Casella Waste Systems Inc (CWST) 2006 Q4 法說會逐字稿

Good day, everyone. Welcome to this Casella Waste Systems fourth quarter fiscal year 2006 earnings conference call. [OPERATOR INSTRUCTIONS] And at this time for opening remarks and introductions I would like to turn the conference over to Ned Coletta. Please go ahead, sir.

Thank you for joining us this morning and welcome. We're 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 fourth quarter and fiscal year 2006 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'll be answering your questions as well.

But first, as you know, I must remind everyone that various remarks that we make about the Company's future expectations, plans and prospects constitute forward-looking statements for the purposes of the SEC's Safe Harbor provisions. Actual results may differ materially from those indicated by these 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 dates. 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 upon these 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 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 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. John?

Thanks, Ned. Welcome again, everyone to our fiscal year '06 fourth quarter year end conference call. As Ned said we'll cover the quarter. We'll cover the business from a financial operations development standpoint. Also talk about our guidance for '07. And then wrap up by answering any of your questions.

I think relative to the quarter, we continue to invest in building an exceptionaL Company in all areas. Our people, our long-term disposal and processing capabilities are clearly and continue to be on top of the list. In addition, we're making progress on our short-term -- short and long-term strategic development and operational goals as well. All areas of our business are benefiting from a strong focus on continuous improvement, innovation and operational excellence.

Just a brief snapshot for the quarter. Revenue growth was strong at 9.2% versus the same quarter last year. EPS for the quarter was up, not including the $0.05 benefit for the tax benefit for the same quarter last year. Operating income was up 13.9% versus the same quarter last year. EBITDA was a 7% increase over the same quarter last year. Operating margins continue to be challenged, due to the impact of higher transportation and fuel and benefit costs.

A little bit more color on the quarter. Solid waste pricing continues to be strong, 4.3%, while volumes are not as robust as we had hoped. As indicated last quarter, the late start of Worcester, Colebrook landfills and the reorganization of Wellsboro had a negative impact on performance on a EBITDA basis year-over-year on a year-to-date basis of 2.1 million when compared to Brockton last year.

The wood chip air quality issue has been resolved, Maine DEP approved the burning wood chips. The Georgia Pacific mill shut down their facility and prior to the assignment of the contract, any negative issue with that contract will be resolved. We also received an amendment on June 3 to our senior credit facility to create additional flexibility from a covenant perspective.

Some of the highlights for 2006. Internal growth, particularly pricing, remained strong as the leader in terms of the positive impact of waste management's pricing structure continues to be felt in the marketplace. And obviously have, from our perspective a positive, impact on the entire industry. Our internalization rate continues to grow, 210 basis points on year-over-year basis. Our Company-wide total disposal capacity is now at 86.7 million tons. And again, a 50 million ton improvement in our total capacity over the last few years. Our annual disposal capacity this year was at 2.9 million tons, which as we have said on numerous occasions, we continue to add to our total disposal capacity. In addition equally important, is to add to the annual disposal cap that we have. And again, we've moved that up to 2.9 million tons.

U.S. Greenfiber continues to perform extremely well. 31% annual revenue growth, 65% annual EBITDA growth and increased cash flow from operations of 93%, due to strong pricing, higher margin products and our acquisition program. Again, that business is performing well, the management team there is doing a terrific job, and we're excited about the future of that business.

Year-over-year, Company-wide, our employee turnover rate improved 15.9% on a year-over-year basis. And also, the increased focus on safety continues to yield positive year-over-year results as well. Our workers' compensation incidents are down 5.1%, and our fleet incidents are down 10.5%. Again, from a highlight perspective, very pleased with the results for '06. With that, I will turn it over to Richard who will go through the details on the numbers.

Thank you, John. For the quarter ended April 30, 2006, revenue increased $10.7 million to $126.5 million or 9.2%. Some 5.9% of the year-over-year increase or 6.9 million, arose from the acquisition activity over the last year, including Chemung, Colebrook and Blue Mountain Recycling. Internal growth for the quarter reflects higher pricing across all regions in the solid waste segment.

Excluding Worcester and Chemung, which are treated as acquisitions, volumes were up in central and northeast but down in southeast and the western regions. Mainly due to a decline in a hauling C&D volumes in Massachusetts and the Wellsboro issues in the western region. The solid waste price increase percentage of 4.3% includes 1.8% related to fuel surcharges. FCR excluding Blue Mountain, which is accounted for as an acquisition, reflected lower prices on flat volume.

Revenue for the quarter breaks down as follows; solid waste, 99 million; SPR 22.6 million; and other, 4.9 million; for a total of 126.5 million. Gross margins were down 190 basis points year-over-year. Third party disposal costs were down as a percentage of revenue due to higher internalization. And purchase materials were also down from the lower commodity prices. But these benefits were more than offset by higher transportation costs, as more volumes moved to the landfills, wood chips for the Georgia-Pacific contract and higher fuel prices, plus landfill and direct operating costs were up.

G&A decreased as a percentage of revenue year-over-year by 160 basis points and also in dollars. The decrease in G&A in the quarter was mainly due to lower compensation costs. Bad debt expense was also down but those reductions were partially offset by higher legal and travel expenses. For the full year, G&A was flat as a percentage of revenue at 13.1%.

Moving on to EBITDA. EBITDA at 24.6 million was up from the prior year, although the EBITDA margin was down 40 basis points. EBITDA breaks down as follows; solid waste 19.6 million, FCR, 5.2 million and other negative 100,000; for a total of 24.6 million. Solid waste EBITDA was only up slightly from the prior year but margins decreased by 160 basis points.

As mentioned earlier relating to cost of operations, fuel and transportation costs were up, as well as landfill and direct operating costs, partially offset by lower G&A expenses. In the quarter, the solid waste group continued to reflect low volume at Worcester, which had an impact of 1.5 million versus budget. However, Colebrook is now running to expectation and was on target for the quarter. Wellsboro was again a drag in the quarter, down about 500,000, as we booked the state fine, which was 400,000. So, this issue is now closed.

For the year, the delay at Worcester and Colebrook created a budget shortfall of 4 million and 1.9 million respectively. FCR's EBITDA margin increased this quarter by 420 basis points to 23%, which is a very good result. Average selling prices were down this quarter but tons shipped were up 4%, excluding acquisitions. 11.3% including Blue Mountain. A large component of the margin increase was the decrease in G&A, driven by lower compensation expense and a refund of glass research expenditures.

Netting those items, out would bring FCR back to its typical margin of 20% to 21%. Depreciation and amortization, this expense was up 450,000 year-over-year. While depreciation was up over $1 million, landfill amortization decreased 700,000. Mainly due to the year end FAS 143 true-up at Southbridge and Clinton County, partially offset by higher volume at Pine Tree and the addition of Chemung. Other income expense. This caption includes the settlement of business interruption insurance claim for the transfer station fire that happened in the first quarter. That resulted in a credit of 230,000.

Moving on to income taxes, the tax rate decreased to 38.5% from 45% last quarter on a year-to-date basis, mainly due to reversal evaluation allowances. Since the total change was booked through the quarter, the quarter tax provision became a credit. This favorably impacted EPS by $0.05. We have restructured certain of our subsidiaries to maximize utilization of state loss carry-fowards and reduced state taxes on a go-forward basis.

The utilization of state tax losses resulted in a reduction of valuation allowances. While the lower tax rate, required us to record a favorable adjustment to deferred taxes. Effectively, it was a catch-up effect in the fourth quarter. For next year, this restructuring reduces the rate by 100 basis points. For the quarter, net income after preferred stock dividends amounted to 1.682 million or $0.07 per common share, including the tax benefit of $0.05 referred to above.

Moving on to the miscellaneous statistics. The average interest rates for the quarter increased to 8.3%, including amortization of financing costs. Net of these expenses it was 7.9%. At the end of the quarter, 5.6 million of tax exempt revenue bonds remained in escrow. This amount will be drawn down to finance our main capital projects over the next few months. And the escrow amount is included in restricted cash in the balance sheet. Availability on the revolver April 30 was 65.4 million, after taking into account 58 million of LC's outstanding.

We announced during the quarter that we've amended our covenants. The preferred shares become debt due in one year, effective August 2006. And if not converted, are subject to mandatory redemption in August 2007. This amendment was mainly to do with this issue. If the preferred shares are converted, the debt to EBITDA ratio returns to its former level. We should also be working on increasing our availability over the near-term by using the accordion feature in our existing credit facility.

Capital expenditures for the quarter amounted to 25.9 million. The growth component of these expenditures, 10.9, million was largely made at the landfills, especially at Chemung. In addition, we also spent 3.3 million at the Mid-continent Auburn. At MidCon, we recently won a 10 year contract extension, which requires plant renovations and Auburn is being converted to single stream.

Two small tuck-in all-in acquisitions were closed during the quarter, for a total purchase price of 845,000. And the purchase price multiple paid was 4 times EBITDA. As previously announced, effective March 2, the Compensation Committee of the Board approved the accelerated vesting of all currently outstanding unvested stock options. The amount of compensation expense recognized in Q4 amounted to 39,000 before tax.

Free cash flow. Free cash flow was negative for the quarter, as we previously indicated, driven again by higher capital expenditures. The change in working capital was also slightly negative, due to lower accounts payable outstanding and lower bonus accrual. Accounts receivable were up from the higher revenue in April versus January 31. While DSO was up by one day to 39 days.

Now, I will move on to make a few comments on our 2007 outlook. The budget is predicated on continued improvement in the economy. Solid waste volumes are expected to show 2% growth, on net price increases of budgeted 3%, for a total of 5% organic growth. The price increase excludes fuel surcharges. The latter assumed to cover any fuel price increase in excess of the cost assumed at 2.50 per gallon.

FCR commodity pricing is budgeted to be down 2.6% year-over-year, with a 12% volume increase, driven by a full year of Blue Mountain, the new MidCon contract commencing December 2006 and a full year of the Ontario MRF. While Colebrook is up and running at budgeted capacity, Worcester is only moving ahead slowly. The market for solids in Massachusetts is currently constrained, mainly due to a competitive site, with a short remaining life, having a large need for soils, which results in a very low market price. While this is a short-term problem, Worcester with its approximately five years of life, is a great long-term asset.

Chemung will be on board for full year but Hardwick is expected to experience lower volume, with higher amortization because of reduction in permitted and permissible air space under our accounting definition. On the expense side, insurance costs reflect an improved trend, with a budgeted increase amounting to 5%, mainly from health and fleet insurance. Total cost will increase from 24.9 million to 26.2 million.

For the next year, G&A is budgeted to be consistent as a percentage revenue in the 13.5% range, showing the usual seasonal fluctuation. D&A, which decreased this year as a percentage of revenue, would increase back up to where it has historically been up to the mid-13% range. Not including the above EBITDA is the 28 million of EBITDA forecast in our fiscal 2007 year for U.S. Greenfiber. This is obviously a significant increase over last year driven by price increases and acquisition activity. Therefore our fixed 50% equity interest in the operating income would contribute approximately $8 million.

Interest expense has been budgeted at 39.5 million, an increase of 7.5 million. The increase comes mainly from higher balances outstanding but also an increase in the expected LIBOR rate. The income tax rate is budgeted at 44%. Free cash flow is expected to be negative in fiscal 2007, mainly because of the large outlay on capital expenditures.

This year, maintenance capital is expected to total 64 million, with growth capital accounting for the balance. The main factor in the growth capital is the development of our landfills, accounting for approximately $26 million. Over the balance, 8.1 million is accounted for by the completion of the MRF upgrade at MidCon, arising from the contract extension I referred to earlier, the conversion or upgrade of two other MRF's to single stream, and upgrades associated with other contract extensions. The remainder relates to a number of smaller projects.

Operating lease payments are expected to amount to some 8.5 million next year. The main components being Ontario, Southbridge and Chemung. Finally, I would like to note that we expect this to be the last year of capital expenditures in the 100 million range. Our growth capital expenditures should begin to tail off commencing in fiscal 2008, so that we will once again have positive free cash flow.

But when we look back at our growth capital expenditures since 2004 and through 2007, we would have spent approximately 130 million. If we add to that the amount of expenditures under the prepaid operating lease category of approximately 70 million, we will have spent in total 200 million. Which is a big number but we've added 57 million tons of air space to the Company during that time frame, an average cost therefore of 3.50 a ton. It seems to me that in a $45 to $50 a ton market, that's a pretty reasonable purchase price. Particularly given that the tonnage number only includes permitted and permittable tonnage, so it is on the conservative side.

As far as the first quarter of 2007 is concerned, we're off to a somewhat slow start, with significant rainfall and some flooding throughout our footprint. This has given rise to [lead chain] high costs and heavy loads, while constraining the start up of the C&D season. And with that I will hand it over to you, Jim.

Thanks, Richard. Just a few comments on the economy generally. The Northeast continues to be a flat economy, as I think many of you appreciate. And I think that within that framework and frame of reference both the curve pricing indices that Richard and John commented on is reflective of the both the leadership by this management, as well as our ability to follow that leadership and our ability to harvest that price increases across that marketplace.

Most of our markets continue to be very flat. Some of the regions are flat to falling off slightly from economic standpoint, due to continued deterioration of some business in those markets. But I think within this context and framework, our performance is actually somewhat more enlightened and reflective of the work that we're doing. Overall, as indicated while pricing is up, we also have done a good job with volumes up about 7% of the landfill. We actually captured another 86,000 tons quarter-over-quarter. This is strictly only for landfills and does not include the closure projects or the waste energy plant.

Taken overall we are up about 59,000 tons. And on the landfill projects, while the tonnage is up 86,000 tons, we have experienced continued significant transportation costs associated with harvesting those ton and taking to them our remote landfills. And so the overall pricing at the landfills is essentially flat, even though it was indicated, as Richard, up at the curb by 4%. Maine Energy continues to do very nicely. And as mentioned several times, the closure projects, Colebrook, has come onstream as forecasted last quarter. And is now running at about a 200,000 ton per year rate. There is about a three year closure project associated with that.

Pricing is affirmatively affected by that because it is in the [sub-D] closure opposed to soil closure. On the other hand, we continue to see as Richard I think did a good job outlining, the continued soil market in the greater Boston market. And as indicated, Worcester is a great asset. It is actually probably closer to an eight year asset, with 3 to 5 million yards of capacity. Assuming we can capture the 600,000 tons that we expect to be able to., it represents something in excess of six to eight years of capacity.

In terms of internalization, another nice quarter there. Overall internalization is 58.8% versus 55.8% for Q4 '05. Each of the regions, the central regions was essentially flat at 80%. Northeast, up slightly 59% over 57%. The southeast, as we moved waste around and experienced some CD volume fall-off's in that market, particularly Southbridge; down slightly from Q4. And the western region is up 50% over 43.5%. Principally driven by the Chemung start-up, which as you know started last fall. And we're now operating Chemung at its current capacity of 120,000 tons.

Quickly, on litigation summary. Very pleased, finally, to announce that we've reached an agreement with Biddeford on the waste energy plant, [EVOD] and a tax settlement litigation that has been going on for many years. We expect that to be -- we've received a consent order that's allowed us to raise our ventilation stack height, which was part of that agreement, and the final Council vote will be late July. That leaves really the only single town to resolve, which we will continue to work with over the next few months.

From a development standpoint, it's kind of -- we were kind of talking this morning before the call about North Country. Surprisingly enough, this is actually kind of the first time that we're beginning to see the remnants of what appears to be some common sense in the overall community relative to their perspective on the landfill. As you know, we retain about 500,000 tons of capacity, which at the current use rate will represent something like 45 years of life.

We will continue in the litigation mode. But we did have over 350 voters turn out as part of the really, self-directed we had nothing to do with it, self-directed effort to try to resolve and vote to instruct the councilmen to work toward a resolution between the parties. And we continue to be hopeful that as we move forward and continue to work on the various things there, that we can continue to see positive directions to the development of some type of win-win solution there.

Ontario is operating at capacity. The single stream is at 40,000 tons per year. As I will talk a little bit later, we expect to roll out Recycle Bank in western New York in the fall. And we expect to be able to push the single stream facility in Ontario, probably closer to 60,000 to 70,000 tons, which would be a very nice operation and a very nice part of that project.

Southbridge as some of you may know is scheduled for a town meeting vote later this month associated with the development of their industrial park. We believe that has positive opportunities for the landfill. And as soon as that vote and the new councilmen are selected, we will continue on our strategy development, which is to convert that to an MSW site for that section of Massachusetts.

Hardwick, those of you who followed that. We've had two recently good votes there in April. A strong vote both either to extend the project by a minimum ten years or twenty years, depending on how you want to read the vote. And more recently last week three mischief items that were placed on the ballots, all of which were defeated. And I think go to indicate generally some good momentum in Hardwick towards following the host community agreement that we signed there, which will require for a zoning vote that will allow us to access the 45 to 60 acres of permittable tonnage that we think will be there once the permitted zoning issues are resolved.

West Old Town is operating above capacity. We've completed the sludge mixing project. And we are running ahead of forecast with having done, I think, a terrific job in transitting from long-term capacity at Pine Tree to long-term capacity at West Old Town. Lewiston is the project still in development, nothing really to report this quarter on that. And finally, Chemung as I mentioned, is operating at 120,000 tons. We're in -- the appeal was denied by the opposition group. And we are in the [SECRA] public scoping area. And expect to be able to raise the permitting capacity some place from 220,000 to 280,000 tons per year, as we move forward.

And finally, as mentioned earlier, the MidCon project, we're awaiting resolution but expect to begin this fall the actual construction of the contract 10 year extension that we won and announced about six months ago. With regards to the FCR, a very nice quarter. Revenue is up 8%. Volume is up -- operating income is up 27%. And EBITDA was up 32%, with a corresponding margin improvement as well. FCR continues to perform nicely within the current recycling. Although I would remark, that we have seen and are experiencing some plastic pricing declines in the market, which is pulling down the overall average pricing from where it was a year ago. About a 7% reduction in that $1.00 per ton pricing.

Volumes are up 12%, including acquisitions and our variable cost is down actually about 3.5%, which is another good indicator. I think hedging will continue to be a useful tool in the next twelve months, as we expect pricing generally to be flat to slightly off. But we do not expect them to significantly deteriorate the overall performance of FCR.

As indicated, we have seen excellent traction in the Philadelphia market around Recycle Bank. It has been rolled out in Clayton, New Jersey. And if you go to some of the Websites you will see it rolled out last week in Wilmington, Delaware, the capital, to very, very high reviews. The participation rate in this program has moved from about 20% to north of 90%. And the yields per households have nearly quadrupled to about 110 pounds per household per month.

This, plus the announcement with the city of Philadelphia to convert 125,000 homes to single stream, as well as very, very broad and robust interest on the Recycle Bank program in many, many places; gives us great hope for the future on this program. We are positioned to roll it out in Burlington, Vermont; Auburn, Mass.; Ontario, New York, in the fall beginning in September. We believe that Charlotte remains a very interested city in this program and may very well have its own announcement within the next six months.

Boston has announced a pilot program of 6,000 homes. And has recently indicated their interest to expand that to a broader footprint within the city. And I think that we all who have been involved in Recycle Bank see very broad interest in it, both from a solid waste diversion, from a participation rate, but most importantly as a tool for economic development within each of these communities. So, we are very positive about this program.

Finally, move out of the U.S. Greenfiber, another very good quarter there. Quarter over quarter, revenues and contractor segment up 72%. Retail is up 17%. manufactured home was up 6%. And a very flat, flat market for manufactured home. Overall, sales up 43% for the quarter: EBITDA within that quarter was up 75%. And this is probably the most important statistic, bag increase was 31%. So as you can see, a lot of that EBITDA growth over the revenue growth is driven by pricing power. Which is indicative of not only the market that it operates in, but I think the well regard that U.S. Greenfiber has created with regard to its product, its product attributes, its sustainability and its positioning within that marketplace.

On a trailing 12 month basis, sales are up 52%. EBITDA is up 64%. And bagged sales are up 25%. Indicating, from my standpoint, that this is a very sustainable long-term trend. We believe the forecast for our fiscal year '07 to be in the range of $28 to $32 million of EBITDA, which is a substantial continued growth. We all do know, of course, that the housing market has fallen off of its peak.

We actually see this as a positive for us because we don't think the housing market was sustainable at 2.2. It is much more comfortable at 1.8. And much of the application for U.S. Greenfiber are on premium applications that it couldn't find its way into because there was a shortage of insulation over the last 12 months. So, we actually think an opportunity to see fire sound product barriers be built, as well as some other product lines that have higher profit margins. And will that, I'll turn it back to John.

Thanks Jim. We'd like to open it up for questions at this point.

We'll take our first question from Corey Greendale with First Analysis.

Good morning. Just a couple of questions. First of all, looking at the guidance, particularly the revenue, if I got all the numbers that Richard went through, it sounds like you're expecting 5% growth on the solid waste between volume and price. And I think I heard about 9% growth on FCR. So, it looks like the bottom end of the revenue range is fairly flat. Can you talk through what the assumptions are that went into that range, what would have to happen for it to come in at the bottom end of the range?

I think the way you look at it, maybe is to at EBITDA, Corey. Our EBITDA for the Company is typically tracking the 21%, 22% range. And I think, depending on where you think you're going to be in the EBITDA guidance range, that would be where the revenue would be.

Okay. So, looking but in just solid waste, for example, the 2% volume, 3% price, that's -- given what you're seeing, you're fairly good. It is not like you have some concern volume is going to fall off the table or something like that?

I think -- well, FCR pricing we've seen price decreases, as Jim described, and that would be part of it.

Okay. And, Jim, just to put a little more color, you talked about the economic environment. You talked about some weakness. Would you characterize that as kind of stable or would you say it is actually deteriorating a bit?

No, I think it is actually stable. I think that the point I was trying to make is compared to the rest of the country, it is not as robust as many of the other regions of the country. And so our performance within that framework is actually, I think, somewhat enlightened, in the sense that we've got to work harder to do better within that environment. When you have an environment growing 12% like some of the parts of the country are, it is not as hard to grow your revenues. And so, I think that what to look at here is; What kind of pricing power have we had? What ability to pass on our real price increases associated with transportation and environmental fees? And our ability to continue to compete as with regards to market share on tonnage and actually increase our tonnage are indicators of our ability to function within this market long-term.

And if you look at the volume, the progression through the quarter, in February to March to April, was it kind of tracking in line and then fell off toward the end or was it coming in weak relative to what you'd thought?

Well, we actually had a weak February and March because of weather. And we had a great April. As you remember here it was dry in April and we had a lot of sunshine. We are in a quadrant in the country where weather does drive, in absent of a real buoyant economy, weather does drive C&D and does construction and things like that. So, we are seeing what I would call a kind of a typical weather pattern for New England, in the sense that when it rains like it does, economic activity falls off. And when it gets to be normally nice, things get very heated up.

I think that the reflection in that Richard kind of laid out, Corey, was a function of the 28 days or 26 days of rain that we had in May starting out the year. And obviously, that has a negative impact in terms of the overall C&D activity. I think from a practical standpoint we're seeing our normal seasonal uptick. But clearly, that kind of activity from a rain perspective does have an impact in terms of the actual activity around construction demolition.

Okay. That's helpful. And my last question, for Richard, can you just put a little more color around the free cash flow for I think -- negative 40 million for the year, compared to the guidance that you laid on it most recently, the 32 to 36, why that came in below that?

Well, when we gave the original guidance, the CapEx was lower. So, the CapEx came in around 15 million higher than we anticipated when we gave the original guidance a year ago.

I think you updated it last quarter to a range of 32 to 36, I believe.

Right. And then the working capital change was the other component that came in more negative than we anticipated. We had assumed that there would be more accounts payable and accruals at the end of the fiscal year, than actually were the case. We'd actually -- it's just a timing issue in terms of when you make the payments. And in previous years, we've had pretty large construction and CapEx accruals at the end of the year. And that didn't happen this year.

Thanks. I will turn it over.

Thank you. I would like to get through as many questions as we could. So, if you could limit your questions to one and a follow-up question, that would give other people an opportunity to -- give us an opportunity to get to as many people as we possibly can. If you could do that, we would appreciated it. Thanks.

[OPERATOR INSTRUCTIONS] We'll go next to Alina Cellura with Citigroup.

I just wanted to ask a little about acquisition activity. Have you -- I know people have asked in the past about any opportunity with with Waste Management, if you're seeing any opportunities there with their divesture program in the Northeast?

I think that from a practical standpoint, there is not a lot of activity, Alina with regard to the divestures from either Allied or Waste Management. There is not a lot of overlap in terms of the existing facilities that may very well be on a divesture list. But quite frankly, we've not seen a lot of activity. There are some assets obviously from an Allied perspective. But on an overall basis, I think that with new leadership at Allied, I think they're looking at the marketplace differently than they had historically. And I think that from our standpoint anyway, the majority of the activity that we're going to have is from tuck-in's and opportunities similar to that. And then maybe some more strategic opportunities that would be potentially larger acquisitions, obviously, than tuck-in's. But we don't see a lot of activity, at least from our perspective, with regard to the divestures.

Okay. And then just one clarification here with Richard. The tax rate for next year, so is that going to be right around 43%?

44 Alina.

44. Okay. Great. Thank you.

[OPERATOR INSTRUCTIONS] And gentlemen, it appears we have no further questions at this time. I will turn it back to you for any closing comments.

Terrific. I would like to just really emphasize that the fundamentals are strong. Internal growth is up, particularly from a price perspective. Our internalization rate continues to climb. Continued emphasis on disposal capacity and processing capacity utilization.

In addition, Greenfiber continues to perform at a level that's consistent with its plan to be a $500 million Company in three to five years. While we're pleased with the results, we're not satisfied with the current operating performance. I don't think that from a management perspective we believe that the results reflect the strength of our people or the strength of our assets. Again, pleased with the performance but from a management perspective, we really are not satisfied. And think that on a go-forward basis, we expect performance improvement to reflect our assets, as well as the strength of our people.

I would like to thank everyone for their participation this morning. And look forward to talking to all of you in September when we report our fiscal '07 first quarter results. Again, thank you, everyone. Have a great day.

That does conclude today's conference. Thank you all for