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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, 2000
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
incorporation or organization) Identification No.)
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 7, 2000:
Class A Common Stock 22,176,473
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
(Unaudited)
(In thousands, except per share amounts)
<TABLE><CAPTION>
April 30, October 31,
ASSETS 2000 2000
------ ---------- ----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 8,864 $ 16,230
Restricted Cash 17,609 19,142
Accounts Receivable - Trade, net of allowance
for doubtful accounts of $6,247 and $6,144 79,666 85,454
Accounts Receivable - Other 14,429 --
Accounts Receivable - New Heights 1,054 6,872
Notes Receivable - Officers/Employees 2,095 1,660
Prepaid Expenses 5,929 6,512
Inventory 10,986 8,754
Investments 5,156 10,584
Deferred Income Taxes 12,730 10,678
Other Current Assets 10,299 10,684
---------- ----------
Total Current Assets 168,817 176,570
---------- ----------
Property, Plant and Equipment, net of accumulated
depreciation and amortization of $97,152 and $117,361 379,086 387,294
Intangible Assets, net 294,283 306,363
Restricted Cash 10,881 10,930
Investment in OCI/ New Heights 14,077 18,120
Investment in U.S. GreenFiber JV -- 16,390
Other Non-Current Assets 5,033 4,470
---------- ----------
703,360 743,567
---------- ----------
$ 872,177 $ 920,137
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
<TABLE><CAPTION>
LIABILITIES AND April 30, October 31,
STOCKHOLDERS' EQUITY 2000 2000
-------------------- ---------- ----------
<S> <C> <C>
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 8,367 $ 8,733
Current Maturities of Capital Lease Obligations 788 661
Accounts Payable 43,335 41,197
Accrued Payroll and Related Expenses 5,536 3,825
Accrued Interest 3,994 7,103
Accrued Income Taxes 3,766 4,093
Accrued Closure and Post-Closure Costs,
Current Portion 259 130
Deferred Revenue 3,317 5,258
Other Current Liabilities 15,153 12,395
---------- ----------
Total Current Liabilities 84,515 83,395
---------- ----------
Long-Term Debt, Less Current Maturities 440,804 418,977
---------- ----------
Capital Lease Obligations, Less Current Maturities 3,748 5,500
---------- ----------
Deferred Income Taxes 30,948 32,914
---------- ----------
Accrued Closure and Post-Closure Costs,
Less Current Maturities 12,017 14,628
---------- ----------
Minority Interests 16,378 17,543
---------- ----------
Other Long-Term Liabilities 9,049 8,984
---------- ----------
COMMITMENTS AND CONTINGENCIES
Series A Redeemable Convertible Preferred Stock, 55,750 Shares
Authorized, Issued and Outstanding, Liquidation
Preference of $1,000 per Share -- 56,338
STOCKHOLDERS' EQUITY
Class A Common Stock -
Authorized - 100,000 Shares, $0.01 par value Issued and
Outstanding - 22,215 and 22,186 Shares as of April 30, 2000
and October, 31 2000, respectively 222 222
Class B Common Stock -
Authorized - 1,000 Shares, $0.01 par value 10 Votes per
Share, Issued and Outstanding - 988 10 10
Accumulated Other Comprehensive Income/(Loss) (305) 2,923
Additional Paid-In Capital 270,655 270,886
Retained Earnings 4,136 7,818
---------- ----------
Total Stockholders' Equity 274,718 281,859
---------- ----------
$ 872,177 $ 920,137
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE><CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------------------------
October 31, October 31, October 31, October 31,
1999 2000 1999 2000
(Restated) (Restated)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 55,748 $ 139,258 $ 110,424 $ 296,325
---------- ---------- ---------- ----------
Operating Expenses:
Cost of Operations 30,739 93,346 61,373 202,193
General and Administrative 7,237 17,278 14,881 34,709
Depreciation and Amortization 7,996 14,381 15,570 28,712
Merger Related Costs -- -- 1,490 --
---------- ---------- ---------- ----------
45,972 125,005 93,314 265,614
---------- ---------- ---------- ----------
Operating Income 9,776 14,253 17,110 30,711
---------- ---------- ---------- ----------
Other (Income)/Expenses, net:
Interest Income (244) (706) (317) (1,347)
Interest Expense 1,978 10,517 3,753 21,069
Equity in Loss of OCI/New Heights -- 448 -- 746
Equity in Loss of U.S. GreenFiber JV -- 434 -- 434
Minority Interest -- 472 -- 662
Other (Income)/Expenses, net (574) 56 (731) (89)
---------- ---------- ---------- ----------
Other Expenses, net 1,160 11,221 2,705 21,475
---------- ---------- ---------- ----------
Income from Continuing Operations Before
Income Taxes and Discontinued Operations 8,616 3,032 14,405 9,236
Provision for Income Taxes 3,648 2,080 6,300 4,965
---------- ---------- ---------- ----------
Net Income from Continuing Operations Before
Discontinued Operations 4,968 952 8,105 4,271
---------- ---------- ---------- ----------
Loss from Discontinued Operations,
net of Income Taxes (96) -- (191) --
---------- ---------- ---------- ----------
Net Income 4,872 952 7,914 4,271
Preferred Stock Dividend -- 588 -- 588
========== ========== ========== ==========
Net income available to Common Shareholders 4,872 364 7,914 3,683
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE><CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------------------------
October 31, October 31, October 31, October 31,
1999 2000 1999 2000
(Restated) (Restated)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings Per Share:
Basic:
Income from Continuing Operations Before
Discontinued Operations $ 0.31 $ 0.02 $ 0.50 $ 0.16
Loss from Discontinued Operations $ (0.01) $ -- $ (0.01) $ --
---------- ---------- ---------- ----------
Net Income per Common Share $ 0.30 $ 0.02 $ 0.49 $ 0.16
========== ========== ========== ==========
Basic Weighted Average Common Shares
Outstanding 16,037 23,177 16,008 23,194
========== ========== ========== ==========
Diluted:
Income from Continuing Operations Before
Discontinued Operations $ 0.31 $ 0.01 $ 0.49 $ 0.15
Loss from Discontinued Operations $ (0.01) $ -- $ (0.01) $ --
---------- ---------- ---------- ----------
Net Income per Common Share $ 0.30 $ 0.01 $ 0.48 $ 0.15
========== ========== ========== ==========
Diluted Weighted Average Common Shares
Outstanding 16,474 23,699 16,545 23,846
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Six Months Ended
---------------------------
October 31, October 31,
1999 2000
(Restated)
---------- ----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 7,914 $ 4,271
---------- ----------
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating Activities -
Depreciation and Amortization 15,570 28,712
Loss from Discontinued Operations 191 --
Equity Losses in Unconsolidated Subsidiaries -- 1,180
Gain on Sale of Equipment (246) (141)
Non Cash Directors Compensation -- 30
Minority Interest -- 662
Changes in Assets and Liabilities, net of
Effects of Acquisitions -
Accounts Receivable (8,513) (12,515)
Accounts Payable (557) (948)
Other Current Assets and Liabilities 9,780 256
---------- ----------
16,225 17,236
---------- ----------
Net Cash Provided by Operating Activities 24,139 21,507
---------- ----------
Cash Flows from Investing Activities:
Acquisitions, Net of Cash Acquired (11,810) (7,811)
Additions to Property and Equipment (36,527) (40,032)
Proceeds from Sale of Equipment 704 1,620
Advances to Unconsolidated Subsidiaries -- (5,789)
Other (2,946) 1,706
---------- ----------
Net Cash Used in Investing Activities (50,579) (50,306)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from Long-Term Borrowings 38,123 28,764
Principal Payments on Long-Term Debt (11,754) (48,599)
Proceeds from Exercise of Stock Options -- 26
Proceeds from Equity Transactions of Majority - Owned Subsidiary -- 1,145
Proceeds from Issuance of Common Stock 672 88
Proceeds from the Issuance of Series A
Redeemable Convertible Preferred Stock -- 54,741
---------- ----------
Net Cash Provided by Financing Activities 27,041 36,165
---------- ----------
Net Increase in Cash and Cash Equivalents 601 7,366
Cash and Cash Equivalents, Beginning of Period 4,232 8,864
---------- ----------
Cash and Cash Equivalents, End of Period $ 4,833 $ 16,230
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE><CAPTION>
Six Months Ended
---------------------------
October 31, October 31,
1999 2000
(Restated)
---------- ----------
<S> <C> <C>
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for -
Interest $ 3,441 $ 17,960
========== ==========
Income Taxes $ -- $ 4,638
========== ==========
Supplemental Disclosures of Non-Cash Investing
and Financing Activities:
Summary of Entities Acquired in Purchase Business Combinations
Fair Market Value of Assets Acquired $ 12,687 $ 21,078
Notes Receivable Exchanged for Assets -- (13,263)
Cash Paid, net (11,810) (7,811)
---------- ----------
Liabilities Assumed $ 877 $ 4
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(All amounts in thousands, except per share amounts)
The condensed consolidated balance sheets of Casella Waste Systems, Inc. and
Subsidiaries (the "Company") as of April 30, 2000 and October 31, 2000, the
consolidated statements of operations for the three and six months ended October
31, 1999 and 2000 and the condensed consolidated statements of cash flows for
the six months ended October 31, 1999 and 2000 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 consolidated
statements of operations for the three and six months ended October 31, 1999 and
the condensed consolidated statement of cash flows for the six months ended
October 31, 1999 to reflect the effects of discontinued operations. 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, 2000. These were included as part of the Company's
Annual Report on Form 10-K (the "Annual Report").
1. BUSINESS COMBINATIONS
During the six months ended October 31, 2000, the Company acquired 11 solid
waste hauling operations in transactions accounted for as purchases. These
transactions were in exchange for consideration of approximately $7.8 million in
cash to sellers and the partial settlement of a receivable in the amount of
$13.3 million. The operating results of these businesses are included in the
Consolidated Statements 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 shows the results of the
Company's operations as though each of the acquisitions had been completed as of
May 1, 1999.
<TABLE><CAPTION>
Six Months Ended Six Months Ended
October 31, 1999 October 31, 2000
---------------- ----------------
<S> <C> <C>
Revenues $ 214,019 $ 298,364
========== ==========
Operating Income $ 15,133 $ 31,068
========== ==========
Net Income, continuing operations $ 4,371 $ 4,314
========== ==========
Preferred Stock Dividend $ -- $ 588
========== ==========
Net Income available to Common Shareholders $ 4,371 $ 3,726
========== ==========
Diluted Income per Share $ 0.18 $ 0.16
========== ==========
Weighted Average Diluted Shares Outstanding 23,697 23,846
========== ==========
</TABLE>
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, 1999 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.
Effective August 1, 2000, the Company and Louisiana-Pacific Corp. combined their
respective cellulose insulation businesses into an equally owned joint venture.
The Company contributed the operating assets of its cellulose insulation
manufacturing business (with an aggregate book value of $15.9 million) to the
new company, known as U. S. GreenFiber LLC. The Company accounts for its 50%
interest using the equity basis.
<PAGE>
2. COMMITMENTS AND CONTINGENCIES
Newbury Waste Management, Inc., a wholly owned subsidiary, owned and operated a
landfill that was capped and closed in 1993. The Agency of Natural Resources for
the State of Vermont ("ANR") has directed the Company to install a synthetic cap
on the Newbury landfill. The Company disagrees with the ANR's position. If the
Company is required to install the synthetic cap, its cost is estimated to be
$750,000.
The Company is a defendant in certain lawsuits alleging various claims incurred
in the ordinary course of business, none of which, either individually or in the
aggregate, the Company believes are material to its financial condition, results
of operations or cash flows.
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. SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK
On August 11, 2000, the Company issued 55,750 shares of Series A Redeemable
Convertible Preferred Stock for $1,000 per share. These shares are convertible
into Class A common Stock, at the option of the Holder, at $14 per share.
Dividends are payable quarterly at a rate of 5%; for the first three years, such
dividends are payable in Series A Preferred Stock, after which date the
dividends may be paid in cash at the Company's option. The Company has the
option to redeem the preferred stock for cash any time after three years at a
price giving the holder a defined yield, but must redeem the shares by the
seventh Anniversary date at liquidation value, plus accrued but unpaid
dividends, if any.
5. EARNINGS PER SHARE
The following table reconciles the number of common shares outstanding at
October 31 of each year indicated to the weighted average number of common
shares outstanding and the weighted average number of common and potentially
dilutive common shares outstanding for the respective three month and six month
periods for the purpose of calculating basic and dilutive earnings per common
share:
<TABLE><CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------- -----------------------
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Number of Shares Outstanding, End of Period:
Class A Common Stock 15,056 22,186 15,056 22,186
Class B Common Stock 988 988 988 988
Effect of Weighted Average shares
Outstanding during period (7) 3 (36) 20
-------- -------- -------- --------
Basic Shares Outstanding 16,037 23,177 16,008 23,194
Impact of Potentially Dilutive Securities
437 522 537 652
-------- -------- -------- --------
Diluted Shares Outstanding 16,474 23,699 16,545 23,846
-------- -------- -------- --------
</TABLE>
For the three and six months ended October 31, 2000, options to purchase 7,365
and 5,699 common shares, respectively, were excluded from the calculation of
potentially dilutive securities because their impact was anti-dilutive. The
potential impact of the Series A Redeemable Convertible Preferred Stock was
excluded for the same reason.
<PAGE>
6. SEGMENT REPORTING
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" establishes standards for reporting information about operating
segments in financial statements. In general, SFAS No. 131 requires that
business entities report selected information about operating segments in a
manner consistent with that used for internal management reporting.
The Company classifies its operations into Eastern, Central, Western,
Residential Recycling, Commercial Recycling, Tires, Energy and Waste Processing
and Cellulose, effective August 1, 2000. At that date, the Company eliminated
the Finished Products segment, created a new segment, Tires and added the power
generation assets, wood recycling and plastics brokerage businesses to the
Energy and Waste Processing segments, while the New Heights operations and the
Canadian tire recycling business were moved into Tires, together with Casella
Tires, formerly included in the Eastern segment. The Finished Products segment
comprised U. S. Fibers. and Plastics operations. The latter are treated now as
assets held for sale. Effective August 1, 2000, the Company contributed its U.
S. Fibers subsidiary to a joint venture with Louisiana-Pacific Corp., known as
U.S. GreenFiber LLC. The new entity will supply cellulose insulation to existing
residential construction, retail and manufactured housing supply channels.
The Company's revenues in the Eastern, Central and Western segments are derived
mainly from the collection, transfer, recycling and disposal of non-hazardous
solid waste. Disposal includes waste-to-energy plants. The Company's revenues in
the Residential Recycling, Commercial Recycling and Energy and Waste Processing
segments are derived from integrated waste handling services, including
processing and recycling of wood, paper, metals, plastics and glass, municipal
solid waste processing and disposal, specialty waste disposal, ash residue
recycling, brokerage of recycled materials and the manufacturing of finished
products using recycled materials. The Tires' revenues arise from the integrated
recycling of tires, including collection, processing and marketing of the end
products, including crumb rubber and tire derived fuel. Cellulose Insulation
consists of U. S. Fibers' activity for the first quarter and the Company's
equity interest in GreenFibers for the second quarter of fiscal 2001. 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 within the
reporting structure outlined above.
<TABLE><CAPTION>
Residential Commercial
Eastern Central Western Recycling Recycling Tires
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended October 31, 2000
Outside Revenue $ 43,611 $ 26,797 $ 18,237 $ 9,437 $ 25,479 $ 3,635
======== ======== ======== ======== ======== ========
Intersegment Revenue $ 10,884 $ 10,836 $ 4,101 $ 5,115 $ 7,505 $ 13
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 730 $ 4,899 $ 1,216 $ 370 $ (615) $ (1,310)
======== ======== ======== ======== ======== ========
Total Assets $400,138 $136,399 $123,189 $ 66,580 $ 40,102 $ 37,294
======== ======== ======== ======== ======== ========
Energy &
Waste Cellulose
Processing Insulation Corporate Eliminations Total
-------- -------- -------- -------- --------
Outside Revenue $ 8,186 $ -- $ 3,961 $ (85) $139,258
======== ======== ======== ======== ========
Intersegment Revenue $ 67 $ -- $ -- $(38,521) $ --
======== ======== ======== ======== ========
Net Income/(Loss) $ (603) $ (482) $ (3,260) $ 7 $ 952
======== ======== ======== ======== ========
Total Assets $ 60,513 $ 16,390 $ 47,966 $ (8,434) $920,137
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE><CAPTION>
Residential Commercial
Eastern Central Western Recycling Recycling Tires
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended October 31, 1999
Outside Revenue $ 9,989 $ 26,724 $ 18,374 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Intersegment Revenue $ 733 $ 11,083 $ 3,503 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 1,117 $ 6,163 $ 2,020 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Total Assets $ 54,773 $133,395 $112,025 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Energy &
Waste Cellulose
Processing Insulation Corporate Eliminations Total
-------- -------- -------- -------- --------
Outside Revenue $ -- $ -- $ 661 $ -- $ 55,748
======== ======== ======== ======== ========
Intersegment Revenue $ -- $ -- $ -- $(15,319) $ --
======== ======== ======== ======== ========
Net Income/(Loss) $ -- $ -- $ (4,428) $ -- $ 4,872
======== ======== ======== ======== ========
Total Assets $ -- $ -- $ 25,178 $ -- $325,371
======== ======== ======== ======== ========
Residential Commercial
Eastern Central Western Recycling Recycling Tires
-------- -------- -------- -------- -------- --------
Six Months Ended October 31, 2000
Outside Revenue $ 85,879 $ 53,721 $ 35,142 $ 19,003 $ 60,675 $ 7,233
======== ======== ======== ======== ======== ========
Intersegment Revenue $ 21,755 $ 20,918 $ 7,700 $ 11,458 $ 16,907 $ 54
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 1,807 $ 9,331 $ 2,605 $ 1,216 $ (209) $ (2,097)
======== ======== ======== ======== ======== ========
Total Assets $400,138 $136,399 $123,189 $ 66,580 $ 40,102 $ 37,294
======== ======== ======== ======== ======== ========
Energy &
Waste Cellulose
Processing Insulation Corporate Eliminations Total
-------- -------- -------- -------- --------
Outside Revenue $ 18,375 $ 8,764 $ 7,161 $ 372 $296,325
======== ======== ======== ======== ========
Intersegment Revenue $ 137 $ -- $ 556 $(79,485) $ --
======== ======== ======== ======== ========
Net Income/(Loss) $ 258 $ (1,959) $ (6,797) $ 116 $ 4,271
======== ======== ======== ======== ========
Total Assets $ 60,513 $ 16,390 $ 47,966 $ (8,434) $920,137
======== ======== ======== ======== ========
Residential Commercial
Eastern Central Western Recycling Recycling Tires
-------- -------- -------- -------- -------- --------
Six Months Ended October 31, 1999
Outside Revenue $ 19,539 $ 52,938 $ 37,193 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Intersegment Revenue $ 1,527 $ 19,937 $ 7,008 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 2,191 $ 9,201 $ 3,272 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Total Assets $ 54,773 $133,395 $112,025 $ -- $ -- $ --
======== ======== ======== ======== ======== ========
Energy &
Waste Cellulose
Processing Insulation Corporate Eliminations Total
-------- -------- -------- -------- --------
Outside Revenue $ -- $ -- $ 754 $ -- $110,424
======== ======== ======== ======== ========
Intersegment Revenue $ -- $ -- $ -- $(28,472) $ --
======== ======== ======== ======== ========
Net Income/(Loss) $ -- $ -- $ (6,750) $ -- $ 7,914
======== ======== ======== ======== ========
Total Assets $ -- $ -- $ 25,178 $ -- $325,371
======== ======== ======== ======== ========
</TABLE>
<PAGE>
7. RECLASSIFICATION
Certain amounts for the prior period have been reclassified to conform to the
presentation adopted in the current year.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Casella Waste Systems, Inc. (" the Company") is a regional, integrated solid
waste services company that provides collection, transfer, disposal and
recycling services, generates steam and manufactures finished products utilizing
recyclable materials primarily throughout the eastern portion of the United
States and parts of Canada. The Company markets recyclable metals, aluminum,
plastics, paper and corrugated cardboard both processed at its facilities as
well as recyclables purchased from third parties. The Company generates
electricity under its contracts with its two majority owned subsidiaries, Maine
Energy Recovery Company LP ("Maine Energy") and Penobscot Energy Recovery
Company LP ("PERC"), and through its wholly owned subsidiary, Timber Energy
Recovery, Inc. ("TERI"). The Company also recycles tires and markets crumb
rubber and tire derived fuel.
As of December 7, 2000, the Company owned and/or operated five Subtitle D
landfills, two landfills permitted to accept construction and demolition
materials, 30 transfer stations, 45 recycling processing facilities, 40 solid
and liquid waste collection divisions, 5 power generation facilities, seven tire
recycling facilities, as well as its interest in another tire processing and
power generation facility, and its interest in a cellulose insulation joint
venture.
From May 1, 1999 through April 30, 2000, the Company acquired 38 solid waste
collection, transfer and disposal operations, as well as KTI, Inc. ("KTI") in
December 1999. Between May 1, 2000 and October 31, 2000, the Company acquired an
additional 11 such businesses, all of which 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 consolidated from the actual dates of the acquisitions and materially
affect the period-to-period comparisons of the Company's historical results of
operations.
This Form 10-Q 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 and section 21E of the Securities Exchange 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 forecasted or projected in any such forward-looking statements,
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 waste collection and disposal, landfill, waste-to-energy, 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, waste- to-energy
facility 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 these customers are under one to three-year disposal
contracts, with most having clauses for annual cost of living increases.
Recycling revenues include the sale of recyclable commodities, operating and
maintenance contracts of recycling facilities for municipal customers,
recyclable brokering operations and revenue from the sale of crumb rubber and
tire derived fuel. The Company, as a result of the KTI acquisition, additionally
provides other integrated waste handling services, including the processing and
recycling of tires, specialty waste disposal, ash residue recycling, brokerage
of recycled materials and the manufacturing of finished products, including
crumb rubber and cellulose insulation. Effective August 1, 2000, the Company
contributed its cellulose insulation assets to a joint venture with
Louisiana-Pacific, U. S. GreenFiber LLP, and accordingly, recognized half of the
joint venture's loss from that date forward. The Company operates these non-core
businesses under four reportable segments: Residential Recycling, Commercial
Recycling, Tires and Energy and Waste processing. These segments are reflected
in the Company's revenues as follows: Residential Recycling is reflected under
"recycling", Commercial Recycling is reflected under "recycling and "brokerage",
Tires is reflected under its own line of business, and the equity interest in
New Heights is disclosed separately. Waste-to-energy is reported under
"disposal," but biofuel power generation is included under "Other." The
Company's revenues are shown net of intercompany eliminations. The Company
typically establishes its intercompany transfer pricing based upon prevailing
market rates.
<PAGE>
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 in the current fiscal
year is primarily attributable to the effects of the KTI acquisition.
Significant recycling, finished products and brokerage revenues were added
through that acquisition. The increase in the Company's landfill/disposal
facilities revenues as a percentage of revenue in the first quarter of fiscal
2001 is primarily attributable to the effects of the KTI acquisition.
Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
------ ------ ------ ------
Collection 69.8% 40.1% 70.6% 36.8%
Landfill/ Disposal Facilities 8.4 16.3 8.5 14.7
Transfer 6.8 5.2 6.4 4.9
Recycling 10.1 23.7 9.8 23.7
Tires 0.0 2.6 0.0 2.4
Brokerage 0.0 6.0 0.0 7.9
Other 4.9 6.1 4.7 9.6
------ ------ ------ ------
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 plant and
equipment 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 zero 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-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.
<PAGE>
Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Operations 55.2 67.1 55.6 68.2
General and Administrative 13.0 12.4 13.5 11.7
Depreciation and Amortization 14.3 10.3 14.1 9.7
Merger Related Costs 0.0 0.0 1.3 0.0
------ ------ ------ ------
Operating Income 17.5 10.2 15.5 10.4
Interest Expense, net 3.1 7.0 3.1 6.7
Equity Loss on Investments 0.0 0.3 0.0 0.3
Minority Interest 0.0 0.3 0.0 0.2
Other (Income)/Expense (1.0) 0.4 (0.7) 0.1
Provision for Income Taxes 6.5 1.5 5.8 1.7
------ ------ ------ ------
Net Income Before Discontinued
Operations 8.9 0.7 7.3 1.4
Discontinued Operations 0.2 0.0 0.2 0.0
------ ------ ------ ------
Net Income 8.7% 0.7% 7.1% 1.4%
====== ====== ====== ======
Adjusted EBITDA* 31.9% 20.2% 29.6% 19.8%
====== ====== ====== ======
* See discussion and computation of adjusted EBITDA below.
Three Months Ended October 31, 2000:
REVENUES:
Revenues increased $83.5 million, or 149.8% to $139.3 million in the quarter
ended October 31, 2000 from $55.7 million in the quarter ended October 31, 1999.
Approximately $79.6 million of the increase was attributable to the impact of
businesses acquired throughout fiscal 1999 and fiscal 2000, including KTI, which
was acquired in December 1999. The balance of the increase of $4.0 million was
attributable to internal volume and price growth, partially offset by lower
average recyclable commodity prices in the current quarter compared to 1999.
These increases were further offset by lower volumes into SERF landfill, arising
from delays in the resolution of legal disputes related to the granting of
construction permits.
COST OF OPERATIONS:
Cost of operations increased $62.6 million or 203.7% to $93.4 million in the
quarter ended October 31, 2000 from $30.7 million in the quarter ended October
31, 1999. Cost of operations as a percentage of revenues increased to 67.1% in
the quarter ended October 31, 2000 from 55.2% in the prior year. The increase in
cost of operations as a percentage of revenues was primarily the result of
acquiring KTI's recyclable brokerage operations, which carry high cost of
operations as a percentage of revenues (approximately 90%). Brokerage comprised
approximately 6.0% of the Company's revenues in the current quarter, versus 0%
in the prior year. Additionally, the finished products line of business carries
a much lower operating margin than the Company's core solid waste business
operations. The Eastern Massachusetts market suffered from higher integration
costs than expected, while the Tires business incurred start up expenses to
support the development of this line of business.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased $10.0 million, or 138.8% to $17.3
million in the quarter ended October 31, 2000 from $7.2 million in the quarter
ended October 31, 1999, but decreased as a percentage of revenues to 12.4% in
the quarter ended October 31, 2000 from 13.0% in the quarter ended October 31,
1999. The decrease in general and administrative expenses as a percentage of
revenues was primarily the result of acquiring KTI's recyclable brokerage
operations, which carry low general and administrative costs as a percentage of
revenues (approximately 4%). The general and administrative cost savings from
acquiring KTI also contributed to the lower general and administrative expenses
as a percentage of revenues in fiscal 2001. These savings were partially offset
by unanticipated legal fees on outstanding litigation against KTI, which the
Company assumed in connection with the acquisition of KTI.
<PAGE>
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $6.4 million, or 79.9%, to
$14.4 million in the quarter ended October 31, 2000 from $8.0 million in the
quarter ended October 31, 1999. Depreciation and amortization expenses as a
percentage of revenue decreased to 10.3% in the quarter ended October 31, 2000
from 14.3% in the quarter ended October 31, 1999. The decrease in depreciation
and amortization expenses as a percentage of revenues resulted from the
Company's acquisition of KTI. KTI operations carry lower depreciation expense as
a percentage of revenues (approximately 7%) than the Company's core solid waste
assets (approximately 14.0%).
INTEREST EXPENSE, NET:
Net interest expense increased $8.1 million, or 465.8% to $9.8 million in the
quarter ended October 31, 2000 from $1.7 million in the quarter ended October
31, 1999. Interest expense, as a percentage of revenues, increased to 7.0% in
the quarter ended October 31, 2000 from 3.1% in the quarter ended October 31,
1999. This increase is primarily attributable to three factors: (i) a higher
average debt balance in the current fiscal quarter, versus last year; (ii) the
Company closed a new $450 million senior credit facility in December 1999 that
raised the Company's borrowing cost by approximately 250 basis points; and (iii)
the Company entered into new interest rate swap agreements that increased
current rates in order to fix the interest rates on a portion of the debt.
EQUITY LOSSES ON INVESTMENTS:
These amounts arise from the Company's 35% ownership of Oakhurst Company, Inc.,
which was acquired as part of KTI. Oakhurst Company, Inc. owns 37.5% of New
Heights Recovery and Power LLC ("New Heights"). The Company also has a direct
ownership in New Heights of 12.5%. The New Heights' loss in the second quarter
of fiscal 2001 was primarily due to the start up costs associated with several
operations under development. In addition, the Company has a 50% interest in
GreenFiber effective August 1, 2000. The Company's share of GreenFiber's loss in
the current period was largely due to the transition costs incurred in setting
up the new business and beginning the closure of redundant plants.
MINORITY INTEREST:
This amount represents the minority owners' interest in the Company's majority
owned subsidiaries, Maine Energy Recovery Company LP, Penobscot Energy Recovery
Company LP and American Ash Recycling of Tennessee, Ltd.
OTHER (INCOME)/EXPENSE:
Other (income)/expense increased to $0.1 million expense in the quarter ended
October 31, 2000 from $(0.6) million revenue in the quarter ended October 31,
1999. The other income in fiscal 2000 is primarily attributable to gains on sale
of fixed assets, while losses on sale were incurred in 2001.
PROVISION FOR INCOME TAXES:
Provision for income taxes decreased $1.6 million, or 43.0%, to $2.1 million in
the quarter ended October 31, 2000 from $3.6 million in the quarter ended
October 31, 1999, and as a percentage of revenues, decreased to 1.5% from 6.5%.
The effective tax rate increased to 68.6% in the quarter ended October 31, 2000
from 42.3% in the quarter ended October 31, 1999. The increase is primarily due
to the Company's decrease in profitability in the second quarter of 2001 and the
lower income before taxes forecast for the remainder of the year, combining for
a "catch up "effect in the quarter. The Company has a high effective tax rate,
mainly due to the non-deductibility of goodwill and the equity loss in Oakhurst.
The impact of these items becomes larger, as the Company's earnings decrease.
Six Months Ended October 31, 2000:
REVENUES:
Revenues increased $185.9 million, or 168.4% to $296.3 million in the six months
ended October 31, 2000 from $110.4 million in the six months ended October 31,
1999. Approximately $177.0 million of the increase was attributable to the
impact of businesses acquired throughout fiscal 1999 and fiscal 2000, including
KTI, which was acquired in December 1999. The balance of the increase of $8.9
million was attributable to internal volume and price growth, including the net
positive impact of higher average recyclable commodity prices in the current six
months compared to the same period last year.
COST OF OPERATIONS:
Cost of operations increased $140.8 million or 229.5% to $202.2 million in the
six months ended October 31, 2000 from $61.4 million in the six months ended
October 31, 1999. Cost of operations as a percentage of revenues increased to
68.2% in the six months ended October 31, 2000 from 55.6% in the prior year. The
increase in cost of operations as a percentage of revenues was primarily the
result of acquiring KTI's recyclable brokerage operations, which carry high cost
of operations as a percentage of revenues (approximately 90%). Brokerage
comprised approximately 7.9% of the Company's revenues in the current six
months, versus 0% in the prior year. Additionally, the finished products line of
business carries a much lower
<PAGE>
operating margin than the Company's core solid waste business operations. The
Eastern Massachusetts market suffered from higher integration costs than
expected, while the Tires business is incurring start up expenses to support the
development of this line of business.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased $19.8 million, or 133.2% to $34.7
million in the six months ended October 31, 2000 from $14.9 million in the six
months ended October 31, 1999, but decreased as a percentage of revenues to
11.7% in the six months ended October 31, 2000 from 13.5% in the six months
ended October 31, 1999. The decrease in general and administrative expenses as a
percentage of revenues was primarily the result of acquiring KTI's recyclable
brokerage operations, which carry low general and administrative costs as a
percentage of revenues (approximately 4%). The general and administrative cost
savings from acquiring KTI also contributed to the lower general and
administrative expenses as a percentage of revenues in fiscal 2001. These
savings were partially offset by unanticipated legal fees on outstanding
litigation against KTI, which the Company assumed in connection with the
acquisition of KTI.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $13.1 million, or 84.4%, to
$28.7 million in the six months ended October 31, 2000 from $15.6 million in the
six months ended October 31, 1999. Depreciation and amortization expenses as a
percentage of revenue decreased to 9.7% in the six months ended October 31, 2000
from 14.1% in the six months ended October 31, 1999. The decrease in
depreciation and amortization expenses as a percentage of revenues resulted from
the Company's acquisition of KTI. KTI operations carry lower depreciation
expense as a percentage of revenues (approximately 7%) than the Company's core
solid waste assets (approximately 14.0%).
MERGER-RELATED COSTS:
Merger-related costs are comprised of legal, engineering, accounting and other
costs associated with the two pooling of interests transactions consummated
during the six months ended October 31, 1999. No pooling transactions were
closed in the six months ended October 31, 2000, resulting in a decrease of $1.5
million, or 1.3% as a percentage of revenues.
INTEREST EXPENSE, NET:
Net interest expense increased $16.3 million, or 474.0% to $19.7 million in the
six months ended October 31, 2000 from $3.4 million in the six months ended
October 31, 1999. Interest expense, as a percentage of revenues, increased to
6.7% in the six months ended October 31, 2000 from 3.1% in the six months ended
October 31, 1999. This increase is primarily attributable to three factors: (i)
a higher average debt balance in the current fiscal six months, versus last
year; (ii) the Company closed a new $450 million senior credit facility in
December 1999 that raised the Company's borrowing cost by approximately 250
basis points; and (iii) the Company entered into new interest rate swap
agreements that increased current rates in order to fix the interest rates on a
portion of our debt.
EQUITY LOSSES ON INVESTMENTS:
These amounts arise from the Company's 35% ownership of Oakhurst Company, Inc.,
which was acquired as part of KTI. Oakhurst Company, Inc. owns 37.5% of New
Heights Recovery and Power LLC ("New Heights"). The Company also has a direct
ownership in New Heights of 12.5%. The New Heights' loss was primarily due to
the start up costs associated with several operations under development. In
addition, the Company has a 50% interest in GreenFiber effective August 1, 2000.
The Company's share of GreenFiber's loss in the second quarter was largely due
to the transition costs incurred in setting up the new business and beginning
the closure of redundant plants.
MINORITY INTEREST:
This amount represents the minority owners' interest in the Company's majority
owned subsidiaries, Maine Energy Recovery Company LP, Penobscot Energy Recovery
Company LP and American Ash Recycling of Tennessee, Ltd.
OTHER (INCOME)/EXPENSE:
Other (income)/expense decreased to ($0.1) million income in the six months
ended October 31, 2000 from $(0.7) million income in the six months ended
October 31, 1999. The other income in both periods is primarily attributable to
gains on sale of fixed assets.
PROVISION FOR INCOME TAXES:
Provision for income taxes decreased $1.3 million, or 21.2%, to $5.0 million in
the six months ended October 31, 2000 from $6.3 million in the six months ended
October 31, 1999, and as a percentage of revenues, decreased to 1.7% from 5.8%.
The effective tax rate increased to 53.8% in the six months ended October 31,
2000 from 43.8% in the six months ended October 31, 1999. The increase is
primarily due to the Company's decrease in profitability in the first six months
of 2001 and the
<PAGE>
lower earnings outlook for the balance of the year. The Company has a high
effective tax rate, mainly due to the non-deductibility of goodwill and the
equity loss in Oakhurst. The impact of these items becomes larger, as the
Company's earnings decrease.
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 and cell construction, as well as site and cell closure.
The Company had positive net working capital of $84.3 million and $93.1 million
at April 30, 2000 and at October 31, 2000, respectively.
The Company has a $450 million revolving line of credit with a group of banks
for which FleetBoston is acting as agent. This line of credit consists of a $300
million Senior Secured Revolving Credit Facility ("Revolver") and a $150 million
Senior Secured Delayed Draw Term "B" Loan ("Term Loan"). This line of credit is
secured by all assets of the Company, including the Company's interest in the
equity securities of its subsidiaries. The Revolver matures in December 2004 and
the Term Loan matures in December 2006. Funds available to the Company under the
line of credit were $51 million at October 31, 2000.
On August 15, 2000 the Company issued 55,750 shares of Series A Redeemable
Convertible Preferred Stock to Berkshire Partners. The preferred stock is
convertible into the Company's Class A Common Stock at $14.00 per share. The
Company received proceeds, net of $1.0 million in related expenses, of $54.8
million.
Net cash provided by operating activities amounted to $20.5 million for the six
months ended October 31, 2000 compared to $24.1 million for the same period of
the prior fiscal year. The decrease was primarily due to the lower net income as
well as a net increase in the Company's working capital.
Net cash used in investing activities was $49.4 million for the six months ended
October 31, 2000, largely unchanged from $50.6 million for the same period last
year. The amount invested reflects mainly the Company's capital needs for
additions to plant and equipment and acquisitions, reflecting the Company's
continued growth by acquisition and development of revenue producing assets. The
Company's cash needs to fund investing activities are expected to decline over
the remainder of the fiscal year as capital expenditures are primarily incurred
during the first half of the fiscal year and acquisitions will be curtailed.
Net cash provided by financing activities was $36.2 million for the six months
ended October 31, 2000 compared to $27.0 million for the same period of the
prior fiscal year. This increase primarily reflects the proceeds of the issuance
of the Series A Redeemable Convertible Preferred Stock, offset by net repayments
on the Company's credit facility.
Seasonality
-----------
The Company's transfer and disposal revenues have historically been lower during
the months of November through March. This seasonality reflects the lower volume
of waste during the late fall, winter and early spring months primarily because:
(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 residential recycling segment experiences increased volumes of newspaper in
November and December due to increased newspaper advertising and retail activity
during the holiday season. Additionally, the facilities located in Florida
experience increased volumes of recyclable materials during the winter months,
followed by decreases in the summer months in connection with seasonal changes
in population.
The commercial recycling segment experiences increased quantities of newspaper
and corrugated containers in November and December, followed by reduced
quantities in January and decreased quantities of newspaper and corrugated
containers in July and August, followed by increased quantities in September,
due to increased newspaper advertising and retail activity during the holiday
season.
The insulation business experiences lower sales in November and December because
of lower production of manufactured housing due to holiday plant shutdowns.
<PAGE>
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 primarily in the eastern 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.
New Accounting Pronouncements
-----------------------------
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 amends FASB Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", by deferring the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. SFAS No. 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. SFAS No. 133
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. The Company will
adopt SFAS No. 133 beginning May 1, 2001. The Company has yet to quantify the
impacts of adopting SFAS No. 133 on its financial statements and has not
determined the method of adoption. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
Adjusted EBITDA
---------------
Adjusted EBITDA represents operating income (earnings before interest and taxes,
or "EBIT") plus depreciation and amortization expense less minority interest.
Adjusted 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.
<TABLE><CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
1999 2000 1999 2000
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Income $ 9,776 $ 14,253 $ 17,110 $ 30,711
Depreciation and Amortization 7,996 14,381 15,570 28,712
Minority Interest 0 (472) 0 (662)
-------- -------- -------- --------
Adjusted EBITDA $ 17,772 $ 28,162 $ 32,680 $ 58,761
======== ======== ======== ========
EBITDA as a percentage of
Revenues 31.9% 20.2% 29.6% 19.8%
======== ======== ======== ========
</TABLE>
Analysis of the factors contributing to the change in EBITDA is included in the
discussions above.
Interest rate volatility
------------------------
The interest rate on $100 million of long-term debt has been fixed through two
interest rate swaps. The company has interest rate risk relating to
approximately $275 million of long-term debt at October 31, 2000. The average
interest rate on the variable rate portion of long-term debt was 9.75% for the
second fiscal quarter.
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 Form 10-Q and presented elsewhere by management from time to time.
<PAGE>
WE MAY EXPERIENCE DIFFICULTIES INTEGRATING KTI'S OPERATIONS AND ASSETS.
We acquired KTI on December 14, 1999. Since that time, we have experienced
difficulties in integrating the operations of KTI and these difficulties have
caused us to revise our publicly disclosed projections. There can be no
assurance that we will not continue to experience difficulties in integrating
KTI's operations effectively and that the acquisition will result in the
synergies and other benefits anticipated by the two companies. Among other
matters, in connection with the KTI acquisition we assumed certain obligations
to finance and support a tire recycling joint venture. We cannot assure you that
the joint venture will achieve projected financial results or not divert
management resources.
OUR INCREASED LEVERAGE MAY IMPACT OUR ABILITY TO MAKE FUTURE ACQUISITIONS.
As a result of the acquisition of KTI and the increase in our credit facility,
our indebtedness has increased substantially. This increased indebtedness has
resulted in increased borrowing costs, which have adversely impacted our
operating results. In addition, the aggregate amount of indebtedness has limited
and may continue to limit the Company's ability to incur additional
indebtedness, and thereby may limit the Company's ongoing acquisition program.
WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS, WHICH COULD AFFECT OUR FUTURE
GROWTH.
Our strategy envisions that a substantial part of our future growth will come
from making acquisitions. There can be no assurance that we 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 us, or to integrate the operations of such acquired businesses with our
operations. Certain of these acquisitions may be of significant size and may
include assets that are outside our geographic territories or are ancillary to
our core business strategy. In addition, due to the increased consolidation of
the solid waste industry and our current size, we cannot assure you that we will
be able to make acquisitions in the future at a rate consistent with our
historical growth rate.
WE ARE DEPENDENT ON THE MEMBERS OF OUR SENIOR MANAGEMENT TEAM.
We are highly dependent upon the services of the members of our senior
management team, the loss of any of whom may have a material adverse effect on
our business, financial condition and results of operations. In addition, our
future success depends on our continuing ability to identify, hire, train,
motivate and retain highly trained personnel. We may be in default under our
credit facility if both John Casella and James Bohlig cease to be employed by
us.
OUR ABILITY TO MAKE ACQUISITIONS IS DEPENDENT ON THE AVAILABILITY OF ADEQUATE
CASH AND THE ATTRACTIVENESS OF OUR STOCK PRICE.
We anticipate that any future business acquisitions will be financed through
cash from operations, borrowings under our bank line of credit, the issuance of
shares of our Class A Common Stock and/or seller financing. There can be no
assurance that we will have sufficient existing capital resources, that our
stock price will be sufficiently attractive for use in an acquisition or that we
will be able to raise sufficient additional capital resources on terms
satisfactory to us, if at all, in order to meet our capital requirements.
We also believe that a significant factor in our ability to close acquisitions
will be the attractiveness of our Class A common stock as consideration for
potential acquisition candidates. This attractiveness may, in large part, be
dependent upon the relative market price and capital appreciation prospects of
our Class A common stock compared to the equity securities of our competitors.
The recent declines in the market price of our Class A common stock could
materially adversely affect our acquisition program.
ENVIRONMENTAL REGULATIONS COULD SUBJECT US TO FINES, PENALTIES AND
LIMITATIONS ON OUR ABILITY TO EXPAND
We are subject to potential liability and restrictions under environmental laws.
Our waste-to-energy and manufacturing facilities are subject to regulations
limiting discharges of pollution into the air and water, and the solid waste
operations are subject to a wide range of Federal, state and, in some cases,
local environmental and land use restrictions. If we are not able to comply with
the requirements that apply to a particular facility, we could be subject to
fines and penalties, and we may be required to spend large amounts to bring an
operation into compliance or to temporarily or permanently stop an operation
that is not permitted under the law. Those costs or actions could have a
material adverse effect upon our business, financial condition and results of
operations.
Environmental and land use laws also can have an impact on whether our
operations can expand and, in the case of our solid waste operations, may
dictate those geographic areas from which we must, or, from which we may not,
accept waste. The
<PAGE>
waste management industry has been and likely will continue to be subject to
regulation, as well as to attempts to further regulate the industry through new
legislation. Those regulations and laws also may limit the overall size and
daily waste volume that may be accepted by a solid waste operation. If we are
not able to expand or otherwise operate one or more of our facilities profitably
because of limits imposed under environmental laws, we may be required to
increase our utilization of disposal facilities owned by third parties, and if
so, our business, financial condition and results of operations could suffer a
material adverse effect.
We have grown through acquisitions, and we have tried to evaluate and address
environmental risks and liabilities presented by newly acquired businesses as we
have identified them. It is possible that some liabilities, including ones that
may exist only because of the past operations of an acquired business, may prove
to be more difficult or costly to address than we anticipate. It is also
possible that government officials responsible for enforcing environmental laws
may believe an issue is more serious than we would expect, or that we will fail
to identify or fully appreciate a historic liability before we become legally
responsible to address it. Some of the legal sanctions to which we could become
subject could cause us to lose a needed permit, or prevent us from or delay us
in obtaining or renewing permits to operate our facilities. The number, size and
nature of those liabilities could have a material adverse effect on our
business, financial conditions and results of operations.
Our operating program depends on our ability to operate and expand the landfills
we own and lease and to develop new landfill sites. Several of our 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 our landfills are located will not have a material
adverse effect on our utilization of our landfills or that we will be successful
in obtaining new landfill sites or expanding the permitted capacity of any of
our current landfills once their remaining disposal capacity has been consumed.
OUR RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED BY CHANGING PRICES OR
MARKET REQUIREMENTS FOR RECYCLABLE MATERIALS
Our results of operations may be materially adversely affected by changing
purchase or resale prices or market requirements for recyclable materials. Our
recycling business involves the purchase and sale of recyclable materials, some
of which are priced on a commodity basis. The resale and purchase prices of, and
market demand for, recyclable materials, particularly waste paper, plastic and
ferrous and aluminum metals, can be volatile due to numerous factors beyond our
control. These changes have in the past contributed, and may continue to
contribute, to significant variability in our period-to-period results of
operations.
Some of our subsidiaries involved in the recycling business use long-term supply
contracts with customers with floor price arrangements to minimize the commodity
risk for recyclable materials, particularly waste paper and aluminum metals.
Under these contracts, our subsidiaries obtain a guaranteed minimum floor price
for the recyclable materials along with a commitment to receive additional
amounts if the current market price rises above the minimum price. These
contracts are generally with large domestic companies, which use the recyclable
materials in their manufacturing processes. Any failure to continue to secure
long-term supply contracts with minimum price arrangements, or a breach by
customers of one or more of these contracts could reduce our recycling revenues
and have a material adverse effect on our business, financial condition and
results of operations.
THE SEASONALITY OF OUR REVENUES COULD ADVERSELY IMPACT OUR FINANCIAL CONDITION
Future seasonal fluctuations in our revenues could have a material adverse
effect on our business, financial condition and results of operations. The
Company's transfer and disposal revenues have historically been lower during the
months of November through March. This seasonality reflects the lower volume of
waste during the late fall, winter and early spring months primarily because:
(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 residential recycling segment experiences increased volumes of newspaper in
November and December due to increased newspaper advertising and retail activity
during the holiday season. Additionally, the facilities located in Florida
experience increased volumes of recyclable materials during the winter months,
followed by decreases in the summer months in connection with seasonal changes
in population.
The commercial recycling segment experiences increased quantities of newspaper
and corrugated containers in November and December, followed by reduced
quantities in January and decreased quantities of newspaper and corrugated
containers in
<PAGE>
July and August, followed by increased quantities in September, due to increased
newspaper advertising and retail activity during the holiday season.
The insulation business experiences lower sales in November and December because
of lower production of manufactured housing due to holiday plant shutdowns.
OUR BUSINESS IS GEOGRAPHICALLY CONCENTRATED AND IS THEREFORE SUBJECT TO REGIONAL
ECONOMIC DOWNTURNS
Our operations and customers are principally located in the eastern United
States. Therefore, our business, financial condition and results of operations
are susceptible to regional economic downturns and other regional factors,
including state regulations and severe weather conditions. In addition, as we
expand in our existing markets, opportunities for growth within these regions
will become more limited. The costs and time involved in permitting and the
scarcity of available landfills will make it difficult for us to expand
vertically in these markets. We cannot assure you that we will complete
acquisitions in other markets to lessen our regional geographic concentration.
MAINE ENERGY MAY BE REQUIRED TO MAKE A PAYMENT IN CONNECTION WITH THE PAYOFF OF
THE MAINE ENERGY BONDS WHICH EXCEEDS THE AMOUNT OF THE LIABILITY WE RECORDED IN
CONNECTION WITH THE KTI ACQUISITION
Under the terms of the waste handling agreement dated June 7, 1991 among the
Biddeford-Saco Waste Handling Committee, Biddeford, Saco and Maine Energy, Maine
Energy may be required, following the date on which the bonds financing Maine
Energy and certain limited partner loans to Maine Energy are paid in full, to
pay an aggregate of 18% of the fair market value of the equity of the partners
in Maine Energy to the respective municipalities party to that agreement. In
connection with the acquisition of KTI, the Company estimated the fair market
value of Maine Energy as of the date the bonds are assumed to be paid in full,
and recorded a liability equal to 18% of such amount. We cannot assure you that
our estimate of the fair market value of Maine Energy will prove to be accurate,
and in the event we have underestimated the value of Maine Energy, we could be
required to recognize unanticipated charges, in which case our business,
financial condition, results of operations and liquidity could be materially
adversely affected.
WE MAY NOT BE ABLE TO EFFECTIVELY COMPETE IN THE HIGHLY COMPETITIVE SOLID WASTE
SERVICES INDUSTRY
The solid waste services industry is highly competitive, is undergoing a period
of increasingly rapid consolidation, and requires substantial labor and capital
resources. Some of the markets in which we compete or will likely compete are
served by one or more of the large national or multinational solid waste
companies, as well as numerous regional and local solid waste companies. Intense
competition exists not only to provide services to customers, but also to
acquire other businesses within each market. Some of our competitors have
significantly greater financial and other resources than us. From time to time,
competitors may reduce the price of their services in an effort to expand market
share or to win a competitively bid municipal contract. These practices may
either require us to reduce the pricing of our services or result in our loss of
business. As is generally the case in the industry, municipal contracts are
subject to periodic competitive bidding. There can be no assurance that we will
be the successful bidder to obtain or retain these contracts. If we are unable
to compete with larger and better capitalized companies, or to replace municipal
contracts lost through the competitive bidding process with comparable contracts
or other revenue sources within a reasonable time period, our business,
financial condition and results of operations could be materially adversely
affected.
In our solid waste disposal markets, we also compete with operators of
alternative disposal and recycling facilities and with counties, municipalities
and solid waste districts that maintain their own waste collection, recycling
and disposal operations. These entities may have financial advantages because
user fees or similar charges, tax revenues and tax-exempt financing may be more
available to them than to us.
Our Tires division and our insulation manufacturing joint venture with
Louisiana-Pacific compete with other parties, some of which have substantially
greater resources than we do, which they could use for product development,
marketing or other purposes to our detriment.
ONE OF OUR SUBSIDIARIES SELLS ITS ENTIRE OUTPUT TO A FEW CUSTOMERS AND LACKS THE
CAPACITY TO MEET ALL OF ITS COMMITMENTS
One of our subsidiaries operates three steam generating plants, one of which
produces steam for a facility owned by E. I. du Pont de Nemours and Company
under a five-year contract expiring on May 30, 2003. Du Pont has significantly
reduced
<PAGE>
operations at this facility, and has the option to terminate the contract upon
payment of a termination fee. The second plant produces steam for an industrial
park. Approximately 85% of the steam produced by the plant is purchased by one
customer under a contract that may not be terminated by the customer except for
cause, and the balance is sold to ten customers under contracts, which provide
that our subsidiary may elect not to supply steam. Currently, maximum contracted
capacity for all customers for steam exceeds the maximum rated capacity of this
plant. Actual demand, however, has not exceeded the maximum rated capacity. If
actual demand grows, the plant may need to install equipment to respond to peak
demands, as well as equipment, which may be necessary to allow the plant to meet
stricter air quality standards, which may be adopted in the near future. The
cost of this air quality equipment, not including the equipment necessary to
respond to peak demands, is expected to be approximately $1.2 million. We have
closed the third steam generating plant, which sold all of its output to a
customer, which has filed for bankruptcy. The termination of the contract with
du Pont or any of the significant customers who purchase steam from our
subsidiary or its subsidiary could have a material adverse effect on our
business, financial condition and results of operations.
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE NEGATIVELY AFFECTED IF
WE INADEQUATELY ACCRUE FOR CLOSURE AND POST-CLOSURE COSTS
We have material financial obligations relating to closure and post-closure
costs of our existing landfills and will have material financial obligations
with respect to any disposal facilities, which we may own or operate in the
future. In addition to the landfills we currently operate, we own four unlined
landfills, which are not currently in operation. We have provided and will in
the future provide accruals for financial obligations relating to closure and
post-closure costs of our owned or operated landfills, generally for a term of
30 years after final closure of a landfill. We cannot assure you that our
financial obligations for closure or post-closure costs will not exceed the
amount accrued and reserved or amounts otherwise receivable pursuant to trust
funds established for this purpose. Such a circumstance could result in
unanticipated charges and have a material adverse effect on our business,
financial condition and results of operations.
WE COULD BE PRECLUDED FROM ENTERING INTO CONTRACTS OR OBTAINING PERMITS IF WE
ARE UNABLE TO OBTAIN THIRD PARTY FINANCIAL ASSURANCE TO SECURE OUR CONTRACTUAL
OBLIGATIONS
Municipal solid waste collection and recycling contracts, obligations associated
with landfill closure and post closure and the operation and closure of
waste-to-energy facilities may require performance or surety bonds, letters of
credit or other means of financial assurance to secure our contractual
performance. If we are unable to obtain the necessary financial assurance in
sufficient amounts or at acceptable rates, we could be precluded from entering
into additional municipal solid waste collection contracts or from obtaining or
retaining landfill operating permits. Any future difficulty in obtaining
insurance could also impair our ability to secure future contracts conditioned
upon the contractor having adequate insurance coverage. Accordingly, our failure
to obtain financial assurance bonds, letters of credit or other means of
financial assurance or to maintain adequate insurance could have a material
adverse effect on our business, financial condition and results of operations.
WE MAY BE REQUIRED TO WRITE-OFF CAPITALIZED CHARGES IN THE FUTURE, WHICH COULD
ADVERSELY AFFECT OUR EARNINGS
Any charge against earnings could have a material adverse effect on our earnings
and the market price of our Class A common stock. In accordance with generally
accepted accounting principles, we capitalize certain expenditures and advances
relating to our acquisitions, pending acquisitions, landfills and development
projects. From time to time in future periods, we may be required to incur a
charge against earnings in an amount equal to any unamortized capitalized
expenditures and advances, net of any portion thereof that we estimate will be
recoverable, through sale or otherwise, relating to (a) any operation that is
permanently shut down or has not generated or is not expected to generate
sufficient cash flow, (b) any pending acquisition that is not consummated and
(c) any landfill or development project that is not expected to be successfully
completed. We have incurred such charges in the past.
OUR CLASS B COMMON STOCK HAS TEN VOTES PER SHARE AND IS HELD EXCLUSIVELY BY
JOHN W. CASELLA AND DOUGLAS R. CASELLA
The holders of our Class B common stock are entitled to ten votes per share and
the holders of our Class A common stock are entitled to one vote per share. At
October 21, 2000, an aggregate of 988,200 shares of our Class B common stock,
representing 9,882,000 votes, were outstanding, all of which were beneficially
owned by John W. Casella, our president and chief executive officer, or by his
brother, Douglas R. Casella, a director. Based on the number of shares of common
stock outstanding at September 5, 2000, the shares of our Class A common stock
and Class B common stock held by John W. Casella and Douglas R. Casella
represent approximately 34.4% of the aggregate voting power of our stockholders.
Consequently, John W. Casella and Douglas R. Casella will be able to
substantially influence all matters for stockholder consideration.
<PAGE>
Part II. OTHER INFORMATION
--------------------------
ITEM 1. LEGAL PROCEEDINGS
--------------------------
On or about October 30, 1997, Mr. Matthew M. Freeman commenced a civil lawsuit
against the Company and two of its officers and directors in Vermont Superior
Court. Mr. Freeman claims to have performed services for the Company prior to
1995 and in his lawsuit is seeking a three-percent equity interest in the
Company or the monetary equivalent thereof, as well as punitive damages. The
Company and the officers and directors have answered the Complaint, denied Mr.
Freeman's allegations of wrongdoing, and asserted various defenses. In addition,
the Company has filed a motion for summary judgment, which is currently pending.
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 the
Company agreed to indemnify the Company for any settlement by the Company or any
award against the Company in excess of $350,000 (but not for legal fees paid by
or on behalf of the Company or any other third party). The Company accrued a
$215,000 reserve for this claim during the year ended April 30, 1998.
The Company's wholly owned subsidiary, North Country Environmental Services,
Inc. ("NCES"), is a party to an appeal against the Town of Bethlehem, New
Hampshire ("Town") before the New Hampshire Supreme Court. The appeal arises
from cross actions for declaratory and injunctive relief filed by NCES and the
Town to determine the permitted extent of NCES's landfill in the Town. The
Grafton Superior Court ruled on February 1, 1999 that the Town could not enforce
an ordinance purportedly prohibiting expansion of the landfill, at least within
51 acres of NCES's 87-acre parcel, based upon certain existing land-use
approvals. As a result, NCES was able to construct and operate "Stage II, Phase
II" of the landfill. If the Town were to prevail on appeal, the range of
possible outcomes includes, without limitation, a new trial, closure of the
landfill, or remediation (i.e., removal) of Stage II, Phase II. A separate
appeal by two citizens groups of the construction and operating approvals issued
by the New Hampshire Department of Environmental Services to NCES for Stage II,
Phase II has been stayed by the New Hampshire Waste Management Council pending
the resolution of the appeal before the Supreme Court.
On or about December 7, 1999, Earth Waste Systems, Inc., Kevin Elnicki and Frank
Elnicki filed a civil lawsuit against the Company, two of the Company's officers
and directors, and a former employee in Vermont State Court, Rutland County. The
plaintiffs allege that the Company and the individual defendants breached
contractual obligations and engaged in other wrongdoing related to, among other
things, a now terminated scrap metal agreement. Plaintiffs are seeking monetary
damages, including punitive damages, in an unspecified amount. The Company's
motion to dismiss the case on jurisdictional grounds was denied, and the Company
has filed an answer to Plaintiff's complaint. Additionally, both parties have
filed motions for summary judgment on selected issues, which currently remain
pending. The Company believes it has meritorious defenses to this lawsuit. . On
November 21, 2000, the plaintiffs filed a motion for attachment of the Company's
assets having a value of $7 million. A hearing on the attachment is currently
scheduled for December 14.
The Company has brought an action against the Town of Hampden, Maine to set
aside the Town's efforts to block the Company's construction of approximately
3,100,000 tons of capacity, for which the Company has been granted a permit by
the State of Maine. On October 20, 2000, the Penobscot County Superior Court in
Bangor, Maine granted the Company's motion for summary judgment, remanding the
matter to the Hampden Board of Appeals to grant the Company a license to expand.
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 October 1999. Woodstock '99, LLC is seeking damages of up to
$2,000,000. The Company has filed its Answer and Counterclaim, and has reached a
tentative settlement for $32,500 that should be finalized by the end of the
calendar year.
On April 1, 1999, William F. Kaiser, a former Executive Vice President and
Treasurer of KTI, filed a lawsuit against KTI in the U.S. District Court for the
District of New Jersey. The suit alleges breach of contract, wrongful
termination, breach of the implied covenant of good faith and fair dealing,
misrepresentation of employment terms and failure to pay wages, all arising out
of Mr. Kaiser's employment agreement with KTI. The suit also alleges that KTI
inaccurately reported its financial results for the first six months of 1998 and
failed to properly disclose the change of control provision in Mr. Kaiser's
employment agreement. Mr. Kaiser is seeking a declaratory judgment that, upon
closing of the merger, the change of control provision entitles him to receive a
severance payment of two years' salary, in the amount of $320,000, and to
exercise 132,000 unvested options for KTI common stock. Mr. Kaiser is also
seeking damages in the amount of $40,000 for an additional severance payment, as
well as undisclosed damages for outstanding salary, bonus and other payments and
from his sale of approximately 20,000 shares of KTI common stock resulting from
KTI's allegedly inaccurate financial reports. A settlement conference is
expected to occur in March 2001.
<PAGE>
On or about April 26, 1999, Salvatore Russo filed an action in the U.S. District
Court, District of New Jersey against KTI and two of its principal officers,
Ross Pirasteh and Martin J. Sergi, purportedly on behalf of all shareholders who
purchased KTI common stock from May 4, 1998 through August 14, 1998. Melanie
Miller filed an identical complaint on May 14, 1999. The complaints allege that
the defendants made material misrepresentations in KTI's six monthly report on
form 10-Q for the period ended March 31, 1998 in violation of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended, concerning KTI's
allowance for doubtful accounts and net income. The Plaintiffs are seeking
undisclosed damages. The Company believes it has meritorious defenses to these
complaints. The Court has consolidated the Russo and Milliner complaints, and
plaintiffs filed a consolidated amended complaint on June 15, 2000. The Company
filed a motion to dismiss the consolidated amended complaint, which is currently
pending in the District Court of New Jersey.
On May 11, 2000, the Company was granted a permit modification by the New
Hampshire Department of Environmental Services to increase the volume of solid
waste processed and stored at its GDS transfer station in Newport, New
Hampshire. On or about June 12, 2000, a local environmental activist appealed
the permit modification to the New Hampshire Waste Management Council. The
appeal claims that the modification will lead to adverse environmental impacts
through higher waste flows and increased levels of incineration at a nearby
waste-to-energy facility, that the Company has been the subject of "complaints"
arising from its New England and New York operations, and that the Company has
failed to demonstrate that the modification is consistent with the waste
management plan of the local waste management district. The Company expects to
seek a dismissal of the appeal for the appellant's lack of standing.
On January 7, 2000, the City of Saco, Maine filed a notice of claims with the
Company and Maine Energy claiming entitlement to certain "residual cancellation"
payments from Maine Energy under the waste handling agreement dated June 7, 1991
among the Biddeford-Saco Waste Handling Committee, Biddeford, Saco and Maine
Energy on the basis of the satisfaction of certain conditions, including the
acquisition of KTI by the Company. The notice of claims alleges that the
payments due to Saco exceed $33 million, and claims damages in such amounts for
breach of contract, breach of fiduciary duties and fraud and also claims treble
damages of $100 million based on alleged fraudulent transfer of Maine Energy's
assets. The notice also reserves the right to seek punitive damages. Although
the City of Biddeford, Maine has not filed a notice of claims, it has given
notice that it will be initiating a suit to receive the residual cancellation
payments. Under the agreement, the aggregate amount to be paid upon the exercise
of the put right is 18% of the fair market value of the equity of the partners
in Maine Energy, and such amount is required to be paid within 120 days after
the exercise of the put by the respective parties entitled thereto. The Company
believes it has meritorious defenses to these claims and is negotiating the
terms of an amended host agreement that may render the claims moot.
On or about March 24, 2000, a complaint was filed in the United States District
Court, District of New Jersey against the Company, KTI, and three of KTI's
principal officers, Ross Pirasteh, Martin J. Sergi, and Paul A. Garrett. The
complaint purported to be behalf of all shareholders who purchased KTI common
stock from January 1, 1998 through April 14, 1999. The Complaint alleged that
the defendants made unspecified misrepresentations regarding KTI's financial
condition during the class period in violation of Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934, as amended. The plaintiffs seek undisclosed
damages. On or about April 6, 2000, the plaintiffs filed an amended class action
complaint, which changes the class period covered by the complaint to the period
including August 15, 1998 through April 14, 1999. The Company has filed a motion
to dismiss, which remains pending. The Company believes it has meritorious
defenses to these claims.
The Company is a defendant in certain other lawsuits alleging various claims
incurred in the ordinary course of business.
The Company offers no prediction of the outcome of any of the proceedings
described above.
ITEM 2. CHANGES IN SECURITIES
-----------------------------
Previously reported.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
-------------------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-----------------------------------------------------------
At the Company's Annual Meeting of Shareholders held on October 17, 2000, two
proposals were submitted to a vote of the Company's stockholders. The proposals
and results of voting were as follows:
<PAGE>
PROPOSAL I.
Proposal to elect, as Class III Directors, Messrs. John W. Casella, John F.
Chapple III and Wilbur L. Ross, Jr. Messrs. Casella, Chapple and Ross are
currently directors of the Company.
John W. Casella: Votes For: 31,479,095
Withheld: 527,175
John F. Chapple III: Votes For: 31,511,756
Withheld: 494,514
Wilbur L. Ross, Jr: Votes For: 31,500,856
Withheld: 505,414
Other Directors whose terms of office continued in effect after the Annual
Meeting are Ross Pirasteh (Chairman of the Board of Directors), Douglas R.
Casella, James W. Bohlig, Gregory B. Peters, Martin J. Sergi, George J. Mitchell
and D. Randolph Peeler.
PROPOSAL II.
Proposal to ratify the selection of Arthur Andersen LLP as the Company's
auditors for fiscal 2001.
Votes For: 31,852,270
Votes Against: 88,510
Abstentions: 65,490
ITEM 5. OTHER INFORMATION
-------------------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
----------------------------------------
(a) Exhibits:
27.1 Financial Data Schedule for Period Ended October 31, 2000
27.2 Restated Financial Data Schedule for Period Ended October 31, 1999
(b) Reports on Form 8-K:
Previously reported.
<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: December 13, 2000 By: /s/ Jerry Cifor
-----------------------------
Jerry Cifor
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)
