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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 January 31, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ---------------
Commission file number 000-23211
CASELLA WASTE SYSTEMS, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 03-0338873
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
25 Greens Hill Lane, Rutland, Vermont 05701
------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 775-0325
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 8, 2001:
Class A Common Stock 22,197,381
Class B Common Stock 988,200
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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)
ASSETS April 30, January 31,
------ 2000 2001
-------- --------
CURRENT ASSETS:
Cash and Cash Equivalents $ 8,864 $ 27,564
Restricted Cash 17,609 19,413
Accounts Receivable - Trade, net of allowance
for doubtful accounts of $5,522 and $3,397 78,514 76,438
Accounts Receivable - Other 14,388 --
Notes Receivable - Officers/Employees 2,095 2,095
Prepaid Expenses 5,929 5,326
Inventory 10,840 7,339
Investments 5,156 7,072
Deferred Income Taxes 12,730 13,533
Assets Held for Sale 27,775 24,843
Other Current Assets 5,664 3,144
-------- --------
Total Current Assets 189,564 186,767
-------- --------
Property, Plant and Equipment, net of accumulated
depreciation and amortization of $95,754 and $125,940 374,609 375,901
Intangible Assets, net 288,839 311,767
Restricted Cash 10,847 9,494
Investment in GreenFiber JV -- 17,102
Other Non-Current Assets 4,562 3,207
-------- --------
Total Non-Current Assets 678,857 717,471
-------- --------
$868,421 $904,238
======== ========
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
LIABILITIES AND April 30, January 31,
STOCKHOLDERS' EQUITY 2000 2001
-------------------- --------- ---------
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 8,344 $ 8,335
Current Maturities of Capital Lease Obligations 788 652
Accounts Payable 42,693 33,814
Accrued Payroll and Related Expenses 5,521 4,747
Accrued Interest 3,994 2,201
Accrued Income Taxes 3,766 5,153
Accrued Closure and Post-Closure Costs, Current Portion 259 171
Deferred Revenue 2,829 9,985
Other Current Liabilities 14,944 11,386
--------- ---------
Total Current Liabilities 83,138 76,444
--------- ---------
Long-Term Debt, Less Current Maturities 438,425 420,893
--------- ---------
Capital Lease Obligations, Less Current Maturities 3,748 5,616
--------- ---------
Deferred Income Taxes 30,948 28,449
--------- ---------
Accrued Closure and Post-Closure Costs,
Less Current Maturities 12,017 16,081
--------- ---------
Minority Interests 16,378 19,351
--------- ---------
Other Long-Term Liabilities 9,049 13,255
--------- ---------
COMMITMENTS AND CONTINGENCIES
Series A Redeemable, Convertible Preferred Stock, 56
Shares Authorized, Issued and Outstanding, Liquidation
Preference of $1,000 per Share -- 57,040
STOCKHOLDERS' EQUITY
Class A Common Stock -
Authorized - 100,000 Shares, $0.01 par value Issued and Outstanding -
22,215 and 22,196 Shares as of April 30, 2000 and January, 31 2001,
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) 1,730
Additional Paid-In Capital 270,950 270,655
Retained Earnings 4,136 (5,803)
--------- ---------
Total Stockholders' Equity 274,718 267,109
--------- ---------
$ 868,421 $ 904,238
========= =========
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
------------------------ ------------------------
January 31, January 31, January 31, January 31,
2000 2001 2000 2001
--------- --------- --------- ---------
Revenues $ 93,004 $ 120,808 $ 203,428 $ 417,133
Operating Expenses:
Cost of Operations 61,452 82,666 122,824 284,860
General and Administrative 11,413 14,408 26,296 49,118
Depreciation and Amortization 10,193 13,548 25,763 42,260
Impairment Loss on expected
sale of Tire Business -- 13,000 -- 13,000
Merger Related Costs -- -- 1,490 --
--------- --------- --------- ---------
83,058 123,622 176,373 389,238
--------- --------- --------- ---------
Operating Income (Loss) 9,946 (2,814) 27,055 27,895
--------- --------- --------- ---------
Other (Income)/Expenses, net:
Interest Income (778) (1,059) (881) (2,406)
Interest Expense 5,553 10,610 8,865 31,678
Equity in Loss from Investments -- 5,574 -- 6,606
Gain on sale of Bangor Hydro Warrants -- (1,526) -- (1,526)
Minority Interest -- 287 -- 949
Other (Income), net (120) (211) (625) (151)
--------- --------- --------- ---------
Other Expenses, net 4,655 13,675 7,359 35,150
--------- --------- --------- ---------
Income (Loss) from Continuing Operations
Before Income Taxes 5,291 (16,489) 19,696 (7,255)
Provision for Income Taxes 2,433 (3,571) 8,733 1,394
--------- --------- --------- ---------
Net Income (Loss) from Continuing Operations
Before Extraordinary Item 2,858 (12,918) 10,963 (8,649)
--------- --------- --------- ---------
Loss from Discontinued Operations,
net of Income Taxes (79) -- (269) --
Estimated Loss on Disposal of Discontinued
Operations, net of Income Taxes (1,393) -- (1,393) --
--------- ---------
(1,472) -- (1,662) --
Extraordinary Item - Early Extinguishment
of Debt, net of income taxes (631) -- (631) --
--------- ---------
Net Income (Loss) 755 (12,918) 8,670 (8,649)
Preferred Stock Dividend -- 702 -- 1,290
========= ========= ========= =========
Net income available to Common Shareholders 755 (13,620) 8,670 (9,939)
========= ========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
-------------------------- --------------------------
January 31, January 31, January 31, January 31,
2000 2001 2000 2001
---------- ---------- ---------- ----------
Earnings Per Share:
Basic:
Net Income (Loss) from Continuing
Operations Before Extraordinary
Item and Discontinued Operations $ 0.14 $ (0.58) $ 0.64 $ (0.43)
Loss from Discontinued Operations $ (0.07) $ -- $ (0.10) $ --
Extraordinary Item $ (0.03) $ -- $ (0.04) $ --
---------- ---------- ---------- ----------
Net Income per Common Share $ 0.04 $ (0.58) $ 0.50 $ (0.43)
========== ========== ========== ==========
Basic Weighted Average Common
Shares Outstanding 19,777 23,182 17,264 23,190
========== ========== ========== ==========
Diluted:
Net Income (Loss) from Continuing
Operations Before Extraordinary
Item and Discontinued Operations $ 0.14 $ (0.58) $ 0.62 $ (0.43)
Loss from Discontinued Operations $ (0.07) $ -- $ (0.09) $ --
Extraordinary Item $ (0.03) $ -- $ (0.04) $ --
---------- ---------- ---------- ----------
Net Income per Common Share $ 0.04 $ (0.58) $ 0.49 $ (0.43)
========== ========== ========== ==========
Diluted Weighted Average Common
Shares Outstanding 20,264 23,182 17,758 23,190
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
--------------------------
January 31, January 31,
2000 2001
---------- ----------
Cash Flows from Operating Activities:
Net Income $ 8,670 $ (8,649)
---------- ----------
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities -
Depreciation and Amortization 25,763 42,260
Loss from Discontinued Operations 1,662 --
Loss on Extraordinary Item 631 --
Equity Losses in Non-Consolidated Entities -- 6,605
Non-Cash Impairment Loss on expected sale of Tire Business -- 13,000
Gain on Sale of Equipment (300) (318)
Non Cash Directors' Compensation -- 30
Minority Interests 113 949
Changes in Assets and Liabilities, net of Effects of Acquisitions -
Accounts Receivable (12,878) 1,915
Accounts Payable (10,615) (5,602)
Other Current Assets and Liabilities 17,790 (8,212)
---------- ----------
22,166 50,627
---------- ----------
Net Cash Provided by Operating Activities 30,836 41,978
---------- ----------
Cash Flows from Investing Activities:
Acquisitions, Net of Cash Acquired (34,848) (7,811)
Proceeds from Divestitures -- 5,832
Additions to Property and Equipment (53,301) (56,988)
Proceeds from Sale of Equipment 1,107 1,951
Proceeds from Sale of Bangor-Hydro Warrants -- 3,319
Advances to Unconsolidated Subsidiaries -- (7,883)
Other (3,718) (4,606)
---------- ----------
Net Cash Used in Investing Activities (90,760) (66,186)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from Long-Term Borrowings 354,290 48,090
Principal Payments on Long-Term Debt (289,169) (62,703)
Proceeds from Issuance of Common Stock -- 1,018
Proceeds from Equity Transactions of Majority-Owned Subsidiary -- 1,506
Proceeds from Exercise of Stock Options 754 256
Net Proceeds from the Issuance of Series A
Redeemable, Convertible Preferred Stock -- 54,741
---------- ----------
Net Cash Provided by Financing Activities 65,875 42,908
---------- ----------
Net Increase in Cash and Cash Equivalents 5,951 18,700
Cash and Cash Equivalents, Beginning of Period 4,232 8,864
---------- ----------
Cash and Cash Equivalents, End of Period $ 10,183 $ 27,564
========== ==========
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
--------------------------
January 31, January 31,
2000 2001
---------- ----------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for -
Interest $ 7,984 $ 33,257
========== ==========
Income Taxes, net of refunds $ 1057 $ 1,100
========== ==========
Supplemental Disclosures of Non-Cash Investing
and Financing Activities:
Summary of Entities Acquired in Purchase Business Combinations
Fair Market Value of Assets Acquired $ 427,340 $ 21,078
Common Stock Issued (111,860)
Notes Receivable Exchanged for Assets -- (13,263)
Cash Paid, net (34,848) (7,811)
---------- ----------
Liabilities Assumed and Notes Receivable Forgiven to Seller $ 280,632 $ 4
========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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 January 31, 2001, the
consolidated statements of operations for the three and nine months ended
January 31, 2000 and 2001 and the condensed consolidated statements of cash
flows for the nine months ended January 31, 2000 and 2001 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 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 nine months ended January 31, 2001, 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 note 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.
Nine Months Nine Months
Ended Ended
January 31, January 31,
2000 2001
---------- ----------
Revenues $ 401,971 $ 419,210
========== ==========
Operating Income $ 43,971 $ 28,265
========== ==========
Net Income (Loss), continuing operations $ 11,497 $ (8,603)
========== ==========
Preferred Stock Dividend $ -- $ 1,290
========== ==========
Net Income available to Common Shareholders $ 11,497 $ (9,893)
========== ==========
Diluted Income per Share $ 0.54 $ (0.43)
========== ==========
Weighted Average Diluted Shares Outstanding 21,282 23,190
========== ==========
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 $23.0 million) to the
new company, known as U. S. GreenFiber LLC. The Company accounts for its 50%
interest using the equity basis.
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, and the Company has withdrawn its request for
reconsideration. The cost to install the synthetic cap is estimated to be
approximately $900,000.
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 Holders, at $14 per share.
Dividends are payable at an annual rate of 5%. The Company has the option to
redeem the preferred stock for cash at 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
January 31 of each period 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 nine month
periods for the purpose of calculating basic and dilutive earnings per common
share:
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------- --------------------
2000 2001 2000 2001
------- ------- ------- -------
Number of Shares Outstanding, End of Period:
Class A Common Stock 22,213 22,196 22,213 22,196
Class B Common Stock 988 988 988 988
Effect of Weighted Average shares
Outstanding during period (3,424) (2) (5,937) 6
------- ------- ------- -------
Basic Shares Outstanding 19,777 23,182 17,265 23,190
Impact of Potentially Dilutive Securities 487 0 493 0
------- ------- ------- -------
Diluted Shares Outstanding 20,264 23,182 17,758 23,190
------- ------- ------- -------
For the three and nine months ended January 31, 2001, 9,677 and 7,835
potentially dilutive common shares, respectively, were excluded from the
calculation of dilutive shares outstanding because their impact was
anti-dilutive.
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, and Other. Other consists of
Corporate activities, the Company's investment in GreenFiber LLC and assets held
for sale.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 and
landfills. 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. 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.
Energy &
Residential Commercial Waste
Eastern Central Western Recycling Recycling Processing
-------- -------- -------- -------- -------- --------
Three Months Ended January 31, 2001
Outside Revenue $ 40,246 $ 22,851 $ 15,635 $ 9,581 $ 23,802 $ 3,977
======== ======== ======== ======== ======== ========
Inter-segment Revenue $ 9,668 $ 9,662 $ 3,705 $ 3,860 $ 5,995 $ 29
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 1,434 $ 3,192 $ 561 $ (185) $ (1,077) $ (740)
======== ======== ======== ======== ======== ========
Total Assets $389,275 $137,647 $115,533 $ 90,642 $ 45,166 $ 22,565
======== ======== ======== ======== ======== ========
Other Eliminations Total
-------- -------- --------
Outside Revenue $ 4,027 $ 689 $120,808
======== ======== ========
Inter-segment Revenue $ -- $(32,919) $ --
======== ======== ========
Net Income/(Loss) $(16,104) $ 1 $(12,918)
======== ======== ========
Total Assets $117,117 $(13,707) $904,238
======== ======== ========
Energy &
Residential Commercial Waste
Eastern Central Western Recycling Recycling Processing
-------- -------- -------- -------- -------- --------
Three Months Ended January 31, 2000
Outside Revenue $ 24,574 $ 23,089 $ 14,659 $ 6,637 $ 16,067 $ 3,155
======== ======== ======== ======== ======== ========
Inter-segment Revenue $ 2,936 $ 9,016 $ 2,764 $ -- $ 4,135 $ 40
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 1,369 $ 2,978 $ 1,162 $ 925 $ 681 $ 250
======== ======== ======== ======== ======== ========
Total Assets $309,075 $116,897 $111,596 $ 45,731 $ 41,270 $ 39,680
======== ======== ======== ======== ======== ========
Other Eliminations Total
-------- -------- --------
Outside Revenue $ 7,180 $ (2,357) $ 93,004
======== ======== ========
Inter-segment Revenue $ 314 $(19,205) $ --
======== ======== ========
Net Income/(Loss) $ (6,610) $ -- $ 755
======== ======== ========
Total Assets $ 93,046 $ -- $757,295
======== ======== ========
Energy &
Residential Commercial Waste
Eastern Central Western Recycling Recycling Processing
-------- -------- -------- -------- -------- --------
Nine Months Ended January 31, 2001
Outside Revenue $126,125 $ 76,572 $ 50,777 $ 28,584 $ 84,477 $ 14,266
======== ======== ======== ======== ======== ========
Inter-segment Revenue $ 31,422 $ 30,580 $ 11,406 $ 15,318 $ 22,902 $ 166
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 3,240 $ 12,523 $ 3,166 $ 1,031 $ (1,286) $ (589)
======== ======== ======== ======== ======== ========
Total Assets $389,275 $137,647 $115,533 $ 90,642 $ 45,166 $ 22,565
======== ======== ======== ======== ======== ========
Other Eliminations Total
-------- -------- --------
Outside Revenue $ 27,184 $ 9,148 $417,133
======== ======== ========
Inter-segment Revenue $ 610 $(112,404) $ --
======== ======== ========
Net Income/(Loss) $(26,957) $ 223 $ (8,649)
======== ======== ========
Total Assets $117,117 $(13,707) $904,238
======== ======== ========
Energy &
Residential Commercial Waste
Eastern Central Western Recycling Recycling Processing
-------- -------- -------- -------- -------- --------
Nine Months Ended January 31, 2000
Outside Revenue $ 50,036 $ 74,915 $ 47,314 $ 6,637 $ 16,067 $ 3,155
======== ======== ======== ======== ======== ========
Inter-segment Revenue $ 5,671 $ 27,800 $ 9,717 $ -- $ 4,135 $ 40
======== ======== ======== ======== ======== ========
Net Income/(Loss) $ 2,017 $ 14,171 $ 4,465 $ 925 $ 681 $ 250
======== ======== ======== ======== ======== ========
Total Assets $309,075 $116,897 $111,596 $ 45,731 $ 41,270 $ 39,680
======== ======== ======== ======== ======== ========
Other Eliminations Total
-------- -------- --------
Outside Revenue $ 7,661 $ (2,377) $203,428
======== ======== ========
Inter-segment Revenue $ 314 $(47,677) $ --
======== ======== ========
Net Income/(Loss) $(13,839) $ -- $ 8,670
======== ======== ========
Total Assets $ 93,046 $ -- $757,295
======== ======== ========
7. RECLASSIFICATION
Certain amounts for the prior period have been reclassified to conform to the
presentation adopted in the current year.
8. SUBSEQUENT EVENTS
Effective March 1, 2001, the Company acquired the remaining 16.25% minority
interest in its majority owned subsidiary Maine Energy Recovery Company ("Maine
Energy"), and sold its majority interest in the Penobscot Energy Recovery
Company ("PERC"). Net cash proceeds for the two transactions amounted to $12
million.
On March 6, 2001 the Company signed a purchase and sale agreement with an
investor group to sell its scrap tire recycling business. The transaction is
subject to conditions specified in the purchase and sale agreement, including
the satisfactory completion of the purchaser's due diligence review.
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 processed at its facilities as well as
recyclables purchased for resale from third parties. The Company generates
electricity under its contracts with its two wholly owned subsidiaries, Maine
Energy and Timber Energy Recovery, Inc. ("TERI").
As of March 8, 2000, the Company owned and/or operated five Subtitle D
landfills, two landfills permitted to accept construction and demolition
materials, 30 transfer stations, 44 recycling processing facilities, 39 solid
and liquid waste collection divisions, 5 power generation facilities, 7 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. The tire recycling facilities have been classified as assets held for
sale.
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 January 31, 2001, 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.
During the third quarter of 2001, the Company divested 3 non-core operating
assets. These consist of a hauling operation in Northwest Pennsylvania, a
plastics brokerage business located in Maryland and a hazardous waste
remediation business in Maine.
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, and
recyclable brokering operations. The Company's revenues are shown net of
intercompany eliminations. The Company typically establishes its intercompany
transfer pricing based upon prevailing market rates.
The table below shows, for the periods indicated, the percentage of the
Company's revenues attributable to services provided. The 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 Nine Months Ended
January 31, January 31,
2000 2001 2000 2001
------ ------ ------ ------
Collection 43.6% 41.4% 62.4% 38.1%
Landfill/ Disposal Facilities 17.8 19.6 13.9 17.7
Transfer 4.1 5.5 5.5 5.9
Recycling 15.5 16.7 8.1 18.6
Brokerage 9.0 16.0 4.1 13.3
Other 10.0 0.8 6.0 6.4
------ ------ ------ ------
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.
Three Months Ended Nine Months Ended
January 31, January 31,
2000 2001 2000 2001
------ ------ ------ ------
Revenues 100.0% 100.0% 100.0% 100.0%
Cost of Operations 66.1 68.4 60.4 68.3
General and Administrative 12.3 11.9 12.9 11.8
Depreciation and Amortization 10.9 11.2 12.7 10.1
Impairment Loss on expected
Sale of Tire Business 0.0 10.8 0.0 3.1
Merger Related Costs 0.0 0.0 0.7 0.0
------ ------ ------ ------
Operating Income (Loss) 10.7 (2.3) 13.3 6.7
Interest Expense, net 5.1 7.9 3.9 7.0
Equity in Loss from Investments 0.0 4.6 0.0 1.6
Gain on sale of warrants 0.0 (1.2) 0.0 (0.4)
Minority Interest 0.0 0.2 0.0 0.2
Other (Income)/Expense 0.0 (0.2) (0.3) 0.0
Provision for Income Taxes 2.6 (2.9) 4.3 0.3
------ ------ ------ ------
Net Income (Loss) Before
Discontinued Operations 3.0 (10.7) 5.4 (2.0)
Loss from Discontinued Operations 0.0 0.0 0.1 0.0
Estimated loss on disposal of
Discontinued Operations 1.5 0.0 0.7 0.0
Extraordinary Item 0.7 0.0 0.3 0.0
------ ------ ------ ------
Net Income (Loss) 0.8% (10.7)% 4.3% (2.0)%
====== ====== ====== ======
Adjusted EBITDA* 21.6% 19.4% 26.0% 19.8%
====== ====== ====== ======
* See discussion and computation of adjusted EBITDA below.
Three Months Ended January 31, 2001:
REVENUES:
Revenues increased $27.8 million, or 29.9% to $120.8 million in the quarter
ended January 31, 2001 from $93.0 million in the quarter ended January 31, 2000.
Approximately $22.5 million of the increase was attributable to the impact of
businesses acquired throughout fiscal 2000 and fiscal 2001, including KTI, which
was acquired in December 1999. The balance of the increase of $5.3 million was
attributable to internal volume and price growth, partially offset by lower
average recyclable commodity prices in the current quarter as compared to 2000.
COST OF OPERATIONS:
Cost of operations increased $21.2 million or 34.5% to $82.7 million in the
quarter ended January 31, 2001 from $61.5 million in the quarter ended January
31, 2000. Cost of operations as a percentage of revenues increased to 68.4% in
the quarter ended January 31, 2001 from 66.1% 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 a high cost of
operations as a percentage of revenues (approximately 90%). Brokerage comprised
approximately 16.0% of the Company's revenues in the current quarter, versus
9.0% in the prior year.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased $3.0 million, or 26.2% to $14.4
million in the quarter ended January 31, 2001 from $11.4 million in the quarter
ended January 31, 2000, but decreased as a percentage of revenues to 11.9% in
the quarter ended January 31, 2001 from 12.3% in the quarter ended January 31,
2000. The increase in general and administrative expenses was primarily the
result of acquiring KTI.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $3.3 million, or 32.4%, to
$13.5 million in the quarter ended January 31, 2001 from $10.2 million in the
quarter ended January 31, 2000. Depreciation and amortization expenses as a
percentage of revenues increased to 11.2% in the quarter ended January 31, 2001
from 10.9% in the quarter ended January 31, 2000. The increase in depreciation
and amortization expense principally resulted from the Company's acquisition of
KTI.
IMPAIRMENT LOSS ON EXPECTED SALE OF TIRE BUSINESS
During the third quarter 2001, the Company wrote down its Tire business to
estimated realizable value.
INTEREST EXPENSE, NET:
Net interest expense increased $4.8 million, or 100.0% to $9.6 million in the
quarter ended January 31, 2001 from $4.8 million in the quarter ended January
31, 2000. Interest expense, as a percentage of revenues, increased to 7.9% in
the quarter ended January 31, 2001 from 5.1% in the quarter ended January 31,
2000. This increase is primarily attributable to three factors: (i) a higher
average debt balance in the current fiscal quarter, versus last year; and (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 its debt.
EQUITY IN LOSS FROM 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%. These investments are a part of the Tires
business and are classified as assets held for sale. In addition, effective
August 1, 2000 the Company has a 50% interest in GreenFiber. The Company's share
of GreenFiber's income in the current period was more than offset by the
restructuring charge and transition costs incurred in setting up the new
business and closing redundant plants, leading to a net loss for the period.
GAIN ON SALE OF BANGOR HYDRO WARRANTS
The Company sold one-third of its holding of Bangor Hydro warrants in Q3 2001
for $3.3 million in cash.
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. Effective March 1,
2001, the Company acquired the 16.25% minority interest in Maine Energy Recovery
Company ("Maine Energy"), and sold its majority interest in the Penobscot Energy
Recovery Company ("PERC"). Net cash proceeds for the two transactions amounted
to $12 million.
OTHER (INCOME):
Other (income) increased to $(0.2) million income in the quarter ended January
31, 2001 from $(0.1) million revenue in the quarter ended January 31, 2000. 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 $6.0 million, or 246.7%, to a credit of
$3.6 million in the quarter ended January 31, 2001 from $2.4 million expense in
the quarter ended January 31, 2000, and as a percentage of revenues, decreased
to a credit of 2.9% from 2.6% expense. The effective tax rate decreased to 21.7%
credit in the quarter ended January 31, 2001 from 46.0% expense in the quarter
ended January 31, 2000. The decrease is primarily due to the tax benefit of the
loss in the period.
Nine Months Ended January 31, 2001:
REVENUES:
Revenues increased $213.7 million, or 105.1% to $417.1 million in the nine
months ended January 31, 2001 from $203.4 million in the nine months ended
January 31, 2000. Approximately $199.5 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 $14.2 million was attributable to internal volume and price growth, including
the net positive impact of higher average recyclable commodity prices in the
current nine months compared to the same period last year.
COST OF OPERATIONS:
Cost of operations increased $162.0 million or 131.9% to $284.8 million in the
nine months ended January 31, 2001 from $122.8 million in the nine months ended
January 31, 2000. Cost of operations as a percentage of revenues increased to
68.3% in the nine months ended January 31, 2001 from 60.4% 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 13.3% of the Company's revenues in the current nine
months, versus 4.1% in the prior year.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased $22.8 million, or 86.8% to $49.1
million in the nine months ended January 31, 2001 from $26.3 million in the nine
months ended January 31, 2000, but decreased as a percentage of revenues to
11.8% in the nine months ended January 31, 2001 from 12.9% in the nine months
ended January 31, 2000. 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 $16.5 million, or 64.0%, to
$42.3 million in the nine months ended January 31, 2001 from $25.8 million in
the nine months ended January 31, 2000. Depreciation and amortization expenses
as a percentage of revenue decreased to 10.1% in the nine months ended January
31, 2001 from 12.7% in the nine months ended January 31, 2000. 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%).
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 nine months ended January 31, 2000. No pooling transactions were
closed in the nine months ended January 31, 2001, resulting in a decrease of
$1.5 million, or 0.7% as a percentage of revenues.
INTEREST EXPENSE, NET:
Net interest expense increased $21.3 million, or 266.3% to $29.3 million in the
nine months ended January 31, 2001 from $8.0 million in the nine months ended
January 31, 2000. Interest expense, as a percentage of revenues, increased to
7.0% in the nine months ended January 31, 2001 from 3.9% in the nine months
ended January 31, 2000. This increase is primarily attributable to three
factors: (i) a higher average debt balance in the current fiscal nine 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 IN LOSS FROM 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%. These investments are a part of the Tires
business and are classified as assets held for sale. In addition, effective
August 1, 2000 the Company has a 50% interest in GreenFiber. The Company's share
of GreenFiber's income in the period was more than offset by the restructuring
charge and transition costs incurred in setting up the new business and closing
redundant plants, leading to a net loss for the period.
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. Effective March 1,
2001, the Company acquired the 16.25% minority interest in Maine Energy Recovery
Company ("Maine Energy"), and sold its majority interest in the Penobscot Energy
Recovery Company ("PERC"). Net cash proceeds for the two transactions amounted
to $12 million.
OTHER (INCOME):
Other (income) decreased to ($0.1) million income in the nine months ended
January 31, 2001 from $(0.6) million income in the nine months ended January 31,
2000. 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 $7.3 million, or 84.0%, to $1.4 million in
the nine months ended January 31, 2001 from $8.7 million in the nine months
ended January 31, 2000, and as a percentage of revenues, decreased to 0.3% from
4.3%. The expense in the period, despite the loss, is due primarily to the
non-deductible goodwill from the KTI acquistion.
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 $110.3 million
at April 30, 2000 and at January 31, 2001, respectively.
The Company has a $448.5 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 $148.5
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 $44 million at January 31, 2001.
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 $42.0 million for the nine
months ended January 31, 2001 compared to $30.8 million for the same period of
the prior fiscal year. The increase was primarily due to higher depreciation and
amortization as well as non-cash losses from the expected sale of Tires and
equity investments, partially offset by lower net income.
Net cash used in investing activities was $66.2 million for the nine months
ended January 31, 2001, down from $90.7 million for the same period last year,
mainly due to the reduction in the acquisition program. 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 early part of the
fiscal year and acquisitions have been curtailed. In addition, planned
divestitures, when they close, will generate cash, which are required to be
applied against the credit facility.
Net cash provided by financing activities was $42.9 million for the nine months
ended January 31, 2001 compared to $65.9 million for the same period of the
prior fiscal year. This decrease primarily reflects net repayments on the
Company's credit facility versus a draw down in the same period last year,
offset by the net proceeds of the issuance of the Series A Redeemable
Convertible Preferred Stock in the second quarter 2001.
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.
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.
Three Months Ended Nine Months Ended
January 31, January 31,
2000 2001 2000 2001
-------- -------- -------- --------
Operating Income $ 9,946 $ (2,814) $ 27,055 $ 27,895
Depreciation and Amortization 10,193 13,548 25,763 42,260
Impairment loss on expected
sale of Tires 0 13,000 0 13,000
Minority Interest 0 (287) 0 (949)
-------- -------- -------- --------
Adjusted EBITDA $ 20,139 $ 23,447 $ 52,818 $ 82,206
======== ======== ======== ========
EBITDA as a percentage of
Revenues 21.6% 19.4% 26.0% 19.8%
======== ======== ======== ========
Analysis of the factors contributing to the change in EBITDA is included in the
discussions above.
Interest rate volatility
- ------------------------
The interest rate on $170 million of long-term debt has been fixed through four
interest rate swaps. The company has interest rate risk relating to
approximately $200 million of long-term debt at January 31, 2001. The average
interest rate on the variable rate portion of long-term debt was 9.64% for the
third fiscal quarter. Should the average interest rate on the variable rate
portion of long-term debt change by 10%, it would have an approximate interest
expense change of $0.6 million for the quarter reported.
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.
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. The Company has a signed agreement to sell the Tires
business, however the Company gives no assurance that the deal will close.
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 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 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.
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 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.
Part II. OTHER INFORMATION
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Item 1. LEGAL PROCEEDINGS
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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). On February 14, 2001, the Company settled the litigation in a manner
that did not have a material financial impact to the Company.
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 April 12, 2001.
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.
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 nine 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.
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 nine 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.
On or about December 19, 2000, a complaint was filed in the Superior Court of
New Jersey against the Company, Seaglass, Inc., KTI Recycling of New Jersey,
Inc., Oakhurst Company, Inc., and Marty Sergi. The complaint alleges that Fred
Devlin was not paid his "Tagalong Payment" when KTI, Inc. sold its 80% interest
in Seaglass, Inc. to New Heights Power & Recovery, LLC and that his employment
agreement was breached when he was terminated. The Company has filed a motion to
compel arbitration and believes that 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
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
(b) Reports on Form 8-K:
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Casella Waste Systems, Inc.
Date: March 16, 2001 By: /s/ Jerry Cifor
-----------------------------------
Jerry Cifor
Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer and Duly Authorized Officer)