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TABLE OF CONTENTS

Filed Pursuant to Rule 424(b)(3)
File Number 333-112996

PROSPECTUS

$45,000,000

LOGO

9.75% Senior Subordinated Notes due 2013

        We are offering to exchange 9.75% senior subordinated notes due 2013 that we have registered under the Securities Act of 1933 for all outstanding unregistered 9.75% senior subordinated notes due 2013. We refer to these registered notes as the new notes and all outstanding unregistered 9.75% senior subordinated notes due 2013 as the old notes.

        See "Risk Factors" beginning on page 9 to read about factors you should consider in connection with the exchange offer.

        The notes are guaranteed, jointly and severally, fully and unconditionally, by certain subsidiaries of Casella. See "Description of the New Notes" beginning on page 84.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the new notes or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is March 2, 2004.


TABLE OF CONTENTS

 
   Page
AVAILABLE INFORMATION   i
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS   ii
MARKET DATA   iii
SUMMARY   1
RISK FACTORS   9
USE OF PROCEEDS   18
CAPITALIZATION   19
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA   20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   22
BUSINESS   40
MANAGEMENT   63
PRINCIPAL STOCKHOLDERS   66
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   69
DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED STOCK   70
THE EXCHANGE OFFER   74
DESCRIPTION OF THE NEW NOTES   84
SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS   130
PLAN OF DISTRIBUTION   137
LEGAL MATTERS   137
EXPERTS   137
EXCHANGE AGENT   138
INDEX TO FINANCIAL STATEMENTS   F-1


AVAILABLE INFORMATION

        We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. Copies of the documents we file with the SEC can be read at the SEC's public reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549. You can also obtain copies of our filings at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of its public reference facility.

        We are "incorporating by reference" in this prospectus some of the documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information in the documents incorporated by reference is considered to be part of this prospectus. Information in specified documents that we file with the SEC after the date of this prospectus will automatically update and supersede information in this prospectus. We incorporate by reference the document listed below and any future filings we may make with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after the date of filing of the initial registration statement relating to the exchange offer and prior to the termination of any offering of securities offered by this prospectus:

        Our audited and interim consolidated financial statements included in this prospectus contain certain non-material updates to the financial statement footnotes regarding new accounting pronouncements and standards which were included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2003 and the financial statement footnote regarding subsequent events which was included in our Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2003.

        Information contained in this prospectus supplements, modifies or supersedes, as applicable, the information contained in earlier-dated documents incorporated by reference. Information contained in later-dated documents incorporated by reference supplements, modifies or supersedes, as applicable, the information contained in this prospectus or in earlier-dated documents incorporated by reference.

        We will provide a copy of the documents we incorporate by reference (other than exhibits, unless the exhibit is specifically incorporated by reference into the filing requested), at no cost, to you if you submit a request to us by writing to or telephoning us at the following address or telephone number:

Casella Waste Systems, Inc.
25 Greens Hill Lane
Rutland, Vermont 05701
Telephone: (802) 775-0325
Attention: Joseph S. Fusco

        If you would like to request any documents, please do so by no later than March 30, 2004 in order to receive them before the expiration of the exchange offer.

        We have filed this prospectus with the SEC as part of a registration statement on Form S-4 under the Securities Act. This prospectus does not contain all of the information set forth in the registration statement because some parts of the registration statement are omitted in accordance with the rules and regulations of the SEC. The registration statement and its exhibits are available for inspection and copying as set forth above.

        You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not making an offer to exchange the new notes for old notes in any jurisdiction where the offer is not permitted.

i


DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus includes "forward-looking statements," as defined by federal securities laws, with respect to our financial condition, results of operations and business and our expectations or beliefs concerning future events. Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "targets," "likely," "will," "would," "could" and similar expressions or phrases identify forward-looking statements.

        All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in the solid waste services industry. Others are more specific to our operations. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results.

        Factors that may cause actual results to differ from expected results include, among others:

        All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or

ii


otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.

        See the section entitled "Risk Factors" for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors described in this prospectus are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, actual results or developments anticipated by us may not be realized or, even if substantially realized, they may have unexpected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.


MARKET DATA

        Market data used throughout this prospectus, including information relating to our relative position in the markets we operate in, is based on the good faith estimates of management, which estimates are based upon their review of internal surveys, independent industry publications and other publicly available information.

iii


SUMMARY

        This summary highlights information contained elsewhere in this prospectus, is not complete and does not contain all of the information that may be important to you. We urge you to read this entire prospectus carefully, including the "Risk Factors" section and our consolidated financial statements and related notes. In this prospectus, unless the context requires otherwise, "Casella," the "company," "we," "our" or "us" refers to Casella Waste Systems, Inc. and its subsidiaries. Our fiscal year ends on April 30 and wherever we refer to any of our fiscal years, we refer to the twelve-month period ending April 30 of such year.


OUR BUSINESS

The Company

        Casella Waste Systems, Inc. is a vertically-integrated regional solid waste services company that provides collection, transfer, disposal and recycling services to residential, industrial and commercial customers, primarily in the eastern United States. We believe we are currently the number one or number two provider of solid waste collection services in 80% of the areas served by our collection divisions. As of December 31, 2003, we owned and/or operated six Subtitle D landfills, three landfills permitted to accept construction and demolition materials, 37 solid waste collection operations, 33 transfer stations, 39 recycling facilities, one waste-to-energy facility and a 50% interest in a joint venture that manufactures, markets and sells cellulose insulation made from recycled fiber.

        For the six months ended October 31, 2003, we generated revenues and net income of $225.9 million and $10.3 million, respectively. Our Class A common stock is listed on the Nasdaq National Market under the ticker symbol "CWST."

        Our principal executive offices are located at 25 Greens Hill Lane, Rutland, Vermont 05701. Our telephone number is (802) 775-0325. Our website address is www.casella.com. The information contained or incorporated in our website is not a part of this prospectus.

1


THE OFFERING

Summary of Terms of the Exchange Offer

Background   On February 2, 2004, we completed a private placement of the old notes. In connection with that private placement, we entered into an exchange and registration rights agreement in which we agreed to deliver this prospectus to you and to make an exchange offer.
The Exchange Offer   We are offering to exchange up to $45.0 million aggregate principal amount of our new notes which have been registered under the Securities Act for up to $45.0 million aggregate principal amount of our old notes. You may tender old notes only in integral multiples of $1,000 principal amount.
    On January 24, 2003, Casella executed the indenture governing the notes. The notes we are offering to exchange hereby are additional notes issued under that indenture on February 2, 2004. On January 24, 2003, Casella issued and sold $150.0 million of aggregate principal amount of 9.75% Senior Subordinated Notes due 2013, which were subsequently exchanged for $150.0 million aggregate principal amount of notes registered under the Securities Act pursuant to an exchange offer completed on September 24, 2003. The notes offered hereby will be pari passu with, of the same series as, vote on any matter submitted to bondholders with and otherwise be identical in all respects to, the 9.75% Senior Subordinated Notes due 2013 issued in January 2003 and exchanged in September 2003.
Resale of New Notes   Based on interpretive letters of the SEC staff to third parties, we believe that you may resell and transfer the new notes issued pursuant to the exchange offer in exchange for old notes without compliance with the registration and prospectus delivery provisions of the Securities Act, if:
    •   you are acquiring the new notes in the ordinary course of your business,
    •   you have no arrangement or understanding with any person to participate in the distribution of the new notes, and
    •   you are not our affiliate as defined under Rule 405 of the Securities Act.
    If you fail to satisfy any of these conditions, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the new notes.
    Broker-dealers that acquired old notes directly from us, but not as a result of market-making activities or other trading activities, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the new notes.
         

2

    Each broker-dealer that receives new notes for its own account pursuant to the exchange offer in exchange for old notes that it acquired as a result of market-making or other trading activities must deliver a prospectus in connection with any resale of the new notes and provide us with a signed acknowledgement of this obligation.
Consequences If You Do Not Exchange Your Old Notes   Old notes that are not tendered in the exchange offer or are not accepted for exchange will continue to bear legends restricting their transfer. You will not be able to offer or sell the old notes unless:
    •   an exemption from the requirements of the Securities Act is available to you,
    •   we register the resale of old notes under the Securities Act, or
    •   the transaction requires neither an exemption from nor registration under the requirements of the Securities Act.
    After the completion of the exchange offer, we will no longer have an obligation to register the old notes, except in limited circumstances.
Expiration Date   5:00 p.m., New York City time, on April 6, 2004, unless we extend the exchange offer.
Conditions to the Exchange Offer   We will not be required to accept for exchange, or exchange new notes for, any old notes and we may terminate the exchange offer before the acceptance of the old notes, if:
    •   the exchange offer, or the making of any exchange by a holder, violates, in our good faith determination, any applicable law, rule or regulation or any applicable interpretation of the staff of the SEC;
    •   any action or proceeding shall have been instituted or threatened with respect to the exchange offer which, in our reasonable judgment, would impair our ability to proceed with the exchange offer; or
    •   we have not obtained any governmental approval which we, in our reasonable discretion, consider necessary for the completion of the exchange offer as contemplated by this prospectus.
Procedures for Tendering Old Notes   If you wish to accept the exchange offer, you must deliver to the exchange agent:
    •   either a completed and signed letter of transmittal or, for old notes tendered electronically, an agent's message from The Depository Trust Company, which we refer to as DTC, stating that the tendering participant agrees to be bound by the letter of transmittal and the terms of the exchange offer,
    •   your old notes, either by tendering them in physical form or by timely confirmation of book-entry transfer through DTC, and
    •   all other documents required by the letter of transmittal.
         

3

    These actions must be completed before the expiration of the exchange offer.
    If you hold old notes through DTC, you must comply with its standard procedures for electronic tenders, by which you will agree to be bound by the letter of transmittal.
    By signing, or by agreeing to be bound by the letter of transmittal, you will be representing to us that:
    •   you will be acquiring the new notes in the ordinary course of your business,
    •   you have no arrangement or understanding with any person to participate in the distribution of the new notes, and
    •   you are not our affiliate as defined under Rule 405 of the Securities Act.
    See "The Exchange Offer—Procedures for Tendering."
Guaranteed Delivery Procedures for Tendering Old Notes   If you cannot meet the expiration deadline or you cannot deliver your old notes, the letter of transmittal or any other documentation to comply with the applicable procedures under DTC standard operating procedures for electronic tenders in a timely fashion, you may tender your notes according to the guaranteed delivery procedures set forth under "The Exchange Offer—Guaranteed Delivery Procedures."
Special Procedures for Beneficial Holders   If you beneficially own old notes which are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender in the exchange offer, you should contact that registered holder promptly and instruct that person to tender on your behalf. If you wish to tender in the exchange offer on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your old notes, either arrange to have the old notes registered in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
Withdrawal Rights   You may withdraw your tender of old notes at any time before the exchange offer expires.
Tax Consequences   The exchange pursuant to the exchange offer generally will not be a taxable event for U.S. federal income tax purposes. See "Summary of U.S. Federal Income Tax Considerations."
Use of Proceeds   We will not receive any proceeds from the exchange or the issuance of new notes in connection with the exchange offer.
Exchange Agent   U.S. Bank National Association is serving as exchange agent in connection with the exchange offer. The address and telephone number of the exchange agent are set forth under "The Exchange Offer—Exchange Agent."

4


Summary Description of the New Notes

        The form and terms of the new notes are substantially identical to the form and terms of the old notes, except that:

        The new notes will evidence the same debt as the old notes and will rank equally with the old notes. The same indenture will govern both the old notes and the new notes. We refer to the old notes and the new notes together as the "notes."

Issuer   Casella Waste Systems, Inc.
New Notes Offered   $45,000,000 aggregate principal amount of 9.75% Senior Subordinated Notes due 2013.
    On January 24, 2003, Casella executed the indenture governing the notes. The notes we are offering to exchange hereby are additional notes issued under that indenture on February 2, 2004. On January 24, 2003, Casella issued and sold $150.0 million of aggregate principal amount of 9.75% Senior Subordinated Notes due 2013, which were subsequently exchanged for $150.0 million aggregate principal amount of notes registered under the Securities Act pursuant to an exchange offer completed on September 24, 2003. The notes offered hereby will be pari passu with, of the same series as, vote on any matter submitted to bondholders with and otherwise be identical in all respects to, the 9.75% Senior Subordinated Notes due 2013 issued in January 2003 and exchanged in September 2003.
Maturity Date   February 1, 2013.
Interest Payment Dates   February 1 and August 1 of each year, commencing August 1, 2004.
Optional Redemption   We may redeem the notes, in whole or in part, at our option at any time on or after February 1, 2008, at the redemption prices listed under "Description of the New Notes—Optional Redemption."
    In addition, on or before February 1, 2006, we may, at our option and subject to certain requirements, use the net proceeds from one or more qualified equity offerings to redeem up to 35% of the aggregate principal amount of the notes at 109.75% of their principal amount, plus accrued and unpaid interest. See "Description of the New Notes—Optional Redemption."
Sinking Fund   None.
Subordination and Guarantees   The notes will rank junior to all of our existing and future senior indebtedness, will rank pari passu with any future senior subordinated indebtedness, and will rank senior to any future indebtedness that is expressly subordinated to the notes. See "Description of the New Notes—Subordination."
         

5

    All of our existing and future restricted subsidiaries (other than foreign subsidiaries, our captive insurance subsidiary and certain inactive and insignificant subsidiaries) will guarantee our obligation to pay principal, premium, if any, and interest on the notes. The guarantees will rank junior to all existing and future senior indebtedness of these subsidiaries, will rank pari passu with any future senior subordinated indebtedness of these subsidiaries, and will rank senior to any future indebtedness of these subsidiaries that is expressly subordinated to the guarantees. See "Description of the New Notes—Subsidiary Guarantees."
    As of October 31, 2003, assuming the offering of the old notes and the application of the net proceeds therefrom had occurred on that date, the notes and the guarantees would have been subordinated in right of payment to $158.6 million of indebtedness (not including letters of credit of $29.7 million), and up to an additional $145.3 million of indebtedness would have been available, subject to our ability to meet certain borrowing conditions, for borrowing under the revolving portion of the senior secured credit facilities.
Change of Control   If a change of control of Casella occurs, we may be required to make an offer to purchase the notes at 101% of their principal amount, plus accrued and unpaid interest. See "Description of the New Notes—Repurchase at the Option of Holders—Change of Control."
Certain Covenants   The indenture governing the notes contains certain covenants that, among other things, limit our ability and the ability of some of our subsidiaries to:
    •   incur additional debt;
    •   create liens;
    •   make investments;
    •   enter into transactions with affiliates;
    •   sell or transfer assets;
    •   incur debt that is expressly senior to the notes and subordinate to any of our other debt;
    •   declare or pay dividends, redeem stock or make other distributions to stockholders; and
    •   consolidate or merge.
    These covenants are subject to a number of important qualifications and limitations. See "Description of the New Notes."


Risk Factors

        You should carefully consider all of the information in this prospectus. In particular, for a discussion of some specific factors that you should consider in connection with the exchange offer, see "Risk Factors" beginning on page 9.

6


Summary Consolidated Financial and Operating Data

        The summary consolidated financial statements of operations and operating data for the three years in the period ended April 30, 2003 and the summary consolidated balance sheet data as of April 30, 2001, 2002 and 2003 are derived from our audited consolidated financial statements. The summary consolidated financial statements of operations and operating data for the six months ended October 31, 2002 and the six months ended October 31, 2003 and the summary consolidated balance sheet data as of October 31, 2003 are derived from our unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared by us on a basis consistent with our audited financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for such periods. Results for the six months ended October 31, 2003 are not necessarily indicative of the results that may be expected for the year ending April 30, 2004 or any other future period. You should read the following summary consolidated financial and operating data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 
   Fiscal Year Ended April 30,
   Six Months Ended October 31,
  
 
   2001
   2002
   2003
   2002
   2003
  
 
    
    
    
   (unaudited)

  
 
   (dollars in thousands)

  
  Statement of Operations Data:                                
  Revenues   $ 480,366   $ 421,235   $ 420,863   $ 230,601   $ 225,863  
  Cost of operations     321,214     276,693     278,347     151,963     146,209  
  General and administrative     64,079     54,456     55,772     29,175     29,354  
  Depreciation and amortization     53,411     50,712     47,930     24,287     29,742  
  Impairment charge     79,687     —     4,864     —     —  
  Restructuring charge     4,151     (438 )   —     —     —  
  Legal settlements     4,209     —     —     —     —  
  Other miscellaneous charges     1,604     —     —     —     —  
   
 
 
 
 
 
      Operating income (loss)     (47,989 )   39,812     33,950     25,176     20,558  
  Interest expense     41,628     31,451     26,572     14,087     12,332  
  Interest income     (2,974 )   (904 )   (318 )   (161 )   (139 )
  (Income) loss from equity method investments, net     26,256     (1,899 )   (2,073 )   (1,751 )   (898 )
  Loss on debt extinguishment     —     —     3,649     —     —  
  Minority interest     1,026     (154 )   (152 )   (152 )   —  
  Other (income)/expense, net     76     (4,480 )   (1,599 )   253     (380 )
   
 
 
 
 
 
  Income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     (114,001 )   15,798     7,871     12,900     9,643  
  Provision (benefit) for income taxes     (20,443 )   5,111     3,813     5,628     478  
  Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (93,558 )   10,687     4,058     7,272     9,165  
  Loss from discontinued operations, net     (4,130 )   —     —     —     —  
  Estimated loss on disposal of discontinued operations, net     (2,657 )   (4,096 )   —     —     —  
  Reclassification from discontinued operations, net     (1,190 )   1,140     50     (39 )   —  
  Cumulative effect of change in accounting principle, net     —     (250 )   (63,916 )   (63,916 )   2,723  
   
 
 
 
 
 
  Net income (loss)   $ (101,535 ) $ 7,481   $ (59,808 ) $ (56,683 ) $ 11,888  
  Preferred stock dividend     1,970     3,010     3,094     1,528     1,606  
   
 
 
 
 
 
  Net income (loss) available to common stockholders   $ (103,505 ) $ 4,471   $ (62,902 ) $ (58,211 ) $ 10,282  
   
 
 
 
 
 

7

 
   As of April 30,
    
 
   As of October 31, 2003
 
   2001
   2002
   2003
 
    
    
    
   (unaudited)
 
   (dollars in thousands)
Balance Sheet Data:                        
  Cash and cash equivalents   $ 22,001   $ 4,298   $ 15,652   $ 3,594
  Working capital (deficit), net (1)     33,056     (635 )   (4,847 )   7,620
  Property, plant and equipment, net     290,537     287,206     302,328     302,498
  Goodwill     225,969     219,730     159,682     162,972
  Total assets     686,293     621,611     602,641     607,182
  Total debt (2)     363,223     288,848     310,179     308,560
  Redeemable preferred stock     57,720     60,730     63,824     65,430
  Total stockholders' equity     172,951     176,796     119,152     132,416
 
   Fiscal Year Ended April 30,
   Six Months Ended October 31,
  
 
   2001
   2002
   2003
   2002
   2003
  
 
    
    
    
   (unaudited)

  
 
   (dollars in thousands)

  
Other Operating Data:                                
  Net cash provided by operating activities   $ 63,261   $ 67,687   $ 64,952   $ 31,885   $ 23,020  
  Net cash (used in) investing activities     (55,565 )   (9,533 )   (61,208 )   (21,305 )   (35,496 )
  Net cash (used in) provided by financing activities     18,765     (70,065 )   7,610     (4,602 )   418  
  Capital expenditures     61,518     37,674     41,925     20,659     28,683  
  Ratio of earnings to fixed charges (3)     —     1.43 x   1.25 x   1.78 x   1.67 x
  Ratio of pro forma earnings to pro forma fixed charges (4)     —     —     1.27 x   —     1.57 x
(1)
Working capital, net is defined as current assets, excluding cash and cash equivalents, minus current liabilities.

(2)
Total debt includes capital leases.

(3)
For purposes of determining the ratio of earnings to fixed charges, "earnings" consists of income from continuing operations before income taxes, fixed charges, and minority interests, and "fixed charges" consists of interest, amortization of deferred financing costs and the portion of capital leases deemed to be representative of the interest factor. For fiscal year 2001, earnings were insufficient to cover fixed charges by $87,092.

(4)
Ratio of pro forma earnings to pro forma fixed charges adjusts for pro forma interest which gives effect to the offering of the old notes and the use of proceeds therefrom, as if these transactions occurred at the beginning of the period presented.

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RISK FACTORS

        In addition to the other information in this prospectus, you should carefully consider the following factors in connection with the exchange offer. Any of these risks could cause actual results to differ materially from those indicated by forward-looking statements made in this prospectus and presented elsewhere by management from time to time.


Risks Related to Our Business

We may not be successful in making acquisitions of solid waste assets, including developing additional disposal capacity, or in integrating acquired businesses or assets, which could limit our future growth.

        Our strategy envisions that a substantial part of our future growth will come from making acquisitions of traditional solid waste assets or operations and acquiring or developing additional disposal capacity. These acquisitions may include "tuck-in" acquisitions within our existing markets, assets that are adjacent to or outside our existing markets, or larger, more strategic acquisitions. In addition, from time to time we may acquire businesses that are complementary to our core business strategy. We may not be able to identify suitable acquisition candidates. If we identify suitable acquisition candidates, we may be unable to negotiate successfully their acquisition at a price or on terms and conditions favorable to us. Furthermore, we may be unable to obtain the necessary regulatory approval to complete potential acquisitions.

        Our ability to achieve the benefits we anticipate from acquisitions, including cost savings and operating efficiencies, depends in part on our ability to successfully integrate the operations of such acquired businesses with our operations. The integration of acquired businesses and other assets may require significant management time and company resources that would otherwise be available for the ongoing management of our existing operations.

        In addition, the process of acquiring or developing additional disposal capacity is lengthy, expensive and uncertain. We often experience opposition from citizen and other groups to proposed expansions of our landfills, which has often resulted in litigation by or against us to clarify our right to obtain necessary permits. The disposal capacity at our existing landfills is limited by the remaining available volume at our landfills and annual and/or daily disposal limits imposed by the various governmental authorities with jurisdiction over our landfills. We typically reach or approximate our daily and annual maximum permitted disposal capacity at all of our landfills. If we are unable to develop or acquire additional disposal capacity, our ability to achieve economies from the internalization of our waste stream will be limited and we will be required to utilize the disposal facilities of our competitors.

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 senior secured credit facilities, the issuance of shares of our Class A common stock and/or seller financing. We may not have sufficient existing capital resources and may be unable to raise sufficient additional capital resources on terms satisfactory to us, if at all, in order to meet our capital requirements for such acquisitions.

        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 trading price of our Class A common stock on the Nasdaq National Market has limited our willingness to use our equity as consideration and the willingness of sellers to accept our shares and as a result has limited, and could continue to limit, the size and scope of our acquisition program.

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Environmental regulations and litigation could subject us to fines, penalties, judgments and limitations on our ability to expand.

        We are subject to potential liability and restrictions under environmental laws, including those relating to transport, recycling, treatment, storage and disposal of wastes, discharges to air and water, and the remediation of contaminated soil, surface water and groundwater. The waste management industry has been and likely will continue to be subject to regulation, including permitting and related financial assurance requirements, as well as to attempts to further regulate the industry through new legislation. For example, our waste-to-energy and manufacturing facilities are subject to regulations limiting discharges of pollution into the air and water, and our solid waste operations are subject to a wide range of federal, state and, in some cases, local environmental, odor and noise and land use restrictions. If we are not able to comply with the requirements that apply to a particular facility or if we operate without necessary approvals, we could be subject to civil, and possibly criminal, fines and penalties, and we may be required to spend substantial capital to bring an operation into compliance or to temporarily or permanently discontinue, and/or take corrective actions, possibly including removal of landfilled materials, regarding an operation that is not permitted under the law. We may not have sufficient insurance coverage for our environmental liabilities. Those costs or actions could be significant to us and impact our results of operations, as well as our available capital.

        Environmental and land use laws may also impact our ability to 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. Those laws and regulations may also 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 or reduce overall operations, which could reduce our revenues and/or operating margins.

        We have historically grown and intend to continue to grow through acquisitions, and we have tried and will continue to try to evaluate and address environmental risks and liabilities presented by newly acquired businesses as we identify 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 or harm our reputation.

        Our operating program depends on our ability to operate and expand the landfills we own and lease and to develop new landfill sites. Localities where we operate generally seek to regulate some or all landfill operations, including siting and expansion of operations. The laws adopted by municipalities in which our landfills are located may limit our utilization of our landfills. We may not 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. If we are unable to develop additional disposal capacity, our ability to achieve economies from the internalization of our waste stream will be limited and we will be required to utilize the disposal facilities of our competitors.

        In addition to the costs of complying with environmental laws and regulations, we incur costs defending against environmental litigation brought by governmental agencies and private parties. We are, and also may be in the future, defendants in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage. A significant judgment against us could harm our business, our prospects and our reputation. See "Business—Regulation" and "Business—Legal Proceedings."

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Our operations would be adversely affected if we do not have access to sufficient capital.

        Our ability to remain competitive and sustain our operations depends in part on cash flow from operations and access to capital. We intend to fund our cash needs primarily through cash from operations and borrowings under our senior secured credit facilities. However, we may require additional equity and/or debt financing for debt repayment obligations and to fund our growth and operations. In addition, if we undertake more acquisitions or further expand our operations, our capital requirements may increase. We may not have access to the amount of capital that we require from time to time, on favorable terms or at all.

Our results of operations could continue to be adversely affected by changing prices or market requirements for recyclable materials.

        Our results of operations have been and may continue to be 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 impact our business and results of operations, as well as our available capital.

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 budget constraints and severe weather conditions. In addition, as we expand in our existing markets, opportunities for growth within these regions will become more limited and the geographic concentration of our business will increase. 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 may not be able to lessen our regional geographic concentration through any other acquisitions.

Maine Energy may be required to make a payment in connection with the payoff of certain obligations and limited partner loans earlier than we had anticipated and which may exceed the amount of the liability we recorded in connection with the KTI acquisition.

        Under the terms of waste handling agreements among the Biddeford-Saco Waste Handling Committee, the cities of Biddeford and Saco, Maine, 13 other muncipalities and our subsidiary Maine Energy, Maine Energy will be required, following the date on which the bonds that financed Maine Energy and certain limited partner loans to Maine Energy are paid in full, to pay a residual cancellation payment to the respective municipalities party to those agreements equal to an aggregate of 18% of the fair market value of the equity of the partners in Maine Energy. In connection with our merger with KTI, we estimated the fair market value of Maine Energy as of the date the limited partner loans are anticipated to be paid in full, and recorded a liability equal to 18% of such amount.

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Our estimate of the fair market value of Maine Energy may not 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 operating results could be harmed.

        In connection with these waste handling agreements, the cities of Biddeford and Saco and the additional 13 municipalities that were parties to the agreements have filed lawsuits in the State of Maine seeking the residual cancellation payments and alleging, among other things, our breach of the waste handling agreement for our failure to pay the residual cancellation payments in connection with the KTI merger, failure to pay off limited partner loans in accordance with the terms of the agreement and processing amounts of waste above contractual limits without issuance of proper notice. The complaint seeks damages for breach of contract and a court order requiring us to provide an accounting of all relevant transactions since May 3, 1996. If the plaintiffs are successful in their claims against us and damages are awarded, our operating income in the period in which such a claim is paid would be impacted. See "Business—Legal Proceedings."

We may not be able to effectively compete in the highly competitive solid waste services industry.

        The solid waste services industry is highly competitive, has undergone a period of 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 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, some municipal contracts are subject to periodic competitive bidding. We may not 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 revenues would decrease and our operating results would be harmed.

        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 GreenFiber insulation manufacturing joint venture with Louisiana-Pacific Corporation competes with other parties, some of which have substantially greater resources than GreenFiber does, 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. Once the permitted capacity of a particular landfill is reached and additional capacity is not authorized, the landfill must be closed and capped, and post-closure maintenance started. We establish reserves for the estimated costs associated with such closure and post-closure obligations over the anticipated useful life of each landfill on a per ton basis. In addition to the landfills we currently operate, we own five 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

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closure of a landfill. Our financial obligations for closure or post-closure costs could exceed the amount accrued and reserved or amounts otherwise receivable pursuant to trust funds established for this purpose. Such a circumstance could result in significant unanticipated charges.

Fluctuations in fuel costs could affect our operating expenses and results.

        The price and supply of fuel is unpredictable and fluctuates based on events beyond our control, including among others, geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regional production patterns. Because fuel is needed to run our fleet of trucks, price escalations for fuel may increase our operating expenses.

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.

We may be required to write-off capitalized charges in the future, which could adversely affect our earnings.

        Any write-off of capitalized costs or intangible assets reduces our earnings and, consequently, could affect 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 (1) any operation that is permanently shut down or has not generated or is not expected to generate sufficient cash flow, (2) any pending acquisition that is not consummated, (3) any landfill or development project that is not expected to be successfully completed, and (4) any goodwill or other intangible assets that are determined to be impaired. We have incurred such charges in the past.

The seasonality of our revenues could adversely impact our financial condition.

        Our 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: (1) the volume of waste relating to construction and demolition activities decreases substantially during the winter months in the northeastern United States; and (2) 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 increased volume from the winter ski industry. Since certain of our 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 result in increased operating costs to our operations.

        Our recycling business experiences increased volumes of newspaper in November and December due to increased newspaper advertising and retail activity during the holiday season. Our cellulose

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insulation joint venture experiences lower sales in November and December because of lower production of manufactured housing due to holiday plant shutdowns.

Efforts by labor unions to organize our employees could divert management attention and increase our operating expenses.

        Labor unions regularly make attempts to organize our employees, and these efforts will likely continue in the future. Certain groups of our employees have chosen to be represented by unions, and we have negotiated collective bargaining agreements with these groups. Additional groups of employees may seek union representation in the future, and the negotiation of collective bargaining agreements could divert management attention and result in increased operating expenses and lower net income. If we are unable to negotiate acceptable collective bargaining agreements, we might have to wait through "cooling off" periods, which are often followed by union-initiated work stoppages, including strikes. Depending on the type and duration of any labor disruptions, our revenues could decrease and our operating expenses could increase, which could adversely affect our financial condition, results of operations and cash flows. As of December 31, 2003, approximately 5.1% of our employees involved in collection, transfer, disposal, recycling or other operations, including our employees at Maine Energy waste-to-energy facility, were represented by unions.

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 December 31, 2003, 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 member of our Board of Directors. Based on the number of shares of common stock and Series A redeemable convertible preferred stock outstanding on December 31, 2003, the shares of our Class A common stock and Class B common stock beneficially owned by John W. Casella and Douglas R. Casella represent approximately 30.3% of the aggregate voting power of our stockholders. Consequently, John W. Casella and Douglas R. Casella are able to substantially influence all matters for stockholder consideration, including exercising their influence over us according to interests that may differ from the interests of holders of the notes. For instance, they may approve transactions that in their judgment enhance the value of their equity investment in us despite involving risks to holders of the notes.


Risks Related to Our Indebtedness

We have substantial debt and have the ability to incur additional debt. The principal and interest payment obligations of such debt may restrict our future operations and impair our ability to meet our obligations under the notes.

        As of October 31, 2003, assuming the completion of the offering of the old notes and the application of the proceeds therefrom had occurred on that date, we and our subsidiaries would have had $359.7 million of outstanding indebtedness (not including letters of credit of $29.7 million). In addition, the terms of our senior secured credit facilities and the indenture governing the notes permit us to incur additional debt, including up to $145.3 million that would have been available under the senior secured credit facilities on that date, subject to our ability to meet certain borrowing conditions. At October 31, 2003, $150.0 million of borrowings under our senior secured credit facilities bore interest at variable rates. If the interest rate on this portion of our borrowings increased by 100 basis points, our annual debt service would increase by $1.5 million.

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        Our substantial debt may have important consequences to you. For instance, it could:

        Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds, to meet these obligations or to successfully execute our business strategy.

The agreements governing the notes and our other debt impose restrictions on our business and adversely affect our ability to undertake certain corporate actions.

        The indenture governing the notes and the agreements governing our senior secured credit facilities contain covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things:

Our senior secured credit facilities also require us to meet a number of financial ratios and covenants.

        Our ability to comply with these agreements may be affected by events beyond our control, including prevailing economic, financial and industry conditions. These covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, merger and acquisitions or other corporate opportunities. The breach of any of these covenants or restrictions could result in a default under the indenture governing the notes or our senior secured credit facilities. An event of default under our debt agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest, and the commitments of the senior lenders to make further extensions of credit under our senior secured credit facilities could be terminated. If we were unable to repay debt to our senior lenders, these lenders could proceed against the collateral securing that debt. In addition, acceleration of our other indebtedness may cause us to be unable to make interest payments on the notes and repay the principal amount of the notes or may cause the subsidiary guarantors to be unable to make payments under the guarantees.

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Risks Related to the Exchange Offer and the Notes

If you fail to exchange your old notes, they will continue to be restricted securities and may become less liquid.

        Old notes which you do not tender or we do not accept will, following the exchange offer, continue to be restricted securities. You may not offer or sell untendered old notes except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. We will issue new notes in exchange for the old notes pursuant to the exchange offer only following the satisfaction of procedures and conditions described elsewhere in this prospectus. These procedures and conditions include timely receipt by the exchange agent of the old notes and of a properly completed and duly executed letter of transmittal.

        Any old note tendered and exchanged in the exchange offer will reduce the aggregate principal amount of the old notes outstanding. Following the exchange offer, if you did not tender your old notes you generally will not have any further registration rights and your old notes will continue to be subject to transfer restrictions. Because we anticipate that most holders of old notes will elect to exchange their old notes, we expect that the liquidity of the market for any old notes remaining after the completion of the exchange offer may be substantially limited.

The new notes will be unsecured and subordinated to our senior debt.

        The new notes will rank junior to all of our existing and future senior debt, including borrowings under our senior secured credit facilities. The new notes will be guaranteed on a senior subordinated basis by most of our direct and indirect subsidiaries. These guarantees will be subordinated to all existing and future senior debt of the guarantors. Our senior debt includes all debt that is not expressly subordinated to or ranked pari passu with the notes or the guarantees, subject to certain exceptions. In addition, the new notes will not be secured by any of our assets or any assets of our subsidiaries. As a result, the new notes will be effectively subordinated to all of our and our subsidiaries' secured indebtedness to the extent of the value of the assets securing such indebtedness. As of October 31, 2003, assuming the completion of the offering of the old notes and the application of the proceeds therefrom had occurred on that date, the notes and the subsidiary guarantees would have been subordinated in right of payment to $158.6 million of indebtedness (not including letters of credit of $29.7 million). In addition, we are permitted under the indenture governing the notes to redeem our Series A redeemable convertible preferred stock to the extent it is still outstanding at the mandatory redemption date, which is August 11, 2007. See "Description of Certain Indebtedness and Preferred Stock" and "Description of the New Notes—Certain Covenants—Restricted Payments."

        You may not be fully repaid on your notes if we or a subsidiary guarantor is declared bankrupt, becomes insolvent, is liquidated or reorganized, defaults on payment under our senior secured credit facilities or other senior debt or commits a default causing the acceleration of the maturity of our debt. In such a case, holders of any debt, including debt under our senior secured credit facilities, that ranks senior to the notes will be entitled to be paid in full from our assets and the assets of our subsidiaries before any payment may be made with respect to the notes or the guarantees. As a result, we may not have sufficient assets to fully repay the notes. An event of default under our senior debt also may prohibit us and the guarantors of the notes from paying the obligations under the notes or the guarantees.

Because we are a holding company, the notes will be effectively subordinated to the claims of the creditors of our non-guarantor subsidiaries.

        We conduct a substantial portion of our business through our subsidiaries. Our board of directors may designate any subsidiary of ours as a non-guarantor subsidiary if the designation is made in compliance with the terms of the indenture governing the notes. Any subsidiary so designated will not guarantee the notes. Claims of creditors of our non-guarantor subsidiaries, including trade creditors,

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will generally have priority with respect to the assets and earnings of such subsidiaries over the claims of creditors of Casella Waste Systems, including holders of the notes. The indenture governing the notes permits the incurrence of certain additional indebtedness by our non-guarantor subsidiaries in the future. See "Description of the New Notes—Subsidiary Guarantees" and "Description of the New Notes—Certain Covenants—Incurrence of Indebtedness and Issuance of Preferred Stock."

We may be unable to purchase the notes upon a change in control.

        Upon the occurrence of a change of control, as defined in the indenture governing the notes, we will be required to offer to purchase the notes in cash at a price equal to 101% of the principal amount of the notes, plus accrued interest and liquidated damages, if any. A change in control will constitute an event of default under our senior secured credit facilities and may trigger similar rights under our other indebtedness then outstanding. In the event of a change in control, we may not have sufficient funds to purchase all of the notes and to repay the amounts outstanding under the senior secured credit facilities or other indebtedness. Further, payment of the purchase price of the notes is subordinated to the prior payment of our senior debt.

A court could void our subsidiaries' guarantees of the notes under fraudulent transfer laws.

        Although the guarantees provide you with a direct claim against the assets of the subsidiary guarantors, under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a guarantee could be voided, or claims with respect to a guarantee could be subordinated to all other debts of that guarantor. In addition, a court could void (i.e., cancel) any payments by that guarantor pursuant to its guarantee and require those payments to be returned to the guarantor or to a fund for the benefit of the other creditors of the guarantor.

        The court might take these actions if it found, among other things, that when a subsidiary guarantor executed its guarantee (or, in some jurisdictions, when it became obligated to make payments under its guarantee):

        A court would likely find that a subsidiary guarantor received less than fair consideration or reasonably equivalent value for its guarantee to the extent that it did not receive direct or indirect benefit from the issuance of the notes. A court could also void a guarantee if it found that the subsidiary issued its guarantee with actual intent to hinder, delay, or defraud creditors.

        Although courts in different jurisdictions measure solvency differently, in general, an entity would be deemed insolvent if the sum of its debts, including contingent and unliquidated debts, exceeds the fair value of its assets, or if the present fair salable value of its assets is less than the amount that would be required to pay the expected liability on its debts, including contingent and unliquidated debts, as they become due.

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        If a court voided a guarantee, it could require that noteholders return any amounts previously paid under such guarantee. If any guarantee were voided, noteholders would retain their rights against us and any other subsidiary guarantors, although those entities' assets may not be sufficient to pay the notes in full.

There is no public market for the notes, and we cannot be sure that a market for the notes will develop.

        There has been no public market for any of the notes. Despite our registration of the issuance of the new notes that we are offering in the exchange offer:

        The notes are eligible for trading in The PORTAL Market of the National Association of Securities Dealers, Inc. If any of the notes are traded after their initial issuance, they may trade at a discount from their initial offering price, depending upon prevailing interest rates, the market for similar securities and other factors, including general economic conditions, our financial condition, performance and prospects and prospects for companies in our industry generally. In addition, the liquidity of the trading market in the notes and the market prices quoted for the notes may be limited by changes in the overall market for high-yield securities.

        The initial purchasers of the old notes are not obligated to make a market in the notes and any such market-making may be discontinued at any time at the sole discretion of the initial purchasers. As a result, an active trading market for the notes may not develop.


USE OF PROCEEDS

        We will not receive any proceeds from the exchange offer. In consideration for issuing the new notes, we will receive old notes from you in like principal amount. The old notes surrendered in exchange for the new notes will be retired and canceled and cannot be reissued. Accordingly, issuance of the new notes will not result in any change in our indebtedness.

        The proceeds from the sale of old notes were used to repay outstanding indebtedness under our revolving credit facility, pay transaction costs related to the offering of the old notes and will be used for general corporate purposes, including acquisitions.

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CAPITALIZATION

        The following table sets forth our cash and cash equivalents and our capitalization as of October 31, 2003:

        This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and the related notes.

 
   October 31, 2003
  
 
   Actual
   As Adjusted
  
 
   (unaudited)
(in millions)

  
Cash and cash equivalents   $ 3.6   $ 53.0  
   
 
 
Long term debt, including current portion of long-term debt              
  Revolving credit facility (1)   $ —   $ —  
  Term loan     150.0     150.0  
  Capital leases     2.5     2.5  
  Other debt (2)     6.1     6.1  
  9.75% senior subordinated notes due 2013     150.0     201.1 (3)
   
 
 
    Total debt     308.6     359.7  
   
 
 
Series A redeemable convertible preferred stock (4)     65.4     65.4  
Total stockholders' equity     132.4     132.4  
   
 
 
    Total capitalization   $ 506.4   $ 557.5  
   
 
 
(1)
As of October 31, 2003, we had outstanding letters of credit in the aggregate face amount of $29.7 million. As of January 16, 2004, we had borrowed an aggregate of $34.7 million under our revolving credit facility.

(2)
Represents notes payable in connection with acquired businesses.

(3)
Includes $6.1 million of premium on the issuance of the old notes. The premium will be amortized over the remaining life of the notes.

(4)
We are permitted under the indenture governing the notes to redeem our Series A redeemable convertible preferred stock to the extent it is still outstanding at the mandatory redemption date, which is August 11, 2007. See "Description of Certain Indebtedness and Preferred Stock—Series A Redeemable Convertible Preferred Stock."

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA

        The selected consolidated financial statements of operations and operating data for the five years in the period ended April 30, 2003 and the selected consolidated balance sheet data as of April 30, 1999, 2000, 2001, 2002 and 2003 are derived from our audited consolidated financial statements. The selected consolidated financial statements of operations and operating data for the six months ended October 31, 2002 and 2003 and the selected consolidated balance sheet data as of October 31, 2003 are derived from our unaudited consolidated financial statements. The unaudited consolidated financial statements have been prepared by us on a basis consistent with our audited financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial position and results of operations for such periods. Results for the six months ended October 31, 2003 are not necessarily indicative of the results that may be expected for the year ending April 30, 2004 or any other future period. You should read the following selected historical consolidated financial and operating data in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus.

 
   Fiscal Year Ended April 30,
   Six Months Ended October 31,
  
 
   1999
   2000
   2001
   2002
   2003
   2002
   2003
  
 
    
    
    
    
    
   (unaudited)

  
 
   (dollars in thousands)

  
Statement of Operations Data:                                            
  Revenues   $ 179,264   $ 315,263   $ 480,366   $ 421,235   $ 420,863   $ 230,601   $ 225,863  
  Cost of operations     106,893     193,341     321,214     276,693     278,347     151,963     146,209  
  General and administrative     26,210     40,765     64,079     54,456     55,772     29,175     29,354  
  Depreciation and amortization     25,334     38,670     53,411     50,712     47,930     24,287     29,742  
  Impairment charge     —     —     79,687     —     4,864     —     —  
  Restructuring charge     —     —     4,151     (438 )   —     —     —  
  Legal settlements     —     —     4,209     —     —     —     —  
  Other miscellaneous charges     —     —     1,604     —     —     —     —  
  Merger related costs     1,951     1,490     —     —     —     —     —  
   
 
 
 
 
 
 
 
    Operating income (loss)     18,876     40,997     (47,989 )   39,812     33,950     25,176     20,558  
  Interest expense     5,641     16,906     41,628     31,451     26,572     14,087     12,332  
  Interest income     (77 )   (1,234 )   (2,974 )   (904 )   (318 )   (161 )   (139 )
  (Income) loss from equity method investments, net     —     1,062     26,256     (1,899 )   (2,073 )   (1,751 )   (898 )
  Loss on debt extinguishment     —     1,079     —     —     3,649     —     —  
  Minority interest     —     502     1,026     (154 )   (152 )   (152 )   —  
  Other (income)/expense, net     (353 )   640     76     (4,480 )   (1,599 )   253     (380 )
   
 
 
 
 
 
 
 
  Income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     13,665     22,042     (114,001 )   15,798     7,871     12,900     9,643  
  Provision (benefit) for income taxes     7,315     10,700     (20,443 )   5,111     3,813     5,628     478  
  Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     6,350     11,342     (93,558 )   10,687     4,058     7,272     9,165  
  (Loss) gain from discontinued operations, net     265     1,101     (4,130 )   —     —     —     —  
  Estimated loss on disposal of discontinued operations, net     —     (1,393 )   (2,657 )   (4,096 )   —     —     —  
  Reclassification from discontinued operations, net     —     —     (1,190 )   1,140     50     (39 )   —  
  Cumulative effect of change in accounting principle, net     —     —     —     (250 )   (63,916 )   (63,916 )   2,723  
   
 
 
 
 
 
 
 
  Net income (loss)   $ 6,615   $ 11,050   $ (101,535 ) $ 7,481   $ (59,808 ) $ (56,683 ) $ 11,888  
  Preferred stock dividend     —     —     1,970     3,010     3,094     1,528     1,606  
   
 
 
 
 
 
 
 
  Net income (loss) available to common stockholders   $ 6,615   $ 11,050   $ (103,505 ) $ 4,471   $ (62,902 ) $ (58,211 ) $ 10,282  
   
 
 
 
 
 
 
 
  Basic net (loss) income per common share   $ 0.44   $ 0.59   $ (4.46 ) $ 0.19   $ (2.65 ) $ (2.46 ) $ 0.43  
   
 
 
 
 
 
 
 
  Basic income (loss) per common share from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ 0.42   $ 0.61   $ (4.03 ) $ 0.45   $ 0.17   $ 0.31   $ 0.38  
   
 
 
 
 
 
 
 
  Basic weighted average common shares outstanding(1)     15,145     18,731     23,189     23,496     23,716     23,697     23,848  
   
 
 
 
 
 
 
 
                                             

20

  Diluted net (loss) income per common share   $ 0.41   $ 0.57   $ (4.46 ) $ 0.19   $ (2.63 ) $ (2.43 ) $ 0.42  
   
 
 
 
 
 
 
 
  Diluted income (loss) per common share from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ 0.40   $ 0.59   $ (4.03 ) $ 0.44   $ 0.17   $ 0.30   $ 0.38  
   
 
 
 
 
 
 
 
  Diluted weighted average common shares outstanding(1)     16,019     19,272     23,189     24,169     23,904     23,947     24,252  
   
 
 
 
 
 
 
 
 
   As of April 30,
    
 
   As of October 31, 2003
 
   1999
   2000
   2001
   2002
   2003
 
    
    
    
    
    
   (unaudited)
 
   (dollars in thousands)
Balance Sheet Data:                                    
  Cash and cash equivalents   $ 4,195   $ 7,788   $ 22,001   $ 4,298   $ 15,652   $ 3,594
  Working capital (deficit), net (2)     (1,515 )   106,580     33,056     (635 )   (4,847 )   7,620
  Property, plant and equipment, net     126,374     369,261     290,537     287,206     302,328     302,498
  Goodwill     98,086     251,912     225,969     219,730     159,682     162,972
  Total assets     282,228     850,470     686,293     621,611     602,641     607,182
  Total debt (3)     94,063     450,507     363,223     288,848     310,179     308,560
  Redeemable preferred stock     —     —     57,720     60,730     63,824     65,430
  Stockholders' equity     148,554     274,718     172,951     176,796     119,152     132,416
 
   Fiscal Year Ended April 30,
   Six Months Ended October 31,
  
 
   1999
   2000
   2001
   2002
   2003
   2002
   2003
  
 
    
    
    
    
    
   (unaudited)

  
 
   (dollars in thousands)

  
Other Operating Data                                            
  Net cash provided by operating activities   $ 37,462   $ 48,398   $ 63,261   $ 67,687   $ 64,952   $ 31,885   $ 23,020  
  Net cash (used in) provided by investing activities     (95,690 )   155,088     (55,565 )   (9,533 )   (61,208 )   (21,305 )   (35,496 )
  Net cash (used in) provided by financing activities     59,154     116,423     18,765     (70,065 )   7,610     (4,602 )   418  
  Capital expenditures     54,118     68,575     61,518     37,674     41,925     20,659     28,683  
  Ratio of earnings to fixed charges (4)     3.13 x   2.31 x   —     1.43 x   1.25 x   1.78 x   1.67 x
  Ratio of pro forma earnings to pro forma fixed charges (5)     —     —     —     —     1.27 x   —     1.57 x
(1)
Computed on the basis described in Note 1(n) to our audited consolidated financial statements included in this prospectus.

(2)
Working capital, net is defined as current assets, excluding cash and cash equivalents, minus current liabilities.

(3)
Total debt includes capital leases.

(4)
For purposes of determining the ratio of earnings to fixed charges, "earnings" consists of income from continuing operations before income taxes, fixed charges, minority interests, and "fixed charges" consists of interest, amortization of deferred financing costs and the portion of capital leases deemed to be representative of the interest factor. For fiscal year 2001, earnings were insufficient to cover fixed charges by $87,092.

(5)
Ratio of pro forma earnings to pro forma fixed charges adjusts for pro forma interest which gives effect to the offering of the old notes and the use of proceeds therefrom, as if these transactions occurred at the beginning of the period presented.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion of our financial condition and results of operations with our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the "Risk Factors" section of this prospectus. Our actual results may differ materially from those contained in any forward-looking statements.

        Casella is a vertically-integrated regional solid waste services company that provides collection, transfer, disposal and recycling services to residential, industrial and commercial customers, primarily in the eastern region of the United States. As of December 31, 2003, we owned and/or operated six Subtitle D landfills, three landfills permitted to accept construction and demolition materials, 37 solid waste collection operations, 33 transfer stations, 39 recycling facilities and one waste-to-energy facility, as well as a 50% interest in a joint venture that manufactures, markets and sells cellulose insulation made from recycled fiber.

        From May 1, 1994 through December 1999, we acquired 161 solid waste collection, transfer and disposal operations. In December 1999, we acquired KTI. KTI assets which we considered core to our operations included interests in waste-to-energy facilities in Maine, significant residential and commercial recycling operations, transfer and collection operations which were "tuck-ins" to existing operations and cellulose insulation manufacturing operations. In addition, KTI's assets included a number of businesses that were not core to our operating strategy. Following our acquisition of KTI, we focused on the integration of KTI and the divestiture of non-core KTI assets, which has now been completed. As part of the divestiture program, in the fourth quarter of fiscal year 2001 we incurred non-recurring charges of $111.7 million, of which $90.6 million was non-cash. The divestiture program resulted in aggregate consideration of $107.6 million, including cash proceeds of $61.7 million which were used to reduce our indebtedness. Revenues related to divested assets were $54.9 million in fiscal year 2001.

        Since December 1999, we have made 38 acquisitions. Eight of our acquisitions during the three years ended April 30, 2000 were accounted for as poolings of interests. Under the rules governing poolings of interests, our financial statements were restated for all years prior to the acquisitions 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. All of our other acquisitions, including KTI, were accounted for under the purchase method of accounting. Under the rules of purchase accounting, the acquired companies' revenues and results of operations have been included together with those of ours from the actual dates of the acquisitions and materially affect the period-to-period comparisons of our historical results of operations. As pooling accounting has been eliminated, all future acquisitions will be accounted for under the purchase method.

Critical Accounting Policies and Estimates

        The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in the notes to our consolidated financial statements contained elsewhere in this prospectus.

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Landfill Accounting—Capitalized Costs and Amortization

        In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which outlines standards for accounting for an obligation associated with the retirement of a long-lived tangible asset and the associated retirement costs. This standard impacts our accounting for landfill closure and post-closure obligations. See Note 1(q) of our audited consolidated financial statements and Note 4 of our unaudited consolidated financial statements for discussion of our adoption of SFAS 143, effective May 1, 2003, and the related impact on our landfill accounting. The following discussion of our landfill accounting is based on our accounting practices in effect during fiscal year 2003, prior to the adoption of SFAS 143.

        We use life-cycle accounting and the units-of-production method to recognize certain landfill costs. Under life-cycle accounting, all costs related to the acquisition, construction, closure and post-closure of landfill sites are capitalized or accrued and charged to income based on tonnage placed into each site. 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 while the assets are undergoing activities to ready them for their intended use. Management routinely reviews its investment in operating landfills, transfer stations and other significant facilities to determine whether the costs of these investments are realizable. Our judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and the operational performance of our landfills. Future events could cause us to conclude that impairment indicators exist and that our landfill carrying costs are impaired. Any resulting impairment charge could have a material adverse effect on our financial condition and results of operations.

        Landfill permitting, acquisition and preparation costs are amortized on the units-of-production method 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 permittable capacity. To be considered permittable, airspace must meet all of the following criteria:


        Units-of-production amortization rates are determined annually for each of our operating landfills. The rates are based on estimates provided by our engineers and accounting personnel and consider the information provided by surveys, which are performed at least annually. Significant changes in our estimates could materially increase our landfill depletion rates, which could have a material adverse effect on our financial condition and results of operations. In determining estimated future landfill permitting, acquisition, construction and preparation costs, we consider the landfill costs associated with permitted and permittable airspace. Our estimate of future landfill permitting, acquisition, construction and preparation costs for the year ended April 30, 2003 increased to $157.6 million as compared to $149.1 million for the year ended April 30, 2002 and $26.1 million for the year ended April 30, 2001, primarily as a result of additional permitted and permittable airspace at our existing landfills, which increased to approximately 30 million tons as of April 30, 2003 as compared to 26 million tons as of

23

April 30, 2002 and 10 million tons as of April 30, 2001. The average landfill amortization rate per ton for the years ended April 30, 2003, 2002 and 2001 was $6.43, $5.81 and $4.91, respectively. Landfill amortization expense for the years ended April 30, 2003, 2002 and 2001 was $13.3 million, $10.3 million and $7.9 million, respectively.

Landfill Accounting—Accrued Closure and Post-Closure Costs

        Accrued closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill, after a landfill facility ceases to accept waste and closes. We estimate, based on input from our engineers, accounting personnel and consultants, our future cost requirements for closure and post-closure monitoring and maintenance based on our interpretation of the technical standards of the 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 accruals for the cost of monitoring and maintenance include 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.

        We provide accruals for these estimated future costs on an undiscounted basis as the remaining permitted airspace of such facilities is consumed. Significant reductions in our estimates of the remaining lives of our landfills or significant increases in our estimates of the landfill closure and post-closure maintenance costs could have a material adverse effect on our financial condition and results of operations. In determining estimated future closure and post-closure costs, we consider costs associated with permitted and permittable airspace. Our estimate of future closure and post-closure costs was $82.4 million for the year ended April 30, 2003, as compared to $83.0 million for the year ended April 30, 2002 and $46.0 million for the year ended April 30, 2001. Additional permitted and permittable airspace at our existing landfills increased to approximately 30 million tons as of April 30, 2003, as compared to 26 million tons as of April 30, 2002 and 10 million tons as of April 30, 2001. The average landfill closure and post-closure expense per ton was $4.07, $3.75 and $3.68 for the years ended April 30, 2003, 2002 and 2001, respectively.

        Accrued closure and post-closure costs include the current and non-current portion of costs associated with obligations for closure and post-closure of our landfills. The changes to accrued closure and post-closure liabilities are as follows (in thousands):

 
   Years Ended April 30,
  
 
   2001
   2002
   2003
  
Balance, beginning of year   $ 12,276   $ 17,230   $ 24,772  
Charged to operating expense     5,917     6,665     8,400  
Spending applied against the accrual (1)     (675 )   (408 )   (9,164 )
Acquisitions and other adjustments (2)     (288 )   1,285     1,941  
   
 
 
 
Balance, end of year   $ 17,230   $ 24,772   $ 25,949  
   
 
 
 
(1)
Spending levels increased in fiscal year 2003 mainly due to closure activities at our Woburn, Massachusetts and Pine Tree, Maine landfills.

(2)
In fiscal year 2002, we recorded additional post-closure accruals relating to one of our construction and demolition landfills. In fiscal year 2003, we recorded closure and post closure accruals relating to the Hardwick landfill acquisition.

        We estimate our future closure and post-closure costs in order to determine the closure and post-closure expense per ton of waste placed into each landfill as further described in Note 1(l) to our consolidated interim financial statements. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill, as well as the duration of the post-closure monitoring period. Based on our permitted and permittable airspace at April 30, 2003, we expect to make payments relative to closure and post-closure activities from fiscal year 2004 through fiscal year 2070.

24


Asset Impairment

        In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, we continually review our long-lived assets for impairment whenever events or changes in circumstances indicate that the remaining estimated useful life of such assets might warrant revision or that the balances may not be recoverable. We evaluate 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 amortizable 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 value. Fair value is usually determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved.

        We adopted SFAS No. 142 effective May 1, 2002 and have eliminated the amortization of goodwill and annually assess goodwill impairment by applying a fair value based test.

Bad Debt Allowance

        Estimates are used in determining our allowance for bad debts and are based on our historical collection experience, current trends, credit policy and a review of our accounts receivable by aging category. Our reserve is evaluated and revised on a monthly basis.

Self-Insurance Liabilities and Related Costs

        We are self insured for vehicles and workers compensation. The liability for unpaid claims and associated expenses, including incurred but not reported losses, is determined by a third party actuary and reflected in our consolidated balance sheet as an accrued liability. We use a third party to track and evaluate actual claims experience for consistency with the data used in the annual actuarial valuation. The actuarially determined liability is calculated in part by our past claims experience, which considers both the frequency and settlement amount of claims.

Discontinued Operations

        In April 2001, we adopted a formal plan to dispose of our tire processing, commercial recycling and mulch recycling businesses. We have accounted for these planned dispositions in accordance with APB Opinion No. 30, Reporting the Effects of Disposal of a Segment of a Business, and accordingly, the discontinued businesses are carried at estimated net realizable value less costs to be incurred through the date of disposition. Assets held for sale and liabilities of operations held for sale are stated at their expected realizable values and have been separately classified in the accompanying consolidated balance sheets.

Income Tax Accruals

        We record 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. Management judgment is required in determining our provision for income taxes and liabilities and any valuation allowance recorded against our net deferred tax assets. Valuation allowances have been established for the possibility that tax benefits may not be realized for certain deferred tax assets.

25


General

Revenues

        Our revenues in our 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. We derive a substantial portion of our collection revenues from commercial, industrial and municipal services that are generally performed under service agreements or pursuant to contracts with municipalities. The majority of our 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 our disposal facilities and transfer stations. The majority of our disposal and transfer customers are under one to ten year disposal contracts, with most having clauses for annual cost of living increases. Recycling revenues, which are included in FCR and in the Eastern, Central and Western regions, consist of revenues from the sale of recyclable commodities and operations and maintenance contracts of recycling facilities for municipal customers. FCR Recycling revenues included revenues from commercial brokerage and recycling operations through June 30, 2003, when those operations were sold.

        Effective August 1, 2000, we contributed our cellulose insulation assets to a joint venture with Louisiana-Pacific, and accordingly, since that date have recognized half of the joint venture's net income/(loss) on the equity method in our results of operations. Also, in the "Other" segment, the Company has ancillary revenues including major customer accounts, earnings from equity method investees and, in the six months ended October 31, 2002, revenues from residue recycling.

        Our revenues are shown net of intercompany eliminations. We typically establish our intercompany transfer pricing based upon prevailing market rates. The table below shows, for the periods indicated, the percentage of our total revenues attributable to services provided. Collection revenues as a percentage of total revenues in fiscal 2003 compared to fiscal year 2002 remained unchanged. Collection revenues increased as a percentage of total revenues in fiscal year 2002 compared to fiscal year 2001 due to the effects of price and volume increases. The increase in fiscal year 2003 landfill/disposal facilities revenues compared to fiscal year 2002 is mainly due to increased volumes during the first part of 2003 compared to the same period in fiscal year 2002. The decrease in fiscal year 2002 landfill/disposal facilities revenues compared to fiscal year 2001 is mainly attributable to the disposition of our majority interest in Penobscot Energy Recovery Company ("PERC"), which occurred late in fiscal year 2001. Transfer revenues as a percentage of total revenues have continued to increase between years due to an increase in transfer volumes. The increase in recycling revenues as a percentage of total revenues in fiscal year 2003 compared to fiscal year 2002 is due to higher commodity prices and volumes. The increase in recycling revenues as a percentage of total revenues in fiscal year 2002 compared to the prior year is due to higher volumes partially offset by lower average prices. The decrease in brokerage revenues as a percentage of revenues in fiscal year 2003 compared to fiscal year 2002 is due to lower commodity prices and volumes as well as the transfer of the export business to the employees of that unit in September 2002. Our domestic brokerage operations, constituting the remainder of our brokerage revenues were transferred effective June 30, 2003 to the employees of that unit. The decrease in our brokerage revenues as a percentage of revenues in fiscal year 2002 compared to the prior year is primarily attributable to the overall effects of commodity prices. The decrease in our other revenues as a percentage of revenues during fiscal year 2003 and 2002 is primarily attributable to divestitures made during both periods. For the six months ended October 31, 2003 the percentages of revenues shown below reflect revenues from the commercial brokerage and recycling operations through June 30, 2003 and no revenues from the export brokerage business, sold in September 2002. The reduction in these revenues caused the percentages of the remaining operations to increase. Excluding brokerage revenues, revenues as a percentage of total revenues for collection, landfill/disposal facilities and transfer were relatively flat in the six months ended October 31, 2003 compared to the prior year comparable periods. The increase in recycling

26


revenues as a percentage of total revenues in the six months ended October 31, 2003 is mainly due to increased volumes offset partially by lower commodity prices. The elimination of the brokerage revenues arose from the transfer of the export business to the employees of that unit in September 2002 and the domestic brokerage operations, constituting the remainder of the Company's brokerage revenues, effective June 30, 2003 to the employees of that unit.

 
   % of Revenues (1)
  
 
   Fiscal Year
Ended April 30,
   Six Months
Ended October 31,
  
 
   2001
   2002
   2003
   2002
   2003
  
Collection   42.8 % 46.7 % 46.7 % 44.4 % 49.1 %
Landfill/disposal facilities   16.3   13.7   14.3   14.3   15.7  
Transfer   7.7   10.8   11.3   11.5   12.7  
Recycling   11.9   15.5   19.0   17.4   21.1  
Brokerage   14.7   11.9   8.7   12.4   1.4  
Other   6.6   1.4   0.0   0.0   0.0  
   
 
 
 
 
 
Total revenues   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
   
 
 
 
 
 
(1)
We revised percentages of total revenues for fiscal year 2002 and 2001 to conform with our classification of revenues attributable to services provided in fiscal year 2003.

Operating Expenses

        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 administration expenses include management, clerical and administrative compensation and overhead, professional services and costs associated with our marketing, 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 intangible assets using the straight-line method. Goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but will be subject to annual impairment tests. 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. We depreciate all fixed and intangible assets, excluding non-depreciable land, down to a zero net book value, and do not apply a salvage value to any of our fixed assets.

27

        We capitalize certain direct landfill development costs, such as engineering, permitting, legal, construction and other costs associated directly with the expansion of existing landfills. Additionally, we also capitalize certain third party expenditures related to pending acquisitions, such as legal and engineering costs. We will have material financial obligations relating to closure and post-closure costs of our existing landfills and any disposal facilities which we may own or operate in the future. We have provided and will in the future provide accruals for future financial obligations relating to closure and post-closure costs of our 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 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. We routinely evaluate all such capitalized costs, and expense 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 our consolidated financial statements bear in relation to revenues.

 
   % of Revenues
  
 
   Fiscal Year
Ended April 30,
   Six Months
Ended October 31,
  
 
   2001
   2002
   2003
   2002
   2003
  
Revenues   100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Cost of operations   66.9   65.7   66.1   65.9   64.7  
General and administration   13.3   12.9   13.2   12.7   13.0  
Depreciation and amortization   11.1   12.0   11.4   10.5   13.2  
Impairment charge   16.6   —   1.2   —   —  
Restructuring charge   0.9   (0.1 ) —   —   —  
Legal settlements   0.9   —   —   —   —  
Other miscellaneous charges   0.3   —   —   —   —  
   
 
 
 
 
 
Operating income (loss)   (10.0 ) 9.5   8.1   10.9   9.1  
Interest expense, net   8.0   7.3   6.2   6.0   5.4  
(Income) loss from equity method investments, net   5.5   (0.5 ) (0.5 ) (0.7 ) (0.4 )
Loss on debt extinguishment   —   —   0.9   —   —  
Other (income)/expense, net and minority interest   0.2   (1.1 ) (0.4 ) 0.0   (0.2 )
(Provision) benefit for income taxes   4.3   (1.2 ) (0.9 ) 2.4   0.2  
   
 
 
 
 
 
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle   (19.4 )% 2.6 % 1.0 % 3.2 % 4.1 %
   
 
 
 
 
 

Six Months Ended October 31, 2003 versus Six Months Ended October 31, 2002

        Revenues.    Revenues decreased $4.7 million, or (2.0)%, to $225.9 million in the six months ended October 31, 2003 from $230.6 million in the six months ended October 31, 2002. The revenue decrease is mainly attributable to the loss of revenues from businesses divested amounting to $24.7 million, partially offset by an increase in core solid waste revenues of $8.7 million, primarily due to volume and price increases. Higher recycling volumes, offset partially by lower commodity prices, resulted in a net increase in revenues of $3.4 million. Revenues from the rollover effect of acquired businesses accounted for $7.9 million.

        Cost of operations.    Cost of operations decreased $5.8 million, or (3.8)%, to $146.2 million in the six months ended October 31, 2003 from $152.0 million in the six months ended October 31, 2002. Cost

28


of operations as a percentage of revenues decreased to 64.7% in the six months ended October 31, 2003 from 65.9% in the corresponding period of the prior year. This decrease mainly arose from lower commodity purchases resulting from the divestiture of the export and domestic brokerage businesses.

        General and administration.    General and administration expenses increased $0.2 million, or 0.7%, to $29.4 million in the six months ended October 31, 2003 from $29.2 million in the six months ended October 31, 2002, and increased as a percentage of revenues to 13.0% in the six months ended October 31, 2003 from 12.7% in the six months ended October 31, 2002.

        Depreciation and amortization.    Depreciation and amortization expense increased $5.4 million, or 22.2%, to $29.7 million in the six months ended October 31, 2003 from $24.3 million in the six months ended October 31, 2002. While depreciation expense remained relatively constant between periods, the increase was primarily attributable to the increase in landfill amortization due to increased landfill volumes and as a result of adopting SFAS No. 143. Depreciation and amortization expense as a percentage of revenue increased to 13.2% in the six-month period ended October 31, 2003 from 10.5% in the six-month period ended October 31, 2002 which resulted from the increase in landfill amortization expense and lower levels of revenue.

        Interest expense, net.    Net interest expense decreased $1.7 million, or (12.2)%, to $12.2 million in the six months ended October 31, 2003 from $13.9 million in the six months ended October 31, 2002. This decrease is primarily attributable to lower average debt balances and lower interest rates on variable rate debt in the current period, versus last year. Interest expense, as a percentage of revenues decreased to 5.4% in the six months ended October 31, 2003 from 6.0% in the six months ended October 31, 2002.

        Income from equity method investments.    Equity income from GreenFiber decreased $0.9 million to $0.9 million in the six months ended October 31, 2003 compared to $1.8 million in the six months ended October 31, 2002. Equity income from GreenFiber in the six months ended October 31, 2002 included a $1.0 million gain associated with an eminent domain settlement received from a state department of transportation on the involuntary conversion of a portion of a GreenFiber leased manufacturing facility. The lower equity income in the six months ended October 31, 2003 was also due to higher prices paid by GreenFiber for raw materials.

        Minority interest.    This amount represented the minority owner's interest in our majority owned subsidiary American Ash Recovery Technologies ("AART"), which completed its ash operation contract and was dissolved in February 2003.

        Other (income)/expense, net.    Other income in the six months ended October 31, 2003 was $0.4 million compared to other expense of $0.3 million in the six months ended October 31, 2002. Other income in the six months ended October 31, 2003 consisted primarily of gains on sales of fixed assets. Other expense in the prior year was attributable to losses on the write down of assets.

        Provision (benefit) for income taxes.    Provision for income taxes decreased $5.1 million in the six months ended October 31, 2003 to $0.5 million from $5.6 million in the six months ended October 31, 2002. The effective tax rate decreased to 5.0% in the six months ended October 31, 2003 from 43.6% in the six months ended October 31, 2002 primarily due to a decrease in the valuation for loss carryforwards of $3.9 million as utilization of our tax losses is more certain. We expect the effective tax rate to be in the 45% range for the next two fiscal quarters as all Federal valuation allowances have been reversed.

        Cumulative effect of change in accounting principle, net.    Effective May 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. The primary modification to our methodology required by SFAS No. 143 is to require that capping, closure and post-closure costs be discounted to present value. Upon adoption of SFAS No. 143 we recorded a cumulative effect of change in

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accounting principle of $2.7 million (net of taxes of $1.9 million) in order to reflect the cumulative change in accounting for landfill obligations retroactive to the date of the inception of the landfill.

        Effective May 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which, among other things, eliminates the amortization of goodwill and requires an annual assessment of goodwill impairment by applying a fair value based test. Goodwill was determined to be impaired and the amount of $63.9 million (net of tax benefit of $0.2 million) was charged to earnings in the period ended October 31, 2002 as a cumulative effect of change in accounting principle. The goodwill impairment charge was related to our waste-to-energy operation, Maine Energy, and the brokerage business of the FCR Recycling segment, both of which were acquired as part of our acquisition of KTI. At the time of acquisition, we recorded the fair value of these businesses using an independent third party valuation. The underlying assumptions used to establish the value of these businesses, including earnings projections, commodity pricing assumptions and industry valuation multiples for recycling products, were not realized. Accordingly, goodwill impairment charges were recorded as the net book value of these businesses exceeded their fair value.

Fiscal Year 2003 versus Fiscal Year 2002

        Revenues.    Revenues decreased $0.3 million, or (0.1%), to $420.9 million in fiscal year 2003 from $421.2 million in fiscal year 2002. Divested businesses accounted for a decrease of approximately $26.2 million. These decreases were offset by price and volume increases in the core solid waste business amounting to $2.3 million, higher commodity prices and volumes amounting to $21.4 million and the positive rollover effect of acquisitions amounting to approximately $2.2 million.

        Cost of operations.    Cost of operations increased $1.6 million, or 1.0%, to $278.3 million in fiscal year 2003 from $276.7 million in fiscal year 2002. Cost of operations as a percentage of revenues increased to 66.1% in fiscal year 2003 from 65.7% in fiscal year 2002. This increase arose mainly from higher insurance costs, partially offset by operating improvements in direct labor and lower commodity purchases resulting from the sale of the export brokerage business. The increased insurance costs arose mainly from a negative actuarial adjustment of $1.5 million related to our captive insurance company in fiscal 2003 versus a positive adjustment of $2.8 million in fiscal 2002.

        General and administration.    General and administration expenses increased $1.3 million, or 2.4%, to $55.8 million in fiscal year 2003 from $54.5 million in fiscal year 2002. General and administration expenses increased slightly as a percentage of revenues to 13.3% in fiscal year 2003 from 12.9% in fiscal year 2002. The increase in general and administration expenses was primarily the result of legal and insurance expenses.

        Depreciation and amortization.    Depreciation and amortization expense decreased $2.8 million, or (5.5%), to $47.9 million in fiscal year 2003 from $50.7 million in fiscal year 2002. The decrease was mainly attributable to our adopting SFAS 142 which eliminates recognition of goodwill amortization, partially offset by higher landfill amortization expense due to volume increases. Depreciation and amortization expense as a percentage of revenues decreased to 11.4% in fiscal year 2003 from 12.0% in fiscal year 2002.

        Interest expense, net.    Net interest expense decreased $4.3 million, or 14.1%, to $26.3 million in fiscal year 2003, from $30.6 million in fiscal year 2002. This decrease is primarily attributable to lower average debt balances and lower interest rates on variable rate debt in the current year, versus the prior period. Interest expense, as a percentage of revenues, decreased to 6.2% in fiscal year 2003 from 7.3% in fiscal year 2002.

        Impairment charge.    In the fourth quarter of fiscal 2003 we recorded an impairment charge of $4.9 million to adjust the book value of the domestic brokerage and commercial recycling businesses to net realizable value.

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        (Income) loss from equity method investments, net.    Income from equity method investments in fiscal year 2003 of $2.1 million and $1.9 million in fiscal year 2002 reflects equity income in our 50% joint venture interest in GreenFiber.

        Loss on debt extinguishment.    In fiscal year 2003, we entered into a new senior secured credit facility resulting in the write off of $3.7 million in debt financing costs associated with the old senior secured credit facility.

        Minority interest.    This amount represented the minority owners' interest in our majority owned subsidiary AART, which completed its ash operation contract and was dissolved in February 2003.

        Other (income)/expense, net.    Other income was $1.6 million in fiscal year 2003 compared to $4.5 million in other expenses in fiscal year 2002. This decrease is attributable to the difference in gain on divestitures. In addition there was a gain of $1.2 million in fiscal year 2003 related to a settlement with Oakhurst Company, Inc., partially offset by a $1.3 million charge for interest rate swap unwind costs.

        Provision (benefit) for income taxes.    Provision for income taxes decreased $1.3 million for fiscal year 2003 to $3.8 million from $5.1 million for fiscal year 2002. The effective tax rate increased to 48.4% for fiscal year 2003 from 32.4% for fiscal year 2002. This was primarily due to an increase in the valuation allowance for loss carryforwards, nondeductible impairment of goodwill and the loss on the sale of a significant portion of our interest in New Heights in fiscal year 2002, partially offset by the decrease in nondeductible goodwill amortization, recognition of additional tax losses from New Heights and the elimination of capital loss carryforwards.

        Reclassification from discontinued operations, net.    In the fourth quarter of fiscal 2003, we entered into negotiations with former employees for the transfer of our domestic brokerage operation and a commercial recycling business. The commercial recycling business had been accounted for as a discontinued operation since fiscal year 2001. Due to the nature of the transaction, we could not retain discontinued accounting treatment for this operation. Therefore the commercial recycling business has been reclassified from discontinued to continuing operations for fiscal years 2001, 2002 and 2003. In fiscal year 2001, we estimated and accrued for anticipated future losses from this business which were recorded and classified as losses from discontinued operations. This amount has been reclassified and offset against actual losses from operations in fiscal years 2001, 2002 and 2003.

        Estimated loss on disposal of discontinued operations, net.    The estimated loss on disposal of discontinued operations for fiscal year 2002 is primarily due to the loss on the sale of the commercial recycling business.

        Cumulative effect of change in accounting principle, net.    Effective May 1, 2002, we adopted SFAS No. 142, Goodwill and Other Intangible Assets, which, among other things, eliminates the amortization of goodwill and requires an annual assessment of goodwill impairment by applying a fair value based test. Goodwill was determined to be impaired and the amount of $63.9 million (net of tax benefit of $0.2 million) was charged to earnings in fiscal year 2003 as a cumulative effect of change in accounting principle. The goodwill impairment charge was related to our waste-to-energy operation, Maine Energy, and the brokerage business of the FCR Recycling segment, both of which were acquired as part of our acquisition of KTI. At the time of acquisition, we recorded the fair value of these businesses using an independent third party valuation. The underlying assumptions used to establish the value of these businesses, including earnings projections, commodity pricing assumptions and industry valuation multiples for recycling products, were not realized. Accordingly, goodwill impairment charges were recorded as the net book value of these businesses exceeded their fair value. In fiscal year 2002, we adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which resulted in a charge to earnings as a cumulative effect of change in accounting principle in the amount of

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$0.3 million (net of tax benefit of $0.2 million) for the portion of interest rate swap hedges determined to be ineffective.

Fiscal Year 2002 versus Fiscal Year 2001

        Revenues.    Revenues decreased $59.2 million, or 12.3%, to $421.2 million in fiscal year 2002 from $480.4 million in fiscal year 2001. Divested businesses accounted for approximately $54.9 million of the decrease, while lower average brokerage commodity prices and volumes represented $32.7 million of the decrease. These decreases were partially offset by price and volume increases in the core solid waste business amounting to $24.9 million and the positive rollover effect of acquisitions amounting to approximately $3.5 million.

        Cost of operations.    Cost of operations decreased $44.5 million, or 13.9%, to $276.7 million in fiscal year 2002 from $321.2 million in fiscal year 2001. This decrease arose mainly from lower volumes of recyclable material purchases and divestitures. Cost of operations as a percentage of revenues decreased to 65.7% in fiscal year 2002 from 66.9% in the prior fiscal year. The decrease in cost of operations as a percentage of revenues was primarily the result of a decreased contribution from brokerage operations, which carry a high cost of operations as a percentage of revenues of approximately 90%.

        General and administration.    General and administration expenses decreased $9.6 million, or 15.0%, to $54.5 million in fiscal year 2002 from $64.1 million in fiscal year 2001. General and administration expenses decreased slightly as a percentage of revenues to 12.9% in fiscal year 2002 from 13.3% in the prior fiscal year. The decrease in general and administration expenses was primarily the result of divestitures as well as lower legal and bad debt expenses.

        Depreciation and amortization.    Depreciation and amortization expense decreased $2.7 million, or 5.1%, to $50.7 million in fiscal year 2002 from $53.4 million in fiscal year 2001. The decrease was attributable to lower intangible amortization due to the impairment charge taken in fiscal year 2001 and the impact of divested entities. Depreciation and amortization expense as a percentage of revenues increased to 12.0% in fiscal year 2002 from 11.1% in fiscal year 2001. The increase as a percentage of revenues resulted primarily from a lower level of revenues.

        Impairment charge.    In fiscal year 2001, we determined that certain assets (mainly goodwill) were impaired and therefore recorded a charge of $79.7 million to reduce those assets to their estimated fair value. The assets impaired mainly arose from the acquisition of KTI.

        Restructuring charge.    A restructuring charge of $0.4 million in fiscal year 2002 represents the reversal of certain unrealized fiscal year 2001 restructuring expenses, partially offset by additional restructuring charges expensed in fiscal year 2002.

        Interest expense, net.    Net interest expense decreased $8.1 million, or 21.0%, to $30.6 million in fiscal year 2002, from $38.7 million in fiscal year 2001. This decrease is primarily attributable to lower average debt balances and lower interest rates on variable debt in the current period, versus the prior period. Interest expense, as a percentage of revenues, decreased to 7.3% in fiscal year 2002 from 8.0% in fiscal year 2001.

        (Income) loss from equity method investments, net.    Income from equity method investments in fiscal year 2002 of $1.9 million reflects equity income in our 50% joint venture interest in GreenFiber amounting to $4.3 million, offset by a $2.4 million loss related to our further investment in the New Heights tire processing business. In the prior year, we recorded our share of a loss of $4.2 million, recorded at GreenFiber due to significant transitional and restructuring expenses. In fiscal year 2001, equity method investment losses also included a $22.0 million loss attributable to impairment charges

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taken to reduce our investment in Oakhurst Company, Inc. ("OCI") and New Heights Recovery and Power, LLC ("New Heights").

        A portion of our 50% interest in New Heights was sold in September 2001 for consideration of $0.3 million. We retained an interest of 9.95% in the tire recycling assets of New Heights, as well as financial obligations related solely to the New Heights power plant. In addition, we have an interest in certain notes granted by New Heights collectively valued at approximately $9.0 million, payment of which is contingent upon certain events. We will record the contingent consideration when the contingency is removed. We are accounting for our retained investment under the cost method of accounting.

        Minority interest.    At April 30, 2002, this amount represented the minority owners' interest in AART, which recorded a loss for the period. At April 30, 2001 minority interest reflected the minority owners' interest in our majority owned subsidiaries Maine Energy and PERC. Effective March 1, 2001, we acquired the remaining 16.25% minority interest in Maine Energy and sold our majority interest in PERC.

        Other (income)/expense, net.    Other income was $4.5 million in fiscal year 2002 compared to $0.1 million in other expenses in fiscal year 2001. This increase is attributable to the divestitures of Multitrade and S&S Commercial, which resulted in a gain of $4.8 million. Other income in fiscal year 2002 also includes a gain on the sale of Bangor Hydro warrants of $1.7 million and gains on the sale of equipment of $0.1 million, offset by the write-off of $1.7 million of commodity hedges due to the bankruptcy of Enron, as well as impairment of our U.S. Plastic Lumber Corp. equity holdings, amounting to $0.4 million.

        Provision (benefit) for income taxes.    Provision for income taxes increased $25.5 million in fiscal year 2002 to $5.1 million from a benefit of $20.4 million in fiscal year 2001. This increase, as well as the change in the effective tax rate to 32.4%, is primarily due to the change in pretax income to a profit, the tax benefit from the sale of 80.1% of our equity interest in New Heights in fiscal year 2002 and the write-off of non-deductible goodwill and the equity loss in OCI and in New Heights in fiscal year 2001.

        Reclassification from discontinued operations, net.    In the fourth quarter of fiscal year 2003, we entered into negotiations with former employees for the transfer of our domestic brokerage operations and a commercial recycling business. The commercial recycling business had been accounted for as a discontinued operation since fiscal year 2001. Due to the nature of the transaction, we could not retain discontinued accounting treatment for this operation. Therefore the commercial recycling business operating results have been reclassified from discontinued to continuing operations for fiscal years 2001, 2002 and 2003. In fiscal year 2001, we estimated and accrued for anticipated future losses from this business which were recorded and classified as losses from discontinued operations. This amount has been reclassified and offset against actual losses from operations in fiscal years 2001, 2002 and 2003.

        Estimated loss on disposal of discontinued operations, net.    Estimated loss on disposal of discontinued operations, net increased $1.4 million to ($4.1) million in fiscal year 2002 from ($2.7) million in fiscal year 2001. The estimated loss on disposal of discontinued operations, net in fiscal year 2002 was attributable to the loss on the sale of discontinued assets exceeding our estimates by $4.7 million, partially offset by positive operating results of $0.6 million.

        Cumulative effect of change in accounting principle, net.    On May 1, 2001, we adopted SFAS No. 133 establishing accounting and reporting standards for derivative instruments. Because the relevant terms of certain interest rate swaps and the specific debts that they were designated to hedge were not identical, we recorded the ineffective portion of the hedge amounting to a loss of $0.3 million (net of tax benefit of $0.2 million) as a cumulative effect of change in accounting principle.

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Liquidity and Capital Resources

        Our business is capital intensive. Our capital requirements include acquisitions, fixed asset purchases and capital expenditures for landfill development and cell construction as well as site and cell closure. We had a net working capital deficit of $4.8 million at April 30, 2003 compared to a net working capital deficit of $0.6 million at April 30, 2002. Working capital, net comprises current assets, excluding cash and cash equivalents, minus current liabilities. The main factors accounting for the decrease were higher trade payable and accrual balances, lower current deferred taxes, partially offset by decreases in current portion of debt payments and interest rate swap liabilities. We had net working capital of $7.6 million at October 31, 2003 compared to a net working capital deficit of $4.8 million at April 30, 2003. The main factors accounting for the increase were higher trade receivable balances and prepaid expenses along with lower trade payables and current closure/post-closure cost accruals.

        We have a $325.0 million credit facility with a group of banks for which Fleet Bank, N.A. is acting as agent. This credit facility consists of a $175.0 million senior secured revolving credit facility and a senior secured term "B" loan, which had an outstanding balance of $150.0 million at October 31, 2003. We have the right to increase the amount of the revolver and/or the term loan by an aggregate amount of up to $50.0 million at our discretion, provided that we are not in default at the time of the increase, subject to the receipt of commitments from lenders for such additional amount. On August 26, 2003, we amended the terms of the term loan, lowering the borrowing rate and modifying the prepayment provisions to include a prepayment premium applicable to the first two years following the date of the amendment.

        The term loan and revolving credit facility agreement contains covenants that may limit our activities, including covenants that restrict dividends and stock repurchases, limit capital expenditures, and set minimum net worth and profitability requirements and interest coverage and leverage ratios. As of October 31, 2003, we considered the profitability covenant, which requires our cumulative adjusted net income for any two consecutive quarters to be positive, to be the most restrictive. As of October 31, 2003, we were in compliance with this covenant as we reported consolidated adjusted net income of $8.1 million for the six months ended October 31, 2003. Consolidated adjusted net income is defined by the credit facility agreement. In accordance with this definition, consolidated net income, determined in accordance with generally accepted accounting principles, is adjusted for elimination of certain nonrecurring charges, extraordinary gains, income from discontinued operations and non-cash income attributable to equity investments.

        As of October 31, 2003, we had available borrowing capacity under our $175.0 million revolving credit facility of up to $145.3 million, subject to our ability to meet certain borrowing conditions. The available amount is net of outstanding irrevocable letters of credit. We intend to use the additional availability under our senior secured credit facility to support our acquisition program. This credit facility is secured by all of our assets, including our interest in the equity securities of our subsidiaries. The revolver matures in January 2008 and the term loan matures in January 2010.

        We have outstanding an aggregate principal amount of $195.0 million of 9.75% senior subordinated notes. The notes mature on February 1, 2013. We used the gross proceeds from the offering of the old notes in January 2004 to repay outstanding indebtedness under our revolving credit facility, pay transaction costs related to the offering of the old notes and will use the remaining proceeds for general corporate purposes, including acquisitions.

        Net cash provided by operating activities in fiscal year 2003 and fiscal year 2002 amounted to $65.0 million and $67.7 million, respectively. The decrease was mainly due to the cash outflows from landfill closure activities. Net cash provided by operating activities in fiscal year 2002 increased by $4.4 million from $63.3 in fiscal year 2001. The increase was primarily due to the change in our working capital, reflecting an improvement in our accounts receivable collections and an increase in the current portion of accrued closure and post-closure costs. Net cash provided by operating activities

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amounted to $23.0 million for the six months ended October 31, 2003 compared to $31.9 million for the same period of the prior fiscal year. The decrease was mainly due to changes in our working capital.

        Net cash used in investing activities in fiscal year 2003 and fiscal year 2002 amounted to $61.2 million and $9.5 million, respectively. The increase in cash used in investing activities reflected mainly lower proceeds from divestitures and an increase in acquisitions. The increase in cash used in investing activities between years was also as a result of higher capital expenditures, which increased to $41.9 million in fiscal year 2003 from $37.7 million in fiscal year 2002. Net cash used in investing activities in fiscal year 2002 decreased by $46.1 million from $55.6 in fiscal year 2001. The decrease in cash used in investing activities reflected higher proceeds from divestitures and fewer acquisitions. The decrease in cash used in investing activities between 2001 and 2002 was also as a result of lower capital expenditures, which decreased to $37.7 million in fiscal year 2002 from $61.5 million in fiscal year 2001. Net cash used in investing activities was $35.5 million for the six months ended October 31, 2003 compared to $21.3 million used in investing activities in the same period of the prior fiscal year. The increase in cash used in investing activities was due to an increase in capital expenditures and acquisitions.

        Net cash provided by financing activities was $7.6 million in fiscal year 2003 compared to net cash used in financing activities of $70.1 in fiscal year 2002. This increase was primarily due to paying down less debt, net of borrowings, than in fiscal year 2002, partially offset by refinancing costs of $11.5 million. Net cash provided by financing activities in fiscal year 2002 decreased $88.9 million from $18.8 net cash provided in fiscal year 2001. This decrease was primarily due to paying down debt with proceeds from the divestitures. Net cash provided by financing activities was $0.4 million for the six months ended October 31, 2003 compared to $4.6 million used in financing activities in the same period of the prior fiscal year. The decrease in cash used in investing activities is primarily due to lower net payments on long-term debt along with higher proceeds from the exercise of stock options in the six months ended October 31, 2003 compared to same period in the prior fiscal year.

        Our capital expenditures were $41.9 million in fiscal year 2003 compared to $37.7 million in fiscal year 2002. Capital spending was higher in fiscal year 2003 mainly due to capital expenditures related to the upgrade of the truck fleet and facilities. Our capital expenditures in fiscal year 2002 decreased $23.8 million from $61.5 in fiscal year 2001. The decrease was primarily related to a significant non-recurring capital project in 2001 associated with Maine Energy odor control, and the upgrade of our truck fleet and containers. We expect capital spending to total approximately $60.0 million in fiscal year 2004. The increase is due to capital expenditures at the newly acquired landfills.

        During fiscal year 2003, we completed eight acquisitions for an aggregate consideration of $21.0 million, consisting of $18.1 million in cash and $2.9 million in notes payable and other consideration. In comparison, during fiscal year 2002, we completed four acquisitions for an aggregate consideration of $7.4 million, consisting of $4.6 million in cash and $2.8 million in notes payable and other consideration. In fiscal year 2002, we completed our previously announced divestiture program which was announced in March 2001, from which we received total consideration of $107.6 million, including cash proceeds of $61.7 million which were used to reduce our indebtedness.

        We intend to use the additional availability under our revolving credit facility to support our acquisition program. As of February 13, 2004, we were negotiating an operating agreement in connection with the Kness Landfill in Sergeant, Pennsylvania owned by the McKean County Solid Waste Authority and on February 5, 2004 we entered into an operating agreement with respect to the Old Town Landfill in West Old Town, Maine. The closing of the McKean County transaction is subject to normal contingencies and there can be no assurances that we will enter into that agreement. The operating agreement for the Old Town Landfill may be voided by us in the event that certain permits for the expansion of that facility are not received by a specified date.

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Contractual Obligations

        The following table summarizes our significant contractual obligations and commitments as of October 31, 2003 (in thousands) (other than with respect to operating leases, which are as of April 30, 2003 and are compiled on an annual basis) and the anticipated effect of these obligations on our liquidity in future years:

 
   Twelve Months Ended October 31,
 
   2004
   2005-2006
   2007-2008
   Thereafter
   Total
Long-term debt   $ 4,415   $ 5,567   $ 3,144   $ 292,956   $ 306,082
Capital lease obligations     828     875     764     11     2,478
Interest obligations (1)     22,160     43,222     41,448     69,017     175,847
Operating leases     3,965     6,869     5,061     4,261     20,156
Closure/post-closure     4,135     9,253     3,043     64,106     80,537
Redeemable preferred securities (2)     —     —     78,951     —     78,951
   
 
 
 
 
Total contractual cash obligations (3)   $ 35,503   $ 65,786   $ 132,411   $ 430,351   $ 664,051
   
 
 
 
 
(1)
Interest obligations based on long-term debt and capital lease balances as of October 31, 2003. Interest obligations related to variable rate debt calculated using variable rates in effect at October 31, 2003.

(2)
Assumes redemption on the seventh anniversary of the closing date at the book value which includes all accrued and unpaid dividends.

(3)
Contractual cash obligations do not include accounts payable or accrued liabilities, which will be paid in fiscal year 2004.

        We believe that our cash provided internally from operations together with the proceeds of the offering of the old notes and our senior secured credit facilities should enable us to meet our working capital and other cash needs for the foreseeable future.

Inflation and Prevailing Economic Conditions

        To date, inflation has not had a significant impact on our operations. Consistent with industry practice, most of our contracts provide for a pass-through of certain costs, including increases in landfill tipping fees and, in some cases, fuel costs. We therefore believe we should be able to implement price increases sufficient to offset most cost increases resulting from inflation. However, competitive factors may require us to absorb at least a portion of these cost increases, particularly during periods of high inflation.

        Our business is located mainly in the eastern United States. Therefore, our 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. We are unable to forecast or determine the timing and/or the future impact of a sustained economic slowdown.

New Accounting Pronouncements

        Effective May 1, 2003, we adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 does not change the basic accounting principles that we and the waste industry have historically followed for accounting for these types of obligations. In general, we have followed and will continue to follow the practice of life cycle accounting which recognizes a liability on the balance sheet and related expense as airspace is consumed at the landfill to match operating costs with revenues.

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        The primary modification to our methodology required by SFAS No. 143 is that capping, closure and post-closure costs be discounted to present value. Our estimates of future capping, closure and post-closure costs historically have not taken into account discounts for the present value of costs to be paid in the future. Under SFAS No. 143, our estimates of costs to discharge asset retirement obligations for landfills are developed in today's dollars. These costs are then inflated by 2.6% to reflect a normal escalation of prices up to the year they are expected to be paid. These estimated costs are then discounted to their present value using a credit adjusted risk-free rate of 9.5%.

        Under SFAS No. 143, we no longer accrue landfill retirement obligations through a charge to cost of operations, but rather by an increase to landfill assets. Under SFAS No. 143, the amortizable landfill assets include not only the landfill development costs incurred but also the recorded capping, closure and post-closure liabilities as well as the cost estimates for future capping, closure and post-closure costs. The landfill asset is amortized over the total capacity of the landfill, as airspace is consumed during the life of the landfill with one exception. The exception is for capping for which both the recognition of the liability and the amortization of these costs are based instead on the airspace consumed for the specific capping event.

        Upon adoption, SFAS No. 143 required a cumulative change in accounting for landfill obligations retroactive to the date of the inception of the landfill. Inception of the asset retirement obligation is the date operations commenced or the date the asset was acquired. To do this, SFAS No. 143 required the creation of the related landfill asset, net of accumulated amortization and an adjustment to the capping, closure and post-closure liability for cumulative accretion.

        At May 1, 2003, we recorded a cumulative effect of change in accounting principle of $2.7 million (net of taxes of $1.9 million). In addition we recorded a decrease in our capping, closure and post-closure obligations of $7.8 million, and a decrease in our net landfill assets of $3.2 million. The following is a summary of the balance sheet changes for landfill assets and capping, closure and post-closure liabilities at May 1, 2003 (in thousands):

 
   Balance at
April 30, 2003
   Change
   Balance at
May 1, 2003
  
Landfill assets   $ 148,029   $ 6,166   $ 154,195  
Accumulated amortization     (63,207 )   (9,394 )   (72,601 )
   
 
 
 
Net landfill assets   $ 84,822   $ (3,228 ) $ 81,594  
   
 
 
 
Capping, closure, and post-closure liability   $ 25,949   $ (7,855 ) $ 18,094  
   
 
 
 

        The following table shows the activity and total balances related to accruals for capping, closure and post-closure from April 30, 2003 to October 31, 2003 (in thousands):

 
    
  
Balance at April 30, 2003   $ 25,949  
Obligations incurred     2,419  
Accretion expense     1,170  
Payments     (1,897 )
Cumulative effect of change in accounting principle     (7,855 )
   
 
Balance at October 31, 2003   $ 19,786  
   
 

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No., 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary such that most debt extinguishment gains and losses will no longer be classified as extraordinary. We adopted

37


SFAS No. 145 effective May 1, 2003. Prior to our adoption of SFAS No. 145 in the third quarter of fiscal year 2003, we recorded an extraordinary loss of $2.2 million (net of income tax benefit of $1.5 million) in connection with the write-off of deferred financing costs related to our old term loan and old revolver. This item was reclassified to continuing operations in the audited fiscal year 2003 financial statements as loss on debt extinguishment in the amount of $3,649.

        In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses costs such as restructuring, involuntary termination of employees and consolidating facilities but excludes from its scope exit and disposal activities that are in connection with a business combination and those activities to which SFAS No. 143 and No. 144 are applicable. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. We have has not engaged in or initiated any exit or disposal activities since December 31, 2002.

        In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 clarifies the requirements of FASB No. 5, Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. It requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. We will record the fair value of future material guarantees, if any.

        In December, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FAS 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used in reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. We have included the required disclosures in Note 10 of our unaudited consolidated financial statements.

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of APB No. 51 ("FIN 46"). FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiary who absorbs a majority of the entities' expected losses or residual benefits. FIN 46 consolidation requirements apply immediately to all variable interest entities created after January 31, 2003 and on June 15, 2003 for those entities already established. In October 2003, the FASB issued FASB Staff Position (FSP) 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities (VIE) which delayed the effective date of FIN 46 to December 15, 2003 for certain VIEs. The adoption of FIN 46 had no impact on our consolidated financial statements.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity. The statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS No. 150 effective August 1, 2003. In November 2003, the FASB issued an FSP delaying the effective date for certain instruments and entities. SFAS No. 150 had no impact on our consolidated financial statements.

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Quantitative and Qualitative Disclosure About Market Risk

        The interest rate on $53.0 million of our long-term debt has been fixed through two interest rate swaps. We had interest rate risk relating to approximately $97.0 million of long-term debt at October 31, 2003. The interest rate on the variable rate portion of our long-term debt was approximately 3.9% at October 31, 2003. Should the average interest rate on the variable rate portion of long-term debt change by 100 basis points, it would have an approximate interest expense change of $0.2 million for the quarter reported.

        The remainder of our long-term debt is at fixed rates and not subject to interest rate risk.

        We are subject to commodity price fluctuations related to the portion of our sales of recyclable commodities that are not under floor or flat pricing arrangements. To minimize our commodity exposure, at October 31, 2003 we were party to twenty commodity hedging agreements that were authorized pursuant to our policies and procedures. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. If commodity prices were to change by 10%, the impact on our operating margin is estimated at $1.3 million for the quarter reported.

39



BUSINESS

The Company

        Casella Waste Systems, Inc. is a vertically-integrated regional solid waste services company that provides collection, transfer, disposal and recycling services to residential, industrial and commercial customers, primarily in the eastern United States. We believe we are currently the number one or number two provider of solid waste collection services in 80% of the areas served by our collection divisions. As of December 31, 2003, we owned and/or operated six Subtitle D landfills, three landfills permitted to accept construction and demolition materials, 37 solid waste collection operations, 33 transfer stations, 39 recycling facilities, one waste-to-energy facility and a 50% interest in a joint venture that manufactures, markets and sells cellulose insulation made from recycled fiber.

        For the six months ended October 31, 2003, we generated revenues and net income of $225.9 million and $10.3 million, respectively. Our Class A common stock is listed on the Nasdaq National Market under the ticker symbol "CWST."

Industry Overview and Trends

        The United States solid waste services industry comprises the collection, recycling, transfer and disposal of solid waste at landfills or other facilities and, according to industry sources, generated revenues of approximately $40.9 billion in 2001. The collection, transfer and recycling, and disposal segments accounted for approximately 58%, 12%, and 30% of industry revenues, respectively. Approximately 64% of collection revenues were generated from residential sources, with the remainder from commercial and industrial entities.

        The industry has generally experienced stable long-term growth, driven by population increases and economic activity. According to industry sources, the volume of solid waste generated in the United States has grown from 264 million tons in 1991 to 445 million tons in 2001, representing a compound annual growth rate of approximately 5.4%. Because the solid waste services industry meets an essential need of communities and businesses and has few cost-effective substitutes, it is generally less affected by economic downturns than other industries.

        The essential services the solid waste services industry provides to communities and businesses include:

40

        Trends in the Solid Waste Services Market.    The solid waste services industry has undergone significant consolidation since 1990. This trend has been largely driven by the impact of government regulations and competitive pressures. Stringent legislation such as Subtitle D has substantially increased the capital required for the development and operation of disposal capacity. Consequently, the number of landfills has decreased from over 6,000 in 1991 to approximately 3,000 in 2001. Furthermore, while the five largest publicly traded solid waste services companies own and/or operate approximately 20% of the landfills nationwide, they handled approximately 50% of the solid waste volume generated in 2001.

        We believe that the following factors have been major factors in this consolidation and integration:

41

        Although the industry has been consolidating over the past several years, it remains fragmented and highly competitive. In 2001, approximately 47% of the market was managed by publicly traded waste hauling and disposal companies with the balance shared between municipalities and small private firms. We believe that these small, independent operators present significant opportunities for "tuck-in" acquisitions by companies with disciplined acquisition programs, focused management and access to financial resources.

        Trends in Recycling.    In the 1980s, municipalities and counties began to initiate recycling programs in response to the increased environmental awareness of consumers and a desire to reduce landfill disposal volumes. These early programs were typically "drop-off," or "curbside" source separated programs, which required the customer or the recycler to sort the recyclable materials at the time of collection. As a way to improve recycling efficiency and expand the number of items that could be recycled the concept of commingled recycling evolved, in which all recyclable materials were collected and mixed at the curb into a single container, which was then transported to the municipal recycling facility where it was sorted and processed. Commingled recycling, while improving collection efficiency, has increased the complexity and capital intensive nature of recycling facilities and created a demand for skilled operators who can efficiently separate and process the recyclables and sell the resultant materials.

        In addition, the increased efficiency of recycling collection operations has led to an increase in the amount of recyclables collected. This has increased the commodity price risk for operators of recycling facilities, who must find a market for the recycled materials. As a result, operators have implemented strategies to reduce their exposure to commodity pricing risk. These strategies have included charging collection and processing fees for recycling volume collected from third parties, revenue sharing arrangements and initiating fiber hedging strategies to moderate the risks of commodity pricing volatility.

Our Competitive Strengths

        We believe that our key competitive strengths are:

42

Strategy

        Our objective is to continue to enhance our position as a leading, vertically-integrated regional solid waste services provider in the eastern United States. We are implementing this strategy by:

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Overview of Our Business

        Background.    Casella was founded in 1975 as a single truck operation in Rutland, Vermont and subsequently expanded to include operations in New Hampshire, Maine, upstate New York, northern Pennsylvania and eastern Massachusetts. In 1993, we initiated an acquisition strategy to take advantage of anticipated reductions in available landfill capacity in Vermont and surrounding states due to increasing environmental regulation and other market forces driving consolidation in the solid waste services industry. In 1995, we expanded our operations from Vermont and New Hampshire to Maine with the acquisition of the companies comprising New England Waste Services of ME, Inc., and in January 1997 we established a market presence in upstate New York and northern Pennsylvania through our acquisition of Superior Disposal Services, Inc.'s business. From May 1, 1994 through December 30, 1999, we acquired 161 solid waste businesses, including five Subtitle D landfills.

        KTI Acquisition and Restructuring.    In December 1999, we acquired KTI, an integrated provider of waste processing services, for aggregate consideration of $340.0 million. KTI represented a unique opportunity to acquire disposal capacity and collection operations in our primary market area and in contiguous markets in eastern Massachusetts, as well as other businesses which fit within our operating strategy. KTI assets which we considered core to our operations included the following:

        Following our acquisition of KTI, we focused on the integration of KTI and the divestiture of non-core KTI assets, which included tire recycling assets, commercial recycling facilities, mulch recycling, certain waste-to-energy facilities in Florida and Virginia, a waste-to-oil remediation facility and a broker and a processor of high density polyethylene. We also sold our majority interest in PERC, which we acquired as part of KTI. As part of this divestiture program, in the fourth quarter of fiscal year 2001, we incurred non-recurring charges of $111.7 million, of which $90.6 million were non-cash, relating to the impairment of goodwill from the acquisition of KTI, the closure of certain facilities, severance payments to terminated employees and losses on sale of non-core assets. We have completed the divestiture program for aggregate consideration of $107.6 million, including cash proceeds of $61.7 million which were used to reduce our indebtedness.

Solid Waste Operations

        Our solid waste operations comprise a full range of non-hazardous solid waste services, including collection operations, transfer stations, material recycling facilities and disposal facilities.

        Collections.    A majority of our commercial and industrial collection services are performed under one-to-three-year service agreements, with prices and fees determined by such factors as collection frequency, type of equipment and containers furnished, the type, volume and weight of solid waste collected, distance to the disposal or processing facility and cost of disposal or processing. Our residential collection and disposal services are performed either on a subscription basis (i.e., with no

44


underlying contract) with individuals, or through contracts with municipalities, homeowner associations, apartment building owners or mobile home park operators.

        Transfer Stations.    Our transfer stations receive, compact and transfer solid waste collected primarily by various collection operations, for transport to disposal facilities by larger vehicles. We believe that transfer stations benefit us by: (1) increasing the size of the wastesheds which have access to our landfills; (2) reducing costs by improving utilization of collection personnel and equipment; and (3) helping us build relationships with municipalities and other customers by providing a local physical presence and enhanced local service capabilities.

        Material Recycling Facilities.    Our material recycling facilities, or MRFs, receive, sort, bale and resell recyclable materials originating from the municipal solid waste stream, including newsprint, cardboard, office paper, containers and bottles. Through FCR, we operate 23 MRFs in geographic areas not served by our collection divisions or disposal facilities. Revenues are received from municipalities and customers in the form of processing and tipping fees and commodity sales. These MRFs are large scale, high-volume facilities that process recycled materials delivered to them by municipalities and commercial customers under long-term contracts. We also operate MRFs as an integral part of our core solid waste operations, which generally process recyclables collected from our various residential collection operations. This latter group is concentrated primarily in Vermont, as the public sector in other states within our core solid waste services market area has generally maintained primary responsibility for recycling efforts.

        Disposal Facilities.    We dispose of solid waste at our landfills and at our waste-to-energy facility.

        Landfills.    The following table (in thousands) reflects landfill capacity and airspace changes, as measured in tons, as of April 30, 2001, 2002 and 2003, for landfills we operated during the years then ended:

 
   April 30, 2001
   April 30, 2002
   April 30, 2003
  
 
   Estimated
Remaining
Permitted
Capacity
in Tons
(1)(2)
   Estimated
Additional
Permittable
Capacity
in Tons
(1)(3)
   Estimated
Total
Capacity
   Estimated
Remaining
Permitted
Capacity
in Tons
(1)(2)
   Estimated
Additional
Permittable
Capacity
in Tons
(1)(3)
   Estimated
Total
Capacity
   Estimated
Remaining
Permitted
Capacity
in Tons
(1)(2)
   Estimated
Additional
Permittable
Capacity
in Tons
(1)(3)
   Estimated
Total
Capacity
  
Balance, beginning of period   5,822   4,900   10,722   6,996   2,968   9,964   8,951   17,185   26,136  
  Acquisitions   —   —   —   —   —   —   607   422   1,029  
  New expansions pursued (4)   —   —   —   —   17,201   17,201   (183 ) 5,663   5,480  
  Permits granted   2,138   (1,964 ) 174   3,334   (2,962 ) 372   —   —   —  
  Airspace consumed   (995 ) —   (995 ) (1,232 ) —   (1,232 ) (1,373 ) —   (1,373 )
  Changes in engineering estimates   31   32   63   (147 ) (22 ) (169 ) (689 ) (956 ) (1,645 )
   
 
 
 
 
 
 
 
 
 
Balance, end of period   6,996   2,968   9,964   8,951   17,185   26,136   7,313   22,314   29,627  
   
 
 
 
 
 
 
 
 
 
(1)
We convert estimated remaining permitted capacity and estimated additional permittable capacity from cubic yards to tons by assuming a compaction factor equal to the historic average compaction factor applicable to the respective landfill over the last three fiscal years. In addition to a total capacity limit, certain permits may place a daily and/or annual limit on capacity.

(2)
Includes capacity of 240,000 tons at our NCES landfill which we are currently utilizing. Does not include additional capacity of 1.3 million tons which has been permitted under the authority of the New Hampshire Department of Environmental Services. Our right to utilize this additional capacity was recently limited by the Grafton, New Hampshire Superior Court. We have appealed this decision to the New Hampshire Supreme Court, which issued a ruling on March 1, 2004 remanding certain issues back to the Superior Court for further review. See "—Legal Proceedings."

(3)
Represents capacity which we have determined to be "permittable" in accordance with the following criteria: (i) we control the land on which the expansion is sought; (ii) all technical siting criteria have been met or a variance has been obtained or is reasonably expected to be obtained; (iii) we have not identified any legal or political impediments which we believe will not be resolved in our favor; (iv) we are actively working on obtaining any necessary permits and we expect that all required permits will be received within the next two to five years; and (v) senior management has approved the project.

(4)
Does not include certain expansion capacity which we are seeking at our NCES and Hyland landfills. Since expansion capacity at our NCES landfill requires resolution of a local dispute on land use, 1.3 million tons of expansion capacity having an estimated useful life of 9.9 years, is omitted. We have also omitted an additional approximately 5.0 million tons of capacity having an estimated useful life of 22.5 years at our Hyland landfill which is subject to a local permissive expansion referendum targeted for calendar year 2004 and our receipt of necessary permits.

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        NCES.    The North Country Environmental Services (NCES) landfill located in Bethlehem, New Hampshire serves the northern and central wastesheds of New Hampshire and certain contiguous Vermont and Maine wastesheds. Since the purchase of this landfill in 1994, we have consistently experienced expansion opposition from the local town through enactment of restrictive local zoning and planning ordinances. In each case, in order to access additional permittable capacity, we have been required to assert our rights through litigation in the New Hampshire court system. In July 2000, we received approval for approximately 600,000 tons of additional capacity, which we expect to last through June 2005. Our use of this capacity is no longer subject to local challenge as a result of the March 1, 2004 New Hampshire Supreme Court ruling, which had the effect of increasing the permittable tonnage within the 51-acre footprint by approximately 200,000 additional tons. In addition, we have received state approval for an additional 1.3 million tons of capacity; our use of this additional capacity has been restricted by the March 1, 2004 New Hampshire Supreme Court ruling, which remanded certain issues back to the Superior Court for further review . See "—Legal Proceedings."

        Waste USA.    The Waste USA landfill is located in Coventry, Vermont and serves the major wastesheds associated with the northern two-thirds of Vermont. The landfill is permitted to accept all residential and commercially produced municipal solid waste, including pre-approved sludges, and construction and demolition debris. Since our purchase of this landfill in 1995, we have expanded the capacity of this landfill which we expect to last through approximately fiscal year 2007. We are currently in the process of applying for approximately 5.5 million tons of additional capacity which, at the current usage rate, would add an additional 20 to 25 years of capacity.

        Clinton County.    The Clinton County landfill, located in Schuyler Falls, New York, is leased from Clinton County pursuant to a 25 year lease which expires in 2021. The landfill serves the principal wastesheds of Clinton, Franklin, Essex, Warren and Washington Counties in New York, and certain selected contiguous Vermont wastesheds. Permitted waste accepted includes municipal solid waste, construction and demolition debris, and special waste which is approved by regulatory agencies. The facility is currently in the final stages of a multi-year landfill expansion permitting process which, if successful, would provide considerable additional volume beyond the current terms of the lease agreement. We have entered into extended agreements with the town and county applicable to this additional volume and expect to receive the necessary approvals during the next 12 months.

        Pine Tree.    The Pine Tree landfill is located in Hampden, Maine and is one of only two commercial landfills serving principal wastesheds in the State of Maine. It is permitted to accept construction and demolition material, ash, front-end processing residues from the waste-to-energy facilities within the State of Maine and related sludges and special waste which is approved by regulatory agencies. In addition, it is permitted to accept municipal solid waste that is by-pass waste from the Maine Energy and PERC waste-to-energy facilities, as well as municipal solid waste that is in excess of the processing capacities of other waste-to-energy facilities within the State of Maine. The facility recently received final approval for approximately 3.0 million tons of additional capacity (of which approximately 400,000 tons have been utilized) and is currently developing its next expansion plan. See "—Regulation" and "—Legal Proceedings."

        Hyland.    The Hyland landfill located in Angelica, New York, serves certain Western region wastesheds located throughout western New York. The facility is permitted to accept all residential and commercial municipal solid waste, construction and demolition debris and special waste which is approved by regulatory agencies. The facility is located on a 600-acre property, which represents considerable additional expansion capabilities. In 1999, as part of a long-term settlement with the Town of Angelica, we entered into an agreement requiring a permissive referendum to expand beyond a pre-agreed footprint. As a result, the above table reflects only that capacity which has been pre-agreed with the Town of Angelica as being permittable. We expect to seek a townwide referendum during calendar year 2004 local elections. If successful, we expect to seek and receive a permit for an additional 38 acres, representing in excess of 5.0 million tons of additional capacity.

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        Ontario.    We have completed negotiations and entered into a 25-year operation, management and lease agreement with the Ontario County Board of Supervisors for the Ontario County Landfill, which is located in the Town of Seneca, New York. We commenced operations on December 8, 2003. This landfill serves the Central New York wasteshed and is strategically situated to accept long haul volume from both Eastern and downstate markets. The site consists of a 387 acre landfill permitted to accept 624,000 tons per year of municipal solid waste. The landfill has a permitted capacity of 4.1 million cubic yards and an additional 5.3 million cubic yards expected to be approved in early 2004. Additional potential expansions include 11.7 million cubic yards.

        Templeton.    On June 5, 2003, we entered into a construction, operation and management agreement with the Town of Templeton, Massachusetts for the operation of the Templeton sanitary landfill. Construction and operation of the landfill is subject to permitting requirements. We are currently preparing a draft environmental impact report and a permit application. In light of the recent approval by voters at a special town meeting of a petitioned article banning out-of-town waste at the landfill, we will seek to work with officials from the town to reach an agreement surrounding the remediation of the town's old unlined landfill and the construction of an adjacent facility. We expect our landfill permitting and construction process to be delayed as a result of this vote. In another landfill-related vote, voters abolished the town's landfill enterprise fund; fees paid by the landfill will now go directly into the town's general fund. Both articles approved by voters at the special town meeting were opposed by the town's Board of Health, which oversees the landfill on behalf of the town.

        Maine Energy Waste-to-Energy Facility.    We own a waste-to-energy facility, Maine Energy Recovery Company, Limited Partnership, which generates electricity by processing non-hazardous solid waste. This waste-to-energy facility provides us with important additional disposal capacity and generates power for sale. The facility receives solid waste from municipalities under long-term waste handling agreements and also receives raw materials from commercial and private waste haulers and municipalities with short-term contracts, as well as from our collection operations. Maine Energy is contractually required to sell all of the electricity generated at its facility to Central Maine Power, an electric utility, and guarantees 100% of its electric generating capacity to CL Power Sales One, LLC. Maine Energy is part of the Eastern region. Our use of the facility is subject to permit conditions, some of which are opposed by local authorities. See "—Regulation" and "—Legal Proceedings."

        Hardwick.    The Hardwick landfill, which was acquired in March 2003, located in Hardwick, Massachusetts, is permitted to accept construction and demolition material and a limited amount of municipal solid waste and certain difficult-to-manage wastes. The facility currently is permitted to accept 300 tons per day including 50 tons per day of municipal solid waste. The Hardwick landfill is located on an 18-acre property. In addition, we have an option to purchase approximately 160 additional acres that are adjacent to the landfill. We estimate that at its current permit limits, the facility has between 7 and 8 years of operating life. In addition, an estimated 400,000 tons of additional permittable capacity is currently being pursued on the 18-acre parcel.

        Southbridge.    On November 25, 2003, we acquired Wood Recycling, Inc. Wood Recycling has a contract with the Town of Southbridge, Massachusetts to maintain and operate a 13-acre construction and demolition recycling facility and a 52-acre landfill permitted to accept residuals from the recycling facility and a limited amount of municipal solid waste. The contract has a remaining term of 12 years and is renewable by us for four additional five-year terms or until the landfill has reached full capacity, whichever is greater. The landfill has currently permitted volume of approximately 4.6 million cubic yards and is authorized to accept up to 180,960 tons per year, consisting of 156,000 tons of residual material and 24,960 tons of municipal solid waste. The Massachusetts Department of Environmental Protection ("MADEP") and the Massachusetts Office of the Attorney General ("MAAGO") have alleged that, under its prior owners, Wood Recycling violated certain solid and hazardous waste, air quality control, industrial wastewater and wetlands statutes and regulations at the recycling facility and

47


landfill. We reached an agreement with MADEP on January 29, 2004, and an agreement in principle with the MAAGO which we expect to finalize in February 2004. The MAAGO settlement is expected to provide for the payment of a penalty of $575,000 ($150,000 of which will be conditionally suspended) and a payment of an additional $400,000 to improve the damaged wetlands or to purchase other conservation land. These payments were contemplated by us in our determination of the purchase price for Wood Recycling. The operations of the recycling facility were recommenced on January 29, 2004 as a result of the settlement with MADEP. See "—Regulation."

        Hakes.    The Hakes construction and demolition landfill, located in Campbell, New York, is permitted to accept only construction and demolition material. The landfill serves the principal rural wastesheds of western New York. We believe that the site has permittable capacity of over 3.0 million tons, based on existing regulatory requirements and local community support. We expect to apply for this expansion during the next 18 months and do not expect substantial opposition from the local community. We have entered into a revised long-term host community agreement related to the expansion of the facility. Recently we were successful in securing an increase of our permitted volume capacity from 417 to 1,000 tons per day.

        West Old Town.    On February 5, 2004, we completed transactions with the State of Maine and Georgia-Pacific, pursuant to which the State of Maine took ownership of the landfill located in West Old Town, Maine formerly owned by Georgia-Pacific and we became the operator of that facility under a 30-year operating and services agreement between us and the State of Maine. Under the terms of the agreements, we will provide to the State of Maine, and the State of Maine will in turn provide to Georgia-Pacific, a cash payment of $12.5 million and letters of credit totaling $13.5 million, which become payable upon the issuance of an expansion permit for an additional 7 million cubic yards of commercial capacity at the landfill.

        We also have rights to remaining capacity at a residual landfill and a construction and demolition landfill in Brockton, Massachusetts and Cheektowaga, New York, respectively, totaling approximately 524,000 tons as of December 31, 2003. The Brockton landfill has an expected remaining life of approximately one year. The Cheektowaga landfill is expected to be closed in the summer of 2004. In addition, we own and/or operated five unlined landfills which are not currently in operation. All of these landfills have been closed and capped to applicable environmental regulatory standards by us.

Operating Segments

        We manage our solid waste operations on a geographic basis through three regions, which we have designated as the Central, Eastern and Western regions and which each comprise a full range of solid waste services, and FCR, which comprises our larger-scale non-solid waste recycling and our brokerage operations.

        Within each geographic region, we organize our solid waste services around smaller areas that we refer to as "wastesheds." A wasteshed is an area that comprises the complete cycle of activities in the solid waste services process, from collection to transfer operations and recycling to disposal in either landfills or waste-to-energy facilities, some of which may be owned and operated by third parties. We typically operate several divisions within each wasteshed, each of which provides a particular service, such as collection, recycling, disposal or transfer. Each of these divisions is managed as a separate profit center, but operates interdependently with the other divisions within the wasteshed. Each wasteshed generally operates autonomously from adjoining wastesheds.

        Throughout its 23 material recycling facilities, FCR services 30 anchor contracts, which are long-term commitments from a municipality of five years or greater to guarantee the delivery of all recycled residential recyclables to FCR. These contracts may include a minimum volume guarantee committed by the municipality. We also have service agreements with individual towns and cities and commercial customers, including small solid waste companies and major competitors that do not have

48


processing capacity within a specific geographic region. The 23 FCR facilities process recyclables collected from approximately 2.7 million households, representing a population of approximately 8.2 million.

        The following table provides information about each operating region and FCR (as of December 31, 2003, except revenue information).

 
   Central region
   Eastern region
   Western region
   FCR Recycling
Revenues for the six months ended October 31, 2003 (in millions)   $52.8   $87.5   $39.4   $37.5
Solid waste collection operations   12   12   13   —
Transfer stations   13   9   10   1
Recycling facilities   5   9   2   23
Subtitle D landfills (1)   Bethlehem, NH
Coventry, VT
Schuyler Falls, NY		   Hampden, ME   Angelica, NY
Ontario, NY		   —
Other disposal facilities (2)   —  
Biddeford, ME
Hardwick, MA
Southbridge, MA		  
Campbell, NY		   —
(1)
In addition, in June 2003 we signed a 20-year development and operating agreement for a Subtitle D landfill located in Templeton, Massachusetts, which is not yet permitted or operating, and in February 2004 we signed a 30-year operating agreement with the State of Maine for the development and operation of the West Old Town Landfill.

(2)
The disposal facility located in Biddeford, Maine is a waste-to-energy facility. The Hardwick, Massachusetts and Southbridge, Massachusetts disposal facilities are permitted to accept construction and demolition material and a limited amount of municipal solid waste. The disposal facility located in Campbell, New York is a landfill permitted to accept only construction and demolition materials. We also have rights to the remaining air space capacity at a residual landfill and a construction and demolition landfill located in Brockton, Massachusetts and Cheektowaga, New York, respectively, totaling approximately 524,000 tons as of December 31, 2003. The Cheektowaga landfill is expected to be closed in the summer of 2004. The Brockton landfill has an expected remaining life of approximately one year.

        Central Region.    The Central region consists of wastesheds located in Vermont, northwestern New Hampshire and eastern upstate New York. The portion of upstate New York served by the Central Region includes Clinton, Franklin, Essex, Warren, Washington, Saratoga, Rennselaer and Albany counties. Our Waste USA landfill in Coventry, Vermont is one of only two permitted Subtitle D landfills in Vermont, and our NCES landfill in Bethlehem, New Hampshire is one of only six permitted Subtitle D landfills in New Hampshire. In the Central Region, there are a total of 13 permitted Subtitle D landfills.

        The Central region has become our most mature operating platform, as we have operated in this region since our inception in 1975. We have achieved a high degree of vertical integration of the wastestream in this region, resulting in stable cash flow performance. In the Central region, we also have a market leadership position. Our primary competition in the Central region comes from Waste Management, Inc. in the larger population centers (primarily southern New Hampshire), and from smaller independent operators in the more rural areas. As our most mature region, future operating efficiencies will be driven primarily by improving our core operating efficiencies and providing enhanced customer service.

        Eastern Region.    The Eastern region consists of wastesheds located in Maine, southeastern New Hampshire and eastern Massachusetts. These wastesheds generally have been affected by the regional constraints on disposal capacity imposed by the public policies of New Hampshire, Maine and Massachusetts which have, over the past 10 years, either limited new landfill development or precluded

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development of additional capacity from existing landfills. Consequently, the Eastern Region relies more heavily on non-landfill waste-to-energy disposal capacity than our other regions. Maine Energy is one of nine waste-to-energy facilities in the Eastern Region.

        We entered the State of Maine in 1996 with our purchase of the assets comprising New England Waste Services of ME., Inc. in Hampden, Maine. Our acquisition of KTI in 1999 significantly improved our disposal capacity in this region and provided an alternative internalization option for our solid waste assets in eastern Massachusetts. Our major competitor in the State of Maine is Waste Management, Inc., as well as several smaller local competitors.

        We entered eastern Massachusetts in fiscal year 2000 with the acquisition of assets that were divested by Allied Waste Industries, Inc. under court order following its acquisition of Browning Ferris Industries, Inc., and through the acquisition of smaller independent operators. In this region, we generally rely on third party disposal capacity. Consequently, we believe we have a greater opportunity to increase our internalization rates and operating efficiencies in the Eastern region than in our two other regions, where our competitive position generally is stronger. Our primary competitors in eastern Massachusetts are Waste Management, Inc., Allied Waste Industries, Inc., and smaller independent operators.

        Western Region.    The Western region consists of wastesheds in upstate New York (which includes Ithaca, Elmira, Oneonta, Lowville, Potsdam, Geneva, Auburn, Buffalo, Jamestown and Olean) and northern Pennsylvania (Wellsboro, PA). We entered the Western Region with our acquisition of Superior Disposal Services, Inc.'s business in 1997 and have consistently expanded in this region largely through tuck-in acquisitions and internal growth. Our collection operations include leadership positions in nearly every rural market in the Western region outside of larger metropolitan markets such as Syracuse, Rochester, Albany and Buffalo.

        While we have achieved strong market positions in this region, we remain focused on increasing our vertical integration through the acquisition or privatization and operation of additional disposal capacity in the market. As compared to our other operating regions, the Western Region, where we own the Hyland landfill, presently contains an excess of disposal capacity as a result of the proliferation during the 1990s of publicly-developed Subtitle D landfills. As a result, we believe that opportunities exist for us to enter into long-term leasing arrangements and other strategic partnerships with county and municipal governments for the operation and/or utilization of their landfills, similar to our long-term lease for the Clinton County landfill being operated by our Central Region. We expect that successful implementation of this strategy will lead to improved internalization rates.

        Our primary competitors in the Western region are Waste Management, Inc., Republic Services Group, Inc. and Allied Waste Industries, Inc. in the larger urban areas and smaller independent operators in the more rural markets.

        FCR Recycling.    FCR Recycling is one of the largest processors and marketers of recycled materials in the eastern United States, comprising 23 material recycling facilities that process and then market recyclable materials that municipalities and commercial customers deliver to it under long-term contracts. Ten of FCR's facilities are leased, six are owned and seven are under operating contracts. In fiscal year 2003, FCR processed and marketed approximately 865,000 tons of recyclable materials. FCR's facilities are principally located in key urban markets, including in Connecticut; North Carolina; New Jersey; Florida; Tennessee; Georgia; Michigan; New York; South Carolina; New Hampshire; Massachusetts; Wisconsin, Maine; and Halifax, Canada.

        A significant portion of the material provided to FCR is delivered pursuant to 30 anchor contracts, which are long-term contracts with municipal customers. The anchor contracts generally have a term of five to ten years and expire at various times between 2004 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 our facility. In approximately one-third of the contracts, the municipalities agree to deliver a guaranteed

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tonnage and the municipality pays a fee for the amount of any shortfall from the guaranteed tonnage. Under the terms of the individual contracts, we charge the municipality a fee for each ton of material delivered to us. Some contracts contain revenue sharing arrangements under which the municipality receives a specified percentage of the revenues from the sale by us of the recovered materials.

        FCR derives a significant portion of its revenues from the sale of recyclable materials. The purchase and sale prices of recyclable materials, particularly newspaper, corrugated containers, plastics, ferrous and aluminum, can fluctuate based upon market conditions. We use long-term supply contracts with customers with floor price arrangements to reduce the commodity risk for certain recyclables, particularly newspaper, cardboard, plastics and aluminum metals. Under such contracts, we obtain 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, such as paper, packaging and consumer goods companies. In fiscal year 2003, 52% of the revenues from the sale of recyclable materials of the residential recycling segment were derived from sales under long-term contracts with floor prices. We also hedge against fluctuations in the commodity prices of recycled paper and corrugated containers in order to mitigate the variability in cash flows and earnings generated from the sales of recycled materials at floating prices. As of October 31, 2003, we were party to twenty commodity hedge contracts. These contracts expire between March 2004 and November 2005.

        In September 2002, we transferred our export brokerage operations to employees who had been responsible for managing that business. In June 2003, we completed the transfer of our domestic brokerage operations and a commercial recycling business to employees who managed those businesses. The brokerage business derived all of its revenues from the sale of recyclable materials, predominately old newspaper, old corrugated cardboard, mixed paper and office paper. The brokerage business marketed in excess of 250,000 tons per year of various paper fibers both domestically and overseas. The brokers in the brokerage operation are required to identify both the buyer and the seller of the recyclable materials before committing to broker the transaction, thereby minimizing pricing risk, and are not permitted to enter into speculative trading of commodities. As part of our acquisition of KTI, we had acquired brokerage businesses which were focused on domestic and export markets.

GreenFiber Cellulose Insulation Joint Venture

        We are a 50% partner in US GreenFiber LLC, a joint venture with Louisana-Pacific. GreenFiber, which we believe is one of the largest manufacturers of high quality cellulose insulation for use in residential dwellings and manufactured housing, was formed through the combination of our cellulose operations, which we acquired in our acquisition of KTI, with those of Louisiana-Pacific. Based in Charlotte, North Carolina, GreenFiber has a national manufacturing and distribution capability and sells to contractors, manufactured home builders and retailers, including Home Depot, Inc. GreenFiber has ten manufacturing facilities located in Atlanta, Georgia; Charlotte, North Carolina; Delphos, Ohio; Elkwood, Virginia; Norfolk, Nebraska; Phoenix, Arizona; Sacramento, California; Tampa, Florida; and Waco, Texas. GreenFiber utilizes a hedging strategy to help stabilize its exposure to fluctuating newsprint costs, which generally represent approximately 30% of its raw material costs, and is a major purchaser of FCR recycling fiber material produced at various facilities. GreenFiber, which we account for under the equity method, had revenues of $52.2 million for the six months ended October 31, 2003. For the same period, we recognized equity income from GreenFiber of $0.9 million.

Competition

        The solid waste services industry is highly competitive. We compete for collection and disposal volume primarily on the basis of the quality, breadth and price of our 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 our services

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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.

        Some of the larger urban markets in which we compete are served by one or more of the large national solid waste companies that may be able to achieve greater economies of scale than us, including Waste Management, Inc., Allied Waste Industries, Inc. and Republic Services, Inc. We also compete with a number of regional and local companies that offer competitive prices and quality service. In addition, we compete 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 us due to the availability of user fees, charges or tax revenues and tax-exempt financing.

        The insulation industry is highly competitive and labor intensive. In our cellulose insulation manufacturing activities, GreenFiber, our joint venture with Louisiana-Pacific Corporation, competes primarily with manufacturers of fiberglass insulation such as Owens Corning, CertainTeed Corporation and Johns Manville. These manufacturers have significant market shares and are substantially better capitalized than GreenFiber.

Marketing and Sales

        We have a coordinated marketing and sales strategy, which is formulated at the corporate level and implemented at the divisional level. We market our services locally through division managers and direct sales representatives who focus on commercial, industrial, municipal and residential customers. We also obtain new customers from referral sources, our 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 our marketing plan, and many of our managers are involved in local governmental, civic and business organizations. Our name and logo, or, where appropriate, that of our divisional operations, are displayed on all our containers and trucks. Additionally, we attend and make presentations at municipal and state conferences and advertise in governmental associations' membership publications.

        We market our commercial, industrial and municipal services through our 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. We emphasize providing quality services and customer satisfaction and retention, and believe that our focus on quality service will help retain existing and attract additional customers.

Employees

        As of December 31, 2003, we employed approximately 2,600 persons, including approximately 500 professionals or managers, sales, clerical, data processing or other administrative employees and approximately 2,100 employees involved in collection, transfer, disposal, recycling or other operations. Certain of our employees are covered by collective bargaining agreements. We believe relations with our employees to be satisfactory.

Risk Management, Insurance and Performance or Surety Bonds

        We actively maintain environmental and other risk management programs, which we believe are appropriate for our business. Our environmental risk management program includes evaluating existing facilities, as well as potential acquisitions, for environmental law compliance and operating procedures. We also maintain a worker safety program, which encourages safe practices in the workplace. Operating

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practices at all of our operations are intended to reduce the possibility of environmental contamination and litigation.

        We carry a range of insurance intended to protect our assets and operations, including a commercial general liability policy and a property damage policy. A partially or completely uninsured claim against us (including liabilities associated with cleanup or remediation at our facilities), if successful and of sufficient magnitude, could have a material adverse effect on our business, financial condition and results of operations. Any future difficulty in obtaining insurance could also impair our ability to secure future contracts, which may be conditioned upon the availability of adequate insurance coverage.

        Effective July 1, 1999, we established a captive insurance company, Casella Insurance Company, through which we are self-insured for worker's compensation and, effective May 1, 2000, automobile coverage. Our maximum exposure under the worker's compensation plan is $500,000 per individual event with a $1,000,000 aggregate limit, after which reinsurance takes effect. Our maximum exposure under the automobile plan is $500,000 per individual event with a $3,000,000 aggregate limit, after which reinsurance takes effect.

        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. While we have not experienced difficulty in obtaining these financial instruments, if we were unable to obtain these financial instruments in sufficient amounts or at acceptable rates we could be precluded from entering into additional municipal solid waste collection contracts or obtaining or retaining landfill operating permits.

Customers

        We provide our collection services to commercial, industrial and residential customers. A majority of our 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. Our residential collection and disposal services are performed either on a subscription basis (i.e., with no underlying contract) with individuals, or through contracts with municipalities, homeowners associations, apartment owners or mobile home park operators.

        Maine Energy is contractually required to sell all of the electricity generated at its facilities to Central Maine Power, an electric utility, pursuant to a contract that expires in 2012, and guarantees 100% of its electricity generating capacity to CL Power Sales One, LLC, pursuant to a contract that expires in 2007.

        FCR provides recycling services to municipalities, commercial haulers and commercial waste generators within the geographic proximity of the processing facilities. We also acted as a broker of recyclable materials, principally to paper and box board manufacturers in the United States, Canada, the Pacific Rim, Europe, South America and Asia, until these businesses were sold as described above.

        Our cellulose insulation joint venture, GreenFiber, sells to contractors, manufactured home builders and retailers.

Raw Materials

        Maine Energy received approximately 26% of its solid waste in fiscal year 2003 from 19 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, as well as from our own collection operations.

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        In fiscal year 2003, FCR received approximately 60% of its material under long-term agreements with municipalities. These contracts generally provide that all recyclables collected from the municipal recycling programs shall be delivered to a facility that is owned or operated by us. 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 our insulation joint venture is newspaper. In fiscal year 2003, GreenFiber received approximately 17% of the newspaper used by it from FCR. 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

        Our 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:

        Since certain of our 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 result in increased operating costs.

        The recycling segment experiences increased volumes of newspaper in November and December due to increased newspaper advertising and retail activity during the holiday season. The insulation business experiences lower sales in November and December because of lower production of manufactured housing due to holiday plant shutdowns.

Regulation

        We are 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 us are administered by the United States Environmental Protection Agency ("EPA") and other federal, state and local environmental, zoning, health and safety agencies. Failure to comply with such requirements could result in substantial costs, including civil and criminal fines and penalties. Except as described in this offering circular, we believe that we are currently in substantial compliance with applicable federal, state and local environmental laws, permits, orders and regulations. We do not currently anticipate any material environmental costs to bring our operations into compliance, although there can be no assurance in this regard in the future. We expect that our operations in the solid waste services industry will be subject to continued and increased regulation, legislation and regulatory enforcement actions. We attempt to anticipate future legal and regulatory requirements and to carry out plans intended to keep our operations in compliance with those requirements.

        In order to transport, process, incinerate, or dispose of solid waste, it is necessary for us to possess and comply with one or more permits from federal, state and/or local agencies. We must review these permits periodically, and the permits may be modified or revoked by the issuing agency.

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        The principal federal, state and local statutes and regulations applicable to our various operations are as follows:

        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 (1) either (a) are specifically included on a list of hazardous wastes, or (b) exhibit certain characteristics defined as hazardous, and (2) 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. 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 the EPA has delegated to those states the principal role in regulating businesses which are subject to those requirements. Some state regulations impose different, additional obligations.

        We currently do not accept for transportation or disposal hazardous substances (as defined in CERCLA, discussed below) in concentrations or volumes that would classify those materials as hazardous wastes. However, we have transported hazardous substances in the past and very likely will transport and dispose of hazardous substances 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 our customers.

        We do not accept hazardous wastes for incineration at our waste-to-energy facility. We typically test ash produced at our waste-to-energy facility 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 our 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 our landfills has been classified as hazardous waste under state law, and there is no guarantee that leachate generated from our facilities in the future will not be classified under federal or state law as hazardous waste.

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        In October 1991, the EPA adopted the Subtitle D regulations under RCRA 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 us to install groundwater monitoring wells at virtually all landfills we operate, 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 landfill gas (including methane) generated at landfills exceeding certain regulatory thresholds. State landfill regulations must meet these requirements or the EPA will 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 we operate or in which we may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D regulations.

        The 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 our solid waste management facilities, or process or cooling waters generated at our waste-to-energy facility, is discharged into streams, rivers or other surface waters, the Clean Water Act would require us 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 those issued under the Clean Water Act, but 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 regulate the discharge of impacted storm water to surface waters.

        CERCLA established a regulatory and remedial program intended to provide for the investigation and remediation of facilities where or from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLA has been interpreted to impose retroactive strict, and under certain circumstances, joint and several, liability for investigation and 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 certain transporters of the hazardous substances. In addition, CERCLA imposes liability for the costs of evaluating and addressing damage 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 we were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold us, under certain circumstances, or any other responsible party, responsible for all investigative and remedial costs, even if others also were liable. CERCLA also authorizes EPA to impose a lien in

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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. Our ability to get others to reimburse us for their allocable share of such costs would be limited by our 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, 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 thresholds 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 under the Clean Air Act.

        The Clean Air Act regulates emissions of air pollutants from our waste-to-energy facility and certain of our processing facilities. The EPA has enacted standards that apply to those emissions. It is possible that the EPA, or a state where we operate, 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 private parties successfully advancing such an action.

        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 our 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.

        Each state in which we now operate 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 remediation of contaminated sites and liability for costs and damages associated with such sites, and some authorize the state to impose liens to secure costs expended addressing contamination on property owned by responsible parties. Some of those liens may take priority over previously filed instruments. Furthermore, many municipalities also have ordinances, laws and regulations affecting our 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

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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 we operate 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 of our landfills within those states that receive a significant portion of waste originating from out-of-state.

        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 limit waste going out of the locality by imposing a requirement that the waste be delivered to a particular facility. However, it is uncertain how that precedent will be applied in different circumstances. For example, in 2002, the U.S. Supreme Court decided not to hear an appeal of a federal Appeals Court decision that held that the flow control ordinances directing waste to a publicly owned facility are not per se unconstitutional and should be analyzed under a standard that is less stringent than if waste had been directed to a private facility. The less stringent standard has not yet been applied to the facts of that case, which involves flow control regulations in Oneida and Herkimer Counties in New York, and the outcome is uncertain. Additionally, certain state and local jurisdictions continue to seek to enforce such restrictions and, in certain cases, we may elect not to challenge such restrictions. Further, some proposed federal legislation would allow states and localities to impose flow restrictions. Those restrictions could reduce the volume of waste going to landfills or transfer stations in certain areas, which may materially adversely affect our ability to operate our facilities and/or affect the prices we can charge for certain services. Those restrictions also may result in higher disposal costs for our collection operations. In sum, flow control restrictions could have a material adverse effect on our business, financial condition and results of operations.

        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 and leaves, beverage containers, newspapers, household appliances and batteries. Regulations reducing the volume and types of wastes available for transport to and disposal in landfills could affect our ability to operate our landfill facilities.

        Our waste-to-energy facility 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."

        Our waste-to-energy business is dependent upon our ability to sell the electricity generated by our facility to an electric utility or a third party such as an energy marketer. Maine Energy currently sells electricity to an electric utility under a long term power purchase agreement. When that agreement

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expires, or if the electric utility were to default under the agreement, there is no guarantee that any new agreement would contain a purchase price as favorable as the one in the current agreement.

        We have obtained approval from the Maine Department of Environmental Protection ("DEP") for an odor control system at our waste-to-energy facility in Biddeford, Maine involving the redirection of our air emissions through scrubbers and scrubber vents. In addition, we proposed an increase in the height of our scrubber stacks and a change in our odor control chemicals. At the municipal level, the City Council opposed our proposal and it was denied by the Biddeford Zoning Board of Appeals. As a result of the local opposition, we withdrew the request for the height increase. The Biddeford Planning Board approved our request to test alternative odor control chemicals as part of the control system during the summer of 2002. The test showed that none of the three chemicals tested are more effective than water. Based on the test results, we withdrew our request to test alternative odor control for the chemicals. Notwithstanding our withdrawal of that application, the Planning Board voted to conditionally approve Maine Energy's use of alternative odor control chemicals and to require Maine Energy to evaluate certain other control technologies. Based on the absence of an application before the Planning Board, Maine Energy is disputing the jurisdiction of the Planning Board to issue an approval and has appealed that decision to the Zoning Board of Appeals ("ZBA"). A hearing is scheduled before the ZBA on April 14, 2004. Since we are not able to increase our stack heights, there is no assurance that our state-approved odor control system will operate optimally to control odors, or if it does not, that our operations would not be significantly curtailed, which could have a material adverse effect on our business, financial condition and results of operations.

        Based on the results of the testing that we performed to evaluate the effectiveness of Maine Energy's odor control system, the City of Biddeford alleged to DEP in October 2002 that emissions of volatile organic compounds ("VOCs") from the odor control system exceeded DEP air license limits. In cooperation with DEP, Maine Energy agreed to voluntarily perform several rounds of testing to quantify and speciate emissions of VOCs from the scrubber stacks, using appropriate analytical methods. As a result, we may be subject to enforcement action by DEP and we may incur additional material costs to comply with applicable control technology requirements. On December 3, 2003, the City of Biddeford sued Maine Energy in federal court under federal and state law alleging that we are emitting VOCs without appropriate permits or appropriate control technology and that we constitute a public nuisance. The complaint seeks an unspecified amount of civil penalties, damages, injunctive relief and attorney's fees. See "—Legal Proceedings."

        In addition, on October 16, 2002, the City of Biddeford and Joseph Stephenson (as the Code Enforcement Officer for the City of Biddeford) filed a Land Use Citation and Complaint against Maine Energy alleging that Maine Energy is emitting levels of volatile organic compounds which exceed permitted levels. The complaint sought an unspecified amount of civil penalties, a preliminary and permanent injunction, and legal costs. On December 3, 2002, the court ruled that the complaint failed to meet certain pleading requirements and ordered plaintiffs to file a new complaint by December 30, 2002. On April 7, 2003, the plaintiffs dismissed their action with prejudice.

        We own a membership interest in New Heights Investor Co., LLC, through which we own a 50% interest in the power plant assets owned by New Heights Recovery & Power LLC. The power plant is a waste-to-energy facility using tires as fuel, in Ford Heights, Illinois. In August 2000, the Illinois Environmental Protection Agency ("IEPA") issued a violation notice to the facility asserting non-compliance with its construction permit related to air emissions. The facility has undertaken certain corrective measures and is working with IEPA to negotiate a new permit. While non-compliance with permitting requirements is subject to civil penalties, we do not expect them to be assessed. However, there can be no assurance that, if civil penalties were assessed, they would not have a material adverse effect on our financial position or results of operations.

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        In connection with our acquisition of Wood Recycling, Inc., the Massachusetts Department of Environmental Protection ("MADEP") and the Massachusetts Office of the Attorney General ("MAAGO") have alleged that, under its prior owners, Wood Recycling violated certain solid and hazardous waste, air quality control, industrial wastewater and wetlands statutes and regulations at the recycling facility and landfill. We reached an agreement with MADEP on January 29, 2004, and an agreement in principle with the MAAGO which we expect to finalize during February 2004. The settlement is expected to provide for the payment of a penalty of $575,000 ($150,000 of which will be conditionally suspended) and a payment of an additional $400,000 to improve the damaged wetlands or to purchase other conservation land. These payments were contemplated by us in our determination of the purchase price for Wood Recycling. The operations of the recycling facility were recommenced on January 29, 2004 as a result of the settlement with MADEP.

Legal Proceedings

        Our 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 New Hampshire Superior Court in Grafton ruled on February 1, 1999 that the Town could not enforce an ordinance purportedly prohibiting expansion of the landfill, at least with respect to 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. Notwithstanding the Supreme Court's ruling, the Town continued to assert jurisdiction to conduct unqualified site plan review with respect to Stage III and has further stated that the Town's height ordinance and building permit process may apply to Stage III. On September 12, 2001, we filed a petition for, among other things, declaratory relief. On December 4, 2001, the Town filed an answer to our petition asserting counterclaims seeking, among other things, authorization to assert site plan review over Stage III, which commenced operation in December 2000, as well as the methane gas utilization/leachate handling facility operating in Stage III, and also an order declaring that an ordinance prohibiting landfills applies to Stage IV expansion. The trial related to the Town's jurisdiction was held in December 2002 and on April 24, 2003, the Grafton Superior Court issued its ruling, upholding the Town's 1992 ordinance preventing the location or expansion of any landfill, ruling that the ordinance may be applied to any part of Stage IV that goes beyond the 51 acres; ruling that the Town's height ordinance is valid within the 51 acres; upholding the Town's right to require Site Plan Review, except that there are certain areas within the Town's Site Plan Review regulation that are preempted; ruling that the methane gas utilization/leachate handling facility is not subject to the Town's ordinance forbidding incinerators. On May 27, 2003, NCES appealed the Court ruling to the New Hampshire Supreme Court, which agreed to hear the case, except for the Company's appeal of the Superior Court's ruling denying attorneys fees. On March 1, 2004, the Supreme Court issued its opinion affirming that NCES has all of the local approvals that it needs to operate within the 51 acres. If successful in obtaining state permits for development and operation within the 51 acres, NCES expects to be able to provide from three to five years of disposal capacity. The Supreme Court's opinion left open for further review the question of whether the Town's 1992 ordinance can prevent expansion of the facility outside the 51 acres, remanding to the Superior Court two legal claims raised by NCES as grounds for invalidating the 1992 ordinance.

        On or about March 24, 2000, a complaint was filed in the United States District Court, District of New Jersey against us, KTI and Ross Pirasteh, Martin J. Sergi, and Paul A. Garrett, who were KTI's principal officers. 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 "Exchange Act"). On or about April 6, 2000, the plaintiffs filed an amended class action complaint,

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which changed the class period covered by the complaint to the period including August 15, 1998 through April 14, 1999. At a settlement conference held on September 27, 2002 the parties reached an agreement, which requires the defendants to pay $3.8 million in return for a full release. Our portion of the settlement amount (net of insurance) is $150,000. The remainder will be paid by insurers. The court approved the settlement on January 24, 2003 and entered final judgment on March 31, 2003.

        During the period of November 21, 1996 to October 9, 1997, we 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 we should have paid prevailing wages in connection with the labor associated with such activities. We have disputed the allegations and a hearing on the liability issue was held on September 16, 2002. In November 2002, both sides submitted proposed findings of fact and conclusions of law. The hearing officer is expected to make a recommendation to the Department of Labor commissioner during the summer of 2004. We continue to explore settlement possibilities with the State. We believe that we have meritorious defenses to these claims. Although a loss as a result of these claims is reasonably possible, we cannot estimate a range of reasonably possible losses at this time.

        On or about July 2, 2001, we were served with a complaint filed in New York State Supreme Court, Erie County, as one of over twenty defendants named in a toxic tort lawsuit filed by residents surrounding three sites in Cheektowaga, New York known as the Buffalo Crushed Stone limestone quarry, the Old Land Reclamation inactive landfill and the Schultz landfill. We are alleged to have liability as a result of our airspace agreement at the Schultz landfill, which is a permitted construction and demolition landfill. Plaintiffs claim property damages and some personal injuries based on alleged nuisance conditions arising out of these facilities and seek compensatory damages in excess of $3 million, punitive damages of $10 million and injunctive relief. We believe that we have meritorious defenses to these claims.

        On or about November 7, 2001, our subsidiary New England Waste Services of Maine, Inc. was served with a complaint filed in Massachusetts Superior Court on behalf of Daniel J. Quirk, Inc. and 14 citizens against The Massachusetts Department of Environmental Protection ("MADEP"), Quarry Hill Associates, Inc. and New England Waste Services of Maine Inc. dba New England Organics, et al. The complaint seeks injunctive relief related to the use of MADEP-approved wastewater treatment sludge in place of naturally occurring topsoil as final landfill cover material at the site of the Quarry Hills Recreation Complex Project in Quincy, Massachusetts (the "Project"), including removal of the material, or placement of an additional "clean" cover. On February 21, 2002, the MADEP filed a motion for stay pending a litigation control schedule. Plaintiffs have filed a cross-motion to consolidate the case with 11 other cases they filed related to the Project. Additionally, we have cross-claimed against other named defendants seeking indemnification and contribution. In September 2002, the court granted a stay of all proceedings pending the filing of summary judgment motions by all defendants on the issue of whether the plaintiffs are barred from suing the defendants as a result of a covenant not to sue that was signed by plaintiffs in 1998. On December 17, 2002, the court granted certain summary judgment motions filed by the defendants, the effect of which was the dismissal of all claims against all defendants in all cases where New England Waste Services of Maine, Inc. was a defendant. On or about February 12, 2003, plaintiffs filed an appeal. We believe that we have meritorious defenses to these claims.

        On or about December 11, 2001, we were served with a bill in equity in aid of discovery filed in the Strafford Superior Court in New Hampshire by Nancy Hager. The bill in equity seeks an accounting related to non-compete tip fee payments from us to Ms. Hager pursuant to a 1993 release and settlement agreement. The bill in equity is a request for pre-litigation discovery for the purpose of investigating a potential claim for failure to pay appropriate non-compete tip fee amounts. In light of an arbitration clause in the 1993 release and settlement agreement, we filed a motion to stay the proceedings under the bill in equity pending completion of the arbitration process. On March 18, 2002, the court granted our motion to stay. On August 5, 2002, the court extended the stay pending the

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arbitration process. On October 17, 2002, Ms. Hager voluntarily withdrew her bill in equity without prejudice. On January 15, 2003, Ms. Hager filed a written request for arbitration with the American Arbitration Association alleging that she is owed between $150,000 and $300,000. The arbitration is expected to be completed in March 2004. We believe we have meritorious defenses to these claims.

        On January 10, 2002, the City of Biddeford, Maine filed a lawsuit in York County Superior Court in Maine alleging breach of the waste handling agreement among the Biddeford-Saco Waste Handling Committee, the cities of Biddeford and Saco, Maine and our subsidiary Maine Energy for (1) failure to pay the residual cancellation payments in connection with our merger with KTI and (2) processing amounts of waste above contractual limits without notice to the City. On May 3, 2002, the City of Saco filed a lawsuit in York County Superior Court against us, Maine Energy and other subsidiaries. The complaint in that action, which was amended by the City of Saco on July 22, 2002, alleges breaches of the 1991 waste handling agreement for failure to pay the residual cancellation payment, which Saco alleges is due as a result of, among other things, (1) our merger with KTI and (2) Maine Energy's failure to pay off certain limited partner loans in accordance with the terms of the agreement. The complaint also seeks damages for breach of contract and a court order requiring us to provide an accounting of all transactions since May 3, 1996 involving transfers of assets to or for the benefit of the equity owners of Maine Energy. On June 6, 2002, the additional 13 municipalities that were parties to the 1991 waste handling agreements filed a lawsuit in York County Superior Court against Maine Energy alleging breaches of the 1991 waste handling agreements for failure to pay the residual cancellation payment which they allege is due as a result of (1) our merger with KTI; and (2) failure to pay off the limited partner loans when funds were allegedly available. On July 25, 2002, the three actions were consolidated for purposes of discovery, case management and pretrial proceedings. We believe we have meritorious defenses to these claims.

        On or about September 17, 2003, we were served with a complaint filed in the Superior Court of Delaware. The complaint alleges that Manner Resins, Inc., our wholly-owned subsidiary, was a party to a lease agreement where it was a tenant and the plaintiff was the landlord. The complaint further alleges that KTI, Inc., our wholly-owned subsidiary, guaranteed the tenant's obligations under the lease. The landlord alleges that the tenant is in default of the lease in that it constructed improvements without consent, damaged certain structures and failed to make certain payments. Plaintiff's demand for damages is $867,000. We believe that we have meritorious defenses to these claims.

        On or about December 3, 2003, Maine Energy Recovery Company, our wholly-owned subsidiary, was served with a complaint filed in the United States District Court, District of Maine. The complaint is a citizen suit under the federal Clean Air Act and similar state law alleging (1) emissions of volatile organic compounds ("VOCs") in violation of its federal operating permit; (2) failure to accurately identify emissions; and (3) failure to control VOC emissions through implementation of reasonably available control technology. In addition, the complaint alleges that Maine Energy was negligent and that the subject emissions cause odors and constitute a public nuisance. The allegations relate to Maine Energy's waste-to-energy facility located in Biddeford, Maine and its construction, installation and operation of a new odor control system which redirects air from tipping and processing buildings to a boiler building for treatment by three air vents. The complaint seeks an unspecified amount of civil penalties, damages, injunctive relief and attorney's fees. We are currently working with the Maine Department of Environmental Protection to determine the extent of any VOC emissions and whether any further action is necessary.

        We offer no prediction of the outcome of any of the proceedings described above. We are vigorously defending each of these lawsuits. However, there can be no guarantee we will prevail or that any judgments against us, if sustained on appeal, will not have a material adverse effect on our business, financial condition or results of operations.

        We are 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, we believe are material to our business, financial condition, results of operations or cash flows.

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MANAGEMENT

        Our executive officers, other key employees and directors and their respective ages as of December 31, 2003 are as follows:

Name
   Age
   Position
Executive Officers        
John W. Casella   53   Chairman, Chief Executive Officer and Secretary
James W. Bohlig   57   President and Chief Operating Officer, Director
Richard A. Norris   60   Senior Vice President, Chief Financial Officer and Treasurer
Charles E. Leonard   49   Senior Vice President, Solid Waste Operations

Other Key Employees
 
 
 
 
Michael J. Brennan   45   Vice President and General Counsel
Timothy A. Cretney   40   Regional Vice President
Christopher M. DesRoches   46   Vice President, Sales and Marketing
Sean P. Duffy   44   Regional Vice President
Joseph S. Fusco   40   Vice President, Communications
James M. Hiltner   40   Regional Vice President
Larry B. Lackey   43   Vice President, Permits, Compliance and Engineering
Alan N. Sabino   44   Regional Vice President
Gary R. Simmons   54   Vice President, Fleet Management

Non-Employee Directors
 
 
 
 
James F. Callahan, Jr.   59   Director
Douglas R. Casella   47   Director
John F. Chapple III   62   Director
D. Randolph Peeler   39   Director
Gregory B. Peters   58   Director

        John W. Casella has served as Chairman of our Board of Directors since July 2001 and as our Chief Executive Officer 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 is also an executive officer and director of Casella Construction, Inc., 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 Governors of Vermont and New Hampshire 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. Mr. Casella is the brother of Douglas R. Casella, a member of our Board of Directors.

        James W. Bohlig has served as our President since July 2001 and as Chief Operating Officer since 1993. Mr. Bohlig also served as Senior Vice President from 1993 to July 2001. Mr. Bohlig has served as a member of our Board of Directors since 1993. From 1989 until he joined us, 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 Executive Program in Business Administration.

        Richard A. Norris has served as our Senior Vice President, Chief Financial Officer and Treasurer since July 2001. He joined us in July 2000 as Vice President and Corporate Controller. From 1997 to

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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. Mr. Norris is qualified as a Chartered Accountant in both Canada and the United Kingdom. Mr. Norris graduated from Leeds University with a Bachelor of Arts in German.

        Charles E. Leonard has served as our Senior Vice President, Solid Waste Operations since July 2001. From December 1999 until he joined us, 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 September 1988 to January 1997, he served as Senior Vice President, US Operations for 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 J. Brennan has served as our Vice President and General Counsel since July 2000. From January 1996 to July 2000, he served in various capacities at Waste Management, Inc., including most recently, as Associate General Counsel.

        Timothy A. Cretney has served as our Regional Vice President since May 2002. From January 1997 to May 2002 he served as Regional Controller for our Western region. From August 1995 to January 1997, Mr. Cretney was Treasurer and Vice President of Superior Disposal Services, Inc., a waste services company which we acquired in January 1997. From 1992 to 1995, he was General Manager of the Binghamton, New York office of Laidlaw Waste Systems, Inc. and from 1989 to 1992 he was Central New York Controller of Laidlaw Waste Systems. Mr. Cretney holds a B.A. in Accounting from State University of New York College at Brockport.

        Christopher M. DesRoches has served as our Vice President, Sales and Marketing since November 1996. From January 1989 to November 1996, he was a regional vice president of sales for Waste Management, Inc. Mr. DesRoches is a graduate of Arizona State University.

        Sean P. Duffy has served as our Regional Vice President since December 1999. Since December 1999, Mr. Duffy has also served as Vice President of FCR, Inc., which he co-founded in 1983 and which became a wholly-owned subsidiary of ours in December 1999. From May 1983 to December 1999, Mr. Duffy served in various capacities at FCR, including, most recently, as President. From May 1998 to May 2001, Mr. Duffy also served as President of FCR Plastics, Inc., a subsidiary of FCR, Inc.

        Joseph S. Fusco has served as our Vice President, Communications 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 our Regional Vice President since March 1998. From 1990 to March 1998, Mr. Hiltner held various positions at Waste Management, Inc. including serving as a region president from June 1995 to February 1998, where his responsibilities included overseeing waste management operations in upstate New York and northwestern Pennsylvania, a division president from April 1992 to June 1995 and a general manager from November 1990 to April 1992.

        Larry B. Lackey has served as our Vice President, Permits, Compliance and Engineering since 1995. From 1993 to 1995, Mr. Lackey served as our Manager of Permits, Compliance and Engineering. 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 our Regional Vice President since July 1996. From 1995 to July 1996, Mr. Sabino served as a Division President for Waste Management, Inc. From 1985 to 1994, he served

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as Region Operations Manager for Chambers Development Company, Inc., a waste management company. Mr. Sabino is a graduate of Pennsylvania State University.

        Gary R. Simmons has served as our Vice President, Fleet Management since May 1997. From December 1996 to May 1997, Mr. Simmons was the owner of GRS Consulting, a waste industry consulting firm. From 1995 to December 1996, 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.

        James F. Callahan, Jr. has served as a member of our board of directors since March 2003. Mr. Callahan was an audit and business advisory partner of Arthur Andersen LLP, an independent public accounting firm, from 1975 to March 2000. While at Arthur Andersen, Mr. Callahan served clients in a number of industries, including manufacturing and mining businesses, electric and gas utilities and independent power producers. Mr. Callahan has been retired since March 2000. Mr. Callahan has been a member of various community service-related boards and currently serves on the Board of Trustees of Bates College and the Board of Directors of Concerned Citizens for the Mentally Retarded, a not-for-profit organization. Mr. Callahan is a graduate of Bates College and holds a Masters of Business Administration from the Graduate School of Management of Rutgers University.

        Douglas R. Casella has served as Vice Chairman of our Board of Directors since 1993. Mr. Casella founded Casella Waste Management, Inc. in 1975. Since 1989, Mr. Casella has served as president of Casella Construction, Inc., a company owned by Mr. Casella and John W. Casella, which specializes in general contracting, soil excavation and related heavy equipment work. Since 1975, Mr. Casella has served as president of Casella Waste Management, Inc. Mr. Casella is the brother of John W. Casella.

        John F. Chapple III has served as a member of our Board of Directors since 1994. Mr. Chapple was president and owner of Catamount Waste Services, Inc., a central Vermont hauling and landfill operation which we purchased in May 1994, from August 1989 to July 1994. Mr. Chapple has been retired since 1995.

        D. Randolph Peeler has served as a member of our Board of Directors since August 2000. Mr. Peeler has been a managing director of Berkshire Partners LLC, a private equity firm, since January 2000. From May 1997 to December 1999, Mr. Peeler served as a vice president of Berkshire Partners and from June 1996 to April 1997 as a senior associate of Berkshire Partners. From 1994 to June 1996, Mr. Peeler was president of Professional Dental Associates, a private healthcare services company which he co-founded. Prior to 1994, Mr. Peeler served as chief of staff for the Assistant Secretary for Economic Policy in the United States Department of the Treasury. Mr. Peeler was also a consultant with Cannon Associates and Bain & Co., where he worked with clients in the healthcare, heavy manufacturing, distribution, information technology and professional services industries.

        Gregory B. Peters has served as a member of our Board of Directors since 1993. Mr. Peters has served as managing member of Lake Champlain Capital Management, LLC, since April 2001. Since April 1988, Mr. Peters has also served as managing general partner of Vermont Venture Capital Partners, L.P., which is the general partner of The Vermont Venture Capital Fund, L.P., a venture capital management company. Since 1986, Mr. Peters has also served as general partner of North Atlantic Capital Partners, L.P., which is the general partner of North Atlantic Venture Fund, L.P. From July 1986 to March 2001, Mr. Peters served as vice president of North Atlantic Capital Corporation, a venture capital management company.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth information as of December 31, 2003, regarding the beneficial ownership of shares of our voting stock for (a) each person or entity known by us to own beneficially more than 5% of the outstanding shares of a class of voting stock, (b) each director, (c) each executive officer and (d) directors and executive officers as a group.

        Beneficial ownership is determined in accordance with the rules of the SEC, and includes generally voting power and/or investment power with respect to securities. Shares of Class A common stock subject to options, warrants and/or convertible preferred stock which are currently exercisable or convertible or which are exercisable or convertible within 60 days of December 31, 2003 are deemed outstanding for purposes of computing the percentage beneficially owned by the person or entity holding such securities but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person or entity. Except as indicated by footnote, we believe that the persons named in this table, based on information provided by these persons, have sole voting and investment power with respect to the securities indicated. Unless otherwise indicated, the address of each of our executive officers and directors is care of Casella Waste Systems, Inc., 25 Greens Hill Lane, Rutland, Vermont 05701.

        The "Total Ownership of Equity Securities" column reflects each listed individual's or entity's percent beneficial ownership with respect to all of our voting securities. This column assumes the conversion of shares of Class B common stock and Series A redeemable convertible preferred stock into shares of our Class A common stock. Holders of Class B common stock are entitled to ten votes for each share of Class B common stock that they beneficially own. Each share of Class B common stock is convertible at the option of the holder thereof into one share of Class A common stock. Holders of Series A redeemable convertible preferred stock are entitled to one vote for each share of common stock into which a share of Series A redeemable convertible preferred stock is convertible as of the applicable record date. Each share of Series A redeemable convertible preferred stock would be convertible into approximately 85 shares of Class A common stock as of December 31, 2003. As of December 31, 2003, we had 23,086,394 shares of Class A common stock outstanding.

 
    
    
    
    
   Series A
Redeemable
Convertible
Preferred Stock
    
 
   Class A
Common Stock
   Class B
Common Stock
    
 
   Total
Ownership of
Equity
Securities(%)
Name of Beneficial Owner
   # of
shares
   % of
class
   # of
shares
   % of
class
   # of
shares
   % of
class
5% Stockholder                            
Funds affiliated with Berkshire
Partners LLC (1)		   4,955,317 (2) 18.0   —   —   52,750   94.6   17.2
T. Rowe Price Associates, Inc. (3)   2,278,400   9.9   —   —   —   —   7.9
Executive Officers and Directors                            
John W. Casella (4)   1,318,756   5.5   494,100   50.0   —   —   4.5
James W. Bohlig (5)   873,293   3.7   —   —   —   —   3.0
Richard A. Norris (6)   165,000   *   —   —   —   —   *
Charles E. Leonard (7)   180,000   *   —   —   —   —   *
James F. Callahan, Jr. (8)   5,000   *   —   —   —   —   *
Douglas R. Casella (9)   1,351,250   5.7   494,100   50.0   —   —   4.6
John F. Chapple III (10)   155,143   *   —   —   —   —   *
D. Randolph Peeler (11)   4,972,817   18.0   —   —   52,750   94.6   17.2
Gregory B. Peters (12)   44,184   *   —   —   —   —   *
Executive officers and directors as a group (9 people) (13)   9,065,443   30.1   988,200   100.0   52,750   94.6   29.8

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*
Represents less than 1% of the outstanding shares of the respective class of our voting stock.

(1)
The affiliated funds are Berkshire Fund V, Limited Partnership, a Massachusetts limited partnership, and Berkshire Investors LLC, a Massachusetts limited liability company. Fifth Berkshire Associates, LLC, a Massachusetts limited liability company, is the general partner of Berkshire Fund V, Limited Partnership. The managing members of Fifth Berkshire Associates LLC and Berkshire Investors LLC are: Bradley M. Bloom, J. Christopher Clifford, Kevin T. Callaghan, Richard K. Lubin, Carl Ferenbach, Garth H. Greimann, Jane Brock-Wilson, D. Randolph Peeler, Robert J. Small and Ross M. Jones. The address of Berkshire Partners LLC is One Boston Place, Boston, Massachusetts 02108.

(2)
Includes 4,496,017 shares of Class A common stock issuable upon conversion of Series A redeemable convertible preferred stock. The Series A redeemable convertible preferred stock is convertible at any time at the discretion of the holder thereof.

(3)
Information is as reported in a Schedule 13G filed with the SEC on February 4, 2004 by T. Rowe Price Associates, Inc. Consists of shares of Class A common stock owned by various individual and institutional investors, including T. Rowe Price Small Cap Value Fund, Inc., which owns 1,494,000 shares of Class A common stock representing 6.4% of the shares of Class A common stock outstanding, for which T. Rowe Price Associates, Inc. serves as investment adviser with power to direct investments and/or sole power to vote the shares of Class A common stock. For purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of the Class A common stock; however, T. Rowe Price Associates, Inc. expressly disclaims that it is, in fact, the beneficial owner of such shares. The address of T. Rowe Price Associates, Inc. is listed as 100 E. Pratt Street, Baltimore, Maryland 21202.

(4)
Includes (a) 265,000 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003, (b) 57,468 shares of Class A common stock held in trust for the benefit of Mr. Casella's minor children, (c) 694 shares of Class A common stock held by Mr. Casella's wife, and (d) 494,100 shares of Class A common stock issuable at any time upon the conversion of Class B common stock on a one-for-one basis.

(5)
Includes (a) 603,293 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003 and (b) 8,000 shares of Class A common stock held in trust for the benefit of Mr. Bohlig's minor children.

(6)
Includes 160,000 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003.

(7)
Consists of 180,000 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003.

(8)
Consists of 5,000 shares of Class A common stock held by the James F. Callahan, Jr. 1998 Trust, of which Mr. Callahan and his wife are trustees.

(9)
Includes (a) 265,000 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003, (b) 11,756 shares of Class A common stock held in trust for the benefit of Mr. Casella's minor children and (c) 494,100 shares of Class A common stock issuable at any time upon the conversion of Class B common stock on a one-for-one basis.

(10)
Includes 34,500 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003.

(11)
Includes (a) the securities held by funds affiliated with Berkshire Partners LLC and (b) 17,500 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003. Mr. Peeler disclaims beneficial ownership of the shares held by Berkshire

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(12)
Includes (a) 24,500 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003 and (b) 2,000 shares of Class A common stock held by the children of Mr. Peters.

(13)
Includes (a) 1,549,793 shares of Class A common stock issuable upon the exercise of options within 60 days of December 31, 2003, (b) 988,200 shares of Class A common stock issuable at any time upon the conversion of Class B common stock on a one-for-one basis and (c) 4,496,017 shares of Class A common stock issuable at any time upon the conversion of Series A redeemable convertible preferred stock.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        We have from time to time engaged Casella Construction, Inc., a company owned by John W. Casella, our Chairman and Chief Executive Officer, and Douglas R. Casella, a member of our Board of Directors, to provide construction services for us, including construction, closure and capping activities at our landfills. In fiscal year 2003, we paid Casella Construction, Inc. an aggregate of $1,497,000. From the beginning of fiscal year 2004 through December 31, 2003, we have paid Casella Construction, Inc. an aggegate of $3,195,000.

        We are party to two real estate leases with Casella Associates, a Vermont partnership owned by John W. Casella and Douglas R. Casella, relating to facilities occupied by us. The leases, relating to our corporate headquarters in Rutland, Vermont and our Montpelier, Vermont facility, were renewed in May 2003 and provide for aggregate monthly payments of $21,200 and expire in April 2008. We have classified these leases as capital leases for financial reporting purposes. In November 1997, the lease relating to our corporate headquarters in Rutland, Vermont was amended to allow us to upgrade and make capital improvements to the premises at an estimated cost of $500,000, to be paid by us. At the time the improvements were made, Casella Associates was granted an option to purchase the improvements at cost. Casella Associates exercised its option in December 2002.

        From 1977 to 1992, we operated an unlined landfill located in Whitehall, New York owned by Bola, Inc., a corporation owned by John W. Casella and Douglas R. Casella, which operated as a single-purpose real estate holding company. We paid the cost of closing this landfill in 1992, and have agreed to pay all post-closure obligations. Since the beginning of fiscal year 2003, we have paid an aggregate of $8,000 pursuant to this arrangement. As of April 30, 2002, we accrued $83,000 for costs related to these post-closure obligations.

        In connection with and at the time of our acquisition of the business of Catamount Waste Services, Inc. in June 1994, we entered into a lease with C.V. Landfill, Inc., a Vermont corporation affiliated with Catamount Waste Services, Inc., pursuant to which we agreed to lease a transfer station for a term of 10 years. C.V. Landfill, Inc. is owned by John F. Chapple III, who became a member of our Board of Directors at the time of the acquisition of the business of Catamount Waste Services, Inc. On October 31, 2003, we acquired the transfer station and a closed landfill through the purchase of C.V. Landfill, Inc. in exchange for the assumption of post-closure liabilities estimated at $295,000 associated with the landfill. Pursuant to the terms of the former lease agreement, we paid monthly rent for the first five years at a rate of $5.00 per ton of waste disposed of at the transfer station, with a minimum rent of $6,650 per month. Since June 1999, we have been required to pay monthly rent at a rate of $2.00 per ton, with a minimum rent of $2,500 per month. In fiscal year 2002, we paid C.V. Landfill, Inc. an aggregate of $64,400. In fiscal year 2003, we paid C.V. Landfill, Inc. an aggregate of $55,000. Since the beginning of fiscal year 2004 through the date of the acquisition, we paid C.V. Landfill, Inc. an aggregate of $34,800.

        We believe that each transaction described above was on terms at least as favorable as those we would expect to negotiate with disinterested third parties.

        On March 2, 2000, we made a loan to Mr. Bohlig, our President and Chief Operating Officer and a member of our Board of Directors. The terms of the loan provide for the payment of accrued interest and principal upon demand. Interest on the loan accrues monthly at the prime rate (4.25% annually at April 30, 2003) and is adjusted on a monthly basis. Our loan to Mr. Bohlig was in the aggregate principal amount of $400,000. As of December 31, 2003, $400,000 was outstanding under this loan, which was the largest aggregate amount of indebtedness outstanding under this loan since the beginning of fiscal year 2003. On November 28, 2000, we made an additional loan to Mr. Bohlig. The terms of this loan are identical to the terms of the earlier loan. This loan to Mr. Bohlig was in the aggregate principal amount of $616,000. As of December 31, 2003, $616,000 was outstanding under this loan, which was the largest aggregate amount of indebtedness outstanding under this loan since the beginning of fiscal year 2003.

        For more information please see note 16 to our audited consolidated financial statements included in this prospectus.

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DESCRIPTION OF CERTAIN INDEBTEDNESS AND PREFERRED STOCK

Description of Our Senior Secured Credit Facilities

        General.    Our senior secured credit facilities provide for aggregate borrowings by us of up to $325.0 million, consisting of:

        We have the right to increase the amount of the revolver and/or the term loan by an aggregate amount of up to $50.0 million in our discretion, provided that we are not in default at the time of increase, subject to the receipt of commitments from lenders for such additional amount.

        Interest Rates.    Amounts outstanding under the senior secured credit facilities accrue interest, at our option, at a rate per annum equal to either: (1) the base rate, as defined in the senior secured credit facilities, or (2) an adjusted Eurodollar rate, as defined in the senior secured credit facilities, in each case plus an applicable interest margin. The applicable interest margins for the revolving credit facility and the term loan are subject to adjustment based on our ratio of consolidated Total Funded Debt to EBITDA, as defined in the loan documents. The interest rate otherwise payable under the senior secured credit facilities will increase by 2.0% per annum during the continuance of a payment default.

        Fees and Expenses.    We will pay a commitment fee on the unused portion of the revolver in an amount of 0.375% per annum or 0.5% per annum, based on our ratio of consolidated Total Funded Debt to EBITDA. We will pay the lenders a fee for financial letters of credit equal to the applicable interest margin for Eurodollar rate loans under the revolving credit facility, and equal to 50% of the applicable interest margin for Eurodollar rate loans in the case of performance letters of credit. We will also pay each issuing bank of any letter of credit a fronting fee equal to 0.125% per annum on the face amount of each letter of credit, plus customary issuance and administrative fees.

        Maturity.    Borrowings under the term loan are due and payable in seven annual installments, the first six of which are equal to 1% of the notional amount of the loan and the seventh of which is equal to the outstanding balance of the term loan. The final balance of the term loan will be due in January 2010. The revolving credit facility is available until January 2008, at which time it will become due and payable. The maturities of both the term loan and the revolving credit facility will be accelerated to May 11, 2007 unless either (1) no more than $20.0 million aggregate liquidation preference of the Series A redeemable convertible preferred stock remains outstanding on that date or (2) the mandatory redemption date for the Series A redeemable convertible preferred stock has been extended to a date 90 days beyond the maturity of the term loan (with all other terms of the Series A redeemable convertible preferred stock remaining substantially the same). On August 26, 2003, we amended the terms of the term loan, lowering the borrowing rate and modifying the prepayment provisions to include a prepayment premium applicable to the first two years following the date of the amendment.

        Mandatory Prepayments.    We are required to prepay the facilities under the senior secured credit facilities in an amount equal to:

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        The lenders will apply such prepayments to the term loan in inverse order of maturity. The term loan lenders may at their option decline mandatory prepayments in which case such payments shall be applied to repay outstanding amounts under the revolving credit facility (without a permanent reduction of the Revolving Credit Commitment).

        Security and Guarantees.    The senior secured credit facilities are secured by a first priority security interest in substantially all of our assets (except that the administrative agent will not initially perfect liens on real estate, landfills and motor vehicles), including a pledge of the stock or other equity interests of our significant subsidiaries and partnerships.

        Covenants.    The senior secured credit facilities contain certain covenants which, among other things and subject to certain baskets, limit:

        The senior secured credit facilities require us to meet financial tests, including, without limitation:


        Events of Default.    The senior secured credit facilities contain customary events of default, including, among other things:

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        Waiver and Modification.    The terms of the senior secured credit facilities may be waived or modified upon approval by us and the required percentage of the lenders (or, where applicable, the affected lenders) and without consent of the note holders.

        The description of the senior secured credit facilities set forth above does not purport to be complete and is qualified in its entirety by reference to the senior secured credit facilities, which is available from us upon request.

Series A Redeemable Convertible Preferred Stock

        On June 28, 2000, we entered into a preferred stock purchase agreement with BancBoston Capital Inc. (an affiliate of Fleet Securities, Inc., an Initial Purchaser of the notes offered hereby), Berkshire Fund V, Limited Partnership, Berkshire Fund V Investment Corp., Berkshire Investors LLC, RGIP, LLC and Squam Lake Investors IV, L.P. Pursuant to the agreement, we sold an aggregate of 55,750 shares of our Series A redeemable convertible preferred stock at a purchase price of $1,000 per share for an aggregate purchase price of $55,750,000. These shares are convertible into Class A common stock, at the option of the Series A holders, at $14 per share. Dividends are cumulative at an annual rate of 5%, payable quarterly in arrears until August 11, 2003 through the adjustment of the liquidation preference and the conversion rate of the outstanding shares of Series A redeemable convertible preferred stock and thereafter, at our option, in either cash or through such an adjustment of the liquidation preference and conversion rate of the Series A redeemable convertible preferred stock. We have the option to redeem the Series A redeemable convertible preferred stock for cash at any time at a price giving the holder a defined yield, but we must redeem any outstanding shares on August 11, 2007 at liquidation value, plus accrued but unpaid dividends, if any. Any cash dividends will be paid, and optional redemptions made, only to the extent that we are permitted to do so under the provisions of the indenture governing the notes described under "Description of the Notes—Certain Covenants—Restricted Payments." The indenture governing the notes, however, will permit us to redeem any outstanding shares on the mandatory redemption date, which is August 11, 2007. Any shares redeemed upon the mandatory redemption will not reduce the amount that would otherwise be available for Restricted Payments.

        The Series A redeemable convertible preferred stock purchasers and their permitted transferees are entitled to certain rights with respect to the registration under the Securities Act of certain shares of our Class A common stock, including shares of Class A common stock that were or may be acquired upon the conversion of shares of Series A redeemable convertible preferred stock. In the event we propose to register any of our securities under the Securities Act at any time, with certain exceptions, the Series A preferred stockholders will be entitled to include shares in such registration, subject to the right of the managing underwriter of any underwritten offering to exclude from such registration some or all of their registrable shares. The filing of a registration statement for an exchange offer in which the notes offered under this offering circular will be exchanged for similar registered securities is an exception to the foregoing right and the Series A preferred stockholders will not be entitled to include shares in such registration. The Series A preferred stockholders have the additional right to require us to prepare and file registration statements under the Securities Act with respect to all of the registrable

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shares if such holders holding specified percentages of such shares and having a certain aggregate value so request. We are required to use our best efforts to effect such registration, subject to certain conditions and limitations. Mr. Peeler, a member of our Board of Directors and a member of the audit and compensation committees and the stock plan subcommittee of our Board of Directors, is a managing director of Berkshire Partners LLC.

Outstanding Senior Subordinated Notes

        We have outstanding an aggregate principal amount of $195.0 million of 9.75% senior subordinated notes, which mature on February 1, 2013.

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THE EXCHANGE OFFER

Purpose and Effect of Exchange Offer; Registration Rights

        We sold the old notes on February 2, 2004 in an unregistered private placement to a group of investment banks that served as the initial purchasers. The initial purchasers then resold the old notes under an offering circular, dated January 22, 2004, in reliance on Rule 144A and Regulation S under the Securities Act.

        As part of this private placement, we entered into an exchange and registration rights agreement with the initial purchasers on February 2, 2004. Under the exchange and registration rights agreement, we agreed to file this registration statement. We also agreed:


        Under the circumstances described below, we also agreed to use our reasonable best efforts to cause the SEC to declare effective a shelf registration statement with respect to the resale of the old notes. We agreed to keep the shelf registration statement effective until the earlier of the date two years after the shelf registration statement is declared effective under the Securities Act or the date on which there are no longer any old notes outstanding. These circumstances include:

        If we fail to comply with specified obligations under the exchange and registration rights agreement, we must pay liquidated damages to the holders of the notes.

        By participating in the exchange offer, holders of the old notes will receive new notes that are freely tradeable and not subject to restrictions on transfer, subject to the exceptions described below under "Resale of New Notes."

Resale of New Notes

        We believe that the new notes issued in exchange for the old notes may be offered for resale, resold and otherwise transferred by any new note holder without compliance with the registration and prospectus delivery provisions of the Securities Act if the conditions set forth below are met. We base this belief solely on interpretations of the federal securities laws by the SEC set forth in several no-action letters issued to third parties unrelated to us. A no-action letter is a letter from the SEC

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responding to a request for its views as to whether a particular matter complies with the federal securities laws or whether the SEC would refer the matter to the SEC's enforcement division for action. We have not obtained, and do not intend to obtain, our own no-action letter from the SEC regarding the resale of the new notes. Instead, holders will be relying on the no-action letters that the SEC has issued to third parties in circumstances that we believe are similar to ours. Based on these no-action letters, the following conditions must be met:

Each holder of old notes that wishes to exchange old notes for new notes in the exchange offer must represent to us that it satisfies all of the above listed conditions. Any holder who tenders in the exchange offer who does not satisfy all of the above listed conditions:

        The SEC considers broker-dealers that acquired old notes directly from us, but not as a result of market-making activities or other trading activities, to be making a distribution of the new notes if they participate in the exchange offer. Consequently, these holders must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the new notes.

        Each broker-dealer that receives new notes for its own account in exchange for old notes acquired by such broker-dealer as a result of market-making activities or other trading activities must deliver a prospectus in connection with a resale of the new notes and provide us with a signed acknowledgement of this obligation. A broker-dealer may use this prospectus, as amended or supplemented from time to time, in connection with resales of new notes received in exchange for old notes where the broker-dealer acquired the old notes as a result of market-making activities or other trading activities. The letter of transmittal states that by acknowledging and delivering a prospectus, a broker-dealer will not be considered to admit that it is an "underwriter" within the meaning of the Securities Act. We have agreed that for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus available to broker-dealers for use in connection with any such resale of the new notes.

        Except as described in the prior paragraph, holders may not use this prospectus for an offer to resell, resale or other retransfer of new notes.

Terms of the Exchange

        Upon the terms and subject to the conditions set forth in this prospectus and the accompanying letter of transmittal, which we refer to together in this prospectus as the "exchange offer," we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. The date of acceptance for exchange of the old notes, and completion of the exchange offer, is the exchange date, which will be the first business day following the expiration date, unless extended as described in this prospectus. We will issue, on or promptly after the exchange date, an aggregate principal amount of up to $45.0 million of new notes for a like principal amount of outstanding old notes tendered and accepted in connection with the exchange offer. The new notes issued in connection with the exchange offer will be delivered as soon as practicable following the exchange date. Holders may tender some or all of their old notes in connection with the exchange offer, but only in integral multiples of $1,000. The exchange offer is not conditioned upon any minimum amount of old notes being tendered for exchange.

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        The terms of the new notes are identical in all material respects to the terms of the old notes, except that:

        The new notes will evidence the same debt as the old notes. The new notes will be issued under the same indenture and entitled to the same benefits under that indenture as the old notes being exchanged. As of the date of this prospectus, $45.0 million in aggregate principal amount of the old notes were outstanding. Old notes accepted for exchange will be retired and cancelled and not reissued.

        In connection with the issuance of the old notes, we arranged for the old notes originally purchased by qualified institutional buyers and those sold in reliance on Regulation S under the Securities Act to be issued and transferable in book-entry form through the facilities of The Depository Trust Company, or DTC, acting as depositary. Except as described under "Description of the New Notes—Form, Denomination, Transfer, Exchange and Book-Entry Procedures," we will issue the new notes in the form of a global note registered in the name of DTC or its nominee and each beneficial owner's interest in it will be transferable in book-entry form through DTC.

        Holders of old notes do not have any appraisal or dissenters' rights in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the SEC.

        We shall be considered to have accepted validly tendered old notes if and when we have given oral or written notice to that effect to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the new notes from us.

        If we do not accept any tendered old notes for exchange because of an invalid tender, the occurrence of the other events described in this prospectus or otherwise, we will return these old notes, without expense, to the tendering holder promptly after the expiration date of the exchange offer.

        Holders who tender old notes will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes on exchange of old notes in connection with the exchange offer. We will pay all charges and expenses, other than the applicable taxes described in the section "Fees and Expenses" below, in connection with the exchange offer.

        If we successfully complete the exchange offer, any old notes which holders do not tender or which we do not accept in the exchange offer will remain outstanding and continue to accrue interest. The holders of old notes after the exchange offer in general will not have further rights under the exchange and registration rights agreement, including registration rights and any rights to liquidated damages. Holders of the old notes wishing to transfer their old notes would have to rely on exemptions from the registration requirements of the Securities Act.

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Expiration Date; Extensions; Amendments

        The expiration date for the exchange offer is 5:00 p.m., New York City time, on Tuesday, April 6, 2004. We may extend this expiration date in our sole discretion. If we so extend the expiration date, the term "expiration date" shall mean the latest date and time to which we extend the exchange offer.

        We reserve the right, in our reasonable discretion:

        We will give oral or written notice of any delay, extension or termination to the exchange agent. In addition, we will give, as promptly as practicable, oral or written notice regarding any delay in acceptance, extension or termination of the offer to the registered holders of old notes. If we amend the exchange offer in a manner that we determine to constitute a material change, or if we waive a material condition, we will promptly disclose the amendment or waiver in a manner reasonably calculated to inform the holders of old notes of the amendment, and extend the offer to ensure that the offer remains open for at least five business days following the change.

        Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination, amendment or waiver regarding the exchange offer, we shall have no obligation to publish, advertise, or otherwise communicate any public announcement, other than by making a timely release to a financial news service.

Interest on the New Notes

        Interest on the new notes will accrue at the rate of 9.75% per annum on the principal amount, payable semiannually in arrears on February 1 and August 1, commencing on August 1, 2004. In order to avoid duplicative payment of interest, all interest accrued on old notes that are accepted for exchange before August 1, 2004 will be superseded by the interest that is deemed to have accrued on the new notes from February 2, 2004 through the date of the exchange.

Conditions to the Exchange Offer

        Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange new notes for, any old notes and we may terminate the exchange offer as provided in this prospectus before the acceptance of the old notes, if:


        The conditions listed above are for our sole benefit and we may assert them regardless of the circumstances giving rise to any of these conditions. We may waive these conditions in our reasonable discretion in whole or in part at any time. A failure on our part to exercise any of the above rights

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shall not constitute a waiver of that right, and that right shall be considered an ongoing right which we may assert at any time and from time to time on or prior to the exchange date.

        If we determine in our reasonable discretion that any of the events listed above has occurred, we may, subject to applicable law:

Any determination by us concerning the above events will be final and binding.

        In addition, we reserve the right in our sole discretion to:

The terms of any such purchases or offers may differ from the terms of the exchange offer.

Procedures for Tendering

        Except in limited circumstances, only a DTC participant listed on a DTC securities position listing with respect to the old notes may tender old notes in the exchange offer. To tender old notes in the exchange offer, holders of old notes that are DTC participants may follow the procedures for book-entry transfer as set forth below under "Book-Entry Transfer" and in the letter of transmittal.

        In addition, you must comply with one of the following:

        The tender by a holder of old notes will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. If less than all the old notes held by a holder are tendered, the tendering holder should fill in the amount of old notes being tendered in the specified box on the letter of transmittal. The entire amount of old notes delivered or transferred to the exchange agent will be deemed to have been tendered unless otherwise indicated.

        The method of delivery of old notes, the letter of transmittal and all other required documents or transmission of an agent's message, as described under "Book-Entry Transfer," to the exchange agent is at the election and risk of the holder. Instead of delivery by mail, we recommend that holders use an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery to the exchange agent prior to the expiration of the exchange offer. No letter of transmittal or old notes should be sent to us or DTC. Delivery of documents to DTC in accordance with its procedures will not constitute delivery to the exchange agent.

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        Any beneficial holder whose old notes are registered in the name of his or its broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered holder promptly and instruct such registered holder to tender on its behalf. If such beneficial holder wishes to tender on its own behalf, such beneficial holder must, prior to completing and executing the letter of transmittal and delivering its old notes, either:

        The transfer of record ownership may take considerable time and may not be completed prior to the expiration date.

        Signatures on a letter of transmittal or a notice of withdrawal, as described in "—Withdrawal of Tenders" below, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor institution," within the meaning of Rule 17Ad-15 under the Exchange Act, which we refer to in this prospectus as an "eligible institution," unless the old notes are tendered:

        If the letter of transmittal is signed by a person other than the registered holder of any old notes listed therein, the old notes must be endorsed or accompanied by appropriate bond powers which authorize the person to tender the old notes on behalf of the registered holder, in either case signed as the name of the registered holder or holders appears on the old notes. If the letter of transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing and, unless waived by us, evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal.

        We will determine in our sole discretion all questions as to the validity, form, eligibility, including time of receipt, and acceptance and withdrawal of tendered old notes. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes whose acceptance by us would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to any particular old notes either before or after the expiration date. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, holders must cure any defects or irregularities in connection with tenders of old notes within a period we will determine. Although we intend to request the exchange agent to notify holders of defects or irregularities relating to tenders of old notes, neither we, the exchange agent nor any other person will have any duty or incur any liability for failure to give this notification. We will not consider tenders of old notes to have been made until these defects or irregularities have been cured or waived. The exchange agent will return any old notes that are not properly tendered and as to which the defects or irregularities have not been cured or waived to the tendering holders, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

        In addition, we reserve the right, as set forth above under the caption "Conditions to the Exchange Offer," to terminate the exchange offer.

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        By tendering, each holder represents to us, among other things, that:

        If the holder is a broker-dealer which will receive new notes for its own account in exchange for old notes acquired by such broker-dealer as a result of market-making activities or other trading activities, such holder must acknowledge that it will deliver a prospectus in connection with any resale of the new notes.

Book-Entry Transfer

        We understand that the exchange agent will make a request promptly after the date of this prospectus to establish an account with respect to the old notes at DTC for the purpose of facilitating the exchange offer. Any financial institution that is a participant in DTC's system, including Euroclear and Clearsteam, may make book-entry delivery of old notes by causing DTC to transfer such old notes into the exchange agent's DTC account in accordance with DTC's Automated Tender Offer Program procedures for such transfer. The exchange of new notes for tendered old notes will only be made after a timely confirmation of a book-entry transfer of the old notes into the exchange agent's account and timely receipt by the exchange agent of an agent's message.

        The term "agent's message" means a message, transmitted by DTC and received by the exchange agent and forming part of the confirmation of a book-entry transfer, which states that DTC has received an express acknowledgment from a participant tendering old notes that such participant has received an appropriate letter of transmittal and agrees to be bound by the terms of the letter of transmittal, and that we may enforce such agreement against the participant. Delivery of an agent's message will also constitute an acknowledgment from the tendering DTC participant that the representations contained in the letter of transmittal and described under "Resale of New Notes" above are true and correct.

Guaranteed Delivery Procedures

        The following guaranteed delivery procedures are intended for holders who wish to tender their old notes but:

        The conditions that must be met to tender old notes through the guaranteed delivery procedures are as follows:

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        Upon request to the exchange agent, a notice of guaranteed delivery will be sent to holders who wish to tender their old notes according to the guaranteed delivery procedures set forth above.

Withdrawal of Tenders

        Your tender of old notes pursuant to the exchange offer is irrevocable except as otherwise provided in this section. You may withdraw tenders of old notes at any time prior to 5:00 p.m., New York City time, on the expiration date.

        For a withdrawal to be effective:

        Any notice of withdrawal must:

        If old notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn old notes and otherwise comply with the procedures of the applicable facility. We will determine in our sole discretion all questions as to the validity, form and eligibility, including time of receipt, for such withdrawal notices, and our determination shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued with respect to them unless the old notes so withdrawn are validly re-tendered. Any old notes which have been tendered but which are not accepted for exchange will be returned to the holder without cost to such holder as soon as practicable

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after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be re-tendered by following the procedures described above under "Procedures for Tendering" at any time prior to the expiration date.

Exchange Agent

        We have appointed U.S. Bank National Association as exchange agent in connection with the exchange offer. Holders should direct questions, requests for assistance and for additional copies of this prospectus, the letter of transmittal or notices of guaranteed delivery to the exchange agent addressed as follows:

By Hand or Overnight Courier:   By Facsimile Transmission:

U.S. Bank National Association
Corporate Trust Services
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Specialized Finance 4th Floor
 
U.S. Bank National Association
Corporate Trust Services
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Specialized Finance 4th Floor (651) 495-8158

For inquiries and confirmations:
(800) 934-6802

        Delivery of a letter of transmittal to any address or facsimile number other than the one set forth above will not constitute a valid delivery.

Fees and Expenses

        We will not make any payments to brokers, dealers or other persons soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and will pay the exchange agent for its related reasonable out-of-pocket expenses, including accounting and legal fees. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the old notes and in handling or forwarding tenders for exchange.

        Holders who tender their old notes for exchange will not be obligated to pay any transfer taxes. If, however:

then the tendering holder must pay the amount of any transfer taxes due, whether imposed on the registered holder or any other persons. If the tendering holder does not submit satisfactory evidence of payment of these taxes or exemption from them with the letter of transmittal, the amount of these transfer taxes will be billed directly to the tendering holder.

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Consequences of Failures to Properly Tender Old Notes in the Exchange

        We will issue the new notes in exchange for old notes under the exchange offer only after timely receipt by the exchange agent of the old notes, a properly completed and duly executed letter of transmittal and all other required documents. Therefore, holders of the old notes desiring to tender old notes in exchange for new notes should allow sufficient time to ensure timely delivery. We are under no duty to give notification of defects or irregularities of tenders of old notes for exchange. Old notes that are not tendered or that are tendered but not accepted by us will, following completion of the exchange offer, continue to be subject to the existing restrictions upon transfer under the Securities Act. Upon completion of the exchange offer, specified rights under the exchange and registration rights agreement, including registration rights and any right to additional interest, will be either limited or eliminated.

        Participation in the exchange offer is voluntary. In the event the exchange offer is completed, we will not be required to register the remaining old notes. Remaining old notes will continue to be subject to the following restrictions on transfer:

        We do not currently anticipate that we will register the remaining old notes under the Securities Act. To the extent that old notes are tendered and accepted in connection with the exchange offer, any trading market for remaining old notes could be adversely affected.

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DESCRIPTION OF THE NEW NOTES

General

        You can find the definitions of certain terms used in this description under the subheading "—Certain Definitions." In this description, "Casella," "we" or "us" refers only to Casella Waste Systems, Inc. and not to any of its subsidiaries.

        We issued the old notes, and will issue the new notes, under an indenture, dated as of January 24, 2003, as supplemented by the First Supplemental Indenture, dated as of February 2, 2004 and as further supplemented and amended from time to time (the "Indenture"), among us, the Guarantors (as defined below) and U.S. Bank National Association, a national banking association, as trustee (the "Trustee"). The terms of the notes include those stated in the Indenture and those made part of that Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The terms of the new notes are substantially identical to the terms of the old notes for which they may be exchanged pursuant to the exchange offer, except that the new notes are registered under the Securities Act and do not contain provisions for certain specified liquidated damages in connection with the failure to comply with the registration covenant. Accordingly, unless specifically stated to the contrary, the following description applies equally to the old notes and the new notes (which are sometimes referred to in this description collectively as "Notes").

        On January 24, 2003, Casella executed the indenture governing the notes. The notes we are offering to exchange hereby are additional notes issued under that indenture on February 2, 2004. On January 24, 2003, Casella issued and sold $150.0 million of aggregate principal amount of 9.75% Senior Subordinated Notes due 2013, which were subsequently exchanged for $150.0 million aggregate principal amount of notes registered under the Securities Act pursuant to an exchange offer completed on September 24, 2003. The notes offered hereby will be pari passu with, of the same series as, vote on any matter submitted to bondholders with and otherwise be identical in all respects to, the 9.75% Senior Subordinated Notes due 2013 issued in January 2003 and exchanged in September 2003.

        The following description is a summary of the material provisions of the Indenture. It does not restate that agreement in its entirety. We urge you to read the Indenture, because it, and not this description, defines your rights as holders of the notes. A copy of the form of Indenture was filed as an exhibit to our Current Report on Form 8-K filed with the SEC on January 24, 2003 and is available from us upon request. See also "Available Information."

        We are offering to exchange new notes in the aggregate principal amount of $45.0 million for old notes. The notes will be issued only in registered form, without coupons, in denominations of $1,000 and integral multiples thereof.

Brief Description of the Notes and the Subsidiary Guarantees

        The Notes will be:


        The Notes will be guaranteed by each existing and future Restricted Subsidiary of Casella, other than any Foreign Subsidiary, our captive insurance subsidiary and certain inactive and insignificant Restricted Subsidiaries of Casella.

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        The Subsidiary Guarantee by each Guarantor will be:

        Assuming the offering of the old notes and the application of the net proceeds therefrom had been completed on October 31, 2003, Casella and the Guarantors would have had total Senior Debt of $158.6 million (not including outstanding letters of credit of $29.7 million), and up to an additional $145.3 million of Senior Debt would have been available, subject to our meeting certain borrowing conditions, to be borrowed under the Senior Credit Facility. As indicated above and as discussed in detail below under the subheading "—Subordination," payments on the Notes and under the Subsidiary Guarantees will be subordinated to the payment of Senior Debt. The Indenture permits us and the Guarantors to incur additional Senior Debt.

        As of December 31, 2003, all of our significant wholly owned subsidiaries were "Restricted Subsidiaries." Certain other subsidiaries are designated as "Unrestricted Subsidiaries." Under the circumstances described below under "—Certain Covenants—Designation of Restricted and Unrestricted Subsidiaries," we will be permitted to designate additional subsidiaries as "Unrestricted Subsidiaries." Unrestricted Subsidiaries will not be subject to the restrictive covenants in the Indenture, but transactions between Casella and/or any of its Restricted Subsidiaries on the one hand and any of the Unrestricted Subsidiaries on the other hand will be subject to certain restrictive covenants.

        Our Unrestricted Subsidiaries, Foreign Subsidiaries, our captive insurance subsidiary and certain inactive and insignificant Restricted Subsidiaries will not guarantee the Notes. The Notes will be structurally subordinated to the Indebtedness and other obligations (including trade payables) of our Unrestricted Subsidiaries, Foreign Subsidiaries and our captive insurance subsidiary.

Principal, Maturity and Interest

        Casella issued $45.0 million of old notes on February 2, 2004. The Indenture provides for the issuance of additional Notes having identical terms and conditions to the Notes (the "Additional Notes"), subject to compliance with the covenants contained in the Indenture. Any Additional Notes will be part of the same issue as the Notes and will vote on all matters with the Notes. The old notes, and the new notes to be issued on exchange of the old notes, are pari passu with, vote on all matters submitted to bondholders with and are otherwise identical in all respects to, the $150.0 million aggregate principal amount of 9.75% Senior Subordinated Notes due 2013 which were issued in January 2003 and exchanged in September 2003.

        Casella will issue Notes in denominations of $1,000 and integral multiples of $1,000.

        The Notes will mature on February 1, 2013.

        Interest on the Notes will accrue at the rate of 9.75% per annum and will be payable semi-annually in arrears on February 1 and August 1, commencing on August 1, 2004. Casella will make each interest payment to the Holders of record of the Notes on the immediately preceding January 15 and July 15. Interest on the Notes will accrue from the date of original issuance or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

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Methods of Receiving Payments on the Notes

        If a Holder has given wire transfer instructions to Casella, Casella will make all principal, premium, if any, and interest payments on those Notes in accordance with those instructions. All other payments on the Notes will be made at the office or agency of the Paying Agent and Registrar within the City and State of New York unless Casella elects to make interest payments by check mailed to the Holders at their address set forth in the register of Holders.

Paying Agent and Registrar for the Notes

        The Trustee will initially act as Paying Agent and Registrar. Casella may change the Paying Agent or Registrar without prior notice to the Holders of the Notes, and Casella or any of its Subsidiaries may act as Paying Agent or Registrar.

Transfer and Exchange

        A Holder may transfer or exchange Notes in accordance with the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents, and Casella may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. Casella is not required to transfer or exchange any Note selected for redemption. Also, Casella is not required to transfer or exchange any Note for a period of 15 days before a selection of Notes to be redeemed. The registered Holder of a Note will be treated as the owner of it for all purposes.

Subsidiary Guarantees

        The Guarantors will jointly and severally, fully and unconditionally, guarantee Casella's obligations under the Notes. The Subsidiary Guarantee of each Guarantor will be subordinated to the prior payment in full in cash or cash equivalents of all Senior Debt of that Guarantor to the same extent that the Notes are subordinated to Senior Debt of Casella. The obligations of each Guarantor under its Subsidiary Guarantee will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law. See "Risk Factors—Risks Related to the Exchange Offer and the Notes—A court could void our subsidiaries' guarantees of the notes under fraudulent transfer laws."

        The Subsidiary Guarantee of a Guarantor will be released:

Subordination

        The payment of all Obligations on or relating to the Notes is subordinated in right of payment to the prior payment in full in cash or cash equivalents of all Obligations on Senior Debt of Casella (including all Obligations with respect to the Senior Credit Facility, whether outstanding on the Issue Date or thereafter incurred). Notwithstanding the foregoing, payments and distributions made from the

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trust established pursuant to the provisions described under "—Legal Defeasance and Covenant Defeasance" shall not be so subordinated in right of payment so long as the payments into the trust were made in accordance with the requirements described under "—Legal Defeasance and Covenant Defeasance" and did not violate the subordination provisions when they were made.

        The holders of Senior Debt will be entitled to receive payment in full in cash or cash equivalents of all Obligations due in respect of Senior Debt before the Holders of Notes will be entitled to receive any payment or distribution of any kind or character with respect to any Obligations on, or relating to, the Notes (other than payments or distributions of Permitted Junior Securities) in the event of any distribution to creditors of Casella:

        Casella also may not make any payment or distribution of any kind or character with respect to any Obligations on, or relating to, the Notes or acquire any Notes for cash or assets or otherwise, other than payments or distributions of Permitted Junior Securities and payments and distributions made from the trust established pursuant to the provisions described under "—Legal Defeasance and Covenant Defeasance" so long as the payments into the trust were made in accordance with the requirements described under "—Legal Defeasance and Covenant Defeasance" and did not violate the subordination provisions when they were made, if:

        Payments on and distributions with respect to any Obligations on, or with respect to, the Notes may and shall be resumed:

        No new Payment Blockage Notice may be delivered unless and until 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice.

        No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of not less than 90 consecutive days (it being acknowledged that any subsequent action, or any breach of any financial covenants for a period ending after the date of delivery of such initial Payment Blockage Notice that in either case would give rise to a default pursuant to any provisions under which a default previously existed or was continuing shall constitute a new default for this purpose).

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        Casella must promptly notify holders of Senior Debt if payment of the Notes is accelerated because of an Event of Default.

        As a result of the subordination provisions described above, in the event of a bankruptcy, liquidation or reorganization of Casella, Holders of the Notes may recover less ratably than creditors of Casella who are holders of Senior Debt. See "Risk Factors—Risks Related to the Exchange Offer and the Notes—The new notes will be unsecured and subordinated to our senior debt."

Optional Redemption

        Prior to February 1, 2006, Casella may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture at a redemption price equal to 109.75% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net cash proceeds of one or more Public Equity Offerings; provided that

        Except pursuant to the preceding paragraph, the Notes will not be redeemable at Casella's option prior to February 1, 2008.

        On or after February 1, 2008, Casella may redeem some or all of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption date, if redeemed during the twelve-month period beginning on February 1 of the years indicated below:

Year
   Percentage
  
2008   104.875 %
2009   103.250 %
2010   101.625 %
2011 and thereafter   100.000 %

        Casella may acquire Notes by means other than a redemption, whether pursuant to an issuer tender offer, open market purchases, negotiated transactions or otherwise, so long as such acquisition does not otherwise violate the terms of the Indenture.

        If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption as follows:

provided that, in the case of such redemption pursuant to the first paragraph under "—Optional Redemption" or with Net Proceeds from an Asset Sale pursuant to the provisions of the Indenture described in clause (3) of the second paragraph under the caption "—Repurchase at the Option of Holders—Asset Sales," the Trustee will select the Notes on a pro rata basis or on as nearly a pro rata basis as practicable (subject to the procedures of The Depository Trust Company).

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        No Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of Notes to be redeemed at its registered address. Notices of redemption may not be conditional.

        If any Note is to be redeemed in part only, the notice of redemption that relates to that Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion of the original Note will be issued in the name of the Holder thereof upon cancellation of the original Note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on Notes or portions of them called for redemption.

Repurchase at the Option of Holders

        If a Change of Control occurs, each Holder of Notes will have the right to require Casella to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of that Holder's Notes pursuant to a Change of Control Offer (the "Change of Control Offer"). In the Change of Control Offer, Casella will offer to pay an amount in cash (the "Change of Control Payment") equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest thereon, if any, to the date of purchase. Within 30 days following any Change of Control, Casella will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase Notes on the date (the "Change of Control Payment Date") specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the Indenture and described in such notice.

        On or before the Change of Control Payment Date, Casella will, to the extent lawful:

        The Paying Agent will promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note will be in a principal amount of $1,000 or an integral multiple thereof.

        Prior to complying with any of the provisions of this "Change of Control" covenant, but in any event within 90 days following a Change of Control, Casella will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. Casella will publicly announce the results of the Change of Control Offer as soon as practicable after the Change of Control Payment Date.

        Casella will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the Indenture applicable to a Change of Control Offer made by Casella and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer.

        Notwithstanding the foregoing, Casella shall not be required to make a Change of Control Offer, as provided above, if, in connection with or in contemplation of any Change of Control, it or a third

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party has made an offer to purchase (an "Alternate Offer") any and all Notes validly tendered at a cash price equal to or higher than the Change of Control Payment and has purchased all Notes properly tendered in accordance with the terms of such Alternate Offer. The Alternate Offer must comply with all the other provisions applicable to the Change of Control Offer, shall remain, if commenced prior to the Change of Control, open for acceptance until the consummation of the Change of Control and must permit Holders to withdraw any tenders of Notes made into the Alternate Offer until the final expiration or consummation thereof.

        Casella will comply, and will cause any third party making a Change of Control Offer or an Alternate Offer to comply, with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with a Change of Control Offer or an Alternate Offer. To the extent the provisions of any applicable securities laws or regulations conflict with the provisions of the Indenture relating to a Change of Control Offer, Casella will not be deemed to have breached its obligations under the Indenture by virtue of complying with such laws or regulations.

        The occurrence of a Change of Control would constitute an event of default under Casella's Senior Credit Facility. In addition, the Senior Credit Facility prohibits, and the agreements governing any future Senior Debt may prohibit, Casella from purchasing any Notes, and may also provide that certain change of control events with respect to Casella would constitute a default under such agreements. In the event a Change of Control occurs at a time when Casella is prohibited from purchasing Notes, Casella could seek the consent of its senior lenders to the purchase of Notes or could attempt to refinance the borrowings that contain such prohibition. If Casella does not obtain such a consent or repay such borrowings, Casella will remain prohibited from purchasing Notes. In such case, Casella's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.

        The definition of Change of Control includes a phrase relating to the sale, lease, transfer, conveyance or other disposition of "all or substantially all" of the assets of Casella and its Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase "substantially all," there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of Notes to require Casella to repurchase such Notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of the assets of Casella and its Subsidiaries taken as a whole may be uncertain.

        The provisions described above that require Casella to make a Change of Control Offer following a Change of Control will be applicable regardless of whether or not any other provisions of the Indenture are applicable. Except as described above with respect to a Change of Control, the Indenture does not contain provisions that permit the Holders of the Notes to require that Casella repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction.

        Casella will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

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        Within 365 days after the receipt of any Net Proceeds from an Asset Sale, Casella may apply such Net Proceeds at its option:

Pending the final application of any such Net Proceeds, Casella may temporarily reduce revolving credit borrowings or otherwise invest such Net Proceeds in any manner that is not prohibited by the Indenture.

        Any Net Proceeds from Asset Sales that are not applied as provided in the preceding paragraph will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, Casella will make an offer to

to purchase (an "Asset Sale Offer") the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price for Notes in any Asset Sale Offer will be equal to 100% of the principal amount of Notes purchased, plus accrued and unpaid interest, if any, to the date of purchase, and will be payable in cash. If the aggregate principal amount of Notes and such other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, Casella shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. Accordingly, if any Excess Proceeds remain after consummation of an Asset Sale Offer, Casella may use such Excess Proceeds for any purpose not otherwise prohibited by the Indenture.

        When any non-cash consideration received by Casella or any of its Restricted Subsidiaries in connection with any Asset Sale is converted into or sold or otherwise disposed of for cash or Cash Equivalents, such cash and Cash Equivalents must be applied in accordance with this covenant.

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        Casella will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with an Asset Sale Offer. To the extent the provisions of any applicable securities laws or regulations conflict with the provisions of the Indenture relating to an Asset Sale Offer, Casella will not be deemed to have breached its obligations under the Indenture by virtue of complying with such laws or regulations.

        The Senior Credit Facility currently prohibits Casella from purchasing any Notes. In addition, the agreements governing any future Senior Debt may prohibit Casella from purchasing any Notes. In the event the Indenture requires Casella to make an Asset Sale Offer at a time when Casella is prohibited from purchasing Notes, Casella could seek the consent of its senior lenders to the purchase of Notes, use the proceeds of the Asset Sale to pay down such Senior Debt, or attempt to refinance the borrowings that contain such prohibitions. If Casella does not obtain such consents or repay or refinance such borrowings, Casella would remain prohibited from purchasing Notes. In such case, Casella's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the Indenture would likely restrict payments to the Holders of Notes.

Certain Covenants

        Set forth below are summaries of certain covenants contained in the Indenture.

        Casella will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

(all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment:

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        The preceding provisions will not prohibit:

        The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Casella or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities having a fair market value in excess of $5.0 million that are required to be valued by this covenant shall be determined in good faith by the Board of Directors, whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $10.0 million. Not later than the date of making any Restricted Payment, Casella shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this "Restricted Payments" covenant were computed, together with a copy of any fairness opinion or appraisal required by the Indenture.

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        In determining whether any Restricted Payment is permitted by the foregoing covenant, Casella may allocate or reallocate all or any portion of such Restricted Payment between clauses (6) and (8) of the second paragraph of this "—Restricted Payments" covenant or between such clauses and the Basket; provided that at the time of such allocation or reallocation, all such Restricted Payments, or allocated portions thereof, would be permitted under such provisions.

        On or after the date of the Indenture (i) Casella will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur any Indebtedness (including Acquired Debt), and (ii) Casella will not issue any Disqualified Capital Stock and will not permit any of its Restricted Subsidiaries to issue any shares of Preferred Stock; provided that Casella or any Guarantor may incur Indebtedness (including Acquired Debt), and Casella may issue Disqualified Capital Stock, if the Consolidated Fixed Charge Coverage Ratio is at least 2.0 to 1.0 (this proviso, the "Coverage Ratio Exception").

        The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"):

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        Notwithstanding any other provision in this covenant, the maximum amount of Indebtedness that Casella or any of its Restricted Subsidiaries may incur pursuant to this covenant shall not be deemed to be exceeded as a result of fluctuations in exchange rates of currencies. The outstanding principal amount of any particular Indebtedness shall be counted only once and any obligation arising under any

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Guarantee, Lien, letter of credit or similar instrument supporting such Indebtedness shall be disregarded, so long as the obligor is permitted to incur such obligation. For purposes of determining compliance with this covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (12) above, or is entitled to be incurred pursuant to the Coverage Ratio Exception, Casella will be permitted to divide and classify such item of Indebtedness on the date of its incurrence in any manner that complies with this covenant (provided that all Indebtedness outstanding under the Senior Credit Facility on the Issue Date shall be deemed to have been incurred pursuant to clause (1) above).

        Casella will not, directly or indirectly, incur any Indebtedness that is, or purports to be, subordinate or junior in right of payment to any Senior Debt of Casella and senior in any respect in right of payment to the Notes. No Guarantor will, directly or indirectly, incur any Indebtedness that is, or purports to be, subordinate or junior in right of payment to any Senior Debt of such Guarantor and senior in any respect in right of payment to such Guarantor's Subsidiary Guarantee. For purposes hereof, unsecured Indebtedness shall not be deemed to be subordinate or junior to secured Indebtedness solely because it is unsecured, and Indebtedness that is not Guaranteed by a particular Person shall not be deemed to be subordinate or junior to Indebtedness solely because it is not so Guaranteed.

        Casella will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired, except Permitted Liens, unless all payments due under the Indenture and the Notes are secured on an equal and ratable basis with the obligation so secured until such time as such is no longer secured by a Lien; provided that if such obligation is by its terms expressly subordinated to the Notes or any Subsidiary Guarantee, the Lien securing such obligation shall be subordinate and junior to the Lien securing the Notes and the Subsidiary Guarantees with the same relative priority as such subordinate or junior obligation shall have with respect to the Notes and the Subsidiary Guarantees.

        Casella will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

        However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:

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        Casella will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract,

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agreement, understanding, loan, advance or guarantee with, or for the benefit of, any of its Affiliates (each, an "Affiliate Transaction"), unless:

        The following items shall not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:

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        If Casella or any of its Restricted Subsidiaries transfers, acquires or creates another Restricted Subsidiary (other than any Foreign Subsidiary) after the date of the Indenture or transfers or causes to be transferred, in any one transaction or a series of related transactions, any assets in excess of $1,000 to any Restricted Subsidiary (other than a Foreign Subsidiary or our captive insurance subsidiary) that is not a Guarantor, or designates any Unrestricted Subsidiary (other than a Foreign Subsidiary) as a Restricted Subsidiary, then that newly acquired, created, capitalized or designated Restricted Subsidiary must become a Guarantor and shall, within ten business days of the date on which it was so acquired, created, capitalized or designated:

Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.

        Notwithstanding the preceding paragraph, any Subsidiary Guarantee will provide by its terms that it will be automatically and unconditionally released and discharged under the circumstances described above under the caption "—Subsidiary Guarantees." The form of the Subsidiary Guarantee will be attached as an exhibit to the Indenture.

        The Board of Directors of Casella may designate (a "Designation") any Restricted Subsidiary to be an Unrestricted Subsidiary if such Designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, all outstanding Investments owned by Casella and its Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an Investment made as of the time of such Designation and will reduce the amount available for Restricted Payments under the first paragraph of the covenant described above under the caption "—Restricted Payments" or for Permitted Investments, as applicable. All such outstanding Investments will be valued at their fair market value at the time of such Designation in accordance with the provisions of the second to last paragraph under "—Restricted Payments." Such Designation will be permitted only if such Investment would be a Permitted Investment or otherwise would at the time of such Designation not be prohibited under provisions of the Indenture described under the caption "—Restricted Payments."

        The Board of Directors of Casella may revoke any Designation of a Subsidiary of Casella as an Unrestricted Subsidiary (a "Revocation"); provided that

        Any such Designation or Revocation by the Board of Directors of Casella after the Issue Date shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the resolution of the Board of Directors of Casella giving effect to such Designation or Revocation and an Officers' Certificate certifying that such Designation or Revocation complied with the foregoing provisions.

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        Casella will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale and Leaseback Transaction; provided that Casella or any Restricted Subsidiary of Casella that is a Guarantor may enter into a Sale and Leaseback Transaction if:

        Casella will not, and will not permit any of its Restricted Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned Restricted Subsidiary of Casella to any Person (other than Casella or a Wholly Owned Restricted Subsidiary of Casella), unless the transfer, conveyance, sale, lease or other disposition is of all the Equity Interests in such Wholly Owned Restricted Subsidiary and the Net Proceeds from such transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions of the Indenture described above under the caption "—Repurchase at the Option of Holders—Asset Sales." In addition, Casella will not permit any of its Wholly Owned Restricted Subsidiaries to issue any of their Equity Interests (other than, if necessary, shares of their Capital Stock constituting directors' qualifying shares) to any Person other than Casella or a Wholly Owned Restricted Subsidiary of Casella. This covenant will not apply with respect to the Equity Interests of GreenFiber or any of its Subsidiaries or its direct parent if or when GreenFiber becomes a Wholly Owned Restricted Subsidiary of Casella.

        Casella will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses.

        Casella will not, and will not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or amendment.

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        Whether or not required by the SEC, so long as any Notes are outstanding, Casella will furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations:

        If Casella has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph shall include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of Casella and its Restricted Subsidiaries separate from the financial condition and results of operations of Casella's Unrestricted Subsidiaries.

        In addition, whether or not required by the SEC, Casella will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request.

        (a)   Casella may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not Casella is the surviving corporation); or (2) sell, assign, lease, transfer, convey or otherwise dispose of all or substantially all of Casella's properties or assets (determined on a consolidated basis for Casella and its Restricted Subsidiaries), in one or more related transactions, to another Person, unless:

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The foregoing clauses (3) and (4) shall not apply to (a) a merger or consolidation of any Restricted Subsidiary with or into Casella or (b) a transaction solely for the purpose of and with the effect of reincorporating Casella in another jurisdiction and/or forming a holding company to hold all of the Capital Stock of Casella or forming an intermediate holding company to hold all of the Capital Stock of Casella's Subsidiaries.

        In the event of any transaction described in and complying with the conditions listed in the preceding paragraph in which Casella is not the continuing corporation, the successor Person formed or remaining shall succeed to, and be substituted for, and may exercise every right and power of, Casella and Casella will be discharged from all obligations and covenants under the Indenture and the Notes.

        (b)   No Guarantor may, and Casella will not cause or permit any Guarantor to, consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person unless:

The requirements of this clause (b) shall not apply to (x) a consolidation or merger of any Guarantor with or into Casella or any other Guarantor so long as Casella or a Guarantor survives such consolidation or merger or (y) the sale by consolidation or merger of a Guarantor, which sale is covered by and complies with the provisions of the Indenture described under "—Repurchase at the Option of Holders—Asset Sales."

        (c)   Casella will deliver to the Trustee prior to the consummation of each proposed transaction an Officers' Certificate certifying that the conditions set forth above are satisfied and an Opinion of Counsel, which opinion may contain customary exceptions and qualifications, that the proposed transaction and the supplemental indenture, if any, comply with the Indenture.

Events of Default and Remedies

        Each of the following is an "Event of Default":

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        In the case of an Event of Default under clause (8) or (9) with respect to Casella or any Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately.

        Holders of the Notes may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default (except a Default relating to the payment of principal or interest) if it determines that withholding notice is in their interest.

        The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default and its consequences under the Indenture except a continuing Default in the payment of interest on, or the principal or premium of, the Notes.

        Casella is required to deliver to the Trustee annually a statement regarding compliance with the Indenture. Upon becoming aware of any Default, Casella is required to deliver to the Trustee a statement specifying such Default.

No Personal Liability of Directors, Officers, Employees and Stockholders

        No director, officer, employee, incorporator or stockholder of Casella or any Guarantor, as such, shall have any liability for any obligations of Casella or the Guarantors under the Notes, the Indenture, the Guarantors' Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws.

Legal Defeasance and Covenant Defeasance

        Casella may, at its option and at any time, elect to have all of its Obligations discharged with respect to the outstanding Notes and all Obligations of the Guarantors discharged with respect to their Subsidiary Guarantees ("Legal Defeasance") except for:

        In addition, Casella may, at its option and at any time, elect to have the obligations of Casella and the Guarantors released with respect to certain covenants that are described in the Indenture ("Covenant Defeasance") and thereafter any omission to comply with those covenants shall not constitute a Default with respect to the Notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy and insolvency events) described under "Events of Default" will no longer constitute an Event of Default with respect to the Notes.

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        In order to exercise either Legal Defeasance or Covenant Defeasance:

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Amendment, Supplement and Waiver

        Casella and the Guarantors, when authorized by board resolutions, and the Trustee may enter into one or more supplemental indentures to amend the Indenture or the Notes with the written consent of Holders of a majority of the principal amount of the then outstanding Notes. The Holders of a majority in principal amount of then outstanding Notes may waive any existing Default or compliance with any provision of the Indenture or the Notes without prior notice to any holder of Notes.

        Notwithstanding the foregoing, without the consent of each Holder affected, an amendment or waiver may not (with respect to any Notes held by a non-consenting Holder):

        Notwithstanding the foregoing, without the consent of any Holder of Notes, Casella and the Trustee may amend or supplement the Indenture or the Notes:

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        The consent of Holders of the Notes is not necessary under the Indenture to approve the particular form of any proposed amendment; it is sufficient if such consent approves the substance of the proposed amendment.

        No amendment of, or supplement or waiver to, the Indenture shall adversely affect the rights of any holder of Senior Debt under the subordination provisions of the Indenture without the consent of such holder or its Representative.

Governing Law

        The Indenture, the Notes and the Subsidiary Guarantees will be governed by the laws of the State of New York.

Concerning the Trustee

        If the Trustee becomes a creditor of Casella or any Guarantor, the Indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue or resign.

        The Holders of a majority in principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The Indenture provides that in case an Event of Default shall occur and be continuing, the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent person in the conduct of such person's own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Holder of Notes, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense.

Certain Definitions

        Set forth below are certain defined terms used in the Indenture. Reference is made to the Indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.

        "Acquired Debt" means, with respect to any specified Person:

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        "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings.

        "amend" means amend, modify, supplement, restate or amend and restate, including successively; and "amending" and "amended" have correlative meanings.

        "asset" means any asset or property, whether real, personal or other, tangible or intangible.

        "Asset Sale" means:

        Notwithstanding the preceding, the following shall not be deemed to be Asset Sales:

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        "Attributable Debt" in respect of a Sale and Leaseback Transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such Sale and Leaseback Transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP.

        "Basket" has the meaning ascribed to such term in clause (3) of the first paragraph of the "Restricted Payments" covenant.

        "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as such term is used in Section 13(d)(3) of the Exchange Act), such "person" shall be deemed to have beneficial ownership of all securities that such "person" has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition.

        "Board of Directors" means (1) in the case of a corporation, the board of directors and (2) in all other cases, a body performing substantially similar functions as a board of directors.

        "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.

        "Capital Stock" means:

        "Cash Equivalents" means:

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        "Change of Control" means the occurrence of any of the following:


        "Consolidated EBITDA" means, with respect to any Person, for any period, the sum (without duplication) of

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all as determined on a consolidated basis for such Person and its Restricted Subsidiaries in accordance with GAAP.

        "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of (x) Consolidated EBITDA of such Person during the four full fiscal quarters for which financial statements are available (the "Four Quarter Period") ending on or prior to the Transaction Date to (y) Consolidated Fixed Charges of such Person for the Four Quarter Period.

        For purposes of this definition, "Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis in accordance with Regulation S-X under the Exchange Act to the incurrence, repayment or redemption of any Indebtedness of such Person or any of its Restricted Subsidiaries giving rise to the need to make such calculation and any incurrence, repayment or redemption of other Indebtedness, other than the incurrence, repayment or redemption of Indebtedness in the ordinary course of business for working capital purposes pursuant to working capital facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and prior to the Transaction Date, as if such incurrence, repayment or redemption, as the case may be, occurred on the first day of the Four Quarter Period.

        In addition, Investments (including any Designation of Unrestricted Subsidiaries), Revocations, acquisitions, dispositions, mergers and consolidations that have been made by Casella or any of its Restricted Subsidiaries during the Four Quarter Period or subsequent to the Four Quarter Period and on or prior to the Transaction Date shall be given effect on a pro forma basis in accordance with Regulation S-X under the Exchange Act, to the extent applicable, assuming that all such Investments, Revocations, acquisitions, dispositions, mergers and consolidations (and the reduction or increase of any associated Consolidated Fixed Charges, and the change in Consolidated EBITDA, resulting therefrom) had occurred on the first day of the Four Quarter Period. If, since the beginning of such period, any Person (that subsequently became a Restricted Subsidiary or was merged with or into Casella or any Restricted Subsidiary since the beginning of such period) shall have made any Investment, Revocation, acquisition, disposition, merger or consolidation that would have required adjustment pursuant to this definition, then the Consolidated Fixed Charge Coverage Ratio shall be calculated giving pro forma effect thereto for such period as if such Investment, Revocation, acquisition, disposition, merger or consolidation had occurred at the beginning of the applicable Four Quarter Period.

        If such Person or any of its Restricted Subsidiaries directly or indirectly Guarantees Indebtedness of a Person other than Casella or a Restricted Subsidiary, the preceding paragraph will give effect to the incurrence of such Guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such Guaranteed Indebtedness.

        Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio,"

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        "Consolidated Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of

        "Consolidated Interest Expense" means, with respect to any Person for any period, the sum of, without duplication,

        "Consolidated Net Income" means, with respect to any Person (such Person, for purposes of this definition, the "Referent Person"), for any period, the net income (or loss) of the Referent Person and its Restricted Subsidiaries for such period on a consolidated basis, determined in accordance with GAAP; provided that there shall be excluded from such net income (loss), to the extent otherwise included therein, without duplication,

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        "Consolidated Net Worth" means, with respect to any Person as of any date, the sum of:

        "Consolidated Non-cash Charges" means, with respect to any Person, for any period, the aggregate depreciation, amortization and other non-cash charges of such Person and its Restricted Subsidiaries reducing the Consolidated Net Income of such Person and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP (excluding any such charges constituting an extraordinary item or loss or any such charge which requires an accrual of or a reserve for cash charges for any future period).

        "Continuing Director" means, as of any date of determination, any member of the Board of Directors of Casella who:

        "Coverage Ratio Exception" has the meaning set forth in the first paragraph of the covenant described under the caption "—Incurrence of Indebtedness and Issuance of Preferred Stock."

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        "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

        "Designated Senior Debt" means (1) the Senior Credit Facility and all Hedging Obligations with respect thereto and (2) any other Senior Debt permitted under the Indenture (a) the principal amount of which is $25.0 million or more and (b) that has been designated by Casella as "Designated Senior Debt."

        "Designation" has the meaning set forth in the "—Designation of Restricted and Unrestricted Subsidiaries" covenant.

        "Disinterested Director" means, with respect to any transaction or series of related transactions, a member of the Board of Directors of Casella who (1) does not have any material direct or indirect financial interest in or with respect to such transaction or series of related transactions and (2) is not an Affiliate, officer, director or employee of any Person (other than Casella or any Restricted Subsidiary) who has any direct or indirect financial interest in or with respect to such transaction or series of related transactions.

        "Disqualified Capital Stock" means any class or series of Capital Stock of any Person that by its terms or otherwise is


Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Capital Stock solely because the holders of the Capital Stock have the right to require the issuer thereof to repurchase such Capital Stock upon the occurrence of a "change of control" or "asset sale" will not constitute Disqualified Capital Stock if such requirement only becomes operative after compliance with such terms applicable to the Notes, including the purchase of any Notes tendered pursuant thereto.

        "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

        "Exchange Notes" has the meaning set forth under "—Registration Covenant; Exchange Offer."

        "Existing Indebtedness" means Indebtedness of Casella and its Restricted Subsidiaries in existence on the Issue Date (after giving effect to the use of proceeds from the offering of the Notes on the Issue Date and the initial borrowings under the Senior Credit Facility as described in this offering circular under the caption "Use of Proceeds") other than Indebtedness under the Senior Credit Facility and Indebtedness owed to Casella or any of its Subsidiaries, until such amounts are repaid.

        "Foreign Subsidiary" means any Restricted Subsidiary of Casella organized under the laws of, and conducting a substantial portion of its business in, any jurisdiction other than the United States of America or any State thereof or the District of Columbia.

        "Four Quarter Period" has the meaning set forth in the definition of "Consolidated Fixed Charge Coverage Ratio."

        "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, in effect on the date of the Indenture.

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        "GreenFiber" means US GreenFiber LLC, a Delaware limited liability company.

        "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

        "Guarantors" means:

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and their respective successors and assigns, and in each case, until such Person is released from its Subsidiary Guarantee in accordance with the provisions of the Indenture.

        "Hedging Obligations" means, with respect to any Person, the obligations of such Person under:

        "Holder" means the registered holder of any Note.

        "incur" means to directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to any Indebtedness and "incurrence" shall have a correlative meaning. For the avoidance of doubt, the accrual of interest, accretion or amortization of original issue discount and increase in the liquidation preference of Preferred Stock in lieu of payment of cash dividends thereon shall not be an incurrence; provided, in each such case, that the amount thereof is included in Consolidated Fixed Charges of Casella as accrued in the respective period. For the avoidance of doubt, Existing Indebtedness shall be deemed to have been incurred prior to the date of the Indenture.

        "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:

if and to the extent any of the preceding items (other than letters of credit, Hedging Obligations, Disqualified Capital Stock and Preferred Stock) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes (a) all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person), and (b) to the extent not otherwise included, the Guarantee by such Person of any Indebtedness of any other Person.

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        The amount of any Indebtedness outstanding as of any date shall be:

        "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other obligations), advances or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. "Investment" excludes (1) extensions of trade credit by Casella and its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices of Casella or such Restricted Subsidiary, as the case may be, and (2) any purchase, redemption or other acquisition or retirement for value of any Capital Stock of Casella or any warrants, options or other rights to purchase or acquire any such Capital Stock. If Casella or any Restricted Subsidiary of Casella sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of Casella such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of Casella, Casella shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in the penultimate paragraph of the covenant described above under the caption "—Restricted Payments." The amount of any Investment shall be the original cost of such Investment, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment but less all cash distributions constituting a return of capital.

        "Issue Date" means the date on which the Notes are first issued.

        "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof (other than an operating lease), any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

        "Moody's" means Moody's Investors Service, Inc. or any successor thereto.

        "Net Proceeds" means the aggregate cash proceeds received by Casella or any of its Restricted Subsidiaries in respect of any Asset Sale, net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof, in each case after taking into account any available tax credits or deductions and any tax sharing arrangements and amounts required to be applied to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale.

        "Obligations" means, with respect to any Indebtedness, the principal, premium, if any, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing such Indebtedness.

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        "Officers' Certificate" means a certificate signed on behalf of Casella by any one of the following: the Chief Executive Officer, the President, the Vice President-Finance, the Chief Financial Officer, Treasurer, Controller or the Secretary of Casella and delivered to the Trustee.

        "Opinion of Counsel" means a written opinion from legal counsel who is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to Casella, a Guarantor or the Trustee.

        "Permitted Business" means the business of Casella and its Restricted Subsidiaries conducted on the Issue Date and businesses ancillary or reasonably related thereto, which, for purposes hereof, shall include the business conducted by GreenFiber and businesses ancillary or reasonably related thereto.

        "Permitted Holder" means Berkshire Partners LLC and its Affiliates.

        "Permitted Investments" means:

        The amount of Investments outstanding at any time pursuant to clause (9) above shall be deemed to be reduced, without duplication:

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        "Permitted Junior Securities" means: (1) Equity Interests in Casella or any Guarantor; or (2) debt securities of Casella or any Guarantor that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the Notes and the Subsidiary Guarantees are subordinated to Senior Debt pursuant to the Indenture.

        "Permitted Liens" means:

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        "Permitted Refinancing Indebtedness" means any Indebtedness of Casella or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to refinance other Indebtedness of Casella or any of its Restricted Subsidiaries; provided that:

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        "Person" means an individual, partnership, corporation, limited liability company, unincorporated organization, trust or joint venture or a governmental agency or political subdivision thereof.

        "Preferred Stock" of any Person means any Capital Stock of such Person that has preferential rights to any other Capital Stock of such Person with respect to dividends or redemption or upon liquidation.

        "Public Equity Offering" means any underwritten public offering of common stock of Casella.

        "Purchase Money Obligations" means Indebtedness of Casella or any of its Restricted Subsidiaries incurred for the purpose of financing all or any part of the purchase price, or the cost of construction or improvement, of any assets to be used in the business of Casella or such Restricted Subsidiary; provided, however, that (1) the aggregate amount of such Indebtedness shall not exceed such purchase price or cost, (2) such Indebtedness shall be incurred no later than 180 days after the acquisition of such assets or such construction or improvement and (3) such Indebtedness shall not be secured by any assets of Casella or any of its Restricted Subsidiaries other than the assets so acquired, constructed or improved.

        "Qualified Capital Stock" means any Capital Stock of Casella that is not Disqualified Capital Stock.

        "refinance" means to extend, refinance, renew, replace, defease or refund, including successively; and "refinancing" and "refinanced" shall have correlative meanings.

        "Replacement Asset" has the meaning set forth in the "—Asset Sales" covenant.

        "Representative" means the indenture trustee or other trustee, agent or representative in respect of any Designated Senior Debt; provided that if, and for so long as, any Designated Senior Debt lacks such a representative, then the Representative for such Designated Senior Debt shall at all times constitute the holders of a majority in outstanding principal amount of such Designated Senior Debt.

        "Restricted Investment" means an Investment other than a Permitted Investment.

        "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

        "Revocation" has the meaning set forth in the "—Designation of Restricted and Unrestricted Subsidiaries" covenant.

        "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successor thereto.

        "Sale and Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby Casella or a Restricted Subsidiary of Casella transfers such property to a Person and Casella or a Restricted Subsidiary of Casella leases it from such Person.

        "Senior Credit Facility" means the Second Amended and Restated Revolving Credit and Term Loan Agreement, dated on or about the Issue Date, among Casella, the Guarantors, Fleet National Bank, as administrative agent, Bank of America, N.A., as syndication agent, and the lenders party thereto, including any notes, guarantees, collateral and security documents (including mortgages, pledge

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agreements and other security arrangements), instruments and agreements executed in connection therewith, and in each case as amended or refinanced from time to time, including any agreement or agreements extending the maturity of, refinancing or otherwise restructuring (including increasing the amount of borrowings or other Indebtedness outstanding or available to be borrowed thereunder) all or any portion of the Indebtedness under such agreement, and any successor or replacement agreement or agreements with the same or any other borrowers, agents, creditors, lenders or group of creditors or lenders.

        "Senior Debt" means:

Notwithstanding anything to the contrary in the preceding, Senior Debt will not include:

        "Series A Redeemable Convertible Preferred Stock" means shares of Casella's Series A Redeemable Convertible Preferred Stock under the Certificate of Designations therefor in effect on the date of the Indenture or as thereafter amended in a manner not materially adverse to the Holders.

        "Significant Subsidiary" means (1) any Restricted Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Act, as such Regulation is in effect on the date hereof or (2) any Restricted Subsidiary that, when aggregated with all other Restricted Subsidiaries that are not otherwise Significant Subsidiaries and as to which any event described in clause (7), (8) or (9) under the "Events of Default" covenant has occurred and is continuing, would constitute a Significant Subsidiary under clause (1) of this definition.

        "Specified Assets" means K-C International Ltd., the brokerage business of KTI Recycling of New England Inc., the brokerage business of Pine Tree Waste Inc., US GreenFiber LLC, KTI New Jersey Fibers, Inc., Atlantic Coast Fibers, Inc., Casella NH Investors Co., LLC, Casella NH Power Co., LLC, Casella RTG Investors Co., LLC and RTG Holdings Corporation and the companies and assets comprising the FCR operating segment, or the successors of the foregoing only with respect to the businesses conducted by the foregoing on the date of the Indenture.

        "Stated Maturity" means, with respect to any installment of interest or principal on any Indebtedness, the date on which such payment of interest or principal is scheduled to be paid in the

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documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

        "Subsidiary" means, with respect to any Person:

        "Subsidiary Guarantee" means the subordinated Guarantee by each Guarantor of Casella's payment obligations under the Indenture and the Notes, executed pursuant to the Indenture.

        "Transaction Date" means the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio.

        "Unrestricted Subsidiary" of any Person means

        "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of such Person.

        "Weighted Average Life to Maturity" means, when applied to any Indebtedness or Disqualified Capital Stock at any date, the number of years obtained by dividing:

        "Wholly Owned Restricted Subsidiary" of any Person means a Restricted Subsidiary of such Person all of the outstanding Capital Stock or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person and/or by one or more Wholly Owned Restricted Subsidiaries of such Person.

Form, Denomination, Transfer, Exchange and Book-Entry Procedures

        We will issue new notes only in fully registered form, without interest coupons, in denominations of $1,000 and integral multiples of $1,000. We will not issue new notes in bearer form.

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        The new notes initially will be represented by one or more notes in registered, global form without interest coupons (collectively, the "Global Notes"). We will deposit the Global Notes upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and register the Global Notes in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below.

        Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. You may not exchange your beneficial interest in the Global Notes for Notes in certificated form except in the limited circumstances described below under "—Exchanges of Book-Entry Notes for Certificated Notes." In addition, transfers of beneficial interests in the Global Notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and Clearstream), which may change from time to time.

        You may not exchange your beneficial interest in a Global Note for a note in certificated form unless:

        In all cases, certificated Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depository (in accordance with its customary procedures). Any certificated Notes issued in exchange for an interest in a Global Note will bear the legend restricting transfers that is borne by such Global Note. Any such exchange will be effected through the DWAC system and an appropriate adjustment will be made in the records of the Security Registrar to reflect a decrease in the principal amount of the relevant Global Note.

        The description of the operations and procedures of DTC, Euroclear and Clearstream that follows is provided solely as a matter of convenience. These operations and procedures are solely within their control and are subject to changes by them from time to time. Casella takes no responsibility for these operations and procedures and urges you to contact the system or their participants directly to discuss these matters.

        DTC has advised Casella as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants ("participants") and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. Participants include securities brokers and dealers, banks, trust companies and clearing corporations and may include certain other

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organizations. Indirect access to the DTC system is available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants").

        DTC has advised Casella that its current practice, upon the issuance of the Global Notes, is to credit, on its internal system, the respective principal amount of the individual beneficial interests represented by such Global Notes to the accounts with DTC of the participants through which such interests are to be held. Ownership of beneficial interests in the Global Notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominees (with respect to interests of participants).

        As long as DTC, or its nominee, is the registered holder of a Global Note, DTC or such nominee, as the case may be, will be considered the sole owner and holder of the Notes represented by such Global Note for all purposes under the Indenture and the Notes. Except in the limited circumstances described above under "—Exchanges of Book-Entry Notes for Certificated Notes," you will not be entitled to have any portions of a Global Note registered in your name, will not receive or be entitled to receive physical delivery of Notes in definitive form and will not be considered the owner or holder of a Global Note (or any note represented thereby) under the Indenture or the Notes.

        You may hold your interests in the Global Notes directly through DTC, if you are participants in such system, or indirectly through organizations (including Euroclear and Clearstream) which are participants in such system. All interests in a Global Note, including those held through Euroclear or Clearstream, will be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream will also be subject to the procedures and requirements of such system.

        The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, your ability to transfer your beneficial interests in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of its participants, which in turn act on behalf of indirect participants and certain banks, your ability to pledge your interests in a Global Note to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be adversely affected by the lack of a physical certificate evidencing such interests.

        Casella will make payments of the principal of, premium, if any, and interest on Global Notes to DTC or its nominee as the registered owner thereof. Neither Casella nor the Trustee nor any of their respective agents will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.

        Casella expects that DTC or its nominee, upon receipt of any payment of principal or interest in respect of a Global Note representing any Notes held by it or its nominee, will immediately credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such Global Note for such Notes as shown on the records of DTC or its nominee. Casella also expects that payments by participants to owners of beneficial interests in such Global Note held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in "street name." Such payment will be the responsibility of such participants.

        Except for trades involving only Euroclear and Clearstream participants, interests in the Global Note will trade in DTC's settlement system, and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its participants. Transfers between participants in DTC will be effected in accordance with DTC's procedures, and will be settled in same-day funds. Transfers between participants in Euroclear and

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Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures.

        Subject to compliance with the transfer and exchange provisions applicable to the Notes described elsewhere herein, cross-market transfers between DTC participants, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected by DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depository; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.

        Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a DTC participant will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the DTC settlement date. Cash received in Euroclear or Clearstream as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream participant to a DTC participant will be received with value on the DTC settlement date but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following the DTC settlement date.

        DTC has advised Casella that DTC will take any action permitted to be taken by a holder of Notes (including the presentation of Notes for exchange as described below) only at the direction of one or more participants to whose account with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the Notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under the Notes, the Global Notes will be exchanged for legended Notes in certificated form, and distributed to DTC's participants.

        Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures in order to facilitate transfers of beneficial ownership interests in the Global Notes among participants of DTC, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of Casella, the Trustee or any of their respective agents will have any responsibility for the performance by DTC, Euroclear and Clearstream, their participants or indirect participants of their respective obligations under the rules and procedures governing their operations, including maintaining, supervising or reviewing the records relating to, or payments made on account of, beneficial ownership interests in Global Notes.

Registration Covenant; Exchange Offer

        In connection with the sale of the old notes, Casella entered into an Exchange and Registration Rights Agreement (the "Exchange and Registration Rights Agreement") pursuant to which Casella has agreed, for the benefit of the holders of the Notes:

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        Casella has further agreed to commence the Exchange Offer promptly after the Exchange Offer Registration Statement has become effective, hold the offer open for at least 30 days, and exchange Exchange Notes for all old notes validly tendered and not withdrawn before the expiration of the offer. The registration statement of which this prospectus forms a part is the Exchange Offer Registration Statement.

        However, if:

Casella will, in lieu of (or, in the case of clause (3), in addition to) effecting registration of the Exchange Notes, file and use its best efforts to cause a registration statement under the Securities Act relating to a shelf registration (the "Shelf Registration Statement") of the old notes for resale by holders (the "Resale Registration") to become effective and to remain effective until two years following the effective date of such registration statement or such shorter period that will terminate when all the securities covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement.

        Casella will, in the event of the Resale Registration, provide to the holder or holders of the applicable Notes copies of the prospectus that is a part of the Shelf Registration Statement, notify such holder or holders when the Resale Registration for the applicable Notes has become effective and take certain other actions as are required to permit unrestricted resales of the applicable Notes. A holder of Notes that sells such Notes pursuant to the Resale Registration generally would be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement that are applicable to such a holder (including certain indemnification obligations).

        In the event that:

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then Casella will pay to the holders of the old notes, as liquidated damages, for the period from the occurrence of the Registration Default, an amount per annum equal to 0.50% of the aggregate principal amount of the old notes during the first 90-day period following the occurrence of such Registration Default which rate shall increase by an additional 0.50% during each subsequent 90-day period, up to a maximum of 2.00% of the aggregate principal amount of the old notes ("Liquidated Damages") until the earlier of (a) the date on which all Registration Defaults have been cured and (b) the date on which all the old notes and Exchange Notes otherwise become freely transferable by all holders thereof other than affiliates of Casella or the Guarantors without further registration under the Securities Act. Notwithstanding the foregoing, (A) the amount of Liquidated Damages payable shall not increase solely because more than one Registration Default has occurred and (B) a holder of old notes or Exchange Notes who is not entitled to the benefits of the Shelf Registration Statement (i.e. such holder has not elected to include required information) shall not be entitled to Liquidated Damages with respect to a Registration Default that pertains to a Shelf Registration Statement. Liquidated Damages shall be paid on interest payment dates to the holders of record for the payment of interest. References in this "Description of the New Notes," except for provisions described above under the caption "—Amendment, Supplement and Waiver," to interest on the Notes shall mean such interest plus liquidated damages, if any.

        Under certain circumstances Casella may delay the filing or the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, as applicable, or suspend or otherwise fail to maintain the effectiveness thereof for a period of up to 60 days during any 12-month period (such period, a "Blackout Period"). Casella will not be obligated to pay Liquidated Damages for the occurrence of a Registration Default during a Blackout Period.

        The summary herein of certain provisions of the Exchange and Registration Rights Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Exchange and Registration Rights Agreement, a copy of which will be available upon request to Casella.

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SUMMARY OF U.S. FEDERAL INCOME TAX CONSIDERATIONS

        The following is a summary of all material U.S. federal income tax consequences of the exchange of the old notes for the new notes and the issuance and holding of the new notes, but does not provide a complete analysis of all potential tax considerations.

        The following summary describes, in the case of U.S. holders, the material U.S. federal income tax consequences and, in the case of non-U.S. holders, the material U.S. federal income and estate tax consequences, of the exchange of the old notes for the new notes and the issuance and holding of the new notes but does not purport to be a complete analysis of all the potential tax considerations relating thereto. We have based this summary on the provisions of the Internal Revenue Code of 1986, as amended, or the Code, the applicable Treasury Regulations promulgated or proposed thereunder, or the Treasury Regulations, judicial authority and current administrative rulings and practice, all of which are subject to change, possibly on a retroactive basis, or to different interpretation. This summary applies to you only if you hold the notes as capital assets. A capital asset is generally an asset held for investment rather than as inventory or as property used in a trade or business. This summary does not discuss all of the aspects of U.S. federal income and estate taxation which may be relevant to investors in light of their particular investment or other circumstances. This summary also does not discuss the particular tax consequences that might be relevant to you if you are subject to special rules under the federal income tax laws. Special rules apply, for example, if you are:

        In addition, the following summary does not address all possible tax consequences. In particular, except as specifically provided, it does not discuss any estate, gift, generation-skipping, transfer, state, local or foreign tax consequences. We have not sought a ruling from the Internal Revenue Service, or the IRS, with respect to the statements made and the conclusions reached in the following summary, and there can be no assurance that the IRS will agree with such statements and conclusions. For all these reasons, we urge you to consult with your tax advisor about the federal income tax and other tax consequences of the acquisition, ownership and disposition of the notes.

        INVESTORS CONSIDERING THE PURCHASE OF THE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.

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In General

        We have treated the notes as indebtedness for federal income tax purposes. This summary assumes that the IRS will respect this classification.

U.S. Holders

        As explained below, the federal income tax consequences of acquiring, owning and disposing of the notes depend on whether or not you are a U.S. Holder. For purposes of this summary, you are a U.S. Holder if you are beneficial owner of the notes and for federal income tax purposes are:

and if your status as a U.S. Holder is not overridden under the provisions of an applicable tax treaty.

        If a partnership holds the notes, the tax treatment of a partner will generally depend upon the status of the partner and upon the activities of the partnership. If you are a partner in such a partnership, you should consult your tax advisor.

        All of the notes bear interest at a stated fixed rate. You generally must include this stated interest in your gross income as ordinary interest income:


        In certain circumstances, we may be obligated to pay you amounts in excess of stated interest or principal on the notes. For example, we have to pay liquidated damages to holders of the old notes in certain circumstances described in "Description of the New Notes—Registration Covenant; Exchange Offer." In addition, in certain cases we will be able to call the notes for redemption, or upon a change in control we may be obligated to repurchase the notes, in each case at a price that will include an additional amount in excess of the principal of the notes. According to Treasury Regulations, the possibility of liquidated damages being paid to you will not affect the amount of interest income you recognize in advance of the payment of any liquidated damages if there is only a remote chance as of the date the notes were issued that you will receive liquidated damages. We believe that the likelihood that we will pay liquidated damages is remote. Therefore, we do not intend to treat the potential payment of liquidated damages as part of the yield to maturity of the old notes. Similarly, we intend to take the position that the likelihood of a redemption or repurchase of the notes is remote and likewise do not intend to treat the possibility of any premium payable on a redemption or repurchase as affecting the yield to maturity of any notes. Our determination that these contingencies are remote is binding on you unless you disclose your contrary position in the manner required by applicable Treasury Regulations. Our determination is not, however, binding on the IRS. In the event a

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contingency occurs, it could affect the amount and timing of the income that you must recognize. If we pay liquidated damages on the notes, you will be required to recognize additional income. If we pay a premium, the premium could be treated as capital gain under the rules described under "—Sale, Exchange or Redemption of Notes." You should consult your tax advisor regarding the appropriate treatment of any liquidated damages or premium you receive upon a failure to satisfy the registration covenant, a voluntary redemption or a change in control.

        If you acquire a note for an amount in excess of all amounts payable on the note after the purchase date, other than payments of qualified stated interest, the excess will constitute bond premium. The old notes were issued with bond premium. This bond premium will carry over to your adjusted tax basis in the new notes. The bond premium on a note will be the excess of your adjusted tax basis in the note upon acquisition over the note's principal amount.

        You generally may elect to amortize the bond premium over the term of the note on a constant yield method. The amount amortized in any year will be treated as a reduction of your interest income from the note for that year. If the amortizable bond premium allocable to a year exceeds the amount of interest allocable to that year, the excess would be allowed as a deduction for that year but only to the extent of your prior interest inclusions with respect to the note.

        Because the notes are redeemable at our option on or after February 1, 2008, and we have the option to redeem a portion of the notes prior to February 1, 2006 from the proceeds of an equity offering (see "Description of the Notes—Optional Redemption"), special rules will apply which require you to determine the yield and maturity of a note for purposes of calculating and amortizing bond premium by assuming that we will exercise our option to redeem your note in a manner that maximizes your yield. If we do not exercise our option to redeem the note in the manner assumed, then solely for purposes of calculating and amortizing any remaining bond premium, you must treat the note as retired and reissued on the deemed redemption date for its adjusted acquisition price as of that date. The adjusted acquisition price of the note is a holder's initial investment in the note, decreased by the amount of any payments, other than qualified stated interest payments, received with respect to such note and any bond premium previously amortized by the holder.

        If you do not elect to amortize bond premium, your bond premium on a note will decrease the gain or increase the loss that you otherwise recognize on the note's disposition. Any election to amortize bond premium applies to all debt obligations, other than debt obligations the interest on which is excludable from gross income, that you hold at the beginning of the first taxable year to which the election applies or that you thereafter acquire. You may not revoke an election to amortize bond premium without the consent of the IRS. We urge you to consult with your tax advisor regarding this election.

        If you acquire a note other than at original issue and your adjusted tax basis upon acquisition is less than the note's principal amount, then you will be treated as having acquired that note at a market discount equal to the difference. The foregoing does not apply if the amount of the market discount is less than the de minimis amount specified under the Code. Under the market discount rules, you will be required to treat any gain on the sale, exchange, redemption, retirement or other taxable disposition of a note, or any appreciation in a note in the case of a nontaxable disposition, such as a gift, as ordinary income to the extent of the market discount that has not previously been included in income and that is treated as having accrued on the note at the time of the payment or disposition. In addition, you may be required to defer, until the maturity of the note or earlier taxable disposition, the

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deduction of all or a portion of interest expense on any indebtedness incurred or continued to purchase or carry the note.

        Any market discount will be considered to accrue evenly during the period from the day after your acquisition to the maturity date of the note, unless you elect to accrue the market discount on a constant yield method. You may also elect to include market discount in income currently as it accrues, on either an even or constant yield method. In that event, your basis in the note will increase by the amounts you so include in your income. If you make this election, the rules described above regarding ordinary income on dispositions and deferral of interest deductions will not apply. This election to include market discount in income currently, once made, applies to all market discount obligations acquired on or after the first taxable year to which the election applies. You may not revoke a market discount election without the consent of the IRS. We urge you to consult with your tax advisor regarding these market discount elections.

        You should consult your own tax advisors concerning the existence of, and tax consequences of, market discount and amortizable bond premium.

        You generally will recognize gain or loss upon the sale, exchange, redemption, retirement or other disposition of the notes measured by the difference between (i) the amount of cash proceeds and the fair market value of any property you receive (except to the extent attributable to accrued interest income not previously included in income, which will generally be taxable as ordinary income, or attributable to accrued interest previously included in income, which amount may be received without generating further income), and (ii) your adjusted tax basis in the notes. Your adjusted tax basis in a note generally will equal your cost of the note, less any principal payments received by you. Gain or loss on the disposition of notes will generally be capital gain or loss and will be long-term gain or loss if the notes have been held for more than one year at the time of such disposition. In general, for individuals, long-term capital gains are taxed currently at a maximum rate of 15% and short-term capital gains are taxed currently at a maximum rate of 35%. You should consult your tax advisor regarding the treatment of capital gains and losses.

        The exchange of old notes for new notes pursuant to the exchange offer will not constitute a taxable event for U.S. federal income tax purposes. As a result, a holder of the old notes will not recognize taxable gain or loss as a result of the exchange of these notes for new notes, the holding period of the new notes will include the holding period of the old notes surrendered in exchange therefor and a holder's adjusted tax basis in the new notes will be the same as such holder's adjusted tax basis in the old notes immediately prior to the surrender of such old notes pursuant to the exchange offer.

        In general, information reporting requirements will apply to payments to certain noncorporate U.S. Holders of principal and interest on a note and the proceeds of the sale of a note. If you are a U.S. Holder, you may be subject to backup withholding when you receive interest with respect to the notes, or when you receive proceeds upon the sale, exchange, redemption, retirement or other disposition of the notes. The backup withholding rate currently is 28%. In general, you can avoid this backup withholding by properly executing under penalties of perjury an IRS Form W-9 or substantially similar form that provides:

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        If you do not provide your correct taxpayer identification number on the IRS Form W-9 or substantially similar form, you may be subject to penalties imposed by the IRS.

        Backup withholding will not apply, however, with respect to payments made to certain holders, provided their exemptions from backup withholding are properly established.

        Amounts withheld are generally not an additional tax and may be refunded or credited against your federal income tax liability, provided you furnish the required information to the IRS.

        We will report to the U.S. Holders of notes and to the IRS the amount of any "reportable payments" for each calendar year and the amount of tax withheld, if any, with respect to such payments.

Non-U.S. Holders

        As used herein, the term "Non-U.S. Holder" means any beneficial owner of a note that is a nonresident alien or a corporation, estate or trust that is not a U.S. Holder.

        The exchange of the old notes for the new notes in the exchange offer will not be a taxable sale or exchange for U.S. federal income tax purposes.

        Generally, subject to the discussion of backup withholding below, if you are a Non-U.S. Holder, interest income that is not effectively connected with a United States trade or business will not be subject to a U.S. withholding tax under the "portfolio interest exemption" provided that:


        Treasury regulations provide alternative methods for satisfying the certification requirement described in the paragraph above. These regulations may require a Non-U.S. holder that provides an IRS form, or that claims the benefit of an income tax treaty, to also provide its U.S. taxpayer identification number.

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        Interest on notes not exempted from U.S. withholding tax as described above and not effectively connected with a United States trade or business generally will be subject to U.S. withholding tax at a 30% rate, except where an applicable tax treaty provides for the reduction or elimination of such withholding tax. We may be required to report annually to the IRS and to each Non-U.S. Holder the amount of interest paid to, and the tax withheld, if any, with respect to, such Non-U.S. Holder.

        Except to the extent that an applicable treaty otherwise provides, generally you will be taxed in the same manner as a U.S. Holder with respect to interest if the interest income is effectively connected with your conduct of a United States trade or business. If you are a corporate Non-U.S. Holder, you may also, under certain circumstances, be subject to an additional "branch profits tax" at a 30% rate (or, if applicable, a lower treaty rate). Even though such effectively connected interest is subject to income tax, and may be subject to the branch profits tax, it may not be subject to withholding tax if you deliver proper documentation.

        To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed Form W-8BEN or W-8ECI. Under the Treasury Regulations, a Non-U.S. Holder may under certain circumstances be required to obtain a U.S. taxpayer identification number and make certain certifications to us. Special procedures are provided in the Treasury Regulations for payments through qualified intermediaries. Prospective investors should consult their tax advisors regarding the effect, if any, of the Treasury Regulations.

        If you are a Non-U.S. Holder of a note, generally you will not be subject to United States federal income tax or withholding tax on any gain realized on the sale, exchange or redemption of the note, unless:

        If you are an individual Non-U.S Holder and you hold a note at the time of your death, it will not be includable in your gross estate for United States estate tax purposes, provided that you do not at the time of death actually or constructively own 10% or more of the combined voting power of all of our classes of stock entitled to vote, and provided that, at the time of death, payments with respect to such note would not have been effectively connected with your conduct of a trade or business within the United States.

        If you are a Non-U.S. Holder, United States information reporting requirements and backup withholding tax will not apply to payments of interest on a note if you provide the statement described in "Non-U.S. Holders—Payment of Interest," provided that the payor does not have actual knowledge that you are a United States person.

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        Information reporting will not apply to any payment of the proceeds of the sale of a note effected outside the United States by a foreign office of a "broker" (as defined in applicable Treasury Regulations), unless such broker:

        Payment of the proceeds of any such sale effected outside the United States by a foreign office of any broker that is described in (i), (ii), (iii) or (iv) of the preceding sentence will be subject to information reporting requirements unless such broker has documentary evidence in its records that you are a Non-U.S. Holder and certain other conditions are met, or you otherwise establish an exemption. However, under such circumstances, Treasury Regulations provide that such payments are not subject to backup withholding. Payment of the proceeds of any such sale to or through the United States office of a broker is subject to information reporting and backup withholding requirements, unless you provide the statement described in "Non-U.S. Holders—Payment of Interest" or otherwise establish an exemption.

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PLAN OF DISTRIBUTION

        Each broker-dealer that receives new notes for its own account in connection with the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of those new notes. A broker-dealer may use this prospectus, as amended or supplemented from time to time, in connection with resales of new notes received in exchange for old notes where such broker-dealer acquired old notes as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration date of the exchange offer, we will make available a prospectus, as amended or supplemented, meeting the requirements of the Securities Act to any broker-dealer for use in connection with those resales.

        We will not receive any proceeds from any sale of new notes by broker-dealers. Broker-dealers may sell new notes received by them for their own account pursuant to the exchange offer from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of those methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any broker-dealer or the purchasers of any new notes.

        Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act. A profit on any such resale of new notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.

        For a period of 180 days after the expiration date of the exchange offer, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests these documents in the letter of transmittal. We will indemnify the holders of the old notes, including any broker-dealers, against specified liabilities, including liabilities under the Securities Act.


LEGAL MATTERS

        The validity of the new notes and the guarantees and certain related matters will be passed upon for us by Hale and Dorr LLP, Boston, Massachusetts.


EXPERTS

        The financial statements as of April 30, 2002 and April 30, 2003 and for each of the three years in the period ended April 30, 2003, included in this prospectus, have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

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EXCHANGE AGENT

        We have appointed U.S. Bank National Association as exchange agent in connection with the exchange offer. Holders should direct questions, requests for assistance and for additional copies of this prospectus, the letter of transmittal or notices of guaranteed delivery to the exchange agent addressed as follows:

By Hand or Overnight Courier:   By Facsimile Transmission:

U.S. Bank National Association
Corporate Trust Services
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Specialized Finance 4th Floor
 
U.S. Bank National Association
Corporate Trust Services
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Specialized Finance 4th Floor
(651) 495-8158

For inquiries and confirmations:
(800) 934-6802

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INDEX TO FINANCIAL STATEMENTS

Audited Consolidated Financial Statements
 
Report of Independent Auditors
 
F-2
 
Consolidated Balance Sheets as of April 30, 2002 and April 30, 2003
 
F-3
 
Consolidated Statements of Operations for the fiscal years ended April 30, 2001, 2002 and 2003
 
F-5
 
Consolidated Statements of Stockholders' Equity for the fiscal years ended April 30, 2001, 2002 and 2003
 
F-7
 
Consolidated Statements of Cash Flows for the fiscal years ended April 30, 2001, 2002 and 2003
 
F-8
 
Notes to Audited Consolidated Financial Statements
 
F-10

Unaudited Consolidated Financial Statements
 
Consolidated Balance Sheets as of April 30, 2003 and October 31, 2003
 
F-52
 
Consolidated Statements of Operations for the three and six months ended October 31, 2002 and 2003
 
F-54
 
Consolidated Statements of Cash Flows for the six months ended October 31, 2002 and 2003
 
F-56
 
Notes to Unaudited Consolidated Financial Statements
 
F-58

F-1


REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Casella Waste Systems, Inc:

In our opinion, the accompanying consolidated balance sheets and related consolidated statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Casella Waste Systems, Inc. and its subsidiaries (the "Company") at April 30, 2003 and April 30, 2002, and the results of their operations and their cash flows for each of the three years in the period ended April 30, 2003 in conformity with accounting principles generally accepted in the United States of America. 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 of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As described in Note 3 to the consolidated financial statements, as of May 1, 2003, the Company reclassified its loss on extinguishment of debt.

As described in Note 3 to the consolidated financial statements, on May 1, 2002, the Company changed its method of accounting for goodwill and other intangible assets, and its method of accounting for the impairment or disposal of long-lived assets.

As described in Note 1 to the consolidated financial statements, on May 1, 2001, the Company changed its method of accounting for derivative instruments and hedging activities.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
July 22, 2003, except for Note 1(q) and Note 3(c),
as to which the date is January 22, 2004

F-2


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

 
   April 30,
2002
   April 30,
2003
ASSETS            

CURRENT ASSETS:
 
 
 
 
 
 
  Cash and cash equivalents   $ 4,298   $ 15,652
  Restricted cash     10,286     10,839
  Accounts receivable—trade, net of allowance for doubtful accounts of $821 and $895     43,069     45,649
  Notes receivable—officers/employees     1,105     1,105
  Prepaid expenses     3,132     5,906
  Inventory     2,414     1,740
  Deferred income taxes     8,767     4,275
  Other current assets     4,245     1,111
   
 
Total current assets     77,316     86,277
   
 
Property, plant and equipment, net of accumulated depreciation and amortization of $163,556 and $201,681     287,206     302,328
Intangible assets, net     223,643     162,696
Deferred income taxes     648     —
Investments in unconsolidated entities     26,865     34,740
Net assets under contractual obligation     —     3,844
Other non-current assets     5,933     12,756
   
 
      544,295     516,364
   
 
    $ 621,611   $ 602,641
   
 

The accompanying notes are an integral part of these consolidated financial statements

F-3

 
   April 30,
2002
   April 30,
2003
  
LIABILITIES AND STOCKHOLDERS' EQUITY              

CURRENT LIABILITIES:
 
 
 
 
 
 
 
  Current maturities of long-term debt   $ 6,436   $ 4,534  
  Current maturities of capital lease obligations     1,816     1,287  
  Accounts payable     24,154     33,743  
  Accrued payroll and related expenses     5,797     7,383  
  Accrued interest     1,481     5,375  
  Accrued income taxes     3,676     4,526  
  Accrued closure and post-closure costs, current portion     6,465     2,962  
  Other accrued liabilities     23,828     15,662  
   
 
 
Total current liabilities     73,653     75,472  
   
 
 
Long-term debt, less current maturities     277,545     302,389  
Capital lease obligations, less current maturities     3,051     1,969  
Accrued closure and post-closure costs, less current maturities     18,307     22,987  
Minority interest     523     —  
Deferred income taxes     —     5,473  
Other long-term liabilities     11,006     11,375  

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding as of April 30, 2002 and 2003, liquidation preference of $1,000 per share plus accrued but unpaid dividends
 
 
60,730
 
 
63,824
 

STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
Class A common stock—              
  Authorized—100,000,000 shares, $0.01 par value issued and outstanding—22,667,000 and 22,769,000 shares as of April 30, 2002 and 2003, respectively     227     228  
Class B common stock—              
  Authorized—1,000,000 shares, $0.01 par value 10 votes per share, issued and outstanding—988,000 shares     10     10  
Accumulated other comprehensive income (loss)     (4,250 )   542  
Additional paid-in capital     272,697     270,068  
Accumulated deficit     (91,888 )   (151,696 )
   
 
 
Total stockholders' equity     176,796     119,152  
   
 
 
    $ 621,611   $ 602,641  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-4


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

 
   Fiscal Year Ended April 30,
  
 
   2001
   2002
   2003
  
Revenues   $ 480,366   $ 421,235   $ 420,863  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
  Cost of operations     321,214     276,693     278,347  
  General and administration     64,079     54,456     55,772  
  Depreciation and amortization     53,411     50,712     47,930  
  Impairment charge     79,687     —     4,864  
  Restructuring charge     4,151     (438 )   —  
  Legal settlements     4,209     —     —  
  Other miscellaneous charges     1,604     —     —  
   
 
 
 
      528,355     381,423     386,913  
   
 
 
 
Operating income (loss)     (47,989 )   39,812     33,950  
   
 
 
 
Other expense/(income), net:                    
  Interest income     (2,974 )   (904 )   (318 )
  Interest expense     41,628     31,451     26,572  
  (Income) loss from equity method investments     26,256     (1,899 )   (2,073 )
  Loss on debt extinguishment     —     —     3,649  
  Minority interest     1,026     (154 )   (152 )
  Other (income)/expense, net:     76     (4,480 )   (1,599 )
   
 
 
 
Other expense, net     66,012     24,014     26,079  
   
 
 
 
Income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     (114,001 )   15,798     7,871  
Provision (benefit) for income taxes     (20,443 )   5,111     3,813  
   
 
 
 
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (93,558 )   10,687     4,058  

Discontinued Operations:
 
 
 
 
 
 
 
 
 
 
  Loss from discontinued operations (net of income tax benefit of $1,069)     (4,130 )   —     —  
  Estimated loss on disposal of discontinued operations (net of income tax benefit of $274 and $157)     (2,657 )   (4,096 )   —  
  Reclassification from discontinued operations (net of income tax (provision) benefit of $810, ($776) and ($34))     (1,190 )   1,140     50  
Cumulative effect of change in accounting principle (net of income tax benefit of $170 and $189)     —     (250 )   (63,916 )
   
 
 
 
Net (loss) income     (101,535 )   7,481     (59,808 )
Preferred stock dividend     1,970     3,010     3,094  
   
 
 
 
Net (loss) income available to common stockholders   $ (103,505 ) $ 4,471   $ (62,902 )
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-5

 
   Fiscal Year Ended April 30,
  
 
   2001
   2002
   2003
  
Earnings Per Share:                    
Basic:                    
  Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ (4.12 ) $ 0.33   $ 0.04  
  Loss from discontinued operations, net     (0.18 )   —     —  
  Estimated loss on disposal of discontinued operations, net     (0.11 )   (0.18 )   —  
  Reclassification from discontinued operations, net     (0.05 )   0.05     —  
  Cumulative effect of change in accounting principle, net     —     (0.01 )   (2.69 )
   
 
 
 
Net (loss) income per common share   $ (4.46 ) $ 0.19   $ (2.65 )
   
 
 
 
Basic weighted average common shares outstanding     23,189     23,496     23,716  
   
 
 
 
Diluted:                    
  Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ (4.12 ) $ 0.32   $ 0.04  
  Loss from discontinued operations, net     (0.18 )   —     —  
  Estimated loss on disposal of discontinued operations, net     (0.11 )   (0.17 )   —  
  Reclassification from discontinued operations, net     (0.05 )   0.05     —  
  Cumulative effect of change in accounting principle, net     —     (0.01 )   (2.67 )
   
 
 
 
Net (loss) income per common share   $ (4.46 ) $ 0.19   $ (2.63 )
   
 
 
 
Diluted weighted average common shares outstanding     23,189     24,169     23,904  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-6


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In thousands)

 
   Stockholders' Equity
    
    
    
    
    
  
 
   Class A
Common
Stock
   Class B
Common
Stock
    
    
    
    
    
  
 
    
    
   Accumulated
Other
Comprehensive
Income (Loss)
    
    
  
 
   # of
Shares
   Par
Value
   # of
Shares
   Par
Value
   Additional
Paid-In
Capital
   Accumulated
Deficit
   Total
Stockholders'
Equity
   Total
Comprehensive
Income (Loss)
  
Balance, April 30, 2000   22,215   $ 222   988   $ 10   $ 270,655   $ 4,136   $ (305 ) $ 274,718        
Issuance of Class A common stock from the exercise of stock options and employee stock purchase plan   32     —   —     —     258     —     —     258        
Issuance of Series A redeemable convertible preferred stock   —     —   —     —     (1,009 )   —     —     (1,009 )      
Accrual 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   (49 )   —   —     —     92     —     —     92        
   
 
 
 
 
 
 
 
       
Balance, April 30, 2001   22,198   $ 222   988   $ 10   $ 271,502   $ (99,369 ) $ 586   $ 172,951        
   
 
 
 
 
 
 
 
       
Issuance of Class A common stock   12   $ —   —   $ —   $ 138   $ —   $ —   $ 138        
Issuance of Class A common stock from the exercise of stock warrants, options and employee stock purchase plan   457     5   —     —     4,063     —     —     4,068        
Accrual of preferred stock dividend   —     —   —     —     (3,010 )         —     (3,010 )      
Net income   —     —   —     —     —     7,481     —     7,481   $ 7,481  
Unrealized gain/(loss) on securities, net of reclassification adjustments   —     —   —     —     —     —     (586 )   (586 )   (586 )
Change in fair value of interest rate swaps and commodity hedges, net of reclassification adjustments   —     —   —     —     —     —     (4,250 )   (4,250 )   (4,250 )
                                               
 
Total comprehensive income   —     —   —     —     —     —     —     —   $ 2,645  
                                               
 
Other   —     —   —     —     4     —     —     4        
   
 
 
 
 
 
 
 
       
Balance, April 30, 2002   22,667   $ 227   988   $ 10   $ 272,697   $ (91,888 ) $ (4,250 ) $ 176,796        
   
 
 
 
 
 
 
 
       
Issuance of Class A common stock from the exercise of stock warrants, options and employee stock purchase plan   102   $ 1   —   $ —   $ 459   $ —   $ —   $ 460        
Accrual of preferred stock dividend   —     —   —     —     (3,094 )         —     (3,094 )      
Net loss   —     —   —     —     —     (59,808 )   —     (59,808 ) $ (59,808 )
Change in fair value of interest rate swaps and commodity hedges, net of reclassification adjustments   —     —   —     —     —     —     4,792     4,792     4,792  
                                               
 
Total comprehensive loss   —     —   —     —     —     —     —     —   $ (55,016 )
                                               
 
Other   —     —   —     —     6     —     —     6        
   
 
 
 
 
 
 
 
       
Balance, April 30, 2003   22,769   $ 228   988   $ 10   $ 270,068   $ (151,696 ) $ 542   $ 119,152        
   
 
 
 
 
 
 
 
       

The accompanying notes are an integral part of these consolidated financial statements

F-7


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
   Fiscal Year Ended April 30,
  
 
   2001
   2002
   2003
  
Cash Flows from Operating Activities:                    
Net (loss) income   $ (101,535 ) $ 7,481   $ (59,808 )
   
 
 
 
Adjustments to reconcile net (loss) income to net cash provided by operating activities—                    
  Depreciation and amortization     53,411     50,712     47,930  
  Loss from discontinued operations, net     4,130     —     —  
  Estimated loss on disposal of discontinued operations, net     2,657     4,096     —  
  Reclassification from discontinued operations, net     1,190     (1,140 )   (50 )
  Cumulative effect of change in accounting principle, net     —     250     63,916  
  (Income) loss from equity method investments     26,256     (1,899 )   (2,073 )
  Impairment charge     79,687     —     4,864  
  Loss on extinguishment of debt     —     —     3,649  
  Loss from commodity hedge contracts, net     —     1,289     —  
  Gain on investments, net     (3,131 )   (1,216 )   —  
  Loss (gain) on sale of equipment     1,101     (76 )   386  
  Gain on sale of assets     —     (4,848 )   (684 )
  Minority interest     1,026     (154 )   (152 )
  Deferred income taxes     (10,866 )   6,121     6,052  
  Changes in assets and liabilities, net of effects of acquisitions and divestitures—                    
    Accounts receivable     16,692     8,116     (7,466 )
    Accounts payable     (6,643 )   (5,100 )   12,031  
    Other assets and liabilities     (714 )   4,055     (3,643 )
   
 
 
 
      164,796     60,206     124,760  
   
 
 
 
    Net Cash Provided by Operating Activities     63,261     67,687     64,952  
   
 
 
 
Cash Flows from Investing Activities:                    
  Acquisitions, net of cash acquired     (9,331 )   (4,601 )   (18,068 )
  Proceeds from divestitures, net of cash divested     15,814     31,216     875  
  Additions to property, plant and equipment     (61,518 )   (37,674 )   (41,925 )
  Proceeds from sale of equipment     2,298     1,938     1,212  
  Proceeds from sale of investments     6,718     3,530     —  
  Advances to unconsolidated entities     (9,546 )   (3,942 )   (3,302 )
   
 
 
 
    Net Cash Used In Investing Activities     (55,565 )   (9,533 )   (61,208 )
   
 
 
 
Cash Flows from Financing Activities:                    
  Proceeds from long-term borrowings     49,590     73,384     380,521  
  Principal payments on long-term debt     (87,331 )   (147,009 )   (361,905 )
  Proceeds from equity transactions of majority-owned subsidiary     1,506     —     —  
  Deferred financing costs     —     —     (11,466 )
  Proceeds from exercise of stock options     259     3,560     460  
  Proceeds from the issuance of series A redeemable, convertible preferred stock, net     54,741     —     —  
   
 
 
 
    Net Cash Provided by (Used In) Financing Activities     18,765     (70,065 )   7,610  
   
 
 
 
Cash used in discontinued operations     (12,248 )   (5,792 )   —  
Net increase (decrease) in cash and cash equivalents     14,213     (17,703 )   11,354  
Cash and cash equivalents, beginning of period     7,788     22,001     4,298  
   
 
 
 
    Cash and cash equivalents, end of period   $ 22,001   $ 4,298   $ 15,652  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-8


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
   Fiscal Year Ended April 30,
  
 
   2001
   2002
   2003
  
Supplemental Disclosures of Cash Flow Information:                    
Cash paid (received) during the period for—                    
  Interest   $ 37,484   $ 32,887   $ 20,763  
  Income taxes, net of refunds   $ (1,773 ) $ (1,267 ) $ 54  

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
 
 
 
 
 
 
 
 
 
 
Summary of entities acquired in purchase business combinations                    
  Fair market value of assets acquired   $ 22,602   $ 7,377   $ 27,756  
  Notes receivable exchanged for assets     (13,263 )   —     —  
  Cash paid, net     (9,335 )   (4,601 )   (18,068 )
   
 
 
 
  Liabilities assumed, Notes Payable to Seller   $ 4   $ 2,776   $ 9,688  
   
 
 
 
Common Stock and Stock Options Issued as Compensation   $ —   $ 650   $ —  
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-9

CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)

1.     ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Casella Waste Systems, Inc. ("the Company" or "the Parent") is a regional, integrated solid waste services company, that provides collection, transfer, disposal and recycling services, primarily in the eastern 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 and sells electricity under a long-term contract at a waste-to-energy facility, Maine Energy Recovery Company LP ("Maine Energy") (see Note 12).

        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.

(b)    Use of Estimates and Assumptions

        The Company's preparation of its financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities at the date of the financial statements. The estimates and assumptions will also affect the reported amounts of revenues and expenses during the reporting period. Summarized below are the estimates and assumptions that the Company considers to be significant in the preparation of its financial statements.

        The Company uses life-cycle accounting and the units-of-production method to recognize certain landfill costs. Under life-cycle accounting, all costs related to acquisition, construction, closure and post-closure of landfill sites are capitalized or accrued and charged to income based on tonnage placed into each site. The Company routinely reviews its investment in operating landfills, transfer stations and other significant facilities to determine whether the costs of these investments is realizable. The Company's judgments regarding the existence of impairment indicators are based on regulatory factors, market conditions and operational performance of its landfills.

        Units-of-production amortization rates are determined annually for each of the Company's operating landfills, and such rates are based on estimates provided by its engineers and accounting personnel and consider the information provided by surveys, which are performed at least annually.

        Accrued closure and post-closure costs represent future estimated costs related to monitoring and maintenance of a solid waste landfill, after a landfill facility ceases to accept waste and closes. The Company provides accruals for these estimated future costs on an undiscounted basis as the remaining permitted airspace of such facilities is consumed.

F-10

        In accordance with SFAS No. 144, Accounting for the Impairment or Disposed of Long-Lived Assets, the Company continually reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the remaining estimated useful life of such assets might warrant revision or that the balances may not be recoverable. An impairment loss is recorded if the amount by which the carrying amount of the assets exceeds their fair value. Fair value is usually determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved.

        The Company estimates the allowance for bad debts based on historical collection experience, current trends, credit policy and a review of accounts receivable by aging category.

        The Company is self insured for vehicles and worker's compensation. Through the use of actuarial calculations provided by a third party, the Company estimates the amounts required to settle insurance claims. The actuarially-determined liability is calculated in part by past claims experience, which considers both the frequency and settlement of claims. The Company's self insurance reserves totaled $6,060 and $8,935 at April 30, 2002 and 2003, respectively.

        Prior to fiscal year 2003, the Company carried discontinued businesses at estimated net realizable value less costs to be incurred through the date of disposition. Upon adoption of SFAS No. 144, the assets and liabilities of discontinued operations are separately classified in the accompanying consolidated balance sheets.

        The Company uses estimates to determine its provision for income taxes and related assets and liabilities and any valuation allowance recorded against its net deferred tax assets. Valuation allowances have been established for the possibility that tax benefits may not be realized for certain deferred tax assets.

(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 facility (see Note 12) 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 as a reduction to 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.

F-11


(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 11 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)    Inventory

        Inventory includes secondary fibers, recyclables ready for sale and supplies and is stated at the lower of cost (first-in, first-out) or market. Inventory consisted of finished goods and supplies of approximately $2,410 and $1,814 at April 30, 2002 and 2003, respectively.

(g)    Investments

        In accordance with SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company classifies its investment in equity securities as "available for sale." Accordingly, the carrying value of the securities is adjusted to fair value through other comprehensive (loss) income.

        In October, 2001, the Company sold its remaining Bangor Hydro Warrants for $3,530. The resulting gain of $1,654 is included in other income. $1,038 (net of taxes of $707) of the gain was reclassified from other comprehensive (loss) income. The Company used the specific identification method as a basis for calculating the gain on sale.

        For the period ending April 30, 2002 and 2003, the Company wrote down to fair value certain equity security investments. The write downs, which were reclassified from other comprehensive (loss) income, amounted to $438 and $42, respectively, and were due to declines in the fair value which, in the opinion of management, were considered to be other than temporary. The write downs are included in other (income)/expense in the accompanying statements of operations.

        As of April 30, 2002 and 2003, the fair value of investments was approximately $62 and $20, respectively, which is included in other current assets in the accompanying consolidated balance sheets.

(h)    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 (See Note 6):

Asset Classification
   Estimated
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.

        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

F-12


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 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, 2001, 2002 and 2003 was $373, $437 and $719, 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 permittable capacity. To be considered permittable, airspace must meet all of the following criteria: the Company must control the land on which the expansion is sought; all technical siting criteria have been met or a variance has been obtained or is reasonably expected to be obtained; no legal or political impediments have been identified which the Company believes will not be resolved in its favor; the Company is actively working on obtaining any necessary permits and expects that all required permits will be received within the next two to five years; and senior management has approved the project. 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 reflect the information provided by surveys, which are performed at least annually.

(i)    Intangible Assets

        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. (See Note 7.) The Company performs its annual impairment test for non-amortizable intangible assets during its fourth fiscal quarter.

        Goodwill is the cost in excess of fair value of identifiable assets of acquired businesses and has been amortized through April 30, 2002 using the straight-line method over periods not exceeding 40 years. In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets, effective for fiscal years beginning after December 15, 2001. These standards modified the accounting rules related to accounting for business acquisitions, amortization of intangible assets and the method of accounting for impairment. Under SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over their useful lives.

        As a result of the factors discussed in Note 18, during 2001, the Company recorded a charge of $79,687 to reduce certain assets (mainly goodwill arising from the acquisition of KTI, see Note 4), to their estimated fair value.

(j)    Investments in Unconsolidated Entities

        The Company entered into an agreement in July 2000 with Louisiana-Pacific to combine their respective cellulose insulation businesses into a single operating entity, US GreenFiber LLC ("GreenFiber") 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's investment in GreenFiber amounted to $21,672 and $23,746 at April 30, 2002 and 2003, respectively. The Company accounts for its 50% ownership in GreenFiber under the equity method of accounting.

        A portion of the Company's 50% interest in New Heights was sold in September 2001 for consideration of $250. The Company retained an interest of 9.95% in the tire assets of New Heights, as

F-13


well as financial obligations related solely to the New Heights power plant. In addition, the Company has an interest in certain notes issued by New Heights collectively valued at approximately $9,000, payment of which is contingent upon certain events. The Company will record the contingent consideration when the contingency is removed. The Company's investment in the power assets of New Heights amounted to $2,113 and $2,586 at April 30, 2002 and 2003, respectively. The Company accounts for this investment under the cost method of accounting.

        The Company had received a promissory note and other consideration from Oakhurst Company, Inc. ("OCI") in connection with the Company's acquisition of OCI's 37.5% interest in New Heights on July 3, 2001. The Company estimated the realizable value at $0. The Company reached a settlement with OCI in April, 2003 and received $1,220 which is included in other (income)/expense.

        The Company sold 80.1% of Recovery Technologies Group, Inc. ("RTG") in September, 2001 as part of the sale of the tire processing business. The Company retained a 19.9% indirect interest in the RTG tire collection and processing business which is valued at $3,080 at April 30, 2002 and 2003. The Company's interest is subject to dilution as a result of advances made by the owner of the balance of the interest in RTG, against no advances made by the Company. The Company accounts for this investment under the cost method of accounting.

        In April, 2003, the Company acquired a 9.9% interest in Evergreen National Indemnity Company ("Evergreen") for total consideration of $5,329. The Company accounts for its investment in Evergreen under the cost method of accounting.

(k)    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.

(l)    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 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.

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        The Company operates in states which require a certain portion of landfill closure and post-closure obligations to be secured by financial assurance, which may take the form of restricted cash, surety bonds and letters of credit. Surety bonds securing closure and post-closure obligations at April 30, 2002 and 2003 totaled $13,654 and $25,705, respectively.

(m)    Comprehensive (Loss) Income

        Comprehensive (loss) income 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 (loss) income included in the accompanying balance sheets consists of unrealized gains and losses on the Company's available for sale securities, change in the fair value of the Company's interest rate swap and commodity hedge agreements as well as the cumulative effect of the change in accounting principle due to the adoption of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (See Note 1(p)).

(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 potentially dilutive shares, 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.

(o)    Stock Based Compensation Plans

        The Company has elected to account for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, for which no compensation expense is recorded in the statements of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the underlying common stock on the grant date.

        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. In addition, the Company has adopted the disclosure requirements of SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure.

F-15


        In accordance with SFAS No. 123 and SFAS No. 148, the Company has computed, for pro forma disclosure purposes, the value of all options granted during the fiscal years 2001, 2002 and 2003 using the Black-Scholes option pricing model as prescribed by SFAS No. 123, using the following weighted average assumptions for grants in the fiscal years ended 2001, 2002 and 2003.

 
   April 30,
 
   2001
   2002
   2003
Risk free interest rate   4.85%–6.76%   4.03%–5.05%   2.57%–4.50%
Expected dividend yield   N/A   N/A   N/A
Expected life   7 Years   5 Years   5 Years
Expected volatility   84.20%   65.00%   65.00%

        The total value of options granted during the years ended April 30, 2001, 2002 and 2003 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 (loss) income and net (loss) income per share would have changed as reflected in the following pro forma amounts:

 
   Fiscal Year
  
 
   2001
   2002
   2003
  
Net (loss) income available to common stockholders, as reported   $ (103,505 ) $ 4,471   $ (62,902 )
  Deduct: Total stock-based compensation expense determined under fair value based method, net     (13,089 )   (3,804 )   (1,507 )
   
 
 
 
Pro forma, net (loss) income   $ (116,594 ) $ 667   $ (64,409 )
   
 
 
 

Basic (loss) income per common share:
 
 
 
 
 
 
 
 
 
 
  As reported   $ (4.46 ) $ 0.19   $ (2.65 )
  Pro forma   $ (5.03 ) $ 0.03   $ (2.72 )

Diluted (loss) income per common share:
 
 
 
 
 
 
 
 
 
 
  As reported   $ (4.46 ) $ 0.19   $ (2.63 )
  Pro forma   $ (5.03 ) $ 0.03   $ (2.70 )

(p)    Accounting for Derivatives and Hedging Activities

        The Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, on May 1, 2001. 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's objective for utilizing derivative instruments is to reduce its exposure to fluctuations in cash flows due to changes in the variable interest rates under its credit facility and changes in the commodity prices of recycled paper.

        The Company's strategy to hedge against fluctuations in variable interest rates involves entering into interest rate swaps that are specifically designated to existing interest payments under the credit facility and accounted for as cash flow hedges pursuant to SFAS No. 133. Upon adoption of SFAS No. 133, the Company recorded the ineffective portion of the interest rate hedges in place at the time of adoption amounting to $250 (net of taxes of $170) as a cumulative effect of change in accounting principle in fiscal year 2002.

        At April 30, 2002 the Company had in place six interest rate swaps designated as cash flow hedges with a fair value of $8,225, with the net amount (net of taxes of $3,312) recorded as an unrealized loss

F-16


in other comprehensive income (loss). Due to the Company's refinancing of its debt, the early termination costs associated with the unwind of these swaps amounted to $1,296 which is included in other expense, net in the consolidated statements of operations for the year ended April 30, 2003. At April 30, 2003 the Company has two interest rate swaps outstanding, expiring in February, 2004, with an aggregate notional amount of $53,000. The Company has evaluated these swaps and believes these instruments qualify for hedge accounting pursuant to SFAS No. 133. The fair value of these swaps was an obligation of $551, with the net amount (net of taxes of $223) recorded as an unrealized loss in other comprehensive income (loss). The estimated net amount of the existing losses as of April 30, 2003 included in accumulated other comprehensive income expected to be reclassified into earnings as payments are either made or received under the terms of the interest rate swaps within the next 12 months is approximately $195. The actual amounts reclassified into earnings are dependent on future movements in interest rates.

        The Company's strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales. The Company has entered into 12 commodity hedges, which expire at various times between August 2003 and November 2005. The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133. As of April 30, 2003, the fair value of these hedges was an obligation of $515, with the net amount (net of taxes of $197) recorded as an unrealized loss in accumulated other comprehensive income (loss).

        On December 2, 2001, Enron Corporation (Enron), the counterparty for all of the Company's commodity hedges as of that date, filed for Chapter 11 bankruptcy protection. As a result of the filing, the Company executed the early termination provisions provided under the forward contracts, and filed a claim with the bankruptcy court. Additionally, the Company agreed with its equity method investee, GreenFiber, to include GreenFiber in its claim (as allowed under the applicable affiliate provisions). The Company recorded a charge of $1,688 in fiscal 2002 in other expense to recognize the change in fair value of these commodity contracts. Subsequent changes in the fair value of these commodity contracts were reflected in earnings until their March 2003 termination. The Company has no remaining exposure related to its claims against Enron.

(q)    New Accounting Pronouncements

        In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 applies to all legally enforceable obligations associated with the retirement of tangible long-lived assets. For the Company, this standard primarily impacts accounting for landill operations, specifically capping, closure and post-closure costs. SFAS No. 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company will adopt SFAS No. 143 beginning May 1, 2003. The adoption of this standard will have no impact on cash flow.

        SFAS No. 143 does not change the basic accounting principles that the Company has historically followed for accounting for these types of obligations. In general, the Company has followed the practice of life cycle accounting which recognizes a liability on the balance sheet and related expense as airspace is consumed at the landfill, in order to match operating costs with revenues.

F-17

        The primary modification to the Company's methodology required by SFAS No. 143 is to require closure and post-closure costs to be discounted to present value. The Company's estimates of future closure and post-closure costs historically have not taken into account discounts for the present value of costs to be paid in the future. Under SFAS No. 143, the Company's estimates of costs to discharge asset retirement obligations for landfills are developed in today's dollars. These costs are then inflated each year to reflect a normal escalation of prices up to the year they are expected to be paid. These estimated costs are then discounted to their present value using a credit adjusted risk-free rate.

        Under SFAS No. 143, the Company will no longer accrue landfill retirement obligations through a charge to cost of operations, but rather by an increase to landfill assets. Under SFAS No. 143, the amortizable landfill assets include not only the landfill development costs incurred but also the recorded capping, closure and post-closure liabilities as well as the cost estimates for future capping, closure and post-closure costs. The landfill asset is amortized over the total capacity of the landfill, as airspace is consumed during the life of the landfill with one exception. The exception is for final capping for which both the recognition of the liability and the amortization of these costs are based instead on the airspace consumed for the specific capping event.

        Upon adoption of SFAS No. 143 on May 1, 2003, the Company expects to record a cumulative effect of change in accounting principle of $2,700 (net of taxes of $1,900).

        Following is a summary of the expected balance sheet changes for landfill assets and capping, closure and post -closure liabilities at May 1, 2003 (in thousands):

 
   Balance at
April 30,
2003
   Change
   Balance at
May 1,
2003
  
Landfill assets   $ 148,029   $ 6,166   $ 154,195  
Accumulated amortization     (63,207 )   (9,394 )   (72,601 )
   
 
 
 
Net landfill assets   $ 84,822   $ (3,228 ) $ 81,594  
   
 
 
 
Capping, closure, and post-closure liability   $ 25,949   $ (7,855 ) $ 18,094  
   
 
 
 

        The pro forma effects of the application of SFAS 143 as if the statement had been adopted on May 1, 2000, rather than May 1, 2003, using May 1, 2003 costs, assumptions and interest rates are presented below:

 
   Fiscal Year Ended
April 30,
  
 
   2001
   2002
   2003
  
Reported net (loss) income   $ (103,505 ) $ 4,471   $ (62,902 )
Reversal of closure and post-closure expense, net of tax     (4,856 )   (4,509 )   (4,331 )
Amortization expense, net of tax     1,042     1,026     1,526  
Accretion expense, net of tax     587     663     764  
   
 
 
 
Pro forma net (loss) income   $ (100,278 ) $ 7,291   $ (60,861 )
   
 
 
 
Reported net (loss) income per common share   $ (4.46 ) $ (0.19 ) $ (2.63 )
   
 
 
 
Pro forma net (loss) income per common share   $ (4.32 ) $ 0.30   $ (2.55 )
   
 
 
 

F-18

        The pro forma asset retirement obligation liability balances as if SFAS 143 had been adopted on May 1, 2000, rather than May 1, 2003, are as follows:

 
   April 30,
 
   2001
   2002
   2003
Accrued closure and post-closure costs, as reported   $ 17,230   $ 24,772   $ 25,949
   
 
 
Pro forma accrued closure and post-closure costs   $ 11,207   $ 16,169   $ 18,094
   
 
 

        In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses costs such as restructuring, involuntary termination of employees and consolidating facilities but excludes from its scope exit and disposal activities that are in connection with a business combination and those activities to which SFAS No. 143 and No. 144 are applicable. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. Management is evaluating the effect of this statement on the Company's results of operations and financial position as well as related disclosures. The Company has not engaged in or initiated any exit or disposal activities since December 31, 2002.

        In December, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FAS 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used in reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company has included the required disclosures in these financial statements.

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of APB No. 51 ("FIN 46"). FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiary who absorbs a majority of the entities expected losses or residual benefits. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities in the periods beginning after June 15, 2003. Management is evaluating the effect of this statement on the Company's results of operations and financial position as well as related disclosures.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity. The statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 effective August 1, 2003. In November 2003, the FASB issued an FSP delaying the effective date for certain instruments and entitites. SFAS No. 150 had no impact on the Company's consolidated financial statements.

(r)    Concentrations of Credit Risk

        Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. Concentration of credit risk with respect to accounts receivable is limited because a large number of geographically diverse customers comprise the Company's customer base, thus spreading the trade credit risk. For the years ended April 30, 2002 and 2003, no single group or customer represents greater than 2.0% of total accounts receivable. The Company controls credit

F-19


risk through credit evaluations, credit limits, and monitoring procedures. The Company performs credit evaluations for commercial and industrial customers and performs ongoing credit evaluations of its customers, but generally does not require collateral to support accounts receivable. Credit risk related to derivative instruments results from the fact the Company enters into interest rate and commodity price swap agreements with various counterparties. However, the Company monitors its derivative positions by regularly evaluating positions and the credit worthiness of the counterparties.

2.     RECLASSIFICATIONS

        Certain reclassifications have been made to the prior period financial statements to conform to the current presentation.

3.     ADOPTION OF NEW ACCOUNTING STANDARDS

(a)    SFAS No. 142, Goodwill and Other Intangible Assets

        In July 2001, the FASB issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. These new standards significantly modified the accounting rules related to accounting for business acquisitions, amortization of intangible assets and the method of accounting for impairments of existing goodwill. The effective date for SFAS No. 142 was fiscal years beginning after December 15, 2001.

        SFAS No. 142, among other things, eliminates the amortization of goodwill and requires an annual assessment of goodwill impairment by applying a fair value based test. SFAS No. 142 requires that any goodwill recorded in connection with an acquisition consummated on or after July 1, 2001 not be amortized. The Company performed an impairment test as of May 1, 2002 and goodwill was determined to be impaired and the amount of $63,916 (net of tax benefit of $189) was charged to earnings as a cumulative effect of a change in accounting principle. The goodwill impairment is associated with the assets acquired by the Company in connection with its acquisition of KTI. Remaining goodwill will be tested for impairment on an annual basis and further impairment charges may result. In accordance with the non-amortization provisions of SFAS No. 142, remaining goodwill will not be amortized going forward. The following schedule reflects net income (loss) and earnings (loss) per share for fiscal years 2001, 2002 and 2003 adjusted to exclude goodwill amortization and impairment charges.

 
   Fiscal Year
  
 
   2001
   2002
   2003
  
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ (93,558 ) $ 10,687   $ 4,058  
Discontinued Operations:                    
  Loss from discontinued operations, net     (4,130 )   —     —  
  Estimated loss on disposal of discontinued operations, net     (2,657 )   (4,096 )   —  
  Reclassification from discontinued operations, net     (1,190 )   1,140     50  
Cumulative effect of change in accounting principle, net     —     (250 )   (63,916 )
   
 
 
 
Reported net income (loss)     (101,535 )   7,481     (59,808 )
Add:                    
  Goodwill impairment charge (net of income taxes of $189)     —     —     63,916  
  Goodwill amortization (net of income taxes of $1,759 and $2,143)     6,254     4,956     —  
   
 
 
 
Adjusted net income (loss)     (95,281 )   12,437     4,108  
Less:                    
  Preferred stock dividends     1,970     3,010     3,094  
   
 
 
 
Adjusted net income (loss) available to common stockholders   $ (97,251 ) $ 9,427   $ 1,014  
   
 
 
 
                     

F-20

Earnings per common share:                    
Basic earnings per common share:                    
Reported net (loss) income available to common stockholders   $ (4.46 ) $ 0.19   $ (2.65 )
  Goodwill impairment charge, net     —     —     2.69  
  Goodwill amortization, net     0.27     0.21     —  
   
 
 
 
Adjusted basic earnings (loss) per share available to common stockholders   $ (4.19 ) $ 0.40   $ 0.04  
   
 
 
 
Diluted earnings per common share:                    
Reported net (loss) income available to common stockholders   $ (4.46 ) $ 0.19   $ (2.63 )
  Goodwill impairment charge, net     —     —     2.67  
  Goodwill amortization, net     0.27     0.21     —  
   
 
 
 
Adjusted diluted earnings (loss) per share available to common stockholders   $ (4.19 ) $ 0.40   $ 0.04  
   
 
 
 

(b)    SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets

        The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets as of May 1, 2002. Among other things, this standard requires that the assets and liabilities of a disposal group held for sale (including those of discontinued operations) be presented separately in the asset and liability sections, respectively, of the balance sheet. The standard also requires reclassification of such items in prior periods if such financial statements are presented for comparative purposes.

(c)    SFAS No. 145, Rescission of FASB No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technicial Corrections

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No., 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary such that most debt extinguishment gains and losses will no longer be classified as extraordinary. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Upon adoption, gains and losses on future debt extinguishment, if any, will be recorded in pre-tax income. Prior to the adoption of SFAS No. 145, in the third quarter of fiscal year 2003, the Company recorded an extraordinary loss of $2,170 (net of income tax benefit of $1,479) in connection with the write-off of deferred financing costs related to the old term loan and the old revolver. This item was reclassified to continuing operations in the audited fiscal year 2003 financial statements as loss on debt extinguishment in the amount of $3,649.

(d)    FASB Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others

        In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 clarifies the requirement of FASB No. 5, Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. It requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The Company has no guarantees as of April 30, 2003, but will record the fair value of future material guarantees, if any.

4.     BUSINESS COMBINATIONS

        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

F-21


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 13, four and eight solid waste hauling, landfill disposal or material recycling operations in fiscal years 2001, 2002 and 2003, respectively, 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 were as follows:

 
   April 30,
  
 
   2001
   2002
   2003
  
Current assets   $ 644   $ 60   $ 525  
Property, plant and equipment     2,671     5,821     21,025  
Goodwill     18,568     1,380     5,253  
Intangible assets     701     116     953  
Current liabilities     (4 )   —     (1,160 )
Other non-current liabilities     —     —     (5,660 )
   
 
 
 
Total consideration   $ 22,580   $ 7,377   $ 20,936  
   
 
 
 

        The allocation of acquired goodwill by operating segment for fiscal years 2001, 2002 and 2003 is as follows:

 
   April 30,
 
   2001
   2002
   2003
Eastern region   $ 4,262   $ —   $ 1,690
Central region     1,637     1,130     258
Western region     12,669     250     1,215
Recycling     —     —     2,090
   
 
 
    $ 18,568   $ 1,380   $ 5,253
   
 
 

        All goodwill associated with acquisitions completed in fiscal years 2001, 2002 and 2003 was deductible for tax purposes.

        The following unaudited pro forma combined information shows the results of the Company's operations for the fiscal years 2002 and 2003 as though each of the acquisitions completed in the fiscal years 2002 and 2003 had occurred as of May 1, 2001.

 
   Fiscal Year
  
 
   2002
   2003
  
Revenues   $ 438,688   $ 435,387  
Operating income (loss)   $ 41,306   $ 34,988  
Net (loss) income available to common stockholders   $ 4,555   $ (62,922 )
Diluted pro forma net (loss) income per common share   $ 0.19   $ (2.63 )
Weighted average diluted shares outstanding     24,169     23,904  

        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 or the results of future operations of the Company. Furthermore, the pro forma results do not give effect to all cost savings or

F-22


incremental costs that may occur as a result of the integration and consolidation of the completed acquisitions.

5.     RESTRICTED CASH

        Restricted cash consists of cash held in trust on deposit with various banks as collateral for the Company's financial obligations relative to its self-insurance claims liability as well as landfill closure and post-closure costs and other facilities' closure costs. Cash is also restricted by specific agreement for facilities' maintenance and other purposes.

        A summary of restricted cash is as follows:

 
   April 30, 2002
   April 30, 2003
 
   Short Term
   Long Term
   Total
   Short Term
   Long Term
   Total
Insurance   $ 10,144   $ —   $ 10,144   $ 10,715   $ —   $ 10,715
Landfill closure     91     2     93     73     —     73
Facility maintenance and operations     50     —     50     51     —     51
Other     1     —     1     —     —     —
   
 
 
 
 
 
Total   $ 10,286   $ 2   $ 10,288   $ 10,839   $ —   $ 10,839
   
 
 
 
 
 

6.     PROPERTY, PLANT AND EQUIPMENT

        Property, plant and equipment at April 30, 2002 and 2003 consist of the following:

 
   April 30,
 
   2002
   2003
Land   $ 10,290   $ 10,499
Landfills     115,505     148,029
Buildings and improvements     51,717     53,369
Machinery and equipment     147,840     155,784
Rolling stock     84,922     94,345
Containers     40,488     41,983
   
 
      450,762     504,009
Less—Accumulated depreciation and amortization     163,556     201,681
   
 
    $ 287,206   $ 302,328
   
 

        Depreciation expense for the fiscal years 2001, 2002 and 2003 was $35,461, $32,397 and $33,042, respectively. Landfill amortization expense for the fiscal years 2001, 2002 and 2003 was $7,897, $10,333 and $13,257.

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7.     INTANGIBLE ASSETS

        Intangible assets at April 30, 2002 and 2003 consist of the following:

 
   Goodwill
   Covenants not
to compete
   Customer lists
   Total
  
April 30, 2002                          
  Intangible assets   $ 219,730   $ 14,447   $ 428   $ 234,605  
  Less accumulated amortization     —     (10,541 )   (421 )   (10,962 )
   
 
 
 
 
    $ 219,730   $ 3,906   $ 7   $ 223,643  
   
 
 
 
 

April 30, 2003
 
 
 
 
 
 
 
 
 
 
 
 
 
  Intangible assets   $ 159,682   $ 14,963   $ 688   $ 175,333  
  Less accumulated amortization     —     (12,210 )   (427 )   (12,637 )
   
 
 
 
 
    $ 159,682   $ 2,753   $ 261   $ 162,696  
   
 
 
 
 

        Intangible amortization expense for the fiscal years 2001, 2002 and 2003 was $10,053, $7,982 and $1,631, respectively. The intangible amortization expense estimated as of April 30, 2003, for the five years following 2003 is as follows:

2004
   2005
   2006
   2007
   2008
$1,074   $717   $468   $183   $131

8.     NET ASSETS UNDER CONTRACTUAL OBLIGATION

        Effective September 30, 2002, the Company transferred its export brokerage operations to former employees, who had been responsible for managing that business. Consideration for the transaction was in the form of two notes receivable amounting to $5,460. These notes are payable within five years of the anniversary date of the transaction to the extent of free cash flow generated from the operations. The Company has not accounted for this transaction as a sale based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyer. The net assets of the operation are disclosed in the balance sheet as "net assets under contractual obligation," and will be reduced as payments are made.

9.     ACCRUED CLOSURE AND POST CLOSURE

        Accrued closure and post-closure costs include the current and non-current portion of costs associated with obligations for closure and post-closure of our landfills. We estimate our future closure and post-closure costs in order to determine the closure and post-closure expense per ton of waste placed into each landfill as further described in Note 1(l) to the consolidated financial statements. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill,

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as well as the duration of the post-closure monitoring period. The changes to accrued closure and post-closure liabilities are as follows:

 
   Years Ended April 30,
  
 
   2001
   2002
   2003
  
Balance, beginning of year   $ 12,276   $ 17,230   $ 24,772  
Charged to operating expense     5,917     6,665     8,400  
Spending applied against the accrual (1)     (675 )   (408 )   (9,164 )
Acquisitions and other adjustments (2)     (288 )   1,285     1,941  
   
 
 
 
Balance, end of year   $ 17,230   $ 24,772   $ 25,949  
   
 
 
 
(1)
Spending levels increased in fiscal year 2003 mainly due to closure activities at our Woburn, Massachusetts and Pine Tree, Maine landfills.

(2)
In fiscal year 2002, we recorded additional post-closure accruals relating to one of our construction and demolition landfills. In fiscal year 2003, we recorded closure and post closure accruals relating to the Hardwick landfill acquisition.

10.   OTHER ACCRUED LIABILITIES

        Other accrued liabilities at April 30, 2002 and 2003 consist of the following:

 
   April 30,
 
   2002
   2003
Interest rate swap obligation   $ 8,225   $ 551
Self insurance reserve     5,491     7,730
Other accrued liabilities     10,112     7,381
   
 
Total other accrued liabilities   $ 23,828   $ 15,662
   
 

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11.   LONG-TERM DEBT

        Long-term debt as of April 30, 2002 and 2003 consists of the following:

 
   April 30,
2002
   April 30,
2003
Advances on senior secured revolving credit facility (the "old revolver") which provided for advances of up to $280,000, bearing interest at LIBOR plus 2.50%, collateralized by substantially all of the assets of the Company   $ 156,800   $ —
Advances on senior secured delayed draw term "B" Loan (the "old term loan") bearing interest at LIBOR plus 3.75%. This loan was collateralized by substantially all of the assets of the Company     119,300     —
Senior subordinated notes, due February 1, 2013, 9.75%, interest payable semiannually, unsecured and unconditionally guaranteed     —     150,000
Senior secured term loan (the "new term loan") due January 24, 2010, bearing interest at LIBOR plus 3.25% (approximately 4.56% at April 30, 2003 based on three month LIBOR), with principal payments of $1,500 per year, beginning in fiscal 2004 with the remaining principal balance due at maturity. This loan is collateralized by substantially all of the assets of the Company     —     150,000
Senior secured revolving credit facility (the "new revolver"), which provides for advances of up to $175,000, due January 24, 2008, bearing interest at LIBOR plus 3.00%, (approximately 4.31% at April 30, 2003 based on three month LIBOR). This loan is collateralized by substantially all of the assets of the Company     —     —
Notes payable in connection with businesses acquired, bearing interest at rates of 0%-12.5%, due in monthly, quarterly or annual installments varying to $42, expiring March 2004 through May 2009     1,797     2,460
Subordinated, convertible notes payable in connection with business acquired, bearing interest at 7.5%, due in monthly installments varying to $48, expiring on March 15, 2003     2,419     —
Notes payable in connection with businesses acquired, bearing interest at 0%, discounted at 4.74% to 5.5%, due in monthly and annual installments varying to $1,000 through April 2005     3,665     4,463
   
 
      283,981     306,923
Less—current maturities     6,436     4,534
   
 
    $ 277,545   $ 302,389
   
 

        On January 24, 2003, the Company issued $150,000 of 9.75% senior subordinated notes (the "notes"), due 2013. The senior subordinated note agreement contains covenants that restrict dividends, stock repurchases and other payments, and limits the incurrence of debt and issuance of preferred stock subject to the Company meeting a minimum consolidated fixed charge ratio. The notes are guaranteed jointly and severally, fully and unconditionally by the Company and its significant subsidiaries.

        On February 11, 2003, the Company filed a registration statement on Form S-4 with the Securities and Exchange Commission relating to an exchange offer pursuant to which senior subordinated notes (the "exchange notes") identical in terms and in principal amount to the notes issued on January 24, 2003 (the "old notes") would be issued in exchange for the old notes. The exchange notes, when issued, would be freely transferable under the Securities Act of 1933, as amended. The Securities and Exchange Commission is reviewing the registration statement. Following the effectiveness of the registration statement, the Company will conduct an exchange offer whereby each holder of the old

F-26


notes would be given an opportunity to exchange the old notes held by it for exchange notes which are equal in principal amount to the old notes surrendered. Because the registration statement was not declared effective by the Securities and Exchange Commission by July 23, 2003, the Company is incurring liquidated damages until the registration statement is declared effective.

        Concurrently with the issuance of the notes, the Company entered into a new senior credit facility consisting of the new term loan in the aggregate principal amount of $150,000 and the new revolver in the aggregate principal amount of $175,000. The Company, under certain circumstances, has the option of increasing the new term loan or the new revolver by an additional $50,000. The gross proceeds of the notes offering and initial borrowings under the Company's new term loan were used to repay all outstanding indebtedness under the old term loan and the old revolver.

        Further advances were available under the old revolver and new revolver in the amount of $83,276 and $141,586 as of April 30, 2002 and 2003, respectively. These available amounts are net of outstanding irrevocable letters of credit totaling $39,923 and $33,414 as of April 30, 2002 and 2003. As of April 30, 2002 and 2003 no amounts had been drawn under the outstanding letters of credit.

        The new term loan and revolving credit facility agreement contains covenants that may limit our activities, including covenants that restrict dividends and stock repurchases, limit capital expenditures, and set minimum net worth and profitability requirements and interest coverage and leverage ratios. As of April 30, 2003, we considered the profitability covenant, which requires our cumulative adjusted net income for any two consecutive quarters to be positive, to be the most restrictive. As of April 30, 2003, we were in compliance with this covenant as we reported consolidated adjusted net income of $1.5 million for the six months ended April 30, 2003. Consolidated adjusted net income is defined by the credit facility agreement. In accordance with such definition, consolidated net income, determined in accordance with generally accepted accounting principles, is adjusted for elimination of certain nonrecurring charges, extraordinary gains, income from discontinued operations and non-cash income attributable to equity investments.

        The Company recorded a loss on debt extinguishment of $3,649 as a result of the write-off of deferred financing costs related to the old term loan and the old revolver.

        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 Company terminated five interest rate swaps concurrent with the issuance of the notes and entering into its new senior credit facility. These derivatives were accounted for as cash flow hedges pursuant to SFAS 133 and were designated to interest payments under the previous credit facility. At April 30, 2002, the fair value of these swaps was $8,225. The early termination costs associated with the unwind of these swaps amounted to $1,296 which is included in other expense/(income), net in the consolidated statements of operations. The Company entered into new interest rate swap agreements as cash flow hedges for the new senior credit facility. As of April 30, 2003, interest rate swap agreements in notional amounts and with terms as set forth in the following table were outstanding:

Bank
   Notional Amounts
   Receive
   Pay
   Range of Agreement
Bank A   $ 26,500   LIBOR   2.434 % February 2003 to February 2006
Bank B   $ 26,500   LIBOR   2.450 % February 2003 to February 2006

        The fair value of the swaps is estimated at a loss of $551 as of April 30, 2003.

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        As of April 30, 2003, debt matures as follows:

Fiscal Year      
2004   $ 4,534
2005     4,482
2006     1,809
2007     1,717
2008     1,555
Thereafter     292,826
   
    $ 306,923
   

12.   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, 2003.

 
   Operating
Leases
   Capital
Leases
Fiscal Year            
2004   $ 3,965   $ 1,488
2005     3,556     739
2006     3,313     503
2007     2,849     539
2008     2,212     494
Thereafter     4,261     41
   
 
Total Minimum Lease Payments   $ 20,156     3,804
   
     
Less—amount representing interest           548
         
            3,256
Less—current maturities of capital lease obligations           1,287
         
Present value of long term capital lease obligations         $ 1,969
         

        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, 2002 and 2003.

        The Company leases operating facilities and equipment under operating leases with monthly payments varying to $47.

        Total rent expense under operating leases charged to operations was $3,087, $5,787 and $4,955 for each of the fiscal years 2001, 2002 and 2003, respectively.

(b)    Investment in Waste to Energy Facilities

        The Company 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

F-28


2% (8.53 cents per kWh as of April 30, 2003). 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 $3,750 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, 2003 was $18,750.

        Maine Energy produced and sold 158,075,200 kWh, 159,006,000 kWh and 153,547,000 kWh of electricity to Central Maine in the fiscal years ended April 30, 2003, 2002 and 2001, respectively, thereby meeting 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 obligations (as defined), currently estimated to occur in 2008, or upon the consummation of an outright sale of Maine Energy. The obligation has been estimated by management at $9,700. Management believes the possibility of material loss in excess of this amount is remote.

        Additionally, from December 1999 until July 31, 2001, the Company owned 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. Timber Energy was sold effective July 31, 2001.

(c)    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 fiscal year 2002, the Company settled four lawsuits all of which had been previously provided for, thus having no effect on the Company's financial position.

        In July 1996, Clinton County, New York entered into a privatization agreement with Casella for Casella to run the County's solid waste management system (the "System") as a private enterprise, including operations at both the existing unlined landfill, as well as newly constructed lined landfill areas. During the period of November 21, 1996 to October 9, 1997, we performed certain closure activities and installed a cut-off wall at the unlined portion of the landfill. On or about April 1999, the New York State Department of Labor alleged that we should have paid prevailing wages in connection with the labor associated with such activities related to the unlined landfill. The DOL is attempting to apply the prevailing wage provisions of Labor Law § 220 to Casella's construction activities at the unlined portion of the Clinton County landfill, to include (1) cap construction at the unlined landfill; (2) construction of the "Casella Barrier Wall," which the New York State Department of Environment Conservation (the "DEC") required as a precondition to permitting the Phase III expansion of the Lined Landfill; and (3) construction of the "County Barrier Wall," which the DEC required as a

F-29


corrective measure to control the historical contamination. We have disputed the allegations and a hearing on only the liability issue was held on September 16, 2002. Since the hearing did not address damages, relevant payroll documents have not been fully reviewed by either party. Accordingly, neither side is in a position to estimate wage amounts that might be payable in the event the hearing officer finds that Casella is liable for the payment of such prevailing wages. In addition, any such estimate will differ depending on whether any liability ruling applies to some or all of the activities described above; and whether it would apply only to activities of Casella or to all subcontractors as well. In November 2002, both sides submitted proposed findings of fact and conclusions of law. The hearing officer is expected to make a recommendation to the Department of Labor commissioner during the summer of 2003 on the liability issue. We continue to explore settlement possibilities with the State. We believe that we have meritorious defenses to these claims. Although a loss as a result of these claims is reasonably possible, we cannot estimate a range of reasonably possible losses at this time.

        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.

(d)    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 on the results of operations or financial condition.

(e)    Employment Contracts

        The Company has entered into employment contracts with four of its senior officers. Two contracts are dated December 8, 1999, while the other two are dated June 18, 2001 and July 20, 2001, respectively. Each contract has a three-year term and a two-year covenant not to compete from the date of termination. These contracts automatically extend for a one year period at the end of the initial term and any renewal period. Total annual commitments for salaries under these contracts are $1,085. 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 a payment ranging from one to three years of salary and bonuses.

F-30

13.   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, 2002 and 2003, the Company had 55,750 shares authorized, issued and 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 a rate of 5%, compounded quarterly. 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, which equals original cost, plus accrued but unpaid dividends, if any. Pursuant to the stock agreement, acceleration of the liquidation provisions would occur upon change in control of the Company.

        During the fiscal years 2001, 2002 and 2003, the Company accrued $1,970, $3,010 and $3,094 of dividends, respectively, which are included in the carrying value of the preferred stock in the accompanying consolidated balance sheets.

14.   STOCKHOLDERS' EQUITY

(a)    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.

(b)    Stock Warrants

        At April 30, 2002 and 2003, there were outstanding warrants to purchase 227,530 and 122,498 shares, respectively, of the Company's Class A Common Stock at exercise prices between $0.01 and $43.63 per share, based on the fair 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.

(c)    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, 2002 and 2003, options to purchase 15,000 shares of Class A common stock were outstanding at a weighted average exercise price of $4.61. 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, 2002 and 2003, 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, which was not approved by stockholders, established 338,000 stock options to purchase Class A common stock. As of April 30, 2002, options to purchase 264,000 shares of Class A common stock were outstanding at a weighted average exercise price of $2.00. As of April 30, 2003, options to purchase 255,000 shares of Class A common stock were outstanding at a weighted average exercise price of $2.00. No further options may be granted under this plan.

F-31


        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, 2002, a total of 320,238 options to purchase Class A Common Stock were outstanding at a weighted average exercise price of $11.76. As of April 30, 2003, a total of 299,531 options to purchase Class A common Stock were outstanding at an average exercise price of $11.89. 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 unissued options under previous plans. As of April 30, 2002, options to purchase 3,404,628 shares of Class A Common Stock at an average exercise price of $13.81 were outstanding under the 1997 Option Plan. As of April 30, 2003, options to purchase 3,547,628 shares of Class A Common Stock at a weighted average exercise price of $13.58 were outstanding under the 1997 Option Plan. As of April 30, 2003, 614,475 options were available for future grant under the 1997 Option Plan.

        Additionally, options outstanding under the assumed KTI Stock Option Plan totaled 123,992 and 81,586 at April 30, 2002 and 2003, respectively, at weighted average exercise prices of $23.18 and $22.42, respectively. Upon assumption of this plan, entitled optionees under the KTI plan received one option to acquire one share of the Company's stock for every option held. The exercise price of the converted options was increased by 96.1% based on relative fair values of the underlying stock at the date of the KTI acquisition.

        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 200,000 shares of Class A Common Stock pursuant to the grant of non-statutory options. As of April 30, 2002 and 2003, options to purchase 94,000 shares of Class A Common Stock at a weighted average exercise price of $14.12 and 139,000 shares of Class A Common Stock at a weighted average exercise price of $11.36, respectively, were outstanding. As of April 30, 2003, 57,000 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 participating option holders received one new option on February 4, 2002 at an exercise price of $12.75, which was equal to the closing price of a common share as quoted by NASDAQ on that day. 666,315 options were surrendered for exchange under the offering resulting in 333,158 options being granted to participants.

        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. In general, options are issued with a life not to exceed ten years.

F-32


        Stock option activity for the fiscal years 2001, 2002 and 2003 is as follows:

 
   Number of
Options
   Weighted
Average
Exercise
Price
  
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  
Granted   710,565     13.09  
Surrendered under Exchange Program   (666,315 )   (27.77 )
Terminated   (802,009 )   (20.56 )
Exercised   (415,035 )   (7.87 )
   
 
 
Outstanding, April 30, 2002   4,236,858     13.09  
Granted   225,000     8.30  
Terminated   (83,406 )   (19.06 )
Exercised   (25,707 )   (5.28 )
   
 
 
Outstanding, April 30, 2003   4,352,745   $ 12.77  
   
 
 
Exercisable, April 30, 2001   4,071,188   $ 16.44  
   
 
 
Exercisable, April 30, 2002   3,811,775   $ 13.27  
   
 
 
Exercisable, April 30, 2003   3,982,129   $ 13.06  
   
 
 

        Set forth below is a summary of options outstanding and exercisable as of April 30, 2003:

 
   Options Outstanding
    
    
 
   Options Exercisable
 
    
   Weighted
Average
Remaining
Contractual
Life (Years)
    
Range of
Exercise Price
   Number of
Outstanding
Options
   Weighted
Average
Exercise
Price
   Number of
Exercisable
Options
   Weighted
Average
Exercise
Price
$.60—$2.00   270,000   1.1   $ 1.92   270,000   $ 1.92
$4.61—$8.69   1,384,420   5.8     8.24   1,214,253     8.33
$9.56—$18.00   2,077,313   6.1     13.43   1,876,864     13.64
$18.01—$27.00   400,310   5.6     22.66   400,310     22.66
Over $27.00   220,702   1.0     30.33   220,702     30.33
   
 
 
 
 
Totals   4,352,745   5.4   $ 12.77   3,982,129   $ 13.06
   
 
 
 
 

        The weighted average grant date fair value of options granted during the fiscal years 2001, 2002 and 2003 is $7.28, $7.06 and $8.30, respectively.

F-33


15.   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 related 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 fiscal year 2002, the reversal of various prior year restructuring expenses netted with fiscal year 2002 restructuring charges of $254, amounted to ($438).

        During fiscal year 2003, $37 was charged against the accrual. The remaining balance included in other accrued liabilities in the accompanying April 30, 2003 balance sheet amounts to $0.

16.   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 fiscal years 2001, 2002 and 2003 amounted to $434, $406 and $368, 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 fiscal years 2001, 2002 and 2003, 29,287, 30,904 and 27,633 shares, respectively, of Class A Common Stock were issued under this plan.

17.   INCOME TAXES

        The provision (benefit) for income taxes from continuing operations for the fiscal years 2001, 2002 and 2003 consists of the following:

 
   April 30,
  
 
   2001
   2002
   2003
  
Federal—                    
  Current   $ (1,036 ) $ (1,639 ) $ 22  
  Deferred     (9,029 )   8,458     (739 )
  Deferred benefit of loss carryforwards     (5,721 )   (4,049 )   1,970  
   
 
 
 
      (15,786 )   2,770     1,253  
   
 
 
 

State—
 
 
 
 
 
 
 
 
 
 
  Current     (829 )   565     871  
  Deferred     (2,686 )   2,803     1,592  
  Deferred benefit of loss carryforwards     (1,142 )   (1,027 )   97  
   
 
 
 
      (4,657 )   2,341     2,560  
   
 
 
 
Total   $ (20,443 ) $ 5,111   $ 3,813  
   
 
 
 

F-34

        The differences in the provision (benefit) for income taxes and the amounts determined by applying the Federal statutory rate to income before provision (benefit) for income taxes for the years ended April 30, 2001, 2002 and 2003 are as follows:

 
   Fiscal Year
  
 
   2001
   2002
   2003
  
Federal statutory rate     35 %   35 %   35 %
Tax at statutory rate   $ (39,900 ) $ 5,529   $ 2,755  
State income taxes, net of federal benefit     (3,027 )   1,523     1,645  
Non-deductible impairment charge     12,825     —     568  
Non-deductible goodwill     1,155     1,052     —  
Losses on business dispositions     —     (2,072 )   849  
Equity in loss of unconsolidated entities     6,390     (390 )   —  
Decrease in valuation allowance     —     —     (3,173 )
Other, net     2,114     (531 )   1,169  
   
 
 
 
    $ (20,443 ) $ 5,111   $ 3,813  
   
 
 
 

        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, 2002 and 2003:

 
   April 30,
  
 
   2002
   2003
  
Deferred tax assets:              
  Accrued expenses and reserves   $ 14,291   $ 11,243  
  Basis difference in partnership interests     5,532     —  
  Amortization of intangibles     8,833     102  
  Unrealized loss on securities     3,727     19  
  Gain on business dispositions     —     757  
  Capital loss carryforward     1,900     —  
  Net operating loss carryforwards     38,672     45,385  
  Alternative minimum tax credit carryforwards     672     672  
  Other     1,534     1,422  
   
 
 
    Total deferred tax assets     75,161     59,600  
    Less: valuation allowance     (28,512 )   (24,696 )
   
 
 
    Total deferred tax assets after valuation allowance     46,649     34,904  
   
 
 
Deferred tax liabilities:              
  Accelerated depreciation of property and equipment     (35,676 )   (33,181 )
  Basis difference in partnership interests     —     (1,487 )
  Other     (1,558 )   (1,434 )
   
 
 
    Total deferred tax liabilities     (37,234 )   (36,102 )
   
 
 
    Net deferred tax asset (liability)   $ 9,415   $ (1,198 )
   
 
 

        At April 30, 2003, the Company has for income tax purposes Federal net operating loss carryforwards of approximately $108,146 that expire in years 2005 through 2023 and state net operating loss carryforwards of approximately $91,887 that expire in years 2004 through 2023. Substantial limitations restrict the Company's ability to utilize certain Federal and state loss carryforwards. Due to

F-35


uncertainty of the utilization of the carryforwards, no tax benefit has been recognized for approximately $49,457 of the Federal net operating loss carryforwards and $79,923 of the state net operating loss carryforwards. In addition, the Company has approximately $672 minimum tax credit carryforward available that is not subject to limitation.

        The $3,816 net decrease in the valuation allowance is due to the decrease in the basis difference for the investment in New Heights, the elimination of the capital loss carryforward, and the expiration of certain state loss carryforwards, partially offset by an increased valuation allowance for Federal and state loss carryforwards.

        The valuation allowance includes $15,556 related to losses 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.

18.   DISCONTINUED OPERATIONS, ASSETS HELD FOR SALE, DIVESTITURES AND IMPAIRMENT CHARGE

Discontinued Operations:

        At the end of fiscal year 2001, the Company adopted a formal plan to dispose of its tire processing, commercial recycling and mulch recycling businesses (herein "discontinued businesses"). The Company is accounting for these planned dispositions in accordance with APB Opinion No. 30, and accordingly the discontinued businesses are carried at estimated net realizable value less costs to be incurred through date of disposition.

        For the fiscal year 2001, the estimated loss on the disposal of the discontinued operations of $2,657, net of income tax benefit of $274, 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.

        A summary of the operating results of the discontinued operations is as follows:

 
   Fiscal Year
  
 
   2001
  
Revenues   $ 30,047  
(Loss) income before income taxes     (5,199 )
(Benefit) provision for income taxes     (1,069 )
   
 
Net (loss) income from discontinued operations   $ (4,130 )
   
 

        The Company has included approximately $9,911 of intercompany sales of recyclables from the commercial recycling business to the brokerage business in loss on discontinued operations for the fiscal year 2001. Intercompany sales of recyclables from the commercial recycling business to the brokerage business amounted to $1,323 and $0 for fiscal years 2002 and 2003, respectively.

        The mulch recycling business was sold effective June 30, 2001. The Company's tire processing business was sold in September 2001 for cash consideration of $13,745. The Company retained a 19.9% interest in the new venture, which was valued at $3,080. The Company is accounting for its retained investment under the cost method. The commercial recycling center in Newark, New Jersey was sold effective April 18, 2002.

F-36

        Actual operating results of discontinued businesses for the fiscal year 2002 exceeded the original estimate by $599 (net of income tax provision of $408), and the actual loss on the sale of assets exceeded the estimate by $4,695 (net of income tax benefit of $565). Accordingly, the accompanying income statement for the year ended April 30, 2002 includes an additional loss on disposal of discontinued operations of $4,096.

        In the fourth quarter of fiscal 2003, the Company entered into negotiations with former employees for the transfer of its domestic brokerage operations and a commercial recycling business. The transaction was completed in June 2003. The commercial recycling business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, the Company could not retain discontinued accounting treatment for this operation. Therefore, the commercial recycling business' operating results have been reclassified from discontinued to continuing operations for fiscal 2001, 2002 and 2003. In fiscal 2001, estimated future losses from this operation were recorded and classified as losses from discontinued operations. This amount has been reclassified and offset against actual losses from operations in fiscal 2001, 2002 and 2003.

        A summary of the effect of the reclassification of the commercial recycling business from discontinued operations to continuing operations on results of operations for fiscal years 2001, 2002 and 2003 is as follows:

 
   2001
   2002
   2003
  
Revenues   $ 550   $ 414   $ 330  
Impairment Charge     20,068     —     2,331  
Operating loss     (19,024 )   (1,940 )   (78 )
Loss from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (11,317 )   (1,140 )   (44 )
Reclassification adjustment from discontinued operations, net of tax   $ (1,190 ) $ 1,140   $ 50  
Effect of reclassification on loss from discontinued operations, net of tax     11,317     —     —  
Effect of reclassification on estimated loss on disposal of discontinued operations, net of tax   $ 1,190   $ —   $ —  

        Actual losses during fiscal years 2002 and 2003 were $6 less than estimated and previously accrued in fiscal year 2001. This amount is included in fiscal 2003 in the reclassification adjustment from discontinued operations, net.

        Total assets of the commercial recycling business were $263 and $8 as of April 30, 2002 and 2003, respectively. Total liabilities of the commercial recycling business were $569 and $1,288 as of April 30, 2002 and 2003, respectively.

Net Assets Held for Sale:

        The Company had identified for sale certain other businesses which were classified as net assets held for sale as of April 30, 2001. These included its Timber Energy business and its one remaining plastics recycling facility.

        On May 17, 2001, the plastics recycling business was sold for approximately $998 in total consideration. The consideration consisted of $406 in cash and $592 in notes.

        On July 31, 2001, the Timber Energy business was sold for approximately $15,000 in total consideration. The consideration comprised the buyer's assumption of debt, reimbursement of restricted cash funds, and a working capital adjustment, resulting in $10,691 cash.

        As discussed above, in June 2003, the Company transferred a commercial recycling business to former employees. The net assets of the commercial recycling business were $(306) and $(1,280) as of April 30, 2002 and 2003, respectively.

F-37


Other Divestitures:

        A portion of the Company's 50% interest in New Heights was sold in September 2001 for consideration of $250. The Company retained an interest of 9.95% in the tire assets of New Heights as well as financial obligations related solely to the New Heights' power plant. At April 30, 2001, the Company included $4,000, as its estimate of its future costs to be incurred at New Heights; as of April 30, 2003, $2,400 has been invested in New Heights. In addition, the Company has an interest in certain notes granted by New Heights collectively valued at approximately $9,000, payment of which is contingent upon settlement of litigation concerning the cancellation of a fixed price power contract. The Company has not recorded a receivable in respect of these notes, as the timing of such settlement is uncertain; a favorable summary judgment has been received but final court appeal resolution is not likely until fiscal year 2004. The Company is accounting for its retained investment under the cost method of accounting.

        In October, 2001, the Company sold its Multitrade division for consideration of $6,893. The transaction resulted in a gain of $4,156 which is included in other (income)/expense, net.

        In July, 2001, the Company sold its S&S Commercial division for consideration of $887. The transaction resulted in a gain of $692 which is included in other (income)/expense, net.

        In April 2003, the Company sold its FCR Virginia division for consideration of $875. The transaction resulted in a gain of $684 which is included in other (income)/expense, net.

Impairment Charge:

        Prior to the adoption of SFAS 142, and 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 periodically reviewed its long-lived assets for impairment whenever events or changes in circumstances indicate that the remaining estimated useful life of such assets might warrant revision or that the balance may not be recoverable. The Company evaluated 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 was then recorded equal to the amount by which the carrying amount of the assets exceeds their fair value. Fair value is usually determined based on the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved. Prior to the adoption of SFAS 142, and 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 above, during 2001, the Company recorded a charge of $79,687 to reduce certain assets (mainly goodwill arising from the acquisition of KTI, see Note 4), to their estimated fair value. In the fourth quarter of fiscal 2003, the Company recorded an impairment charge of $4,864 to adjust the book value of the the domestic brokerage and commercial recycling business to net realizable value.

F-38


19.   EARNINGS PER SHARE

        The following table sets forth the numerator and denominator used in the computation of earnings per share:

 
   Fiscal Year
  
 
   2001
   2002
   2003
  
Numerator:                    
  Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ (93,558 ) $ 10,687   $ 4,058  
  Less: preferred dividends     (1,970 )   (3,010 )   (3,094 )
   
 
 
 
  Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle available to common stockholders   $ (95,528 ) $ 7,677   $ 964  
   
 
 
 
Denominator:                    
  Number of shares outstanding, end of period:                    
    Class A common stock     22,198     22,667     22,769  
    Class B common stock     988     988     988  
    Effect of weighted average shares outstanding during period     3     (159 )   (41 )
   
 
 
 
    Weighted average number of common shares used in basic EPS     23,189     23,496     23,716  
   
 
 
 
    Impact of potentially dilutive securities:                    
    Dilutive effect of options, warrants and contingent stock     —     673     188  
   
 
 
 
    Weighted average number of common shares used in diluted EPS     23,189     24,169     23,904  
   
 
 
 

        For the fiscal years 2001, 2002 and 2003, 5,389, 6,653 and 8,408, respectively, of potentially dilutive common stock related to options, convertible debt, warrants and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

20.   RELATED PARTY TRANSACTIONS

(a)    Services

        During fiscal years 2001, 2002 and 2003, 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 (one of whom is also an officer), as a contractor in developing or closing certain landfills owned by the Company. Total purchased services charged to operations or capitalized to landfills for the fiscal years 2001, 2002 and 2003 were $3,870, $2,559 and $1,525, respectively, of which $0 and $28 were outstanding and included in accounts payable at April 30, 2002 and 2003, respectively.

(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 (one of whom is also an officer) 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 $21 and expired in April 2003. The leases were renewed effective May 1, 2003 for a term of 60 months. Total interest and depreciation expense charged to operations for fiscal years 2001, 2002 and 2003 under these agreements was $236, $204 and $196, respectively.

F-39


(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 the fiscal years 2001, 2002 and 2003, the Company paid $7, $6 and $8 respectively, pursuant to this agreement. As of April 30, 2002 and 2003, the Company has accrued $83 and $75 respectively, for costs associated with its post-closure obligations.

(d)    Transfer Station Lease

        In June 1994, the Company entered into a transfer station lease for a term of 10 years. The transfer station is owned by a current member of the Company's Board of Directors, who became a director upon the execution of the lease. Under the terms of the lease the Company agreed to pay monthly rent for the first five years at a rate of five dollars per ton of waste disposed of at the transfer station, with a minimum rent of $7 per month. Since June 1999, the monthly rent was lowered to a rate of two dollars per ton of waste disposed, with a minimum rent of $3 per month. Total lease payments for the fiscal years 2001, 2002 and 2003 were $55, $64 and $55, respectively.

(e)    Employee Loans

        As of April 30, 2002 and 2003, the Company has recourse loans to officers and employees outstanding in the amount of $1,105. 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 (4.25% at April 30, 2003). Notes from officers consisted of $1,016 at April 30, 2002 and 2003 with the remainder being from employees of the Company.

(f)    Commodity Sales

        The Company sells recycled paper products to its equity method investee, GreenFiber. Revenue from sales to GreenFiber amounted to $2,303 and $3,375 for fiscal years 2002 and 2003, respectively.

21.   SEGMENT REPORTING

        SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments in financial statements. In general, SFAS No. 131 requires that business entities report selected information about operating segments in a manner consistent with that used for internal management reporting.

        The Company classifies its operations into Eastern, Central, Western 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 and brokerage segment are derived from integrated waste handling services, including processing and recycling of wood, paper, metals,

F-40


aluminum, plastics and glass and brokerage of recycled materials. Ancillary operations, mainly residue recycling, major customer accounts and earnings from equity method investees, are included in Other.

 
   Eastern
Region
   Central
Region
   Western
Region
   Recycling
   Other
   Eliminations
   Total
  
Year Ended April 30, 2001                                            

Outside revenues
 
$
158,754
 
$
99,305
 
$
66,473
 
$
109,453
 
$
46,381
 
$
—
 
$
480,366
 
Inter-segment revenues     38,267     40,498     14,995     36,473     1,273     (131,506 )   —  
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (3,876 )   3,706     4,152     (49,780 )   (36,443 )   —     (82,241 )
Depreciation & amortization     20,349     14,330     9,855     3,955     4,394     —     52,883  
Impairment charge     1,948     7,765     49     69,932     —     —     79,694  
Interest expense (net)     10,346     3,564     4,321     6,930     13,493     —     38,654  
Capital expenditures     25,843     20,545     16,445     7,750     (9,065 )   —     61,518  
Goodwill     116,176     24,567     49,601     42,428     (6,803 )   —     225,969  
Total assets   $ 283,967   $ 126,617   $ 112,882   $ 80,984   $ 81,843   $ —   $ 686,293  

Year Ended April 30, 2002
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Outside revenues
 
$
152,095
 
$
91,935
 
$
65,628
 
$
94,117
 
$
17,460
 
$
—
 
$
421,235
 
Inter-segment revenues     31,889     43,777     14,626     18,338     58     (108,688 )   —  
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     1,525     19,163     1,125     (10,417 )   (708 )   —     10,688  
Depreciation & amortization     21,140     12,758     10,192     4,121     2,501     —     50,712  
Interest expense (net)     9,247     2,559     7,434     10,044     1,289     —     30,573  
Capital expenditures     15,850     11,856     6,490     2,573     905     —     37,674  
Goodwill     108,517     25,212     48,576     37,433     (9 )   —     219,729  
Total assets   $ 270,854   $ 109,673   $ 104,479   $ 69,531   $ 67,074   $ —   $ 621,611  

Year Ended April 30, 2003
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Outside revenues
 
$
153,318
 
$
90,524
 
$
68,451
 
$
94,326
 
$
14,244
 
$
—
 
$
420,863
 
Inter-segment revenues     39,444     43,253     13,740     22,577     1     (119,015 )   —  
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (6,342 )   19,118     2,577     (4,331 )   (6,964 )   —     4,058  
Depreciation & amortization     22,706     11,531     8,204     3,426     2,063     —     47,930  
Interest expense (net)     10,097     (204 )   6,811     10,451     (901 )   —     26,254  
Capital expenditures     16,200     9,734     9,874     4,900     1,217     —     41,925  
Goodwill     56,734     25,485     49,847     27,616     —     —     159,682  
Total assets   $ 239,023   $ 107,694   $ 110,045   $ 64,989   $ 80,890   $ —   $ 602,641  

F-41

        Amounts of our total revenue attributable to services provided are as follows:

 
   Fiscal Year
 
   2001
   2002
   2003
Collection   $ 205,561   $ 196,863   $ 196,478
Landfill/disposal facilities     78,261     57,449     59,942
Transfer     36,908     45,597     47,478
Recycling     57,795     65,508     80,237
Brokerage     70,721     50,125     36,728
Other (1)     31,120     5,693     —
   
 
 
Reported revenues   $ 480,366   $ 421,235   $ 420,863
   
 
 
(1)
Other revenues consist of revenues from entities divested during fiscal 2001 and 2002, including a plastics business, Timber Energy, Multitrade and U.S. Fiber, which was contributed to the U.S. GreenFiber joint venture.

22.   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

        The following is a summary of certain items in the Consolidated Statements of Operations by quarter for fiscal years 2002 and 2003.

 
   First
Quarter (1)
   Second
Quarter (1)
   Third
Quarter (1)
   Fourth
Quarter (1)
  
Fiscal Year 2002                          
Revenues   $ 112,447   $ 109,888   $ 101,286   $ 97,614  
Operating income     11,017     12,097     7,684     9,014  
Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle     1,936     5,779     113     2,859  
Net (loss) income available to common stockholders     1,474     3,789     (732 )   (60 )
Income per common share:                          
  Basic:                          
    Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     0.06     0.22     (0.02 )   0.06  
    Net (loss) income available to common stockholders     0.06     0.16     (0.03 )   —  
  Diluted:                          
    Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     0.06     0.22     (0.02 )   0.06  
    Net (loss) income available to common stockholders     0.06     0.16     (0.03 )   —  

F-42

 
   First
Quarter (1)(2)
   Second
Quarter (1)
   Third
Quarter (1)
   Fourth
Quarter
  
Fiscal Year 2003                          
Revenues   $ 116,031   $ 114,570   $ 95,801   $ 94,461  
Operating income     11,467     13,708     8,525     250  
Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle     2,557     4,714     (822 )   (2,391 )
Net (loss) income available to common stockholders     (62,071 )   3,860     (1,561 )   (3,130 )
Income per common share:                          
  Basic:                          
    Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle     0.08     0.17     (0.07 )   (0.13 )
    Net (loss) income available to common stockholders     (2.62 )   0.16     (0.07 )   (0.13 )
  Diluted:                          
    Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle     0.08     0.16     (0.07 )   (0.13 )
    Net (loss) income available to common stockholders     (2.62 )   0.16     (0.07 )   (0.13 )
(1)
In the fourth quarter of fiscal 2003, the Company entered into negotiations with former employees for the transfer of the Company's domestic brokerage operations and a commercial recycling business and in June 2003, the Company completed the transaction. The commercial recycling business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, the Company could not retain discontinued accounting treatment for this operation. Therefore, the commercial recycling operating results have been reclassified from discontinued to continuing operations for fiscal years 2001, 2002 and 2003 and the above quarterly summary data has been revised from amounts previously reported.

(2)
The Company revised results for the first quarter of fiscal 2003 to include additional goodwill impairment in the amount of $1,100, net of taxes, relating to our waste-to-energy operations, Maine Energy. The Company previously reported goodwill impairment upon the adoption of SFAS 142 in the amount of $62,800, net of taxes.

(3)
In the third quarter of fiscal 2003, the Company has reclassified a loss on extinguishment of debt amounting to $3,600 ($2,700 net of tax) from extraordinary to continuing operations.

23.   CONDENSED CONSOLIDATING FINANCIAL INFORMATION

        The senior subordinated notes are guaranteed jointly and severally, fully and unconditionally by the Company's significant wholly-owned subsidiaries. The Parent is the issuer and non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2002 and 2003; the condensed consolidating results of operations for the years ended April 30, 2001, 2002 and 2003; and the condensed consolidating statements of cash flows for the years ended April 30, 2001, 2002 and 2003 of (a) the parent company only ("the Parent"), (b) the combined guarantors ("the Guarantors"), each of which is 100% wholly-owned by the Parent, (c) the combined non-guarantors ("the Non-Guarantors"), (d) eliminating entries and (e) the Company on a consolidated basis.

F-43


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2002

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
ASSETS:                                
CURRENT ASSETS                                
  Cash and cash equivalents   $ 4,362   $ (2,377 ) $ 2,313   $ —   $ 4,298  
  Restricted cash     —     (196 )   10,482     —     10,286  
  Accounts receivable—trade, net of allowance for doubtful accounts     924     41,643     427     75     43,069  
  Notes receivable—officers/employees     1,105     —     —     —     1,105  
  Prepaid expenses     487     2,645     —     —     3,132  
  Other current assets     8,795     6,227     404     —     15,426  
   
 
 
 
 
 
Total current assets     15,673     47,942     13,626     75     77,316  
Property, plant and equipment, net of accumulated depreciation and amortization     4,449     277,312     5,445     —     287,206  
Intangible assets, net     —     223,643     —     —     223,643  
Deferred income taxes     648     —     —     —     648  
Investment in subsidiaries     14,797     —     —     (14,797 )   —  
Other non-current assets     8,956     30,073     (552 )   (5,679 )   32,798  
   
 
 
 
 
 
      28,850     531,028     4,893     (20,476 )   544,295  
   
 
 
 
 
 
Intercompany receivable     487,191     (491,256 )   (1,539 )   5,604     —  
   
 
 
 
 
 
    $ 531,714   $ 87,714   $ 16,980   $ (14,797 ) $ 621,611  
   
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY                                
CURRENT LIABILITIES:                                
  Accounts payable     1,260     23,009     (115 )   —     24,154  
  Accrued payroll and related expenses     455     5,342     —     —     5,797  
  Accrued interest     1,473     8     —     —     1,481  
  Accrued closure and post-closure costs, current portion     —     6,465     —     —     6,465  
  Liabilities of operations held for sale     —     —     —     —     —  
  Other current liabilities     15,362     12,841     7,553     —     35,756  
   
 
 
 
 
 
Total current liabilities     18,550     47,665     7,438     —     73,653  
   
 
 
 
 
 
Long-term debt, less current maturities     274,850     1,183     1,512     —     277,545  
Capital lease obligations, less current maturities     788     2,263     —     —     3,051  
Other long-term liabilities     —     28,530     1,306     —     29,836  
COMMITMENTS AND CONTINGENCIES                                
Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends     60,730     —     —     —     60,730  
STOCKHOLDERS' EQUITY:                                
Class A common stock—                                
  Authorized—100,000,000 shares, $0.01 par value issued and outstanding—22,667,000 shares     227     105     102     (207 )   227  
Class B common stock—                                
  Authorized—1,000,000 shares, $0.01 par value 10 votes per share, issued and outstanding—988,000 shares     10     —     —     —     10  
Accumulated other comprehensive loss     (4,250 )   1     —     (1 )   (4,250 )
Additional paid-in capital     272,697     54,313     5,669     (59,982 )   272,697  
Accumulated deficit     (91,888 )   (46,346 )   953     45,393     (91,888 )
   
 
 
 
 
 
Total stockholders' equity     176,796     8,073     6,724     (14,797 )   176,796  
   
 
 
 
 
 
    $ 531,714   $ 87,714   $ 16,980   $ (14,797 ) $ 621,611  
   
 
 
 
 
 

F-44


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2003

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
ASSETS                                
CURRENT ASSETS:                                
  Cash and cash equivalents   $ 12,188   $ 2,686   $ 778   $ —   $ 15,652  
  Accounts receivable—trade, net of allowance for doubtful accounts     485     44,155     1,009     —     45,649  
  Prepaid expenses     613     5,138     155     —     5,906  
  Inventory     —     1,740     —     —     1,740  
  Deferred taxes     3,504     —     771     —     4,275  
  Other current assets     1,237     1,103     10,715     —     13,055  
   
 
 
 
 
 
Total current assets     18,027     54,822     13,428     —     86,277  
Property, plant and equipment, net of accumulated depreciation and amortization     2,996     294,109     5,223     —     302,328  
Intangible assets, net     —     162,696     —     —     162,696  
Deferred income taxes     —     —     —     —     —  
Investment in subsidiaries     (43,783 )   —     —     43,783     —  
Investments in unconsolidated entities     7,778     31,341     —     (4,379 )   34,740  
Assets under contractual obligation     —     3,844     —     —     3,844  
Other non-current assets     11,046     1,238     472     —     12,756  
   
 
 
 
 
 
      (21,963 )   493,228     5,695     39,404     516,364  
   
 
 
 
 
 
Intercompany receivable     507,820     (509,887 )   (2,312 )   4,379     —  
   
 
 
 
 
 
    $ 503,884   $ 38,163   $ 16,811   $ 43,783   $ 602,641  
   
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY                                
CURRENT LIABILITIES:                                
  Current maturities of long term debt     1,500     1,777     1,257     —     4,534  
  Accounts payable     1,350     32,285     108     —     33,743  
  Accrued payroll and related expenses     1,368     6,015     —     —     7,383  
  Accrued interest     5,373     2     —     —     5,375  
  Accrued closure and post-closure costs, current portion     —     2,286     676     —     2,962  
  Other current liabilities     7,203     5,617     8,655     —     21,475  
   
 
 
 
 
 
Total current liabilities     16,794     47,982     10,696     —     75,472  
   
 
 
 
 
 
Long-term debt, less current maturities     298,500     2,318     1,571     —     302,389  
Capital lease obligations, less current maturities     141     1,828     —     —     1,969  
Accrued closure and post closure costs, less current portion     —     21,977     1,010     —     22,987  
Minority interest     —     —     —     —     —  
Deferred income taxes     5,473     —     —     —     5,473  
Other long-term liabilities     —     10,047     1,328     —     11,375  

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends     63,824     —     —     —     63,824  
STOCKHOLDERS' EQUITY:                                
Class A common stock—                                
  Authorized—100,000,000 shares, $0.01 par value issued and outstanding—22,769,000 shares     228     101     100     (201 )   228  
Class B common stock—                                
  Authorized—1,000,000 shares, $0.01 par value 10 votes per share, issued and outstanding—988,000 shares     10     —     —     —     10  
Accumulated other comprehensive income (loss)     542     1,190     —     (1,190 )   542  
Additional paid-in capital     270,068     47,885     2,825     (50,710 )   270,068  
Accumulated deficit     (151,696 )   (95,165 )   (719 )   95,884     (151,696 )
   
 
 
 
 
 
Total stockholders' equity     119,152     (45,989 )   2,206     43,783     119,152  
   
 
 
 
 
 
    $ 503,884   $ 38,163   $ 16,811   $ 43,783   $ 602,641  
   
 
 
 
 
 

F-45


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FISCAL YEAR ENDED APRIL 30, 2001

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 478,159   $ 9,637   $ (7,430 ) $ 480,366  
Operating expenses:                                
  Cost of operations     128     319,394     9,074     (7,382 )   321,214  
  General and administration     5,535     57,703     889     (48 )   64,079  
  Depreciation and amortization     1,632     51,397     382     —     53,411  
  Impairment charge     —     79,262     425     —     79,687  
  Restructuring charge     3,613     538     —     —     4,151  
  Legal settlements     —     4,209     —     —     4,209  
  Other miscellaneous charges     —     1,604     —     —     1,604  
   
 
 
 
 
 
      10,908     514,107     10,770     (7,430 )   528,355  
   
 
 
 
 
 
Operating loss     (10,908 )   (35,948 )   (1,133 )   —     (47,989 )

Other expense/(income), net:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Interest income     (32,554 )   (3,207 )   (369 )   33,156     (2,974 )
  Interest expense     37,675     37,009     100     (33,156 )   41,628  
  Loss (income) from equity method investments, net     105,729     26,256     —     (105,729 )   26,256  
  Minority interest     —     953     73     —     1,026  
  Other expense/(income), net     1,054     (1,110 )   132     —     76  
   
 
 
 
 
 
Other expense/(income), net     111,904     59,901     (64 )   (105,729 )   66,012  
Income (loss) from continuing operations before income taxes and discontinued operations     (122,812 )   (95,849 )   (1,069 )   105,729     (114,001 )
(Benefit) provision for income taxes     (21,277 )   829     5     —     (20,443 )
   
 
 
 
 
 
Income (loss) from continuing operations before discontinued operations     (101,535 )   (96,678 )   (1,074 )   105,729     (93,558 )
Loss from discontinued operations, net     —     (4,130 )   —     —     (4,130 )
Estimated loss on disposal of discontinued operations, net     —     (2,657 )   —     —     (2,657 )
Reclassification from discontinued operations, net     —     (1,190 )   —     —     (1,190 )
   
 
 
 
 
 
Net income (loss)     (101,535 )   (104,655 )   (1,074 )   105,729     (101,535 )
Preferred stock dividend     1,970     —     —     —     1,970  
   
 
 
 
 
 
Net income (loss) available to common stockholders   $ (103,505 ) $ (104,655 ) $ (1,074 ) $ 105,729   $ (103,505 )
   
 
 
 
 
 

F-46


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FISCAL YEAR ENDED APRIL 30, 2002

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 418,500   $ 12,232   $ (9,497 ) $ 421,235  
Operating expenses:                                
  Cost of operations     4,057     273,651     8,482     (9,497 )   276,693  
  General and administration     (333 )   54,145     644     —     54,456  
  Depreciation and amortization     1,765     48,503     444     —     50,712  
  Restructuring charge     (438 )   —     —     —     (438 )
   
 
 
 
 
 
      5,051     376,299     9,570     (9,497 )   381,423  
   
 
 
 
 
 
Operating income     (5,051 )   42,201     2,662     —     39,812  
   
 
 
 
 
 
Other expense/(income), net:                                
  Interest income     (29,858 )   (1,896 )   (254 )   31,104     (904 )
  Interest expense     31,183     31,363     9     (31,104 )   31,451  
  (Income) loss from equity method investments     (19,390 )   (1,899 )   —     19,390     (1,899 )
  Minority interest     —     —     (154 )   —     (154 )
  Other expense/(income), net:     1,239     (6,249 )   530     —     (4,480 )
   
 
 
 
 
 
Other expense, net     (16,826 )   21,319     131     19,390     24,014  
   
 
 
 
 
 
Income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     11,775     20,882     2,531     (19,390 )   15,798  
Provision for income taxes     4,044     —     1,067     —     5,111  
   
 
 
 
 
 
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     7,731     20,882     1,464     (19,390 )   10,687  
Estimated loss on disposal of discontinued operations, net     —     (4,096 )   —     —     (4,096 )
Reclassification from discontinued operations, net     —     1,140     —     —     1,140  
Cumulative effect of change in accounting principle, net     (250 )   —     —     —     (250 )
   
 
 
 
 
 
Net income (loss)     7,481     17,926     1,464     (19,390 )   7,481  
Preferred stock dividend     3,010     —     —     —     3,010  
   
 
 
 
 
 
Net income (loss) available to common stockholders   $ 4,471   $ 17,926   $ 1,464   $ (19,390 ) $ 4,471  
   
 
 
 
 
 

F-47


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

FISCAL YEAR ENDED APRIL 30, 2003

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 416,777   $ 13,949   $ (9,863 ) $ 420,863  
Operating expenses:                                
  Cost of operations     (926 )   275,747     13,389     (9,863 )   278,347  
  General and administration     (3 )   55,227     548     —     55,772  
  Depreciation and amortization     1,812     43,849     2,269     —     47,930  
  Impairment charge     400     4,464     —     —     4,864  
   
 
 
 
 
 
      1,283     379,287     16,206     (9,863 )   386,913  
   
 
 
 
 
 
Operating income     (1,283 )   37,490     (2,257 )   —     33,950  
   
 
 
 
 
 
Other expense/(income), net:                                
  Interest income     (27,864 )   (3,398 )   (160 )   31,104     (318 )
  Interest expense     26,826     30,450     400     (31,104 )   26,572  
  (Income) loss from equity method investments     50,277     (2,073 )   —     (50,277 )   (2,073 )
  Loss on debt extinguishment     3,649     —     —     —     3,649  
  Minority interest     —     —     (152 )   —     (152 )
  Other expense/(income), net:     1,420     (2,536 )   (483 )   —     (1,599 )
   
 
 
 
 
 
Other expense, net     54,308     22,443     (395 )   (50,277 )   26,079  
   
 
 
 
 
 
Income (loss) from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     (55,591 )   15,047     (1,862 )   50,277     7,871  
Provision (benefit) for income taxes     4,217     —     (404 )   —     3,813  
   
 
 
 
 
 
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (59,808 )   15,047     (1,458 )   50,277     4,058  
Reclassification from discontinued operations, net     —     50     —     —     50  
Cumulative effect of change in accounting principle, net     —     (63,916 )   —     —     (63,916 )
   
 
 
 
 
 
Net income (loss)     (59,808 )   (48,819 )   (1,458 )   50,277     (59,808 )
Preferred stock dividend     3,094     —     —     —     3,094  
   
 
 
 
 
 
Net income (loss) available to common stockholders   $ (62,902 ) $ (48,819 ) $ (1,458 ) $ 50,277   $ (62,902 )
   
 
 
 
 
 

F-48


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED APRIL 30, 2001

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
Net Cash Provided by (Used In) Operating Activities   $ (27,717 ) $ 91,394   $ (1,960 ) $ 1,544   $ 63,261  

Cash Flows from Investing Activities:
 
 
—
 
 
 
 
 
 
 
 
 
 
 
 
 
  Acquisitions, net of cash acquired     —     (9,331 )   —     —     (9,331 )
  Proceeds from divestitures, net of cash divested     —     15,814                 15,814  
  Additions to property, plant and equipment     (3,626 )   (58,583 )   691     —     (61,518 )
  Proceeds from sale of equipment     —     2,298     —     —     2,298  
  Proceeds from sale of Bamgor Hydro warrants     6,718     —                 6,718  
  Advances to unconsolidated entities     —     (9,546 )   —     —     (9,546 )
   
 
 
 
 
 
Net Cash (Used In) Provided by Investing Activities     3,092     (59,348 )   691     —     (55,565 )
   
 
 
 
 
 
Cash Flows from Financing Activities:                                
  Proceeds from long-term borrowings     48,694     896     —     —     49,590  
  Principal payments on long-term debt     (34,597 )   (52,734 )   —     —     (87,331 )
  Proceeds from the issuance of series A redeemable, convertible preferred stock, net     54,741     —     —     —     54,741  
  Intercompany borrowings     (34,192 )   35,513     223     (1,544 )   —  
  Other     259     1,506                 1,765  
   
 
 
 
 
 
Net Cash Provided by (Used In) Financing Activities     34,905     (14,819 )   223     (1,544 )   18,765  
   
 
 
 
 
 
Cash (used in) provided by discontinued operations     3,016     (15,264 )   —     —     (12,248 )
  Net increase (decrease) in cash and cash equivalents     13,296     1,963     (1,046 )   —     14,213  
  Cash and cash equivalents, beginning of period     (449 )   6,579     1,658     —     7,788  
   
 
 
 
 
 
Cash and cash equivalents, end of period   $ 12,847   $ 8,542   $ 612   $ —   $ 22,001  
   
 
 
 
 
 

F-49


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED APRIL 30, 2002

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
Net Cash Provided by (Used In) Operating Activities   $ (10,523 ) $ 77,115   $ (401 ) $ 1,496   $ 67,687  

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Proceeds from divestitures, net of cash divested           31,216                 31,216  
  Additions to property, plant and equipment     (647 )   (36,986 )   (41 )   —     (37,674 )
  Other     3,530     (1,578 )   (5,027 )   —     (3,075 )
   
 
 
 
 
 
Net Cash (Used In) Provided by Investing Activities     2,883     (7,348 )   (5,068 )   —     (9,533 )
   
 
 
 
 
 
Cash Flows from Financing Activities:                                
  Proceeds from long-term borrowings     70,984     —     2,400     —     73,384  
  Principal payments on long-term debt     (141,103 )   (5,710 )   (196 )   —     (147,009 )
  Proceeds from exercise of stock options     3,560     —     —     —     3,560  
  Intercompany borrowings     64,955     (68,425 )   4,966     (1,496 )   —  
   
 
 
 
 
 
Net Cash (Used In) Provided by Financing Activities     (1,604 )   (74,135 )   7,170     (1,496 )   (70,065 )
   
 
 
 
 
 
Cash (used in) provided by discontinued operations     759     (6,551 )   —     —     (5,792 )
  Net (decrease) increase in cash and cash equivalents     (8,485 )   (10,919 )   1,701     —     (17,703 )
  Cash and cash equivalents, beginning of period     12,847     8,542     612     —     22,001  
   
 
 
 
 
 
Cash and cash equivalents, end of period   $ 4,362   $ (2,377 ) $ 2,313   $ —   $ 4,298  
   
 
 
 
 
 

F-50


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

FISCAL YEAR ENDED APRIL 30, 2003

(In thousands)

 
   Parent
   Guarantors
   Non-Guarantors
   Elimination
   Consolidated
  
Net Cash Provided by Operating Activities   $ 3,861   $ 61,782   $ 2,534   $ (3,225 ) $ 64,952  

Cash Flows from Investing Activities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Acquisitions, net of cash acquired           (18,068 )               (18,068 )
  Additions to property, plant and equipment     (369 )   (39,509 )   (2,047 )   —     (41,925 )
  Other     (5,329 )   4,114     —     —     (1,215 )
   
 
 
 
 
 
Net Cash Used In Investing Activities     (5,698 )   (53,463 )   (2,047 )   —     (61,208 )
   
 
 
 
 
 
Cash Flows from Financing Activities:                                
  Proceeds from long-term borrowings     376,737     2,541     1,243     —     380,521  
  Principal payments on long-term debt     (354,558 )   (5,902 )   (1,445 )   —     (361,905 )
  Deferred financing costs     (11,466 )   —     —     —     (11,466 )
  Proceeds from exercise of stock options     460     —     —     —     460  
  Intercompany borrowings     (1,510 )   105     (1,820 )   3,225     —  
   
 
 
 
 
 
Net Cash Provided by (Used In) Financing Activities     9,663     (3,256 )   (2,022 )   3,225     7,610  
   
 
 
 
 
 
  Net (decrease) increase in cash and cash equivalents     7,826     5,063     (1,535 )   —     11,354  
  Cash and cash equivalents, beginning of period     4,362     (2,377 )   2,313     —     4,298  
   
 
 
 
 
 
Cash and cash equivalents, end of period   $ 12,188   $ 2,686   $ 778   $ —   $ 15,652  
   
 
 
 
 
 

24.   SUBSEQUENT EVENTS

        On May 1, 2003, the Company acquired the assets of All-Waste Services, located in Lebanon, New Hampshire for approximately $4,200. All-Waste Services provides waste and recyclables collection services.

        In June 2003 the Company entered into a service agreement with the Town of Templeton, Massachusetts to construct and operate the town's sanitary landfill. The landfill is expected to be permitted within a year to accept 500 tons a day of municipal solid waste and operations will likely commence in the middle of calendar 2004.

        On June 30, 2003, the Company transferred its domestic brokerage operations as well as a commercial recycling business to former employees who had been responsible for managing those businesses, in exchange for notes receivable of approximately $5,000, payable to the extent of cash flow of the businesses.

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CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands)

 
   April 30,
2003
   October 31,
2003
ASSETS            

CURRENT ASSETS:
 
 
 
 
 
 
  Cash and cash equivalents   $ 15,652   $ 3,594
  Restricted cash     10,839     12,503
  Accounts receivable—trade, net of allowance for doubtful accounts of $895 and $1,096     45,649     49,450
  Notes receivable—officers/employees     1,105     1,105
  Prepaid expenses     5,906     6,644
  Inventory     1,740     1,739
  Deferred income taxes     4,275     4,177
  Other current assets     1,111     850
   
 
Total current assets     86,277     80,062
   
 
Property, plant and equipment, net of accumulated depreciation and amortization of $201,681 and $238,750     302,328     302,498
Goodwill, net     159,682     162,972
Other intangible assets, net     3,014     2,891
Investments in unconsolidated entities     34,740     37,386
Net assets under contractual obligation     3,844     5,898
Other non-current assets     12,756     15,475
   
 
      516,364     527,120
   
 
    $ 602,641   $ 607,182
   
 

The accompanying notes are an integral part of these consolidated financial statements

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   April 30,
2003
   October 31,
2003
  
LIABILITIES AND STOCKHOLDERS' EQUITY              

CURRENT LIABILITIES:
 
 
 
 
 
 
 
  Current maturities of long-term debt   $ 4,534   $ 4,415  
  Current maturities of capital lease obligations     1,287     828  
  Accounts payable     33,743     30,229  
  Accrued payroll and related expenses     7,383     6,114  
  Accrued interest     5,375     5,006  
  Accrued income taxes     4,526     4,121  
  Accrued closure and post-closure costs, current portion     2,962     1,000  
  Other accrued liabilities     15,662     17,135  
   
 
 
Total current liabilities     75,472     68,848  
   
 
 
Long-term debt, less current maturities     302,389     301,667  
Capital lease obligations, less current maturities     1,969     1,650  
Accrued closure and post-closure costs, less current maturities     22,987     18,786  
Deferred income taxes     5,473     7,526  
Other long-term liabilities     11,375     10,859  

Commitments and contingencies
 
 
 
 
 
 
 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding as of April 30, 2003 and October 31, 2003, liquidation preference of $1,000 per share plus accrued but unpaid dividends
 
 
63,824
 
 
65,430
 

STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
Class A common stock—
Authorized—100,000,000 shares, $0.01 par value issued and outstanding—22,769,000 and 23,032,000 shares as of April 30, 2003 and October 31, 2003, respectively		     228     230  
Class B Common Stock—
Authorized—1,000,000 shares, $0.01 par value 10 votes per share, issued and outstanding—988,000 shares		     10     10  
Accumulated other comprehensive income     542     1,007  
Additional paid-in capital     270,068     270,977  
Accumulated deficit     (151,696 )   (139,808 )
   
 
 
Total stockholders' equity     119,152     132,416  
   
 
 
    $ 602,641   $ 607,182  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-53


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands)

 
   Three Months Ended
October 31,
   Six Months Ended
October 31,
  
 
   2002
   2003
   2002
   2003
  
Revenues   $ 114,570   $ 111,974   $ 230,601   $ 225,863  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
  Cost of operations     74,171     71,931     151,963     146,209  
  General and administration     14,464     14,881     29,175     29,354  
  Depreciation and amortization     12,227     14,971     24,287     29,742  
   
 
 
 
 
      100,862     101,783     205,425     205,305  
   
 
 
 
 
Operating income     13,708     10,191     25,176     20,558  
   
 
 
 
 
Other expense/(income), net:                          
  Interest income     (82 )   (87 )   (161 )   (139 )
  Interest expense     6,933     6,057     14,087     12,332  
  Income from equity method investments     (1,549 )   (863 )   (1,751 )   (898 )
  Minority interest     —     —     (152 )   —  
  Other (income)/expense     221     (221 )   253     (380 )
   
 
 
 
 
Other expense, net     5,523     4,886     12,276     10,915  
   
 
 
 
 
Income from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     8,185     5,305     12,900     9,643  
Provision (benefit) for income taxes     3,470     (389 )   5,628     478  
   
 
 
 
 
Income before discontinued operations and cumulative effect of change in accounting principle     4,715     5,694     7,272     9,165  
Reclassification adjustment from discontinued operations (net of income tax benefit of $34 and $16)     (85 )   —     (39 )   —  
Cumulative effect of change in accounting principle (net of income tax (provision) benefit of $189 and ($1,856))     —     —     (63,916 )   2,723  
   
 
 
 
 
Net income (loss)     4,630     5,694     (56,683 )   11,888  
Preferred stock dividend     769     808     1,528     1,606  
   
 
 
 
 
Net income (loss) available to common stockholders   $ 3,861   $ 4,886   $ (58,211 ) $ 10,282  
   
 
 
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-54

 
   Three Months Ended
October 31,
   Six Months Ended
October 31,
 
   2002
   2003
   2002
   2003
Earnings Per Share:                        
Basic:                        
  Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ 0.17   $ 0.20   $ 0.24   $ 0.32
  Cumulative effect of change in accounting principle, net     —     —     (2.70 )   0.11
   
 
 
 
Net income (loss) per common share   $ 0.17   $ 0.20   $ (2.46 ) $ 0.43
   
 
 
 
Basic weighted average common shares outstanding     23,710     23,933     23,697     23,848
   
 
 
 
Diluted:                        
  Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ 0.16   $ 0.20   $ 0.24   $ 0.31
  Cumulative effect of change in accounting principle, net     —     —     (2.67 )   0.11
   
 
 
 
Net income (loss) per common share   $ 0.16   $ 0.20   $ (2.43 ) $ 0.42
   
 
 
 
Diluted weighted average common shares outstanding     23,939     29,159     23,947     24,252
   
 
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-55


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
   Six Months Ended October 31,
  
 
   2002
   2003
  
Cash Flows from Operating Activities:              
Net income (loss)   $ (56,683 ) $ 11,888  
Adjustments to reconcile net income (loss) to net cash provided by operating activities—              
  Depreciation and amortization     24,287     29,742  
  Reclassification adjustment from discontinued operations, net     39     —  
  Cumulative effect of change in accounting principle, net     63,916     (2,723 )
  Income from equity method investments     (1,751 )   (898 )
  (Gain) loss on sale of assets     220     (189 )
  Minority interest     (152 )   —  
  Deferred income taxes     4,364     296  
  Changes in assets and liabilities, net of effects of acquisitions and divestitures—              
    Accounts receivable     (10,122 )   (6,001 )
    Accounts payable     11,036     (2,193 )
    Other assets and liabilities     (3,269 )   (6,902 )
   
 
 
      88,568     11,132  
   
 
 
Net Cash Provided by Operating Activities     31,885     23,020  
   
 
 
Cash Flows from Investing Activities:              
  Acquisitions, net of cash acquired     (1,486 )   (6,098 )
  Additions to property, plant and equipment     (20,659 )   (28,683 )
  Proceeds from sale of equipment     340     279  
  (Advances to) distributions from unconsolidated entities     500     (1,348 )
  Proceeds from assets under contractual obligation     —     354  
   
 
 
Net Cash Used In Investing Activities     (21,305 )   (35,496 )
   
 
 
Cash Flows from Financing Activities:              
  Proceeds from long-term borrowings     54,550     60,950  
  Principal payments on long-term debt     (59,579 )   (62,569 )
  Proceeds from exercise of stock options     427     2,037  
   
 
 
Net Cash Provided by (Used In) Financing Activities     (4,602 )   418  
   
 
 
Net (decrease) increase in cash and cash equivalents     5,978     (12,058 )
Cash and cash equivalents, beginning of period     4,298     15,652  
   
 
 
Cash and cash equivalents, end of period   $ 10,276   $ 3,594  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-56

 
   Six Months Ended October 31,
  
 
   2002
   2003
  
Supplemental Disclosures of Cash Flow Information:              
Cash paid during the period for—              
Interest   $ 11,237   $ 11,834  
Income taxes, net of refunds   $ 471   $ 568  

Supplemental Disclosures of Non-Cash Investing and Financing Activities:
 
 
 
 
 
 
 
Summary of entities acquired in purchase business combinations              
Fair market value of assets acquired   $ 1,589   $ 6,284  
Cash paid, net     (1,486 )   (6,098 )
   
 
 
Liabilities assumed, notes payable and notes receivable forgiven to seller   $ 103   $ 186  
   
 
 

The accompanying notes are an integral part of these consolidated financial statements

F-57


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(In thousands, except for per share data)

1.     ORGANIZATION

        The consolidated balance sheets of Casella Waste Systems, Inc. and Subsidiaries (the "Company" or the "Parent") as of April 30, 2003 and October 31, 2003, the consolidated statements of operations for the three and six months ended October 31, 2002 and 2003 and the consolidated statements of cash flows for the six months ended October 31, 2002 and 2003 are unaudited. In the opinion of management, such financial statements include all adjustments (which include normal recurring and nonrecurring adjustments) necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The consolidated financial statements presented herein should be read in connection with the Company's audited consolidated financial statements as of and for the twelve months ended April 30, 2003. These were included as part of the Company's Annual Report on Form 10-K for the year ended April 30, 2003 (the "Annual Report"). The results of the three and six months ended October 31, 2003 may not be indicative of the results that may be expected for the fiscal year ending April 30, 2004.

2.     RECLASSIFICATIONS

        In the fourth quarter of fiscal 2003, the Company entered into negotiations with former employees for the transfer of our domestic brokerage operation and a commercial recycling business. The commercial recycling business had been accounted for as a discontinued operation since fiscal 2001. Due to the nature of the transaction, the Company could not retain historical discontinued accounting treatment for this operation. Therefore the commercial recycling business' operating results have been reclassified from discontinued to continuing operations for the three and six months ended October 31, 2002. Also in connection with the discontinued accounting treatment recorded in fiscal 2001, estimated future losses from this operation had been recorded and classified as losses from discontinued operations. This amount has been reclassified and offset against actual losses from operations for the three and six months ended October 31, 2002.

        In the fourth quarter of fiscal 2003, the Company revised results for the first quarter of fiscal 2003 to include additional goodwill impairment in the amount of $1,091, net of taxes, relating to the Company's waste-to-energy operations, Maine Energy. The Company previously reported goodwill impairment upon the adoption of SFAS No. 142 in the amount of $62,825, net of taxes.

3.     BUSINESS COMBINATIONS

        During the six months ended October 31, 2003, the Company acquired four solid waste hauling operations in transactions accounted for as purchases. These transactions were in exchange for consideration of $6,098 in cash to the sellers. The Company completed three such acquisitions during the six months ended October 31, 2002. The operating results of these businesses are included in the consolidated statements of operations from the dates of acquisition. The purchase prices have been allocated to the net assets acquired based on their fair values at the dates of acquisition with the residual amounts allocated to goodwill.

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        The following unaudited pro forma combined information shows the results of the Company's operations as though each of the acquisitions had been completed as of May 1, 2002.

 
   Six Months Ended
October 31, 2002
   Six Months Ended
October 31, 2003
Revenues   $ 233,530   $ 226,174
Operating income   $ 25,826   $ 20,633
Net income (loss) available to common stockholders   $ (58,010 ) $ 10,335
Diluted net income (loss) per common share   $ (2.42 ) $ 0.43
Diluted weighted average common shares outstanding     23,947     24,252

        The foregoing 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, 2002 or the results of future operations of the Company. Furthermore, such 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.

4.     ADOPTION OF NEW ACCOUNTING STANDARDS

        Effective May 1, 2003, the Company adopted SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 does not change the basic accounting principles that the Company and the waste industry have historically followed for accounting for these types of obligations. In general, the Company has followed and will continue the practice of life cycle accounting which recognizes a liability on the balance sheet and related expense as airspace is consumed at the landfill to match operating costs with revenues.

        The primary modification to the Company's methodology required by SFAS No. 143 is to require that capping, closure and post-closure costs be discounted to present value. The Company's estimates of future capping, closure and post-closure costs historically have not taken into account discounts for the present value of costs to be paid in the future. Under SFAS No. 143, the Company's estimates of costs to discharge asset retirement obligations for landfills are developed in today's dollars. These costs are then inflated by 2.6% to reflect a normal escalation of prices up to the year they are expected to be paid. These estimated costs are then discounted to their present value using a credit adjusted risk-free rate of 9.5%.

        Under SFAS No. 143, the Company no longer accrues landfill retirement obligations through a charge to cost of operations, but rather by an increase to landfill assets. Under SFAS No. 143, the amortizable landfill assets include not only the landfill development costs incurred but also the recorded capping, closure and post-closure liabilities as well as the cost estimates for future capping, closure and post-closure costs. The landfill asset is amortized over the total capacity of the landfill, as airspace is consumed during the life of the landfill with one exception. The exception is for capping for which both the recognition of the liability and the amortization of these costs are based instead on the airspace consumed for the specific capping event.

        Upon adoption, SFAS No. 143 required a cumulative change in accounting for landfill obligations retroactive to the date of the inception of the landfill. Inception of the asset retirement obligation is the date operations commenced or the date the asset was acquired. To do this, SFAS No. 143 required the creation of the related landfill asset, net of accumulated amortization and an adjustment to the capping, closure and post-closure liability for cumulative accretion.

        At May 1, 2003, the Company recorded a cumulative effect of change in accounting principle of $2,723 (net of taxes of $1,856). In addition we recorded a decrease in our capping, closure and post-closure obligations of $7,807, and a decrease in our net landfill assets of $3,228. The following is a

F-59


summary of the balance sheet changes for landfill assets and capping, closure and post-closure liabilities at May 1, 2003 (in thousands):

 
   Balance at
April 30, 2003
   Change
   Balance at
May 1, 2003
  
Landfill assets   $ 148,029   $ 6,166   $ 154,195  
Accumulated amortization     (63,207 )   (9,394 )   (72,601 )
   
 
 
 
Net landfill assets   $ 84,822   $ (3,228 ) $ 81,594  
   
 
 
 
Capping, closure, and post-closure liability   $ 25,949   $ (7,855 ) $ 18,094  
   
 
 
 

        The following table shows the activity and total balances related to accruals for capping, closure and post-closure from April 30, 2003 to October 31, 2003 (in thousands):

Balance at April 30, 2003   $ 25,949  
Obligations incurred     2,419  
Accretion expense     1,170  
Payments     (1,897 )
Cumulative effect of change in accounting principle     (7,855 )
   
 
Balance at October 31, 2003   $ 19,786  
   
 

        In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No., 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS No. 145, among other things, restricts the classification of gains and losses from extinguishment of debt as extraordinary such that most debt extinguishment gains and losses will no longer be classified as extraordinary. The Company adopted SFAS No. 145 effective May 1, 2003. Under SFAS No. 145, gains and losses on future debt extinguishment, if any, will be recorded in pre-tax income. Prior to the adoption of SFAS No. 145, in the third quarter of fiscal year 2003, the Company recorded an extraordinary loss of $2,170 (net of income tax benefit of $1,479) in connection with the write-off of deferred financing costs related to the Company's old term loan and old revolver. This item was reclassified to continuing operations in the audited fiscal year 2003 financial statements as loss on debt extinguishment in the amount of $3,649.

        In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses costs such as restructuring, involuntary termination of employees and consolidating facilities but excludes from its scope exit and disposal activities that are in connection with a business combination and those activities to which SFAS No. 143 and No. 144 are applicable. SFAS No. 146 is effective for exit and disposal activities that are initiated after December 31, 2002. The Company has not engaged in or initiated any exit or disposal activities since December 31, 2002.

        In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 clarifies the requirements of FASB No. 5, Accounting for Contingencies, relating to a guarantor's accounting for, and disclosure of, the issuance of certain types of guarantees. It requires a guarantor to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and initial measurement provisions of FIN 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002. The Company will record the fair value of future material guarantees, if any.

        In December, 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FAS 123. This statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In

F-60


addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used in reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The Company has included the required disclosures in these financial statements (Note 10).

        In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of APB No. 51("FIN 46"). FIN 46 requires that unconsolidated variable interest entities be consolidated by their primary beneficiary who absorbs a majority of the entities' expected losses or residual benefits. FIN 46 consolidation requirements apply immediately to all variable interest entities created after January 31, 2003 and on June 15, 2003 for those entities already established. In October 2003, the FASB issued FASB Staff Position (FSP) 46-6, Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities (VIE) which delays the effective date of FIN 46 to December 15, 2003 for certain VIEs. The adoption of FIN 46 had no impact on the Company's consolidated financial statements.

        In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liability and Equity.The statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity. The new statement requires that those instruments be classified as liabilities in statements of financial position. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS No. 150 effective August 1, 2003. In November 2003, the FASB issued an FSP delaying the effective date for certain instruments and entities. SFAS No. 150 had no impact on the Company's consolidated financial statements.

5.     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 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.

        In July 1996, Clinton County, New York entered into a privatization agreement with the Company for the Company to run the County's solid waste management system (the "System") as a private enterprise, including operations at both the existing unlined landfill, as well as newly constructed lined landfill areas. 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 unlined portion of the landfill. On or about April 1999, the New York State Department of Labor ("DOL") alleged that the Company should have paid prevailing wages in connection with the labor associated with such activities related to the unlined landfill. The DOL is attempting to apply the prevailing wage provisions of Labor Law § 220 to the Company's construction activities at the unlined portion of the Clinton County landfill, to include (1) cap construction at the unlined landfill; (2) construction of the "Casella Barrier Wall," which the New York State Department of Environment Conservation (the "DEC") required as a precondition to permitting the Phase III expansion of the Lined Landfill; and (3) construction of the "County Barrier Wall," which the DEC required as a corrective measure to control the historical contamination. The Company has disputed the allegations and a hearing on only the liability issue was held on September 16, 2002. Since the hearing did not address damages, relevant payroll documents have not been fully reviewed by either party. Accordingly, neither side is in a position to estimate wage amounts that might be payable in the event the hearing officer finds that the Company is liable for the payment

F-61


of such prevailing wages. In addition, any such estimate will differ depending on whether any liability ruling applies to some or all of the activities described above; and whether it would apply only to activities of the Company or to all subcontractors as well. In November 2002, both sides submitted proposed findings of fact and conclusions of law. The hearing officer is expected to make a recommendation to the Department of Labor commissioner during the summer of calendar 2004 on the liability issue. The Company continues to explore settlement possibilities with the State. Although a loss as a result of these claims is reasonably possible, the Company cannot estimate a range of reasonably possible losses at this time.

        The Company is a defendant in certain other lawsuits alleging various claims, none of which, either individually or in the aggregate, the Company believes are material to its financial condition, results of operations or cash flows.

6.     ENVIRONMENTAL LIABILITIES

        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.

7.     EARNINGS PER SHARE

        The following table sets forth the numerator and denominator used in the computation of earnings per share from continuing operations before discontinued operations and cumulative effect of change in accounting principle on a basic and diluted basis for the three and six months ended October 31, 2002 and 2003.

 
   Three Months
Ended October 31,
   Six Months
Ended October 31,
  
 
   2002
   2003
   2002
   2003
  
Numerator:                          
  Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle   $ 4,715   $ 5,694   $ 7,272   $ 9,165  
  Less: Preferred dividends     (769 )   (808 )   (1,528 )   (1,606 )
   
 
 
 
 
  Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle available to common stockholders—Basic   $ 3,946   $ 4,886   $ 5,744   $ 7,559  
   
 
 
 
 
  Plus: Preferred dividends     —     808     —     —  
   
 
 
 
 
  Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle available to common stockholders—Diluted   $ 3,946   $ 5,694   $ 5,744   $ 7,559  
   
 
 
 
 
                           

F-62

Denominator:                          
  Number of shares outstanding, end of period:                          
    Class A common stock     22,724     23,032     22,724     23,032  
    Class B common stock     988     988     988     988  
  Effect of weighted average shares outstanding during period     (2 )   (87 )   (15 )   (172 )
   
 
 
 
 
  Weighted average number of common shares used in basic EPS     23,710     23,933     23,697     23,848  
   
 
 
 
 
    Impact of potentially dilutive securities:                          
    Dilutive effect of options, warrants, convertible preferred stock and contingent stock     229     5,226     250     404  
   
 
 
 
 
  Weighted average number of common shares used in diluted EPS     23,939     29,159     23,947     24,252  
   
 
 
 
 

        For the three and six months ended October 31, 2002, 8,556 and 7,486 common stock equivalents related to options, warrants, and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

        For the three and six months ended October 31, 2003, 2,065 and 7,070 common stock equivalents related to options, warrants, and redeemable convertible preferred stock, respectively, were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive.

8.     COMPREHENSIVE INCOME (LOSS)

        Comprehensive income (loss) represents the change in the Company's equity from transactions and other events and circumstances from non-owner sources and includes all changes in equity except those resulting from investments by owners and distributions to owners. Comprehensive income (loss) for the three and six months ended October 31, 2002 and 2003 is as follows:

 
   Three Months
Ended
October 31,
   Six Months
Ended
October 31,
 
   2002
   2003
   2002
   2003
Net income (loss)   $ 4,630   $ 5,694   $ (56,683 ) $ 11,888
Other comprehensive income     1,297     274     1,723     465
   
 
 
 
Comprehensive income (loss)   $ 5,927   $ 5,968   $ (54,960 ) $ 12,353
   
 
 
 

        The components of other comprehensive income for the three and six months ended October 31, 2002 and 2003 are shown as follows:

 
   Three Months Ended
 
   October 31, 2002
   October 31, 2003
 
   Gross
   Tax
effect
   Net of
Tax
   Gross
   Tax
effect
   Net of
Tax
Changes in fair value of marketable securities during the period   $ (3 ) $ —   $ (3 ) $ —   $ —   $ —
Change in fair value of interest rate swaps and commodity hedges during period     2,186     886     1,300     460     186     274
   
 
 
 
 
 
    $ 2,183   $ 886   $ 1,297   $ 460   $ 186   $ 274
   
 
 
 
 
 

F-63

 
   Six Months Ended
 
   October 31, 2002
   October 31, 2003
 
   Gross
   Tax
effect
   Net of
Tax
   Gross
   Tax
effect
   Net of
Tax
Changes in fair value of marketable securities during the period   $ (40 ) $ —   $ (40 ) $ —   $ —   $ —
Change in fair value of interest rate swaps and commodity hedges during period     2,965     1,202     1,763     782     317     465
   
 
 
 
 
 
    $ 2,925   $ 1,202   $ 1,723   $ 782   $ 317   $ 465
   
 
 
 
 
 

9.     DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

        The Company's strategy to hedge against fluctuations in the commodity prices of recycled paper is to enter into hedges to mitigate the variability in cash flows generated from the sales of recycled paper at floating prices, resulting in a fixed price being received from these sales. The Company is party to twenty commodity hedge contracts as of October 31, 2003. These contracts expire between November 2003 and November 2005. The Company has evaluated these hedges and believes that these instruments qualify for hedge accounting pursuant to SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. As of October 31, 2003 the fair value of these hedges was an obligation of $525, with the net amount (net of taxes of $213) recorded as an unrealized loss in accumulated other comprehensive income.

        The Company is party to two interest swap agreements as of October 31, 2003 for an aggregate notional amount of $53,000 expiring in February, 2004. The Company has evaluated these swaps and believes these instruments qualify for hedge accounting pursuant to SFAS No. 133. As of October 31, 2003, the fair value of these swaps was an obligation of $160, with the net amount (net of taxes of $65) recorded as an unrealized loss in other comprehensive income. The estimated net amount of the existing losses as of October 31, 2003 included in accumulated other comprehensive income expected to be reclassified into earnings as payments are either made or received under the terms of the interest rate swaps within the next 12 months is approximately $69. The actual amounts reclassified into earnings are dependent on future movements in interest rates.

10.   STOCK BASED COMPENSATION PLANS

        The Company has elected to account for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees, for which no compensation expense is recorded in the statements of operations for the estimated fair value of stock options issued with an exercise price equal to the fair value of the underlying common stock on the grant date.

        SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FAS 123, requires that entities electing to remain with the accounting in APB Opinion No. 25 disclose pro forma net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied.

F-64


        If the Company applied the recognition provisions of SFAS No. 123 using the Black-Scholes option pricing model, the resulting pro forma net income (loss) available to commons stockholders, and pro forma net income (loss) available to common stockholders per share would be as follows:

 
   Three Months
Ended
October 31,
   Six Months
Ended
October 31,
 
   2002
   2003
   2002
   2003
Net income (loss) available to common stockholders, as reported   $ 3,861   $ 4,886   $ (58,211 ) $ 10,282
  Deduct: Total stock-based compensation expense determined under fair value based method, net     283     443     555     574
   
 
 
 
Net income (loss) available to common stockholders, pro forma   $ 3,578   $ 4,443   $ (58,766 ) $ 9,708
   
 
 
 
Basic income (loss) per common share:                        
  As reported   $ 0.17   $ 0.20   $ (2.46 ) $ 0.43
  Pro forma   $ 0.15   $ 0.19   $ (2.48 ) $ 0.41
Diluted income (loss) per common share:                        
  As reported   $ 0.16   $ 0.20   $ (2.43 ) $ 0.42
  Pro forma   $ 0.15   $ 0.18   $ (2.45 ) $ 0.40

        In accordance with SFAS No. 123, the fair value of each option grant has been estimated as the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:

 
   Six Months
Ended
October 31, 2002
   Six Months
Ended
October 31, 2003
Risk free interest rate   3.00% - 4.50%   2.34% - 3.23%
Expected dividend yield   N/A   N/A
Expected life   5 Years   5 Years
Expected volatility   65.00%   65.00%

        The Company has recorded no compensation expense for stock options granted to employees during the three and six months ended October 31, 2002 or 2003.

11.   SEGMENT REPORTING

        SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments in financial statements. In general, SFAS No. 131 requires that business entities report selected information about operating segments in a manner consistent with that used for internal management reporting.

        The Company classifies its operations into Eastern, Central, Western 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, aluminum, plastics and glass and brokerage of recycled materials. In September 2002, the Company transferred the export brokerage operation and in June 2003 the Company transferred its domestic brokerage operation and a commercial recycling business to two groups of employees who had managed those businesses. Included

F-65


in Other are ancillary operations, mainly major customer accounts, earnings from equity method investees and in the three and six months ended October 31, 2002, residue recycling operations.

 
   Eastern
Region
   Central
Region
   Western
Region
   Recycling
   Other
   Eliminations
   Total
Three Months Ended
October 31, 2002 (1)		                                          
Outside Revenues   $ 41,798   $ 24,505   $ 18,210   $ 26,375   $ 3,682   $ —   $ 114,570
Inter-segment Revenues     11,113     11,595     3,830     1,926     3,618     (32,082 )   —
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (83 )   6,040     1,460     254     (2,956 )   —     4,715
Total Assets   $ 218,602   $ 108,045   $ 108,034   $ 67,108   $ 70,793   $ —   $ 572,582
 
   Eastern
Region
   Central
Region
   Western
Region
   Recycling
   Other
   Eliminations
   Total
Three Months Ended
October 31, 2003		                                          
Outside Revenues   $ 43,856   $ 26,878   $ 18,822   $ 17,975   $ 4,443   $ —   $ 111,974
Inter-segment Revenues     13,333     13,149     4,233     118     —     (30,833 )   —
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (1,152 )   5,504     451     648     243     —     5,694
Total Assets   $ 242,491   $ 115,131   $ 111,542   $ 69,058   $ 68,960   $ —   $ 607,182
 
   Eastern
Region
   Central
Region
   Western
Region
   Recycling
   Other
   Eliminations
   Total
Six Months Ended
October 31, 2002 (1)		                                          

Outside Revenues
 
$
81,811
 
$
48,977
 
$
35,535
 
$
56,722
 
$
7,556
 
$
—
 
$
230,601
Inter-segment Revenues     21,256     23,574     7,724     5,711     6,867     (65,132 )   —
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (542 )   11,555     2,532     60     (6,333 )   —     7,272
Total Assets   $ 218,602   $ 108,045   $ 108,034   $ 67,108   $ 70,793   $ —   $ 572,582
 
   Eastern
Region
   Central
Region
   Western
Region
   Recycling
   Other
   Eliminations
   Total
Six Months Ended
October 31, 2003		                                          
Outside Revenues   $ 87,513   $ 52,847   $ 39,427   $ 37,465   $ 8,611   $ —   $ 225,863
Inter-segment Revenues     26,565     25,700     7,603     919     2,394     (63,181 )   —
Income (loss) from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (2,521 )   10,946     1,432     951     (1,643 )   —     9,165
Total Assets   $ 242,491   $ 115,131   $ 111,542   $ 69,058   $ 68,960   $ —   $ 607,182
(1)
Segment data for the three and six months ended October 31, 2002 has been restated to conform to the classification of data for the current fiscal year.

F-66

        Amounts of the Company's total revenue attributable to services provided are as follows:

 
   Three Months Ended
October 31,
   Six Months Ended
October 31,
 
   2002
   2003
   2002
   2003
Collection   $ 51,043   $ 55,286   $ 102,310   $ 110,839
Landfill/disposal facilities     17,378     17,549     32,985     35,376
Transfer     13,324     14,413     26,466     28,660
Recycling     22,525     24,726     40,179     47,693
Brokerage     10,300     —     28,564     3,295
Other     —     —     97     —
   
 
 
 
Total revenues   $ 114,570   $ 111,974   $ 230,601   $ 225,863
   
 
 
 

12.   NET ASSETS UNDER CONTRACTUAL OBLIGATION

        Effective September 30, 2002, the Company transferred its export brokerage operations to former employees, who had been responsible for managing that business. Consideration for the transaction was in the form of two notes receivable amounting up to $5,460. These notes are payable within five years of the anniversary date of the transaction to the extent of free cash flow generated from the operations.

        Effective June 30, 2003, the Company entered into a similar transaction transferring its domestic brokerage operations as well as a commercial recycling business to former employees who had been responsible for managing those businesses. Consideration for the transaction was in the form of two notes receivable amounting up to $6,925. These notes are payable within twelve years of the anniversary date of the transaction to the extent of free cash flow generated from the operations.

        The Company has not accounted for either of these transactions as a sale based on an assessment that the risks and other incidents of ownership have not sufficiently transferred to the buyer. The net assets of the operations are disclosed in the balance sheet as "net assets under contractual obligation," and will be reduced as payments are made.

13.   CONDENSED CONSOLIDATING FINANCIAL INFORMATION

        The Company's senior subordinated notes due 2013 are guaranteed jointly and severally, fully and unconditionally by the Company's significant wholly-owned subsidiaries. The Parent is the issuer and non-guarantor of the senior subordinated notes. The information which follows presents the condensed consolidating financial position as of April 30, 2003 and October 31, 2003; the condensed consolidating results of operations for the three and six months ended October 31, 2002 and 2003; and the condensed consolidating statements of cash flows for the six months ended October 31, 2002 and 2003 of (a) the parent company only ("the Parent"), (b) the combined guarantors ("the Guarantors"), each of which is 100% wholly-owned by the Parent, (c) the combined non-guarantors ("the Non-Guarantors"), (d) eliminating entries and (e) the Company on a consolidated basis.

F-67



CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF APRIL 30, 2003

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
ASSETS                                
CURRENT ASSETS:                                
  Cash and cash equivalents   $ 12,188   $ 2,686   $ 778   $ —   $ 15,652  
  Accounts receivable—trade, net of allowance for doubtful accounts     485     44,155     1,009     —     45,649  
  Prepaid expenses     613     5,138     155     —     5,906  
  Inventory     —     1,740     —     —     1,740  
  Deferred taxes     3,504     —     771     —     4,275  
  Other current assets     1,237     1,103     10,715     —     13,055  
   
 
 
 
 
 
Total current assets     18,027     54,822     13,428     —     86,277  
Property, plant and equipment, net of accumulated depreciation and amortization     2,996     294,109     5,223     —     302,328  
Intangible assets, net     —     162,696     —     —     162,696  
Investment in subsidiaries     (43,783 )   —     —     43,783     —  
Investments in unconsolidated entities     7,778     31,341     —     (4,379 )   34,740  
Assets under contractual obligation     —     3,844     —     —     3,844  
Other non-current assets     11,046     1,238     472     —     12,756  
   
 
 
 
 
 
      (21,963 )   493,228     5,695     39,404     516,364  
   
 
 
 
 
 
Intercompany receivable     507,820     (509,887 )   (2,312 )   4,379     —  
   
 
 
 
 
 
    $ 503,884   $ 38,163   $ 16,811   $ 43,783   $ 602,641  
   
 
 
 
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:                                
  Current maturities of long term debt     1,500     1,777     1,257     —     4,534  
  Accounts payable     1,350     32,285     108     —     33,743  
  Accrued payroll and related expenses     1,368     6,015     —     —     7,383  
  Accrued interest     5,373     2     —     —     5,375  
  Accrued closure and post-closure costs, current portion     —     2,286     676     —     2,962  
  Other current liabilities     7,203     5,617     8,655     —     21,475  
   
 
 
 
 
 
Total current liabilities     16,794     47,982     10,696     —     75,472  
   
 
 
 
 
 
Long-term debt, less current maturities     298,500     2,318     1,571     —     302,389  
Capital lease obligations, less current maturities     141     1,828     —     —     1,969  
Accrued closure and post closure costs, less current portion     —     21,977     1,010     —     22,987  
Deferred income taxes     5,473     —     —     —     5,473  
Other long-term liabilities     —     10,047     1,328     —     11,375  

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends
 
 
63,824
 
 
—
 
 
—
 
 
—
 
 
63,824
 

STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A common stock—
Authorized—100,000,000 shares, $0.01 par value issued and outstanding—22,769,000 shares		     228     101     100     (201 )   228  
Class B common stock—
Authorized—1,000,000 shares, $0.01 par value 10 votes per share, issued and outstanding—988,000 shares		     10     —     —     —     10  
Accumulated other comprehensive income     542     1,190     —     (1,190 )   542  
Additional paid-in capital     270,068     47,885     2,825     (50,710 )   270,068  
Accumulated deficit     (151,696 )   (95,165 )   (719 )   95,884     (151,696 )
   
 
 
 
 
 
Total stockholders' equity     119,152     (45,989 )   2,206     43,783     119,152  
   
 
 
 
 
 
    $ 503,884   $ 38,163   $ 16,811   $ 43,783   $ 602,641  
   
 
 
 
 
 

F-68


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET

AS OF OCTOBER 31, 2003

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
ASSETS                                
CURRENT ASSETS:                                
  Cash and cash equivalents   $ 1,491   $ 1,832   $ 271   $ —   $ 3,594  
  Accounts receivable—trade, net of allowance for doubtful accounts     345     47,902     1,203     —     49,450  
  Prepaid expenses     2,585     4,919     —     (860 )   6,644  
  Other current assets     4,432     2,590     13,352     —     20,374  
   
 
 
 
 
 
Total current assets     8,853     57,243     14,826     (860 )   80,062  
Property, plant and equipment, net of accumulated depreciation and amortization     2,573     296,652     3,273     —     302,498  
Intangible assets, net     —     162,972     —     —     162,972  
Investment in subsidiaries     (30,051 )   —     —     30,051     —  
Assets under contractual obligation     —     5,649     249     —     5,898  
Other non-current assets     18,891     40,920     320     (4,379 )   55,752  
   
 
 
 
 
 
      (8,587 )   506,193     3,842     25,672     527,120  
   
 
 
 
 
 
Intercompany receivable     518,916     (522,264 )   (1,031 )   4,379     —  
   
 
 
 
 
 
    $ 519,182   $ 41,172   $ 17,637   $ 29,191   $ 607,182  
   
 
 
 
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CURRENT LIABILITIES:                                
  Accounts payable   $ 1,430   $ 28,683   $ 116   $ —   $ 30,229  
  Accrued closure and post-closure costs, current portion     —     476     524     —     1,000  
  Other current liabilities     13,819     12,129     12,531     (860 )   37,619  
   
 
 
 
 
 
Total current liabilities     15,249     41,288     13,171     (860 )   68,848  
   
 
 
 
 
 
Long-term debt, less current maturities     298,500     2,216     951     —     301,667  
Deferred income taxes     7,526     —     —     —     7,526  
Other long-term liabilities     61     28,902     2,332     —     31,295  

COMMITMENTS AND CONTINGENCIES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Series A redeemable, convertible preferred stock, 55,750 shares authorized, issued and outstanding, liquidation preference of $1,000 per share plus accrued but unpaid dividends
 
 
65,430
 
 
—
 
 
—
 
 
—
 
 
65,430
 

STOCKHOLDERS' EQUITY:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Class A common stock—
Authorized—100,000,000 shares, $0.01 par value issued and outstanding—23,032,000 shares		     230     101     100     (201 )   230  
Class B common stock—
Authorized—1,000,000 shares, $0.01 par value 10 votes per share, issued and outstanding—988,000 shares		     10     —     —     —     10  
Accumulated other comprehensive income     1,007     1,428     —     (1,428 )   1,007  
Additional paid-in capital     270,977     47,880     3,068     (50,948 )   270,977  
Accumulated deficit     (139,808 )   (80,643 )   (1,985 )   82,628     (139,808 )
   
 
 
 
 
 
Total stockholders' equity     132,416     (31,234 )   1,183     30,051     132,416  
   
 
 
 
 
 
    $ 519,182   $ 41,172   $ 17,637   $ 29,191   $ 607,182  
   
 
 
 
 
 

F-69


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2002

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 113,798   $ 3,085   $ (2,313 ) $ 114,570  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Cost of operations     213     73,854     2,417     (2,313 )   74,171  
  General and administration     448     13,857     159     —     14,464  
  Depreciation and amortization     470     11,203     554     —     12,227  
   
 
 
 
 
 
      1,131     98,914     3,130     (2,313 )   100,862  
   
 
 
 
 
 
Operating income     (1,131 )   14,884     (45 )   —     13,708  
   
 
 
 
 
 
Other expense/(income), net:                                
  Interest income     (7,126 )   (356 )   (44 )   7,444     (82 )
  Interest expense     7,087     7,185     105     (7,444 )   6,933  
  Income from equity method investments     (9,171 )   (1,549 )   —     9,171     (1,549 )
  Other expense     23     113     85     —     221  
   
 
 
 
 
 
Other expense, net     (9,187 )   5,393     146     9,171     5,523  
   
 
 
 
 
 
Income from continuing operations before income taxes and discontinued operations     8,056     9,491     (191 )   (9,171 )   8,185  
Provision for income taxes     3,426     —     44     —     3,470  
   
 
 
 
 
 
Income from continuing operations before discontinued operations     4,630     9,491     (235 )   (9,171 )   4,715  
Reclassification adjustment from discontinued operations, net     —     (85 )   —     —     (85 )
   
 
 
 
 
 
Net income     4,630     9,406     (235 )   (9,171 )   4,630  
Preferred stock dividend     769     —     —     —     769  
   
 
 
 
 
 
Net income available to common stockholders   $ 3,861   $ 9,406   $ (235 ) $ (9,171 ) $ 3,861  
   
 
 
 
 
 

F-70


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED OCTOBER 31, 2003

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 109,764   $ 4,478   $ (2,268 ) $ 111,974  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Cost of operations     6     70,609     3,584     (2,268 )   71,931  
  General and administration     325     14,185     371     —     14,881  
  Depreciation and amortization     478     12,806     1,687     —     14,971  
   
 
 
 
 
 
      809     97,600     5,642     (2,268 )   101,783  
   
 
 
 
 
 
Operating income     (809 )   12,164     (1,164 )   —     10,191  
   
 
 
 
 
 
Other expense/(income), net:                                
  Interest income     (5,958 )   (340 )   (23 )   6,234     (87 )
  Interest expense     6,131     6,117     43     (6,234 )   6,057  
  Income from equity method investments     (6,270 )   (863 )   —     6,270     (863 )
  Other income     (6 )   (190 )   (25 )   —     (221 )
   
 
 
 
 
 
Other expense, net     (6,103 )   4,724     (5 )   6,270     4,886  
   
 
 
 
 
 
Income from continuing operations before income taxes     5,294     7,440     (1,159 )   (6,270 )   5,305  
Benefit for income taxes     (400 )   —     11     —     (389 )
   
 
 
 
 
 
Net income     5,694     7,440     (1,170 )   (6,270 )   5,694  
Preferred stock dividend     808     —     —     —     808  
   
 
 
 
 
 
Net income available to common stockholders   $ 4,886   $ 7,440   $ (1,170 ) $ (6,270 ) $ 4,886  
   
 
 
 
 
 

F-71


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

SIX MONTHS ENDED OCTOBER 31, 2002

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 229,033   $ 5,406   $ (3,838 ) $ 230,601  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Cost of operations     1,131     149,622     5,048     (3,838 )   151,963  
  General and administration     292     28,553     330     —     29,175  
  Depreciation and amortization     898     22,445     944     —     24,287  
   
 
 
 
 
 
      2,321     200,620     6,322     (3,838 )   205,425  
   
 
 
 
 
 
Operating income     (2,321 )   28,413     (916 )   —     25,176  
   
 
 
 
 
 
Other expense/(income), net:                                
  Interest income     (14,162 )   6,734     (92 )   7,359     (161 )
  Interest expense     14,111     7,120     215     (7,359 )   14,087  
  Income from equity method investments     48,783     (1,751 )   —     (48,783 )   (1,751 )
  Minority interest     —     —     (152 )   —     (152 )
  Other expense     89     79     85     —     253  
   
 
 
 
 
 
Other expense, net     48,821     12,182     56     (48,783 )   12,276  
   
 
 
 
 
 
Income from continuing operations before income taxes, discontinued operations and cumulative effect of change in accounting principle     (51,142 )   16,231     (972 )   48,783     12,900  
Provision for income taxes     5,541     —     87     —     5,628  
   
 
 
 
 
 
Income from continuing operations before discontinued operations and cumulative effect of change in accounting principle     (56,683 )   16,231     (1,059 )   48,783     7,272  
Reclassification adjustment from discontinued operations, net     —     (39 )   —     —     (39 )
Cumulative effect of change in accounting principle, net     —     (63,916 )   —     —     (63,916 )
   
 
 
 
 
 
Net loss     (56,683 )   (47,724 )   (1,059 )   48,783     (56,683 )
Preferred stock dividend     1,528     —     —     —     1,528  
   
 
 
 
 
 
Net loss available to common stockholders   $ (58,211 ) $ (47,724 ) $ (1,059 ) $ 48,783   $ (58,211 )
   
 
 
 
 
 

F-72


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

SIX MONTHS ENDED OCTOBER 31, 2003

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
Revenues   $ —   $ 221,910   $ 8,701   $ (4,748 ) $ 225,863  

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Cost of operations     210     144,348     6,399     (4,748 )   146,209  
  General and administration     207     28,579     568     —     29,354  
  Depreciation and amortization     927     25,638     3,177     —     29,742  
   
 
 
 
 
 
      1,344     198,565     10,144     (4,748 )   205,305  
   
 
 
 
 
 
Operating income     (1,344 )   23,345     (1,443 )   —     20,558  
   
 
 
 
 
 
Other expense/(income), net:                                
  Interest income     (11,885 )   (677 )   (48 )   12,471     (139 )
  Interest expense     12,468     12,223     112     (12,471 )   12,332  
  Income from equity method investments     (14,263 )   (898 )   —     14,263     (898 )
  Other income     (12 )   (314 )   (54 )   —     (380 )
   
 
 
 
 
 
Other expense, net     (13,692 )   10,334     10     14,263     10,915  
   
 
 
 
 
 
Income from continuing operations before income taxes and cumulative effect of change in accounting principle     12,348     13,011     (1,453 )   (14,263 )   9,643  
Provision for income taxes     460     —     18     —     478  
   
 
 
 
 
 
Income from continuing operations before cumulative effect of change in accounting principle     11,888     13,011     (1,471 )   (14,263 )   9,165  
Cumulative effect of change in accounting principle, net     —     2,518     205     —     2,723  
   
 
 
 
 
 
Net income     11,888     15,529     (1,266 )   (14,263 )   11,888  
Preferred stock dividend     1,606     —     —     —     1,606  
   
 
 
 
 
 
Net income available to common stockholders   $ 10,282   $ 15,529   $ (1,266 ) $ (14,263 ) $ 10,282  
   
 
 
 
 
 

F-73


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED OCTOBER 31, 2002

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
Net Cash Provided by Operating Activities   $ (1,088 ) $ 31,363   $ 1,610   $ —   $ 31,885  
Cash Flows from Investing Activities:                                
  Additions to property, plant and equipment     (97 )   (20,552 )   (10 )   —     (20,659 )
  Other     —     (646 )   —     —     (646 )
   
 
 
 
 
 
Net Cash Used In Investing Activities     (97 )   (21,198 )   (10 )   —     (21,305 )
   
 
 
 
 
 
Cash Flows from Financing Activities:                                
  Proceeds from long-term borrowings     54,550     —     —     —     54,550  
  Principal payments on long-term debt     (57,401 )   (1,835 )   (343 )   —     (59,579 )
  Proceeds from exercise of stock options     427     —     —     —     427  
  Intercompany borrowings     5,791     (4,774 )   (1,017 )   —     —  
   
 
 
 
 
 
Net Cash Used In Financing Activities     3,367     (6,609 )   (1,360 )   —     (4,602 )
   
 
 
 
 
 
  Net increase in cash and cash equivalents     2,182     3,556     240     —     5,978  
  Cash and cash equivalents, beginning of period     4,362     (2,377 )   2,313     —     4,298  
   
 
 
 
 
 
Cash and cash equivalents, end of period   $ 6,544   $ 1,179   $ 2,553   $ —   $ 10,276  
   
 
 
 
 
 

F-74


CASELLA WASTE SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED OCTOBER 31, 2003

(Unaudited)

(In thousands)

 
   Parent
   Guarantors
   Non-
Guarantors
   Elimination
   Consolidated
  
Net Cash Provided by Operating Activities   $ (1,579 ) $ 22,884   $ 1,715   $ —   $ 23,020  
Cash Flows from Investing Activities:                                
  Acquisitions, net of cash acquired           (6,098 )               (6,098 )
  Additions to property, plant and equipment     (2,754 )   (24,702 )   (1,227 )   —     (28,683 )
  Other     (1,348 )   633     —     —     (715 )
   
 
 
 
 
 
Net Cash Used In Investing Activities     (4,102 )   (30,167 )   (1,227 )   —     (35,496 )
   
 
 
 
 
 
Cash Flows from Financing Activities:                                
  Proceeds from long-term borrowings     60,950     —     —     —     60,950  
  Principal payments on long-term debt     (61,480 )   (463 )   (626 )   —     (62,569 )
  Proceeds from exercise of stock options     2,037     —     —     —     2,037  
  Intercompany borrowings     (6,523 )   6,892     (369 )   —     —  
   
 
 
 
 
 
Net Cash Provided by Financing Activities     (5,016 )   6,429     (995 )   —     418  
   
 
 
 
 
 
  Net decrease in cash and cash equivalents     (10,697 )   (854 )   (507 )   —     (12,058 )
  Cash and cash equivalents, beginning of period     12,188     2,686     778     —     15,652  
   
 
 
 
 
 
Cash and cash equivalents, end of period   $ 1,491   $ 1,832   $ 271   $ —   $ 3,594  
   
 
 
 
 
 

14.   SUBSEQUENT EVENTS

        The Company has executed a twenty-five year operation, management and lease agreement with Ontario County, New York for the operation of the Ontario County Landfill. The company closed the transaction and commenced operations on December 8, 2003.

        The Company has completed the purchase of Wood Recycling, Inc., which owns a construction and demolition debris (C&D) processing facility and operates a C&D and limited Municipal Solid Waste landfill owned by the Town of Southbridge, Massachusetts. The landfill is operated under a twenty-year contract with the Town of Southbridge.

        The Company has completed transactions with the State of Maine and Georgia-Pacific, pursuant to which the State of Maine took ownership of the landfill located in West Old Town, Maine formerly owned by Georgia-Pacific and the Company became the operator of that facility under a 30-year operating and services agreement between us and the State of Maine. Under the terms of the agreements, the Company will provide to the State of Maine, and the State of Maine will in turn provide to Georgia-Pacific, a cash payment of $12.5 million and letters of credit totaling $13.5 million, which become payable upon the issuance of an expansion permit for an additional 7 million cubic yards of commercial capacity at the landfill.

F-75