Casella Waste Systems Inc (CWST) 2005 Q3 法說會逐字稿

Good day, everyone, and welcome to the Casella Waste Systems third-quarter fiscal 2005 earnings release conference call. Today's call is being recorded. At this time, for opening remarks, I'd 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 are joined by John Casella, Chairman and Chief Executive Officer of Casella Waste Systems; Jim Bohlig, our President and Chief Operating Officer; Richard Norris, Senior Vice President and Chief Financial Officer; and Charlie Leonard, our Senior Vice President for solid waste operations.

Today, we will be discussing our fiscal year 2005 third-quarter results. These results were released yesterday afternoon. Along with a brief review of our financial performance and an update on the Company's activities and business environment, we will be answering 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, the 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 today.

Also, during 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. The reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the "Financial Tables" 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, I will turn it over to John Casella, who will begin today's discussion. Hey John.

Thanks, Joe, and welcome everyone again to our third-quarter call. First of all, I would like to -- I am sure that you've all have seen the changes that we have made in our press release. Just as a little bit of background, it is a little bit of us really responding to some of the feedback that we've gotten from some of you. Hopefully, the additional information that we provided in the release is helpful. Also, we are going to limit our prepared remarks a little bit so that we will have more time for questions at the end of the session.

Briefly, with regard to the quarter, it is clear from our standpoint we do continue to move forward on our strategy. Results for the quarter reflect a revenue increase of 11.9 million, EBITDA increase of 1.9. The EBITDA margin decreased slightly, 60-basis points. Richard will go through the break down of that in his presentation. Internalization also improved 4.8 percent from 52.4 in '04 to 57.2 in '05.

On the economy, we continue to see improvement in volumes. And we also continue to see improvement from a price perspective when you adjust for Brockton. In addition, FCR continues to see price improvement on a year-over-year basis and a slight improvement in volume.

As usual, Richard will give you a bit more detail in terms of the numbers. And Jim will go through the development activities and details for the quarter as well.

First, a few highlights from the business -- clearly from our perspective, we continue to make great strides, both harvesting our internal as well as external disposal capacity. And as I said, Jim will go through those details in his part of the presentation. We continue to make progress on four or five additional partnerships. We have reemphasized our Tatiem (ph) program. And we also continue to make significant progress in terms of building the business on a continues-to-improvement basis.

Our total worker comp sate (ph) the incidence were down 13 percent; although, the costs were up this quarter 66 percent because of one accident. Fleet incidence through the third quarter of ‘05 was down 16.1 percent, and costs were also down 12.4 percent.

Our turnover rate for the first 9 months of '05 improved by 13.8 percent compared to the same period last year. We continue to move forward with the training of all of our managers. As we have said historically, clearly, it is our views that our effort to really change the dynamics from management to leadership at all of our operating profit centers is truly going to pay long-term value for us. We have trained and retrained all of our management team from a selection standpoint. And at the end of this calendar year, we've got about 60 of those managers through advanced achievement.

We are also this quarter putting in place an internal program to continue to add value to the investment that we've made from a training standpoint off site. As we bring that program in-house, it will continue, as I said, to really reinforce the investment that we are making. Critically important from our perspective is that each one of those managers really has an understanding of the external environment and continues to drive his part of the business forward in the weight shed that he is operating in.

With that, I'll turn it over to Richard, who will give you a brief detail on additional information from a number's perspective.

Thank you, John. First of all, looking at revenue for the quarter ended January 31, 2005, revenue increased 11.9 million to 116.1 million or 104.1 million or 11.5 percent. The prior year revenue numbers no longer include any of emancaries (sic) to domestic brokerage, so the year-over-year comparison is again clean this quarter. Some 4 percent of the year-over-year increase or 4.3 million arose from the acquisition activity over the last year, especially the new landfills, Ontario in the Western region and Southbridge in the Southeast.

The total internal growth for the quarter is 7.3 percent, represents higher volumes in the solid waste business mainly in the Central and Northeastern regions, while commodity prices continue to be up year-over-year driving growth at FCR.

Moving onto gross margins, gross margins were down 120-basis points year-over-year. The key factors were as follows -- insurance costs were up due to a fatality. It was the first time in the Company's history that we lost a driver. And it was very tragic. As you know, we are self-insured, so we recorded our full deductible of 750,000. That had an impact on gross margins of 0.65 percent.

Fuel prices were also up. Although we have implemented a surcharge in May 2003, as these costs continue to increase. The impact on our margin increases also. That has a negative impact on our margin in the quarter of 0.6 percent.

At FCR, the price of commodities purchased was also up. That had a negative impact on the margin of 0.56 percent. And we also incurred higher transportation costs from the higher compost volumes, which has a negative impact of 0.35 percent.

So those four negative items were partially offset by lower disposal costs due to higher internalization of about 1 percent. And some of those five items is the 1.2 percent.

Moving onto EBITDA, EBITDA increased 1.9 million to 23.8 million from 21.9 million and is broken down as follows -- solid waste EBITDA was 19.7 million, SDR 4.49, and other was at -300,000 for a total of 23.8 million. Solid waste margins decreased by 130-basis points from the previous year. These results reflect the same practices mentioned previously relating to cost of operations plus the benefit of lower SG&A as a percentage of revenue.

FCR again reported over 20-percent EBITDA margin this quarter, an increase of 220-basis points from last year, as this segment continues to benefit from higher prices. Volumes were also up slightly.

Depreciation and amortization, this expense was up 1.7 million year-over-year. This arises mainly from landfill amortization, an increase of 1.5 million, principally due to the addition of the new landfills at Southbridge and Ontario as well as higher volumes from our other sites.

Income taxes, the effective tax rate remained in the 44.5-percent range, which is expected to continue for the rest of the year.

Net income for the quarter -- net income after preferred stock dividends amounted to 570,000 or $0.02 per common share. When looking at the year-to-date EPS comparisons, do not forget to adjust for the low tax rate in the prior year as well as the change in accounting principle. If you remember, we adopted FAS 143 in the prior year. On an apples-to-apples basis, year-to-date EPS for the prior 9 months would have been $0.18 versus the $0.45 reported. And that $0.18 compares with the $0.20 for the fiscal year 2005 year-to-date.

Next on miscellaneous statistics, the average interest rate for the quarter was 8.06 percent including amortization of financing costs. Net of these expenses, it was 7.64 percent, which is up slightly from the second quarter. Cash and cash equivalents on hand at January 31st amounted to 7.3 million. And cash balances were up slightly from last quarter. Restricted cash was 12.5 million. The total debt less unencumbered cash was 364 million, down from last quarter and due to the lower borrowings at the end of the quarter and higher cash balances. Availability on the revolver is 124.1 million after taking into account 32 million of our fees outstanding.

Capital expenditures for the quarter amounted to 13.7 million. And we're on track to meet the high-end guidance range of 68 to 72 million.

Payments under landfill operating leases for the quarter amounted to 2.5 million, which represented mainly the annual lease payments for Ontario.

One tuck in holding acquisition was closed during the quarter. The total purchase price was 1.6 million. And the purchase price multiple paid was four times EBITDA.

Free cash flow, as expected free cash flow was positive for the quarter, driven by the lower interest payments versus last quarter, as the high yield interest payments are due February 1st. Capital expenditures were also down. Accounts Receivable decreased from the lower revenue, while DSO maintained at the same level. Accounts Payable decreased from last quarter, consistent with the business seasonality, while payroll accruals were up.

So finally, a comment on the free cash flow outlook for the fiscal year. Partly as a result of our buying the building in Boston, which houses our recycling operation at a cost 4 million in Q4, the free cash flow for the year will likely be close to break even. The final amount will vary depending on how the landfill construction work goes for the next couple of months. And as you know, that work is very weather dependent. That result does not reflect the dividend of 2 million received from Green Fiber this quarter.

And with that, I will hand it over to you Jim.

Good morning, thank you Richard. Given the expanded information John mentioned and Richard just went through, I'll just jump straight to a number of development projects in solid waste and then a few comments on FCR and US Green Fiber. During the quarter, we completed for North Country -- permitting within 51 acres that now allows us to forecast approximately 550,000 permitted tons remaining at the landfill, which it is a current consumption rate of about 100,000 tons a year -- equates to about 5 years of remaining life, which continues to allow us to look forward to that as an asset to the Company.

Guards (ph) waste you will have saved in the quarter -- we also completed and received Act 250 and permit authority for cells 3 and -- for phases set for 3 and 4, which represents about 8.4 million yards. And this now allows us access to look at in excess of 25 years of permitted or permitable (sic) capacity. And we received an increase to an annual rate of 340,000 tons per year.

With regards to Ontario, this quarter represents the first 12 months full operation. We exceeded our performance targets based on our original acquisition or bidding of this project. EBITDA margins are up over those forecasts, and we expect based on permit modifications that have been affected that we will be able to achieve 100-percent capacity utilization of the permit, 624,000 tons over the next 12 months.

With regards to Highland, we received permissive referendum for an additional 48 acres that was received in the November vote. That will allow us to receive permits for an excess of 11 million yards. And that -- similar to Waste USA allows us to assert that Highland is now a plus 25 to 30-year facility for the Company. And we're very pleased obviously with those results.

Clinton County, we completed the final purchase of the Niseck (ph) property. And that in conjunction with the recent Seekarette (ph) approvals that we received allows us to harvest additional 8 million yards of capacity, which will put us in excess of life beyond the terms of the lease agreement with the Clinton County.

Moving onto Hardwick, we have just completed -- last night in fact, a draft negotiations with the town, which was done in public, so I can mention it -- which will be presented to the town at the end of March. It allows an increase in tonnage, 234,000 tons. But it is subject to zoning and a road relocation vote that will take place at a town meeting scheduled probably early in the summer. So I would not assert that this is the facility until that vote is done that has received those increases, but certainly it is a good sign.

With regards to West Old Town, we received Environmental Board determination in October, affirming or reaffirming the issue of that permit. And based on that, while it was appealed to the Supreme Court, we will be constructing new cells this spring once weather breaks. And we will have West Old Town in operation receiving at the rate of about 400,000 tons a year starting in September of '05.

Moving on to Southbridge, as you know, we have signed an MOU with the town of Southbridge, allowing for the construction of the new access road and utilities associated with an industrial park that is adjoining that access road. It is an important aspect both for the ACO with the regulatory bodies as well as to reposition the asset in order to take advantage of what we think are development opportunities. As previously reported, we have documented in excess of 4.5 million yards of capacity. We remain very confident that this additional capacity that over the next 12 months, we will complete development on. And based on that, we are looking at this asset as a continuing anchoring asset for our operation in the Southeast.

And finally additional opportunities, as John mentioned, we have been working on additional partnering opportunities particularly in New York. Some of you know that Chemung -- the RFP for Chemung will be due for the middle of April. And we continue to think that we have a very good model there to respond based on the performance that we've had at both Clinton and Ontario, which are really premier public/private partnerships in the state of New York. And we look aggressively forward to the opportunity to respond to that bid.

We have also completed some residual projects during the quarter. We expect to be able to announce in the fourth quarter, a replacement project for the Brockton project. As you know, we were able to extend the Brockton capacity to October of '05, which is about 6 or 7-month extension over what we had previously had permitted authority, which was for December 18, 2004. While the quantities and the tons at Brockton will begin to run down, it does provide us some additional disposal capacity from a residual project. And as I mentioned, we do have a replacement project that we will expect to announce in the fourth quarter.

And additionally, finally, we have completed and are waiting for final permit approval with the state of New Hampshire -- a MSW project, a residual closure project, that would allow us to generate about 400,000 tons of MSW disposal for the state of New Hampshire over the next couple of years. And that also will be announced in the fourth quarter pending the release of the final permits.

And with that, I will move onto FCR. As Richard indicated, FCR, our recycling division, had another very good quarter. Their margins, EBITDA margins, are now north of 20 percent, which represents about a -- almost a 200-percent basis point increase over the third quarter of '04, principally driven by commodity pricing which is up considerably over '04.

And we believe as a forecast that that pricing will relatively stay flat. And those who follow the OBM index will note that in the last couple of days, it has fallen. But that is a seasonal expectation in February, as this is the kind of low generation month for paper across the country and a low period of consumption of that paper. So typically, we do see OBM indexes fall during this quarter, as we expect demand will pick back up. And we expect those prices to be at a minimum flat over the next 12 months.

We have accomplished a contract extension at Cape May of 5 years, completed equipment modifications at FCR, Ann Arbor, and we are in the process of doing additional modifications that we believe will drive our margins further at Camden and Boston with regards to commingled bottle line.

We are considerably above our budget, which is again a reflection of our pricing. And we are very pleased with all aspects of this business with the exception that we've had a slightly higher variable cost on a dollar-per-ton basis, principally driven by billable field (ph) wire, which as you know, steel prices have been up considerably. And we expect FCR to be a good performer on lines with these tons over the next 12 months.

Moving to US Green Fiber, as reported in the additional information that we have now provided, overall sales for the quarter were up 15 percent at 40.03 million. The year-over-year sales for the last 12 months are primarily driven by strong demand in the housing market. And we continue that. And I think this segment believes that that will continue for a number of years. And this is obviously fueling the growth.

If we look into each of the channels -- contractors were up 19 percent, manufactured home was up 6 percent, retail was up 17 percent for an overall total sales gain of 15 percent. And we had a year-over-year or quarter-over-quarter EBITDA growth of about 25 percent. And that includes a margin improvement of about 100-basis points on EBITDA margins for that business.

We have put in place significant price increases for the balance of the year. This is reflected both of the activity in this market, principally driven by fiber glass as well as energy demands in that business. And we expect to be able to ride along with that. And we expect for the 12 months ending in April to be on target at about $12 million of EBITDA. And we expect the business for the calendar year '05 to continue to show the kind of growth that it demonstrated in '04.

For the quarter, as mentioned, we did also receive a $4 million cash dividend to the parents of which our share was 50 percent. And the business remains cash flow positive and has consistently upstream dividend to both of the parents' monies over the last 3 years. And we expect this business to continue to perform enriching markets and growth.

With that, I will turn it over to John for his closing remarks.

Another detail before we get into questions. Some of you may be aware of a news reports detailing the loss of a transfer station permit in Wellsboro, Pennsylvania. First of all, I'd like to point out that this is a small 75-tons-a-day transfer station with really no material impact on the solid waste operations. However, large or small, the issues surrounding the management of the facility are totally inconsistent with how we have done business for 30 years and also how we teach and encourage our people to do business. On that level, the episode is an embarrassment. After consultation and cooperation and discussions with the Pennsylvania DEP and our own internal investigation will determine whether the allegations are accurate. No matter what the answer, we will take appropriate action with regard to the facility.

Another item I'd like to go through before we go into questions -- consistent with the opening remarks, our goal today is to answer as many questions as time will allow and allow as many people to participate in the question-and-answer session. So we'd like you to keep your questions to two for each participant. And then, if you'd like to get back in the queue, you are more than welcome to get back into the queue. But if you could keep it to two questions so that we could get through as many people as we possibly can during the time period, we would thank you for that in advance.

With that, I would like to open it for questions.

(OPERATOR INSTRUCTIONS). Corey Greendale, First Analysis.

The first of my two questions is on the free cash flow. Could you just give a little bit more detail on I think you have said the impact of Vinda (ph) facility in Boston, which I think you said was 4 million. That still would get you to below the 8 to 12 million guidance but not to break even. Could you just give a little bit more color on why you think kind of neutral is where we are going to end up?

On capital expenditures for the last quarter, if you take the difference between our CapEx where we are year-to-date and where we expect to be by the end of the year and adding in that $4 million, our CapEx will be right at where -- 72 or in that range. And that will have a significant impact in the fourth quarter in terms of our free cash flow. That is the biggest change that we anticipate.

Okay, so there's no change to your EBITDA guidance at this point?

As far as EBITDA guidance is concerned, I think we previously gave you guidance in the range of 104 to 108 million for the full fiscal year. And we see ourselves being right in the middle of that range as we move forward. And the key thing to remember there is that that will represent a 10 to 12-percent increase year-over-year.

Okay and the second question is -- John, you have been talking for a while about reaccelerating the tuck-in acquisition program. And so far, they are spending a little things but nothing really accelerated. Can you just give us a little bit more detail on where the program stands? What your acquisition pipeline looks like? And when you might expect to see that accelerate?

First of all, Cory, I think historically, we've really not given guidance in terms of how much acquired revenue that we are going to project each quarter from acquisitions. Having said that though, it is fair to say that we are reemphasizing, and we are having all of the operating divisions really dust off from an acquisition's standpoint all of the information that they have detailing all of the independence and all of the activity within their particular waste shed. So that progress -- they make progress on that. We have really kind of kicked that off in the last 3 to 6 months. And we expect that it will begin to accelerate. But we are not obviously going to put ourselves in the position where we are going to predict or try to lay out x number of dollars per quarter from a growth perspective.

Okay but we are further along than we were last quarter as far as --

Yes, absolutely. I think that we went from a situation where we had to really totally reinvigorate that program. As you know, we were not, prior to adding disposal capacity to the franchise, we fundamentally were not buying hauling companies. And we really needed to reinvigorate that program and get it back into the mindset of the entire management team, which I believe we have done over the last 3 months. So I think that it is fair to say that we will begin to see that accelerate on a go forward basis. But as I said, we are not going to project the amount of revenue that we are going to acquire on a quarterly basis.

Steve Kohl, Matador Capital.

You did a good job providing more data. I guess I wanted take this one step further and have some discussion. I guess now that we have the eastern region brook and of between north and south. Can you give us some color on a couple of things? One, when we look in terms of the -- first of all, if you can give us some color it off -- I think you made do this later. But in terms of the EBITDA breakdown or some color on how that region is actually doing.

And then secondarily, looking at some of the landfill assets that have ended up in that region, the collection operations that we have already there -- are they feeding that to what degree today? And some of the other assets -- what percentage -- I know the internalization rate is low in that region. But I guess I'm just curious on some of the disposal assets that we have folded in, is that feeding off existing collection business? Or is that something where you are looking to do the --

Let me just give you an overview, and Jim can go into more data. From a practical standpoint, the performance in the Southeast region has actually improved on a year-over-year basis. We have taken the -- at this point, because we are managing the Massachusetts assets differently. We have put Mike Wall in there; we are making a lot of efforts. We have closed facilities. We are looking at that entire business differently. We are moving that forward. So you're now seeing the break out of that region.

With the success of adding Hardwick and Southbridge to the assets in the Massachusetts market, it gives us the opportunity to bring up the internalization to move that whole process forward. But it will take some time to get that done. Clearly from our perspective, had we not been successful in adding disposal capacity, than we would have divested those assets.

We are making progress. We have shut down the Edinburgh facility. We have moved waste around. We are rationalizing those assets, and we are trying to find our niche in that market. And we will do so in our view in fairly short order. We are confident in the management team that we have in place there. And we do have a real focus on it in terms of moving that whole region forward from a performance standpoint.

I'm sorry, John, I was just going to ask you -- any color -- I mean is it losing money? And if it is losing money, what type of progression and how quickly will these improvements come to the bottom line?

Well, I think that it is fair to say we have a very high sense of urgency on moving the assets forward. But I think that it is fair to say that we believe also -- to the extent that we continue to move it forward and we see other opportunities from a disposal standpoint and see other opportunities that we think on a clear sense of urgency can improve the assets, then we will continue to do that. We will continue to rationalize our position and find where our niche is in that market. And it is fairly obvious that it is likely that you will see us really rationalize our position around the landfills that we have in that market and attempt to really drive that business, as I said, before to a higher level of performance. I don't know if Charlie or Jim wants to --

We always like to give -- at least for Charlie or Richard, whoever wants to chime in. You guys are always welcome; you know that.

Absolutely.

Tom Ford, Lehman Brothers.

I have two questions, but I want to chime in with a comment first, which is -- thanks very much for the added detail. The only thing that I will keep pestering you about, John, is maybe thinking about turning yourself or changing the reporting to a calendar year. Because that would really be something that people would appreciate.

In terms of my questions, Jim, as always you always give a lot of detail. And I just wanted to go back through the landfill commentary. And just get a sense from you if I am reading you right. If I look out longer term, say next 12 to 18 months, is it Waste USA as well as Ontario and possibly Southbridge Where we are seeing daily tonnage opportunities rising?

Well, I think I went through each of the -- almost every one of the projects. And my comments fell into two categories, Tom. One was that one of our goals is to always be driving our facilities up to their permanent limit and having capacity utilizations of 100 percent or as close as possible. And as we get up to those numbers to then make sure that we can increase those permit limits. So with regards to Waste USA, we are in the process of -- and have received the 340,000 tons. And our goal now will be to use all of that capacity and make sure that we have in excess of 20 to 25 years of life to anchor the franchise.

The other category is those facilities where we are making good progress on development or on permitting. And I think Hardwick and Southbridge are both indicative of that, where we have spent for the last 5 or 6 months in negotiations with the host community town or within discussions with the various jurisdictional authorities associated with those facilities -- and are indicating to the market that we expect that subject to some future approvals, that there are growth opportunities at those facilities, both in terms of annual tonnages as well as life extensions for the landfills -- which I think from a long term standpoint is important.

And then finally, I gave some highlights on some replacement residual projects to replace Brocton and another project in New Hampshire that we think will add 400,000 or plus additional MSW capacity. And all of that should I think should be seen in your 12 to 18-month kind of frame of reference as a positive signal relative to either annual capacity extensions or ability to extend the life of our various anchor landfills in our system.

Okay, great, another question for you is -- and you do not have to necessarily give numbers; although, that's always appreciated. But if we look out over however long you want to look and keep commodity prices flat, what do you think is the opportunity for FCR in terms of their revenue or EBITDA? Is it flat also? Or is it something where because of the other things that we're doing, we can continue to drive that up?

Well, I think it is helpful as you have suggested that there are kind of two aspects to this. One is that we have done a lot to focus, since we have acquired a larger recycling presence on techniques to make sure that the commodity pricing is less of a risk. And as you might appreciate, the current high commodity pricing relative to our hedging program has created a very, very good opportunity for us to protect ourselves. So even though commodity prices are at relatively robust numbers and they are forecasted to stay there, on the downside we feel very, very comfortable having acquired or taken good positions on our commodity prices because of hedges which are available.

On a growth standpoint outside of straight commodity pricing, we think that that market is very robust. As you know, I think that there are a number of additional opportunities that we are routinely able to look at. We are seeing good opportunities to bid into markets for upcoming murphs (ph), which are coming unwound from their current positions within the solid waste as well as up and down the Eastern Seaboard. And so, I actually believe that the FCR business unit, it will -- from our standpoint, it's going to have a growth potential, both anchored by consistent commodity pricing as well as additional opportunities in the marketplace.

And maintenance, I suppose, is the really important thing. Maintenance at existing margins or improving margins over what they are currently reporting.

The other thing that we are incorporating into incentive programs from a management's standpoint this year is a reflection on return on net assets on a rona (ph) calculation as one more dimension. And very interesting -- when you look at the FCR, the recycling business, on that metric because it performs very well against all of our businesses. In fact, it is at a very high ronin (ph) number. So we are incorporating that into our overall incentive programs. We are looking at that as just another metric that we are going to use on a go-forward basis in addition to free cash flow and the metrics that we have used historically to drive the business.

Lionel Jellybrook (ph), Goldman Sachs.

First, a good question on fuel prices -- what was the dollar impact of the higher fuel prices during the quarter? And then second thing, since fuel prices continued to go up in February and are still moving up and -- what is impact now on the business? Do you still expect to be able to recover a big chunk of it in the fourth quarter or not?

In the third quarter, we were sort of upside down, if you like, in terms of fuel surcharge versus the increased fuel costs of about 2 to 300,000. It's probably around $250,000. As far as the situation between now and fiscal year-end, we have locked in and we have contracts of fuel prices through 4/30 for most of our business. And those prices are locked in at about an (technical difficulty) on average around $1.97. So that's way below the current market. So for the rest of the quarter, the fourth quarter, which your question addressed, we think we are in good space in that respect.

I think the other thing that we do on a quarterly basis is to re-look at our surcharge program and make sure that we pick up any potential disconnects where we have got the opportunity to rethink how we are doing the surcharge. Or someone that may not be on the surcharge -- just to re-look at that every quarter to make sure that we are aggressively putting the surcharge in place at every opportunity that we have.

Have you looked in anything for fiscal year '06?

Not currently, no. We have been tracking the market, but prices have been running against us. So we have not yet locked anything in for next fiscal quarter.

I think another note is -- John has touched on this. But we have a very linked fuel surcharge program where we attempt to pass fuel increases to our customers and -- where those contract provisions allow us to do that. And I think a better proxy or another proxy, alternative proxy, that you might ask by now is that -- how well have they been received? And so, those surcharge prices have been generally what I would characterize as being fairly successful and well received. And I think more importantly to your question to the future, that is the proxy that I would look to with regards to -- there is a general acceptance at least in the Northeast that fuel pricing or fuel escalating energy cost is a fact of life. And people are accepting that they have to make up for that because it is a part of what we are all dealing with. So I think from an adverse impact to our business model, I don't think it represents a serious or material adverse impact to our business model.

Okay. And then I know that Wellsboro is a relatively small transfer station for you, but what will be the dollar impact of the decision? And could you be fined for the situation on top of it?

I think that the dollar impact would be very, very minor. I do not know if Richard wants to -- very insignificant in terms of the dollar impact. The --

The EBITDA from Wellsboro is kind of in like double digits. It is very minor.

Yes, (multiple speakers) a very insignificant -- from a financial standpoint, very insignificant.

I think I would caution all of us, it is something that we haven't yet had a chance to really fully investigate, and we will appeal it. We need to work through that before we do any -- but it is a minor operation to our operations. It represents a very insignificant EBITDA. And we don't think it is material in any shape or form.

But could you be fined for the operations?

The regulatory structures, solid waste, give the regulatory bodies authority and jurisdiction to fine, yes. Typically, these fines are in the scale of what we're talking about here are very minor.

Okay. Thank you very much.

Nevertheless, we take them very seriously, so I do not want to leave anybody with a discounted feeling about that. But relative to our operating numbers, they do not represent a material impact from your perspective.

Phillip Volpicelli, CIBC World Markets.

This is Drew Martinsen for Phillip Volpicelli. Just wanted to clarify on the planned CapEx spends for the upcoming quarter -- is that going to be primarily for the landfills? Or are we also going to be seeing some addition to fleet?

It will be a combination of both. Typically, we spend less. In typical years, we spend less in the fourth quarter on landfills than we would on the fleet and equipment. But this year, that will be more like 50/50.

And I was just wondering if we could get some color in terms of the weather impact on the quarter, past quarter and the current quarter, given the largest storms that have kind of rolled through the Northeast a couple of times now.

Well, in the third quarter, there was a significant snow event in Boston, which you may be aware of. There was like a 26-inch fall on a Monday and then a 10-inch fall on a Thursday. And that did disrupt our South Eastern region. And the estimated impact of that from an EBITDA perspective is in the $400,000 range.

And anything for the current quarter?

Well, I think as you know, we have had a fairly robust winter in February. So what typically happens -- just for those of you who don't understand it is -- the markets are -- I will characterize them particularly roll off are delicate and easily affected in the wintertime by weather. Because there's not necessarily a lot of drive to get things done when better weather might be there. So people will shut down easily and put things off for 4 or 5 weeks. So when you get a major storm coming through, you do get people willing to kind of say themselves, well we are just going to shut this down for 4, 5 or 6 weeks and pick it back up in the spring when the weather gets better. And I think that we have had some of that affect.

So there is a residual trailing affect. But I think Richard would have added that we get storms in the Northeast. It is where we live. It is just hard to predict which month and when they are going to occur. And so it's not outside the seasonal norms. But we are going to see some continued pressure from the weather probably in the early part of this quarter. And then, there will be a big push to get that market back up, as people try to get ready for the spring and summer.

I think that the other issue with regard to the storms is -- we have obviously snowfall throughout the entire region. And I think Richard put his finger on it. The other events around the region are not as significant as a 36-inch storm that really basically affects business for an entire week in the Southeast region. That kind of storm is particularly disrupting, even more so than what Jim just outlined. Certainly, snowfall has an impact, but we usually have obviously that kind of weather all winter long. But when you have a 36-inch storm that really take things out for a week period of time. That is an event that has more of an impact.

Michael Hoffman, Friedman, Billings, Ramsey.

My questions bunch up -- one on your development side and the other talking about change in tonnage. On the development side, Jim, there wasn't anything said about Templeton. There was nothing really said about what the knock on affect of Wellsboro could be to Chemung.

And then, the Boston bids are out. And what are your thoughts about what you're seeing so far because that data is public now. That is question one.

All right, let me take those in order that you have given. We have a signed contract with Templeton. We are and have been having or seeing that as a more distant issue relative to the opportunities that we had at Hardwick and Southbridge. I might add that both Hardwick and Southbridge a but (ph) Templeton. And so as we build progress and solutions in those markets, my personal belief is that they will demonstrate or serve as a model for our discussions in Templeton when the timing for there is appropriate.

I think that the negotiations, and I have been personally involved with them, at Hardwick are quite a good model for us. They result in a significant increase over what we are currently permitted to operate at -- and a significant increase in our footprint from about 25 acres to 83 acres.

So I think the fact that we have had such collaborative discussions and we have developed some very interesting concepts that I think that have been found very attractive by a negotiating committee for Hardwick. And those will now be released the end of this week and presented to the public the end of March. And then, there will be a town meeting early summer -- I think indicative of the opportunities and the techniques that we have available to us. And I think they will all grow well for Templeton.

With regards to your second question, which was on Wellsboro and Chemung -- no, we feel actually just the contrary. We have done a good job, as we did with Ontario, of having an opportunity to make sure that the Chemung folks have visited Ontario, have visited Clinton County, and have visited in fact a number of our facilities.

And they understand being themselves in the business that they are able to put this in perspective relative to the Wellsboro thing. We believe the Wellsboro thing is a very isolated issue and will have no impact on Chemung. What will have the impact on Chemung is our ability to continue to present innovative ideas, as we did at Ontario and to demonstrate that we have a much higher commitment to the partnership concept, which is the winning formula with regards to municipalities. And so I am very, very comfortable relative to that question.

And I am sorry, Michael, your third question that you --

He only gets two.

Well, he only gets two, but he asked three.

Did he? (multiple speakers)

Well, to the Boston bids, I don't think we have got much to say there. They have put out bids. I think Boston is struggling with high pricing -- the city of Boston -- high pricing and few options. And they are looking to see what they can do in terms of re-bidding those. And we have got our strategic plan in the Southeast market -- is to develop disposal capacity. And until we get that absolutely developed and permitted, we are not going to go jump into the Boston bid itself, where we think there are some disadvantages from a competitive standpoint because of the stranglehold that waste management and for that matter Allied have on disposal assets in Massachusetts.

Okay and then the second question was -- if you add up all the tonnage --

This is the fourth question now?

No, I had two questions. One was on development side because one was on tonnage.

Okay.

When you add up the tonnage that you talked about in your presentation that gets you to 100 percent, how much is that total tonnage? And what would you assume is the average tip fee? And how would you break it up between internalization versus new ways to the Company?

Well, I will tell you what -- if you want to call, I'll be glad to -- I do not have those numbers in front of me. I would be glad to -- give me a call or give me your number. I will give you a call and try to generate that information for you if I can.

Okay, John has my number.

And we have time for one more question. Steve Kohl, Matador Capital.

Two questions -- the fuel surcharge, I'm a little confused. What percentage is this on? Is it applied to the monthly bill, so there's a 1-month lag? I guess my understanding was -- we were pretty much covered on this. I guess I wasn't clear, Richard, you said that we locked in some amount. What are we locking in, as we are passing it along on the contracts? And I have got one quick follow-up.

There are two separate issues there. The fuel purchase is a contract for purchases. The fuel surcharge is a separate program. The fuel surcharge program, Steve, we have never been covered and never indicated that we were covered 100 percent. We have a large portion of our risk profile covered with our surcharge, but there are certain contracts where we cannot put the surcharge in place because they are existing contracts. As those contracts come off, we will obviously rethink that language in the contracts, and we will change that as we go forward. But we have never indicated that we were covered 100 percent from a fuel surcharge standpoint. I think that the number is somewhere in the vicinity of 60 to 70 percent covered from a fuel surcharge standpoint.

Then the other piece of that is -- what are we doing in terms of our fuel purchases? We are buying contracts, forward contracts, from a fuel purchase standpoint. Those are the two issues -- two separate issues.

The other issue is going back to Brockton. What is the ramp down on Brockton look like and the timing of the ramp up on Massachusetts and New Hampshire? And what type of -- are these comparable types of tip fees that we're seeing on Brockton? Can you give us a little bit of color there?

Brockton will be completed. And the closure project will be completed in October of '05. And is the nature of closure projects -- as you get closer to the end, you obviously not only have to accomplish your closure, but you've got a smaller footprint to operate in so that your acceptance rates go down. So I would expect that it will have no impact on the third quarter -- or fourth quarter, sorry, of the fiscal year. And it will have a -- it will diminish in contribution in our budget program for the Q1 for '06.

The replacement project is likely to be. We are waiting for permits to be issued by the DP. And they are expected to be issued in the fourth quarter. And we expect the project to be underway. It is a project of probably similar or maybe slightly larger scale than Brockton. And so, I think from kind of a budget overlap and a budget's, if you will, substitution standpoint, it will be a good replacement to the Brockton project once it gets up to full capacity.

The market for soils particularly -- and coming out of the very central artery projects and related I think is probably certainly consistent to slightly robust to where they were last year. So I could see no deterioration of performance from that standpoint.

And your last question --

Yes, just on the New Hampshire opportunity -- (multiple speakers)

The New Hampshire opportunity is simply I think framed as a -- we are waiting for permits from the New Hampshire DEP. It is a 400,000 ton MSW opportunity tied to a landfill closure project. It has been fully negotiated with the town. And when the permits are issued and they are finalized, we'll announce them in the quarter. And we would expect them -- there is work to be done as part of the remediation project at the landfill. And we expect that that will take the first 2 to 3 months of the fiscal year. And we would expect that that would start contributing to the performance in '06 in the second quarter.

And gentlemen with that, we will conclude today's question-and-answer session. I'll turn the call back to you for any additional or closing remarks.

Thank you very much. From our perspective, we are confident in our ability to continue to execute the strategy. We are also confident that the overall help from a regional economy standpoint continues to move forward. We maintain our focus on internal/external disposal capacity. We have reemphasized our acquisition program to densify (sic) the franchise and will continue to invest in our people. With that, I'd like to thank you for your attention this morning and look forward to talking to all of you in June when we release our fourth-quarter '05 numbers. Thank you very much.

With that, we will conclude today's conference. Thank you everyone for your participation.