Casella Waste Systems Inc (CWST) 2003 Q4 法說會逐字稿

Please stand by. Good day everyone. Welcome to the Casella Waste Systems Fourth Quarter Fiscal Year End 2003 Earnings Release Conference Call. Today's call is being recorded. At this time for opening remarks and introductions, I'd like to turn the call over to Mr. Joseph Fusco, of Casella Waste Systems, please go ahead.

Thank you for joining us this morning and welcome. With me are John Casella, Chairman and Chief Executive Officer for Casella Waste Systems, Jim Bohlig, our President and Chief Operating Officer and Richard Norris, our Senior Vice President and Chief Financial Officer.

Today we'll be discussing our fourth quarter and year-end 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, give you guidance on our 2004 fiscal year and answer your questions as well.

But first as you know, I must remind everyone that various remarks that we may make about the company's future expectations, plans and prospect, constitute forward-looking statements for the 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 including those discussed in our prospectus and other SEC filings.

In addition, any forward-looking statement represents our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change and therefore you should not rely on those forward looking statements as representing our views as of any date subsequent to today.

Also in this call we will be referring to non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with Generally Accepted Accounting Principles, a reconciliation of the non-GAAP financial measures, the most directly comparable GAAP measures is available in the financial table section of our earnings release, which was distributed yesterday afternoon and is available in the investor section of our website, www.casella.com/investor.

Now that I'm completely out of breath, I'll turn it over John Casella who will begin today's discussion. John?

Good morning and welcome to our fourth quarter conference call. The fourth quarter seems like ages ago, 25 degrees below zero versus 70 degrees today. Given this development sense plus the numerous opportunities we see in the immediate future, it seems even longer since February and March.

At any rate, a bit of color going back to the fourth quarter. The war in Iraq and other international tensions dominated the period ---- between February -- through April causing volatility and a significant rise in fuel cost. The economy continues to struggle both regionally and nationally and at the end of the cold harsh winter with two feet of snow on April 2nd.

As usual Richard will give you an overview of the fourth quarter numbers and Jim will go over operations in just a minute. However, before they do, I'd like to give you a sense of the progress that we're making in executing our strategic plans. We recently added two disposal facilities in Massachusetts, first the Hardwick landfill back in March and now Templeton with the signing of a 20 year agreement with the town of Templeton, to design, build and operate a regional MSW facility.

These successes are results of a two-year effort to create disposal opportunities and in the cause of Templeton, our new indication of our approach to municipal partnerships that have worked so well for us in the past. We are no longer just talking about but in fact are delivering on our strategic goal to add to full capacity to our core franchise. As we look to the future, the focus and hard work over the last two years is presenting us with other exciting opportunities as well. In the [Keene] County in Pennsylvania in our western region we are one of two finalists in a bid to operate a 30-year disposal facility for a local solid waste authority.

In Old Towne Maine we're the only responsive bidder to a 30-year operating disposal facility for the state of Maine. In short, we are focused on adding disposable capacity, we're currently pursuing additional opportunities and we'll continue to turn over every stone in our core franchise and clearly that's the focus on the future. After Richard gives a brief summary of the numbers and Jim a summary of the operations and a preview of May and June, we will discuss our 2004 forecast. Richard.

Thank you John. First I'll review the quarter as usual then I will comment on the 2001 re-audit and conclude by giving some color on the 2004 outlook. For the quarter ended April 30th, 2003. Although we had internal growth of 4.5% revenues decreased $3m to $94.5m from $97.5m or 3.2%. This was largely due to the sale of export growth rate. Prior year revenues included 7.8m related to that business which was partially offset by higher revenues at FCR.

Internal growth for the quarter was comprised as follows; growth in the core business 1.4%, FCR brokerage price growth was 3.1% while volume was flat for a total of 4.5%. The core business growth rate then is as follows, Price was positive 1.7%, volume was a negative 0.5% and core commodity price and volume growth was 0.2% for a net number of 1.4%. This was partially offsetting the 4.5% internal growth where divestitures of negative 8.5% partially offset by the low defect of acquisition 0.8% for net at 7.7%. If you deduct a 7.7% from 4.5% you get the net change of 3.2%.

Moving to EBITDA let me first give you the statistics. EBITDA decreased 3.8m to 17.1m from 20.9m. This decrease is mainly due to lower margins in the core business partially offset by improved performance in the recycling business. As John said, it's hard to remember now in the heat of July but you will recall that we got hit with two feet of snow earlier in April. The economy was also suffering at that time from fears of war in Iraq. On an Apples to apples basis Q-4 EBITDA from the core business declined by 1.9m about 1.1m of that is due to poor weather and the economy and in addition as we mentioned in the last call we were partially unprotected quarter against fuel price increases that fuel costs were up 450,000 year-over-year.

Legal expenses were also up 200,000 quarter over quarter. US Green Fiber (ph) reported an operating loss in the quarter of 568,000 and we recorded our 50% share. Depreciation and amortization for the period amounted to $1,239,000 for EBITDA of 671,000 positive. For our fiscal year, U.S. Green Fiber (ph) reported operating income of $4.1m and after adding back D&A of $4.6m that equated to EBITDA of $8.7m.

The impairment charge, this item represents the write down of the domestic brokerage and commercial recycling operations to realizable value. As well as the reversal of the expected sale procedes from [Proseiac] which arises from the reclassification of the [Proseiac] from discontinued to continuing operation. Since a large component of the total amount is not tax deductible, this has a negative impact on EPS of 16 cents. The safe impact in the year from the reclassification was to increase revenue by $300,000. This is a low number because of most of the revenue that the company gets eliminated.

Operating income, loss was included of $79,000 less depreciation of $23,000 given an EBITDA of the loss of $56,000. So, those amounts for the year were relatively minor.

Other income expense for the quarter, this caption includes a $1.2m settlement of notes receivable relating to the new [Heights] power plant. This asset has previously been written down in 2001 to 0 book value as part of new height. During the quarter, we continue the rationalization of the FCR plants by selling our Virginia plant to Waste Management, which resulted in a book gain of $700,000.

Income taxes, the effective rate increased to 45.9% year-to-date. Due to the impairment charge being a largely non-deductible. As well as changes in valuation allowances and the elimination of capital loss carried forward.

Net income for the quarter ended April 30th after preferred dividend amounted to a loss of $3.1m or 13 cents per share including the impairment to domestic brokerage end of the (indiscernible) from 19 cents to 16 cents.

Moving now to balance sheet statistics, our total debt at the end of the year was $310.2m largely unchanged from last quarter. Our total equity was $188.8m, giving a total capitalization including preferred shares of $499m. This gives us a total debt to capital ratio of 0.62 up slightly from last quarter.

As expected the average interest rate for the quarter moved down to 8.1% including amortization of financing costs. Net of these expenses, it was 7.6%.

Total cash and cash equivalents on hand at April 30th amounted to $15.7m.

Cash balances continue to be high the low down from $3m from last quarter. It has nothing drawn on the revolver to pay down. This strong cash position reflects the high free cash flow in the quarter, despite outlays of $15.6m on acquisition.

Restricted cash amounted to $10.8m. Less unencumbered cash was 294.5m up slightly from the prior quarter due mainly to the lower cash balance at year end. This lower cash balance results mainly from an investment being in Ever Green of $5.3m, which is our surety bonding company. And the investment was made to provide us with a bonding line for our future growth. That was partially offset by a $2m dividend from U.S. Green Fiber.

The availability on the revolver was a $142m after taking into account $33m for the fees outstanding.

Capital expenditures for the quarter amounted to $9.7m bringing the year's total to $41.9m. This amount was slightly higher than the guidance provided, mainly due to the opportunity to purchase vehicles at a significant discount just before year-end.

During the quarter we announced the closing of three acquisitions the Hardwick landfill, Big Way Polling (ph) Company and Goodman (ph), a large main recycler, for cash purchase price of $15.6m excluding notes of approximately $3m. The purchase price multiple paid for the three acquisitions including the landfill amounted to approximately five times.

Free cash flow in the quarter came in higher than anticipated. Interest, taxes and closure post closure were largely as expected.

Capital expenditures were higher than as previously mentioned, while working capital improved more than expected. This was mainly due to higher accounts payable from better management and year-end accrued, as well as minimum dollar improvements in accounts receivable.

DSO improved from 40 days last quarter end to 37 days at year-end. Without that improvement in DSOs, the cash receivable would have increased by over $3m. Other accrued also increased; especially payroll due to a higher number of pays outstanding.

Now just a word on the 2001 re-audit. As announced in the press release, Price Waterhouse Coopers has completed their re-audit for 2001 and reaffirm the net income as previously reported. Within the income account, FAX has been reclassified and discontinued operations, two continuing operations as required by files 144 and ATB30. These are technical accounting changes and they do not affect reported net income in 2001 or 2002, but they do affect a presentation in the income account and the other statements in various places.

As far as the income account is concerned, revenues and expenses are increased by the [Proseiac] amount, which are relatively minor, as I indicated earlier and in 2001 the impairment charge is increased by $20m, while the loss below the line is decreased accordingly. At the same time in 2001, we have reclassified the expected future losses from Casella from the loss on disposal of discontinued operations lines to a new line, reclassification from discontinued operations. Then in 2002 and 2003, an amount is recorded on that same line to offset the losses report by Passaic [ph].

I used - - that 2001 accrual was utilized to offset the losses. Plus in 2003, the [Inaudible] some 6,000 is reversed. This is more readily understood from the form 10K, which should be filed shortly.

And our question and answer session will be conducted later

Hold on a second

I'm sorry

At this point, I'd like to turn the meeting over to Jim, who will give his update of the quarter.

Good morning, just a few general comments on the general economy with regards from an operational stand point.

The first quarter was as we had reported in the third quarter, continued to be soft and a challenge from a weather standpoint as John indicated. Western region was particularly soft and saw a lot of deterioration in economic activities as the general manufacturing sector in western New York demonstrated a continued reaction if you will, to the soft orders and the other issues that were on the horizon at that time.

We also had seen for the first time in this quarter, a real - - first real effects of the economy in the central and eastern region as well, so here internally, the economy had an effect on our entire operations. Having said that, pricing gains that have been established in the year were relatively well maintained throughout the quarter, with the exception of the western region, where we did begin to yield to some price rollbacks in order to hold business.

Generally speaking, as we moved out of the quarter into our new quarter, the May, June and early July economic activity indicators in all regions were really quite good and we are quite comfortable with the forecast on a go forward basis, based on the economic activity in the first two or three months of this quarter.

Landfill items in the fourth quarter were affected negatively by the Woburn to Brockton switch. There was a loss of about 15,000 as we shipped in from Brockton - - to Brockton from Woburn Overall bonds are up slightly and again, as a forward comment, the May and June volumes were quite appropriate to the season and to our budget forecast and we expect them to be very much in line for the entire fiscal year of '04 as they are tracking with our ‘04 for the year as we are tracking with the budget.

From a landfill internalization standpoint, the first quarter internalization was 51.8% with the center region at 81.9%, the eastern, 45.7% and the western at 35.9%. Overall for the year, internalization was 52.1% with the central region at 81.3%, eastern at 46% and the western at 35.9%. Just as an indicator so we’ll have a benchmark, Hatch [ph] Hardwick's been in operation all year. Of course, they didn't go into operation until the first of May but had it been in operation in '03, it would have moved overall internalization to 56% and it's an indicator of the importance, as John has indicated many times, of acquiring disposal capacity particularly in the eastern Massachusetts market and so I will touch both on Hardwick and Templeton later in my talks.

From the permitting standpoint, there were two really main events that occurred at North Country. First in the quarter, we did receive a stage four permit. It was issued - - with that we received about two million yards of additional capacity. We also during the quarter received the decision from the trial court associated with the declaratory judgment that had been filed between ourselves and the town of Bethlehem. The trial court applied a height restriction to the permit and they also precluded or applied an expansion preclusion against our offside the 51 acres.

The effects of this decision has that- we have currently permitted and constructed about 1 year of capacity and permitable capacity beyond that was in the 51 acres and was approximately 8-10 months. We have, as you know, filed this and been accepted at the Supreme Court. This will now be the second time that we're at the Supreme Court on this particular landfill. The issue won't rest, principally on the issue of what's called pre-emption, which is the exercise of, for those of you who are not legal scholars, the exercise of authority by one level of government will wear a subordinate level of government. An example of that would be the federal level the congress has certain powers over the state governments that they do not chose to give them power for so you have a pre-emptive effect at the congressional level.

Similarly within a state, the state government has pre-emptive power over municipal laws, specifically within New Hampshire. Municipals have no inherent power over those delegated by the legislature. With regards to comprehensive solid waste regulatory schemes. They are the pre-view of the legislature and they are enacted in order to provide the uniform set of statues within a state and within New Hampshire there is broad authority granted to the DES with regards to regulation of solid waste facilities.

We believe that the state statues pre-empt in the field of the regulation, the local levels and we believe that the avenues that will be argued in front of the Supreme Court, we have overturned the Trial Court, which we think, misapplied those principal principles. The Supreme Court has accepted the case while an accelerated schedule was requested and that was not granted, we do have actually a detailed schedule now that is quite, I think, relatively speaking accelerated with initial filings due in August and finally our arguments probably scheduled for October with the decision likely within early winter or January or February of '04, well within the timeline of the permitted and constructive capacity that we have for the landfill.

We'll be on out of North Country as we reported Hardwick (ph) is now opened and accepting at capacity, at pro-capacity, the materials into the landfill. Place that in operation late April and we continue to run at full capacity throughout this quarter up to this point and we expect to be able to do that for the balance of the year. Hardwick (ph) is a very important landfill for us. It's the first disposal facility in Massachusetts for us to anchor our Massachusetts operations. We believe there are- is an excess of 10,000,000 yards of permittable capacity at this site and we are in the process of expanding that capacity. We are also in the process of expanding the daily capacity from 300, tons by 750 tones per day. The Templeton facility, which we announced we're very pleased with, it's a service agreement very much like the Clinton County agreement, twenty-year agreement to provide turnkey disposal capacity for the region. We will operate to develop the site, close post-close and do all aspects associated with that landfill.

Initially it's a 500, ton per day landfill with, that will be permitted up to 750, tons per day and we expect working closely with the town, that we will have all the permits issued and be in operation by the end of the, count the year as '04, which would be a nearly part of our '05 calendar year.

Between Templeton and Hardwick, we expect those two facilities to ultimately provide us up to 1,500 tons per day of disposal capacity, essentially in the metro Boston market, and that's along with several other activates that we're working on. I think it does provide the foundation for sustainable growth in that important marketplace for us.

From the long-term development history, I might just tell you that when we went in to Waste USA in Clinton County, (indiscernible) each of those facilities, generally speaking had short-term capacity. We've converted them each, into long-term facilities. Clinton County now has over thirty years, Waste USA over twenty-five years, Hakes (ph) over thirty-five years, Hyman (ph) fifteen years and we believe that part of the long-term strategy is to build franchise in markets where our restricted disposal capacity- we believe that Hardwick (ph) and Templeton (ph) will fit very nicely into that model and we'll anchor our southern part of our franchise to Massachusetts.

As I indicated to you earlier, or as John indicated we are also the only responsive bidder in the state of Maine for a large facility for the state of Maine, which will last in excess of thirty years. We're very excited about that because that also gives us another long-term franchise anchor point for the company.

Moving on to solid waste into FCR, FCR had a very good year this year EBITDA margins increased to 15% of (indiscernible) for the year was left 2%. As you know commodity pricing was much improved over '02 up some 20% in some of the commodities and overall FCR had a very good year of free cash flow positive of a $1,500,000 above their budget.

They also were effective in initiating a rationalization program, which sold the Virginia operation, we have a number of other steps on the way as we continue to streamline and drive this business and ensure that where we have a chance we will re deploy the capital back into our Northeast franchise as we did with Goodman acquisition.

During the quarter we will have finished the Enron settlement associated with that bankruptcy and one question that I thought might be helpful for those who are looking forward. If we did apply the actual commodity prices in May on a forward twelve months we will be seeing about $7 to $8 of ton above what we budgeted for '04 and so there appears upside from the commodity market standpoints. Although I may mention to you that the commodity markets have come down in June and we're forecasting them to come down a little bit more in July, so it may very well be that are budgeting is very accurate but there had been some questions about that.

Moving on to U.S. Green Fiber for the year total sales were off by 2% with a direct result of the Q-4 results which were materially affected by Scott seed inventory adjustment of $2m and a continued deterioration on manifested home channel about $500,000.

Conversely in the quarter under very difficult economic conditions the contractor and retail channel demonstrated 3% and 4% year-over-year growth respectively and is making penetration into fiber glass. During the quarter we also accomplished and established a very important and significant new account with Lowes, as you know we’ve had good penetration from Home Depot.

We've now established a new program called Hitch and Haul at Lowes and we're excited Lowe's and we're excited about the opportunities that that will yield for us in terms of additional sales. From EBITDA performance standpoint higher pricing in SG&A continues to challenge and year-over-year basis paper pricing impacted EBITDA by $2m from ‘02 results and SG&A which was directly tied to our commercialization of the two disrupted technologies of $2.4m of what those combined significantly impacted our EBITDA performance year-over-year.

We've made excellent progress towards our fiscal year 2004 commercialization goals. At IAT we blew our house through the month of June and successfully with (indiscernible) and that went very successfully and we're able to fill the cavity in about 20 seconds which compares from a cost standpoint very favorably with fiber glass. And we expect to commercialize those technologies late in this year and have it rolled out early in calendar year '04.

We're also committing the plant to commit this year to the establishment and the construction of our first CPN facility but that decision probably made in the summer, this summer cooperation in the summer of '04. Finally USGreen Fiber was $6.4m free cash flow positive for the year if it's entirely generating all the sudden free cash flow and the fact that it yielded dividends to both of it's parents in the year and we expect on the forward basis of the business will grow 10% over the next twelve months as we roll out the IAT opportunities and take advantage of some of the additional channel opportunities particularly in retail and contractors with (indiscernible) with that I'll turn it back to Richard.

Thanks Jim in conclusion I would just make a few comments on the 2004 outlook, as you know we've been asked for the sale of domestic brokerage and [Posiac] and that sale coupled with the earliest sale of export brokerage means that 2003 revenues include $35m that will not reoccur in 2004 the income effect of these sales is immaterial.

The budget is predicated by no further material change in the economy, in other words core business volumes are expected to be flat so that any improvement in the economy would provide upside to these demands. As usual only minor amounts are included for acquisitions approximately $5m of revenue for tucking this translates into $750,000 of operating income plus depreciation of $250,000 resulting in 4m of EBITDA.

Net price increases in the core business will account for approximately 1% or $3.05m of increase, which is partially offset by $500,000 downturn in core business commodity prices. FTR has budgeted lower average commodity prices as well as lower revenue from the Cape May facility reflecting the contract term.

Volumes are budgeted up 3% thus (indiscernible) the impact of the Goodman acquisition but the net result is that FTR is budgeted to show an EBITDA reduction of some $3m.

On the cost side I want to comment on insurance expense, you'll recall that this was a large negative for us last year. This year we were able to hold our (indiscernible) insurance program to a 7% increase this represents the million half year-over-year and brings our total cost to $22m next year. We were able to do that without making changes to our deductibles, the only substantial change in coverage is that we reduced our property program to a $150m from $244m last year.

The likelihood of a disaster causing that size of loss is remote. Not included in the above is the forecast U.S. Green Fiber. The operating income is forecast at $5m for our fiscal plus depreciation of $5m toast to EBITDA of some $10m therefore our 50% equity interest in operating income which contributes approximately $2.05m.

CAPEX expenditures at $43m to $46m reflect our desire to continue improving our rolling stock. Free cash flow is a non-GAAP measure, as you know so we've not provided guidance on that but to assist those investors we wish to calculate free cash flow the following items might be useful. First cost for closure expense will be down from last year by (inaudible) was closed the funds were also expended at (inaudible). The current portion of closure post closure is estimated at $2.9m at year-end, and non-cash accretion expense is budgeted for next year at $1.6m. Interest will likely average just over 8% assuming libor increases throughout the year-end long-term debt will not increase under the assumptions we've outlined above, in other words excluding large acquisitions. That will result in cash interest expense of approximately $24m, excluding amortization of financing cost of approximately $4.6m. The tax rate is targeted presently at approximately 20%, and those taxes will be largely differed as last year. Cash taxes will approximate $1m next year; the effective rate is anticipated to be abnormally low due to the expected reversal of valuation allowances.

And just to elaborate on that for moment, we've not recorded to date, most of the benefit of the net offerings aging losses that we have available because of the uncertainty of their realization. Since we expect another year of profitable operations, that uncertainty diminishes, and so the valuation allowances begin to reverse. The reversal of the valuation allowances will create volatility on the effective tax rate and will make it more difficult for us to forecast that number accurately. The change in working capital is budgeted to be $2m positive.

And finally just a brief on word on FAS 143, accounting for asset retirement obligations, I'm sure you've heard a lot about this from the rest of the industry. And though none of the basic landfill life cycle approach will continue to be followed, the major change for Casella is the cost associated with capping, closure and post closure activities which have been historically recognized on an undiscounted basis over the operating life of the landfills as air space is consumed, in future would be accounted for as asset retirement obligations on a discounted basis. As a result EBITDA will increase by $3m but operating income will decrease by $300,000. The cumulative and effects of this change in accounting principle will be a $4.6m gain before tax, due to the conservative approach we previously followed.

And with that I'll turn the meeting back to John.

Thanks Richard. In summary I would like to emphasize first that we met the targets that we laid out in our guidance for fiscal 2003, in spite of the difficulty of predicting the effects of the war, the economy and the weather in the fourth quarter. As Richard has laid and discussed, our forecast is deliberate conservative however with a new capital structure visible opportunities our goal is to grow the company 7-10% a year to the next three to five years.

We're excited about our disposal additions in eastern Massachusetts and the numerous additional opportunities we're pursing in all of our regions, if we - - if I had to give you a sense of the company today, clearly we're poised to harvest the fruits of our hard work in the area of additional disposal capacity to our core franchise. We still keep an eye on the economy but are aggressively working day to day on continuous improvement, lowering our cost, increasing efficiency and being the kind of company that can deliver stable predictable results in any economic environment.

Thank you for your attention this morning and we look forward to taking your questions.

[Operator instructions] We'll her first from Mark Reider with Goldman Sachs.

Yeah, hi how you doing.

Hi.

The fuel hedging that hurt you in the fourth quarter or actually I guess you weren't hedged enough, you had a cost increase. What were you hedged and what are you currently hedged and what do you expect cost to be this year?

The - - I think it was approximately 42% of our total fuel costs were not hedged in the fourth quarter. We implemented Mark, for this current fiscal year a surcharge program on fuel, so we anticipate that we will on a go forward basis for this current fiscal year be protected from the fuel volatility, but again to answer the question specifically in the fourth quarter about 42% of our total fuel costs were not hedged.

Okay. And just with addition of disposal capacity hardware in Templeton, what are your plans for adding additional collection? And then can you also maybe give an overview of as sort of maybe ballpark, what you think your total acquisition expense will be in '04.

I think that clearly there's absolutely no question that adding additional disposal capacity give a real opportunity to densify the existing investments that we've already made in hauling infrastructure, so you'll clearly see us begin to add hauling assets to compliment the disposal capacity as we put that disposal capacity in place, but we're - - you know, over the last couple of years we've not given guidance on a quarterly basis in terms of acquired revenue. I think what we have said is clearly we’ve laid out an expectation in terms of growing the business 7%-10%. We've also indicated that it's very likely that our growth could be lumpy in terms of looking at opportunities and executing that opportunities as they present themselves. So it may be that have significant opportunities in one quarter and no opportunities in another quarter, so we're not going to project on a quarterly basis what kind of required revenue we're going to have.

Just given that you're bidding on two things - - just sort of maybe big large round numbers, what those facilities would together cost you?

I'm not actually --- what are you referring to?

How much the acquisition price would be?

Well it depends on the type of transaction that we'll put in place in terms of a partnership there could be limited amount of money upfront and there could be a long term host community agreement as opposed to an up front payment to the extent that it was a private facility that we are purchasing then I think the we had laid out historically that on Hardwick the purchase price was --- the purchase price on the Hardwick facility as an example was $12m.

Mark both of the Old Towne and the Keene opportunities that John touch on as well as the third one are public/private partnerships and as such those structures in somewhat respects are like Clinton County in that you are basically entering into a long term operating agreement. And so they tend as a structure to have less money up front more as you go along for each of those years as a kind of a lease payment type structure. So I think all three of those would fall in that kind of category.

Great, thanks for the color.

We'll hear now from Bill Fisher with Raymond James.

Good morning. I just have a couple on the --- some of the landfill things you talked about. One on the Templeton on kind of the opening day that was a press release talks about mid-calendar '04, is it then or the end of calendar '04?

I think its --- I think Templeton is likely to take us about a year to get all the permitting done and to get the initial cell constructed. So we are not, although we are going to try accelerate that, we re not going to forecast any benefit from that through our current fiscal year '04. So it will first appear as benefit in the first quarter of '05.

okay, of fiscal '05 right?

Our fiscal year '05, yes.

Okay, and ---

And what I said was --- therefore at the end calendar year '04 when we thought we had them in operation that may have been what the confusion was.

And roughly in Massachusetts right now, what are roughly the tip fees?

Disposal tip fees are somewhat seasonally impacted but generally they are about $80 to $90 per ton in summer and they just soften a little bit to the winter by $5 to $8 a ton.

Okay and just real look back at the (inaudible) 500 times you know, once you get that up, I mean is that something that could be 4 or $5m in EBITDA annualized.

Yes for guidance purposes we would expect that if we ran at the full year at 500 tons per day, which is what it will start at, it should yield an EBITDA performance of about $4.2m.

Okay and on Maine, I know you haven't been awarded but (inaudible) if that comes to fruition what kind of --- when could that thing start?

Its actually an operating landfill currently owned by Georgia Pacific, who has agreed to sell to the state of Maine in exchange for certain benefits that will be provided more to be retain paper making operations state of Maine. So it will have to be converted from a generator operated landfill to a commercial landfill. The steps towards changes have been affected at the legislature, they were done in June. We are awaiting the award by the state of that contract.

If that is awarded which we expect it will be within 30 days the transaction would be closed before the end of the year. The state has offered to use state same financing to finance it so that another advantage due to the lower interest rates. And we would expect to have it in operation on a commercial level by early spring of '04, calendar year '04.

okay so again it will be more of a benefit in the similar to Templeton time frame?

Correct.

Okay, all right thank you.

One of the significant things that old town do for us Bill is that it does provide us 30,000,000 in cubic yards of capacity which really anchors our main operation. As you know sine we moved we've become the number one service provider so it does give us log term franchise per capacity for the state of Maine which we think is very important and compliments nicely the balance the capacity at (inaudible)

Would it be somewhere around the 500 tons per day level as well or?

no it will probably be running close to about half a million tons a year.

Great, thank you.

We'll move next to Allan Savace (ph) with CFFC.

Kit Signor on behalf of Allan. I just wanted to ask a couple of quick questions. Congratulations on getting Hardwick open by May 1st, it sounds like it was a little ahead of the schedule we talked about in March. We talked about the permanent, I was wondering has there been any success in expanding the permanent tons of MSW I think we talked about in March. 50 tons per day of MSW being (inaudible) and you guys were trying to get some expansion there, just wondering---

We have been affected but we are in very intimate applications and discussions with the BET and are encouraged by what we believe will happen. So I'll give you some degree of confidence that we are going to affect both a conversion to MSW and an increase in tonnage probably after 700 tons within the current calendar year

Okay so if you did affect the conversion you could potentially put all MSW there is that what you're saying?

Yes.

Oh great. Okay switching gears a little bit. I was looking at the D&A and I just wanted to ask a couple of questions you know we've talked about especially with the lower seasonal length of volumes and revenues that D&A normally seasonally would have tick down a little bit. But it looks it was a decent amount above what we'd expect. And I was just wondering what factors kind of caused that occurrence in the D&A? Because I know Hardwick wasn't even on board yet so none of the tons were coming in there. What kind of impacted that sequential change in D&A?

Basically the - from Q3 to Q4 if I assume that's what you're talking about?

Correct.

An increase in depreciation that's really just a result of the 6 asset purchases. And that amortization you know did bump up a bit in Q4. Q3 is usually our lowest from a seasonal point of view in terms of volume. So there is a small uptake in Q4. Those are the two major changes.

Okay I was just surprised - I think you know back in March we talked about potentially some further tick down. All right then I'll move on to one last question with the tax rate. I just wanted to double check that I heard you right, did you say 20% affected tax rate?

Yes 20 it is a very strange rate that as I try to explain --.

Right no, I heard what you were saying I just wanted to make sure I heard that correctly, point well taken.

Okay, you understood how that happened?

Yes I understand. And you know this year we have some volatility in the rate I was seeing in fiscal 2003. This 20% is this something we're going to see some fluctuation in? Or can we reasonably expect it to be approximately 20% every quarter?

I'm hoping it will approximate 20% every quarter. But as I said when you start reversing evaluation allowances the book income does affect that.

Right.

So it will cause some volatility I expect.

Okay all right well thank you for your help.

The next question comes from Brad Coleman with Deushe (ph) Banks Securities.

Yes thank you and good morning. Did you guys provide a break down of revenue EBITDA this segment?

Yes sure Brad just one moment. Revenue for the quarter the core business revenue was $72.5m, FCR was $18.6m the other was $3.4m. And core business EBITDA was $4m, FCR with $2.8m and the other was $300,000.

Okay thank you. Just wanted to clarify when capital channels opened I think you said that would contribute was it 4.2m of EBITDA when it's fully up and running. What does that translate in terms of being - the internalization rate? Where would that take it for and I'm trying to work this out. If it's currently 52% and we're saying another 4% from Hardwick then what would it go once Templeton (ph) was opened?

There's two steps to that question. One is you know if all that capacity was internalized and then of course it had to be coming off of trucks. So it's some what is a question that it could change because if we do hauling acquisitions it could impact that but generally speaking we did a quick look at that and we thought that it would drive internalization into about 56% overall from 52%.

That's just for Hardwick or it is for both disposal opportunities?

That's just for Hardwick.

Okay what about --?

We're essentially on the internalized in Massachusetts so any thing that we do there has a fairly big driver for us.

Okay and them just lastly with respect to the guidance with FCR could you may be just I guess review what the hedging program currently looks like for FCR. I know you mentioned that your - the rates - the (indiscernible) prices are currently at 7, $8 above the budget but what is the affordability in there if we do see prices pull back significantly.

Well we're as you know hedging is set up not as a derivative for purposes of speculation but for purposes of controlling the budget.

Right.

So we build the hedging program against a budget price and we have re-established the program following the ENRON program that we had. So that we believe our budget numbers are fairly stable. Our actual clearing price, our current clearing budget hedging price is as we said $7 below where we're at now. So as the prices come down the hedges were actually kick in and we should have no effect to the prices coming down.

Okay all right thank you.

We'll hear now from Tom Ford with Lehman Brothers.

Hi good morning John I just want to - just sticking on that topic as Richard just said you had re-cycling of about $2.8m in terms of EBITDA in the fiscal 4Q. So if you are saying if we don't see material impact then I mean is it right to just assume you're kind of saying that that sort of run rate is ok in terms of an assumption looking out for fiscal ’04?

-- the answer with the hedging which was after we set our budget for ‘04 how resistant are we to commodity prices and I think what we said is bases on our - for the year that we set ourselves in a position where we think we're relatively resistant to any commodity price run downs which have indicated some general trend in that direction in the last month. So I was trying to answer that question with regards to - are you asking the question year-over-year?

(indiscernible) I was just trying to get a sense you know based on your comments saying that there is movement in the prices but you know you felt pretty comfortable that you know that the impact would be negligible if you will because the hedging programs that are just put in place and you know so Richard had said you did just shy of $3m in EBITDA in the fourth quarter and I just kind of was trying to get a sense as to where you felt comfortable in terms of you know the forward view.

Well the forward view is very comfortable because we've taken out as we bought our budget we took out about $2.5m from '03 to be conservative and looking commodity prices so we are actually got budget numbers below low, where currently prices actually are. The difference between the actual in our budget is about $7.50 on a blended average and so if the of current commodity prices that we add in May were to stay in place for the entire year, we would try outperform our budget for the year. So there's a degree of conservatism from that standpoint. Having said I that I will remind you that commodity prices have slipped in the last thirty days and there is some forecast but they continue to be sluggish or even soft through the summer before we get back into the Lunar seasonality before the commodity pricing so we just have to wait and see but I think generally speaking we have positioned ourselves conservatively, purposefully because we did not want to forecast steady commodity prices that were quite robust last year and we thought there would be some correction and so we filled a budget to reflect that

Okay, okay. In terms of the CAPEX number for fiscal '04, is their any thing build in there for activity with respect to Templeton.

There is money in that deal with permitting but it is a relatively modest amount once the construction will take place essentially at the end of the year and the first quarter of calendar year ‘05.

Okay, okay. Richard, just going back to one question, I just was wondering if you could - - you had a question earlier about D&A, you know, looking at the movement there. And then if you kind of take a look at where we were for this year and then where the guidance implies for next. It seems to be like it stepped up somewhat. You know, I am not sure if that's accurate, but I - - I just wanted to check with you, if does in fact step up and then what was really behind it?

Sure, if you compare the total for this fiscal year versus next year, this year came as a total of $48m, next year we are estimating $55m.

Right.

That's all to see a big thmb. $3m - - $3.3m arises from FAS 40 143.

Right. And then the remainder would be.

Most a couple a million for Hardwick and then the rest would be just normal increased it into depreciation from our (indiscernible) purchases.

Okay. Okay great and I just want to clarify one other question, which was - -. When you say the million dollars from Tuckins (ph), I just wanted to make absolutely sure we are saying then on a prospective basis Tuckins, potentially had a million for this year or is it just the most recent in a round of activity assuming that adds will contribute a million to the EBITDA outlook.

We did the budget, as you know, the full year-end so that was a prospective number.

Okay. Okay great. Thanks very much.

Okay

We'll hear now from Amanda Tepper [ph] with JP Morgan.

Good morning guys and thanks for fitting me in, I know it's running long. Just a couple of quick questions. The approval process for Templeton, could you please quickly outline what are the key steps and hurdles so we can follow as you go along, that it's on track?

Probably the most important aspect in Massachusetts is what's called site assignment. This is an authorization given by the local board of health. One of the real important aspects of Templeton from our standpoint is the site is already fully set assigned and the Templeton Board of Health is entirely in support of the development of this landfill.

So the first of the two major, if you will, permitting - - three major permanent activities that we have already accomplished and that's a set assignment. The second one is called Leaper, which is really an environmental impact statement for Massachusetts. That process is underway and we would expect that to have completed in a six to kind of, ten months time frame and then the third one, of course is the actual detailed designed permit, issued by the regulatory agency which kind of lays on top of that and we would expect to have that completed about the end of our fiscal year.

So, the three major steps of the site assignments, the issuance of the [Inaudible] process and then the actual issuance of the solid waste permit from regulatory authority.

So if that happens then you break ground say June a year from now?

Well we obviously can't construct until you have authority to construct so there's actually a sub permit which is the authority to construct and the authority to operate but essentially once you've had the initial regulatory permit then you can construct. It's probably about a three months cycle we wouldn't be able to construct in the winter we actually expect to be able to get all the permits, we would hope by the end of the year or January February. But because of the winter weather would not construct the first sale until sometime starting in April plan to have it probably constructed an operational by July.

Of '04?

July of '04, which would be the beginning part of our fiscal year '05.

Okay great thank you. Switching gears to Green Fiber for a minute and you gave a lot helpful detail, which is appreciated, but taking a step back, what's your outlook? And how does it fit into the strategy of the company in terms of longer term? And you mentioned with FCR continuing to look for opportunity to re deploy the capital but what about Green Fiber and the future of this JV?

Well I think that's probably a multi question, question and I'll try to break it down into a couple of simple answers. U.S. Green Fiber in our view it is a business that has value creation opportunities as it stands, it is the low cost provider service and (indiscernible) installation. It is the dominant provider that service nationally across the country with a significant market share over its next largest competitor, we have also demonstrated with the successful application of the IAT, wall application, the ability to blow (inaudible) into walls at the low cost of fiberglass, the wall market as you know is a bottle $3b - $4b a year market and - - currently have less than 1% of it. And you (inaudible) in monitoring gas pricing - - gas is a key component to making fiberglass it takes a lot of heat to melt the glass and so we expect to actually to be significantly positive affected by that as the fiberglass business will have to those impacts.

So from a growth standpoint, we expect this business to be above gross margin business, we expect to be able grow in excess of 10% per year, we are in fact confident enough that growth prospect that we are entertaining the problems of dealing with not having enough of OMP at the right pricing which what driven to the CPM technology, which is another patented technology. We think it will allow us to get into the waste paper strain, which is about a $30 - $40 of pound and has a 2-1/2 year payback. So from the return standpoint we think the business, A - has growth and B - has an opportunity to even lower and improve its margins. Having said that, at the end of the day if the business that is - - is capable of being monetized, and lenders an opportunity to re deploy our capital with the right investment hypothesis in the northeast we will love to do that. We don't have those dynamics yet, so we feel that the right approach is to continue to optimize that business growth strategy.

okay, that's very helpful thank you very much.

You are welcome.

We will now hear from Steve Cole from Matador Capital.

Hi guys, thanks for taking the call. Couple of quick questions just wanted to follow-up I'm sure that your favorite (inaudible) but I had one follow-up to that. Could you address what the challenges on the in-market side? I know you've talked about the cost side of the equation. How much of it is a contingent on getting contractors to buy off on it and is there any industry trade groups once you've recommended the product or certifications that you need, or can you give us a little bit brief elaboration how that might work in terms of getting market acceptance?

Well there are really three channels, there's a contractor channel, there's a retail channel and there's a manufacture home channel, I'll speak to your question for each of those channels quickly. The manufacture home channel effectively is the major provider of that product in that channel, so our success in manufacturing home is more successful. However that channel recovers (inaudible) in terms of the number of homes it's building right now. You know Bercher Hathway (ph) has just made an offer to buy Clayton, which we think is a very positive step for the industry and we'll see the impact that has.

With the retail channel we've been successful investing in building relationship with Home Depot that has actually gone very well. We've established over --- in the quarter we picked up an additional 400 new MSAs that we are operating in and stores end up in those MSAs. And we have just concluded an agreement with Lowes that we are very pleased with. They are very interested in the project particularly in new aspect of that which we have developed called the hitch and haul which allows a small contractor to come in and get the product and get the equipment necessary to blow into translation purposes. The contractor is the last channel it does require a major contractor in the market to undertake the product. Every market that we've entered into and I'll give you an example of Denver, which we entered into about 9 months ago. When we get into our market and are able to demonstrate the product we were able to take 50% of the market share within about a 6-month period of time.

So we think that the market (indiscernible) product from the market introduction standpoint it's fairly positive. There is resistance to it, fiberglass is an old established product. And you know people use what they have used for a long time. Having said that probably the most important issue is our product attributes which is really sound happening (ph) fire protection, mold retardation and test retardation. All those attributes are attributes, which we believe, are superior in our product over fiberglass and we get much better thermal quality copies as well.

So as the product is ruled out we think we're going to see a higher demand. We are a small portion of the over all instillation business. We expect being a low cost provider service is the key to building market share and we believe we're going to be able to do that.

One last question I may have missed this, my apologies. But if you could - on the three potential opportunities going forward on the disposal side what is the decision? If you look at the timetable of those are there any like I know in Maine and specifically is there any date that we should key in on or any event in terms of a potential decision?

Hill Town - we expect Hill Town decision to be made before the middle of August and may be as early as the end of July. The McKean (ph) County bid has been in and has been publicly opened. But we don't have any forecast there. But I would expect with in the next month or two. And there is another important bid happening but that won't probably be opened or you know until probably September to October.

Okay thank you very much guys.

You're welcome Steve.

And due to time restraint that does conclude our question and answer session. I'll now turn the conference back to Mr. John Casella for any additional or closing remarks.

Okay thanks. Thank you all for your attention this morning and we look forward to talking with you early September when we release our first quarter '04 numbers. Thanks again every body and have a great day.

And that does conclude today's conference. Thank you for participating.