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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 Greens Hill Lane, Rutland, VT 05701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (802) 775-0325
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Class A common stock, $.01 per share par value
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
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The aggregate value of the voting stock held by non-affiliates of the
registrant, based on the last sale price of the registrant's Class A common
stock at the close of business on July 18, 2001 was $269,969,391. The Company
does not have any non-voting common stock outstanding.
There were 22,352,127 shares of class A common stock, $.01 par value per share,
of the registrant outstanding as of July 18, 2001. There were 988,200 shares of
class B common stock, $.01 par value per share, of the registrant outstanding as
of July 18, 2001.
Documents Incorporated by Reference
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company, which is set forth under Part I -
Business - "Executive Officers and Other Key Employees of the Company") have
been omitted from this report, since the Company expects to file with the
Securities and Exchange Commission, not later than 120 days after the close of
its fiscal year, a definitive proxy statement. The information required by Items
10, 11, 12 and 13 of Part III of this report, which will appear in the
definitive proxy statement, is incorporated by reference into this report.
PART I
ITEM 1. BUSINESS
The Company
Casella Waste Systems, Inc. the ("Company") is a regional, integrated solid
waste services company that provides collection, transfer, disposal and
recycling services, primarily throughout the eastern portion of the United
States. The Company also markets recyclable metals, aluminum, plastics, paper
and corrugated cardboard which has been processed at its facilities as well as
recyclables purchased from third parties. The Company also generates electricity
under its contracts at its wholly owned subsidiary, Maine Energy Recovery
Company LP ("Maine Energy"), a waste-to-energy facility. As of July 18, 2001,
the Company owned and/or operated five Subtitle D landfills, two landfills
permitted to accept construction and demolition materials, 30 transfer stations,
43 recycling processing facilities, 38 solid and liquid waste collection
divisions and one power generation facility, as well as a 50% interest in a
cellulose insulation joint venture.
Recent Developments
In April 2001, the Company's Board of Directors approved a reorganization of
certain of the Company's operations. This reorganization consisted of the
elimination of various positions and the closure of certain facilities. A
restructuring charge was recorded amounting to $4.2 million. At the same time,
the Company determined that certain assets (mainly goodwill) were impaired and
therefore recorded a charge of $59.6 million to reduce those assets to their
estimated fair value. During the year ended April 30, 2001, the Company settled
five of its outstanding lawsuits and provided for settlement of four others. The
amount charged to income including legal fees was $4.2 million. During the
fourth quarter of fiscal 2001, the Company decided to divest or close certain
operations. Accordingly, its Tire Processing, Commercial Recycling and Mulch
Recycling businesses have been accounted for as discontinued operations. These
assets were written down to estimated realizable value. Timber Energy Recovery,
Inc., the sale of which is under negotiation, is now accounted for as an asset
held for sale.
During fiscal 2001, the Company decided to divest its interest in both OCI and
New Heights. Accordingly, the Company began seeking a buyer and also simplified
its interest in OCI/New Heights. Effective July 3, 2001, the Company acquired
Oakhurst Company, Inc.'s ("OCI") 37.5% interest in New Heights Recovery and
Power LLC ("New Heights"), plus received a promissory note for $1 million and
common share purchase warrants, all in exchange for the cancellation of all
amounts due from OCI and all equity interests in OCI. As a result of the
transaction, the Company now owns a 50% direct interest in New Heights.
Accordingly, the company has written its investment and advances in OCI/New
Heights down to their estimated realizable values as of April 30, 2001.
AFA, a wood mulch processing operation, was sold effective June 30, 2001 for one
dollar, and the Company retained equipment having a fair market value of
approximately $1.6 million. Additionally, the Company's obligations for a lease
and employment agreements with a gross remaining value of approximately $2.6
million were terminated at a cost of $375,000.
Effective March 1, 2001, the Company acquired the remaining 16.25% minority
interest in its majority owned subsidiary, Maine Energy, and sold its majority
interest in the Penobscot Energy Recovery Company. Net cash proceeds for the two
transactions amounted to $12.0 million.
During the fiscal year ended April 30, 2001, the Company acquired 13 solid and
liquid waste management businesses with approximately $9.6 million in annualized
revenues.
The Company entered into a joint venture agreement with Louisiana-Pacific Corp.
to combine their respective cellulose insulation businesses into a single
operating entity effective August 1, 2000. The new company, known as U.S.
GreenFiber LLC ("Green Fiber"), is an equally-owned joint venture formed through
the combination of Louisiana-Pacific's GreenStone Industries, Inc. and the
Company's U.S. Fibers, Inc. operations. The new entity supplies cellulose
insulation to existing residential construction, retail and manufactured housing
supply channels.
On August 11, 2000, the Company issued convertible preferred stock to Berkshire
Partners of Boston, Massachusetts and certain other investors. The preferred
stock is convertible into Class A common stock at $14.00 per share. The Company
raised approximately $55.8 million in capital, which the Company used to pay
down debt and continue its strategic growth plan.
Services
The Company's waste collection, landfill, transfer, certain recycling services
operations and Maine Energy, a waste-to-energy facility which incinerates
non-hazardous solid waste to generate electricity, are managed on a geographic
basis and are divided into three geographic regions: the Central, Eastern and
Western regions. These three regions are further divided into divisions
organized around smaller market areas, known as "waste sheds", each of which
contains the complete cycle of activities in the solid waste service process,
from collection to transfer operations and recycling to disposal in either
landfills or waste-to-energy facilities. Each division is managed separately and
provides distinct services to its market. The Company's residential recycling
operations, exclusive of the recycling facilities which operate within the waste
sheds, are managed on a line-of-business basis independent of the three
geographic regions out of Charlotte, North Carolina. The brokerage business is
also managed under this segment; the residential recycling operations and the
brokerage business are largely interdependent.
The following are the Company's three geographic regions and one
line-of-business segment that comprise the Company's operations:
Central Region
The Central Region consists of Vermont, New Hampshire and eastern upstate New
York. The portion of upstate New York within the Company's Central Region as of
July 18, 2001 includes Clinton, Franklin, Essex, Warren, Washington, Saratoga,
Rennselaer and Albany counties. The Company owns and operates Subtitle D
landfills in Bethlehem, New Hampshire (See Part I, Item 3, `Legal Proceedings')
and Coventry, Vermont, and, through a 25-year lease, operates the Clinton County
landfill located in Schuyler Falls, New York. In addition, as of July 18, 2001,
the Company operated 14 solid waste collection operations, the real estate of
nine of which are leased and 5 are owned, 1 liquid waste collection operation,
which is owned, 12 transfer stations, the real estate of five of which are
leased and seven of which are owned, 4 recycling facilities, the real estate of
three of which are leased and one of which is owned and one leased
transportation operation.
Eastern Region
The Eastern Region consists of Maine, southeastern New Hampshire, eastern
Massachusetts and northern Rhode Island. The Company owns the SERF landfill
located in Hampden, Maine, which disposes of ash, construction and demolition
debris, special waste and front end processing residue primarily from the state
of Maine. The Company has contracted to fill the Town of Woburn, Massachusetts
landfill to grade and then complete final closure. In addition, at July 18,
2001, the Company operated 10 collection operations, the real estate at six of
which are leased and four of which are owned, 13 recycling facilities, the real
estate of four of which are leased and nine of which are owned, and 8 transfer
stations, the property of four of which are leased and four of which
are owned and collected solid waste from commercial, industrial and residential
customers in the Eastern Region. The Eastern Region also includes Maine Energy,
which generates electricity from non-hazardous solid waste.
Western Region
The Western Region is comprised of upstate New York (including Ithaca, Elmira,
Oneonta, Lowville, Potsdam, Geneva, Auburn, Buffalo, Jamestown and Olean) and
northern Pennsylvania (Wellsboro, PA). At July 18, 2001 the Company operated 10
transfer stations, all of which are owned, 2 recycling facilities, all of which
are owned, 13 collection operations, all of which are owned and collected solid
waste from commercial, industrial and residential customers in the Western
Region. The Company owns a Subtitle D permitted landfill, the Hyland facility,
in Angelica, New York, which serves the western upstate portion of the New York
waste shed (See Part I, Item 3, `Legal Proceedings'). The Company also has 2
landfills permitted to accept construction and demolition materials, the Hakes
landfill, in Painted Post, New York, owned by the Company and air space leased
at the Schultz landfill, in Cheektowaga, New York.
FCR Recycling
FCR Recycling ("FCR" or "Recycling") includes residential recycling and the
brokerage operations.
Residential recycling comprises 19 Material Recycling Facilities ("MRF"), two of
which are owned and 17 of the facilities of which are leased, located in
Stratford and Hartford, Connecticut; Charlotte and Greensboro, North Carolina;
Camden and Mine Hill, New Jersey; Lee County, Sarasota and West Palm Beach,
Florida; Memphis, Tennessee; Athens, Georgia; Ann Arbor and Saginaw, Michigan;
Claverack, New York; Greenville, South Carolina; Alexandria, Virginia; Windham,
New Hampshire; and Boston and Auburn, Massachusetts. These facilities accept
mainly blue box recyclables from municipalities and other waste haulers for
processing. The brokerage operations of FCR, located in Lakewood, New Jersey, as
well as satellite offices in California and Maine, sell the processed
recyclables, (principally paper and cardboard, as well as materials purchased
from others), both domestically and overseas.
Operations
The following is a description of the Company's operations.
Landfills
The Company currently owns four Subtitle D landfill operations and operates a
fifth Subtitle D landfill under a 25-year lease arrangement with a county. All
of the Company's operating Subtitle D landfills include leachate collection
systems, groundwater monitoring systems and, where required, active methane gas
extraction and recovery systems. In addition to these landfills, the Company
owns two landfills permitted to accept only construction and demolition
materials ("C&D landfills"). These C&D landfills, depending on the state in
which they are located, are typically constructed to different regulatory
standards than Subtitle D landfills, reflecting the inert nature of the
materials deposited in them.
During the fiscal year ended April 30, 2001, approximately 55% of the waste
volumes received by the Company's landfills were from the Company's hauling
divisions or transfer stations.
The following table provides certain information regarding the landfills that
the Company operates. All of such information is provided as of July 18, 2001.
Estimated
Estimated in Permitting
Total Remaining Process
Permitted Capacity Capacity
Landfill Location (Tons)(1) (Tons) (1)(2)
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Clinton County (3).............. Schuyler Falls, NY 478,000 1,112,000
Waste USA ...................... Coventry, VT 1,509,000 -0-
SERF ........................... Hampden, ME 1,315,378 1,850,000
NCES............................ Bethlehem, NH 555,000 -0-
Hyland.......................... Angelica, NY 1,575,600 -0-
Hakes(C&D)...................... Campbell, NY 1,146,332 -0-
(1) The Company converts estimated remaining permitted capacity and capacity in
permitting process from cubic yards to tons by assuming a compaction factor
equal to the historic average compaction factor applicable to the respective
landfill.
(2) Represents capacity for which the Company has begun the permitting process.
Does not include additional available capacity at the site for which permits
have not yet been sought.
(3) Operated pursuant to a capital lease expiring in 2021.
Portland, New York, was closed during the year ended April 30, 2001
The Company also owns and/or operated five unlined landfills, which are not
currently in operation. All of these landfills have been closed and capped to
environmental regulatory standards by the Company. One of the unlined landfills,
a municipal landfill which is adjacent to the Subtitle D Clinton County landfill
being operated by the Company, was operated by the Company from July 1996
through July 1997. The Company completed the closure and capping activities at
this landfill in September 1997, and is indemnified by Clinton County for
environmental liabilities arising from such landfill prior to the Company's
operation.
The Company regularly monitors the available permitted in-place disposal
capacity at each of its active landfills and evaluates whether to seek to expand
this capacity. In making this evaluation, the Company considers various factors,
including the volume of solid waste projected to be disposed of at the landfill,
the size of the unpermitted capacity included in the landfill, the likelihood
that the Company will be successful in obtaining the approvals and permits
required for the expansion and the costs that would be involved in developing
the expanded capacity. The Company also considers on an ongoing basis the extent
to which it is advisable, in light of changing market conditions and/or
regulatory requirements, to seek to expand or change the permitted waste streams
at a particular landfill or to seek other permit modifications.
Once the permitted capacity of a particular landfill is reached, the landfill
must be closed and capped, and post-closure care started, if additional capacity
is not authorized. The Company establishes reserves for the estimated costs
associated with such closure and post-closure costs over the anticipated useful
life of each landfill.
Solid Waste Collection
The Company's 38 solid and liquid waste collection operations served over
500,000 commercial, industrial and residential customers at July 18, 2001.
During fiscal 2001, approximately 53% of the solid waste collected by the
Company was delivered for disposal at its landfills. The Company's collection
operations are generally conducted within a 125-mile radius of a Company
landfill. A majority of the Company's commercial and industrial collection
services are performed under one-to-three-year service agreements, and fees are
determined by such factors as collection frequency, type of equipment and
containers furnished, the type, volume and weight of the solid waste collected,
the distance to the disposal or processing facility and the cost of disposal or
processing. The Company's residential collection and disposal services are
performed either on a subscription basis (i.e., with no underlying contract)
with individuals, or under contracts with municipalities, homeowners
associations, apartment owners or mobile home park operators.
Transfer Station Services
The Company operated 30 transfer stations as of July 18, 2001. The transfer
stations receive, compact and transfer solid waste collected primarily from the
Company's various collection operations to larger Company-owned vehicles for
transport to landfills. The Company believes that transfer stations benefit the
Company by: (i) increasing the size of the waste shed which has access to the
Company's landfills; (ii) reducing costs by improving utilization of collection
personnel and equipment; and (iii) building relationships with municipalities
that may lead to future
business opportunities, including privatization of the municipalities' waste
management services.
Recycling Services
The Company has sought to position itself to provide recycling services to
customers who are willing to pay for the cost of the recycling service.
Depending on the terms of each customer contract and the level of recovered
material commodity prices, the proceeds generated from reselling the recycled
materials are usually shared between the Company and the respective customer. In
addition, the Company has adopted a pricing strategy of charging collection and
processing fees for recycling volume collected from its customers.
As of July 18, 2001 the Company operated 19 recycling processing facilities
throughout the three geographic regions. The Company processes more than 20
classes of recyclable materials originating from the municipal solid waste
stream, including cardboard, office paper, containers and bottles. The Company's
regional recycling operations, as they relate to the three geographic regions,
are concentrated principally in Vermont, which is in the Central Region, as the
public sector in other states in the Company's service area has generally taken
primary responsibility for recycling efforts.
FCR Recycling
The residential recycling segment is comprised of 19 recycling facilities, 17 of
which are leased and two of which are owned, that process and market recyclable
materials under long-term contracts with municipalities and commercial
customers. Additionally, the residential recycling segment operates one leased
transfer station. The recyclable materials consist principally of old
newspapers, old corrugated containers, mixed paper and commingled bottles and
cans consisting of plastic, glass, steel and aluminum. This line of business
segment provides residential recycling, processing and marketing services.
A significant portion of the material provided to the residential recycling
segment is delivered pursuant to long-term contracts with municipal customers.
The contracts generally have a term of five to ten years and expire at various
times between 2002 and 2018. The terms of each of the contracts vary, but all
the contracts provide that the municipality or a third party delivers materials
to the Company's facility. In approximately one-third of the contracts, the
municipalities agree to deliver a guaranteed tonnage and the municipality pays a
fee for the amount of any shortfall from the guaranteed tonnage. Under the terms
of the individual contracts, the Company pays or charges the municipality a fee
for each ton of material delivered. Some contracts contain revenue sharing
arrangements under which the Company pays the municipality a specified
percentage of the revenues from the sale of the recovered materials.
The residential recycling segment derives a significant portion of its revenues
from the sale of recyclable materials. The resale and purchase prices of the
recyclable materials, particularly newspaper, corrugated containers, plastic,
ferrous and aluminum, can fluctuate based upon market conditions. The Company
uses long-term supply contracts with customers with floor price arrangements to
reduce the commodity risk for certain recyclables, particularly newspaper and
aluminum metals. Under such contracts, the Company obtains a guaranteed minimum
price for the recyclable materials along with a commitment to receive additional
amounts if the current market price rises above the floor price. The contracts
are generally with large domestic companies that use the recyclable materials in
their manufacturing process. In fiscal 2001, 35% of the revenues from the sale
of recyclable materials of the residential recycling segment were derived from
sales under these long-term contracts.
The brokerage operation is comprised of one location in New Jersey and satellite
offices in California and Maine, all of which are leased. The brokerage
operation derives all of its revenues from the sale of recyclable materials,
predominately old newspaper, old corrugated cardboard, mixed paper and office
paper. This segment markets in excess of 800,000 tons per year of various paper
fibers both domestically and overseas. The ability to market volumes of this
quantity allows the segment to reach more markets and receive top industry
pricing.
The brokerage operation plays an integral part in securing mill contacts and
long-term contracts for Residential Recycling. The predominate type of paper
fibers that Brokerage handles comprises approximately 59% of the total material
that the Residential Recycling segment markets within a year. This marketing of
similar materials allows both business segments to negotiate more favorable
long-term fiber contracts.
Other
The Company operates three biofuel facilities, two of which are owned and one of
which is leased, in Martinsville, Virginia. These facilities use biomass and
coal to produce steam for sale to industrial users under long-term contracts.
The largest of these plants, Martinsville, Virginia, was closed in December 1999
pursuant to that plant's only customer going out of business.
The Company owns a 60% limited partnership interest in American Ash Recycling of
Tennessee LP, a limited partnership that operates a permitted municipal waste
combustor ash recycling facility in Nashville, Tennessee. This facility, which
commenced operations in 1993, is the first commercially operational municipal
waste combustor ash recycling facility in the United States.
Timber Energy Resources, Inc., located in Telogia, Florida, uses biomass waste
as its source of fuel for the production of electricity for sale to the local
electric utility. The Company also operates one wood processing facility, Timber
Chip, a part of Timber Energy Resources, Inc. in Cairo, Georgia. The sale of
Timber is being negotiated and the net assets are recorded as assets held for
sale.
US GreenFiber LLC
The Company entered into a joint venture agreement with Louisiana-Pacific Corp.
to combine their respective cellulose insulation businesses into a single
operating entity effective August 1, 2000. The new company, known as U.S.
GreenFiber LLC, is an equally-owned joint venture formed through the combination
of Louisiana-Pacific's GreenStone Industries, Inc. and the Company's U.S.
Fibers, Inc. operations.
GreenFiber is a high quality, low cost provider of cellulose insulation with
national manufacturing and distribution capability. Based in Charlotte, NC,
GreenFiber sells nationwide to contractors, manufactured home builders and
retailers and has nine manufacturing facilities located in Atlanta, Georgia;
Charlotte, N. Carolina; Delphos, Ohio; Elkwood, Virginia; Norfolk, Nebraska;
Phoenix, Arizona; Sacramento, California; Tampa, Florida; and Waco, Texas.
Competition
The solid waste services industry is highly competitive; it has undergone a long
period of consolidation, and requires substantial labor and capital resources.
The Company competes with numerous solid waste management companies, several of
which are significantly larger and have greater access to capital and greater
financial, marketing or technical resources than the Company. Certain of the
Company's competitors are large national companies that may be able to achieve
greater economies of scale than the Company. The Company also competes with a
number of regional and local companies. In addition, the Company competes with
operators of alternative disposal facilities, including incinerators, and with
certain municipalities, counties and districts that operate their own solid
waste collection and disposal facilities. Public sector facilities may have
certain advantages over the Company due to the availability of user fees,
charges or tax revenues and tax-exempt financing.
The Company competes for collection and disposal volume primarily on the basis
of the price and quality of its services. From time to time, competitors may
reduce the price of their services in an effort to expand market share or to win
a competitively bid municipal contract. These practices may also lead to reduced
pricing for the Company's services or the loss of business. In addition,
competition exists within the industry not only for collection, transportation
and disposal volume, but also for acquisition candidates. The Company generally
competes for acquisition candidates with publicly owned regional and national
waste management companies.
The residential recycling industry is highly competitive and requires
substantial capital resources and prior experience to bid on municipal
contracts. Competition is both national and regional in nature. Some of the
markets in which the Company competes are served by one or more of the large
national solid waste companies including, Waste Management, Allied Waste and
Republic Services, as well as numerous regional and local competitors that offer
competitive prices and quality service.
The Company's waste paper brokerage business faces extensive competition.
Principal attributes of these markets contributing to such competition are
industry-wide overcapacity and continual price pressures.
The insulation industry is highly competitive and requires substantial capital
and labor resources. In its insulation manufacturing activities, the Company's
joint venture with Louisiana-Pacific primarily competes with manufacturers of
fiberglass insulation such as Owens Corning, Certainteed and Schuller
International. These fiberglass insulation manufacturers have a significant
market share and are substantially better capitalized than the Company.
Marketing and Sales
The Company has a coordinated marketing and sales strategy, which is formulated
at the corporate level and implemented at the divisional level. The Company
markets its services locally through division managers and direct sales
representatives who focus on commercial, industrial, municipal and residential
customers. The Company also obtains new customers from referral sources, its
general reputation and local market print advertising. Leads are also developed
from new building permits, business licenses and other public records.
Additionally, each division generally advertises in the yellow pages and other
local business print media that cover its service area.
Maintenance of a local presence and identity is an important aspect of the
Company's marketing plan, and many of the Company's managers are involved in
local governmental, civic and business organizations. The Company's name and
logo, or, where appropriate, that of the Company's divisional operations, are
displayed on all Company containers and trucks. Additionally, the Company
attends and makes presentations at municipal and state conferences and
advertises in governmental associations' membership publications.
The Company markets its commercial, industrial and municipal services through
its sales representatives who visit customers on a regular basis and make sales
calls to potential new customers. These sales representatives receive a
significant portion of their compensation based upon meeting certain incentive
targets. The Company emphasizes providing quality services and customer
satisfaction and retention, and believes that its focus on quality service will
help retain existing and attract additional customers.
Employees
The Company employs approximately 3,200 persons. Certain of the Company's
employees are covered by collective bargaining agreements. The Company believes
relations with its employees to be satisfactory.
Risk Management, Insurance and Performance or Surety Bonds
The Company actively maintains environmental and other risk management programs,
which it believes are appropriate for its business. The Company's environmental
risk management program includes evaluating existing facilities, as well as
potential acquisitions, for environmental law compliance and operating
procedures. The Company also maintains a worker safety program, which encourages
safe practices in the workplace. Operating practices at all Company operations
are intended to reduce the possibility of environmental contamination and
litigation.
The Company carries a range of insurance intended to protect its assets and
operations, including a commercial general liability policy and a property
damage policy. A partially or completely uninsured claim against the Company
(including liabilities associated with cleanup or remediation at its
facilities), if successful and of sufficient magnitude, could have a material
adverse effect on the Company's business, financial condition and results of
operations. Any future difficulty in obtaining insurance could also impair the
Company's ability to secure future contracts, which may be conditioned upon the
availability of adequate insurance coverage.
Effective July 1, 1999, the Company established a captive insurance company,
`Casella Insurance Company', through which it is self-insured for workman's
compensation and, effective May 1, 2000 automobile coverage. The Company's
maximum exposure under this plan is $250,000 per individual event with no
aggregate limit, after which reinsurance takes effect and limits the Company's
exposure.
Municipal solid waste collection contracts and landfill closure obligations may
require performance or surety bonds, letters of credit or other means of
financial assurance to secure contractual performance. The Company has not
experienced difficulty in obtaining performance or surety bonds or letters of
credit. If the Company were unable to obtain performance or surety bonds or
letters of credit in sufficient amounts or at acceptable rates, it could be
precluded from entering into additional municipal solid waste collection
contracts or obtaining or retaining landfill operating permits.
Customers
Under the terms of its contracts, Maine Energy must sell all of the electricity
generated at its facilities to Central Maine Power, an electric utility.
The recycling segment processing facilities provide recycling services to
municipalities, commercial haulers and commercial waste generators within the
geographic proximity of the processing facilities. The Company acts as a broker
of products, including recyclable material processed at facilities operated by
the residential recycling segment, principally to paper and box board
manufacturers in the United States, Canada, the Pacific Rim, Europe and South
America.
The Company's cellulose insulation joint venture, US GreenFiber LLC, sells its
products to manufacturers of manufactured homes, insulation contractors, and
retail home improvement stores throughout the United States.
Raw Materials
Maine Energy received 31% of its solid waste in fiscal 2001 from 18 Maine
municipalities under long-term waste handling agreements. Maine Energy also
receives raw materials from commercial and private waste haulers and
municipalities with short-term contracts.
The residential recycling segment received 45% of its material under long-term
agreements with municipalities. These contracts generally provide that all
recyclables collected from the municipal recycling programs be delivered to a
facility that is owned or operated by the Company. The quantity of material
delivered by these communities is dependent on the participation of individual
households in the recycling program.
The primary raw material for the Company's insulation joint venture is newspaper
collected from residential recycling programs, including those operated by the
Company's residential recycling segment. In fiscal 2001, the cellulose
insulation joint venture received 24% of the newspaper used by it from the
residential recycling segment. It purchased the remaining newspaper from
municipalities, commercial haulers, and paper brokers. The chemicals used to
make the newspaper fire retardant are purchased from industrial chemical
manufacturers located in the United States and South America.
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, New Hampshire, Maine and eastern
New York during the winter months tends to lower the volume of waste generated
by commercial and restaurant customers, which is partially offset by the winter
ski industry. Since certain of the Company's operating and fixed costs remain
constant throughout the fiscal year, operating income is therefore impacted by a
similar seasonality. In addition, particularly harsh weather conditions
typically results in increased operating costs to many of the Company's
operations.
The 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 insulation business experiences lower sales in November and December because
of lower production of manufactured housing due to holiday plant shut downs.
Regulation
Introduction
The Company is subject to extensive and evolving Federal, state and local
environmental laws and regulations which have become increasingly stringent in
recent years. The environmental regulations affecting the Company are
administered by the EPA and other Federal, state and local environmental,
zoning, health and safety agencies. The Company believes that it is currently in
substantial compliance with applicable Federal, state and local environmental
laws, permits, orders and regulations, and it does not currently anticipate any
material environmental costs to bring its operations into compliance (although
there can be no assurance in this regard in the future). The Company expects
that its operations in the solid waste services industry will be subject to
continued and increased regulation, legislation and regulatory enforcement
actions. The Company attempts to anticipate future legal and regulatory
requirements and to carry out plans intended to keep its operations in
compliance with those requirements.
In order to transport, process incinerate, or dispose of solid waste, it is
necessary for the Company to possess and comply with one or more permits from
Federal, state and/or local agencies. The Company must review these permits
periodically, and the permits may be modified or revoked by the issuing agency.
The principal Federal, state and local statutes and regulations applicable to
the Company's various operations are as follows:
The Resource Conservation and Recovery Act of 1976 ("RCRA")
RCRA regulates the generation, treatment, storage, handling, transportation and
disposal of solid waste and requires states to develop programs to ensure the
safe disposal of solid waste. RCRA divides solid waste into two groups,
hazardous and non-hazardous. Wastes are generally classified as hazardous if
they (i) either (a) are specifically included on a list of hazardous wastes, or
(b) exhibit certain characteristics defined as hazardous, and (ii) are not
specifically designated as non-hazardous. Wastes classified as hazardous under
RCRA are subject to more extensive regulation than wastes classified as
non-hazardous, and businesses that deal with hazardous waste are subject to
regulatory obligations in addition to those imposed on handlers of non-hazardous
waste.
Among the wastes that are specifically designated as non-hazardous are household
waste and "special" waste, including items such as petroleum contaminated soils,
asbestos, foundry sand, shredder fluff and most non-hazardous industrial waste
products.
The EPA regulations issued under Subtitle C of RCRA impose a comprehensive
"cradle to grave" system for tracking the generation, transportation, treatment,
storage and disposal of hazardous wastes. The Subtitle C Regulations impose
obligations on generators, transporters and disposers of hazardous wastes, and
require permits that are costly to obtain and maintain for sites where those
businesses treat, store or dispose of such material. Subtitle C requirements
include detailed operating, inspection, training and emergency preparedness and
response standards, as well as requirements for manifesting, record keeping and
reporting, corrective action, facility closure, post-closure and financial
responsibility. Most states have promulgated regulations modeled on some or all
of the Subtitle C provisions issued by the EPA, and in many instances EPA has
delegated to those states the principal role in regulating industries which are
subject to those requirements. Some state regulations impose different,
additional obligations.
The Company currently does not accept for transportation or disposal of
hazardous substances (as defined in CERCLA, discussed below) in concentrations
or volumes that would classify those materials as hazardous wastes. However, the
Company has transported hazardous substances in the past and very likely will
transport and dispose of hazardous substance in the future, to the extent that
materials defined as hazardous substances under CERCLA
are present in consumer goods and in the non-hazardous waste streams of its
customers.
The Company does not accept hazardous wastes for incineration at its
waste-to-energy facilities. The Company typically tests ash produced at those
facilities on a regular basis; that ash generally does not contain hazardous
substances in sufficient concentrations or volumes to result in the ash being
classified as hazardous waste. However, it is possible that future waste streams
accepted for incineration could contain elevated volumes or concentrations of
hazardous substances or that legal requirements will change, and that the
resulting incineration ash would be classified as hazardous waste.
Leachate generated at the Company's landfills and transfer stations is tested on
a regular basis, and generally is not regulated as a hazardous waste under
Federal or state law. In the past, however, leachate generated from certain of
the Company's landfills has been classified as hazardous waste under state law,
and there is no guarantee that leachate generated from the Company's facilities
in the future will not be classified under Federal or state law as hazardous
waste.
In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, groundwater remediation
standards and corrective action requirements. In addition, the Subtitle D
Regulations require that new landfill sites meet more stringent liner design
criteria (typically, composite soil and synthetic liners or two or more
synthetic liners) intended to keep leachate out of groundwater and have
extensive collection systems to carry away leachate for treatment prior to
disposal. Regulations generally require the Company to install groundwater
monitoring wells at virtually all landfills it operates, to monitor groundwater
quality and, indirectly, the effectiveness of the leachate collection systems.
The Subtitle D Regulations also require facility owners or operators to control
emissions of methane gas generated at landfills where certain regulatory
thresholds are exceeded. Each state must revise its landfill regulations to meet
these requirements or the EPA will automatically impose such requirements upon
landfill owners and operators in that state. Each state also must adopt and
implement a permit program or other appropriate system to ensure that landfills
within the state comply with the Subtitle D regulatory criteria. Various states
in which the Company operates or in which it may operate in the future have
adopted regulations or programs as stringent as, or more stringent than, the
Subtitle D Regulations.
The Federal Water Pollution Control Act of 1972
The Federal Water Pollution Control Act of 1972, as amended ("Clean Water Act"),
regulates the discharge of pollutants into the "waters of the United States"
from a variety of sources, including solid waste disposal sites and transfer
stations, processing facilities and waste-to-energy facilities (collectively,
"solid waste management facilities"). If run-off or collected leachate from the
Company's solid waste management facilities, or process or cooling waters
generated at one of the Company's waste-to-energy facilities, is discharged into
streams, rivers or other surface waters, the Clean Water Act would require the
Company to apply for and obtain a discharge permit, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants
in such discharge. A permit also may be required if that run-off, leachate, or
process or cooling water is discharged to a treatment facility that is owned by
a local municipality. Numerous states have enacted regulations, which are
equivalent to the Clean Water Act, and which also regulate the discharge of
pollutants to groundwater. Finally, virtually all solid waste management
facilities must comply with the EPA's storm water regulations, which are
designed to prevent contaminated storm water run-off from flowing into surface
waters.
The Comprehensive Environmental Response, Compensation, and Liability Act of
1980 ("CERCLA")
CERCLA established a regulatory and remedial program intended to provide for the
investigation and cleanup of facilities where or from which a release of any
hazardous substance into the environment has occurred or is threatened. CERCLA's
primary mechanism for remedying such problems is to impose strict joint and
several liability for cleanup of facilities on current owners and operators of
the site, former owners and operators of the site at the time of the disposal of
the hazardous substances, as well as the generators of the hazardous substances
and the transporters who arranged for disposal or transportation of the
hazardous substances. In addition, CERCLA also imposes liability for the costs
of evaluating and addressing damage done to natural resources. The costs of
CERCLA investigation and cleanup can be very substantial. Liability under CERCLA
does not depend upon the existence or
disposal of "hazardous waste" as defined by RCRA, but can be based on the
existence of any of more than 700 "hazardous substances" listed by the EPA, many
of which can be found in household waste. In addition, the definition of
"hazardous substances" in CERCLA incorporates substances designated as hazardous
or toxic under the Federal Clean Water Act, Clear Air Act and Toxic Substances
Control Act. If the Company were found to be a responsible party for a CERCLA
cleanup, the enforcing agency could hold the Company, or any other generator,
transporter or the owner or operator of the contaminated facility, responsible
for all investigative and remedial costs even if others also were liable. CERCLA
also authorizes EPA to impose a lien in favor of the United States upon all real
property subject to, or affected by, a remedial action for all costs for which a
party is liable. CERCLA provides a responsible party with the right to bring a
contribution action against other responsible parties for their allocable share
of investigative and remedial costs. The Company's ability to get others to
reimburse it for their allocable share of such costs would be limited by the
Company's ability to identify and locate other responsible parties and prove the
extent of their responsibility and by the financial resources of such other
parties.
The Clean Air Act
The Clean Air Act, generally through state implementation of Federal
requirements, regulates emissions of air pollutants from certain landfills based
upon the date the landfill was constructed and the annual volume of emissions.
The EPA has promulgated new source performance standards regulating air
emissions of certain regulated pollutants (methane and non-methane organic
compounds) from municipal solid waste landfills. Landfills located in areas
where levels of regulated pollutants exceed certain requirements of the Clean
Air Act may be subject to even more extensive air pollution controls and
emission limitations. In addition, the EPA has issued standards regulating the
disposal of asbestos-containing materials.
The Clean Air Act also regulates emissions of air pollutants from the Company's
waste-to-energy facilities and certain of its processing facilities. The EPA has
enacted standards that apply to those emissions. It is possible that the EPA, or
a state where the Company operates, will enact additional or different emission
standards in the future.
All of the Federal statutes described above authorize lawsuits by private
citizens to enforce certain provisions of the statutes. In addition to a penalty
award to the United States, some of those statutes authorize an award of
attorney's fees to parties successfully advancing such an action.
The Occupational Safety and Health Act of 1970 ("OSHA")
OSHA establishes employer responsibilities and authorizes the Occupational
Safety and Health Administration to promulgate occupational health and safety
standards, including the obligation to maintain a workplace free of recognized
hazards likely to cause death or serious injury, to comply with adopted worker
protection standards, to maintain certain records, to provide workers with
required disclosures and to implement certain health and safety training
programs. Various of those promulgated standards may apply to the Company's
operations, including those standards concerning notices of hazards, safety in
excavation and demolition work, the handling of asbestos and asbestos-containing
materials, and worker training and emergency response programs.
State and Local Regulations
Each state in which the Company now operates or may operate in the future has
laws and regulations governing the generation, storage, treatment, handling,
processing, transportation, incineration and disposal of solid waste, water and
air pollution and, in most cases, the siting, design, operation, maintenance,
closure and post-closure maintenance of solid waste management facilities. In
addition, many states have adopted statutes comparable to, and in some cases
more stringent than, CERCLA. These statutes impose requirements for
investigation and cleanup of contaminated sites and liability for costs and
damages associated with such sites, and some authorize liens on property owned
by responsible parties. Some of those liens may take priority over previously
filed instruments. Furthermore, many municipalities also have local ordinances,
laws and regulations affecting Company operations. These include zoning and
health measures that limit solid waste management activities to specified sites
or conduct, flow control provisions that direct the delivery of solid wastes to
specific facilities or to facilities in specific areas, laws that grant the
right to establish franchises for collection services and then put out for bid
the right to provide collection services, and bans or other restrictions on the
movement of solid wastes into a municipality.
Certain permits and approvals may limit the types of waste that may be accepted
at a landfill or the quantity of waste that may be accepted at a landfill during
a given time period. In addition, certain permits and approvals, as well as
certain state and local regulations, may limit a landfill to accepting waste
that originates from specified geographic areas or seek to restrict the
importation of out-of-state waste or otherwise discriminate against out-of-state
waste. Generally, restrictions on importing out-of-state waste have not
withstood judicial challenge. However, from time to time Federal legislation is
proposed which would allow individual states to prohibit the disposal of
out-of-state waste or to limit the amount of out-of-state waste that could be
imported for disposal and would require states, under certain circumstances, to
reduce the amounts of waste exported to other states. Although such legislation
has not been passed by Congress, if this or similar legislation is enacted,
states in which the Company operates landfills could limit or prohibit the
importation of out-of-state waste. Such actions could materially and adversely
affect the business, financial condition and results of operations of any
landfills within those states that receive a significant portion of waste
originating from out-of-state.
In addition, certain states and localities may for economic or other reasons
restrict the export of waste from their jurisdiction or require that a specified
amount of waste be disposed of at facilities within their jurisdiction. In 1994,
the U.S. Supreme Court rejected as unconstitutional, and therefore invalid, a
local ordinance that sought to impose flow controls on taking waste out of the
locality. However, certain state and local jurisdictions continue to seek to
enforce such restrictions and, in certain cases, the Company may elect not to
challenge such restrictions. In addition, some proposed Federal legislation
would allow states and localities to impose flow restrictions. Those
restrictions could reduce the volume of waste going to landfills in certain
areas, which may materially adversely affect the Company's ability to operate
its landfills and/or affect the prices the Company can charge for landfill
disposal services. Those restrictions also may result in higher disposal costs
for the Company's collection operations. If the Company were unable to pass such
higher costs through to its customers, the Company's business, financial
condition and results of operations could be materially adversely affected.
There has been an increasing trend at the Federal, state and local levels to
mandate or encourage both waste reduction at the source and waste recycling, and
to prohibit or restrict the disposal in landfills of certain types of solid
wastes, such as yard wastes, leaves and tires. Regulations reducing the volume
and types of wastes available for transport to and disposal in landfills could
affect the Company's ability to operate its landfill facilities.
Energy and Utility Regulation
Each of the Company's waste-to-energy facilities has been certified by the
Federal Energy Regulatory Commission as a "qualifying small power production
facility" under the Public Utility Regulatory Policies Act of 1978, as amended
("PURPA"). PURPA exempts qualifying facilities from most Federal and state laws
governing electric utility rates and financial organization, and generally
requires electric utilities to purchase electricity generated by qualifying
facilities at a price equal to the utility's full "avoided cost".
The Company's waste-to-energy business is dependent upon its ability to sell the
electricity generated by each of its facilities to an electric utility (or, in
certain instances, a third party such as an energy marketer). Those purchases
generally occur under long-term power purchase agreements, some of which will
expire in the near future. There is no guarantee that new agreements will
replace those that expire, or that any new agreement will contain a purchase
price, as favorable as the one in the expiring agreement. Additionally, in the
event that the electric utility industry in a state where the Company generates
electricity is deregulated in the future, it is possible that the applicable
regulatory agency will require that an existing agreement be renegotiated (the
resulting agreement may be less favorable to the Company) or transferred to a
third party.
Executive Officers and Other Key Employees of the Company
The executive officers and other key employees of the Company, their positions,
and their ages as of July 31, 2001 are as follows:
Name Age Position
---- --- --------
Executive Officers
------------------
John W. Casella 50 Chairman, Chief Executive Officer and
Secretary
James W. Bohlig 55 President and Chief Operating Officer,
Director
Richard A. Norris (1) 58 Senior Vice President and Chief
Financial Officer, Treasurer
Charles E. Leonard 47 Senior Vice President, Solid Waste
Operations
Other Key Employees
-------------------
Michael Brennan 43 Vice President and General Counsel
Christopher M. DesRoches 43 Vice President, Sales and Marketing
Sean Duffy 41 Regional Vice President
Joseph S. Fusco 37 Vice President, Communications
James M. Hiltner 37 Regional Vice President
Michael Holmes 46 Regional Vice President
Larry B. Lackey 40 Vice President, Permits, Compliance and
Engineering
Alan N. Sabino 41 Regional Vice President
Gary Simmons 51 Vice President, Fleet Management
(1) Effective July 31, 2001, Jerry S. Cifor will resign from the Company and
Richard Norris will assume the position of Senior Vice President, Chief
Financial Officer and Treasurer.
John W. Casella has served as Chairman of the Board of Directors since July 2001
and as Chief Executive Officer the Company since 1993. Mr. Casella served as
President from 1993 to July, 2001 and as Chairman of the Board of Directors from
1993 to December 1999. In addition, Mr. Casella has been Chairman of the Board
of Directors of Casella Waste Management, Inc. since 1977. Mr. Casella has
actively supervised all aspects of Company operations since 1976, sets overall
corporate policies, and serves as chief strategic planner of corporate
development. Mr. Casella is also an executive officer and director of Casella
Construction, a company owned by Mr. Casella and Douglas R. Casella. Mr. Casella
has been a member of numerous industry-related and community service-related
state and local boards and commissions including the Board of Directors of the
Associated Industries of Vermont, The Association of Vermont Recyclers, Vermont
State Chamber of Commerce and the Rutland Industrial Development Corporation.
Mr. Casella has also served on various state task forces, serving in an advisory
capacity to the Governor of Vermont on solid waste issues. Mr. Casella holds an
Associate of Science in Business Management from Bryant & Stratton University
and a Bachelor of Science in Business Education from Castleton State College.
James W. Bohlig has served as President since July 2001 and as Chief Operating
Officer since 1993 with primary responsibility for business development,
acquisitions and operations. Mr. Bohlig also served as Senior Vice President
from 1993 to July 2001. Mr. Bohlig has served as a director of the Company since
1993. From 1989 until he joined the Company, Mr. Bohlig was Executive Vice
President and Chief Operating Officer of Russell Corporation, a general
contractor and developer based in Rutland, Vermont. Mr. Bohlig is a licensed
professional engineer. Mr. Bohlig holds a Bachelor of Science in Engineering and
Chemistry from the U.S. Naval Academy, and is a graduate of the Columbia
University Management Program in Business Administration.
Richard Norris has served as Senior Vice President, Chief Financial Officer,
Treasurer since July 2001. He joined the Company in July 2000 as Vice President
and Corporate Controller. From 1997 to July 2000, Mr. Norris served as Vice
President and Chief Financial Officer for NexCycle, Inc., a processor of
secondary materials. From 1986 to 1997, he served as Vice President of Finance,
US Operations for Laidlaw Waste Systems, Inc.
Charles E. Leonard joined the Company in July 2001 as Senior Vice President,
Solid Waste Operations. From December 1999 until he joined the Company, he acted
as a consultant to several corporations, including Allied Waste Industries, Inc.
From November 1997 to December 1999, he was Regional Vice-President for Service
Corporation International, a provider of death-care services. From August 1988
to January 1997, he served as Senior Vice President, US Operations with Laidlaw
Waste Systems, Inc. From June 1978 to July 1988, Mr. Leonard was employed by
Browning-Ferris Industries in various management positions. Mr. Leonard is a
graduate of Memphis State University with a Bachelor of Arts in Marketing.
Michael Brennan joined the company in July 2000 as Vice President and General
Counsel. From July 1998 to July 2000, he served as Associate General Counsel for
Waste Management, Inc. From January 1996 to July 1998, he served as Senior
Counsel and from March 1993 to January 1996, he served as Environmental Counsel
for Waste Management, Inc.
Christopher M. DesRoches has served as Vice President, Sales and Marketing of
the Company since November 1996. From January 1989 to November 1996, he was a
regional vice president of sales of Waste Management, Inc. Mr. DesRoches is a
graduate of Arizona State University.
Sean Duffy has served as regional Vice President of the Company since December
1999. From January 1999 to present, Mr. Duffy served as President of FCR, Inc.,
which he co-founded in 1983 and which is now a wholly-owned subsidiary of the
Company. From May 1983 to July 1992, Mr. Duffy served as Chief Operating Officer
of FCR and from August 1992 to December 1998 as Executive Vice President of FCR.
From May 1998 to May of 2001, Mr. Duffy also served as President of FCR
Plastics, Inc., a subsidiary of FCR, Inc.
Joseph S. Fusco has served as Vice President, Communications of the Company
since January 1995. From January 1991 through January 1995, Mr. Fusco was
self-employed as a corporate and political communications consultant. Mr. Fusco
is a graduate of the State University of New York at Albany.
James M. Hiltner has served as Regional Vice President of the Company since
March 1998. From 1990 to March 1998, Mr. Hiltner held various positions at Waste
Management, Inc. including region president from July 1996 through March 1998,
where his responsibilities included overseeing waste management operations in
upstate New York and northwestern Pennsylvania, a division president from April
1992 through July 1996 and a general manager from November 1990 through April
1992.
Michael Holmes has served as a Regional Vice President of the Company since
January 1997. From November 1995 to January 1997, Mr. Holmes was Vice President
of Superior Disposal Services, Inc., which was acquired by the Company in
January 1997. From November 1993 to November 1995, he was Superintendent of
Recycling and Solid Waste for the Town of Weston, Massachusetts Solid Waste
Department where he managed all aspects of the town's recycling and solid waste
services. From June 1983 to October 1992, he served as the Division Manager of
all divisions in the Binghamton, N.Y. area and the Boston, Massachusetts's area
for Laidlaw Waste Services, Inc. Mr. Holmes is a graduate of Broome Community
College.
Larry B. Lackey joined the Company in 1993 and has served as Vice President,
Permits, Compliance and Engineering since 1995. From 1984 to 1993, Mr. Lackey
was an Associate Engineer for Dufresne-Henry, Inc., an engineering consulting
firm. Mr. Lackey is a graduate of Vermont Technical College.
Alan N. Sabino has served as Regional Vice President of the Company since July
1996. From 1995 to July 1996, Mr. Sabino served as a Division President for
Waste Management, Inc. From 1989 to 1994, he served as Region Operations Manager
for Chambers Development Company, Inc., a waste management company. Mr. Sabino
is a graduate of Pennsylvania State University.
Gary Simmons joined the Company in May 1997 as Vice President, Fleet Management.
From 1995 to May 1997, Mr. Simmons served as National and Regional Fleet Service
Manager for USA Waste Services, Inc., a waste management company. From 1977 to
1995, Mr. Simmons served in various fleet maintenance and management positions
for Chambers Development Company, Inc.
ITEM 2. PROPERTIES
At July 18, 2001, the Company owned and/or operated five subtitle D landfills,
two landfills permitted to accept construction and demolition materials, 30
transfer stations, 21 of which are owned and 9 of which are leased, 38 hauling
operations, 22 of which are owned and 16 of which are leased, 40 recyclable
processing facilities, 18 of which are owned and 22 of which are leased, one
owned power generation facility, and utilized 14 corporate office and other
administrative facilities, two of which are owned and 12 of which are leased.
The Company's landfill operations are described in Item 1.
Other than the foregoing, at July 18, 2001 the principal fixed assets used by
the Company in its solid waste collection and landfill operations included
approximately 1,935 collection vehicles, 460 pieces of heavy equipment and 353
support vehicles.
ITEM 3. 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 claimed to have performed services for the Company prior to
1995 and in his lawsuit was seeking a three-percent equity interest in the
Company or the monetary equivalent thereof, as well as punitive damages. On
February 14, 2001, the Company settled the litigation for $350,000 in cash and
the issuance of 25,000 stock options.
The Company's wholly owned subsidiary, North Country Environmental Services,
Inc. ("NCES"), was a party to an appeal against the Town of Bethlehem, New
Hampshire ("Town") before the New Hampshire Supreme Court. The appeal arose 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. In May 2001, the Supreme Court denied the Town's appeal.
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 alleged 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 were seeking monetary
damages, including punitive damages, in an unspecified amount. In April 2001,
the Company settled the litigation for $1,000,000 plus free disposal for 2000
tons of contaminated soil.
The Company 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 had 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 March 28, 2001, the Hampden Board of Appeals granted the 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 alleged 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 alleged 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 was 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 was 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 took place in
March 2001 and the parties have reached a settlement in principal in the amount
of $295,000.
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 month 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 Miller complaints, and
plaintiffs filed a consolidated amended complaint on June 15, 2000. By papers
dated August 31, 2000, KTI and the other defendants moved to dismiss the Russo
Complaint for failure to state a claim. Following full briefing, on March 12,
2001, the District Court denied defendants' motion without prejudice and
directed plaintiffs to file an amended complaint within thirty days. On April
21, 2001, the plaintiffs filed the Second Consolidated Amended Class Action
Complaint. By papers served May 31, 2001, the defendants moved to dismiss that
latest Complaint. The parties have agreed to delay the deadline for plaintiffs'
responsive papers pending a one day mediation currently scheduled for October
12, 2001.
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, 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.
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 on 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 is reviewing the claims made by
the plaintiffs.
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, which resulted in dismissal of the complaint and the
initiation of arbitration proceedings. The parties are currently in the
arbitrator selection stage of the process. The Company believes that it has
meritorious defenses to these claims.
During the period of November 21, 1996 to October 9, 1997, the Company performed
certain closure activities and installed a cut-off wall at the Clinton County
Landfill, located in Clinton County, New York. On or about April 1999, the New
York State Department of Labor alleged that the Company should have paid
prevailing wages in connection with the labor associated with such activities.
The Company has disputed the allegations and is exploring settlement
possibilities with the State. The Company believes that it has meritorious
defenses to these claims.
On or about June 18, 2001, the Company received a demand for damages from Daniel
and Douglas Clark related to the merger agreement between the Company and
Corning Community Disposal Service, Inc., alleging that the Company breached the
agreement by failing to timely register the shares of stock for sale promptly
upon receipt of written request. The Clarks allege, that but for the delay of
the Company, they would have had an opportunity to sell their stock before the
market value declined and that they suffered damages as a result of such delay.
The Company 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, none of which, either individually
or in the aggregate, the Company believes are material to its financial
condition, results of operations or cash flows.
The Company offers no prediction of the outcome of any of the proceedings
described above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders during the
fiscal quarter ended April 30, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Class A common stock trades on the Nasdaq National Market under
the symbol "CWST". The following table sets forth the high and low sale prices
of the Company's Class A common stock for the periods indicated as quoted on the
Nasdaq National Market.
Period High Low
------ ---- ---
Fiscal 2000
First quarter ......................... $27.250 $19.063
Second quarter ........................ $26.625 $12.75
Third quarter ......................... $19.313 $13.125
Fourth quarter ........................ $15.438 $5.563
Fiscal 2001
First quarter ......................... $13.6875 $7.4375
Second quarter ........................ $12.50 $7.9375
Third quarter ......................... $9.35 $3.25
Fourth quarter ........................ $9.50 $5.625
On July 18, 2001, the high and low sale prices per share of the Company's Class
A common stock as quoted on the Nasdaq National Market were $13.29 and $12.60,
respectively. As of July 18, 2001 there were approximately 577 holders of record
of the Company's Class A common stock and two holders of record of the Company's
Class B common stock.
For purposes of calculating the aggregate market value of the shares of common
stock of the Company held by non-affiliates, as shown on the cover page of this
report, it has been assumed that all the outstanding shares of Class A common
stock were held by nonaffiliates except for the shares beneficially held by
directors and executive officers of the Company and funds represented by them.
No dividends have ever been declared or paid on the Company's common stock and
the Company does not anticipate paying any cash dividends on its common stock in
the foreseeable future. The Company's credit facility restricts the payment of
dividends.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following selected consolidated financial and operating data set forth below
with respect to the Company's consolidated statements of operations and cash
flows for the fiscal years ended April 30, 1999, 2000 and 2001, and the
consolidated balance sheets as of April 30, 2000 and 2001 are derived from the
Company's consolidated financial statements included elsewhere in this Form
10-K, and the consolidated statements of operations and cash flows data for the
fiscal years ended April 30, 1997 and 1998 and the consolidated balance sheet
data as of April 30, 1997, 1998 and 1999 are derived from the Company's
consolidated financial statements, all of which have been audited by Arthur
Andersen LLP. During the year ended April 30, 2001, the Company decided to
divest or close certain operations, and has accounted for those operations as
discontinued. Accordingly, the Company's financial and operating data for all
periods presented have been restated. The data set forth below should be read in
conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated financial
statements and Notes thereto included elsewhere in this Form 10-K.
Casella Waste Systems, Inc.
Selected Consolidated Financial And Operating
Data (In thousands, except per share data)
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Statement of Operations Data:
Revenues $ 101,347 $ 140,991 $ 179,264 $ 315,013 $ 479,816
Cost of operations 63,900 87,567 106,893 195,495 323,703
General and administrative 15,954 19,155 26,210 40,003 62,612
Depreciation and amortization 14,913 19,921 25,334 38,343 52,883
Impairment charge - 1,571 - - 59,619
Restructuring Charge - - - - 4,151
Legal Settlements - - - - 4,209
Other Miscellaneous Charges - - - - 1,604
Merger-Related Costs - 290 1,951 1,490 -
---------- ---------- ---------- ---------- ----------
Operating income (loss) 6,580 12,487 18,876 39,682 (28,965)
Interest expense, net 5,094 7,346 5,564 15,673 38,647
Other expense (income), net 628 (549) (353) 2,204 27,360
---------- ---------- ---------- ---------- ----------
Income (loss) before provision (benefit)
for income taxes, discontinued operations
and extraordinary items 858 5,690 13,665 21,805 (94,972)
Provision (benefit) for income taxes 718 3,048 7,315 10,615 (12,731)
Income (loss) from discontinued operations 57 808 (265) (1,884) 15,448
Estimated loss on disposal of discontinued
operations, net of income taxes - - - 1,393 3,846
Extraordinary items, net - - - 631 -
---------- ---------- ---------- ---------- ----------
Net income (loss) 83 1,834 6,615 11,050 (101,535)
Accretion of preferred stock
and put warrants (8,530) (5,738) - - (1,970)
---------- ---------- ---------- ---------- ----------
Net income (loss) applicable
to common stockholders $ (8,447) $ (3,904) $ 6,615 $ 11,050 $ (103,505)
========== ========== ========== ========== ==========
Basic net income (loss) per common share $ (1.52) $ (0.41) $ 0.44 $ 0.59 $ (4.46)
========== ========== ========== ========== ==========
Basic weighted average common 5,548 9,547 15,145 18,731 23,189
shares outstanding (2) ========== ========== ========== ========== ==========
Diluted net income (loss) per common share $ (1.52) $ (0.41) $ 0.41 $ 0.57 $ (4.46)
========== ========== ========== ========== ==========
Diluted weighted average common shares 5,548 9,547 16,019 19,272 23,189
outstanding (2) ========== ========== ========== ========== ==========
Casella Waste Systems, Inc.
Selected Consolidated Financial And Operating Data
(In thousands)
Fiscal Year Ended April 30,
---------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Other Operating Data:
Capital expenditures $ (20,050) $ (29,671) $ (54,118) $ (68,575) $ (61,518)
========== ========== ========== ========== ==========
Other Data:
Cash flows from operating activities $ 17,058 $ 19,726 $ 37,462 $ 48,398 $ 63,767
========== ========== ========== ========== ==========
Cash flows from investing activities $ (53,490) $ (59,939) $ (95,690) $ (155,088) $ (55,565)
========== ========== ========== ========== ==========
Cash flows from financing activities $ 39,299 $ 40,564 $ 59,154 $ 116,423 $ 18,765
========== ========== ========== ========== ==========
Adjusted EBITDA (3) $ 21,921 $ 32,913 $ 46,161 $ 79,013 $ 92,475
========== ========== ========== ========== ==========
Balance Sheet Data:
Cash and cash equivalents $ 2.794 $ 3,087 $ 4,195 $ 7,788 $ 22,001
========== ========== ========== ========== ==========
Working capital (deficit) $ (4,453) $ 3,772 $ 2,680 $ 114,368 $ 55,057
========== ========== ========== ========== ==========
Property, Plant and equipment, net $ 72,215 $ 88,518 $ 128,374 $ 369,261 $ 290,537
========== ========== ========== ========== ==========
Total assets $ 152,805 $ 205,251 $ 282,228 $ 860,470 $ 686,293
========== ========== ========== ========== ==========
Long-term debt, less current maturities $ 80,369 $ 82,493 $ 86,523 $ 437,853 $ 350,511
========== ========== ========== ========== ==========
Redeemable preferred stock $ 31,426 $ - $ - $ - $ 57,720
========== ========== ========== ========== ==========
Redeemable put warrants (4) $ 400 $ - $ - $ - $ -
========== ========== ========== ========== ==========
Total stockholders' equity $ 35,449 $ 85,004 $ 148,554 $ 274,718 $ 172,951
========== ========== ========== ========== ==========
(1) The Company has restated its consolidated statements of operations,
consolidated statements of cash flows and consolidated balance sheets to reflect
discontinuing certain operations during the year ended April 30, 2001. See Note
7 of the Notes to Consolidated Financial Statements.
(2) Computed on the basis described in Note 1(n) of Notes to Consolidated
Financial Statements.
(3) Adjusted EBITDA is defined as operating income plus depreciation and
amortization, impairment charge, restructuring charge, legal settlements, other
miscellaneous charges, and merger-related costs less minority interest. Adjusted
EBITDA does not represent, and should not be considered as, an alternative to
net income or cash flows from operating activities, each as determined in
accordance with GAAP. Moreover, Adjusted EBITDA does not necessarily indicate
whether cash flow will be sufficient for such items as working capital or
capital expenditures, or to react to changes in the Company's industry or to the
economy generally. The Company believes that Adjusted EBITDA is a measure
commonly used by lenders and certain investors to evaluate a company's
performance in the solid waste industry. The Company also believes that Adjusted
EBITDA data may help to understand the Company's performance because such data
may reflect the Company's ability to generate cash flows, which is an indicator
of its ability to satisfy its debt service and capital expenditure and working
capital requirements. Because Adjusted EBITDA is not calculated by all companies
and analysts in the same fashion, the Adjusted EBITDA measures presented by the
Company may not be comparable to similarly titled measures reported by other
companies. Therefore, in evaluating Adjusted EBITDA data, investors should
consider, among other factors: the non-GAAP nature of Adjusted EBITDA data;
actual cash flows; the actual availability of funds for debt service, capital
expenditures and working capital; and the comparability of the Company's
Adjusted EBITDA data to similarly titled measures reported by other companies.
For more information about the Company's cash flows, see the Consolidated
Statements of Cash Flows in the Company's consolidated financial statements.
(4) Represents warrants to purchase 100,000 shares of Class A common stock
exercisable at $6.00 per share. Pursuant to the terms of these warrants, in
September 1997, warrants to purchase 25,000 shares were exercised by the holder
at $6.00 per share, and warrants to purchase 75,000 shares were called by the
Company at $7.00 per share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's financial condition and results of
operations should be read in conjunction with the Company's consolidated
financial statements and Notes thereto, and other financial information included
elsewhere in this Form 10-K.
Casella Waste Systems, Inc. the ("Company") is a regional, integrated solid
waste services company that provides collection, transfer, disposal and
recycling services, primarily throughout the eastern portion of the United
States. The Company markets recyclable metals, aluminum, plastics, paper and
corrugated cardboard which has been processed at its facilities as well as
recyclables purchased from third parties. The Company also generates electricity
under its contracts at its wholly owned subsidiary, Maine Energy Recovery
Company LP ("Maine Energy"), a waste-to-energy facility. As of July 18, 2001,
the Company owned and/or operated five Subtitle D landfills, two landfills
permitted to accept construction and demolition materials, 30 transfer stations,
43 recycling processing facilities, 38 solid and liquid waste collection
divisions and one power generation facility, as well as a 50% interest in a
cellulose insulation joint venture.
In April 2001, the Company's Board of Directors approved a reorganization of
certain of the Company's operations. This reorganization consisted of the
elimination of various positions and the closure of certain facilities. A
restructuring charge was recorded amounting to $4.2 million. At the same time,
the Company determined that certain assets (mainly goodwill) were impaired and
therefore recorded a charge of $59.6 million to reduce those assets to their
estimated fair value. During the year ended April 30, 2001, the Company settled
five of its outstanding lawsuits and provided for settlement of four others. The
amount charged to income including legal fees was $4.2 million. During the
fourth quarter of fiscal 2001, the Company decided to divest or close certain
operations. Accordingly, its Tire Processing, Commercial Recycling and Mulch
Recycling businesses have been accounted for as discontinued operations. These
assets were written down to estimated realizable value. Timber Energy Recovery,
Inc., the sale of which is under negotiation, is now accounted for as an asset
held for sale.
The Company's revenues have increased from $43.5 million for the fiscal year
ended April 30, 1996, to $479.8 million for the fiscal year ended April 30,
2001. From May 1, 1994 through April 30, 2001, the Company acquired 181 solid
waste collection, transfer and disposal operations, as well as KTI, Inc. ("KTI")
in December 1999. Under the rules of purchase accounting, the acquired
companies' revenues and results of operations have been included together with
those of the Company 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 three years ended April 30, 2000, the Company acquired
eight waste collection, transfer and disposal operations in transactions
accounted for as poolings of interests. Under the rules governing poolings of
interests, the financial statements of the Company have been restated for all
prior years to reflect the financial position, results of operations and cash
flows of the merged entities as if they had been one company for all prior
periods presented in the accompanying financial statements.
This Form 10-K 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 Annual 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 important 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 statement,
certain of which are beyond the Company's control. These factors include,
without limitation, those outlined below in the section entitled "Certain
Factors That May Affect Future Results". The Company's failure to successfully
address any of these factors could have a material adverse effect on the
Company's results of operations.
GENERAL
-------
The Company's revenues in the Eastern, Central and Western regions are
attributable primarily to fees charged to customers for solid waste disposal and
collection, 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 the Company's disposal and transfer customers are under one to
ten year disposal contracts, with most having clauses for annual cost of living
increases. Recycling revenues consist of revenues from the sale of recyclable
commodities, operations and maintenance contracts of recycling facilities for
municipal customers and recyclable brokering operations.
The Company, through its Recycling segment, provides integrated waste handling
services, including processing and recycling of wood, paper, metals, aluminum,
plastics and glass, municipal solid waste processing and disposal, and brokerage
of recycled materials. The Company emphasizes the use of low-cost processing to
add value to the waste products delivered. Effective August 1, 2000, the Company
contributed its cellulose insulation assets to a joint venture with
Louisiana-Pacific, and accordingly, has recognized half of the joint venture's
net income/(loss) in the Company's results of operations since that date. In the
Other segment, the Company has ancillary assets including specialty waste
disposal, ash residue recycling and the generation of electric power and steam.
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 total revenues in fiscal 2000
and 2001 is primarily attributable to the effects of the KTI acquisition.
Significant recycling and brokerage revenues were added through that
acquisition. Because the KTI acquisition closed December 14, 1999, fiscal 2000
includes only a partial year of KTI operations. That fact accounts for most of
the changes in 2001 versus the prior year.
% of Revenues
Year Ended April 30,
--------------------------------------
1999 2000 2001
---- ---- ----
Collection........................ 86.8% 59.8% 46.8%
Landfill/Disposal Facilities...... 8.8 14.1 16.3
Transfer.......................... 2.6 4.5 7.7
Recycling......................... 0.0 4.4 8.0
Brokerage......................... 0.0 10.2 14.7
Other............................. 1.8 7.0 6.5
------ ------ ------
Total Revenues.................... 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
efforts.
Depreciation and amortization expense includes depreciation of fixed assets over
the estimated useful life of the assets using the straight-line method,
amortization of landfill airspace assets under the units-of-production method,
and the amortization of goodwill and other intangible assets using the
straight-line method. The amount of landfill amortization expense related to
airspace consumption can vary materially from landfill to landfill depending
upon the purchase price and landfill site and cell development costs. The
Company depreciates all fixed and intangible assets, excluding non-depreciable
land, down to a zero net book value, and does not apply a salvage value to any
of its fixed assets.
Certain direct landfill development costs, such as engineering, permitting,
legal, construction and other costs directly associated with expansion of
existing landfills, are capitalized by the Company. Additionally, the Company
also capitalizes certain third party expenditures related to pending
acquisitions, such as legal and engineering costs. 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) 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.
% of Revenues
Year ended April 30,
----------------------------
1999 2000 2001
---- ---- ----
Revenues 100.0% 100.0% 100.0%
Cost of operations 59.6 62.1 67.5
General and administrative 14.6 12.7 13.0
Depreciation and amortization 14.1 12.2 11.0
Impairment Charge 0.0 0.0 12.4
Restructuring Charge 0.0 0.0 0.9
Legal Settlements 0.0 0.0 0.9
Other Miscellaneous Charge 0.0 0.0 0.3
Merger-Related Costs 1.1 0.5 0.0
----- ----- -----
Operating income 10.6 12.5 (6.0)
Interest expense, net 3.1 5.0 8.1
Equity loss on investment 0.0 0.3 5.5
Other (income) expenses, net (0.2) 0.4 0.2
Provision for income taxes. 4.1 3.4 (2.7)
----- ----- ------
Net income before discontinued operations
and extraordinary item 3.6% 3.4% (17.1)%
====== ====== =======
Adjusted EBITDA* 25.8% 25.1% 19.3%
====== ====== ======
* See discussion and computation of Adjusted EBITDA below.
FISCAL YEAR ENDED APRIL 30, 2001 VERSUS APRIL 30, 2000
------------------------------------------------------
REVENUES:
Revenues increased approximately $164.8 million, or 52.3% to $479.8 million in
fiscal 2001 from $315.0 million in fiscal 2000. The impact of businesses
acquired, net of divestitures, throughout fiscal 2000 and fiscal 2001, including
the KTI acquisition, which was closed in December 1999, resulted in an increase
of $154.5 million. The remaining increase of $10.3 million was attributable to
internal volume and price growth, including the negative impact of $10.0 million
of lower average recyclable commodity prices in fiscal 2001 compared to fiscal
2000.
COST OF OPERATIONS:
Cost of operations increased approximately $128.2 million or 65.6% to $323.7
million in fiscal 2001 from $195.5 million in fiscal 2000. Cost of operations as
a percentage of revenues increased to 67.5% in fiscal 2001 from 62.1% in fiscal
2000. 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 14.7% of the Company's revenues in fiscal
2001, versus 10.2% in fiscal 2000.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased approximately $22.6 million, or
56.5% to $62.6 million in fiscal 2001 from $40.0 million in fiscal 2000. General
and administrative expenses as a percentage of revenues increased to 13.0% in
2001 from 12.7% in fiscal 2000. The increase in general and administrative
expenses was primarily the result of acquisitions, principally KTI. In addition,
the Company incurred high legal expenses on outstanding litigation against KTI,
which the Company assumed in connection with the acquisition of KTI.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $ 14.5 million, or 37.9%, to
$52.9 million in fiscal 2001 from $38.3 million in fiscal 2000. Depreciation and
amortization expenses as a percentage of revenue decreased to 11% in fiscal 2001
from 12.2% in fiscal 2000. The decrease in depreciation and amortization
expenses as a percentage of revenues was primarily attributable to the Company's
acquisition of KTI. KTI carried lower depreciation expense as a percentage of
revenues (approximately 7%) than the Company's existing operations
(approximately 14.5%).
IMPAIRMENT CHARGE:
In the fourth quarter of fiscal 2001, the Company determined that certain assets
(mainly goodwill) were impaired and therefore recorded a charge of $59.6 million
to reduce those assets to their estimated fair value. The assets impaired mainly
arose from the acquisition of KTI.
RESTRUCTURING CHARGE:
In April 2001, the Company incurred a restructuring charge amounting to $4.2
million. This amount was primarily attributable to severance and facility
closures. See Note 6 of the Notes to Consolidated Financial Statements.
LEGAL SETTLEMENTS:
During the year, the Company settled five of its outstanding lawsuits and
provided for settlement of four others. The amount provided includes associated
legal fees. The lawsuits are described under Item 3. Legal Proceedings.
OTHER MISCELLANEOUS CHARGES:
During the year, the Company provided for the recapping of a landfill and for a
loss contract.
INTEREST EXPENSE, NET:
Net interest expense increased approximately $23.0 million, or 146.6% to $38.6
million in fiscal 2001 from $15.7 million in fiscal 2000. Interest expense, net,
as a percentage of revenues, increased to 8.1% in 2001 from 5.0% in fiscal 2000.
The increase in net interest expense as a percentage of revenues is primarily
attributable to three factors. They are as follows: (i) higher average debt
balance in fiscal 2001, versus fiscal 2000 and (ii) the Company closed on a new
$450 million senior credit facility in December 1999 that raised the Company's
borrowing cost by approximately 200 basis points over the Company's previous
senior credit facility and (iii) this facility was amended twice in 2001, which
further increased the cost of borrowing by approximately 60 basis points.
LOSS FROM EQUITY METHOD INVESTMENTS:
This amount comprises two items, the loss from OCI/New Heights ($22.0 million)
and the loss from GreenFiber ($4.2 million).
The former amount arises from the Company's 35% ownership of Oakhurst Company,
Inc., which was acquired as part of KTI. Oakhurst Company, Inc. owned 37.5% of
New Heights Recovery and Power LLC ("New Heights"). The Company also had a
direct ownership interest in New Heights of 12.5%. The charge in the year
included writing down this investment to net realizable value.
On July 3, 2001, the Company acquired Oakhurst Company, Inc.'s (OCI) 37.5%
interest in New Heights, a promissory note for $1 million and common share
purchase warrants, all in exchange for the cancellation of all
amounts due from OCI and all equity interests in OCI. As a result of the
transaction, the Company now owns a 50% direct interest in New Heights.
The second item relates to GreenFiber, in which, effective August 1, 2000, the
Company acquired a 50% interest. 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 WARRANTS:
The Company sold two-thirds of its holding of Bangor Hydro warrants in fiscal
2001.
MINORITY INTEREST:
This amount now represents the minority owners' interest in the Company's
majority owned subsidiary American Ash Recycling of Tennessee, Ltd. Effective
March 1, 2001, the Company acquired the remaining 16.25% minority interest in
Maine Energy and sold its majority interest in the Penobscot Energy Recovery
Company. Net cash proceeds for the two transactions amounted to $12.0 million.
OTHER (INCOME)/EXPENSE:
Other (income)/expense increased $2.6 million, or 401.4%, to $3.2 million in
fiscal 2001 from $0.6 million in fiscal 2000. The other expense in fiscal 2001
is primarily attributable to the loss on sale of certain assets in the fourth
quarter ($2.8 million), and the cost of early termination of a letter of credit
($1.4 million).
PROVISION FOR INCOME TAXES:
Provision for income taxes decreased $23.3 million, to $(12.7) million in fiscal
2001 from $10.6 million in fiscal 2000. Provision for income taxes, as a
percentage of revenues, decreased to (2.7)% in fiscal 2001 from 3.4% in fiscal
2000. The decrease is primarily due to the Company's loss in fiscal 2001
compared to fiscal 2000. The other primary factors causing provision for income
taxes as a percentage of pre-tax net income to vary were (i) the write off of
goodwill and recording of the equity loss from OCI/New Heights, which were non
deductible and (ii) increased amortization of non-deductible KTI goodwill.
FISCAL YEAR ENDED APRIL 30, 2000 VERSUS APRIL 30, 1999
------------------------------------------------------
REVENUES:
Revenues increased approximately $135.7 million, or 75.7% to $315.0 million in
fiscal 2000 from $179.3 million in fiscal 1999. Approximately $121.3 million of
the increase was attributable to the impact of businesses acquired during fiscal
1999 and fiscal 2000, including KTI, which was acquired in December 1999. The
balance of the increase of approximately $14.4 million was attributable to
internal volume and price growth, including the positive impact of higher
average recyclable commodity prices in fiscal 2000 compared to fiscal 1999.
COST OF OPERATIONS:
Cost of operations increased approximately $88.6 million, or 82.9%, to $195.5
million in fiscal 2000 from $106.9 million in fiscal 1999. Cost of operations as
a percentage of revenues increased to 62.1% in fiscal 2000 from 59.6% in fiscal
1999. The increase in cost of operations as a percentage of revenues was
primarily attributable to acquiring KTI's recyclable brokerage operations, which
carry a high cost of operations as a percentage of revenues (approximately 90%).
Brokerage operations comprised approximately 10.2% of the Company's revenues in
fiscal 2000, versus 0% in fiscal 1999.
GENERAL AND ADMINISTRATIVE:
General and administrative expenses increased approximately $13.8 million, or
52.6% to $40.0 million in fiscal 2000 from $26.2 million in fiscal 1999. General
and administrative expenses as a percentage of revenues decreased to 12.7% in
2000 from 14.6% in fiscal 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 6%). 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 2000.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization expenses increased $13.0 million, or 51.4%, to
$38.3 million in fiscal 2000 from $25.3 million in fiscal 1999. Depreciation and
amortization expenses as a percentage of revenue decreased to 12.2% in fiscal
2000 from 14.1% in fiscal 1999. The decrease in depreciation and amortization
expenses as a percentage of revenues was the result of the Company's acquisition
of KTI. KTI carried lower depreciation expense as a percentage of revenues
(approximately 7%) than the Company (approximately 14.5%).
MERGER-RELATED COSTS:
These comprise merger-related costs consisting of legal, engineering, accounting
and other costs associated with the poolings of interests consummated during
fiscal 1999 and fiscal 2000. Four such transactions occurred during fiscal 1999
and two occurred in fiscal 2000, resulting in a decrease of $0.5 million or
23.6%. Merger related costs as a percentage of revenues decreased to 0.5% in
fiscal 2000 from 1.1% in fiscal 1999.
INTEREST EXPENSE, NET:
Net interest expense increased approximately $10.1 million, or 181.7% to $15.7
million in fiscal 2000 from $5.6 million in fiscal 1999. Interest expense, net,
as a percentage of revenues, increased to 5.0% in 2000 from 3.1% in fiscal 1999.
The increase in net interest expense as a percentage of revenues is primarily
attributable to two factors. They are as follows: (i) higher average debt
balance in fiscal 2000 versus fiscal 1999 and (ii) the Company closed on a new
$450 million senior credit facility in December 1999 that raised the Company's
borrowing cost by approximately 200 basis points over the Company's previous
senior credit facility.
MINORITY INTEREST:
This amount represents the minority owners' interest in the Company's then
majority owned subsidiaries, Maine Energy, Penobscot Energy Recovery Company LP
and American Ash Recycling of Tennessee, Ltd.
OTHER EXPENSES (INCOME), NET:
Other expense in fiscal 2000 arose from losses on sale of certain assets, while
a gain was recorded in the prior period.
PROVISION FOR INCOME TAXES:
Provision for income taxes increased $3.3 million, or 45.1%, to $10.6 million in
fiscal 2000 from $7.3 million in fiscal 1999. The increase is primarily due to
the Company's increase in profitability in fiscal 2000 compared to fiscal 1999.
An additional factor causing income tax expense, as a percentage of pre-tax net
income, to vary was poolings of interests resulting in prior period restatements
of entities not liable for Federal income tax due to Subchapter S Status.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's business is capital intensive. The Company's capital requirements
include acquisitions, fixed asset purchases and capital expenditures for
landfill development, cell construction, and site and cell closure. Because of
these needs, the Company has in the past had working capital deficits. The
Company had net working capital of $55.0 million at April 30, 2001 compared to
net working capital of $114.4 million at April 30, 2000. The main factors
accounting for the decrease were the reduction in accounts receivable, mainly
due to divestitures, and the exchange of a receivable for assets and the lower
level of assets of discontinued operations.
The Company has a $417.5 million revolving line of credit with a group of banks
for which BankBoston, N.A. is acting as agent. This line of credit consists of a
$280 million Senior Secured Revolving Credit Facility ("Revolver") and a $137.5
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 approximately $45 million at April 30, 2001. The
Company entered into two amendments to the credit facilities during the fourth
quarter of 2001 pursuant to which the Company's compliance with the covenants
under the line of credit has been waived.
On June 28, 2000, the Company entered into an agreement with Berkshire Partners
pursuant to which it agreed to sell Berkshire convertible preferred stock, which
is convertible into the Company's Class A common stock at $14.00 per share. The
Company raised approximately $55.8 million in the transaction, which closed in
August 2000.
The Company believes that its cash provided internally from operations together
with the Company's available credit facility should enable it to meet its needs
for working capital for the next twelve months.
Net cash provided by operations for the fiscal years ended April 30, 2001 and
April 30, 2000 amounted to $63.8 million and $48.4 million, respectively.
Although the Company experienced a net loss in 2001, it included a significant
number of non-cash items including the loss from discontinued operations, equity
losses in non-consolidated affiliates and the impairment charge.
For fiscal 2001 and fiscal 2000, cash used in investing activities was $55.6
million and $155.1 million, respectively. The year 2000 included the acquisition
of KTI, while acquisitions closed in 2001 were much smaller. That decrease was
partially offset by proceeds from divestitures and the proceeds from sale of the
Bangor Hydro warrants. Additions to fixed assets also decreased. For fiscal
1999, cash used in investing activities was $95.7 million.
For fiscal 2001 and fiscal 2000, the Company's financing activities provided
cash of $18.8 million and $116.4 million, respectively. The net cash provided by
financing activities in the fiscal years ended April 30, 2001 and 2000 primarily
reflects borrowings on the Company's credit facility, partially offset by
repayments.
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 mainly 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 adopted
SFAS No. 133 on May 1, 2001. The adoption of these rules did not have a material
impact on the consolidated results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards No.
141, "Business Combinations" and No. 142, "Goodwill and Other Intangible
Assets." These standards, among other things, significantly modify the current
accounting rules related to accounting for business acquisitions, amortization
of intangible assets and the method of accounting for impairments. The Company
has not completed an analysis as to the magnitude of the impact of these new
pronouncements on the Company's financial statements, nor has it been determined
whether or not it will adopt these pronouncements as of the beginning of its
fiscal year 2002 or 2003. However, the Company believes that the impact, when
ultimately determined, could have a significant adverse effect on the Company's
carrying value of certain long-term assets (mainly goodwill).
ADJUSTED EBITDA
---------------
Adjusted EBITDA represents operating income (earnings before interest and taxes,
or "EBIT") plus depreciation and amortization expense, impairment charge,
restructuring charge, legal settlements, other miscellaneous charges and
merger-related costs 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.
FISCAL YEAR ENDED APRIL 30,
--------------------------------
1999 2000 2001
---- ---- ----
Operating Income (loss) $ 18,876 $ 39,682 $ (28,965)
Depreciation and Amortization 25,334 38,343 52,883
Impairment charge (i) 0 0 59,619
Restructuring Charge (ii) 0 0 4,151
Legal Settlements (iii) 0 0 4,209
Other Miscellaneous Charges 0 0 1,604
Merger-Related Costs 1,951 1,490 0
Minority interest 0 (502) (1,026)
--------- --------- ---------
Adjusted EBITDA $ 46,161 $ 79,013 $ 92,475
========= ========= =========
EBITDA as a percentage of revenues 25.8% 25.1% 19.3%
========= ========= =========
(i) See Note 1(l) of Notes to Consolidated Financial Statements.
(ii) See Note 6 of Notes to Consolidated Financial Statements.
(iii) See Note 5 of Notes to Consolidated Financial Statements.
Analysis of the factors contributing to the change in Adjusted EBITDA is
included in the discussions above.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS.
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Form 10-K and presented elsewhere by management from time to time.
WE HAVE EXPERIENCED 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. Among other matters, in connection with the KTI
acquisition we assumed certain obligations to finance and support a tire
recycling operation. Although we are seeking to sell or otherwise reduce our
commitment to these operations, we cannot assure you that the recycling
operation will not continue to divert management and other resources until the
operations are sold. At April 30, 2001, this asset was written down to
realizable value and treated as an asset held for sale.
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 acquisition program.
WE MAY NOT BE SUCCESSFUL IN MAKING ACQUISITIONS, WHICH COULD LIMIT 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. Any of these acquisitions may be of significant size and may include
assets that are outside our geographic territories or businesses that 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 volatility 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 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 an existing 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 condition 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.
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 is therefore impacted by a similar
seasonality. In addition, particularly harsh weather conditions could result in
increased operating costs to some of the Company's operations.
The 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 insulation business experiences lower sales in November and December because
of lower production of manufactured housing due to holiday plant shut downs.
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 enough 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 AQUISITION.
Under the terms of a waste handling agreement 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 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 insulation manufacturing joint venture with Louisiana-Pacific competes 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.
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 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 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
July 18, 2001, an aggregate of 988,200 shares of our Class B common stock,
representing 9,882,000 votes, were outstanding, all of which were beneficially
owned by John W. Casella, our chairman and chief executive officer, or by his
brother, Douglas R. Casella, a director. Based on the number of shares of common
stock outstanding at July 18, 2001, the shares of our Class A common stock and
Class B common stock held by John W. Casella and Douglas R. Casella represent
approximately 34.2% 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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is subject to interest rate fluctuation risk with regards to its
variable rate revolving credit facility. To modify the risk from these possible
interest rate fluctuations, the Company enters into hedging transactions that
have been authorized pursuant to the Company's policies and procedures. The
Company does not use financial instruments for trading purposes and is not a
party to any leveraged derivatives.
At April 30, 2001, the Company has entered into six interest rate swap
agreements (the "Swap Agreements") with two banks. The purpose was to
effectively convert a portion of the Company's interest rate exposure on
advances under its revolving credit facility from a floating rate to a fixed
rate. The Swap Agreements effectively fix the Company's interest rate on the
notional amount of $250.0 million, at rates from 5.19375% to 6.875%. Net monthly
payments or monthly receipts under the Swap Agreements are recorded as
adjustments to interest expense. In addition, in the event of non-performance by
the counterparties, the Company would be exposed to interest rate risk on the
entire balance in the event the variable interest rate paid was to exceed the
fixed rate paid under the terms of the Swap Agreements. If interest rates
changed by 100 basis points, the impact on the Company would be an increase or
decrease in annual interest expense of approximately $1.0 million. The fair
market value of the swaps is estimated at a loss of $6.9 million as of April 30,
2001.
The remainder of the Company's debt is at fixed rates and not subject to
interest rate risk.
The Company is subject to commodity price fluctuations related to the portion of
its sales of recyclable commodities that are not under floor or flat pricing
arrangements. To minimize the Company's commodity exposure, the Company enters
into hedging transactions that have been authorized pursuant to the Company's
policies and procedures. The Company does not use financial instruments for
trading purposes and is not a party to any leveraged derivatives. If commodity
prices were to change by 10%, the impact on the company's revenue is estimated
at $6.6 Million.
At April 30, 2001, the Company has entered into several contracts for newsprint,
cardboard and aluminum. The estimated fair market value of these contracts at
April 30, 2001 amounted to $1.8 million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Casella Waste Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Casella Waste
Systems, Inc. (a Delaware corporation) and subsidiaries as of April 30, 2000 and
2001, and the related consolidated statements of operations, redeemable
convertible preferred stock and stockholders' equity and cash flows for each of
the three years ended April 30, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Casella Waste
Systems, Inc. and subsidiaries as of April 30, 2000 and 2001, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years ended April 30, 2001, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Boston, Massachusetts
July 19, 2001
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
April 30, April 30,
ASSETS 2000 2001
------ ----------- -----------
CURRENT ASSETS:
Cash and Cash Equivalents $ 7,788 $ 22,001
Restricted Cash 19,336 7,175
Accounts Receivable - Trade, net of allowance
for Doubtful Accounts of $5,371 and $4,904 77,586 51,776
Accounts Receivable - Other 14,429 -
Notes Receivable - Officers/Employees 2,095 1,953
Prepaid Expenses 5,545 5,669
Inventory 9,529 3,017
Investments 5,156 3,641
Deferred Income Taxes 12,730 8,015
Net Assets Held for Sale 3,775 8,041
Net Assets of Discontinued Operations 27,222 11,534
Other Current Assets 4,952 2,763
----------- -----------
Total Current Assets 190,143 125,585
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, at Cost:
Land and Land Held for Investment 11,380 11,813
Landfills 64,254 77,620
Landfill Development 10,353 12,553
Buildings and Improvements 43,396 50,597
Machinery and Equipment 222,031 139,921
Rolling Stock 77,505 84,076
Containers 34,744 39,117
----------- -----------
463,663 415,697
Less: Accumulated Depreciation and Amortization (94,402) (125,160)
----------- -----------
Property, Plant and Equipment, net 369,261 290,537
----------- -----------
OTHER ASSETS:
Intangible Assets, net 272,291 237,573
Restricted Cash 10,847 2,902
Deferred Income Taxes - 5,259
Investments in Unconsolidated Entities 14,306 21,844
Other Non-Current Assets 3,622 2,593
----------- -----------
301,066 270,171
----------- -----------
$ 860,470 $ 686,293
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share and per share data)
April 30, April 30,
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 2001
------------------------------------ ----------- -----------
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt $ 8,134 $ 6,690
Current Maturities of Capital Lease Obligations 788 1,429
Accounts Payable 39,404 29,158
Accrued Payroll and Related Expenses 5,410 2,542
Accrued Interest 3,994 4,880
Accrued Income Taxes 3,766 3,388
Accrued Closure and Post-Closure Costs,
Current Portion 259 77
Deferred Revenue 2,829 520
Other Current Liabilities 11,191 21,844
----------- -----------
Total Current Liabilities 75,775 70,528
----------- -----------
Long-Term Debt, Less Current Maturities 437,853 350,511
----------- -----------
Capital Lease Obligations, Less Current Maturities 3,732 4,593
----------- -----------
Deferred Income Taxes 30,948 -
----------- -----------
Accrued Closure and Post-Closure Costs,
Less Current Maturities 12,017 17,153
----------- -----------
Minority Interest 16,378 677
----------- -----------
Other Long-Term Liabilities 9,049 12,160
----------- -----------
COMMITMENTS AND CONTINGENCIES:
Series A Redeemable, Convertible Preferred Stock,
55,750 Shares Authorized, Issued and Outstanding,
Liquidation Preference of $1,000 per share - 57,720
STOCKHOLDERS' EQUITY:
Class A Common Stock -
Authorized - 100,000,000 Shares, $0.01 par
value Issued and Outstanding - 22,215,000 and
22,198,000 Shares as of April 30, 2000 and
2001, respectively 222 222
Class B Common Stock -
Authorized - 1,000,000 Shares, $0.01 par
value 10 Votes per Share, Issued and
Outstanding - 988,000 Shares as of
April 30, 2000 and 2001 10 10
Accumulated Other Comprehensive Income (Loss) (305) 586
Additional Paid-In Capital 270,655 271,502
Retained Earnings/(Accumulated Deficit) 4,136 (99,369)
----------- -----------
Total Stockholders' Equity 274,718 172,951
----------- -----------
$ 860,470 $ 686,293
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Fiscal Year Ended April 30,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
Continuing Operations:
Revenues $ 179,264 $ 315,013 $ 479,816
----------- ----------- -----------
Operating Expenses:
Cost of Operations 106,893 195,495 323,703
General and Administrative 26,210 40,003 62,612
Depreciation and Amortization 25,334 38,343 52,883
Impairment Charge - - 59,619
Restructuring Charge - - 4,151
Legal Settlements - - 4,209
Other Miscellaneous Charges - - 1,604
Merger-Related Costs 1,951 1,490 -
----------- ----------- -----------
160,388 275,331 508,781
----------- ----------- -----------
Operating Income(Loss) 18,876 39,682 (28,965)
----------- ----------- -----------
Other (Income)/Expense:
Interest Income (77) (1,234) (2,941)
Interest Expense 5,641 16,907 41,588
Loss from Equity Method Investments - 1,062 26,256
Gain on Sale of Warrants - - (3,131)
Minority Interest - 502 1,026
Other Expenses/(Income) (353) 640 3,209
----------- ----------- -----------
Other Expenses, net 5,211 17,877 66,007
----------- ----------- -----------
Income (Loss) from Continuing Operations Before
Income Taxes, Discontinued Operations
and Extraordinary Item 13,665 21,805 (94,972)
Provision (Benefit) for Income Taxes 7,315 10,615 (12,731)
----------- ----------- -----------
Income (Loss) from Continuing Operations Before
Discontinued Operations and Extraordinary Item 6,350 11,190 (82,241)
----------- ----------- -----------
Discontinued Operations:
Income (Loss) from Discontinued
Operations to be disposed (net
of income taxes of $195 in 1999
and $1,471 in 2000 and a tax
benefit of $8,781 in 2001.) 265 1,884 (15,448)
Estimated loss on disposal of
Discontinued Operations, including
a provision for operating losses
of $0 and $5,054 during phase-out
period net of income tax benefit
of $891 and $1,085 in 2000 and 2001,
respectively. - (1,393) (3,846)
Extraordinary Item - Early Extinguishment
of Debt, net of income tax of $448 - (631) -
----------- ----------- -----------
Net Income (Loss) 6,615 11,050 (101,535)
----------- ----------- -----------
Accretion of Preferred Stock Dividend - - (1,970)
----------- ----------- -----------
Net Income/(Loss) Applicable to Common Stockholders $ 6,615 $ 11,050 $ (103,505)
----------- ----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for share and per share data)
Fiscal Year Ended April 30,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
Earnings Per Common Share:
Basic:
Income (Loss) from Continuing Operations
Before Discontinued Operations and
Extraordinary Item $ 0.42 $ 0.59 $ (3.63)
Income (Loss) from Discontinued
Operations $ 0.02 $ 0.10 $ (0.66)
Estimated Loss on Disposal of
Discontinued Operations $ - $ (0.07) $ (0.17)
Extraordinary Item $ - $ (0.03) $ -
----------- ----------- -----------
Net Income/(Loss) per Common Share $ 0.44 $ 0.59 $ (4.46)
=========== =========== ===========
Basic Weighted Average Common
Shares Outstanding 15,145 18,731 23,189
=========== =========== ===========
Diluted:
Income (Loss) from Continuing Operations
Before Discontinued Operations and $ 0.39 $ 0.57 $ (3.63)
Extraordinary Item
Income (Loss) from Discontinued
Operations $ 0.02 $ 0.10 $ (0.66)
Estimated Loss on Disposal of
Discontinued Operations $ - $ (0.07) $ (0.17)
Extraordinary Item $ - $ (0.03) $ -
----------- ----------- -----------
Net Income/(Loss) per Common Share $ 0.41 $ 0.57 $ (4.46)
=========== =========== ===========
Diluted Weighted Average Common
Shares Outstanding 16,019 19,272 23,189
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
(In thousands)
Series A Stockholders' Equity
Redeemable Convertible Class A Common Stock Class B Common Stock
Preferred Stock
# of Shares Amount # of Shares Par Value # of Shares Par Value
----------- ----------- --------------------------------------------------------
Balance, April 30, 1998 - - 12,158 $ 122 988 $ 10
Issuance of Class A Common
Stock-Net of Issuance Costs - - 2,061 20 - -
Issuance of Class A Common Stock
From the Exercise of Stock
Warrants/Options and Employee
Stock Purchase Plan - - 582 6 - -
Tax Benefits of Stock Options
Exercised - - - - - -
Equity Transactions/ Adjustments
To Poolings - - 68 1 - -
Net Income - - - - - -
----------- ----------- ----------- -------------------------- -----------
Balance, April 30, 1999 - $ - 14,869 $ 149 988 $ 10
----------- ----------- ----------- -------------------------- -----------
Issuance of Class A Common Stock
and Stock Options - KTI
Acquisition - - 7,152 72 - -
Issuance of Class A Common Stock
From the Exercise of Stock
Warrants/Options and Employee
Stock Purchase Plan - - 194 1 - -
Equity transactions of Majority-
Owned Subsidiary - - - - - -
Net Income - - - - - -
Unrealized Loss on Securities - - - - - -
Total Comprehensive Income - - - - - -
----------- ----------- ----------- -------------------------- -----------
Balance, April 30, 2000 - $ - 22,215 $ 222 988 $ 10
----------- ----------- ----------- -------------------------- -----------
Issuance of Class A Common Stock
From the Exercise of Stock
Options and Employee
Stock Purchase Plan - - 32 - - -
Issuance of Series A Redeemable
Convertible Preferred Stock 56 55,750 - - - -
Accretion of Preferred Stock
Dividend - 1,970 - - - -
Equity transactions of Majority-
Owned Subsidiary - - - - - -
Net Loss - - - - - -
Unrealized Gain on Securities - - - - - -
Total Comprehensive Loss - - - - - -
Other - - (49) - - -
----------- ----------- ----------- -------------------------- -----------
Balance, April 30, 2001 56 $ 57,720 22,198 $ 222 988 $ 10
----------- ----------- ----------- -------------------------- -----------
Retained Accumulated
Additional Earnings Other Total Total
Paid-in (Accumulated Comprehensive Stockholders' Comprehensive
Capital Deficit) Income (Loss) Equity Income (Loss)
-----------------------------------------------------------------------
Balance, April 30, 1998 $ 96,398 $ (12,766) $ - $ 83,764
Issuance of Class A Common
Stock-Net of Issuance Costs 52,211 - - 52,231
Issuance of Class A Common Stock
From the Exercise of Stock
Warrants/Options and Employee
Stock Purchase Plan 3,805 - - 3,811
Tax Benefit of Stock Options
Exercised 2,220 - - 2,220
Equity Transactions/ Adjustments
To Poolings 99 (763) - (663)
Net Income - 6,615 - 6,615 6,615
----------- ----------- ----------- --------------------------
Balance, April 30, 1999 $ 154,733 $ (6,914) $ - $ 147,978
----------- ----------- ----------- -----------
Issuance of Class A Common Stock
and Stock Options - KTI
Acquisition 113,788 - - 113,860
Issuance of Class A Common Stock
From the Exercise of Stock
Warrants/Options and Employee
Stock Purchase Plan 859 - - 860
Equity transactions of Majority-
Owned Subsidiary 1,275 - - 1,275
Net Income - 11,050 - 11,050 11,050
Unrealized Loss on Securities - - - (305) (305)
-----------
Total Comprehensive Income - - - - 10,745
----------- ----------- ----------- -----------
Balance, April 30, 2000 $ 270,655 $ 4,136 $ (305) $ 274,718
----------- ----------- ----------- -----------
Issuance of Class A Common Stock
From the Exercise of Stock
Options and Employee Stock
Purchase Plan 258 - - 258
Issuance of Series A Redeemable
Convertible Preferred Stock (1,009) - - (1,009)
Accretion of Preferred Stock
Dividend - (1,970) - (1,970)
Equity transactions of Majority-
Owned Subsidiary 1,506 - - 1,506
Net Loss - (101,535) - (101,535) (101,535)
Unrealized Gain on Securities - - 891 891 891
-----------
Total Comprehensive Loss - - - - (100,644)
Other 92 - - 92
----------- ----------- ----------- -----------
Balance, April 30, 2001 $ 271,502 $ (99,369) $ 586 $ 172,951
----------- ----------- ----------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Fiscal Year Ended April 30,
-----------------------------------------
1999 2000 2001
----------- ----------- -----------
Cash Flows from Operating Activities:
Net Income (Loss) $ 6,615 $ 11,050 $ (101,535)
----------- ----------- -----------
Adjustments to Reconcile Net Income (Loss)
to Net Cash Provided by Operating Activities -
Depreciation and Amortization 25,334 38,343 52,883
Estimated Loss on Disposal of Discontinued Operations - 1,393 3,846
(Income)Loss from Discontinued Operations (265) (1,884) 15,448
Extraordinary Item - 631 -
Loss from Equity Method Investments - 1,062 26,256
Impairment Charge - - 59,619
Gain on Sale of Warrants - - (3,131)
Loss on Sale of Assets 3 840 1,101
Minority Interest - 502 1,026
Deferred Income Taxes 558 11,939 (10,866)
Changes in Assets and Liabilities, net of
Effects of Acquisitions -
Accounts Receivable (1,135) (17,320) 16,692
Accounts Payable 4,419 1,433 (6,643)
Other Current Assets and Liabilities 1,933 409 9,071
----------- ----------- -----------
30,847 37,348 165,302
----------- ----------- -----------
Net Cash Provided by Operating Activities 37,462 48,398 63,767
----------- ----------- -----------
Cash Flows from Investing Activities:
Acquisitions, net of Cash Acquired (33,336) (81,838) (9,331)
Proceeds from Divestitures, net of Cash Divested - - 15,814
Additions to Property, Plant and Equipment (54,118) (68,575) (61,518)
Proceeds from Sale of Equipment 587 1,317 2,298
Proceeds from Sale of Warrants - - 6,718
Advances to Unconsolidated Entities - (5,580) (9,546)
Other (8,823) (412) -
----------- ----------- -----------
Net Cash Used in Investing Activities (95,690) (155,088) (55,565)
----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds from Long-Term Borrowings 73,728 423,955 49,590
Principal Payments on Long-Term Debt (70,809) (309,667) (87,331)
Proceeds from Issuance of Common Stock 52,231 - -
Proceeds from Equity Transactions of Majority-
Owned Subsidiary - 1,275 1,506
Proceeds from Exercise of Stock Warrants/Options
and Employee Stock Option Plan 3,811 860 259
Equity Transactions of Pooled Entities 193 - -
Proceeds from the Issuance of Series A
Redeemable, Convertible Preferred Stock, net - - 54,741
----------- ----------- -----------
Net Cash Provided by Financing Activities 59,154 116,423 18,765
----------- ----------- -----------
Cash from Discontinued Operations 182 (6,140) (12,754)
Net Increase in Cash and Cash Equivalents 1,108 3,593 14,213
Cash and Cash Equivalents, Beginning of Year 3,087 4,195 7,788
----------- ----------- -----------
Cash and Cash Equivalents, End of Year $ 4,195 $ 7,788 $ 22,001
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
Supplemental Disclosures of Cash Flow Information:
Cash Paid (Received) During the Year for -
Interest $ 6,288 $ 12,514 $ 37,484
=========== =========== ===========
Income Taxes, net of Refunds $ 6,952 $ 1,876 $ (1,773)
=========== =========== ===========
Supplemental Disclosures of Non-Cash Investing
and Financing Activities:
Summary of Entities Acquired
in Purchase Business Combinations
Fair Market Value of Assets Acquired $ 36,210 $ 519,054 $ 22,602
Notes Receivable Exchanged for Assets (13,267)
Common Stock and Stock Options Issued - (113,860) -
Cash Paid, net (33,336) (81,838) (9,331)
----------- ----------- -----------
Liabilities Assumed and Notes Payable
to Sellers $ 2,874 $ 323,356 $ 4
=========== =========== ===========
The accompanying notes are an integral part to these
consolidated financial statements.
CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for share and per share data)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Casella Waste Systems, Inc. ("the Company") is a regional, integrated solid
waste services company, that provides collection, transfer, disposal and
recycling services, primarily throughout the eastern portion of the United
States. The Company markets recyclable metals, aluminum, plastics, paper and
corrugated cardboard which has been processed at its facilities as well as
recyclables purchased from third parties. The Company also generates electricity
under long-term contracts at a waste-to-energy facility, Maine Energy Recovery
Company LP ("Maine Energy") (see Note 3).
A summary of the Company's significant accounting policies follows:
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned and majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation. Certain
reclassifications have been made to the prior period financial statements to
conform to the current presentation.
(b) Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes
and the disclosure of contingent assets and liabilities. Actual results could
differ from those estimates.
(c) Revenue Recognition
The Company recognizes collection, transfer, recycling and disposal revenues as
the services are provided. Certain customers are billed in advance and,
accordingly, recognition of the related revenues is deferred until the services
are provided.
Revenues from the sale of electricity to local utilities by the Company's
waste-to-energy facilities (see Note 3) are recorded at the contract rate
specified by its power purchase agreement as the electricity is delivered.
Revenues from the sale of recycled materials are recognized upon shipment.
Rebates to certain municipalities based on sales of recyclable materials are
recorded upon the sale of such recyclables to third parties and are included in
revenues. Revenues for processing of recyclable materials are recognized when
the related service is provided.
Revenues from brokerage are recognized at the time of shipment.
(d) Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, trade receivables, investments in closure trust funds, trade
payables and debt instruments. The carrying values of these financial
instruments approximate their respective fair values. See Note 4 for the terms
and carrying values of the Company's various debt instruments.
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with maturities of
three months or less to be cash equivalents.
(f) Restricted Cash
Restricted cash consists of cash held in trust on deposit with various banks
that support the Company's financial assurance obligations for its facilities'
closure and post-closure costs. It also includes cash held in trust, all of
which is available, under certain circumstances, for current operating expenses,
debt service, capital improvements and repairs and maintenance in accordance
with certain contractual obligations. Restricted cash available for current
operating and debt service purposes is classified as a current asset. A summary
of restricted cash is as follows:
April 30, 2000 April 30, 2001
-------------- --------------
Short Long Short Long
Term Term Total Term Term Total
---- ---- ----- ---- ---- -----
Insurance $ 1,727 $ - $ 1,727 $ 6,872 $ - $ 6,872
Landfill Closure 154 3,566 3,720 - 2,498 2,498
Other Facilities Closure - 410 410 - 301 301
Facility Maintenance and
Operations 12,612 1,194 13,806 - - -
Debt Service 4,478 5,677 10,155 - - -
Other 365 - 365 303 103 406
-------------------------------------------------------------------
Total $19,336 $10,847 $30,183 $ 7,175 $ 2,902 $10,077
======= ======= ======= ======= ======= =======
(g) Inventory
Inventory consists primarily of secondary fibers and recyclables ready for sale
and is stated at the lower of cost (first-in, first-out) or market. Inventory
consisted of finished goods of approximately $8,765 and $2,651 at April 30, 2000
and 2001, respectively, and raw materials of $764 and $366 at April 30, 2000 and
2001 respectively.
(h) Investments
As of April 30, 2000 and 2001, the Company owned warrants to purchase 542,786
and 186,358 shares of common stock in Bangor-Hydro Electric, respectively. In
accordance with SFAS No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," the Company classifies these
securities as "available for sale." Accordingly, the carrying value of the
securities is adjusted to fair value through other comprehensive income/(loss).
As of April 30, 2000 and 2001, the fair market value of these warrants was
approximately $5,156 and $3,554, respectively, which are included in investments
in the accompanying consolidated balance sheets.
During the year ended April 30, 2001, the Company exercised 356,428 warrants and
sold the 356,428 shares of common stock, resulting in a realized gain of
approximately $3,131.
(i) Property, Plant and Equipment
Property, plant and equipment are recorded at cost, less accumulated
depreciation and amortization. The Company provides for depreciation and
amortization using the straight-line method by charges to operations in amounts
that allocate the cost of the assets over their estimated useful lives as
follows:
Estimated
Asset Classification Useful Life
-------------------- -----------
Buildings and improvements 10-35 years
Machinery and equipment 2-15 years
Rolling stock 1-12 years
Containers 2-12 years
The cost of maintenance and repairs is charged to operations as incurred.
Depreciation expense for the years ended April 30, 1999, 2000 and 2001 was
$13,768, $23,246 and $35,033, respectively.
Capitalized landfill costs include expenditures for land and related airspace,
permitting costs and preparation costs. Landfill permitting and preparation
costs represent only direct costs related to these activities, including legal,
engineering and construction. Landfill preparation costs include the costs of
construction associated with excavation, liners, site berms and the installation
of leak detection and leachate collection systems. Interest is capitalized on
landfill permitting and construction projects and other projects under
development while the assets are undergoing activities to ready them for their
intended use. The interest capitalization rate is based on the Company's
weighted average cost of indebtedness. Interest capitalized for the years ended
April 30, 1999, 2000 and 2001 was $530, $640 and $373, respectively. Management
routinely reviews its investment in operating landfills, transfer stations and
other significant facilities to determine whether the costs of these investments
are realizable.
Landfill permitting, acquisition and preparation costs, excluding the estimated
residual value of land, are amortized as landfill airspace is consumed. In
determining the amortization rate for these landfills, preparation costs include
the total estimated costs to complete construction of the landfills' permitted
and probable to be permitted capacity. Units-of-production amortization rates
are determined annually for each of the Company's operating landfills. The rates
are based on estimates provided by the Company's engineers and accounting
personnel and consider the information provided by surveys, which are performed
at least annually.
(j) Investments in Unconsolidated Entities
The Company owned 35% of Oakhurst Company, Inc. ("OCI"), which it accounted for
on the equity basis of accounting. At April 30, 2001, among other businesses,
OCI had a 37.5% equity interest in New Heights Recovery and Power LLC ("New
Heights"), a fully integrated waste tire and glass recycling and power
generation facility in Ford Heights, IL. New Heights primarily specializes in
waste tire processing. The Company also had a 12.5% direct equity interest in
New Heights.
In addition to its ownership in OCI, the Company had aggregate amounts due from
OCI in the form of notes and trade receivables of $14,695 and $27,586 as of
April 30, 2000 and 2001, respectively. In addition, the Company had directly
loaned $1,500 to New Heights, which was secured by a first mortgage on the
facility, and had an operations and management service agreement for the
operations and management of the New Heights facility.
During fiscal year 2001, the Company decided to divest its interest in both OCI
and New Heights. Accordingly, the company began actively seeking a buyer and
also simplified its interest in OCI and New Heights. On July 3, 2001, the
Company acquired OCI's 37.5% interest in New Heights, received a promissory note
for $1,000 and common share purchase warrants in OCI, all in exchange for the
cancellation of all amounts due from OCI and all equity interests in OCI. As a
result of the transaction, the Company now owns a 50% direct equity interest in
New Heights.
Accordingly, the Company has written its investment and advances in OCI/New
Heights down to their estimated realizable value as of April 30, 2001 by
recording aggregate charges of $19,521. These charges are a component of the
loss from equity method investments on the accompanying consolidated financial
statements.
In addition, the Company entered into an agreement in July 2000 with
Louisiana-Pacific Corp. to combine their respective cellulose insulation
businesses into a single operating entity ("US GreenFiber LLC") under a joint
venture agreement effective August 1, 2000. The Company contributed the
operating assets of its cellulose insulation manufacturing business together
with $1,000 in cash. There was no gain or loss recognized on this transaction.
The Company accounts for its 50% ownership in New Heights and US GreenFiber LLC
using the equity method of accounting.
(k) Accrued Closure and Post-Closure Costs
Accrued closure and post-closure costs include the current and non-current
portion of accruals associated with obligations for closure and post-closure of
the Company's operating and closed landfills. The Company, based on input from
its engineers, accounting personnel and consultants, estimates its future cost
requirements for closure and post-closure monitoring and maintenance for solid
waste landfills based on its interpretation of the technical standards of the
U.S. Environmental Protection Agency's Subtitle D regulations and the air
emissions standards under the Clean Air Act as they are being applied on a
state-by-state basis. Closure and post-closure monitoring and maintenance costs
represent the costs related to cash expenditures yet to be incurred when a
landfill facility ceases to accept waste and closes.
Accruals for closure and post-closure monitoring and maintenance requirements in
the U.S. consider final capping of the site, site inspection, groundwater
monitoring, leachate management, methane gas control and recovery, and operation
and maintenance costs to be incurred during the period after the facility
closes. Certain of these environmental costs, principally capping and methane
gas control costs, are also incurred during the operating life of the site in
accordance with the landfill operation requirements of Subtitle D and the air
emissions standards. Reviews of the future cost requirements for closure and
post-closure monitoring and maintenance for the Company's operating landfills by
the Company's engineers, accounting personnel and consultants are performed at
least annually and are the basis upon which the Company's estimates of these
future costs and the related accrual rates are revised. The Company provides
accruals for these estimated costs as the remaining permitted airspace of such
facilities is consumed.
The states in which the Company operates require a certain portion of these
accrued closure and post-closure obligations to be funded at any point in time.
Accordingly, the Company has placed $3,720 and $2,498 at April 30, 2000 and 2001
respectively, in restricted investment accounts to fund these future
obligations.
In addition, the Company has been required to post a surety bond or bank letter
of credit to secure its obligations to close its landfills in accordance with
environmental regulations.
(l) Intangible Assets
Intangible assets at April 30, 2000 and 2001 consist of the following:
April 30,
---------
2000 2001
---- ----
Goodwill $267,582 $241,181
Covenants not to compete 14,291 14,206
Customer lists 562 562
Deferred debt acquisition costs and other 8,359 8,040
-------- --------
290,794 263,989
Less--accumulated amortization 18,503 26,416
-------- --------
$272,291 $237,573
======== ========
Goodwill is the cost in excess of fair value of identifiable assets of acquired
businesses and is amortized using the straight-line method over periods not
exceeding 40 years. Covenants not to compete and customer lists are amortized
using the straight-line method over their estimated useful lives, typically no
more than 10 years. Deferred debt acquisition costs are capitalized and
amortized over the life of the related debt using the effective interest method.
In accordance with SFAS No. 121,"Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", the Company continually
reviews for impairment whenever events or changes in circumstances indicate that
the remaining estimated useful life of goodwill or other intangible assets might
warrant revision or that the balance may not be recoverable. The Company
evaluates possible impairment by comparing estimated future cash flows, before
interest expense and on an undiscounted basis, with the net book value of
long-term assets including goodwill and other intangible assets. If undiscounted
cash flows are insufficient to recover assets, further analysis is performed in
order to determine the amount of the impairment. An impairment loss is then
recorded equal to the amount by which the carrying amount of the assets exceeds
their fair market value. Fair market value is usually determined based on the
present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved. In instances where goodwill is identified
with assets that are subject to an impairment loss, the carrying amount of the
identified goodwill is reduced before making any reduction to the carrying
amounts of other long-lived assets.
As a result of the factors discussed in Note 6, during 2001, the Company
recorded a charge of $59,619 to reduce certain assets (mainly goodwill arising
from the acquisition of KTI, see Note 2), to their estimated fair value. There
were no such impairments in 1999 and 2000.
(m) Income Taxes
The Company records income taxes in accordance with SFAS No. 109, "Accounting
for Income Taxes." Under SFAS No. 109, deferred income taxes are recognized
based on the expected future tax consequences of differences between the
financial statement basis and the tax basis of assets and liabilities,
calculated using currently enacted tax rates.
(n) Earnings per Share
Basic earnings per share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted earnings
per share is based on the combined weighted average number of common shares and
common share equivalents outstanding which include, where appropriate, the
assumed exercise of employee stock options and the conversion of convertible
debt and convertible preferred stock. In computing diluted earnings per share,
the Company utilizes the treasury stock method with regard to employee stock
options and the "if converted" method with regard to its convertible debt and
preferred stock.
The following is a reconciliation of the ending number of shares outstanding
with the number of shares used in the calculation of basic and diluted earnings
per share:
Year Ended April 30,
--------------------
1999 2000 2001
----------------------------
Number of Shares Outstanding, End of Period:
Class A Common Stock 14,869 22,215 22,198
Class B Common Stock 988 988 988
Effect of Weighting the Average Shares
Outstanding During the Period (712) (4,472) 3
-------- -------- --------
Basic Shares Outstanding 15,145 18,731 23,189
Potentially Dilutive Shares 874 541 -
-------- -------- --------
Diluted Shares Outstanding 16,019 19,272 23,189
======== ======== ========
The following is a reconciliation of the numerator used in the calculation of
earnings per share from income (loss) from continuing operations before
discontinued operations and extraordinary item for the year ended April 30,
2001:
Loss from continuing operations (82,241)
Accretion of preferred stock dividend (1,970)
--------
Adjusted Loss from Continuing Operations (84,211)
--------
For the years ended April 30, 1999, 2000 and 2001, 211,000, 2,033,000 and
3,526,000 options respectively, were excluded from the calculation of diluted
shares as their effects are anti-dilutive. Additionally, for the year ended
April 30, 2001, 5,389,000 common stock equivalents related to options,
convertible debt, and redeemable convertible preferred stock were excluded from
the calculation of diluted shares as the Company reported a net loss.
(o) Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in net assets of a business
enterprise during a period from transactions generated from non-owner sources.
It includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. Accumulated other
comprehensive income (loss) included in the accompanying balance sheets consists
of unrealized gains and losses on the Company's available for sale securities.
(p) New Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 amends SFAS 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 adopted SFAS No. 133 on May 1, 2001. The adoption of these
rules did not have a material impact on the consolidated results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" and No. 142,
"Goodwill and Other Intangible Assets". These standards, among other things,
significantly modify the current accounting rules related to accounting for
business acquisitions, amortization of intangible assets and the method of
accounting for impairments. The Company has not completed an analysis as to the
magnitude of the impact of these new pronouncements on the Company's financial
statements, nor has it been determined whether or not it will adopt these
pronouncements as of the beginning of its fiscal year 2002 or 2003. However, the
Company believes that the impact, when ultimately determined, could have a
significant adverse effect on the Company's carrying value of certain long-term
assets (mainly goodwill).
2. BUSINESS COMBINATIONS
(a) Transactions Recorded as Purchases
On December 14, 1999, the Company consummated its acquisition of KTI, a publicly
traded solid waste handling company. KTI specializes in solid waste disposal and
recycling, and operates manufacturing facilities utilizing recycled materials.
All of KTI's common stock was acquired in exchange for 7,152,157 shares of Class
A Common Stock.
In addition to the above, the Company also acquired 50, 38 and 13 solid waste
hauling operations in 1999, 2000 and 2001 in transactions accounted for as
purchases. Accordingly, the operating results of these businesses are included
in the accompanying consolidated statements of operations from the dates of
acquisition, and 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. Management does not believe the final purchase
price allocation will produce materially different results than reflected
herein.
The purchase prices allocated to those net assets acquired (including KTI) were
as follows:
Year Ended April 30,
--------------------
1999 2000 2001
--------------------------------------
Current Assets $ 613 $ 107,457 $ 644
Property and Equipment 10,768 220,830 2,671
Intangible Assets (including goodwill) 24,829 190,178 19,287
Other Non-Current Assets - 589 -
Current Liabilities - (41,647) (4)
Other Non-Current Liabilities (2,874) (281,709) -
---------- ---------- ----------
Total Consideration $ 33,336 $ 195,698 $ 22,598
========== ========== ==========
The following unaudited pro forma combined information shows the results of the
Company's operations for the years ended April 30, 2000 and 2001 as though each
of the completed acquisitions had occurred as of May 1, 1999:
Year ended April 30,
--------------------
2000 2001
---- ----
Revenues $ 562,642 $ 482,759
Operating Income (Loss) 53,912 (28,474)
Net Income (Loss) applicable to Common Stockholders 11,345 (103,446)
Diluted Pro forma net income(loss) per common share $ 0.51 $ (4.46)
Weighted average diluted shares outstanding 22,346 23,189
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.
(b) Transactions Recorded as Poolings of Interests
The Company has completed several mergers in business acquisitions accounted for
as poolings of interests. For the years ended April 30, 1999 and 2000 the
Company merged with four and two businesses, respectively, and issued 1,271,559
and 362,973 Class A common shares, respectively. There were no acquisitions
accounted for as poolings of interests in the year ended April 30, 2001.
3. INVESTMENT IN WASTE-TO-ENERGY FACILITIES
Effective March 1, 2001, the Company acquired the remaining 16.25% minority
interest in its majority owned subsidiary, Maine Energy, and sold all of its
majority interest in the Penobscot Energy Recovery Company LP. Net proceeds for
these transactions amounted to $12,000. Therefore, the Company now owns a 100%
interest in Maine Energy, which utilizes non-hazardous solid waste as the fuel
for the generation of electricity.
Maine Energy sells the electricity it produces to Central Maine Power ("Central
Maine") pursuant to a long-term power purchase agreement. Under this agreement,
Maine Energy has agreed to sell energy to Central Maine through May 31, 2007 at
an initial rate of 7.18 cents (determined in 1996) per kilowatt-hour ("kWh"),
which escalates annually by 2% (8.12 cents per kWh as of April 30, 2001). From
June 1, 2007 until December 31, 2012, Maine Energy is to be paid the then
current market value for both its energy and capacity by Central Maine.
If, in any year, Maine Energy fails to produce 100,000,000 kWh of electricity
and Maine Energy does not have a force majeure defense, such as physical damage
to the plant or other similar events, Maine Energy must pay approximately $3.8
million to Central Maine as liquidated damages. This payment obligation is
secured by a letter of credit with a bank. Additionally, if, in any year, Maine
Energy fails to produce 15,000,000 kWh of electricity and Maine Energy does not
have a force majeure defense, Maine Energy must pay the balance of the letter of
credit to Central Maine as liquidated damages. The balance of the letter of
credit at April 30, 2001 was approximately $26 million.
As of April 30, 2001, the Company has met all of its kWh requirements under the
power purchase agreement.
Under the terms of a waste handling agreement between certain municipalities and
Maine Energy, the latter is obligated to make a payment at the point in time
that Maine Energy pays off its debt (as defined) obligations, currently
estimated to occur between 2003 and 2005, or upon the consummation of an
outright sale of Maine Energy. The estimated obligation has been recorded in
other long-term liabilities as of April 30, 2001.
Additionally, the Company owns 100% of Timber Energy Resources, Inc. ("Timber
Energy"). Timber Energy uses biomass waste as its source of fuel to be combusted
for the generation of electricity. Timber Energy also operates two wood
processing facilities. Timber Energy sells the electricity that it generates to
Florida Power Corporation ("Florida Power"), a local electric utility, under a
power purchase agreement. Under the terms of the power purchase agreement,
Florida Power has agreed to purchase all of the electricity generated by Timber
Energy. In 2001, the Company decided to sell Timber Energy, is actively seeking
a buyer and accordingly has classified this entity as an asset held for sale on
the accompanying consolidated balance sheet, where it is stated at net
realizable value.
4. LONG-TERM DEBT
Long-term debt as of April 30, 2000 and 2001 consists of the following:
April 30,
---------
2000 2001
---------------------
Advances on Senior Secured Revolving Credit Facility
(the "Revolver") which provides for advances of up
to $280,000, due December 14, 2004, bearing interest
at LIBOR plus 2.75%, (7.50% at April 30, 2001), and
decreasing by $25,000 in years 3 and 4, secured
by substantially all of the assets of the Company. 228,890 208,415
Advances on Senior Secured Delayed Draw Term "B" Loan
(the "Term Loan") which provides for up to $137,500
due December 14, 2006, bearing interest at LIBOR
plus 4.0% (9.0% at April 30, 2001), and calling
for principal payments of $1,500 per year, beginning
in fiscal 2001 with the remaining principal balance
due at maturity. This loan is secured by
substantially all of the assets of the Company. 150,000 137,500
Notes payable in connection with businesses acquired,
bearing interest at rates of 6% to 10%, due in monthly
installments varying to $22, expiring May 2000
through April 2009. 6,275 4,329
Subordinated, Convertible Notes payable in connection
with business acquired, bearing interest at 7.5%,
due in monthly installments varying to $50, expiring
on March 15, 2003. Convertible to Class A common
stock of the Company, at the note holder's election,
at the rate of one share of common stock for each
$15.375 of the principal amount surrendered
for conversion. 6,144 4,110
Payments due to Clinton County, discounted at 4.74%, due
in quarterly installments of $375 through March 2003. 4,173 2,847
PERC Bonds Payable - Issued by the Finance Authority
of Maine ("FAME"), Electric Rate Stabilization Revenue
Refunding Bonds, Series 1998 A and Series B, subject
to mandatory redemption in annual installments of
varying amounts through July 1, 2018. Interest is
based on rates for certain tax-exempt obligations,
as determined weekly by the remarketing agent,
with a weighted average interest rate of 5.0% at
April 30, 2000. 40,900 -
Timber Energy Revenue Bonds Payable - Industrial
Development Revenue Bonds: Series A, Interest at 7%,
annual sinking fund requirements of $2,320, $2,665
and $4,620, due December 2000 through 2002. The Bond
Agreements require, among other things, maintenance
of various insurance coverages and restrict the
borrowers ability to incur additional indebtedness.
The bonds are collateralized by liens on Timber
Energy's electric generating facility located in
Telogia, Florida. At April 30, 2001, the Bonds have
been classified in assets held for sale. (See Note 3). 9,605 -
--------- ---------
445,987 357,201
Less - Current Portion 8,134 6,690
--------- ---------
$ 437,853 $ 350,511
========= =========
The Revolver and the Term Loan contain certain covenants that, among other
things, restrict dividends and stock repurchases, limit capital expenditures and
annual operating lease payments, and set minimum fixed charges, interest
coverage and leverage ratios and minimum consolidated adjusted net worth
requirements. For the fiscal period ended April 30, 2001, the Company's
compliance with the covenants has been waived.
The Company has entered into interest rate swap agreements to balance fixed and
floating rate debt interest risk in accordance with management's criteria. The
agreements are contracts to exchange fixed and floating interest rate payments
periodically over a specified term without the exchange of the underlying
notional amounts. The agreements provide only for the exchange of interest on
the notional amounts at the stated rates, with no multipliers or leverage.
Differences paid or received over the life of the agreements are recorded in the
consolidated financial statements as additions to or reductions of interest
expense on the underlying debt. The fair market value of the swaps is estimated
at a loss of $6,900 as of April 30, 2001.
As of April 30, 2001, interest rate agreements in notional amounts and with
terms as set forth in the following table were outstanding:
Bank Notional amounts Receive Pay Range of Agreements
---- ---------------- ------- --- -------------------
Bank A $130,000 LIBOR 5.43-6.74% January 2001 to March 2003
Bank B $120,000 LIBOR 5.19-6.875% April 2000 to April 2003
As of April 30, 2001, debt matures as follows:
Year Ending April 30,
2002 $ 6,690
2003 3,092
2004 1,549
2005 151,328
2006 202
Thereafter 194,340
---------
$ 357,201
=========
5. COMMITMENTS AND CONTINGENCIES
(a) Leases
The following is a schedule of future minimum lease payments, together with the
present value of the net minimum lease payments under capital leases, as of
April 30, 2001.
Operating Capital
Leases Leases
Year Ended April 30,
2002 $ 1,372 $ 1,988
2003 1,023 1,970
2004 550 1,219
2005 186 494
2006 95 494
Thereafter 42 535
-------- --------
Total minimum lease payments $ 3,268 6,700
========
Less - amount representing interest 678
--------
6,022
Current maturities of capital lease obligations 1,429
--------
Present value of long term capital lease obligations $ 4,593
========
The Company leases real estate, compactors and hauling vehicles under leases
that qualify for treatment as capital leases. The assets related to these leases
have been capitalized and are included in property and equipment at April 30,
2000 and 2001.
The Company leases operating facilities and equipment under operating leases
with monthly payments varying to $11.
Total rent expense under operating leases charged to operations was $1,362,
$1,979 and $2,649 for each of the three years ended April 30, 1999, 2000 and
2001, respectively.
(b) Legal Proceedings
In the normal course of its business and as a result of the extensive
governmental regulation of the waste industry, the Company may periodically
become subject to various judicial and administrative proceedings involving
Federal, state or local agencies. In these proceedings, an agency may seek to
impose fines on the Company or to revoke, or to deny renewal of, an operating
permit held by the Company. In addition, the Company may become party to various
claims and suits pending for alleged damages to persons and property, alleged
violation of certain laws and for alleged liabilities arising out of matters
occurring during the normal operation of the waste management business.
During the year ended April 30, 2001, the Company settled five of its
outstanding lawsuits and provided for settlement of four others. The amount
charged to income including associated legal fees was $4,209.
The Company is a defendant in certain other 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.
(c) Environmental Liability
The Company is subject to liability for any environmental damage, including
personal injury and property damage, that its solid waste, recycling and power
generation facilities may cause to neighboring property owners, particularly as
a result of the contamination of drinking water sources or soil, possibly
including damage resulting from conditions existing before the Company acquired
the facilities. The Company may also be subject to liability for similar claims
arising from off-site environmental contamination caused by pollutants or
hazardous substances if the Company or its predecessors arrange to transport,
treat or dispose of those materials. Any substantial liability incurred by the
Company arising from environmental damage could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company is not presently aware of any situations that it expects would have a
material adverse impact.
(d) Employment Contracts
The Company has entered into employment contracts with five of its senior
officers. The contracts, dated December 8, 1999, have a three-year term and a
two-year covenant not to compete from the date of termination. Total annual
commitments for salaries under these contracts are $1.2 million. In the event of
a change in control of the Company, or in the event of involuntary termination
without cause, the employment contracts provide for the payment of three years
of salary and bonuses. (See Note 6)
(e) Commodity Hedges
The Company is subject to commodity price fluctuations related to the portion of
its sales of recyclable commodities that are not under floor or flat pricing
arrangements. At April 30, 2001, the Company has entered into several contracts
for newsprint, cardboard and aluminum. The estimated fair market value of these
contracts at April 30, 2001 amounted to $1,829.
6. RESTRUCTURING
In April 2001, the Company's Board of Directors approved a reorganization of
certain of the Company's operations. This reorganization consisted of the
elimination of various positions and the closure of certain facilities. The
following items were charged to earnings during 2001:
Severance $3,786
Facility closures 365
------
$4,151
------
Severance relates to the termination of 19 employees, primarily in management
and administration, as well as three officers of the Company. Facility closures
include the costs of closing two transfer stations.
During the year ended April 30, 2001, none of the restructuring charge had been
spent, and the balance remaining in the accompanying balance sheet, included in
other current liabilities, amounted to $4,151.
7. DISCONTINUED OPERATIONS, ASSETS HELD FOR SALE AND EXTRAORDINARY ITEM
Discontinued Operations:
During the fourth quarter, the Company adopted a formal plan to dispose of its
Tire Processing, Commercial Recycling and Mulch Recycling businesses (herein
"discontinued businesses"). The Company has accounted for these planned
dispositions in accordance with APB Opinion No. 30, and accordingly the results
of operations of the discontinued businesses have been segregated from
continuing operations and reported in separate lines in the accompanying
consolidated statements of operations.
The Company is actively seeking a buyer for the Tire Processing and Commercial
Recycling businesses. The Mulch Recycling business was sold on June 30, 2001.
Assets and liabilities of the discontinued businesses consisted of the following
at April 30:
2000 2001
---- ----
Current Assets $ 5,830 $ 8,407
Non-Current Assets 32,788 18,949
------ ------
Total Assets 38,618 27,356
------ ------
Current Liabilities 8,430 9,690
Non-Current Liabilities 2,966 6,132
----- -----
Net Assets of Discontinued Operations $ 27,222 $ 11,534
======== ========
Assets are shown at their expected net realizable values and liabilities are
shown at their face amounts.
Net assets of discontinued operations are stated at their expected net
realizable values and have been separately classified in the accompanying
balance sheets at April 30, 2000 and 2001. The prior year financial statements
have been restated to conform with the current year's presentation.
A summary of the operating results of the discontinued operations is as follows:
1999 2000 2001
---- ---- ----
Revenues $ 4,982 $ 23,129 $ 48,607
Income (Loss) before
Income Taxes 460 3,355 (24,229)
Provision (Benefit) for Income Taxes 195 1,471 (8,781)
-------- -------- --------
Income (Loss) from Discontinued Operations,
net of Income Taxes $ 265 $ 1,884 $(15,448)
======== ======== ========
Additionally for the year ended April 30, 2001, the estimated loss on the
disposal of the discontinued segment of $3,846, net of income tax benefit of
$1,085, represents the estimated loss on the disposal of the assets of the
discontinued operations and includes costs to sell, estimated loss on sale and a
provision for losses during the phase-out period.
The Company has included approximately $0, $13,957 and $27,921 of intercompany
sales of recyclables from the commercial recycling business to the brokerage
business in loss on discontinued operations for the years ended April 30, 1999,
2000, and 2001, respectively.
Net Assets Held for Sale:
In addition, the Company has identified for sale certain other businesses, which
do not qualify as discontinued operations. These include its Timber Energy
business (see Note 3) and its one remaining plastics recycling facility.
Accordingly, the Company on April 30, 2001 has reclassified Timber Energy and
its plastics recycling business as assets held for sale on the accompanying
consolidated balance sheet. The plastics recycling business was sold May 17,
2001.
On April 30, 2000, the Company had reclassified its emergency hazardous response
business and its plastics recycling business as assets held for sale on the
accompanying consolidated balance sheet.
Consolidated net assets held for sale primarily consisted of cash, accounts
receivable, inventories, property, plant and equipment, trade payables and bonds
payable. Assets and liabilities of the assets held for sale consisted of the
following at April 30:
2000 2001
--------- ---------
Current Assets $ 2,874 $ 4,361
Non-Current Assets 2,332 12,508
----- ------
Total Assets 5,206 16,869
----- ------
Current Liabilities 1,273 4,165
Non-Current Liabilities 158 4,663
--------- -----
Net Assets Held for Sale $ 3,775 $ 8,041
========= =========
Extraordinary Item:
During 2000, the Company paid off its existing revolving credit facility with a
bank and incurred an extraordinary loss of $631 (net of tax benefit of $448),
resulting from the write-off of related debt acquisition costs.
8. STOCKHOLDERS' EQUITY
(a) Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of preferred stock in
one or more series. As of April 30, 2001, the Company had 55,750 shares
outstanding of Series A Redeemable Convertible Preferred Stock issued at $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 cumulative 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.
As of April 30, 2001 the Company has accreted $1,970 of dividends, which are
included in the carrying value of the preferred stock in the accompanying
consolidated balance sheet.
(b) Common Stock
The holders of the Class A Common Stock are entitled to one vote for each share
held. The holders of the Class B Common Stock are entitled to ten votes for each
share held, except for the election of one director, who is elected by the
holders of the Class A Common Stock exclusively. The Class B Common Stock is
convertible into Class A Common Stock on a share-for-share basis at the option
of the shareholder.
(c) Stock Warrants
At April 30, 2001, the Company had outstanding warrants to purchase 250,880
shares of the Company's Class A Common Stock at exercise prices between $0.01
and $43.63 per share, based on the fair market value of the underlying common
stock at the time of the warrants' issuance. The warrants are exercisable and
expire at varying times through November 2008.
(d) Stock Option Plans
During 1993, the Company adopted an incentive stock option plan for officers and
other key employees. The 1993 Incentive Stock Option Plan (the "1993 Option
Plan") provided for the issuance of a maximum of 300,000 shares of Class A
Common Stock. As of April 30, 2000 and 2001, options to purchase 17,000 shares
of Class A Common Stock at a weighted average exercise price of $4.61 were
outstanding under the 1993 Option Plan. No further options may be granted under
this plan.
During 1994, the Company adopted a non-statutory stock option plan for officers
and other key employees. The 1994 Stock Option Plan (the "1994 Option Plan")
provided for the issuance of a maximum of 150,000 shares of Class A Common
Stock. As of April 30, 2000 and 2001 options to purchase 15,000 shares of Class
A common stock at a weighted average exercise price of $0.60 were outstanding
under the 1994 Option Plan. No further options may be granted under this plan.
In May 1994, the Company also established a nonqualified stock option pool for
certain key employees. The plan established 338,000 stock options to purchase
Class A common stock. As of April 30, 2000 and 2001 options to purchase 302,656
shares of Class A common stock at a weighted average exercise price of $2.00
were outstanding. No further options may be granted from this pool.
During 1996, the Company adopted a stock option plan for employees, officers and
directors of, and consultants and advisors to the Company. The 1996 Stock Option
Plan (the "1996 Option Plan") provided for the issuance of a maximum of 918,135
shares of Class A Common Stock pursuant to the grant of either incentive stock
options or non-statutory options. As of April 30, 2000, a total of 372,707
options to purchase Class A Common Stock were outstanding at a weighted average
exercise price of $12.08. As of April 30, 2001, a total of 363,707 options to
purchase Class A common Stock were outstanding at an average exercise price of
$11.98. No further options may be granted under this plan.
On July 31, 1997, the Company adopted a stock option plan for employees,
officers and directors of, and consultants and advisors to the Company. The
Board of Directors has the authority to select the optionees and determine the
terms of the options granted. The 1997 Stock Option Plan (the "1997 Option
Plan") provides for the issuance of 5,328,135 shares of Class A Common Stock
pursuant to the grant of either incentive stock options or non-statutory
options, which includes all authorized, but un-issued options under previous
plans. As of April 30, 2000, options to purchase 2,259,965 shares of Class A
Common Stock at an average exercise price of $20.86 were outstanding under the
1997 Option Plan. As of April 30, 2001, options to purchase 4,066,020 shares of
Class A Common Stock at a weighted average exercise price of $11.41 were
outstanding under the 1997 Option Plan. As of April 30, 2001, 1,252,075 options
were available for future grant under the 1997 Option Plan.
Additionally, options outstanding under the assumed KTI Stock Option Plan
totaled 930,412 and 588,769 at April 30, 2000 and 2001, respectively at weighted
average exercise prices of $26.59 and $26.31, respectively.
On July 31, 1997, the Company adopted a stock option plan for non-employee
directors of the Company. The 1997 Non-Employee Director Stock Option Plan
provides for the issuance of a maximum of 100,000 shares of Class A Common Stock
pursuant to the grant of non-statutory options. As of April 30, 2000 and 2001,
options to purchase 19,000 shares of Class A Common Stock at a weighted average
exercise price of $6.58 and 56,500 shares of Class A Common Stock at a weighted
average exercise price of $16.00, respectively, were outstanding under the 1997
Non-Employee Director Stock Option Plan. As of April 30, 2001, 43,500 options
were available for future grant under the 1997 Non-Employee Director Stock
Option Plan.
On July 2, 2001, the Company offered its employees, other than executive
officers, the opportunity to ask the Company to exchange options having an
exercise price of $12.00 or more per share. For every two eligible options
surrendered, the Company will grant one new option six months and one day after
the expiration of the offer (July 31, 2001), at an exercise price equal to the
closing price of a Class A Common Stock as quoted by Nasdaq on the date of the
grant. The Company filed a Schedule TO with the SEC on July 2, 2001 describing
such offer to exchange.
Options generally vest over a one to three year period from the date of grant
and are granted at prices at least equal to the prevailing fair market value at
the issue date.
Stock option activity for each of the three years ended April 30, 1999, 2000 and
2001 is as follows:
Weighted
Number Average
Of Shares Exercise Price
-------------- --------------
Outstanding, April 30, 1998 1,595,302 $ 8.75
Granted 870,000 27.68
Terminated (9,033) (11.17)
Exercised (486,710) (6.43)
-------------- --------------
Outstanding, April 30, 1999 1,969,559 17.65
Granted 1,402,000 16.27
Issued in Connection with the Acquisition of KTI 930,417 26.59
Terminated (216,335) (20.56)
Exercised (168,901) (2.05)
-------------- --------------
Outstanding, April 30, 2000 3,916,740 19.78
Granted 1,929,060 9.26
Terminated (433,148) (24.62)
Exercised (3,000) (8.69)
-------------- --------------
Outstanding, April 30, 2001 5,409,652 $ 15.65
============== ==============
Exercisable, April 30, 2000 2,321,432 $ 18.35
============== ==============
Exercisable, April 30, 2001 4,071,188 $ 16.44
============== ==============
Set forth below is a summary of options outstanding and exercisable as of
April 30, 2001:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Number of Remaining Average Number of Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Shares Life (Years) Price Options Price
-------- ------ ------------ ----- ------- -----
$.60-$2.00 317,656 3.1 $ 1.93 317,656 $ 1.93
$4.61-$8.78 1,747,502 7.4 8.51 1,073,495 8.34
$10.00-18.00 1,729,810 5.4 14.74 1,270,942 15.05
$18.00-27.00 1,069,290 7.5 24.58 977,185 25.08
Over $27.00 545,394 8.6 32.20 431,910 31.81
----------- ---------- ---- ------ --------- --------
ALL 5,409,652 6.9 $15.65 4,071,188 $ 16.44
=== ========== ==== ====== ========= ========
During fiscal 1996, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which defines a fair value based method of accounting for
stock-based employee compensation and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation costs for
those plans using the intrinsic method of accounting prescribed by APB Opinion
No. 25. Entities electing to remain with the accounting in APB Opinion No. 25
must make pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plans under
APB Opinion No. 25. However, the Company has computed, for pro forma disclosure
purposes, the value of all options granted during the years ended April 30,
1999, 2000 and 2001 using the Black-Scholes option pricing model as prescribed
by SFAS No. 123, using the following weighted average assumptions for grants in
the years ended April 30, 1999, 2000 and 2001.
April 30,
----------
1999 2000 2001
---- ---- ----
Risk-free interest rate 4.6%-5.68% 5.81%-6.69% 4.85%-6.76%
Expected dividend yield N/A N/A N/A
Expected life 5 Years 5 years 7 years
Expected volatility 52.40% 67.37% 84.20%
The total value of options granted during the years ended April 30, 1999, 2000
and 2001 would be amortized on a pro forma basis over the vesting period of the
options. Options generally vest over a one to three year period. If the Company
had accounted for these plans in accordance with SFAS No. 123, the Company's net
income (loss) and net income (loss) per share would have changed as reflected in
the following pro forma amounts:
April 30,
----------
1999 2000 2001
---------- ---------- ----------
Net income (loss) Applicable to Common
Stockholders
As reported $ 6,615 $ 11,050 $ (103,505)
Pro forma $ 2,534 $ 4,379 $ (116,594)
Diluted Net income (loss) per share of
Common stock
As reported $ 0.41 $ 0.57 $ (4.46)
Pro forma $ 0.16 $ 0.23 $ (5.03)
The weighted-average grant-date fair value of options granted during the years
ended April 30, 1999, 2000 and 2001 is $6.43, $3.30 and $7.28, respectively.
9. INCOME TAXES
The provision (benefit) for income taxes from continuing operations for the
years ended April 30, 1999, 2000 and 2001 consists of the following:
April 30,
----------
1999 2000 2001
---------- ---------- ----------
Federal--
Current $ 4,814 $ 4,912 $ (1,036)
Deferred 1,420 3,079 (2,935)
Deferred Benefit of Loss
Carryforwards - - (5,721)
---------- ---------- ----------
6,234 7,991 (9,692)
---------- ---------- ----------
State--
Current 828 1,791 (829)
Deferred 253 833 (1,068)
Deferred Benefit of Loss
Carryforwards - - (1,142)
---------- ---------- ----------
1,081 2,624 (3,039)
---------- ---------- ----------
Total $ 7,315 $ 10,615 $ (12,731)
========== ========== ==========
The differences in the provision for income taxes and the amounts determined by
applying the Federal statutory rate to income before provision for income taxes
for the years ended April 30, 1999, 2000 and 2001 are as follows:
Fiscal Year Ended April 30,
1999 2000 2001
---------- ---------- ----------
Federal Statutory Rate 34% 35% 35%
Tax at Statutory Rate $ 4,646 $ 7,632 $ (32,978)
State Income Taxes, net of
Federal Benefit 714 1,706 (1,975)
Non-deductible Impairment
Charge - - 12,825
Non-deductible Goodwill 201 205 1,155
Equity in Loss of Unconsolidated Entities - 295 6,390
Other, net 1,754 777 1,852
---------- ---------- ----------
$ 7,315 $ 10,615 $ (12,731)
========== ========== ==========
Deferred income taxes reflect the impact of temporary differences between the
amounts of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for income tax purposes.
Deferred tax assets and liabilities consist of the following at April 30, 2000
and 2001:
2000 2001
---------- ----------
Deferred Tax Assets:
Accrued Expenses and reserves $ 13,463 $ 16,293
Basis difference in partnership interests 14,091 428
Amortization of intangibles - 13,562
Net Operating Loss Carryforwards 30,794 35,931
Alternative Minimum Tax Credit Carryforwards 1,795 1,442
Other Tax Carryforwards 530 235
Other 932 875
---------- ----------
Total Deferred Tax Assets 61,605 68,766
Less: Valuation Allowance (24,778) (24,134)
---------- ----------
Total Deferred Tax Assets After Valuation Allowance 36,827 44,632
---------- ----------
Deferred Tax Liabilities:
Accelerated Depreciation of Property and Equipment (49,546) (28,980)
Amortization of Intangibles (3,407) -
Other (2,092) (2,378)
---------- ----------
Total Deferred Tax Liabilities (55,045) (31,358)
---------- ----------
Net Deferred Tax Asset (Liability) $ (18,218) $ 13,274
========== ==========
At April 30, 2001, the Company has for income tax purposes Federal net operating
loss carryforwards of approximately $80,033 that expire in years 2005 through
2021, state net operating loss carryforwards of approximately $107,811 that
expire in years 2002 through 2021, and business tax credit carryforwards of
approximately $235 that expire in years 2002 through 2004. Substantial
limitations restrict the Company's ability to utilize certain Federal and state
loss carryforwards and all the business tax credit carryforwards. Due to
uncertainty of the utilization of the carryforwards, no tax benefit has been
recognized for approximately $47,404 of the Federal net operating loss
carryforwards, $94,362 state net operating loss carryforwards and all of the
business tax credit carryforwards. In addition, the Company has approximately
$1,442 minimum tax credit carryforward available that is not subject to
limitation.
The $644 decrease in the valuation allowance is due to the expiration of certain
state loss carryforwards offset by additional valuation allowance for current
year state tax losses for which utilization is uncertain. The valuation
allowance includes $21,773 related to loss carryforwards acquired through
acquisitions. To the extent that future realization of such carryforwards
exceeds the Company's current estimates, additional benefits received will be
recorded as a reduction of goodwill. In assessing the realizability of
carryforwards and other deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The Company adjusts the valuation allowance in the period
management determines it is more likely than not that deferred tax assets will
or will not be realized.
10. EMPLOYEE BENEFIT PLANS
The Company offers its eligible employees the opportunity to contribute to a
401(k) plan. The Company may contribute up to $500 dollars per individual per
calendar year. Participants vest in employer contributions ratably over a
three-year period. Employer contributions for the years ended April 30, 1999,
2000 and 2001 amounted to $275, $387 and $434, respectively.
In January 1998, the Company implemented its Employee Stock Purchase Plan. Under
this plan, qualified employees may purchase shares of Class A Common Stock by
payroll deduction at a 15% discount from the market price. 600,000 shares of
Class A Common Stock have been reserved for this purpose. During the years ended
April 30, 1999, 2000 and 2001, 5,812, 6,616 and 29,287 shares, respectively, of
Class A Common Stock were issued under this plan.
11. RELATED PARTY TRANSACTIONS
(a) Services
During 1999, 2000 and 2001, the Company retained the services of a related
party, a company wholly owned by two of the Company's major stockholders and
members of the Board of Directors, as a contractor in closing certain landfills
owned by the Company. Total purchased services charged to operations for each of
the three years ended April 30, 1999, 2000 and 2001 were $5,198, $5,338 and
$3,780, respectively, of which $450 and $23 were outstanding and included in
accounts payable at April 30, 2000 and 2001, respectively. In 2000, the Company
entered into an agreement with this company, totaling approximately $4,500 to
construct a new cell at Clinton County Landfill. No agreements were entered into
during the year ended April 30, 2001.
(b) Leases
On August 1, 1993, the Company entered into two leases for operating facilities
with a partnership in which two of the Company's major stockholders and members
of the Board of Directors are the general partners. The leases are classified as
capital leases in the accompanying consolidated balance sheets. The leases call
for monthly payments of approximately $18 and expire in April 2003. Total
interest and amortization expense charged to operations for the years ended
April 30, 1999, 2000 and 2001 under these agreements was $237, $179 and $236,
respectively.
(c) Post-closure Landfill
The Company has agreed to pay the cost of post-closure on a landfill owned by
certain principal shareholders. The Company paid the cost of closing this
landfill in 1992, and the post-closure maintenance obligations are expected to
last until 2012. In each of the three years ended April 30, 1999, 2000 and 2001,
the Company paid $3, $5 and $7 respectively, pursuant to this agreement. As of
April 30, 2000 and 2001, the Company has accrued $96 and $89 respectively, for
costs associated with its post-closure obligations.
(d) Employee Loans
As of April 30, 2001, the Company has recourse loans to officers and employees
outstanding in the amount of $1,953. The interest on these notes is payable upon
demand by the company. The notes have no fixed repayment terms. Interest is at
the Wall Street Journal Prime Rate (8% at April 30, 2001). Notes from officers
consisted of $1,866 at April 30, 2001, with the remainder being from employees
of the Company.
12. 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 and Western and FCR
Recycling. The Company's revenues in the Eastern, Central and Western segments
are derived mainly from one industry segment, which includes the collection,
transfer, recycling and disposal of non-hazardous solid waste. The Eastern
Region also includes Maine Energy, which generates electricity from
non-hazardous solid waste. The Company's revenues in the FCR Recycling segment
are derived from integrated waste handling services, including processing and
recycling of wood, paper, metals, plastics and glass and disposal and brokerage
of recycled materials. Ancillary operations, mainly biofuel plants and major
customer accounts are included in Other. The accounting policies of the business
segments are the same as those described in Note 1.
Eastern Central Western
Region Region Region Recycling Other
------------ ------------ ------------ ------------ ------------
Year Ended April 30, 1999
Outside Revenues $ 36,025 $ 84,987 $ 57,566 $ - $ 686
Inter-segment Revenues 2,166 28,398 6,710 - -
Income (Loss) from Continuing
Operations (1,024) 7,971 2,778 - (3,375)
Depreciation &
Amortization 5,336 12,334 6,357 - 1,307
Merger-Related Costs - 332 546 - 1,073
Interest Expense (Net) 1,917 3,633 3,723 - (3,709)
Capital Expenditures 17,107 15,153 19,079 - 2,779
Total Assets $ 49,703 $ 113,978 $ 99,633 $ - $ 17,910
Year Ended April 30, 2000
Outside Revenues $ 84,353 $ 97,807 $ 60,671 $ 46,034 $ 26,148
Inter-segment Revenues 13,999 32,657 12,776 9,242 4,978
Income (Loss) from Continuing
Operations 1,259 14,793 5,227 3,190 (13,279)
Depreciation &
Amortization 11,692 13,992 7,847 1,228 3,584
Merger-Related Costs 1,101 - 389 - -
Interest Expense (Net) 4,315 3,491 3,116 1,569 3,182
Capital Expenditures 18,092 15,806 17,422 9,169 8,086
Total Assets $ 377,724 $ 127,749 $ 112,237 $ 91,870 $ 150,890
Year Ended April 30, 2001
Outside Revenues $ 158,754 $ 99,305 $ 66,473 $ 108,903 $ 46,381
Inter-segment Revenues 38,267 40,498 14,995 18,463 1,273
Income (Loss) from Continuing
Operations (3,876) 3,706 4,152 (49,780) (36,443)
Depreciation &
Amortization 20,349 14,330 9,855 3,955 4,394
Impairment Charge 1,948 7,765 49 49,857 -
Interest Expense (Net) 10,346 3,564 4,321 6,923 13,493
Capital Expenditures 25,843 20,545 16,445 7,750 (9,065)
Total Assets $ 283,967 $ 126,617 $ 112,882 $ 80,984 $ 81,843
Elimination Total
------------ ------------
Year Ended April 30, 1999
Outside Revenues $ - $ 179,264
Inter-segment Revenues (37,274) -
Income (Loss) from Continuing
Operations - 6,350
Depreciation &
Amortization - 25,334
Merger-Related Costs - 1,951
Interest Expense (Net) - 5,564
Capital Expenditures - 54,118
Total Assets $ - $ 281,224
Year Ended April 30, 2000
Outside Revenues $ - $ 315,013
Inter-segment Revenues (73,652) -
Income (Loss) from Continuing
Operations - 11,190
Depreciation &
Amortization - 38,343
Merger-Related Costs - 1,490
Interest Expense (Net) - 15,673
Capital Expenditures - 68,575
Total Assets $ - $ 860,470
Year Ended April 30, 2001
Outside Revenues $ - $ 479,816
Inter-segment Revenues (113,496) -
Income (Loss) from Continuing
Operations - (82,241)
Depreciation & -
Amortization - 52,883
Impairment Charge 59,619
Interest Expense (Net) - 38,647
Capital Expenditures - 61,518
Total Assets $ - $ 686,293
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of certain items in the Consolidated Statements of
Operations by quarter for 2001 and 2000.
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2001
Revenues $141,080 $126,448 $112,705 $ 99,583
Operating Income (Loss) 14,056 14,135 10,788 (67,944)
Income (Loss) Before Income Taxes
and Discontinued Operations 3,630 3,101 (13,419) (88,284)
Net Income (Loss) Applicable
To Common Stockholders 3,319 364 (13,620) (93,568)
Basic Earnings per Share 0.14 0.02 (0.58) (4.04)
Diluted Earnings per Share 0.14 0.01 (0.58) (4.04)
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000
Revenues $ 53,725 $ 54,684 $ 86,704 $119,900
Operating Income 7,149 9,645 9,748 13,140
Income Before Income Taxes
Discontinued Operations
and Extraordinary Item 5,603 8,485 4,742 2,975
Net Income 3,041 4,872 755 2,382
Basic Earnings per Share 0.19 0.30 0.04 0.10
Diluted Earnings per Share 0.18 0.30 0.04 0.10
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Items 10, 11, 12 and 13 of Part III (except for information required with
respect to executive officers of the Company which is set forth under "Executive
Officers and Other Key Employees of the Company" in Item 1 of Part I of this
report) have been omitted from this report, since the Company expects to file
with the Securities and Exchange Commission, not later than 120 days after the
close of its fiscal year, a definitive proxy statement. The information required
by Items 10, 11, 12 and 13 of this report, which will appear in the definitive
proxy statement, is incorporated by reference into Part III of this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Item 14(a)(1) Consolidated Financial Statements included under Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets as of April 30, 2000 and 2001
Consolidated Statements of Operations for the Years Ended April 30, 1999,
2000 and 2001.
Consolidated Statements of Redeemable Convertible Preferred Stock, and
Stockholders' Equity for the Years Ended April 30, 1999, 2000 and 2001.
Consolidated Statements of Cash Flows for the Years Ended April 30, 1999,
2000 and 2001.
Notes to Consolidated Financial Statements
Item 14(a)(2) Schedule II - Valuation and Qualifying Accounts
Item 14(a)(3) Exhibits:
The following Exhibits are filed as part of this report under Item 14(c):
Exhibit
No. Description
--- -----------
2.1(1) Agreement and Plan of Merger dated as of January 12, 1999 and as
amended by Amendments No. 1, 2 and 3 thereto, among Casella Waste
Systems, Inc. ("Casella"), KTI, Inc. ("KTI") and Rutland
Acquisition Sub, Inc. (incorporated herein by reference to Annex
A to the registration statement on Form S-4 as filed November 12,
1999 (file no. 19991112)).
3.1 Amended and Restated Certificate of Incorporation of Casella
(incorporated herein by reference to Exhibit 4.1 to the
registration statement on Form S-8 of Casella as filed November
18, 1998).
3.3 Second Amended and Restated By-Laws of Casella (incorporated
herein by reference to Exhibit 3.1 to the current report on Form
8-K of Casella as filed August 18, 2000 (file no. 000-23211)).
4.1 Form of stock certificate of Casella Class A common stock
(incorporated herein by reference to Exhibit 4 to Amendment No. 2
to the registration statement on Form S-1 of Casella as filed
October 9, 1997 (file no. 333-33135)).
4.2 Certificate of Designation creating Series A Convertible
Preferred Stock (incorporated herein by reference to Exhibit 4.1
to the current report on Form 8-K of Casella as filed August 18,
2000 (file no. 000-23211)).
10.1 1993 Incentive Stock Option Plan (incorporated herein by
reference to Exhibit 10.1 to the registration statement on Form
S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.2 1994 Nonstatutory Stock Option Plan (incorporated herein by
reference to Exhibit 10.2 to the registration statement on Form
S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.3 1996 Stock Option Plan (incorporated herein by reference to
Exhibit 10.3 to the registration statement on Form S-1 of Casella
as filed August 7, 1997 (file no. 333-33135)).
10.4 1997 Non-Employee Director Stock Option Plan (incorporated herein
by reference to Exhibit 10.5 to Amendment No. 1 to the
registration statement on Form S-1 of Casella as filed September
24, 1997 (file no. 333-33135)).
10.5 Amended and Restated 1997 Stock Incentive Plan (incorporated
herein by reference to the Definitive Proxy Statement on Schedule
14A of Casella as filed September 21, 1998).
10.6 Registration Rights Agreement between Casella and Susan Olivieri
and Robert MacNeil, dated January 3, 1996 (incorporated herein by
reference to Exhibit 10.6 to Amendment No. 1 to the registration
statement on Form S-1 of Casella as filed September 24, 1997
(file no. 333-33135)).
10.7 1995 Stockholders Agreement between Casella and the stockholders
who are a party thereto, dated as of December 22, 1995
(incorporated herein by reference to Exhibit 10.7 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.8 1995 Registration Rights Agreement between Casella and the
stockholders who are a party thereto, dated as of December 22,
1995 (incorporated herein by reference to Exhibit 10.8 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.9 1995 Repurchase Agreement between Casella and the stockholders
who are a party thereto, dated as of December 22, 1995
(incorporated herein by reference to Exhibit 10.9 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.10 Management Services Agreement between Casella, BCI Growth III,
L.P., North Atlantic Venture Fund, L.P., and Vermont Venture
Capital Fund, L.P., dated as of December 22, 1995 (incorporated
herein by reference to Exhibit 10.10 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file
no. 333-33135)).
10.11 Warrant to Purchase Common Stock of Casella granted to John W.
Casella, dated as of July 26, 1993 (incorporated herein by
reference to Exhibit 10.11 to Amendment No. 1 to the registration
statement on Form S-1 of Casella as filed September 24, 1997
(file no. 333-33135)).
10.12 Warrant to Purchase Common Stock of Casella granted to Douglas R.
Casella, dated as of July 26, 1993 (incorporated herein by
reference to Exhibit 10.12 to Amendment No. 1 to the registration
statement on Form S-1 of Casella as filed September 24, 1997
(file no. 333-33135)).
10.13 Asset Purchase Agreement by and among Kenneth H. Mead, Kerkim,
Inc. and Casella Waste Management of N.Y., dated as of January
17, 1997 (incorporated herein by reference to Exhibit 10.13 to
the registration statement on Form S-1 of Casella as filed August
7, 1997 (file no. 333-33135)).
10.14 Reorganization Agreement by and among Kenneth H. Mead, Superior
Disposal Services, Inc., Kensue, Inc., S.D.S. at PA, Inc. and
Claws Refuse, Inc., dated as of January 17, 1997 (incorporated
herein by reference to Exhibit 10.14 to the registration
statement on Form S-1 of Casella as filed August 7, 1997 (file
no. 333-33135)).
10.15 Termination of Lease Agreement by and between Casella Associates
and Casella Waste Management, Inc. dated September 25, 1996
(incorporated herein by reference to Exhibit 10.15 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.16 Amended and Restated Revolving Credit and Term Loan Agreement
between the Registrant and BankBoston, dated as of January 12,
1998 (incorporated herein by reference to Exhibit 10.13 to the
registration statement on Form S-1 of Casella as filed June 3,
1998 (file no. 333-55879)).
10.17 Lease Agreement, as Amended, between Casella Associates and
Casella Waste Management, Inc., dated December 9, 1994 (Rutland
lease) (incorporated herein by reference to Exhibit 10.17 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.18 Lease Agreement, as Amended, between Casella Associates and
Casella Waste Management, Inc., dated December 9, 1994
(Montpelier lease) (incorporated herein by reference to Exhibit
10.18 to the registration statement on Form S-1 of Casella as
filed August 7, 1997 (file no. 333-33135)).
10.19 Furniture and Fixtures Lease Renewal Agreement between Casella
Associates and Casella Waste Management, Inc., dated May 1, 1994
(incorporated herein by reference to Exhibit 10.19 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.20 Lease, Operations and Maintenance Agreement between CV Landfill,
Inc. and the Registrant dated June 30, 1994 (incorporated herein
by reference to Exhibit 10.20 to the registration statement on
Form S-1 of Casella as filed August 7, 1997 (file no.
333-33135)).
10.21 Restated Operation and Management Agreement by and between
Clinton County (N.Y.) and the Registrant dated September 9, 1996
(incorporated herein by reference to Exhibit 10.21 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.22 Labor Utilization Agreement by and between Clinton County (N.Y.)
and the Registrant dated August 7, 1996 (incorporated herein by
reference to Exhibit 10.22 to the registration statement on Form
S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.23 Lease and Option Agreement by and between Waste U.S.A., Inc. and
New England Waste Services of Vermont, Inc., dated December 14,
1995 (incorporated herein by reference to Exhibit 10.23 to the
registration statement on Form S-1 of Casella as filed August 7,
1997 (file no. 333-33135)).
10.24 Consulting and Non-Competition Agreement between Casella and
Kenneth H. Mead, dated January 23, 1997 (incorporated herein by
reference to Exhibit 10.24 to the registration statement on Form
S-1 of Casella as filed August 7, 1997 (file no. 333-33135)).
10.25 Issuance of Shares by Casella to National Waste Industries, Inc.,
dated October 19, 1994 (incorporated herein by reference to
Exhibit 10.25 to the registration statement on Form S-1 of
Casella as filed August 7, 1997 (file no. 333-33135)).
10.26 Registration Rights Agreement by and among Casella, Joseph M.
Winters, Andrew B. Winters, Brigid Winters, Sean Winters and
Maureen Winters (the "All Cycle Stockholders"), dated as of
December 19, 1997. (incorporated herein by reference Exhibit
10.23 to the registration statement filed on Form S-1 of Casella
as filed June 3, 1998 (file no. 333-55879)).
10.27 Amendment No. 1 to Registration Rights Agreement by and among the
Registrant, the All Cycle Stockholders, Winters Family
Partnership and Goldman, Sachs & Co., dated as of June 3, 1998.
(incorporated herein by reference to Exhibit 10.24 to the
registration statement on Form S-1 of Casella as filed June 3,
1998 (file no. 333-55879)).
10.28 Amendment No. 2 to Lease Agreement, by and between Casella
Associates and Casella Waste Management, Inc., dated as of
November 20, 1997 (Rutland lease). (incorporated herein by
reference to Exhibit 10.25 to the registration statement on Form
S-1 of Casella as filed on June 25, 1998 (file no. 333-57745)).
10.29 Amendment No. 1 to Stock Option Agreement (incorporated herein by
reference to the Current Report on Form 8-K of Casella as filed
May 13, 1999).
10.30 Agreement between Penobscot Energy Recovery Company and Bangor
Hydro-Electric Company dated June 21, 1984, as amended
(incorporated herein by reference to Exhibit 10.2 to the
registration statement on Form S-4 of KTI as filed October 18,
1994 (file no. 33-85234)).
10.31 Agreement between Timber Energy Resources, Inc. and Florida Power
Corporation dated December 31, 1984. (Incorporated herein by
reference to exhibit 10.31 to the registration statement on Form
S-4 as filed November 12, 1999 (file no. 19991112)).
10.32 Steam Agreement between Multitrade Group, Inc. and Tultex
Corporation dated August 11, 1987, as amended. (incorporated
herein by reference to Exhibit 10.32 to the registration
statement on Form S-4 as filed November 12, 1999 (file no.
19991112)).
10.33 Form of Penobscot Energy Recovery Company Waste Disposal
Agreement (City of Bangor) dated April 1, 1991 and Schedule of
Substantially Identical Waste Disposal Agreements (incorporated
herein by reference to Exhibit 10.3 to the registration statement
on Form S-4 of KTI as filed October 18, 1994 (file no.
33-85234)).
10.34 Steam Agreement between Multitrade Group, Inc. and
Bassett-Walker, Inc. dated March 1, 1993, as amended.
(incorporated herein by reference to Exhibit 10.34 to the
registration statement on Form S-4 as filed November 12, 1999
(file no. 19991112)).
10.35 Power Purchase Agreement between Maine Energy Recovery Company
and Central Maine Power Company dated January 12, 1984, as
amended (incorporated herein by reference to Exhibit 10.8 to the
registration statement on Form S-4 of KTI as filed October 18,
1994 (file no. 33-85234)).
10.36 Host Municipalities' Waste Handling Agreement among
Biddeford-Saco Solid Waste Committee, City of Biddeford, City of
Saco and Maine Energy Recovery Company dated June 7, 1991
(incorporated herein by reference to Exhibit 10.10 to the
registration statement on Form S-4 of KTI as filed October 18,
1994 (file no. 33-85234)).
10.37 Form of Maine Energy Recovery Company Waste Handling Agreement
(Town of North Berwick) dated June 7, 1991 and Schedule of
Substantially Identical Waste Disposal Agreements (incorporated
herein by reference to Exhibit 10.11 to the registration
statement on Form S-4 of KTI as filed October 18, 1994 (file no.
33-85234)).
10.38 Third Amendment to Power Purchase Agreement between Maine Energy
Recovery Company, L.P. and Central Maine Power Company dated
November 6, 1995. (incorporated herein by reference to Exhibit
10.38 to the registration statement on Form S-4 as filed November
12, 1999 (file no. 19991112)).
10.39 Steam Supply and Operating Agreement between Multitrade Group,
Inc. and E.I. DuPont De Nemours & Co. dated February 11, 1998, as
amended.(incorporated herein by reference to Exhibit 10.39 to the
registration statement on Form S-4 as filed November 12, 1999
(file no. 19991112)).
10.40 Amendment No. 2 to Power Purchase Agreement between Penobscot
Energy Recovery Company, L.P. and Bangor-Hydro Electric Company
dated June 26, 1998 (incorporated herein by reference to Exhibit
4.1 to the Current Report on Form 8-K of KTI as filed July 8,
1998).
10.41 Second Amended and Restated Waste Disposal Agreements between
Penobscot Energy Recovery Company and the Municipal Review
Committee, Inc. dated June 26, 1998 (incorporated herein by
reference to Exhibit 4.2 to the Current Report on Form 8-K of KTI
as filed July 8, 1998).
10.42 Non-Exclusive License to Use Technology between KTI and Oakhurst
Technology, Inc. dated December 29, 1998 (incorporated herein by
reference to Exhibit 4.5 to the Current Report on Form 8-K of KTI
as filed January 15, 1999).
10.43 Management Compensation Agreement between Casella Waste Systems,
Inc. and John W. Casella dated December 8, 1999.
10.44 Management Compensation Agreement between Casella Waste Systems,
Inc. and James W. Bohlig dated December 8, 1999.
10.45 Management Compensation Agreement between Casella Waste Systems,
Inc. and Jerry S. Cifor dated December 8, 1999.
10.46 Management Compensation Agreement between Casella Waste Systems,
Inc. and Martin J. Sergi dated December 8, 1999.
10.47 Management Compensation Agreement between Casella Waste Systems,
Inc. and Ross Pirasteh dated December 8, 1999.
10.48 Preferred Stock Purchase Agreement, dated as of June 28, 2000, by
and among the Company and the Purchasers identified therein
(incorporated herein by reference to Exhibit 10.1 to the current
report on Form 8-K of Casella as filed August 18, 2000 (file no.
000-23211)).
10.49 Registration Rights Agreement, dated as of August 11, 2000, by
and among the Company and the Purchasers identified therein
(incorporated herein by reference to Exhibit 10.2 to the current
report on Form 8-K of Casella as filed August 18, 2000 (file no.
000-23211)).
10.50 First Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated December 14, 1999, between the Company and
Fleet National Bank (f/k/a BankBoston, N.A.) (incorporated herein
by reference to Exhibit 10.3 to the current report on Form 8-K of
Casella as filed August 18, 2000 (file no. 000-23211)).
10.51 Second Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement and Consent, dated December 14, 1999, between
the Company and Fleet National Bank (f/k/a BankBoston, N.A.)
(incorporated herein by reference to Exhibit 10.4 to the current
report on Form 8-K of Casella as filed August 18, 2000 (file no.
000-23211)).
10.52 Third Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement and Consent, dated December 14, 1999, between the
Company and Fleet National Bank (f/k/a BankBoston, N.A.)
(incorporated herein by reference to Exhibit 10.5 to the current
report on Form 8-K of Casella as filed August 18, 2000 (file no.
000-23211))
10.53 Fourth Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement and Consent, dated December 14, 1999, between
the Company and Fleet National Bank (f/k/a BankBoston, N.A.)
(incorporated herein by reference to Exhibit 10.6 to the current
report on Form 8-K of Casella as filed August 18, 2000 (file no.
000-23211)).
10.54 Fifth Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement and Consent, dated February 22, 2001, between the
Company and Fleet National Bank (f/k/a BankBoston, N.A.).
10.55 Sixth Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement and Consent, dated June 4, 2001, between the
Company and Fleet National Bank (f/k/a B nkBoston, N.A.).
10.56 KTI, Inc. 1994 Long-Term Incentive Award Plan (incorporated
herein by reference to Exhibit (d)(3) to the Schedule TO of
Casella as filed July 2, 2001 (file no. 000-23211)).
10.57 KTI, Inc. Non-Plan Stock Option Terms and Conditions
(incorporated herein by reference to Exhibit (d)(4) to the
Schedule TO of Casella as filed July 2, 2001 (file no.
000-23211)).
21.1 Subsidiaries of Casella Waste Systems, Inc.
23.1 Consent of Arthur Andersen LLP.
Item 14(b) Reports on Form 8-K
During the quarter ended April 30, 2001 the Company filed no reports on Form
8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CASELLA WASTE SYSTEMS, INC.
By: /s/ John W. Casella
-----------------------
John W. Casella
Chairman and Chief
Executive Officer
Date: July 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ John W. Casella Chairman of the Board of Directors July 30, 2001
----------------------- and Chief Executive Officer
John W. Casella (Principal Executive Officer)
/s/ James W. Bohlig President and Chief July 30, 2001
----------------------- Operating Officer, Director
James W. Bohlig
/s/ Jerry Cifor Senior Vice President and Chief July 30, 2001
----------------------- Financial Officer (Principal
Jerry Cifor Accounting and Financial Officer)
/s/ Douglas R. Casella Director July 30, 2001
-----------------------
Douglas R. Casella
/s/ John F. Chapple III Director July 30, 2001
-----------------------
John F. Chapple III
/s/ Gregory B. Peters Director July 30, 2001
-----------------------
Gregory B. Peters
/s/ George Mitchell Director July 30, 2001
-----------------------
George Mitchell
/s/ Wilbur L. Ross Jr Director July 30, 2001
-----------------------
Wilbur L. Ross Jr
/s/ D. Randolph Peeler Director July 30, 2001
-----------------------
D. Randolph Peeler
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of Casella Waste Systems, Inc. included
in this Form 10-K and have issued our opinion thereon dated July 19, 2001. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The Valuation Accounts Schedule (Schedule II) is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This Schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Boston, Massachusetts
July 19, 2001
FINANCIAL STATEMENT SCHEDULES
Schedule II
Valuation Accounts
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(In thousands of dollars)
Year ended April 30,
--------------------------
1999 2000 2001
---- ---- ----
Balance at beginning of period $ 1,283 $ 1,430 $ 5,371
Additions - Charged to expense 1,896 1,790 3,105
Acquisition related 273 2,894 -
Deductions - Bad debts written off,
net of recoveries (2,022) (743) (3,572)
------- ------- -------
Balance at end of period $ 1,430 $ 5,371 $ 4,904
======= ======= =======
RESTRUCTURING
(In thousands of dollars)
Year ended April 30,
--------------------------
1999 2000 2001
---- ---- ----
Balance at beginning of period $ - $ - $ -
Additions - Charged to expense - - 4,151
Deductions - Amounts Paid - - -
------- ------- -------
Balance at end of period $ - $ - $ 4,151
======= ======= =======
EXHIBIT 10.54
-------------
FIFTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
AND CONSENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN
AGREEMENT AND CONSENT (this "Fifth Amendment") is made and entered into as of
the 22nd day of February, 2001, by and among CASELLA WASTE SYSTEMS, INC., a
Delaware corporation (the "Parent"), its Subsidiaries (other than Excluded
Subsidiaries) listed on Schedule 1 to the Credit Agreement defined below
(together with the Parent, collectively the "Borrowers"), FLEET NATIONAL BANK
(f/k/a BankBoston, N.A., "Fleet") and such banks or other financial institutions
which may become a party thereto (the "Banks"), Fleet as Administrative Agent
for the Banks (the "Administrative Agent"), KEYBANK NATIONAL ASSOCIATION as
Documentation Agent, BANK OF AMERICA, N.A. as Syndication Agent and CANADIAN
IMPERIAL BANK OF COMMERCE as the Canadian Agent (the "Canadian Agent", and
together with the Administrative Agent, the "Bank Agents").
WHEREAS, the Borrowers, the Banks and the Bank Agents are parties to an
Amended and Restated Revolving Credit and Term Loan Agreement dated as of
December 14, 1999, (as amended by a First Amendment to Revolving Credit and Term
Loan Agreement dated as of February 2, 2000, a Second Amendment to Revolving
Credit and Term Loan Agreement dated as of February 14, 2000, a Third Amendment
to Revolving Credit and Term Loan Agreement dated as of April 14, 2000, a Fourth
Amendment to Revolving Credit and Term Loan Agreement dated as of August 4,
2000, and as the same may be further amended and in effect from time to time,
the "Credit Agreement"), pursuant to which the Banks have extended credit to the
Borrowers on the terms set forth therein;
WHEREAS, the Parent has informed the Banks that it plans to exchange its
stock in The AFA Group, Inc. and Advanced Enterprises Recycling Inc. for the
assets of Waste Disposal Services LLC plus a cash payment of approximately
$1,500,000 (such stock acquisition and disposition being hereinafter referred to
as the "AFA Swap");
WHEREAS, the Parent has informed the Banks that it plans to convert a
$16,300,000 note receivable, plus accrued interest, from Oakhurst into equity in
New Heights Recovery LLC, an Illinois limited liability corporation (such
transaction being hereinafter referred to as the "New Heights Equity
Investment");
WHEREAS, the ING L/C will be replaced by a Letter of Credit under this
Credit Agreement (the "MERC L/C");
WHEREAS, the Borrowers have informed the Banks that they intend to sell the
Resource Technology Group for approximately $24,000,000 and use the Net Cash
Proceeds thereof to pay down the Term Loan;
WHEREAS, the Borrowers have requested that the Banks and the Administrative
Agent make certain amendments to the Credit Agreement, and grant certain
consents, and the Banks and the Administrative Agent are willing to amend the
Credit Agreement and grant such certain consents on the terms set forth herein;
-2-
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have
the meanings assigned to such terms in the Credit Agreement.
2. Amendments to Section 1.1 of the Credit Agreement. Section 1.1 of the
Credit Agreement is hereby amended by:
(a) deleting the definitions of "Adjusted Margin", "Adjustment
Period", "Consolidated Earnings Before Interest Taxes Depreciation and
Amortization or EBITDA", "Excluded Subsidiaries" and "Security Documents"
and respectively replacing such definitions in their entirety with the
following new definitions:
"Adjusted Margin. A margin of 0.125% per annum added to the
otherwise applicable rate during the Adjustment Period.
Adjustment Period. The period from February 22, 2001 through
August 22, 2001, provided that no Event of Default has occurred
and is continuing. If an Event of Default has occurred and is
continuing, the Adjustment Period shall continue until such Event
of Default has been cured to the satisfaction of the Required
Banks.
Consolidated Earnings Before Interest Taxes Depreciation and
Amortization or EBITDA. For any period, the Consolidated Net
Income (or Deficit) of the Borrowers determined in accordance
with GAAP, plus; to the extent that such charge was deducted in
determining Consolidated Net Income (or Deficit) in the relevant
period, (a) interest expense, (b) income taxes, (c) amortization
expense, and (d) depreciation expense for such period, (e) EBITDA
of the businesses acquired by any Borrower (through asset
purchases or otherwise) (each an "Acquired Business"), or with
respect to Subsidiaries (other than Excluded Subsidiaries)
acquired or formed during the period reported in the most recent
financial statements delivered to the Banks pursuant to ss.7.4
(each a "New Subsidiary") shall be included in the calculation of
EBITDA if (i) the Acquired Businesses or New Subsidiaries had
annual revenue of at least $5,000,000 for the most recent fiscal
year ended, (ii) the Administrative Agent receives a letter in
form and substance satisfactory to the Administrative Agent from
the Borrowers' Accountants as to adjustments for non-recurring
expenses, and (iii) (A) the financial statements of such Acquired
Businesses or New Subsidiaries have been audited for the most
recent fiscal year ended of such Acquired Businesses or New
Subsidiaries, a portion of which fiscal year is sought to be
included in the calculation of EBITDA, or (B) the Administrative
Agent consents to such inclusion after being furnished with other
acceptable financial statements, and, in each case, a Compliance
Certificate and other reasonably appropriate documentation, in
form and substance reasonably satisfactory to the Administrative
Agent, with respect to the historical operating results and
balance sheet of such Acquired Businesses or New Subsidiaries
(which information to the knowledge of the CFO is correct in all
material
-3-
respects) are provided to the Administrative Agent, (f) the
non-cash non-recurring charges related to Oakhurst operations in
the amount of $1,680,000 to be taken through the fiscal quarter
ending January 31, 2001, and (g) solely for the purposes of
determining compliance with ss.9.3 hereof, pro-forma credit
related to the purchase of certain assets in July 2000, such
charges not to exceed $959,000 for the fiscal quarter ending
January 31, 2001, and $384,000 for the fiscal quarter ending
April 30, 2001.
Consolidated Net Income (or Deficit). The consolidated net
income (or deficit) of the Borrowers after deduction of all
expenses, taxes, and other proper charges determined in
accordance with GAAP, plus, without duplication, (a) non-cash
non-recurring charges related to restructuring charges or asset
impairment charges with respect to the Cellulose Joint Venture
not exceeding $7,750,000, and (b) if the Resource Technology
Group is sold by October 31, 2001, non-cash non-recurring charges
related to losses from asset impairment charges or such sale not
exceeding $13,000,000, less, to the extent included therein, (x)
any extraordinary gains, (y) any income from non-continuing
operations, and (z) income attributable to any minority equity or
other Investment in any non-Borrower except to the extent of
actual cash received with respect to the Cellulose Joint Venture
or the New Heights Equity Investment paid to the Borrowers in the
form of cash dividends or cash partnership distributions during
the applicable period.
Excluded Subsidiaries. The Insurance Subsidiary and the De
Minimis Subsidiaries and MERC until the Assignment Effective
Date.
Security Documents. The Domestic Security and Pledge
Agreement, the Canadian Pledge Agreement, the Canadian Security
Agreements, and, as of the Effective Assignment Date, the ING
Documents set forth on Schedule 4 hereto, each as amended and in
effect from time to time, and any additional documents evidencing
or perfecting the Administrative Agent's lien on the assets of
the applicable Borrowers for the benefit of the applicable Banks
(including Uniform Commercial Code financing statements and the
Canadian equivalent thereof)."
and (b) deleting the last paragraph of the definition of
"Applicable Rate" therein and restating it as follows:
"Each Applicable Rate shall become effective on the first
day after receipt by the Banks of financial statements delivered
pursuant to ss.7.4(a) or (b) hereof which indicate a change in
the Pricing Ratio and in the Applicable Rate in accordance with
the above table, provided that for the period from the Fifth
Amendment Effective Date through six (6) months after the Fifth
Amendment Effective Date, the Applicable Rate shall be Level IV,
provided further that during the Adjustment Period, the Adjusted
Margin shall be added to the Applicable Rate for Level IV in the
above table and to the Acceptance Fee for Bankers' Acceptances.
If at any time the financial statements required to be delivered
pursuant to ss.7.4(a) or (b) hereof are not delivered within
10 days after the time
-4-
periods specified in such subsections, the Applicable Rate shall
be the rate set forth for Level IV plus the Adjusted Margin, if
applicable, subject to adjustment upon actual receipt of such
financial statements."
and (c) by inserting the following new definitions in proper
alphabetical order:
"Assignment Effective Date. The date on which the ING
Documents assigned to the Administrative Agent for the benefit of
the Banks.
ING Agreement. Pursuant to a certain Credit Agreement dated
as of April 30, 1996 (the "ING Agreement"), among MERC, the banks
named therein (such banks collectively referred to as the "ING
Lenders"), and ING (U.S.) Capital LLC, as the agent thereof (the
"ING Agent"), the ING Lenders made certain credit extensions to
MERC (including the ING L/C).
ING Documents. The Documents listed and identified as such
on Schedule 4 attached hereto.
MERC Transaction. The purchase of the remaining 16.25% of
the partnership interests of MERC by KTI Environmental Group,
Inc., for a purchase price of approximately $7.9 million
(including assumed debt to be entered into simultaneously with
the sale of KTI's interest in PERC)."
3. Amendments To Section 2.1(a) of the Credit Agreement. Section 2.1(a) of
the Credit Agreement is hereby amended by inserting, immediately before the
period (".") at the end of the first sentence thereof, the following text:
"provided further that until the ratio of Consolidated Funded Indebtedness
to EBITDA as at the end of any fiscal quarter is less than 3.50:1.00, the
outstanding amount of Domestic Revolving Credit Loans (including the Swing
Line Loans) and the Maximum Drawing Amount of the Domestic Letters of
Credit shall not exceed a maximum aggregate amount outstanding equal to
$280,000,000, however the Commitment Fee shall be payable on the full
amount of the Total Commitment during such period."
4. Amendments to Section 4A.4.1 of the Credit Agreement. Section 4A.4.1 of
the Credit Agreement is hereby amended by adding the following new subsection
(f) in proper alphabetical order therein:
"(f) The Domestic Borrowers shall use $10,000,000 of the Net Cash
Proceeds received from the sale of the Bangor Warrants permitted under
ss.8.4.2(c) and $23,000,000 of the Net Cash Proceeds received from the sale
of PERC and Timber permitted under ss.8.4.2(a) to pay down (i) outstanding
Domestic Revolving Credit Loans by $22,000,000, and (ii) the Term Loan by
$11,000,000."
5. Amendments to Section 4A.6.1 of the Credit Agreement. Section 4A.6.1 of
the Credit Agreement is hereby amended by deleting the subsections (a) and (b)
in their entirety and restating them as follows:
-5-
"(a) To the extent that all or any portion of the Term Loan bears
interest during such Interest Period at the Base Rate, the Term Loan or
such portion thereof shall bear interest during such Interest Period at
the rate of 2.000% per annum plus the Adjusted Margin during the Adjustment
Period (the "Term Loan Base Rate Margin") above the Base Rate.
(b) At the option of the Domestic Borrowers, and upon notice give to
the Administrative Agent pursuant to ss.4A.6.2, so long as no Default or
Event of Default has occurred or is continuing, to the extent that all or
any portion of the Term Loan bears interest during such Interest Period at
the Eurodollar Rate, the Term Loan or such portion shall bear interest
during such Interest Period at the rate of 3.500% per annum plus the
Adjusted Margin during the Adjustment Period (the "Term Loan Eurodollar
Margin") above the Eurodollar Rate.
6. Amendments to Section 7.4 of the Credit Agreement. Section 7.4 of the
Credit Agreement is hereby amended by (a) deleting the word "and" at the end of
subsection (f) thereof, and (b) deleting subsection (g) thereof in its entirety
and replacing it with the following:
"(g) consolidated and consolidating balance sheets and statements of
operations, including, the divisional profit and loss results, on a monthly
basis until such time as the ratio of (i) Total Consolidated Funded
Indebtedness to (ii) EBITDA under ss.9.5 hereof is less than 3.50:1.00, and
thereafter on a quarterly basis; and
(h) from time to time such other financial data and other information
(including accountants' management letters) as the Banks may reasonably
request;"
7. Amendments to Section 7 of the Credit Agreement. Section 7 of the Credit
Agreement is hereby amended by adding the following new ss.7.19:
"ss.7.19. Quarterly Conference Calls. For the fiscal year 2002, the
Borrowers will arrange and participate in conference calls with the Banks
within 30 days following the close of each fiscal quarter."
8. Amendments to Section 8.4.1(j) of the Credit Agreement. Section 8.4.1(j)
of the Credit Agreement is hereby amended by deleting subsection (j) thereof in
its entirety and replacing it with the following:
"(j) (i) in the event that the ratio of (A) Total Consolidated Funded
Indebtedness to (B) EBITDA under ss.9.5 hereof is greater than or equal to
3.50:1.00, cash consideration to be paid by such Borrower in connection
with any such acquisition or series of related acquisitions (including cash
deferred payments, contingent or otherwise, and the aggregate amount of all
liabilities assumed), shall not exceed $1,000,000 without the consent of
the Administrative Agent and the Required Banks and (ii) in the event that
the ratio of (A) Total Consolidated Funded Indebtedness to (B) EBITDA under
ss.9.5 hereof is less than 3.50:1.00, cash consideration to be paid by such
Borrower in connection with any
-6-
such acquisition or series of related acquisitions (including cash deferred
payments, contingent or otherwise, and the aggregate amount of all,
liabilities assumed), shall not exceed $15,000,000 without the consent of
the Administrative Agent and the Required Banks; provided, further, in each
case, that, taking into account such acquisition and any borrowing made in
connection therewith, there shall remain at least $20,000,000 of
availability under the Total Commitment."
9. Amendment to Section 8.4.2 of the Credit Agreement is amended by adding
the following sentence immediately prior to the third sentence thereof which
begins "Notwithstanding the foregoing......":" the Borrowers shall be permitted
to sell the Resource Technology Group, provided that gross cash proceeds of
approximately $24,000,000 shall be received and shall be used to pay down the
Term Loan."
10. Amendments to Section 8.6 of the Credit Agreement. Section 8.6 of the
Credit Agreement is hereby amended by deleting ss.8.6 in its entirety and
replacing it with the following new ss.8.6:
"ss.8.6. Restricted Distributions and Redemptions.
None of the Borrowers will declare or pay any cash Distributions; provided
that any Subsidiary may declare or pay cash Distributions to the Parent. In
addition, the Borrowers shall not redeem, convert, retire or otherwise
acquire shares of any class of capital stock of the Borrowers or Excluded
Subsidiaries without the written consent of the Administrative Agent and
the Required Banks. So long as no Default or Event of Default has occurred
and is continuing, or would occur after giving effect thereto, at any time
after August 9, 2003, the Parent may make quarterly cash Distributions on
its Series A Preferred Stock in an amount up to five percent (5%) of the
face value of the Series A Preferred Stock per year, but in no event to
exceed $3,226,879 in any fiscal year."
11. Amendments to Section 8.8 of the Credit Agreement. Section 8.8 of the
Credit Agreement is hereby amended by deleting ss.8.8 in its entirety and
substituting in place thereof the following new ss.8.8:
"ss.8.8. Capital Expenditures. Commencing with the fiscal quarter
ending April 30, 2001, as at the end of any fiscal quarter, the Borrowers
will not permit the amount of Capital Expenditures (excluding any
acquisitions permitted by ss.8.4 hereof) made by the Borrowers in the
period of four (4) consecutive fiscal quarters then ended to exceed (a)
through January 31, 2002, an amount equal to 2.0 times the sum of
depreciation and landfill amortization expense for such period (calculated
in accordance with GAAP), and (b) thereafter, the lesser of an amount equal
to (i) 0.5 times EBITDA for such period, and (ii) the sum of depreciation
and landfill amortization expense for such period (calculated in accordance
with GAAP)."
12. Amendments to Section 9.1 of the Credit Agreement. Section 9.1 of the
Credit Agreement is hereby amended by deleting ss.9.1 in its entirety and
substituting in place thereof the following new ss.9.1:
-7-
"ss.9.1. Interest Coverage Ratios. As of the end of any fiscal
quarter, the ratio of EBITDA to Consolidated Total Interest Expense shall
not be less than the stated ratio for the respective periods set forth
below:
Period Ratio
------ -----
Effective Date through 10/30/01 2.50:1
10/31/01 through 1/30/02 2.75:1
1/31/02 through 4/29/02 3.00:1
Thereafter 3.50:1
provided, that any adjustments made pursuant to clause (e) of the
definition of EBITDA shall not be included in the calculation of this
ss.9.1 and EBITDA shall be calculated for the period of four (4) fiscal
quarters ending on the date of calculation."
13. Amendments to Section 9.3 of the Credit Agreement. Section 9.3 of the
Credit Agreement is hereby amended by deleting ss.9.3 in its entirety and
substituting in place thereof the following new ss.9.3:
"ss.9.3. Borrowers' Funded Debt to EBITDA Ratio. The Borrowers will
not permit the ratio of (a) Consolidated Funded Indebtedness to (b) EBITDA
as at the end of any fiscal quarter to exceed the stated ratio for the
respective periods set forth below:
Period Ratio
------ -----
Effective Date through 6/30/00 4.00:1
7/31/00 through 7/31/01 3.75:1
Thereafter 3.50:1
provided that, in the event that the Resource Technology Group are sold
prior to October 31, 2001 for Net Cash Proceeds of at least $24,000,000,
the maximum permitted ratio as at the end of the fiscal quarter when such
sale occurred and thereafter shall be 3.50:1. For the purposes of this
ss.9.3, EBITDA shall be calculated for the period of four (4) consecutive
fiscal quarters ending on the date of calculation."
14. Amendments to Schedules and Exhibits of the Credit Agreement. The
Schedules to the Credit Agreement are hereby amended by (a) deleting the current
Schedule 1 attached thereto and replacing it with the new Schedule 1 attached
hereto; and (b) adding in proper numerical order the new Schedule 4 attached
hereto. The Borrowers hereby represent and warrant that such new Schedules are
complete and accurate. Concurrently herewith, the Borrowers have delivered new
Perfection Certificates for all new Subsidiaries. Exhibit D is hereby amended by
deleting the current Exhibit D attached to the Credit Agreement and replacing it
with the new Exhibit D attached hereto.
15. Deletion of Sections from the Credit Agreement. As of the Fifth
Amendment Effective Date or if later, as of the Assignment Effective Date, the
text of following sections shall be deleted in their entirety from the Credit
Agreement, and the words "Intentionally Deleted" shall be inserted in their
place:
-8-
ss.8.1(f)(i) and (j)
ss.8.d(h)(i)
ss.8.3(i)
ss.9.5.
16. Consent to AFA Asset Swap. Each of the Banks hereby consents to the AFA
Swap, provided that (a) the cash consideration received by the Borrowers in
connection with the AFA Swap shall not be less than $1,500,000 and such
consideration shall be used to pay down the Term Loan, and (b) the Borrowers
shall comply with the terms of Section 8.4.1 with respect to the acquisition of
the Waste Disposal Services LLC assets.
17. Consent to New Heights Equity Investment. Each of the Banks hereby
consents to the New Heights Equity Investment, provided that the stock of New
Heights owned by KTI Inc. shall be pledged to the Administrative Agent for the
benefit of the Banks.
18. The MERC Transaction. In connection with the issuance of the MERC L/C
and the payment of all outstanding amounts under the ING Agreement, the ING
Lenders will assign all of their rights, interests and obligations under the ING
Documents to the Administrative Agent for the benefit of the Banks pursuant to
the Assignment and Acceptance dated the Assignment Effective Date between the
ING Lenders, ING and the Administrative Agent (on behalf of itself and the
Banks). As of the Assignment Effective Date, the ING Agreement shall be subsumed
under this Credit Agreement and shall be amended and restated and replaced in
its entirety by the terms of this Credit Agreement, and the ING Documents shall
be "Security Documents" under this Credit Agreement, and MERC will no longer be
an Excluded Subsidiary and will become a Borrower hereunder, and will execute
and deliver a Joinder and Affirmation to the Credit Agreement, allonges to the
Notes, and deliver such other documents as requested by the Administrative
Agent. Any cash held by ING shall be applied to pay down the outstanding
Domestic Revolving Credit Loans.
If the MERC Transaction and the Assignment Effective Date occurs after the
Fifth Amendment Date, the Banks hereby consent to the MERC Transaction, on the
terms set forth in this ss.18, notwithstanding the restrictions in ss.8.4(j), as
amended hereby.
19. Representations and Warranties. Each of the Borrowers represents and
warrants as follows:
(a) The execution, delivery and performance of each of this Fifth
Amendment and the Credit Agreement, as amended as of the date hereof and
the transactions contemplated hereby and thereby are within the corporate
power and authority of such Borrower and have been or will be authorized by
proper corporate proceedings, and do not (a) require any consent or
approval of the stockholders of such Borrower, (b) contravene any provision
of the charter documents or by-laws of such Borrower or any law, rule or
regulation applicable to such Borrower, or (c) contravene any provision of,
or constitute an event of default or event which, but for the requirement
that time elapse or notice be given, or both, would constitute an event of
default under, any other material agreement, instrument or undertaking
binding on such Borrower.
-9-
(b) This Fifth Amendment and the Credit Agreement as amended as of the
date hereof and all of the terms and provisions hereof and thereof are the
legal, valid and binding obligations of such Borrower enforceable in
accordance with their respective terms except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally, and except as the remedy of
specific performance or of injunctive relief is subject to the discretion
of the court before which any proceeding therefor may be brought.
(c) The execution, delivery and performance of this Fifth Amendment
and the Credit Agreement as amended as of the date hereof and the
transactions contemplated hereby and thereby do not require any approval or
consent of, or filing or registration with, any governmental or other
agency or authority, or any other party.
(d) The representations and warranties contained in ss.6 of the Credit
Agreement are true and correct in all material respects as of the date
hereof as though made on and as of the date hereof.
(e) After giving effect to this Fifth Amendment, no Default or Event
of Default under the Credit Agreement has occurred and is continuing.
20. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. This Fifth Amendment and the Credit
Agreement shall hereafter be read and construed together as a single document,
and all references in the Credit Agreement or any related agreement or
instrument to the Credit Agreement shall hereafter refer to the Credit Agreement
as amended by this Fifth Amendment.
21. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
22. DELIVERY BY FACSIMILE. This Amendment, to the extent signed and
delivered by means of a facsimile machine, shall be treated in all manner and
respects as an original agreement or instrument and shall be considered to have
the same binding legal effect as if it were the original signed version thereof
delivered in person. At the request of any party hereto or to any such agreement
or instrument, each other party hereto or thereto shall re-execute original
forms thereof and deliver them to all other parties. No party hereto or to any
such agreement-or instrument shall raise the use of a facsimile machine to
deliver a signature or the fact that any signature or agreement or instrument
was transmitted or communicated through the use of a facsimile machine as a
defense to the formation of a contract and each party forever waives such
defense.
23. Counterparts. This Fifth Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument.
-10-
23. Effectiveness. This Fifth Amendment shall become effective (the "Fifth
Amendment Effective Date") upon the receipt by the Agent of:
(a) a counterpart of this Fifth Amendment, executed by the Required
Banks and the Borrowers;
(b) an amendment fee in an aggregate amount equal to 20.0 basis points
on the Commitment or outstanding principal portion of the Term Loan, as
applicable, of each Bank which consents to this Fifth Amendment on or prior
to 5:00 p.m. (Boston time) on February 20, 2001;
(c) with respect to those provisions relating to new Borrowers
including MERC, upon the signing and delivery a Joinder and Affirmation
Agreement to the Administrative Agent, allonges to the Notes, and all
documentation reasonably requested by the Administrative Agent in
connection therewith; and
(d) payment of all fees and expenses of the Administrative Agent's
legal counsel in the connection with the preparation of this Fifth
Amendment and ancillary documentation and filings.
-12-
IN WITNESS WHEREOF, each of the undersigned have duly executed this Fifth
Amendment as of the date first set forth above.
FLEET NATIONAL BANK
(f/k/a BankBoston N.A.)
individually and as Administrative Agent
By: /s/ Timothy M. Laurion
---------------------------------
Name: Timothy M. Laurion
Title: Managing Director
KEYBANK NATIONAL ASSOCIATION,
individually and as Documentation Agent
By: /s/ Daniel W. Lally
---------------------------------
Name: Daniel W. Lally
Title: Assistant Vice President
BANK OF AMERICA, N.A.,
individually and as Syndication Agent
By: /s/ Steven R. Arentsen
---------------------------------
Name: Steven R. Arentsen
Title: Senior Vice President
COMERICABANK
By: /s/ Joe Ursay
---------------------------------
Name: Joe Ursay
Title: Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
ELT LTD.
By: /s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Authorized Agent
STRATEGIC MANAGED LOAN PORTFOLIO
By: /s/ M. G. Regan
Name: Mike Regan
Title: Alternative Investment Strategies
KZH SHOSHONE LLC
By: /s/ Susan Lee
Name: Susan Lee
Title: Authorized Agent
PILGRIM AMERICA HIGH INCOME
INVESTMENTS, LTD.
By: /s/ Charles E. LeMieux
Name: Charles E. LeMieux, CFA
Title: Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
PILGRIM CLO 1999-1 LTD.
By: Pilgrim Investments, Inc., as its
investment manager
By: /s/ Charles E. LeMieux, CFA
Name: Charles E. LeMieux, CFA
Title: Vice President
BANKERS TRUST COMPANY
By:
Name:
Title:
ARCHIMEDES FUNDING III, LTD.
By: ING Capital Advisors LLC,
as Collateral Manager
By:
Name:
Title:
CYPRESSTREE INVESTMENT PARTNERS II, LTD.
By:
Name:
Title:
KZH-ING-1 LLC
By: /s/ Susan Lee
Name: Susan Lee
Title: Authorized Agent
KZH-ING-2 LLC
By: /s/ Susan Lee
Name: Susan Lee
Title: Authorized Agent
KZH-ING-3 LLC
By: /s/ Susan Lee
Name: Susan Lee
Title: Authorized Agent
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
NORTH AMERICAN SENIOR
FLOATING RATE FUND
By:
Name:
Title:
KEMPER FLOATING RATE FUND
By: /s/ Kelly Babson
Name: Kelly Babson
Title: Managing Director
CARLYLE HIGH YIELD PARTNERS II, LTD.
By: /s/ Linda M. Pace
Name: Linda M. Pace
Title: Vice President
CYPRESSTREE INVESTMENT
PARTNERS I, L TD
By:
Name:
Title:
OPPENHEIMER SENIOR FLOATING
RATE FUND
By: /s/ David Foxhoven
Name: David Foxhoven
Title: A.V.P.
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
Sankaty Advisors, Inc. as Collateral
Manager for Great Point CLO 1999-LTD.,
as Term Lender
By: /s/ Diane J. Exter
Name: Diane J. Exter
Title: Managing Director, Portfolio
Manager
SANKATY HIGH YIELD PARTNERS II, L.P.
By: /s/ Diane J. Exter
Name: Diane J. Exter
Title: Managing Director, Portfolio
Manager
LASALLE BANK NATIONAL
ASSOCIATION
By: /s/ Paul M. Casey
Name: Paul M. Casey
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Rod Hurst
Name: Rod Hurst
Title: Vice President
FIRST VERMONT BANK AND TRUST
COMPANY
By:
Name:
Title:
CANADIAN IMPERIAL BANK OF
COMMERCE, individually and as
Canadian Agent
By: /s/ M. Beth Miller
Name: M. Beth Miller
Title: Authorized Signatory
SANKATY HIGH YIELD PARTNERS II, L.P.
By:
Name:
Title:
GREAT POINT CLO 1999-1 LTD.
By:
Name:
Title:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
FIRST ALLAMERICA FINANCIAL LIFE
INSURANCE CO.
By:
Name:
Title:
AVALON CAPITAL LTD.
By: INVESCO Senior Secured Management,
Inc., as Portfolio Advisor
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
AVALON CAPITAL LTD. 2
By: INVESCO Senior Secured Management,
Inc., as Portfolio Advisor
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
OLYMPIC FUNDING TRUST, SERIES 1999-1
By: /s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Authorized Agent
KZH CYPRESSTREE 1 LLC
By: /s/ Susan Lee
Name: Susan Lee
Title: Authorized Agent
NORSE CBO, LTD.
By: /s/ Timothy S. Peterson
Name: Timothy S. Peterson
Title: Authorized Signatory
HARBOURVIEW CDO II, LIMITED
By: /s/ Lisa Chaffee
Name: Lisa Chaffee
Title: MANAGER
INDOSUEZ CAPITAL FUNDING llA, LIMITED
By: Indosuez Capital Luxembourg, as
Collateral Manager
By: /s/ Melissa Marano
Name: Melissa Marano
Title: Vice President
MAGNETITE ASSET INVESTORS, LLC
By: ILLEGIBLE
Name:
Title: Director
ARES LEVERAGED INVESTMENT FUND II, L.P.
By:
Name:
Title:
ARES III CLO LTD.
By: ARES CLO Management LLC
By:
Name:
Title:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
COLUMBUS LOAN FUNDING LTD.
By: Travelers Asset Management
International Company LLC
By: /s/ Denise T. Duffee
Name: Denise T. Duffee
Title: Investment Officer
MUIRFIELD TRADING LLC
By: /s/ Kelly C. Walker
Name: Kelly C. Walker
Title: Vice President
STANFIELD/RMF TRANSATLANTIC CDO, LTD.
By:
Name:
Title:
VAN KAMPEN CLO I, LIMITED
By: /s/ Douglas L. Winchell
Name: Douglas L. Winchell
Title: Vice President
VAN KAMPEN CLO II, LIMITED
By: /s/ Douglas L. Winchell
Name: Douglas L. Winchell
Title: Vice President
BLACK ROCK
By: ILLEGIBLE
Name:
Title: Director
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
SEQUILS-ING I (HBDGM), LTD.
By: ING Capital Advisors LLC,
as Collateral Manager and Authorized
Signatory
By:
Name:
Title:
THE TRAVELERS INSURANCE COMPANY
By: /s/ Denise T. Duffee
Name: Denise T. Duffee
Title: Investment Officer
TRAVELERS CORPORATE LOAN FUND INC.
By: Travelers Asset Management
International Company LLC
By: /s/ Denise T. Duffee
Name: Denise T. Duffee
Title: Investment Officer
VAN KAMPEN PRIME RATE INCOME TRUST
By: /s/ Douglas L. Winchell
Name: Douglas L. Winchell
Title: Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
NORTH AMERICAN SENIOR FLOATING
RATE FUND
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By: /s/ Jeffrey W. Heuer
---------------------------------
Name: Jeffrey W. Heuer
Title: Principal
CYPRESSTREE INVESTMENT PARTNERS I, LTD
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By: /s/ Jeffrey W. Heuer
---------------------------------
Name: Jeffrey W. Heuer
Title: Principal
CYPRESSTREE INVESTMENT PARTNERS II, LTD
By: CypressTree Investment Management
Company, Inc. as Portfolio Manager
By: /s/ Jeffrey W. Heuer
---------------------------------
Name: Jeffrey W. Heuer
Title: Principal
CYPRESSTREE INVESTMENT
MANAGEMENT COMPANY, INC.
As: Attorney-in-Fact and on behalf of
First Allmerica Financial Life Insurance
Company as Portfolio Manager
By: /s/ Jeffrey W. Heuer
---------------------------------
Name: Jeffrey W. Heuer
Title: Principal
CHARTER VIEW PORTFOLIO
By: INVESCO Senior Secured Management,
Inc.
As Investment Advisor
By: /s/ Joseph Rotondo
---------------------------------
Name: Joseph Rotondo
Title: Authorized Signatory
AERIES FINANCE-ll LTD.
By: INVESCO Senior Secured Management,
Inc.
As Sub-Managing Agent
By: /s/ Joseph Rotondo
---------------------------------
Name: Joseph Rotondo
Title: Authorized Signatory
CERES II FINANCE LTD.
By: INVESCO Senior Secured Management,
Inc.
As Sub-Managing Agent (Financial)
By: /s/ Joseph Rotondo
---------------------------------
Name: Joseph Rotondo
Title: Authorized Signatory
FLOATING RATE PORTFOLIO
By: INVESCO Senior Secured Management,
Inc.
As Attorney in fact
By: /s/ Joseph Rotondo
---------------------------------
Name: Joseph Rotondo
Title: Authorized Signatory
CIBC INC.
By: /s/ M. Beth Miller
---------------------------------
Name: M. Beth Miller
Title: AUTHORIZED SIGNATORY
ARCHIMEDES FUNDING III, LTD.
BY: ING Capital Advisors LLC,
as Collateral Manager
By: /s/ Michael J. Campbell
---------------------------------
Name: Michael J. Campbell
Title: MANAGING DIRECTOR
SEQUILS-ING I (HBDGM), LTD.
BY: ING Capital Advisors LLC,
as Collateral Manager
By: /s/ Michael J. Campbell
---------------------------------
Name: Michael J. Campbell
Title: MANAGING DIRECTOR
NEMEAN CLO, LTD.
BY: ING Capital Advisors LLC,
as Investment Manager
By: /s/ Michael J. Campbell
---------------------------------
Name: Michael J. Campbell
Title: MANAGING DIRECTOR
DOMESTIC BORROWERS
------------------
ALL CYCLE WASTE, INC.
BRISTOL WASTE MANAGEMENT, INC.
CASELLA T.I.R.E.S., INC.
CASELLA TRANSPORTATION, INC.
CASELLA WASTE MANAGEMENT, INC.
CASELLA WASTE MANAGEMENT OF N.Y., INC.
CASELLA WASTE MANAGEMENT OF PENNSYLVANIA, INC.
CASELLA WASTE SYSTEMS, INC.
GRASSLANDS INC.
HAKES C & D DISPOSAL, INC.
HIRAM HOLLOW REGENERATION CORP.
NATURAL ENVIRONMENTAL, INC.
NEWBURY WASTE MANAGEMENT, INC.
NEW ENGLAND WASTE SERVICES, INC.
NEW ENGLAND WASTE SERVICES OF MASSACHUSETTS, INC.
NEW ENGLAND WASTE SERVICES OF N.Y., INC.
NEW ENGLAND WASTE SERVICES OF VERMONT, INC.
NORTH COUNTRY ENVIRONMENTAL SERVICES, INC.
NORTHERN SANITATION, INC.
PINE TREE WASTE, INC.
RESOURCE RECOVERY OF CAPE COD, INC.
RESOURCE TRANSFER SERVICES, INC.
RESOURCE WASTE SYSTEMS, INC.
SAWYER ENVIRONMENTAL RECOVERY FACILITIES, INC.
SAWYER ENVIRONMENTAL SERVICES
SCHULTZ LANDFILL, INC.
SUNDERLAND WASTE MANAGEMENT, INC.
WASTE-STREAM INC.
WESTFIELD DISPOSAL SERVICE, INC.
WINTERS BROTHERS, INC.
By: /s/ Jerry S. Cifor
--------------------------------
Name: Jerry S. Cifor
Title: Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE]
ADVANCED ENTERPRISES RECYCLING INC.
THE AFA GROUP, INC.
AFA PALLET, INC.
AGRO PRODUCTS, INC.
ALLIED EQUIPT. & SALES CORP., INC.
AMERICAN SUPPLIES SALES GROUP, INC.
ARTIC INC.
ATLANTIC TRANSPORTATION TECHNOLOGIES INC.
DATA DESTRUCTION SERVICES, INC.
FAIRFIELD COUNTY RECYCLING, INC.
FCR CAMDEN, INC.
FCR FLORIDA, INC.
FCR GEORGIA, INC.
FCR GREENSBORO, INC.
FCR GREENVILLE, INC.
FCR MORRIS, INC.
FCR PLASTICS, INC.
FCR REDEMPTION, INC.
FCR TENNESSEE, INC.
FCR VIRGINIA, INC.
FCR, INC.
KTI BIO FUELS, INC.
KTI ENERGY OF MARTINSVILLE, INC.
KTI ENERGY OF VIRGINIA, INC.
KTI ENVIRONMENTAL GROUP, INC.
KTI NEW JERSEY FIBERS, INC.
KTI OPERATIONS, INC.
KTI RECYCLING OF ILLINOIS, INC.
KTI RECYCLING OF NEW ENGLAND, INC.
KTI RECYCLING OF NEW JERSEY, INC.
KTI RECYCLING, INC.
KTI SPECIALTY WASTE SERVICES, INC.
KTI TRANSPORTATION SERVICES, INC.
KTI, INC.
MECKLENBURG COUNTY RECYCLING, INC.
POWER SHIP TRANSPORT, INC.
TOTAL WASTE MANAGEMENT CORP.
U .S. FIBER, INC.
By: /s/ Jerry S. Cifor
--------------------------------
Name: Jerry S. Cifor
Title: Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE]
PENOBSCOT ENERGY RECOVERY COMPANY,
LIMITED PARTNERSHIP
By: PERC Management Company Limited
Partnership, general partner
By: PERC, Inc., general partner
By: /s/ Jerry S. Cifor
-------------------------------
Name: Jerry S. Cifor
Title: Treasurer
PERC MANAGEMENT COMPANY, LIMITED
PARTNERSHIP
By: PERC, Inc., general partner
By: /s/ Jerry S. Cifor
-------------------------------
Name: Jerry S. Cifor
Title: Treasurer
CANADIAN BORROWERS
------------------
KTI RECYCLING OF CANADA, INC.
1316991 ONTARIO, INC.
By: /s/ Jerry S. Cifor
-------------------------------
Name: Jerry S. Cifor
Title: Treasurer
CASELLA W ASTE SYSTEMS, INC.
AMENDED AND RESTATED REVOLVING CREDIT AND
TERM LOAN AGREEMENT
DECEMBER 14,1999
SCHEDULE 1
SUBSIDIARIES OF THE PARENT
I. BORROWERS:
STATE OF FOREIGN QUAL.
INCORPORATION ORDERED
1. ALL CYCLE WASTE, INC. VT
2. ALTERNATE ENERGY, INC. MA NH
3. BRISTOL WASTE MANAGEMENT, INC. VT
4. CASELLA TRANSPORTATION, INC. VT
5. CASELLA WASTE MANAGEMENT
OF MASSACHUSETTS, INC. MA
6. CASELLA WASTE MANAGEMENT
OF N.Y., INC. NY
7. CASELLA WASTE MANAGEMENT
OF PENNSYLVANIA, INC. PA
8. CASELLA WASTE MANAGEMENT, INC. VT NY, MA, NH
9. CASELLA WASTE SYSTEMS, INC. DE VT
10. GRASSLANDS INC. NY
11. HAKES C & D DISPOSAL, INC. NY
12. HIRAM HOLLOW REGENERATION
CORP. NY
13. NATURAL ENVIRONMENTAL, INC. NY
1
14. NEWBURY WASTE MANAGEMENT, INC. VT
15. NEW ENGLAND WASTE SERVICES, INC. VT NH, NY
16. NEW ENGLAND WASTE
SERVICES OF VERMONT, INC. VT
17. NEW ENGLAND WASTE SERVICES
OF MASSACHUSETTS, INC. MA
18. NEW ENGLAND WASTE SERVICES
OF N.Y., INC. NY
19. NORTH COUNTRY
ENVIRONMENTAL SERVICES, INC. VA NH
20. NORTHERN SANITATION, INC. NY
21. PINE TREE WASTE, INC. ME NS
22. RESOURCE RECOVERY OF
CAPE COD, INC. MA
23. RESOURCE TRANSFER SERVICES, INC. MA
24. RESOURCE WASTE SYSTEMS, INC. MA
25. ROCHESTER ENVIRONMENTAL
PARK LLC MA
26. SAWYER ENVIRONMENTAL
RECOVERY FACILITIES, INC. ME
27. SAWYER ENVIRONMENTAL
SERVICES ME
28. SCHULTZ LANDFILL, INC. NY
29. SUNDERLAND WASTE
MANAGEMENT, INC. VT
30. WASTE-STREAM INC. NY
2
31. WESTFIELD DISPOSAL SERVICE, INC. NY
32. WINTERS BROTHERS, INC. VT
II. KTI BORROWERS
33. ADVANCED ENTERPRISES
RECYCLING INC. NJ
34. AFA PALLET CO., INC. NJ
35. THE AFA GROUP, INC. NJ
36. AGRO PRODUCTS, INC. NJ
37. ALLIED EQUIPT. & SALES
CORP., INC. NJ
38. AMERICAN SUPPLIES SALE GROUP, INC.
39. ARTiC, INC. NJ
40. ATLANTIC COAST FIBERS, INC.
(f/k/a KTI RECYCLING, INC.) DE NJ
41. ATLANTIC TRANSPORTATION NJ
TECHNOLOGIES INC.
42. DATA DESTRUCTION SERVICES, INC. ME MA, NH
43. FAIRFIELD COUNTY
RECYCLING, INC. DE CT
44. FCR, INC. DE NC
45. FCR CAMDEN, INC. DE NJ
46. FCR FLORIDA, INC. DE FL
47. FCR GEORGIA, INC. DE GA
48. FCR GREENSBORO, INC. DE NC
3
49. FCR GREENVILLE, INC. DE SC
50. FCR MORRIS, INC. DE NJ
51. FCR REDEMPTION, INC. DE CT
52. FCR TENNESSEE, INC. DE TN
53. FCR VIRGINIA, INC. DE VA
54. K-C INTERNATIONAL, LTD. OR NJ, CA, MA, PA
55. KTI, INC. NJ ME
56. KTI BIO FUELS, INC. ME
57. KTI ENVIRONMENTAL GROUP, INC. NJ ME
58. KTI ENERGY OF MARTINSVILLE, INC. VA
59. KTI ENERGY OF VIRGINIA, INC. VA
60. KTI NEW JERSEY FIBERS, INC. DE NJ, CT, NY, OR
61. KTI OPERATIONS, INC. DE FL, GA, IL, ME,
MA, NH, NJ, TX,
VA, OR
62. KTI RECYCLING OF ILLINOIS, INC. DE IL
63. KTI RECYCLING OF NEW ENGLAND, INC. DE MA
64. KTI RECYCLING OF NEW JERSEY, INC. DE NJ
65. KTI SPECIALTY WASTE SERVICES, INC. ME FL
66. KTI TRANSPORTATION SERVICES, INC. ME NJ
67. MECKLENBURG COUNTY
RECYCLING, INC. CT NC
4
68. U.S. FIBER, INC. NC FL, AZ, CA, OH,
OR, PA, TX
II. EXCLUDED SUBSIDIARIES:
69. AMERICAN ASH RECYCLING OF TENNESSEE, LTD.
70. CASELLA INSURANCE COMPANY
71. FOREST ACQUISITIONS, INC.
72. MAINE ENERGY RECOVERY
COMPANY, LIMITED PARTNERSHIP
73. NORTH COUNTRY COMPOSTING SERVICES, INC.
74. NORTHERN PROPERTIES CORPORATION OF PLATTSBURGH [TO BE MERGED INTO
NORTHERN SANITATION INC.]
75. PORTLAND C & D SITE, INC.
76. TIMBER ENERGY RESOURCES, INC.
III. TIRE BUSINESS SUBSIDIARIES:
77. 1316991 ONTARIO INC. ON
78. ATLANTIC RECYCLED RUBBER INC. NS
79. CASELLA T.I.R.E.S., INC. ME RI
80. NEW HEIGHTS RECOVERY & POWER, LLC DE
81. OAKHURST COMPANY, INC. DE
82. PRAIRIE RUBBER CORPORATION SK
83. RECI INDUSTRIES DE RECICLAGEN, PORTUGAL
SGPL, S.A.
84. RECOVERY TECHNOLOGIES ON
(CANADA), INC. (FORMERLY KTI
RECYCLING OF CANADA, INC.)
5
85. RECOVERY TECHNOLOGIES OPERATIONS, LLC IL IN, NJ
86. RECOVERY TECHNOLOGIES GROUP, INC. DE GA, IL, NJ
87. RECOVERY TECHNOLOGIES DE GA, LA, SC, TN,
COLLECTION SERVICES, LLC TX
6
SCHEDULE 4
MERC L/C Documents
------------------
1. ING Credit Agreement
2. First Mortgage, Leasehold Mortgage and Security Agreement dated as
of April 30, 1996 from the Borrower as mortgagor and the Agent as
mortgagee (as amended, supplemented or otherwise modified from time
to time)
3. Second Mortgage, Leasehold Mortgage and Security Agreement dated as
of April 30, 1996 from the Borrower as mortgagor and the Agent as
mortgagee (as amended, supplemented or otherwise modified from time
to time)
4. Pledge and Security Agreement dated as of April 30, 1996 among Kuhr
Technologies, Inc. ("KTI"), the Borrower and the Agent (as amended,
supplemented or otherwise modified from time to time)
5. Pledge and Security Agreement dated as of April 30, 1996 among KTI
Limited Partners, Inc. ("KTI Limited Partners"), the Borrower and
the Agent (as amended, supplemented or otherwise modified from time
to time)
6. Security Agreement dated as of April 30, 1996 between the Borrower
and the Agent (as amended, supplemented or otherwise modified from
time to time)
7. Lockbox Agreement dated as of May 3, 1996 among the Agent, the
Borrower and Key Bank of Maine (as amended, supplemented or
otherwise modified from time to time)
8. Subordination Agreement dated as of May 3,1996 by and among KTI, KTI
Limited Partners, Energy National, Inc. ("ENI"), CNA Realty, Corp.
("CNA Realty"), the Agent and the Borrower (as amended, supplemented
or otherwise modified from time to time)
9. Subordination Agreement dated as of August 1,2000 by and among KTI,
Inc., the Agent and the Borrower (as amended, supplemented or
otherwise modified from time to time)
10. Note Subordination Agreement dated as of May 3,1996 by and among CNA
Realty, CLE Inc., the Agent and the Borrower as amended by Note
Subordination Agreement dated as of December 30, 1998 by and among
KTI, the Agent and the Borrower (as amended, supplemented or
otherwise modified from time to time)
-2-
11. Note Subordination Agreement dated as of May 3, 1996 by and among
ENI, the Agent and the Borrower ( as amended, supplemented or
otherwise modified from time to time)
12. Note Subordination Agreement dated as of May 3, 1996 by and among
Project Capital 1985, the Agent and the Borrower (as amended,
supplemented or otherwise modified from time to time)
13. Negative Pledge Agreement dated as of May 3,1996 by and among ENI,
the Agent and the Borrower (as amended, supplemented or otherwise
modified from time to time)
14. Consent and Agreement (PPA) dated as of April 30, 1996 by and
between Central Maine Power Company ("CMPC"), the Agent and the
Borrower (as amended, supplemented or otherwise modified from time
to time)
15. Lessor's Estoppel and Consent dated as of April 30, 1996 by CMPC in
favor of the Agent (as amended, supplemented or otherwise modified
from time to time)
16. Consent and Agreement (Water Agreements) dated as of April 30, 1996
by CMPC in favor of the Agent and acknowledged by the Borrower (as
amended, supplemented or otherwise modified from time to time)
17. Consent and Agreement dated as of April 30, 1996 by CL Power Sales
One, LLC ("CL One"), in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
18. Operator Consent and Agreement dated as of April 30, 1996 by KTI
Operations, Inc., in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
19. Municipality Consent and Agreement dated as of July 10, 1996 by the
City of Saco in favor of the Agent and acknowledged by the Borrower
(as amended, supplemented or otherwise modified from time to time)
20. Municipality Consent and Agreement read and passed on June 18,1996
by the City of Biddeford in favor of the Agent and acknowledged by
the Borrower (as amended, supplemented or otherwise modified from
time to time)
21. Municipality Consent and Agreement dated as of August 6, 1996 by the
Town of Acton in favor of the Agent and acknowledged by the Borrower
(as amended, supplemented or otherwise modified from time to time)
22. Municipality Consent and Agreement dated as of August 27, 1996 by
the Town of Alfred in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
-3-
23. Municipality Consent and Agreement dated as of July 1, 1996 by the
Town of Old Orchard Beach in favor of the Agent and acknowledged by
the Borrower (as amended, supplemented or otherwise modified from
time to time)
24. Municipality Consent and Agreement dated as of June 17, 1996 by the
Town of North Berwick in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
25. Municipality Consent and Agreement dated as of June 19, 1996 by the
Town of Buxton in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
26. Municipality Consent and Agreement dated as of June 26, 1996 by the
Town of Kennebunk in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
27. Municipality Consent and Agreement dated as of November 19, 1996 by
the Town of Sanford in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
28. Municipality Consent and Agreement dated as of September 3, 1996 by
the Town of Shapleigh in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
29. Municipality Consent and Agreement dated as of June 24, 1996 by the
Town of Dayton in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
30. Municipality Consent and Agreement dated as of July 10, 1996 by the
Town of Wells in favor of the Agent and acknowledged by the Borrower
(as amended, supplemented or otherwise modified from time to time)
31. Municipality Consent and Agreement dated as of June 10, 1996 by the
Town of Denmark in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
32. Municipality Consent and Agreement dated as of July 31, 1996 by the
Town of Cornish in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
33. Municipality Consent and Agreement dated as of June 27, 1996 by the
Town of Kennebunkport in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
34. Municipality Consent and Agreement dated as of June 17, 1996 by the
Town of South Berwick in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
-4-
35. Municipality Consent and Agreement dated as of June 17, 1996 by the
Town of Brownfield in favor of the Agent and acknowledged by the
Borrower (as amended, supplemented or otherwise modified from time
to time)
36. Front-End Process Residue Consent and Agreement dated as of April
30, 1996 by Arthur Schofield, Inc., in favor of the Agent and
acknowledged by the Borrower (as amended, supplemented or otherwise
modified from time to time)
37. Material Disposal and Transportation Consent and Agreement dated as
of April 30, 1996 by Waste Management Disposal Services of Maine,
Inc. (formerly known as Consolidated Waste Services, Inc.), Waste
Management of New Hampshire, Inc., Waste Management of Maine, Inc.,
in favor of the Agent and acknowledged by the Borrower (as amended,
supplemented or otherwise modified from time to time)
38. Indemnity Agreement dated as of April 30, 1996 among Lehman Brothers
Holdings, Inc., the Borrower and the Issuer as amended by Indemnity
Agreement dated as of May 8, 1997 among The Energy Group PLC, the
Borrower and Issuer and as amended by Indemnity Agreement dated as
of August 8, 2000 among TXU Europe Limited, the Borrower and the
Issuer (as amended, supplemented or otherwise modified from time to
time)
39. Escrow Agreement dated as of April 30, 1996 among Key Trust Company
of Ohio, N.A. (the "Escrow Agent"), CMPC, the Borrower, CL One and
the Agent (as amended, supplemented or otherwise modified from time
to time)
40. Inter-Creditor Agreement dated as of Apri130, 1996 (the
"Inter-Creditor Agreement") by and among CL One, CMPC, the Borrower,
the Escrow Agent, John Hancock Mutual Life Insurance Company, John
Hancock Variable Life Insurance Company, John Hancock Life Insurance
Company of America, Mellon Bank, N.A., Allstate Life Insurance
Company, and Connecticut General Life Insurance Company ( as
amended, supplemented or otherwise modified from time to time)
41. Financing Statement filed with the Secretary of State of Maine (UCC
No. 1171447) with respect to the Borrower in relation to document
nos. 2 and 3 above
42. Financing Statement filed with the Secretary of State of New Jersey
(UCC-l No. 1696612) with respect to KTI in connection with document
no. 4 above
43. Financing Statement filed with the Secretary of State of Maine
(UCC-l No. 1171057) with respect to KTI in connection with document
no. 4 above
44. Financing Statement filed with the Secretary of State of Delaware
(UCC-l No. 9612047) with respect to KTI Limited Partners in
connection with document no. 5 above
-5-
45. Financing Statement filed with the Secretary of State of Maine
(UCC-1 No. 1171056) with respect to KTI Limited Partners in
connection with document no. 5 above
46. Financing Statement filed with the Secretary of State of Maine
(UCC-1 No. 1171059) with respect to the Borrower in connection with
document nos. 6 and 7 above
47. Financing Statement filed with the Secretary of State, New Jersey
(UCC-1 No. 1696616) with respect to the Borrower in connection with
document nos. 6 and 7 above
48. Non-Disturbance and Attornment Agreement (the "Non-Disturbance and
Attornment Agreement") dated as of April 30, 1996 by and between the
Agent, CL One and CMPC ( as amended, supplemented or otherwise
modified from time to time)
EXHIBIT 10.55
-------------
SIXTH AMENDMENT TO AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
AND WAIVER
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN
AGREEMENT AND WAIVER (this "Sixth Amendment") is made and entered into as of the
4th day of June, 2001, by and among CASELLA WASTE SYSTEMS, INC., a Delaware
corporation (the "Parent"), its Subsidiaries (other than Excluded Subsidiaries)
listed on Schedule 1 to the Credit Agreement defined below (together with the
Parent, collectively the "Borrowers"), FLEET NATIONAL BANK (f/k/a BankBoston,
N.A., "Fleet") and such banks or other financial institutions which may become a
party thereto (the "Banks"), Fleet as Administrative Agent for the Banks (the
"Administrative Agent"), KEYBANK NATIONAL ASSOCIATION as Documentation Agent,
and BANK OF AMERICA, N.A. as Syndication Agent.
WHEREAS, the Borrowers, the Banks and the Bank Agents are parties to an
Amended and Restated Revolving Credit and Term Loan Agreement dated as of
December 14, 1999, (as amended by a First Amendment to Revolving Credit and Term
Loan Agreement dated as of February 2, 2000, a Second Amendment to Revolving
Credit and Term Loan Agreement dated as of February 14, 2000, a Third Amendment
to Revolving Credit and Term Loan Agreement dated as of April 14, 2000, a Fourth
Amendment to Revolving Credit and Term Loan Agreement dated as of August 4,
2000, a Fifth Amendment to Revolving Credit and Term Loan Agreement dated as of
February 22, 2001, and as the same may be further amended and in effect from
time to time, the "Credit Agreement"), pursuant to which the Banks have extended
credit to the Borrowers on the terms set forth therein;
WHEREAS, the Borrowers have requested that the Banks and the Administrative
Agent make certain amendments to the Credit Agreement, and grant certain
waivers, and the Banks and the Administrative Agent are willing to amend the
Credit Agreement and grant such certain waivers on the terms set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein without definition shall have
the meanings assigned to such terms in the Credit Agreement.
2. AMENDMENTS TO SECTION 1.1 OF THE CREDIT AGREEMENT. Section 1.1 of the
Credit Agreement is hereby amended by:
(a) deleting the definitions of "Applicable Rate", "Consolidated Net
Income (or Deficit)", "Term Loan Base Rate Margin" and "Term Loan
Eurodollar Margin" and respectively replacing such definitions in their
entirety with the following new definitions:
"Applicable Rate. The applicable rate per annum set forth in the
following table:
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APPLICABLE RATE FOR APPLICABLE RATE FOR
REVOLVING CREDIT BASE REVOLVING CREDIT APPLICABLE
LEVEL PRICING RATIO RATE LOANS EURODOLLAR RATE LOANS FACILITY FEE RATE
===== ==================== ====================== ===================== =================
I less than 2.50:1 Base Rate plus 0.625% Eurodollar Rate plus 0.375%
per annum 2.125% per annum
II greater than or equal Base Rate plus 0.875% Eurodollar Rate plus 0.375%
to 2.50:1 and less per annum 2.375% per annum
than 3.00:1
III greater than or equal Base Rate plus 1.000% Eurodollar Rate plus 0.500%
to 3.00:1 and less per annum 2.500% per annum
than 3.50:1
IV greater than or equal Base Rate plus 1.250% Eurodollar Rate plus 0.500%
to 3.50:1 per annum 2.750% per annum
Each Applicable Rate shall become effective on the first day
after receipt by the Banks of financial statements delivered pursuant
to ss.7.4(a) or (b) hereof which indicate a change in the Pricing
Ratio and in the Applicable Rate in accordance with the above table,
provided that for the period from the Sixth Amendment Effective Date
through six (6) months after the Sixth Amendment Effective Date, the
Applicable Rate shall be Level IV. If at any time the financial
statements required to be delivered pursuant to ss.7.4(a) or (b)
hereof are not delivered within 10 days after the time periods
specified in such subsections, the Applicable Rate shall be the rate
set forth for Level IV, subject to adjustment upon actual receipt of
such financial statements.
Consolidated Net Income (or Deficit). The consolidated net income
(or deficit) of the Borrowers after deduction of all expenses, taxes,
and other proper charges determined in accordance with GAAP, plus, to
the extent deducted and without duplication, (a) non-cash
non-recurring charges related to restructuring charges or asset
impairment charges with respect to the Cellulose Joint Venture not
exceeding $7,750,000, (b) non-cash non-recurring charges related to
losses from asset impairment charges from the Resource Technology
Group or the sale of the Resource Technology Group not exceeding
$24,000,000, and (c) other non-recurring charges, such charges in an
amount to be approved by the Administrative Agent, but in any event
not to exceed [$110,000,000], taken in the fiscal quarter ending April
30, 2001, less, to the extent included therein, (x) any extraordinary
gains, (y) any income from non-continuing operations, and (z) income
attributable to any minority equity or other Investment in any
non-Borrower except to the extent of actual cash received with respect
to the Cellulose Joint Venture or the New Heights Equity Investment
paid to the Borrowers in the form of cash dividends or cash
partnership distributions during the applicable period.
-3-
Term Loan Base Rate Margin. In the event the Pricing Ratio for
the Applicable Term Loan Rate is at Level I, the Term Loan Base Rate
Margin shall be 2.000%, and in the event the Pricing Ratio for the
Applicable Term Loan Rate is at Level II, the Term Loan Base Rate
Margin shall be 2.250%.
Term Loan Eurodollar Margin. In the event the Pricing Ratio for
the Applicable Term Loan Rate is at Level I, the Term Loan Eurodollar
Rate Margin shall be 3.750%, and in the event the Pricing Ratio for
the Applicable Term Loan Rate is at Level II, the Term Loan Eurodollar
Rate Margin shall be 4.000%."
(b) deleting the date "August 22, 2001" in the definition of
"Adjustment Period" and replacing it with the date "June 4, 2001";
and (c) by inserting the following new definitions in proper
alphabetical order:
"Applicable Term Loan Rate. The applicable rate per annum set
forth in the following table:
APPLICABLE TERM LOAN APPLICABLE TERM LOAN
RATE FOR TERM LOAN RATE FOR TERM LOAN
LEVEL PRICING RATIO BASE RATE LOANS EURODOLLAR RATE LOANS
===== ================ ====================== ===========================
I less than 3.00:1 Base Rate plus 2.000% Eurodollar Rate plus 3.750%
per annum per annum
II greater than or Base Rate plus 2.250% Eurodollar Rate plus 4.000%
equal to 3.00:1 per annum per annum
Each Applicable Term Loan Rate shall become effective on the
first day after receipt by the Banks of financial statements delivered
pursuant to ss.7.4(a) or (b) hereof which indicate a change in the
Pricing Ratio and in the Applicable Term Loan Rate in accordance with
the above table, provided that for the period from the Sixth Amendment
Effective Date through six (6) months after the Sixth Amendment
Effective Date, the Applicable Rate shall be Level II. If at any time
the financial statements required to be delivered pursuant to
ss.7.4(a) or (b) hereof are not delivered within 10 days after the
time periods specified in such subsections, the Applicable Term Loan
Rate shall be the rate set forth for Level II, subject to adjustment
upon actual receipt of such financial statements.
Sixth Amendment Effective Date. June 4, 2001."
3. AMENDMENTS TO SECTION 2.2.1 OF THE CREDIT AGREEMENT. Section 2.2.1 of
the Credit Agreement is hereby amended by inserting in proper alphabetical
order, the following new subsection (d):
-4-
"(d) On the Sixth Amendment Effective Date, the Total Commitment shall
be irrevocably reduced to $280,000,000, and any payments required by ss.2.5
shall be made on each such date, together with any and all accrued and
unpaid interest thereon. On the Sixth Amendment Effective Date, each
Revolving Bank's Domestic Commitment shall be reduced pro rata in
accordance with such Bank's Domestic Commitment Percentage. The Domestic
Borrowers jointly and severally promise to pay on the Sixth Amendment
Effective Date all Domestic Revolving Credit Loans, unpaid Reimbursement
Obligations with respect to Domestic Letters of Credit and any and all
unpaid interest accrued thereon, exceeding the amount of the reduced Total
Domestic Commitment as of such date."
4. AMENDMENTS TO SECTION 4A.6.1 OF THE CREDIT AGREEMENT. Section 4A.6.1 of
the Credit Agreement is hereby amended by deleting ss.4A.6.1 in its entirety and
restating it as follows:
"Except as otherwise provided in ss.5. 7, the Term Loan shall bear
interest during each Interest Period relating to all or any portion of the
Term Loan at the rate per annum equal to the Applicable Term Loan Rate."
5. AMENDMENTS TO SECTION 8.4.1(J) OF THE CREDIT AGREEMENT. Section 8.4.1(j)
of the Credit Agreement is hereby amended by deleting subsection (j) thereof in
its entirety and replacing it with the following:
"(j) (i) in the event that the ratio of (A) Total Consolidated Funded
Indebtedness to (B) EBITDA under ss.9.5 hereof is greater than or equal to
3.50:1.00, no Borrower shall become a party to an acquisition without the
consent of the Administrative Agent and the Required Banks, and (ii) in the
event that the ratio of (A) Total Consolidated Funded Indebtedness to (B)
EBITDA under ss.9.5 hereof is less than 3.50:1.00, cash consideration to be
paid by any Borrower in connection with any acquisition or series of
related acquisitions (including cash deferred payments, contingent or
otherwise, and the aggregate amount of all liabilities assumed), shall not
exceed $15,000,000 without the consent of the Administrative Agent and the
Required Banks; provided, further, in each case, that, taking into account
such acquisition and any borrowing made in connection therewith, (x) there
shall remain at least $20,000,000 of availability under the Total
Commitment, and (y) the Borrowers shall be in compliance with ss.9.5 hereof
on a pro forma basis (with the $20,000,000 of availability in clause (x)
hereof included as Total Consolidated Funded Indebtedness for purposes of
calculating compliance)."
6. AMENDMENT TO SS.8.4.2. Section 8.4.2 of the Credit Agreement is amended
by deleting the figure "$24,000,000" therein and replacing it with the figure
"$10,000,000".
7. AMENDMENTS TO SECTION 8.8 OF THE CREDIT AGREEMENT. Section 8.8 of the
Credit Agreement is hereby amended by deleting ss.8.8 in its entirety and
substituting in place thereof the following new ss.8.8:
-5-
"ss.8.8. CAPITAL EXPENDITURES. Commencing with the fiscal quarter ending
July 31, 2001, as at the end of any fiscal quarter (a) through the fiscal
quarter ending April 30, 2002, the Borrowers will not permit the amount of
Capital Expenditures (excluding any acquisitions permitted by ss.8.4 hereof)
made by the Borrowers for such fiscal quarters to exceed the amount set forth
opposite such period set forth in the following table:
QUARTER ENDED TOTAL CUMULATIVE
------------- ----- ----------
7/31/01 $19,700,000 $19,700,000
10/31/01 $14,900,000 $34,600,000
1/31/02 $5,900,000 $40,500,000
4/30/02 $5,500,000 $46,000,000
FISCAL YEAR
ENDED 2002 $46,000,000 $46,000,000
and (b) thereafter, the Borrowers will not permit the amount of Capital
Expenditures (excluding any acquisitions permitted by ss.8.4 hereof) made
by the Borrowers in the period of four (4) consecutive fiscal quarters then
ended to exceed the lesser of (i) 0.5 times EBITDA for such period, or (ii)
the sum of depreciation and landfill amortization expense for such period
(calculated in accordance with GAAP). If during any of the fiscal quarters
through April 30, 2002, any permitted Capital Expenditures are not
utilized, such unutilized amount may be utilized in the next succeeding
quarter, provided however, that, (x) such amount does not exceed the
cumulative Capital Expenditures as set forth in the above table and (y)
annual Capital Expenditures for the fiscal year ending 2002 do not exceed
$46,000,000."
8. AMENDMENTS TO SECTION 9.1 OF THE CREDIT AGREEMENT. Section 9.1 of the
Credit Agreement is hereby amended by deleting ss.9.1 in its entirety and
substituting in place thereof the following new ss.9.1:
"ss.9.1. INTEREST COVERAGE RATIOS. As of the end of any fiscal
quarter, the ratio of EBITDA to Consolidated Total Interest Expense shall
not be less than the stated ratio for the respective periods set forth
below:
PERIOD RATIO
------ -----
Effective Date through 1/31/02 2.50:1
4/30/02 through 1/31/03 2.60:1
4/30/03 through 1/31/04 3.25:1
Thereafter 3.50:1
provided, that any adjustments made pursuant to clause (e) of the
definition of EBITDA shall not be included in the calculation of this
ss.9.1 and EBITDA shall be calculated for the period of four (4) fiscal
quarters ending on the date of calculation."
9. AMENDMENTS TO SECTION 9.3 OF THE CREDIT AGREEMENT. Section 9.3 of the
Credit Agreement is hereby amended by deleting ss.9.3 in its entirety and
substituting in place thereof the following new ss.9.3:
-6-
"SS.9.3. BORROWERS' FUNDED DEBT TO EBITDA RATIO. The Borrowers will not
permit the ratio of (a) Consolidated Funded Indebtedness to (b) EBITDA as at the
end of any fiscal quarter to exceed the stated ratio for the respective periods
set forth below:
PERIOD RATIO
------ -----
Effective Date through 7/31/01 4.00:1
10/31/01 4.10:1
1/31/02 4.15:1
4/30/02 through 7/31/02 3.90:1
10/31/02 through 1/31/03 3.75:1
Thereafter 3.50:1
For the purposes of this ss.9.3, EBITDA shall be calculated for the period
of four (4) consecutive fiscal quarters ending on the date of calculation."
10. AMENDMENTS TO SECTION 9.4 OF THE CREDIT AGREEMENT. Section 9.4 of the
Credit Agreement is hereby amended by deleting ss.9.4 in its entirety and
substituting in place thereof the following new ss.9.4:
"SS.9.4. FUNDED DEBT TO CAPITALIZATION. As of the end of any fiscal
quarter, the Borrowers shall not permit the ratio of (a) Consolidated
Funded Indebtedness to (b) the sum of (i) Consolidated Funded Indebtedness
plus (ii) shareholder's equity in the Parent as determined in accordance
with GAAP (including, without duplication, any preferred stock of the
Parent) ("Capitalization") to exceed the stated ratio for the respective
periods set forth below:
PERIOD RATIO
------ -----
7/31/01 through 1/31/02 0.75:1
4/30/02 through 1/31/03 0.72:1
4/30/03 through 1/31/04 0.70:1
Thereafter 0.65:1."
11. AMENDMENTS TO SCHEDULES AND EXHIBITS OF THE CREDIT AGREEMENT. Exhibit D
is hereby amended by deleting the current Exhibit D attached to the Credit
Agreement and replacing it with the new Exhibit D attached hereto.
12. WAIVER. Each of the Required Banks hereby waives the Borrowers'
compliance with the covenants set forth in ss.8.8 and 9 of the Credit Agreement
solely for the fiscal period ending April 30, 2001.
13. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers represents and
warrants as follows:
(a) The execution, delivery and performance of each of this Sixth
Amendment and the Credit Agreement, as amended as of the date hereof and
the transactions contemplated hereby and thereby are within the corporate
power and authority of such Borrower and have been or will be authorized by
proper corporate
-7-
proceedings, and do not (a) require any consent or approval of the
stockholders of such Borrower, (b) contravene any provision of the charter
documents or by-laws of such Borrower or any law, rule or regulation
applicable to such Borrower, or (c) contravene any provision of, or
constitute an event of default or event which, but for the requirement that
time elapse or notice be given, or both, would constitute an event of
default under, any other material agreement, instrument or undertaking
binding on such Borrower.
(b) This Sixth Amendment and the Credit Agreement as amended as of the
date hereof and all of the terms and provisions hereof and thereof are the
legal, valid and binding obligations of such Borrower enforceable in
accordance with their respective terms except as limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally, and except as the remedy of
specific performance or of injunctive relief is subject to the discretion
of the court before which any proceeding therefor may be brought.
(c) The execution, delivery and performance of this Sixth Amendment
and the Credit Agreement as amended as of the date hereof and the
transactions contemplated hereby and thereby do not require any approval or
consent of, or filing or registration with, any governmental or other
agency or authority, or any other party.
(d) The representations and warranties contained in ss.6 of the Credit
Agreement are true and correct in all material respects as of the date
hereof as though made on and as of the date hereof.
(e) After giving effect to this Sixth Amendment, no Default or Event
of Default under the Credit Agreement has occurred and is continuing.
14. RATIFICATION, ETC. Except as expressly amended hereby, the Credit
Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect, provided, however that the Borrowers
hereby acknowledge that due to their non-activation of the Canadian line, all
references in the Loan Documents to the Canadian line are of no force and
effect. This Sixth Amendment and the Credit Agreement shall hereafter be read
and construed together as a single document, and all references in the Credit
Agreement or any related agreement or instrument to the Credit Agreement shall
hereafter refer to the Credit Agreement as amended by this Sixth Amendment.
15. GOVERNING LAW. THIS SIXTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. RELEASE. In order to induce the Administrative Agent and the Banks to
enter into this Amendment, each of the Borrowers acknowledges and agrees that:
(a) none of the Borrowers has any claim or cause of action against the
Administrative Agent or any Bank (or any of its respective directors, officers,
employees or agents); (b) none of the Borrowers has any offset right,
counterclaim or defense of any kind against any of their respective obligations,
indebtedness or liabilities to the Administrative Agent or any Bank; and (c)
each of the Administrative Agent and the Banks has heretofore properly performed
and satisfied in a timely manner all of its obligations to
-8-
the Borrowers. The Borrowers wish to eliminate any possibility that any past
conditions, acts, omissions, events, circumstances or matters would impair or
otherwise adversely affect any of the Administrative Agent's and the Banks'
rights, interests, contracts, collateral security or remedies. Therefore, each
of the Borrowers unconditionally releases, waives and forever discharges (x) any
and all liabilities, obligations, duties, promises or indebtedness of any kind
of the Administrative Agent or any Bank to any of the Borrowers, except the
obligations to be performed by the Administrative Agent or any Bank on or after
the date hereof as expressly stated in this Amendment, the Credit Agreement and
the other Loan Documents, and (y) all claims, offsets, causes of action, suits
or defenses of any kind whatsoever (if any), whether arising at law or in
equity, whether known or unknown, which the Borrowers might otherwise have
against the Administrative Agent, any Bank or any of its directors, officers,
employees or agents, in either case (x) or (y), on account of any past or
presently existing condition, act, omission, event, contract, liability,
obligation, indebtedness, claim, cause of action, defense, circumstance or
matter of any kind.
17. DELIVERY BY FACSIMILE. This Amendment, to the extent signed and
delivered by means of a facsimile machine, shall be treated in all manner and
respects as an original agreement or instrument and shall be considered to have
the same binding legal effect as if it were the original signed version thereof
delivered in person. At the request of any party hereto or to any such agreement
or instrument, each other party hereto or thereto shall re-execute original
forms thereof and deliver them to all other parties. No party hereto or to any
such agreement or instrument shall raise the use of a facsimile machine to
deliver a signature or the fact that any signature or agreement or instrument
was transmitted or communicated through the use of a facsimile machine as a
defense to the formation of a contract and each party forever waives such
defense.
18. COUNTERPARTS. This Sixth Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument.
19. EFFECTIVENESS. This Sixth Amendment shall become effective (the "Sixth
Amendment Effective Date") upon the receipt by the Agent of:
(a) a counterpart of this Sixth Amendment, executed by the Required Banks
and the Borrowers;
(b) an amendment fee in an aggregate amount equal to 20.0 basis points on
the Commitment (as reduced hereby) or outstanding principal portion of the Term
Loan, as applicable, of each Bank which consents to this Sixth Amendment on or
prior to 5:00 p.m. (Boston time) on June 4, 2001; and
(c) payment of all fees and expenses of the Administrative Agent's legal
counsel in the connection with the preparation of this Sixth Amendment and
ancillary documentation and filings.
EXHIBIT D
---------
FORM OF COMPLIANCE CERTIFICATE
CASELLA WASTE SYSTEMS, INC.
Compliance Certificate dated___________
I, _______________, Chief Financial Officer of Casella Waste Systems, Inc.,
certify that the Borrowers are in compliance with ss.7, 8 and 9 of the Amended
and Restated Revolving Credit and Term Loan Agreement dated as of December 14,
1999, as the same may be amended, [as of the end of the quarter dated
_____________] [giving effect to the acquisition of _______________].
Computations to evidence such compliance are detailed below.
-----------------------
Chief Financial Officer
ss.1.1 "Pricing Ratio"
-----------------------
For the Borrowers (unless a non-Borrower obligation is guaranteed by a Borrower,
in which case such obligation shall be included):
1. Indebtedness for borrowed money
or similar obligations $ __________________
2. Obligations evidenced by debt instruments $ __________________
3. Unpaid reimbursement obligations under any
letter of credit $ __________________
4. Obligations under Capitalized Leases
corresponding to principal $ __________________
5. Guarantees of items in lines 1-4 $ __________________
6. Consolidated Funded Indebtedness $ __________________
(total of line 1 plus line 2 plus line 3 plus
line 4 plus line 5)
7. (a) Consolidated net income or deficit
of the Borrowers* (after deduction of
proper charges in accordance with GAAP) $ _________________
(b) Non-cash non-recurring charges related to the
Cellulose Joint Venture $ _________________
(not to exceed $7,750,000)
-2-
(C) Non-cash non-recurring charges related
to the Resource Technology Group $___________________
(not to exceed $24,000,000)
(d) Other non-recurring charges approved by
the Administrative Agent and taken
in the fiscal quarter ending April 30, 2001 $___________________
(but in any event not to exceed $110,000,000)
(e) Extraordinary gains $___________________
(f) Income from non-continuing operations $___________________
(g) Income attributable to any minority equity $___________________
or other Investment in any non-Borrower $___________________
(except to the extent of actual cash received
with respect to the Cellulose Joint Venture or
the New Heights Equity Investment)
8. Consolidated Net Income or Deficit of the Borrowers $___________________
(total of line 7(a) plus line 7(b) plus line 7(c)
plus line 7(d) minus line 7(e) minus line 7(f) minus
line 7(g))
9. (a) Interest expense of the Borrowers* $___________________
(b) Income taxes of the Borrowers* $___________________
(c) Amortization Expense of the Borrowers* $___________________
(d) Depreciation Expense of the Borrowers* $___________________
10. Non-cash non-recurring charges related to
Oakhurst operations to be taken through the
fiscal quarter ending January 31, 2001 $1,680,000
11. EBITDA of the Borrowers $___________________
(sum of line 8 plus lines 9(a)-(d) plus line 10)
(*annualized if necessary)
12. Consolidated Net Income or Deficit for Acquired
Businesses (other than Excluded Subsidiaries)* $___________________
13. (a) Interest expense for Acquired Businesses* $___________________
(b) Income taxes for Acquired Businesses* $___________________
(c) Amortization Expense for Acquired Businesses* $___________________
(d) Depreciation Expense for Acquired Businesses* $___________________
14. Acquired EBITDA $___________________
(sum of line 12 plus lines 13(a)-(d))
(*annualized if necessary)
-3-
* EBITDA calculations shall be based on the period of four (4) consecutive
fiscal quarters then ended.
15. Total EBITDA $___________________
(sum of line 11 plus line 14)
16. Pricing Ratio
(ratio of line 6 to line 15)
ss.8.3(i) Other Investments in PERC and Timber
----------------------------------------------
The following is a description of all other Investments in PERC and Timber by
the Borrowers pursuant to ss.8.3(i) of the Credit Agreement:
17. Total of Investments in PERC and Timber
listed on Schedule 8.3(f) $___________________
Description Amount
----------- ------
18. Total of Investments in PERC and Timber
listed above $___________________
Total of line 17 plus line 18 $___________________
MAXIMUM ALLOWED $5,000,000
ss.8.8 Capital Expenditures
---------------------------
19. Total Capital Expenditures for the Borrowers
for period of four (4) consecutive fiscal quarters
then ended $___________________
(excluding acquisitions permitted by ss.8.4)
20. Cumulative Capital Expenditures for the Borrowers
through the fiscal quarter then ended $___________________
(excluding acquisitions permitted by ss.8.4)
21. Sum of depreciation and landfill amortization
expense for the Borrowers for four (4) consecutive
fiscal quarters then ended $___________________
22. EBITDA from line 15 above $___________________
23. Line 21 multiplied by 0.5 $___________________
-4-
Maximum Total Capital Expenditures Allowed
through 7/31/01 $19,700,000
Maximum Cumulative Capital Expenditures Allowed
through 7/31/01 $19,700,000
Maximum Total Capital Expenditures Allowed
for the quarter ending 10/31/01 $14,900,000
Maximum Cumulative Capital Expenditures Allowed
for the quarter ending 10/31/01 $34,600,000
Maximum Total Capital Expenditures Allowed
for the quarter ending 1/31/02 $5,900,000
Maximum Cumulative Capital Expenditures Allowed
for the quarter ending 1/31/02 $40,500,000
Maximum Total Capital Expenditures Allowed
for the quarter ending 4/30/02 $5,500,000
Maximum Cumulative Capital Expenditures Allowed
for the quarter ending 4/30/02 $46,000,000
Maximum Total Capital Expenditures Allowed
after 4/30/02 $_______________
(insert lesser of amounts from line 21 and line 23)
ss.9.1 Interest Coverage Ratio
------------------------------
For the Borrowers (unless a non-Borrower obligation is guaranteed by a Borrower,
in which case such obligation shall be included), for the four quarters then
ending:
24. EBITDA from line 15 above $___________________
25. Consolidated Total Interest Expense
of the Borrowers $___________________
26. Ratio of line 24 to line 25 ___________________
MINIMUM REQUIRED:
Through 1/31/02 2.50:1
4/30/02 through 1/31/03 2.60:1
4/30/03 through 1/31/04 3.25:1
Thereafter 3.50:1
ss.9.2 Profitable Operations
----------------------------
27. Consolidated Net Income for Borrowers for the
fiscal quarter ending on the statement date $___________________
MINIMUM REQUIRED $0
-5-
ss.9.3 Borrowers' Funded Debt-to-EBITDA Ratio
---------------------------------------------
28. Consolidated Funded Indebtedness $___________________
(from line 6 above)
29. EBITDA $___________________
(from line 15 above)
30. Pro-forma credit related to the purchase
of certain assets in July 2000 $___________________
(not to exceed $959,000 for the fiscal
quarter ending January 31, 2001, and $384,000
for the fiscal quarter ending April 30, 2001)
31. EBITDA for ss.9.3 $___________________
(sum of line 29 plus line 30)
32. Ratio of line 28 to line 31
MAXIMUM ALLOWED:
Through 7/31/01 4.00:1
For the quarter ending 10/31/01 4.10:1
For the quarter ending 1/31/02 4.15:1
4/30/02 through 7/31/02 3.90:1
10/31/02 through 1/31/03 3.75:1
Thereafter 3.50:1
ss.9.4 Funded Debt to Capitalization
------------------------------------
For the fiscal quarter then ended:
33. Consolidated Funded Indebtedness $___________________
(from line 6 above)
34. Shareholder's equity in the Parent $___________________
(including, without duplication, preferred stock)
35. Line 33 plus line 34 $___________________
36. Ratio of line 33 to line 35 ___________________
MAXIMUM ALLOWED:
Through 1/31/02 0.75:1
4/30/02 through 1/31/03 0.72:1
4/30/03 through 1/31/04 0.70:1
Thereafter 0.65:1
-6-
ss.9.5 Total Funded Debt to EBITDA
----------------------------------
For the Borrowers and the Excluded Subsidiaries:
37. Indebtedness for borrowed money or similar
obligations $___________________
38. Obligations evidenced by debt instruments $___________________
39. Face amount of all Financial L/Cs and any
unpaid reimbursement obligations under any
Financial L/C $___________________
40. Obligations under capitalized leases
corresponding to principal $___________________
41. Guarantees of items in lines 37 - 40 $___________________
42. Total Consolidated Funded Indebtedness $___________________
(total of line 37 plus line 38 plus line
39 plus line 40 plus line 41)
43. EBITDA $___________________
(from line 15 above)
44. Ratio of line 42 to line 43 ____________________
MAXIMUM ALLOWED 4.00:1
-19-
BORROWERS
---------
ALL CYCLE WASTE, INC.
BRISTOL WASTE MANAGEMENT, INC.
CASELLA T.I.R.E.S., INC.
CASELLA TRANSPORTATION, INC.
CASELLA WASTE MANAGEMENT, INC.
CASELLA WASTE MANAGEMENT OF N.Y., INC.
CASELLA WASTE MANAGEMENT OF PENNSYLVANIA, INC.
CASELLA WASTE SYSTEMS, INC.
GRASSLANDS INC.
HAKES C & D DISPOSAL, INC.
HIRAM HOLLOW REGENERATION CORP.
NATURAL ENVIRONMENTAL, INC.
NEWBURY WASTE MANAGEMENT, INC.
NEW ENGLAND WASTE SERVICES, INC.
NEW ENGLAND WASTE SERVICES OF MASSACHUSETTS, INC.
NEW ENGLAND WASTE SERVICES OF N.Y., INC.
NEW ENGLAND WASTE SERVICES OF VERMONT, INC.
NORTH COUNTRY ENVIRONMENTAL SERVICES, INC.
NORTHERN SANITATION, INC.
PINE TREE WASTE, INC.
RESOURCE RECOVERY OF CAPE COD, INC.
RESOURCE TRANSFER SERVICES, INC.
RESOURCE WASTE SYSTEMS, INC.
SAWYER ENVIRONMENTAL RECOVERY FACILITIES, INC.
SAWYER ENVIRONMENTAL SERVICES
SCHULTZ LANDFILL, INC.
SUNDERLAND WASTE MANAGEMENT, INC.
WASTE-STREAM INC.
WESTFIELD DISPOSAL SERVICE, INC.
WINTERS BROTHERS, INC.
By: /s/ Jerry S. Cifor
----------------------------
Name: Jerry S. Cifor
Title: Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE]
-20-
ADVANCED ENTERPRISES RECYCLING INC.
THE AFA GROUP, INC.
AFA PALLET, INC.
AGRO PRODUCTS, INC.
ALLIED EQUIPT. & SALES CORP, INC.
AMERICAN SUPPLIES SALES GROUP, INC.
ARTIC INC.
ATLANTIC TRANSPORTATION TECHNOLOGIES INC.
DATA DESTRUCTION SERVICES, INC.
FAIRFIELD COUNTY RECYCLING, INC.
FCR CAMDEN, INC.
FCR FLORIDA, INC.
FCR GEORGIA, INC.
FCR GREENSBORO, INC.
FCR GREENVILLE, INC.
FCR MORRIS, INC.
FCR PLASTICS, INC.
FCR REDEMPTION, INC.
FCR TENNESSEE, INC.
FCR VIRGINIA, INC.
FCR, INC.
KTI BIO FUELS, INC.
KTI ENERGY OF MARTINSVILLE, INC.
KTI ENERGY OF VIRGINIA, INC.
KTI ENVIRONMENTAL GROUP, INC.
KTI NEW JERSEY FIBERS, INC.
KTI OPERATIONS, INC.
KTI RECYCLING OF ILLINOIS, INC.
KTI RECYCLING OF NEW ENGLAND, INC.
KTI RECYCLING OF NEW JERSEY, INC.
KTI RECYCLING, INC.
KTI SPECIALTY WASTE SERVICES, INC.
KTI TRANSPORTATION SERVICES, INC.
KTI, INC.
MECKLENBURG COUNTY RECYCLING, INC.
POWER SHIP TRANSPORT, INC.
TOTAL WASTE MANAGEMENT CORP.
U.S. FIBER, INC.
By: /s/ Jerry S. Cifor
----------------------------
Name: Jerry S. Cifor
Title: Treasurer
[SIGNATURES CONTINUED ON NEXT PAGE]
-21-
PENOBSCOT ENERGY RECOVERY COMPANY,
LIMITED PARTNERSHIP
By: PERC Management Company Limited
Partnership, general partner
By: PERC, Inc., general partner
By: /s/ Jerry S. Cifor
--------------------
Name: Jerry S. Cifor
Title: Treasurer
PERC MANAGEMENT COMPANY, LIMITED
PARTNERSHIP
By: PERC, Inc., general partner
By: /s/ Jerry S. Cifor
--------------------
Name: Jerry S. Cifor
Title: Treasurer
KTI RECYCLING OF CANADA, INC.
1316991 ONTARIO, INC.
By: /s/ Jerry S. Cifor
--------------------
Name: Jerry S. Cifor
Title: Treasurer
IN WITNESS WHEREOF, each of the undersigned have duly executed this Sixth
Amendment as of the date first set forth above.
FLEET NATIONAL BANK
(f/k/a BankBoston, N.A.),
individually and as Administrative Agent
By: /s/ Timothy M. Laurion
Name: Timothy M. Laurion
Title: Managing Director
KEYBANK NATIONAL ASSOCIATION,
individually and as Documentation Agent
By: /s/ Lawrence A. Mack
Name: Lawrence A. Mack
Title: Senior Vice President
BANK OF AMERICA, N.A.,
individually and as Syndication Agent
By: /s/ Steven Arentsen
Name: Steven Arentsen
Title: Senior Vice President
COMERICA BANK
By: /s/ Joseph G. Ursa
Name: Joseph G. Ursa
Title: Officer
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
CANADIAN IMPERIAL BANK OF COMMERCE
By:
Name:
Title:
CIBC INC.
By: /s/ Lindsay Gordon
Name: Lindsay Gordon
Title: Executive Director
CIBC World Markets Corp. As Agent
SEQUILS-ING I (HBDGM), LTD.
By: ING Capital Advisors LLC,
as Collateral Manager and Authorized
Signatory
By: /s/ Jonathan David
Name: Jonathan David
Title: Vice President
THE TRAVELERS INSURANCE COMPANY
By: /s/ Denise T. Duffee
Name: Denise T. Duffee
Title: Investment Officer
TRAVELERS CORPORATE LOAN FUND INC.
By: Travelers Asset Management
International Company LLC
By: /s/ Denise T. Duffee
Name: Denise T. Duffee
Title: Investment Officer
VAN KAMPEN SENIOR INCOME TRUST
By: Van Kampen Investment Advisory Corp.
By: /s/ Darvin D. Pierce
Name: Darvin D. Pierce
Title: Principal
VAN KAMPEN PRIME RATE INCOME TRUST
By: Van Kampen investment Advisory Corp.
By: /s/ Darvin D. Pierce
Name: Darvin D. Pierce
Title: Principal
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
HARBOURVIEW CDO II, LIMITED
By:
Name:
Title:
INDOSUEZ CAPITAL FUNDING IIA, LIMITED
By: Indosuez Capital as
Portfolio Advisor
By: /s/ Melissa Marano
Name: Melissa Marano
Title: Vice President
MAGNETITE ASSET INVESTORS, LLC
By:
Name:
Title:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
CERES II FINANCE LTD.
By: INVESCO Senior Secured Management,
Inc., as Sub-Managing Agent (Financial)
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
FLOATING RATE PORTFOLIO
By: INVESCO Senior Secured Management,
Inc., as Attorney in fact
By:
Name:
Title:
TRITON CBO III, LIMITED
By: INVESCO Senior Secured Management,
Inc., as Investment Advisor
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
OLYMPIC FUNDING TRUST, SERIES 1999-1
By: /s/ Ann E. Morris
Name: Ann E. Morris
Title: Authorized Agent
KZH CYPRESSTREE-1 LLC
By: /s/ Kimberly Rowe
Name: Kimberly Rowe
Title: Authorized Agent
NORSE CBO, LTD.
By: /s/ Timothy S. Peterson
Name: Timothy S. Peterson
Title: PRESIDENT
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
ELT LTD.
By: /s/ Ann E. Morris
Name: Ann E. Morris
Title: Authorized Agent
THERMOPYLAE FUNDING CORP.
By: /s/ Frank B. Bilotta
Name: Frank B. Bilotta
Title: VICE PRESIDENT
STRATEGIC MANAGED LOAN PORTFOLIO
By:
Name:
Title:
KZH SHOSHONE LLC
By: /s/ Kimberly Rowe
Name: Kimberly Rowe
Title: Authorized Agent
PILGRIM AMERICA HIGH INCOME
INVESTMENTS, LTD.
By: ING Pilgrim Investments,
as its investment manager
By: /s/ Charles E. LeMieux
Name: Charles E. LeMieux, CFA
Title: Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: /s/ Jonathan D. Sharkey
Name: Jonathan D. Sharkey
Title: Principal
KEMPER FLOATING RATE FUND
By: /s/ Kenneth Weber
Name: Kenneth Weber
Title: Sr. Vice President
CARLYLE HIGH YIELD PARTNERS II, LTD.
By: /s/ Linda Pace
Name: Linda Pace
Title: Vice President
CARLYLE HIGH YIELD PARTNERS III, LTD.
By: /s/ Linda Pace
Name: Linda Pace
Title: Vice President
CYPRESSTREE INVESTMENT PARTNERS I, LTD
By: /s/ Jonathan D. Sharkey
Name: Jonathan D. Sharkey
Title: Principal
OPPENHEIMER SENIOR FLOATING RATE FUND
By:
Name:
Title:
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
PILGRIM CLO 1999-1 LTD.
By: Pilgrim Investments, Inc., as its
investment manager
By: /s/ Charles E. LeMieux
Name: Charles E. LeMieux, CFA
Title: Vice President
ARCHIMEDES FUNDING III, LTD.
By: ING Capital Advisors LLC,
as Collateral Manager
By: /s/ Jonathan David
Name: Jonathan David
Title: Vice President
CYPRESSTREE INVESTMENT PARTNERS II, LTD.
By: /s/ Jonathan D. Sharkey
Name: Jonathan D. Sharkey
Title: Principal
KZH-ING-1 LLC
By: /s/ Kimberly Rowe
Name: Kimberly Rowe
Title: Authorized Agent
KZH-ING-2 LLC
By: /s/ Kimberly Rowe
Name: Kimberly Rowe
Title: Authorized Agent
KZH-ING-3 LLC
By: /s/ Kimberly Rowe
Name: Kimberly Rowe
Title: Authorized Agent
NEMEAN CLO, LTD.
By: ING Capital Advisors LLC, as
investment Manager
By: /s/ Jonathan David
Name: Jonathan David
Title: Vice President
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
LASALLE BANK NATIONAL ASSOCIATION
By: /s/ Paul M. Casey
Name: Paul M. Casey
Title: Vice president
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Deborah Bradley
Name: Deborah Bradley
Title: First Vice President
FIRST VERMONT BANK AND TRUST COMPANY
By: /s/ E. Kirice Hart
Name: E. Kirice Hart
Title: Vice President
CANADIAN IMPERIAL BANK OF COMMERCE,
individually and as Canadian Agent
By: /s/ Lindsay Gordon
Name: Lindsay Gordon
Title: CIBC World Markets Corp.
as Agent
SANKATY HIGH YIELD PARTNERS II, L.P.
By: /s/ Diane J. Exter
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
SANKATY ADVISORS, INC.,
as Collateral Manager for GREAT POINT
CLO 1999-1 LTD., as Term Lender
By: /s/ Diane J. Exter
Name: Diane J. Exter
Title: Managing Director
Portfolio Manager
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
FIRST ALLAMERICA FINANCIAL LIFE
INSURANCE CO.
By: /s/ Jonathan D. Sharkey
Name: Jonathan D. Sharkey
Title: Principal
AVALON CAPITAL LTD.
By: INVESCO Senior Secured Management,
Inc., as Portfolio Advisor
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
AVALON CAPITAL LTD. 2
By: INVESCO Senior Secured Management,
Inc., as Portfolio Advisor
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
CHARTER VIEW PORTFOLIO
By: INVESCO Senior Secured Management,
Inc., as Investment Advisor
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
AERIES FINANCE - II LTD.
By: INVESCO Senior Secured Management,
Inc., as Sub-Managing Agent
By: /s/ Joseph Rotondo
Name: Joseph Rotondo
Title: Authorized Signatory
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
COLUMBUS LOAN FUNDING LTD.
By: Travelers Asset Management
International Company LLC
By: /s/ Denise T. Duffee
Name: Denise T. Duffee
Title: Investment Officer
MUIRFIELD TRADING LLC
By: /s/ Ann F. Morris
Name: Ann F. Morris
Title: Asst. Vice President
VAN KAMPEN CLO I, LIMITED
By Van Kampen Management Inc,
as Collateral Manager
By:
Name:
Title:
VAN KAMPEN CLO II, LIMITED
By Van Kampen Management Inc.,
as Collateral Manager
By:
Name:
Title:
TITANIUM CBO I
By:
Name:
Title:
EXHIBIT 21.1
------------
SUBSIDIARIES OF THE REGISTRANT
NAME JURISDICTION OF INCORPORATION
---- -----------------------------
1316991 Ontario, Inc. Ontario
Advanced Enterprises Recycling, Inc. New Jersey
AFA Pallet Co., Inc. New Jersey
Agro Products, Inc. New Jersey
All Cycle Waste, Inc. Vermont
Allied Equipt. & Sales Corp., Inc. New Jersey
Alternate Energy, Inc. Massachusetts
American Ash Recycling of Tennessee, Ltd. Florida
American Supplies Sales Group, Inc. New Jersey
ARTiC, Inc. New Jersey
Atlantic Coast Fibers, Inc. Delaware
Atlantic Recycled Rubber, Inc. Nova Scotia
Atlantic Transportation Technologies, Inc. New Jersey
B. and C. Sanitation Corporation New York
BBC LLC New York
Better Bedding Corp. New York
Blasdell Development Group, Inc. New York
Bristol Waste Management, Inc. Vermont
Casella Insurance Company Vermont
Casella T.I.R.E.S., Inc. Maine
Casella Transportation, Inc. Vermont
Casella Waste Management, Inc. Vermont
Casella Waste Management of Massachusetts, Inc. Massachusetts
Casella Waste Management of N.Y., Inc. New York
Casella Waste Management of Pennsylvania, Inc. Pennsylvania
Corning Community Disposal Service, Inc. New York
Data Destruction Services, Inc. Maine
Fairfield County Recycling, Inc. Delaware
FCR Camden, Inc. Delaware
FCR Florida, Inc. Delaware
FCR Georgia, Inc. Delaware
FCR Greensboro, Inc. Delaware
FCR Greenville, Inc. Delaware
FCR, Inc. Delaware
FCR Morris, Inc. Delaware
FCR Plastics, Inc. Delaware
FCR Redemption, Inc. Delaware
FCR Tennessee, Inc. Delaware
FCR Virginia, Inc. Delaware
Forest Acquisitions, Inc. New Hampshire
Grasslands, Inc. New York
Hakes C & D Disposal, Inc. New York
Hiram Hollow Regeneration Corp. New York
Hyland Facility Associates New York
K-C International, Ltd. Oregon
KTI Bio Fuels, Inc. Maine
KTI Energy of Martinsville, Inc. Virginia
KTI Energy of Virginia, Inc. Virginia
KTI Environmental Group, Inc. New Jersey
KTI New Jersey Fibers, Inc. Delaware
KTI Operations, Inc. Delaware
KTI Recycling of Illinois, Inc. Delaware
KTI Recycling of New Jersey, Inc. Delaware
KTI Specialty Waste Services, Inc. Maine
KTI Transportation Services, Inc. Maine
KTI, Inc. New Jersey
KTI Recycling of New England, Inc. Maine
Maine Energy Recovery Company LP Maine
Manner Resins, Inc. Delaware
Maple City Refuse Corp. New York
Mecklenburg County Recycling, Inc. Connecticut
Natural Environmental, Inc. New York
New England Waste Services of Massachusetts, Inc. Massachusetts
New England Waste Service of ME, Inc. Maine
New England Waste Services of N.Y., Inc. New York
New England Waste Services of Vermont, Inc. Vermont
New England Waste Services, Inc. Vermont
Newbury Waste Management, Inc. Vermont
North Country Environmental Services, Inc. Virginia
North Country Trucking, Inc. New York
North Country Composting Services, Inc. New Hampshire
Northern Properties Corporation of Plattsburgh New York
Northern Sanitation, Inc. New York
NTC LLC New York
PERC Management Company, LP Maine
PERC, Inc. Delaware
Pine Tree Waste, Inc. Maine
Portland C & D Site, Inc. New York
Prairie Rubber Company Saskatchewan
R.A. Bronson, Inc. New York
Recovery Technologies (Canada), Inc. Ontario
Recovery Technologies Collection Services, LLC Delaware
Recovery Technologies Group, Inc. Delaware
Recovery Technologies Operations, LLC Illinois
Resource Optimization Technologies New Hampshire
Resource Recovery of Cape Cod, Inc. Massachusetts
Resource Recovery Systems of MOSA, Inc. New York
Resource Recovery Systems of Sarasota, Inc. Florida
Resource Recovery Systems, Inc. Delaware
Resource Transfer Services, Inc. Massachusetts
Resource Waste Systems, Inc. Massachusetts
Rochester Environmental Park, LLC Massachusetts
Schultz Landfill, Inc. New York
Sunderland Waste Management, Inc. Vermont
The AFA Group, Inc. New Jersey
Timber Energy Resources, Inc. Texas
Total Waste Management Corp. New Hampshire
U.S. Fiber, Inc. North Carolina
Waste-Stream, Inc. New York
Westfield Disposal Service, Inc. New York
Winters Brothers, Inc. Vermont
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8, File No. 333-31022, File No. 333-40267,
File No. 333-43537, File No. 333-43539, File No. 333-43541, File No. 333-43543,
File No. 333-43635, File No. 333-67487, File No. 333-92735, and on Form S-3,
File No. 333-31268, File No. 333-85279, File No. 333-88097 and File No.
333-95841.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Boston, Massachusetts
July 27, 2001