Casella Waste Systems Inc (CWST) 2004 Q4 法說會逐字稿

This is Premier Conferencing, please stand by. Good day, everyone and welcome to the Casella Waste Systems fourth quarter year-end fiscal year 2004 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 Mr. Joseph Fusco of Casella Waste Systems. Please go ahead, sir.

Thank you for joining us this morning, and welcome. We're joined by John Casella, Chairman and Chief Executive Officer for Casella Waste Systems; Jim Bohlig, our President and Chief Operating Officer; Richard Norris, Senior Vice President and Chief Financial Officer; and Charlie Leonard, our Senior Vice President for Solid Waste Operation.

Today we will be discussing our fiscal year 2004 fourth quarter and year-end results. These results were released yesterday afternoon. Along with a review of our financial performance, we'll update you briefly on the Company's activities and our business environment, and then take time to answer your questions as well.

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

In addition, any forward-looking statements represent 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, during this call, we will be referring to non-GAAP financial measures.

These non-GAAP financial measures are not prepared in accordance with Generally Accepted Accounting Principles.

A reconciliation of non-GAAP financial measures, to the most directly comparable GAAP measures, is available in the financial table section of our earnings release, which, as I said, was distributed yesterday afternoon, and is available in the investor section of our website, casella.com/investor.

Now, I'll turn it over to John Casella, who'll begin today's discussion. John?

Thanks, Joe, and welcome everyone to our fourth quarter fiscal '04 conference call.

We continue to build the operational strength of the business and we're clearly beginning to see the recent - the impact from the recently added disposal activity.

We're looking forward to discussing with you today the state of the business, giving you an operational, a strategic and a financial preview of fiscal 2005.

First, let me preface the overview of the quarter by characterizing the health of the regional economy as modestly improving.

The operating strength of the business continues to grow as we begin to see the impact of increased internalization and operational improvements from our continuous improvement program.

Let me highlight first, though, a number of the key points for the year. As you know, our guidance last year from a business standpoint was 90 to 94.

We, obviously, at 94.2 million hit the high end of our [inaudible] target and guidance from last year.

We also, obviously, set out to add additional disposal capacity to the franchise, and we enjoyed several disposal capacity additions, more than doubling the Company's permitted and permittable disposal capacity to 65.6 million tons from 29.6 million tons, and, most importantly, we continue to see a marketplace robust with additional opportunities.

Our year over year EBITDA margin in the last quarter improved 190 basis points to 20%.

As usual, Richard will give you a more detailed picture of the quarter and year-end numbers in just a minute, and Jim will take you through a number of operational and business development details a little later in the call.

But before they do that, I'd like to give you an additional sense of some of the areas that we will be covering for you today. We will be giving you an update on our disposal capacity, development projects, both as existing facilities and new opportunities.

Our success in Ontario County has really sown some seeds of interest among municipal governments throughout the region, for example.

Also give you an overview of our success in making continuous improvement throughout all areas of our business, from safety to turnover, and, most recently, this past year, in our attempts to really bring selection, how we bring individuals into the organization to a much higher level.

And we'll also give you a detailed summary of our guidance for fiscal 2005, which began on May 1. In addition, I'd like to begin by giving you some news on our recent realignment.

We recently realigned our permitting, compliance, and engineering department to respond both to the need to properly integrate our new disposal capacity into the Company, as well as taking advantage of pursuing additional opportunities.

By that realignment, essentially what we've done is to add engineering capability at each of the regions, and give the regional operating teams the resources necessary to make sure that we're successful in that integration in addition to taking advantage of other opportunities that we see in the marketplace.

In addition, we separated the eastern region into two markets, again to make sure that we execute the disposal capacity that we've already announced, and equally importantly, make sure that we take advantage of the opportunities that we see in the marketplace.

As of June 1 we created two distinct the operating regions in the eastern region, Massachusetts, Rhode Island, Connecticut and then the northern operations, which were comprised of Maine and portions of New Hampshire.

And, as you know, we have additional disposal capacity that we've added in both of those regions, and we have significant additional opportunities that we're looking at, both from a disposal as well as from a hauling company perspective.

We also continue making progress on a longer term, big picture investments to build a great franchise. These are not typically quarter-to-quarter issues, but are important to understand from the perspective of our three-to five-year strategic plan and value creation.

First, safety program which you have all heard me talk about, and on most - conference calls, our workers compensation incidents for the year were down 10% compared to last year.

Our total fleet incidents for the year were also down 3% compared with the previous year.

Our employee turnover for this year, for 2003, was reduced by 22%, compared with 2003 was reduced by 22% in 2004, and taken with the reduction that we had last year, we reduced our employee turnover by 47, almost 48% in the last two-years. And, again, keep in mind that those are really investments in the future.

That is, in our view, not a quarter-over-quarter, but it's really an indication of how we're doing on our 3 to 5-year strategic plan to really bring the performance of our existing assets to a much higher level.

The last part of that continuous improvement plan from safety turnover really came a real recognition that selection, in terms of how we're bringing people into the organization is critically important.

Every manager, to that end, every manager from all of our operating divisions has been through a complete training program.

We've evaluated and built 30 job designs within the organization to make sure that on a go-forward basis, we're doing a much better job of selecting and matching the right individual with the right job.

Job design really comprised of the 10 goals for the position in the five action items to get there, very different way, in our view, and a very significant way to really improve the match in terms of driving the business forward.

Around -- there's also been an additional round of advance training. And again, the skill of our managers, and their ability to operate in the waste[inaudible] that they operate is critically important to the overall success of - our execution of that 3 to 5-year plan.

In addition, briefly, we've also put together a cognosce system that really gives our operating managers a dashboard of the key performance indicators that we have put together, that Charlie has worked very hard with the region teams, to identify the key performance indicators for the business.

And then now we have put, we have gathered all of those databases throughout the Company, brought it into our cognosce system, which really gives the dashboard for those key performance indicators.

I think, consider this resource to be, again, an important part of our continuous improvement effort, and our overall ability to manage the business from a predictability and a stability standpoint.

And with that, I'll turn it over to Richard, who will take you through a detailed explanation of the number for the quarter and for the year.

Thank you, John. For the quarter ended April 30, 2004, revenue increase $14.8 million to 109.3 million from 94.5 million or 15.6%.

Prior year revenues include 3.5 million related to the domestic brokerage business. A large component of the year over year increase 8.3 million arose from the acquisition activity over the last year.

Internal growth for the quarter at 10.8% for the high and driven partially by a poor fourth quarter last year, when we were hit by unusually severe snowstorms as well as a faltering economy. In addition, commodity prices were up significantly year over year.

Internal growth for the quarter was comprised as follows. In the solid waste business, price was 1.1% increase, volume 3.8%, and core commodity price and volume increases 1.1%, for a total for the solid waste business of 6%.

FCR saw price increases of 2.7%, while volume was up 2.1% giving us total internal growth of 10.8%. Added to that was the rollover effect of acquisitions at 8.8%, offset by divestures of 4%, for a net change of 15.6%.

Revenue for the quarter breaks down as follows. Solid waste, 84.6 million, FCR, 20.67 million and other, 4 million for a total of $109.3.

Moving on to EBITDA. EBITDA increased 4.8 million to 21.9 million from 17.1 million, and is broken down as follows. Solid waste, 17.3 million, SGR was 4.1 million, and other was 400,000.

As you can see from this, core margins increased by 100 basis points from the previous year. After banking out the effect of FASB 143, which amounted to approximately 1.1 million, solid waste EBITDA was up about 2.2 million year over year.

This was mainly due to the impact of earnings Ontario, South Bridge and Harvard landfills. Maine Energy was down about 300,000 because of unscheduled maintenance in March to fix tube leaks.

FCR reported a 20% margin this quarter, benefiting from higher prices and volumes. However, these good results were tempered by expenditures on glass R&D technology amounting to some 600,000.

This brings the total spent for the year on R&D to approximately 1.3 million.

Gross margins were up year over year, but down over 2% sequentially, from the following major factors. Firstly, the annual actuarial review of the captive had a negative impact in the quarter of the some 450,000, as a result of development of prior year claims, mainly auto related.

Next, the continued R&D expenses in FCR amounted to a 225 incremental charge in cost of operations. And finally, the decrease in Maine energy's revenue arising from the unscheduled shut down in March, was only partially offset by lower operating costs.

Moving on to depreciation and amortization, this expense is up 3.3 million year over year. This arises mainly from landfill amortization, which was an increase of 2.1 million, plus the FASB 143 effect of 400,000.

And this increase was due to the addition of our new landfill at Hardwick, South Bridge and Ontario, as well as higher volumes from our closure project at Brockton.

Impairment charge. During the quarter we wrote down several assets on an on-cash basis, mainly real property where we'd consolidated operations at a cost of 1.6 million, which after tax was 950,000, or 4 cents per share.

U.S. GreenFiber reported operating income in the quarter of 385,000 and we recorded our 50% share.

Cash flow from operations amounted to a negative 1.4 million in the quarter, netting back networking capital changes of some 2.8 million.

U.S. GreenFiber reported EBITDA of 1.8 million for our fourth quarter. Other income expenses.

Now, this caption includes a number of unusual items this quarter, having a net negative impact on EPS of 17 cents.

The largest item, at 8 million, is the mostly noncash writeoff of our remaining investment in RTG's tire recycling business and New Heights Recovery and Power LLC--which holds a power generation facility and tire recycling operations.

After tax, this amounts to 4.8 million or 20 cents a share. Further costs are expected as we await the Supreme Court ruling. They are estimated at half a million dollars and will be expensed as incurred.

Partially offsetting this was the gain on sale of export brokerage. Sales proceeds were 5 million, and the net gain amounted to 1.1 million, which after tax is 680,000, or 3 cents per share. Thus, the net effect of EPS on these two item was 17 cents per share.

Moving on to income taxes. Tax benefits for the quarter reflects the impairment and unusual charges in the quarter, especially the writeoff of New Heights and RTG, but on a year-to-date basis, without the unusual charges, we would have seen a tax provision of approximately 15%.

For net income after preferred stock dividends, amounted to a loss of 6.1 million, or 25 cents per share. This includes various items included in the impairment charge and other expenses described previously amounting to 21 cents a share.

Balance sheet and other statistics. Total debt at the end of the year was 356.7 million, which is up 20 million from the last quarter, mainly due to the higher capital expenditures and the closing of the high-yield add-on. Total equity was 197.1 million, giving a total capitalization, including preferred shares of 553.8 million, which resulted in a total debt to cap ratio of 0.64.

The average interest rate for the quarter moved up to 7.87%, including amortization of financing costs. The net of these expenses it was 7.32%. Full rate increase from Q3 is mainly due to the high-yield add on.

Total cash and cash equivalents on hand at April 30 amounted to 8 million. Cash balances were up from last quarter as we had nothing outstanding on the revolver to pay down.

Restricted cash was 12.4 million, and total debt and its uncumbered cash was 348.7 million, up from last quarter end, mainly due to the high borrowings at the end of the year. Availability on the revolver was 142 million, after taking into account 33 million of our [inaudible] outstanding.

Capital expenditures for the quarter amounted to 20.9 million, or a total of 58.3 million, consistent with our guidance. Payments under landfill operating leases for the quarter amounted to just under 28 million.

These represented largely the purchase price for West Old Town, as well as small payments for South Bridge and Ontario. One small trucking and hauling acquisition was closed for the quarter for a purchase price of 50,000.

Free cash flow, even after the expenditures made on development activities, precash flow was positive, although down in this quarter from last quarter and from the same quarter last year, mainly due to the higher capital outlays on the new landfills.

Cash interest expense was up from last quarter in prior year, because of the semi-annual high payment. Working capital was positive, driven in part by capital expenditure accruals.

They are increased, I'm sorry, accounts receivable increased from the higher revenue while days outstanding improved to 37 days. Moving now to the 2005 outlook, which was announced in the press release of last night, just go through a few comments on that.

The sale of domestic brokerage and [inaudible] means that 2004 revenues included 3.3 million that will not reoccur in 2005. The income effect is immaterial provided it's predicated on modest improvement in the economy.

That is, the core business volumes for the base business are expected to show 1.4% growth, while net price increases are budgeted at 1.3%.

Any substantial improvement in the economy would provide upside to those numbers. As usual, only minor amounts are included for acquisitions, approximately 5 million of revenue for tuck-ins, which translates into 750,000 of operating income, plus depreciation of 250,000, resulting in 1 million of EBITDA.

Our recent landfill acquisitions at South Bridge and Ontario are expected to continue to perform well, as is Hardwick. While a combination of West Old Town and Pine Tree will be flat, for a total increase in EBITDA of some $7 million.

Maine energy will recover from the tube leak suffered in 2004, improving its EBITDA by nearly 1 million.

Brockton, our closure project, is scheduled to be closed by December 2004, so we'll only have a partial year of operations, but its revenue mix will deteriorate, resulting in an over $2 million decrease in EBITDA.

FCR has budgeted lower average commodity prices, but higher volumes and continued improvement of operating costs. This budget also takes into account an additional expenditure of 1.1 million on glass R&D. On the expense side, I'll comment on insurance.

This year our total insurance program is budgeted to show 14% increase, or $3 million for a total of 25.5 million. Most of this increase is in health insurance based on claims expected to be made and the anticipated increase in health care costs across the spectrum.

The increase for the Company was softened by increase in the level of deductible to the employee, so that those persons using the insurance would help pay for the increase. The administrative costs only show at a 1% increase.

Lease and Auto increases were minimal, reflecting an increase in the retention to 750,000 from 500,000.

In that contract, we should note that in the last four years we've had no workers' comp claims over this deductible, and only three auto claims in excess of the retention.

Depreciation and amortization will continue to run in the 14% of revenue range, while SG&A will remain in the 13% of revenue range, showing the usual seasonal fluctuation.

Not included in the above EBITDA is the 9.7 million of EBITDA forecast in our fiscal year 2005 for U.S. GreenFiber.

Their operating income is forecast at 4.7 million for our fiscal year, plus depreciation of 5 million to drive EBITDA of 9.7 million. Therefore, our 50% equity interest in operating income would contribute approximately 2.3 million.

As you will have seen in the press release, capital expenditures are forecast at 68 to 72 million.

This comprises base maintenance levels of expenditure of 40 to 44 million, plus approximately 8 million of facility up upgrades and improvements, mainly the couple of hauling companies, free transfer stations, and a maintenance shop to landfill.

And finally, some 20 million of expenditure on the new landfills. Ontario will be approximately 9 million including some recycling operations, South Bridge 7 million, and 2 million at each of West Old Town and Hardwick.

In future years, capital expenditures will revert to a lower level, assuming a steady state business, as we are unlikely to improve facilities again to the same extent in one year. And the initial landfill construction of the new sites will be completed.

This decrease in capital expenditures will have a positive impact of free cash flow. Talking about free cash flow, for those investors who wish to calculate free cash flow, the following items will be helpful.

Interest, we are projecting, will likely average just at 8%, and long-term debt will not be higher at year end than at May 1, under the assumptions outlined; that is to say with large acquisitions excluded.

Long-term debt will increase during the summer months as the capital expenditure program gets under way, and then reduce again by year end. That will result in cash interest expense of approximately 27.5 million, excluding amortization of financing costs of approximately 1.5 million.

Net closure post closure cost will reflect an outlay this year, estimated at 5.5 million, arising mainly from closure projects at South Bridge and Brockton. The tax rate for next year is targeted in the 44 to 45% range and the taxes will be largely deferred as last year.

Past taxes will approximate $1 million for the next two-years, and will increase slowly after that as we pay alternative minimum tax. The change in the tax rate from 2004, combined with the one-time items and the gain arising from the adoption of FASB 143 in 2004, will create a swing in EPS.

Let me just explain that in a little more detail. If you start with a pretax income number, and back out the one-time items, apply the effective 2004 tax rate of 14.6%, resulting EPS for fiscal 2004 would be 30 cents.

If you use the same amounts for 2004, but apply, let's say, a 44% tax rate, the result is 15 cents, and it is that 15 cent number that will compare with fiscal 2005 results on an apples to apples basis.

Just to be sure you follow that, let me just run through the numbers. Pretax income, as reported for the year, was 3,750,000.

And if you add back to that the impairment charge of 1.7, and the writeoff of New Heights RTG of 8 million, match the export handling sale of 1.1 million, that'll give you 12.3 million as pretax income.

You apply the tax rate to that of 14.6% it gives you 1.8, giving you net income of 10.5 million, less preferred dividends of 3.3 million, gives you a net income available to common shareholders of 7.2 million.

And if you divide that by the number of shares outstanding, you get 30 cents.

If you use those same numbers, 12.3 million as the pretax income for, on, using, and then apply the 44% tax rate, you get a net income of 6.9 million, less the preferred dividend of 3.3 million gives you 3.6 million as net income available to common shareholders.

Which is exactly just about half the other calculations, so that gives you an EPS of 15 cents. I'd be happy to help anybody out offline, if that's not clear.

Cost of operations will also include a 4.5 million depreciation of operating leases, off about 3.5 million from the current year, and the change in working capital is budgeted to be $1 million positive.

That concludes my remarks, so I'll now turn the meeting over to Jim.

Thank you, Richard. I'll give everyone a second to digest all of that information Richard gave you. I can't imagine taking notes that quickly, but I'm amazed at the amount of information that he just gave you.

A little bit of color on the economy. For the quarter, this is our fourth quarter, I think that we begin to see some improvement in the economy. In the western region, there was early indications that the economy was starting to turn.

Eastern region, certainly that was true, the central region, generally I would characterize that for the quarter as steady. And when compared, of course, the year over year quarters there were some improvements because of the previous issues that Richard had raised.

On a forecast basis for our first quarter, we're seeing much stronger activity in the western region, a lot of that driven by activities, particularly waste flows out of New York City coming and looking for homes, so that is both pushing volumes and pricing in the western region.

Eastern region is undergoing its normal seasonality spurt which takes place during the summer.

You know, most of the eastern region is landfill constrained, so as the waste flow streams and lakes in the summer, we get very seasonal indicators. But I don't honestly think that they are much beyond the normal seasonal effects that we expect in the eastern region.

And like the fourth quarter on a forecast basis the central region is showing steady but modest gains from an economy standpoint. For solid waste, the gross revenues for the quarter were up conservatively, in excess of 15% over the quarter-over-quarter comparison to '03.

Net revenues were up in excess of $8 million for an increase of 18%, and as Richard, I think, shared with you in his numbers, overall solid waste margins are up by over, from an EBITDA standpoint, by over 100 basis standpoints.

The landfills volumes are also up, almost nearly to 3%, and that's a good sign, although some of that is at the effects of an average ton per ton price decrease of something close to 9%. I'll go into a little bit more detail of that.

A lot of that is driven by Brockton. As you know, we are under an ACO there, and we're operating that closure project, the ACO will allow us to operate it through December, although I do expect that there will be an opportunity, perhaps, to work on additional closure beyond that, but that's not yet agreed to with either the town or state.

But for Brockton, because of the limited window that's left, volumes were up significantly, but much of that volume was low revenue volume per ton, and that, of course, brought down our overall landfill pricing on a weighted average effect.

Also, Ontario came in fairly strongly during the quarter. As you know, we took over operation in December, and had the facility nearly at capacity between February, March and April. That brought our volumes up.

Of course, the landfill pricing out in the western region is lower than it is in the eastern region and the central region, so our overall average pricing, as an effect of that on weighted average price came down.

Richard touched on a number of items that were unbudgeted expenses for the quarters, including the worker comp and the auto insurance and some of the other items, including the unplanned shut down of Maine Energy. All of those adversely affected the performance I just went over.

From an internalization standpoint, we've had had a good quarter. Both a good quarter when compared to the fourth quarter of '03, as well as comparing to the third quarter of '04.

Overall internalization rate for the quarter was 56.6%, with the central region steady at about 80.6%, the eastern region up from the previous quarter to 55%, and the western region also up to about 38%.

So we're seeing internalization growth, as John indicated, although I would caution everyone that I would expect that as we get into the seasonably-inflated month first quarter of '05, their internalization rate, just because we will be handling more volume, some of that will be going to third party sites as a number of our sites are permit-limited, and so our internalization rate will come down closer to what it was a year ago in first quarter of '03.

From a waste availability standpoint, I would like to tell you that the western region is experiencing a very robust market today. This is a reflection of the waste, as I mentioned, coming out of New York City.

Price is on the rise, and we're feeling very good about that marketplace. The eastern region, again, is seasonably strong, but I - don't think it is out of synch with the normal profile and the central region remains steady.

During the quarter, we did expend a number of capital expense items that were not in the budget. These items were attached to the development projects.

For South Bridge, which has been, which we took over in November, we've done a considerable amount of site development over the winter, in excess of about $4 million over budget.

Ontario, which we took over in December, similarly, we have been constructing the next cell.

We started that construction in January and have worked steady on that, moving over 400,000 yards of material and constructing close to six or seven acres of a new footprint.

And as well as money that we spent at - West Old Town, and vehicle purchases that we made late in the fiscal year as a result of opportunities from a pricing standpoint to buy very good vehicles at good pricing.

All of those have adversely affected the projected free cash flow for the quarter, but it was still very positive, and these were good investments, and obviously necessary investments as part of our development programs.

A little bit on the Maine energy tube leaks, as you know, most of the waste energy plants in the country, because of the nature of the fuel that they're burning, experienced relatively shortened generator and superheater tube bank lives. Maine energy facility is really no different than any of the other facilities in the country.

Actually, I think Maine energy has one of the highest availabilities of all of the waste energy plants in the country. We have been working, since we've taken over this facility, to try to extend those generator bank repair outages from about 18 months to 36 or 40 months.

We chose in March to go down a new path, which is to put in tubes in the thicker wall thickness, and we did that because of the large number of leaks that we were getting and what we still considered to be unacceptable short intervals between shutdowns.

That was an unplanned calculated shut down in March in order to minimize the flow -- slow pin prick of a tube leak and having to go down, we chose to go after it and solve the problem now.

We expect to have significantly longer life with these tubes, and we're also introducing new chemistry within the boiler side, which we also expect to have good results.

And in talking with one of the analysts, I indicated that we thought within six to nine months we would have a better handle on what effects we've had to extending the life of these generator, super heater tube banks.

A quick discussion of litigation, as I mentioned to you in our previous earnings conference call, we had settled with the Tri-county communities associated with Maine Energy facility.

The good news is that we are actually now negotiating with [inaudible] towards a settlement. The bad news is I can't tell you what that is because we are still in negotiations.

But I would expect that we're making similar progress to what we had accomplished with the other communities, and I would hope that we would be able to report to you during the next conference, earnings conference, the results of those settlement discussions.

North country, we remain dealing with the remanned issues, that were remanded to the lower court, but there were no real developments other than just administrative during the quarter. From a development project standpoint, during the quarter, Ontario county, we received our permit. This was the permit for the expansion of the landfill.

As you may recall, if you're familiar with the project, it was a condition precedent to really closing on the project. We closed early in order to affect the construction and also to get into and be given the operation.

With a permit being issued just last week, the initial cash payment for the purchase of the landfill was affected, and we will expect to finish the appeal period on that and pay the second payment, probably at the end of September or October.

Now, Ontario landfill development is going very nicely. When we turned over the money to the county, we had in the audience not only the appropriate financial folks, but the community, the host community as well as a number of public citizens.

And I can tell you that every one of them, compared to the operation prior to us taking over, were noteworth very pleased with both litter, odor, and traffic control at the site, and I think we're under way on a very good footing with the communities both at the county level and at the municipality level.

West Old Town, we also received our final permit, which is excellent news, as you know, the West Old Town facility has been transferred ownership to the State Planning Office, it's now a state-owned landfill. Our contract is in effect, the permit is issued and final.

There is a appeal of that permit to the Environmental Board that's underway, and we would expect that there'll be a hearing sometime in July.

And depending on the results of that, hopefully that issue will be cleared before the end of the year as well.

Because of the late issue of the permit from the original schedule, originally it was scheduled, we had hoped to have it issued in January or February.

We had elected not to do any major construction at [inaudible] West Old Town and to operate Pine Tree at its going rate of about 600,000 tons. And then to affect construction at West Old Town in the spring of '05 and to shift operations and shift the waste flow from Maine waste, from Pine Tree to West Old Town, and turn down Pine Tree in fiscal year '06.

And so we'll give you more details of that as we proceed through the year.

Two other development projects, I think we continue to make satisfactory progress with McKeen. We have been out there twice, most recently now with the county legislature, who as you know McKeen is one of those counties where the solid waste authority is a separate elected appointed board, and the county is a separate elected board, and as you may appreciate, sometimes, they don't always see eye to eye.

This is the first time that both boards now have met and are proceeding on a path to resolving this issue, and we have meetings scheduled with them, I think, next week to continue in those discussions.

Finally,Templeton, which we've touched on, will remain in our eye sight a very viable project, binding contract, but there have been substantial changes at the community level, both at the Board of Health and [inaudible].

As a result of that, we really have to introduce ourself, the nature of the project and its benefits, and what it can really mean to that particular community.

And I will tell you that like many communities, Templeton is the community that is stressed by the economic conditions that they find themselves in.

Revenue shares that they received from the State of Massachusetts, and we are hopeful that as a sustainable economic development project, where we are doing more than just building a landfill, where we are remediating an online landfill, taking their waste stream, providing some substantial lease payment over 20 years, to allow them to build schools and libraries, and other, more importantly, economically sustainable projects related to landfill gas and other projects that we've introduced or will be introducing, that we think we'll have an opportunity to represent ourselves and make progress to restarting that progress with Templeton.

But one final comment on development opportunities.

We continue to see throughout the northeast, almost without exception, from Maine to western New York, every community or county government or state government, fighting with economic issues associated within inadequate revenues, and higher demands for themselves.

A good example of that is, as you know, the General Accounting Board has recently announced a decision that all of the public governments will now have to forecast future healthcare benefits for the retirees.

Up to this point they've just been expensing the actual experienced ones, that means that most of these governments will now have to put on their balance sheet considerable unfunded health benefits which will continue to put pressure on them.

As a result of that, and a number of other issues, we continue to see what I would characterize as the fairly robust development market. A number of opportunities in western New York, as well as Massachusetts, for us to apply or propose our public private partnership model, which we've been very successful in.

And while some of the careful analytical folks might ask the question, could that create too much supply, I don't think from, if you are a long-term player, that we have ever seen in the northeast that you could ever have too much supply.

The northeast is burning landfill space at a much higher rate overall than they are developing new space, and as a general market comment, we would love to be in the position to be controlling and providing those services, for every one of the opportunities which are out there, and we think it's a good thing if you're a long term player.

Shifting on to solid waste, FCR had a very robust quarter. Revenues were up 10% over the, over Q3, EBITDA was up over 40% and tonnage was up 13%, so we had a very, very good quarter. Primarily driven by the continued, during the quarter, continued strength in commodity prices.

Now, I would tell you that, from a forecast basis, we do not expect those commodity prices on a forward, 12-month basis to sustain where they were in the last quarter of '04, of our fourth quarter.

And accordingly, our budget is based on a slightly falling commodity price assumption over '03, over '04, and we could be pleasantly surprised. Those prices are, as we speak, for this quarter, slightly higher than our budget, and were they to stay there, we'll have pleasant surprises.

But we think that - short of some kind of real market effects, because of China and some of those demands, we expect that some of the price increases that took place in the calendar year, our fiscal year '04 not to be sustainable or at least from a budgeting standpoint we have not budgeted that.

Overall, FCR continues to be a very, very effective agent with regard to recycling. They've been invited to participate in a number of bids that we are awaiting the results of, and we think it's a premier recycling operation west - east of the Mississippi.

I am very proud to have a part of our overall operations. Moving out of FCR. U.S. GreenFiber.

U. S. GreenFiber, our February, March, April quarter is very normal, seasonally challenged period. It's when all the retail sales follow off. It's when people start thinking about the summer and therefore they stop thinking about insulating their homes.

Despite that, we had a very, very strong quarter, primarily EBITDA was over $900,000 above the budget for the quarter. Revenue was up 14%, primarily driven by contractor sales, it was up 16%, manufactured home sales were up 5% and retail sales were up 10%.

Our overall sales were up 10% as a result of that.

I think that was mostly driven, and continues to be driven, by a strong housing market. And as you, as those of you may follow housing, and particularly insulation generally, the fiberglass plants are on allocations, but, more importantly, they suffered some very, very high energy prices due to gas, and so they have had two or three pricing increases for the year, we expect one more.

We, ourself, put in a price increase during May, and it has been very effective. We expect a very robust calendar year '04 for U.S. GreenFiber, and for our '05 fiscal year with good expectations at this point, that we will exceed the budget assumptions that Richard outlined for you in his outline. With that, I will turn it over to John for his final closing comments. I think right now, we'll open it up for questions, and then I'll close it out after the question period.

Thank you, gentlemen. 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 touchtone telephone.

If you are using a speakerphone, 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 1 on your touchtone telephone to ask a question. If you find that your question has been answered you may remove yourself by pressing the pound key.

We'll pause for just a moment to give everyone an opportunity to signal for questions. We'll take our first question from Corey Greendale with First Analysis.

Hi, good morning.

Good morning, Corey.

I'll keep it brief. First a question about the revenue guidance. Just to clarify, the internal growth guidance, the 1.4% and the 1.3%.

Would that apply to the entire revenue base as the - kind of a report results, or is that just for the solid waste portion?

Just the solid waste portion, Corey.

Okay. And then can you clarify what the revenue contribution you're expecting, the year over year increase from Ontario and South Bridge?

We don't typically give guidance on individual decisions, Corey, but, you know, I think that you can assume that both of those operations will be within the realm of the guidance that we gave previously when we talked about those acquisitions.

Okay, and my other question is, on the acquisition front. Obviously, you should have been conservative in terms of what you are looking for this year.

What kind of -- can you clarify a little more what the acquisition pipeline looks like at this point, and where, kind of in the 3 to 5-year plan we would expect to see the acquisition pace kind of picking up in, you know, on the tail of these new landfills coming on?

I think that as we integrate the disposal capacity into the franchise, we're already beginning to really look at, from a division-by-division basis, Corey, where we can really look towards increasing internalization, and how we can do that through the utilization of capital through the acquisition program.

So that's really ongoing currently. The opportunities in the marketplace are significant, both from a tuck-in standpoint in, as well as from a strategic standpoint, and all of the operating divisions are looking at that issue currently.

I think we've been very conservative, obviously.

We didn't put acquisitions in, and I think that's just consistent with what we have done historically over the last couple of years; which is to really say that our growth from a acquisition standpoint is more likely to be lumpy.

And although you will begin to see us now begin to really reactivate the acquisition program, because we obviously are adding disposal capacity and integrating that disposal capacity, which was obviously something we needed to do in our view from a value creation standpoint first.

Okay. And so are you in active discussions with kind of a significant number of tuck-ins, or is your attention really more on the disposal capacity still at this point?

I think that we're in active discussions on a number of fronts, but, again, I think that -- you'll begin to see us more active from an acquisition standpoint this year than we were last year, and that's a direct reflection on the amount of capacity that we've added to the franchise over the last 12 months.

Okay, great. Thanks very much.

Moving on, we will take our next question from Bill Fisher with Raymond James.

Hi, thank you. Yeah, this is for Jim, maybe. A couple of questions on a couple of landfills.

On South Bridge, I think you'd moved a lot of dirt or moved some closed cells in the fourth quarter.

I guess, if you look sequentially, are you seeing a better volumes there going from Q4 to Q1, and was there a drag in terms of some start-up costs or, you know, moving that - don't happen in Q1?

Well, thanks, Bill. South Bridge is our CD processing facility located in South Bridge, Massachusetts.

It's a facility previously owned by a company called Wood Recycling, Inc.

Which in turn had a long-term lease with the town of South Bridge to manage their landfill as well. We purchased that at the end of November and took over operation in December.

As Bill indicated, we have spent most of the winter rectifying and remedying environmental issues created by the previous owners, and entered into a very detailed consent order with the state of Massachusetts Department of Environmental Conservation, related to those remediations and permit modifications to make the facility more effective, both from an environmental standpoint, as well as an operational standpoint.

As a result of that, we have significantly expanded what we believe to be the credible expansion profile of the landfill by probably over 4 million yards, we constructed and completed the cell that was in construction and have got that certified and placed in an operation.

We have completely revamped the C and D processing facility, upgrading both equipment and the availability of that equipment over the winter, and as a result of those permit modifications, received authority to go from basically 700 tons a day to almost 1,000 tons a day and are at that number as we speak.

So the overall flow of material has increased into the facility. We are operating much more effectively than it was operated before, and within the permit limits, we are now using landfill up to the permit limits.

We've also engaged in a very active discussion with the town of South Bridge toward the location and development of a new access road, and power lines, which are a requirement of the consent order with the State, related to alternative energy for the processing equipment as opposed to diesel or oil. Diesel engines. And have made good progress there.

There has been a new turn over, new elections at the town level and so we are waiting the results, of those folks coming into office to continue the development.

But as a result of all of that, we did expend a considerable amount of money during the quarter that went toward the development of that project, and we're very pleased at where the project is positioned.

It will be a long-term asset to the state of Massachusetts, and we are hopeful that the facility will not only support the C and D processing market and the residual market, but at some point will also be available for municipal solid waste disposal.

I think, I hope that that answers most of your questions.

Okay, sure and just to follow up on Ontario, is that, it sounds like it was ramping up through Q4. Is it, you know, as we look in May or June, is it more at its daily limits now or does it still have a ways to go?

No, the Ontario landfill is permitted to handle 2,000 tons a day, plus there is - an attached - beneficial use determination allowance as well.

So we're actually, by permit, able to operate at about - 2300 or 2400 tons a day, and we are in - at that permit limit and have been for a number of months.

So, we're, we expect that to continue through the summer months, but then we expect to see the normal slight dropoff and challenge for waste in the winter months, and so we'll see some eventual kind of December, January, February--everyone will be looking for some of the same waste streams.

So overall, I think the facility is programmatically, running exactly where we would want it to.

The waste slows seem to be strong in western New York at the moment, and certainly pricing levels are on the rise as well.

Yeah, I think that over the quarter, Bill, to your point, I think that the facility is there now at those levels, but it was certainly built up over the quarter and didn't run either to total capacity for the entire quarter, but was built up over the quarter to the performance level that it's at now.

Okay, and you think, last thing, you think you are being able to raise some third-party prices there?

Yes.

Yes.

Thank you.

Moving on, we will hear with Brad Coltman with Longbow Research . Mr. Coltman has disconnected. Our next question will come from Leone Young with Smith Barney.

Yeah, good morning, just a couple of things. I understand that you want to finalize things with Old Town before you talk numbers, but at this point, given what you said, are you still expecting a contribution of some type in fiscal '06?

Well yeah, there'll be - West Old Town will operate in fiscal year '06, and it will be operating in parallel with Pine Tree, so we would expect to have a contribution for West Old Town in fiscal year '06.

But you won't, you are not willing to speculate how much quite yet, huh?

Well, we would probably be smarter to do that after we build our fiscal year '06 budgets when we give you our forecast, so. I think, we don't get paid to speculate here, so we probably, would probably retain a little bit of caution on that until we actually get a little closer to the '06 operating horizon.

Right. But it is expected to contribute.

No, we're in a - right now, we're doing infrastructure work there, and, you know, beginning the process in terms of improvements that are necessary from a road improvement perspective and other infrastructure development issues that's ongoing as we speak.

Okay, good. And, reading, I guess not reading between the lines, but am I looking at this correctly for FCR then, net net, you're not looking for a revenue contribution, or you are expecting it to be flat?

Well, I think that FCR will probably exceed the budget and forecast numbers that we've built for them, as they did this last year, but because of the nature of the commodity prices, we tend to be more cautious in terms of forecasting that. FCR had a very, very good year in '04 and we see no reasons why they will not continue on that trend.

But we just think, frankly, the commodity prices won't stay at the average level that they were in '04. And we could be wrong.

If we're wrong, we'll have a pleasant surprise. If we're right, we won't have a disappointment to our stockholders. So, we're trying to be cautious on that issue.

Okay. And lastly, did I understand correctly that the equity income contribution from GreenFiber was 2.3, I believe?

That's correct, yes.

Yes.

Thank you.

Thank you.

At this time, we will take our question from Brad Coltman from Longbow Research.

Well, thank you, good morning, guys.

Good morning.

Sorry about that. And I missed part of Leone's questions maybe she asked - did she ask you about Templeton?

No, I don't think anyone asked about Templeton.

Okay. I just wanted to know. Is Templeton, I know it had been extended, I thought there was a little bit of contribution originally planned for fiscal '05. Is it completely out of the numbers now?

That's correct. We've made no assumption for Templeton in fiscal '05.

Okay. There's no assumption for Old Town, either?

Correct.

Correct.

Okay. Then last question --

Actually, I think the Old Town is, if you want to be real accurate, there's actually a drag in '05.

Because we're taking, we are operating the landfill on behalf of the sludge coming in from Georgia Pacific. And that sludge and part of the transaction included very, very favorable sludge pricing, so we are operating and incurring the expenses associated with managing the site and operating for sludge purposes the sludge coming off the paper mill.

The effects of that is actually an expense, with very - not matching revenues, so it actually is a drag to our '05 forecast.

I mean, is it [inaudible].

No, it's not an -

And with McKeen County, you know, last I saw there was some discussion about commissioners about maybe rebidding that contract. Can you just take me back, and address what the concern was, and then what has changed that makes you a little more optimistic since that then?

Well, first let me, for those of who you don't work with municipal government, they are very hard to predict exactly at what pace they're going to do something. They are - a species of their own making.

It is a political environment. In this particular case, it involves a lot of politics that have nothing to do with us.

It has to do with historical issues between the Solid Waste Authority and the County, and who has real control, and who's on first and who's on second--and we respect that and understand that.

The people who went out to the bid is the Solid Waste Authority.

They remain a very important customer, as well as the County, and for the first time I think that the County and the Solid Waste Authority is beginning to get together to talk about what's in the best interest of the constituents, as opposed to what's in the best interests of individual political perspectives.

The result of that is I think that they will eventually get this thing done. We have now met with both those parties, as you know, the Solid Waste Authority voted to enter into our contract.

And we've completed those contract negotiations. We have met with the County authorities, gone through their issues, given them a new draft.

We are talking about some broader issues that go beyond - the issues of Solid Waste Authority, and so we actually think it's kind of part of the process. Now, as also part of the process, anyone can drop anything in the paper that they want to, and so someone understandably might say well, maybe they should rebid it so that we can see what else is out there.

Well, the truth of the matter is that they have been in a situation for well over a year and a half, and haven't really been able to attract superior offers to ours, so we think we remain to be their best option, we want to be long-term partners with them.

We have to be competitive if someone surfaces, under some circumstances, we'll have to deal with it.

But we have not really seen anything that looks to us to be a material change to those circumstances, so we remain hopeful, but we don't want to, you know, overload our representation with regards to McKeen County until it's done.

Okay. Thank you.

We'll take our next question from [Justin Carr] with Lord Abbott.

Good morning, guys.

Good morning, Justin.

A couple of thing, first, Richard with your litany of numbers that you provided earlier, you talked about EPS on a tax-adjusted basis was 15 cents. I didn't catch if you said it in terms of on the EBITDA assumption for '05 what that translates into EPS range?

No, I did not. We don't normally give EPS guidance for fiscal '05 for the outlook period.

Okay. So, you're are just stating that relative to the expectation of what a normal tax rate would do to the earnings?

Yes, exactly.

And then, secondly, just - you know, with the charges and things that you guys have been cleaning up, divestures and restructuring and stuff, is that, you know, other than the issues that we're talking about--the landfills going forward, are you pretty much through that period?

So it's going to start looking cleaner in that sense? Just in some of the things you've been flushing through the P&L the last few quarters?

Yes, I think that's true, Justin. You know, we have cleaned up a number of issues over the last couple of quarters, and on a go-forward basis, there's nothing on the horizon that should be unusual.

Gotcha. Okay. Thank you very much.

That's all the time we have for questions today, I'll turn the call back over to presenters for any additional or closing remarks.

Thank you. Just in closing, there's a few topics, that I think I'd like to emphasize. First of all, the business is stable. We are encouraged by the modest improvement, from an economic standpoint.

We're hopeful that we will begin to see the reality of a real economic improvement, but certainly we're beginning to see the modest, modest improvement in the regional economy. We are working very hard to integrate the assets that we've already been successful on.

We will also, in the context of that, really look at how we reactivate the acquisition program to add value from an internalization standpoint.

Also, we also are working hard to repopulate the development greenhouse, if you will, as well, and as Jim indicated before, we're really pleased with the opportunities that are there. We see our guidance for fiscal 2005 to be consistent with our long-term plan, of really growing our cash flow by 10 to 12% annually.

And we continue, as I said, equally importantly, we continue to work hard at the basic blocking and tackling to improve the quality of all of the assets that we're operating.

We're excited about where we are currently, and we're looking forward to '05 as another good year of meeting the expectations that we set for ourselves.

I want to thank you for your attention this morning, and we look forward to talking with you in September when we release our first quarter, '05 numbers. Thank you and have a great day.

And that does conclude today's teleconference. Thank you, and have a great day