Casella Waste Systems Inc (CWST) 2008 Q3 法說會逐字稿

Good day and welcome, everyone, to the Casella Waste third quarter fiscal year 2008 financial results conference call. This call is being recorded.

At this time I would like to turn the call over to Mr. Joe Fusco. Please go ahead, sir.

Thank you for joining us this morning and welcome. We're joined today by John Casella our Chairman and CEO; Paul Larkin, our Chief Operating Officer; Jim Bohlig, our Chief Development Officer; and Richard Norris, our Chief Financial Officer. Today we'll be discussing our third quarter fiscal year 2008 results. These results were released yesterday afternoon. Along with a brief review of these results and an update on the Company's activities and business environment, we'll answer your questions, as well. But first, as you know, I must remind everyone that various remarks that we may make about the Company's future expectation, 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 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 measures are not prepared in accordance with Generally Accepted Accounting Principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the financial table section of our earnings release, which was distributed yesterday afternoon and is available in the investor section of our website at Casella.com.

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

Thanks, Joe. Good morning, everyone, and welcome to our fiscal year '08 third quarter conference call. Welcome to fiscal year '08 third quarter conference call. Our purpose today, as usual, is to give you some insight into the third quarter results. I'm sure before I begin everyone saw the announcement early in January regarding the reorganization of senior management. I'd like to take the time initially to welcome Paul as newest member of our team as our new President and Chief Operating Officer. As you know, the management changes in January will allow us to enhance our management attention on operational efficiency, while at the same time enabling continued development of the business opportunities beyond the traditional consumption model that meets the environmental sustainability needs of our customers today and tomorrow.

Richard plans to go through the numbers, as usual, and certainly he has continued in his role as CFO during the search for his replacement. Also just an update in terms of the search. The CFO search is progressing very nicely. We have several finalist candidates and I expect to have this completed during the fourth quarter. After Richard's summary, Paul will run through some of his early observations for first six weeks of his, really, I think whirlwind tour throughout many of our operations since he came on board on January t 9th. I don't expect Paul to lay out specific goals; however, he will provide a general overview of the areas that he's targeted for environment and we will provide a robust plan on our fourth quarter '08 conference call in June. And as usual, Jim will give an update on recycling and the development activities.

Now for the quarter results. Our third quarter results were driven by great commodity pricing and cost reductions. During the quarter we continued to execute well against the plan that we laid out in the spring. The team was given clear direction on improved operating efficiencies and harvesting cash flows from landfill initiatives and they are executing well against these objectives. Our core focus remains the same, increase shareholders returns and generate positive free cash flow. We've made solid progress on two key metrics. Free cash flow has improved $17.4 million year over year and we've increased our return on net assets by 30 basis points year over year.

Excluding the $1.2 million of nonrecurring management reorganization charges that incurred during the quarter, EBITDA was $27.5 million, up $1.4 million or 5.4% over the same quarter last year. EBITDA margins contracted by 80 basis points, mainly due to higher fuel cost and purchase material cost as a percentage of revenue. Excluding one-time reorganization charges, operating income was $8.5 million, down $600,000 or 6.6% over the same quarter last year. A bit higher depreciation and amortization cost, purchase materials and rising fuel costs were the main negative drivers on a year-over-year basis.

Since our fuel charge is based on a trailing Department of Energy, diesel index it did not cover all of our increased fuel costs during the quarter and made up a large portion of the $600,000 that we were off on a year-over-year basis. Year to date, we have performed very well and have exceeded most of the financial plan -- most of the aspects of the financial plan that we put in place last spring. Including the one point -- actually including the $1.2 million of management reorganization charges we've grown EBITDA $9.3 million, or 10.8% year over year. In addition we've grown operating income $3.8 million, or 11.7% over last year, and in light of that performance, we've raised our EBITDA guidance from $114 million to $118 million to $118 million to $122 million for the full fiscal year.

Now, on to price and volume. There were three major factors that impacted price and volume during the quarter; the MTS facility and the volume strategies on closure projects of Pine Tree landfill and the closure of Brockton and Hardwick landfills. During the second quarter we shifted from a continuous to a batch process at MTS soils processing facility and this change has resulted in lower volumes. The specific volume strategies at two landfill closure projects in Pine Tree, which is nearing final closure, impacted solid waste price and volume statistics for the quarter and we expect that these projects to continue to impact price and volume until they're completed. Excluding these impacts, solid waste pricing was actually up 1.8% year over year, including the surcharges.

Solid waste volume was up ten basis points year over year, as well. Solid waste hauling and transfer pricing was up while landfill pricing was down, the main driver to negative landfill pricing mix was lower priced C&D tonnages at Pine Tree landfill and lower priced bud materials. With the softness in the regional economy last year we've chosen to be conservative with our pricing strategy. We are now beginning to test price elasticity in the market and expect to push more collection pricing into the spring. That's also a function of the efforts that [Bill Hanley] has made to really rethink, reorganize our sales program and our sales management over the last year and a half. Overall, landfill tonnages were up 67,000-tons year over year at the active sites, MSW volumes were down at landfills, while C&D volumes were up 105,000-tons year over year. As with the last several years Pine Tree had a positive impact on volumes and a negative impact on price. This site has no annual capacity and will be permanently closed on December 31, '09. As such we placed about 57,000-tons of lower priced waste at the site versus last year.

The economy, a little -- a little overview insight on the economy. The economy in the northeast remains quite soft, impacting seasonal and permanent collection volumes in the region. We believe the economic data from late fall and early winter suggests flatness to slight weakening of the economy. We felt that the -- we do feel that the brunt of the downturn -- we did fe -- felt the brunt of the downturn last year and conditions now remain generally stable. The construction slowdown and soft economy continue to negatively impact our collection business with roll out pulls down 4.2% year over year in the third quarter. The slowing rate of decline is also an indication of moderate stabilization.

So in essence we really do feel that we felt the majority of the impact from an economic downturn. As we've said historically we tend to lead in the northeast into a downturn and I think that we felt the brunt of that, as I said, last year and now we're -- we feel that things are -- remain basically stable. Recycling business performed well with EBITDA up $2.5 million year over year. EBITDA gains were driven by higher commodity prices and increased volumes. One of the most significant drivers in the quarter was a gain year over year in plastics purchasing. Unlike fibers, most of our contracts for commingled containers including revenue shares that allow us to share in the positive price movements like we experienced with plastics this quarter.

A little bit on the operating strategy, a brief overview of our execution against the operating strategy that we laid out in spring. The plan focused on profitable revenue growth, cost reductions and high-return capital deployment to generate positive free cash flow and increase shareholder returns. This year we plan to be negative $1 million to positive $3 million of free cash flow and next year our target is $10 million to $15 million of free cash flow. With the permitting successes in the fall at Hakes and Ontario landills we have final permits for roughly 450,000-tons of our targeted annual capacity increases. As I talked about on the last conference call our goal is to ramp tonnages at Ontario and Hakes through fiscal '08 and fiscal '09. To ensure that tonnage ramps are optimized, Bill Hanley, our Vice President of sales, has built a robust prospecting tool to effectively source and price volumes to the expansions.

As part of this development work, we've identified a large number of independent transfer stations across the northeast that our sales team has not worked with in the past. In fact, when we look at what we've done there, we've gone to the regulatory agencies to get all of the data information in terms of movement of waste through transfer stations and we've identified several hundred transfer stations that, in fact, we've not called on historically and believe that that will give us the opportunity to access the tonnage that we're looking for in terms of being able to ramp up the success that we've had in terms of the permitting to date. We believe the plan to ramp tonnages with contracted third-party volumes delivered to sites makes great strategic sense. With this strategy we don't have to put additional capital into trucks or acquire new collection businesses. This strategy will also help us grow free cash flow margins and returns at a faster pace than the traditional vertical integration approach. As I've mentioned before, the underpinning of our landfill development strategy is supply and demand of the annual capacity in the northeast. We're adding annual capac -- permitted capacity in a region that exports nine to ten million tons of waste every year.

A little bit of recap, during Paul's first six weeks he's visited about 60% of our locations and gained a good understanding of how we're operating in each market. He's focused on improving our operating performance through a coordinated sales approach and continued cost rationalization. This fiscal year our main focus is on restructuring of operations, procurement rationalization, operating cost reduction programs, and the divestiture of nonperforming assets. We're making good progress against our objective to eliminate $6 million of cost from the business during fiscal '08 and '09.

Today with the programs in place over the past nine months we've projected an annual savings of approximately $4.1 million against our goal of $6 million. Roughly $2.2 million of the $4.1 million of projected cost savings is in our fiscal '08 forecast and the remainder will be recognized in fiscal '09. The restructuring of operations in Massachusetts and Maine markets during the first quarter of fiscal '08 has worked out well, with increased operating efficiency and the elimination of unnecessary overhead. We had originally projected an annual cost savings of $1.8 million. We now believe after everything is settled out that that cost savings will be $1.2 million, all recognized in fiscal '08.

The strategic sourcing initiative with Mitchell Madison has also moved forward very well. At the end of last quarter we had completed the RFD process, or new service contracts, in the areas of temporary labor, tires, fuel, legal services and engineering services. The total estimated savings from these categories is roughly $1.6 million per year. We've made great progress on the long-haul transportation piece. We are negotiating new contracts with one vendor that will save roughly $800,000 per year and we're working with several other long-haul transportation vendors and expect to have additional proposals by next year. Of the $2.4 million of total projected savings from the strategic sourcing initiatives, roughly $1 million is in our fiscal '08 forecast and the remainder is expected to be recognized in '09.

On the operating front, we launched a great program in late January, which will have a positive environmental impact while having a positive economic impact, and I think, the important of that is truly to tie both of those issues together. It's a pretty easy decision when, in fact, we can to the right thing in terms of reducing our carbon footprint and do that in an economic model that's also creating value, as well. We're installing the OPS on-board oil refining system in 800 trucks. We expect to have this completed by May 1st. The OPS system will virtually eliminate the need to change oil in our trucks, eliminating $500,000 of annual maintenance costs, and eliminating the the need for 45,000 gallons of oil each year. The investment will pay for itself in less than a year.

Capital outlays for programs are included in our fiscal '08 forecast and the projected cost savings are expected to be recognized in fiscal year '09. This program is a great example of excellent work of our people are doing to reduce the environmental impact of our business consistent with our EPA climate leaders goal to reduce greenhouse gas emissions within an economic model that works very nicely. With the sale of Buffalo in October and Holliston in April we substantially completed the $22 million of divestitures. We continue to analyze our business units to determine if there are any other divestiture or reorganization swap opportunities that will also increase shareholder value.

With that I'll turn it over to Richard, who will take you through the numbers.

Thank you, John. For the quarter ended January 31, 2008 revenue increased $12.5 million to $141.4 million, or 9.7%. Internal growth for the quarter reflects higher pricing across the hauling and transfer operations and the solid waste segment. However, landfill prices again showed a net decrease, including a slight decrease in MSW pricing. At Pine Tree landfill we have no daily limited, but limited time remaining to fill it, so we're accepting some price decline there. As a result, average C&D prices were a significant decrease to 14 -- by 14.5%. The price for other landfill material, including bud and soils, also dropped significantly, but again, this was mainly due to mix. The Pine Tree price decrease for C&D impacted our overall pricing negatively by 60 basis points. Our closure projects at Wooster and Colbrook, which are not included in our landfill statistics, benefited from a large volume increase at Wooster, all be it at lower prices. Without the closure projects, our total price increase would have improved by another 50 basis points. So to summarize the total impact of Pine Tree and closure projects on price amounted to 110 basis points.

On the volume side, hauling and transfer station volumes were up after taking the reduction in operations at MTS into account. The latter change decreased solid waste dollar volumes by 150 basis points. Total landfill volumes increased by 8%. The mix change of the landfills noted last quarter continued. MSW volumes were again down 6% this quarter, while C&D increased over 30%, as John mentioned, both Hakes, where we've increased volume due the new permit, and at Pine Tree. FCR's volumes increased and commodity prices again moved significantly upwards, including plastics. The fiber price increases were partially offset by the hedging program which was put in place to minimize volatility. So revenue for the quarter breaks down as follows; solid waste $98.8 million, FCR $34.2 million and other $8.4 million for a total of $141.4 million.

Gross margins were down year over year 170 basis points. Despite the slightly-higher transfer and hauling volumes, operating costs were lower as a percentage of revenues, especially direct labor and third-party disposal costs. However, fuel prices were up substantially in the quarter, which caused 100 basis points of the margin decline. The higher value of commodities year over year, and consequently the higher payments to municipalities drove the purchased materials at FCR higher so that as a percentage of revenue these costs were up 2.9%. Purchased material prices were again up 71% year over year. General and administration costs decreased as a percentage of revenue year over year ten basis points. Most categories of expenses were down as a percentage of revenue, especially legal and bad debt, but compensation was up, the main factor being the cost associated with the management reorganization amounting to $1.2 million.

Moving on to EBITDA, for the quarter EBITDA at $26.3 million was up $200,000 versus the prior year. Excluding the management reorganization charges of $1.2 million, it was up $1.4 million, or 5.4%. EBITDA breaks down as follows; solid waste $18.5 million, FCR $7.9 million, and other was a $17,000 loss for a total of $26.3 million. Solid waste EBITDA was down from the prior year and margins decreased by 290 basis pines. The main factor in the margin decline was fuel, which had a significant impact, 180 basis points, plus the management reorganization costs, which negatively impacted solids waste margins by 120 basis points. For FCR another great quarter. EBITDA improved by $2.5 million and margin increased by 220 basis points to 22.7%. Average selling prices were again up this quarter, as were volumes. Tons shipped were up 0.5%. The major factor in the EBITDA increase was the commodity price increases, including plastics, which were a significant component this quarter. They were up from last quarter 11%, and up 45% year over year.

Depreciation and amortization expense, this was up $2.1 million year over year. Landfill amortization showed a large increase over the prior year, rising mainly from the higher amortization rates at Pine Tree, because of the shorter life agreed upon with the state, but also from the higher volumes at other sites, especially Hakes and Wooster, partially offset by the closure of Hardwick. Income taxes. As I've explained previously, the tax rate continues to be very volatile and difficult to predict, as was the case against this quarter because of the low level of pretax income. The tax provision is always computed on a year-to-date basis using year-end estimates of book and taxable income, so the provision for the quarter is adjusted to end up with the correct year-to-date amount. Excuse me. For the full year, we expect the tax provision, which will likely be a charge, to be at a range of $2 million to $3 million, depending on the level of book income or loss. For the quarter the net loss amounted to $4.6 million. or $0.18 per common share, which result includes $0.08 per share related to the management reorganization charges and the swing in the equity results.

Moving on to some miscellaneous statistics, Internalization, the northeast region internalization was up due to more south Maine volumes being delivered to Maine Energy, higher internalization in the Bangor market and at biofuels. The western region benefited from higher volumes at Geneva and Auburn, as well lower volumes in a couple of divisions which are unable to internalize. Central is able to internalize more, especially by (inaudible) transfer. The average interest for the quarter decreased to 7.96% including amortization of financing costs. Net of these expenses it was 7.7%. Availability on the revolver at January 31st was $157 million after taking into account $44 million of LCs outstanding.

At the end of the quarter our debt to EBITDA ratio calculated for the bank covenants was 4.2 times. During the quarter we closed on two acquisitions at a purchase price of $1.1 million, an EBITDA multiple of less than three times. Free cash flow for the quarter showed a $1.2 million increase, an improvement over last year, due mainly to lower capital expenditures and the change in working capital. Although accounts receivable decreased this was more than offset by lower accounts payable and lower capital expenditure accruals. Interest expense was up mainly due to the higher debt balance.

Now a couple of comments on the outlook. As you've seen, we've revised our guidance for year and we expect EBITDA to come in in the $118 million to $122 million range, including the reorganization charge, revenue be in the $570 million to $590 million range and free cash flow from negative $1 million to positive $3 million. The forecast change in working capital is largely responsible for the free cash flow decrease from the comments made last quarter. Free cash flow is highly sensitive to the change in working capital. US GreenFiber continues to suffer from the low housing starts so that we are revising our share of equity losses from both US and green -- US GreenFiber and RecycleBank upwards to $5.9 million for the full year.

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

Thank you, Richard, and good morning, and I'm excited to be here this morning. I'm going to take you through a walk of my first six weeks with the Company and provide you with insight on where we will focus our efforts regarding sales and improving our operating expense leverage in the upcoming quarters. I'll characterize these observations into five selling and five operating expense initiatives but first take you through how those observations were formulated. As John said, I've been out to approximately 60% of our sites in the first six weeks. These visits have been focused on meeting our people, our field leaders, understanding our processes and how we are executing in each market. We reviewed our operating performance with the management teams in terms of EBITDA, operating profit, as well as their top sales parties and expense reductions opportunities in the markets. Overall these visits have been very productive in helping me understand where to take the business going forward.

In the category of sales drivers the first area of focus is going to be improving our operating margins in our underperforming markets, identify specifically why these markets are underperforming, developing comprehensive sales and operating plans focused on improving margins, with a concerted effort on fix or sale approach with a heavy focus on fixing. Number two, continue to drive sales within our higher-performing markets by leveraging the existing sales and marketing tools we already have, while also augmenting those tools with a more comprehensive resource management selling strategy. That resource management selling strategy will focus on understanding our customers waste stream requirements and offering solutions with services that are more in line with a total environmental solution provider, leveraging our leading recycling infrastructure as a solution for our customers to not only think green but to become green, educating our customers regarding our advances with landfill gas-to-energy, and other waste-to-resource transformation programs Jim will speak to.

Third, continue to improve our customer service metrics, our net promoter score. We have an opportunity to create a more robust program internal to our Company which will survey more customers and survey them more frequently. We believe this will enable us to provide a deeper understanding of our own opportunities and become more agile in our responses. We are also introducing a more effective and timely business performance tracking tool for volume, revenue, gross margin and key operating expenses. Previously these reviews were down on a monthly basis due the process -- business process and system constraints. However, in partnership with our new CIO we are now receiving this information in a more timely manner, improving our ability to respond to market trends. Finally, in regards to sales observations we are sharpening our focus on landfill volume selling opportunities across our markets and refining our revenue mining capabilities. As John said, we see an opportunity to more aggressively attract almost eight million tons of waste out of these independently-owned transfer stations just in the states of New York and Massachusetts alone, as an example of areas that we have not previously called upon.

Under the category of operating expense leverages drivers, we have several ongoing pilots designed to improve our productivity and efficiency in a number of critical operating areas within our business. A brief recap is as follows. We are currently piloting a fleet routing software application in our Montpelier and Burlington markets. This routing optimization pilot targets a reduction in driver hours and we expect pilot results in late April 2008. We currently do not have a dynamic real-time routing application. We are also piloting an on-board technology system within our vehicles in select markets to evaluate what we believe is a significant opportunity to improve the connectivity between our drivers, our customer service teams and ultimately our customers, automating many administrative requirements while improving our customer service. We expect our pilot results in early April 2008.

Also regarding our fleet, we're implementing a fleet maintenance management software package that will streamline all of our maintenance operations, including purchasing and inventory processes, warranty claims and recovery, while also enabling us to leverage and drive direct and indirect labor percentages. As previously mentioned by John, our oral purification system rollout is underway. Based upon the success of this program to date we see an opportunity to expand this program to our off-road fleet and we are evaluating that savings opportunity now.

We're pleased with the gains we have seen through standardized processes across our operations and we see continued opportunity to continue that effort. We have reviewed all of our operations by line of business and by our key performance metrics to identify additional areas for improvement. We will be conducting operating reviews across all of our locations, led by the managers of our top performing businesses, as well as other key employees and managers across the organization. These teams will identify processes and structures within those top performing locations that are facilitating and enabling that high level of performance. We will be contrasting these processes and structures to other operating units across the Company and identifying replicable and sustainable process that we'll standardize across our business. We see this as a significant opportunity to leverage the talent, the knowledge and the experience of our field management team in driving change within our business and I'm very excited to be a part of that.

With that I'll turn it over to Jim.

Thanks, Paul. First let me welcome Paul. I think that the design objective that the board and John had in terms of refocusing on the operation is evident in Paul's summary and it's been excellent. 60 days since since he's joined us and certainly he's going to also enable me to be more focused on the [retransformation] part of our strategy, and particularly the first focus, which is to complete the landfill development. So I will report on the balance of the development and on the operating efficiencies associated with FCR to complete the report to you. First, FCR had an excellent quarter, as Richard suggested. Both pricing and volume are up, indicative I think generally of a stronger and more robust recycling environment which is out there.

Generally speaking, prices were very strong on plastics, PET was up almost 7%, natural HDP up 11%, pigmented up 13.4%. We do believe plastics probably are at a reasonable ceiling at this level, so we don't expect this pricing to continue increasing incrementally, but we do expect it to be very stable as we go forward. Obviously O&P and ONCC have been steady to strong this quarter, as well. This is good information, because this is a period of the year that we generally seasonally generate a lot of material and e we expect as the material generation falls, the pricing will probably stay where it is or slightly increase. Volume tons received and shipped were up and the overall gross commodity pricing, which is in the neighborhood of $121 a ton, is up 5% quarter over quarter and higher on a year-over-year basis.

From a development standpoint within FCR our strategy is to convert and extend our existing contracts and to take advantage of the single-stream wave which is out there, both from a cost standpoint as well as from a volume standpoint. This quarter we continued to negotiate with Stratford and Hartford with regards to single-stream conversions in our final contract negotiations. We also were selected this quarter for the Waukesha County three-year extension. We're very proud about that negotiations, which was a competitive bid with a large number of strong competitors. Se retained the business and we're glad to be continued partners with Waukesha as they continue to move their recycling programs forward.

Cherry Hill had a very successful RecycleBank rollout, participation's exceeded well -- well above the plan that RecycleBank had and certainly that we had, and our Philadelphia capacity -- recycling single-stream capacity is at capacity and we will be adding some additional capacity there, which is reflective generally of a very strong recycling market in New Jersey. As you know, we are in the process of Camdon to single-stream and expect that in operation in June or July. And, as I indicated earlier, in the wake of the strong demand for single-stream, we are now focused on ensuring that our costs are lowered and that the volumes continue to increased and we think the single-stream conversion is a primary vehicle and channel to accomplish both of those goals and you will see us being systematically targeting of the various 25 material recovery facilities that we have up and down the eastern seaboard to realize these gains associated with those two strategies.

Moving on to US Green -- to the development section first, as you know, a core piece of the overall strategy for the Company is to complete our landfill expansion permit strategy. The principle -- after receiving the permit expansion at Ontario, the principle site that we are focused on is Southbridge. We embarked on the board of health hearings this month, we conducted six of those hearings, nearly 100% of the testimony was filed. There was a procedural error in that the board of health did not notify a small one-acre piece of land that was in a third community within the half mile procedural requirements, and so we choose to be safe by procedurally refiling for the application, which was done last week. The net effect of this is a delay to our schedule of about 21 days. While we feel unfortunate about that, it was the right thing to do in terms of making sure that the public process ticked and tacked every item that was required. We now have all parties notified and we believe that the previous testimony will be filed and has been filed. It was prefiled testimony so the schedule delay will be minimum, probably less than 30 days as outlined.

Some of you have seen articles in the local paper with regards to Southbridge. There's yet another one this morning. I think that the -- at that time here where we're in the middle of hearings, we won't step in between the board of health and the counsel, but I believe that the program is very stable, that the business development strategy the town has for expanding their industrial park, their announced intention to put the road out for bid, and the principle funding mechanism of that, which is associated with the landfill expansion are all intact and that we expect to have the board of health hearings completed by the middle to the end of May and to be moving nicely on our schedule there. Pine Tree landfill gas energy has been placed into operation and essentially on schedule and we are selling power and receivable renewable energy credits there. We're in the final innings of construction for the Highland landfill gas energy and will embark on a similar program for Clinton County beginning Q4 '08, this spring, for construction of a similar plant there.

Moving on to US GreenFiber, it's obvious that the housing market is -- is in its bottom or still seeking a bottom. We expect that bottom to be reached some time in calendar year '08 and for a recovery in any material fashion not to occur until mid or third quarter '09. That obviously is a troubled market and contractor sales are reflecting that, but despite that we've had a very strong retail market season. Our overall retail program was up 24% and particularly driven by Home Depot, Manards and Lowe's, which are up over 30%. I think that's important because it's indicative of the strength of the value of this brand relative to the greenhouse gas and the green part that is getting more traction every day in the eyes of consumers. And I think once the housing market finishes its correction US GreenFiber will regain its trajectory and be a strong performer in this overall market.

And with that I'll turn it back to John for his final comments.

Thanks, Jim. Actually before we go into Q&A I'd just like to also talk about two changes to the board of directors. On February 28th Randy Peeler resigned his board seat and the board of directors approved the nomination of Michael Burke. First I'd like to thank Randy to his contribution to the board of directors over the last seven years, and clearly from our perspective it was absolute pleasure to work with Randy and the entire team at Berkshire Partners.

I'd also like to welcome Michael Burke to the board of directors. Michael has an impressive track record in corporate finance and capital markets. His corporate finance experience as CFO for Intermagnetics General Corporation, a publicly traded medical device corporation, and as CFO for HBT, a private company that manufactured hydrogen fuel cells, will be a valuable contribution to the board. In addition, Michael has 20-plus years of capital markets barking experience at CIB Oppenheimer in power technology, energy and electric utility industries, will add a valuable perspective to our business strategy in renewables.

And with that I'd like to open it up for questions.

(OPERATOR INSTRUCTIONS). We'll take our first question from Scott Levine with JPMorgan.

Good morning, guys.

Good morning, Scott, how are you?

Very well, how are you?

Terrific.

With regard to the solid waste pricing trends, the numbers look pretty good. Anecdotally it sounds like you guys are -- are still seeing a rational environment, though perhaps the landfill maybe seeing a little bit of slow down. Can you give me a little bit more color regarding what you're seeing out of your competition, both larger and smaller player there, and is there any real change in environment or is it just a one quarter anomaly?

I think it's fair to say that we really haven't seen any change. I think that the discipline that has come into the industry is remained. I think that -- certainly that the function of where we go from an economic perspective out into the future, but certainly at this point in time I think it's -- we're not seeing any change there at all. From our own perspective though, I think that we have a change that is on going and that is a really renewed focus on price and volume growth with Bill Hanley and Paul's efforts in terms of pulling the database in place, reconfiguring our sales force over the last year and a half, reconfiguring how we go to market, and also from a practical perspective we've also put the landfill sales transfer station landfill pricing initiatives also under Bill so that we have that collectively now all tied together.

So I think, Scott, going into the future that should add some real value in terms of our overall pricing volume. And also as we said, when we went into the economic downturn, '06 -- late '06 early '07, we really chose to be a little bit more conservative. Recognizing that we were going to have over a million tons of additional capacity to ramp up, we've chosen to be a little bit more conservative there. So I think we will begin to look at that differently and test that as we go into the end of '08 and into the beginning of '09.

Got it. Great. One regarding your debt balances. Could you remind us of what percentage of your total debt is at floating rates, net of hedges, and I think you said 7.7% was the normalized interest rate for the quarter. Just want to confirm that as well.

Yes. The average interest rate, net of the hedges it was 7.7%, as you -- net of the amortization of financing costs, in other words, the cash cost was 7.7%. The amount floating is about $180 million when you ignore the collars and the interest rates swaps that we have in place.

Got it. One last one then. On the free cash flow you mentioned working capital lowering the number a little bit. Could you give a little more specifics on what it is on fiscal '08 on the working capital side?

Sure. As you appreciate, the change in working capital is the change from the previous fiscal year end and when we give guidance we basically were doing this on a projection. And at April 30, 2007 we ended up with large capital expenditure accruals, which as you would appreciate, did not have an impact on the 2007 free cash flow because the accrual offsets the CapEx. But when that accrual gets paid out in the following period, free cash flow is negative impact because, obviously, that accrual gets turned into a cash outlay. And since we've reduced capital expenditures this year and we have no large landfill projects in the fourth quarter, we don't expect the same magnitude of accruals to be in place at the end this current fiscal year, in other words at April 30, 2008. So really it's a timing payment issue, if you like.

Okay. Understood. Thanks.

You're welcome.

(OPERATOR INSTRUCTIONS) Our next question comes from Canaccord Adams, Eric Prouty.

Great, thanks. Good quarter, guys. Maybe if you could just give us little more insight into the nice boost in recycling volumes. You mentioned the environment, et cetera. Is RecycleBank having any impact on those volumes yet and what are you seeing from a community-to-community basis driving up those recycling volumes and is that sustainable going forward?

I think there are two legs -- just to respond to this in a general sense, there are two legs to the recycling program that are both, I think, material and important. First is that the introduction of the single-stream program by itself, primary because of the convenience and the simplicity for the consumer to load and meet their sustainable objectives themselves personally is driving the volume quite nicely. So wherever we've rolled out a single-stream program, be it in Everett or Southbridge or -- for example, Boston's now talking about a 200,000 home single-string rollout -- we expect to see material improvement in the volumes. Layered on top of that, wherever that has been coupled with RecycleBank we see a further improvement, which is a material improvement over the single-stream, and combined they can have anywhere from a doubling to a tripling effect in terms of both participation from historical numbers as welt as total quantities. So both of those drivers are important. They are acting -- they can often act together, they can also separately.

And so as we look at t this from a strategic rational in terms of how we are approaching it, we think single-stream, and particularly with the technology developments that we are moving on, is going to lower our operating costs allow us to reduce the number of head count, we're going to -- we're bringing a higher level of automation into the program. So we welcome opportunities to be shifting to single-stream, both because it adds more volume as well as materially allow us to lower our operating costs. That coupled with the strong pricing environment, I think underscores and provides a nice foundation for the good operating environment that we expect FCR to see for many quarters, as the country continues to tip and move toward a more sustainable future.

Great. Thanks. Just a bit of an expansion on that. You said Philly was getting up to full capacity from a single-stream, you're bringing a more on line. If we look from an aggregate standpoint, though, what would you believe that you are at across your single-stream facilities from a capacity standpoint?

Well, I think we're early in the program in terms of harvesting the volume so I had rather characterize it that way. There's plenty of upside and plenty of opportunity both in terms of harvesting the volume, so I'd rather characterize it that way. There's plenty of upside and plenty of opportunity, both in terms of conversion from a dual-stream to single-stream. and more importantly through mechanicization and automization and improvements. So we think we're in the leading front edge of it relative to technology to actually improving operating efficiency. So I think we're early in the game and we're a very robust interest in terms of how that will positively play out.

From a modeling standpoint, that can have a material impact on margins et cetera?

Yes, I think there's no question that from a practical standpoint when you take a facility from one shift, Eric, to two shifts you are going to have a fairly dramatic impact in term of the overall profitability. That's one of the drivers for our investment in single-stream technology, and I think when you look at that based on our platform of approximately 30 or 32 facilities -- I think there's 38, but there's probably 30 or 32 facilities. I think we'e convert six -- we have six converted in total, so there's a substantial opportunity on the go-forward basis, not to say anything about other additional opportunities that we'll look at as they come up in the marketplace itself.

We're actively bidding on a large number of new opportunities that are surfacing. We've been very successful as aligned with the Waukesha announcement. We won the Oakland County, Michigan facility last quarter, as we announced. I think we're winning more than our fair share of these and we think that market is robust and we'll continue across vast stretches of -- certainly the operating regions that we operate in.

Okay, and just final question, again from a mechanical modeling standpoint. You're starting to bring some of these landfill gas to energy projects on line. You're getting credit, you're selling electricity, et cetera. How going forward is that going to impact the P&L, what line item does it fall in, how is the revenue going to be recognized, et cetera?

I think we'll -- I think what we will do there, Eric is really come back in the fourth quarter call and give some real guidance or some real additional information relative to our landfill gas-to-energy programs. Keep in mind we're just bringing the facilities up and operational. The Highland facility is not operational at this point in time. It's almost to an operating state, we're just about completed. But, we will be in a position in the fourth quarter to give more specifics to answer the question in terms of the overall performance of the landfill gas-to-energy programs.

Okay. Great. Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS) Our next question comes from Leon Young with Citigroup.

Hi, good morning, it's actually [Elena Salura] for Leon.

Hi, Elena.

How are you.

Great, how are you?

Good. If I missed it I apologize. Did you actually break out what the fuel surcharge was?

We didn't. The fuel surcharge was about 1.2%.

Okay. And other than Southbridge being just -- having some slight delays there, are most of the other landfill expansions tracking as you expected?

Yes, they are. We had talked about the slight delays also with Shamong last quarter, but --

Right.

-- everything else is moving forward very nicely from a development standpoint.

Well, we finished Ontario, we finished Highland and Hakes, so those three are all done and completed and were completed early, so I think that we would characterize ourself in pretty good shape here from that standpoint.

And as far as Shamong goes, is there any update there?

No, really, I think that you'll find that the greenhouse gas issues in New York have brought some additional regulatory scrutiny to all landfill expansions and I believe that, while we have got a very -- very nice low emission landfill model that we think is proprietary and unmatched in the industry, it's going to take a while for them to work through it. And I -- as we reported we expect a nine to 12-month delay as they digested looking at the landfills for the first time out of the legacy framework and with regards to new greenhouse gas initiatives and criteria.

And with regard to the -- that OPS, the oil refining system that you are putting on the trucks now, I believe that there are new engine requirements coming in in 2010. Is this system compatible with those -- with that requirement in 2010?

The new requirements from what perspective?

I guess they're just --

Emissions.

Low emission standards, yes, they are.

It is compatible?

Yes, the OPS system would be compatible with that, yes.

The OPS is an internal oil lubrication system as opposed to the consumption on the fuel side, so they're really separate systems.

Okay, great.

The OPS system really is just cleaning and taking the contaminants out of the oil system, that's all.

Okay.

Condensation et cetera, other issues that cause wear.

Okay. Great. Thank you.

You're welcome.

(OPERATOR INSTRUCTIONS) It appears we have no further questions at this time. Mr. Casella, I'd ike to turn the call back over to you for any additional or closing remarks.

Great. Terrific. I'd just like to emphasize we're continuing -- we will continue to execute against the plan that we laid out in the spring. Continued focus to drive value by harvesting the value from the landfills, reducing our operating costs and utilizing capital efficiency. We're committed to increasing shareholder returns and generating positive free cash flow. Thanks again for your attention this morning. Our earnings -- our next earnings release and conference call will be in late June when we report our fourth-quarter and full-year numbers, as well as outline our expectations for fiscal year 2009. Thanks, everyone, and have a great day.

Ladies and gentlemen, this does conclude today's conference call. We thank you again for your participation and have a great rest of your day.