems and equipment, and has been completed. Casella has
performed, and continues to perform routine updates of all software and hardware
systems to facilitate Year 2000 compliance.
The Company has completed numerous acquisitions in recent months, and the
information systems of a limited number of these acquired operations have been
fully integrated with Casella's information systems. Casella continues to make
acquisitions as an integral component of its growth strategy. There is no
assurance that the information systems of all acquired operations, particularly
those acquisitions completed in the latter portion of calendar 1999, will be
Year 2000 compliant by December 31, 1999.
Casella uses well-regarded nationally known software vendors for both its
general accounting applications and industry-specific customer information and
billing systems, and all internal productivity software. Casella has been
informed by the respective vendors that all application software is fully Year
2000 compliant.
Casella's banking arrangement is with an international banking institution,
which has informed Casella that it is taking all necessary steps to insure its
customers' uninterrupted service throughout applicable Year 2000 time frames.
Casella's payroll is out-sourced by the largest provider of third-party payroll
services in the country, which has made a commitment of uninterrupted service to
their customers throughout applicable Year 2000 time frames.
Casella has replaced all older personal computers and servers. Casella has
acquired a Year 2000 compliant weight-measurement system. Currently six sites
are operational and Casella is in the process of implementing the remaining
sites. During the implementation, all non Year 2000 compliant hardware is
expected to be replaced.
Casella conducted a final testing of all systems in the second quarter of fiscal
2000 and believes it is fully year 2000 compliant except as set forth below.
Casella has expended approximately $1.5 million dollars over the last eighteen
months to address hardware and software-related Year 2000 compliance issues,
principally through the implementation of a new frame network system. A portion
of this investment is attributable to integrating information systems of
companies that the Company has acquired. Casella has utilized funds from current
operations and Casella's line of credit to meet Year 2000 remediation expenses.
No single customer represents more than one percent of Casella's revenues, and
we do not expect any material adverse effect on Casella's revenues in the event
an individual customer experiences Year 2000 problems.
In addition, Casella does not believe the Year 2000 noncompliance of the
Company's suppliers of goods and services, other than as specifically discussed
above, would have a material adverse effect on Casella's revenues and results of
operations. Accordingly, Casella's has not sought assurances of Year 2000
compliance from these other vendors.
<PAGE>
Casella has begun its evaluation of its most reasonably likely worst-case
scenarios with respect to the Year 2000 in the fourth calendar quarter of 1999
and has developed appropriate contingency plans.
EBITDA
EBITDA represents operating income (earnings before interest and taxes, or
"EBIT") plus depreciation and amortization expense. EBITDA is not a measure of
financial performance under generally accepted accounting principles, but is
provided because the Company understands that certain investors use this
information when analyzing the financial position and performance of the
Company.
Amounts in Thousands
Three Months Ended Six Months Ended
------------------ ------------------
10/31/98 10/31/99 10/31/98 10/31/99
Operating Income $ 5,185 $ 9,620 $10,620 $16,801
Depreciation and Amortization 6,771 8,045 12,668 15,667
------ ------ ------ ------
EBITDA $11,956 $17,665 $23,288 $32,468
====== ====== ====== ======
Analysis of the factors contributing to the change in EBITDA is included in the
discussions above.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Quarterly Report and presented elsewhere by management from time to time.
There can be no assurance that the Company's merger with KTI will result in the
synergies and other benefits anticipated by the two companies. The benefits of
the merger could be impacted by KTI's operating results, which have been below
expectations in recent quarters.
In connection with the merger with KTI, the Company is required to replace its
existing credit facility. There can be no assurance that the Company's new
credit facility will be on terms as favorable as those sought by the Company. In
the event that it is unable to obtain a sufficient credit facility, the
Company's acquisition program, results of operations and financial condition
could be materially and adversely affected. If the Company were unable to obtain
a new credit facility, it will be unable to repay its existing credit facility
and will be in default.
The Company's objective is to continue to grow by expanding its services in
markets where it can be one of the largest and most profitable fully integrated
solid waste services companies. The Company has also expanded into markets,
which are more urban than those historically served by the Company, including
markets in and around Boston, Massachusetts, and expects to continue to expand
in those markets. Such growth, if it were to occur, could place a significant
strain on the Company's management and operational, financial and other
resources.
The Company has incurred net losses in the past. There can be no assurance that
the Company will be profitable in the future, and the Company may incur
increased volatility in its operating results as a result of the KTI
acquisition.
The Company's strategy envisions that a substantial part of the Company's future
growth will come from making acquisitions consistent with its strategy. There
can be no assurance that the Company will be able to identify suitable
acquisition candidates and, once identified, to negotiate successfully their
acquisition at a price or on terms and conditions favorable to the Company, or
to integrate the operations of such acquired businesses with the Company.
Certain of these acquisitions may be of significant size and may include assets
that are outside the Company's geographic territories or are ancillary to the
Company's core business strategy.
<PAGE>
The Company is highly dependent upon the services of the members of its senior
management team, the loss of any of whom may have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, the Company's future success depends on its continuing ability to
identify, hire, train, motivate and retain highly trained personnel.
The Company anticipates that any future business acquisitions will be financed
through cash from operations, borrowings under its bank line of credit, the
issuance of shares of the Company's Class A Common Stock and/or seller
financing. There can be no assurance that the Company will have sufficient
existing capital resources or will be able to raise sufficient additional
capital resources on terms satisfactory to the Company, if at all, in order to
meet its capital requirements. The Company's ability or willingness to use its
common stock for acquisitions may be limited if the trading price of the stock
is perceived to be undervalued.
The Company's operating program depends on its ability to operate and expand the
landfills it owns and leases and to develop new landfill sites. Several of the
Company's landfills are subject to local laws purporting to regulate their
expansion and other aspects of their operations. There can be no assurance that
the laws adopted by municipalities in which the Company's landfills are located
will not have a material adverse effect on the Company's utilization of its
landfills or that the Company will be successful in obtaining new landfill sites
or expanding the permitted capacity of any of its current landfills once its
remaining disposal capacity has been consumed.
The Company may be adversely affected by changes in the commodity pricing of
recycled materials.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil lawsuit
against Casella and two of Casella's officers and directors in the Rutland
Superior Court, Rutland County, and State of Vermont. In the Complaint, Mr.
Freeman seeks compensation for services allegedly performed by him prior to
1995. Mr. Freeman is seeking a three-percent equity interest in Casella or the
monetary equivalent thereof, as well as punitive damages. Casella and the
officers and directors have answered the Complaint, denied Mr. Freeman's
allegations of wrongdoing, and asserted various defenses. In order to facilitate
the completion of the initial public offering of the Company's Class A Common
Stock in November 1997, certain stockholders of Casella agreed to indemnify
Casella for any settlement by Casella or any award against Casella in excess of
$350,000 (but not legal fees paid by or on behalf of Casella or any other third
party). Casella accrued a $215,000 reserve for this claim during the year ended
April 30, 1998.
On May 12, 1998, Casella filed suit in New York Supreme Court, Allegany County
against the Town of Angelica, New York seeking a temporary restraining order and
preliminary injunctive relief against the Town's enforcement of a recently-
enacted local law which would prohibit the expansion of the Hyland landfill,
would require the landfill and the operator thereof to receive an additional
permit from the Town of Angelica to continue to operate, would prevent the
disposal of yard waste, may preclude the disposal of certain types of industrial
waste and would impose certain other restrictions on the landfill. A temporary
restraining order was granted by the court on May 14, 1998 in favor of Casella,
and by a decision dated July 13, 1998, the court granted Casella's motion for a
preliminary injunction. On September 9, 1998, the Town of Angelica filed a
Notice of Appeal but has not yet perfected that appeal. If Casella is not
successful in its lawsuit, and if the Town of Angelica seeks to enforce the law
by its terms, then Casella would be required to obtain an additional permit from
the Town of Angelica to operate the Hyland landfill, the expansion of the
landfill beyond the current permitted capacity would be prohibited, and Casella
would be unable to dispose of yard waste and may be precluded from disposing of
certain industrial wastes at the landfill. There can be no assurance that such
limitations would not have a material adverse effect on Casella's business,
financial condition and results of operations. Casella began accepting waste at
the Hyland facility on July 22, 1998, and is in active settlement negotiations
with the town.
Casella's wholly owned subsidiary, North Country Environmental Services, Inc.
("NCES"), is a party to consolidated civil actions (Case Nos. 98-E-141 and
98-E-151) against the Town of Bethlehem, New Hampshire (the "Town"), before the
Grafton Superior Court in North Haverhill, New Hampshire. On October 16, 1998,
NCES commenced an action for declaratory relief against the Town seeking, on a
variety of grounds, to invalidate a Town zoning ordinance which
<PAGE>
purports to prohibit the expansion of NCES's landfill beyond its currently
permitted capacity. The Town has taken the position that NCES may not expand the
landfill beyond Stage II, Phase I, which has reached capacity. NCES sought a
declaration that it requires no further approvals from the Town to expand the
landfill throughout its 87-acre parcel and that certain financial exactions
imposed by a 1986 Town land-use approval are invalid. In the alternative, NCES
sought compensation under state law for the inverse condemnation of its
property.
On October 23, 1998, the Town filed a petition for injunctive and declaratory
relief against NCES. The Town's petition sought to enjoin NCES's construction of
Stage II, Phase II of the landfill and to prevent any further expansion as
violative of the above-noted Town zoning ordinance. The construction of Stage
II, Phase II was proceeding at that time pursuant to a construction permit
issued by the New Hampshire Department of environmental Services (NHDES) on
September 15, 1998. On October 30, 1998, the court entered a preliminary
injunction requiring NCES to suspend construction of Stage II, Phase II. When
the Town failed to post an injunction bond, however, the court permitted NCES to
complete and cover the liner system in Stage II, Phase II, before the onset of
winter.
On November 30, 1998, NCES and the Town proceeded to trial on eight of NCES's
eleven claims for relief and on the Town's claims for permanent injunctive and
declaratory relief. Earlier, the remaining three NCES claims were bifurcated for
later trial, if needed. On the day of trial, the Town filed two counterclaims
seeking to establish the lawfulness of the financial exactions challenged by
NCES's October 16, 1998 petition.
The Grafton Superior Court issued its order on NCES's first eight claims and the
Town's request for a permanent injunction and declaratory relief on February 1,
1999. The court declined to decide whether the Town's zoning ordinance is valid;
rather, the court held that NCES had appropriated a 51-acre tract of land
comprised of a 10-acre and a 41-acre parcel for landfilling purposes. Stage II,
Phase II is within the 51-acre tract. The court also found that NCES had
obtained permission to operate its landfill facility on this 51-acre tract prior
to the enactment of the challenged zoning ordinance and held that the ordinance
did not apply to NCES's operation of its landfill facility on this tract.
Consequently, the court held that the Town lacked authority to enforce the
zoning ordinance against NCES with respect to the 51-acre tract and denied the
Town's petition in its entirety. The court did not decide the validity of the
zoning ordinance as it relates to 36 acres adjoining the 51-acre tract after
finding that NCES had not demonstrated a present intent to develop this property
for landfilling. Consequently, NCES's ability to use these 36 acres for
landfilling remains unresolved.
On February 10, 1999, the Town moved the Grafton Superior Court to clarify and
reconsider its order. On March 22, 1999, the court denied reconsideration but
offered some clarification, which did not result in any substantive change in
its earlier order. On April 20, 1999, the Town filed a notice of appeal with the
New Hampshire Supreme Court seeking review of the superior court's order. NCES
filed a notice of cross-appeal on April 29, 1999.
Concurrently, on March 24, 1999, a special interest group, Environmental Action
for Northern New Hampshire, Inc. ("EANNH") sought to intervene before the
superior court. The reason EANNH gave for seeking intervention was to introduce
evidence which it claimed showed that there were size limitations on the
landfill implicit in the land-use approvals obtained by NCES's predecessors in
1976 and 1986. The superior court denied EANNH intervention on April 22, 1999,
and on May 24, 1999, EANNH appealed the denial of intervention to the New
Hampshire Supreme Court.
The Town's notice of appeal centers on its argument that there were implied
limitations upon the size of the landfill that could be operated by NCES and its
predecessors under the land-use approvals granted by the Town in 1976 and 1986.
NCES's cross-appeal seeks a determination that it has all local approvals
necessary to landfill throughout the entire 87-acre parcel, that the Town's
restrictive zoning ordinance is unlawful for several reasons, and that the
Town's attempted enforcement of the zoning ordinance was in bad faith, entitling
NCES to its attorney's fees.
The New Hampshire Supreme Court has yet to accept any of the appeals. NCES has
filed a motion for summary disposition of EANNH's appeal, but there has yet to
be a ruling on that motion. NCES has also learned that a second special interest
group, AWARE, Inc., intends to seek AMICUS CURIAE status so it may submit briefs
to the Supreme Court in support of the Town's appeal.
In summer 1999, the superior court found that the financial exactions imposed in
1986 by the Town as a condition of land-use approval were unlawful. These
exactions consist of a discounted tipping fee for Town solid waste and a per-
<PAGE>
ton payment to the Town for all solid waste originating from outside the Town
and deposited at the landfill. NCES stopped complying with the exactions in
October of 1998. NCES and the Town have filed cross-motions for summary judgment
respecting the enforceability of the exactions and are awaiting a ruling.
Whatever the court's decision, NCES expects an appeal.
In a separate but related matter, the Waste Management Division of NHDES ("WMD")
issued operating approval to NCES for Stage II, Phase II of the landfill on
March 25, 1999. NCES has been landfilling in Stage II, Phase II since that time.
On April 23, 1999, EANNH appealed the operating approval to the Waste Management
Council, an appellate administrative body with jurisdiction to review certain
decisions of the WMD. EANNH has contended on its appeal that the operating
approval should be suspended because the superior court's order in NCES's favor
is on appeal and hence not final. EANNH has also argued that NCES misled the WMD
into issuing the operating approval by certifying that it had all local
approvals necessary to operate Stage II, Phase II when the order establishing
this proposition was on appeal.
NCES has filed a motion to dismiss EANNH's appeal to the Waste Management
Council on the ground that the Council lacks jurisdiction over the appeal and
that EANNH lacks standing to assert it. The Office of the Attorney General of
the State of New Hampshire has joined in that motion. In the alternative, NCES
has sought a stay of the Council proceedings pending the outcome of the Supreme
Court appeal. EANNH has agreed to a stay provided there is a suspension of the
operating approval during the pendency of the Supreme Court appeal. NCES has
objected to any such suspension.
Following the announcement of the merger, Casella received a request for certain
information and documents from the Maine Attorney General related to its
existing operations in the State of Maine, and to the competitive impact of the
proposed merger with KTI. In response to this request, Casella made available
certain responsive information and documents. Since that time, without an
admission of any liability, Casella has entered into an agreement resolving the
Attorney General's competitive concerns. The agreement, formally contained in a
Consent Order, was submitted to the Maine Superior Court and approved on
September 28, 1999, to become effective upon the date of the consummation of the
merger with KTI. In summary, the Order requires Casella to modify its existing
small containerized hauling contracts in northern Maine to permit termination
upon thirty days written notice and to limit the charge for early termination to
a certain amount. It also requires Casella to operate (to the extent it controls
such operation) the gate, scale house and disposal area of the Penobscot
waste-to-energy facility in Orrington, Maine, under terms and conditions no less
favorable than those provided to it an to be recused from participation in the
bid process for contracts relating to the transportation or disposal or residue
from that facility.
Casella has brought an action against the Town of Hampden, Maine to set aside
the Town's efforts to block Casella's construction of approximately 3,300,00
tons of capacity, for which Casella has been granted a permit by the State of
Maine. The action is pending in the Penobscot County Superior Court in Bangor,
Maine.
In addition, the Company is a defendant in a lawsuit brought by Woodstock '99,
LLC seeking damages for breach of two service contracts entered into by the
Company for the servicing of portable chemical toilets during the Woodstock
concert held in Rome, N.Y. in late July, 1999. Woodstock '99, LLC is seeking
damages of up to $2,000,000.00. The Company intends to vigorously defend the
lawsuit and has filed its Answer and Counterclaim, along with extensive
discovery requests.
Casella offers no prediction of the outcome of any of the proceedings described
above.
The Company is not aware of any other non-routine or incidental material legal
proceedings prior to the merger with KTI. However, upon the closing of the
merger with KTI, the Company or its subsidiaries will be subject to the
litigation to which KTI is currently a party, as described in the Company's S-4
Registration Statement filed in connection with the merger.
ITEM 2. CHANGES IN SECURITIES
Changes in Rights and Classes of Stock
None.
Sales of Unregistered Securities
None
<PAGE>
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendments No. 2 and 3 to Agreement and Plan of Merger among
registrant, Rutland Acquisition Sub., Inc. and KTI, Inc.
(incorporated by reference from Exhibit 2.1 to the registration
statement on Form S-4 of Casella, as filed on November 12, 1999).
27.1 Financial Data Schedule for Period Ended October 31, 1999
27.2 Restated Financial Data Schedule for Period Ended October
31, 1998
(b) Reports on Form 8-K:
On May 13, 1999, the Company filed a Report on Form 8-K amending the Agreement
and Plan of Merger between the Company and KTI, Inc. and attaching the press
release issued in conjunction with such agreement.
On September 9, 1999, the Company filed a Report on 8-K amending the Agreement
and Plan of Merger for the second time between the Company and KTI, Inc. and
attaching the press release issued in conjunction with such agreement.
On September 29, 1999 the Company filed a report on 8-K amending the Agreement
and Plan of Merger for the third time between the Company and KTI, Inc. and
attaching the press release issued in conjunction with such agreement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Casella Waste Systems, Inc.
Date: December 10, 1999 By: /s/ Jerry Cifor
-----------------------------------
Jerry Cifor
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE OCTOBER
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