Waste Management, Inc. (WM) Q2 2008 Earnings Report, Transcript and Summary

Good morning. My name is Nicole, and I will be your conference operator today. At this time I would like to welcome everyone to the Waste Management Second Quarter 2008 Earnings Release. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions]. I would now like to introduce Mr. Greg Nikkel, Director of Investor Relations. Mr. Nikkel, you may begin your conference.

Thank you, Nicole. Good morning everyone and thank you for joining us. With me this morning are David Steiner, Chief Executive Officer, Larry O'Donnell, President and Chief Operating Officer and Bob Simpson, Senior Vice President and Chief Financial Officer. David will start things off with the summary of the financial results for the quarter and review of the details of our revenue growth including price and volume trends. He will also provide a brief update on our proposed acquisition of Republic Services. Larry, will discuss operating cost and Bob will cover the financial statements. We will conclude with question-and-answers. This call is being recorded and will be available 24 hours a day beginning approximately noon Central Time today until 5 PM on August 12th. To hear replay of the call over the internet access to Waste Management website at wm.com. To hear a telephonic replay of the call dial 800-642-1687 and entering a reservation code 53383277. As is our custom I will remind you that during the course of this presentation, we will be providing estimates, projections and other forward-looking statements within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to a number of risk and uncertainties which are described in detail on Waste Management's Annual Report on Form 10-K for the year ended December 31, 2007, and in the company's press release this morning. These risks and uncertainties could cause actual results to differ materially from those described in the forward-looking statements. During the course of the presentations we will discuss free cash flow which is a non-GAAP financial measure. We will also discuss net income earnings per share, earnings per share growth and income from operation, income from operations as a percent of revenue. Operating expenses and operating expenses as a percent of revenue. All adjusted for certain unusual or non-operational items which are also non-GAAP financial measures. David's, Larry's and Bob's comments on these measures will be on as adjusted basis. We have defined and reconciled these items as part of the earnings press release for the release 8-K filed today which can be found on the company's website at www.wm.com. As I stated earlier, this call will be available for replay for a two week period. Time sensitive information given during the course of today's call, which is occurring on July 29, 2008, may no longer be accurate at the time of the replay. Any redistribution, retransmission or rebroadcast for this call in any form without the expressed written consent of Waste Management is prohibited. Now I will turn the call over to Waste Management, CEO, David Steiner.

Thanks, Greg. Good morning from Houston. I'm pleased to say that we again achieved our primary financial goals of growing earnings, expanding operating margins and generating strong free cash flow to return to our shareholders. This performance demonstrates the strength of our managers and our strategy of disciplined pricing combined with cost control through operational improvement. It's a strategy that's working and we intend to maintain. After adjusting for the items that we noted in today's press release, we earned $0.63 per diluted share in this year's second quarter, with an increase of $0.07 per share or 12.5% compared with the second quarter of 2007. Our results in the second quarter of 2007 included a $0.03 per diluted share benefit from Section 45-K tax credit. Without that benefit 2007 second quarter earnings would have been $0.53 per diluted share. On that basis year-over-year earnings would have grown $0.10 per diluted share or nearly 19% in the second quarter of 2008. We increased income from operations as a percent of revenue year-over-year by 20 basis points to 18.1% in the second quarter of this year. Excluding the impact of rising diesel prices income from operations as a percent of revenue would have expanded by a 100 basis points in the second quarter in line with our expectations for the year. We generated strong cash from operations during the second quarter of 2008. We produced $570 million in net cash from operating activities, a 6% increase when compared with the $537 million we produced in the second quarter of 2007. Turning to our revenue performance, we grew revenues by $131 million or 3.9% in the second quarter of this year. With the most significant contribution coming from yield in our collection business, including our fuel surcharge, and higher recycling commodity prices. Total revenue growth from yield in our waste business was 3.1% in the second quarter. Over the last three years we've averaged over 3% yield, which reflects our long-term commitment to our pricing programs even in a downturn. If you include the benefit of our fuel surcharge program and higher commodity prices; internal revenue growth from yield increased to total of 7% during the second quarter of 2008. Our collection pricing program remained the primary drivers of our earnings growth and margin expansion. As we expected and as we have seen for sometime, our pricing programs again affected our volume but the trade off remains positive. The net result is once again higher income from operations and significant margin expansion in our collection line of business. The income from operations, from our collection business grew by nearly 10% in the second quarter of this year compared with the same period of 2007. And our income from operations margin in our collection business expanded by a 150 basis points. Our combined revenue growth from yield in the industrial, commercial and residential lines of our collection business was 4.1% in the second quarter or 7.3% if we include the effect of our fuel surcharge. In the past, we reported price without the fuel surcharge but the cost of surcharge has become such a significant portion of price and because the price of fuel does not appeared to be abating. We thought it would be useful to include the fuel surcharge in our price information. So when we look at the pricing in the commercial collection line of business with the fuel surcharge, yield in the commercial collection line of business reached 9.3% in the second quarter of this year. On the same basis, the yield components of internal revenue growth in our residential and roll off lines of business were 5.6% and 6.6% respectively. Without the fuel surcharge commercial, residential, and roll off prices increased 5.1%, 4.1% and 2.9% respectively. These levels of revenue growth from higher yield show that we've maintained our pricing discipline and our fuel surcharge discipline in spite a lower volume. Again we intend to maintain that discipline. Turning to the volume side, internal revenue growth from volumes on waste business declined 3.8% in the second quarter of 2008, caused mainly by our pricing programs and economic related decline which occurred primarily in our roll off line of business. The 3.8% rate of decline is the best workday adjusted volume performance we've had since the third quarter of 2006, and as a sign that we're seeing volume decline stabilizes in most areas of our business. Most of the volume loss in the quarter was in the collection side of the business which fell by 5.7%. This is very close to the same level of decline we saw in the first quarter of this year. We estimate that our pricing programs cause roughly 60% of the collection volume loss with remainder due to the economy. The area where we've seen the most economic impact is in our roll off volumes which were down 9% in the quarter. A level comparable to what we've seen in recent quarters. Turning to price and volume on the disposal side of our business. We saw a year-over-year increase in revenues that are landfills for the first time since the first quarter of 2007. This was caused by an increase in special waste volume and higher pricing on municipal solid waste. In the second quarter of this year, the internal revenue growth from yield from municipal solid waste stood at the highest level we've seen in the last two and a half years, which is sign of the continued progress, we are making in our disposable pricing. We expect that momentum to continue, as contracts come up for renewal and as we get better information from our new landfill scale house software [ph]. Volumes improved in our special waste line of business and stabilized in the other disposable lines. We think this is a good indication for the second half of the year. Our recycling operations turned in another strong performance in the second quarter of the year, on the strength of higher recycling commodity prices, and better rebate structure that we've negotiated with our customers. So we're very pleased with our second quarter results. Not only because we accomplished our primary financial goals, but also because it shows the strength of our people and of our business and it validates our strategy to maintain our pricing discipline and control our operating costs. We are committed to the strategy and expect that we will continue to drive our success in the last half of 2008. We're very confident that in the second half of the year, we will meet the upper end of our full year earnings goal and achieve the free cash flow objective that we announced at the beginning of the year. Finally with respect to our proposal to acquire Republic Services, we're working hard to prepare a proposal that will address all of the issues raised by the Republic Board. We have also made our Hart-Scott-Rodino Filing to begin the anti-trust review. So we believe that we can timely close acquisition. The recent actions taken by the Republic's Board could affect the hospital proposal but our proposal is designed to enable us to work co-operatively with Republic. The structure of transaction that would benefit both Republic and Waste Management's stock holders. With that I'll turn the call over to, Larry, who'll review our operating cost results.

Thank you David. And good morning to everyone on the call. Operating expenses in the second quarter of 2008 were $2.181 billion or $89 million higher than in the 2007 quarter. As a percent of revenue this is a 20 basis point increase in our operating cost from 62.3% of revenues to 62.5% of revenue. Excluding the impact of higher recycling commodity and higher diesel fuel prices operating cost in the second quarter of 2008 would have been $46 million lower than they were for the same period last year. Excluding these costs and their associated revenue operating expenses as a percent of revenue would have stood at 61% in the second quarter or a decrease of a 130 basis points compared with the second quarter of last year. I'm pleased with the progress we made in managing our controllable operating cost during the quarter. We accomplished this to our consistent focus on operational excellence and the recovery of our higher cost to our pricing excellence and fuel surcharge programs. Our labor benefits cost improved by about 70 basis points as a percent of revenue during the second quarter of this year. On an absolute dollar basis, we held these costs flat when compared with the second quarter of 2007. We continue to flex down cost as volumes decline, we've reduced our driver hours by about 638,000 an hours in the second quarter of 2008. Compared with the same period of 2007, approximately 62% of this reduction was due to the ability of our field managers that actively flex down our labor cost as volume have declined. The remainder of this reduction in driver hours was due to divestitures. Risk management costs improve nearly 15 basis points as a percent of revenue driven by lower auto and general liability costs. The primary reason for the continued reduction in our risk management cost has been a tremendous improvement in our safety performance. We're very pleased with this achievement which shows that our focus on safety generates value to our shareholders and our employees. As a result of our improved safety performance, our risk management costs were benefited by a $10 million reduction in our reserve for prior year's claims. Our second quarter 2007 results included a similar adjustment. Based on the improvements we continue to make in safety. We expect to receive additional benefits in future quarters. But we can't predict when or to what extent that might happen. This was the 30th consecutive quarter in which we improved our total reportable injury rate which is an OSHA safety measure. We improved our TRIR by over 30% in the second quarter of this year, compared to the same period of 2007, to a TRIR of 3.1%. Over the past several years, a number of our facilities have worked with OSHA to receive OSHA's VPP star certification, which means that these sites are recognized as being among the safest workplaces in the United States. As a result of our tremendous progress in safety, OSHA has invited Waste Management to participate in their Corporate VPP Program. We are the only company in our industry to be invited to participate, we're honored to be recognized in this way by OSHA. Transfer and disposable expenses, which include those cost that our collection companies pay to third party landfills and transport stations. Improve by nearly 80 basis points as a percent of revenue in the second quarter of 2008. The category of other operating costs improved by 45 basis points, caused primarily by a benefit resulting from the sale of surplus real estate. Even without these sales, our cost in this category would still have improved on a year-over-year basis. Our maintenance and repair costs improve by approximately 10 basis points as a percent of revenue in the second quarter of this year, compared to the second quarter last year. Our collection fleet maintenance improvement efforts have helped to offset the higher cost in labor rates, steel parts and in oil based supplies such as lubricants. I should note that maintenance and repair expenses at our Wheelabrator's waste-to-energy facilities increased by $7 million in the second quarter, inline with our operating plans. The maintenance cost at the Wheelabrator's facility can fluctuate from quarter-to-quarter, based on when we schedule outages to perform maintenance and repairs. After adjusting for the Wheelabrator's increase, maintenance costs were flat on a year-over-year basis due to the benefit of our fleet maintenance program, divestitures, and lower volumes. Higher direct diesel fuel costs, caused an increase of over 170 basis points in operating expense as a percent of revenue. Fuel costs rose on average by over $1.50 per gallon in the second quarter of 2008 compared with the second quarter of 2007. These higher diesel fuel prices not only negatively affected our operating margins but they also lowered earnings by approximately $0.015 per share because the fuel surcharge revenue lagged the steep increase of higher fuel costs. The sharp rise in diesel prices, caused direct and indirect fuel costs to increase nearly $93 million in the second quarter which was substantially offset by the $81 million increase in fuel surcharge revenue. So on a net basis, our fuel surcharge revenue was short by $12 million in the quarter. Under normal circumstances, our fuel surcharge program is designed. So that increases in our fuel surcharge revenue keep pace with the increased in our direct and indirect diesel fuel costs. It is when fuel prices spike upwards that our fuel surcharge does not keep pace. We think diesel prices stabilize and even reduce recently. If that continues, we would not expect fuel to have a negative impact on earnings. Due to the higher recycling commodity prices in the second quarter of 2008, our cost of goods sold category increased by over 50 basis points. While this negatively impacted our reported operating expenses, and squeezed our operating margins. The overall impact on our recycling earnings and returns is positive. I'm pleased with our performance in controlling our operating costs. Our continued progress in these areas was due to the efforts of our outstanding employees in the many tools, systems and standard practices that are in use at Waste Management today. We remain committed to our cost control and pricing strategies which we expectedly to continue to operational and financial success. With that I'll turn the call over to, Bob.

Thank you, Larry. SG&A expenses were 10.3% of revenue during the second quarter of 2008 which was in line with our expectations and a 10 basis point increase when compared with the prior year quarter. A year-over-year cost increased $15 million in the second quarter of 2008 compared with the second quarter of 2007. This year-over-year was primarily due to the increases in salaries and wages related to annual merit raises and higher sales and marketing spending. Depreciation and amortization expense for the second quarter of 2008 was down $4 million when compared with the second quarter of 2007. The year-over-year decline is primarily due to the impacts of lower landfill volumes and divestitures. As the percent of revenue, depreciation and amortization expense was 9.1%, compared with 9.6% in the prior year quarter. Interest expense was $105 million in the second quarter of this year, a $27.7 million in decrease from 2007. This decrease is due primarily to the lower interest rate environment and the benefit from terminating interest rate swaps associated with the senior note that we elected to retire in May, 2008. Interest income decreased $7 million year-over-year in the second quarter of this year due to the decrease in our cash and investment balances and the lower interest rate environment. Moving to income taxes, in our press release we noted a $7 million benefits in net income in the second quarter of 2008, compared with a benefit of $24 million in the second quarter of 2007. The second quarter of 2008, our affected tax rate excluding the $7 million benefit was approximately 40%. We expect our effective tax rate for the remainder of the year to continue to be approximately 40%. Total reported debts decreased by $326 million at the end of the quarter, compared with the end of the first quarter of this year, due primarily to the early retirement of the senior notes in May. Our debt to total capital ratio at June 30, 2008 was 59.5%. As, David, noted, we generated strong cash from operations during the second quarter. Net cash from operations was $570 million during the current quarter, a $33 million improvement when compared with the prior year quarter was approximately 6%. Capital expenditures were $273 million during the second quarter of 2008, up from $209 million in the second quarter last year. The increase is primarily due to increased fleet purchases in 2008. Net proceeds from divestitures and sales of assets were $24 million in this year's quarter compared with $147 million in the second quarter of 2007 when we were more active in selling low margin operations. As a result our free cash flow was $321 million for the quarter for the first six months of this year, we generated $683 million of free cash flow. So we are on the way to achieving our full year targets. We repurchased approximately 3.4 million shares for $120 million during the second quarter. We also paid $133 million in cash dividends based on our quarterly dividend of $0.27 per share. In yesterday's closing stock price our dividend payment equates to a yield of 3.1%. Due to the hard work of our 47,000 employees we produced very strong results during the first half of the year as David and Larry indicated, we will continue to pursue our pricing and operational excellence strategy. Consequently, we are confident we will meet the upper end of our EPS guidance and achieve our free cash flow guidance. And finally some news about our Investor Relations area. We have recently named Jim Alderson as Director, Investor Relations for the company. Jim will be taking over for Greg Nikkel, who was recently named as Vice President, Business Development for Waste Management Recycle America. We congratulate, Greg, on his promotion and thank him for his contribution to Investor Relations. Jim was recently the Controller of our California Bay market area and has over 25 years of experience in the industry. He has full strength and quality that we were looking for to represent Waste Management to the Investment community. Jim will be reporting to our Vice President Finance and Treasurer for Cherie Rice who will continue to oversee our Investor Relations program as she has done for the last several years. We will be introducing Jim to you at Investor Meeting during the coming month. For now, Greg will remain your primary contact as we transition responsibility to, Jim. And with, Nicole, let's open the line for questions. Question And Answer

[Operator Instructions]. Your first question comes from the line of Scott Levine with JP. Morgan.

Thanks.

Good morning.

With regards to the results of the quarter, obviously a very sizable beep versus three expectations in hours. Could you characterize whether results were in line, may be ahead of your internal expectations and whether there has been change in your view from a macro standpoint or otherwise for the back half of the year versus what it was at the time you set initial targets for 2008 earlier this year?

Yes, Scott remember last year when we talked a little bit about some of the lumpiness that we see from an accounting point of view in our operating results. And we wanted to point out this quarter that we did have some of that lumpiness. We had the benefit of asset sales, we had the risk management benefit this quarter. And so we had a couple of things that were a little bit lumpy. But even on a pure operational basis, this was clearly an upbeat, up-street expectations and certainly inline with our expectations for the year. When we look at it from a macro point of view, what we see is that the trends are very positive. We've been talking now for a couple of quarters that we are had hoped, that we've seen a drop in volumes and we will start to see them turn positive. And what we've seen this quarter would show us that those trends are turning slightly positive, probably not as positive as we thought they would be at the beginning of the year. But they're turning positive enough that we think it portends a good second half of the year.

Okay. And with regard to fuel surcharges, a move up there sequentially. Any change in customer receptivity or anticipation of any change in customer behavior in that regard?

No, we still continue to see that there's very little push back on the fuel surcharge and on the environmental fee and we're going to continue to make sure that absent any fuel spike, that we recover all of our direct and indirect fuel costs. We don't expect that to have a negative effect in the second half of the year.

Okay, one last one on recycling. Could you quantify the EPS impact in the quarter from the recycle commodities?

Yes this is Larry, Scott. We our recycling operations probably added about a penny in earnings?

Great, thanks guys.

That's year-over-year.

A penny year-over-year.

Yes,and that's consistent with prior quarter.

Got you, great. Thanks.

Your next question comes from the line David Feinberg with Goldman Sachs.

Good morning.

Good morning, David.

Good morning.

And congratulations to Greg, hopefully will keep in touch. I'll ask the question. Can you guys catch us up on Republic let us know what conversations have taken place, where you are in the process? There has been a lot of press releases between the two companies over last two weeks and just wanted to make sure they we are on the same page in terms of what conversations have taken place at what levels and where you are in the process?

Yes, and at this point of time, we still have not heard anything from the Republic other than what you've all seen in the press. So we are hopeful that we can begin those discussions, so that we can put together a transaction that is beneficial to both, their shareholders and to our shareholders.

And may be, it was just a matter of semantic in terms of the Hart-Scott-Rodino review that you were looking for. My understanding is that was primarily to acquire shares in the public market. Is that accurate that has nothing to do with review in terms of your assets as in overlap with Republic is that the correct interpretation?

No, it actually starts that review. The filing actually starts, just that review.

And do you also need a regulatory approval to acquire share, outside of the right offering that you announced yesterday. But do you need a regulatory approval to acquire shares in the public market?

We to go above the $63.1 million that would be correct.

And there was two processes, are one and the same, both the review process and the acquisition of more then $63 million. Correct?

That's correct.

Okay. And then may be turning my attention back to the quarter, you talked about volume being down 3.8%. I apologize if I miss the numbers, you then said collection was all 5.7% and roll off was off 9%, is the difference just really to disposal business or was there something else that was missing that was... exporters numbers was below the overall corporate volumes?

Yes, I mean obviously what we had was the positive volume in the landfill side which offsets. It was negative 5.7 in the collection line of business, overall when you look at our landfill line of business, it was basically flat.

Okay and two more quick house keeping questions and I will get back in the queue. Confirming a free cash flow guidance for the year $1.4 million is there something that you are confirming CapEx of $1.5 billion?

No, the CapEx we think will be a little bit less than that at this point and a back of the press release we will see a reconciliation table, it shows how we get to that. We think based on where we are CapEx will be about a 1.450 billion.

Okay. I apologize that I didn't double check. And in terms, on a last call and call previously, you talked about an M&A program, absent for public. Are you pursuing both processes simultaneously or do you put your $250 million worth of M&A on the back front why you explore RSJ?

No. We haven't put any of those on the back burner. We're going to continuing our pace with our normalized acquisition program. We didn't close any acquisitions in recent time period, but we certainly have not taken or focus off of continuing the second acquisition.

And you make any comments about the pipeline and I'll turn over.

You know the pipeline, we don't generally comment on the pipeline. I would say that the pipeline this year is stronger than its been in the past year, both from the point of view that we're working a little bit harder at it because as you know in the past few years, we've been a little bit more focused on the divestitures and acquisitions and I think you've got sellers that are starting to recognize that their tax rate may go up in the future. And so if they can sell in 2008, they can sell in 2008, they can sell at a lower tax-rate.

Great, thanks. I will turn it over.

Thank you.

Thank you.

Your next question comes from the line of Corey Greendale with First Analysis.

Good morning.

Good morning.

Good morning, Corey.

First of all I just want to ask you on the landfill volume, sounds like you had some benefit from special waste activity and I was wondering if... the projects you are working on are continuing... at prices meant whether the pipeline is such that you expect that benefit to continue into Q3 and Q4?

Yes, Corey. It looks like we've got a pretty good pipeline of special waste projects, we saw that in the second quarter and it looks like the projects that we've got... that we are working on should continue in most of, it should continue in the third quarter with a pretty good pipeline.

Okay, on the broader volumes, you said about 60% of loss was due to your pricing program and I wonder if you could make a broad categorization if the competitive losses are going more towards other public companies or toward privates, or where that volume is going?

Yes, I think, obviously as we look at the reported numbers, we don't see reported numbers for our non-public competition, but I think as we've seen in the past, we are certainly seeing some of that flow over to the non-public competition. But the other thing we think we've seen is that, give the economic conditions and giving the high price of fuel, that those local competitors are really starting to feel the pinch right now. And the good news is what we're starting to see is that in reaction to high fuel, many of them are starting to raise their price. So, given that, we would expect those losses to moderate over in the future.

Okay. And then last quarter, I think you commented that you still are seeing more commercial accounts upsizing service levels and downsizing, but the lines were getting closer together. Have the lines crossed to get the more downsizing and upsizing, or is that trend continuing or where is that at?

No, they have not crossed. We still see more upsizing than downsizing and again it's slightly less than it was last year but it is still more increases in services then that decreases in services and so we think that certainly a positive effect.

Okay. And one last one if I could on the Republic possibility, don't know how much you will comment on this but I was wondering if you are at whatever package you end up putting together, if you would consider if you would include some role for the upper management of Republic and what those role might end up looking like?

Yeah again, we need to have those very discussion, I mean that's exactly the type of thing that we like to sit down with Republic and start to discuss because certainly we're looking to do a transaction with the co-operation of Republic. So I look forward to having those very discussions and finding out what the roles are not only at the highest levels of Republic but at the every level of the employees at Republic.

Great, thanks very and nice job on the quarter.

Thank you.

Your next question comes from the line of Bill Fisher with Raymond James.

Good morning.

Hi Bill.

Yes. Just a question on landfill pricing. I can... today as you mentioned in MSW the third party pricing was up I mat have missed that but you have that what the percentage was?

Remember when we look at our landfill pricing, we try to look at it sort on per ton basis rather than through straight IRG. Now just looking at straight IRG, it's highest that we've seen in some period of time. But when you look at it on per ton basis we continue to see increases in the $7 to $10 range probably closer to the higher end of that range like we have talked about in the past.

Okay. And that would kind of... roughly what percentage kind of increases that?

You know what we're talking about is as we renew contracts and spot rates, we're talking in the 7% to 10% range.

Okay. And then just on the fuel on the landfills I mean you have good mix of landfills that are paid within the city limits and your competitor may be 50 miles away or so. With fuel going up, do you have a surcharge of the landfill on third party customers or can you start raising prices to reflecting that kind of advantage you they have there.

I think you're absolutely right. What we need to make sure we do is that we're going to price on transfer on weight and distance and we're going to make sure that we recover our fuel costs coming out of our transfer stations. So certainly I think you are absolutely correct. That should be a benefit to us.

And is that something on that piece of it. Is that something you are kind of in early stages on given the more recent moves until.

Yes what we do, both at the landfill and at the collection line of business. What we are constantly doing is punching in the numbers that we use to get the proper returns on our assets and fuel is one of those factors. And so we're constantly going ahead and updating our database, obviously when you have fuel spike like this, it lags a little bit and so we need a... I just had a conversation with the head of our sales group Dave Orgman [ph] last week. Let's go through and make sure that all of our cost models are updated for the spike and fuels, so you get the nail right on the head.

Okay great. Thank you.

Your next question comes from the line of Jonathan Ellis with Merrill Lynch.

Thanks, good morning guys.

Good morning.

Good morning.

Why don't you talk a little bit about use of cash; I realize you were retiring a note this quarter, perhaps that creates some skew. But share buybacks were... below that... I think we were originally mauling. I think most investors were anticipating. Can you talk a little bit about -- to what extent the proposed acquisition of Republic may be impacting your plans for share buybacks versus debt pay downs over the next few quarters?

Yes, we can Jonathan... we got some debt coming to us at the end of the year and then we expect to just deal with that in the ordinary course. With respect to share repurchases we are not making any share repurchases at this time. And we'll revisit that as things move forward.

Okay. And, if you can talk a little bit about volumes overall, what I am trying to reconcile here is that, if you look at total volumes, year-over-year change in volumes for the company. They were down in the second quarter, roughly consistent with the pace of year-over-year declines in the first quarter. Then having said that, roll off volumes as you mentioned were pretty consistent with where they were last quarter. And landfill volumes actually improved. So I'm trying to figure out where the incremental weaknesses has come from, given that as I said total year-over-year volume declined were pretty consistent with last quarter?

Yes, I mean, incrementally what you're seeing is in the collection line of business, you're seeing volume down, but you're also seeing a little bit more lost volume on the residential side of business. As you know, the residential side of the business is generally the least profitable for us. And so we continue to call unprofitable accounts out of our residential line of businesses. So you actually saw a little bit more drop off in the residential line this year.

And just to be clear, so the commercial businesses do not really contribute to the increment line losses, it was entirely from the residential?

Yes, it was slightly from the commercial, it was slightly... was certainly commercial was slightly steeper at negative 4.4% than last quarter but the biggest portion would be from the residential line.

Okay, great thank you and just on the pricing side, first of all, can you just quantify what was the impact of environment fees on your IRG from New York in the quarter?

Yeah we had a benefit this quarter of about $15 million from the environmental fees, that's the year-over-year increase and what we got, the grand total that we got this quarter was about $46 million.

Okay great and then just on pricing that related to roll off business, if I have numbers here correct and I know you mentioned roll off pricing was down was of about 2.9% this quarter it was up closer to 4%?

Right.

And I'm wondering is there anything that's going on in terms of mix or other considerations according to the deceleration of roll off pricing?

Yes the difference is slight enough that we certainly don't look at it and say okay, look dig into the details and find out exactly what's causing it. Certainly, we've made it clear to our field management, I think they've certainly understand that we're going to continue to push price. I mean in the quarter where we basically got 3% price and negative 9% volume, we still showed increasing profits in the roll off line of business and so surprise to say the strategy hasn't changed. We're going to continue to push price in every instance. We're going to make sure that when we got basically a tradeoff, but you didn't get 1% price and lose 3% volume and still make more money, raising prices makes senses. And so I certainly don't indicate that this is the beginning of the trend. I certainly believe that it's a anomaly based on just year-over-year pricing.

Okay. Great. And just from me on landfills you mentioned the volumes were flat can you quantify the change in volumes for MSW/CND and special ways?

Yes, for MSW we were down about 3.7% in the quarter, CND down about 9%.Obviously that's a good trend it's still negative but it's a good trend that shows that we think we are coming out of the drop on CND [ph] and on special waste we were actually up about 10.3%.

Okay great. Thanks guys.

Thank you.

Your next question comes from the line of Leone Young with Citi.

Yeah good morning.

Good morning Leone.

Would you be will into give us your response on your revenue guidance on may be not exclusively changing it but trends or perhaps how that compares to your think at the beginning of year?

Yes, obviously Leone when we look at it, we look at in sort of from the pricing volume point of view and when we look at the volume guidance that we get at the begin of the year, the negative 2.5 to 3, the volumes are certainly and slightly than we expected at the beginning of the year but we like the positive trends we're seeing and of those positive trends continue we expected have a very good second half of the year.

Terrific and so if we again look at your confluence in needing the upper end of the guidance, I presume given the strength in the second quarter that really reflect tangs more conservatism as well as the stabbing of share repurchase program, did know whether trend of highlighting that.

I would agree with that

Okay, thank you.

Thank you.

Your next question comes from the line Brian Butler with FBR.

Good morning.

Good morning.

Question just on the third party disposal was an improvement on the margin side, I mean what was driving that?

For the pricing program, the pricing program is the primary driver. Now, obviously, as the landfills incremental cost, we've talked about it all the year that when you have negative volumes, you've got huge big cost there. So you certainly get some benefit by the increased volumes in the landfill from the operating cost point of view. But the primary driver continued to be our pricing program.

Okay. And then just on the Republic acquisition talk. You suggested that you're looking for a kind of a proposal that works best for Waste Management and Republic, I think that is meaning you're less likely to pursue any type of hustle acquisition strategy, is that fair to say?

No, I think it's too early to speculate, Brian, as to what path this will take but we certainly hope that the path it will take is one where we could cooperate to put the best proposal in front of the Republic shareholders as we possibly can.

And last one on the Republic as well. Do you guys currently now own any shares of Republic?

We do not currently now own shares of Republic.

All right great, thanks a lot.

Thank you.

Our final question comes from the line of David Fienberg with Goldman Sachs.

Hi, I'm back in the queue. Some more questions on Republic, can you discuss or talk about your ability or your appetites equity in the transaction previously you only mention this or that?

Yeah again David, what we're trying to do here is to address all of the concerns that have been raised by the Republic Board and obviously we will address those in due course I think it's a little bit early for us to speculate to have that will shape up.

Okay. And question from my high yield team here, any interest or not any interest, would the company consider going to high yield status, with a new proposal or is the investment great one of the tenants that you do?

Yes, we've certainly made a very clear that its our intention investment grade rating.

Few more quick ones. You talked about not having discussions with Republic. Have you had active discussions with the rating agencies?

We have had discussions with the rating agencies.

Okay. And any feed back from them.

Well the problem there is that the rating agencies can't issue an opinion unless they have the consent of both parties to issue that opinion. So we've had discussions with them on what are our intentions are as far as finance in the transactions and plans going forward. But in order for them to fully review the transactions, they just need to get the consent of Republic to that review and so again we're helping that we can work cooperatively to take that issue up the table by allowing them to do their review.

Understood. And last question. Given all the moving parts here, whether its all Republic or Waste bid for Republic. Any evidence of higher attrition through any of the three companies or are you having to work harder to retain people or their opportunities to pick up good talent regardless what happened?

Again, I don't want to speculate on people I think we all are very cognitive of the fact that I beg every company has good people and we all plan to retain them, certainly from our point of view here at Waste Management, we think we have the best people of the industry and we fully expect for everyone of them to be on board with the transaction I talked with virtually, every market area General Manager that would be effected and by the acquisition only about 20 of our 45 would be effected but I talked with virtually all 20 of those, and I would think that the way to characterize it would be excitement to go out and get something done and they certainly think they can get it done quickly without a lot of hiccups and that's what we're going to be focus on doing.

Okay, thank you very much.

Thank you.

There are no further questions at this time, are there any closing remarks?

Yes, thank you Nicole, obviously our second quarter demonstrates our ability to work through a down turn... we're going to stay focused on that during the second half of the year, the volumes have been slightly lower than we expected coming into the year but certainly we see some positive trends and if those good trends continue we expect to have a very good second half of the year. And we look forward to seeing each of you out on the road over the next few months and thank you for joining our call.

Thank you for participating in today's Waste Management second quarter 2008 earnings release. This call will be available for replay beginning at 1'o clock PM Eastern Standard Time today through 11:39 PM Eastern Standard Time on Wednesday August 13th 2008. The conference ID number for the replay is 533383277. Again the conference ID number for the replay is 53383277. The numbers to dial for the replay is 1-800-642-1687 or 706-645-9291. You may now disconnect.