Republic Services, Inc. (RSG) Q3 2009 Earnings Report, Transcript and Summary

Good afternoon and welcome to the third quarter 2009 conference call for investors in Republic Services. Republic Services is traded on the New York Stock Exchange under the symbol RSG. Your host this afternoon is Republic Chairman and CEO, Mr. Jim O’Connor. Today’s call is being recorded, and all participants are in a listen-only mode. There will be a question-and-answer session following Republic’s summary of quarterly earnings. (Operator Instructions) At this time, it is my pleasure to turn the call over to Mr. O’Connor. Good afternoon, Mr. O’Connor. Jim O’Connor: Good afternoon and welcome. I would like to thank all of you for joining us today. This is Jim O’Connor, and I would like to welcome everyone to Republic Services third quarter conference call. Don Slager, our President and Chief Operating Officer; Tod Holmes, our Chief Financial Officer and Ed Lang, our Treasurer, are joining me as we discuss our third quarter performance. I’d like to take a moment to remind everyone that some of the information that we discuss on today’s call contains forward-looking statements, which involve risks and uncertainties and maybe materially different from actual results. Our SEC filings discuss factors that could cause actual results to differ materially from expectations. Additionally, the material that we discuss today is time-sensitive. If in the future, you listen to a rebroadcast or a recording of this conference call, you should be sensitive to the date of the original call, which is November 02, 2009. Please note that this call is the property of Republic Services Incorporated. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Republic Services is strictly prohibited. I am pleased to report that we are raising our 2009 financial guidance for the second time as a result of our greater merger synergies and our ability to adjust our cost structure in a weak economic environment. We continue to utilize our pricing too old to be sure; we are achieving appropriate returns on capital. Financial highlights in the third quarter are, revenue of $2.1 billion, net income adjusted primarily from merger related and debt refinancing expenses was a $149 million or $0.39 per share, adjusted EBITDA margins 110 basis points to 30.9% on a combined basis, the strong performance highlights the ability of our field organization to maintain pricing discipline and implement cost controls, while working through the integration process. Core pricing remains strong at 2.8% for the quarter. This level of increase reflects the impact of lower CPI on price resets for index based contracts. We continue to use our return on investment pricing tool to be sure that all business activity meets our requirements. Volume declined 10.1% in the quarter due to a weak economic condition; particularly the contraction business. Our sequential volume performance in fat and there has been no further deterioration in any lines of business. Year-to-date free cash flow of $493 million or a $1.30 a share, which is a 112% of book earnings. Again, free cash flow is the best measure of measuring the quality of the earnings. Keep in mind that our year-to-date book earnings are negatively impacted by non-cash interest expense of a $109 million and amortization of intangibles of $50 million, again these are results of purchasing accounting and revaluation and the marker-to-market debt adjustments for the Allied debt. Excluding these non-cash charges, our year-to-date book earnings would have been a $1.40 per share or 21% higher than our reported earnings. Our board has also approved $0.19 per share dividend payable to shareholders on January 15th, 2009. During the quarter both Standard & Poor’s and Fitch raised their outlook on Republic’s long term credit rating which recognizes significant debt reduction and the success of the merger integration. We issued $650 million of tenure notes with a coupon of 5.5% and tendered for $325 million of debt maturing in 2010 and 2011. And we will continue to look at liability management opportunities to realize future reductions in interest expense. I also want to provide some information on our integration and divestiture efforts. Through the third quarter of 2009, our integration schedule and subsequent financial savings are running well ahead of plan. On an annual run rate synergies achieved as of 9/30 are approximately $140 million. We have already exceeded our 2009 run rate goal of $125 million, which originally was $100 million. Based on our successful integration process we expect to achieve a $145 million of run rate synergies by the end of 2009, of which $120 million will be realized in 2009. We expect total run rate synergies of $165 to a $175 million by the end of 2010 and our management team will continue to identify further synergy opportunities going into 2011. The systems integration in overlap markets has been complete. We are now focused on realizing operational savings from low density and disposal optimization. Also in the third quarter, we converted the entire company to a single general ledger system. Our IT group has delivered these successful results on schedule and I congratulate them for that effort. We have completed RD, OJ divestiture process, total after tax proceeds were approximately $375 million, all proceeds have been used for debt reduction, year-to-date debt reduction is approximately $650 million. I will now turn the call over to Tod to recap our third quarter earnings.

Thank you, Jim. Well, third quarter 2009 revenue as reported rose approximately 149% to $2.07 billion from $834 million last year. Clearly this increase of $1.24 billion relates to the merger with Allied. Since we are measuring the performance of the operations on a combined company basis, the remainder of my comments assumes the companies were merged on January 1, 2008. The prior year combined company financial data reference in my comments can also be found on our website. On a combined company basis, there was a year-over-year decline in Q3 internal growth of 12.8% and this consists of core price which was a positive 2.8%. We continue to see core price improvements in all lines of business including collection at 3.3% and landfill pricing at 2.2%. Industrial pricing of 2.6% was less than other collection lines because a temporary work had price increases less than the industrial average. Price increases to our index based customers were pressured by lower CPI, which is simply a function of contractual terms. Approximately 50% of our revenues are tied to index based pricing and we will see this phenomenon in the fourth quarter and into 2010. Price increases to other customers remain strong and are relatively consistent with prior quarters. We stated before that the price increase percentage should be measured relative to cost inflation, it’s the spread or difference between the two that drives margin expansion. Since we are experiencing a lower inflationary environment we expect the price increase percentage to be lower than the price increase in prior periods when cost inflation was clearly higher. The key here is that we have not changed our pricing strategy and we will continue to price to improve margins and to earn an appropriate return on our substantial investment. Now, let me talk about revenues which decreased by 1.9%. Commodity prices decreased approximately 32% to an average of $95 per ton in the current year from a $141 per ton in the prior year. Third quarter material recycling facility commodity volume of 437,000 tons reflects approximately a 10% decrease from the prior year. This is a function of the weaker economy. Third quarter average price increased $23 per ton from $72 per ton average in the second quarter of 2009 with prices slightly higher in September than the average for the quarter. Offsetting this sequential improvement in price is relatively weaker volumes than anticipated. Our fuel recovery fees decreased by 3.6% caused a 3.6% decline in revenue rather. This reduction in fuel recovery fees relates to a decrease in related fuel costs, the average price per gallon of diesel fell to $2.60 in the third quarter of 2009 from $4.34 in the third quarter of 2008, or approximately a 40% decline. Current fuel prices are at $2.80 per gallon. Now our volumes were down 10.1%. This is slightly better than the second quarter where the volume loss was 10.3%, and as Jim indicated we are seeing no further deterioration in the business. Residential and commercial volumes experienced low to mid single digit declines. Volume loss was most significant in the industrial and landfill lines of business which experienced high teen year-over-year volume declines, both a reflection of the weak economy. In 2009, the revenues are much flatter quarter-to-quarter as we are not seeing the normal increase in seasonal revenues. In Q4 we expect year-over-year volume declines to lessen as a sharp volume loss in Q4 2008 begins to anniversary out. Now, let me talk about our third quarter year-over-year margins. Similar to internal growth I will discuss the third quarter year-over-year change in EBITDA margin as if the companies had merged on January 1st of 2008. Let me remind you that we have posted the components of our costs on our website. Third quarter 2009 EBITDA margin, excluding divestiture losses of $900,000, restructuring charges of $12.3 million, cost to achieve synergies of $8.9 million was partially offset by remediation recoveries at one of our landfill facility of $8.8 million, and this resulted in a 30.9% combined margin compared to 29.8% in the prior year, again an improvement of 110 basis points. Now, I will talk briefly about some of the significant changes in these costs as a percentage of revenue or what caused these changes. First fuel; Fuel expenses improved by 260 basis points due to a 40% decrease in the cost of diesel. The average price per gallon, as I indicated decreased from $4.34 to $2.60. Partially offsetting the decrease in fuel cost was a decrease in related fuel recovery fee revenue resulting in a net improvement in EBITDA margin of approximately 80 basis points. Second, I will discuss labor disposal costs, maintenance repair and other operating expenses together. All of these costs decreased on an absolute dollar basis but increased as a percentage of revenue. These costs were flexed in the collection business volumes decline but are relatively fixed in the post collection business. Therefore, as post collection revenues decreased as a result of volume loss and commodity revenues decreased as a result of price fluctuations, these costs increased as a percentage of revenue, but again on an absolute dollar basis they were down. Third, transportation and subcontract expenses; the 150 basis point improvement in margin results from synergy related cost reductions related to the redirection of waste to a more efficient disposal network, second, the internalization of national accounts collection work that was historically subcontracted before the merger, third the impact of volume mix and fourth the lower fuel surcharges as a result of lower diesel prices. Now let me talk about our cost of goods sold. A 40 basis point improvement in EBIDTA margin relates to reductions and rebates to customers for volumes delivered to our MERS. Cost of goods sold at our MERS decreased approximately 40% to an average of $28 per ton from $47 per ton in the prior year. Despite this decrease in cost, commodity revenue declines more than outweighed the benefits resulting from this decrease in spread of about $27 a ton. The net impact arising from lower commodity prices was an unfavorable 70 basis point decrease and EBITDA margin. Next I will speak to our risk management cost. The 50 basis point improvement in margin on risk relates to reductions and required reserves and premium expense. These savings are a result of a 24% reduction in the frequency rate of clients, favorable development in claims experienced and the realization of synergy related cost savings for third party premiums and surety. Each quarter Republic requires an actuarial study, and this is a function of the results of that study in the business improvement there. Finally SG&A, SG&A expenses excluding $8.9 million of cost to achieve synergies decreased $23.3 million from the third quarter of 2008. This cost reduction reflects both synergy related and volume related staffing changes, as well as other cost savings initiatives. As a percentage of revenue, SG&A expenses increased 60 basis points. Increases in incentive compensation added 20 basis points of this and the remainder relates to certain fixed cost as a percentage of lower revenue. To bring it all together, Republic has a 110 basis points of margin expansion that can be summarized as follows. Fuel, an increase of 80 basis points, commodity costs a decrease of 70 basis points; divestitures as you will recall were greater mix of landfills which are higher EBITDA margin, that was a decrease of 30 basis points. The realization of synergies had a positive impact of 140 basis points, and finally, our pricing offset by fixed cost on lower volumes caused a decline in EBITDA margin of 10 basis points. Now, let me speak about our depreciation, amortization accretion. This increased by 220 basis points and of this 220 basis point increase, a 130 basis points relates to non-cash expenses associated with purchase accounting evaluations for Allied’s assets and liabilities completed in connection with the merger. Additionally, allied recorded a $5.8 million benefit or 20 basis points in the prior year related to an expansion that was approved in the third quarter of 2008. The remaining 70 basis point variance relates to this fixed cost nature of DDNA relative to lower revenues. Finally, interest expense; the company recorded a non-cash interest expense of $35 million in the third quarter of 2009, and those arises primarily from the amortization of Allied debt that was reported at a significant discount. We also recorded a $31.8 million loss or $0.05 per share related to premiums paid in non-cash write-offs of discounts and fees associated with a completed note refinancing in tender offer. I will now turn the call over to our Treasurer, Ed Lang who is going to further discuss our financing initiatives.

Thanks Tod. During the quarter we executed our first debt offerings since the merger; a tenure note for $650 million with a coupon of 5.5%. This transaction was significantly over subscribed and the rate was lower than the initial price. The proceeds of this offering were used primarily to repay all outstanding bank debt and tender for $325 million of existing 2010 and 2011 debt maturities. We decided to utilize this favorable rate environment to retire our existing debt and reduce future refinancing risk. In addition to extending maturities at a lower coupon we are able to retire a portion of the debt discount associated with merger accounting which is reported as non-cash interest expense. The third quarter financial impact of the premium for the tender offer and the write-off of the related debt discount was a negative $0.05 of EPS. The 2010 EPS benefit associated with lower interest expense and lower debt amortization costs is slightly greater than $0.01. Now, that Republic has a bench mark transaction in the market we can move forward with additional liability management cost savings opportunities. We recently began this process by calling two existing maturities. A $450 million note maturing in 2013 with a coupon on 7% and 7.8% and a convertible note was a coupon of 4.25%. Republic has over $1.1 billion of excess capacity in its bank facility to fund these costs. We will likely execute a new long term debt offering to finance a portion of these debt maturities. The financial impact in the fourth quarter associated with the call premium on the 7 and 7.8 notes and write-off the debt discount on the two offerings will be approximately negative $0.09. The 2010 EPS benefit associated with the fourth quarter refinancing activities will reduce interest expense in debt amortization costs by approximately $0.05. We will continue to look for opportunities to further reduce interest expense. I would like to thank all the individuals in the treasury accounting and finance groups who helped realize significant financial cost synergies. I will now discuss free cash flow. Year-to-date free cash was $493 million, which consisted of cash provided by operating activities of $1.1 billion, less purchases of property and equipment of $543 million, plus proceeds from the sale of property of $23 million. This equals free cash flow of $493 million. After excluding divestiture related tax payments of $74 million and tax effected merger related expenditures of $63 million, year-to-date adjusted free cash flow was $630 million. We plan to increase our 2009 net capital spending to $835 million from $800 million, which Don will discuss later. We are still on track to meet our full year cash flow guidance of $700 million to $725 million. Keep in mind we raised our cash flow guidance last quarter so we are effectively raising our guidance again. Now I will talk about our balance sheet. At September 30th our accounts receivable balance was $928.2 million and our day sales outstanding was 41 days or 26 days net of deferred revenue. Reported debt was approximately $7.1 billion at September 30. During 2009 total debt has been reduced by $647 million and excess credit available under our bank facility is approximately $1.1 billion. As Jim mentioned, both S&P and Fitch upgraded their outlook on the company’s long-term rates. Now I will turn the call over to Don.

Thanks Ed. I would like to start by saying how proud I am of the entire Republic operating team for the improvements they have made in our area on safety. Republic has reduced its worker’s comp in auto liability claims by approximately 24% year-over-year. I wanted to recognize our general managers and safety professionals throughout the organization for their leadership in delivering these excellent results. Your dedication to safety and our strong safety programs will continue to benefit our overall performance. We’ve learned a lot about our people and our operating platform during the business integration in the economic downturn. We have shown the ability to quickly right size our fleet and workforce to meet the changing economic conditions while maintaining a quality work environment. We have adjusted our capital spending and operating expenses while still investing correctly in the business and delivering quality service. We maintained and in some cases improved collection productivity in the phase of declining volumes while improving safety. We consistently priced our services to offset inflation and improved returns while effectively acquiring new business. We’ve done all this amidst integration activities that are delivering synergies ahead of plan. In short, we are successfully uniting two companies into one strong high performing team. Republic is maintaining its focus on the fundamentals of our business and steadily making improvements in our core competencies and business processes. As the economy improves we are well positioned to realize operating leverage. We started our annual planning process; this is very important step in completing the merger integration. Our field organization is developing operating plans using a single budgeting platform for the first time. During 2010 we will continue to see the benefits of adapting best practices, common IT systems and compensation programs that reinforce our focus on return on invested capital and improving free cash flow. We will also continue to appropriately invest in our people and operating assets. As Ed mentioned we are increasing 2009 net capital spending to $835 million, the $35 million increase will be used to accelerate truck purchases in advance of the more costly 2010 engine requirements. We are essentially pre-buying 140 trucks from next year’s fleet plan. Now, I will turn the call back over to Jim. James O’Connor: Thanks Don. Due to our pricing discipline, cost control and integration synergies, we are increasing our earnings per share and synergy guidance for 2009. We are raising adjusted earnings per share guidance to a range of $1.46 to a $1.48 per share before integration costs. Previous guidance was in the range of $1.43 to $1.45 per share. We expect run rate synergies realized by the end of 2009 to be a $145 million. And we are comfortable with our free cash flow guidance of $700 to $725 million including that additional $35 million of increased in net capital spending that Don related to. Before going to question and answers, I would like to comment on the exceptional performance of our entire organization. Don and I have been conducting operating reviews throughout the Republic field’s organizations and continue to be impressed with the rapid integration and the realization of cost synergies and the commitment to improve return on capital. As Don said, we recently kicked off our annual planning process with a meeting in Phoenix with our regional and area management teams. We will have the same strategic focus as we had in previous years, pricing discipline, maintaining a competitive cost structures and realizing integration synergies. We believe this will lead to further improvement margins and returns in 2010; simply put more of the same better. Our success in working as a single team has allowed us to execute the most successful integration in the solid waste industry. So, with that I would like to open the call up to questions. Operator?

(Operator Instructions) Your first question comes from Hamzah Mazari - Credit Suisse.

Just a question on your Q4 guidance; when you are back into it, it looks like its $0.31 to $0.33. I am just curious what the delta between the low end and the high end of your guidance is. Volumes are running flat sequentially. So is that delta related to a pricing on the CPI side or is there something on the cost side. Any color you can add there? Jim O’Connor: Well, I think that you know the company is doing an excellent job on the cost side. There certainly is the CPI phenomenon that we’re seeing here beginning in the second half of this year will carry into next year. Again, Republic doesn’t give quarterly guidance, obviously when you get to the third quarter with our annual guidance people kind of back into it and compare it to their results. I would say that we have the opportunity again to bring the cost and maybe a little bit better than what is expected. Remember that there is seasonality in certain lines of business such is the residential collection where you get particularly up in the Midwest and north where you get a lot of the yard clean up and much heavier weights and costs associated with those lines of business. So on balance I think we feel pretty positive about the fourth quarter and do you want anything here?

No, I think we feel very good about the year. We continue to escalate and give increased guidance on earnings as we have got more clarity, and again, I think I go back to some of the comments that Don made in our opening comments as to focus of the organization, improving the class structure, keeping in mind that as we have seen the economy deteriorate there has been a significant effort by the field organization to continue to stay on pace with ‘08 productivity which has been a significant contributor to our success this year. So, all in all I think we’ve got a great year.

Then just a follow up question, as you look across your portfolio, how much of your customer base would you say is mispriced, and by that I just mean how much of an opportunity do you have to prune low margin business from your portfolio. Is there any long hanging fruit there or is that process sort of on going, how should we be thinking about that?

Hi Hamzah, this is Don. We have been at this pricing thing pretty steadily, now for the last three or four years as you know, and I think we have really been through the portfolio, I don’t think there is much left. There maybe a customer too that was under a long term contract that we got to sort of terminate out or renegotiate but there is not a great deal of loss left in the portfolio.

Your next question comes from Scott Levine - JP Morgan.

On disposal pricing, look like the number was you think it’s a 2.2%. You said you are seeing some continued discipline in the marketplace there. What are your expectations there? Going forward are there any mixed issues in the quarter. Jim O’Connor: Well, I mean I think part of our landfill and disposal pricing is indexed price like a lot of the rest of our business. So, we are seeing some pressure come back in certain markets, we have seen Huston, we have seen Mecklenburg County which is Charlotte we have seen Los Angeles come in with flat to negative CPI adjustments. So those are putting some pressure on. But all in all the intensity of the review by the fields organization on disposal prices and our commitment to continually move it up is still there.

Yes, if I could add to that, remember too Scott, the mix in that business, what we called the open market volume at landfills that volume is not under our contract that limits our pricing, the CPI that open market volume that has decreased with the economy. So when we are telling you that we have seen 18% reductions in our roll up business, those over market customers that come to our landfills have seen those kinds of reductions as well. So when you add to the whole mix issue we have had fewer tons to price in those landfills as well. So that all kind of comes out in the math.

Also, we saw that you guys recently sold Miami Data operations to a services that was not a required divesture, would you guys consider or you contemplating selling other markets voluntarily. Jim O’Connor: Well, I mean we are always reviewing our portfolios of business. In the case of Miami, we looked at our ability to further integrate the business with disposal and really didn’t see anything in the near term or the intermediate term. So, we got a very good deal from Waste Services and are able to integrate it and take advantage of their market integration. So, the rest of our markets in Florida have municipal based disposal and we still feel very high on those. But again, as these two companies continue to come together we are going to continue to look at the returns that each of the marketplaces are giving us and we’ve got well over a 100 to a 150 markets that we are reviewing right now. So, we see that opportunity to improve or we see an opportunity to do an exchange or a divestiture, we will take advantage of those, but right now we feel really good about the portfolio.

I think if you take Miami, again, Dade County is really a separate market than the greater Miami to Jim’s point. I think we would probably get solid number four in the market place. And in most of the markets we are in we are at one or at number two, and so we just had a weaker position to start.

Your next question comes from Michael Hoffman - WSI.

On the price side, having extraordinarily low inflation across the whole business model, so can we frame price with regards to the real prices as opposed to nominal and whether you are seeing any improvements going forward with the spread, so as you are coming out of 2009 going into 2010 do you actually see a better real price relative to 2009, so that’s part of the why margins should continue to improve and cash flow improves. Jim O’Connor: Well yes, I mean I think it kind of goes Michael with some of the opening comments that I think each of us made here that we are still looking at the spread between core pricing and inflation, and spread is still well in excess of a 100 basis points which should be a contributor to margin expansion for us. So, I don’t see any reason why we wouldn’t continue to see that and I think when we get ready to give guidance for 2010 you will see that we’ll be giving guidance for a margin expansion.

Okay. This is not my second question; I just want to make sure I understood you correctly. You are still expecting the spread to be in place and improve regardless of what the inflation environment is.

Yes, and if you do the math we’ve got about half of our revenue is the index price. So if you think CPI pricing is going to go down by 200 basis points that’s a net impact to our price of 100 basis points, math is pretty simple. Jim O’Connor: Yes. Again, we look at the margin expansion that we spoke to and that we have achieved somewhere in that 100 basis point range we feel very good about that.

Then 2010 expiration of cap gains taxes and I get that you are in the process of integrating two companies coming up in the anniversary of that but can you talk about the acquisition environment for you and whether those are opportunity to take advantage of a lot of businesses that may chose itself because of capturing capital gain at a lower rate in 2010 and what’s your position compete for that? Jim O’Connor: I guess we’ve not looked at our business portfolio on the basis of how the federal government sets the tax rates, we really look at the integration benefits to the acquisition whether it’s to latch on Collection Company or filling in for a void that we have in terms of disposal capacity. So, we are going to take advantage of those. If there is not any reason, we have got plenty of cash flow to do that. I mean obviously we are committed to delevering the company. But we are not going to pass up a good opportunity in a particular market to fill out the integration process. So, as those become available we are going to review those, and if we don’t look like we are participating for the most part we usually are, it’s just that we can’t meet the seller’s expectations.

Your next question comes from Jonathan Ellis - Bank of America.

I wanted to just first of all talk about; you mentioned that 50% of revenue is tied to some form of index. But can you give us a sense when that how much of that 50% of revenues is tied to CPI and or other indices on more of a real time basis versus more lag, and really what I am getting at is, how much of an incremental, assuming that CPI remains kind of in the current run rate, how much of an incremental downside of pressure could there be as you move into 2010 and some of those contracts begin to reset. Jim O’Connor: Well, again, we’ve looked at it and the math again is pretty simple. I mean if we are doing somewhere between 3% and 3.5% price on what was an inflationary environment that was probably 2.5% or something like that, and you think it’s going to go to 1% or maybe less than that. It could have a 100 basis point impact on our price year-over-year from -- actually between 75 and 100 basis points ‘09 to ‘10, and again it’s a functional what’s going on with CPI, it’s a function obviously as you are alluding to of the contracts themselves and when they reset, but we are starting to see them reset here in this third quarter and they will continue to reset all the way through probably the third quarter of next quarter.

Okay. So on more of a rolling basis than opposed to a step function change in one quarter next year perhaps. Jim O’Connor: Right. It’s going to come in on a rolling basis, you will see a series steps I guess is a better way to put it.

Then my second question is just in light of the formula I guess irrespective of your contracts. Any thoughts on opportunities to potentially raise either existing fees or introduce additional fees or introduce additional fees, I know one of your large competitors has put an administrative fee in place with some success, any thoughts on your fee structure generally speaking to complement what you are doing from a pricing standpoint? Jim O’Connor: I don’t think so Jonathan, I think we have evaluated the fee structures that we have in place today. We feel that they are appropriate today. But I mean again as the business environment changes and as it relates to fees or administration fees, we will obviously look at those and evaluate those at the appropriate time, but right now we feel real good about where we are at.

Okay. Just to be clear, you do not have an administrative fee in place right now. Jim O’Connor: That’s correct. Let’s clear that up okay, just because I know we are talking over each other here. We do have in certain markets where we do have administrative fees in place, they are not true to a great degree, and they are not necessarily through out the entire organization nor do we plan at this particular time to standardize those administrative fees.

Your next question comes from Corey Greendale - First Analysis

I believe, if I heard you correctly Tod, in your comments you said something about recycling volumes been weaker than expected, could you just put that in context with the other comments about volumes basically being stable and trending as expected in the waste part of the business.

I would say, what we saw actually was a step up sequentially from the first quarter to the second quarter in our materials recycling facility volumes, and I think we are hopeful that they were going to continue to move up. They probably went up by about 7% or 8%, and actually what we saw I think is as the price moved up the volumes came back a little bit. So our third quarter volumes were probably more in line with our first quarter volumes. Now, some of that might be a mix issue with the mills, I think I have just been looking at our hedging strategy and one of the things that we are hearing is that there are tax incentives associated with virgin fiber, which maybe would be set to expire later this year, and so that maybe a driver. So it could be a short phenomenon, it should be just the mills in China ramping up inventory for these holiday selling season and maybe starting to back off a little later in the third quarter.

Okay and my follow question is about the landfill pricing. I think there have been at least some instances of municipal or county sites raising their price more as a source of revenue, is that something you are seeing? Are you seeing it’s any great degree and do you think that could help support maybe greater landfill pricing in some markets than that would offset some of the lower CPI and other markets?

I will think we have seen than to any degree Corey, we have seen a few examples of it that continues that certainly helps the pricing environment, but I don’t think it’s necessarily, I think it’s also to really say that’s the new trend in municipal pricing. Jim O’Connor: I don’t know if it would help us anyways where we have that situation. I think if municipality or the unit of government has a disposing facility, for the most part when we recognize that as a source of income, additional income, I think they will probably look at like at it like they do their other fee structures in light of tax basis environment.

Your next question comes from Richard Skidmore - Goldman Sachs.

Just a question for you Jim, you now have the Allied waste business for nearly a year, just interested in hearing what your thoughts are in terms of the top one or two best surprises, if you will, and what are the maybe on or two biggest concerns that you have now as you have this business now for a year? Jim O’Connor: It’s not really surprising to me because I think when we actually were in preliminary discussions, we realized the strength of both organizations people, and we ask that human element, I guess, I would refer to it as, that’s probably the biggest basset that we have. It’s the reason that we have been able to put such a great integration plan together, and execute against them, and while I know you probably just use these words somewhat loosely is that since I have had it it’s really, this was a merger of equals more so and if think what you look at is that both companies brought significant amount to the table. So I guess what I really am on to street talking to individual investors and they ask me this question really the integration process has far exceeded my highest expectations and a lot of that is due to the people’s efforts, the quality of the people and the planning process, and then our ability to execute against it.

Then just following up on that a little bit with regards to the synergy target for 2010, based on the commentary it sounds like you are expecting about $20 million incremental synergy benefit in ‘10 versus ‘09, is there a reason that that wouldn’t be a bigger number given the overall cost structure of the business.

Well I think it will probably be a little bit bigger than that. Again, in terms of total synergies while we originally note that $150 million we are looking more towards $165 to $175 and we think that in this calendar year in terms of absolute dollars realized we should get something in the range of about $120 million. So, the difference being the $120 and $165 to $175 not all of that will come next year, some of it will obviously be a roll over into 2011 depending on the timing, but I would say that we should be getting maybe something in the $30, $35 million in 2010.

Then the cost structure and the cost of the team. Jim O’Connor: Right, cost of attaining also drop off in 2010.

Thank you. That is all the time we have for questions today. I will now turn the call back to Mr. O’Connor for his closing remarks. Jim O’Connor: Thank you, operator. In summary, I am very pleased with our third quarter results and will continue to stay focused on achieving appropriate return on capital through improved pricing, maintaining labor productivity through route and disposal optimization. We continue to meet and exceed expectations while realizing merger synergies, generating higher levels of free cash flow performance, reinvesting in our people and business platforms to ensure customer service, and a high quality and safe work environment, continuing to reduce debt, improving our credit profile and taking advantage of refinancing opportunities to reduce interest expense. I would like to thank our field organization for their continued focus and exceeding financial targets and integrating our national operating platform. I would like to remind everyone that a recording of this call is available through November 16th, by 203-369-0795. Additionally, I want to point out that our SEC fillings and a discussion of business activities along with the recording of this call are available on Republic’s website at www.republicservices.com. Thank you for spending time with us today and have a great evening.

Ladies and gentlemen, this concludes the Republic Services conference call for today. Thank you for participating you may now disconnect.