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 AND EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES AND 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 March 1, 1999:
Class A Common Stock 14,154,630
Class B Common Stock 988,200
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------- ------------------- ----------------------
April 30, January 31,
1998 1999
(Restated) (Unaudited)
- ------------------------------------------------------- ------------------- ----------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $2,329 $155
Restricted Cash - Closure Fund Escrow 304 453
Accounts Receivable-trade, net of allowance
For doubtful accounts of $1,331 and $1,797. 19,028 23,227
Other Current Assets 3,932 4,413
------------------- ----------------------
Total Current Assets 25,593 28,248
------------------- ----------------------
Property, Plant and Equipment, net of
Accumulated depreciation and amortization of
$44,962 and $59,572. 88,074 115,751
Intangible Assets, net 80,041 96,968
Restricted Funds - Closure Fund Escrow 3,865 4,509
Other Assets 1,951 2,084
------------------- ----------------------
$199,524 $247,560
=================== ======================
</TABLE>
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
(In thousands, except for share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------- ------------------ ---------------------------
April 30, January 31,
1998 1999
(Restated) (Unaudited)
- ------------------------------------------------------- ------------------ ---------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $4,249 $2,960
Current Maturities of Capital Lease Obligations 481 416
Accounts Payable 11,841 10,451
Other Accrued Liabilities 5,941 7,711
------------------ ---------------------------
Total Current Liabilities 22,512 21,538
------------------ ---------------------------
Long-Term Debt, Less Current Maturities 79,470 64,485
------------------ ---------------------------
Capital Lease Obligations, Less Current Maturities 1,085 1,556
------------------ ---------------------------
Other Long-Term Liabilities 13,565 13,024
------------------ ---------------------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Common Stock - 114 141
Authorized - 100,000,000 Shares, $.01 par value
Issued and Outstanding - 11,445,812 and
14,151,180 shares.
Class B Common Stock - 10 10
Authorized - 1,000,000 Shares, $.01 par value;
10 Votes per Share. Issued and Outstanding - 988,200 shares.
Additional Paid-In Capital 96,356 153,778
Accumulated Deficit (13,588) (6,972)
------------------ ---------------------------
82,892 146,957
------------------ ---------------------------
$199,524 $247,560
================== ===========================
</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 Nine Months Ended
---------------------------- -------------------------------
<S> <C> <C> <C> <C>
January 31, January 31, January 31, January 31,
1998 1999 1998 1999
(Restated) (Restated)
---------- ---------------- ------------- ------------
Revenues $33,842 $40,220 $100,687 $123,957
---------- ---------------- ------------- ------------
Operating Expenses:
Cost of Operations 20,839 22,661 61,527 71,012
General and Administrative 5,044 6,132 14,809 18,309
Depreciation and Amortization 5,024 6,085 14,316 17,757
Merger Costs (Pooling) 290 409 290 1,164
---------- ---------------- ------------- ------------
31,197 35,287 90,942 108,242
---------- ---------------- ------------- ------------
Operating Income 2,645 4,933 9,745 15,715
---------- ---------------- ------------- ------------
Other (Income) Expenses
Interest Income (61) (65) (224) (267)
Interest Expense 1,626 1,077 5,981 3,799
Other Expense (Income), net (162) (65) (162) (390)
---------- ---------------- ------------- ------------
1,403 947 5,595 3,142
---------- ---------------- ------------- ------------
Income Before Provision for Income Taxes and
Extraordinary Items 1,242 3,986 4,150 12,573
Provision for Income Taxes 669 1,674 2,064 5,263
---------- ---------------- ------------- ------------
Net Income 573 2,312 2,086 7,310
========== ================ ============= ============
Accretion of Preferred Stock and Put Warrants 0 0 (974) 0
---------- ---------------- ------------- ------------
Net Income (Loss) Applicable to Common
Stockholders $573 $2,312 $1,112 $7,310
========== ================ ============= ============
Basic Earnings per Share of Common Stock $0.05 $0.15 $0.14 $0.51
========== ================ ============= ============
Basic Weighted Average Common Stock
Shares Outstanding 12,225 15,097 7,678 14,203
========== ================ ============= ============
Diluted Earnings per Share $0.04 $0.15 $0.10 $0.48
========== ================ ============= ============
Diluted Weighted Average Common Stock and
Common Stock Equivalent Shares Outstanding 13,360 15,915 11,246 15,118
========== ================ ============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
(Restated) (Unaudited)
---------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $2,086 $7,310
---------- -------------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities-
Depreciation and Amortization 14,316 17,757
(Gain) Loss on Sale of Equipment (426) (32)
Changes in Assets and Liabilities, net of
Effects of Acquisitions -
Accounts Receivable (2,860) (3,246)
Accounts Payable (1,085) (2,714)
Other Current Assets/Liabilities (1,602) 3,800
---------- -------------
10,429 15,565
---------- -------------
Net Cash Provided by Operating Activities 12,515 22,875
---------- -------------
Cash Flows from Investing Activities:
Acquisitions, net of Cash Acquired (26,044) (26,388)
Additions to Property and Equipment (17,426) (36,431)
Proceeds from Sale of Equipment 1,093 244
Other Assets/Liabilities 503 (4,000)
---------- -------------
Net Cash Used in Investing Activities (41,874) (66,575)
---------- -------------
Cash Flows from Financing Activities:
Redemption of Series C Preferred Stock
(2,970) 0
Call of Redeemable Stock Warrants (525) 0
Distributions to Shareholders - Pooled Entity (214) (131)
Proceeds from Issuance of Common Stock 48,492 56,678
Proceeds from Long-Term Borrowings 116,481 52,499
Principal Payments on Long-Term Debt (129,605) (65,638)
Principal Payments on Capital Leases (759) (1,670)
Proceeds from Issuance of Stock Warrants 827
---------- -------------
Net Cash Provided by Financing Activities 31,727 41,738
---------- -------------
Net Increase (Decrease) in Cash and Cash Equivalents 282 (1,962)
Cash and Cash Equivalents, Beginning of Period 2,447 2,117
---------- -------------
Cash and Cash Equivalents, End of Period $2,729 $155
========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JANUARY 31, 1998 and 1999
(In thousands)
<TABLE>
<CAPTION>
1998 1999
(Restated) (Unaudited)
--------------- ----------------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for -
Interest $6,308 $4,204
=============== ================
Income Taxes $732 $2,856
=============== ================
Supplemental Disclosures of Noncash Investing and
Financing Activities:
Summary of Entities Acquired -
Fair Market Value of Assets Acquired $31,965 $29,868
Common Stock Issued (1,352) 0
Cash Paid (26,045) (26,388)
--------------- ----------------
Liabilities Assumed and Notes Payable to
Sellers $4,568 $3,480
=============== ================
</TABLE>
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, 1998 and January 31, 1999, the
consolidated statements of operations for the three months and nine months ended
January 31, 1998 and 1999, and the consolidated statements of cash flows for the
nine months ended January 31, 1998 and 1999 are unaudited. In the opinion of
management, such financial statements include all adjustments, consisting only
of normal recurring 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,
1998 to reflect the mergers with Waste Stream and Northern Sanitation (see note
1) consummated on October 29, 1998 and December 23, 1998, 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 and nine months ended January 31, 1998 and consolidated statement
of cash flows for the nine months ended January 31, 1998 to reflect the mergers
with Waste Stream and Northern Sanitation (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, 1998. These were included as part of the Company's Annual
Report on Form 10-K (the "Annual Report").
1. BUSINESS COMBINATIONS
Transactions Recorded as a Pooling of Interests
On September 4, 1998 the Company completed its merger with Hakes C & D Disposal,
Inc. in a business combination recorded as a pooling of interests. This facility
is a landfill in western New York State permitted to accept construction and
demolition material. As of the merger date the facility construction was not
complete and the facility had not begun accepting waste. Since there had been no
material operations activity as of the merger date, aside from construction,
prior period balance sheets and statements of operations and cash flows were not
restated for this transaction. The Company issued 67,617 shares of its class A
common stock for all of the outstanding stock of Hakes C & D Disposal, Inc. This
transaction has been accounted for as an immaterial pooling on the date of
acquisition. Accordingly, retained earnings has been adjusted to reflect the
accumulated deficit of Hakes C & D Disposal.
On October 29, 1998, the Company completed its merger with Waste Stream Inc.,
B&C Sanitation Corporation, North Country Trucking, Inc., Better Bedding Corp.,
R.A. Bronson, Inc., BBC LLC, NTC LLC and Grasslands, Inc., (together - "Waste
Stream") in a business combination recorded as a pooling of interests and
accordingly the accompanying financial statements have been restated to include
Waste Stream. The businesses acquired were under common control, and the
transaction was considered to be and accounted for as a single acquisition. The
Company issued 701,461 shares of its class A common stock for all of the
outstanding stock of Waste Stream.
On December 23, 1998, the Company completed its merger with Northern Sanitation,
Inc and Northern Properties Corp. of Plattsburgh, Inc. (together - "Northern
Sanitation") in a business combination recorded as a pooling of interests and
accordingly the accompanying financial statements have been restated to include
Northern Sanitation. The businesses acquired were under common control, and the
transaction was considered to be and accounted for as a single acquisition. The
Company issued 220,964 shares of its class A common stock for all of the
outstanding stock of Northern Sanitation.
Following is a reconciliation of the amounts (in thousands) of revenues and net
income previously reported for the three and nine months ended January 31, 1998:
<PAGE>
<TABLE>
<CAPTION>
Three Months ended Nine Months ended
January 31, 1998 January 31, 1998
<S> <C> <C>
Revenues:
As previously reported $28,769 $ 87,321
Waste Stream 4,315 11,083
Northern Sanitation 979 2,917
Elimination of intercompany (221) (634)
revenue
As restated $33,842 $ 100,687
Net income applicable to common
shareholders:
As previously reported $ 502 $ 949
Waste Stream 96 163
Northern Sanitation (25) 0
As restated $ 573 $ 1,112
</TABLE>
Transactions Recorded as Purchases
During the year ended April 30, 1998, the Company completed 33 acquisitions of
solid and liquid waste hauling operations, exclusive of the pooling transactions
described above, for approximately $35.8 million in cash, $5.2 million in notes
to sellers and liabilities assumed and 103,132 shares of class A common stock
issued. These transactions were accounted for as purchases.
During the nine months ended January 31, 1999, the Company acquired 34 solid and
liquid waste hauling operations, one private solid waste landfill and one wood
processing facility in transactions accounted for as purchases. These
transactions were in exchange for consideration of approximately $26.4 million
in cash and $3.5 million in notes to sellers and liabilities assumed. 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.
The following unaudited pro forma combined information (rounded to thousands
except for per share data) shows the results of the Company's operations as
though each of the completed acquisitions had occurred as of May 1, 1997:
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
January 31, 1999 January 31, 1998
----------------------- -----------------------
<S> <C> <C>
Revenues $130,349 $130,324
Operating Income 16,275 11,273
Net Income 7,255 1,765
Pro forma income (loss) per share - $0.48 $0.13
diluted
Weighted average common stock 15,118 13,360
shares outstanding - diluted
</TABLE>
<PAGE>
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, 1997 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
On May 12, 1998, the Company 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 the Company, and by a decision dated July 13, 1998, the court granted the
Company'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 the
Company is not successful in its lawsuit, and if the Town of Angelica seeks to
enforce the law by its terms, then the Company 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 the Company would be unable to dispose of yard waste and may be
precluded from disposing of industrial waste at the landfill. There can be no
assurance that such limitations would not have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
began accepting waste at the Hyland facility on July 22, 1998.
The Company'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 purports to
prohibit the expansion of NCES's landfill beyond its current capacity. It is the
Town's position that NCES may not expand the landfill beyond Stage II, Phase I,
which NCES believes will be at capacity in early 1999. NCES has also 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
has 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 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.
NCES may not commence operations in Stage II, Phase II, until NHDES issues an
operating permit. NHDES has notified NCES that it will not issue operating
approval until the litigation with the Town is resolved in some fashion. 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. 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 challenged zoning 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 challenged 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 challenged 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 this 36 acres for landfilling remains
unclear.
On February 10, 1999, the Town moved the Grafton Superior Court to clarify and
reconsider its order. NCES objected to this motion. The court has not yet ruled
on the Town's motion, and NCES does not know when the court may rule. The Town
may appeal any decision of the Grafton Superior Court that permits NCES to
construct and operate its landfill facility beyond its current footprint. NCES
cannot predict the outcome of either the Town's motion to reconsider or any
eventual appeal.
The Company is a party to various other litigation matters arising in the
ordinary course of business. Management believes that the ultimate resolution of
these matters will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
In the normal course of business and as a result of the extensive government
regulation of the solid waste industry, the Company periodically may become
subject to various judicial and administrative proceedings and investigations
involving federal, state, or local agencies. To date, the Company has not been
required to pay any material fine or had a judgment entered against it for
violation of any environmental law. From time to time, the Company also may
<PAGE>
be subjected to actions brought by citizens groups in connection with the
permitting of landfills or transfer stations, or alleging violations of the
permits pursuant to which the Company operates. From time to time, the Company
is also subject to claims for personal injury or property damage arising out of
accidents involving its vehicles or other equipment.
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.
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 Nine months Three months Nine months
ended 1/31/98 ended 1/31/98 ended 1/31/99 ended 1/31/99
<S> <C> <C> <C> <C>
Number of shares outstanding, end of period:
Class A common stock 11,425 11,425 14,151 14,151
Class B common stock 1,000 1,000 988 9
Effect of weighting the average shares
outstanding during the period (200) (4,748) (121) (1,302)
Basic shares outstanding 12,225 7,677 15,097 14,203
Impact of potentially dilutive 1,135 3,568 818 915
securities
Fully diluted shares outstanding: 13,360 11,245 15,915 15,118
</TABLE>
<PAGE>
5. RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income ("Statement 130").
Statement 130 establishes standards for reporting and presentation of
comprehensive income and its components. Comprehensive income is defined as the
change in equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources and includes all changes in
equity during a period except those resulting from investments by owners and
distributions to owners. The Company adopted Statement 130 effective May 1, 1998
and there was no effect on the Company's financial statements upon adoption.
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 annual financial statements
that requires that those enterprises report selected information about operating
segments in the interim financial reports issued to shareholders. Statement 131
is effective for fiscal years beginning after December 15, 1997. Adoption is not
required for interim periods in the initial year of application. The Company
believes that the adoption of Statement 131 will not have a material effect on
the Company's Financial Statements.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement 133"). Statement 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.
Statement 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement Statement 133 as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). The Company has yet to quantify the impacts of adopting Statement
133 on its financial statements and has not determined the timing or method of
adoption. However, Statement 133 could increase volatility in earnings and other
comprehensive income.
<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, northern 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 entered into an Agreement and Plan of Merger
with KTI, Inc., pursuant to which KTI will become a wholly-owned subsidiary of
the Company. Pursuant to the Agreement and Plan of Merger, each share of KTI,
Inc. common stock will be converted into 0.91 shares of the Company's Class A
Common Stock. The closing is subject to approval by the stockholders of the
companies, antitrust clearance, qualification of the merger as a tax-free
pooling of interests, and other customary closing conditions. The companies
anticipate that the merger should close during the second calendar quarter of
1999.
The Company's revenues have increased from $33.9 million for the three months
ended January 31, 1998 to $40.2 million for the three months ended January 31,
1999. For the nine-month periods ending on these dates revenues increased from
$100.7 million to $124.0 million respectively. From May 1, 1997 through April
30, 1998, the Company acquired 34 solid waste collection, transfer and disposal
operations. Between May 1, 1998 and January 31, 1999, the Company acquired an
additional 39 such businesses, including the Hyland Landfill, a Subtitle D
landfill in western upstate New York, and Hakes C & D Landfill, a C&D disposal
facility in western New York State. All but four 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. In December 1997, October 1998 and December 1998 the Company
acquired waste collection and transfer operations in transactions recorded as
poolings of interests. In September 1998 the Company acquired the Hakes C & D
landfill in a transaction recorded as a pooling of interests. This September,
1998 transaction has been accounted for as an immaterial pooling on the date of
acquisition. Accordingly, retained earnings has been adjusted to reflect the
accumulated deficit of the C & D facility.
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-year 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
<PAGE>
septic/liquid waste operations and other sources. The Company's revenues are
shown net of intercompany eliminations. The Company typically 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 increase in the
Company's collection revenues as a percentage of revenues in the current fiscal
quarter is primarily attributable to the impact of the Company's acquisition of
collection businesses during fiscal 1998 and during the first three quarters of
fiscal 1999, as well as to internal growth through price and business volume
increases. The decrease in the Company's landfill revenues and in the Company's
transfer revenues as a percentage of revenues in the current fiscal year is
mainly due to a proportionately greater increase in collection revenues
occurring as the result of acquisitions in that area; also, as the Company
acquires collection businesses from which it previously had derived transfer or
disposal revenues, the acquired revenues are recorded by the Company as
collection revenues. The decrease in recycling revenues is due primarily to
decreased prices received from the sale of recycled commodities. The increase in
liquid waste and other revenues as a percentage of revenues in the current
fiscal year is primarily due to the impact of acquisitions of septic/liquid
waste operations since the first quarter of fiscal 1999.
<TABLE>
<CAPTION>
% of Revenue
------------
Three months ended Nine months ended
------------------ -----------------
1/31/98 1/31/99 1/31/98 1/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Collection 75.9% 76.3% 74.9% 76.8%
Landfill 9.8 8.1 11.3 8.4
Transfer 5.5 5.2 5.8 5.3
Recycling 6.4 5.8 5.7 5.6
Liquid Waste & Other 2.4 4.6 2.3 3.9
Total Revenue 100.0% 100.0% 100.0% 100.0%
</TABLE>
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.
Certain direct landfill development costs, such as engineering, permitting,
legal, construction and other costs directly associated with expansion of
existing landfills, are capitalized by the Company. 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
<PAGE>
(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-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.
<PAGE>
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>
% of Revenue
------------
Three months ended Nine months ended
------------------ -----------------
1/31/98 1/31/99 1/31/98 1/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of operations 61.6 56.3 61.1 57.3
General and administrative 14.9 15.2 14.7 14.8
Depreciation and amortization 14.8 15.1 14.2 14.3
Merger-related costs 0.9 1.0 0.3 0.9
Operating income 7.8 12.4 9.6 12.7
Interest expense, net 4.6 2.5 5.7 2.9
Other (income) expense (0.5) (0.2) (0.2) (0.3)
Provision for income taxes 2.0 4.2 2.0 4.2
Net income 1.7 5.9 2.1 5.9
EBITDA* 22.7 27.4 23.9 27.0
</TABLE>
* See discussion and computation of EBITDA below.
Revenues. Revenues increased $6.4 million, or 18.9%, to $40.2 million in the
quarter ended January 31, 1999 from $33.8 in the quarter ended January 31, 1998.
For the nine months ended January 31, 1999 revenue increased $23.3 million or
23.1% to $124.0 million from $100.7 in revenues in the nine months ended January
31, 1998. Of this increase, $4.1 million of the third quarter growth and $16.0
million of the year-to-date growth was due to the impact of businesses acquired
during the year ended April 30, 1998 and during the current fiscal year. The
balance of the increase was due to internal volume and price growth.
Cost of Operations. Cost of operations increased approximately $1.9 million, or
9.1%, to $22.7 million in the quarter ended January 31, 1999 from $20.8 million
in the same quarter of the prior fiscal year. For the nine month periods ended
January 31, cost of operations increased $9.5 million or 15.4% from $61.5
million to $71.0 million. Cost of operations as a percentage of revenues
decreased to 57.3% in the current fiscal year from 61.1% in the prior year. In
the quarter ended January 31, 1999, cost of operations was 56.3% of revenue
compared to 61.6% in the same quarter of the prior fiscal year. 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 1998 and the first three quarters of
fiscal 1999; and (ii) margin improvements because of price increases in fiscal
1998 and the first three quarters of fiscal 1999.
General and Administrative. General and administrative expenses increased
approximately $1.1 million, or 22.0%, to $6.1 million in the third quarter of
fiscal 1999 from $5.0 million in the same quarter of fiscal 1998. Year to date,
general and administrative expenses have increased $3.5 million or 23.6% to
$18.3 million compared to prior year expenses of $14.8 million. General and
administrative expenses increased as a percentage of revenues for the three and
nine month periods. However, certain general and administrative expenses were
previously classified by the Company as costs of operations in fiscal 1998. This
amounted to approximately $713,000 of reclassified expenses during the first
three quarters of fiscal 1999. If the Company had not made this
reclassification, general and administrative expense as a percentage of revenues
would have decreased for both the quarter ended January 31, 1999 and for the
nine months ended January 31, 1999 compared with the same periods in the prior
year.
<PAGE>
Depreciation and Amortization. Depreciation and amortization expense increased
$1.1 million, or 22.0%, to $6.1 million in the third quarter of fiscal 1999 from
$5.0 million in the same quarter of- the prior fiscal year. During the nine
months ended January 31, 1999, depreciation and amortization increased $3.5
million or 24.5% to $17.8 million from $14.3 million in the same period of the
prior year. As a percentage of revenues, depreciation and amortization expense
have remained approximately level in the periods under discussion. During the
prior fiscal year, the Company benefited from low cost landfill airspace at
Clinton County's unlined landfill which significantly lowered landfill
amortization expense in the first quarter of fiscal 1998. Clinton County's
unlined landfill was permanently closed on July 15, 1997. The increase in
depreciation and amortization resulting from this change has been offset in part
by the increased concentration of revenues in collections activities, which
typically have lower depreciation and amortization charges relative to revenues
compared to landfill revenues.
Merger Costs. The merger related costs of $755 thousand recorded in the second
quarter of the current fiscal year were incurred in association with the Hakes
and Waste Stream mergers and the merger related costs of $409 thousand recorded
in the third quarter were incurred in association with the Northern Sanitation
merger, all accounted for as poolings of interests. The transactions are
discussed above under "Notes to Consolidated Financial Statements".
Interest expense, net. Net interest expense decreased approximately $0.6
million, or 37.5% to $1.0 million in the quarter ended January 31, 1999 from
$1.5 million in the same quarter of the prior fiscal year. For the year to date,
net interest decreased $2.2 or 38.6% to $3.5 million from $5.7 million during
the same period last year. This decrease primarily reflects the reduction of the
outstanding balance under the Company's acquisition line of credit and other
notes payable from the proceeds of the Company's public stock offerings in
November, 1997 and July, 1998.
Other (income) expense, net. Net other (income) expense has not historically
been material to the Company's results of operations.
Provision for income taxes. Provision for income taxes increased approximately
$3.2 million to $5.3 million in the current fiscal year from $2.1 million in
fiscal 1998. For the current quarter the increase was $1.0 million to $1.7
million from $669 thousand for the quarter ended January 31, 1998. This increase
reflects the Company's increase in profits in the current fiscal year over the
prior year. The combined effective tax rate used by the Company in recording
taxes for interim periods has been decreased from 49.7% in fiscal 1998 to 41.9%
in the current fiscal year. This reflects the decreased relative effect of
various fixed non-deductible expenses compared to the Company's increased
pre-tax income.
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
had positive net working capital of $3.1 million at April 30, 1998 and positive
net working capital of $6.7 million at January 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
$87.9 million at January 31, 1999. In connection with the proposed merger with
KTI, the Company will be required to obtain a new credit facility. The Company
is currently negotiating a new credit facility with a number of banks.
Net cash provided by operating activities for the first nine months of fiscal
1998 and fiscal 1999 was $12.5 million and $22.9 million, respectively. The
increase was primarily due to the increase in the Company's net income for the
nine months ended January 31, 1999 over the prior fiscal year, an increase in
depreciation and amortization and increased closure/post closure accruals.
<PAGE>
Cash used in investing activities increased $24.7 million from $41.9 million to
$66.6 million in the nine months ended January 31, 1999 over the same period of
the prior fiscal year. The increase in investing activities reflects the
Company's capital expenditures and capital needs for acquisitions, reflecting
the Company's rapid growth by acquisition and development of revenue producing
assets. The Company's cash needs to fund investing activities are expected to
increase further as the Company continues to complete acquisitions.
Net cash provided by financing activities was $41.7 million in the nine months
ended January 31, 1999 compared to $31.7 million for the same period of the
prior year. The net cash provided by financing activities in the current fiscal
year reflects the net proceeds of the follow-on offering and 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 primarily bank
borrowings and seller subordinated notes, less principal payments on debt.
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, 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 Class A Common 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.
The Company's business is 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 and non-information systems, primarily computer software programs,
to properly recognize and process date sensitive information as the Year 2000
approaches. The Company has completed numerous acquisitions in recent years, and
the information systems of a limited number of these acquired operations have
not been fully integrated with the Company's information systems. This
integration will occur within the next few months. The Company has, and
continues to perform routine updates of all software and hardware systems to
facilitate Year 2000 compliance. The Company cannot reasonably estimate Year
2000 implementation costs at this point, but expects to have reasonable
estimates by the end of the current fiscal year. While some non-critical systems
may not be addressed until after the current fiscal year, the Company believes
such systems will not disrupt the Company's operations in a material manner. The
Company expects to have formulated any contingency plans by the end of the
current fiscal year.
<PAGE>
The Company uses well-regarded nationally known software vendors for both its
general accounting applications and industry-specific customer information and
billing systems. The Company has been informed that all mission critical
application software is fully Year 2000 compliant.
The Company's current banking arrangement is with an international banking
institution which has informed the Company that it is taking all necessary steps
to insure its customers' uninterrupted service throughout applicable Year 2000
time frames. The Company's payroll is performed out-of-house 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.
The Company is currently in the process of replacing all older personal
computers and servers. Two items remain to be completed in our Year 2000
compliance strategy, replacing 16 weight measurement systems that are currently
not compliant, and the final testing of all systems. The Company's current plan
will be fully Year 2000 compliant by August, 1999.
No single customer represents more than one percent of the Company's revenues,
and we do not expect any material effect on the Company's revenues in the event
of an individual customer experiencing Year 2000 problems. The Company believes
that the same is true of any of the Company's suppliers of goods and services.
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:
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
1/31/98 1/31/99 1/31/98 1/31/99
------- ------- ------- -------
<S> <C> <C> <C> <C>
Operating income $2,645 $ 4,933 $ 9,745 $15,715
Depreciation and amortization 5,024 6,085 14,316 17,757
EBITDA $7,669 $11,018 $24,061 $33,472
EBITDA as a percentage of revenue 22.7% 27.4% 23.9% 27.0%
</TABLE>
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.
The Company is party to an Agreement and Plan of Merger with KTI, Inc. There can
be no assurance that the merger will take place on the anticipated timetable, if
at all, or if it does, that it will result in the synergies and other benefits
anticipated by the two companies.
<PAGE>
In connection with the merger with KTI, the Company will be required to obtain a
new credit facility. Although the Company is in the process of negotiating a new
credit facility, there can be no assurance that it will obtain such a credit
facility in the amount, or on the timetable, 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.
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. 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.
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.
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 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 12, 1998, the Company 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 the Company, and by a decision dated July 13, 1998, the court granted the
Company'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 the
Company is not successful in its lawsuit, and if the Town of Angelica seeks to
enforce the law by its terms, then the Company 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 the Company would be unable to dispose of yard waste and may be
precluded from disposing of industrial waste at the landfill. There can be no
assurance that such limitations would not have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
began accepting
<PAGE>
waste at the Hyland facility on July 22, 1998.
The Company'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 purports to
prohibit the expansion of NCES's landfill beyond its current capacity. It is the
Town's position that NCES may not expand the landfill beyond Stage II, Phase I,
which NCES believes will be at capacity in early 1999. NCES has also 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
has 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 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.
NCES may not commence operations in Stage II, Phase II, until NHDES issues an
operating permit. NHDES has notified NCES that it will not issue operating
approval until the litigation with the Town is resolved in some fashion. 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. 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 challenged zoning 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 challenged 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 challenged 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 this 36 acres for landfilling remains
unclear.
On February 10, 1999, the Town moved the Grafton Superior Court to clarify and
reconsider its order. NCES objected to this motion. The court has not yet ruled
on the Town's motion, and NCES does not know when the court may rule. The Town
may appeal any decision of the Grafton Superior Court that permits NCES to
construct and operate its landfill facility beyond its current footprint. NCES
cannot predict the outcome of either the Town's motion to reconsider or any
eventual appeal.
The Company is not aware of any other non-routine or incidental material legal
proceedings.
ITEM 2. CHANGES IN SECURITIES
Changes in Rights and Classes of Stock
None.
Sales of Unregistered Securities
During the quarter ended January 31, 1999 the Company had the following sales of
unregistered securities:
On November 18, 1998, DeNovo Foreign Trust exercised warrants to purchase 15,000
shares of the Company's Class A Common Stock in exchange for cash consideration
of $108,750. The shares of Class A Common Stock were offered and issued in
reliance upon the exemption from registration set forth in section 4(2) under
the Securities Act of 1933.
No underwriters were involved in the foregoing issuances of securities.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule for Period Ended January 31, 1999
Restated Financial Data Schedule for Period Ended January 31,
1998
(b) Reports on Form 8-K:
On January 13, 1999, the Company filed a Report on Form 8-K reporting the
execution of an Agreement and Plan of Merger between the Company and KTI, Inc.
and attaching the press release issued in connection with such agreement.
On January 21, 1999, the Company filed a Report on Form 8-K attaching the
Agreement and Plan of Merger between the Company and KTI, Inc.
<PAGE>
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: March 15, 1999 By: /s/ Jerry Cifor
Jerry Cifor
Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer and
Duly Authorized Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JANUARY 31, 1999 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE-MONTH PERIOD ENDED JANUARY 31, 1999, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES
THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 155
<SECURITIES> 0
<RECEIVABLES> 23,227
<ALLOWANCES> 1,730
<INVENTORY> 771
<CURRENT-ASSETS> 28,249
<PP&E> 112,442
<DEPRECIATION> 59,572
<TOTAL-ASSETS> 247,560
<CURRENT-LIABILITIES> 21,537
<BONDS> 0
0
0
<COMMON> 151
<OTHER-SE> 146,805
<TOTAL-LIABILITY-AND-EQUITY> 247,560
<SALES> 0
<TOTAL-REVENUES> 123,957
<CGS> 0
<TOTAL-COSTS> 108,242
<OTHER-EXPENSES> 3,142
<LOSS-PROVISION> 942
<INTEREST-EXPENSE> 3,532
<INCOME-PRETAX> 12,573
<INCOME-TAX> 5,263
<INCOME-CONTINUING> 7,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,310
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
[LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JANUARY 31, 1998 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF
OPERATIONS FOR THE NINE-MONTH PERIOD ENDED JANUARY 31, 1998, AS RESTATED TO
REFLECT ACQUISITIONS ACCOUNTED FOR AS POOLINGS OF INTERESTS, AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE FOOTNOTES
THERETO.
[/LEGEND]
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-START> MAY-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 444
<SECURITIES> 0
<RECEIVABLES> 20,728
<ALLOWANCES> 1,079
<INVENTORY> 664
<CURRENT-ASSETS> 24,080
<PP&E> 82,193
<DEPRECIATION> 42,128
<TOTAL-ASSETS> 184,547
<CURRENT-LIABILITIES> 20,426
<BONDS> 0
0
0
<COMMON> 148
<OTHER-SE> 82,912
<TOTAL-LIABILITY-AND-EQUITY> 184,547
<SALES> 0
<TOTAL-REVENUES> 100,687
<CGS> 0
<TOTAL-COSTS> 90,942
<OTHER-EXPENSES> 5,595
<LOSS-PROVISION> 542
<INTEREST-EXPENSE> 5,757
<INCOME-PRETAX> 4,150
<INCOME-TAX> 2,064
<INCOME-CONTINUING> 2,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,086
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.09
</TABLE>
