Casella Waste Systems Inc (CWST) 2008 Q4 法說會逐字稿

Good day everyone and welcome to the Casella Waste Systems fourth-quarter fiscal year 2008 financial results conference call. Today's call is being recorded. At this time I would like to turn the call over to the Vice President of Communications Joe Fusco. 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; Paul Larkin our Chief Operating Officer; Jim Bohlig our Chief Development Officer; and Richard Norris our Chief Financial Officer emeritus.

Today we will be discussing our fourth quarter and full fiscal year 2008 results. These results were released yesterday afternoon. Along with a brief review of these results, guidance on our fiscal year 2009 and an update on the Company's activities and business environment will answer your questions as well.

But first, as you know, I must remind everyone that various remarks that we may make about the Company's future expectations, plans, and prospects constitute forward-looking statements for the purposes of the SEC 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 tables section of our earnings release, which was distributed yesterday afternoon and is available in the investor section of our website at www.casella.com/investor. Now I will turn it over to John Casella who will begin today's discussion.

Thanks, Joe. Good morning everyone and welcome to our fiscal '08 fourth-quarter conference call. The purpose today, as Joe indicated, is to give you some insight into the fourth quarter and also our fiscal year '08 results and also lay out the guidance for '09.

Richard plans to go through the numbers as usual. I might add that Richard has continued in his role as CFO during our search for his replacement and we expect to have this completed during the first half of the year. After Richard's summary, Paul will run through the operating summary, and as usual, Jim will give an update on the development activity.

We will start by giving you an overview of the business and the quarter and then we will through the guidance and finally spend some time answering your questions. I think when we step back and take a look at '08, '08 was clearly a very strong year for the Company. I think we were very proud of the achievement of all of our people in every aspect of the plan that we had laid out last year. We laid that plan out, as you know, in June and I think that we executed against all of the goals that we set for the year even in face of a fairly weak economy in the Northeast.

We exceeded our EBITDA guidance and we were at the high-end of our free cash flow guidance for the fiscal year. Last June we set EBITDA guidance for fiscal '08 at $114 million to $118 million. Excluding the management reorganization charges from the third quarter, EBITDA was $123.5 million for the year, well above our guidance for the year. Equally as important, our free cash flow of $5.3 million for the year was at the high-end of the guidance that we laid out last June of [negative two to positive six].

Revenues for fiscal year were up $48.2 million, or 9.1%, over the previous year, excluding the non-recurring charges noted in our press release, operating income for fiscal year was $45.7 million, up $5.9 million, approximately $6 million, or 14.8%, over the previous year. Excluding the management reorganization charges, EBITDA for the fiscal year was $123.5 million, up $12.9 million, or 11.7%, over the previous year. And also excluding the charges, margins were up year-over-year. The EBITDA margin of 21.3% was up 50 basis points, and equally important, operating income margin of 7.9% was up 40 basis points.

Again from an '08 overview perspective, our focus continued on building our people. Our leadership programs really continues to yield positive results in fiscal '08. We continue to see increased productivity, reduced severity and frequency of workers compensation claims and accidents, and reduced employee turnover. If we look at our direct labor costs -- facilities, labor, and benefits and our risk management costs -- they are down again this year by 70 basis points as a percent of revenue. If you go back to those numbers to 2004, these categories are down 300 basis points to 17.5% of revenue for fiscal '08.

During the year we completed, we successfully completed the program to divest or close underperforming non-strategic operations. After completing the initial capital investment in 25-year infrastructure at the four new landfill sites in fiscal '07, we turned to positive free cash flow in fiscal '08. We improved our free cash flow by $23.9 million, or $24 million, over fiscal '07. And finally we improved our return on net assets by over 80 basis points over last year.

With Paul joining us now on the call, as I don't plan to go deeply into the operational results, however, I would like to take a few minutes outlining several of the important achievements for the past fiscal year and review our strategy for '09. Stepping back again and taking a look at what we accomplished in '08, at the beginning of the fiscal year we laid out a detailed operating and capital strategy. This strategy was focused on improving our returns on invested capital and generating free cash flow.

The main drivers to the strategy were harvesting cash flows from the landfill investments, rethinking our business models to improve operations and reduce costs, and strategically deploying our capital. I can say without question we made substantial progress in all three areas.

Harvesting value from the landfills. In September '07 we received our minor modification to our permit at the Hakes landfill increasing the annual capacity by 150,000 tons a year. In October '07, we received a minor modification to the permit in Ontario County increasing annual capacity by over 300,000 tons a year. And in early June, we received a positive vote from the Southbridge Board of Health allowing us to convert the site from C&D to MSW and to expand the annual limit by 225,000 tons per year. Jim will go through the details of the decision and the timing on a go-forward basis, but this is clearly a big positive step and will allow us to better integrate our assets in the Massachusetts market.

Improving operations in cost reductions. The work that we have done to rethink our business model has yielded about $4.1 million in annualized savings in fiscal '08. Roughly $2.2 million of the $4.1 million of projected cost savings is in fiscal year results. The remainder will be recognized in fiscal '09.

We focus this year on reorganizing certain operations into market areas, streamlining our purchasing, and reducing costs with specific operating programs. I think, again, we have made great headway in all of those areas. Our people are focused on rethinking the model to improve our operational efficiency and reduce cost, and with Paul's leadership, we will expand these programs.

Another goal that we had set out in the beginning of '08 was, how are we going to strategically deploy our capital. Our capital deployment has evolved with our business strategy over the past two years from investment in long-term landfill capacity to an approach that balances free cash flow generation from our base operations with selective investments that advance our strategy to create additional value from traditional waste streams.

During this year we improved the mix of base operations through divestitures and closures and pursued strategic investment opportunities in resource transformation. As all of you know, we have been talking and really executing a strategy where we are moving from all value being created in the consumption disposal model to value truly being created in the resource optimization sustainability model.

We successfully completed our program to divest or close the underperforming non-strategic operations with annual revenues of approximately $22 million. We also invested in growth capital and high return resource transformation projects. We invested in our zerosort, single-stream conversion at our Camden, New Jersey, materials facility -- materials processing facility, which was completed at year end this year and will go into operation beginning May 1. And we have built a landfill gas-to-energy plant at our Pine Tree landfill, which construction was completed by April 30 of this year, and we will begin to shake that facility down over the first quarter.

Fiscal year '09 strategy. Our strategy for fiscal year '09 is quite similar to last year with a strong focus on improving the performance of our base operations and selectively pursuing growth opportunities in resource transformation. During fiscal year '09, our plan focuses on improving the performance of our base operations by rethinking our model to reduce costs and increase operating efficiencies, and linking sustainability solutions with core offerings, completing the landfill permitting work, and rationally ramping tonnages to the expanded facilities.

And again I say rationally moving it, because we are all critically aware of where we sit from an economic perspective and the uncertainty in terms of the economy, although as we have indicated, it is somewhat stabilized but nonetheless we are still feeling the pressures from an economic perspective. And continuing, obviously, to deploy in '09 our capital to the highest return opportunities in our base operations while selectively pursuing growth opportunities that truly meet emerging customer and market needs.

Landfill expansion strategy, as we noted last quarter, we have slowly begun to ramp the tonnages to expand Hakes and Ontario landfills. And again with the softness in the regional economy during the past year, we have chosen to be conservative with our strategy to fill those sites. We think, obviously, that that is the best course of action in terms of overall long-term value creation. We want to avoid impacting market pricing. We are planning to ramp the tonnages to the expansions over a several year period of time, roughly three-year period of time, with roughly 150,000 tons added in fiscal '09.

We also feel that our long-term strategy to transform traditional waste streams into renewable resources is becoming more and more important to all of our customers. Increasing global markets are driving consumption resulting in resource constraints that are impacting consumers, businesses, and governments around the world. The signs are all around us -- $140 a barrel for oil, diminishing raw material supplies, and increasing commodity prices. Over the next several years, we will continue to selectively pursue opportunities in waste transformation and resource optimization.

In fiscal year '09 this means, specifically, two single stream, or zerosort -- and Paul and Jim will talk about that in a little bit more detail in their discussions -- but two zerosort, single-stream conversion or upgrades will be completed in '09 in Boston and Philadelphia. One new single-stream materials processing facility contract in Detroit and three new landfill gas-to-energy plants constructed and operational, which would be our Highland facility, Clinton County facility, and our Southbridge facility.

Those are the highlights for our program our strategic program in '09. With that, I will turn it over to Richard who will go through the numbers.

Thank you, John. For the quarter ended April 30, 2008, revenue increased $12.9 million to $139.6 million, or 10.2%. Internal growth for the quarter reflects higher pricing across hauling and transfer operations in the solid waste segment. However landfill prices, including MSW [game], showed a net decrease especially for C&D year-over-year, although C&D prices, on average, were up slightly from last quarter.

The Pine Tree price decrease for C&D impacted our overall pricing negatively at 52 basis points. But despite the lower prices of the landfills, when we take Pine Tree out of the mix, EBIT at the landfills for the quarter was up year-over-year and at better margins. Hauling and transfer volumes were up in the quarter as were landfill volumes, mainly for C&D at Hakes and Pine Tree. Our closure projects at Worcester and Colebrook, which are not included in our landfill statistics, benefited from another large volume increase at Worcester also at an improved price.

SGRs volumes were up and higher commodity prices were again a key driver including plastics, although we have seen the first sign of a retraction in plastics, with the lower prices for pigmented HDPE. Gross margins were down year-over-year 126 basis points. Although transfer and hauling volumes were up, operating costs were again lower as a percentage of revenues as well as third-party disposal costs.

Offsetting these favorable variances were a couple of factors. Fuel prices were up substantially in the quarter causing 130 basis points of margin decline. The higher value of commodities year-over-year, and consequently the higher payments to municipalities, drove purchased materials at FCR higher. As a percentage of revenue, these costs were also up 130 basis points. Purchase material prices were up 21.5%. The higher volume of major accounts were -- also drove higher transportation costs. G&A was down 20 basis points as a percentage of revenue in the quarter.

Most categories of expenses were down as a percentage of revenue, but they were partially offset by higher compensation expense. The main factor being the year-end true-up to the bonus provision. The latter also accounted for the year-over-year increase in the dollar amount. However, it should be noted that for the year, G&A showed a nice improvement decreasing as a percentage of revenue by 100 basis points.

EBITDA at $26.2 million was up over $1 million versus the prior year. And EBITDA breaks down as follows -- solid waste, $19.1 million; FCR, $6.8 million; and other, $300,000, for a total of $26.2 million. Solid waste EBITDA was down from the prior year and margins decreased by 120 basis points. The main factor in the margin decline was fuel, which had a significant impact, over 200 basis points, partially offset by lower operating costs and third-party disposal.

For FCR, another good quarter with EBITDA improving by $600,000 but margins were down 210 basis points to 20.1%. Average selling prices were up again this quarter as were volumes. Tons shipped were up 5.9%. The main factor in the EBITDA increase was the commodity prices. Average prices increased 18.5% net of revenue share and plastic prices were a significant component of the increase. They were up year over year 29%, but only 3.2% from last quarter. The higher purchased materials prices were the main factor in the margin decline.

Depreciation and amortization expense was up $1.5 million year-over-year and landfill amortization accounts for that difference arising mainly from the higher volumes at Worcester, one of our closure projects, as well as at Hakes and the main landfills.

The Hardwick impairment and closing charge. As a result of our normal year-end review of our landfill accounting under FAS 143, we found that we needed to increase our provision for the Hardwick closure capping and post-closure expenses. This resulted from the unexpected outlays made in fiscal 2008, including an interim cap, excessively [leach aid], and the need for wetlands mitigation. Also the general cost increases driven largely by higher oil prices. For example, liner costs are up significantly.

Development project charges. In the fourth quarter, we determined that certain landfill development costs and R&D expenses associated with waste-to-liquid fuel projects needed to be written off.

Moving on to income taxes. As I explained previously, the tax rate continues to be very volatile and difficult to predict because of the low level of pretax income. The tax provision is computed using year-end book and taxable income, so the provision for the quarter is adjusted to end up with the correct amount for the year. Thus the low rate in the quarter. For the full year, the tax provision was a charge, as I had predicted, but the amount was lower than forecast due to the Hardwick impairment charge and the development project write-offs.

Discontinued operations. During the fourth quarter, we terminated operations at MTS, a soils processing operation in Maine, and subsequent to year-end we are selling the Greenville MRF operations. Both of these transactions require discontinued operations treatment, so prior period amounts were restated accordingly. We also trued-up the previously reported sales of Buffalo and Holliston and provided the details in the press release. With these actions we have concluded the divestiture program announced in March 2007.

For the quarter, the net loss from continuing operations amounts to $5.8 million, or $0.23 per common share, including a $1.9 million pretax in Hardwick impairment project development costs, or $0.05 per common share.

Now some debt statistics. The average interest rate for the quarter decreased again to 7.49% including amortization of financing costs. Net of these expenses it was 7.24%. Availability on the revolver at April 30 was $156 million after taking into account $40 million off LCs outstanding and at the end of the quarter hour debt-to-EBITDA ratio calculated for the bank covenants was 4.35 times.

Free cash flow showed a $6.1 million increase for the quarter, an improvement over last year due mainly to lower capital expenditures partially offset by a lower change in working capital. Last year accounts payable and accruals were unusually high, due mainly to high year-end capital accruals. With a lower level of capital expenditures this year, that did not recur plus accounts receivable were up. For the year, free cash flow showed a big improvement coming in at the high-end of our guidance range.

Now a few comments on landfill gas-to-energy plants. We had several questions last quarter about the landfill gas-to-energy projects and their projected contributions, so I would like to provide some general assumptions to help investors with modeling. The capital investment varies based on gas flows, gas quality, and Internet costs. However, the projects we are developing cost roughly $2 million to $2.5 million per megawatt hour to build.

Energy rates vary across the Northeast and we plan to sell power into the day-ahead markets. As a baseline assumption, in New York rates have averaged approximately $60 per megawatt hour for energy sales and $30 for renewable energy credits over the past three years. The operating costs per megawatt hour run from roughly $25 to $27 per megawatt hour and we generally expect up-time for these facilities to be at 95%. And as we mentioned in the press release, by the end of fiscal 2009 we expect to have four facilities operational producing roughly 15 megawatts of clean energy on an annualized basis.

Now a few comments on our 2009 outlook. Our revenue guidance was overstated in the press release. The numbers should be $610 million to $618 million, that is 6-1-8 not 6-2-8 million. As we expect no growth in the regional economy, for the solid waste business we assume that hauling volumes would be flat while landfill volumes will be up on a net basis. Hakes in Ontario will benefit from a slow ramp up due to the new permits, while Colebrook will close in August 2008. So volumes there will decrease, although we will divert such volumes as are practical to our other sites. However, EBITDA will be negatively impacted by about $2 million.

We have been conservative on Southbridge and assumed that the conversion to MSW will not occur in fiscal 2009. Price increases at the hauling and transfer facilities are anticipated in the 2% range, while landfill prices are assumed to remain flat to down slightly. Those price increases exclude fuel surcharges, which are assumed to cover any fuel increase in excess of the cost assumed.

FCR commodity volume is budgeted to be up only slightly year-over-year despite a new 15-year contract in Detroit commencing November 1, as we are losing some lower margin brokered tons. For the budget, prices are expected to be flat on average as we expect the current high market prices to gradually decrease during the first quarter and then hold steady. The end result is that FCR is expected to be flat at the EBITDA line year-over-year with growth coming from the Solid Waste Group. No acquisitions were assumed.

Paul will be describing his cost-saving program momentarily, which is also expected to yield $2 million during the year, and which is incremental to our fiscal 2008 program. For the next year G&A is budgeted to be flat with this year as a percentage of revenue at close to 13%, but it will show the usual seasonal fluctuation. Depreciation and amortization, which increased this year as a percentage of revenue, will decrease slightly to the 13% range. The decrease in amortization at Colebrook resulting from its closure will be partially offset by higher costs at other sites, especially Pine Tree and North Country.

Not included in EBITDA discussed above is the $4 million of EBITDA forecast in our fiscal year 2009 for U.S. GreenFiber. Their net income before tax is forecast to be -$8 million for our fiscal year. Our 50% share will amount, therefore, to a loss of $4 million, little change from the $4.1 million loss reported this year. We have been recording our share of recycled rewards earning on an equity basis so that we reported our share of their loss at $2.1 million in fiscal 2008. As a result of an equity issue in April 2008, our ownership percentages decreased below 20% and, therefore, we are no longer accounting for this investment on an equity basis, but on a cost basis. Thus recycle rewards results will no longer impact our earnings.

Interest expense net has been budgeted largely unchanged for fiscal 2008. While the average debt balance will remain pretty flat over the year, it is expected that interest rates will remain somewhat lower. The income tax rate is expected to show less volatility in 2009, but at the same time, the effective rate is very sensitive to changes in pretax income. For example, if U.S. GreenFiber were to have better results than expected it would drive the rate downwards.

The tax provision for next year will be a charge and the rate is anticipated to run at a high-level, but lower than at that for 2008. In other words, we expect it to be in the 55% to 60% range. Free cash flow is expected to be strongly positive in 2009. Capital expenditures will be similar to last year at $73 million to $79 million and the growth expenditures amounting to $13 million to $17 million will not be at the landfills. The growth expenditures comprised mainly of a recycling facility in Maine, gas-to-energy plants, and a transfer station upgrade to MSW. Operating lease payments are expected to amount to some $6 million next year with the main components being Ontario, Southbridge and Chemung.

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

Thanks, Richard, and good morning everyone. Again we are very pleased with our overall performance in the quarter, despite some obvious economic headwind. We saw the economy in the Northeast remaining quite soft impacting seasonal and permanent collection volumes in the region. Economic data from the late winter and early spring indicates that the New England economy, consistent with the national economy, is not experiencing any real GDP growth.

We felt the brunt of the downturn last year and conditions remain generally stable albeit impacted by rising energy prices. As Richard mentioned, revenue growth for the quarter was up 10.2% year-over-year. Our volume strategies at two landfill closure projects and the Pine Tree landfill impacted solid waste price and volume statistics for the quarter. We expect that these projects will continue to impact price and volume until they are completed. Excluding these impacts, solid waste pricing was up 2.2% year-over-year including the surcharges and solid waste volume was up 1.2% year-over-year.

During the quarter our standardized pricing programs at the hauling companies continued to yield positive results. Our average revenue per new account was up 9% year-over-year while our average revenue per locked account was down 27% year-over-year. We continue to expand our resource optimization selling strategy and leverage our recycling infrastructure, and we were very pleased with the progress we have made specifically with our zerosort program in Massachusetts.

Zerosort is our trademark for single-stream processing. We feel our zerosort brand will differentiate Casella within the market going forward. We were recently awarded the Worcester curbside recycling contract with a July 1 start date. Worcester is the second largest city in New England and we are very pleased with that outcome. We are leveraging the Auburn zerosort facility to gain this specific contract, as well as market the facility and our capabilities to other municipalities within the market.

We have also expanded our standardized pricing programs to our landfills during the fourth quarter. Although landfill price per ton declined year-over-year, as Richard mentioned, our operating income actually improved due to increased volume and improved operating efficiencies. We are reviewing all our customers and contracts within each of our landfills, and validating the price/volume balance. We are pleased with our initial results in the Massachusetts market. As Jon said earlier, we plan to be conservative with this program in light of economic weakness.

The impacts of the construction slowdown and weakness in the rolloff line of business during fiscal year '07 and '08 begin to show limited signs of stability in the fourth quarter. Rolloff pulls were generally flat year-over-year and our May results indicated that volatility and weakness still exists in the Northeast markets as rolloff pulls were down slightly, however, net revenue per pull increased.

The Dodge index total construction awards were off 6.8% in New England in the fourth quarter with pronounced weakness in residential and nonresidential contracts. For fiscal year 2008, our operating costs were $383 million, up 70 basis points as a percent of revenue year-over-year. However, excluding the impact of higher recycling commodity, purchase price materials, and higher diesel and oil costs, operating costs as a percent of revenue were actually down 190 basis points year-over-year for 2008.

We did a very good job managing our controllable expenses across several areas including our direct labor costs as a percent of revenue were 13.5% for 2008, that is down 60 basis points as a percent year-over-year. Gains were achieved through flexing our labor costs consistent with volumes, productivity enhancements, and improved risk management. We also had another excellent year for both our risk management costs and our safety programs, as John mentioned. Workers compensation incidents were down 5% for fiscal year '08 compared to fiscal year '07.

For fiscal year 2008, vehicle and container maintenance costs as a percent of revenue were up 20 basis points year-over-year. Inflation in a number of key areas were partially offset by the implementation of our fleet maintenance software package, the streamlined maintenance operations, as well as improved inventory productivity and our warranty recovery. And also offset by the onboard oil refining system installed late in fiscal year 2008.

Direct fuel and oil expenses were up 50 basis points as a percent of revenue year-over-year. Diesel fuel prices were up significantly in the fourth quarter with prices up about $1.25 per gallon in New England year-over-year. This translated to direct fuel and oil and expenses being up 130 basis points as a percent of revenue for the fourth quarter. Record high diesel prices not only negatively impacted our margins, but also had a negative operating income impact as we were not able to recover all of the increased cost due to the rapidly rising prices along with the impacts of indirect fuel costs passed along by third-party haulers.

We plan to realize about a $2 million savings in operating efficiency during fiscal year '09 by continuing to focus on two primary drivers -- improving our operating margins by introducing standardized processes and programs across our operations, and secondly, improving our operating margins in key high-impact market areas. The continued rollout of standardized processes will leverage our best-performing divisions to drive their best practices across the Company for key expense categories.

In Q4 we identified six high-impact market areas within our hauling operation. We determined that each of these markets had significant operating income upside and we created detailed sales and operations plans to quickly improve our performance. These plans are very tactical in nature and strike a balance between top-line growth and operating efficiencies.

As one example of these sales and operations plans in one high impact market, we had two underperforming operations approximately 25 million -- 25 miles apart with duplicate staffs, duplicate supporting equipment, and with significant operating income upside. The specific actions we have taken to date were to consolidate those two locations into one operation consolidating both operations and streamlining our sales, administrative, customer service, maintenance, and general operations staff.

Using our standardizing pricing programs we have executed one pricing increase this past January and we will have another planned for July 1. We have sold underperforming or non-strategic routes. We are combining low-density and unprofitable routes, reducing our truck hours, and providing the capacity to grow the business in those core geographies and increasing our route densities. We have identified significant container upgrading and fleet conversion opportunities to increase our operating efficiencies. And in summary, in that market a previously unprofitable market, we see becoming operating income positive early in fiscal year 2009.

In summary, we are pleased with our Q4 and 2008 results. We see terrific opportunity in '09 to continue to leverage our highly skilled and dedicated people, and to leverage the sales and operation platforms that we have put in place. And with that, I'll turn it over to Jim.

Thanks, Paul. Good morning. I will cover a short update on several key development projects related to important strategic initiatives underway. And then a quick review of our recycling business platform and U.S. GreenFiber.

First Southbridge, as most of the listeners are probably aware, over the past three years we have been undergoing an intensive landfill development activity. And in the center of that has been a very important project, which has been Southbridge. That has been one of those key programs, primarily because it sits with in a constrained market within Massachusetts. Constrained both resulting in both higher tipping fees, but also generally has been a lot of waste moving out of Massachusetts. And in fact, over the last 15 years this will represent probably the largest single new material MSW addition to that market.

In early June, we received the Southbridge Board of Health's signed decision. This is the local approval in conjunction with the signed host community agreement, which we received in June of 2007. Together these documents indicate local approval for the plans laid out within the application.

The application asks for the ability to reallocate existing tonnage coming into the site, which was 492,000 tons, and to reallocate that into the landfill from the processing facility. And to allow the sourcing of waste outside of the community of Southbridge, to convert or provide for the conversion of the existing waste disposed in the landfill to MSW, and to allow the increase of the capacity received at the landfill to [405,000] tons.

Each of the conditions that are outlined have become a condition of the Board of Health determination and reaching the 405,000 will be tied to a tiered structure. First 180,000 tons tied upon a minor amount approval from the DEP and then subsequent 300,000 tons tied to the completion of the landfill gas energy project, which we will talk about shortly. And then the last tied to one year of operation after the landfill gas operation.

Key points to retain here is that the balance of the permitting, which is DEP permitting, remains to be completed. We expect that that will take roughly about seven to 12 months. The Board of Health decision of course is always subject to local appeal and that appeal period has not run yet and we believe that the permitting path will in fact take approximately six to 12 months.

Positioning this facility to be essentially a contributor to the 2010 fiscal year as opposed to fiscal year 2009. We are very pleased with the development of this project. It is a first in many, many years within the state of Massachusetts. It sits within a waste shed which is constrained, and when fully permitted and realized, should be a key asset and a contributor for the Company on a go-forward basis.

Moving on to other strategic development projects, particularly discussing landfill gas energy. John mentioned that during the quarter we brought the Pine Tree landfill gas-to-energy facility online. We are completing initial operation and expected to be in full operation by Q2 at fiscal year '09 and that it will begin to contribute a meaningful results from that point forward.

We are also under construction at Highland. Our plan has that to be completed by October. We are under construction as well with the four-engine unit in Clinton County. Our plan requires that to be completed by December. Both of those projects are running early to schedule and we would be hopeful that both of them could contribute two to three months early to the plan if the continuation progress is maintained.

Finally, with regards to other projects, we will, as I mentioned, initiate construction at Southbridge this year of a three-engine landfill gas engine configuration. It is tied to our permit as well, but it is a good project for us. It will generate very well needed renewable energy in this market and we would expect that this project could be online by the beginning of 2010 as well. So that at the end of 2009 fiscal year we will have landfill gas energy projects operating in Clinton County, Highland, Ontario, Waste USA, Pine Tree, Southbridge, and we believe that this represents a significant improvement and step in the direction of resource conversion and realization relative to sustainable energy production and recovering resources which previously had just been [applied] to the sky.

In 2010, we believe that there are really good target opportunities for Juniper Ridge, Chemung, and North country. And we will focus on our development activities on those three landfills as well as some third-party landfills that we are working on over the course of the next 12 months.

From a recycling and resource optimization standpoint, both Paul and John mentioned the zerosort technology. That is a trademarked approach. It is our approach to single stream. We would like everyone to understand though that we believe it represents a significant and material improvement over standard single stream technology. There has been a real revolution underway in the last two or three years on processing technology, how it is combined together, what kind of recoveries you can get, specific sorts that can be recovered, the more mechanical operation and substitution of human hands, and a much higher quality.

And all of those attributes have been combined together in what we think is I multi-processing platform of the highest caliber in the country. And we are beginning to roll it out across our existing facilities as well in new opportunities that present themselves. And I think that Detroit, that John mentioned, is a good example of that.

Currently we have updated in the last 12 months with this technology at Auburn and that facility -- Auburn Mass -- and that facility has been operating and has served very nicely. And has been an anchor, as Paul suggested, for the Worcester recycling contract which is an adjacent community. In May we also completed a Camden upgrade and that facility will contribute in the balance of fiscal year '09 year. Philadelphia will be upgraded -- is undergoing an upgrading as I speak and should be completed within the next two or three months.

We have just received approval, including funding, from mid-Connecticut, CRRA, to add a single-stream line there for about $3 million. And we expect that to be completed in late August '08. As well as we are under negotiations and have received verbal indications of a 10-year renewal at the Stratford facility and expect within 90 days to receive approval to convert that to single-stream as well. Ft. Myers we have had a three-year extension completed in the last quarter and, as I mentioned, Detroit we were awarded a new 15-year agreement for that existing facility that has been previously operated by a competitor. And we believe that there is a high opportunity to convert that to single-stream this fall as well.

From an overall performance standpoint, on a volume and price standpoint, the overall Q4 '08 versus Q4 '07 volumes are up 5.9% and pricing was up 18.4%. We do not expect pricing to continue to grow in fiscal year '09 and, as Richard mentioned in his remarks, we have actually forecasted that there could be and should be probably a softening of price as the world oil markets probably begins to bring some quenching to economic activity and appetite for commodities.

From a revenue standpoint, FCR was up 121% quarter-over-quarter. EBITDA growth was 9.9% and we continue to see a business model that is benefiting nicely both from additional volume growth and pricing growth as well as new opportunities to introduce our technology and our public-private partnership model throughout the country.

With that I quickly move to U.S. GreenFiber. Obviously, this is our cellulose insulation business. It's primarily sitting within the housing industry. As everyone is well aware, this is undergoing a material correctional. It is well into its second year and the forecast is that we do not expect to see any improvement in the housing industry until probably mid-'09. Housing starts are forecasted at 925,000. This is off of a high of 2.2 and probably a more normal market of 1.4 to 1.8.

Having said that, it is not surprising the contractor and manufacturing segments are down substantially, but we have seen a very bright spot and that is that we have done an excellent job penetrating the retail market as being one of the sole provider of cellulose insulation for Home Depot, Lowe's and the large boxes.

And during the last few months, we have seen substantial continued growth in that market and we actually expect a year-over-year forecast growth of 8%, despite the fact that the new construction is off. We do not expect a recovery in this overall business until sometime in our fiscal year 2010.

With that, I will turn it back to John for closing remarks and questions.

Thanks, Jim. I think at this point in time, operator, we would like to open it up for questions.

(OPERATOR INSTRUCTIONS). Scott Levine, JPMorgan.

Good morning.

Good morning, Scott. I hear congratulations are in order.

Yes. Thank you. I have a two-day-old at home and she is doing well. Thank you.

That's fabulous.

Thanks. A question with regard to diesel fuel there. Specifically on pricing, obviously it has been going up pretty dramatically. Do you guys see any change either, A, in the comprehensiveness of the recovery mechanism -- it doesn't sound like there is any? But secondly, can we anticipate any knock-on effect in terms of the strength in core pricing or any other aspect of the economy that is impacting your businesses, given the strength in the move up here?

Well, I think clearly we look at the index and how we are processing the surcharge on a quarterly basis in an effort to close any disconnects that we have. So, number one, I think that we continue to look at that to try to improve our capture of the increased costs relative to the surcharge that we have in place.

I think the other overriding issue that we really haven't talked about is we have a lot of activity going on right now, Scott, with hybrids. We have taken delivery on the first hybrid electric truck with International. We expect to be taking delivery on several different technologies over the next few months. You know, it's still in pilot programs, but these trucks from a fuel consumption standpoint average anywhere from 30% to 40% savings from a fuel consumption standpoint, as well as having a significant positive impact in terms of the reduction of greenhouse gases.

So I think you will see us slow our capital expenditures on trucks a bit to try to take advantage of that hybrid technology as it enters into the marketplace. We expect to begin to see more activity on the hybrid side over the course of '09, and obviously I think probably more impact in '10, but certainly begin to see those programs begin to be implemented in '09.

Okay, and in terms of the impact of the increased fuel efficiency on the business kind of end of this year into 2010, (inaudible) what could you say in terms of magnitude?

Well, I really think it is fair to say that it is probably more a 2010 issue in terms of having a material impact. I think the real issue for '09 is establishing what are the technologies that we are going to use, what is the cost of those technologies, and really having an understanding of what the benefit of that is going to be. I think it is probably more a 2010 issue in terms of having a potential significant impact in terms of reduction of cost.

Okay, great.

I think the other thing that we have done though -- I mean I think you have to look at our OPS program in terms of the reduction of our oil consumption. And the other thing that we have established across the business over the last quarter was to put together and put in place an anti-idling policy for all of our vehicles throughout the entire organization. And our sense of that is that it could very well be somewhere between a 10% to 12% savings on an annual basis.

So there are other activities from an operating perspective that are likely -- that Paul is executing with Gary Simmons, our VP of Fleet. The other thing that we have also done is we have put another resource in place from a transportation standpoint. We have brought someone in to really look at and manage the transportation aspect of our business.

One other quick one, I guess on the permitting front. Any update with regard to the environment, specifically in New York? I understand that the permitting environment from landfill perspective has kind of quieted down, maybe post Ontario. Has there been any change or could you comment on the environment today?

No, I don't think so. I think that, again, I think it is our perspective that as we move out into the future I think, from a regulatory standpoint, it is likely to get more and more complicated with regard to landfills and greenhouse gas emissions, etc., etc. So we are moving forward with having a clear understanding of that.

In light of the fact that we are the only waste and recycling company that is part of the EPA Climate Leaders Program and have set our targets, fundamentally, what it means is we understand what those impacts are. And we are putting in place mechanisms to reduce those impacts, which I think from a regulatory standpoint are going to be critically important on a go-forward basis.

Okay, great. Thanks guys.

(OPERATOR INSTRUCTIONS). Eric Prouty, Canaccord Adams.

Great, thanks. Good quarter, guys. Just questions around recycling, please. Could you, if we look at the nice volumes that you guys saw in the recycling business this last quarter, and this would be a rough guesstimate, but any guess what portion of those volumes were coming from increased recycling rates with existing towns and municipalities? And what portion of that increase was represented just by completely new wins and new business? Any way of breaking that out?

You know not specifically, but we can give you certainly some color on it. And certainly we could break that out specifically, if you would like to have that information off-line. Off the top of my head, I mean, I think that a fairly significant portion of the increased volume is really coming from the conversion of the Auburn facility where, in fact, we have doubled the throughput on that existing facility. We took the facility from 3,000 tons a month to 7,000 tons a month.

So a very -- I think a significant portion of the increased volume is coming from existing facilities. And you know, when you look at some of the work that we have done from a municipal standpoint in Massachusetts there are several municipalities that we have taken from relatively little recycling to a 30%/40% recycling rate. So we have had some real successes there in terms of the municipal side, but I think probably, off the top of my head it would be -- a fairly large portion of it would be driven by the Auburn facility.

A little bit more color on that, I would say that where we had existing dual-stream facilities that remained dual-stream we have seen some growth there. But not the kind of growth that we have seen where we have put in single-streams. So the Auburn facility is a great example, or Southbridge where we rolled out single-stream, substantial recoverable material increases where you have made it more convenient for the household.

So if you are trying to think about it at a global level that is why we think the zerosort and single-stream approach is so powerful, because it does make it more convenient. And the practical demonstration of that is volumes turn around very quickly and, as John indicated, Auburn went from 3,000 to 7,000 tons a month.

Great. And just a follow-up to that actually, I mean given those dynamics I guess maybe I am just a little bit puzzled at the no growth for recycling volumes we are looking at for the next fiscal year with some of the new conversions you have coming on, some of the new contracts etc. Is that just being very conservative? I know you are losing other volumes, but it would seem that we would continue to see some volume increases on the recycling side.

Well, I think that we will continue to see but the conversion of facilities does take time. It involves changes in trucks, changes in the carts, and then a conversion of the actual facility. So I think that we would rather be -- in the beginning of this market that's moving we would rather be a little bit cautionary than in overdrive or headlights in terms of that.

Okay, sure. Fair enough. And then just finally, maybe a little bit more. The Wooster contract just hit the local papers a few days ago, that sounds like a good win. Maybe just a little bit more explanation about the process. Was it competitive and what were the big points that allowed you to win the contract over the competition?

I think that clearly it was very competitive. There were a number of folks who were bidding on that opportunity. The single-stream capability that we have in the market clearly through the Auburn facility is a major contributing factor. Our ability to really talk about the technology, to understand what the potential impacts are, is I think a big differentiating factor when you have the facility in the market you are able to show people what you can do. I think that is a real benefit in terms of being successful on an overall basis.

Leone Young, Citigroup.

Hi, good morning. It's [Alina Salura] for Leone. I just had two quick questions. I apologize if you already mentioned what the actual fuel surcharge was in the quarter, if you could just clarify that.

As a percentage of revenue for the whole company, Alina, it was 1.4%.

1.4%. Okay. And then on Southbridge, I believe there is like a 30 day appeal period. I was just wondering if there is any update on that? If there have been any appeals that could possibly further delay getting the final permit?

During the Board of Health hearings, of which there were I think 18 of them, there is an opposition group that was participating in those hearings. And post the signing off the Board of Health determination they have issued a press release they intended to file an appeal. 30 day has not run yet and we have not seen the actual appeal yet other than their press release.

So we believe that they will do it. The points that they have pointed out that they intend to file the appeal on are right now relatively immaterial points associated with the formation of the Board of Health and some procedural issues. But we will have to just deal with that as it comes more apparent.

Would that extend that six to 12-month period you mentioned? Would that be a further delay, if there were the appeal?

No, we are incorporating our thoughtfulness about how that would work out when we talk about having a 2010 contribution from Southbridge.

Okay, great, thank you.

Corey Greendale, First Analysis.

Good morning. First question is about landfill pricing. I think Paul mentioned that landfill pricing, particularly MSW, was down somewhat. Could you just elaborate on that? Is that a mix issue are you actually lowering the gate rate at times for volume price trade-off reasons? And what are you seeing competitive landfills in your markets doing on price?

I think on an overall basis, our landfill pricing was down slightly. It is very slight on a year-over-year basis. We do have mix issues where, from a soils perspective, from a [bunt] we have taken a lot more of that material because that was obviously available in the marketplace. So we do have a mix issue that has also impacted pricing. And then as we have indicated in the past, Cory, we have certainly have the issue related to Pine Tree and the fact that we are going to close at facility in '09, where that is also put pressure on C&D pricing.

So MSW pricing, down slightly. And I think with their mix issue with regard to soils and [BUD material] and certainly the impact, the continuing impact, until we close Pine Tree.

Okay, the second question is on the cost savings. I just want to clarify, Paul, --

I think that it is also fair to say though that, as you look out into '09, we still feel a fairly weak economy. I think the higher prices relative to fuel, a weak economy, I think that is a reality of what we are facing in '09. So I think that there is still a headwind in that regard from an economic perspective.

That is helpful. And on the cost saving question, I just wanted to clarify, Paul, I assume this is true. But the $2 million you outlined, that that is incremental to the $2 million that remains from a rollover effect of '08.

And then secondly, I don't know if this is for John or for Paul, but -- and I feel like I am talking about the Beatles all of a sudden -- but a question about the G&A. Is there any opportunity you think to get -- it sounds like the cost saving opportunities are more on the gross line. Do you think -- do you see any opportunities to get G&A below 13% of revenue at some point?

I think that, as we continue to rethink the model, I think that there is certainly the potential that that is possible. I think that, as we have indicated though, I think that there is, clearly, we need to grow our revenues and we need to grow the business. And at the same time we need to continue to rethink the model, Corey. As we do that and find different ways that we can operate the business, rethink the model, there is I think the potential to continue to lower the SG&A cost.

And the $2 million, Corey, is incremental to last year.

Thank you very much.

Eric Prouty, Canaccord Adams.

Thanks. Back on the recycling, just a question on some of the commodity prices, plastic prices peaking out here. Were you guys ever successful, and to what degree, in the hedging of plastic? And then maybe just an update. With these increased volumes of recyclable material, are you still hedging out most, if not all, of your paper and how you are working in these incremental flows into your hedging program?

Well, all of the fiber markets remain, from a hedging standpoint, quite robust and strong. And so the answer is, yes, as the volume grows, we expect to be able to continue to provide a successful hedging strategy as we have done before with fiber.

You did a highlight from the issue that we have been trying to manage, which is developing an alternative for plastics, particularly from a hedging standpoint. And we have made substantial progress on that, but we are still yet to have anything firm to announce. But we have some ideas that we think we can help to soften and make that a more robust risk exposure as well.

Just a follow-up to the hedging. As you get new material and as old fiber contracts rolloff and new ones are put on, obviously the fiber market has done well over the last few years. Are you seeing higher price levels for new hedging contracts? And could that provide a little tailwind or a little bit of offset if commodity prices weaken a bit?

Well, it is interesting. The forward hedging contracts that are available are indicating that the market will not soften. So to the degree that you believe that they are an indicator, they don't seem to indicate that the market is softening. Of course, we are not hedging for speculation purposes, we are hedging for stability purposes.

So it will serve to do exactly as you just outlined. When we enter into those blend-and-extend contracts, they provide a downside protection to a softening market, were that to occur. And of course, that is exactly our strategy. We want to stabilize our forward earnings for such an event.

So the forward markets seem to be quite strong. They indicate that commodities are staying up. We continue to be able to do those hedges quite easily, but were the market to turn, it will provide that downward comfort.

Just simply put are your new contracts at generally higher price levels than the ones that are rolling off?

Yes.

So we will get a little bit of a lift in commodity prices because of that also?

Well, only -- you see hedging works that, as you make these forward contracts and then the prices go up, you are actually sharing those increases with that market. Actually paying an insurance premiums and you only get it recovered back when the market goes down. So as the commodity markets are going up, we are actually paying out more for those hedging contracts to meet those terms.

And so it doesn't really work the way I think the way it seems like your question kind of outlined. It is only a protection back to the company when the markets -- it's actually a cost if the market continues to grow. But the piece of the cost is less than what the actual market is growing, so net-net it is all right.

Great. Thank you very much.

That does conclude the question-and-answer session today. At this time I would like to turn a call back to our speakers for any additional or closing remarks.

Thank you. In conclusion, I would just like to indicate clearly from our perspective our strategy worked well. We continued to execute against it. 2008 was a terrific year in terms of executing a strategy that we have laid out. We were able to exceed all of our key financial goals, even in the face of a weakening Northeast economy.

And I think we are also proud of all the work that all of our folks have done to rethink the model, to really help us move from value creation in the waste disposal consumption model to value creation from a resource optimization model. I think we are committed to increasing shareholder returns and generating positive free cash flow and are excited about '09 and beyond.

And certainly thank you all for your attention this morning. Our next earnings release and conference call will be in early September when we will record our first-quarter '09 results. Thank you very much, everyone, and have a great day.

And once again that does conclude today's call. We do appreciate your participation. You may disconnect at this time.