Casella Waste Systems Inc (CWST) 2002 Q4 法說會逐字稿

Good day everyone. Welcome to the Casella Waste Systems fiscal 2002 year-end conference call. Today's call is being recorded.

At this time for opening remarks and introductions I would like to turn the call over to Mr. Joseph Fusco. Please go ahead, sir.

Thank you for joining us this morning and welcome. We're joined today by John Casella, chairman and chief executive officer of Casella Waste Systems; Jim Bohlig, our president and chief operating officer; Richard Norris, senior vice president and chief financial officer; and Charlie Leonard, senior vice president, consolidated waste operations.

Today we'll discuss our fourth quarter and fiscal 2002 results, offer guidance for fiscal year 2003 and later on answer your questions as well.

But as always, as you know I must remind everyone that various remarks we may make about our future expectations plans and prospects, constitute forward-looking statements for purposes of the SEC's safe harbor provisions actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors which are discussed in our prospectus and other SEC filings.

Having said that I'll turn it over now to John Casella who will begin today's discussion. John.

Thanks, Joe. Welcome everyone. Today's agenda just to lay out for you the agenda in terms of issues to cover, we'll go through the review of the quarter. Richard will take you through the numbers for the quarter. Jim will go through the operations for the quarter. Then we'll come back and go through the guidance for 2003 and then go to questions and answers.

As we've gone through the fiscal year, we've often referred to milestones or markers of our progress towards renewing our strong core solid waste franchise. This week we passed another such milestone. One year ago we presented to you a far reaching strategic restructuring and refocusing plan. The plan was aimed at strengthening our core franchise of traditional solid waste businesses and positioning the company for more stable predictable financial performance. Over the last four quarters we delivered on that plan and performed very well.

Not just from the numbers perspective, but also from a perspective of aggressively undertaking the basic block and tackling necessary to build long-term efficient and a very outstanding waste management company.

Let's recap the year. First of all, we stabilized our performance. Our core business has and continues to perform well. Our stable cash flow focused on core operations in the successful divestiture program has enabled us to decrease leverage from 5.7 times EBITDA at the end of fiscal 2000 to 3.1 times debt EBITDA at the end of fiscal 2002.

Reducing debt from its highest point by over 177 million.

The focus on the core business is also highlighted this year with a reemphasis on our safety programs where we reduced our total number of incidents by 40 percent. We've reduced our claims on the dollar basis by 20 percent. And although the overall insurance industry issues related to the 11th unfortunately outweigh those benefits. But nonetheless, the significant benefit in terms of overall reduced incidents and most importantly reduced claims which represent significant savings to the company.

Again, unfortunately offset by higher health costs, higher costs from an umbrella liability standpoint. An overall reinsurance costs. But again getting back to the basics is really generated significant value to the company in terms of the momentum that we feel from a safety standpoint and the momentum that we take into the future by focusing on those core blocking and tackling issues.

Dramatically improvement from a working capital standpoint in terms of the overall receivables management. Over the last five quarters we reduced our 90-day receivables by over nine million. Program put in place by Richard some five quarters ago as I said significant results in terms of again core blocking and tackling metrix of the solid waste business.

Our actual free cash flow for the year was 33 million, exceeding the high end of the range that we gave last year. That range was 18 to 22 million. By over 50 percent.

This year we're embarking on a new program in terms of again more focus on continuous improvement of our existing core assets by attacking our turnover and setting a goal of reducing our overall turnover by 25 percent.

That reflection is really more related to our own sense of continuous improvement as opposed to any metrix that we're looking at from an industriwide perspective, because we really couldn't find any good metrix to look at.

From our own standpoint, it's really a matter of driving our own business on a continuous improvement basis and recognizing that by reduction in our turnover we will significantly impact the quality of service the way we perform the service at the curb every day. A new initiative as I said was begun for this year and has kicked off and is part of a training program as well as a reflection on getting back to the core blocking and tackling of our solid waste business.

With that, I'll turn it over to Richard, who will take you through the numbers for the quarter.

Thank you, John. For the quarter ended April 30th, 2002 revenue decreased by 2.1 million to 97.5 million from 99.6 million. That revenue decrease of 2.1 percent is broken down as follows:

The divestiture of the category were negative six percent, offset by total solid waste growth including acquisitions of about .6 percent and a 3.6 percent and gross in recycling prices volume is essentially flat at 3 of one percent. The solid waste growth percentage is comprised as follows: Price growth, 1.9 percent. Volume growth, 1.4 percent. Rollover growth from acquired businesses .6 of one percent. And core commodity price volume decreases with a negative .3 percent.

Pro forma EBITDA increased approximately 50 percent to 21.1 million from 14.1 million a year ago. And pro forma EBITDA margin was 21.7 percent in the current quarter up 14.7 percent last year. If you look at note three of the press release on the comparative basis eliminating divestitures, pro forma EBITDA from the core business is 19 million, was up significantly from last year, 16.7 million.

You will recall we had record snowfalls last year in the fourth quarter throughout much of our core business area. That significantly depressed our earnings in that quarter. Recycling also shows improved results year over year, doubling its EBITDA 2.4 million from 1.2 last year.

(OPM) prices are flat in these two periods. Most of that change is due to a change in product of FDR and (inaudible) lower prices.

Effective tax rate decreased in the quarter from 33.2 percent, mainly due to finalization of the year-end of May, updated data related to certain dispositions recorded earlier in the year which produced high losses for tax purposes.

This flat change flowed through the quarter at a rate (inaudible) disproportionately low. Pro forma net income for the quarter ended April 30, 2002 818 (inaudible) preferred dividend. Pro forma earnings per share (inaudible) percent.

(Net Bounty) statistics our total debt at the end of the quarter was 288.8 million. That is the net decrease of seven million for the end of last quarter arising mainly from free cash flows.

The total decrease in the year amounted to 74 million.

Total equity including preferred shares, 237.5 million. Giving a total cap of 526.4 million, for a total debt capitalization ratio of 54.9 percent at the end of the year.

The average interest rate for the quarter was 9.9 percent, including amortization of financing costs.

Net of these noncash items is 9.3 percent. And at this debt level remains at the same level of the interest rate.

Total cash and cash equivalents on hand at April 30th 4.3 million and restricted cash of 7.3 million.

Total debt less cash 274 million.

Capital expenditures in the quarter are 9.3 million for annual total of 37.7 million. Therefore, we achieved our goal of (inaudible) the budget for two million by 10 percent.

Finally, free cash flow, free cash flow in the quarter 3.3 million. That's (inaudible) as follows. EBITDA was 21 million. Cap ex 9.3 negative. Closure post closure accruals, cash outlay, positive 2.5 million. Cash interest, negative 6.5 million. Cash taxes are positive a (million) and a half.

And a negative change in working capital of six million mainly due to the (inaudible) payables, gives you total of 3.3 million. Brings us to an annual total of 33 million as John mentioned earlier.

We also received cash from the divestiture of New York which closed to April of 2.6 million dollars.

With that, that's that.

Good morning. I thought I would give you a benchmark for the individual regions in terms of the economy we see in each of those regions.

With regards to the western region which is western New York, we would generally characterize that as a soft economy at this point. It appears to be, on a go forward basis, consistent with where it is in Q-4. The central region I would characterize as being neutral, not soft. But certainly not firm.

In the eastern market appears to be from an economic activity standpoint to be on a little bit on the firm side on a national basis with regard to U.S. green fiber housing starts are robust so we're seeing good growth there. And with regards to FCR, as everyone is aware we're seeing relatively flat volumes but we are seeing commodity prices continue to rise toward the end of the Q-4 and appears to continue that into the first quarter of 2003. As you know, we've just completed our budget process and that has been based on these economic activity levels that I just gave you. With regards to our growth, Richard has given you the actual numbers. But I will tell you that during the Q-4 we were required to absorb, as John mentioned, a significant insurance cost associated with primarily with 9-11 and that has resulted in an effort on a go forward basis to be able to recover that. Early indications are that that seems to be going well as well.

With regards to landfill performance, this will be a Q-4 2001 versus Q-4 2002. Net of (Roburn), which tends to skew the numbers a little bit so I've taken that out. Our volumes are up 24,000 tons, which is about seven and a half percent. This is in line with Richard's comment about this quarter being significantly better than it was a year ago and primarily because of a year ago weather. The average tip fee is also up $2.53, and our internalization rate is up slightly.

Central region, internalizing at about a 81 percent rate. Eastern market is at 44 and western at 38. And an overall average of 527.7.

On a landfill permitting standpoint, I'm pleased to report that last week Clinton county approved the local approval for the secret process for our expansion of that landfill. They voted 6 to 3 in favor of it. This adds in excess of 4 to five million yards of additional air space which will certainly carry us to the end of our lease and perhaps a bit longer. We are also as I had mentioned at the end of the third quarter we're now we have applied for stage four at north country and we will expect to get a complete litmus review and an indication from the state on that by the end of the year. We do expect that there will be continued litigation on that in order to assure us of our rights with regards to that expansion.

Finally, as we have announced in our release, we've had replaced (Roburn) with the acquisition of Brockton. This will provide for us several years of residual replacement of capacity, as well as probably more importantly as a team of people who have been in that market who we believe to be particularly experienced at additional capacity acquisition and we believe will give us a good platform for expansion beyond the Brockton capacity.

Over the last couple of weeks a number of the analysts have asked for some proxies with regards to commodity pricing. So I thought I'd quickly go through that as we do have a significant recycling piece in our business. First, the drivers for the commodity pricing I think are probably forward drivers. First, following 9-11 I think there was a general activity contraction with regard to the paper mills in North America. We're seeing and have seen through the winter months a very stated and specific effort to maintain lean inventories. The second driver is there's been a consolidation of paper mills by segments so you're now getting some market power there. So their efforts to take lean inventories and operate in a lean matter has reached new heights. That was converged with a very strong spring buy out of the Asian markets and those two activities have caused prices to move up quite radically over the last three or four months. And the last driver is that we typically in the summer do see a commodity spike. Unfortunately, the stronger it goes up, the historical perspective is the faster it comes down. So the markets just OBM markets moved another 15 or 20 bucks, depending on the commodities you're talking about, over where they were in June. And so we continue to see upward pressures but we don't believe necessarily that that's the sustainable through the course of the year.

With regards to metrix, I attempted to do this, to take Q-4 as a proxy for our activity and then compare that to June prices and were those June prices to stay in effect through the balance of the year to try to give you an indication of what the upside might be.

Again, I caution everyone to be very careful. There's revenue sharing in here and this is a highly conditioned effort to try to characterize this. But were the prices to stay in June for the balance of the year, based off of a proxy of Q-4, we would see somewhere between a 2 and 4 million dollar annualized up side due to commodity prices.

And finally, this is a rightly market is a good environment in order to do hedging so we're rebuilding our hedging positions with regards to, as a result of recovering from the Enron loss and so we expect to be able to rebuild those positions significantly through the summer.

And finally, U.S. Greenfiber, they're on a calendar year 2002. They are ahead of their budget which is about 13 million dollars EBITA and we expect that to continue to perform at that level for the balance of the year, particularly in light of the housing start strengths out there. With that I'll turn it back to John for any future remarks.

Thanks, Jim.

It's been a very successful turn around year for us. We're also looking forward as well for fiscal year 2003 which began May 1st. The company expects results will be in the following ranges.

Revenues will be between 415 million to 435 million. EBITA will be between 87 million and 91 million. Operating free cash flow will be between 19 and 21 million and capital expenditures will be between 38 and 40 million. It's important when evaluating these numbers, particularly the range of 2003 EBITA projections versus fiscal 2002 performance of 92 million are as follows.

Divestiture of noncore assets reduces EBITA from 1.7 million. Our insurance premiums have risen by approximately six million dollars for fiscal 2003. Reflecting the significant costs of insurance coverage post September 11th. The closing of the (Roburn) facility which we partially offset by the Brockton facility and I think that we're fundamentally being somewhat conservative in terms of the immediate contribution of that.

And also a caution with regard to the economic health on a go forward basis.

With that I'll turn it over to Richard who will give you some more color in terms of the guidance that we've given.

Thank you, John. I'll just give you some more specific details on the 2003 outlook. As John indicated when we started to prepare the 2003 budget, we had a number of hurdles to overcome.

The first being the income that was reported in 2002 from divestitures which would no longer be there on a go forward basis and a couple of million dollars coming from timber, multi trade and (AART) which is a residue recycling project which has now come to an end. So we're not projecting any further EBITDA from that going forward.

The most negative factor or negative factor was insurance which increased as John said by approximately 40 percent to six million dollars year over year.

Unfortunately, our last history would not point to such an increase. This really was totally a result of the market change stemming from 9-11 and have been the most difficult negotiation year I've experienced for a long time.

Just one example of that our umbrella insurance we were coming off a three-year fixed premium so we did expect obviously a year over year increase from that. But our quote was ten times the previous years premium. We obviously pushed back on that but we still ended up with a two million dollar year over year increase of that cost.

The closure of (Roburn), which is anticipated this summer as John mentioned off set by the acquisition of Brockton will also have a negative impact year over year about three million dollars.

Finally, year over year because of the loss of our hedging program, which was in very good shape until the bankruptcy of Enron, we also were suffering of $2 million. So when you add them together, we started the year about 13 million dollars underwater.

Off setting these items are price increases in the solid waste business. Budget increase of 2.8 percent. We assumed no volume growth because of the uncertainty of the growth. As the economy improves over the next year it presents up site potential.

Given you some color on SDR. Basically the budget SDR was flat volumes and we've not assumed (inaudible) in the significant growth in commodity prices. But if price were to stay at current levels they would be above our current projections.

The revenue EBITDA breakdown between core NCRs is as follows. Revenue for core will be 319 to 335. SDR, 96 to 100. For a total of 415 to 435. EBITDA core 82 to 84 SF DR, five to six million for total of (inaudible).

Our outlook for the free cash flow is from 19 to 23 million. That breaks down the EBITDA 87 to 91. Cap ex expenditures 91 million. Net closure accruals less cash spent of five million. Cash interest 31 million. Cash taxes a million dollars negative. They were positive last year.

And a change in working capital negative two million.

The change of working capital we expect to be negative as we assume our normal growth versus the work that was done this year as John mentioned earlier reducing our working capital.

Finally just a word on a new capital structure which John (inaudible) completing a new capital structure which was announced last night it comprises 175 million high yield issue subordinated notes. And replacement of our existing significant DQ facility with similar 300 million facility which will be split 125 million turnkey balance being a revolver.

Standard and Poors reconfirmed our ratings such that Moody's changed their negative to a stabilized look.

As part of the transaction, we expect unwinding 130 million of our interest rate swap which we have outstanding currently. This will be at a cost of approximately four million dollars. That amount is included in the estimated transaction costs that you've seen in the rating agency subscriptions. That will leave us with 120 million dollars of swaps that will expire, all expire by April 2003.

Currently all our bank and bank debt and we believe this new structure will provide us with enhanced liquidity and flexibility and allow us to embark on a new acquisition program which will be very tightly managed. By the nature of the acquisitions will be opt opportunistic and difficult to predict. Assume minimal growth from (inaudible).

With that I guess we'd like to open it up for questions

Thank you. The question and answer session will be conducted electronically.

If you wish to ask a question, please press star followed by the digit 1 on your touch tone telephone. We will proceed in the order that you signal us to take as many questions as time permits.

Once again, if you do have a question or a comment, please press star 1 at this time. And we'll pause a moment to assemble the roster.

We'll hear from Bill Fisher with Raymond James.

Good morning. Actually, you answered most of my questions but just a couple follow-ups. On your pricing assumption, that 2.8 percent. You indicated that seems to be going fairly well the first month or so you've seen out of the box. Is that fair to say?

Yeah. I think that we're always cautious in terms of trying to characterize that. But Bill early indications are that it's folding up nicely and we're encouraged by those results.

And then changing gears. Just on Greenfiber you mentioned I think it was 13 million EBITDA budget. That's for - is that for fiscal 2003 or calendar 2003 or calendar 2002, I'm sorry?

U.S. Greenfiber is on a calendar year so that would be calendar year 2002 for that.

Was there anything going on in Q-4 in terms of the contributions from Greenfiber and the release? Seemed like it's a little below what you had last year.

There's nothing going on in U.S. Greenfiber from an operational standpoint. There was down - it's a seasonal - the May kind of April is the end of the installation season so you get a natural low point in that period of time. So that there may be that effect going on from the previous quarter.

Okay. Then just two clarifications for me. You mentioned on the recycling, the incremental if prices stayed up it would be the two to four million on top of what you were budgeting; is that the way on an annual basis?

Yes, that's correct.

And Richard what was that, the cash tax number you had in your budget for upgrade.

A million dollars?

How much?

One million.

Thanks very much.

We'll hear now from Mark (Ferano) from First Analysis.

This is Cory (Greendale). Just a couple of quick questions.

Can you talk about volume trends within the quarter was there anything in particular to pick up toward the end of the quarter? Was it flat throughout the quarter? Or what?

I think that we would characterize it as being somewhat flat throughout the quarter. We really didn't see any pickup. Keep in mind that we had a relatively speaking very warm winter season. So March and April were unseasonably warm. So we had quite a bit of activity during March and April that we normally would not have. So we really didn't see any significant volume increases and we're not seeing anything from an economic standpoint that would lead us to believe that we're moving away from the recession. Historically, though, we clearly, from a northeast perspective, we clearly seem to lag behind the rest of the country from an economic standpoint, in terms of the reality of a recession. So from that perspective it may very well be mixed news in terms of it may very well be good news. But on a go forward basis we're not projecting that we're going to see any volume increase because of the uncertainty.

Okay. And then could you give us some detail on the capital expenditures that you're planning, sort of breaking out specifically what that's for, like vehicles, containers or whatever else?

Sure. Capital expenditures are exactly that. They comprise of landfill capital, which is approximately 12 to 14 million dollars. And then the balance being equipment in terms of trucks, containers, as well as other ancillary equipment. But primarily trucks, containers and landfill development, cell development at the land fills.

Okay. Thank you

We'll go next to (Alan Habis) with CS First Boston.

Could you give us more specifics on the Brockton (Roburn) offset in terms of how much of the volume is offset and how much of the profitability is offset?

Well, yeah. I thought you were on vacation Alan.

I am except for these next couple of hours.

I think everyone should give you a compliment for coming off vacation.

Thank you.

I will do my best to try to do that. But it's a little bit tricky. First, (Roburn), as a site has, over the last two and a half three years, accepted a lot more material than just residuals from our facilities and accepted quite a bit of material from the big dig project. And that as a go forward characteristic does not apply to the Brockton. So you've got the effect of having a lot of slightly contaminated special soil material from the big dig project that will not be available or will go to alternative sites.

So that's a driver and a negative thing.

The Brockton facility, however, does have a very generous capacity and actually has more capacity than all of our residuals in that market. So from an internalization we'll be able to internalize 100 percent of our residuals to the Brockton facility. And it is generally about three and three and a half years, about 700,000 tons of capacity. We think there may be some additional there. We're also quite optimistic that the acquisition team that is part of that acquisition and the first people resources associated with that have got a number of additional projects in development as well which we're hopeful will be able to develop over the next year or two. So we actually see a relatively positive go forward basis in terms of residual landfill management.

With regards to hard numbers, Allen, I would say that the net on a forward basis, the net that (Roburn) will have to be recovered from in fiscal 2003 numbers is probably about three million dollars in EBITA. And again we're confident we're going to find that in the market. So we're going to - we're working hard on it.

Close that gap further?

Yes.

Just in general, then, on the acquisition, could you guys talk a little bit more I know you don't want to talk specific numbers, but do you see attractive acquisition candidates at reasonable prices out there such that it should become an increasing part of your news flow over the next couple months and quarters?

I think one of the things we've laid out on previous calls, Allen, is that we've done strategic planning at the field level, at the division level to identify all of the opportunities from a tuck in and strategic standpoint. To the extent that that has been completed, we're very confident that we have very handsome opportunities in terms of all of the operating regions from a growth standpoint on a go forward basis.

On a tuck in basis, to give you a sense of between tuck ins and strategic opportunities, there's between four and 500 million dollars worth of opportunities that have been identified in that strategic planning process that we've been through over the last six months.

So I don't think there's any question that we believe there's substantial opportunity on a go forward basis.

What percentage of that amount do you feel you have a sense what it would cost you to buy some of those revenues and in many cases do you have a sense of valuation and how much is that the valuation in a range you would think is attractive?

I think it's fair to say that one of the things that we're looking at and one of the things that the entire management team has been focused on for a couple of months now has really been looking at tuck in opportunities in their existing markets and beginning to move that program forward.

So I think that there's certainly, as time passes with regard to some of the expectations that were in the marketplace from a couple of years ago, we're finding that pricing metrix are getting more reasonable. There's not a lot of activity out in the marketplace right now. So I think that bodes well for the program on a go forward basis. But nonetheless we're only at the beginning stages of that at this point in time. And really only identified the opportunities out there and at this point in time are really looking at beginning to execute that program after we get a capital structure in place that will support that growth over the next year.

Okay. And a couple of financial questions. Richard, your current debt I think you said was at a cost of 9.9 percent. Sounds like the new capital structure shouldn't be that much different. Is that a relatively correct assessment?

I think that's a reasonable assumption, yes.

And the tax rate, are you planning for a 45 percent tax rate next year? Is that what it was.

It will be in that order of magnitude.

The increase is due to what?

Really the increase we experienced this year Allen as you remember I think in our first quarter our rate was 48 percent. Once we divested some of the facilities in the second quarter, they created significant tax losses so we reached that benefit and reduced the tax rate substantially. And that will not happen on a go forward basis and the rate will go back to where we normally see it which would be in that 45 percent range.

Have you precisely pinned down the impact of FAS142 adoption?

Yes, effective - the number we have disclosed as being the impairment we booked in the first quarter has been audited and it's the final number.

So there will be an impairment in the first quarter? Can you tell us what the EPS impact will be to next year's earning. Isn't that also bring down the tax rate, shouldn't it be?

Yes. With that change the tax rate will be 48 percent.

Okay.

It will have an impact.

Did you have an EFS impact for FAS142.

We don't look at ES. But the impact this year includes 6.3 million dollars in amortization versus zero next year.

Okay. How much of that was tax deductible, any of it?

Probably about half of it.

About half?

Yes.

Okay. That's it. Thank you very much.

Thank you.

And once again if you do have a question or a comment, please press star 1 at this time.

And we'll hear from Tom Ford with Lehman Brothers.

Good morning.

Hi Tom.

A couple questions for you, John.

I know Richard you had mentioned the availability or I'm not sure if you did mention the availability on the balance sheet as of year-end. If you have that. And then also, too, is the acquisition program dependent on a successful high yield offering or is the acquisition program, I think, more so it sounds like it's - it's not dependent on that. I just want to clarify that.

Good question, Tom. I think that we're fundamentally trying to be opportunistic with regard to capital structure, make sure that we have a capital structure in place that would support our growth over the next year or so.

We're in a position now where we have availability for the next few quarters to execute tuck in acquisitions. We have approximately 30 million dollars of availability on our current structure. So we do have availability for the next few quarters to tuck in acquisitions. Irrespective of whether or not we do the high yield deal.

But again we were trying to be fundamentally proactive to make sure we had a capital structure that would be aligned with the opportunities that we see in the marketplace and what we'd like to do from a growth standpoint.

Okay. Great. Thank you.

And then secondly, Richard, the recycling revenues and EBITDA were up sequentially from 3 Q to 4 Q. I wanted to make sure, I wanted to make sure I understood because I know you had productivity initiatives that you were realizing with respect to the recycling operation. Do you have a sense of the breakdown versus productivity versus commodity prices?

Richard pointed to me so I guess that means he wants me to reply.

That's something I'd be glad to go get for you. I don't know that I would want to throw it off the top of my head. What you're asking for is a link cash register between three and Q-4 based on commodity prices. First of all, I think that there's three kind of moving things here. One is commodity prices are different from Q-3 to Q-4 and toward the tail end of Q-4 commodity prices started to rise. There are some line differences and there are other productivity. And so I don't think I can give you at this instant a thumbnail profile of that but I'd be glad to do it for you and give you a call.

That would be great. Maybe if just off the top of your head, though, it doesn't sound like price had a major amount to do with the move if we looked at the sequential performance, if there's three drivers that we're talking about.

Well, I think the rest of that also includes some adjustments associated with the Enron write off. So it's hard to look at the numbers without giving all the moving parts. And I'll do that for you on that segment report.

Great. And then do I have - if I remember correctly, we don't have any - do we have collection tonnage coming out of Pennsylvania into New York?

No, we have no Pennsylvania tonnage. Essentially none. We have a very small amount going out going into high land. But essentially probably less than 30,000 tons a year.

Okay. Great. Lastly, there was a mention of turnover as being the initiative for fiscal 2003. And I know you mentioned it in terms of service improvement and what have you.

Can you maybe add a little bit more meat to the bone there in terms of could you quantify any types of numbers?

Sure. I think one of the things that has come out of the safety program, when you really begin to look at the metrix from a core blocking and tackling standpoint you begin to understand where you are having difficulty in terms of your accident, where the majority of those accidents are coming from. So when you begin to manage that you really begin to understand that the vast majority of the accidents are happening in the employment, with people who have been employed by the company for less than six months.

So turnover issues and selection issues in terms of bringing people into the company properly training them when they hit the company will have a significant impact in terms of savings.

As I said before. It's really being driven more by Charlie and Jim from an operating standpoint in that there's a clear recognition coming out of the work that we've done from a safety standpoint to understand that selection of people coming into the company and then training of those people is going to have a dramatic impact again in terms of continuing to improve from a safety standpoint, but also understanding what's happening from a safety standpoint and then understanding why people are leaving the company will also bring a real benefit to us not only from a cost standpoint but also from the standpoint of being able to deliver high quality services at the curb.

And, again, these are metrix that we're looking at ourselves as opposed to comparing ourselves with someone else. We're really looking at ourselves saying we're going to do a better job, we'll do a better job, and a real commitment on the part of the entire team to execute on that.

Great. Lastly, any thoughts on Greenfiber and monetization?

No, I don't think we would have any changed counts on there a from our earlier discussion. I think the benchmark is that Greenfiber long-term is a monetization asset for us. Short-term we are very pleased with the performance of the business. And its response to its market that it operates in.

It appears to be growing sustainably in the plus 20 percent range per year. And we think that there are some additional factors that may even provide us some additional market opportunities that will probably have more to talk about later in the year.

So there's an issue of trying to balance the monetization opportunities with making sure that we capture the full value or an appropriate value of the business.

So we have no short-term decisions with regards to monetization. And we're pleased by its results. But we would expect that over the next three to five years that certainly a key monetization platform for us to allow us to deleverage as we build our acquisition program and build our solid waste footprint in the southeast.

Jim, if I could on that, it sounds like you have, because I mean in your comments on Greenfiber, you revenues that the housing market is extremely strong. I think everyone always likes to believe that they sell whatever they're selling at the top of the market. But it also sounds like you're saying that there are opportunities independent of the housing market to drive performance. Can you give me a sense as to what the breakdown is in terms of what's contributing to the growth? Is it 10 percent, the strength in the housing market and 90 percent the independent initiatives, or how would that breakdown in terms of driving the numbers for Greenfiber?

Let me try to help you with that. There are three channels that the business sells through. One is contractor channel. Second one is manufactured homes and the third channel is retail.

With regards to the contractors, as you know, by putting this business together with LP, we basically are approached from a more classical consolidation and now are the largest sell Lois manufacturer in North America. After having said that we're only in about 25 of the MSAs we've ramped up a fairly successful program to roll out our product availability in the balance of those MSA's.

That in itself, were we to be successful on that which we expect to be will significantly expand the business maybe in itself close to 20 percent a year growth rate. And we expect to have these MSA penetrations done within the next two to three years and so we see a lot of growth businesses there.

Second, with regards to manufactured homes, even though the housing starts are at a robust number, the manufactured home industry is at a very low number. So we see only up side there. They're at about 180,000 units and their normal - the normal kind of operating number is 250 to 300. So we see up side there. We're a major prior of insulation for the manufactured home, probably greater than 80 percent of that market.

And finally retail, we're only in about 2,000 of the 6,000 big boxes in the country. This is a Home Depot, lows and related stores. And we have embarked on a fairly significant expansion into that market. We're the only producer nationally that can provide that product for those big box stores and it clearly gives us an advantage.

Finally, we remain to be the low cost provider service, 20 to 30 percent below fiberglass, and we are on the verge, we think, in the next five to six months of being able to do a better job of penetrating the wall markets and when we do that we think that opens up a significant larger market than what we've had access to. And so that will support our growth nicely.

So those three or four items are where this business is going to grow and it's the basis under why we think it's a good business. And we need to - we need to find the right place in terms of optimizing it relative to the monetization.

I mean it sounds as though it's more of a share driven story as opposed to some type of organic growth driven story.

Yes it's definitely share driven. But it is effectively organic growth through both additional penetration and volumes through existing customer channels.

Okay. When you say that Greenfiber is low cost producer I assume you're indicating there it's hedged relative to sell you Lois price fluctuation.

What we did once we got organized and FCR was to transfer that approach to U.S. Greenfiber. We are hedged on all of our O and P pricing at about 55 percent of our total volume at a fixed price of about 70 dollars a ton. So we are feeling pretty comfortable even if we see a rise in the commodity prices that we're pretty well protected.

Thanks very much.

We'll hear from Alana (Del Laura) Salomon Smith Barney.

Thanks. You answered all my questions. Thanks.

We'll hear from Steve Cole with Madador Capital.

Good morning, guys.

I wanted to clarify a couple of points. If you could review the operating metrix just for the quarter. I kind of got bits and pieces just on what price and volume were.

And if you have, I know you gave some color. I think Jim may have given some color by region. But I missed, I think I heard the eastern and the central. I missed the western comment.

The price in the quarter 1.9 percent, volume growth 1.4 percent and those numbers were, that's a compilation of the all the regions.

Okay.

If you look Richard for the budget for this year I know you've mentioned the flat volume growth number. And I think you mentioned 2.6 percent price if I recall correctly. What percentage of that has already been put in place today?

The total amount is 2.8 percent.

I'm sorry.

It's essentially we've advanced that pricing already. So it's essentially all in.

Okay. And I think in terms of you mentioned the upside. I think it was two to four million dollars. Is that EBITDA?

Yes.

On recycling?

Yes.

Then just turning back I guess one other comment just to the regions again disposal capacity I had to pop off but I think Allen asked you about Brockton and (Roburn). And I think you went into some detail about that. I guess the question would be did you provide any other input on other disposal opportunities? And if you'll look at the priorities as you guys lay them out. Where does that set? Does it depend on the region we're in. Focusing on western and eastern region more opportunistic what would be the timing where we could see some of those efforts come to fruition.

I think the best way to look at that is to think about the markets and their distinctly different. The western market has a surplus ever publicly owned land fills. So landfill capacity there is I would say on the surplus side and flat why prices are typically in the low 30's. There are some privatization opportunities out there that we're working on but there's somewhat quiet at this moment, typically in light of flow control and how that will play out.

The central region which is the most mature market it's steady we have a lot of capacity to handle our business for the next 10 to 15 years. We are looking at other opportunities there. But we think that's kind of steady as you go.

The eastern market, which is probably best validated by the high tipping fees which are generally in the eastern mass market, and the 80 to 85 dollar range. And in eastern, in the main market probably 55 dollars.

It is a market which is generally constrained from a capacity standpoint so you have a moratorium in Maine and you have effectively an ended moratorium in Massachusetts that hasn't produced any results yet.

And you have not cited anything in New Hampshire. So the market is tight. Prices continue to be very firm. So that makes sense that probably would be a market where we are attempting to accomplish disposal capacity either development or acquisition, in order to accomplish a higher vertical integration and internalization in that market. I guess of the three markets, more of our efforts clearly are aimed at the eastern region in terms of disposal capacity.

Okay. And one last quick -

It is fair to say though from a disposal capacity standpoint we're really looking at all the opportunities that encompass the entire franchise in the northeast, Steve. So while Jim's absolutely right in terms of the focus on eastern mass, we're also looking at every opportunity from a disposal capacity standpoint that will add value to the existing franchise.

And I guess the one last point would be as you guys look out over the next year, I think obviously you provided the range I know in EBITDA. Maybe you can kind of speak to what your vision is over the next, I always like to put on you the spot for looking at it, even say two or three or four years, where do you guys see Casella being at that time?

We're on a path of continuous improvement of the existing core operations that the results of which speak for themselves in terms of the health of the core business. I think it speaks to the management team that's been in place on a regional level and divisional level to get the job done on a core level. It will be to add disposal capacity to enhance the value of those assets and do that in a manner that really reflects responsible growth on a go forward basis T we will be opportunistic and it's likely that our growth is likely to be lumpy as opposed to seeing us consistently doing quarter over quarter acquisitions growth. I think the real notion is for us to create significant value by continuous improvement of the existing core franchise and responsible growth on a go forward basis.

One last point. I lied. This I promise is the last question. What are you guys doing to improve efficiencies? I think somewhere along the line you talked about turn over cutting it back do you have other opportunities in terms of obviously trucks are a big deal and tires we heard from heard from - is a bigger focus where are you guys at in improving just the day-to-day logistics issues and planning scheduling, are there opportunities there to take on additional cost?

I think that we've talked about the safety issue significantly. We've talked about training and turnover. Training of our people is a major component. We've also incorporated this year a new maintenance software program that's going to be instituted across the entire company that should be and should allow us to take our overall maintenance costs and reduce them by a three to five percent reflection.

So I think that it's clear what we've been able to do from a safety standpoint. The training and the attention to turnover will add significant value from a customer service standpoint. Then additional software to drive our maintenance programs and help reduce our overall maintenance costs by having much better controls in terms of inventory, a clear understanding of what we've got on the shelf in every operation and the real tools put in the hands of our maintenance managers from a systems standpoint to help them do a better job of managing the maintenance costs on a go forward basis.

Keep in mind, as we go forward, one of the other issues in terms of how we drive the business is to make sure that we communicate all of those programs to the new people that we bring into the business as we begin to responsibly grow if business again

We'll hear from Adam (Tamara) from Interest Capital.

Just a quick clarification on the guidance for flat volume. I'm curious, are you seeing the markets that you're in weakening from sort of the 1.4 percent growth that you exhibited last quarter, or did you think that - are the comparers tougher now that you're getting past the easier weather comparers.

I think the latter part of your statement is true. But I think on an overall basis we're simply being conservative. We're not seeing deterioration but we're not seeing the kind of growth that we would normally expect to see at this point in time.

Some of that may be reflective of the warm winter season that we had and a lot more construction work was done way earlier than it normally would be. But we're just not seeing the kind of volume increases that we would normally see at this point in time.

So I think it's more reflective of being conservative on a go forward basis as opposed to anything that we're seeing from a deterioration standpoint. I would say that volumes remain flat. But during this period of time we're normally seeing volumes going up.

Okay. Thanks.

You're welcome.

And gentlemen there seems to be no further questions at this time.

Very good. In summary I want to reemphasize that we continue to do the right things with regard to the core solid waste business. Charlie Leonard continues to focus on comprehensive integrated day-to-day improvement in everything that we do to ensure that our core operations are as efficient market leaders as possible. We will, with our new capital structure, be looking for selective and opportunistic acquisitions marked by a responsible approach to growth. However, we've not built this activity into our guidance for 2003. We also, as we've said numerous times, been conservative in all of our assumptions for our guidance for 2003 from the health of the economy to the level of commodity prices.

Our first quarter 2003 earnings release will be in early September. And with that I'll thank you for your time and look forward to talking to all of you at that point in time.

Thanks again.

And that concludes today's teleconference. Thank you for your participation.