Casella Waste Systems Inc (CWST) 2003 Q1 法說會逐字稿

Good day everyone. Welcome to the Casella Waste Systems first quarter fiscal 2003 earnings release 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 Joe Fusco of Casella Waste Systems. Please go ahead, sir.

Thank you for joining us this morning and welcome. We are joined this morning by John Casella, Chairman and Chief Executive Officer of Casella Waste Systems, Jim Bohlig, our President and Chief Operating Officer, and Richard Norris, Senior Vice President and Chief Financial Officer. Today we will be discussing our first quarter results for our 2003 fiscal year. These results were released yesterday afternoon. Along with the review of our financial performance, we'll update you briefly on the Company's activities and our business environment and answer your questions a little later as well.

But first, as you know, I must remind everyone that various remarks that we may make about our future expectations, plans and prospects constitute forward-looking statements for purposes of the SEC Safe Harbor provision. 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.

Thanks, Joe. Welcome everyone. Again, a brief overview on today's agenda. I will do an overview of the quarter. Richard will go through the -- Richard will go through the numbers for the quarter. Jim will take you through an overview of operations. And then we'll take your questions after that brief presentation.

As you look at the quarter, it's clear that we continue to deliver on our strategic plan of bringing back stable, predictable, solid waste services performance. Each quarter truly has become a milestone in our progress in renewing that stable, predictable performance of a core franchise that, in fact, over the last several quarters has performed very strongly. The numbers for revenue for the quarter is 115 million. 115.9 million. EBITDA 23.7 million and EPS at 8 cents. Those operating results were clearly in line, from our perspective with regard to our budget. Excluding divestitures, internal growth was 6.8% for the quarter. That is really, truly driven mainly by price and volume increases from STR's recycling business.

And as you know, at the end of -- at the conference call for the fourth quarter, we had predicted little or no growth in the solid waste business. And that, in fact, has come to be true. But, also as we predicted and laid out at the end of the year, even with little or no growth in the core business, the strength and stability of that core franchise is clearly evident in that we have been able to implement price increases to offset the year-over-year effects of increased insurance costs, that were very significant, as you recall, going through those in the fourth quarter conference call, as well as the loss of Enron hedges and other issues that we had to face on a year-over-year comparison from a budget standpoint.

Clearly that performance in the first quarter does, in fact, really speak to the strength of our core franchise, and our ability to move those metrics in a very positive manner, in what anyone would characterize as a very difficult economic reality. A large part of that strategic plan has also been continuous improvement. We have been focused on improving our most basic day-to-day operating activities, from safety to maintenance, as well as customer service. We are simply becoming a better and better company at the DNA level, if you will. And I think while we also have a clear senior management focus on the basics of the business in terms of the core blocking and tackling that will truly add value to the existing assets that we already own, we are also looking at beginning to pursue a responsible growth strategy.

And as many -- many of you know the senior management team spent a portion of July on a high yield road show. The vision for the Company, and that presentation was, in fact, received very well. In addition, our senior debt facility which was done in conjunction with the high yield road show was oversubscribed. And clearly we could have gotten a deal done had we chosen, at that time. However, general bond market conditions would have dictated that we would have paid a premium beyond what was an acceptable rate from our perspective.

Being committed to exercising discipline in that area, we put off the transaction until the markets improve. And until such time as we revisit the high yield offering, we expect that our existing credit facility will provide us the flexibility that we need in the coming months. In addition, the maturity of our revolver is not until 2004. With that, I'll turn it over to Richard who will take you through the details behind the numbers for the quarter.

Thank you, John. For the quarter ended July 31, 2002, revenue increased $3.6 million from 112.3 million to 115.9 million. That revenue increase of 3.2% is comprised as follows. Core growth including acquisitions arranged to 0.4%, STR brokerage price growth was 3.8 percent. SGR volume growth 2.6, and divestitures were a negative 3.6%, for a net change of 3.2.

The core growth is broken down into its components as follows. Price growth was 2%, volume growth was a negative -- it was actually a volume decline of 2.2%, core commodity growth price and volume 0.2%, and acquisitions 0.4%. The revenue breakdown is, core business was 81.8 million, FCR was 30.3 million and other was 3.7 million for a total of 115.9 million.

EBITDA for the quarter decreased 2% to 23.7 million from 24.2 million. And EBITDA margin was 20.5% in the current quarter versus 21.6% last year. That decrease is mainly due to the high margin divestitures, as well as lower margins in the core business partially offset by improved performance in the recycling brokerage business. The EBITDA breaks down as follows. Core EBITDA was 21.3 million, STR brokerage 3.2 million, and other was a negative 0.8 million.

Other comprises two things. Firstly, a loss from WART of 180,000, that is a national recycling project which is winding down. And the final distribution will likely be in the second quarter. Most of the balance arises from medical insurance expense relating to the [inaudible] from the former provider. As we changed health insurance companies May 1. While this tail was anticipated and included in our outlook for the year, the actual claims for prior year losses came in a half million dollars higher than expected.

GNA also shows an uptick from the prior year. This was mainly due to legal expenses. The main issue was the ongoing litigation surrounding main energy. A part of this is related to permit issues to allow us to use different chemicals in the scrubbers to address the odor control issue. This was approved by the court. The other part relates to the lawsuit by the municipalities. In July the City of Sacro [ph] amended its complaint to narrow it to a contract dispute on the timing of the residual payment.

In income taxes for the period the effective rate moved to 45.3% consistent with our previous guidance and expectations. This is approximately 2% decrease from the same quarter last year, mainly due to the elimination of non deductible goodwill. This does represent an increase over the full year last year because of the losses from dispositions recorded in that period.

We also booked a large change in accounting principle charge this quarter. As was previously announced we adopted FAS 142 effective May 1. This resulted in a charge to earnings, net of tax, of $62.8 million. This charge related to assets acquired from KTI which are not impaired under the old rules. The impairment exercise was completed on a company wide basis. And none of the solid waste assets were impaired.

Pro forma net income for the quarter ended July 31, 2002 amounted to 1.8 million after preferred dividends for an earnings per share of 8 cents pro forma.

Couple of balance sheet statistics. Our total debt at the end of the quarter was 286 million. This is a decrease of 2.9 million from year-end arising mainly from cash available at year-end. Total equity was 178 million. Giving us a total capitalization, including preferred shares of 464 million.

The total debt to cap ratio at the end of the quarter was .62, this -- the increase in this ratio arises mainly from the FAS 142 write-off. The average interest rate for the quarter remained unchanged from last quarter at 9.9%, including amortization of financing costs. Net of these expenses it was 9.2%. This debt level remains the same level on the interest rate grid.

Total cash and cash equivalents on hand at July 31 amounts to $1 million. Restricted cash was $10.8 million. Debt less cash was 274 million unchanged from year-end. Capital expenditures for the quarter amounted to 11.3 million, up slightly from last year's 9.1 million, due mainly to the timing of receipt of roaming stock.

Our free cash flow in the quarter amounts to $1 million which is in line with our expectations. A calculation of that is as follows. EBITDA was 23.7 million. And the following are all deductions from that number. Net closure post closure expense 100,000. Cash interest 6.6 million. Cash taxes 200,000. Capital expenditures, as I said, 11.3 million. And the change in working capital, a negative 4.5 million. The change in working capital is comprised of both increases in both AR and AP. The AR and AP were both up mainly due to seasonality and the increase in revenue quarter over quarter, but our AR DSO remained unchanged at 38 days, and our over 90 day amount still remains well below 4 percent. The other components in the changing working capital was a small increase in current assets and inventory and closure post closure accrual went down as expected.

With that I'll turn it over to you, Jim. Thank you.

Thanks, Richard. Just as a segue into the operational from an economy and business environment standpoint. The western region continues, I think as we reported last quarter, to be soft. And I guess I would characterize the overall market as you go east, to be firming a little bit. So that our weakest market is the western market. And as we go east it gets a little firmer.

Through the quarter the economy was generally very choppy. And had unexpected seasonal variations from year earlier. We were very pleased with the pricing increase, as Richard mentioned, particularly with the success of the net price increase necessitated by the 9-11 insurance issues previously discussed. On our landfill internalization issues, we have achieved an overall internalization this quarter of 54.7%. That's up slightly from previous reports. In the central region we are running at 80.9%, eastern is 50.1%, and western is 38.6.

I will note that during the quarter our third party tonnage prime was down. Although we were able to make up that with internally gathered tonnage for relatively speaking flat tonnage quarter-over-quarter. From a permitting standpoint, we were very pleased to receive the secret permit for 4 to 6 million yards additional permit at Clinton County. This was approved by a legislative vote there in July and will ensure long-term capacity for the Clinton County facility for well through the end of that current lease period. We've also received administratively complete permitting at North Country on our initial stage four. I will remind everyone that this is just the initial step in the stage four permit of two million yards. It stills requires technical completeness and other reviews and approvals from the state of New Hampshire.

We have also reached agreement with the city of Angelico [ph] with regards to the permissive referendum which will be held in November . For an expansion of the Highland facility for an additional 38 acres. We are cautiously optimistic that this is being well received in the community and believe that we will be successful there.

Finally, just one small comment. I think during the quarter marks the transition from the essentially from the completion of the Wilburn residual landfill and the transition to the Brockton facility. Tonnage is down, naturally, you would expect about 15%, as we get ready to do the closure -- are, in fact, in the process of doing the closure and reducing the tonnage coming into Wilburn. Brockton will be then tonnage will be increasing as the transition for that residual material.

In the eastern region, I would tell you that I think we are particularly in the eastern Massachusetts region, pleased with the management changes that we've made there. As you know we changed the management and brought in new management. I think there are four pinnacles that are important in measuring that. First of all for the quarter they were on budget. Actually from a EBITDA margin improvement their year-over-year basis improvement profit on EBITDA margin. Probably the most important thing to me is consistency of the operational improvements across all of the profit centers. And finally, I think this is a market that we are focused on for growth opportunities as these underpinnings have provided us the foundation to do that.

And then one last indicator for the solid waste, while it's not a certain indicator for the month of August, at least landfill tonnages are year-over-year flat to August last year, which is consistent with the comments which John gave with regards to what we think is in the next forecasting for the next quarter. It appears to be steady and consistent with what we have experienced.

Moving on to FCR, the commodity pricing. As you know during the quarter there was significant pricing and volume growth in the FCR line of business. Generally speaking volume was up 6%, pricing was up 38%. Cost improvements went down by 4%. So we went from $37.64 a ton to to $36.53 a ton. Produced a margin of about 10% EBITDA.

As you know the old BM indexes came out yesterday. There was expectedly a reduction in some of those high peak prices that we saw in June. OCC has dropped $25. ONP actually has firmed and gone up by five. So that both the OCC, and the ONP pricings are kind of merging -- converging back together.

I will remind everyone that our pricing that we are getting currently is well above where our budget is, and so we expect this business to continue to be accretive to our forecasted budget from the beginning of the year. We also during the quarter completed the take over of Cape May [ph] which is a large material recycling facility. Cape May, New Jersey, from the previous operator. And we are pleased to report that that is operating above our expectations and we expect to be able to deliver a quality product to that municipality that probably surpasses -- well surpasses their previous experience.

Moving out of FCR and commodity pricing. [inaudible] Fiber , they are in a calendar year. We believe that business still is in their forecast to do $14 million for the calendar year. The May to July quarter, which we are in, is probably their seasonably most challenging quarter. Generally people don't install insulation in hot weather in the retail channel is down.

And accordingly, we did see a fairly low demand for installation during May, July. Early reports from the month of August of significant growth in retail over August and the previous year. And we therefore are very comfortable with our forecast of about $14 million of EBITDA for U.S. Greenfiber. With that, I'll turn it back to John.

Thanks, Jim. I guess, at this point in time, we would like to open it up for questions.

Thank you. The question and answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key followed by the digit one on your touch tone telephone. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and we'll take as many questions as time permits. Once again, please press star one on your touch tone telephone to ask a question. We'll pause for just a moment to assemble our roster. We'll take our first question from Alan Pavise with Credit Suisse First Boston.

Hi, guys.

Hey, Alan.

Was just hoping you could talk a little bit about the profit margins. It seems like if you back out the FAS 142 benefit, your margins really fell back quite a bit on a very strong revenue quarter or relatively strong for the year. Could you go through kind of the top three of four issues, obviously insurance is one of those. Can you talk about how much that is, which line that shows up on? And maybe a couple of the other issues. If you could break out that were really hurting margin this quarter?

Sure, Alan. Insurance was a significant issue in the quarter. As I indicated on the call the total amount impact in the quarter is actually $2 million rather than a million and a half that we expected. If you remember when we gave guidance we said it would be 6 million for the whole year. It was divided reasonably equally over the quarters. But because of the tail that I referred to, we ended up with an extra half million dollars. That expense is mainly included in the cost of operations. Jim also mentioned the Wilburn Brockton situation. And quarter over quarter, that had a significantly negative impact on us of about a million and a half.

Is that sequentially as well is that about a million and a half?

That's period over period. Sequentially, I don't have that number, but it would not be quite that large.

I think it's probably 700,000 sequentially.

Okay.

And then in addition to that the other major factor in the quarter -- negative major factor -- were the higher royalties and host fees at Pine Tree versus the prior period which was about 700,000. Those were the three major negatives that we had to overcome in the quarter.

It was Pine Tree, that would be in operating expenses as well?

Exactly.

What about SG&A, I mean that really took a big step up sequentially, you know, $2.5 million just from the last quarter.

Well, versus prior year, I explained that variances is mainly legal fees. And obviously that versus the prior quarter that also had an impact as well. In addition in Q4, we also were able to book a benefit as a result of our great work that guys did on collections we were able to reverse some bad debt provision in that quarter.

Right. Do you have a sense of what the unusual legal fees were in this quarter and whether or not they're going to continue into the second quarter or if that was kind of all wrapped up in the first quarter?

Um -- they were about half a million this quarter. And probably two-thirds of that will continue. As we described, a part of that expense related to permits and that was settled and would not continue.

Right.

But the ongoing litigation with main will continue.

Okay. And then just another area of questions. How much, assuming you don't do the bond offering any time within the next couple of months or quarter or so, how much capacity do you have that you can use for acquisitions until you do that type of offering?

Um -- well, theoretical availability is like 78 million. But realistically I think our availability for acquisitions is 30 million. And the reason it's such a lower number is that we are required by our [inaudible] to have 20 million available at all times for working capital after completing acquisitions so we have to take that 20 million out.

Right. But other than that there's no restrictions on your ability to use that 30 million?

No, there's not.

Okay. And you did no acquisitions in the quarter?

We did none in the quarter we have done two small tuck-ins since the end of the quarter.

Okay. Do you have a rough size of the two of them, in terms of revenues?

They're about a million and a half in revenue.

Okay. Alright. And I guess maybe for John, most of all. John, have you started thinking or talking about what may ultimately happen with Greenfiber now? I guess your ability is [inaudible]. As of August and you have new options to maybe monetize that and use that money for acquisition as well if the bond market doesn't turned out to be quite as attractive as you thought. Is there any movement there, or any guidance you can give there?

Um -- I think that we are still, you know, nothing has changed in terms of our overall long-term perspective in terms of what we would like to do with regard to Greenfiber in terms of the monetization opportunity, Alan. I think that one of the things that we have done is really look at where the market is. We are likely to, you know, have a better sense in terms of whether or not we will be able to access the high yield market before the end of the year. And it seems like that situation is turning around. So it's likely that we will have the opportunity to do something with the capital structure in the next quarter or two. So at least that's our anticipation at this point in time. We are also, as you know, beginning to reignite, if you will, the growth strategy. We are really looking at disposal capacity first, and then really looking at tuck-in acquisitions that would be immediately accretive to us on an ongoing basis. But we really don't have anything more to report with regard to where we are in the process with Greenfiber at this point.

Right. What are the things that moved that from a long-term plan to a shorter term plan?

I think that, you know, as we have indicated, there are a number of issues, very positive issues that are moving forward with the business, and the business itself is doing very well. And so I think that from a practical standpoint to the extent that we are not able to access the high yield market, I think your question is a good one, and I think at that point in time we'll look at where we are from a capital structure standpoint, look at the opportunities that we have from a growth standpoint in the core solid waste business and make a determination at that point in time, when we've got opportunities that we need to execute on with regard to the solid waste business. I think once those are in place and we've got a clear understanding of what the requirements are from a capital standpoint, it could very easily change our position and move our position in terms of monetization.

So it's something if you had to sell it, you could do that. Alright. Last question. Just on the burn plant shutdown schedule. Was there any shutdowns in the quarter? Or are they -- is that going to be a second quarter event? I'm just trying to figure out when those expenses are going to hit over the course of this year.

Well we had a normal shutdown, Alan in the first two weeks in May. So those results are reflected in the quarter results. There are -- there is a small shutdown schedule -- semi-annual shutdown scheduled in November, but that won't be a material shutdown.

Okay. Do you know what the financial impact was of it being shutdown in May?

It's probably a loss of about $250,000 of EBITDA.

Okay. All right, great, thank you guys.

Thank you.

And we'll take our next question from Bill Fisher with Raymond James.

Hi, thank you. Actually most of my questions have been answered. But just -- you touched on disposal, adding disposal assets. Are there -- whether it's privitazation, acquisition, whatever, do you feel there's some opportunities in the next 12 months or so in that regard or is that kind of a longer term?

No. I think that we've got -- we've been -- I think as you know, Bill, we have been working on additional disposal capacity for some time now. So we would anticipate that we would have disposal opportunities that we would execute on in the next year. In the next 12 months, easily.

Okay. Thank you.

First and foremost, from a development standpoint, our main focus strategically is to add disposal capacity to the business. And then secondarily, on tuck-in acquisitions that will really create value on an immediate basis. So first and foremost from a development standpoint, we are spending a great deal of our time in terms of developing additional disposal capacity. So it's very likely that we will have results in terms of those efforts in the next few quarters.

Okay, great. Then one question for Richard just on the free cash. It's just with the nature of working capital and your Cap Ex, is a 20 million figure still a good number for this year? And is that going to be mostly back-end loaded with the working capital?

The number wasn't 29 Bill, it was 19 to 21.

19 to 21.

We are still on track. We had expected this result this quarter end. So it's in line with our expectations as I said.

Okay, great. Thank you.

And we have a question from Leon Young with Solomon, Smith Barney.

Good morning. Most of my questions have been answered as well. But just if -- could you address anything either in the quarter, or what you have seen since then that would cause you to either qualify or change at all the budget or forecast that you gave us last quarter?

I don't think that we see anything that causes us to change. We had forecasted Leon, that the solid waste business was going to be flat. We are not seeing anything that gives us any sense that the solid waste business is going to be anything other than flat for the next quarter. In fact, we are seeing that kind of result in our August numbers in terms of the business continuing to be flat. So we are not anticipating any changes at this point.

Great. That's very helpful. And one more thing. Do you think you'll be in a -- do you have to get the high yield debt offering done to really be in a position to tell us a little bit more about a renewed growth plan?

I think that's a fair characterization. I think without having the right capital structure, I think that, you know, the growth plan is going to be somewhat modest in terms of how we are going to go about growing the business. And, again, with the focus clearly on the capital that we do have on a near-term basis, being utilized to bring additional disposal capacity into the core business.

That's great, thank you.

You know, I would just comment that I think the opportunities are high. The pricing on those opportunities are probably in the attractive category. And that we just want to get a foundation under ourself before we start that. And when we have that, then we'll be able to talk about that more thoughtfully.

Great. Thank you.

And as a reminder, if you would like to ask a question, please press star one on your telephone keypad. We'll take the next question from Steve Cole with Matador Capital.

Good morning guys.

Good morning, Steve, how are you?

Doing fine, thank you.

Good.

Wanted to expand on a couple things here. First off, just on Greenfiber so I can put this in perspective. I think you mentioned what 14 million is the target for EBITDA this year? On an equity income contribution basis, what does that translate into, roughly?

Um -- I think our budget was about 3.5 million.

Was about 3.5 million this year, Richard?

Yes. As being our share of it.

Okay. And last year, if I remember right you were about four, is that right?

Yes, that's right. Just underneath four.

Okay. Is the difference there purely a function of trying to increase market share in that segment and some of the things that you are doing to roll this out?

Yes. We've increased sales and marketing by about $5.6 million and sales have grown about 20% a year. So we're kind flat year-over-year both EBITDA and EBIT. But we are having some substantial growth in the business and that is the necessary investment to do. It's all self-funded on a free cash flow basis.

Okay. And if I could, just talk something back to the regions. And I know you addressed, I think, Jim moving from west to east things firming. Could you give me a sense on what are we seeing, if we look from a price and volume perspective. I think you gave internalization rates by region, but from price and volume, what are we seeing by region? And what are we seeing as we go into August? Is there any more color that you can provide there?

I don't think I can provide any more color from August because it's just the end of the month and we just got our tonnage in, but we wouldn't be able to give you' much in terms of price and volume. Generally we don't track price and volume by region so I don't think we'll give it to you that way. But I think the color is that there is, in certainly the rural market place, a lot of softness, particularly in New York. And it continues. Both in terms of volume and in terms of ability to move pricing. I think that within that environment, with the price increases that we have had, we did substantially very good.

Central region is our core, oldest market, most mature market. We have probably our largest generally speaking, market share in that market. And the economy there, I think is soft as well. Not quite as soft as New York, but certainly us who live in Vermont would view it as being soft. And then, as you move east it firms up a little bit as you get to the coast. Boston seems to be more typically flat as opposed to soft. But it's certainly not buoyant. So I think that's the best color I can give you.

That's great. And let me just clarify. I'm confused on one point here. The Wilburn and Brockton flip here, when you mention volumes were down 15%, was Brockton taking any volumes during the quarter or is it just -- are we talking just the 15%, is that just the effect on Wilburn and why is EBITDA impact so great year-over-year?

Well, the Wilburn project, unlike the Brockton project is a larger scale project and it accepted a lot more material, particularly from the big dig project. So there's a considerable amount of dirt, essentially excavated soils from the construction project in the downtown Boston market place that found its way to that market. So there was a lot of capacity that went into Wilburn to deal with that particular. That dirt is still available. It's just that the Brockton projects has certain limits imposed on it from the permitting. It doesn't really allow us to accept the quantity of dirt. So we have both a quantity and then more interestingly, as you have to bring in that quantity of dirt as you get to a closure project through a certain window, you can't work the market, you then lose some pricing. So there was a 3 or $4 a ton pricing negative impact as well as we were closing off of Wilburn and transitioning to Brockton. So the combination of those two resulted in the dollar revenue decrease that we mentioned and of course volume tonnage decrease.

Okay. So that effect though, the million and a half was that a revenue increase?

It's an EBITDA loss on -- from that project.

Okay. Okay. Very good. Thanks, guys.

You're welcome.

At this time, we have one question remaining in the queue. I'd like to remind everyone that if you would like to ask a question, or if you have a follow-up question, please press star one to signal. We'll take our next question from Tom Ford with Lehman Brothers.

Thanks, good morning, guys.

Good morning, Tom.

Question for you, I think, Jim. Recycling, just looking at revenues for the FCR. Revenues were up sequentially 6 million, EBITDA was up 800,000. And I would have thought that the contribution flow to the EBITDA line would have been a little bit better. Can you talk to what was going on there?

Well, first of all, Tom from -- are you talking from Q4 to Q1, correct?

Right.

Last quarter we had the FAS 133 impact included in that 2.3 million number that you are looking at I think.

Okay.

You have to back out that 330,000, I think it was first of all.

Okay.

Because if you remember, that was the FAS 133 accounting it doesn't reflect operations.

Okay.

And we also had commodity prices moving up in the very tail end of that quarter. So there's a little bit of impact from that as well. But I think that the production, if you will, both in terms of revenue and EBITDA is right in line with our expectations.

Mmmm-hmmm. Mmmm-hmmm. Okay. Okay. Secondly, in terms of Merck [ph], Jim you mentioned the 250,000 negative EBITDA hit. What was the year-over-year change? Was it -- because I would think that it would, if you have this at the same time last year, then it's going to be year-over-year there's not going to be an impact.

I don't think I said there was an impact. I think I was answering Alan who said that, did we have a shutdown in the month of May, which we did. And what -- you know, what would have been, had we operated, what would have been the impact of that.

Okay.

On a year-over-year basis, I don't think -- you are exactly right and hopefully Alan understood that on a year-over-year basis, it's comparable.

Right. Okay. I just wanted to make sure of that.

Yep.

Okay. Um -- can you talk to -- um -- any change in the hedge positions on the core as well as Greenfiber?

Yes, I can. We, I think were very fortunate as some of you know the hedging at the markets the commodity prices had quite a peak May, June and July. Particularly I would say tail end of April, May and June. And we have significantly reestablished a good portion of our hedging position in that peak. So we are feeling very good about that. And correspondingly, FCR, prior to that peak, had done a very good job building a hedge position. And they are in the position to rebuild that now as the numbers come back down. I saw a hedging price this morning of $73 a ton. So those -- and those are three-year contracts. So we are constantly adjusting our hedging portfolio. It is a month or almost week-to-week exercise, daily exercise.

Daily exercise.

We have a full-time person who specializes in this, recent graduate of Whartan, an MBA. Very, very good guy. And we've got some outside consultants that provide us some assistance. I think we are doing a very good job of managing this. And we are doing a good job of natural hedges between FCR and U.S. Greenfiber [inaudible] 354,000 tons of OMP that we have consumed at U.S. Greenfiber. A significant portion of that is collected not all physically delivered, but collected on the FCR side so we also have a physical hedge in place. So we are -- I'd say that we are well passed halfway recovered from the Enron disappointment. And from the previous Enron positions that we have created, I would expect that by the end of this current fiscal year that we will be basically rebuilt our positions in both entities to where we want to be.

Okay, great. Okay. Let me see. Richard, just looking at the -- to go back to one of the questions earlier about the GNA line.

Yes.

If you could, could you just give me something of a reconciliation from 4 Q of '02, I have it at 11 9 going up to the 14 4. You had said that legal was a big part of that. Could you -- do you have any number details there as to the up tick there?

Legal was about 600,000 of the swing. And as I said we made a significant adjustment to our bad debt provision, was about a million dollars. So those are the two major components of that swing.

Okay. You mean in terms of the bad debt it was the benefit in 4Q?

Yes.

Okay, great. And was there anything for the road show in there?

No. The road show expenses have all been deferred at this point in time. All the expenses. [ INAUDIBLE ] High yield issue are sitting in the balance sheet pending finalization of that transaction.

Okay. All right. Great. And then John, not to leave you out, but last conference call you talked about one of the new initiative areas for the fiscal '03 was turnover.

Mmmm-hmmm.

And I was just curious if you had anything new to add, talk about there?

Don't really have anything new to add, Tom, but I think that the safety program ended up, we had projected at year-end, we had a projection that the overall results from the safety program were going to produce results of 40% less incidents and 20% less costs. And those numbers, actually on a completed basis after we got all the numbers in in year-end, we ended up reducing the total -- total number of incidents by -- let me just get the number. Work-related incidents fell by 34% over the last year. And our work related accident costs dropped by 39% on the basis of that continuous improvement effort with regard to the safety program. The metric that we laid out from a continuous improvement perspective with regard to the entire organization for this year is a reduction in turnover. And fundamentally, part of that is the implementation of a new training program that is going to be rolled out in October as part of a kind of an all hands get together for all of our division managers. And so we really have gone out to the fields. We've established what has, you know, what is really critically important from an operating standpoint in terms of all the of our operating personnel. We put that program together and we are likely to kick that program off in October. The significance of the training, Tom, is at least in our view, from a continuous improvement standpoint, really what we are looking to do is improve the selection of the people that we bring into the organization which, in fact, will be done through additional training of all of our people. And, at the same time, that's going to really help us in terms of the turnover issues. And again, we are looking at that more as a continuous improvement issue for the company as opposed to looking at it against our peers and being uncomfortable. It's really just another mechanism of continuous improvement that we feel strong about that will create real value in terms of really extracting more value out of the existing assets as we begin to responsibly grow the business again.

Okay. And you were saying that you were really going to kick it off in October. So I know in some cases you don't really want to talk numbers or, you know depending on timing. But -- so if you are going to kick it off in October, I guess you are probably not expecting to see much, is it the type of thing where the benefits kind of ramp over time?

I think that that's fair to say. I mean I think we have actually kicked it off already. We have already been out to the field, we have established a program, we've got the program, you know really being put together and the entire program including online training, a comprehensive program will be put in place and kicked off at that point in time. And it's likely that we're going to see results to the end of the year. But it's really, again, as with the safety program which the results that we just talked about in terms of the improvement on a year-over-year basis, really have been a culmination of a program that's been in place for a year and a half now, almost two years. So I would expect that the improvement in terms of the P&L is going to be secondary to really getting the entire culture moved in a direction and really getting good comprehensive training program, and training opportunity in the hands of all of our people. So it's not likely -- we are not anticipating seeing a significant benefit in this fiscal year. I mean, I think that we clearly will see benefits for the program, and I think that we will achieve the goals, but we are not anticipating that we are going to see substantial financial improvement. We know that that will come over time.

Okay, great. Okay. Thanks very much.

And as a final reminder, if you would like to ask a question, please press star one. We'll pause for just a moment. And at this time there are no further questions. I'll turn the call back over to you Mr. Fusco. Please go ahead.

Actually you've turned it back over to Mr. Casella. You know, as I just said the senior management team is committed to continuous improvement of the existing operations. You know, all of us at the senior management level, including Charlie Leonard from an operating standpoint with the core solid waste business have, indeed, a very committed strategy towards continuous improvement on everything that we do. So that we can make sure that we are efficient market leaders in every aspect of the business. We are excited about that, we are excited about the opportunity of extracting more value out of the existing assets that we already own from an operating standpoint, as we begin to responsibly grow the business again. With that, our second quarter '03 earnings release will be in early December, and I thank all of you for taking the time to be with us this morning. I look forward to talking to all of you in December. Thank you very much.

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